Aug 6 2010

Middle class in shambles – more debt, more job losses, more deceit. Banks attempt final push to break up the middle class. Housing values down by 30 percent but total household debt only down by 2 percent.

On Friday the grim reality of more job losses for Americans was plastered across headlines.  What makes this even more distressing is this is occurring during what is supposed to be a recovery.  Yet most Americans realize that there is no recovery outside of Wall Street.  If anything, things have gotten progressively worse as foreclosures are still near their peak, bankruptcies are rising, and wages are stuck or reversing backwards.  The government in conjunction with banking lobbyist and the Fed has decided to punish Americans who actually want to save their money.  How?  By allowing interest rates to be artificially low thus pushing savings account interest rates to all time lows.  Current rates are low not because of a healthy economy, but because most people realize that the economy is still on a shaky foundation.

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Aug 3 2010

Commercial real estate maturities will peak in 2012 – $350 billion in loans coming due and hundreds of additional bank failures. Bank lending in the CRE market collapsing.

The commercial real estate disaster is sinking banks on a weekly basis.  Talk of a V-shape recovery is now largely a moot point since we are past the point of a quick and strong recovery.  The question now revolves around what we are going to face for the next few years.  Commercial real estate really is a harbinger of what went wrong in the last decade.  Banks and builders hungry for massive profits overestimated the demand for Starbucks and Macys locations around the country.  After all, you actually need money to spend and many average Americans are struggling just to pay their monthly bills.  The only way commercial real estate (CRE) was going to do well is if we had a booming population of young and wealthier professionals with more disposable income.  Yet that did not happen.

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Jul 30 2010

40 years of housing data – U.S. homes still too expensive for typical families. In 1970 the median home could be purchased with 657 ounces of gold. Today, it only requires 155 ounces. The erosion of the U.S. dollar

The last 40 years have seen the U.S. housing market transform into a market largely driven by incredible amounts of debt.  The credit card companies understood the basic notion that the monthly payment drove most financial decisions.  Even though people purchase a home with a 30 year mortgage, the implicit understanding was that in a few years the home would be sold again and yet another new mortgage would be taken out.  Housing became like the national debt in that most realized we would never get around to paying it off.  We would simply roll over the debt over and over apparently in an endless process.  Yet this can only go on as long as average Americans have an increase in their standard of living and wages.  The opposite has occurred.  For that reason, housing is expensive in today’s market.  The median sales price of an existing home is $184,000:

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Jul 28 2010

FDIC flashes SOS – 1,000 bank failures before recession is over – FDIC not too far away from tapping into U.S. Treasury $500 billion taxpayer lifeline. Georgia leads the pack with 40 bank failures since 2008.

By the end of the recession, there will be approximately 1,000 bank failures.  Does this sound extreme?  It should but the numbers don’t cover the entire story.  Since 2008 the number of bank failures has reached 269 and this doesn’t include consolidations done through the FDIC where bigger banks ate up smaller banks before they officially failed.  Last week, 7 banks failed.  At that pace, we are looking at 364 bank failures per year and the actual number of closings per week has consistently gone up.  The FDIC is in a precarious situation.  The Deposit Insurance Fund (DIF) is technically speaking, broke.  They have added additional cash reserves by front loading premiums on surviving banks but this can only stunt the financial bleeding for so long.  The problems in the banking system run deep and many of the smaller regional banks are failing because of commercial real estate loans going bad.

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Jul 25 2010

Broken financial generations – U.S. households only have a median of $2,000 saved in retirement accounts. The median net worth for those 25 to 34 is $3,700. Which generation will support the economy going forward? Social Security beneficiaries make up 19 percent of all Americans.

I recently had a conversation with a retired neighbor, a former Navy vet who worked most of his life at a local grocery store.  I wouldn’t call him wealthy but he has his financial house in order; he paid off his home in the early 1990s, has no other debts, and lives well below his means.  His big source of income comes from Social Security.  We talked about the current economy and the strain we are facing.  It was a good conversation and ultimately the mathematical problems we are facing for the working and middle class become extremely obvious when confronted face to face.  We both conceded that government retirement programs will have problems in one or two decades (doesn’t help many who are still working).  The economic issues faced between the generations will cause many hard decisions down the road.

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