The Housing Bubble

that was very scary and I don’t think enough ppl in the US were paying attention.

Buddy you’re a young man hard man
Shoutin’ in the street gonna take on the world some day
You got blood on yo’ face
You big disgrace
Wavin’ your banner all over the place

We will we will rock you
We will we will rock you

http://www.youtube.com/watch?v=iikKzQwgBJc

like a rock?

LONDON (Reuters) - Troubled mortgage lender Northern Rock is still ‘a very valuable business’ that could attract takeover interest, said a fund manager at Schroders who has held on to his shares in the firm.

“Today is not a day to be active in the market … especially given the takeover possibility … The market is panicking,” Vincent Vinatier, who co-manages the Schroder UK Select Growth fund and owns shares in the bank, told Reuters.

http://tinyurl.com/3dd3l9

The market also seems to be taking a dim view of the Alliance & Leicester as well NR is down 39%, A&L is down 17% (12:40GMT).

Notice that the bank run wasn’t totally unexpected. The stock price began dropping last spring. Exponential up, exponential down.

Come on, Blackstone, Cerberus, Citadel, Fortress, or whoever — step up to the plate and snap up a piece of this rock.

Northern Rock shares slide as chiefs push for sale
By Peter Thal Larsen, Chris Giles and Lina Saigol in London
Published: September 16 2007 20:31 | Last updated: September 17 2007 13:51

Northern Rock shares plunged by a further 40 per cent in afternoon trading on Monday as the mortgage lender and its regulators prepared to try again to arrange a sale.

As depositors continued to withdraw their savings from Northern Rock – with some reported to have begun queuing as early as 4am on Monday – people familiar with the matter said the bank and its advisers were planning a new push to find a “commercial solution” that would allow it to be sold as a going concern.

http://www.ft.com/cms/s/2/39199b78-6489-11dc-90ea-0000779fd2ac.html

Just like 20 years ago, there are now people running around glad that they didn’t get a piece of the rock.

The very fact that CNBubblevision would get so worked up about a single housing-related micro event like the HOV “sale” - should show how concerned the MSM’s masters are about the masses stopping their voracious spending.

I mean what will they blather about next Monday? The fact that Mr. Drucker had a 50% sale on hammers at the general store? Put a fork in the consumer.

Hello HBB,

I went to the Deal of the Century this Sunday at the HOV condo complex (Palacio de Oro North) on Iris Street in Moreno Valley, and I have some things to share.

I was impressed with the number of vehicles parked in the lobby area, until I realized that there were more employees than potential buyers. I counted 8 employees (including one barista contracted from an outside coffee shop to make coffees and cakes in one of the model condos). If HOV wants to cut costs they should start with dumping the fat guys that were sitting on their butts the entire hour I was there. Definitely keep the two babes in the front office who were doing all the work showing the homes, however.

Upon entering the sales office a lady gave me the HOA info ($208 monthly), a Deal of the Century flyer that outlined all the deals, and a HOV brochure that took you through the company’s history and was designed to inspire confidence in the quality of the company. It lost my interest after it claimed to “continually grown in financial strength” after it began trading on the NYSE. Clearly it’s a little outdated.

I toured the three models and hey, they weren’t bad little condos. Still, it’s dense living–not really my style. I need a few feet from my wall to my neighbor’s. In one condo they had the barista begging to make you a coffee. In another they had a young woman dressed up as a clown who told me that she was there to entertain children with balloon crafts, but there were none, except a young boy from the neighborhood.

In an ironic twist, the clown-girl was the most intelligent and thoughtful employee there. We had a good conversation after she asked me if I was serious about buying and I told her that I thought the Deal of the Century was probably only going to get better next quarter. I covered the basics with her, securitization of mortgages and how it caused moral hazard in the banks, the mania, and how home prices were going to have to come in line with local income levels. She asked a lot of questions and was genuinely interested in what I had to say. In our half hour of conversation we were only interrupted once with another potential buyer (a rather large family of Hispanics who only looked at the bottom floor).

The clown was also able to provide some anecdotes. Her father is a contractor that does cement and has had to lay off almost all of his employees in the last three months. But most interesting was her story about residents’ reaction to the Deal of the Century. She said they are furious about it–some people have signs in their window cursing HOV (I didn’t explore to get a picture, but might return). There were also signs in the windows trying to sell the condo, but this is pure futility at this point. The private flippers have no chance to compete with the builder. She said that at the peak people were buying the largest model for $350,000 (for a condo….in Moreno Valley….). That same model is now selling (per the flyer) for $249,742. Don’t ask me how they came up with that number. Went from $219/sf to $156/sf.

As it turns out, the young clown-woman is a sociology major at a local university and was must do a thesis for her senior project. She said our conversation inspired her to change her topic to the housing bubble euphoria and the subsequent bust. I gave her a lot of resources to do her research (including Ben’s blog) and we parted ways. As a final note, this girl vaguely knew about the Japanese depression in the 1990s, and asked if we were about to enter the same sort of thing.

Funny stuff. The most intelligent conversation my entire time there was with a clown. Beautiful, intelligent girl that doesn’t mind making fun of the circumstances. Some guy’s going to be lucky.

After that, I went back through the sales office to pick a fight with the staff. I took a picture of one of the signs on the wall they use as propaganda (see below) to make you think that you’ll get rich buying their condo. Then, our conversation:

Saleswoman: “Which one would you like to buy?”

Cap’n Crunch: Coolly, “I really like your condos, but the prices have fallen from over $200/sf to about $150/sf. I still think they’re overvalued. You have my registration card, so give me a call when they’re around $100/sf–if you’re still in business.”

Saleswoman: …

Saleswoman: Mouth agape, “just a second…”

Saleswoman: Pointing to manager, “Tell her what you just told me.”

Cap’n Crunch: Repeats answer.

Manager: Hotly, “Are you kidding me? You’ll never see those prices again. I guess everyone is entitled to an opinion.”

Then we parted ways.

Anyway that’s pretty much my story.

Here are some other details:

* This complex was built in 2005 and completed in 2006, and HOV was only advertising 6 units. One unit was marked as sold on the flyer, although it was in pen and had been photocopied. If you were going to photocopy anything, why wouldn’t you just remove the condo from the flyer altogether and then photocopy a nice clean one? That is, unless the name of the game was to make potential customers *think* that there were other buyers still…

* Condos ranged from 1065 sf. to 1598 sf., and advertised prices ranged from $187k to $249k.

* The HOA sheet said it included external building maintenance, landscaping, some sort of fire insurance, trash pick-up, and, as if it weren’t obvious but they might have just been looking for additional items to fill up the sheet, “private gated community” and “BBQ’s and gazebos.”

* Here’s a picture of the propaganda, “real estate only goes up” and “interest rates are low!” Tell that to the 2005 buyer the clown told me about!

http://tinyurl.com/23mhb7

From the Front Lines,

CCC

I think Mr. Magoo has been reading here as he has come over to the “holy shite, what have I created” camp.

I didn’t get to see it. Unless I had my timing off, there was a football game on instead.

Even Greenspan cannot surpass the power of football.

I did enjoy the story of his younger years when he was touring with his music band. He was hunkered down with economic tomes and government data while his band mates were toking up in the back room.

I’m also thinking some Congressional types that didn’t get past his Fedspeak are feeling a little redfaced this morning. He was gloating now wasn’t he?

Krugman sums it up nicely today…

http://select.nytimes.com/2007/09/17/opinion/17krugman.html

And in 2004 he expressed support for making the Bush tax cuts permanent — remember, these are the tax cuts he now says he didn’t endorse — and argued that the budget should be balanced with cuts in entitlement spending, including Social Security benefits, instead. Of course, back in 2001 he specifically assured Congress that cutting taxes would not threaten Social Security.

In retrospect, Mr. Greenspan’s moral collapse in 2001 was a portent. It foreshadowed the way many people in the foreign policy community would put their critical faculties on hold and support the invasion of Iraq, despite ample evidence that it was a really bad idea.

And like enthusiastic war supporters who have started describing themselves as war critics now that the Iraq venture has gone wrong, Mr. Greenspan has started portraying himself as a critic of administration fiscal irresponsibility now that President Bush has become deeply unpopular and Democrats control Congress.

Greenspan confirmed that he has a great need to be liked, to be accepted in the higher social ranks. This is not a good characteristic for a FED chief; a good FED chief needs to always “do the right thing”, no matter what the damage to his popularity.

A good FED chief should be hated by the multitudes. He’s the pooper who’s supposed to take away the punch bowl just when the party gets going.

“The man really has NOTHING to say economically. ”

I think Palmetto has really been on a roll for several days with a string of spot-on comments all weekend. To those conclusions I would add:

1. The Fed is simply part of the machine that controls the economy: privatize gains, socialize losses
2. Greedspin played the role of Chairman (cheerleader) very well by passing off monetary policy as an arcane, erudite, intellectual exercise, when in reality it was nothing more than pandering to Wall Street
3. He has kept people on the edge of their seats for years and years by denying the obvious, then repeating it after everyone else knows it as though he had told us in the first place.
4. He has also mastered the art of using catchphrases (”irrational exuberance”) that people will remember, so that he has plausible deniability.
5. To the general population, he will be remembered as the hero of ‘87 and a stalwart inflation fighter. To HBBers, he will be remembered for what he is- “Grandpa Al” from the Munsters, a bit character in a not-so-funny B movie.

I thought his interview came off favorably, and I actually agree with much of what he said, especially on the subject of freedom of speech (he strongly believes in First Amendment rights!).

Along those lines, I was interested to read his take on the housing situation on p. A2 of today’s WSJ, which indicates that he shares the concerns raised here by myself and other blog posters about a U.S. residential construction industry which is building into an obvious bust at a rate which exceeds the recent new home sales rate by 500,000+ homes per year:

‘In the Journal interview, Mr. Greenspan also said he had put the odds of a national decline in housing prices at less than 50-50, at least until a couple of months ago, based largely on the experience of Britain and Australia. His book notes that in both countries, home prices, after sustained booms, have “leveled out or declined slightly, but at this writing have not crashed.” But he says he has become less optimistic since his book was finished, when it became clear the construction industry was unable to reduce the number of housing starts below the rapidly falling level of home sales.

There is now a “very large” inventory of unsold, newly built homes whose condition is deteriorating more rapidly, than, say, a steel mill’s, and that puts pressure on builders to sell them quickly, he said. As a result, “we have the capability of far bigger price declines,” which will pinch home equity, lead to more defaults on subprime mortgages and pressure consumer spending. The probability of a recession, which earlier this year he put at one-third, is now “slightly more than a third,” he said.‘

http://online.wsj.com/article/SB118999003209929296.html?mod=hpp_us_whats_news

I thought his comments were scathing. He basically said that Congress created this beast, and there’s nothing the Federal Reserve can do to stop it. Expect a huge drop in house prices, high interest rates, and high inflation due to globalization.

Housing: down. Stock market: down. Gold: up? Republican political control: toast!

It’s called logorrhea.

But no, he is now a paid advisor for Deutsche Bank.

“The median price of condos and town houses dropped 13.9 percent in the Syracuse metropolitan area, the biggest decline in any of the 60 cities tracked by the NAR.”

Tim Knauss
September 16, 2007
Syracuse Post Standard

The article goes on to blame overbuilding. The condo market is a bit different here as it is positioned more as “before the rest home” option than entry level housing. I guess that is due to the fact that older and smaller homes are still affordable as entry level options in this area. It’s also a recognition of our older population demographics (and the fact that a large chunk of entry level buyers move elsewhere to start careers) then often move back with cash to buy the larger homes.

The article mentioned the $899,900 price sought for each of 2 luxury units at Mission Landing in Syracuse’s Franklin Square.” I should watch how that one goes. There have been recent stories of foreign investors buying things sight unseen because they have a friend here. (Shakes head)

Nice COMMANDING frontal presence on a 12 acre park…Is that the best they can say about it?

Nuh-uh, Lou. We Tucsonans have even wackier projects. For a mere $600k, one of these condos can be yours:

http://www.sanctuaryshadows.com/

BTW, just down the street, there’s a pretty decent house-with-a-yard for sale at $360k. (Yes, that price is a bit rich for the Slim budget, but it’s cheaper than a $600k condo with no yard.)

Who would want to live in a house with a ground floor that consists of a garage?

That is one good reason not to own a Ford, or any other incendiary device.

Got 10% down?

As I said above, don’t even bother trying to interpret anything Greenspan says. I think he’s operating off of “If you can’t dazzle them with brilliance, baffle them with bull$hit.” Case in point: he tells Stahl he was all for tax cuts, but NOT shrub’s tax cuts.

Pay no attention to the man behind the curtain. You’re looking at someone who is so needy in terms of getting attention. Almost pathetic, actually, the way he told Stahl he’s not going to stop making pronouncements. He just loves being the Oracle at Delphi.

He was at the controls, he had the data, and he is responsible. He just wants to distance himself from the mess but there is plenty of responsibility to go around. Remember in 2004 he advised people to take out ARM loans. He cut real rates to negative and held them there far too long. Greenspan lied, the economy died.

he’s doing the book circuit.. selling the new book. Probably be on Leno or Letterman cracking jokes before it’s over.

Having watched the show, here is the headline guaranteed to turn the rest of Bernanke’s hairs gray:

“Advice from the Masestro: Diversify Out of U.S. Dollars”

“he (and others) at the Fed knew about illegal lending
practices but made no effort to curtail…”

Libertarian philosophy in practice…

–
“the Fed knew about illegal lending practices but made no effort to curtail..”

That is his “free market” philosophy — the market would take care of it! The market would punish bad behavior so why interfere. The “free market” works as well as the democracy.

Jas

You have to remember Canada’s best economy is equivalent to the US’s so-so economy. 6% unemployment in Canada is considered fantastic. It is 6% now and that is the lowest number in 40 years. By Canadian standards things look exceptionally well right now in Canada.

That area of Ontario - London, Kitchener-Waterloo, Guelph is doing very well right now. Some parts of Ontario are almost in 10% unemployment rate zone. But they are always close to 10% so again, nothing new here.

I think 70% is a little high for US tourists. Stratford is a place where Toronto yuppies go for the weekend in order to like look all cultured and stuff ya know or at least it was when I was there.

Nice. Could you do one with Greenspin mockingly blowing bubbles at the audience?

Tomorrow BB has the chance to seal his fate as the god of Wall Street’s cargo cult…

I live in an Austin neighborhood that has been recently dubbed “hot”. Last year, home flippers were buying absolute junk within days of listing. The buyers would then add granite countertops, hardwood floors, and fresh paint. The property would be relisted for $180K. Never mind the AC or the electrical - nobody pays attention to that stuff. A total joke.

In the last few months, I have noticed that properties have started to sit much longer. The home flippers are gone. People are still listing decent properties for way too much but they aren’t selling. Junk - is back to being listed as what it is - and sells for $110K to $120K.

Just remember - the Statesman keeps telling us that Austin is immune to the housing bubble.

Maybe they mean “hot” like a plutonium rod. (I’d rather catch a knife than one of those.)

Obviously you don’t see the man behind the curtain…. His act is:

1. Convince J6P it’s for his good, using Cramer et al as shills.
2. Do it.
3. Bail out your sleezy banking pals who can now borrow cheaper, show more profit, and collect bigger bonuses.

No magic balm. The only wounds it heals are those of the big banks.

It’s a Psychology play….

Excuse me. Didn’t you have a mortgage burning party when you reached 30 years in the house?

Ontario wasn’t an expensive place 30 years ago. They shoulda had a mortgage-burning party after 15 years, and a second, even more lavish affair to commemorate it 15 years later!

Exactly WT……Useing your home like a savings account is just stupid….

Sorry the above link doesn’t work.

You will need to go to the link below and input the dates to pull up the applicable Fed Funds Rate. I inputed August 1 and today’s date which gave me the daily Fed Funds Rate during the period.

http://www.ny.frb.org/markets/omo/dmm/historical/fedfunds/index.cfm

or

http://tinyurl.com/2vbyrm

The above link doesn’t seem to work. By inputting the starting and end date in the link below the daily fed funds rate can be pulled up. I input August 1 and today date in my original post.

Apologies if this is a double post.

http://tinyurl.com/2vbyrm

“The volatility in the FFR over the past month seems to imply a Fed that doesn’t know what to do or alcoholic binge behavior”

My choice is door #1.

I took econ 101 in college. The day they lost me was the day the instructor was trying to apply some well-known formula to some problem and all of a sudden paused in stunned disbelief at the blackboard and said “Sonuvabitch, it doesn’t work all the time!” That was the ball game for me. I realized that the simpler things are, the better. Like: income greater than outgo. Duh.

The Fed, Wall Street, et al, has gamed themselves into a maze they can’t get out of. Go either way, it’s a yawning trap. Back to basics is the only way out.

Some argue there was a stealth FFR cut when the Fed lowered the discount rate.

Seems to me that they’ve lost control of the situation. A cut will be in the works to devalue the dollar and get gas back above $3 a gallon. Gotta squeeze the peasants! But it won’t fix anything, of course.

Sounds more like “fact” as opposed to “conspiracy”.

“In effect, it appears we have ripped off the rest of the world for somewhere between $150 billion and $1T.”

How do you ensure that other countries buy more of the bad debt than we do? This scheme won’t work if they don’t.

GH, do you have any good literature on the Soviet collapse?

Amen.We will not know the “truth” until it’s too late.

Never forget that Bill Gates and Microsoft would be nowhere, NOWHERE, without the taxpayer supported systems of the US. That means you and I have contributed to his success through infrastructure, legal system, etc. That’s what all these big swinging dicks forget. Without our system, no Microsoft, no Wall Street, no hedge funds, et all. They get to where they are and then piss all over us, degrading our skills, our system, etc. Globalization is where it’s at and everyone else works harder than our citizens, the Chinese, the Indians, the Mexicans, etc. Yeah, Mr. Gates, why don’t you go to Mexico, China or India and see if you could accomplish what you accomplished here, without the help of US workers and US educated programmers, et al. I guarantee your little garage based business would never have gotten off the ground. That’s if you even ever would have had a garage, dou@hebag.

So good on ya, Microsoft. Kiss my patootie.

You can compare the financial ratings of credit unions and banks here:

http://bankrate.com/brm/safesound/ss_home.asp

“Both the US and Europe will discover that Asia will welcome MSFT and all the jobs with open arms.”

LMAO! Until they can copy everything, set up their own and give ‘em the gate. And then you’ll hear lots of whining about regulation from MSFT and others, that’s for sure. US and EU corps just HATE regulation, until someone starts ripping them off. LOL! Then they want ALL KINDS of legal protection and regulation to protect their turf. Ya oughta see the way those corps go after Ebay for trademark infringement.

So according to you. A businesses only concern is money, maximum “profit” and nothing else. It has absolutely no responsibility nor obligation to anything else? Why would we as a nation or a community want to support companies who do not support us? Why would I want to spend my money with a company that would actually work to undermine my country, my community, my family and my way of life? Why shouldn’t a company be a “good citizens” and “good neighbor”? Not everything is tallied by the bottom line dollar.

That is the exact mentality that has helped create this fricken Housing/mortgage/credit/financial mess. Greed is good, right?

I never saw industry complain about patent enforcement regulation or intellectual property regulation or anti-piracy regulation or…

Gates is the number one boy screaming for more HB-1s so he can have the cheapest IT people even in the US. Any concern for IT guys like himself, and American taxpayer dollars who made his business possible? Now freaking way.
But he’s big on doling out a little charity, especially to third-world countries. It’s his feel-good drug of choice.
Another mutt with a short memory–though Vista is such a dog, he ought to take a closer look at the cheap labor he’s importing.

Everything they do is with one motive, to maximize shareholder wealth. They create software that they hope to sell at the highest profit possible.

There, I’ve said the dreaded “p” word which is a 4 letter word here.

Mortgages have long had “accelerator clauses” but they can be invoked only for reasons that are stated in the document. Reasons usually include: if the FB falls behind on the monthly payments, lets the insurance lapse, or lets the property degrade in some manner (failing to repair damage after a tree falls on the house, for example). When the clause is exercised, the full balance of the mortgage becomes due and payable, usually within 30 days.

“Is it true that these Accelerator Clauses exist.”

They probably do and should, if they don’t. But who knows how many, and where? IF accelerator clauses aren’t used in most future mortgages, the bagholders are fools, IMO. That said, there are so many problems unfolding, with so many borrowers who cannot make their mortgage payments, that I doubt many lender will pursue those who are paying in time even if there is an accelerator clause in their note.

1. Accelerator clauses are on many types of debt, including credit cards. Read the fine print.

As to their use, it’s in the banks interest not to invoke the clause as they remove the interest earned from loaning the money. Plus it would knock, say 95% of people into bankruptcy immediately. I wouldn’t count on any of those clauses being invoked at all.

Around 1979 some of the local banks in the Buffalo NY area demanded immediate payment of mortgages. You had the option of either defaulting or getting a new mortgage (at a higher interest rate). This was how some banks at that time dealt with their increasing borrowing costs while their older mortgages where issued at low interest rates.

It kindas reminds me when banks get you on their CC at a teaser rate with either a balance transfer or a cash advance, but later they smell blood and sock it to yah with a 30% interest rate.

Got 10% down?

Without seeing it, or the finances behind it, it is hard to tell. It might be that the realtor is hoping a low-ball price might incite a bidding war, but this is not the time for that tactic.

Not enough info. What city, state, neighborhood? What is the past sales history and what are/were comparable sales nearby.

Reminds me of the corny old joke: “We have a partial score: Philadelphia 6!”

Desperation to sell and a lack of qualified buyers will cause this.

People always said they wanted him to speak plainly. I wonder how they like it now that he is scaring the hell out of the market, insulting the President and being more gloomy than the most dire HBB’er?

And of course there is NO CORRELATION between 1% Fed Funds rate and the 1/3 decline in the dollar index from 2001-2007.

I don’t see any reason why you should put 5% down. That’s a lot to risk if for some reason you had to withdraw from the deal and you have to go to arbitration over the deposit (my disclaimer is I’m not familiar w/Florida law). Is this your agent, or the seller’s agent?? If it’s the sellers, get your own and tell him/her to kiss off. Buyers are in charge now. Just my .02, for what it’s worth.

I can see where a seller in a rapidly deteriorating market would want to make sure that if he is selling at a low price, that he at least has the security that the sale will go through or else end up with the house still for sale in an even worse market than before. I wouldn’t take it personally, and if you have every intention of buying the place and it’s a really great deal (in your mind) I don’t see a big issue. The big binder is your exchange for the great price. That said, what you think is a great price may not be so.

Tell him you’re willing to make the contract non-assignable. He might think you’re a flipper.

In California and Texas, I have done SFR deals in both 3% is a common deposit, if you’re serious. But keep in mind a deposit is highly negotiable. The more deposit you put down is an indication of how serious you are, hence him asking for the 5% especially if you’re coming in low on price. In California you can lose no more than 3% in theory if the deal goes screwy. But I would check the local laws to see just how much of that 5% you would lose if the deal doesn’t go through…

“Besides being ignored. he is now asking a %5 (of my offer) as a binder of desposit”

If you are putting your own money on the line (down payment, paying a loan for 15 or 30 years) in a down market, they should be fighting for *you*, not the seller. Tell them that you have multiple bids on your money, and that the property owner that bids the most house for your money, and writes the best essay on why they should get your money, will get the privilege of buying your money with their house. Oh, and require the winning bidder to feed the squirrels.

Thank you for the answers… I think it would be a good deal.. its within walking distance from work, and a decent area… the house is gutted.. no kitchen, ruined floors.. its not pretty! but I’m good with hands so I’m not that worried. My contingencies might include an inspection (not sure) but I wont take it only if it is something extreme, which seems very unlikely.. its owed by a bank (REO) and I want to offer (I haven’t been able to) less than 50% of the fantasy price I mean “market price” but its slightly above what I understand is owned on the house.

Dump him (your fiance)!

Have to admit, my first thought was the same as Anon…. your fiance’ sounds like he’s brainwashed or just naive. Can’t point you to a specific site, but you should be able to google info in your area.

If he can learn and see your point, good. If not, take it as a sign of how your financial future will be with him (not pretty).

I posted an account at the top of this page in Cynicalgirl’s thread.

(Ben Jones)

Yeah, this thing doesn’t pass the smell test. If they had bought the house for $235k and put down $130k, their loan would have been $105k. The payment on that amount would probably be closer to $450 a mo, not the $1,800 reported in the article. Even if you took out $300 mo for impounds, it’s still way off.

Based upon the payment, it looks to me like the principal now must be around $350,000. So how did they get from a loan of $105k to $350k?

Another case of bad reporting .

I’ve got some bankgsta music lined up.

Pedicures also naturally go down when the summer sandal season is over. The end of the season depends on where you live. This doesn’t contradict your observation about the least visible being the first to go, but the business itself is a seasonal thing.

I’m really surprised to hear this. The nail salons in our area are nothing but cash cows. I was of the opinion that they will make it through a recession if only for the fact that a cheap manicure/pedicure is a “feel good” purchase. It could help an FB female forget that she has to sell her plasma TV and her collection of Gucci bags.

Maybe your wife went to a real salon, though?

hey, insourcing your army - what a genius idea! I wonder what Socrates, Plato, or Machiavelli would think of that?

So what profits do I get if the S&P500 drops 40% but the dollar drops 50%? At best it is a wash. ”

Many investors still have not learned that lesson. No one on the finanical networks talks about the market return in real (inflation-adjusted) termns. No one talks about currency devaluation. They only say the market is up X percent this year, in nominal terms. Measured against virtually anything else (foreign markets, gold, foreign currency, commodities, etc) the markets are DOWN in real terms. I cannot help but wonder if people will ever realize this, and what action they might take at that time.

Nice to see you posting again Hoz.

Welcome back, Hoz.

This reminds me of something.

In the spring of 2004, I was researching some student loan options for my girlfriend, as she was beginning a multi-year graduate program.

Since money was so cheap at the time, I called each of the major private lenders (perhaps six) the school’s Financial Aid office recommended.

At every single one of them, not a single stooge who answered the phone could explain to me what the maximum interest rate would be for any of the borrower programs. I ascertained that a “maxiumum rate” discussion was a mystery to them.

Since it seemed the rates did not have a cap and they couldn’t fathom why I might want that, I tried to explain an environment where having such might be a “good thing” for a borrower. I recall explaining what I had learned of the economic environment of the 1970’s and early 1980’s and the possibility of much higher interest rates (remember, I was explaining this early in 2004, in the midst of the Fed’s one year or so fun run of a 1% FFR)… and my tales of economic history just never worked. It seemed almost obvious to me that inflation could become an issue again.

Finally, I got someone to call me back who said their company capped rate increases on an annual basis and I felt relatively comfortable with that at the time. It all worked out for us in the end, I suppose, but the lesson I learned was that “no one” was ready for a rising rate environment.

Let’s hope Chairman Bernanke does his job and that “everyone” is better prepared now!

Did you see the Barrons piece about oil going to $45? Pure comedy.

It’s difficult to see how the Northern Rock brand could possibly survive a run association. Depositors’ fear of losing all their savings is not something that is easily overcome. From the Telegraph:

The Government has promised to guarantee all deposits held by Northern Rock in a bid to calm panicking customers.

http://tinyurl.com/36qt5p

This story is getting almost NO airtime in the United States. The majority of headline watchers are not even getting this news. What does that say about the crisis management boys in the good ole USof A.

The Skilling defense is mounting by the day.

London move to safeguard UK savings
By Peter Thal Larsen and Chris Giles in London
Published: September 17 2007 23:02 | Last updated: September 17 2007 23:02

The British government on Monday night stepped in to guarantee the savings of customers of the beleaguered Northern Rock bank as it moved to prevent panic from gripping the entire UK banking sector.

Alistair Darling, chancellor of the exchequer, pledged the government would fully guarantee people’s savings and the Treasury said similar assurances would be available to customers of any other lender that ran into difficulty in the current turmoil.

Customers queued in their thousands to withdraw money from the mortgage lender for a third day and the stock market showed signs of fear spreading to other banks.

(Related stories:
Paulson seeks to assuage subprime concerns
Video: Northern Rock’s shares slide further
Spain seeks to calm markets after sell-off
Irish pessimism seen as overdone)

The government’s move, which goes far beyond the current scheme for protecting depositors, came amid signs that the crisis of confidence in Northern Rock was spreading to other lenders. Shares in Alliance & Leicester, Britain’s eighth-biggest bank, plunged more than 30 per cent after fears – denied by the bank – that it had been forced to follow Northern Rock in calling on the Bank of England for support.

http://www.ft.com/cms/s/0/597ffd70-6561-11dc-bf89-0000779fd2ac.html

Contagion sparks official denial.

Spain seeks to calm markets after sell-off
By Leslie Crawford in Madrid
Published: September 17 2007 22:14 | Last updated: September 17 2007 22:14

Pedro Solbes, the Spanish finance minister, and the Bank of Spain, the central bank, moved to calm financial markets on Monday, saying no Spanish banks had sought emergency financing from the European Central Bank.

Spanish bank shares fell sharply on fears that an international credit squeeze might damage the lending activities and profitability of financial groups.

The share sell-off followed a British press report quoting Adam Applegarth, chief executive of Northern Rock, the beleaguered UK mortgage lender, as saying that three Spanish banks had sought ECB help last week.

Mr Solbes ruled out the possibility that any Spanish financial group might be affected in coming days by liquidity problems such as those experienced by Northern Rock. “There are no parallels between what has happened in the UK and the situation here,” he said on Spanish radio.

The Bank of Spain said in a statement: “No Spanish institution has used any emergency financing facility. Spanish institutions, in common with other European banks, continue to use the ECB’s routine liquidity facilities. This does not mean that they are experiencing any difficulty.”

http://www.ft.com/cms/s/0/a778f4ae-6558-11dc-bf89-0000779fd2ac.html

NEW YORK (Reuters) - National City Corp said on Monday it expects a third-quarter mortgage banking loss of around $160 million…. National City said it expects to write down some “Alt-A” and home equity loans….

http://tinyurl.com/2kgdgr

Is “meaningful” the polite way to say “materal” in mixed company?

Sept. 17 (Bloomberg) — E*Trade Financial Corp., the online brokerage that also underwrites mortgages, cut its estimate of 2007 earnings per share by at least 25 percent, partly on costs to exit the wholesale lending business.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7ZOK_pPID.U&refer=home

Sept. 17 (Bloomberg) — NovaStar Financial Inc., the subprime home lender trying to survive by conserving cash, scrapped plans to pay a dividend on 2006 profit and will forfeit its real estate investment trust tax status as a result.

Says, “loss of REIT status will have a “significant adverse impact” on third-quarter results.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=av1zs1nHimPQ&refer=home

Sept. 17 (Bloomberg) — Wall Street’s third quarter would be the worst since 2001 if it weren’t for the timely sale of a power company by Goldman Sachs Group Inc.

Bear Stearns Cos. probably will report a 41 percent drop in earnings per share, Morgan Stanley may post an 11 percent decline and Lehman Brothers Holdings Inc. may say profit fell 5.1 percent, according to a Bloomberg survey of analysts. Goldman’s earnings probably jumped 33 percent after a gain of as much as $1 billion from the sale of Horizon Wind Energy LLC.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a3e60HBySgPk&refer=home

I can feel the confidence starting to come back.

If the gloabal rate cutting starts, any “good” feelings I have going forward will surely wain.