Middle-class Americans made their deepest spending cuts in more than two decades, slashing spending on such discretionary items as restaurant meals and alcohol during the recession.

Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households’ after-tax income remained relatively stable over the two years, at an average $45,199.

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The flawed practices that GMAC Mortgage, JPMorgan Chase and Bank of America have recently begun investigating are so prevalent, lawyers and legal experts say, that additional lenders and loan servicers are likely to halt foreclosure proceedings and may have to reconsider past evictions.

Problems emerging in courts across the nation are varied but all involve documents that must be submitted before foreclosures can proceed legally. Homeowners, lawyers and analysts have been citing such problems for the last few years, but it appears to have reached such intensity recently that banks are beginning to re-examine whether all of the foreclosure papers were prepared properly.

In some cases, documents have been signed by employees who say they have not verified crucial information like amounts owed by borrowers. Other problems involve questionable legal notarization of documents, in which, for example, the notarizations predate the actual preparation of documents ”” suggesting that signatures were never actually reviewed by a notary.

Other problems occurred when notarizations took place so far from where the documents were signed that it was highly unlikely that the notaries witnessed the signings, as the law requires.

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In previous recessions, there has been widespread pessimism about the overall economy. But this recession was the first since the survey began in 1967 when more people expected their own incomes to fall.

Before this recession, no survey ever showed as few as 15 percent of Americans optimistic about their own prospects. But since October 2008, when the financial crisis intensified after the failure of Lehman Brothers, the figure has been below 15 percent. Similarly, the proportion of pessimists had never been as high as 15 percent before the financial crisis, but it has been above that figure for the last two years.

At the height of the financial crisis, in March 2009, less than 8 percent of Americans expected their incomes to improve, while about 24 percent anticipated a decline. The figures released this week showed about 10 percent were optimistic about their incomes, while about 16 percent still expected a fall.

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Economic experts may believe the recession is over, but try telling that to the public.

Seventy-four percent of Americans believe the economy is still in a recession, according to a new CNN/Opinion Research Corporation poll. Only 25 percent think the downturn is over.

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Winston Churchill once moaned about the long, dishonourable tradition in politics that sees commerce as a cow to be milked or a dangerous tiger to be shot. Businesses are the generators of the wealth on which incomes, taxation and all else depends; “the strong horse that pulls the whole cart”, as Churchill put it. No sane leader of a country would want businesspeople to think that he was against them, especially at a time when confidence is essential for the recovery.

From this perspective, Barack Obama already has a lot to answer for. A president who does so little to counter the idea that he dislikes business is, self-evidently, a worryingly negligent chief executive. No matter that other Western politicians have publicly played with populism more dangerously, from France’s “laissez-faire is dead” president, Nicolas Sarkozy, to Britain’s “capitalism kills competition” business secretary, Vince Cable (see article); no matter that talk on the American right about Mr Obama being a socialist is rot; no matter that Wall Street’s woes are largely of its own making. The evidence that American business thinks the president does not understand Main Street is mounting

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Two years after the peak of the financial crisis, the federal government swooped in to stabilize a crucial part of the credit-union sector battered by losses on subprime mortgages.

Regulators announced Friday a rescue and revamping of the nation’s wholesale credit union system, underpinned by a federal guarantee valued at $30 billion or more. Wholesale credit unions don’t deal with the general public but provide essential back-office services to thousands of other credit unions across the U.S. The majority of retail credit unions are sound, but they will have to shoulder the losses through special assessments over the next decade.

Friday’s moves include the seizure of three wholesale credit unions, plus an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.

Officials said the plan won’t cost taxpayers any money. Still, it marks the latest intervention by the U.S. government into a financial system weakened by the real-estate bust….

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“It’s like the American dream in reverse.” That’s how President Barack Obama, ten days after taking office last year, described the plight of Americans hit by the faltering economy. His catchy description fell short ”” the dream has turned into a nightmare for tens of millions.

So much so that an opinion poll this week showed that 43 percent of those surveyed thought that “the American Dream” is a thing of the past. It “once held true” but no longer does. Only half the country believes the dream “still exists,” according to the poll, commissioned by ABC News and Yahoo against a background of dismal statistics on growing poverty, inequality, unemployment, and Americans without health insurance.

Before turning to the gloomy numbers, a brief detour to the meaning of the phrase “the American Dream,” long a familiar part of the U.S. (and international) lexicon. The survey defined it as “if you work hard, you get ahead.” That’s neat shorthand for the concept that the American social, economic and political system makes success possible for everyone….

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Few people need a census report to tell them that more people are living in poverty during this recession, but there it is: nearly one of every seven people in the United States was living in poverty last year.

It was the highest rate of poverty since 1994, and the largest number of people living in poverty, 43.6 million, since the government began keeping track 51 years ago.

The U.S. Census Bureau also reported stagnant incomes and rising numbers of people without health insurance, both of which contribute to poverty and a national trend of a declining middle-class standard of living that began in 2000.

“These are very tough times,” said East Cooper Community Outreach Executive Director Jack Little. “People are hurting who have never hurt before.”

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….given the combination of the expiration of the home buyer tax credit and the increasing number of loans moving to final foreclosure, we knew that home prices overall would take a hit, but it would take a while.

Well we’re here.

Two new reports out today prove the consequences of oversupply of organic inventory (12.5 months on existing homes in July according to the National Association of Realtors) and the shadow inventory of foreclosed properties (estimates vary widely and wildly). CoreLogic’s Home Price Index shows home prices “flat” in July as transaction volume continues to decline. “This was the first time in five months that no year-over-year gains were reported,” according to the release. In June, prices were up 2.4 percent year over year. In addition, “36 states experienced price declines in July, twice the number in May and the highest number since last November when prices nationally were still declining.”

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The speed at which house prices fall over the next few months could depend less on mortgage rates and Americans’ appetite for home buying than on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly.

The upshot is that, the more homes being sold by lenders, the faster prices tend to fall. That pattern was clear over the past two years: Price declines that began four years ago accelerated rapidly in 2008 as banks dumped foreclosed properties at fire-sale prices. By January 2009, the share of distressed sales had soared to 45% of all sales nationally; it was even higher in hard-hit markets such as Phoenix, according to analysts at Barclays Capital.

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The diversity of the United States’ population has been well-documented: a multi-ethnic mixture of more than 310 million people, comprised of individuals from a wide range of educational and economic backgrounds. Providing effective leadership for such a country is exceedingly challenging. The range of worldviews, faith perspectives, and personal dreams and expectations held by Americans makes it difficult for a national leader to possess a comprehensive and coherent point-of-view that a majority of the public will support. The latest national survey by The Barna Group underscores the breadth of opinions and concerns that Americans possess.

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Pundits are restless, an election looms ”“ so this week, President Barack Obama is proposing yet another round of special favors, aimed at improving the economy. Prominent columnist Paul Krugman wants the plans to be “bold” and to involve huge amounts of money. Here’s a contrasting view: government should stop declaring recovery plans, bold or otherwise.

Maybe the constant announcing of new plans ”“ especially plans backed by borrowing or tax cuts ”“ is, itself, an impediment to economic growth.

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According to the report, which was funded by the California Endowment, a private foundation promoting health care, 1 in 4 Oakland property owners received a notice of default on their mortgage, signaling the start of foreclosure proceedings.

The survey found that residents who are going through foreclosure or recently lost their homes were more than twice as likely to say that their mental and physical health had worsened over the past two years than those not going through foreclosure. Those residents were also twice as likely to report stress, depression or anxiety over the past month.

Residents in the two Oakland neighborhoods reported increased crime levels, with vacant properties serving as magnets for illegal activity. Adding to the strain, foreclosures disrupted social connections as neighbors moved out, a problem that can be particularly difficult on children who may have to change schools.

“This kind of financial distress leads to intense levels of stress, which, in turn, makes it not at all surprising to find people who are suffering emotional and, in some cases, physical consequences,” said Paul Leonard, director of the California office of the Center for Responsible Lending, a consumer advocacy group.

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The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee ”” July housing sales sank 26 percent from July 2009 ”” there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

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We knew the housing market news was grim when the National Assn. of Realtors released numbers last week showing that existing home sales dropped 27.2% from June to July, a 15-year low. We knew things were even grimmer when Fed Chairman Ben S. Bernanke said recently that despite low interest rates and lower prices, the glut of foreclosed properties and difficulties getting mortgages were “likely to continue to weigh on the pace of residential investment for some time yet.” Oh, and then there’s the figure of “25% of mortgages are underwater” that’s been floating around. As far as stats go, that’s almost as scary as nearly 20% of Americans thinking the president is Muslim.

But my real scare happened a few weeks ago when, amid my daily surfing of Internet real estate sites, I happened upon a particularly gruesome scene. Included among the photographs for a listing of a four-bedroom, four-bath house in a relatively desirable area was a close-up of an open toilet choked with what appeared to be a tangle of dark hair. A large tangle. Imagine a trichotillomaniac Morticia Addams who won’t flush….

“It’s not hair,” …[the real estate agent] told me [when I reached her on the phone]. “It’s tree roots.”

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Glenn Manjorin, a Ringwood resident, hosts one of the many groups that take place around the New York/New Jersey metro area, and invited Suburban Trends to the Christ Episcopal Church in Suffern, N.Y. to take a look at how the other side of the recession is coping with what the media labels as “the new normal.”

Manjorin, who previously was a computer disaster recovery specialist and business continuity planner at IBM, is no stranger to how the recession is making people adjust their habits.

He explained that the group helps members out with what they labeled as the “elevator speech,” which emphasizes saying your name at the beginning and end of the speech, as well as keeping your work details within a 30-second timeframe to pitch to potential employers.

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2) Payroll tax cut is not a bad idea for stimulus, but U.S. has longer-term job and growth problem that needs to be addressed.

3) Payroll tax cut for $400 billion in early 2009 would have been better than Obama’s $862 billion plan.

4) Any short-term tax cut should be coupled with long-term deficit reduction plan.

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…the most effective tax cut for putting people back to work quickly is one that businesses and households get only if they spend money. Last year’s cash-for-clunkers program was an example. So was a recent bipartisan tax credit for businesses that hired workers who had been unemployed for months. Perhaps the broadest example is a temporary cut in the payroll tax for businesses, which reduces the cost of employing people.

Any of these steps would increase the budget deficit, obviously. But relative to the multitrillion-dollar, Medicare-driven, long-term deficit, a temporary tax cut costing a couple of hundred billion dollars isn’t significant. The more pressing problem today, by far, is the weak economy.

The great historical lesson of financial crises is that governments are usually not aggressive enough in responding. That was Japan’s mistake in 1990s, Herbert Hoover’s in the early 1930s and even Franklin Roosevelt’s in the mid-1930s.

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The American economy could experience painfully slow growth and stubbornly high unemployment for a decade or longer as a result of the 2007 collapse of the housing market and the economic turmoil that followed, according to an authority on the history of financial crises.

That finding, contained in a new paper by Carmen M. Reinhart, an economist at the University of Maryland, generated considerable debate during an annual policy symposium here, organized by the Federal Reserve Bank of Kansas City, which concluded on Saturday.

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It increasingly seems as if the policy makers attending like physicians to the American economy are peering into their medical kits and coming up empty, their arsenal of pharmaceuticals largely exhausted and the few that remain deemed too experimental or laden with risky side effects. The patient ”” who started in critical care ”” was showing signs of improvement in the convalescent ward earlier this year, but has since deteriorated. The doctors cannot agree on a diagnosis, let alone administer an antidote with confidence.

This is where the Great Recession has taken the world’s largest economy, to a Great Ambiguity over what lies ahead, and what can be done now. Economists debate the benefits of previous policy prescriptions, but in the political realm a rare consensus has emerged: The future is now so colored in red ink that running up the debt seems politically risky in the months before the Congressional elections, even in the name of creating jobs and generating economic growth. The result is that Democrats and Republicans have foresworn virtually any course that involves spending serious money.

The growing impression of a weakening economy combined with a dearth of policy options has reinvigorated concerns that the United States risks sinking into the sort of economic stagnation that captured Japan during its so-called Lost Decade in the 1990s.

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Until recently, homeownership was celebrated as a hallmark of upward social mobility. Today, many millions of people who owe more than their homes are worth feel it’s become quite the opposite. It prevents many people from being able to seek a better job. And in many cases, it’s taking a harsh emotional toll on families who find themselves stuck.

Among those frozen in place is Kelly Christensen, who was set to marry her longtime love, Joel Nerenberg. They bought a house in Burnsville, Minn., three years ago. They had wedding invitations printed. Then they broke up.

Two years later, they still own their home. Christensen’s wedding dress now hangs in her ex-fiance’s closet. He lives across the hall.

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“The economy is going to limp along for the next few months,” said Gus Faucher, an economist at Moody’s Analytics. There’s even a one in three chance it could slip back into recession, he said.

Many temporary factors that boosted the economy earlier this year are fading. Companies built up their inventories after cutting them sharply in the recession to match slower sales. The increase provided a boost to manufacturers, but now many companies’ stockpiles are in line with sales and don’t need to grow as much. In addition, the impact of the government’s $862 billion fiscal stimulus program is lessening. That leaves the private sector to pick up the slack. But businesses are cutting back on their spending on machines, computers and software, according to a government report earlier this week. And the housing sector is slumping again after a popular home buyer’s tax credit expired in April.

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The number of Americans who are missing payments and falling into foreclosure has followed the upward trend in unemployment. The jobless rate has remained near double digits all year.

“Ultimately, the housing story, whether it is delinquencies, homes sales or housing starts, is an employment story,” Jay Brinkmann, the Mortgage Bankers Association’s top economist, said in a statement. “Only when we see a consistent increase in employment will we see an increase in sales and starts, and a sustained improvement in the delinquency numbers.”

More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.

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…the only thing that will turn this mess around is jobs. Until this economy can put people back to work — and put them back to work gainfully, full-time, using their skills and not merely temping in some capacity way beneath their experience — it won’t be able to instill any confidence that buying a house is a good idea.

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Housing sales in July plunged to their lowest level in more than a decade, exceeding even the grimmest forecasts.

The National Association of Realtors said Tuesday that the seasonally adjusted annual sales rate of 3.83 million was 25.5 percent below the level of July a year ago.

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Read it all–and look at the chart.

Despite years of talk by Democrats and Republicans about the need to control spending, farm out work to private businesses and make government finances more transparent, the opposite has occurred.

Rather than becoming leaner, the state work force increased by 7.1 percent since 2005 — outpacing Oregon’s population growth.

The number of top state employees earning more than $100,000 a year more than doubled during the past decade.

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Housing will eventually recover from its great swoon. But many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century, when houses not only provided shelter but also a plump nest egg.

The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.

More than likely, that era is gone for good.

“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special ”” that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land ”” didn’t hold up.”

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Fannie and Freddie function by buying, bundling and then stamping a government guarantee on mortgages. Then they sell them to investors. It keeps the banks happy because it keeps capital flowing, and it keeps consumers happy because it makes low, fixed-rate mortgages possible.

At least that how things were supposed to unfold. But the two mortgage finance giants “made astonishing mistakes,” Raj Date, executive director of a financial policy think-tank called the Cambridge Winter Center, told NPR’s Audie Cornish.

“As normal people everywhere in the country realized that housing prices seemed to be growing straight into the stratosphere, instead of becoming more conservative about lending against those ridiculously high values, Fannie and Freddie just continued to make the same kind of loans and indeed made more aggressive loans during that period of 2005, 2006, 2007,” Date said. “And it has all come back to haunt them.”

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Every day, an average of 112 people — most of them the newly poor — sign up for free government health care in South Carolina.

Since the recession officially hit in December 2007, some 3,300 people a month, on average, have signed up for Medicaid in a state that outpaces the nation for poverty, obesity and diseases such as diabetes. Yet, South Carolina’s political leaders have been among the most vocal in the country in opposition of the new health care law….

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