Bits Bucket And Craigslist Finds For July 11, 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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Massachusetts set to announce $250,000,000 bailout of subprime borrowers facing foreclosure, as written by our friend Kimberly Blanton.
No critical analysis is provided of the effect this will have on subprime lending in the Commonwealth.
http://www.boston.com/business/personalfinance/articles/2007/07/11/state_to_refinance_troubled_mortgages/
MA is a red state peoples republic
wonder how their FREEer healthcare is going
people fleeing south
This kind of bailout is really a bandaid, as the article indicates that it will only help 1,000 qualifed borrows in MA. That count can’t possibly include all the homedebtors whose subprime mortgages reset later this year and next. Having said that, the plan does exercise some restaint:
“Borrowers who used subprime mortgages as a refinancing tool to cash out equity from their homes would not be eligible for the assistance.”
From my experience following troubled credit over the years, stakeholders often prefer solutions that take the pain gradually. That way, if an unforeseen event, like income gains or inflationm bails the troubled borrower out, further pain can be avoided. Expect to see more proposed state programs from Fannie Mae.
“This kind of bailout is really a bandaid, as the article indicates that it will only help 1,000 qualifed borrows in MA”
and 990 of those will be state legislators, friends and family.
MA is a red state peoples republic
Fannie Mae has already stated that they want to cherry pick the sub-prime because they figure they can get the loans discounted from the current lenders. The MA governor must read the business papers too, and decided to take advantage.
As far as I can tell, this program will only benefit the subprime lenders. If smart, they will jump at the chance to get away from a loser loan with only a 10% loss. Fannie Mae will get stuck with a portfolio of loans that will ultimately be worth 50% to 60% less than the $250 mil. The FB will get strapped with a loan at 7.75% that they can not afford, getting them another year in the house at best.
And the politicos will slap eachother on the back for a job well done. A sickening waste of taxpayer money…but hell, it is only worhtless dollars anyway.
My thoughts exactly. If I were a subprime lender in Massachusetts, I’d be searching my files for loans that were eligible to dump. A 10-20% haircut is a bargin in those cases.
Assuming yearly taxes of $3000 and insurance at $500 a year, a 100% loan of $250,000 at 4.5% for 30 years (say a 2/28 ARM) is $1558. Drop the outstanding loan balance that to $220,000 at 7.5% and it goes to $1406 over 30 years. Whoopdedooo. And the Commonwealth can’t figure out why people with high paying jobs are leaving? You think stealing my hard earned money to finance some idiot’s impossible dream while I scrimp and save and *gasp* rent will make me want to stay?
3000/yr for property taxes? Flies in the face of the “taxachussetts” yammering. $3000/yr is a bargain compared to NY.
It used to be called Taxachusetts back in the 1980’s. Now it is middle of the road on taxes vs other states.
Yes $3,000 is cheap even for Massachusetts
Heck, I paid $3600 a year in property taxes in central Illinois on a $185k house back in 2000!
Well… one good thing going for Mass. is that they have a successful state sponsored healthcare system. More than I can say for NY.
Massachusetts has a state income tax and a sales tax so there is less pressure on the property taxes to provide all the income.
Massachusetts has had its own version of CA’s Prop 13, Proposition 2 1/2, for a very long time.
“As far as I can tell, this program will only benefit the sub-prime lenders. If smart, they will jump at the chance to get away from a loser loan with only a 10% loss.”
But what a nice job painting the bank bailout as consumer protection. The “Get Tough” policy. ooooooh!
I have a question to MA residents on this blog. Is anyone seeing “ghost town” situations from the density of foreclosures w/in certain geographic areas as is happening out west? The reason I ask is I was thinking if I lived with that situation sprouting up I’d have security fears, and that would position me behind some form of refinancing bailout.
We’ve talked about this before, but in Mass the foreclosure problem is currently centered around much of the poor, urban decay, i.e. Taunton, Brockton, Lowell, Fall River, New Bedford, Boston burbs like Roxbury. These are the areas where predatory lending was the highest and are the weakest financially, so are the first to fall.
The suburbs are getting their share of foreclosures, but they pale in comparison number-wise to the areas mentioned above. Well-off towns like Newton and Duxbury have come down some in price, but not much. Sales are still happening because there is still demand for housing in these towns. That’s not to say the correction won’t hit these areas hard eventually, but my feeling is it is all based on jobs. As long as those employed in the Boston/128 corridor still collect their hefty salaries & bonuses, they will ba able to pay the mortgage and forestall a major correction in desirable neighborhoods.
As far as new construction, there just aren’t that many new housing developments around. Any new SFH housing developments would be priced in the $500K-600K+. These are not the domain of first-time/marginal buyers. It will take much longer for these areas to get hit in this downturn. Now condos are a different story. I would not want to be a condo owner anywhere in Mass today. I would think if ghost towns exist, they will actually be new condo developments, not single-family detached.
“Any new SFH housing developments would be priced in the $500K-600K+.”
Hey, out west the strawberry pickers can “afford” that!
Would you consider Barnstable as Poor, Urban Decay. Well, They lead the state in foreclosures! The only predators on the Cape are the Kennedy’s after too much Chivas Regal.
Gimmee a break with the Newton and Deluxbury are special. They will collapse too.
The Cape has no job base. It is a seasonal tourist attraction with a horrible commute to any major job center in the area (i.e. Boston/Quincy/128/Providence). My point was that there are foreclosures everywhere, but the volume is in the older mill towns and poorer suburbs of Mass.
Any town worth buying in is still significantly over-priced and will probably remain so until the most marginal of buyers there are impacted financially, either through resets or job loss. How long this takes is anyone’s guess, but I’m betting that as long as well-paying jobs are plentiful, it will take a while.
Seems to me they are trying to protect property tax revenues by protectng property values. Better to have those house stay off the market than come back to market at lower value.
Problem is, it won’t help. It is sticking your finger in a bursting dam.
Just fixing the existing loans won’t make buyers able to pay for houses at the inflated prices. If you qualified at 4%, but can’t afford at 10%, getting you a loan doesn’t mean that the buyer will be able to afford 7%.
Nor, and more importantly, it doesn’t make all the other future buyers able to get loans and pay for houses at elevated prices.
Prices are not dropping because of crazy lending. They went UP because of crazy lending. They are coming down because they got too high to aintain their momentum, and because of the end of crazy lending.
Nothing government can do to stop prices from falling. Only lock people that paid too much, into the houses for longer.
This is nothing more than the Massachusetts Governor (Coupe) Deval helping his former employer Ameriquest get some $ for the bad loans which would have never been paid. This is a huge conflict of interest
Patrick joined the board of directors to clean house after Ameriquest’s violations a few years ago. They invited him and a few other high profile, squeaky clean people to shore up their image. He’s not exactly a career mortgage lender.
This proposal comes from James Galvin, the AG. It is widely regarded as “dead on arrival” at the State House.
Sorry, William Galvin, Secretary of State. I’m not awake yet.
Good point, Knife-man.
I totally forgot Patrick’s connection to Ameriquest-gettin’ old I guess.
Great fodder for a letter to the editor.
Let the bail-out’s begin…
http://www.boston.com/business/globe/articles/2007/07/11/state_to_refinance_troubled_mortgages
All’s well here in Mazzholeland.
There is also legistlation to bail out those who are overextended on their car loans, credit cards, and bookie debts.
This program will help keep home prices artificially high, benefiting lenders, realtors, builders and state (property) tax coffers.
Here is some off-the-cuff analysis: A large part of $250,000,000 will go straight to the bottom lines of mortgage lenders who lend in Massachusetts, and a non-negligible fraction thereof will be transferred into campaign contributions for politicians who supported the measure.
So what’s the lesson here: Don’t be responsible? Don’t be patient? If something looks too good to be true, and seems overvalued: DO IT ANYWAY because in our safety-padded society papa will always come and bail you out?
patria-farse-icalism: when papa says he’s gonna help the little man, when in fact he is helping just the opposite
Nothing new here, it was reported on April 17:
Fannie, Freddie to unveil subprime plans: WSJ “…Fannie Mae is expanding its products to let subprime borrowers refinance out of some adjustable-rate mortgages…”.
http://www.nytimes.com/2007/07/11/business/11leonhardt.html?_r=1&ref=business&oref=slogin
“As Mark Zandi, chief economist of Moody’s Economy.com, summed up the market: ‘The low end is getting creamed. The middle is struggling. The high end is running on its own dynamic.’”
“It’s tempting to conclude, then, that the top of the housing market has somehow become bubble-proof. And some real estate agents will doubtless make this pitch to buyers who are on the fence. But it is almost certainly wrong.”
probably the government should help all home-buyers with a one-time $1M government-insured, interest-free loan so they can buy into the bullet-proof upper segment as well. Protects property taxes, feeds the loan and RE industry, and assures everyone of a $1M home. Ben B will be happy to print all the dollars required to do this. What else can you wish for as a politician
IIRC, didn’t you say that the Netherlands offers something like this? Perhaps it’s too early in the AM and my mind is fogged.
yes, we have this in NL and it works perfectly for propping up the bubble. But the free loans are only around EUR 50K and insurance limit is EUR 250K, the rest of the mortgage has to be paid for (novel idea!), at a rate of 5% for 30-year fixed, with full government mortgage insurance and 50% income tax deduction. I do expect the free loan amount and insurance limit to climb significantly in the next 1-2 years though, most of the big political parties are pushing for this.
Give them the houses. In Argentina, the government builds and then gives away a certain number of houses each year. The government builds neighborhoods for this purpose. As an election draws near, more neighborhoods (houses) are built and given to the poor to garner more votes. The house is put in the person’s name, even though he/she owes the government all or most of the money required to pay for the house. Some–I”m told many but don’t know if that’s true–try to sell them, pocket the proceeds and then walk away from what they owe. The irony is that these homes are so poorly built and overpriced that the only folks that would/could “buy” them are those that qualify to receive free homes from the government. These folks are, in essence, a constant community of buyers. The government does not prosecute those who walk away from the debt because it’s bad for business: votes. (There is no real middle class here, just poor who are less poor, and the poor make up the majority of the population.)
The same approach is used to hand out new-business loans. You want to start a business, here is $1M pesos. The business gets launched, the owner goes bust and walks away to make room for the next wanna-be business owner. The shop/restaurant turnover and constant boom-bust cycle here is astonishing. Again, the business of votes makes prosecuting the defaults unappealing to the government.
The record with Ben Bernanke taking real actions is that he raised interest rates. This means that he is behind $1 million loans for all? Do you really think that this kind of silly rhetoric helps anyone? Perhaps I should let you know that I think the Dutch monarchy are space aliens who made the housing bubble happen using their UFOs? Since math and logic and history and accountability do not relate, this kind of fun is all that is left.
Furthermore, Ben Bernanke is an academic in the employ of politicians which probably explains a lot of your agendist failure to understand. If you aren’t even interested in finding out about the major players, then why bother to comment?
“Ben Bernanke is an academic in the employ of politicians”
Incorrect. Bernanke is in the employ of the Fed. Reserve, which is privately owned.
“your agendist failure to understand.”
This is not English…if you wish to make a point, try using grammatically correct language.
“It’s tempting to conclude, then, that the top of the housing market has somehow become bubble-proof. And some real estate agents will doubtless make this pitch to buyers who are on the fence. But it is almost certainly wrong.”
Only true until the margin calls begin?
I just hope some wealthy investors eat their CDO’s for lunch, spread the pain around.
from what I have read over the last two weeks it seems that about half of the bad CDO’s are owned by pension funds (som US but mostly EU pension funds I guess). I guess a few wealthy investors will get hurt when their hedgefunds blow up, but most of thim will probably profit from what is going on - unlike the general taxpayer.
I keep seeing the “realestate experts” saying that housing will need to drop huge amounts. In some cases 45 to 55% for the average family to afford one. It gets worse in California. The “experts” say this won’t happen. My question is “Why not?” So, why wouldn’t it happen?
Roidy
url:http://www.cnbc.com/id/15840232?video=416903521
Because it is inconceivable. Just as it was inconceivable that the tech bubble would burst or that the S&Ls would collapse or that a single man was pulling most of the strings in the junk bond market in the 80s.
Just as it was incinveivable that WordlCom and Adelphia were flat out lying, or that Enron could manipulate energy markets to the point CA would have rolling blackouts…
Inconceivable…. because it would destroy the economy and the economy can’t be destroyed.
Because it is inconceivable. Just as it was inconceivable that the tech bubble would burst or that the S&Ls would collapse or that a single man was pulling most of the strings in the junk bond market in the 80s.
Just as it was incinveivable that WordlCom and Adelphia were flat out lying, or that Enron could manipulate energy markets to the point CA would have rolling blackouts
The US society has evolved into an entity devoid of values or ethics.
Globe today ran a story today on how the answers to the Boston police detective tests got leaked resulting in bogus scores.
So here you have people sworn to uphold the law, cheating
on exams.
Just the character types to be testifying in court against you.
It’s all a charade.
The US and it’s Wal-Mart lottery mentality is toast.
maybe that word does not mean what we think it means.
LOL, Innigo.
in my top 5!
as u wish….
Kind of depressing but I agree…
home prices will not fall 50% in nominal terms because Bernanke will print so many dollars that prices will not drop like a rock - but of course they will drop far more when correcting for inflation. Still, if BB gets away with his printing press bailout, homeowners with a jumbo mortgage who can avoid foreclosure probably are getting a great deal.
Bernanke is another contemporary Joe Gobbels.
The only reason inflation’s contained is the US allowance of all the Chinese consumer garbage to flood domestic market’s and trash US businesses vis a vis today’s headline-”CHINA TRADE SURPLUS HITS RECORD $26.9 BILLION in June.
Freakin’ loser.
Because the Chinese ha
It is not sensible to place the blame on China.
1) What does not show up in the figures reported from our MSM is the China pass through. From the US Treasury department in 2005 “China’s trade in good surplus was 423.3 B, but was 116.5B according to Chinese data.” We purchase from China, but China is purchasing the items from Japan, Korea, Vietnam, the US etc. This is called “pass through”. According to the IMF 80% of all China trade is pass through.
2) China accounts for 28% of our trade deficit. What about the other 72%?
3) Japan has a larger impact on our economy than China. “The surplus stood at ¥2.134 trillion, or $17.53 billion, in May before seasonal adjustment, the data showed. The surplus jumped 50.3 percent from a year earlier in April.” (IHT JUly 11). They are the foreign country that is the single largest holder of US T Bonds.
4) The OPEC nations hold $3T and it is growing every day.
If you wish to bash China or others based on our media reports, then you are to lazy to research the facts. The trade data is readily available and easy to understand.
I am plain tired of China bashing.
I will never ever ever eat shrimp again in my life.
China is absolutely fabulous…. full of freedoms and dreams, coupled with a floating exchange rate….oh, wait..they have neither. Not to mention the open market mentality of such an understanding and Democratic society.
its all good… No China bashing here….
don’t worry chilidoggg - they got rid of their old food & drug agency head. The new guy will make sure to move the shrimp out of the way of the chicken poop…
“China executes former chief of food and drug agency”
http://tinyurl.com/26uj8p
“If you wish to bash China or others based on our media reports, then you are to lazy to research the facts.”
I choose to bash them based on cold hard facts. Like their tainted rice gluten which sent my dog to the hospital. The melamine contamination was not a simple mistake, but a cold calculated plan devised to defraud the international community as a whole, all in the name of money. China is a major threat to the world for a number of reasons. The pup and I won’t eat one thing from that country for the rest of our lives.
There’s a good Bill Moyers interview with Lori Wallach that covers some of this:
http://www.pbs.org/moyers/journal/06292007/profile.html
Bantering I always enjoy your posts (even this one), I am truly sorry about your dog and everyone else’s pet that was poisoned. It was made in China and it was done by greed. But I doubt very much if it was a cold calculated plot by the country. If that is true, then there is every reason for Korea, China and Japan (among others) to ban the import of US beef. Beef exported from the US does not meet safety standards of many countries. (Should we worry?).
“Under a bilateral agreement, the United States can now only export beef from cattle aged 20 months or younger. But Washington is demanding to export beef from cattle aged up to 30 months, in line with global standards.”
53 countries have banned the import of US beef this decade.
It doesn’t make the headlines here when people overseas are worried about being poisoned by our food.
If our beef exports had continued our beef prices would have gone up even more dramatically than they have.
Thank you, Hoz. I enjoy your posts very much, as they’re very educational. You raise a very good point as, quite honestly, I’m more than a little concerned about the food produced in this country as well. It is why my future involves growing most of my own fruits and vegetables. What with the pesticides, growth hormones, genetic engineering, etc., it’s no surprise we have such a problem with cancer. Perhaps our greatest threat is corporate greed, at the expense of human lives.
This data does not change the fact that we will be weakened militarily and economically with the removal/offshoring of our manufacturing. An economy built on selling cheap junk made in China will not last very long.
“Immoderate consumption was one of the primary concerns amongst members at the 18th session of the 10th National Committee of the Chinese People’s Political Consultative Conference (CPPCC) held on July 4-7. CPPCC members advised making laws and regulations to control excessive spending.
China has become one of the major luxury goods consumers in the world, said Lu Zhiqiang, a CPPCC member. From 2000 to 2006, China also became the third largest country in terms of private car ownership, according to statistics. China even purchased more luxury brand Rolls-Royces than Japan.
According to a survey in 40 major Chinese cities, apartments on sale in the first half of 2006 were an average of 115 square meters. In comparison, average space of new apartments in 2002 was 99.7 square meters in Sweden, 85.1 square meters in Germany and 91.3 square meters in Japan.
The excessive spending is growing faster than China’s overall economic development, but there is no sign that people will control their expenses in the future, Lu noted….”
See what happens when they listen to the US.
China is toast.
http://tinyurl.com/27fak4
China Daily July 11
How are you going to keep them down on the farm, after they seen gay Bejing?
Watch what happens when China some day yanks money out of US markets to reflate a troubled banking system at home….itulip..
I guess the gist of the whole treasury yield and deficit spending boil down to: The UK, China, and Japan better keep snapping up those bonds or the US goes under, and when the US goes under all the dominoes start falling….
Problem, as above mentioned, when those pesky Asian bond holders need to take care of their own, what happens in the US…..say it with me,
Depression…
Nice thought, but if big Ben does this it will lead to Argentinian type hyper-inflation. A collapse of the dollar, which will mean our crushing debt will bankrupt our country. Followed by another great depression.
The Fed has already failed to prevent the subprime collapse. Why would they intervene for the poor home owner?
Argentine-style hyperinflation worked out extremely well for the powers that Ben B represents (the financial elite and the banks). So why not?
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2007/07/09/international/i213911D73.DTL&tsp=1
Maybe China has the solution to the housing crisis.
China could send over pre-manufactured homes just like Sears did in the 1920’s and 1930’s where millions of familys purchased as they were high quality and many floorplans were available. Some are still in many parts of the nation and their quality is remarkable even today. Once China goes after this market, goodby unions, hello cheap housing. Remember Henry Ford and the model T?
My question is, why shouldn’t it happen? When demand drops for any product, prices drop. Prices houses will dive until people can afford to buy using traditional lending practices.
but how can nominal prices drop if they keep dropping free money from helicopters? it’s still happening, especially in Europe but also in the US. All this money has to go somewhere, as long as we don’t have massive bankruptcies, daily hedgy blowups etc. it will keep pushing all prices higher.
“All this money has to go somewhere,”
True, but without home price inflation it won’t be dropping into J6P’s backyard. Bernanke’s dead-end will be how to get the funny-money into the consumers hands. J6P needs rapid home appreciation for MEW, or a real spike in wages in order for that to happen. Neither of these options will come to fruition. So all this liquidity that thay say is sloshing around will be there for only the very rich to play with, while the middleclass of America quickly vanishes.
Hear, hear! There is much talk of “helicopter drops” but being a J6P, I don’t see how I can get my hands on any of it.
In Colorado — You need to jump on the 401(K) bandwagon and start dollar-cost-averaging into the stock market, where the Plunge Protection Team and the Greenspan Put can go to work for you…
I do have a 6 figure balance in my 401k, but that money is off limits until I retire, hence “I can’t get my hands on it”.
Another good reason to do a 401k is to get a company match (if offered). I literally double my monthly contribution via this benefit.
But I do understand what you mean by cheap money propping up the stock market.
you just need to be reminded of the wisdom of reagan: trickle effect in action.
MRIS has updated its DC-area real estate sales stats for June.
data: http://www.mris.com/reports/stats/monthly_reti.cfm
charts: http://www.recharts.com/AroundDC.htm
MAN, the sales have fallen off a cliff.
Montgomery county is an enigma. Average “household” income is just around 80k per year, not person, the whole house. How does this area maintain a 60s rambler in a subpar area for sale at 400k+. If prices do come back in line with reality there will be blood in the streets. I am thinking the only option is to leave this crap hole called “the DC area”.
simple, gov workers can spend a higher percentage because they have a pension coming and NEVER get fired
pension coming and NEVER get fired ??
BINGO !!!! Civil and goverment workers with a “Put In Your Time” mentality…Its sickening….
Hey, don’t say that! Down here in Norfolk/Virginia Beach and surrounding areas, it’s similar. The best paid city has median household income of $60K, but the median sale price of a home this year I believe is $550K.
I’ve been saying if it doesn’t correct, I will move to DC or Raleigh. DC / Northern Virginia needs to fall too.
You guys are behind the times. Prices in the DC area are (what do we call it now?) “improving”.
http://washingtondc.craigslist.org/nva/rfs/369569217.html
Sure, McLean is a desirable location. This house is absent from Zillow but appears to be on Dolly Madison Blvd, as in literally 6 feet from a 4-lane divided boulevard.
For comparison, the median household income in McLean is $121k (according to Wikipedia), which is less than 1/6th what they’re asking for that house. My household makes more than that - I guess I should stop renting an apartment for $1300 a month and drop $6000+ per month on PITI so I can live in that 30 year old hole on the side of a 4 lane thoroughfare.
I wouldn’t want to be priced out forever.
Sorry for all the sarcasm. After awhile I’m tired of being a smart renter playing the waiting game. Actually if places comparable to that were listing for $350k (3x the median income in McLean) I would start actively looking for a house. Almost there! All we need is another 60% drop in price and then POW! House buying time!
Oh, that’s a king’s manor, alright.
Despite the developer’s best efforts, McLean isn’t really a residential town. Pop 100,000 until 6pm, when it drops to what, 20,000?
5x income is a stretch but not an out and out loosing bet. You can scrimp to make payments. I’ve known people who have carried homes on such terms for years. It’s not fun and has some pretty major lifestyle impacts but it’s doable.
Also remember that in Mont. Co, it’s likely that the renters are predomenantly (nearly exclusively) from the lower half of the household income bracket (due to turnover, singleness, unaffordability, etc), so the median household income of homeowners is likely higher.
Sorry too much time spent at EN.
You sir, are a looser!
Maybe so Bluto but it’s an enormous risk when taking into consideration the average length of time an individual is employed by a single employer is down to 3.2 years. If I cannot confidently forecast my income stream to make good on a 30 year note, I won’t take the chance.
Montgomery County is a DC suburb, so most of the homeowners there can count on a pretty regular paycheck. Also, just because you can’t forecast your employeer doesn’t mean you can’t give some forecast of income. A small amount of liquid savings would give you more than enough resources to cover a job hunt. Plus don’t most people move well before a 30 year mortgage is paid off?
I’m across the river in Fairfax, and am happy not to take the plunge, but that’s more because rent for an apartment in a decent building near the metro is $1100/mo while a Condo in the same area is still $250k-300k. I’m not concerned with affordabilty/stability, but nearly doubling my housing carrying cost requires a pretty major lifestyle change that I’m not ready to make, yet.
A small amount of liquid savings would give you more than enough resources to cover a job hunt ??
Bluto…I am surmising that you are to young to have experienced a “real” recession ( 1981 or 1992 )….A small amount of cash while you look for work just doesn’t cut it if you have significant debt during these periods..
Small relative to the price of the home. (6 months of expenses). That should get by long enough to find something.
you are correct in your surmization though.
I was in HS in 81 but the effects the 81 recession were lingering long after.
When the dot.com bust gained lots of momentum, I was looking for work for 10 mo.. I blew through my entire savings account before finally taking a position that paid far less then my contract rate had been in exchange for a career change and job stability. I consider myself luck to have gotten through it without loosing everything. These down cycles are far worse then we often are prepared for.
yea, MC is very hetragenous. There is little in common between those buying $1m houses in Bethesda and those renting an apartment in Langley Park. Now I don’t think that most of the people paying $1m for a house in Bethesda can actually afford it but all those renters in LP drag median incomes down without draging down average house prices as much.
Are we using mean income and median home price? Chevy Chase/Bethesda/Potomac might really skew the data differently for those two figures.
Mortgage resets: Record bill coming due
Billions in subprime ARMs will be subject to higher payments.
http://money.cnn.com/2007/07/09/real_estate/resets_are_coming/index.htm
Good video…………
http://www.cnn.com/video/player/player.html?url=/video/business/2007/07/10/allen.arm.adjust.cnn&source=money
Scroll to “Exhibit 42: Adjustable Rate Mortgage Reset Schedule”, Credit Suisse’s “Mortgage Liquidity du Jour: Underestimated No More” report
http://www.recharts.com/reports/cshb031207/cshb031207.html
There’s LOTS of great data in those graphs. Thanks!
Two things that really stood out:
- In 2005, 29% of the mortgages issued were zero-interest or negative amortization. Ouch!
- 42% of mortgages issued in San Diego were zero-interest or negative amortization. Double ouch!
I also like how much more quickly recent loans were getting 60+ days delinquint
This is a mortgage broker advertisement that ran in yesterday’s free handout paper, The Link, found in Norfolk, Virginia Beach, Chesapeake and other nearby bubbleriffic areas. This paper is published by the the same large company that publishes the local paper, as a means to actually get distribution with young people (by giving these out) since younger people don’t really buy the newspaper.
I wish the house of cards would hurry up and fall.
————–
Shevika Ward, Vice President
“Stop Dreaming, Start Living”
100% Financing with 600 Credit Score
Residential
Up to 90% Commercial Properties
100% Stated Income Investor
Reverse Mortgage
Interest Only 40, 45, 50 year amort.
1 day out of bankruptcy up to 100%
100% No Documentation Loan
Low Rates VA & Conventional Loans
Credit Repair Department
Broker License #MB-1554
—-
Also has a house for rent notice on the same ad! It’s like comedy.
And of course, the email address for her isn’t at the business domain name listed, it’s at hotmail.
Crash market, please?
Hard to figure that place out. Everytime I’m in VABch it seems more overbuilt than the last time I weas there. But stuff still sells. MIL sold her place just east of the Lesner Bridge a few weeks ago at asking price (which I thought was way too high) within a week. It should collapse there, but it doesn’t seem like it’s in any hurry. Either that or she got extremely lucky.
I’ll be there in August so maybe I’ll begin noticing some changes, most likely more for sale signs, but who knows? Maybe it’s still sailing along.
Does anyone know what’s up with ‘The Spectrum’, just off the interstate at Willoughby Spit in Norfolk?
http://www.norfolkspectrum.com/
I drove by a week or so ago, and the site does not not look any different from any other time I have driven by in the past 8 months.
For those not familiar with this area, Willoughby Spit was created / enlarged by hurricanes. I have always wondered why people would want to live anywhere in Willoughby with the knowledge that another hurricane can come along and take it all away - not just the structure, but the land under the structure as well! Here is one of the FAQ’s on their website that I enjoyed:
Q: How was Willoughby created?
A: Willoughby Spit was formed in 1749 and greatly increased in size during the Great Coastal Hurricane of 1806. It has been greatly stabilized by The City of Norfolk’s beach nourishment program along its’ 7.3 miles of beach.
“Loans made in the last year got progressively more and more outrageous,” Doyle said. “It was like a feeding frenzy. Now we’re seeing 20 foreclosures a day on average in Milwaukee County, and sometimes 30. It’s really depressing.”
http://www.jsonline.com/story/index.aspx?id=631370
From the bubble lives on archives:
Okay, let’s say I’m a small builder working in northern Vermont. I have property in a nice town but it’s about an hour to the high paying job base and 20 minutes or so to the local job base. My overpriced TBB ($225K) package is with all of 4 acres is not selling. What to do, what to do….
I know! I’ll *double* the price (and add a few granite countertops). That will bring them. There are tons of people who want to spend $450K on for a package house on 4 acres in nowhere Northern VT. I’m also willing to give someone who can drop close to 1/2 million dollars on a home a $4000 appliance allowance. I’m sure that they will thank me for being so generous.
*sigh* This bubble can die a natural (or unnatural death) any day now.
FWIW, for a lot of people a 1 hour commute is considered “short”.
What’s an hour in a plush Chevy Suburban?
(=HELL in my world)
Yep, Montgomery County, Md, just outside DC, will seemingly never decline in any real way. Renting 900 sf condo for $1600 currently; my unit would sell for $350,000. Using traditional lending criteria I would need to earn $140k to buy this place. (Regrettably, that leaves me about $60k short unless I get a really, really large bonus this year.) My complex was built as ‘affordable housing’ in an area of single family homes. Several of my neighbors are Section 8, paying only what they can ‘afford’ and enjoying much more free time than my work schedule permits. I’ve got over 100k saved for a downpayment, but I don’t think I’ll be buying around here.
Amen to that. I live in king farm, why and I combine around 180k. We have to pay 1700 for a 2 bedroom place when section 8 ers get to lay around all day on my dime. An interesting note is the mont. county just bumped up the required percentage that an apartment owner must rent to section 8 ers. One step closer to communism every day.
Mont. Co. same-house prices are declining. Friend in Rockville got an offer that’s a full 20% below what an identical house on his street sold for in 2005. Unfortunately they couldn’t accept it ‘cuz it was contingent on the sale of the buyer’s current house.
“. . . an offer that’s a full 20% below what an identical house on his street sold for in 2005. . . it was contingent on the sale of the buyer’s current house.”
Not exactly in a great position to negotiate a lower purchase price. This is probably another example of someone so wed to the idea of homedebtorship that he can not fathom the idea of renting a residence on even an interim basis. Of course, I guess that it is progress that he made an offer to purchase contingent on the first one selling, instead of doubling down on debt.
Anybody care to guess how much longer before the builders start pricing their inventory realistically? I say late fall of this year, since by then they will be faced with huge inventory (multi year supply) carry-overs into the next year without any E Z credit to generate new FBs.
No more incentives with SS and rocks. I am talking RCB (rude, crude, and barbaric). And no luxury builder will be immune.
Got 10% down?
As I drive brand new just-broken-ground developments being started by Centex and Pulte, in an area which currently has about 3x normal inventory of homes for sale - I’m reminded of why I’m short-selling homebuilders.
I work in high tech. When we had our little bubble burst in 2000-2002, the big guns at least had the intelligence to know to really cut expenses, in order to get back to a profit at some time in the near future. Nortel and Lucent each went from about 100,000 employees down to 30,000 employees within about a 3-year span. That’s a 70% cut in workforce my friends. They closed lots of facilities and canceled lots of projects - they didn’t start up new ones (for the most part).
I’m thinking that a significant portion of homebuilders are going to go bankrupt before this is through. I’ve seen lots of people talk say that the builders have to keep building because that’s what they do, and otherwise they’ll go out of business - bullcrap. Revenue comes from the houses you sell, not from the houses you build. There’s *tons* of unsold inventory out there - all records shattered. If I’m an (intelligent) homebuilder and I see this - I’m canceling all new projects and laying off my bulldozer crews, and concentrating on only selling my unsold homes and perhaps finishing out my half-finished projects, until I see inventory levels go back down to normal. I’m not starting new 1,000-home projects to add to the pain.
Oh and Centex - thanks for f***** up the forest near my house in the process of being stupid.
Centex did this to me too. A nice area of farmland behind my house was pulverized and turned into a 4 lane speedway (which Centex paid for) then about 200 ugly monocolor tract homes. Most of those were purchased by flippers and about half of them are empty, rented, or in foreclosure. I love what these HBs due for the neighborhood. Needless to say, I moved.
“I’m thinking that a significant portion of homebuilders are going to go bankrupt before this is through.”
I had the exact same thought this morning. If the liquidity pool was the anomaly I believe it was, then these guys are history.
Well, then you can always short them… if they BK and get delisted, you’re golden…
If they faced the music and shuttered the doors, how in the heck are all the executives supposed to dump their share options.
For fun I have been running a short of the home builders at the street contest and wall street is not letting them fall, everytime my index hits a 10% loss the PPT computers resurect these bouncing dead cats.
No really, what are they supposed to do other than continue to construct homes? It’s what they know, and it’s what all of their capital equipment and expenses are geared too. I mean, they can let go a BUNCH of subs, but at the end of the day, it’s build or liquidate for these companies.
We all laugh about “helicopter” Ben with his money drops once the economy goes bad in an effort to protect FBs. This isn’t far fetched…it has happened before, sort of.
Remember circa 2001-2002, George Bush was on TV telling Americans to spend to prop up the economy. Then, the government authorized $300 refunds to taxpayers? I remember getting my $300 Treasury check thinking…”and he wants me to spend this to help the economy?” I’m saving it! Just think of a similar bailout for FBs and the economy when the HELOC money stops. Let’s just print $ to inflate us out of our troubles. After all, inflation is hardly contained…NY Strip from $3.99 to $11.99/lb since 2002. But, food and energy are excluded from the “core” rate because no one spends much money on those things. Yeah right.
Only problem with that is the 12 Billion a day that goes down the drain in Iraq.
No reason there for BB to not just print some more, is there?
More like per week I think
12 Billion a day that goes down the drain in Iraq ??
Thats per month but its just a down payment anyway…All that hardware has a shelf life and will be useless when this fiasco is over…Where will the blame fall and who will pay, when the bill comes to replace all this military equipment ?
Doesn’t the hardware have salvage value on the world markets? I believe we sell our second-rate stuff to third-world countries (e.g. Pakistan and India…).
Your probably right stucco but a lot of it will only be worth salvage (Pennies on the dollar)….The aircraft all have shelf life for both the frame and engines…It makes them close to worthless in relationship to their replacement cost…
I vaguely remember that. You would have been better off putting that $300 into a Series I bond in the Fall of 2001. Fixed interest for 30 years is 3% and you get a variable interest on top of that. By how the $300 would have turned into slightly more than $411.
I remember getting a $400 check. I’m pretty sure I blew it on junk though.
I think you’re exaggerating on the change in meat prices. I was buying Montana rib steaks at $4.99 on sale ($7.99 regular price) in 2002, and can still buy rib steaks on sale at $5.99 ($9.99 regular price and that’s in DC. Inflation is still pretty contained but stores have gotten much more effective at price differentiation. Both at Safeway which happens to be in both locations.
Switching from Safeway/Wal-Mart/Giant to Whole Foods between 2002 and 2007 doesn’t mean that inflation is solely responsible for the increases in prices.
Hes pretty close on beef prices. We’ve been buying at Costco since 2000. Strips were 3.99/lb then. Now they’re 8.99-11.99 depending on season, etc.
I’m in Southern California. Last year I could regularly buy ribeye steaks and t-bones for 3.97 lb (specials) this year never under 4.49 lb. Over 10% inflation any way you slice it. Don’t get me started on milk or coffee.
10% this year was in line with my own experiences believe (how long were they at $3.97 prior to this year?). 200% since 2000, sure looks like it includes a lack of value shopping in the inflation estimate.
Value shopping? Sure… if you want to compare apples and oranges I can show items differing in quality to appear similar. I won’t trade off the quality of Costco meat for that of Walmarts. Try Walmarts imported meat sometime. I dare you…. Hedonics don’t play on me well. They shouldn’t fool you either.
I don’t touch Wal-Mart’s meat, the’re great at moving boxes from A-B but everything fresh there seems like crap. None of the Wal-Mart’s here are supercenters, anyway.
Most retail (I’m single so Costco isn’t as good a value for me and I can’t comment on their pricing structures) outlets engage in all sorts of schemes to price discriminate. Meat prices in particular vary quite widely leading to very different prices being paid by different consumers. I raised cattle in college and beef was very cheap (due to changes in dairy farm subsidies that slaughtered a whole bunch of cattle in 2000) so I’m not surprised that everyone was paying the “sale” price then. But when people are trying to claim that inflation is solely responsible for the increase back to the face or sticker price even though sale prices on meat are quite common (at all first line grocerys), but also quite variable (one week it’s T-bones perhaps 2 later its rib, then in a week or two it’s strip etc) isn’t very good inflation tracking.
Another common “woe is me inflation” tactic is comparing the price of 2% milk in 2000 with the price of Certified Organic Brown Gurnsey (with blue eyes) milk at WF. Yes milk has increased, but inflation wasn’t the only difference there. I’d guess if you could find the latter in 2000, it was probably at a pretty similar price to the current one (ironic if it were higher because it was only available at low volume health food stores or something). And while the old standby gallon has increased pretty decently over the last several years, it again isn’t by the several hundred % that is implied.
Bluto,
Food price inflation is very real.
http://tinyurl.com/23hpfs
I’ve never said it’s not real, but it also isn’t 300% in 5 years either.
No. It’s more like 400% across 7 years, just like fuel.
Try 40-60% across 7 years for any sort of real measure. A single fuel oil price is not all fuel.
We can only presume your denial of spiraling rate of inflation and the poor state of the economy is somehow ideological. Nevertheless, gasoline, on average, coast to coast is up 235% between Jan2000 and July 9 2007 according to the US Department of Energy.
http://tonto.eia.doe.gov/oog/ftparea/wogirs/xls/pswrgvwnus.xls
Are you sure you subtracted 1 in your calculation of the increase in price? Also gas prices rose 50% from Jan to July 2000 so it looks to me like you’re cherry picking to goose the change.
You are free to assume that I’m ideologically in denial, I’m not sure what ideology I’m supposedly supporting. I think we’re due for a roller coaster ride and things aren’t very bad at all yet. I’m optimistic that there’s still a spirit of optimism, effort, and a willingness to hard work in any situation out there that will probably be the main weapons that we’ll have to make it through whatever faces us. I don’t think that too many of the bears share that assessment.
If a 7 year span is cherry picking then I would have to say factually that you’re in denial. When average price of gas in 2000 was 1.25 and now 3.25, the rest of the word calls that a doubling and tripling in price. You can call it Uncle Fester if you’d like. Myself and 4 to 5 others here have provided more than enough evidence and facts to support the truth that food and fuel inflation is rampant. By virtue of the fact that you’re admittedly young, it is clear to me that you’ve never experienced similar stealth inflation, 70-80’s style.
He picked a 7 year and 6 month span to make the increase 135% (which he incorrecty stated as a 235% increase), if he’d picked a 7 year 0 month time frame it would have been 70% (gasoline almost always rises from Jan-July, in 2000 the swing was 50%).
I have never said that inflation is low my estimates put it at 6-8% annually which fits with the dollar’s performance on the forex markets as well. 300%-500% inflation is grossly overstating what’s actually occuring in the US.
Bluto,
How is charging different prices to different people price discrimination? it’s actually just profit maximization, modeled on the principle that since I can afford to pay more, I will pay more. Knowledge is power.
Secondly, if you are I are both in WalMart, we both pay the same amount for a package of t-bone steaks ($$/lb). The only form of “price discrimination”, as you say, is the local stores that use reward cards to, well, reward frequent shoppers, which last time I checked is not against the law (but I don’t believe it’s a good business practice).
Price discrimination is what economists call charging two people different prices (you’re calling it profit maximization). It’s not illegal and many businesses practice it (a very easy to see example is a senior discounts at a diner or movie). They are very common in perishable goods.
In groceries a very frequent method of separating highly price sensitive customers (who won’t buy if the price is too high) from less sensitive shoppers (who will by for most prices) is through varying prices by time less frequently by shelf space.
So the price of T-Bones will be vary from $6 to $12, and the price of Rib steaks will also vary (they won’t all be low at the same time nor will they frequently all be high at the same time). Those who choose a single variety of steak will pay a $6 occasionally and $12 occasionally and perhaps $9.50 and $10.50 on a regular basis. More elastic shoppers will vary from cut to cut. The principle is the same if they use sales, coupons, or frequent shopper cards (I just nick one most of the time).
My hypothesis is that due to a beef surplus in 2001, even the price insensitive paid very low prices for beef, but that over time the price discrimination returned and it is being counted as inflation.
Okay. I was confused by your use of the ‘discrimination’ word, but in essence you are correct.
I think it’s worth looking harder at the changes in price I might start tracking them, if for no other reason than it’s difficult to tell when the prices vary so much what the average has been.
Yeah, price discrimination is one of those words that I think most economists wish was price differentiation or something. Perhaps not I think economists enjoy getting a rise out of their audience. If you enjoy the subject, Tim Harford has several chapters on it in The Undercover Economist, I’ve enjoyed it quite a bit, but I’m a little biased as he and I share the field.
Are you an economist as well, Bluto?
I would prefer price differentiation. When I think of price discrimination, i think of a black man being charged a higher rate in a hotel than the white customer was quoted, which is illegal and immoral.
Yep. Economist and financial analyst. The name is technically correct as you are discriminating between prices but it occurs between people who have more options and people who have fewer (it’s also important that the good not be transferrable after the transaction, that’s why you have to show id at the airline’s counter).
Graph of nominal and inflation adjusted price of gasoline since 1950:
http://oregonstate.edu/Dept/pol_sci/fac/sahr/gasol.htm
Using the data from the RED graph (nominal prices, not adjusted for inflation):
11.4% per year - inflation from the relative minima of $1.10 in 1998 to the present (using $2.90/gal as the present)
5.7% per year - from the relative minima of $ 0.90 in 1986 to the present
2.9% per year - from the relative maxima of $1.296 in 1979 to the present
2.7% per year - from $ 0.388 in 1973 to the present
1.4% per year - from the first data point on the graph, $ 0.28 in 1950 through $ 0.388 in 1973, the series of years of “stable” gasoline prices.
Got 10% down?
Gee… Your graph reflects an indexed number at 100 in 1998 and goes up to 300 in 2006. That is in fact a 300% increase.
100 to 200 is a 100% increase. 100 to 300 is a 200% increase, not a 300% increase. The percentage increase from x to y is (y-x)/x*100.
Actually, no exaggeration Bluto. Both places were Vons, same store in Visalia, CA. $3.99/lb for NY Strip in October, 2002. It was $10.99/lb about a month ago; now it is $11.99/lb. Things are more expensive in California than most east coast cities.
What’s the change in the sale price? All meat goes on sale pretty frequently. If the gap between regular price and sale price is the only thing widening then it’s not inflation, it’s people not paying attention to meat prices as much as the store thought they used to pay attention. I’d guess those $11.99 strips are still dropping to $5-6 lb pretty regularly. I grew up on the West coast and have been to California enough times to know that they still have weekly shopping fliers even if the prices are higher.
If not those than [bone in/boneless] Rib, T-Bone, sirloin or something will be. Flexible customers are seeing a whole lot smaller price increases, those who only want NY strip and will buy it every Monday are seeing much larger price increases, but they shouldn’t assume that all of the price increase is due to inflation.
Almost every retailer spent tons of money to analyse their transactions and have found that there are many opportunities to price discriminate that they were previously missing and they are acting on that new information.
Bluto we can agree to disagree. The rampant inflation in food prices is no more my imagination than the 400% increase in fuel prices from 2000 to 2007.
exeter, you could get premium unleaded gas for 80¢ a gallon in 2000? Or did you mean 40%?
I was paying 48 cents/gallon for fuel oil in early 2000. Last year I paid 2.40/gal. 500% to be accurate.
$5-$6/lb for sale prices for NY Strip in CA? You’ve got to be kidding me, right, Bluto?
The lowest “sale” price I’ve seen at Vons (Safeways) in the last three months for like meat (bone out, same quality) is $9.99/lb. Not exactly a sale when, five years ago, a non-sale price was $3.99/lb. I know what I’ve seen, and it is not because I shop at more expensive places or buy higher quality meats in the last 5 years. It is called the DEVALUTATION OF THE DOLLAR.
Incidentally, Bluto, I’m visiting relatives in Kansas this week and took the opportunity to go to the grocery store. $9.99/lb for NY Strip (called KC Strip in the Midwest) is the price here. In 2002, it was somewhere between $2.99/lb and $3.50/lb regular price at this same store.
At Costco in Cal, I’ve noticed the price of Orange Juice and Soda up about 15-20% since the beginning of the year. Example: 36 pack of Sprite was $6.99. Now it is $8.79. Inflation is everywhere.
“It is called the DEVALUTATION OF THE DOLLAR.”
aka Spiraling inflation.
Using luxury good (t-bone steaks, soda pop) is not a good indicator of the existence of price inflation in food costs. To get an accurate inflation amount, you need to pick a normal good like ground beef, milk, bread, etc.
You guys are also forgetting that the increases in steak prices are not inflation (per se), but a simple supply/demand scenario. Corn used to fatten cows before bringing to market is now being used to produce ethanol. Farmers paying more for feed = consumers paying more for end product.
Look at any corn-based product and you should see the same effect - tortillas, Corn Chex, etc. Pork steaks are also affected.
Produce is a great indicator. Even with off the books illegals harvesting, produce is up 150% + since 2000.
If you replace that steak with dog food, there is very little price inflation….
Uhhhhhh, sorry, ….I think someone has already come up with that idea. Where’s the “57″?????
The reason the price of beef is going through the roof?
The drought has played havoc with the ability to feed and water herds.
My wife told me, she was talking to a farmer in the Central Valley and he said when they try and harvest hay, it is so brittle, it breaks into dust!
Either you sell your cattle for whatever you can get now (for underweight cows) or truck them to greener pastures, none of which are nearby (Ca cows have to go to Co., for the nearest sources of greenery)
A thinning of the herd…
And highly inflationary.
Ala,
I was just talking with one of my researchers here about the sodium levels in CV and what it’s doing to our ag returns. Compound that with a drought, I’m not surprised at all that our ground feed is reduced to chaff.
This dept is so different from my old one but it’s never dull. I’ll see what I can find out about the beef and milk price hikes. I would not be at all surprised to find out that the increases are due to GHG offsets or mitigation programs.
This is exactly what I have seen at Safeway and King Soopers (Kroger) here in Larimer County. At Sam’s club I have seen NY strip loins go from 6.99 to over $9 per poind in just a few years.
Sure, grocery stores have specials around summer holidays, but thats for those sub par rib-eyes (the ones with bones) or other mysterious cuts like “petite sirloin”.
You’ll be happy to note that Albertson’s has them for $6.99 this week. I hope it’s not too far out of your way. Top Sirloin is $2.99.
Not my local Alberston’s. They are usually pricier than Safeway or King’s. Its been years since I’ve seen top sirloin on sale for 2.99. These days its usually $6.
Sorry, I was looking in California, the Rocky region is a whole different company. They sold most regions and kept only a few states (in the South and Southweast).
Actually, Albertson’s is in the process of leaving Colorado altogether.
We don’t have an Albertson’s in NW Cali. In fact, we don’t have much of anything.
‘We all laugh about “helicopter” Ben with his money drops once the economy goes bad in an effort to protect FBs. This isn’t far fetched…it has happened before, sort of.’
For a better example, go back to the last tenure of a hard-core academic at the Fed. Arthur Burns’ tenure was marked by high levels of inflation in the wake of the disolving of the Bretton Woods Accord and the buildup of Vietnam War debt. G. William Miller followed with a lack of resolve to take away the spiked punch, and only when Volcker came to town were inflationary expectations pounded into a pulp.
Check out the latest trustee deeds chart for San Diego county -
http://tinyurl.com/ytpaz7
It gets amusing if you set the start date to back in the ’80’s. We’re still in the early stages of this downturn and trustee deeds have already skyrocketed higher than they ever were during the early 90’s downturn (which hit SD hardest in the country BTW I believe), and no signs of slowing the ascent.
SD is so toast.
Nice packman…circumstantial evidence…like when you find a 20# trout in your milk…
I remember the “Fall” of 1990… like it was yesterday.
Comparing a short-run version of that chart to a long-run version reveals an important lesson for anyone wise enough to learn it: The difference between a soft landing and a crash may only be a matter of the time frame over which the adjustment process is viewed. The long-term perspective (dating back to 1982) clearly indicates a crash is underway. One would take the same message if you view the 1930s DJIA correction over the time span of the entire 20th century.
Perahps the Fed should consider this issue of perspective when trying hard to detect asset bubbles in real time, instead of relying on the rear-view-mirror perspective to guide post-bubble-collapse mop up operations.
Anyone see the hilarious article in today’s WSJ about how the Martha Stewart developments are selling well for KB Homes? I almost gagged when I read you can even get an exterior color that matches ‘Paul Newman’s eyes’, and how Martha made them rip out a sink and countertop when she realized you couldn’t clean a turkey in the sink or roll out a pie on the countertop! She sure lives in a fantasy world.
Not to mention the picture included in the article made the house look like some boxy shack that any builder could slap up in record time. No wonder they only build these homes in podunk towns around the US - who else is so classless to think they can buy a ‘Martha’ home and it will have cachet??
I know, why not build Oprah homes? They’ll sell millions of them at any price to her sheep-like followers. Or why not Gap homes since they’re always telling us to wear khaki, leather or denim? ‘Everyone in Stucco’ could be their new campaign.
Yuck! Martha Stewart homes? Paint color matching Paul Newman’s eyes? They must be marketing them to single women in their 40s and 50s. What type of man would want to live in such a neighborhood?
I like Paul Newman and all, but jeez. I couldn’t go there…
Not nearly as hideous as the Thomas Kinkade housing tract in Vallejo, CA…
I felt the same reaction. Actually to put it in words “what kind of fool would buy something like that”, thinking that in 10 years it will have all the cachet of a 1996 Ford Explorer Eddie Bauer edition. (i.e. only worth what some junkyard will pay for it).
Those houses will stick out like a sore thumb, and I thought the picture in the paper showed one of the most boring looking tract-homes that I’ve ever seen.
So what’s the dillyo on this report of a rise in mortgage apps?
http://money.cnn.com/2007/07/11/real_estate/bc.usa.mortgages.reut/index.htm
Mortgage applications rose last week, fueled by increased demand for home purchase loans even as interest rates hit their highest level in nearly a year, an industry group’s data showed Wednesday.
It’s a volatile number. It goes up and down, and we pretend that we know why.
If you look at the 4 week moving average, you will see it’s DOWN.
From the article:
“The four-week moving average of mortgage applications, which smoothes out the volatile weekly figures, was down 1.6 percent at 627.0.”
Great 47minute video, entitled “Money as Debt”. While not an economic genius, I have always wondered how our economic system expands in spite of a number of economic courses taken over the years. In a “closed system”, its always been a zero-sum game. For America to become wealthy, the rest of the world must get poorer.
Now, like in universe, the law of enthopy, in a closed system, everything averages out, ie runs down. What the physicists now state is the Universe is open and not closed. This is why I have do not understand economics and physics.
http://video.google.com/videoplay?docid=-9050474362583451279&ref=patrick.net
By the way, this video should be shown to everyone who files bankruptsy! Heck, the rest of wouldn’t be hurt by watching it also.
“For America to become wealthy, the rest of the world must get poorer.”
Sorry but that is just non-sense, even if America was completly cut off from the rest of the world and didn’t even know about it we could still get richer. The denizens of Aldeberon III are doing quite well getting rich without having any contact with earth at all.
“The denizens of Aldeberon III are doing quite well getting rich”
Fantastic point!
“For America to become wealthy, the rest of the world must get poorer.”
My socialist dad raised me on this kind of nonsense, and I eventually learned how wrong he was when I studied economics. PARTICIPATION IN THE WORLD ECONOMY IS NOT A ZERO-SUM GAME! This fallacy is one of the most destructive ideas ever wrought. Perhaps you should consider studying a bit of economics yourself before sharing any more of your homespun wisdom.
Let me ask you GS, isn’t our stockmarket a zero-sum game? For every winner, isn’t someone(s)taking the otherside (losing)?
I would strongly suggest that you watch the video.
GS (et al)
the video has nothing to do really with “zero sum” philosophy.
It is simply a video explaining how fractional reserve lending operates.
(and thus, how “fiat money” in a fractional reserve system is actually only a “promise to pay” by a debtor, as facilitated thruogh our banking system)
I saw the video last year, and did find it quite interesting.
I don’t recall it saying too much that is controversial…
Seriously. Where did the zero sum conversation spring from?
It is a good video. The only controversial bit is at the end where they propose interest free lending as the solution to all our problems.
no, the stock market isn’t a zero-sum game. For example, if a stock stays the same, and pays a constant dividend, every one who owns the stock will make money.
Getting wealthy cures poverty.
Wealth = goods and services.
An infinite number of goods and services can be produced.
Everyone can get rich, imho.
Are (resource) budget constraints also a figment of some economists’ imagination, iyho?
Nope, contraints help capitalists choose the most efficient use of their resources.
“Let me ask you GS, isn’t our stockmarket a zero-sum game?”
Emphatically NO. Sadly, it is worse than a zero-sum game when it becomes an instrument for wealthy folk on Wall Street to sucker Main Street investors into handing over and losing their life savings, but it could be much better than this if our economy were better managed. Vote for Romney if you want to see this occur.
“Vote for Romney if you want to see this (to) occur.”
which *this*, an instrument for wealthy folk or is better managed ?
“Let me ask you GS, isn’t our stockmarket a zero-sum game? For every winner, isn’t someone(s)taking the otherside (losing)? I would strongly suggest that you watch the video.”
Ummm, no. You buy a share for one dollar, sell it for ten. I buy a share for 10 dollars, sell it for $20. GS buys a share for $20, sells it for $40. The stock market goes up over time and will make money for whoever owns it.
If the stock market was a zero-sum game no one would ever sell stock because they would be taking a loss on it. This logic makes no sense.
Thanks for this video, LC - it was VERY interesting!
PARTICIPATION IN THE WORLD ECONOMY IS NOT A ZERO-SUM GAME!
GS:
I agree with you, it is not a zero sum game. That said, there are 2 fallacies that are oft perpetrated:
1. If one country gets wealthier, others must get poorer (false)
and
2. Globalization will be good for the Average American (perhaps, it is untested, but I feel likely to be false)
There are a finite amount of resources in the Earth. For the last century, America has hogged most of them. As globalization continues, there will be more pressure on those resources. More demand=higher price.
In addition, the added global labor pool will do what it has always done, increase productivity. (as measured by cost of currency to produce a good). In our new age of globalization, increased productivity = lower wages for the workers.
Thus, the average American looks forward to a life of rising prices, and lower wages.
It is not all about China. If China’s wages rise too far, we will simply move production to another low-cost area. then another, and another.
“There are a finite amount of resources in the Earth.”
There are a virtually infinite amount of resources in the Earth. Five centuries ago, who was worried about running out of oil?
fine, I will rephrase:
there are certain very important resources that are in finite supply and unlikely to be easily replaceable in our lifetimes.
(such as water, oil, uranium, precious metals)
regardless, you ignore the point of my argument:
As globalization continues, the average American of the future will no longer live the life of luxury (relative to the rest of the world) to which they are accustomed
Globalization is necessary, but should be well thought out. (the essence of FAIR trade vs FREE trade).
To me, Fair trade should NOT concern itself with a minimum wage, etc. Instead, it should designate a minimum agreed-upon standard of working conditions and ethics and humanity.
Thus, I am all for free trade with countries that have:
- child labor laws
- pollution laws
- reasonable worker safety laws
- laws against slavery/indentured servitude.
But I do not wish to have FREE trade with countries that do not have these in place. the reason: we as Americans CAN NEVER compete with a country that has slave labor, or no pollution laws.
why do you think our current administration has tried to gut the EPA???? Because adhereing to Environmental issues is TOO EXPENSIVE for American companies.
Clouseau,
It is true that we cannot compete with polluters, etc. in the short term. In the long term pollution increases costs (medical cost, clean-up cost, etc.) as China is learning today. Some regulation is necessary; the trick is not to over-regulate the economy to death.
There are a virtually infinite amount of resources in the Earth. Five centuries ago, who was worried about running out of oil?
Fresh water is definitely in short supply. It is likely that there will be wars over water rights access in the future.
Thus, I am all for free trade with countries that have:
- child labor laws
- pollution laws
- reasonable worker safety laws
- laws against slavery/indentured servitude.
If laws alone made a difference then there are no countries that should not have free trade. I believe you mean enforced laws. Even Canada has problems enforcing its laws. Guest workers in Alberta have routinely had their rights violated. Including in charges are indentured servitude and mandatory un-paid overtime. “We’re not opposed to people coming from other countries to work in Canada,” AFL president Gil McGowan said Friday. “But if they’re going to come here, they should have the hope of becoming citizens.”
These workers are less likely to stand up for themselves, so some employers take advantage of them, McGowan said.
Even Zimbabwe has laws to protect workers etc.
“The United States has emerged as the most vigorous opponent of establishing eighteen as the minimum age for military service, although less than 3,000 members of its 1.3 million active duty force are minors.” Human Rights Watch
Other countries follow our lead.
The very premise of “free trade” is an absurdity all on its own. Fair trade implies that there are rules to play by. Rules, standards or regulations. Whatever you chose to call them are necessary to establish the boundaries of trade. Anything less and you end up with what we have right now…. an economic mess.
Suggested reading material:
http://www.juliansimon.com/writings/Ultimate_Resource/
I guess that if resources are unlimited, then so should be buyers for overpriced houses.
And the really scary part will be when America eventually becomes one of those low-cost areas!
It’s already begun.
http://www.ft.com/cms/s/0b77dd2e-2834-11dc-80da-000b5df10621.html
Voltaire said it best: “The rich require an endless supply of the poor”
(i.e. amnesty bill)
KB Home has had enough of Indianapolis’ sluggish home-building market.
http://www.indystar.com/apps/pbcs.dll/article?AID=/20070711/BUSINESS/707110416
It’s almost certainly wrong, because if it isn’t it would be a strong violation of the laws of supply and demand. It’s not like (despite what common sense says) they’re not building them any more. The supply is continuing to go up, as demand is shrinking. The builders are creating their own pin to prick the bubble.
There’s also the problem of attrition. People die or move down, economically. If folks from the lower housing tiers can’t move up, where does the demand come from?
Bokonon (Mabel’s other half)
Busy busy busy.
Full Committee Hearing
Hedge Funds and Systemic Risk: Perspectives of The President’s Working Group on Financial Markets
Wednesday, July 11, 2007 10:00 a.m., 2128 Rayubrn (SIC) House Office Building
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0705074.shtml
“Wednesday, July 11, 2007 10:00 a.m.”
The headline indexes were all plunging up until almost this exact moment today… ’nuff said!
http://www.marketwatch.com/tools/marketsummary/
Actually I do have one thing to add: Not only does the stock market do very well when the PPT is meeting with Congress, but I have noticed that it always does quite well while the FOMC is in session. There is a little research project for a motivated graduate student in finance who enjoys real-world research: Compare the U.S. stock market’s behavior while the FOMC is in session to the rest of its behavior. I suggest you will pick up a significant positive bias and significantly reduced volatility while the FOMC is in session. Not proof that the market is stabilized during meeting sessions, but certainly a smoking gun!
Yes - strange that. Thing that make you go “hmmm..”
(or “barf” is more like it).
So will a printed transcript be available as it says on the link, did you try to catch the webcast I imagine it didn’t work, not working now.
I can just imagine the 1st 30 seconds of that meeting:
Chairman Paulson: Meeting now in order. All in favor of an immediate release of $50Billon to restore order to the markets say Yay.
All(Unison): Yay
Chairman Paulson (pushes send on Blackberry sitting on table): Our models show this infusion will stabilize markets for 11 trading days, our next meeting therefore…
you get the idea
It was working earlier. I guess they kept the hearing brief, as problems with subprime hedge fund blowups are contained.
What’s an “unfair lending practice?” Is the borrower forced to sign at gun point? Or is the loan made without drawing up a contract? Me confused…
Thrift Regulator May Ban ‘Unfair’ Lending Practices
By Damian Paletta
Word Count: 447
WASHINGTON — The federal regulator of thrifts is working on a proposal that could lead to a ban on lending practices the agency labels “unfair and deceptive,” several people briefed on the matter said.
If adopted, the proposal would be the most aggressive regulatory response this year aimed at tightening oversight of financial institutions, although it would cover just some of them.
http://online.wsj.com/article/SB118412229315562986.html?mod=home_whats_news_us
“For Floridians besieged by soaring home insurance and rising property taxes, this is the cruel twist no one saw coming.”
http://www.sptimes.com/2007/07/11/State/Values_decline_but_as.shtml
Here is the lead-right-column WSJ article for today, which falls under one of this blogs’ main recurrent themes:
Barn door left open
All the horses ran away
Hurry, shut it now!
I added back in the pithy italicized portion of the byline from the print edition which does not appear in the online link in bold.
Ratings Cuts By S&P, Moody’s Rattle Investors
Critics Say Companies Are Reacting Too Late To Subprime Debt Woes
By Serena Ng and Ruth Simon
Word Count: 1,356 | Companies Featured in This Article: Home Depot, Bear Stearns, DaimlerChrysler, First Data
The widening meltdown in the subprime-mortgage market caught up with the nation’s two big debt-rating companies yesterday, with Standard & Poor’s and Moody’s announcing plans to downgrade hundreds of bonds backed by the risky home loans.
http://online.wsj.com/article/SB118408289722162161.html?mod=home_whats_news_us
it begins.
to steal from the GS’ post, “hold your horses!” (oops, they’re already gone)
Strange things are afoot, at the Circle K.
Here we go! ieeeee!!!
Bond Risk Soars Most in Three Years on Subprime Debt Downgrades
By Hamish Risk
July 11 (Bloomberg) — Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0YXJzeKUpSY&refer=home
The Minyans seem to overlook the fact that panic concerns are clearly contained.
Jul 11, 2007 8:18 am
The Financial Panic of ’07 May Have Started Today
…
The news breaks with the cycles. If stocks opened weak on Tuesday as investors cringed on poor reports from D.R. Horton (DHI), Home Depot (HD), and Sears Holdings (SHLD), underscoring a dreary housing market, stocks plunged on news that Standard and Poors Credit Service slashed the ratings on billions and billions of dollars of subprime loans. Circling the wagons on 399 such loans to be specific, Standard and Poors stepped up the plate in addressing its mandate as a rating agency par excellence and put some wood on the ball, saying “The level of losses continues to exceed historical precedents.”
We are left to connect the dots as to which precedent they are referring to. But, I have connected a few of those dots recently as to the cyclical precedent as to the panics in 1857, 1907, 1937, 1957, 1987, and let’s not forget the 1997 ‘Asian Contagion’ that affected world markets. What are they going to call this one? The Western Infection?
http://www.minyanville.com/articles/financials-appl-bull-mean-repulsion-RIMM-Crocs-BIDU-DHI-HD/index/a/13319
…saying “The level of losses continues to exceed historical precedents.”
Hey GS, maybe they can update their adjective file:
New dictionary includes: ‘ginormous’
http://news.yahoo.com/s/ap/20070710/ap_on_re_us/dictionary_s_new_words;_ylt=ApRQaN7GmtCxnO8XLWqI.sLMWM0F
Home builders drowning in losses, subprime fallout
Profits negated by charges as ratings agencies warn on mortgage bonds
By John Spence, MarketWatch
Last Update: 11:03 AM ET Jul 11, 2007
BOSTON (MarketWatch) — For home-builder stocks, the bad news just keeps piling up.
Two of the largest residential builders this week warned that they expected to post quarterly losses driven mainly by impairment charges. Additionally, a pair of widely followed ratings agencies said they planned to downgrade billions of dollars worth of mortgage-backed bonds threatened by the subprime mess.
http://www.marketwatch.com/news/story/home-builder-stocks-bad-news-just/story.aspx?guid=%7BA5556CCD%2D92E7%2D47D4%2D8D7D%2DCE8E699DBE45%7D
When will they stop paring their forecasts?
Realtors Pare Back Forecast Again, But Project Rebound Next Year
By Benton Ives-Halperin
Word Count: 288
WASHINGTON — The National Association of Realtors continued to pare back its forecast for existing U.S. home sales in 2007, while projecting a modest rebound for the struggling housing market in 2008.
In its latest forecast for the real estate market, NAR on Wednesday projected that existing home sales will fall 5.6% this year to 6.11 million, compared …
http://online.wsj.com/article/SB118416256756763247.html?mod=home_whats_news_us
The biggest little housing bubble has run out of steam…
http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10450956
Real Estate Institute president Murray Cleland said the residential market had “cooled its heels”.
Ms. Kim ought to get out to California (or at least read this blog!) before she further opines about west coast markets…
East Coast, West Coast Markets
Shrug off the Housing Slowdown
By Lauren Baier Kim
Here’s a look at what’s new in real-estate markets across the U.S. from around the Web. (Some links may require registration or subscriptions.)
It’s up for you, New York
New York’s a big city, and it’s prices just keep getting bigger: for the three months ending June 30, the median selling price for a Manhattan condo or co-op apartment was between $840,000 and $895,000, with the average price reaching about $1.3 million, according to estimates provided by three New York brokers, according to CNNMoney.com. Meanwhile, housing inventory saw a year-over-year decrease of 31.5%, and apartments are staying on the market 117 days on average, down about 10% from a year ago, CNNMoney.com says. Fueling the demand are Wall Street’s hedge-fund managers and investment bankers, overseas buyers, and parents looking to purchase a place for college students, the Web site says.
http://www.realestatejournal.com/buysell/openhouse/20070711-kim.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage&rejpartner=wsj_hpp
I’m sorry, but I don’t believe a word of that. I was reading in the Post (my girlfriend gets it everyday on the way home, it’s not me honest), about the foreclosure tsunami hitting NYC. Granted, most of it as yet confined to the outer boroughs and far north Manhattan, but there were several foreclosures flagged as being on the Upper East side.
You wouldn’t get that if everything was all happy happy joy joy joy.
Also, it doesn’t bear out my personal observations of what is going on.
Tangentially, I was looking at westchester RE this weekend in a copy of Harmon Homes I picked up in the supermarket. Chappaqua - which was supposedly guaranteed to hold value - is starting to crack also.
I’ve no doubt that NY will end up just as screwed as everywhere else. It might just take a little longer.
MY 2c
Silversurger,
you are correct…Manhattan tanked big time in the early 90s, and it will crack again. Doubters can google the NYTimes RE archives
circa ‘91or ‘92.
Can’t find an online link, but an article on C1 of today’s print edition of the WSJ serves up some delicious bear food. I am wondering if things would have turned out better for Mr. Sinha if he had spent ten minutes a day reading our posts? Or is it impossible for bovine brains to grasp the heady discussion on this blog?
Behind a Bear Analyst’s Subprime Call
by Kate Kelly
As the market for risky home loans was beginning to implode in February, Bear Stearns Cos. analyst Gyan Sinha hosted a conference call for 900 investors, telling them they had little to worry about. Unfortunately, there was a lot to worry about.
Isn’t it about time for some bold Congressman to propose a taxpayer- (or inflation-tax-) funded industry bailout for the homebuilders? (Sorry — I could not resist suggesting this…)
ECONOMIC REPORT
Single-family starts to fall again in 2008: Realtors
By Rex Nutting, MarketWatch
Last Update: 10:31 AM ET Jul 11, 2007
WASHINGTON (MarketWatch) — Construction of single-family homes will probably decline for a third straight year in 2008, according to the latest monthly forecast from the National Association of Realtors.
The group’s July forecast, released Wednesday, is more pessimistic than its June forecast in nearly every aspect.
http://www.marketwatch.com/news/story/single-family-starts-decline-again-2008/story.aspx?guid=%7BF1F5DC05%2D2FF1%2D4D7D%2D8D53%2D636F27F55C20%7D
Hedge hogs invade K Street. I am sure that with well-placed campaign contributions, Mr. Kravis’ efforts will be wildly successful.
Mr. Kravis Goes to Washington (Capra Rolls Over)
By STEPHEN LABATON and JENNY ANDERSON
Published: July 11, 2007
WASHINGTON, July 10 — Henry R. Kravis, the billionaire founder of the corporate buyout movement, was working the hallways of Capitol Hill, hoping to kill legislation that would raise his taxes and those of other investment fund executives.
http://www.nytimes.com/2007/07/11/business/11tax.html?_r=1&oref=slogin
CAPITOL REPORT
$1.4 billion a year isn’t enough for some people
Commentary: Fund managers work for a living and should be taxed that way
By Rex Nutting, MarketWatch
Last Update: 5:32 PM ET Jul 11, 2007
WASHINGTON (MarketWatch) - There’s a move in Congress to force the people who run private-equity firms, some of the highest paid people in this country, to pay their fair share of taxes.
You might think that’s unremarkable if you haven’t noticed how little honesty, consistency and logic are respected in the public discourse these days.
Some of the usual suspects, such as Steve Forbes and Larry Kudlow, say the attempt to close a tax loophole for private-equity funds is a “war on wealth.” If there is such a war on the wealthy, it’s the most ineptly run war since Baghdad fell. The rich are doing fabulously well in this nation, thank you very much.
http://www.marketwatch.com/news/story/14-billion-year-isnt-enough/story.aspx?guid=%7BDA84F20B%2DA170%2D4A2A%2D8127%2D1B124CF0A912%7D
July 10, 2007, 6:25 pm
Report: Illegal Hispanics Bear Housing Slump Brunt
Why has the housing slump taken so light a toll on employment? In a new report, economists at Deutsche Bank estimate construction employment should have fallen about 900,000 since early 2006 when in fact it’s only down 150,000. They conclude 500,000 of the unexplained gap is attributable to layoffs of illegal Hispanic workers. They say this means, first, that there is not a surge of job losses waiting to show up in the data. But it also means the job market is not as tight as the low unemployment rate suggests. They say the unemployment rate would be closer to 5% than its current 4.5% if these layoffs were properly accounted for.
http://blogs.wsj.com/economics/2007/07/10/report-illegal-hispanics-bear-housing-slump-brunt/
Followon thought: With so many illegal immigrant construction workers buoying the residential construction industry in recent years, official data could completely miss the onset of a construction-led recession, as the army of illegal aliens bears the initial brunt of the unemployment effects. As I have frequently pointed out on this blog, a 25%+ contraction in U.S. residential construction has been a perfect leading indicator of U.S. macroeconomic recession dating back to 1955 (seven times out of seven). Perhaps eight will prove the lucky number this time?
Any guesses what happens when hundreds of thousands of people already working illegally lose those jobs? That reminds me, need to go buy a couple cases of ammo…
“…hundreds of thousands of people already working illegally lose those jobs…”
Many go back home, and many others who would have (illegally) entered the U.S. stop trying when the anticipated opportunity to (illegally) work dries up.
True on both counts, but I’m guessing we’ll also have many that turn to alternative methods to support themselves. (Perhaps I’ve grown jaded after living in downtown L.A. for a while…)
Some will selft deport and others will resort to “creative” activities.
Tea-leave readers, beware the triple top formation!
MARK HULBERT
When is three not a charm?
Commentary: Difficult to know if triple top has formed until well after the fact
By Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Jul 11, 2007
ANNANDALE, Va. (MarketWatch) — Is that a triple-top forming in the stock market?
http://www.marketwatch.com/news/story/triple-top-forming-dow/story.aspx?guid=%7B0DD5E2E2%2DB206%2D4871%2DB43E%2D33763C61BB5F%7D&dist=SecMostRead
And the Hindenburg…
http://en.wikipedia.org/wiki/Hindenburg_Omen
Frankly, I am more long term and look at the double top on the S & P 500 as much more significant. tops 2000 & 2007 = big decline.
US – Consumer Tapped Out
July 11, 2007 Dailyfx
“In both April and May the spread between personal income and personal spending turned negative – an ominous sign that the US consumer may be tapped out. In April income actually declined by -0.2% while spending grew at 0.5%. In May incomes bounced back to 0.4% but spending increased by an even greater 0.5%. Faced with flat wage growth and rising debt service and energy costs the US consumer is clearly being squeezed from both sides of the ledger, and this dynamic bodes badly for any future forecast of US demand growth. As has been the case all year long, oil and housing remain key to the health of the US economy, but as we approach the second half of the year their importance may become even critical than at the start of 2007. With oil hovering at $70/bbl and gasoline persistently at $3/gallon the US consumer has been forced to divert a greater portion of his discretionary income to transportation. Furthermore, increases in transportation tend to quickly seep into the rest of the economy. While core CPI gauges have been relatively muted, headline numbers have increased materially from 2.1% annual rate at the start of the year to 2.7% average rate over the past 3 months. Some analysts have estimated that the true rate of inflation for the US consumer is presently running between 4%-8% per annum. Little wonder then that with such a sharp rise in cost of living the US consumer is feeling pinched.”
Apologies in advance if already posted.
Illegal immigrants and mortgage fraud all rolled up into one…
http://www.dailybusinessreview.com/news.html?news_id=43988
“Illegal immigrants and mortgage fraud all rolled up into one…”
Hello Caleefornia.
I apoligize for upsetting you all. My intent was to suggest that money is created out of debt. I am not involed in economics or finance, even though I have taken college courses in the last 20 years. All I intended to say is that in the last 7 years, no one seems to buy stock for the dividends, but for the appreciation.
My reference to zero-sum game was meant to mean that their a limited resources. If the banks with the assistance of the government prints money based on a fractional basis (ie, debt of the public), then I suspect that the basis of our money is the biggest “ponzi scam” in the world. I am not expousing a capitalist, socialistic or communist system. Maybe under any economic system there will eventual be misallocation of resoures (booms v. busts).
All I am saying is that the public, including myself, has learned a lot since the stock market drop since Feb 28, 2007.
No intention of stepping on anyones toes or their beliefs.
One final statment, you all have been in the trenches for a long time. Don’t jump down new person’s throats, if they have not contributed in the last couple of years. If you do, this blog will die on the vine due to reduced participation.
losscontrol
“All I intended to say is that in the last 7 years, no one seems to buy stock for the dividends, but for the appreciation.”
Uh, try the last 20 years (coinciding with the beginning of AG’s tenure at the Fed and the advent of the Greenspan Put policy…).
P.S. You did not really upset me. Some times I pretend to be upset to drive home a point.
GS, you sound like my drill instructor in the Marine Corps, before they sent us to Vietnam in 1968. What doesn’t kill you will make you stronger.
I guess, in the future, I will stick to housing and not get into bigger issues as to why things are the way they are.
loss out of control
I suggest you stay tuned to the bigger issues, unless you don’t find them interesting…
Don’t forget the tax cut on LT-cap gains, but not dividends? I don’t remember exactly when that passed, but I think it was around the time Greenspan’s nomination.
Cutting taxes on dividends was about the only part of Bush’s tax cut plan that made sense to me. So there’s no surprise that’s the part that he abandoned.
I think the division goes back to Wilson (or before), but I think this was Carter or Regan who first made the split much more dramatic. I would have preferred a deduction (as with interest at the corporate level for lower record keeping costs).
As seen on late-night television: It’s Crazy Credit!!! Enjoy the koolaide, J6P!
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http://crazy88auto.com/
Click the big “Disclaimer” link (I clicked from the bottom of the FAQ page). Among other things:
$88 a month for up to 3 months at dealer discretion.
I wonder what percentage of their buyers fail to make payment #4…
They failed to mention the disclaimer on TV last night at 2:30am.
Don’t cry TXChick!
Well, they finally announced on the news last night that the Mary Tyler Moore home has sold in Mpls. While the sale price was not known, it was estimated to have been in the 3M ballpark and it was reported that the “seller was disappointed with the final price”.
I wish I could remember what it had started at.
“seller was disappointed with the final price”
Ahhhh. I’ll be sure to shed a tear over this one.
“A subcontractor who provided carpenters to many large-scale home building projects on Long Island pleaded guilty Friday to failing to pay federal taxes on the wages of his workers, many of whom were illegal immigrants from Ecuador working off the books, according to officials.”
“He noted that union carpenters on Long Island earn about $30 an hour plus fringe benefits, while Kuhn was paying at most $12 an hour.”
http://www.newsday.com/business/ny-bzcarp075284990jul07,0,548299.story?track=mostemailedlink
“My client is the victim of a bad immigration policy, caught between immigrants willing to work for low wages and home builders who want the lowest cost,” said James O’Rourke of Hauppauge.
Are you kidding me… This I’m a victim thing is really gettibg out of hand.
“Spokesmen for home builders that employ Kuhn as a subcontractor could not be reached for comment.”
You bet they couldn’t. They were all aware of using illegal labor gangs. It’s about time the IRS started going after these jerks.
I may be wrong, but I doubt the illegals where getting as much as $12/hr. Also, whatever wage was promised to the illegals, their employer may have been withholding some of it to “pay for taxes, finders fees, INS protection, whatever” to shortchange the illegals.
Got 10% down?
http://www.cnbc.com/id/19330186
May be a sign of major desperation from builders?
Would I have to pay it off within 88 years?
Isn’t it funny how the brown nosing stops when the bank takes over:
http://sandiego.craigslist.org/rfs/370828885.html
I’m not sure I would want this guy to be my agent:
“Huge fixer with pool in Pt Loma. Not sure what the former owners had in mind for this one. Nicely remodeled and updated kitchen surrounded by mish mash of unfinished work.”
Anyway, I saw the first “Bank Owned” decal on a for-sale sign in my hood yesterday. Is that supposed to help with the sale? I think we’re still 6 to 12 months from seeing banks getting realistic with the loss they’ll have to take.
In our area in Ohio they don’t put up bank owned signs and most of the houses are listed through the regular real estate companies. Could be lots more foreclosures in our area, but we wouldn’t know it.
If you can’t HELOC it or charge it, just steal it! I wonder why theft is up at Walmart.
http://biz.yahoo.com/ap/070711/wal_mart_theft.html?.v=3
How many blogs with little to nothing to do with sex can get more than 200 comments ALMOST EVERY DAY by simply saying “talk amongst yourselves.” like this.
The comment volume is not at all hurt by the backdrop of a silent panic playing out below the placid surface projected by the MSM and by top economic policymakers.
Looking at this graph down here, are we just at the inception of a big wave of resets?
http://www.itulip.com/images/armadjust.gif
That graph resurfaces here so often, Ben should probably create a permanent link to it.
A quick-glance analysis suggests that ARM resets are scheduled to remain heavy for five straight years (60 months) beginning in January 2007.
2007
2008
2009
2010
2011
Those are the ARM resets that are in the bag; it does not factor in anyone currently still drinking the ARM koolaide in a rising-rate environment.
Given that the carnage will most likely play out against a backdrop of serial assurances from the NAR and others that the market will come back “next year”, and that the lagged effect on buyer confidence is likely be devastating and to outlive the reset schedule, my personal conjecture is no bottom until 2012 or later.
We’ve only just begun to live,
White lace and promises
A kiss for luck and we’re on our way.
And yes, We’ve just begun.
Before the rising sun we fly,
So many roads to choose
We start our walking and learn to run.
And yes, We’ve just begun.
Sharing horizons that are new to us,
Watching the signs along the way,
Talking it over just the two of us,
Working together day to day
Together.
And when the evening comes we smile,
So much of life ahead
We’ll find a place where there’s room to grow,
And yes, We’ve just begun.
AP
Mortgage Worries Hit Alt-A Market
Wednesday July 11, 2:25 pm ET
By Stephen Bernard, AP Business Writer
Fears That Subprime Mortgage Problems Will Spread Hit “Alt-A” Lenders
NEW YORK (AP) — Shares of some mortgage lenders fell Wednesday as investors worried that problems in the subprime mortgage market could spread more widely in the industry.
“If it gets worse, the next area to see losses and price declines is the alt-A market,” said Bose George, an analyst at Keefe, Bruyette & Woods Inc.
http://biz.yahoo.com/ap/070711/mortgage_mover.html?.v=1
Transcripts are posted. Fascinating info on the PPT here. Bachus needs to check his facts, though (mistakenly says PPT was formed after 1998 LTCM meltdown, just after Frank correctly says it is twenty years old).
Full Committee Hearing
Hedge Funds and Systemic Risk: Perspectives of The President’s Working Group on Financial Markets
Wednesday, July 11, 2007 10:00 a.m., 2128 Rayubrn (SIC) House Office Building
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0705074.shtml
Check out Maxine Waters testimony (23 mins in to the first transcript). It is quite hilarious to see a black Congresswoman testify with rich white monkeys making funny faces and carrying on a lively conversation right over her shoulder in the background.
None of these high muckamuck see much of a problem in letting asset managers for the ueber-rich do pretty much whatever they please to make bundles of money outside the bright light of regulatory scrutiny. Before this is over, the virtues of open-ended deregulation will come into severe question.
Much handwringing is expressed in these transcripts about the effect of Bear Stearns hedge fund CDO fire sales and ratings agencies subprime MBS downgrades on the value of related securities.
Woman from NY (21 mins into transcript no. 2):
“Credit agencies are still giving these securities a 100% rating, but some saying they are really worth 20%. Do you believe these securities are being valued appropriately? IS THERE A BUBBLE OUT THERE???”
Nobody is pointing out the critical role the Greenspan Fed played in creating this minefield of systemic risk!!!
The hearings are a CYA press.
Behind the scenes this is still the rule of the day:
“The broker-dealer’s holding company and its affiliates, if subject to Commission supervision, would be referred to as a “consolidated supervised entity” or “CSE.” Under the alternative capital computation method, the broker-dealer would be allowed to compute certain market and credit risk capital charges using internal mathematical models. The CSE would be required to comply with rules regarding its group-wide internal risk management control system and would be required periodically to provide the Commission with consolidated computations of allowable capital and risk allowances (or other capital assessment) prepared in a form that is consistent with the Basel Standards.”
SEC Open Meeting Agenda 2004
http://tinyurl.com/3c8sbs
Or $0.50/$100 margin for A paper $4.80/100 for BBB paper - you get to determine the paper rate.
“The hearings are a CYA press.”
Absolutimento! My guess is the same could be said for Moody’s and S&P’s sudden rush to get their CDO valuations right. Pretty soon, all A’s will be covered.
I have been trying to think of what famous movie the denouement of this bubble resembles. It is much like the ending of Godfather 3, when mob hits play out in the background of a classical operatic performance.
Today’s Senate Finance / PPT hearings were the classical opera in the real-world drama underway, and the Moody’s and S&P subprime MBS downgrades are the mob hits.
A bad actress is put out of her misery (only figuratively, on the silver screen… and thank goodness that because she proved a great director)
http://www.youtube.com/watch?v=ev15nl5_JoU&mode=related&search=
LostControl is the winner. GetStucco does not understand the Laws of Thermodynamics or the exponential function.
Romney? Oh, please.
You don’t understand why the exponential function is a poor tool for predicting future movements of endogenous variables.
So much for goldilocks economy (Kudlow speak).
Motorola is making loss
Bank of America - stock near 52 week low
Kramer, Kudlow, Gary Watts, Leslie Appleton-Young and David Lereah should have a flesh-wound-licker’s retreat in some pleasant tropical locale following bubble Armageddon.
If the Financial Times says that investors are fleeing risk, then why did the risky headline U.S. stock market indexes all go up today? Me confused…
Also, it is very timely of Moody’s to consider downgrading $5bn of complex collateralised debt obligations backed by mortgage securities on Wednesday, the day after the Senate Finance Committee met with Plunge Protection Team representatives to wring their hands over CDO valuation risk.
Wednesday Jul 11 2007
FT Home
MARKETS
Equities
Investors’ flight from risk picks up pace
By Paul J Davies and Gillian Tett
Published: July 11 2007 18:59 | Last updated: July 11 2007 22:24
Investors in European and US credit markets accelerated their flight from risk on Wednesday as the turmoil from the US mortgage markets continued to spill over into other asset classes.
The change in sentiment, which triggered sharp moves in credit derivatives markets, suggested that recent problems in the subprime mortgage sector could be spreading to other corners of the financial world.
Moody’s also said it could downgrade $5bn of complex collateralised debt obligations backed by mortgage securities on Wednesday, affecting 184 mostly low-rated securities. The move followed ratings moves on billions of dollars of mortgage-backed bonds by Moody’s and Standard & Poor’s on Tuesday.
Some analysts said there were signs that investors were reassessing their attitude towards risk-taking in many asset classes.
http://www.ft.com/cms/s/c341c57e-2fd6-11dc-a68f-0000779fd2ac.html
CORRECTION:
…the very same day
afterthe Senate Finance Committee met with Plunge Protection Team representatives…The game is fixed, as we well know. Problem is, the boat is taking on 100 gallons per minute and the PPT pump is expelling only 80 gallons per minute. I suspect we’ll be reminded of the classic scene from the beginning of the first “Pirates of the Caribbean” movie, wherein the star quite suavely walks onto the dock at the moment his vessel heads for the bottom. Good theater, I suppose. But it won’t work, PPT — it only delays the inevitable, which, I suppose, is your M.O.
“Problem is, the boat is taking on 100 gallons per minute and the PPT pump is expelling only 80 gallons per minute.”
Exactly!
Brad — Care to enlighten us with more anti-tinfoil-hat sarcasm tonight?
Hand over more taxpayer money to help those who want to buy homes they cannot afford do so anyway…
Nearly 8 in 10 Americans Support Bill to Provide Safe Alternative to High Cost Subprime Mortgages
RISMEDIA, June 19, 2007-Nearly 80% of Americans support legislation that would promote and protect the dream of homeownership by providing a safer, fairer and more affordable mortgage alternative to high-cost subprime loans, according to a new survey released by Wells Fargo.
Speaking at the Wells Fargo Housing Symposium, U.S. Housing and Urban Development Secretary Alphonso Jackson said the survey demonstrates the urgent need for Congress to pass legislation that would modernize HUD’s Federal Housing Administration (FHA) and help hundreds of thousands of borrowers find an exit strategy from their exotic subprime mortgage loans that could ultimately result in foreclosure.
http://www.rismedia.com/wp/2007-06-18/nearly-8-in-10-americans-support-bill-to-provide-safe-alternative-to-high-cost-subprime-mortgages/
Wall St rallies but subprime fears remain
By Michael Mackenzie in New York
Published: July 11 2007 14:13 | Last updated: July 11 2007 23:10
US stocks rallied on Wednesday, but worries over the subprime mortgage market remained the main talking point among investors.
“We’re locked in a tight range and subprime is probably going to dominate the news as we have nothing to trade off until Friday’s retail sales report,” said Scott Wren, senior equity analyst at AG Edwards.
On Tuesday, Moody’s downgraded a swathe of subprime mortgage-backed bonds, while Standard & Poor’s placed $12bn of such debt on notice of downgrades, sparking further selling of US corporate bonds and widening premiums, or spreads, for derivatives that protect against corporate default.
With government bonds continuing to attract safe-haven buying, credit spreads in the US and Europe remained under pressure on Wednesday while the dollar fell to a record low against the euro for the second day in a row.
http://www.ft.com/cms/s/386972b2-2f31-11dc-b9b7-0000779fd2ac.html
Demand for ethanol is driving up the cost of popcorn.