Friday we have an unemployment report that people pay way too much attention to, and various financial types/bloggers have complained is highly inaccurate - but the market will react anyhow [Monthly Jobs Report and Birth/Death Model] Unfortunately, we are forced to pay attention to it, because the knee jerk action it creates, even though it it is constantly revised by a large measure 30 days later, and still highly inaccurate... some blurbs from a NY Times article on another component of this report, the unemployment rate and why it is staying stubbornly low despite a slowing economy. Myself, I believe many people are under-employed i.e. work part time or in jobs below their skill set to make ends meet; this is certainly true in the industrial Midwest states suffering from manufacturing losses - in the government's world these people are fully employed. I do believe this will also happen in other states as former realtors turn into waiters, or service clerks at Walmart.... hence they'll remain "employed" but at far lower living standard. It also leads to my thesis that unlike the 1970s when workers could bargain for higher wages to combat inflation, this time around workers are really over a barrel - rising inflation and inability to ask for major wage increases because of pool of workers ready to replace them at a moment's notice (either here or overseas) - despite (ahem) "full employment". This article has some thoughts as well...
- This Friday, the government will release the latest employment report, which will help clarify whether the economy is slipping into a recession. Wall Street forecasters are predicting that the February unemployment rate will have inched up to 5 percent, from 4.9 percent in January. Whatever the survey ends up showing, however, you can be sure of one thing: Politicians will be quick to point out that joblessness remains low by historical standards. (and Kool Aid drinking pundits will point this out as well)
- Statistically, all this is true enough. But it’s also deeply misleading. Over the last few decades, there has been an enormous increase in the number of people who fall into the no man’s land of the labor market that Carroll Wright created 130 years ago. These people are not employed, but they also don’t fit the government’s definition of the unemployed — those who “do not have a job, have actively looked for work in the prior four weeks, and are currently available for work.”
- Consider this: the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
- There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
- The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation. Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads.
- Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. West Virginia, a mining state, is a great example. It may have a record-low unemployment rate, but it has also had an enormous rise in the number of out-of-work men.
- These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power.
A few years ago the lobbyists for the credit card industry won a very hard fought battle to make sure it became a lot harder for people to file bankruptcy. Even with how difficult those who are "representing our best interests" have made it, bankruptcies are on the rise, despite "not" being in a recession...
- Americans filed for bankruptcy in growing numbers in February, buckling under the combined weight of rising energy prices, a weakening housing market and sky-high personal debts.
- An average of 3,960 bankruptcy petitions were filed per day nationwide last month, up 18 percent from January and up 28 percent from a year earlier.
- February was the busiest month for filings since Congress overhauled the bankruptcy law in 2005. Bankruptcy experts said the rise was particularly worrisome because those changes made filing for bankruptcy more complicated and expensive.
- “This number of bankruptcies may be under-representative of the true financial distress consumers are feeling because of the steps Congress has taken,” said Jack Williams, a scholar in residence at the American Bankruptcy Institute and a professor at Georgia State University.
- The latest figures show the financial pain is spreading from states like California and Florida, which exemplified the housing boom and subsequent bust, to those along the Eastern Seaboard like Maryland, Virginia and Delaware, which were among the 10 states with the largest percentage increase in filings in January and February. “You are seeing a good-size uptick everywhere,” said Mike Bickford, president of Automated Access.
- Some experts, for example, say bankruptcies often seem to rise in February as debts from the holiday season come due. Even so, the trend is definitely upward, Mr. Lawless wrote. States as disparate as Kentucky and Rhode Island joined the top 10 list, and the absolute number of filings rose significantly.
- Proponents of the bankruptcy law argued in 2005 that some consumers were abusing the law, using Chapter 7, or liquidation, to shed credit card debt. The bill, supported by both Republicans and Democrats, “increased the expense for everyone and reduced the protections for everyone,” said Mr. Williams.
- Elizabeth Warren, a professor at Harvard Law School and the author of books on bankruptcy, said, “The credit industry did its best to drive up the cost of filing but when families are in enough trouble they will fight their way through the paper thicket and higher attorneys’ fees to get help.”
I could post one of these a day, but in the "heads I win, tails I still win" world of corporate America [You're Fired! Now Here is $160M to Help Ease the Pain], the generous folks at Washington Mutual (WM) want to make sure the bright people who led them to this path of shareholder destruction get compensated for their trouble. The excuse corporate America uses? Well these people are geniuses and if we don't pay them, another company will swoop in and steal this talent. Yes of course... if I were another company, I'd be salivating at the chance to hire someone who destroyed immense amounts of shareholder wealth. Pure logic! Even better is CHANGING the rules on how we compensate you in mid stream - hey we used to tie your compensation to how you did, but since this mortgage thing is such a mess, we are going to exclude it from your future compensation payout figures.... because you don't deserve to be responsible for that mess.... it's those ugly subprime people causing the mess, not your lax lending standards or pure greed. Yep! Remember, Cramerica - for the corporation, by the corporation.
- The board of Washington Mutual Inc. has set compensation targets for top executives that will exclude some costs tied to mortgage losses and foreclosures when cash bonuses are calculated this year. The move, approved last week and disclosed in a securities filing late Monday, essentially shields the pay of chairman and chief executive of the thrift, Kerry Killinger, and more than 100 other executives from the continuing mortgage fallout.
- In the fourth quarter, the thrift reported a $1.87 billion loss fueled by a sharp increase in its reserve for loan-related losses. Loan-loss provisions on mortgages, as well as foreclosure costs, will be left out of the new formulas.
- In the past year, WaMu's share price has tumbled about 70% -- to where it was about 12 years ago. "They've cost their shareholders a lot of money," said David Dreman, chairman of Dreman Value Management LLC, which holds 27.9 million WaMu shares. "Bonuses should be given to the executives who enhance shareholder value, not destroy it."
Last, we are getting closer and closer to the "ultimate bailout" I've been predicting since last summer. All moral hazard pushed to the side, all free market crapola pushed forward by Republicans stepped on... anything for votes and to fix a system of greed and total lack of regulation and trusting corporation to "police themselves". Of course the equity markets, full of free market capitalists, salivate at the prospects of a tax payer led ultimate bailout. Hypocrisy at it's best - simply put folks, get out your checkbooks - it will be coming. Oops, I mean get your grandchildren's checkbooks out, because of course we'll borrow to pay this off... we are broke after all.
- However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer toward a government rescue of distressed homeowners and mortgage lenders.
- Though Mr. Bernanke stopped well short of calling for a government bailout, he used his bully pulpit to try to push the banking industry into forgiving portions of many mortgages and signaled his concern that market forces would not be enough to prevent a broader economic calamity.
- Similarly, the Bush administration, despite its public opposition to bailouts, has set the stage for a bigger government role.
- Historically, the F.H.A. and the mortgage companies have focused on conservative mortgages for people borrowing relatively modest sums. But they are now being encouraged to finance much bigger mortgages, in some cases to people who put almost no money down.
- A longstanding bill to modernize the program would lower the down payment needed for F.H.A. loans to 1.5 percent of a home’s value, from 3 percent. (didn't that get us into trouble in the first place? i.e. no skin in the game, no problem walking away from the problem - now we want to institutionalize the problem? sounds logical)
- But skeptics worry that the plans to expand the scope of the F.H.A. will put taxpayers at risk. They note that home prices are likely to fall further. If the government moves to insure or buy mortgages now, it might help arrest the price decline — but only temporarily.
- “The reality is, prices will fall; there is no way to keep them up,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal group in Washington. “If we have the government get in, either as the owner of the debt or the guarantor of the debt, a lot of the decline will be shouldered by the taxpayer.”
- The two companies are now trying to decide how to guarantee the bigger and potentially riskier mortgages. Both want to exclude “no-documentation” loans, but Congress authorized them to buy up big mortgages going back to last July — when a high percentage of such loans were approved without verification of the borrower’s income. As a result, company executives are debating whether to buy up at least some “no-doc” loans made last year.
Enjoy!
