The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

A few weeks ago, I asked readers for suggestions as to what they would bring to the state Attorneys General offices. This led to a very interesting discussion with Michael White, formerly of CountryWide Subprime Unit, who now blogs at housingstory.net.

I worked one of the more fascinating observations he made into my presentation to the AGs last week:

“Eliminate the verification of income for a mortgage borrower, and you eliminate your ability to predict the likelihood of repayment or default.”

-Michael White, CountryWide Subprime Unit

Consider what that statement implies: The banking industry’s decision to voluntarily abstain from income verification amounts to what Mike called “Origination Fraud.” More than just an example of groupthink, it was the willful decision to make a substantial number of loans that the banks knew would go into default in much higher than usual numbers:

“You can’t issue 1 or 2 trillion dollars of mortgages and knowingly encourage fraudulent claims of income. The basic fact check which every lender should have used is the 4506t — the document which is presented to the IRS for direct verification of what the borrower reported as income. The fraud depended upon the lender knowingly failing to check W2s pay stubs and IRS records.”

Here is the key to understand credit and banking: It is the job of the banker is to decide who is creditworthy, and make loans accordingly. Throughout history, unqualified people have ALWAYS tried to get loans. But the bank had a fiduciary duty to their suppliers of capital, to the people that lent them money they lent out (depositors, gov’t, investors, etc.).

At the same time, the compensation for the employees, mortgage brokers, and senior management of these lenders was based on their total production. They managed to extract enormous bonuses based on making loans they knew (or should have known) were going to default.

This is where the term collective embezzlement comes from . .  .

Very cool graphic from Fast Company via Daily Infographic:

>

click for larger graphic

Ahhh, what i wouldn’t give for X-Ray vision!

Markets look to be opening weaker today:

click for updated futures

Be back shortly . . .

Bank Failures reported weekly by FDIC since mid-2008.

~~~

Cumulative Bank Failures reported weekly by FDIC for 2008, 2009, 2010 and 2011.

Interesting:

Financial Thought Leader James Grant explains why he believes the Federal Reserve’s easy money policies will wreak havoc on the economy and markets. The dangers of inflation creep and how to protect yourself against it are the focus of this week’s Consuelo Mack WealthTrack.

Trulia’s Home Offer Report is a a remarkable map — it shows the result of negotiation between homebuyers and sellers. The reveal shows how strong or weak the real-estate market is in every zip code of the country.

The three key metrics:

1) How long a house typically goes before the owner cuts the price;
2) The size of that price reduction;
3) The likelihood that there will be another reduction in price

Fascinating stuff that was not even possible just a few years ago:

>

click for larger interactive map

Hat tip Fast Code Design

A national survey by the Kaiser Family Foundation found that with technology allowing nearly 24-hour media access as children and teens go about their daily lives, the amount of time young people spend with entertainment media has risen dramatically, especially among minority youth. Today, 8-18 year-olds devote an average of 7 hours and 38 minutes (7:38) to using entertainment media across a typical day (more than 53 hours a week). And because they spend so much of that time ‘media multitasking’ (using more than one medium at a time), they actually manage to pack a total of 10 hours and 45 minutes (10:45) worth of media content into those 7½ hours.

Generation M2: Media in the Lives of 8- to 18-Year-Olds is the third in a series of large-scale, nationally representative surveys by the Foundation about young people’s media use. It includes data from all three waves of the study (1999, 2004, and 2009), and is among the largest and most comprehensive publicly available sources of information about media use among American youth.

Generation M2

Absolutely amazing (see TSO Photography) :

The Mountain from Terje Sorgjerd on Vimeo.

Hat tip boingboing

Bruce Bartlett points out that Americans want a balanced budget, so long as it does not require cutting entitlement programs or raising taxes.

If that sounds, well absurd, it reflects the lack of willingness of voters/taxpayers to engage in any shared sacrifice. This does not bode well for the future of fiscal prudence.

Consider these recent polling results:

An April 6 NBC News/Wall Street Journal poll found that 61% of people favor a balanced budget amendment to the Constitution, down from 71% in 1995. Support falls to 27% when people are told that this would require a 20% cut in entitlement programs.

An April 4 YouGov poll found that an overwhelming majority of people favor large budget cuts. However, majorities also favor increased spending for education and medical research, and a strong plurality favor increased spending on clean energy technology.

An April 1 CNN/Opinion Research poll examined peoples’ knowledge of how the federal government spends its money. It finds that most really have no idea what percentage of the budget goes to various programs.

A March 31 Pew poll asked people which among these programs the federal government spent the most on: Medicare, education, scientific research, or interest on the debt. Only 29% of people correctly said Medicare, 7% said education, 7% said scientific research, and 36% said interest.

On March 9, the Harris poll found strong opposition to cutting Social Security or Medicare benefits to deal with the budgetary problems of those programs. People are also opposed to raising taxes to fund them.

On March 2, a NBC News/Wall Street Journal poll found strong opposition to cutting spending for Social Security, Medicare, Medicaid, K-12 education, heating assistance for the poor, college student loans, Head Start, and unemployment insurance. There was majority support only for cutting nuclear power subsidies, aid to state and local governments, the EPA budget, and spending on transportation and infrastructure projects. The poll also found that 81% of people would support a surtax on millionaires to help reduce the budget deficit, and 68% would support eliminating the Bush tax cuts for those earning more than $250,000.

On March 1, the Tarrance Group issued a poll which found that 63% of voters incorrectly believe that the federal government spends more on national defense and foreign aid than it does on Medicare and Social Security. Also, three-fifths of voters believe that the budget can be fixed just by eliminating waste, fraud and abuse.

Bruce has posted a full run of polls, and their surprising conclusions, at The Fiscal Times.
>

Source:
Recent Polls on Taxes and Spending
BRUCE BARTLETT,
Fiscal Times, April 15, 2011
http://www.thefiscaltimes.com/Blogs/Bartletts-Notations/2011/04/15/Bartletts-Notations-Recent-Polls-on-Taxes-and-Spending.aspx