As we’ve learned in the past day, the President and the First Lady have received a very warm reception in Ireland. But, Irish eyes aren’t exactly smiling at Tim Geithner these days. (Then again, many aren’t too happy with him in the U.S., either.)
Up until yesterday, it had received scant notice in the MSM over the past few weeks, but the fact of the matter is, barring some miraculous act of God in coming months, around half of all U.S. homeowners with mortgages (or, approximately 35% of ALL American homeowners—that’s somewhere in the neighborhood of 60-70+ million present and former members of the U.S. middle class) will be underwater (owing more on their homes than they’re worth) by the end of 2011. (Zillow’s telling us the number’s around 28%-29% as of Q4 ’10 and/or Q1 ’11; Rasmussen notes that more than half of the mortgageholders in the U.S. think they owe more on their homes than they’re worth, right now. See the link HERE. As I noted, earlier in the year, I believe we’re somewhere in-between, but well on our way to 50% of all mortgageholders being underwater, by some point later in the year.) That’s somewhere around twice the amount of folks who were upside down in their mortgages when the President was sworn into office in January 2009.
This situation is expected to get worse—not better—well into 2012…and beyond. More about this, farther down, below.
Add those inconvenient facts to an ongoing, widening of the income inequality gap between the haves and the have-nots in this country, long-term unemployment and a myriad of other problems with our economy, still--now 2-1/2 years into the current administration’s first term--and a not-so-pretty picture emerges about Democratic Party vulnerability on the number one issue top-of-mind among the voting public in the lead-up to the 2012 elections: the economy.
Unfortunately, President Obama’s top dog on all things economic, Treasury Secretary Tim Geithner, has—consistently, throughout his tenure at the Treasury Department—done little more than pay lip service and apologize for the current administration’s lack of accomplishment as far as aiding U.S. homeowners is concerned. The truth is that—given a choice between bailing out Wall Street mortgage bankers and investors versus Main Street mortgageholders—Wall Street has won virtually every single, damn time.
Ironically, and based upon recent reports in the press and around the blogosphere, the most recent reminders of this inconvenient truth about where our Treasury Secretary’s allegiances truly lie is brought to us by none other than Monday’s NY Times and the country being visited by our President and First Lady, as you read this: Ireland.
An excerpt from a post, earlier this month, by Naked Capitalism Publisher Yves Smith…
(Diarist’s Note: Naked Capitalism Publisher Yves Smith has provided written authorization to diarist to reprint her blog’s posts in their entirety for the benefit of the DKos community.)
Geithner Blocked IMF Deal To Haircut Irish Debt
Yves Smith
Naked Capitalism
May, 7, 2011 2:59AM
…Geithner is as doctrinaire and short-sighted a defender of bankers’ privileges as the Allied Powers were of their rights to make Germany pay for the costly and bloody Great War.
We had noted that the Irish could have stared down the EU and held out for a bailout of its banks only, and were mystified at the quick capitulation. Consider this section of a very instructive op-ed by Ireland’s highly respected economist Morgan Kelly in the Irish Times (hat tip reader disgruntled observer):
On November 16th, European finance ministers urged [finance minister Brian] Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan’s refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown….
Ireland’s Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”
The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.
The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.
In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.
The Stockholm Syndrome point is important. Banks who have engaged in widespread looting and reckless behavior have nevertheless managed to persuade the public that acceding to their demands is virtuous. In a narrow sense, that isn’t wrong, in that healthy communities depend on most people honoring their commitments . But how long will this widespread use of what amount to one sided agreements, where the financiers can break them with little in the way of consequences while ordinary citizens required to adhere to them, continue before the collateral damage engulfs the bankers? This repudiation of basic notions of equity will prove to be as corrosive to the foundations of our society as the German hyperinflation was, although it will take longer to play out. And the economic costs are increasingly evident.
Yves then pointed out that, a few days later, the U.S. Treasury Department issued a rather terse rebuttal to Kelly’s op-ed in the Irish Times, stating that the U.S. Treasury Secretary doesn’t set policy for the European Union.
Heh.
…Now in fairness, what this depicts is a divided Ireland (the Finance Minister versus the governor of the central bank, who also happens to be aligned with the ECB) while the IMF is trying to fight an uphill battle with the ECB to get a more realistic deal. As we have said repeatedly, Ireland is the poster child of “austerity does not work.” Its nominal GDP has fallen 20% since steep budget cuts were implemented, making its debt to GDP ratio worse.
So why was what Geithner said on the call probably more important than the Treasury spokesperson suggested? First, as anyone who has spent a lot of times in meetings can attest, a person who is seen as influential or knowledgable, even if they do not have a formal decision-making role, can wind influencing a decision. Indeed, the theoretical outsider can has more sway by being perceived to be objective.
And let us not forget: the US has more votes on the IMF board than any other nation, and Geithner is the US’s governor. Do you think his expressing a negative view of a haircut might have some influence on the IMF?
The fact that Geithner is, arguably, one of the most influential members of the IMF’s board is, apparently, not to be considered as a material fact in the matter if we’re to believe the Treasury Department’s spin.
Funny how that works.
On the same day when Yves posted her initial piece (see farther up, above) on this subject, another feature appeared in the NY Times, by Liz Alderman, entitled: “After Bust in Ireland, Ordinary People Make Do With Less.”
In that story, we learn about Brian and Rosie Condra, from the Irish town of Drogheda. Like millions of others, they’ve seen their earnings diminished over the past few years, in large part due to many of the same factors affecting the struggling middle class here in the U.S.
Alderman tells us…
…Nearly everyone they know is underwater on their mortgage; one neighbor expects a foreclosure in two weeks. And last month, eight homes in their otherwise quiet working-class neighborhood were burgled.
Mrs. Condra agrees that Ireland has to make good on its debts. “But they’re debts from the banks that we didn’t even know we had,” she said. “And the people least able to afford it are paying for everything.”
…
For Mr. Condra and others in more precarious situations, even the prospect of recovery brings little comfort.
“Growth returning is an economic term for when a man’s business starts to grow,” he said. “But those working for him won’t see a return to growth in their salaries for at least another five to 10 years.”
In the meantime, Mr. Condra added, “you have to hope for the best and plan for the worst. Because in Ireland, we haven’t gotten past the worst yet.”
And, the truth of the matter, based upon a lead business story in Monday’s NY Times, is that—as far as the effects of our nation’s mortgage crisis on homeowners are concerned–we haven’t gotten past the worst in the U.S., yet, either.
Here's a post from nine days ago, from the Doctor Housing Bubble blog, which reflects many of my sentiments on the matter...
...As we all know the cost of food is and has been going up yet income has remained stagnant or has dropped. The amount that can be spent on housing by default decreases. The Fed has essentially focused on the borrowing side of the equation by trying to lower rates to adjust to this new lower income world. Ironically this artificial intervention by the Federal Reserve has harmed most Americans while favoring investment banks around the country who really are the only sector who benefit from inflated housing costs. Lower home prices are actually beneficial to the one-third that rent. The one-third that own but have no mortgage are likely to not change their spending habits. It is the two-third that own and have a mortgage that are largely in play. If people purchase carefully and actually treat a home as a place to live, then if prices dipped another 20 percent it would not matter. The narrative that home prices need support is largely a banking propaganda piece trying to keep inflated balance sheets propped up...
...
...What can we learn from the Great Depression housing market and the one we are currently living in? First, many of the safety nets absent from the Great Depression like giant handouts to banks, food stamps, unemployment insurance, the FDIC, and stronger government intervention have made things look much better. Yet this is like a storm ravaging your property and you being happy that you have insurance. Sure, the place is covered but someone is still going to pay for the cost. I have few qualms about unemployment insurance or even food assistance since these keep people from absolute destitute situations and in terms of costs, are relatively low. For example $64 billion was paid out in 2010 to 40,000,000 families through food assistance. This money is spent back into the economy immediately. To put this in perspective look at the absolute failure of the home buyer tax credit:
“(http://online.wsj.com/... WSJ) The credit wasn’t great for taxpayers, either. IRS says it paid $26 billion in home buyer credits in 2009 and 2010, enough to cover the maximum $8,000 credit for more than 3 million buyers. (It says at least $513 million went for fraudulent claims. Some claimants hadn’t bought houses. Some filed twice. Some were under age 18 or incarcerated.)”
Let us not forget about the multi-trillion dollar elephant in the room regarding the bailouts to the unworthy and financially broken financial system. The fact that most Americans have their wealth in housing and this was turned into a speculative casino by Wall Street is incredibly irresponsible. The reality of the new home price lows should tell you really who the bailouts were targeted for. In the end home prices will continue to decline simply because no income growth has shown up in over a decade. Even if we do see income growth, we have to measure this with other rising costs like food and fuel. In the end, you can’t eat your house and maybe this is why the American Dream is now being redefined.
Bold type is diarist’s emphasis.
Stories in the NY Times, of late, add further fuel to these fires of economic discontent on Main Street.
Here’s Charles Blow from this past Saturday…
A Summer To Simmer
Charles M. Blow
New York Times
May 21, 2011
…The one true constant in this country for the foreseeable future, and the issue that’ll likely consume the summer, is the economy. As a Gallup poll reported earlier this week, “Three in four Americans name some type of economic issue as the ‘most important problem’ facing the country today — the highest net mentions of the economy in two years.” Only 4 percent each mentioned “ethics/moral/religious/family decline; dishonesty” or “wars/war (nonspecific)/fear of war.”
For the poor and unemployed struggling to land a job and provide some family security, the sexual exploits of rich sexagenarians may provide a moment of socio-economic schadenfreude, but it’ll do nothing to salve the long-running, underlying angst.
For the powerless and voiceless making choices between bills and food, articulating a more coherent North African and Mideast policy that doesn’t sacrifice our moral standing to our strategic interests may feed the soul, but not the stomach.
For far too many Americans, this will not be a summer for the silly or even democratic existentialism. This will be yet another summer to simmer, yet another summer to wonder when the recovery that now wafts freely between the Temples of Greed on Wall Street will make its way to the half-barren bungalows on Main Street, yet another summer to see just how little regard “job creators” — a favorite Republican term of art for the G.O.P.’s corporate Geppettos — have for the American people who built this country…
As the Gallup Organization reminded us last week, Americans’ economic concerns are at a two-year high.
Up until yesterday, according to recent reports, while most in the MSM and even in the blogosphere are not coming out and saying it, directly, I will: basic math tells us that, by the end of 2011 or sometime early in 2012, the MAJORITY of U.S. mortgageholders will owe more money to Wall Street on their mortgages than their homes are worth. (Wall Street's top five banks, alone, originate well over 70% of all outstanding residential mortgages in this country and these same banks also own 60% of all of the related mortgage servicing business which U.S. mortgage originations create.)
Obviously, this is not a new discussion. In numerous posts over the past couple of years, I have noted that leading analysts at firms such as Deutschebank and Barclays have been projecting this end result (that the majority of those in our country currently holding mortgages will end up underwater, once the smoke clears) to our nation's mortgage meltdown for quite some time. Now, however, those Wall Street projections are morphing into facts before our very eyes—and, and we’re reading about them in articles by the likes of Eric Dash, in yesterday’s NY Times.
(As the old saying goes: “Everywhere you go, there you are.” And, we’ve arrived. BTW, this story, below, was a lead in Brian Williams’ newscast, last night on NBC, as well.)
As Lenders Hold Homes in Foreclosure, Sales Are Hurt
By ERIC DASH
New York Times
May 23, 2011
EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.
All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.
Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.
“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more…”
Bold type is diarist’s emphasis.
It is projected, by some, that there will be between 6 and 6.5 million homes that will have entered into final stage foreclosure, after everything’s said and done; and we’ll reach that milestone by 2014.
I’ll let Yves help us close this out with her view of things, specifically as they relate to Dash’s article in yesterday’s NY Times:
More Worries About the Foreclosure Overhang
Yves Smith
Naked Capitalism
Monday, May 23, 2011 2:51AM
The New York Times provides a workmanlike update on the impact of current and probable foreclosures on the housing market. The odd bit is that even though the article is downbeat, it manages to be relatively optimistic compared to industry sources.
For instance, consider this section of the article:
Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.
Contrast this view with the outlook from the industry cheerleader, the Mortgage Bankers Association:
A full housing recovery is three to four years off as the nation grapples with a shadow housing inventory of 4.5 million distressed properties, according to Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association.
The difference is that the MBA is considering not only foreclosures but people who really want or need to sell and are still holding on in hopes of a better market. This shadow inventory will hit many markets upon any sign of bottoming and recovery, thus leading to halting improvement.
Yes, the article dutifully recites recent statistics: that lenders now own nearly 900,000 homes, double the level at the outset of the crisis. And it describes badly clogged pipelines, with foreclosures in Chicago and Miami running twice the level of sales and eight times in Atlanta (which has one of the fastest foreclosures processes in the US, belying the notion that faster foreclosures lead to more rapid market clearing).
Some of the blame for the overhang is attributed to foreclosure investigations, but that’s spurious. Recall that it was the banks themselves that halted foreclosures when the robosigning scandal broke last fall, and the adverse press, and later investigative pile-on, has led them to try harder to comply with the law (what a concept!). For those who had been paying attention, a pile up in the courts was well underway due to increasing evidence of servicers and securitizers running roughshod over well understood requirements. The robosigning scandal brought it to national attention and led to a change in attitude among quite a few judges, who came to see that the banks were not necessarily to be taken at their word.
Moreover, since as we have pointed out, there have been no real investigations of foreclosure-related dubious behavior to date, mere regulatory theater designed to shield the banks can hardly be a cause of a slowdown in foreclosures.
And the article understates one issue: the failure of servicers to maintain foreclosed properties, which is contributing to an overshoot in housing prices on the downside. We do have one allusion:
Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors.
Overgrown lawns are the least of the problems. It’s not uncommon for vacant homes to be stripped of copper and appliances. That’s why it isn’t nuts to keep homeowners in place even when they are severely delinquent if the local property market is so backed up that a home won’t be sold quickly (the Times says that average time to foreclosure is 400 days and another 176 days to sell it). The homeowner is still liable for property taxes if the home has not been seized by the lender and will maintain the property at a better level than the bank would.
But even this comparatively cheery take shows that the state of play in most local real estate markets is still plenty ugly and not likely to get better soon.
At the end of the day, what we’re NOT being told is that one of the primary reasons why banks are sitting on so much real estate is due to the fact that they don’t have to take the writedowns on these properties until they’re sold at a loss.
How incredibly convenient!
Instead, and while there certainly is significant truth in the following statement, the spin is that it takes too much time to sell off this much inventory, and the banks don’t want to depress housing prices any more than necessary. (Gosh, those bankers are always looking out for the little guy, huh?)
But, what I find most amusing is that Wall Street didn’t seem to have this problem back when they were selling these properties by the millions, a few years ago, outside of the basic rules of law.
What we have learned over the past few days, however, is that HUD has concluded that our county’s five largest mortgage servicers have defrauded taxpayers.
But, the statute of limitations on fraud and, particularly, securities fraud, also dictates that much of what we’re watching right now is little more than kabuki.
Then again, as of the past 24 hours, even key players in the MSM financial press are asking: Why haven’t there been any criminal prosecutions up until now?
It’s almost as if Wall Street was waiting for their bought – and – paid - for government to pull another rabbit out of their hat to help Wall Street socialize their upcoming, massive losses while they continued to privatize their profits.
Nah. Tim Geithner would never do anything like that -- putting the banks and investors before the public -- would he?