Fitch: 40 months to clear shadow inventory, home prices to fall additional 10%

From HousingWire:

Foreclosure shadow inventory will take more than 40 months to clear: Fitch

The shadow inventory of delinquent loans, foreclosures, and REOs stands at 7 million homes, which would take the market more than 40 months to clear, more than three years, according to Fitch Ratings.

And as major banks fix recent problems in the foreclosure process, that number will only grow. Liquidation and resolution timelines were extended because of the affidavit issues. Consumer advocacy groups and state attorneys general offices filed lawsuits, and regulators launched investigations.

All of it, Fitch said, simply prolonged the housing correction underway and will bring about further house price declines and losses on residential mortgage-backed securities.

Analysts did say it is still unclear how long the foreclosure delay will last, but even before the problems came to light, Fitch believed prices would drop another 10% with the majority of the recovery coming at the end of 2012.

This entry was posted in Economics, Housing Bubble, National Real Estate. Bookmark the permalink.

136 Responses to Fitch: 40 months to clear shadow inventory, home prices to fall additional 10%

  1. grim says:

    From the Record:

    Leaving North Jersey? Not so fast

    Melinda Thompson can’t afford to live in North Jersey. And she can’t afford to leave.

    Her property taxes have risen from about $7,000 to about $12,000 in just seven years. She struggles with her mortgage payments, even after her lender modified the loan.

    But she can’t sell her Little Ferry raised ranch unless she’s willing to take a substantial loss. And she thinks her job prospects wouldn’t be nearly as strong in other regions.

    Like Thompson, many homeowners think about leaving New Jersey, but feel trapped. For years, the state (and the rest of the Northeast) annually lost thousands of people who migrated to other states, especially the sunshine states of the South and West. (New Jersey’s population has continued to grow, however, because this flight was more than offset by new births and foreign immigration.)

    “If you can’t sell your house, you can’t move,” said Joseph Seneca, a Rutgers economist who co-authored the report, “Post-Recession America: A New Economic Geography?”

    The decline in mobility has the biggest impact on young people, who are historically most likely to move out of state for work, said William Frey, a demographer with the Brookings Institution in Washington.

    “They’re putting their lives on hold,” Frey said. “They’re standing still when they really want to be moving.”

  2. grim says:

    Wow! Who was the guy who just kept coming around saying renting was “putting your life on hold”.

    Now owning is “putting your life on hold”.

    Who coulda knew?

  3. grim says:

    From Bloomberg:

    Mortgage Modification Failures Push Borrowers Into Foreclosure

    Jill Gray of Mesquite, Texas, said her three-year-old son, Anthony, often tells her before he goes to bed: “I wanna go to the other house.”

    Jill, Anthony and Tiffy, their black Labrador-mix dog, moved about 12 miles to a rental home three weeks ago after their one-story brick house in Garland was auctioned in a foreclosure. Gray, 38, tried for almost a year to get her mortgage modified, only to have the approval rescinded. Bank of America Corp. said documents were missing — papers that Gray said she sent.

    Gray’s experience, in which homeowners get evicted while participating in programs designed to avert foreclosures, is being repeated thousands of times at the biggest mortgage firms, according to groups that aid borrowers. The government’s Home Affordable Modification Program came under fire at hearings last week for “trial” arrangements that allow late fees and debts to stack up and documents to disappear, triggering seizures.

    “Many homeowners end up facing foreclosure solely on the basis of the arrears accumulated during a trial modification,” said Julia Gordon, senior policy counsel at the Center for Responsible Lending, in Oct. 27 Congressional testimony. “One incomplete payment or one accounting mistake can land you on an apparently unstoppable conveyor belt to eviction.”

    About half the 1.4 million temporary or “trial” modifications granted since the program’s March 2009 inception have been canceled, according to U.S. Treasury Department data. Only 466,708 borrowers have received permanent modifications. About one in five of the canceled modifications is either in foreclosure or bankruptcy, according to a Treasury survey of the nation’s eight largest mortgage servicers, which handle billing, collections and foreclosures.

    Even borrowers who do win approval and never miss a payment can wind up in foreclosure, the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, said in an Oct. 26 report to Congress. “They may face back payments, penalties and even late fees that suddenly become due on their ‘modified’ mortgages and that they are unable to pay, thus resulting in the very loss of their homes that HAMP is meant to prevent,” the report said.

  4. still_looking says:



  5. Confused In NJ says:

    “O” promised change , they got it!

  6. still_looking says:

    Reason #296 why my job is secure…



  7. yo'me says:

    #6 sl

    Reason the country is in shambles.What a paradigm.

  8. Mike says:

    Good Morning New Jersey Remain Calm All Is Well

  9. Confused In NJ says:

    LOS ANGELES – Gov. Arnold Schwarzeneger says welfare recipients can no longer use state-issued debit cards at medical marijuana shops, psychics and other businesses whose services have been deemed “inconsistent with the intent” of the program.

    The Los Angeles Times reports that Schwarzenegger sent a letter to county welfare directors Monday announcing that ATMS and point-of-sale card readers in such businesses will be removed from the network that accepts California’s Electronic Benefits Transfer cards.

    Other businesses affected by the ban include bail bond establishments, bingo halls, cruise ships and tattoo parlors.

    In June, Schwarzenegger barred welfare cards at casino ATMs following a Times report that CalWORKS cards were being used to withdraw cash in more than half the casinos in the state.

  10. Lamar says:

    I wish there were a way every candidate running today could lose.

  11. Lamar says:

    Per usual, the only losers are us.

  12. Fabius Maximus says:

    Its Election Day. I love Election day. 18 hours of pure punditry.

    I feel like Ralphie with a new Red Ryder

  13. Mr Wantanapolous says:

    Go Aussie. Capital flows to where it is treated best.

    “Australia and India raised interest rates to cool inflation, hours before the U.S. Federal Reserve meets to debate a round of asset purchases that may stoke price and currency pressures in Asia.”

    “The Reserve Bank of Australia cited medium-term inflation risks for today’s unexpected decision to raise its benchmark rate.”

  14. Lamar says:

    Natch, my livelihood now depends on selling Australian wine. This stuff better be good, because pretty soon, it ain’t gonna be cheap.

  15. Lamar says:

    Then again, maybe I should hedge with an AUD/USD pair.

  16. Mike says:

    A grand finale for 2010. Over 2000 Atlantic City Jobs Will Be Lost Remain calm all is well!

  17. safe as houses says:

    #6 SL

    Was that a euphemism for the housing market?

  18. Mr Wantanapolous says:

    Lamar [15],

    Yes, set up a hedging operation. The AUD will continue to gain on the USD; probably for at least the next 5-6 years.

  19. Tom says:

    Back in 2008 I did an analysis of house price to income the chart at the bottom was for Bergen County.

    My conclusion was that house prices needed to drop around 33% until they became affordable. House prices in Bergen have dropped around 10% from the data I used in those charts. Fitch says another 10% so that’s close enough for me to pat myself on the back :)

    Although with job losses median income probably dropped too and price to income ratio might not have come down as much as it should.

    grim, btw… been a while since I visited. new template is much easier on the eyes.

  20. Shore Guy says:

    With all signs pointing to a further 10% or greater price decline, and with folks’ ability to earn a bit of interest on downpayment money, why would anyone who does not HAVE to buy a house do so right now?

    I can just see potential buyers saying to themselves, “Humm, today the house would cost us $600mm, and we have $120mm in downpayment. If we buy today, in one year from now, we will have a house that is worth $540mm, and we will owe $480mm. If we wait a year, we will pay $540, our downpayment then will mean we have an mortgage for $420,000. Plus, the interest we earn between then and now will buy us lunch or dinner after the closing.”

  21. Tom says:


    “why would anyone who does not HAVE to buy a house do so right now?”

    Because they don’t know that they don’t have to buy right now.

  22. Confused In NJ says:

    Polls were empty at 8:30 AM, and printer didn’t work. I cast my Independent vote anyway. I only vote for candidates right of Attila The Hun.

  23. JJ says:

    in NY we have no one to vote for. Cumo is running against a bunch of nuts and in polls is winning by landslide. What is point of voting.

  24. Confused In NJ says:

    Washington (CNN) — The number of Americans who say things are going badly in the country, at 75 percent, is higher than it has been on the eve of any midterm election since the question was first asked in the mid-1970s, according to a new national poll.

    A CNN/Opinion Research Corporation survey released Monday also indicates that the economy remains, by far, the top issue on the minds of Americans. Fifty-two percent of people questioned say the economy’s the most important issue facing the country.

    “That’s more than the deficit, education, health care, terrorism, energy, illegal immigration and the wars in Afghanistan and Iraq combined,” says CNN Polling Director Keating Holland. “No other issue was named as the country’s top problem by more than 8 percent.”

    The economy has been the issue most on the mind of Americans in CNN polling since the end of 2007.

    The top concern remains unemployment, with 58 percent saying it’s the most important economic issue facing the country today, followed by the deficit at 20 percent, and taxes and mortgages tied at 8 percent each.

    Just one in four polled Americans say things are going well in the country today, with three-quarters saying things are going poorly.

    “Even in 1994, when the Republicans last took control, and in 2006, when control flipped back to the Democrats, roughly half the public was satisfied with the state of the nation,” adds Holland. “Only 25 percent say that things are going well in the country today, and voters appear poised to take it out on the Democrats on Tuesday.”

  25. JJ says:

    how funny at Sundays Jets games at least 25,000 Packer fans. I guess in Green Bay they don’t celebrate holloween. Jet fans are the worst, get a big game on a holiday or work night and 33% of fans stubhub tickets.

    Giant fans are better fans. Heck Nets fans are better fans.

    Funniest part was I sold my pair of tickets to some cheese heads for $650 I peaked at game between trick or treating and saw six guys with cheese wedges in their heads. Guy next to me had his four on stubhub to so Cheese Heads nabbed the six in a row.

    Very weird opposing teams love row one as they get on TV and they all dress up really stupid. At ravens game I had 13 raven fans in row one to left of me, nice people but what is with the costumes, is this lets make a deal?

  26. Nomad says:

    Re post #1

    From A Bronx Tale – “Now youze can’t leave”

  27. Confused In NJ says:

    23.JJ says:
    November 2, 2010 at 9:16 am
    in NY we have no one to vote for. Cumo is running against a bunch of nuts and in polls is winning by landslide. What is point of voting

    I still remember the Patacki/ABC election. ABC was “Anybody But Cumo”. Personally, only a nut can tilt their lance against the imbedded corruption which exists today. No one can do a worse or more corrupt job then the establishment. Write in Daffy Duck. Can’t use Porky Pig because of the Obesity Laws.

  28. Mike says:

    JJ No. 25 My friend who’s a die hard Jets fan took me to that game and man there were cheese heads every where!

  29. Outofstater says:

    I just voted. No lines, but a steady stream of voters, maybe 7 at a time. If there had been a “Vote All The B@stards Out” party, I would have voted a straight ticket. Even if the top of your ballot seems like a waste of time, go vote anyway. There might be local questions that need your yes or no.

  30. Justin says:

    Anyone care to break down the state question?

    Shall the amendment to Article VIII, Section II of the State
    Constitution, agreed to by the Legislature, which: prohibits
    collection by the State of assessments based solely on
    employee wages and salaries for any purpose other than
    providing employee benefits; dedicates all employer and
    employee contributions collected for any employee benefit
    fund, and all returns on investments of those contributions, to
    the purpose of that fund; and prohibits any transferring,
    borrowing, appropriating or using of those contributions or
    returns for any other purpose, be approved?

    soo….. You can only use employee salaries and wages on employees’ salaray and wages? Sounds overly redundant.

  31. dan says:

    The section I was sitting in had plenty of Packers fans. Another thing that’s depressing is there is no fan unity of backing each other up since no one knows each other. A Packer fan threatened to kick some guy’s ass and no one bothered to step in. Why should they? They don’t know if the person is a stubhub buyer or one-time only guy. In my friend’s old section, an opposing team called out others and was going to find paper airplanes in his head all game aside from beer and soda.

  32. joyce says:

    The state workers/unions want the money that is deducted for their paycheck to only used for their pension funds, health care, et al… only for them.
    When the state collects money from various sources, it all goes into one pot. Anyone who claims that’s not true is just wrong. That’s like saying the money the Federal govt collects for S.S. is only used for S.S. Money is fungible; you can’t tell what’s used where.

    FYI, I think the state workforce should be reduced by 90%.

  33. yo'me says:

    According to this charts,we are almost breaking records from previous high’s of our economy.We don’t need housing and employment recoveries to get there. 3 reasons unemployment will remain in the 9% for years.1.Productivity is in the highest level with less workers.2.Employment replaced by technology will not be coming back. 3.Gov’t spending for infrastracture and everything else will not employ the 25 million out of work and still growing.

    Housing growth is on hold.Hey,but this graphs shows Real personal consumption is in the same level as in mid-2007 and GDP has almost fully recovered.So economist were right,we don’t need employment and housing for the economy to be booming again.

    Don’t loose your job or you will just be a statistic. We are fukced!!!

  34. Shore Guy says:


    My favorite line from that movie is: Can you make sauce?

  35. NJGator says:

    Sounds like they are looking for a “lockbox”.

  36. Anon E. Moose says:

    Shore [20];

    With all signs pointing to a further 10% or greater price decline, and with folks’ ability to earn a bit of interest on downpayment money, why would anyone who does not HAVE to buy a house do so right now?

    Inflation hedge. Houses may have ~10% further down side to run, but I do not beleive that inflation can be held in check that that much longer, particularly things like oil and food, or basically anything with a globally influenced market. So next year when the house is 10% cheaper and so is your downpayment money, are you net ahead?

  37. Shore Guy says:

    ” What is point of voting.”


    Faced with poor choices, many people decide to opt out of the process by not voting. I submit that such an action benefits the people who are currently benefiting from the current system. The best course to force change (over time, but change) is to show up to vote and, if one finds a race where there is not a candidate one can feel good about voting for, one should write in a name. I don’t care if one votes for ones’ self or one’s spouse or a co-worker or neighbor. The key is to have so many votes going to candidates other than the ordained candidates that it becomes impossible to continue down the extant path.

  38. yo'me says:

    Joyce 32
    You are absolutely right! This vote is only protecting government workers future.The private sector will have to pay for projects that they used to dip in this.It sounds good at first!

  39. Anon E. Moose says:

    JJ [25];

    You should have heard the adds running during the WS radio broadcast last night. “Jets have a big game against *** comming up. Season ticket holders, we’ll see you there, but if you don’t have season tickets, good seats are still available!” Still available – understatement of the season. The biggest market in the courty, team is 5-2, and you till can’t sell the place out? Green Bay hasn’t had an unsold seal in what, decades? Didn’t Snyder have to blow up the Redskins franchise to break their sold-out streak?

  40. Shore Guy says:

    “so is your downpayment money, ”

    No. The downpayment money may be down in value vs. gasoline or food but, as housing prices decline, the money used for housing does not decline in value.

  41. cobbler says:

    joyce [32]
    You are not right. The amendment, mostly, aims at preventing the raiding of the state unemployment insurance and workers’ comp funds for other purposes (as a couple of recent governors did with UI fund). It really has nothing to do with the state workers.

  42. yo'me says:

    Thanks for clarifying that.

  43. joyce says:

    Government borrowing and spending is counted as “consumer spending” and included in GDP.

  44. make money says:

    Government borrowing and spending is counted as “consumer spending” and included in GDP.


    With QE II going strong I would say that consumer confidence and spending is at the all time high. Long live printing machines.

  45. Fabius Maximus says:

    #32 Joyce
    Its not a state worker/union thing. This affects all workers and employers in NJ. This is saying that money collected for unemployment Insurance, SDI and workers comp actually go to fund those programs as opposed to diverting to the general fund. And you can’t raid those funds to meet the general fund shortfall.

    I’m all for this and I would like to see it exteded to car registrations. The registration fees should go to maintaining the roads.

  46. Shore Guy says:

    I had someone tell me, and I think we have all heard it from many sources, that it is bad for governments to reduce the size of their workforces because it will reduce the ability of those employees to pay state income taxes.

    We talked for a bit, I made the following points and he ended up saying that government should chop, chop, chop employees.

    The points:

    The top state tax rate (depending on the state) may reach 10 or so percent.

    So we pay $1 to get back $.10? This makes sense?

    But this is not even the whole story. Benefit costs, state’s share of SS, etc., easily reaches 20-25% or more of wages. So, we are spending $1.25 to get back $.10

    Those who say that the cut workers won’t find any or at least as-good employment seem to suggest that either 1) the cut workers are not good enough for private employers to hire, 2) are overpaaid vs. private employers, or 3) the cost of paying to support government discourages private employers from locating in high-cost states. Which is it?

    If the cost of government dropped would I help retain or attract businesses, which might provide good employment for those who might otherwise be employed by government.

    There was more but this was the basic conversation. After thinking about the issue, and not just reacting emotionally, his view changed.

  47. Fabius Maximus says:

    Here is a good synopsis of the ballot question.

  48. Lamar says:

    If I decide to walk into my local polling place today, it will be to vote for myself for Congress.

  49. Lamar says:

    I figure if I could get elected to Congress, I could take out 25-30 members the first day before the Sergeant-at-Arms and security could subdue me.

  50. Lamar says:

    BTW, #49 is a joke.

  51. Confused In NJ says:

    The Federal Reserve, the US central bank, meets today to determine its next step to help the recovery. To guide you through the muck of monetary policy, the Washington Post has put together another great visual explainer of the Federal Reserve’s newest strategy for boosting the recovery by buying hundreds of billions of dollars of Treasuries with newly minted money.

    What is that supposed to do? Four things: (1) Lower long term interest rates to make borrowing cheaper; (2) Raise inflation expectations to encourage spending today; (3) Lift the stock market to make businesses and investors feel wealthier; and (4) Make US dollars cheaper to make US products cheaper to increase exports.

    What stands out from the interactive is that since late August, when Fed Chair Ben Bernanke first floated the trial balloon of further action, all of these things have already happened when investors tried to anticipate the next round of easy money. Thirty-year Freddie Mac mortgage rates are down. Inflation is up slightly. The S&P 500 index is up 100 points. And the dollar is off 7 percent.

    The market fundamentals are changing, but is the economy? It’s almost certainly too soon to tell. But savings are down slightly in September (bad in long term, but maybe good in the short term if we want spending to be brought forward), leading indicators are healthy, and new and existing home sales continue to improve. November 2010 will almost certainly represent the bottom for incumbent Democrats. Hopefully the same can be said of our Summer/Fall Stall

  52. Shore Guy says:

    When talking taxes with folks, when the discussion turns to the mortgage-interest deduction. I have taken to asking them to hand me a dollar bill. When they do, I hand them a quarter and then ask them if they feel like they came out ahead.

  53. Shore Guy says:

    ” make businesses and investors feel wealthier”

    We might as well sell mirrors that have some knockout-model’s face on them to make America’s women feel prettier when they look in the mirror.

  54. Shore Guy says:


    You have mail.

  55. Shore Guy says:


    Is there any chance you will be at the plant in Union on Monday?

  56. Lamar says:

    confused (51)-

    In future generations’ history books (if books- or the future- even exist), 11/3/10 will be the chapter that follows 9/11/01 and 9/08. It will be seen as the equivalent of the FedCo/Treasury entry into the bell lap in the race to the bottom in the debasement of everything that was American and of any value whatsoever.

  57. Lamar says:

    Just remember that yours truly started with the Clockwork Orange references a good 7-10 days BEFORE Tyler Durden did.

    “The market is once again getting plain retarded. One look at what is happening in Europe should be sufficient for every self-respecting investor to throw up all over this bullshit and quit the business forever. 10 Year Irish bonds have just hit an all time wide spread to bunds of just over 480 bps, a jump of 100 bps in a week, as Irish bonds are essentially bidless. And as this is happening, the EUR is pushing north of 1.40, and stock markets everywhere are gunning for new 2010 highs. This is the kind of central banking-cum-centralized planning garbage that can make people plead insanity after a period of brief ultraviolence.”

  58. JJ says:

    Here is in a nutshell why NJ sucks, all state workers are off today for election day, even though they only work 7 hours a day live and work in NJ and the polls are open 14 hours today, even better they don’t even have to show proof they voted.

  59. Mr Hyde says:

    In the end housing prices and incomes must come back into line. That can happen by incomes increasing relative to home prices or home prices decreasing relative to incomes. In terms of interest rates, they cant really go materially lower then they already are.

    Assuming incomes in real terms stay approximately flat, then the amount of money available for housing costs stays about flat as well. For every 0.1% charge in interest rates on a 30yr fixed, the price of the home must change by about 1% to maintain the same monthly housing costs assuming that taxes stay flat as well.

    While the possibility of long term depressed interest rates along the lines of japan is a real possibility the impact of interest rates is real. In the above scenario, the average rate for a 30yr fixed conforming mortgage (20% down) going from 5% to 6%, assuming income and taxes stay flat, corresponds to a forced drop in home prices of about 10-11%. Now consider the rate of increasing property taxes ( about 3% annually as of late).

    In the above (grossly) simplified scenario, an increase of rates from 5% to 8% with income and taxes staying flat would generate a 30-40% drop in housing prices. Add in run away taxes and the drop becomes even more severe.

    We either face substantial wage inflation or housing prices must significantly decline from their current levels in the Northeast.

  60. Mr Hyde says:


    No resemblance here!!!

    Some background: It’s spring, 1938. The New Deal lay in shambles. The country was in what can only be called the Great Depression II. The graph embedded in this post showsunemployment had risen to near 1933 levels and was rising. The massive government spending during the first four years had run its course, and no real permanent economic foundation had been established. At the 12:56 mark, FDR gives his reason why this slide into recession happened: It was a failure of consumer demand due to lack of buying power (aka: massive unemployment had reduced consumer demand) Sound familiar?

    FDR proposed his “Three Rounds of Ammunition” to fight the new depression. Here they are:

    1)Round One: At the 13:34 mark: Government unemployment benefits and more government funds invested in government make work programs (can you sayAmeriCorps/Acorn?)

    2)Round two: At the 14:33 mark: Make credit available to banks, easy money for easy loans ( More TARP?)

    3)Round three: At the 15:22 mark: Pork barrel spending: Government slum clearance, Public works infrastructure, federal aid to highways, flood control; Build federal buildings (can you say Porkulus?)

    As you continue to listen to the speech, here are other points where the similarities between then and now are eerily alike:

    At the 21:34 mark: FDR notes the banks have plenty of “idle money” (sound familiar?)

    At the 21:50 mark FDR states it is the government’s job to get that money into the economy and get government work moving again (TARP anyone?).

  61. Mr Hyde says:


    Do we have a date yet for when we obliterate asian manufacturing and industrial capacity with a few thousands cruise missles and some stealth bombing runs??? It worked for FDR!

  62. freedy says:

    all NJ (state) workers are off today. what a scam, shows how low we have fallen as a country , NJ could be to far gone.

  63. Mr Hyde says:

    Maybe we could have Russia march on Beijing while we initiate the aerial bombardment, the Russians have a history of leaving some serious chaos and destruction in their wake.

  64. Mr Hyde says:

    Better idea, stick with the asian theme and just supply/support india in a knockdown drag out fight with china and pakistan.

  65. BklynHawk says:

    Keep running into things that you might be interested in…

    Apocolypse rig…

    Company working with high end clients on disaster survival planning…

    An Optimistic Seller of Disaster Plans

    NO, Catherine Hooper did not live through Hurricane Katrina, and while she did see the second plane hit the World Trade Center, she viewed it from the treadmill at her gym, where she was watching television. But Ms. Hooper, a 5-foot-1, 99.6-pound disaster-preparedness entrepreneur in a Christian Dior dress, has had some riveting firsthand experience.

    Also, saw an interesting piece of property for sale…

  66. hughesrep says:


    It could be worse. Bars in Indiana are closed on election day until 6:00, even restaurants are banned from selling alchohol.

  67. Confused In NJ says:

    The best way to understand Wall Street is to view it as a heist movie, like “The Sting,” “The Italian Job” or “Ocean’s Eleven.”

    There’s just one difference: In your traditional caper, a bunch of little guys get together to steal money from the big guys — a tycoon, big bank or major corporation.

    On Wall Street, it works the other way around.

    Take the Great Bond Caper taking place right under your nose, right now. Most people don’t even know it’s going on.

    Major corporations are jumping on the bond mania to borrow billions of dollars from ordinary investors at pitifully low interest rates.

    Mutual-fund investors are so desperate for income they’ll accept almost anything. So Wal-Mart Stores Inc. (NYSE:WMT) last week issued $5 billion worth of bonds, or IOUs, at an average rate of 2.9% last week. That included 30-year bonds paying 5% and shorter-term paper paying almost nothing.

    Goldman Sachs Group Inc. (NYSE: GS – News) sold $1.3 billion in 50-year bonds at just 6.125%.

    They’re not alone. Other blue chips that have raised big money or are expected to do so shortly include Bank of America Corp. (NYSE: BAC – News) , Coca-Cola Co. (NYSE: KO – News) , Johnson & Johnson (NYSE: JNJ – News) , J.P. Morgan Chase & Co.(NYSE: JPM – News), Morgan Stanley (NYSE: MS – News) and PepsiCo Inc. (NYSE: PEP – News)

    If you are invested in a mutual fund that owns bonds, including corporate bonds, there’s a good chance some of the cash going into these issues is yours. Good luck with that.

    We already know that anyone buying these IOUs is taking a terrible risk. If inflation takes off, these bonds will tank. The prices will slump and the coupons will lose their purchasing power.

    Federal Reserve Chairman Ben Bernanke has all but promised to make inflation take off, one way or another.

    But here is what they’re not telling you: The Great Bond Caper is also an incredible tax dodge.

    Corporate America is using these bonds to shift millions of dollars of tax liabilities from their boardrooms into your living room. You are going to be paying more of their taxes for them, so they’ll pay less.


    The interest payments on these bonds are tax-deductible for corporations; the money comes off the top. So corporations save 35%, their typical marginal-tax rate.

    Meanwhile, the bond coupons are fully taxable to the investors — and not even at the lower tax rates applied to dividends or capital gains. The bond coupons are taxable at ordinary income-tax rates.

    By my calculations, Wal-Mart’s interest payments on its newest bonds will cut its taxable income by $144 million a year. If the company pays 35% tax, that’s a cash saving of $50 million annually. Meanwhile, bondholders’ taxes will rise.

    As for Goldman Sachs? The interest on its new 50-year bonds will come to $80 million a year, saving America’s favorite “vampire squid” $28 million at year.

    Your retired parents will pick up some of that tab through their bond fund. The rest can be borne by other taxpayers.

    But the caper doesn’t even end there.

    These companies can take this money they’ve borrowed from U.S. investors and send it overseas. That will create no jobs here — and if it goes to open a cheap, low-wage factory, may undercut some of the jobs that remain.

    If they do that, the corporation may escape U.S. taxation on the profits from that money altogether. That’s because corporations get generous tax breaks on overseas profits.

    It’s a double sting. The bond interest cuts their taxes here. In addition, the money is invested overseas, where it escapes U.S. tax as well.

    Cue “The Entertainer.”

    George Mundstock, a former Treasury official and professor of tax law at the University of Miami, says this double deal is a great one if you’re a U.S. corporation.

    “If you borrow a lot of money and you have a lot of foreign subsidiaries, the money you earn overseas isn’t taxed currently, while you are allowed to deduct your interest payments against your income,” he said. “The current rules for interest deductions are absurdly generous.”

    There are other ways companies can work the tax code as well. They could, for example, just use the money to buy some of their stock. That’s not a taxable move.

    Doing that will boost the value of the shares left outstanding. It will add to earnings per share and shareholder returns.

    That would be great news for investors — including, naturally, the senior honchos, who are typically loaded up to the gills with stock and options.

    Here’s the final irony: Under current rules, they’ll just pay 15% capital-gains tax on their profits. (There are some proposals to raise that to 20%, but nothing has happened yet.)

    What does this mean in human terms? Consider a retired widow who has her money in bond funds, and who has taxable income of say, $40,000 a year. She will have to pay 25% federal income tax on the (pitifully low) bond income her fund gets from the likes of Goldman Sachs.

    At the same time, Lloyd “God’s work” Blankfein, the Goldman chief executive, will only have to pay 15% on his millions in stock gains.

    It’s a bank heist in reverse. Tell me I’m wrong.

  68. Unexpected HEHEHE says:

    Fitch says 40 Months, WSJ says 9 years worth of backlog:

    And the Chris Whalen interview is very nice.

  69. nj escapee says:

    N.J. 101.5FM studio is renamed after longtime radio personality Jim Gearhart

  70. NJGator says:

    Shore 55 – It’s a distinct possibility. You should email him. I think I’ve sent you his address previously.

  71. BklynHawk says:

    bold off, hopefully…

  72. Mr Wantanapolous says:

    Rock Chalk “Bold” Jayhawk.

  73. Confused In NJ says:

    56.Lamar says:
    November 2, 2010 at 12:35 pm
    confused (51)-

    In future generations’ history books (if books- or the future- even exist), 11/3/10 will be the chapter that follows 9/11/01 and 9/08. It will be seen as the equivalent of the FedCo/Treasury entry into the bell lap in the race to the bottom in the debasement of everything that was American and of any value whatsoever.

    If not for 12/21/2012, I’d be worried. They’ll probably do their first History Book printing on that date.

  74. Anon E. Moose says:

    Does anyone else do what I do: if you’re going to use HTML tags (like BOLD, or ITALIC), type both the opening and closing tags first, make sure there is a matched pair of them, then type whatever you wanted to put in the middle?

  75. Schrodinger's Cat says:

    Mr Hyde has morphed again

    Mr Hyde = Schrodinger’s Cat

    Just like the global economy, dead and alive at the same time. Your not dead as long as you never observe the system.

  76. speedkillsu says:

    #47 Fabius Maximus ,So am I to believe that this will be the end of Abbot dist stealing our school funds ? This income tax money was supposed to help all schools not the chosen few that our pol’s say to send the $$ to …..Every week n.j income tax is taken from my pay to help support my school ,but my town received NO state school funding …

  77. Daedalus Mugged says:

    On the subject of who would buy now…I will be interviewing a broker tonight to see if he is the one I want representing me (on the buy side). I have a few questions in mind, are there any suggested questions from the peanut gallery?

    (Yes, I know. I convinced my wife to sell and rent in 2006. She wants a place, and is sick of waiting. She doesn’t like the rental we are in, and doesn’t ever want to deal with renting a place listed for sale ever again or having to move because the rental was sold.)

  78. Schrodinger's Cat says:

    Is this a common theme developing? There seem to have been a few cases of the wives pushing the husbands to get off of the rental bandwagon and buy a house. Is it a nesting thing, silly coincidence, or what?

  79. Simply Ravishing HEHEHE says:

    When’s the fed making their stupid announcement?

  80. Fabius Maximus says:

    #77 speedkillsu

    Corzine killed Abbot funding in May 2009.

    Keep up please!

  81. Schrodinger's Cat says:


    Depends on who you are. Gross, Buffet and the like were probably informed of the tomorrows announcement a few weeks ago so that they could appropriately deploy assets.

  82. Daedalus Mugged says:

    In my wife’s case, I think it is a frustration with some of the downsides of rentals…not controlling your own fate (ie landlord selling place), having poor/shoddy work done, inability to fix problems like poor insulation because we don’t own the place etc.

    Ravishing: Tomorrow afternoon, I think around 3PM

  83. Lamar says:

    freedy (62)-

    With you on this one. NJ and the country are way too far gone. Just waiting now whatever violent event(s) are sparked that will thin the population, kill off the TSTL and act as the harbinger for whatever “recovery” eventually manifests.

    Smoke ’em while you got ’em.

  84. Daedalus Mugged says:

    HEHE, and what is interesting is that kicks off the 33 hour race: The Fed kicks it off, and within 33 hours, The Bank of Japan, The ECB, and the Bank of England will all also make announcements.

  85. Schrodinger's Cat says:

    I consulted with the catnip oracle and my opinion is that PM’s start a serious retracement after the 33 hr race.

  86. speedkillsu says:

    # 81… well then who the F#CK keeps stealing my town’s school funding ? we got ZERO last year ? could it be Westfield?

  87. Fabius Maximus says:

    I would love to know the full story behind this. Is this Ridgewood, Glen Rock pull some political favors or could this be a subtle FU to CC from the Dept of Ed.

    Bergen County charter school is denied approval after facing opposition from public school officials

  88. Anon E. Moose says:

    Cat [79];

    I’m not getting overtly pushed by the spouse. I’d like to know my kids can be in the same school for a foreseeable stretch, one where they won’t be subject to ridicule for having blond hair and blue eyes (German stock), in once case curly blond; proprty taxes don’t approach or exceed my current rent; something resembling a yard they can play in; less than pervasive crime; that won’t bankrupt us if God forbid the family income does not live up to the rosy expectations pushed by used-house-sales flacks, and the used-house-sales flack washouts — the mortgage pimps (any of those left?); sub-1 HR. commuting time to a metro Manhattan terminus (Penn, GCT, PABT) — Count on this: people who can afford what those $h!t shacks were asking don’t get to punch the clock at 5PM and hop on the 5:05 express bus to make it home in time to microwave a 7 PM dinner with the kids — No, Phillipsburg is not commutable to NYC – STFU (not you, Cat, just hypothetically arguing with some crack-addled used house sales flack).

  89. freedy says:

    Its for the children .

  90. Schrodinger's Cat says:


    Abolish the Dept of Ed!!!!

  91. Anon E. Moose says:

    Mugged [83];

    Again, not the spouse – I’m tired of the crappy kitchen and the Home Depot bargain special bathroom vanity and the tub tiles holding on with chewing gum and hope – more hope than gum. I don’t care about the water getting into the sheet rock and I’m certainly not about to pay for its repair. LL knows about it, decided against spending the $$$, or even the ¢¢.

  92. JJ says:

    Actually the German kids in my town love school. They feel very comfortable and at home in any building with large ovens.

    Anon E. Moose says:
    November 2, 2010 at 3:41 pm

    Cat [79];

    I’m not getting overtly pushed by the spouse. I’d like to know my kids can be in the same school for a foreseeable stretch, one where they won’t be subject to ridicule for having blond hair and blue eyes (German stock), in once case curly blond; proprty

  93. Schrodinger's Cat says:

    Moose 89

    No problem, I think most of us want more or less the same thing. But lets be honest, you must be a somewhat jealous of the fabulous diversity that towns like montclair have. I bet your children dont get the educational experience of interacting with the bloods like those in montclair do.

  94. jcer says:

    Daedalus Mugged, I understand that all too well. Rental inventory in NJ sucks. It is all homes/condos that couldn’t sell, or craptastic investment properties. Landlords invest like 53 cents into the places and even if it looks nice when you move in, it all goes to crap in 6 months and the landlord, who more often than not is doing this on the side either takes forever to fix it, doesn’t fix it, or fixes it so poorly it is almost worse than before.

    I honestly think home prices might fall a little more but, we will see an increase in nominal terms over the next 5 years. I think extend and pretend is in full force and once they can figure out how to debase the currency they’ll find a way to cause income inflation, it is the only viable option in a country so saddled with debt. I think the low interest rates remain and they find a way to inflate, it is the only way to avoid the banks from imploding, as we have seen the govt. is intent on doing whatever is necessary to keep this charade going.

    The way I see it consumer goods are too cheap, housing too expensive. The way I see it, if I made 30% more in income housing prices remained stable at today’s level plus modest gains, food and goods cost 75% more the situation would be better for me as it would be for most americans. I think of it as an economic reset button that screws the people with large sums of cash and dollar denominated debt holders.

  95. Painhrtz says:

    Schrodinger’s Cat Hyde you never cease to amaze me with precient references well played sir

  96. Daedalus Mugged says:

    jcer, that is pretty much my view as well. Although I think housing will likely be flat to modestly declining in nominal terms, it will continue to decline materially in real terms as inflation kicks in. I don’t so much want a house as I want a mortgage. The only really good inflation protection available to a retail investors is to just borrow money cheaply for a long time.

  97. Schrodinger's Cat says:


    Thanks. However, in all honesty i must say that the interpretation issues that pop up in QM as well as the lack of integration with classical systems seems to parallel the period of the late 1800’s when aether was being explored. How long before the next Einstein or Maxwell pops up to lead the way?

    Then again I am just a feline highschool janitor.

  98. Fabius Maximus says:

    #87 speedkillsu

    As Westfield got 500K last year, the answer is technically yes!

  99. Fabius Maximus says:

    #91 Crazy Cat Man

    Thats a bit of “inside the box” thinking. Calls to abolish the Fed Dept of Ed and calls to abolish the State Dept of Ed.

    So who defines the curriculum in that box?

  100. Fabius Maximus says:


    “Rental inventory in NJ sucks”

    Not really, you just have to put some work into digging out the gems.

  101. chicagofinance says:

    You could hear it on TV.

    28.Mike says:
    November 2, 2010 at 9:36 am
    JJ No. 25 My friend who’s a die hard Jets fan took me to that game and man there were cheese heads every where!

  102. SG says:

    Test Test off

  103. JJ says:

    Funny I thought they went out of business back in the early 1980s when the last automat closed down.

    Loehmann’s Said to Consider Filing for Bankruptcy Protection
    By Lauren Coleman-Lochner and Jonathan Keehner – Nov 2, 2010 2:43 PM ET
    Loehmann’s Inc., the New York-based seller of discounted designer goods, may file for bankruptcy protection as soon as next week after failing to reach an accord with creditors that would let it restructure outside court protection, said two people familiar with the plan.

  104. Comrade Nom Deplume says:

    [65] hawk,

    I actually considered something similar to what that chick is trying to sell, but it then morphed into the Nompound. After all, once you escape Manhattan, you gotta go somewhere.

    As for a nompound, I may shortly be entering into negotiations to acquire the property that started it all for me, the original Nompound. It is ideal except for the fact that freight tracks practically run through the front yard.

  105. Al Gore says:

    The Poll watcher (obviously a Dem) at the polling place looked saddened today. Place had a great turnout which Hope and Change gets flushed down the toilet.

    The Communist experiment ends today.

  106. JJ says:

    Democrats Face Biggest House Midterm Defeat in Years!!!!!

    Free Market Capitalism rules. Soak the Poor.

  107. JJ says:

    so the chick from the foodnetwork is first lady of ny. guess that is good news,

  108. Shore Guy says:

    “soak the poor”


    I take it you are a supporter of “piddle on economics”?

  109. Shore Guy says:


    I recall that Kansas also closed bars on election day. Hawk might be able to confirm that. I suspect that many other Midwestern states do the same — a throwback to frontier days when getting people drunk and then showing them how to vote was one tactic for getting elected.

  110. Nomad says:

    #65 – the “deluxe” package or whatever it is – if TSHTF, do you think for a few bucks, the person they hire to come over to your place and fire up the alternative power supply is really gonna show up.

  111. Nomad says:

    Hey Lamar, was looking at the Aug ’10 issue of Wine Spectator – had not read it in years

    – that house bill (1054?)prohibiting direct shipping of vino into states and bypassing the distribution network – you written to your legislators about it? Lots of lobbying $$ being thrown at it.

  112. Schrodinger's Cat says:

    Jcer nom
    that pumped out tundra just screams “rob me”. That’s a great setup if you have money to burn and are aiming for tactiCOOL. Any real world setup should be low profile blend in. It’s not a world war Z movie set.

  113. Schrodinger's Cat says:

    Al 108

    The Communist experiment ends today

    LOL, when did you start smoking hopium? It’s not over until we are all broke and Rome burns.

  114. finally found this blog really help me in my research. thanks for sharing

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