Bits Bucket And Craigslist Finds For July 3, 2007
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Subprime Loans: Buyer’s Remorse Hitting Home?
http://www.cnbc.com/id/19557215
If Diana Olick, the author, had gone on to mention that subprimers, or marginal buyers as she puts it, are expanding in number she may have actually gotten to the heart of the problem: affordability.
Hey!
All you hedgie and banker Pig Men - how’s your “model” looking today?
Still working for ya? Makin’ enough money still marking to market?
Ah… good.
LOL!
These hedge funds were exposed as real “Pigs in a Blanket”
“Makin’ enough money still marking to market?”
When nothin’ is selling, they ‘mark to model.’
Sad but true. Mark to model is especially scary and shows that the emperor has no clothes. This is worse than Enron, when companies (mostly investment banks and other financials) make up a number for their assets, earnings and liabilities, and are supported by the ratings agencies in this fraud.
http://wallstreetexaminer.com/blogs/winter/
Make up profits. This is 20 times worst than Enron scam. Remember Enron was given “good reviews” just 30 days before it went down for the final count. No true watch dogs exists but when did the public/trader thinks when trading with the “insiders” who really know how the scams work, can even play in this game.
Pretty good read on how bankers are gaming CDO’s and CDS.
Gives a decent “CDO’s for dummies” course as well.
http://news.goldseek.com/GoldSeek/1183475130.php
Thanks for that link!
nice read….tyvm
When plankton die off, the demise of whales becomes imminent.
“The subprime mortgage borrower was really the marginal buyer, and if you remember from econ 101, the marginal buyer is the one who very much set prices so this borrower was the marginal buyer of real estate,” says Weaver. “Last year for example, subprime and Alt-A was about 40% of all purchases. Now the marginal buyer, the subprime guy is running into a lot of trouble. We see foreclosures rising rapidly in that subset and that marginal buyer is now becoming the marginal seller, and that’s enough to re-price the whole housing market, it’s a very important catalyst.”
Is “reprice” going to become the key buzzword of this bust? Kinda like NASDAQ issues got ‘repriced’ from 2000-2002 ?
Repricing is the new black!
“and if you remember from econ 101…”
My Father, a Kansas wheat farmer, never had a econ101 class…but he still taught me…”Don’t buy something you can’t… AFFORD”
Thanks Dad!
But what if you DESERVE it? LOL
These high percentages of subprime loans in these cities put the lie to the assertion that subprime loans are taken out only by subprime borrowers. The truth is that for a very large percentage of buyers, the only way that they could get a loan large enough for the house they wanted was to get one with
affordabilitysuicide features only available in the subprime field. Yes, the explosion of subprime has added a few people to the homeowners club, but most of it has been driven by people with average credit histories paying more than they can afford for a home.A stable RE market is defined by a arms length transaction in which a willing and able buyer will purchase a property while not under duress . The market demand was fake because the buyers were not able and many buyers were hookwinked into purchasing because of false advertising from the industry like ,”Get in now or be priced out forever “.
Also the market demand was false because the Lenders/Wall Street allowed “unable ” borrowers to purchase based on some crazy models that were based on low default rates during a hot market .Lending in the past was never based on real estate going up to support it ,but rather good underwriting to determine long term ability of the borrower to pay the loan note and a sound appraisal with reasonable skin in the game from the buyer .
Wall Street/Industry had no right to design zero down/no doc. loans for sub-prime borrowers that would create a false market that would result in loss for innocent people .The greedy liar borrowers are not innocent IMHO, but alot of people are .Its BS when the Industry said those toxic loans were a “affordability product “. Who decided that a short term teaser rate would be used to determine payment affordability? Again I say ,unable buyers and short term speculation is nothing but a false market . As we can see by the number demand being down in most areas by 50% from 2005 levels, the demand was not stable . The question is how much was the market pushed up by a false demand of 50% for 3 or 4 years ? I would venture to say the market was inflated by 30 to 50% . How much were prices inflated by fraud transactions where the crooks were pocketing a cool 250k .The industry had no right to accept appraisals going up that much in one year, or six months, without requiring more down payment from the players or proof that the areas were under valued to warrant it .
“…the Lenders/Wall Street allowed “unable ” borrowers to purchase…”
Where I come from it’s called: “They’ve been Hoodwinked”
Housing Wizard,
You took those thoughts right out my brain…how’d you do that?
I’m a wizard …no not really . Don’t know why I used that name because at the time I didn’t even really know in total what kind of blog this was . I’m just a person who was in the lending business in the past when people really had to qualify for a loan ,(I have been retired for some time ). I have never seen anything like this current lending cycle .
Brilliant analysis. Good job!
Oh, at the end of the game, all these “buyers” were guilty of some combination of stupidity, avarice, and unreasoning optimism. Presented with an overpriced (compared to rents) market for housing they had three choices:
1.) Continue renting until either the market went down or their finances improved. This isn’t as unpalatable as it first appears because if you’re getting a teaser rate loan you’ve already committed to betting all on the proposition that you’ll be making more money in the future.
2.)Downsizing your expectations to what you can afford with a sane mortgage. Of course in parts of Clownifornia this simply wasn’t an option for many, what with crackhouses in Compton going for ~450k. It’s simply difficult to imagine buying much less house than that.
3.)Bite the bullet and bet on continued appreciation for another 5 years and buy using a loan that you have no reasonable chance of repaying according to schedule.
Of course this doesn’t even include those who were using appreciation as a third income to support them in the lifestyles to which we would all like to become accustomed. Molly and Me and the HELOC makes three.
Yes but ,the market would of contracted in 2002 and would of remained flat ,(based on affordability ), until income/inflation caught up with the prices . Instead ,the industry developed loans to put the unqualified/speculators into the market which in turn drove the market up by this false demand .Affordability should of dictated the top of the market not the desires on the part of the industry to keep the party going . Instead of getting a over all 10% contraction in 2002 and a back-off in excess building we got excess building and a false market based on speculators and unqualified buyers . A 1.5% teaser rate /o down loans for the unqualified is not anything but a high risk loan that is based on real estate going up .
The lending was stupid ,……liar loans and fraud can produce a stable market . I have said all along that the ratings on these junk loans were not based on qualifying ,but on real estate going up and a low default rate up to the time the market turned .
Why does the industry think that cash-backs and incentives that are not disclosed to the lender are OK and should not be considered in the bottom line reduction of the appraisal ?
In prior lending cycles ,any kind of concession had to be considered regarding the affect on the appraisal value . Bottom line…..on these incentive deals the buyer is getting 120% or more financing on a purchase .
Yes but ,the market would have contracted in 2002 and would have remained flat ,(based on affordability ), until income/inflation caught up with the prices . Instead ,the industry developed loans to put the unqualified/speculators into the market which in turn drove the market up by this false demand .Affordability shouldhave dictated the top of the market not the desires on the part of the industry to keep the party going . Instead of getting a over all 10% contraction in 2002 and a back-off in excess building we got excess building and a false market based on speculators and unqualified buyers . A 1.5% teaser rate /o down loans for the unqualified is not anything but a high risk loan that is based on real estate going up .
sorry, couldn’t help myself…
Can we get a separate thread to discuss NYC trends? There’s a sickening article in NY Times today…
“Co-ops Slip, but Condos Lead Rise in Manhattan Apartment Prices”
http://www.nytimes.com/2007/07/03/nyregion/03prices.html
Interesting. So CONDOS are going up in price due to ultra-wealthy buyers, but CO-OPS are going down in price because the buyers aren’t quite wealthy enough.
from an older NYT article
But Mr. Weinstein, who for nearly the last 30 years has developed office buildings and condominiums in the New York area, and who seems to be allergic to the idea of accumulating debt, was approved for a $3.6 million mortgage last month for the $4 million condominium he is buying at the Century at 25 Central Park West.
Mr. Weinstein chose the condominium over a similar co-op apartment, where the limit on his mortgage would have been $2 million. He said he wanted to use as little of his own money as possible to buy the apartment, preferring to invest it in Connecticut real estate, where he expects the returns to be 25 percent.
Mr weinstein will have to wait a lot of time for his return. Far more than he realizes. I ask this again. What on earth would compell a buyer to buy right now? I understand some deviant behaviours are inbred into human beings, and the fringe of society likes to be masochist (amongst other things) but this kind of behaviour has never been mainstream. Is it ignorance, of wishing for a star?
Why do people buy lotto tickets?
Well, if we continue to inflate or hyperinflate due to our excessive indebtedness, I’d say being in Manhattan or Connecticutt real estate will be a better store of value than a lot of other investment choices. That being said, one needs a lot of capital to be able to afford property taxes and maintenance expenses in a hyperinflation world.
There are reasons to buy that don’t relate to housing as an investment. Once upon a time, it was just a place to lay your head at night. I have a coworker who just bought because he has a new baby on the way, and he and his wife wanted more space. They’ll probably be in the new place at least 10 years, so does it matter if he overpaid $100k? Maybe, maybe not.
Well yes, it does matter. He’s overpaying in both principal and interest for 10 years! Thats a heck of a lot of money.
People living in NYC seem to think that prices here will never decline, but there can’t be an unlimited supply of new Wall st bankers/traders/hedgies ready to dole out their bonuses as a 10% down payment on a one bedroom condo. They will need to count on a very high income stream to sustain that mortgage, as well as their other extravagant living expenses.
The party will not last much longer. Here’s a good article about NYC real estate published back in March:
http://www.nypost.com/seven/03122007/postopinion/opedcolumnists/wall_streets_mortgage_pain_opedcolumnists_nicole_gelinas.htm
I have a couple of close friends at big law firms and investment banks in Manhattan, normally very rational guys, but they seem to harbor the impression that nothing short of a terrorist attack can negatively affect the price of Manhattan condos (and even then only the buildings that are actually damaged)…
I find a lot of people I know are blind to how small these apartments are, and forget what the real value if of the space they are getting. Back in 1998 my friend bought a studio co-op for 80K in the east 50’s , and I believe he sold it for around 350K in ‘05 or ‘06. Eighty thousand is a reasonable price for the location. But if I had 350K of cash in my pocket, would I spend it to live in one room?
Well housing in Manhatten will ALWAYS be very expensive. But the rent vs. purchase calculation is the same as it is anywhere else.
I find a lot of people I know are blind to how small these apartments are, and forget what the real value if of the space they are getting. Back in 1998 my friend bought a studio co-op for 80K in the east 50’s , and I believe he sold it for around 350K in ‘05 or ‘06. Eighty thousand is a reasonable price for the location. But if I had 350K of cash in my pocket, would I spend it to live in one room?
In 1998. I paid $179,000 to own an alcove studio condo on the Upper West Side of Manhattan. The unit commonly described as a 2.5 room apartment, has a full kitchen and bath with a washer and dryer. While the living space is essentially one room, there are four windows with open views, including views of the Hudson River up to the George Washington Bridge. The room’s 9′x10′ sleeping alcove has a window and air conditioning/heating unit, so I could install a wall to make a “junior one bedroom”, but I live alone and like the open space. The morning and sunset light in the apartment is divine, and the distant views of prewar buildings with gargoles and ornate carvings is stunning. If I wanted to sell today, I would ask $660,000 to $740,000, but I prefer to stay. Prices may correct sharply, but there are no guarantees. I couldn’t find a better apartment that I could afford, so why pay capital gains taxes, transaction fees and moving expenses.
Manhattan crashed hard in the early nineties…google the NYTimes and see the boatload of articles in RE on how to attract a tenant to cover part of your carrying costs for the apt. you can’t sell.
All we need is for Wall Street to take a real hit…whether from CDOs unwinding, a market crash or hedge funds imploding, and once again Manhattan will tank. When the ibanks start RIFing, they do it at the same time, and it flushes a lot of people and money out of town.
If you like your place,swell, but Manhattan will tank again, count on it. And when it happens, the center of the financial world will have firmly shifted to the City in London, not downtown Manhattan.
Central florida sales and prices decline in new neighborhoods, but prices in established neighborhoods are holding steady.
http://www.orlandosentinel.com/business/orl-taxroll0307jul03,0,4983035.story?coll=orl_tab01_layout
I think that will be the new demarkation for desirable. Established neighborhoods (good neighbors, mixed homes) vs. McCrapboxes with vacant homes, renters and blight. Established = stable.
Same in CA, new areas in outlying suburbs with crapbox mcmansions = down, existing homes in desirable areas = little change. This is bubble is so far limited to geographical areas of speculation.
Last time I checked (some time last year I think), PV was down 20% off peak price levels (yawn…).
So you still can’t get anything under $2M then.
The numbers from Las Vegas put the median price reports as a judge of which way real estate is heading to rest. Out of the 60 zip codes in Clark County (las Vegas) 4 of the zip codes have 30% of the contingent and pending sales.. REPEAT 30% of the sales are in 4 zip codes. SO WHAT!
Well employment is up this year, unemployment is holding steady at 4.2%, new residents based on Drivers Licenses were 5600 for may (normal is 6000) gaming revenues were UP, electric hook ups were up.
My Prediction. This bubble is going to be very, very selective based on an economy that seems to be doing well.
This is unlike any other bubble in my 40 years doing this. Usually bubble and bad economy go together. Not here, not now. The suckers that over bought homes in bad zips any where in the country are the ones hitting the headlines. The astute buyer and investor knows his target market, and just can’t pass up the great financing for a good property in a great location. Forget looking at medians, and start asking your realtor what zips are the sales coming from. I monitor Las Vegas directly from the MLS, and this seems to be confirmed by the reports on Ben’s Blog from othere cities.
It ain’t the cities that are going down, it’s the BAD locations.
David: Very simple explanation for that. That is where the subprimes are concentrated. Wait two years for the alt-a and prime loans to go bad (2 year vs 5yr teaser rates) and you will see the “established” neighborhoods go down in price. There is no value in RE anywhere right now. It is overpriced at any level, and those that buy right now, are not going to have fingers left. There is a bull market somewhere, out there, but we are too far from it to know about it. May be some stocks, or chinese underwear, but we will know that when the insiders are ready to dump their holdings, and take their winnings.
“It ain’t the cities that are going down, it’s the BAD locations.”
I think you’re splitting hairs on this one. OK, Miami, Phoenix, Las Vegas, Detroit, Boston, San Diego, St. Louis, Cleveland, Buffalo, Rochester, Sandusky, Portland, et al are all bad locations.
In the Miami area, this seems to be true, if the exodus of families out of Florida is any indication. At a recent School Board meeting they were talking about construction plans and noted that Region 5 is the only region in Miami-Dade county that is not loosing students. This area includes Key Biscayne, Coconut Grove, Coral Gables and Pinecrest - all established and relatively upscale neighborhoods.
Well everyone in a new neighborhood bought during the bubble. I’d bet that most of them have suicide mortgages of one form or another. The percentage of homes for sale in some of them is VERY high I’d bet. Considering the number of investment properties, I’d bet that there’s going to be enough REO that prices will freefall.
Editor’s note: The writer is a financial commentator and author of the book, ‘How To Survive The Crisis And Profit In The Process’
Subprime America will infect Asia and Europe
By: Business Times Singapore
factiva, 7/3/2007 — That’s because most of the CDOs are owned by investors and institutions in those regions, says DARRYL ROBERT SCHOON
THE collapse of the US housing market will have consequences far beyond the borders of the US - for the majority of America’s subprime loans are owned by investors, banks, insurance companies and pension funds in Asia and in Europe.
Over US$1.5 trillion in subprime loans were made to American home buyers who had poor credit records. In retrospect, it wasn’t a good idea to loan US$1.5 trillion without asking applicants how much money they had or how much money they made. But the banks did, and this is why: one year after the collapse of the US stock market in 2000, the Nasdaq dropped 80 per cent, and the US government feared a deflationary depression - a no-money, no-demand depression like the 1930s - could happen.
So in 2001 the US government took quick and decisive action and flooded the US with money to prevent a depression from developing; but, in the process they created a real estate bubble and, as the bubble deflates, those who can’t pay their bills aren’t paying.
Banks aren’t in business to loan money to those who can’t repay them and they knew that customers who took advantage of subprime mortgages were at high risk of default. So the banks sold their subprime loans.
Now, who would buy a ’subprime’ - for example, substandard - loan? Who would buy a subprime steak, a subprime car, a subprime house, a subprime dating service? This is where the genius of Wall Street came into play.
To sell these soon-to-explode debt bombs, Wall Street cleverly bundled them with higher-rated AAA debt and gave them a new name: ‘collateralised debt obligations’, or CDOs. It then sold trillions of dollars of 30 per cent subprime but AAA-rated CDOs to unsuspecting buyers.
Even if you don’t know what a CDO is, CDO sounds a lot better than subprime or substandard. That was the genius of Wall Street. It found a way to sell shaky debt before the fenders fell off. And it worked, at least for Wall Street.
These debt bombs are now embedded far across the global financial landscape, the majority bought by European and Asian investors and institutions seeking downstream revenues; but instead of downstream revenues, they will be absorbing unexpected and significant losses.
Fully 50 per cent of the 2006 earning of HSBC, the world’s third largest bank, was wiped out by the subprime losses of its US subsidiary. AXA, a French insurance company, and CommerzBank, a German financial services company, were also major buyers of Wall Street’s subprime AAA-rated debt and will suffer the consequences.
But it’s not only European and Asian banks, insurance companies, and hedge funds and pension funds that will suffer; wealthy Japanese investors may suffer the greatest losses of all.
Globalisation
It is believed that the highest-yielding but riskiest tranches (risk level) of the subprime CDOs were bought by wealthy individual Japanese investors. The head of structured finance research at Nomura Securities, Mark Adelson, said these investors did not fully understand the risks they were taking, depending instead upon the ratings given by credit agencies such as Moody’s or the advice of those managing the security.
‘A partial understanding of it is often no better than no understanding,’ Mr Adelson said. ‘The devil is in the details; if you understand it vaguely, you can get your lights punched out.’
Globalisation has been a wealth builder, perhaps unequally so, but nonetheless wealth has been created. Soon, however, another darker side of globalisation is about to manifest. Risk, as well as money, moves quickly across global highways recently built and made possible by a one-world financial marketplace, and that risk is now about to become apparent.
Global currency flows move quickly and turn on a dime. The Asian liquidity crisis of 1997 was a recent manifestation of this phenomenon; the next crisis will be the US. The subprime losses suffered by the buying of America’s bad debts may be the final straw in the diversion of foreign money away from America.
By selling foreign investors its bad debt, America has shot itself in the foot. Because America is now the world’s No 1 debtor, because America needs over US$1 trillion in foreign investment capital each year to pay its bills - and because it was foreign investors who were primarily burned by Wall Street’s subprime CDOs - the flow of foreign capital to the US may soon be going elsewhere.
Decoupling
In April 2007, a Merrill Lynch survey showed 38 per cent of global money managers believed the best prospects for corporate profits were now in the eurozone; 42 per cent believed the worst prospects were in the US.
Today, the word ‘decouple’ is increasingly heard where global markets are discussed. No longer referring to freight trains, decoupling refers to the distancing of global economies from the US - the separating of still-healthy economies from the slowing US economic engine.
While it is true the US has been the driver of the global economy, it is no longer. The sobriquet ‘has been’ is literally correct in this instance; the US share of global economic growth so far in 2007 is 10 per cent.
Global capital flows, like tsunamis, are not something to be taken lightly. If the flow of foreign money to the US slows, the US dollar will collapse and the US will be forced to raise interest rates to continue attracting foreign capital. And, if US interest rates are raised, the US economy will collapse.
America apparently cares little what happens to the primarily foreign investors and institutions who bought its subprime loans. On April 24, Bloomberg reported the head of the US Federal Deposit Insurance Corporation, Sheila Bair, testifying before a congressional committee. ‘We should hold the servicers’ and the investors’ feet to the fire on this,’ she said. ‘We did not have good market discipline with investors buying all these mortgages.’
It is highly doubtful will exhibit the same attitude should the flow of foreign moneys upon which Mr and Ms Average America depend go elsewhere. Thailand’s economy went into apoplectic shock and its currency and stock market fell by 50 per cent in 1997 when international currency flows suddenly changed direction. America may soon be in for the same.
And if America falters and falls, the consequences will be felt around the world. Today, afternoon tea and scotch flow freely in The City, as does dim sum in Hong Kong and Shanghai, and sushi in Tokyo around their respective bourses.
Soon, however, the risks that have lain dormant beneath globalisation’s foundation are about to erupt and a reordering of the world’s financial geography is about to ensue.
It’s the summer of 2007, and the sun is shining. A severe financial crisis, however, is in the offing. But because most don’t know a crisis is coming, they will have little chance of survival. This summer, America’s subprime CDOs are coming home to roost - and not just to the US.
“This summer, America’s subprime CDOs are coming home to roost - and not just to the US.”
Tough sh!t. They knew what was going on, and as long as their fat bonus checks rolled in they didn’t care. Ditto for the so-called pension fund “managers.”
If everyone who bought them was unleveraged sure, but this means that their lenders will be screwed as well (and as enough of CDOs come home to roost plenty of non-decision makers will be burnt).
Just a little of a larger aritcle.
As the Bear Stearns funds exacerbated the CDO crisis, the $2.6 trillion CDO market was already like a basement full of gasoline-soaked rags, ready to ignite. While touted as “brilliant creative new instruments,” the reality is, they are a form of refuse. Some CDOs are based on faulty mortgage instruments—and they may be the “soundest” of all. Some CDOs are composed of risky highly leveraged loans (called CLOs), used for predatory takeovers. Others, known as “CDOs squared,” are CDOs based primarily on other CDO vehicles. Finally, the wildest CDOs, comprising one-third to one-half of the entire CDO market, are “synthetic CDOs,” securities based mostly on no assets at all.
The complete article. http://www.larouchepub.com/other/2007/3427mbs_cdo_crash.html
Yes I know who Lyndon Larouche is :$
LaRouche called the housing bubble earlier and more preciently than any of the so-called experts, just like he did with the Bubble.com meltdown. Give the man his due.
I hope all the stupid bagholders who funded the subprime lending debacle lose their shirts and the rest of their clothing as well.
These debt bombs are now embedded far across the global financial landscape, the majority bought by European and Asian investors and institutions seeking downstream revenues; but instead of downstream revenues, they will be absorbing unexpected and significant losses.
…
But it’s not only European and Asian banks, insurance companies, and hedge funds and pension funds that will suffer; wealthy Japanese investors may suffer the greatest losses of all.
Stupid is as stupid does.
– Forrest Gump –
“If the flow of foreign money to the US slows, the US dollar will collapse and the US will be forced to raise interest rates to continue attracting foreign capital. And, if US interest rates are raised, the US economy will collapse.”
I think this is the money quote. But the global economy is not “de-coupled” yet from America’s, which makes the question of where to safely put your money a tough one. When we go , we are going to take a lot of foreign markets with us…including perhaps the eurozone. I’d go Canadian, but I grew up on the border and I’ve watched the loonie slide when the US dollar is in trouble.
Still looking for an answer.
shouldn’t oil keep CAN in decent shape ?
Canada has oil, nat. gas, uranium, gold, even diamonds, as well as fresh water, and hydro. But better than 80% of their exports–and they are an export-driven economy–go to the US. They should be in great shape…but being tied to the US via exports is like swimming with a cement block tied to you.
And if a global recession causes oil prices to drop below the feasibility price for the tar sands, well… maybe Canada isn’t in that great a shape after all.
“And, if US interest rates are raised, the US economy will collapse.”
I think this is why the Fed will work hard behind the scenes to keep the l-t T-bond inflation risk premium ‘contained.’
The yield curve wants to move up across the entire duration spectrum. If the bond market were a dormant volcano, recent yield curve action would suggest it was about to become violently active again.
http://www.bloomberg.com/markets/rates/index.html
Associated Press
Treasurys Rise Amid Subprime Woes
Associated Press 07.02.07, 12:00 PM ET
U.S. Treasury bond prices rallied Monday, with the 10-year note’s yield touching 5 percent, amid continued concerns about troubles in the subprime mortgage market and with investors wary of making any big moves at the start of the short holiday week.
At 11 a.m. EDT, the 10-year Treasury note was up $1.56 per $1,000 in face value, or 5/32 point, from its level at 5 p.m. Friday. Its yield, which moves in the opposite direction, fell to 5.01 percent from 5.14 percent.
The 30-year bond rose 7/32 point. Its yield fell to 5.11 percent from 5.25 percent.
http://www.forbes.com/feeds/ap/2007/07/02/ap3877576.html
I’ve watched the loonie slide when the US dollar is in trouble.
Yeah like when? You’ve got it backwards. The C$ does well when the US$ is in trouble. Like in the 1970’s, and today. For starters, high oil prices are good for the C$, but bad for the US$.
I am not sanquine about any of us escaping the aftereffects.
All this negative news. Y’all think that everything will stop when the SHTF? Most people will be working as usual. For example, my sisters don’t invest in stocks. They work. I strongly doubt if they will all of a sudden have different lifestyles if a) the stock prices drop 70%, b) gold falls 70%, c) 10 year note yields increase 75%, d)…
My own job will continue - there are several more products in the pipeline to keep me going on this engineering contract another 2 years.
The sun came up today and it will come up tomorrow.
To make myself more clear, I disagree with the statement that there won’t be any of us who escape the after effects. That’s like saying no investment will be a good investment. Ridiculous.
Sun will come up tomorrow.
Bill, I am in agreement - There is always a bull market somewhere!
But it is very naive to believe that a job will continue because it is scheduled to continue. And if this recession continues, with the imputed acceleration in defaults and corporate failures, it is likely that a lot more jobs will be lost - in every industry.
Corporate finance relies on borrowing moneys, when liquidity dries up so does corporate finance, so does expansion and so do jobs. The resilience of the American consumer is amazing, nevertheless the American consumer is tapped out. In a service oriented economy, without any customers, why do I need to keep you employed?
The following 1008 companies are no longer in business…this is just the start of this year.
http://tinyurl.com/2wbsdk
Speaking as an anxiety prone ‘looser” I am sure there are people on this blog who will do financially no matter what. I feel housing was given to us as a surrogate form of savings in a fiat debt based system. Even if I do well financially I still have family, co-workers friends who have bought recently and are still buying because they feel this is the only way to build wealth. It will impact my life.
MSM in Europe(continent) does not even talk about the subprime mess in the US. Some financial newspapers write about it from time to time, but not as if it where a major issue. Even when real estate markets in some countries of Europe seem cooling(rather quickly, like Ireland, Spain, France, Belgium, …) common people still think the sky is the limit.
Major losses for European pension funds or banks would come as a big surprise for the man in the street.
So let the party begin! I love surprises…
sure they do report.
The German Magazine “Der Spiegel” calls the Bear Sterns Fiasco a ‘threat to the entire financial system’.
http://www.spiegel.de/wirtschaft/0,1518,491741,00.html
Not to worry. Subprime hedge fund blowups have been, are and will remain contained.
There may be much truth to this, but comparing the US to Thailand is going too far. The stock market collapse erased 5 trillion dollars of paper wealth, iirc. So, if this crisis is confined to 1.5 trillion, I don’t see the dire consequences this writer predicts.
I do feel that a 1.5 trillion loss is not the full extent of the damage. However, Treasuries will still be a safe investment.
Top 10 Places Where the Housing Bubble Will Bust
Experts say that prices need to fall to 1997 levels to be sustainable.
http://efinancedirectory.com/articles/Top_10_Places_Where_the_Housing_Bubble_Will_Bust.html
Idiot writing the article can’t figure out that 50% decline needed to get back to some level doesn’t mean prices increased 50% from that level. Sheesh.
Well, he says “increased by more than 50%”. 200% or so is more than 50%. But I get your point.
I just found the hypothetical adjusted prices interesting.
San Diego needs to go from $595,200 to $249,553. $249,553 is just a bit over 4x’s the median household income of $60,000. In 2000 the average house in SD was 4.2x’s MHI. Today it is 9.7x’s. Hmmm, sounds about right to me although even I have a hard time wrapping my mind around the idea that the average home in SD might be $250k.
Experts say that prices need to fall to 1997 levels to be sustainable.
Experts are a bit late comin’ to the party.
Certain posters on this blog have been sayin’ exactly the same thing aka. prices must revert to ‘98 levels for a year and a half now.
Demonstrates how the ivory tower intellectual crowd, far removed from the “hoi poli” whom they detest, simply ain’t got a clue.
It is very interesting to see how real estate psychology is changing at the main street level. My wife is a teacher and brings home timely stories about the cross sections of her working world in Sacramento. 12 months ago, everyone who was renting, still wanted desperately to get into a new house. 6 months ago, some still took the plunge, because the realtors peddled the end of 100% financing! Fast forward 6 months: One teacher bought a house for his daughter in 2005. He paid $585,000 for 2550 SF ($229/SF). She moved in with 3 of her friends. Long story short, there were lots of problems and the property just sold on a short sale for $370,000 ($145/SF). The buyer used CalFSA? 100% loan, BTW. The seller said he is done with investing in real estate forever.
Another husband and wife team could not wait to get into real estate investing in early 2005 and bought a fixer upper in a small town about 80 miles away from Sacramento. They spent 3 months fixing it up. The new renters destroyed the place after 12 months. The couple spent 4 months fixing it up and sold it or a “slight profit” in mid 2006. They got nothing for their labor and had many sleepless nights dealing with the tenents, the boyfriends, the neighbors and the police. Last quote: “Never will we do that again.”
The reality of situation is starting to set in and it is not pretty for a lot of people. A few more years and the threashold for pain will reach 99% of these idiots.
I have a good friend whose husband once owned a rental house in central Tucson. He soured on landlording after a murder was committed there.
OT but my son is going to school in Sac and needs to find a good garage for some work on his car. Know any in Sac or Fairfield?
CarTech out in Rancho. It’s where I’ve take my cars since 94, then my friends all started using them. Everyone seems to swear by them still.
What I want to see is whether once the recession starts and tax collections start falling short of projections, those 1099s start flying, and people who thought they’d escaped with a short sale end up owing Uncles George and Arnold tens of thousands of dollars in taxes on the debt they’ve been forgiven after their speculative efforts failed…
Yes, it could get very ugly indeed. The guy above, who bought the house for his daughter, and did the short sale, will get a 1099 for 2007. $215,000 in debt relief! Add that to his $62,000/year salary as a teacher and he is paying taxes on $277,000. He will get tossed into the AMT tax bracket, so cancel all the household, dependants, sales tax, state tax and investment deductions. He will owe 15% of the first $61,000 to the feds, and 29% of everything after. Assuming he can muster up $20,000 sheltered from the AMT, and he will owe $65,990 to the feds. The state will soak him for 9% or the fed AGI, so toss another $15,000 log on the fire.
Result: 2007 tax liability of $80,990 on a salary of $62,000. That calls for a nice dinner celebration….of Top Ramen.
Demonstrates how the ivory tower intellectual crowd, far removed from the “hoi poli” whom they detest, simply ain’t got a clue
Well the “ivory tower intellectual” the Bushies love to hate, Paul Krugman, has not only had a clue about this bubble, he’s been right on the money for 2 years now. And he’s not the only one.
The problem is not the “ivory tower intellectuals”. It’s the shills at the industry-financed “research institutes” that have been spewing the BS about RE, and have been reported exclusively in the corporate media.
We need more “ivory town intellectuals”, academics who are really interested in the truth for truth’s sake, not corporate shills.
“Soon, however, the risks that have lain dormant beneath globalisation’s foundation are about to erupt and a reordering of the world’s financial geography is about to ensue.”
Hallelujah! Yep, it’s gonna hurt, but maybe this will enable the US to get its head out of its collective ass on the subject of globalization, THE WORST. IDEA. EVER. Maybe we can rid ourselves of all the crappy and poisonous Chinese products and the crappy and poisonous Wall Street Boyz, along with the Fed (hey, hand ‘em over to the international courts and you’ll see them shut their yaps pretty quick about globalization). Maybe the open border scamnesty crowd will realize that we can’t support third world hordes and their spawn. Maybe we’ll have to focus on real education, skills and the values needed to get us through the tuff times. Maybe, just maybe, this is the tough medicine needed to pull this country back from the brink. Maybe we’ll realize that meddling abroad was a horrible idea. It’ll be bad, it’ll be ugly, but we can make it. But, if we have to sacrifice our hedge fundies, Wall Street execs and traders, some politicians, etc. to the international justice of The Hague, good riddance. Purging parasites always brings about a resurgence.
And don’t any of these financial wonder boyz be thinkin’ they’re safe in the Caymens. Caymens will cave pretty quickly to an international blockade.
Fricken turn the Caymens into a financial criminal penal colony, anyway. Yep, waterfront property for all the hedgies!!! Without air conditioning.
AND NO AC!
Maybe, just maybe, this is the tough medicine needed to pull this country back from the brink.
My god that’s a gorgeous rant.
I wish Ben’s blog engine was a bit more sophisticated so you’d actually see that I was commenting on your comment.
Back from a most excellent walk in the High Sierra…
It’s going to be bloody hot in the valley day, worse tomorrow. Early morning runs at 5:30 are the best though in the summer.
From the St. Paul (Minn.) Pioneer Press:
Mortgage Broker Pleads Guilty To Fraud Charges
A Prior Lake-area mortgage broker pleaded guilty Monday in U.S. District Court in Minneapolis to federal charges of mortgage fraud.
Ronald Joseph pleaded guilty to one count of mail fraud and one count of money laundering in a scheme that allegedly bilked mortgage lenders out of $2.5 million, according to the U.S. Attorney’s Office.
Joseph is the third person to plead guilty in the ongoing federal mortgage fraud investigation in the Twin Cities. Joseph worked as a mortgage broker at a company variously identified as LHS Inc. and LHS Mortgage Inc. in Burnsville. Between 2004 and 2006, he provided lenders with fraudulent loan applications on behalf of buyers in about 40 separate real estate transactions totaling $18 million, according to the U.S. Attorney’s Office. About $2.5 million of the loan money was used for concealed payments to buyers and other third parties, including Joseph himself, who pocketed nearly $200,000. The maximum potential penalty for the combined counts is 30 years in prison, but a sentencing date has not been set.
This guy Joseph used to advertise heavily on radio (KSTP) and television about zero down, no documentation loans about 1-2 years ago. Ads always sounded fishy to me, but there is a whole new crop of them out there running “half hour infomercials” about the coming boom in real estate yet, usually late night television or early Sunday television (right after the bible thumpers on the tube).
The croupiers is still bring them suckers across the green felt.
Yes a friend of mine joined Nouveau Riche. I can not talk to him about real estate anymore. They got him to buy a 1200 SF condo in Phoenix for $260,000. Get this: They “manage” it for him the first year and promise a 5% return on his “investment”. It was 100% financing, so he closed with $300. He “earns” $2/mon cash flow. The scammer covers the negative. When the loan resets, the $900/mon rent will not cover the $1625 payment, plus taxes, ins, HOA of $400+/mon. He will be negative $1100/mon. That will hurt.
I hope someone starts a lawsuit against NR, and finds out what they made on these condo sales.
“the maximum potential penalty for the combined counts is 30 years in prison”
O, that’s far too harsh. Really, I think he should just be sent home to his family. After all, his reputation is ruined, and that’s punishment enough. This is the new paradigm.
Exactly, after all, think of the suffering his family has endured so far!
I would hope that all these cases get sent up for pardons, guidelines be damned.
If they put all the mortgage fraud people in jail, we’re going to be building prisons with our tax dollars for the next 20 years. If they have any assets they should seize them like they do the drug dealers.
I’m sure they did.
I have to be at work today so I downloaded the foreclosure statistics (Massachusetts) from foreclosure.com and compared them to the sales stats from the Mass Association of Realtors. I only was able to get foreclosure data from Jan 04 onward and I only have SFH sales so take it for what it’s worth.
In July 04, there was 1 foreclosure (document or whatever foreclosure.com measures) per ten sfh’s sold. In February 07, there was 1 foreclosure per 1.08 homes sold. For the year 2004, there was 1 foreclosure per 6.6 home sales, 2005 that ratio drops to 4.1, then 2.2 in 2006, and so far this year it’s at 1.5 (skewed because most sales appear in June around here).
I just thought it was interesting.
Somalis have been seen diverting from Maine to get new FREEer healthcare in Ma - should help the market
“In February 07, there was 1 foreclosure per 1.08 homes sold…”
The same thing is happening in CA. It appears the foreclosure rate will be eclispsing the sales velocity sometime in August or September. Tsunami time.
but thats a month prior to the scheduled Dow collapse on the heals of systemic hedge fund disaster….these guys cant get anything to get together…..
Another hedgies is getting blown over. Some fireworks during 4th July!!
United Capital’s Devaney Halts Redemptions on Funds
Another one bites the dust…
Another one bites the dust…
LOL, I feel sorry for the majority investor trying to get his money out. I guess Enron-style freezes are not just for the “little folk” anymore.
EZ come, EZ go.
Wow….more to come I suppose….I’ve heard of Devaney.
A friend of mine called and told me of the English Calibre fund’s demise. He is a drinker of the WSJ koolaid but even he is getting twitchy now. Sees houses around him for 400-500K and they have not moved for years.
When the WSJ readers start putting 2 + 2 together it will be too late.
Making a lot of popcorn for the 4th….make things go BOOM!!
Yepper, the more exposure given to the subprime meltdown the more investors will trip to the idea that they are going to lose it all, then more redemptions are requested, then some more hedgies restrict redemptions, then more bad press, then more redemptions are requested. Rinse, repeat.
I suspect that we may see lots more hedgies closing off the escape routes for investors. Could be a rout here shortly.
We need a hedge-fund implode-o-meter
“‘We did that as a defensive move because we had an unusually high number of redemption requests and we didn’t want to be a forced seller in this market,’ Gregory said in a telephone interview. One of the redemption requests was from an investor who had put up about 25 percent of the funds’ money.”
This may be a stupid question, but can they legally not honor an investor’s redemption request?
Yes, Hedge funds are UNREGULATED. They can set their own rules. You have to be “Sophisticated” investor worth over $1m to participate. BWAHH
If I had that kind of money, I sure as heck wouldn’t put it in a hedge fund. My memory isn’t so short that I don’t recall LTCM.
So I give you millions of dollars that can easily be completely wiped out, or you can decided to not let me have it back along with any gains when I ask for it. Where do I sign up?
The soon to be FB’s gotta make sure Visa is still there. Never mind Jane, we lost the house !
Late Payments Up on Home Loans, Down on Credit Cards
REUTERS
The housing slowdown has caused Americans to miss more payments on home loans, though more appear to be paying their credit card bills on time.
In its quarterly study of U.S. consumer borrowing, the American Bankers Association said late payments rose in the first quarter from the fourth quarter in every category related to home ownership.
Delinquencies rose to 2.15 percent from 1.92 percent on home equity loans, to 2.94 percent from 2.82 percent on mobile home loans, and to 0.60 percent from 0.57 percent for home equity lines of credit.
Federal Reserve Chairman Ben Bernanke last month called the housing downturn “sharp,” and urged lenders to work with homeowners who are falling behind on their mortgages.
Meanwhile, the Mortgage Bankers Association has said lenders began foreclosure actions against one of every 172 U.S. mortgage borrowers in the first quarter, a record pace.
http://www.nytimes.com/reuters/business/business-delinquencies-borrowers-study.html
“The soon to be FB’s gotta make sure Visa is still there. Never mind Jane, we lost the house !”
Hey, even the little folk have to have a financial strategy.
I think the reason everyone is making the visa payment before the mortgage payment is because they don’t have enough money to cover the mortgage payment, but they have enough for the visa minimum payment. If they have money left on it they can use it for groceries, etc.
I would think that they are putting groceries on their credit cards. But I could be wrong; I continue to be surprised by the stupid stuff that college kids put on their credit cards while carrying a balance, e.x. concert tickets (are you kidding me)?
I’d say you are spot on.
I was in check out line at Costco last month. In front of me was a heavier set mid 40s hispanic man. He was wearing all the stuble symbols of a construction worker, just missing his white hat (the sweat mark from the interior band was visible on his hair). As he’s checking out, he is digging out every CC in his possession. I counted 7 that he tried including amex and none had enough on them to pay for the groceries. Finally someone dragged him over to the back counter to work it all out and not hold up the line.
Now when I pull out the CC, the first thing I ask myself is “can I pay this off completely before the finance charge?” If I can’t, then the item can wait. Chances are good I can find it on ebay or CL for less anyways. I thank the gods I don’t have a huge mortgage or I’d probably be doing the CC revolving rumba too.
“The housing slowdown has caused Americans to miss more payments on home loans, though more appear to be paying their credit card bills on time.”
BS. All through 2005 and most of 2006 they said there was no housing bubble and things were copacetic, now we are being told that the CC market is ‘just fine, better then fine, people have seen d’light an is’a paying down them dar cards.
Actually, I think it kind of makes sense.
Once you’ve given up on trying to keep the house, may as well pay off your other debt so that you’re in decent shape when you’re put on the street.
I also wouldn’t underestimate the power of late fees and interest rate resets that credit cards have but home loans do not.
The leveraged buyout concept has hit Main Street!
Financial predators score with new scam
‘Equity stripping’ targets homeowners
By Gretchen Morgenson and Vikas Bajaj
NEW YORK TIMES NEWS SERVICE
July 3, 2007
With the housing market in decline, financial predators are finding yet another way to take advantage of people who fall behind on their payments.
The schemes take various forms and often involve promises to distressed homeowners of cash upfront, free monthly rent and a chance to retain their houses in the long run. But in the process, someone else takes over the deed, borrows as much as possible against the value of the house and pockets the cash.
http://www.signonsandiego.com/uniontrib/20070703/news_1b3mortgage.html
I shouldnt be fascinated by the criminal element bum-rushing the FB filled with fear, but I am.
Snap decisions aimed at calming the broken spirit delivered by a “financial angel” appear to be a treasure trove for the evil slicksters.
All the more reason for the lenders to not give refinance loans on property until they become a” seasoned loan “. Don’t give a borrower more money so quickly after they take title even if equity is in it . The crooks work on getting things fast . There is no reason why a borrower should get a cash-out loan so quickly after a deed change .
Late Payments Rise for Home Equity Loans
Late payments on home equity loans climbed to a 1 1/2-year high in the opening quarter of this year, while delinquencies on credit card bills fell, painting a mixed picture of how people are managing their debt.
The American Bankers Association, in its quarterly survey of consumer loans, reported Tuesday that late payments on home equity loans rose to 2.15 percent in the January-to-March quarter. That was up sharply from 1.92 percent in the final quarter of last year and was the highest since the late summer of 2005.
http://biz.yahoo.com/ap/070703/late_loans.html?.v=4
Rich mans panic.
The Bull run may have some legs as the masses are turning the keys of the real estate bubble back to the idiots who created it and throwing money at the market with darts. Looking back on the Dot.bomb, after a fresh re-evaluation of my idiotic trades at that time…and failing to sell into the meltdown, Im now all the way out. Break even money after 5 years long.
More hedge funds are about to come to the forefront at a pace that is going to get out of hand. When the managers of these funds are unable to unwind, unable to redeem investors cash, and quite frankly “frozen” its simply too late.
I doom and gloom those around me to death, and they are simply tired of hearing about the coming financial debacle. I think its just about time for some people who have serious money tied up in the markets to go broke.
Rich mans panic. Keep a keen eye on 90 day teaser CD rates at your local Thrift.
interesting you should say this….i’ve seen others posts express similar sentiments. i think by late Q3 or early Q4 we will be in a world of hurt and that big elephant in the room will be exposed. Thoughts?
I believe sooner. Who wants to be last and then will be unable to redeem. Second out is the first looser.
thoughts?
panic first.
So where do you put your money before the great devaluation? NZ? I’d say precious metals but the graph of those over the last few years looks just like the graph of housing prices, minus the declines since the bust began…
the powder is drying in a cold case lock box.
The American Bankers Association produces a quarterly report on delinquency trends for several types of loan products. They include credit cards, direct auto loans (loans made through banks) and indirect auto loans (loans obtained through car dealers), and home equity loans and lines of credit. The latest figures for Q1 2007 were just released. They showed:
* The composite delinquency rate (for all eight types of closed-end consumer loans) rose to 2.42% from 2.23% in Q4 2006 and 1.94% in Q1 2006. That’s the worst reading in almost six years — since Q2 2001 (2.51%).
* The delinquency rate on home equity loans popped up to 2.15% from 1.92% in Q4 2006 and 1.94% a year earlier. That’s the highest rate since Q3 2005 (2.33%).
* The DQ rate on home equity lines of credit rose to 0.60% from 0.57% in Q4 2006 and 0.55% in Q1 2006. That’s the highest since Q2 2003 (0.63%).
* Direct auto loan delinquencies ticked lower, as did credit card delinquencies. But indirect auto loans showed deterioration, with the DQ rate there rising to 2.73% from 2.57% in Q4 2006 and 2.04% in Q1 2006. That’s the worst performance for that category since Q2 1997 (2.74%).
These figures confirm what we already know from federal delinquency figures, the FDIC’s Quarterly Banking Profile, and the Mortgage Bankers Association’s numbers — credit quality is worsening. The housing slump is a key factor:
1) It has a direct impact on home equity loan performance. Slumping home values leave more second mortgage borrowers “upside down” — owing more on their mortgages than their homes are worth. Meanwhile, falling home sales lead to more seasoning of home equity loans. In other words, more borrowers are forced to stay put, rather than sell and pay off their home equity loans. That increases the length of time those loans are outstanding, and that tends to drive the delinquency rate higher.
2) The housing slump also an indirect impact on the performance of other loans. A major use of home equity loans over the past several years has been consumer debt refinancing. Borrowers have rolled credit card and auto loan balances into their home equity lines of credit and home equity loans in order to reduce their interest rates and monthly payments. As home prices slump, fewer borrowers can take advantage of that payment-reducing maneuver. So consumer loan delinquencies are likely to rise, especially if the employment situation worsens.
Here’s the raw data:
http://www.aba.com/Press+Room/070307Delinquency+Bulletin.htm
Here’s a chart showing the composite ratio over time:
http://tinyurl.com/23ppe5
Really, you can’t make this stuff up…sure, housing recovery is in the bag.
“Stocks rose modestly in early trading Tuesday ahead of a shortened holiday schedule for U.S. markets, with investors betting that a report on pending home sales will show some recovery for the beleaguered sector.”
http://www.forbes.com/feeds/ap/2007/07/03/ap3880925.html
Too bad, Wall Street…bwahahaha….”unexpectedly”…bwahahaha.
Pending sales of existing U.S. homes in May unexpectedly fell to their lowest level in more than 5-1/2 years, data from a real estate trade group showed on Tuesday in a sign of continued weakness in the housing sector.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in May, fell 3.5 percent to 97.7 from a downwardly revised level of 101.2 in April. The May index is the lowest since 89.8 in September 2001.
http://www.nytimes.com/reuters/business/business-usa-economy.html?_r=1&oref=slogin
You’ve got to love the opposing quotes:
“I do not see a bottoming of the housing market. There is not a light at the end of the tunnel,” said Kevin Flanagan, fixed-income strategist for global wealth management at Morgan Stanley in Purchase, New York.
versus
“Home sales should stay close to present levels in the months ahead,” said Lawrence Yun.
New moniker for the housing bubble:
Expect the unexpected.
“I do not see a bottoming of the housing market. There is not a light at the end of the tunnel,”
I see a light! It is a freight train.
Wait, there’s something written on the side of the tunnel, it says “NO CLEARANCE”
http://www.bloomberg.com/apps/news?pid=20601087&sid=altETRMFQLD8&refer=home
Per Bloomberg pending homes sales unexpectedly fall. Unexpected by whom?
Not unexpected by US, of course.
Americans unexpectedly signed fewer contracts to buy previously owned homes in May as buyers waited for lower prices and lenders made it harder to get mortgages.
If this was unexpected, these idiots need to get a new line of work.
I’ll be reporting from on the ground in Hawaii for the next couple weeks. I’m especially interested in the big island.
If possible, be sure to get some photographs of Hawaii’s state bird (condo construction cranes). I am guessing such scenary is readily available on the big island, as it was on Maui and Oahu when I visited last year.
http://tinyurl.com/2gaxsa
I love this bogus ad for Hawaii RE.
They sell swamps in Florida, inaccessible sites in Michigan, Minnesota and Wisconsin (probably other areas also). This beats them all.
Take a look at Waikoloa. I know two investors who bought hundreds of acres there in 2005 and 2006. One is building lots south of the existing golf course. The other is trying to subidivide 5-10 acre parcels east of the existing development. Hawaiin ranchettes. I wonder how they are doing.
I heard RE really slowed down after the earthquake and hasn’t come back.
Big fire in Waikoloa, 9,000 acres as of last night. Arson is suspected. Read a post on another forum last week; Guy complaining that his house in Waikoloa has been on the market over a year despite three price reductions.
I’ll be looking, I heard about the fire but this morning I haven’t seen any evidence of the fire yet. So far the dry side of the island reminds me of Southeastern Idaho, (the lava rock I guess).
Yes, exactly! That corner of the Island really reminds me of eastern WA/OR where I grew up (dry, barren, lots of volcanic rock). I was back on the Big Island for 8 days this past spring and we saw it all. They are still building new homes in that area but the activity seemed a bit slower compared to when we were there 2 and then 3 years ago.
The outer islands are in the tank. Don’t by a thing. Jingle’s buddies that bought Waikoloa land are hurting…bad.
I know, I am a RE broker here since ‘85. If anyone tells you different they are either stupid or a liar.
Even though everyone knows subprime is contained, some fear mongerers dare to insinuate that private equity faces similar problems.
AFX News Limited
Alchemy boss says private equity sector faces same problems as US subprime mkt
07.03.07, 10:25 AM ET
LONDON (Thomson Financial) - A leading UK private equity boss claims the industry is at the top of the market and is likely to face a crisis similar to that seen in the US subprime market.
Appearing before the influential Treasury Select Committee, Jon Moulton, managing partner of Alchemy, said the US subprime market is a very good ‘prototype’ for the private equity industry as it is financed in the same way.
‘You can take a view that we will have the same sort of problems (as the US subprime sector) at some point arising out of an over-enthusiastic market,’ he told the committee of cross-party MPs.
‘At some stage there will be nobody willing to to underwrite fresh debt in to the market, that’s what typically precipitates failure in a market like that,’ he said, adding that some firms are already struggling to raise debt.
http://www.forbes.com/markets/feeds/afx/2007/07/03/afx3880850.html
TWIN TOWERS are officially DONE:
http://www.bakersfield.com/hourly_news/story/179723.html
This Crisp guy is one of my favorite story lines. I can’t wait to see how the story ends.
This Crisp guy is one of my favorite story lines. I can’t wait to see how the story ends
Let me help you out, either Smith & Wesson in his mouth or Bubba in his ass.
“LOL”
Me either. LOL!
Thanks for the update crispy. Hope you are staying cool out there.
Many here believe the major melt down in housing, with the ARM resets, and the financial markets , with the shaky hedge funds, will start at the end of 2007 and go into 2008 and beyond.
I have a slightly different time line.
2008 is an election year and we are already in full swing with the political posturing.
The party in power, Democrats or Republicans. always try to make it appear the everything is great during an election year. With the Democrats in power in Congress and the Republicans in power in the White House they both have a dog in this fight. I think they will both work to shuffle the problems around to hide them until the election is over.
It is “after” the election that the wheels will come off, because they feel they can clean up the mess in time for the next election. I think the real melt down in housing and the financial markets will start in early 2009
What do you think?
“…will start at the end of 2007 and go into 2008 and beyond.”
Already underway and ongoing since late summer 2005.
True it has been going on since 2005.
However, right now all we are seeing is minor price reductions by sellers ; banks holding REO or refusing to accept low ball offers and auctions that are a joke. Not to mention mortgage brokers still offering toxic loans. I think in early 2009 we will see the real fire sales. Prices coming down to 2.5 to 3 times medium income in most areas. IMHO
Good point!
Agree with you, Stucco. Late summer and fall ‘05 is when I first saw real estate “for sale” signs multiplying like mushrooms. Not just in AZ, but in other states as well.
I agree that Congress and GW will do everything they can to save the housing market. However, I think you’re over-estimating the power of the Feds to keep this Titanic afloat. Even if the Feds drop interest rates signifcantly, provides huge tax incentives to buyers, bails out the subprime borrowers, and appoints Lawrence Yun as the new “Homeownership Czar,” they will not be able to divert the inevitable. The forces in the free market are simply too strong.
And one more time, let’s remember that the Japanese tried every trick in the book with much stronger resources (high savings rate, trade surplus, no foreign borrowing, culture which discourages walking away from debts) and still they couldn’t stop a 50%+ RE decline.
There is simply nothing that can be done to keep asset prices above their fundamental value in the long run. It’s impossible. Expect a lot of talk from the White House and Congress, but they (or their advisors) know damn well there’s nothing they can do, and they don’t have the resources to even try.
I don’t think they can delay this monster for over a year.
Inventory of homes way up and climbing.
Sales low and dropping fast resulting in record “months of inventory”.
Foreclosures and defaults way up.
ARM resets just getting rolling.
REOs having doubled in the first half of the year.
Banks, credit unions and mortgage processers already swinging to big losses.
Builders showing losses.
Run on asset management (hedge) funds.
LBOs having trouble raising cash.
This is going to be like trying to juggle giant slabs of Jello.
BJ,
I think the facts on the ground are changing so quickly they will outpace any politician except perhaps Ron Paul and Bloomberg. Neither the repub or dem leading candidates seem to be really watching the domestic economic meltdown, and those who were talking earlier…like Dodd and Frank and Schumer, have shut up.
This thing is too big, and it’s moving too fast. The admin is jawboning, but has no idea what else to do…just kill time for the next 18 months and get out of Dodge. This thing is going to change the political,social and economic landscape and who’s prepared to cope with that?
Makes you wonder what event will be large enough to take our minds off of the economic disaster unfolding as well as take some of the blame (little tin foil moment here)?
I’m wondering too. What have GW, Cheney and Rove got to lose?
It’ll happen 3 months before the election, and it’ll be ugly.
There is no way they can contain this mess. FB’s are already at the point of no return and there are many more following right behind them. Unless they bail out all the FB’s this is going to snowball into every segment of the economy. They don’t have enough money to clean up this mess. People will walk even if they can pay their mortgage if the value is half of what they owe and they don’t have a lot of their own money invested. Who wants to pay on a dead horse for the next 10 years.
There is no way they can contain this mess. FB’s are already at the point of no return and there are many more following right behind them. Unless they bail out all the FB’s this is going to snowball into every segment of the economy. They don’t have enough money to clean up this mess. People will walk even if they can pay their mortgage if the value is half of what they owe and they don’t have a lot of their own money invested. Who wants to pay on a dead horse for the next 10 years.
I think either side will grab anything within reach to club the other over the head.
Since the real, root causes of economic troubles are obscure bordering on incomprehensible, this weapon is particularly well suited.
The root cause of the economic troubles of the US and J6P is not obscure at all. They are living beyond their means. It’s that simple, and that obvious. There are none so blind as those who will not see.
I think the Republicans are gonna throw the game and then position themselves to be the saviors that clean things up in 2012. Isn’t that the year many doomers are now pointing to as the bottom?
I have a trusted old school uncle of the boomer persuasion… he has taken me in on this “political” timeline as well, but I was spooked by the hedge fund meltdowns, still am…. Im one of those, grew up in the 80’s and its all been too easy types.
Big money is gonna go broke, and its gonna hurt everyone dry powder or no dry powder….
So glad we’re at the bottom of the housing bubble. Think I’ll run right out and buy 2 or 3. If the house prices in most areas are way above what anyone can afford with their income levels, and the sub prime loans are gone, then who is going to buy at these over-inflated prices? Maybe all the people who are going to lose their shirts in the stock market, which is also artificially inflated.
The Devil’s spawn…
Feds Issue Final Subprime Rules
by Broderick Perkins
Federally regulated banks started the week with new rules governing how they write subprime loans.
Critics consider the rules too-little too-late because they don’t apply to mortgage brokers and lenders that are not federally regulated. Also an estimated 2 million homeowners, many of them saddled with subprime loans they can’t afford, are already in or destined for the foreclosure pipeline.
Effective immediately, the “Statement on Subprime Mortgage Lending” is the work of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the National Credit Union Administration, federal monetary system regulators.
The new rules were spawned by waves of failing subprime mortgages.
http://realtytimes.com/rtcpages/20070703_fedissue.htm
Final Guidance — Statement on Subprime Mortgage Lending
(Caution: .pdf file)
http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070629/attachment.pdf
ben, there are no fixer uppers in san diego!
oh wait. my condo “hell hole” rental could use some fixin’
Managers: Subprime Blame Lies With Rating Agencies
By Lawrence Carrel
TheStreet.com Senior Writer
7/2/2007 11:20 AM EDT
Bond funds may have a reputation for being boring, but anybody who attended Morningstar’s annual mutual fund conference in Chicago last week might have the impression that the fixed-income market is the most dangerous part of the U.S. financial system right now.
Both the opening and closing sessions featured tough-talking bond fund managers who pulled no punches about the state of the subprime mortgage market and about who was to blame for the mess.
“It’s an unmitigated disaster,” Jeffrey Gundlach, chief investment officer at TCW Group, said during the conference’s opening address. “And it’s only going to get worse.”
http://www.thestreet.com/s/managers-subprime-blame-lies-wth-credit-rating-agencies/funds/mutualfundmonday/10365816.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA
Remember Princess Bride where the one guy keeps saying “Inconceivable” to things that then happen, and the Spanish guy says, “I think jew don know the meanin’ o the word”
I think that the experts do not know the meaning of “unexpectedly”.
http://www.cnbc.com/id/19581828
“Pending sales of existing U.S. homes in May unexpectedly fell to their lowest level in more than 5-1/2 years,”
http://www.bloomberg.com/apps/news?pid=20601081&sid=adwqiPcuoBzs
“Australia’s May Retail Sales Unexpectedly Drop”
http://www.bloomberg.com/apps/news?pid=20601102&sid=aW0r_N3l4kUo
“U.K. June Manufacturing Growth Unexpectedly Slows”
http://www.bloomberg.com/apps/news?pid=20601082&sid=aYiW1f1DuyuU
“June 29 (Bloomberg) — Canada’s economy unexpectedly stalled in April, snapping six months of gains, on lower wholesale sales”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aN2jD44up2xc&refer=home
“KB Home reported an unexpected second- quarter loss as sales fell to the lowest in three years”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4Rzrv6BZ_ZE&refer=home
“Miami-based Lennar, the largest U.S. homebuilder, reported an unexpected loss for the quarter ended May 31 and said losses may persist into the next three months. New orders last quarter dropped 31 percent even as incentives rose 77 percent.“
Seems to me that a lot of people have taken the blue pill.
But amazingly, stocks keep going up. Maybe the U.S. printing presses are on full speed, directly injecting cash and ‘debt-cash’ into the world stock exchanges.
Very nice. It’s like those students that “unexpectedly” fail when they don’t go to class or turn in any homework.
Maybe the NAR should hire Vizini to be their new spokesman (Inconceivable!). Too bad the Dread Pirate Roberts poisoned him.
It’s unexpected because this data shouldn’t have come out. Someone doing the statistics didn’t do their job right.
Warnings, warnings everywhere; still lots of loans to sink…
First time buyers given subprime warning
First time buyers considering taking on mortgages which they are ill-equipped to pay are set to be warned by the Financial Services Authority (FSA), it has been revealed.
First time buyers considering taking on mortgages which they are ill-equipped to pay are set to be warned by the Financial Services Authority (FSA), it has been revealed.
The financial regulator is concerned over the state of the subprime market, particularly whether or not some consumers with poor credit histories have been incorrectly sold mortgages that are beyond their means, the Financial Times has reported.
http://www.firstrungnow.com/first-time-buyer-news/first-time-buyers-given-3372.aspx
Burn, baby, burn…
UPDATE 2-Benchmark ABX plunges to new record low
Mon Jul 2, 2007 12:17pm ET
Bonds News
By Nancy Leinfuss
NEW YORK, July 2 (Reuters) - Benchmark subprime mortgage ABX indexes fell to fresh record lows in nervous trading on Monday, as concerns mounted over the rapid deterioration of subprime loans made last year, traders said.
“It’s another big selling wave. There’s really no new information. The repricing in the index is more sentiment driven,” said one ABX trader.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-07-02T161711Z_01_N02354162_RTRIDST_0_USA-SUBPRIME-BONDINDEX-UPDATE-2.XML
This is a good article that sheds light on some of the shenanigans taking place at companies like Bear Stearns:
“The specific ABX index most applicable to subprimes, the ABX-HE-BBB-, started the year just under 100, and then, as whispers of subprime difficulties started to spread through the markets and, in early February, as HSBC confirmed that, at least for that bank, the rumors were true, the index fell to 77.5 by late February.”
……..
“the international bank capital reserve regulations known as Basel II allow CDOs to be valued through an arcane process called “marked to model”"
http://www.atimes.com/atimes/Global_Economy/IG03Dj01.html
ABX is the new Nazz….
The U.S. financial press corps is finally taking the Wall Street subprime lending kingpins to the wood shed. I am frankly surprised da boyz let this kind of story go to press.
Sunday, July 1, 2007 - Page updated at 02:01 AM
Wall Street played role in creating subprime troubles
By Rachel Beck
The Associated Press
NEW YORK — Some on Wall Street want to blame the little guy for the latest hedge-fund mess. People with shoddy credit histories couldn’t pay their mortgages so that pushed some funds to the brink of collapse and sent shock waves through financial markets.
Talk about a cop-out — that shifts blame away from the Wall Street firms and banks that had a hand in creating the subprime-mortgage mess but aren’t taking responsibility for it.
Not only did the banks and firms encourage lending to borrowers with shaky credit so they would have lots of loans they could package and sell, but Wall Street then started hedge funds that used borrowed funds to leverage the bets on the mortgage markets many times over.
http://seattletimes.nwsource.com/html/businesstechnology/2003769390_subprimemess01.html
Yeah, somebody better get that troublemaking Rachel back under control. She’s telling the truth in the MSM. And that might offend some advertisers…
Existing home are sales down. Automobile are sales down. Financial companies are stuck with billions in toxic debt…..and the stocks keep flying higher! Mr. Market is insane!
Bad is good baby! I’m making gravy without the lumps!
Hmmm… good to see that the containment is spreading! How “unexpected!”
Dracula’s castle is on sale (from CNN).
People have been telling me to buy for a while. The castle is probably worth tens of millions. With Hybrid/Option/Interest Only 5/1 ARM loan, heck, I just might be able to swing it!
http://www.cnn.com/2007/TRAVEL/07/02/dracula.castle.ap/index.html
How far the US has fallen in the worlds view.
from Gulfnews
Restaurants enter list of top 100 US retailers
According to the annual Top 100 Retailers ranking featured in the July issue of the National Retail Federation’s magazine STORES, McDonald’s Corp, the world’s largest fast-food chain, is the 16th largest retailer.
Yum Brands Inc, which operates the Pizza Hut, Taco Bell and KFC chains, is No. 35, while Starbucks Corp clocks in at No. 42. Darden Restaurants Inc, the operator of Red Lobster and Olive Garden, is No. 53.
The rankings are based on 2006 annual revenues.
http://tinyurl.com/2dhgvr
Bill Gates is no longer world’s wealthiest man.
Sayonara dollar.
Three months ago the cigar-chomping Mr Slim quietly slipped past legendary US investor Warren Buffett to take second place in the global wealth league.
Now, thanks to a surge in the shares of his America Movil group, Mr Slim has claimed pole position, according to the Mexican online financial publication, Sentido Común.
Shares in Mr Slim’s mobile phone empire surged by 27% over the second quarter, compared with a 5.7% rise for Microsoft. Mr Slim’s bank, Inbursa, also saw its stock jump by 20%.
Guardian July 3
http://tinyurl.com/28qy7u
Mr Slim’s wealth has more to do with corruption than a falling dollar.
Hoodrats can squeeze into these two units on a tiny lot:
http://sandicorpics.sandicor.com/MediaDisplay/39/hr1000479639-1.jpg
3675/3677 LOGAN AVE - SAN DIEGO - 92113
$459,000 - $478,500
2 UNITS - 2BD - 1BA - 702 SQ FT
“Great investment property, two units, quiet neighborhood.”
Anya Kamenetz
Generation Debt
“…To turn to the big picture for a second: Generation Debt means larger-than-ever-before levels of student loan debt (two-thirds of undergraduates now borrow an average of $19,300) and credit card debt (91 percent of final-year students have a card with an average balance of $2,864).
About half of us don’t have any college experience, while less than a third end up with a four-year degree at a time when a B.A. seems like the minimum requirement for earning a middle-class income. (How to succeed without a degree is something I’ll discuss in a future column). On average, young people from 25 to 34 are spending an amazing 16 percent more than they’re earning.
Where the Money Goes
There’s no getting around it — we’re the first generation of Americans who have fallen short of what our parents achieved economically by the same age. In fact, at the end of May, a study by the Pew Charitable Trusts and other big think-tanks found men in their 30s earning 12 percent less on average than men of their fathers’ generation.”
“we’re the first generation of Americans who have fallen short of what our parents achieved economically by the same age…men in their 30s earning 12 percent less on average than men of their fathers’ generation”
http://tinyurl.com/2kupaj
Nothing but burned toast from this economic expansion.
Well Hoz,
Men in their 30s today should earn less than men of their fathers’ generation since they compete with a lot more highly educated and ambitious women in the workforce. It’s like comparing apples to oranges. Perhaps a more accurate comparison would be to compare 2-earner households today with those of our parents generation.
Hoodrats enjoyed the bubble too!
This dwelling went from $40,000 in March 1994 to $293,000 in February 2006. A 732% price appreciation or 18% per year compounded annually over 12 years. The party is winding down now. Its currently listed for $180,000 - price depreciation of nearly 40% in one year.
http://www.sdlookup.com/Property-AFF76F20-4463_Mayberry_St_San_Diego_CA_92113
Mortgage swindler gets prison
Prosecutors say the Newport Beach man, who got 57 months, continued to profit while awaiting sentencing in $9 million fraud case
http://tinyurl.com/3dyrl9
Here’s another one…so many to post, so little time
Ex-athlete gets 5-year sentence in Ponzi scheme
A Cal State Fullerton baseball star convicted in a real estate scam also is ordered to compensate victims
http://tinyurl.com/2ds3p3
http://www.larouchepub.com/other/2007/3427pensions_hedges.html
The international organization representing trade unionists in 153 countries just told their members to pull their money out of hedge funds, or risk losing their pensions! This is going to start snowballing in a big way.
From the article above:
New Pension Crisis Seen In Credit Markets Crash
by Paul Gallagher
The International Trade Union Confederation (ITUC) released a report June 22 to its members in 153 countries, urging them to pull their pension funds’ investments out of hedge funds and private equity funds. The ITUC, with many examples, showed that pension funds’ returns from investing in these locust funds have done no better, or lagged behind, ordinary stock market investments: in the case of private-equity-fund investments, for nearly a decade; and in the case of investment in hedge funds, since 2005. It also warned that private-equity takeovers—heavily using pension funds’ invested assets—have been shrinking the stock markets for public stocks into which pension funds have traditionally been invested; that they pit older workers’ interests against those of younger workers in the pension plans; and that the debt bubbles these funds are building up, are threatening a collapse of financial markets “as soon as credit conditions change.”
Credit conditions are now rapidly changing for the worse (see p. 62), and pension funds—with between 3% and 5% of their investments in hedge funds (including hedge “funds of funds”) alone, depending on the report—are directly in the path of disaster. In the past two years, many public pension funds in the United States have added to their hedge-fund investments, their own direct purchase of the super-risky mortgage-backed securities (MBS) and their derivative collateralized debt obligations (CDOs) with which hedge funds and investment banks play. Analysts at real estate investment trusts and banks, warn EIR that the huge losses seen coming in these housing-bubble securities (losses in the hundreds of billions of dollars) are going to create a second-wave pension crisis in the United States.
(Con’t)
Happy fourth:
http://tinyurl.com/3yvmd4
it took me forever to read this bits today. now im on to read the cali site. thank you.