The title of this post is a truism that my father imparted many years ago. I am amazed at how useful it has been for me over the years. I always keep this truism in mind when I hear some talking head spout off a statistic.
Today that truism has served me well once again while watching the opening story 'Bailout Backlash' on NBC Nightly News with Brian Williams. Disappointingly they chose to cover sister network CNBC's Rick Santelli's anti-populist rant as if a bunch of digruntled traders are a cross section of America as the lead. This diary is not about that as I am sure there has been others posted today about this.
What I want to focus on is Trish Regans 'surprising statistic' (Brian Williams' characterization) that 92% of home owners are actually current on their mortgage. This is a useless, meaningless statistic that is meant to sound impressive, but in reality tells almost nothing relevant about the foreclosure crisis.
I will demonstrate why this is so below the fold.
Before I get to my problem with the 92% number, let me post the link to the story first for your viewing pleasure ( or displeasure, not seeking to make a value judgement on your behalf after all):
Visit msnbc.com for Breaking News, World News, and News about the Economy
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Update: OK this MSNBC link goes does not embed when published, you are looking for the Bailout Backlash video clip if you follow the above links.
Now let us take a look at why this "92%" statistic is used in a misleading way.
Let us say it is January in any given year. You have 100 people who currently have mortgages. 92 (or 92%) of them are current on their payments. That means 8 people are behind. Let's say 2 of them are foreclosed on by the end of the month.
Now it is February. We now have 98 home owners. Once again 92% of them are current. That totals 90 people current on there mortgage. That means 2 of the homeowners that were current in January are now behind in February. Let's once again say 2 more people get foreclosed on by the end of February,
We now have 96 home owners, 88 of them are now current, guess what that is once again 92% of the home owners being current.
So over two months we have gone from 100 home owners to 96, but each month that 92% figure still applies. It is a completely vacuous data point from which to base any analysis of the current crisis on.
Unfortunately, the principal exposure to percentage figures in terms of rates Americans are familiar with is the grading scale used at high school and in our universities. That 92% figure sounds like an 'A' to me is kind of the subliminal context which most people will look at a statistic like that being bandied about so out of context. Sure sounds nice, but is essentially meaningless.
It is a shame that our education system fails to provide a basic grounding in understanding statistics to enable people to spot when they are being duped by pretty numbers.
In the end, my guess is that banks actually base the number of troubled mortgages they will negotiate on based on maintaining just this rate to mitigate their losses, some sort of risk management formulation. My guess is, over time, in a good year (one where new mortgages exceed foreclosures) or bad year (the current situation where foreclosures are outpacing new purchases) that banks peg on that 92% figure. These statistics are hard to find however so I am unable to confirm this guess.
So I urge all of you to remember, particularly when watching or reading something from someone with an obvious ideological bent in perspective (as all of the FRE MARKET IS OUR GOD folks on CNBCers have), that:
Figures never lie but liars figure.