This is a post from Jim Haughey's blog that covers the US construction industry.

Jim Haughey is the Chief Economist for Reed Construction Data and has over thirty years experience as a business economist, including twenty years monitoring the construction market. He has a Ph.D. degree in economics from the University of Michigan and has previously taught at the University of Michigan, Ohio University, Michigan State University and the University of Massachusetts.

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Construction Industry Forecasts

Notes from Jim Haughey - Feb 11, 2009

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2010 Construction recovery threatened by postponing a fix for credit markets
Jim Haughey, RCD Chief Economist

The Troubled Asset Relief Program (TARP) was simply renamed the Financial Security Program (FSP).  It now has $50 billion less funds after this amount was taken to subsidize homeowner mortgage payments.  The Geithner plan is the same as the original Paulson plan which could not be implemented.  Geithner plans to buy depreciated mortgage bonds and other assets to get them off bank balance sheets.  He has one new wrinkle.  He plans to invite private investors to put up most of the money.

Paulson was unable to do this because he would not pay the depreciated but still overstated values that banks carried the bad mortgage bonds on their books.  Banks were unwilling to sell for substantially less because many would be forced into insolvency if they took a huge asset write-down.  There is nothing to suggest this situation has changed.  Banks can find a buyer for the depreciated mortgage bonds if they choose to sell them.  Merrill Lynch sold $10 billion plus (face value) for $.22 on the dollar.  Banks are now carrying these bonds on their books for $0.35 to $0.60 on the dollar.  It is unlikely that private investors are willing to buy the bonds for enough to keep the banks that sell them solvent.

The second part of the FSP is to expand a program operated by the Federal Reserve Board by up to $1 Trillion to buy other bank assets such as credit card debt, car loans or student loans.  While these assets have depreciated slightly, their market value is well established.  This part of the program is insurance to prevent the recession from getting worse by keeping credit available for normal operating loans throughout the economy.

Washington is still postponing a solution to the credit mess.  Capital spending and hence economic recovery will be restrained until someone – the people who defaulted on loans, the people who made loans to bad credit risks, the people who guaranteed the repayment of the loans without the reserves to meet the guarantees , or the taxpayers – accepts the losses so lenders can function normally again.

 


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Read Other Recent Jim Haughey Posts

08/15 - Contractor Survey: Work backlog rises in 2nd Q but may fall in the summer
08/09 - Modest construction recovery will be supported by two more years of cheap credit
07/29 - Sour economic growth report threatens construction recovery
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/27 - Worry about the deficit not the debt limit
07/19 - Housing starts rebound.6% in June after two weak months
07/18 - Congress prepares to postpone resolving the deficit crisis assuring an extended period of subpar eco
07/12 - House Transportation Committee proposes to keep federal highway funding at fuel tax receipt level
07/09 - Don’t count on debt limit deal to restart sustained high economic growth
07/08 - Contractors cut 9,000 jobs in June
07/05 - The cost and frustration of selling a home contributes to the delayed housing recovery
07/05 - May construction spending down 0.6%; recovery still on hold
07/01 - FAA stops works on federally funded runway and control tower projects
06/21 - It is not more jobs that will quicken the economic recovery
06/16 - Mays’ 3.5% gain in housing starts does not signal a housing recovery immediately ahead
06/15 - Cautious spending threatens to delay construction recovery
06/10 - Economic and construction recoveries will be subpar for at least another year
06/09 - NYC construction unions may agree to drop expensive work rules to spur more work
06/04 - Contractors add 2,000 jobs in May; overall job gain disappointingly low

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