Financial Armageddon

Pretty Clear

With all of the rhetoric, obfuscation, and spin coming out of Washington these days, some might find it hard to see just where our current policies are leading us. One look at the following chart of federal receipts, outlays, and borrowing, however, and the facts seem pretty clear.

Put that together with the following report from the Associated Press, "Mountain of Debt: Rising Debt May Be Next Crisis," and it makes you wonder whether this year's July 4th holiday should really be a time for celebration.

The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.5 trillion — equivalent to over $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services — or a combination of both — may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year — the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

Alexander Hamilton, the first treasury secretary, said, "A national debt, if not excessive, will be to us a national blessing."

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply — except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style "debt clock" near Times Square — put in place in 1989 when the debt was a mere $2.7 trillion — ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is "something that keeps me awake at night," Obama says.

He pledged to cut the budget "deficit" roughly in half by the end of his first term. But "deficit" just means the difference between government receipts and spending in a single budget year.

This year's deficit is now estimated at about $1.85 trillion.

Deficits don't reflect holdover indebtedness from previous years. Some spending items — such as emergency appropriations bills and receipts in the Social Security program — aren't included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government's balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number "to the penny" every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world's safest investments.

That's one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy — and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government's mushrooming debt — and what it might mean for future generations.

If things can't be turned around, including establishing a more efficient health care system, "We are on an utterly unsustainable fiscal course," said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation's true liabilities.

The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation's full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

___

On the Net:

Treasury Department "to the penny" national debt breakdown: http://tinyurl.com/yrxrsh

Peter G. Peterson Foundation independent assessment of the national debt: http://www.pgpf.org/

"Deficits do Matter" debt clock: http://tinyurl.com/l6mvjb

(Hat tip to Bruce)

All Walks of Life

Time magazine is out with an interesting report, "Thrift Nation - How Americans Spend Now," featuring a series of vignettes that detail the impact the financial crisis is having on individuals from all walks of life. Examples include:

"The Unemployed Couple":

Chris Strong for TIME

Barbara, 46, and Kevin Lowe, 52, Grand Rapids, Mich.

The cell phones were canceled; so were all subscriptions and outside entertainment. We didn't go skiing this winter, and we won't be golfing over the summer. No more wine. We used our severance and some savings to pay off Kevin's 2008 Saturn and pay down the house. We debated whether to cancel the local newspaper, but in the end kept it for the Sunday coupons. We now eat every single item in the house until it's gone. If that means we have curly pasta and penne and spaghetti all mixed up, so be it. I have 101 ways to use half-eaten boxes of pasta. We're much more careful shopping — no more running in to get one or two things. We wait until we have a big list, and then buy only what's on that list — and at the local grocery warehouse, not the food boutique.

You'd be amazed at how you don't even know where your money goes. It took us a couple of months to get a firm handle on our expenses. There are some things you only pay a few times a year and you forget them, and then they crop up and you don't have $40 for the water bill or veterinarian. I distributed flyers around the neighborhood offering babysitting and elder-care services. I can take care of an infant for a few hours as well as any high school girl. I'm tired of waiting for someone else to offer me a job.

It's hard to invite people for dinner, so we don't accept many invitations. We went to the art show on the day tickets were discounted, and told friends we'd brown-bag our lunches. One of them said we could go to a cheap restaurant, but I can't. I'm not sure they really understand how it is. I know I didn't until it happened to me.

We are still confident something is going to come up. We have discovered we can live on a very small amount of money, but we need to find something with health insurance before our COBRA expires. We take turns having meltdowns.

"The Gun-Store Owner":

Danny Wilcox Frazier / Redux for TIME

Jody Windschitl, 49, Missouri Valley, Iowa

Our sales are up about 33% this year compared with last. As an industry, they say it's the "Obama effect." We have never been in business when the Democrats are in office. We've been told that gun sales go through the roof, and they weren't kidding. We can't even get stuff. Ammunition has just dried up all over the country. Right now we're so busy, we've had to hire one person. People are afraid also of the Democrats' putting a ban on firearms — that's the biggest fear factor.

I used to see about five M-15s sold a year. Until about two weeks ago, we were selling about five a week. Now it's three a week. More women are buying, especially older ones. A lot of them are widows who are alone, and they want to have self-protection, just because of the economy. We've had a lot of robberies and break-ins in our area, and they're attributing that to people being out of work.

"The Emergency-Room Doctor":

Bill Cramer / Wonderful Machine for TIME

Naisohn Arfai, 33, Philadelphia

I started in mid-July. I was a resident here, so I'm not entirely new to the system, but I'm new as an attending physician. You feel like you're at the front lines in emergency medicine. It's both rewarding and very painful at the same time. I feel like I've seen more people coming in in the past half-year telling me they can't afford their blood-pressure medicines. They haven't been able to see a doctor for a while. They used to have a doctor, but they're not covered anymore.

They come in when they've reached a point of desperation. They could be having a stroke or a heart attack or kidney failure. But more commonly what we see is people who are coming in with recurrent headaches. They feel lethargy. They feel like they're having blurred vision, headaches. Sometimes they have some mild chest pain or difficulty breathing. They come in, and they say, "I know my blood pressure's high. These are the kind of symptoms I get." It's frustrating, because you know you can remedy it temporarily, but in the long run, how can I be sure that these people are going to be seen by a physician after they leave?

There are times when people will come in and they'll need a chest X-ray, but they'll ask, "Well, how much is this going to cost me? How much is a CT scan going to cost me?" Oftentimes I don't see these people again. I don't get to see what happens after they leave the ER.

Here is the complete list:

1. The Unemployed Couple
2. The Sports CEO
3. The Restaurant Owner
4. The Autoworker
5. The Financial Adviser
6. The Blackjack and Roulette Dealer
7. The Gun-Store Owner
8. The Boutique Owner
9. The Bulk Shopper
10. The Organic Gardener
11. The Movie-Theater Concessionaire
12. The Emergency-Room Doctor
13. The Grocery-Store-Outlet Owner
14. The Therapist
15. The Financial-Aid Officer
16. The Doggie Day Care Owner
17. The Free Health Care Clinic CEO

Buzzkill for the Bottom-Callers

Whenever I get the urge for a quick shot of reality (which is, admittedly, quite often), I like to hear what those on the economic front lines are thinking and doing. I'm not referring to the clueless wonders on Wall Street or in Washington. Rather, I mean those who ply their wares on Main Street and who can't afford to get caught up in "green shoots" fantasies or other such nonsense.

With that in mind, I found the following report from the Association of Finance Professionals (which probably has a few Wall Street types as members, though luckily they are in the minority), "Companies Stockpiling Cash, Credit Access Still Tight, AFP Survey Shows," to be a real eye-opener -- or what a cynic might describe as buzzkill for the bottom-callers.

42% increase short-term holdings; most move to more conservative vehicles

With little easing in access to credit, U.S. organizations are continuing to stockpile cash, according the Association for Financial Professionals' 2009 Liquidity Survey. Almost three-quarters (72%) of companies had increased or maintained their U.S. cash balances during the first part of 2009.

According to the new AFP survey, 42% of organizations increased their U.S. cash and short-term investment balances between December 2008 and May 2009, while 30% saw no significant change in short-term cash balances. More than a quarter (28%) of organizations saw their U.S. cash and short-term investment balances deteriorate over the six-month period. Organizations with non-investment grade ratings were more likely to have seen their cash and short-term investment balances shrink.

"Despite unprecedented government action, the lack of any significant thaw in short-term credit access is extremely troubling and many companies are reacting by stockpiling cash," said Jim Kaitz, President and CEO of AFP. "While, many organizations with their strong cash positions will be well-positioned once the economy begins to improve, overall economic conditions will not improve until organizations can begin using their cash in activities that foster growth."

This is the fourth annual survey performed by AFP focusing on how organizations manage their short-term investment portfolios. This year's survey also repeated questions about credit access that AFP asked its members in two surveys conducted late last year as credit markets deteriorated. The AFP 2009 Liquidity Survey was underwritten by The Bank of New York Mellon.

Despite recent reports about an easing in the corporate credit markets, over half (59%) of survey respondents indicate that their organizations' access to short-term credit has not changed significantly since the beginning of 2009. A larger percentage of organizations reported that credit was less available (27%) versus 14% that indicated that credit access had improved. Two-thirds of organizations expect their access to short-term credit to remain the same over the next year.

Overall, financial professionals do not expect their organizations' to decrease short-term cash and investment balances over the next year. Only one-quarter (27%) of organizations expect to decrease their U.S. short-term cash and investments balances.

"The turbulence of the present period has had no small impact on the liquidity needs and practices of individuals and corporations worldwide," said Eric Kamback, BNY Mellon's CEO of Treasury Services. "The survey also revealed that many believe the tightening of available credit will persist in 2009, so conservative, safety-based investment strategies can be expected to continue."

Organizations have moved to a more conservative investment strategy for their short-term balances and have reduced the number of vehicles they use for short-term investments. Organizations are allocating 78% of their short-term investment balances to three safe and liquid vehicles: bank deposits, money market mutual funds and Treasury securities. The use of commercial paper, separately managed accounts and auction-rate securities declined significantly over the past year. While investment policies allow for the use of four or more investment vehicles, on average, organizations use 1.6 investment vehicles compared to 2.4 options in 2008.

The vast majority (93%) of survey respondents indicated that their organizations have taken at least one action as a direct result of the decline in short-term credit access in September, 2008. The following are some of the most widely implemented defensive actions taken:

• Reduced capital spending (70%)
• Reduced or froze hiring (69%)
• Considered/implemented staff reductions (58%)
• Moved all or most short-term investments to bank deposits and U.S. Treasury securities (44%).

Finally, financial professionals are generally hopeful about an economic turnaround. [My take: aren't we all?] Almost three quarters (74%) of survey respondents believe that the worst is over and that credit markets will start easing by the end of this year. [My take: if they truly believed that, wouldn't they be "unbattening" the hatches -- that is, taking different actions than the ones described above?]

In May 2009, the Association for Financial Professionals conducted the survey on strategies associated with the management of short-term investments, receiving 360 responses from professionals at a broad range of organizations. Respondents represented organizations in manufacturing, insurance, energy, financial services, retailing, and other industry sectors.

Liquidity Resources:

AFP 2009 Liquidity Survey: http://www.afponline.org/liqreport
Interpretive video: http://www.afponline.org/liqvideo
More on cash and liquidity management: http://www.afponline.org/cashsessions
CNBC interview with AFP's president, Jim Kaitz: http://www.cnbc.com/id/15840232?video=1168249148&play=1

Not Just the Flow of People

In When Giants Fall, I highlighted a May 2008 VoxEU.org column by Drew Keeling in which he argued that "the economic risks of working abroad, particularly the risk of cyclical recessions, and the availability of family networks to help cope with those risks, were crucial factors determining who migrated and how they migrated."

In other words, once the economic tide reversed course, it was a good bet that immigration patterns would follow suit.

As it happens, an article published in the Wall Street Journal earlier this month, "The Great U-Turn," noted that "global migration flows reverse for the first time since the Depression as work in the rich world dries up."

Well, it appears that it is not just cross-border human traffic that is changing direction. In "Immigrants Who Wired Their Wages Home Are Now Asking Their Families to Send them Money," the Associated Press reports that cross-border money flows are also being affected.

For five years, immigrant day laborer Leo Chamale wired money twice a month from New Jersey to his family in Guatemala. Recently, he stepped up to the money transfer window for a different purpose -- to ask that his family send some of his savings back to him.

"I hadn't worked for five months, and I was two months behind on rent, so I had them send $1,500," the 21-year-old Chamale said in Spanish. "My mother said, `That's a lot of money!'"

With the U.S. economy in a ditch, money transfer agencies have been reporting a decline in the wages immigrants are sending back to their home countries. Now, it appears some immigrants are going a step further -- asking their relatives to wire them money back.

"We've never seen this before," said Marlen Miranda, manager of Peerless Travel in Fairview, which runs a money transfer service. "I mean, one or two people might receive money for a special reason, but not this quantity of people."

Miranda said she has seen her customer base dwindle from 200 people to 75 who regularly use her money transfer services each month. Of those 75, Miranda said, about 20 now come in to receive money instead of sending it home.

"They can't send them much, because the economy in their countries is so bad," Miranda said. "Sometimes people only receive $20 from home."

It is not clear how much money is being sent back to the U.S. or how widespread the phenomenon is. Large money transfer agencies, such as Western Union, said they do not disclose how much money is sent or received by their field offices. Banks in foreign countries often track only money sent into the country by their citizens living abroad.

But clearly, these "reverse remittances" -- as the money wired back to the U.S. is called -- are extremely small when compared to the money immigrants send home.

Immigrants working in the U.S. sent more than $50 billion back to their native countries last year, according to the World Bank, which predicts the amount will drop 5 percent in 2009. Mexico's central bank said remittances sent to that country are down more than 18 percent in the past year, and registered their biggest decline on record in April.

Alejandro Tejada, manager of Tenares Communications, a Western Union office in Passaic, said he, too, has noticed money flowing in reverse, into the U.S. -- a phenomenon he rarely, if ever, saw before.

It began around late March, Tejada said, after a tough winter in which construction projects and other ventures that usually employ immigrant day laborers ground to a halt.

World Bank economist Dilip Ratha said he devised his own measure of how much money is sent back to immigrants living in the U.S. and other countries. Analyzing foreign currency deposits in the Dominican Republic, Mexico and India from February 2008 to January 2009, Ratha found that immigrants from those countries tapped into their savings accounts -- money they had previously wired home -- at an accelerated rate as the global economy worsened.

The amount of foreign currency on deposit declined 7 percent in the Dominican Republic, 12 percent in India, and 6 percent in Mexico during the 12-month period, Ratha said.

Nevertheless, "people are sending far, far, far more back home than what they are taking out," he said.

Ratha said the surge in money wired back to the U.S. will not last long.

"The ability of, let's say, a Mexican family or a Nepalese family to be able to send dollar remittances to maintain somebody to pay for living expenses in the U.S. or in Europe is very weak, because they are very poor," Ratha said. "And the savings that are there of the migrants are also not very significant in most cases -- so those savings will run out very quickly."

Standing on a street corner a recent morning in Palisades Park, looking for work, Chamale said he is now hoping to earn just enough for a plane ticket home.

"I was forced to ask for money from home during the winter months," he said. "After that, I said to myself, `That's it -- I'm heading back to my country.'"

Scenes from a Downturn

It's one thing to point to a steady stream of disappointing data points and ski-slope-shaped trendlines and say this is not your father's downturn.

However, it's stories like those that follow, detailing just a fraction of the unfamiliar reactions and novel responses of individuals, families, business, charities, and governments to the worsening economic climate, which leave no room for doubt that things really are different this time:

"Lose Your Job, Keep Your Fridge Under New Sears Plan" (Dow Jones Newswires):

Sears Holdings Inc. (SHLD) is letting customers who lose their jobs keep their appliances in an effort to assist them, and itself, during the recession.

Customers who buy big ticket items like refrigerators and washing machines from June 6 to Aug. 1 and become unemployed after the purchase will have one twelfth of the price - including warrantee and service charges -- taken care of by Sears each month. If the job loss lasts a year, Sears will write off the purchase.

The program is being run as a pilot for appliances costing $399 or more and, depending on how it goes, could see its time frame added to and possibly be extended to other products, said Kevin Brown, vice president and chief marketing officer for home appliances at Sears, in an interview with Dow Jones.

Sears came up with the program after hearing from customers that they needed the merchandise, had the money for it, but were afraid to commit because they were concerned about their jobs and the economy, Brown said. "This will allow them to move forward."

The program covers customers who have lost their jobs from 60 days to one year after the purchase.

If the customers keep their jobs, Sears books the sale. Customer don't get their money back if they paid in full for the products and they don't have to make up any payments as long as they can show proof they don't have a job.

The program comes as Sears has seen a falloff in large appliance sales that contributed to an 11.7% decline in same-store sales for its most recently reported quarter.

Sears calls the program the first of its kind by a national appliance retailer, and is adding its own twist to overtures made by major auto makers, although in Sears' case customers can keep the products.

General Motors Corp. (GM), Ford Motor Co. (F) and Hyandai Motor Co. have all had programs that allow auto buyers to return their cars if their jobs are lost.

In March, apparel retailer Jos. A. Bank Clothiers Inc. (JOSB) offered to refund up to $199 of a suit's price and allow customers to keep it if they are laid off through early summer.

Sears sees the program as a way of serving existing customers. "If we take care of them we believe they will take care of us," Brown said.

The program is also hoped to bring in new customers. "We hope there would be appeal in us serving as an innovator with this type of program," Brown said.

Citigroup Inc. (C), which manages Sears credit card portfolio, will oversee the program. A Sears spokesman didn't immediately respond to a request regarding what type of payment arrangement Sears has made with the banking company when customers default on their payments.

The appliance program "can help Sears build its image as a 'good citizen'" and help attract customers at a time they are hard to attract, said Barry Seifer, head of retail consulting firm Hart Seifer Partners.

"But as a purely financial move it doesn't make total sense," Seifer said. " They are making an appeal to customers who are more likely to become unprofitable to them."

Sears shares were recently up $2.67, or 4.11%, to $67.57.

"Recession Brings Out Salvation Army Kettles in July" (WATE):

KNOXVILLE -- Due to the recession, the Salvation Army will bring out the Red Kettles for a first time ever summer campaign in Knoxville.

Volunteers will ring bells on Friday and Saturday, July 17 and 18 at four Kroger locations:

• Knox Plaza in Bearden
• Middlebrook Pike at Cedar Bluff
• Northshore Drive at Pellissippi Parkway
• Kroger Marketplace in Farragut

Officials say the recession has been hard on local non-profits.

"Some of our major corporate donors have closed their doors this year," explained Knoxville Area Commander Major Don Vick in a press release.

"While our donations have been somewhat flat, our requests for assistance have increased dramatically," Vick added.

The Salvation Army is counting on volunteers to get the job done. Interested groups or individuals should call (865)-971-4907 to get registered.

Donations for the Salvation Army are also accepted online or by mail. Click here if you'd like to help.

"Animal Shelters Full Because of the Economy" (KRCG):

The animals at Callaway Hills Animal Shelter are waiting to be adopted.

The shelter has been at full capacity for more than two months now.

Abandoned pets are not what usually comes to mind with a recession, but workers at the shelter say tough economic times have flooded them with animals, so many that the shelter simply can't take in any more.

"Part of it is from people, you know, losing, you know, losing their homes and they're calling needing to place their animals.  We get a lot of calls like that," Callaway Hills Manager Mary Hall said.

Not only are more people giving up their pets, but workers say fewer people are showing up to adopt pets.

Patty Forister with the Central Missouri Humane Society in Columbia says a lot of calls are from long-time pet owners.

"Some people just can't afford to keep them anymore,” Forister said. “Some people allow their animals to have puppies or kittens and then they have too many and they can’t find them homes, so they just bring them to us."

Fortunately the Columbia shelter hasn’t had to turn any animals away partly because of an infusion of cash from a nationwide contest.

The Jefferson City shelter has also seen an increase in animals, and although they have almost reached their limit on cats, they are still accepting pets as long as the owner lives in Cole County.

Officials say this overpopulation problem can be easily prevented.

They say it’s important to have your pets spayed or neutered and to keep in mind adopting a pet is a life-long commitment.

“Try very, very hard to keep your pet,” Forister said. “They want to be with you. They don’t want to be here at a shelter.”

According to the humane society around seven million animals enter shelters nation-wide each year and only about three million are adopted.

"State Reconsiders Casino Gambling Amid Recession" (WCVB):

Lawmakers Expected To Act On Bill This Fall

BOSTON -- Casino gambling is back on the table in Massachusetts.

Lawmakers held a public hearing Monday to discuss the possibility of expanded gambling.

The discussion comes as Gov. Deval Patrick signs a fiscal 2010 budget sharply cutting government services and also raising the sales tax by 25 percent. Gambling proponents said those moves underscore the importance of capturing some of the estimated $900 million in revenue thought to be gambled each year by Bay State residents at Connecticut casinos.

Yet critics said the state's precarious financial situation is no reason to prey on vulnerable people who may make bad bets.

Senate President Therese Murray said she expects the Legislature to act on a bill this fall. And one prior opponent -- former House Speaker Salvatore DiMasi -- is no longer around to block it.

"Free Legal Services Stretched As Demand Rises" (GateHouse News Service):

From fighting for unemployment benefits to staving off foreclosure to watching a family unravel under financial strain, attorneys say more and more people face serious legal problems in a recession.

Yet for many who need it most, finding a lawyer's help is getting harder all the time.

Legal services organizations that offer free civil representation for low-income, disabled and elderly people are under siege from budget cuts, a drastic drop in other revenue and surging requests for help. That means painful decisions about which clients to help and which to turn away.

"It's bad when you're sitting there at a meeting and talking about a victim of domestic violence and debating whether the one who got thrown down the stairs is worse than the one who got thrown out of the car," said Betsy Soule, executive director of MetroWest Legal Services. "It's crazy."

Even in better times, legal services groups say they only have the capacity to serve about half those who ask for assistance. At MetroWest Legal Services, which is based in Framingham, calls have climbed 25 percent in the last six months, but Soule expects a budget cut in the fiscal year that begins Wednesday from $1.7 million to about $1.35 million.

"It's just an explosion right now," Soule said. "It's very difficult, especially for the people who answer the phone and screen the callers to have to say no, because there really is no other place to send folks for comprehensive legal services."

Greater Boston Legal Services Director Robert Sable said his group, too, faces problems. Its service area includes Newton and Waltham.

"The short answer is yes, we're getting hammered on both ends - losing money and client demand up," he said.

Both programs are among 17 legal aid programs funded by the Massachusetts Legal Assistance Corp., which gets revenue from two sources. One is a state appropriation, cut from $11 million to $9.5 million in the budget on the governor's desk, said Lonnie Powers, executive director.

The organization also receives two-thirds of the interest on lawyers' trust accounts. Whenever an attorney holds money temporarily for a transaction, such as when a client buys real estate, it goes into an interest-bearing account. That interest helps fund legal aid programs.

Much of that interest has dried up along with real estate sales. The interest rate for such accounts also has been cut to between zero and .25 percent, Powers said. That has caused interest to drop precipitously, from $26 million in 2008 to about $10 million in fiscal 2010, meaning a 67 percent drop for Mass. Legal Assistance Corp., Powers said.

That's meant layoffs, attrition and furloughs at many legal aid groups. Soule's organization has not replaced departures, instituted a hiring freeze and will spend down its reserves, she said.

The state budget cut means upward of 2,000 cases that would have been handled otherwise probably won't be picked up, Powers said.

"It's a real disastrous result of the problems in the overall economy and the problems in the commonwealth that we're seeing these cutbacks in legal assistance when low income people really need them more than ever," he said.

Many people are seeking help with evictions by landlords who have lost their homes to foreclosure, Soule said. Homeowners, too, are seeking help in foreclosure proceedings.

More employers are contesting unemployment benefits, leaving those who have lost jobs forced to fight for them. Some are seeking transitional assistance to get by.

Divorce and family problems, too, are rising, with some parents looking to reduce child support payments after losing work, lawyers said.

In most cases, to qualify for legal aid services, clients can make no more than 125 percent of the federal poverty line, which is about $26,000 for a family of four, Soule said.

Massachusetts Bar Association President Edward McIntyre said his group and county bar associations are boosting the number of attorneys offering pro bono services to qualified clients. But legal aid work takes specific skills, and there are not enough pro bono lawyers to meet the demand, he said.

"I'm 64. I've never seen this in my lifetime," McIntyre said. "I've been a lawyer since '81."

With some analysts saying it may be 2014 before state revenue recovers, legal aid may be reaching a "chronic stage," McIntyre said.

"I don't think we can hold on, legal services in the commonwealth, perhaps without some relief," such as federal stimulus funding, he said.

Ironically, Powers said, legal aid often saves Massachusetts money by shifting qualified people from state assistance programs to federal ones.

"That's the paradox of need and resources," he said

"Losing Our Jobs, Rediscovering Our Children" (Momlogic):

Yvette Manessis Corporon: I never knew what I was missing. How could I, a committed career woman, have any idea?

Carpools and class parties were for other moms, the ones who stayed home, the ones who dropped their kids off at school and then played tennis all day. I wasn't like them. I had important meetings to attend and stories to write and deals to make. I had an identity outside of the home and a career I had meticulously cultivated. Of course I loved my kids and they came first -- but I also loved having my own identity, a purpose outside the home. I always thought I did a pretty good job of balancing it all. And then it happened -- the recession, that is.

Like countless other Americans, I saw my work situation change overnight. Instead of working full-time and full steam ahead, I'm now working part-time -- less time spent in the office and more time spent at home, shuttling my kids to playdates and parties. I have to admit, I never fully understood the importance of school drop-offs and pickups until I actually started doing them on a daily basis. Now that I've seen my son flash his precious preschool smile the second he spots me in the car line, or listened, mesmerized, as my 8-year-old shares the intimate details of her day over an after-school snack -- there's no going back. I always made it to the big events, special days like recitals and school plays, but I never understood the beauty and value of those small moments, the moments I missed out on all those years while I was working. And I'm not alone.

The numbers are staggering, as well as scary. There are 14.5 million unemployed people in the U.S. 9.4% of Americans are out of work. Among them, millions of formerly working moms now find themselves taking on a daunting and quite foreign role: that of stay-at-home mother.

A funny thing happened on the way to the unemployment office; many of these moms lost their jobs but rediscovered their children in the process.

Wendy Lehman is an award-winning journalist who loves what she does and never once considered life as a stay-at-home mom. Since she became a mother three years ago, Wendy managed to nurture her son, Nicholas, as well as her career. But this past December, Wendy's show at BusinessWeek TV was canceled and she found herself at home caring for Nicholas full-time. Now this hard-charging journalist says she would be hard pressed to go back to her old way of life. "I am a little surprised at how much I enjoy staying home," Wendy tells momlogic. "I definitely thought I would experience a big sense of 'who am I?' The cliche of losing my identity. But what I discovered is that 'Mom' is a huge part of my identity. In fact, equal to my career."

But that's not all. For Wendy, and so many other first-time stay-at-home moms, the opportunity to finally focus completely on our families can be more valuable than even the paychecks we've lost in the process. Wendy explains: "I also can't quantify how amazing it is to spend this much time with my son. Having been both a 'working' mom and a 'stay-at-home' mom, I can honestly say they are both equally difficult and exhausting. But staying at home allows me to be less divided emotionally and that is satisfying for both Nicky and myself (and my husband!)."

Linda Mautone agrees. After 14 years, the mother of two was recently laid off from her fashion industry job. While facing unemployment can be daunting, Linda and her family have found that it can also have its benefits. "My husband loves it. We aren't juggling our schedules anymore. The stress in our lives has been reduced. It is a calming and more spiritual family existence we now share." And while Linda is open to returning to work, this experience has had an indelible impact on the roles she wishes to play, both at home and at the office. "If I decide to go back into the workplace, I definitely won't return to a management position. I want to focus solely on my family," she says.

We all know that these are challenging and difficult times. There's no great joy in losing your livelihood, especially when you have little mouths to feed. But even in these dark times, there are still lessons to be learned and beautiful glimmers of hope to be discovered. For me and so many other moms, that hope can be found in the faces of our children: in their giggles, in their smiles, and in the priceless and unexpected moments we suddenly find ourselves sharing. One day, hopefully soon, the economy will turn around and the workplace will need us once again. We'll get our careers back, but not this time we have with our children. Yes, these are scary times -- but it's also time to reflect, reconnect, and rediscover the gift called motherhood.

Waiting for Godot in the Real Estate Market

"But that is not the question. Why are we here, that is the question. And we are blessed in this, that we happen to know the answer. Yes, in this immense confusion one thing alone is clear. We are waiting for Godot to come."
--Samuel Beckett, Waiting for Godot

In Samuel Beckett's famous play, two characters, Vladimir and Estragon, wait expectantly for an individual who never arrives.

Perhaps not surprisingly, the title of that play was the first thing that popped into my head when I read the following Clusterstock post, "The New Homeowner Hallucination: 'We'll Rent For A Year And Then Sell When The Market Comes Back'":

Mark Hanson of the Field Check Group continues to write great analyses of the housing market.  Mark remains extremely bearish, and he attributes the recent pick-up in sales velocity to seller capitulation rather than renewed buyer demand.

Mark thinks the next segment of the market to crash will be the mid- to high-end, where many smug homeowners are now telling themselves they'll just rent their houses for a year while they wait for the market to "come back." Needless to say, Mark thinks these folks are dreaming.

The mid-to-high end housing markets are on the ropes and taking a barrage of body and face blows. Entire communities are being re-priced lower, literally overnight. Sales transactions have increased over the past couple of months because sellers are finally capitulating.

Most of the properties being sold are from:

a) those with lots of equity who know they better sell now or they will lose their opportunity

b) those that know they will be able to steal the new house that they buy so it’s  a wash

c) short sales being approved more often

d) foreclosure resales. 

Prices coming down to a point where the market clears is key to finding the ultimate bottom of the market, but before a bottom is celebrated the market has to enter a very dark place.

Remember, in early 2008 -- as prices were only about a third the way off of the highs -- falling prices was viewed by the pundits as a great thing and needed in order for the market to heal.  But in reality long before a bottom can occur, the falling prices create a negative-equity loan default and foreclosure domino effect that does the real damage. 

This overnight house price re-valuation freefall is exactly what we saw in 2007 and 2008. It’s simple -- as values fall, more go into an incurable negative equity position, which lead to increased loan defaults, foreclosures, supply and lower prices. Then this fall in prices lead to even greater amount of negative, loan defaults, foreclosures and lower prices - rinse and repeat. Prices then keep falling until supply and demand fundamentals neutralize.  This is what we saw at the low end this year as a result of artificially low rates, foreclosure moratoria, mortgage mod initiatives and finally seasonal factors after prices were down 55% at the median.

And now, Hanson argues, the same price collapse is coming to the mid- and high-end of the market--where owners are now deciding that prices are about to "come back."

Check out the anecdote below:

Because of the epidemic negative equity across the mid-to-high end, a large percentage of high-leverage exotic loans still in place, and the belief amongst the upper-crust (or severely over-leveraged depending upon how you want to look at it) [that the market will come back] many are resorting to renting vs. selling. In every case, the homeowner or Realtor managing the lease says “we want to wait a year or two until the market comes back”. 

Why in the world would there be such an overwhelming sense of hope among the mid-to-high end homeowners that the prices of expensive homes would come roaring back? If not for interest only loans, Pay Option ARMs, stated income and 100% HELOCs the mid-to-high end would have never got there in the first place. 

Two years ago, a household income of $100k a year could legitimately buy an $800k home with almost nothing down and afford the payments using a Pay Option ARM. Now to buy the same house, you need $160k down and an income of $200k a year. The $800k home went from the majority being able to afford it, to only a few.  Remember, in the upper price bands most have to sell a home for the down payment and debt-to-income ratios required for a new loan.

Even in San Francisco City , long thought to be safe-haven for house prices, owners are resorting to renting. A savvy money manager and real estate investor I know sent me this note yesterday I thought was worthy of sharing. He has been scouting properties for an associate moving to town from NYC.

“Mark, I walked through a beautiful home in Pac Heights yesterday. Was listed at $6M about a month and a half ago. Price has been cut three times now and it currently listed at $4.95M. The amazing part is that the owner is now trying to rent it for one year (and I quote the agent) “and then sell it when the market comes back.”

When I asked her what made her think the market would come back when rates were going higher, availability of credit was down, incomes were down, unemployment was up and willingness and availability of people to spend was down, she had no answer.

Even more amazing was that we looked at four places in a similar price range and almost all of them had a similar strategy…”rent it out for a year and then sell when things get better”…

All these high-end people think they’ll just keep burning through capital and that everything will self-correct in 12-months and then go right back to the idiotic pricing levels that they themselves were crazy enough to pay.

Are people really this clueless???? (that was rhetorical so no need to answer…)… J

... Looking at median household incomes in every mid-to-high end area in [California], I come up with the same conclusion…the mid-to-high housing bands are still 33% to 50% overvalued on average.

Bottom Line - I don’t remember ever seeing such a massive supply of quality SFR’s for rent in CA. Rents are falling fast. Why in the world would someone want to put down $500k cash and make payments greater than that of rent in order to buy in a falling market?  Prices have much further to go on the downside.

Unload that McMansion while you still can.

A New Kind of Jobs Market

Given how bad things are on the jobs front, I wonder how long it will be before some Americans are left with little choice but to auction their labor off to employers in a setting that looks something like this:

(Photo source: http://www.oratoriosocietyofny.org/AuctionPix-2005.html)

Oops. Based on the following St. Petersburg Times report, "Spring Hill Woman Who Listed Herself On eBay Lands a Job," perhaps I spoke a bit too soon.

David Phillips, owner of online advertising company Caribebay, was having trouble finding the right employee to join his staff.

Instead of shifting through countless resumes, Phillips, by chance, picked up a TV remote one day last week.

Staring back at him from the screen was Sherry Campbell of Spring Hill, a mother of four whose attempt to get a job by auctioning herself online through eBay has earned her national exposure.

"After hearing about her eBay post, I knew she was a marketer," Phillips said Friday from his Tampa office. "I knew she would be a perfect fit here."

In a few days, Campbell went from down-and-out former car saleswoman to director of merchant services at Caribebay, an online organization that helps small businesses across the nation become more Internet-savvy.

The company develops a Web presence for businesses that otherwise would not have the resources, Phillips said.

Phillips called Campbell in for an interview and hired her the same day.

"I wanted to think about taking the position," Campbell said Friday from her new office. "Once I got to the parking lot, I called back and accepted."

Campbell said full-time work is a great change after months of unsteady income. Being able to support her family again is her proudest achievement, she said.

"My family is my biggest concern," she said. "I'm glad we're doing better."

After not finding work for months, she posted herself for sale on eBay on June 4. With an opening price of 99 cents, Campbell hoped to find a job during a dismal economy through a different, high-tech approach.

Almost immediately, she found herself something of a media celebrity. Newspapers, Web sites and television outlets including CNN contacted her for interviews.

But the burst of fame was short-lived. EBay deleted her profile on June 10, saying that policy prohibits a person from selling his or her services.

Still, her tactic helped her find a job. Since starting her new position Wednesday, she has hit the ground running and noted the friendly atmosphere of the company.

"I'm just relieved to have a good and steady job," she said. "I love it here and couldn't be more thankful."