Rolling US Economy Into The Shitbin Thread

a lender for a residential mortgage generally isn't going to loan the borrower more than they believe the house can be re-sold for, because the house is the collateral securing the loan.

Yeah, the "value" of commercial property is basically the present value of the future cash flows as I understand it.

yeah ... I like a lot of propublica's coverage, but it has a tendency to oversimplify and/or make not-so-good analogies to explain things to readers (which, some of these topics are complex, and it is really good that they are covering them in an accessible way). I think there was an article a few weeks back about taxes/tax policy (something like that) that was like 90% right, but 10% misleading/inaccurate but I don't recall the exact article.

eh ... i might be being too negative ... maybe it was more like 95% right/5% misleading/inaccurate

Not sure I understand what the problem is with the analogy

the analogy equates the income value of the commercial property with the income of the homeowner -- which is fine, if you are looking at it from an "ability to repay" standpoint, but the income value of the commercial property determines the maximum loan value (regardless of the borrower's ability to repay / their credit / etc), which is more accurately equated with the assessed value of the house -- the underlying property that secures the loan.

the subprime crisis was partly loans being made to people who couldn't afford them, but also partly the overinflated values of the properties because of the lax lending standards, such that the actual re-sale value of the houses securing the loans wasn't nearly enough to pay off the outstanding debt -- it's like student loans and college tuitions which are partly so high because it is easy to get loans for that much. If they regulated student loans like they did residential mortgage loans (well, like since 2008), tuitions would not be/have gotten that high.

the analogy is about lying, not the underlying value of assets

the distinction isn't meaningful from the perspective of commercial properties, which is what the argument is about The value of the property and its income-producing ability are one and the same.

The distinction is meaningful wrt a residential property because you could have a loan secured by a correctly valued property and a buyer who lied about his income, meaning that the buyer can't pay but the bank still has sufficient collateral.

In a commercial mortgage, the only value the property has is as income-producing property, so if the income is overstated the value is per se overstated. People buy houses to live in. People only buy commercial properties for income. Therefore the analogy to overstating a residential buyer's income is more apt.

People only buy commercial properties for income.

nope -- there are people who buy commercial property to live in (this is something i deal with on a daily basis for work); there are people who buy commercial property to run their business(es) out of -- active vs passive income. Different things are required on the loan docs

In a commercial mortgage, the only value the property has is as income-producing property, so if the income is overstated the value is per se overstated. People buy houses to live in. People only buy commercial properties for income. Therefore the analogy to overstating a residential buyer's income is more apt.

I get that, but, I would argue that overstating the income (bu under-reporting expenses) is closer to not disclosing some physical flaw in the house or misrepresenting the size of the lot -- as in, "Yes, this house is worth $600k but it needs a new sewer lateral and foundation that will cost $50k, but we hid that fact from people."

ugh -- typos -- (by under-reporting expenses) like, the house is only worth $550k because in order to get that $600k value, you would have to spend $50k on foundation work and the new sewer lateral.

I think this is kind of point-missing. These are commercial mortgages that get bundled and sold as mortgage-backed securities. Mortgage backed securities provide a stream of payments. The ability to provide that stream of payments depends on the ability of the property owners to service the mortages, which in turn depends (in nearly all cases) on income produced by the properties. No one buys a mortgage backed security with the hope that the underlying properties will be foreclosed. In the same sense, RMBS are also a stream of payments based on the ability of the property owners to pay, except from their own income instead of income from the property. So in that sense it is a very good analogy. Using the underlying asset value instead would make no sense. The point is that the payment generation ability of the property in each case is overstated.

Using the underlying asset value instead would make no sense. The point is that the payment generation ability of the property in each case is overstated.

I can see that, if you are only looking at it from the perspective of the CMBS investor, which is ostensibly what the article is about, though the issue of fraud in commercial mortgage lending is also discussed quite a bit in the article, and is perhaps more interesting/relevant to a general audience, and the underlying asset value definitely plays a part in that. Also, comparing it to more regulated disclosures and valuations of residential properties w/r/t underwriting.

That is 100% what the article is about, and it is 100% relevant to a general audience, because this is the commercial mortgage equivalent of what caused the last financial crisis. That's the whole point.

the resale value of the properties was a secondary consideration at best in the subprime crisis -- mass foreclosures are bad news for banks even if they get collateral of value.

I wasn't saying that it wasn't relevant. I was saying, in addition to the parallels with the subprime crisis, it also reveals a disparity in regulation and valuation of real estate owned by more affluent/powerful people/business interests vs. low and middle income individuals, which is also relevant, and the article talks about as well.

https://www.reuters.com/article/us-boeing-jobs-idUSKBN2332EP

Ah! Well, nevertheless,

thought this was pretty interesting and honestly a little surprising. i don't think this is going to be a common vector for transmission to i think it's probably good news?

https://medium.com/thumbtack-blog/data-exactly-how-hard-covid-19-is-hitting-local-services-cf7737775f6e

i think these %s are compared to march 1 rather than compared to, e.g. what they were on that day a year ago. so the fact that home services work is *up* is not necessarily surprising because people work on their homes in the summer. but still!

"i don't think this is going to be a common vector for transmission to i think it's probably good news?"

"this" = an electrician or something coming to do work on your house, not like a peripatetic singing teacher coming to your house.

full data here goes back to march 1 https://docs.google.com/spreadsheets/d/e/2PACX-1vSLW6qVKKs9-SpvFVki3ZRrsr8EWfLokMg5JGn6upbw1pg1krEkwgcxED3jfLE7dqSZ1WkS5zVlvjJg/pubhtml#

Anecdotal evidence gathered by me would indicate that DIY projects are definitely on the upswing as people get fidgety at home. I’m also not at all surprised that folks would be bringing in the pros to take care of household projects that have been on the back burner, what with all the money people are saving on gas and by cooking at home.

ha it will be interesting to see how much un-permitted residential construction / improvements are being made rn ... though it feels like the transition to submitting plans, etc. online rather than in person isn't that difficult.

a friend posted on facebook that he had been looking for a bag of shredded rubber to finish a landscaping job for weeks, apparently they are as gone as the nintendo switch

such a pain to shred your own, but it does make for a fresher hellscape i mean landscape

southwestern US teal formica shortage

welcome to the shitbin

Stephen Moore, economic adviser to the White House, on the jobs numbers:

“It takes a lot of the wind out of the sails of any phase 4 -- we don't need it now. There's no reason to have a major spending bill. The sense of urgent crisis is very greatly dissipated by the report.”

— Jeffrey Stein (@JStein_WaPo) June 5, 2020

Everything's all better! Yay!

His own obstinate GOP Senate doesn't even agree with that as of this week

at the risk of being extremely paranoid, do we believe these numbers?

bls is of course supposed to be independent and insulated, but so are inspectors general

i have a friend who works in labor statistics stuff, they looked bonkers to him. i think his suggestion was that maybe a lot of covid-related work loss was being counted differently.

i've mentioned this elsewhere but the markets are nearing their all time highs very quickly. It's not the real economy but certain people don't seem to care as long as they can say "the economy" is fine.

a lot of the "re-employed" are furloughed returning to work, but they could be counting people who returned to work only to be told their job would be ending permanently at the end of the week (as some friends of mine), or coming in for a day or two for re-opening meetings or having their hours severely cut so they're working at a fraction of what they made before. Many of these people can't even file for underemployment, as for example in Florida, you can only file for underemployment if you make less than $275/week, which is their maximum benefit.

so I'm sure the stats are "accurate" from the 10,000 foot view, but they probably don't mean what people think they meet when examined up-close.

I saw that it's a lot of forloughed and hospitality workers going back to work, but employment numbers for blacks and Asians actually went down.

let's see how many more bodies are nbd

that's the other part.

There's gonna be a different picture once the credit card and auto loan and mortgage defaults start to pile up, but that could take a while to show up in quarterly earnings results.

there was a headline today that Hertz went up 825% since they declared bankruptcy and their shares plummeted.

"Unexpected strength in employment, hours, and earnings in May implies less of a decline in second-quarter PCE than previously expected. As a result, we raised our tracking forecast of second-quarter GDP growth by 0.5 percentage point to -41.5%." —IHS Markit

— Neil Irwin (@Neil_Irwin) June 5, 2020

oh, what a relief

Nasdaq all time high today really good stuff

trade of a lifetime

https://www.washingtonpost.com/business/2020/06/05/may-2020-jobs-report-misclassification-error/

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate.

The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May.

My wife works in labor and employment and she has seen a lot of employers furloughing employees over the last two months. A lot of these employees won't end up being recalled.

Also, employers who received PPP loans were required to maintain certain payroll for two months as a condition to getting the loans forgiven. I would anticipate further layoffs when this period is over and employers are no longer required to maintain payroll.

Yeah friends of mine who are currently unemployed or furloughed are balking at mgmt who are poking around reopening offices. No one feels safe yet

Lately I've felt like the guy on the airplane who is the only one who can see the monster on the wing. The economy, despite a bounce-back effect in some data and a stock market recovery, is suffering a profound collapse of demand.

Don't lose the thread.https://t.co/8KXXL4SZHx

— Neil Irwin (@Neil_Irwin) June 6, 2020

my economy means i don't read shit in the ny times anymore

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate.
The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported,” meaning the unemployment rate would be about 16.3 percent for May.

― j., Saturday, June 6, 2020 12:44 AM (twelve hours ago) bookmarkflaglink

these errors exist every month; if you include errors from both months the decline in unemployment is actually larger

Two things to note about unemployment misclassification in today's jobs report:

1. If misclassified absent workers had been counted as unemployed as intended, U3 would have been +3pp higher.

2. But this error was +4.8pp last month.

So official U3 understated the M-M decline.

— Ernie Tedeschi (@ernietedeschi) June 5, 2020

Also, employers who received PPP loans were required to maintain certain payroll for two months as a condition to getting the loans forgiven. I would anticipate further layoffs when this period is over and employers are no longer required to maintain payroll.

there is a current bill heading to the President that would extend the duration of the PPP loan forgiveness period -- (from 8 weeks to 24 weeks, i think). It's also creating this weird system where there are people on unemployment who don't want to go back to jobs that could still just be temporary because the unemployment benefits are more stable, meanwhile employers need workers in order to qualify for loan forgiveness, so there is some weird hiring going on. I am in this facebook group for accountants where people are posting that business owners w/PPP loans are asking them if they could hire their children as employees, like 9 year olds, like "will this violate child labor laws" age kids.

a current bill heading to the President

sorry not to know already, but do you know if this is yet to pass the Senate, or now in conference committee, or ready for its final vote, or now voted on and awaiting signature?