Mortgage Originations to Drop 36%?

Inquiring minds are watching the mortgage market. Since it is very difficult to see how interest rates can drop any further and home sales are flat-lining, we all might see what the statistical minimum for mortgage originations actually is:

Mortgage originations are expected to fall nearly 36% this year as the housing slump and high unemployment take their toll on consumer confidence.

The Mortgage Bankers Association released its forecast this morning indicating that $966 billion in mortgages would be originated this year, down from $1.5 trillion in 2010.

“The main issue at the moment is jobs,” said Jay Brinkman, chief economist for the association. “Not only that but people coming out of the recession even if they have a job, what is their credit situation?”

69% of mortgage activity last year was refinancing compared to new mortgage purchases.

To show just how few mortgages this will be is to consider that mortgage originations fell 24.5% in 2010 from 2009 levels. In real numbers there were $1.995 trillion in mortgage originations in 2009 compared to $1.505 trillion last year.

Who’s to Blame for Egypt? Try The Fed

Inquiring minds are upon Egypt’s plight tonight after reading a great post on entitled, “Fed Policy Burns Down the Middle East, Who’s Next?” So how’d we get here?

Chairman of the Federal Reserve Ben Bernanke launched a second round of Quantitative Easing (QE2) in October, following over a year of growth in the economy at a robust rate of over 3%. Most analysts pooh-poohed QE2 as an insufficient economic stimulus to create enough inflation to reduce unemployment. I warned that QE2 was like pouring inflationary lighter fluid on the world and then lighting a match. With food inflation now running at 15% in poor countries, the Middle East is just the first area to burn, but fire is smoldering in much of the world and other fires will break out soon.

So what exactly happened? What were the mechanics of this correlation betwen the US Federal Reserve’s monetary policy and the revolutions in Egypt and Tunisia half a world away?

QE2 is a program by the U.S. Federal Reserve to inject $600 billion of U.S. dollars in the financial system by repurchasing an equivalent amount of U.S. Government bonds. Once the money is paid to the former bondholder, they deposit the cash in banks. Banks take deposit dollars and leverage them by 6 to 10 times creating $3.6 to $6 trillion in credit. Given that the Gross Domestic Product of the U.S. economy is only about $14 trillion annually, it would impossible to immediately purchase 25-40% of the entire economy. Consequently, the reality of Quantitative Easing is that the money will be invested in the stock and commodity markets. The theory is that the financial assets rise on the huge inflows of QE cash, investors will feel wealthier and go to the malls and the car dealerships to “shop till they drop”.

The problem with theory is that QE2 money quickly drove up commodity food prices around the world. This price rise is barely noticeable to Americans who only spend 10% of their personal income on food for three meals a day; but the impact of food inflation is devastating the over half the world that spends approximately 50% of personal income on food for two meals a day. The 15% QE2 induced commodity food price increase has reduced the amount of food poor people can purchase by almost 1/3.

The riots burning down Tunisia, Yemen, and Egypt, and all of the revolutionary activity attached to them, are really about gut-level economics. Do you not think we, Americans, would riot and throwing out our government if we were forced to cut back to just 1 1/3 meals a day?

Once riots begin, people in cities fear scarcity and start hoarding food and water to survive the unstable situation and it becomes dangerous for farmers to even transport food. Of course, this exacerbates food shortages driving prices even higher.

A Satellite’s view of the Forclosure Crisis

Inquiring minds are looking at RealtyTrac numbers that are now out on the total foreclosures for 2010 and things are getting worse.

Just how bad is it?

72 percent of major metro areas saw an increase in foreclosure volume. Although some of the worst hit areas in Nevada, California and Florida improved from 2009, the foreclosure rate in these areas remains shockingly high. If not for some foreclosure suspensions due to the robosigning scandal, these numbers would have been higher.

To see a frightening visualization of the foreclosure crisis, look at this Google maps prestentation created by Barry Ritholtz:

A satellite tour of the foreclosure crisis.

more interesting maps

Incredibly ugly…and getting uglier.

How the Government Lies about Inflation

Do you think any passengers on the Titanic were actually worried about hitting an iceberg? Did the crew ever let the passengers know the severity of the situation?

Inquiring minds are looking at the WSJ’s “Why You Can’t Trust the Inflation Numbers” and how so many people on Wall Street are saying exactly the same thing…”Don’t worry too much about inflation”:

After all, they’ll say, just look at the numbers. The inflation picture is incredibly benign. In the past 12 months the Consumer Price Index has risen just 1.5%—a remarkably low rate. And when you strip out volatile food and energy costs, they’ll say, it’s even lower—a meager 0.8%.

It doesn’t stop there. Many economists will point out that wages are also rising by less than 2% a year. With so many people still out of work, goes the line, labor costs are going to stay low for a long time too. So what’s the worry?

If it was just all true and not an illusion, life would not only be much more simple, it would be so less painful. Unfortunately, we are in reality with the physical (or should it be ‘fiscal’?) and there is plenty to worry about.

As you battle to manage your own family’s finances, please be aware that there are three reasons why inflation must be on your radar screen.

First, the official inflation numbers should not be taken at face value:

Over the past 30 years, the federal government has made a lot of changes to the way it calculates inflation. It’s taken place under presidents of both parties. Each change in methodology has come with plausible-sounding justifications. But, as if by magic, each change has had the effect of flattering the numbers. Funny, that.

According to one rogue economist, John Williams at Shadow Government Statistics, if we still calculated inflation the way we did when Jimmy Carter was president, the official inflation figures would look about as bad as they did when … Jimmy Carter was president. According to Mr. Williams’s calculations, if we counted inflation under the old system the official rate wouldn’t be 1.5%. It would be closer to 10%.

Using a piece of chicanery called “hedonics” the government says there is no inflation if steak prices soar because they figure you are buying hamburger instead.

Got that? If you are used to a great T-bone and baked potato dinner, the fact that you can only afford hamburger helper means there is no inflation.

Here is another example:

Or consider the case of Apple computers. We all know Macs are expensive. And we know Apple doesn’t discount. The cheapest Mac laptop today costs $999. A few years ago, it also cost $999. So the price is the same, right?

Ha. Not according Uncle Sam. Using a piece of chicanery called “hedonics,” Uncle Sam calls this a price cut. His reasoning? You’re getting more for the money. Today’s $999 Mac is lighter, fancier and faster than last year’s $999 Mac. So the government calculates that the “real” price has actually fallen.

Who said government can’t be trusted?

The second reason to not believe the ‘official’ statistics is that they look backward. In other words, they show what just happened, not what’s about to happen next:

OK, so the prices of many things haven’t risen. Yet. But if the laws of economics mean anything, they will have to. Why? Because costs are rising.

Economists need to stop focusing just on labor costs. The world has plenty of surplus labor. But look at raw materials. Around the world prices are skyrocketing, from copper to cocoa. The United Nations Food Price Index has just hit a new record high. Oil’s back near $90 a barrel. Wheat prices have nearly doubled since last summer.

Soaring food prices helped spark the revolution in Tunisia. According to Alex Bos, commodities analyst at Macquarie Securities in London, other governments—especially in North Africa—have responded with panic buying of foodstuffs.

Algeria bought about 1.5 million tons of wheat this month (about triple its usual amount), Saudi Arabia is rushing to build up grain supplies, and corn supplies are as tight as they were back in the inflationary 1970s.

The third reason to not trust the government inflation numbers? The most simple reason of all…economics.

We are monetizing the debt, we are printing ‘electronic’ dollars almost as fast as the Federal Reserve can disseminate the money.

We are flooding the world with extra dollars. The Fed simply invents as many as it likes. In the past couple of years, to try to keep the economy out of a tailspin, it has more than doubled the size of the so-called monetary base.

A dollar bill has no intrinsic value. Dollars are only “worth” something because you can exchange them for a haircut, or a pair of shoes, or a book from So if you drastically increase the number of dollars without a commensurate increase in the number of goods and services, each dollar must, by definition, be worth less. That’s another way of describing inflation.

So far, this inflation seems to have shown up in the unlikeliest of places. It’s like Whac-A-Mole. The price of vintage wines has skyrocketed 57% in the past year, according to the Liv-ex Fine Wine 50 Index. Real estate prices across China are in a bubble. So long as the Chinese tie themselves to the U.S. dollar, they are importing our inflation. But, once again, one wonders how this can be called benign.

Since retro is cool, then President Obama should start printing these babies up all of his lemming followers.

Please remember going forward…the ten most feared words in the English language:

“I’m from the government and I”m here to help you.”

There is only one way out of the incredible debt trap that we have placed ourselves in…inflation.

With a true national debt between $100-200 Trillion, the only way to ever pay it off is to inflate the currancy. This means that we pay yesterday’s bill created with dollars worth more than today’s dollars, with tomorrow’s dollars that are worth less than today’s dollars…much less.

Spanish Bank Created with International Calling

Isidro Fainé

Isidro Fainé Inquiring minds are in southwest Europe where an interesting the way to start a business happened…international calling:

CaixaBank, the bank into which the Catalan savings bank La Caixa has been converted, is born with ”international calling”. This claim was made today in Barcelona during the presentation of the 2010 results of the financial institute by its chairman Isidre Fainé. “The board of directors decided yesterday to create a bank”, said Fainé, quoted by Europa Press.

La Caixa closed the year 2010 with a result of 1.3 billion euros, 13.4% less than in the previous financial year. The savings bank booked 2.651 billion in commissions to deal with insolvencies and recorded a default rate of 3.71%.

Its core capital by the end of 2010 reached 8.6%, with a Tier-1 of 9.9%, ”much higher than the level that is required by the government” of savings banks for their recapitalisation.

The coverage rate was raised to 70%, and the liquidity level by the end of 2010 was 19.638 billion euros.

OC High-end home prices: Falling

Inquiring minds are looking at the tonier areas of The OC and seeing their residential real estate prices are falling. According to the slightly different view of the Orange County real estate market from, the county’s high end takes the heaviest discounting:

This website tracks trends in asking prices from brokers’ MLS system of homes for sale. In addition, HousingTracker breaks down its data into a pair of neat markers — the 25th and 75th percentiles that let us see how the market’s upper crust and more modest abodes are faring.

From the January report we see …

At the 25th percentile — the median of the lower half of the price spectrum of local homes for sale — the selling price was $294,950; that is down 1% vs. the previous month and down 1.7% vs. a year ago. Over two years, there’s been an 1.8% dip in prices set by sellers of more affordable local homes. This is the 5th consecutive month-to-month cut in asking prices for these more “affordable” homes.

At the 75th percentile — the median of the upper half of the price spectrum of local homes for sale — the selling price was $640,873; that is down 1.1% vs. the previous month and off 11.5% vs. a year ago. Over two years, there’s been an 11.9% tumble in prices asked for higher-end housing. This is the 7th consecutive month-to-month cut in asking prices for these less “affordable” homes.

The gap between these two price points was 117% this month vs. 118% the previous months and 142% a year earlier. The gap peaked at 167% in June and July 2009.

The overall Orange County median listing price, by this math, was $418,975 for January — that is off 1.1% vs. the previous month and off 6.6% vs. a year ago. Over two years, there’s been an 3% decline.

This next year will see some ‘interesting’ developments in Orange County real estate. With the number of homeowners not paying their mortgages at a very high level, a very nasty year is beginning.


Inquiring minds are looking at the seemingly ever-increasing number of days since the average borrower in foreclosure last made a mortgage payment. It now stands at 492 days in October. This is up from 382 the previous October (2009):

In recent months, the number of borrowers entering severe delinquency — meaning they missed their third monthly mortgage payment — has been on the decline, falling to about 700,000 in October, according to mortgage-data provider LPS Applied Analytics. But it’s still more than double the number of foreclosure processes started.

As a result, banks are taking progressively longer to foreclose. The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS. That compares to 382 days a year ago and a low of 244 days in August 2007.

In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months.

These numbers are staggering and show that housing is not rebounding, and in fact, not even stablized.

Spain’s Initial Pension Agreement with Union

Inquiring minds are watching the Iberian Peninsula where Spain becomes yet another government having to cut pensions on workers:

After weeks of intense negotiations the government and the unions reached an initial agreement on the pension reform, prior to the final one, that should be announced in a statement broadcast by the government in the next hours. According to the agreement reported today by the media, workers with 38.5 years of contributions will be able to retire at the age of 65, while the pension age for others will be raised from the current 65 to 67. The minimum age for early retirement will be raised from 61 to 63. The draft agreement was achieved late last night in the Moncloa during a meeting that saw the intervention of the president of the government, José Luis Rodriguez Zapatero; the minister of labour, Valeriano Gomez; the general secretaries of the CcOo and Ugt unions, Ignacio Fernandez Toxo and Candido Mendez, and the president of the Confederation of Industrialists, Joan Rosell. Should it be signed, the agreement will offer a breath of oxygen to the government led by premier Zapatero, which would achieve the first social agreement for the legislature during a difficult period in which, because of the crisis, it is plummeting in surveys. However, the minister of Infrastructures, José Blanco, stated that there “are still hurdles to overcome” before making the agreement official.

This won’t be the only, or the last, cut in pension benefits…either for Europe in general, or Spain specifically.

This is only the beginning.

How Many More Terrorists Have Slipped Through?

How many terrorists have slipped through undetected?

Inquiring minds are asking a very important question today after seeing a controversial Muslim cleric caught being smuggled into U.S. over the Mexican border…How many terrorists have gotten through?

The U.S. border guards got the surprise of their careers when they searched a BMW and found a hardline Muslim cleric – banned from France and Canada – curled up in the boot:

Said Jaziri, who called for the death of a Danish cartoonist that drew pictures of the prophet Mohammed, was being smuggled into California when he was arrested, along with his driver Kenneth Robert Lawler.
The 43-year-old was deported from Canada to his homeland Tunisia in 2007 after it emerged he had lied on his refugee application about having served jail time in France.

What else has Mr. Jaziri done to deserve this attention? Well, he has a very ‘colorful’ past:

His fire and brimstone sermons and rabble-rousing antics catapulted him into the public eye during his short tenure as imam at a Montreal mosque.

He branded homosexuality a disease and led protests over cartoonist Kurt Westergaard’s illustrations poked fun at Islam and were published in a Danish newspaper in 2006.

He also caused anger when he campaigned for a bigger mosque to accommodate Montreal’s burgeoning Muslim population.

But after his deportation he complained that he had been physically and mentally tortured during the 13-hour flight repatriating him to Tunisia, a claim Canadian authorities deny.

That last part sounds earily similar to the Iraqi terrorist caught by the three Navy SEALS put on public trial last year by the Obama Justice Department. It seems that the US isn’t the only country that has lies told against it in the treatment of its prisoners.

Mr. Jaziri confessed exactly as to how he traveled to this country. Unfortunately, it is no different than what authorities have repeatedly stated when questioned about other stories of terrorists sneaking into the United States over the last several years:

Jaziri had allegedly paid a Tijuana-based smuggling cartel $5,000 to take him across the border near Tecate, saying he wanted to be taken to a ‘safe place anywhere in the U.S.’
According to the court documents, a Mexican guide led Jaziri and a Mexican immigrant over the border fence near Tecate.
They then trekked across the rugged terrain under cover of darkness to a spot popular for drivers who pick up immigrants for smuggling runs into San Diego.
He allegedly told officials he had flown from Africa to Europe, then to Central America and Chetumal, Mexico, on the Mexico-Belize border, where he took a bus to Tijuana.

Authorities have talked to this issue for years without getting much traction in the media. Maybe this time, people will wake up before a terrorist attack happens here in California.

State Workers Union Loses in Court

We are shocked that these "three little piggies" know each other. Shouldn't they all be wearing state issued pinstripes?

Inquiring minds are reading where a California appeals court Wednesday overturned part of a negotiated increase in retirement benefits for several thousand regulatory workers, saying the Legislature never approved the full increase or its estimated $40 million cost:

The case involves 3,500 to 4,000 employees whose union, the California Statewide Law Enforcement Association, reached an agreement with then-Gov. Gray Davis’ administration in 2002 to reclassify them as “safety members” of the state’s retirement system in July 2004.

That entitled them to higher pensions – 2.5 percent of their pay, instead of 2 percent, for each year of service if they retired at age 55.

The workers included licensing employees and investigators for regulatory agencies, such as the Department of Motor Vehicles and consumer bureaus, said Jason Jasmine, a lawyer for the union. They also included non-patrol workers for law enforcement agencies, such as criminalists and California Highway Patrol dispatchers.

The agreement did not say, however, whether it was retroactive – that is, whether the employees would be classified as safety members for their previous work years, or only for their work after July 2004.

The Legislature quickly approved and Davis signed a bill that ratified the deal. Later in 2002, Davis’ administration told employees that the pension increases would apply to their past years on the job.

Since this is ‘standard operating behavior’ for Democrats in California because it has happened so often, wants to ask: How can any Californian vote for a Democrat candidate until the California Democrat Party completely disavows this kind of smarmy double-dealing by its candidates/officeholders?

Until both parties hold their members feet to the fire and not allow this kind of unethical behavior this country will continue its slide into the abyss. Morals and values are inexorably linked.