CHESSNOID

The stock markets have had a couple of good days which is expected since it has had a few down weeks.  Unfortunately, the markets don’t really seem to correlate with the current economy.  The economy is still not doing better.  I don’t usually agree with this author, but in today’s article he points out situations and numbers that are true and reflect the economy we live in.

CNN.Money:

But on Main Street, people seem to have a decidedly different view. It’s hard to find things to be happy about when the unemployment rate is at a more than quarter-century high of 9.5% and the housing market remains in shambles.

The mess in housing — foreclosures in the first half of the year were up 15% from the first six months of 2008 — is something that some fear could keep a lid on an economic recovery.

So even though investors, CEOs and Fed chair Ben Bernanke may be seeing green shoots everywhere they look, many average Americans have to squint very hard in order to find them. Just try telling a Zillow.com-obsessed home owner who’s watched the value of his home continue to plummet in recent months that the economy is getting better.

“The big unknown variable in the economy still is housing,” said Haag Sherman, managing director with Salient Partners, an investment firm based in Houston. “The worst may be behind us with subprime loans, but I don’t think housing has found a bottom. We could have a recovery in Corporate America that’s much narrower than the recovery in the broader economy.”

…

Sherman pointed out that banks are starting to experience waves of delinquencies and defaults with higher-quality mortgages such as alt-A loans and prime loans.

To that end, JPMorgan Chase (JPM, Fortune 500), which posted strong second-quarter results Thursday morning thanks to healthy gains in its investment banking division, reported some fairly dismal numbers out of its consumer lending unit.

The bank said that net charge-offs, a figure that measures the amount of debt written off as bad, were $1.3 billion from home equity loans, double the $511 million of a year earlier. And net charge-offs related to prime mortgages quadrupled to $481 million from $104 million last year.

The article is much longer and has a lot more to say. I think it is safe to say the root of the problem is still far from resolved. That is why I hate these bailouts and stimulus crap. The origin of the problem started from the housing bubble/crisis and that is still not resolved. Foreclosures are still going up and yet the Obama administration is still not dealing with it. Those modifications don’t really help most people because it only deals with loans that are not more than 125% of the value of the property. That was recently raised from 105%. Well, considering most places in the United States have had 40-50% valuation drops, that excludes the majority of people.

The other problem are banks don’t want to do loan modifications because they will lose money. Yes, they will lose money when they foreclose too, but they can manipulate the books on true earnings and losses (see below) and still take taxpayer money through the bailouts. We have the FDIC and they should be utilized. Let banks and companies fail if they can’t stand on their own. The FDIC or bankruptcy courts will handle the rest, then the new companies, if any, that come out of it will be stronger.

CNN.Money:

If the lenders had modified these loans, they would have lost money unnecessarily.

A second reason, according to the report, is that so many modified loans re-default, with up to 50% of all modified mortgages succumbing. That costs the banks twice: They bear the expenses of the initial workouts and they pay again to finish the foreclosures, including any additional missed payments.

And by postponing foreclosures, lenders absorb any subsequent housing value losses. If the final repossessions are delayed a year, the lenders could be getting houses worth 10%, 20% or even 50% less than they were at the point of the original default. The banks would have been better off foreclosing then.