Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktNonfarm Payrolls up 103k. Last month’s 0 number revised up to 57k.
Private payrolls (ie excluding government jobs) up 137k, with last month’s number revised up from 17k to 42k. This means that jobs are moving out of the public sector and into the private sector. Which, despite the controversy around saying so, is good news. (Although the revised numbers from last month suggest that the public sector actually added 15k jobs last month.)
Unemployment rate remains unchanged at 9.1%.
Big selloff in bonds as a result. Rates higher. Stock futures up….Dow up 119 and S&P up 15.
All-in, a good and encouraging jobs report this month.
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All Things in Moderation 
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Other numbers, which I'm not sure are good or bad in and of themselves, except for the root cause of the problem (foreclosure)."The percentage of Americans who owned their homes has seen its biggest decline since the Great Depression, according to the U.S. Census Bureau.The rate of home ownership fell to 65.1% in April 2010, 1.1 percentage points lower than it was in 2000. The decline was the biggest drop since the 1930s, when home ownership plunged 4.2%.The most recent decade-over-decade drop, however, only tells half the story.Home ownership during the 2000s "was really high in the middle of the decade, up to almost 70% at one point around 2004," said Ellen Wilson, a survey statistician with the bureau.The crash from that peak was more than 4 percentage points in just about five years — a far more dramatic decline than the 1.1% drop over the 10-year period. "Homeownership dropsMaybe some of our finance people can elaborate?
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Wasn't that home ownership really mortgage holding? I mean, I "own" my own home–I just owe a lot of money to the bank for it. I imagine most people who weren't holding a mortgage weren't at great risk of losing their home. In essence, the same person who owned those homes before owns them now–that is, the bank. It's just people who used to rent-to-own from the banks are no longer doing so. I gotta imagine some of those were investment homes, or homes purchased to flip–there were a lot of people who tried to make their living buying and flipping homes at the end of the bubble. If you remember the "flip this house" shows . . . you could see what was going on by the number of people on those shows who got stuck holding an investment house they couldn't unload.
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Not to be a wet blanket, but just read that almost half the Sept. # (45K) are Verizon employees returning to work after the strike.
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Not to be a wet blanket times two, but most of the economic predictions I've seen keep unemployment over 9% through next year. Of course, if Alan Greenspan and others couldn't see the housing bubble and burst coming, it's a little tough to believe economic predictions.
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Enough we blankets. I give credit to the Detroit Tigers! Troll- That means at some point the job loss from Verizon was equally unimportant. I'm guilty of this as much an anyone else, but there is a tendecncy to take news we like at face value and to poke holes in news we don't like. (broadly speaking)
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mike:Those numbers are, of course, bad for the individuals involved, but ultimately I think a good sign for the economy. The economy was far too over-leveraged, which was primarily manifested in home ownership debt. In short, too many people borrowed too much money to buy homes they couldn't really afford. In order to recover, the economy will have to de-leverage, which unfortunately means people who shouldn't have been buying homes will have to stop owning them, either by selling or being foreclosed upon. The immediate pain of de-levering is steep, but the faster the pain is taken, the faster the economy can recover.This is yet another example of the cost of choices that I have been talking about in other contexts here. (There ain't no free lunch!) While politically propping up the housing market from reaching its natural bottom may reduce the immediate pain to individuals (and is therefore highly politcally attractive), it makes true economic recovery that much harder to achieve and sustain.
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Wet blankets are all the rage. We've had good months before. I'll start to get excited when there are 4 to 6 good months in a row. The rate of homeownership is designed to only measure primary, owner-occupied residences. It excludes investment properties & 2nd homes. Yes, most of those homes are really owned by the banks. But the index is designed to gauge the rate of success/comfort in the populace. Whether its valid for that purpose is up for discussion.
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McWing, true enough. As always, the details are important. But even so, based on the previous performance and trajectory of the numbers, these (along with the revisions) are a welcome change.
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Wet blankets are all the rage. We've had good months before. I'll start to get excited when there are 4 to 6 good months in a row. The rate of homeownership is designed to only measure primary, owner-occupied residences. It excludes investment properties & 2nd homes. Yes, most of those homes are really owned by the banks. But the index is designed to gauge the rate of success/comfort in the populace. Whether its valid for that purpose is up for discussion.
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ScottC- You are at least being consistent as you have generally focused more on the shift from the public sector to the private sector rather than on the numbers themselves. bsimon- Agreed on needing to string a few months together and it would be even better if we could push the new payroll numbers to above 200,000 or 250,000. As long as wer are only adding around 100k we won't see any improvement in unemployment.
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ScottIs there some reason you leave the banks and mortgage industry out of your analysis in the over-leveraging of home ownership? And I think one of the problems is that even people who have done nothing but mind their own business and pay their mortgages through the fruit of their labors are suffering along with all the institutions and citizens who made poor decisions.
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ashot:The numbers themselves are important, but if all the job increases are government jobs (as they were for some time), then that is not a good sign for the economy. The government relies on receipts from non-government workers in order to pay its bills (including payments to government workers.) The private economy must grow, not only for its own sake but for the sake of the government as well. The government is generally a net consumer, not a net producer, of goods.
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lms:Is there some reason you leave the banks and mortgage industry out of your analysis in the over-leveraging of home ownership?I wasn't analyzing why the over-leveraging occurred. I was just stating the fact that it did occur. The question of how or why it occurred is a very complex one, with lots of people/institutions/policies playing a role. But the left's attempt to singularly demonize the finance industry, while both easy and politically useful as a populist strategy, is not particularly enlightening regarding what actually happened.And I think one of the problems is that even people who have done nothing but mind their own business and pay their mortgages through the fruit of their labors are suffering along with all the institutions and citizens who made poor decisions. This is tragically true.
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ScottIn short, too many people borrowed too much money to buy homes they couldn't really afford.This sounded like a very abbreviated summary of the housing crisis to me, which seems to leave out a whole host of other issues. I agree though that the de-leveraging needs to occur, I just wonder what the 20's will actually look like when it's over.
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"In short, too many people borrowed too much money to buy homes they couldn't really afford"That's perhaps too short. The total mortgage market is much smaller than our economy. If this were a straight borrow-and-lend problem, we wouldn't have seen bear stearns et al disappear. It was the leverage that broke the banks, which centered around the derivative products offered by AIG. The economy wasn't brought down by a bunch of subprime borrowers, it was brought down by multi-billion dollar gamblers.
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And it seems to me that, just as the sub-prime borrowers should have seen what a terrible deal they were making, the sub-prime lenders should have also seen (and no doubt some did, but planned to unload the mortgages well before it all crashed) that such mortgages would eventually ceased to be serviced, with rates adjust upwards and balloon payments and what not. Folks who were not capable of making much of any down payment, or qualifying for a low fixed-interest loan, were not good bets for being able to continue paying sub-prime mortgages when the monthly payments skyrocketed.
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Kevinthe sub-prime lenders should have also seen……………….. Short term gain for us, long term pain for the rest of you.This is why everyone is mad and disillusioned IMO.
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"Short term gain for us, long term pain for the rest of you."It's not entirely short term gain for them, it's long term gain as well. The individuals who made huge bonuses off those mortgage backed securities got to keep those bonuses, many of them probably kept their jobs. In contrast, those irresponsible borrowers don't get to keep their homes and even the responsible borrowers lose the $40 K they have to bring to closing when they sell their house.
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It's interesting, I think, that some four years after the beginning of this recession we're still dealing with the same issues and still defining it along the same lines. Not much progress IMO despite the slightly better numbers today. And yes, you're right about the long term gain for some of these financial wizards.I think I read somewhere that the American people deleveraged about 10% in the last three years, a long slog to prosperity at that rate.
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bsimon: If this were a straight borrow-and-lend problem, we wouldn't have seen bear stearns et al disappear.Sure, but the health of Bear Stearns should not be confused with the health of the economy.The economy wasn't brought down by a bunch of subprime borrowers, it was brought down by multi-billion dollar gamblers. That isn't right at all. For every dollar that "the gamblers" lost on derivatives, another "gambler" gained. No wealth was destroyed by synthetic CDO "bets". Wealth was destroyed by the deterioration and ultimate collapse in values of hard assets, mainly real estate, and the consequent contraction in household consumption. This is what precipitated the general economic collapse, not the transfer of wealth from one "gambler" (say AIG) to another (say Goldman Sachs) via derivative "bets".
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Scott, enough of your fancy banker talk! I just want more money! Pppptttthhhppphhhttttt!!!!!:)
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ashot:The individuals who made huge bonuses off those mortgage backed securities got to keep those bonuses, many of them probably kept their jobs.Yes, they got to keep their bonuses, but not many of the kept their jobs, particularly the ones shilling securities collateralized by known-to-be-bad mortgages.And lots of other people in finance who had nothing to do with the CDO business, from well-paid movers and shakers to modestly paid back office staff, also lost their jobs, for no other reason than that their employers had to cut back on expenses. Believe me, there are far more innocent people inside (or, in many cases, formerly inside) the finance industry who are suffering just like everyone else than there are people who made out like the bandits they were (or are portrayed to be) and got out before everything fell apart.
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True, Scott. Entire companies don't disappear without people losing their jobs. "Wealth was destroyed by the deterioration and ultimate collapse in values of hard assets, mainly real estate, and the consequent contraction in household consumption."I know 1/10th as much as you on the topic, but I'm going to forge ahead anyway at the risk of appear daft. Isn't it a bit hard to detangle all these competing factors? Your statement isn't one that applies blame so maybe I'm shooting at a different target, but the amount of money that could be made from various incarnations of mortgage backed securities played a role in lenders being eager to lend right? If lenders didn't have someone eager to buy packaged mortgages would they have been as likely to try and put together so many mortgages? Making bad loans is generally not a profitable proposition, but it became one for a variety of reasons. One of the reasons is the "gamblers" who you seem to hold harmless. And as to reckless borrowing vs. lending etc, you have one borrower who should have know they shouldn't have signed the mortgage, but you have a lender who should have known they shouldn't offer the mortgage who then packaged these mortgagaes and got a rating company to rate it AAA who should have known not to give it a AAA rating. Then you have those who should have known the AAA rating was nonesense and on and on down the line. On one side there was one opportunity to make the responsible decision, on the other there were countless.
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ashot:This is long, and so will have to posted in at least two comments.You don't and won't appear daft, and you probably know more than you think. Even I don't understand all of it, and I'm involved in the industry. But what I do understand shows me that it is very complex and hardly lends itself to simplistic explanations about who or what was the villain. So yes, it is quite hard to detangle all of these various factors.But one thing that I tried (and obviously failed) to explain in an earlier post several days ago was that there is a clear distinction to be drawn between the collateralized debt obligations (CDO's) that helped to fuel the real estate bubble, and derivative products (what bsimon derisively, although not necessarily inaccurately, referred to as "bets") such as credit default swaps (CDS), which were fueled by the real estate bubble.It is definitely true that making bad loans became profitable, but it was not due to the gamblers** that bsimon was referring to, ie players in the derivatives market. It became profitable because, through the use of the CDO market, originators of loans had a new class of investor to whom they could sell packaged loans, without any particular care as to the quality of the underlying loans. (That isn't entirely true…they had to care insofar as the ratings agencies cared, because they wouldn't be able to sell it without the rating. But to the extent that the ratings agencies were either incompetent or negligent, as they obviously turned out to be, they didn't need to care.) Now, I suppose it is possible that one might call these investors in CDO's "gamblers", but if so then one would have to also call traditional bank lending for mortgages to also be gambling, because what the CDO investors were doing was no different, although instead of lending to each borrower individually, they were lending to huge numbers of borrowers at the same time via the CDO. And the ultimately faced the same risks as a bank doing traditional mortgage lending.So, again, this needs to be really clear…the CDO market was not a market in derivatives. It is simply a way to introduce non-traditional lenders (ie investors with money looking for a return) into the mortgage market.(con't)
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ashot (cont'd):Now, this brings us to the actual derivatives market, in which true "gamblers" in the sense I think bsimon meant might participate. Credit default swaps, or more specifically to the CDO market what were called synthetic CDO's are products whose values are derived from some hypothetical package of mortgages. Synthetic CDOs are, essentially, insurance written on an underlying package of mortgages. Such synthetic CDOs could be used to hedge oneself against losses on mortgages that one actually owned, or, if one did not own the underlying referenced mortgages, one could purchase the insurance as a "bet" that underlying mortgages would eventually default, and the insurance would pay out more than the premium paid to buy it. Now, whatever you might think of the practice of betting against the performance on some underlying loan, the relevant point here is this: whether executed as hedges or as outright bets, these transactions did not introduce new money or lending into the mortgage market. No loan was ever made, and no house was ever bought, as a result of the execution of a synthetic CDO. The hypothetical package of loans from which the value was derived were already existing loans, and would have remained in existence regardless of whether the synthetic CDO was created or not. So it cannot be said that these "gamblers" encouraged either lenders or borrowers to make bad loans. In fact, in the most notorious cases of these synthetic CDO's, where the buyers of insurance were deliberately picking the very worst possible loans to be insured in the hopes that they would default quickly before much premium was paid, it was the very existence of the bad loans in the first place that fueled the creation of the synthetic CDOs, not vice-versa!Hopefully you can now see why I get so irritated by this politically motivated myth that the dread "derivatives" gamblers are responsible for our economic woes in general and the collapse of the housing market in particular. It quite simply is not true. We experienced a classic economic bubble. Such bubbles have existed long before derivatives were ever invented, and will occur again even if all derivative trades are outlawed in the future.Finally, this: On one side there was one opportunity to make the responsible decision, on the other there were countless. It doesn't make sense to me to view this as two opposing sides of a transaction. One can sensibly view it as a series of individual transactions, each with two opposing sides, or one can view it as a single transaction with multiple sides each motivated by occasionally overlapping but ultimately distinct interests. But place the borrower as a lonely figure pitted against an array of countering interests doesn't make a lot of sense to me. ** I want to be clear, also about this: I do not hold these "gamblers" blameless in general. I just do no think they are especially, or even significantly, to blame for the downturn in the economy.
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Scott- First, thanks. Second, I almost didn't put the "gamblers" in there because I thought it was a different set of people than who bsimon was referring to but wasn't sure. I should have gone with my gut instinct. The derivaties basically destroyed AIG right? Anyone else? Would they have been hit so hard absent the derivatives? Obviously that last one is hard to answer because they may have found some other investment vehicle and once that economic bubble popped there was going to be heavy damage to anyone who was heavily invested in mortgages/real estate whether it was through derivatives (assuming you were on the wrong side of that "bet")or CDOs. I agree on creating two sides of the transaction, although I think that is often the narrative we get.
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ashot:The derivaties basically destroyed AIG right?Yes, in one sense that is correct. AIG was basically writing lots of debt insurance, not only on packages of mortgages but also on individual company names. When they all began to threaten default at once, it overwhelmed AIG's resources.But in another sense it was not so much the underlying insurance but a liquidity squeeze that did them in. Most of these derivative transactions are collateralized, meaning that either cash or treasury notes are posted from one counterparty to the other based on how much is owed on a present value basis. So usually the counterparty posting collateral will go out in the market and borrow the money to either post or to buy the T-notes to post. This is designed to reduce credit risk. But the perfect storm hit. Just as all of their insurance contracts were increasing in value such that they had to post more and more daily collateral, the credit markets were also freezing up, making it more and more expensive, and at times impossible, to actually borrow short term money. So they were under threat of defaulting on collateral postings. It wasn't simply this kind of short term liquidity squeeze that caused them to lose money, but it was the immediate event that pushed them past the brink, and made a bailout necessary.As for anyone else, again, sort of. Other places faced similar liquidity squeezes and could have conceivably defaulted if not for the TARP bailout. But in the calmed markets post-bailout, most of the recipients have been able to quickly repay the government with interest, suggesting that their problems were truly short term liquidity problems. AIG remains under government ownership, so obviously their problems were more fundamental.
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Have to run for now.
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