Explaining Southern California's economy

Cracking down on payday lenders

Obama Nominates Richard Cordray To Head Consumer Financial Protection Bureau

Mark Wilson/Getty Images

WASHINGTON, DC - JULY 18: U.S. President Barack Obama (C) shakes hands with former Ohio Attorney General Richard Cordray during a presser to announce the nomination of Cordray as head of the in the Consumer Financial Protection Bureau as Special Advisor on the Consumer Financial Protection Bureau Elizabeth Warren (L) watches in the Rose Garden at the White House on July 18, 2011 in Washington, DC. The new bureau was created under a reform bill last year and intends to make basic financial practices such as taking out a mortgage or loan more clear and transparent to consumers while weeding out unfair lending practices. (Photo by Mark Wilson/Getty Images)

If you want to see what loan sharking looks like in modern America, look no farther than the payday lending industry. As this blog from the White House (yes, 1600 Pennsylvania Ave. blogs) points out, 20 million Americans use payday loans — and the average interest rate charged on a two-week loan is 400 percent!

The White House used a $100 loan as its basis. From a payday lender, a Benjamin winds up costing the borrower $16. If you accept that 20 million figure, this means that on $100 loans, the payday lending racket is bringing in $320 million every two weeks. OK, that's simple math and may not represent reality. But perhaps not that far off, as some borrowers will borrow more, some less.

Just for context, 20 million Americans equals 6.5 percent of the population. That's an alarmingly high number of people who are exposed to a horrifically high level of short-term interest. But it also explains why the payday lending business has taken off.

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December 2011 jobs report: It could be big

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Mark Ralston/AFP/Getty Images

Unemployed father of two, Michael Lopez waits for work outside a temporary labor office in the Southern Californian town of El Centro, a town of 50,000 people where 30.4 percent of the work-age population are without employment, on October 28, 2010.

I can't call this anything other that pure intuition, but I think tomorrow's December 2011 jobs report from the Bureau of Labor Statistics is going to be very, very surprising. It's going to show many more jobs added and potentially knock another tenth of the percentage point off the national unemployment number, currently at 8.6 percent.

I could be completely wrong of course. We could end up with just north of 100,000 jobs adding in December, closer to the economic consensus and well below the 350,00-per-month figure we need to see the unemployment crisis begin to resolve.

I'm going on feeling, but the rest to the world can look to the ADP report, which provides a preview of the official BLS data. It hasn't been terribly reliable of late. And as the Wall Street Journal points out, its average December miss since 2006 has been...122,000 jobs. 

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Caruso and Torre: An LA dream team wants to buy the Dodgers

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Christian Petersen/Getty Images

Manager Joe Torre of the Los Angeles Dodgers watches from the dugout during the Major League Baseball game against the Arizona Diamondbacks at Chase Field on September 24, 2010 in Phoenix, Arizona.

Joe Torre won four World Series with the New York Yankees before moving to the Dodgers and clinching a pair of National League West titles. Rick Caruso has created the closest thing LA has to beloved public spaces, with his Grove and Americana shopping complexes.

Now the two men have joined forces to buy the Dodgers. The team has to be sold out of bankruptcy by April 30.

The LA Times Opinion L.A. blog sums up the state of the potential bidding war:

They join a growing list of heavy-hitting potential buyers including billionaire hedge-fund executive Steven Cohen, Dallas Mavericks owner Mark Cuban, former Dodgers stars Orel Hershiser and Steve Garvey, basketball legend and businessman Magic Johnson, and respected former Dodgers owner Peter O'Malley. As the so-called bid book went out last month from owner Frank McCourt to provide prospective bidders with information on the team's worth,  more people were announcing their interest in buying the iconic team.

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The Fed's solution to the housing crisis: Rent!

Real Estate Brokers Lead Bus Tour Of Foreclosed Homes In Vegas Area

Ethan Miller/Getty Images

Well, this is interesting. The Federal Reserve has produced a white paper that tackles the Very Big Problem of the ongoing housing crisis and submitted it to Congress. It's a veritable treasure trove of clear-eyed analysis about why the housing market is still in such rotten shape. But beyond that, it offers a suite of equally clear-eyed ways to fix the problem.

One of these is particularly intriguing: taking foreclosed properties and, instead of trying to sell them to new homeowners — which requires mortgage financing which isn't now widely available to any but the most creditworthy borrowers — turning them into rentals. And who will do the renting? Real estate investors are the secret sauce (just a bit of translation: "REO" means "real estate owned," i.e. foreclosures):

To date, REO holders have avoided selling properties in bulk to third-party investors because the recoveries that REO holders receive on such sales are generally lower than the corresponding recoveries on sales to owner occupants. Investors considering such bulk-sale transactions tend to demand a higher risk premium than owner occupants and thus will purchase only at lower prices. Investors in such transactions also might have more difficulty obtaining debt financing than owner occupants.  Although mortgage products are available for individual one- to four-family houses and for multifamily properties (albeit currently at tight terms), no mortgage products currently exist for a portfolio of single-family homes. [My emphasis] In addition, REO holders must absorb the costs of assembling inventory for bulk sale — that is, holding properties off the market until enough properties have been assembled to cover the fixed costs of a rental program. Until the inventory is assembled, the REO holder receives no revenue from the property but incurs direct financing costs; carrying costs such as taxes, utilities, and maintenance expenses; and the continued depreciation of the property.

An REO-to-rental program that relies on sales to third-party investors will be more viable if this cost-pricing differential can be narrowed. REO holders will likely get better pricing on these sales if the program is designed to be attractive to a wide variety of investors. Selling to third-party investors via competitive auction processes may also improve the loss recoveries.

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How I became a Bitcoin trader

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Mark Scott

Readers of DeBord Report will know that I've become embroiled in a controversy/experiment involving Bitcoin, the cyber- or crypto-currency that's captured the hearts and minds of some passionate supporters in the technology world. In response to some commenters on the posts I've written so far, I decided to buy and trade some Bitcoin, just to see how it would go.

I suppose I could call this "Bitcoin Challenge" to parallel the "Bike Challenge" I'm also currently engaged in. 

There are some superficial similarities. I haven't ridden a bike anywhere in more than a decade. I've also never traded currencies — or much of anything else.

However, my sideline career trading BTC is off to a decent start. I don't know why, but the price of Bitcoin has been headed up of late. Because this is just an experiment and not an attempt to make real money, a few weeks back I purchased $10 of Bitcoin. I bought BTC at $3.90 and, a few minutes ago, sold it at $5.40. 

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