A few weeks ago I diaried that, while Housing is nowhere near bottoming, nevertheless there was substantial evidence that the decline may be shifting from the vertical, "guillotine" phase to the more bumpy "sandpaper" phase. I wrote:
In the case of the housing market crash, how would the change from "guillotine" to "sandpaper" look? In the past, Calculated Risk has reckoned that the inflection point between advancing and declining house prices was at about 7 months' supply. So I submit that first of all, we would see a decline in months' supply of houses for sale towards that mark, as sales started to outstrip new house starts and existing homes being offered for sale. In order to accomplish that, you would first need to see that new home building has declined to a level where sales exceed new starts. You would also want to see existing home sales increasing on a year-over-year basis. In other words, the volume of new home starts would transition from guillotine to sandpaper first, well before prices themselves would begin the transition.
And Guess what? All of those conditions have either started or appear to be on the cusp of starting.
In a 4 to 1 vote, the Federal Reserve Board approved GMAC’s application to transform itself into a bank holding company “in light of the unusual and exigent circumstances” affecting the financial markets. The move will allow GMAC to tap as much as $6 billion in government bailout money. The approval came as GMAC bondholders were facing a Friday deadline to vote to approve a complex transaction that would significantly reduce the company’s outstanding debt.
American International Group retired $16 billion in credit default swaps, the contracts that almost caused the company's collapse, after buying the underlying securities with help from the Federal Reserve.
The fund created by the Fed and AIG to protect the insurer's customers from losses has now purchased collateralized debt obligations with a face value of about $62.1 billion, the firm said in a statement.
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Happy Holidays everyone! Sorry I haven't blogged in a bit, but I've been extremely ill and well the holiday-related madness. Anyways, if it pleases the court, I'd like to talk about the latter. Yes, despite several outpatient surgeries and other things I tried to trudge through that oh-so-Christmas event known as shopping. Ok, I only went out three times, but that was enough for me. Frankly, I am beginning to believe they should change the name of Christmas to Consumermas. There was nothing I could find meriting all the hassle at the stores. Especially didn't feel like contributing more funds to China in the form of some plastic trinket. Seriously, is this what the holidays are all about now?
Last week President Bush announced that you and I are loaning Chrysler $4 Billion. I have a simple question: exactly WHY are we bailing out a profitable, well-connected private company, namely, the company that owns Chrysler, Cerberus Capital Management?
Even when Cerberus Capital Management bought Chrysler in July 2007, it was noted that
The sale of Chrysler (DCX) to private equity giant Cerberus Capital Management hasn't gone through yet, but Standard & Poor's and Moody's Investors Service (MCO) have already rated the soon-to-be independent carmaker's debt as "junk," or below investment grade.
That's not all. Standard & Poor's ratings essentially say that Chrysler could be a recession away from bankruptcy.
From what you read in the news, and hear from Southern GOP Senators, you'd think that this was a banner year for Japanese automakers operating in the US. Or at the very least that Toyota, Hyundai, and the other automaker "transplants," that is foreign auto firms producing in the US, are currently experiencing a bit of schadenfreude watching their long time nemesis GM on the ropes. But. It just isn't so. And here's why.
Foreign automakers producing in the US are perfectly aware that the destruction of the Detroit Three would only hasten a sharp decline in their own ability to operate, and profit, in the North American market. In order to understand precisely why it is that Sen. Shelby and his comrades have gone all quixotic seeking to kill off GM in the name of Japanese efficiency while their beaus running transplant factories in the South shake their heads, it helps to look at the work of Chalmers Johnson.
All you have to do is click on any news aggregrator to see the new median home price for resales is $181,300 and new homes, median price is $220,400. Still not really affordable for your average U.S. median income, but a huge improvement.
That said, Bloomberg has the real story on this latest report. The rate at which prices are falling is a steep, steep decline. In fact, it's freefall.
Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing speculation the market was close to a bottom.
Now who here thinks credit cards are just too big to fail or that the U.S. taxpayer should be supplementing companies who charge rates and fees which are akin to loan sharking?
Yet, without even a whimper, American Express just hauled in $3.39 Billion of taxpayer dollars in exchange for preferred shares.
American Express joins more than 190 regional banks, commercial lenders, insurers and card issuers seeking at least $75 billion from the second phase of the Treasury’s bailout program for financial firms. Rival Capital One Financial Corp. has preliminary approval for $3.6 billion from the U.S. and Discover Financial Services asked for $1.2 billion.
Note who is in there, one of the worse credit card companies of all time, Capital One and they are approved for $3.6 billion!
Back in the 1980s, writers such as Robert Reich were advocating what was called an "industrial policy", that is, the government should intervene in the economy and explicitly help a particular industry or set of industries in order to make them more competitive. Yes, I know this sounds like "picking winners", except that governments have been doing this successfully for hundreds of years. Think of it as the equivalent of the Park Service being stewards of a national park, intervening when necessary to keep the ecosystem healthy. Now, think of the economy as an ecosystem, and think of industrial policy as a way to keep the economy healthy.
It's Friday Night! Party Time! Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!
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