21% HAMP First Year Redefault Rate

Obamacare: Now Legally as Well as Politically Unstable – The decision on the individual mandate handed down today by U.S. District Judge Henry Hudson in the Eastern District of Virginia makes it clear that Obamacare is on extremely shaky legal ground. That’s fitting, because it’s been on shaky political ground for well over a year now. Today’s decision — possibly joined by others in the weeks ahead — is going to strengthen the already strong perception that this law was ill-advised from the get-go and needs to be repealed to make way for a more sensible, consensus-driven program. Specifically, the judge’s ruling today found that the new law’s requirement that all Americans must purchase government-approved health insurance or face a fine was not a permissible use of the lawmaking authority granted to Congress under the Constitution. In other words, Congress doesn’t have unlimited authority to do anything it wants. Its powers are carefully enumerated. And among them is not the power to force Americans to buy something they would otherwise forgo.
 
And now for some real money: ECB is considering a capital increase – ECB may ask national governments to increase its capital – a sign that it is concerned about the effect of its bond purchase programme; Reuters Breakingviews says ESCB has similar leverage as Lehman Brothers before it went bust: the real risk is a default; Peter Garber of Deutsche Bank does the math on an intra-eurozone capital flight; Moody’s casts doubts on the solvency of the Spanish financial sector; European Commission’s crisis fund is to expire in 2013; Bart de Waver calls Belgium a failed state; bonds spreads move sideways, and euro strengthens; Mario Monti, meanwhile, criticises the European Council as short-termist. [more]
 
Visualizing the U.S. National Debt: 1791-2010 – It’s time to update our U.S. national debt history visualization project, bringing it fully up to date through Fiscal Year 2010. First up, the exponential view of both annual GDP and the national debt:  And now, the same data, but shown on a log-lin chart:  Here is another log-lin chart, but this time, showing GDP and the national debt per capita:   Finally, let’s conclude with the U.S. national debt burden, or rather, the debt-to-income ratio for the nation:
 
Summers Warns Against Permanent Tax Cuts – Top Obama economic adviser Lawrence Summers praised the White House’s tax-cut compromise with Republicans, but issued a defiant warning to Congress to not make some cuts permanent when major elements expire in two years. "Compromises that were necessary with a weak economy in 2010 should be inconceivable as recovery accelerates in 2012," Mr. Summers said in a speech at the Economic Policy Institute Monday.He also labeled "inconceivable" the idea that lawmakers would have a protracted fight over whether to raise the federal debt ceiling and potentially "allow any serious question to arise with respect to our debt."
 

Global Warming Deal Decades Away as `Dysfunctional’ U.S. Delays Commitment – Delegates at the United Nations climate talks stayed up two nights in a row last week to agree on a proposal to slow global warming. Next year’s negotiations may be even tougher.  The plan approved on Dec. 11 creates a climate fund to channel as much as $100 billion a year in aid to developing nations by 2020, protects forests and outlines methods to verify cuts in fossil fuel emissions. No new targets for curbing greenhouse gases were set, and debate on the future of the Kyoto Protocol, which limits emissions by developed countries until 2012, was put off until the next meeting in Durban, South Africa, in December 2011. With President Barack Obama struggling to salvage his energy agenda and richer and poorer nations in conflict over extending Kyoto’s emission limits, a new worldwide climate treaty may be 20 years away, said Tim Wirth, who in 1997 led the U.S. delegation in Kyoto, Japan. Such a delay endangers the future of $2.7 billion a year in pollution credits sold under a UN program based on the Kyoto agreement.

  Climate Talks Might Need a Profit Motive – Evidence of green-business profits and more direct industry engagement may be needed to push United Nations climate talks out of stale rich-poor rivalries and into a global agreement.  Negotiations like the talks that concluded here early Saturday do not give businesses or investors a formal role in climate policy, consigning them instead to hold side events in hotels far from the conference center.  More business engagement is the key to unlocking real progress, said Yvo de Boer, who stepped down this year as executive secretary of the U.N. Framework Convention on Climate Change.  “We’re trying to get away from a zero-sum logic,” Robert B. Zoellick, president of the World Bank, said in an interview. “From my own experience in trade negotiations, if you see it as one guy wins, the other guy loses, you’re going to have a hard time getting a deal, frankly, because nobody wants to go home the loser.”
 
The Myth of Peak Oil Demand and the Example of Loma Prieta – The peak of oil demand in the OECD is of course misunderstood. Oil and gasoline users in the developed nations did not freely decide to change their habits. Instead, price has forced that change upon them. But this has not stopped groups like Cambridge Energy Research Associates or new-energy gurus like Amory Lovins from trying to spin the change as a broad, discretionary event. But it’s not discretionary and to portray it as such is just wrong. Instead, the demand-shift is best explained by two much more important, much more revealing phenomena that began to show up in the last decade. The first, of course, has been the inability of global crude oil production to exceed its annual peak of 73.781 mbpd (million barrels per day) set back in the year 2005. That fact alone, both simple and incontrovertible, has been powerfully deterministic in reducing OECD oil demand growth through the mechanism of price. But the more complex dynamic at play is that the older user of oil in the OECD runs into affordability barriers more easily than the new user of oil in the developed world. The reason is as follows: the old oil user historically consumes a lot of oil. The new user is coming online using much less.
 

The Tax Deal and the Apocalypse – The proponents of the tax deal that President Obama and the Republicans negotiated last week have gotten out their TARP and Iraq War hysterics. All the important people are now telling us that if Congress doesn’t approve the package, it will be the end of the world! To be an important person in Washington these days requires a solid record of failure. That is why we have 25 million people unemployed, underemployed or out of the labor force altogether. And those who got us into this disaster are still overwhelmingly the ones calling the shots. So, people who want a realistic assessment of what the defeat of this tax package means for the economy may not want to rely on the usual suspects. As I have noted before, the major risk of this deal is that it would undermine Social Security. The deal temporarily lowers the Social Security tax by 2 percentage points. In principle, the tax rate will go back to its current rate after the end of next year. However, several prominent Republicans have already made it clear that they will call the expiration of this tax cut a tax increase. And they will point out that it is an extremely regressive tax increase that disproportionately hits low- and moderate-income workers.

 
Darrell Issa uncomfortable with tax deal – Count a future GOP committee chair as one of those icy on President Barack Obama’s tax compromise with Republicans. California Rep. Darrell Issa, the future chair of the House Oversight and Government Reform committee, said the tax bill that passed a key procedural hurdle Monday is "an incomplete effort that fails to create a permanent tax structure giving businesses the kind of long-term predictability needed to support investment, economic growth and job creation." Issa isn’t yet saying he’ll vote against it and even concedes that it avoids "massive and immediate tax increases that would harm our economy and kill more jobs."  "While my vote will ultimately depend on the final bill brought to the floor of the House, the flawed last minute consideration of this proposal underscores the need for Congress to act decisively in the new year to support job creation, curb government spending and enact permanent tax reform,"
Tax bill passes Senate test A proposal to extend Bush-era income tax cuts set to expire at the end of the year easily cleared a critical Senate vote Monday, shifting the focus to skeptical House Democrats and setting up a showdown on the measure later this week. President Obama, acknowledging discontent within his party over the compromise he reached with Republicans this month, nevertheless pressed the House to act quickly. The White House has cast the measure as key to boosting the nation’s economy. Top Democrats predicted the extensions will pass, but would not say in what form. House Majority Leader Steny Hoyer, D-Md., said he is hopeful the measure will move by the end of the week. "We’re going to have a vote on the Senate bill, and with possible changes," he said. "The legislative process is a process of give-and-take."
Democrats are particularly anxious about changes to the estate tax that would permit a couple to pass $10 million on to heirs tax-free and would tax inheritance beyond that amount at 35%. The provision, which Hoyer said "a number of us would like to change," would cost $68 billion over the next decade.

 
21% HAMP First Year Redefault Rate – The Congressional Oversight Panel has a new HAMP report out.  Like all COP reports, it’s long and chock full o’ analysis.  There’s an executive summary up front, but some of the most important points are only in the report proper (especially pp. 100-111).  I think there are three big things to take away from the report:  
  • First, 21% of HAMP permanent modifications have redefaulted in their first year.  That’s ghastly given that HAMP permanent modifications have an additional 3 months of trial seasoning and fairly serious payment reductions.  The fact that Treasury hasn’t been reporting on this itself, much less analyzing the reasons for the redefaults is disgraceful. 
  • Second, if past trends continue, starting this month, there will be more HAMP redefaults each month than new permanent modifications.  That means that the total number of active permanent modifications will peak at around 500,000 and decline. 
  • Third, it looks as if Treasury will only end up spending $4B for HAMP out of the $75B allocated for homeowner assistance. 

My take:  Treasury should shut down the program.  At this point all it does it provide political cover for the failure to take meaningful steps to help homeowners and stabilize the housing market. But is anyone really buying it?  

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