Have nothing to do with the [evil] things that people do, things that belong to the darkness. Instead, bring them out to the light... [For] when all things are brought out into the light, then their true nature is clearly revealed...

-Ephesians 5:11-13

Tag Archives: Recession

ARMs are Costing People their Homes

Subprime Crisis No Barrier to Affordable Housing

Subprime Crisis (Photo credit: woodleywonderworks)

Back in September, the Associated Press took a close look at U.S. census data and learned that the supposed economic recovery was leaving an awful lot of people behind. One segment is homeowners who bought the dream of owning a home using ARMs – adjustable rate mortgages – and who are now finding out how these sub-prime mortgages really work. They are working to

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Fed Transcripts from 2008 Reveal Experts to be Clueless and Confused

English: President Barack Obama confers with F...

President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

Followers of the Fed have carefully analyzed the 1,865 pages of transcripts it released in February of its eight regularly scheduled meetings and six emergency meetings in 2008 and have concluded that these experts were clueless and unaware of the opening economic abyss yawning before them. Even the New York Times was forced to admit, following its review of the documents, that

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British Think Tank Predicts Financial Catastrophe for US

Titled “The Government Debt Iceberg”, the latest report from The Institute of Economic Affairs (IEA) in London was meant primarily for British eyes, but there’s enough in there to concern Americans worried about how

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Standard & Poor’s Downgrades Puerto Rican debt to junk status

Now that credit rating agency Standard & Poor’s has ended the suspense by announcing that it is cutting Puerto Rico’s $70 billion worth of general obligation bonds to junk status, questions about the island’s economic future abound. Will Fitch and Moody’s follow suit

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Argentina’s economy is cratering, again

While Wall Street declined by 3 percent over global growth concerns last week, few were noting or even interested in the 11 percent decline in the Merval, Argentina’s stock market index. It hit a high of 5,970 on Tuesday, January 21, the day before the Argentina government devalued its currency, and closed at 5,337 on Monday. The peso itself has been in decline far longer, having lost nearly

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US Treasury sells the rest of its GM shares at a loss, claims taxpayer victory

Treasury Secretary Jacob Lew announced on Monday afternoon that his department had sold the remaining shares of GM that it acquired following the forced bankruptcy of the auto giant in 2009, and made the $10.5 billion loss sound like it was a victory:

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The Bubble in the Caribbean: Puerto Rico

This article was first published at The McAlvany Intelligence Advisor on Wednesday, October 30, 2013:

The complacency of municipal bond holders ended in July with the filing for bankruptcy by Detroit, an unhappy town of just 700,000 owing more than $18 billion to investors. Haircuts there have variously been estimated to be between 15 and 60 percent.

Since then, those holders have been looking around to find the next shoe to fall, and they have found it:

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JP Morgan Buying its Way Out of Legal Troubles

The announcement that a tentative agreement had been reached between the Department of Justice and JPMorgan (JPM) was surprising only in the size of the penalty the country’s largest bank (and second largest in the world) agreed to pay:

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The Press Release from the Treasury Department is Pure Propaganda

This article was first published at The McAlvany Intelligence Advisor on Monday, October 7, 2013:

The so-called “brinkmanship” press release by the Treasury Department reveals far more about the willingness of the media to report and repeat a canard that it does about the “crisis” facing the US if the government defaults.

Here are the title and just the opening paragraphs from the Treasury Department:

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Scary Default Scenarios Based on Faulty Treasury Department Release

Within hours of the “brinkmanship” press release by the U.S. Department of the Treasury, major media began to repeat the highly dubious risks outlined by the department without reading carefully exactly what it contained. The headline and opening paragraph were all that the echo chambers needed:

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House Bill Offered to Study “Real World” Effects of Fed Policy

In anticipation of the upcoming 100th anniversary of the Federal Reserve on December 23rd, House member Kevin Brady (R-Texas) and Chairman of the House’s Joint Economic Committee, decided back in March to offer a bill to create a commission to

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Friday’s Jobs Report: There’s Good News, and then…

On the surface Friday’s jobs report from the Bureau of Labor Statistics (BLS) wasn’t so bad: 169,000 jobs were created in August and the unemployment rate dropped slightly, once again, to 7.3%. This was slightly below expectations (180,000) but about in line with the average monthly gains over the past year.

But – and it’s a big but – not everyone is participating, and some of those numbers

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CNBC says Larry Summers to replace Ben Bernanke at the Fed

Citing an unnamed source from “Team Obama”, CNBC announced that Larry Summers will be named head of the Federal Reserve by President Obama to replace outgoing chairman Ben Bernanke whose term expires on December 31st.

Despite much media conversation about other potential candidates for the position, chief among them Fed Vice Chairman Janet Yellen, Summers always had the inside track. Summers served as

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The Delicious Irony of Obamacare – The Law of Unintended Consequences Kicks In

This article first appeared at The McAlvany Intelligence Advisor on Wednesday, August 21st, 2013:

 

As Obamacare’s implementation draws ever closer, so does the law of unintended consequences. Promoted as a way to provide healthcare coverage for millions of presently uninsured individuals, the real impact is exactly the opposite:

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Home Ownership Rates Continue to Fall; New Plans to Reflate Underway

When the Census Bureau announced on Tuesday that the rate of homeownership in the US continued its nearly 9-year decline, pundits were quick to lay the blame on higher lending requirements, bankers reluctant to make loans, increasing interest rates and a weak economy with slow job growth. In addition, young people are living at home longer due to student loan debt and poor job prospects. As a result, according to the Census Bureau, rental rates are climbing as families needing a place to live have few other options.

Having fallen from the peak of 69 percent reached in 2004, current home ownership has dropped to 65 percent, back to where it was in 1995. Robert Schiller, economics professor at Yale, thinks the rate will continue to fall further.

Home prices are increasing not because of demand by new buyers but because of investors seeing the opportunities in buying distressed properties and turning them into rentals. In some places in the country one out of every two home purchases are paid for in cash.

But something else is afoot: fewer citizens are buying into the notion that home ownership makes economic sense and is equivalent to a savings plan that can be turned into income in later years. As Emily Badger noted at The Atlantic Cities, “We have traditionally considered homeownership to be a sign of the health of the economy. But some of these people who would have been homeowners 10 years ago … have concluded that they would rather rent [today]…”

Some have no doubt been so badly mauled financially in the recession that they have few options. Others have long memories and remember the pain and suffering they endured as a result of deliberate government policies instituted to make homeownership possible to millions of unqualified buyers.

One of those with long memories is Henry Cisneros, a key player in developing the “National Homeownership Strategy” while he was Secretary of Housing and Urban Development (HUD) under Bill Clinton. Unanimously confirmed by the Senate, Cisneros took over at HUD in January, 1993 and by 1997 had boosted the US homeownership rate from 63.7 percent to 65.7 percent. Even after leaving office, his strategies continued blowing up the real estate bubble so that by the time Clinton left office in 2001 home ownership was at 67.5 percent on its way to peaking during the summer and fall of 2004.

In a remarkably candid and forthright article about Cisneros’ role in creating the real estate bubble, The New York Times told the story of a compassionate government bureaucrat with big dreams of providing home ownership to people who couldn’t afford them under current rules. So he changed the rules and invited bankers, realtors and homebuilders to participate in the party guaranteed by taxpayers. In 2008 as he contemplated the damage he had wrought while head of HUD, Cisneros claimed that his intentions were honorable, at least in the beginning, but that his plans to provide low-interest loans and much weaker underwriting requirements through Fannie Mae and Freddie Mac were hijacked by “unscrupulous participants – bankers, brokers, secondary market people. The country is paying for that, and families are hurt because we … did not draw line.” He expressed regret that his efforts had not only lured people into homes they couldn’t afford, but that his policies ultimately ejected them from those homes as a result. He said, “I’ve been waiting for someone to put all the blame on my doorstep.”

His strategy was to lower underwriting standards by allowing Fannie Mae and Freddie Mac to require less documentation and approve higher debt to income levels than normal. He reduced down payment requirements from 20 percent to 10 percent, and then to 5 percent, then down to 3 percent and ultimately to 0 percent. His strategy allowed these unqualified buyers to cover their closing costs with another loan, putting them into a home with truly nothing out of the own pockets. Lenders were happy with the new rules as the US taxpayer stood behind the loans bought by Fannie Mae and Freddie Mac.

Cisneros created a monster.

Once the ball got rolling, it was impossible to stop or even slow down. Said Cisneros:

You think you have a finely tuned instrument that you can use to say: Stop! We’re at 69 percent homeownership. We should go no further. There are people who should remain renters.

But you really are given a sledgehammer and an ax. They are blunt tools.

I’m not sure you can regulate when we’re talking about an entire nation of 300 million people and this behavior becomes viral.

Cisneros drank his own Kool-Aid. He joined with a major homebuilder to develop a housing project in San Antonio, Texas which made him wealthy but which turned sour during the collapse.

Those lessons are about to be learned again as there are new efforts to reflate the ownership bubble. Under the Dodd-Frank Act there’s something called the Qualified Mortgage Rule (QMR) which requires lenders to keep part of the loans they make in their own portfolios – they must have “skin in the game” to reduce the chances of another bubble. But more than 50 organizations tied to the real estate industry are advocating a softening of that rule, putting more government money into the market, with less risk to the lenders. One of those supporting such softening is Sarah Rosen Wartell, president of the Urban Institute, who sounds an awful lot like Cisneros:

I’m not suggesting indiscriminate access to home ownership, but there are many borrowers who are capable of demonstrating the capacity to pay…

[They include] those who had a job loss or foreclosure, in many cases through no fault of their own [and a result are] being shut out of a rising market.

Gary Thomas, the president of the National Association of Homebuilders, expressed his delight at the softening of the rules:

If what we’re heard about the [weakening of] the proposed QMR rule is true, the we are very pleased that the agencies are moving towards a broad definition that will benefit the American people by ensuring access to safe, affordable options for buying a home.

And then of course there’s the inevitable college professor who hasn’t learned from history, or from Cisneros. Christopher Mayer, professor of real estate at Columbia Business School, exulted:

Having a path that people can become a homeowner is an important path. And it’s really important for middle to lower-income folks who have a hard time saving…

At present efforts to reflate the real estate bubble through relaxing underwriting requirements and low-interest loans don’t appear to be working very well. But Washington has a mission where past experience and lessons and pain and hardship don’t matter. The Cisneros mentality remains alive and well in Foggy Bottom.

 

 

 

President’s Speeches on the Economy Draw Attention Away from His Scandals and Falling Poll Numbers

From the New York Times to Politico.com the president’s speech to students at Knox College in Galesburg, Illinois on Wednesday was headline news. More than an hour long, it contained enough platitudes, sound bites and falsehoods to keep pundits busy and away from more about the Benghazi, IRS, NSA surveillance scandals and Obamacare fallout which have caused the president’s poll numbers to plummet. It was time to get out of Dodge and take

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Consumer Confidence Not Matched by Reality

The consumer confidence numbers announced on Tuesday by The Conference Board surprised even the economists who had expected a decline rather than the nearly 10-point increase that the board reported. The index came in at 81.4 compared to economists’ expectations of

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Central Banks’ bubble is bursting, sending markets down worldwide

When the Japanese stock market lost more than 6 percent of its value on Wednesday in a massive selloff, pundits jumped on the move to try to explain what happened, and what it all means. Evan Lucas, a market strategist at IG Markets, wrote:

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S&P Issues an Upgrade of US sovereign debt along with a warning

In the announcement by credit rating agency Standard & Poor’s on Monday that affirmed its AA+ rating of United States sovereign debt while revising upward its outlook from “negative” to “stable,” the agency explained that in the short run there has been some perceptible improvement in the country’s fiscal situation but in the long run

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Obamanomics is to Blame for Worst Recession since the Great Depression

When libertarian scholar Peter Ferrara asked rhetorically in Sunday’s issue of Forbes, “Economically, Could Obama be America’s Worst President?” he relied heavily on statistics provided by the chief enabler of the Great Recession,

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Many of the articles on Light from the Right first appeared on either The New American or the McAlvany Intelligence Advisor.

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