The Crisis Circle Is Complete

The Crisis Circle Is Complete: Wells Fargo Returns To Subprime

Tyler Durden's picture

Submitted by Tyler Durden on 02/14/2014 11:46 -0500

Those of our readers focused on the state of the housing market will undoubtedly remember this chart we compiled using the data from the largest mortgage originator in the US, Wells Fargo. In case there is some confusion, as a result of rising interest rates (meaning the Fed is stuck in its attempts to push rates higher), the inability of the US consumer to purchase houses at artificially investor-inflated levels (meaning housing is now merely a hot potato flip fest between institutional investors A and B), and the end of the fourth dead-cat bounce in housing (meaning, well, self-explanatory), the bank’s primary business line – offering mortgages – is cratering.

So what is a bank with a limited target audience for its primary product to do? Why expand the audience of course. And in a move that is very much overdue considering all the other deranged aspects of the centrally-planned New Normal, in which all the mistakes of the last credit bubble are being repeated one after another, Reuters now reports that the California bank “is tiptoeing back into subprime home loans again.

And so the circle is complete.

For those  who may have forgotten the joys of a subprime lending bubble, here is a reminder from Reuters.

The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks.

 

The small steps from Wells Fargo could amount to a big change for the mortgage market. After the subprime mortgage bust brought the banking system to the brink of collapse in the financial crisis, banks have shied away from making home loans to anyone but the safest of consumers.

 

Any loosening of credit standards could boost housing demand from borrowers who have been forced to sit out the recovery in home prices in the past couple of years, but could also stoke fears that U.S. lenders will make the same mistakes that had triggered the crisis.

And in a world in which the new Wells Fargo is the old Wells Fargo, surely there will be companies willing to be the new New Century. Sure enough:

So far few other big banks seem poised to follow Wells Fargo’s lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word “subprime,” lenders are calling their loans “another chance mortgages” or “alternative mortgage programs.”

Also, remember when lenders swore they were very conservative with who they make loans to, and their strict loan standards? Yup: that particular lie is also back.

Lenders say they are much stricter about the loans than before the crisis, when lending standards were so lax that many borrowers did not have to provide any proof of income. Borrowers must often make high down payments and provide detailed information about income, work histories and bill payments. Wells Fargo in recent weeks started targeting customers that can meet strict criteria, including demonstrating their ability to repay the loan and having a documented and reasonable explanation for why their credit scores are subprime.

Uh, there is a reason those borrowers are subprime. And it is: because they traditionally do not pay back their loans! But this appears to be one of those rocket surgery things that a strapped C-Suite has no choice but to confuse as it scrambles to compensate for structural revenue losses, and is willing to boost short-term revenues by offering anyone “who can fog a mirror” a mortgage. Surely, by the time the bank’s balance sheet implodes, it will be some other CEO’s problem.

It is looking at customers with credit scores as low as 600. Its prior limit was 640, which is often seen as the cutoff point between prime and subprime borrowers. U.S. credit scores range from 300 to 850.

But don’t worry, this time it’s different. Really

Subprime mortgages were at the center of the financial crisis, but many lenders believe that done with proper controls, the risks can be managed and the business can generate big profits.

Naturally, once Wells opens the floodgates, every other bank will promptly follow:

With Wells Fargo looking at loans to borrowers with weaker credit, “we believe the wall has begun to come down,” wrote Paul Miller, a bank analyst at FBR Capital Markets, in a research note.

 

Lenders have an ample incentive to try reaching further down the credit spectrum now. Rising mortgage rates since the middle of last year are expected to reduce total U.S. mortgage lending in 2014 by 36 percent to $1.12 trillion, the Mortgage Bankers Association forecasts, due to a big drop in refinancings.

The only missing pillar of the next subprime crisis is the spin that makes subprime lending seem not only ok, but in fact, necessary.

Some subprime lending can help banks, but it may also help the economy. In September 2012, then Federal Reserve Chairman Ben Bernanke said housing had been the missing piston in the U.S. recovery.

 

A recent report from think tank the Urban Institute and Moody’s Analytics argued that a full recovery in the housing market “will only happen if there is stronger demand from first-time homebuyers. And we will not see the demand needed among this group if access to mortgage credit remains as tight as it is today.”

The straw on the camel’s back: just like last time, when this subprime bubble bursts, it will once again drag down Fannie and Freddie. Because humans apparently have a genetic inability to recall any historical lessons older than five years.

Wells Fargo isn’t just opening up the spigots. The bank is looking to lend to borrowers with weaker credit, but only if those mortgages can be guaranteed by the FHA, Codel said. Because the loans are backed by the government, Wells Fargo can package them into bonds and sell them to investors.

 

The funding of the loans is a key difference between Wells Fargo and other lenders: the big bank is packaging them into bonds and selling them to investors, but many of the smaller, nonbank lenders are making mortgages known as “nonqualified loans” that they are often holding on their books.

And not only the GSE: any and all idiots who buy subprime exposure direct, deserve all they get:

Citadel Servicing Corp, the country’s biggest subprime lender, is trying to change that. It plans to package the loans it has made into bonds and sell them to investors.

 

Citadel has lent money to people with credit scores as low as 490 – though they have to pay interest rates above 10 percent, far above the roughly 4.3 percent that prime borrowers pay now.

No story about subprime would be complete without the human touch, and one person’s story.

As conditions ease, borrowers are taking notice. Gary Goldberg, a 63-year-old automotive detailer, was denied loans to buy a house near Rancho Cucamonga, California. Last summer he was forced to move into a trailer park in Las Vegas.

 

Going from 2,000 square feet to 200 – along with his wife and two German shepherd dogs – was tough. He longed to buy a house. But a post-crash bankruptcy of his detailing business had torched his credit, taking his score from the 800s to the 500s.

 

“There was no way I was going to get a mortgage,” said Goldberg. “No bank would touch me.”

 

But in December, he moved into a 1,000-square-foot one-story home that he paid $205,000 for. His lender, Premiere Mortgage Lending, did not care about his bankruptcy or his subprime credit score. That is because Goldberg had a 30 percent down payment and was willing to pay an 8.9 percent interest rate.

Brilliant – an 8.9% interest rate for a person who can barely make ends meet: what can possibly go wrong. Oh wait, we know: maybe the fact that Wells picked the absolutely worst moment to return subprime – just as the broader housing market is about to take yet another steep plunge for the worse, as the recent foreclosure report from RealtyTrac confirmed, when it reported a dramatic 57% increase in California foreclosure starts from a year ago.

From RealtyTrac:

“The monthly increase in January foreclosure activity was somewhat expected after a holiday lull, but the sharp annual increases in some states shows that many states are not completely out of the woods when it comes to cleaning up the wreckage of the housing bust,” said Daren Blomquist, vice president at RealtyTrac. “The foreclosure rebound pattern is not only showing up in judicial states like New Jersey, where foreclosure activity reached a 40-month high in January, but also some non-judicial states like California, where foreclosure starts jumped 57 percent from a year ago, following 17 consecutive months of annual decreases.”

In short – the party is over, and the banks are once again scrambling to delay the day of reckoning as much as possible.

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The Broken Limb and Burst Pipe Fallacies

THE BROKEN LIMB & BURST PIPE FALLACIES

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Posted on 10th February 2014 by Administrator in Economy |Politics |Social Issues

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“Economics is haunted by more fallacies than any other study known to man. This is no accident. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.

In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of man to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.” Henry Hazlitt – Economics in One Lesson

Saturday was the first day since a double shot of snow and ice storms hit the Philadelphia metro area on Monday and Wednesday I had a chance to drive around Montgomery County and witness the devastation firsthand. Over 750,000 homes lost power at the height of the ice storm on Wednesday and over 100,000 remained without power this past weekend. The mainstream media has become such a farce and propaganda machine for vested interests, it is essential to verify with your own eyes everything they report as fact. Their purpose is to entertain the consciously ignorant, exaggerate threats to keep the low IQ multitudes fearful, and function as mouthpieces for the ruling class. Deceitful corporate executives, mendacious government apparatchiks, and oblivious teleprompter reading media talking heads have been utilizing cold weather as an excuse for every poor earnings announcement, horrific employment report, and dreadful decline in retail sales. It certainly has nothing to do with decades of stagnant household income, awful monetary and fiscal policies, or the consequences of Obamacare.

We have become a delusional state dependent upon fallacies to convince ourselves our foolhardy beliefs, ludicrous economic policies, corrupt captured political system, and preposterously fraudulent financial system are actually based on sound logic and reason.  Some fallacies have been perpetrated intentionally by the ruling class to manipulate, sway and deceive the populace, while others have been willfully employed by millions of techno-narcissistic iGadget addicted zombies as a substitute for thinking, reasoning and taking responsibility for the course of our nation.

You have men who constitute the unseen true ruling power of the country making a conscious and intentional effort to peddle fallacies to the masses in order to manipulate, mold, and corral them in a manner beneficial to the ruling power, financially, politically, and socially. The ruling class has been hugely successful in their capture of the public mind, creating a vast majority of the willfully ignorant who desperately grasp at fallacious concepts, beliefs, and storylines in order to avoid dealing with reality and being accountable for their actions and the actions of their leaders.

The fallacy being flogged by government drones and the legacy media about companies not hiring new employees because it has been cold and snowy during the winter is beyond absurd, except to someone who lives in the cocoon of Washington D.C. or regurgitates words processed on a teleprompter by paid minions of the ruling class. If you live in the real world, run a business, or manage employees, you understand weather has absolutely nothing to do with your decision to hire an employee. An organization takes weeks or months to hire employees. They don’t stop hiring because it snowed on Wednesday or the temperature was below normal. The contention that hiring has been weak for the last two months due to weather is outlandish and based upon flawed logic and warped reasoning. It is so illogical, only an Ivy League economist could believe it.

The other fallacy being pontificated by retail executives in denial, cheerleaders on CNBC and the rest of the propaganda press is weather is to blame for terrible retail sales over the last quarter. Again, this argument is specious in its conception. The retail executives use weather as an excuse for their failure in execution, hubris in over-expanding, and arrogance in pursuit of quarterly earnings per share and bonuses. CNBC and the rest of the Wall Street media pawns must provide lame fallacies for the corporate fascists regarding our downward economic path or the masses my wake up to reality. Protecting and expanding the wealth of the parasitic oligarch class is the one and only purpose of the corporate media.

Think about whether cold and snow in the winter will really stop purchases by individuals. If you need a new shirt for work or a pair of sneakers and it snows on Wednesday, you will wait until Saturday to make the purchase. Groceries will be consumed and replenished whether it is cold and snowy, or not. If an appliance or car breaks down, weather will be a non-factor in the new purchase decision. The proliferation of on-line retailing allows everyone to shop from the warmth of their homes. If anything, bad winter weather often spurs stocking up of groceries and the purchase of items needed to contend with winter weather (salt, shovels, coats, hats, gloves). Only an asinine spokes-model bimbo on CNBC could non-questioningly report the press release excuses of retailers. Critical thinking skills and journalistic integrity are non-essential traits among the propaganda mainstream press today.

Revealing the truth about pitiful employment growth and dreadful retail sales would destroy the fallacy of economic recovery stimulated by the monetary policies of the Federal Reserve and fiscal policies of the Federal government. The ruling class must perpetuate the myth that central bankers pumping $3.2 trillion of debt into the veins Wall Street banks and Obama dumping $6.7 trillion of debt onto the shoulders of future generations in order to cure a cancerous disease created by debt, has revived our economy and cured the disease. The unseen governing class cannot admit their traitorous actions have impoverished the working middle class, destroyed small businesses, depleted senior citizens of their savings, and warped our economic system to such an extent that recovery in now impossible. If the ignorant masses were to become sentient, the ruling class would become lamppost decorations.

After discovering water pipes at my rental property had burst due to the extreme cold weather and witnessing the widespread damage caused by the mid-week ice storm, I immediately thought how overjoyed my favorite Keynesian, Ivy League, Nobel Prize winning, New York Times scribbler, Paul (destruction is good) Krugman must be. All this destruction and devastation will be a tremendous boost to the economy according to Krugman and his ilk. This intellectually deceitful, morally bankrupt, despicable excuse for a human being spoke these words of wisdom three days after the 9/11 attacks:

“Ghastly as it may seem to say this, the terror attack – like the original day of infamy, which brought an end to the Great Depression – could even do some economic good.  So the direct economic impact of the attacks will probably not be that bad. And there will, potentially, be two favorable effects. First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.”

He had expanded his broken window beliefs to broken buildings, broken nations, and a broken people. You can’t keep a cunning Keynesian down when they need to propagate discredited fallacies in order to feed their own ego and promote foolish debt fueled spending by government, consumers and corporations as a solution to all economic ills. It makes no difference to a statist like Krugman that Frederic Bastiat had obliterated the preposterous notion that destruction and the money spent to repair the destruction was a net benefit to society, 164 years ago in his essay – That Which is Seen, and That Which is Not SeenBastiat’s logic is unassailable. Only the most highly educated Princeton economists don’t get it.

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son has happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation – “It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade – that it encourages that trade to the amount of six francs – I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

I wonder whether the myopic focus on only immediate impacts and inability of ideologues to understand unintended consequences is premeditated or just erroneous reasoning. The broken window fallacy can now be extended to broken limbs and burst pipes across the Northeast. Huge trees have been toppled, limbs and branches are strewn on the properties of homeowners across the region, homes and businesses have been physically damaged, and power outages wrecked profits at small businesses. Society has gained no benefit whatsoever from the mass destruction wrought by these storms. Thi

s weather induced ruin exposes GDP calculations as useless and misleading regarding the true economic health of the nation. The hundreds of millions in destruction will not be factored into the GDP calculation, but the spending by homeowners and businesses to remove downed trees, fix broken roofs, replace burst pipes and clean-up debris will be factored positively in the GDP calculation. The inevitable politician response will be increased government spending to repair damage to infrastructure. This will also be additive to GDP. Krugman will get a tingle up his leg.

CNBC’s Cramer & Liesman will rave about the unexpectedly strong GDP in the first quarter as proof the economy is doing great. The fallacy that GDP growth and stock market gains are beneficial to the average American will be flogged by the propaganda press at the behest of the ruling class until the last vestiges of national wealth are confiscated by the oligarchs. In the real world, the destruction caused by the harsh winter weather will not benefit society one iota. GDP will reflect the immediate short-term seen impact of the cleanup and repair of property damage. GDP will ignore the unseen opportunity costs which were lost and the long-term consequences of expenditures made to put property back in the condition in which it started. Destruction does not create profit, except in the Keynesian world of Krugman and his Ivy League educated sycophant cronies.

There are 2.5 million households in the Philadelphia metro area. There are hundreds of thousands with trees down, pipes frozen, gutters smashed, roofs leaking and electrical infrastructure damaged. An individual homeowner with a couple of large trees down will need to pay $500 to $1,000 for a tree service to remove the debris from their property. Considering the median household income in Montgomery County, PA is $75,000, that is not an insubstantial sum.

The homeowner did not anticipate this expenditure and will react by not dining out, taking a shorter vacation, not buying that new couch, or not investing in their small business. A landlord who has to repair busted pipes will incur added expense, resulting in less profit. Less profit means less taxes paid to the state and federal government, exacerbating their budget deficits. The landlord will defer replacing that old air conditioner for at least another year. Multiply these scenarios across the entire Northeastern United States and you have the long-term negative financial implications outweighing the short-term boost to GDP.

The Keynesian fallacy of increased economic activity being beneficial is annihilated by the fact homeowners and business owners are left in the same condition as they were prior to the storms, while the money spent to achieve the same property condition was not spent on other goods and services that would have truly expanded the economy. The fallacious government engineered GDP calculation will portray destruction as an economic boost. Keynesian worshiping economists and government bureaucrats observe this tragedy as only between two parties, the consumer who is forced to repair their property and is denied the pleasure of spending their money on something more enjoyable and the tree service company who experiences a positive impact to their business. They exclude the appliance store, restaurant, or hotel that did not receive the money spent on repairing the property. It is this third unseen party who is left out of the equation. It is this third party that shows the absurdity of believing destruction leads to profit and economic advancement. The national economic output is not increased, but highly educated government drones and Wall Street captured economists will point to GDP and disseminate the fallacy.

This leads us to government in general and the fallacy that government spending, government borrowing, and government programs are beneficial to society and the economy. Legalized plunder of the populace through income taxes, real estate taxes, sales taxes, gasoline taxes, cigarette taxes, license fees, sewer fees, tolls, and a myriad of other ass raping techniques is used to subsidize crony capitalist special interests, the military industrial complex, faux wars on poverty, drugs and terror, a failed public education system, vote buying entitlement programs, and a tax code written to benefit those who pay the biggest bribes to the corrupt politicians slithering around the halls of congress.

Government is a criminal enterprise designed to take from the weak and powerless while benefitting the connected and powerful. The government extracts the earnings of citizens and businesses at the point of a gun and redistributes those funds to special interests; funding boondoggles, wars of choice, foreign dictators, and the corporate and banking interests who control the puppet strings of Washington politicians. State organized and legal plunder designed to enrich everyone at the expense of everyone else is the delusional fallacy permeating our cultural mindset today.

President Obama declared my region a disaster area, allowing for government funds to supposedly help in the cleanup efforts. Again, the fallacy of government intervention benefiting society is unquestioned by the ignorant masses. Local and State governments are required by law to balance their budgets. The never ending progression of storms and record cold temperatures has already blown the winter storm budgets of transportation departments across the region. Gaping potholes are swallowing vehicles and will need to be repaired.

Government spokespersons and politicians tell the public not to worry. The government will come to the rescue, even when the funds officially run out. They won’t react the way a family would react to a budget overage, by cutting spending in another area. We have had mild winters in the recent past when the winter road budgets were far under. Did the government set aside this surplus for winters like the one we are currently experiencing? Of course not – they spent it on some other boondoggle program or useless shovel ready bridge to nowhere. Government politicians and their lackeys do not look beyond their 2 year election cycle.

The government budget overages due to winter storms will show up in the GDP calculation as a positive impact. A snowplow pushing snow to the side of the road and a crew filing a pothole has put the roadway back into the condition it was prior to the bad weather. The roadway is exactly the same. The money spent could have been used to pay down debt, fund the government pension shortfalls which will overwhelm taxpayers in the foreseeable future, or be given back to citizens to spend as they choose. There has been no net benefit to society.

No government spending provides a net benefit to society. Every government program, law, regulation, subsidy, tax or fee gives rise to a series of effects. The immediate seen effect may be favorable in the eyes of myopic politicians and an ignorant populace, but most government intervention in our lives proves to be fatal and unsustainable in the long-term. Whatever short-term benefits might accrue is far outweighed by the long-term negative implications on future generations. All government expenditures are foisted upon the public either through increased taxation or state created surreptitious inflation.

We have a country built on a Himalayan mountain of fallacies. We are a short-term oriented people who only care about our present situation, giving no thought about long-term consequences of our policies, programs, laws or actions. Critical thinking skills, reasoning abilities, and a basic understanding of mathematical concepts appear to be beyond our grasp. We’d rather believe falsehoods than deal with the harsh lessons of reality. We choose to experience the severe penalties of burying our heads in the sand over using our God given ability to think and foresee the future consequences of our irrational choices. We suffer from the ultimately fatal disease of ignorance, as described by Bastiat.

This explains the fatally grievous condition of mankind. Ignorance surrounds its cradle: then its actions are determined by their first consequences, the only ones which, in its first stage, it can see. It is only in the long run that it learns to take account of the others. It has to learn this lesson from two very different masters – experience and foresight. Experience teaches effectually, but brutally. It makes us acquainted with all the effects of an action, by causing us to feel them; and we cannot fail to finish by knowing that fire burns, if we have burned ourselves. For this rough teacher, I should like, if possible, to substitute a more gentle one. I mean Foresight.

It’s a big country and one fallacy doesn’t fit all. Some fallacies are committed purposefully by evil men with evil intent. The Wall Street financial elite, big corporations, big media and their politician puppets fall into this category. Other fallacies are executed by people whose salary depends upon the fallacies being believed by the masses. Middle level bankers, managers, journalists, and bureaucrats fall into this category. And lastly you have the willfully ignorant masses who would rather believe fallacies than look up from their iGadgets, Facebook, and Twitter and think. The thing about fallacies is they eventually are buried under an avalanche of reality. If you listen closely you can hear the rumble of snow beginning to give way on the mountaintop. Fallacies are about to be crushed and swept away by the real world of consequences.

“Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.  It was an experience for which the captains of industry were not entirely prepared; they had forgotten the public.  It was like some great convulsion of nature, which made mockery of all the powers of men, and left the beholder dazed and terrified.   In Wall Street men stood as if in a valley, and saw far above them the starting of an avalanche; they stood fascinated with horror, and watched it gathering headway; saw the clouds of dust rising up, and heard the roar of it swelling, and realized it was only a matter of time before it swept them to their destruction…

But it is difficult to get a man to understand something when his salary depends upon him not understanding it.”

Upton Sinclair – The Moneychangers

 

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Treasury Pulls Back As U.S. Hits Debt Ceiling Limit Again!

Treasury pulls back as U.S. hits debt limit again

The first of several “extraordinary measures” to avoid the debt limit has gone into effect.

WASHINGTON – The Treasury Department stopped issuing securities to state and local governments at noon Friday, instituting the first of what will likely be several steps to stay under the debt limit enacted by Congress.

Under the budget deal passed by Congress last November, the debt limit was temporarily suspended — but only through Friday. Beginning Saturday, the debt limit will be reset to its current level, about $17.2 trillion.

Congress has voted to raise the debt ceiling three times since 2011. But it’s missed the deadline each time, forcing the Treasury Department to use what it calls “extraordinary measures” to avoid hitting the debt ceiling.

The first of those measures is to stop accepting deposits from state and local governments, which often need a short-term place to park their proceeds from issuing bonds. Those are called State and Local Government Series bonds, or SLGS.

“From the state and local government’s perspective, it’s more money and more nuisance to them, and that’s unfortunate,” said Bob Eidnier, a tax lawyer with Squire Sanders in Cleveland. “State and local governments that have to deal with this get very flustered.”

The next steps available to the Treasury would be to delay payments to some pension funds, and to spend down an emergency currency reserve fund.

STORY: Treasury says this debt limit deadline is different

In the past, those measures have lasted as long as five months. But this time, Treasury Secretary Jacob Lew has warned Congress that they have only until late February before the United States would be forced to default. That’s because the Treasury has more money going out than coming in as tax season begins and the IRS starts issuing tax refunds.

Senate Budget Chairwoman Patty Murray, D-Wash., said the expiration of borrowing authority signals “another round of Republican debt limit drama.”

“We’re now at a point when the Treasury Department will have to take extraordinary measures to ensure the United States can continue to make the payments it owes, including Social Security checks and even tax refunds,” she said. “There’s no reason to drag this out any longer.”

But House Speaker John Boehner, R-Ohio, said Thursday that lawmakers were “still looking for the pieces to this puzzle” and that “no decision has been made” on how to package a debt limit increase.

In the past, Republicans have demanded spending cuts and other budget changes as part of any deal to increase the debt limit, and Boehner said any vote to increase the limit would be controversial. “If Congress wanted to make Mother Teresa a saint, and attach that to the debt ceiling, we probably couldn’t get 218 votes.”

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You Can Buy A House For One Dollar Or Less In Economically Depressed Cities All Over America

You Can Buy A House For One Dollar Or Less In Economically Depressed Cities All Over America

 By Michael Snyder, on February 2nd, 2014 

 

Free House In Yakima, WashingtonWould you like to buy a house for one dollar?  If someone came up to you on the street and asked you that question, you would probably respond by saying that it sounds too good to be true.  But this is actually happening in economically-depressed cities all over America.  Of course there are a number of reasons why you might want to think twice before buying any of these homes, and I will get into those reasons in just a little bit.  First, however, it is worth noting that many of the cities where these “free houses” are available were once some of the most prosperous cities in the entire country.  In fact, the city of Detroit once had the highest per capita income in the entire nation.  But as millions of good jobs have been shipped overseas, these once prosperous communities have degenerated into rotting, decaying hellholes.  Now homes that once housed thriving middle class families cannot even be given away.  This is happening all over America, and what we are witnessing right now is only just the beginning.

The photo that I have posted below was sent to me by a reader just the other day.  It is a photo of a house in Yakima, Washington that is apparently being given away for free.  At one time it was probably quite a lovely home, but now nobody seems to want it…

Free Home In Yakima, Washington

This piqued my curiosity, so I started doing some research and I discovered that homes all over the nation are being sold off for a dollar or less.  The following are just a few examples…

Buffalo, New York: “The Urban Homestead Program that is offered by the City of Buffalo enables qualified buyers to purchase a home that has been deemed ‘homestead eligible’ for $1.00 and there are plenty of properties left. There are three main requirements when purchasing a homestead property; the owner must fix all code violations within 18 months, have immediate access to at least $5000, and live there for at least three years. You also have to cover the closing costs of the purchase.”

Gary, Indiana: “Officials say that a third of the houses in Gary are unoccupied, hollowed dwellings spread across a city that, like other former industrial powerhouses, has lost more than half its population in the last half-century.

While some of those homes will be demolished, Gary is exploring a more affordable way to lift its haggard tax base and reduce the excess of empty structures: sell them for $1.”

South Bend, Indiana: “How could you refuse this offer? The city of South Bend, Indiana wants to give this handsome circa-1851 Italianate farmhouse away to anyone willing to properly restore it. Aside from the boarded up windows (the boards are painted to look like real windows), the place is in pretty good shape, with a completely restored exterior, new roof, and all new HVAC, plumbing and electrical systems. All you’ll need to do is restore the gutted (but clean as can be) interior.”

Detroit, Michigan: “Now that the motor city has effectively run out of gas and declared bankruptcy, some rather eye-popping deals are presenting themselves to first time home buyers who appreciate the challenge of a fixer-upper.

Hundreds of Detroit homes currently listed on Zillow have asking prices below $5,000, with at least one seller so desperate as to offer his house for just $1, ABC News reported.”

—–

And guess who is selling more “one dollar homes” than anyone else?

If you guessed “the federal government” you would be correct.

Right now, the federal government is selling foreclosed homes to low income families all over the country for just one dollar

HUD’s Dollar Homes initiative helps local governments to foster housing opportunities for low to moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.

Dollar Homes are single-family homes that are acquired by the Federal Housing Administration (which is part of HUD) as a result of foreclosure actions. Single-family properties are made available through the program whenever FHA is unable to sell the homes for six months.

By selling vacant homes for $1 after six months on the market, HUD makes it possible for communities to fix up the homes and put them to good use at a considerable savings.

Before you get too excited, there are a whole bunch of reasons why you wouldn’t want to actually buy any of these one dollar homes.

First of all, most of them have been totally trashed.  Just to get them up to livable condition would take thousands of dollars in most cases.  Many of them are full of asbestos, and severe wiring and plumbing issues are quite common.

Secondly, you assume all of the liability for a home when you buy it.  So if a homeless person stumbles in and injures himself, you could be liable for his injuries.

Thirdly, many of these homes are in very high crime neighborhoods.  In some of these areas, people will literally rip up and carry away anything that is not bolted down.

Fourthly, property taxes are very high in many of these cities.  Local governments are desperate to get people into these homes so that they can get the taxes flowing again.  In many cases, what you would pay in taxes for a year is more than the true value of the home itself.

So, like I said, these homes are not the “great deal” that they may appear to be at first glance.

But that is not really the issue.

The real question is this: What is causing our communities to decay so dramatically?

And of course a big part of the answer is that the middle class in America is dying.

According to Time Magazine, one new report has discovered that nearly half the country is constantly living in a state of “persistent economic insecurity”…

But as evidenced by a report out Thursday from the Corporation for Enterprise Development, nearly half of Americans are living in a state of “persistent economic insecurity,” that makes it “difficult to look beyond immediate needs and plan for a more secure future.”

That same report also found that 56 percent of all Americans now have “subprime credit”.

We are a nation that is losing our independence and sinking into poverty.

Right now, 49.2 percent of all Americans are receiving benefits from at least one government program, and the U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.

Millions of our jobs have been shipped overseas, the control freak bureaucrats that are running things are absolutely killing “the little guy”, and poverty in the United States is exploding at a frightening pace.

Things are “changing” in this country, and not for the better.

One way that the death of the middle class is manifesting itself is in the death of shopping malls all over America.  The following is an excerpt from a recent Business Insider article

All across America, once-vibrant shopping malls are boarded up and decaying.

Traffic-driving anchors like Sears and JCPenney are shutting down stores, and mall owners are having a hard time finding retailers large enough to replace them. With a fresh wave of closures on the horizon, the problem is set to accelerate, according to retail and real estate analysts.

According to that same article, one prominent retail analyst believes that we could see up to 50 percent of the shopping malls in America close within 20 years…

Within 15 to 20 years, retail consultant Howard Davidowitz expects as many as half of America’s shopping malls to fail. He predicts that only upscale shopping centers with anchors like Saks Fifth Avenue and Neiman Marcus will survive.

And did you catch that last part?  Only the shopping malls in wealthy areas will survive because the wealthy will be the only ones with enough money to support them.

For much more on this phenomenon, please see my previous article entitled “What Recovery? Sears And J.C. Penney Are DYING“.

At this point, things have already gotten so bad that now even Wal-Mart is having trouble.  In fact, Wal-Mart is blaming the recent slowdown in sales on cuts to the federal food stamp program

Wal-Mart announced today that cuts in a federal food stamp program as well as record cold temperatures hurt its fourth quarter profits.

After previously reporting “relatively flat” sales for the quarter, Wal-Mart Stores Inc. now says that sales for its namesake store and its Sam’s Club locations would be “slightly negative” for the November-January quarter, according to Agence France-Presse.

Wal-Mart’s Chief Financial Officer, Charles Holley, blamed the revised forecast on deeper-than-expected cuts to the U.S. Supplemental Nutrition Assistance Program (SNAP) and the extreme cold weather occurring in the past month.

This is how far the middle class in America has fallen.  So many people are now on food stamps that even a slight reduction in benefits has a huge impact on the largest retailer in the entire country.

And actually, many rural communities could end up losing their Wal-Mart stores in the years ahead as the economy continues to deteriorate.  In a recent CNBC article entitled “Time to close Wal-Mart stores? Analysts think so“, it was suggested that Wal-Mart should close about 100 “underperforming” supercenters in rural locations around the nation.

We are rapidly becoming “two Americas”.  In the “good America”, the wealthy will still have plenty of retail stores to choose from within easy driving distance from their million dollar homes.

In the “bad America”, which will include most of us, our shopping malls will be closing down and the rotting, decaying homes of our neighbors will be sold off for next to nothing.

So which America do you live in?

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WARPED, DISTORTED, MANIPULATED, FLIPPED HOUSING MARKET

 

The report from RealtyTrac last week proves beyond the shadow of a doubt the supposed housing market recovery is a complete and utter fraud. The corporate mainstream media did their usual spin job on the report by focusing on the fact foreclosure starts in 2013 were the lowest since 2007. Focusing on this meaningless fact (because the Too Big To Trust Wall Street Criminal Banks have delayed foreclosure starts as part of their conspiracy to keep prices rising) is supposed to convince the willfully ignorant masses the housing market is back to normal. It’s always the best time to buy!!!

The talking heads reading their teleprompter propaganda machines failed to mention that distressed sales (short sales & foreclosure sales) rose to a three year high of 16.2% of all U.S. residential sales, up from 14.5% in 2012. The economy has been supposedly advancing for over four years and sales of distressed homes are at 16.2% and rising. The bubble headed bimbos on CNBC don’t find it worthwhile to mention that prior to 2007 the normal percentage of distressed home sales was less than 3%. Yeah, we’re back to normal alright. We are five years into a supposed economic recovery and distressed home sales account for 1 out of 6 all home sales and is still 500% higher than normal.

The distressed sales aren’t even close to the biggest distortion of this housing market. The RealtyTrac report reveals that all-cash purchases accounted for 42% of all U.S. residential sales in December, up from 38% in November, and up from 18% in December 2012. Does that sound like a trend of normalization? There were five states where all-cash transactions accounted for more than 50% of sales in December – Florida (62.5%), Wisconsin (59.8%), Alabama (55.7%), South Carolina (51.3%), and Georgia (51.3%). In the pre-crisis days before 2008, all-cash sales NEVER accounted for more than 10% of all home sales. NEVER. This is all being driven by hot Wall Street money, aided and abetted by Bernanke, Yellen and the rest of the Fed fiat heroine dealers.

 

The fact that Wall Street is running this housing show is borne out by mortgage applications languishing at 1997 levels, down 65% from the 2005 highs. Real people in the real world need a mortgage to buy a house. If mortgage applications are near 16 year lows, how could home prices be ascending as if there is a frenzy of demand? Besides enriching the financial class, the contrived elevation of home prices and the QE induced mortgage rate increase has driven housing affordability into the ground. First time home buyers account for a record low percentage of 27%. In a normal non-manipulated market, first time home buyers account for 40% of home purchases.

 

Price increases that rival the peak insanity of 2005 have been manufactured by Wall Street shysters and the Federal Reserve commissars. Doctor Housing Bubblesums up the absurdity of this housing market quite well.

The all-cash segment of buyers has typically been a tiny portion of the overall sales pool.  The fact that so many sales are occurring off the typical radar suggests that the Fed’s easy money eco-system has created a ravenous hunger with investors to buy up real estate.  Why?  The rentier class is chasing yields in every nook and cranny of the economy.  This helps to explain why we have such a twisted system where home ownership is declining yet prices are soaring.  What do we expect when nearly half of sales are going to investors?  The all-cash locusts flood is still ravaging the housing market.

The Case-Shiller Index has shown price surges over the last two years that exceed the Fed induced bubble years of 2001 through 2006. Does that make sense, when new homes sales are at levels seen during recessions over the last 50 years, and down 70% from the 2005 highs? Even with this Fed/Wall Street induced levitation, existing home sales are at 1999 levels and down 30% from the 2005 highs. So how and why have national home prices skyrocketed by 14% in 2013 after a 9% rise in 2012? Why are the former bubble markets of Las Vegas, Los Angeles, San Diego, San Francisco and Phoenix seeing 17% to 27% one year price increases? How could the bankrupt paradise of Detroit see a 17.3% increase in prices in one year? In a normal free market where individuals buy houses from other individuals, this does not happen. Over the long term, home prices rise at the rate of inflation. According to the government drones at the BLS, inflation has risen by 3.6% over the last two years. Looks like we have a slight disconnect.

 

This entire contrived episode has been designed to lure dupes back into the market, artificially inflate the insolvent balance sheets of the Too Big To Trust banks, enrich the feudal overlords who have easy preferred access to the Federal Reserve easy money, and provide the propaganda peddling legacy media with a recovery storyline to flog to the willingly ignorant public. The masses desperately want a feel good story they can believe. The ruling class has a thorough understanding of Edward Bernays’ propaganda techniques.

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.”  

Ben Bernanke increased his balance sheet by $3.2 trillion (450%) since 2008, and it had to go somewhere. We know it didn’t trickle down to the 99%. It was placed in the firm clutches of the .1% billionaire club. Bernanke sold his QE schemes as methods to benefit Main Street Americans, when his true purpose was to benefit Wall Street crooks. 30 year mortgage rates were 4.25% before QE2. 30 year mortgage rates were 3.5% before QE3. Today they stand at 4.5%. QE has not benefited average Americans. They are getting 0% on their savings, mortgage rates are higher, and their real household income has fallen and continues to fall.

But you’ll be happy to know banking profits are at all-time highs, Blackrock and the rest of the Wall Street Fed front running crowd have made a killing in the buy and rent ruse, and record bonuses are being doled out to the men who have wrecked our financial system in their gluttonous plundering of the once prosperous nation. Their felonious machinations have added zero value to society, while impoverishing a wide swath of America. Bernanke, Yellen and their owners have used their control of the currency, interest rates, and regulatory agencies to create the widest wealth disparity between the haves and have-nots in world history. Their depraved actions on behalf of the .1% will mean blood.

 

Just as Greenspan’s easy money policies of the early 2000’s created a housing bubble, inspiring low IQ wannabes to play flip that house, Bernanke’s mal-investment inducing QEternity has lured the get rich quick crowd back into the flipping business. The re-propagation of Flip that House shows on cable is like a rerun of the pre-bubble bursting frenzy in 2005. RealtyTrac’s recent report details the disturbing lemming like trend among greedy institutions and dullard brother-in-laws across the land.

  • 156,862 single family home flips — where a home is purchased and subsequently sold again within six months — in 2013, up 16% from 2012 and up 114% from 2011.
  • Homes flipped in 2013 accounted for 4.6% of all U.S. single family home sales during the year, up from 4.2% in 2012 and up from 2.6% in 2011

 

The easy profits just keep flowing when the Fed provides the easy money. What could possibly go wrong? Home prices never fall. A brilliant Ivy League economist said so in 2005. The easy profits have been reaped by the early players. Wall Street hedge funds don’t really want to be landlords. Flippers need to make a quick buck or their creditors pull the plug. Home prices peaked in mid-2013. They have begun to fall. The 35% increase in mortgage rates has removed the punchbowl from the party. Anyone who claims housing will improve in 2014 is either talking their book, owns a boatload of vacant rental properties, teaches at Princeton, or gets paid to peddle the Wall Street propaganda on CNBC.

 

Reality will reassert itself in 2014, with lemmings, flippers, and hedgies getting slaughtered as the housing market comes back to earth with a thud. The continued tapering by the Fed will remove the marginal dollars used by Wall Street to fund this housing Ponzi. The Wall Street lemmings all follow the same MBA created financial models. They will all attempt to exit the market simultaneously when their models all say sell. If the economy improves, interest rates will rise and kill the housing market. If the economy tanks, the stock market will plunge, creating fear and killing the housing market. Once it becomes clear that prices have begun to fall, the flippers will panic and start dumping, exacerbating the price declines. This scenario never grows old.

Real household income continues to fall and nearly 25% of all households with a mortgage are still underwater. Young people are saddled with $1 trillion of government peddled student loan debt and will not be buying homes in the foreseeable future. Dodd-Frank rules will result in fewer people qualifying for mortgages. Mortgage insurance is increasing. Obamacare premium increases are sucking the life out of potential middle class home buyers. Retailers have begun firing thousands. The financial class had a good run. They were able to re-inflate the bubble for two years, but the third year won’t be a charm. In a normal housing market 85% of home sales would be between individuals using a mortgage, 10% would be all cash transactions, less than 5% of sales would be distressed, and 40% would be first time buyers. In this warped market only 40% of home sales are between individuals using a mortgage, 42% are all cash transactions, 16% are distressed sales, 5% are flipped, and only 27% are first time buyers. The return to normalcy will be painful for shysters, gamblers, believers, paid off economists, Larry Yun, and CNBC bimbos.

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