A Repricing Of Risk
Some housing bubble news from Wall Street and Washington. BBC, “Finance firm GMAC has had to take out a $21.4 bn loan as it becomes the latest lender to reveal the impact of the US sub-prime mortgage crisis. GMAC, which has borrowed the cash from Citigroup, said boosting its financial flexibility was ‘a prudent measure’ in the current market environment.”
“GMAC’s struggling home lending unit, Residential Capital, lost $254m in the three months to the end of June. A key problem is that sub-prime loans are often repacked into wider debt groupings which are then resold. This means that no-one is yet quite sure of the full impact of the woes.”
The Financial Post. “Against a backdrop of spreading fallout from the ongoing turmoil in global credit markets, two major business leaders yesterday warned of more ugliness yet to come for the North American economy.”
“Speaking in an interview, Ray McDaniel, CEO of Moody’s Corp., said the crunch time for the U.S. sub-prime mortgage sector is only now getting going. ‘We are just at the beginning of the peak mortgage reset period,’ Mr. McDaniel said.”
The Globe and Mail. “As a former Wall Street insider, John Talbott has a better appreciation than most for how large financial institutions operate. And what he senses now is a massive effort to conceal the extent of the toxic sludge buried beneath some of the biggest names in the business.”
“‘Everybody is hiding and not disclosing losses,’ he says. ‘They’re all winking and nodding at each other because they’ve all got this stuff on their books.’”
“The subprime meltdown has been described as a liquidity squeeze, which makes it sound like a temporary problem that can be cured with an injection of cash. But the problem is far more serious, he says.”
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
From Reuters. “Central banks are ready to prevent a major financial shock if necessary, Bank of England chief Mervyn King said on Wednesday, as U.S. Treasury Secretary Henry Paulson predicted no quick end to the credit crisis.”
“King said ongoing market upheaval was caused by mispricing of risk and central banks had to be wary of moral hazard, encouraging investors to feel they can act without risk by stepping in every time things turn bad.”
“‘If risk continues to be underpriced, the next period of turmoil will be on an even bigger scale,’ King said in a submission to the British parliament’s Treasury Committee.”
“Paulson said the uncertainty in financial markets would last longer than the turmoil that followed the Asian financial crisis and the Russian default of the 1990s, or the Latin American debt crisis of the 1980s, the Financial Times reported.”
“He said the complexity and global distribution of securities could prolong the crisis, stemming from mass defaults on ’subprime’ U.S. mortgages. ‘We expect this period of turbulence to go on for a while,’ the newspaper quoted him as saying in Washington.”
The New York Times. “‘What’s going on is a repricing of risk across the capital markets,’ Mr. Paulson told reporters.”
“The Federal Reserve chairman, Ben S. Bernanke, said on Tuesday that a high savings rate among oil-producing nations and Asian countries continued to help depress interest rates by keeping financial markets flush with cash.”
“But Mr. Bernanke warned against banking on the steady flow of cheap money — which helped stoke overly lax mortgage lending and the recently punctured housing bubble — over the long term.”
“Mr. Bernanke (cautioned) that the flood of cheap capital from abroad was likely to taper off in the decades ahead, possibly leading to higher interest rates, as countries like China save less and consume more.”
“‘The logic of the global savings glut suggests that, as the glut dissipates over the next few decades and thereby reduces the net supply of financial capital from emerging market countries, real interest rates should rise,’ he said.”
“Some economists now believe that the flood of foreign money, some of it from investors seeking higher yields in the United States, contributed to the speculative bubble in housing prices and the explosive growth in high-risk mortgages that helped finance it.”
“Others contend that the Federal Reserve played a major role as well, by cutting short-term interest rates to rock-bottom lows after the stock market’s fall in 2000 and the recession in 2001.”
“Subprime borrowers had trouble refinancing mortgages because loan programs were no longer available, according to a poll of 1,744 brokers in the last week of August by Campbell Communications.”
“About 5 million adjustable-rate mortgages are slated to reset to higher rates in the next 18 months, according to Lehman Brothers.”
“Lenders cut off credit to customers at an especially fast rate in August as many investors stopped buying the debt banks use to finance home loans. Commenting on business in the weeks ahead, 14 percent of brokers said they had no available lender for subprime loans at all, said Thomas Popik, the author of the survey.”
“‘The question is not what home sales are doing now, but what will happen three to four months from now’ as the lack of lender funding in August filters down, Popik said.”
“Broker customers with subprime, or weak, credit faced the most problems, with 64 percent unable to refinance their ARMs in August, the survey said. Half of prime borrowers were turned away from ARM refinancing, it said.”
“Countrywide Financial Corp. has sharply reduced its subprime lending, which may exacerbate refinancing troubles because many brokers were depending on the No. 1 U.S. mortgage lender, Popik said.”
“The Campbell survey also found that a third of home purchase closings were canceled in August. Loan closings were canceled for 56 percent of subprime borrowers in the month amid failed approvals, while closings for 21 percent of home buyers with good credit were foiled.”
The Wall Street Journal. “Thousands of homeowners face an ‘imminent risk’ of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.”
“In court documents, American Home said Ginnie Mae representatives ’stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office.’ Freddie Mac said American Home ‘had its security personnel escort the Freddie Mac representatives out.’”
“In addition to Freddie Mac and Ginnie Mae, several Wall Street banks are fighting to extract their loans from American Home’s servicing operation.”
“‘What’s occurred is that we have the money, but AHM hasn’t been able to or willing to pay the taxes and insurance, and they have the loan records,’ said Ginnie Mae’s senior VP, Theodore B. Foster. ‘Therefore, we don’t know who to pay, and we don’t know how much.’”
“Orleans Homebuilders, Inc. fiscal year 2007 residential property revenue decreased 34% for the prior year period. The Company experienced a cancellation rate of approximately 23% for the year ended June 30, 2007. Fiscal year 2007 net loss was $66.9 million.”
“As a result of a various factors…the Company recorded a pre-tax charge in the fiscal year 2007 fourth quarter related to inventory impairments of $19.3 million.”
“The increasing uncertainty with respect to the overall mortgage market, including the jumbo and Alt-A mortgage markets, may further reduce demand for our homes and require the increased use of sales incentives to overcome negative buyer sentiment.”
“The McMansion may be shrinking. With the nation’s housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing.”
“‘Financing has tightened down so much that many people aren’t able to qualify for the larger houses,’ said Kathryn Boyce, an account executive in Northern California for Hanley Wood Market Intelligence. ‘Throughout the U.S. people can’t afford what they previously did. Floor plans are going to get smaller.’”
“Recently, turmoil in the mortgage market has made it harder for buyers to qualify for bigger loans. This is causing builders to redraw their blueprints. After reducing prices on their current inventories of unsold homes, the next step is to ’start building to a new market. That new market is a lower price point at a smaller size. To the extent they can do it, they will,’ said Kermit Baker, chief economist at the American Institute of Architects.”
“Jeffrey Mezger, CEO of Los Angeles-based KB Home, said the change has been ‘driven by data on what our home buyers want and what they can afford in a new home.’”
“Even Toll Brothers Inc., known for its sprawling suburban ‘McMansions,’ recognizes that buyers may want smaller homes. Kira McCarron, the company’s chief marketing officer, said Toll doesn’t track home size, but she concedes that there ‘probably is more demand for 3,000- versus 6,000-square-foot,’ homes.”
“Ms. McCarron added, ‘It’s not that people don’t want or can’t afford [big houses]. It’s that they’re afraid of them now — it’s a confidence issue more than an affordability issue.’”
“In some cases, home builders are making the shift to smaller, less costly homes in existing subdivisions, angering homeowners who bought large homes during an earlier stage of the project’s development.”
“David Raidman moved into his 2,760-square-foot lake-front home in Fort Pierce, Fla., last fall in the first phase of a gated community developed by Lennar Corp. of Miami. Mr. Raidman said he was told that his home would be surrounded by similarly sized and priced homes. But when he heard Lennar was planning to build much smaller homes in his neighborhood, he and other homeowners fought the company’s plans.”
“Although Lennar agreed not to build the smallest of its new models — at just 1,326 square feet — next to the larger ones, the home builder has continued with its plans to downsize.”
“‘Our biggest concern is what it would do to the value of our homes,’ said Mr. Raidman, who doubts he can sell his home today for the $300,000 he paid for it last year. Standing on his back porch, he can look out across the lake and see at least six newer, smaller homes. ‘The garage looks bigger than the house,’ he said.”
“But while home builders are aware that customers increasingly want smaller, cheaper homes, and in some cases can’t afford anything else, building those homes eats into their profits, often because of the high price they paid for the land the homes are built on. That leaves them having to hope for higher sales volume to offset their reduced margins.”
“Some welcome the downsizing trend, including author Sarah Susanka. Since 1997 Ms. Susanka has written several best-selling books extolling the virtues of ‘The Not-So-Big House,’ and she says she has recently been attracting more interest from home builders. ‘I used to be asked all the time why would anybody want to downsize? People thought I was crazy,’ she said. ‘Now it’s becoming much more mainstream.’”
FYI, in order to avoid the comment server problems, we have switched to a caching setup for the home page. The only change you should experience will be the comment count on the home page will only be updated every 60 seconds. Please let me know if you have any other problems.
get you new, 27′ higher TEXAS house here
http://tinyurl.com/383qbb
SAN FRANCISCO (MarketWatch) — The dollar marked a new record low against the euro Wednesday amid growing expectations that the Federal Reserve will cut U.S. interest rates next week and fears that the credit crunch is threatening the health of the U.S. economy.
Maybe the FED should think twice before cutting rates?
Bernanke, said on Tuesday that a high savings rate among oil-producing nations and Asian countries continued to help depress interest rates by keeping financial markets flush with cash.”
- What a hoot. The rest of the world is saving and exporting to the Juan Sixpack, who can’t spend enough and doesn’t even think that he needs reserves. He needs a new IPhone….
So the global savings glut is really windfall profits accruing to oil producers and Asian sweatshop labor Industrial Captains, and these ill-gotten profits coming back to us in the form of equity purchases and loans for us to continue our unsupportable standard of living.
This is going to end well.
Here’s how Peter Schiff spun it:
It’s like a father coming home at the end of the day after working hard, and his kids showing him all the stuff they bought with his wages and saying, “You’re lucky, Dad. If we weren’t out buying stuff, you wouldn’t have anything to do all day!”.
I took “high global savings rate” to mean “high central bank injections of fiat money”.
give financial sanity a chance!
http://www.ronpaul2008.com
I was in Tyler, Texas yesterday and saw my first “Ron Paul for President” campaign sign.
I was at the Hollywood Bowl last night, and during the performance one of those spinning neon signs flew overhead (silently, thank god) with No war! No IRS! Google Ron Paul! on it. Quite stunning.
I think they should cut rates at the same pace as they raised them. 0.25% at a time. It won’t have ANY effect on the market anyway, and that will send a message to Wall Street to hurry up and reprice their financial assets, take the necessary losses, and get back to normal business in a couple years, rather than dragging it out for 4-5 years.
Yeah, and voters will next elect someone serious about cutting government spending to the bone!
They should definately cut rates to 2%. That way the stock market can go to a new record high and everyone will be happy that stocks went up. Nothing else matters except people keep their houses and the stock market raises for another month. Who cares about the longterm anyways. This is America!
Indeed! After all Zimbabwe (or however you spell that hole of a nation) has one of the “best” stock markets ever in that it just keeps going up, Up, UP!!! Sure, inflation is a zillion percent per year and it is a 3rd world country, but who cares because the market is making new highs!
The sad part is that we laugh about the idiocy of rate cuts “fixing” things, yet so many people really do believe that the lower the interest rates, the “better” things are! ARGH!
It’s sadly ironic that their country was better off in terms of currency, budget, spending, food production and feeding the population — when it was Rhodesia and under international sanctions.
How can they justify a rate cut with gold, wheat, and oil up to new records and the dollar falling to historical lows? A rate cut undermines the inflation argument and the Fed. It’s time to give the weepy bulls the finger.
“‘Everybody is hiding and not disclosing losses,’ he says. ‘They’re all winking and nodding at each other because they’ve all got this stuff on their books.’
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
Time to move over to a conservative credit union? I think this is one of the most honest, on-target quotes I’ve seen in the media. Eventually, and probably some day soon, the truth will be exposed and the sh*t will fly furiously. Keep your heads down!
Nice post and so true, when i was in the car business during a very tough down cycle years ago i would stare out at a lot full of unsold cars, at the Monday meetings everyone saw what i saw but i told them don’t worry the public will show up and buy these things. It was the smoke and mirrors and the wink wink game, lower rates did nothing because most people at the time were either scared of job lost or did lose their job. This housing meltdown is magnified 1000 times compared to those days , billions of dollars seeems crazy but try maybe trillion dollar lost this is really is very serious businesss and like you said hiding out and not disclosing losses was like looking at the lot full of unsold cars, a 5.00% fed rate or even lower ain’t going to make it go away anytime soon?
I love how a 2 year old jap car is 10% off new cause of financing “options”
that’s a tough assss business
What does “Keep your heads down” mean?
When the stuff hits the fan, try to keep your head down to avoid getting hit. In other words, try to find ways to limit your exposure to the housing bust fall out. Just an expression.
The term comes from trench warfare during world war I.
Just that, when the sh!t starts really hitting the fan and flying, you don’t want to be in the line of fire. Of course all of us dollar bag-holders have already been smacked right between the eyes!
It’s an expression from the time wars were fought in trenches. Enemy snipers would constantly survey the other sides trenches, waiting for a head to appear - then bang! One between the eyes. Thus the expression, “Keep your head down.”
That’s precisely what got Ernie Pyle killed during WWII.
Yeah, John Talbott wrote the first book I read about the housing bubble back in 2003. It was a really scary, succinct read with great explanations of the economics at work. I bought it at an airport, read it, and walked off the plane kind of shaking and twitching
I always wondered what happened to him, cause I haven’t seen or heard a peep from him in any of the articles I’ve read.
His second book, “Sell Now” came out about a year later. I read it and he saved us $300,000. Just like Ben’s Blog, it’s all coming to fruition.
I love that book, “Sell Now!” It makes things look pretty ugly, and everything that was predicted is coming true. Such a read was only for paranoid, outlier pessimists a couple of years ago. Maybe that is why I love it!
Wheat, oil at record highs, gold close to it…dollar breaking through key support levels…no inflation here. The FED can talk all they want about improving savings rates and not bailing out speculators, but they will cut. If they don’t look for October 1987 all over again in stocks.
Don’t forget the American Community Survey data today, which proves that housing prices got out of line with incomes:
http://www.msnbc.msn.com/id/20728149/
This, and the long-term trend of Americans living beyond their means (via credit cards and HELOCs) and, for most, falling means, are the fundamentals underlying the current financial crisis.
FHA is going to solve an affordability problem? How are we going to be competitive economically when the average house costs $556,574?
Latest from Northern Virginia Realtors:
“FHA To Offer More Flexibility As Mortgages, Credit Policies Are Revisited; A Buyers Market Continues to Prevail”….
“The average sales price in August 2007 in Northern Virginia was $556,574″
http://www.nvar.com/market/marketdetail.lasso?articleno=nvarn100453
I love how that numb-nut Paulson was calling for “more mortgage options” to fix the housing “problem.” Yeah, because housing returing to affordable levels would be a “problem” - and isn’t he forgetting that creative mortgages are what got us INTO this mess?! DUHHH!!!!
Maybe we can have the 100 year interest only mortgage, where you can pay only interest for the first 100 years? I bet “investors” will be snapping those up! And it’s not like you’re renting if you “buy” a house in that fashion, right? Right? Argh!
GMAC has had to take out a $21.4 bn loan….
Stop running those silly no money down ads.
But they’re addicted to cheap money and can’t stop themselves!
GMAC, et al Ditech:
“People are smart!”
Apparently not the people running the company.
Just stop off at the discount window…
Oh. You can’t get there from here.. LOL
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks.”
Scariest statement yet.
It doesn’t sound like NYC and NY State should expect too much in the way of financial corporation profit taxes for the next few years, eh? And perhaps the bonsuses won’t be what they’ve been. Except for the top guys, who deserve every penny of their escalating salaries for doing the hard work of getting their companies out of the messes they got them into.
“Central banks are ready to prevent a major financial shock if necessary, Bank of England chief Mervyn King said on Wednesday, as U.S. Treasury Secretary Henry Paulson predicted no quick end to the credit crisis.”
Has Secretary Paulson diversified his career into Central Banking?
P.S. I guess the Greenspan put has been biggered to a global scale now?
And, for your information, you Lorax, I’m figgering
on biggering
and Biggering
and BIGGERING
and BIGGERING!!
Well said, Prof Bear.
Do you teach at the same University with a bldg named for Dr. Seuss?
I wonder how true this is?
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
I would love to see a run on the banks. Cash would truely be crowned King that day.
My cash is in a bank. This is how the bubble believers could take us down with them.
Then take your money out. I have a major position in cash right now in spite of rampant inflation.
I wouldn’t call my cash position *major* but I keep a few months’ in cash in a safe location, and just forget about it. The interest and inflation loss isn’t so large that I notice, and the peace of mind it brings me is worth it.
I actually prefer silver to gold right now. Last time gold was @ $700+ in May 2006 Silver was over $15, now it is only $12.70. Most of the “hot” money is going into Gold, even though by most metrics (aboveground stocks, industrial vs. precious metals, and historic gold-silver relationships) silver is a far better buy. Plus, if you buy Canadian Maple leafs, they are branded as $5 (versus only $1 for Eagles). Thus, if we’re completely wrong about all this, you still have significant purchasing power based off its stated value.
I’m with ya buddy. All in T-Bills and big numbers!!!!
I have been thinking about this problem too. Right now I have m cash split (mostly) evenly between Chase, HSBC Direct, and Fidelity. From the bunch I am most concerned about HSBC given how much worse the UK bubble is compared to our own.
What I mean is my cash is in the matress. You don’t have cash if you can’t withdraw it when the run on the bank starts…
Good point. But this mattress approach only scales to a degree I imagine. It will work if you have a secure dwelling with an even more secure safe. I also see posters talking about how they own Gold in physical form (coins, etc).
I wonder if your average burglar, coming across your stash of gold coins, would even know what they were. I imagine him standing there, scratching his head, and wondering why you have a pile of “Chuck E. Cheese tokens”.
Hi Devildog, say, umm, what’s your address? Just uh, idly curious, that’s all.
There are plenty of great places in most homes in which to hide bullion or cash. Just be sure to tell someone you trust (child, sibling) where it is, in case your place goes down. You could put coins in a flour jar and fill it with flour, currency under the cereal or laundry powder. No limit, but best you leave a clue to yourself, that you keep in your wallet — especially if you spread it around.
“In court documents, American Home said Ginnie Mae representatives ’stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office.’ Freddie Mac said American Home ‘had its security personnel escort the Freddie Mac representatives out.’”
Wow, wish I’d been a fly on the wall for that one. A real hoe-down hootenanny.
“‘What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
Consequently, they should be allowed to fail. Don’t we live in a free market capitalist society anymore? After they fail, if the opportunities are attractive, new capital will flow into this space.
Too much time and effort is spent trying to predict the Fed’s next move. They need a more consistent policy.
Society would be much better off if time and energy spent watching the FED was spent on more productive things like building things, deciding on how to allocate resources to profitable and productive endeavors and curing diseases.
Agreed. But the problem is that you assume The Fed doesn’t already have a consistant policy. They do and it consists of making money off of clueless J6P for the big banker barrons through debt creation and inflationary policies. Anything else is just smoke and mirrors.
We’d be much better off without the Fed. I’m voting Ron Paul, but he doesn’t have a snowball’s chance because of the threat he presents to the establishment.
Are you suggesting we eliminate one of the major employment sectors of our economy? Without the kabuki theater of wall street (the investment “advisors,” pundits, etc.), we’d lose half of our workforce. We need the grand casino!!
In all seriousness, I invest only in index funds and money markets because of the joke that is the market. That having been said, I don’t have a problem with sheeple spending their time “getting rich” (or not) gambling against insider-shysters. Probably a better vice for these people than wandering into the neighboring village plundering treasure and dragging away women and children. Circus and bread, 21st century style.
” Don’t we live in a free market capitalist society anymore?”
Haahhahahahahahaha…Only when things are going well. When they turn sour it’s rich man’s Marxism time. As is oft repeated here “Privatize profits, socialize risk.”
OT, but here’s a good article about how housing prices have far outstripped incomes, and what that means.
http://www.heraldtribune.com/article/20070912/REALESTATE/709120635
I didn’t think it was OT Bill, I thought it very much related to the housing problem today and what people talk about on this blog and I appreciate you posting it.
test
I suppose it boils down to one thing. If you lend someone $20 and that person has a bad credit history, then you might have lost your $20. On the other hand, if you lend someone who has bad credit $600,000…….guess what?
Yes. Borrow a little from the bank, the bank owns you. Borrow a lot from the bank, and you own the bank.
-John Maynard Keynes… God rest his soul.
“‘If risk continues to be underpriced, the next period of turmoil will be on an even bigger scale,’ King said in a submission to the British parliament’s Treasury Committee.”
Suck it up, he says, to all the girliemen calling for a rate cut. The fundamentals are good. The economy is strong. Why do you need a rate cut?
At last, a central banker with balls! Bernanke are you listening?
It’s not that the rest of the economy is doing well. It’s that we can’t cut off the bloodflow to this huge cancerous ever-growing debt-tumor without cutting off the bloodflow to healthy tissue.
Reminds me of that kid who got stuck while out rock-climbing alone. He had to cut his own arm off, to survive. Seems to me it is a decent metaphor.
“The subprime meltdown has been described as a liquidity squeeze, which makes it sound like a temporary problem that can be cured with an injection of cash. But the problem is far more serious, he says.”
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
You should read the whole article, this guy predicted today’s housing decline in 2003 in his book. He’s a former Goldman exec and my fear is that the above comment is all too accurate.
Those holding mortgages are going to have to, at some point, reveal their losses. How this is going to play out is beyond me but I just cannot fathom it being resolved by some (even many) Fed rate cuts.
The prices of the underlying collatoral for these loans is likely down 20% already. The prices will likely decline even more. That means a pricing spiral will occur and even more losses will have to be recognized. How will these losses NOT effect the economy, lending in general and psychology in a very negative fashion?
I am amazed they have been able to keep the losses hidden this long. It won’t be fixed by rate cuts. This is a purge that must and will (eventually) take place. Our economy is screwed. For the first time ever, I actually feel secure in that belief.
Rate cuts will do nothing because they will be dwarfed by added risk premium.
The GMAC loan is to cover the commercial paper (asset backed securities) that they can not roll over. Every captive finance company (auto, credit cards, etc) can not roll over their asset backed commercial paper. Watch for GM, Ford and credit card companies to tighten their lending within the next 2 months if asset backed based commercial paper can not be rolled over.
GMAC is 51% owned by Cerberus now, so that private equity company will be taking half the hit to GMAC as well. Seems like Cerberus would be rethinking their purchase of Option One as well.
A private equity company. No problem. They will be bailed out by the government if they get hit.
Better not. I’ll be grabbing a pitchfork at that point.
“The McMansion may be shrinking.”
Unless Congress succeeds in passing its Unaffordable Housing Bill next week (to raise GSE conforming limits beyond $500,000 in markets where housing is already unaffordable!!!), it looks as though the home construction market may finally be able to begin responding to local market end-user demand, instead of to flipper and speculator demand. (Remember, all real estate is local!)
Meanwhile, I detect a growing schism between the White House and the Democratic Senators on whether baling out fools is the best way forward. I could not agree with the Treasury Secretary any more strongly that it is a terrible mistake to grow Fannie before they straighten out their crooked financial picture. Besides, increasing the conforming loan limits would work in diametric opposition to the GSEs’ affordable housing mission; reducing the conforming limits would be a far more effective means of delivering affordable housing to the people who live on Main Street.
Paulson: Senate Needs To Act
Pushes For Reform Of Fannie, Freddie
By DAVID LIGHTMAN | Washington Bureau Chief
September 12, 2007
WASHINGTON - Treasury Secretary Henry M. Paulson Jr. gave a friendly half-smile, took a sip of his Diet Coke and tried to say, in comforting tones, that although the sub-prime mortgage crisis won’t end anytime soon, it’s no reason to panic.
…
One of Dodd’s recommendations for easing the mortgage crisis is to have regulators permit Freddie Mac and Fannie Mae - two government-sponsored agencies that back mortgages - to raise their portfolio caps. The idea is to help the market by making more investment money available for loans.
The administration, Dodd contends, could prod the agencies, but the White House has been reluctant, saying it wants the two agencies to show more stability.
Paulson said it’s the Senate’s responsibility to act in different ways to ease the mortgage crisis, and he noted that the House passed regulatory reform four months ago.
“The Senate has got more work to do,” he said. “I can’t say it any plainer than that.”
http://www.courant.com/business/hc-paulson0912.artsep12,0,7267703.story
From the NYTs piece in this thread:
But Mr. Paulson repeated his resistance to proposals by Democratic lawmakers that would allow Fannie Mae and Freddie Mac, the giant government-chartered mortgage financing companies, to buy and hold billions of dollars in additional mortgages in their own investment portfolios.
Fannie Mae and Freddie Mac have almost unlimited ability to buy up and bundle traditional mortgages into securities that are then sold to investors around the world. But Congress currently prohibits the companies from handling mortgages bigger than $417,000, and federal regulators have prohibited them from holding more than about $700 billion each in their own investment portfolios.
Critics have accused both companies, which became embroiled in accounting scandals several years ago, of becoming tantamount to huge hedge funds that could pose risks to the financial system if they ran into trouble. Commercial banks and investment banks have also tended to view the so-called “government-sponsored enterprises” as having an unfair competitive advantage, because the implied backing of the federal government allows them to borrow money at lower rates than most other financial firms.
A v0te for HC equals a v0te for a more ginormous Fanny!
“‘Everybody is hiding and not disclosing losses,’ he says. ‘They’re all winking and nodding at each other because they’ve all got this stuff on their books.’”
Old Economy: Goldilocks
New Economy: Nudge Nudge, Wink Wink
Like OrangeMan, they’ll be singing this one next week. Let them eat Cake:
http://www.youtube.com/watch?v=_PF3ui5FjK4&mode=related&search=
Old Century Fed game plan: Lean into the wind.
New Century Fed game plan: Lean into the correction.
Oil is at an all time high. The Dollar is at an all time low against the Euro. We need a rate cut like we need another hole in the head!
CBS Marketwatch now has a new daily feature: Subprime Watch.
http://tinyurl.com/2futrn
Since Ben’s attention is probably moving West with the sun, I’ll throw in this article on the housing bust hitting the enclave of the Super-Rich:
http://tinyurl.com/2e3ntn
Combine all of em’ and multiply by 100…
To paint a picture for you~
“Paulson said the uncertainty in financial markets would last longer than the turmoil that followed the Asian financial crisis and the Russian default of the 1990s, or the Latin American debt crisis of the 1980s, the Financial Times reported.”
CRISP and COLE FBI RAID - UPDATE:
Just left the scene and several locations. 13 locations swaring with FBI and media and one loser blogger (me).
WOW!!
Please keep us posted Crispy. Is it like something from the movies? Man, I wish I was there to see it! I guess David Crisp’s CSU Bakersfield high rise project is officially dead now.
I know some people connected to that project. I’d love to talk to them this weekend while in BK but I think they are probably hurting as Crisp probably ripped them off for a large chunk of change and it’s too early to broach the subject.
Get some pics?
I didn’t bring my camera. I will have to “borrow” from the news agencies.
Awwww!! shame on the Crispy one… Dude as much as you have been following this story you should have ran out there with a full blown news crew LOL
UPDATE:
Sources state the following agencies issued 13 search warrants and the locations were raided by FBI, IRS, DRE, Bakersfield Police and Kern County Sheriffs.
Gawd, you must be in hog heaven there. LOL!
‘Some Countrywide Financial Corp. employees sued the giant mortgage lender Wednesday, claiming they suffered heavy losses in their 401k retirement accounts after the company failed to warn them about the depth of its financial troubles.’
‘The lawsuit, filed in U.S. District Court in Santa Ana, seeks class-action status and names as defendants Countrywide Chairman and Chief Executive Angelo Mozilo and benefits committee members in charge of the retirement plan, according to attorney Steve Berman, who is representing the plaintiffs.’
‘Most of these employees weren’t risk-takers, rather claims processors and line staff who go to work every morning, putting a little away every month for retirement, or to finance a child’s education, Berman said in a statement. ‘With Countrywide’s demise, they’ve seen their retirement funds decimated,’ he said.’
Sounds like Enron.
If anyone can give their employees the can, Countrywide can
I guess the best way to protect yourself if you work for a large company, is to watch each day to see if the CEO dumps stock. That’s a sure sign to get out.
Someone on a post a while back suggested that a real sign of trouble for a company is when they switch from Starbucks to Folgers.
Unbelievable, and further proof that mankind, as a whole, is not conditioned to learn much of anything. I would assume they had an option NOT to invest in their own company’s stock with their retirement money. Very sad for them, but I thought it was pretty much common knowledge that rolling all the dice on your place of employment is a foolish strategy.
‘Some Countrywide Financial Corp. employees sued the giant mortgage lender Wednesday, claiming they suffered heavy losses in their 401k retirement accounts after the company failed to warn them about the depth of its financial troubles.’
I recall that many Enron employees similarly lost their retirements during the final days of the slide into oblivion.
I’ll be suprised if that suit goes anywhere. I’m sure their plan trustee had all that stuff covered in the disclosures.
Yes, I worked at Enron and lost money - but I did not put my own funds into their stock. Problem is, the matching funds were all put in Enron stock - no choice in the matter. And the ESOP funds. So although I did not lose my own contributions, I lost all the company contributions.
And yes, there were plenty of employees who put ALL their money into the company stock. And as Enron was unraveling and the stock was going down hourly, there were still plenty of employees buying more shares thru their brokers because it was such a “bargain”. I tried to get two co-workers to stop buying it, or at least wait until it hit bottom and started to go up (although it was obvious the stock and company were toast), but they would not listen to me, and spent thousands buying shares at 15, then 10, etc. Some people refuse to face reality.
“Problem is, the matching funds were all put in Enron stock - no choice in the matter. And the ESOP funds.”
Morgan Stanley did the same.
ESOP’s Fables?
I know people that have no choice. All of their 401(k) match is in their company stock. But, if the company survives by downsizing, you might be out of a job with an equity position that increases.
reminds me of something someone said about egss and a basket or something.
Not to mention Black Swans and Fools of Randomness…
“reminds me of something someone said about egss and a basket or something.”
Yeah that would be day 1 of Investing 101. Unfortunately most people never signed up for that class. They figured the fact that they could open an account qualified them for an equivalency degree.
Someone (or many someones) pointed out here some time back how sad it is that our public educations don’t include financial literacy. It’s so sad and so true. And IMO (tin foil hat moment) it’s not an accident. I plan to do lots of home-schooling on the subject.
Yes but…at my husband’s old company, the 401K company match was only available if you had your 401k money buying company stock. That actually worked out pretty well, and of course you could move it from time to time, but if that is the rule at Countrywide (or if it was at Enron), then that would explain why their money was invested in that stock.
My company jsut shifted all of our retirement money from fidelity mutual funds, into some kind of fucked up sub fidelity “pseudo non mutual fund look alike funds”. Guess who dropped his input from 20+ percent, down to the minimum that is matched, and has it all going into the pseudo money market fund. I gave, serious, serious thought to pulling it out and taking the tax hit from the 401.
I was quite happy with the diversity and credentials of the old fund, i do NOT trust the new one. But thanks to federal law, i cant roll my money over unless i quit or pay the penalty.
Does any one remember IBM? IBM employees lost substantial amounts. This was before Enron.
If anyone thinks the SEC is going to do anything to reveal how these corporations, lenders and banks have been cooking and hiding the facts, think again. The SEC are the minions of the Financial Gangsters of Wall Street. True story: About 15 years ago, my wife (a CPA/Lawyer) had a client who had a small and well established fund for a group of mostly quite wealthy investors. She said the SEC never stopped hounding the company. Continually sending requests for information. So much so the guy who ran the fund (which had been established 40 years ago at that time) hired someone to deal solely with the SEC. Eventually, the guy who ran the fund sold it to a bigger corporation. Meantime, Da Boyz on Wall Street of which Hank Paulson is one of the Godfathers, were looting and stealing like bandits (as they still do). Antime the government (especially THIS administration) announces some plan to “help” Joe Sixpack, you can be 100% certain they are helping some organization higher up the food chain. The prescription drug plan being a perfect example. It REALLY helped the big drug companies. My point being, don’t bank on the SEC or ANY government department to help ANYONE unless it’s those with big financial interests like banks or Da Boyz.
That is a fascinating tale you speak of. I believe every word. I knew something was really rotten when Paulson went over to the treasury. This will not end well for Joe Sixpack.
Methinks J6P will be a couple cans or bottles light…
J4P soon
Not to get off subject (jp4pack)
Notice how they are *smallering things*?
IE: Less (fill in the blank) of any size:
Downsize TP, Milk, Detergennt, Cheese, etc. (Upward cost).
Downsize=Inflation=$$$Profits….
Uhoh…maybe down side is (already) coming up?
I’ve been hassled by the SEC over trading in an illiquid stock at the behest of one of the scuzziest market making firms around. I wouldn’t wish that on anyone.
Brings to mind tales of the IRS agent going after the little old granny who came up $0.10 short on her tax return, while turning a blind eye to big fish perpetrating massive tax fraud.
The truth will get you fleeced.
and
The bigger the lie….
She deserved it. Stealing 10C from the government.
I fail to get the whole credit thing. I have about $100K in available credit card lines. This does not mean I can afford to fill my house with $100K worth of junk. Credit is not wealth! If anything it is anti-wealth
What are you, a communiss … ? (Tip to CoDs).
ConFEDeracy of Dunces?
Yep
You sir are smarter than 99% of the population.
“People who understand interest, get it. People who don’t, pay it.”
OMG, that’s beautiful. Is that another gem from John Maynard Keynes?
“‘What’s occurred is that we have the money, but AHM hasn’t been able to or willing to pay the taxes and insurance, and they have the loan records,’ said Ginnie Mae’s senior VP, Theodore B. Foster. ‘Therefore, we don’t know who to pay, and we don’t know how much.’”
So do people who have their taxes and insurance escrowed have to worry about them being paid to the county treasurers and insurance companies? That’s scary for anyone with a mortgage, sub-prime or prime.
Very scary. If this keeps up, what is Ben going to do on Halloween?
They neglect to mention that the borrower can always ask their insurer if their policy is paid up and they can ask their tax office if their taxes are current. Not fun, double payments to reconcile — but there are choices.
Kudos to Ben on yesterdays article in the Online Journalism Review,
“Mortgage crisis no surprise to ‘Housing Bubble Blog’ community”
here’s the link, second article on page.
http://www.ojr.org/
yes yes yes, great article about the blog.
Great interview. Thanks for telling them like it is.
Spot on comments, Ben, about the MSM failing the media by relying on press releases and quotes from self-interested parties for information.
You see it in coverage of public policy as well. Most of the articles cover “reports” issued by lobbying groups with financial interests in that policy. Reports repeat the information in the report, round up an opposing quote from one of a stable of usual suspects, and that’s the story.
“I also adopted a sort of hands off approach early on. I do the posts, they do the comments. I treat the posters as adults, and I prefer to let them sort out their own differences. Sometimes this causes a thread to turn into a train-wreck, but overall it has served me well.”
Thank our lucky stars that at least one American still understands the virtues of a free market (for blog comments!) subject to a rule of law.
Yeah, because we so enjoy our occassional train wrecks…
Nice job with the interview. Intelligent and classy as always.
Good job Ben! One of the very few blogs that has intelligent conversation. MSM gets away with it because most folks are too busy being numbed by MSM, TV, games, etc. to read, let alone absorb, research or comment.
40-50,000 unique viewers on weekdays? Wow, just wow.
Great job, Ben.
I wonder if I could get continuing education credit for reading this blog! I’ve learned more here than I have in some Appraisal Institute courses!
Well done Ben. I am honored to be part of such a classy blog with such a classy creator. I hope this is only the beginning of a flood of recognition for you Ben. You deserve much more credit than you are getting.
Sorry to post so late in the day/evening — congrats, Ben, on a great interview. I hope it gains for you the increased recognition that you’ve earned through your hard work and dedication, most notably including your dedication to us — your “family.”
“‘Financing has tightened down so much that many people aren’t able to qualify for the larger houses,’ said Kathryn Boyce, an account executive in Northern California for Hanley Wood Market Intelligence. ‘Throughout the U.S. people can’t afford what they previously did. Floor plans are going to get smaller.’”
This is such a crock. People couldn’t afford what they bought before, that’s why we have this crisis. They could only afford smaller floor plans, but no one cared as long as they were making big commissions on real estate and the loans. I’d bet 90% of the McMansions were sold to people who wouldn’t have qualified 7 years ago by the old lending standards. So 90% of the McMansions are probably going to sit vacant and rot away, because there’s no longer many qualified buyers for them.
…”90% of the McMansions are probably going to sit vacant and rot away…
I have no problem with this happening. A blessing in disguise!
CA guy,
You aren’t closing your italics tags correctly.
Whoops. My apologies to all here! I will just stick to quotation marks. Ben, thank you for letting me know!
I just wish this would hurry up and start rolling into the San Francisco and Peninsula area. Most are still chugging the Kool-Aid (TM) served up by the Realtors (TM) around here.
A property I’ve been eyeing for years is finally on the market. But still vastly overpriced. Oh well. Guess I’ll have to keep making money on the stocks and commodities.
They should be plowed under.
So 90% of the McMansions are probably going to sit vacant and rot away, because there’s no longer many qualified buyers for them. It’s not that people are unqualified to own them, they just can’t afford them at current prices. The desirability of square feet vs location might change due to gas prices, but other thing being equal, most people would rather live in a larger house than a smaller house. SLOOWLY housing will be repriced such that the price percentiles align with income percentiles.
Yep, even here is wee little Pullman, according to one local “high end” builder, almost ALL of his customers over the past several years have used ARM’s to get into houses they couldn’t afford with traditional fixed mortgages. Now we are starting to see a bunch of 2004-2006 vintage “luxury” and “custom” homes come onto the market.
Erin Burnett just came on CNBC, announcing a segment coming up about Mozillo. She called him “the Orange One”. Specifically, “he is the Orange One.”
He has now entered the Hall of the Immortals…
I had a college classmate who so enjoyed carrots that her skin turned orange. Could this be the reason for Mozilo’s orange-ness?
No, it’s MAN TAN or whatever they call that gunk in a tube. Really awful stuff.
Considering how CFCs doing I know the explanation: he’s toat.
Hey, back off, that happend to my little sister when she was 8 months old. She just wouldnt eat anything but carrots for a motnth or two…..
Shes fine now.
Old Citrus Name: Rusty Staub, “Le Grande Orange”
New Citrus Name: Anglelo Mozilo, “The Orange One”
This Rescue Refi does not make sense. Am I miss something
http://money.cnn.com/2007/09/12/real_estate/refi_rescue_status_check/index.htm?postversion=2007091213
It used to be you couldn’t refinance into an FHA loan if you’d been delinquent in your payments for any reason. But with the FHASecure Act, delinquent homeowners qualify for an FHA-insured refi if they have:
A history of on-time payments for at least six months before their loans reset to higher rates
Interest rates scheduled to reset between June 2005 and December 2009
3 percent equity in their home, or the cash equivalent
A sustained history of employment
Sufficient income to make their FHA-insured mortgage payment and all other obligations
3 percent equity in their home, or the cash equivalent
This will kill the refi’s.
1) Houses aren’t worth what people paid for them
2) A lot of those people were 100-110% financed - They never had 3% down.
What are the odds phantom 3% equity numbers will be made up by FHA to “help” people??
I’m getting both enlightened and paranoid on this site, maybe.
I’m getting both enlightened and paranoid on this site, maybe.
I’ve been thinking the same thing about myself.
the 3% is slipsliding away. by the time this dead horse ever comes up in committee the whole thing will be a moot issue. the vast majority of armholders will be in minus territory
“Sufficient income to make their FHA-insured mortgage payment and all other obligations”
This will also rule out the vast majority of FB’s. They are going into foreclosure precisely because they can’t afford the home to begin without a crazy mortgage. 30-year fixed payments? Forget about it.
The 3% won’t kill it, but the “sufficient income to make the FHA-insured payment” will.
Getting approved on a 3% teaser rate, based on spending no more than 45% of your income on that 3% payment does not mean that you have “sufficient income” to make payments on a 6% FHA guaranteed loan at the same principal amount.
I’ll put it another way. If the only reason for the delinquency is the ARM reset, and the buyer can qualify for an FHA loan, it is very unlikely that they would have been delinquent on the ARM in the first place. The only people who are going to be saved from unaffordable loans through the new FHA guidelines are those who can only BARELY not afford the ARMs at the adjusted rate.
This will help very few people.
over 50% of refi’s being turned down- bet the terms are nasty and NOT cheap
FTC was just on CNBC talking about sending out 200 warning letters to lenders about deceptive ads. Seems they’ve gone after a “whole” 21 in the last ten years. They asked her why so low since that was only 2 a year and she said well now they’ve decided to step it up in view of the subprime mortgage crisis. Once again our government at work.
Really? Looked at USAJobs, FTC, Attorney just for grins. There’s one attorney position being advertised in Los Angeles.
Methinks they, like so damn many others, will *say* whatever it takes to make people think they’re doing something beneficial without actually *doing* it.
“Subprime borrowers had trouble refinancing mortgages because loan programs were no longer available…. About 5 million adjustable-rate mortgages are slated to reset to higher rates in the next 18 months….”
FB’s mortgage broker is Never There. More consuming Cake:
http://www.youtube.com/watch?v=Nbzt1HnVzIQ&mode=related&search=
Enough Cake, I’m about to toss my cookies.
“In some cases, home builders are making the shift to smaller, less costly homes in existing subdivisions, angering homeowners who bought large homes during an earlier stage of the project’s development.”
One rule of thumb I’ve always heard is that you should never buy the most expensive house in a neighborhood.
“One rule of thumb…”
Doh! My house is on the market now (10% off the year ago price) wish me luck.
break a leg.
If you really want to sell it, recommend you price it at 10% off a year ago or 10%+ off the lowest competing price for a comparable house — whichever of these is lower. Wouldn’t think there are a lot of house shoppers in Vermont in the winter — especially this winter.
OMG, Greenspan said this when they started pushing toxic loans for people.
Expansion of mortgage Products = Toxic loans.
Paulson calls for expansion of mortgage products.
More mortgage products are needed to help homeowners keep their houses, Treasury Secretary Henry Paulson said Wednesday.
Speaking before a meeting with mortgage-servicing companies, Paulson said the Bush administration is working to keep as many homeowners in their homes as possible.
He said that the administration is identifying borrowers who may face expensive mortgage resets and that “we need an expansion of mortgage-financing products.”
OMG! is right.
The new “first born” loan, in which you pledge all the future earnings of your first born as collateral. You can stave off foreclosure AND take a cruise with the proceeds.
Why not privatize the Bush fiscal policy after all.
Kind of like someone believing that buying 1,000,000 shares of a company is a good investment, because that purchase of 1,000,000 shares caused the stock price to go up by 10%. So when the price goes back down some they buy another 1,000,000 shares to keep the price propped up, then again, etc. Eventually they run out of money, then have an “oh, s*&^!” moment.
Re: Smaller homes. These are gaining popularity because they’re not considered houses, but they are much better than mobils and not prefabs. http://www.superiorparkmodelhomes.com/default.htm. With so many ready to retire, might be wave of the future.
“Ms. McCarron added, ‘It’s not that people don’t want or can’t afford [big houses]. It’s that they’re afraid of them now — it’s a confidence issue more than an affordability issue.’”
Would somebody please tell this over paid hose bag that it is an affordability issue. This stupid comment is typical of the mentality that brought down the housing market. Just how could these homebuyers afford a 6000 sq ft home on a $40,000.00 a year income.
Ms McCarron lives in lala land as well as the builder she is emplyed for. This dimwit belongs back in the mall behind the make-up counter where she can make stupid comments all day long.
“It’s that they’re afraid of them now…”
The McMansions are haunted by the ghost of Alan Greenspan.
Mu ha ha ha
we’re repricing risk like we’re repricing homes.
With the nation’s housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing
Milpitas CA, Toll & KB Homes are building supersized townhomes. This too will come to an end.
“‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.”
Which is the root of the problem. Bad loans may be good for cashflow but they’re hell on the balance sheet. As the wheels grind to a halt, financial institutions can no longer hide their bad balance sheets behind good cashflow. Lending money to financial instutions that are having reserve and maybe even solvency problems does nothing but delay the ultimate recconing. AHM and the like are only realizing that they’re insolvent when nobody will lend them any more money and they have to sell assets that turn out to have very overvalued on their books. But the root problem isn’t cashflow, that’s merely what forced them to accuratly value the assets that they have.
Wasn’t this is exactly what happened in Japan? The banks had made huge loans that were not performing. But they didn’t want to write them off so they just hid them on their books forever? Brought the credit system to a screeching halt, where even 0% nominal rates from the central bank wouldn’t encourage lending?
I’ve been wondering about this loss hiding too. I gotta believe either someone has figured out how to hide, or they’re actively working on it. All the big losses and bailouts so far are overseas….why not here yet?? Will we start seeing some more losses in the US after the end of the quarter??
nobody wants to go first as those are the ones for the history books, but after a couple regional banks go under then the spillage will really get underway.
Right now its just waiting for shoes to drop, waiting for the FED, just waiting….everyones watching now. Confusion is rampant, everyone around me says, “Why worry so much?” or” Its not gonna be a very bad recession, everyone I know does not even beleive we are in a recession, Did something happen over the weekend?”
The path the country is on can only be changed by one thing. Real Pain. The breadth and length of the pain needs to be so severe that we dont have the generational gap anymore. Pain is necessary for real growth.
Finance firm GMAC has had to take out a $21.4 bn loan
was it an arm ?
GMAC?
It was Interest Only with stated income. Because seriously who is going to loan them money knowing they make negative money?
Don’t think so. Must have been at least a couple of arms and legs, especially when you look at the market cap of the company. Anyone in for tits as in tits up??
There was just a former Fed chief on CNBC who stated that he believes inflation is much better than housing prices falling. He also stated that he had spoken to Bernanke about this. This was all in relation to a discussion about the falling dollar.
Hyperinflation is on its way all!
Something tells me many of Ben’s readers are properly hedged
P.S. I frankly cannot believe that BB is going to do an about-face on recent hints that he does not plan to bail out fools.
The FED is in a massive Rock and Hard Place situation. I’ll bet BB regrets not taking the Argentine central bank job instead of this one.
He will turn us into Argentina.
I pray you are right PB because if he does you me and every other prudent saver are on the hook to bail out the FBs,banks and hedge funds.
I can’t believe the guy was as blunt as he was.
PB, BB & FB’s oh my!
I don’t think so. The federal government may not be particularly fleet-footed or keen of intellect, but it has a very vivid, harsh, and recent example right in front of it as to what happens when the credit lines suddenly get cut off.
If the Fed cuts the interest rates too much, capital will flee, credit will evaporate but people will still be there demanding their payments. Very Bad Thing will happen - Ergo, the rates will not be cut.
That’s not to say that they might not try to print their way out of this mess, only that the falling dollar will not in and of itself lead to inflation. In fact, I would be surprised if the dollar was not propped up, because if the dollar falls, and oil and gas stay high, then the US economy is toast anyway.
“I would be surprised if the dollar was not propped up”
AFX News Limited
Metals - Gold hits fresh 16-month high on dollar weakness; high oil prices
09.12.07, 9:21 AM ET
LONDON (Thomson Financial) - Gold hit a fresh 16-month high of 714.40 usd this morning after the dollar fell to an all-time low against the euro, and as the metal continued to attract support from inflation-hedging with oil prices close to record highs.
http://www.forbes.com/markets/feeds/afx/2007/09/12/afx4108942.html
This is starting to look like a checkmate. lower interest rates likely will do nothing as and against the rapidly deteriorating quality of debt as the spreads continue to widen further and further from the posted rates. The way so many debt things have declined in price and the ever growing illiquidity in these almost guarantees the spread of the malignancy to more and more debt issues and thus more and more illiquidity. Anyone willing to step up to the plate and buy some of this stuff at 20% or 30% or more yields when the underlying security is transient at best?? Not me. I’m even taking cash from my bank account and putting it under the mattress bit by bit by bit. At the same time, any significant lowering of posted interest rates ought to materially decline the dollar and if so things at least like oil and gas could rise dramatically in price. Anyone for $ 4 or $ 5 per gallon gas?? Checkmate.
““‘Giving a bank more cash doesn’t solve the problem. What they’re sitting on is huge losses and they can’t recognize those losses without endangering their entire book equity and threatening bankruptcy and threatening a run on the banks, he said.””
I asked before… should I take my $ out of my bank and stuff it under my mattress?
Watched “Idiocracy” on directv the other night…
A quintuple dose of sarcasm and then some, set in 2505
Recommended!
Wednesday, September 12, 2007
DataQuick: SoCal home sales at 15-year low
From DataQuick: SoCal home sales at 15-year low, prices edge down
Home sales in Southern California dropped to their lowest level since 1992 as buyers, sellers and lenders held back in an environment of market uncertainty. Prices are off their peak, markedly so in lower cost neighborhoods, a real estate information service reported.
FRANKFURT (AFP) - The European Central Bank said Wednesday it was pumping another 75 billion euros (104 billion dollars) into the banking system, in a bid to calm chronic jitters sparked by the US high-risk mortgage market.
(Advertisement)
In a move aimed at giving euro money markets a bit more air, the ECB said in a statement to the markets that the cash had been made available via an exceptional three-month tender at a marginal or lowest rate of 4.35 percent and a weighted average rate of 4.52 percent.
Giving heroin to an addict, thinking they are “treating” the withdrawal symptoms.
“a move aimed at giving euro money markets a bit more air”
Apt description.
Big day on Wall street if we see some carry trade.
Good reasons for rates to remain high.
Idiocracy is a documentary published 500 years before its time… although I fully expect humanity to fall to the state depicted in that movie in far less than 500 years.
Let’s see: gold has finally decoupled from the market and marching upwards, and oil hits a record high, and this before any foolish rate cuts by the Fed.
If they cut, we’re toast. It’s that simple. Dollars will be dumped like subprime loans, which is probably a fair way to look at it since the USA is essentially one glorified subprime, Alt-A, stated income borrower. We can’t pay off any of our debt, but we want just one more hit of the credit, one more spin on the wheel, one more chance to strike it rich without having to work, save, or be responsible.
The fools are going to take us all down with them. There is no safe place in a hyperinflationary environment: gold can be taken at the point of a gun, though it’s better than nothing and we will probably slide into hyperinflation - it won’t be something that happens one week, I hope…