When Will It End

1
When Will It End?

• Presented by
• Augustine Faucher,Director of Macroeconomics

January 9, 2009
2
How Bad Is It?
3
The Recession Is Intensifying
Cumulative job loss, thousands, Source BLS
4
Across The Country
Based on employment and industrial production,
November 2008
At Risk
Expansion
In Recession
Recovery
5
As Households Buckle Under The Stress
Household debt in delinquency or default, bil,
annualized
Sources Equifax, Moodys Economy.com
6
Northeast StatesPayroll Employment
Northeast States
November 2008
May 2008
New Hampshire
Middle Atlantic
1.67,1.06
Maryland
New England
South Atlantic
Massachusetts
Pennsylvania
New York
Vermont
New Jersey
District Of Columbia
U.S.
U.S.
U.S.
Connecticut
Maine
Delaware
Rhode Island
-3.07,-4.52
-2.01,-4.05
7
Northeast StatesPayroll Employment
Northeast States
November 2008
Middle Atlantic
New England
South Atlantic
New Hampshire
Maryland
Delaware
New York
Vermont
New Jersey
Massachusetts
Connecticut
Pennsylvania
Maine
District Of Columbia
U.S.
Rhode Island
-3.07,-4.52
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How Did We Get Into This Mess?
9
The Bursting Housing Bubble
Fiserv Case Shiller National House Price Index,
2000Q1100
VT
-23
U.S.
10
Ignites a Mortgage Crisis
First mortgage loan defaults, ths, SAAR
Sources Equifax, Moody's Economy.com
11
Undermining the Financial System
Projected losses on assets originated
2004Q1-2007Q4, bil
At risk mortgages 20,000,000 Foreclosure
rate 40 Foreclosed mortgages 8,000,000 Loss
rate 50 Mortgage loss 800 bil
Corporate
Commercial mortgages
Consumer loans
Residential mortgages
12
And Pushing It to the Precipice of Collapse
Difference between 3 month Libor and Treasury
bill yields
Subprime financial shock
LTCM
Y2K
SL crisis
Peso crisis
Thai baht
Tech bust
Orange County
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What Is the Economic Fallout?
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The Worst Downturn Since the Great Depression
Recessions since World War II
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The Credit Spigot Closes
Bond issuance, bil, annualized, Source Thompson
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And Banks Are In Survival Mode
Net tightening standards, Source Federal
Reserve
17
The Collective Psyche Has Been Shattered
Consumer confidence, 1985 100
Source Conference Board
18
Completely Shattered
Net of businesses responding positively to
Dismal survey
Source Moodys Economy.com
19
Nest Eggs Crack
Household net worth, tri
Stocks -9 Housing -4 Other 1
20
Forcing Consumers to Batten Down the Hatches
change year ago
Core retail sales, 3 mo. MA (R)
Median sale price, existing single-family home, 6
mo. lead (L) Source NAR
21
...Particularly Profligate Homeowners
Personal saving rate,
Source Moody's Economy.com
22
A Global Recession Is Underway
Real GDP growth, 2008Q3
Vietnam 6.52,9.04
Europe
China 9.12,7.45
North America
South America
Indonesia
Asia
Chile
Thailand
Korea
Greece
France
Japan
U.S.
Hong Kong
Singapore -0.64,4.94
Spain
United Kingdom
Italy
Germany
Taiwan -0.99,-8.7
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When Will It End?
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House Prices Hit Bottom In Fall 09
change from peak, Sources Fiserv Case Shiller,
Census
House price
Home sales
Housing starts
Real House price
Current downturn to date
Forecast
Early 1990s
Early 1980s
25
...With Big Differences Across the Country
Projected peak-to-trough house price decline
Sources Fiserv Lending Solutions, Moody's
Economy.com, OFHEO
lt -30
-15 to -30
0 to -15
No decline
26
Housing Is Becoming More Affordable
Sources BEA, Census, PPR, Realtors
Price-rent ratio (L)
Price-income ratio (R)
27
In An Increasing Number of Markets
Based on house price to income and rent ratios
Significantly over-valued
Over-valued
Correctly valued
Under valued
Source PPR, NAR, Moody's Economy.com
28
Inventories Are Peaking
Number of vacant homes for sale, ths, Source
Census
Housing supply 900,000 Single 525,000 Multi
300,000 Manufactured 75,000 Housing
demand 1,400,000 Households 875,000 Obsolescen
ce 400,000 Second homes 125,000
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And More Credit Is On the Way
FHA share of purchase mortgage loans,
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A Ray of Economic Sunshine
Consumer spending, energy goods and services,
bil (L)
Oil, per barrel (R)
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Policymakers Work To Quell the Panic

• Equity Investments in Financial Institutions
• Zero Effective Federal Funds Rate
• Quantitative Easing CP, GSE Debt and MBS
• Lending Facilities and Credit Protection
• Insurance for Money Funds, Deposits, Bank Debt
• Mortgage Loan Modification Plans

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Policymakers Work To Quell the Panic
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With An Auto Bailout
Light vehicle sales, SAAR, mil
Baseline
Auto bankruptcy scenario
Source Moodys Economy.com
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A Massive Economic Recovery Package
Unemployment rate
35
And a Bigger Foreclosure Mitigation Plan
Number of underwater homeowners, ths
Sources Equifax, Moody's Economy.com
36
As More Homeowners Will Soon Be Underwater
Homeowners by of equity, Sep 08, ths
Source Equifax, Case Shiller, Moodys Economy.com
37
And Millions Will Lose Their Homes
Ths
Sources Equifax, Moodys Economy.com
38
Vermont Downturn Will Look Like That in U.S.
Employment, change year ago
Source Moodys Economy.com forecast
U.S.
VT
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A Timeline to Recovery
Financial Failures Abate
Employment Bottoms
Foreclosures Peak
House Prices Resume Rising
Housing Starts Bottom
Stock Market Bottoms
Fed Tightens
08q1
08q2
08q3
08q4
09q1
09q2
10q1
10q2
09q3
09q4
10q3
10q4
Oil Prices Peak
Home Sales Bottom
Jobless Rate Peaks
House Prices Bottoms
Extraordinary Writedowns End
Rises
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