August 4, 2007

The Coming Mortgage Drought

Readers suggested a topic on what the credit meltdown means for the housing bubble. “A topic suggestion: The effects of the coming mortgage drought on the subprime & Alt-A homeowners. Will the ‘new, improved’ lending standards kite the foreclosure rates through the roof? Will LA (where a shack is ONLY 1.2 Mil+ gulp! ) finally tank?”

One said, “If we are going to see credit tightening in the mortgage lending arena, then how can that not affect the rest of our economy as the FED would have us believe. Take crack away from a crack head, cold turkey and you have a problem on your hands.”

A reply, “I don’t think it is a question of ‘if we are going to see credit tightening in the mortgage lending arena,’ we are seeing it. Just how bad did Alt-A get hurt yesterday? Just grazed, or was yesterday really a gut shot like many people think? How long until conforming follows the same path?”

One pointed out. “Wells Fargo just raised the interest rate on their jumbo mortgage to 8% this morning. Last week the rate was 6.78%. The meltdown is in full swing. Hold on the drop is going to be very steep. Ouch!!!!!!!!!!!!”

A followup, “I’ve also heard that Wells Fargo is cutting out the mort. brokers, meaning they will only loan their Alt-A products directly… Anyone else get chills when they read the CEO of IndyMac’s letter?”

One sees a change coming, “I think it is a matter of going back to what always protected the buyer and the lender…dealing direct. When lender dealt directly with the buyer, no mortgage lender, the buyer got what they could afford and there was alot less fraud. We are going to return to those days since it is the only way the lender will have control over the transaction.”

One reflected, “As far, far back as 2002, it used to be said NEVER flip a 750-800K house, because you can’t get $1 million+ for it after you invest 50-100K in the flip — because…..JUMBO mortgages are hard to get, and most people with that kind of cash are very discriminating! Boy how times have changed. So many generations.”

One concurred, “Agreed. $150,000 is about the tops that I would flip a SFR. First off you need to make sure that if you rent it out, that eventually after credit repair, your tenant can qualify to buy and still make you a reasonable profit. I just could never understand the idiot flippers of the past 36 months telling me they were gonna buy at $450,000 or $500,000 and flip for an extra $150,000 profit…I guess for a brief period of time there were some FB’s, but not now.”

The New York Times. “The market dropped particularly sharply yesterday afternoon after investors were rattled by remarks by executives at Bear Stearns, the investment bank that has been heavily involved in mortgage securities. The firm’s assurances about its own financial position were overshadowed by bleak comments by its chief financial officer about the credit markets.”

“‘I have been at this for 22 years, and this is about as bad as I have seen it in the fixed-income market,’ said Samuel L. Molinaro Jr., Bear Stearns’s chief financial officer.”

“Lenders say they are increasingly unable to persuade investors to buy packages of home loans made to borrowers with little or no down payment or those who cannot fully document their incomes. As a result, many companies are no longer offering such loans to potential buyers.”

“‘I have never seen it happen so quickly,’ said Steve Walsh, a mortgage broker in Scottsdale, Ariz. ‘Banks always do these little cutbacks here and there. What they are doing now is a liquidity crunch. It’s a credit freeze.’”

“‘It seems to me things got every bit as silly in the credit markets in the last few years as they did in tech stocks in the late 1990s,’ said Douglas M. Peta, chief market strategist at J. & W. Seligman & Company, an investment firm based in New York. ‘I still think we may have a ways to go in this.’”

From Dow Jones Newswires. “The secondary market that supports a big part of the U.S. mortgage industry has ground to a halt in recent days, a development that dramatically could increase the cost of home loans in expensive regions, experts said.”

“The private, secondary mortgage market ‘is not functioning,’ Mike Perry, CEO of home loan specialist IndyMac Bancorp Inc., wrote in an email to IndyMac staff.”

“It’s currently difficult to trade even AAA-rated parts of private mortgage- backed securities. Only mortgages that conform to the standards of government- sponsored enterprises, or GSEs, like Fannie currently are trading, Perry said.”

“That account was confirmed by Scott Valentin, a mortgage company analyst at Friedman, Billings, Ramsey. ‘We’re hearing securitizations have frozen up,’ he said in an interview. ‘No one wants to bid on these things and then find out that the loans are worthless tomorrow.’”

“‘If home buyers are in loans that don’t conform with Fannie or Freddie, given present market circumstances, they will have to pay at least 100 basis points more,’ explained Andy Chow, portfolio manager at a $14 billion San Francisco investment firm. (A basis point is one hundredth of a percentage point).”

“That will have a big impact on the housing market in California, Florida and other places where home prices are very high, he said.”

“‘In these areas, if home buyers don’t have much money as a down payment, their loans will be too large to conform with Fannie and Freddie’s standards,’ Chow explained. ‘That means people will pay much higher interest rates.’”

The “NovaStar is suspending funding of some mortgage loans, according to a bulletin the lender sent mortgage brokers Friday.”

“A copy of the email message posted on several housing-related Web sites cites a ’severe dislocation in the secondary market’ for the decision. The move applies to ‘all loan transactions that have not been locked via a NovaStar Lock In Confirmation’ through Tuesday.”

The Chicago Tribune. “Once seemingly confined to subprime lending, problems in the mortgage industry showed signs of spreading to more-creditworthy borrowers Friday, triggering concerns about the potential fallout on the real estate market.”

“Wells Fargo & Co., the nation’s No. 2 home lender, stopped making certain loans to consumers with near-prime credit or prime borrowers who don’t document their earnings. Wachovia Corp., the nation’s fourth-biggest bank, also cut back some of its lending activity to consumers previously considered good credit risks.”

“‘As a result of market volatility, UBS Home Finance will be unable to accept any new loan applications today,’ the lender said in a Friday afternoon e-mail to clients. UBS, however, plans to begin taking applications again Monday.”

“‘The real estate market hasn’t had a lot going for it, and now it’s not likely to for some time,’ said Paul Kasriel, chief economist for Chicago-based Northern Trust Corp.”

“‘Since March, we’ve had a significant decline that is very likely due to tighter credit conditions,’ said Richard DeKaser, chief economist for National City Corp.” “If lenders tighten their standards and hike their interest rates on mortgages, a vicious cycle can start.”

“‘If there’s higher pricing of credit, it’s tougher for people to borrow money, which makes home sales weaker, which affects home prices, which affects loan losses because the single most important factor in the viability of loans is the collateral of the loan,’ DeKaser said.”

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Comment by Neddie
2007-08-04 10:14:06

The ‘credit freeze’ as Steve Walsh puts it (and Cramer’s rant yesterday) could be easily alleviated by actually giving a rate of return relative to the risk. That part of finance is not rocket science.

Comment by Tom
2007-08-04 10:34:39


Even if the FED cuts rates, they will still raise theirs. Cramer just does not get it.

He wants a rate cut so these banks can refinance out of these deals into lower interest products giving them more yield to cover loans that go sour and to also get hoe owners back into those teaser loans where they never pay down principle while further enriching his hedge fund and wall street buddies and to keep the bonus train rolling on.

Comment by NYCityBoy
2007-08-04 11:07:18

“The ‘credit freeze’ as Steve Walsh puts it ”

You can rip Carmer all you want but don’t knock Steve Walsh. He was a great quarterback at the University of Miami. He was a god at Cretin Derham-Hall, the alma-mater of Chris Weinke, Joe Mauer and Paul Molitor.

Comment by jerry from richardson
2007-08-04 12:34:10

Weinke went to FSU

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Comment by bozonian
2007-08-04 23:12:40

That’s the problem with Wall Street. You have all these jocks in charge who are permabulls. They always think they are winning even as they are plummeting off a cliff.

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Comment by Brad
2007-08-04 12:31:32

got deflation???

Comment by bozonian
2007-08-04 23:07:40

I was going to say, if you want to bail these guys out, make them give back the bonuses they paid out last year. Goldman Sachs gave out an average of 600,000 per employee, every employee.

I’m sorry. I just can’t bring myself to have much sympathy.

Comment by Observer
2007-08-04 10:14:51

The cable business shows this morning mostly said that the worries over the “credit crunch” are overblown, that foreclosures were only .7% of the total housing market, and that all the bad news for the housing and financial stocks are priced in. One guest even said that “the home builders are down 75% from their highs, really, how much lower can they go?”, implying that if you bought now, five years from now you’ll be happy you did.

I know foreclosures are rising but will they really have that much impact on the overall housing market? And will there be a credit crunch? Many guests on the show said the Fed now must lower rates.

Comment by Ben Jones
2007-08-04 10:21:06

Seeing as how these same shows were saying all of this could never happen, consider the source. I remember when, in the summer of 2005, I was trying to tell reporters that the homebuilders would be forced to write off huge amounts of their inventories, and they all said, “I don’t knowwww…”

‘foreclosures were only .7% of the total housing market’

Problem is, the foreclosures are not spread thin over the country, but rather very concentrated. Plus, the defaults have just begu,. and haven’t even really gotten started in some states, like Arizona, Washington, Oregon or Hawaii. As we discussed the other day, it takes years for REO’s to peak after a market bottom.

Comment by NYCityBoy
2007-08-04 11:09:36

That was Ben Stein on Fox News. You needed to watch last week when Wayne Rogers almost went crazy telling everybody how bad it was going to get. On that day he would have made Stucco look like an optimist. For the most part, those shows are way ahead of where they were a year or two ago. I can’t believe Ben Stein was doing his Larry Kudlow impersonation. It was a little shocking.

Comment by BP
2007-08-04 11:11:57

Wayne Rogers has been saying this for about a year.

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Comment by missy
2007-08-04 12:11:29

I predicted the fallout before it ever happened. I work in finance and saw all these wealthy people (equity wealth) buying toys, cars, jewelry and whatever other stuff you see on” MTV”S Cribs”. It’s like everybody winning the Lottery and only one ticket had the winning numbers. At least at the Horse races the winners are paid by the losers. In the overexaggerated housing market there were no losers to cover the winners. Can someone please tell me where all this artificial money came from?

Comment by uptown
2007-08-04 13:46:11

Re: equity loans -
It’s called a lifetime loan - they still owe the money to the bank. Used to be called buying on the never-never.

Comment by combotechie
2007-08-04 13:52:07

“Can someone tell me where all this artificial money came from?”

It was borrowed into existence. It’s disappearance will be the result of the unwinding of these massive debts resuting from all this borrowing.

Comment by rms
2007-08-04 19:56:00

“Can someone tell me where all this artificial money came from?”

Largely the productive Asians, but you might keep an eye on your 401k account.

Comment by lainvestorgirl
2007-08-04 11:17:10

I also remember these same talking heads calling a bottom about 5 months ago and saying the housing market would pick up this summer.

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Comment by ShaunT79
2007-08-04 14:06:20

Do you mean Jim Rodgers?

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Comment by crispy&cole
2007-08-04 10:31:21

“how much lower can they go?”


Comment by JP
2007-08-04 11:06:22

The last time I heard the phrase “how much lower can they go?”, Lucent had just dropped from 80 to 20.

It eventually went down to 2.

Comment by Ken Best
2007-08-04 11:38:03

AHM went from 40 to 10, “how much lower can it go”?
Well it went to 1.5 for 2 days, and currently at 0.69.

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Comment by asuwest2
2007-08-04 13:36:15

not to quibble, but LU went lower than that (below $1)–still kick myself for not taking a flyer on it.

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Comment by combotechie
2007-08-04 14:04:10

I was in a room full of Lucent paper millionaires during the late Nineties whe the stock was soaring. At the time Lucent was selling digital switches to the Bells to replace their analog switches. This was a project; when the analogs were all replaced then the market for Lucent’s digitals would dry up.

I tried to point this fact out to the room but I was ridiculed into silence. Nobody was in the listening mode. Everyone was a market genius. I was a dumbass for not joining the party.

Then the stock took a dive and a lot of these guys began buying on the way down. And buying on the way down. And buying on the way down. Nobody would believe Lucent would go to under a dollar.

These paper millionaires went busted in less than a year.

This was my greatest lesson concerning the persuave power of GroupThink. I learned to never underestimate the power GroupThink has over the behaviour of ordinary people.


Comment by James
2007-08-04 14:54:08


I remember how much the capacity for FO links were getting to be along with the switch to digital.

I retreated to Military aerospace work.

Telecom/FO is filled with low talent get quick rich types that don’t know squat.

Comment by crispy&cole
2007-08-04 10:35:05

These same people also said “this issue is contained to subprime”.

Their every effort is to suck people back into invest so they can make a buck. They are not independent nor do they have the interest of the viewer in mind, all they care about is their pocketbook.

Comment by exeter
2007-08-04 13:56:34

“They are not independent nor do they have the interest of the viewer in mind, all they care about is their pocketbook.”

Personally I carry a wallet but I’d bet that Larry KudBlow keeps his cocaine and koolade bottle in a big pink purse.

Comment by Tom
2007-08-04 10:37:00

If the credit crunch is overblown, then why are they asking Bernanke to lower rates? Are they trying to keep people from pulling money out of hedge funds?

You can’t say “Everything is fine” and then say “Ben Bernanke needs to lower rates because it is Armageddon out there.”

These people need to have lie detectors hooked up when they are being interviewed. If they lie, it shocks the crap out of them on live TV. Now that would be entertainment and a great way for CNBC to attract viewers so they can sell more advertising.

Comment by Tom
2007-08-04 10:39:00

Erin Burnett “Mr. Paulson, do you think we have a problem in the markets.”

Henry Paulson “Subprime is contained” *ZAP* “Ahhhhh! That frickin hurts!!!

Comment by WatchingTheSagaUnfold
2007-08-04 15:16:44


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Comment by SanFranciscoBayAreaGal
2007-08-04 15:26:53


Reminds me of one of my favorite Simpson episodes; where the family zaps each other and eventually Springfield goes dark.

Comment by WAman
2007-08-04 10:44:14


Comment by Chip
2007-08-04 10:45:01

“…then why are they asking Bernanke to lower rates?”

Kudlow had six talking heads on at once yesterday — probably posted about yesterday evening — made me sick to hear so many of them expecting the Fed to bail out the greedy Wall St. banksters who were making fortunes while selling all that worthless paper. I suppose the best we can hope for is that the rate remains unchanged, whereas I’ve been hoping for an uptick.

Comment by Tom
2007-08-04 10:47:15

How does lowering rates fix worthless paper? Does it let them refi it till they can find someone to dump it on?

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Comment by lainvestorgirl
2007-08-04 11:18:57

What would a rate cut do to the dollar at this point? If Bernanke does this, I think the next bull run would be big caps, who else profits off a falling dollar.

Comment by dukes
2007-08-04 16:23:50

Gold! and Silver!

Comment by arizonadude
2007-08-04 10:47:15

I think the smart money shorted the stock market and are makeing huge money off the sheeple right now.This is how they play the game.They get fools like abby joseph cohen to come on and make predictions for year end.The sheeple start buying and then all of a sudden things change.They no how to play the game very well.You make money in the market when everyone is scared sh@tless.Then you sell into the rallies as greed takes over.What we are seeing is normal.They want to scare the hell out of you so they can make more money on the downside. As far as I know there are record numbers of people short the market and margin levels are very high. I sold awhile ago and will dollar cost average back into the market when the panic level is very high.I actually bought a little at the close friday.

Comment by SeattleMoose
2007-08-04 10:48:18

Lowering rates will be like pushing on a string. There is no way around the fact that you have millions of people who simply can’t afford their existing gravity defying loans THAT THEY ALREADY GOT AT INTEREST RATES OF 1-3 PERCENT.

And refinancing at lower rates….forget it. Credit is tightening and all the rules that lured the suckers/fools in are now reverting back to more traditional affordability requirements. Which means house prices which soared based on cheap “vending machine” loans will crash…hard.

Oh yea, and don’t forget the mania herd effect that caused people to buy many homes at ever higher prices. The foaming mouth herd that was running hard for RE is changing direction and will be running away (still foaming) from RE for many years to come.

Serious pain is inevitable. Besides, how can the same “leaders” who let all of this happen be expected to fix the mess they helped create? They are either incompentant and didn’t realize what they were letting happen or they are criminal for knowing and letting it happen anyway….either way we need new leaders.

This ship of fools and/or criminals will (and needs to desperately) crash on the rocks and burn.

Our bubble based economy is running out of bubbles….

Comment by arroyogrande
2007-08-04 11:08:15

“I know foreclosures are rising but will they really have that much impact on the overall housing market? ”

Foreclosures are only half of the story. Foreclosures give you an ever increasing supply of “distressed sellers” (banks, investors, etc.)…these are the types of sellers who won’t (and can’t) “just keep the selling price high”, for the simple fact that, sooner or later, they MUST SELL. We are already at historic foreclosure and NOD levels, and it’s only going to get (much) worse.

On the other side, we have tightening lending practices (requiring actual money down, no stated income loans for some w-2 earners, the collapse of sub-prime and alt-a, the return of the risk premium, etc. etc.) SEVERELY reducing the demand side of things (and reducing it even more than it has been reduced already). Think about what percentage of California buyers are/were Alt-A or subprime, or were using zero down, stated income loans, or piggyback loans.

We had the same situation during that last crash, only it was the economy (job losses) that increased the distressed supply and limited the demand.

Same situation, different causes.

Comment by Drowning Pool
2007-08-04 16:03:38

I’d just add one thing to that Arroyo… it may go without saying, but the only thing that would really bail out the housing market, are strong rising incomes, savings for real down payments, and a healthy (not burger flipping) job market. I’d bet the farm against that in this negative-savings, Wal-Mart economy.

Comment by mrktMaven FL
2007-08-04 11:12:33

It’s all BS now ;)

Comment by Annette
2007-08-04 12:34:50

Foreclosures, especially in concentrated areas will have a huge impact on the housing market. As these become more and more of a financial drain for the banks books..they will have to unload them at a “book” loss. Thus changing the comps in a community. So if you have 10 foreclosures in a community of 100 homes(10%) the comps will bring the “market” value of that community down. If comparable homes are selling for $350 and the bank unloads at $250 well there is your comp for future sales..whether you like it or how can anyone say that it will not have a affect on the housing market?

Comment by Arwen U.
2007-08-04 15:16:02

Speaking of drains on the books . . . like this one that’s owned by Washington Mutual now.

List Price: $999,000
Prior Sale: $1,420,956 03/02/2006
Listing Date: 06/22/07

Comment by WantsOut
2007-08-05 12:07:34

I’ve been in 3 BO homes in the last 3 or 4 weeks that are listed above 400K and they would be fortunate to fetch 200K in an absolute auction.

Comment by aladinsane
2007-08-04 10:20:52

“‘I have been at this for 22 years, and this is about as bad as I have seen it in the fixed-income market,’ said Samuel L. Molinaro Jr., Bear Stearns’s chief financial officer.”

Jules: The path of the righteous man is beset on all sides by the iniquities of the selfish and the tyranny of evil men. Blessed is he, who in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother’s keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy my brothers. And you will know my name is the Lord when I lay my vengeance upon thee.

Comment by combotechie
2007-08-04 11:40:10

Been watching the movie “Pulp Fiction” lately?

Comment by aladinsane
2007-08-04 11:50:32

Yolanda: You want to rob banks?

Pumpkin: I’m not saying I want to rob banks, I’m just illustrating that if we did, it’d be easier than what we’ve been doing.

Comment by combotechie
2007-08-04 12:03:24

I love that movie.

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Comment by joe momma
2007-08-04 12:20:28

I love that movie.

Comment by mrincomestream
2007-08-04 17:11:48

Excellent movie…

Comment by Casa$Loco
2007-08-04 10:23:22

The RE implosion seems to be unraveling much faster than any of us anticipated. It’s getting uglier by the day. And when the fed raises rates…Wow…

Comment by VT Dan
2007-08-04 10:28:01

Why would the FED raise rates?

Comment by South_west_stan
2007-08-04 10:30:35

uhh… to curb inflation and save the dollar

Comment by VT Dan
2007-08-04 10:37:35

Without mortgages and corporate bonds, what is causing the inflation? Who is still borrowing money (thus increasing the money supply/inflation)?

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Comment by Tom
2007-08-04 10:42:02

Ummm the dollar is falling and the cost of oil is going up. Certain things will inflate while others deflate.

For example, transportation will go up. So transporting food etc, anything that uses energy will have to inflate or they go BK. Plasma TV’s go down because people can’t afford to buy them and Best Buy is left with a glut.

Comment by Tom
2007-08-04 10:43:57

And what do you think the FED factors into their inflation reading? You got it, Plasma TV’s but food or energy don’t count even though they are the necessities we need.

The CPI is skewed and it’s bad data. That is why the FED will think, “oh, we can lower rates, inflation is tame.”

If you factor in food and energy (who needs that), someone said real inflation is running about 13%.

Comment by Chip
2007-08-04 10:46:48

“If you factor in food and energy (who needs that), someone said real inflation is running about 13%.”

That is what it feels like, to my wallet.

Comment by VT Dan
2007-08-04 10:55:26

My understanding has always been that prices go up because there is more money chasing the same goods (or less goods).

So energy prices are going up because there is less oil or because there are more dollars (caused by increased lending) or both. The only way I can make sense of it is if the dollar’s value has been artificially high relative to supply of dollars and that it is only now starting to see the affects of the massive inflation caused by mortgages over the past 5 years.

Didn’t Helicopter Ben say that inflation was under control based upon CPI figures.

So, it would seem that we should see price drops across the board as deflation kicks in, but theses effects of deflation will take time to flow through the system and result in lower prices (just like the effects of inflation took time).

Comment by Tom
2007-08-04 11:04:43

There is a threat that oil bourses switch from dollars into Euros. I think Iran was going to do this. They will find the dollar to volatile. If that happens… there will be a flood of dollars that central banks own that nobody wants.

Comment by Ostriches
2007-08-04 11:36:14

I heard or read something that Saddam was attempting to do the same and, well, you know what happend there.

Comment by kerk93
2007-08-04 12:20:47

He wasn’t attempting, he did. After we invaded, it was switched back to dollars. It was reported in numerous sources if you are interested in looking it up. As for Iran, they requested payment for oil exported to Japan in yen approximately 2 weeks ago. Some folks attempt to articulate that this won’t have an effect on the dollar. To that, I would simply observe the effect on the dollar with the system in place since ‘71.

We have the largest deficit on the planet (please don’t be duped by the comparisons of GDP-if inflation figures are inaccurate, then GDP will be grossly overstated-instead of measuring the amount of exchangeable value produced, it is measuring the amount of new Fed Reserve Notes produced). The only value inherent in the notes is that it is backed by the power of the Federal Government to take the value produced by the sovereign (taxation).

As a foreign central bank, it should be obvious from observation that there is no political strength to reduce spending or increase taxes. The only solution the people are clamoring for is the creation of more money. I wouldn’t want to hold those notes either.

Comment by Deron
2007-08-04 12:20:57

While the supply of dollars is shrinking by the day, many commodities are still going up in price. That is due to the fact that the there is a lot of money chasing them, much of it in other currencies where the money supply is still growing explosively. If the supply of dollars implodes from the dying lenders and hedge funds, we could see a very sharp rally in USD. I was very bearish on the dollar and had been for years until the lenders started going belly up.

Maybe the Fed can keep the money supply growing quickly even with most of the ’suppliers’ in trouble. But if not, look out. The dollar is so heavily shorted today that there could be a huge short-covering rally if that doesn’t work. Crowded trades are dangerous trades. I don’t have any dollar position at all right now since event risk is very high and could go either way.

Comment by spike66
2007-08-04 15:01:58

That you for the cautionary note. Currency traders are some of the toughest guys anywhere. And they make hairpin turns. I am not sure that this is an arena for amateurs.

Comment by Jim Lippard
2007-08-05 13:44:01

The Economist is reporting (based on purchasing power parity measures) that many currencies are overvalued with respect to the dollar–in fact, almost everything except the yen and the yuan.

Comment by LARenter
2007-08-04 11:09:36

Bernanke does not care about the dollar! He said on CSPAN that the value of the dollar is not the responsibility of the Fed. It is up to the treasury to manage its’ value! :)

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Comment by Tom
2007-08-04 14:26:39

Well isn’t the FED supposed to control inflation?

Inflation = Decreasing value of the Dollar?

Comment by arroyogrande
2007-08-04 11:16:02

“uhh… to curb inflation and save the dollar”


Feel free to quote me.

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Comment by South_west_stan
2007-08-04 15:59:09

I used to like AG before it turned into the WT version of the OC. The AGr’s all moved to GB to cook their meth.
Im an Ex- SLO loc.

Comment by Bill In Phoenix
2007-08-04 11:55:16

uhh… to curb inflation and save the dollar

And also to battle the $100 per barrel of oil prices that will be coming up. That will occur when Ghawar gets capped.

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Comment by tj & the bear
2007-08-04 16:22:03

I’d say Cantarell currently has the lead in that race. ;-)

Comment by VT Dan
2007-08-04 12:24:27

Asking the fed to control inflation is like asking the mob to control crime.

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Comment by SeattleMoose
2007-08-04 10:58:21

Because there is absolutely no way to save RE at this point. The RE bubble was caused by letting unqualified buyers into the market, ridiculously low interest rates (due directly to the last bubble), and the associated mania as supply started to dry up and prices were driven up….all based on unsound fundamentals and a public whipped into a RE buying mania by the corrupt RE industry.

So does the FED let BOTH RE and the Dollar go down the toilet…RE is already a turd floating in the toilet…may as well plug your nose and flush it. 10’s of millions may complain, but if you dump the dollar…hundreds of millions will complain…and it is an election year.

Comment by Tom
2007-08-04 10:40:30

I actually anticipated these sooner. It’s bout time!

Comment by VT Dan
2007-08-04 10:26:52

If loans are getting harder to come by, what will that do to college enrollments? Are student loans still safe outside of the mortgage crunch?

I would expect that enrollment figures would have to drop across the country. We probably won’t see that come into effect until Fall 2008, but when it does many college towns may take a big hit!

Comment by GotRocks
2007-08-04 10:42:53

Don’t get me started on this one.

Maybe if the loans got a bit harder to get (or more expensive), some of these clowns in college would either work in the real world first, or major in real subjects, rather than stuff like “the sexual preferences of Shakespeare’s characters”.

Comment by South_west_stan
2007-08-04 16:02:09

Exactly!!! Bring on the trade schools!! Not everyone should study “Communications.”

Comment by GotRocks
2007-08-04 10:43:28

…not to mention ending the gravy train for the colleges.

Comment by NYCityBoy
2007-08-04 11:25:24

A friend of a friend was looking at a job at NYU to teach Medieval Literature. The pay would be about $180,000 per year. What gravy train? What would we do if we didn’t have a grasp on Medieval Literature?

Comment by GotRocks
2007-08-04 11:56:43

I think that “Medieval Literature” is really important for those that plan on visiting there, but how about the rest of us that need a car that doesn’t break down every block?

Now to pay $180k for this garbage, when my mechanic only makes $60k, but provides something of value to society, is criminal. That’s why we need student loans to end.

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Comment by spike66
2007-08-04 15:13:20

whether it’s worth 180K is debatable but the medieval world is not so distant…see Barbara Tuchman’s history of the 14th Century. Rise of marauding Islamic armies attacking southern Europe, the Little Ice Age (climatic change which devastated harvests and changed demographics in Europe) the downside of expanding trade with Asia (disease pandemics-typhus,typhoid, malaria and of course, bubonic plague) crumbling infrastructure, and an unholy outbreak of regional wars. Aided of course by the original terrorists–the Viking marauders who plundered and murdered their way thru towns and cities in Europe and N. Africa for 2 centuries. Trade broke down, political structures crumbled, and fear was everywhere. Not so distant.

Comment by GotRocks
2007-08-04 15:29:39

Agree - especially when dealing with the Ottomans.

It’s just the 180k - it’s because there’s no accountability on salary as long as there’s the gravy train of student loans.

Comment by shel
2007-08-04 18:12:31

Living in academia myself, I can *assure* you that 180K is *not* what you get to teach even medicine or law in the midwest for instance! I’m sure it’s to do with the ridiculous price of RE near NYU indeed! You have to pay the professors enough to live close enough by to make it to classes regularly, and that’s what it takes in Manhattan just to pay rent on something semi-okay nearby, never mind to stay stoked enough on caffeine to teach!
Medieval Literature profs at Ohio State probably pull in 60K, once they get tenure, and the lecturers colleges often use to avoid granting ‘real’ salaries make 30. The funny money of student loans are going to the endowments, and to the big-ticket administrators, whose salaries have recently gone from just a little more than the profs to 10 times that at least, if not 20 or more.

Comment by rms
2007-08-04 21:14:59

“…see Barbara Tuchman’s history of the 14th Century.”

The middle east basically stopped advancing around the 14th Century. For an guilty chuckle look up the number of books published in the Islamic middle east v. the western world during the past decade.

Comment by polly
2007-08-04 15:16:44

You sure you don’t mean $18K? Not $180K? Because my brother is an education assistant prof at Setaon Hall and he started at about $50K.

If $180K is right, your friend’s friend must be the single most important scholar of Medieval Literature in the history of the world.

And NYU is notorious for low salaries and avoiding paying even the pittance they give tenure track humanities profs by hiring adjuncts and part timers on a per course basis.

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Comment by GotRocks
2007-08-04 15:31:48

Yea - they once published the salaries at the midwestern state school that I went to, all h3ll broke out. The salaries were INSANE, and tuition was up 10% a year - wonder why?

Comment by tj & the bear
2007-08-04 16:25:23

Every time you subsidize something you either get too much of it (e.g., welfare->bums) or drive the price up (e.g., RE, higher education, etc.).

Universities have been around for centuries, but the cost of a higher education didn’t take off until the government started guaranteeing dirt-cheap financing for it.

Comment by Paul in Jax
2007-08-04 17:24:55

You nailed that one, TJ. It has gotten so bad that now the purpose of most schools is to enroll the greatest number of students possible, period. And it’s actually worse for private schools than public ones, which still have some level of accountability. (Private law schools are probably the worst.) Because the purpose of the schools is to provide cushy employment for the teachers and administrators, courtesy of the government.

Comment by rms
2007-08-04 21:21:31

“Universities have been around for centuries, but the cost of a higher education didn’t take off until the government started guaranteeing dirt-cheap financing for it.”

And the schools are guilty of paying lobbyists to sway government spending toward the educational loan industry.

Comment by Jim Lippard
2007-08-05 13:53:51

25% of faculty at Arizona’s state universities earn over $100,000. The average tenure-track professor salary at Arizona State University was $102,500 in 2005, up from $98,000 in 2004. At Northern Arizona University, the average assistant professor salary in 2007 is $50,000; for full professor, $80,000. The University of Arizona in Tucson pays better, on average, than ASU, but the medical school has something to do with that. The medical school salaries, however, are mostly paid for independently of state budgets–either from federal research grants or from the practice of medicine at the university medical center. The highest-paid at all schools are the presidents of the university and the football and basketball coaches, with the coaches making more than the presidents.

All Arizona state university salaries are online

Comment by Kali
2007-08-04 10:48:41

For anyone interested in the topic of student loans:

Read some of the comments. The term FB can apply to the student loan debtors too. I find this subject really sad. These people weren’t the greedy flipper real estate FB’s - just people who wanted to improve their lives through education. They got screwed by our sick system has replaced every aspect of life (housing, education, healthcare…) with a twisted opportunity to increase corporate profits and shackle the individual.

Comment by GotRocks
2007-08-04 11:58:13

Based on the stories on this site, it looks like the student loan clan worries about interest rates about as much as the mafia loan sharks.

Comment by wmbz
2007-08-04 13:33:01

Student loans are the #1 unpaid debt in America!

Comment by GotRocks
2007-08-04 15:32:51

Don’t worry, housing’s set to win that battle.

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Comment by Michael
2007-08-04 11:09:13

I guess that it depends on the source of the loans. If a student is elegible for federal grants and loans, then they should be able to get them. You have to earn very little to qualify for need-based though.

I don’t know if people still do HELOC for college anymore. If they do, then I would expect that source to be a little harder to tap.

I think that the economic domino effects of the housing market may crimp parents’ ability to pay for/borrow for college expenses and that state universities will be in bigger demand.

Comment by mikey
2007-08-04 10:27:29

Been off line for a while but just saw the now famous video of the “Cramer Meltdown”…Wow he deserves either an Oscar or a Straightjacket for that performance :)

Comment by mrktMaven FL
2007-08-04 10:35:20

With the spreading subprime carnage, he’s having a hard time containing himself.

Comment by az renter
2007-08-04 12:41:14

if cramer had read bens blog in apr. 2005 he would have called it back then. this blog was 28 months ahead of the talking heads on cnbc

Comment by Home_a_Loan
2007-08-04 11:46:25

I think we almost witnessed Erin in a “fight or flight” moment. LOL

Truth be told, this has been a PR boondoggle for Cramer. This virtually guarantees more people are going to tune in to his show in coming weeks. In the end, that what CNBC, Cramer et. al are about, isn’t it? “Eyeballs”?

Note the irony, too, that just a month or two ago CNBC had a NAR-sponsored day where the theme was “Time To Buy”. They kept sending reporters on RE-related reports about how great the housing market was.

Comment by Deron
2007-08-04 12:25:28

I’ve been alternating watching the Cramer video and Suzanne Vega’s “Luka” in honor of the market beatdown. Does that make me a bad person?

Comment by tj & the bear
2007-08-04 16:30:22

We need to give credit where credit is due.

Cramer may have singlehandedly (and unintentionally) wakened the world to the fact that Goldilocks is dead. The markets ought to be fun Monday.

Comment by Paul in Jax
2007-08-04 17:32:48

It’s definitely one or the other. Most on this blog seem to be going the Oscar route, but I lean toward Straightjacket.

Comment by Tom
2007-08-04 10:28:24



we even had an excellent realtor, but the stupid appraiser did not give us what we needed…. so, we had to order another report… . I will never ever send him more business and my office feel the same way after what he did…..

Comment by ColinF
2007-08-04 10:55:48

It’s pretty stupid to admit to mortgage fraud on a highly read online forum. It must be weird to get so used to scamming people.

Comment by Aqius
2007-08-04 11:13:32

if I knew who the appraiser was I’d do all I could to SEND him more business.
Just like I will go down to FL next year to support the ONE MALE Family court judge who had the guts to make my ex let me see my son after she hid him for 7 years.

Judge Katherine Essrig in Tampa - yer a worthless piece of sh*t!
I shudder to think of the damage you are inflicting upon juvenile court.
(Her favorite excuse: ” isolated incidence, isolated incidence “)

Judge Christopher Sabella, you at least try for SOME fairness to fathers, and you get my wholehearted campaign support in 2008.

Sorry for the blended topic but I HATE people who use their job/position to lie and cause massive grief to others.

If I had extra time (HA) I’d shine a spotlight on this BS realtors office pressuring appraisers. I bet their books wouldnt stand a close audit.

A**HATS !!!

Comment by hd74man
2007-08-04 12:49:45

BS realtors office pressuring appraisers.

All ya got to do to stop the coercion and influencing of appraisers is to make it a felony.

However, nothing I’m reading about on how the politico’s want to clean up the system addresses the issue.

The pissants know that the rigged system is the only thing which has kept the economy afloat for the last decade.

Comment by sfbayqt
2007-08-04 11:50:16

It very interesting over at, especially the forum entitled “The Monster We Created”. VERY interesting, indeed.

Excerpt (post from coopercash):

Our entire “commission-only” industry is akin to the role of the coke (not the drink!) business model which is entirely dependent on end-buyer stupidity and ignorance.

As a Nation, our educational and social systems have denied Americans the opportunity to become informed about basic economics and as a result your point about our evolution into a “fast food… gotta’ have it NOW” society has resulted.

Who’s to “blame”? EVERYONE, from lenders to brokers, to LOs, to appraisers, to realtors, to the end buyer.

MORE REGULATION? I think not, at least NOT from the Feds of from States. The more Government intervenes in the private sector the WORSE everything becomes!

How well I remember 2-years in the Western Caribbean in the mid 1990s…real estate and mortgage loans. Mortgages were based on a “file” comprising no more than 6-pages and an appraisal. Tri-Merge, DO and DU were and still are UNHEARD of.

Mortgage lenders, primarily banks, took their 15% - 25% down and if the borrower didn’t pay on time add 15% late payment penalty. After 90-days with no payment…Magistrates Court Default Order and a repo.

We have gotten ourselves totally “screwed up” with matrices and guidelines! We have “sliced and diced” the applicant population and the end result is “regulated chaos”.

Where’s the salavation coming from? In the short term it will be from lenders such as Chevy Chase and Wilmington who have the capacity to hold their own paper and thus escape the whims of the secondary market pools.

Time to get real with consumer expectations… 100% FULL DOC will shortly be forthcoming for those with a mid FICO 620+ and 6-months reserves; SIVA? 90% LTV with a minimum 660 mid FICO and 6-months reserves.

Pay-Option ARMS are about to go the way of the dinosaur. I will predict that by years end an I/O product will be for a minimum of 5-years for those with mid scores above 660.

RE Investors seeking SIVA on NOO acquisitions had better get prepared for 85% LTV and mid scores of 700+.

Think I’m kidding? This morning I attended a S.E. Regional Lenders Workshop with nine major investors’ Senior VPs engaged in a roundtable exchange. SIVA for wage earners and those on fixed incomes will be eliminated.

In short, time for our industry to get out of the “stupid” mode it has been in for the past 5-years and exercise some basic commonsense.


Comment by BubbleViewer
2007-08-04 15:32:51

“As a Nation, our educational and social systems have denied Americans the opportunity to become informed about basic economics and as a result your point about our evolution into a “fast food… gotta’ have it NOW” society has resulted.”
I agree completely. I would say about 99% of Americans, including in the financial industries, can’t answer two very simple, fundamental questions:
What is money? (medium of exchange, store of value, unit of measure)
What is a dollar? (silver coin containing 371.25 grains of fine silver).
That few people can answer those two questions is not an accident.
I honestly think the entire banking, finance system is corrupt beyond saving. We need to start support our local communities via local currencies. But it’s going to be tough.

Comment by M gal
2007-08-04 17:45:22

The dollar hasn’t been linked to gold since the early 1970s. Even during the 1960s, a dollar wasn’t really worth 371.25 grains of fine gold because the gov’t paid for the Vietnam war by printing dollars without new gold to back them up. When Germany et al woke up to this and demanded gold instead of dollars, Nixon refused and scuttled the $-gold link. In the 30 years since then, the dollar has been a dream. Now the question is just when will American wake up?

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Comment by Chip
2007-08-04 19:18:06

Not before it stops creating wars.

Comment by hd74man
2007-08-04 18:52:20

This, like all the other crisis in my last 25 years of doing this stuff,will pass. The reality is GREED will power it back, & greed trumps commen sense everytime, it makes the world go round:-)
Will we experiance pain? yes.Will the business recover? absolutely.

The mortgage broker mantra.

…this country is f*cked.

Comment by Joe
2007-08-04 10:31:33

This development results in several things:
1-All the non-prime loans about to reset will not have refi as a safety valve.
–Secondary affects: More foreclosures, more homes for sale, retrenchment of consumer spending, more loans go bad.
–Tertiary affects: Housing prices slip further, tax revenues drop, more lenders go under, more investors lose their shirts, more market drops.
2-Fewer potential home buyers will be able to secure a loan.
–Secondary affects: Lower demand for housing, increased supply for housing, more downward price pressure on housing.
–Tertiary affects: More sellers turn into LLs, more sellers default as they cannot find a buyer, more foreclosures, more bad loans.
–quatanary affects: more lenders go under & more investors lose their shirts
Both results and their ripple affects result in drops in RE assessment, thus tax revenue goes down, so rates will go up; foreclosures/abandoned properties create other socio-economic issues that cost municipalities.

The impact on new home builders will be the realization that they must just stop building.

REIC unemployment will rise further and will ripple to secondary & tertiary employment markets (home stores, hardware stores, autos etc.)

Rent & stay in cash until this plays itself out, have a 3-5 year time horizon before you even consider an RE purchase. Good Luck.

Comment by Tom
2007-08-04 10:46:25

The piggyback loans are also gone. Countrywide and Fremont got killed on those. PMI will be an added “tax” and people will need to get used to it. Also expect PMI to be more expensive with all the defaults / dropping property values.

Prices only have one way to go, even if the FED raises rates, which is down. Because of Yields, mortgages have to go up.

So if a mortgage jumps from 6% to 8% overnight (and possibly higher), how much further do property values need to fall for things to be afforable again?

30%? 40%?

Comment by shel
2007-08-04 18:35:44

Plus, I’m thinking that there might be folks like me out there, waiting and trying to save up the 20% now required to avoid PMI and live without piggyback loans, who feel rather attached to the 20% and don’t want to even remotely consider ‘paying too much’ for a place, or buying before a bottom seems to be approaching, ya know?

Comment by joeyinCalif
2007-08-04 10:56:31

i dont wanna sit around for 3-5 years.. there’s got to be smart ways to take advantage of this situation and make a lot of money.. just gotta be.

Comment by JWM in SD
2007-08-04 11:22:12

yes there is, buy puts on the mortgage lenders and homebuilders..ooops too late.

You needed to be in that trade 3 mos ago. I have Jan 08 $25 CFC puts that I bought in April. I had lost almost 2/3 of the value…after this week, I’ve tripled my money.

Daddy needs a new G35 ;-)

Comment by cfoofmofo
2007-08-04 12:03:24

Got one. Coupe. Black with 19″ chrome rims duel stainless steel exhaust by Stillen, cold air intake and high volume manifold. Only 12,000 miles and it’s a 2004. Hauls A**.

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Comment by Paul in Jax
2007-08-04 17:38:16

I wish you well but get real - those things aren’t even in the money - one or two up days and you’re back where you were.

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Comment by Joe
2007-08-04 11:35:12

I think that is what investment bankers were saying 5+ years ago when the invented the CDO and opened the sub-prime flood gates of hell. I have no interest in speculation as I am seeing the results of it before my eyes. Just work hard each day, invest in your life and you will be rich beyond your wildest dreams. Or you can get on the speculator rollercoaster, but if you do insure that you enjoy the highs that come with easily gained material riches because they are just as easily lost and but suffering during the lows with only the comforts of soup kitchens and concrete mattresses are both quite painful and very difficult to reverse/remove. Good Luck. In whichever path you so choose, just choose wisely as there is no turning back.

Comment by combotechie
2007-08-04 11:46:57

“Just work hard each day, invest in your life and you will be rich beyond your wildiest dreams.”

There it is.

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Comment by joeyinCalif
2007-08-04 13:21:06

well, i’ve got no desire at all to gamble .. i know myself and have very low risk tolerance as far as money goes..

I was thinking more in terms of unique entreprenurial opportunities that this most unusual situation must afford.. it doesn’t have to be a huge money maker.. just something fun and profitable to keep me busy.

This is gonna stretch out for years, and some people will create ways to capitalize on it. We’ll read about them as time moves on.
Some clues are there, like 10’s of thousands of vacant homes (and their neighborhoods) slowly deteriorating .. 100’s of thousands of people in dire straights.. Things will be needed and needs will be created.. and someone will position themselves to provide those things.
I can picture a very profitable Bubble-Recovery Industry forming.. just can’t picture my place in it.

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Comment by tj & the bear
2007-08-04 16:35:12

Someone last year mentioned that they had a service providing maintenance and security on foreclosed properties. Sounds like a good business model going forward.

Comment by hd74man
2007-08-04 18:55:27

RE: Just work hard each day, invest in your life and you will be rich beyond your wildest dreams.

Until your wife cleans your clock in divorce court. And if you think it only happens to the other guy, think again.

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Comment by Sensible Lender
2007-08-04 11:32:18

Good summary by Joe.
Some background: I work for a mid size bank in Calif that never did subprime, 100% financing or neg-am loans. Our delinquencies are a small fraction of this state’s average. Rarely have a foreclosure.
I am enjoying this market and seeing these lenders implode. My reasons:
1. Over the last few years as prices increased we could help much fewer people finance their purchase. Prices got pushed up by stupid loans and this prevented people from qualifying using sensible loan standards.
2. I would turn down loans and the people would go to a broker and get a loan. We denied their loan because they could not afford or did not manage their finances to minimum standards. Customers would get mad at me and realtors stopped referring their clients.
3. Loan brokers would lie about their rates and fees and things like pre-payment penalties to get loans. They would not honor rate locks and people would sign loan documents with different terms because they had to close quickly. I lost a lot of business which I considered unfair because of my personal ethics and because my bank requires us to be truthful and put customer’s needs first.
So, these companies are going out of business and their employees can go back to their old professions and everyone will benefit. By the way, we are very busy now doing loans. We have added staff. I would like to think that besides less competition, people recognize our good rates, low fees and fairness.

Comment by mrquoi
2007-08-04 12:37:30

I think that next year would be a good time to buy ads on Ben’s blog mentioning that your bank never bought into BS ;-)

Comment by Sly_Ace
2007-08-04 16:30:05

Okay, so I have to ask: what do you think of DSL and FED? I have puts on both because much of their reported earnings comes from neg am loans that are most unlikely to ever get repaid.

Comment by Sensible Lender
2007-08-04 19:39:12

DSL and Fed: I cannot comment from a financial point. I can only tell you that yes, they did a lot of neg am loans. I have tried to refi some people out of neg am loans from these two. Most I cannot help because the LTV is too high, and/or their income is too low. I do not want to be specific, but one of these two did many loans with brokers that typically have the following characteristics. High fees, huge margin, and prepayment penalty. The margin is added to the index to set the monthly adjusting rate. I have seen rates in the middle 8% range recently. I saw one at 9.375%. The brokers got rich on these type of loans and the bank gets a big yield… long as the people make their payments……

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Comment by Ol'Bubba
2007-08-05 07:06:32

I’ve been looking at houses in Charlotte, NC and the county records are online. They have scanned images of the Deeds of Trust available. I’ve seen more than a few ARMs written with a 6% margin OVER the 6-month U.S. Dollar denominated LIBOR rate. When these loans reset, the borrower’s rate goes from about 6% to 11%. I’m convinced that these borrowers had no idea what a 6% margin meant when they signed the loan papers. They were raped.

Comment by tj & the bear
2007-08-04 16:39:52

Our delinquencies are a small fraction of this state’s average. Rarely have a foreclosure.

Yet. Unfortunately the carnage will start hitting prime borrowers before too long. Your bank will likely survive, but I expect nearly every financial institution to take a beating over the next 18 to 36 months.

Comment by tj & the bear
2007-08-04 16:55:35

By the way, SL, you wouldn’t happen to work for F&M would you? I’ve read that they’re one of the best institutions in SoCal.

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Comment by ajas
2007-08-04 12:45:27

retrenchment of consumer spending… Lower demand for housing

I think there is a key inflection point between lack of debt availability and lack of demand. People still want to buy houses and lie about incomes… but now those loans aren’t available. People still want to spend like crazy on shoes and plasmas and G35s, but they can’t heloc the funding anymore.

But the inflection point comes when the actual demand for that debt dies also. When, even were someone to make financing available again, the demand wouldn’t be there to fill it, the lesson has been learned. If that actually happens, it will be really bad news.

Of course it seems crazy that it can happen in America, but watch three years of FCs and BKs and life savings getting wiped out, college funds and retirements disappearing, jobs disappearing… Three years of that will change some attitudes towards savings and debt.

Comment by Joe
2007-08-04 12:54:43

Sad, but true. No matter how much we study history, we always seem to forget the lessons of the past and have to suffer the pain first hand in order to really learn and appreciate the lessons and disciplines of working and saving and minimizing debt.

Comment by GotRocks
2007-08-04 10:36:16

It is interesting that once the lender (i.e., a bank) is on the hook for whether a borrower is able to pay back a loan, the lender gets much more interested in the qualifications of the borrower.

This whole MBS garbage was based on the disconnect between the borrower and the ultimate holder of the paper. The highly-regulated pension funds were told that most of their securities had to be AAA paper, and they promptly found the AAA paper giving the best returns, which were mortgages (many subprime, I think). They AAA ratings were given by outfits, like Moody’s, who never bothered to check whether their loan models with 20% down, fully documented income, and high credit scores still applied with the new paradigm in lending (i.e., 0 down, stated income, and just about any credit score).

We here, on the blog, put 2 and 2 together but were treated like the black helicopter bunch because the Realtors said everything was fine and joints like Countrywide were making tons of money.

It’s nice to get the last laugh in, but it’s terrible for the truly innocent people caught up in this mess.

Comment by arroyogrande
2007-08-04 11:19:38

“This whole MBS garbage was based on the disconnect between the borrower and the ultimate holder of the paper.”

Bingo, bingo, bingo, and BINGO!

Comment by spike66
2007-08-04 11:28:17

“it’s terrible for the truly innocent people caught up in this mess.”

And that would be us, the responsible posters on this blog. We are likely to feel the effects, as it ripples thru the social, economic and political fabric of the country.
Everyone else was a player…and players get played by sharks. They voted with their money to jump into the game; they were not innnocent “victims” of anything.

Comment by hd74man
2007-08-04 19:00:45

Everyone else was a player…and players get played by sharks. They voted with their money to jump into the game; they were not innnocent “victims” of anything.

Well said spike66.

Comment by Sensible Lender
2007-08-04 12:21:50

Comment by Got Rocks: “It is interesting that once the lender (i.e., a bank) is on the hook for whether a borrower is able to pay back a loan, the lender gets much more interested in the qualifications of the borrower.”
Responding to this comment and in addition to by post above, my bank keeps all of its home loans. We did not do the crazy stuff and kept high lending standards, and are now rewarded with a great performing portfolio of loans here in Calif.

Comment by GotRocks
2007-08-04 12:34:44

Wow, so this country will have at least one healthy bank remaining after this mess.

The interesting thing, Sensible, is that it probably wasn’t very hard to do what you did - you just kept doing it (instead of “changin’ with the times”).

Comment by Deron
2007-08-04 12:34:45

It’s also fascinating how many of the worst weaknesses of the system were called strengths. The worst was the use of derivatives to spread out risk. The simplistic conclusion was that it made it more survivable. That would only have been true if the level of risk stayed the same but was spread more widely.

In predictable fashion, these instruments were used instead to lever up and create exponentially greater total risk. Everyone at every level had more risk and many of them didn’t even realize it - until now. And the realization is just setting in.

Comment by diemos
2007-08-04 20:45:53

“The worst was the use of derivatives to spread out risk”

I don’t think that’s quite right, no one seems to think that they have any risk. And when they find out that the risk didn’t disappear, it just morphed into counterparty risk, they are going to be shocked, shocked I tell you. Or at least, that’s what they’ll tell all the bagholders.

“But, but, New Century said they would buy the bonds back if they went bad.”

“But, but, we bought a CDS to cover this bond from the Flybynight derivatives corporation, what do you mean their address is a vacant lot?”

“But, but, we bought a interest rate swap to cover this from Dewey, Cheatum, and Howe Financial, what do you mean they’re bankrupt.”

Comment by spike66
2007-08-04 22:25:56

Of course, Buffett has been warning about derivatives at this shareholder meetings for years, but what would he know?

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Comment by rms
2007-08-04 21:34:36

“It is interesting that once the lender (i.e., a bank) is on the hook for whether a borrower is able to pay back a loan, the lender gets much more interested in the qualifications of the borrower.”

It is also interesting that whenever the fox gets to guard the hen-house that the fox always has chicken for dinner.

Comment by arroyogrande
2007-08-04 10:46:58

“Will the ‘new, improved’ lending standards kite the foreclosure rates through the roof?”


“Will LA (where a shack is ONLY 1.2 Mil+ gulp! ) finally tank?””

Yes. Watch. It will take time for the higher standards to filter through, but watch as things seize up. For a while, those that already have homes (that still have equity left) will be able to horse trade back and forth…but the new home buyer, and the heloc’d house move upper will be out of the market.

Comment by SeattleMoose
2007-08-04 11:05:58

And this will help the median price stay at current levels or even rise, as activity in the bottom of the market freezes while those with money continue to do their thing on the high end.

And of course the RE industry and the MSM will seize on the median as proof that “bubbles are for bathtubs”.

Ah yes, a couple years from now some of the better looking young RE agents will be “dancing for dollars”…too bad for Suzanne…she has no chance of being hired. But Kendra does.

Comment by arroyogrande
2007-08-04 11:21:25

Don’t even get me started on RE Shill Kendra…no wonder she works for The Don.

Comment by NYCityBoy
2007-08-04 11:35:41

I’m guessing she got her thong handed to her while she was so shrewdly investing in Florida real estate.

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Comment by rms
2007-08-04 21:37:38

“But Kendra does.”

Photos? :)

Comment by carmichael
2007-08-04 11:11:07

OC/LA/SD are going to get killed. How many loans being done in so.Cal are conforming(419K). This means that “new” buyers need to bring $150k to $250K to the table as a down payment to buy the median SFR, or they won’t get funding most likely. With the investor market for 2nds and Piggybacks drying up, little flexibility in how you can work around this. As for the $1M and up market, non agency investors have pretty much disapperared for now - who is going to fund the $419K and above market -Jumbo loans, especially with loan rates skyrocketing for these loan types? This is going to kill the so.Cal RE market.

Comment by Lisa
2007-08-04 11:22:08

“This is going to kill the so.Cal RE market.”

Northern CA as well. Here in the Bay Area, we really are AltA Central. Unless you’re a trade up buyer, no one has 10% or 20% saved for a downpayment. And full doc to show you can actually afford the house?? Forget about it.

Let’s face it, wages have been pretty stagnant while home values when up 2x or 3x. If the new rule is that people have to be able to afford the house, that means 3x or 4x gross income. The haircut could be quite severe. Hardly anyone will qualify for a big mortgage anymore.

Comment by sfbayqt
2007-08-04 12:07:48

“Hardly anyone will qualify for a big mortgage anymore.”

That is definitely true with today’s numbers. The irony of that statement, however, is that as the prices continue to decline, the “big mortgages” needed will also decline. Thus people who qualify (under the new rules) and who have saved their money, *will* qualify for the NEW big mortgage, which will be much lower.

Crazy, huh.

Just continue to save and when the clouds clear away, we’ll be ready. I’m in the Bay Area, too, btw…Dublin. The areas I’m watching are in East Dub.


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Comment by ajas
2007-08-04 12:58:02

You know what’s really exciting? Now that Alt-A has fallen into the sea, the statistical median price that NAR reports is going to drop like a rock!

It’s just like how subprime dying raised the median artificially by wiping out only the low end, now the high end will be wiped out also. Of course, we have to wait through August while the top end doesn’t sell, and then into September when we finally hear “BIGGEST ONE-MONTH PRICE DROP EVER.”

Just watch. It’s going to happen… Popcorn!

Comment by tj & the bear
2007-08-04 17:03:49

OC/LA/SD are going to get killed.

Heck, all of California’s going to get killed. OC/LA/SD & the BA are going to be beaten, burned, drawn & quartered… and then things will get really nasty.

100%? Gone! IO? Gone! OA? Gone! Stated? Gone! Cheap jumbo prime? Gone! Teaser rate qualifying? Gone!

Neil, pass the popcorn. The teaser/trailers are over and the main attraction is starting.

Comment by rms
2007-08-04 21:41:55

“100%? Gone! IO? Gone! OA? Gone! Stated? Gone! Cheap jumbo prime? Gone! Teaser rate qualifying? Gone!”

Sounds like the last reel of Day on the Beach. :)

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Comment by Tom
2007-08-04 10:48:00

This is worse then junk bonds, the S&L crisis, and the dot com boom all rolled into one.

Comment by aladinsane
2007-08-04 10:51:17

It’s beyond our comprehension and ability to stop…

$hit really does roll downhill faster~

Comment by SeattleMoose
2007-08-04 11:11:57

We have become a country of get rich quick scam artists where everyone wants to retire by 30 without breaking a sweat.

Nothing is produced but all sorts of creative shell games are created to give the illusion of fantastic growth…but it is all based on selling “air”….

What big scam is next?

Comment by lainvestorgirl
2007-08-04 11:14:22

Buying puts on mortgage lenders?

Comment by NYCityBoy
2007-08-04 11:38:51

Shouldn’t you be at an open house picking up your next “great deal”?

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Comment by JWM in SD
2007-08-04 11:52:21

She’s a day late and a dollar short on that one. One would have had a lot conviction on where the lending market was going at least 2 mos ago to get the really good pricing on the puts and we all know LAIG just wasn’t that convinced in all this crazy bubble talk. Right LAIG????

Comment by lainvestorgirl
2007-08-04 12:39:46

First of all, my puts on FED and HD are doing just fine, thank you. Second, NYC, I gave you guys the benefit of the doubt and actually haven’t bought anything yet, so thanks for that, I now have a nice (and growing) warchest for the eventual bargains which I will undoubtedly find in So. Cal. in the next few years, whether in my local area or not, and there will be no need for open houses. Cheers.

Comment by Tom
2007-08-04 16:05:59

Who will you rent to? A bunch of illegals who trash the place? Packing 50 people under a single rental.

Comment by Bill In Phoenix
2007-08-04 12:01:48

We have become a country of get rich quick scam artists where everyone wants to retire by 30 without breaking a sweat.

Exactly right. And it’s disgusting!

I would not say, however, that nothing is produced. In logic all one has to do is provide one contradiction.

The Boeing 787.

Comment by tj & the bear
2007-08-04 17:05:46

I expect the 787 and the A380 to determine the fates of their respective companies… and it isn’t looking good for Airbus.

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Comment by mrktMaven FL
2007-08-04 11:19:10

According to Cramer, “You have no idea!!!!”

Comment by Deron
2007-08-04 12:47:34

One axiom of bubble management is that to offset the effect of a bursting bubble, you must create an even bigger one somewhere else. IMO, the current series started with Mexico in 1995. Then the ripple of Russia in 1997, followed by both Asia and Long Term(sic) Capital in 1998. They had to create a really big one to fix those, which resulted in the Tech Bubble. While that was concentrated in technology and the US, it has serious spillover effects overseas - but still mostly equity.

When that one went down, they had to engineer a real whopper to keep things going. This time, the entire global credit market was dragged in with coordinated rate cuts by central banks around the world. So we end up with extreme pricing of anything bought with the resulting cheap credit - which is, well … pretty much everything.

We now have a global credit bubble, infecting prices for all assets everywhere. Chinese RE, Indian stocks, Brazilian farmland, Arab art, collectibles, bonds, commodities have all rocketed upward as a result. With the credit bubble now deflating, how do you create something bigger than a global, all-asset bubble frenzy to offset it?

I’m wondering if maybe the Galactic Federation can inflate this spiral arm of the Milky Way to give us a hand.

Comment by hd74man
2007-08-04 19:04:00

This is worse then junk bonds, the S&L crisis, and the dot com boom all rolled into one.

Pretty much what the posters on this blog have been saying for about a year and a half now.

Comment by Jen Bones
2007-08-04 10:49:34

Adapted From: WordNet 2.0 Copyright 2003 by Princeton University:

nova (n) 1. a star that ejects some of its material in the form of a cloud and become more luminous in the process

“NovaStar focuses on non-prime loans as well as Alt-A loans — the areas that have been hit hard by rising defaults and delinquencies. It does not originate prime or agency loans, so the credit quality of its products tends to be lower.”

Sweet, sweet irony.

Comment by arroyogrande
2007-08-04 10:50:19

“It seems to me things got every bit as silly in the credit markets in the last few years as they did in tech stocks in the late 1990s”

It seems. I love the epiphanies that are just now happening.

Comment by Observer
2007-08-04 10:54:54

Apparently in some markets it is still a good time to flip houses. This is unbelievable. This was posted on Yahoo!, they are getting desperate.

Comment by Chip
Comment by Paul in Jax
2007-08-04 10:56:31

One big effect will be a huge increase in owner financing.

Although FBs won’t be in a position to hold a mortgage on properties they sell, there will be many others who have full or near-full ownership of their houses or other property (especially older folk) who will want to save what equity they have and who will be willing to get out of ownership for a nice down payment and 15-20 years’ worth of payments.

We will also eventually see owner financed rates below bank rates (another type of non-selling price incentive). People will be so desperate to unload unneeded excess RE (since RE only goes down in price) that there will be great deals for buyers by getting below-the-market owner financing.

Comment by Observer
2007-08-04 10:56:36

Apparently in some markets it is still a good time to flip houses. This is unbelievable. This was posted on Yahoo!, they are getting desperate.

Sorry, couldn’t get the link to show up, trying again…

Comment by Tom
2007-08-04 11:01:50

He must have made a lot of improvements in 2 weeks.

In March, real estate investor Chris Knight paid $10 million for an 8,500-square-foot, 13-bedroom mansion in Shelter Island, N.Y. Two weeks later, he put it back on the market. Price tag? $33 million.

If he pulls off the sale, no doubt he’ll be in the running for flipper of the year.

Problem is, there’s not much competition for the hypothetical honor.

Comment by Home_a_Loan
2007-08-04 11:57:30

Delta = $23 mil? Dang that’s a lot of granite, crown molding, and stainless steel appliances!

Comment by BubbleViewer
2007-08-04 15:34:22

Who would pay that much after reading the Yahoo article?

Comment by Tom
2007-08-04 16:11:56

Some Yahoo of course!

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Comment by Tom
2007-08-04 10:59:57

I heard that Wall Street is selling all their AltA and SubPrime paper to Charmin to make into toilet paper, but Charmin balked. They tried to give it away and Charmin refused. Said it would be to coarse and a lot of people are already too sore.

Comment by arroyogrande
2007-08-04 11:24:02

You are not allowed to sell toxic waste as toilet paper. I think it’s a government regulation or something.

Comment by Ex-Californian
2007-08-04 11:11:31

The shilling continues… Now it’s FORBES.COM’s turn to bat for one of their largest ad buyers, the realtwhores.

This is just one of many signs that the bubble bursting has just begun. NO ONE will dare write one of these fluff pieces when the true bottom is in… Sit tight, hoard cash, and enjoy the popcorn. We have many more months to go. Wake me up in 2009 when the true carnage begins!

Best Places To Flip A Home

Comment by NYCityBoy
2007-08-04 11:42:19

Steve Forbes is one of the biggest tools ever to walk this earth. If daddy hadn’t been rich that dork would be unemployable.

Comment by bozonian
2007-08-04 23:59:53

I’ve been buying and selling puts on the way down. I usually end up selling too early but I’m new to this and getting the hang of it.

I usually look for stocks with prices above $30. You want a lot of “room” for them to go down. But options prices may scale in relation to stock price so that strategy might be neutral.

The mortgage insurance companies have a lot of room to go down and several lenders do to. I’m not going to mention any particular tickers because these guys are sue happy right now. They’re suing the implode-o-meter web site.

Look for mortgage lenders, real estate investment trusts (REITS), home builders, banks that hold mortgage backed securities (sometimes hard to identify because banks have so many activities they might not mention their real estate activities) and mortgage insurers. if you use and look at the company profile you will see many companies proudly state they invest in mortgage backed securities, subprime mortgages, alt-a mortgages, single family home mortgages, CDOs and the like. Really stupid. Right now that’s like painting a target on your chest saying “shoot me”.

Comment by wawawa
2007-08-04 11:11:33

go to and watch Brians Williams interview with Cramer on last night news. He basically said that HB are finished.

Comment by lainvestorgirl
2007-08-04 11:12:33

Does anyone have any good ideas for buying “puts”, now that HBs and mortgage brokers are already in the toilet? After my experience with FED this week, I’m really getting into this.

Comment by JWM in SD
2007-08-04 11:30:32

Too late. They will be really expensive now. I bought $25 CFC Puts back in April for 1.85 and it went as low as .60 I believe until this week. Now those are trading at close to $6.00. The volatility has spike through the roof on the lenders.

Comment by tj & the bear
2007-08-04 17:15:21

Dunno, JWM. I still think the market’s underestimating the downside. IMHO CFC (and many HBs) will eventually be bankrupt, so you can go far OTM and still make a killing down the road.

Comment by Paul in Jax
2007-08-04 17:53:54

They may go bankrupt, but $6 is a shocking price for an at-the-money $25 put option expiring in 5 months. Last week that would’ve traded at 3 to 4. Too rich and too much staying power needed. If CFC goes down 10% this week that option won’t move much; if it goes up 10% that option will go to 3.

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Comment by tuxedo_junction
2007-08-04 12:10:54

Look for banks and S&Ls where construction and land loans are 20% or more of assets. The best financial information is on the FDIC’s website. For multi-bank holding company’s it will be a chore to pull the call reports for each bank but the financial information is much more detailed than what you will find in a 10-k. By the way, not only does IndyMac have a huge option-pay,io home loan portfolio but they’re heavily into construction lending. They’ll get stuck with plenty of building lots and newly-finished homes when their builders default.

Comment by lainvestorgirl
2007-08-04 12:42:34

Thanks, that was really helpful.

Comment by satchel_bear
2007-08-04 13:38:43

Think about selling a call 10% above, and buying a put 10% below on the GSEs (FNM, FRE) - they’ll get hosed as there is more and more talk of increasing the conforming limits (that’s coming for sure!), and also on title insurance companies (all sorts of fraud there in the re bubble, now bring the lawsuits) - FAF is my target. Best of luck!

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Comment by lainvestorgirl
2007-08-04 13:48:08

Thanks for that too, I knew there must still be opportunities out there.

Comment by mrincomestream
2007-08-04 17:21:53

Indy just pulled the string on a lot of their loans. I got the email last night. they may be done.

Comment by Sly_Ace
2007-08-04 16:44:48

Wait to see what happens on Tuesday. We may get a bounce that will give you a better entry point. FED puts is, by far, my biggest holding and I sold almost half at the close Friday — pigs get fed, hogs get slaughtered. Check out DSL (similar to FED), BKUNA (FED and DSL, except in Florida), CORS (lends to Florida condo builders such as WCI), ABK and MBI (insurers), and CFC. The problem with DSL, FED, and BKUNA is that the bid/ask spreads are HUGE — you lose big if the market moves against you. E.g., 100 puts on FED a few weeks ago cost me 5k the moment I placed the trade just due to the spread. CFC is probably the most liquid.

Probably not too late, but much riskier than even a week ago.

Comment by Drowning Pool
2007-08-04 17:39:29

Does anyone have any good ideas for buying “puts”, now that HBs and mortgage brokers are already in the toilet? After my experience with FED this week, I’m really getting into this.

LA, I am long on some of the banks due to their low valuations and high yields, (WaMu, Wachovia, Citibank), but I am getting more and more convinced that they will be kicked where it hurts, and am opening a short position on each to hedge… I’ll dump whichever one I’m losing money on and cash in the other.

Comment by SKB
2007-08-04 11:14:59

I am getting nervous with IndyMac.
I am glad all of my CD’s are maturing in Sept and I am cashing out.

Funny how easy it was to fund the CD’s now getting my money back is not so easy.
I have to fax them a letter and pay money for the wire transfers.
They want to charge me 30.00 per wire transfer. I think I will just have them send me the checks.

Anyone else have CD’s with them and feeling rather nervous?

Comment by SeattleMoose
2007-08-04 11:23:39

No, but I pulled my jumbo CDs out of BofA last year. The young agent whom I was working with brought out his mananger who tried to talk me out of it and got very aggressive when I kept repeating “give me my money” and would not give him a reason why (as if).

When I signed up I had to wait in line for almost an hour just for the privilege of having my money sit in their gold plated vaults. And on the way out they almost wouldn’t let me take it. It was almost like they think everything you own is really theirs…the arrogance was just too much.

Comment by VT Dan
2007-08-04 11:51:43

Should we be concerned about Bank of America? They seem like they would be one of the last to fall, particularly on CD money.

I have CDs with ING coming due in September as well, should I move my money out and into savings? What banks can we trust with our money in the years ahead?

Comment by SeattleMoose
2007-08-04 12:37:51

I have several times the insurable limit in CDs and wanted to make sure that I spread them around so my eggs are not all in the same basket. That coupled with the fact I don’t want BofA to make a dime off me (and they reinforced that in spades)…was why I pulled them.

I did not pull them because of any anticipated complete collapse. Anything I can do (however small I may be) to “hurt” the big boys…I will do.

I am just disgusted by the whole lot of modern day pirates and parasites who infest the upper eschelons of our financial system and I want nothing to do with them.

Realistically, I think BofA would be one of the last institutions to fall. If that happens it means the current power structure is crumbling.

So I went to Citibank instead … wink

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Comment by james
2007-08-04 11:52:54

IVe got mostly money markets and a CD, whats the risk with that? My understand was that tehy are fdic insured.

Comment by VT Dan
2007-08-04 11:59:26

FDIC is a promise to inflate money for your benefit when a bank fails… it was designed as a “confidence” booster and not much else.

Remember everyone, the rules can change at any time. All it takes is an act of congress or martial law due to economic distress…

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Comment by Home_a_Loan
2007-08-04 12:07:12

As long as it’s an FDIC member institution, it should be insured up to $100k for individual accounts and $200k for a joint account with a spouse.

What I would worry about is how they plan on doling out the money if there are massive failures. If the government has to bail out the FDIC (or NCUA), do they put claimants on a “payment plan”? Or do they just fire up the presses and hand it all out quickly?

Or even worse, (gulp), what if the government becomes insolvent?

Having said all that, yes, I have a lot of money in CDs as well, but these are the things that scare me personally. Maybe I just need a chill pill. :)

To get philosophical about it, remember that the very concept of “ownership” is a social thing. If society for some reason concludes that you don’t really own a given thing any more, then you can expect to be separated from said “thing”. Look at what happens to private property when a society turns Marxist.

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Comment by tuxedo_junction
2007-08-04 12:14:26

When the S%L insurer, FSLIC, went broke the government used general revenues to promptly payoff the insured depositors. The net cost, after recoveries was about $125 billion.

Remember, however, that a liquidation is rare. Typically, another institution assumes the deposit obligations of the failed institution, and FDIC writes them a check.

Comment by tj & the bear
2007-08-04 17:21:33

do they put claimants on a “payment plan”? Or do they just fire up the presses and hand it all out quickly?

I just think the check would be “in the mail”, conveniently arriving sometime after the dollar has tanked and the best deals are long gone.

Comment by Paul in Jax
2007-08-04 12:08:06

Money markets are simply a form of mutual fund and are not insured.

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Comment by Sammy Schadenfreude
2007-08-04 16:45:36

Bank of America is giving credit cards to illegals. I will never do any business with them. While I used to shred their credit card offers, now I send them back (at their expense) explaining why I will never use their services.

Comment by technovelist
2007-08-04 22:16:02

If you must have investments in “dollars”, buy Treasurys directly from the government, at That is the safest way to do it. The interest rate is about the same as with CDs but you don’t have to worry about the bank failing.

Comment by Gargoyle
2007-08-04 11:17:03

I have been watching this site for about 6 months and thank you for all of the education. I have a question for the insightful people on this blog.

The big players in this game (the bankers) already have the money. They would prefer to stay below the radar. I believe that they have no real need for more money (maybe I’m crazy). All this crisis will do is place a spotlight on the local bankers, hedge fund managers, etc and expose a culture of corruption. People will say that this is just human nature - greed, etc.

The local guys are just pawns in the game. If you set up rules a certain way human nature will likely have people follow these rules (i.e. - if I may a risky loan but bear no personal risk and I still make money, why not do it?). The rules were set up knowing full well what the human nature side of things would be.

I do not believe the FED is stupid. They have access to more financial information than any of us individually and can control/manipulate the information that they release. If I were a parasite I would want to continously live off of my host without bringing any attention to myself, not inflict pain and raise its ire. People swat at annoying bugs to kill them.

I believe that the FED knows exactly what is going on. I’m beginning to believe in large scale conspiracy theories but don’t want to get paranoid. Too many financial people have been stating that we are heading for doom and the FED looks foolish.

If the bankers have the money, what is the incentive for a global meltdown? Is it some sort of social change? What is the agenda? This is the part I can’t figure out.


Comment by aladinsane
2007-08-04 11:22:42

Goldilocks just got in his Gulfstream V, and is headed off to non-extradition-ville…

Comment by wawawa
2007-08-04 11:28:41

“I do not believe the FED is stupid.”

They are not stupid, they just do not have integrity.

Comment by spike66
2007-08-04 11:34:29

The hedge fund managers and the private equity players are the big boyz in this game. The ibankers follow in their wake.
Their view is global…they are in no way tied to the domestic, US economy. There are other feeding grounds available.

Comment by arroyogrande
2007-08-04 11:36:03

“If the bankers have the money, what is the incentive for a global meltdown?”

Possibly none (notice I said possibly, for there is always opportunity in adversity).

However, if you get 100 greedy but smart people in a room with money to be made by “outsmarting” each other, they may try to work together for a little while, but sooner or later, they will try to out-greed each other, creating a greater advantage for themselves while trying to put the others at a disadvantage. With conditions like that, it’s easy for things to get to the point where they are making foolish bets and correlated hedges that actually increase the instability of the whole game. The “meltdown” happens because they are trying to “out game” each other, causing more and more instability, until everything comes crashing down.

Another way to look at it is that as returns become greater and greater, the perceived risk SEEMS less and less, so they take greater and greater chances (ie riskier bets). Eventually the risks catch up with them; then you see attitudes change to “who can get to the exit first” (ie preserve the most gains)…and its during the rush to the exits that people get trampled.

It’s all fun and games until someone loses an eye.

Comment by lazarus
2007-08-04 15:58:23

“If the bankers have the money what is the incentive for a global meltdown?”

The incentive is the same feeling some children get when they are hungry and try to get their dinner out of the hot oven while their mums are on the telephone.

Comment by VT Dan
2007-08-04 11:57:00

They want to centralize the world economic system under a world bank with a world currency. They must destroy the current systems to motivate the transition to the new system (which will be just like the old system, only with even more centralized power).

They are not loyal to any country. People in power want more power and that means more control and more money. They are not putting themselves in danger by collapsing this system.

Comment by kerk93
2007-08-04 12:31:19

Exactly. Which is why the Constitution and the Federalist Papers, expressly denied the right of emitting bills of credit by either state or Federal entities. It was somewhat bypassed since neither one does. It is done by a charter from Congress to a private bank. Those who wrote those documents had been around during the revolution when paper money was used, and understood the dangers to individual liberty and tyranny (absolute arbitrary power, ie, subject to the policies of banks versus representatives in a republic).

The banks have no loyalty to a country, and certainly not to the Constitution. They aren’t officers of any branch. They are at best Chairmen.

Comment by lainvestorgirl
2007-08-04 12:44:55

Are these the same people who are out to destroy our system by letting in millions of poor illiterate immigrants who put huge demands on our social services, hastening the calls for a government takeover of the health care system?

Comment by tj & the bear
2007-08-04 17:25:55

I don’t see stupidity, greed, malice, or conspiracy. I just see a system subject to the shortcomings of human nature and mass psychology. “Bread & Circuses”, if you may.

Comment by M gal
2007-08-04 18:14:24

Sure, the Fed knows what’s up. The problem is, it’s faced with a dilemma.

On the one hand, it can lower interest rates to reflate the bubble. This will help the US economy in the short run. But this is just like sticking a finger in a dike — enough money has already been lost that there is no way banks will start loaning to subprime and Alt A buyers again. Plus (and more importantly) China et al will dump even more dollars and therefore make imports even more expensive.

On the other hand, the Fed can maintain or raise rates to keep US creditors happy. But this will allow the bubble to pop and spew icky stuff all over the US and world economy.

Would you want to make this decision?!

If it was me, I would go for #2 because it’s the only way the US will be able to be competitive in the long run. We have to switch from a consumption to a production and savings economy. But this would alienate US citizens, the administration, business, and foreign countries.

Comment by Chip
2007-08-04 19:42:02

“We have to switch from a consumption to a production and savings economy. But this would alienate US citizens, the administration, business, and foreign countries.”

Last time around, almost 80 years ago, that happened and people survived — not happily, but they survived and many cooperated who might not have, otherwise. Can anyone produce documentation of the last time a person in the U.S., who was known to be impoverished and in need of food, starved to death due to the absence of any helping hand?

Comment by Mary Lee
2007-08-04 20:32:53

Critical to analysis of the Fed’s motives is it always, all-ways, supports the interests of the bankers. It is not only a bank, of a sort, itself, but it’s privately owned………Sure, it’s not interested in shooting itself in the foot vis a vis the public, but when the chips are down (can I mix a few more metaphors here? apologies), it’s the bankers who will get the backing.

Comment by bozonian
2007-08-04 23:52:56

You give too much credit to the idiots in charge. Markets are much too complicated for any human or even group of humans to understand. No one is in charge and even worse, the fundamental value of money, the most basic stabilizing factor no longer exists. This means that even the meager predictability offered by the laws of economics is gone. The government borrows with abandon because some suckers are willing to buy Treasury Bonds but the government can do this forever because they don’t have to ever reimburse the dollar for anything.

Without that stabilizing factor, the stability of our economy is based upon the latest political correctness rage “give money to save the whales!!!” or manipulation or clever money manager who finds a loophole in the system (Blackstone, KKR, Goldman Sachs etc). Why should a lender care about the creditworthiness of the borrower when the dollars being traded don’t represent work or hard value like iron, copper, oil or gold? Easy come, easy go is a well known human characteristic.

No, we are freakin’ doomed. Whatever wealth you have locked up in dollars will be gone soon. I wouldn’t keep any dollar assets. I’d invest my money in liquid, foreign assets. If I need cash, I’ll liquidate just enough to cover those needs. For example, I can see opportunity coming as people lose their homes, house prices plummet and when they bottom, buy as much real estate as you can. But this won’t happen for 2-5 years and in the meantime dollars are going to lose their value.

Comment by Judicious1
2007-08-04 11:21:20

Has anyone seen SocalMtgGuy posting on this blog lately? I’ll bet he could share some interesting insight from contacts in the industry.

The horror stories coming out of SoCal from buyers that bought $1M+ properties w/no money down, I/O ARMs, piggyback loans, etc will serve as cautionary tales for generations to come.

Comment by spike66
2007-08-04 11:30:03

Looking for SocalMtgGuy too…unless he is writing a book or a screenplay. The Housing Mess…a horror flick that will not require special effects.

Comment by arroyogrande
2007-08-04 11:39:50

Read recent broker’s outpost posts…it’s like Armageddon on more and more of the posts.

Comment by spike66
2007-08-04 15:21:59

According to Cramer, “You have no idea!!!!”

Comment by mark
2007-08-04 11:21:41

I have a pretty senior colleague at IndyMac and he isn’t nervous about losing his job but he definately feels they are going to have to tighten their belts significantly over the next 2 years.

Comment by GotRocks
2007-08-04 12:42:11

I agree. Having to live without a job should trim his (her) waste line in about 2 years.

Comment by mrincomestream
2007-08-04 17:27:02

He should be if the email I received last night was any indication. Losses and layoffs are a coming. New Century started off the same way.

Comment by lainvestorgirl
2007-08-04 11:24:48

“Will LA (where a shack is ONLY 1.2 Mil+ gulp! ) finally tank?”

Anyone care to address this?

Comment by aladinsane
2007-08-04 11:26:40

All of the addresses in el lay, essentially.

Comment by lainvestorgirl
2007-08-04 11:53:56

I’m seeing some progress, actually, but in South Central. I don’t know if you guys remember the Mexican guy I knew who bought up 6-8 properties over there, including the one he was knocking down to build a mcmansion, but now the mcmansion is built and he’s asking 800K and my handyman, who had been building for him, is laughing because who’s gonna pay 800K for a house over there, plus the guy is hurting for cash and can’t afford to pay my handyman to work for him anymore. So, the guy is slumming with new immigrants who don’t know anything and are willing to work for 60$ per 12 hour workday.

He also told me there are 7 houses for sale on his block near 70th street, and on most of the neighborhoods between there and 100th street, and beyond toward Watts there are multiple houses for sale per block. He says most houses are still full priced, but he’s seeing reductions creeping in too.

Comment by Joe
2007-08-04 11:37:14

I looked at a 475 sf home last night in LA rea for fun. Price was $475k. It made a lot of people money as many times as it flipped in last three years. Now it is bank owned.

Not all the kngs men, even Cramer, can fix this. Time to pay the piper in CA, Nevada, and Florida.

Comment by JWM in SD
2007-08-04 11:39:31

“Anyone care to address this?”

Sure. What don’t you understand about that statement LAIG?? There are only so many rich dimwits in the entertainment industry that can afford to keep prices where they are in LA. As for the rest of the market…well…they just don’t have the money now do they? Otherwise, they wouldn’t need 100%, no doc loans and make a bunch of low lifes in the RE business rich.

Remember what I told you over and over again: Volume Precedes Price…Always.

Comment by arroyogrande
2007-08-04 11:42:57

Yes. Prove it to yourself. Find recent sales in your area. Then look up the kind of financing they used for those purchases by looking up the trust deeds, etc., at the county recorder’s office.

Then ask a local Realtor “how are people able to afford these prices?” He/she will say “they are rich movie industry people who work as lawyers and doctors during the weekend and have trust funds from their rich baby boomer parents who are real estate moguls”. See if that jives with what is on the trust deeds.

Comment by lainvestorgirl
2007-08-04 12:23:37

Houses are still selling for really, really high prices in my area, I don’t know how to look up whether the buyers are part time lawyers movie people and trust fund people, but the prices are still really high, that’s all I know.

Comment by Brad
2007-08-04 12:33:47

impatience is a very expensive indulgence

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Comment by lainvestorgirl
2007-08-04 13:08:54

I am not impatient, I’m just stating a fact.

Comment by arroyogrande
2007-08-04 14:04:31

“I don’t know how to look up whether the buyers are part time lawyers”

Learn. Call the county recorders office, and ask them how you can look up the trust deeds on certain property, or ask them what’s the best way to look up what mortgages are encumbering properties in your area. They should be able to help you.

Or pay $99 to learn to do title searches.

Or pay a title company to pay someone to do it.

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Comment by IllinoisBob
2007-08-04 14:13:55

Lainvetorgirl: You may luck out & find the recorder of deeds & the assessors office online these days. In Cook county Illinois (Chicago and the northern burbs), they have websites for both. I am watching a particular town for current sales, last sales price, type of mortgages, … and all is there. You have a very powerful tool at your disposal for purchases. If LA is back in the stone age (I sure hope not) you will need to visit their offices .


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Comment by arroyogrande
2007-08-04 14:43:30

“LA is back in the stone age”

They are not totally stone age, but California law prevents them from putting actual stuff (other than name and record #) on the internet…I think it stems from the guy stalking and killing actress Rebecca Schaeffer:

“an American actress who was stalked and then murdered by Robert John Bardo, prompting the passage of anti-stalking laws in California.”

The stalker got her address from the DMV, so after that, they tightened up what information you could get, and how you got it.

Comment by bozonian
2007-08-05 00:12:21

You better believe it.

If you think we are in trouble now, just wait until LA tanks. That’s going to wipe out more wealth than everything that leads up to it.

If I were Arnold, I’d get cracking on changing the constitution so I could run for president, or get the heck out now. We’ll probably already be in a depression when California gets whacked. There may not be a word for what happens next in the Economist’s vocabulary.

Comment by MarknearSeattle
2007-08-04 11:28:11

Two I do not understand. The FED can impact short term rates. Mortgages are based on long term rates that the bond market sets. How can the FED save FBs? Second, how can the FED lower rates when most of the other FEDs are raising? We are competing for capital and need to bring in over 2 Billion dollars a day to fund our deficit.

Comment by arroyogrande
2007-08-04 11:38:33

“Mortgages are based on long term rates”

Not all…ARMs are based on various short term rates. Fixed rate mortgages are SO last millennium…except if you were smart.

Comment by skooch
2007-08-04 12:12:37

Interest rates (i.e., treasury rates) are going down. Mortgage rates are going up. the difference is the credit spread. The Fed may(!) be able to do something about interest rates, but credit spreads are controlled by the market. Just ask the Japanese if you can make anyone borrow or lend regardless of the interest rate level.

Comment by Housing Wizard
2007-08-04 11:50:58

I was begging for a credit freeze 2 years ago . They had a credit system that got so corrupt that the only way to keep the party going was to continue to make bad loans . The recent loss to investors in loans brought the problem out in the light .

The investors don’t like loss ,and they have major loss . When the talking heads say that ,”a re-pricing of risk is taking place in the credit markets “,they aren’t kidding .

The talking heads on business T.V. want to keep the party going by any means they can for their own self-serving greedy reasons .

At this point ,a entire “cleaning” is needed of the entire real estate credit systems/business because it got that corrupt and out of whack . The appraisal data banks are a joke , the spoiled brats of the RE industry are commiting fraud and they don’t even know better, and they think its their right to do so . It’s clean house time .The criminal brats of the industry can cry all they want ,but the investors are speaking loud and clear that they now know they bought silly bad loans under a RE speculation mania . Now they are trying to con the government into keeping this mass fraud RE party going .

Now the talking heads want the gov.,or the Feds ,or the taxpayers to bail them out from their bad faith acts and deeds , before to much of what they really did comes out in the wash .

A overhaul and cleaning is necessary, and it will cause pain . Any attempt to keep the party going will simply keep the corrupt system going a little longer and the crash will be even bigger , so why even attempt it ?

Comment by arroyogrande
2007-08-04 14:44:30

Call it, brother HW! Testify from on high!

Comment by skooch
2007-08-04 17:25:11

Any attempt to keep the party going will simply keep the corrupt system going a little longer and the crash will be even bigger , so why even attempt it ?

Because 2008 is divisible by 4.

Comment by JWM in SD
2007-08-04 11:59:22

“A overhaul and cleaning is necessary, and it will cause pain . Any attempt to keep the party going will simply keep the corrupt system going a little longer and the crash will be even bigger , so why even attempt it ?”

Correct. That’s why I think all of the Helicopter Ben crap is a bunch of nonsense. He is not going to lower rates. If that were really the solution, he would have done so a year ago because of the amount of time it takes to have an effect in the market.

Come on people, you really believe Bernanke is dumb enough to lower rates right now and trash the dollar?

Comment by Judicious1
2007-08-04 12:28:41

I would be surprised if BB lowered rates. What’s everyone in a panic about? The markets are just “normalizing”. It’s a good thing when you think long term.

Comment by NYCityBoy
2007-08-04 12:30:46

“Come on people, you really believe Bernanke is dumb enough to lower rates right now and trash the dollar?”

I love the use of rhetorical questions.

Comment by VT Dan
2007-08-04 12:31:23

I think at this point the FEDs inflation “breaking/acceleration system” has lost all pressure and will have no real effect in either direction.

Ever see the movie Speed? We are all riding on an economic bus that has bombs set to go off if we slow down and we are headed up a hill!

Good luck abandoning ship!

Comment by combotechie
2007-08-04 12:33:17

I don’t think Ben will lower rates partially because he doesn’t want to establish a “Bernake Put” as Greenspan established with his put. If Ben lowers then this signals to the world markets that he is a wimp when it comes to dealing with inflation.

It a long range sense, if the Fed can’t turn this economic nonsense around now, when can it?

Comment by arroyogrande
2007-08-04 17:08:21

“Come on people, you really believe Bernanke is dumb enough to lower rates right now and trash the dollar?”

Why should he need to lower rates? Unemployment is very low, and the economy is growing at a moderate, “Goldilocks” rate. What more could you ask for? Nothing has changed. Why aren’t the talking heads still saying “it’s all good, we still have full employment and the economy is still growing”, aka “it’s the economy, stupid”?

Is it that they are finally looking behind the curtain, and seeing what’s REALLY there? Talk about finally seeing Cthulhu. Is that why Cramer went mad?

Comment by yensoy
2007-08-05 01:42:01

BB will lower rates, and that fact has been factored into the dollar’s slide. Don’t forget - the Euro and Yen short term rates are considerably lower than USD rates already.

Comment by joe momma
2007-08-04 12:36:11

The Fed really screwed the pooch on this one. Now they have 3 choices.

1. Lower Rates
2. Raise Rates
3. Leave them unchanged

Let’s look at their options in more detail.

1. Lower Rates

If the Fed lowers rates they are basically telling the market the shit is hitting the fan. This might actually make stocks sell-off even more, and the dollar will get smoked. And lowering rates may provide little help to real estate, now that the risks of default are being factored in by lenders.

2. If the Fed raises rates, they are telling the real estate industry and Corporate America to drop dead. I doubt that happens, but if it does the dollar maintains some strength but the economy and housing will pay the price. The talking heads on TV will demonize Ben for this.

3. The Fed could do nothing, which there is a decent chance they will do. This is also going to piss off Corporate America and the Wall Street Gangsters, who will all feel the Fed doesn’t care about them. The dollar will go lower, real estate will still crash, and the economy is done.

Credibility is also a major factor. The street is screaming for a rate cut, but if the Fed does this the market will know they are full of shit about inflation. So any way you look at it, the Fed is cooked. No matter what they do, nothing is going to stop this train wreck.

Ultimately their credibility will be shattered. Long overdue in my opinion.

Comment by Housing Wizard
2007-08-04 13:37:22

Good post . I made a predictin on this blog a year ago that BB will hold the rates as long as he can and than toward the end of this year or first Q of 2008 BB will raise the rate a little at first .

IMHO …The Feds are stalling a little to let the credit markets problem work itself out ,but also I think the Feds are not at the point where they feel the problem is at the emergency point .

Comment by JWM in SD
2007-08-04 14:56:01

“I think the Feds are not at the point where they feel the problem is at the emergency point .”

Don’t say that to Cramer, he will start to cry again.

Comment by tj & the bear
2007-08-04 17:43:45

Second that — good post.

Comment by KIA
2007-08-04 12:59:37

Wall Street is only just now realizing the dilemma they are in. Each institution needs to call the margins they hold and exercise their rights so they can restore their own asset balance and avoid margin calls on themselves. That doesn’t sound too clear, so lemme put it this way: Remember how some folks have been complaining about the fractional reserve lending system? Well, the big houses and brokerages didn’t cough up 30% + returns over the last five years by engaging in normal brokerage activities. They all leveraged themselves out 12x to 20x or more in imitation of what the banks have been doing for decades.

All of that leverage is unwinding, and the more firms that get called, the more firms have to make their own calls. When the calls go out, and the assets don’t support the calls, then they need to dig into their own pockets for the cash. Everything is selling off worldwide as the big houses attempt to recapitalize and avoid the brutal losses being inflicted by calls in a down market. Carry trades are going, stocks are going, bonds, everything. They won’t actually succeed in their efforts of course, because the leverage is too high. What they may think of doing is cherry-picking those assets which might survive. If they’re really, really smart, they’ll do the reverse of a merger: they’ll create new holding entities for the assets which are worthwhile, transfer said assets for cash, use the cash to stall for just over 90 days to avoid the bankruptcy preference period, then you’ll see a huge wave of bankruptcies. Meanwhile, the execs will have exercised all their options (again, before the 90 days) and jumped ship to the new holding companies or simply left town for a while. Probably the latter, because who wants to hang around and explain all of this to frowning investigators?

Meltdown began July 24 (as predicted) therefore new prediction: Total carnage by the last week of October or the first week in November. I’ll call it election week just to be sure. This time, barring unforseen intervention, it will be financial blood in the streets.

Comment by spike66
2007-08-04 15:28:59

Your track record KIA is great. Clearest explanation yet of the mess re ibanks. Txchick posted that hedge funds have an Aug 15 date to post investor returns. Suggest there will be special carnage then as well.

Comment by Sammy Schadenfreude
2007-08-04 16:52:55

I think you’re going to be proven dead on, KIA. Agree that there will be massive institutional dumping of stocks to raise cash for margin calls. Seems like the precious metals stocks are the babies being thrown out with the bathwater. At some point, once the flight to safe haven begins, I would expect a divergence between tech/financial/retail crap, and producers of actual wealth.

Comment by Housing Wizard
2007-08-04 13:44:19

Excellent post as usual Kia . So what position do you think BB is going to take in this meltdown you describe ?

Comment by KIA
2007-08-04 21:07:55

BB is in the same crack he’s been in for the last eight months. He can’t raise rates without exacerbating the housing crash, and he can’t lower rates without torpedoeing the dollar, thereby making trade deficits even worse and delaying an eventual recovery. I think the better question is:

What would Paul Volker do?

I will be keenly interested in any new paper or position statement from The Group of Thirty.

Comment by bozonian
2007-08-04 23:28:03

Start listening to guys like Peter Schiff. He’s been ridiculed for this bearish stance but all his predictions, and the method of our demise, he has laid out pretty accurately in his book:

Crash Proof: How to Profit From the Coming Economic Collapse

No I’m not a shill, just a fan.

Comment by Foreclosure Central
2007-08-04 15:31:05

KIA excellent post. I want to expand on your post.

Wall street is currently experiencing a flurry of margin calls on a good share of the derivatives that they themselves created. I believe the total amont is in the neighborhood of 40 Trillion dollars or 13X the GDP of the US. How in Gods name are they going to cover these margin calls is anyones guess. My guess is the majority of the companies facing margin calls are going to fail and soon (this quarter). Short term, I don’t see how a lowering of the FED Funds Rate will accomplish more than lip service to the banking sector and potentially set the dollar into a free fall. Remember, we are running record defecits with the rest of the world and need to finance our treasury debt as we are unable to pay for guns and butter on our own. Why would a foreigner want to earn even less interest on his savings if the Fed lowers rates? If the Fed lowers, we are apt to see lower short term rates and even higher long term rates with the much weaker dollar. That would add to the misery of the housing market but may in fact help the banks in the long run.

In a perverse way if the long rate is 1-2% higher or more than the short rate, banks will borrow money from you (CD’s), eachother (fed funds rate) or from the Fed (discount rate) and invest the proceeds into ten year gorernment bonds. If you have ever purchased government bonds, you should know that you can actually leverage your position up to 9 times. Over time this would once again reliquify the banking system. This is what happened during the early to mid 1990’s The FED will rescue the banks as they are owned by the biggest of them. I don’t see them rescuing the dollar (Bernanke said that’s the Treasury’s problem) or the fools who bought into the overpriced real-estate market. Once again there are some banks that are Too Big to Fail. They own stock in the Federal Reserve. Everybody else is running for the lifeboats.
I predict the bottom of the current sell off on Wall Street will occur in mid-October 2007. That is when the 3rd Quater earnings results will finally show how widespread the impact the credit crunch is having. Their can’t be too many businesses that prosper in this kind of environment. I expect most businesses to stay mum about what kind of quarter they are having unless they are experiencing margin calls that can’t be met and are forced to come clean. The rest of Wall Street will wait for the October Surprise. Auto sales should continue to rapidly fall as HELOC lending is all but dried up. Auto and housing related employment should now go into a free fall. Those numbers will start to show up on the weekly unemployment claims by mid August. Other business will soon follow. We are headed for hard times.

This whole overleveraged economy will bottom in time. My best guess is 10 years or so at the earliest. Our standard of living is going to suffer. Millions of families who thought they were middleclass are going to be utterly devestated by their past behavior. Everyone will be touched by this, and a lucky few who planned for this may even prosper from it.

Your comments?

Comment by Michael
2007-08-04 16:55:33

Scary stuff.

I thought that the housing market back in the late 1980s and early 1990s was rough. There’s a lot more leverage and toxic waste to unwind this time around. I don’t see any obvious easy solutions without some major losers and most organizations won’t become voluntary losers. Maybe China, Inc is an exception.

I think that a weaker dollar is part of the solution. We certainly need more jobs. But when people feel less wealthy, whether by a falling stock market or falling home prices, they usually buy less and that’s a problem for our economy.

I would prefer a smooth way out. Lots of divorces and other nasty stuff in the 80s/90s downturn and this would result in much more of that.

Comment by memmel
2007-08-04 21:29:27

Except a weaker dollar now will cause oil prices to skyrocket we import a lot more oil now then ever before. Also you probably will see collapse of the petrodollar. And I’m sure Opec will lower production a bit to make up for losses on their devalued billions.

So I don’t think a weak dollar will help in fact it probably will cause dollar oil prices to go through the roof.

This will not weaken the dollar but tank it.

Comment by KIA
2007-08-04 21:22:54

Well said.

I’m going to go off on what seems like a tangent for a moment. When I ponder events like these, I always recall the Three Stooges. If you haven’t seen any episodes lately, you might want to take a look. They’re still good for some laughs, but there’s a lot behind the goofiness that’s worth considering. Remember, most of their work originates from the early 1930’s, in the Great Depression following the Great Crash of 1929. They tend to play flat-broke everymans, not too sharp, certainly not wealthy or sophisticated. Nevertheless, they continually chase wealth (and women, but that’s not important right now) and like to pose as sophisticates of every variety. They also loved to stick it to the wealthy “fat cats,” the doctors, bankers, lawyers.

Why is that important? There were millions of people in that era who had lost everything: farms, houses, family wealth. They were honest, hard-working Americans who may have made mistakes during the exuberance of the Roaring ’20’s, but watching the Stooges provided them the chance to laugh at themselves, at the situation, at being broke and downtrodden, to get up smack each other on the head and say “KNOCK IT OFF!” It also provided a release of pent-up anger and aggression against the fat cats who, whether properly charged or not, were felt to have “brought on” the wreckage of the Great Depression.

It was the indomitable spirit of the Stooges that helped pick people up again, provoked them to take another run at the mountain, lifted their burdens and smoothed over their deeply wounded pride. If those guys could do it, anybody could do it.

Why in the world am I bothering to talk about the Stooges?

I think the US is going to need a strong dose of their brand of medicine again soon.

Comment by spike66
2007-08-04 22:38:11

Foreclosure Central,
Between your post and KIA’s, I had an anxiety attack and had to leave and take the dog for a walk. Nice night and everybody on the West Side seems to be out of town. Since I had Broadway to myself, I started counting the closed storefronts in my nabe…from 82nd to 93, I counted 12! And not small ones either–big retail spaces. They’ve knocked out ann taylor, 2 florists, a bunch of restaurants, a camping store with a 60 year history,a fedex outlet, and a long-time Korean grocery, and some high-end clothing boutiques. Only new place is Wachovia, grabbing a long-vacant corner on 85th. So we have banks everywhere, and lots of empty retail. Commercial rents seem to be driving smaller business out…only the national banks are still flush, for the moment.

Comment by Dennis
2007-08-05 22:53:50

Amen!!! Well said. I am completely liquid and in short term right now. Including 401K’s and IRA”s. Opportunity awaits.

Comment by Michael
2007-08-04 16:48:28

I had a look at the Prudential conference call and as I started reading it, I was thinking that it was a great report. So I took a quick look at the chart and saw that it was down almost 5%. Market had a bad day but good earnings should have overcome some of that.

So I read further down in the conference call transcript. Some analyst asked about their CDO exposure. And they talked about it and tranches and what could happen if problems arose. I guess that explains the tankage. If a company has exposure to the toxic waste out there, they don’t get the love.

Comment by kaybertoss
2007-08-04 17:40:01

Is Grandpa drowning in debt?

“Meanwhile, mortgages — whether they’ve been refinanced or not — may become a growing financial problem for those heading into retirement. Nearly 60% of households headed by someone age 55 to 64 had outstanding mortgage balances in 2001, the Joint Center on Housing Studies at Harvard University found. That’s up from 46% in 1989.”

WTF? I thought the baby boomer’s were snapping RE up pricing everyone out forever. Now the MSM is hinting at financial trouble ahead.

Comment by bozonian
2007-08-05 00:15:57

I know things have rounded the top because I subscribe to which has as feature to alert you when houses you are interested in change price. Before last week, I never got an alert. Now I’m getting 4 to 5 a day.

Obviously there are some sellers watching the news. So far the reductions are pitiful, like 10k on a 400k house. Sorry Charlie, not nearly enough. They’re going to be chasing the market down, lower and lower but never taking the plunge low enough to catch a buyers interest. Amateurs.

Comment by bozonian
2007-08-05 01:54:03

By rewarding the paper pushers (bankers and other moneyists) and penalizing the people who create things by taxing earned income higher than capital gains we have destroyed our production base. Even Warren Buffet who has proved his financial acumen thinks the capital gains tax should be the same as the earned income tax.

Any worker who creates a valuable product is considered the bottom of the barrel. Construction workers, auto factory workers, miners etc. when in fact, they are the true value creators on this planet. Doctors, dentists and veterinarians offer the one true non-luxury service, biological health.

Bankers create nothing of value. They just offer the valuable service of providing money which they alone have the right to have without limit (Fed requires low fractional reserve ratios).

Now they are in the position where our government thinks “they are too big to fail.” and that for some reason, the banks are necessary. Like any of us, they are only necessary to the degree they provide a service to their fellow citizens. If they become insolvent, it’s because they have failed to be of service to others and by definition, need not be saved as they are worthless to the rest of us.

I have nothing against moneyists. I just think they need to play by the same rules the rest of us do, be competent or fail and no government should ever let a private concern become so important that it becomes irreplaceable. It should be obvious by now that these so called so-called financial gurus are no smarter than the rest of us. There is nothing irreplaceable here that I can see.

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