Weekend Topic Suggestions!
And send in your housing bubble photos to:
hbbphotos@gmail.com
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
November 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
BS statement of the decade:
In a speech to Realtors on Thursday in Lake Buena Vista, Crist said a proposed property tax amendment on the ballot in January will offer bigger savings.
“Florida’s going to have a sonic boom when this happens. You’re going to be busier than you’ve been in your life,” Crist told 550 agents at the Florida Association of Realtors’ annual convention. “Get ready, get your rest, make sure your license is up to date.”
I am so offended at the pandering to the NAR that I really have no comment about the statement made. I will let others just rip that to shreds. However, I will add that I did not think that the reason we were passing tax reform was to make RE agents money?? I thought we were trying to reduce the burden that people have to pay to own a home in FL?? If the gov could explain how in the he** property values taking off like a “sonic boom” is going to increase my affordability, I would be VERY interested to hear it.
FL needs salaries to take off like a sonic boom to maintain these home prices; not the other way around!
Idiot.
Well as you know just follow the money. This smuck Crist more than likely as a wad of money from the NAR siting in some account somewhere. Won’t make any difference though, half the folks that were borrowing money to play flip this house have been cut off.
Well when your economy is based on selling homes to each other (and refinancing) this is what you get.
Well when your economy is based on selling homes to each other (and refinancing) this is what you get.
The Florida economy is based on tourism and the citrus business than selling homes.
How about what we can do that adds value to the world. Tourism counts, as much as I hate to admit it, but virtually nothing that has a positive correlation with the “health” of the REIC adds value at this time. Perhaps retraining realtors to do something of value in the tourism industry is in order?
We have such an article in today’s St. Pete Times and next to it is this blurb: Coming Sunday - No one’s feeling the housing slump more than the Realtors who used to deal in million-dollar properties along Clearwater beaches and inlets.
Should be interesting.
Came back to add this link: http://www.sptimes.com/2007/08/24/Business/Gloom_tempers_pep_tal.shtml
Fascinating comments from the article: . . .”time-bomb loans” . . . keep the housing market hobbled until 2009.
. . . 43 percent of 2005 loans required no money down. $1 trillion loans will face higher interes rates in the next year.
“What’s the difference between flipping real estate in Florida and playing craps in Vegas?” Jones said. “You get free drinks in Vegas.”
He then compares buyers to buzzards circling fresh highway roadkill and urges realtors to speed up the process by confronting sellers with the reality of the glut that’s left 41,000 homes on the market in Tampa Bay alone.
“We’ve got to sober up sellers,” Jones said. “I don’t care what you paid for it.”
“If you think it’s bad now, you haven’t heard the end of this,” Jones said to audible groans from Realtors who’d enjoyed earlier pep talks from the likes of Gov. Charlie Crist.
These realtors have two choices, listen to the hype and spin and hop down the bunny trail where life is good or listen to the truth and position your business to survive the downturn. Most of the realtors will believe the fluff and stuff and end up down the bunny trail in financial disaster, but a select few who are experienced will end up providing the right information to their clients and survive this mess.
Crist almighty…
This was the very same clown that was calling on Floridians to pray for rain, a few months back~
Remember Jack Grubman and Worldcom/Global Crossing?
Nuff said.
In a speech to Realtors on Thursday in Lake Buena Vista, Crist said a proposed property tax amendment on the ballot in January will offer bigger savings.
I have researched the property tax amendment and it will not help the homeowner much in terms of a tax savings. One part of the amendment would mean a realized savings of nearly $200. For example, if my tax bill was $3,800 per year and would be reduced under one part of the amendment to $3,600. What is not mentioned is the homeowner receives the average $200 savings, but their insurance costs jump $300 or more resulting in a net loss. My take is it is more of the political spin than it is a savings to the tax payer. I will be voting NO to this amendment in January.
Reality check here: Crist is warning the RE agents that they are going to be flooded with listings, which rings true. And remember that lots of listings represent a lot of work for realtors but don’t add up to any payment at all until the properties close. Crist’s statement is accurate so I don’t understand why it upsets the posters above.
Yesterday’s Washington Post had an article titled “U.S. Ponders a New Deal for FHA: Diminished Agency May Help Borrowers Avoid Foreclosure”
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/22/AR2007082202655.html
“The administration is studying the possibility of allowing the FHA to take on mortgage refinancings for borrowers in default, something the agency is not currently permitted to do, a senior official at the Department of Housing and Urban Development said.
The government could make the change without action by Congress, the official said, adding that no decisions have been made.
The aim would be to help otherwise creditworthy borrowers get out of subprime mortgages that have escalating interest rates, the official said.”
I keep saying that FHA will be part of the bailout.
“I keep saying that FHA will be part of the bailout.”
And I maintain the nature of the bailout will be an ill-fated attempt to morph the FHA into a GSE whose putative role is to fill in the crater left behind by the collapsed private subprime sector. This would be accomplished by eliminating downpayment requirements on FHA loans and increasing the conforming loan limit so the low-income buyers the FHA is supposed to assist can “afford” to purchase homes priced over $417,000. Unlike privately-funded subprime loans, these FHA subprime loans would be backed by the full faith and credit of the U.S. tax base.
All told, I think this is a wacky idea. Why am I not surprised that there is strong political support for it?
Led by Dodd, the Demo-rats are 100 percent behind bullying the Fed and the White House into bailing out Wall Street, er, I mean, troubled homeowners. I hope the Republicans recognize this potential wedge issue and seize on the opportunity to call the Demo-rats out as a bunch of phonies.
Dodd urges quick changes for housing program
FHA reform would help troubled borrowers, presidential candidate says
By Robert Schroeder, MarketWatch
Last Update: 9:28 AM ET Aug 24, 2007
WASHINGTON (MarketWatch) — The chairman of the Senate Banking Committee is urging the Bush administration to push through changes in a federal housing program that he says could help save troubled borrowers from foreclosure on their homes.
In a letter to Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson, Sen. Christopher Dodd, D-Conn., said the U.S. is experiencing record foreclosures and that it’s “essential” that the Federal Housing Administration act to preserve homeownership for as many Americans as possible.
The administration is studying the idea of allowing the agency to refinance troubled loans, something it’s not allowed to do now.
“I want to urge you to move expeditiously in this direction by making any administrative changes to the program that are needed to achieve this worthy goal while making sure that the long-term solvency of the FHA fund is not compromised,” wrote Dodd on Thursday.
http://www.marketwatch.com/news/story/dodd-wants-fha-ease-foreclosures/story.aspx?guid=%7B21B7C628%2D4DE4%2D4CB6%2DAC00%2D07AB76667A9D%7D&dist=hplatest
the bailout will be an ill-fated attempt to morph the FHA into a GSE
The parasitic idiots who work for HUD/FHA make the gold bricking, do-nothing, double dippers from FEMA look like pikers
Gosh, I don’t know. I’m of 2 minds here. One, a bailout of this size would never work.
OTOH I wonder what the possibility of 3% (even better, a 2%) fixed rate 15 and/or 30 year mortgages would be. I could sure go for one of those.
This may turnout to be a repost but it’s been over 15 minutes and the original still isn’t there.
Yesterday’s Washington Post had an article titled “U.S. Ponders a New Deal for FHA: Diminished Agency May Help Borrowers Avoid Foreclosure”
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/22/AR2007082202655.html
“The administration is studying the possibility of allowing the FHA to take on mortgage refinancings for borrowers in default, something the agency is not currently permitted to do, a senior official at the Department of Housing and Urban Development said.
The government could make the change without action by Congress, the official said, adding that no decisions have been made.
The aim would be to help otherwise creditworthy borrowers get out of subprime mortgages that have escalating interest rates, the official said.”
I keep saying that FHA will be part of the bailout.
None of the troubled borrowers would qualify for FHA refinancing. You must be able to service the debt in order to get an FHA loan (P&I cannot exceed 28% of documented, monthly income). In order for the FHA to refinance “troubled” borrowers the FHA would have to offer option ARMs or provide for debt forgiveness.
Its’ true that FHA doesn’t have any stated or low doc program, so the folks with loans at 10X income don’t qualify. But for at least 20 years FHA’s “suggested” max PTI has been 31%, not 28%. And since the advent of automated underwriting, there is no max PTI - the higher your FICO score, the higher your PTI can be. Ask any FHA originator - a lot of FHA loans get accepted with DTIs in the high 30s.
Finally, how good do you think they are at sniffing out phony documents? And how good do you think they’ll be when they’re swamped with applicants?
Perhaps we can talk about Citi Bank and B of A taking out several hundred million dollars in loans from the Fed to take care of some cash flow problems they are having due to record number of late payments on mortgages. This was in the Los Angeles Times (Aug 23, 2007) Business section.
Can you post the link please? I’m on the LA Times website and can’t find the article you refer to. Doesn’t make any sense that B of A would have “cash flow problems”, then turn around and make a $2B investment in Countrywide.
my interpretation was “reading between the lines”.
It seems to me that B of A would be doing a dis-service to their stock holders by taking out loans for higher amounts than they have to. And that is exactly what they admit to in this article. It seems to me that the B of A managment are very much in jeaperdy of a lawsuit by stockholders if they are taking out loans of 500 million dollars if they do not have to.
Also, later in the article, the reporter speaks of record number of late payments on mortgages which is putting B of A along with other banks into a cash short situation. It might be a different article, but in the same issue of the LA Times.
I hope that helps.
There were two articles which had a bit of spin in them. One is:
The way I read the original reports, 4 large banks borrowed $500M each just to show all the ailing banks that (paraphrasing) “see, there isn’t any stigma to borrowing this way. It doesn’t mean you are on your last leg like it used to. So come on in, the water is fine!” I mean, what if you had a “discount” sale and nobody came? Might imply that your efforts were fruitless.
I was pondering on my way home last night whether or not idiot-Gross’ suggestion on a Federal bailout would even be effective. I eventually came back to the same ole’ things we talk about….it 1) won’t bring median family incomes up to be able to buy homes at current prices 2) it wont help the job losses, loss of consumption, etc 3) it wont get yields down on jumbo mortgages, and on and on and on
….any further opinions on how effective a bailout could be?
pi*ses me off just to think about it happening….
I cannot see how this would happen. A bailout of this magnitude? Remember that the LTCM and S&L bailouts were of companies and not a million or more homeowners, flippers, speculators, Wall Street slimeballs, foreign investors, hedge fund sharks, Cocaine Larry, and Bill Poole’s good friend Jim Cramer.
I just don’t see this happening. More to the point, how do you prop up housing prices? Cheap jumbos? A very good argument can be made that the “Law of Supply and Demand” does not really apply to this specific instance of slumping housing demand.
The whole bailout would essentially be the gov’t buying part of the house, paying off part of the loan, reducing the interest rate on the house, and trying to prop the price (LOLOLOLOL). All of this would be needed.
It’s really better to get it over with. The Japanese wanted to “mitigate” their problem bubble in the late 80’s early 90’s and are still suffering.
Remember “Japan, Inc”? “The Japan That Could Say No”? We are in the same boat.
There should be a long discussion of national/gov’t/business hubris at this point, but I’ll pass.
Roidy
‘Remember that the LTCM and S&L bailouts were of companies and not a million or more homeowners, flippers, speculators, Wall Street slimeballs, foreign investors, hedge fund sharks, Cocaine Larry, and Bill Poole’s good friend Jim Cramer.’
I agree and I said as much on Opensource in the summer of 2005. How does one ‘bail-out’ Fannie/Freddie/CFC/TOL/HUD/joe6pk/etc/etc all at the same time. It’s impossible IMO. These prices can’t be maintained artificially anymore than the tech bubble. Actually, it would be much harder to accomplish.
“How does one ‘bail-out’ Fannie/Freddie/CFC/TOL/HUD/joe6pk/etc/etc all at the same time.”
Two possibilities come to mind:
1) Screw future generations of Americans with a massive debt bomb.
2) Screw foreign creditors with a devaluation of their dollar-denominated investments.
Ha ha. The feds/govt have already perfected and implemented both #1 and #2. Add the icing on the cake:
3) Inflate the dollar, so the debt becomes proportionally less.
4) Focus on “core inflation” and ignore the “volatile food and energy sectors” so as to convince the world inflation is contained
5) Squash the inflation risk premium in long-term T-bond yields
I thought that a large part of the S&L bailout was to the savers due to FDIC insurance? I don’t believe that we can even compare the S&L bailout to the current housing debacle.
Many of the S&L’s in Texas at the time were not insured by the FDIC.
Where’s nhz right now? I think he had lots of details on how the Dutch government seems to prop up prices all ’round, albeit at great cost. Complete market price dislocation, and their programs might well end in a debacle sooner or later.
Can it be done here? Perhaps, but it would entail a huge bureaucracy just to decide who gets which sliver of the pie. If you like the efficiency of the government’s programs after Katrina, you’ll love a nationwide set of programs administered by similr armies of incompetent bureaucrats to help the FB’s. Yikes.
The S&L bailout was not for companies but for the insured depositer’s of S&Ls that failed. The failures were due to construction and development loans for residential, commercial, and retail properties that could not be sold (oversupply).
It seems to me that the collapse of the commercial paper market is crucial to the economy. It will lead to companies taking bankruptcy because they can’t fund their short term needs. Perhaps we can discuss which real estate companies, or other, that are likely to fail for this reason.
My topic would be I’d like to hear Ben tell us how many hours a day he has to spend keeping spam and trolls off this blog and compiling the posts. I’m sure after three years of this he’s got it down pretty good but still, I wonder if it’s a full time job.
I second that.
+ 10^19. I’ve spent two years here as an irregular and infrequent poster: some posts I read just because of the poster. But I’d love to know how Ben finds the hours in the day, and if Rober Schiller has called him to ask if Ben would write the prologue to the Third Edition of Irrational Exuberance.
Posters have brought this up before, but it seems Ben likes to keep the details private.
As a reader/poster who used to be obsessed about reading every post on every thread, there’s no way I could even come close to doing that now. Can’t imagine how Ben does it.
Now that the sun is coming up here in El Salvador, I wonder if I’m going to be bombarded with all the “condos for sale” signs I see in Costa Rica. Unless MS-13 doesn’t do condos that is.
Is the real estate market soft in Costa Rica ??
I don’t know if it’s soft but when everything in sight is for sale I think that’s very telling.
The last few years I saw a lot of “buy Costa Rican property cheap” or some such stuff right alongside the subprime advertising. Could it be all those Americans who moved to CR suddenly have to bail out of their CR properties they bought with nothing down??
Also, is CR really that nice?? I had an uncle that used to go there.
Signs of the Accelerating Decline. Everywhere I look, main street is starting to reel from the bubble busting.
1) Streets with 11 dead lawns for 37 houses
2) Building maintenance worker says husband laid of in Feb from John Laing Homes, w no new job.
3) Neighbors who are FB’s looking very, very depressed
4) Emptier parking lot at work, since the mortgage company abruptly closed last week
5) Heavy equipment sitting in idle positions for the last 4 months
6) High end neighborhoods becoming Section 8 type housing for Californication escapees
7) Mid week Bank Repo open houses sitting vacant with no one even stopping to look.
What do you see that shows the dominoes are falling in greater numbers?
Are you seeing all of that in your area, Jingle?
Wow.
Polly,
Jingle is in the Sacramento area. It’s pretty messed up out here.
I have been doing some research on a number of apartment buildings recently on behalf of a couple of attorneys…..Mid week….10:00 AM…Street and parking carports are full of cars….It looks like a Sunday morning….IMO….At the lower end of the job food chain, things are getting difficult…
Very-
It’s hard for some people to grasp the local economy here.
The assumption is that since the Bay Area is just 90 mins away (or 55 if you drive like me), that we’d have strong wage growth in the last 10 years. Now we did have quite a bit of tech work come our way pre-2000. If you work in cobol, you were making money hand over fist getting ready for Y2K. But that was a 1-off event and those jobs and income structures were not going to remain in the area. The people who filled those jobs have moved back to the Bay Area or moved much farther and relocated in the mid Altantic states, Az, or Co.
Another issue impacting the Sacramento area is that we’ve had a large influx of people from the low-income sections of the Bay Area as they became priced out of the local market. So yes we are still population growth positive but growth is coming from a section of the economy that is heavily dependant on social services and has a nasty crime element kickback.
Until recently, I was involved in collecting data on social and economic analysis for the region. I hate no longer being in that industry but I keep in contact with my former staff as much as possible so I can get the heads up on trends to watch.
Did you get a new job, and are you moving? To where?
Good luck!
Here in Southern CA I see a lot of cars, pickups, boats, RVs, motorcycles, etc parked along the side of the roads with For Sale signs on them.
There’s a lot of people who need to raise cash.
Same here, in Costa Mesa. Tons of trucks, cars, and boats along the road with “For Sale” signs. Way more than I’m used to seeing around here.
I’ve noticed the foreclosure activity has been picking up a lot in the last month or two, as per RealtyTrac data. I’ve also noticed a lot of the recent sales (of the last two years or so) are back on the market. Virtually all of them are sitting for months with no activity. I’ve seen VERY few sales recently.
The new home developments are still trying to unload homes they completed a long time ago. The Cornerstone development by Richmond Homes on Harbor is still languishing on the market. FSBO signs were up in that development, but now it’s a little harder to check since they now have a gate that locks out non-residents. (Perhaps too many escapees from neighboring Fairview Development Center were scaring the residents?) Anyway, prices seem to have come down but they’re still not selling these things.
The Costa Pacifica development off Victoria is still trying to unload their properties. These are also zero lot line, and they’re asking around 1-1.2 mil for those places. They just keep having the sign twirlers work the weekends like they have been for more than a year now (maybe 18 months?).
I also concur with jingle’s observation of heavy equipment sitting idle for a long time (6-8 months). I see two lots that were apparently going to be developed but in both cases, heavy equipment (was it purchased or rented?) is sitting there rusting with large weeds growing all all around.
There’s also a condo or zero lot-line development of homes at the edge of a cliff on the west side, up at the north end of Pacific Ave. It’s got a sign up that says it’s a development called “Waterpointe” (homes from the 800,000’s) but lately I haven’t seen any daytime construction work. I think it’s stalled or halted. I remember they bought a few of the older homes that were there before, razed them, and began this project a year or 1 1/2 years ago.
In summary, things are getting quite ludicrous here in Costa Mesa. Way way way overpriced properties are clogging the market, and very little activity to be seen anywhere, except for signs of people wanting to sell all their stuff and get out of here.
The main problem with Costa Mesa is that is one of the dividing lines between the lower working class (mostly illegals and some blacks/whites) and the rest of South OC. The Costa Mesa, North Newport, Tustin areas have drastically changed in the past 10 or so years. I liken the area to what happened in L.A. along the 10 Freeway say 20 to 30 years ago. All those larger homes turned into four unit rentals and you can see where they are today. Same thing is happening in Costa Mesa. The powers-that-be will try to make South Coast Plaza the dividing line, but you can see they are losing that battle.
everone got their mad-money ready for buying a toy in ‘09 or ‘10? Have a 11 year old honda right now - after 20 years of working, i might finally buy a nice (used) car.
I’m seeing the same thing here in Tucson.
Just so happens that there was an article in the PNJ today about car dealers complaining about sales volumes. Looks like the recession is here and now to me.
“Twenty-two straight months of negative growth in automobile sales has local car dealers scrambling to survive a market slump increasingly weighed down by a depressed housing market.”
PNJ
http://tinyurl.com/394cbf
Part of an e-mail from a friend describing the selling frenzy by the public, this account coming from a coin dealer with a retail street location…
“people selling anything they can lay their hands on! A
93-S dollar, proofs sets, gold and platinum, scads of
everything! He’s bought so many proof sets he’s now
only going to pay 40 or 50 percent BACK of bid! Gold
is now being purchased at 95 percent of melt instead
of 98 %, there is so much flowing in. He says its
people trying to make their mortgage payments….”
I have good buddy from University that owns two pawn shops in Fort Worth I need to call in order to get a gauge of the situation on the ground. That guy loves a recession!!
Watch for car dealers going out of business. A few have in my area. Ford dealers. A KIA dealer.
RE: Watch for car dealers going out of business
I took my elderly mother’s Chevrolet Caprice down to the local dealer for some maintenance work this morning @ 8:30 AM
All the service bays were dead empty.
This recession will make ‘81/’82 seem like picnic.
Big 3 will be wiped out.
The cars are plastic junk.
Jingle, I would add:
9) Small contractors actually taking small jobs they wouldn’t touch in 2006.
Lip, that is spot on! One of my friends is a SAHM renting in a bubble neighborhood. She told me a repo truck is lurking, ready to snatch a new BMW hiding in a cash back mortgage fraudsters garage. Here is the funny part: The fraudster owns an old Toyota which he drives all the time. He never takes the BMW out of the garage. Now I know why!
Whole neighborhoods are going to go down in flames.
I’ve seen this too. There is a tow truck that I frequently see staking out the housing development I’m currently renting in. Every holiday I see him bag a car, as it seems the people who are getting their vehicles repo’d always relax around the holidays.
Hmm, now that might be a job that has a promising future (if you should find yourself unemployed), a repo man. Just make sure you are armed when you do the job and you aren’t working in a state where it is lawful to shoot a repo man for trespassing on your property!
There is a towing company next to my office and today in their fenced in back lot is a new Bently convertable. Now they do not do any auto repair and definately not on that car. I wonder if it is a repo, I have seen others in there so it is possiable that it is. I will try to see if a driver will give me the low down.
As the school year starts and I gloriously have no (repeat “NO”) academic obligations hanging over my head, I’ld like to see people recommend their favorite books related to the housing bubble, credit bubble, banking system, economics in general. Please also give a brief blurb about why you like it for this purpose and whether it is a one time read (something best gotten from the library and then returned) or whether it is something worth returning to over time.
This is a bit of a personal request. I have an Amazon gift certificate burning a hole in my e-mail (birthday was Monday) and I’m going to get the Tutankamun exhibit catalogue with part of it (great exhibit, completely worth the trip to Philly, even driving 95 in the rain), but my library is a little thin in economics. I especially love getting the ones from used book stores for a penny plus shipping.
Thanks in advance.
Inside the House of Money. 2007 release.
Happy Birthday. The 20th was my husband’s birthday too.
Chick, you sound like the perfect woman. It’s a shame there aren’t single gals like you around here (maybe they’re hiding from me). You must have more than one recommendation….how ’bout a list??
“sell now’ the end of the housing bubble john r. talbott call me at 1-920-921-0570 and i will send it to you
Technical Analysis of the Financial Markets by John Murphy.
$85 in the textbook store at Barnes and Noble in NYC. I think Stern School of Business uses that book.
If you look in the Fatwaller Hot Deals forum there is a 10% off coupon for the Amazon textbook store. Cost me $48 including free 2 day shipping for joining Amazon Prime which I’m going to cancel of course
“Influence - How and Why People Agree To Things”, by Robert Cialdini.
Excellent book. Should be available at the library.
Funny Money. Den of Theives. When Genius Failed. Three bubbles, three busts. Is there a comparable one about the dot.com mania and bust?
I’m hoping Ben will do the honors for this one.
Extraordinary Popular Delusions and the Madness of Crowds, by Mackay…
All about foibles and the humans that create them.
All of the old school bubbles are included, tulip, south-sea, et al~
Written 166 years ago…
Checked Gutenberg for online copies.
http://www.gutenberg.org/browse/authors/m#a516
Three volumes of “Extraordinary popular delusions…” available for free download.
Hey, that’s a pretty cool resource.
Never visited that site before — thanks!
Another great book with astonishing parallels is “The Guns of August”, by Barbara Tuchman…
All about the entanglement of alliances worldwide, that led to World War 1.
Not dissimilar to what’s going on now, financially.
Fiasco by Thomas Ricks
Clearly one of the best books to understand the overall picture is :
The Creature from Jekyll Island
by G. Edward Griffin
Known by word of mouth only but available at Amazon. When you understand the Federal Reserve, you are a long way towards understanding much of the rest that we are dealing with.
Man, Economy and State by Murray Rothbard. This explains everything you may ever need to know about economics.
It’s available at Amazon.
My Adventures With Your Money, is a rollicking read
Set in now ghost town central Nevada about this time, 100 years ago, follow the adventures of George Rice, as his fortunes wax and wane, in that era’s bubble…
Mining stocks.
The Dollar Crisis by Richard Duncan
RE: Books for the bubble.
Right here…
http://www.amazon.com/Crash-Proof-Economic-Collapse-Sonberg/dp/0470043601/ref=sr_1_1/002-2423280-3528854?ie=UTF8&s=books&qid=1187976834&sr=1-1
How about ‘The Prize: The Epic Quest for Oil, Money and Power’, by David Yergin.
It is the best history of the petroleum industry and its political and economic effects, IMHO. Also, well written.
Great book! I met Yergin at the Houston Oil Symposium and got him to sign his book. Long mother as I remember must be about 2,000 pages.
The Day The Bubble Burst: A Social History of the Wall Street Crash of 1929, by Gordon Thomas and Max Morgan-Witts
Originally published in 1979.
I just picked up a copy at a thrift store for $1. I’m only 100 pages in, but the descriptions of fraud and speculation already seem quite familiar …
Available on Amazon and elsewhere for peanuts.
The Wealth of Nations by Adam Smith. It is an excellent thesis on a market economy and capitalism. You’ll actually read what “the invisible hand of the market” is, and what it is not.
Another is Human Action, by Ludwig Von Mises. It builds upon the principles/theories of a market economy. It explains what a law of human nature is, and what effects result from violating the law.
Both enlightening.
Another is the Federalist Papers, combined with the Constitution. The Constitution was written 11 years after the Wealth of Nations. The two go together, and reading them both will allow one to see what was laid down as our system of governance, and what it is today.
The issues we are facing are no different than folks have faced many times in centuries gone by. What we, the people, choose as tools to solve the problem, will determine the results. There are many competing interests, and the choices made now will shape the future for many, many years. Throughout history, the two basic choices are socialism or a market economy/capitalism. What will it be?
The Great Crash is a brief summary of the situation.
Manias, Panics, and Crashes describes the situation in detail.
S & L Hell describes behind the scenes political maneuvering.
What would happen if Congress passed a massive tax cut on the lower brackets in an attempt to create instant inflation? Perhaps even eliminating the 10% and 15% brackets altogether? The short answer is not much - the Fed would (hopefully) raise rates. I would pocket more of my income and I would get better rates on CDs. More people would have more money to pay their mortgages, fewer would enter foreclosure. Or will the economy collapse with 10% prime rate? I see some type of attempt at bailout as inevitable - I’d like to get something for ME.
with 10% prime rate ??
Can we even start to imagine what would happen if Ben pulled a Volker right now (Ala 1981)..??
I’d like to see a topic on the separation of business and the state (meaning government at all levels). Yesterday I posted a little blurb about how the National Intelligence Director admitted that Verizon and ATT, etc. had been covertly involved in the illegal warrantless wiretapping program. (Qwest refused, bless them). He went on to say how they should be awared immunity from lawsuits, because it would bankrupt them and how this would be an economic disaster (fear mongering). I had a discussion with a buddy about this yesterday. He made the point how it would really be no big deal. All their lines and equipment and physical plant are in place. It would be justice to see them go out of business and for a decent company like Qwest or whoever take over. I completely agree. Would many people be put out of work? Perhaps. But then again, just by working there, they supported the crimes against the people, their neighbors.
Anyway, my point, and I do have one, is illustrated beautifully by Mike’s post about Florida governor Charlie Crist pandering to the NAR. It is further illustrated by the pandering of the federal government and the FED to Wall Street, and the cries for bailouts which would be funded by you and me, as taxpayers. As a single individual, what I can do is reward companies like Qwest with my business, if there is some way I can find to do it. And in housing, I can stand firm on not buying until prices come down or until I can find the deal that I want. What other ways can I reward “the good guys” in my personal life? And how can I help to prevent this country from becoming a corporatist fascism?
“I’d like to see a topic on the separation of business and the state”
AMEN….. add to that a wall between religion and govt. Our institutions are rife with defunctionalism and bullshit as a result of co-mingling of business, religion and government operations.
People Are Smart
Yes, its the “I am only doing my job” syndrome. Which may lead to the fall of our empire at some point.
In order to separate business and state you need a society that cares.
Most people would prefer to spend their free time watching American Idol instead of learning about the Federal Reserve, the inflation tax and the aggregation of power and money into the hands of a few.
Obviously, I don’t have the optimism it would take to be a politician
There is this to be debated:
‘The ultimate solution must not emanate from the Fed but from the White House. Fiscal, not monetary, policy should be the preferred remedy. In the early 1990s the government absorbed the bad debts of the failing savings and loan industry. Why is it possible to rescue corrupt S&L buccaneers yet 2 million homeowners must be thrown to the wolves today? If we can bail out Chrysler, why can’t we support American homeowners?’
‘Critics warn of a “moral hazard.” If we bail out homeowners this time, they claim, it will just encourage another round of speculation in the future. But there’s never been a problem in terms of national housing price bubbles until recently. Home prices have been the most consistent, least bubbly asset aside from Treasury bills for the past 50 years. Only in the past few years, when regulation has broken down, when the Fed has failed to exercise appropriate supervision, have we seen “no-doc” and “liar” loans and “100 percent plus” loans. If you enforce regulation, you’ll have no problem with moral hazard.’
‘This rescue, which admittedly might bail out speculators who deserve much worse, would support millions of hardworking Americans. Those who would still have them eat Wall Street cake (as a Wall Street Journal editorial suggested, saying they should get used to renting once again) should look at it this way: your stocks and risk-oriented leveraged investments will spring to life anew. Republican officeholders would win a new constituency of voters for generations.’
‘Get with it, Mr. President. This is your moment to one-up Barney Frank and the Democrats. Create a Reconstruction Mortgage Corporation. Or, at the least, modify the existing FHA program, long discarded as ineffective. Bail ‘em out — and prevent a destructive housing deflation that Ben Bernanke cannot avert. After all, you’re the Decider, aren’t you?’
He almost sounds like he has lost his marbles.
yet 2 million homeowners must be thrown to the wolves today?
What a crock of crap. More like 2 million stupid speculators. This dude should be in a rubber room.
What would a “Bail Out” look like ?? If we use the S & L model does the goverment buy up all the bad debt and then put the properties on the market @ 50 cents on the dollar ?? That would crush valuations and just invite more forclosures…
Could it be that contagion has raced through all levels of finance from the top on down, and after all the imaginary worth in the hedgefunds is extinguished, our worldwide reputation in matters finance, the joke of jokes…
What’s left to destroy?
Mutual Funds, laden with 401k money…
There was an article on MarketWatch the other day about the dangers of drawing money out or closing your 401K i.e. taxes and penalties and the benefits of long term investments in the equity markets.
Interestingly enough there was no information or advice on how to get your money out while minimizing any penalties nor advice on moving investments into less risky US Treasurys.
I expect to see more of this in the near future to keep J6P confused.
The MSM answer to any market volitality is “to hang on” during the down periods because long term the stock market prints all the money you need. Yeah, right. (And let’s hope you don’t actually need the money during a downturn.)
I mentioned this before, but I abadon the “buy and hold” approach because thanks in part to this blog I’m becoming more and more convinced that this game is rigged for the big players. If you are smart and fast like some of the traders on this board the stock market *does* print money. For me it’s too much risk with too little promise of return.
I will get back into equities, but it’s going to be 1 company at a time with some “mad” money.
“He almost sounds like he has lost his marbles.”
He does, and that’s probably because he can’t reconcile his points, so it becomes incoherent. I agree, Mr. Gross’s diatribe should be THE weekend topic. Right problem, wrong solution.
He’s actually nailed it here: “Only in the past few years, when regulation has broken down, when the Fed has failed to exercise appropriate supervision, have we seen “no-doc” and “liar” loans and “100 percent plus” loans. If you enforce regulation, you’ll have no problem with moral hazard.’
And then he loses it. So let’s go back to this point above: a massive campaign of enforcement is what’s needed. If we’re going to take the money from the people, let’s take it for this purpose. No one would be spared, from the highest hedge fund shyster to the home builders and their illegal work crews to the lowliest fraudulent realtor or appraiser. Assets seized, property liened, etc. Community service cleaning up and maintaining foreclosed properties. Work crews fixing up crappily built houses on their own dime. It would do the shysters good to get out from behind their air conditioned desks and away from their computers and calculators (instruments of their frauds) and into the heat or cold of the communities on which they perpetrated the frauds. I want to see the execs of the home builders in state jails (no Federal country clubs for them) in among the populations of criminal illegal immigrants, so they can have a taste of what they foisted upon the communities in which they built.
Palm,
I hear you but as I have said before, it will never happen. The FBI aint gonna send J6P and soccer mom to jail for lying on stated income loan apps or for lying on appraisals or for doctoring up loan packages (as brokers), etc. Then there would be hundreds of thousands of people in jail and millions of children without parents. Otherwise the FBI would be going through every single loan file right now which is not very difficult. They just take a computer and find any loans defaulting and see who broker is, then they pull all files from said broker’s office. And walla, they can find everyone related that committed fraud. FHA has been doing this for years now. The issue is that we as a society don’t have the stomach for it. I know that many here would like to see it, but the majority of the population wouldn’t go for it since most of us are either related to and/or friends with at least a handful of people who committed loan fraud.
Chris,
Ankle bracelets and let them work from home.
I would like to see them get the big players that did a number of fraud transactions at the very least . Also , doesn’t make sense to bail out even the one-time homeowner or speculator that agreed to submit a fake loan application even if people like this generally aren’t considered criminals ,but rather they bought because they got caught up in the mania .Still it’s a major fraud to misrepresent your income by 50% on a loan application and you just wonder what other cheap shot crimes these people resort to .The speculators lied about their intent to occupy the property so they could get the cheaper low down loans and I’m sure they lied about their income also and the fact that they would have their normal living expenses in addition to their spec. property .Maybe these people get a mania defense ,but certainly no-way should they be bailed out .Actually , the issue is going to come up about the recourse of the lenders in cases were fraud on the applicant is apparent . Also PMI companies don’t have to pay if there is evidence of fraud with a loan package that they have insured . This is going to be a mess and I think this is one of the reason why the Govt. wants to solve it with one big brush rather than Justice prevailing .
Too many times “one-upping” the Democrats” only means a solutions that’s WORSE for taxpayers than what the Democrats propose. Any “solution” from either side will be terrible. The White House needs to stay out of it, no matter which party is occupying it.
An article on p. C2 of today’s WSJ offers insight to why
Bill Gross is keen on having Fannie and Freddie bail out FBs.
It’s not about saving anybody’s home — rather it’s a thinly-disguised
plea for Washington policymakers to help PimpCo’s bad
bets look good again.
In fact, by helping to keep California housing at overvalued (aka
unaffordable) levels, an increase in FNM/FRE conforming loan
limits would damage the California economy by pricing out its
potential future work force. But I am sure PimpCo’s “guaranteed”
bets would do great!
FUND TRACK
By Michael A. Pollock
Some Bond-Fund Tortoises Beatthe Hares Like PimpCo
…Mr. Gross himself concludes that he bet on Fed rate cuts
much too soon and that doing so hurt performance earlier this
year. “To be honest, we have had those positions for almost
all of 2007, which is the same thing as saying we were six
months early,” he says.
Mr. Gross is more satisfied with the fund’s focus on
higher-quality mortgage bonds, or issues that have guarantees
from hosing finance giants Fannie Mae and Freddie Mac.
Let’s not forget, this isn’t some “Robin Hood” do-gooder “help the little man” type of guy, this is Bill Gross, a very wealthy FUND MANAGER. When you fall for the illusion that such people are trying to help the little guy out, that’s when the crocodile strikes, pulls you underwater, and spins you around to prepare you for his next meal.
A bailout of home-debtors? Sure. Just pay for it by removing the deduction on mortgage interest.
Remember that Bill Gross is a died in the wool liberal. He is not happy with the private equity guys because he is not participating as he only makes about 60 million a year. Also remember that when Pimco was about to go public, he was on the Capital steps lobbying to get special tax treatments in the new tax law. Selfish SOB.
As with the telecom industry in the tech boom, and so many others - it’s not the *lack* of regulation that was the problem - it was the fact that the rules were changed unnaturally. If regulation didn’t exist in the first place, people would have learned this lesson years ago in a much smaller bubble, and we wouldn’t have this problem.
One thing I really hate is when people point to problems caused by removal of regulation, and make the incorrect leap that that means regulation is good. Many times it’s not the absence of regulation that caused the problem - it was the act of rapid removal of the regulation.
Don’t get me wrong - some regulation is necessary and good. I just think that people underestimate the ability of people to regulate themselves by being smarter about how they spend & invest their money, rather than assuming that the gov’t, the banks, or whoever must know what they’re doing, which is what happens with a high level of regulation.
So pretend with me for a second that there will be a bailout. Perhaps the legislature or exec branch is being forced by the sheer masses of FBs.
And pretend with me further that the size of the bailout is equal to the Iraq war funding. This is probably the right order of magnitude in order to bail out a significant fraction of FBs.
Does anyone believe that our gov’t would be capable of doling out the funds to those who are actually in need of it? (Hmmm. Katrina part 2 anyone?)
This all happened because of Globalization! ie., NAFTA, Capital Flow deregulation, etc. As long as globalization continues, expect more of the same. No where to run, no where to hide…
just a thought
IMO, one of the worst things that could happen is if a govt agency (GSE, FHA/HUD, or new creation) were to buy bad debt — perhaps for pennies on the dollar — and then re-write the loans. They might extend the terms to 40+ years, allow I/O payments for the life of the loan & principal repayment only upon sale. Any “loss” could be covered by the govt.
This is the only way a bailout might work as far as reducing foreclosures. Still doesn’t help future prices as long as buyers are forced to use standard financing.
Inventory would be kept down to some extent, but I can’t see why anyone would want to make I/O payments (still likely to be higher than renting) on a depreciating asset. The net effect would be keeping people in homes they can’t afford & transferring Wall Street’s risks onto the taxpayers.
He’s talking about a bailout as redistributing income down. The reverse is true.
In reality, a massive bust would redistribute income down. From more affluent former generations who HELOCed up and those who lent to them, or who were hoping (having not saved) to finance their retirements on the backs of perpetual debt servitude by those who followed. And from those investors who lent to them, and speculated on above average returns.
To those who would be able to buy or rent for less money in the future. The latter group, those able to rent houses for less, would INCLUDE those who were foreclosed on. Shed the debt, cut the housing cost, and their standard of living goes up!
The only bailouts that redistribute income down is either foreclosure followed by sales and rent at lower prices (with perhaps a “do over” on the credit rating of “hard working Americans” who got got caught in the mania). Or the mother of all cramdowns. Either way, non-conforming mortgage investors should NOT be bailed out.
Remember, the Great Depression ushered in the greatest era of income and wealth equality this nation has seen. For most Americans, starting over with zero is virtually no loss at this point.
Most of the population would benefit tremendously by starting over at zero since most people are deep in negative territory.
Agree, Popper. And abolish the so-called “bankruptcy reform” that was coincidentally put in place just before the bubble.
And anyone who voted for the bank’s pet bankruptcy “reform” should have their feet held to the fire. Dodd, Hillary, I’m looking at you.
Remember, the Great Depression ushered in the greatest era of income and wealth equality this nation has seen.
Not quite. The wealth and prosperity were created by the New Deal, and sustained because America was the only remaining superpower after World War 2.
“Get with it, Mr. President”
HAHAHAHAHAHAHAHAHA….This man can’t get with anything except cronyism….”the decider” will not save anything except the interests of his buddies. All one would have to do is actually look at that track record and it would be obvious. The best indicator of future behavior is past behavior and that past behavior leaves alot to be desired as far as the “average” American’s wellbeing is concerned.
“Bail ‘em out” Who by the way is ‘em? Such Vague terms alow for much interpertation by the glorious “Decider”.
“your stocks and risk-oriented leveraged investments will spring to life anew. Republican officeholders would win a new constituency of voters for generations.”
Now here is the naked truth laid bare for all to see but will they?
I think I know who ‘em is now!
“When lies become reality you numb yourself with drugs and TV”
Gorillaz
Exactly. The US toilet needs a good flushing and disinfecting from the top down. The sleazeball-in-chief sent a powerful message to business and society starting with the 2000 elections: it is Ok to lie, cheat, steal, degrade and pervert the laws and institutions of the US. Business followed suit.
But, but…
He was gonna be our moral antisceptic, wasn’t he?
Exactly. The US toilet needs a good flushing and disinfecting from the top down.
Most people think the goverment, wallstreet, the wealthy, etc. control the markets. More than 70% of the GDP is controlled by the consumer. The consumer can simply send a loud and clear message by sharply reducing their spending on non-essential items, which will lead to a good flushing. The consumer can then use the money to pay down debt while improving their overall financial situation. More than 50% of banks profits are from late fee’s , etc. With the consumer cutting back on credit, the banks bottom lines are impacted through the loss of these fee’s which will also lead to a good flushing. The problem is that j6p and those who want to live beyond their means are not getting the message until it is too late. People are struggling to find away to pay for retirement and are taking unrealistic risk such as the housing bubble and the dot com bubble and often end up in worse financial shape. If the working class in the USA want to compete with China or India, they must reduce debt and costs and bring the cost of living down to a competitive level. This starts with a sharp reduction in housing costs, automotive costs, etc. I always ask everyone one question when it comes to this topic: Which do you think will happen first, corporations bringing wages up to the same growth rate as housing has been or housing prices dropping to the level of two to three times your wage? If you own your business, would you raise your prices 30 -50% to increase your employees wages so they can purchase an overly inflated house? People wonder why jobs are going to India and China and the reason is the corporate leaders have already answered the two questions and are reducing the impact to their bottom lines. We have hit the wall in housing costs and the consumer is now sending the message by not purchasing. In areas such as Florida, housing costs must drop by 50-60% or greater in most areas before this market will correct and bring it back in line with wages and incomes in Florida.
‘The consumer can simply send a loud and clear message by sharply reducing their spending on non-essential items, which will lead to a good flushing.’
http://www.stopbuyingcrap.com
Not a topic, but I thought this story was amusing….
http://news.yahoo.com/s/nm/20070824/od_uk_nm/oukoe_uk_japan_forex
What about the silent 40% who own their own homes/have little no debt? So far unscathed by all of this, relatively speaking.
It strikes me that people in this position are nervous about all the chaos and market vol. If you have played your cards right all your life and now have a few bucks, their market psychology will be very important going forward.
My take is that they will become very risk averse, cash out of the stock market, and stop spending money. Adding to the recession.
The silent 40% is generally clustered in old neighborhoods, and seldom if ever seen in the newer projects…
Another trend: The folly of private equity buying companies then stripping them of their identity/future. Case in point Chrysler.
The “investor” (Cerebus) ideally would want to build the business. But all they seem to care about is dumping the benefit plans and making a quick hit. If this carries on, what actually production corp. would be left in America? Answer: NONE
when you add all the auto jobs from Toyota, Nissan, Honda and other foreign car makers they probably outnumber the Big 3 by a wide margin. reason is the employees there don’t bleed their employers dry.
“If this carries on, what actually production corp. would be left in America?”
Perhaps subprime MBS securitization? It’s apparently one of our leading export sectors.
If this carries on, what actually production corp. would be left in America?
Entertainment conglomerates. Music and movies are America’s best-known exports.
“very risk averse”
You just described my mom. Her house was paid off decades ago, and she’s very comfortable financially, but even with a near-dead Buick in the driveway, she’s nervous about buying a replacement vehicle. The “confusion about money” as she describes her take on the market news, is reawakening her childhood memories of the Depression. And this is in the burbs, where nothing is in walkable distance.
How about this topic: is there an overall mortgage crunch, or just a return to sanity?
Is there any trouble getting conforming loans based on traditional ratios? Are Fannie and Freddie having trouble selling such paper?
How about the story that INDYMAC has resumed funding jumbos for those with FICOs in the mid-600s and up with traditional downpayments, which a move-up buyer who has been paying a self-amortizing mortgage ought to have?
In the absence of trouble in these cases, any bailout would be trying to keep prices high to tax the less well off and help investors and sellers.
…or just a return to insanity?
CNNMoney is crowing about a the new housing figures. So how do they justify a rate cut if we are now being saved?
ps. I’m calling the itty bitty spike a mid summer dead cat bounce.
Also ,since there is alsmost 70% ownership of homes in the United States already ,just where is this demand for at least 5 million homes or more that need to be sold right now .
Even if we didn’t have a affordability crash in the RE market ,the demand would of gone down for housing because of excess supply because of over-building . Even if the prices just leveled out from 2005 onward the mortgage business would of run-out of business and would of needed to scale back or go down .The REIC was already trying to talk people into buying second and third homes to try to create a market after they had put every Tom ,Dick and Harry into a home .
The REIC already sold into future demand by getting unqualified buyers to buy and they got people to buy second and third houses as a investment .
Any way you look at it , the market was played out and still is .
Does the Fed kill two birds with one stone on days like today when the stock market is itching to sell off?
1) Quell investor fears through headline index stabilization (aka volatility mitigation)
2) Create inflation through the stock market wealth effect when nobody is looking by injecting liquidity to prop up the bid distribution
Where is the downside to the Greenspan-Bernanke put?
To Housing bubble,
I read your post everyday. Keep up the good work, but I hope you can
find articles discussing the minimal affect of the resent Fed Cut. I think in the last week I
read a dozen articles, sponsored by Realtors?, saying the bottom is here. Time to buy now that the Fed is cutting. Wasn’t the Fed Cut pure window dressing?
I looked at some Condo complexes on the east side of Costa Mesa yesterday
and the agent actually told me, the recent price cut created a fantastic buying opportunity and the builder was now considering uping the price again???? All from the Fed’s desperate move?
I hope you can post some creditable stories that will bring sanity back.
Thanks, Eric M.
Two worthy subjects for discussion:
Can anyone make sense of the Bill Gross trajectory? Some time ago he was a kind of hero of bubble blogs since he was calling bubble from early on and had a lot of math and graphs and good arguments to back him up. Now he is saying a bailout may be the good option and the reaction here has been phenominally negative. Were we hasty to declare him an ally early on? Is what he is saying about a bailout acceptable at any level?
Another thought I have is that the housing industry is going to be greatly changed by this. The future could mean smaller houses and more modular construction because the social contract with housing has changed with people wanting to buy units that house them efficiently and don’t cost any more than necessary. This would be a full reversal of the house as investment shift.
“Can anyone make sense of the Bill Gross trajectory?”
Easy. He made bets that will do better if Fannie Mae and Freddie Mac get to buy more toxic loans at a higher conforming limit. Read the story on p. C2 of today’s WSJ for the evidence.
Agreed. I remember he sold his house and became a renter and tried to worn the marketplace about the upcoming changes. I’m dissapointed to hear him calling for a bailout.
There may be a lot of personal fall out. People extremely on the edge. Drivers running out of gas. Etc.
History doesn’t repeat itself — at best it sometimes rhymes.
— attributed to Mark Twain
(I’ve been unable to verify the attribution in any of Twain’s published writing so far, unlike the Thomas Jefferson quote I posted the other day, which came from a letter to TJ’s Secretary of the Treasury, Albert Gallatin. But the quote above sure sounds like something Twain would say, and it’s used fairly often …)
I’ve been on a quotes-by-American-greats kick lately.
How many ways can you discuss “economic slowdown” without mentioning the “R” word?
‘Economic outlook has dimmed’
Turmoil forces pullback in forecasts for growth
By Edmund L. Andrews
NEW YORK TIMES NEWS SERVICE
August 24, 2007
WASHINGTON – The financial turmoil that began with the seemingly narrow meltdown in subprime mortgages is now forcing both policy-makers and Wall Street analysts to scale back their expectations for growth in the overall economy.
Most economists still predict continued economic growth for the rest of the year and into 2008, but many are trimming their forecasts and warning that even their somewhat darker views could be too rosy.
Global Insight, a forecasting firm in Lexington, Mass., predicted yesterday that growth would be markedly slower for the third quarter of this year, and it reduced its forecast for all of 2007 to 1.9 percent from 2.1 percent.
“The economic outlook has dimmed,” wrote Nigel Gault, group managing director of North American economic research at Global Insight. Citing tightening credit and a “continuing drumbeat of bad news on housing,” as well as high oil prices and slower growth in productivity, Gault also scaled back his forecast for growth in 2008.
http://www.signonsandiego.com/uniontrib/20070824/news_1b24econ.html
A topic that has been talked about quite a bit here, but in several scattered postings. I would like to discuss in its own thread short sale, bankruptcy and forclosure.
When someone finds themselves owing 1.2 million on a house worth $800,000 now and their payments are going from $3200 to $6000, what are ins and outs of each option?
1. Short sale - Subject to the bank saying ok. It seems right now that the banks aren’t ready to let the houses go for “market” prices, so a short sale may not be accepted by the bank. Also, is it a guarantee that the debtor will recieve a 1099 stating that they made $400,000 and now they owe the IRS $120000? Does the IRS then throw them in jail? It is not like they even have $1200 to give to the IRS, let alone $120,000.
It is my understanding that short sale does the least amount of damage to your credit.
2. Forclosure - Maybe the best option for living the high life just a bit longer by not paying your mortgage and using that money to continue living. With forclosures escalating in volume, could you go 9 months to a year before you get asked to leave? By not paying a house payment, could you cash your check and put it under a mattress until you are kicked out and then get a rental? Is a 1099 guaranteed to show up from the bank once they dispose of the property?
3. Bankruptcy - what could bankruptcy do for you? Could you get rid of your 1M 1st and 200k 2nd mortgages, credit card debt and your other house mortages that you couldn’t sell to get into the new house? Is bankruptcy more damaging to your credit than forclosure? Do you get a 1099 on the forgiven debt?
I just got back from Maui yesterday and for sale signs are spread all over the beachfront condos there. I’m wondering how cheap those condos will get before the Japanese (or perhaps another group with access to liquid assets) come back in numbers and scoop them up.
If you want this weekend, you can help me find a reason to buy a house.
Here is the scenario: I rent an older very nice SFR 3/2/2 for $750 a month ($9K year) in a small southern town. The owner of the house is a church. I am an aging single boomer. I do not want employment and live off of dividends and interest and let any stock gains or losses sit. Let’s just use a taxable 5% return. An equivalent house would cost $200K plus the annual taxes, insurance, repairs, etc. I have sufficient cash in all of the normal places discussed on this blog to buy said house and still provide the necessary income for life as I live it and the costs of maintaining the house.
$200K @ 5% - 25% taxes = $7,690 + re taxes @$1,200 = $8,890 + repairs ????
So, if I don’t think housing will appreciate in the next few years, why put up with the headaches of ownership? Please don’t tell me about the joys of decorating and painting or the pride of ownership. Keep the responses unemotional. Tell me the financial benefits of buying. Notice that I did not use the word “home”. All I need is shelter.
Thanks for your thoughts.
Happy gnawing.
Termite: I use “house” instead of “home” too. Many HBBers use “home”, probably because of many years of real estate industry brainwashing. As to your request, you already did the arithmetic yourself. There is no reason to buy the house until its price goes down or rents go up. And if you don’t enjoy house maintenance, you should never buy.
Now that the stock market is rallying again, I guess the credit crunch is behind us, right?
Markets and the economy
Paper losses
Aug 23rd 2007 | LONDON AND NEW YORK
From The Economist print edition
Central banks struggle to restore calm without breeding complacency
Reuters
FOR those who stop short of stuffing their mattress with banknotes, money-market funds are meant to be the next best thing. They invest their clients’ money in supposedly safe and liquid short-term instruments. But as America’s mortgage malaise has spread with shocking alacrity from one corner of the credit markets to another, even these staid creatures have been sent into spasms. This week they took centre stage, dumping potentially toxic securities and fleeing for the safety of government bills.
http://economist.com/finance/displaystory.cfm?story_id=9687709
What is the extent of the fallout from the recent credit confidence crisis? It looks like a version of the “butterfly effect” in chaos theory may apply — if lots of subprime lenders in CA go out of business, the London property market might fall as a consequence.
For example:
US credit turmoil hits London property
By Jim Pickard and Chris Giles in London
Published: August 24 2007 21:53 | Last updated: August 24 2007 21:53
Fears are growing that the fallout from the US subprime mortgage meltdown will hit house prices in central London, one of the world’s hottest high-end property markets.
Prices for “prime” homes in the most expensive streets of the capital have risen about 50 per cent in the past two years as a financial services boom has enriched bankers and other professionals in the City of London.
But the global market turmoil unleashed by the US subprime collapse is threatening activity levels at banks in the City, and London property agents are warning that high-end residential prices could suffer as result.
“If there is a downturn in City profits and employment levels, you couldn’t be surprised if central London prices fall,” said Liam Bailey, head of research at Knight Frank, the property consultancy.
http://www.ft.com/cms/s/0/54dc1886-5282-11dc-a7ab-0000779fd2ac.html
From Ken Harney’s syndicated column tomorrow:
“To add to the mortgage meltdown miseries, the credit panic, the plunging home sales and the rising foreclosures, here’s a new worry: a proposed cutoff of mortgage-interest tax deductions for houses with more than 3,000 square feet.
One of Capitol Hill’s most experienced and most powerful legislators is drafting a “carbon tax” bill that would do precisely that. The chairman of the House Energy and Commerce Committee, John D. Dingell (D-Mich.), expects to introduce comprehensive climate-change legislation when Congress returns next month.”
That’s an interesting progressive proposal by an old-time liberal. A way to tax the wealthy and discourage energy waste at the same time. Many support removal of the mortgage interest tax deduction altogether. There just aren’t very many tax shelters for people with a paycheck other than 401K, charity, property taxes, and mortgage interest.
St Joseph statues. Their power, success, proper use of them.
On strictly a practical level, rather than the chaos of moving 2,000,000 families (number I saw recently of projected foreclosures) out, devaluing the properties and loans, rehabbing and reselling the properties and moving 2,000,000 different families in, why not just devalue and reloan the people that are already there? The devaluation is going to happen so why not skip all disruptions, expenses and possible spinning into recession? I know all the moral issues and agree, but when one tries to imagine what this will all actually look like to the real people involved, including all those that didn’t do anything wrong and aren’t in trouble who will see their property devalued, it doesn’t seem like toughlove is going to pay off in the long run because we’ll all pay for it. The saddest part that I’m not hearing anyone talk about is the only real innocent victims - millions or children who are having their worlds turned upside down.
Doesn’t it make more sense to just let people who can qualify buy the foreclosures once the prices crash . The only way we can have long term stability with a real estate market is if the bulk of the borrowers can afford their payments .How can they make a overpriced property with a unqualified borrower affordable again ?
Once you devalue the property, the people already living there can afford them. If a bank is going to foreclose on a $400K house and then sell it for $200K, then why not just leave the millions of people already there in their houses with new loans for the real value?
Brave suggestion for this blog.
By enabling the FBs to squat in these houses, you are rewarding them for their financial indiscretions while simultaneously punishing those who were prudent and patient.
At some point, people have to take responsibility for their actions.
A precedent would be set where buyers/borrowers would have no risk/all reward, and 100% of the risk would be shouldered by the lenders. What do you think mortgage rates would look like going forward (if you could even get a mortgage)? Housing prices could conceivably crash even further, due to total lack of liquidity, if we forced lenders to take these risks.