An odd way to start a post but as mentioned in my previous entry it is hard to know how much lending is truly going on in China these days. The official data shows a decline in the rate of growth in lending and the government appears to be reigning in credit growth by raising reserve ratios.
This does not tell the entire story. There is a boatload of off balance sheet lending but there are no 'official' numbers for that.
The WSJ (Sept 28,2010 ) recently commented:
A report from Standard Chartered economist Stephen Green estimates that by the end of August between 2 trillion yuan and 3 trillion yuan worth of loans (the banks don’t formally disclose the amounts) were moved off balance sheets–and outside the PBOC’s formal loan data–in this way. Over the same period, PBOC data showed the banks lending out 5.6 trillion yuan, suggesting the banking system has already passed the central bank’s 2010 target for new credit creation. It also means that the tightening signaled by the loan quota never happened.
Standard Chartered is guessing an additional 50+% of unofficial lending this year. Not a small number. If the bank regulators crack down on this unofficial lending the rate of true loan growth would fall dramatically.
Barry Ritholtz clearly explains why this foreclosure mess is so important and how all the cutting of corners by the loan servicing organization has gotten completely out of control.
The recent rumors of an imminent second round of quantitative easing (QE 2.0) by the US Federal Reserve has sent ripples throughout the entire financial market. One series I occasionally check in on is the implied breakeven inflation rate by looking at nominal versus inflation protected rates in the treasury market. The threat of QE 2.0 can be seen here as well.
10 year inflation protected rates (TIPS) have fallen to levels not seen for this entire data series. In other words people are bidding up the value of inflation protection. However in the context of comparing TIPS rates to nominal the spread is trending downwards but is not out of the ordinary.
Interesting.
Of course the Fed threatening to buy up outstanding T bonds (instead of just buying more at auction) also creates a supply demand issue but this trending divergence bears watching.
While I touched on initial unemployement claims before in an attempt to see if Google Trends could accurately predict changes, (failure!) other people have shown the change in initial unemployment claims provides some predictive value. Creditwritedowns writes about how looking at the year over year change in unemployement claims provides insight into changes in consumer spending in America. In short, a year over year decline in initial unemployment claims forebodes postive growth in the economy.
Looking at the year over year percent change in initial unemployement claims all appears well. The year over year number is negative meaning fewer people are getting laid off each week.
There is a problem with this prognosis however and you can see it looking at the absolute numbers in the second graph. In chart two initial unemployment claims have remained quite stubborn for 2010, refusing to drop below the ~440k number for the entire year. In a couple months if unemployment claims don't start falling our year over year metric will flatten out. Right now the employement situation is treading water and this meshes well with the general sluggish feel to the economy.
Right now this economic indicator is flashing Yellow.
I have not commented on the foreclosure mess but considering how it may impact you, gentle reader, I thought it worthwhile to repeat.
In short, the mortgage processors and servicers did not keep a proper chain of custody and MBS Pool 'C' which believes they own the mortgage does not have the paperwork proving they purchased it from Loan Company 'A' which sold it to 'B', who packaged it up into MBS (Mortgage backed security) 'C', and Bank 'D' now owns said MBS.
Some people along that chain over ownership have been caught forging paperwork. It's a long and nasty tale that will remain stuck in the courts for a while.
If you know of someone who is going through foreclosure and they want to keep the house this is something to keep in mind. Talk to a lawyer about ensuring the bank has all the proper paperwork.
First, the affidavits IndyMac used to file the foreclosure were signed by a so-called robo-signer named Erica A. Johnson-Seck, who routinely signed 6,000 documents a week related to foreclosures and bankruptcy. That volume, the court decided, meant Ms. Johnson-Seck couldn't possibly have thoroughly reviewed the facts of Mr. Machado's case, as required by law.
Secondly, IndyMac (now called OneWest Bank) no longer owned the loan—a group of investors in a securitized trust managed by Deutsche Bank did. Determining that IndyMac didn't really have standing to foreclose, a judge threw out the case and ordered IndyMac to pay Mr. Machado's $30,000 legal bill.
Citigroup Inc. and Ally Financial Inc. units were sued by homeowners in Kentucky for allegedly conspiring with Mortgage Electronic Registration Systems Inc. to falsely foreclose on loans. The homeowners claim the defendants filed or caused to be filed mortgages with forged signatures, filed foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.
Nakedcapitalism has posted several entries regarding this topic. Here's just one entry:
Lender Processing Services, a crucial player in the residential mortgage servicing arena, has been hit with two suits seeking national class action status (see here and here for the court filings). If the plaintiffs prevail, the disgorgement of fees by LPS could easily run into the billions of dollars (we have received a more precise estimate from plaintiffs’ counsel). To give a sense of proportion, LPS’s 2009 revenues were $2.4 billion and its net income that year was $276 million.
Here's one MSNBC Video on the mess:
I don't do this nasty tale of cutting corners and deception any justice with this overview. Read all the links above for a fuller story.
