Bubble Delay Strategy: Artificially raise FICO scores

Fair Isaac is involved in a suspicious attempt to artificially boost the pool of eligible, credit-worthy mortgage and auto recipients. The company which is behind the crucial FICO score that determines every consumer’s credit rating, “will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.” In doing so, the company would “make it easier for tens of millions of Americans to get loans.”

Then, back in March of this year, in the latest push to artificially boost FICO scores, the WSJ reported that “many tax liens and civil judgments soon will be removed from people’s credit reports, the latest in a series of moves to omit negative information from these financial scorecards. The development could help boost credit scores for millions of consumers, but could pose risks for lenders” as FICO scores remain the only widely accepted method of quantifying any individual American’s credit risk, and determine how much consumers can borrow for a new house or car as well as determine their credit-card spending limit

Stated simply, the definition of the all important FICO score, the most important number at the base of every mortgage application, was set for a series of “adjustments” which would push it higher for millions of Americans.

 

The outcome of these changes was clear for the 12 million people impacted: it “will make many people who have these types of credit-report blemishes look more creditworthy.

Now, as the Wall Street Journal points out today, efforts to rig the FICO scoring process seems to be bearing some fruit.  The average credit score nationwide hit 700 in April, according to new data from Fair Isaac Corp., which is the highest since at least 2005.

Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40 million, or 20% of U.S. adults who have FICO scores, according to Fair Isaac. That is down from 20.5% in October and a peak of 25.5% in 2010.

FICO

 

Of course, to be fair, we are also reaching that critical 7-year point where the previous wave of mortgage foreclosures start to magically disappear from the FICO scores of millions of Americans.

Mortgage foreclosures stay on credit reports for up to seven years dating back to the missed payment that resulted in the foreclosure. Foreclosure starts, the first stage in the process, peaked in 2009 at 2.1 million, according to Attom Data Solutions. They totaled nearly 1.8 million in 2010 and remained above one million during each of the next two years.

Personal bankruptcies are more complicated and can stay on credit reports for seven to 10 years.

Consumers who filed in 2007 for Chapter 7 protection—the most common type of bankruptcy, in which certain debts are discharged and creditors can get paid back from sales of consumers’ assets—are now starting to see those events fall off their reports. Some 500,000 Chapter 7 bankruptcy cases were filed in 2007, a figure that swelled to nearly 1.1 million in 2010, according to the Administrative Office of the U.S. Courts.

Chapter 13 bankruptcies, in which consumers enter a payment plan with creditors, usually stay on reports for at least seven years. Those filings reached a recent peak of nearly 435,000 in 2010 and are set to start falling off reports this year.

FICO

 

All of which, as the WSJ points out, will help to “boost originations of large-dollar loans for cars and homes.”  Which is precisely what the average, massively-overlevered American household needs…more debt.

Fresh starts for credit reports are likely to help boost originations of large-dollar loans for cars and homes. Consumers have a greater chance of getting approved for financing if they apply for loans after negative events fall off their reports, in particular from large banks that have stuck to strict underwriting criteria, says Morgan Whitacre, who oversees consumer-loan underwriting at Bank of America Corp.

Credit-card lending, already on the rise, could increase further as a result of fresh starts. Consumers who have one type of bankruptcy filing removed from their credit report experience a roughly $1,500 increase in spending limits and rack up $800 more in credit-card debt within three years, according to the Federal Reserve Bank of New York.

So maybe that auto lending bubble has a little room left to run afterall…

http://www.zerohedge.com/news/2017-05-29/millions-americans-just-got-artificial-boost-their-credit-score

False recovery?

Doesn’t anyone see that if “financial services” accounts for 40% of our GDP that it means we are kidding ourselves? THAT only means we are trading from the left pocket into the right pocket into the back pocket and around again — and counting it as GDP. Our real GDP is far lower than anything reported.
Editor’s Note: The U.S. economy depends largely on the the state of the housing market. The housing market is a large factor in determining consumer confidence and consumer spending. Consumer spending accounts for the vast majority of transactions coutned in our gross domestic product, although health-care is certainly on track to over take consumer spending within 5-10 years.
Look around you. Have you noticed that home building is far from dead. Even though millions are homes are vacant and millions more will be vacant, the building continues. Why? Who in their right mind would be building homes in a market like this where the supply of new and existing homes so vastly outstrips demand?
It can only be the result of increasing demand for what they are building — shoddier, lower cost housing.
That is because the housing market is like a glass bowl on the edge of a shaky table. You know it is going to fall (again). It cannot recover because there appears to be serious motivation in the private banking and building sectors to see the housing situation worsen. Just follow the money. Wall Street and builders are set to make a ton of money while the rest of us go down the tubes. Then economic indicators are all there for anyone to see. It’s about time that Mr. Obama abandons conciliation and adopts the arm twisting aggressive tactics of Lyndon Johnson.
It is unfair to compare Obama with FDR’s situation. By the time FDR came to office in 1933, the depression was already 4 years old and there were hardly any Republicans left. This time the crisis was handed to Obama in midstream and now the republicans are working hard to pin the recession on Obama in the minds of gullible citizens who don’t have the time to inquire or research any of these issues.
I’m no fan of Johnson — but when it came to health care and civil rights he pushed it through over the vehement objections of vested special interests.And for all their venting, I don’t see anyone turning in their medicare card and very few people are left who want to go back to when women couldn’t vote (still less than 100 years ago) and minority races were prevented from voting or participating in the economy.
Each day we wait the situation gets worse and harder to reverse. Each foreclosure and each eviction, each time a homeowner leaves the keys on the kitchen counter in search of alternative, less expensive housing, the banks are laughing all the way off-shore where they are parking trillions of dollars in false untaxed profits, threatening the stability of our currency, the viability of our government financial structure and the confidence in our ability to actually start producing goods and services that people want.
We keep moving in the direction of vapor. False demand and dubious supply of things that nobody should be required to buy, much less need or want. Somehow, whether it is the tea party, the coffee party or something else must gain traction to break the death grip big business and Wall Street has on our government.
Doesn’t anyone see that if “financial services” accounts for 40% of our GDP that it means we are kidding ourselves? THAT only means we are trading from the left pocket into the right pocket into the back pocket and around again — and counting it as GDP. Our real GDP is far lower than anything reported.

Right now, our only hope is to convince one Judge at a time to listen to the facts and decide cases on the merits instead of presumptions.
March 3, 2010
Economic Scene

In Tracking Recovery, Jagged Lines

Could the economy be at risk of a double dip?

We’re now in the midst of the worst run of economic news in almost a year. Home sales have dropped. So has consumer confidence. Stocks peaked on Jan. 19.

This Friday may well bring the darkest piece of news yet, at least on the surface. Forecasters are predicting that the Labor Department will report that job losses accelerated in February, perhaps back above 100,000. The main reason will be the temporary hit from the big snowstorms last month. Yet there is reason to wonder if the economy also has bigger problems.

The weekly data on jobless benefits are narrower and less consistent than the monthly jobs report, but they have the advantage of being more current. From early January to late February, the number of workers filing new claims for jobless benefits rose 15 percent. Over the previous nine months, this number was generally falling.

Economies rarely move in a straight line, and — as the better-than-expected numbers on Tuesday on vehicle sales suggested — the recent run of bad data is probably overstating the troubles. But whatever you thought at the start of the year about the recovery — strong, moderate, fragile — you probably need to be more pessimistic today.

“The strength of data we saw at the end of last year exaggerated the strength of the underlying economy,” Richard Berner of Morgan Stanley, says. “And now we’re seeing some pullback.”

This is especially troubling because the economy is still such a long way from being healthy. Lawrence Katz, the Harvard labor economist, estimates that 10.6 million jobs would need to materialize immediately to return the job market to its condition when the Great Recession began. For it to get there four years from now, the economy would have to add 316,000 jobs a month. That pace would be faster than in any four-year stretch of the 1990s boom.

The economy’s biggest problem has not changed. When bubbles pop, they wreak enormous, lasting damage. Credit stays hard to get for years because banks need to rebuild their balance sheets. Families and businesses, whose net worth isn’t what they thought it was, have debts to pay off.

Over the last two years, households have been paying down their debts at a fairly good pace. But they aren’t yet close to being finished.

The average household still has debt that eats up roughly 17.5 percent of its disposable income — in mortgage payments, minimum credit card payments and the like. That’s down from a peak of 18.9 percent in 2008. It is still above the 1980-95 average of about 16.6 percent, according to the Federal Reserve. So debt payments will continue to hold down spending in the months ahead.

The economy did so well late last year in large part because companies began building up inventories they had whittled when they cut production during the recession. What worries some forecasters is that this buildup won’t last. Consumer spending, they say, will remain too weak to get companies to keep increasing production and to begin adding workers. “Not too long from now,” says Joshua Shapiro of MFR, a research firm in New York, “you’re going to need other demand to kick in.”

The second problem is that the stimulus program and the Fed’s emergency programs are in the early stages of slowing down.

These programs have done tremendous good, as I’ve written before. The bubbles in housing and stocks over the last decade were far larger than an average bubble, and yet the resulting bust is on pace to be shorter and less severe than the typical one in the wake of a financial crisis. That’s not an accident. It’s a result of an incredibly aggressive response by the Fed, Congress, the Bush administration and the Obama administration.

Just consider home sales. The stimulus bill last year included a tax credit for first-time home buyers that originally expired on Dec. 1. Like clockwork, home sales fell 16 percent in December. From March to November, sales rose 36 percent.

The credit has since been extended, but if you combine the other fading parts of the stimulus with household debt burdens, you can see why some economists are concerned. Mr. Shapiro predicts monthly job growth will be only 50,000 to 75,000 by the end of this year. To keep up with population growth — to keep unemployment from rising — the economy needs to add more than 100,000 jobs a month.

Recent events in Congress, however, have offered some cause for optimism. Last week, the Senate passed a small-bore $15 billion jobs bill, focused on road building and employer tax credits. But on Monday, Democratic leaders announced a proposal that would do more: a $150 billion bill to extend jobless benefits, Medicaid payments to states and some tax cuts.

Some of the extensions last through the end of the year, rather than for just a few months, as is typical. Senator Jack Reed, Democrat of Rhode Island, told me the bill was meant to prevent what he called the “Perils of Pauline” problem — referring to the silent movie serial that placed its heroine in repeated danger.

The most recent extension of jobless benefits expired on Sunday. The Senate voted Tuesday night to extend the benefits for 30 more days after Senator Jim Bunning, Republican of Kentucky, dropped his opposition to the measure.

If Congress passes a longer-term extension and adds some measures — like more aid to struggling states, maybe the single most effective form of stimulus — it can offset the winding down of other government programs. (Yes, these efforts to prop up the economy will have to end sometime soon, and debt reduction will have to begin. But the main historical lesson of financial crises is that governments are too timid and too quick to step back.)

It’s also possible that Mr. Shapiro and his fellow pessimists are being a bit too dire about the private sector. Inventories are still quite lean, and some restocking is likely to continue. Banks are becoming more willing to lend, Fed surveys show. Strong growth in China and other emerging markets will help American exporters like General Motors and Cargill. To my mind, these forces make a true double dip unlikely.

Still, the jobs number on Friday will be ugly. Macroeconomic Advisers, a research firm, estimates that the snow kept 150,000 to 220,000 people off a payroll when the government conducted its jobs survey in early February. But most of those jobs will reappear in March — the month when many economists think job growth will, at long last, resume.

Here’s the thing, though. Even the optimists are not very optimistic. Morgan Stanley expects average monthly job growth of just 110,000 this year. The great jobs deficit — 10.6 million and counting — will be with us for years.

So no matter when the recent run of bad news comes to an end, the economy is still going to need help.

E-mail: leonhardt@nytimes.com

Mortgage/Credit Bust: Vapor without Value

The American Economy: Vapor without Value

My effort here has been to point out that we are creating a fraudulent environment, much like an embezzler, that requires more fraud and more lies each time to cover up the last fraud and the prior lies. Our economy is now one which runs on boom and bust and cannot run any other way unless fundamental changes are made in the paradigm of American politics, econometrics and economics.

This morning, Paul Farrel wrote an article that is precisely on point, in explaining the bust we had in the 1990’s, explaining the bust we are having now, and explaining the next bust which is already in the making. 

The only thing I would add is that I think the policy makers are going to try the same thing again right now to “bail out” the current economic collapse.

If you want to protect your wealth, your retirement, your nest egg your rainy day fund, read this carefully and start thinking about it. 

The American economy is now a house of cards trading in vapor that is “rated” with value. There isn’t enough  real “money” in existence that will bail us out of the funny “money” that has been created. A major shift in our perspective must occur, and it starts with telling the truth. Here, reprinted from this morning, is the best summary of the unvarnished truth that I have found. 

PAUL B. FARRELL

A mind-blowing machine

In America, land of the bubbles, the next pop will be the biggest

By Paul B. Farrell, MarketWatch

Last update: 7:32 p.m. EST Jan. 28, 2008

ARROYO GRANDE, Calif. (MarketWatch) — Three cheers! Wall Street’s got a new rally song: “I’m dreaming dreams, I’m scheming schemes, I’m building castles high.”

Actually it’s the 1919 tune that launched the roaring run-up to the ’29 crash and the Great Depression. Remember the lyrics: “I’m forever blowing bubbles. Pretty bubbles in the air. They fly so high, nearly reach the sky. Then like my dreams they fade and die.”

  

And it still fits today! Listen to venture capitalist Eric Janszen’s scary new paradigm in “The Next Bubble,” a Harper’s Magazine report: “That the Internet and the housing hyperinflations transpired within a period of 10 years, each creating trillions of fake wealth, is, I believe, only the beginning.”

 

Translation: The next bubble is already expanding. Now listen very closely as Janszen makes the single most dangerous prediction of 2008: “There will and must be many more such booms, for without them the United States can no longer function. The bubble cycle has replaced the business cycle.”

 

After the collapse of the 1990s dot-com bubble we laughed at all the hype they had spewed: “This time it’s different.” “New paradigm.” “New economy that only went up.”

 

Well, stop laughing: The new, new came true, says Janszen. Seriously, the economy and the stock market can no longer function without an ever increasing series of bubbles, one after another, rapidly expanding then bursting, with all the manic trading, risk, uncertainty, hypervolatility and distortions that come with it.

Janszen traces bubbles through history: From the 1720’s South Sea Bubble to the housing-subprime bubble. Bubbles are accelerating, becoming more frequent, a frenzy feeding on itself: “Nowadays we barely pause between such bouts of insanity. The dot-com crash of the early 2000s should have been followed by decades of soul-searching; instead, even before the old bubble fully deflated, a new mania began to take place.”

 

What’s so scary is not that the subprime bubble was happening so fast on the heels of the dot-com bubble, not that the pundits, the public and the policy makers all appeared to be ignoring it. What’s really scary is that our best and brightest leaders in Washington, Wall Street and Corporate America wanted to create a bubble! They even threw jet fuel on this raging fire with cheap money, favorable taxes and minimal oversight.

 

Of course the Treasury and the Fed will never admit it, but they saw the housing bubble as a healthy economic necessity in their warped ideology! In their myopic minds, the housing bubble was the messiah “saving” America from a big, bad bear/recession.

 

Publicly they denied the bubble’s toxicity, dismissing it as “regional froth.” Privately, they conspired to create a massive new bubble driving America deep into debt.

 

‘New economy’ morphs into out-of-control robot

 

This new ideology is extremely dangerous: It assumes the American economy can no longer be managed by politicians or Wall Street quants. The “new economy” has a life of its own, a “Terminator” from a dark future, an “I, Robot” from Asimov’s sci-fi world.

 

Yes, our economy has become a self-sustaining “bubble-blowing machine” inventing new bubbles at warp-speed even before the last is buried, in endless reincarnations of Schumpeter’s “creative destruction” cycles.

 

What’s next? More asset-backed bubbles. The dot-com ’90s created $7 trillion in market value. The housing boom created $12 trillion in “fake wealth.” Janszen predicts the next great bubble will be a $20 trillion “alternative energy” bubble. In fact, Wall Street’s already hustling biofuels, solar, wind, nuclear, geothermal and hydroelectric as the new alternative energies destined to replace oil, gas and coal in this next new economy.

 

Timing? The new “alternative energies” bubble will last about 8 years, from a 2005 launch till a peak around 2013, when it will “creatively destruct,” when all possible “fake wealth” is squeezed out, when investors wise up to the scam, when that new bubble pops.

 

In his finale, Janszen admits that when the “alternative energy” bubble finally self-destructs around 2013, “we will be left to mop up after yet another devastated industry,” while Wall Street “will already be engineering its next opportunity.”

 

But be warned: Even before we near the end of the “alternative energy” bubble, the law of unintended consequences could trigger a meltdown, not of the bubble but of the “bubble-making machine” itself! The machine will implode, taking down Wall Street, Washington, Corporate America … and with it, the “new economy,” the “new paradigm” and the “bubble-making machine!” (e.s.)

 

‘Black Swan’ self-destructs ‘shadow banking’ derivatives

 

The trigger? A “black swan” off the radar and invisible to the quants managing the world’s derivatives.

 

The brilliant supertrader and risk manager Nassim Nicholas Taleb says a “black swan” is an extremely rare, improbable event (like 9/11) that cannot be predicted, yet has catastrophic impact. Black swans are events outside the vision, experience and technology of the world’s derivative traders’ geniuses.

What will the black swan destroy? How about the derivatives market that spreads so far beyond subprime loan obligations.

 

Pimco’s Bill Gross warns that $500 trillion of derivatives are hiding in a “shadow banking system” that “craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage … with no requirements to hold reserves against a significant ‘black swan’ run that might break them.”

 

Derivatives have become a renegade army of “I, Robots.” “According to the Bank for International Settlements … total derivatives amount to over $500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the Frankensteinian levered body of shadow banks.”

 

Shadowy? Pyramid schemes? Frankenstein? Terminator? Black swan: Gross paints a much darker future than Janszen: “The last two decades alone have witnessed pyramid schemes involving savings and loans/junk bonds, the small investor/dot-coms, and now global bonds/subprimes … in each and every case the originator of a surefire ‘can’t miss’ concept collected huge premiums from a willing investment public, only to see the pyramid collapse either of its own merits or from the lack of additional gullible investors. There will be more to come, much like a regular university that welcomes a never-ending stream of new ‘students’ who pay annual ‘tuition’ to be ‘educated.'”

 

Higher truth

 

Never-ending: Gross and Janszen agree on that. But they’re both wrong. The biggest low in Janszen’s argument: “Given the current state of our economy, the only thing worse than a new bubble is its absence.”

 

Wrong, wrong, wrong! Remember, this new paradigm assumes that the only way the American economy can exist in the future is if Wall Street’s greedy “bubble-blowing machine” keeps feeding on itself, creating an endless, accelerating succession of ever-bigger bubbles.

 

Folks, that’s one of the dumbest economic theories ever, silly “new age” magical-thinking touted as a scientific basis for the new self-indulgent ideology of Wall Street, Washington and Corporate America.

 

There’s a higher truth: The best (not worst) strategy would be to let the “bubble-blowing machine” implode, live with the absence of a new bubble for a while, then quietly step back and reassess our unsustainable “growth-at-all-costs” economic policies that are secretly designed to benefit the self-interests of Wall Street’s insiders who profit by endlessly blowing bubble after bubble … after bubble … after ...(e.s.)

Brave words from someone who isn’t afraid to challenge the conventional wisdom folks. Listen closely to what he says.

Mortgage Meltdown: A New Bubble: Fraud Redux

Hold everything!!: Second Bubble on the Way!!!????

Interest rates dropping, Fed lowering its rates, and incoming capital from China like it was water. We now see the strategy to prevent the world from marking the Bush administration down as the most foolish, stupidest in history. 

The plan is to create a second bubble. They will say that the pundits were wrong, that economy is strong after all and that this proves Bush and his fellow republicans were right on with their strategy . Sure there might have been “isolated instances of fraud” but basically these were free market forces at play. And it will look just like that until we wake up from the mania revisited and into the nightmare worsened.

What all this means is that there is going to be an interesting dynamic going on. We know we have a burst of the asset bubble and that prices have come tumbling down. Federal officials have been minimizing the damage assessment while scrambling for a plan that will cover up the worst case of economic fraud in human history. 

The Fed and the Bush administration are determined to minimize its appearance. So money is likely to get ridiculously cheap by mid year. Thus despite downward price pressure from the bubble burst, there will be upward price pressure for the same reason as we had the bust in the first place — free money. In short, it looks like instead of correcting the problem they intend to compound it — as long as possible — hoping that something else will happen that will soften the blow or at least make it look like it wasn’t GW’s fault. 

It would therefore seem that a few things are true. By dropping interest rates, a freeze at teaser rates becomes less costly and less offensive— which will diminish the rate of foreclosures — which will diminish the number of houses dumped on the market. We could be looking at the creation of a second bubble to cover up the first. 

The devaluation of the dollar combined with apparently rising prices and diminishing inventories of empty homes, is likely to lure foreign investors into buying US real estate. US Sellers will be getting more for their houses than is currently predicted. This will make the sellers more flexible buyers on the domestic scene. 

Thus around summer time or perhaps a little later, one might get a higher price for a house than anyone is currently predicting. And one might be able to make a deal for those feint-hearted sellers that are not willing to wait for the higher price AND the interest rate on a fixed rate mortgage might just be very low. 

So anyone considering a move in the next 3 years, or who is negotiating with their lenders for better terms to avoid foreclosures, might just want to stretch things out time wise. In fact, in a couple of months, I would suggest that anyone holding a mortgage from 2003-2006 contact their lender and ask for relief whether they need it or not. 

Of course the risk here is that the Fed and Wall Street smoke and mirrors trick won’t work. That would leave things in the same bleak state. But from what we are seeing, the Chinese are going to play a very large part in helping the next bubble along while they buy still more time to overwhelm American economic, political and military superiority. 

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