Summary of $962b European Bailout, Four U.S. Banks Fail
Summary of $962b European Bailout
Although recent indicators suggest that the Euro-zone economy (16 countries) is slowly and weekly expanding, a default by Greece or anyone else (PIGS: Portugal, Ireland, Greece, Spain) would slam the European banking system, and in turn ours. As it turns out, the European Union (EU) and the International Monetary Fund (IMF – almost 20% funded by the US) joined forces to create a loan package/bond purchase plan for $962 billion (759 billion euros)—more here and here. Of course, Greece has yet to succeed with its austerity measures – retiring at age 55 with full pay sounds pretty good.
The aid package created this morning in Europe, along with the huge rally in stocks, once again overshadows any “short term” jobs number. But Friday’s unemployment data does point out an interesting feature of the make-up of the employment data. Nonfarm employment rose by 290,000 jobs in April. But the unemployment rate increased, moving from 9.7% to 9.9%. How does that work? Ordinarily, a jump in nonfarm payroll would push the unemployment rate lower. Last month, however, individuals who had previously given up looking for work (and hence were no longer considered to be part of the labor force) sensed improving economic conditions and resumed their job search. So while 805,000 individuals entered (or re-entered) the labor force in April, only 550,000 found jobs. The remaining 255,000 who didn’t find jobs are now added to the tally of the unemployed, hence the unemployment rate increase to 9.9% from 9.7% previously. Many jobs came from relatively low-paying industry classifications, or were part-time jobs, and so hourly earnings were unchanged. In fact, the household data shows part-time jobs have accounted for nearly 65 percent of the jobs added over the past three months.
Europe’s Affect On U.S. Mortgage Rates
Why should what happens in Greece impact the mortgage rate that Joe Thompson pays in Missoula? US mortgage markets have been helped in two ways: the uncertainty in Europe has led to a flight to quality in safer investments, including US Treasuries and mortgage-backed securities (MBS), and also investors expect that continued economic turmoil in Europe will reduce US exports to the region, slowing US economic growth and reducing inflationary pressures. The United States does not have extensive trade and financial ties with Greece, and banks in this country own few Greek bonds. But other countries do, and the U.S. financial system could be adversely affected indirectly by the heavy exposure of other European countries to Greece.
How To Avoid Junk Mail
Borrowers know that applying for a mortgage involves the lender pulling a credit report. What they may not know, however, is that this allows credit bureaus to sell a borrower’s information to third party vendors – which include other mortgage companies. Savvy agents and brokers tell their clients to register themselves on the “Do Not Call” list. And they should sign up for “Opt Out Prescreen” which will stop the four credit bureaus (Equifax, Experian, Innovas, and Trans Union) from selling their name as a trigger lead for five years. Go to www.optoutprescreen.com. And while you’re at it, to register here to cut down on junk mail.
Four More Banks Fail
On Friday the coffee mugs of four more banks became collector’s items, and the FDIC despot insurance fund took a hit of about $214 million. 1st Pacific Bank (CA) is now part of City National Corp., and Bank of Bonifay (FL) is now part of First Federal Bank of Florida. Also gone are Towne Bank (AZ) and Access Bank (MN).
Preview of Treasury Auctions
Returning to our markets, one thing that could push our mortgage rates around this week is the $78 billion of supply to bid this week. Tomorrow we have $38 billion in 3-yr notes to sell, Wednesday $24 billion in 10-yr’s, and on Thursday $16 billion in 30-yr bonds. Aside from that, the most significant economic data this week will be Friday’s Retail Sales report, along with Industrial Production and Capacity Utilization. Import Prices, the Trade Balance, and Consumer Sentiment will round out a light week – there is nothing today. For those that drive, gasoline prices are the highest they’ve been since October 2008. Anyway, the news out of Europe has temporarily reversed the flight to quality, and we find the 10-yr yield back up to 3.59% and mortgage prices worse by about .375-.5.
Daily Humor
There are lots of poll taken to gauge public opinion. The latest telephone poll directed by Rick Perry, the Texas Governor, asked whether people who live in Texas think illegal immigration is a serious problem:
29% responded, “Yes, it is a serious problem.”
71% responded, “No es una problema seriosa.”