My Blog

Category: Finance

  • Another Foreclosure Wave Arrives

    Half a decade into the deepest U.S. housing crisis since the 1930s, many Americans are hoping the crisis is finally nearing its end. House sales are picking up across most of the country, the plunge in prices is slowing and attempts by lenders to claim back properties from struggling borrowers dropped by more than a third in 2011, hitting a four-year low.

    But a painful part two of the slump looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.

    “We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010,” said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.

    “Last year was an anomaly, and not in a good way,” he said.

    In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

    Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.

    Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January.

    via Reuters.

    The main stream media is telling us it’s all getting better.  Get out there and buy something.  But that story’s actually a few weeks old.  The latest news is now:

    Falling Home Prices Drag New Buyers Under Water

    More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.

    via Reuters.

    Doh!!  For those that don’t understand let’s be clear; the “solution” to the problem is making the problem worse.

    Governments intrusion into every sector of our lives has been an abysmal failure.  The people are being taken advantage of and the banks — who are supposed to be the ones the government’s to control — get keep getting richer an richer.  The too big to fail are now even bigger.

    It’s a joke.

  • How Retirement Benefits May Sink Illinois

    We’re national news again.

    …  Indiana’s debt for unfunded retiree health-care benefits, for example, amounts to just $81 per person. Neighboring Illinois’s accumulated obligations for the same benefit average $3,399 per person.

    Illinois is an object lesson in why firms are starting to pay more attention to the long-term fiscal prospects of communities. Early last year, the state imposed $7 billion in new taxes on residents and business, pledging to use the money to eliminate its deficit and pay down a backlog of unpaid bills (to Medicaid providers, state vendors and delayed tax refunds to businesses). But more than a year later, the state is in worse fiscal shape, with its total deficit expected to increase to $5 billion from $4.6 billion, according to an estimate by the Civic Federation of Chicago.

    Rising pension costs will eat up much of the tax increase. Illinois borrowed money in the last two years to make contributions to its public pension funds. This year, under pressure to stop adding to its debt, the legislature must make its pension contributions out of tax money. That will cost $4.1 billion plus an additional $1.6 billion in interest payments on previous pension borrowings.

    Business leaders are now speaking openly about Illinois’ fiscal failures. Jim Farrell, the former CEO of Illinois Toolworks who is heading a budget reform effort called Illinois Is Broke, said last year that the state is squandering its inherent advantages as a business location because “all the other good stuff doesn’t make up for the [fiscal] calamity that’s on the way.” Caterpillar, the giant Peoria-based maker of heavy construction machinery, made the same point more vividly when it declined in February to locate a new factory in Illinois, specifically citing concern about the state’s “business climate and overall fiscal health.”

    via WSJ.

    How bad is it going to be?

    Back in Illinois, Dana Levenson, Chicago’s former chief financial officer, has projected that the average city homeowner paying $3,000 in annual property taxes could see his tax bill rise within five years as much as $1,400. The reason: A 2010 Illinois law requires municipalities to raise the funding levels in their pension systems using property tax revenues but no additional contributions from government employees. The legislation prompted former Chicago Mayor Richard Daley in December to warn residents that the increases might be so high, “you won’t be able to sell your house.”

    We’re in trouble.

    Local media is still ignoring.  National media starting to ring the bell.

  • IL Legislators Should Give-up Pensions

    Illinois lawmakers ought to give up their state pensions.

    Legislators are part-time employees, but they make nearly $70,000 a year and in some cases can qualify for a pension after as little as four years in office at age 62. If they were elected before 2011, they can retire at 55 and collect a pension after eight years of service.

    Those pensions (like all pensions in Illinois) are not subject to the state income tax, and lawmakers also get health insurance benefits after they retire.

    With the state facing roughly $80 billion in unpaid pension liabilities and on the verge of financial collapse, the elected officials who created this crisis ought to be ashamed to accept such largesse from taxpayers.

    via Southtown Star.

    Agreed.

    I can’t remember where exactly but I once wrote about this at length.  Elected folks should earn a salary based on their more recent private sector salary.  And when they’re done with their “service” they should not receive a nickel from the taxpayer.

    This change alone would solve many many of our problems.

  • lllinois Moves Toward Insolvency

    We’re now making national news:

    After trying to tax Illinois to governmental solvency and economic dynamism, Pat Quinn, a Democrat who has been governor since 2009, now says “our rendezvous with reality has arrived.”  …

    Illinois was more heavily taxed than the five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame duck Legislature (its successor has fewer Democrats) to raise corporate taxes 30 percent (from 7.3 percent to 9.5 percent), giving Illinois one of the highest state corporate taxes, and the fourth highest combination of national and local corporate taxation in the industrialized world. Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

    Quinn raised personal income taxes 67 percent (from 3 percent to 5 percent), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois’ unemployment rate increased faster than any other state’s in 2011. Its pension system is the nation’s most underfunded, and the state has floated bond issues to finance pension contributions. Quinn’s recent flirtation with realism — a plan to raise the retirement age to 67 and cap pension cost-of-living adjustments — is less significant than the continuing unrealistic expectation that some Illinois’ pension investments will grow 8.5 percent annually. Although the state Constitution mandates balancing the budget, this is almost meaningless while the state sells bonds to pay for operating expenses (in just 10 years the state’s bonded debt has increased from $9.4 billion to $30 billion), underfunds pensions and other liabilities, and makes vendors wait (they are owed $5.6 billion).

    …

    Peterson, a professor of government at Harvard, and Nadler, a doctoral candidate also at Harvard, say collective bargaining rights for government employees pose “a dramatically new challenge to the viability” of American federalism. They cite studies demonstrating that investors’ perceptions of risk of default are correlated with the rate of unionization among government employees. Higher percentages of government employees who are unionized, and larger Democratic shares of state legislative seats, correlate with increases in state borrowing costs.At least 12 percent of Americans change their residences each year, often moving to more hospitable economic environments. In a system of competitive federalism, Peterson and Nadler write, “If states and localities attempt in a serious way to tax the rich and give to the poor, the rich will depart while the poor will be attracted.” And government revenues and expenditures vary inversely.

    via Boston Herald.

    Illinois may fail before California.  Businesses are fleeing.  Residents are fleeing.  Illinois is shrinking, dying.

    For all of the Democrats efforts to “help” the poor, how will the poor be helped when Illinois becomes nothing more than one big Detroit?  The rich will all leave — they have the means to do so.  Those left I guess will feed on each other.

    I need to make sure history get written correctly.  The suffering of the poor that is coming is blood on the hands of Richie Daley, Michael Madigan, Lisa Madigan, Rod Blagojevich, George Ryan, Pat Quinn, Rahm Emanual, Jesse White, Danny Davis, Jesse Jackson, Todd Stroger, John Daley, and the rest of the Illinois combine… the Machine.

  • We’re Dying — Another 5.4 Million Get SS Disability

    Yesterday I re-wrote about Tytler:

    A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.

    The post when on to cite recent news about how we’re nearing this point.  We have a record number of folks on food stamps, approaching a majority.  We also have a record number of folks who do not pay any taxes… also approaching a majority.  Therefore we are at the point whereby the majority will vote in their own self interest and sink the entire country.

    Today this story comes along:

    A record 5.4 million workers and their dependents have signed up to collect federal disability checks since President Obama took office, according to the latest official government data, as discouraged workers increasingly give up looking for jobs and take advantage of the federal program.  …

    Since the recession ended in June 2009, the number of people who’ve signed up for disability benefits is twice the job growth figure. (See nearby chart.) In just the first four months of this year, 539,000 joined the disability rolls and more than 725,000 put in applications.via Investors.com.

    Incredible.

    For those that don’t know, disability is something you’re on forever… as in until you die.  You basically become a drain on everyone else in society.  The story goes on:

    This is straining already-stretched government finances while posing a long-term economic threat by creating an ever-growing pool of permanently dependent working-age Americans.

    A long-term economic threat indeed!!

    As a result, by April there were 10.8 million people on disability, according to Social Security Administration data released this week. Even after accounting for all those who’ve left the program — mainly because they hit retirement age or died — that’s up 53% from a decade ago.

    We need everyone to understand that for every person doing nothing collecting a check we need 15, 20, or 30 people out there working and paying taxes for those that don’t.  Further, for every government worker, you need another 20, or 30 workers to pay for their salary and benefits.

    Our ratios of workers to non-workers and workers to government employees is out of whack and unsustainable.  Those who do can no longer support those who don’t (and those who do but do so for the government.)

    Big BIG trouble ahead.

  • Food Stamps & Taxes Suggest We’re Nearing the End

    A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.

    Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

    attributed to Alexander Fraser Tytler.

    I first published that quote nearly two years ago.  I thought it was true then… perhaps even truer now.

    The Congressional Budget Office said Thursday that 45 million people in 2011 received Supplemental Nutrition Assistance Program benefits, a 70% increase from 2007. It said the number of people receiving the benefits, commonly known as food stamps, would continue growing until 2014.

    via WSJ.

    And there is this:

    Out of the 143 million tax returns that were filed with the IRS in 2010, 58 million – or 41 percent – of those filers were non-payers.

    In other words, only 85 million actually paid taxes.

    via CNSNews.com.

    We cannot — and will not — survive when ‘net givers’ are outnumbered by ‘net takers’.  Two days ago I wrote that a record number of Americans have renounced their citizenship.  The U.S. is dealing with intellectual flight of massive proportions.  We are facing a perfect storm of breakdowns in both the economy and society.  The poor rarely have the ability, the means, to leave.  The rich however can easily move to wherever they like.

    We are only a few bad decisions away from the wheels falling completely off the bus.

  • European Markets Tank

    European markets took a big hit today, obliterating any hope generated by yesterday’s rally. Contagion is back, baby!  …

    Italy and Spain led the downward trend, with the latter index briefly down over 4 percent.  Yields on Spanish government bonds continued to push 6 percent, but did not exceed that benchmark level.

    via Business Insider.

    The wheels are falling of the bus.  Italy and Spain will soon be Greece, Ireland is not far behind.  The Germans cannot afford to bail-out all of the Eurozone.  They too will fall if pushed much further.

    Our own demise is not much farther away.  The debt is staking up with no end in site.  Investors have to make the choice of holding Europe’s bad paper or the U.S.’s bad paper.  They’ll choose to hold neither.

    Good time to get into the long term commodity market.

  • Is the Fed Promoting Recovery or Desperation?

    A lengthy beating to the Fed begins:

    On Friday, the Department of Labor reported that March non-farm payrolls increased by 120,000, falling well short of consensus expectations in excess of 200,000. …  On the payroll front, our present expectation is that April job creation will deteriorate toward zero or negative levels.

    Immediately after the payroll number was released, CNBC shot out a news story titled “Disappointing Jobs Report Revives Talk of Fed Easing.”  …

    via Hussman Funds.

    And so begins an excellent analysis of when we stand economically.

    Hussman has a few words on QE:

    How QE “works”

    Keep in mind that the U.S. banking system has trillions of dollars sitting in idle deposits with the Fed already. Quantitative easing simply does not relieve any constraint that is binding on the economy. Rather, QE is a method by which the Fed hoards longer-duration, higher-yielding securities like U.S. Treasury bonds and replaces them with cash that bears zero interest. At every moment in time, somebody has to hold that paper. The only way for the holder to seek a higher return is to trade it for a more speculative asset, in which case whoever sells the speculative asset then has to hold the cash. The process stops when all speculative assets are finally priced so richly and precariously that the people holding the cash have no further incentive to chase the speculative assets, and are simply willing to hold idle, zero-interest cash balances.

    Why does the Fed want this? Simple. Chairman Bernanke believes that by creating a bubble in speculative assets, people will “feel” wealthier and keep consuming – regardless of the fact that real incomes are stagnant and debt burdens are already intolerable, and despite the fact that there is extremely weak evidence for any such “wealth effect” in the historical record. …

    A simple — and accurate — way of looking at the QE operation.  Nothing more than an illusion.  Some lightly rose colored glasses on the eyes of an unsuspecting public.  All the while, the rich — who understand it’s just a trick — keep getting richer, and the poor — who accept the con — continue to spend and spend and spend, making themselves poorer.

    Ya want proof?  Just look at the jobs data:

    Last week, we observed “Real income declined month-over-month in the latest report, which is very much at odds with the job creation figures unless that job creation reflects extraordinarily low-paying jobs. Real disposable income growth has now dropped to just 0.3% year-over-year, which is lower than the rate that is typically observed even in recessions.  …

    If you dig into the payroll data, the picture that emerges is breathtaking. Since the recession “ended” in June 2009, total non-farm payrolls in the U.S. have grown by 1.84 million jobs. However, if we look at workers 55 years of age and over, we find that employment in that group has increased by 2.96 million jobs. In contrast, employment among workers under age 55 has actually contracted by 1.12 million jobs. Even over the past year, the vast majority of job creation has been in the 55-and-over group, while employment has been sluggish for all other workers, and has already turned down.  …

    Beginning first with Alan Greenspan, and then with Ben Bernanke, the Fed has increasingly pursued policies of suppressing interest rates, even driving real interest rates to negative levels after inflation. Combine this with the bursting of two Fed-enabled (if not Fed-induced) bubbles – one in stocks and one in housing, and the over-55 cohort has suffered an assault on its financial security: a difficult trifecta that includes the loss of interest income, the loss of portfolio value, and the loss of home equity. All of these have combined to provoke a delay in retirement plans and a need for these individuals to re-enter the labor force.

    In short, what we’ve observed in the employment figures is not recovery, but desperation. Having starved savers of interest income, and having repeatedly subjected investors to Fed-induced financial bubbles that create volatility without durable returns, the Fed has successfully provoked job growth of the obligatory, low-wage variety. Over the past year, the majority of this growth has been in the 55-and-over cohort, while growth has turned down among other workers. Meanwhile, overall labor force participation continues to fall as discouraged workers leave the labor force entirely, which is the primary reason the unemployment rate has declined. All of this reflects not health, but despair, and explains why real disposable income has grown by only 0.3% over the past year.

    Go read the entire piece.

  • Fioretti: Not So Fast Rahm

    Mayor Rahm Emanuel’s plan to have five financing giants bankroll $1.7 billion in Chicago infrastructure projects ran into opposition Monday from aldermen concerned about “hidden fees” and long-term leasing of city assets.

    During closed-door briefings with aldermen, sources said Chief Financial Officer Lois Scott stuck to the script and talked only about the $225 million in energy retrofits to government buildings expected to generate $20 million in energy savings used to repay investors.

    That wasn’t good enough for Ald. Bob Fioretti (2nd). He’s demanding to know what other projects Emanuel wants to finance with the Infrastructure Trust, how those projects will be chosen and what, if any, user fees may be imposed to make certain that investors get their money back with interest.

    via Chicago Sun-Times.

    Two things about this little power play:

    1. Ald. Fioretti is exactly right.  I’ve written in the past about how no one at City Hall can calculate a ROI or time value of money.  Sad that not one elected official seems to every taken a single semester of economics or finance.
    2. Rahm brought this on himself.  Ald. Fioretti would have been pretty happy just being alderman of the 2nd Ward for some time.  But Rahm wasn’t happy about Bob wanting to run for Mayor and therefore had to be punished.  So if you take a look at the new ward maps, Fioretti’s house is placed all by itself in a ward the bulk of which is miles away.  It’s a joke.

    The Machine is at it again.   Trying to grind it’s way into your pocket with back-room deals between the city and undisclosed entities.

    We get exactly what we vote for.  We voted for this, we deserve it.

  • Illinois Teachers’ Pension Troubles

    It’s important to note that this fund do NOT include CPS teachers.

    Illinois public school teachers and retirees could have reason to worry about the kinds of pension checks they will be getting down the line.  …

    The Springfield State-Journal register reported over the weekend that pension director Dick Ingram sent a memo to his board on Feb. 9, saying he was no longer confident that the state’s largest pension system will continue to pay it enough money to stay above water. The state owes Ingram’s fund $43 billion.  …

    Ingram said pension funding is under severe threat from the state’s unpaid bills, soaring Medicaid costs and the $85 billion in overall unfunded pension liability, which is expected to rise.

    “If that is the case, the only other option available that would significantly change the amount owed is to reduce past service costs for active members and retirees,” Ingram wrote in the memo.  …

    Gov. Pat Quinn addressed the pension crisis shortly after releasing his budget plan in February.  …

    “Everybody is going to get a haircut. No one will get scalped – that’s the basic concept,” the governor added.

    via CBS Chicago.

    Decades of the Machine running both Chicago and the state have led to every government entity in the state not being able to meet it’s obligations.

    This is a wake-up call to not only teachers, but police officers, firefighters, and government workers of every sort.  The good ‘ole days are over.  The gravy train is ending.

    Time to get real.