If you think I'm pessimistic about the mortgage crisis....

I can't hold a candle to Jim Rogers, George Soros's former partner, who now manages commodities funds. According to a Reuters report datelined tomorrow from Moscow:

“You can’t believe how bad it’s going to get before it gets any better,” the prominent U.S. fund manager told Reuters by telephone from New York.

“It’s going to be a disaster for many people who don’t have a clue about what happens when a real estate bubble pops.

“It is going to be a huge mess,” said Rogers, who has put his $15 million belle epoque mansion on Manhattan’s Upper West Side on the market and is planning to move to Asia.
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Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

“Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it’ll be worse because we haven’t had this kind of speculative buying in U.S. history,” Rogers said.

“When markets turn from bubble to reality, a lot of people get burned.”

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

“When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess,” he said.

“Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

“I’ve sold out of emerging markets except for China,” said Rogers, long a prominent China bull.
...
“This is the end of the liquidity party,” said Rogers. “Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse.”

Your guess is as good as mine whether things will come to that dire an end. But it ain't looking good.

And on it goes...real earnings down

If life feels like it's getting harder, it is...for most of us. From the current BLS release on real earnings:

REAL EARNINGS IN FEBRUARY 2007
Real average weekly earnings fell by 0.3 percent from January to February after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.4 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset
by a 0.4 percent rise in average hourly earnings.

That mortgage default story is looking a whole lot like a snowball

The mortgage default story (see here and here for past D4D stories) gets bigger by the hour. The way the stories keep coming, and spreading from one issue to another, looks a lot like the early part of a snowball rolling quickly down a steep hill.

This afternoon's news included the most recent quarterly survey from the Mortgage Bankers Association which shows:

A record number of homeowners entered foreclosure at the end of last year and more are making late mortgage payments, especially those with high-risk, sub-prime and government-financed loans...

...4.95% of average mortgage loans had late payments, compared to 4.67% the previous quarter and 4.7% a year before. It was the worst showing since spring 2003.

The fraction of mortgages entering foreclosure during the fourth quarter of 2006 climbed to 0.54%, the highest since the association started reporting in 1972. The previous high of 0.50% occurred in the second quarter of 2002 as the country was recovering from a recession....
...Late payments for FHA loans reached a historical high of 13.46% during the fourth quarter last year, up from 12.8% the previous quarter and 13.18% a year before.

And things continue to unravel in the "sub prime" market. In one report:

A board member at battered subprime lender New Century Financial Corp. (NEWC.PK: Quote, Profile , Research) last month sold $2.75 million worth of stock amid a 36 percent plunge in the company's share price, U.S. regulatory filings show.

The director, Michael Sachs, said he was not aware the shares were being sold until after the Feb. 8 transaction was completed, according to a filing with the Securities and Exchange Commission. Since then, lenders have stopped providing funding to New Century, pushing the company toward bankruptcy.

The Feb. 8 sale of 140,000 New Century shares on Sachs' behalf happened on the day after the subprime lender said it found accounting problems and would restate financial results....
The New York Stock Exchange on Monday suspended trading in New Century shares.

Another mortgage lender also publicly announced its troubles, . Accredited Home Lenders, "once considered by analysts as one of the strongest of the sub-prime lenders," now needs to raise serious cash to satisfy

its Wall Street partners [who] have required it to supply $190 million in new capital this year in return for continuing to provide funds for it to lend.

Accredited said it no longer meets the net income requirement its lenders have demanded and can offer no assurance that they will continue to support it. The firm has been struggling to digest its purchase last year of Los Angeles-based sub-prime lender Aames Investment Corp. and has said it may need to record some unexpected expenses as a result of that deal.

Yesterday, Bloomberg reported that:

Mortgage defaults may climb to $225 billion over the next two years compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc.

Another Bloomberg report offered up the troubling possibility that:

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.
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Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year.
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New Century Financial Corp., the second-largest subprime lender, said today it ran out of cash to pay back creditors who are demanding their money now. The Irvine, California-based company has lost 90 percent of its market value this year and stopped making new subprime loans, prompting speculation it will seek bankruptcy protection. New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive.
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Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year.
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Job Cuts

By the end of this year, job cuts at companies including Benton Harbor, Michigan-based Whirlpool Corp., Masco Corp. of Taylor, Michigan, and St. Louis-based Emerson Electric Co. may exceed the fallout from the 1991 housing slump, said Paul Puryear, managing director at St. Petersburg, Florida-based Raymond James & Associates. The Bureau of Labor Statistics doesn't give data for housing-related job losses.
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Fraud `Pervasive and Growing'

The Federal Bureau of Investigation says mortgage fraud is "pervasive and growing" and the incidence of such fraud has almost doubled in the past three years.

Last in this parade of actual and potential miseries, three days ago the NY Times reported in a large headline that "Troubles Hit Real Estate at High End." The NYT story includes the info that:

Until now, deep-pocketed Wall Street tycoons and foreign investors benefiting from a weak dollar seemed to be holding up the luxury real estate market even as the low-end fractured. But there are signs that some high-end real estate developers are also being hit by the slowdown.

How's that for bad, worse, and worst news?

Bureau of Labor Statistics Feb. report on jobs & unemployment--what it says and what it ignores

The Bureau of Labor Statistics (BLS) is the agency that issues the monthly reports on jobs, employment & unemployment, wages, and a host of other information on our collective economic health.

In keeping with the cheerleader mentality that views public confidence as more important than the reality on which the confidence is based, the BLS issued its report on February employment, and mainstream publications like the NY Times published stories based on various pieces of that report.

From the report itself (reformatted):

Month to month change for Jan '07 to Feb '07 for:

Civilian Labor force...............-190,000

Employment..........................-38,000

Unemployment.......................-152,000

Not in labor force.................+374,000

So almost 400,000 additional people moved to the category of not in the labor force, while almost 200,000 left the category of in the Civilian Labor Force. Those two numbers alone would indicate that the reported "drop" in unemployment % (from 4.6 to 4.6) is likely to be misleading. Unemployment % is calculated as number of unemployed divided by number in the labor force. Absent the 374,000 who left the labor force, the denominator of the unemployment % calculation would have been larger.

Is it large enough to account for the entire .1% drop in unemployment rate? I'm not sure, but I do know how to use a calculator to see how these civilian labor force changes change some things.

In Feb, there were 6,685,000 unemployed, from a civilian labor force of 153,784,000, or 4.347%

Add back in the 374,000 who left the labor force, and would presumably be unemployed (add the 374,000 to both the number of unemployed and the civilian labor force) and the numbers are:

7,059,000 unemployed out of 154,158,000, or 4.579%.

4.579 minus 4.347 is a reduction of .232%.

Another way of looking at this is that the January figure of not in the labor force of 77,676,000 increased by .481% to get to the Feb total of 78,050,000. That's an increase of almost half of one percent.

None of this is even mentioned in the analytical text accompanying the tables. Not even mentioned.

Compounding the problem, the NY Times report headline emphasizes three things:

1. More finding work in U.S.

2. Jobless rate off (down).

3. 97,000 added to payrolls

An accompanying chart is captioned "Job Growth Remained Healthy in the United States."

The rather odd reporting continues in the Times, which pairs the U.S. economic story with one on Europe, headlined "Jobs Go Begging in Europe.", This is accompanied by a chart which is captioned "Even in Europe, Skilled Labor is Hard to Find" but the chart of the % of European companies estimating that labor availability is limiting their production does not really show any such increase in labor scarcity. It shows the % of companies reporting labor shortages to be roughly the same as in the beginning of 2000 and the end of 2001. Only when compared to 2002-2005 is there an increase in labor scarcity, a fact explained by the drop in labor scarcity from 2002-2005.

The statement of the BLS Deputy Commissioner, which is issued at the same time as the Feb stats, also contributes to the "good news" spin. It says:

"Payroll employment was up by 97,000 over the month, following gains of 226,000 in December and 146,000 in January, as revised." So we've got a "new jobs" 3-month trend line of 226,000 dropping to 146,000 dropping to 97,000. Yet the NYT says "More finding work" and "Job Growth Remained Healthy."

So, unless I'm really missing something here, could someone from the mainstream business press explain to me exactly where the good news was in this monthly report?

Letting Tax Lawyers Write the Tax Rules is Like....Business as Usual for This Crowd

I really thought this might be a joke internet story, until I bought today's NY Times and discovered this piece:

I.R.S. Letting Tax Lawyers Write Rules
By DAVID CAY JOHNSTON
The Internal Revenue Service is asking tax lawyers and accountants who create tax shelters and exploit loopholes to take the lead in writing some of its new tax rules.

The pilot project represents a further expansion of the increasingly common federal government practice of asking outsiders to do more of its work, prompting academics and other critics to complain that the government is going too far.

They worry that having private lawyers and accountants draft tax rules could allow them to subtly skew them in favor of their clients.

“It’s not the fox guarding the hen house; it’s the fox designing the hen house,” said Paul C. Light, a professor of political science at New York University, who studies the federal work force.

Donald L. Korb, the I.R.S. general counsel, defended the plan, saying in an interview that he believed that the pilot project was “not changing this process one iota.”

“We are still getting comments; we are still having hearings,” he said, and I.R.S. lawyers will still review any new rules before they are final.

I love the idiotic "I.R.S. lawyers will still review any new rules before they are final." Yes, I'm sure they will make an effort to do that. But they will be reviewing complicated rules, each of which will affect multiple other rules, and they will be at one hell of a disadvantage in finding any potential disasters tucked away in this mass of barely readable stuff.

Which is a far cry from having the IRS guys write the original proposal, giving them a much firmer grip on what the rules intend to do, and letting the tax shelter guys poke around and criticize. And if you don't think that's a hell of a big difference, just wait until the tax lawyers have written a few new rules and see what the consequences are to the wealthier end of the American spectrum (not to mention the consequences to the public treasury).

But what the hell, this is Bushland Uber Alles, and business as usual, all in one. This is no worse than letting Securities firms write SEC rules, or having student loan companies write new student loan rules, or having energy companies write new energy and pollution rules, and so on. Which has been going on some time now.

And look at how well that has gone.

Mortgage and consumer debt totals; the numbers boggle the brain

Just so you know, here are some figures from the Feb., 2007 Statistical Supplement to the Federal Reserve Bulletin:

1. Total U.S. Mortgage Debt Outstanding (Table 1.54), in millions of dollars

2002-------8,367,310
2003-------9,374,889
2004------10,680,490
2005------12,148,740
2006**----13,033,520
**--Third Quarter

Now remember, those figures are in millions. So the 2006 figure is 13.033 trillion dollars. And the 2006 figure is a full 55.77% higher than the 2002 figure.

2. Total Outstanding Consumer Credit (Table 1.55)

2003-----2,087,784,000,000
2004-----2,202,425,000,000
2005-----2,295,558,000,000
2006**---2,380,924,000,000
**End of October

That's an increase of almost $300 billion from 2003 to Oct. of 2006. And the total in Oct. of 2006, $2.382 trillion, works out to $7,936 for every single one of the U.S.'s estimated 300,000,000 citizens.

Credit card companies squirming before Congress

Another tangible benefit of Congress being in Democratic hands: the Senate Homeland Security and Governmental Affairs' investigative subcommittee spent part of today making the heads of three huge credit card companies squirm with stories and questions about how they operate.

For some reason, they "operate" in a way that makes most consumers squirm and poor. It's nice to see the tables turned if only for a little, public, while. From an AP story in the Raleigh News & Observer:

Executives of three major banks defended their credit card practices as responsible and responsive to consumers' needs in testimony at the hearing of the Senate Homeland Security and Governmental Affairs' investigative subcommittee. Those from Citigroup Inc. and Chase Bank USA said their companies were eliminating some practices - including the one that hit Wesley Wannemacher of Lima, Ohio, with over-limit fees on his Chase card account 47 times although he went over his credit limit only three times.

The interest charges and fees on Wannemacher's account more than tripled his debt despite his having made payments averaging $1,000 a year over six years, noted Sen. Carl Levin, D-Mich., the subcommittee's chairman.
...
Wannemacher used a new Chase card in 2001 and 2002 to pay for expenses mostly related to his wedding. He had $3,200 in purchases, interest charges of $4,900, 47 over-limit charges totaling $1,500, late fees of $1,100, for total charges of $10,700 as of February. He paid $6,300, leaving a $4,400 balance - which Chase agreed to waive after he contacted the subcommittee staff.

"Debt seems to invoke a feeling of hopelessness unlike any other problem I've encountered," Wannemacher testified at the hearing. "When a debtor calls you on the phone and you make a minimum payment, you know that you've made no real progress and that in a month, they will be calling again."

Sen. Norm Coleman of Minnesota, the panel's senior Republican, said high interest rates on credit cards, "hefty fees and crippling penalties impede more and more hard-working families from pursuing their American dream."

The problem is worsened by the "impenetrable" language of credit card disclosures provided to consumers, he said.

While the credit card practices in question are legal, Levin is threatening possible legislation to outlaw them as a spur to the banking industry for voluntary changes.

Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd, D-Conn., said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted.
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Citigroup, the nation's largest financial institution, announced last week that it was eliminating the practice of so-called universal default - raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would eliminate some types of interest rate increases that have been criticized.

Isn't it odd how the Republicans, loudly proclaiming their "family values," managed to ignore this credit card insanity, and the Democrats, reviled by conservatives for their lack of family values, are actually trying to make it a little bit easier for families to survive economically?

Guess it's the difference between viewing "family values" as an abstract philosophical and political issue related to maintaining the place of nuclear family units in the social structure of the world, and viewing "family values" as those real world values that help real world families survive in the real world, regardless of their nuclearity (if it ain't a word, it should be).
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