Looming Recession Update: Nobody Wants Your House

I don't even think a pessimistic reading of the economy would have presaged this bit of bad news:

Sales of new homes plunged by a record amount in 2007 while prices posted the weakest showing in 16 years, demonstrating the troubles builders are facing with a huge backlog of unsold homes.

The Commerce Department reported Monday that sales of new homes dropped by 26.4 percent last year to 774,000. That marked the worst sales year on record, surpassing the old mark of a 23.1 percent plunge in 1980.

The new report reinforced the view that housing is currently undergoing its worst downturn in more than two decades, with the slump threatening to surpass in some ways the severe housing recession of the early 1980s.

The housing weakness has dragged down overall growth and sent shockwaves through the rest of the economy including the financial sector, which is dealing with billions of dollars in losses in subprime mortgages.

Yowza.

This looks like a protracted slowdown in the housing market, and considering that manufacturing doesn't really take place here anymore, that means a protracted slowdown, period.

On a somewhat related note, in a show that public pressure really can have an impact, Angelo Mozilo is giving back $37 million dollars of his reward for ruining Countrywide.

In addition to $36.4 million cash severance payments, Mozilo also walked away from $400,000 per year he was to be paid under an agreement to serve as a consultant to the company following his retirement, and perks including the use of a private airplane, the company said.

"I believe this decision is the right thing to do as Countrywide works toward the successful completion of the merger with Bank of America," Mozilo said in the prepared statement.

Damon Silvers, associate general counsel of the AFL-CIO, which operates a Web site that tracks executive pay, said that by giving up his severance pay Mozilo "seems to recognize that there's something wrong with this picture."

"It would be best if Countrywide and Bank of America froze all of his compensation until a thorough inquiry could be completed as to exactly what happened at Countrywide," Silvers said, referring to allegations raised in some shareholder lawsuits filed last year that the company failed to warn investors about the depth of its financial troubles.

These balloon payments and golden parachutes are maybe the first thing that must be reversed as part of a greater effort to reverse the almost-historic level of inequality we have today.

Greed

How do you deal with something like this? Really, how do you stop a process where someone who destroyed his company, caused pain for thousands of employees and hundreds of thousands of homeowners, ends up with this kind of windfall?

Countrywide Financial Corp. founder Angelo Mozilo, one of the nation's highest-paid chief executives, stands to reap $115 million in severance-related pay if his troubled company is acquired by Bank of America Corp., regulatory filings show.

Free rides on the company jet are also included in Mozilo's departure deal, and the company will pick up his country club bills until 2011 [...]

"This is a failed chief executive -- a failed and overpaid chief executive -- who has driven his company to the brink of bankruptcy," said Daniel Pedrotty, director of the office of investment at the AFL-CIO. "I think shareholders are going to be especially outraged if he walks away with another pay-for-failure package."

But the idea that shareholders control the process is a myth. The board does what the board wants. And more than anything, this is what causes recession; the redistribution of wealth upwards means that ordinary consumer spending suffers due to a lack of resources. And yet so many of these corporations rely on that same consumer spending.

Government has mechanisms to deal with corporations that break the public trust. They apply for charters which are reviewed periodically. They have "personhood" status under the law which doesn't have to remain.

There's a way to channel this outrage.

That Housing Bubble? Bursting Faster Than You Think

Paul Krugman, whose new blog I am enjoying, notes that statistical analysis is masking the depth of the housing slump.

Reading various stories on the latest grim housing news, I notice that almost all of them talk about the decline in sales over the past year – which is, to be sure, pretty grim. For example, August 2007 new home sales were off 21% from a year earlier.

But the reality is even grimmer, since the housing bust was already well underway in 2006. And you don’t have to do a lot of digging to make the right comparison. The same Census release (warning, pdf) that gives you that 21% figure also reports average sales data from 2005, back when Alan Greenspan was assuring us that there was no housing bubble, just a bit of local “froth”. And comparing the seasonally adjusted August 2007 numbers with the average rate of sales in 2005 tells us that home sales are off 38%.

We forget more than we remember when it comes to statistics like this. He's right, this is at least a two-year trend. But it was propped up just enough for the CEO of Countrywide, a leader in the subprime mortgage industry, to make a killing in the market.

Countrywide Financial Corp. Chairman and CEO Angelo Mozilo cashed in $138 million in stock options over the last year, switching his trading plans as the mortgage company went into a tailspin, it was reported Saturday.

Between November 2006 and August, Mozilo changed the plans outlining how many of his shares would be sold monthly, the Los Angeles Times reported.

Mozilo unloaded 4.9 million Countrywide shares, most of which he bought through exercising options.

Hundreds of executives use similar trading plans, approved by federal regulators in 2000 as a way to defend against insider trading allegations. While not illegal, it is highly unusual for the plans to be changed so often in a short period, experts said.

I believe they call that insider trading, and this guy should go to jail. Krugman, in a non-blog column, has more on Mozilo and Countrywide, and it's shocking. The company was pushing people into bad loans to maximize their commissions. They are reluctant to work out any deals that would let people keep their homes. And they are CASHING IN on foreclosure fees, incented to force people onto the street. Krugman calls them "Enron's second coming." He may be right.