As of June, the unemployment rate stood at 9.5 percent according to the Bureau of Labor Statistics. In a non-farm workforce with 154 million people some 14.7 million were unemployed. Notes from the June Federal Reserve meeting say that unemployment is supposed to reach 10.1 percent later this year, a projection which could not be more safe. Here's why:
Government figures understate the real jobs picture. The unemployment rate would be higher if we counted the 1.4 million marginally attached workers who were not defined as "employed" because they had not looked for work during the past month. In addition there were 793,000 "discouraged" workers, people who believe there are no jobs available for them.
Add 14.7 million unemployed, 1.4 million marginally attached workers, and 793,000 discouraged jobless and you get a total of 16,893,000 people who would like to work but can't find employment. That's a real unemployment rate right now of 10.969 percent — say 11 percent.
It's not just people without jobs who don't buy cars or houses. High unemployment levels have a chilling effect on the marketplace. If your company or industry is laying off people, cutting hours and dumping benefits then maybe now isn't the time to buy even if your job seems secure.
It was in 2008 that the government set aside $700 billion in the Troubled Asset Relief Program (TARP) to prop-up the nation's big banks and brokerage houses. According to the Treasury Department, more than 600 banks have received about $200 billion under the program and so far 10 major banks have returned TARP funds worth $68 billion.
Of the $700 billion set aside for the TARP program, $500 billion was never spent and almost a third of the money that was loaned out has since been returned. In addition, the government has earned $6.7 billion in interest and holds warrants worth billions more.
The new debate concerns what to do with the money authorized by TARP that was never spent or which has now been sent back to Uncle Sam.
One school of thought says the TARP money should be held as a sacred trust and reserved for the exclusive use of banks and brokerages in case they need more money for loans. But the banks already have money for loans, cash sitting undisturbed in vaults while businesses of every size can no longer finance or refinance their operations. How do we know this? The banks could hardly repay $68 billion in just a few months if they lacked capital. And surely they would have even more capital if they stopped handing out million-dollar bonuses in an industry with a shortage of jobs and a surplus of workers.
Another school of thought takes this approach: The government earned $6.7 billion in TARP interest. Why don't we do something useful with the money?
Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, makes the argument that increased unemployment will add to the foreclosure problem.
"Residential property that is foreclosed goes from being a taxpayer to a tax eater," says Frank. "We clearly face a new wave of foreclosures," he says. Why? Because of rising unemployment levels that will create a new wave of foreclosures which will "add to the downward pressure on housing and housing assets."
Frank's idea is to take TARP funds and use the money locally. In basic terms, Frank's bill, H.R. 3068: The TARP for Main Street Act of 2009, would:
• Set aside $2 billion to help the unemployed fend off foreclosure.
• Allocate $1 billion so state and local governments can buy up abandoned properties.
• Provide $2 billion to help tenants in properties which have been foreclosed.
• Add $1 billion for the National Housing Trust Fund, a program which creates, rehabs, preserves and operates rental housing.
Writing in the Examiner newspaper group, Kimberly Morin says that Frank's plan would "steal our TARP repayments and give them to deadbeats."
Really? Steal from whom? If government money can be used to bailout huge banks and brokerages, why not neighbors down the street with jobs that have been downsized, diminished, scaled back, curtailed, abated, shipped overseas and shrunk. And why characterize people who face hard times as "deadbeats?" Does anyone really think that defaulting families want to lose their homes?
It used to be that $6 billion was a lot of money, but in today's world it's small change. For instance, Bloomberg News reported in February that $9.7 trillion in total bailout money had been committed by the government.
Or, if you want to get picky, $6 billion is not much when compared with the $180 billion already paid out by Uncle Sam to AIG. It's less than 1 percent of the $700 billion allocated to the original TARP program. And funding the Frank proposal would require about a third of the $18.4 billion in bonus money paid out on Wall Street last year.
Despite Ms. Morin's characterization of those facing foreclosure as "deadbeats," the grim reality is that each nearby foreclosure, each abandoned home down the street, pushes down the value of your home and mine. If only as a matter of self-interest we each have a very good reason to seek an end to the foreclosure crisis, something that cannot be done without reducing the inventory of distressed properties.
"The Frank proposal seeks to lessen the real estate crisis locally and from the bottom up," says James J. Saccacio, chief executive officer at RealtyTrac.com, the leading online marketplace for foreclosure properties and data. "While Frank's proposal is about buying houses and keeping people out of foreclosure by helping the unemployed, it would also create local jobs because somebody will have to repair and maintain the homes bought by local governments. More jobs will hold down unemployment levels, the next crisis we're about to face and one likely to spur another round of foreclosures."
For investors and those considering the purchase of a home, the Frank proposal will not solve the housing crisis by itself if only because $6 billion is not a lot of money relative to the size of the problem. That said, if the Frank proposal is successful we could see the first glimmer of stronger home values and the creation of a strategy that could be expanded.
For those selling property, think Hyundai. You might want to check out the various "unemployment insurance" plans that are now available. Marketing a home with such coverage could well make your property stand out and lead to a quicker sale and a better price.
Peter G. Miller is syndicated in more than 100 newspapers and operates the consumer real estate site, OurBroker.com.