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Maybe my brain was sucked out of my skull while watching the movie remake of "Miami Vice" on TV last night, but this morning I woke up completely unable to comprehend the following financial press factoid I saw repeated in the morning paper: "Home prices suffer their the first national price decline since The Great Depression."
Maybe I'm just friggin' stupid, but wasn't there something else also going on when housing prices were falling nationally during The Great Depression–such as, you know, an economic depression? Doesn't this report beg the question, if housing prices are declining now when the U.S. economy is supposedly "booming," according to this report and that report, what the heck is going to happen to housing prices if the U.S. economy actually goes into recession? Am I missing something?
Signed,
Confused in Illinois
Dear Confused,
No, you're not stupid, but you need to be when watching TV news, so we recommend your favorite Scotch or whatever it takes to dumb yourself down enough to understand the way the economy is reported there.
Before you do, take a look at the chart below. You will see that you are correct that something was going on the last time home prices fell across the country: the economy contracted 27%.
Now the economy is reportedly growing, albeit at a slow pace, a mere 0.6% in Q1, with Q2 2007 supposedly coming in better. We'll wait for the inevitable downward revision before passing judgement. We figure the GDP numbers are more of the same crap as the CPI and employment numbers. You have to be stupid to believe them. Pass the Scotch.
While housing sales and prices fall, and consumer spending decreases, there is one number that is growing rapidly and consistently.
Second Quarter 2007 Marks Fifth Consecutive Quarterly Growth in Consumer Bankruptcies
BURLINGAME, Calif., July 3 /PRNewswire/ -- The National Bankruptcy Research Center (NBKRC), a subsidiary of Lundquist Consulting, Inc., industry leader in bankruptcy statistics and analytics, releases findings that the second quarter of 2007 marked the fifth consecutive increase in bankruptcy filings since the first quarter of 2006. The second quarter 2007 filings numbered 200,732, an 11.6 percent growth over the first quarter of 2007 and a 40.6 percent growth over the second quarter of 2006.
On an annualized basis, 1 in every 136 households filed bankruptcy in the second quarter of 2007, as opposed to 1 in every 190 households in the second quarter of 2006.
BURLINGAME, Calif., July 3 /PRNewswire/ -- The National Bankruptcy Research Center (NBKRC), a subsidiary of Lundquist Consulting, Inc., industry leader in bankruptcy statistics and analytics, releases findings that the second quarter of 2007 marked the fifth consecutive increase in bankruptcy filings since the first quarter of 2006. The second quarter 2007 filings numbered 200,732, an 11.6 percent growth over the first quarter of 2007 and a 40.6 percent growth over the second quarter of 2006.
On an annualized basis, 1 in every 136 households filed bankruptcy in the second quarter of 2007, as opposed to 1 in every 190 households in the second quarter of 2006.
This is under the new and improved–for lenders–bankruptcy law that took effect October 17, 2005. It's far more restrictive than the old law, so in theory we should see fewer bankruptcies. That was the whole point of the legislation, right Congress? Or was the point to score points with campaign contributors? Just a hunch.
ConsumerUnion.org warned in April of that year:
Bankruptcy bill passed by House will erect harsh new barriers and reward abusive lenders
ConsumersUnion (April 14, 2005)
Washington, D.C. — The U.S. House voted 302-126 today for a major bankrutpcy bill that favors creditors at the expense of Americans who have suffered genuine financial misfortune. The measure passed the Senate last month and now goes to President Bush, who is likely to sign it into law.
The bankruptcy bill (S. 256) would place numerous additional restrictions on Americans who attempt to declare either chapter 7 or chapter 13 bankruptcy (see attached for more information.) Last month, the Senate rejected several amendments to the bill that would have curbed a number of lending abuses and assisted active duty military personnel and veterans in bankruptcy, as well as those who are forced into bankruptcy because of high medical bills. The bill does not contain a single restriction on reckless or predatory lending by creditors.
“This bill simply doesn’t balance responsibility between families in debt trouble and the creditors whose practices have contributed to the rise in bankruptcies,” said Travis Plunkett, Legislative Director of the Consumer Federation of America. “While credit card companies urge Congress to erect new bankruptcy barriers for many families, their profits are soaring,” he said.
A large body of evidence links the rise in consumer bankruptcies in the last twenty years directly to an increase in consumer debt. Revolving debt, most of which is credit card debt, increased nearly fifteen-fold from January 1980 through 2004, from $54 billion to $791 billion. The higher the level of consumer debt, the more likely a family is to declare bankruptcy when misfortune strikes.
Much of this lending boom was fueled by the extension of credit to vulnerable consumers, including young people, lower income Americans and minorities, and the elderly. Some lenders, such as those offering “predatory” mortgage loans, targeted these borrowers with often deceptive offers that had abusive terms.
“By making it harder for consumers to wipe away abusive loans in bankruptcy, this bill rewards the bottom feeders in the lending industry,” said Ed Mierzwinski, Consumer Programs Director of the U.S. Public Interest Research Group. “These are the firms bombarding college students with high interest credit card offers, or peddling predatory mortgage loans to older Americans, or marketing payday loans at triple digit interest rates to cash strapped members of the military.”
Credit card companies have reaped substantial profits by targeting riskier borrowers, and are typically the most profitable part of any bank’s operations. According to the investment banking firm R.K. Hammer and Associates, credit card issuers posted the highest profits in 2004 since 1988.
“Creditor practices are literally driving consumers into default,” said John Rao, staff attorney of the National Consumer Law Center. “I’ve seen case after case of credit card companies loading consumers up with additional charges beyond what was originally owed,” he said. “By the time these people land in bankruptcy, they owe more in interest and fees than they do on the original loan.” (a lending practice that used to be called "packing")
“This bankruptcy legislation punishes homeowners and actually helps irresponsible creditors collect more of the loans they made to people obviously unable to pay them back,” said Martin Eakes, CEO of the Center for Responsible Lending. “It also is likely to push more homeowners into the arms of predatory lenders,” he said. “Reckless credit card lenders already cover their losses to bankruptcy by charging extremely high rates.”
“It is particularly ironic that Congress would offer a gift to the credit card industry at a time when it is under fire for punitive business practices, like doubling your interest rate if you are a day late on a payment,” said Linda Sherry of Consumer Action.
“There is nothing ‘balanced’ about this bill,” said Chanelle Hardy of Consumer Union. “It is unfortunate that creditors have used their political might to push through legislation that will limit access to a fresh start in bankruptcy for many who lose a job, get hit with a major illness or suffer other serious financial misfortunes.”
Those harsh bankruptcy barriers are not holding back the one out of 136 households that filed last quarter in our "booming" economy. The irony is that when they head to the polls next year, they'll probably vote for another President who could not care less if every single American winds up broke. ConsumersUnion (April 14, 2005)
Washington, D.C. — The U.S. House voted 302-126 today for a major bankrutpcy bill that favors creditors at the expense of Americans who have suffered genuine financial misfortune. The measure passed the Senate last month and now goes to President Bush, who is likely to sign it into law.
The bankruptcy bill (S. 256) would place numerous additional restrictions on Americans who attempt to declare either chapter 7 or chapter 13 bankruptcy (see attached for more information.) Last month, the Senate rejected several amendments to the bill that would have curbed a number of lending abuses and assisted active duty military personnel and veterans in bankruptcy, as well as those who are forced into bankruptcy because of high medical bills. The bill does not contain a single restriction on reckless or predatory lending by creditors.
“This bill simply doesn’t balance responsibility between families in debt trouble and the creditors whose practices have contributed to the rise in bankruptcies,” said Travis Plunkett, Legislative Director of the Consumer Federation of America. “While credit card companies urge Congress to erect new bankruptcy barriers for many families, their profits are soaring,” he said.
A large body of evidence links the rise in consumer bankruptcies in the last twenty years directly to an increase in consumer debt. Revolving debt, most of which is credit card debt, increased nearly fifteen-fold from January 1980 through 2004, from $54 billion to $791 billion. The higher the level of consumer debt, the more likely a family is to declare bankruptcy when misfortune strikes.
Much of this lending boom was fueled by the extension of credit to vulnerable consumers, including young people, lower income Americans and minorities, and the elderly. Some lenders, such as those offering “predatory” mortgage loans, targeted these borrowers with often deceptive offers that had abusive terms.
“By making it harder for consumers to wipe away abusive loans in bankruptcy, this bill rewards the bottom feeders in the lending industry,” said Ed Mierzwinski, Consumer Programs Director of the U.S. Public Interest Research Group. “These are the firms bombarding college students with high interest credit card offers, or peddling predatory mortgage loans to older Americans, or marketing payday loans at triple digit interest rates to cash strapped members of the military.”
Credit card companies have reaped substantial profits by targeting riskier borrowers, and are typically the most profitable part of any bank’s operations. According to the investment banking firm R.K. Hammer and Associates, credit card issuers posted the highest profits in 2004 since 1988.
“Creditor practices are literally driving consumers into default,” said John Rao, staff attorney of the National Consumer Law Center. “I’ve seen case after case of credit card companies loading consumers up with additional charges beyond what was originally owed,” he said. “By the time these people land in bankruptcy, they owe more in interest and fees than they do on the original loan.” (a lending practice that used to be called "packing")
“This bankruptcy legislation punishes homeowners and actually helps irresponsible creditors collect more of the loans they made to people obviously unable to pay them back,” said Martin Eakes, CEO of the Center for Responsible Lending. “It also is likely to push more homeowners into the arms of predatory lenders,” he said. “Reckless credit card lenders already cover their losses to bankruptcy by charging extremely high rates.”
“It is particularly ironic that Congress would offer a gift to the credit card industry at a time when it is under fire for punitive business practices, like doubling your interest rate if you are a day late on a payment,” said Linda Sherry of Consumer Action.
“There is nothing ‘balanced’ about this bill,” said Chanelle Hardy of Consumer Union. “It is unfortunate that creditors have used their political might to push through legislation that will limit access to a fresh start in bankruptcy for many who lose a job, get hit with a major illness or suffer other serious financial misfortunes.”
Oh, I forgot. We're already there.
Is the United States Bankrupt? (pdf)
Laurence J. Kotlikoff (Federal Reserve Bank of St. Louis Review, July/August 2006)
Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial implosion is just around the corner. This paper explores these views from both partial and general equilibrium perspectives. It concludes that countries can go broke, that the United States is going broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical reform of U.S. fiscal institutions is essential to secure the nation’s economic future.
So, to answer your question, no you're not stupid. If households are going broke during the boom, you are right to wonder what households and the country are going to do after the party is over.Laurence J. Kotlikoff (Federal Reserve Bank of St. Louis Review, July/August 2006)
Is the United States bankrupt? Many would scoff at this notion. Others would argue that financial implosion is just around the corner. This paper explores these views from both partial and general equilibrium perspectives. It concludes that countries can go broke, that the United States is going broke, that remaining open to foreign investment can help stave off bankruptcy, but that radical reform of U.S. fiscal institutions is essential to secure the nation’s economic future.
Signed,
Fred
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