patrick.net

FDIC now in the act:
http://money.cnn.com/2008/11/14/news/economy/fdic_bair/index.htm

There are two key elements to the proposal.

In addition, the FDIC would pay servicers who process mortgages $1,000 for each re-worked loan.

I would like to see the "31% of gross" calculated on the amount the borrower declared in the original loan application. Otherwise, caught up buyers would be tempted to ship a few payments, under-report thier gross, and thus get a 3% loan stretched for 40 years.

I am all for going back to the 31% gross loan requirement.

With the FDIC plan in motion, it does not make sense to approve loans with higher than 31% gross, right?

I see the Fortress cracking. :twisted:

@sa

Where on Mish's blog would I find how currencies fare during these times?

First, housing payments for delinquent borrowers would be reduced to 31% of gross monthly income.

The only incentive for homeowners to stay in the home is if they have enough equity. If you have -ve equity, why do you even care about monthly payments. The 300B plan for homeowners passed by congress is an utter failure. They are not getting any applications at all. The few applications they received were from banks (probably were defaulted ones). The bill was about reducing loan amount and giving some equity to FB. I can't imagine people embracing a lower interest rate plan. All these policies are probably based on assumption of policy makers about people being dumb.

danville woman

just type dollar in search box on Mish's site, It'll list all articles he has written about currencies.

on his main page today, he has article titled "Strange Case of Falling International Reserves Explored". Very interesting perspective. It does look +ve for $$.

MISH's site is searchable.

I would be EXTREMELY fearful of swimming in the currency waters right now. They world's Central Banks are rewriting the rules every day and about the only constructive point being brought up in the G20 meeting is that everyone is sick of dollar supremecy.
With that said, Mish simply states that the process of delvergaing is causing settle up in US dollars which is why the dollar is strong. Also, as other nations economies begin to fall to recession or worse, the US is seen as a relative safe haven.
I had stated her previously that I feltthe Euro would hit dollar parity. I stand by that. I also think the British pound Sterling would eventually achieve dollar parity. But, wow, it all looks pretty bad. The Russian Ruble looks risky as heck. The Yen is climbing on the Carry Trade Unwind - and it wll continue to do so. India's rupee looks aweful.
Remember, only jump in if you think you can guess what the world's CBs will do.

Remember, only jump in if you think you can guess what the world’s CBs will do.

Also, remember, trading requires only one to guess what the market is doing NOW.

Prophets are bad traders.

Not investment advice.

FuzzyMath,

I am not saying that China will sell $500B. I am saying that China doesn't have the $500B, not even close, to buy our NEW debt.

Our debt as it stands is squarely in the hands of bag holders, no worries about that. The issue is NEW bag holders, where do we find NEW bag holders for the EXTRA, FRESH, NEW $500B debt we are going to issue next year, because the old bag holders are maxed out.

That I believe is the trigger point for either a default (unlikely), or outright printing. We are alright printing outright but the scale is small and the Fed tries different kind of ways to hide it, we won't be able to do so next year.

It will go non-linear.

The only incentive for homeowners to stay in the home is if they have enough equity. If you have -ve equity, why do you even care about monthly payments.

Don't underestimate Joe HowMuchAMonth. Remember, house prices rose from Joe's easy credit powered buying spree. Joe "not care" about nuthin' 'cept today's monthly payment and "can I have it now?" Future rate hikes, balloons, and he like do not deter Joe. That pervasive mentality also fuels the easy credit stores, payday loan firms, and 7 year auto loans.

If the FDIC can lower the rate, and thus the payment, Joe will bite. He won't care about "equity" if his $2200 payment gets lowered to $1253 "today." ($350k loan @ 6.5% 30yrs is ~$2200/mo, while $350k loan @ 3% 40yrs is ~$1253/mo)

prophets cannot profit.

But don't they love profiteroles? :)

Headset,

That $300 Billion Hope For Homeowners Isn’t Working

Check out this link. Again, I wouldn't under estimate Joe HowMuchAMonth.

sa,

If you are right the FHA plan will be no more effective than "Hope for Homeowners." Wonder what they will do with the money allocated?

The fact that Fed has grown its balance sheet by $1.3T in a matter of 3 months indicates that Fed is willing to print.
A couple of points on the latest H.4.1 numbers and the Fed balance sheet increase of ~$140b last week. About $30 billion came from the Treasury general account and ~$100 billion was from deposits by member banks. The bulk of it went out the door through TAF. Interesting to note that the recent TAF "holiday" bridge auction had a bid-to-cover of less than 1%.
Needless to say, Bloomberg (and now some Congressmen) are very interested to see what type of collateral the Fed is holding. If any "printing" is going on, this is how it will occur. Bear in mind, any collateral the Fed takes in is subject to haircuts (PDF).

The problem with all the Joe HowMuchAMonth's is that they all work in retail/sales and are getting laid off in the next six months.

I was shocked at a seeking alpha article the other day when the listed the average hourly worker at GM makes $73 per hour.

WOW!

The only way to fix our manufacturing base is to purge the labor market with excesses. At times, unionized labor grossly distorts the labor market that that must be rectified.

Hopefully, they will just let the automakers eat cake. This is the only way to save them.

Duke,

I would be shocked too, but I am not at all certain that we should believe that number ($73.20 per hour).

If you follow the links backwards from seekingalpha to USAtoday, you will see that the exact words used are "labor cost of $73.20 per hour".

I'm highly suspicious of what has been counted as "labor cost" in this statistic.

I think the people who came up with that stat have thrown in a whole kitchen sink of non-wage items, such as pension payments to retired workers (which should really come from a pension fund, was that fund not so underfunded to begin with), healthcare costs for active AND retired workers, FICA payroll taxes and probably all kinds of other costs that have nothing to do with what the current Joe Assemblyworker literally gets in his paycheck.

I'd like to see some independent review of the number. It sounds like Bush/Limbaugh era propaganda made to order for the purpose of conning the public into supporting that "unions are bad" and to justify reneging on defined benefit retirement plans that have gone underfunded while management lined their pockets with SUV-fueled bonuses.

I think the correct number is closer to $25-30, which is not bad for unskilled labor, but a far cry from $73.20.

to do that we will have to eliminate all ‘job subsidy’ as well.

Subsidies are bad, right?

How are unions not labor cartels?

I read that a couple of days ago. I think if you look closely it is total hourly compensation. Justme is right, that would be the wage (includes emplyee taxes) + employer taxes (FICA, FUTA etc), + benefits (insurance, retirement), and accrurals like vacation and sick pay.

It is still high, so the discrepency between the other industries and the all category is still startling.

Justme, your concluding point is interesting. Yes, the bottom line number, the guy's actual gross paycheck is closer to $25-$35 per hour. All the oter nonsense is a result of unions and creative liberal taxation, which is why I made that point further up. All that junk where you are paying 2 or 3 times per hour what the guy's wage is is extremely wasteful and why these companies are flocking to go overseas. People can't pay their own taxes and expenses so it is creatively all rolled into the 'compensation' that they get. When people understand this, they might have a little different perspective.

$73 is including salary loading, which includes FICA, medical insurance, 401K matching and all that good stuff. The real biggie part of salary loading is actually T&E expenses for those who travel, it can go really high.

The detroit workers don't travel, the most salary loading they will get is around 35-40%, which makes it ~$54 per hour, plus overtime, which is way better than anyone makes in such a skill-equivalent job. Even without overtime, they are making about $120K a year. Jealous?

Well, wait until you hear that the Oakland dock workers are getting paid $200K per year. With BDI going the way it is now, I am sure these $200K jobs are drying up real fast.

justme,

there is no possibility that benefits and taxes add up to over 100% of one's salary. If you know of such a job, I'd like to apply :-) I wonder what kind of benefits I'd get, free access to the gentleman's club?

I am pretty sure the Detroit car workers are making around $50, not $25-30 per hour.

Malcolm,

I think that it should be further noted that I believe that the automaker corporations are creatively accounting for some or all of their current retiree expenses by rolling then into the above totally fake "hourly rate". That makes the rate is just lies and propaganda.

http://www.usatoday.com/money/autos/2007-09-17-gm-uaw_N.htm?csp=34

The thieves at the big 3 automakers intentionally underfunded their pension plans so that they could pay themselves big bonuses and then later use the same underfunding as the rationale to break the union. What a plan, pretty "brilliant", is it not.

It works roughly the same way as when Bush squanders taxpayer money on war and corporate giveaways, and then turns around and says, "sorry, social security is going bankrupt".

Note from the article: Big 3 have about 3x as many active UAW workers as they have retirees -- planning for the retirement cost is part of their responsibility.

In cost accounting believe it or not the load or burden rate used is as much as 300%. That is the full direct labor cost (hourly rate x burden). I'm not disputing the auto workers' actual hourly rate, could be $50, but although it is counter-intuitive, burden rates for all the extra stuff can easily exceed that of the hourly rate.
Everyone says it is nonsense until they start adding it up and find the bank account is short :(

Here's the sidebar from the USA today article:

http://www.usatoday.com/money/autos/2007-09-17-gm-uaw_N.htm?csp=34

CONTRACT TALKS AT A GLANCE

Who: Contracts between the UAW and General Motors, Ford and Chrysler
cover 180,681 U.S. hourly workers and 540,344 retirees and surviving
spouses.

What: The union has named GM its lead company, which means it will
negotiate a contract with GM and then ask Ford and Chrysler to accept
the same terms. If there is a strike, GM plants will be targeted.

When: Contracts were set to expire Sept. 14 at miidnight. Ford and
Chrysler have extended their contracts indefinitely. GM workers could
strike any time if talks hit a wall.

The issues: Labor Costs: The three automakers lost $15 billion last
year. Chrysler pays an average $75.86 an hour in wages, pension and
health care benefits, GM pays $73.26 and Ford pays $70.51. Toyota pays
U.S. workers about $48, U.S. automakers say. Health care: The three
companies have $90.5 billion in unfunded retiree health care
obligations. They want to establish a fund — a voluntary employee
beneficiary association (VEBA) — with part of that money and let the
union be responsible for future benefits. The amount of the fund is a
big issue.

Job security: UAW membership has fallen from 1.5 million active members
in 1979 to around 576,000 today, and the union already has agreed to
buyout plans and changes to retiree health care. The union likely is
seeking pledges to keep jobs at U.S. plants in exchange for agreeing to
the VEBA. The UAW says labor is only about 10% of the cost of a vehicle.

Justme, I'll check it out. It should not be the case, but nothing surprises me. That is one thing that really disgusts me with 'activity based costing' which is that it unfairly burdens those that do the work and makes them look more expensive because of the allocation of overhead type costs. That is another reason when companies do outsource they are surprised that their costs didn't really go down, and there is now an impoverished town incapable of buying the goods that were once made there. I'm telling you guys, corporate America sucks, and it is not the workers doing the work that is the problem. American cars don't suck because of their assembly, they suck because of their design and the company structures.

OO,

Agreed. There is no way that the workers OWN benefits are 100% of wages. I think the reason is that the Big 3 department of creative accounting are attributing some or all of the expenses of ALREADY RETIRED WORKERS to a fake "effective hourly rate" of the CURRENT WORKERS.

In my book that is just lies and propaganda.

To no-one in particular,

I can't believe that I find myself defending ANY aspect of the dysfunctional idiocracy that is Detroit. I hate their god-awful gas-guzzling ways, but I cannot stand for this type of right-wing propaganda being spread out for the purpose of blaming the workers for management malfeasance.

>>Note from the article: Big 3 have about 3x as many active UAW workers as they have retirees — planning for the retirement cost is part of their responsibility.

CORRECTION, it should have stated "3 times as many retirees as actives"

Malcolm,

I appreciate it. Will be very interested in hearing what you find out.

Anyhow, I am completely against chipping in for the Big 3.

If they cannot straighten things out and come up with a sustainable operating model that sells enough cars to keep themselves alive, I am not going to pay another car tax on top all the income tax, FICA, medicare, state income, sales tax I am already paying.

Big 3 can roll over and die for all I care, they have proven in the last 20 years that they are not viable business entities, why should we bear the burden of their stupidity? Mass unemployment in Detroit? Like Detroit is not already a ghost town that nobody cares about?

For those who have been pampered with a low-skilled job that pays $120K+, it is about time they wake up to the reality. Most people in America are NOT making $120K, so why should those making far less bail out those making far more?

If the government wants to secure more employment for the US car workers, give the $25B to Toyota, ask them to take over part of GM for free and set up an All-America sourced and built car. That will create far more long-term sustainable employment than the impotent big 3.

Or they can simply seek anti-trust action against the unions.

I am not just directing my disapproval to the GM workers, the management is nothing short of a colossal fuck up themselves.

I think any upper management coming out of the big 3 should be banned from taking any senior jobs in other US corporations. People should be ashamed of having big 3 on their resume.

It is definitely a weird disconnect since you can buy a house in Detroit for less than a car costs.

But then again I come back to this hypocrisy. Grind and complain about direct labor costs, that is capitalism at its best, make a whistle sound in a graduate class when you find out CEOs at automakers make 10s of millions of dollars a year and the CEO of Toyota makes less than 500K and a Peter P type starts in with the 'It's the American way' rhetoric.

OO, no fucking kidding. You would think the free market would stop these people from getting jobs of that caliber in the future. The truth is, these boomers go from train wreck to train wreck. Somehow they are considered seasoned and experienced.

Peter, here in CA at least there is a compromise. A union can't stop you from working like they could in other places, and still can I think in some states. California is a 'right to work' state. For all the crap people dish on California I think we have found the best compromiises on a lot of social issues like working.

Peter, here in CA at least there is a compromise. A union can’t stop you from working like they could in other places, and still can I think in some states.

That's good to hear.

The truth is, these boomers go from train wreck to train wreck. Somehow they are considered seasoned and experienced.

LOL!

I don't consider Obama to be a boomer. Now I really hope that he can save us, or at least mitigate our pain.

Obama is like a Harm type counter-boomer. I really don't lump those under 50 or so in the same grouping in general anyway.