Minnesota Governor To Begin "Unallotments"

Three cheers for the few willing to make a step in the right direction. Minnesota's governor is one of the few. Please consider Pawlenty gets official go-ahead to begin making budget cuts.

Let the cutting begin.

Minnesota's top state finance official on Thursday formally notified Gov. Tim Pawlenty that the state will not take in enough money to pay its bills over the next two years, setting the stage for the governor to start using his executive power to unilaterally cut spending.

In a letter to Pawlenty, Management and Budget Commissioner Tom Hanson wrote that, as expected, the spending he and the Legislature approved for 2010-11 would exceed the state's revenue collections by $2.7 billion.

"Therefore, at the beginning of the next fiscal year (July 1), it will be necessary to reduce allotments of appropriations or transfers," Hanson wrote.

Under state law, Pawlenty can't start to cut spending until the commissioner notifies him that the state faces a budget shortfall. Hanson's letter satisfies that requirement.

Pawlenty has said he will start making spending reductions, officially known as "unallotments," as soon as possible after July 1 to protect the state's credit rating and give him the most possible options.

Let The Cutting Begin

Cutting services rather than raising taxes is the right thing to do.

Pawlenty is looking to cut health and welfare spending, college and university appropriations and state agency budgets. That's a good start, with start being the operative word. Eliminate would be a better word for many state agency departments.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Jobs Contract 17th Straight Month; Unemployment Rate Soars to 9.4%

This morning, the Bureau of Labor Statistics (BLS) released the April Employment Report.

Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The unemployment rate continued to rise, increasing from 8.9 to 9.4 percent. Steep job losses continued in manufacturing, while declines moderated in construction and several service providing industries.




Establishment Data



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Highlights

• 345,000 jobs were lost in total vs. 539,000 jobs last month.
  
• 59,000 construction jobs were lost vs. 110,000 last month.
  
• 156,000 manufacturing jobs were lost vs. 149,000 last month.
  
• 120,000 service providing jobs were lost vs. 269,000 last month.
  
• 18,000 retail trade jobs were lost vs. 47,000 last month.
  
• 51,000 professional and business services jobs were lost vs. 122,000 last month.
  
• 44,000 education and health services jobs were added vs. 15,000 added last month.
  
• 3,000 leisure and hospitality jobs were gained vs. 44,000 lost last month.
  
• 7,000 government jobs were lost vs. 72,000 added.
  

A total of 225,000 goods producing jobs were lost (higher paying jobs), and the service sector was hit again but less than half compared to last month. Indeed most of the improvement vs. last month was a 149,000 relative improvement in the service sector.

It was nearly a clean sweep again this month with education and health services jobs the only real winner for the month.

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Index of Aggregate Weekly Hours

New this month I added hours of work to the above table. Those hours are now down to 33.1 in aggregate. This is contributing to household problems.

Birth Death Model Revisions 2008



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Birth Death Model Revisions 2009



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Birth/Death Model Revisions

After the typical in January in which the Birth/Death Model revisions bore some semblance of reality, the Birth/Death numbers are back in outer space.

At this point in the cycle birth death numbers should have been massively contracting for months. The BLS is going to keep adding jobs through the entire recession.

This is a complete joke.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals). Those assumptions are made according to estimates of where the BLS thinks we are in the economic cycle.

The BLS has admitted however, that their model will be wrong at economic turning points. And there is no doubt we are long past an economic turning point.

Here is the pertinent snip from the BLS on Birth/Death Methodology.

• The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.
• Note that the net birth/death figures are not seasonally adjusted, and are applied to not seasonally adjusted monthly employment links to determine the final estimate.
• The most significant potential drawback to this or any model-based approach is that time series modeling assumes a predictable continuation of historical patterns and relationships and therefore is likely to have some difficulty producing reliable estimates at economic turning points or during periods when there are sudden changes in trend.

Household Data

The number of unemployed persons increased by 787,000 to 14.5 million in May, and the unemployment rate rose to 9.4 percent. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7.0 million, and the unemployment rate has grown by 4.5 percentage points.

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in May at 9.1 million. The number of such workers has risen by 4.4 million during the recession.

Persons Not in the Labor Force

About 2.2 million persons (not seasonally adjusted) were marginally attached to the labor force in May, 794,000 more than a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 792,000 discouraged workers in May, up by 392,000 from a year earlier.

Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The other 1.4 million persons marginally attached to the labor force in May had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Table A-5 Part Time Status



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The chart shows there are 9.1 million people are working part time but want a full time job. A year ago the number was 5.3 million.

Table A-12

Table A-12 is where one can find a better approximation of what the unemployment rate really is. Let's take a look



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Grim Statistics

The official unemployment rate is 9.4% and rising sharply. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 16.4%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further.

Looking ahead, I expect the service sector to continue to weaken. Mall vacancy rates are rising and a huge contraction in commercial real estate is finally started. There is no driver for jobs and states in forced cutback mode are making matters far worse.

Unemployment is likely to continue rising until sometime in 2010.

Depression Level Statistics

I consider these job losses to be depression level totals. Admittedly conditions are not as bad as the great depression, but this is certainly no ordinary recession by any economic measure including lending, housing, bank failures, jobs, the stock market, commodity prices, treasury yields etc. For more on this idea please see Humpty Dumpty On Inflation.

Regardless of whether you think these are depression level statistics, unemployment is high and rising. Moreover, the "adverse scenario" in the Fed's stress test was unemployment at 10.3% at the end of 2010.

I stated many months ago we are going to be close to 10% by August and close to 11% by the end of 2009. It seems I was an optimist. We might hit 10% by June or July.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Walking Away Revisited - Reader Mailbag - Moral Dilemma

Tonight I received a request from "SS" asking to revisit the subject of walking away.

SS Writes:

Mish,

Over a year ago you wrote this article: Walking Away: The Next Mortgage Crisis

A lot has changed since the publication and most - if not all - changed for the worse economically since that time. I was wondering if you would/could write a post to address the topic once again.

I am a condo owner who has done nothing wrong. I put money down, I did not buy over my means, and I did not attempt to use my house as a credit card. As a matter of fact, I am still employed and I still continue to make payments on my mortgage. All that said, I am at a loss of over 100K and the banks are unwilling to work with me because of the loss of equity.

I've actually had one loan officer laugh at me when I called to discuss the refi. So while others simply there are those who get help from the banks/government because of their mismanagement, I am being penalized for "doing the right thing".

To add insult to injury, the city will not lower taxes despite contesting.

In my building there are 43 units, of which 34 are occupied, and no units have sold in the last year and a half. In the last two months we've witnessed two foreclosures in the building and I believe things will only continue as layoffs in the area have begun to take effect and the general economy of the area is starting to really take a hit.

If one were to make the assumption that the economy was going to turn around tomorrow morning, and real estate began to pick up, it would take almost 8 years for the value to come close to a breakeven point - not even make a profit.

I simply - simply - cannot see a good business reason to continue paying on my mortgage. I try to rationalize the situation, but there is *NO* good business reason. Please understand I say this as a person who has NEVER missed a bill in my life. My credit rating is 780 (averaged between all three agencies). I've always taken pride in paying and making my own way... but I've reached my breaking point.

I am not asking for guidance, nor and I asking for legal advice, I simply think this is a topic that has not really been discussed in the press and really should be.

Please understand that I know I am not the only one facing this question or situation. A number of people are worse off, and I am not trying to say "poor me" but no one is really talking about the obvious. The "dream" of home ownership is a myth and a prison sentence for a large group of American that played by the rules, and as I have a great amount of respect for your writing, I figured you would be a good place to provide updated thoughts to everyone.

Thank you for the time, and if this is not a topic you wish to once again address I can understand.

Best,

SS

SS, admittedly your situation is in contrast to what Karl Denninger described in Ok, I'm Done With Being Nice.

The woman Karl wrote about bought a two-bedroom home in 1997 for $77,500 then used it as an ATM machine to live extravagantly, running the mortgage balance up to a clean double to $143,000. The woman was complaining Countrywide Financial, now part of Bank of America would not offer to alter her mortgage.

Had the woman taken out a 15 year mortgage an made one extra payment a year, instead of owing $143,000, she would now be a proud homeowner with zero mortgage! The woman believes she did nothing wrong.

Karl ripped her to shreds, and deservingly so.

While you did not make the serious error Karl lambasted, the first thing you must realize is that you are in a dilemma of your own making. You claim you did nothing wrong, but actually you did. You made one critical mistake: You bought a piece of property at a very poor price. That is your fault, not the man in the moon's.

People are seldom willing to point the finger where it needs to be pointed, at themselves. You need to point the finger at yourself. That said, the lender also made a mistake: giving you a loan. I am not sure what your down payment was, but the smaller the down payment the bigger the lender's mistake.

I believe you are correct when you state "It would take almost 8 years for the value to come close to a break even point - not even make a profit" and that is assuming the economy quickly turns around. Heck, it could take more than that on a condo. 20 years is not out of the question depending on the bubbliness of the area you invested in.

The question is what to do about it. The law provides a penalty for walking away. That penalty is ruined credit for five years. That is it. Lest people get all bent up over how easy you can get off, the lender knew those risks in advance and took them anyway.

There are no debtors prisons anymore, and the stigma (if any) of bankruptcy or walking away decreases every day. Although some people will resent you walking away, still others will be envious if you can shed that debt and they can't because of second mortgages or because their conscious will not allow them to walk away.

As you say, "there is no good business reason" to keep paying your mortgage.

Should you decide to walk away, I would advise you to consult an attorney specializing in these matters, such as the ones at YouWalkAway.Com. For the record, I get nothing for this referral.

And although I am not a lawyer, given that you can easily afford the payments, I would strongly advise not buying a new house before you walk away. That may constitute fraud.

The moral hazard here is that if you walk away, the property may be dumped on a bank and taxpayers may end up footing the bill. Alternatively, the quicker all this malinvestment debt is wiped out, the quicker housing will bottom and the economy will recover. It's easy to rationalize any position you want to take.

The fact that you wrote indicates you are in a moral dilemma. And as stated above, you need to put the blame on yourself even if other parties aided and abetted. Having done that, please review Walking Away: The Next Mortgage Crisis the Moral Obligations Of Walking Away and Businesses Advised To Walk Away to see if you can resolve your conflict.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Benefit Spending Hits $2 Trillion, Highest Percent Since 1929; One Dollar Out of Every Six From Vouchers

As economic conditions deteriorate and unemployment continues to soar, one in nine Americans are now on food stamps. Moreover, a staggering one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

One in Nine Americans on Food Stamps

According to the USDA One in nine Americans on food stamps.

One in nine Americans are using federal food stamps to help buy groceries as the country's deep recession forced another 591,000 people onto the federal anti-hunger program at latest count.

Enrollment jumped 2 percent to 33.2 million people in March, the fourth consecutive month that rolls hit a record, said the Agriculture Department. The average monthly benefit was $113.87 per person.

"It's tough out there for struggling families and will be for many months to come," Jim Weill, president of the Food Research and Action Center, said. In 20 states, as many as one in eight are on the food stamp program, according to the Food Research Center.

Benefit Spending Accounts for 16.2% of Personal Income

According to the Bureau of Economic Analysis, Benefit spending soars to new high.

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans' income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That's the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The recession caused about half of the increase, according to the report. Unemployment insurance nearly tripled in the past year. The other half is the result of policies enacted during President George W. Bush's first term.

"The increase in social spending is still relatively modest given the severity of the downturn," says economist Dean Baker of the liberal Center for Economic and Policy Research. "We're not France."

Adam Lerrick, economist at the conservative American Enterprise Institute, says the benefits' explosion will eventually lead to an economic crisis. "We've seen this movie before in many countries. It always has the same ending," he says.

Nevada, Michigan and California had the biggest per-capita increase in bankruptcy filings in May, according to AACER.

California Unemployment Fund Short By Billions

The San Francisco Chronicle is reporting State's unemployment fund short by billions.

California is paying out so much for jobless benefits and collecting so little in payroll taxes that its unemployment insurance fund could be $17.8 billion in debt by the end of 2010, according to a new report from the state Employment Development Department.

This latest fiscal crisis won't immediately affect the 1.1 million Californians now collecting benefits because the state is using an interest-free federal loan to cover their checks.

But the state is supposed to repay that loan and restore its unemployment fund to solvency by 2011 - and right now, policymakers aren't sure exactly how to do that, or at what cost.

"The deficit that California looks like it is facing is staggering," said Bud Bridger, fiscal officer for the unemployment insurance program.

To rebalance the system and pay back the federal loan, lawmakers must raise payroll taxes on employers, reduce benefits for recipients, or both. In 2009 and 2010, the state expects to pay out $29 billion in benefits. It will collect just $11 billion.

Alicia Trost, spokeswoman for state Senate President Pro Tem Darrell Steinberg, D-Sacramento, said legislative leaders met with business and labor officials Monday to discuss the unemployment issue, but it took a back seat to more pressing problems.

"We're going to have to address it," Trost said. "But the most important thing now is to close the current budget shortfall."

Collectively this is a stunning series of problems, both nationally and locally.

California is $17.8 billion in the hole (and counting) on unemployment insurance but the legislature is not even looking at the situation because of more pressing problems and because the state is using an interest-free federal loan to cover benefits.

Excuse me but is this $17.8 billion deficit in addition to the $24 billion budget deficit? How the Hell is California going to pay that back and fix a $24 billion budget deficit that without a doubt will cause a massive increase in unemployment? Has anyone factored that in?

How can loans of $17.8 billion not be considered as part of the deficit that needs to be fixed? What about California pension promises that cannot possibly be met?

One final question: Are we France or does it just look like we're headed that way?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Initial Unemployment Claims Dip Slightly; Continuing Claims Dip Slightly Snapping Streak at 17

The string of 17 consecutive weeks of higher continuing claims ended today with slight dip in claims.

Continuing claims hit 6.788 million last week, setting a 17th consecutive record (revised slightly lower to 6.750 million). Today's number is 6.735 million, breaking the streak (assuming the number is not revised up later).

Please consider the Department of Labor Weekly Claims Report.

Seasonally Adjusted Data

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 621,000, a decrease of 4,000 from the previous week's revised figure of 625,000. The 4-week moving average was 631,250, an increase of 4,000 from the previous week's revised average of 627,250.

The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 23, unchanged from the prior week's revised rate of 5.0 percent.

The advance number for seasonally adjusted insured unemployment during the week ending May 23 was 6,735,000, a decrease of 15,000 from the preceding week's revised level of 6,750,000. The 4-week moving average was 6,687,500, an increase of 88,750 from the preceding week's revised average of 6,598,750.

Weekly Claims



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The dip in initial claims from the March peak of roughly 650,000 is not accelerating very fast, if indeed at all.

Note that the 4-week moving average of initial claims rose this week after generally declining for a couple months. Also note that the 4-week moving average of continuing claims rose a significant amount.

Economists expect to see unemployment by 10% at the end of the year. I expect to see it at 9.8%+- by August and approaching 11% by the end of the year. Bear in mind the "stress-free tests" conducted by the Fed had an adverse scenario of 10.3% at the end of 2010.

Finally, I would like to point out that unemployment insurance does run out. People will drop off the rolls when benefits expire.

Those looking for a recovery in jobs soon are going to be disappointed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Bernanke's Monkey See Monkey Don't Policy

Bernanke's knows deficits are a problem and unsustainable as well. He is even warning Congress about them. Bernanke also knows that the Fed is going to have to unwind the garbage on its balance sheet.

Bernanke sees the problems, yet he is still willing to add to those problems. This is clearly a case of Monkey See Monkey Don't.

Let's investigate the situation starting with Treasuries Rise as Bernanke Warns on Deficits, Fed Buys Debt.

Treasuries rose for a second day after Federal Reserve Chairman Ben S. Bernanke said large budget deficits threaten financial stability and the central bank purchased $7.5 billion of U.S. government securities.

Yields on 10-year notes declined as the Fed chief said deficit concerns are already influencing the prices of long-term Treasuries after yields climbed to the highest since November last week. The central bank plans to purchase U.S. debt again tomorrow as part of its $300 billion, six-month effort to cap lending rates.

The U.S. can’t continue to borrow at the current rate to finance the budget deficit, Bernanke said in testimony to the House Budget Committee today.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bill Gross, founder of Pacific Investment Management Co., said Treasury Secretary Timothy Geithner’s plan to bring the budget back into balance won’t be successful as consumers shrink spending and the U.S. growth rate slows. The budget deficit will be narrowed to “roughly” 3 percent of GDP from a projected 12.9 percent this year, Geithner said June 1.

‘Balanced Rabbit’

“I think he’ll fail at pulling a balanced rabbit out of a hat,” Gross said in a Bloomberg Radio interview today from Pimco’s headquarters in Newport Beach, California. “They are talking about -- once the economy in the U.S. renormalizes --the move back toward balance or much less of a deficit. I suspect that will be hard to do.”

Gross advised holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits.

Dearth of Rabbits

I suspect Gross is talking his book and the dollar may be poised for a rally as noted in Speculative Bets Against The Dollar Highest Since July 15 2008.

However, I happen to agree with the idea that there is a dearth of rabbits available to pull out of hats.

It's your problem, Bernanke tells Congress

The question of the day is: Who is going to shut off the spigot? Clearly it's not the Fed, at least not Bernanke, as noted above. Indeed, Bernanke tells Congress, It's your problem.

Congress and the people who elected it must decide how much government they want to afford, Bernanke said. Stating the obvious, he went on to say: "Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run."

Unfortunately, Congress and the people have seldom gotten the balance right. We want the benefits of a large government without paying the costs, just as we wanted a loftier personal living standard than our income could support.

For its part, the Fed also faces having to make some tough choices. The U.S. central bank has lowered interest rates substantially and has expanded its balance sheet by about $1.2 trillion, effectively flooding the banking system with cash to keep the economy from collapse.

Everyone knows this and accepts it in principle -- but in practice, it will come down to knowing when to let go. It will require a deft hand and a dollop of good luck to keep the economy from crashing back to the ground or, conversely, from soaring like Icarus and burning up with inflation.

Sadly, the Fed's near-impossible task is child's play compared with the problem faced by the Obama administration, the Congress and the people.

Tough Decisions For The Fed

Inquiring minds are reading An Economy at Risk: The Tough Decisions Ahead by Thomas Hoenig, President, Federal Reserve bank of Kansas City. Here are a few quotes.

"In the long run we are all dead but our children will be left to pick up the tab".

"In our efforts to fix the oversight process for our financial system, we should not misdiagnose the patient. Unfortunately, I'm afraid we are witnessing some regulatory malpractice now. The emphasis on reform at the moment is to change the structure of the regulatory system rather than address the fundamental weakness of that system."

"Capitalism is a process of success, failure and renewal, and for it to work properly, institutions must be allowed to fail, no matter their size or political influence."

"Over the past two decades, The US has created for itself a set of economic imbalances that, in my judgment, have significantly increased uncertainty and placed economic growth at risk for future generations of Americans".

"Starting from where we are today, it is clear that interest rates must rise."

"I suspect there will be considerable pressure on the central bank to 'help out' in easing this adjustment process by keeping interest rates low for an extended period. This happens because people often confuse the establishment of low interest rates - and therefore the creation of money - with the creation of wealth".

Fed's Hoenig Is A Monkey See Monkey Don't Policy Advocate

The first quote above is Hoenig quoting Keynes, and one of the few things Keynes said that makes much sense. Most of the rest seem to come from the Austrian economic handbook.

I especially like "In our efforts to fix the oversight process for our financial system, we should not misdiagnose the patient. Unfortunately, I'm afraid we are witnessing some regulatory malpractice now. The emphasis on reform at the moment is to change the structure of the regulatory system rather than address the fundamental weakness of that system."

Yes indeed, it is the Fed and Fractional Reserve Lending that are the "fundamental weakness of that system" and no amount of regulation can possibly fix that problem. Please see Case Against the Fed and Fractional Reserve Lending for details.

Yet, for all Hoenig's talk, where is the action? Where are the dissenting votes? More so than Bernanke, Hoenig seems to understand at least a few basic principles including the extremely important distinction between rising prices with rising wealth.

However, actions (or lack of them) speak louder than words. I hope Hoenig can prove me wrong, but as of right now Hoenig appears to be a willing participant of Bernanke's Monkey See Monkey Don't Policy.

No Rabbits For Obama Or Congress Either

The magic hats are empty. There are no rabbits to be found.

Monkeys are large and in charge, everywhere one looks. Meanwhile, rabbits are hiding in Wonderland with Bernanke chasing them down the zero interest rate hole. Unfortunately, even the monkeys who see problems and know what to do about them are unwilling to make the tough choices necessary.

It's a sad case of Monkey See Monkey Don't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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"Preposterous Prices" For Luxury Condos In Philadelphia

Condo prices were the first to show weakness and will be the last to revive. Supply is simply too great and demand at "normal prices" is non-existent.

Please consider Fire-sale prices for luxury Center City condos.

Price break on luxury condos in striking glass tower in Center City. Best offers over $250,000 considered.

That's the strategy for moving 40 of the 178 units still unsold at the Murano at 21st and Market Streets, to be sold at auction for sums 50 percent below their original list price later this month.

Take the 1,405-square-foot, 23d-floor unit originally listed at $995,000. It could go for $485,000, less than what it would cost to build today, said Jon Gollinger, president of Accelerated Marketing Partners, of Boston, which is handling the sale for Murano's developer, Thomas Properties Group Inc.

"These are preposterous numbers," Gollinger said of the prices, which are based on his analysis of the Philadelphia high-rise condo market. "But there is disequilibrium in the market, and the only way to get it moving is to try to provide an extreme-value opportunity - a once-in-a-lifetime event."

The sale, set for 1 p.m. June 27 at the Westin Philadelphia, 99 S. 17th St., is not an auction with absolutes, said Gollinger, who markets high-rise condo buildings nationally.

"If the reserve published minimum bid is $250,000 and no one bids above it, the condo sells for $250,000," he said.

"The market dictates prices, and I don't see these being gobbled up like they think it will," said Center City mortgage and real estate broker Fred Glick. "No matter the price, financing is extremely difficult for a building that is not 50 percent presold, so . . . investors with cash will be the only ones that will probably buy these."

The developer seems to have the idea that if they can get 40 units sold at fire sale prices, the rest will go at better prices. Let's look at the math: There are 302 units, only 124 sold, and only 112 of the sold units have closed. The likelihood that that the 12 sold, unclosed units actually close is slim.

If 40 units are sold for 50% off, and all of them close soon, the building will be 50.3% closed (clearly the reason for precisely 40 units). At that point perhaps bank financing becomes available with the key word being perhaps. What then?

Will buyers rush in with attractive offers? No Chance. Expect to see "Preposterous Prices" on condos for a long time to come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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