Article 43

 

Wednesday, December 12, 2007

The Next Recession Part 8

housingbubble.jpg

A large, long-term increase in consumer indebtedness has raised concerns that the next U.S. recession could originate in the household sector. The housing boom of recent years has resulted in a surge in new consumer debt, most of it in the form of mortgages.
- SCENARIOS FOR THE NEXT US RECESSION - FDIC Report - March 23, 2006

The Coming Recession: Not An Accident

By James Clay Fuller
December 4, 2007

Two things Americans need to realize now about the U.S. economy:

First, the downward slide triggered by belated recognition of the subprime mortgage fiasco has a long way to go and it’s going. Recession is certain, and, despite the entire chorus of economists, bankers and government officials to the contrary, a depression such as that of the 1930s is possible. The mortgage mess was the catalyst, but it’s only one of many serious problems lurking in the American economy.

Second, the present flop and the agonies yet to come are NOT THE RESULT of what honestly could be called an accident or even simple failure to recognize the dangers inherent in the recklessness of the mortgage lenders and their top-of-the-ladder enablers.

In fact, though our corporate news media didn’t tell us so, quite a few people predicted the mortgage collapse.

To a degree that would surprise the vast majority of the population, this unholy mess fits into the redesign of the United States drawn by the royalist neocons who hold sway over our economy and our government. (No, not George W. Bush, who hasn’t the intellect to design a simple model train layout; I’m talking about the largely faceless people who’ve manipulated the economy and distorted the government under his nominal leadership.)

In plain language, we, the people, are in for a screwing the likes of which hasn’t been seen since the 1930s. The very rich will gain enormously, even more than they have since the beginning of the Bush regime.

Barring an unlikely recognition very soon of what’s going on, and even unlikelier effective action to head the thieves off at the pass, this is going to get ugly to a degree most people can’t yet imagine and it will last...for decades, maybe until mankind chokes to death in its own offal.

Folks who bother to read this probably already understand the basics of the subprime mortgage collapse: With government regulation of financial institutions - like almost all government regulation under Bushcheney - deliberately shrunk to near invisibility, a bunch of HOTSHOT innovators hustled millions of people into mortgages they couldn’t afford.

They lied, they cheated, they conned. And now, of course, the political right says it’s the fault of the victims because they didn’t understand the terms of the loans and never mind that the loan initiators lied through their teeth.

Big safe entities, including almost all of the country’s high profile financial institutions, bought the loans - junk that the public was told was absolutely Grade A investment material. The people who originated the loans, having sold one batch, went out and hustled up some more suckers. They did it over and over. The geniuses of our financial institutions kept buying the certain-to-default mortgages, right up until this fall, even though by then tens of thousands of armchair economists such as myself knew beyond doubt that the game was about to go bust.

Inevitably, the folks at the bottom of this manure pile, the borrowers, began to default as unrealistically low initial interest rates suddenly jumped to loan-shark levels. The big institutions that bought the bad paper began taking losses, then more losses and still more losses. Their profits behaved like kids on a water slide, but with a lot less laughter. Whooosh. Splash.

The effects of such events spread, of course. The big money outfits were hurt as borrowers quit making payments and foreclosures soared. The stocks of the financial institutions have taken major hits, which means their stockholders also were hurt as share prices dropped. The institutions also got distrustful of each other - hey, the other guy maybe has even more bad loans than you do—and became reluctant to make loans to each other, which is what the business pages mean when they talk about “loss of liquidity.”

If an institution can’t borrow, it can’t loan. If it can’t loan, other businesses can’t borrow, and so it goes. Expansion, growth, even day to day operation in some cases, becomes difficult or impossible.

Well, most of you know the rest of it. Even the happy talkers admit that more hundreds of thousands, and perhaps millions, of mortgages are going into foreclosure. That means more tightening of credit. It’s a downward, self-sustaining spiral.

A result not much talked about yet is the fact that as a result of the high numbers of mortgage foreclosures, with more to come, property values are falling throughout the country. That’s more true in some places than others, but one report I saw within the past few days said the over-all value of residential property in the United States will be down by 7 percent, at minimum, by the end of next year.

And that means that tax bases for cities, school districts, counties and other local governmental bodies fall. And that, in turn, means less property tax income for those governments - less money for schools, less money for policing, less money for street and road maintenance and all the rest of it.

Under Bush-Cheney and often, as in Minnesota, under right wing governors and legislators, federal and state money for such expenditures already has been slashed to dangerous levels. That’s why school districts across the country have been pushing referenda for increases in property tax levies.

Business pages and Fox Republican News, and even less reliably right-wing news outfits, keep talking about how basically strong and resilient the American economy is, and how it can withstand this shock and go on to better things, and how a dollar plunging on international markets and manufacturing shifting to slave labor in poor countries really are good things.

Two thirds of a page on last Sunday’s New York Times was devoted to such phony reassurances. I have it right her beside me, with my notation at the top: “B.S. page.”

Just remember the people writing that fiction are the same people who’ve been telling us how great the economy is even as most people have seen real earnings fall and most of the country’s wealth has shifted in just a few years to the richest five percent (or fewer) of Americans.

Business Week, of all publications, recently ran an article admitting that the “American Dream,” of social and economic advancement is now essentially a myth. The article noted that, with a very few individual exceptions, the poor stay poor, or get poorer, the middle class is shrinking and the rich go on getting richer.

Business Week didn’t say so in so many words, but the plain fact is that the United States now is a more class-ridden, class-divided country than England, with all its lords and titled graduates of Eton.

To refresh memories: Data from the Congressional Budget Office, confirmed by many economists, shows that between 1973 and 2000, the average real income of the lower 90 percent of Americans fell by 7 percent, while the income of the top 1 percent climbed by 148 percent. During the same period, the income of the top one tenth of 1 percent climbed by 343 percent. And the incomes of the top one hundredth of 1 percent grew by 599 percent.

And experts agree the distortion of income distribution has accelerated since Bushcheney came to power in 2000.

There also have been several reports recently showing that rather than continuing the upward social and economic mobility that began with Franklin Roosevelt’s presidency, we have been going backwards in recent years. Our kids and grandkids, on average, will regress and be poorer and poorer from generation to generation if present trends continue.

This all fits beautifully into the neocon plans for our country.

Repeat: It is not accidental.

And, no, that’s not hyperbole nor paranoid fantasizing. It’s in their writings and their speeches to right wing audiences.

Something like the subprime mortgage mess simply had to happen once regulatory bodies were put into the hands of those who are supposed to be regulated, and the Bushcheney White House accomplished that more quickly and completely than any other Republican administration ever managed. Virtually every federal regulatory body now is headed by former lobbyists or lawyers for the industries they supposedly oversee, and once their stints are up, those people will go right back to their very highly paid industry jobs.

With no regulation, and given the unbridled greed now flaunted at the top levels of American business, there was no way the bankers were going to let principle or even common sense slow down their grasping for quick profits in whatever dark corners they could reach. And so we have the mortgage mess.

And, frankly m’dears, the NEOCONS don’t give a damn.

Or, rather, they undoubtedly are toasting each other in the inner sancta of the Heritage Foundation and other such places.

The very rich, the super rich, will take a few temporary losses in the looming recession (depression?), but as has happened throughout history, while you and I are being told that everything is going to be just fine, they’re sheltering major portions of their wealth. Gold and other precious commodities? Shifting dollars to euros or other currencies? I don’t know the specifics this time, but I do know my history.

And as always happens in major economic downturns, the poor and the middle class lose a portion of their piece of the pie, and the rich get that portion. The market shareӔ of the rich grows, and the piece we have is smaller, spread more thinly.

Even without a major recession, the distribution of wealth and income in this country has shifted rapidly and powerfully to the rich. Republican tax cuts have done nothing for the poor and very little for the middle class; the richest five percent get half of all of the tax cuts by dollar amount. In the 1970s, a corporate chief executive made, on average, 30 times the pay of the average corporate employee; today the CEO makes more than 300 times the income of the average employee.

As the rest of us are squeezed in a tight, possibly desperately tight, economy, the rich will be in a position to buy up still more of the country’s assets and to bleed us. Those who work for a living are at the mercy of employers when jobs are scarce.

Now add to that picture continuing increases in medical costs while insurance availability continues to shrink. And factor in the disappearance of pension plans, quite possibly the deliberate destruction of social security. Consider the deliberate undercutting of organized labor by the U.S. government, begun under Ronald Reagan and continuing since. Definitely figure on further cuts in all sorts of social programs such as early childhood education, support for low-income housing, even general public education—all targets of neocon hatred.

Where does that leave us, the great majority?

Either stand up and fight, howl at your political representatives and pound on their doors, and insist on real representation in government or stay silent and go out and buy knee pads while you can still afford them.

SOURCE

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Washington Mutual To Close 190 Offices

San Francisco Chronicle
Tuesday, December 11, 2007

It will shut 12 Bay Area home loan centers, expects to lose $1 billion in 1st quarter of ‘08

Washington Mutual Inc., the nation’s largest savings and loan, said Monday that problems in the mortgage and credit markets are forcing it to close offices, lay off more than 3,000 workers and set aside up to $1.6 billion for loan losses in its fourth quarter.

Additionally, the company slashed its quarterly dividend 73 percent and said it plans a $2.5 billion offering of convertible preferred stock. Washington Mutual has not yet priced the offering, but increasing the total number of company shares will dilute their value for existing stockholders. In after-hours trading, shares fell $1.73, or nearly 9 percent, to $18.15 following the company’s announcement.

Chairman Kerry Killinger said in a statement that “significant expense reductions” were needed “to further fortify” the bank’s capital and liquidity.

The Seattle thrift dismantled much of its subprime mortgage business in September, cutting 1,000 jobs related to the sale of home loans to people with questionable credit. It folded the remaining subprime operations into its regular mortgage business.

The savings and loan will now get out of the subprime mortgage business entirely.

The company said it will close about 190 of its 335 home loan centers and sales offices, shut down nine call centers, and eliminate 2,600 home loan workers and 550 corporate and support jobs.

Locally, Washington Mutual spokeswoman Elizabeth Borrelli said 110 jobs would be eliminated with the closure of a retail home loan fulfillment center in Pleasanton. Another 20 jobs will be cut in San Francisco. Elsewhere in California, Washington Mutual will close home-loan-related offices in Downey (Los Angeles County), 35 jobs; Irwindale (Los Angeles County), 35 jobs; and Irvine, 230 jobs.

Spokesman Gary Kirshner said Washington Mutual will also shutter 31 home loan centers in Northern California. These will include 12 Bay Area locations: two each in San Francisco and San Jose, plus one center each in Dublin, Lafayette, Los Altos, Oakland, Pleasant Hill, San Bruno, San Rafael and Saratoga.

These changes, meant to address what the company called “unprecedented challenges in the mortgage and credit markets,” will save the thrift $140 million in the fourth quarter. But the company still expects to post a loss, due in part to a $1.6 billion charge for the write-down of goodwill associated with the shrinking home loans business.

On top of that, Washington Mutual increased its loan loss provision to $1.5 billion to $1.6 billion for the fourth quarter, from the $1.1 billion to $1.3 billion predicted by executives in early November.

For the first quarter of 2008, the company said it expects loan losses to total $1.8 billion to $2 billion. Loan losses will remain high throughout the year, the thrift added.

The company also slashed its quarterly dividend to 15 cents per share from its most recent dividend of 56 cents per share, for savings of more than $1 billion.

Moody’s Investors Service downgraded several long-term and short-term ratings for the company and said in a statement that the move “was based on its view that credit losses from WaMu’s mortgage operations will be noticeably higher than previously estimated.” The credit rating agency said it doesn’t expect the company’s profitability to begin to recover until 2010.

Fitch Ratings also downgraded the thrift’s credit ratings.

Before the news, shares rose about 85 cents, or more than 4 percent, to close at $19.88 Monday.

SOURCE

The Next Recession
PART 1 - PART 2 - PART 3 - PART 4 - PART 5 - PART 6 - PART 7 - PART 8 - PART 9 - PART 10 - PART 11 - PART 12 - PART 13

Posted by Elvis on 12/12/07 •
Section Dying America • Section Next Recession, Next Depression
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