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Friday, September 07, 2007


The Employment report wasn't really big news - it was just the reality washing up onto the statistical shores. The next couple will be where the big news shows up, and then next year the BLS will suddenly discover that all sorts of jobs they thought were around in 2007 somehow weren't.

Among the hilarities in the employment release was the household survey's disclosure that in August the employed population dropped 316,000 and the unemployed population dropped 24 thousand.

If you actually read the employment report, it's nearly as entertaining as the NAR press releases. Not that the BLS is doing it on purpose - the problem is the B/D model and the nature of a shadow economy. Illegals are invisible for the household survey, and the establishment survey doesn't notice illegals being replaced by legals.

It's worth looking at this state-level breakdown of the MBA's 2nd quarter mortgage delinquency and foreclosure report.

I'll write up the week's numbers this weekend. Some of them are very funny. We need to laugh, because look at Thursday's Commercial Paper graph showing the Outstandings:

Look at the blue line. That's non-financial. At this point, everyone has already mentally written off financial and asset-backed - those will have a long, long recovery time. The non-financial is a good index of diffusion to other parts of the economy. This amounts to a giant margin call and is equivalent to the destruction of money on a grand scale. Week by week the credit contraction ripples spread through the economy.

So you wanna laugh?

How about looking at OBL's latest rant then? While I enjoy the recent confirmation of the crowds (and Wall Street) that the housing bubble is/has been real, I must say that I never thought of OBL as a bubblehead before.

Now to figure out what commenter name he used at CR and Housing Bubble...
Haha! Yes, there are some real frothers at The Housing Bubble Blog. CR's pretty good.

I'm NOT glad for the confirmation. I look at this from a banking POV, which means that I think about all the people getting crushed. It's totally depressing.

Please explain what the "28% - 36%" rule is?

I've figured out its associated with qualifying for a mortgage, but I've no idea what it means (I've never bought a house).

Also, on the Calculated Risk blog, I've figured out that "PPT" expands to "Plunge Protection Team", but what is the "MSM" that they start going all resentful over?

28-35 is mortgage to gross income ratios. 28 is old, 36 was made up because... well because... because lenders could make more money for a short time I guess. MSM is just main stream media. Code for the idjit talking heads on the tube.

CR is calculatedrisk.blogspot.com

Commercial paper is so sad. Loans getting called not because thtere was anything wrong but because the banks need the cash back to hide the real problems.

Employment is interesting because it is "buffered" by an underground employment pool that gets used at the margins.
Rob - dead right on the commercial paper. Although the banks calling probably don't have a choice; regulations require certain reserve ratios, and if they don't have them, the examiners will slap them with C&D's requiring them to clean up their act. If they can't comply, the regulators force a sale.

It all goes to show, Rob, the point you were trying to make with the Casey Serin thang. Fraud is not a victimless crime. Totally solvent businessman are in danger of losing their businesses and totally competent employees will lose their jobs because of the recklessness, greed, irresponsibility and just plain criminal activity.
PS: The 28% DTI is called the "front"; it is the sum of the mortgage P&I payment plus taxes, insurance, and stuff like HOA. The 36% DTI is the "back"; it is the front plus all other monthly debt payments, such as car, alimony, credit card, student loans.

In the recent mania, lenders were willing to write outrageous DTIs, like 45-65%. Nor was it just the stateds; both FNMA & FHA were writing very high DTI loans. Those are now going bust along with the rest.

IMO, over a 42% DTI is generally unworkable. If the borrower has a very high income, he or she can generally afford a higher (back) DTI because the residual amounts to more. If the borrower has a big lump of assets, a higher DTI may be reasonable. For lower income borrowers, going over the 36% DTI is generally a bad move.

FWIW, it used to be that DTIs over 45% were considered predatory.

And Rob, thank you for taking care of my blog!!! Some sort of Trojan hit my system, and I spent quite a while going through all the steps to make sure it was well and truly gone. It was one of the sneaky ones.
No problem. I was begining to worry. 28% was the old PITI (principle, interest, taxes, insurance and misc direct monthly costs). It used to be a maximum.

To some extent the 36% legitimately did stop being as critical to the decision. Cars got more expensive but lasted much longer and also stopped costing so much to operate. Food and other monthly demands on gross income became a smaller percentage of gross income. Gross income also depended less on earned income. Income taxes also went down for many families. The rise of two earner families also changed the math. Short answer it ain't all bad decisions that got us here.

Regards CP (Commercial Paper). MOM has it right that the banks are pursuing their short term best interests. Sell three bad loans and further impair your reserves or call one good loan, get full value AND delay marking to market the bad paper? No question. Personally, I think they are endloading bad news but what I think doesn't count.
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