John Konop writes:
YOUR KIDS FUTURE

This is an editorial on the web site economy in crisis. Do you think Americans should be concerned with our kid’s future due to poorly negotiated trade and immigration policy?

PREPARE YOUR KIDS FOR THE FUTURE — AS A SERVANT

EC-In 1994, more than 1 in 8 jobs in America was in manufacturing. In 2014, if US government (Bureau of Labor Statistics) projections are to be believed, that figure will have slipped to less than 1 in 12.

The government is actually telling us in black and white that the policies that they are enacting will decrease absolute and relative manufacturing employment to levels below that of the 1950’s – over 2 million jobs below. In the 1950’s, 30% of US employees were in manufacturing – almost one in three jobs! This country was a relative manufacturing superpower.

In less than 20 years since America put in place some of its most self-devastating policy decisions (NAFTA, WTO, CAFTA, etc.), this country will have almost completely converted from a self-sufficient sovereign state, capable of manufacturing what it needs to sustain and protect itself, to a country of servants – serfs, working at the behest of foreign employers or engaged in the sales, marketing, and distribution of foreign-made goods – working at their discretion, for wages they determine, and forced to pay their prices for needed goods. This is the definition of a servant.
John Konop | Homepage | 12.21.06 - 4:23 pm | #

Brian writes:
Proverbs 22:7 The rich ruleth over the poor: and the borrower is servant to him that lendeth.
Brian | 12.21.06 - 4:56 pm | #

Metroplexual writes:
Lacker seems to be the one Fed that has a clue.
Metroplexual | 12.21.06 - 4:57 pm | #

Tanta writes:
When the weather outside is frightful
The economy's being spiteful
There's a plan Fed Presidents know:
Let us snow! Let us snow! Let us snow!

Appreciation looks like it's stopping
And the bubble's clearly popping
And new permits are way down low--
Let us snow! Let us snow! Let us snow!

If we finally tell the truth
How we'll hate going out in the storm.
If we weasel and talk that book
Things won't revert to the norm!

Construction is slowly dying
And the jobs are still goodbying.
But another six months or so . . .
Let us snow! Let us snow! Let us snow!

Given what my day job is, don't bother to tell me not to quit yet.
Tanta | 12.21.06 - 4:58 pm | #

calmo writes:
Lacker has gained some notoriety as the lone voice against the majority that has kept the FF rate steady for the last couple of months.
I wish there was some substance to his position and not just the public relations stunt. Best to view him as not the leader ahead of the FOMC pack but as the laggard, not too different from Fisher and enjoying the limelight.

btw, John, some of the best jobs in the country are in the financial services sector, yes?
calmo | 12.21.06 - 5:02 pm | #

AZ_Cowboy writes:
Lacker's dissenting votes are just him playing "bad cop". He doesn't want the markets getting too lathered up about upcoming rate cuts.

My take on his speech is that as long as Starbucks keeps opening new stores to employ displaced construction workers, and these employees can keep leveraging their way into 1/4 million dollar homes, everything should be okay. It's crazy enough that it just might work.
AZ_Cowboy | 12.21.06 - 5:34 pm | #

Kevin writes:
OT

Citigroup Buys Housing Debt Business

NEW YORK — Financial services company Citigroup Inc. said Thursday its corporate and investment banking business bought the affordable housing debt business of Capmark Financial Group Inc.

Financial terms were not disclosed.

The business is a boutique underwriter specializing in the affordable multifamily housing sector, Citigroup said. It has about $1.2 billion of assets.

Citigroup's shares slid 37 cents to $54.79 in afternoon trading on the New York Stock Exchange

http://www.chron.com/disp/story....fn/ 4418935.html

REO anyone.
Kevin | 12.21.06 - 7:16 pm | #

Dan writes:
Given what my day job is, don't bother to tell me not to quit yet.

Another winner! You're safe to give up your day job.
Dan | 12.21.06 - 7:45 pm | #

Kevin writes:
I should note that the end of the housing boom could not have been a complete surprise to most participants. Sure, it’s nice to sell your home when bidding wars and escalator clauses are common, as they were in 2005. But these conditions were fairly unusual in most markets, and it’s hard to believe many people seriously thought they would persist indefinitely. This is another reason to believe that most people are likely to be reasonably well-positioned for the end of the boom.

Jeffrey M. Lacker
October 11, 2006

Some observers have called this extraordinary behavior of the housing market in recent years a bubble. I don't find that term useful or particularly accurate, since the behavior of housing appears to have been based on solid fundamentals.

Jeffrey M. Lacker
December 21, 2006

Hummmm
Kevin | 12.21.06 - 8:22 pm | #

calmo writes:
Even after the Greenspan Kennedy paper showing some $600B in MEW, Lacker is unmoved. Mere numbers are nothing to such a sloping forehead.
From Lacker:
...a bubble. I don't find that term useful or particularly accurate,[but I nonetheless have to make a reference to this popular misnomer?] since the behavior of housing appears to have been based on solid fundamentals.
So we see how "useful and particularly accurate" this term "solid fundamentals" really is: trust me I'm an authority even if a dissenting authority, even a dissenting and diminishing authority that will soon drop this bone-headed vote for an increase in the FF rate.
calmo | 12.21.06 - 9:41 pm | #

bnv writes:
http://money.cnn.com/2006/12/21/ ...sion=2006122116

Americans spend every cent - and more

"But other economists say the negative rate overstates the problem of consumption versus savings. They note the savings rate doesn't measure things like money going into bank accounts, 401(k)s and other retirement plans or mutual funds"

Is this correct?

Federal Reserve San Fransisco website on the same topic seems to differ from CNN's assesment.

http://www.frbsf.org/education/a.../2005/ 0508.html
bnv | 12.21.06 - 9:43 pm | #

jim writes:
I wouldn't put too much stock in Lacker's comments. I'm sure he'd be blowing bubbles if this supported his interest rate position.

Avoid globalization at your nations peril (Gee, I wonder how large our trade deficit would be with a protectionist policy). Just be glad you live in the US: land of the free, and home of the worlds reserve currency.
jim | 12.21.06 - 9:45 pm | #

winjr writes:
"If we finally tell the truth
How we'll hate going out in the storm.
If we weasel and talk that book
Things won't revert to the norm!"

LOL!

Truly inspired.
winjr | 12.21.06 - 11:11 pm | #

JAC writes:
The fed and the lenders conspired
and Tanta is clearly inspired,
CR's readers enjoy the show,
So let it snow, let it snow, let it snow!
JAC | 12.21.06 - 11:56 pm | #

vader writes:
Cheap thrills.



first this


Then this

Where will it end?

Call it reverse debasement or deflation.
vader | 12.22.06 - 12:36 am | #

Cal writes:
OT: Another subprime lender bites the dust:

http://www.hmic.com/
Cal | 12.22.06 - 4:08 am | #

Tanta writes:
Oooh, icky one, Cal. From the "parent" company's Q3:

"The Company's results for the quarter were again negatively impacted by HMIC, the Company's wholesale mortgage subsidiary. For the quarter ended September 30, 2006, HMIC recorded a provision for losses of $954,000 in response to a significant increase in the loans sold to investors that experienced an early payment default, under which HMIC may have liability to the investor. HMIC recorded a loss for the quarter ended September 30 of $1.19 million excluding the provision for losses and approximately $260,000 of one time expenses directly related to the MAW acquisition.

Harbourton Financial Corporation ("HFC"), the Company's mezzanine lending subsidiary, established additional loan loss reserves of $750,000 related to three of its projects to reflect the recent decline in real estate market values."



http://biz.yahoo.com/bw/061208/2...05520.html? .v=1
Tanta | 12.22.06 - 7:15 am | #

bob writes:
Besides the Harbourton Mortgage linked above there is a trouble with Fieldstone:

http://finance.yahoo.com/q?s=FICC
bob | 12.22.06 - 8:08 am | #

JackF writes:
I would think the resiliency of the housing market will be determined by future interest rates. Maybe since Lacker seems to thing housing will hold up, he is privy to the Fed's real intentions regarding interest rates. Namely, whether its real goal is to support the dollar or stimulate the economy.
JackF | 12.22.06 - 8:13 am | #

Tanta writes:
Holy balance sheet, bob! Two items, a few hours apart:

Exhibit A: "Fieldstone Investment Corp., a real-estate investment trust based in Columbia, Md., told investors late Wednesday that in anticipation of downbeat fourth-quarter operating results, it has restructured its financial covenants -- or restrictions -- with three lenders in exchange for lines of credit under four lending agreements totaling as much as $1.8 billion. . . . The company posted a $45 million loss in the third quarter, blaming an increase in reserves due to "the accelerated delinquencies of the newer loans" and continued market pressures on sales margins. In a statement accompanying the results, Fieldstone Chief Executive Michael Sonnenfeld said: "We are working to lower our portfolio delinquencies, to lower our cost to originate new loans and to improve the level of our loan originations."

Exhibit B: "Fieldstone Investment Corporation announced today the securitization by its affiliate, Fieldstone Mortgage Investment Corporation (FMIC) . . . of approximately $178 million of notes by Fieldstone Mortgage Investment Trust, Series 2006-S1. The assets of the trust include fixed-rate mortgage loans secured by second liens on residential properties that were originated by Fieldstone Mortgage Company, Fieldstone Investment Corporation's mortgage origination subsidiary. The securitization involved the issuance of one class of senior notes and nine classes of subordinated notes. Fieldstone Mortgage Ownership Corp., an affiliate of Fieldstone, retained the Class M6, B1, B2 and B3 notes, which represent approximately $13.3 million in principal amount. The securitization is structured as an on-balance sheet financing. . . . Fieldstone will use substantially all of the net proceeds from the securitization to relieve outstanding financing obligations secured by the mortgage loans."

OK. Restructure with the warehouse lender. Then issue a bond backed by supbrime second liens on balance sheet, keep everything rated less than A, and use the proceeds to pay down the warehouse line. Tanta has $10 says the warehouse lenders bought the senior tranches . . .
Tanta | 12.22.06 - 8:35 am | #

Bob_in_MA writes:
bnv,

Damn, that is one of the most poorly written FAQs I've ever seen. The answer to the question ("Are 401k and IRA contributions included in the national savings rate and if so how is this calculated?") would seem to be yes, but not necessarily as PERSONAL savings.

The CNN article is referring to personal savings only. I found this paper at BEA where they seem to discuss whether retirement account contributions OR withdrawls should be used in caclulating personal income.

All pretty damned confusing to me.

I have not seen anyone arguing that their isn't a negative savings rate based on income. THe counter argument seems to always point out that capital gains aren't counted (and apparently they are in calculations in other countries.) That begs the question, what happens in a year when capital gains for most people is flat or negative?

What would be really interesting is to see the personal income and outlay tables with a median value for each category.
Bob_in_MA | 12.22.06 - 9:47 am | #

Name writes:
"The secular increase in housing demand "

It wasn't really secular, if secular means not belonging to specific demographics but rather general.

Data shows ownership increased among the youngest and oldest, but changed little for 35- to 50- year olds.
Name | 12.22.06 - 9:58 am | #

bnv writes:
bob_in_ma,
thanks!
bnv | 12.22.06 - 10:06 am | #

theroxylandr writes:
So what's up with Harbourton Mortgage?

Is it dead for real? Why there is no news on that?

How big it was?
theroxylandr | Homepage | 12.22.06 - 10:24 am | #

Name writes:
RE: Fieldstone Investment Corp

There was a lot of jargon in there.

It sounds like the company issuing loans, FIC, is a front company that can go bankrupt without hurting certain people, FMIC?

FMIC sells bonds backed by FIC's loans in risk slices, but keeps the least risky ones itself, called senior tranches.

So when too many of the riskiest loans go bad, FIC shuts down and bond holders do not get repaid.

However certain people at FMIC are insulated from loss because their obligations are senior and insulated from legal responsibility because they were not the issuer of bad loans.

I build cell phones for a living. I'm trying to learn finance...
Name | 12.22.06 - 10:37 am | #

Dr Deflation writes:
Bob_in_MA,
The actual savings number doesn't matter. It could be measured in any of a dozen ways. The important point is the trend, for decades the consumer has clearly been saving less and less. At some point that is going to reverse, as crazy as it may seem now.
Dr Deflation | 12.22.06 - 10:37 am | #

dc1000 writes:
CR:
can you end this personal saving rate discussion once and for all with a description of what exactly is in this figure and what is not? i.e. 401k are not but savings accounts are? or something like that?

thanks,
dc1000
dc1000 | 12.22.06 - 10:44 am | #

tea writes:
All this confusion over saving arises because 1) we confuse stocks and flows and 2) lack of understanding of the National Income accounting system and in general what a consistent accounting system implies.

I have explained this before, but let me try again:

1. "Saving" is a flow, "savings" is the stock. The money in your 401 (k) or savings accounts is a stock.

2. Stocks can rise either because of increased net inflow (higher current saving not savings) or capital gains or both. Thus, if your 401k balances or savings accounts or mutual fund balances are going up it must be because either you are saving out of your current (non capital gain income) or your existing 401 k accounts have experienced capital gains (or both). So, saving cannot be mismeasured because it ignores 401 k balances.

3. The NIPA (national account) is a consistent double-entry accounting system that ignores capital gains altogether (both on the debit and credit side).

4. Now, one could include capital gains--realized and unrealized--in saving (not savings) by treating it as current income. In that case, saving rate (not savings rate) would be higher. But it would also show tremendous fluctuations as stock and home prices vary. It would not be terribly meaningful frankly (of course that is a debatable point).

5. A corollary of 4. is capital gains would have to be reflected a net investment (or revaluation of fixed assets) on the other side of the ledger.

6. The reason why capital gains are exccluded is manifold. If in fact, increased asset valuations have a basis in fact, that is future income growth is higher, then capital gains reflect a onetime adjustment, a windfall so to say, that should be ignored for smoothing purposes. If capital gains have no basis in future income growth (eg. Nasdaq 2000) then it needlessly mucks up a perfectly good measure.

7. We cannot of course be slaves to the accounting system when analyzing consumer behavior. For a household, if their 401k has gone up by 10,000 dollars it is equivalent to setting aside 10,000 dollars from your current income (not including capital gains). The household has "extra" 10,000 to spend. If they spend part or all of it, the saving rate would go down. A simpler way of saying it is that if people are experiencing capital gains their saving out of current income is likely to decline. That is a no brainer.

8. The flip side of that is if asset values decline and households suffer large capital losses, then their saving our of current income should go up to compensate for their losses. If your 401 k account loses 10,000, then you should be saving 10,000 more than what you originally planned to save.

9. Most importantly, asset values are not etched in stone as the Japanese discovered in the 1990s or Americans discoverd after the tech bubble. Given the currently streteched asset values in the US, a long-term decline in wealth should result in US households increasing their saving out of cur
tea | 12.22.06 - 11:54 am | #

dryfly writes:
To follow up on tea's post...

My understanding of the savings rate via NIPA is that they calculate it 'going backwards'... instead of trying to add up all the different pools of possible savings they instead:

Take income minus consumption and assume that equals savings... and in a steady state world it should.

They have good sources of aggregate data on income and good sources of aggregate data on consumption... Subtract these two huge numbers and you have what we saved as defined as what we DIDN'T consume.

However, like all differences between large numbers, small errors in the large numbers can result in HUGE percentage errors in the difference.

Plus it doesn't take into account people (or gov't) borrowing against future income & consuming it or deferring paying current liabilities (incurring the liability but not yet consuming) - individuals, corporations & gov't do both.

One of the biggest reasons savings rate is negative is because people have been spending MEW (non-income) on consumption items.

A guy gets paid a $100,000 income... puts $15K in his 401K... he (and the gov't via his income tax) spends the remaining $85K... Looks at first blush that the savings rate is 15%.

Except the Gov't runs a deficit (mostly consumption) and then the guy goes and takes out a HELOC on his home and spends that too... Add up the additional spending both he and the gov't does in his name (sort of) and you quickly exceed the $100K income and have a negative savings rate... by definition.

Do that across the whole country and you have a national negative savings rate.

Now there are those who would say... no, no, no... that the annual increase in equity & stock appreciation should be considered 'income' and bulk of unspent equity considered 'savings'.

That is a semantics argument tea covered well (above)

Anyway they better hope the IRS doesn't start to agree with them that MEW is income... if you get my drift.

dryfly | 12.22.06 - 12:10 pm | #

jm writes:
"A guy gets paid a $100,000 income... puts $15K in his 401K... he (and the gov't via his income tax) spends the remaining $85K... Looks at first blush that the savings rate is 15%."

Which seems to be a very good reason for computing savings as income minus consumption -- it nets out the effects of such actions.

A problem that remains is that in the modern world there really is no such thing as "saving". There is only investment -- spending not deemed to represent consumption -- and the ultimate value of the savings depends on the quality of the investments.

But to the extent that one can assume that the overall nature of spending no t deemed to represent consumption remains consistent from year to year, trends in the delta between income and consumption should be quite meaningful.
jm | 12.23.06 - 9:50 am | #

John Konop writes:
calmo you are right. In the financial services sector if you undestand money movement or Boutique processing or finance products you can usually make a good living. That does not mean the economy is doing well on a macro level.
John Konop | Homepage | 12.25.06 - 11:02 am | #

John Konop writes:
The reality is 401k only matters with the higher income earners in your company. The biggest problem I had with 401K in every company is was an executive is over contribution from the top and not enough from the rest of employees. This was one indicator that many are falling behind with savings. This will be a huge issue when the bulk of baby boomers cannot retire.

I challenge anyone of you to go to your HR department and ask if they do not see the same trend of lack of employees using 401k.
John Konop | Homepage | 12.25.06 - 1:32 pm | #