Posted May 08, 2009 01:15pm EDT by Aaron Task
Along with the reaction to the stress tests, the upbeat response to Friday’s jobs report is evidence of our collective “disaster fatigue,” says William Black, an Associate Professor of Economics and Law at the University of Missouri – Kansas City. “Every day is bringing a disaster. [539,000] jobs lost is a catastrophe but now we think ‘that’s not so bad.’”
An optimist would say Black is missing the improving trend in the labor market: Although the unemployment rate rose to 8.9%, its highest level since 1983, April’s 539,000 job loss was the smallest since October and compares favorably to March’s decline of 699,000, February’s 681,000 (both revised) and January’s 741,000.
But Black’s point is the improvements are, if not illusory, then certainly transitory. He foresees bad loan “shoes yet to drop” that will be like “Imelda Marcos’ closet in an earthquake”:
• Commercial Real Estate: This is already on Wall Street’s radar screen but future losses could account for a big chunk of the government’s stress test estimate of $599 billion of future bank losses.
• Option ARMs: These “pick-a-payment” mortgages will lead to “waves of foreclosures” starting next year in the “hundreds of billions of dollars,” he predicts.
• Credit Card Debt: With unemployment rising and home equity loans unavailable to most Americans, this is a “major problem that’s going to take down major lenders,” he says.
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