Bits Bucket And Craigslist Finds For September 23, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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you may have heard now is the time to buy real estate…
http://biz.yahoo.com/bizwk/070918/sep2007db20070917956972.html?.v=1&.pf=real-estate
And where are all of these “deals”? Not in any of the places shown in these graphs.
http://tinyurl.com/39rd46
If you are walking down the road and you come across a rattlesnake and a journalist, keep your eye on the journalist.
Az Lender -
You were asking about the margins required to trade these accounts on the CME.
They now call it “Performance Bond.” See
http://www.cme.com/html.wrap/wrappedpages/clearing/pbrates/PBISOutrightH.htm?h=2
You would be a ‘Spec’ so that the margin in your trading account would need to be from $1013 (Chicago) to $2025 (LA
AZ Lender,
Your comment yesterday about thinking the Case-Shiller was understating the loss–it probably is. Recall that it requires same-house sales to make its value judgments and lags for lack of those sales.
If you find a broker willing to deal with you, let me know!
right-o - but this this the bullsh!t j6p sees all the time. their eyes are sewn shut…
I don’t see any good deals. I say we all need to lowball the *^$#*%^ to give them a taste of reality.
>> “Now they’re coming back to where they should be.” Normal appreciation, Gillespie notes, is between 5% and 6% annually.
Don’t catch yourself a falling knife.
While you might be inclined to look for bargains in areas that have seen big price corrections over the past two years, watch out — prices are still expected to fall much further over the next two years. The researchers at Moody’s Economy.com and Fiserv expect national home prices to decline 4.9% in 2007 and 2.8% in 2008. “Many markets are still overvalued,” says David Stiff, chief economist at Fiserv. “The increases were just so meteoric they need a larger correction.”
In the worst markets for bargain buying right now, affordability is low (meaning a higher ratio of median home price over median home value), home prices are expected to see double-digit declines in the next two years, and job growth forecasts are less than spectacular. Miami; Reno, Nev.; Los Angeles and a slew of other California metros fall into this category.
Greenspam’s Blunt Words
http://www.courant.com/news/opinion/editorials/hc-alan.artsep23,0,4934030.story
“Mr. Greenspan’s Republican credentials, intellectual depth and understanding of economics are unrivaled.”
How do they keep writing this garbage? I bet this fool couldn’t run a f-cking hot-dog stand. What works in an ivory tower seldom works in a little place I like to call “reality”.
we could not make this sh!t up. beyond fiction, it is either deliberate propaganda or imbeciles parrotting what they think people want to hear. deadly.
Especially since in Greenspan’s Ivory Tower, he views the world through government statistics and anyone who looks at reality knows that these statistics are misleading at best and outright lies at worse. Just in the area of inflation and jobs those statistics have been so “adjusted” over the last couple of decades that its like looking at a fun house mirror.
Greenie is simply Sancho Panza, to Cagey B’s Don Quixote…
i’m about 2/3rds of the way through his book..
Not that I am qualified to judge, but he seems to be the furthest thing from a fool (unless it’s having been a political fool, which he is the first to admit).
What a man writes and what he does are two different things. If he writes like a wise man but acts like a fool, then he is a fool.
then there’s good reason to call Einstein a fool.. or Adam Smith.. or just about anyone.
Okay.
“then there’s good reason to call Einstein a fool”
Curious. In what way did Einstein act that contradicted his writings?
The difference between stupidity and genius is that genius has its limits.
Albert Einstein
Hey, it’s about time someone with impeccable credentials speaks the truth about this administration and the utter destruction they’ve wrought on the country in the last 6 years.
He’s a genius. He knew what he was going *greenspeak and all*. He knew about the Subprime mess and all. He knew he was creating a bubble. He is just *acting* stupid.
You never saw Einstein write about relativity and then say he wouldn’t get on a ship because he thought the earth was flat.
No…but Einstein often forgot to wear his socks, wore slip-on shoes (in an era where men just didn’t) because he found tying his sholelaces a problem and had a wardrobe full of exactly the same shirts and suits. Having identical clothes meant he didn’t have to spend hours in a closed decision-loop, stuck, trying to figure out what to wear.
Remember Jeff Bloom in “The Fly”? His ‘pre-fly’ chracter was based on Einstein and his inability to do the simplest domestic things…like figuring out what to wear every morning.
…just because you’re brilliant at doing one thing, doesn’t make you a genius at everything.
Those were all personal habits that had no impact on anyone else.
Yes. I doubt Einstein going barefoot brought the world’s economy to the brink of disaster. And Einstein struggled with his major discovery, knowing it’s implications for the world. Greenspan threw us to the wolves with actions that completely contradict his Ayn Rand past.
Read Professor Bear’s post at the end of the Bit Bucket where it quotes the Greenspan 60 Minutes interview and then defend this fool.
I’m proud of myself.
Today I put my pants on before my shoes.
Brilliant!
Too bad you put your underwear on after your pants.
I wonder how Japan feels about Einstein.
“If only I had known, I should have become a watchmaker.”
- Albert Einstein
We all put on our pants, one leg at a time.
” wonder how Japan feels about Einstein.”
It was Robert Oppenheimer that ran the team that developed the atom bomb.
As for Einstein, he simplified his life so that the details of what to wear didn’t get in his way. The guy had more important things to think about.
I’m not defending Greenspan, I’m just pointing out that nobody can be brilliant at everything - what you gain on the swings, you lose on the roundabouts, so to speak.
And, yes, I watched the 60 minute interview, he didn’t stike me as an idiot. Self-aggrandising and deliberately obscure, certainly.
I found it difficult to hear him over his actions of the past 5 years.
And, if you want to read a book that puts all of this into perspective, try reading “The World Without Us” by Alan Weisman. The economy is a raindrop in the ocean compared to the big picture.
Scariest book I’ve ever read.
The man is not stupid. Corrupt & dishonest but not stupid.
What makes you think he actually wrote it? Very few of these celebs write the books sporting their names, and this goes for the Clintons, Rush Limbaugh, and a zillion others. Publishers hire ghostwriters to create these books (Limbaugh’s editor Judith Regan (sp?) admitted this on her own program); most of the fools taking the credit couldn’t write an essay, much less a book.
John F. Kennedy won a Pulitzer prize for a book written by Ted Sorenson.
http://www.nationalbanana.com/
I can’t believe Bush could do this to us!
Arrrgh! This is maddening. The Fed raises or lowers rates. It’s a friggin “lightswitch”. Lowering rates stimulates the economy of course. But the trick isn’t just stimulating the economy — the trick is doing so without creating problems. In other words: GREENSPAN FAILED COMPLETELY.
God the media are retarded: Greenspan was a bumbling oaf who never gave a direct, clear-cut answer in his entire career. He wrote terribly. He spoke terribly. And his decisions were clearly both wrong and dangerous. He was a smug, pontificating ass who has led this nation’s economy to the brink of destruction.
Dear media, please develop a critical streak. It’s what we read/watch/listen to you for.
- The following is an excerpt from “Modern Times”, written by Paul Johnson (Harper & Row Publishers)
“Instead, they sought to keep the world prosperous by deliberate inflation of the money supply. This was something made possible by the pre-war creation of the Federal Reserve Bank system, and which could be done secretly, without legislative enactment or control, and without the public knowing or caring. It did not involve printing money: the currency in circulation in the US was $3.68 billion at the beginning of the 1920s and $3.64 billion when the boom ended in 1929. But the expansion of total money supply, in money substitutes or credit, was enormous: from $45.3 billion on 30 June 1921 to over $73 billion in July 1929, an increase of 61.8 percent in eight years. The White House, the Treasury under Andrew Mellon, the Congress, the federal banks, and of course the private banks too, connived together to inflate credit. In its 1923 Annual Report, the Federal Reserve described the policy with frank crudity: ‘The Federal Reserve banks are…the source to which the member banks turn when the demands of the business community have outrun their own unaided resources. The Federal Reserve supplies the needed additions to credit in times of business expansion and takes up the slack in times of business recession.’ This policy of continuous credit-inflation, a form of vulgar Keynesianism before Keynes had even formulated its sophisticated version, might have been justified if interest rates had been allowed to find their own level: that is, if manufacturers and farmers who borrowed money had paid interest at the rate savers were actually prepared to lend it. But again, the White House, the Treasury, the Congress and the banks worked in consort to keep discount and interest rates artificially low. Indeed it was the stated policy of the Federal Reserve not only to ‘enlarge credit resources’ but to do so ‘at rates of interest low enough to stimulate, protect and prosper all kinds of legitimate business.’”
And today its far worse, the amount the money supply created out of credit (or more accurately debt) is enormous. And add in all the obligations(retirement, medical, interest on present debt, etc) that will require even more debt in the future and I don’t think they can even calculate it.
We are sooo screwed. The Wizards and their Pig Men on Wall Street have been printing like there is no tomorrow. Why do you think interest rates have been this low for this long?
“…if manufacturers and farmers who borrowed money had paid interest at the rate savers were actually prepared to lend it.”
At least in the 1920s a decent percentage of that irresponsible lending was at least going to somewhat productive enterprises. This time around the lending was done to support mindless consumption - no chance whatsoever that anything meaningful could ever be salvaged from that practice.
Yeah so what are you doing here when you should be shopping!
Excellent book, one of my all time favorites!
Mine, too. Everybody should read it. He slants a little conservative but he is right on most of the time.
I was at dinner last night with my wife and MIL. She lives in a nice area of Anaheim near downtown and works/volunteers a lot at the local Catholic Church. She organizes the pray request that comes in and creates a spread sheet to keep a pulse on if the church is experiencing more family/financial/other problems so they can direct their ministry somewhat. Well, over all its financial issues, duh. So much so that church has brought in outside counselors to assist people. Much of what she sees is Hispanic immigrants with sub-prime loans, she helps pre-arrange the meetings so the meeting before she get everyone to get their loans and pay stubs and such. The church is also flooded with request for help in the form of money and now requests of food as people are losing their jobs. Cars are starting to show up on the main streets near the MIL’s house for sale. I was working on a car at her house before dinner and 2 people came by one was a mom begging for food for her kids. The other was a Hispanic man laid off recently, he had put together a portfolio of work he had done and references I recognized and was selling door to door ( I thought his work was pretty good, I used to be in the trades and his portfolio was great.) My MIL says they come by everyday. So after I am done with car we go out to eat and come home I can’t find the radiator I just removed to take in to have re-cored, some one stole it from the top of the driveway. Apparently a lot of metal has gone missing around the neighborhood too. This is going to end very badly.
One man’s radiator is another man’s dinner. But I thought Bernanke’s half-point cut was supposed to fix everything?
“She lives in a nice area of Anaheim…”
Just don’t leave anything of value outside.
“She lives in a nice area of Anaheim…”
Is there really such a thing? The area thats 2-3 blocks from Disneyland is nice (the city dumped a ton of money to spruce it up), but once I am outside the Mouse zone I have always found it to be kind of scary. Last time we were there I was taken aback to see uniformed security guards at the local grocery stores and Walgreens.
I got panhandled twice this week in front of Whole Foods.
I probably would have given something to the people you saw. I’m kind of a sucker and probably get taken on a daily basis. I paid two strangers’ vet bills last week.
Sadly, I don’t trust anybody that is seeking out a handout any more. You really can’t in this city. So, I would much rather give generously to those around me. I joke that my wife and I are becoming the old married couple without children that give excessively for special occasions. We now give really good wedding, graduation, birthday gifts, etc. I also over-tip because I have been in that role before. I reward work as much as possible.
I do too. I give $100 tips to old ladies who are waitresses at IHOP. Yes, I eat in places like that
It’s always nice for us commoners to see you snobs in one of our places once in a while.
When I lived in Oak Park, IL the newspapers where doing stories on people in wheelchairs begging in downtown Chicago. At lunchtime they would unzip their leg casts off and walk and push their wheelchairs to their cars. One car had two such unsavory characters rendezvousing for their lunch breaks.
They also checked out beggars who where using signs with the “ex-veteran” tearjerker line. It turns out there was no record of any military service.
The most pathetic and rampant strategy of late is “I need five bucks to put gas in my car to get me home.” This one is universal, used nationally.
Got 10% down?
There was a young girl in front of Grand Central last week that had one of those signs. It read, “I need $12 to get home”. Shouldn’t she cross out that total and update it each time somebody gave her money? It should go down to $11 and then $10 and $9 and so on. The little creep just wanted something for free. And she looked very upper middle-class to me. Little Sally wants some Blahniks.
One variation of the $5 for gas gimmick that I’ve seen a lot in Chicago is dudes dressed up like half-assed construction workers looking to get home after a shift. Someone needs to tell them though - that to make it work they shouldn’t go the same corner day after day.
Plus one needs to be cautious - I’ve witnessed a lot of idealistic yuppie types stop to open a purse or wallet to give on the street - not smart - loose change in your pocket and that’s it.
I lived in Santa Monica a spell, back in the 90’s…
Every day was a homeless olympics, of sorts
My favorite was a gal in her 60’s that I called “Lipstick Mary”.
She’d drag about 17 shopping carts full of junk, up and down Wilshire Blvd…
It would take her an hour to move a block.
A homeless Sisyphus
Why’d I give her that name?
She would apply lipstick far past conventional limits, well past the lip zone and up to the bottom of her nose…
I got approached the other day crossing the street in an upper-middle class ‘burb north of Boston the other day. Guy sees me crossing the street, starts throwing a block on me crossing. I’m wearing a nice white shirt and tie, dress pants, so I know what is coming.
As I go to cross the next street, guy is still there. Presses cross button, then starts talking to me.
“Hey” He says.
I say nothing.
“Look, I’m just looking for something to eat. No drugs, no booze. I’m just hungry.”
I say nothing.
“All I need is sixteen dollars.”
I look at him just as the walk signal appears and say, “Good luck.”
And I’m walking across the road thinking, “Sixteen dollars for lunch? No wonder why the guy is broke.”
“She would apply lipstick far past conventional limits, well past the lip zone and up to the bottom of her nose…”
I think that’s a sign of either schizophrenia or borderline personality disorder.
Someone should tell Joan Rivers.
At one open house I went to last Summer, the realtor looked like she’d applied her make-up during an earthquake. I’m guessing she’s one of those people who have such poor time-management skills they feel compelled to slather on their makeup while driving in their SUVs.
no - you are a good person.
Animals should not suffer because of their owner’s hardship. It is not like a cat can go out and find work.
My thing is never pay them cash directly (more than spare change). Either buy them their lunch or pay the vet directly.
My mom tried that once–she was going shopping on Michigan Avenue in downtown Chicago (panhandler central)and stopped at McDonalds. She had them make up 5 separate bags of hamburgers and fries. Not one person would take the food, most verbaly abused her.
Maybe they were vegans.
No, they were lowlife DBs.
You can’t get high on burgers and fries.
Gave food to one older guy who was panhandling on Times Square, NY, and he was definitely hungry, he was so grateful.
Well, I got panhandled inside of whole foods, the prices are getting unaffordable.
All is explained. That’s why you do so well in the markets. You have great karma.
TxChic, I’m struggling to pay my $200 high speed internet bill. Oh, and I was a former vet.. hint hint LOL
jk
For the Chick “vet = veterinarian”
She’s an animal lover, not a bulls–t lover.
Have they heard of Mexico?? I would try to move there.
Didn’t we hear a while back about how Bank of America and Citigroup were making loans to illegals? I say let Citi and bank of America eat those losses. No bailouts with my tax dollars. They give too much to the illegals as it is in Welfare and free Healthcare. Let them go back to Mexico and get that.
Cars on the streets for sale–yes, this is a BIG theme in Moreno Valley. I think a lot of Hispanic families fix cars cheaply and then flip them for profit. I actually think this is a good service. Rather keep those cars alive as long as possible.
“I actually think this is a good service. Rather keep those cars alive as long as possible”
I agree. Cuba has been able to keep cars from the 1960s going to this day. Awesome.
My first visits to New Zealand in the early 1980’s, were Cuba-like, from an automotive standpoint…
NZ had massive import duty on imports and just to see a brand new car, was unusual, as the duty was something like 200 to 500%, based upon cylinders.
As a result, one never saw so many late 1950’s Morris Minors, early 1950’s French cars that looked really gangster-ish, and other 25 to 35 year old cars, as you did there.
People had to keep their cars going, there wasn’t a plan B…
In the later 80’s, NZ started importing 2 or 3 year old Japanese cars, with no little or no duty and the old cars went away.
The Catholic Church has been at the forefront of defending and encouraging illegal immigration and the “sanctuary” movement in this country. It’s only fair that they get hit with a portion of the incalculable financial and social costs of this blight that they’ve helped perpetrate.
I’m a former Catholic and I believe that any church that defies the laws to provide “sanctuary” should lose their tax-free status. Want to involve yourself in politics?..see what it really costs.
Question:
If the “church” provides sancturay do they have to file a 1040? They are providing food and lodging which are compensation. Can I hire an illegal and provide “sancturay” in exchange for in house child care, house cleaning etc. However, this would not be any type of maid service…wink
Spike - I too was raised Catholic. Given the fact that most of us completely reject that mindless “follow without question” bs, we all need to acknowledge that Mexicans (and the elderly) are the only segments that maintain most parishes.
I can’t believe that I’m actually defending the Catholics, but feeding the hungry and caring for the poor is pretty fundamental to any Christian religion.
How about child molestation by the clergy?
Deliberating breaking the law, with enjoying tax-free status is not brave, it’s contempt for the society that protects freedom of religion.
“The church is also flooded with request for help in the form of money and now requests of food as people are losing their jobs.”
Doesn’t the church encourage their flock to stay away from debt and avoid sin in the form of mindless excessive consumption?
During the recent ‘interviews’ of Paulson, Jackson and Bernanke by Congress, one question stuck in my mind. Don’t remember exactly who asked it - maybe Barney Frank. It had to do with the subject of “moral hazard.”
Basically the person asking the question made a statement:
“I don’t see a moral hazard in attempting to bail out the FBs. Do you see such a hazard?”
“Secretary Paulson?”
“errr….uh….uh…gee…no.”
“Secretary Jackson?”
“Gee, no, I don’t”
“Chairman Bernanke?”
“No moral hazard here.”
Good grief. What does constitute moral hazard if it isn’t trashing the currency of the nation even further in order to institute a bail out for banks and lenders under the guise of housing relief? What constitutes moral hazard if it’s not attempting to maintain home prices beyond the means of the average person’s affordability?
IMO, what we are seeing is political manuvering. It is impossible to artificially keep an asset like houses so high above a natural level.
But in the meantime Ben these government officials are trashing the last remnants of government credibility. They are not making one honest comment. That too comes with a high price tag for the future. A population that loses its faith in government becomes a restless population. I wasn’t around in the ’60s but is it so hard to believe that rioting and revolt might be in our future?
Economic forces are our best bet, IMO.
I watched in 1992, as a tiny part of a tiny minority…
Burned down South Central Los Angeles
As L.A.P.D. did nothing.
Luckily the National Guard was able to come in and quell things.
The ‘Guard is elsewhere, this go round.
What do houses in that area go for now?
Don’t know, but i’ll give you a clue of what transpired in the area, business-wise…
The Fabulous Forum was el lay’s entre pointe, into South Central ~
If you wanted to go to a game or a concert, one way to get there was to go north on Manchester Blvd, from the harbor freeway.
You’d drive about 10 miles on Manchester, and in the 1970’s & 80’s, there were businesses everywhere, people seemed to get by ok.
Last time I drove on Manchester a few years ago, it wasn’t uncommon to see intersections, with empty lots catecornered, where businesses once stood…
The Nasty Guard didn’t do Jack S__t to “quell” the LA riots. The riots burned themselves out after everything worth stealing had been hauled off.
The Guard stood there and watched it go down. A friend of mine, who had been ordered off the street after standing guard over his shop with a shotgun, was ordered off the street by Guardsmen who told him, “We’re responsible for security now.” The next morning he returned to find his shop looted and burned to the ground. The worthless Nat’l Guard sergeant just shrugged and said, “Our orders are that we can only use deadly force if the looters shoot at us first, and that didn’t happen.” So they let the looters do their thing without interference. Some “quelling” of the riots.
They were practicing for Iraq.
And in Iraq they’ve been practicing for home.
I was there and it was a complete mess. But I will tell you all something: I did not need Katrina to tell me our govt is good for nothing. The riots did. LA surely could stage some actors with makeup to show the looters were ’shot’ if they did not actually want to do so.
There was absolutely no order there. If this economic meltdown produces similar minded folks, you’d better have your own gun, because the cops and guard will not be of use to you. nada. zero.
(rant off)
MBA,
That reminds me, this spring my youngest bro, who owns a home in a beautiful old suburban nabe, had the cops called to a neighbor’s house. The new renters (folks couldn’t sell it for their wishing price)were jumping out the windows during a “home invasion” . They were apparently drug dealers and some other dealers turned up looking for them. All were hauled off to jail and the house now sits empty.
Told me the shock was that the neighbors all turned out to the street during the dust-up and the artillery the neighbors had was stunning…handguns, shotguns, and some vet with an M-16. And this in a quiet, old-line suburb. I guess plenty of folks you would not suspect have made the decision to arm themselves.
Spike,
Let me tell you - my whole apt building was armed with something during the riots. Guns, knives, machete (yes, one!), baseball bats, etc. We were going to take out anyone who tried to burn or loot our building.
Fast forward to 2007. You bet people are armed. Lawyers and professionals can be found at gun clubs target practicing. Me? I neve throught I would hold a gun, let alone own one…I am female. We aren’t supposed to “think like that”. well…..
If crap goes down, yes people are armed to fight back. That is not the scary part. *People are armed.* That BECOMES scary if said people become desperate, starving, freezing, whatever….
I am sure you know what i mean.
Martial L.A.w
“A population that loses its faith in government becomes a restless population.”
Yes, they flip between their 10,000 cable channels more often.
Or get on blogs. Ha ha.
I resemble that remark, and walked right into it. No, but seriously, no one is doing any revolting anytime soon. Even in the 1960s - the fervor dried up after the threat of the draft was lifted - a few years later we had Disco Duck.
Nobody ever trains for a Revolution
“Nobody ever trains for a Revolution”
Lenin did it his entire adult life.
Disclaimer: I am not a fan of the Bolsheviks.
“A population that loses its faith in government becomes a restless population. I wasn’t around in the ’60s but is it so hard to believe that rioting and revolt might be in our future?”
The 60’s restlessness was likely due to demographics, boomers in their youth.
The 60s restlessness was a minority of the population. Take a look at how much Nixon won in the popular and electoral college of 1972. He garnered over 60% of the popular vote. He carried 49 of the 50 states, trailing only in Massachusetts. He also won in 1968 (close election) where he won the popular vote by 512,000 votes. He won 301 electoral college votes.
I was not at all surprised to read that these pinheads didn’t ’see’ any moral hazard. None of them could ’see’ this bubble inflate over the last 6 years either.
Who’s on first.
Hey Palmetto, have you ever been up to SR54/Odessa/Trinity/Pasco area? I was just there this weekend and I *cannot believe* the amount of new construction up there. Furthermore, that area is going to get hammered with the cost of commuting ($2 in tolls each way + 40-70 miles of driving). I simply cannot believe people would choose to live like that. And, to top it off, there is infinite undeveloped space up there and the homes still were built close together. It’s a horrible combination of claustrophobia and agoraphobia. I saw a five bedroom McMansion in an unfinished development for rent. I wonder how long it will be until the chain-store-outposts start closing their doors up there? Seriously, it’s like some civil war era supply station with stucco chitboxes circled instead of wagons.
Those people in that area are pioneers of some bizarre new frontier.
“It’s a horrible combination of claustrophobia and agoraphobia.”
Can the new residents walk to get the things they need? I would guess not. I never want to live in another place where I can’t walk to get my daily bread (and beer). You buy an overpriced monstrosity and still find that you have to live in your car. No thank you. New York ain’t perfect (let me tell you) but the pluses are such that it is still pretty good.
Walking? Absolutely not. If you’ve never been to certain parts of Florida you have no idea (say it with Cramer-like panic!) how bad it is.
I can’t even begin to explain it.
Hey, Muggy, I haven’t been up that way in like three years, when I saw what was going on. Too depressing and too congested. Sometimes I’ll see ads on Craigslist for “Trinity - Brand New” and I think to myself “Oh, boy, I can hardly wait”. They might as well call SR 54 Gridlock Alley. It’s like 301 has become around here. An access road for Mc$hitbox developments.
The only way I would live in Pasco County at this point is if I could get one of those nice old Florida homes within walking distance of downtown Dade City.
ON the front page of (run by realtors I believe)
http://www.philly.com/ (you have to put in the www, their dns entry must be messed up)
What is your home worth?
No home price crash here, but double-digit increases are history. The Inquirer’s town-by-town analysis:
Interactive maps: Median home prices
http://tinyurl.com/2lgphd
Walking? Absolutely not. If you’ve never been to certain parts of Florida you have no idea (say it with Cramer-like panic!) how bad it is.
I can’t even begin to explain it.
Sorry, response to NYCBOY above
Yes, yes, as I hear ALL THE TIME from everyone out in the SE PA burbs - it’s definitely different here.
Sigh. (we’re just behind, it will come, way too much new inventory here!)
It’s not the dns entry, it’s a sloppy server config on their end.
I should know, I used to wrangle Apache’s MOD_REWRITE for fun ‘n’ giggles.
Since we moved to Wellington less than a week ago, here are some observations.
There are so many homes for sale everywhere. When you drive down the street home after home for sale or in foreclosure or pre foreclosure.
We have been driving around a lot in the acreage, now that place is wild. It’s redneck meets luxury with no rules, you have an old run down looking house with buses, and old cars in the yard and then next door you have a beautiful home. Most of these beautiful homes are for sale.
It is so obvious what happened in this area.
We came across a house last night we liked and the neighbor came out to talk to us, he said the house had been bought by someone from “the islands” to flip and after a year of no sale he left. Before he left he ripped out the a/c units from the house. This house is so lovely but the grass is two feet high, fenced blown over from Wilma and lanai missing.
The house went to auction and no one bought it.
It is now REO, we called the listing agent, he said home is listed for 380,000 the home was built in 2004.
The agent said there is a contract on the house but it may not go through do to problems. (gee wonder what they could be)
We may be interested in offering 200,000 cash if this contract falls through.
I know it is early in the game but we feel like trying a low ball offer anyways.
This home sold for half a million during the bubble. For some reason I could not find it on the property appraisers web site.
Other than homes homes homes, the shopping is crazy with stores everywhere but NO one is shopping. We went into several stores, (Petco, A T&T, Walmart) all empty.
Right now we are renting in Little Ranches (lovely area) lots of homes for sale here as well.
It is mind boggling to say the least.
We went to the Majestic model homes, the owner is super friendly talking our ears off. They said that their home prices have not been this low in years. Owner said building materials have not come down in price.
Salesperson said (they are building hundreds of homes) I told her since they are so busy it might be a better idea for us to wait until things slow down. We also said we need to see all of the different areas before we commit to where we would build. They all had a very hungry look in their eyes.
Where is Wellington? This sounds like a complete disaster.
The Acreage is a roughly-defined community located in Palm Beach County, Florida, United States. It is located in the areas west and northwest of Royal Palm Beach, Florida and approximately 11 miles west of West Palm Beach. Some parts of The Acreage are also located within Loxahatchee. It was originally developed by Samuel Friedland and his development company, Royal Palm Beach Colony, Inc. The area was originally called Royal Palm Beach Colony. Today, the population is roughly estimated at 40,000. Most of the population lives in single family homes on 1.14 acres and larger lots.
Palm Beach county, Fla.
This is a message that needs to get across.
http://tinyurl.com/2dflsf
Like inebriated bar patrons who blame the bartender for serving them too much, a segment of today’s borrowers willfully chose to borrow beyond their means and are now blaming the lender. A number of these borrowers, now ***charitably known as “victims,” *** also chose to borrow on one house to buy another and collateralized their future in search of speculative riches.
what is most noteworthy is that such an op-ed would appear in the boston globe! it’s obvious that this represents the contra-opinion to the globe’s official editorial take on bubblemania. even so, i consider it positive toe-in-the-water to test for evolving public sympathies vis-a-vis this giant fraud bubble. just maybe the “pity the poor fb” zeitgeist is changing … for the better.
but i wouldn’t bet on it.
LOL!
Here is a brilliant mortgage outfit that was so desperate to get into the sub-prime market that they did stupid illegal things that cost them a $21.5 million judgment!
LOL!
ENJOY!
http://tinyurl.com/3c2r99
The Wehlaus had a secret reason for maintaining high productivity at Gulf Coast, according to state investigators: They were stealing millions from escrow accounts under their trust, laundering the cash through shell corporations and spending it on an extravagant lifestyle.
The stolen funds were replaced by money coming in for new mortgage loans, investigators said, but if the flow of new money was interrupted, the scheme faced collapse.
http://www.sptimes.com/2007/09/23/Northpinellas/Title_business_boomed.shtml
That was last week’s big story.
This is an update of last week’s story with more details. Interesting read.
Yep. Good call.
“Loan closers worked 12-hour days, weeks on end without time off. Processors prepared loan packages, napped on cots, splashed water on their faces, then went back to work to meet the volume of loans. Wehlau and her husband, co-owner John T. Wehlau, even insisted employees do what they called “Chinese overtime” — paid not at time-and-a-half, but at half-wage.”
They were running a high-paid sweatshop. They should rot for this. Throw away the key then shoot the key-maker.
Why not just shoot them?
“Why not just shoot them?”
Good thinking. They liked “Chinese overtime”, they’ll like Chinese justice.
What a brutal place to work for, and for a bunch of stealing scum bags?
Loan closers worked 12-hour days, weeks on end without time off. Processors prepared loan packages, napped on cots, splashed water on their faces, then went back to work to meet the volume of loans. Wehlau and her husband, co-owner John T. Wehlau, even insisted employees do what they called “Chinese overtime” — paid not at time-and-a-half, but at half-wage.
Even the hinterlands are starting to feel the squeeze. Easy Street credit isn’t so easy now and the problem is just beginning to be absorbed by MSM. The Big “D” is now part of the economic conversation.
Unable to work full time because she cares for her emotionally disabled son, Denise DiProspero now has to pay an extra $400 a month to keep her house. With her low income and low credit rating, the only lender willing to take a chance on her charged a high interest rate.
“I had to refinance. It was the only loan I could get,” said DiProspero, 47, of Greece, (NY).
At the Auto Solutions car dealership in Henrietta, owner Peter Haidt couldn’t help a woman last week who wanted to shed a crippling loan by trading in her car. She owes more than the car is worth, and the payment eats up more than one-quarter of her monthly income.
“She’s been past due more than 60 days six times,” said Haidt, who added that he told the woman a year ago she couldn’t afford a payment above $300 before she went to another dealer. “Now she’s going to lose her car and her credit.”
“Subprime is not the problem,” said Jim Glassman, chief economist at JP Morgan Chase & Co., during a visit to Rochester. “The tightening of credit is raising the cost of credit for everyone.”
The situation is “very dangerous” because it represents a loss of confidence by the investment community, Glassman said. The country faced a similar crisis during the Depression in the 1930s, when the credit market was tight, he said.
Credit crunch creeping closer?
Subprime mortgage crisis could hit the local economy
http://tinyurl.com/2r93qr
Unable to work full time because she cares for her emotionally disabled son, (THEN WISKEY TANGO FOXTROT IS SHE DOING WITH A LOAN IN THE FIRST PLACE) Denise DiProspero now has to pay (CHOSE TO PAY, BECAUSE SHE CHOSE THE LOAN WHEN SHE COULD HAVE, AND OBVIOUSLY SHOULD HAVE RENTED) an extra $400 a month to keep her house. With her low income and low credit rating, the only lender willing to take a chance on her charged a high interest rate.
(CAPS FOR DIFFERENTIATOR ONLY, not yelling…….)
“I had to refinance. It was the only loan I could get,” said DiProspero, 47, of Greece, (NY).
Can someone translate? Does “DiProspero” mean “formerly prosperous”?
Emotionally disabled son? Is that what happens when the parents infantilize and spoil their children?
She failed to parent her child, and now she doesn’t have the resources to take care of him now that he’s an adult … real smart.
And what kind of car did the woman from Henrietta buy? Why don’t journalists ask that question? I doubt it was a Toyota Yaris. These types of stories are b.s. unless the whole story is told - which it never is.
Is there a credit crunch? I haven’t seen one. I bought a slightly used (err excuse certified me pre-owned) car last month. I paid cash for it, but I asked what kind of financing could I get. I was offered 36 months at 4.9% and was very tempted but decided to pay cash after all.
Every 2nd TV commercial I see is offering 0% financing and don’t pay until 2009 on you name it - furniture, electronic, Lowe’s, Home Depot etc.
Every week I have at least 3 offers in the mail for a 0% credit card.
So where is this credit crunch exactly? If anything I’m seeing a credit glut.
same story in Europe; not even a remote sign of tightening credit, on the contrary. Lower rates and getting approved was never easier.
The credit crunch is occurring in Europe at the level of banks that don’t want to lend the needed millions to each other to roll over their short term debts, because so many banks are contaminated by sub-slime loans. Banks that can’t roll over their debts cease to function.
yes, there are clearly major problems between the banks, judging from the size of the ECB liquidity injectinos. But it has ZERO influence on consumer credit; in most of Europe home prices (at least asking prices) are still surging, consumer confidence is near record highs and personal loans are even cheaper than a few months ago.
I keep a long term chart of the 30-year bond yield, which has been in a 25 year downtrend. I have been waiting and looking for confirmation that the downtrend has ended. It looks like long bond interest rates are going up. The Titanic has turned. Gary Tanashian has the story.
One Chart, Huge Implications
Ya mean long-term interest rates have not achieved a permanently-low plateau?
The result of Ponzi finance, I suppose. It works until strawberry pickers shriek ‘no mas’ and money managers on the other end run for the hills. The Ponzi packages are still out there, however. They are neatly wrapped in AAA paper….
This is an excellent topic for discussion. It probably deserves its own thread. What does it mean? What do bond investors do when inflation or fear of inflation returns? Where have lenders been getting their source of funds recently? What does structured finance have to do with this scenario? What is the role of commercial paper in this situation? Is securitization the cause of the conundrum or foreign investors or communism’s demise? What happened to foreign bond investors who did not migrate to the short end when Volcker raised rates? What is likely to happen to bond investors who don’t migrate to the short end now? I am not an economist or active bond investor, so if you have the answers to these questions or have questions of your own please contribute.
would love to see more comments here
Excellent topic. I’m having trouble holding the following, apparently conflicting ideas, in my head at one time.
These are: Rates lowered 0.50%. Is this a deflationary response or signal from the Fed? Makes me think “Japan”. Pushing on a string while credit evaporates due to housing debacle.
But at the same time I see inflation. All one has to do is go to the grocery store.
One explanation I heard was that things purchased on credit fall in price, while those things purchased with cash increase in price. This is what I seem to observe in the wild, as it were. But I can’t explain why this is so.
Confession: I have been guilty of teaching the occasional college econ class, not that this is exactly a credential. But I’m really having a hard time wrapping my head around this one.
Many thanks in advance for considering my question.
(Ben - many thanks. I will send a much neglected, much deserved donation today. Please correct me if the following address is incorrect)
HBB
P.O. Box 3312
Sedona, AZ 86340
An short answer to your question that I’ve seen elsewhere: inflation for the things you can’t do without and deflation for what you don’t need.
The FED is forcing money to move. This overt act is manifesting itself in a way that is becoming even more uncomfortable for the PTB.
The rate at which the long bond yields are moving is due to lack of International trust. Similiar to the way the Saudis did not follow the rate cut. This was a signal to China to “break” with the dollar. We can only get a couple or three banks on board. Japan is on board. The ECB is on board (they will cut next), but if they do not follow the rate cut, this too will be a signal, and the dollar will continue to fall.
Now with Paulson requesting an expansion of the current debt load to continue the PTB monies, and the only buyer in the Long Bond market the FED…..WHISKEY TANGO FOXTROT!!!
Ya just cant finance the debt with more debt people, it really is that simple.The “Debt is wealth” paradigm is shifting back to no debt is wealth.
Treasuries yields are signalling the computers to buy the market: pushing the highest highs even higher. Why?
Derivatives. Itterations of the models…the servants of the system have not been trained properly due a generational gap in the pain of deflation.
Very uncomfortable for the minds who are seeing this, a little spooky, yes. The end of days? No.
Japan saw the short end dry up in bonds, they simply lost control,and now our long end is drying up…losing control?
The prospect of seeing double digit yields in the long bonds should frighten the most modest mouse in a system that was designed for the long end to be within 400bps of the short end.
This is not fun, this is painfull, just the process of acting “normal” does not seem to fool the people anymore.
good post, voz
I’d love to see the 10 year yield skyrocket.
don’t think this was linked here before. sorry, if a repost.
http://www.mises.org/story/2706?ref=patrick.net
what 25,000% inflation can do:
http://www.comcast.net/news/international/africa/index.jsp?cat=AFRICA&fn=/2007/09/22/770038.html&cvqh=itn_giraffe
http://www.nationalbanana.com/
We are just being manipulated.
DEAN CALBREATH
Economy isn’t so appealing outside U.S.
September 23, 2007
“Helicopter” Ben Bernanke lived up to his nickname last week when he slashed the Federal Reserve’s key federal funds rate, pumping cheap money into the economy in the same way that a firefighting helicopter drops water onto a forest fire.
The fire that Bernanke hopes to put out is the Great American Mortgage Crisis, which has burned brighter and hotter than many economists had previously thought possible.
The people who cheered loudest over Bernanke’s move were the Wall Street financiers who helped the mortgage crisis occur in the first place, doling out cheap money supplied by Bernanke’s predecessor, Alan “Goldilocks” Greenspan.
But in the world beyond Wall Street’s movers and shakers and CNBC’s talking heads, the reaction was a bit different.
From the Persian Gulf to Beijing to Zurich, there is increasing skittishness about the health of the U.S. economy and the wisdom of our economic policies. Bernanke’s kowtowing to the powers-that-be on Wall Street did nothing to allay those fears.
http://www.signonsandiego.com/uniontrib/20070923/news_1b23dean.html
Great quote from the above article.
Ironically, last week’s interest-rate slashing by the Federal Reserve, designed to keep the economy from falling into recession, may chase away so much foreign money that our economic problems will only grow worse. If you were a foreigner, why would you invest in a country where the combination of an anemic dollar and interest rates robs your investment of its value?
If we want foreign investments to help prevent an already dire situation from turning into a catastrophe, we might need to offer a little more than a rock-bottom interest rate. Otherwise one little helicopter might not be able to do much against a spreading conflagration.
This just proves that Jim Cramer knows NOTHING!
If overseas money goes away interest rates will go up, supply and demand
Good stuff.
A MSM expert is mildly befuddled by the effect of a sharp downturn in the price trend on the relationship between appraisals and sales prices.
I see the evidence in this article offering suggestion that the invisible hand is finally on the brink of delivering the affordable housing that Fannie Mae, Freddie Mac and HUD could not deliver with their government engineering programs to artificially prop up housing demand.
(Don’t the economists who work at these agencies know that higher demand normally results in higher prices???)
Too bad the Congress and other govt players are about to step in the way of the free market with bailout programs which will use our tax dollars to help keep prices propped up at unaffordably high levels.
NATION’S HOUSING
KENNETH HARNEY
Appraisals continue to be high despite actual selling price
September 23, 2007
WASHINGTON – What’s going on with appraisals in some parts of the country? Mortgage lenders – and even some appraisers – say they’re increasingly coming in with valuations higher than the contract prices agreed to by sellers and buyers.
Are some sellers giving in to lowball offers, fearful they can do no better in the wake of the subprime mortgage implosion and home sale bust?
“We’re seeing it a lot now,” says Patrice Yamato, president of Plaza Mortgage Group in Jacksonville, Fla. “Appraisals are coming in higher than the contract” – a reversal of the pattern during the housing boom years, when appraisals often came in at or occasionally below the contract price.
“I think buyers are pushing very, very hard,” says Yamato – and they’re walking away with steals.
Appraisers insist their value opinions are based on hard numbers: recently closed “comparable” sales, current comparable listings, pending sales, statistical trendline analyses and adjustments for special features of the property and its location.
“We’ve got to use the most recent market data that is available to us,” said Pat Turner, a prominent appraiser in the Richmond, Va., area. “We can’t just make it up” in order to hit a contract price. “If (the appraisal) comes in above the contract, that tells you something unusual is happening out there” – perhaps too much property has been sitting unsold for too long, and some sellers are suddenly feeling time pressures.
http://www.signonsandiego.com/uniontrib/20070923/news_1h23harney.html
Appraisers insist their value opinions are based on hard numbers: recently closed “comparable” sales
Apparently, the fact that prices change is news to these people?
It is also news to them that real estate does not always go up.
Would those comps be before or after the fraud filter is applied?
I went over to some friends house last night here in FL. The wife is a good friend of mine and I have known here since we were in High School. She had a customer service job (unionized) that she was at for 11 years making $21 an hour. She hated the job so when her husband started making more money at work, she took a paycut and got a job as an office assistant. She figured it would work out because her two kids have baseball, cheerleading… stuff like that. Well apparently she hates this job and just walked out during lunch after about 4 months. Husband gets a call asking, “what happened to her,” which is how he found out. She did not tell him. Well, it turns out she quit. I think she just abandoned the job. So they were struggling before when she had the $21 an hour job and they were struggling more when she took the paycut. I know they will be struggling a lot now. She has only a high school education. No skills whatsoever. I am not putting them down. But here is the predicament they got themselves into. He brings home $800 a week. She was bringing home $1500 every 2 weeks. Between them they were bringing home $6200 a month. Well at work they are now starting to cut back on his hours because of the slowdown in the economy. They have a mortgage, HOAs, Property Tax, 2 $500 a month car payments. They are behind like 3 months on one. I looked at their bills and said to them, you need to cut out your $180 a month cable bill. You need to shut off your TV’s (they had like 4 of them going and no one watching them). The husband says, “well then she better call her dad because I refuse to reduce my quality of life or she better get a job.” I told him even if she got a $10 an hour job, there is no way they can afford a boat, 2 cars, a $400 electric bill and all this every month. They wanted a laptop, so rather than save and buy it, they went to one of those rental places and they got a Dell that is SLOWWWWWWWW (Vista with 800MB of RAM because the rest is used for the video card) and are paying $88 a week for the next 6 or 8 months. I did the math and a $600 laptop will end up costing them a total of (26 weeks * $88 =
Oh, and over memorial day, they went to Daytona on *vacation*. They take a lot of trips every year. I don’t know how they will cope with this. My friends, yes they are, but these people have to make the dumbest decisions I have ever seen. The wife is your classic stick your head in the sand kind of person. I know she just got sick of her job and got up and left without *thinking* what the repercutions were. There are many out there like them and no matter how much the government *tries to help* there is no way to help these people except by letting them lose it and learn to live within their means.
That is why the Government should not punish everyone while trying to bailout a few. You can’t protect people from their own stupidity or you end up with *bubbles* like we have now.
“The wife is your classic stick your head in the sand kind of person.”
I don’t think that is sand that she he has her head in.
I think you should be a good friend and offer them a loan. It is the right thing to do, after all.
I think you should be a good friend and offer them a loan.
Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.
– Pollonius–
Shakespeare’s Hamlet
I think that would be a very bad investment.
Tom,
Love your friends but don’t get involved in the wreckage. The country is full of folks who hate their jobs, but go in to work every day, because they have bills to pay. Thinking you can just walk when it suits you and still keep all the toys…not gonna happen.
precisely. if i left anytime i felt fed up, slighted or pissed off, i would probably leave EVERY DAY!
They couldn’t wait SEVEN weeks to save up for the laptop? Adults that can’t put off a purchase for 2 months to save over $1400? And the answer is to call her father for a hand out? Do these people understand the difference between a one time cost and a recurring expense?
I have friends almost exactly like this - if they have an extra $100/mth - they will run out and buy something that costs $100/mth. If they get in trouble, their parents “helps” them out. They have already baked this “help” into every decision they make.
The sad thing is, they have siblings that are responsible, and sooner or later they will have to approach the siblings for a bail out, when they say “no-way”, reality will be a b*tch!
you need to cut out your $180 a month cable bill
How does one rack up a $180 a month cable bill? We get a loaded package from Dish Network and it only $50. Or do they go nuts with pay per view?
a $400 electric bill
How much does electricity cost in Florida (per kWh)? We have a 3000 sq foot house and even during the hottest summer month with the A/C running constantly (at 72F) the bill is never more than $150.
I don’t know but I know they run the A/C around 72. They wash a lot of clothes and dry a lot. They have 4 or 5 TV’s most always on. They have a couple computers they never shut off. All that heats up the house and in FL the A/C works hard enough without all that crap being on.
Maybe they leave their windows open
I went over to some friends house last night here in FL. The wife is a good friend of mine and I have known here since we were in High School. She had a customer service job (unionized) that she was at for 11 years making $21 an hour. She hated the job so when her husband started making more money at work, she took a paycut and got a job as an office assistant. She figured it would work out because her two kids have baseball, cheerleading… stuff like that. Well apparently she hates this job and just walked out during lunch after about 4 months. Husband gets a call asking, “what happened to her,” which is how he found out. She did not tell him. Well, it turns out she quit. I think she just abandoned the job. So they were struggling before when she had the $21 an hour job and they were struggling more when she took the paycut. I know they will be struggling a lot now. She has only a high school education. No skills whatsoever. I am not putting them down. But here is the predicament they got themselves into. He brings home $800 a week. She was bringing home $1500 every 2 weeks. Between them they were bringing home $6200 a month. Well at work they are now starting to cut back on his hours because of the slowdown in the economy. They have a mortgage, HOAs, Property Tax, 2 $500 a month car payments. They are behind like 3 months on one. I looked at their bills and said to them, you need to cut out your $180 a month cable bill. You need to shut off your TV’s (they had like 4 of them going and no one watching them). The husband says, “well then she better call her dad because I refuse to reduce my quality of life or she better get a job.” I told him even if she got a $10 an hour job, there is no way they can afford a boat, 2 cars, a $400 electric bill and all this every month. They wanted a laptop, so rather than save and buy it, they went to one of those rental places and they got a Dell that is SLOWWWWWWWW (Vista with 800MB of RAM because the rest is used for the video card) and are paying $88 a week for the next 6 or 8 months. I did the math and a $600 laptop will end up costing them a total of (26 weeks * $88 = $2288).
Oh, and over memorial day, they went to Daytona on *vacation*. They take a lot of trips every year. I don’t know how they will cope with this. My friends, yes they are, but these people have to make the dumbest decisions I have ever seen. The wife is your classic stick your head in the sand kind of person. I know she just got sick of her job and got up and left without *thinking* what the repercutions were. There are many out there like them and no matter how much the government *tries to help* there is no way to help these people except by letting them lose it and learn to live within their means.
That is why the Government should not punish everyone while trying to bailout a few. You can’t protect people from their own stupidity or you end up with *bubbles* like we have now.
“2 $500 a month car payments…you need to cut out your $180 a month cable bill.”
Frustrating…even though we aren’t a “keeping up with the Joneses” family, it’s still annoying to feel like some people are living a “cushier” life than us when they make significantly less than us, and all the while my own government (as Lincoln said, “of the people, by the people, for the people”) is rifling through my wallet, looking for money I saved by not living beyond my means, to “help out” people like this.
The “wealthfare” really angers me more than your typical pathetic ADFC “queen”. You had a chance, and you blew it by living high on the hog. Well, suck it up.
It does upset me a lot that the government is trying to make it almost impossible to save (taxes through inflation rather than impost) while floating the idea of saving the FBs and the IBs who make it all possible.
My only consolation is that they have more worries to keep them up at night and less stable marriages. My gf and I live below our means and sleep well.
Builders’ confidence hits record low
By Roger Showley
STAFF WRITER
September 23, 2007
Home builders registered their gloomiest view of the future since recessionary 1991, the National Association of Home Builders reported this past week.
The association’s 22-year-old Housing Market Index, produced with Wells Fargo Bank and based on a monthly survey of builders, dropped to 20 points, tied with the record low set in January 1991.
In the West, it was even lower at a record 18 points with the lowest of 13 reported in the Midwest. Regional indexes have only been produced since 2004. On the 100-point scale, 50 is considered normal, meaning that the latest confidence level was especially pessimistic.
The index level for the outlook in six months nationally was 26 and the level of visitor traffic to individual tracts was only 16.
In San Diego County, builder Bill Davidson said many potential buyers continue to sit on the fence, even as many people continue visiting housing projects.
“In my career, I’ve never seen such a sophistication in the marketplace,” Davidson said, noting he has weathered four recessions in nearly 30 years.
http://www.signonsandiego.com/uniontrib/20070923/news_1h23builders.html
Why would anybody bring their foreign currency to our country and invest it in the stock market?
You bring 100,000 euros in 2002. You convert it to the American currency. In 2002 that was worth about $84,000. In 2007 that $84,000 is now worth about 60,000 euros. You lost 40% on the currency exchange. Did the Dow climb enough to reverse that loss and give you a good return? I think we all know that my last question was rhetorical.
Had you invested the $84,000 in the dow in 2002 when the dow was at 7700, today that $84K would be worth $150,000 or 106,000 Euros. And of course that is not taking into account any dividends you may have received over the past 5 years.
So to answer your question….yes the dow did climb high enough to reverse that loss.
if one had invested the 100K euros in the EU stockmarket (Dutch AEX, German DAX etc.) in 2002, it would have climbed to 250-350K euro by now … I’m not considering dividends either (not relevant relative to the gains in stock prices, but bigger than in the US).
So there can be no doubt that bringing EU money to the US is a loosing proposition. Not that it matters for all the big pension fund managers, they will keep serving their Wall Street pals no matter how bad the returns are.
But my question asked if it gave you a good return. That it did not. They could have kept that 100,000 euros in the bank and it would be worth $140,000 plus interest today. Therefore, they are way behind on this investment.
Yes, doing what you proposed wouldn’t be the best investment. But it wouldn’t be the 40% loss you were talking about either. I could list 100 bad investments in the past 5 years, doesn’t mean nobody will ever invest in those 100 things again.
The US dollar will come back. The Canadian dollar was at .60 not too long ago and it’s over 1.00 now. It was also at 1.00 in the 70s. These things are cyclical and no currency stays over/under valued forever.
Yes, doing what you proposed wouldn’t be the best investment. But it wouldn’t be the 40% loss you were talking about either. I could list 100 bad investments in the past 5 years, doesn’t mean nobody will ever invest in those 100 things again.
The US dollar will come back. The Canadian dollar was at .60 not too long ago and it’s over 1.00 now. It was also at 1.00 in the 70s. These things are cyclical and no currency stays over/under valued forever.
“The US dollar will come back.”
So will U.S. housing prices. The question is one of how long and far they will fall in the interim.
One further point: I believe the real “no arbitrage condition” which drives asset price cycles has much to do with the finite human life span. Look at the Japanese real estate market — it deflated between 1990-2005, and prospects for an immediate recovery look bleak given the world economic outlook at the moment. I can make two statements about this situation (which could also be applied to bubble-valued U.S. asset prices):
1) Japanese housing prices will come back.
2) Many Japanese homeowners of record in 1990 will be dead before they do.
One last point: It does not seem very rational to hang on to a devaluing asset just because “it will come back.” For instance, if you thought that housing prices were going to go down in the U.S. (as almost everyone seems to think at the moment), why would a rational prospective buyer not just wait until the correction played out, rather than catching a falling knife? I know some people are more impatient than others, but when sizable multiples of one’s annual labor market income are at stake, a bit of patience while prices correct to realign with historical fundamental-based relationships to rents or incomes could be very financially rewarding.
In the 90s $1CAD was $0.90US. In 2002 $1US was $1.60 CAD. And today $1CAD = $1.01 US. Had I bought Canadian dollars at 1.50 you would have said I was catching a falling knife.
“Investors” who buy enough stock can wind up owning the company.
In terms of actual purchasing power, you are way behind. What you need to do is have a chart of the Dow vs. Gold to see how the Dow has performed against real money. If you do that, you will see the Dow has been in a steady downtrend when measured against gold.
OK you want to play the gold to dow game? Fine.
In 1980 gold was $850 an ounce, dow was 850 so 1 ounce of gold bought the dow
2007 gold is $730, dow is 14000, so the dow is worth 19 ounces of gold.
Fantastic investment indeed.
Not only that, but you could buy a decent car in 1980 for about $7000. A comparable car today would cost 25K. Yet an ounce of gold costs less today than in 1980.
I don’t know who’s right here, but I know enough to know that you’re cherry picking your dates. Also, doesn’t the DOW pull out bad stocks and put in better ones every so often?
I’d like to see the graph of gold to the DOW. Does anybody have a link?
So what? If you invest in an index fund, that is accounted for. Had you invested $1000 in a dow index fund in 1980 you would have $19,000. Had you bought $1000 worth of gold you would have $850 today.
Gold over the past 25 years has been about THE worst investment possible.
You may have been able to buy a decent car for 7,000 however the interest at that time was around 18%.
“Gold over the past 25 years has been about THE worst investment possible.”
How about over the past five years?
All of your people who say that gold is the worst investment ever because its price has gone down for 25 years are also saying that housing is the worst investment ever because it has gone up for 25 years (nationally). Past performance != future performance, so if you are going to compare the DOW to Gold you need to determine which one is over valued and which one is undervalued and place your bet. Hint.. the DOW is overvalued.
Over the past 5 years? Gold has gone up 100%. Not bad. Not even close to real estate.
Las Vegas r/e blows it out of the water. In my old LV neighborhood homes that sold for $300K in 2002 are selling today for $500K. And yes this is even with the collapse in pricing and this is actual sellig prices in the past month. They were going for $625K at one point in 2006.
Putting 10% on the $300K was $30K. Leaving out property taxes and income tax savings, which cancel each other out and taking 7% off selling price for closing costs, the $30K investment would return $165K **TAX FREE** or a 550% return on the $30K.
Now don’t me wrong, I am not saying now is a good time to buy. I sold my LV home, took the money and ran myself. But over the past 5 years I honestly cannot think of an investment that could have given me a return as high as that.
“Las Vegas r/e blows it out of the water.”
When choosing an investment, shouldn’t one consider risk factors like, say, liquidity? Anybody who bought LV RE in the past couple of years is currently losing their shirt, because they got stucco and are riding an illiquid falling knife to the bottom. If this is your idea of a good investment, then I guess we will have to agree to disagree.
small example of current EU bubble psychology:
in a TV show a young British couple were buying a 750K euro home in the UK plus a 200K vacation home in Spain. Homes in the Spanish town had appreciated by 50% over the last 3 years; realtor/presenter comment: terrific place to buy, within a few years they will make loads of money just by owning the home.
I don’t understand why they don’t buy a vacation home in the Netherlands then - Dutch prices have gone up by 600-1000% over the last 15 years, with that logic that must be an even more terrific place to buy … To me these huge gains usually sound like a warning bell, especially if they have been going on for 5 years or more.
BTW, for anyone who might be misinterpreting the record low builder’s confidence index level as a buy signal (”the market must have bottomed out”), it is worth pointing out that SoCal home prices generally were soft or declining for five or so more years past 1991. I know it is different this time, but this is certainly something to think about, especially given that home prices have barely come down relative to either rents or incomes at this point…
A Reality Check for Home Sellers (NYTimes)
http://tinyurl.com/ypszg6
Sorry if this is a repost, I checked and did not see it here yet.
I would send it to my co-workers but most of them are too f-cking stupid to have the first understanding of the implications. They are still saying, “renting is throwing your money away”. Boobs!
I have a feeling that there is a pronounced difference between those who can see the inevitable consequences of any commodity that detaches from it’s economic fundamentals and those who simply cannot. While I dare not claim to elevate the wisdom of those of us on this blog it is patently clear that the consensus predictions published here over the last 3 years for housing are being played out in a stunning way. It is the timing that has bamboozled many of us. I believe that the timing issue is a result of attempts to maintain or manipulate the mania’s extension by those who have the most to gain. That said, I also believe that those attempts have and will prove to be only temporary stopgaps and futile against the basic economic forces or “invisible hand”. If we look at what we predicted 2 years ago we will see that eventually it is all coming true so let’s all be patient and continue to enjoy Neil’s popcorn while we watch this train wreck.
With regard to FB’s, well you can lead a horse to water ….
I love how MSM articles about bailout programs always talk about who will be helped by how much, while never, ever mentioning who gets stuck with paying for the costs. Do the financial journalists who write these articles believe that money grows on trees and insurance is manna from heaven?
Insurance is not really free — the FBs getting bailed out and their lenders share the spoils of the free FHA loan guarantees, which are paid for courtesy of the unwitting and uninformed U.S. taxpayer.
What is worse, it seems doubtful to me that it is in the best interest of many of these owners, who are now stuck in depreciating-value homes financed by loans they cannot afford to repay, to “help” them stave off foreclosure. Many of them will still get foreclosed, albeit more slowly, as their financial futures are sucked away by unaffordable mortgages, but now a pot of gold in the form of taxpayer-provided bailout money awaits their mortgage lending Deatheater at the end of the foreclosure rainbow.
Just how good is the FHA’s program to aid borrowers?
By Bob Tedeschi
NEW YORK TIMES NEWS SERVICE
September 23, 2007
When President Bush announced plans late last month to help borrowers who were struggling to keep up with their adjustable-rate mortgages, local housing advocates and lenders waited eagerly for details of exactly how the initiative would work.
Now that the Federal Housing Administration has disclosed those details, the jury is still out. “I think there’s a subset of borrowers this will help,” said Brian J. Chapelle, a partner in Potomac Partners in Washington, a consulting firm to the mortgage industry. “Whether it’s the 240,000 people the Bush administration said it would help, we’ll have to see.”
At the heart of the initiative is a new program, FHASecure, aimed at the millions of people who took out adjustable-rate mortgages in recent years. Many of these loans started out with low initial interest rates that increased sharply after two or three years.
Often, mortgage companies lent money to those borrowers based on their ability to pay only the lower rate, and now millions of them are struggling to keep up with higher monthly payments.
Among other things, the FHASecure program expands the agency’s insurance program for lenders. In the past, the agency insured refinance loans for borrowers whose existing mortgages were not federally insured, provided the borrowers were not delinquent on their payments and the loans were below the FHA limit of $362,000.
Now, under the FHASecure program, the agency will insure refinanced mortgages on ARMs below the $362,000 limit even if borrowers are delinquent. The availability of federal insurance is expected to give lenders incentive to help borrowers refinance on more favorable terms.
http://www.signonsandiego.com/uniontrib/20070923/news_1h23mortgage.html
This is part of an ad that I rec’d from a realtor in central FL. Now we know why builders are in such a rush to sell properties. Needless to say this realtor will not be one I call if I move to central FL. It just reinforces that I made the right decision 2 years ago when I decided not to practice real estate. It was right at the peak too, but I couldn’t take the sleeze and dishonesty. I couldn’t represent my clients and feel comfortable anymore because I never knew what the realtor on the other side was going to try to pull. Here’s the ad:
We are in a buyer’s market today in part because there’s a surplus of new homes available. Why? Builders would like to sell them before they pick up the pace of new construction. That’s why now is the perfect time to buy a new home. Builders are currently offering unprecedented opportunities to buyers by discounting homes, giving away options and upgrade packages, adopting creative financing plans, paying closings costs, fees and taxes and much more.
Is keeping the sheeple in a permanent state of delusional euphoria a sensible objective of economic policy? I will take a dose of reality for myself, thank you.
The Front Porch
News and notes about real estate and our built environment
September 23, 2007
QUOTABLE
The economy will “get through this particular credit crunch. We always do. This is a human behavior phenomenon, and it will pass. The fever will break and euphoria will start to come back again.”
– FORMER FEDERAL RESERVE CHAIRMAN ALAN GREENSPAN, SPEAKING ON CBS-TV’S “60 MINUTES” ABOUT THE RISE IN DEFAULTS TIED TO SUBPRIME MORTGAGES
http://www.signonsandiego.com/uniontrib/20070923/news_lz1h23porch.html
If those aren’t the words of a “fool” then I don’t know what are.
Nah, Dr. G has an excellent bedside manner. Mentioning fever death rates is not going to assist the patients recovery. (Of course, it might convince him to write a will… but that doesn’t affect Dr. G.)
and look at that picture. now put a red bulb nose on it and voila: EZ-AL
These people sound to me like they are making it up. The commentary on where San Diego’s market is headed borders on hilarious.
County’s housing is 18 percent overvalued
By Roger Showley
STAFF WRITER
September 23, 2007
San Diego County’s housing is 18.5 percent overvalued for local income and economic conditions, according to a new analysis of 330 metro areas prepared by Global Insight Inc. for National City Corp.
But the Waltham, Mass.-based economic research company said that was less than half the 39 percent level found for the area at the height of the housing boom.
The company ranked San Diego as the 109th most overvalued market among those surveyed. Global Insight published the analysis in “House Prices in America” for Cleveland-based National City Corp., one of the nation’s largest financial holding companies.
With normal valuation pegged at between minus-14 percent and plus-14 percent, Global’s senior economist, Jeannine Cataldi, said San Diego is settling back toward an acceptable level of home pricing.
“There’s no way to know what’s going to happen,” Cataldi said. “There could be some catastrophic event that causes markets to really stall. Or, things may be turning around. Each market is so individual. San Diego could be one of the markets where things may be at bottom now and where they’re looking to go up soon. It really depends on the market and fundamentals underneath.”
http://www.signonsandiego.com/uniontrib/20070923/news_1h23values.html
The comments that callers made about the idea of bailouts are worth checking out on this archived broadcast of Gloria Penner’s Editor’s Round Table (KPBS Radio, 89.5 FM San Diego).
Chargers Stadium, SD Foreclosures, Rod Coronado Trial
Sep 21, 2007
The editors gather at the roundtable for opinions on the week’s news. This week, a consultant’s report says two locations in Chula Vista will work as potential sites for a new Chargers Stadium. The editors at the roundtable discuss the pros and cons of each site, and ask when Chula Vista will decide if they want to host the team.
Also, there were nearly 4,900 home foreclosures in San Diego County in August, which is an increase of 247 percent from a year ago. How will the Federal Reserve’s one-half percentage point interest rate cut impact the local housing market?
http://www.kpbs.org/radio/editors_roundtable;id=9671
Discussion of the “backlash against bailouts” can be found about 29 minutes into the broadcast.
I personally have nothing against the bailout idea, provided the pound of flesh to pay for them comes out of the lending industry which made the foolish loans. Leave the rest of us out of it.
It doesn’t matter the taxpayers will still pay. For example the City of San Diego actually participated in RE speculation with it’s shared appreciation program.
warning PDF file
http://tinyurl.com/3ch96f
Lots of taxpayers may move rather than paying, especially if the SD economy heads into the crapper (as recent unemployment reports suggest it is doing).
This week, a consultant’s report says two locations in Chula Vista will work as potential sites for a new Chargers Stadium.
Gee, what’s wrong with Qualcomm/Jack Murphy stadium? Especially not that they don’t have to share it with the Padres anymore. Or is this just a case of stadium envy? I haven’t been to that stadium in years but I recall that it was a perfectly fine, very nice stadium. I know that they built a new stadium in Denver a few years ago, but at east the old Mile High was a dump.
Real Estate Agent tells Newspaper (LA Times): if you keep writing stories about people not needing Realtors to buy and sell houses, maybe we should stop advertising houses in your newspaper:
http://tinyurl.com/yshvb6
“Since the Internet seems to be offering so much to buyers and sellers, why not take it a step further? The Times makes a great deal of money in advertising from the real estate industry. Perhaps we should think about shifting that marketing to the Net? If that was the only place we advertised, that’s where the public would go. Perhaps the public should dispense with newspapers and get their news off the Net as well. It may actually be more fair and unbiased!
Richard von Ernst
Sotheby’s International Realty
Pasadena”
Adios Advertising?
Adios Newspaper
What if their rates go down enough, a full page ad with:
“http://thehousingbubbleblog.com”
could replace them.
Oh, the law of unintended consequences!
or
“Fair and unbiased! YOU CAN’T HANDLE FAIR!”
LA Times
Sales prices fall short of appraisals in latest market twist
http://tinyurl.com/26omrd
“What’s going on with appraisals in some parts of the country? Mortgage lenders and appraisers say they’re increasingly coming in with valuations higher than the contract prices agreed to by sellers and buyers. The differences can range into the thousands.
Are some sellers giving in to lowball offers, fearful that they can do no better in the wake of the sub-prime mortgage implosion and home-sale bust? Or are appraisers simply lagging behind downward market adjustments?”
———————–
I pick ‘door number 2′.
———————–
“It raises a fundamental question for sellers and buyers. What is true market value, anyway?…Not all appraisers are surprised that appraisals are beginning to come in above contract prices. Gary Crabtree, president of Affiliated Appraisers in Bakersfield, said bloated sales prices over the last five years, plus hidden concessions and fraud, “have distorted the data” and the public records in some parts of the country.
“When mortgage fraud and concessions get built into” local recorded sales prices and tax assessments, he said, those inflated values “become the new comparables” that appraisers use. In effect, hard-bargaining buyers may be squeezing some of the fluff out of earlier sales.”
…
My favorite part of the article:
“Sellers can protect themselves against low-ballers and vultures by hiring an experienced appraiser before listing.”
Buyers looking for a good deal for their hard-earned down payment are getting called names (”low ballers”, “vultures”), while just two years ago, sellers were being called names like “smart” when they would hold out for a maximum price in a bidding war. I guess we are in the anger stage of housing grief?
Interesting what this bubble did in moving southleft coasters all over…
All the homeowners in a place like Los Angeles, that had owned pre 2002…
Were sitting on substantial windfalls financially, but to play the game, it required one to leave the area, no sideways moves within the city of angles made any sense, thus the Californication of the Nation…
In 1849, Folks said goodbye to family, friends and work, en route to the Golden State…
In 2002-2006, Folks said goodbye to family, friends and work, en route out of California
The long, slow-moving demographic tsunami which was set up by the impulse of the 1849 gold rush and washed across the country for the subsequent 156 years piled up to maximum height against the western coastline with the peaking of the California real estate bubble in 2005. The blowback into the heartland began slowly at that point, and is currently picking up speed. The process will only end at the point when California home prices have re-equilibrated with California incomes.
this may seem to be off topic but I suggest people set aside two hours to watch this because its long and may explain most of the actions of today and past will lead to this. We the Americans, are debt holders and anyone that tells me to buy a house can kiss my rear end. I must make plans to leave this country because our emotions are used against us. Good luck to all and I hope you all can open your eyes to what will become of next generation.
http://www.zeitgeistmovie.com/
That’s a 9/11 troofer site.
I can see a tremendous silver lining to the past week’s actions by the Fed, the Congress and other politicians to promote their bailout measures in a moment of panic: Moral hazard just entered the popular national lexicon, and will potentially become a serious political issue going forward.
Bailouts which reward bad actors with moneys taken away from those who had nothing to do with the problem are patently unfair. Our nation was built on a culture of thrift and financial prudence, which is currently under attack from bailout proponents in Congress and at the Fed. By rewarding profligacy, bailouts serve to undermine the basis of our national prosperity. The resulting moral hazard problem sets the stage for future economic panics and subsequent bailout measures to reward bad actors.
Disclaimer: I replaced the word “percentage” in the following excerpted passage with “advantage,” on the assumption the editor missed something.
Debra J. Saunders
Moral hazard, and panic
Debra J. Saunders
Friday, September 21, 2007
…
In the long term, however, government proposals to remedy private market excesses create more “moral hazard” - perverse incentives that reward risky behavior. With globalization, each bad business practice can have a domino effect felt around the world. Ditto each stretching of regulations to remedy the fallout from bad practices.
Think about it. A few years ago, there must have been loan officers who looked at no-deposit, no-interest, no-fixed rate mortgages and smelled a rat. At business meetings, some must have voiced their reservations about approving loans that were bound to result in foreclosures.
But there was no advantage in making their objections known. If they had talked about the need to approve mortgages which a large majority of clients could afford, savvy global-thinking, professionals would have dismissed them as dinosaurs.
E-mail: dsaunders@sfchronicle.com.
“percentage” is another way of expressing “profit”.
Thanks! I learn something new every day here…
Has the global economic outlook ever before changed as fast as it did over the past two weeks?
King signals no bailout for banks
Wed Sep 12, 2007 12:12pm BST
By Sumeet Desai
LONDON (Reuters) - The Bank of England signalled on Wednesday it would not ride to the rescue of banks caught up in the credit crunch by cutting interest rates or flooding markets with cash unless the whole financial system was in danger.
In a submission to parliament’s Treasury Committee, Governor Mervyn King said the cause of the current crisis that has seen lending between banks dry up was that people had not properly considered just how risky some investments were.
Central banks, he said, of course stood ready to take whatever action might be needed if there were major shock to the global financial system but for now banks, as a whole, were well capitalised and should be able to handle their losses.
http://uk.reuters.com/article/stocksNews/idUKNOA23489020070912
Did the Bank of England cave in to political pressure?
Last Updated: 12:51am BST 23/09/2007
Page 1 of 3
In an astonishing Uturn, the Governor of the Bank of England has finally decided to pump billions of pounds into the financial system. Iain Dey reveals the scenes at the Bank as events conspired to force his hand
It was late on Tuesday afternoon when Mervyn King summoned the chief executives of Britain’s top five banks to a meeting that night at the Bank of England.
The Governor’s problem was obvious. While the queues outside Northern Rock branches had begun to die down, Britain’s financial system was still creaking. HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS were still refusing to lend to each other to any great extent, clinging on to their piles of cash instead. Only the previous day, a hedge fund whispering campaign had wiped 30 per cent off Alliance & Leicester’s shares. Fear of contagion was real.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/23/ccbank123.xml
Uneasy sits the crown: can King rally the Bank of old England?
As the Treasury Select Committee grilled senior Bank of England officials, bets were being taken on who would survive the Northern Rock landslide. Simon Evans reports
Published: 23 September 2007
In ancient Rome, enemies of the state were routinely thrown to the lions. Nowadays in London they are just made to sit before the Treasury Select Committee.
Last week it was the turn of Mervyn King, the Governor of the Bank of England, to undergo what is now becoming a ritual humiliation for high-flying bankers.
Flanked on one side by his deputy, a floundering Sir John Gieve, and on the other by his likely successor for the Bank’s top job, Paul Tucker, King’s crown slipped with a performance that was at times irascible and occasionally, in the words of the committee, “obfuscating”.
Shock at the bailout of Northern Rock had the previous day turned to anger when King performed the most startling U-turn during his time at the helm of the Bank.
Following the lead of America’s Federal Reserve and the European Central Bank, King presided over the injection of £10bn into the money markets – a week too late to save the run on Northern Rock.
The move came less than a week after he said that the Bank of England would not bail out a failing bank.
http://news.independent.co.uk/business/analysis_and_features/article2990050.ece
Britain’s bank run
The Bank that failed
Sep 20th 2007
From The Economist print edition
The governor of the Bank of England is the biggest casualty of a financial fiasco—but far from the only one
http://economist.com/opinion/displaystory.cfm?story_id=9832838
“Has the global economic outlook ever before changed as fast as it did over the past two weeks?”
Yes, many times.
Lou — Thanks for the insight. I have not watched enough cyclical turning points to know this. However, I will say that I find the situation at hand quite bizarre on a personal level. As one who has participated for a couple of years in the discussions on this blog, nothing that has happened so far this year has been the least bit surprising to me, aside from the apparent paradigm shift that has taken place in the topmost echelon of the world’s economic policymaking elite.
I am still deeply puzzled by one detail: How many of this elite club of top economic policymakers were truly surprised by recent events, and how many plainly foresaw them? I suppose there is no way to ever sort this out, given the pervasiveness of official posturing in media announcements, but it is a fascinating question to me nonetheless.
Notice how the Fed’s message has shifted from “subprime is contained” (which they confidently said with great frequency earlier this year) to “the subprime lending crisis will end by March 2008.”
This reminds me of a similar shift of message by Realtors: The old message of “real estate always goes up” has morphed into the new message that “real estate always goes up, in the long run.”
In the long run, we are all dead.
– John Maynard Keynes –
Stocks do too…in fact everything goes up in the long run but when compared w/ inflation and a depreciating fiat currency, few things keep up.
It is quite interesting to compare the bailout of Northern Rock this past week to a similar rescue of CFC a couple of weeks back on this side of the pond. In both cases, “runs on the bank” resulted in “too-big-to-fail” bailout measures in response which effectively put the respective heart-attack-victim lending institutions on life support.
The reaction to Mervyn King’s rescue was immediate censure, while there is very little similar concern voiced in our MSM about the CFC bailout.
Perhaps the difference is due to the differing natures of communications regarding the respective policy measures? I suspect the Fed learned from LTCM that it is best to keep bailouts out of the glare of the media spotlight to whatever degree is possible. In fact, it seems they are vehemently denying that any bailouts have or will occur (only days after AG said that some bailouts would be necessary).
A decision to share the load has backfired badly on the Bank
William Keegan
Sunday September 23, 2007
The Observer
http://politics.guardian.co.uk/columnist/story/0,,2174882,00.html
Yet another BOE-Fed parallel: Official “no-bailout” disclaimers.
READ THEIR LIPS! ACTIONS SPEAK LOUDER THAN WORDS.
The Associated Press September 23, 2007, 1:31PM ET
Treasury chief: Lessons in bank bailout
By DAVID STRINGER
Britain’s Treasury chief Alistair Darling told his party’s annual convention Sunday that Britain would not protect businesses that make bad judgments — despite a billion-dollar rescue of a struggling bank.
A run on deposits at Northern Rock PLC last week, the first major financial jitters since Prime Minister Gordon Brown’s Labour Party took office in 1997, has called into question the new leader’s handling of the economy.
http://www.businessweek.com/ap/financialnews/D8RRA6S80.htm
OCTOBER 1, 2007
IDEAS — OUTSIDE SHOT
By Vitaliy N. Katsenelson
The Fed’s Irresponsible Move
The 2001 rate cuts caused the bubble that is now a crisis. Here we go again
I’ve seen this movie before, and it doesn’t end pretty. That’s what I thought on Sept. 18 when Federal Reserve Chairman Ben Bernanke took the road so often traveled by his predecessor, Alan Greenspan, and threw the financial markets a sop in the form of a big cut in interest rates. It was clearly what the markets wanted, as the immediate 336-point jump in the stock market confirmed. But popular decisions are not always the right decisions. (Just consider Greenspan’s popular 2001 interest rate cuts, which actually caused the current housing bubble.)
…
With all the heartbreaking stories of eviction, broken families, and pecuniary anguish resulting from people losing their homes, our first instinct is to look to government for help. There are proposals in Washington to bail out specific lenders or even to penalize Wall Street buyers of asset-backed securities. But remember, government isn’t some ambiguous third party—it’s you and me. Should we carry the burden of those who made irresponsible or simply bad decisions? For government to bail out the “victims” of this housing debacle, it will have to raise taxes, cut spending, or both. Yes, you and I will pay higher taxes or money will be diverted from needed social programs because your neighbor elected to live in a larger house, better neighborhood, or to have a greener lawn.
But the largest cost of a government bailout is one that is not readily apparent—the so-called moral hazard, wherein society shields investors from the fallout from their actions. The unintended consequence of a government bailout is that it sets the stage for an even greater housing crisis next time since it suggests to purchasers that owning a house is a risk-free endeavor. If your home’s price goes up, great. If it goes down, you claim to be a victim, and society compensates you for the risk you’ve taken. With screwy incentives like that, the cost of the next bailout will make today’s housing crisis look like a cakewalk.
That’s why Bernanke should forgo further cuts, let market forces work, and allow the economy to go through a painful but needed withdrawal from its addiction to low rates. If the Fed continues the easing it started this week, it will reinflate the housing bubble, further stretch the already overleveraged consumer, and risk enabling bubbles in other asset classes.
Doing nothing has always been hard for Americans. But there are times when we have to restrain ourselves, since by helping some we risk hurting many, many others. This is one of those times. The current crisis will pass, like many before it. Let’s not escalate the magnitude of the next one through well-meaning—but irresponsible—actions today.
Views expressed in Outside Shot are solely those of contributors.
http://www.businessweek.com/magazine/content/07_40/b4052098.htm?chan=rss_topStories_ssi_5
MoT Test
I was in Yugoslavia in 1982, and more of an alcoholic basket case of an economy, one never did see…
When there, the smallest denomination coin in circulation, a Dinara,
equaled around 500 to the Dollar, and I thought then, there was no way a government could coin money that costs much more to mint, than was worth in commerce…
Each Nickel in commerce in our country, costs around 11 Cents to produce.
Gresham’s Law, in regards to base metal coinage…
The looming problem facing the Fed and the BOE: Confidence in central bank independence.
On the bright side, it looks like the next little while might be a very good time to buy stocks or gold!
Temporary stability is bought at an inflationary price
BILL JAMIESON
A BANKING system brought to a precipice; a regulatory regime in tatters; a major UK mortgage lender effectively nationalised; the ‘independence’ of the central bank compromised and public confidence in banking supervision plunging close to rock bottom. Who believed in assurances of solvency last week from the Bank of England, the Financial Services Authority or the Government?
What a defining week for Britain’s banking sector and the wider economy. The greater cost of what will surely become known, Emile Zola-like, as ‘The Debacle’ on the credibility and effectiveness of monetary policy will take time to show through. And it may come to cost a great deal more than any bail-out of Northern Rock depositors.
The immediate period ahead is not the problem. Markets should continue to enjoy a relief rally. Extra liquidity for the wholesale money markets is bringing down three month inter bank rates. And a dramatic 50 basis points cut in interest rates in the United States has also helped to cauterise the immediate crisis and bought precious time for markets to stabilise and adjust to a new world of rising debt default and constrained lending. In Britain emergency patchwork will be needed fast for a financial regulation system that has fallen to pieces at the first serious test. Greater protection of customer deposits should also be an early priority.
The greater damage that has been done - damage that will come with an enormous bill - is to both the substance and credibility of counter inflation policy on both sides of the Atlantic.
Confidence in central bank independence on which a credible counter inflation strategy rests has been broken. There is now, to put it no stronger, a suspicion that future attempts to tighten monetary policy will take second place to maintaining a pace of economic growth that minimises, in the short term at least, any political risk to the incumbent administration.
http://business.scotsman.com/banking.cfm?id=1519972007
Some posters on this blog recently stated that the LIBOR moves in lockstep with the Fed Funds Rate (FFR). This sentence suggests otherwise — i.e., extra liquidity for wholesale money markets, not the U.S. bank overnight lending rate (aka FFR) was instrumental in reducing the LIBOR.
“Extra liquidity for the wholesale money markets is bringing down three month inter bank rates.”
When the going gets weird, the weird go Gold
I heard a talking head claim that the USG will not let 2 million families get thrown out on the street when their mortgage payments finally sink them. Ok, I can see why this would be undesirable. I just can’t see how to prevent this.
It’s popcorn.
Roidy
Let them eat popcorn…
Thrown out on the streets is silly. If you default on your mortgage, you’ve got six months minimum to tuck those payments in your pillow case and find a place to rent that costs much less than your previous mortgage payment. If these prople sold their house and had to move in 30 days but didn’t, would that be “thrown out on the streets”?
“I just can’t see how to prevent this.”
For starters, we could allow the market to absorb the 2.6 million homes currently sitting empty, rather than passing bailout measures to use our tax dollars to provide price support to unaffordably priced homes. This would have the positive impact of saving the taxpayers from making a massive wealth transfer to the financiers who created the mess, and also help prices come back down to affordable levels.
Then it would not hurt in the least to let some of these people currently engaged in a losing battle to pay off their unaffordable mortgages to reinvent themselves as renters. Perhaps the lending industry could fund this initiative. I have rented for about half of my adult life, and overall, the experience has been positive.
A mime is a horrible thing to waste…
R.I.P. Marcel
A nice summary of the Feds behavior by Barron’s ALAN ABELSON:
John Mitchell, Mr. Nixon’s ill-fated attorney general, for all his sins was absolutely, if inadvertently, on the money as to how to treat office holders regardless of political party and however high their office. Referring to the administration he was such an integral part of, he urged one and all to “Pay attention not to what we say; watch what we do.” (Unfortunately for Mr. Mitchell and the administration, that’s exactly what one and all decided to do.)
Following that priceless piece of sage advice in judging the Fed’s chairman’s action last week in taking a half-point whack out of interest rates, we’re forced to conclude that Ben Bernanke is Alan Greenspan with a beard.
http://online.barrons.com/article/SB119041472248335791.html?mod=b_hpp_9_0002_b_this_weeks_magazine_home_left
There may be hope! This Orange County CA newspaper poll showed an overwhelming number of respondents don’t want a goverment mortgage bailout:
http://www.ocregister.com/ocregister/money/housing/article_1695749.php?ref=patrick.net
So why are our reps on both sides of the aisle to anxious to “save people’s homes”.
Anyone who got an adjustable or i/o mortgage and didn’t expect the rates to go UP is either stupid or crazy. Either way, writing them a check won’t help them.
‘So why are our reps on both sides of the aisle to anxious to “save people’s homes”.’
I suspect the bailouts are actually a ’save our lenders’ and ’save our political contributions’ measure rather than ’save our homes.’ People who bought homes they cannot afford will soon discover they still cannot afford to pay off $500K in debt, no matter how heavily-subsidized their interest rate gets.
Told you the Fed needed to raise some pulses. More from Barron’s:
FANS OF E.R. KNOW THE DRILL WELL: The defibrillator pads go onto the seemingly lifeless chest. Then comes the electrical jolt, and the spasm. Will the patient spring back to life?
Answers about the economy’s health may not emerge for some time, but investors were already willing to bet that the government’s interest-rate cut last week will successfully revive the ailing U.S. economy.
…
There was little time — or need — for reflection or repentance, not when speculative sins of the past were so readily forgiven by benevolent monetary policy. In the two days right after the rate cut, stocks with the highest short interest outgunned the market, suggesting that the scramble to cover prior bearish bets played a part….
http://tinyurl.com/3d2yvc
It doesn’t hurt confidence to see an all-front push to pass housing market bailout programs.
Hint hint: Welfare-to-the-rich programs are about to shore up the $417,000+ price range segment of the housing market…
Improvements seen in jumbo mortgage market
But housing market problems haven’t hit bottom, Bush adviser says
By Robert Schroeder, MarketWatch
Last Update: 11:32 AM ET Sep 23, 2007
WASHINGTON (MarketWatch) — There are signs that the market for mortgages worth more than $417,000 has recovered and it should “take off” in the months ahead, a top White House economic advisor said Sunday.
“We’re optimistic about the jumbo loan market,” Edward Lazear, chairman of the White House Council of Economic Advisers, said in an interview on C-Span.
“Jumbo” loans are those worth $417,000 or more. Lazear said that market is operating again after stopping for about two or three weeks in the summer.
“We expect [the jumbo loan market] to take off in the near future,” Lazear said.
Lazear reiterated steps the White House is taking to mitigate the fallout in the subprime market, including bolstering the role of the Federal Housing Administration. Under a plan announced last month, more borrowers will be able to refinance into cheaper FHA-insured loans.
http://www.marketwatch.com/news/story/white-house-sees-improvements-jumbo/story.aspx?guid=%7BE8FFDA8A%2D286F%2D423B%2D9492%2DF370850F9E22%7D