Sweet Orange

According to Pulitzer Prize-winning columnist Thomas Friedman, one of the main problems facing the U.S. is an “I’ll-Be-Gone, You’ll-Be-Gone” attitude about our economy–and the environment. For example, he states that we have been using the same unsustainable accounting practices for both: We have been underpricing risk, privatizing gains and socializing losses, and this is why Bear Stearns and the polar bear are becoming extinct at the same time.

As Friedman sees it, the root of this problem isn’t solely with current government policies:

“We don’t just need better government, we need better citizens….We need to make leaders understand you can ask me to something hard”

Friedman see much of the anger at our current predicament as “unfocused” and an unwillingness to make a shift away from the familiar but unsustainable practices that have lead to the current difficulties. Friedman says we are following situational values instead of sustainable values.

Goldman has been the poster boy for banks behaving by “situational values” - exploiting whatever the situation, or rules that it helped to write, allowed.–NY Times News Service

Now brace yourself, because here is an example of the type of immediate change that he thinks we should be willing to make for the long-term benefit: A dollar gas tax.

Forty cents would go to deficit reduction, 40 cents to health care (which would also help to reduce the deficit), 10 cents to subsidize those who can’t afford health care, and 10 cents to those who have to drive long distances.

As Friedman sees it, these measures would help to reduce the deficit, improve the health of the dollar because we won’t be sending $250 billion overseas, and correct an energy policy that is currently empowering some of the most corrupt leaders in the world.

OK, I know that a gas tax is a third rail in politics, and I imagine some of you are muttering some unpleasant words just at the mention of a gas tax. But as Friedman sees it, we cannot continue an economy based on the expectation of continuous withdrawals without deposits.

Here are some other solutions that Friedman thinks will help our economy:

• Health care reform will allow us to compete globally.
• Investment in energy technology will allow us to compete in the predominant job markets of the not-to-distance future.
• Education in energy technology will allow us to build a better economy.

Sources:

• http://www.nytimes.com/2009/11/22/opinion/22friedman.html?_r=1&em
• http://www.charlierose.com/ (under Web Exclusives)

Notice of Defaults up, and trustee sales down. That is what the most recent numbers from DQNews are telling us about the foreclosure process in Orange County.

Here are the numbers from DQNews:

Notice of Defaults (This is the first step in the foreclosure process; however, this does not necessarily end in the home being taken back by the lender.)

• 2008Q3—5,692
• 2009Q3–7,436
• This is a 30.60% increase.

Trustee Sales Recorded (This is the last step in the foreclosure process. The home is taken back by the lender in this stage of foreclosure.)

• 2008Q3–3,997
• 2009Q3–2,238
• This is a 44.00% decrease.

Here is what John Walsh, DataQuick president, makes of these numbers:

It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings. If so, it’s not out of the goodness of their hearts. It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses.

He goes on to say:

There’s a batch of truly nasty loans that were made in mid 2006. There’s another batch made in late 2006. These are worse than the mortgages before and after, and it’s taking a long time to process them.

The 2009 fourth quarter number from DataQuick should be out soon. We will see if the Q3 and Q4 numbers tell the same story. I expect that they will.

Update: New numbers from DataQuick have just been released. sw 1-30-10

Recently, I wrote a post about the Fed’s mortgage-backed securities buy-back program. In that post, mortgage exec Randy Johnson and vice president of HSH Associates (a mortgage-education company) Keith Gumbinger predicted that mortgage rates will go up after March 31, 2010. March 31st is the date the  buy-back of mortgage-backed securities by the Federal Reserve is scheduled to end. An article from Matt Padilla provides more information, and a different perspective, on the mortgage back securities (MBS) buy-back program.

Here is a quote from the Padilla’s article that states this different perspective:

Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. “The Fed’s exit from the MBS purchase program will likely be well absorbed by the market,” according to a weekly Credit Suisse “Market Watch” publication. After March 31, the “Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing,” Credit Suisse strategists say.–Matt Padilla, “Treasury mum on halting mortgage-security purchases“

Randy Johhnson, president of Independence Mortgage Company, and Keith Gumbinger, vice president of mortgage-education company HSH Associates, agree: Mortgage rates are likely to go up after March 31, 2010.The significance of this date is that this is when the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae.

The Fed started this buy-back program in January 2009, and by the end of the program the Fed will have bought $1.25 trillion dollars worth of these securities. The result is that mortgage rates have been kept low, but when the program ends, some, such as Johnson and Gumbinger,  believe that mortgage rates are likely to increase.

As Anna Prior points out in a Wall Street Journal article, rate might not increase that much, but

A one-percentage point rise could add more than $150 to a monthly mortgage payment for a $250,000 30-year fixed-rate loan.

In addition, mortgage industry exec Johnson advised a homeowner whose mortgage rate is about to reset that the end of the buy-back program will

…increase the likelihood that rates will climb. If I were you, I would initiate a refinance right now. (Randy Johnson, “Is it time to refinance?” The Orange County Register, December 13, 2009)

As a mortgage industry exec, Johnson has an interest in advising for refinancing. But the end of the buy-back program and the effect this will have on interest rates is something to put into the mix when considering refinancing.

Note: An upcoming post will provide another viewpoint.

Thomas Friedman at Davos Economic Forum

According to Pulitzer Prize winning columnist Thomas Friedman, our problems in California are just a preview of the problems that the rest of the country will face. Friedman sees U.S. problems as stemming from the following:

• too much money in politics
• gerrymandering of political districts
• Internet use which “at its worst provides a home for every extreme view and spawns digital lynch mobs from across the political spectrum that attack anyone who departs from their specific orthodoxy.” He also states that “at its best, [Internet use] provides a check on elites and establishments and opens the way for new voices.”
• a permanent presidential campaign
• U.S. business community that has become so global that the business community does not feel  a commitment to local areas or even the U.S. as a whole

Friedman has also stated that much of our problems come from the failure of our leaders–and the public–to think and act for the long term. He calls this our “I’ll be gone, you’ll be gone” attitude toward the economy and the environment. According to Friedman, we have been using accounting practices for both our financial system and the environment that under price risk, privatize gain, and socialize losses.

For video interviews with Thomas Friedman, see Friedman’s New York Times webpage.

Sources: Thomas Friedman, “Advice from Grandma“; The New York Times; Charlie Rose

Contrary to Hunter Lewis’ opinion that policies of the 1980s lead to the Reagan prosperity era, political commenter and former Nixon White House strategist Kevin Phillips has stated that our problems started around Ronald Reagan’s time. Phillips also states that for various reasons these problems have been masked.

I will probably write more on this at some other time, but for now here is a quote:

“Bad money” refers to a new phenomenon in wayward megafinance-the emergence of a U.S. economy that is globally dependent and dominated by hubris-driven financial services.–Barnes & Noble summary of Bad Money

For more information on this, see Phillips’ book Bad Money: Reckless Finance. Failed Politics and the Global Crisis of American Capitalism.

Yesterday, we took a look at Hunter Lewis’ view of  the causes of our economic problems. Today, some contrary views from economist Paul Krugman:

In 1999, when the first version of “The Return of Depression Economics” was published, the title seemed provocative and its thesis was cavalierly dismissed by conservative economists. But today, fear rules the markets, John Maynard Keynes is back in fashion, and the stars of Milton Friedman and Alan Greenspan are fading.
–Andrew Leonard, Salon

In a Forbes.com video, Pulitzer-price-winning economist and NY Times commenter Paul Krugman says forgetting Keynes statement that interest rates can be too low was one reason for our current economic problems.

Krugman also says that the more important cause of our current problems is that we forgot the need for the safeguards and regulations–such as the regulations put in place after the Great Depression of the 1930s and which, according to Krugman, allowed us to avoid “Depression Economics” for about 60 years.

For more on this, see Krugman’s book, The Return of Depression Economics and the Crisis of 2008.

Tomorrow: political commenter Kevin Phillips with a viewpoint that the Reagan era was not all that some say it was

This week we’ll have a little survey of various opinions on the cause of our economic difficulties. Up first author and financial advisor Hunter Lewis. Lewis has also held many positions on various charitable organizations.

In a Forbes.com video, author Hunter Lewis says that former Fed Chief Alan Greenspan’s return to Keynesian economics is what lead to current economic problems. He also said the that the quite different actions by former Fed Chief Paul Volker during the 1980s brought about the Reagan prosperity era.

Lewis also say that “recessions are necessary,” and debt is what caused our problems.  He continues to say that this debt came from the housing problem, and the housing problem came from the dot.com problem. For more on this, see Lewis’ book, Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts.

Tomorrow: some views from economist Paul Krugman

Wednesday: political commenter Kevin Phillips with a viwpoint that the Reagan era was not all that some say it was

I just came across some informative numbers from real estate and finance sector analyst Mark Hanson. These numbers provides a follow up on a previous post that I wrote concerning our unsustainable personal debt to income ratio. Hanson quotes the Wall Street Journal:

According to the Federal Reserve, total household indebtedness peaked at the end of 2007 at 132% of disposable income. That was by far the highest level since at least the end of World War II, nearly quadruple the 36% of 1952. By the end of March, with families boosting savings, repaying debt and defaulting, the ratio had fallen to 124%, a tad lower but still miles from the level of, say, 69% in the middle of 1985.
–”Debt Burden to Weigh on Stocks, Consumers’ Inability to Drive Economic Growth Likely to End Big Gains,” E.S. Browning, Annelena Lobb

These numbers shows that our economy on the personal level, not just the national government level, was on a course that could not last. They also show that, with a current ratio of 124% personal debt to income ratio, we are still at an unsustainable personal debt level and will need to endure further corrections.

To see how this personal debt to income ratio has been progressing on this unsustainable course for many years, see my previous post: “Personal Debt to Income Ratio Rose to Over 100%-How Did This Happen?”

GRAPH COURTESY JAMES QUINN

According to First American CoreLogic’s August index report, the median selling price for houses in Orange County was 7.9% less than it was in August 2008. If the distressed properties (short sale and bank-owned properties) are excluded, the decrease is 7.1%. However, First American sees an increase for the Orange County median selling price in 2010.

Here is First American’s 2010 prediction for Orange County housing prices as well as some others. The percentages listed are the amount that the median home price in Orange County is predicted to increase or decrease by next year. I have listed them in descending order from the most optimistic to the least optimistic forecast.

• UCLA Anderson Center–up 15.9% to 16.6%
• First American CoreLogic–up 9.5% (California prices up 7.9%, U.S. prices up 4.6%)
• Veros–up 2% by year-end September 2010 for their benchmark, which is single-family mid-priced homes
• Anil Puri of Cal State Fullerton–down during the first half of 2010, then flat or up 2% to 3%

Keep in mind that a predicted increase for the median price of all Orange County homes does not necessarily mean that the price for your home or a home that you want to buy is predicted to increase. Rather it could just mean that more homes on the high- or mid-level will sell during the next year that did this year.

Up to this point most of the homes selling in Orange County (or the nation for that matter) were on the low-end of the housing market. As more homes on the mid- and high-end of the market are sold, the overall median selling price will increase, but the selling price of many of the individual homes in the mid- and high-end might decrease from what the home would have sold for in the previous year.

For more information, see “Forecast sees 9.5% price gain for O.C. homes,” Jeff Collins, OC Register November 3, 2009