Green Shoots

The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency’s cash reserves will drop below the minimum level set by Congress, FHA officials said.

 

The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.

 

“It’s very serious,” FHA Commissioner David H. Stevens said in an interview. “There’s nothing more serious that we’re addressing right now, outside the housing crisis in general, than this issue.”

 

Until now, government officials have warned that the agency could be forced to ask Congress for billions of dollars in emergency aid or charge borrowers more for taking out FHA-insured loans if the reserves fell below the required level, equal to 2% of all loans guaranteed by the agency.

The chairman of the Federal Deposit Insurance Corp. says she is “considering all options, including borrowing from Treasury,” to replenish the dwindling fund that insures bank deposits.

 

“I never say never,” FDIC Chairman Sheila Bair told an audience at Georgetown University Friday.

 

Bair’s remarks go beyond what she said just three weeks ago when asked about tapping the Treasury after the fund that insures regular deposit accounts up to $250,000 hit its lowest point since 1992, at the height of the savings-and-loan crisis. “Not at this point in time,” she said on August 27.

 

The FDIC estimates bank failures will cost the fund around $70 billion through 2013. Ninety-two banks have failed so far this year. Hundreds more are expected to fall in coming years largely because of souring loans for commercial real estate.

 

The FDIC’s fund has slipped to 0.22% of insured deposits, below a congressionally mandated minimum of 1.15%. The $10.4 billion in the fund at the end of June is down from $13 billion at the end of March, and $45.2 billion in the second quarter of 2008.

 

When Congress gave away $3 billion for buyers to trade in their “clunkers” and buy new cars in August, lawmakers thrilled as buyers swamped showrooms to take advantage of the big discounts. “Cash for clunkers has captured the public’s attention . . . (it) has the possibility to truly jumpstart our economy,” said Representative Candice Miller (R-MI). Other, more sober analysts, warned that the clunkers program was only stealing from future sales.

September sales are in, and sobriety can take a bow.

Edmunds.com reports that “September’s light-vehicle sales rate will fall to 8.8 million units . . . the lowest rate in nearly 28 years, tying the worst demand on record. After the cash-for-clunkers program boosted August sales to their first year-over-year increase since October 2007, demand has plunged. In at least the     last 33 years, the U.S. seasonally adjusted annual rate has only dropped as low as 8.8 million units once — in December 1981 — with records stretching back to January 1976.”

“It was probably, in the end, a complete waste of taxpayer money,’’ said John Wolkonowicz, a senior auto analyst at IHS Global Insight, Lexington forecasting firm. “The dealers, who were supposed to be the primary beneficiaries, many were forced into cash flow problems because the government didn’t pay them in a timely fashion.’’…

 

Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association, which represents 441 dealerships, estimated that most are probably still owed money.

 

“This program was very good at getting product off the lot, but there haven’t been long-term benefits,’’ he said. “Dealers are reporting that showrooms are pretty dead right now.’’

 

Wolkonowicz said the fall slowdown may have been worsened by the program because many buyers came out early to take advantage of the program instead of waiting until now to shop.

Four years ago, George W. Bush attempted to reform the entitlement program Social Security, warning that the system was accelerating into collapse and would     soon run deficits.  Democrats scoffed and claimed the Social Security system was solid and wouldn’t have problems for at least fifty years, as Harry Reid told PBS’ Jim Lehrer in June 2005.  Just last year, the CBO — under the direction of Peter Orszag, now budget director in the Obama administration — claimed that the first cash deficits in Social Security would not come until 2019.

 

Now, however, the CBO has determined that Social Security will run cash deficits next year and in 2011, and by 2016 will be more or less in permanent deficit mode.

The situation at Social Security is much worse than this administration and Democrats in Congress want to admit.  They want to continue busting the deficit and creating new entitlements while the existing ones careen towards collapse.  The new data shows that time has almost run out for reform.  Seniors will still get their checks, but those will increasingly rely on injections from the general fund and not revenues from Social Security payments.  At this point, one has to wonder when SSA becomes a flat-out Ponzi scheme, and who the suckers will be when it blows up.