I was cautious about the details in the new Homeowner Affordability and Stability Plan which was announced on Wednesday. It is going to use $75 billion from the additional $350 billion in TARP funds while accessing the $200 billion in backstops to Fannie Mae and Freddie Mac. Yet one key point, and probably a reason the market ended neutral on Wednesday, is that the plan inches closer at isolating the toxic mortgage waste found in California, Florida, Nevada, and Arizona. In the mean time, it would also seem that California is still unable to have any effective government and is embarrassing itself on the world stage. One of the largest economies in the world and you have politicians brushing their teeth in the halls of Sacramento.
Suburb Cat Thousandaire: How Americans Lost a Decade of Wealth through Debt and Listening to the Banking and Housing Industry.
Not all that glitters is gold. And not everyone touting to be a financial expert should be regarded as such. Americans have lived in what could be considered a decade built on a debt façade. As many Americans strolled their neighborhoods, possibly taking the dog out for a walk, many suddenly would come across a neighbor with a new sleek silver Mercedes Benz or other foreign car. Many thought, “how could it be that they now have the means to afford a $100,000 car?” At this point, many could have resisted the siren call but many actually mistook debt for wealth and went out and went into debt to also get a luxury car. This story replayed itself many times over especially with the allure of the 3 decade long housing bubble.
Monthly Foreclosures and the Dreaded Road Ahead: On Path to another 3,000,000+ Foreclosures for 2009. 1 out of Every 173 Homes Received a Foreclosure Filing in California. 8,800 Foreclosure Filings a Day in the United States.
Foreclosures filings in past economic downturns were usually driven by job losses or contractions in the economy. In our current recession we had an interesting dynamic in that many foreclosures were caused by the actual mortgages given to borrowers. This of course spurred the housing bubble but more importantly, positioned a double whammy for our nation. First, problems started showing up in subprime mortgages followed by Alt-A and Option ARMs and now prime mortgages which then fed into an economy highly built on the real estate and finance sectors and now we are seeing foreclosures for more typical reasons like job losses.
California is facing some troubling times. It has one of the highest unemployment rates at 9.3% and families are trying to figure out ways to stretch their dollar as far as it can go. Now I thought in the middle of all the troubling news out there, I would offer a post that examines how a family making $60,000 a year can survive in California. When I wrote an article about a family living on $46,000 a year in California some people took objection to this nitpicking the budget as if we had developed a budget for someone making $100,000. This is merely a suggestion since most mainstream articles although will highlight the challenges of our current economy, they rarely provide Americans and actual budget to implement. I will try to do that in this article.
Bank Charge-off Rate Highest Since 1992 for Commercial Banks: Credit Cards, Revolving Debt, and the Contraction of Credit.
Charge-off rates are now at a 17 year high since commercial banks are writing off real estate loans, consumer loans, leases, agricultural loans, and other construction loans. The FDIC is going to be bombarded with hundreds of bank failures in the upcoming years simply because their balance sheet does not have the ability to support such a large banking system with assets that have fallen by tremendous amounts. The most recent data tells us that banks are charging off 1.46 percent of all loans. This may seem miniscule but keep in mind with a system leveraged in some cases 30 to 1, this is all it takes to sink a company into a low capital position.
Government Employment and Bankrupt City: Federal and State Government were Last Secure Employment Sectors. Financial and Economic Contraction.
States across the country are facing unprecedented budget shortfalls. A total of 44 states face budget shortfalls, which for all practical purposes puts the entire country in a uniform crisis. The state of California is in a state of fiscal panic. Currently the state faces a $42 billion budget deficit and the State Controller has decided to hold back on income tax refunds in order to pay for other services. It would appear that furloughs are still on there way starting this Friday for tens of thousands of employees. Yet the state still idles in a weird sort of punch-drunk love.
Wealth Evaporation of $40 Trillion: 3 Areas: Global Stock Market Capitalization, U.S. Residential Real Estate, and Oil.
We have never seen so much global wealth destruction happen at once. Global equity markets are off in the 50 percent range and don’t seem to be letting up. We are seeing wealth destruction at an unprecedented rate. We can debate whether inflation will show up but until the U.S. Treasury bubble pops, we can expect to see deflation in our current forecast. I think it is hard for many to comprehend that $40 trillion has evaporated from a few niche markets.