Marx Was Right (Or Not)! (Insider On Banks Versus Housing Market) New Idea For Banks: Getting Rid Of Mortgage Exposure Originated Elsewhere & Why Japan Soooo Screwed!

Before we begin with the real insights into our travestied country's future (and past), we need to comprehend exactly why the banks will never lend to us (and, no, I'm not talking about the "rich" - they own the banks, they can get zero interest loans anytime they desire) again. And, no. I'm not kidding.

Oh, and P.S.: This word may be just getting to you (the public), but they've known it for years. Hell, they've banked on it.

From my buddy R.J. at the Global Glass Onion blog:

. . . the LPS Mortgage Monitor Report for July . . . was released this week; it’s showing a continuing complete breakdown in the process of foreclosing on delinquent homes, with the average loan in the foreclosure process now being there for a record 599 days; this means that the 2.16 million homeowners who are being foreclosed on manage to live in their house rent free for an average of nearly 20 months; this suggests to me that either the banks don't want to own anymore homes, or, in the case of judicial foreclosure states, the banks are unable to show they have the right to foreclose, which would be mostly due to loss of clear chain of title during the frantic housing boom years when the MERS electronic tracking broke down, giving rise to the robosigning of fraudulently created documents . . .

in some states, it's broken down completely, Mish ran the story with the headline "Foreclosure Pipeline in NY is 693 months and 621 Months in NJ", meaning that at the rate foreclosures are moving through the courts in those states, it would take 57 and 51 years respectively for each to clear the backlog...the LPS report also showed significant delays in moving delinquent homeowners into foreclosure; of the 1.9 million loans that were reported 90 or more days delinquent but not yet in foreclosure, 42% have not made a payment in more than a year, with an average delinquency of 397 days, which was also a new record . . .

LPS also reported 2.48 million loans that were less than 90 days delinquent; those are the ones most like to “cure”, ie, the missed payments may be made up before foreclosure can be i(n)it(i)ated…the total of 6.54 million loans in trouble gives us a total of 12.45% of mortgages delinquent or in foreclosure; in other words, more than one in 8 homeowners with mortgages aren't making payments on them…tells you a lot about how consumer spending could rise another .8% in July in the face of stagnant income growth...

of course, this mess is the reason the banks are in trouble as well; this week we’ve had several lawsuits filed against them for their shoddy bundled securities, the big one initiated by the FHFA (Federal Housing Finance Agency), acting on behalf of Fannie & Freddie . . .

they have sued 17 major banks, including BofA & JPMorgan, in an attempt to recoup losses on $196 billion the GSEs spent on mortgage-backed securities bought from the banks, alleging that the mortgages included in the securities were misrepresented as being sounder than the banks knew them to be, and accusing them of “violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities”; in addition to that federal suit, Bank of America was hit with a lawsuit by the Nevada attorney general, alleging that BofA “misrepresented, both in communications  . . . and in documents they recorded and filed, that they had authority to foreclose (and) knew that they had never properly transferred . . .

these mortgages to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law.(they) never became holders of these mortgages, (and) lacked authority to collect or foreclose on their behalf and never should have represented they could”…moreover, evidence is starting to turn up that fraudulent robosigning was going on as early as 1998, tainting title to tens of thousands of homes, and document fabrication by BofA & other servicers is still going on now after the banks swore off the practice in a settlement earlier this year . . .

as if those two mentioned suits alone werent enough to put an end to “50 state” attorney generals settlement, the FDIC has weighed in on the side of the objecting AGs, Schneiderman of NY and Biden of delaware, as owners of some of the covered securities by virtue of their being receiver for failed banks, saying they lack sufficient information to tell if the settlement is appropriate; also, the National Consumer Law Center, representing homeowners, is also objecting to provisions in that settlement that would put foreclosures on a fast t(r)ack . . .

needless to say, Bank of America is reeling despite Warren Buffett’s cash infusion; this week they’ve sold their share of the China Construction Bank and have put their Countrywide lending unit up for sale; moreover, the Federal Reserve has asked them to provide contingency plans for a breakup or spinoff of their Merrill Lynch unit...and in the "you can't make this stuff up" department, S&P has rated the first tranche of 48.85% from a bundle of 5,629 performing subprime loans as AAA, a better rating than they give the US, the country the houses borrowed on are sitting in….

From the horse's mouth:

10 Reasons 2011 Should and Will Begin the Apocalypse

Does America Need Manufacturing? What Does Mr. Arithmetic Tell Us?  

Dean Baker

The NYT devoted a major Sunday magazine piece to this question.

It never raised the most fundamental question, if we buy all our manufactured goods from someone else, how are we going to pay for them?  We have a surplus on services of around $170 billion a year, less than 1.2 percent of GDP. If we lost all our manufacturing, then the deficit on goods would increase by about $1.2 trillion to more than 13 percent of GDP. What services do we think that we will export to make up this gap? We are rapidly losing ground in many areas.

For example in software and computer services we are already a big net importer from India.  One of our biggest surplus areas is tourism. This raises the prospect that the anti-manufacturing crowd thinks that we are too sophisticated to work in factories, but not to clean toilets and make beds.

There is nothing wrong with (the) latter (I have done it as a summer job), but it's not what most folks would consider upscale employment. The bottom line is that unless we think someone is going to hand us trillions of dollars worth of manufactured goods for nothing indefinitely, then there is zero doubt that America needs manufacturing. It also needs people writing on economic issues who know arithmetic.

Moving on from the real news . . .

02 Sep 2011

Karl Marx Was Wrong

The following post is by Dealbreaker reader and commenter Infinite Guest.

First Nouriel Roubini, soon afterward George Magnus, and since then the vast and vacuous consensusphere have lately given currency to notion that Karl Marx was right after all. “Marx was right” is just the sort of opinion a person might venture late at night during a navel-gazing undergraduate debate, or at a party — if he needed some privacy – or perched on a soapbox in Times Square.

A well-heeled literary critic might work it up into a sly, chatty, modestly successful book. It’s difficult to accept at this late date that any serious thinker actually believes that Marx was right. Belief in Marxism serves no one but Marxist thugs. Marxism is dead and buried, and deservedly so, because Karl Marx was wrong.

Both Mr. Magnus and Dr. Roubini have it that we are now in the midst of a textbook crisis of Capitalism. They assert that prolonged income inequality in the United States, being the result of a sustained high return to capital, has led to the weak aggregate demand that underlies all such crises just as Marx described. At that point the two men diverge. Mr. Magnus goes on to prescribe a set of essentially Keynesians remedies. Dr. Roubini, ever the Cassandra, writes off the foreseeable future as incurably depressed, with worldwide “massive social and political instability” as the unemployed masses take to the streets.

It’s not wrong to observe that aggregate demand has fallen in advanced economies, nor is it unusual to put forward Keynesian policy recommendations, nor is it a crime to express disappointment at the impact of the Western world’s fiscal and monetary attempts to prime the pump. It’s reasonable to fear that we’re slipping into a double-dip recession, if we’re not already in one. If Karl Marx had said, “Capitalism has its ups and downs, and it’s difficult to keep everyone happy all the time solely through markets,” then, sure: who would argue? 

But that’s not what Karl Marx said. He said, “Capitalism contains the seeds of its own destruction.” He said it was inevitable that each successive crisis would be progressively more severe until the whole mess would one day spontaneously collapse in upon itself and burn in the flames of the glorious workers’ revolution. And then every other bad thing would fall away, under a benign and idyllic revolutionary dictatorship of the proletariat, until even that fell away and the brotherhood of man achieved Communist perfection.

None of which will ever happen.

This is no crisis of Capitalism; not in the Marxist sense. People are not rioting in the streets because of over-production or because of rising income inequality in the advanced economies. They’re rioting in the streets because they suffer under terrible governments who have proven themselves incompetent at managing credit and inflation, among other things. They’re rioting in the streets because cellphones and social media have made it easy for people, including criminals, to organize themselves. This is a social crisis. Credit is a social phenomenon. Inflation, whether you view it as a monetary phenomenon or not, is an organizing principle of society. The one degree of freedom in valuing any asset is its future utility in the context of the society that produced it. 


The fact that credit is a social activity is why we have capital markets. Different participants have different ideas of the relative social value, and implicitly, creditworthiness, of different investable assets. If markets are broken, that’s only a sign that investors are socially too close together in their thinking. We’ve all moved very quickly from a society that rated houses risk-free to a society that rates nothing risk-free while at the same time becoming progressively more risk-averse. Consequently the public, through the monopsony buying of the state, has become the reluctant owner of a massive catalogue of assets that nobody actually wants. When everyone tries to externalize every possible risk, all at the same time, how can anything get done?

Income inequality within the advanced economies has grown over the past thirty years – contingent upon how you measure it. During every economic downturn, fashionable people point to income inequality in the United States as a canary in the coal mine foretelling the impending onset of a bloody class war. No. Real income inequality is between people who live in rich countries and people who live in poor countries. In that dichotomy, the Western working class is a partner to the Western Capitalist in the “exploitation” of third world factory workers. 

Factory workers who have not overproduced in the Marxist sense. Factory workers who, thanks to Capitalism, have seen their standard of living rise nearly every year since the fall of the Berlin Wall regardless of how you measure it. Income inequality in the United States may or may not be at a concerning level, temporarily at least. But it has not put a dent in corporate profits, which according to Karl Marx, who was wrong, is a necessary precondition for any crisis of Capitalism. The poverty trap that a family making less than $75,000 falls into whether they work or not is a much bigger social problem. That trap is clearly defined and clearly constructed by bad policy. Income inequality is not.

I understand why Dr. Roubini, who is an academic, would want to re-read Marx. I can see where Mr. Magnus would feel that, in order to make his real argument to the state and the people, he could get better traction by saying something a little scary. I’m not surprised, really, that the same medium that circulates videos of cats playing the piano also re-circulates and resuscitates long-dead and discredited ideas like Marxism. Bringing Marx back from the grave is not helpful, though. Marx was wrong because his model society, of human behavior, was wrong.

Haven’t we had enough of the wrong models already?

• New Idea For Banks: Getting Rid Of Exposure To Terrible Mortgages Originated Elsewhere Matt Levine2

in

Yesterday Bloomberg reported that BofA is getting out of its correspondent mortgage business. That business, if you need a little refresher, works as follows:

1. Bank of a Horrible Small Town originates a mortgage
2. BoaHST sells mortgage to BofA, repping that there’s nothing wrong with it
3. BofA sells mortgage to securitization/GSE, also repping that there’s nothing wrong with it
4. There’s something wrong with it!
5. Investors/GSE sue BofA on the reps
6. BofA tries to sue BoaHST but it’s gone out of business/gone to jail/been replaced by tumbleweed
7. BofA is sad/broke

So you could see why that would be unattractive.

Sadly, you know what might be even less attractive? Originating mortgages yourself, if you are BofA – Bloomberg notes that 27% of BofA’s outstanding rep/warranty claims are from correspondent lending, but 54% of new originations are from correspondents. That’s not apples to apples (no one knows how the current vintage will turn out) but also not encouraging work by BofA’s retail channels.

Meanwhile, in another part of town, Goldman today closed on its sale of Litton Loan Servicing, which it bought to extend its tentacles into servicing so that it could better trade mortgage securities. And then sold when that turned out to be a bit more trouble than it was worth.

You would think that only so much could go wrong with a servicing business, which doesn’t really have significant credit exposure to the underlying loans. You would be wrong. In order to be allowed to get rid of Litton, Goldman had to agree to consent orders with the Fed and New York regulators acknowledging robo-signing problems, promising not to do it again, and leaving open potential monetary penalties. And this:

If Goldman Sachs re-enters the mortgage servicing business while the action is in effect, it will be required to implement enhanced corporate governance, risk-management, compliance, borrower communication, servicing and foreclosure practices comparable to what the 14 mortgage servicers are implementing.

Somehow it does not feel like Goldman is anxious to re-enter the mortgage servicing business.

Terrible, Horrible, No Good, Very Bad Jobs Numbers
Friday, 09/2/2011 - 10:50 am by Mike Konczal |Comments  

Will dismal jobs numbers spur action in time to change course?

Payroll data came in this morning showing zero net new jobs. Actually, it came in at +17,000 private payroll jobs, -17,000 public payroll jobs. The government continues to drop jobs, shedding around 600,000 since the beginning of the recession. This has become a major disaster that has increased the ranks of the unemployed and put downward pressure on demand at the worst possible time.

The terrible private payroll jobs numbers need to be taken into account along with two other worrisome signs. Firstly, in the previous two months job numbers were revised down, making the anemic recovery even worse. June dropped from 46,000 to 20,000 jobs created, and July went from 117,000 down to 85,000. The labor market is even weaker than we thought.

The second sign is that major indicators surrounding those who do have a job are weak. Let’s look at the total amount of hours worked in the economy, production and non-supervisory hours. The Bureau of Labor Statistics adds up all the hours worked in the economy and plots them on a graph, divided by a previous year to set a baseline. This is total hours worked in the entire economy, not hours per employee or anything like that. And that number declined in August:



We haven’t seen such a small number of hours worked since November 2004 or March 1999. And as you can see (if you squint), it dropped during August, as it did for total aggregate weekly payrolls.

Average weekly earnings and average weekly hours both dropped slightly. We need these numbers to be taking off, not holding steady or declining. So the economy isn’t working even for those with a job. Also, declining weekly earnings mean there are going to be even less inflationary pressures in the economy than we thought.

Meanwhile, the average duration of unemployment has dropped while the median has increased. It’s too early to tell, but that’s a troubling sign with weak job growth — it means that we are likely seeing more and more unemployed people simply dropping out of the labor force instead of finding a job. This will continue to make the unemployment rate a less important indicator than the employment-to-population ratio.

One thing terrible jobs numbers could do is galvanize public and elite opinion in a way that weak jobs numbers wouldn’t. In the next few weeks, there could be movement in the three major initiatives needed for recovery. President Obama is going to lay out an agenda for fiscal stimulus, the Federal Reserve is having a two-day meeting to determine monetary stimulus, and numerous things appear to be underway in the housing market, including FHFA suing the major banks and several attorneys general breaking from the cover-up-like proposed settlement to investigate foreclosure fraud. We’ll see if it is all too little, too late for the economy as it is.

Mike Konczal is a Research Fellow at the Roosevelt Institute.
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Japan's Soooo Screwed... and So Are We!

Japan's newly appointed prime minister, Yoshihiko Noda, far left, and members of his government demonstrate the extent of just how hard the Japanese public is going to be shafted.

While there are certain differences between Japan, the US and eurozone, there are also important similarities. Most notably, they all are in the throes of the terminal decline that is the fate of all democracies.

Just below is a revealing quote from a New York Times article this week; at a glance, it paints the future of the US and Europe as the pandering politicians continue with the pretense of being able to solve the intractable problems that have piled up over decades without offending any significant voting constituency.

TOKYO - As Japan's fiscally conservative finance minister, Yoshihiko Noda long sounded the alarm on the nation's ballooning government debt. It is more than twice the size of its $5 trillion economy - and rated more risky than that of Italy and Spain.

Now, after being elected Japan's prime minister this week in response to the nation's natural and nuclear disasters, the question is whether Mr. Noda can administer his prescription: raise taxes while reining in spending.

"We will no longer spend wastefully as if we are pouring buckets of water into a sieve," Mr. Noda declared in a speech on Monday just before Japan's ruling Democratic Party elevated him to the top job.

But that political resolve could prove hard to sustain - and not simply because of the systemic weaknesses that have resulted in six prime ministers in the last five years.

This is a country that was already addicted to its public spending, even before the huge needs of the postquake reconstruction. The last time the Japanese government ran a budget surplus was in 1992, almost two decades ago. Tax income now covers less than half of Japan's annual budget.

Summing the situation up, Japan and the other aging democracies will continue to degrade until the point where the monetary system collapses. And collapse it will - under the unsustainable weight of the unreasonable demands made by a public unwilling or unable to understand the importance of having an unequivocal and unambiguous form of money - money that is unassailable by unscrupulous politicians.

It will be interesting to watch Prime Minister Noda twist and turn as he tries to navigate between a rock and a hard place. You'll want to keep a close eye on the situation, because as Japan goes, so, in time, will we.

Watch those hand signs!
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