by Calculated Risk on 7/12/2009 09:04:00 PM

From Treasury Secretary Geithner (via Tom Petruno at the LA Times):

"I think all economists believe, and this was inherent in the design of the program, that the biggest thrust or force would start to take effect in the second half of this year. And we’re going to start to see that happen. But I don’t think that’s a judgment we need to make now, can’t really make it now prudently, responsibly."

From Brad Delong: Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days

Last December the Obama administration ... decided on a fiscal stimulus package which they believed would have minor effects on the economy in the first two quarters of 2009 and major effects--would push unemployment down below what it would other wise have been by more than half a percentage point--starting in the third quarter of 2009. They believed that the economy was not that weak, and that with the fiscal stimulus package taking effect unemployment would be peaking now at a rate of 7.9%.
...
The financial crisis of last fall hit the economy's levels of production, spending, and employment much harder than people thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a fiscal stimulus program as the Obama administration in fact did propose.
...
If I were running the government, I would be trying to make up that GDP shortfall right now: I would be rushing a clean $170 billion--$500 per citizen--aid-to-states-that-maintain-effort package through the congress this week.

Click on graph for larger image in new window.

This graph (similar to Brad's) compares the BLS reported monthly unemployment rate (in red) with the Obama economic forecast from January 10th: The Job Impact of the American Recovery and Reinvestment Plan

Geithner is correct about the stimulus kicking in during the 2nd half of 2009, and Delong agrees. But Delong is pointing out that the economy is in much worse shape than originally expected, and he argues if the Obama Administration knew in January what we know today, the package would have been much larger. Maybe. But thinking back - there was a huge political problem with the word "trillion" - so a much larger package would have been very difficult (although the composition could have been different).

From Paul Krugman: Vegematic policy advocacy

Like Brad, I’m not too happy with the policy justifications we’re getting from the administration. It’s perfectly clear that the stimulus was too small; I think they know that too. But they’ve made a political judgment that (a) they can’t push another round through and (b) the thing to do right now is defend the policy they already have.

Maybe they’re right.

My guess is another stimulus package is coming - but the Obama Administration is in a political bind and they will have to wait a few more months. The second package will probably be introduced after the third quarter - or once the unemployment rate reaches 10% - and my guess is it will be about half the size of the package proposed by Dr. Delong.

by Calculated Risk on 7/12/2009 06:02:00 PM

From the Milwaukee Journal Sentinel: Lenders abandoning foreclosed properties (ht Michael)

Rodney Lass figured his days as a homeowner were over when he was hit with a foreclosure judgment more than a year ago.

He stopped rehabbing his two-story Bay View home and moved on.

But what Lass didn't realize until recently is that the house remains in his name today.

He's still responsible for the taxes, upkeep of the property and the mortgage, leaving Lass perplexed.

"Why would I pay for something that I don't own anymore?" Lass said.

The foreclosure, however, failed to go through after the California-based lender decided it didn't want the gutted house. Lass said he found out for certain that he still owned it from the Journal Sentinel.

Today, the house at 703 E. Lincoln Ave. sits condemned ...

The home represents a growing phenomenon known as walkaways - properties for which lenders sue for foreclosure but never take the title.

We've heard this story before - the lender starts foreclosure, and then discovers the house is worthless (or in this case has a negative value because the house is condemned). In this case, the foreclosure went through, but the lender never recorded the deed with the court leaving the property in the previous owner's name.

No one wants the property now, and the city will probably bear the costs of demolition. Meanwhile the abandoned house is a nuisance for the neighbors - even the bandos won't live there.

by Calculated Risk on 7/12/2009 01:59:00 PM

Professor Roubini thinks the economy will be in recession through the end of 2009, and that the recovery will be "shallow". More from Christian Menegatti at RGE Monitor:

The general consensus is that this recession will end sometime in the second half of 2009. While RGE Monitor expects more quarters of negative real GDP growth in 2009, we also expect the pace of contraction of economic activity to slow significantly. We forecast negative real GDP growth in Q2 2009 and Q3 2009, and for real GDP to remain flat in Q4. After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010, and then at a very sluggish rate, well below potential.

Paul Kasriel at Northern Trust is a little more optimistic: When We Get “There”, Will We Know It?

Back in April, our forecast update commentary was entitled, “Are We There Yet?” The “there” referred to a resumption of real growth in the overall economy. Our answer in April was “no,” which also happens to be our answer in July. When will we get there? Our answer in April was the fourth quarter of this year, which also happens to be our answer now. Assuming we get there in the fourth quarter, would most households and businesses in America know it if they were not so informed by the media? Probably not. We anticipate another “jobless recovery,” which implies a relatively feeble one. We would not be surprised to hear terms early in 2010 such as “double dip.”

I think Kasriel might be a little too optimistic about 2010.

Jan Hatzius at Goldman Sachs sees a little positive GDP growth starting in Q3, and a sluggish recovery (no link).

Here are the quarter by quarter real GDP (annualized) forecasts from Northern Trust and Goldman:

Quarter	Northern Trust	Goldman Sachs
Q2 2009	-2.2%	-1.0%
Q3 2009	-2.1%	1.0%
Q4 2009	2.3%	1.0%
Q1 2010	1.2%	1.5%
Q2 2010	2.4%	1.5%
Q3 2010	2.4%	2.0%
Q4 2010	3.3%	2.0%

I think the real GDP growth will turn slightly positive sometime in the 2nd half of this year, but my guess is 2010 will be barely positive, with the unemployment rate rising for most of 2010.

by Calculated Risk on 7/12/2009 09:42:00 AM

The confessional is still open ...

From The Times: Lloyds braced for £13bn writeoff (about $21 billon)

LLOYDS BANKING GROUP is poised to write off as much as £13 billion on its loans to commercial property, businesses and mortgage holders ...

First-half results due to be posted in three weeks will show that its losses are accelerating ...

UBS analysts expect Lloyds to announce a bottom line half-year loss of £6.3 billion as a result of the soaring provisions.

Remember when a multi-billion dollar writeoff was shocking?

by Calculated Risk on 7/11/2009 10:52:00 PM

For a little Saturday night amusement ...

From FoxBusiness: Wells Fargo Bank Sues Itself (ht Rama)

... I could not resist asking Wells Fargo Bank NA why it filed a civil complaint against itself in a mortgage foreclosure case in Hillsborough County, Fla.
...
In this particular case, Wells Fargo holds the first and second mortgages on a condominium, according to Sarasota, Fla., attorney Dan McKillop, who represents the condo owner.

As holder of the first, Wells Fargo is suing all other lien holders, including the holder of the second, which is itself.

... court documents clearly label "Wells Fargo Bank NA" as the plaintiff and "Wells Fargo Bank NA" as a defendant.

Wells Fargo hired Florida Default Law Group., P.L., of Tampa, Fla., to file the lawsuit against itself.

And then Wells Fargo hired another Tampa law firm -- Kass, Shuler, Solomon, Spector, Foyle & Singer P.A. -- to defend itself against its own lawsuit, according to court documents.

Wells Fargo's defense lawyers even filed an answer to their client's own complaint.

"Defendant admits that it is the owner and holder of a mortgage encumbering the subject real property," the answer reads. "All other allegations of the complaint are denied."

Your TARP money hard at work ...