Kevin Drum

The Financing Problem

| Mon Dec. 22, 2008 9:48 AM PST

THE FINANCING PROBLEM....One of the things that will keep the U.S. housing market in the doldrum for years, even after prices bottom out, is that so many homeowners are upside down on their mortgages: they owe more on their homes than they're worth. Well, guess what? The auto industry has the same problem. Stephanie Mencimer, author of the terrific book Blocking the Courthouse Door, reports over at our main site:

According to industry analyst Art Spinella, president of CNW Research, fully 85 percent of Americans with a car loan have negative equity. Other studies show that these loan holders, on average, owe $4,400 more than their cars are worth.

....Unbeknownst to most car buyers, dealers [] routinely—and legally—bump up the interest rate offered by the bank or finance company in exchange for kickbacks from the lenders, which are often the manufacturers themselves. And in many cases, dealers encourage customers to trade in a car that isn't worth the amount of their current loan by offering to roll the old loan into the new one, thus inflating the principal and making the loan more lucrative for the lender. That's how people can end up owing $40,000 on a Ford Focus. This only works because auto lenders now stretch out the terms to six or seven years to make the payments affordable, a practice that virtually ensures that many cars won't last as long as the loan.

But nobody could have predicted etc. etc., right? Uh huh:

In 2004, major auto analysts noted that the lengthening loan terms and the increasing number of potential car buyers who were upside down on loans would lead to no good end for the auto industry, and GM in particular. Deutsche Bank analyst Rod Lache was prescient when he told Automotive News that the negative equity problem would only get worse if the automakers didn't address it. Observing that the average amount of money owed by someone trading in a car with negative equity had jumped from $2,900 to $4,000 in just a five-month period, he wrote, "The impact on US demand, price and mix from this phenomenon could be devastating, particularly if the impact is compounded by rising rates."

Read the whole thing here. This is yet another problem that has to be addressed if the auto industry is going to be successfully bailed out. After all, it doesn't do any good to give them a bunch of bridge loans unless they can figure out a way to get their customers back, and that's easier said than done. Caveat emptor.

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Commercial Real Estate

| Sun Dec. 21, 2008 10:41 PM PST

COMMERCIAL REAL ESTATE....The residential real estate market imploded two years ago, and the commercial real estate market has never been very far behind. Now big property developers are looking at their own armageddon and have started heading to Washington to get a piece of the bailout action:

They're warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. The reason: according to research firm Foresight Analytics LCC, $530 billion of commercial mortgages will be coming due for refinancing in the next three years — with about $160 billion maturing in the next year. Credit, meanwhile, is practically nonexistent and cash flows from commercial property are siphoning off.

....To head off some of the impending pain, the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt.

...."The credit crisis has got so bad that refinancing of even good loans may be drying up," says Richard Parkus, head of commercial-mortgage-backed securities research at Deutsche Bank.

If the government is bailing out commercial banks, investment banks, credit card companies, car financers, and the entire auto industry, can they really say no to the commercial real estate market? Probably not. But who's next in line after that?

Have You Gotten Your Invitation Yet?

| Sun Dec. 21, 2008 11:47 AM PST

HAVE YOU GOTTEN YOUR INVITATION YET?....According to the New York Times, the printing company that won the bid to produce a million inaugural invitations for Barack Obama is located in the unlikely sounding town of Dumbo. But no. It's not Dumbo. It's DUMBO, which trusty Mr. Google informs me is a Brooklyn acronym for "Down Under the Manhattan Bridge Overpass." Jeebus. Do New Yorkers have acronyms for everything? If we did this here in Irvine, my neighborhood would be called something like JAFEC — "Just Above the Freeway East of Culver" — which, come to think of it, might be an improvement. Probably wouldn't pass muster with the local association, though.

Elsewhere in the Times piece we learn why this particular company was chosen:

According to Mr. Donnelly, Precise Continental was selected over rival printers because it is a union company, it uses recycled paper and it is certified by the Forest Stewardship Council, which promotes responsible forest management.

Of course! But I wonder what the equivalent kind of thing would be for a Republican inauguration? A print shop whose health plan doesn't cover Plan B and encourages its employees to come to work packing? Or just a straight-up reward for whatever printing mogul bundled the largest number of maxed-out contributions to the campaign?

There's even a tangential personal connection in the story in this sentence: "The first order arrived by truck on Monday, from Neenah Paper, a Wisconsin company." An old high school friend of mine works for Neenah Paper, so I'm glad to hear they got the order. I haven't actually heard from this friend since, um, high school, but still — good work, guys.

O Frabjous Day!

| Sun Dec. 21, 2008 8:53 AM PST

O FRABJOUS DAY!....Here in the northern hemisphere, today is the winter solstice. This means that tomorrow the days start getting longer again! Hooray!

Blago Update

| Sun Dec. 21, 2008 8:48 AM PST

BLAGO UPDATE....George Stephanopoulos reports that Barack Obama's internal review shows that Rahm Emanuel had only one direct phone call with Rod Blagojevich:

The contact, described as a "pro-forma" courtesy call, came as Emanuel was named Chief of Staff for Obama. Most of the discussion concerned Emanuel's Congressional seat (which had previously been held by Blagojevich), with only a "passing reference" to the Senate vacancy, according to these sources. No deal for the Senate vacancy was discussed.

....The sources add that the report will show Emanuel also had four phone calls with Blagojevich Chief of Staff John Harris....Sources [] confirm that Emanuel made the case for picking Obama confidante Valerie Jarrett during at least one of the conversations. In the course of that conversation, Harris asked if in return for picking Jarrett, "all we get is appreciation, right?" "Right," Emanuel responded.

Apparently Obama is ready to release his review just as soon as prosecutor Patrick Fitzgerald lets him. Sad news for the press, which will then have to manufacture some other pseudo-scandal to fill up its air space.

Twitter

| Sat Dec. 20, 2008 4:56 PM PST

TWITTER....Today the New York Times christens "The Buzzwords of 2008," and one of them is:

This is designed to memorialize all forms of the word Twitter, whatever they may be. So as long as we're on the subject, can someone help me out with the whole twitter phenomenon? I'm pretty used to things that I'm not personally interested in but that I still get (like, say, texting), but twitter is something that I don't even really get. So if you're a twitterer, tell me in comments what you use it for, why you like it, how it makes your life more worth living, etc. I'm just curious.

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Shoes Make the Man

| Sat Dec. 20, 2008 11:21 AM PST

SHOES MAKE THE MAN....Bloomberg is on the case with news you can use. The original shoes tossed at George Bush in Iraq last Sunday may have been destroyed, but there are plenty more where those came from:

The brown, thick-soled "Model 271" may soon be renamed "The Bush Shoe" or "Bye-Bye Bush," Ramazan Baydan, who owns the Istanbul-based producer Baydan Ayakkabicilik San. & Tic., said in a telephone interview today.

....Baydan has received orders for 300,000 pairs of the shoes since the attack, more than four times the number his company sold each year since the model was introduced in 1999. The company plans to employ 100 more staff to meet demand, he said.

....Baydan has received a request for 4,000 pairs from a company called Davidson, based in Maryland. He declined to provide further details.

Maybe Barack Obama needs a pair or two?

*Friday Cat Blogging - 19 December 2008

| Fri Dec. 19, 2008 12:53 PM PST

FRIDAY CRITTER BLOGGING....Since we're now living in the post-partisan Obama era, it's time for cats and dogs to live together. So today you get both. On the right we have Kona, my friend M's German Shepherd. (Right? Looks like a German Shepherd to me, anyway. But I'm not all that handy with dog breeds.) I told M I'd introduce Kona to the blogosphere if she sent me a picture, and this popped into my inbox a couple of days later. An impressive critter indeed.

And you get cats too! Inkblot and Domino are taking the week off again because I was over visiting my mother a few days ago and took lots of pictures of her new kittens. On the left is Lily, the shy one, catching some rays on the window sill. On the right are Ditto and Tillamook, curled up together in a little sibling pile of fur. Ditto is the black-and-white one who looks just like Lily (duh), and he's busily grooming a blissed out Tillamook in this picture. A few minutes later I went upstairs to bring down the Christmas tree, and shortly after that both cats were entranced. No breakable ornaments on the tree this year!

Quote of the Day - End of Year Edition

| Fri Dec. 19, 2008 12:32 PM PST

QUOTE OF THE DAY — END OF YEAR EDITION....Top 12 conservative insights of the year here, courtesy of Greg Anrig.

Chart of the Day - 12.19.2008

| Fri Dec. 19, 2008 11:49 AM PST

CHART OF THE DAY....Via The Pew Forum On Religion & Public Life, here's the makeup of the 111th Congress. Note that the number of Americans who lack affiliation with any church is about 48 million or so. The number of members of Congress who are willing to admit lack of same is: zero one*. Apparently Rick Warren speaks for great big chunks of America when he says, "I could not vote for an atheist."

*Pete Stark came out of the closet earlier this year. Thanks, Rich C!