Insolvency Epidemic

The Sunday NYT observes the inverse correlation between hot real estate markets and bankruptcy filings.

"A NEW bankruptcy law takes effect this month in the midst of an insolvency epidemic: personal bankruptcies have been rising steadily since 2000, and will most likely reach an all-time high this year. The law, which will make it harder for many people to clear away credit card debt, takes effect on Oct. 17 and has touched off a rush to the courts. In the bankruptcy court for the northern district of Texas, for example, filings for September were 46 percent greater than in September 2004.

Yet the rise in bankruptcies since 2000 has been far from uniform around the country. While there have been large increases in much of the South and Midwest, sections of the East and West Coast have had declines in filings over the last five years. To some extent, the increases in the South and Midwest reflect job losses from manufacturing and agriculture.

Economists say that as housing markets begin to cool, bankruptcies are likely to increase. "At some point you will get a combination of falling values combined with rising payments on adjustable mortgages, which will result in more bankruptcy," said Mark Zandi of the research firm Economy.com. "For these areas of the country that are enjoying such wonderful conditions right now, it will become much less wonderful a few years down the road."

It certainly makes sense that a strong real estate market — along with dropping interest rates — allows equity extraction via cash out refinancings. That may be keeping even more people from filing for bankruptcy.

Of course, its a double edged-sword:  as rates tick up, and as prices begin to cool, this source of easy money goes away.

Now here’s something curious: The Map from the NYT shows the various increases in bankruptcy rates on a county by county basis. The results were not exactly what I would have suspected, given how various counties voted in the last Presidential election:

Changes in Bankruptcy Rates by County, 2000 to 2005
click for larger map

Nyt_bankrupt_map

graphic courtesy of the NYT

Is it just me, or are is the map above surprisingly similar to those red/blue maps we saw so much of right after the election? 

The really curious thing is that the Gore voters from 2000 are filing for less bankruptcies since 2000, while the Bush voters are filing for more. (Does that m,ake any sense to you?)

Here’s the 2000 county Presidential voting map:   

2000_vote_county_by_county_1

Looks surprisingly like the first one; I never would have guessed that.

See also the population density maps of the same (here and here) for more of the same.

<spacer>


Source:

Where Home Prices Rise Steeply, Bankruptcies Fall
FORD FESSENDEN
NYT, October 9, 2005
http://www.nytimes.com/2005/10/09/weekinreview/09fess.html   

Category: Economy, Real Estate

Weekend Linkfest

Category: Economy, Weblogs

Manchurian Candidate?

Category: Politics

Three Questions

Category: Investing, Psychology

Get A Clue WSJ Op/Ed

Category: Financial Press

On Greenspan’s Successor

Category: Economy, Markets, Politics

TiVo to be bought by . . .

Category: Film, Finance, Television

Keeping Tabs on the Market

Category: Investing, Markets, Technical Analysis

For a Nickel I Will

Category: Finance

Economists React to NFP

October 7, 2005 10:58 a.m.

The WSJ notes that "the U.S. economy lost jobs in September for the first time in over two years as economic convulsions from Hurricane Katrina damped the job market. The Labor Department said Friday that nonfarm payrolls declined by 35,000 jobs last month. That marked the first decline since May 2003, when the labor market was struggling to get back on its feet after being set back by the 2001 recession. The drop was the largest since a decline of 54,000 jobs in April 2003.

Meanwhile, the unemployment rate rose to 5.1%. Does the September employment report present an accurate picture of the labor market after Katrina? What does it mean for the economy going forward? Economists weigh in."

* * *

These were the two most interesting comments, in my opinion:

We doubt that this report has captured all the job losses caused by this storm and none of those that may have been triggered by Hurricane Rita. (For instance, the city of New Orleans last week announced that its loss of revenues was forcing it to cut workers this month.) Thus, next month’s report could reveal additional storm-related job losses. When re-hiring resumes, monthly job gains will tend to generate above-trend growth in employment. It is going to be especially difficult for at least the next two to three months to gauge the underlying national trends in the job market.
(emphasis added)

– David Resler and Gerald Zukowski, Nomura Securities International

We can’t ignore the pain in the Gulf Coast, but we shouldn’t ignore either that for the rest of the country the economy looks to be in good shape. The Fed is more concerned about rising inflation than weakening growth and this report should strengthen that case. With today’s report, I see no reason to expect the Fed to slow its measured pace, but they won’t see any need to go for a half-point bump either. Stripping out energy prices, almost all of the underlying inflation numbers are benign. Wall Street may not like today’s report, but Main Street should like it just fine. 
(emphasis added, absurdity in the original)

– Bill Cheney, John Hancock Financial Services

There’s more after the jump . . .

<spacer>



Source:

Economists React
October 7, 2005 10:58 a.m.
http://online.wsj.com/article/SB112869228229162786.html
<spacer>

Read More

Category: Economy