More Pie-Eyed Optimism

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A couple of days ago I wrote about my hope that due to a decrease in foreclosure rates here in North Carolina we are actually a leading indicator that the nation's economy has hit bottom.  My friend Dan called me a pie-eyed optimist as a result.  I did temper my post with the news that home sales in Greensboro were down 38% in February from same month sales the year before, so I wasn't real shocked when I read today that Winston-Salem's home sales in February were down 30% from the year before.  Average home prices were also down, but given the number of foreclosures on the market that's not exactly a shock either.

So, am I still standing with my pie-eyed optimism?  Why yes I am.  My hope is that:
  • Foreclosures have peaked 
  • Our glutted housing inventory will start to clear 
  • House prices will stabilize (normalize)   
  • By some miracle the government's plan for the banks works (longest shot of all) and even if it doesn't that the "free markets" actually work the way they're supposed to and that we get through the painful period sooner rather than later.  
  • By some miracle the financial industry learns its lesson and starts acting like, well, like what we used to think bankers acted like. 
  • Americans continue with their newly-found frugality, but at the same time begin to emerge from their monastic existence of the last six months and begin to buy things within reason (and their budgets).
  • American companies begin hiring people once their businesses have stabilized and that the companies subsequently treat their employees well and perhaps think about spending a little less on executive "talent" and a little more on employee and customer satisfaction.
  • By some miracle I can retire before the age of 97 and live in a society where my grandchildren at least have the same standard of living that their great-grandparents and grandparents enjoyed.  Asking for them to have a better standard might be a bit much at this point.

Wilbur Replacing Weather at WXII

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Did you know that WXII has a 24 hour weather channel?  If you did I guess you didn't have much company because WXII has decided to replace their weather programming on the channel with 24 hours of really old TV shows like Mr. Ed and movies that you've probably never heard of.  From the story:

Starting June 1, WXII will be replacing its Weather Plus sub-channel with This TV, a free movie and classic television channel offered by Metro-Goldwyn-Mayer, the station announced Monday…

This TV programming includes 4,000 film and 10,000 television series episodes in agreement with six distinct studio libraries: Cannon, United Artists, Polygram Filmed Entertainment, Orion, Samuel Goldwyn Films and MGM.

Classic television shows such as Patty Duke and Mr. Ed, as well as feature-length movies, will be offered 24 hours per day.

Goodbye Lanie Pope, hello Donna Reed.

Bonus points to anyone who can tell me who the "Wilbur" refers to in the title of this post.

Foreclosures from the Feed Reader

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One of the Google Alerts I have set up is "forsyth county nc" and it regularly sends some interesting items to my Google Reader.  For instance I get lots of links from a site called bankforeclosuressale.com that include the addresses of houses listed in their database as being in foreclosure. Here's this morning's sampling:

You'll notice when you visit the different pages that the addresses don't show up on the pages unless you register for the site.  I don't want to register for the site so luckily for me the addresses show up in the feed so I don't have to.  The glum part of this is that these are houses that people have lost, but on the brighter side I'm seeing fewer of these in my reader these days than I was a while back.  Hopefully that's a trend that will continue.

Friends in the Right Places

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Apparently insider lending is common practice at banks, with banks regularly giving loans to executives and directors.  Okay, it's not really a shock that muckety-mucks in banks would have special access but when you read this article in the Charlotte Observer it becomes apparent that the insider dealing went to pretty high extremes at North Carolina's own Bank of America and Wachovia.

Charlotte's two big banking names are among the biggest insider lenders.

At Bank of America, those loans more than doubled last year, to $624 million – the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch.

Wachovia ended 2008 with $747 million of insider loans, second only to the much larger JPMorgan. All of the loans were held by Wachovia directors or their companies, with just five holding the largest. Last year, the company had to sell itself amid staggering losses in part due to a 2006 deal.

According to the article the lending at BofA really accelerated in 2008 at a time when the credit markets crashed and when the bank was the recipient of a rather large government bailout.  I'm thinking that the bank's directors were VERY happy to have their seats last year.

The article also points out that the loans are highly regulated, that the terms of the loans must be identical to those available to non-insiders and that mega-banks like BofA have government regulators on site.  That's all well and good, but I'd imagine that an insider would have a very big advantage in actually getting a loan compared to someone coming in off the street and that's exactly the kind of perception that's causing the financial industry to have a public image worse than ambulance chasing lawyers or even politicians. 

Of course we wouldn't be paying too much attention to the bonuses if the banks were doing well, but since they're struggling the insider deals look even worse.  The most recent issue of Fortune has a grim article titled "Will the banks survive?" that points out that on February 20 BofA stocks were trading at less than $3 per share and Citigroup's at less than $2 per share which means their combined market cap was less than Kraft foods.  Oh, and it points out that the trouble has just begun for the banks:

How can it be that the banks are tottering after the government fortified them with hundreds of billions in bailout cash and guarantees on their troubled assets? For the past 18 months, the banks' problems with toxic securities, especially collateralized debt obligations (CDOs) and other exotic products that packaged subprime mortgages, attracted most of the attention – and alarm. Now the storm is entering an entirely new phase that's potentially even more dangerous: a historic meltdown in the bread-and-butter businesses of credit card, home-equity, and mortgage lending.

The scale of potential losses in consumer and business loans swamps what's left from the securities debacle by a factor of three or four to one. And the next wave, the looming defaults on commercial real estate loans financing the likes of half-leased retail malls, will soon cause a fresh round of pain. "We've now moved from the securities phase to the lending phase of the banking crisis," says Tanya Azarchs, a managing director in S&P's financial services ratings group. "For 2009 we expect that loan losses will be much worse than for 2008 and that securities write-downs will be much less."

Ouch.

A Familiar Refrain

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At the end of a Bloomberg article on the increase in commercial credit defaults that banks are seeing you'll find this gem:

Most troubled commercial properties have loans that are either syndicated or packaged into securities and sold to investors, and aren’t owned by a single lender. One Riverwalk Place, an 18-story office building in San Antonio, defaulted this year, as did Riviera Holdings Corp., a Las Vegas-based casino owner. Neither loan is owned by a single lender.

Banks, like real estate developers, sold off most of the riskiest debt, said Dan Fasulo, a London-based managing director at Real Capital Analytics.

“They keep the good deals for themselves, and they do the riskier, shadier stuff with a partner,” Fasulo said. “What are you going to do with the bad stuff? You’re going to try to syndicate it privately.”

Sound familiar?

ACC Sucking Wind

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Seven ACC teams made the big dance and four didn't make it past the first round, most notably Wake Forest being thumped by Cleveland State.  If you go buy tournament results you'd have to say that so far the vaunted depth and parity of the ACC was vastly overrated.  Personally I think a better gauge is the overall record of the conference's teams versus non-conference opponents during the season, but since so much emphasis is put on the tournament you can't totally discount the idea that the ACC teams are second-class citizens in March.  My reply is this: does anyone really believe that, despite winning the ACC tournament, Duke is a better team than North Carolina?

As for Wake I want to say only one thing: one of the reasons they were beaten so handily was that they couldn't stop two players from having all-world games against them.  Although Wake's defense is much improved this season they seemed to have a habit of letting players "go off" on them.  Hopefully for next season they'll find someone that they can designate to lock down on other teams' go-to players much like their opponents did to Jeff Teague at the end of this season and during the tournament.

North Carolina Ahead of the Curve

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It might be hard to believe right now, but we here in North Carolina might be leading indicators for the US economy.  Just as we started feeling the brunt of the recession before most of the rest of the country we might also be the first to feel the 'bottom' and see a recovery.  This occurred to me when I read that foreclosures in February were down almost 50% compared to February of last year in North Carolina, but the rest of the country experienced a 30% increase in foreclosures.  Yeah, yeah this is just one indicator and it's surrounded by other negative stories like the sales of existing homes in Greensboro falling 38% in February, but since foreclosures were a key factor in the start of our economic collapse it would seem that a decline in foreclosures would be a good sign that the bottom might be near.

Call be a pie-eyed optimist, but I'll take good news anywhere I can get it.

$54,000?

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In a story about a proposal by NC Republicans to give a $2,500 tax credit to families who pay to educate their children at private schools there's a very interesting figure: $54,000.  That's the amount they say that North Carolina spends on each student in public schools each year.  That's an incredible number when you think about it and it leads me to ask a few questions of my own:

  • If the Summit School can educate kids for $16,000 in tuition a year why does it take almost triple that to educate public school children?  Before you start hollering about lunch programs and the like, let me say that I can understand why it has to be more expensive in general to compensate for the mandate of educating all children, no matter their economic, emotional or intellectual status, but does it really have to be three times more expensive?
  • Why wouldn't you give a $2,500 tax credit to any family that takes their kids off the public rolls?  They are literally saving you $50,000 if they send their kids to a private school or if they home school. One answer might be that the cost per child will go up because you're shrinking the pool of children, but I think that only highlights the inherent inefficiency of the system.  
  • I wrote a bit about the Winston-Salem Forsyth County Schools' budgeting last fall when I was befuddled by their textbook purchasing procedures.  At the time I was hoping to dig into the school budget so I could see how exactly funds are allocated, but I just haven't had the time to do it.  I'd still love to see how the school system spends its money, and after seeing the $54,000 figure I'd really like to know where it all goes. 

I have to believe that there's a better, more efficient way to get our kids educated.