An Irrational Market Response
Some housing bubble news from Wall Street and Washington. Bloomberg, “The number of Americans who may lose their homes to foreclosure rose to a record in the second quarter as late payments by subprime borrowers surged to one out of every seven loans. The share of all U.S. mortgages entering foreclosure rose to 0.65 percent in the second quarter, an all-time high, from 0.58 percent in 2007’s first three months, the Mortgage Bankers Association said in a report today.”
“The number of subprime borrowers making late payments rose 14.82 percent from 13.77 percent.”
“Growth in overdue payments on U.S. home loans has hurt global markets as investors shy away from risk, driving down the value of mortgage-backed securities and cutting into the profit of lenders.”
“‘We’ve got a history of irrational borrowing, irrational lending, irrational homebuilding, and we now are getting an irrational market response to these numbers,’ said Jay Brinkmann, VP of research and economics for the Washington-based bankers trade group.”
“‘The assumption was that home prices would go up forever, which of course is never a good bet to make,’ said Brian Bethune, director of financial economics for Globe Insight Inc.”
From CNN Money. “Deliquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the MBA said in a quarterly survey. Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter.”
From MarketWatch. “Driving the numbers were the states of California, Florida, Nevada and Arizona, said Doug Duncan, MBA’s chief economist. These are also markets that have experienced a high share of investor loans, Duncan said.”
“The share of non-owner-occupied loans that are 90 days or more past due or in foreclosure, as of June 30, was 32% in Nevada, 25% in Florida, 26% in Arizona and 21% in California. Comparatively, 13% of these loans were in default in the rest of the country.”
From Builder Online. “Some of the same builders whose companies created the excess inventory that helped push the housing industry into its current downturn are reportedly meeting today behind closed doors with Federal Reserve chairman Ben Bernanke to discuss what can be done to prevent owners from losing their homes to foreclosure.”
“The actual agenda of the meeting, however, is not completely clear, as NAHB, which arranged this meeting through its High-Production Homebuilders Council, and spokespeople for several large home builders declined to answer questions about it.”
“‘[The] housing industry needs a psychological boost right now,’ Hovnanian’s chief Ara Hovnanian told CNBC.”
From Reuters. “U.S. house prices may fall further as credit availability tightens, according to a new study from the Cleveland Federal Reserve.”
“‘House prices may still fall in the future,’ wrote the researchers. ‘Any change in the ability to purchase a home, such as from innovations in the lending environment, can have a large impact on the level and volatility of housing prices.’”
“The study went on to forecast that the boom-bust cycle of lending could crimp the ability of households with a weaker credit profile to borrow.”
“Turmoil in the credit markets will take a toll on the U.S. economy but the full impact will not be clear for another two or three months, William Rhodes, senior vice chairman of Citigroup Inc, said on Thursday.”
“Only when positions in subprime mortgages and other financial instruments are unwound will the extent of the damage become clear, Rhodes told a meeting of the World Economic Forum.”
“The Organisation for Economic Cooperation and Development on Wednesday trimmed its forecast for U.S. growth because of the fallout of a slump in housing stemming from subprime mortgage defaults. The Paris-based forum said it could not rule out a recession.”
“Rhodes said banking regulators, including the Federal Reserve, should also have acted more swiftly on subprime loans. In a paper presented to a Fed conference last week, Ed Leamer, director of an economic forecasting group at the University of California, gave the central bank a failing ‘F’ grade for understimating the impact of the housing downturn.”
“‘My own view is that that’s a generous grade,’ Stephen Roach, Morgan Stanley’s Asia chairman, commented.”
“Credit derivatives awarded the top ratings by Moody’s Investors Service and Standard & Poor’s may be as vulnerable to default as high-risk, high-yield bonds, according to independent research firm CreditSights Inc.”
“Constant proportion debt obligations, known as CPDOs, use credit-default swaps to speculate that a group of companies with investment-grade ratings will repay their debt. An increase in credit rating cuts for investment-grade companies may cause losses that CPDOs would struggle to recoup, CreditSights said in a report entitled ‘Distressed CPDOs: We’re Doomed!’”
“‘If you assume defaults and downgrades come in bunches rather than being evenly spaced out, CPDOs’ default rates are more what you would expect for low junk ratings than for AAA,’ David Watts, a CreditSights analyst in London, said in a telephone interview yesterday.”
“Prices of CPDOs dropped to as little as 70 percent of face value last month. New York-based Moody’s said on Aug. 21 it may downgrade $244 million of Aaa rated notes issued by ELM BV, a Dutch special purpose vehicle.”
“‘If you assume defaults and downgrades come in bunches rather than being evenly spaced out, CPDOs’ default rates are more what you would expect for low junk ratings than for AAA,’ said David Watts, a CreditSights analyst.”
“The underpricing of liquidity risk, more than the pricing of default risk, was the weakness in the credit markets that led to the current crisis, said Peter Praet, an executive director of the National Bank of Belgium.”
“He said he had not foreseen the degree to which the market would react to the problems in the U.S. subprime mortgage market. ‘The extent to which the money markets froze as a result of subprime was beyond my imagination,’ Praet said at the European CDOs, Credit Derivatives and Structured Credit Products Summit.”
“Short-term funding has dried up in recent weeks for structured investment vehicles (SIVs), whose strategy has run into trouble as the financing freeze has coincided with a sharp decline in prices on their investments, mostly financial debt and asset-backed securities.”
“The lack of a strong secondary market for these products, with even less demand in the current liquidity crunch, has meant prices have dropped for even some of the highest-rated structured products, even while their credit quality has remained unchanged.”
“Manfred Exenberger, managing director of Omicron Investment Management, told the conference: ‘It is sort of a buyer strike. More than a liquidity crisis, it is a crisis of confidence, of credibility.’”
“With structured paper trading at 50 cents on the dollar, it is also a valuation crisis, he said. ‘Investors can’t believe the ratings anymore, and they can’t believe the valuations anymore. It is much more than a market re-rationalisation.’”
“The amount of distressed bonds is increasing at the fastest rate in four years on growing concern that the era of record-low defaults is coming to an end.”
“Investor appetite for risk declined in the past two months as losses in securities linked to subprime mortgages caused sudden increases in the cost of credit and sparked concern that the worst U.S. housing market in 16 years would slow the economy.”
“Since June, the amount of distressed bonds has risen more than fivefold to $24.8 billion, according to an index Merrill Lynch began compiling in 1997.”
“‘Unless the market is being totally irrational, it’s telling you default rates are going up,’ said Lawrence Post, CEO of Post Advisory Group, which manages $8 billion in high-yield, or junk, debt. ‘We’re moving in that direction.’”
“Until June, companies had few difficulties refinancing debt because investors were confident an expanding economy and rising earnings would allow borrowers to meet their debt payments.”
“‘The last couple of years we always used to say, ‘Gee, isn’t it crazy, we’re seeing top-of-market behavior and this can’t be sustained,’ said Thomas Marshella, a managing director of leveraged finance at Moody’s. ‘It did go on longer and we were wrong. You always thought there’d be an inflection point and, finally, an inflection point came,’ he said.”
‘Countrywide Financial Corp. shares dropped below $18, wiping out the $700 million paper profit Bank of America Corp. made when it invested $2 billion in the nation’s biggest mortgage lender two weeks ago.’
‘It’s not a signal automatically of a bad investment because they get a 7.25 percent yield, and the option to convert has a long term,’ said Jefferson Harralson, an analyst at KBW Inc. ‘They’re supporting a company from bankruptcy that they have loans out to, and that benefit of the transaction doesn’t go away.’
‘They’re supporting a company from bankruptcy that they have loans out to, and that benefit of the transaction doesn’t go away.’
I imagine that could get old real quick. Just ask any crack dealer…
But, but…
They make it up in volume.
‘…wiping out the $700 million paper profit Bank of America Corp. made when it invested $2 billion in the nation’s biggest mortgage lender two weeks ago.’
That BOA acquisition looks pretty dumb right about now.
This deal may go into the bin with Merrill buying those subprime outfits about a year ago and then another in December 2006.
Genius.
No really, when BAC did that CFC was trading at $23. They got rights for 110 million shares at $18. They were not allowed to sell these shares since according to the terms of the financing agreement they where not allowed to.
What they instead did was borrowed 110 million shares from another Wall Street firm and shorted CFC for weeks from $26 to $18. They thus booked profits of 800 million from the sales. Not bad for a few weeks work. In case CFC shot up they were covered at $18.
Now in case CFC tanks more and goes bankrupt, they are still good since they will borrow another 100 million common shares and short this all the way to Zero. They net their 1.8 billion + the earlier profits. They have no skin in the game, but all the profits.
In case CFC files CH11 they get preferential treatment as creditors to the firm and will buy the loan servicing business and add the profits from that to their mortgage business.
Not too bad, doing that deal was a smart ass move.
” buy the loan servicing business” should read “get the loan servicing business”.
As a long-time BAC stockholder, this makes me happy to hear.
I would never bank with Bank of America. Not only the whole credit cards to illegals and free wire transfers to Mexico, but when I was a customer, a cashier’s check for $27,000 drawn on them bounced. Apparently, the BofA account from which it was drawn was closed. I had to wait 90 days to get my money back…BofA acted as if though I misplaced the check, even though an electronic copy of it showed it had been presented for payment.
I hope BofA folds too. I know they made quite a few subprime mortgages.
BofA was not involved in subprime but did alot of seconds. I haven’t had any problems with them but I’ve heard some bad stories.
What they instead did was borrowed 110 million shares from another Wall Street firm and shorted CFC for weeks from $26 to $18. They thus booked profits of 800 million from the sales. Not bad for a few weeks work. In case CFC shot up they were covered at $18.
Insider trading, the SEC loves this stuff if your assuptions are correct.
How is that insider trading? That is the standard procedure for PIPE type deals. There is nothing illegal there.
No way BofA was able to short 1/5 of the outstanding shares. Not possible.
It’s not a bad investment b/c ‘they’re supporting a company from bankruptcy that they have loans out to….’
It’s all good b/c they bailed out their previous failed bailout. Bail away. Have at it.
Okay, HBB short-sellers, waddya say about this one?
Can someone please clarify this for me:
A couple weeks ago, I heard on NPR that regulators only approved the BAC-CFC deal on the condition that the option to convert the bond into stock be removed. After that report, I never again saw/read an article describing BAC’s response to the letter. How is it possible that the deal went through with the option intact? Did the deal really go through? Where can I find this information?
“‘We’ve got a history of irrational borrowing, irrational lending, irrational homebuilding, and we now are getting an irrational market response to these numbers,’ said Jay Brinkmann, VP of research and economics for the Washington-based bankers trade group.”
No, you moron, this is a RATIONAL response to all the craziness that occurred during the boom.
Where do these idiots come from?
I mean, he admits that the market was completely and entirely nuts, and he is now complaining that the response to this craziness is a little nutty? What the hell did he expect?
I was kind of thinking a market crash would be extremely rational right about now too.
I think ‘irrational response’ should be equal to “irrational exuberance. I suggest flogging of all responsible & greedy participants & profiteers & politicians in public, collecting all sums of money made thru this real estate bubble and distributing it to the rest of us. Start with allen greenspit. Then Congress will order all house prices reduced to 1998 levels and only permitted to raise yearly at no more than the rate of wages & inflation. This is ‘rational’.
“Allen Greenspit”. Too funny.
Same thing I thought SMF. An irrational market response would have been to continue to do the irrational.
The market response IS rational. The response may prove to be over-done to some extent but it isn’t irrational at all.
The “irrational lending” may actually be a rational action based on bailout expectations.
The best example I could come up with here would be if Ferrari was complaining that not a lot of people could afford their cars, and asking for government help to aid in their ‘affordability’.
Would that sound rational to most people? Don’t think so.
To repeat, the prices went sky high on a perceived demand that was not real (actual people willing to live in their purchases). Therefore, home prices need to go down to the same relative level that existed prior to the speculative runup.
The best example I could come up with here would be if Ferrari was complaining that not a lot of people could afford their cars, and asking for government help to aid in their ‘affordability’.
______________________________________
This oufit? I’d expect them to step right up and open the bank vaults. They have for every other corporation that requests assistance.
If healthy economic activity needs lots of psychological manipulation, then we are sunk.
I don’t watch TV very often, but yesterday I saw a little of CNBC. These guys were going on and on about how the Fed needs to get $’s into the hands of consumers to save the economy. If that is considered financial stewardship, yeah, we have a problem.
Might we see a major change in how the Fed operates in liquidity injections? Currently, I believe that loans from the Fed to the member banks is a “do anything with it” allowance. What if the Fed changed the rules and said “Borrow at 0.5% under FDR but only if you use it for credit card LOCs or auto loan LOCs”? Is this a possibility, has it ever happened historically with any other central bank?
auto has had zero financing for awhile now. Not moving the market much.
And even with zero financing, autos were overpriced.
Autos are overpriced because of zero financing, I’d say. When easy money flows into a given market, prices go up. See: housing, tech stocks, etc.
tuition (see law school tuition vs. median starting salaries)
law school tuition see: living off the desperation, humiliation, and suffering (and those are the good points of the job)
From the constant caterwauling on CNBC for rates cuts, what becomes frighteningly clear is that our economy is completely dependent on low interest rates. They never talk about widespread income growth or savings, just the need to cut interest rates so that the debt game can continue. There is almost no other topic that gets discussed, and its not about whether rates should be cut but by how much. It gets pretty disgusting after a while.
Many players are using the housing “crisis” to demand lower rates so big M&As remain cheap and stocks can remain inflated.
Cheap money, cheap energy.
Unemployment is low, hours worked is high, educational attaniment is high and rising, so is productivity.
Americans aren’t being lazy, they are overconsuming.
Educational “attainment” may be high, but educational standards are drastically lower.
I guess encouraging savings by eliminating taxes on savings and dividends is out of the question ? Or do they consider that higher interest rates lead to higher returns on savings accounts which can then be spent as income ? Why am I expected to spend everything I have to support an economy of low paying service jobs ?
Why am I expected to spend everything I have to support an economy of low paying service jobs ?
Because that’s how the rich keep getting richer, while you and I keep getting poorer. This is exactly what our plutocratic corporate masters want: the complete destruction of the middle class and the challenge to elite power it represents. So… now you know your place in the pecking order. Feel better? (me neither)
And it’s happening right before our eyes.
Welcome to the new Sharecropper Society.
I somewhat agree. I think anything up to $25K capital gains from dividends or interest should not be taxed. Make it a progressive tax like the income tax system. Someone who make $1 million from dividends should be taxed at a higher rate than J6P making $5,000 from interest on CD’s or a money market.
I honesly doubt that J6P makes anywhere near 5K a year in savings…. That would imply having around 100K in CD’s and somehow I find that unlikely. I would venture (excluding 401K) that it is closer to 5K total cash savings, and 250 a year. Well below the reporting limit of 1099’s
All the more reason not to tax it.
Dear Pinch:
I think the average American actually has a negative savings rate.
Over in England, you paid no cap gains taxes on gains of up to approx. $14,000 per year (current exchange rate). Above that level, and you get hit with full taxes, though. Ouch!
It worked quite well for the small investor, and that can apply to a lot of people here in the US who might have been in their company stock plans and want to sell out. I see a fair number of friends and relatives hanging on to stocks simply because “I’d have to pay tax if I sold”. Sigh. I even know older people hanging onto real estate for that reason.
As for those who have negative savings rates, maybe a tiny few might be encouraged to save/invest if thy figured they could get some tax-free gains sometime in the future. (It sure worked for buying houses, didn’t it?)
But.. oh wait… never mind… promoting savings and investment is no way to boost consumer spending in the short term, is it?
The average savings rate is negative does not translate into no Americans have savings.
–
“These guys were going on and on about how the Fed needs to get $’s into the hands of consumers to save the economy.”
That is the key point: How can the Fed get the money into the hands of the households who are most likely to spend?
The Housing Bubble was the “transmission mechanism” whereby those households were able to use their homes as ATMs.
There are 3 Americas when it comes to debt-driven spending:
1/3rd have hardly any debt, including no mortgage debt.
1/3rd have very manageable debt and are responsible.
1/3rd have very heavy debt burden and are irresponsible.
How to get money in the hands of the last 1/3rd?
Jas
“How to get money in the hands of the last 1/3rd?”
Rating agencies and blind, misplaced trust in them by the worlds’ financial institutions.
I found the following 2004 numbers…
~32% “owners” with mortgages
~14% owners with no mortgage
~48% renters
Wrote it down without noting the source. Oops! If I find it again, I’ll update.
See how loony it is Ben? It is a mantra, an ideology with these guys. Spend to save, peace is war, pollution is cleanliness….
We live in troubled times.
http://www.energybulletin.net/34403.html
I lurk, post little, but I like how you think. Posting late…hope you check out the link.
Cheers,
Leigh
Ben,
I am a bit concerned about the number of CNBC watchers here. Actually, the heavyweights are on Bloomberg - all of the demographics support this, as well. Compare USA Today to the NYT, and you’ll get the general gist.
Ack. The only way to get $$ into the hands of consumers is for those consumers to go to work and earn $$. I certainly hope there is not a push for hyperinflation, because that is the only way to get enough $$ into our hands to counteract the current/future declines in house prices and consumer spending. Of course, the only caveat to such inflation is that it will TOTALLY SCREW UP OUR ECONOMY FOR GENERATIONS TO COME.
Just mo.
These guys were going on and on about how the Fed needs to get $’s into the hands of consumers to save the economy.
Ben:
Part of the problem here is the global economy that has thrown millions of employees out of work. The jobs left are low paying service related jobs. Just take a look at Indiana, Ohio and Michigan that are suffering due to job losses. The consumer is tapped out and wages are not kepping pace with inflation. The service level jobs that replaced the manufacturing, I.T., accounting and some engineering jobs is not enough income at todays inflation. Real wages are dropping thus adding to the problem in the USA.
Yes. It’s this type of crap which is causing me to become more and more bearish on the entire economy. I’ve been quite bearish for awhile but lately it’s tipping towards the extreme view. If anybody here can paint a bullish case as to why the US is not going to sink into the abyss, I’d love to hear it. No sarcasm here.
For example: this nugget just hit the tape a minute ago,
According to Dallas Fed President Fischer, ” Inflation has been increasingly well behaved”
Um, excuse me mister, but did you check wheat prices at the CBOT today…….
They probably think CPI without food and energy when mentioning “inflation”, as CPI is the parameter the Fed wants to control. When you take a little more out of the CPI, like some commodities and imported goods, CPI means “wage inflation” and that inflation is not allowed to go up.
I assume the dollar has been overvalued for the past years (decades?). If the dollar loses value, many things get accomplished:
1. Export companies bringing more money into the US.
2. Consumption of imports gets discouraged, the Chinese can consume their own products.
3. US debts are more easily repaid (foreign investors in US bonds lose big).
The US won’t sink into an abyss, but has the average living standard converging to other countries that were historically poorer. With other countries becoming more competitive, there is hardly any way to avoid that (not should it be politically attempted).
But Peter, WHY are other countries getting richer when the US is getting poorer? Is it because other countries are getting more efficient all the sudden, or is it because the US has passed new laws and signed new trade agreements that allow US corporations to make more profit by using cheap labor and goods from abroad with no penalty? If the latter is the case (as I suspect), then the US can and will put a stop to this. It’s all in the hands of the US voter.
unfortunately, I think most voters are unaware of what’s really going on - they’re too numbed out by TV or are suffering from PTSS or variants - or, they still believe what Bob Dylan wrote about in the song “With God on Our Side”
One argument that I often hear against counting on voters is that “People aren’t really informed, and they don’t really care anyway”. That may be true, but the uninformed (or apathetic) don’t count because they don’t vote. Even if only 3 people voted, there would still be an outcome to the vote. If 2 of them vote against outsourcing, then outsourcing is gone.
If quite a few people come to realize that their jobs have been sold to India or China or wherever, then I suspect quite a few nonvoters will morph into voters real quick-like.
An increase in credit rating cuts for investment-grade companies may cause losses that CPDOs would struggle to recoup, CreditSights said in a report entitled ‘Distressed CPDOs: We’re Doomed!’
Haha. But I thought subprime was contained…
“Turmoil in the credit markets will take a toll on the U.S. economy but the full impact will not be clear for another two or three months, William Rhodes, senior vice chairman of Citigroup Inc, said on Thursday.”
While definitely true, I’m not too concerned for the moment. We sit on a ton of cash, and are ready to spend when the prices are right. We haven’t slimmed our eating out behavior, we just know that restaurants are hurting, and paying with cash has many advantages. The same is true for what we need for our daily lives (cash at the fruit market, cash at the small meat deli, etc), so for us a little or a lot of deflation would get us to spend more, not less.
I know many wealthy people who are also sitting on massive amounts of cash, and they’re also looking at where to spend it. My dad sold his Florida house near the peak of the bubble, but now he is deathly scared of inflation eating away at his cash, so he wants to buy another place (he used it 5-6 times a year for 2-3 weeks a pop) but is waiting for prices to drop some more. He has cash, so do a lot of people, so the concern is more about J6P, but I think many of us agree that we NEED some price deflation to return to a market economy based on buying what you need and can afford today rather than what you want and will hopefully be able to pay off tomorrow.
For those who try to scare me by saying that my job might be at risk: fine. I’m overpaid in every sector I am in, and my savings offsets that risk. If we have massive inflation, I will work more in Europe or Asia, where being paid in Rupees or Zloty will overcome the fall in value of the dollar. If we have massive deflation, my savings will grow in true value. It’s win-win if you’re sitting on cash, AND if you have skills that are marketable internationally.
If all you do is broker mortgages or investments, you’re screwed in either way: deflation will make your job useless, inflation may not mean money going to your sector.
“Rhodes said banking regulators, including the Federal Reserve, should also have acted more swiftly on subprime loans. In a paper presented to a Fed conference last week, Ed Leamer, director of an economic forecasting group at the University of California, gave the central bank a failing ‘F’ grade for understimating the impact of the housing downturn.”
“‘My own view is that that’s a generous grade,’ Stephen Roach, Morgan Stanley’s Asia chairman, commented.”
Shoulda, woulda, coulda….how is it that supposedly educated, in-the-loop, financially savvy “economic forecasters” couldn’t call it (the whole messed up housing/loan/credit bubble) like it is, when this blog had it nailed 2 years ago?
“…gave the central bank a failing ‘F’ grade for understimating the impact of the housing downturn.”
Their grade goes down to F- if they go along with pressure to bail out foolish borrowers and lenders at the taxpayer’s expense.
It took a Rhodes Scholar, to figure out things…
In retrospect~
LMAO! The Fed should have acted. They acted. They praised the subprime lending industry. They claimed these new subprime products (NINJAs, 2/28’s, I/O ARMs and so on) and risk distribution models were financial innovations giving underserved communities access to credit. What’s more, any regulation would have stymied the then developing industry.
“Deliquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the MBA said in a quarterly survey.”
5% of ALL outstanding mortgages are delinquent? And we haven’t seen the peak of subprime resets and AltA is just beginning. Oh my.
And prices are set at the margin. These are the folks that will really need to sell, or the banks will really need to sell “for them”. Bloodbath in 2008?
Staggering, isn’t it? 1.11% are over 90 days. That means one home in 100 is likely to foreclose. And we have two years of resets left.
I had the same reaction. Looks like a slim holiday season is in the works for retailers.
Anybody know the ratio of mortgages to housing units?
Not to mention that not all those with resets blow up immediately. I suspect there is a lot of holding on with silent (but becoming more vocal) desperation.
5% of all mortgages, 1 out of 20 people?
Is that number really correct?
That just can’t be right.
Yep. Isn’t that shocking? I’m looking a bit closer at my neighbors now.
“1 out of 20 people?”
1 out of 20 people that have mortgages. Still a lot of people.
Correct; one in 20 mortgages. I’m still trying to figure out the ratio of mortgages to total housing units.
Do you think there is another 1 out of 20 that may be a qualified buyer? Look out below
one word: HELOCs. There were more than I thought. And every single 100% cash-out HELOC must be underwater, even at a fixed rate. And if they spent the cash on Viking stoves and yachts…there’s no getting that cash back.
Nope, there’s no getting the cash back, but if a “FB” lets the house go to foreclosure, they can always truck away the appliances and anything else of value.
OT — financial sanity NOW! Fox News really was up to dirty tricks last night!
http://www.ronpaul2008.com
Disagree. Paul made a terrible showing in the debate; the worst so far. And I kinda like the guy. All the rigged Ron Paul call-ins throwing the vote are getting tiresome. They are completely at variance with actual polls taken after. If ten Ron Paul fans vote ten thousand times each, are we supposed to take them seriously?
I guess it depends on your point of view. I didn’t see the entire debate, but he sure seemed to get a lot of kudos for his comments on the unconstitutionality of the Iraq war.
As to rigged Ron Paul call-ins, who is doing the rigging, pray tell? His supporters? Aren’t supporters supposed to call with their support? How is that rigging? Ron Paul’s people have a lot of heart. Good for them. Really, after all the vote cageing and dirty tricks the shrub team pulled in FLA and elsewhere, it is hard to call support for Ron Paul “rigging”.
They are supposed to vote one time each, not over and over and over.
Ron Paul is a nice guy, but he’s too wimpy. He reminds me, pardon the expression, of Jimmy Carter.
Actually, there are MULTIPLE photos of people who tested the system by attempting to vote more than once. The FNCTV text vote disallowed multiple votes, so multiple voting was IMPOSSIBLE.
The 33% that Paul received was real, but in terms of active Republicans, Paul is probably only polling realistically 7-9% of registered Republicans. The main political pollsters ONLY call registered Republicans, whereas Paul’s 33% pulled significant support for non-registered Republicans, Democrats, Libertarians and Independents. I have 10 Democrat friends who will register Republican this year just to vote for Paul. I know dozens of Independents and Progressives that will vote Paul.
Your post was incredulous, because I just pwned you with this link:
http://cordrogers.blogspot.com/2007/09/hannity-lies-to-discredit-ron-paul.html
actually.. with fox’s text message polls, you can only txt in once. if you try to text in multiple times you get a reply saying: “You have already voted in tonight’s debate.”
http://ronpauldaily.blogspot.com/2007/09/fox-lies-you-cant-vote-twice.html
“They are supposed to vote one time each, not over and over and over.”
Oh, that one vote thing went out of fashion with American Idol and the 2000 election.
You could ONLY VOTE ONCE people. If you tried to vote a second time then they got a response that they had already voted. This multi-vote thing is more lies from FAUX News.
Ron Paul supporters are motivated and active is all the poll means, that should be NEWS!
How do they figure out whether or not you already voted? Was it by computer or cell phone? I ask because people can renew their computer’s IP addresses whenever they want. If it’s a cell phone, they can use their spouse’s/kid’s/work phone too.
your point is well taken, but the more global view is that Ron Paul, even if we remove 2/3rd of his vote was right on par with the “top tier” candidates. Paul is painted in the media as “way behind’ the pack. This portrayal (sp?) tends to decrease excitement about the candidate. This is clear, unadulterated CONSPIRACY! : )
How do you know supporters of the other candidates didn’t vote multiple times?
I apologize if this was posted by someone else, but I had seen it.
http://biz.yahoo.com/ap/070905/home_loan_survey.html
A third of home loans originated by mortgage brokers failed to close in August as investors shied away from riskier borrowers, a new survey says.
Three years ago, Popik said, a survey of real estate agents found that only 4 percent of transactions failed to close on average.
So when do August sales numbers come out?
They’re already out in my neck of the woods (Southern Oregon), and they are pretty bad. (or good, if you’re like me!)
There were as few closed sales in Ashland in August as there were in January. Median sales price was down 13% from August last year.
The September numbers will be really interesting. And then in October, ARM resets start happening for real…
Jacstats still has the July numbers up. Would you please tell me where the August numbers can be found? Thx
I’ve been wondering about the August sales number as well Russell. Every doomsday report that I’ve read over the last few days have refferred to July numbers. If I had anything to do with the housing mess, I would be very worried. I would think that August sales combined with the CW news yesterday (Auditorium-size firings), is going to add gasoline to this fire.
I haven’t seen any MSM mention of the CW. Obviously they would need solid proof that it actually happened. I guess we’ll have to wait and see.
maybe ti’s the ad w the monkey on the lady’s back……..
“The share of non-owner-occupied loans that are 90 days or more past due or in foreclosure, as of June 30, was 32% in Nevada, 25% in Florida, 26% in Arizona and 21% in California. Comparatively, 13% of these loans were in default in the rest of the country.”
Holy crap.
Don’t worry, Bush is going to refi all of these guys with his FHA bailout plan. Everything is contained, go buy your flatscreen.
Would that be a plasma TV or plasma ray-gun to obliterate anyone who bails out these FB’s?
Yeah, those are some big numbers.
Yep… scares the heck out of me.
Now how many of the owner occupied were really flips?
I’m back to tracking inventory daily due to the crazy spikes.
Neil
Woo, Arizona! We’re Number Three!
Ummm, correction. We’re Number Two!
Wake me up when the CA number is over 50% (and it soon will be).
“The share of non-owner-occupied loans that are 90 days or more past due or in foreclosure, as of June 30, was 32% in Nevada, 25% in Florida, 26% in Arizona and 21% in California.”
Yep, and these were the states in which folks were “liberating their equity” like crazy to buy investment houses in other states. Game over.
Run away!!!!!!
can anyone relate the foreclosure numbers to 1991 or ?
tia
I go away for a fortnight nearly, and come back to a fresh new acronym, CPDO…
As in CPDO Sharkey?
Is Don Rickles involved?
You mean C3P0 as in R2D2?
CPDO = constant proportion debt offering.
Was (repeat, Was) all the rage a few months ago as one could seemingly get AAA paper (typically earning Libor + 25 bp) at Libor + 200 bp.
Kinda, sorta, didn’t work out that way
CPDO Loan Sharkey?
Ben,
Reading through this makes me wonder if the rest of the world is living on the same planet that we are.
“‘[The] housing industry needs a psychological boost right now,’ Hovnanian’s chief Ara Hovnanian told CNBC.” Translation: psychological boost = dose of Greenspan irrational ‘exuberance’.
“‘The assumption was that home prices would go up forever”. ASSUMPTION, ASSUMPTION, ASSUMPTION without any boundaries what so ever?! Truly we have an industry and a portion of this nation where 5 yrs olds are trapped in the bodies of 18 yrs and up.
“Ed Leamer, director of an economic forecasting group at the University of California, gave the central bank a failing ‘F’ grade for understimating the impact of the housing downturn.”
Hey Ed, what grade did you give him a year or two ago. What a parsimonious ass. I guess your crystal ball didn’t tell you anything while you sat in you ivory tower contemplating economic forecasting. And Ed, if you want to go to the head of the class, tell us how to get out of this mess.
“The underpricing of liquidity risk, more than the pricing of default risk, was the weakness in the credit markets that led to the current crisis, said Peter Praet, an executive director of the National Bank of Belgium.”
Yeah Peter, right on, brilliant, just brilliant. Just throw pricing of default risk to the back burner and keep telling yourself not to worry while you and your buddies encourage the world populace to take out more ‘NO DOWN’ subprime loans on ‘FRAUDULENTLY INFLATED APPRAISALS’.
It’s early but I think it’s time for a stiff drink.
Go for it, and have one for me. Besides, it’s after noon (here).
It’s only 11 a.m. here. So, have a drink for me as well.
Ed Reamer: “inviting the Fed to do more than just “make us happy,” Leamer concluded his paper with a monetary policy to-do list, asking the Fed to: 1) smooth the business cycle (make recessions less frequent, less severe, and more short-lived) 2) keep us working productively (limit the speculative bubbles that absorb our labor and time and that divert savings into low-yielding investments) 3) limit the redistribution of wealth caused by market disruptions (minimize the extent to which turbulence in financial markets causes redistribution of wealth from one group to another) 4) keep our balance sheets accurately reflecting reality (recognize the real assets on which our future GDP depends: factories, equipment, knowledge, and homes).”
Interesting, I thought that’s what the Fed put in their own charter.
“Hey Ed, what grade did you give him a year or two ago”
Leamer has been a early bird about the RE bubble and took much flak for it (2003 ish) wasn’t to hard to figure out really but give the man credit. Also his working paper at the jackson Hole conference was based on the principle that a down turn in housing construction (volume) is a leading indicator for a recession.
Also, a hat tip to the just-deceased Ed Gramlich, who sounded a warning about the downside of subprime home loans. And Greenspan ignored it.
I’m 38, I’ve been reading this blog for 2 and a half years abnd could see this coming. Greenspan is 80 and has been a central banker for decades. There’s no way in hell he couldn’t have known this would happen. The question is, he really stupid enough to think that there wouldn’t be a lynch mob after him at some point. Are politicians stupid enough to think that if something like this gets out of hand that maybe 30 million Americans wouldn’t show up in DC and go ape shit. Seriously. The WWI vets showed up in DC in 1932 and went ape shit. Why wouldn’t 30 million displaced Americans not show up in DC in say, 2009 and get all routy. That would be a seriously dangerous situation for any politician. Happened in lots of other countries over the years, why not here? It happened in China in 1989 of all places. Why not here? And who would save these politicians from themselves? The Army? The same Army that’s being used and abused in a counter terror war? That Army? The Army they can’t get anyone to volunteer for? That one? Or how about the armed forces that are all overseas right now. How many active duty people do we have, 2 million. 2 million disgruntled vs. 35 million starving homeless vagrants decending on DC. Yeah, that sounds like it’ll work out. LOL I predict something like this going down at some point in the future. I certainly would not want to be a politician (other than Ron Paul) when something like that happened.
Andy, you forgot the politicians “don’t need no stinkin’ Army”. They got “private contractors”. Can you say “Blackwater”? And the Pentagon has developed some nifty new weapons, like that microwave “pain ray” to cook the frogs.
I’m tellin’ ya, from some of the stories I read, these private security guys and even some of the police go trigger happy when it comes to things like Tasers and such. Get the least bit mouthy, and you’ll get a zappin’, they’re just dying to give you one. Someone needs to develop something that neutralizes this crap.
the only time Blackwater has ever been allowed to operate in the U.S. was New Orleans immediately after Katrina. I had two of them assigned to me.
That was invented quite a long time ago. It’s called “shotguns pointed back at them.”
Sadly, it’s a very messy solution for both sides.
Andy, won’t happen. Americans are now too conditioned to be passive, and where are they gonna get the money to travel to DC?
funniest comment today. LOL
Leamer may have been early about the bubble, but then he caved. He stopped talking about it when talk about the bubble was needed most.
And then when he started on it again he pushed the “soft landing” line. Now, after the obvious, he’s “Captain Obvious!”
I realize there’s pressure, as Thornburg left UCLA in order to say what he was really thinking, but somebody in academia has to have a spine other than Shiller.
The University of Missouri’s Michael Hudson had a great cover story in the Atlantic last year. Great title too: “Road to Serfdom - An illustrated guide to the coming real estate collapse.”
He lined this whole mess up very nicely.
I’m not faulting Hudson, that piece certainly helped to wake up the MSM who were paying attention (though they were not writing about it), but last year was still “late”.
Better if it were in 2005, at least. It wasn’t that hard to see.
“this particular real estate bubble has been carefully engineered to lure home buyers into circumstances
detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.”
The whole thing breaks down in the “lifetime working to pay off the debt” part of the scenario. The rentiers aren’t counting on people refusing to play the game and just walking, which is now happening.
“‘House prices may still fall in the future,’ wrote the researchers. ‘Any change in the ability to purchase a home, such as from innovations in the lending environment, can have a large impact on the level and volatility of housing prices.’”
“The study went on to forecast that the boom-bust cycle of lending could crimp the ability of households with a weaker credit profile to borrow.”
Please tell me that they didn’t pay much for that study
On the other hand, this one was worth every penny just for the title:
‘Distressed CPDOs: We’re Doomed!’”
IMHO ,it’s not really “underpricing of default risk”,that is the problem as much as the problem being a bad loan is not good at any pricing if that loan is at a high low to value ratio .
This post gets scarier every day, every week, every month.
Five years of mortgage and housing insanity, and 25 years of current account deficits, unraveling in the blink of an eye.
Is the stock market up again?
Yes.
Came across another blog entry a couple of minutes ago. Wondering whether anyone has information?
I am told that by the end of this week, one of the largest condo projects underway in Southern California, a massive project in Oceanside,California ( north of San Diego and south of Orange County) is to be halted.
The bad news is this is a private developer.
Many of the condo’s are in the process of being built, so this is a highly unusual step.
No word on why this is happening in such an abrupt manner, but it really stunned my friend who is in the building trade.
He said this project is in the hundreds of millions category.
Any idea which builder/which lender?
Construction lender probably stopped funding the loan. Most construction loans include and “out of balance” clause that allows the lender to stop funding if the value of the (finished) collateral drops below a certain percentage of the loan. This is a hardball tactic ususally designed to force the developer to put up more equity. Lender is generally stupid\desperate if it thinks foreclosing on an incomplete project is a good idea.
That is unless the project is really under water which it could well be given the insane values that were used to underwrite these types of projects.
This same scenario should start to unfold in many locations. When the few condo buyers who are still in the market start to read about this in their local newspaper, values will fall even further as the previously non-existant risk premium that rational buyers should use to arrive a reasonable value gets reinserted back into the equation.
IMHO, this is just the coming attractions portion of the movie that is about to unfold. Plenty of time to wait for freshly popped popcorn. Get the big tub. It’s going to be a long movie.
I am talking with NCTimes right now and they are looking into it.
The NCTimes is asking for more details….do you have any more? Address of the project?
“Part of the inhumanity of the computer is that, once it is competently programmed and working smoothly, it is completely honest.”
Isaac Asimov
“The share of non-owner-occupied loans that are 90 days or more past due or in foreclosure, as of June 30, was 32% in Nevada, 25% in Florida, 26% in Arizona and 21% in California….”
Jingle Mail, Jingle Mail.
Jingle all the way!
What fun it is to watch
Flippers and lenders get nailed.
More HBB dot connecting from USAToday:
But now, more Americans are falling behind on their card payments. Credit card delinquencies are starting to rise. And the shrinking availability of home-equity loans is one big reason….
Until the mortgage credit crunch began to ripple through the credit markets, many Americans managed to keep up with minimum credit card payments. With home-equity loans drying up for some, consumers have lost an important safety valve, says Tamara Draut….
http://www.usatoday.com/money/perfi/credit/2007-09-05-credit-cards_N.htm
What a lot of people are not aware of is the ‘Universal Default’ clause embeded in a lot of CCs. Universal default permits a credit card company to increase you APR simply because you fail to make a payment on a loan with another lender or your credit history changes with negative information. Card holders are going to claim ignorance and rightly so as 80% of the population has no clue on the most effective use of a CC. Default APR’s usually run 28% or higher so without the HELOC escape shaft many will soon be feeling exnvmortgbkr’s Joshua tree shaft.
I know. That’s why a lot of companies (such as T-Mobile) are now using fake negative reportings to extort people into paying bogus charges. We all need lawyers now.
I’m glad they changed the bankruptcy laws to trap these idiots. It used to be a cycle of these irresponsible dolts running up their credit cards and then filing bankruptcy. Now you become an indentured servant to the banks for all that crap you bought that you didn’t need and couldn’t afford. I have not an ounce of pity for them.
Now let’s extend that to corporate america.
I’m against any bailouts of the idiot lenders too.
“‘The assumption was that home prices would go up forever, which of course is never a good bet to make,’ said Brian Bethune, director of financial economics for Globe Insight Inc.”
Of course! It’s obvious to everyone! Or as Schopenhauer stated:
All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.
Hi Ben;
My first post… readers- please be gentle and use plenty of lube…
Just wanted to state that I am in total agreement with the overall state of the RE market. I wanted to share with you the FACT that markets in the upper midwest are not immune to the RE nuclear meltdown (hey, we haven’t even breached the bottom of the reactor containment building yet… but we will!). Foreclosures in the Minneapolis St. Paul metro region are outrageous. The local newspaper (I fondly refer to it as the “Red Star Tribune” in actuality the Mpls Star Tribune) which usually pretty much follows the mainstream media for their spin on stories. They have a weblink to foreclosures, awful lot of red dots! Houses are not selling, ones that have sold (I know of one just 2 blocks from my modest abode) that sold, then the financing fell through (suprise suprise suprise!). So, it is listed yet again.
This RE market lockup is still totally foreign to most seller wannabees in the outstate area. Check out the URL I provided. This place is 120 miles north of the Twin Cities (35 miles south of Duluth) on a small 400 acre recreational lake. I actually built the place (bought the lot in 99, built the house on it- completed in 2001. Sold it in 2003 for $150,000 after sinking $90,000 of my own money into it and some sweat equity. Not a bad return. Now the woman who owns it tried to sell it on her own with an ad in the Star Trib last Fall. Listed it at $289,900. The only thing she did was add a piece of crap garage (not even vinyl siding!). She had no luck (suprised?), so she listed it this past May for $259,900 with a realtwhore. I bet they thought it would fly off the shelf Memorial Day weekend when all us rich city folk start heading “up north” to the lakes. It has been reduced twice to $239,900. I called the county treasurer and was told that the estimated market value for 2007 is $158,000. I actually called and spoke with the realtwhore (had toddlers screaming in the background, must have been working from the home office…) to see what the story was. She told me “… I didn’t know the estimated market value was that low…” and that the wishful seller had made an offer on another house already (closer to Duluth) and was real motivated to sell. I said that I would consider an offer around $150,000 and she said: “well, we were thinking that about $10,000 of the asking price would be a low-ball offer”.
Long story short, the outstate wishfull sellers are still living in 2005 and believe that all those rich folk from the cities are just sitting on piles of cash to buy their overpriced country trash. Sorry to burst their moonshine induced bubble, but with no home equity, city folk can’t cash out their ATM to buy this overpriced crap any longer.
Yep, it’s still listed for sale…
Nice story and welcome.
You shouldn’t have offered $150,000. That would have been $0 net profit on the buy. Maybe $140,000 would have been more appropriate.
Was driving through No Cal’s version of the Inland Empire, the sprawl that starts in the foothills of the Sierra along hwy 80 and continues down hwy 99, your Mantecas, Lodis, Stocktons, Galt (who is John?) and other nastiness, built all too close to the highway, with appropriate box stores not too far away…
The billboards along the way, mostly home builders~
Reeked of desperation.
Is that a new cologne/perfume for the calif. central valley ? lol
An unapologetic capitalist.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a5lhZkEauCu8
Looks like you’ve got a life threatening inflection, there…
“‘The last couple of years we always used to say, ‘Gee, isn’t it crazy, we’re seeing top-of-market behavior and this can’t be sustained,’ said Thomas Marshella, a managing director of leveraged finance at Moody’s. ‘It did go on longer and we were wrong. You always thought there’d be an inflection point and, finally, an inflection point came,’ he said.”
“‘We’ve got a history of irrational borrowing, irrational lending, irrational homebuilding, and we now are getting an irrational market response to these numbers..,’”
Add to that an irrational war, an irrational response to hurricane devastations, an irrational president, an irrational approach to the ‘war on terrorism’ and an irrational congress.
“Irrational’ is the new rational here in the U.S.
“‘The assumption was that home prices would go up forever, which of course is never a good bet to make,’ said Brian Bethune, director of financial economics for Globe Insight Inc.”
The assumption by the NAR and David Lereah, specifically in his book, stated why prices would never fall. It turns out both were wrong and it put many people in financial trouble with their incorrect advice. I suspect their advice will be tested in the courts in the very near future and it will be interesting to see the outcome.
Seven years ago, Isaac Caballero, who lives with his wife and three children in the Orlando area, came close to ruin. That’s when he took out a home-equity loan to pay down $40,000 in credit card debt. Afterward, instead of holding back on his credit card bills, he ran them up again, and his card debt hit $80,000.
“I blame myself because we were not disciplined enough to stop the spending habits we had,” says Caballero, who sells products to hospital labs. “We ended up with two mortgages and more credit card debt.”
He had to sell his home to pay some of the card debt. He then relied on a credit-counseling firm to renegotiate the balance. At least his home had grown in value, and he was able to quickly sell it.
Caballero now has a good job, owns a home and is no longer in debt. “I would love to be able to help people who are now in the shoes I had,” he says.
Hopefully she is able to turn her dumb$hit move she appears to have recovered from and help others from doing the same thing.
I wonder how many serial debtors sobered up during the RE bubble and actually came out on top? there was probably the period of 2003-2006 to do it.
Yeah, it’s good to hear people repent. Many traits are genetic, but I think for most people spending habits are learned and can be changed given sufficient crisis and doom.
Of course, someone had to buy that house from him.
I try not to talk about money with friends, because I really don’t want to know, but one close friend is a doctor with an 1/0 mortgage on an overpriced coop, with a rising maintenance fee.
She told me several months ago that she’s carrying 125k plus in debt–fertility treatments, shrink appointments, gym, etc. She’s an emergency doc at Bellevue, a city hospital. She’s sweating just trying to carrying this load…how you pay that off, I have no clue.
She’s a city-employed doc, so doesn’t make major bucks–and none of it is student debt. She’s a very decent, well-educated woman, and believed that RE was supposed to give her a leg up fianancially.
When every lame-brain consumer magazine like Money trumpeted how to get rich in RE month after month, for years, people whose business is not money were deliberately misinformed. Yeah, I’d like to see Money, Kiplingers and the rest of those rags take the rap along with Lierah, Nar and the Tan Man.
“Seven years ago …”
I think they filed bk, guys.
have the tv on in the background. a whole lot of the commercials are for these credit relief places offering to wipe out those high credit card bills you ran up through no fault of your own. Settle for half of what you owe. Is that what we as a country have come to?
“Settle for half of what you owe. Is that what we as a country have come to? ”
Sure, since most of these credit relief outfits are scammers as well.
Maybe the unemployed mortgage brokers have found new careers.
“…more Americans are falling behind on their card payments. Credit card delinquencies are starting to rise. And the shrinking availability of home-equity loans is one big reason….
—————————————————————————
I wonder if there will be a ground swell revolt to the most recent Bankruptcy Laws enacted once millions start falling way behind on their credit card debt? Maybe Bush will implore the CC companies to show compassion for overleveraged Americans? NAHHHHH
Factor in universal default, excessive late payment servicing fees and this could get interesting very quick.
haha I was thinking about that, and I decided that upping the Fannie/Freddie caps to “fix” the mortgage crisis is like legislating higher credit card maximums to keep consumer spending up.
But we can’t have a recession… we just CAN’T!
I’m a saver and I wish bankruptcy was easier. It would force the banks to think about _ability_to_pay before loaning money. And yes, the banks should be forced to weed out those who cannot or will not pay off loans. Easy bankruptcy would prevent debt-serfdom. And, I think debt-serfdom is the road to torches, pitchforks, and mayhem that is bad for society’s (and therefore my) well-being.