The Housing Bubble

The bubbas and bucks are going to love that pudgy dough boy in prison!

I love the comments.

People are looking for payback… I am going to enjoy this particular segment of the bust; I’m tired of rampant consumerism and in-your-face bling-blinging.

Dishonesty is the new Zubaz.

“A staggering amount was spent on lifestyle,” said Solomon. “It seems they simply spent the money, just burned it all up.”

This seems to be the epilogue of the RE bubble.

Off to jail with all of them. Leareah, Seiders, (fun)Yun, Kudlow, Art Laffer and all the crime syndicate in DC and on Wall street.

“Freeze gopher!!”

I can’t stop laughing over the comments. Everyone should read them they are soooo funny. Lots written by people who claim to know these two. And be sure to check out the picture of the couple being arrested it’s like some kind of spoof on real life. Thanks for the link.

I have a large customer that is about 25% off in the level of buisness they are doing this year.

from the article:
“With the core inflation rate comfortably close to 2 percent, and the Treasury market begging for ease for over a year, if it turns out to be a recession, it will also be a policy error,” said Robert Barbera, chief economist of ITG.”

who needs oil, food, and medicine as its painfully obvious that inflation is “comfortably low”.

Policy error by failing to cut rates sooner? Better stand firm or the 10/15 year notes are gonna spike. A rate cut is the confirmation of the recession, but what about loitering and tresspassing?

I was mearly awaiting my clients delinquent money in an advisable location.

If you have ever done forensic anything, it is hard work.

More Northern Rock:

“”The Daily Telegraph fingered the prime minister in its editorial.

“Gordon Brown must accept responsibility for this credit bubble: in his 10 years at the Treasury, he was happy to benefit from a sense of faux-prosperity based, not on rising productivity, but on house prices, loans and, to a degree, immigration,” the broadsheet argued.

“A snap election, before people realise the full consequences of what he has done, is suddenly looking attractive again.”

Brown has so far refused to rule out holding a general election in the coming months amid speculation he may gamble and seek an early mandate for his new government.

Under his predecessor Tony Blair, the Labour Party won the May 2005 general election with a comfortable majority.

The Sun said that Northern Rock was not an innocent party.

“The bank has continued to lend customers five times their salary and 125 percent of their home’s value despite all warnings of economic instability and an impending fall in house prices,” according to the tabloid’s editorial on Saturday.

“These crazy deals have kept the property bubble inflated for too long. They are almost certain to end now and house prices are sure to fall.”"

AFP
http://tinyurl.com/2ua578

With the exception of #9 you just described my exact situation in Las Vegas. I could put up with it, my wife couldn’t so we left.

I lived in both Florida and LV for many years and gotta say in terms of both corruption and crime, you ain’t seen nothing in Florida compared to LV.

I miss the weather, seriously, aside from a few weeks in the summer, desert climate is my ideal.

Hey, Muggy, thanks for the response. I like getting various points of view from others about life in FLA. I dunno where else you’ve lived, but having lived in NY and New England, Florida can be real culture shock. Yep, it is corrupt for sure, but if you think it is corrupt in West Central Florida, you haven’t seen corruption until you’ve seen South Florida and done business there. James Michener, in his excellent book “Caribbean”, warned of what would happen to South Florida and even the US if Latin American style corruption ever took hold in a major way. It dates back to the days of good old Chris Columbus. Mixed with the good old boy Anglo smoke filled room corruption that already existed in Tallahassess going back decades, we got ourselves a mess.

But I still like it here. One thing you can say about Florida, life is never dull.

I concur, too much concrete and not enough green, corruption (which I’ve seen close up) and crime. My job make its worthwhile to be here at this time. So I enjoy the good…great weather etc.

Hey come to California, where the chick who puts a “red tag” on a junk abandoned car left in front of your house, 3 weeks after you call, gets paid $88K per year. If the car is worth less then $1,000 it might take 6 more weeks to remove :-))

Precious! Ya just can’t make this stuff up!

The Asians own her too. She just got caught and had to give it back.

I was going to rag on you a bit ’til I saw your last comment, so you’re still on my good side. : )

This predated the current white house clown.

I’ve got the ITulip book. Can’t remember the name but it came out last year. I’d do that too.

Count me in!!

Man oh man oh man, do great minds think alike. I got up EARLY this morning to research “recession-proof” investment strategies. Then when I log in to HBB two of my favorite bloggers (NYC and TX) are discussing the same topic! If I were religious I’d thank God for you guys. /religious experience over.

Anyway, I found an article on the subject, which, incidentally, has a cool graph of inventories during the 88-92 housing recession vs. now. Interesting stuff.

I think NYC’s idea is an excellent one. While we are working on this subject, we may as well share what we learn- one of the main purposes of this blog. Thanks guys, and hats off to Ben for the world’s best blog.

Drowning Pool

http://raymondjames.com/inv_strat.htm

I think I forgot that link. Here it is:

http://raymondjames.com/inv_strat.htm

The book will be going out to wmbz. He emailed almost immediately. He will need to read it and post for somebody else to get it as quickly as possible. I will be done reading this book today, no questions about it. Once I start I can’t stop. Thanks for the responses.

Strange you bring this up. I ordered the book from AMZ and they gave the option to spend an extra 2.79 and have access to the electronic version immediately. My wife is a librarian and when I told her about it we decidied to see what this looks like (we are not the “have to have it now” type, but she wanted to look at the technology. So I got it. Then AMZ sends me an email that it will be the end of the month before I can get the physical copy. I will have finished it online by then, so i will make my pristine copy available to your program. They must be selling fast–they need to print more.
Whoever wants my copy–I will do this also.

The only people to profit from those, “How to profit….”, books, is the person who wrote the book.

They (internet folks) call these pass-it-on things a ‘vine’. Great way to share. I note many of the titles of books mentioned here too and see if my interlibrary loan service can get them.

While reading some WSJ excerpts it struck me how AG speaks with great clarity now.

Sounds like he is trying to distance himself away from some of his own doing.

so this dushbag didn’t figure out Littleboots was a reckless deficit spender before Spring 2004, when he started to raise rates?

Greenspan got up in congress and publically made the case for Bush’s tax cuts for the wealthy, despite the fact that they were sure to throw the nation into a massive fiscal deficit.

NOW he claims to be dissapointed with Bush?! Nice try Mr. Greenspan. You might be senile, but I do have a memory.

“But in Victorville on Friday, the blowout looked more like a washout. Only a trickle of potential buyers showed up on the first day of the 10-day event.”

Mission Possible? These jokers are really showing their true selves. Does this stupidity make anybody want to sell their puts on the homebuilders? The only homebuilders that come out of this with any strength will be those led by people with wisdom and courage. What are the odds that any of these companies fit that bill?

I’m glad most people aren’t falling for it anymore, with notable exceptions:

‘ “That’s a heck of an incentive,” said one woman as she rushed out of the Diamond Ridge sales office clutching paperwork.’

$30k off a $400k crapshack, and a free cookie! Shill or rube?

Fox business shows Saturday morning were unintentionally funny (again.)

They can’t wait to see how many houses Hovnanian sells in their sale. They are worried that if they sell a lot it will make the earlier buyers remorseful.

What I wonder is: What if they don’t sell many? Means that the discounts aren’t deep enough yet. How sad will the poor loan-owners be then? Will reality start to seep in?

But I heard that it won’t have any impact on the overall economy. That’s good.

hahahaha

Choice:
3) Save Wall Street by lowering rates and tell everybody else to go phuck themselves.

I choose Option 3 as the most likely option.

Unfortunately, I doubt option 2 will work, at least to save homeowners. Most homeowners I know who are in trouble with their mortgages were only able to afford their homes at the teaser rate. A low interest rate will not help. They need their teaser rates back for 30 years.

I actually think that option 2 might help renters more than it will help homeowners. I believe that lower rates will trash what little remains of the housing market.

I’m renting and hoping to buy a home one day. If housing prices are dropping and interest rates are also dropping, then why should I buy now? I’m planning to sit back and watch the rate cut accelerate the price declines.

Umm, regarding option # 2…not to nit pick but the parties that are in need of saving are not “home owners” in general but FBs. Sorry, don’t to be rude, but the MSM loves that particular overgeneralization.

Interest rates down won’t help current homeowners - most of the ARMS are set to the LIBOR.

Looks like the free fall on the roller coaster ride is getting ready to happen. Seams like we are just about to hit the other side of the inflection of the curve. WEEEEEEEEEEEEEEEE WEE AAAHAHHAHA the thrill of the negative gravity will be fun, until the sheeple feel the brutally hard impact of the concreat because they (Wall Street) used the last portion of the railing to protect themselves.

You know, I think you’re right. I keep telling hubby Oct is going to be UGLY. I think we’ll have a few rush on the banks, civil unrest, and many more hungry people. It reached 35 degrees here (Wisconsin) last night. People needed their heat!

I’m a HBer, but I am looking at property north of here with land, and believe it or not, in the $200K price range! Time to get out of dodge…LOL. See ya all Monday : )

There are two FULL pages of open houses in the Boston Globe today…..that is about what its like at the HEIGHT of the spring selling season.

Yeah, NYCityBoy, it looks like there’s going to be a nasty bite coming up shortly.

“I am seeing listings skyrocket.”

Same here, NYCboy! 200 new listings just this week out of 3100 total. That is abnormal for this time of year. Realization is sinking in.

Same old same old. Print oppinion as fact — maybe someone will belive or at least the sheeple will belive.

“Does this mindless crap make anybody else want to cry? Journalism is yet another shameful occupation with ever fewer exceptions.”

I was kind of hoping that the rate cut would produce a sheeple rally so I could finish liquidating the positions in the trading account before re-allocating, But I am not gonna wait. Sell orders going in today for Monday opening.

That article deftly ignores both common sense and fundamental economic reality in a single shot - marvelous - UnFBable.

it is getting a lot of coverage in the Netherlands, to my surprise. Negative economic news usually doesn’t make it to the TV news or newspapers here, but today we had several articles in the newspaper and even a shot on the TV news of long lines of UK savers that were waiting to pull their money out.

Today the president of the Dutch central bank assured us that all the credit market turmoil is nothing to worry about, in the worst case it will wipe out 9% of total bank balance sheets ( somehow I doubt if that is true …). And remember, there is NO housing bubble in the Netherlands, Dutch homeprices will keep rising forever and mortgage trouble is impossible (in the country with the biggest bubble of them all …).

I try to make it. Anyone have a problem with my kid coming? he’s 9.

More from the FT:

Whether the action itself was reasonable depends on the terms of the loan: terms the Bank is strangely reluctant to reveal. Throughout the crisis it has refused to touch any collateral except for AAA government and agency bonds; its disdain for other securities has been palpable. Now it is accepting the raw mortgages on Northern Rock’s books. Unless it is charging a size-able penalty – above the 1 per cent over base it normally levies – it will have made itself look foolish.

Northern Rock and its shareholders cannot be allowed a happy ending. The Bank of England’s job is not to nurse the institution back to health, but to tide it over until it can be sold to a strong buyer, for whatever price it will now fetch.

http://www.ft.com/cms/s/0/cd473ad8-62f1-11dc-b3ad-0000779fd2ac.html

From the Telegraph:

Around £1 billion was already withdrawn yesterday despite the bank’s attempts to reassure panicking customers…. Long lines formed at 72 branches across the country even before counters opened this morning…. Police were called to deal with “boisterous customers” after a Glasgow City Centre branch closed at midday.

http://tinyurl.com/3ctp8h

The Guardian describes the kind of borrowers Northern Crock targeted:

Recently separated, with two children, Mr Ryan, 46, had no savings so needed to borrow a sum to cover the full value of the two-bedroom cottage and pay for urgent repairs.

Rock proposed a mortgage at 95% of the value of the property, plus a further unsecured loan, an extra 30%, to cover the repairs. The bank was unperturbed by Mr Ryan’s temporary contract at SmithKline Beecham and that he was looking only to repay monthly interest….

Mr Ryan, who is coming to the end of a spell off work due to depression, was filling out bankruptcy forms yesterday. “I don’t want to do it,” he said. “But I have no alternative.”

http://business.guardian.co.uk/story/0,,2169728,00.html

London Calling. Are you listening?

http://www.youtube.com/watch?v=IXfaxEaPOjw&mode=related&search=

and now for the bigger question: what about the bailing out of banks by the ECB? We are talking about far bigger amounts than in the case of the BOE, and there is ZERO information to the public about the conditions, only some doublespeak from Trichet about ‘not encouraging speculators’. I hope some journalists will start grilling the ECB burocrats next week about their irresponsible bailout policies.

Only the headline U.S. stock market indexes blithely shrugged off this news. The DJIA always goes up.

Banks in trouble
Hit by a rock
Sep 14th 2007

The credit crisis hits the high street

A CENTURY ago, the depth of a banking crisis was measured by the length of the queue outside banks. These days, financial panics are more likely to be played out through heavy selling in share, bond or currency markets than old-fashioned bank runs. That makes the sight on the morning of Friday September 14th of a queue of people waiting (patiently in most cases) to take their money out of Northern Rock, a wounded British mortgage bank, all the more extraordinary. A crisis that started in America’s subprime mortgage market where dodgy loans were made to unsound borrowers has shaken the world’s financial capitals since mid-August. Now it has landed on the high street at one of Britain’s biggest mortgage lenders.

Northern Rock faced the triple ignominy of becoming the first British lender in 30 years to be granted a bailout by the Bank of England, losing 29% of its value on the stockmarket, and having to coax savers not to withdraw their money in a rush. (Customers queuing up in its home town of Newcastle reportedly burst out laughing when bank staff asked if anyone wanted to deposit money. :-) ) Its troubles weakened the world’s stockmarkets, and sterling also fell.

http://economist.com/finance/displaystory.cfm?story_id=9821067

I don’t believe you are over thinking this, I just don’t know what to make of the whole darn mess right now. I do think it is significant though. Does it signal a rate cut or no rate cut? Is the mint in the know regarding the FED’s Tuesday decision? Or is the left hand clueless about the right hand’s movement or intent. Do I start digging the holes in my backyard for the coffee cans?

It’s probably got more to do with volatility than the actual price of Gold. If the cost of my raw material and finished product varied like crazy, and I had a razor-thin margin to work with, I might not want to actually produce the product.

One pities his new prospective son-in-law’s weekend at the dinner table

let’s see if the filter blocks this:

marinate squirrel meat in turtle urine.

…and got higher inflation. Chairman Arthur Burns offered many irrelevant reasons — unions, monopolies, the welfare state — for inflation. The public learned his sequence. Anti-inflation policy soon brought rising unemployment. The Fed abandoned its anti-inflation policy and brought on the next inflation. Why plan that lower inflation would become permanent when it never did?

The Federal Reserve staff also produced inflation forecasts that systematically underestimated inflation year after year. Economists’ forecasts may be better than others, but they are not very good.

Two of the changes that Paul Volcker introduced in 1979 were to increase the Fed’s emphasis on fighting inflation and diminish its concern about the unemployment rate, and to pay little or no attention to forecasts. Transcripts of meetings show Mr. Volcker repeatedly praising the Fed staff but neglecting its forecasts. His successor, Alan Greenspan, did the same. They ran the most successful high-growth and low-inflation policies in modern times.

Mr. Feldstein and others offer a scenario for the unfolding of recent credit and housing problems that ends in a deep recession. He calls for a one percentage point reduction in the federal funds rate to partly overcome the disaster he foresees. Much of his analysis depends on forecasts or guesses about declines in house prices and failures of credit markets that are outside the range of past experience. But it is not difficult to find an alternative forecast that is far less gloomy. Many economists, including many at the Fed, foresee a more benign outcome — a slow growth rate for a few quarters but no recession. Only time will tell which is correct. At present, markets seem to accept the more favorable outcome.

With annual inflation at 2% or more and unit labor costs rising at a 5% rate, loose fed policy risks reviving the latent fears that it is willing to permit higher inflation now to respond to a forecast that unemployment may rise. That returns to the policy that made the Great Inflation costly and durable.

The better policy is to wait until the very mixed data of the moment forms a pattern. High-frequency data is often revised. It often has transitory aberrations that do not persist. Unfortunately, after a major change in underlying conditions, we know even less than usual about the future.

Good monetary policy makers should be watchful but would wait for better indications of the future. Leave the federal funds rate alone for the present, but show concern and give equal weight to avoiding higher inflation and recession. Don’t be afraid to disappoint the market.

There are more immediate problems. And as usual, Congress is looking for scapegoats. Two issues call for attention.

First, more financial regulation is not the answer to the subprime mess because regulation just induces innovation to circumvent it. Regulated and monitored banks found ways to shift the risk from their balance sheets to other unregulated investors. The shifted risks are no longer within supervised banks. Much of the risk has been shifted out of banks to hedge funds, pension funds and foreigners. No one knows where it all is. We find out when the holders fail or ask for help.

Nor will more regulation of hedge funds solve the problem. Money will move elsewhere. The better solution is market discipline. Imprudent lenders lose. They fail and others learn from the failures. This will not eliminate future mistakes, but neither has regulation.

Second, we should recognize that all recent crises and disruptions began with a remarkable degree of herd-like behavior. In the housing debacle, sophisticated investors bought claims based on no money down, no credit record, no relevant data. What were they thinking? Were they thinking?

Herd-like behavior arises because the managers put their personal interest far ahead of the interests of the investors in their funds. In 2004 and 2005, the managers reported great earnings and received magnificent bonuses. Straying from the herd by refusing to participate is likely to cost not just the bonus but the job.

So the incentives are wrong. We could have learned that from the international debt problems of the late 1990s or the dot-com collapse. Now, we can learn it again. The incentives for managers invite instability. They gain, but we lose. The only way to teach institutions to change the incentive structure is to let the ones that made too many bad decisions fail.

Mr. Meltzer is a professor of political economy at Carnegie Mellon and a visiting scholar at the American Enterprise Institute.

… and got higher inflation. Chairman Arthur Burns offered many irrelevant reasons — unions, monopolies, the welfare state — for inflation. The public learned his sequence. Anti-inflation policy soon brought rising unemployment. The Fed abandoned its anti-inflation policy and brought on the next inflation. Why plan that lower inflation would become permanent when it never did?

The Federal Reserve staff also produced inflation forecasts that systematically underestimated inflation year after year. Economists’ forecasts may be better than others, but they are not very good.

Two of the changes that Paul Volcker introduced in 1979 were to increase the Fed’s emphasis on fighting inflation and diminish its concern about the unemployment rate, and to pay little or no attention to forecasts. Transcripts of meetings show Mr. Volcker repeatedly praising the Fed staff but neglecting its forecasts. His successor, Alan Greenspan, did the same. They ran the most successful high-growth and low-inflation policies in modern times.

Mr. Feldstein and others offer a scenario for the unfolding of recent credit and housing problems that ends in a deep recession. He calls for a one percentage point reduction in the federal funds rate to partly overcome the disaster he foresees. Much of his analysis depends on forecasts or guesses about declines in house prices and failures of credit markets that are outside the range of past experience. But it is not difficult to find an alternative forecast that is far less gloomy. Many economists, including many at the Fed, foresee a more benign outcome — a slow growth rate for a few quarters but no recession. Only time will tell which is correct. At present, markets seem to accept the more favorable outcome.

With annual inflation at 2% or more and unit labor costs rising at a 5% rate, loose fed policy risks reviving the latent fears that it is willing to permit higher inflation now to respond to a forecast that unemployment may rise. That returns to the policy that made the Great Inflation costly and durable.

The better policy is to wait until the very mixed data of the moment forms a pattern. High-frequency data is often revised. It often has transitory aberrations that do not persist. Unfortunately, after a major change in underlying conditions, we know even less than usual about the future.

Good monetary policy makers should be watchful but would wait for better indications of the future. Leave the federal funds rate alone for the present, but show concern and give equal weight to avoiding higher inflation and recession. Don’t be afraid to disappoint the market.

There are more immediate problems. And as usual, Congress is looking for scapegoats. Two issues call for attention.

First, more financial regulation is not the answer to the subprime mess because regulation just induces innovation to circumvent it. Regulated and monitored banks found ways to shift the risk from their balance sheets to other unregulated investors. The shifted risks are no longer within supervised banks. Much of the risk has been shifted out of banks to hedge funds, pension funds and foreigners. No one knows where it all is. We find out when the holders fail or ask for help.

Nor will more regulation of hedge funds solve the problem. Money will move elsewhere. The better solution is market discipline. Imprudent lenders lose. They fail and others learn from the failures. This will not eliminate future mistakes, but neither has regulation.

Second, we should recognize that all recent crises and disruptions began with a remarkable degree of herd-like behavior. In the housing debacle, sophisticated investors bought claims based on no money down, no credit record, no relevant data. What were they thinking? Were they thinking?

Herd-like behavior arises because the managers put their personal interest far ahead of the interests of the investors in their funds. In 2004 and 2005, the managers reported great earnings and received magnificent bonuses. Straying from the herd by refusing to participate is likely to cost not just the bonus but the job.

So the incentives are wrong. We could have learned that from the international debt problems of the late 1990s or the dot-com collapse. Now, we can learn it again. The incentives for managers invite instability. They gain, but we lose. The only way to teach institutions to change the incentive structure is to let the ones that made too many bad decisions fail.

Mr. Meltzer is a professor of political economy at Carnegie Mellon and a visiting scholar at the American Enterprise Institute.

“…there is general agreement that the economy now faces a greater risk than there was only a month or two ago.”

Sigh. Oh yeah, suddenly we have more risk. Amazing.

Owning 7 houses warps Stein’s judgment on housing market matters in fundamental ways at a deep deep level.

There needs to be a website for awakening realtors that feeds them one data point at a time in measured doses. The societal cost of too many exploding heads would be extreme. Answering that list of questions could kill some heavy kool-aide users.

Actually the questions are somewhat sad.
“What percentage of borrowers facing default have loans greater than 80% of their (original) home values (meaning how many borrowed greater than 80% vs. how many put 20% down)?”

Has absolutely no idea that the “(original) home value” concept is nearly meaningless. It is touching, really, the unconscious faith he has in the bubble “value” he convinced his customers to pay that he got 3% of.