Something That Comes Around Once Every 20 Years
Some housing bubble news from Wall Street and Washington. “Beazer Homes USA Inc. said late Thursday that it got a grand jury subpoena demanding documents relating to its mortgage origination business. Several major home builders also operate finance companies to help customers buy their houses. Those businesses and the broader home-lending industry have been under scrutiny lately as defaults among the riskiest of those loans, called subprime, have spiked.”
“Lerach Coughlin Stoia Geller Rudman & Robbins LLP today announced that a class action has been commenced on behalf of purchasers of Beazer Homes common stock during the period between July 27, 2006 and March 27, 2007.”
From Bloomberg. “U.S. homebuilders may trigger a ‘correlation crisis’ similar to the credit sell off in 2005 when Ford Motor Co. and General Motors Corp. lost their investment-grade credit ratings, according to Bank of America Corp.”
“‘We see increasing risk signals that remind us of the run- up to the 2005 correlation meltdown,’ the analysts wrote. Investors may demand a higher premium for holding the equity tranche related to the benchmark investment-grade credit- default swap index, should the cost of contracts on homebuilders in the index rise, the analysts said.”
“‘We would not be surprised to see a potential dramatic increase in the premiums required by equity tranche holders to hold first-loss risk,’ the analysts wrote. ‘A reversal in the current demand for equity tranche protection could send investment-grade index spreads significantly wider.’”
From CNN Money. “On Tuesday, Lennar CEO Stuart Miller told investors on the company’s conference call that some markets were still seeing declines, according to Reuters. That comment and other recent signs probably mean the industry is still a long way from the bottom, said Morningstar analyst Parrish Glover.”
“‘There’s a reason why D.R. Horton’s CEO said, ‘07 is going to suck’, Glover told CNNMoney. ‘We’re not even expecting a recovery in the next 18 months. Even for the next three to five years, we’re not looking at an especially robust market.’”
“‘This kind of bull market that’s deflating is something that comes around once every 20 years,’ he said.”
From Reuters. “‘2006 may prove to be the worst subprime vintage ever,’ said Roelof Slump, a U.S.-based managing director for (Fitch Ratings), adding that he expects losses of between 6% and 8% in the value of these bonds.”
“Slump told Reuters that problems in the subprime housing market could have an impact on the overall housing sector in the United States. ‘We do believe that the very same things that are happening in the subprime market are likely to be happening in the Alt-A market, again driven by home prices.’ he said.”
The Financial Times. “Credit Suisse has filed lawsuits against at least three US subprime mortgage lenders, marking an escalation of efforts by Wall Street banks to use legal action to purge themselves of bad housing loans.”
“DLJ Mortgage Capital, a unit of Credit Suisse, is separately suing the three mortgage companies. EMC Mortgage Corp, a unit of Bear Stearns, has filed at least one $70m lawsuit against a lender. Other suits are expected. The legal action comes as Wall Street seeks to limit damage from the subprime collapse.”
“In one instance, cited in the case against Infinity Home Mortgages, DLJ claims it bought four mortgage loans totalling $838,000 made to an individual borrower for three properties on the same street in Irvington, New Jersey. DLJ bought the loans from Infinity between March and April 2006, and claims that the individual failed to make payments on three of the mortgages in May.”
“‘I can’t believe there is a soul that has been dealing in mortgage sales to Wall Street that hasn’t run into early payment default problems,’ Sunset Direct Lending CEO Bob Howard said. He added that Sunset was no longer making new loans.”
“The long list of participants in the subprime mortgage crisis will not go unscathed in sharing the pain but should work together to find solutions to the problem, a U.S. banking regulatory official said on Wednesday.”
“‘I believe there is more than enough blame to go around,’ Sara Kelsey, general counsel of the Federal Deposit Insurance Corporation, said.”
“The pain starts with borrowers and then mortgage brokers and bankers to brokerage firms, parties involved in securitizing mortgages, domestic and foreign investors, and insurance companies, she said.”
“The list also includes pension funds, mutual funds and hedge funds, as well as banks that provided money to each of the market participants, she added.”
“She said data suggest 52 percent of subprime mortgages are originated by independent mortgage banking companies, 23 percent by banks and thrifts, 13 percent by mortgage banking subsidiaries of bank and thrifts and 12 percent by mortgage banking units of bank and thrift holding companies.”
“The Federal Reserve encouraged this but also has hiked interest rates. ‘I believe that the hard lesson we are all learning from the current situation will involve shared pain, all along the line,’ Kelsey said.”
“NAR Chief Economist David Lereah predicted that tighter underwriting practices may cause total home sales to fall by about 100,000 to 250,000 nationally, or no more than 3 percent a year over the next two years.”
“Lereah warned against overreaction to the situation. ‘Tougher lending standards imposed by the marketplace and the regulators are necessary, but we need to be mindful of overcorrection. Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,’ Lereah said.”
The Boston Herald. “Amid outrage on Beacon Hill over a tidal wave of home foreclosures, leaders of the Bay State’s embattled mortgage industry are quietly doing a little housecleaning. The Massachusetts Mortgage Bankers Association has ejected a trio of now controversy-tarred, and financially troubled, subprime lenders from its membership rolls.”
“‘It’s more the case we want to protect ourselves,’ Charlie Nilsen, head of the Massachusetts Mortgage Bankers Association’s communications committee. ‘When we talk to regulators, our integrity, our credibility is really important.’”
“Community activist Jenelle Dame has a secret weapon to hit back at the predatory lenders blamed for putting millions of Americans at risk of losing their homes: she calls in the sharks.”
“‘We go to their office and bring people and signs and little plastic sharks, like loan sharks. We put sharks all around their offices,’ said Dame, an organizer in Cleveland, Ohio, which had the nation’s highest foreclosure rate last year.”
“Florida’s tax receipts are falling for the first time since 1975 as a slump in construction and home sales dims the economy of the Sunshine State.”
“States from New Jersey to California are getting pinched, just a year after many enacted the biggest spending increases in almost two decades. ‘A lot of states are starting to worry,’ said Iris Lav, who follows state budgets for a nonprofit. ‘We have yet to see the effects of the bursting of the property bubble.’”
“Philadelphia Federal Reserve Bank President Charles Plosser on Friday cautioned against seeking quick policy solutions to pressing problems like rising defaults in subprime mortgage markets.”
“Speaking at a Fed conference on community development, Plosser never referred directly to the issue of subprime lending defaults but left little doubt he was talking about calls for action to deal with the problems the sector faces.”
“‘While the symptoms of economic and financial hardship can be stark and dramatic at times, the causes are often subtle and complex,’ Plosser said.”
“‘Bold headlines, graphic news stories are tempting to generalize and may evoke calls for immediate policy response,’ he added. ‘But public policy driven by headlines rarely turns out to be good public policy.’”
“‘We must remember that markets are a powerful source of innovation. Our development efforts should not necessarily focus on thwarting or overriding market mechanisms, but rather they should focus on taking greater advantage of it,’ Plosser said.”
‘H&R Block Inc., under pressure from investors to sell the money-losing subprime mortgage unit, signaled it won’t meet a self-imposed deadline to find a buyer. While the company expected to announce a deal for Option One Mortgage Corp. by the end of this month, ‘recent events in the subprime mortgage industry have affected the process,’ said an H&R Block statement today.’
‘ECC Capital Corporation today announced that it expects an additional delay in the filing of its 2006 annual report on Form 10-K beyond the extension due date of April 2, 2007. As previously announced, ECC Capital was unable to meet the original deadline for the filing of its
2006 annual report. Due to the complexities of the recent transaction
involving the sale of ECC Capital’s mortgage banking business and the
present environment in which ECC Capital operates, its outside auditors
require additional time to complete their audit.’
I use to do appraisal work for Option 1 was it was a subsidiary of Fleet Bank.
The houses were always run-down, fooked up, POS on weird lots in marginal neighborhoods.
What moron would buy the paper backed by these assets.
…morons who have not see the properties, just numbers on a CDO package.
Dont’ know if you all remember the stock selloff triggered by that GM thing in ‘05. It was a good one!
WTTW
One of the items rarely discussed Tx is that the US is probably powerless to stop the decline in houses, but the ineptitude of the government is such that they can accelerate the decline. Todays government actions certainly indicate stupidity that will accelerate the decline.
If only there were government economists that understood cognitive economics.
We are doomed.
What’d you expect…
We pored over potential candidates for leadership with a fine tooth comb, so better as to divulge any “flaws”
Look where it got us
aladinsane, it’s not that we didn’t look for flaws, it’s that stupidity is not considered a flaw.
Accelerating the decline is a net postive for the economy in the long run. Let’s hope they are successful
canuck: i agree with you 100%. The unfortunate thing is that our politicians only think as far ahead as the next election. I still have another 50+ years left on this planet (knock on wood) and I am very concerned about the economic future. Government is an unfortunate necessity and it would be great to actually see a leader stand up for some common sense when it comes to the economy.
Hoz — just one poster’s personal opinion — I prefer a quick and dirty meltdown to a prolonged, slow one. That would be to my personal benefit, I being pretty long of tooth and desirous of spending quality time with my grandchildren without worrying about property values.
“‘This kind of bull market that’s deflating is something that comes around once every 20 years,’ he said.”
I guess that means “Buy now, and be priced out forever.”
Buy now and be financially imprisoned forever.
RE: Buy now and be financially imprisoned forever.
LMAO…well put!
I look at this as meaning “once every 20 years, one is given an opportunity to short the market and make a fortune.”
“every 20 years” my foot. Try, every 80 years. Nothing like this has been seen in my lifetime, and I’m 61. Guessing 1929 would be the closest relative.
I agree with you. Every 80 years. This is not talked about that much, but I believe the most fundamental element of these bubble/ busts is that they only happen once every 80 years. So when they come around all the adults have no experience to draw upon in how to deal with them. Most are doomed by natural human greed. Some like those of us here sit out on the sidelines and watch the folly.
Thing is, no one who goes through a bubble bust cycle will ever be able to use their experience when another one comes because they won’t be alive when the next one comes. 80 years from now when the next one comes there will be new adults who havent been born yet as of this writing. Most of them will be greedy and some will not. And then they too will not be able to use their experience as they will not see another bubble bust in their lifetime. And so on and so on.
With regards to the economy, I agree with you. With regards to the stock market - a bull market collapses about every 20 years. Morningstar cares about the stock and bond markets.
Sigma 18 event not as likely, sigma 5 probable.
Sparrow, that’s what history books are made for.
“So when they come around all the adults have no experience to draw upon in how to deal with them. Most are doomed by natural human greed. Some like those of us here sit out on the sidelines and watch the folly.”
So true.
It’s always “Different this time” until it’s not.
One of my last conversations with my grandmother was about the Great Depression and the financing and easy credit that were available before the bust. (She died recently and would have been 100 this year.) She couldn’t understand how houses were going up in value so wildly recently, so I explained the financing being used to enable it. She was absolutely stunned that people could be that foolish all over again!
Same with my Great grandma who will be 100 in 2 months, she still remembers the days back in Texas during the Great Depression.
My mom grew up on the farm in Alberta, Canada during the Great Depression.
She still saves virtually everything.
The legal action comes as Wall Street seeks to limit damage from the subprime collapse.”
This is really disingenuous. I’m sure all of these WS firms made enough money on these that they’d still come out ahead if they all went to zero.
I was talking to a reporter a couple of weeks ago who suggested that WS was deliberately crashing the subprimes so the pieces could be picked up cheap. Don’t know about that.
I’ve said that multiple times on this board. I think that’s happening too.
could be…
but again, I’ll bet you they are FRANTICALLY looking at their “impervious” models… to see if there could be a potential flaw in their reasoning… like say, not taking into consideration that Real Estate can fall… or perhaps not taking into consideration that your counterparty can go BK.
I think that they’re starting to worry… some of the big boys might not make it out of this.
thus, the “winner” will be the one who gets the assets in their name first.
(counterparty failure is a b*tch when you thought you were hedged)
Hi Inspector,
I’m not as schooled on WS as many on the blog seem to be. Would you mind defining “counterparty” for those of us who are not familiar?
Thanks!
BayQT~
The patient (the housing market)
Is Toast.
Not unlike how one of our hospitals, that are all mostly operated on a profit basis, nowadays. (stick that in your caduceus)
People used to die deaths of honor, not being kept going, for keep goings sake ($$$$$$)
Perhaps the very same thing is happening here.
BayQT: I’m assuming that the Inspector is referring to the lenders/borrowers as the counterparty?
Been up to see the latest Toll Bros. project? Selling townhomes between $7-900K. Honestly, I don’t who is buying those at this point in time and at that price. Earlier this year I was thinking we needed a 40% haircut, but after seeing this I’m thinking 50-60%. I don’t care what anyone says, that is a ton of money and there are not that many people here who make the necessary salary. As credit starts to tighten it will be interesting to watch the progress of their future phases. People here are still deeply in denial. People who bought their condos back in 2005 are now underwater. Is the water district putting kool-aid in our system? This summer could get fugly.
the summer will be hot one. cooling those 4000sq ft behemoth’s ain’t cheap.
lmao at all the denial out there
sfbayqt,
The CP (counterparty) is simply the other side to the transaction. You are “the party.” CP risk is the risk that you could lose money due to insolvency by the CP (as opposed to market risk, systemic risk, etc). Securities exchanges like the stock market reduce CP risk, since the exchange is everyone’s CP. You don’t have to worry about the CP not delivering the stock shares you bought.
But there are no such assurances in the world of hedge funds and credit default swaps. Thus, if the CP goes TU (tits up), you could be in big trouble, much bigger trouble than if the market simply turned against you.
The counterparty is the opposite side in a derivative contract/hedge (or any contract technically). The hedge is only as valuable as the creditworthiness of the counterparty (just as flood insurance on your home may be worthless in the event of a large flood of your state which bankrupts your insurance company). Those who have assumed that entities like New Century (or PMI?) will be around and solvent in the event of a housing collapse for modelling purposes may be in for a surprise. This could have a cascade effect if your company is bankrupted because of the failed hedge, which will in turn impact other entities which have taken your solvency for granted.
BayQT: Generally speaking, a counterparty is simply one of the other parties to a transaction. So, in this case, I think that Inspector is referring to the parties that are, in essence, contractually accepting the risk of loss from the Wall St. banks. For example, those parties (e.g., hedge funds) who entered into credit default swaps with the WS boys (essentially providing insurance against losses in the MBSs or CDOs). These parties (the counterparties from the WS boys’ point of view) agreed to take the losses (in exchange for, essentially, an insurance premium), so the WS boys think that they have a can’t lose investment. But the value of that insurance is only as good as the ability of those parties issuing the credit default swaps (i.e., the counterparties) to actually pay in the event of default. Since many of those counterparties may (and probably are) heavily leveraged, they could go BK if too many claims are made on all of the credit default swaps they issued. If they do go BK, then that insurance isn’t really worth anything, and the WS boys will have to absorb the losses on what they previously thought were can’t lose investments. This is one form of counterparty risk. There were other forms that this took, as well, but that basically describes counterparty risk in this scenario. Hope that helps. And I hope that I didn’t mispeak for Inspector.
Wow! Thanks, all, for the very detailed explanation.
CA Guy: You must be referring to Sorrento. Man, I just give up. People are just stuck on stupid, and Toll Bros are banking on it. There is no f’ing way that I would spend that kind of money on a townhouse. I’m with you on the 50-60% haircut. It may sound drastic (especially to the knuckleheads who bought in the last 5 years), but necessary. It could take a while….but they will eventually find out that they don’t have what they think they have.
Last weekend (and again last night) I had an in-depth conversation with a 30-something friend who wants to purchase income property. Luckily, when I started talking, he was all ears and couldn’t get enough….kept asking questions, asking what I would do in certain situations, asking about *my* (out of state) income property and how it’s worked out for me. Mind you, I’ve owned mine since ‘99 so I had plenty of first-hand experience to share. We talked about being a landlord, but more importantly, the climate of the market now. He’s been talking to an “agent” but I gave him LOTS of food for thought so now he’s beginning to question the “agent”. (YES!!)
I’ve sent him the link to this blog, and patrick’s, as well as tons of other stuff to read up on. I stressed that he has to DO HIS HOMEWORK. He is new to the game and wants to get in but I majorly stressed that he has time to wait out the mess that’s going on.
When we parted, he thanked me and said that we would continue the discussion the next time we talk. The biggest compliment he paid me was “when I grow up I want to be just like you…a successful landlord….positive cash-flow, ducks in a row.” As a 30-something male saying this to a 50-something female, that’s huge.
BayQT~
QT: Sounds like you did a great job with your friend! You are to be admired. I tried that with some of my family, but they did not take my advice. We shall see..
Yes, I was referring to Sorrento. They are quite large for townhomes, but “stuck on stupid” is a perfect way of putting it. Toll has been laughing all the way to the bank with their Dublin projects.
People need to start getting real. The bay area has fewer jobs than it did six years ago, and unless you were a loan officer or realtor, wages are effectively stagnant. There is no way in hell the majority of people in town can actually afford to purchase those homes. Loose lending and a willing Fed are the reasons we have this mess. To believe that it is rational or sustainable is beyond stupid.
Oh yeah, I’m a male in my early 30s also, and you sound like an intelligent and cool woman to me also! You’re more with it than most of the people I know! Have a great weekend!
Bay QT–
Many here gave a very good explanation of what a counterparty generally is, but I think what the most important flaw in the WS subprime business model as it relates to coutnerparty risk had to do with mortgage buybacks.
WS firms needed to convince buyers or their MBS that default risk was low in order to justify the shrinking risk premiums that they were charging. The first such risk mitigant was rising home prices. The second had to do with buyback requirements. The WS firms looked at history and noted that the greatest indicator of mortgage defaults was early non-payment. So to sell the pools to the buyers, they gave some level of assurance that they had hedged against bad loans by making the originating entity (New Century, etc.) agree to buy back loans that went into default early, theoretically placing the default risk squarely in the hands of the originating lender.
The problem is, the New Centuries of the world were thinly capitalized by the same WS firms (via lines of credit), and because so much of their earnings were tied to volume, and not quality of that volume (since risk premiums had shrunk so greatly for ALL mortgages), they didn’t do any underwriting. What did they care? They had no capital to protect, and they made very little (if any) more money by having tougher underwriting standards!
In essence, the WS firms entire business model operated under the assumption that their counterparty had bottomless pockets, when, in fact, they had no pockets at all!
Now we’re in the vicious cycle, which will get a lot worse before it gets better.
Nice thread.
From a purely stock market perspective this may be true. The hot-money crowd (Russ Winter refers to these people as Pigmen and Riskloves) love to game the market to make “somethin” happen. If what you are saying is true, and I believe it is, these guys are really playing with fire and it will blow up in their face, imho. I’m thinking of LEND recently, which was as good as dead, dropping into the low single digits on its was to a NEW-style death-spiral. Then miraculously, Farallon was there to lend $200M to keep LEND going. How this “fixes” LEND’s very serious problems I have no idea, but the stock rebounded to almost $13. Now the air is being let out slowly so I’m not sure who will end up with the bag. Lend is basically holding a bunch of toxic waste that continues to degrade and become more toxic. Nothing will change this basic fact.
Another stock I’m curious about is HRB, who missed the deadline with Option One. Strangely there stock has never really gotten hammered the way the other subprimes have, even though the 5 year shows the stock benefiting greatly from Option One on the way up with the RE bubble. Seems to me the Pigmen would want to take this one out too, and especially this one because its a real company, but who knows?
I have to agree with you. What pieces will be left to pick up? The loans were all sold off and the cash is gone. The only thing remaining is the liabilities and a brand that is on par with Enron. This is an industry where the barrier to entry is finding a space and putting in some phone lines and cubicles.
The only play I see is in making the loans seem so toxic that 2004 - 2006 vintages start selling for less than $0.50 on the dollar.
This is an industry where the barrier to entry is finding a space and putting in some phone lines and cubicles.
ala: FL boiler room, penny stock hucksters & con-men.
Another way to enter is to HAVE some money to lend. I have no office and yet my borrowers find me. Ah, but my business is not loon-origination. It’s lending real money, which means I just need to know how to get a Deed of Trust recorded, and how to check that there are none senior. And then I need an address where the clients’ monthly payments can be sent: just my Merrill Lynch account. And then I have needed a lawyer from time to time (the borrowers pay him, ha ha), but hope I have learned how not to need him at all, even though he’s very good.
I was talking to a reporter a couple of weeks ago who suggested that WS was deliberately crashing the subprimes so the pieces could be picked up cheap. Don’t know about that.
An alternative point of view is that the major institutional (bag)holders want people to THINK that’s the strategy, in hopes they can run up the prices enough to dump their shares before the bottom drops out.
The MSM articles about these high foreclosure subdivisions always talk about subprime foreclosures. But these cases, Beazer, KB, and Dominion, have all involved FHA mortgages, not subprime. Why does the MSM keep talking about subprime in these articles?
From the BZH lawsuit link:
‘(a) the Company lacked requisite internal controls over its lending practices, which, as a result of its improper lending practices prior to and during the Class Period, would lead to numerous foreclosures and other problems; (b) the Company’s business was growing in large part due to its improper lending practices to low-income borrowers; (c) many of the Company’s buyers would not be able to pay their loans after the first two years, which would lead to decreased sales and earnings and numerous foreclosures’
Blah blah blah. Let’s see if they can prove that BZH “knew” that when the loans were made.
All you need is one internal company memo that says ‘tell the appraiser to raise the price whenever there is a “non-profit gift” involved’. Committing appraisal fraud to defraud a government insurer might prove to have unpleasant consequences.
I think you’ve hit the nail on the head. The Observer series already documented that some number of Beazer employees were engaged in fraud - they ‘knew’ that when the loans were made because they had the applications sitting in front of them. (And I’m not even talking about the documented cases in which the data itself was falsified to meet minimum requirements.) More than a few of these homeowners were in dead-end jobs with no track toward advancement, and no expectation of a career change. The loophole in the FHA policy was intended to help, for example, a couple moving to a new city where only one of them had found a job. They could still qualify for a loan if they could document the probability of a jump in income within two years (when the spouse found employment.) The burden of proof was on the purchaser, and the loan originator was supposed to act as a screener, signing off on the fact that the burden had been met. The FHA realized that the loophole was being widely abused, and shut it down in 2004, but it didn’t have the data to prosecute the individual abusers, because all it had on file were the (supposedly) screened loans. But now the Observer has done the data collection, and shown exactly how this played out on the ground, and suddenly, it’s difficult for the FHA/HUD to ignore the problem.
That’s what this latest suit targets - a fairly pervasive pattern of qualifying large numbers of purchasers for loans that were supposed to be rare exceptions. A smoking gun memo would certainly make the prosecutors’ lives a lot easier. But I suspect that all they’ll need to amass to secure a conviction is a pattern that extends across multiple regions. If what was happening in Charlotte happened everywhere Beazer was putting up FHA-subsidized developments between 2001 and 2004, then a bunch of executives are going to jail no matter how well they thought they’d covered their tracks.
You don’t think there’s evidence of homebuilder fraud? I can’t tell you whether anyone I’ve ever consulted with was told to hand in blank loan applications to builders and the applications were then filled in by the builders with whatever they thought was necessary to get the buyer a loan, but the evidence is out there.
Why does the MSM keep talking about subprime in these articles?
Because the damage is confined to subprime! (ROFL)
Yeah-HUD/FHA mouthpieces are being strangely quiet.
However, even these government entitites could be convinced to only take so much heavily depreciated garbage via appraiser compromise on their quality conditiion requirements…
-so everybody ran to the independant boiler room hacks.
Can’t even imagine the quality of the housing shit these yahoo’s underwrote.
I find it ironic that we all bash option ARMs and yet GoogleAds has sleazeball mortgage broker ads offering interest-only, 3-27, and 50/30 loans.
Heck, just this morning I saw a Ditech ad telling people they can HELOC up to 125% of the value of their home!
Of course, I also love their mortgage ads where they ask if you bought a home in the last couple of years and “got one of those teaser rates” to push their Fixed Rate products, never mentioning that they were pimping those ARMs as hard as anyone ‘in the last couple of years’…
Don’t you know that was part of their game plan? Get the unsophisticated borrower into an ugly arm so they have to come back and refinance.
You just had the biggest housing boom in the last 5 years…and people think it will start to rise again after 1 year of 1-3 percent declines….who’s the morons? give me a break…this bubble is going to deflate over 3-7 years time….
In theory yes, but there is such ingrained “houses always go up” silliness that IMHO stickiness on the way down will take 10 - 15 years until correction.
What fantastic new industries are going to provide decent incomes 3 years from now? Or 5 Years or 10years?
Hoz has raised the million dollar question. I have been racking my brain trying to figure out where I can invest my money in the near future. Still thinking. You are both right though, the people thinking the worst will soon be over are INSANE.
I vaguely resemble that remark.
Alternative energy is getting a lot of interest from me these days. Solar/Ethanol/Biodiesel/Hydrogen.
A buddy is in the solar biz…
He tells me that here in California, with all the tax breaks, la de da~
Most of his customers that put in solar, end up paying less per month, than they would using the juice.
We are next on his list.
wait for the crash and then look into emerging markets in Asia
Alt energy interests me as well. Also, H2O. With the world population growing like it is, and finite amounts of traditional energy, I think the basics (like alt. energy and water) will become quite profitable. It just makes sense to me. Of course, the housing bubble started NOT making sense to me about 2.5 years ago and look how much longer that B.S. lasted!
Alt energy for sure. It certainly appears to be the next big thing in Silicon Valley. Check out the VC $ flooding into the solar companies based there…
Check out the VC $ flooding into the solar companies based there…
That is a sure sign that things are already overvalued. Can’t wait for the public side of the bubble to materialize once all these money-losers start going public.
I like alt energies, but it’s too hard to tell right now what will prosper. It’s not only that we have to figure out what works best for what use, but also, what is the best technology to deliver that energy. It’s going to be interesting, though. For those who can read Spanish, here’s an article about test for biofuel made with soy for airplanes.
“wait for the crash”
With all the major world economic powers’ Central Banks running the printing presses on high blast, how are you so sure there will be a crash?
“…it’s too hard to tell right now what will prosper.”
That’s exactly what I was thinking. A lot of possible options exist, and society at large doesn’t seem to be giving any of them much thought. Therefore, all I see are a bunch of smaller, competing alternatives just kind of bumping along for now.
“A lot of possible options exist, and society at large doesn’t seem to be giving any of them much thought.”
There actually seems to be a backlash growing towards the ethanol movement. So I guess electric and hdrogen it is.
http://blogs.wsj.com/energy/category/alternative-energy/biofuels/ethanol/
cassiopeia,
Yo no veo el linque.
‘2006 may prove to be the worst subprime vintage ever…
We calling houses bottles of wine now?
they’re referring to the bonds, MBS for 2006 purchases.
My bad…
Must have been thinking about some other breakable~
Ha ha ha! Sign of the times.
http://www.tmz.com/2007/03/30/brad-and-leo-battle-over-credit-card-debt/
and david leareah as himself in theaters soon
I saw this movie- it’s really great — and it starts off with real-estate debt — go see it (or rent it if you can)!
“Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,’ Lereah said.”
Which makes no sense at all. How can you remove reckless loans without causing a credit crunch? I think he just wants to push our buttons.
Moving back to “normal lending standards” will feel like a credit crunch compared to what has gone on recently.
Finally, Lereah sees the writing on the wall.
how’s LIErah’s FL property doing- my old man’s off 25% + from peak
MR SLUMP = perfect
protectionist action ready on paper
here we go
I nominate flatffplan for the most obscure posts on this blog.
I just never get it.
Paul
“Community activist Jenelle Dame has a secret weapon to hit back at the predatory lenders blamed for putting millions of Americans at risk of losing their homes: she calls in the sharks.”
“‘We go to their office and bring people and signs and little plastic sharks, like loan sharks. We put sharks all around their offices,’ said Dame, an organizer in Cleveland, Ohio, which had the nation’s highest foreclosure rate last year.”
——————
Then surely Ms. Dame will understand when I come around and place little plastic piggies around the homes of greedy flipper idiots who are now crying “victim”. Oink Oink.
“‘We go to their office and bring people and signs and little plastic sharks, like loan sharks. We put sharks all around their offices,’ said Dame, an organizer in Cleveland, Ohio, which had the nation’s highest foreclosure rate last year.”
Okkk…that’ll work.
LOL
that sounds like she is mentally insane. maybe she will draw a circle around then and put a pox upon their house?
“We put sharks all around their offices,’ said Dame,”
yea, untill a stressed out unpaid loan officer snaps and calmly crams on of those plastic sharks right up this “Dames” A$$….
Actually, in some cases it is working and forcing workouts between lenders and borrowers.
What’s more, someone asked earlier today: What’s next? It looks like public sentiment is rapidly growing against the subprime lending industry and we are going to see more protest. Even a well known African American leader is now calling for a Million mortgage march. Sometimes we smirk at guns and ammo posters but this is serious business and should not be ridiculed. This thing can easily spin out of control. Here is another excerpt from the yahoo/reuters article:
One national consumer advocacy group organized a march of hundreds of people on the Mortgage Bankers Association offices in Washington on March 13, demanding a one-year moratorium on types of loans that the group considers predatory.
“We kind of took over their offices on the 8th floor. Included in there were a number of people who have been ripped off by predatory loans or who are facing foreclosure,” said Jordan Ash, director of the Acorn Financial Justice Center, which organized the protest.
“It’s one of the ways they are fighting back,” he said.
Sometimes we smirk at guns and ammo posters but this is serious business and should not be ridiculed. This thing can easily spin out of control.
If I was a known mortgage rip-off artist, I’d either be leavin’ the country or buying a flack jacket and gettin’ a concealed to carry permit.
In the coming era of tightened lending, a foreclosure action is gonna be totally ruinous.
Hell, my credit report even has my monthy gasoline charges on it!!!
yep thats what they do. Whenever they get mad about something they march.
I’m having a real hard time feeling any sympathy for all these subprime FBs. Are a lot of the lenders slimeballs? Yes, but it takes two to tango. I’m tired of seeing Americans get rewarded for their naiveity and downright foolishness. Not to mention their sense of entitlement. Accept the foreclosure, clean up your finances, and only borrow what you can pay back next time. End rant.
“Accept the foreclosure, clean up your finances, and only borrow what you can pay back next time.”
In some cases, walking is the sweetest revenge against slimy lenders.
Accept the foreclosure, clean up your finances, and only borrow what you can pay back next time.
No can do. That would imply admitting some responsibility for their FB predicament. Victims can’t be guilty of greed, they can only be - victims. Victims need a big hug.
“Victims need a big hug.”
Fair enough. But, can I at least shove my knee into their crotch while I’m giving that hug?
Maybe a bear hug from behind?
“‘We must remember that markets are a powerful source of innovation. Our development efforts should not necessarily focus on thwarting or overriding market mechanisms, but rather they should focus on taking greater advantage of it,’ Plosser said.”
Do we have a fedspeak interpreter on this blog? What is Plosser saying?
I think he is saying that they are busy (as always) printing money. That is all the fed does. Either prints it slow or fast, but always printing. One would almost think that Bernanke was writing about the present when he wrote the now famous “helicopter Ben” paper.
Given this as the Feds modus operandi, how difficult is it to open a small bank? We’ve become a country of financial engineers, much like England was after the end of Colonialism. Margins are too paper thin at real bricks and mortar style businesses.
‘but rather they should focus on taking greater advantage of it,’
mrktMaven, I’ll take a shot: I think he just said he’s moving to Thailand.
After opening the article, I think he is asking local and national governments not to overreact. Here is some more Plosser fedspeak:
Regulators have come under harsh scrutiny from lawmakers for failing to anticipate some of the problems that large-scale lending to borrowers with poorer credit histories are now facing.
Plosser also said community development efforts should not seek to override normal market forces, but rather to harness them to create more opportunity for people to build wealth.
“When it comes to devising economic development policy and programs, it’s important to remember that our goal is to increase the opportunity for people to succeed in our market economy,” Plosser said.
Wait! There is more. Adding blatant insult to injury, Plosser continues:
“While the symptoms of economic and financial hardship can be stark and dramatic at times, the causes are often subtle and complex…”
GTFOOH! What is subtle OR complex about the subprime mess? It’s pretty friggin obvious regulators and the fed dropped the ball.
That comment is rich. I love reading how these Fed governors are shocked, SHOCKED, to learn high-risk lending was going on during the biggest housing bubble in U.S. history. Speaking of the bubble, Fed Governor Donald Kohn had this zinger in a January 2007 speech …
http://www.federalreserve.gov/boarddocs/speeches/2007/20070108/default.htm
“Uncertainty about where we stand in the housing cycle remains considerable. In part, that is because this housing downturn has differed from some of those in the past in important ways. It was not triggered by a restrictive monetary policy and high interest rates; indeed, relatively low intermediate and long-term interest rates are helping to support the stabilization of this sector. But the current contraction in housing did follow an unusually large run-up in sales and construction and, even more so, in prices relative to the returns on other financial and real assets. Our uncertainty about what pushed home prices and sales to those elevated levels raises questions about how the market will adjust now that expectations of the rate of house price appreciation are being trimmed.”
Uncertainty about what pushed home prices and sales up to ridiculous levels? Gee, I wonder what might have caused that. It wouldn’t have had anything to do with a certain group of people slashing short-term interest rates down to 1%? Or advocating ARM mortgages? Or singing the praises of the wondrous technology that allows subprime mortgage lenders to accurately gauge risk, as a very popular speaking circuit official did in April 2005 …
http://www.federalreserve.gov/boarddocs/speeches/2005/20050408/default.htm
“With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.”
You gotta love it.
You nailed it Mike.
What’s more, Plosser, without explanation, is warning governments not to mess with the little ponzi scheme that served everyone so well until now. Too late, however. People are already heading to the streets and governments are scrambling to respond.
What Plosser is essentially saying is that anybody who still expects a rate cut any time soon is going to be in for a BIG dissapointment.
The Fed is in a weird position - they want everyone to think that a rate cut is coming without having to actually do one.
There is a fundamental concept in economics that more choices generally make an individual better off. Applied to mortgage lending, Plosser is suggesting that the array of alternative mortgage products which the market has recently “innovated” makes consumers better off because they now have more choices.
This argument does not hold up in a world with mortgage product consumers who are too dumb to know what they are getting themselves into and lenders who think their ability to sell the paper makes them immune from the consequences of bad underwriting.
lenders who think their ability to sell the paper makes them immune from the consequences of bad underwriting
…And those lenders would be largely correct, no? Once a suprime burn n’ churn outfit gets too many repurchase requests, don’t they simply file Ch. 13, close shop and disappear, leaving all the MBS ‘owners’ holding the bag? The company execs, of course, get to bail with all their profits intact, then simply setup shop under a new name on a different street corner.
Consequences… what are those?
Good morning Everyone… Here’s your grand jury subpoena…Let the Fun and Games BEGIN !
Suck off Lereah.
Where the hell have you been the last 4-5 years?
No warnings and you are worried about a credit crunch when so many dopes were swindled?
http://www.itulip.com/forums/showthread.php?t=1148
txchick - thanks for this link. I recently read the grasshopper/ant book to my 3-year old. She’s a little young for the current version: the ending is too sad (and hopefully untrue). In the original, the grasshopper had to go for awhile without food before the ants kicked in some assistance. to be consisent with the 1stversion, I think the new version’s ending should be that the grasshopper loses everything; the ants have given plenty already to grasshopper social programs.
The ant and the grasshopper is a great fable with many versions. My personal favorite is from the Muppets Show, in which a man steps on the ant and the grasshopper drives to Florida in a coupe (I kid you not).
One version is very pertinent. In it, a starving grasshopper goes to the home of the ant and asks for food. The ant responds:
“You sang all summer and now you can dance all winter for your food.”
This is more a comment for ‘local observations,’ but I’m not seeing any real price drops in Pinellas County yet. Suckers are still clearing out the less-than-$200k stock, and everything else is just sitting.
With that in mind, I can’t believe Lereah still says this: “Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,’ Lereah said.”
Hey Dave, the Dr. is really trying to order a little bit of sanity (How about buying a house you can afford?!). Right now the Dr. is talking to your mommy and they’re using terms like ‘white’ and ‘padded’ and ‘room.’
He is running a little scared because Dr. Kevorkian like politicians and prdatory lending policy wonks are milling around his domain: http://en.wikipedia.org/wiki/Jack_Kevorkian
What’s more, if governments continue to crack down on the lending industry, his little ponzi game will be over.
Pinellas County?
Sweet Lou has a county named after him? I didn’t think he’d get that kind of honor until AFTER he to the Cubs to the Series.
txchick–thanks, that’s a sweet link!
Can people who held puts in Beazer stock sign on to this class action lawsuit?
“The complaint alleges that during the Class Period defendants issued false and misleading statements regarding the Company’s business and prospects and failed to disclose to the investing public the following adverse facts: (a) the Company lacked requisite internal controls over its lending practices, which, as a result of its improper lending practices prior to and during the Class Period, would lead to numerous foreclosures and other problems; (b) the Company’s business was growing in large part due to its improper lending practices to low-income borrowers; (c) many of the Company’s buyers would not be able to pay their loans after the first two years, which would lead to decreased sales and earnings and numerous foreclosures; and (d) given the increased volatility in the lending market, the Company had no reasonable basis to make projections about its 2007 results and as a result, the Company’s 2007 projections issued during the Class Period were at a minimum reckless. As a result of defendants’ false statements, Beazer stock traded at artificially inflated prices during the Class Period, reaching a high of $48 per share in December 2006, and the Company’s CEO and CFO were able to sell over $9.7 million worth of their Beazer stock.”
nope
No. You have to be an actual shareholder during the time in the suit. Otherwise anyone who held any mutual funds, derivatives, index funds, yadda yadda based on that stock could sue.
“Responsible lending practices are what the doctor ordered, not practices that cause a credit crunch,’ Lereah said.”
Given the recent prevalence of fraudulent liar loans and suicide loans that let people buy houses they couldn’t afford, you simply can’t have a reversion to responsible lending practices without a credit crunch. Do you think Lereah is as clueless as he sounds about this, or is he just playing another CYA card?
I’d go with the latter. Sounds similar to his cries last year for the Fed not to raise interest rates because it would tank the housing market. The Fed didn’t raise rates, and the market tanked anyhow. So, since that gamble didn’t work, I think he’s looking for another scapegoat and this time it will be the lenders.
In a sense, the lenders ARE more to blame than the realtors. If the lenders were real lenders (instead of bogus-loan originators), their actions in their own interests would’ve kept affordability within reason. Those of us who HAVE more money would be in a position to HAVE more house, if we chose. Instead, the loon originators signed up the indigent and penniless, as well as the overextended infestors, and that’s what blew prices through the roof. Real estate agents are always bullish(t), so they are not really responsible for what went wrong THIS time.
“Instead, the loon originators signed up the indigent and penniless, as well as the overextended infestors, and that’s what blew prices through the roof.”
And it is indigent and penniless (not to mention numbskulled) owners of homes valued at $500K on up who are the logical beneficiaries of proposed bailout packages.
He is a clueless cheerleader. The only thing he has going for him is control of the scorecard. The odds of his team winning are slim to none yet he keeps waving them pom poms in the air with mindless Casey Serin like enthusiasm, energy, and wonder.
For you lurkers and like minded posters who think I unfairly attack DL, here is an additional excerpt from the Bloomberg piece:
Lereah said on March 13 that homebuilders would feel “additional pain” due to problems in the subprime marketplace. Prime borrowers — those with good credit — are not likely to be affected by the subprime crisis, he said.
DL neglects to add the impact a lack of subprime buyers has on prime move up sellers. If subprime buyers cannot buy, some prime sellers will not be able to sell. As a result, prime buyers, unable to sell, will not be able to buy. Obviously DL is unfamiliar with the Plankton Theory: http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2007/GCBF-+March+2007.htm
“Plankton Theory”
Have you heard of SpongeBob theory? Buy now and watch the value of your home go spongy thanks to a sudden dearth of subprime loans to feed the plankton.
“There is one kind of prison where the man is behind bars, and everything that he desires is outside; and there is another kind where the things are behind the bars, and the man is outside.”
Upton Sinclair
and then there is the prison known as: desire
get rid of that load and then you are free
Why would I ever want to rid myself of my brain?
Heh heh heh. Buddhists call that “attachment”
There was another BB, in matters financial…
“Gold has worked down from Alexander’s time… When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory.”
“We did not all come over on the same ship, but we are all in the same boat.”
“We did not all come over on the same ship, but we are all in the same boat.”
But some people think _their_ boat’s a yacht.
Gold’s value is no more real than the value of the US dollar. Both are mostly psychological.
A dollar can be exchanged for some amount of useful stuff. Since both parties agree, this is a useful fiction, allowed to continue because it’s more convenient that trying to buy a car with three pigs and a goat.
Gold, like anything else that’s traded, has two basic measures of “value.” What I can get someone else to give me for it, and what I can actually do with it if I keep it. For the purposes of this argument, I’ll call those two values “trading value” and “use value.” I’m sure there are technical terms for them, but I’m not a economist.
The trading value of gold is far, far higher than it’s use value. The difference between these two values is purely a result of human psychology. It has no independent reality. The value of the useful things that can be made from an ounce of gold (excluding jewelry, since it’s value is also mental) is probably as far below the trading price as the price of 100% cotton-rag paper is below $1.00
There’s no fundamental difference. Both things are worth what they’re worth because everybody agrees that it’s so.
–Shannon
That might be logical, but the many millions of very-low-wage earners in the eastern hemisphere don’t care, and their valuation of gold as a measure and store of value will forever put a floor under its price, unlike that of paper money.
There’s no fundamental difference. Both things are worth what they’re worth because everybody agrees that it’s so.
The latter statement is correct, but the former is incorrect, at least so long as gold can’t be manufactured easily, as “dollars” can be. That’s why governments don’t like gold, and also why they hold it as the “money of last resort”.
Shannon,
You keep telling yourself that you can’t eat gold, and all of the other cliches that people come up with.
Gold has its value because thousands of years has proven its effectiveness (usefulness) as a medium of exchange and store of value.
Far as I know, nobody has ever burned gold, nor wiped their a$$ with it. Can’t say the same for paper.
wow.
paul
“Florida’s tax receipts are falling for the first time since 1975 as a slump in construction and home sales dims the economy of the Sunshine State.”
Of course, the politicians can cure falling tax receipts — raise taxes!
Doug — that’s exactly why I’m moving out of my home state of Florida. We are screwed. There are a number of cockamamie proposals in Tallahassee about how to remedy the dilemma, but all of them are fatally flawed, IMO. I’ll move back down here after things have sorted themselves out, assuming they do, otherwise I’ll become a “snowbird” in the less-than-usual sense. Screw snow — “north” to me is Atlanta. Maybe Gatlinburg.
Hanging out with the Ancients, the rest of the afternoon…
BTW, can’t resist. Posted here last week that I thought the wrecking-ball was headed toward the construction companies next. Told you so!
great call !!
they’re sales are wrecked, stocks tanking, balance sheets ruined, under investigation, class action
all those execs who cashed out their options last year might be looking at coughing the hundreds of millions cash back up if they are found to have broken any laws
“‘I can’t believe there is a soul that has been dealing in mortgage sales to Wall Street that hasn’t run into early payment default problems,’ Sunset Direct Lending CEO Bob Howard said.
Mortgage brokers have no souls.
“Credit Suisse has filed lawsuits against at least three US subprime mortgage lenders, marking an escalation of efforts by Wall Street banks to use legal action to purge themselves of bad housing loans.”
We expected lawsuits… but this is even more beutiful. Let the corporate lawyers go after each other. OH THIS IS GREAT….
Credit Suisse cannot deny knowledge of the allege bad acts when they’ve engage in a form of conscious or willful ignorance
Of course they realize this, but the lawsuits keep shareholders happy