Sold At The Top's  Instablog

First, I’d like to preface this post by citing the most recent statistics for the federal food stamps program.

Currently, there are over 41 million food stamps recipients coming from over 19.4 million households resulting in a monthly cost of over $5.6 billion or just over $67 billion annually.

As many longtime Paper Economy readers know, I have been tracking these numbers since the summer of 2008 and in that time the rolls for both individual participants and households have nearly doubled!

NPR’s “On Point” segment yesterday was dedicated to the food stamps program and a recent initiative by NYC Mayor Bloomberg and NY Governor Paterson to petition the DOA in an effort to ban access to sugary soft drink items for area food stamps recipients.

Though this is a very comical NPR segment … nothing short of a melee of policy junkies lost in a vicious circle of cyclical logic and do-gooder nonsense... it should leave one with the sense that America’s future is far less then bright.

At one point, Ellen Vollinger (the Legal Director at the Washington DC based Food Research and Action Center… whatever that is), a policy junkie against the proposed ban on junk foods, suggested that there is a paradox in America, “many of the people that are hungry [in this country] are also people who have trouble with obesity”.

While I realize she could probably have added a bit more color to shore up her sentiment, that statement was truly a CLASSIC! ... Fantastic!

Meanwhile, no one on the panel was actually against the food stamps program in general, all being policy junkies of one ilk or another, they simply disagreed on the implementation and debated the merits of limiting access to junk foods or providing more education to recipients.

Even in the face of multiple callers offering eye witness testimony of food stamps being traded for cash, gasoline and even booze and drugs, the policy junkies didn’t waiver from their devotion to their religion.

Of course, NYC area recipients are mad… even furious… that they would be limited to using their Supplemental Nutritional Assistance Program (SNAP the fancy Washington name for the food stamps program) credits on actual nutrition... to them this is an issue of rights!

Readers, I can only think that we are nearing an end of sorts… something big is brewing and it can’t simply be a larger incarnation of the status quo.

No… I fear we are pushing ever closer to a critical breaking point.

The federal government is a disaster and the fact that in its largess it has spawned an industry of policy research institutions teeming with imbeciles just salivating at the chance to fritter away generations of wealth on wasteful illogical boondoggles while breeding immense classes of needy recipients (for one program or another) is a disgrace.

In the end this whole game will come down to simple math and crude economics…

Robot’s (… actually in this case mind numbed employees) fraudulently forging signatures and notarizing documents… what will banking think of next!

Here is an excellent NPR “On Point” segment that aired yesterday concerning the recent “robo-signing” foreclosure scandal and housing in general with guests Diana Olick, Dr. Karl Case, the great analyst Ivy Zelman and economist Allen Sinai.

I must admit that this scandal has taken me by surprise but on further consideration what’s really surprising is how surprised everyone is.

Given the size of the colossal scam that was perpetrated by borrowers, mortgage brokers, real estate agents, originators (Countrywide Financial et al.), the GSEs (Fannie and Freddie and then FHA) and private banking no one should be surprised that the unwind should be a messy process… garbage in, garbage out.

Should we be surprised that the same sham institutions that neglected to perform proper due diligence when underwriting millions of home loans on the origination side would now neglect due diligence on the cleanup end?

Should we really be shocked that a blunder on the part of merely processing foreclosure documents will be exploited by all the fraudster homebuyers who intended on exploiting the housing market in the first place?

We are now at a laughable situation whereby the worst, most greedy and ruthlessly fraudulent bankers and home-borrowers are mired down in an all out competition for which class will sink lower to abuse an asset market that has already suffered years of their punishment.

For home-borrowers, at least a quarter of which qualify as nothing more than vagrants squatting in properties they haven’t made a payment on in at least eighteen months, this scandal is essentially a windfall likely tying up their property in a mountain of red tape.

To the bankers, this scandal likely equates to a disaster that they sorely deserve.

That being said, let us not forget what happened the last time banks found themselves with mountains of “troubled assets”? .... The government gave them TARP and simultaneously the taxpayer got the shaft.

These are troubled times indeed! So, enough ranting… let’s handicap the outcome for the housing markets given this “unexpected” turn of events.

As the NAR points out every month, at least a quarter of all existing home sales are foreclosures with the percentage reaching one third if you include short sales.

This should argue for there being a significant plunge in home sales over the coming months particularly in the areas hardest hit by foreclosure (California, Nevada, Arizona, Florida, etc.).

Although many have put forth the idea that without the foreclosure sales, there would be lower inventory and better price competition between “organic” sales (i.e. non-distressed typical sales), a more holistic macro view of the housing market would argue that lower transactions generally mean lower prices.

In any event, any price stability gained by the temporary removal of distressed properties from the market would likely inevitably erode when the distressed properties (likely even more distressed after the fact) are re-introduced. As Dr. Case points out in the segment, foreclosures are not evenly distributed so for markets where there are few distressed properties, this halt in foreclosure processing could have little to no effect, while in other markets, literally all transactions will grind to a halt.

The housing industry will likely take a hit from this scandal as well with real estate agents and all the other middle-men servicers feeling the dramatic reduction in transactions while even homebuilders will likely feel more pain given all the uncertainty that will be created by this process.

The more uncertainly there is, the longer this clearing process will take and the worse it will be for housing in general.

This episode simply sheds more light on how bad an asset class housing has become through the abuse of homebuyers, speculators, bankers and the feds.

Some day this process will clear and housing will get back to its long established boring and lackluster appreciation due to inflation and incomes.... but not today.

The above chart (click to invoke interactive version) shows the S&P 500 index averaged monthly and inflation adjusted using CPI-U displayed along with the year-over-year percent change and the percent change compared to the peak level seen in 2000.

Keep in mind that this data is NOT including dividends so the trend only reflects changes in the index.

Even though the latest run is spectacular by all accounts one needs to keep some perspective... in real terms we are still over 33% below the level seen in the year 2000.We may be in the midst of a trend that will break this decades long secular bear dynamic but then again... we may not!