by Calculated Risk on 12/06/2008 04:52:00 PM

President-elect Obama released some more details of his economic stimulus proposals today. As I noted last week, there aren't anywhere near enough "shovel ready" projects to offset the decline in private non-residential structure investment that I expect in 2009. Obama has added several more key areas in addition to roads and bridges; he is also proposing to invest in energy efficiency for public buildings, upgrade school buildings, and expanding broadband to all schools, libraries and hospitals.

Here is an excerpt:

[W]e need action – and action now. ...

Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won’t just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.

Third, my economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.

As we renew our schools and highways, we’ll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the internet, every child should have the chance to get online, and they’ll get that chance when I’m President – because that’s how we’ll strengthen America’s competitiveness in the world.

In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet. That is why the economic recovery plan I’m proposing will help modernize our health care system – and that won’t just save jobs, it will save lives. We will make sure that every doctor’s office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.

These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks.

by Calculated Risk on 12/06/2008 11:48:00 AM

Update: Repeating this ... makes a great Holiday gift for the UberNerd in your family! And the proceeds go to fight cancer ...

Tanta's Mortgage Pig
From Cathy (Tanta' sister):

Back in October, after Tanta came home from the hospital and agreed to come to Ohio with me, we had an idea to create Mortgage Pig Wear and donate the proceeds from the sales to the UMMS Greenebaum Cancer Center.

We have friends in Springboro, OH who own a small, local embroidery company called Image Mark-it that is owned and staffed by the type of caring folks who would want to be involved in a project like this. Jumped at the chance, is more like it.

We enlisted her 16 year-old nephew (my son) to handle the shipping and for that he would receive $1.00 per item in his college fund. Tanta would provide the "quality control" or lovingly ride herd on him. She couldn't wait.

Over the past 4 weeks we have "digitized" the pig for the embroidery on sweatshirts and polos and created high quality photo transfers for T-shirts and sweatshirts. Tanta lived long enough to see the samples but not to see the items go into production and be offered for sale. I still can't believe it.

I worried about what to do with this on Saturday so I simply asked Tanta. She wanted us to proceed. My son and my husband both asked her as well - and both got the same answer "Please go ahead with The Mortgage Pig Wear".

In the last day or so as I read the various tributes to her, I saw references to cure vs care. So we've made a small change - we're offering the embroidered pig items with proceeds donated to the Ovarian Cancer Research Fund (www.ocrf.org) and the photo-transfer items split between UMMS Greenebaum and OSUMC James Cancer Centers.

I hope you enjoy wearing these as much as the folks at Image Mark-it and I have enjoyed creating them. We are planning to work very hard to keep up with demand - and for all of us it's a labor of love.

Tanta's Mortgage Pig

From CR: I believe these are the larger images:

Holiday

Click on the Mortgage Pig™ for a larger image in new window.

Slap it

Convexity

by Calculated Risk on 12/06/2008 08:00:00 AM

Saturday Rock Blogging was a Tanta feature for most of 2007. Just once more for the memories ...

First some advice from Tanta:

Advice for all you UberNerds: if your PC is already acting squirrelly, and your dsl connection is slower than usual, it is not a good time to decide to download a giant MIRS dataset from the Federal Housing Finance Board, because three hours later after you've finally restored your system and rebooted in normal mode and retrieved the fragments of your damaged spreadsheet, you will have forgotten what the hell you needed that data for.

And in a post in August 2007, Tanta presented this gem from our very own central_scrutinizer: "Dead Cat On The Rise": (CR note: good call by central_scrutinizer!)

I see a dead cat a risin'
I see trouble on the way
I see copper thieves obligin'
I see more flat screens on Ebay

Don't go long tonight
Cause you'll grab a fallin' knife
there's a dead cat on the rise

I hear pension funds implodin'
I know the end is coming soon
I'll see my short funds overflowin'
Bloomberg proclaiming rage & ruin

Don't go long tonight
Cause you'll grab a fallin' knife
there's a dead cat on the rise ... oh yeah

Hope you got your cash together
Hope you are quite prepared to die
Kudlow will soon be tarred and feathered
One eye is taken for an eye

Don't go long tonight
Cause you'll grab a fallin' knife
There's a dead cat on the rise



And finally a search on YouTube for "Tanta" brought up this song in Brazilian Portuguese. Maybe a little too much, but who cares! (Tanta actually means Aunt in Danish)



Nada nesse mundo irá me fazer
Esquecer você
(Portuguese to English Translator here)

All my best to everyone, CR

by Calculated Risk on 12/05/2008 09:49:00 PM

Eric had to be inspired by the auto executives ...

Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis

Update: It looks like the graph might have worked! From the NY Times: Democrats Plan Short-Term Rescue for Big Three

... Democratic Congressional leaders said on Friday that they were ready to provide a rescue plan for American automakers, and that they expected to vote on the legislation in a special session next week.

Seeking to end a weeks-long stalemate between the Bush administration and House Speaker Nancy Pelosi, senior aides said that the money would most likely come from $25 billion in federally subsidized loans intended for developing advanced fuel-efficient cars.

By breaking that impasse, the lawmakers could also clear the way for the Treasury secretary, Henry M. Paulson Jr., to request the remaining $350 billion of the financial industry bailout fund.

by Calculated Risk on 12/05/2008 08:29:00 PM

From Bill Fleckenstein's Daily Rap: (Here is Fleck's Site for the Daily Rap):

Note: reprinted with permission.

"After considerable thought and deliberation I have decided to make a major change in my life: I am going to close my hedge fund. I have several reasons for no longer wishing to run a short-only fund as I have for the past 12 years. First, my original reason for starting the fund was because of developments I saw occurring in the late 1990s that I wanted no part of. I felt that Greenspan was fomenting an environment that would lead to disaster, as consultants, financial advisors, and the public at large were losing all respect for risk. Of course, the reckless behavior carried far higher and lasted much, much longer than I ever imagined it could. However, the recent carnage in the stock market, real estate market and the financial system (as well as the job losses) has washed away those excesses to a large degree and it has violently demonstrated the risks associated with investing.

A future goal of mine, when I set up the fund in 1996 -- as I attempted to step aside from the madness -- was to return to the long side of the business at some point in time when I felt that investors had become more rational regarding risk and stocks offered a more favorable risk/reward proposition. I considered this option very briefly in 2002 after the stock bubble imploded, but the cleansing process was postponed due to the burgeoning real-estate bubble.

Second, though I think that the stock market still has unfinished business on the downside, I believe that 2009 is the year to prepare for a return to managing money in a more balanced fashion, with longs (and some shorts), as there are currently plenty of interesting ideas that appear to offer a margin of safety. On the flipside, compelling opportunities on the short side are not as abundant as they were just a few months ago (though there still are plenty.) The "value restoration project," to quote Jim Grant, has been brought about by the consequences of disastrous Fed policies and the madness of the crowd, both of which have concerned me for the last 15 or so years.

Lastly, on a personal note, I no longer want to run a short-only hedge fund, as it is very stressful, nerve-wracking and generally not very much fun, entailing an intense focus on the short term to effect risk control. In addition, one views the world differently when operating solely from the short side and I would like to widen my focus as I did when I managed money from 1982-1995. My wife is especially happy about this potential change.

My efforts in 2009 will be directed towards setting up an investment vehicle managed by Fred Hickey and me that won't be a hedge fund, which hopefully will be available to everyone. I feel that many (but certainly not everyone) in the "hedge" fund community have behaved in a disgraceful manner in the last couple years by taking huge fees along the way and then either running at the first sign of trouble (by giving money back to avoid having to recoup draw-downs from high watermarks), or locking people up and not giving them their money back at all. Consequently I'd rather not be part of that "industry" going forward. The Rap will continue as it has."

by Calculated Risk on 12/05/2008 05:08:00 PM

From the FDIC: United Bank Acquires All the Deposits of First Georgia Community Bank, Jackson, Georgia

First Georgia Community Bank, Jackson, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with United Bank, Zebulon, Georgia, to assume all of the deposits of First Georgia Community Bank.
...
As of November 7, 2008, First Georgia Community Bank had total assets of $237.5 million and total deposits of $197.4 million. United Bank agreed to assume all the deposits for a .811 percent premium. In addition to assuming all of the failed bank's deposits, United Bank will purchase approximately $60.6 million of assets. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to the Deposit Insurance Fund will be $72.2 million.
...
First Georgia Community Bank is the 23rd bank to fail in the nation this year, and the fourth in Georgia.

Now it feels like a Friday!

by Calculated Risk on 12/05/2008 04:54:00 PM

From the WaPo: Obama Team Agrees to Aid Treasury in Push for Rescue Funds

President-elect Barack Obama's transition team has agreed to accompany Treasury Department officials to meet with Capitol Hill leaders to help the Bush administration gain access to the second half of the $700 billion financial rescue package, government sources familiar with the matter said.

We could all make lame duck jokes, but I'm not sure I want the last $350 billion being allocated by Paulson.

by Calculated Risk on 12/05/2008 03:44:00 PM

From Bloomberg: Fed Buys $5 Billion of Fannie, Freddie, FHLB Debt

The Federal Reserve bought $5 billion of Fannie Mae, Freddie Mac and Federal Home Loan Bank corporate debt under a new program aimed at reducing mortgage costs.

The central bank acquired bonds with maturities between December 2009 and November 2010, according to the New York Fed’s Web site. Dealers offered $12.9 billion of the securities. The purchases under the $100 billion program are the Fed’s first buying of long-term “agency” debt in 28 years.

This is exactly the road map Bernanke discussed in 2002: Deflation: Making Sure "It" Doesn't Happen Here.

[S]ome observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
...
Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys.
...
So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.
...
[A]nother option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association).
emphasis added

A speech worth rereading.

by Calculated Risk on 12/05/2008 02:34:00 PM

First a graph, always a graph ...

Click on graph for larger image.

This graph shows the quarterly delinquency rate as reported by the MBA since 1979.

This shows that a fairly high percentage of mortgages were delinquent even in the best of times. As an example, in Q3 2005, at the height of the bubble, the MBA reported:

The third-quarter 2005 National Delinquency Survey (NDS), released today by the Mortgage Bankers Association (MBA), shows that the seasonally adjusted delinquency rate for mortgage loans on single-family residential properties stood at 4.44 percent at the end of the third quarter, down 10 basis points from the third quarter of 2004 but up 10 basis points from the second quarter of 2005.

So even though the Q3 2008 delinquency rate of 6.99% is a record level for the MBA series, it is important to realize that 4% to 5% of mortgages are considered delinquent even during the good times.

This is why the MBA also reports on seriously delinquent mortgages. In 2005, 1.82% of loans were seriously delinquent, now, prime loans alone are at 2.87%, and subprime loans at 19.56%.

And how does this compare to the Great Depression? Glad you asked.

From David Wheelock at the St. Louis Fed: The Federal Response to Home Mortgage Distress: Lessons from the Great Depression

Comprehensive data on mortgage delinquency rates do not exist for the 1930s. However, a study of 22 cities by the Department of Commerce found that, as of January 1, 1934, 43.8 percent of urban, owner-occupied homes on which there was a first mortgage were in default. The study also found that among delinquent loans, the averagetime that they had been delinquent was 15 months. Among homes with a second or third mortgage, 54.4 percent were in default and the average time of delinquency was 18 months. Thus, at the beginning of 1934, approximately one-half of urban houses with an outstanding mortgage were in default (Bridewell, 1938, p. 172).
For comparison, in the fourth quarter of 2007, 3.6 percent of all U.S. residential mortgages and 20.4 percent of adjustable-rate subprime mortgages had been delinquent for at least 90 days.

So the delinquency rate was far higher during the Depression. Note that Wheelock is using the 90 delinquency number for comparison (as opposed to the 30 day number in the chart above).

Here is some more interesting data from Wheelock:

This graph shows the foreclosure rate during the Great Depression. At the peak, there were almost 14 foreclosures per thousand mortgages per year during the Depression.

In 2008, according to the MBA, there will be about 2.2 million foreclosures started (not completed), and according to the Census Bureau 2007 estimate there are 51.6 million households with mortgages, or over 4% of households with mortgages entered foreclosure in 2008. The MBA reports that 2.97% of households with mortgages are currently in the foreclosure process.

So even though the current delinquency rate is much lower than during the Depression, it appears the foreclosure rate is higher. Wheelock also notes:

The rate of foreclosures would likely have been far higher were it not for the moratoria on (and other impediments to) foreclosure imposed by several states (Poteat, 1938), as well as the actions of the federal government to refinance delinquent mortgages ...

And once again the government is stepping in to slow foreclosures.

I think it is important to note that mortgages were very different in the Depression era. It was typical for a buyer to put 50% down, and obtain a short duration loan (like 5 years) with a balloon payment. When you lost your home to foreclosure, it was a tragedy. Today many of the foreclosures are for buyers that put little or no money down (or extracted significant equity with 2nds or HELOCs), so these foreclosures are not wiping out a life time of savings like foreclosures during the Depression. Still a tragedy for some, but not quite the same impact for many others.

by Calculated Risk on 12/05/2008 01:37:00 PM

From the WSJ: Chrysler Hires Law Firm Jones Day as Bankruptcy Counsel

Chrysler's move suggests the auto maker is preparing for imminent financial failure should its efforts to persuade Congress to deliver federal rescue funds fall short.

Click on cartoon for larger image in new window. Rerun of a great cartoon from Eric G. Lewis, a freelance cartoonist living in Orange County, CA.