Finally Some Justice for a Homeowner

This from WFMY TV Channel 2 in Florida:

Have you heard the one about a homeowner foreclosing on a bank?  Well, it has happened in Florida and involves a North Carolina based bank. Instead of Bank of America foreclosing on some Florida homeowner, the homeowners had sheriff’s deputies foreclose on the bank.

It started five months ago when Bank of America filed foreclosure papers on the home of a couple, who didn’t owe a dime on their home.  The couple said they paid cash for the house.  The case went to court and the homeowners were able to prove they didn’t owe Bank of America anything on the house. In fact, it was proven that the couple never even had a mortgage bill to pay. A Collier County Judge agreed and after the hearing, Bank of America was ordered, by the court to pay the legal fees of the homeowners’, Maurenn Nyergers and her husband.  The Judge said the bank wrongfully tried to foreclose on the Nyergers’ house.

So, how did it end with bank being foreclosed on?  After more than 5 months of the judge’s ruling, the bank still hadn’t paid the legal fees, and the homeowner’s attorney did exactly what the bank tried to do to the homeowners. He seized the bank’s assets.

“They’ve ignored our calls, ignored our letters, legally this is the next step to get my clients compensated, ” attorney Todd Allen told CBS.

Sheriff’s deputies, movers, and the Nyergers’ attorney went to the bank and foreclosed on it. The attorney gave instructions to to remove desks, computers, copiers, filing cabinets and any cash in the teller’s drawers.

After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.

“As a foreclosure defense attorney this is sweet justice” says Allen.

Allen says this is something that he sees often in court, banks making errors because they didn’t investigate the foreclosure and it becomes a lengthy and expensive battle for the homeowner.

Of course if there were true justice, some Bank of America executives should spend a few days in the county lockup for contempt of court.

What’s Up With Oil and Gas?

Calculated Risk sums up recent oil and gas prices nicely a few days ago (bold emphasis mine):

Oil and gasoline prices are probably the biggest downside risk to the economy right now. Oil prices are off slightly today, from the WSJ: Oil Prices Ease

The front-month July Brent contract on London’s ICE futures exchange was recently down 35 cents, or 0.3%, at $114.68 a barrel. The front-month July contract on the New York Mercantile Exchange was trading lower 43 or 0.4%, at $100.16 per barrel.

Looking at the following graph, it appears that gasoline prices are off about 18 cents nationally from the peak. This graph suggests – with oil prices around $100 per barrel that gasoline prices will fall into the $3.50 – $3.60 per gallon range in the next few weeks.

However that just takes us back to March pricing – and that was already a drag on consumer spending. I’ll have more on the overall economy later.

pricechart

The risk is real.  A continued high level of gas and oil prices threatens to slow down the U.S. economy.  Indeed the results of 1st qtr 2011 GDP and the May employment report tend to indicate the economy is slowing again.  How much of an effect?  Well James Hamilton of Econbrowser, one of the better academic econometricians and also one who follows oil prices closely points out that Americans buy approx. 12 billion gallons of gasoline each month. So when gas goes up by $1 per gallon like it has since February, that’s $12 billion less per month to spend on other things.  That translates to $144 billion per year or approx. 1% of GDP.  So, continuing this kind of back-of-the-envelope calculation, if gas prices continue to stay up near $4 per gallon, we can expect GDP growth to be 1 percentage point lower than it would have otherwise been.  As Hamilton points out, that by itself is not enough to put us into a recession, but it can slow things quite a bit.

But, Hamilton also points out that 10 of the last 11 recessions have been preceded by sharp run ups in the price of oil.  The likely impact of the recent increase in oil/gas prices will definitely include some immediate slowing in GDP growth.  I think we’ve already seen that.  But the more significant risks are still to come.   If prices stay up for the next year or more, then the effects will begin to compound.  Oil price increases have a multiplier effect, much like government spending and taxes.  When the price of oil goes up, the initial reaction is to cut spending elsewhere to continue fund our purchases of gas. After all, we gotta go to work and school.  But then, as purchases of other goods decline, layoffs begin in those other industries.  The increased unemployment in those other industries reduces total consumption spending even more and causes new rounds of cutbacks.  Hamilton points out that the last time we saw this rapid run up in gas prices in 2007-8, it wasn’t until many months later that the real devastating impact was felt.  Overall, it doesn’t bode well for fall 2011.

But why are oil and gas prices so high?  And why did they rise by approximately 25-30% at the end of February?  I think I’ll make that the subject of another post.

GDP 1st Qtr 2011 – Revised

I missed posting this a few days ago.  Bureau of Economic Analysis says first revision of the GDP estimate for 1st quarter 2011 was essentially unchanged from the initial “flash” estimate provided at the end of April.  The U.S. economy grew at approx. 1.8% annual rate.

While the overall growth rate was unchanged, there was some shuffling among the categories.  The revised numbers indicate that consumption spending (C) was weaker than initially thought, accounting for only 1.53 points of GDP’s 1.8 percent growth rate as opposed to the original 1.91.

Offsetting this lower estimate of Consumption spending was a larger than originally thought increase in Inventories (part of I, Investment spending).

This is not a good sign.  It says that consumers are slowing their spending more and that as a result firms ended the quarter with more inventory than expected.  That tends to signal an economy slowing more than businesses had expected.

There’s a lot of headwinds and “aftershocks” that are hitting the economy now. Among them:

  • continued high oil and gas prices
  • slowed production and sales in the auto industry due to supply chain bottlenecks from the Japanese nuclear meltdown, earthquake, and tsunami
  • continuing cuts in government spending at all levels.  State and local governments in particular are cutting a lot.  Congress and the President have evidently decided this year that it’s more important to cut government spending and borrowing (despite less than 3% interest rates) no matter how much it slows the economy and raises unemployment.  Together state, local, and federal government cuts in spending reduced GDP growth rate by 1.09 points.  In other words, if we had simply continued spending at the existing rate instead of cutting, we could have had at least a 2.9% GDP growth rate.
  • Europe is having a lot of difficulties with their ill-designed monetary union and their ill-advised austerity policies.  Europe is slowing dramatically and some countries are falling back into recession.  Not good for overall global growth or U.S. exports.
  • China is struggling to contain it’s inflation and may need to slow down it’s growth rate.
  • and most significant, unemployment and wages continue to play out a depression for workers. 

The Depression in Wages: End of the American Dream

It’s not just the lack of jobs that’s hurting workers.  Even those workers who have jobs are suffering from a historic lack of wage growth. Workers’ wage growth over the last ten years has been lower than even the Great Depression.  The American dream of “doing better than Dad did” is effectively over. For the current generation (and the most recent), to do “as well as my parents” is now an ambitious goal.

n article by Jed Graham in Investors Business Daily yesterday documents the sad facts:

The past decade of wage growth has been one for the record books — but not one to celebrate.

The increase in total private-sector wages, adjusted for inflation, from the start of 2001 has fallen far short of any 10-year period since World War II, according to Commerce Department data. In fact, if the data are to be believed, economywide wage gains have even lagged those in the decade of the Great Depression (adjusted for deflation).

Two years into the recovery, and 10 years after the nation fell into a post-dot-com bubble recession, this legacy of near-stagnant wages has helped ground the economy despite unprecedented fiscal and monetary stimulus — and even an impressive bull market.

Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show.

To put that in perspective, since the Great Depression, 10-year gains in real private wages had always exceeded 25% with one exception: the period ended in 1982-83, when the jobless rate spiked above 10% and wage gains briefly decelerated to 16%…

That excess supply of labor has given employers the upper hand in holding back wage gains.

The causes are numerous: poorly conceived macroeconomics policies; disastrous deregulation of the financial industry; trade, monetary, and tax policies that encourage imports over domestic production; a thirty-year war on unions; etc.

The point I want to make here is how momentous this change is for the American political and economic system.  One of the dominant features of America in the last 200 years was the idea of the American Dream.  Anybody who worked hard, followed the rules, and showed initiative could get ahead.  For several generations in the 20th century that was true.  Almost every worker could reasonably expect to do much better than their parents did.  In the early 20th century much of the growth and improvement in living standards was the result of new inventions, technology, and infrastructure investment.  In the mid-20th century, the promise was a social contract that as productivity improved, both workers and capitalists would benefit.  That period is over. Now when productivity improves, corporate profits get the benefit but employees don’t.

When wages were increasing 25% or more every ten years, it meant that a after a 30 year period, the length of roughly one generation, that wages will be 1.95 times what they were at the beginning.  It’s no wonder that the generations who grew up after World War II came to expect every son (or daughter) should do better than their dad did.  They could reasonably expect to have double the real income their parents had – and that’s assuming they stayed at the same level on the income scale.  Now given the performance of the economy in the last ten years, wages will barely increase by 12-16% after 30 years.  No automatic “doing better than dad” just by participating in the American economy.

Actually, it’s much worse than that. For most Americans, to simply achieve the incomes their parents had means to have more education than their parents.  And during this period of slowing wage growth, we as a nation have also decided that workers should pay more of the cost of their education.  We saddle them with student loans. In previous generations, such as the 1950-60’s, higher education was subsidized directly by the government and student loans were a very minor part of the scene.  In some states such as California tuition was free. Now the younger generation must acquire more education than their parents and take on debt just to achieve relatively the same income as their parents.

It doesn’t have to be like this.  The trend could be changed.  It’s largely a political and social choice made by society.  But there appears little on the political horizon at this time that appears interested in reversing this “end of the American dream” dynamic of the last decade.