Posted by Michael A. Kamperman on May 31, 2011
According to the Case-Shiller index the housing market has entered a double-dip. Housing prices are now at the low point of the downturn that started four years ago. Apparently this has come as a shock to many including the entire economic team at the White House. But it should not come as a surprise because it is way way too difficult to obtain a mortgage in America. Those who were not expecting this have been asleep at the wheel.
Let me finish telling you the personal story about my daughter and her fiance’s attempts to get a mortgage. The good news is they closed on an FHA loan to buy their first home a few days ago. Now for the rest of the story. They both graduated from Baylor University in May of 2010 and have full-time professional jobs related to their majors. They both have no debt and cash for the down payment. Their income qualifies them for the mortgatge. They both have acceptable credit scores and no marks on their credit. Sounds like a slam dunk right…wrong! FHA has a new requirement that a borrower has to have three credit lines reported to the credit bureaus for two years to qualify for a mortgage. Because they both got their first credit cards a few months ago they don’t qualify. Rent payments can no longer be used as evidence one will pay a mortgage. FHA required they get a co-signer. No problem because his parents were happy to co-sign and were clearly qualified. However, FHA underwriters came back and said the two borrowers were both listed as authorized users on their parents credit cards and woud have to be removed to get their true credit score. When I asked why the explanation was even though they had a co-signor they still needed to have the minimum credit score of 640 to qualify for the loan. I of course asked \”so what’s the co-signer for?\” Basically, the co-signer is required because they didn’t go to Gap and open a store card and use it to purchase a $20 sweater two years ago.
Now this is FHA, the federal agency authorized to assist first-time and low-income home borrowers. We havea single family housing supply nation-wide for 2/3 of American families. There is absolutely no way 2/3 of American households can qualify for a mortgage under current circumstances. The pendulun has swung way way too far in the opposite direction from 5 years ago. Where is the Obama Administration while this goes on. Apparently they are asleep at the wheel. Almost all of Washington participates in group think. This is the process whereby one must acknoweldge conventional wisdom as truth. Right now such wisdom considers the debt and deficit the greatest threat to America. The Chairman of the Joint Chiefs of Staff made just such a statement in Q&A recently before Congressional panels. What qualifies him to render such judgement? Absolutely nothing. What qualifies the President’s economic team to lead us out of the depression? Apparently not much.
Posted by Michael A. Kamperman on May 19, 2011
Nothing has been fixed in this economy, nothing. The job outlook for new college grads is bleak, just like it was in 2009 and 2010. In fact, the New York Times is reporting that only 56% of recent college grads had been employed in a job within one year after graduating. This is any job, including sweeping floors at Walmart or saying would you like fries with that part-time. Only about half of those that found a job were in one that required a college degree. One of the two fields where grads were most likely to find a job requiring a college degree was education. In Texas and elsewhere many education graduates will be lucky to find anything, anywhere, as the kick in the gut comes to State budgets because of the end of the stimulus plan. In contrast, between 2005 to 2007, 90% of all college grads worked in a job within a year of graduation. As if this isn’t bad enough, around 2/3 of all college grads leave college with debt. The NYT estimates the median student graduates with $20,000 in debt. But median means middle and it includes all of the students whose families were able to provide them with a debt free education. The average for those graduating with debt is closer to $30,000. Many graduate owing $50,000 to $100,000 for a Bachelor Degree. Student debt is not eligible for bankruptcy. The crater in the Opportunity Deficit is huge for the young seeking work. We as a society are failing these young people.
The failure starts at the top with the President. The constant claim from the nations elites that we have avoided a Second Great Depression doesn’t make it so. However, these claims remove the sense of urgency to right the ship. We are adrift as a nation. There is no one on the political stage from the center, the left, or the right who is putting forward a plan to end the depression. Plans to cut spending to reduce deficits and debt are not plans to create jobs, because cutting spending means cutting jobs. Just ask all those graduating with a degree in education this year who thought they were entering careers with job security.
The reason we have no plan to end a New Great Depression is our leaders have assured us for years that what happened in the 1930′s couldn’t happen today because of all the safe-guards built into the economy. Hence, there has been no planning for what to do if a depression hit. What planning we did have in the form of Keynesian Economics has been thrown under the bus. We are the victims of our own Pride. Hubris has been our economic downfall. While there is a way out it requires changing the beliefs of the vast majority of the country. Namely, that the national debt is a threat. In essence we are suffering from Y2K hysteria. Almost everyone believed it was real and took actions to prevent having their computer systems stop working at the stroke of midnight on December 31, 1999. In fact, it was hoax. No such threat ever existed. Many many good hearted true believers thought they were doing the right thing by warning the public of the dangers of doing nothing. Almost all of the peope warning about the dangers of the debt are good hearted true believers. It’s just that what they believe in doesn’t exist and convincing them of that is an uphill battle.
Posted by Michael A. Kamperman on May 10, 2011
Every day we get multiple people all over television, the radio, and the newspapers saying how we cannot afford our entitlement programs, how the nation is going broke, and how there is no choice but to make federal spending cuts. Rarely does anyone mention the unemployed anymore. Last year the country seemed in agreement that the most pressing issue was jobs. Now, much of the country has lost interest in the plight of the jobless and are wanting to focus on the deficit and the debt. The unemployed are still just that, unemployed. Yet few seem to understand the reason that we are running such large deficits is because 25 million people who want full-time jobs cannot find them. Additionally, many are in full-time jobs beneath their skill level. Basically, the country is running a massive Opportunity Deficit, and it is this deficit that is the source of the fiscal deficit. If the unemployed returned to good paying jobs tax revenues would roll into Washington and social spending would automatically drop sharply without anyone being cutoff. The main reason for the fiscal deficit is not President Obama’s healthcare plan or stimulus plan, it is not the wars in Afghanistan and Iraq, and it is not President Bush’s tax cuts. All of those reasons combined don’t equal the fiscal cost of the Opportunity Deficit. If Washington would put people back to work in good jobs the fiscal situation would handle itself.
The focus of our leaders should be to do whatever it takes to close and eliminate the Opportunity Deficit. Amazingly, the Congress and the President have all of the tools they need to put people back to work and they refuse to use them. The tool is to actually have the federal government spend money on everything from roads and bridges, to teachers and schools, to research and development, and to anything else it takes to get the unemployed back to work.
The federal government has an unlimited check book and it refuses to take it out. In Texas, the State has $9 billion in a savings account called the Rainy Day Fund and State Representatives and the Governor refuse to use it to avoid laying off Teachers. Are these people crazy? No, they are misinformed. In Texas they seem to believe money has no strong correlation to a good education. In Washington they seem to believe that a government that can print dollars might run out of them. Both beliefs are clearly false, but they persist and exacerbate the Opportunity Deficit. Virtually no one is standing up for those crushed by the Opportunity Deficit with an attitude that we will end that Deficit no matter what it takes. But we will stand up for it here.
