More on Mortgage Equity Withdrawals and Consumer Spending

I don’t see how any intelligent, observant, intellectually honest person can claim that there has been zero impact on consumer spending by the giant spree of HELOCs and Refis over the past 5 years. Its simply beyond my capacity to imagine that opaqueness.

The most recent addition to the literature on this comes from an update of the original Greenspan/Kennedy analysis. The WSJ reports:

"In a paper released by the Fed yesterday, Mr.
Greenspan and Fed economist James Kennedy estimated that home equity
served as a growing source of funds for American consumers from the
early 1990s to 2005, when it financed close to 4% of total
personal-consumption expenditures. In the latter part of 2006, however,
it appeared to finance less spending as the housing market began to

Messrs. Greenspan and Kennedy didn’t offer any
conclusions about whether home equity actually prompted more spending
than would have otherwise been the case. Private-sector estimates on
that subject vary widely. Some economists think the wealth the nation’s
consumers have extracted from their homes in recent years had a
pronounced impact on their spending, while others think it played a
lesser role.

Between 1991 and 2000, consumers used cash withdrawn
from the equity in their homes to finance just 0.6% of overall
spending. That share rose to nearly 1.75% in 2005, according to the
Greenspan-Kennedy paper. When the indirect effect of nonmortgage debt
repayments, mostly credit cards, is included the effect rises from 1.1%
of total consumer spending between 1991 and 2000 to almost 3% between
2001 and 2005.

As the WSJ noted, we can argue about how big the impact was — a whole
lot, a middling amount, more for some economic strata then others. But
to claim that all the Helocs and Refis and Cash withdrawals had no additional impact on spending or the economy is simply ignoring reality.

The impact has been felt at the margins across consumer spending. I am no GM defender, but these comments from auto legend Bob Lutz appear fairly circumspect to me:

GM Vice Chairman Bob Lutz, who was in Louisville, Kentucky to
attend an automotive industry conference, said he did not know how GM’s
sales had performed in April, but said he expected the whole automotive
sector would feel the impact of the stress on the housing finance

"The market as a whole has been a little weakish. That has come as
a result of the housing market problems and the mortgage industry
meltdown," Lutz told Reuters. "A lot of people are finding themselves
in a position of reduced affordability and that has had an impact, not
just on us, but across the industry."

That’s hardly blaming all their woes on the Housing sector.

Not only did the Housing boom lead to an increase in consumer spending here, it also did so abroad:

"The slowing U.S. housing market already has taken a
bite out of the U.S. economy. Now, the fallout is spreading to Latin

That’s because home construction is the principal
gateway industry for immigrants entering the U.S. labor market. Those
immigrants contribute the lion’s share of the estimated $50 billion in
cash sent annually from the U.S. to family members and others in
countries south of the border. That tide of cash appears to be ebbing.

Monthly remittances from the U.S. to Mexico have
dropped every month since their peak of $2.6 billion in May 2006 —
shortly before new-home construction in the U.S. plunged. In February
2007, the latest month for which data are available, remittances to
Mexico had slowed to $1.7 billion.

Mexico, Latin America’s remittance leader, may be a
leading indicator of a trend unfolding across the continent. In a
recent study of 15 Latin American economies tracked by BCP Securities
of Greenwich, Conn., all but three showed better than a 90% correlation
between the ebb and flow of U.S. housing starts and the swelling and
shrinkage of remittances as recorded by the nations’ central banks."

The impact on Latin America is not about MEW, but rather, is about the surge in jobs the Housing sector created.



Greenspan Sees Spending Link To Home Equity
WSJ, April 24, 2007; Page A2

Sources and Uses of Equity Extracted from Homes (PDF)
Alan Greenspan and James Kennedy
Finance and Economics Discussion Series (FEDS), 2007-20

Latin America Feels Pain of U.S. Housing Slump
WSJ, April 23, 2007; Page A2

GM’s Lutz says mortgage ‘meltdown’ hits auto sales
    Michael Lindenberger
Reuters, Tue Apr 24, 2007 1:02AM EDT

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What's been said:

Discussions found on the web:
  1. Nova Law commented on Apr 24

    As I understand this post:

    1. The housing market is headed south. People can’t refinance the equity in their homes through Mortgage Equity Withdrawals.

    2. Because of lower Mortgage Equity Withdrawals, people have less money to buy Chevys, causing GM’s car sales to drop 8%

    3. GM’s lower car sales mean the economy is in the dumper.

    4. Because of lower car sales and especially the housing market debacle, the economy is in the dumper, therefore the market is set to decline 30% (according to a prominent market maven I watched on TV last night).

    5. This morning, Toyota announced that its car sales are up 9%.


    6. The housing problem went away overnight.

    Or maybe the truth is a lot less complicated:

    1. There is no empirical evidence that Mortgage Equity Withdrawals or the lack thereof drive consumer spending on things like cars.

  2. Michael C. commented on Apr 24

    I remember some time ago discussion on how extremely aggressive pricing on GM cars & trucks would affect future sales. Why does GM not mention anything of this?

    Also, here’s another
    interesting chart
    of the Change in MEW as a % of Nominal GDP.

  3. Neal commented on Apr 24

    From CNN, “It’s pretty surprising,” Morningstar analyst Joseph Beaulieu said of Target’s lowered forecast. “I don’t think anyone really understands what’s going on.”

    Where do they come from? Oh, I forgot, Wall Street, where this will be spun to good news in a few hours.

  4. Philippe commented on Apr 24

    Courtesy of Mr Kash you may have an answer to the distribution of loans and consumer extraction when reading the consolidated assets of the banking system in the US.
    Please see the address:

    The real estate /commercial exposure in the banking system is of around 4 Trillion USD where home equity is amounting to 471 BILLION USD and mortgage back security 964 BILLION USD.
    The consumer is hurt through several measures:
    Home equity
    Mortgage back securities which are depreciated in value
    Existing household indebtness is standing at 100 % of GDP and was around 20% in the 60’s.
    As for the banking system it is under stress and figures should become more accurate at some point of time as not all the titrisation are made without any residual portion of risk for the issuer.

  5. me commented on Apr 24

    If equity withdrawls had no effect on spending, what did people do with the money?

    If they invested it (in foreign stocks) wouldn’t they be better off wealth wise?

    So it follows they must not be better off wealth wise if they now want to sue the lenders that “duped” them into buying house they couldn’t afford.

    My wife and I never bought a house that we couldn’t pay for with one income. So how stupid do you have to be to buy a house you cannot afford?

    A couple my wife works with had their credit cards maxed out so bad they couldn’t afford to take their pet to the vet, yet they refinanced their hovel, extracting about 50 grand to use for a new roof and pay off the credit cards. Instead, they bought no roof (still leaks) and a new $30,000 camping trailer.

    You have to be nuts not to think that a trillion a year in equity extraction did not finance consumption.

    If companies saw this consumption as permanent (rather than than temporary refinancing), wouldn’t they invest cash in the business? Yet business investment, the savior of the economy, is falling, at least in the US.

  6. TheFinancialPhilosopher commented on Apr 24

    I believe the idea behind intelligent Blogs such as TBP is to make observations based on the big economic picture that will provoke thought and stimulate additional intelligent thought — not to make predictions. I agree that only a fool would shrug off MEW as a no-impact factor in the big economic picture while I also agree with the previous post that it would be equally foolish to assume that MEW is the sole driving force of the economy and financial markets. In my view, it is wise to acknowledge MEW’s significance as a vehicle to perpetuate the voracious appetite of the American consumer, who will continue to spend, even as the “equity tap” runs dry. That is a behavioral issue more than a capacity issue. Eventually, Americans will slow their consumption to “digest” all they have consumed — we just do not know when that will take place. In the mean time, it would be wise to resist the temptation of choosing one side of an argument and insisting it is correct. As Shakespeare so eloquently wrote in one of his plays, “The fool doth think he is wise, but the wise man knows him self to be a fool…”

    Kent (aka The Financial Philosopher)

  7. Michael Schumacher commented on Apr 24

    Why is it that some people need to be strangled with “empirical evidence” in order to even acknowledge anything other than there own false beliefs?…

    You pretty much answered that question in your opening sentence:

    I don’t see how any intelligent, observant, intellectually honest person can claim that there has been zero impact on consumer spending by the giant spree of HELOCs and Refis over the past 5 years. Its simply beyond my capacity to imagine that opaqueness.

    Does the term Ostrich mean anything here??? I bet it does.


  8. Neal commented on Apr 24

    While it may be fine for the “Financial Philosopher” to sit comfortably in the back seat of the car enjoying the ride as it comes, sometimes it helps to rise above the immediate and get the “big picture” from a wider perspective. One might see that the road ahead is washed out by a torrent of foreclosures and bankruptcies and that the bridge to be built by capex is woefully inadequate.

  9. Swiss Boy commented on Apr 24

    Spain, which had witnessed a pretty big housing bubble, seems to be coming to its senses and the homebuilders are losing anywhere from 5 to 20% on the spanish stock market today.

  10. Michael C. commented on Apr 24

    It would be interesting to see what items/sectors MEW went into. A dollar is a dollar, but I would think if you surveyed people that their MEW went more into cars and TVs than their health insurance premium.

    Also, there has to be some normalizing of MEW with appreciation of home prices and lower rates. One would naturally expect nominal MEW to increase as home prices increase and the cost of borrowing decreases. It would be interesting to see a normalized chart taking into account these variables in order to ascertain how much MEW has truly deviated from the normal curve.

  11. Mike M commented on Apr 24

    Burning the furniture to stay warm. How can unproductive debt growth (explosion) be a good thing?

  12. Michael C. commented on Apr 24

    Well, I think the headlines just released speak for themselves:

    March existing-home sales lowest since June 2003

    March existing-home sales drop largest since Jan. 1989

    U.S. consumer’s inflation expectations rise in April

    U.S. consumers less upbeat about labor market in April

    U.S. April consumer confidence lowest since August

  13. wyler commented on Apr 24

    How can unproductive debt growth (explosion) be a good thing?

    In fact, isn’t there something called Grease-em’s Law that says unproductive debt drives out productive debt?

  14. Greg0658 commented on Apr 24

    Toyotas favored over US Big 3 – IMO has alot to do with global corporate US workers who are aquiring wealth with our middle class (union) investment $s of years past who are now the new darlings.

    When these darlings need to be squeezed for every cent, they will be replaced with the new global worker or robot.

    I only hope that this balancing act across the globe is not TO Destructive to my USA homeland.

    Enough of a paycheck to buy with, not so much cash I inflate my purchase out of reach.

    ps – I voted against every wage increase because we were getting to expensive for grammas and as it turns out corporations who can go global. We helped fuel our own destruction with the positive savings rate.

    pss – I want my next new car to be multi fuel, if I can afford it, otherwise I’ll do what I usually do, buy hand me downs. Me – 2nd string bench tinner.

    psss – Until global car manufacturers started to build here in USA it was a sin to buy a foreign car. Then the waters muddied. Took me to ps. You, dont do the same.

    pssss – I do wish Golden Rule balance across the globe.

  15. Bill commented on Apr 24

    We got the answer sooner than we expected. About an hour and 20 minutes after the NYSE close on Monday, Target announced that April sales will be “much weaker” than forecast (4% versus 6%).

    Of course they blame the weather, which is the standard excuse. An astute money manager remarked to us that Target missing by that amount is highly significant because Target is not a mess like Wal-Mart…

    PS – Wal-Mart sees April sales unchanged to down 2%.

  16. Michael Schumacher commented on Apr 24

    I think the real story is that Target effectively has downgraded it’s own stock and the analysts..who’s job it is to take corporate guidance and issue color on what they saw in Target’s release are all silent.

    Not one downgrade………but over at the street it’s all good because AMZN’s profit margins “might” improve.

    Sad reality


  17. rob d commented on Apr 24

    the bad weather kept people away from Target and they bought from Amazon instead…YES! Positive Spin…Go Bull GO!!

  18. Michael Schumacher commented on Apr 24

    Just a quick glance at the headlines……

    Michale C. has already done that……..does’nt really paint a great picture now does it? And that is just from ONE DAY…….

    The number’s from NAR are pretty awful too…so you know it was actually worse then they actually report.

    NAR blaming the weather too….

    But Go TXN…woohoo!!!!…LOL


  19. rob d commented on Apr 24

    btw – barry – love the verification message before one posts: “…to prevent automated robots from posting messages.” Is there any other kind?

  20. Josh commented on Apr 24

    Don’t pay attention to the man behind the curtain.

  21. TheFinancialPhilosopher commented on Apr 24

    Perhaps Neal has misunderstood my comment that the MEW factor is highly worth noting. Also, “sitting comfortably in the back seat” is an enviable position, is it not? I’m a long-term investor and that is arguably a “back seat” position. I believe in efficient markets and that market timing is a fool’s game. I choose to allow those more knowledgable than I to argue their positions while I structure my (and my clients’) investments with a long-term perspective. So many people are distracted by quantitative reports, media noise, and the belief in their own positions that they do not realize they are staring squarely at the trees and missing the forest altogether. Also, Neal, if I understand your comment, I would venture to guess that you may find that we agree on “the road ahead” if you read my Blog or made a judgement based on more than a brief and observational comment on a Blog. Thanks to all for provoking thought…

  22. Eric commented on Apr 24

    Nova Law wrote:

    5. This morning, Toyota announced that its car sales are up 9%.


    6. The housing problem went away overnight.

    I’m not too sure about this inference. My first hit on Google News just now:

    And here are three quotes from the article (emphasis added):

    “For the first time ever, Toyota sold more vehicles globally in a quarter than General Motors”

    “The Japanese company sold 2.35 million vehicles worldwide in the first quarter”

    ” ‘Toyota sales are booming because of its good image around the world about reliability and ecological technology’,” said Koji Endo, auto analyst with Credit Suisse in Tokyo.”

    I conclude: from just the fact that Toyota’s sales are up, one can deduce nothing at all about the U.S. housing market.

  23. Michael C. commented on Apr 24

    I suppose, as usual, all this negativity doesn’t matter until it matters.

    We’ve been discussing jobs & inflation for I don’t know how long yet we just hit new highs. And the housing slump has mostly affected only the housing & lending stocks.

  24. Red Pill commented on Apr 24

    Regarding the car sales and MEW:

    I would guess that on average the individual who extracts equity from their house to buy a car has bought in pretty heavily to the image-based, materialistic, have-it-now culture. Would these individuals be more prone to buy a big GM truck or a Toyota Prius?

    Now maybe I am wrong and the majority did MEW to finance vehicles involved in the business they were starting, but I doubt it.

    I am going to have a real hard time mustering up any sympathy when these people get financially crushed.

  25. Mike_in_FL commented on Apr 24

    Speaking of equity and today’s home sales Here’s my take on the numbers that came out today — In a word, these numbers were ugly…

    * Total sales fell a sharp 8.4% to a seasonally adjusted annual pace of 6.12 million from 6.68 million in February. March’s sales rate was down 11.3% from the same month a year ago and the lowest since June 2003.

    * Median home prices fell again – down 0.3% from March 2006. That’s the eighth month in a row that prices declined from a year ago, the longest such stretch on record.

    * For-sale inventory remains the real bugaboo. The total number of homes for sale came in at 3.745 million units, down slightly (1.6%) from February but up a sharp 17% from the same month a year ago. On a months supply at current sales pace basis, inventories are running at 7.3 – just shy of the October cycle high (7.4)

    No amount of lipstick can make this pig of a home sales report look pretty. Sales dropped sharply. Prices fell again. And inventories are closing in on the 14-year high set in late 2006. No doubt, crummy weather had an impact on the figures. But sales were poor in all regions, down 6.2% in the South, down 9.1% in the West, down 8.2% in the Northeast, and down 10.9% in the Midwest. That tells me a lot more is at work here – namely, that affordability is still poor, that speculators have left the building, and that tighter mortgage standards are starting to knock marginal buyers out of the market.

    Supply is still the biggest problem in my book. We’re seeing three forces keep inventory levels high – and I doubt they’ll go away anytime soon:

    1) The “March of the Re-Listers” – They’re the people who tried to sell last year and couldn’t. They pulled their homes from the market over the holidays, but now they’re putting them back on the MLS again to capture the seasonal upswing in activity we see every spring.

    2) Lots of our nation’s homes are in “weak hands” – 40% of the homes sold at the tail end of the boom were bought as investments or second homes. Those owners are more likely than owner-occupants to try to sell and cut their losses when the market turns south.

    3) Forced sales due to foreclosures — A company called RealtyTrac tracks monthly foreclosures – They surged 47% from a year ago to around 149,000 in March. That’s the highest reading yet for this series, which data goes back to January 2005. As mortgage defaults and foreclosures rise, more motivated sellers (banks, mortgage lenders, etc.) will dump the homes they’ve repossessed on the market.

    Looking ahead, April could prove to be another weak month. The National Association of Home Builders index recently dropped to 33, leaving it just above the multi-year low of 30 set in September 2006. Also, the Mortgage Bankers Association’s purchase application index just slumped to a two-month low

  26. Nova Law commented on Apr 24

    Eric, Toyota’s sales in the US are up 11.7%, not the 9% I noted:

    “In March, Toyota’s U.S. sales rose 11.7% to 242,675 vehicles”

    To those of you who believe the claptrap that GM’s declining sales are attributable to declining Mortgage Equity Withdrawals: Please explain how Toyota is immune to the “subprime contagion” while GM is infected.

    GM is crummy company. Like every poorly managed company (and every unsuccessful investor), the fault lies with somebody else: the subprime lenders, the Fed, Bush, Congress, or perhaps the tooth fairy.

  27. theroxylandr commented on Apr 24

    I see Luskin went into name calling in his article.

    Barry, I urge you to not answer him with the same. Hundreds of bloggers will do that for you. He will look very stupid very soon.

  28. James commented on Apr 24

    I think if you are talking about GM; you really have to factor in a bunch of things.

    1)Their cars are not real good compared to Toyota
    — that poor resale value is entrenched in the heads of consumers
    — they still don’t prototype so early model suck
    — they don’t do a good job matching engines and transmission and gear ranges hence a gm car will have nice specs (Hp/tourque) but will not perform much better. the competing toyota might be slightly lower performance but tends to do that with better reliability and MPG
    — GM divisions are extremely entrenched and so resistant to change. it took them longer than anyone else to switch to OHC engines or EFI…
    — the internal strife kills stuff that was inovated like fuel cells, electric vehicles exc exc… the gas engine guys dont’ want to change
    2)Their cycle time is really long so any change in the market and they can’t turn on a dime
    — they can’t change production to smaller vehicles quickly which is a big factor with high gas prices
    —- meanwhile toyota reduced their turn around time to about 1 yr for a new design or less than 25% of the time gm takes

    3)They are dead due to high cost of retirement plans with those self
    destructive contracts they signed.
    — they have to sell the bigger cars to make any money, they lose money on small cars
    — they think providing small cars is self destructive because its stops you from buying a big gas pig for twice the money
    — they tried to hide losses in their captured suppliers of parts and it is catching up to them

    When I hear about GM they are in a death spiral. Let them die. The emloyees with good idea will go out and start new and inovative companies

  29. Michael Schumacher commented on Apr 24

    Toyota is a global company with products that are bought in almost every mechanized and industrial country in the world. Gm is most certainly not. When was the last time you actually saw a GM car, not a truck, on the same scale as toyota cars in a country other than the US? Answer…you have’nt

    There’s you’re friggin tooth fairy….

    Basic stuff Nogo…….

    I guess you’re still trying to find those comments in your private email.


  30. Eddie commented on Apr 24

    Well, I had a nice comment on this, but since it thinks it may be “Comment Spam”, despite the stupid Letters safeguard, I could not post it. :(

  31. Nova Law commented on Apr 24

    Michael, as usual, you demonstrate that you don’t have a clue as to you’re talking about. GM both produces and sells a large proportion of its vehicles in international markets.

    GM produces almost 1.8 million cars a year in Belgium, Germany, Poland, Portugal, Russia, Spain, Sweden, and the UK. It has additional production plants in Austria, Italy, Italy, France, and Hungary. And those are just the European plants.

  32. Michael Schumacher commented on Apr 24

    even you know the difference between producing and selling.

    But, as your “example”, suggests…I guess you don’t.

    See it how you want to see it…suits you.


  33. Nova Law commented on Apr 24

    Not surprisingly, you are wrong yet again, Michael S.

    GM sold over 2 million vehicles in Europe alone in 2006.

    I could find and post up the figures for other countries (for example, GM sold more Buicks in China last year than it did in the US), but I don’t want to confuse you with the facts.

  34. donna commented on Apr 24

    Yes, but the Guatamalans are willing to move into doing random yard work, while the Mexicans aren’t apparently, at least in my neighborhood.

    The most annoying was when I was outside cleaning my trash can out and one stopped to look for work. I told him he could clean out my trash can, but he wasn’t willing to do that, just pull weeds or something. I told him to bug off. I did however employ the sweet kid who stopped another day as I was trimming bushes in the rain and he offered to help.

    Hey, the construction slowdown is great for those of us who have other chores that need doing…

  35. Donaldo commented on Apr 24

    I was reading Don Luskin’s article (link provided by Barry) and I came across this piece of wisdom:

    “First, this whole thing is based on a fallacy that somehow MEW represents money in the economy that wouldn’t have existed otherwise. But since MEW, by definition, is produced by mortgage debt, then the money must have already existed. Someone had to have it initially in order to lend it to the mortgage borrower.”

    Let’s ignore for a moment whether the money “already existed” or the Fed printed them and gave them to the banks to lend to beef up consumer spending and move on to his next line which astonished me:

    “Why is it so important whose hands the money is in? The bears don’t even think about that”

    Well, I’m a bear (at least for this argument) and I have thought about it. It is because everybody doesn’t have the same propensity or need to spend the money. A billion in Bill Gates’ bank account is not the same as a million in the hands of a 1000 MEWers. Half the MEWers will probably go out and buy a plasma TV (thereby increasing retail sales) whereas Bill Gates has no need for 500 plasma TVs. Mr Luskin either needs to brush up on the law of diminishing marginal utility or he’s being intellectually dishonest.

  36. Red Pill commented on Apr 24

    Actually, I would really like a conversation about whether the money “already existed.” Where and when was all this money created? In whose computer did all those 1s and 0s first appear?

  37. patski commented on Apr 24

    Hmmmm, maybe there is a correlation between serial MEW types and GM vehicles…

    Obviously, people that are prudent with their money, wouldn’t buy those rapidly depreciating porkers that dominate GM’s bread & butter midsection….

    Can’t prove it in my Sacramento neighborhood though, there are so many new Tahoes/Yukons/Escalades that I was contemplating buying some GM calls….

  38. deltaverde commented on Apr 24

    Though I don’t approve of ad hominem attacks and try assiduously to avoid them, I must say that Luskin is, in fact, a tool.

  39. Irving commented on Apr 24

    The real problem is that this is now a downward spyral which will begin to feed on itself. As industries that are affected by a slumping RE market start losing income, cutting back and laying off American workers as well, less people can pay their existing mortgages or afford to purchase homes. A dropping tide lowers all ships!

  40. Sponge Todd Square Pants commented on Apr 24

    Has anyone ever seen Don Luskin and Art Laffer speaking at the same time? I think they may share the same brain.

  41. TheFinancialPhilosopher commented on Apr 24

    In response to the question posed by “Red Pill” regarding “where and when was all this money created:” Your answer can be found by taking a look at an explaination of “money supply.” Here’s a link to a thorough explaination by someone much smarter than I:

    After reading the article, you’ll understand the meaning behind “Don’t fight the Fed!”

    Note to Barry: I’ll bet you can use money supply and money multiplier effects on the economy and financial markets as leverage to further support your MEW case.

    Thanks for all the great info on TBP…

    Kent (aka “The Financial Philosopher”)

  42. MAS (San Diego) commented on Apr 24

    Sponge Todd —
    The difference between Luskin and Laffer is that Art doesn’t inject the “I told you so” into every statement.

    Art Laffer = Everything is wonderful
    Don Luskin – I am wonderful

  43. Michael Schumacher commented on Apr 24

    Yes leave it to NOGO to take an observation and produce “facts” that basically only support his side.

    You’re not even good at it either.


  44. Winston Munn commented on Apr 24

    I have to give Luskin credit for one accuracy and that is consumer spending did not spike along with MEW; however, to display this as proof that MEW played no part in consumer spending is to disconnect between the Luskins of the world and the average working American. In is a non-understanding of the function of MEW and the reason for its use.

    For most Americans, home equity was not and still is not viewed as a “year-end bonus” that can be pulled out for non-serious spending sprees. Equity for many is either a retirement account, which is not to be touched, or it is a bank of last resource in times of financial crunch. The only ones who would have seriously been using MEW for additional spending would have been the “flippers”, and that money would have poured back into more housing and not random consumer spending.

    What MEW accomplished for consumer spending as the “bank of last resort” was to enable continued spending at the same or close to the same pace. There is no way to quantify the decrease that would have occured without MEW, but what MEW mostly accomplished was to give consumers brething room, paid off credit card debt, old bills, cars, and sometimes some was left over for luxury spree spending like plasma T.V.s, but I contend this was only with residual MEW, money left after debts were retired.

  45. Chris commented on Apr 24

    But what MEW mostly accomplished was to give consumers brething room, paid off credit card debt, old bills, cars, and sometimes some was left over for luxury spree spending like plasma T.V.s, but I contend this was only with residual MEW, money left after debts were retired.

    Paying off credit card debt with a HELOC/re-fi is still consumer debt, just transposed.

    Bottom line: taking out a loan to pay off another loan is ultimately pointless, as like Ben Franklin said (paraphrased) “no one gets out of debt by taking loans to pay back other loans.”

  46. Greg0658 commented on Apr 24

    One other fact – bankruptcy and US law on retaining the family home. Haven’t gone there myself, so I don’t have first hand knowledge, but one would want to borrow on the house and stock up on stuff, then get a good bankruptcy lawyer. I sometimes wonder if thats how my neighbors got where they are? Wish there was a website I could check like sex offenders, to squelch my perceptions. And with the law change I figure someone saw that going on, thus the rush to file.

  47. Winston Munn commented on Apr 24

    Bottom line: taking out a loan to pay off another loan is ultimately pointless, as like Ben Franklin said (paraphrased) “no one gets out of debt by taking loans to pay back other loans.”


    I did not make my point well, then. Of course it is pointless but that does not mean it did not occur over and over and over. Many were trapped in maxed out credit cards at 20+%, car payments they really couldn’t afford, and other shortterm debt with high interest. Many viewed MEW as a way to consolidate that debt into a single lower or equal payment, which then gave them access once again to credit cards with zero balances, no car payments for a few years, and allowed them to continue to consume at the same level as before – once again on their newly zero-balanced shortterm credit but with the personal vow “not to let it get out of hand this time”.

    That, in my view, is the reason there was no spike in consumer spending in conjunction with MEW withdrawl peaks.

    But this MEW extraction is a minor deal compared to the Enron-like potential disaster brewing in banking – the totally legal by GAAP method of showing ARM resets as current revenue.

  48. touche commented on Apr 24

    “Hey, the construction slowdown is great for those of us who have other chores that need doing..”

    Donna, that hunk belongs to someone else.

  49. ken commented on Apr 25

    Brad DeLong has identified Donald Luskin as ‘the stupidest man alive’.

    He used to provide critical commentary on Luskins writings, but he finally gave up. DeLong demonstrated the inability for any rational thinking person to keep up with the wretched spew produced by Luskin.

    Luskin seldom writes anything of value and virtually everthing he writes is full of errors and outright falsehoods. Luskin is, in my opinion, just another version of Rush Limbaugh in that he will just completely make stuff up and present it like it is real.

  50. Andrew commented on Apr 25

    I have to agree with the Luskin haters. I saw him on the Kudlow show with Barry the other night and it was clear to me that he didn’t get enough love as a child. He was probably bullied quite a bit too, the poor thing.

    Honestly, I got that embarrassed feeling that you get when you’re watching someone make a complete fool of themselves, and you somehow feel like you’re a part of it.

  51. The Big Picture commented on Mar 6

    Federal Reserve: Household Equity at all time lows

    The Fed just released the Balance Sheet of Households for 2007 Q4. It shows home owners equity as a percentage of household real estate at 47.9%, the lowest on record. Going back 20 years, this number was as high as 68.2% in 1986. In other words, for …

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