PaperMoney - Real Estate Blogs

• Nationally the index increased 12.3% as compared to January 2010.
• The Northeast region increased 20.4% as compared to January 2010.
• The Midwest region increased 11.8% as compared to January 2010.
• The South region increased 18.1% as compared to January 2010.
• The West region increased 1.5% as compared to January 2010.

Hat tip to DollarCollapse for the link to the EconomicRot.

.

.

.

.

.

.

This would make a really great companion piece to the Bill Maloni article we re-posted Wednesday night, but alas we can only give you a taste of this comprehensive analysis.  Doomers would be wise to head for the Washington Post (click on the title) and read the whole thing.

You can enjoy WaPo's ads over there, too

.

"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."

Igor is sort of torn between the "markets can stay irrational" meme and the "Treasury keeping Shorty busy so he can't attack Spain" conspiracy theory.

.

.

.

AIG jumped 13 percent to $32.77 at 4 p.m. in New York. Citigroup Inc. advanced 7.3 percent to $3.82 as Charles Gasparino of Fox Business Network said the U.S. may sell its stake in the bank within three months, without saying where he got the information. Fannie Mae climbed 5.9 percent to $1.07, and Freddie Mac increased 7.6 percent to $1.28.

It seems more likely that investors, or shall I say traders, are making bets on rumors that so far have no basis in fact. There was scuttlebutt Tuesday, for example, that the SEC was going to ban or limit short selling in companies in which the government has a stake.

Bank of America has done it again.  They have foreclosed on a homeowner that wasn't in default- and this time they kidnapped the parrot:

A Hampton woman is suing Bank of America, saying one of its contractors wrongly repossessed her home, padlocked the doors, shut off the utilities, damaged the furniture and confiscated a pet parrot, though her mortgage payments were on time.

Angela M. Iannelli, 46, suffered "severe emotional distress, embarrassment and ridicule" as a result of the company's "de facto foreclosure process and seizure proceedings," attorney Michael Rosenzweig wrote in the suit, filed Monday in Allegheny County Common Pleas Court.

The suit accuses Bank of America and its contractor, Ebensburg-based Snyder Property Services, of trespass, unfair business practices, defamation, libel and other offenses during the October foreclosure of Ms. Iannelli's home in the 5000 block of Fountainwood Drive. She is seeking an unspecified amount in compensatory and punitive damages.

Bank of America instructed Snyder Property Services to "enter, seize, padlock, 'winterize' and take possession" of Ms. Iannelli's house, the lawsuit said, cutting water lines and electrical wiring, pouring anti-freeze down her drains and "stealing" her pet parrot, Luke.

She returned home to find her locks had been changed, her furniture and carpets had been damaged, her belongings had been scattered and the bird missing. A notice on her door told her to contact Bank of America, which "initially falsely denied responsibility or knowledge of the invasion and refused" to help her, the suit said. The bank also acknowledged they knew the parrot's whereabouts, it said.

In further calls, Bank of America representatives told Ms. Iannelli they couldn't help her, told her to stop calling, said they were "tired of hearing from her" and put her on hold, told her to call back later and hung up on her, the suit said.

About a week later, Bank of America told her it had "made a mistake" and told her where she could find her parrot, but said she would have to travel to Ebensburg to retrieve it.

She eventually drove to Ebensburg to get her parrot back.

Mr. Rosenzweig said that, with the exception of one payment, Ms. Iannelli's mortgage payments had been on time. Bank of America had not sent her a notice of a 60-day deficiency nor given her 30 days to fix it, as state law requires, he said.

At this rate, Bank of America is going to need to open a Wrongful Foreclosure Department to deal with all of these gaffes.  Here's hoping that judges start throwing the book at them.  So far, Bank of America has not faced serious penalties for what amounts to home invasions.  If it were individuals doing these acts, they would be looking at jail time.  I'm not a big fan of more legislation, but the rights of individuals to be secure in a home where they are meeting their contractual obligations needs to be respected.

So what happens when government steps in to revitalize neighborhoods and make more people homeowners' Sometimes neighborhoods are hurt and homeowners go into foreclosure. Example number one is from Buffalo, NY where the city decided to subsidize new homes:

"Foreclosures weakened the effort, but overall, not all the housing that was put up was well thought out," said Michael K. Clarke, head of the Buffalo office for Local Initiatives Support Corp., a nonprofit agency that promotes community development. "There was insufficient coordination with the need for rental housing, and not enough emphasis on target areas that might demonstrate a more stable return. You can't sell new homes next to vacant ones, or sell houses to people who only qualify for financing by the skin of their teeth, and expect to have much success."

"We played musical houses with the housing in Buffalo," added Joseph E. Ryan, the former strategic planning director under former Mayor Anthony M. Masiello. "We have more houses than we need. People are coming from existing neighborhoods. It's not like they've been coming from out of town. It helps to destabilize neighborhoods."

It's not only communities that are hurt, but the taxpayers that end up paying for these mistakes: [Thanks John!]

Home ownership in the United States ranks up there with motherhood and apple pie. The government has championed it for decades through tax breaks, mortgage guarantees and, most recently, the herculean task of keeping Americans in their homes after the housing market collapse. But government subsidies of the American Dream also have a darker side: when things head south, taxpayers end up stuck with the costs.

The government-run mortgage finance agencies Fannie Mae and Freddie Mac owned more than 131,000 properties between them at the end of 2009, according to recent annual filings. That’s roughly the equivalent of San Francisco’s owner-occupied housing stock. The two companies sold off nearly 200,000 units last year that they took over after owners defaulted. But despite those efforts, Fannie and Freddie owned substantially more units at the end of 2009 than they did a year earlier.

And things are set to get worse. Barclays Capital estimates the pipeline of severely troubled loans at around five million across the United States. Modification programs, which should help some borrowers stay in their homes, have also delayed the inevitable forfeiture of many others.

Fannie and Freddie end up owning properties because they provided guarantees for the benefit of mortgage investors. Between them, they back around $5 trillion of American home loans. Such support — once implicitly and now explicitly backstopped by the Treasury — has handed borrowers relatively low financing costs for years.

Now, though, the result is that aside from the huge financial burden they place on taxpayers, the two companies have been amassing foreclosed properties and, in a few cases, have become landlords.

But the Treasury wants to intervene in the effects of all this intervention:

Today we are providing a program update, including additional details on Foreclosure Alternatives and Home Price Decline Protection Incentives. Foreclosure Alternatives will help to prevent costly foreclosures by providing incentives for servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where a borrower is eligible for a MHA modification but unable to complete the modification process. This program will assist homeowners who cannot afford to stay in their homes by helping them to avoid foreclosure and relocate to a home they can afford. Building on insights developed by the FDIC, Home Price Decline Protection Incentives will provide additional payments based on recent home price declines, and therefore will incentivize additional modifications in areas where home prices have been falling. By increasing MHA modifications and the use of alternatives to foreclosure, we will reduce the negative impact of foreclosure, minimizing damaging costs for financial institutions, borrowers and communities.

This is to be accomplished by:

-Servicers may receive incentive compensation of up to $1,000 for successful completion of a short sale or DIL.

-Borrowers may receive incentive compensation of up to $1,500 to assist with relocation expenses.

-Treasury will also share the cost of paying junior lien holders to release their claims, matching $1 for every $2 paid by the investors, up to a total contribution of $1,000 by Treasury.

Question: If this program is such a great deal for servicers, borrowers and lien holders, why does everyone have to be bribed to do it' The claim has been that these programs are to keep homeowners in their homes, but this is paying them to leave. Have we hit the point that the government is merely intervening now for interventions sake'

March 9 (Bloomberg) — The Regional Bond Dealers Association asked the Financial Industry Regulatory Authority and Federal Reserve to end reporting of so-called agency debt trades until bank-affiliated brokers also must comply, saying some are seeking to avoid disclosures. – BL&BW1

I don't think anything straightforward has happened on this story arc in almost two years.  The GSEs themselves have been quasi-nationalized.  Their debt now enjoys a  semi-explicit guarantee, so that when the Chairman of the House Banking Committee suggests that bondholders may have to take a haircut anyway spreads tighten to a multi-year record, which is just a bit counter-intuitive.

Meanwhile Treasury apparently can't legally offer support to the debt, but what they can do is offer the Enterprises unlimited support to some classes of their equity until the end of '12, which is conveniently after the next presidential election so their next move won't have to take into account, like voters … but heck, it's a totally risk free strategy.  Why' Because they won't have to actually do anything more until 10 days after the world ends on Dec 21st

But closer to home, the Fed's MBS purchase program is scheduled at the end of this month.  Now that sounds simple enough, right' Think again …

LATER: the cat said, "I never get involved in politics," and it's easy to see why. Hat tip to Implode-O-Land for this 3/9 MW-hosted press release from Judicial Watch:

"Apparently, American taxpayers are paying the tab for the collapse of Fannie and Freddie, but are not allowed to ask any questions about why it happened. When it comes to Fannie and Freddie, the Obama administration is saying, in effect, 'None of your business,'" said Judicial Watch President Tom Fitton. "Obama administration officials and their lawyers can argue until they are blue in the face that Fannie and Freddie are not federal agencies, but their reasoning is straight out of Alice in Wonderland. [hmmm... Igor thinks he's starting to see a trend here] There is nothing ambiguous about the government's absolute control of Fannie and Freddie. Which raises the question: What does the Obama administration have to hide'"

—————

[1]: "Banks Unfairly Avoid Debt Reporting Rule, Dealers Say", by Jody Shenn, Bloomberg / BusinessWeek, March 9, 2010.

Fresh out of the oven …

Doom friend (and occasional antagonist) Bill is always worth a look, especially when he speaks to the GSEs and politics.  This is right in his wheelhouse.

.

.

.

What is Barney Frank (D-Mass) thinking'

I’m sure I’m not the first person to wonder what, beyond his legendary intelligence and quick wittedness, causes the cerebral and sometime volatile Chairman of the House Banking Committee to stake out the policy positions he takes.

Recently, as the world now knows, Frank called for “abolishing” Fannie Mae and Freddie Mac. He soon will initiate congressional hearings to produce that desired legislative result.

The fact that the Obama Administration hasn’t reached the same fever pitched conclusion as Barney likely means that this atomization will not occur in an already volatile political year. Since moving forward in this regard—with no idea what to employ as a mortgage finance system replacement–is fraught with huge political and systemic mortgage business risk for the Democrats and the mortgage industry.

Last week, Barney’s took it upon himself to lob another grenade at the former GSEs and reminded investors that Fannie/Freddie debt and MBS securities were not the equal to Treasuries and that those who bought company securities could end up getting a financial “haircut,” or less money than they expected when they bought the bonds.

While legally and technically correct, what Barney said flies in the face of what the Treasury sales campaign to assure markets, i.e. that the former GSEs debt and securities are safe and the Treasury does stand with them, since the United States mortgage market—which right now is standing on Fannie’s and Freddie’s shoulders—relies on the two companies largely unfettered access to credit market.

Fannie and Freddie Still “It”

Like it or not, Fannie and Freddie alone are carrying out the secondary mortgage market policies that the Treasury wants performed and which the nation demands. The fact is, without Fannie and Freddie, the US would have no “conventional” secondary mortgage market where non-government guaranteed mortgage loans are securitized and sold throughout the world.

I can’t explain what was on Chairman Frank’s mind, but I don’t think that he was just “rattling the market’s cage, because he knows he can,” as some have suggested.

Barney—whom I suspect hasn’t changed much in the years—always was tough and ornery to lobby, the most difficult official to meet with and nail down on matters. His mind was always three steps ahead you. He was impatient and he didn’t suffer fools “gladly,” even when he agreed with you.

Tough and now likely GSE-hostile, I do not believe that Barney Frank is irresponsible and wanton.

He’s mad at Fannie and Freddie and that’s clear. His anger and “abolish” statements support that, but he understands that whatever system he designs it’s going to have to look a lot like what F&F looked like and produce much of what F&F produced.

He’s not going to throw the nation’s mortgage lending to the large commercial banks and their subsidiaries and have his name on that enabling legislation which would erode everything he has championed.

Can’t Just be The Feds

I don’t think Chairman Frank wants only the federal government lending for home ownership. I am sure that he wants private entrepreneurs and private money—not federal appropriations—doing most of the work to give Americans their share of the “American Dream.”

I imagine that he would like a new system which continues to take advantage of US financial products. i.e., bonds and securities backed by mortgages, which appeal to investors across the world and thus bring in dollars from overseas to meet US domestic mortgage needs.

Certainly he is joined in that by the nation’s homebuilders, Realtors, their employees and equipment suppliers, furniture, rug, window and appliance makers do and every other industry which supplies households with goods and services. That’s why the “homebuilding” segment of our economy has produced 20% or more of our gross national product.

Does he want to abolish the efficient secondary mortgage market the US enjoyed pre Paulson’s “Bush whacking” of Fannie and Freddie' I hope not.

Can he really have problems with dedicated national mortgage investors, which standardized mortgage products so that families in every community in the nation could enjoy the same mortgages and pricing' Does he want to do away with a market that regresses and shifts the supply and availability of mortgage money from international investors to domestic savers'

I suspect not.

Is he upset at the millions and millions of low-moderate and middle income homebuyers, with increasingly in black and Hispanic communities, which benefited from a mortgage system that D’s and R’s in Congress supported year after year' I doubt it, since Barney would consider them his “people.”

Can’t Rely on the Banks

He and his staff must realize that those loans never would have been made by a primary mortgage market system which had no mandatory fair lending goals. They were made when Fannie and Freddie used market pressures to originate those loans and in the process share the benefits of our nation with those traditionally ignored or left out.

All of this means if Barney is going to scuttle F&F, he just may end up recreating their clones.

Chairman Frank could be angry and aggravated because he long has supported Fannie and Freddie—when others in Congress didn’t—and he feels personally chagrined and disrespected by the GSEs for their dubious PLS subprime mistakes and all that it produced.

That’s understandable.

But it hardly is grounds for destroying a system which worked fabulously, until the bad GSE judgments by a few in power, drove faulty business decisions. Those same kinds of decisions were made by commercial and investment bankers across the world, with the results that many of them and their firms and officials–just like Fannie and Freddie and many of their employees–were forced out of business, lost jobs, earnings, and reputations.

I keep repeating that the “bad guys” are gone from the GSEs. Those who remain did not have their hands all over the stupid business decisions which have angered so many.

Policy makers shouldn’t let their personal peak destroy institutions which have shown their capacity to work and successfully perform a variety of desirable chores and which well could be superior to something “whiz bang and new” which their current frustrations breed.

Baby and bath water, wheat and chafe.

If the upcoming GSE hearings are fair, then the world should be shown not only what went wrong, but also the many, many things that Fannie and Freddie did right.

The Black and Hispanic caucuses, which heavily populate the House Banking Committee, should be particularly attentive to those facts, since they have firsthand knowledge of how fairly their constituents were and have been treated by the large commercial banks which presumably aspire to succeed Fannie and Freddie.

Banks have been going under at a rate not seen in years, leaving the FDIC short of funds and long on assets.  They are trying to alleviate the problem by auctioning off these assets, but that's leaving surviving banks unhappy: [Thanks L!]

March 8 (Bloomberg) — A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger writedowns that weaken lenders nationwide.

Almost half of the loans were originated by Silverton Bank N.A., whose collapse last May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the 237-room hotel and condominium complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices.

The auctions may have wider repercussions. Of the $41 billion in assets seized from failed banks held by the FDIC as of the end of January, $15.6 billion are real estate loans and about 4 percent of those involve participations by other lenders, according to agency spokesman Andrew Gray.

“These banks can’t believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses,” said Robert Reynolds, a lawyer at Reynolds Reynolds & Duncan LLC in Tuscaloosa, Alabama, who represents 25 lenders that took part in financing the W Hotel. “Our banks just cannot believe they’re being treated in a way that ultimately hurts the FDIC’s insurance fund, because some of them are right on the edge.”

It's easy to understand the position of the lenders, who've been fighting writedowns ever since the housing market started to fizzle.  Auctions in this market are unlikely to fetch top dollar.

On the other hand, what's the FDIC supposed to do with all this stuff'  Auctions have the advantage of disposing of assets that might take years to dispose of otherwise, and writedowns at this point are unavoidable.

An auction might not be the best solution for all of these properties, but it's likely the only efficient way to unload most of them.  While the short term effect might be painful, until the air is out of the price bubble, the market is going to continue to be in bad shape, which will keep lenders in bad shape.

On the upside, better prices should translate into better market activity.  A price correction could be a good thing- for the lenders who manage to hang on long enough.

… Historically, the New York Fed has been among the most profitable shareholder-owned corporations in the world. Yet it keeps the details of its shareholders’ ownership information private. What we do know is that its owners include precisely those institutions it is tasked to regulate and supervise and those [it] has obviously failed to adequately supervise. Unlike the other District Banks of the Federal Reserve system, which have overseen their banks quite well, the New York Fed’s concentration of the largest banks, coupled with its unique role of managing the market operations of the entire Fed system, has built a culture where it sees itself as a market participant and peer to those firms it regulates. – Josh Rosner1

Who owns the Federal Reserve Bank of New York'  The answer to that question isn't even controversial.  Heck, it's the law.2

… The question of ownership can still be addressed, however, by examining the legal rules for acquisition of such stock. The Federal Reserve Act requires national banks and participating state banks to purchase shares of their regional Federal Reserve Bank upon joining the System, thereby becoming "member banks" (12 USCA 282). …

So it's basically owned by the banks of the Second District, which comprises NY, some bits of NJ & CT bordering NYC and just for laughs a couple of honest to gosh American colonies, one of which has a population slightly larger than the State of Oregon (they don't call it the Empire State for nothing ).  Heck, Jamie Dimon is presently on the Board of Directors.

We're talking about the institutions of Wall Street, presently the most important concentration of financial and market muscle on the planet.  They're involved in everything from HFT / CoLo operations in the equities markets to the PPT to cooperation with the US intelligence community.  It's not even obvious that any mere bank regulator could even start to control this fratricidal inbred hairball.

Doomers learned in the course of an update to yesterday's Crack of Doom that five years ago Fed Governor Susan Bies was blocked in her efforts to centralize the Fed's bank supervision by then NY Fed Pres Tim Geithner.  Ben Bernanke is providing moral leadership but seems to have very little clout to rein in the Second District.  It's almost like he was a late 15th Century pope dealing with the Medici Bank in Florence.

Congress isn't having much more luck.3

The Fed could retain oversight of large bank holding companies under a scaled-back regulatory reform plan being considered in the Senate Banking Committee, lobbyists said.

So Chris Dodd's last ditch effort to impose independent bank regulation on Wall Street appears doomed which, as the folks at ZeroHedge are pointing out,4 is an international scandal and embarrassment.

[Nobel Prize winning economist Joseph] Stiglitz stressed that the Fed banks have clear conflicts of interest, since the banks are largely governed by a board of directors that includes officers of the very banks they're supposed to be overseeing …

And just to top it off, it was the banks of Wall Street that were disproportionately represented as recipients of support in the great bailout; a bailout largely orchestrated by … (three guesses) …. Has there ever been a bigger demonstration of Moral Hazard'

——————-

[1]: "Has the New York Fed been serving the public trust' Has Geithner'", by Joshua Rosner, Ritholtz.com, February 3, 2010.

[2]: "Who Owns and Controls the Federal Reserve'", by Edward Flaherty, USA Gold, July 18, 1997.

[3]: "Critics hit U.S. Senate tilt toward Fed status quo", by Kevin Drawbaugh, Reuters, March 8, 2010.

[4]: "Nobel Prize-Winning Economist: Federal Reserve System is Corrupt and Undermines Democracy", ZeroHedge, March 4, 2010.

But in recent weeks, President Barack Obama has proposed regulating health-insurance rate increases, separating commercial banking from investment banking and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds. – WSJ1

I don't know whether it was the sudden realization that 8.8 earthquakes actually happen or what, but over the last few weeks there's been a major outbreak of sober people brushing aside the Panglossian fluff bunnies who have been dominating the discourse until now.

A post2 at SeekingAlpha, for example, neatly encapsulates this new realism in just a pair of bullet points:

Greed is still king in the markets, but it's hard to see how this can last much longer.

UPDATE: except for3 …

Five years ago, one Fed governor sought to centralize supervision of the biggest banks in Washington. "I felt we were not being as effective as we could be," says Susan Bies, who has since left the board. "We didn't have a strong enough overall view of what was going on throughout the system." According to several people involved in the discussions, her effort was beaten back by Timothy Geithner, then president of the Fed bank in New York, which oversees some of the largest banks. Mr. Geithner, now Treasury secretary, declined to comment.

Wall Street's "let's be our own regulator" configuration still holds the gold medal in Moral Hazard (care to guess who are the NY Fed's secret shareholders')

—————

[1]: "Economic Policy 'Nudge' Gives Way to a 'Shove' ", by Jonathan Weisman, Wall Street Journal, March 8, 2010.

[2] "Excess Government Debt: The Great Economic Lie", by Cynicus Economicus, SeekingAlpha, March 7, 2010.

[3] "Battle Inside Fed Rages Over Bank Regulation", by Jon Hilsenrath, Wall Street Journal, March 8, 2010.

If you think we here at the castle are "doomish", we have nothing on mortgage broker Michael David White. Here are some highlights from his assessment of the 2009 real estate market and what it means for 2010:

Case Shiller prices fell a record 19.1 percent versus the previous year in Q1 2009. Mortgage delinquencies are at a record high 15.02 percent (Q4 2009) according to the Mortgage Bankers Association — meaning an estimated 8.4 million families do not pay their most important bill. RealtyTrac reported a record of over 900,000 foreclosure repossessions in 2009, and estimates a record 3 million homes will experience a foreclosure event this year. First American counts 11.3 million homes with negative equity, and sees an additional 2.3 million homeowners on the edge of going overboard and under water.

Every element — falling prices, mortgage delinquencies, repossessed homes, negative equity — they all hit records in 2009.

. . .

Mortgages rates hit a record low in 2009 on Freddie’s index for a 30-year fixed rate and the average 4.9% in Q4 2009 is outstanding for affordability (please see the chart above). The Fed won with low rates what Robert Shiller called in the Wall Street Journal “the most dramatic turnaround” he has seen in home-prices since starting to watch them in 1987. The year-over-year loss in values shrank last year from a monster 19% in Q1 to a mousy 2.5% in Q4.

Fannie and Freddie now own the mother-of-all helocs. They can write themselves checks without consideration of their losses – an important fact given they will lose more money than anybody in the aftermath of the financial crisis.

Can the Fed and Fred and Fannie and Ben and Tim be beaten in their mission' Will they have the power to support current real estate prices even if only half of the bubble blow-up value has disappeared'

. . .

A twin train wreck of negative equity and mortgage delinquencies will collide with real estate prices. They deflate values. No one can predict the consequences. Strategic default will be a smart choice for many. Some will discover a home can be returned to the bank. Will the madness of equity-free crowds take arms against a sea of manic bubble prices'

If you want to refinance and the appraised value could be an issue, get your mortgage done now. This is especially true in the jumbo market.

If you want to buy real estate, beware and be warned. Your financial massacre may follow your purchase. You cannot reasonably buy in this environment except with aggressive price negotiations, a close study of national and local price trends, intelligent courage, and your eye lids burned off by what you read here. Fools rush in where wise men fear to buy.

Does this mean that no deals are out there, that no one should be purchasing real estate'  No.  It does mean however, that you'd better know what you are doing.  You've been warned.

Igor's wondering why I'm not just watching the Oscars.

… but is this bubble humor or what'

.

.

.

.

As the battle over the state budget and the looming multibillion-dollar gap becomes more intense, Mayor Michael R. Bloomberg has stepped up his call for the Legislature to pass a penny-per-ounce tax on soda to stave off major service cuts to education and health care.

Heh, Mike — What about 1/10,000th of a cent applied to the HFT guys instead'

All I can say about this weekend is … thank heavens it's almost over:

.

.

.

.

.

Like those who enjoy their car-chases, their full-frontal nudes, their dance-and-song ensembles, the strip of the populace tickled by the thought of Hank Paulson cringing over a toilet is now, evidently, sufficient to launch a movie.

So you didn't buy too much house and decided to just fix the old place up' Once more it is shown that no good deed goes unpunished:

If you have not lost your home to foreclosure, get ready to pay up. Hernando County, Florida has announced plans to raise fees on homeowners who make repairs to their property or do home improvements. Everything from roof repairs to replacing an old hot water heater will be hit with higher fees.

In his plea to the BOCC for more money, the county's business development director, Michael McHugh said, "We've been operating in fiscal distress,'' according to the St.Petersburg Times.

The reason for the budget shortfall is the foreclosure epidemic that has reduced the county’s tax rolls by some $5 million dollars.

Homeowners who have so far survived the crisis, have made home maintenance and improvement a priority. So while new construction permits have slowed to less than a dozen during some months, repair and improvement permits have risen to about 800 a month.

The Hernando County Builders Association is in favor of the higher fees, which will benefit the county's building department budget.

The impact on property owners will be widespread. In addition to the new fees, the full cost of repairs and improvements will be added to tax assessments, which increase a homes property taxes for years to come.

Ah, the sad cost of fiscal responsibility.

The old definition of banks, "take demand deposits and make commercial loans," has been changed in practice to a new one: "borrow money guaranteed by the government and make real estate loans." The implications of this structural shift for systemic financial risk have yet to be worked out. – Alex Pollock1

Pollock's merry band of alarmists (very much a minority view at the American Enterprise Institute) became seriously concerned about subprime in late '06, just about the time the penny dropped for "Crispy" in Bakersfield CA, Aaron Krowne, Russ Winter and a few others among our blogging colleagues, readers and to be fair some MSM types and analysts.  Indeed I've spent more hours than I care to contemplate since March 28, 2007 documenting their AEI-based seminars on the issue.  Although they often display some right-wing / conservative bias this is largely offset by the little matters of training, long experience and access to some pretty heavy resources.

This latest short article is fairly important in that it summarizes what is almost certainly a key element of our present dilemma, the long-term change of banking away from a business model that used deposits to fund productive activity.  Pollock summarizes this with a single chart (go to original for sharper image).

Doomers should stare at that chart in its original context and read the whole article.  We have landed in a systemic configuration that can't possibly be sustained, and it's not going to be pretty when it starts to revert.

————-

[1]: "Lenders' Dangerous Game in Real Estate", by Alex J. Pollock, American Banker / AEI, March 3, 2010.

I've spent a lot of time at Financial Armageddon denigrating economists, especially the academic kind, for their unrealistic -- surrealistic' -- views on how the world works. However, there are a few exceptions, including Yale Professor Robert Shiller, who has a remarkable track record when it comes to identifying bubbles, and two professors I've made reference to in one way or another in a number of posts (e.g., "Reality Seeping Through the Cracks at CNBC'" "A Few Observations of My Own," "'Approaching a Solvency Crisis,'" "Jim Grant: Ringing the Bell at the Top'"). In "This Time Probably Isn't Different," The Economist's Free Exchange blog details their latest thoughts on the risks that lie ahead:

Carmen Reinhart and Kenneth Rogoff have been doing their best to place the global economy's latest financial and economic crisis in historical perspective, most notably in their recent book "This Time is Different: Eight Centuries of Financial Folly". Concerning the long view, the authors explain in a new NBER paper:

The economics profession has an unfortunate tendency to view recent experience in the narrow window provided by standard datasets. It is particularly distressing that so many cross-country analyses of financial crisis are based on debt and default data going back only to 1980, when the underlying cycles can be half centuries and more, not just thirty years.

For this latest paper, Ms Reinhart and Mr Rogoff content themselves to look back at just the last two centuries' worth of crises, using a dataset that covers seventy countries. Here's one picture of what that looks like:

>

What you see here are levels of public debt, the share of countries facing default or debt restructuring, and the share of countries with inflation over 20%. I quite like this chart. What you see is a clear correlation between debt loads and defaults and restructurings. It would be an extraordinary aberration if a raft of debt defaults and work-outs didn't ultimately accompany the latest peak in levels of public debt.

The inflation picture is also interesting. We see four clear peaks in the share of countries with inflation rates over 20%. The first two are associated with the First and Second World War (recall that after the Second World War, America cut its debt load in half through inflation). The third corresponds to the late 1970s, when oil price increases and runaway wage-price spirals fueled inflation. And then there is a fourth in the early 1990s, associated with emerging market debt crises (Brazil experienced a hyperinflationary episode during this period, for instance).

It's a fascinating image. The authors are right: debt cycles do appear to be somewhat rare and about a half-century in duration. And the struggle to work out recurring debt tends to play out in consistent ways, with increases in default and the occasional bout of rapid inflation.

It's no secret that municipal finances are imploding under the weight of falling income, sales, and property tax revenues. Unfortunately, with no real sign of a rebound in hiring or housing prices, and with consumers saving more and spending less, there's little hope of a reversal of fortunes, at least in the short-term.

So, what's a cash-strapped municipality to do'

Why, step up collection of the enforcement tax, of course.

In Virginia Hands Out 6996 Traffic Tickets In One Weekend In An Effort To Raise Revenue For The State Government," The Economic Collapse blog chronicles the spread of what will likely be an increasingly popular trend:

In the old days, police officers wrote traffic tickers primarily to keep people safe and to prevent citizens from breaking the traffic laws. But in the new Amerika, all of that has changed. Now traffic tickets are primarily viewed as a revenue raising tool for state and local governments. For example,a federally funded ticketing blitz in the state of Virginia resulted in being handed out this past weekend. This most recent ticketing blitz is part of a campaign code-named . Last Saturday and Sunday state troopers were ordered to absolutely saturate Interstate 95 and Interstate 81 and to issue as many traffic tickets as humanly possible during those two days. Why' Well, it turns out that the state of Virginia has a 2.2 billion dollar budget deficit that they are trying to deal with, and so they need to find some quick sources of cash.

Not that it was ever a good idea to break the traffic laws. But now even a minor violation can put a massive hole in your wallet. For instance, driving as little as 15 miles an hourover thespeedlimit in Virginia can get you a reckless driving charge that .

Well, research done by the Investigative Reporting Program at UC Berkeley with California Watch discovered that impounds at "sobriety" checkpoints in 2009 alone .

In Detroit, even the police admit that the fundamental nature of police work is changing. Just consider the following quote from  of Utica, Michigan....

of Trenton, Michigan is even more blunt about what is happening in his community....

For example, "red-light cameras" have become huge revenue raising tools in many areas of the country. In Los Angeles, from $200,000 a month in 2007 to $400,000 a month at the end of 2009.

California state officials believe that these speed sensors  for the state of California by the end of 2011.

Well, here we are again: on one side, a rapidly growing contingent of optimists; on the other, a shrinking cadre of pessimists. According to USA Today's Adam Shell, writing in "As Bull Market Turns 1, Is it Time to Party, or Worry'" below are just a few of the reasons why now is the time to buy stocks.

'Major roadblocks still absent. Two of the biggest rally killers ' interest rate hikes by the Federal Reserve and a big spike in inflation ' "simply are not present yet," says James Paulsen, chief investment strategist at Wells Capital Management.

Many investors are worried that the Fed's so-called exit strategy, in which the U.S. central bank drains cheap money from the financial system and boosts borrowing costs in an effort to stave off inflation, will put what Bernanke dubs the nascent economic recovery in jeopardy. But Paulsen argues that even if the Fed starts to raise short-term interest rates, currently near 0%, it won't spell the end of the stock rally. The rally is not at risk, he argues, until sometime after the Fed begins to raise rates.

'Investor fear still present. Typically, stock rallies run into trouble when investors get too optimistic, too complacent and too convinced that profiting in the stock market is a sure thing. But despite the big gains in the first year of the bull, sentiment is anything but ebullient.

And from a contrarian standpoint, that is bullish.

Not only are stocks climbing the "Wall of Worry," they are also dealing with more daunting "Cliffs of Concern," says Citi's Levkovich.

"There is all this stuff to worry about," Levkovich says. "Debt problems in Greece. China tightening its monetary policy (or its property bubble bursting). Commercial real estate woes. What about the banking sector' What about jobs' What about underfunded pension plans' It goes on and on.

"I am not saying these problems are not out there, or that they are irrelevant," Levkovich says. "We do have reason to worry."

But investors must recognize, Levkovich adds, that all these risks get priced into the market. More important, investors must realize that if any better- than-expected news surfaces, the markets have room to go higher.

'Earnings power is underappreciated. Optimists such as Federated's Auth are betting that the economic recovery will be stronger and last longer than the current consensus opinion on Wall Street. Most economists are calling for a subpar recovery due to banks cutting back on credit and the ongoing process of individuals paying down debt after years of spending beyond their means.

If Auth is right, and manufacturing is in the early stages of recovery, and job growth is about to turn positive and U.S. companies with major foreign operations continue to reap big profits in faster- growing emerging markets, corporate profitability should be better than analysts are now predicting.

Profits will also benefit from the fact that most companies prepared for a depression that never happened by cutting costs and headcounts. So when sales pick up, the profits will pile up more quickly on the bottom line.

"We have earnings rebounding substantially in the next couple of years," Auth says.

How big a rebound' Analysts' consensus estimate for 2010 earnings for S&P 500 companies is roughly $76 per share,and Auth is estimating closer to $85 to $90, which puts the current market price-to-earnings ratio at around 12.7, which is below the long-term average of 15.

'Cash on sidelines still piling up. "We still have a ton of sidelined cash, or dry powder, sitting on the sidelines," says Paulsen. By his estimates households have upwards of $7 trillion sitting in cash or cash equivalents. Because most of Americans have bought into the "new normal" thesis of less spending, less risk-taking and lower returns, Paulsen says there could be a lot of "potential converts" who might have to switch to a more aggressive strategy and buy stocks if the recovery is better than economists think.

Ever since the financial crisis began, money flows into domestic stock funds have been woefully small, as investors have flocked to the perceived safety of bond funds.

That trend continued in the week ended Feb. 24, the most recent data available, as domestic stock funds had inflows of just $151 million, vs. nearly $8 billion going into bond funds, according to the Investment Company Institute.

Some would disagree with the bullish case, of course, including yours truly:

But bears such as Michael Panzner, who writes the blog Financial Armageddon, say bulls are "blind to the worsening economic reality all around them," and in danger of getting hurt again by falling asset prices.

Headwinds are plentiful, Panzner says.

There has been little improvement in bank lending or credit availability, he says. The "long-term unemployment situation is getting worse" and economic data, which had been pointing up, have flattened out recently, suggesting a growing risk of a double dip, or economic relapse, he says.

The banking system also remains weak, as is the financial position of sovereign states such as Greece as well as states such as California.

He predicts a not-too-pretty fallout.

"In my view, the effect will be, at the least, a retest of what we saw last March," Panzner says. "At worst, much lower lows. It may not happen in 2010. However, it could be over the next couple of years."

Who do you believe'

(To read the rest of the article, click here.)

Gongol.com is out with its latest EconDirectory, which ranks business and economics websites based on average daily traffic. Thanks to all of you, Financial Armageddon is close to cracking the top 10.

My other blog, When Giants Fall, has also been moving up the ranks and is now in the top 50: