Mortgage Delinquencies, Foreclosures Increase

May 28 (Bloomberg) -- Mortgage delinquencies and foreclosures rose to records in the first quarter as the government’s effort to revive the housing market lost momentum.

The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today.  Both figures are the highest in records going back to 1972. 

The three-year housing slump is proving resistant to efforts by the Federal Reserve and the Obama administration to keep homeowners from failing on their mortgages.  One in every eight Americans is now late on a payment or already in foreclosure as mounting job losses cause more homeowners to fall behind on loans, the MBA said.

This is the environment in which Greenspan and 72% of institutional economists are predicting a bottom to the Housing Recession.  These intellectual lemmings do not understand the implications of continued job losses and foreclosures on the length and depth of the Depression. 


GM Said to Get 15% Participation in Failed Bond Exchange Offer

May 28 (Bloomberg) -- General Motors Corp. got about 15 percent of bondholders to participate in its failed debt exchange offer before it expired this week, according to a person familiar with the situation.

That doesn’t include the 20 percent of bondholders that agreed to support the U.S. Treasury’s bankruptcy plan, said the person, who declined to be identified because the negotiations are private. GM’s reorganization plan now has support of holders owning about 35 percent of the bonds.

65% of GM bondholders rejected the Government-dictated, bird-in-hand in favor of potential future benefits which may result from bankruptcy proceedings.  One more example of why the Government should stay out of the private sector. 

Remember a few months back when the U.S. economy could not survive the bankruptcy of even one major auto manufacturer?  Four months later both GM and Chrysler will have filed for this protected status. 


Yield Curve Steepens to Record as Debt Sales Surge

May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.

The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003.  Yields on 10-year notes have risen more than 100 basis points since Fed officials said in March they would buy up to $300 billion of U.S. debt over six months to drive consumer rates down and lift the economy from recession.

“The markets are starting to grapple with the issue of what happens when the Fed exits and the Treasury needs to continue at the same pace,”

This is the end game.  The Government has attempted to save the economy from inevitable pain by borrowing huge sums of money and effectively wasting it.  Spending trillions of borrowed dollars produces short-term distortions within the economy which partially obscure reality.  But this capital is not being productively disposed, and as such, will not produce real, sustainable economic benefit. 

Trillion dollar deficits are real though, as is rapidly accumulating U.S. debt.  This debt needs to be financed, serviced and repaid.  Markets focus on reality.  Borrowing costs will continue to rise as the size of our debt and the risk of default increases. 

In an effort to help the economy the Government is burdening it with more debt, causing interest rates to rise, devaluing the dollar and risking the solvency of the United States.  Policy makers can operate within the fantasy world of political expediency, but the capital markets care only about the mathematics of risk and reality.    

The capital markets are a disciplining force which should be heeded.  Sadly, our politicians appear unwilling to recognize reality; preferring instead the illogical assumption that the paradigm of the past will persist into the future regardless of dynamic circumstances.