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The Economy Still in the Shitter

By Larry Johnson on October 1, 2009 at 9:17 PM in Current Affairs

If you believe all of the “green shoots” nonsense about a turn-around in the economy then you better think again. Let me share a couple of anecdotes that I have firsthand. Item 1, Florida real estate, condos to be precise.

I have a friend who is trying to buy a condo. He has over $1 million in the bank and has put in a contract on a two bedroom condo on the beach in Fort Lauderdale. Cost of the condo? $499,000. It’s a great place. Faces the Atlantic Ocean, 11th floor, a great place to spend February. He is willing to put down 30% and finance the rest. So what’s the problem?

He put in the offer the 1st of August and probably won’t hear an answer back from the bank (it is a short sale) until middle November. The real shocker came when he started to look for a mortgage.

Let me repeat–the dude has more than $1 million in the bank, has a credit score in excess of 750, an annual income of $700,000 and no significant debt. Credit risk? No way in hell. Yet he is having trouble lining up a loan. The condo market in Florida is a disaster. Unless the building is mostly inhabited by owners, you won’t get a loan. Unless you can put up at least 30% of the selling price, you won’t get a loan.

Now I understand the need to tighten up on qualifications but his is ridiculous. When someone like this runs into roadblocks and delays what do you think happens to Joe and Mona Average in Dubuque, Iowa, who can only afford to put up a 10% down payment?

And if people can’t get mortgages in a timely manner they certainly are not going to run out and buy new drapes, a new sofa or any of the other things that new home owners are prone to buy. This is not turning around anytime soon. Until that happens the number of actual homes being bought by average folks will continue to decline.

Item 2. Today’s Washington Post Business section had this nifty news: Area Unemployment Rate Fell in August. Thank you Jesus!! Praise God!! We’ve turned the corner. . . . Whoops. I then read the subtitle–”Jobs Declined, Too, as Workforce Shrank.”

WHAT THE FUCK!!!! According to the article:

The unemployment rate in the Washington region fell for the second consecutive month, according to government data released Wednesday, a decline some analysts attributed not to an improving economy but to people who have given up looking for work and have dropped out of the labor pool.

In August, the Washington area’s unemployment decreased to a not-seasonally-adjusted rate of 6.0 percent, down from 6.2 percent in July and 6.5 percent in June, according to the Bureau of Labor Statistics. While the region is gaining jobs in the federal government and in the contracting sector, it still is losing more in construction, retail and utilities. In August, the region’s labor force decreased by 46,000, to 3.03 million, according to the Center for Regional Analysis at George Mason University, mainly because of students leaving their summer jobs and returning to school. That same month, the number of employed people in the region dropped by 37,000, to 2.85 million.

“The decline in unemployment is not shown in the data as these workers being re-employed,” said Stephen S. Fuller, the center’s director.

With one-third of its economy buttressed by the growing federal government and contracting industry, the region’s level of joblessness is far below the national rate of 9.6 percent, the report said. In August, Bismarck, N.D., had the lowest nonfarm unemployment rate — 3.3 percent — of the 369 metropolitan areas the government surveys. At the same time, 129 metropolitan areas had rates of at least 10 percent, including El Centro, Calif., at 28.7 percent; Yuma, Ariz., 26.1 percent; and Detroit, 17 percent.

If you cannot get an expanding job market in the Washington, D.C. area during a period of unprecedented deficit spending then you are in trouble. Big trouble.

And more job losses are coming. Who, for example, is going to buy a Saturn in the wake of news that Saturn is closing, its workers gone and those ancillary beneficiaries of a Saturn car, aka dealers and salesmen, will also be out of work.

This thing ain’t over kids and we are in for some more tough times.

  • Eastan

    Larry

    I am inviting folks to drop down one story and talk about kids killing kids. Sorry for blasting into your post. The economy is in the thing you said. I have kids. I am worried about the fact that they might not live long enough to worry about an economy.

    Silly me. Father of Three fine kids who may inherit this wealth of problems.

    • hokma

      I was in Chicago recently on business and had one of those forever cab rides from O’Hare to downtown. I had a 59 year old African American cab driver Joe (for his safety I don’t want to use his full name which is the same as a famous person).

      He was a talker and spent the entire time complaining about the city government and how they were spending all their time and money on trying to get the Olympics while the crime rate was staggering. He cited specific situations and families that it affected and how.

      Frank is a Vietnam Vet, has worked hard his whole life, is devoted to his family, and he has been a loyal Democrat who was understandably excited about Obama’s election.

      Now he has second thoughts about voting for him again because he has turned his back on his brothers in Chicago by ignoring the crime problem and just supporting a corrupt mayor as Frank put it.

      Frank does not have a Harvard degree and doesn’t rub elbows with the elites of the world, but in his mind he cannot rationalize how his government can spend money on an Olympic bid when that money could have been spent saving lives in Chicago including his son’s life who refused to join a gang and was killed for it.

      There is a major dichotomy within the elitist world of African Americans like Obama and Oprah and the real world of African Americans like Joe.

  • jeremy

    larry, im a realtor i go to sherriff sales every month every major bank that has properties to auction aprox 300 in nw indiana they get yanked the morning of the sale common occurence across the country. every one ask why simple answer BANKS CAN NOT AFFORD THE RIGHT DOWN CUZ THERE KEEPING AT FULL VALUE ON THE BOOKS. and what do u know the sale is tomorrow and there all cancelled again.

    • devildog666

      In Ohio the properties make it to sheriff’s sale and get gobbled up by the banks at minimum bid which is 2/3 of the appraised value. They will bid up to the mortgage amount in most cases, which is usually much higher than the appraised value. No good deals there.

      How long can the banks hang on to empty properties and pay the real estate taxes on them? Lots of outgo and no income.

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  • Thomas Sears

    Just some thoughts: If Chicago lands the Olympics, will unemployment in the 2nd City go down? Are unemployed persons counted in the ‘uninsured health care crisis’? What are the unemployment numbers in the ‘white-collar’ population group? How does one fix that problem? And finally,….how can a condo of any size or glamour be worth that kind of money when nobody can buy it? I guess I missed the death of the supply-demand scenario.

  • Ladydawnelle

    I am very upset about Saturn (I rrrreally wanted to get a SKY)

    seriously

    and you are so correct about Florida
    I’m renting a NICE place (house) and paying LESS than I paid for an apartment in NC last year. WAY less considering the benefit of having a house versus an apartment/condo. The yard is huge, there’s a pool, 2 car garage, the landlord pays for the yard and the pools chemicals. I mean COME ON! THAT is how bad it is in this area. Sad thing is my brother is now out of work as is my daughter.

  • FrenchNail

    About your friend condo situation, the little non known fact about the short sale dilema is that rather than extending credit to qualified buyers the banks used the TARP money to buy other banks in worse shape than them, ie. banks with more defaulting real estate loans on their books. Some of those defaulting loans were in the process of being worked out through short sales when this frenzy of bank buyout started. The buyouts resulted in all the files being first put on back burners then restarted from scratch.

    A pending short sale process does not stop a foreclosure process. So if a short sale take 10 months rather than the “normal” 4-5 months, foreclosure happens in the meantime.

    By not controlling and monitoring the TARP funds to make sure they were used for the welfare of the People and the Nation, this administration allowed a horrible problem to go even worse.

    In Florida, right now about all the short sales in progress are at standstill or being restarted from scratch.

  • Smart-Jazz-Just Me

    I say in another 12 to 24 months we will experience another crash… hopefully not as big as the last one…

    • avwrobel

      Uh-uh. Its coming this year. The commercial real estate defaults are starting to appear. Look for the DOW to drop below 7000 by Dec 15. Sorry to be the bearer of bad news, but we’re going to have to endure the second of the double-dip. Then we’ll know if the left has any real influence on policy, or if Obambi will just keep protecting Wall Street.

  • http://Ashy1 Laura Ashman

    Larry,
    Hard times are now driving local governments to do things that may not be in the best interest of citizens. I wonder if you would write a post with your take on the paramilitary training and detention center located in or near the town of Hardin, Montana and the Crow indian reservation.
    Ashy1

  • nan

    I heard from a medical friend in Mexico today who said formerly wealthy patients are coming in and saying they have no money. They have closed their factories or businesses and have nothing left.

    Their economy was tanked last summer by the US media calling the Swine flu the Mexican flu and has never recovered.

    Very sad

  • TeakWoodKite

    El Centro, Calif., at 28.7 percent, got stuck hitchhiking there one bright sunny day. The ground baked and cracked on the freeway ramp. People meaner than scorpion.

    LD had an insightful post

    4. Long term interest rates will be under pressure due to the enormous global fiscal deficits. The IMF projects that these long term rates will rise by anywhere from 10 to 60 basis points for every 1% rise in the deficit relative to GDP

    That translates to the U.S. being the proverbial fan.

    I own three Saturns. I bought it ’cause the saleswomen karate kicked the door and it suffered zero damage. My daughter got tee-boned and walked away…

    I saw a cli[p of a Florida city trying to figure out what to do with all the vacant auto lots. The first sign of blight.

    We have lived with the industrial rust belt, now we have the financial Rustbelt. Financial Sclerosis. Blood Clot.

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  • jwrjr

    A. It sounds as though in Fla they are uninterested in selling Condos. But more likely the TARP money is being piggy-banked to insure against bad debts and is unavailable for loans … you know, what the money was supposed to be used for.
    B. The official “unemployment rate” is a manufactured number. As such, it bears little resemblance to the number of people who are actually unemployed/underemployed. Once your benefits run out or you just stop looking, by the official definition you are no longer counted as unemployed (insert vomiting sound here).

    • Jackarooty

      Yes and states such as Massachusetts pass legislation to extend state unemployment benefits in order to maintain the status quo rate of 9.1% to ensure continued federal funding. It’s a shell game.

      • Jackarooty

        I would also like to add that I have been receiving UI benefits since last December and hope to continue beyond that date. I qualified for state subsidized health insurance. I have been able to address some serious health issues with this added benefit. I am middle aged and the best available jobs for me now in MA are temporary/contract positions that do not provide health insurance. I have been paying out of pocket for several years. It is costly and has increased every year. If I don’t purchase health insurance then I will have to pay a penalty/fine/TAX! Sound familiar? Do I feel guilty? Hell no!
        Just thought I’d add my financial travails to the conversation. Everybody has at least one.

        • Prime Obot

          Root for the Democratic health care reform bill to include a public option, as Harry Reid is now saying it will. If we can pass that bill, you will have reliable, affordable health insurance for the rest of your life.

          • http://deleted BuzzisbackLatte

            Have you bought that swamp land in Florida, yet?

            Seems like that would be right up you alley, Bot.

            • Prime Obot

              If, on the other hand, you are a Republican, do everything you can to stop the Democrats from passing a bill. Because once we do, and the American people realize its implications, the GOP won’t win very many elections for years to come.

              • proud mobster

                Let’s have a 1 trillion dollar Healthcare bill financed on the backs of Seniors. But 1 Trillion is only the beginning — this bill will leave out 15 Million people and will end up costing 13 Trillion in the next 10 years. How do we cover all these people with no new doctors? Pray you don’t get sick.

                • proud mobster

                  In addition to all the other economic problems is this leftist agenda. People are terrified of higher costs for Healthcare, Cap & Trade and Taxes at a time when they can least afford to pay more. When you shop for a home you have to feel good about the future and most people are in a huge funk. It doesn’t help that Obama lies and says everything is wonderful and that he has created or saved all these jobs when people know that isn’t the case.

                  Just think it could be worse — we could be forced to paint our roofs white or something stupid like that. Oh wait they are actually talking about that. Global Warming you know. Although this is predicted to be the coldest winter in decades — never mind. They are heavily invested in Global Warming so the earth is warming doncha know.

                  What gets me is that there is no news about the ordinary Joe and the destruction of American Dream. Or the Boomers beginning to retire to find there’s nothing left in the pot for them.

                  One would think that the Dems would be kind to the people in these troubled times but NO they seem to have lost all humanity and feel that have a right to pile on and name call anyone who disagrees with them.

              • http://firefox Martha Washington Collier

                Time for you to return to the Mother ship. You are out of sync. The majority of the American people don’t want the proposed plan. We, including Republicans, want insurance reform NOT a complete revamping of the health care delivery system.

                • Prime Obot

                  Wrong. A strong majority of the American people favor major revamping of the entire system of health care in this country, even if it means higher taxes:

                  http://www.reuters.com/article/domesticNews/idUSTRE58T0MY20090930

                  In your fantasy world, America doesn’t support Obama and his party’s aims. In reality, they do. Strongly. Which is why he will win this battle.

                  • Peggy Sue

                    You’re cherry-picking the numbers, Bot. The last paragraph of that article reads as follows:

                    “And 77 percent said they were satisfied with their doctors, 68 percent with their health insurance coverage and 53 percent with out-of-pocket expenses.”

                    Strong concensus, eh? Please. And Rasmussen reports a 56% opposition to the health care proposal. Btw, I’m a recovering Democrat, now an Indy. And Independents are jumping off the lollipop express in huge numbers.

                    Wonder why?

                    • Ladydawnelle

                      right on my Puma friend

                      I too jumped that rotten ship May 2009

                      Won’t be voting for a DONKEY for many eons to come! I’m betting this one term-one trick pony will lose quite handily in 2012 and 2010 will be a downer for mules as well

                      I’m not advocating Repugs either (all yucky cept Sarah of course) but I’m witnessing the pendulum again and it’s swinging pretty hard – I hope we can slow it down before it goes way over to the other end of the lake (again in the mucky shallows)

                      the fringe need to step BACK and READ something OTHER than their bleeding heart looney left Kos/Huff/msnbo propaganda that only seeks knowledge from the lost left side of the tree.

                      read the bills their candidate sponsored or voted PRESENT to and which ones they champion and how many times they LIE out the side of their mouth – which with Obambi is almost daily now.

                    • TeakWoodKite

                      (Comments might not nest below this level), but I can.

                      A TGIF tip o’ the hat to those up thread who have fished out poop from the pool of poltics. As a lifeguard, it was one of my favorite things to say. “Everybody out, there’s a floater!”

                      Yep, that there is prime obot floater alright.

                    • Katmoon

                      Hahahaa, Good post, needed the laugh, so perfect. Thank you.

              • FrenchNail

                HUH!!!! Reality check…. THE DEMS HAVE THE SUPER MAJORITY TO PASS WHATEVER THEY WANT.

                They are chocking on the Obamacare, like they are chocking on their own vomit. Nobody’s else!

          • TeakWoodKite

            what are you ? A neon sign on the strip?

            Life is short you arse, it’s my grandkids a I care about.

          • TeakWoodKite

            what are you ? A neon sign on the strip?

            Life is short you arse, it’s my grandkids I care about.

  • J.J. (The PUMA)

    Right now we have a 7% savings rate in this country. Our norm has been 1%. When we head back to 1%, with all the money in circulation because of deficits, one of two things will happen. The Fed will allow inflation to erode the value of cash and fixed assts. Or, it will contract the money supply and throw us into a double-dip recession.

    Right now we are in the lull before the storm.

    • avwrobel

      The problem with that savings rate figure is that paying down credit card debt is included in it. Its not real savings. Scary times, but we’re all in it together.

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  • elaine

    How’s this for a business plan: Outsource 75% of manufacturing jobs & 45% of the tech jobs, bring in more tech workers, bring in millions of construction workers too, import 50% of agricultural products, run the borders wide open, run the economy for over 2 decades primarily on escalating real estate prices, invite & encourage everyone to participate regardless of income, over build everything, tell the folks that criticize the plan that the old rules of supply & demand are antiquated & critics of the plan are just too xenophobic & stupid to understand what a boon the global economy & a mobile workforce really is. Plus why should anyone have to buy those condos when it’s their right to live in them for free? Don’t you want things to be fair? You do want things to be fair don’t you Larry? Why shouldn’t the laborers that built those condos be allowed to live in them for free? They’ve already done the work. Don’t you want to reward work not wealth? LOL

  • FranSC

    I agree that the economy is by no means in a healthy state that is sustainable. I’m in real estate sales on the coast. Since the fall of 2005 we have seen a steady decline in our resort market.

    This past June it appears that we finally reached the bottom of the market because in July our multiple listing service showed an increase in sales for the first time in two years. This was determined from the monthly report that compares a month to the same month of the prior year.

    The reason for the increase in sales is simple: short sales and foreclosures. Nothing else is selling unless it is priced as low as the SS and FC. Yes, there are buyers ready to buy, but they are not looking for just a good deal, it has to be a f a n t a s t i c deal! These buyers have the money and will hold their nose and jump off the high dive. The biggest problem for this group is there are so many choices – the market is glutted with listings, and they want to feel satisfied they got the best of the best.

    The other buyers are very conflicted – they want to buy, but are terrified to spend a dime on a discretionary purchase. While it is a great time to buy, it is a terrible time to sell. Many sellers have not yet come to grips with what they must do to sell – price it pre-2004 pricing and sometimes lower. People who bought from 2005-2007 cannot sell the property for what they paid for it and in many cases are stuck. Not many people are willing to bring money to the closing table to “sell” their homes.

    The thing that I’ve heard that concerns me the most are the millions of 5-7 year ARMs that will be resetting in the coming year. Many of these homeowners will be facing the disturbing fact that they cannot afford to refinance their loans because the value has gone down and they owe more than the home is worth. As a result, we are being told that there will be twice, yes you read that right, twice as many foreclosures this time next year as we currently have. Now that is very scarey. The economy getting better; the housing market improving. I don’t think so.

  • proud mobster

    In Vegas we have 13% unemployment and so many new housing developments are sitting empty with broken windows and graffiti.

    They say we overbuilt but homes were built to accomodate Boomers who have not moved because they are unable to sell or for economic reasons are unable to retire.

    It didn’t help that Obama put Vegas on top of the Chit list for Conventions and even Majority Leader Harry Reid can’t get this changed. So we wait as our stores close and our jobs disappear until people can afford to have fun again.

  • elaine

    I posted this Sept 26 on Larry Doyle’s entry. It’s an eye opener about the FDIC, the denial of short sales in real estate & who benefits but the anticapitalist Soros himself. Check it out. google: The FDIC also gums up the housing market+Lew Rockwell

  • Peggy Sue

    Anyone buying into the “green shoot” meme is either drunk on koolaide or not paying attention. The American public has and is being fleeced left and right and delivered happy talk rather than the reality of the numbers. They’re grim and the idea that we can spend our way into prosperity [with money we don't have] is prepostrous. There’s a reason accounting standards have been mangled and compromised. It’s to hide the looting, the on-going grand larceny. The banks, the Fed, the US Government make Bernie Madoff look like a rank amateur. Green shoots my ass!

  • glennmcgahee

    Here I am in Fort Lauderdale too. Its as bad as Larry says. The city and county have released their assessments to each property owner for taxes. The assessments came out much higher than any of us rxpected. See, although our property values have decreased dramatically, they decided to skip those properties that have been abandoned, foreclosed upon or are just sitting empty for whatever reason. So even though our homes have lost much value if we were to try to sell, they are still being taxed to the maximum like nothing is happening. We have areas with every home on the street for sale. Condo buildings completely empty with squatters living in the dark on the high rise floors. Its scary for those of us hanging on. Housing is at fire sale prices, but nobody is able to buy.

  • devildog666

    The Economy Still in the Shitter

    Wait till they flush.

  • Lily

    This financial mess is so confusing. I know there are certain parts of the country like Florida, Arizona, California, Nevada where the housing industry was building houses for which there could have been no legitimate buyers because there was no new commerce or industry…in fact, commerce and industry were leaving the country. At the same time, the housing was being constructed primarily by undocumented workers from south of the border. The Bush administration and Congress not only allowed this to occur, they promoted it…this is obvious. However, I live in a part of the country and in an area of a thriving State that has always plodded along and is now building as much as it ever it did. The recession which I know exists in many other areas is barely perceptible here. The only conclusion I can come to is political corruption and greed. We need to kick out most of the US Congress on their rear ends, audit the Fed, get rid of the Chicago thugs, the Harvard elitists, and have many more Tea Parties.

  • Sassy

    Biden says that the stimulus exceeded expectations. From what I read on the financial page, he is as full of sh*t as your caption.
    Personal income is still lagging, consumer spending rose only slightly and that was due to the clunkers deal. Now car sales are flat as a flitter.
    New unemployment reports and manufacturing weakness from yesterday, caused stocks to start south again.
    Fox did a report yesterday on the deficits facing major cities from coast to coast.
    If good news in in the eye of the beholder, then Biden needs an exam!

  • AF catfish

    Of all the brands to shutter, the Saturn? People I know who own them love the Saturn. It’s the only brand people didn’t associate with GM.

    • jwrjr

      Saturns are durable and fairly reliable (I drive one). Of course the Automobile racket industry can’t have that.

    • Docelder

      Saturns were fuel efficient cars since back when GM was hawking Hummers. I don’t get it either. There has to be more market for Saturns now than Cadillacs. Maybe it is still just the bottom line and they can make more on a Cadillac. Or, maybe the Saturns are made places where the unions don’t like the pay rates and benefits. One thing for sure, it probably isn’t about the cars people want. People want something dependable they can afford to drive and insure. Hint… that isn’t $50,000 hybrids… people would want them if they were $20,000, and if they would last at least 10 years like cars used to. If they can’t be about cars people want and can buy again, they will be forever on the government teat. Which is probably the idea now that the unions own a large part of the operation. They can nurse of the government teat and tell themselves how much they are building stuff for a strong America. Right.

  • Mark

    Larry, you worry to much. EMPTYSUIT is in Denmark and all is well.

  • Sassy

    Saturns were original produced in Spring Hill, Tennessee.
    They were some real issues with the first models of the Vue…the axles broke in pot holes or on swerving. That was during the tire blow-outs scandals that caused so many accidents.
    The new Ford Taurus will probably suit Saturn buyers.

  • steve1

    Let’s get that damnn puppet out of the WH-Clinton, 2012!

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  • Bruce

    Your friend has two problems, Larry. First, he’s wanting a mortgage in the “jumbo” category that is seen by lending institutions as riskier to own and more difficult to sell or securitize than conventional mortgages. Second, as you mention, this condo is not going to be your friend’s primary residence. Both of these factors mean that most mortgage lenders are refusing to make these kinds of loans as a matter of policy. This is foolish, of course, because it amounts to “fighting the last war.” Prices on condos like the one your friend is buying have come way down, and your friend is more than credit worthy. Not long ago, these same institutions were falling over each other to give away mortgages on the same condos at inflated prices to people with no income, no jobs, and no assets (so-called “ninja” loans). Now that they’ve been bitten by loans that were sure losers, they won’t make loans that are sure money-makers. While there are plenty of examples of the stupidity of government, this is an example of the stupidity of banks.