Burned Speculators “Just Icing On The Cake”
Some housing bubble reports from Wall Street and the Washington Times. “The risk of a financial crisis is growing as home prices continue to fall and questionable mortgages made in the past two years go into default, finance officials warned yesterday.”
“Banks and mortgage brokers have been passing along to unwary investors as much as $600 billion a year in risky mortgages they made through untested channels in the junk-bond market. That raises the threat of a financial crisis beyond the ability of the Federal Reserve to remedy, said Lewis Ranieri, who is widely credited with creating the multitrillion-dollar market for mortgage-backed securities in the 1980s and 1990s.”
“‘No securities market can stand if we do not have true disclosure, and we do not have true disclosure’ of the growing risks of exotic mortgages, said Mr. Ranieri. ‘This stuff doesn’t just get sold to [professional] money managers. It gets sold to the public and to foreign investors who don’t have a clue what to look for.’”
“Despite the growing dangers, Rep. Barney Frank, incoming chairman of the House Financial Services Committee, indicated he saw no reason for federal legislation to better regulate the mortgage markets to prevent a possible financial meltdown.”
“‘Housing suffered from irrational exuberance’ during the first part of the decade, though it fell short of being a full-blown bubble, he said. ‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”
“Treasury Secretary Henry Paulson said the government wants to issue guidelines to banks and savings and loans that will allow people to get home loans ‘without taking unnecessary risks.’”
“‘We do not want Americans to become overextended and see their dream end in foreclosure,’ Paulson said.”
“There have started to be ‘early signs of credit distress’ in financial institutions’ holdings of so-called ’subprime’ mortgages, especially in California, Richard Brown, chief economist for the Federal Deposit Insurance Corp., said at the conference.”
“As the housing market trends downward and overextended borrowers find it increasingly difficult to make their mortgage payments, delinquencies, foreclosures and early payment defaults are on the rise, said Dominion Bond Rating Service in a report.”
“When looking at 60-days-plus delinquencies for 2003 through 2006 subprime home equity collateral at 11 months of seasoning, delinquencies are 25 percent higher for the 2006 vintage versus the 2005 collateral and approximately 66 percent higher versus 2003 and 2004 vintages, said Dominion in the report.”
“The weaker performance of the 2006 vintage can be attributed to…greater leverage inherent in ‘affordability products,’ the migration of lenders down the credit spectrum and the sharp decline in home price appreciation rates.”
“In order to support corporate earnings and maintain production volumes that had reached unprecedented levels, subprime originators continued to underwrite ‘affordability products’ and the corresponding ‘loan at the margin,’ the rating service added.”
“Fitch Ratings said its ratings outlook for sub-prime mortgage bonds is ‘negative,’ with the expected number of its downgrades to exceed the number of upgrades next year. Delinquencies, which have risen 50 percent from last year, should climb another 50 percent next year, it said.”
“Losses to date on sub-prime mortgages issued in 2000 are about 5.5 percent, the worst tally ever, according to Michael Youngblood, an analyst at Friedman Billings Ramsey Group Inc. Youngblood has said this year’s loans could have the highest losses ever.”
“A large caliber weapon would be needed if losses on the recent crop of exotic, nonconforming mortgages (i.e., loans not guaranteed by Fannie Mae or Freddie Mac continue to work higher. And why wouldn’t they?”
“In 1998 ‘liars’ loans’ (those with little or no documentation required) amounted to 24% of mortgage originations. To date this year they account for 62%. Interest-only mortgages have vaulted in the same period from virtually no market share in the mainstream lending business to a 50% share.”
“Countrywide Financial released operational data for the month ended November 30, 2006. Mortgage loan fundings for November totaled $38 billion, a decline of 11 percent from November 2005.”
“‘November 2006 operational results continued to reflect transitional market conditions,’ said CEO Angelo Mozilo. ‘Total mortgage loan fundings declined modestly from the prior month. Purchase volume fell as a result of continued softness in the housing market, as well as seasonality.’”
“Potlatch Corporation will cash in on the nation’s growing appetite for recreational acreage by selling off 18 to 20 percent of its vast timber holdings over the next decade, officials said today. The company expects to sell between 15,000 and 20,000 acres of land next year.”
“Over the next decade, Potlatch has identified 100,000 to 120,000 acres for sale in Idaho; 100,000 to 120,000 acres for sale in Minnesota; and 50,000 to 60,000 acres for sale in Arkansas.”
“Investors who giddily rushed into the new-home market during the recent housing boom are now beating a hasty retreat, sometimes at a hefty loss, said David Pressly Jr., president of the National Association of Home Builders.”
“For some speculators, it makes more financial sense to leave a down payment on the table rather than going to settlement on a newly constructed house that has decreased in value or failed to appreciate. ‘It might be cheaper to walk away and not close on a house they may not be able to sell or rent,’ said Pressly.”
“Some would rather give up sizable down payments than be stuck with a house bought at the top of the market, Pressly said. Consider an investor who puts $30,000 down on a new $500,000 house, either under construction or not yet built. For such a buyer, it might be cheaper to default on the sales contract, Pressly said. Losing $30,000 might seem the lesser of two evils, he said.”
From the Washington Times link:
‘Mr. Ranieri said the quality of loans has fallen so much recently that his firm has stopped buying whole mortgages for repackaging into mortgage-backed securities. He recently rejected some mortgages offered to the firm. He said he asked what the broker would do with the loans, and was told they would be sold to investors in the junk-bond market.’
‘A senior U.S. banking regulator said on Monday that the lack of full timely disclosure of the risks of adjustable rate mortgages to customers could prove a challenge to the industry. Deputy Comptroller of the Currency Kathryn Dick said said customer disclosures of nontraditional mortgages are ‘frequently’ not complete and provided to customers too late in the lending process, especially with teaser rates that will adjust after a year or two.’
Welcome to the late 80’s. Their even using the word “Junk Bond” again. Only this time it’s on a national scale and banks have found a way to unload all the risk so they won’t go bankrupt.
Who do you think is going to foot the bill for all of this?
BINGO. Late 80’s indeed. The size and scope of this one is breathtaking comparatively speaking.
The MBS bagholders themselves. It will be like Italian pensioners holding the bag for Argentina bonds a few years back. Somehow, they bought on understanding of high returns / low risk scenario. ‘Duh’ or should I say ‘Mama-mia’.
You’re right on the mark, Houstonstan. Those poor Italian pensioners were led to believe (I don’t know by whom) that they were buying low risk bonds. I don’t know enough about how finances work to know who exactly is to blame, all I know is that the people of Argentina (including myself) lost their savings, and the poor investors lost their “investment”. Both ends of the equation got totally screwed, but I imagine some people made money in the middle. If not, where did all that money go? That is the question that many FB’s and unwary investors are going to be asking here in a couple of years, and I’m ready to bet that those who have the answers will be sipping pina coladas somewhere in the Caribbean and out of reach…
http://www.larouchepub.com/other/2004/3102parmalat_invest.html
More recently, Italian and other other investors got swindled in the Parmalat implosion. Small investors got conned by listening to the so-called trusted experts who led them down the primrose path to ruin.
could be wrong but it seems to smell like smoke in the lending business. the emails over the last month have changed from “hey, we can do 100% stated investor i/o’s at a 580 fico, lot loans to builders and bankrupts” to “hey, we’re still in business, send us your loans, please, really soon please”. q/c (quality control) is out of control, verify employment twice, trace the down payment, re-review the appraisal, verify again. all the talk is about buybacks and brokers are being cut off swiftly if they’re involved. two months ago you didn’t even hear about defaults, everybody was bathing happily in the new lending paradigm. the pendulum swung rather quickly. this can’t be good for the spring real estate market.
boulderbo…
yup…the noose is starting to tighten. That is going to CRUSH the people in 2007 that ‘need’ to refi because their ARM is adjusting.
NOW, they will be looking at the docs closer. NOW, they will be doing ‘risk assessment’….but it is too late.
You can’t have a massive disconnect from the fundamentals WITHOUT a painful return to reality.
SoCalMtgGuy
got a new post up….
http://www.housingbubblecasualty.com
And apparent unwillingness of the Fed to cut the funds rate, and to even hint at further tightening, will soon leave 10 year yield in the dust. 5% here we come?
Sacramento Mortgage Fraud Update: 12/12/06
Just a quick and interesting tidbit on the 5 houses with 100% financing at $250,000 over market values. The houses are located on Hillwood Loop in Lincoln, CA. Currently, there are 3 other houses in foreclosure on Hillwood Loop. The average loan balance on the foreclosure homes is $643,000.
The 5 new loans (made by New Century (2), Alliance, Long Beach, & First Franklin) average $771,000. You would think the sub prime lenders would check the foreclosure listings before they issue new loans on the exact same product for more money. And by the way, Ownit Mortgage owns a house in the neighborhood. HSBC got stuck with it. It is now listed at $100,000 less than the foreclosure amount, which is about $200,000 over where it will eventually sell….in about 18 months.
It keeps getting more and more “bent” up here in Nor Cal. 14 more loans in my sites which look like the same scam is being completed, though I am seeing signs that some of these 100% (80/20), $200,000 cash back loan deals are stalling, finally.
Great work, please keep us posted.
ditto. I am inspired by your activisim.
activism
Paladin — kudos again for actually “doing something about it.” (For new readers, he blew the whistle on these scams, to a number of agencies/offices.)
thanks / danke paladin plus bulderbo
boulderbo,
Thanks for the very informative post!
Hope this RE meltdown doesn’t hurt your business too much. At least you’ve been very aware of what’s going on, so you have that over your competition.
Best of luck & please keep us posted!!!
“He recently rejected some mortgages offered to the firm. He said he asked what the broker would do with the loans, and was told they would be sold to investors in the junk-bond market.”
That, my friends, it the pin poking the housing bubble. One of these times it will pierce it and you will hear a loud pop ! Bubbles don’t exist without tons of credit and the people lending the money are starting to figure things out.
The junk bond crowd is reasonably sharp. That is the correct market for junk loans in the first place.
Still some pretty sharp people are finding plenty of value in the very upper tranches of subprime CDO’s. You can buy the AAA/AA tranches and still do quite well. This includes a company which is advised by Lew Ranieri.
The only way the AAA tranches get bit is if everyone underneath them gets wiped out. I wouldn’t want to be holding the BBB tranches, for sure.
“‘We do not want Americans to become overextended and see their dream end in foreclosure,’ Paulson said.”
Become overextended? Where have you been man? They ARE overextended!
Looks like the subprime meltdown has some in Washington positioning themselves for the commitee hearings to come.
I think speculators made up about 50% of the market. Look at the decline in sales year over year and that will give you a good idea of the speculative component of the market.With speculators underwater with 100k in some cases do you really think they have any money to pay this back?I have a feeling the banks are going to eat a lot of losses. This whole ponzi scheme was based on prices continueing to climb. Not sure if they had a backup plan if prices fell. I think 10% is just the beginning here. I know of places already off 25% compared to new home sales.
I been predicting it.
Summer 2007, hearings into predatory lending practices, starring Casey Serin, as presented by Nancy Pelosi.
Be there or be square. (or bankrupt)
Yeah Barney Frank and the dem’s don’t want to be seen as peeing on the housing parade. It is obvious that we are tanking but they will wait for the blood to run so they can say it was all on the Rep. watch that this mess occurred. And it pretty much was.
Payback to the GOP House for letting the spending bills pile up, then blaming the Democrats? Should be an interesting 2007.
In debt up to the eyeballs, still able to sell furniture to pay the monthly bills = sophisticated consumer.
Ran out of furniture, living in a country where kidney sales are illegal: overextended.
Fools! don’t they know that if you buy a new hummer, you will get $1500. cash back for the holidays. I figure a new hummer a month and I can keep up with my RE investment.
LOL.
“They ARE overextended!”
So as Fed. Gov.
It is real hard for individuals like Paulson to have any comprehension of what life is like for the 50% of Americans that make less than $18,000/year. If these individuals could understand, I doubt that our economy and housing would be this screwed.
50%?? Are you including four year old children in that figure?
The median income in the USA is much higher than that. The most recent figures I found reported $33.5k for males, $20k for females (this presumably includes non-working females). By definition, at least 50% make this much.
But the point is valid. Before his current gig, Paulson ran Goldman Sachs for over a decade. I don’t think the guy has made less than seven figures in ages…..not exactly in touch with Joe Punchclock trying to make payments on both stucco and the 4×4.
Agree totally. One can, however, question whether Joe 6pack earning $33k per year with a wife who may or may not earn $20k, one ore more dependent children, really is pursuing a path in his best interest by buying a house - even at pre-bubble prices. I’d be reluctant to take on a $200k mortgage if I were earning $53k, and I only have one mouth to feed! I guess it demonstrates the power of mass conditioning in this country that compells so many to buy even if they can’t really afford it (or barely can).
70% of the nation currently owns - which means that many people earning BELOW the median have also bought. I personally don’t know how they sleep at night.
what was the national median pre-bubble? maybe 53k could afford it.
“$20k for females (this presumably includes non-working females)” — are you talking about the average (mean) income?
70% of the nation currently owns
and maybe half of those that own, truely own. No mortgage. We sleep fine.
We’re working on that. We took our mortgage out in ‘03 for $305K with $110K annual income and 5% down. We thought THAT was a stretch and were (are) uncomfortable doing that. BUT we have got it down to $271K so far… some day soon, God willing, the place WILL be ours free and clear.
I think the average HOUSEHOLD income in America is a shade of $40k. The average house price in America before this bubble was like $120k. So it’s not too much of a stretch that 70% of the populace owns a house.
Federal Reserve Bulletin Feb, 2006
Recent Changes in US Family Finances
caution pdf 38pgs
http://tinyurl.com/yxgap4
50% of working class earn less than $18/yr? We are so screwed.
Is the 18K before or after taxes? When I think about how much I make, I always think in the after-tax sense. What is the point of including the taxes anyway?
50% of working class earn less than $18/yr? We are so screwed.
Doesn’t sound right or jibe with the various stats. Who made up that number, and from where?
Is the 18k before or after taxes?
Almost always before taxes and before any government handouts. So those on good incomes actuallly have less spending money, while those on very low incomes and assistance have more spending money than the raw figures would indicate.
Ye to do otherwise and include all of that would make it into an accounting nightmare, nearly impossible to gather all th data they want and have it out in a timely manner. Mind you, I’m not saying that it wouldn’t be good to TRY to get such a figure, but it’s not as easy.
You could, perhaps, get some of the data refined by looking at the IRS and OMB websites for their detailed spreadsheets, but those don’t account for state taxes or government benefits, so you’ re only halfway there in your quest for “true data”.
They should just make all our income taxes not shown on the paystub and then the government could claim you weren’t paying them just like the 7% SS matching.
Did anyone catch chief economist Alan Sanai on C-Span yesterday talking about housing? This guy was in government for years and now runs some investment house. What a MORON! Spoke for 20 minutes plus about the housing market, and I had to keep pinching myself to try and focus on his convulutaed thinking. It took him 20 minutes to say what Ben’s Blog says in 2 or 3 talking points. I guess economists must get paid be the numbers of words they speak. Not only is the housing market going down, but with leaders like this, I am starting to feel the Decline of the whole United States. Please tell me there is hope on the horizon.
There’s not, these are professional government workers. How do you think it will end?
Sure there’s hope. Remember how that economist from the builders association trotted out all of those charts which had sharp Vs at the end? The upward leg of those Vs were all projected gains in the market next year.
didn’t you know, its the White Queen Economy
A market tomorrow, A market yesterday, but never a market today.
Yeah, there’s hope on the horizon. As long as this crap is in your rear view mirror.
Sure there is hope, buy gold and silver and miners outside of US$.
Wanna repost this here because the Fla thread got pretty long. Doug Kass (Seabreeze Partners) predictions for ‘07 as they relate to RE. I love this column he writes every year. Real bear food.
3. Based on misleading government statistics, the housing market appears to stabilize in the first quarter of 2007. For a few months, those forecasting a bottom in residential real estate appear vindicated. Evidence of cracks in subprime credits are ignored, with housing-related equities soaring to new 52-week highs by March 1.
4. However, continued heavy cancellations of home contracts — which are included in the government releases on homes sold and lead to an erroneous inventory of unsold units for sale — lead to:
A dumping of homes on the market in the spring
A quantum increase in the months of unsold housing inventory
A dramatic drop in the average home selling price.
Sales of existing and new homes take another sharp leg lower as we enter what I’ve dubbed “The Great Housing Depression of 2007.”
Importantly, the financial intermediaries that source mortgage financing/origination begin to feel the financial brunt of “The Great Mortgage Bubble of 2000-06″ after years of creative but nonsensical, low or nondocumented lending behavior.
5. Foreclosures steadily rise over the course of the year to nearly 3 million homes in 2007 vs. about 1.2 million in 2006. Deep cracks in the subprime market spread to other credits in the asset-backed securities market as a lumpy and uneven period of domestic economic growth takes its toll. In a similarly abrupt and dramatic manner, credit spreads fly open and revert back to mean valuations, as previously nonchalant investors are awakened to the reality of credit risk.
6. The magnitude of the credit problems in mortgages takes its toll on the hedge fund industry, which is much more exposed to real estate than generally recognized. A handful of multibillion-dollar, derivative-playing hedge funds bite the dust in the aftermath of the housing debacle. Several California-based industrial banks fail (the West Coast is always at the leading edge of financial creativity and leverage!), and a large brokerage firm, heavily involved in fixed-income market-making and trading, faces material losses, and its debt ratings are downgraded. As the financial contagion spreads, rumors of a $10 billion-plus derivative loss at JPMorgan Chase (JPM - commentary - Cramer’s Take - Rating) (which ultimately prove to be false) spark the largest one-day percentage drop in its shares in the past 15 years.
7. In a panic, Congress announces a series of hearings on the derivative industry, and the Federal Reserve reduces the fed funds rate by 50 basis points in each of three consecutive meetings. Those efforts are too late to affect the already weakening economy as the long tail of housing begins to affect not only consumer confidence and spending but also other peripheral areas of the economy.
13. With confidence in the markets and economies ebbing, merger-and-acquisition activity slows to a crawl by May. Several leading universities and endowments, which previously underwrote large private equity commitments, announce that they are dramatically reducing their exposure to that asset class.
As the capital markets falter, institutional funds committed to real estate are also reined in, initially leading to a marked slowdown in the recent appreciation in office building values. While broadening economic weakness leads to only a slight rise in office vacancy rates, as the year progresses vacancy rates deteriorate more noticeably. REIT shares get hit hard (and fall below net asset values) as the historic relationship between REIT dividend yields and the yield on the 10-year U.S. note mean regresses.
LOL. It’s not going to get that bad, is it?
According to today’s WSJ, cracksmoking DL said, “Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards.”
While Morgan Stanley, Merrill Lynch, and Credit Suisse are all chanting some version of, “The housing downturn has a long way to go.” Hence, the only part of the Kass narrative that I dispute is point 3 (apparent vindication of bulls in early 07).
The impact of this will be… interesting.
I cannot even begin to guess the final impact on the hedge funds. Oh, we all know a few hedge funds will go Tango Uniform. Cest la vie. How many? What fraction? Nearly complete Neutron distruction?
At a minimum, by 2008 20% down payments won’t seem so quant anymore. Again, I’m predicting we’ll go back to 1970’s style downpayments. 20% + the the last year’s appreciation (for non-starter homes) or 25% for new build.
Neil
20% - last years negative appreciaion will = around 10%
“I’m predicting we’ll go back to 1970’s style downpayments. 20% + the the last year’s appreciation (for non-starter homes) or 25% for new build.”
Those kind of standards are pretty much the only thing that would make me feel comfortable purchasing a home right now. Why? I want to have a reasonable assurance that my neighbors care as much about my neighborhood as I do, and the only wayis if they’ve put down some cold hard cash.
This 0 down stuff is nuts. Zero down doesn’t build neighborhoods. It builds camping sites. When lending standards tighten and qualified buyers start purchasing, that’s when (and where) I’ll be looking to buy my next home.
“Zero down doesn’t build neighborhoods. It builds camping sites.”
Very well said Peggy…
Good point, I liken this to both this and the last bubble 89′-95′ when I would drive through these new developments and see sheets nailed up in the windows bedause they could not afford drapes.
Another differance is the in the last bubble I saw a bunch of crappy cars parked in these new subdivisions, now the credit is so loose that theses same non-credit worthy folks have 2 brand new SUVs parked in front of the $500k shitbox.
It would be interesting if the actions of con men via mortgage fraud led to the downfall of such well-monied institutions. Would that not constitute a massive (if painful) transfer of wealth from the super-rich to the middle and lower classes?
Since when does Joe 6-pack pocket 200K cash? Not until the recent MBS phenomena.
Very interesting. But what about the dollar? If all this is true, we’re heading towards 1 Euro = $5.
It’s all a plot to keep Airbus from selling here…
rotfl. Ummm… that discussion belong on a.net.
Dollar has been firming up for a week. Further declines to be expected, though.
Dead cat bounce
Losses to date on sub-prime mortgages issued in 2000 are about 5.5 percent, the worst tally ever”
2000 home loans are 6 years old and still above water
try 2003-06 = wowowowowowowowo !!
barney (smug -gay) - since he’s a gov protected species he can dis speculators-
all of us private folks speculate in some form
our time/blood/sweat etc………
Protected species indeed. Gays have to live explicitly assigned second class citizen status and it was only this year 2006 that the Supreme Court ruled against state governments taking our kids away on a whim. At the same time this subject has to be confronted here on this blog on a regular basis because everyone knows that the most notable examples of communities going from dumpy to gentrified involve gay men and their nesting instinct of vengeance or whatever it is.
Your bitterness makes me think you drank the tea leaves instead of reading them because having come out as a homosexual and dealt with several scandals Barney Frank has proven his capacities quite well and so is worth listening to. What he appears to be doing here is attempting from the start to cater to both the business community who do not want the government to start shaking things up and also to “no bail out” protestors from the grass roots.
Dream on. Barney’s got the lobbyists by the short hairs and he’s going to milk them for all they’re worth. Been a long time since Democrats have been in a position to shake the trees for dough and Barney’s no dope. He’ll get the money first and worry about regulations and such ….”in due time”.
Agree with you on the gays helping to turn dumpy neighborhoods around. I can see that very thing happening around me.
So, every time I see a car with a rainbow sticker in the neighborhood, I smile. Could be that some more fixup-motivated gay or lesbian couples are moving in.
This was a book or thesis about this recently - does anyone know the citation? The idea behind it was that “liberal” towns were economically healthier in part because the youth weren’t fleeing them. It compared a town like Pittsburgh (which was so unfriendly to me that I turned down a good job there) with a stilted economy and young people leaving for more opportunity, to a place like Seattle with a thriving art scenes, a night life and a growing economy. Part of the reason for this energy and opportunity was the gay and lesbian population.
Many people, for a variety of reasons, do not like gays and lesbians, but very few can argue that they don’t improve property values. And if you are a landlord (and yes, this is a stereotype but there is some truth to it) renting a home to a gay couple will probably mean you will end up with a rental that is more valuable than before they moved in.
And yes, although I have fears about the religious right fire bombing gay neighbors, I do hope to move into one someday.
The frustration over the cute guy next door having no interest in me offset by a well maintained neighborhood with neighbors I can really trust. (Based on my experiences.)
Going with the theme here…my parents were landlords (multiple properties) for over 30 years. The **very best** tenants were a gay (two men) couple. They actually fixed the place up and made it more beautiful than it had ever been — on thier own dime.
Personally, I’d rent to a gay couple in a heartbeat over a family with small kids (and I’m straght with small kids, so I know what I’m talking about).
10% drop? Barney Frank’s prediction reminds me of the old joke. Q: What do you call 100,000 [insert Christians, Muslims, lawyers as appropriate] at the bottom of the ocean? A: A good start.
Quite a sad display of moral equivalence.
Why is Barney Frank making such a statement in the news before investigations have taken place ? His statement shows that he has no clue how bad the lending was and how much the entire market was advanced by sub-prime lending with unqualified low down buyers .This isn’t just a little speculation
froth problem in a few bubble areas that a correction of 10% will cure .
Add republicans, democrats and catholics to that list. All share equally in the state of affairs.
Geez! Christians, muslims, catholics. I suppose if I added jews I’d have to go sit with Gibson & Richards.
What’s funny is that if you despise mankind generally, you’re a curmudgeon — a somewhat lovably comic creature. But if you leave some people *off* your s**t list, you’re a racist.
The problem with racism is not that racists think that people in other ethnic groups are nasty. They are, of course — we all are. The problem is that racists can’t see their own nastiness.
Although I’m always amazed how we’re no more enlightened today than 40 years ago when racism and bigotry were badges of honor. Need proof? Just listen to the ignorant stupidity spewed about those of the muslim faith.
I don’t think Muslims are terrorist-supporting fanatics. I only think about 100 million of them fit that description.
It takes a better-than-average religion to beat none at all, and I have a long list of religious flavors that fall on the left side of the bell curve. Examples include creationists and people who think that God called Jews pigs and monkeys and wants them dead.
Sounds like a personal problem Mark.
As they say…..’”crazy” comes in all flavours’
Right. My personal problem consists of not being able to take vicious anti-Semites at their word. Maybe you can suggest a good re-education facility?
I know it’s impolite to suggest that what people believe has any effect on their behavior, but ya know, e pur si muove and all that.
Islam is capable, in the hands of a decent human being, of being an instrument of enlightenment and goodness. In the hands of an idiot with serious sexual insecurity issues, not so much.
Imagine a Ferrari with a Saturn’s brakes and you get the idea. In the hands of Richard Petty, you get amazing results; in the hands of Nicole Ritchie, duck.
Er, Catholics are Christians
Since when?
What a humorously pointless argument. Of course Catholics are Christians. Mormons are too. They both have that whole CHRIST thing going on. Stop trying to draw lines where none exist.
There is neither Jew nor Greek, bond or free — there are only FB’s and smart people.
Back on topic…
“Of course Catholics are Christians. Mormons are too. They both have that whole CHRIST thing going on. Stop trying to draw lines where none exist. ”
Bahaha. Nice… Classic apologies for the pretend Christians. Tell us how Christian the known pederast Joseph Smith was? And what would Christ think of the loony catholic idea of a mere man, a priest as intercessor between you and God?
Nice try though.
If CC is smart enough to be a housing bear, he’s prime evidence that even a broken clock can be right twice a day.
Nothing like using strawman logic to deny the truth. But then again, ya got nothing else.
The only thing Christians and Mormons have in common is that they both claim to believe in someone called “Jesus Christ”. Christians have a holy book that was written by actual followers of Jesus almost 2000 years ago. Mormons believe in a pseudo-historical novel written by a horny American 150-odd years ago.
Islam is actually much closer in its beliefs to Christianity than Mormonism. It’s just that Muslims are up-front about being a different religion.
And BTW, it’s the Catholic church that established the Biblical canon in the first place, so it’s absurd to claim that Catholics aren’t Christians.
An interesting aspect of the mormons is that there are two churches. The eastern mormon church is ruled by the “seed” great great grandson of Joseph Smith. He has letters by Smith stating that only the “seed” of Smith can run the church. He claims he should control the wesern church in Utah that has all the money and 95% of the mormons on board.
The western leaders claim god picks their leaders through their council.
Mormons as individuals are some of the nicest people you could ever meet. Their religion and its leaders are all about control and money. Come to think about it aren’t all religions that way?
You know, Pa Bear, Mormon leaders are chosen from among the individual members, not from a professional clergy. So some dark magic must transform them from “the nicest people you could ever meet” into power-crazed greedheads.
Or not. It’s also possible that they genuinely believe they are doing God’s work. I’m not about to write “all religions” off that cynically. For every Jim Bakker, there’s a Mother Teresa. In other words, religious people, including religious leaders, include the same mix of saints and jerks as all of us.
Speaking of jerks, it won’t bother Mormons much if said species counts them in their little club or not. They know what they believe, and won’t lose much sleep over what a bunch of snake-handling Protestant fundamentalists think.
Speaking of which, it always amuses me to see evangelicals (most of whom trace their roots back to the Southern Baptist tradition) going ape over Mormonism’s founder having married a 15-year-old. The age of consent under the then-prevailing common law was 14, and the southern spiritual forebears of today’s evangelicals didn’t exactly give the rule a wide birth. Your Bible-believing great-great-grandfathers, in other words, very likely were banging away on girls even younger than Smith’s young wife. Pot, meet kettle.
typo — wide *berth*
Bravo, Tom.
It baffles me why some people (like CC) try so hard to invent enemies for themselves.
“Despite the growing dangers, Rep. Barney Frank, incoming chairman of the House Financial Services Committee, indicated he saw no reason for federal legislation to better regulate the mortgage markets to prevent a possible financial meltdown.”
“‘Housing suffered from irrational exuberance’ during the first part of the decade, though it fell short of being a full-blown bubble, he said. ‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”
Is Rep. Frank a poster on this blog?
His statement to me is spot-on. In the parts of the country not named CA, FL, MS, NYC, Vegas, Phoenix, etc. 10% sounds right as they’ll only suffer from trickle-down effect.
IMO, this is a big signal about how the plight of speculators will be viewed in DC.
Especially by the Democrats.
We can only hope the Republicans view speculators the same way. No bailouts, no handouts, let the invisible hand put a serious smackdown on the speculators.
I would think GOP would be more likely to bail out banks, not speculators.
Agree, Carrie Ann.
While I don’t support bailouts for the FBs, I’d really like to see some serious repercussions for those who started this whole mess in the first place — the lenders. Some prison time is in order, IMHO, along with heafty fines levied against all the corporate types who profited from this credit bubble.
Just like they do with the drug dealers…anyone (corporate/lenders) who gained via fraudulent mortgages should have ALL their assets seized, and this money should be used to help stabilize the economy when the effects of their “business” comes back to haunt us.
Yeah Ben, and regardless of party affiliation stuck speculators are going to be looking for handouts. If this dems stance then they are in trouble. But let’s wait until the crying gets forceful enough to change the windsock on capitol hill.
“IMO, this is a big signal about how the plight of speculators will be viewed in DC.”
That’s exactly how I read it. Frank wants to exert his authority early on and seems to be announcing low tolerance for bailouts of people who bought for “investment.” I wouldn’t be surprised if they hope to sort out who got screwed borrowing for their principal residence from all others, but I can’t imagine how they could accomplish that.
“His statement to me is spot-on. In the parts of the country not named CA, FL, MS, NYC, Vegas, Phoenix, etc. 10% sounds right as they’ll only suffer from trickle-down effect.”
You’re kidding right. I’m in the suburbs of Chicago and 10% wouldn’t even make a dent to bring the prices down to a 2001 level (which were up quite a bit from mid 90’s prices). We are not as bad as California, but still bad.
Example : a house we went into the open house of back in 2003 just came on the market again. (which was over priced at the time)
sale 1/03 $365,000
new asking price $759,000
they did redo the kitchen, the generic dark cabinets and granite counter tops, but no stainless appliances - doubt that warrants a $400,000 price increase
FED — remember the old half-joke about Greenspan being the most powerful person in the world, because he could collapse the economy by yelling, “Sell!”? In politics, it’s the same way. Frank may have a clue about the depth of the problem, but he cannot stand up and yell “Fire!” Not yet, at least, and not without his leadership’s approval.
I’m in total agreement with you on that, but I was responding to rj’s comment that Frank’s assessment of 10% was spot-on for areas other than the ones he (rj) listed
MS = Mississippi … you mean MA = Mass.?
“If a few speculators get burned, that’s just icing on the cake.’”
Apparently Barney Frank doesn’t read the foreclosure notices in his home town papers. I think Barney believes the “speculators” he cares little about are simply typical “capitalists” (people he loathes of course).
I predict Barney will be singing a different song as soon as it becomes obvious that those getting torched on these loans consist (more often than not) of the “little people” to whom he has devoted his life in public service. And when the mere “10%” decline in prices he suggests is shown to, yes, be a full blown bubble, he will look like a complete, arrogant, fool.
I don’t think Frank is stupid so his remarks surprise me. I have a feeling he’s already in bed with real estate and mortgage lending lobbyists who have promised him (and the new Democrat congress) the world to keep regulators off their backs.
I think Barney figures he can bamboozle most people with his intelligence but that’s mainly because no one in Massachusetts media questions anything Democrats say or do. Watching him contort himself to please his new lobbyist masters while paying lip service to his “little people” constituency he has so much “compassion” for should make for fascinating reading over the next year or two.
and I bet rep. frank doesn’t use bookmarks either. he perfers to bend over the page.
He might well do better joining the large ranks of gay republicans.
republiqueers?
Not a homophobe here. Surely have a powerful aversion to hypocrites though.
I like hypocrites. The fact that a man betrays his principles is evidence that he still had some, which is more than most people can say anymore.
large ranks of gay republicans?
How would you know?
You have a problem with the log cabin republicans?
wow, why you so defensive Cap’n?
I have no agenda to defend. Do I sound defensive?
And when the mere “10%” decline in prices he suggests is shown to, yes, be a full blown bubble, he will look like a complete, arrogant, fool.
His “defense” will be the same one that all the politicans used regarding the lack of weapons of mass destruction in Iraq: “all the experts agreed at the time.”
And for the most part he’s right: who outside of blogdom is predicting 40% to 50% real declines in the bubbliest markets, despite the fact that that’s exactly what happened in the early 1990s after a much smaller bubble?
Sometimes the “establishment” are willfully ignorant because admitting the truth means publicly accepting that a disaster is on the horizon about which nothing is being done, as opposed to being blindsided by a disaster that “no one could have predicted.” Think Katrina versus 9/11. After the latter, for the most part the nation rallied behind the government. After the former, most of us poured scorn upon it.
“And for the most part he’s right: who outside of blogdom is predicting 40% to 50% real declines in the bubbliest markets, despite the fact that that’s exactly what happened in the early 1990s after a much smaller bubble?”
There are some, even on this blog, who will deny the 45% haircut the northeast saw in the early 90’s. The illness called denial is pandemic now.
I want to be educated - can you back up the 45% haircut with some any statistics?
I know it’s going to be different during this downturn (no two are ever exactly alike), but if i could get some good info like that about that last downturn it would be helpful.
In the past speculative property values have reverted to historical means by way of values below historic means. Where exactly historic means are gets tricky to measure, in part because it is most closely associated with inflation which is complex and also increasing.
I got my RE lic in the early 90’s. About all the work I did was with guys that bought foreclosures at the courthouse, they would pay 30-40k and I would sell them for 55-60k. The others were sales we made for contractors that were flipping houses to pay the bills because there was NO CONSTRUCTION WORK. They were happy to make wages and incur the holding cost involved.
In 92′ I sold to one of my few home owner/residents a beautiful big brick home on a large corner lot that didn’t make a good rental. It was a bank owned property REO, they didn’t want to auction such a nice home at the court so they listed it with an agent.
Nice 2-3br homes in the area were 55-65k. Rents were 550-650/mo.
The home in question was much larger and nicer than others and sat for a long time. My buyers paid 86k and I got them a few thousand in closing cost. I was shocked when I viewed the tax records for the previous buyers that lost the home in foreclosure paid $170k in 89′.
The same home $170k in 89′ $85k in 92′.
I was shocked and asked my boss about it his reply “that was the market then”. This was one of my most valuable learning times in my life.
I envied the guys making 20k in 2 months from the foreclosures they were doing and me being broke and I was shocked at the screwing the couple that paid $170k for an $85k home took.
There is no mercy in capitalism, caveat emptor!
Rich — nice anecdote.
“There are some, even on this blog, who will deny the 45% haircut the northeast saw in the early 90’s. The illness called denial is pandemic now.”
Prices have already fallen 9 to 20%, depending on who is counting and what the metric is. I can easily see another 30%, maybe as much as 50% to bring the market back onto its historical values.
People, even on this blog, are in denial because they have looked at rising house values for the last 5 or more years. But if you look at history, we are way, way over valued.
And no, its not different this time !
Plenty outside of blogdom. As I noted further up in this thread, Morgan Stanley and Merrill Lynch and Credit Suisse are all calling for multi-year hard landing in housing.
As a previous poster said, it is irresponsible, not to mention politically stupid, for any elected official to issue forecasts for housing, the stock market, or any other financial market. The reason Frank is talking about a 10% decline is that the markets are down that much already, so he can’t be blamed for it.
The comparison to Iraq is completely bogus. Getting the facts wrong about the present is one thing. Nobody can predict the future performance of financial markets, and it is most certainly not the job of politicians to do so.
Agreed, someone needs to remember that quote.
As a Georgist, I have to say that *land* speculators serve to *impede* true capitalists.
But I agree that Frank comes off as a fool.
“‘Housing suffered from irrational exuberance’ during the first part of the decade, though it fell short of being a full-blown bubble, he said. ‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”
Jeopardy answer: What would an idiot politician say?
LOL
Well, in 6 months or so, his tune will change. It will be interesting to see which polticians step to the plate, and which are paraylyzed with confusion and fear.
Politicians count on the fact that after 90 days, few people remember what you say and after 6 months, virtually no one does. That said, it will be interesting to see how they deal with all the bloggers who remember what they said — a relatively new phenomenon.
I have a question for everybody.
Do you think that all the economists and professors and bankers and top executives that are quoted in the media are really pretty dim and just can’t see basic economic trends? Or do you think they really do see how bleak things look but are simply not in a position to speak freely due to institutional pressure or economic self-interest? Which is it?
I mean, people on this blog have called economic trends fairly well for the last couple of years. But the so-called experts are constantly expressing surprise at events. Or, worse, they seem to be cheerleading for positive outcomes when the facts indicate negative outcomes.
Maybe there’s something about climbing the ladder of success within the academic or government or corporate or big media world that trains a person to not rock the boat under any circumstance. If anything, I think the fear of rocking the boat eventually becomes so pervasive that sound judgment and good sense are lost.
Most of them have vested interests and do not give unbiased reports on anything. There are only a handful of these experts you can really trust. Look at all the crooked brokerage firms that pump stocks they have some sort of ties to. Do your own homework and learn as much as you can from people.I think a smart person is one who realizes he does not know everything but does know how to extract information from more knowledgeable people.
Speaking decisively against conventional “wisdom” is anti-social, is it not? Everyone here knows what they encounter when they merely utter dissent to the odd individual they meet.
Now its easier if you are a well established (and independently rich) “expert” or tenured academic. But you run a huge risk if you are wrong and even if you are right when your forecast of doom comes true…..who is going to really appreciate it?
They kill the messenger, historically, don’t they? Its a sad fact of human nature that we hear what we want to hear and overcoming this reality is pretty tough to do. I try to combat my own “confirmation bias” by looking for and analyzing the arguments on the other side of the debate we find here.
Do I manage this process effectively? Do I temper my bias reasonably and analyze the “facts” dispassionately and productively? I won’t know for some time and I may not every, really, know because the outcome I’m assuming may actually be realized because of a factor I am (currently) totally unaware.
So, no, I don’t think these guys are all idiots or tools (though some surely are). Most are just human who get swept up in an emotional tide and/or don’t have the courage to speak against the grain for one personal reason or another. And some do need to be heavily qualify what they say because, in their position, their words can have exaggerated impact. James Baker, in 1987, single handedly crashed the market when he said we wouldn’t support the dollar. Now he was/is a dope. So, particularly if you are “powerful” you are kind of damned if you do speak out and damned if you don’t. Is it any wonder that you won’t find many people, anywhere, on any subject, taking the extreme position?
Its mostly a lose, lose proposition.
The Greeks realized this about human nature centuries ago: Cassandra
Yup, I reread the Iliad not long ago. It was right around the time when we were getting ready to invade Iraq. I sure felt like her then…
Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
From Wikipedia
Well, there’s always the “regulation theory” of capital to explain their behavior. As the primary agents (cheerleaders) of capital, the academics, economists, bankers, et. al. you mention do have a vested interest in holding the whole mess together. Their job in this debacle is damage control. It is not that they cannot see what so many here already see, it is that they must ensure “the system” survives this crisis. As they are above the fray it is so much easier for them focus on the big picture, their eyes are already on the “next big thing”. Now, they merely have to work to keep “the system” from shaking itself apart until this particular crisis abates.
This was posted in the bits bucket:
‘In Today’s 8-K Filing: Under the listing standards of the New York Stock Exchange, or NYSE, the NYSE may initiate suspension and delisting proceedings when a listed company such as Fannie Mae fails to file an Annual Report on Form 10-K, with the Securities and Exchange Commission, or SEC, in a timely manner. Fannie Mae has not yet filed its Annual Report on Form 10-K for the year ended December 31, 2005.’
They should be delisted but heads would role if they were. They are still trying to get the books straight and hide all the crooked endeavors they undertook.
They should delist. Oh, I can understand a 60 day waiver, once every 5 years, but that’s it. delist and wake the idiots up.
Much as my 401k would probably cry, I have to agree. Avoiding imposition of the delisting penalty just makes it look like an empty threat, at least for companies “too big to fail”. When they get their books back, if they do, then they can relist. But oh, the creams of ainancial pain in the meantime! Do you know how many mutual funds have FNM? Probably yours! :-O
That would be nice for my soon to be worthless FNM Jan 2007 Leaps!
FNM is much too large to be delisted. End of story. Same as when the Nasdaq threatened Apple with being delisted over a late 10-Q. No one is going to be sent to the pink sheets.
FNM will probably set a record for how long you can go without making required filings and still be listed. NYSE keeps granting waiviers, and life goes on.
OT: North’s piece is a good read IMO.
http://www.lewrockwell.com/north/north495.html
It’s an interesting read, but I don’t agree that the FED will re-inflate again. Reserve currency status is too damn important. There will be deflation first.
Hahahh, the optimist! You had better buy flowers for the US reserve currancy status. It now cost $9 for a cup of coffe in Europe.
The more you read about this impending RE crash, the more one begins to realize the potential for a massive financial disaster. If our foreign investors ever decide to pull the plug on our Treasuries, this boat is gonna go down fast!
I hope it gets really bad really fast. I’m tired of belonging to bubblehead cult, when is jesus… errr i mean the crash coming ??
We should become a gov recognized religion for tax breaks (better than writing off mortgage interest). Form churches in half-completed luggshury condo skyscrapers, main branch in FL of course.
Who is with me my fellow JBR’s!?!? Join the Church Of Bubbleology! Maybe Tom Cruise will switch over….
Foreclosurus Dei, qui tollis debita mundi,
Miserere nobis!
OK, the next “worst is over” statements are going to be about MBS defaults being limited to the lowest tranches of issues backed by subprime mortgages. (Who owns those, the issuers?)
So why and when and how does the contagion spread?
Well, I think a lot of the “lowest trances” are the last marginal buyers’ second mortgages that makes up their down payment. IMHO, what happens is that the second mortgage market dries up and down payments become required again to get a loan. And that takes even more buyers out of the market, and makes it harder to refinance…
A tranche is a layer. Take 100 mortgages (that you expect 3% to losses on normally and 10% in bad times) and split them in to 4 layers of say 80% 10% 5% and 5%. Then assign losses to the five percent layers first and then the 10% layer then the 80% layer. You have taken a whole lot of risk out of 80% of your paper and probably reduced it substantially for the 10% (incidentially you’ve created something that risk seeking investors will love (a shot to bet that this will be a 3% batch rather than a 10% batch for 8 points over LIBOR). The 5% buckets are the lowest tranches (alternatly called equity, support, or Z tranches). The 80% will almost certainly earn a AAA rating from all houses (and the 10% Tranch would be investment grade).
Bluto — thanks very much for the concise but very comprehensible explanation.
Careful there, Z tranche referes to zero coupon principal only tranches that sit behind planned amortization class (PAC bonds). Z tranches are mostly bets on prepayment speeds. Z bonds are a feature of some securitization of GSE (Fannie Mae/Freddie Mac) mortgages.
The Z tranche is zero coupon bond with a varible life between a starting point and the end of the pool life. It represents all the remaining principal that has not been pledged to support other bonds.
Remember that residential mortgages have known maximum life (30 years) but no minimum life (since you can sell the house or re-fi).
Imagine $100 of GSE mortgages (No credit risk).
Dollars 1 through $20 belonged to class A-1,2,3
Dollars 21 through 40 belonged to class B-1,2,3
….
Dollars 80 through 100 belong to class Z.
In this design, class B-3/2 would be prepaid before B-1 thereby helping class B-1 have a fixed life.
If prepayments are too fast, then bonds have to be called in, and that greatly annoys bond holders. Chances are your old bonds were for 6.5% and all the FBs refi’d into 1% Option arms so your nice AAA bonds got called in, and you have to reinvest at 5.5%. A disaster.
In 2004-5 several pension funds that owned Z tranches got a real surprise when Z bonds from 1999-2002 that werent supposed to be paid for 20 years, got paid off in 5 years, resulting in some very impressive IRR’s.
Does anyone know how to play the dollar decline? Or is it too late?
I have the same question. The experts said the dollar could go no lower about a year ago, but here we are. If a recession hits and the Fed somehow lowers rates again……
You can get your head torn off real fast in a futures contract.
I was thinking more in terms of investing in or buying options re foreign currency, any ideas on that?
Options are available, there are many ways to play. One that I like is buying foreign stocks (not US listed issues but DRs) A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly-listed company. The DR, which is a physical certificate, allows investors to hold shares in equity of other countries. One of the most common types of DRs is the American depositary receipt (ADR), which has been offering companies, investors and traders global investment opportunities since the 1920s. (from investipedia)
Be careful. About a year or year and a half ago here, a few fellow posters recommended buying CDs denominated in New Zealand dollars or Icelandic krona. Both subsequently tanked.
They said the same about mortgage rates.
buy a condo.
or three…or gold, that would probably be a better idea
Huh?
lol
Not too late by any means…
Buy gold, in Euros it will stay the same, pricewise and you’ll be protected against the fall in the Dollar, quite nicely. Don’t buy gold stocks, buy the real deal. Kruggerands are the cheapest vehicle going and the spread between the buy and sell is around $10.00 or less, depending upon how much you buy.
You’ll distance yourself from 99.9% of the population that has paper/electronic investments. Stray from the herd.
No, it isn’t too late. The simplest, easiest, and safest way is to buy gold. However, you must avoid margin: pay cash and take delivery.
I’m curious…
How many of you have ever held gold (in bullion form, coins, or ingots) in your hands?
I have silver and palladium bullion. Although it has risen in value, I’m not sure how great of an investment it is considering it’s collecting no interest and you can never sell it for anywhere near the spot price.
Silver was $5.00 forever, the past 20 years and is now close to $14.00, so i’d say you earned a “little” interest. If you are dealing with a reputable firm that buys and sells precious metals, the spreads are quite tight and everything tends to sell near the spot price.
Sell on Ebay, you get PREMIUM over the spot.
Hey, you want to sell at spot, sell right here, if Ben allows it! There are many Goldbugs lurking here.
I’ve noticed that, ebay buyers are idiots, considering you can go to Northwest Territorial Mint’s website and buy cheaper with no shipping charges.
I don’t know. Builders are now offering incentives including gold-plated fixtures… would this not make new homes inflation-hedeged investments? NAR has one more reason to say now is the time to buy. They always win, its not fair! Damn that Lereah!!
I have a nice collection of Maple Leafs and a Krugerrand I bought in 1975 to put on a chain
I have, in quantity maybe three times over the years. Have some now. Incredibly heavy for the size. Feels nice, like an expensive steering wheel.
Caveat:
Should you decide to buy gold, in phyical form, you’ll be buying from a coin dealer and they’ll try and sell you numismatic (collector oriented) coins, in lieu of bullion, as the spreads are much larger.
Don’t do it, and besides, if the you know what hits the fan, there will be precious little money chasing a PCGS graded MS 66 Seated Quarter that has $2.50 worth of silver and is “worth” $4500.00, or other coins, in the same realm~
Put your money where your mouth is : buy yourself some gold teeth.
You could do any of the following:
1. Buy gold.
2. Short the DX futures or buy puts on them.
3. Buy the Rydex or Profunds funds that bet on a declining dollar.
4. Buy foreign currencies that you think will appreciate against the dollar.
5. Buy investments denominated in foreign currencies, e.g. foreign stocks or mutual funds that invest overseas.
6. etc. etc. etc.
As to whether or not it is “too late”, that’s up to you to decide.
Thanks
I’ve taken path number 5. It’s less of a commodity play and more of a business play–I believe that foreign stocks will rise significantly more than US stocks in the coming years due to reasons other than currency (globalization enabling access to relatively cheap human capital, leading to new consumer markets, etc. etc. etc.), that also has the benefit of being out of the dollar, but should move up even in the face of a rising dollar.
Becareful on the “international” investments front (especially funds), most international investments would be better termed global. In companies like Nokia, Toyota, Nestle and such that have tons of operations (and plenty of much more difficult to percieve currency risks) globally. If you are investing specifically for currency exposure you should buy local companies (retail, banking, utilities) and probably ones that pay fat dividends. Alternatly you could look at US headquartered companies that have mostly international operations (the classic example is Coca-Cola which does the lion’s share of it’s business in foreign currencies, but there are many others).
“Does anyone know how to play the dollar decline? Or is it too late? ”
Just exchange some dollars for another currency that you think will strengthen v. the dollar.
Is there a way to open an interest bearing account with the foreign currency, without leaving US soil? I’ve called Credit Suisse and some others, and they all expect me to get on a plane to their home country. There’s got to be an easier way to do this?!
LAIG,
Go to my Money and Metals site, click through on the Everbank icon in the sidebar and you can set up a US, FDIC insured account in just about any currency you want. Foreign denominated CD’s too. If you go through that icon, they throw me a bone and it doesn’t cost you anything.
Bone thrown, Merry Christmas. And they’ll even give me a home loan
Interest-bearing investments in foreign currency: have said many times I am buying Australian government bonds. SAME THING as U.S. Treasuries, except in this case, it’s the Australian Treasury, the Australian dollar, and the rates are running around 5.4% on 7-year maturity. The AUD has risen significantly against USD in recent months, but this week USD is stronger. Exact timing is your problem. Both Australia and NZ have raw materials to export to China & India, so do not have the same balance-of-payments problems that we have here. Naturally AUD & NZ sovereign debt is AAA rated, i.e., no risk of default. Just the currency play, however it goes. One poster here reports bad historical experience with NZD. Certainly fluctuations will occur even if we believe USD is the final loser.
All fiat currencies (paper, backed by nothing) are screwed. The Swiss Franc might do better than most, since they still have decent gold bullion reserves and are wise enough to keep to themselves in their mountain fastness.
“Does anyone know how to play the dollar decline? Or is it too late? ”
Just exchange some dollars for another currency that you think will strengthen v. the dollar.
The USD is still above where it was in Dec 2004, so no panic. I predict that it will hit 1.36 and then rebound. I would buy GLD in the low 600s (now!?!?), maybe. I got out of Euros and bet on the Yen, which was a mistake. Still, the Yen is grossly undervalued and I am accumulating on dollar strength (i.e. 119+). In the long term I still hope the Yen will revalue against both EUR and USD, but the BOJ is frustrating me with their lack of tightening. Another thing, the stronger Yen (if it happens) will parallel a potential breakdown of global liquidity, which is going to hit all other investments. Mark my word. I have also dabbled in Japanese equities including the EWJ.
1) By the time you read about it, it is too late.
2) Pimco’s unhedged foriegn bond fund (PFBDX) gains (loses) alot from moves in the US dollar. It is IMHO the best way to add FOREX exposure in a constructive manner. But becareful, it bounces alot.
As this nice chart shows, PFBDX has alot of bounce from its exposure to global currencies. PFODX is the same fund, but US Dollar hedged.
As you can see PFBDX is up a fair bit since the dollar started to tank in october.
http://gewinnvortrag.blogspot.com
“Consider an investor who puts $30,000 down on a new $500,000 house, either under construction or not yet built. For such a buyer, it might be cheaper to default on the sales contract”
The sales contracts for new homes often include a clause that requires the buyer to make good on any difference between the contract sale price and they price the builder gets from a new buyer if the buyer walks away. For example, if you had a $10,000 deposit on a $800,000 house, and later decide to walk, and a new buyer comes along and buys for $700,000 (falling market), not only are you out your $10K deposit, you also owe the builder $90K.
I don’t see the builders being able to actually collect on these clauses. First of all, the buyer who walked away most likely does not have $100,000 to fork over to the builder and would file bankruptcy if payment were pursued. Also, they would no doubt take their contract to a lawyer to make sure all was fair and legal. Considering the reports we’ve read about builder sales agents doing some sleazy things during the sales process (misrepresentations, etc) these contracts might not hold up in court at all. It would be a nasty legal battle all around, but builders certainly shouldn’t assume they won’t be assuming any risk here. And any buyer who signed a contract with this provision should kick themselves for taking on unnecessary risk in their haste to be the first to overpay for a particular house.
You got to be kidding me that the builders had those type of clauses? I wonder if during the frenzy if borrowers/purchasers were screened for being willing to sign without a attorney checking the fine print .
All that rah rah stuff with people waiting in line to buy some hyped up POS discouraged normal contract reading . They made people feel like you won the lottery if you got a chance to sign on the dotted line .
I wonder if a lawyer could launch a defense of “Duress Under Mania Circumstances “. I don’t know , I just think the loss of a hefty deposit should be enough punishment ,unless it was a small builder who was under contract to build a specific custom home for a client or something like that .
It’s going to get interesting because Contract Law is so strong usually .
If you waited outside overnight to be the first in line to sign a contract, the builder probably did not let you take the contract home and show it to your lawyer before signing.
For such an awesome investment opportunity maybe people brought their lawyers along to camp outside with them - you think?
It was a set up for a one-sided contract for sure .
In addition ,I have never seen deposits this large to hold a tract homes. You see the builders reducing the deposit requirements now on tracts .
The whole mania was a one-sided frenzy in favor of builders and sellers and now it’s turning the other way, and it will be just as bad .
One of these days in the far future we might have a normal market .
I’m surprised the contracts do not have a liquidated damages provision, making the deposit pre-agreed damages for a default.
Right I can’t believe that one either on tract homes . Talk about a one-sided contract ,yet people were willing to sign those turkeys . Course people were willing to wave property inspections ,go into bidding wars and write letters begging sellers to take their offers . Manias make people nuts ,so does easy money .
The Washington Times isn’t generally considered part of the “mainstream media”, but this is about the most unvarnished look at the looming disaster that I’ve seen outside the blogosphere. Anybody who reads this and still thinks it’s a good idea to catch the falling knife deserves everything they get.
Washington Times and mainstream media in the same sentence? BAHAHAHAHAHAHAHAH!
You said a funny!
Blind partisanship is just SOOO exciting… :rolleyes:
Agreed ChrisO. When the average Joe unknowingly begins spouting lies to support an ideology, you know we’re in trouble.
Considering how screwed up, lazy, biased, ignorant, and incompetent the MSM is, that’s a compliment to the Times!
You know, a lot of people (mostly Angry Lefties) rag on the Times, but it’s partly for articles like this that I keep up a subscription to them. Yes, I do get the Post and WSJ, too, in case you’re ready to brand me a fire-breathing, rabid, right wing nutter!
One of the nice things about Washington, I think, is having both the Times and the Post. Not as good as a place like London, of course, where I could buy five different newspapers and spend a whole rainy Saturday morning by the fire, but it’s good to have some competition in the editorials and opinions, especially.
NoVa -
saw your post about your apt situation. It sounds like it all worked out OK. also sounds like you had enough “ammo” that you didn’t need your connected neighbor!
Whoops, you must mean the other NoVaSomething, not me! Now which one was that… hmmm…
Novasold! - ( I think)
tx for clarification
not me…don’t live in an apt…have no ammo at home.
“‘No securities market can stand if we do not have true disclosure, and we do not have true disclosure’ of the growing risks of exotic mortgages, said Mr. Ranieri. ‘This stuff doesn’t just get sold to [professional] money managers. It gets sold to the public and to foreign investors who don’t have a clue what to look for.’”
Investers ought to invest more time reading here…
I remember learning about Ranieri when I read the book “Liar’s Poker,” which is an excellent history of how the mortgage bond industry was created.
I keep thinking back to that BusinessWeek article that talked about toxic mortgages. What blew me away was that WaMu gets to book profit on the fully amortized payment, even if the buyer only pays the neg-am minimum. Do the idiots buying the MBS know this, or do they think all these sub-primes are actually paying in full? If so, would they STILL buy these POS MBS?
No wonder places like WaMu are so flush in “profit.” If there’s going to be regulation, maybe Congress ought to make these companies report what they actually make, not what they think they’re going to make 10 years from now. Too bad I can’t do this with MY checking account. I’d just deposit my 2015 income and go buy an Escalade.
This booking of phony profits is right out of the Enron playbook, only on a MUCH bigger scale. Many thought Lay, Skilling & Co. (now read as WaMu, et. al.) were financial geniuses as the investment world watched Enron “profits” increase nicely each quarter. Then we finally found out that the true, massive losses were being hidden in “partnerships” and other schemes (now read as “phony mortgage payments on toxic loans”) and the whole house of cards came tumbling down.
My question is, when will see the new Sarbanes-Oxley Act for the RE industry?
Too bad I can’t do this with MY checking account. I’d just deposit my 2015 income and go buy an Escalade
Would that make you an “Escalader?”
Yes, but the same reason they can book profits without cash, other businesses and individuals that loan a money without current payment of interest (accrual of interest) pay taxes on interest not collected as well.
Let WaMu book the interest not collected as income for all I care, it may not be disclosed on page one of the financials, but at the end of the day, the information is there via cash flow statements, etc., and in the meantime, they pay income tax on the “profits” that they may never get to keep. Of course, they’ll take losses later that will reduce taxes paid at that later time, but in the meantime, the government gets the interest free use of their tax money.
‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”
While I agree on the speculators, where does the rather round and unnassuming number of 10% come from? Prices are up from 97 as much as 200% to 300% in many bubble areas in just 7 years, so why 10%? Why not 7% or 15% or more likely 50%? The fact is that even if prices level off, the results will still be massive foreclosure activity, which will then lower prices substantially…
He knows prices are going down like himself on a page, but he doesn’t want to scare the sheep (there’s another joke there somewhere), who tend to kill the messenger. Similarly, he can castigate “a few speculators” rather than blame the vast majority who gleefully participated in the bubble.
LOL
“Treasury Secretary Henry Paulson said the government wants to issue guidelines to banks and savings and loans that will allow people to get home loans ‘without taking unnecessary risks.’ ‘We do not want Americans to become overextended and see their dream end in foreclosure,’ Paulson said.”
The treasury secretary is from Illinois, so I am sure he realizes the futility of shutting the barn door after the horses have already run away.
“There has been much discussion about the value of also requiring a worst-case payment disclosure based on the loan’s interest rate caps. Some believe that such a disclosure would provide consumers with useful information to assess the affordability of a particular loan. Others assert that disclosing a worst-case payment has “shock value” that would alert the consumer to the loan’s inherent risk. Some industry representatives question the usefulness of the disclosure, particularly if the worst-case payment would occur so far in the future that the consumer’s payment is unlikely to reach that level before the home is sold or refinanced. Others argue that if the disclosure is provided, individual consumers will be able to evaluate for themselves the relevance of this information in light of their own financial circumstances.”
Federal Rerve Board Testimony of Sandra F. Braunstein, Director, Division of Consumer and Community Affairs
Non-traditional mortgage products
http://tinyurl.com/y2uk3x
The government in its many tentacles are doing an enormous CYA. Make sure blame is put on industry and your government is not at fault.
I thought the Fed was supposed to regulate lending activity? Or was that only back in the 20th century?
Ya woulda thunk it, but it seems to lil ole me that in future testimony will read like “we just followed the recommendations of the committee to obfuscate the work that we do not do”. If it were not so serious a concern I would laugh, as I am reminded of Monty Python’s famous skits on “The Department of Redundancy Department” and “The Bureau of SIlly Walks”.
“Some would rather give up sizable down payments than be stuck with a house bought at the top of the market, Pressly said. Consider an investor who puts $30,000 down on a new $500,000 house, either under construction or not yet built. For such a buyer, it might be cheaper to default on the sales contract, Pressly said. Losing $30,000 might seem the lesser of two evils, he said.”
I would say that it would be cheaper to rent, even if rental inflation is running 5.8% / year (as reported in today’s SD Union Tribune). Besides, Ben Bernanke has planned to keep a tight reign on inflation, so I know that 5.8% / year rental hikes will soon be extinguished by the Fed’s monetary fire hose. (Oops, looks like that hose is pumping gasoline, not water…).
If rental costs are rising at 5% a year that will lift the FED’s “inflation” model. Remember friends, that the FED’s model does not measure the rise in the price of a house…even though 70% of people own them. The FED has used rental rate increases for the CPI. This allowed them to understate the CPI or “inflation” over the last ten years and justify extremely low interest rates. It is probable that the housing bubble even forced the rental component down as people left renting to buy homes. The cost of renting is around 35% in the FED’s model.
As stated before the 10 year bond recoiled off the 21 year tops downtrend line at 5.25% in June, 2006. I expect that line to be broken to the upside at some point over the next 18 months. Next resistance is 6.5 to 7.% on the 10 Year. That equates to an 8-8.5% morgage rate. That is the environment for a true RE crash.
A break of the 21 year downtrend line will mark a historic change in monetary conditions. The downtrend coincides with the Reagan Revolution and republican dominance over the last 20 years. The world and our nation are moving to the left again and this will make the cost of funds higher.
The immediate reason for such a move? An eventual run on the dollar or higher interest rates due to “inflation” as the FED uses rental rates to measure prices…even though housing prices are falling.
This post is so full of information, actual information, that its shocking ! People are finally starting to talk about the issues, even though it is way, way too late to do anything about them.
“Losses to date on sub-prime mortgages issued in 2000 are about 5.5 percent, the worst tally ever”
Just wait until the 2005 loans age a bit ! Seriously, if the market continue downward and people can’t refinance, the 2005 MBSes won’t be worth the paper they are written on !
Unfortunately, it’s always too late. That’s how the rich get richer. They are busily trading away all the bad stuff that they will announce they have spotted, well after they are long gone.
For the near term, fortunately, there are blogs like Ben’s to shine true light on most any topic. Blogs are just too free for Leviathan, though, and I predict that in less than a decade, governments will have effectively shut them down through intimidation, harassment or censorship, all in the name of something sold as “for the good of the state.” Governments, politicians, and the people who pay them off, do not like truth or competition.
Blogs are just too free for Leviathan, though, and I predict that in less than a decade, governments will have effectively shut them down through intimidation, harassment or censorship, all in the name of something sold as “for the good of the state.” Governments, politicians, and the people who pay them off, do not like truth or competition.
————————
I worry about this as well, Chip. Seems that blogs pose too much of a threat to the well-connected PTB. Can’t have the sheeple reading up on how the economy works and seeing for themselves the massive fraud involved in so many aspects of our financial system. Best they stick to watching their favorite sports teams run and throw balls around…and then there’s always “American Idol”. Keeps the sheeple happy and out of the business of “business”.
Yes, after reading this blog for a few hours I too want to get back to “reality.” It’s just too hard now to stick your head back in the sand. Can’t I please just go to my happy place?
Countrywide Financial foreclosure upticks:
Sept. 06: 0.52%
Oct. 06: 0.56%
Nov. 06: 0.60%
Big drop in pay option production: $3.2 billion versus $7.9 billion yoy
“The risk of a financial crisis is growing as home prices continue to fall and questionable mortgages made in the past two years go into default, finance officials warned yesterday.”
When this episode enters future history books, will it be referred to as a “crisis,” a “collapse,” a “panic” or a “correction?”
I like the idea of calling it a “Panic”. It will be the Centennial of the “Panic of 07′” from last century, next year, and it will be totally appropriate, as everybody that bought in the past few years will truly
fit the wording~
“‘No securities market can stand if we do not have true disclosure, and we do not have true disclosure’ of the growing risks of exotic mortgages, said Mr. Ranieri. ‘This stuff doesn’t just get sold to [professional] money managers. It gets sold to the public and to foreign investors who don’t have a clue what to look for.’”
Good thing Fannie Mae’s stock always goes up…
“‘Housing suffered from irrational exuberance’ during the first part of the decade, though it fell short of being a full-blown bubble, he said. ‘The end result of a 10 percent drop in many parts of the country will be a more rational housing market. … If a few speculators get burned, that’s just icing on the cake.’”
I like that.
Cool.
Cow_tipping.
‘“Fitch Ratings said its ratings outlook for sub-prime mortgage bonds is ‘negative,’ with the expected number of its downgrades to exceed the number of upgrades next year. Delinquencies, which have risen 50 percent from last year, should climb another 50 percent next year, it said.”
They are underestimating the increase by a factor of 3 or 4, perhaps an order of magnitude. If these people are serious, and not just doing panic prevention with this talk, the markets are in for a huge blow in 2007.
Buy Gold? Do you know which country is the number one buyer of gold? India. Now if the US economy tanks, what will the impact be on India? I am very involved in the outsourcing business and India is heavily dependent on US outsourcing. If the economy goes south here it will not help India’s economy, Indians will quit purchasing as much gold and there goes the price.
This whole interdependence thing will leave little unscathed in a downturn.
One funny thing about owning gold, in a physical form, is:
You must pay, in entirety, to receive it. No credit cards are accepted, usually, for payment. Cash or check, no flimflam i.o’.s or a.r.m.’s gonna work on this gig, you gotta be real to buy it.
It’s only been the ultimate fallback position, in terms of retaining wealth now, for many thousands of years. We just forgot about it, 4 generations ago, when the whole world fell apart.
You’ll see just the opposite reaction in the coming depression. There will be a flight from any paper money, (don’t delude yourselves thinking any of it is going to be the “stand alone guy”) to a reality based wealth and gold has never tarnished, nor ever will.