I'm sad to say this is the last installment of PE; my other commitments are looming large and I really don't have the time to continue. Thanks to the MinnPost crew for hosting it, and best of luck to them in weathering the economy at large and the news biz depression in particular. Most of all, thanks to you for reading and for all the intelligent, on-point comments. 

Must-read

The Federal Reserve Bank's new Beige Book, comprising summaries of area economic conditions from the 12 Fed districts around the country in April/May, is here, and the WSJ's Real-Time Economics blog has a set of notable excerpts.

The Minneapolis district's report includes this note on employment and wages:

Labor markets continued to weaken. In Minnesota, a medical devices firm recently announced plans to eliminate 600 jobs by the end of June, and a cabinetmaker laid off 200 employees during the first few months of 2009. Two health care providers in Minnesota recently announced plans to cut 240 and 100 jobs, respectively. Meanwhile, a Minnesota hospital will eliminate 75 to 100 positions by the end of June. In North Dakota, a construction equipment manufacturer announced plans to cut 250 jobs, and a business travel call center recently closed, affecting 100 jobs. According to the Minnesota Department of Employment and Economic Development, job seekers are taking 20 weeks to find new jobs compared with 13 weeks a year ago. The South Dakota Labor Department noted that preliminary indications for summer employment in 2009 were uncertain, students could find themselves competing with laid-off primary wage earners.

Wage increases were modest. Businesses responding to the Minneapolis Fed's services survey reported expected wage increases at their firms of 1.8 percent and benefit increases of 1.5 percent over the next four quarters.

Price increases remained subdued. A representative of a construction company in South Dakota noted that costs this spring were about the same as in 2008; lower lumber and drywall prices were balanced by slightly higher prices for fixtures, wiring and components. In the aforementioned services survey, 20 percent of respondents expect selling prices to decrease during the upcoming year, while 21 percent expect selling prices to increase. However, Minnesota gasoline prices were up almost 50 cents per gallon at the end of May compared with April, but still $1.38 lower than a year ago.

News like the following goes a long way toward validating author and analyst Kevin Phillips [MinnPost interview], whose revised paperback edition of Bad Money spends a lot of time arguing that we're in the midst of a long-range commodity price revolution: Stagflation scenario stalks U.S. as commodities jump (Bloomberg); Oil price leaps to year's high (Guardian/UK).

Also see Ken Rogoff's Rebalancing the U.S.-China economic relationship and Calculated Risk's Weak hiring and the jobless recovery.

More: Calculated Risk, Fed: Household net worth off $14 trillion; Financial Times, Geithner's plans for Wall Street regulation; Bloomberg, Dollar's reserve status may deteriorate, Roubini says; Robert Shiller (NYT), Why home prices may keep falling; Robert Reich, The great debt scare: Why has it returned?; Brad DeLong, The debt and the deficit in historical perspective (great graphs here); James Kwak (Baseline Scenario), More on executive compensation; Simon Johnson (Baseline Scenario), Inflation prospects in an emerging market, like the U.S.; Simon Johnson and Peter Boone (NYT Economix), The bubble next time; Bloomberg, Yosano says Japan's trust in Treasuries "unshakable";

I want to flag a couple of recent developments in the area of eroding state finances that make neat, if gruesome, bookends. Minnesota is far from alone in these troubles, but it's also far from the top of the heap in its overall financial standing.

One is the ProPublica package [1] [2] from earlier this week on the collapse of many states' unemployment insurance funds. To date 14 states have had to borrow from the federal government, further compounding the fiscal straits they'll face in the next few years, and nearly 20 more have dwindling UI trust fund reserves that may force them into borrowing before long.

Minnesota is one of those states. The ProPublica report led me to phone up an economist at the U.S. Department of Labor to learn a little more. Currently, as I report here, Minnesota has less than two months of UI reserves left. A year's worth is considered healthy.

The second development involves the emergence of documentation that state tax bases have become more closely tied to the business cycle--which is another way of saying more recession-vulnerable--as a result of the bubble years. A pair of Federal Reserve Bank of Chicago economists did a presentation on the growing volatility of state revenue systems last month, and as it turns out, Minnesota state economist Tom Stinson has been studying the matter as well. (To make a long story short, and somewhat over-simple: Through-the-roof revenues from capital gains and bonus income during the bubble years both distorted and inflated state revenues, and led states to cut taxes and expand spending in unsustainable ways.)

One thing the public at large hasn't been given to understand is how long these state-level fiscal crises are going to be with us, and how chronic the budget-cutting is going to become unless states raise taxes. For example, how soon do you suppose Minnesota is projected to re-attain the same level of annual revenue it was receiving before the fall crash last year? According to Stinson, the answer is fiscal year 2014.

Sandy Lewis and William Cohan's lengthy NYT op-ed from Sunday is the best opinion piece I've read in the financial pages in a while. Lewis is a former Wall Streeter (convicted, no less) and Cohan is an editor at Fortune and the author of House of Cards. "We have both spent large chunks of our lives working on Wall Street," they write, "absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over--and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game."

They pose a series of questions that ought to be part of the everyday political dialogue--yet compared to the course of the Obama administration and the terms on which the press has covered it, their piece reads like an excerpt from Das Kapital.

I quote:

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo?...

Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?...

Why is the morphine drip still in the veins of the financial system?...

Is there to be any limit on bailouts?...

Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets?...

Why is the government still complicit in making the system ever less transparent, even when it comes to what should clearly be considered public information?...

Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?...

Why are we not looking to change our current civil and criminal racketeering statutes, which are playing a perverse role in investigations of the crisis?...

William Greider has part of the answer:

If not now, when? That question ought to haunt the Democratic Party and President Obama, who has been missing in action himself on key issues. Congressional Democrats are responding to this epic conflagration with the same risk-avoidance tactics they learned during many years in minority status. In those days, they could always blame right-wing Republicans for blocking their good intentions. But whom do the Dems blame now that they have the White House and fifty-nine votes in the Senate and a seventy-eight-seat majority in the House? Their standard explanation for not doing more is, "We didn't have the votes." So when might we expect Democrats to achieve more? When they have eighty votes in the Senate?

The party's ideological intentions are being defined with greater clarity in these new circumstances, and so are the President's. It's still early, but the implications are ominous for other issues. If Democrats are reluctant to disturb the power of other major interests, it seems improbable that fundamental change will occur on healthcare, energy conversion or the restoration of work and wages. The problem now is the Democrats, not the Republicans. The party aids and protects its free-roaming entrepreneurial politicians and does not punish those who undermine the party's larger promises. When Republicans were in charge, they enforced party loyalty with Stalinist discipline. Democrats are the party of safe incumbents, weak convictions.

May unemployment report

This morning's BLS numbers show the unemployment rate jumping a surprising half-point to 9.4 percent even though the number of jobs lost came in at its lowest figure--345,000--since last September. The seeming discrepancy is explained nicely by the NYT's Peter Goodman and Jack Healy:

The jobs report presented a statistical puzzle. On the one hand, the net decline in jobs was much smaller than expected and the lowest figure since September. The economy lost an average of more than 700,000 jobs a month during the first three months of the year....

At the same time, the unemployment rate leapt to its highest rate in more than a quarter-century, reinforcing fears that joblessness will probably reach double digits.

This disconnect is a reflection of the way in which the government collects jobs data. The number of jobs comes from a survey of employers, while the unemployment data is derived from a survey of households. In April and May, the number of people who told surveyors they were actively looking for work increased by more than one million. These people would have previously been excluded from the unemployment calculation as not being part of the labor force.

According to the BLS's handy "Alternative measures of Labor Underutilization" table, the broader U6 rate of unemployment and underemployment--a much better reflection of the workaday experience of people on the margins of the job market--jumped from 15.8 to 16.4 percent. Long-term unemployment grew substantially. The release notes that "the number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession."

Floyd Norris adds historical perspective:

The government says that 4.5 percent of the work force has been out of work for 15 weeks or more. The worst previously seen — at least since 1948, when the government began counting people that way — was 4.2 percent, in December 1982.

Put another way, 21 percent of those who are unemployed have been out of work for at least 15 weeks. That is also a record, exceeding the 19.6 percent proportion seen during the 1958 recession.

Since employment peaked in 2007, the number of total jobs is down by 4.3 percent, and the number of private-sector jobs is down by 5.4 percent.

Those figures exceed the peaks since 1950 of 4.2 percent and 5.2 percent, respectively, set in that 1958 recession.

The WSJ's Real-Time Economics has a roundup of preliminary reactions from economists.

The most acute: "The improvement was spread across most sectors with the notable exception of manufacturing, where the 156,000 drop was similar to April’s. But retail, construction and finance losses all slowed. What’s happening here is the end of the post-Lehman panic, which hugely accelerated the pace of losses. But it would be very dangerous to extrapolate this into absolute job gains; why would companies hire? Unemployment horrific, wage gains tanking. Less bad, yes; good, no."--Ian Shepherdson, High Frequency Economics

Also see: Calculated Risk plots current unemployment trends vs. the worst-case scenario used in the bank stress tests. Guess which is higher so far.

Must-reads of the week

Barry Eichengreen--author of a widely hailed book on the gold standard's role in the Great Depression--and Kevin O'Rourke have updated their April article, "A Tale of Two Depressions," which argues that, to date, this crisis has been as bad or worse than the onset of the '30s Depression (though they do add that the government response has been helping).

Daniel Gross at Slate chronicles the running battle between Paul Krugman and Niall Ferguson over Treasuries rates, which is really a fight about whether printing so much money is going to make the United States go bust. 

James Kwak at Baseline Scenario writes about the Indiana pension funds that are holding up a Chrysler bankruptcy deal.

More: NYT, Slumping economy tests aid system tied to jobs; EPI, The wage implosion; DealBook, Politics and the crisis slow the drive to privatize; Baseline Scenario, Legacy loan program called off; Robert Weissman, Crashing GM: Bankrupt thinking; Mike Whitney, Bond market blowout.

In a short, punchy essay at Counterpunch, Dean Baker reviews the economic statistics and the financial pages and finds a yawning gap:

"For example, National Public Radio told listeners that the new home sales figure reported for April was up from the March level. While this was true, the April figure was only 1,000 higher than a March level that had just been revised down by 5,000. April new home sales were 4,000 below the sales level that had originally been reported for March. USA Today touted a 'surge' in durable goods orders, which was also based on a sharp downward revision to the prior month’s data.

"The media have obviously abandoned economic reporting and instead have adopted the role of cheerleader, touting whatever good news it can find and inventing good news when none can be found. This leaves the responsibility of reporting on the economy to others."

My question is, who thought it could be otherwise? Frankly I'm surprised that the mainstream coverage of the economy has been as strong at times as it has. The press's troubles in reporting on the economy are just a specialized variant of the press's troubles in reporting on politics and business. They rely entirely too much on top-down institutional sources, and wind up carrying their water. Nothing exactly revelatory about that.

What's worn on me since the bear market rally and the green shoots blather is the short shrift given to the street-level impact of the lousy economy and the even worse employment picture. Now that the whiff of recovery is in the air, illusory as it may be, that coverage seems to have fallen off dramatically.

So I want to call out a couple of couple of worthy studies about public impact that haven't gotten the attention they deserve: a David Himmelstein study published in the American Journal of Medicine that found 2/3 of U.S. personal bankruptcies in 2007 were caused by medical expenses, and the Economic Policy Institute's preview of its Jobs Picture report, which contains interesting and to-the-point comparisons of this recession's employment profile compared to previous downturns.

Treasury Secretary Tim Geithner has gotten out of China with his skin intact, but just barely. Geithner wrapped up his two-day trip with the announcement that the two sides will meet again in Washington on the week of July 27. Chinese officials, Geithner said, had voiced "justifiable confidence in the strength and resilience and dynamism of the American economy."

The Chinese, apparently, have odd ways of expressing confidence. China has been complaining publicly for months about the prospect of its vast dollar holdings declining in value as a result of all the dollars the U.S. has been printing since the start of the financial crisis last year. At present, neither China nor the U.S. has the power--or at least the political will--to modify the terms of the relationship. As the economist Simon Johnson writes at Baseline Scenario, "If one country wants to run a current account surplus that is big relative to the international economy, then someone else has to run a deficit--it’s a zero sum game because 'reserves' are a claim on another country (preferably a strong one, with a convertible currency). No one has ever offered a guarantee on the real value of reserves, i.e., what China now wants."

The relative positions of the U.S. and China are thus locked in for the foreseeable future: The U.S. will keep printing dollars and issuing debt, and China will keep buying a large portion of it. Meanwhile, China's efforts to keep its own currency from rising in value--which would hamper its export-based economy--only helps to preserve the dynamic. This has led a lot of economists to wonder, first, what China is trying to accomplish by questioning the stability of the dollar and pushing the U.S. for guarantees on Chinese holdings, and second, why the U.S. is frightened. (The aforementioned Simon Johnson wrote one such piece just before Geithner's trip.)

It makes more sense to view China's actions through the lens of global politics than global economics. China is demonstrating to the world that it holds more leverage than ever over the United States. During the Geithner trip just past, for example, the secretary of the U.S. Treasury was forced to make remarkable, and remarkably specific, concessions about future American deficit-reduction efforts. When was the last time the United States had to go, hat in hand, to any foreign power to plead for clemency publicly?

As coming-out parties on the world stage go, this beats the hell out of the elaborate Olympic opening staged in Beijing last summer. The world, you best believe, is taking note.

See also: Bloomberg, "Global crisis 'inevitable' unless U.S. starts saving, Yu says," and "Treasuries, dollar 'only game in town' as China buys."

Now that the inevitable deed is finally done, today's financial pages--and most especially the opinion sections--are full of indignation over the losses imposed on bond and stock holders and ominous ruminations over the precedent set by government's assumption of a 60 percent ownership stake in the fatally crippled carmaker. In principle the reorganization of GM and the liquidation of its worst-performing assets is is the right approach.

I've argued before--as have many others--that this is essentially what the government should have done with the banks: Start taking your write-down medicine, and the pain and dislocation that come with it, upfront. Get the bad debts off the books and build a foundation for future growth that's unencumbered by all those crazy, opaque, irredeemable bets placed in the bubble years. This is what Sweden did in the early '90s and Japan did not do in the late '80s.

Unfortunately, there is no assurance the strategy will be a success in the case of General Motors. The investor class is all in a lather over the ownership shares of GM and Chrysler that their respective bankruptcy plans accorded to the United Auto Workers, but the near-term pain will be very much shared by workers--another 21,000 of the best-paying union jobs left in the U.S. will be lost in coming months at GM.

But the heart of the continued uncertainty over GM's fate is a matter of two related long-term problems that are getting short shrift in the heat of the news cycle. The first is the lousy reputation here and worldwide of the cars they build. American automakers spent more than 30 years cementing their inferior status in engineering, reliability and fuel efficiency, and even though the past few years have seen the start of a turnaround in those areas, you don't undo that kind of damage quickly.

The inertia of the American car companies is typically blamed on laxity in management, a refusal to recognize the world's changing energy regime, inadequate regulation of mileage standards, the American taste for epic-sized gas guzzlers.... You know the list, and in a sense they're all ways of saying the same thing: We didn't notice the world was changing around us.

The tendency, in other words, is to count the downfall of the American car companies as a moral failure and a failure of vision. Who would disagree? But that's not the whole story. In dollars-and-cents terms, there was another reason the American car companies fell behind the rest of the world in their investments in technology and quality control: health care costs. All through the period of its decline, the U.S. auto industry was forced to spend sums on worker health insurance that were unmatched anywhere else in the industrialized world, because the United States was the only one without a government-sponsored health care system.

And since those costs continue to race out of control, they will likely prove at least as damaging to the new GM as the old--if the new GM is to build its cars in America, that is. And if it's not, what's the point?

Links: The best commentary I've read so far is by Robert Reich in the Financial Times: "General Motors holds up a mirror to America." News coverage: "GM seeks bankruptcy and a new start" (NYT); "GM files for Chapter 11 protection" (FT); "New era in autos as GM files for bankruptcy" (WSJ); "Workout will produce shared stress throughout the auto business" (WSJ); "GM to shut 12 more factories to speed bankruptcy exit" (Bloomberg).

The must-reads:

1) The big story in credit markets this week has been the rise in Treasury yields. In most recessions, that would be taken as a sign of impending resurgence; in this one, it's also a threat to fragile credit conditions--particularly in home mortgage markets. From Tim Duy's Fed Watch ("A return to a nasty external dynamic?"):

The core issue is the steep rise in Treasury yields, which apparently were kept in check only by the expectation that the Fed would continued to gobble up the endless stream of securities issues by the US Treasury. The Fed sank that hypothesis at the last FOMC meeting, and a subsequent statement by Federal Reserve Chairman Ben Bernanke made clear that the Fed does not have a 3% target on 10 year Treasury yields. Since then, yields have climbed as high as 3.75% before prices rebounded today, bringing yields down to 3.61%. Should we be concerned with the gains?...

[W]e are stuck with two apparently contrasting views. On one hand, rising long rates and the related steepening of the yield curve should indicate improving economic conditions - after all, rising yields simply imply that market participants are gaining confidence to put their money to work in more risky endeavors. The steeper yield curve should boost bank earnings and, in time, encourage lending. On the other hand, higher yields may undermine support for the housing market, thus extending the downturn.

[Also see: WSJ, Mortgage rates surge, sap hopes.]

2) Writing at TomDispatch, Andy Kroll pores over a long trail of government documents and hearings to assess the federal bailout of Wall Street in "Six ways the financial bailout scams taxpayers." Some of this will be news to you, some won't, but it's best overview of its kind that I've seen:

Seven months in, the bailout's impact is unclear. The Treasury Department has used the recent "stress test" results it applied to 19 of the nation's largest banks to suggest that the worst might be over; yet the International Monetary Fund as well as economists like New York University professor and economist Nouriel Roubini and New York Times columnist Paul Krugman predict greater losses in U.S. markets, rising unemployment, and generally tougher economic times ahead.

What cannot be disputed, however, is the financial bailout's biggest loser: the American taxpayer. The U.S. government, led by the Treasury Department, has done little, if anything, to maximize returns on its trillion-dollar, taxpayer-funded investment. So far, the bailout has favored rescued financial institutions by subsidizing their losses to the tune of $356 billion, shying away from much-needed management changes and -- with the exception of the automakers -- letting companies take taxpayer money without a coherent plan for how they might return to viability.

3) Paul Krugman's column today, "The big inflation scare," challenges the growing chorus of political conservatives claiming that the cash infusions from TARP, the Fed, the FDIC, et al. will inevitably lead to runaway inflation:

First things first. It’s important to realize that there’s no hint of inflationary pressures in the economy right now. Consumer prices are lower now than they were a year ago, and wage increases have stalled in the face of high unemployment. Deflation, not inflation, is the clear and present danger.

So if prices aren’t rising, why the inflation worries? Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.

The first story is just wrong. The second could be right, but isn’t.

More: Robert Scheer/Nation, California budget blues; Floyd Norris/NYT, Credit relief may not last long; NYT Dealbook blog, PIMCO's Gross sees modest goals in slow recovery; Gerald F. Seib/WSJ, Obama's business coalition; Bloomberg, GM bondholder group agrees to plan that clears bankruptcy path; David Cay Johnston/Columbia Journalism Review, Welcome to the jungle.

Even as the economy plunged at a terrifying rate through the fall and winter, the long-range economic forecasts produced by the most prestigious institutions of government and finance barely wavered in their conviction that this downturn would be followed by a relatively quick return to GDP growth rates in the range of 3 percent--that is, a relatively quick return to normal. Employment recovery, alas, would lag compared to other key indicators, but the consensus was that if we could get past the panic phase of the financial collapse, we would be able to measure our distance from renewed prosperity in quarters going on years, not years going on decades.

And when leading indicators slowed their rate of decline this spring, you would have thought from reading the financial pages some days that recovery was already upon us. But the past week or so has brought a flurry of sobering revisions to this portrait of imminent health. After months spent getting everything in their forecasts wrong, mainstream business economists are finally adjusting their models.

Matthew Benjamin of Bloomberg has a piece surveying some of their revised medium- and long-term prognostications. The words of Mohamed El-Erian, the CEO of PIMCO--the bond market's big kahuna, with over $750 billion in assets--are worth lingering over:

By this time next year, "the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under," [El-Erian said].

"We are transitioning to what we call at Pimco a new normal," El-Erian said....

El-Erian expects that "markets will revert to a mean, but it will not look anything like that of recent years," he wrote in his May Secular Outlook report. "The financial system will be de-levered, de-globalized and re-regulated."

Worldwide, "there are insufficient demand buffers and fast-acting structural reforms to provide for a spontaneous and sustainable recovery in the global economy," he wrote. "It will be a major shock to those that are trapped by an overly dominant 'business-as-usual' mentality."

On the employment side, the long-term combination of excess capacity, unparalleled public and private debt, and a renewed desire to save money is prompting forecasts of unemployment rates over 8 percent stretching as far out as 2013. And Nobel economics laureate Edmund Phelps tells Bloomberg that after the recession has passed, the natural rate of unemployment will rise from the chronic 5.5 percent or so we've known to as high as 6.5 or 7 percent. (The "natural" rate of unemployment is a finance-centric mystification; it denotes the unemployment rate at which inflation remains stable and there's little or no upward pressure on wages.)

What would a 2 percent GDP growth rate stretching out over a decade or more mean? In the broadest sense, that number is poised a little south of midway between the 3 percent average we've known for over a generation and the 1.3 percent average of the 1930s. That may not qualify as the "prolonged L-shaped recovery"--i.e., depression--that Roubini and others have held out as the worst-case outcome, but it's plenty ugly. A bit like the 1950s, but with a massive debt hangover. As David Rosenberg, former chief North American economist for Bank of America, puts it, "Life wasn’t so bad for the Cleavers.... They weren’t up to their eyeballs in debt and they weren’t a three-car family with a 5,000-square-foot McMansion."

More: Some other business (and non-business) economists have weighed in of late, and though entities like the National Association of Business Economists and the Fed Open Market Committee are still far sunnier than the voices in the Bloomberg article, their forecasts are all trending down. See the following WSJ items: FOMC forecasts: The pessimism worsens; Business economists expect soft recovery; Another gloomy forecast: This one from the UN.

This morning I talked to Mark Allen, the CEO of the Minneapolis Area Association of Realtors, about those abysmal Case-Shiller numbers for March that I wrote about yesterday--a 6.1 percent single-month drop in local sale prices that set a record not only for the Minneapolis/St. Paul metro but for all markets in the 20-city CS index in its 21-year history.

According to Allen, "The primary reason is the impact of distressed, lender-mediated properties on the marketplace. It's got a lot to do with a shift in where the buyers are. In April, the most recent month we've got numbers for, the activity in the under $200,000 range was much higher than it had been a year earlier, and over $200,000 it was much lower.

"Right now," he continues, "we really have two marketplaces going on. There are the lender-mediated sales"--foreclosures as well as short sales in which the lender agrees to take an equity hit--"and in April, that was 46 percent of the business being done. Then there are the traditional sellers, which is a very different marketplace." April MAAR figures show lender-mediated sales at a median price of $120,000, down 21.5 percent from a year earlier, while the median for traditional sales was $205,000, down a comparatively modest 8.5 percent from the previous year.

Allen thinks the volume of lender-mediated sales may be peaking now, though he says it's also possible the peak is still as much as a year away. Despite that, he says he believes the local residential market overall has reached a floor and started to stabilize. As evidence, Allen cites the consistency of monthly median prices since the start of 2009: $155,000 in January, $150,000 in February, $154,000 in March, and $153,000 in April. "The question," he adds, "is when will they start to rise again? It's going to be very slow and very gradual when it happens, but it should begin late this year or early next year."

A longtime local realtor who wishes to be anonymous concurs with Allen about the glut of distress sales driving the Case-Shiller numbers: "As far as I can tell, the reason for any kind of decline now--my guess is that that accurately reflects what's happening in the foreclosure market.

"If you look at what's happening in Brooklyn Center, Brooklyn Park, even Robbinsdale--any of the first-ring suburbs--and then look at the base in north, near-north, and south Minneapolis, properties are coming on the market and being scooped up in two to three days for $25,000, $30,000, that a year ago would have been on the market for $60,000. Banks are doing fire sales now trying to clear out as much as they can, because there's a whole other wave of foreclosures coming in the 3rd and 4th ring suburbs as Alt-A mortgages start to adjust."

All this leaves one question unanswered, though: If lender-mediated sales are driving what turned out to be a record decline, why is their relative weight so much greater here than elsewhere? This is a near-universal phenomenon. I'll keep casting around for ideas on that count. Anybody here have ideas?