Global Financial Crisis (Was: Subprime Meltdown)

[R.D. Silverman]

Originally Posted by ewmayer

While I also buy the fundamental peak oil hypothesis, I disagree with the doomsayers - .

Does anyone see Malthus starting to rear his ugly head.......???????

Will we see a population recede as resources such as oil run out?
(as it must eventually).

[ewmayer]

Originally Posted by R.D. Silverman

Does anyone see Malthus starting to rear his ugly head.......???????

Will we see a population recede as resources such as oil run out?
(as it must eventually).

Oil or food - take your pick. As with many of the well-known housing-bubble-doom prognosticators such as Nouriel Roubini and Bill Fleckenstein [to use a more-recent example of the phenomenon] , Malthus' problem was not that he was wrong, but that he was premature in terms of his predicted timeline. He underestimated the capability of science and technology [e.g. the "Green revolution", a name which is looking more ironic all the time] to keep people all over the world sufficiently well-fed to procreate beyond all reason. Of course that simply means that when planet Earth does eventually reach its thus-artificially-increased population carrying capacity, much more of it will have been ravaged than would have been possible sans high-tech, and far more people will go hungry. It's the same conundrum one runs into when the inevitable calls for "massive food aid" for the latest famine in sub-Saharan Africa come out [nearly always in countries suffering from rampant overpopulation, like this one], just writ on a global scale. It's of course a political taboo to actually talk about overpopulation-as-the-real-problem; cf. this UN page on famine in Africa, which mentions how large the affected populations are, but then just says disingenuously that "poverty is at the root." Hello? Congo - over 6 births per woman, which even in the presence of rampant AIDS and child mortality, translates to an annual population growth rate of over 3%. sudan: nearly 5 births per woman, annual population growth of over 2%. Do those strike anyone as "sustainable"? Will simply throwing food at those countries solve the problem?


But, enough Malthusian ranting on my part - On to today's bubble-economic news:

MBIA, Ambac Losses Elevate Aaa Concern, Moody's Says

May 13 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc. had ``meaningfully'' higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody's Investors Service said.

As I predicted yesterday, stock selling off big-time today. I wonder to which lengths the major institutional shareholders leaned on [I find "bribed" is such an unkind term - "leaned on" is much politer] Moody's to hold off its warning about reviewing the patently ridiculous AAA rating it has on MBIA until today, thus giving them time to sell off their positions at a much higher price than they could ever get after such an announcement? [Or at least hedge their positions by shorting shares].


Home Prices Tumble in 2/3 of U.S. Cities

May 13 (Bloomberg) -- The median price for a single-family home in the U.S. dropped 7.7 percent in the first quarter, the biggest decline in at least 29 years, as values tumbled in two- thirds of U.S. cities, the National Association of Realtors said.

The median, the point at which half the homes sold for more and half for less, was $196,300, down from $212,600 a year ago, the largest decline in records going back to 1979. Sales of single-family houses and condominiums fell 22 percent to 4.95 million at an annualized pace, the slowest in a decade, the Chicago-based group said in separate reports today.

Home prices are falling as foreclosed properties reduce the value of nearby real estate, said Lawrence Yun, the realtor group's chief economist. U.S. foreclosure filings more than doubled in the first quarter from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said in a study released April 29.

``Foreclosures throw more supply on the market and accelerate the price declines that have already taken place,'' said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

...

The median price for a single-family home fell in 100 of 149 metropolitan areas studied by the Realtors group. The biggest declines were in Sacramento, the capital of California, which had a 29 percent drop, followed by the metropolitan area around Riverside and San Bernardino, with a decline of 28 percent.

The Biggest Losers

Lansing, Michigan, had a 27 percent drop in prices, and San Diego tumbled 23 percent, according to the report.

Home sales fell in 46 states and the District of Columbia in the quarter. Three states had increases and one, New Hampshire, did not have data available, the trade group said.

Maryland had the biggest U.S. sales decline, at 39 percent. The District of Columbia tumbled 35 percent, Utah fell 34 percent, and California dropped 33 percent, according to the report.

That 39% sales drop in MD is quite similar to the YoY sales figures we're seeing here in the SF Bay Area - in fact 40% is at th low end of the stats I've been seeing coming from Dataquick Information Services. But there are a few local high-price bubbles which remain intact despite a sales slowdown, typically in areas with the magical combination of great schools and one or more high-flying tech companies. Here in Cupertino, for instance [home of Apple], and also in Palo Alto [Stanford U. and lots of high-tech startups and the Sand Hill Road venture capital corridor] and Los Altos [Google].


If you're feeling the pinch of still-high home prices where you live, however, don't despair - here's one innovative "if life gives you lemons ... make lemonade" proposal which is creating low-cost housing from otherwise-relegated-to-the-scrap-heap items:

Detroit Condo Project to use Discarded Shipping Containers - apparently this was pioneered in Europe. Seems the Recyclable-Bottle-Can-and-Container deposit on these is not high enough to induce people to return their empties to the point of origin. Just make sure to check your prospective new home for smuggled illegal aliens before signing on the dotted line.


Interesting article on the implications of the Fed's recent [and little-heralded] petitioning of Congress to give it the right to start paying interest on bank reserves:

Let's Not Write the Fed a Blank Check

As long as the Fed is conducting ordinary monetary policy, switching to a channel system offers modest benefits at a modest cost to taxpayers. But the Fed's monetary policy has not been ordinary at all lately. In fact, it's been quite extraordinary. It is in the context of this extraordinary policy that the Fed has asked Congress to accelerate its authority to implement a channel system, and it is in the context of this extraordinary policy that we must consider the change.

The core of the Fed's new exuberance is a willingness to enter into asset swaps with banks. The Fed lends safe Treasury securities to banks, and accepts as collateral assets that private markets consider dodgy or difficult to value. (This is the direct effect of the Fed's TSLF program, and the net effect of TAF and other lending arrangements that the Fed sterilizes in order to hold its interest rate target.) In doing so, the Fed puts taxpayer funds at risk. If a bank that has borrowed from the Fed runs into trouble, the Fed would face an unappetizing choice: Orchestrate a bail-out, or permit a failure and accept collateral of questionable value instead of repayment. Either way, taxpayers are left holding the bag.

In December, the Fed had $775 worth of Treasury securities. That stock will soon have dwindled to $300B, give or take. The difference, about $475B, represents an investment by the central bank in risky assets of the US financial sector.

$475B is an extraordinary sum of money. It is as if the Fed borrowed more than $1500 from every man, woman, and child in the United States, and invested that money on our behalf in Wall Street banks that private financiers were afraid to touch. For bearing all this risk, if things work out well, taxpayers will earn about what they would have earned investing in safe government bonds. If things don't work out well, the scale of the losses is hard to predict. The Fed will claim to have done "due diligence" on its loans, to have valued collateral conservatively, and will point to strength of bank guarantees and the enormous diversity of collateral assets to convince us that its actions are safe and prudent. But rating agencies made the same claims about AAA CDO tranches, and turned out to have been mistaken. Correlations often tend towards one when asset values fall sharply. Central bankers struggling to manage day-to-day crises in financial markets might cut corners when trying to value complex securities. They might find it convenient to err on the side of optimism, as the ratings agencies did, albeit for very different reasons. And even if the Fed is cautious and sober-minded, are we sure that central bankers can value these assets more accurately than private investors?

If the Fed were to blow through the rest of its current stock of Treasuries, it would have invested more than $2500 for every man, woman, and child in America. Public investment in the financial sector would have exceeded the direct costs to date of the Iraq War by a wide margin. Would that that be enough? If not, how much more? Just how large a risk should taxpayers endure on behalf of companies that arguably deserve to fail, to prevent "collateral damage"? Have we considered other approaches to containing damage, approaches that shift costs and risks towards those who benefited from bad practices, rather onto the shoulders of taxpayers and nominal-dollar wage earners? Does this sort of policy choice belong within the purview of an independent central bank?

Now I don't actually mean to be too harsh. Putting aside the years of preventable foolishness that got us here, in the new day that began last summer, a crisis emerged that had to be managed and the Fed was the only organization capable of stepping up to the plate. I don't love the decisions that were made, but decisions did have to be made, and there weren't very good options. But now we have a moment to reflect. If the credit crisis flares hot and bright again, how much more citizen wealth should be put at risk before other policy options are considered? That's not a rhetorical question: We need to choose a number, a figure in dollars. My answer would be something north of zero, but not more than the roughly $300B stock of Treasuries that remains on the Fed's balance sheet. But this is a decision that Congress needs to make.

[garo]

Malthusian rants are all very well but let us not forget the consumption factor of 32: http://www.nytimes.com/2008/01/02/op...02diamond.html
This is one of the reasons why the world has not realized that it's at its consumption limit. The people who make policy and those who wield power, both from an intra-national and an inter-national perspective, often happen to be the ones closer to and often exceeding the factor of 32. So they do not recognize the need to formulate policies that will help keep the population down. Also, if everyone had their factor adjusted to 1 or even 3, we wouldn't have such a huge problem but I think we've discussed this in another thread.

And while we are at it, let's be honest about the root cause. http://en.wikipedia.org/wiki/Tragedy_of_the_commons
means that individuals will take actions that are socially sub-optimal unless incentivized appropriately. You just have to substitute earth for the commons and procreation for goats. And evolutionary biology tell us that an individual's best interests are served by leaving as much genetic material behind as possible so it is hard to counter that inbuilt drive.

From a pragmatic point of view, the UN has had a modestly successful population control program for a long time. The UNFPA was established in 1969 and without it we probably would have had another billion or two already. Of course the anti-abortion zealots hate it and the Bush administration denied funding that had already been approved by the Congress to the UNFPA. You need a vast underclass to provide cheap labour. Figures, no?

[KriZp]

I see Diamond is still a cautious optimist, just as when he wrote "Collapse". I would have thought he would have changed his mind by now . His two books "Collapse: How Societies Choose to Fail or Succeed" and "Guns, Germs, and Steel: The Fates of Human Societies" I wholeheartedly recommend.

[ewmayer]

Originally Posted by garo

Malthusian rants are all very well but let us not forget the consumption factor

Good point - this also feeds into the conundrum associated with the rapid modernization/industrialization of huge-population countries like China and India: pro-modernization pundits correctly point out that modernization is inevitably accompanied by a decrease in population growth due to women having better access to education and entering the work force, but they nearly always fail to add that *consumption* nevertheless goes up, usually way up. 300+ million Americans consuming their little Yankee hearts and wallets out [and 600+ million Europeans also consuming only slightly less merrily] is bad enough - add 2.5 billion Chinese and Indians whose consumption factor is roughly doubling every few years and things start looking really ugly. Not that those countries don't have the same "right" to modernize like the "first world" ones did - but given that we know the downside, do they have to do it in the same environmentally harmful way? Of course with the U.S. doing the exact opposite of leading by example, it has lost any moral authority it might have ever had to tell others how to "emerge".

From a pragmatic point of view, the UN has had a modestly successful population control program for a long time. The UNFPA was established in 1969 and without it we probably would have had another billion or two already. Of course the anti-abortion zealots hate it and the Bush administration denied funding that had already been approved by the Congress to the UNFPA. You need a vast underclass to provide cheap labour. Figures, no?

Indeed - it's the neovictorian aspect of neocon-job-ism.

On to today's NEWS [= News Ernst Wants you to See]:

Consumer Prices in U.S. Rose 0.2% in April, Less Than Economists Forecast

May 14 (Bloomberg) -- U.S. consumer prices rose less than forecast in April, reflecting cheaper costs for cars and hotel rooms that offset the biggest jump in food in 18 years.

Even ignoring the various govt-applied fudge factors that convert the real CPI numbers to the ones mandated by the White House, let's consider the note about "cheaper cars and hotel rooms". Might it be that squeezed consumers are opting to buy smaller, more-fuel-efficient vehicles, which tend to cost less than behemoth gas guzzlers? Might the lower hotel room prices simply be reflective of lower demand? Even in the absence of govt fudging, this seems a case of the well-known "substitution bias" to me. [For those not familiar with the term, consider this sample scenario: in tough economic times, Joe Sixpack steak eater starts substituting lower-priced ground chuck for ribeye. Ground chuck costs less, so that substitution of a lower-quality item creates a phony "price decrease."]

By way of a specific example of the funny-numbering that goes on at the BLS, check out this line from their very own report:

Gasoline prices rose 5.6 percent in April. Compared to a year ago, these prices were up 20.9 percent. Gasoline prices increase seasonally during the first five months of the year, with the largest increases occurring in March and April and decline seasonally for the remainder of the year.

Ah, the magic of "seasonal adjusting" - by twiddling the adjustment fudge factor properly, the BLS magically converts a nearly-6% rise in gas prices to a 2% *decrease*. Ain't statistics great? Of course in a "normal" year April gas prices would indeed be up due to higher demand, but this is far from a normal year, demand is down, prices still up,a fact which BLS conveniently ignores in its fudging
.

Some perspective on the import-prices part of the equation, which also makes some good point germane to our consumption-factor discussion above:

Winter (Economic & Market) Watch: Import Hyperinflation in Progress?


It seems at least a few U.S. lawmakers have picked up on Fannie Mae's recent funny-numbering of its capital position:

Republican Senators Question Fannie Mae’s Capital Position

In a letter sent Monday to Office of Federal Housing Enterprise Oversight director James Lockhart and obtained by Housing Wire, four key Republican Senators questioned the capital position of Fannie Mae (FNM: 29.88, +6.26%) on the heels of a $2.2 billion first quarter loss reported last week. Senators Chuck Hagel (R-NE), John Sununu (R-NH), Elizabeth Dole (R-NC), and Mel Martinez (R-FL) jointly expressed concern at OFHEO’s loosening of an excess capital surcharge on Fannie Mae in light of continuing losses, and a plan to raise an additional $6 billion in capital.

“Are you concerned the the $6 billion Fannie has promised to raise in capital will not support new lending and greater mortgage market liquidity, but instead go to cover more of its losses?” the Senators asked in the question-laden letter sent to Lockhart.

The group also signaled concern over $9.3 billion in unrealized losses on securities held in Fannie’s portfolio: “If Fannie doesn’t recover the full value of these securities, how would that affect its capital position?” the letter asked.

Fannie Mae held roughly $42.7 billion in core capital at the end of the first quarter; critics have contended that both Fannie Mae and sister GSE Freddie Mac (FRE: 27.30, +9.38%) are too thinly capitalized to successfully backstop a flailing U.S. housing market, as many regulators and legislators have hoped.

Losses of just 5 percent on either firms’ massive mortgage portfolio would likely be enough to wipe out shareholders, some equity analysts and investment managers have suggested.

The banks can continue to try to hide their awful balance-sheet status from shareholders and most of the public, but here's one set of government statistics which apparently doesn't lie^*, perhaps because they're considered so obscure that "no one really cares about them anyway" [Before you disagree with that claim, ask yourself - when's the last time you heard about the crucial BOGNONBR numbers in the mainstream financial media?]:

St. Louis Federal Reserve: Non-Borrowed Reserves of Depository Institutions

===

^* [This is the same statistic that I linked to in post #164 in my "dig yourself deeper" comment, but the above link is better because it presents things in graphical form, which is more suited to conveying just how shocking the recent deterioration has been]

[ewmayer]

Freddie Mac Plays the Level-3 Asset Shell Game

Investors rallied around Freddie Mac on Wednesday after the government-sponsored mortgage lender was able to pull in better-than-expected losses using some crafty accounting methods.

Semi-government sponsored firm Freddie Mac (FRE) rose sharply during morning trading after posting $151.0 million, or 66 cents per share, in first quarter losses and plans to raise $5.5 billion in new capital.

The loss was larger than the $133.0 million hit, or 35 cents per share, incurred during the same period last year. Analysts surveyed by Thomson Financial had a loss of 92 cents a share.

While investors were impressed, Moody`s rating service was not. It downgraded the bank financial strength rating of Freddie to B+ from A- after the mortgage finance company announced a first-quarter loss; placing a negative outlook on the `B+` BFSR and the `Aa3` preferred stock ratings.

The mortgage lender added 9.2%, or $2.29, to close at $27.2 in New York. Freddie`s agency counterpart Fannie Mae (FNM) was equally buoyant rising 6.3%, or $1.77, to $29.89. Fannie also posted significant write-downs last week, but still got love from Wall Street. (See "Investors Put Out Fannie`s Flames" and "Fannie`s Alt-A Issue")

Freddie devised a new way to assess its books during the quarter and losses were lessened as a result.

Freddie`s chief financial officer, Anthony S. Piszel, said Tuesday that although the U.S. housing market hasn`t hit bottom quite yet, the firm has a "strong and sound" capital position and maintained their current dividend, according to TradeTheNews.com.

Many critics believe that ever-growing Freddie and Fannie pose a grave risk to the U.S. economy because of their massive holdings which exceed $7 trillion dollars.

Some details the above Forbes article doesn`t go into: the key accounting change FRE used was the same one most of the big-financials have been using of late [and alas getting away with], that of renaming assets-known-to-be-bad as "level 3" assets and thus avoiding to have to mark them to market. In FRE`s case, this was over $100 *billion* worth of subprime-backed paper. Got a $100B or more of toxic subprime "assets" which you know would be worth at most 60 cents on the dollar if marked to market? No worries - just rebrand them as "hard to value level 3 assets" and use the "valuation based on unobservable inputs" loophole in the accounting rules to assign them an inflated book value. Some more perspective on this scam here. In a good sign, looks like the sharper-minded members of the U.S. Congress may not be buying it, and may sic the OFHEO on these fraudsters in the not-too-distant future. We can only hope.


More on yesterday's government-issued CPI figures for April, a.k.a. "BLS joke of the month". I specifically wanted to get to the bottom of how the BLS statisticians magically turned a 5.6% month-over-month gas price jump into a "2% decline, seasonally adjusted". How do you do that voodoo, that you do so well, as it were. So, I dug out the April CPI from last year and did a side-to-side comparison of the CPI figures and seasonal adjustments for gasoline.

2007:

"The transportation index rose 1.2 percent in April, reflecting a 4.7 percent increase in the index for motor fuels. (Prior to seasonal adjustment, gasoline prices rose 10.2 percent in April, but were 5.0 percent lower than their peak level recorded in July 2006.)"

Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U.S. city average, by expenditure category and commodity and service group (1982-84=100, unless otherwise noted)

CPI-U                    Unadjusted
                        percent change to            Seasonally adjusted
                        Apr. 2007 from--            percent change from--

                        Apr.2006    Mar.2007        Jan.-    Feb.-    Mar.-
                                                    Feb.     Mar.     Apr.
Expenditure category
Gasoline (all types) ...    3.2         10.2        .3      10.6     4.7

So the seasonal adjustment knocked 5.5% off the actual gas-price increase in April 2007.


2008:

"The transportation index declined 0.7 percent in April, reflecting a 2.0 percent decrease in the index for gasoline.

Gasoline prices rose 5.6 percent in April. Compared to a year ago, these prices were up 20.9 percent.
Gasoline prices increase seasonally during the first five months of the year, with the largest increases occurring in March and April and decline seasonally for the remainder of the year."

CPI-U                    Unadjusted
                        percent change to            Seasonally adjusted
                        Apr. 2008 from--            percent change from--

                        Apr.2007    Mar.2008        Jan.-    Feb.-    Mar.-
                                                    Feb.     Mar.     Apr.
Expenditure category
Gasoline (all types) ...    20.7         5.6        -2.0     1.3      -2.0

So the seasonal adjustment knocked 7.6% off the actual gas-price increase in April 2008, more than 2% more of a "knockoff" than was used same time last year. Moreover, since these seasonal adjustments are supposed to account for typical variations in supply and demand, the fact that the BLS used a greater downward fudge factor in this April's gas prices despite lower gas demand relative to last year [and no major supply or refinery disruptions] certainly seems rather "curious".

Additional BLS boilerplate available at their confirms that seasonal adjustment factors are redone every year, but of course the details are buried in more obfuscatory blather, follow-the-link-maze games, and references to the apparently infallible "X-12-ARIMA Seasonal Adjustment Method". X-12-ARIMA: Soon to be the name of the first manned rocketship to Mars!

But, simply digging into the numbers as above gives a glimpse as to what's really going on. Bull-market-style seasonal adjustment factors being applied to a bear market, in complete defiance of actual supply and demand trends.

[garo]

Excellent NYT article linked from your "hyper-inflation winter blog" two posts up, which addresses some of the things we were discussing. Particularly like that quote about liposuction. http://www.nytimes.com/2008/05/14/bu...WQ&oref=slogin

[cheesehead]

Though the following is not the message of that article, the article reminded me that just this afternoon I was hearing how record high prices for steel are resulting from the growing demand for steel by India and China -- so much so that the Chicago Board of Trade (IIRC) will soon, for the first time ever, start trading options in steel as a commodity.

We in the U.S. who are accustomed to discussing various price ups and downs as related primarily to our domestic economy (me, too) need to get used to thinking globally about lots more things than we have in the past.

Example 1: Gasoline prices are shooting up despite current softening of U.S. demand, which historically was correlated with abatement of prices. Many Americans are reflexively looking for Big-Oil conspiracy (or (*ahem*) government manipulation) to explain this. However, a look overseas shows that China has started stocking-up on oil in preparation for the Beijing Olympics (so they won't have to worry about a crisis in oil on top of Olympic-time anything else). China is adding to its oil reserves in a big way at just the time when U.S. vehicle owners and politicians ask for a pause in the rather modest ongoing filling-up of the U.S. Strategic Petroleum Reserve.

Their development is contributing to our inflation.

Example 2: As outlined above, unprecedented prosperity in Asian countries led to unprecedented demand for safe investment vehicles, which led to creation of unsafe (you can't fool Mother Nature) investment vehicles marketed as though they were safe, which led to an unprecedented crisis in the U.S. economy.

Their prosperity is contributing, through the intermediary of human shortcomings, to our recession.

[cheesehead]

Originally Posted by ewmayer

Moreover, since these seasonal adjustments are supposed to account for typical variations in supply and demand, the fact that the BLS used a greater downward fudge factor in this April's gas prices despite lower gas demand relative to last year < snip > certainly seems rather "curious".

... until we note that overall global oil demand is growing despite a bit less demand in the U.S.

Bull-market-style seasonal adjustment factors being applied to a bear market, in complete defiance of actual supply and demand trends.

"a bear market"? Not on a global scale. Global oil-product demand is bullish.

Ernst, you and I need to remind each other not to ignore the parts of the global picture that may not parallel a U.S. situation. It's beginning not to be the American Century anymore.

[garo]

Good points Cheesehead. For the longest time, the US hasn't needed to think about demand and development outside of the US whereas the rest of the world has had to worry about the impact US demand has had on their economies. In a sense this is payback time. The US has for almost all of the 20th century punched above its weight in economic terms with respect to its population and resources. A recalibration is underway and this is a structural change which has been and will continue to take place over decades.

Of course this means that there will be a lot of people complaining that "others" are contributing to economic misery in the US. These same people never complained when the cheap labour of "others" contributed to US prosperity for half a century. Or when a below par demand from other countries allowed the US to acquire resources cheaply.

Your "Their/Our" statements do not make clear whether you meant them as a statement of fact or of complaint. I suspect the former.

[ewmayer]

Indeed, valid point by cheesehead, but I fail to see what Chinese pre-olympic oil purchasing patterns have to do with seasonal-demand adjustments by the Bureau of Lies and Statistics. By definition, the increased oil buying by the Chinese is *not* a seasonal phenomenon. The whole point of seasonal-demand adjustments is to remove known year-to-year supply and demand variations from the price signal in order to better discern price variations due to other factors, i.e. to better be able to discern the "signals" of interest from the known harmonics. To use an analogy that is near and dear to cheesehead's heart and mine: If I'm a scientist studying historical global temperature trends to see if there's an anthropogenic-warming signal, the first thing I do is to remove the known harmonics such as seasonal swings and e.g. sunspot-cycle-related 11-year swings. If there's a noncyclical event such as a volcanic eruption in Indonesia [ = Chinese oil buying spree prior to the Beijing Olympics], that's a nonseasonal signal. In the case of the U.S. government and the BLS, they have both motive - every tenth of a % reduction in official CPI numbers saves them billions in cost-of-living increases to e.g. social-security checks - and opportunity, since they generate the numbers. My analysis suggests to me that on top of these "usual suspects" in the downward fudging of CPI numbers, Bush et al are pulling out all the stops to maintain the illusion that "all is well" up to the coming election. Let the real numbers come out on the next guy's [or gal's] watch and let them deal with the ensuing shitstorm.

On to today's news.

Fannie Mae Will Allow Lower Down Payments in Worst-Affected U.S. Regions:

Fannie Mae, the largest U.S. mortgage- finance provider, will stop requiring bigger down payments in regions where home prices are dropping, responding to criticism from consumer and industry groups who said the company is exacerbating the housing slump.

A.k.a. "Putting out the fire with gasoline". [Reminds me - been a while since I watched Cat People. Nastassja Kinski crayfishing in waders and short shorts - yowza. Makes me want to go caterwauling and claw some furniture. But I digress...]


U.S. Consumer Confidence Falls to Lowest in 28 Years, Michigan Survey Says: Confidence among U.S. consumers fell in May to the lowest level in almost 28 years as record-high fuel prices, lower home values and fewer jobs rattled Americans.

Consumer spending, the biggest part of the economy, is cooling as surging food and fuel costs erode Americans` buying power and job losses mount. Declining home prices and stricter lending rules are also preventing owners from tapping real- estate equity to buy expensive items like cars and furniture, raising the risk that growth will stall in coming months.

``The consumer is getting extremely grumpy,`` said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who forecast confidence would drop to 59.6. ``The economy is flirting with a recession. The only thing keeping it out is this huge amount of pump-priming going on,`` including Federal Reserve interest-rate reductions, the government`s stimulus package and discounts by retailers.

Interestingly, the Wall street permabulls appear surprised today by this bearish news from the selfish wallet-watching main streeters. But not to worry: as we know from the Holy Book of Efficient Markets, markets, unlike the ignorant masses, are forward-looking. They`ve already foreseen exactly what will happen: the Fed will successfully bail out the credit markets, the government stimulus will slowly take hold and induce people to start spending way beyond their means again, which will be feasible because govt bailouts of the housing markets will successfully reflate home prices to their top-o-the-bubble levels, and rejuvenated lenders will once again open the home-equity credit spigot. All will be well. The unwashed rabble, who are focused only on the skyrocketing price of stuff they actually buy [but which doesn`t really matter in the long-run because the BLS discounts it as "volatile"] just don`t know it yet. It's probably just short-term panic by the mom & pop investors today that's trying to drag down the forward-looking bull market. Damn moms and pops - they should leave stock market investing to the experts and instead use that 401(k) money to buy Chinese-made crap like they`re supposed to.


Miller CEO Says Consumers shifting to low-price brewskies

MILWAUKEE (AP) -- Cash-strapped drinkers are starting to trade down to economy beers, the chief executive of Miller Brewing Co. said Thursday.

The Milwaukee-based brewer saw some shift between higher-priced, premium beers and economy beers such as Miller High Life and Milwaukee`s Best starting in January, Tom Long told reporters on a conference call.

"We think it`s primarily driven by decline of disposable income and pocket money that American consumers are feeling right now," he said.

Long said the volume of beers sold remains stable, but the company expects to sell more lower-priced beers this year if gas prices continue to rise.

Americans also are spending less in bars and restaurants, and Long said Miller is seeing declines in sales to those businesses.

If we see an upward spike in sales of Cinci, Hudepohl, Schafer or Weidemann [a.k.a. "Famous CrapBrews I have known and loved to vomit up back in my college days"], you`ll know the economy is in genuinely deep doo-doo. However, I suspect that beer markets [not to be confused with bear markets], while they have a distressing tendency to Greenspanian "bit of frothiness", are simply not sufficiently forward-looking. That because beer markets are driven by Joe Ultralight Six-Pack [JULS, as the Wall Street Examiner likes to call him], rather than Wise Wally Wall Street. I'm sure this current bearishness will prove to be just a "hiccup" in the beer market.