The other point that comes to mind: besides the real estate bubble and the stock market,I would think to wonder about the flows of unsecured credit like credit cards. I just remember at one point in the midst of medical and job challenges and saddled with a subprime mortgage, with one credit card in delinquency trying to escalate preposterous fees, I still had other cards increasing my credit limit. One supposes that this had nothing to do with my creditworthiness but rather was designed to make the creditors' balance sheet look better in percentage terms: a customer who owes 95% of their limit looks different than a customer who owes 50% or better yet 30%. Actually digging up data is not really my strong suit, but it occurs to me to wonder about the dimensions and flows of this unsecured credit during the same times as the various bubbles here. I would expect the unsecured debt to have some dynamics independent of the stock and real state flows.
I am with Jordan: something certainly needs bailing out, but are we bailing out the right thing or just discovering new ways to get ripped off? If real wages are declining in the US and multiple Latin American countries also suffered declines in indicators except remittances from abroad, could we envision scenarios that would have yielded different results in both categories? DC
DC
On Thu, Jan 1, 2009 at 9:14 PM, Patrick Bond <pbond at mail.ngo.za> wrote:
> (I'm heading up to the Drakensberg mountains of KwaZulu-Natal in a few
> minutes, so won't be doing this lost-in-translation anymore, comrades...
> Cheers, P.)
>
>
> -------- Original Message --------
>
>
> Date: Thu, 01 Jan 2009 23:31:59 -0500
> From: Dean Baker <dean.baker1 at verizon.net>
> To: pbond at mail.ngo.za
> References: <495D9374.2050201 at mail.ngo.za>
>
>
> Look, both of these questions are really simple arithmetic.
>
> The mortgage purchase index has been trending down along with the sales
> index. Yes, you should lag the sales index by two months, since that is
> roughly the lead time between application and closing. This doesn't change
> anything. The credit crunch story means that many creditworthy home buyers
> have to make 2 or 3 applications to get a mortgage. There should be an
> explosion in the ratio of applications to sales. I haven't looked at the
> data closely enough, but I doubt that there has even been an increase in
> this ratio.
>
> On the wealth effect, yes, there are a range of estimates. I haven't
> surveyed the lit recently, but my guess is that the average would come in at
> over 5 percent for housing and at 3.5 percent for stock. We have lost
> roughly $6 trillion in real housing wealth in the last two years. Where i
> come from, 5 percent of $20 trillion (the value of the residential housing
> stock in 2006) is $400 billion. We have lost about $8 trillion in stock
> wealth. 3.5 percent of $8 trillion is $280 billion.
>
> This gives a total predicted reduction in annual consumption of $680
> billion or 4.5 percent of GDP. wow, the problem must be a credit crunch!
>
>
>
> Doug Henwood wrote:
>
>> Dean Baker wrote:
>>>
>>>> the relevant index from the MBA is the purchase index, and this has gone
>>>> nowhere. demand for loans falls in recessions.
>>>>
>>>
>> It does. Of course. But it's nearly impossible to get a mortgage today if
>> you don't have a credit score over 700.
>> Here's what Dismal.com has to say about the MBA index: "Despite the
>> increases in the purchase index in the previous weeks, there remains
>> evidence that fewer applications are translating to originations. Relatively
>> stronger readings from the pending home sales index, which leads
>> existing-home sales by one to two months, suggests that a larger number of
>> sales did not close because of intensified financial stress and tight credit
>> conditions. Thus the improvement in the market index may be overstating the
>> improvement in the housing market."
>>
>> and the wealth effect of stock and housing is among the most widely
>>>> accepted propositions in economics.
>>>>
>>>
>> I've read quite a bit on these, and the estimates of the wealth effect are
>> all over the place. Former Fed gov Mishkin, speaking at Jackson Hole in
>> 2007, reviewed the empirical evidence and found it remarkably
>> inconclusive...
>>
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