“It’s Like A Freight Train Coming At Us Full Bore”
Some housing bubble news from Wall Street and Washington. “Standard Pacific Corp. said Thursday net new home orders for the first two months of the year fell 19 percent, hurt by weakness in Florida and Arizona, two of the markets hardest hit by the national housing slump. Standard Pacific used what it called aggressive pricing to wring a 40 percent increase in orders in California, another market where home prices have tanked and sales have slowed.”
From MarketWatch. “Countrywide Financial Corp. was the subject of a report in Friday’s Wall Street Journal that said the largest U.S. home mortgage lender saw a sharp increase in late payments in 2006.”
“The WSJ said the company disclosed in a filing with the Securities and Exchange Commission that payments were at least 30 days late at the end of 2006 on 2.9% of prime home-equity loans Countrywide serviced, up from 1.6% a year earlier. In addition, payments were late on 19% of subprime mortgage loans at 2006’s finish for Countrywide, up from 15.2% at the end of 2005, the paper said.”
The Orange County Register. “Troubles keep piling up for mortgage lender New Century of Irvine. Today it announced that its 2006 annual report will be late because it hasn’t yet been able to sort through the accounting errors it made in connection with bad loans. The company will ask the Securities and Exchange Commission for an extension.”
“New Century Financial said it cut 300 jobs on Thursday, or about 4 percent of its work force, including 124 positions in Irvine, as the shakeup continues in the subprime industry.”
“The company said it has not ruled out more job cuts. At least two analysts have said New Century could face a cash crunch if more than one investment bank stops funding and buying its loans.”
The Associated Press. “The cratering of the subprime mortgage industry could present more than just a pothole for General Motors Corp.”
“The world’s largest auto maker disclosed Thursday that it will need more time to file its 2006 annual report with the Securities and Exchange Commission, marking the second year in a row the company has postponed the key filing.”
“‘We continue to believe GM equity is complacent about the potential impact of such subprime exposure,’ Bear Stearns auto analyst Peter Nesvold wrote. He said the weakness at GMAC due to subprime problems is one of the key risks facing GM.”
“At the end of the third quarter, ResCap, long viewed as the crown jewel in GMAC’s businesses, held $57 billion of subprime mortgages for investment, or 77 percent of its total loans held for investment. Its exposure to ‘residual interest’ in mortgage securities, the high-yielding slices that suffer some of the first losses if loan defaults are higher than expected, was $1.4 billion as of Sept. 30.”
From Bloomberg. “Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.”
“‘These guys have made a lot of money securitizing mortgages over the years in a mortgage boom time,’ said analyst Richard Hofmann. ‘The question now is what is the exposure to credit risk and what are the potential revenue headwinds if they’re not able to keep that securitization machine humming along.’”
The Wall Street Journal. “The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.”
“A record $400 billion of these midlevel loans, which are known in the industry as ‘Alt-A’ mortgages, were originated last year, up from $85 billion in 2003, according to a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.”
“Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. ‘The credit deterioration has been almost parallel to what’s been happening in the subprime market,’ says UBS mortgage analyst David Liu.”
From Business Week. “Michael Youngblood, head of asset-backed securities research at Friedman, Billings, Ramsey Group, Va. points out that there was a sudden but little-noticed shift in lenders’ strategy that occurred at the end of 2005: Lenders went from competing for customers on price (by lowering rates) to competing for customers on easy terms (by lowering lending standards).”
“Says Youngblood: ‘The lack of overt changes in underwriting guidelines allowed the industry covertly to adjust its underwriting standards.’”
“‘You had two choices: relax your standards or lose business,’ says Robert Lacoursiere, a Banc of America Securities analyst. ‘It was a giant game of chicken.’”
“Youngblood is disgusted by the whole thing: ‘Basically the Keystone Kops were making loans,’ he says. ‘Or, to change the metaphor: Every time they see a sword they want to throw themselves on it.’”
The Christian Science Monitor. “‘Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier,’ says Ira Rheingold, executive director of the National Association of Consumer Advocates. ‘They didn’t care that … people were getting loans they couldn’t afford because there was so much money to be made.’”
“Housing advocates believe the regulators are reacting too late. ‘They’re good positive steps but it’s not close to being enough, the genie’s already out of the bottle,’ says Mr. Rheingold.”
From News 10. “Former employees of Folsom-based Central Pacific Mortgage are angry over the lack of warning before this week’s sudden layoffs. As News10 first reported Tuesday, Central Pacific Mortgage and its Florida-based division Ivanhoe Mortgage abruptly closed their doors Monday saying they had no money to meet Wednesday’s payroll.”
“Insiders say the collapse can be blamed on a combination of earlier loans that had gone sour and an inability to sell high-risk new loans on the secondary mortgage market.”
“A veteran Sacramento loan broker and past president of the California Association of Mortgage Brokers says the failure of Central Pacific Mortgage is just the ‘tip of the iceberg’ in the mortgage industry.”
“‘It’s like a freight train coming at us full bore,’ said Michael McGee of Winchester-McGee Financial. ‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’”
“Federally-sponsored Freddie Mac, the second largest source of mortgage money in the United States, announced this week it would no longer purchase high-risk loans like those that helped push Central Pacific Mortgage into insolvency.”
“Central Pacific Mortgage CEO John Courson serves on the board of directors for the Mortgage Bankers Association. One of Courson’s former employees in the Northeast was sarcastic in an email message to News10.”
“‘I have two small children and now I have no money, no job and no health or dental benefits,’ wrote the former employee. ‘Let’s give a nice BIG HAND to the MAN for all of his major accomplishments.’”
The Idaho Statesman. “Boise Cascade’s 2006 earnings fell by more than 40 percent because of the downturn in the nation’s housing market.”
“Tom Stephens, Boise Cascade CEO, told investors there was an ‘unprecedented’ decline in the demand for building materials. ‘During the third quarter it really kicked in, and when it did, it kicked in big time,’ he said.”
“‘We continue to believe GM equity is complacent about the potential impact of such subprime exposure,’ Bear Stearns auto analyst Peter Nesvold wrote. He said the weakness at GMAC due to subprime problems is one of the key risks facing GM.”
GMAC must be taking their lead from the Fed.
William Poole
President, Federal Reserve Bank of St. Louis
March 2, 2007
“…Monetary policy should not allow an economy to operate at the edge of a cliff. When balanced precariously at the edge of a cliff, even a minor disturbance, oil or otherwise, may be sufficient to push the economy over the edge. Although an outside shock may be the catalyst, or trigger, that creates undue inflation pressures, the fundamental problem is not the catalyst but the powerful and risky brew of an overheated economy. To use another analogy, if someone opens gas jets and fills a house with gas, do we blame the explosion on the person who lights the match or the person who opened the jets? I know where I want to place the blame.”
http://tinyurl.com/2xxdm3
“‘Energy Prices and the U.S. Business Cycle’
William Poole*
President, Federal Reserve Bank of St. Louis
Global Interdependence Center (GIC) Abroad in Chile Conference
American Chamber of Commerce in Chile Breakfast
Santiago, Chile
March 2, 2007
*I appreciate comments provided by my colleagues at the Federal Reserve Bank of St. Louis. Edward Nelson, assistant vice president, provided special assistance. I take full responsibility for errors. The views expressed are mine and do not necessarily reflect official positions of the Federal Reserve System.”
*********
Re: Poole’s comments (Hoz above “2007-03-02 10:18:24″ )
Is this an early negative comment from “quotable” types - of the many that could follow someday - questioning the Greenspan legacy?
Is he saying this?
“the person who opened the jets” = Easy Al Greenspan
Hell if I know, it read as a criticism. Based on other comments he made yesterday - it seems like a CYA. but I love the line
“I know where I want to place the blame.”
I think I’ll make a bumper sticker saying that!
I BLAME BUSH!
“I BLAME BUSH! ”
Too easy and too much on one person who doesn’t deserve all the blame. (Iraq is another story.) I blame anyone with an IQ over 100 that could not see lending $500,000 to a 560 credit score and nothing down, or enough for a homeless guy to buy multiple homes was a bad idea. Maybe even a really bad idea. So every lender, borrower, economist, real estate agent, mortgage broker, Fed chair, politician, financial advisor, financial analyst, parent who lent to shiftless kids, tax preparer who raptured about home deductions, speculator, etc., who didn’t step back and use simple LOGIC to say this was out of whack is to blame. Some more than others. But all share some blame.
Of course, the blame list for the bubble ending is shorter. THAT is mostly one guy named Ben Jones (along with some very notable help), an anti-American destroyer of the economy who dared to think education was more important than hype. Yep, this slowdown is all his fault!
Nice - some Fed criticism of Greenspan. As usual, too little too late.
Where were these comments in 2004?
The GMAC mortgage rep in my area used only the biggest and the best rubber stamp appraisers for all his loans.
If his op is indicative of the system, GM’s in deep doo-doo.
Off Subject, but a friend of mine that was working at the Riverpark project was laid off recently and said that the project is slowing down because of the problem of obtaining Flood insurance for the homes being built there.
Riverpark in Fresno California?
Oxnard, CA
imploder, where have you been?
http://www.scvhistory.com/scvhistory/sg031101.htm
yes well they have had some problems in the past……….
“‘It’s like a freight train coming at us full bore,’ said Michael McGee of Winchester-McGee Financial. ‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’”
*******
I’ve been waiting for this quote since the summer of 2004.
And earlier this week, there was another gem similar to this one from a “chief economist” or something from Wachovia, in regard to the equity markets.
Something like this: “The complete lack of regard for risk right now is incredible.”
It’s a shame that they ignored the freight train coming full bore until it was right on top of them. All they had to do was look down the tracks to see it coming. The train has been coming down the tracks for a couple years now. All you had to do was look off into the distance to see the train. (by reading Bens Blog)
Everyone just chose to ignore it until now it is right on top of them and they can ignore it no longer. If you intentionally ignored the train you could have free Hummers and granite countertops. Fools.
And that freight train is gonna squash their hummers flat!
The drivers and stokers of said freight train are shocked! shocked! to see that it is out of control.
Those hummers will be nothing compared to the losses the MBS holders and lenders will be facing
“Those hummers will be nothing compared to the losses the MBS holders and lenders will be facing”
The Tops of all the Co’s from Lenders ,bankers etc etc..All will be forced to live on the 50 Mil bonuses made in the last few years…Bottom line, No one who profited even cares at this point…..Party over, I’m off to my island, call me when you get things cleaned up…..
I would say that this is like what a deer would think when it sees headlights moments before hitting, the feeling just before the end of the fall without a parachute, and wishing to have an airbag milli seconds before hitting head onto upcoming traffic
Capt Jack - You are so right. Unfortunately most people are not able to recognize the end of a cycle until it occurs.
Yeah, stupid fools no doubt. Unless that Hummer/car has a lien, they get to keep the vehicle when default occurs, as it’s not encumbered by the loan.
Just a point at the greater insanity of stupid and greedy builders/agents/loan brokers.
OT - I played Racquet Ball last night with a girl who ownes a laminating business. She said for the first time in months she got three bad checks in one deposit. Sign of the times?
If someone has a check, then they have a debit card. Small businesses should no longer accept checks. A few years ago, I had a woman trying to write a check for ~$1200. I called to verify funds, and they were not there. She went into some long explanation. I didn’t give her the product. Not worth the headache.
Did you notice the pervasive use of passive voice by these guys? ‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’ and “Insiders say the collapse can be blamed on a combination of earlier loans that had gone sour and an inability to sell high-risk new loans on the secondary mortgage market.”
Of course these insiders are just blameless victims, not unethical fools who were driving the freight train and then fell in front of it.
Yes, this is someone else’s fault, some nameless faceless someone who does not exist.
Lets put this way, both the drivers of the train and the people on the track were out of control. The train had failed brakes and people on the track were deaf and blind
I think it’s unfair to call them deaf and blind. They were addicts of easy money or real life monopoly.
Wasn’t that oncoming freight train actually referred to as “the light at the end of the tunnel” just a year ago???
That light was too good to be true and as they say “generally is”
“‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’”
I’m so relieved this problem won’t spread beyond subprime lending.
DOW is turning negative again today.
Huh?? Of course it’s going to spread beyond sub-prime. The credit-worthiness of borrowers are graded and it’s not just between prime and subprime borrowers. It’s similar to the grading of bonds — AAA, AA, A, BBB, BB, B, CCC, CC, and C. Bonds rated BBB and higher are investment grade, below that are considered “high yield” or junk. Same with borrowers. Let’s say that we’re seeing problems with the “CC and C” grade borrowers. Well, that problem is also plaguing the “CCC and B” grade borrower. Already the mortgage backed securites of the next grade above the lowest grades are already being affected.
Can we tie David leaher to the tracks?
“‘It’s like a freight train coming at us full bore,’ said Michael McGee of Winchester-McGee Financial. ‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’”
This is the bitter harvest of too much govt subsidized risk protection in the financial sector. Eventually the Risk Loves who can’t get enough money in their pockets will ratchet up the ante so the system tanks.
I say: “Thanks in advance!!”
Ben, with posts like this I wouldn’t be surprised if you aren’t starting to influence the stock market.
Not that I’m complaining… F*ck Kramer and his “Mad Money”
Agreed,
Ben’s HBB…the blog that revealed whether Ben Shalom Bernanke & Sir Greenspent had briefs, boxers or were just naked old men with “one-size-fits-all” wangers
This blog’s going down in modern history, man. Just stay with it.
Absolutely Ben’s blog influences the financial world, his and other blogs and sites like it, unafraid to say the Emperor has no clothes.
The televised media shills are so afraid for their worthless, manure mouthing jobs, they can’t report on the truth. They have to report what Big Brother tells them to report. We, however, can stick to our guns here. I don’t think Da Boyz ever factored the net into their game. It’s the last free media and it is why the corporate interests are trying so hard to suppress it. It’s the media of the people.
Pirate Bay Wall Street!
I’ve actually been wondering if Paladin’s work didn’t help spark some of this.
You’d think the big financial firms would have known better, but maybe Paladin was the first to actually document some of the lunacy going on. He seemed to reach out to the right people/agencies, and they might have decided to get religion so as not to seem complicit (sp?) in all the fraud.
The timing — when Palading started alerting ratings agencies, financial firms/lenders, regulatory & law enforcement agencies, etc. — is a bit too coincidental, IMHO. Perhaps they thought things were getting too hot & decided to come clean.
At least somebody’s making hay out of this housing situation:
Bruce Toll
Type Trans - Sale
Date(s) Shares D/I - 1/25/07
Own Price - $32.90
Val($) Total - $6,580,000.00
Holdings - 7.32 million
Remeber the Conference Call when the Gal from I believe it was Deutche Bank remarked about how you would of made a fortune if you would of Sold at the times old Bobby did?
Legalized insider tradeing at its finest.
She is from CSFB. 1 of the 2 Wall Street analyst that didn’t lose their minds in last year.
One branch manager from an eastern state who asked not to be identified told News10 he lost $33,000 in commissions.
—————————–
HAHA….Thisi is why we are so screwed in America, tons and tons of “new” jobs all are commission only.
I put my resume on Craigslist and in ONE week i get 63 responses all commission only and only 3 that actually stated the weekly pay….
Welcome to the New America of 2007!
“HAHA….This is why we are so screwed in America, tons and tons of “new” jobs all are commission only.”
Ain’t that the truth. It’s really unfair that people are being forced to be responsible for their own economic security.
Elect Hillary. She’ll give everyone lifetime jobs.
everyone’s on commision wheather they know it or not
True, But the vast majority of responsible companies will pay you a weekly pitiful salary, so you dont get scared to death at 8:30 am with massive belling ringing..(think Jahovahs witneses) and ConEd threatening to take you to court if you dont pay your electric bill in 3 days.
True but in a salaried job if you have a rough week or two you’re much more likely to be fired.
That’s a tough industry…
Then again, it takes 15 years in my industry to fully train a senior engineer. (Hence why we’re excited when we can find guys & gals who train up in five.)
Layoffs ahead…
Got popcorn?
Neil
Neil, what kind of engineering field are you in?
shaunt79,
Pyromania.
Seriously. Well… ok, combustion.
Got popcorn?
Neil
Neil H is that you?
Aerospace?
That’s true, but the difference is who’s taking the short-term risk. Salesman and others on commission soak up lots of short term risk for themselves, and in return get paid more in the long run.
Hourly and salaried workers get less pay, but they don’t have to deal with the short-term risk. You could say they have some long-term risk in that they can get laid off if their unit isn’t successful.
Government workers, of course, are at the end of the spectrum. There’s no good feedback mechanism for any risk level, so the pay, while a bit lower than salary workers in industry, has a high level of long-term guarantee (plus pensions). For them, there isn’t any notion of commission at all.
But of course, you have heard the stories, as have I, of commissioned sales people whose companies capped their earnings because ‘they were making too much’. I personally know a couple of people this happened too. I guess the company wanted it both ways.
My dad had a commission job selling insurance back during the Depression. He worked hard to bring in a major business client to the agency. He was fired so they wouldn’t have to pay commission. He said it was the only time in his life he felt suicidal. From what I know about the Depression, I can understand it. I would never take a commission job without either some sort of base or an exclusive territory or account list. Otherwise, I might as well just work for myself, as I do now.
What governement related job do you have?
“Unidentified easter state” = Florida
“One of Courson’s former employees in the Northeast was sarcastic in an email message to News10. ‘I have two small children and now I have no money, no job and no health or dental benefits,’ wrote the former employee. ‘Let’s give a nice BIG HAND to the MAN for all of his major accomplishments.’”
pass the buck often? pat YOURSELF on the back, pal. and that’s how the Bank Relief Act of 2009 will get passed, a bunch of complicit fair weather profiteers crying “poor me”. sorry, taxes!
We’ve survived some awful financial turbulence over the past 15 years, due in large part to the decision to have no kids. Too bad that sometimes that is the difference between making it or not making it.
Tx,
I made the same decision. BTW Thanks again for the advice. The market is going down again and I’m in my happy place >; )
Don’t get too happy. Wouldn’t be surprised to see a retracement up into option expiration. Then kaboom.
If you do it right, having a kid can be a total hoot.
Also a meal ticket.
dead cat bounce
Yeah, it amazes me how they can manipulate prices right up to the strike price. Luckily that I have adjusted my option investment strategy to take advantage of this.
Once smart people - and I consider you to be a smart person - decide to stop having children, civilization is doomed.
Tax policy and other current social policies favor maximum reproduction by persons who are otherwise least productive. Sorry to sound like a eugenicist, but dysgenics(?) is NOT a good idea! Basically agreeing with you, 85249.
The meek won’t inherit the earth, those that have the most babies will. Now compare the birth rates of Muslims with Europeans and you get a scary picture of the not so distant future.
I am not sure what you tryingto imply here. In my view bigotry is worse than stupidness.
If you’re not sure what they’re trying to imply (if anything), then don’t be so quick to cry bigotry.
Well I don’t see Europeans going around the globe declaring a “jihad” on non-believers as many Muslims are. Most of the conflicts in the world involve Muslims. That’s not bigotry just facts. Go ahead and bury your head in the sand as Europeans lack of breeding causes their extinction and Muslims, who we all know love the Western world’s ideal and institutions, breed in numbers to take their place. Those pitiful Europeans don’t want to be bothered by children, they just get in the way of their “lifestyle”. I’m sure the Muslims that take their place in Europe will continue Western Civilization for the extinct Europeans. Yes, I know this off topic but I dislike when people bad-mouth having children because their “expensive” and “get in the way”. And I thought these lenders were greedy.
“And I thought these lenders were greedy.”
Yeah, and wanting to populate the world just because those damn Muslims will do it first if we don’t isn’t greed?
Take a look in the mirror, “Observer”
I cannot agree more. I am mid 30s, self employed, and consistently make into 6 figures. I would love to have a couple of children, but (perhaps selfishly) I know I will get stuck with a huge bill to birth them and raise them correctly. Meanwhile, the dimwits take a free ride.
Watch this film - it comically explains our future.
http://imdb.com/title/tt0387808/
Watch the movie “Idoitocracy”
I made the same decision. Not liking babies and small children were major influences, not to mention how much they cost.
I consider my $800 vasectomy the single best investment I ever made.
The best form of birth control for me has been when I see a kid at the supermarket whining because mom won’t get him/her a Snickers bar and the ensuing fit the kid has. No thanks.
Aren’t you glad your mom didn’t think the way you do?
“Aren’t you glad your mom didn’t think the way you do?”
Having grown up an unwanted and neglected child, I sure wish my mom and dad had thought that way. If only all the folks who really don’t want/don’t like kids wouldn’t breed. But no, they have to keep up with the Joneses. And their kids and neighbors get to suffer the consequences.
No one should feel obligated to have kids, especially those that don’t want them. Which is why half of my siblings and myself have had ourselves child-proofed. We won’t be repeating our parents’ mistake, thank you very much!
Who would want kids in this day and age. Your not even allowed to disciplin them anymore.
“Aren’t you glad your mom didn’t think the way you do? ”
Not necessarily, but thanks for thinking my contribution to the world is so important.
But, if she and my dad felt that way, so be it. There’s far too many people in the world as it is.
“Aren’t you glad your mom didn’t think the way you do? ”
If she had, there wouldn’t be a “you” to care one way or the other.
The best form of birth control for me has been when I see a kid at the supermarket whining because mom won’t get him/her a Snickers bar and the ensuing fit the kid has. No thanks.
Friend of mine once told me that his preferred form of birth control is a false name so that he can’t be tracked down in case a parasite forms.
That kid wouldn’t be throwing a fit if it wasn’t working for him. He has to be getting the payoff (the candy bar) sometimes. My 3 kids rarely ever threw a fit in a store because that was a sure way to make sure you didn’t get anything you wanted for a very long time.
Friend of mine once told me that his preferred form of birth control is a false name so that he can’t be tracked down in case a parasite forms.
————————
Gee, sounds like a real winner! Let’s see…has sex with people he doesn’t know, then refers to a baby as a parasite. Nice “friend” you’ve got there. Top quality individual.
Tell him to get a vasectomy so his genes aren’t passed on, please!
My husband and I too have decided not to have any kids. We have also went through some tough financial times in the past 10 years, but have gotten out somewhat unskathed due to the fact we don’t have any children. There is a “must read” book out there called ‘The Great Risk Shift’ by Jacob Hacker. He says the same thing. He states that having children in today’s unstable economy makes one up to 50% more likely to end up in poverty. I grew up poor and do not want to go there again! I guess we will just have to be happy with our Sheltie as our child! At least I don’t have to pay for private school for him (especially here in LA!).
I grew up in a home with two siblings. We weren’t poor buy money wasn’t abundant. We were taught to work hard, finish what we start, and not want something just because someone else had it. Fortunately, education was a major focus and that kept us in check. There were many bumps along the way but mostly we’ve all been very lucky. I have two kids and was concerned about giving them what they need. My mother says that, “children bring their own.” I never understood that until now. Love and proper guidance are the most important things you can give your children. Granted they do need food and shelter as well, but it doesn’t have to be extravagant. Having them is a choice and lifelong commitment that will change you forever. Having read this blog pretty regularly, I am in awe of the knowledge you have imparted upon me. I can’t imagine anyone here that wouldn’t make a wonderful parent. Not everyone should have children, but don’t let money be the reason you don’t. They are truly the most rewarding and challenging thing I have ever done. They’re young so it’s only going to get more challenging. I can only pray that the world they grow up in will take a turn for the better eventually. While that doesn’t seem likely these days, I have to continue to teach them to behave in a way they can be proud of and have some faith.
my shelties are going to a dog seminar next week. we keep busy! no kids here.
Maybe someone can start a blog called “Housing Bear Blog for the Joyless & Childless”. Topics?
1. How my dog and I survived the Housing Boom.
2. Why my Porsche is much more rewarding than a child.
No kidding. For a group of people that loves to pile on the HELOCed Hummer/BMW masses, there sure is a lot of disdain here for things that truly matter.
Most people on this board have a lot of respect for the things that matter. That’s why we’re here. The problem is not with having children, it lies with the fact that there are many who have children with the same attitude as taking a plop. And then expect others to finance the results of their irresponsibility.
If you can’t feed ‘em, don’t breed ‘em.
I chose the other route and we decided to have children. Financial Turbulence is my middle name! I got lucky. “I have been rich and I have been poor but I like being rich better.”
Whenever I went to a wedding, I always wanted to bring my kids and say “This is what its about.” Other than a minor tax deduction why bother to get married unless to have children?
Actually, I love kids and would still love to have them! I had to make the choice for economic reasons, not personal. It takes 2 salaries to make it in Amerika anymore and I won’t subject a child of mine to poverty just for the joy of being born.
Now if someone wants to pay me my current salary to stay home with a new child until they can enter daycare and then cover that for me too, I’ll be thrilled to pop 1 or 2 out >; )
I love my new baby so much… and I will admit I was a bit of a baby skeptic before she arrived - we can go on more holidays, retire earlier, save more, etc. But I have to admit I was totally wrong - going home to her takes the sting out of the whole afternoon… even if I will be working an extra 5 years to pay for her and her future sibling(s)…
Having children is a personal choice and one that should be undertaken with forethought and planning and taking into account what is in the best interests of the child. I love children myself and am thrilled to be able to contribute to the support of my nieces and nephew.
Good for you. Many of those who forego having children for financial reasons will regret the descison when they are old and alone. Unfortunately, this “no kids” sentiment seems to be growing among twenty and thirysomethings.
Why is this “Unfortunate”? There are no shortages of kids on this planet. There are other ways to make a lasting impact on the world besides having yet another kid that the world really doesn’t need.
“what truly matters” is up to the individual to decide. Or maybe in your Amerika, people are only free to think exactly like everyone else.
My wife and I aren’t having kids - unless I get my vasectomy reversed - and we have a full life with each other, friends, and two cats and a dog, which are all the responsibility and financial burden we want.
Recent estimate here in Canada: $250k to raise a single kid and put him/her through university. No thanks!
There are a myriad of reasons people do and don’t have kids. If things didn’t work out with the spouse, what can you do about it? It would be silly to get married again in haste just for the sole purpose of having a child, although I know some people do it.
I have 5 neices and nephews that are like my own children. Will I really be alone when I am old? (Methinks I will be able to afford a few mistresses) ha ha ha.
I’m not saying that the decision to have or not have children should be made by anyone other than the individual. However, whether anyone wants to admit or not, our primary purpose is to pass on DNA, i.e. have children. When people make the decision to stop having children because they are a “burden”, our species is doomed. Don’t you find that a little bit disturbing?
It takes 2.1 births per woman to sustain a population, which is where the USA is at right now. In Europe that figure more like 1.8 births/woman. Muslim women typically have 5 or 6 children.
I think most of us would agree that just like buying a house, there are intangibles to having kids that finances just can’t measure.
On the other hand, why not adopt?
When people make the decision to stop having children because they are a “burden”, our species is doomed. Don’t you find that a little bit disturbing?
One day, our sun will go grow colder or go supernova and the species will die anyway. But I suspect I’ll be dead somewhat beforehand. Get a grip on what you choose to worry about.
Muslim women typically have 5 or 6 children.
Sounds like our species is in no danger of extinction then.
However, whether anyone wants to admit or not, our primary purpose is to pass on DNA
Our primary purpose is whatever we choose it to be. We are the one species with truly free will. How sad and pathetic if we fail to use it.
Our primary purpose is whatever we choose it to be. We are the one species with truly free will. How sad and pathetic if we fail to use it.
I would disagree that we have a free will. We are ruled by evolutionary forces. Our free will ends where those forces begin.
I am sorry but how is it any different to demean a person for not wanting to have a child versus not wanting to have a house? Many of us have been looked down upon because of our “excuses” for not buying. Friends, family, employers and total strangers not hesitating to tell us how stupid we are not to buy a home right now. Most of us just shrugged and went on our way.
But heaven help you on this blog if you decide not to have kids! You are responsible for the destruction of the human race, you are shallow and penny pitching to look at the economic cost of something everyone else thinks of as a benefit and you are selfish if, for whatever reason, you do not want child.
Cut out the double standard. People who do not want children, for whatever reason, should not have them. (Don’t buy if you’re a happy renter.) People who want to have children should be able to provide a minimal standard of living for them. (No creative financing please.) And if you have them you should love them fiercely AND raise them right. (Don’t be so tired from paying for the house that you can’t mow the lawn or teach them manners.)
I will not have biological children, ever. Does that make me selfish? But I want to be a foster mom when I get a house that can hold a family. Am I redeemed for rising other people’s kids? Or am I still leper because I primary duty on this (hugely overpopulated) planet is to bear fruit? Don’t really care, no one influences me without my approval. But to try and browbeat people into having kids who don’t want them is wrong. (Also, if you want kids and have a good life don’t stress so much over economics. Kids can live very nicely on 1/10 of what the average American brat gets. They need love and the ability to use their imaginations. If you can’t afford the latest video toys who cares? Their friend’s parents with debt-ridden parents all have them. If you can’t afford food, shelter and education well, then maybe you should let the economics decide.)
I don’t have a problem with people choosing not to have kids. Anyone with kids knows how easy life would be without them. But we cannot imagine life without them.
If a high % of people suddenly decided not to have children our country would change beyond recognition in a few short years. Schools would be bankrupt in about 6 years with no students. The majority of housing built during the last 100 years would be obsolete and prices would crash. In 15 years there would be no part time employees to fill jobs. Sorry for stating the obvious. New immigrants with large families would fill the void and we would be strangers in our own land.
If a high % of people suddenly decided not to have children
Welcome to the late sixties?
Wow - with this attitude towards kids (on this thread), America, as we (still) know it, is toast. For you happy-go-lucky types, in your 20s and early 30s, that think all will be fine with a fat savings account and a country without kids - keep in mind that change will happen fast. Europe is in the process of making that change and will likely achieve civil war (against their seething Muslim populace) within 20 years, and that the civil war will be over (with Old Europe losing) 10 years later - unless there is a bloodbath that would make Hitler squirm.
So enjoy your little party, but the bill will come due in your 50s, and kiss goodbye having your retirement paid for, or your freedom protected, by the next, non-existent, generation. And watch the free previews in Europe - having started in Yugoslavia, and now spreading to France and the rest of the continent.
It’s one thing to not buy a house for the next few years when the game is rigged (and while things, finally, unwind), it’s another to simply blow off the future of Western Society, which, whether we like it or not, is orders of magnitude better than anything before it and, almost certainly, anything after it.
If people look at things with a financial bent, having children will not be an option; however, having that mentality where everything has to be on a spreadsheet often leads to misery. Having children can have its rewards, and can often be more rewarding than millions in a bank account. Don’t give me the argument about irresponsible parents or unwanted pregnancies, just talking about parenthood in general. What will you do with your money when you are gone anyway? Disclaimer - I have two grade school kids and a nice bank account, so the two can co-exist.
Having kids is always the difference and you’re not making it.
There is a genetic/social-hierarchical argument to be made in favor of high IQ persons having only one kid in times where the overall society is supporting a declining number of smart people; but never an argument for zero.
Kids and financial security aren’t mutually exclusive. It’s possible to lead a frugal yet rich life, if ones priorities are in order. Also, in hard times, families can be the only “safety net” you can really count on. My mom, for one, appreciates having her kids close by to help her out as she gets older, including financially if need be. I wouldn’t trade my kids for all the money or material success in the world.
So often employees go to work week after week never observing the big picture of the industry in which they work. Every employee of a business that feeds off of real estate is on notice — they, unfortunately, just don’t know it yet.
“the weakness at GMAC due to subprime problems is one of the key risks facing GM.”
As if they didn’t have enough problems. Wouldn’t it be ironic if after all the struggle with car quality, pension and retiree health costs, the firm starts to turn it around and is taken down by THIS?
“at the end of 2006 on 2.9% of prime home-equity loans Countrywide serviced, up from 1.6% a year earlier.”
Does anyone have some historical context here? That looks like they are up to average already, heading for sky high.
Actualy, GM has been swimming naked for years. But they dug a hole in the beach, called it GMAC, and that gave the illusion of being neck deep in profits. But this current running tide will bury them in a grave of their own making. I would think their fall will be the swiftest and most brutal of all. The one that stuns.
Very lyrical post. If you broke that down into stanzas it would make a fine poem for our times.
speaking of lyrical, your post about the change in Naples was a fine piece of writing.(from a couple days ago)
It made me sad, though since Naples was still nice when I visited. (pre-boom)
“Wouldn’t it be ironic if after all the struggle with car quality, pension and retiree health costs, the firm starts to turn it around and is taken down by THIS?”
Reminds me of my poor alcoholic uncle’s sad demise. After losing his career, his home and his family to a drinking problem, he finally managed to kick the bottle — only to die of lung cancer a year later! Poor sap never did manage to kick his smoking habit.
“‘I have two small children and now I have no money, no job and no health or dental benefits,’ wrote the former employee. ‘Let’s give a nice BIG HAND to the MAN for all of his major accomplishments.’”
Gee, you mean ripping people off so you can make a living has its limits?
I hope you starve.
For his own children, he probably destroyed the happiness & economic security of many other families’ children by pushing these families into toxic debt. Perhaps he should be asked to first disclose exactly what he made while the gravy train was rolling. Back then he got the YSP. Now he’ll find out karma’s a biatch.
“Perhaps he should be asked to first disclose exactly what he made while the gravy train was rolling”
“You who are on the road
Must have a code that you can live by
And so become yourself
Because the past is just a
good bye.”
“Teach your children well,
Their
father’s hell did slowly go by,
And feed them on your
dreams
The one they picked, the one you’ll know by…”
Crosby Stills Nash & Young - “Teach Your Children” Lyrics
wanna bet he has a big shiny new huge SUV?
“‘Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier,’ says Ira Rheingold, executive director of the National Association of Consumer Advocates. ‘They didn’t care that … people were getting loans they couldn’t afford because there was so much money to be made.’”
Commission & fee earners left no stones unturned in their quest for profit, and hocked the middle class and the future generations. They killed the goose that laid the golden eggs. What remains to be seen is how many of these pigmen drank their own Kool-Aid and will be standing naked when the tide goes out. Shouldn’t take long to find out.
“Tom Stephens, Boise Cascade CEO, told investors there was an ‘unprecedented’ decline in the demand for building materials. ‘During the third quarter it really kicked in, and when it did, it kicked in big time,’ he said.”
And now a more positive view of this ‘unprecedented decline’. As a farmer, I have for years wanted to spend good money on improving and upgrading the barns and facilities on my ranch. But the DAMN STUPID HOME BUILDERS have run prices up so frickin’ high no sane manager of his business can buy raw materials at those prices. So I’ve waited, and waited till now. By gut reaction is relief and confidence that with BC, Lowes, and Home Depot sucking air, I will shortly be able to make a real business decision and not a bone-headed speculative one. When this thing craters, I for one can get back to business. And maybe hire a couple hungry framers on the cheap.
Re: “on the cheap”; or at least “on the ball”
I know this has already occurred in many places, but it’s relatively new here in the land of “prices never go down” (San Francisco - well, except from 1991 to 1995; also, it helps one’s cheerleading cause if one can willfully ignore inflation adjustments, but I digress).
It’s that some contractors have begun to return phone calls rather promptly, show up when they say they will (or even earlier, to finish projects) and/or are once again leaving flyers at one’s door or on one’s vehicle.
I can’t remember any of this occurring for a very long time… at least not on my street and a few others.
I would wait a while before buying any materials, quite a number of these building supply companies are sucking air and will end up having liquidation sales.
Oh, yes. My, oh my, but I remember the good old days of the early 80’s - when suppliers were offering bound units of 2×6’s at 60 to 70% discount! Can’t wait, but I will.
We tried to find contractors in 2005, to do small repair work on our old house, namely the crack in one ceiling, the bullet holes from a shot gun on the front (an idiot mistook us for our neighbour across the street, another idiot) - but no luck, all contractors were busy, didn’t do this kind of siding repair work anymore etc. We’ll try again this year and next, and I am confident we’ll have more luck.
“the bullet holes from a shot gun on the front (an idiot mistook us for our neighbour across the street, another idiot)”
Geez where do you live?? You call these people idiots? I call them criminals….man, I am starting to get worried about moving back to the US this summer after being gone for nine years.
SKB
man, I am starting to get worried about moving back to the US this summer after being gone for nine years.
Dont go to Miami.
Hundreds of el cheapo AK-47’s from former Eastern Bloc suppliers are floodin’ into “da Hood”.
I have a home improvement/repair project that I’ll need to hire some help with. (I’m pretty handy, but can’t do everything myself.) I think that after a slow summer in Tucson, combined with our already slow housing market, should figure in my favor. I think I’ll have helpers begging for my business!
It’s funny how that invisible hand works it’s magic.
Yep…
Unfortunately, that invisible hand is about to b**ch slap the economy.
Hold on. Its going to be a wild ride.
Not to mention if you keep your powder dry, you’ll come out well!
Got popcorn?
Neil
“that invisible hand is about to b**ch slap the economy”
I was thinking exactly the same thing.
I Just have this odd feeling the blogs have been like reading the foundation novels. The historical forces driving forward are too much to stop now.
Sounds like wealth preservation time.
Talk on Broker Outpost about tightening lending standards:
http://forum.brokeroutpost.com/loans/forum/2/98752.htm
My favorite part is “Most people don’t have money down”. Just 5 years ago, 20% down was considered normal.
jmb: “…Let’s face it. Most poeple don’t have money down. Does the dream of the hardworking middle class citizen go down the toilet?
I cannot even get 100% stated anywhere with a 620 score anymore! Wells Fargo stopped doing stated entirely unless it is 85% LTV and below. Indymacs 100% LTV is at 660 now! And that is full doc.
Come one, someone out there still have to help us out. Where is the love? Is it gone???”
“…Let’s face it. Most poeple don’t have money down. Does the dream of the hardworking middle class citizen go down the toilet?
That is the whole reason it’s called a DREAM, jmb, you jacka$s. Once they have the downpayment saved, they can stop dreaming and actually live in the house.
These commissioned wh*res are a big part of the reasons these hardworking middle class citizens’ dreams are going down the toilet.
Now that the golden goose is dead, the whining has begun.
Well, atleast they don’t have to worry about commission-avoidance schemes anymore. the whole deal is off without financing.
Come one, someone out there still have to help us out. Where is the love? Is it gone???”
hehehe… this is the unlubricated kind of love….
too funny … snorted water out my noise… reminder to self -do not drink and read this blog at the same time.
I totally snarfed when reading that!
Oh man, I have to remember, this blog and beverages don’t mix.
ROTFL
Got popcorn?
Neil
ps
if they think its bad now… think about 3 to 4 months from now…
Dang. I hate it when I have to wipe tea off my screen.
Man, that is hilarious ! The industry tightens up and the brokers complain. They have had 5 really good years of reaping in the rewards for doing almost nothing. Now they are seeing what the lending standards SHOULD have been like all along.
And like the grasshopper, they have not saved up anything for winter. These greedy idiots have been ruining things for the honest and rational, and soon it will be time for the ant to have his due.
Though I gotta say, it is really starting to get scary out there. As an attorney, I am assured of plenty of work as the carnage comes down, but man, I’m not going to enjoy watching this all unwind.
Just wait ’til the mob of grasshoppers shows up at the ant’s door with torches and pitchforks. Nobody’s going to escape the consequences of this.
That is how inflation works. Those with access to the money first are able to buy goods at the old price (prior to the adjustment for the new stock of money). This is not what you’ll hear on TV, but that is a basic economic principle. Ever wonder why prices are higher for things in NYC? That is generally where a lot of the money is created, and those in the business of generating credit are getting first cut. It depends where each individual is on the money chain. I suppose the next question is where do you fall in the chain as the credit/money vanishes?
As money does not exist until it is borrowed - first access to newly created money includes every jackass with a credit card/HELOC/mortgage/car loan…
This broker is complaining, but not about tighter lending standards. What i am and have been complaining about to anyone who would listen is why wasn’t it stopped before it started. I knew when i saw this stuff coming that the biz I used to be proud of being a part of was ruined. It may come back one day, but not after much deserved pain and suffering.
And that note, I mailed in the license today. I’m out. You’ll see me now as ex-nnvmtgbrkr from here on out. It’s not about money, as I have been prudent enough to ride out the rocky days ahead for years if necessary. But I keep asking myself why stay, and I’ve come up with no satisfying answer. Because of a simple lifestyle I can live off the investments for some time, so I’ll take the year off to regroup. No regrets.
Smart move, no use trowing money at overhead if there is no profit stream.
Congrats!
Hope you find a rewarding next page in your tome of life!
I wish I would have had you as a mortgage broker!
HIC
Second HIC. Certainly enjoy you sharing your first-hand knowledge of that biz.
Enjoy your time off, but please keep posting. I look forward to reading your posts.
Yes, who loves ya, baby?
Unfortunately the ones who will end up legally tightening the nonprime marketplace are the only ones who ignored it while this equity/housing bubble began and will more than likely be the only viable alternative in the years to come. I recall reading a few articles over the last few months that HUD is getting pressure to adjust its maximum loan amounts on FHA insured mortgages. When the true ramifications of the bubble (take your pick as to which of the above) become clearer (no need to spout reset/recast stats on 2006-2005 loans) over the next couple of quarters. There wilI only one viable alternative and believe me it is a lot of real work; not just learning how to read a ratesheet… remember 7+ years ago when the only thing close to 100 percent for these was FHA…
With earnings what they are nationally (salaried hourly)and the turmoil ahead even this alternative may not be viable(soft landing?!?)
Amazing the deal I got on bulk popcorn at Costco, did so because I have a feeling this will be a much more drawn out process than anyone would care to admit and if you are in need of something on a regular basis always buy bulk……
i was wondering how many realtors in san diego saved money from the last couple years. did they invest in safe havens? i don’t want to feel sorry for these “fancy” men and women at all.
here is another from that same area.
kinda reminds you about the tsunami huh? the smart ones realized when the waters rescinded and the aniamls ran to high ground get the hell outta there and find cover. yet some were down playing in the low tide when the 60 foot waves hit
sound like our industry?
I am happy to hear the complaint about easy money drying up. The faster traditional lending standards return, the earlier we could go finally house hunting (maybe a year afterwards?).
Someone needs to un-archive all of our posts for the last two years. This bubble burst is unraveling EXACTLY the way most of us predicted it would.
I really hope those backups exist. I was the first person to post to one of Ben’s news clippings !
i called “black friday” feb. 23 on letters to volker. credit crunch crash!!!
we’ve used the train reference here so often it’s banned
Wait until the lending institutions begin to fold. Does anyone actually wonder who eats a bad loan? FDIC? Time will tell who actually eats these bad loans. If you think that housing was a massive bubble, how do you think it was created? Perhaps by credit? You don’t need a tin foil hat or a bunker, just some basic understanding of the value of money…use-value and exchange-value is all that gives money value. The use-value of a Fed Reserve Note is very little. The exchange-value is based on supply and demand, and a lot of faith. Nothing more, nothing less.
Costs around a Dime to print a $100.00 Bill.
The other $99.90 is faith based and works ok…
for the time being~
The first guys to “eat the loans” have been the subprime originators. They are now dying from engorgement.
The next guys will be the investors; if they are hedge funds, speculating and leveraged, they’ll blow up. The banks and brokers who gave them the leverage will take that hit. The pension, mutual fund, insurance and other investors will take a hit on what they hold but they’ll turn around and sue the brokers and the banks (or attempt to). Mainly they’ll just take a big whack to their performance. The private firms will fire portfolio managers and the public pension fund managers will just hide (and blame the brokers who sold them the garbage).
Someone will “package up” all the unsold properties (probably by region and by type) and will sell them at fire sale prices.
Probably Sam Zell will pick a billion or so up. Then those properties will either be sold, rented or plowed under.
Could take a while to work it all out…..
Oh, and the goverment? Hearings will be held. Committees appointed. Perhaps they reinstitute the RTC fairly quickly to do….SOMETHING. When they finally decide what happened, what should be done, how much tax money to throw at it the bottom of the real estate market should be pretty well established.
Say, 2011.
I hope, oh do I hope, that Washington Mutual and Wells Fargo have enough good loans to be able to eat their losses in the subprime (with a good drop of their stock, of course). I think CALPERS is screwed though.
I just hope prices in my area fall to where a small, SFH is affordable to me once again. If everything keeps playing out just like this blog’s predicted, I should be set. However, I’m still dealing DAILY with people telling me how prices are so low now, won’t get lower, etc. that it makes me want to pull the drapes, hide under the covers, and ignore everyone. I have seen very little in the way of prices dropping around here. The people making this claim, I believe, are simply parroting what the RE industry is spewing.
my accountant just told me its a great time to buy! yeah in texas.
Don’t worry — a regulatory fix for the subprime mess is in the works as I type…
——————————————————————————————————
Regulators propose tougher subprime lending rules
By Robert Schroeder
Last Update: 11:55 AM ET Mar 2, 2007
WASHINGTON (MarketWatch) — Federal bank regulators demanded tougher standards for subprime adjustable rate mortgages on Friday. The regulators’ guidance targets loans including subprime ARMs that have low initial payments and loans that have high or no limits on how much payments or interest rates may increase. The Federal Reserve and other agencies said lenders should inform consumers of potential payment increases and prepayment penalties associated with such loans. Regulators will take comments on the proposals. A copy of the guidance was obtained by MarketWatch.
The barn door in San Francisco opened in the summer of 2003, right around the time Easy Al dropped the FFR to 1%.
It’s still open.
And *now* the regulators act.
From Wikipedia:
Ben Bernanke, Chairman of the Board of Governors of Federal Reserve, stated: “I would like to say to Milton [Friedman] and Anna [J. Schwartz]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”
I guess we’ll see…
Yes, they did do it, by printing tons of “money” in the teens and twenties. Unfortunately it’s much too late to not do that again.
Comment by _FLmtgbroker
2007-03-02 16:21:02
Unfortunately the ones who will end up legally tightening the nonprime marketplace are the only ones who ignored it while this equity/housing bubble began and will more than likely be the only viable alternative in the years to come. I recall reading a few articles over the last few months that HUD is getting pressure to adjust its maximum loan amounts on FHA insured mortgages. When the true ramifications of the bubble (take your pick as to which of the above) become clearer (no need to spout reset/recast stats on 2006-2005 loans) over the next couple of quarters. There wilI only one viable alternative and believe me it is a lot of real work; not just learning how to read a ratesheet… remember 7+ years ago when the only thing close to 100 percent for these was FHA…
With earnings what they are nationally (salaried hourly)and the turmoil ahead even this alternative may not be viable(soft landing?!?)
Amazing the deal I got on bulk popcorn at Costco, did so because I have a feeling this will be a much more drawn out process than anyone would care to admit and if you are in need of something on a regular basis always buy bulk……
(Comments wont nest below this level)
had to copy this in from above^
Too little to late
with homeownership close to 70 percent in the US and 15-25 of the remaining living at or below the poverty level this seemed relevant… If no one can finance these properties as they had in the last 12-18 months who is going to buy them?
Popcorn anyone?
“payments were at least 30 days late at the end of 2006 on 2.9% of prime home-equity loans Countrywide serviced, up from 1.6% a year earlier.”
As I said before, prime will not be immune to housing troubles, what with the ‘creative’ financing programs of 2005-2006. I can’t believe how many people are complacent about the state of the prime market.
That’s a YOY increase of what? 85%? Ouch.
Wait till prices start to come down at that point it will be primetime.
“Prime” loans are only truly “prime” when the borrowers have the capacity to repay the debt.
If a person with a $50,000 income and a “prime” FICO borrows $500,000 on an adjustable rate, that loan should not be considered “prime” risk.
Absolutely. 800 credit score or not, anyone who has borrowed 10x income is going to default. It’s only a question of when, not if.
Furthermore, even those with reasonable price to income ratios and sterling credit would be rational to walk away from their mortgage if they find themselves 20-30% underwater a few years from now. Surely trashed credit for a few years is better than making payments on a house that is worth $100k or more less than what you paid for it. That’s enough to make a huge difference to your net worth at retirement.
I think MOST mortgages granted in the bubble markets in the last couple of years are at risk, regardless of their so-called “prime” status. Sub-prime is just the canary in the coal mine.
per Countrywide’s 10-K, 2.76% of primes are late and 19% of subprimes are late. we know primes are about 60% of the market, alt-a’s are about 16% of the market, and subprimes are about 24% of the market (according to yesterday’s WSJ). for the sake of conservatism, let’s assume alt-a’s are no more delinquent than primes (stop laughing). that would mean that 6.66% of all mortgages are delinquent (19% of 24% plus 2.76% of 76%). the number is likely higher because of the alt-a’s. holy crap!
Obviously a lot of these delinquencies will go into foreclosure. Let’s be conservative and say that only half of them do, and the other half somehow catch up. That would mean that 3.33% of all currently mortgaged houses will be foreclosed (and on the market) in the next year or so. Holy crap!
Well, it looks like the party is done. Bubbles burst when liquidity dries up and it looks like liquidity is drying up FAST ! I think the liquidity implosion will get worse because we still haven’t heard one peep from MBS holders. But that day can’t be far off either.
The market will totally crash when no one will touch an MBS with a 10 foot pole. That can’t be far off either.
So you mean banks are actually going to have to stand BEHIND every loan they make? Now that’s a radical concept…
Actually, it has been a radical concept…ever since the advent of Fannie and Freddie.
will those guys lose money?
BEN- can you do a show for cable
HOUSE HATERS 07 -just find the victims of house hunters 05
From Bloomberg. “Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.”
“‘These guys have made a lot of money securitizing mortgages over the years in a mortgage boom time,’ said analyst Richard Hofmann. ‘The question now is what is the exposure to credit risk and what are the potential revenue headwinds if they’re not able to keep that securitization machine humming along.’”
Ha. I still think those folks paid themselves two years worth of bonuses last year - on purpose.
“Ha. I still think those folks paid themselves two years worth of bonuses last year - on purpose.”
You infer that they had a…strategy or rather… a game plan?
The plan was called “two birds in hand are better than one bird in a bush”.
The amazing part is how easily they got away with it.
One of those three firms will disappear by 12/31/2008.
isn’t it amazing that top financial institutions are practically junk bonds?
Actually the deterioration of the top 3 brokerage houses to a valuation of junk status should be the top national news story. Other brokerage firms as well as Credit Swisse & Deucthe (excuse any misspelling) Bank are in the same boat according to Bloomberg. As this story unfolds,its will probably have a huge negative economic impact on our country. Sadly the MSM would feature Anna Nicole’s burial.
Just threw the Sacramento MB quote at my friend in Marin and asked for comment.
“Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.”
To borrow a word from Quirk, “whaddiditellya”. No confidence=you are worthless scum=your money’s no good here.
Instead of golden parchutes, these clowns need a few golden showers.
Ah, I’m famous…Thanks.
Golden showers? Too lenient. Mired in their own s*** would be more like it.
Ooo… I want to see them go down. Merrill’s demise would have a delicious sort of irony to it, although Bear Stearns probably deserves it more. But I really have it in for the retail banks. I want to see Citigroup go down, too. BofA wouldn’t be bad. But it looks like WaMu may be in the shakiest position–serves them right.
Hmm, wouldn’t mind JP Morgan Chase taking a very bad blow. They send me %$#*ing credit checks with my statements and won’t answer the phone when I try to call to get them to stop. Bastards.
Well, I forgot to mention, before we give them golden showers, we get some some of those nice, crisp, worthless new Federal Reserve notes they’re so fond of and inflict at thousand paper cuts on their equally worthless carcasses.
Yes, it would be nice in a carthatic “ain’t payback a bitch” way, but the problem lies in that if our big American banks go down, we the American public are looking at a big world of hurt. The financial economy is the American economy as incredibly ugly as that sounds.
No credit=no consumer in the financial economy.
I feel that many people that have cash reserves and don’t rely on the credit markets may fancy themselves as future lordlings acquiring tangible assets for pennies on the dollar in a liquidity crunch. I think it would be much more prudent if ever such a scenario comes to fruition, to lay low and hide your new found dollar wealth as best as possible, and howl at the uncaring winds of change like the rest of the ruined masses.
That is, unless the winds are generated by Ben’s helicopters as the deflationists howls will have a much different tone.
I hope their parachute carries them down in front of a firing squad.
This is just nut’s:
“At the end of the third quarter, ResCap, long viewed as the crown jewel in GMAC’s businesses, held $57 billion of subprime mortgages for investment, or 77 percent of its total loans held for investment.”
77 percent huh? Somebody’s in deep trouble.
Looks like we lost another house to Ditech!
Oh no, they didn’t dump those loans? A 30% loss on $57B is $17B.
It is like giving away 850,000 cars, each is worthed $20,000.
Another winner who spends everything he earns.
To be fair, I did hear that his former employee screwed up the COBRA.
On the plus side, with no money, he should easily qualify for Medicaid!
s/employee/employer
cripes
“A veteran Sacramento loan broker and past president of the California Association of Mortgage Brokers says the failure of Central Pacific Mortgage is just the ‘tip of the iceberg’ in the mortgage industry.”
“‘It’s like a freight train coming at us full bore,’ said Michael McGee of Winchester-McGee Financial. ‘The type of risk that’s been involved in the industry is far beyond anything I’ve ever seen.’”
Notice how the doom and gloom messages are no longer coming from the “great unwashed” on blogs, but are now coming from the people who are actually supposed to know something about this stuff.
One could ask why this guy wasn’t blowing the whistle before, but unfortunately that’s how the system works. In this case, the “trend is your friend” meant that everybody had to go with the flow.
And now the flow of money will tighten up tighter than a nun’s… no I better not.
It’s fashionable to bash now - as long as you bash your low-level employees or someone else’s low-level employees. I mean, you can’t retire to Hawaii on your salary as an underwriter.
This is going to end badly.
Love that wry understatement. Today is a nice day to look at implode-o-meter.
Ditto that!
“New Century of Irvine… Today announced that its 2006 annual report will be late because it hasn’t yet been able to sort through the accounting errors it made…”.
What a bunch of incompetent clowns. How much you want to bet that their CFO is making over $250,000 a year with his head up his arse?
The more I read this blog the more I see the thousands of people who wear suits and sit in air conditioned offices and who are worthless boobs.
College degrees in business and economics are way overvalued in American society. People with degrees in medicine, engineering and science are valuable because they produce valuable products and services.Thousands of MBA’s can’t even …”sort through the accounting errors…”.
My apologies to all business professionals and MBA’s who know how to keep proper books.
“Thousands of MBA’s can’t even …”sort through the accounting errors…”.
Errors my patootie. They’re going back to correct the cooked books and they can’t do it fast enuf.
that is the big truth of what they are doing. how many bad bad loans did they really make?
“College degrees in business and economics are way overvalued in American society.”
What didn’t Warren Buffett know and when didn’t he know it?
Re: a different kind of ed-u-cation
scientific expertise can be bought very cheaply, though, and anyone can do it (global wage arbitration)
not everyone can be so-and-so’s nephew, though.
Most white collar workers are boobs, that’s why they work in that sector … life is easy, until it’s not. Why do you think there was so much rage in the 1990s? Because the boobs were losing their jobs.
Scientific workers can be bought very cheaply, but more and more business guys are realizing that you get what you pay for, and sometimes not even that (if you can’t write a proper contract and can’t manage worth squat).
Job postings for good software developers have exploded. I’ve been out of software for over a year and just might be sucked back in. Too many companies need someone to fix their outsourcing mistakes and they’re desperate enough to pay ridiculous amounts for it.
Ah, Brian, there’s where Americans can step in. Same in the housing industry, there will be some tasty remediation jobs in construction, shortly.
“Americans. Re-doing the jobs others have screwed up”.
Americans? The same dumbasses who thought it was perfectly OK to borrow 10x annual earnings? I wouldn’t want someone like that in charge of anything involving money or arithmetic if I were an employer.
I can vouch for that. Technical job markets are so hot in India that they are sending fresh out of college kids and calling them senior engineers, 6 months and a failed project later someone has to step in to fix the crap
“Why do you think there was so much rage in the 1990s?”
Huh? The only rage I recall was rants from the right wing about Slick Willie. Maybe someone can offer other examples to refresh my memory.
You’re right: Thousands of MBA’s can’t even …”sort through the accounting errors…”.
And I’m an MBA who used to sift through such people to find the very few who could.
BTW, the successful entrepreneur in my family is my wife, who’s a medical professional (I did finance her private practice, though!).
As a CPA who worked as an auditor for 2 years in the nineties, I would like to share my observations on preparation of financial statements. A company’s managment is responsible for preparing the financials. A small group of low level auditors is generally responsible for reviewing material transactions, loss reserves, etc. and flagging any questionable transactions, estimates, etc. that may be material to the accuracy of the financials. Then, at the end of the audit, there is a meeting held with the audit team on one side of the table and company management on the other side of the table. The firm partner in charge of the audit then leads the discussion with the key company manager. Any questionable transactions or estimates the partner in charge deems unimportant are ignored. For the items the audit partner deems a concern, negotiations take place. After some discussion, the audit partner may agree to ‘allow’ some items while other items must be adjusted. For a company facing financial stress, management can become quite agressive, and will often try to force the auditor to accept questionable accounting items, often to the point of threatening to fire the audit firm or at least not inviting the firm back for next year’s audit. Like most contemporary professionals, the audit partner in charge must balance the risk of signing off on questionable transactions and estimates against the risk of losing the client’s business. When negotiations fail to produce agreement among the company and the audit firm, the stalemate can lead to a delay in issuing final financial statements - as more review and research may be required of the audit team, or the audit team may be kicked out of the building by angry management. Weeks may pass while managment shops for a professional opinion that would support their transactions/estimates. At some point one side or the other usually blinks, and usually the original audit firm will be sent back out to perform a few additional tests to resolve the issue. For a company with a history of issuing timely financial statements, any delay which arises is very likely due to management conflict with its auditors over large transactions and estimates. And the final numbers agreed upon are almost always negotiated to appease management - the only question is by how much.
Thank you. My question is this- why doesn’t the management of a company sort all of this out well in advance of the time the financial statement is due? At the very least it looks unprofessional to delay the release of a statement. Is it not in the interest of a company that its management at least appear competent?
What? Before bonus month?
Here is a quote on the Ivanhoe story from my blog, from an ex-employee:
don@greatchesapeake.com said…
I was an employee of CPM/Ivanhoe Mortgage. I haven’t seen anywhere yet where it has been disclosed that the sorry leaders of this company have stolen the funds from the 100 branches the operated under it. Funds were to be held in seperate accounts to be used for branch payrolls and expenses. It was our money. They also took the money that was to pay for our insurance policies and has now allowed the policies to lapse., with no COBRA offered. In there last “MEMO” Courson states that they have keeping us informed all along about money troubles, but doesn’t say that he has been saying how well the transition was going and that it would be a seamless transition. This executive group has mislead, literally robbed it’s employees, including the last payroll. They promised employees at the Orlando Ivanhoe Division severance packages but of course lied about that. I have never seen such a bunch of cowards in the business world as John Courson, John Cassell, Ed Fuchs, Paul Reich etc… Now they hide. If you happen to become an employee of any of these people in the future, BEWARE. They will steal from you and smile about it. Hopefully the law will catch up with them on this fiasco. Anyoe looking for anymore info on this situation can email me at don@greatchesapeake.com
Thu Mar 01, 11:42:00 AM PST
https://www2.blogger.com/comment.g?blogID=33255068&postID=2170011790548340889
ouch . . . not to mention the spelling.
Wow, this is getting ugly when the troops start to talk against their old leaders !
Holy Insolvency, Batman! That sounds almost word for word like the Enron debacle. These guys better hope they don’t find IEDs next to their Lexuses or Hummers or whatever piece of crap it is they drive. Of course, they probably have the wherewithal to get better armored vehicles than the troops in Iraq. Better medical care, too, if they need it.
Speaking of the troops in Iraq, I am totally ashamed that THIS is what they are supposedly fighting for. They should come home and help us mop up these dicks, that’s where the real good can be done. Which is why I’m sure the govmint has them in the Middle East.
The great diversion…
That’s an intelligent reply, based on a good foundation of constitutional knowledge.
Be sure to watch the video of this story:
http://www.bakersfieldbubble.blogspot.com/
Gekko-
Step away from the ledge, the market is tanking again, its going to be ok!
LOL, he’s “dollar cost averaging.”
He’ll probably reply that he sold last week. LMAO
As a long term buyer… I just keep thinking… buy low.
What’s that… do I see the fat lady beginning to warm up?
Now, since the final scene of this tragic opera takes a record amount of time, do understand there are a few intermissions.
Stock up!
Got popcorn?
Neil
ps
JK… its still so deep in the mud. Until BBB gets back above 85 cents its just a fun squiggly line to watch. 
The ABX index went up a little today… again. Hmmm… Is the pain almost over.
neil, i have cheddar cheese popcorn, chocolate covered popcorn, regular popcorn and none of them are as fun as reading your posts. and im a snacker!
Yeah, and whatever happned to “The Banker” and “NVlandlord” LOL!
i HATE Youngblood from FBR…
“The change was little-noticed, says Youngblood, because the lenders actively denied it. “To my disappointment as a long-time analyst,” says Youngblood, the major lenders insisted that they had not lowered their credit standards long after they had begun to do so. “I met with all of the public subprime lenders in early June…to a man they swore they had maintained 2005 origination volumes…without sacrificing credit quality. Like a dope, I sat there and didn’t challenge them.”
*ahhhhhhhhhhhhh* thanks, i enjoyed that.
Yeah Youngblood said the following last year:
Why The Housing Bubble Won’t Burst
Veteran analyst Michael Youngblood explains his unusually optimistic take on the real estate market.
He bases this assessment on a new economic model he created that forecasts housing prices in 379 metropolitan statistical areas. Associate Editor Toddi Gutner spoke with Youngblood about his upbeat view and his surprising prediction that the greatest price appreciation will be coming in so-called bubble markets.
What makes you more optimistic than other housing experts?
I look at two economic indicators that I think drive the housing market: the growth in employment and the growth in personal income. Getting a job or a salary increase is what motivates people to buy their own home. This is different from the data the National Association of Realtors and other organizations rely on. They are more concerned with technical indicators such as the inventory-to-sales ratio and the number of months a house is on the market. These aren’t leading indicators. Instead, they move with current changes in the market, rather than predict those changes.
Do you think the housing bubble argument is overblown?
Absolutely. It’s overblown because there is no national housing market, so there can’t be a national house-price bubble. However, there are bubbles in 75 of the 379 markets I studied. A bubble exists when the ratio of the median existing house price to per capita personal income exceeds 6.8 times. This definition is based on historical data of when other markets, like Houston and Boston, had bubbles
What markets are likely to show the biggest price gains and declines this year?
We expect the greatest gains in Bakersfield, Calif. (43%), Fort Myers, Fla. (42%), Stockton, Calif. (39%), and Punta Gorda, Fla. (35%); the biggest declines in Harrisburg, Pa. (8%), Odessa, Tex., Roanoke, Va., and Utica, N.Y. (all 6%).
http://www.businessweek.com/magaz
ine/content/06_20/b3984102.htm?chan=search
Bakersfield, Fort Myers, Stockton, Punta Gorda, hmmm.
Well, the problem is that “veteran analyst Michael Youngblood” has been analyzing veterans instead of analyzing the RE market. That’s my charitable analysis of his error.
“I look at two economic indicators that I think drive the housing market: the growth in employment and the growth in personal income.”
This is where his model failed. In this cycle it is excesses in the housing market that are driving the economy. The tail is wagging the dog. You would think a forecast of Bakersfield appreciation of 43% might cause him to re-examine his assumptions.
That man is not fit to shine my shoes.
“He bases this assessment on a new economic model”
Stop right there ! There are thousands of economists in the world and our economic systems have been running for hundreds of years. And HE thinks he has a new model. Sure…. Its different this time. Yeah.
“New analysis suggests that subprime lenders lowered their lending standards last year as they competed for business”
“The change was little-noticed”
“they swore they had maintained 2005 origination volumes…without sacrificing credit quality.”
This guy is a complete moron. First it seems as if he thinks he’s discovered something no one else knew about. Secondly, he thinks lending standards were hunky dorey before ‘06. c&c’s article soldify’s it.
solidify’s = solidifies
“‘I have two small children and now I have no money, no job and no health or dental benefits,’ wrote the former employee. ‘Let’s give a nice BIG HAND to the MAN for all of his major accomplishments.’”
No money? Whose fault is that? Ever heard of saving for a rainy day, moron?
I mean, is it just me, or wouldn’t you be mortified to whine about your problems in print like that? Wouldn’t you be out getting a job, for chrissakes? You know, for those two small children?
I’ll just BET that this sap has a whole houseful of crap and a garage to match. Those are the ones who whine and carp the loudest. Did he save any easy money??? Did he pay attention for the last several months and see what was going to happen?
No. The gravy train is full of fools and once it stops they whine like cranky toddlers. Criminy.
Does anyone remember all the articles from last year that went something like “We’ve never had so much subprime mortgage debt, we’ll just have to wait and see how it all plays out.” Guess the jury’s still out on that one.
CNBC is having a sub prime broker on next (2:15 PM EST). Sound like it might be interesting….the tease claims that he will say the market is in choas.
Please give all details, I am not near a TV - Thanks!!!
New lows every 5 min. and it’s Friday. This is not good if you’re a regular imbiber of the koolaid.
I’m telling ya, I was explaining to my friend that the carnage was underway, they were just trying to game it off until Friday, so they could shut the doors for the weekend instead of having to do it by emergency during the week.
Buy stock in Jack Daniels. The bars will be full tonight. Saturday night, too. Hell, they’ll fill up tonight and stay that way until Monday.
I might drink some JD tonight, but I’ll be celebrating…
I’ll raise my glass in a toast with you from the other side of the bay, Alameda County.
Praise the Lord and pass the ammunition.
“Says Youngblood: ‘The lack of overt changes in underwriting guidelines allowed the industry covertly to adjust its underwriting standards.’”
“‘You had two choices: relax your standards or lose business,’ says Robert Lacoursiere, a Banc of America Securities analyst. ‘It was a giant game of chicken.’”
Was there one bank out there that stayed relatively ethical and kept standards somewhat traditional?
VLY valleynational in wayne nj, sort of did that that was their strategy… their ceo was a former bank examiner with the treasury (10+yrs) so he had experience with cyclical booms/busts loan not having enough eqty etc… Also some banks that are privately held Apple Bank in Ny, Emigrant, some that are owned to a large degree by top people, like Berkshire (small bank in ny about 9 branches is listed), USB (small bank in ny about 20-30 branches). where top person(s) have over 40%.
Credit Unions. The ones I use seem to have kept their noses clean. Wait and watch…if we see CU-backed loans starting to default then we’ll know we’re in for a real financial fudge-packing.
one did default in wisconsin or michigan recently
and the one below in viginia
http://www.ncua.gov/news/press_releases/2007/MR07-0216.htm
not virginia, whichita kansas…
Not all CUs; here in Arizona ‘Desert Schools Federal CU’ (the largest CU in the state) has television ads urging folks to get a HELOC and take a vacation with the $$. Check it out:
http://tinyurl.com/364h55
When I joined Boeing in the early 80’s, the Boeing Employee’s Credit Union (BECU) didn’t make home loans at all. (Que file footage of the early 1970’s billboard: “Will the last one leaving Seattle, please turn off the lights!”).
BECU is a pretty large asset CU, but depositors in mostly one small geographical area who work for one company. A very cyclic company in a very cyclic industry. I didn’t feel very good about them starting up their residential loan program again (I don’t remember the year, possibly mid 1990s).
The original reasons for not doing home loans seemed pretty sound to me, and unchanged.
This stuff goes to the heart of the bubble. This bubble was not caused by fundamentals - higher income, more people competing for a limited supply - but rather it was caused by a credit bubble.
Real estate prices are determined at the margins. One FB pays double what the houses normally go for, and suddenly, the houses in the area are supposedly worth what FB paid for his.
So, it doesn’t take a lot of subprime and Alt-A to jack up home prices astronomically.
Question:
Assuming all of these bad loans are defaulting (or non-performing, or whatever) where is the money going? This seems to be a mass transfer of wealth from financial institutions to … well … somewhere, but where? And wouldn’t that destination (whether physical or more conceptual) be an unbelievable investment opportunity?
The mass transfer of wealth was from financial institutions underwriting bad loans to those who sold their homes at the top of the market.
I was wondering the same thing about the fate of these bad loans. Do the banks stuck with repurchasing these loans wrap them up in a package and sell them at a steep discount? Or do they work through the bad loans one by one themselves?
“The mass transfer of wealth was from financial institutions underwriting bad loans to those who sold their homes at the top of the market.”
That would be me. Gee, for once the wealth was transferred from the bankers to me. Don’t that beat all. And I didn’t even buy a plasma TV with some of the proceeds.l
lets hope they get their clocks cleaned.
Mad_Tiger, with regard to repurchases, most mortgage banks renegotiate pricing with investors based on the “newfound” quality of the loans. A loan that was previously sold by the mortgage bank to an investor for 102% (of the note amount) may only be worth 75% (of the note amount) after early payment defaults are factored in. Mortgage banks are then faced with a decision to either repurchase the loan in its entirety and resale it to another investor for a better price (which requires cash…and a lot of it) OR cough up 27 cents on the dollar (102-75) and swallow the loss. Only problem, there are a lot of mortgage banks that either don’t provision for loan losses OR underestimate loan losses altogether. In my opinion, mortgage banks that are NOT heavily regulated tend to fall into this bucket more often than not. Lately, there’s been a lot of news about mortgage banks going under due to repurchases, but trust me when I say this, there are A LOT of mortgage banks with repurchase claims that are still in business. Investors are dancing with these mortgage banks in hopes of recouping their losses. At some point, these investors are going to say “enough is enough…you need to pay me now.” That’s when the music stops. There’s a lot of dancing going on right now. Also, there are a lot of bloggers on this board who thrive on negative news about the housing industry, but this is a very unfortunate situation. Here’s why…there are a lot of shareholders, employees, creditors, homeowners, etc who were not invited to the dance and have no clue about the exposure that their companies face.
The money went
- to the previous house- and landowners who welcomed the windfall
- to employees of the REIC: realtors, brokers, builders
(builder companies are suffering now, but many owners do not, see Toll brothers)
- to those who sold goods and services to the profiteers above
(housing lifted the economy - now some fear it will take the economy down, too)
The moeny went - emphasis on the past tense.
The money’s been spent already. What do you think has been holding our economy up? The banks are losing money, because they already gave it out for people to spend, and it can’t be paid back.
The money isn’t “going” anywhere..it left when the loan was made. If a stock is at $50 at today’s close and opens on Monday at $25. where did the money go? It was destroyed by fear. The same is true of a house and loans.
One the greatest fiancial follies is the idea that money and wealth “go” somewhere when one investment dies. A small amount can move but the selling to make the movement in a fearful climate results in wealth destruction on a vast scale.
The current realestate price structure for homes since 2001 is made up of a transfer of 20% of the housing stock….often just the same houses bid up. It will not take a lot of volume to kill prices once fear arrives.
The paradox is that in order for markets and economies to build for the next expansion, great booms must be followed by great busts.
The money isn’t “going” anywhere..it left when the loan was made. If a stock is at $50 at today’s close and opens on Monday at $25. where did the money go? It was destroyed by fear. The same is true of a house and loans.
One the greatest fiancial follies is the idea that money and wealth “go” somewhere when one investment dies. A small amount can move but the selling to make the movement in a fearful climate results in wealth destruction on a vast scale.
The current realestate price structure for homes since 2001 is made up of a transfer of 20% of the housing stock….often just the same houses bid up. It will not take a lot of volume to kill prices once fear arrives.
The paradox is that in order for markets and economies to build for the next expansion, great booms must be followed by great busts.
The money isn’t “going” anywhere..it left when the loan was made. If a stock is at $50 at today’s close and opens on Monday at $25. where did the money go? It was destroyed by fear. The same is true of a house and loans.
One the greatest fiancial follies is the idea that money and wealth “go” somewhere when one investment dies. A small amount can move but the selling to make the movement in a fearful climate results in wealth destruction on a vast scale.
The current realestate price structure for homes since 2001 is made up of a transfer of 20% of the housing stock….often just the same houses bid up. It will not take a lot of volume to kill prices once fear arrives.
The paradox is that in order for markets and economies to build for the next expansion, great booms must be followed by great busts.
I personally believe that a lot of the money did not come from financial institutions but from institutional endowments and overseas (i.e. China, Saudi Arabia, etc.). With the trade deficit, those countries have to do something with the money they get from us in order to keep their currency propped up.
Since they obviously aren’t buy American goods with American currency, the remaining choice is American debt in the form of US Treasuries or bonds (corporate or mortgage backed securities).
On top of this, Japanese debt has been extremely cheap for a number of years. On top of looking like a much better “investment” than a Japanese savings account, I am willing to bet that the Japanese have been turning to the MBS market as a higher rate of return to their cash (they got kicked in their nuts on their own market in the 90’s).
I’m also willing to be that there are a number of Hedge funds (since there are over 6000 in the US…..which is more than the number of Taco “I like to destroy the colons of local rat colonies on top of my customers” Bell restaurants) have been doing the carry trade: borrow at 3% in Japan and lend at 5% in the US and pocket the 2% as a “profit.”
So, let’s see, China, Saudi Arabia, Japan, etc. get screwed while a few Americans make a princely sum. Yay, us. But wait. What happens if those that get screwed do the “fool me once shame on you, fool me twice shame on me” line? They will all of the sudden demand much higher rates for our debt…if they decide to buy our debt at all. Now, they no longer are propping our dollar up by buying debt and instead our dollar falls.
Now all those cheap goods from China, Japan, etc. are going to cost more. Rising inflation means what? Rising interest rates? Uh-oh.
I think you are definitely right on the yen carry trade. It was no brainer money ! Borrow at 0% and lend it at 6%. 5% spread. No work. No risk. The US housing market will never fall and even if it did, they probably bought swaps to protect it. Sure fire way to make money.
Only the whole trade is collapsing ! The yen is climbing, so its harder to pay it back. Japan raised interest rates again. The price of MBSes has fallen, so they are harder to get out of, if you can at all. And now the asset that backs them up is becoming unstable, so you can’t really hold onto them. Talk about a TRAP !
I think next week is going to be very interesting !
Question: When was the last time the market didn’t have so many investors, sub-prime, and 0 down buyers?
In other words, without these buyers as part of the market, what year’s prices (not counting inflation) do we go back to? 1995? 1998?
I would think 1998 just to normalize. Probably 1995 since corrections generally overshoot on the way down.
I for one would cherish a second chance to buy in SoCal at 1995 prices (adjusted for inflation). You could get a perfectly decent house for $200k back then.
‘95 prices are a given. This bust is going to decimate homeowners equity. What happens when there’s no trade-up market because there’s no equity to trade up???
Of course, I believe we’ll see even lower prices. The coming depression will easily set housing values back decades.
“Assuming all of these bad loans are defaulting (or non-performing, or whatever) where is the money going? This seems to be a mass transfer of wealth from financial institutions to … well … somewhere, but where? And wouldn’t that destination (whether physical or more conceptual) be an unbelievable investment opportunity?” emcee…
Well emcee this is how I see it. The losses on MBS will reduce our excess liquidity so anyone whom has money to invest once liquidity shrinks will gain. So look at it this way the more massive the loss MBS investors suffer global/nationally the harsher the liquidity crunch in the medium term the higher rates of return required for that money to be placed somewhere ( be it housing, stocks, bonds, etc…)
From Business Week: “… many people are wondering what could have gone so wrong so quickly.”
Idiots!
I do not think the public is really wondering or are aware of the crash until it actually cascades down. (and right now its only rolling slowly I might add). Lots of people clueless and it didnt really happen all that quickly warning signs from 04 sort of alerted those whom paid attention.
From http://news.monstersandcritics.com/business/news/article_1272018.php/Report_U.S._mortgage_crisis_ahead
NEW YORK, NY, United States (UPI) — Foreclosures among high-risk U.S. mortgages could create the worst mortgage crisis since the 1980s, a published report said Friday.
Rising foreclosures and defaults have pushed more than 20 lending companies into bankruptcy, The Christian Science Monitor says.
Some housing specialists worry the mortgage industry will respond by raising its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out, extending the current U.S. housing slump.
‘It`s the most serious threat to the economy,’ Mark Zandi of Moody`s Economy.com says. ‘It has the potential to set the housing market back another big notch since there could be a whole class of people who can`t get credit.’
‘Subprime’ mortgages, for people who do not qualify for the conventional mortgages, now account for 18 percent to 24 percent of all mortgages, up from 5 percent in 1995, Wall Street analysts estimate.
Oh, the humanity!
Economic Armegeddon is here!
As a wise man once said,” I have bcome death, the destoyer of worlds”.
Oppenheimer upon seeing the first neuclear explosion.
nuclear…whoops…too much Jd
He got that from the Baghvad Ghita (probably after too much JD).
Anybody seen the AH action on NEW after their death announcement? Beat to a pulp. I’ve never seen so many same industry (or scam) stocks beat so badly and collapse almost at once! What a week!
Yes. down 25% afterhours. The stock chart reminds me a bit of ENE. The old symbol for Enron.
WOW, there is just no bottom to the subprime companies. It was all a sham ! I thought they were operating with razor thin margins, but I didn’t expect something like this.
This news will unnerve investors, especially foreign MBS buyers, even more. Should really rock the markets on Monday. Oh, and note that Goldman Sachs has its fingers in the pie. I think them and several other big Wall Street firms are going to get taken to the cleaners with this.
I figure we are 2 weeks away from a full market crash. New and Freemont and GMAC will all give bad news about the same. Maybe throw in one or two big banks with bad news. The whole stock market will implode as everyone and their dog pulls in their carry trade, the MBS market goes no sale and everyone realizes the US is on the verge of a huge recession.
I give it 2 weeks.
There are still a lot of unanswered questions about this Company’s past performance. In addition, many of the investors (loan purchasers) that purchased much of their loan production in the past have tightened product guidelines for subprime and Alt-A loan products. Not to mention…lawmakers are looking to impose tighter lending standards. Given the Company’s subprime lending platform, it’s still not clear how these changes will impact New Century’s operating and financial positions.