Five Things You Need to Know: Wall Street Gets a Helping Hand... Main Street Not So Much
While Wall Street benefits from TAF, TSLF or acronym du jour, Main Street is left with one very simple acronym: SOL.
Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Wall Street Gets a Helping Hand, Main Street Not So Much
While Wall Street basks in the warmth of the most intense liquidity infusion, acronym creation and helping handouts from the Federal Reserve since the Great Depression, Main Street is finding things a little tougher out there.
From state and local municipal borrowing costs, to McMansion foreclosures and college loans, it seems the helping hand of the Fed has yet to trickle down to Mr. and Mrs. Jones on Main Street. Today we take a look:
2. Main Street I: New Acronym for Municipal Borrowers
The first wave of economic impact trickling down from Wall Street is the dramatic jump in borrowing costs state and local borrowers now face. According to data compiled by Bloomberg, municipal borrowers that sold $166 billion of auction-rate securities plan to replace at least $36.7 billion of the debt by May 23, and most are finding the cost of replacement has jumped amid tighter credit conditions.
The city of Denver found only five banks willing to provide financing for new variable debt to replace $208 million of auction bonds, down from 30 five months ago, Bloomberg reported.
Children's Healthcare of Atlanta officials discovered that the cost of a one-year commitment for a $200 million liquidity facility quadrupled compared to a year ago, the same Bloomberg article noted.
While Wall Street is able to unload sketchy collateral onto the Fed's balance sheet 28 days at a time via the TAF, TSLF or the acronym du jour, Main Street is left with one very simple acronym: SOL.
3. Main Street II: The Nouveau Riche, They're Just Like Us!
It's tempting to think that only The Poors were out there fabricating their income, taking down adjustable-rate mortgages and conveniently forgetting to check on just how high their mortgages payments might one be. Tempting, but wrong. It turns out even the "affluent" took out loans they couldn't afford.
An interesting Reuters article takes a look at Loudon County, VA, an area emblematic of many across the country now known by the derisive codephrase: "McMansion Country." The area is one of the nation's most affluent, with a median household income of $98,000, according to Reuters. But it has a dirty secret. "One out of every 69 households in the county was in foreclosure in the last three months of 2008, well above the national average of one filing for every 555 households, according to RealtyTrac," the article noted.
"People had in their head, 'I need a mud room, I need giant columns, I need a media room, and I'm going to do anything to get it,"' Robert Lang, co-director of Virginia Tech's Metropolitan Institute, told the news service.
4. Main Street III: Seven Years of College Down the Drain, Boon for Peace Corps.
Moving still further down the food chain, families this fall will discover that tight credit conditions have made it dramatically more difficult to fund college for their children.
According to USA Today, 43% of private colleges said one or more lenders on their preferred lender lists have stopped offering private student loans. And those that are offering loans have tightened lending standards.
Meanwhile, although student loans may be available, caps on how much students can borrow have lagged far behind college costs, the newspaper said. Recent legislation has been introduced in Congress to raise the caps, but it is unlikely an increase in the caps will occur before the fall.
5. Wall Street Looking Good, Billy Ray (and Feeling Good, Louis!)
Of course, Main Street has very little to do with Wall Street, at least in the short-term. And nothing illustrates this more than the bullish percent indexes we use to evaluate market risk.
Below is where we stand with the point and figure bullish percent indicators for equities, based on Investors Intelligence data.
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