by Calculated Risk on 3/14/2010 09:45:00 AM

From Sewell Chan at the NY Times: Dodd to Unveil a Broad Financial Overhaul Bill

Here are the key points:

The consumer financial protection agency would be part of the Federal Reserve.

Creates a systemic risk council that would be headed by the Treasury Secretary and would include "representatives of the Fed, the new consumer agency, the F.D.I.C., the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Federal Housing Finance Agency — along with an official appointed to monitor the insurance industry, which is largely regulated by the states."

Regulate over-the-counter derivatives: "Standardized swaps and derivatives would have to be traded on exchanges or clearinghouses."

The Federal Reserve would regulate bank holding companies with $50 billion or more in assets, and "systemically important nonbank financial institutions".

Many smaller banks that the Federal Reserve currently regulates would be overseen by the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation, depending on the bank charter.

Some shareholder provisions that allow shareholders to vote on executive pay and nominate directors.

The derivative regulation is a positive step forward. I'm not sure about the systemic risk council, but this could be helpful. The consumer financial protection agency as part of the Fed is really no change.

by Calculated Risk on 3/14/2010 01:15:00 AM

From Bloomberg: China’s Wen Rebuffs Yuan Calls, Is ‘Still Worried’ About Dollar

"I don’t think the yuan is undervalued,” Wen said at a press conference in Beijing marking the end of China’s annual parliamentary meetings. Dollar volatility is a “big” concern and “I’m still worried” about China’s U.S. currency holdings, he said.

And from the WSJ: Chinese Premier Warns of 'Double Dip' Recession

by Calculated Risk on 3/13/2010 10:13:00 PM

It has been a month since Jean-Claude Juncker, Luxembourg's prime minister and chairman of the 16 euro-zone finance ministers, said that Greece had until March 16th to show progress on their budget. The euro-zone finance ministers meet this week, and apparently Greece has meet the short term goals.

From Reuters: Euro finance ministers to agree on Greek aid: source

Euro zone finance ministers are likely to agree on Monday on a mechanism for aiding Greece financially, if it is required, but will leave out any sums until Athens asks for them, an EU source said on Saturday. ...

"I think we should be able to agree on principles of a euro area facility for coordinated assistance. The European Commission and the Eurogroup task force would have the mandate to finalize the work," [a] source said. ... "You would have a framework mechanism and you would have blank spaces for the numbers because there has been no request (from Greece) yet."

And from the WSJ: No Need for Greek Bailout Now, France's Lagarde Says

Credible efforts by Greece's government to clean up its finances have so far negated the need for any bailout from the European Union, French Finance Minister Christine Lagarde said Friday.

by Calculated Risk on 3/13/2010 06:00:00 PM

This is an unofficial list of Problem Banks compiled only from public sources. Changes and comments from surferdude808:

There were several additions and removals during the week that left the Unofficial Problem Bank List totals almost unchanged. This week there are 640 institutions with assets of $325.6 billion compared to 641 institutions and $325.5 billion of assets last week.

Removals include the four failures -- The Park Avenue Bank ($520 million), Old Southern Bank ($336 million), Statewide Bank ($243 million), and LibertyPointe Bank ($217 million), and one action termination -- Union Federal Savings Bank ($192 million).

Additions include Heritage Oaks Bank, Paso Robles, CA ($942 million); Idaho Banking Company, Boise, ID ($228 million); Albina Community Bank, Portland, OR ($199 million); and Ravalli County Bank, Hamilton, MT ($191 million).

Other changes include for institutions already on the list are Prompt Corrective Action Orders issued against Maritime Savings Bank ($379 million), Horizon Bank ($199 million), and Ideal Federal Savings Bank ($6 million). We anticipate for the OCC to issue their enforcement actions for February 2010 next week.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)



Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 3/13/2010 02:05:00 PM

One of the groups seriously impacted by the great recession is the "pre retirement" generation - currently the "Baby Boomers" - the workers between the ages of 45 and 64.

Click on graph for larger image in new window.

This graph shows the unemployment rates for two groups: 45 to 54 (seasonally adjusted), and 55 to 64 (only NSA data is available).

The unemployment rate for these age groups hit an all time high during the great recession (highest since WWII).

Michael Winerip at the NY Times has a story about the plight of several "Boomers" who he has tracked for the last year: Time, It Turns Out, Isn’t on Their Side (ht Ann)

A YEAR ago, I wrote about a job fair at the Sheraton in Midtown Manhattan, where over 5,000 mainly white collar, middle-aged jobless men and women waited in the cold for more than two hours, hoping to find work. ...

For that column, I interviewed two dozen boomers. Given recent reports from the federal government and Manpower, the employment agency, that the hiring outlook is beginning to improve, I thought it would be worthwhile to go back to those highly motivated people. ...

The short answer is, of the 16 I interviewed again, 9 describe themselves as still struggling. Eight continue to be unemployed or are working part-time jobs that pay near minimum wage. Several were so concerned about bias, they did not want to give their ages. ...

Of the 16, only one, Mr. Kramer, who was unemployed eight months before being hired in July as a closing manager at a Best Yet supermarket, has found a job that pays more than his old position. More typical of the seven who’ve found full-time work is Ben Brief, 60, a printing supervisor, who’d been jobless two months when I interviewed him on Sixth Avenue in the 20-degree weather. Mr. Brief was out of work nine more months, before finding a printing job that paid 20 percent less than his previous position. “I’m glad to be working, but people know they can pay you a lot less in this economy,” he said.

Kind of hard to sing "Yeah, time time time is on my side ..." when you are 60 and unemployed or underemployed.

by Calculated Risk on 3/13/2010 11:15:00 AM

From Tom Abate at the San Francisco Chronicle: Financial leaders dissect meltdown

"What is quite shocking," [John Lipsky, a senior official of the International Monetary Fund] said, is how inadequate the world's regulatory supervisors were in curbing the lax lending standards at the heart of the housing and credit bubbles.

Shocked? Hmmm ...

by Calculated Risk on 3/13/2010 08:26:00 AM

Note: this data is not seasonally adjusted. There is a very distinct seasonal pattern for imports, but not for exports. LA area ports handle about 40% of the nation's container port traffic.

Sometimes port traffic gives us an early hint of changes in the trade deficit. The following graph shows the loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Click on graph for larger image in new window.

Loaded inbound traffic was up 33.8% compared to February 2009. (up 9.5% compared to last year using three month average).

Of course trade collapsed in February 2009, so this is a very easy comparison. Inbound traffic was still down 18.3% vs. two years ago (Feb 2008).

Loaded outbound traffic was up 32.7% from February 2009. (+33.5% using three months average) This was also an easy YoY comparison for exports, because U.S. exports fell off a cliff in near the end of 2008.

Just as with imports, exports are still off from 2 years ago (off 10.0%).

And more from Ronald White at the LA Times: Trade numbers climb sharply at Southland ports

Trade numbers at the ports of Los Angeles and Long Beach, the nation's busiest seaport complex, rose sharply in February compared with the same month last year, lending strength to the arguments of some experts who believe that a stronger-than-anticipated recovery may be underway.
...
"Our feeling is that consumers are coming back. They are spending a bit more of their money. They are less concerned about losing their jobs than they have been in the last three months," said Ben Hackett, founder of Hackett Associates, which tracks international trade at the nation's busiest seaports for the National Retail Federation.

Hackett said his firm had scaled back its expectations for trade growth in 2010, "but we think we'll be seeing a relatively strong year at a 10% to 14% increase. We should see steady improvement, minus the usual seasonal adjustments."

The LA Times article is using the YoY numbers. However looking at the graph (red line), exports recovered in the first half of 2009, but export traffic has been mostly flat since last summer. The YoY increase for March will be much less than for February!

It is harder to tell about imports (blue line) because of the large seasonal swings.

by Calculated Risk on 3/12/2010 10:01:00 PM

A couple excerpts from American Banker: Regulatory Actions Hit a Record Level in '09

"Bank regulators issued 1,143 formal enforcement actions against banks and their holding companies last year, a new record and more than double the 2008 tally."

"Informal actions by the agencies, which are not made public and often go untracked, also doubled during that time, reaching 1,099 last year, according to data provided to American Banker."

According to the FDIC quarterly banking profile, there were 8,012 insured banks at the end of 2009. Some of these actions are double counts since regulators might issue an informal action and then a formal action against the same bank (or multiple formal actions), so we can't say the percentage of banks operating under enforcement actions (either formal or informal), but it could be in the 20% to 25% range.

A couple of quotes from the article:

"For the bank failures that have occurred so far, every one of the large loss reports the inspector general has done or any GAO investigation has concluded the reason the bank has failed is the regulator did not take early enough action or severe enough action." said [Bob Clarke, a senior partner at Bracewell & Giuliani LLP and former comptroller of the currency] said.

I've posted a few of the inspector general reports, and it appears the field examiners identified the problems early - but then insufficient actions was taken. And to put it more bluntly:

"The regulators were asleep for 10 years during the boom and there's now this remarkable turf war under way with regulatory reform," said Chris Low, chief economist for First Horizon National Corp.'s FTN Financial.

by Calculated Risk on 3/12/2010 06:07:00 PM

Bair's troops march South, East
Two gulf banks, engulfed by fail
Will they rise again?
by Soylent Green is People
From the FDIC: Centennial Bank, Conway, Arkansas, Assumes All of the Deposits of Old Southern Bank, Orlando, Florida

Old Southern Bank, Orlando, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of December 31, 2009, Old Southern Bank had approximately $315.6 million in total assets and $319.7 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $94.6 million. ... Old Southern Bank is the 29th FDIC-insured institution to fail in the nation this year, and the fourth in Florida. The last FDIC-insured institution closed in the state was Marco Community Bank, Marco Island, February 19, 2010.

From the FDIC: Home Bank, Lafayette, Louisiana, Assumes All of the Deposits of Statewide Bank, Covington, Louisiana

Statewide Bank, Covington, Louisiana, was closed today by the Louisiana Office of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of December 31, 2009, Statewide Bank had approximately $243.2 million in total assets and $208.8 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $38.1 million. ... Statewide Bank is the 30th FDIC-insured institution to fail in the nation this year, and the first in Louisiana. The last FDIC-insured institution closed in the state was The Farmers Bank & Trust of Cheneyville, Cheneyville, December 17, 2002.

Louisiana makes an appearance ...

by Calculated Risk on 3/12/2010 05:07:00 PM

Start Spread'n the news
Park Avenue's failed today
Old Blue Eyes would weep...
by Soylent Green is People
From the FDIC: Valley National Bank, Wayne, New Jersey, Assumes All of the Deposits of the Park Avenue Bank, New York, New York

The Park Avenue Bank, New York, New York, was closed today by the New York State Banking Department, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ..

As of December 31, 2009, The Park Avenue Bank had approximately $520.1 million in total assets and $494.5 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $50.7 million. .... The Park Avenue Bank is the 28th FDIC-insured institution to fail in the nation this year, and the second in New York. The last FDIC-insured institution closed in the state was LibertyPointe Bank, New, York, New York, on March 11, 2010.

OK, now it is Friday.

by Calculated Risk on 3/12/2010 04:16:00 PM

Earlier I linked to this podcast from Planet Money: We Bought A Toxic Asset! And the story is here: We Bought A Toxic Asset; You Can Watch It Die.

And here is a PDF with the details of the bond (ht daddyo, based on details in story). There are many details in the PDF - a brief excerpt:

At a 1-10 ½ price (bond notation, 1 plus 10.5/32), which is what they apparently paid, and at current 1-month prepayment speeds and severities, this bond will be gone in September. Total cashflows of $957, for an annualized yield of -41%.
...
The bond is very sensitive to your assumptions (not all bonds are like this). At 3m, 6m, and 12m historical speeds, the bond has positive yield. So the question is, do you think things are getting better, or worse? Remember, this is an Option ARM pool with recasts ramping in the summer. When will the default wave occur on the troubled borrowers? If you think it doesn’t happen until after the summer, you’ll be a-ok in this bond.

Also, remember in article, prices on this stuff are all over the place. If it was bought at a 1.8 price, it’s a loss in any scenario, and if it’s bought at a sub-dollar price, it’s a win.

And here is a tracking graphic from Planet Money.

by Calculated Risk on 3/12/2010 02:07:00 PM

From Treasury: Administration Releases February Loan Modification Report

Click on graph for larger image in new window.

Over 168,000 modifications are now permanent. 88,663 trial modificatons have been cancelled (and another 1,499 permanent mods cancelled).

Here is the report. See here for a list of reports.

Lets see: there were 553,051 cumulative HAMP trial modifications in September. There are 168,708 permanent mods - and about 90,000 cancelled. What happened to the 300 thousand or so other trial mods? Sure another 91,800 have been "approved" for a permanent modification, but that still leaves a huge number missing.

There is a note in the report that says "32% of trials started at least three month ago have been approved for converstion to permanent". But what about the over two-thirds?

The second graph shows the cumulative HAMP trial programs started.

Notice that the pace of new trial modifications has slowed sharply from over 150,000 in Septmenber to just over 70,000 in February 2010. This is slowest pace since May 2009 and is probably because of two factors: 1) servicers are now pre-qualifying borrowers, and 2) servicers are running out of eligible borrowers.

by Calculated Risk on 3/12/2010 11:30:00 AM

From Planet Money: Podcast: We Bought A Toxic Asset!

And the story is here: We Bought A Toxic Asset; You Can Watch It Die. An excerpt:

Finally, we find a beautiful, totally toxic asset at what [Wit Solberg, a former Wall Street trader] thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing. We buy a piece from Solberg for $1,000. It's going to be our encyclopedia of the financial crisis.

What Our Toxic Asset Looks Like

Our toxic asset has 2,000 mortgages, many of them in hard-hit states like California, Arizona and Florida. A lot of the people in our bond are really struggling. Almost half are behind on their mortgage payments, and 15 percent of the homes are already in foreclosure.

At some point those homes will be taken over and sold for a loss. Every time that happens, the bond shrinks. Eventually, our part of the bond will disappear entirely.

Until then, we get a little money every month from people paying off their mortgages. We just got a check for $141. If it goes to Thanksgiving, we could double our money.

By the way, we bought the asset with our own money. Any proceeds will go to charity. If we lose money, we take the loss.

Listen to the podcast - it is pretty funny!

by Calculated Risk on 3/12/2010 10:00:00 AM

The Manufacturing and Trade Inventories and Sales report from the Census Bureau today showed that the inventory-to-sales ratio was mostly back to normal in January.

Manufacturers' and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,310.2 billion, virtually unchanged (±0.1%)* from December 2009 and down 8.6 percent (±0.3%) from January 2009.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of January was 1.25. The January 2009 ratio was 1.46.

Click on graph for larger image in new window.

This graph shows the 3 month change (annualized) in manufacturers’ and trade inventories. The inventory correction was slow to start in the 2007 recession, but it now appears the inventory adjustment is over. Growth in inventories will depend on increases in underlying demand.

The second graph shows the inventory to sales ratio. This has declined sharply to 1.25 (SA) from the peak of 1.46 back in Dec 2008. This could decline further - the trend is definitely down over time - but clearly most of the inventory adjustment is over.

This is important because the change in inventory added significantly to Q4 GDP growth. (See BEA line 13: the contribution to GDP in Q4 from 'Change in private inventories' was 3.88 of the 5.9 percent annualized increase in GDP.)

Any boost to Q1 GDP from inventory changes will be minor in comparison to Q4.

by Calculated Risk on 3/12/2010 08:30:00 AM

On a monthly basis, retail sales increased 0.3% from January to February (seasonally adjusted, after revisions), and sales were up 4.5% from February 2009 (easy comparison).

UPDATE: January was revised down sharply. Jan was originally reported at $355.8 billion, an increase of 0.5% from December.

February was reported at $355.5 billion - a decline without the revision to January.

January has been revised down to $354.3 or an increase of 0.1% from December.

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

The red line shows retail sales ex-gasoline and shows the increase in final demand ex-gasoline has been sluggish.

Retail sales are up 6.0% from the bottom, but still off 6.4% from the peak. Retail ex-gasoline are up 3.6% from the bottom and still off 5.4% from the peak.

The second graph shows the year-over-year change in retail sales (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 2.1% on a YoY basis (4.5% for all retail sales). The year-over-year comparisons are easy now since retail sales collapsed in late 2008. Retail sales bottomed in December 2008.

Here is the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.5 billion, an increase of 0.3 percent (±0.5%)* from the previous month and 3.9 percent (±0.5%) above February 2009.
...
Gasoline stations sales were up 24.0 percent (±1.5%) from February 2009 and nonstore retailers sales were up 11.8 percent (±1.7%) from last year.

by Calculated Risk on 3/12/2010 12:09:00 AM

From Bloomberg: Yellen Said to Be Obama’s Pick for Fed Vice Chairman

I suggested Dr. Yellen as a possible candidate for Fed Chairman last year, so obviously I think this is a good choice. She was way ahead of most other Fed members in recognizing the housing bubble, and she is apparently well respected by other Fed members. She is also very focused on unemployment (something we need right now).

Yellen served on the Federal Open Market Committee (FOMC) last year - and this would put her back on the Committee (the Fed Presidents rotate each year).

by Calculated Risk on 3/11/2010 08:21:00 PM

The NY Times Deal Book has posted the Lehman's examiners report online: Court-Appointed Lehman Examiner Unveils Report

There is an interesting excerpt on the apparent use of repo transactions to bolster Lehman's balance sheet:

... former Global Financial Controller Martin ... Kelly believed “that the only purpose or motive for the transactions was reduction in balance sheet”; felt that “there was no substance to the transactions”; ... In addition to its material omissions, Lehman affirmatively misrepresented in its financial statements that the firm treated all repo transactions as financing transactions – i.e., not sales – for financial reporting purposes.

From Reuters: Examiner sees accounting gimmicks in Lehman demise

And from the WSJ: Examiner: Lehman Torpedoed Lehman and How Lehman Allegedly Manipulated Its Balance Sheet

by Calculated Risk on 3/11/2010 07:04:00 PM

Daylight Savings Time
"Spring Forward" .... taken too far
What day is today?
by Soylent Green is People
From the FDIC: Valley National Bank, Wayne, New Jersey, Assumes All of the Deposits of LibertyPointe Bank, New York, New York

LibertyPointe Bank, New York, New York, was closed today by the New York State Banking Department, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver....

As of December 31, 2009, LibertyPointe Bank had approximately $209.7 million in total assets and $209.5 million in total deposits. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $24.8 million. ... LibertyPointe Bank is the 27th FDIC-insured institution to fail in the nation this year, and the first in New York. The last FDIC-insured institution closed in the state was Waterford Village Bank, Williamsville, July 24, 2009.

Is it Friday?

by Calculated Risk on 3/11/2010 05:10:00 PM

Some key points:

The Fed MBS purchases are scheduled to end on March 31st.

It will take a couple of months for some of these purchases to settle on the Fed's balance sheet (see: the discussion from SIFMA: "To-Be-Announced" Trading of Agency Passthrough Securities)

The coming increase in the Fed's balance sheet (and the expansion of the Supplementary Financing Program (SFP) over the same period) are related to the MBS settling on the Fed's balance sheet. Now that the short term liquidity facilities are finished - the balance sheet will increase by about $200 billion over the next couple of months as the remaining MBS settle. This expansion would result in an increase in excess reserves, and the almost $200 billion ramp-up in the SFP will counterbalance this increase. The Treasury apparently waited to announce this until the statutory debt ceiling was increased.

I expect the spread between mortgage rates and the 10 year Treasury yield to rise slowly over a few months by 35 to 50 bps after the Fed stops buying. Others - like the Fed's Brian Sack - thinks any increase will be much smaller until the Fed starts selling MBS. Those worried about an immediate 100 to 200 bps jump in mortgage rates can probably already relax! We will know in a few weeks ...

A key short term question (for April) is: Will any increase in mortgage rates be enough to seriously impact refinance activity? According to Freddie Mac Primary Mortgage Market Survey® (PMMS®) of lenders, qualifying "30-year fixed-rate mortgage (FRM) averaged 4.95 percent" last week. It seems refinance activity is fairly strong with mortgage rates at or below 5%.

Here is the Federal Reserve balance sheet break down from the Atlanta Fed weekly Financial Highlights released today (as of last week):

Click on graph for larger image in new window.

Graph Source: Altanta Fed.

From the Atlanta Fed:

The balance sheet contracted $6.9 billion for the week ended March 3.

Holdings of agency debt and mortgage backed securities shrank $4.7 billion, and other assets declined by $2.2 billion.

The balance sheet is expected to peak during the first half of this year after the MBS purchase program is completed and purchases settle on the balance sheet.

The second graph shows the MBS purchases by week. From the Atlanta Fed:

The Fed purchased a net total of $10 billion of agency-backed MBS through the week of March 3. This purchase brings its total purchases up to $1.22 trillion, and by the end of the first quarter 2010 the Fed will have purchased $1.25 trillion (thus, it is 98% complete).

The NY Fed purchased an additional net $10 billion in MBS for the week ending ending March 10th. This puts the total purchases at $1.230 trillion or almost 98.4% complete. Just $20 billion more and three weeks to go ...

The Fed's balance sheet released today shows "only" $1.029 trillion in MBS on March 10th. As mentioned above, the difference is the NY Fed announces the purchases when they contract to buy; the Federal Reserve places the MBS on the balance sheet when the contract settles.

The countdown ends in 3 weeks, and I don't expect any fireworks ...

by Calculated Risk on 3/11/2010 02:32:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008. My thanks to Jim Kennedy and the other Fed contributors for the previous MEW updates. For those interested in the last Kennedy data, here is a post, and the spreadsheet from the Fed is available here.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity (hence the name "MEW", but there is very little MEW right now!), normal principal payments and debt cancellation.

Click on graph for larger image in new window.

For Q4 2009, the Net Equity Extraction was minus $75 billion, or negative 2.7% of Disposable Personal Income (DPI). This is not seasonally adjusted.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined in Q4, and this was partially because of debt cancellation per foreclosure sales, and some from modifications, and partially due to homeowners paying down their mortgages as opposed to borrowing more. Note: most homeowners pay down their principal a little each month unless they have an IO or Neg AM loan, so with no new borrowing, equity extraction would always be negative.

Equity extraction was very important in increasing consumer spending during the housing bubble and I don't expect the Home ATM to be reopened any time soon. So any significant increase in consumer spending will come from income growth or a lower saving rate, not borrowing.