The headlines announcing that Bank of America has stopped processing foreclosures in order to assess their internal controls are difficult to process.  On one hand, this sound like a good thing, because if the pace of foreclosures slows it will diminish the number of families under stress and lighten the overhang of foreclosed properties on the housing market.  On the other hand, you don’t get foreclosed on until you’ve stopped paying your mortgage, right?  So what’s the big deal.

To sort it out, I recommend you follow the five-part series that kicked off today at Barry Ritholtz’ The Big Picture.  The post is authored by Mike Konczal, a fellow at The Roosevelt Institute.

The big question at play isn’t just whether the mortgage processors have been playing fair with homeowners.  It’s whether the financial institutions actually know where the original mortgage documentation is.   Can they produce the piece of paper they need to have to demonstrate the lien on the property?

The issue is captured neatly in a two-part graphic, reproduced below.

As the post points out, the issue of whether or not the mortgages can be found has significant implications for the financial players.

So keep these frameworks in mind when you see the debate unfold in the next weeks. It is a problem of systemic risk, and it is a problem for the currently cratered securitization market. It will need to be addressed, the sooner the better.  But how?

What should we all make of this?  Consider it a last, bad joke on the part of the financial services industry.  This new “foreclosure crisis” has nothing to do with home values or the ability of home owners to make payments of mortgages.  But, it has a lot of potential to slow down the housing market, at a point that the market doesn’t need any more headwinds.

I’ve been preparing for a conference this week held by the investment bank DeSilva & Phillips. The concept is intriguing: the principals, Reed Phillips and Roland DeSilva, have invited eight CEOs of mid-market media companies to talk about the transformations in their business to an audience of about 100 members of the private equity and media banking community.

Ironically, the context for transformation is crisis, as the publishing segment of the media sector has been under extreme duress during the recession. While this duress has taken a toll on the capital structure of media companies, it has also forced business to focus, identify where their customers are and develop more flexible and web-centered business practices.

In preparing for my presentation, I’m forced to answer two basic questions: what is attractive about our company, Network Communications, Inc., and what is attractive about our market.

When you are positioned squarely against the housing market it’s easy to fall in to the trap that your market is a problem.

Perhaps the best way to disabuse people of that notion is to show them two charts.

The first looks at home prices since 1970. It is the simplest way of capturing the impact of the housing bubble. For a short period of time,home prices soared irrationally. What we know now is that the loans made against those soaring house prices helped fuel a fever in lending to the entire building market — resale, new homes, multi-family and commercial — that created an unimaginable glut of capacity just when demand was going to decline.

When we take a long view of prices, it is easy to conclude that the market has fallen back close to the norm, and that with a little more correction, the housing market will be where it need to be.

The drama of the price drop over-simplifies the dynamic impact the housing market has on the economy. The best way to measure that impact is to look at the effect of housing on Gross Domestic Product over time.

The second chart captures all components of housing as a percentage of GDP since 1970 and plots the ratio against the logarithmic trend. This analysis shows that housing as a percentage of GDP is significantly below its trend over the past couple of years.

Closer analysis of the number shows that the driver for reduced production in the housing sector is the overhang of excess capacity, coupled with conservatism in the lending markets.

The most volatile component of the housing sector is residential fixed investment, which includes the cost of building new homes and multi-family units, improving existing homes and paying commissions on the sales of homes.

From 1995 to 2005, residential fixed investment increased $319 billion to more than $700 billion.

Between 2005 and 2010, residential fixed investment declined $424 billion.

Historically, residential fixed investment has been about 5% of GDP. Currently it is at 2.7%. At the normalized rate, residential fixed investment would be around $650 billion, or 85% higher than current levels and 15-20% below the peak.

Has anything happened to change the long-term structural dynamics around residential investment? Not really. There are more efficient building techniques, and the overall size of structures is likely to diminish, but the demand for residential fixed investment is driven by the population’s housing need. Population grows, existing housing stock ages, bylining costs come down, and new capital pours in as part of a virtuous cycle.

The current challenge of the housing market is that the alignment between supply and demand still is not set. Demand is suppressed because of the weak employment market and frozen lending channels; supply is too strong because of the overhang of building during the housing boom.

Each quarter the housing market regulates a little bit more, and a recovery in the housing market is not that far away.

At that point, it will be clear that housing is a good market opportunity, with steady growth characteristics that will distinguish it during a particularly challenging decade for our transforming economy.

I was on the phone with someone this morning who I should have talked with a month ago.  I had kept putting the conversation off.  Not because I didn’t want to talk with them, but because I couldn’t get myself organized to have a productive conversation.

She said, You must be very busy.

Not in any unmanageable way, I answered.

What I explained was that the restructuring process that we are undergoing at NCI is progressing in an orderly and productive fashion.  There isn’t an unreasonable amount of time that needs to be spent on it, and the key issues are well-defined and being advanced by a team of very capable professionals who do this kind of thing all the time.

But it does create a distraction.  In the face of uncertainty you spend time thinking through the different possible outcomes and waiting for the next development, which help you narrow that range of outcomes.

We brought the top management together this week to talk about where we are.  I outlined my belief that as a company we’d come through two critical phases:  the first, where we reacted to the economic downturn; and the second, where we created new frameworks for recovering.

We were now at the third phase:  The selling phase.  And, I observed, we weren’t moving with as much purpose and effectiveness as I wanted.

The problem, I think, is that we still believe we are mired in uncertainty.  The questions “When will things improve” and “Will things get any worse” are central to our conversations.

That has to change.  The real questions need to be “What did we do this week and how did it work?” and “If things didn’t work the way we expected, what should we change?”  And then, we have to make the changes.  The only way to have these conversations is to track, report and discuss specifics.  Otherwise, you end up mired in generalities.

The challenge is to really demonstrate the mental fortitude and discipline to face forward.  I acknowledge it’s hard, but boy, it’s necessary.

I was struck the other day by the observation that the start of our current recession was sharper than the Great Depression and that the steps taken by governments around the world to provide financial stimulus helped to moderate the decline.

That observation got me thinking about how different the images of this recession are from the images of the Great Depression.

The New York Times had a long article in the Week in Review section this week that captured some of the underlying difference.

A great many people have lost faith in powerful institutions, from Congress to Goldman Sachs. Yet beneath the bitterness coloring national affairs — down at the level of neighborhood, family, coffee shop, tavern — a tenuous belief in the collective good remains, perhaps moderating national dismay.

I don’t think that the Times article intended to demean the level of suffering and pain that individual people a experiencing during this downturn. But they captured something of the zeitgeist that I experience as a I travel around the country. People are carrying on, often with a tremendous amount of energy and a degree of mobility and connectedness that is unmatched by any time in our history.

That perspective made the chart above particularly powerful.

One dramatic difference is the relatively low cost of food in the U.S. compared to other places in the world. The affordability of food is driven by diverse factors, including vast natural resources of our country, federal subsidy programs, efficiencies in distribution and innovations in preservation.

And compared to other countries, there’s no other place on the planet that has cheaper food than the U.S. (2008 data here). The 5.5% of disposable income that Americans spend on food at home is less than half the amount of income spent by Germans (11.4%), the French (13.6%), the Italians (14.4%), and less than one-third the amount of income spent by consumers in South Africa (20.1%), Mexico (24.1%), and Turkey (24.5%), which is about what Americans spent DURING THE GREAT DEPRESSION, and far below what consumers spend in Kenya (45.9%) and Pakistan (45.6%).

When you don’t worry about where your next meal comes from, you can afford to feel optimistic and energetic. The relatively low cost of food in our country is an important element in keeping that positive viewpoint up

The flush of this Spring’s economic activity is wearing off and the American consumer is being realistic about the economy’s prospects.

One indicator can be seen in the muting of the consumer outlook from BIGResearch in June.  Sentiment about the chances for a strong economy were down from May and unchanged from a year ago.

Sentiment is up a long way from the dark summer of 2008, the mood of the last year has stayed relatively unchanged, despite renewed economic activity.

The embedded caution about the economy is reflected in how Americans describe their approach to spending.  74.1% of Americans say they are living a simpler life, according to BIGResearch.   On balance, they are happy about this increased simplicity.  For sure, they are redefining luxury:  84.1% say they aren’t ready to spend on luxury items.  The way luxury gets defined is shifting also, as demonstrated in people’s responses.

This sentiment puts some of the recent economic reports in context.  As summarized in the blog Calculated Risk’s weekly update, the momentum in retail sales is lagging and underlying economic activity is steadying after a rebound to refill inventories that had been allowed to diminish during the initial slump in consumer spending.

These observations were echoed last week in the release of the Federal Reserve Beige Book, which looked at economic activity through May

Economic activity continued to improve since the last report across all twelve Federal Reserve Districts, although many Districts described the pace of growth as “modest.” Consumer spending and tourism activity generally increased. Business spending also rose, on net, with employment and capital spending edging up but inventory investment slowing. By sector, nonfinancial services, manufacturing, and transportation continued to gradually improve. Residential real estate activity in many Districts was buoyed by the April deadline for the homebuyer tax credit. Commercial real estate remained weak, although some Districts reported an increase in leasing. Financial activity was little changed on balance, although a few Districts noted a modest increase in lending. Spring planting was generally ahead of the normal pace, while conditions in the natural resource sectors varied across the Districts. Prices of final goods and services were largely stable as higher input costs were not being passed along to customers and wage pressures continued to be minimal.

The signs suggest that consumer has recovered, but that the recovery is marked by a wide-eyes pragmatism about a weak economy with little momentum for growth.

• Experts Talk Beige Book, Bernanke Testimony (businessweek.com)
• Beige Book and Flow fo Funds Overview (fivethirtyeight.com)
• Economy improving modestly: Fed’s Beige Book (financialpost.com)

In the 455 posts since I launched ViralHousingFix on January 4, 2009, there hasn’t been a longer gap than the one between Post 454 and this post, number 455:  11 days.

The workbook I use for my professional notes is chock full from the past two weeks, and the program I store interesting snippets in has a long backlog, but there haven’t been any posts.

Being busy with a lot of exciting developments at NCI is part of the explanation.  Getting engaged in a personal writing project is another.  But there are a couple of other reasons for the fallow spell that I think might be interesting to those of you who follow this blog regularly.

The first is that I’ve stepped back for a bit to see how things are going to turn out.  Over the past 16 months, I’ve written and shared a lot of analysis of the economy and the housing market.  The two big questions were exactly what the composition of the recession was and what the beginning of the recovery would look like.

Right now, we’re in the recovery and it’s a choppy and uncertain time.  The macro trends have been positive, as a fairly random selection of charts picked from the blog Carpe Diem shows.  Our business at NCI is hyper-local and consumer-driven, and our experience is showing us that while the recovery has settled people’s nerves, it is neither expansive or extended enough to dramatically shift consumer sentiment to the degree that households are getting reformed and the consumer’s near term outlook is upbeat.

That sense of stasis has diminished my urgency to write about economic trends.  I don’t feel like there’s anyway to really project when consumers are going to have a baseline change in outlook.  It’s going to happen.  When it happens we’ll be happy about it, and a little surprised that we didn’t see it happening at the outset.

In a New York Times column, Jack Stack, CEO of SRC Holdings, Inc., summed up the current zeitgeist:

The funny thing is that despite their recent success, most of these folks seem reluctant to acknowledge that things have gotten better. Why? Well, I have two theories about that: one, people feel so burned by the last few years that they still fear a double dip — and they’re still waiting for another shoe to drop.

I think that’s a pretty good characterization.

A second reason for the dry spell on the blog is that I’ve been digging in on the learnings that we’ve developed around our DigitalSherpa social media marketing service over the past year.  It’s been pretty rich and exciting, and part of an overall organization audit and assessment that we’re doing across the service.

I haven’t written about the things I’ve learned because there’s a lot to synthesize:  the outcomes and experiences of more than 1000 client engagements.  We’ve essentially got thousands and thousands of proof points around the power of content marketing on social platforms, the relative value of different types of engagement, and the impact that a consistent content marketing plan has on search traffic and referrals.

Some of the facts are fun for their sheer scale.  For instance, we’ve generated more than 1 million social interactions for our clients in the multi-family space since launching CommunitySherpa last summer.  Some of the facts are engaging for their business impact:  one client has been able to cut more than $200,000 of search marketing spend because of the impact of the content marketing program that we’ve executed.  (That $200,000+ savings is net of the cost of the program, by the way.)

When you man a blog single-handedly, you’re going to experience ebbs and flows.  What you were writing about isn’t always what you are going to be writing about, and when you get to a juncture where you see a new avenue to explore, sometimes you just need to set back and sift through facts for a while.

The last three weeks have been partly busy and partly sifting time.  Thanks for your patience.  The one thing that has really impressed me is how strong the traffic to the blog has stayed.  That’s because of the way that all of you have used the content — the sharing, the commenting and the reading.  I appreciate it.

Harvard professor Mark Perry has been one observer who has consistently chronicled the silver lining in the recovery, sharing discrete pieces of data that show the economic engine gearing smartly back up.

Last Friday, he shared another in a series of posts that have looked at the recovery in local real estate markets. The subject of this post: Minneapolis.

I’m struck by the impact on the economic vitality of real estate agents. Commission income has bounced back to where it was in 2008. With fewer agents in the market, that should mean the opportunity for agents to boost earnings is significant.

Agents will play a big factor in the continued recovery of the resale home market: the more confident and upbeat they are, the more excited home buyers and sellers will be.

We’re at the cusp of an amazing cultural shift: the majority of women under 40 within 10 years will be better educated and better paid than men of equal age.

That means that the role of women‘s advocacy organizations in business is not only to strive for equality; it’s to help women prepare for the burdens of leadership.

Stark, but true.

Two recent data points help to support this assertion. The first is the disproportionate number of advanced degrees that women are earning in relation to men. Mark Perry of Carpe Diem shared a chart recently that shows that 139 women in the 25-29 year old group hold an advanced degree for every 100 men in that age group.

Perry also dug into the numbers related to equal pay and found that younger women are earning nearly on parity with men of the same age.

But for single workers who have never been married, the BLS reports that women made 94.2 percent as much money as their male counterparts in 2008. Equal Pay Day would fall on January 22 for these single females, almost three months earlier than the official, unadjusted Equal Pay Day of April 20 for all women. For a separate BLS category of single workers, those with “no children under 18 years old and whose marital status includes never married, divorced, separated and widowed,” women earned 95.6 percent as much as their male counterparts in 2008. Equal Pay Day for that group of single female workers would fall even earlier, on January 19, only a few weeks into the year.

The purpose of these data points isn’t to devalue the generations-long work to give women equal opportunity. It’s to acknowledge that it’s an appropriate time for the focus to shift.

I was struck by this recently when I found myself at a cocktail party hosted by The White House Project the evening before its Epic Awards Gala in New York.

The room was filled with a diverse group of notable and remarkable women, not the least of whom was Marie Wilson, one of the founders of The White House Project. The purpose of the organization is to prepare and present women for positions of leadership; Wilson believes that if women can fill one-third of the leadership positions in government and business, then the national dialogue would shift dramatically…and for the better.

I was at the cocktail party because of my relationship with a notable woman; my wife Tami recently joined to the corporate council of The White House Project. The video below from the Epic Awards gives you a brief feel for what TWHP does.

www.youtube.com/watch?v=HR6IVvDOsAM

As the cocktail party wound down, I spent a little time talking with a very passionate and engaging woman from Texas who is spearheading recognition of the anniversary of the 19th Amendment. She is an executive with a large technology company and spoke about how, just as she is entering the prime of her career, she’s confronted with the decision of whether or not to continue to commit time and energy to an organization that can’t advance women.

I probed around that point: What is it that keeps your company from becoming an attractive place to build a career?

“They don’t know what to do with us,” she said.

Her comment wasn’t colored with bravado, resentment or frustration. She was as puzzled by the organization’s inability to know what to do with a talented, ambitious woman as she believes the organization is puzzled by her.

Over my career, I’ve worked with very successful and effective women, many of whom have had positions of significant responsibility. I’ve witnessed their struggle for recognition and equality. Sometimes I’ve helped and sometimes I’ve hindered. What I have learned over the years is that the greatest reward that an organization can give women is the feeling of flexibility without punishment. I’ve also witnessed how challenging the embedded culture of organizations can be.

As I listened to Marie Wilson talk about The White House Project, I had a new sense of the power that women’s advocacy in business could have, and the benefit of organized and thoughtful dialogue around the questions of women in leadership.

The question is whether business will respond and engage in this dialogue with authenticity and integrity.

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• Meryl Streep, Megan Mullally & More Attend The White House Project EPIC Awards (PHOTOS) (huffingtonpost.com)
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The landscape for local advertising, particularly by small- to medium-sized businesses (SMB’s) is undergoing a profound shift that is being masked in part by the overall downturn in advertising spending, two recent research reports from BIA/The Kelsey Group demonstrates. The key for local media companies is to segment the SMB client base in relation to their adoption of online media. And the key to that adoption rate is the age of the company, Kelsey concludes.

To put the entire opportunity in context, it’s useful to revisit BIA/Kelsey‘s U.S. Local Media Forecast, released earlier this year, where BIA/Kelsey chronicled a devastating decline in local advertising spend in 2009 and 2010. The firm doesn’t anticipate any recovery until 2011, nor any real strengthening of the local ad market until 2012.

That is more than $27 billion of local advertising that will have evaporated during the recession. Within this macro trend, a fundamental secular shift is underway, says points out Polachek, president of BIA/Kelsey

“The general economic conditions worsened during 2009 causing advertising dollars to remain on the sidelines as businesses — large and small, local, regional and national — reined in spending levels,” said Polachek. “Even with improvements in the overall economy, we do not anticipate a rapid recovery among traditional media over the forecast period, because we believe the structural change in the local media industry has accelerated.”

This structural change is highlighted in BIA/Kelsey’s most recent update to its Local Commerce Monitor, a local tracking study that the firm has been doing over the past several years.

The ground-level research of SMBs reinforces the overall outlook for local advertising.

The Local Commerce Monitor study also revealed a decrease in overall ad spending by SMBs, owing to unfavorable economic conditions and the long-term substitution of traditional media with lower-cost digital/online media. SMBs decreased spending on advertising and promotion by 23.5 percent, from $2,734 annually (reported in August 2008) to $2,092 annually (reported in August 2009). In spite of the overall decrease in spending on advertising and promotion over the past 12 months, on average, SMBs increased spending on Web sites and profile pages by 26.8 percent, from $608 in 2008 to $769 in 2009.

Kelsey does chronicle on notable shift among SMBs: they have personally begun to use more digital media than traditional media. This usage shift will drive accelerate the shift in marketing purchases, BIA/Kelsey contends.

The younger the business, the more likely they are to spend heavily on internet advertising, BIA/Kelsey points out. Businesses less than 3 years old will spend close to 1/3 of their budget on internet, while businesses more than 10 years old will spend only 13%.

The obvious conclusion, Kelsey points out, is to target younger businesses with digital offerings.

The success rate is likely to be much higher.

The dollars at stake are meaningful.

Indeed, a steady shift toward digital media continues. BIA/Kelsey forecasts spending on traditional media to decline from $115 billion in 2009 to $108.2 billion in 2014 (CAGR of -1.2 percent). During the same period, spending on online/interactive media is projected to grow from $15.2 billion to $36.7 billion (CAGR of 19.3 percent).

Over the next five years, a focus on emerging businesses as the foundation of digital growth is a strategy that is likely to be rewarded.

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• Local Ad Spend to Climb 2.2% through 2014; Shift to Digital Continues: BIA/Kelsey (marketingvox.com)
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• Highlights From the Most Recent BIA/Kelsey Local Commerce Monitor and User View Surveys (blogs.praized.com)