A Worldwide Phenomenon
Some housing bubble news from Wall Street and Washington. Financial Times, “US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market. The former chairman of the Federal Reserve said the decline in house prices ‘is going to be larger than most people expect.’”
“As Fed chairman, Mr Greenspan had talked about ‘froth’ in the housing sector, but never said there was a bubble in the market as a whole. But Mr Greenspan told the FT that froth ‘was a euphemism for a bubble.’”
From Newsweek. “Former Federal Reserve chairman Alan Greenspan was willing to sit down with NEWSWEEK’s Jon Meacham and Daniel Gross. Q: ‘The housing bubble has burst, the subprime-mortgage market has melted down and we’re in a credit crunch. Critics have charged that the Fed contributed to the trouble by keeping interest rates low for so long.’”
“AG: ‘This particular problem was an accident waiting to happen. The euphoria that existed in the expansion of the housing-market bubble induced investors around the world who’d had a huge buildup in liquidity—largely because of the lower real long-term interest rates that occurred as a consequence of the end of the cold war—to invest in something with a higher rate of return. And, lo and behold, the subprime-mortgage market provided it.’”
“Q: ‘The mortgage brokers were just meeting demand from investors?’”
“AG: ‘Precisely. And so you had Wall Street’s securitizers basically then talking to the mortgage brokers saying, ‘We’ll buy what you’ve got.’ … The big demand was not so much on the part of the borrowers as it was on the part of the suppliers who were giving loans which really most people couldn’t afford. We created something which was unsustainable. And it eventually broke. If it weren’t for securitization, the subprime-loan market would have been very significantly less than it is in size.’”
The Wall Street Journal. “Q: ‘So a bubble is the inevitable end of every business cycle?’”
“AG: ‘It comes to an end under two conditions. One is a bubble, or some variation of a bubble, in which capital investment is projected with expectations which are not realistic. The other is … you get an inventory cycle. [At the bottom of the cycle] inventories are liquidating .. and consumption is above production and as it goes up, production goes above consumption until [inventories need to be liquidated again]. There is no irrational euphoria, it’s just misjudgments.’”
“Q: From the vantage point of 2007, can you say now that it was in a bubble?’ AG: ‘Oh yeah. Lots of froths are equal to a bubble… What was driving prices higher was essentially the aftermath of the decline of the Soviet Union and the fall in real long term interest rates which drove up residential prices all over the world. And indeed, the U.S. was not at the top of the list by any means. It drove them up sooner in Britain and Australia as I recall.’”
“‘I find this issue that the Federal Reserve created the housing bubble just utterly devoid of any awareness of who created all the other bubbles. And they all look alike. Long-term real interest rates moved [in] parallel all over the world and the results were what you always get: a fall in equity [risk] premiums, a rise in price:earnings ratios, huge increases in liquidity, and large increases in the market values of assets.’”
“Q: ‘Many people, including some former colleagues of yours from that period, believe the Fed kept interest rates too low for too long, thereby contributing to the housing bubble and problems in subprime mortgages. Do you agree?’”
“AG: ‘We kept them too low for too long because we were effectively creating an insurance against [deflation]. The problem in making choices is that you recognize that if you miss, you can end up with interest rates too low, too long.’”
“‘The question is, what did that have to do with the housing boom? Remember that long term Treasury rates and mortgage rates stayed flat from early 2004 through the summer of 2005 [while the Fed raised the federal-funds rate from 1% to 3.5% in 0.25 percentage-point steps]. We tried effectively to get mortgage rates up as part of our incremental 25 basis point operation and we failed… ‘”
“‘If we were dealing with an inflationary environment, we would have had no trouble getting the 10-year [Treasury yield] up… Had we [raised rates] earlier, do you think we wouldn’t have gone through exactly the same phenomenon?’”
The New York Times. “John B. Taylor, a professor of economics at Stanford University and a former under secretary of the Treasury, recently argued that the Fed’s rate cuts after 2001 appeared to have exaggerated both the housing boom and bust.”
“‘There has been a bit of historical revisionism going on,’ Mr. Greenspan grumbled. The real force behind soaring real estate prices, he said, was a global one: a drop in worldwide inflation and interest rates, in part because of the end of the Cold War and the rise of China as a manufacturing colossus.’”
“‘The housing boom is not an American phenomenon — it’s a worldwide phenomenon,’ Mr. Greenspan said. ‘The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.’”
“The United States was only one of 40 countries that experience a housing boom after 2000, he said, and all of the booms were driven in part by low interest rates.”
“‘If you line up all the major developed countries and all the developing countries…inflation rates were all in single digits. This is utterly unprecedented, there is no history like this. And the consequence was a fairly dramatic decline in real interest rates, which created dramatic housing price increases around the world.’”
From CNBC. “The Federal Reserve tried to curb the explosive growth in the U.S. housing sector under Alan Greenspan’s tenure, but each time it tried to raise long-term interest rates it failed, the former Fed chief said.”
“‘In 2004 we tried to raise mortgage rates by moving the 10-year Treasury note up and we failed,’ Greenspan told CNBC, adding that the Fed failed again in 2005 and would have failed had it tried in 2002.”
“‘We had no control, that I could see, which would have made any difference in the extent of the bubble that was emerging,’ he said.”
“‘What we were responding to was global forces which every central bank was responding to,’ he said. ‘We had a continual, gradual decline in the rate of inflation. And, indeed, we were acutely aware that there are downsides to that, as well as upsides.’”
“‘The upsides were … world economic growth of unprecedented order. Hundreds of millions of people coming out of extreme poverty. And there are all sorts of plusses to it,’ Greenspan said. ‘But there are downsides. And the downsides are what we’re experiencing in bubbles.’”
“Greenspan also said an inflation target of 1% to 2% is unrealistic when the crutch of disinflation is gone.”
“‘The Fed does have the capability of suppressing the type of inflation process which is going on,’ he said. ‘The difficulty is it will require very significantly higher interest rates. And when Paul Volker successfully suppressed inflation in the early 1980s, he was vilified.’”
The Union Tribune. “Denial, anger, bargaining, depression and acceptance. Those are touted as the five stages of grief. But somewhere between denial and anger there is an important but rarely mentioned sixth stage: finger-pointing.”
“And that’s the stage where we are right now in the Great American Mortgage Crisis.”
“Although there are many culprits to blame for this mess, topping the list is the Federal Reserve. The Fed of Alan Greenspan After the dot-com stock market bubble burst in 2000, Saint Alan steadily lowered the federal funds rate, flooding the global market with cheap and easy money. ‘It was our job to unfreeze the American banking system if we wanted the economy to function,’ he told CBS reporter Leslie Stahl last week. ‘This required that we keep rates modestly low.’”
“Modestly low? That’s like saying the electric chair is modestly dangerous. The federal funds was just 1 percent from mid-2003 to mid-2004, its lowest point since 1958. Considering that the official inflation rate was around 2.25 percent during that period, the Fed was essentially paying people to take money off its hands.”
“Wall Street firms and international financiers that had been burned by the dot-com boom scooped up that cash and started buying bundles of mortgages, because nobody ever loses any money on real estate, right? To meet the demand for mortgages, lenders packaged a wide array of creative but risky loans.”
“Speculators swooped in, using those loans to buy homes that they were never going to live in but would quickly flip because prices would just go up and up. Covetous homeowners refinanced their properties so they could buy the latest Humvee or flat-screen television. And a lot of working-class Janes and Joes got swept in too.”
“Greenspan confessed to Stahl last week that he ‘didn’t really get’ how serious a threat subprime lending could be to the economy until very late 2005 or early 2006. Just as he was about to leave office. After the subprime market peaked. After most of the damage had been done.”
“That’s funny, because as early as 2003, a number of economists were warning of a housing bubble, prompting Greenspan to assure Congress that ‘the notion of a bubble bursting and the whole price level coming down seems to me, as far as a nationwide phenomenon, really quite unlikely.’”
“Unfortunately for his successor, Ben Bernanke, the Fed is now faced with just such a nationwide phenomenon.”
“‘A Fed funds cut will not bring back the U.S. housing market,’ Wells Fargo economist Eugenio Aleman bluntly said. ‘What if the housing market remains depressed? Then the markets will ask for another rate cut and another and another and another – and then what?’”
“The cheap cash that Greenspan and others injected into the world economy after the Asian economic crisis of 1997 helped fuel the stock market bubble of 1999. The cheap cash that Greenspan floated in 2000 helped fuel the real estate bubble. What new bubble will be created if too much cash enters the economy?”
“‘The subprime mess was a bad investment decision from the very beginning and was brought about by having very low interest rates for a very long period of time,’ Aleman said. ‘And the only way to go forward is to flush it out, take the loss and move forward, not bring it back.’”
From Bloomberg. “Federal Reserve Chairman Ben S. Bernanke is grappling with what predecessor Alan Greenspan might call a conundrum. At issue is whether today’s U.S. economy most resembles 1998, when Greenspan may have been too eager to cut interest rates, or 2000-2001, when he may have been too slow. The trouble is, the situation now resembles a bit of both.”
“The Fed ‘has been very slow to acknowledge what is one of the biggest busts in U.S. housing history,’ says Allen Sinai, president of New York-based Decision Economics Inc.”
“In remembering the lessons of 2000 too well, though, the central bank would risk losing ground in its fight to keep inflation contained.”
“‘Rate cuts are not free,’ says Marvin Goodfriend, senior vice president at the Richmond Fed from 1993 to 2005 and now a professor at Carnegie Mellon University. ‘You pay a price.’”
The Independent. “The housing market busts in the early Nineties in Scandinavia and Japan were very different in terms of intensity and duration. The Scandinavian countries suffered several years of collapsing house prices as well as deep economic and financial crises. These economies and property markets subsequently made quick recoveries.”
“In contrast, the Japanese housing bust was less intense but it lasted a long time. Nearly 15 years, to be more precise. Between 1991 and 2004, real estate prices in Japan dropped 60 per cent. House prices in Tokyo plummeted 90 per cent.”
“So what kind of housing adjustment are we likely to experience? Unfortunately, the prospects for a soft landing are growing dimmer by the day. Anecdotes suggest that the much anticipated autumn selling season opened with more of a whimper than a bang. Recent readings show a sharp drop in confidence among households and builders. These are hardly ingredients for a soft landing.”
“In a US Federal Reserve study of 44 house price booms and busts in industrial countries since 1970, the average bust lasted nearly five years. More precisely, real (that is, inflation-adjusted) house prices typically declined for almost five years after the peak.”
“Japan’s biggest problem was that they attempted to sweep the consequences of the housing bust under the carpet. You see, when housing markets go bad, lots of money is lost. Be it homeowners, property investors, developers, banks, and taxpayers, someone has to take the hit.”
“The Japanese wasted a decade-and-a-half arguing over how to allocate the losses, and their economy stagnated in the meantime. Let’s hope we don’t do that.”
‘We kept them too low for too long because we were effectively creating an insurance against [deflation]. The problem in making choices is that you recognize that if you miss, you can end up with interest rates too low, too long.’
What do you know!
A Fortune transcript of an AG Q&A: ‘We have done this time and time again. We have never had the capacity to defuse a bubble which is essentially what we’ve dealt with, with respect to credit instruments, and I suspect the reason is that human nature being what it is that until we essentially reach the climax of euphoria, the fever doesn’t break, the speculative fever doesn’t break, but when it does, it turns on a dime, and we get the type of markets we have been observing for the last number of weeks.’
‘It was not forecastable specifically but it was inevitable nonetheless.’
And a link to the 60 minutes spot.
‘It was not forecastable specifically but it was inevitable nonetheless.’
Maybe not forecastable, but nonetheless clearly visible to many posters on this blog.
It seems AG had a choice: be viewed as an ignoramous or a reckless imbecile. He’s apparently chosen ignoramous.
You know a rate of 5.5% would have just about squashed this. A 7% would have killed it dead.
I’m not convinced.
I’m kind of with Greenspin on this one. Bubbles are a fundamentally a phenomenon of mass psychology - like stampeding cattle. Sure, there are all kinds of knobs you can turn that should in principle slow things down. But if the fundamental psychology isn’t tempered, the mob will find some other way to support the bubble. Historically, bubbles have never collapsed when governments attempted to prick them - they always collapsed under their own weight.
Volcker figured out how to stop the stampeding bovine herd in its tracks.
Can you elaborate on that? Thanks.
I seriously doubt if you can call the problem that Volcker was dealing with a ‘bubble’.
“I seriously doubt if you can call the problem that Volcker was dealing with a ‘bubble’.”
OK. Let’s agree to call it “people buying precious metals and houses in order to hedge against inflation” then.
“Can you elaborate on that?”
Secrets of the Temple. - book reviews
Washington Monthly, Jan, 1988 by Alan S. Murray
http://findarticles.com/p/articles/mi_m1316/is_n12_v19/ai_6306539
Annata: Volker raised interest rates through the rough. That stopped inflation cold.
Imagine if the Fed had jacked up interest rates to 15% back in 2004. That would have stopped the bubble dead.
RE: Imagine if the Fed had jacked up interest rates to 15% back in 2004.
9.5% 30 year fixed rates cold cocked the real estate market in ‘94.
Prof Bear: Perhaps I missed a reference to Volker fighting a bubble, but the Volker article seemed to talk mostly about inflation. Are you saying that the tools used to fight inflation would also work to deflate asset bubbles? In my mind, inflation is very different from an asset bubble.
If Fed rates had shot up to 15% in 2004, I’m not sure that there wouldn’t be 1% 10-year neg-arms. After all, interest rates are bound to fall after 10 years, so you could just refinance, and since housing goes up at >15% per year, “it’s a no-brainer.”
A bubble market is not a normal market. By definition, the expectation of future price gains outweigh all other reasonable concerns.
I agree with PB’s central point: if Paul Volcker had been Fed Chairman during the Greenspan years, we would not have had the housing bubble. Volcker had major cojones — on TV, he came across as a Don Corleone. He would have raised raised rates when they needed to be raised, regardless of the politicking for anything else. I dislike the Fed, but if there must be one I wish we had a Volcker clone in charge.
Not entirely. Bubbles always die from debt exhaustion. However, if you take a credit expansionary policy (low rates) to a stupid level then you feed bubbles.
The idea is to use inflation to force investment (if you believe in an inflationary system). When you see activity its good but it has to tempered with realization or awareness to go into a defensive position when bubbles form.
Housing bubbles are particulary dangerous.
The FED isn’t the only cause. Part of this was China’s mercantalist policies.
The FED was a significant cause though.
Not to be a grammar nazi, but for the umpteenth time: “Fed” is not an acronym. Only the first letter is capitalized.
Don’t you mean, “Excuse me for being a grammar nazi, but …”
“China’s mercantilist policies”
Or was it “Congress’ easy trade policies”?
Ahem, Premature Curmudgeon, where’s your damned question mark? You bastard!
So it doesn’t stand for “Fooken Erectile Dysfunction”?
“The idea is to use inflation to force investment (if you believe in an inflationary system). ”
And that is Greenscam’s role and his legacy to us. Confiscate the wealth of working class via inflation (oh, and then outsource/insource their jobs) to force “investing” which rapidly turns into gambling once the middle class (soon to be new-poor class) realize just how far behind inflation they are. What is M3 running at now? 10+% I think. Gee, housing gave returns that could match up with that - far better than lousy raises most folks get (at best since many in our new “serviced economy” don’t get raises at minimum wage.)
Greenscam is a liar and a fool. He was a willing enabler of this huge wealth transfer via: inflation and encouraging gambling that has now financially ruined millions. Sure, plenty of those idiots were greedy and deserved it, but many did not, but to Greenscam and his cronies it didn’t matter - just so long as there were enough bodies - enough wealth taken from the middle class.
I wonder where the next Bubble will be once the Fed gets done trashing the dollar (starting with tomorrow’s rate cut) and ramping inflation up to some absurd leve. And I wonder if Greenscam will have the balls to notice that a Bubble is and always will be the result of confiscation of earned wealth via inflation.
Soho — Premature has it right. Protocol for this blog is that no one throws darts about grammar or spelling unless it interferes with the smooth flow of reading posts or unless it changes the meaning to be other than what the writer presumably intended.
Similarly, no one who makes typographical errors (I do so daily) is expected to correct them unless such corrections are material or otherwise useful. Some of the better humor here has come from typos.
Bubbles need to be financed. Take away the financing and the bubble will deflate. It’s just that simple.
I’m not disagreeing with that. I just think that the free market would’ve come up with its own irrational financing mechanism when the fed withdrew theirs.
The fed was definitely an enabler.
I agree that the fed played an important role in this bubble, but unlike other housing bubbles as before..CREDIT STANDARDS were all but eliminated…the ability for anyone to get credit was I think an even greater factor to the bubble than interest rates..everyone saw a way to make a quick buck and threw out the logic of “qualifying” for a loan..that fueled the fire the most…
Dear Annete:
I agree that low credit standards were the fuel for the explosion, but those standards could not have deteriorated were it not for securitization. Securitization made it unfavorable for a lender to EVER deny an applicant. Even in cases where contracts included clauses specifying underwriting guidelines, there was no cop standing around verifying that the lender’s statements were true.
Why could not the Fed have just beefed up its Reg-Z enforcement? Whatever happened to moral suasion and the bully pulpit? I recall that Greenspan torpedoed the stock market several times during the late 90s by talking it down, but he only spoke of the housing bubble in glowing terms (e.g. “frothy”, like an over-shaken champagne bottle).
Bubbles start with corruption of the government or industry, grow with rampant speculation and end in fraud. This bubble started after the capital gains tax was cut to 15% and a new 250,000/500,000 capital gains exclusion was given to profits on the sale of the house - both were put into place after Bush came into office and right before the speculative take-off. These instruments deliberately encourage people to sell their houses, in direct contradiction to the oft-stated reason for tax-breaks for home-owners - that people who own homes stay in the neighborhood and thus help stabilize it. This was a huge red flag that hardly anyone even yet is mentioning. NO one said, hey wait a minute, why are you encouraging the turn-over of homes?
The fuel to the fire were the interest rate declines and the indifference of the government to regulation of the subprime schemes. Greenspan’s comments are actually a case of active encouragement of speculative behavior.
If you read history, you can see in every instance where a bubble occurs where laws were loosened up or changed to encourage speculation. The stock market bubble did not grow to insane levels until after the Glass-Steagel regulations were repealed. That, along with weakened anti-trust regulations allowed the dot-com mania to explode.
In the case of Enron, a new law deregulating the energy market in California allowed Enron to come in and game the market. TURN, the consumer protection group , placed an initiative on the ballot that would have reregulated the markets and prevented the enron debacle if it had passed, but it did not, so we were left to deal with the inevitable aftermath.
Dani — you make a very good point, often overlooked when we assign blame for the bubble. The gains treatment for principal residences was a significant financial incentive for people who might otherwise have remained long-term occupants to “churn” their home.
Dani,
Excellent points. Well put. Keep it rolling with mob mentality human irrationality and you could have a PhD thesis on your hands.
The bubble is more than just the FeD. IMHO it wasnt really the fEd at all. Liquidity comes in all shapes and sizes. Tax breaks, carry trade, Chinese captial investment, Russian / Saudi oil money. The feD is chartered to balance inflation and deflation. Creating or stopping bubbles isnt part of the job.
What’s more, “‘The housing boom is not an American phenomenon — it’s a worldwide phenomenon,’ Mr. Greenspan said….”
Wait a tick. He goes from frothy local housing markets to global housing bubble. Whiskey-Tango-Foxtrot!!
Whiskey-Tango-Foxtrot!!
(laugh)
Nice, I haven’t seen or heard that particular version of the famous phrase before.
More from New Zealand:
“Houses Unaffordable” First-home buyers were literally shut out of home ownership through record unaffordability in August, according to a survey released yesterday.
http://www.nzherald.co.nz/section/8/story.cfm?c_id=8&objectid=10464126
Pardon me for being blunt, but I think Dr. Greenspan is trying to cover his flank. Something about a legacy, which is tarnishing quickly.
I agree. The guy is such a dinosaur, blaming the Russians!
Talk about tarnished.
Hi-Ho Silver away!
http://biz.yahoo.com/ap/070917/germany_greenspan_euro.html?.v=1
From the timing of his magical appearance in all media, I think the #1 goal is to peddle his book and the secondary, assumed from success at the first, to protect what he perceives to be his legacy.
This is an interesting quote in that article.
“Mr. Greenspan was also quoted as saying ‘Really officer, a friend of mine left that bag of weed under my front seat. It’s not mine, I swear.’”
I would not wish to be in a foxhole with Mr. Greenspan.
there’s some 2004 arm loan holders to see you mr greenspin-
with bats and pitchforks
Finally someone with some gravitas is telling these dolt Realtors and Sellers that the friggin housing market is going DOWN!
Maybe these asshats will finally get the message that they need to DRASTICALLY lower their price if they want to sell their house?
This should serve to give prices a push off the cliff.
They have only one day to be concerned with this information from Greenspan. On Tuesday the FED will probably lower the rate and the RE industry will call a new bottom and the start of the rebound. They will not get it until they have no more food in the kitchen and the bank is taking away their SUV.
I wonder how BB’s Fed will deal with AG’s post-retirement housing IED?
IED? Improvised Explosive Devise
Interpret this Existential Data!
IED?
Another peeve on mine, in an admittedly grumpy day. An IED is a fancy way of saying “booby trap.” That’s all it is. But because the equipment we provide costs, what… 50 times, 100 times? what marines and soldiers used to carry and use to ferret out insurgents, it appears we needed a more expensive-sounding bad-guy’s tool of aggression. They’re booby traps.
If you think this is an exaggeration, take a cherry bomb or an M-80 to an ATF office and ask them what they call it.
BTW — I am a Vietnam veteran and mean no disrespect to our troops in any way. My attack is on the politician’s creation of new words to make something that is not new, sound new. The use of booby-traps in Iraq is serious, never-ending, and very costly in terms of lives lost.
sort of always thought of an IUD as a booby trap……
Housing market fall down go boom?
Big baaadda boom.
Okay, John, are you watching the Fifth Element?
MULTIPASS!!
the HOVnanny-in sale should help
100k off and counting
auger : Many can’t simply lower them. They bought at the peak and have no way of going lower without bringing money - which they don’t have - to the table.
They are priced in forever.
More like priced in until foreclosure.
Exactly. And that brief observation does not capture the magnitude of the foreclosures that are going to happen because the NINJA’s have No Equity and No Hope.
Dear Auger-Inn:
That’s what I thought too. But, as it turns out, the optimists among us still cling stubborny to their views. It’s still “different here”, the stock market still won’t be touched, the market has still bottomed.
Strange.
Big V, I know all that but I can at least hope for some resolution can’t I?
The picture that immediately comes to mind is a frozen pond (prices) with the underlying water (market value) draining away quickly. When the prices finally crack the whole thing will cave-in quite nicely.
Big V — are you keeping a spreadsheet of asking, reduced and closing prices of the optimists’ properties? Surely they are selling in a reasonable amount of time.
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“The former chairman of the Federal Reserve said the decline in house prices ‘is going to be larger than most people expect.’”
“the decline in house prices” are going to be lot larger than you expect, Mr. G. You were never able to tell the whole truth, right?
Jas
Should we trust him on his “probability of recession is 1/3″ announcement, or just assume this is the latest in a long succession of deceptions.
Despite his retirement, he is still quite capable of simultaneously talking out of both sides of his mouth.
And if inflation is reemerging, is AG tacitly suggesting a preemptive course for monetary policy in the near term?
Greenspan calls outlook ‘pretty gloomy’
Says biggest long-run problem is ‘re-emergence of inflation’
By Greg Robb, MarketWatch
Last Update: 12:06 AM ET Sep 17, 2007
WASHINGTON (MarketWatch) — Former Federal Reserve Board Chairman Alan Greenspan says his outlook for the future of the U.S. economy is “pretty gloomy.”
In an interview with correspondent Lesley Stahl of the CBS News program “60 minutes,” Greenspan said that over the long run, the biggest problem facing the U.S. economy is “the re-emergence of inflation,” and rising interest rates. The interview was scheduled for broadcast on “60 Minutes” Sunday night.
Greenspan said it is not clear yet whether the current turmoil in financial markets will have a deep, lasting effect on the economy.
He said that home prices have further to fall, but that there is an “underlying strength” in the U.S. economy.
http://www.marketwatch.com/news/story/greenspan-says-economic-outlook-pretty/story.aspx?guid=%7B0148B9DA%2D4925%2D4622%2DA1B5%2D96F7739E42CA%7D&dist=MostReadHome
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“Says biggest long-run problem is ‘re-emergence of inflation’”
He is going to be proven wrong on this within a year. The supply has been overbuilt and when the demand starts to go down, led by the recession in the US, what do you think is going to happen to the prices? Lot of people are already running out of more money to spend. No mo MO-nee.
Jas
Well… you might not see price inflation, but I think you’ll see lots “mo mo-nee”. The money supply will grow by leaps and bounds. Japan is the model, and we will (sooner than you think) have a US version of Japan’s ZIRP.
Jas:
I think by inflation, he just means the dollar will be worth less. If people can’t get more money, but the money they have is worth less, then people will be poorer.
The way I interpret Greenspan’s statments (all combined), I think he’s saying that globalization is bound to reduce the quality of life for Americans, while raising it for others. Isn’t that what the simple-folk came up with about 10 years when all this started?
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I think that for Americans the dollar will buy more goods and services within the US than it buys today. Yes, people will be poorer because of job losses and losses in various “investments.” People will have lot less money than they do now. Lot of money will disappear as debt disappears via defaults and paying down of debt. Hard for most people to believe, but deflation will assert itself as soon as household debt starts to flatten out, not to mention when it declines.
Jas
I’m hoping for deflation, but it’s pretty lonely in this tent.
I think that for Americans the dollar will buy more goods and services within the US than it buys today
Just how is that supposed to happen, with a falling dollar and the US’s dependence on imports? You think that the US$ price of gas or food is going to go down? Give me a break.
What’s going to happen is that the price of houses is going to fall bigtime, some services such as golfing may well get cheaper, but consumables are going to go up a lot in US$ terms. That’s not a contradiction, in fact the former is a consequence of the latter.
funny thing about the term “Underlying strength” regarding the economy/housing, it basically means we want to say something positive, but have no facts to hang our hat on…so we will just make this term up, which is sufficiently ambiguous as to be irrefutable
“underlying strength” in the U.S. economy = wage slaves working til they drop to chase status and worthless bling
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Never! Using the fudge-factor, it is more like 90%.
Jas
Finally!
“Federal Reserve Chairman Ben S. Bernanke is grappling with what predecessor Alan Greenspan might call a conundrum. At issue is whether today’s U.S. economy most resembles 1998, when Greenspan may have been too eager to cut interest rates, or 2000-2001, when he may have been too slow. The trouble is, the situation now resembles a bit of both.”
********
The time has now come for Ben Bernanke chance to show us if he has some balls.
I’ve said it before, and I’ll say it again:
“Do the Volcker!”
With all this recent news and now a keen awareness of the accusations leveled against the Fed, Mr B’s balls are really in a vice. I’m sorry, but I just don’t see a cut tomorrow, and if that’s the case, then we’re have a Mr Toads Wild Adventure ride for sure.
You mean we are going to crash and end up in hell?
Can we please not talk about Ben’s balls? I’m getting nauseus.
BB’s latest conundrum: What to do now that (1) everyone knows subprime is not contained and (2) his predecessor has publicly announced that housing prices will fall by more than most people expect?
There is a quote from the CNN article (see below) that I think telegraphs where Bernanke should go (caveat: assuming the message is intended to be taken at face value). I see this as saying, let housing crash, stock market take its lumps, etc. and lets get on with dealing with real issues (such as federal fiscal mess and imbalanced economy–too much service not enough manufacturing and production). My 2 Cents.
“These units are going to overhang the structure and move prices inexorably lower. So I think we’re going through a period that is not over yet, and it’s important that we bring this to an end sooner rather than later, because it has a corrosive effect on the economy.
All BB has to do is stand pat tomorrow. The disappointment registered by Wall Street’s cargo cultists would take care of the stock market correction from there.
I agree.
At this point, by taking the longer term perspective and not acceding to the cries of the Street’s Pig Men, it would be akin to “Doing the Volcker!”
Well, perhaps for the next few meetings until the end of the year.
Ditto. It may be his only chance to get Greenspin out of his hair. AG is the sort of person, there’s a moniker I cannot remember, who upon leaving a job makes sure the entire corporation is reminded regularly that the successor is doing a suck job. More than just back-stabbing — more clever, more sinister.
I agree with you, Premature Cur.
… and (3) inflation is going to rear its ugly head again so rates need to go over 10%.
Oh, boy, not another conundrum. I don’t know much about monetary policy, but I’m pretty sure Mr. BB wishes Mr. AG would just shut up.
“Lots of froths are equal to a bubble…”? Stephen Colbert might say this guy has HUGE brass balls. He better shut the hell up or someone is liable to take him out.
Everybody see the 60 minutes interview last night?
Flat out admission that he totally was unaware as to what was transpiring in the sub-prime sewer.
Classic example of the smug, self-assured ivory tower deep thinker/Wall St. aristocracy to be so far removed from ordinary American that that they haven’t a clue as to what tranpsires on the street.
Shows ya how bad it’s gonna get.
Easy Al’s admittin’ culpability early in the game to save himself from the chewin’ he’ll take when the whole rotten game dissolves into quasi-anarchtic chaos.
Think quasi-anarchtic chaos a bit radical?
Go view the photos of the mobs waitin’ for their pfennings outside Northern Rock banks in Britain.
“Go view the photos of the mobs waitin’ for their pfennings outside Northern Rock banks in Britain.”
I love it. Looks like the run on the Dawes, Tomes, Mousely, Grubbs Fidelity Fiduciary Bank at the end of “Mary Poppins.”
Coming to the bank nearest you…
http://www.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2469784.ece
“In a US Federal Reserve study of 44 house price booms and busts in industrial countries since 1970, the average bust lasted nearly five years. More precisely, real (that is, inflation-adjusted) house prices typically declined for almost five years after the peak.”
So if this is an ‘average bust’ that we are in, we should anticipate recovery by around 2010. But given that we just witnessed the biggest real estate bubble in U.S. history, is it reasonable to assume the recovery time will merely be average?
Information is now available to everyone throughout the world as it happens. This was not the case during previous real estate crashes, so it should get us to the bottom much faster. I still expect the duration to be at least 5 years.
I will say it again: the internet will only prolong the process, one of the reasons being all the disinformation that is being spread. The Dutch tulip bulb bubble (one of the first major financial manias) collapsed by about 90% within a week. That was in 1635, when news travelled by horse or pidgeon and not by internet or mobile phones. And the last Dutch housing bubble (with about 100% gains in a few years time tiny-tiny compared to the current Dutch housing bubble) collapsed by 40% within 1.5 years, with most of the damage done in the first three months. That was in 1979, before the internet and mobile phones as well.
Yeah, but I think they were talking about the average bust all over the world, not just in the US.
Also, talking about country-specific busts, not a global bust.
dodd,hilary,frank etc- guess who they want to “take the hit”
, lots of money is lost. Be it homeowners, property investors, developers, banks, and taxpayers, someone has to take the hit.”
Maybe BB and AG have agreed that AG will go out and explain the situation because BB really can’t say to much . I can’t believe that Greenspan is doing all this talking without the blessing of the current Chairman .If BB says any of this stuff ,than he tips off what the long term policy trends are going to be ,or what the Feds are going to try to do in the form of damage control .
What better tool than to use Greenspan for stating some truth ,but than being able to change the trend if things don’t work out .
100% agreed. Good thinking.
I was thinking the same thing. That’s why I would really be surprised if BB drops the rate tomorrow. Wouldn’t it be funny if instead he raised it?
I can’t believe that Greenspan is doing all this talking without the blessing of the current Chairman
Of course he can, AG is trying to sell his book.
It’s to weird , the exact timing of giving interviews right before the Fed meeting ,but maybe your right Sun Devil.
I think that that is what it is all about — lots of hype and commotion will sell almost any book.
Exactly - Penguin Books has him dancing for his $8 million advance! That if might inflame or offend people in the mideast to hear former Fed Chair “confirm” that it was all about oil matters not to him!
Exactly - Penguin Books has him dancing for his $8 million advance! That if might inflame or offend people in the mideast to hear former Fed Chair “confirm” that it was all about oil matters not to him!
I agree. Greenspook is a tool.
Hey Housing Wizard:
I was thinking that’s a possibility. Or maybe he just wants to tell everybody before he dies that the Federal Reserve is not as immune to politics as it’s supposed to be. Remember what he said? He wanted to raise interest rates earlier, but it was politically unfeasible.
That’s scathing.
I guess we’ll find out after it’s too late for us to react what their plan really was. Hope they don’t cut.
“Maybe BB and AG have agreed that AG will go out and explain the situation because BB really can’t say to much,”
If that is what they are doing, it makes Bernanke look like a eunuch who should be in a boys’ choir instead of at the Reserve. WTG - Worse Than Greenspan.
BB has one big chance to make his reputation as a bad-ass inflation fighter and defender of truth, justice and the American Way — it is tomorrow, to hold the Fed Funds rate steady or even to raise it a quarter-point as a “Volcker nose-tweak.”
24/7 trader wailing didn’t cause any lost sleep for PV.
Most everyone was interested in keeping the bubble going, including those governments that reaped the benefits of higher tax payments. In all the froth, most forgot the long-term benefits of lower prices to the health of the economy.
Hell, gas prices go up and the government goes crazy trying to investigate what happened. But not with home prices.
This was not a housing bubble but a stupidity bubble. A lot of people played stupid, and hopefully those involved will suffer the consequences.
Why would we want them to suffer?
So the world does NOT go thru this s**t anytime soon again.
The American (and global) economy has been bubble dependent since 1998. It is time for this to end and for those who lived thru this to remember and not allow it to happen again in our lifetime.
“This was not a housing bubble but a stupidity bubble.”
The next years will bring unprecidented pain and suffering to millions. But it will all be worth it just to get that quote!
I don’t think the stupidity bubble will ever pop.
Stupidity is a matter of degree. I can and have made stupid decisions and errors. And I will continue to do so. But I have NEVER made an error that will cost me 100’s of thousands of dollars.
This stupidity bubble behaved more like the 1918 Flu pandemic, since it affected the whole world and has millions and millions of victims that fell under its effect.
OT - what ever happened to the word “epidemic”. i see pandemic alot these days.
i want the epi.
“A pandemic is an epidemic that spreads through human populations across a large region (for example a continent), or even worldwide.”
Sorry, no epidemic here…
Isn’t it amazing that the same person complains about $3 gas and then turns around and buys a half million $ s**t box.
Well, he was expecting the magic stucco box to appreciate 20% YoY, whereas, as dense as he is, he did figure out that gas is a consumable.
Absolutely shocking! How on earth people spend so much time thinking about gas prices over home prices is totally beyond me. I have discussed this before, but just for old time’s sake…
Let’s say I drive 20K miles a year, and get 20MPG on avg in my vehicle. That’s 1000 gallons of gas a year.
Every $1 move in the price of gas (from 2.00 a gallon to 3.00 a gallon for example) increases the amount spend on gas by $1,000 dollars.
We are doing all this whining about 1,000 bucks?? Come on people! Home prices are up 200,000 dollars in my area over the last 5 years. And your telling them the extra 1,000 bucks a month is my real problem?
Gas would have to go to 4-5 dollars before most would see any impact. And would have to go to 7-8 dollars a gallon before people in my income bracket (those of us who are priced out forever, but still higher income) would even feel it in my monthly budget.
It’s just total BS. People’s tax bills are up 100-200% over the last 5 years in FL (those that don’t have SOH) and insurance up about the same (everyone). And you’re trying to tell me that gas is the real problem here?
What a red herring.
In my part of Europe 8 dollars a gallon is a normal price for gas. I can guarantee you that although people complain all the time about higher gas prices, it has close to zero influence on their transportation habits.
Of course higher gas prices are not really a problem for the average homeowner+cardriver as long as homes keep going up 5-10% every year …
At least you drive in tiny diesel driven cars.
RE: At least you drive in tiny diesel driven cars.
During a trip to England 2 years ago, the USD equivalent for a gallon of gaz was $8.50. The Spanish built Altea 1.8 liter turbo diesel car I rented got 62 miles a gallon.
It held up just fine on the M25, scooting along at 90kph and by no means was I the smallest rig on the road.
I saw lots of stylish small cars on the English roadways.
Coming back to the US, I confess to embarrassment over the butt ugly, gluttonous, pig iron we drive around in.
And on the flip side of this: all the obsessing over the car’s mpg as if that were the be-all and end-all of transportation improvements. I was once asked by an “environmentalist” why I didn’t think campaigning for improved fuel economy was worth my time. I told him that the damage the car does to the environment is far and away greater than the mere gas it consumes. We need to be thinking about better, more efficient forms of transportation and encouraging bicycling and walking. Not that a high mpg is a bad goal, just that it’s really not that important. If society makes it easier for the 3-4% of bicylists who would rather ride a bike than walk, the overall mpg of everyone could rapidly improve even if no one buys a more fuel efficient car. If society went further and created a strict liability law so cyclists were less threatened by aggressive drivers and provided free health care in the event of accidents, we might even see cycling levels approaching the 10% of commute trips that we used to have in the 1970’s.
By merely encouraging more cycling, society’s citizens become healthier, streets become less congested, street noise is lessened, more “eyes on the street” result in lessened crime, demand for parking spaces goes down, and pollution is decreased. Way more bang for your buck than merely trying to get industry to sell a car that gets 5 more mpg.
In Roswell, GA–an Atlanta suburb–millions of dollars have been spent on bicycle paths. It has been an abject failure & total waste of money. The men in too tight pants who bicycle in the area typically refuse to ride on the bike paths. Instead they clog up the streets that are less than 5 FT away from the paths, causing major traffic congestion, and increasing gas usage by drivers. I guess Atlanta bicylists either falsely believe everyone wants to admire their scrawny behinds, or else all that spandex has cut off the blood circulation to their thinking parts.
You can’t imagine the amount of gas we would save if employers would just let their workers work from home. I work from home about half the time - it doesn’t really matter how many miles per gallon my car gets when it never leaves the garage…
“You can’t imagine the amount of gas we would save if employers would just let their workers work from home.”
And save hot water, too, as one could spend all day in their skivvies.
The cost of oil, gas also affects the cost of many other consumer products as it takes oil to produce them and it takes oil to ship them. So rising gas prices are supposedly a proxy for rising costs across the board.
“Most everyone was interested in keeping the bubble going, including those governments that reaped the benefits of higher tax payments. In all the froth, most forgot the long-term benefits of lower prices to the health of the economy.”
Well, it certainly kept the sheeple happily tuned out for a few years….invade Iraq, why not, crumbling infrastructure, failing public schools, massive deficits…hey, we’re too busy liberating our equity.
So, from what I see is bubbles are formed, and bubbles burst! The fed pumps money and lowers interest rates in order to soften the bursting of the current bubble. In the aftermath of one bubble another one forms in another asset class. The only asset class I currently see inflating is GOLD. It has risen for the last couple of weeks straight. Is this speculation due to the ‘recession’ word, fear or is this due to the inflationary factors starting to take hold and the devaluation of the dollar. Greenspan himself says inflation is a key factor he sees taking hold and interest rates need to climb rather than fall. So far homes are deflating, cars and other durable goods are down but oil and gold are up! Does anyone else see other asset classes looking like they are going to build ‘froth’ Oil has a real increase in demand globally, but gold use is not on the rise but the conversion to gold as a curency seems to be on the rise.
Hard assets are where it’s at. You can’t inflate iron ore production.
Got palladium?
you’ve devised a way to get palladium out of iron ore? sign me up!
My father uses palladium in his research lab. Very pricey stuff. He treats it with the utmost respect.
Is your father an alchemist?
Is your brother called Alphonse?
That is pretty funny. I had no idea what you were referring to (other than guessing that “Alphonse’s” jokes sometimes fall flat too …). Then I checked wikipedia.
http://en.wikipedia.org/wiki/Alphonse_Elric
My father is a chemical engineer.
Who’s your daddy?
Hard assets are where it’s at. You can’t inflate iron ore production.
Bad example. There is an absolutely mind-boggling amount of iron ore out there, out in Northern Quebec / Labrador for example. In fact some of the mines out there have been mothballed due to lack of demand. Iron gets recycled too, meaning we don’t really need that much new supply.
Depending on your age, some of us won’t see this again in our lifetime. IT is going to take many years, possibly decades to get out of this mess. That is if we survive and ever get out of this mess. Japan is still digging out of it’s mess and this one is multiple times of theirs. Wait for the production miracle to bail us out. The MIC will have to war on the rest of the world to pull this one out, but maybe they are planning on that.
Japan is still digging out of it’s mess and this one is multiple times of theirs.
I’ll have to disagree. The following are comparisons of New York and Tokyo real estate as of 2007. Note the per-square foot prices. (This is after a 90% drop in Tokyo real estate prices over 15 years).
A typical New York City first-time buyer would choose a four-bedroom, two-bath, 1,400-square-foot home on a 5,562-square-foot lot priced at $525,397 ($375 per square foot) in Nassau County and 45 minutes from the Wall Street financial district by subway or car.
For a Tokyo first-time buyer, a typical choice would be a three-bedroom, one-bath, 1,076-square-foot home on a 1,184-square-foot lot at Tsudanuma in Chiba prefecture priced at $349,000 ($326 per square foot) and 50 minutes by train to downtown Tokyo.
At the peak of the Japanese bubble, 100-year mortgages were being offered. We probably won’t see a repeat of the Japanese bubble. A repeat of the US bubble? Count on it. Even the much smaller Hong Kong bubble featured bigger reductions than the US bubble to date. Peak to trough, HK valuations crashed 60%. Today, HK real estate is worth 60% of what it was at its peak ten years ago. Note that the Hong Kong government, unlike Japan, practices laissez faire economics. Nonetheless, Hong Kong’s real estate crash has not only been deep, it has lasted a decade without recovering its high.
That is if we survive and ever get out of this mess.
I don’t think our lives will become scenes out of the Mad Max movies just because housing is in the midst of crashing. People will just go back to renting. People with savings may or may not buy houses priced perhaps 50% below the peaks, depending on what the property taxes and insurance are like. Fact is - life goes on. (Although it has to be said that a Mad Max movie-like existence would be a lot more exciting).
Note that the Hong Kong government, unlike Japan, practices laissez faire economics
Except in real estate. All land in HK is owned by the government (this goes right back to the beginning of British rule) and is only leased out. The HK government rations the amount of new leases (there is still lots of land in the New Territories and from landfills, etc) to try to keep the market up. But even with that they had a crash, as you pointed out. When it’s over, it’s over.
This is one reason why HK has such low income taxes BTW - the government gets loads of money from land leases.
Sir “you-can-call-me-Al” Greenspent…remember, the mouth that now roars…will NEVER go hungry…but the effects of his “conundrum” will certainly cause many little children’s belly to be empty, and scramble to find a piece of cardboard to put over “their” families heads…in the season’s to come…then again, if Presidnt Push & “Dickey Boy” Cheney can create a “Shadow Gov’t” & the FED Private Corporation can print limitless toilet paper money…I guess we can just place the “Damaged” citizen’s into a collective “Shadow Poverty Poor House” and everyone can go merrily about their: “Bid-ness”
Ah, the cool frost air of Autumn is just arriving…runs on bank deposits and 14% interest rates might cause me to reconsider the size of my spring garden plantings…
Did anyone notice Mr. Magoo’s facial expressions last night? When he was asked questions which were “safe” or answered questions concerning anyone else, his facial expressions were not out of the ordinary. However, if the interviewer touched on anything concerning his actions in the past which might have caused todays problems, he got very annoyed and his facial expressions showed it. Almost angry. Mr. Magoo is a Washington hack and so is Bernanke. We should never make the mistake of thinking they are “special.” They are not. They do the bidding of their masters. The top of the pecking order are the Wall Street Financial Gangsters. They cannot lose. They might lose a few battles like this one with the mortgage meltdown but they always win the battle because they have the power to manipulate the monetary system. Who will pay for the losses in the mortgage meltdown? Joe Sixpack, that’s who. Less in his 401k. The money he has in mutual funds. Hank Paulson and his fellow financial gangsters will skim a little here - a little there until the loss is made up. They might even only make $40 million bonus this year and next instead of $80 to $100 million but they NEVER lose. Next in line in the pecking order come the politicians who get paid by Wall Street. Either directly or in some other shady way. Hilary, Obama, Edwards, Cheney, Rumsfeld and of course the Bush Crime Family are all the foot soldiers of the Wall Street Financial Gangsters. Next in line comes the Fed who try and keep their master - the politicians and the Wall Street Financial Gangsters happy. Nothing changes. Since the first stone age guy started buying distressed stone wheels until he controlled the stone wheel market right up until now, the guy with all the marbles dictates the outcome of the game.
However, it’s interesting to watch the top rats turn on each other when things don’t look so good.
I’m trying to find something in your post to disagree with…..but I got nuthin’.
I have a comment.
The stone wheel community didn’t have central bankers to print monopoly money. That’s the big difference. At least there was some tangible asset to attach to the buying/selling in the markets.
Now it’s just paper claims against other people’s work.
But Mike:
What about the redistribution of wealth? Is it possible that some of the marbles will be won by the little kid who’s just good at the game?
Loius the XIV and his aristocratic sycophants thought they had the game licked too.
Shit can get out of control in a hurry, often in a manner nobody can see coming.
Even Greenie got blindsided.
The Wall Street gangsters will get theirs.
just to play devil’s advocate:
how is greenspan responsible for the worldwide asset bubble? particularly the european housing bubble?
I agree to some extent with this point of Easy Al. However, one could still argue that the worldwide housing bubble started a few years AFTER the first bubble blowing efforts of Easy Al in 1987. Most of the early housing bubble areas started around financial capitals of the world (e.g. Amsterdam/Netherlands 1991, London/UK 1995 or so, probably Hongkong etc.?) and the areas where the banksters spend their bonuses. This would require some more historical research, but I think the EU bubble has Easy Al’s fingerprints all over it. Obviously, he got lots of help from other central banks that followed the FED recipe (BOE, Dutch central bank in the nineties, ECB right from their inception).
the dow jones plunged by 1/3 in oct of 1987. a deep housing recession followed, at least along the u.s. coasts. by 1994 or ‘95, at the very bottom of the housing recession, nyc (manhattan!) prices had plunged by 47%, not adjusted for inflation.
are you saying the housing bubble was already starting in europe in the late 80s? because it was only about 1988, a good year or so after the stock market crash, that the u.s. market really started to tank.
i’m not saying greenspan didn’t have a hand in this larger bubble phenomena, just that the larger forces of the economic history were all converged toward allowing and encouraging it to happen — especially the irresponsible lending and securitization of the last 10 years.
The housing bubble started in the early nineties in some parts of Europe (defining bubble as home price growth significantly above inflation/wage growth, like over 10% yoy). By 1995 several regions of Europe already had serious housing bubbles. I know that the US housing market performed differently; probably this has to do with the lagging effect of previous housing bubbles and monetary policy. E.g. the Dutch remodeled their economy after the US credit/debt economy in the late eighties / early nineties, probably a major factor in starting the bubble; the last Dutch housing crash was more than 10 years ago then. When the current US bubble started (around 2001 I think?) the housing bubbles in most of Europe were already mature and growth was slowing. After 2001 most of the bubble growth occurred on the periphery and across the EU borders (new EEC member states, Adriatic coast, Turkey etc.).
yes, i agree that the bubble only really became apparent, even in the u.s., by about 2001. i guess my larger point is that the u.s. congress (or whoever oversees mortgage lending criteria) could have easily nipped this bubble in the bud by simply restoring ethical lending standards. and without loan securitization, a bubble would have been equally unlikely as banks would have been forced to hold all those risky loans. but once the party got going, who really wanted to play scrooge? no one, of course. which leaves the question of whether the bubble would have really been quashed even if greenspan had not lowered interest rates on such a long and full tilt.
NHZ, you constantly provide strange analysis of the Euro bubble. The Netherlands apparently had a unique pattern in that prices increased in the early 1990s. The UK and Scandinavia, and probably many other Euro countries had extremely depressed housing markets in the early 1990s. The UK has been ca. 2 years ahead of the curve compared to the US, but what looked the start of the slump in 2003-4 in the UK turned out to be a head fake. But I am hoping that Northern Rock is finally going to bring down the house of cards.
France only started picking up in the 2000s. Spain and Ireland were driven by new access to ECB based credit markets after the Euro was introduced in 1999 and psychologically when the paper Euro came in 2002. U.S. appreciation started in 1997-8 in many markets after years of stagnation. The real bubble conditions did not start in most areas until late 2002. There are many catalysts throughout Europe, but the general trend was that the early 1990s saw price depreciation followed by stagnation and then an upturn in the later part of the decade followed by irrational pricing.
BTW, it’s not a bubble if you have 5-7% p.a. after a slump and/or very depressed prices. It’s when it accelerates to double digits and then into the 20+% range. Also it makes a difference if there is real economic expansion (Ireland) vs. an entirely credit bubble funded housing fest (Spain). The latter will crash badly while the former will not necessarily revert to the mean.
American Home Mortgage checks are bouncing:
Checks sent out by the troubled American Home Mortgage Investment Corp. to pay the property taxes of more than 70 homeowners in the Baltimore metropolitan area have bounced, local officials said yesterday.
Baltimore City received bad checks for 53 properties - a total of about $63,500. Baltimore County said American Home Mortgage checks bounced for 21 properties, totaling $41,000. Taxes are due at the end of the month.
http://tinyurl.com/yoxxkh
Looks like some “home owners” are about to get doubled screwed! I’ll bet nobody even gave them a kiss.
“Many can’t simply lower them. They bought at the peak and have no way of going lower without bringing money - which they don’t have - to the table.”
Well, that’s what happened after the 1980s bubble. People simply had to live with being extremely house poor for a decade, if nothing went wrong. Any problem during that period — job loss, illness, etc. — and they went under.
This time, however, we have the exploding mortgages, meaning many more foreclosures. And if people decide to walk when they don’t absolutely have to, well, you’ll have much more of the problem shifted from consumers to investors.
You said it WT Economist ,and that is what the difference is with this bubble verses prior bubbles . Also ,I think this bubble got more inflated than any bubble that I have ever seen .
I agree. Until ten years ago, people could ride it out unless they lost a job, got divorced, got sick, etc. Now, even if their lives go on as normal, they are still toast when that three-year ARM timer goes ding. It was all “baked in the cake” from the moment they signed that I/O–neg-am–ARM.
I’m going to disagree on people could ride it out before. During the 1990’s downturn in LA, quite a few people kept their jobs but lost their home. Now… in terms of absolute or even fraction numbers, I’m talking about a tiny number of people in the 1990’s compared to today.
There is an area I wish to buy into that 23% of the mortgages are at 50% of income (or above). No way even half those people can get out. Bwaaa haaa ha!
Got popcorn?
Neil
In a way the point is moot. The ability of anyone to hang in there is negated by the lack of incentive to do so. Why should they even try muddle through when they might not see their money back for a decade or more?
“Anecdotes suggest that the much anticipated autumn selling season opened with more of a whimper”
what??? the anticpated “Autumn Selling Season” is this like the opposite side of the equator???
Whatever happened to a “Soft” landing? Everyone was saying it…
mike
–
Soft landing on to quick sand?
Jas
Soft…like a rotten tomato on concrete.
I find it curious that an economist at Wells Fargo discusses the loan industry sub-prime debacle almost in the third person, as if the company that employs him had no bearing on the toxicity in the markets.
Well Fargo was one of the largest sub-prime lenders. Oh, the irony.
I just signed up for a brokerage account with Wells Fargo due to their 100 free trades per year deal. Like most brokerage accounts there is a large disclaimer saying “Not FDIC Insured. No bank guarantee. May lose value.”
I’m wondering if this means it’s possible that my money in a WF brokerage account could (in a worst case scenario) be taken and used to cover Wells Fargo’s subprime losses. I sure hope not. Does anyone know if this is possible?
RE: Wells Fargo
These deadbeat clowns were kings of the coerced value, “24 hour” turnaround appraisal.
They paid their appraisers like $125.00 and kept $200.00 of the purchaser pre-paid fee for themselves.
Countrywide is a gaggle of pikers compared to these swine.
““AG: ‘We kept them too low for too long because we were effectively creating an insurance against [deflation].”
Did not see the interview, but if typical with 60min, they mercilessly grill little guys to show their journalistic toughness and integrity, but throw softballs at the big guys, and then fawningly roll over without follow-up.
But this quote is a good candidate for comeback. Because why on earth is it the job of a quasi-government (”we are not part of the government”) entity to provide insurance against deflation?
Isn’t deflation the ultimate goal of increased productivity? Shouldn’t taxpayers benefit by becoming richer?
And in any event, why should the savers have had to take it on the chin? All those people who had saved for their retirement for decade after decade, and hoped to live on their returns, saw those returns shrinking to 0.5%. Why were the prudent being punished, Sir Allen? And why were the debtors being rewarded? And most of all, why on earth should such social architecture be the job of a we-are-not-a-government-agency pseduo-government agency?
totally agree
after 20 years of Easy Al inflation and War on Savers, let the War on Debtors begin! It’s about time …
It will never happen. More debtors than savers, by about 100:1. The only way to thrive is to be a lender.
Either way, long term rates are going up tomorrow.
The interview went like this on TV:
1. The two tough questions, on regulations and monetary policy.
2. Softballs and cutesy human interest stuff.
3. A few more tough questions, on the future.
The didn’t cover the 1982 Social Security Commission he chaired. I wonder if it is in the book?
“‘The Fed does have the capability of suppressing the type of inflation process which is going on,’ he said. ‘The difficulty is it will require very significantly higher interest rates. And when Paul Volker successfully suppressed inflation in the early 1980s, he was vilified.’”
————————————————–
Is Greenspan running interference for Bernancke to not lower rates tomorrow? Inflation and the falling dollar are more important than short term economic performance.
we will find out in a day or so
“‘Rate cuts are not free,’ says Marvin Goodfriend, senior vice president at the Richmond Fed from 1993 to 2005 and now a professor at Carnegie Mellon University. ‘You pay a price.’”
I think the price would be higher inflation, which hits everyone, whether or not they participated in this madness. Again, we’re back to privatize the gains and socialize the losses.
“AG: ‘Precisely. And so you had Wall Street’s securitizers basically then talking to the mortgage brokers saying, ‘We’ll buy what you’ve got.’ ”
The question is, what DID they have? They had Enron accounting which allowed WaMu to book full amort payments and profit on a strawberry-picker mortgage, when said strawberry picker paid only the minimum neg-am, and that only for the first year or so. They had lending standards that allowed buyers to be rated by FICO alone instead of ability to pay. They had a screwed up FICO scoring system itself, which gives top credit to people who scrape together $10/month on CC debt. And they had ratings agencies who kicked the tires, but didn’t bother to see if there was an engine under the hood. Meanwhile, I was seeing red flags before I ever read the term “interest only.”
I guess they all thought they were playing the version of musical chairs where you add chairs instead of taking them away.
But what do they care? The smart bonuses are sitting in a bank in Switzerland.
I’m wondering how it will take Greenspan to renounce supply side economics/reaganomics? Bernanke and Paulson already did so in front congress under oath. It must strike fear in the heart of corporate scum, tax whiners and nattering idealogues.
Fed watchers say Greenspan was sending at least two messages to Wall Street: ”We are not bailing out the junk bond business as we have the S&Ls” and ”You can’t plead guilty to six felonies and expect to be rescued by Uncle Sam.
DID DREXEL GET WHAT IT DESERVED?
http://money.cnn.com/magazines/fortune/fortune_archive/1990/03/12/73170/index.htm
Same old players even back 17 years ago. Just a different twist. Interesting read, brings back memories.
Alan Greenspan is a lying, self serving piece of dogshit…
Testify!
I was trying to think of something clever, but I see that once again the cold, hard truth is the best route to take:
“Alan Greenspan is a lying, self serving piece of dogshit…”
That sums it up perfectly, IMO.
The mysterious Mr. A.G has always been a favorite topic of mine. Don’t know that I can add anything here that hasn’t already been said many times. I could try to say something humorous and clever but to be honest, I see it as mostly sad. Mr. Greenspan had a huge hand in what will amount to be a financial holocaust for many Americans. Sigh…
The Fed knew what it was doing when it lowered rates to 1 pct. The Fed understood household equity withdrawal and consumption behavior. Consequently, it stoked the biggest US refinancing bonanaza in history.
However, that wasn’t enough. So, it drained the household equity swamp by encouraging innovative lending practices and encouraging innovative borrowing practices from mark to make believe equity valuations. In so doing, the Fed blew it.
That’s my fundamental belief from looking at all the observational evidence available to the public. I ignored Greenspan when he argued households could have saved money had they borrowed using adjustable rate mortgages and I am going ignore him now.
It’s not Yuri’s fault! He didn’t lower the FFR.
It’s not Yuri’s fault! He didn’t lower the USFFR.
According to AG interview on MSNBC ,in essence he is saying that he had no knowledge that sub-prime made up 20% of the market by 2005 .
“In a US Federal Reserve study of 44 house price booms and busts in industrial countries since 1970, the average bust lasted nearly five years. More precisely, real (that is, inflation-adjusted) house prices typically declined for almost five years after the peak.”
The big question is how long?
Answer: Long enough to convince the sellers that their home equity was a dream. In California the home prices must drop 50% before we hit bottom. So far I think California average prices have dropped 10%, far away from the 50%.
The evidence is quite overwhelming that what we are going through is a consequence of the fall of the Soviet Union and the shift of a billion workers from central planning in to the labor market.’
OOHHHHH! So because all these workers entered into a productive mode of work, and thereby increased production of goods and services dramatically, which in turn increased wealth world-wide, we are now poorer because of it! It is so simple!
Hopefully AG lives long enough to see himself be thoroughly villified publicly and internationally.
Somebody try to figure out, (via public records), just EXACTLY what kind of mortgage AG has……
I’m sure it’s paid off.
Police called to break-up Northern Rock panic queues as customers withdraw millions
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=481778&in_page_id=1770&in_page_id=1770&expand=true
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Panic in England … google for Nothern Rock
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