Remembering the $Trillions Withdrawn from the Housing ATM

Boy, don't we wish we had those back today.

Consider The Washington Post, May 30, 2007, here:

According to Fed data, homeowners' equity -- the value of their homes minus mortgage debt -- grew to nearly $11 trillion at the end of [2006], or double the value at the end of 1998. ...

[T]he housing boom ... fueled spending directly by turning homes into cash machines. As prices rose and interest rates fell, Americans extracted trillions of dollars in extra cash through home sales, mortgage refinancings and home equity loans.

Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005 -- more than triple the rate in the previous decade -- according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. That's the "free cash," as the authors call it, left over after closing costs and other fees deducted from equity withdrawals.

Most of the money extracted during those boom years, nearly two-thirds, came from home sales, the authors found. Another 21 percent came from home equity lines of credit, while 15 percent came from mortgage refinancings.

About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.

Translated into dollars, a trillion dollars a year for five years over 2001 through 2005 is $5 trillion nominal in extra spending money, nearly a quarter of which, $1.15 trillion, was simply blown. Some people literally ate it, drank it, and danced the night away with it. If the study is correct, the extra spending money in the 1990s from our homes came to an additional $3 trillion. I can only guess about the 1980s, but even if only $1.5 trillion, this means Americans have easily extracted almost $10 trillion from home equity over the course of 30 years.

A review of the latest Federal Reserve data here shows that net worth of owners' equity in household real estate has fallen $7 trillion just since 2005. Falling from $13.2 trillion in 2005 to $6.2 trillion as of the end of Q2 2011, this is a decline of 53 percent. This metric pretty perfectly mirrors the bubble in housing which began in earnest in 1997, coincident with the change in the tax law permitting capital gains tax free every two years up to $500K with conditions. Except that the measure hasn't yet quite reached what it was in 1997. We're still about a trillion dollars shy of that mark in nominal terms.

Total real estate valuation over the same period has fallen less, from $22.1 trillion to $16.2 trillion, or 27 percent. But equity as a percentage of value has fallen more than valuation, 35 percent.

A longer term chart of the latter phenomenon found here shows that since 1980 home equity as a percentage of value has been under constant pressure, most probably from what is called portfolio shifting, debt expenditures from car loans and credit cards, college tuition, stock investing and second, third and fourth home investing piling into HELOCs, 2nds, refis and the like. The interest on all that stuff before 1986 was tax deductible in its own right, but after Reagan's famous tax reform, deductibility was restricted to interest from home equity loans and lines of credit only. That arrangement was formalized at levels up to $100K in 1987, precisely after which as shown in the chart the decline in owners' equity commenced with new vigor. So people who could financed everything they could through HELOCs, cash out refinancing and the like in order to continue to be able to deduct the interest expense on their tax returns.

As a result of this and the collapse in the real estate bubble, today we are faced with the dramatic all time low of 38 percent in owners' equity as a percentage of value, a decline of nearly 47 percent since 1982.

Just think how much better off we would be today if we hadn't tapped all that equity over those three decades, especially in inflation-adjusted terms. We truly have been the squanderers.

So present household real estate valuation at $16.2 trillion represents a level last seen in 2003 in nominal terms. But adjusted for inflation, that's $13.7 trillion, which was actually the total nominal value of household real estate last seen in 2001. To get to the pre-bubble valuations of 1996, today's number would have to fall yet further to $11.8 trillion.

In other words, to erase completely the effects of the bubble on valuations, adjusted for inflation, would imply that total real estate valuation would need to fall another 27 percent from here, or $4.4 trillion.

The American dream nightmare.

'Gridlock is the Most Constructive and Moral Form of Government'

Except "with entitlement programs on autopilot."

So says David Harsanyi here. The only truly sane thing I read today, or most days.

You've got to like a guy who starts off with an HL Mencken line like "every decent man is ashamed of his government." I'm feeling especially decent today.

What we really need to fear most is one party, it doesn't matter which one, in complete control of the government. And that we don't exactly have that today means I can be grateful with a straightface tomorrow, Thanksgiving 2011.

Failed Banks From Last Friday, 11/18/11

#89 was Polk County Bank, Johnston, Iowa, costing the FDIC $12 million.

#90 was Central Progressive Bank, Lacombe, Louisiana, costing the FDIC $58.1 million.

Second Estimate of Q3 2011 GDP Falls to 2.0 Percent from 2.5 Percent

Per the BEA today, here:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.3 percent.

The GDP estimates released today are based on more complete source data than were available for the "advance" estimate issued last month.  In the advance estimate, the increase in real GDP was 2.5 percent . . ..


So .4 in the first, 1.3 in the second, and now 2.0, for an average of 1.2 so far in 2011. That's not even treading water. Obama doesn't have a clue. The guy should pack it in and just go golfing for the rest of his life.

Today's Economy is Already Being Stimulated by a Bipartisan Attack on Federal Revenue

I'm talking about the Social Security Tax Holiday for 2011, which continues to add $112 billion this year to workers' paychecks as we speak.

If it's doing any good for the economy, remember it's going away in about six weeks and will all be reversed next year. It's called pulling prosperity forward. Which leaves a void in . . . the future, to be filled by . . . what, exactly?

Except Obama doesn't want there to be a question about the immediate future, which is why his famous, urgently-needed "today" jobs bill from last August but which still isn't going anywhere includes an extension and expansion of the holiday, and will cost the Social Security program $240 billion next year on top of this year's cost.

Obviously necessary, if you're running for reelection.

But it's just more gimmickry from our professional grifter class. Refresh your memory about it here, but think about it this way: These same crackpots keep wanting to take away your tax deductions PERMANENTLY while at the same time offering you TEMPORARY crumbs from our masters' table.

$112 billion this year, $240 billion next year, but in the disguise of tax reform they want to saddle you forever with paying higher income taxes to the tune of $88 billion each and every year because you can no longer deduct your mortgage interest. Tax deductions have a permanency tax rates do not. The lower overall rates bequeathed to us by the 1986 tax reform which today's Republicans so proudly do hail were gone like a fart in the windstorm by 1992 when Bill Clinton took over.

A bowl of pottage for your birthright.

'The US Must Force Open Foreign Markets Or Protect Its Own'

So says Peter Morici of The University of Maryland here:

[G]lobal competition, communications technologies and essentially unchecked immigration have hammered down wages and winnowed opportunities in once decent paying occupations—for example, ordinary line work in manufacturing, middle management and sales, and writing for a daily newspaper.

Sending more Americans to college is not the answer—degrees in the liberal arts are simply not as valuable today as 25 years ago, and many students are not suited to engineering and other technical disciplines. The workforce is well overstocked with business school graduates. The problem is not too few educated Americans but too few good jobs for most of them to do. ...

Heavier taxes on the wealthy to redistribute income won’t help. ...

[T]he United States can’t always dictate the terms of competition and continue to stand idle without more effective responses than bailouts for General Motors, subsidies for Solyndra and Social Security tax holidays, all paid by borrowing from China.

The United States must force open foreign markets or protect its own, or it will perish.

Spoken like a realist about human nature. 

We need more of that.

'Utopianism Attracts Goofballs as Light Attracts Moths': Occupy Wall Street's Anarchist Origins

Matthew Continetti here makes a persuasive case for the reemergence of the anarchist movement in Occupy Wall Street for The Weekly Standard:

When he looks at the world, the utopian is repelled by two things in particular. One is private property. “The civilized order,” Fourier wrote, “is incapable of making a just distribution except in the case of capital,” where your return on investment is a function of what you put in. Other than that, the market system is unjust. ...

If Charles Fourier emerged from a wormhole at the Occupy Wall Street D.C. tent city in McPherson Square in Washington, he’d feel right at home. The very term “occupy” or “occupation” is an attack on private property. So are the theft and vandalism widely reported at Occupy Wall Street locations. The smells, the assaults, the rejection of the conventional in favor of the subversive, and the embrace of pantheistic spirituality flow logically from the utopian rejection of middle-class norms. The things that Mayor Bloomberg found objectionable about the encampment in Zuccotti Park​—​that it “was coming to pose a health and fire safety hazard to the protesters and to the surrounding community”​—​are not accidental. They are baked into the utopian cake.

Michael Barone Joins The Liberal Chorus Attacking Progressive Taxation

You heard me right, the liberal chorus attacking the progressive tax code, in this case the progressive tax code's deductibility provisions which are . . . well, progressive.

Barone and other liberal Republicans like Pat Toomey, Gang of Sixers and Gang of Twelvers do it on the grounds that the deductions for mortgage interest and state and local taxes help the $100K+ set more.

Nevermind "the rich" already pay the vast majority of the taxes. They want to make them pay even more because . . . well, they don't really need the money, and government does! And maybe liberals will like us more.

Talk about ceding the moral high ground to the left. Who would want to go to all the trouble of becoming rich just so that they can have the privilege of paying even more of the taxes?

Nevermind that the poor own one of the biggest "tax loss expenditures" in the form of transfer payments for the Earned Income Credit and the Child Tax Credit: $109 billion. Compare that to the mortgage interest deduction's tax loss cost to the Treasury : $88 billion.

Here is Barone:

[T]he big money you can get from eliminating tax preferences comes from three provisions that are widely popular.

The three are the charitable deduction, the home mortgage interest deduction, and the state and local tax deduction. ...


[T]he vast bulk of the "tax expenditures" -- the money the government doesn't receive because taxpayers deduct mortgage interest payments from total income -- goes to high earners . . ..


Well why shouldn't they under a progressive tax system? 


There's really no difference between Michael Barone and Republican advocates for "tax reform" and Democrats like Peter Orszag, for example, who makes an argument for similarly flattening deductibility for the rich by limiting their traditional deductions enjoyed by everyone across the income spectrum. What this amounts to is an admission that the progressive deductibility which we have now does NOT go hand in hand with the tax code's progressive taxation.

The current arrangement may not seem fair to flat taxers, but it is internally consistent. If you pay progressively more in taxes, your deductions should justly be progressively worth more to you. And so they are. If you pay progressively less in taxes, your deductions should justly be worth less to you, progressively. And so they are.

Proposals to limit deductions for one class of taxpayers amount to destroying the internal coherence of the progressive tax code itself. It is nothing less than an attack on the idea of progressivity and its fair unfairness, all in the name of extracting even more from the pockets of successful people.

Sheer nincompoopery. 

Herman Cain's Plan For Your Money is 999, Obama's is Mine, Mine, Mine!

So says Kyle Wingfield here in The Atlanta Journal Constitution.

Glenn Greenwald Gets Hysterical About Law Enforcement Against Occupy Wall Street

Here.

Robocops. Sadists. You get the picture.

Never once does it penetrate that true believer's mind, the qualitative difference between Occupy Wall Street and the Tea Party. Everywhere the former goes there is crime; everywhere the latter went . . . nothing but law and order, followed by an historic electoral change across America and in the US House of Representatives.

Greenwald can keep repeating that OWS is about peaceful protest all he wants, but it isn't. And we're all tired of it and support the police in preserving the rights of all citizens to unimpeded access to all public places without fear of harassment and intimidation.

The denizens of UC Davis chant "Our university!" as if to say it's their turf and the cops are trespassing, but it isn't, and they aren't. It belongs to everyone, students or not. But especially to the taxpayers.

Winter's just a few weeks away, as is the 100th anniversary of Amundsen's spectacular south polar expedition.

The world could use more clear-headed achievers like Amundsen, but I doubt they'll come out of Occupy Wall Street, or UC Davis . . . or Salon.

An Irritable Mental Gesture of Liberalism Visualized:Only Resembling The Idea of Showing Respect

"In the United States at this time Liberalism is not only the dominant but even the sole intellectual tradition. For it is the plain fact that nowadays there are no conservative or reactionary ideas in general circulation. This does not mean, of course, that there is no impulse to conservatism or to reaction. Such impulses are certainly very strong, perhaps even stronger than most of us know. But the conservative impulse and the reactionary impulse do not, with some isolated and some ecclesiastical exceptions, express themselves in ideas but only in action or in irritable mental gestures which seek to resemble ideas." -- Lionel Trilling, 1950

Where The Money Is: America's Asset Allocation as of 12/31/10

Cash: $8.8 trillion (14.4 percent).

Stocks: $17.1 trillion (27.9 percent).

Bonds: $35.3 trillion (57.7 percent).

Tax Reform Should Come Off The Table: Spending Cuts Only Are Acceptable

To Sen. Reid and Pres. Obama, tax reform means tax increases.

So fuhgeddabowdit. 

Automatic cuts to defense and social spending it should be.

Ohio Repudiates ObamaCare Nov. 8th, Nov. 15th Obama Punishes Ohio by Stopping Gas Leases

'change we much'

As pointed out by an astute caller to Larry Kudlow's radio program today on WABC.

The Nov. 15 announcement by the USDA here means tens of thousands of jobs lost to Ohio and the loss of cheap natural gas for the country, according to this analysis by The Heritage Foundation.

On Nov. 8 Ohioans resoundingly rejected ObamaCare's mandate that Americans buy health insurance by a 2 to 1 margin, stating “In Ohio, no law or rule shall compel, directly or indirectly, any person, employer, or health care provider to participate in a health care system.”

'The Means of Government Oppression'

From Lawrence Hunter, here:

standing armies in peacetime;

the regulatory instruments of torture [politicians, bureaucrats and judges] use to command and control individuals’ behavior;

access to individuals’ pocketbooks and bank accounts by . . . the power of direct taxation.

Total Cash in Circulation at the End of 2010 was North of $0.935 Trillion

Per the Fed, here.

$1 billion

$1 trillion

h/t pagetutor

Talk About a Banking Farce: The US Federal Reserve System Itself is Currently Leveraged 53:1

As in $2.782 trillion in liabilities divided by $.052 trillion in capital: 

Have a nice weekend!

(source)

The Farce of Letting Banks Simply Refigure Themselves to be Far Less Risky

From Jeffrey Snider's latest in a series of penetrating meditations on contemporary banking:

Basel II gives banks latitude in "modeling" the potential riskiness of each specific asset since banks long ago successfully argued that it was inappropriate to assign broad weightings and definitions to idiosyncratic assets.

So instead of selling stock into a bad market or engaging in asset fire-sales (concrete expressions of a "bad" bank), banks will simply refigure themselves to be far less risky, thereby increasing their capital ratios, "fixing" the problem without much fuss. Reality no longer has a seat at the banking table since it is a demonstrable fact that banks are holding far riskier assets than they estimated only a few months ago (just ask MF Global), especially since default risk is not the only concern.

To what purpose do capital ratios serve if they are to be so easily discarded by the farce of one-way "risk-weighted asset optimization"?

Internal Migration Hits Record Low, Down Over 75 Percent From 1985 Peak

Why don't you stretch out on the sofa so you can rest your government handicaps on a pillow?

CNBC.com's Diana Olick has the story here:

Just over 11 million Americans moved between March of 2010 and March of 2011, according to a new report from the U.S. Census. ...

The housing crash has left Americans stagnant, but even worse, it has left homeowners trapped. The decline in the mobility rate of those who already own homes was even more dramatic. Just 4.7 percent of homeowners moved in the past year, down from 5.2 percent the previous year, according to the Census. That translates into 9.7 million homeowners, again a record low.

The immobility of current homeowners is a huge drag on the economy.

It's not just malaise. It's sclerosis. 

The Big Fat Idiot Establishment Republicans Like Rush Limbaugh Won't Replace Your Tax Deductions

When deductibility of interest expenses in a wide variety of vehicles was eliminated for income tax purposes in the tax reform act of 1986 under Ronald Reagan, those deductions ended up being replaced by deductibility of interest if incurred through HELOCs (home equity lines of credit) shortly thereafter.

Deductibility of interest expense on consumer loans, car loans and credit cards went the way of the dodo, only to be shifted to HELOCs. It was a fateful decision which made overleveraging of housing as routine as taking out the trash. But that's an entirely different kettle of fish.

In 1987 Congress quickly acted to expand deductibility of HELOC interest expense because the 1986 act cut people off at the knees and they didn't like it one bit. It was a consumer society accustomed to deducting credit card interest, and it didn't like the new rules at all. The 1986 act quickly proved to be a futile attempt to curb consumer spending and encourage savings. The political fallout was so great that the interest expense from HELOC borrowing was dramatically expanded to fill the gap the next year.

I quote from The New York Times, here, February 2, 1988:

BORROWINGS AGAINST EQUITY: In addition, homeowners will be allowed to claim mortgage deductions for up to $100,000 in borrowings against the equity in their house - no matter what the loan is used for. 

A veritable chorus of voices today on the right and left, including Rush Limbaugh who is simply phoning it in these days, is appealing to this period to urge the country to get behind a Republican Super Committee plan to raise revenues by closing loopholes like the mortgage interest deduction for wealthier taxpayers, "just like we did in 1986."

Oh yeah? What's in it for us?

Once the camel gets its nose under this tent in the name of making the rich pay more, you can bet the precedent will be used down the road to deprive the middle class also of the deductibility of interest on a home mortgage.

And you'll get nothing to replace it except an empty promise to lower your overall tax rate, which the next Congress will rescind in a heartbeat. Few of you remember that the top tax bracket from 1988 to 1992 was 28 percent. Bill Clinton and the Democrats made short work of that.

Real conservatism is about using federal tax policy to promote property ownership, ordered existence and family formation. The current crop of establishment Republicans, including Rush Limbaugh, is a bunch of phonies. Rush can't even remember 1986:

The Republicans are offering a plan which would take away itemized deductions for anybody making over $174,400 a year. In exchange for that they would lower the top tax rate from the current 35 down to 28%. We've done this before. We did this in 1986. This was part of Reagan tax reform except the top marginal rate then was 50. Wait a minute. No. All itemized deductions for people who make the... Stick with me on this. All itemized deductions for everybody who makes $174,000 or more -- home mortgage interest, charities, all of that, gone in exchange for a lowered rate from 38, 28%. Now, we've done this before.  Back in 1986, top rate was 50, took it down to 28, there was a bubble of 31 percent for few people, and we got rid of some deductions.

There will be no future America without the traditional family.

Too bad Rush Limbaugh has never had one.