Despite the gusher of cheap money and stimulus programs, the myriad bailouts and rescues, the ongoing regulatory forebearance and accounting rule changes, and the hundreds of billions of dollars of red ink spilled so far -- not to mention the cheerleading, wishful thinking, and time that has elapsed since things first began to fall apart -- many of the problems that helped bring about the worst financial crisis this century have not gone away.
This includes the nasty little mess that started it all, which many ignorant and inept Wall Street "strategists," TV pundits, regulators, and policymakers -- including Foreign Policy's top global thinker for 2009 -- wrongly asserted would remain "contained." In "Viewpoint: For Subprime, Is It Deja Vu All Over Again?" Paul Jackson, publisher of Housing Wire, the "premier independent source for news, commentary and analysis covering the entire mortgage banking and financial markets," gives us the lowdown:
I know, I know. Subprime is so, like, 2007. And most of the financial press has moved onto sexier mortgage words like “option ARMs,” or “FHA loss reserves.”
That said, I thought it would be interesting to dive back into subprime waters, taking a granular look at individual deal performance using November remittance data from that old standby, the ABX. (For those that don’t recall, the ABX index was launched by Markit in 2006 to track the private-party subprime RMBS market — and it allowed some hedge funds an easy mechanism to short the market for subprime mortgages.)
We decided to take a look all 81 different deals across the 2006 and 2007 vintages within the ABX, comparing month-to-month percentage changes in both 60+ day delinquencies (not yet in foreclosure) and properties in foreclosure status.
What we found is a telling picture of a subprime market on hold, but far from reaching a bottom. Blue bars represent month-over-month trending in 60+ day delinquencies for each of the 81 deals, while red bars represent month-over-month trending in foreclosures.
Click the image to see full-size version
Because this sort of chart technique might be foreign to some readers, the zero axis point represents no change between October 2009 and November 2009 data. Any data points in positive territory reflect a percentage increase month-over-month, while data points in negative territory reflect a percentage decrease month-over-month.
Surprised? Only if you thought the subprime mess was over with.
What’s beyond clear here is that the volume of 60+ day delinquencies is almost universally on the rise, while foreclosure volume is far more erratic and more likely to be on the downswing — the effect of various government programs designed to prevent foreclosure at all costs, while unemployment continues to take its toll on borrowers’ ability to pay their mortgage. That effect can be seen even more clearly in declining REO inventories tied to these 81 subprime deals, below.
Click the image to see full-size version
Right now, securities holders have benefited somewhat from a modest rebound in prices, and banks have booked some market gains on the increased valuations assigned by trading activity in their Q3 earnings. But this data seems to suggest pretty plainly that any such gains might best be interpreted as transient — unless you believe that the Federal balance sheet has ample room to absorb an increasing number of troubled borrowers.
In either case, I don’t see a backup in 60+ day delinquents (subprime and elsewhere) as a sign of clear market recovery for housing or mortgages. And it’s precisely this growing backlog of newly-troubled borrowers that has me scratching my head when the NAR blindly projects a 4 percent gain for home prices next year. I’m very positive on the ability of our housing and mortgage markets to emerge stronger, but that’s a long-term sort of outlook. Don’t be fooled in the short-term by what John Mauldin has taken to calling The Statistical Recovery.
For subprime mortgages, it appears Yogi Berra was right: this really is like deja vu, all over again.
The forest and the trees.
Here’s an analogy:
Evolution will pulverize a million rocks to get a diamond. The old economy only recognizes a few kinds of diamonds, so it produces what it considers to be millions of rocks, which it treats as disposable byproduct, in a scarcity model, cutting evolutionary AC down to a DC signal. This worked so long as the planet had easily exploitable surplus materials, in an aggregate debt mismatch between the planet and humanity.
We have always developed AC solutions toward completion, until capital stepped in to finish it with a DC circuit, and we moved on to build the abutment for the next development. This time around, because we are at planetary saturation, there is no DC option for the old economy. The AC circuit must be completed, or the economy will recursively backtrack to previous tapping points to find an alternative path.
Non-performing capital would rather backtrack a couple thousand years, but the planet is quickly running out of patience. Capital begins with a solution in mind, to control economic development toward self-reinforcement, replication. We begin with the fundamental laws of physics, and build a portfolio of temporary bridges to create evolutionary circuits, diversity.
Up until the DC series application of automation, we could make the necessary adjustments to maintain old systems for a considerable period, allowing the proprietors to believe that they were the only diamonds. Unfortunately, you cannot prevent the masses from choosing economic slavery and grow Democracy at the same time. At this point, we must close the AC circuit of the geographic nation/state system, and build out into virtual space, so those who cannot re-wire become wards of the State, and they have grown in numbers that it can no longer sustain.
The old breed chose Armageddon, to-big-to-fail, which always fails, and they are leading their followers over the cliff, hoping to build a bridge with their bodies.
They begin by assuming everything. We begin by assuming nothing. To them, knowledge, DC, is power. To us, learning, AC, is power. The result is the bifurcation process you see before you, with non-performing assets acting as an imploding mass, center of gravity.
Capital follows talent, or it becomes inert. They are pushing on a string with monetary expansion, because a DC circuit is not possible here, and they are bred to insert only DC circuits. It's a vortex, so small bodies have to enter first, self-sufficient communities, with a surplus, and Family Law disabled through purely municipal interest, if you want to keep a thread to the past.
The other option is speciation.
Everything else is a symptom.
I hope this helps Paul H.
Posted by: kevinearick | December 01, 2009 at 03:53 PM