For those of you who, like me, are eager for the nation’s economic recovery, there is splendid news.  Over the past month or so, positive reports appeared everywhere.  Lawrence Summers, President Obama’s Economic Advisor, stated on September 11: “Most experts are looking for significant economic growth in the third and fourth quarters of the year [2009].  There’s a great deal more we’re going to do through the Recovery Act, through our approaches to the housing market, which are gaining steam.”  In an interview several days later, Treasury Secretary Timothy Geithner corroborated this when he said: “[I]mportant things have happened.  Banks are in a much stronger position to withstand the pressures of this recession.  These markets are starting to thaw and unfreeze.  People can borrow again more easily.  And those are because of the actions the president took, the Congress authorized.”  Almost in unison, on September 16th, Federal Reserve Chairman Ben Bernanke reported that the worst recession since the 1930s “is very likely over,” concluding with: “The economy likely began recovering this quarter.”  And if there remained any doubt, President Obama announced to world leaders at the G-20 economic conference on September 25 in Pittsburgh, Pennsylvania: “We leave here today confident and united.  Our coordinated stimulus plan played an indispensable role in averting catastrophe.  That’s why we will continue our stimulus efforts.”

Despite repeated assurances from the highest authorities of our return to prosperity, certain persistent rumors seem to refute these pronouncements.  On October 2, the Labor Department reported an increase in unemployment for September by 263,000.  This brings the number of Americans without jobs to 15.1 million, doubling the jobless rate since December 2007 to 9.8 percent—the highest since 1983.  Added to our woes is the fact home foreclosures continue without abatement.  A report released October 8 by the Congressional Oversight Panel—an agency created to keep tabs on taxpayer bailout funds—rebuked the Obama administration for failing to address the foreclosure crisis.  Its chairwoman, Elizabeth Warren, pointed out no plan exists to keep pace with the growing wave of foreclosures, adding: “Even when Treasury’s programs are running at full speed, foreclosures are estimated to outpace modifications by about two to one.”  This view is echoed by Ivy Zelman, housing analyst at Cleveland-based Zelman & Associates, who declared the nation is faced with an “ever growing pent-up supply of foreclosures in-process.”  He noted that between 5.1 million to 5.8 million mortgages are at risk of default in the United States, an amount which could swamp the single-family home sales market.

In case the favorable predictions of our esteemed leaders do not square with your personal perception, perhaps it’s because they view the economic maelstrom from a somewhat different angle than we commoners.  For those privileged officials who control the public treasury and enact the rules by which the game is played, it’s important public confidence be restored and maintained.  That the economy is in the tank and will remain there for an undetermined period of time cannot be acknowledged by those who enact our laws and administer the system.  The reason for this is fundamental; those who profit from a hierarchy are those who administer the hierarchy.  When the public loses confidence in its leaders, it becomes unhappy, and an unhappy electorate displays a habit of throwing out the rascals.  Those rascals must therefore strive to convince us all is well.

Now that you’re aware of the Obama administration’s economic assurances, as well as a few divergent forecasts, you’re entitled to my slant on things to come.  What follows is a reproduction of the letter I sent September 30 to a dozen or so of my trust deed loan investors (California version of a mortgage).  You may see what I anticipate for our nation.

Dear _____________,

From the correspondence and comments we’ve exchanged since the first of the year, you’re aware of the mounting problems I’ve experienced with many of the trust deed notes I service.  Along with my 3rd quarter report and distribution enclosed, you’ll want additional details on the status of those particular notes in which you hold an interest.

[Here I itemized problems with each client’s specific loan(s)]

In addition to the above details on your specific loans, some general comments are in order.  You might note, with the rising number of people without jobs, many tenants cannot pay rents, resulting in more and more apartment owners unable to make their mortgage payments.  The national figures tell the story.  Overall job loss has increased every month since November of 2008, and the roughly fifteen million reported unemployed reflects neither those who gave up looking for work nor persons working at a fraction of their prior salaries.  The result is clear: Apartment values are down across the board and I fear there will be more landlords in trouble before this is over.

As you see, I’m working with our borrowers, when appropriate, by reducing interest rates and by stretching out or deferring payments.  Quite candidly, my approach relies upon a turnaround in the economy within a reasonable period of time, because only a stronger rental market spurred by rising employment will bail our nation out of this hole.  This leads me to pose a rhetorical question: Are we in the 3rd year of a 5-year recession, or are we in the 3rd year of a 16-year depression?  If it’s the former, then this approach toward our borrowers will keep us pretty well intact and our losses minimal.  If, however, it’s the latter, then all bets are off.  If we are descending into a second Great Depression, there is no telling what’s in store.  If this is the case, I envision the following possibilities: (1) Modification of the bankruptcy code to further favor debtors over creditors (2) Enactment of laws to delay, if not prohibit, evictions (3) Changes in the statutes to further interfere with foreclosure procedures (4) The likelihood of price, wage, and rent controls as existed in the 1940s and early 1950s.  With political control of both California and the nation securely in current hands, there is nothing to prevent such laws and regulations from going into effect as each occasion presents itself.

I’ll add a final thought to this summary.  As you know, I ceased making trust deed notes over a year ago, and there’s no inducement to resume that business until conditions change dramatically.  I’m distressed to admit that I can recommend no particularly profitable projects.  CDs and money market accounts pay next to nothing; both real estate ownership and mortgage lending are unacceptable risks; and corporate securities are pure speculation.  Even the mutual fund market which enticed millions of Americans offers little but unwarranted expectation.  And as for precious metals such as gold and silver, now touted with ever more strident advertising, it’s a market which scares the devil out of me.  In short, I’m as yet uncertain as to where the field of investment is going.  When I possess a better view of things I’ll let you know.

You no doubt harbor questions on aspects of your particular investments.  Please contact me with those questions so we may discuss each in detail.