Bits Bucket And Craigslist Finds For October 2, 2007
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The Housing Bubble
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We’re going to be just fine.
http://www.heraldtribune.com/article/20071002/BUSINESS/710020388
“The state’s economy pivots on weather
Florida is going to struggle with its housing market for the rest of this year and part of next but, barring an unforeseen disaster like a major hurricane or other catastrophe, the Sunshine State’s economy should not sag into recession, an up-and-coming economist from the University of Central Florida is predicting.
Snaith used the term “market karma” to describe sellers and buyers apparently changing places, but he does not expect the housing market to crash.
“If you are waiting until this occurs to buy, you will spend the rest of your life as a renter,” he said.”
“Snaith writes a quarterly report about the economy and he is a member of several national economic forecasting panels, including the Western Blue Chip Economic Forecast panel, the National Association of Business Economics Quarterly Outlook Survey Panel, the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, Bloomberg U.S. Economic Indicator Survey and USA Today Economic Survey Panel.”
Bought and paid for. This guy should be in public relations, not serious economic forecasting. I hope no one is making long range plans based on what this guy is saying.
“Bought and paid for. This guy should be in public relations, not serious economic forecasting. I hope no one is making long range plans based on what this guy is saying.”
You nailed it, Palmetto, a lot of things fishy in that article:
1. “Up-and-coming”= the guy is like 25 years old and has no real experience.
2. “barring an unforeseen disaster like a major hurricane or other catastrophe”- stupid question, doesn’t this bring billions of insurance money into the state and put the unemployed McMansion builders back to work?
3. “Market karma”- WTF? Does that mean that when you screw an FB out of lots of money for a house you are doomed to become an FB and the cycle goes on and on forever like the cycle of life?
This scatterbrain needs to be sent back to the frat party he crawled out of.
Well, over time insurance is supposed to come close to a zero sum game for the state. At some level, the ROI that the company gets from investing the payments until disaster should come close to paying the overhead and profits of the insurance company.
I’m convinced a hurricane would be the best thing for the Florida real-estate market.
Snaith on the other hand is an idiot. I can’t imagine why people listen to him and his all sunshine comments. If he’s an economist, he would know about the market conditions here. It’s possible that the hot and humid as hell Orlando weather has permanently melted his brain.
http://www.bus.ucf.edu/hitec/Snaith.htm
I looked up Snaith’s profile. He’s probably mid-30s but I can’t imagine that he has much credibility in the Orlando area with his b/s reports. He’s also making UCF look bad.
“Snaith” Is that even a real name? He sounds like something out of Slytherin in Harry Potter… a cross between a snake and a wraith… This Housing Bubble is really starting to warp reality!
“If you are waiting until this occurs to buy, you will spend the rest of your life as a renter,” he said.
Boy the University of Central Florida is sure putting out some deep thinkers. What do they get when they graduate a little manual filled with talking points?
Yes, and Snaith is a prime example of what is wrong with education in Florida. No wonder we have problems attracting business.
I think Snaith is just warming up the propaganda for you Florida guys.
Wasn’t he the guy originally from UOP (University of Pacific, Stockton, CA) who used to go around the Central Valley touting that there was no bubble (”more like a souffle”) and that “all is well”?
We’re now seeing how that prediction worked out.
Snaith is the “anti-Thornberg.”
Thread from a Sacramento blog on Snaid:
http://tinyurl.com/yntdyu
“Let’s talk about Snaith’s own home in Stockton, which he sold September 2006.”
“It was on the market over 6 months, initial asking price was $487,000. It was reduced several times for a final price of $399,000. Mr. Snaith purchased the home in May 2004 for $342,000, so he still profited. But he had to drop the asking price nearly 18% to get a sale in 2006.”
“I guess his Stockton “pumping frenzy” generated some personal rewards for him.”
“2007 sellers in Stockton have it quite a bit tougher. But he’s in Florida…”
“Snaith was and continues to be a moron. I am starting to wonder what e”con”O”missed” really do. It appears that part of the job description is cheerleader, because there sure isn’t anything in there about critical analysis. Snaith pumped up stockton into a frenzy so they would spend 100’s of millions on a failed downtown, then he bails and heads for flordia.”
Looks like he was dearly loved in the central valley. Seems like he’s now doing in Florida what he did in California, pull numbers out of thin air without any justification.
“barring an unforeseen disaster like a major hurricane or other catastrophe, the Sunshine State’s economy should not sag into recession”
While the 1926 Miami hurricane did put the nail in the 1920s Florida housing bubble, the latest bubble occurred with hurricanes crisscrossing the state. The underlying fundamentals appear to matter more than the impact of hurricanes. There are lots of good reasons for not wanting Florida to be hit by a major hurricane. However, given what’s happening now, might a major hurricane generate as much economic activity as it disrupts?
I also notice he had no mention of tourism in his economic forecast for the Florida. Housing has tanked. If the rest of the country goes into recession and travel declines tanking Florida tourism, how does Florida not end up in recession?
the words “market karma” fall from the lips of an economist..
When all else fails, get existential.
My Mortgage Broker friend says that there is a big tax cut coming soon and that she is going to do everything to hang on and not go under until the tax cut happens. That should fuel the market for buyers and at that time she will dump everything on the market and still make a quick profit. Sadly, most RE shills believe this.
So get ready for inventory to explode (it alread has but it’s about to get worse).
If they don’t cut taxes? It goes back to the banks. She said even the banks are lobbying for it and *it needs* to happen.
“If you are waiting until this occurs to buy, you will spend the rest of your life as a renter,” he said.”
I wonder how many of the dingleberries who write such things can afford to buy a house in the current market. It would be a lovely irony, if it were actually intentional as opposed to merely oblivious.
At current prices, renting forever is a big money saver. No threat there.
Agreed!
“If you are waiting until this occurs to buy, you will spend the rest of your life as a renter,” he said.”
Snaith is like the FL weather forecaster who insists there will not be a hurricane. If only he looked out the window and noticed those Palm Trees bowed over in the 72 mph coastal breeze, perhaps he would change his opinion.
Self employed…
http://www.usatoday.com/money/economy/housing/2007-10-01-self-employed-buyers_N.htm
If self employed people can’t get a loan, it’s probably because they’re cheating on their taxes. Are we supposed to feel sorry for them, too?
That’s a good point.
Step right up folks…. and here we have someone who doesn’t cheat on their taxes.
There’s also this.
“Brannan called Citi, which told him his income for the past two years wasn’t enough for the size of the loan. He says Citi refused to include profit distributions from his company that account for more than half his income.”
The problem is Brennan is acting like those income distributions will always be there. Citi is seeing that his income could possibly be cut in 1/2 in event of an economic downturn. If lenders are adjusting for an economic slowdown people w/o guaranteed income should be looked at more closely. Overtime for another labor class would be in the same boat.
I run a software company and take a salary of 45K with profit distributions of 45K because I bill at $60/hr (cheap). Profit distributions don’t get taxed with social security / medicade. By adjusting how we pay ourselves we can save almost $7,000 per year in taxes. If they can count on his salary they can count on the profit distributions. The law only requires that you pay yourself a “reasonable” salary, so you can’t get away with a $1 unless you are a C class corp (where you pay taxes twice)
Let me clarify, that is a total of $90K split between two methods of payment. Also, the “profit” distributions have to be “semi-random”. Yeah, we totally need Ron Paul to get rid of the IRS.
self employed individuals have been playing with that loophole since the beginning.
they should make the s-corp income subject to self employment tax just like sole proprietorship and partnership flow through income. nuff said.
If you are looking for sympathy from the W2 crowd which has to pay FICA (up to the FICA limit) and Medicare on our entire income, then you have come to the wrong place.
“If you are looking for sympathy from the W2 crowd which has to pay FICA (up to the FICA limit) and Medicare on our entire income, then you have come to the wrong place.”
Take YOUR class warfare somewhere else! Don’t forget we selfemployed pay both sides of FICA and Medicare!
As a W2, I pay both sides of FICA too. Part of it I see taken from my check, and the other half is taken out in the reduced amount my employer is willing to pay me becuase he has to pay the other half.
I agree that you should not be able to game the system by taking a portion of your income as salary and a portion as profit distribution. Profit distribution should be treated as income and subject to FICA and Medicare.
That isn’t class warefare. It is closing loopholes.
I know too many people who buy outrageous luxury items and then write them off on their bogus side business. This is why some folks love flat tax as well. I couldn’t agree more, close the loopholes.
“I know too many people who buy outrageous luxury items and then write them off on their bogus side business.”
Consumption tax would fix that right quick.
Deron, that would be fine too.
I mainly like the consumption tax for four reasons:
1) non-discrimination: foreign sourced goods are taxed the same as domestically produced
2) capital formation: savings not taxed, which would restore our pool of domestic capital rapidly
3) non-intrusive: since the basis of taxation changes from income to spending, there is no need for the government to know how much money you have or make
4) simplicity: fewer points of collection, which are already well equipped to handle it; no complex calculations for individual taxpayers
5) efficiency: frees employers from the burden of collecting and reporting tax on employee income; no such burden at all for individuals
Perfect example is the number of small business owners who bought huge SUVs and crew cab trucks in 2003/2004 because of the immediate depreciation. I’d also like a consumption tax, because I would save a ton and not buy ANYTHING that wasn’t necessary for survival.
BTW, where is Bill in Phoenix? I’m starting to forget whether he made $850,000 from software engineering or was it $900,000? I figured he’d have a comment on this topic.
Take YOUR class warfare somewhere else! Don’t forget we selfemployed pay both sides of FICA and Medicare!
Don’t forget that employers consider the part they pay for employees to be part of the cost of having an employee, and hence part of our “compensation package”.
And besides that, who said anything about class warfare? We are all middle class. Anyway, I have been a 1099 in tha past, so been there, done that.
Consumption tax would be the bomb for me, as I have this thing for living in “genteel poverty.”
They should also make sellers quote entire price, tax included, like they do in New York and Europe. I’m sick of this idiotic “plus tax” game.
Only problem is, now you would have Feds going after black market. Kinda like war on drugs … oh wait. Guess we wouldn’t notice a change after all.
Moman - I’m here in Maryland for a few months. I try my best to follow the rules in regard to my taxes. I
I’m against all taxation, however, except tariffs.
My posts are rare these days since my schedule is all changed due to my new consulting gig on the east coast.
Can someone explain to my why class warfare is a bad thing?
Mistake costs dishwasher $59,000
http://www.cnn.com/2007/US/09/27/immigrant.money/index.html
Two years ago, Zapeta was ready to return to Guatemala, so he carried a duffel bag filled with $59,000 — all the cash he had scrimped and saved over the years — to the Fort Lauderdale-Hollywood International Airport.
Now, according to Gershman, the Internal Revenue Service wants access to the donated cash to cover taxes on the donations and on the money Zapeta made as a dishwasher. Zapeta admits he never paid taxes.
“I am desperate,” Zapeta said. “I no longer feel good about this country.”
Well, that’s the idea, knucklehead.
But on another note, what this story illustrates is that, in this age of globalization, the income tax is effectively obsolete and unworkable. There will have to be a national sales tax, it is the only way to handle these situations. If the states were smart, they’d get out ahead of the curve and eliminate taxes in favor of higher sales taxes and be in a position to dictate to the Federal gov how much the gov gets, instead of the other way around.
of course, people will have to learn tricks then for evading the national sales tax … I can assure you from EU experience that illegal workers (even when they don’t speak the language) are extremely good at finding the right channels for making a deal without paying sales tax.
There will always be ways of evading taxes, but elimination of income tax will save the US enormously in terms of eliminating a vast, inefficient department with a leaner, more efficient one, not to mention all the time, paperwork and expense it would eliminate for citizens. Much simpler to “pay at the pump”, so to speak. Easier to enforce, since the burden will be on those who collect the tax and pay it on. When sales taxes become the chief means of gov income, you can bet enforcement will be better as well.
I went to a VAT (value added tax) seminar when I was working for the US subsidiary of a German multinational. They assured us that administering the VAT was just as difficult as administering an income tax. Anthing that is complex to administer can be evaded.
I think people are missing one big point here - the guy - who worked as a dishwasher - was able to save 60k over 10 years. Given his low wages, odds are he would have paid minimal taxes.
I think he should be viewed as a role model - work hard for 10 years to save up to buy a home -.
“They assured us that administering the VAT was just as difficult as administering an income tax. Anthing that is complex to administer can be evaded.”
Sales taxes are far less complex to administer than an income tax, if only for the reason that there are far fewer entities paying in larger sums of money. And culprits are easier to identify. Plus there would be more cooperation between govs with a sales tax.
And the bureaucracy was just as vast. Some other contry might have had another experience, but the seminar presenters were experts in European VAT systems in general.
Palmetto,
I agree that in theory a VAT should be less complex. I am just reporting that a bunch of experts in that system told me that in reality it isn’t. Fortunately, the information about VAT was pretty irrelevant to my practice. I never got sent to Germany to work in headquarters, so I don’t have any direct experience with it.
Think of it like entropy. Tax codes just get more and more complex. Most written legal codes do. Try reading Hammurabi someday. Punishments are pretty straightforward though. “He will be executed” comes up a lot.
By the way, income is not hard or complex to tax. Profits are hard to tax. The overwhelming majority of the complexity of the tax code comes from taxing businesses (and individuals in the case of capital gains) on their profit, instead of their income. The VAT should be quite bit like taxing a business on its income, so, like I said, I don’t remember why the experts told us the VAT was so hard, but that is what they said.
” Some other contry might have had another experience, but the seminar presenters were experts in European VAT systems in general.”
I’m talking about a simple sales tax in the US paid by US citizens, not German multinationals, VATs and European systems. Anything can be made complex. Indeed, it is the job of attorneys to do so.
Simple sales taxes are regressive beyond belief. Poor people use up their money buying stuff. Rich people don’t or, at least, don’t have to. And, it makes the tax all the more visible. You don’t see it once every two weeks in your paycheck, but every time you buy anything.
Look, a national sales tax would be great for me. I am a saver. But it is a non-starter in United States. Even when Bush was talking about tax simplification, he exempted the deduction for mortgage interest. Maintaining that deduction is the inverse of a sales tax or VAT. A sales tax would impose tax on the buyer when he purchases a house. Current system reduces other taxes when a purchaser buys a house. Can you imagine a politician (besides Ron Paul) advocating a policy that “discourages” house ownership?
One of the benefits of the VAT is that it is an integrated corporate/individual tax system. All the manufacturerers pay taxes on the amount of value they added to the product.
Imagine a piece of furniture that costs $100 and is made only of $40 worth of wood in a world with a VAT of 10%. The furniture maker pays $44 for the wood. The lumber yard pays the $4 to the government and the furniture maker keeps a record that it paid $4 of VAT. When I buy the furniture for $100, I pay $110 and the furniture maker pays $10-$4 = $6 to the government. Integrated system. And (allegedly) if the lumber yard fails to pay the $4 to the government, it will get caught when the furniture maker claims a credit for the $4 tax it paid on the wood.
Best ways (in my opinion) to simplify individual taxes? Get rid of the classifications - individual, married, head of household - and tax all investment income at the same rate as earned income. The latter especially would put vast swathes of lawyers out of business, though not all of them. Capital gains is measured by profit, not income, and, as noted above, measuring profits tends to be complex.
The problem with VAT systems is that they involve a bit of accounting to calculate the value added. In the US we exempt the supply chain from sales taxes, so that in the end only the consumer pays sales tax. In VAT countries, the entire suplly chain pays the VAT. They have to keep track of what the already paid when selling to the next link in the chain, and the only forward the value added part of the tax they collect to the gov’t (since they already paid the other part). While cumbersome, this insures that by the time the product or services reaches the end user that it has already been mostly taxed. So if Joe Tax Cheat buys a TV under the table, it will already have most of the VAT built in.
” if only for the reason that there are far fewer entities paying in larger sums of money. And culprits are easier to identify. ”
I could tell you some interesting stories about companies selling to one another in different EU member states, passing the goods on paper from company to company (all without paying VAT) until they are ‘lost’. While doing this they collect VAT writedowns from the government. By the time the tax office finds out what is happening the companies that are responsible have folded; usually they start again with another name at the other side of the street. It’s far more complicated to check than just some individuals paying income tax once a year …
And this is only one of many VAT tricks in Europe (very popular with expensive small stuff like cpu’s, memory modules etc.). With the efficiency of US interstate communications I have no doubt the same trick would work with national sales tax in the US
In Colorado: of course with sales taxes rather than VATs, you get ALOT of people registering as a small business on the side, and buying for personal consumption in the “sales tax free” line at the warehouse store. Then the tax people have to go over the books of all the small side businesses that people run and make sure that they actually SELL rather than consume everything that procure tax-free.
Look, income taxes COULD be simple, but every single clause in the tax code has a dedicated constituancy that would fight tooth and nail to preserve it’s little exemption.
Jim A: You are quite correct about small businesses abusing the sales tax exemption rule in the US.
Have said it before, will say it again. I always hated the mortgage-interest deduction for ideological reasons. I hated it so much, that I had to go into the mortgage lending business so that I would become a beneficiary. Oh yes, my mortgage income is taxed, but at least I have a feeling that my high-interest lending is supported by people’s emotional attachment to the tax deduction (which most of them don’t even take — their standard deduction covers them).
“They are treating me like a criminal when all I am is a working man,” he said.
You are in the country illegally, and you admit you never paid any taxes. Sorry to break this to you, but you *are* a criminal.
He should have had all his cash seized and immediately booted out of the country. Sadly, even illegal criminals have rights here.
He should have bought 60 gold coins and kept them in his pocket. Face value of $3000 and they would take up much less space than a duffel bag full of bills.
He should have had all his cash seized and immediately booted out of the country.
Absolutely true. Failure to file is a felony…add to that the forged docs, failure to pay ss taxes, and that he lived here, illegally for 10 years, using taxpayer funded, roads, schools, hospitals, libraries, bridges, and contributed not a nickle.
Seize the cash and deport him back to Guatemala…maybe he’ll tell his friends how mean the gringos are.
That’s what did happen - the money was taken away from him at the airport, and he was hustled back to Guatemala. From where he has to fight with the Tax Office to get some of it back….
Due to the news story, people have given him over $10,000 in donations, which, naturally, the Tax Office also has.
Bear in mind, he worked as a dishwasher for 10 years, at or below minimum wage - my bet is that in order to save up $6000 a year, he probably ate from the kitchen, lived in shifts with other workers in a 1 room apartment and didn’t call attention to himself by going to hospital or buying a car.
Yes, he was here illegally - make him pay tax on his wages and tips, give him the rest of it back, and disallow him from entering the US again. No matter how you swing it, he’s still owed some of that money.
By the time you factor in the exemptions and credits for low income people, he could be paying precious little tax.
Years of savings, that with even an HR Block filing he should keep every penny.
This is theft.
$5.50/hr with witholdings - I doubt if he legally had to file. He was screwed. Tyranny at its best, offering to settle with him provided he shut up. In the meantime give tax credits to the Fund Managers on Wall Street.
“In the meantime give tax credits to the Fund Managers on Wall Street.”
Exactly my point Hoz. I don’t know enough about the details of the guy at the airport but I was ridiculing the tax whining and sanctimonious pandering for the wealthy elite so often heard from wage earners. I still am unable to make sense of the phenomena.
Wow, it blows my mind how much vitriol is being directed at the dishwasher. None of you have expressed any anger towards the businesses that hired him.
Of course not WH. The business owners have a special place in the heart of wage earners these days.
You figure it out because I can’t.
Yes, he was here illegally - make him pay tax on his wages and tips, give him the rest of it back, and disallow him from entering the US again. No matter how you swing it, he’s still owed some of that money.
While I agree with you in principle, I think that this could be a major deterrent to future illegals.
I lived in Mexico City in the 70’s (as a legal alien). My dad owned an injection molding shop. He has a few guys who would disappear for a few months at a time. We eventually found out that these guys were going to the US to work. After a few months they would get caught and immediatelty be deported. This meant that any property that they might have (clothes, TV, etc.) would be lost as it got left behind. After a while they became discouraged and stopped coming to the US.
I can’t believe the amount of negativity directed towards this hard working individual. Sure he didn’t pay taxes, which I am sure wouldn’t have amounted to much given his close-to-minimum-wage job. But you’ve got to give him credit for hard work and frugality, both of which are in severe shortage in this country.
Also people, before you dump on him, look into your respective family trees. I am sure you will find one or two of your ancestors who did not play by the book. Don’t tell me that “they all entered the US legally” without considering the fact that the US had effectively “whites only” immigration for a long time.
So, cut this man some slack. Let the IRS deduct his back taxes with penalty, and let him have the rest.
” Don’t tell me that “they all entered the US legally” without considering the fact that the US had effectively “whites only” immigration for a long time.”
They all entered the country legally, before the country had an immigration policy. Once side of the family got here before there was a country. Some of the families who built this country have been working on it for much more than 200 years. And there’s a lot of us.
This is a law-abiding country. Cutting criminals some slack because you see some resemblance in this illegals’ actions and your own families’ is not reasonable…it’s just cheap sentimentality.
Spike66
Law abiding country, my @ss. This administration has turned a blind eye to employers hiring illegals. Where are the fines and sanctions for hiring illegals? Businesses have pretty much operated with impunity with regards to hiring illegals. Nothing happens to them, zip, nada, nothin’.The businesses that hired the dishwasher and paid him in cash under the table commited a FELONY under IRS code. Let’s put THEM in jail, should be relatively easy, especially since the dishwasher saved his pay stubs.
Maybe he can do an email spam offensive from Guatemala, similar to the Nigerian “409″ scams, but only this time there is some truth to it.
“I can get the money out of the USA but it will take time and money for the lawyers to work things out in the courts. Unfortunately, I do not have the money to do this, and the prospects of working to save over and above the cost of living in a banana republic are not very good. “….
Got 10% down?
Of course we should feel sorry for them. Don’t you know these self employed folks deserve special treatment for their business ethics and rugged individualism? /sarcasm off.
And if they’re lying to the IRS which has many ways to threaten your money and your liberty, what are the chances that they’ll lie on a mere mortgage application? Pretty good IMHO.
Back in the day (25 years ago or so), no-doc loans weren’t used by poor people pretending to be rich (as is the case today.) They were used by RICH people pretending to be poor!
You would actually put down an EXTRA LARGE downpayment (like 30%) and you can get a mortgage, no questions asked. (Though I believe, back in the day when your local bank carried the mortgage, you may have privately shown the loan officer your Lichtenstein bank account statement).
I believe that, even today, if you had 30% down you could still get a decent mortgage.
The problem is getting one with little down!
and good fortune snatches yet another from the jaws of death…
Stock market futures are up again this morning. It’s never been a better time to buy. Citi and UBS seem to be particularly attractive after their horrendous announcements yesterday pushed their shares higher. I would ask, “what color is the sky on Wall Street?” but I know the answer since I live there. Maybe my retinas are failing me.
“Stock market futures are up again this morning. It’s never been a better time to buy. Citi and UBS seem to be particularly attractive after their horrendous announcements yesterday pushed their shares higher.”
I watched Bloomberg Asia and CNBC World through most of the night. One after one, the European and Asian “analysts” agreed that there would be a slowdown, but no recession in the US, that other CBs would cut rates if Bendover Ben kept cutting rates, and that the US market is not as important as it was. One analyst said that Asia now consumes 9% of Europe’s exports, and the US only 6%, so a slowdown in the US would have less impact than a slowdown in Asia.
The analysts balked when the American anchor suggested that “the worst of the credit crunch is behind us” but indicated that it was a good thing that the situation is less opaque than before. Most of them are invested in energy, technology, and commodities.
A bit of a repost, but with more data:
Of the 12 easings of the Fed since 1945, the S&P has increased in 11 of them. The avg increase over that period is 15% and the average duration is 13 months.
Many news sources I see this morning announcing the worst of the credit crisis is behind us. An online local is spinning the Dems are behind all the bad economic news, anyway and now have egg on their faces.
The housing problem should be almost over too.
What are your plans, Ben, now that we’ll no longer be needing the blog?
This is totally beyond me. There are two years of resets ahead of us. How can it possibly be “behind us”? We can’t be the only ones who sees this.
Its not just the resets. Look at the commercial paper market. It hasn’t suddenly sprung back to live. Oh… $100B of the “bad paper” will get renewed. Fine… Now what exactly happens to the $400B of paper that won’t get renewed in the next ~ 60 days?
Ugh… We are in the eye of the storm and these idiots are going outside claiming the hurricane is over…
Got popcorn?
Neil
Neil,
I think your eye of the storm analogy is correct..the big resets begin this month. The Fed will do what the Fed chooses to do…but the housing bust will roll right along. Ain’t no stopping her.
I’m thinking of Winnie-ther-Pooh: His head has just been dragged down the first step with a clunk. There’s a whole flight of stairs to go. It’s not even close to over yet.
Plus, the valuation of all those CDOs and MBS need to be clarified before it is over. I think it will be interesting to see how the market plays it out.
The ones who are saying the worst is behind us are the same ones who said it would never be a problem in the first place. Were they lying then or are they lying now, and in either case, why should I ever believe them again?
Yep. People see what they want to see. I spoke to an old friend the other night. He is in to a lot of the right-wing hype but we are old buddies so I deal with it. Bu$h is doing a great job. The problems are all because of the Democrats. You can’t learn much of anything that has value from a partisan.
I agree. Which is why it is most prudent to ignore anything written in the NY Times.
**rolls her eyes**
Correct. Their pro-establishment/pro-status quo bias is appalling. Google for information about their coverage of the genocide in east Timor byt the Indonesians back in the 70s for proof.
Since the worst is behind us Ben Bernanke can jack rates back to 5.25% and then raise the market another 50 basis point to make up for the cut.
Tom -
I think you’ve now proven your qualifications to become the next Fed Chair!
So here we are…dealing with a market that looks for news that’s bad enough to make a case for another cut - but not so bad that things get down ‘n dirty with the big “R” word. That kind of behavior is hardly confidence building.
Yes. This usually means desperation has set by TPTB.
Paul Krugman writes about Enron’s Second Coming, in the persona of Mozilo and Countrywide. Interesting read.
http://www.truthout.org/docs_2006/100107K.shtml
” But Countrywide made more questionable loans than anyone else - and its postbubble behavior does stand out. As Ms. Morgenson reported in yesterday’s Times, Countrywide seems peculiarly unwilling to work out deals that might let borrowers hold on to their homes - even when such a deal, by avoiding the costs of foreclosure, would actually work to the benefit of both sides.
Why block mutually beneficial deals? As the article points out, Countrywide can make money from the fees it charges on foreclosures, while the losses from mortgages that could have been saved, but weren’t, are borne by others.”
Wow, I had no idea. Now, wouldn’t those bearing the actual losses have a say in whether or not a deal should be worked out with the borrower?
wouldn’t those bearing the actual losses have a say in whether or not a deal should be worked out
as i understand it, once mortgages are sold and repackaged a new set of restrictions and limitations appear ..
It aint like me, a share holder of some MBS that might include a tiny percentage of J6Pack’s failing mortgage can tell Countrywide to do a deal.
Thanks, joey. I keep forgetting about the slicing, dicing and packaging of these “instruments” would affect the foreclosure. Wow. The servicer is in the driver’s seat. Just like the hedge fund managers. It’s all about the fees and commissions.
Palmetto, exactly. The fox (CFC) is not only guarding the hen house (RMBS), it is completely in charge of the whole farm.
All Time Highs
http://www.stockmania.com/2007_10_02_archive.html
You nailed it!
In Atlanta there are several freeway billboards operated by GMAC Realty. The billboards show the current number of homes for sale on the MLS. That figure has gone from the 75,000 area to about 110,000. I always thought it was a little odd for a realtor to show supply climbing.
Well yesterday as I was driving on I-75 the billboard didn’t have the number anymore. All it said was BUY NOW!!
I’m not sure if this is a temporary thing or what, but wow talk about getting desperate.
That supply is also available online at metrobrokers.com where the number 109,111 is still showing this morning,
Next the sign will be like McDonalds, except it will say “Billions $ and Billions $ not sold”
Isn’t it so funny how they try to hide the inventory numbers?
All you have to do is look out your car window to see all the FOR SALE signs in front of every other house.
Or are they the preferred lawn ornament of the nouveau riche?
Well yesterday as I was driving on I-75 the billboard didn’t have the number anymore. All it said was BUY NOW!!
I love this. Like if buying a house was an impulse purchase along the lines of a new TV or PC. As if I’m going to arrive home from work and tell my wife that we should go out and buy a second house.
Off a tangent, a relative of mine who lives in North Carolina (its different there, he was told) has had his house on the market for about 3 months with only two showings (none in the past 2 months).
Plenty of homes on the market for over a year here. Your friends may have a long row to hoe.
It should read “BUY NOW so we can get this number back under 6 figures.”
Oct. 2 (Bloomberg) — As far as the world’s biggest bond investors are concerned, the Federal Reserve is failing to restore confidence in the U.S. credit markets.
…
“The reality is the fundamentals haven’t gotten any better, and, if anything, they’ve gotten worse,” said Mark Kiesel, an executive vice president at Newport Beach, California-based Pimco who oversees $85 billion in corporate bonds.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad4W7q15.lds&refer=home
Something extra strange happened this morning. We opened the paper and saw that Wachovia is offering a 6-month CD at 5.41%. They have always offered terrible rates BEFORE the rate cut. This makes no sense unless they are desperate for deposits - right? Weird, weird, weird!
“Stock market futures are up again this morning. It’s never been a better time to buy. Citi and UBS seem to be particularly attractive after their horrendous announcements yesterday pushed their shares higher.”
Why borrow from depositors at 5.41% when they can get money from the discount window at 4.75%?
because you need colateral at the discount window and for some reason depositors don’t demand collateral from the bank when they lend their money.
The FDIC insurance subsitutes for the collateral.
I mentioned this before, though I don’t think anybody thought anything of it… Sovereign bank was offering 5.25% on a 9 month CD with no minimum deposit.
The local branch actually called me to tell me about this offer (first time I have ever gotten a call in 4 years). I guessed at the time that mortgages/helocs were slowing and deposits non-existent so they were desperate for cash… they are notorious for offering horrible rates on savings/CD’s
SOV has some big numbers on the Balance Sheet, I have calculated that as a $10 stock at best.
The insiders have begun to unload, and that tells me, well…you know what that means. I know a board member personally, and cannot get any data on the sale to the Puerto Rico Bank,,,Santander I think owns a quarter of the bank.
Additionally, I believe that a certain Retirement fund in Cali has significant holding in the Bank. From the looks of it, the insiders are locked in around 20, but want 22 to unload….
This bank did not go Sub-Prime, and now its gonna hurt em. As bad or worse than the sub-prime slime bankers.
Earnings call on the 18th. They wont make a peep.
What’s your zip? I’m trying to verify on Wachovia’s Web site. Do you have any links? This is indeed interesting. I know that when CFC was going under duress, they were also offering relatively high interest on short term CDs.
I don’t have any special link. Our zip is 33777 and the ad is on page 3A of the St. Pete Times.
Woo Hoo I just love Bad News. This means the FED is more likely to cut rates. I’m gonna plow all my life savings into the stock market.
PLEASE PLEASE PLEASE give us another rate cut. I need to consolidate all my student loan debt, credit cards, mortgage all into one low bill. This is good for the economy. Then I will have all that room on my credit card for that vacation to England ($2
Even e-trade just sent me junk mail offering a 5.05% APY savings account (not even a CD)! Are they financially desperate, or are they merely betting that the Fed is going to raise rates back up?
Any company that owns a bank today (GMAC, CFC, etc.) is going to try to get as much in deposits as they can to keep the lending machine going. None of the companies can sell loans off in the frozen CMBS market, so this is a way to keep business flowing. The more deposits = the more balance sheet lending available. One slight difference though: Since they are keeping the loans, you will need 20% down, $417.000 or less, 2 years employment history w W-2’s to back it up, and six months living expenses in the bank for reserves! When they have to keep the loan, it is a whole new set of rules!!
Bingo! No more cheap foreign cash to lend!
As I recall they’ve had that deal for a while…I first saw it early this summer.
same thing in Europe, after many years of cheating their savers banks are finally getting a bit more competitive and creative with savings accounts and term deposits. We are talking about tiny 0.1% increases but still … I heard that one Spanish bank already offers 6.5% on internet savings accounts (one of the banks that is rumoured to be in trouble …), while in Netherlands with the same euro currency the highest rate is around 3.6%. Of course there are teaser rates, up to 18%, but those are not rates you can actually use (but I guess they get some attention).
Also some stock brokers are now finally offering rates on unused money in a brokerage account (until recently you didn’t receive anything for it, so it was free money for them).
–
They have to comptete with Countrywide and E*Trade of the world.
Jas
Thanks for this info KayLaw. Fits right in with my personal need to spread some funds around into FDIC-insured institutions. Doesn’t quite match the yield on AUD bonds, but beats my local bank’s “jumbo” CD rate by a full percentage point.
How different would a banker’s life be if it were not for the ECB?Ambrose Evans Pritchard makes some good points in this Telegraph article:
British lenders are shunning the Bank of England and turning instead to the European Central Bank on a massive scale, taking advantage of much lower interest rates and guaranteed anonymity to weather the credit crunch.
…
“The money markets may look as if they are functioning again in Britain, but in reality they are not,” he said. Mr Redeker believes the key motive in going to Frankfurt is the certainty of secrecy, rather than the lower interest rate.
http://tinyurl.com/2ttpcx
Here is a letter to the editor that won’t make it into print.
WARNING: Contains Tin Foil!
AN OPEN LETTER TO THE EDITOR OF THE NEW YORK TIMES
September 30, 2007
Ladies and Gentlemen:
Your editorial “Things Go Better with Rules” proposes that the solution to damage done by our deflating housing bubble is more regulation. Nothing could be further from the truth.
A series of real estate market “pump and dumps” characterized by significant levels of public and private fraud have been used to centralize economic and political power over recent decades. Each cycle is used to justify more formal rules, which then facilitate the next cycle of centralization. Indeed the current housing bubble was made possible by corrupt enforcement to ensure that laws were not followed, honest officials were terrorized out of office and community controlled transparency of housing and mortgage market was suppressed. (1)
The most powerful reform resulting from the previous real estate bubble in the 1980’s was a law requiring the US government — which directly and indirectly guarantees a significant portion of real estate lending — to publish audited financial statements. To date, the US government has not complied, and has reported approximately $4 trillion (approximately $14,000 per resident) of undocumentable adjustments to balance its books, including $59 billion missing from our federal housing regulator, the Department of Housing and Urban Development (HUD). (2)
The lawlessness was so significant that the chief of staff to Senator Kit Bond, chair of the subcommittee overseeing appropriations to HUD, described the department to me in 2000 as “being run as a criminal enterprise.”
Crime that pays is crime that stays. We have all the laws we need to identify who has stolen. If we want to stop housing bubbles, then identify who made money fraudulently and get it back — starting at HUD and the US Treasury. Remove the individuals responsible from leadership positions and philanthropic social acceptability. Stop ongoing back door bailouts through Treasury and Fed market actions and lending to the perpetrators on Wall Street. Address the fundamental failure of internal controls resulting from allowing private banks to create our currency, control federal accounts as federal depositor, manage financial and precious metals markets as manager of the Exchange Stabilization Fund and access and hoard the rich flow of inside information from these roles.
If we are not willing to stop the ongoing stealing, recapture ill-gotten gains and disgrace the stealers, creating more rules and regulations to further embroil honest civil servants and citizens will do more harm and little good.
Given the sources of capital flowing into New York Times Company stock and securities, the networks represented by your board members and the advertising revenues flowing into Times coffers that generates the returns required by such investors (3), I assume your leadership already understands this.
Regards,
Catherine Austin Fitts
Solari, Inc
Former Assistant Secretary of Housing and Urban Development, Bush I
Former President, Hamilton Securities Group, lead Financial Advisor, Federal Housing Administration
Endnotes:
(1) See Dillon, Read & Co. Inc. & the Aristocracy of Prison Profits at http://www.dunwalke.com
(2) See Missing Money at http://www.solari.com/learn/articles_missingmoney.htm
(3) New York Times Company, Investors Section at http://www.nytco.com/investors/financials/annual_reports.html
I missed the tin foil part.
hehe, I guess I figured when she alluded to the price managing of financials and gold it would offend the “brads” of the group that read here.
Catherine Austin Fitts is my heroine. Brilliant woman, with courage and integrity absent from guvmint as usual. I read her, salute her, and work to encourage folk to spend a couple of their precious tube hours reading her site. Thanks auger……
It’s different here in Brooklyn…
“Declining prices, rising inventory and increasing foreclosure rates may have hobbled many of the nation’s housing markets, but they have not yet reached Manhattan and brownstone Brooklyn. The people who closed on co-ops, condominiums and town houses there paid more than ever, on average, for real estate in the third quarter of this year.”
http://www.nytimes.com/2007/10/02/nyregion/02estate.html?_r=1&ref=nyregion&oref=slogin
Off in the distance, I can see the bust. It’s getting closer and closer. But everyone seems to believe it will never get here.
Can someone PLEASE explain to me why commercial building and some retail is still going on like gangbusters?? I posted this question before and didn’t really get much. One can easily argue that commercial building is still booming in Detroit, despite all the other economic problems going on.
Plus, a new Nordstroms opened up here and the place was practically overrun with shoppers. Makes me feel like I’m missing something.
Thanks in advance.
The United States always Goes Up
Just like people who go to college when their job dries up… people feel they have to do something when faced with a challenge. When you only have savings for a rainy 10 minutes [not a full rainy day] you take what you can get.
Commercial RE - look at the stock market. People are LENDING money to corporations at record rates. Print your own stock, take it to NYSE, and you are printing MONEY!!
People may be buying US stocks at record rates (I doubt it, based on volume), but few are lending moneys to US corporations - period. The commercial paper market which is the end lender has and is seized up. Ergo the Fed infusion to keep banks solvent, until some mopes wish to take the loans off the banks hands.
O.T., but thanks for your comments yesterday, Hoz, in re: my puzzlement over the stock mkt. I always appreciate your remarks and Prof Bear’s.
Don’t ask me, I’m still trying to figure out why the market keeps going up.
Maybe the people borrowing money against their car titles (newest get money now! ad I’ve seen on TV) are investing it in the stock market?
So now they are going to lose the Escalade/Hummer as well?
People with Escalades or Hummers probably don’t have a title to borrow against. The leasing company has the title.
I mean the people who bought them with HELOCS.
i wouldn’t expect things to happen quickly.
The real estate market still uses Pony Express to spread the word on what’s happening.. only with a crippled horse.. it is that slow and inefficient. It affects other markets only in a long delayed reaction… think longterm.
This mess is gonna take years to unwind with a lot of apparent anomalies and paradoxes along the way… except for the occasional blip of weirdness, you may as well watch the grass grow..
I agree. And as a result markets have time to adjust on the fly. I doubt that we will see any crash just slow organized write-offs (including the bending of regulations to make it even slower) over many years. Stay invested in the stock market. It will have minor ups and downs but over the next 5 years the trend will be up. Frankly, I’m tired of fighting it.
Meet my little computer friend, named HAL
Land prices are falling faster than commercial building prices. People that own land are rushing to get buildings up that can be sold before building prices catch up to falling land prices.
Let’s say you borrowed $100 million to buy a chunk of land… Now that land is worth $60 million. Are you going to eat the $40 million loss? Well, for $100 million more you can toss up a building, and the current market price of that building and land is $220 million. So, you borrow another $100 million, throw up a builiding as fast as possible and hope you can sell the building for at least $200 million.
If you can, you break even or profit. If you can’t… well, writing off $80 million in bankruptcy really isn’t that much worse for you than writing off $40 million. Worse for the lender, but not you.
Will there be yet another Trump bankruptcy?
http://www.boston.com/realestate/news/blogs/renow/2007/10/so_few_can_buy.html#more
So Few Can Buy, Won’t Prices Go Down?
By Rona Fischman
October 1, 2007 | 12:56 PM
My comment: “When it is a person’s time in life to buy, and they can afford to, they do.”
elicited this response from my reader, Dan:
…. most people cannot afford to buy. The statistics are very clear on this matter. The median household income in Massachusetts is $52,354 (2005 statistics). According to the Massachusetts Association of Realtors, the median cost of a home in August 2007 was $357,000. That means the median home costs SEVEN times the median income.
That is not even remotely affordable. Homes are considered affordable when home prices are three times the median income. So, either incomes are going to have to rise dramatically or home prices will have to drop dramatically. The latter seems far more likely to me.
Dan is entirely right that when median housing prices passed median income level, demand should have slowed. However, three or four years ago when median price passed median affordability, demand did not decline; it increased. I have been scratching my head over the “why” of this for years now. Here are some of the reasons: people really want to live here and will do extraordinary things to make that so. Some have inheritance and gift money. Some drew money from savings or retirement. Many drew money out of the stock market just before or during the crash of the “Dot.com” market.
Median housing purchase cost is not somehow capped at median income levels. We are in a free market that has experienced high demand. The disparity between the median income and the price of housing is the sign of the decline of the American dream of home ownership here. I bemoan that loss because it is bad for our communities. However, for three or four years prices soared well above the point of equilibrium. Only recently, demand began to falter. There are roughly 6.5 million people in Massachusetts; even if a quarter of them are able to buy and want to, we still have a market.
I’m that Dan. It’s amazing that such a willfully ignorant person is allowed to contribute her thoughts on the website of a supposedly respected newspaper, the Boston Globe.
My response to her is in the comments.
I like how the bulls are ignoring how RE is dropping (Case-Shiller). Ignore it… the price drops will go away.
In October through February? I don’t think so.
Heck, nor in 2008… 2009. After then, we have time to debate the bottom. I predict a sharp drop, so a bottom after two my “cycles” of foreclosures. Others think we’re in for three or four more cycles of foreclosures. As I said, let’s debate in the Fall of 2009. We need more data! 
Got popcorn?
Neil
Neil,
You predict a sharp drop? In Housing prices?
When? Where? With all due respect this seems to be dragging on and on and on. Especially in SoCal where there is a lot of money, and also in AZ where a lot of SoCal money ended up at the beginning of this housing bubble.
Lip
“dragging on and on and on”
That’s what housing downturns do - they take time.
Which is why I’ve been saying for two years now that the bottom in the Alt-A Bay Area will come in 2012. In the early/mid 90’s in most of California’s formerly hot markets, houses went down fastest at a couple percent for quarter after quarter after quarter (the declining period was from 1990 to 1996 in many areas).
I can’t say how it will be this time, but I’m not expecting it to be too much different.
The next market peak? Sometime well after 2012.
And in Japan’s case starting in 1990, it was 15 years before house prices starting rising again.
To be honest I’m not sure I’d agree.
This time it is different - the reason being that until August the ponzi scheme was still in full swing - sure sales were down - but you could still get any suicide financing you wanted as long as the buyer was dumb enough to sign the paper.
It’s only been this last month where the stupid credit has really dried up - expect the crash to accelerate from this point on at a pace never seen before as people who’s mortgage’s adjustment suddenly find they simply can’t refinance.
Foreclosures are going to really start racking up early next year - spring is going to be a disaster.
i am already starting to see some acceleration in the downturn due to short sales. granted, i track a very small market, simi valley, ca, but 18 months ago, there was nothing under 500K for a single family home.
over the last 4-6 months, the bottom of the market has crept down toward 420K.
just today, i saw a listed short sale for 350K. 3/2, 1300 sq ft. not a great place, but it will do some damage to the comps for that area.
I remember the 90’s downturn in San Diego. At first nothing was moving but prices stayed stubborn for a few years. Then fundamentals (lower wages than LA, mass unemployement due to the aerospace collapse) asserted their supremacy and the floodgates opened and prices collapsed.
Price per sq ft in SoCal has dropped significantly. The medians are distorted by fewer low end homes selling. Further distortion is introduced by MUCH larger incentives offered than a year or two ago. Those reduce the actual price but not the reported price.
Great article Dan -
It’s amazing (I mean absolutely amazing) to note how many expert economist could not notice the disparity between median income and median house prices.
Simply put, it appears Ms. Fischman is arguing for the “permanently high plateau”.
In any case, here’s an appropriate reply in the “Comments” at that link:
“Dave Rensberger said:
Isn’t the obvious answer to this ‘mystery’ that interest rates were falling and people were borrowing far more money than they could could really afford to because they were convinced that they were going to make 20-30% annual gains forever? It doesn’t seem that hard (for me anyway) to see why this type of behavior resulted in prices becoming irrationally out of line with incomes.
By ‘do extraordinary things to make that so’, do you mean taking out a ARM for 12x your annual income?
posted October 1, 2007 5:20 PM”
And speaking of “expert economists” - we all know how that can work:
“I just don’t think we have what it takes to prick the bubble… I don’t think prices are going to fall, and I don’t think they’re even going to be flat.”
Diane C. Swonk, chief economist at Mesirow Financial in Chicago
New York Times, “Trading Places: Real Estate Instead of Dot-Coms”, 3/25/05
Behavior in the housing market changed as RE became more of a financial asset (speculation)and less of an economic one (intrinsic shelter value). If you look at financial markets, on the surface the supply-demand equation looks perverse. As prices go up, demand also goes up - which is precisely the opposite of what economic theory would tell us.
But classical supply-demand models reassert themselves if you look at what are the actual “goods” demanded in a financial market. I would argue that what is being bought and sold aren’t the assets themselves - whether RE, equity or debt paper. What is being bought is the expected return on those assets. The expected return is remarkably similar to the trend of recent past returns, except where a trend change is already glaringly obvious. My first boss taught me a very valuable lesson: “There’s nothing more dangerous than an analyst with a ruler.”
That is why demand for financial assets is always greatest at the top and lowest at the bottom - it’s base on expectations, not fundamental valuation. This is the one and only reason why momentum investing works. It’s also why we have bubbles and busts. Housing became just another financial asset in this bubble so fuandamental valuation metrics were suspended for a time. Now that it’s going back to being primarily valued as shelter, the traditional measures will return.
As prices go up, demand also goes up - which is precisely the opposite of what economic theory would tell us.
This is a key point that Benoit Mandelbrot has made, which is often ignored. Basically, when prices swing wildly, they really go out there. Thus, the scale of the 1987 crash is not a “six sigma” event because prices are not distributed normally.
Interesting stuff.
My reply to Ms. Fischman:
Are you serious? You don’t understand why prices went so far out of line with incomes over the last few years? Simple - cheap, easy money. Hand half a million dollars to a financially illiterate consumer with a credit score under 600, no down and an annual household income of $50,000 and of course he will go out and spend every dime regardless of ability to repay the loan or not. Of course people will continue to buy - even in Japan where prices fell for 15 years there were still transactions. But to assume this minuscule demand, compared to the mania of the last few years, will keep these prices so out of whack with underlying incomes and rents, is ridiculous.
I have no doubts you are not alarmed at the decline we are seeing. But the people starting to lose their homes in huge numbers are. My sole hope is that they will be able at some point to sue realtors for giving financial advice without a license, something no investment advisor can do. Keep telling your clients that real estate is a great deal and that at most they will only see small temporary declines. I am sure the commission you receive is well worth the lives that get destroyed by the pseudo economic science you spin. And if you think I sound angry, maybe it’s because of the four families I’ve already seen go through foreclosure - three of whom had realtors swear that real estate only goes up. It is sad that this profession is now below used car salesman on the trust scale.
Sandi Bearra
Darn, an edit blog. Doubt my post will go through. Oh well.
http://biz.yahoo.com/ap/071002/apple_iphone_lawsuit.html?.v=2
Woman Sues Over Apple’s iPhone Price Cut
Tuesday October 2, 8:27 am ET
Incensed Over iPhone’s $200 Price Cut, Woman Sues Apple for $1M
SAN JOSE, Calif. (AP) — A New York woman is so angry at Apple Inc. for lopping $200 off the price of the iPhone that she’s filed a lawsuit seeking $1 million in damages.
Dongmei Li of Queens, N.Y., claimed the company violated price discrimination laws when it slashed the price of the 8-gigabyte iPhone by a third, from $599 to $399, within two months of the gadget’s June debut.
So she lost 200 bucks, where does the million come from? Is this from all the stress of losing money.Ridiculous folks, what a loser.
Does that mean home buyers can sue the seller for TRILLIONS in damages because they “dropped” the price on them by $200,000 after closing?
$1 million in damages, eh? How many iPhones did Ms. Li purchase for resale? And does Ms. Li have one of those business licenses that are so popular with resellers? Is she collecting sales tax and paying it to the state?
Ooo, perfect.
This case kind of reminds me of the million dollar dry cleaning lawsuit. Whatta wanker.
Gee….what about all the peeps that bought a plasma TV for over 10k…now they are going for less than 2k or 3k. Major class action there! ha
NEW YORK, Oct 2 (Reuters) - The U.S. Federal Reserve said on Tuesday it was undertaking an overnight repurchase agreement to add temporary reserves to the banking system.
Federal funds traded in the market steady at 4.875 percent after the announcement, above the 4.75 percent target rate the Fed sets.
********************
saturation
NEW YORK, Oct 2 (Reuters) - The U.S. Federal Reserve on Tuesday said it added $5.5 billion of temporary reserves to the banking system through an overnight repurchase agreement.
Federal funds traded in the market steady at 4.875 percent after the operation amount was announced, above the 4.75 percent target rate the Fed sets.
The Fed accepted as collateral $1.7 billion of agency debt and $3.8 billion of mortgage backed securities. A total of $67.55 billion in bids were submitted for the operation
************************
confidence is surely returning. C’mon guys I thought the window was open for bidness.
How much longer can this game continue to be played?
Holy s__t! NYC facing a massive water bill hike became many residents are not paying their water bills.
http://www.nypost.com/seven/10022007/news/regionalnews/good_guh__apple_eyes_big_h2o_h.htm
$600 avg water bills?? I pay $60 every TWO months and that includes TRASH!
“Holy s__t! NYC facing a massive water bill hike became many residents are not paying their water bills.”
This is something I know about. In summary, for the last hundred years NYC has gotten its water entirely by gravity from the Catskill Mountains with no treatment, except a little chlorine. So all we had to pay for was about 5,000 civil service salaries and some pipe replacements. In the last few years, the City has started construction on two filtration plants- one at $1.2 billion, and one at $800 million. Plus, all the water (more than a billion gallons a day) will have to be pumped- this is a significant cost. Divide that by a million households over 30 years, and it starts to add up.
DP
Yes it does add up. Due to the filtration rule back in the early 1990’s I believe. DP, You forgot to mention the $3+billion Del/Cat UV project. Are you in the biz? I’m in the eng & construction side.
“Yes it does add up. Due to the filtration rule back in the early 1990’s I believe. DP, You forgot to mention the $3+billion Del/Cat UV project. Are you in the biz? I’m in the eng & construction side.”
I am too. I work for the firm that designed the Croton plant, I used to work for the firm that designed the CAT/DEL plant, and before that I worked for DEP. Last I saw they were carrying CAT/DEL at less than $1B. They are asking the engineers to submit certified cost estimates now with “the goal of matching the second low bidder’s price”. They must be kidding!
Haha… we probably know each other. Too funny.
Officials said the shortfall was due entirely to “not being able to collect” from deadbeat property owners, not new spending needs.
Records show that the number of customers delinquent for 30 or more days jumped 1 percent in September, a significant figure considering the city has made a concerted effort for more than two years to collect past-due accounts. As of September, the unpaid pile stood at $561 million. “
“Some insiders speculated that the Water Board was floating the possibility of a huge rate increase to pressure legislators to pass a long-stalled bill permitting the city to sell “stand alone” liens when homeowners default on their water bills.”
They should just do there what the water nazis do here: turn your water off and put a pad lock on the shut off valve. If you want it turned back on, you have to go into the water nazi office, pay your arrearages and a security deposit in cash.
Only problem: this is NYC. They will do as the Parisiens do, and p-ss in the streets.
Only problem: NY tort law will mean that anyone “injured” by the p-ssing in the streets will descent upon the city government like vultures upon carrion. (Think “End of Evangelion”.)
I think somebody should tell Snaith, that the crash has already started, especially so in Florida.
i guess people really are clueless.
Lip: Prices are already dropping in So Cal and Arizona, perhaps you have missed all the news stories discussing that.
You can lead a horse to water…
You can lead a person to knowledge, but you can’t make him think.
I know about the prices coming down, I was commenting on how long this seems to be dragging on and on. It’s taking forever and I don’t know that prices are going to drop off a cliff, like Neil said. I see more of a gradual slope, steep, but not a cliff.
In essence, I think this process could take decades to correct itself and the more government helps, the longer it’s going to take.
Please forgive me I didn’t mean to question Neil, I’m frustrated because I want this thing to get going.
Existing home sales numbers just out on CNBC…. VERY BAD. (uuuuh… I mean GOOD, if you’re a bear))
Commentary on CNBC: “This has got to be the bottom” why? “Because we can’t imagine things can get much worse.”
http://tinyurl.com/34pcz3
‘The volume of activity we’re seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can’t because of the credit crunch.’
— Lawrence Yun, National Association of Realtors
… almost as if they’re not really creditworthy.
Incredibly tortured language.
Funny how that isn’t a problem if you pay in CASH.
“Commentary on CNBC: “This has got to be the bottom” why? “Because we can’t imagine things can get much worse.” ”
The Trend is Your Friend!
Not sure why their lack of imagination and ignorance of history has any predictive value.
$52000 median income in MA. That sounds about right. Given that the Northeastern states are economically the strongest in the USA, if the NE gets pummelled, I’d hate to see your weirder states in this RE meltdown.
The midwest did not have the appreciation in house prices like the coastlines did. What you can buy with $200,000 in the mid west may cost 3 to 4 times that on the coast. MA income is probably 25% higher than midwest but housing prices are quit higher as a percentage to income.
http://www.usdoj.gov/ust/eo/bapcpa/20070201/bci_data/median_income_table.htm
Define ‘wierder states’, if you would.
A 12 pack of beer, a lot of sun and a fishing rod. Wlecome to Wisconsin.
Any state that does not house a college that competes in the “Big Ten” athletic conference. The rest of ‘Merica is just a bunch of oddballs, eggheads, rednecks, pansies, illegals, scammers, black-helicopter-enthusiasts, blog enthusiasts (uh-oh), Art Bell listeners, Rush listeners, Oberman viewers, NPR supporters, realtors, smug bastards, Dateline To-Catch-a-Predator “stars”, and, even worse, Californians or Floridians.
[tongue firmly in cheek, I promise. an, yes, I live in one of the weirder states, but I think it's just medium-weird]
I almost puked I was laughing so hard. Good one.
Dang zeropointzero,
I believe you caught the left, right and center
Pending Home Sales from Bloomberg:
The National Association of Realtors’ index of signed purchase agreements dropped 6.5 percent to the lowest level since record-keeping began in 2001, the group said today in Washington. The gauge plunged 11 percent in July.
“The existing homes market is now in freefall,” said Ian Shepherdson….” A Bloomberg survey of 30 economists forecast the index would decline 2.1 percent…. Compared with a year earlier, pending home sales were down 22 percent.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2XKiicl2NUs&refer=home
“The existing homes market is now in freefall,’’
I keep reading variations on this comment (housing is in a freefall). What exactly does this mean? Or is it just a scare tactic that does not mean much at all?
Professor
I think that “market in freefall” translated to realtorspeak equals “the bottom is in.”
I hope that clears things up for you.
There’s a new wrinkle in open house fliers here in Santa Clara. The fliers have all the usual pictures and glowing descriptions, but the price is stuck on with a printed label. This makes it easier to stick new price labels on the fliers when the price has been reduced.
My asian wife measures time in bags of rice. Soon you can measure price declines in millimeters of stickers.
Comrade Greenspan drops the Vodka bottle and agrees with mrktMaven:
Oct. 2 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said there will be “some rethinking” of collateralized debt obligations after demand for them helped fuel a bubble in the U.S. subprime mortgage market.
“People always say it’s the subprime market that created this crisis,” Greenspan told investors at an event hosted by Bloomberg LP in London. “It’s the subprime asset-backed market” which did, he said. “As a consequence of that there’s going to be some rethinking about collateralized debt obligations.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIS6u0Qg_yDY&refer=home
I don’t think one can meaningfully separate the components of the subprime mortgage securitization sump pump as AG has tried to do. In order for the mess to unfold, one needed investers with bank willing to purchase subprime MBS, lenders willing to abandon traditional underwriting standards and subprime buyers willing to borrow astronomical sums (relative to their permanent incomes) in order to purchase homes they could not afford. And none of it would have been very likely without the Fed keeping the FFR at negative levels for a protracted period of time, not to mention AG encouraging consumers to binge-shop off their home equity gains and suggesting smart borrowers would take advantage of negative real interest rates to structure their unaffordable loans as exploding ARMs with future reset time bombs.
P.S. As Ben duly noted on another thread, the other detail that AG conveniently omits is the relationship between the sumprime mortgage securitization business and housing price inflation in markets that got a bit frothy. By doctoring inflation statistics to omit asset price inflation, the Greenspan Fed conveniently absolved itself of responsibility for driving housing price inflation to unsustainable levels relative to underlying fundamentals, which are currently fomenting into a hard landing.
And of course, a key customer group for those ABS were hedge funds - a group that Europe has sought to regulate for years, while the Fed and Treasury strenuously resisted. They securitization chain of mortgage - MBS - CDO - hedge fund - fund of funds, with leverage added at every step was the key to pumping credit into this market, as well as commercial RE, consumer credit, leveraged loans and junk bonds. If I could see this, so could the Fed. Yet they protected this inherently defective credit pump from any oversight, much less regulation for years. Since sustaining growth in a debt-burdened bubble economy requires continuous expansion of credit (and increasing debt burden), no avenue for pumping that credit in could be impeded in any way.
I hope and pray for the failure of the Fed. Any “success” on their part at this juncture could lead to Death Spiral Financing for our nation as a whole.
This snaith character fits in well in our Atlas Shrugged world, of late.
A 2 bit economist @ best, for a salaried position… he’s willing to lead many down the primrose path to utter financial destruction~
This is great; it’s short; don’t miss it. It describes the impact of the ABCP market implosion on banks’ balance sheets and the broader economy:
NEW YORK (Reuters) - Banks will likely be reluctant to make new business loans if tight credit conditions persist, hampering capital spending and the economy in the coming months, according to Goldman Sachs.
…
“From a macroeconomic perspective, unplanned balance sheet expansion is likely to constrain banks’ willingness to make loans to borrowers that do not have prearranged liquidity lines,” Hatzius said.
http://www.reuters.com/article/ousiv/idUSN0238277820071002
When I was a lender, commercial paper back-up facilities for decently rated companies were a slam-dunk. Get a fee and never fund. But if a company ever did draw on the line s*** would hit the fan, because the pricing was usually crappy and it meant trouble if they did draw. The pricing model’s ROA/ROE that was presented at the original approval got shot to hell.
“unplanned balance sheet expansion”
I love how they put that.
One aspect of modern living I really dislike is the idea that if somebody has a louder voice, they can oftentimes drowned out another person that actually has something to say.
Can’t happen here.
“Money doesn’t talk.
It swears!”
Bob Dylan
–
Welcome to the world controlled by the Propaganda Machine.
Jas
Tomorrow is an important day.
ADP Employment numbers are released
Challenger Gray Layoffs are released.
My calculations for September.
layoffs 127,000 (app. 60% of what I expected)
Over 200 listed companies filed BK last month.
Unemployment 4.7%
But Hoz, can’t they just take another half million or so out of the labor force, just like last month?
This was in an article today on Yahoo’s homepage. It is refreshing to see that someone is still an optimist.
“The housing bubble has burst,” said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. “Prices are going to collapse and sales are going to fall through the floor.”
I would take this as a contrarian signal that now is the time to buy home builder stocks.
http://www.marketwatch.com/quotes/quotes.aspx?symb=tol+kbh+len+ctx+dhi+fnm+aapl+goog+bzh+phm+sbux+peet
OR, the last opportunity for misguided bagholders to unload.
Citigroup (and others?) changed its recommendation to buy for several big homebuilder stocks. It’s remarkable how much control they have on the market:
http://www.fool.com/investing/general/2007/10/01/this-just-in-upgrades-and-downgrades.aspx
It is also remarkable about how flimsy a case is needed to ignite a bull run on a sector. The stock market has certainly not run out of noise traders or greater fools yet.
….”What we’ve done as a society is borrowed a tremendous amount of money,” says Peter Schiff, president of Euro Pacific Capital in Darien, Conn., nicknamed “Dr. Doom” for his dour outlook. “Now the bills are coming due and we don’t have any money to pay it back.” Surveying the threat of a crumbling housing market and rising unemployment, Schiff is brutally blunt. “We’re screwed,” he says. “It’s not just going to be a mild recession. It’ll be the worst one we’ve ever had.”
The sinking reality of America’s dire financial state has sparked a simmering panic in financial markets over the past several weeks, and that has been reflected in the plunging value of the U.S. dollar against virtually all world currencies, including Canada’s. …”
Oct 8, 2007
Macleans Canada Business
http://tinyurl.com/25hzup
BTW, if interested in a reasonable external analysis of the US problems, this is a decent article - balanced adn fair.
The only problem I can see in his analysis is that he acts as though there is some kind of budget constraint on the amount Americans can borrow and spend. Just exactly how does this budget constraint when there is a giant printing press which can always put more paper into circulation?
constraint operate when
“When the manager of Howard’s local branch refused to hand over his money, he and his wife staged a sit-in and barricaded the woman in her office.” That’s hysterical! That bank manager must have felt like she was in a bad dream. Who’d have thunk?
Has there ever been a point in market history when the divergence between bulls and bears was more extreme than it is today? I am guessing that late 1929 might have been one such point in time. The problem with trying to cheerlead your way out of problems is that the noise traders might respond by making the bull run so hard and fast that it dies of a heart attack.
And just remember — home builder stocks always go up, just like housing itself!
http://www.marketwatch.com/quotes/quotes.aspx?symb=tol+kbh+len+ctx+dhi+fnm+aapl+goog+bzh+phm+sbux+peet
An interesting question.
The fascinating aspect is that, although there have always been Perma Bears, Perma Bulls, top pickers and bottom pickers, only in the last 20 years has there been any method to keep track of the numbers. 30 years ago there was The WSJ, Baron’s and Value Line, now there are myriad financial blogs - many with incredible heritage. The difference is there is too much information available today as opposed to not enough information in years past.
I do not believe there is a large divergence between bulls and bears. They are looking at the same information. It is the interpretation of that information that diverges.
The non-recession camp places trust in the Federal Reserve and believes inflation over 3% is OK to keep the economy going.
The recession camp looks at the same data and says the consumer is tapped out and that is 70% of the economy, ergo no matter what the Federal Reserve does - Recession.
Since the information has not been confirmed towards either side, there is little stock market activity. A few hundred points up or down is immaterial. There is no trend, so there are few players. Volume is half of what it should be and liquidity is non-existent.
“It is the interpretation of that information that diverges.”
Totally — and that is what makes it so fascinating. My half empty glass is some bull’s half-full glass and vice versa, no matter how bleak or favorable the underlying reality.
“The recession camp looks at the same data and says the consumer is tapped out and that is 70% of the economy, ergo no matter what the Federal Reserve does - Recession.”
The inflation camp looks at the same data and sees the Fed’s best hope for avoiding recession: Inflation (especially the subtle kind that does not show up in the CPI but which makes asset prices always go up).
“The inflation camp looks at the same data and sees the Fed’s best hope for avoiding recession: Inflation (especially the subtle kind that does not show up in the CPI but which makes asset prices always go up).”
Like a controlled burn forest fire? Hold the line on asset prices, without impoverishing wage earners (Bye-bye, consumer spending!) and without impoverishing those on Fixed Income? (Hello, AARP hit squads!)
I have a hard time believing that any of the current candidate yapping about Iraq, Iran, family values, cancer research, etc., will even be remembered as we close in on the ‘08 elections. Instead, it’ll be jobs, wages, inflation, and the failure of asset classes across the board - homes, savings, 401Ks. Good luck to the Hoover of either party, or a third party, who inherits the end game of the current “strong economy”. (I think that’s why we have such a lackluster to unpalatable crop of presidential candidates - anyone with more brains than immediate ambition knows that at best he or she will be the next decade’s fall guy.)”
“Since the information has not been confirmed towards either side, there is little stock market activity.”
There is a trend, at least nominally speaking, and the trend is for the market to keep hitting new highs (which are loudly announced in headline news sound bites) to offset any broad perception the economy might actually be slipping into a recession.
It looks like the stock market is correcting today, but actually it is just resetting to an inflated level compared to last week’s or last months. Such inflation is fueled by the background devaluation of the dollar. Party on, WS bulls! The stock market always goes up!
It appears the Bernanke put has pegged a new strike price slightly above 14K on the DJIA…
http://www.marketwatch.com/tools/marketsummary/
Wanna see a grown real estate agent cry?
“There is a positive side to the downturn in real estate. The agents who got in the business solely to make a killing probably are selling shoes by now, or will be soon. Most of the agents left are very experienced and were in a career before the run up in prices and the mortgage deceptions started.”
“This bodes well for anybody buying or selling in this depressed market.
There seems to be the perception by some on this forum that Real Estate salespeople have no stake in the business outside of a commission. I particularly like the idea that the only ones who are responsible business people, are the brokers.”
“If you have been in Real Estate for ten years you have 75 hours of continuing education (which the agent pays for) on top of the licensing requirements (which the agent pays for). You have probably been involved with at least 100 transactions of which at least 80% closed. I would think the agent may have picked up some experience along the line. How much is experience worth?”
“In case you think the commission is a slam dunk, in the bank paycheck such as an employee would receive - not exactly.”
“Every REALTOR looks at the beginning of every year paying between $700 - $1000 for MLS (required) and web site expenses during the year. Dues for the “reviled” NAR? Total dues and lockbox privileges:over $600/year. Let’s not forget taxes, self employment taxes bump you up to around the 50% mark. Before you complete a transaction for the year.”
“These are hard costs before discretionary expenses such as advertising, office equipment, mobile equipment (laptops, cell), transportation. I think REALTORS have to have a pretty good idea of how to run a business.”
“The leftovers are what you feed,clothe and shelter your family with.
People are smart, they can feel a phony a mile away, the good ones usually last.”
“Have a nice day.”
http://www.thebaynet.com/forums/index.cfm/method/topic/topic/9293#skipnav
/cry
““If you have been in Real Estate for ten years you have 75 hours of continuing education”
A whopping 7.5 hours a year? Not even one day a year in continuing education? BFD. I’m required to get at least 40 hours a year for my various licenses and always exceed that amount. One more reason they should have their a$$es sued for giving financial advice without a license.
What other “profession” would think that 7.5 hours of education a year was an achievement they should brag about?
If you go into retail footwear after losing your realtor job, you deserve the coming consumer slowdown layoffs. Get into food service where you can pilfer sustenance.
Here’s a bit for those of you who asked for an assessment of the strawbale house I’m renting. (Forgive the extended post, but I’ve gotta make up for not being able to post very often.)
Large (3/2) on four acres. Fabulous views of Mesa Verde country and Sleeping Ute Mountain (the sacred mountain of the Utes). But as they say, you can’t eat the scenery, and I don’t know what everyone in this area does for a living (as for me, as little as possible). Some commute to Telluride (65 miles one way).
Anyway, the house has two wings, one is strawbale, the other is adobe. For heat retention, the strawbale far outdoes the adobe. Both are nice, but unfortunately the house is painted in weird colors of green and yellow (my brother said it looked like Fred Flintstone did the décor). If I were to build one or the other, I’d pick strawbale. The house is heated entirely with wood, which is quickly becoming a detriment, as I’m realizing I can’t leave for long. Snow in the highcountry already. Be careful if you ever buy an owner built house, lots of potential problems.
As for living here in the Four Corners area (and yup, Need to Leave CA, this is desolate country, for sure), it’s overpriced and no work. I drive to Cortez (an hour from Durango) and see very sorry looking folks, some drunk, all looking poor and despairing. The Cortez paper has NO jobs (Durango has quite a few, but not enough salary for the high-priced housing there). Ironically, the Southern Ute Tribe has been getting into the housing/construction business by purchasing/leasing gravel pits and getting into development. Lots of houses on the market, all overpriced IMO. The local chamber is saying tourism is down at least 25% this summer. Like all areas that depend on tourism, the price of gas is the determinant here of many things. Things will get much worse in the myriad tourist towns of western America before this is over.
Will be here only another month or so, then back to Utah for some archaeology stuff. As I mentioned the other day, I’m amazed at how easy it is to rent now with pets, found several places, no deposits, ask first month only, no refs or credit check, and no lease required. And fairly nice. Am going to rent an old farm house in BFE Utah (aladinsane, you know where it is - on a river known for its stillwater). About 10 years ago I sold my log house in W. Colorado and tried to find a rental while looking to buy and couldn’t find ONE place. Not one. I got laughed at – pets? You have pets??? Didn’t matter that they go everywhere with me and are well trained and nary a flea. Ended up having to buy another house.
And yup, housing is different here. For sure. Saw a yurt in the local trailer park. Hogans are pretty cheap still, but you have to be Navajo to live in one on the Rez. Other than that, FUBAR here, like all over. There are some pretty nice sandstone houses not too far from here, well-aged at 1000 years or so, but nothing for sale.
My next report will include a recipe for Neil’s Native Anasazi popcorn (hey, the stuff came from S. America originally, I’ve found entire cobs still intact that were 1000 years old). Carry on, HBBers, hold the fort, the times are a changin’.
Nice report, Lost…
for the precious few of you that think climate change isn’t real, let me sober you up a bit~
The Anasazi suffered through a horrendous period of drought from around 1140 to 1200, and Chaco Canyon and surrounding suburban
satellite cities in a 360 degree radius around Chaco, were abandoned.
The Anasazis contribution to climate change was having fires, that’s it.
Dendrochronolgy vis a vis looking at crosscuts of 2,000 year old Giant Sequoias, is my evidence.
I’ve had the chance to look at many of these, and the period in question, has indistinguishable tree rings for the 60 year span.
NO WATER
A book I can’t recommend enough…
http://anasaziamerica.com/
Thought this would be good for a laugh. Young couple - no children. Have a 4/2.5 - 2800 sq. feet and bought for $167K need a bigger home? Put down $28K deposit on a $562K home and can’t sell the current one. Best part has the requisite koi pond.
Sorry here is the link: http://tinyurl.com/joj6r
Oh, the humanity!
Discounted lead-laced toys for everyone!
P.S. A dire forecast for holiday sales could produce better-than-expected results. Time to buy retailer stocks!!
IRWIN KELLNER
Blue Christmas
Commentary: Why this could be one of the worst holiday seasons in years
By Dr. Irwin Kellner, MarketWatch
Last Update: 10:53 PM ET Oct 1, 2007
PORT WASHINGTON, NY. (MarketWatch) — It’s the first week in October, so it must be the start of the Christmas shopping season.
Don’t take my word for it; visit your local department store or mall. You’ll find holiday decorations have been hung with care, with the hopes that shoppers soon will be there.
Talk about high hopes. This year’s holiday shopping season figures to provide all the merriment of a funeral.
And don’t think for one moment that merchants aren’t aware that this could be one of the worst holiday seasons in years.
October was only hours old when one big-box retailer announced that it was cutting prices on some of its toy lines effective immediately.
http://www.marketwatch.com/news/story/blue-christmas/story.aspx?guid=%7B3DE6A14B%2D2546%2D402B%2DACD5%2DEFAEFB65BF68%7D
My wife and I got off the xmas ride a few years ago…
We don’t give, nor accept gifts from adult family members (we told them, we are so done with being cogs in a game we detest)
We give gifts to nieces and nephews and that’s it.
It’s much nicer to give on your own terms at a time of your choosing, than be beholden to some quack religious corporate stooge holiday…
While the debate continues on whether to let Fannie and Freddie or the FHA provide bail out welfare to the wealthy (those who own homes financed with jumbo loans — in excess of $417K), some bailout programs are already on the ground and running.
CONSUMER BANKING
How to evaluate mortgage bail-out programs
By Gail Liberman and Alan Lavine
Last Update: 7:40 PM ET Oct 1, 2007
PALM BEACH GARDENS, Fla. (MarketWatch) — Many programs offer to bail you out of an impending mortgage rate increase. Do any really help?
http://www.marketwatch.com/news/story/how-evaluate-mortgage-bail-out-programs/story.aspx?guid=%7B94638FE3%2D5BE8%2D4BA7%2DAF05%2DBE4C6491FAE9%7D
Real Estate News and Advice
October 2, 2007
Mortgage Bailout Enables Dysfunctional Lending System
by Broderick Perkins
Offering more easy money to solve what easy mortgage money has wrought will only throw good money after bad and enable a flawed, strung-out system to flourish.
Even consumers with mortgages that have melted down don’t deserve a federal cash-based bailout.
Don’t shoot the messenger.
Those are the recommendations of the National Taxpayer Union.
Welcome to the school of hard knocks.
Call it tough love or tough luck, but the Union says borrowers, brokers, lenders and others who took on or gave out too much mortgage risk will just have to, well, suck on it.
They should get no quarter.
“A government bailout is not a viable solution. The government bailout is only going to reward people who made bad decisions — both borrowers and lenders — and if we reward bad decisions, it’s only going to encourage more people to make these bad decisions in the future,” said study author Jacob Vigdor, an associate professor of Public Policy Studies and Economics at Duke University.
http://realtytimes.com/rtcpages/20071002_bailoutenable.htm
“Offering more easy money to solve what easy mortgage money has wrought will only throw good money after bad and enable a flawed, strung-out system to flourish.”
Is this advice strictly limited to the home mortgage lending arena, or is it a more broadly applicable principle which central bankers should generally follow?
If the proposal to expand the FHA into a govt-sponsored subprime lender with 100% financing of guaranteed loans plus a conforming loan limit north of $417,000 passes into law, Uncle Sam will definitely be on the hook for bad loans. Ditto for letting Fannie and Freddie buy jumbo loans in excess of $417,000.
Uncle Sam’s not on hook for bad loans
Harold W. Hill
Special to The Commercial Appeal
Sunday, September 30, 2007
There is much talk of late of a federal government bailout of borrowers who have defaulted on subprime mortgages. But to think that the government has an obligation to pick up the tab for individuals who made poor financial decisions is ludicrous at best.
…
What is ignored in all the discussion around the subprime mortgage mess is personal accountability: No one forced these borrowers to sign off on these mortgages. Buying a house is both a shelter and an investment, so buyers have to use their heads and invest wisely. They should not base their decisions solely on information received from anyone who works on commission, and most important, they should not buy more home than they can afford. A good rule of thumb is this: If the only way you can afford a home is through an ARM, then you can’t afford the home. It is not a crime to rent; anyone who puts 0 percent down and can barely afford the monthly payment, much less taxes, insurance and maintenance, should look for a more affordable home or wait until they can afford the home they want. For anyone to think they can put next-to-nothing down on a home way beyond their means, and that values will just continue to go up in their favor, is either extremely optimistic or extremely ignorant. Either way, the bottom line is that it is not the government’s job to bail out speculators or those who decided to buy a home they could not afford.
http://www.commercialappeal.com/news/2007/sep/30/x30hill/
I suggest the following list (excerpted from Harold Hill’s outstanding essay on the folly of mortgage bailouts) should be used as part of a consumer warning which all lenders are required by law to read to prospective borrowers!
1) Individuals should not base their decisions solely on information received from anyone who works on commission, and most important, they should not buy more home than they can afford.
2) A good rule of thumb is this: If the only way you can afford a home is through an ARM, then you can’t afford the home.
3) It is not a crime to rent; anyone who puts 0 percent down and can barely afford the monthly payment, much less taxes, insurance and maintenance, should look for a more affordable home or wait until they can afford the home they want.
4) For anyone to think they can put next-to-nothing down on a home way beyond their means, and that values will just continue to go up in their favor, is either extremely optimistic or extremely ignorant.
P.S. In case legislators are having a hard time thinking up a suitable acronym for a new law to protect homebuyers against predatory subprime lenders, I suggest HMSDA (Home Mortgage Securitizer Disclosure Act).
Sweeping GSE Losses Under The Rug Of Mortgage Default Act.
(AKA: The You Told ME To Do It - It’s Not My Fault! Act.
Morgan Stanley scales back mortgage business
Cutting 600 jobs to help address ‘fundamental paradigm shift’
By Alistair Barr, MarketWatch
Last Update: 1:49 PM ET Oct 2, 2007
SAN FRANCISCO (MarketWatch) — Morgan Stanley unveiled plans Tuesday to scale back its residential mortgage business, including cutting 600 jobs, as the investment bank responds to recent turmoil in the real-estate and home-loan markets.
Shares of Morgan Stanley (MS: Last: 66.43+2.42+3.78% 2:53pm 10/02/2007) climbed 3.2% to $66.08 during afternoon trading.
The New York-based company said it will cut roughly 500 staffers in the U.S. and about 100 employees in Europe, including 90 from the bank’s U.K. mortgage unit, as part of a reorganization.
http://www.marketwatch.com/news/story/morgan-stanley-scales-back-mortgage/story.aspx?guid=%7B7680B1BB%2D420C%2D45DE%2DB4B8%2DA5EA704CD898%7D
My brother in law will be the one responsible for risk management in the new scaled down practice in Dallas. I’ve been feeding him bits from the HBB on what NOT to do with RMBS and CDOs
WASHINGTON (Reuters) - Mortgage-related loans by the Federal Home Loan Bank system to members surged again in September as an upheaval in credit markets closed other funding sources, the FHLB’s office of finance said Tuesday.
Outstanding collateralized loans to the FHLB’s 8,100 member financial institutions rose $53 billion to $822 billion as of September 30, the office of finance said in a statement.
http://www.reuters.com/article/ousiv/idUSN0242518720071002
How do these lenders of last resort (FHLB, Fed, BOE, etc) value the collateral? I am guessing mark-to-fantasy?
Did someone suggest that Citi and UBS have revealed the full balance sheet impact of the credit crunch? And as long as the big banks are having their feet held to the fire, how about if Fannie Mae and Freddie Mac are asked to come clean about the effect of the credit crunch on their bloated portfolios?
Pressure on Deutsche to reveal credit crunch impact
Tue Oct 2, 2007 11:15am BST
By Andrew Hurst, European Banking Correspondent
ZURICH (Reuters) - Pressure is mounting on Deutsche Bank to reveal the full impact of a global credit crisis on its results after UBS announced a shock third-quarter loss and Citibank said profits were badly hit.
http://uk.reuters.com/article/stocksAndSharesNews/idUKNOA23687420071002
This property is listed on Craigslist at 1.2 million. First of all, know your audience. Why are you advertising a freaking one million dollar home on craigslist?
http://sacramento.craigslist.org/rfs/438155958.html
Now, look at the second link, they bought this house for $700,000 in 2002.
http://www.trulia.com/homes/California/Roseville/sold/1902412-1977-Eagle-Glen-Dr-Roseville-CA-95661
trulia is awesome
This is right up there with using sign twirlers to advertise $1m+ homes — what economists call “a bad signal.”
I’ve always wondered why stores use obviously mininum wage people randomly pulled off the street… instead of, say, college students who they could pull off the street for a couple bucks more.
“Incredible”? I’ll say. Utterly without character. Could that be stucco? And do I spy the neighbor’s house in one shot? Executive my New England-schooled patootie.
Five fireplaces? Quoi? Got to love the silly angles and ridiculous use of space around that staircase. And since when is unoccupied spelled “meticulously maintained”?
McMansion. 100%.
‘This property is listed on Craigslist at 1.2 million. First of all, know your audience. Why are you advertising a freaking one million dollar home on craigslist?’
Only 1.2 million? I am not kidding, but after $600,000, what is the point? Anybody buying in this market must not care about price foremost. Nice house btw. How many co-investors could I fit in it?
Phew! Sure glad the credit crunch is over now (as made clearly evident by yesterday’s new record on the DJIA). It got really scary there for a couple of hours back in mid-August.
Credit crunch engulfs global banks
Including Citigroup, UBS and Credit Suisse
Grant Surridge, Financial Post with Reuters
The global credit crunch engulfed banks on both sides of the Atlantic on Monday, as some of the financial sector’s biggest names warned of a negative impact on their third quarter results.
The largest bank in the United States, Citigroup Inc., said that “dislocations in the mortgage-backed securities and credit markets, and deterioration in the consumer credit environment” would hurt its third quarter results. Citi said it would likely report a decline in net income of around 60% from its third quarter a year ago.
Even bigger news came from the world’s largest wealth manager, Zurich-based UBS AG, which said it would write down $3.4-billion and post a net loss in the vicinity of $700-million for its third quarter.
http://www.canada.com/globaltv/national/story.html?id=b1c21ec4-e11b-4e4d-8046-ffac2b81ebb1&k=65588
Here is some highly valuable insight with implications for (1) how sheeple investing in stocks help Wall Street CEOs pocket large bonuses, (2) why Wall Street needs their Stephen Kims and Jim Cramers and (3) why the HBB is bad for housing market liquidity.
Noise trader
From Wikipedia, the free encyclopedia
A noise trader is a stock trader that does not have any specific information of the security. If the efficient market hypothesis holds, NTs add liquidity to a market while not distorting valuations. The concept of noise traders is one of the central aspects Behavioral Finance is based on.
In fact, a market without noise traders will tend to break down, because prices in such a market will become fully revealing. Informed traders will not enter a market without noises, because it is impossible to profit from trading in a completely efficient market. Informed traders need the existence of noise traders to “hide” their trades and by trading on their private information, informed traders make profits. Through trading, informed traders gradually release relevant information to the market prices and together with the noise traders, they help bring the market back to equilibrium.
http://en.wikipedia.org/wiki/Noise_trader
That’s really interesting, I was just sitting here wondering about that, I didn’t realize there was a name for it.
The really interesting part is that two of the original authors on the topic were (coincidentally I am sure) top officials in the Clinton Treasury Dept. Makes you wonder about how Treasury operating procedures might take advantage of these insights
The authors of the seminal paper on this topic assumed that noise traders did not affect asset prices. This assumption clearly did not hold for the recent bubble behavior of the U.S. housing markets, where flippers and subprime buyers armed with a tsunami of freshly printed liquidity drove home prices to unsustainable heights, while anyone not willing to play this high stakes gambling game was left on the sidelines watching in shock and awe.
I sent Hillary an email urging her to reconsider her plan to bail out irresponsible borrowers. Here’s her reply:
Dear Robert,
photo
I want to personally thank you for getting involved in my campaign. It is critical that we stay in touch as fast-moving events shape this important election.
The stakes couldn’t be higher, as you well know.
From a vice president who acts like he is above the law to a president who fails us at every turn, this administration has driven our country far away from the American ideal. And not a single Republican candidate can provide America with the clean break and fresh start we so urgently need.
But we can - and that’s what this campaign is all about. So let’s show everyone what we can accomplish together. Here’s one thing you can do: display my special gift to you today - a “Hillary for President” bumper sticker!
Click here to get a bumper sticker you can display with pride.
And I hope you will also take a few minutes to visit HillaryClinton.com. We work hard to make sure it delivers all the information you need — from speeches on major issues to videos from the campaign trail to a full range of opportunities for you to get even more involved. On the site right now, you can read my plan to provide quality, affordable health care to every American and look at a photo album of some of my favorite moments from the campaign so far.
Once again, thanks so much for standing with me — and make sure you sign up for your “Hillary for President” bumper sticker today.
Show your family, friends, and neighbors that you support my campaign for change by displaying a “Hillary for President” bumper sticker.
All the best,
Sincerely,
Hillary
Hillary Rodham Clinton
Clearly a form email response which is probably a good indicator of what she actually thinks about the subject - a big nothing (as long as it will get her elected).
Actually, the “clean break and fresh start” is the right idea. Cut off the credit nozzle and purge the losses from the system, letting FB’s declare bankruptcy and start over fresh. Very commendible from a potential high ranking executive.
I didn’t realize Hillary’s plan was so in tune with the HBB thinking on these issues. Of course, I’d like one or maybe even two details, but I agree that the president is mostly an Idea Person. Congress’s record on fleshing out ideas with the necessary 600 pages of details is well respected so no point in doing their jobs for them anyway.
I sent Hillary a letter asking her to reconsider her plan to bail out irresponsible borrowers. Here’s her reply
Dear Robert,
I want to personally thank you for getting involved in my campaign. It is critical that we stay in touch as fast-moving events shape this important election.
The stakes couldn’t be higher, as you well know.
From a vice president who acts like he is above the law to a president who fails us at every turn, this administration has driven our country far away from the American ideal. And not a single Republican candidate can provide America with the clean break and fresh start we so urgently need.
But we can - and that’s what this campaign is all about. So let’s show everyone what we can accomplish together. Here’s one thing you can do: display my special gift to you today - a “Hillary for President” bumper sticker!
Click here to get a bumper sticker you can display with pride.
And I hope you will also take a few minutes to visit HillaryClinton.com. We work hard to make sure it delivers all the information you need — from speeches on major issues to videos from the campaign trail to a full range of opportunities for you to get even more involved. On the site right now, you can read my plan to provide quality, affordable health care to every American and look at a photo album of some of my favorite moments from the campaign so far.
Once again, thanks so much for standing with me — and make sure you sign up for your “Hillary for President” bumper sticker today.
Show your family, friends, and neighbors that you support my campaign for change by displaying a “Hillary for President” bumper sticker.
All the best,
Sincerely,
Hillary
Hillary Rodham Clinton
Well reuven,
now that you’re personally involved in her campaign, and assuming you have some major bucks to contribute, maybe some underlining will actually read your letter. But I wouldn’t bet on it.
It’s not necessary for you to think about things like bailing out irresponsible borrowers. These things will all be handled by Higher Authorities, and you can be sure that They know what’s best. If you had something useful to say, you’d be uber-rich. And if you’re not uber-rich, why are you bothering Hillary with your pesky little thoughts?
Say HBBers, did you make 20K last month investing in real estate? No? Well… http://tucson.craigslist.org/rfs/440179156.html
(Isn’t this long past its sell by date?)