An odd feature at NYT reports that homeless shelters are seeing a rise in former home owners who were foreclosed on.

Only three years ago, foreclosure was rarely a factor in how people became homeless. But among the homeless people that social service agencies have helped over the last year, an average of 10 percent lost homes to foreclosure, according to “Foreclosure to Homelessness 2009,” a survey produced by the National Coalition for the Homeless and six other advocacy groups.

In the Midwest, foreclosure played a role for 15 percent of newly homeless people, according to the survey, reflecting soaring rates of unemployment — Ohio’s reached 10.8 percent in August — and aggressive lending to people with damaged credit. At a shelter for women and children run by the West Side Catholic Center in Cleveland, where Ms. West now lives, foreclosure accounted for zero arrivals in 2007, the center’s executive director, Gerald Skoch, said. Last year, two cases emerged. This year, the number has already reached four. Similar increases have been reported at shelters in California, Michigan and Florida, where a combination of joblessness and the real estate bust have generated unusually severe rates of foreclosure.

Most people who become homeless because of foreclosure had been low-income renters whose landlords stopped making their mortgage payments, leaving them scrambling for new housing with little notice and scant savings, according to the survey and interviews with shelters. But in recent months, there has been a visible increase in the number of former homeowners showing up in shelters. Like Ms. West, most have landed there after months trying to stave off that fate.

Now, obviously, it’s sad when people lose their homes.  It’s even sadder when people find themselves without shelter and are reduced to living in their cars or on the streets.

But what’s really news here?  We know that, toward the end of the housing bubble, lenders were making no down payment loans to people who had no business buying houses.  People with no jobs, no credit, and no means of paying back said loan.  It wouldn’t be shocking if some number of these people wound up homeless.

Yet, I can’t imagine that this is a statistically important number.  Much more likely:  We have a group whose job is to increase sympathy for the homeless in order to get support for more public funding for the cause.  What better way to achieve that than to paint the homeless as being former home owners who are down on their luck as opposed to, say, drug addicts, alcoholics, and the mentally ill?

Notice the wording of this press-release-disguised-as-news report: “foreclosure played a role.”  What does that mean, exactly?  We’re set up with a long anecdote about a single woman who’s stopped paying her mortgage and found herself on the street.   Then, we’re told that this represents a “growing” trend.  But we’re also told that the principal means of creation of new homeless has long been “low-income renters whose landlords stopped making their mortgage payments.”  Presumably, the end result of this is foreclosure.  Is this report lumping these things together to make it seem like the latter is really the former?  My strong suspicion is that it is.

Oddly, the report was released four months ago.

The financial crisis has had one silver lining: fewer divorces.  Josie Cox for Reuters:

Fewer British couples are filing for divorce as the sharp drop in property prices makes it hard for couples to sell a joint home and the credit crunch dampens a desire to fund two separate households, according to a study on Monday.

The study, published by Grant Thornton accountants, showed that almost half of all surveyed matrimonial lawyers believe the numbers of divorces has slumped — and will continue to do so — because of the financial squeeze.

[...]

Data published by the Office for National Statistics earlier this year showed that the number of people getting divorced fell from 12.2 per 1,000 couples in 2006 to 11.9 in 2007, and is currently at a 26-year low.

The survey also found newlyweds are increasingly eager to settle financial agreements ahead of tying the knot, and are steering away from pre-nuptial “lump sum agreements” which do not take the falling value of assets into account. “I can only imagine that this trend will continue to rise particularly in an economic downturn when people feel increasingly vulnerable about their financial position,” said Kerr.

Of course, another way of looking at this is that bad economic times have trapped people in bad marriages.  But there are doubtless large numbers of people with unrealistic expectations of married life who will bail on the relationship as soon as the going gets rough, especially if getting a fresh start is easy.  Which of the two is most dominant here is impossible to say based on the above report and the study is not currently available on the Grant Thornton site.

Photo by Flickr user jcoterhals under Creative Commons license.

Megan McArdle starts off a post by summarizing a column:

James Surowiecki has a very interesting column arguing that this bubble was different because unlike the earlier banking booms, there was no point to the wild spending.  The bubble didn’t bring us railroads and electrification; it brought us . . . houses.  Lots and lots and lots of houses.

Megan goes on to argue that this bubble was more complicated that just houses. But taking Surowiecki’s premise at face value and presuming that all we got were, in fact, lots of houses, I offer the Paul McCartney Rebuttal:  What’s wrong with that, I’d like to know?

While there are arguments to be made about suburban sprawl and negative externalities and so forth, houses per se are a pretty good thing.  People live in them.  They get pride of ownership, a place for their stuff, and so forth.  People like houses.

Photo by Flickr user woodleywonderworks, used under Creative Commons license.

A recent study seems to confirm a point that Dave Schuler has been making repeatedly for months:  the housing bubble is a narrowly targeted geographic phenomenon:

Via  Andrew Sullivan [Yes, him again. -ed.], who summarizes, “66 percent of potential housing value losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada and Arizona, for a total of 87 percent of national declines.”

Now, to be clear, this doesn’t mean that housing prices aren’t a problem elsewhere.  I live in Virginia, which is one of the states least impacted — indeed, in the DC suburbs of Northern Virginia, which are even better off — and houses here, including mine, have still had a significant correction in price over the past 18 months or so.

But this does seem to reinforce Dave’s point that a national solution to a regional problem could be counterproductive.  As with Homeland Security, where states vie to distribute monies allocated to defend against terrorist attacks without much regard to the localized risk of actually being attacked by terrorists, we’re likely to see federal relief money poorly targeted.

Former Packers quarterback Brett Favre's home. Corey Wilson/Press-Gazette

There’s no “for sale” sign in front of the ranch-style home at 2085 Shady Lane, at the corner of Shady Lane and Morris Avenue, but it’s listed by local real estate agency Micoley and Company for $475,000. The nearly 3,000-square-foot home includes four bedrooms and three baths, according to Micoley’s Web site.

Brown County land records indicate the home’s value at $424,900.

Presumably, there’s a Brett Favre markup.   The SI writer makes light of it, noting that it would be great for tailgate parties, shooting Wrangler jeans ads, and so forth.

What caught my attention, though, was the price.   Not so long ago, living in small town Alabama, I would have thought, “Wow!  Nearly half a mil!  Must be sweet to be an NFL quarterback.”    Now, living in the D.C. metro area, my reaction was “Geez, you can’t even get a condo for that!”

Inside Brett Favre's Green Bay home

Judging by the photos and description, this is a nice house but one befitting a middle class family, not a multimillionaire.  Let’s just say it’s not going to be on MTV Cribs.

Still, a house like that in D.C.’s Cleveland Park neighborhood would easily go for $2.5 million even in today’s depressed housing market.  It’d go for over $2 mil in Alexandria, Falls Church, Bethesda, McClain, or any of the other desirable near-in suburbs, too.   You’d have to go well past the exurbs, maybe into West Virginia, to buy a single family home even remotely comparable for $495,000.

This, by the way, is one of the key reasons why setting some arbitrary figure, say $250,000, and saying that a family that makes that much a year is “rich” doesn’t make sense.   That’s a great living in Green Bay or Birmingham or even Dallas.   In  Washington or Boston or L.A., though, it’s just middle class money.  If you live in Manhattan, it’ll get you a nice apartment.

Lance Paddock, in his best Mr. Rogers imitation, asks, “Can you say moral hazard?”

Unfortunately, the notion of “too big to fail” means that those who behave badly often keep the benefits when things go well but pass off the negative consequences of failure.

UPDATE: Via Greg Ransom, I see that Cato’s Gerald Driscoll has a good analysis of the proposed Fannie Mae-Freddy Mac bailout.

Absent from Paulson’s plan is any protection for taxpayers. They’ll fund the downside if losses mount at the two mortgage giants. But if Fannie and Freddie recover, stockholders and management gain. Call it “casino capitalism” – taxpayers bankrolling management high rollers.

The plan doesn’t ask stockholders or management to suffer for their financial indiscretions. The players who put their companies in jeopardy get to stay in charge – Paulson says he isn’t looking for “scapegoats.” Someone should remind him that capitalism without failure is like religion without sin.

Indeed.

The widespread rumors of a government bailout of Fannie Mae and Freddie Mac have already had dramatic consequences, perhaps creating a self-fulfilling prophecy. Iain Dey and Dominic Rushe, writing for The Times of London, note that, “The two companies lost almost half their market value last week as rumours of a government bail-out swept the stock markets, hammering share prices around the world.”

Julie Creswell of the NYT notes that many have seen this coming for years.

Among them is Jim Leach, a Republican former representative from Iowa, who began arguing two decades ago in Congress that the government-chartered mortgage companies, Fannie Mae and Freddie Mac, were unfairly insulated from the real world. They were not subject to the same financial standards and tax burdens as their competitors, he warned, and if they ran into trouble, an implicit government guarantee to back them up meant taxpayers would be left with the losses.

The size of the problem is enormous.

Today they own or guarantee about half of the country’s $12 trillion in mortgage debt, so the free fall of their share prices last week amid concerns that they were undercapitalized has created chaos for Wall Street and Washington.

The dominant role Fannie and Freddie play today is no accident. The companies, Wall Street firms, mortgage bankers, real estate agents and Washington lawmakers have built up an unusual and mutually beneficial co-dependency, helped along by robust lobbying efforts and campaign contributions. In Washington, Fannie and Freddie’s sprawling lobbying machine hired family and friends of politicians in their efforts to quickly sideline any regulations that might slow their growth or invite greater oversight of their business practices. Indeed, their rapid expansion was, at least in part, the result of such artful lobbying over the years. And as Fannie and Freddie grew, so did the fortunes of Wall Street, which reaped rich fees from issuing debt for the two companies, as well as the mortgage and housing industries, which banked billions of dollars as the housing market boomed.

UCLA business law professor Steve Bainbridge has been warning about this for years, too. He points to some analysis from LAT Market Beat columnist Tom Petruno:

[I]t is triggering worries that would have been unthinkable even a year ago — including that the U.S. Treasury’s debt might lose its AAA credit grade because of heavy blows to the nation’s fiscal health from the housing mess.

[...]

Because of their size and importance to the mortgage market, it’s inconceivable that Fannie and Freddie would be allowed to fail. But an outright takeover of the companies by the government, as some experts have suggested, could frighten foreign investors — who are big lenders to the Treasury — by, in effect, adding the companies’ $5-trillion debt load to the Treasury’s massive debt of $9.5 trillion. Nationalizing the companies “would put the full faith and credit of the Treasury at risk,” [Allen] Sinai [of Decision Economics] said. “It would make foreign investors think hard about buying U.S. Treasury debt.”

Bainbridge sees a “worst case scenario” in which “Foreigners abandon the dollar for the euro, dumping treasuries. The collapse of foreign investment in Treasuries makes our massive current account deficit unsustainable. At which point, things really go to pot. “  Uh-oh, indeed.

What’s not clear to me, even in the case of a government absorption of Fannie and Freddie, is why we’d add an additional $5 trillion in “debt” by so doing.  Sure, we’d be adding some unknown amount of risk.  But, presumably, the overwhelming majority of people will be paying back their home loans.  So, isn’t most of that $5 trillion, then, an asset?

The Manufactured Outrage of the Day comes to us from Joe Stephens and his page A3 piece for today’s Washington Post, “Obama Got Discount on Home Loan.”

Shortly after joining the U.S. Senate and while enjoying a surge in income, Barack Obama bought a $1.65 million restored Georgian mansion in an upscale Chicago neighborhood. To finance the purchase, he secured a $1.32 million loan from Northern Trust in Illinois.

The freshman Democratic senator received a discount. He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a “super super jumbo.” Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates.

Compared with the average terms offered at the time in Chicago, Obama’s rate could have saved him more than $300 per month.

Why, that’s not right! A millionaire Senator getting a more favorable home loan than some average schmoe? How could that be?!

Actually, that’s rather a question that answers itself, no?   Nate Silver issues an “Irresponsible Journalism Alert” and points out that:

[T]he amount of the loan and the nature of the property are not the only factors that determine a mortgage rate. Another major consideration is the creditworthiness of the borrower. According to current rate quotes from myFICO.com, a borrower with very good credit can expect a mortgage rate about 30 basis points better than someone with pretty good credit, and a borrower with excellent credit can expect about a 50 basis point discount.

How credit worthy was Obama?  Well, aside from being a United States Senator, a steady gig if ever there was one, and having just received a $2.27 book deal, he and his wife combined to make around half a mil a year.  Not Rush Limbaugh money, to be sure, but he was probably a decent credit risk.

Ed Morrissey wants to know, “Can the lender identify (anonymously) any other borrower during the relevant time period that got the same favorable rate and, if so, what was the basis for setting the rate that low for the other borrower(s)?”  Not an unfair question especially, as Ed notes, when “Obama has spent plenty of time castigating credit lenders in this campaign for their capricious practices and bad management.  He has rung the populist bell, saying that ordinary Americans can’t get a break from lenders while the powerful play by different rules.”  But, yes, I’d be willing to bet that other well-heeled folks got these kind of rates.

Obama’s spokesman claims, “Obama received the same rate as would have been available to anyone with his financial profile and with an offer from another institution.”  I’m inclined to believe him.

To the extent this has legs it will, like the Cindy McCain back taxes scandal, be because it draws attention to the fact that the Obamas and McCains make a whole lot more money than regular folks and get treated better because of it.  But who didn’t already know that?

Major caveat:  Larry Johnson promises that “shortly, we will reveal additional details.” Given how famous he is for doing that, I’ll be refreshing that page every few minutes.*

Other responders at memeorandum: The Crypt’s Blogs, TownHall Blog, Redstate, MSNBC, Flopping Aces, michellemalkin.com, puma pac, Right Wing News, The Caucus, The Campaign Spot, Fox News, Confederate Yankee, Salon, Ben Smith’s Blogs, TBogg, Brilliant at Breakfast, Political Machine, Comments from Left Field, TPM Election Central, The Swamp, JammieWearingFool, Macsmind, Bark Bark Woof Woof, The Political Carnival, Whiskey Fire, Washington Monthly, The Campaign Spot, and Jack & Jill Politics

____________

*Yes, this I’m being ironic here.   Like a pony.

Ezra Klein jumps on a growing meme the home ownership isn’t all it’s cracked up to be and that the government should stop subsidizing it.

He points to Paul Krugman, who argues in today’s NYT that it’s time to rethink our decades-long bipartisan consensus that home ownership should be encouraged. While everyone stresses the advantages of owning your own home, like building equity and creating a stake in one’s community, not enough emphasis is placed on the disadvantages.

• If housing prices fall, you can lose money

• The cost and difficulty of selling a house makes it harder to move for a new job

• If gas prices suddenly double and you live a long way from work, it sucks

That’s really only two reasons, since the last merely restates the third: Owing ties you down.

Not mentioned in Krugman’s column, but more certain than the others:

• When you own your own home, you’re responsible for maintenance and will inevitably spend much more in “upgrades” than if you rent.

Anyway, I see from Ezra’s “link blog” that James Surowiecki wrote almost exactly the same article for the New Yorker back in March. Better yet, Andrew Oh-Willeke wrote all of this in a May 2006 blog post, before the subprime lending crisis hit, putting him way ahead of the curve.

Klein, Surowiecki, and Oh-Willeke all note that easy lending exacerbated these issues, since so many people are now mortgaged up to their eyeballs, buying ever-bigger homes, and now feeling the crunch as the economy has slowed down. Back in the days when one had to put 20 percent or more down to buy a home, people were much more insulated from these effects.

Ezra argues, “[T]oday, owning a home looks a whole lot more like renting. Fairly few homeowners actually ‘own’ anything. Rather, they have a sizable mortgage, and they pay money to a bank. That’s not all that different than paying money to a landlord.” But that’s not right. Having lived a somewhat nomadic existence, I’ve “owned” and rented numerous times. Every time I’ve done the latter, I’ve lost money. The landlord got X dollars a month and, at the end of our relationship, I left with nothing. Conversely, every time I’ve taken out a mortgage, I’ve built sizable amounts of equity which I was able to extract from the house upon selling it and then reinvest later. Indeed, there have been years when my house earned more money than I did.

Since moving into our current house nearly two years ago, my wife and I have “lost” money, in that the house would currently sell for perhaps 5 percent less than we paid for it. Then again, we’re still far ahead of where we would be had we rented all these years. And we went into the current mortgage with open eyes; the housing bubble was already bursting but we wanted to move to a nicer house and neighborhood and figured we’d rather be “stuck” in this house than the one we left.

Beyond the economics, there’s a huge psychic value to owning your own place. You don’t have to worry about your landlord selling the place out from under you or “going condo.” You can paint the walls any color you damn well please, rip out the carpets and put in hardwood floors, have all the pets you want, and just generally live your life with greater autonomy. And I’ve never once raised my rent!

But, yes, it’s more expensive and you’ve got less ability to chuck it all and move to Mexico. And, if you bought into more house than you could afford and suddenly need to move, you risk emerging in worse financial shape if prices plunge.

All told, though, I recommend home ownership highly.

That said, however, I agree with Ezra on the public policy question: “Does it make economic sense for home buyers to be subsidized by renters?” No, it doesn’t.

Now, one could argue the degree to which they are. Home owners pay more property taxes than their renting counterparts, which means we pay much more for the public schools, even if we have no kids going to the public schools. And, since high earners, who pay the lion’s share of income taxes, are also likely to be homeowners, we’re paying a disproportionate amount for public services, even those which subsidize ourselves like the added infrastructure costs of supplying roads, utilities, and whatnot to the suburbs.

Even so, the most obvious subsidy, the ability to write off home mortgage interest, has always struck me as silly. There’s not much doubt that it artificially tips the scales not only in the rent vs. buy calculation but even encourages people to buy larger homes than they could otherwise afford since a portion of one’s monthly mortgage payment is actually “paid for” by the taxpayers. There’s no good rationale for that.

It’s not change when he offers four more years of Bush economic policies that have failed to create well-paying jobs,…
–Barack Obama, Remarks of Senator Barack Obama: Final Primary Night

I heard that and the first thought that went through my head was, “Since when did the President of the United States become in charge of placing people in well paying jobs?” My second thought was, “Yet another bit of evidence that the President of the United of the States is actually the Nanny-in-Chief, and that us Americans really can’t take care of ourselves anymore.”

Now don’t misunderstand, I’m not saying I like John McCain. Frankly, I can’t stand the man. I think he is a big government Statist who doesn’t like the idea of the Americans doing what they perceive as being in their best interest. After all, when I go to McCain’s website I find this,

John McCain Is Proposing A New “HOME Plan” To Provide Robust, Timely And Targeted Help To Those Hurt By The Housing Crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home’s market value.

In other words, John McCain also wants to the the Nanny-in-Chief too. McCain wants to help people who made unwise decisions during the housing bubble, and also penalize those of us who did not make unwise choices.

The idea of people dealing with the mistakes they’ve made, and having to bear the burdens of unwise choices is totally anathema to these people.

Alan Reynolds over at the Cato Institute puts the current financial crisis into perspective, and notes that the current financial crisis isn’t nearly as a bad as many people seem to thing.

Media hysteria over the mortgage crisis is almost certainly misleading countless people about prospects for the real economy.

The US economy is likely in recession. Yet even that conclusion may be premature — it rests on a short sample of slim evidence. Industrial production has fallen for only one month. First-time claims for unemployment insurance touched recession levels for just one week.

Of course, housing starts are down 1.1 million since early 2006, but nearly that entire problem is behind us — starts couldn’t drop much in the future, because homebuilding would then be well below zero.

The focus of the gloomy economic news is on a “credit crisis” or “financial crisis.” Yet postwar US financial crises have never resulted in economic disaster. Think of the savings & loan (S&L) crisis of 1986-1995 — a period that also saw Black Monday (Oct. 19, 1987), when Dow stocks fell 22.6 percent.

This is quite right, and in the case of Black Monday quick action by the Federal Reserve averted a worse outcome. Could the current situation be worse? Sure, but I don’t think it is likely.

The S&L crisis lasted from 1986 to 1995, and was undoubtedly the worst US financial crisis since World War II. Yet the real economy grew by 2.9 percent a year over that period.

Some nice context there. So the current crisis shouldn’t be blown out of all proportion. Sure it isn’t good, but it isn’t going to be another depression. Speaking of which…

Yet the Los Angeles Times, for one, has gone so far as to ask (March 20) “Could another Great Depression be lurking over the horizon?” This is nonsense on stilts.

“Then, like now,” the article noted, “stock prices were highly volatile.” So what? Stocks are only down about 10 percent in the United States — a much milder drop than most other markets.

Some papers can’t get anything right. An April 6 New York Times piece (”Almost as if The Sky Were Falling,” on stock prices) claimed that the “focal point for the stock market’s difficulties” is that “banks have been reluctant to lend money to one another, or to anyone else.”

The talk of a depression is pretty absurd given that we have yet to determine that we are in a recession. Sure a depression is possible, but I don’t think it is very likely as at all. The government seemed to have actually learned a good lesson from 1929 and the years that followed. Or I should say the economists have learned quite a bit and it is economists who head up the Federal Reserve.

The U.S. may currently be in a recession, but there is no need to panic.

I’ve long thought that American politics and the fact that we have an activist/interventionist government when it comes to economic policy leads to a race to see who can pander the most to voters, or at least a sub-class of voters. John McCain’s new “plan” to bail out the greedy and stupid when it comes to mortgages is another data point supporting this theory.

NEW YORK — Amid widespread concerns about the nation’s mortgage crisis, John McCain outlined Thursday a proposal to help “well-meaning, deserving homeowners who are facing foreclosure” and called for a Justice Department investigation into possible “criminal wrongdoing” by unscrupulous lenders.

The proposals marked a shift in tone from McCain’s admonition two weeks ago against adopting a mortgage plan that would be “a multibillion-dollar bailout for big banks and speculators.” That set the Arizona senator apart from his Democratic rivals in the presidential contest, Sens. Hillary Rodham Clinton of New York and Barack Obama of Illinois, who have both said there is a need for government intervention to fight the nation’s wave of home mortgage foreclosures and overall economic slowdown.

I’m sorry, but this just completely turns me off to a candidate that I already see as having a nice authoritarian streak to him. Lets translate the phrase “well-meaning, deserving homeowners who are facing foreclosure”. To me I see that as a bailout for people who bought a house that was too expensive for them, or couldn’t resist the temptation of using their homes like ATM machines to tap into the equity (that is now gone, or substantially smaller) of their homes to promote a lifestyle they couldn’t actually afford. In short, Republicans, their presumptive nominee at least, doesn’t give a crap about personal responsibility and making wise financial choices. From there it is a few short steps to, “Well clearly we can’t let these people manage their own money since they make a mess of it anyways.”

The plan would retire old loans that homeowners no longer can pay and replace them with less expensive, 30-year, fixed-rate mortgages that are federally guaranteed.

Some political commentators look at things like that and wonder, “Do these candidates understand economics?” I’m more cynical, I’m sure the candidates understand economics, or at least some of their advisers do and are aware of the problem of moral hazard. However, the benefits of pandering to voters has far greater rewards for the candidates. Of course, this also exposes the fatal flaw to the view of “government would work great if we could just get the right person in there”. The wining candidate can never be the “right person” because to win the candidate must pander and that means policies that are, generally, not good policies. They end up promoting irresponsible behavior such as lowered savings rates, buying a house that is too expensive, and so forth.

About the best thing that can be said about McCain’s plan is that it isn’t as expensive as the Obama or Clinton plans.

There’s no doubt that the U.S. economy is in a downturn. The cost of petroleum has skyrocketed, creating all manner of ripple effects throughout the economy. The “housing bubble” has burst in several cities and the sub-prime mortgage industry has gone bust, leaving many people upside down in their houses or facing — or experiencing — foreclosure. Bear-Stearns sold for pennies on the dollar. And the government is scrambling to at least give the appearance of doing something about all this.

Despite all this, there’s serious debate as to what to call all this. The media and political class seems to agree that we’re in a recession and some pundits say that we’re actually past recession and into a full-blown depression. Others reject these labels.

David Usborne says that we’re in a depression and that food stamps are the proverbial canary in the coal mine.

Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one in eight residents of the state is on food stamps, double the level in 2000. “We have seen a dramatic increase in recent years, but we have also seen it climbing more in recent months,” Maureen Sorbet, a spokeswoman for Michigan’s programme, said. “It’s been increasing steadily. Without the programme, some families and kids would be going without.”

But the trend is not restricted to the rust-belt regions. Forty states are reporting increases in applications for the stamps, actually electronic cards that are filled automatically once a month by the government and are swiped by shoppers at the till, in the 12 months from December 2006. At least six states, including Florida, Arizona and Maryland, have had a 10 per cent increase in the past year.

Steve Fraser was using the “D” word back in December.

It is not only a matter of mass foreclosures. It is not merely a question of collapsing home prices. It is not simply the shutting down of large portions of the construction industry (which is inspiring some of the doom-and-gloom prognostications). It is not just the born-again skittishness of financial institutions that have, all of a sudden, gotten religion, rediscovered the word “prudence” and won’t lend to anybody. It is all of this, taken together, that points ominously to a general collapse of the credit structure that has shored up consumer capitalism for decades.

The equity built up during the long housing boom has been the main fallback position for ordinary people financing their big-ticket-item expenses, from college educations to consumer durables, from trading up in the housing market to vacationing abroad. Much of that equity has suddenly vanished, and more of it soon will. Also drying up fast are the lifelines of credit that allow all sorts of small and medium-size businesses to function and hire people. Whole communities, industries and regional economies are in jeopardy.

All of that might be considered enough, but there’s more. Oil, of course. Here the connection to Iraq is clear; but, arguably, the wild escalation of petroleum prices might have happened anyway. Certainly the energy price explosion exacerbates the general economic crisis, in part by raising the costs of production all across the economy and so abetting the forces of economic contraction. In the same way, each increase in the price of oil further contributes to what most now agree is a nearly insupportable level in the U.S. balance-of-payments deficit. That, in turn, is contributing to the steady withering away of the value of the dollar.

Finally, it is vital to recall that this tsunami of bad business is about to wash over an already very sick economy. While the old regime, the Reagan-Bush counterrevolution, has lived off the heady vapors of the FIRE sector, it has left in its wake a deindustrialized nation, full of super-exploited immigrants and millions of families whose earnings have suffered steady erosion. Two wage-earners, working longer hours, are now needed to (barely) sustain a standard of living once earned by one. And that doesn’t count the melting away of health insurance, pensions and other forms of protection against the vicissitudes of the free market or natural calamities.

Robert Reich, Bill Clinton’s first Labor Secretary, has been throwing the word around, too, including in an appearance on NPR this past weekend.

American consumers are coming to the end of their ropes and don’t have the buying power they need to absorb the goods and services the U.S. economy is capable of producing. This is likely to mean fewer jobs, which will force Americans to pull in their belts even tighter, leading to still fewer jobs – the classic recipe for recession. That recession may turn into a full-fledged Depression if fiscal and monetary policies can’t make up for consumers’ lack of buying power. And there’s reason to worry they cannot because consumers are in a permanent bind. They’re deep in debt, their homes are losing value, and their paychecks are shrinking.

At the other extreme, the likes of John Lott are arguing that even talk of “recession” is a product of liberal media bias.

During the 2000 election, with Bill Clinton as president, the economy was viewed through rose-colored glasses. According to polls, voters didn’t realize that the country was in a recession. Although the economy started shrinking in July 2000, most Americans through the entire year thought that the economy was fine. But over the last half-year, the media and politicians have said we were in a recession even while the economy was still growing.

[...]

A little perspective on the economy would be helpful. The average unemployment rate during President Clinton was 5.2 percent. The average under President George W. Bush is just slightly below 5.2. The current unemployment rate is4.8 percent, almost half a percentage point lower than these averages.

The average inflation rate under Clinton was 2.6 percent, under Bush it is 2.7 percent. Indeed, one has to go back to the Kennedy administration to find a lower average rate. True the inflation rate over the last year has gone up to 4 percent, but that is still lower than the average inflation rate under all the presidents from Nixon through Bush’s father.

Gas prices are indeed up 33 percent over the last year, but to get an average of 4 percent means that lots of other prices must have stayed the same or gone down. On other fronts, seasonally adjusted civilian employment is 650,000 people greater than it was a year ago. Personal income grew at a strong half of one percent in just February.

As improbable as it may seem, all these things are true. We’ve simultaneously got a booming economy — in the sense that almost everyone who wants a job has a job and that most of us are living in material luxury that our parents, let alone our grandparents, could never have dreamed of at our age — and yet serious signs of an economic crisis. At both the government and family level, we’re generally living beyond our means, sustaining ourselves on easy credit and the unrealistic expectation that the good times will never end. With minor blips, we’ve had a booming stock market, made tons of money off our houses, and had historically low inflation for a quarter century.

Lott’s right that, to a large extent, perception is reality in economic matters. During most recessions, the effects are felt by a small percentage of the population as certain sectors shrink and a few simply go away forever. Yet the perception of a recession becomes something of a self-fulfilling prophecy, as people fear making large purchases, fear risking starting a new business or expanding their existing one, and otherwise hunker down.

He’s also right that, by traditional measures, we’re not in a recession. Historically, we’ve defined the term as “a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.” We haven’t even experienced one down quarter by that standard. More recently, though, the National Bureau of Economic Research has used a looser, more qualitative definition:

a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.

By that standard, the current economy probably qualifies as being in recession — but we won’t “know” until NBER tells us months from now.

Reich and Fraser are right, too, that we’re afraid of the “D” word and have been loathe to apply it in recent decades. Depressions were relatively common in American economic history but the “Great Depression” of the late 1920s and 1930s forever changed our perception of that concept. Indeed, we invented the term “recession” afterwards to differentiate smaller downturns from major calamities.

Which brings us back to our question:

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent.

If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

We’re certainly not in a depression. And any of us old enough to remember the 1970s know that this doesn’t feel at all like a major recession. Even with the skyrocketing prices at the gas pumps, inflation is unfathomably low even by Carter era standards. The “misery index” is amazingly healthy. Nobody’s sporting “Whip Inflation Now” buttons, instituting wage and price controls, or even sitting around in a cardigan talking about our national malaise.

But the boom times of the last quarter century have recalibrated our expectations. The milk and honey are now fully contained within the river beds rather than flooding the streets. So, naturally, people expect the government to stop pretending that it doesn’t have a magic wand to wave and get on with making it all better.

Usborne and Lott links via Memeorandum

A “significant” number of people are willfully destroying their homes before complying with eviction notices as a means of exacting “revenge” on banks for foreclosing on them. This, in turn, has created a black market cottage industry where bankers bribe people with cash payments for leaving peaceably.

Megan McArdle doesn’t understand the pointless destruction, observing that it’s “hardly the bank’s fault that you can’t make your mortgage payment.” Indeed.

What I wonder, though, is why these people aren’t thrown in jail? Once they’ve failed to make their mortgage payments, the house isn’t theirs but the bank’s.

The NYT informs us today that, “The Affluent, Too, Couldn’t Resist Adjustable Rates.”

They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.

These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.

People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania.

Nor will falling interest rates help most of these homeowners, as their low initial payments skyrocket and the worth of their homes erodes, said Allen Fishbein, director of housing and credit policy at the Consumer Federation of America.

[...]

Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”

[...]

Refinancing requires some equity. Even if homeowners put a substantial amount of money down, many have no equity because their homes are worth less than they owe. In real estate parlance, their mortgages are under water.

The instrument has not yet been devised that can measure how little sympathy I have for people who refinanced their homes to pay for vacations or so that they could live above their already considerable means. If they go under and have to start from scratch, too bad.

These people are just as much speculators as those who buy homes in order to “flip” them when the market goes up. They were willing to take their profits; now they’ll have to accept their losses. That’s the nature of gambling.