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Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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and what shall we talk about today? I will give you three guesses…
Rate Cut. Zimbabwe here we come!
Yeah, the Fed blinked. What do you think? A SpongeBob bandage on a head wound?
The PPT is now openly announcing its moves. What does this change?
perception among foreign Central Banks… now they know we are F-ed
Very clever!! F-ed!!!
“Very clever!! F-ed!!!”
Ranks right up there on the cleverness scale with Front Range Bob = FRB = Federal Reserve Bank.
“US mesh and wire market still suffers from slow demand and high stocks
US wire mesh makers say that business has slowed even further in the last month, which has been a sour disappointment for these companies as the summer months are typically a busy time for the mesh market.”
This is from an industry newsletter.
Packaging orders are off a lot for the last six weeks. Christmas may be glum this year.
The question of inflation or stagflation seems to be the real issue. Can they stop a deflation at whatever other cost?
An old-fashioned run on the bank yesterday…more to come?
“Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.” (per The LA Times).”
Tightening of jumbo loans finally hits Manhattan, but check out this would-be buyer in NY–income of half-a-million, Fico in 600s…
“Yossi Notik, a broker for the Manhattan Mortgage Company, had a client who was trying to buy a $1 million Upper East Side co-op. His client, a professional who makes nearly $500,000 a year with a credit score in the 600s, wanted to take out a mortgage for about $850,000.
But four days before the scheduled closing last week, the bank changed its mind and said it would not do the loan at all. Mr. Notik found his client an $800,000 mortgage with another bank. But the change forced her to delay the closing, put down more money and pay the seller’s expenses incurred by the delay.” (NYTimes)
WTF…$500K income, FICO in the 600s.
If I made $500k, I’d be paying cash for anything and everthing that I’d be purchasing.
An old-fashioned run on the bank…with a mortgage company prez leading the charge.
“Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.” (per LA Times)
sorry for the multiple posts–my bad. Nikkei down 874, Yen at highest level since 1998, and Japanese exporters getting creamed.
Stayed up late to follow the action.
as did I…..nothing like selling it all to get the interest piqued
Ben…
Perhaps a worthy subject for weekend discussion is the bank situation. How strong are they? What effect upon them has the spreading subprime problems had? Where does one go to learn of the status of their bank? What anecdotes have we of bank problems?
Anyone who has any saved money deposited in a bank has in some way, shape, or form, provided the reserves (10% max, in some cases zero required) for the monetary system. When the asset drops in value to less than the obligation, someone is in trouble of losing.
Robert R Prechter’s book, Conquer the Crash, has been my bible in terms of planning for the coming crash. Although I called the mkt too soon, as a result of reading his book, I’ve taken the steps to stay as safe as I can.
Regarding banks, Chapter 19 of his book, How to Find a Safe Bank, lists safe banks and indicates how to find reliable bank-rating services.
Two Things….
One of you web heads ought to archive all of the millionaire in the making stories for us to disect. Im pretty sure every one of them had a couple Florida and Vegas properties. CNN should do a follow up of where are they now.
That Ditech commercial, “people are smart”, is wrong on so many levels. If we are so freaking smart, how did we end up with such a mess?
Here’s a guy who thought he was smart and savvy.
http://sarasota.craigslist.org/rfs/398743677.html
$225000 BUY A CONDO GET A ROLEX
Reply to: hous-398743677@craigslist.org
Date: 2007-08-16, 5:23PM EDT
Spacious 2 bedroom 2 bath Condo in Cypress Strand in beautiful Tara Preserve. Tile throughout living areas, carpet in bedrooms. Corian kitchen countertops, Cultured Marble bathroom countertops. Washer/Dryer, access to 2 community pools, and community tennis courts. Close to shopping, work out facilities, and much more.
If offered the asking price for this Condo, I will include in black faced no date Rolex Submariner with Papers, original box, and an extra link. 100% authentic. IF you are serious about purchasing a condo, take this opportunity and own and condo and a rolex the same day.
please excuse me, while I go puke.
“If offered the asking price”??? Ok. I’ll offer and then pull out of escrow. I still get the ROLEX though because ole Sarasota boy didn’t mention actually closing to get the watch.
So they are selling a $100,000 condo + $125,000 rolex?
An old-fashioned run on the bank–led by a prez of a rival mortgage company–
“Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.” (LATimes)
So the guy had a shell mortgage company which gave out loans to anyone who could fog a mirror and collected the fees. He collapsed the shell company when he could no longer sell any more of his fraudulent loans and now he is pulling out his ill gotten gains before Country Wide collapses. What next a quick ride to the Mexican border with his money in suitcases one step ahead of the his creditors?
I would suggest that his wife keep a close eye on him or she will be left behind to explain to the police and creditors.
“people are smart” , “Flippers are savvy investors” “Real Estate alsways goes up”
“people are smart” that is not totally correct.
“A person is smart”
“People follow the crowd”
The backside of previous RE booms were noted for slow declines over a lenghty time period however I expect that with the recent implosion of the higher quality mortgage market (i.e. Alt A and a bit of Prime) and recent reports of the subprime contagion jumping the firewall into new credit markets that we may see a quick 20% drop in RE prices over the next three to six months which will then be followed by the grinding decline. Obviously there will be much shouting of “this is the bottom” and “capitulation” as we hit such a large step down however this will not be the bottom.
As this saga unfolds maybe we should update our projections including the magnitude of the decline, velocity of price decline and the idea of large downward price steps vs. the historical grinding declines we have seen in the past. As we know this time is different.
My topic for discussion would be how fellow HBBers see the decline in housing prices over the next year in light of recent credit market developments?
I suspect you are correct. In the highest-priced markets, how can there NOT be an immediate sharp price drop, if buying anything bigger than a 1br condo requires a jumbo mortgage or a Godzilla-sized downpayment?
Northern Virginia (my area) seems on the edge of this. Even with recent price drops, very few SFHs here are selling for less than $500k unless you go out to the far-flung exurbs. Condos and attached housing can be gotten for somewhat less than $400k, outside of the swankiest neighborhoods.
But California has to be toast after this…
From your lips to gods ears. A 20 to 25% drop in some markets might mean that buyers looking for a plain old home could buy and only get mildly ripped off over 20 years. Some markets need 40% down, but with some inflation and some additional modest drops all those not directly involved with the 2004 to 2006 craze can get on with our lives.
All real estate is local (!). So it’s time for local papers, broadcasters, and economists to figure out just how inflated their markets are and let everyone know that. This is especially important for “non-bubble” areas, where overcorrection is more likely, and for areas not in the NAR/Moody’s 146 metro area data.
Transparency would help everyone now. It would tell sellers to get off their duffs. It would reassure buyers, who could write offers for current appraised value less some % of the expected decline. Even banks and agents have an interest in transparency. Banks, because new loans based on real values will help to balance the bad. Agents because, well, how else are they going to put gas in those shiny new cars?
Without transparency, the market will come to a standstill, and the correction will be larger than it has to be.
So, come on everyone: FESS UP.
More on transparency…
LA Times business writer Kathy Kristof: “I think the reason that the markets are reacting so dramatically is because they’re trading on a lack of information. We don’t know how bad the mortgage crisis is. We don’t know how deep it is. And until we do, I think people are going to be extremely nervous, and that’s going to send stock prices up and down and sideways. But in the end, it will all filter out, based on the real underpinnings of the market. I just don’t think that they’re as bad as it might appear today.” http://www.pbs.org/newshour/bb/business/july-dec07/markets_08-16.html
And here’s Henry Paulson, the Treasury Secretary: “The Treasury secretary said that there needed to be more transparency in the system — that is, more disclosure of the holdings and actions of hedge funds and other private pools of capital. ‘How can you be against more transparency?’ he asked.” http://www.nytimes.com/2007/08/17/business/17paulson.html?ref=business&pagewanted=all
Okay, then, Kathy and Hank, can we count on you to pressure the NAR to release more of their info — from actual sales prices in the 15 non-disclosure states, to real time on market numbers?
“how HBBers see the decline in housing prices over the next year”
P Popper, I agree that this would be very interesting. We have some real experience and brain power here and I sure would like to know everyones thoughts at this juncture. I hope you can work this in Ben.
The real fear hasn’t come yet. It depends on where you live and what you see around ( and if you read HBB
)
However, next year will be definetly worse since we are in the beginning. All bubbles end bad.
It is so freakin frustrating. Herndon, Chantilly, Centrevile, Ashburn…nothing is selling, hasn’t been for months, prices are not moving and the RE agents are so freakin arogent it makes me want to puke!
Keep your powder dry, hassle the agents with extreme low ball offers on properties you are interested in, make firends with local banks that may have REOs that they will eventually have to dump, and enjoy.
By the time everything shakes out those arrogant realestate agents will be on there knees doing more than begging when a qualified buyer walks in.
Well said Sniggle, I agree 110%
The credit crunch has basically trashed the bid. I don’t see what can prop up home prices at anywhere near their recent levels from here on out, and I am talking about everywhere in the U.S.A. (all real estate is national, ya know?).
Do not worry, they are living on borrowed time. I am starting to see cracks in the dike, price drops are getting larger & more frequent. People are switching agents, upping the incentives and still not getting bites. Its the PRICE combined with the inability of buyers to get financing anything above the conforming cap, and then only if they are a PRIME credit risk. Patience my friend, watch them all go down in foreclosure flames in their arrogant denial, then purchase post foreclosure from the bank REO agent. REO agents are usually much more honest and forthcoming as the bank keeps them on a short leash and they do not get the same big payoff that they get from a private seller sale.
“Its the PRICE combined with the inability of buyers to get financing anything above the conforming cap..”
I also think the inability of people to sell their current home is clogging the pipeline, but even that goes back to PRICE.
REO sales still get the same or close to commissions as reg. real estate. Number one they are not employed by the bank. The person selling may not be the one listing the banks property. It’s still a commission business and agents, though they shouldn’t, will still show the properties that have a regular commission. Banks know this and will keep their rates comparable. Not only that, REO’s are a pain to sell paperwork-wise and home inspection- wise.
The recent rate increase for jumbo loans (among other things) will hit the NoVa area really hard. This fall and winter will be another big price leg down - I’m quite certain.
A recession and/or a pullout of Iraq will be another long-term downward pull on the market, since most of NoVa employment is defense or tech.
Don’t know if this qualifies as a topic: All the things that we’ve stopped hearing over the past month.
1. “Jealous bitter renters” seems to have vanished from the lexicon
2. “Soufle” also vanished
3. “Soft landing in housing”
And that’s just off the top of my head. There has really been a huge mindshift in the past 30 days.
4. “Goldilocks”
5. “The greatest story never told”
“The boomers are coming”
“Florida is working off a totally new economic paradigm.”
My favorite - “Buy now or get outpriced forever!”
Unfortunately, I have to disagree, those words have not left the lexicon yet. Trust me, I saw Cocaine Kudlow last night, and he must have said each of them 5 times.
Why can’t these people just be honest? The housing market is going to drag on the stock market, anyone with half a brain knows that. So, why not tell people to get short on the stocks that will be most affected by the downturn? Honestly, that’s the only advice that I would give anyone in the market today, the rest (the contagion) is just too volitle. However, we know for a fact that the homebuilders and banks are going to take a heavy hit, which is why I recommended getting short in these areas.
“Why can’t these people just be honest?”
Because that would mean the system would have to give J6P a fair shake… The same system that threw him overboard 25 friggin years ago.
The CNBC talking heads cheerleaders for a bull-run on Wall Street now have a a smile like the cat that ate the carnary .How dare the real estate market rain on their parade in spite of Wall Street being the set up artist for faulty lending with their fake ratings on risky investments .Everything that is going on is all about bailing out the bad guys and getting a Gov. bailout by any means possible .
Create a emergency and than let the blackmailers make their demands so nobody can think about the real cause of the problems is the game plan now .
Don’t know who made this quote but here goes :
“A society that does not dole out reward and punishment in a fair manner is doomed to fail”
Looks like a run on the bank!!
http://tinyurl.com/33nq6p
Now we’re talking!!
You guys are probably sick of me making comparisons with the Russian financial crisis in 1998 but I swear this is so deja vu. I have enjoyed hanging out with all of you for the past year or so and hope that everyone has put their financial affairs in order as best they can.
I would like to add without it coming off as being condesending that for most people on this blog a financial crisis is just theory but for me its practice. Minimize as much as possible risk to your assets and protect your principal.
You guys are probably sick of me making comparisons with the Russian financial crisis in 1998 but I swear this is so deja vu.
If you compare developing downturn in US and global markets then russian 1998 default seems to be a minor thing. It’s just uncomparable scale.
Please keep making comparisons…the collective experience of all the posters is so valuable.
What banks will be in trouble? Strategies if there’s a run on -your- bank?
There was a run on Countrywide Bank in Los Angeles…
http://tinyurl.com/2rmkpm
If bank runs become popular, the FDIC will fold up like a cheap California Condo during a 9.0 earthquake. Undercapitalized would be a generous description. When money was easy they let the insurance rates drop to virtually zero.
“Your money isn’t here, it’s in Joe’s house….”
…and his SUV that cut you off in traffic, and his gaudy wardrobe that makes him feel he’s above the crowd, and the vacation in the Dominican Republic that made him feel he was better than the rest of the world…
“In recent months, sales of high-end houses have been stronger than those for cheaper homes”
A quote from the article in LA times.
Where do you draw line to differentiate between cheap and high-end house.
Where do you draw line to differentiate between cheap and high-end house.
$417,000.00????
It will be fun to watch the home price distribution in Coastal CA collapse downwards towards $417K.
Today, I accompanied a friend of mine to check on her second home, a California coast condo she co-owns. Three months ago, she and the co-owner had decided to sell, but got no offers. So, they’ve taken the condo off the mkt “until prices go up again.” I did tell her I think that prices have peaked and they may eventually go down to 50% of the peak…but it was as if she didn’t hear what I said at all. ALL the way over to and back from her condo, I kept remarking, “There certainly are a lot of for-sale signs!”
As a result of reading this blog and Michael Shedlock’s blog, I see the world differently - and I am VERY grateful! THANKS so much, Ben! You have positively influenced so many of us!
How about a discussion of whether selling apples or pencils on the street corner is the better choice? Or how to retire on 50 cents a day?
Seriously we are totally 100% scroomed. There is nothing that can stop the process that has begun - the ball is too far down the hill now. Those counting on some miraculous “save” by the global central banks are in for a rude awakening.
I wouldn’t overreact. I’m sure we’re in for a recession, probably a serious one. But there were a lot of factors that combined to create the Great Depression, not least of which was a delayed reaction from Europe having basically committed suicide a decade or so before that.
Not at all unlike the gutting of the US manufacuring base we have watched over the last 3 decades. You can choose to under react if you like. If you truly analyze the Great Depression you would find that its roots were the same things we have witnessed, leveraging, spurious lending, and debt to income ratios that have only been exceeded by our current records. Today we have the Chinese playing the role that the US played in the run-up to the Great Depression. They too will suffer a similar fate compounded by enormous social disruption and a communist regime. Hundreds of millions of rural Chinese have moved to the urban areas in hopes of a better life. What happens if their growth even slows? Kaboom.
Their leaders know this and it is why they have only made half hearted moves to slow their growth even though most of the growth is malinvestment.
Japanese exporters like Sony and Toyota got hit hard yesterday on the Nikkei…sounds like the Japanese have connected the dots and figured that indebted Americans, cut off from EZ credit, will not be buying.
You’ll know this is the bottom when……………
…even your ditziest friends & neighbors think you’re nuts for buying a house.
When you overhear folks laughing at parties that people used to purchases houses with less than 20%, and anyone ever thought of doing so with a 40-year mortgage.
I meant “20% down,” of course.
This isn’t a sign of the bottom but of a glimmer of recognition among the zealots:
http://www.realestatejournal.com/columnists/housetalk/20070813-fletcher.html
A realtor asks how to break the contract on a house she had agreed to purchase.
Houses come free with a credit card application.
I guess California is “different.”
As the nationwide credit crunch continued to shake Wall Street and the lending industry yesterday, the California Association of Mortgage Brokers urged Congress to give a financial break to the state’s home buyers.
Leaders of the trade group asked federal lawmakers to declare California a “high-cost” state and raise the limit on the size of loans that can be purchased or guaranteed by Fannie Mae and Freddie Mac.
http://tinyurl.com/33fbsq
‘People are smart’ -that is why history always repeats itself. Humans are basically dumb as dirt. They just happen to be the smartest animal on the planet.
At least people were smarter in the past, they used common sense and weren’t brainwashed by talking heads and stupid ads on TV.
It should say “People are smart … primates.”
I’d even go as far to say that Koko the gorilla may have been able to analyze mortgage documents better than your average American.
http://en.wikipedia.org/wiki/Koko_(gorilla)
In fact, I’d imagine if Koko the gorilla was given a mortgage that was formatted for hearing impaired dyslexics that she could sit down with a banana and really dig into , she’d probably be like “WTF?”.
Peter Schiff’s latest radio broadcast is available. It’s a classic. No sugar-coating. Sample: “These guys (commentators on CNBC) are clueless. The fundamentals are sh** for the American economy. They have always been sh**. The patient was on life support and the plug has been pulled.”
Peter Schiff Radio Archives
Peter Schiff was on Glenn Beck (CNNHeadline News) last night. I actually was upset w/Glenn for not having PS on 6 mos earlier when I e-mailed some blog factoids to his web site.
Wow. Just called CitiBank to activate my new credit card. I have a high limit card and normally I get the “good serivce”: US call center, “Thank you for activating your card Mr. Chile”, and that is it. No sales pitch on worthless products and very polite service.
This time I got the Indian call center, the hard sell on two different products that required not two rejections but three to get the rep to stop pushing the product, and rather indifferent service.
Quite a contrast with both a Discover card I activated a few months ago and the service I normally get from CitiBank. Think they’re trying to lower costs and raise revenue?
“This time I got the Indian call center”
My new thing, when I get overseas call centers, is to ask to be connected to a call center in the US. I suggest that we all do that and ask that all of our friends and families do the same.
That’s a good idea, however India is now sending their people to speech classes and they even give them a fake area in the US to learn about and say they are from there. They do things like check the weather there and the local news, so they can sound like they are actually in the US. That’s OK. These Indians are not going to be buying US companies products on their wages and pretty soon neither are we, because of all the jobs sent overseas for cheap labor. Companies are going to screw themselves in the end and like CNBC they’ll be too stupid to see it coming until it bites them in the butt.
Topic Suggestion-
Are we witnessing and living through the beginning of a fundamental structural change to the economy and the way business is conducted? Are we seeing a contrived series of events that were planned 10 or more years ago? The Japanese Yen is increasing in value, they’ve militarized and saved money and prepared generally speakinng. Is this a means to assist the USA in dealing with China? Likewise the European Union appears to be strengthening it’s solidarity…. again… to deal with Asia/MidEast?
People Are Smart
I would like to see this as well!!! We are at the cusp of great change and I keep going back and forth on deflation and large inflation. With so many factors affecting the globally tied market it would make for great discussion (point counter point) on each of these factors and its role on the future of our economy.
A possible subject for discussion- What is your back up plan for employment/job skills/knowledge that will carry you through if your job is eliminated as a result of the market/economic turmoil. This assumes that things do not devolved down to guns and ammo.
Excellent topic LostControl. I’ve been thinking about this alot. It’s probably why I have 4 yrs of living costs saved up - just in case.
Excellent topic LostControl. I have been thinking about this a lot lately. Even though i have 4 yrs of living costs saved up I am very worried how this will play out and the collateral damage it will cause on those of us on the fringes.
Again, I suggest what will happen with the foreclosed homes, and when. The resets are just started — most of the foreclosures thus far have been flippers, and people going under for the usual economic and personal reasons in places like the Midwest.
Max subprime resets per Credit Suisse are August to February. There could be a lot of repo homes on the market in the spring, particularly if a recession compounds the problem and builders finish more of the those homes they continue to start.
That could be capitulation — the equivalent of 1991 in the Northeast, even if the recession is mild (as I think it may be, at least in NYC).
I’d like to see the Credit Suisse chart broken out - the graph for the subprime resets, the graph for the alt-A resets, the graph for the prime ones. The chart has a bunch of colors, but it would be interesting to see when the world will really have to face the music on the prime borrowers not being able to pay or sell in face of their first resets.
“That could be capitulation — the equivalent of 1991 in the Northeast, even if the recession is mild (as I think it may be, at least in NYC).”
Are you trying to say that you expect the housing market to bottom out next year after the Souper Bowl?
Fed just cut the overnight discount rate by 50 basis points to 4.75%
Go read it again.
A question for anyone that knows - what makes a conforming mortgage - is is a property value of $417k or less or the actual loan value of $417k, in which case, assuming you put a 20% down payment (snicker - who does that!) the actual house value would be $521K.
actual loan value.
Got 20% down?
Gee we had to do that way back when and we somehow managed on a very low wage. Problem is people want everything right now and they feel they’re entitled.
http://losangeles.craigslist.org/wst/rfs/398190254.html
Anyone want to explain this? More cash back bullsh*t.
>
UGGGGH - and in Little Rock, you could probably get it for $50k
When will the MSM finally get it and report that house prices are just too high for the average person? Especially at California prices!
That’s why I don’t really get the consternation over the idea of falling house prices, which seem like the quickest way to restore affordability. So some banks get punished for stupid financial decisions — big deal! That should strengthen the banking system once the stupidity is drummed out of the system.
My neighbor (fundie church type) just got back from Germany. His church is leading a drive to build houses for the poor folk in Germany as part of their missionary activities. So he says.
And I’m thinking of the meltdowns in Cleveland and Detroit. Not to speak of the disaster of New Orleans. Or the scandal-ridden deal of Katrina funded million dollar condos being built at the univ of alabama for the rich football fans.
Has anyone heard of this Germany house building venture? Sounds like another scam to me.
Will the culture of keeping up with the Jones, valuing “bling” more than sound financial decisions, buying more than you can afford/need, immediate gratification, ever change?
Only after the appropriately laced beverage has been swallowed…
I’ve heard the Fed lowered rates to avoid a recession 6 or 7 years ago and that fueled the housing bubble. I’m curious what people think about this. If this is the case, can they avoid one now? (In fact, I think I came across a paper AG wrote about consumers spending as they refinanced and that would have a certain result on the economy.)
Six or seven years ago was before home prices had doubled relative to wages, and before the subprime industry collapsed. Not sure how this could work at this point, given the dearth of mortgage lenders, the huge bubble premium in home prices relative to wages and the reported 2.2 vacant homes sitting empty across the American landscape. Reflating the bubble would only encourage further malinvestment of the U.S. wealth base in unneeded McMansions.
I should have said that some people think AG lowered rates because he knew people would cash-out-refi and use the money to buy things and keep consumer spending up even though we were going into a recession. I’ve heard we should have had the recession then instead of creating so much debt. People lost jobs in high-tech and got into real estate, spent their equity, etc… RE softened the blow but it’s all based on a lot of debt. Decades ago AG wrote about this and I’ve heard that’s why he kept lowering rates. I think I have his writing from several decades ago linked on an old computer. It might be interesting to look at now.
“Decades ago AG wrote about this and I’ve heard that’s why he kept lowering rates. I think I have his writing from several decades ago linked on an old computer. It might be interesting to look at now.”
Such a tragic abandonment of principles…
What is the Fed’s housing correction management strategy? My guess: Manage a drop in the dollar and create enough inflation so the nominal dollar decline in housing market values does not alarm the sheeple (who only understand nominal prices).
Is this right? And will it work?
I agree that this is probably their strategy, inflate the country out of debt. But this will be a very tricky thing to pull off. If outside investors pull out, interest rates could skyrocket and absolutely kill the housing market. On the other hand, for the all the Fed liquidity we might still see deflation as massive global leveraging unwinds. To what extend does the Fed really control the money supply? What if we end up with high interest rates, weak dollar and deflation?
“If outside investors pull out, interest rates could skyrocket and absolutely kill the housing market.”
People have been worrying about this since the late 1980s*. What makes you think that it is different just now?
*If you want to see some evidence to back my claim, read this book:
http://www.amazon.com/Great-Depression-1990-Ravi-Batra/dp/0671640224
“To what extend does the Fed really control the money supply? What if we end up with high interest rates, weak dollar and deflation?”
You are describing stagflation, the U.S. economic malaise of the 1970s.
Economics focus
The mandarins of money
Aug 9th 2007
From The Economist print edition
Central banks in the rich world no longer determine global monetary conditions
http://economist.com/finance/displaystory.cfm?story_id=9621595
The cover of the latest Economist shows a surfer on the crest of a tsunami-sized wave with shark fins protruding from the water’s surface.
Risk and the new financial order
Surviving the markets
Aug 16th 2007
From The Economist print edition
The new financial order is undergoing its harshest test. It will not be pretty, but it is necessary
http://economist.com/opinion/displayStory.cfm?Story_ID=9646451
Them rocket science-based asset pricing models ain’t looking so smart no more to The Economist writers.
In theory, ratings agencies and mathematical models help investors price the risk they are taking on, even if the securities they are buying are scarcely traded. Yet when some supposedly good-quality assets proved to be worth little, people lost faith in the models and the ratings. Across the board, investors had failed to take account of how fast and how far asset prices fall when everyone wants to sell at the same time. Hard-to-sell long-term securities had been bought with short-lived debt, which left borrowers vulnerable to a change in sentiment every time the debt fell due. It does nothing to restore confidence when the biggest model-driven hedge funds had to get in new money. The people at Goldman Sachs lost a packet when something happened that their computers told them should occur only once every 100 millennia.
So does the Fed swallowing MBS as collateral for newly-printed “liquidity” constitute a direct bailout of the lending side of the housing market? Who is the bagholder? (I suspect the bagholder is anyone long $US — including pretty much the entire U.S. labor force.)
Looking to the Stars in These Interesting Times
Posted on Aug 14th, 2007 with stocks: IWM
Looking to the stars
Investing the Middle Way submits: Central banks around the world injected some US$339 billion worth of liquidity over Thursday and Friday of last week. What was remarkable was that the Fed took in $19 billion worth of MBS as collateral for its first open market operation on Friday (I have seen no mention of how they were valued and whose bids were taken). It will go a long way towards calming the nerves in the credit market.
http://usmarket.seekingalpha.com/article/44498
Does the effect of a Fed-engineered bailout depend upon whether the bailout is referred to as such?
“U.S. Sen. Trent Lott … said that if a duck walks and talks like a duck, it’s a duck, and the same goes for a tax. A tax by any other name, like ‘assessment,’ is still a tax.”
And a bailout by any other name still smells as rotten.
Possible topics -
How did you hear about this blog? Are you getting less sleep because of it? How much time on avg do you spend reading it every day?
Will the FED yield again and wash away the dollar or does it have the mettle to save this country?
I’d like to have a topic on the catchphrases coming out of the mouths of HP and crew in the upcoming weeks. Maybe Sept 11 memorial events will crowd out this corrective panic-laden hysteria. I mean, what is important after all? Freedom, right? So what if we have to work harder to attain more in the USA? At least we are alive.