Americans rapily losing jobs

There have been 1.9 million job losses so far this year, with one quarter of those losses occurring in the last month:

The economy shed 533,000 jobs in November, according to a government report Friday — bringing the year's total job losses to 1.9 million.

November had the largest monthly job loss total since December 1974.

According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.7% from 6.5% in October. Though lower than economists' forecast of 6.8%, it was the highest unemployment rate since October 1993. ...

November's monthly job loss total was greater than October's revised loss of 320,000. Payroll cuts in September were revised up to 403,000, which means two-thirds of this year's job losses have occurred in the last three months.

November's report provided the first glimpse at how employers reacted after the peak of the credit crisis, reached in mid-October. With credit largely unavailable and expensive, consumers scaled back their spending, dragging down manufacturing and construction businesses. ...

With the economy in a recession and most economic indicators signaling even more difficult times ahead, economists say job losses will likely deepen and continue through at least the first half of 2009. ...

According to a report by outsourcing agency Challenger, Gray & Christmas, planned job cut announcements by U.S. employers soared to 181,671 last month, the second-highest total on record.

Treasury wants to reinflate the housing bubble

The U.S. Treasury apparently wants to fight the symptom by recreating the problem:

The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.

Economist Tim Duy thinks this is "potentially very bad policy":

The key word here is “temporary,” implying a sunset clause. This is a program, however, that screams permanency. Once the federal government defines a right to low rate mortgages, they will find it very hard to reverse their position. ... Why? Because at some point in the future, revoking the right will create classes of winners and losers, especially if it results in a steep rise in mortgage rates. And the losers will fight tooth and nail to prevent that rise; just imagine the army of lobbyists from home builders and realtors that will descent on Washington. ...

Perhaps I worry too much. Perhaps it really will be temporary. Consider, however, who is behind this proposal:

The Treasury plan is similar to ideas previously floated by the National Association of Realtors and the lobby group for home builders...

I can only think of Adam Smith’s warning:

The proposal of any new law or regulation which comes from [businessmen], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

What is the alternative? Stop focusing on the housing market. Stick to policies that will be revocable when necessary. There are virtually unlimited opportunities for good policy in education, infrastructure, and health care, to name a few (Rebecca Wilder fears there may even be too many).

WSJ skewers Barney Frank and Sheila Bair

The Wall Street Journal skewers Congressman Barney Frank and FDIC Chairwoman Sheila Bair:

What do you do if you've spent your career encouraging mortgage loans to people who can't repay them? Barney Frank's answer is to grill federal officials on why they aren't preventing foreclosures. Infuriated at the difficulty of modifying mortgages, the Beltway crowd doesn't understand that such contracts weren't designed to let people live in houses they can't afford.

Still, at a recent hearing of his Financial Services Committee, Mr. Frank received encouraging words from FDIC Chair Sheila Bair. She outlined her ballyhooed plan to prevent an estimated 1.5 million foreclosures by the end of 2009. ...

What we have here is another uncharted voyage into the land of taxpayer risk, and for little economic gain. We can only hope that news of the FDIC program doesn't encourage more people to stop paying their mortgages as they await rescue from Sheila Bair.

NYC luxury housing market starting to experience problems

There's nothing like a financial crisis to ruin the New York City luxury housing market:

For a while, even as the rest of the housing market sputtered, the luxury sector had looked strong, wealthy home buyers packing cash were largely unaffected by the mortgage meltdown and foreign buyers, for a time, were still buying. Now…not so much, foreign buyers have lost interest, according to Barron’s, and “big stock-market losses, a sagging economy and massive layoffs in financial services are sorely affecting the liquidity, wealth and confidence of potential buyers of high-end homes.”

Those still in the market for a fancy house can find some huge discounts. ...

Because of the troubles on Wall Street and in the finance sector, the worst-off areas in coming months are likely to be Manhattan and surrounding suburbs...

All told, luxury-home prices in and around Manhattan could drop by as much as 20% to 25% over the next 12 to 15 months...

Lereah & Others Missing The Housing Bubble

From a blog at The Atlantic:

Unless I were allowed to rely exclusively on David Lereah (until recently the permabullish economist for the National Association of Realtors) I would be hard put to find one economic expert who had completely missed the housing bubble, much less write an entire article consulting no one else.

David Lereah definitely missed and dismissed the housing bubble. If one goes back to 2004, 2005 or even 2006 there were plenty of economic experts who had completely missed the housing bubble including economists at Harvard the Federal Reserve and at other prominent institutions.

Americans expect housing prices to bounce back soon

Some people never learn:

Many Americans still see real estate as their best shot at wealth. In survey after survey, people expect prices to bounce back — in some cases, as soon as six months from now.

Those hoping for a quick rebound are likely to be disappointed. Economists and other pros generally say home prices won't bottom out before the second half of 2009, and some don't see a bottom until 2011 or 2012. Even when they stop falling, prices may scrape along the bottom of the rut for years.

Foreclosure modification programs still falling behind

Foreclosure modification programs can't keep up with the growing mass of foreclosures:

The nation's top banking regulator warned Tuesday that help for troubled homeowners is failing to keep pace with the foreclosure crisis.

"We're definitely behind the curve, and we fall further behind the curve every day," FDIC Chairwoman Sheila Bair told an audience at the Fortune 500 Forum in Washington, D.C.

According to Bair, the nation's financial system would be in much better condition today if earlier warnings she made about mortgage modification had been heeded.

Bair began sounding the alarm more than two years ago, warning that lenders had to shore up capital reserves to offset non-performing loans. In October 2007, she told lenders that they should start modifying more at-risk mortgages so borrowers could afford to stay in their homes.

Meanwhile the mortgage mess has ballooned, expanding beyond the housing market into the entire financial sector and the overall economy.

What Sheila Bair doesn't seem to understand is that in the bubble markets of the east and west coasts, high mortgage costs and declining home prices mean many people would be better off financially if they lost their home to foreclosure and became renters.

Since the cost of renting is still significantly less than the cost of owning, people who get "help" are still likely to be paying more for their mortgage than they would pay to rent an equivalent home. Furthermore, since housing prices are still falling, and are likely to for several more years, people who get "help" will likely find their negative equity is continuing to grow.

That said, the emotional cost of foreclosure may be worse than the financial cost of remaining homeowners.

U.S. officially in recession

I'm sure you've all heard this by now: The United States is officially in a recession.

The National Bureau of Economic Research—a private, nonprofit research organization—said its group of academic economists who determine business cycles decided that the US recession began last December.

The news pushed US stocks lower and renewed calls for another economic stimulus program.

The current recession, which many economists expect to persist through the middle of next year, is already the third-longest since the Great Depression, behind only the 16-month slumps of the mid-1970s and early 1980s.

"I think that we've got a ways to go, that this is going to be probably a deep and long recession," Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC. "It could be the worst post-War recession. We don't know yet." ...

Many Wall Street financial institutions already had declared that the US recession began in December 2007, when there was a sharp increase in the US unemployment rate.

The last two recessions have been so short—about eight months—that the NBER's official prenouncement came after the downturn had actually ended. ...

What's been confusing for economists this time around is that a contraction in gross domestic product—what laymen consider a key recession indicator—did not happen until the third quarter of this year.

Other key barometers, such as payrolls and the jobless rate, have clearly been in a recessionary trend for most, if not all, of the year, economists say. ...

A senior adviser to U.S. President-elect Barack Obama said news that the United States has been in a recession for a year underscored the need for an economic stimulus package.

Lawrence Summers, tapped by Obama to become director of the White House National Economic Council, said the slump may be worsening.

Based on the currently available numbers, it does not (yet) look like this recession is deeper than the early 1980s recession, but it will almost certainly be longer—possibly much longer. What should the government do in response to this extended recession? See here.

To my readers: I hope you will do your patriotic duty and buy your family lots of presents this holiday season—And buy a few gifts for yourself too. This doesn't mean you just go out and buy a bunch of junk. Instead, think of things you would likely buy at some point in the future, and simply move the purchases forward in time. Your nation's economy is depending on you.

Ignoring the housing bubble—What a great idea you guys had, Messrs. Greenspan and Bernanke!

Stock market wipeout today!

The DJIA is down 680 points today, on news that we are officially in a recession. (We're in a recession? Gee, what a shocker!)

Hovnanian, R.I.P.?

It looks like homebuilder Hovnanian is in a heck of a lot of trouble:

Hovnanian, the big New Jersey-based homebuilder, got a big no thanks from its bond holders [last] week. The company had tried to reduce its massive $1.6 billion debt load by offering bondholders new securties paying 18% interest. The catch was they had to accept just 60 cents on the dollar for their outstanding notes. Just $71 million worth of bonds were tendered.

The move was an attempt to preserve some assets for stockholders, including the 18% of the shares owned by management and the Hovnanian family, says the debt watchers at the research firm Gimmie Credit.

Over the past twelve months, the company lost $17.16 per share. Hovnanian's stock was recently trading for $2.19 per share.