The Hangover From The Housing Bubble
Some housing bubble news from Wall Street and Washington. Prime Newswire, “TOUSA, Inc. announced today that it has withdrawn all guidance related to 2007 and 2008 due to worsening market conditions impacting the new home industry.”
“‘Conditions in all of our markets weakened more than we anticipated due to a number of factors including: recent severe liquidity challenges in the credit and mortgage markets, diminished consumer confidence, increased home inventories and foreclosures, and downward pressure on home prices. All of these factors have contributed to lower gross sales and higher cancellation rates,’ said CEO Antonio B. Mon.”
From Reuters. “‘Here’s a company that’s already considered one of the weaker credits. It’s being battered already, and this is some additional bad news and not surprising,’ said Bob Curran, managing director of Fitch Ratings. ‘Now they’re on the same plane with the other companies from that guidance prospective, which is there is none,’ he added.”
“The cost of insuring Beazer Homes USA’s debt with default swaps is trading at distressed levels, costing 18 percent of the amount insured paid upfront, or $1.8 million to insure $10 million in debt for five years, in addition to payments of $500,000 per year.”
“‘After a horrendous July and August, and a tepid September at best, (Beazer) is on track to announce a truly dismal quarter,’ said analyst Vicki Bryan.”
“Meanwhile Beazer’s debt investors say a delay in filing its earnings for the June 30 quarter, prompted by an internal probe, puts it in technical default on $1.5 billion in debt.”
“H&R Block Inc said on Wednesday bank lines at its Option One Mortgage Corp lending unit were terminated or reduced, as the subprime mortgage company reduces it lending volume. Banks reduced and closed out warehouse lines of credit, which H&R Block’s Option One Mortgage Corp used to temporarily finance home loans made to consumers.”
“H&R Block has struggled to sell the Option One unit as rising defaults force mortgage lenders to scale back their lending to people with weak credit.”
PR Newswire. “A class action lawsuit was filed in the United States District Court for the Central District of California on behalf of all purchasers of securities of Impac Mortgage Holdings, Inc. from May 10, 2006 through August 15, 2007, inclusive.”
“The Complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them…that the Company was under-reserving for loan losses as conditions in the mortgage industry deteriorated…that the Company was experiencing an increasing level of loan delinquencies and defaults, which would require the Company to repurchase an increased number of loans going forward.”
“That the Company had failed to write-down the value of certain loans in its portfolio as they declined in value…that the Company was experiencing increasing difficulties in selling its loans, and would be forced to discount prices…that the Company’s underwriting guidelines were not adequately restrictive for borrowers in its loan markets.”
The Scotsman. “Embattled bank Northern Rock is to axe the bulk of its mortgage range in the first product shake-up since the lender was thrown an emergency funding lifeline by the Bank of England last month.”
“Northern said today it was axing two-thirds of its mortgage range, although the Newcastle-based bank is still willing to lend up to 125 per cent of a property’s value through a combination of secured and unsecured loans.”
The Telegraph. “The Valencia property developer Llanera has become the first high-profile victim of the credit crunch in Spain, declaring insolvency yesterday after failing to meet payments on €748m of debt.”
“The fashionable builder was unable to reach agreement with Lehman Brothers and other banks on a refinancing deal, a sign that foreign creditors are no longer willing to underwrite Spain’s property market.”
“Almost 800,000 homes were built in Spain last year, leaving a glut of 300,000 properties in the market.”
The Wall Street Journal. “Earlier this year, the Manly Council, which governs a beachfront Sydney suburb, handed 5.5 million Australian dollars (US$4.9 million) to Grange Securities, a small Australian investment bank. Council staffers were taken with the idea of slightly higher returns that Grange representatives proffered.”
“Now, Manly is ruing its investment decision, as are many councils across Australia. Manly officials say A$3 million of the money the council gave Grange was invested in collateralized debt obligations, bonds underpinned by large pools of debt, including, in one case, U.S. subprime mortgages. As of Aug. 31, Manly was facing a paper loss of A$588,767 on the money it gave to Grange.”
“(A) gripe was that some of its CDOs, which contained U.S. and European assets, had Australian names, such as Kalgoorlie.”
“These labels disguised the true nature of the investments, some say. ‘I will make the conclusion that they were trying to mislead us, by giving Australian names to U.S. assets; you can draw your own conclusion,’ said Councillor Andrew Petrie in Woollahra, which owned Kalgoorlie. ‘If they’d been called ‘Detroit,’ you’d have said, ‘What’s this?’”
The Associated Press. “The Center for Audit Quality weighed in Wednesday on credit-market jitters spawned by troubled subprime-mortgage loans, warning the problem may keep investors sidelined and pose challenges for auditors.”
“‘It is not possible at this time to predict how long investors will stay on the sidelines or which markets will be most affected, but it is not unreasonable to expect _ especially for subprime mortgage-related assets _ that current conditions could persist for an extended period of time until the uncertainty is reduced,’ the Washington nonprofit said.”
The New York Times. “Merrill Lynch, facing the prospect of a major write-down from its exposure to the sinking mortgage market, dismissed two senior executives in its fixed-income division yesterday.”
“The firings also signaled that the aggressive push by Merrill’s CEO, E. Stanley O’Neal, into riskier markets like leveraged loans, subprime mortgages and complex structured investments, all of which lie beyond the firm’s traditional area of expertise, may be coming back to haunt him.”
From MSNBC. “Nationally, the number of homes in foreclosure soared by 36 percent between July and August, and foreclosures have more than doubled in the past 12 months, according to RealtyTrac.”
“Between July and August, foreclosure filings jumped by 48 percent in California and 77 percent in Florida. Nevada has the highest foreclosure rate in the country — one of every 165 households.”
“Why are we in this mess? It’s the hangover from the housing bubble.”
“Countrywide Financial Corp, scorched by the U.S. subprime meltdown and smarting from negative publicity about its lending practices, is fighting to salvage its battered reputation.”
“The largest U.S. mortgage lender is ‘playing offense,’ according to a senior executive, and has hired a public relations firm with a reputation for firefighting, to design an ‘attack’ strategy.”
“Countrywide has been struggling as rising defaults, falling home prices and tighter credit markets make it harder to operate. The lender is also fighting criticism that it lowered lending standards by making home loans to people who could not afford them, and thus contributed to the rise in foreclosures.”
“‘If you just have a bunch of sizzle and it’s not backed up by what the company is doing correctly, it will backfire and end up undercutting your credibility more,’ said Kent Jarrell, a senior VP at APCO Worldwide who has managed crises for Worldcom and Merck. ‘They’ve got to make sure they’re not in denial about the criticism,’ he said.”
The Buffalo News. “In 1624, frenzied speculators in Holland ran up the cost of a tulip bulb to 3,000 guilders (about $100,000). When fears arose that this ‘bubble’ might burst, lenders reduced the interest rates on loans in order to allow speculators to continue buying the bulbs and thus keep the bubble going as long as possible.”
“Although it was a recipe for economic disaster, this short-sighted policy only ensured that when the bubble burst the consequences would be far more severe than if the excesses had been wrenched from the system earlier.”
“When American wage earners making $40,000 a year are being tricked by lenders’ teaser terms and the Federal Reserve’s low short-term rates into buying half-million dollar, two-bedroom shacks in the overheated California housing market, it is clear that housing has become today’s tulip bulbs.”
“The Fed policy of feeding the housing bubble with low rates has been rationalized by claims that low rates are necessary to ’stabilize the markets’ and to save the small homeowner from the economic impact of foreclosure.”
“Nothing could be further from the truth. Homeowners who have put nothing down on their homes have little to lose when foreclosure lets them off the hook.”
“Fed policy can continue to bow to the political pressure for low rates exerted by leaders of big banks and the hedge funds or it can restore the full faith and credit of the U.S. dollar, make housing affordable and dampen the speculative frenzy that brought about the crisis in the first place.”
“‘Conditions in all of our markets weakened more than we anticipated due to a number of factors including: recent severe liquidity challenges in the credit and mortgage markets, diminished consumer confidence, increased home inventories and foreclosures, and downward pressure on home prices. All of these factors have contributed to lower gross sales and higher cancellation rates,’ said CEO Antonio B. Mon.”
Housing Bubble gone and it ain’t no fun, Mon
Day-O!
“The firings also signaled that the aggressive push by Merrill’s CEO, E. Stanley O’Neal, into riskier markets like leveraged loans, subprime mortgages and complex structured investments, all of which lie beyond the firm’s traditional area of expertise, may be coming back to haunt him.”
*******
I hope no one is surprised by this development.
“When American wage earners making $40,000 a year are being tricked by lenders’ teaser terms and the Federal Reserve’s low short-term rates into buying half-million dollar, two-bedroom shacks in the overheated California housing market, it is clear that housing has become today’s tulip bulbs.”
Wow…he’s got us pegged!
Yeah, that’s laughable in so many ways.
How about the multitides of six figure income households in California’s overheated markets, with no savings, using liar loans to buy houses 10x or more of their income?
The problem is pretty much the same if the wage earner making $40,000 a year is “tricked” into buying any half-million dollar home with a suicide loan. I suppose if it is a nice big one you could try to rent out some extra rooms to make the payments (good luck with that), but the problem is the loan itself, not that it is a small house.
“How about the multitides of six figure income households in California’s overheated markets, with no savings, using liar loans to buy houses 10x or more of their income?”
Exactly. As I’ve mentioned a few times, the problem in CA is that yes- you can make 100k easier than you can do so in places like say- Little Rock Arkansas- but in today’s economy, California might as well have it’ s own currency because the cost of living here is 4 times as much as elsewhere. Hence 100k might as well be 25-30k, which explains all the poor 100k+ wage earners.
“housing has become today’s tulip bulbs”
Correct it, Let us be honest; America is the worlds Tulip bulb today.
Robert Hardaway…. MUST at least lurk here, if not post. Robert/Bob/Rob/Bobby: where are you?!
The question is whether Mr. O’Neal can save his own head by firing the people who did exactly what he asked/rewarded them to do.
I’m sure his Golden Parachute is ready for use. After all, he took all the risks, right?
He can join Phil Purcell in Wyoming, with his huge severance package, and whine about the fools who misled him.
They should sever his package, alright.
Do you think ML will sue to get some money back, because he is black?
============================
E Stanley O’Neal
Total Compensation
$22.41 mil (#49)
5-Year Compensation Total
$51.202 mil
E Stanley O’Neal has been CEO of Merrill Lynch (MER) for 3 years. Mr. O’Neal has been with the company for 9 years .The 54 year old executive ranks 7 within Diversified Financials
He makes more than Shaquille, but he can probably make his free throws…
Question for the more finacially astute posters here regarding ML:
How safe do you think funds in a Merrill Lynch money market fund are at this time? I cashed out of a home in OC earlier this year and spilt the proceeds between CD’s (I stayed within the FDIC guidlines) and ML Money Market as a holding pattern since I didn’t trust the stock market near 14,ooo when I sold the home.
Thanks for the input.
I am just glad to see that the crooked CEO’s and other executives that helped put people in houses they can’t afford and mess up pension plans with worthless MBS’s and CDO’s will suffer the full effects of the layoffs that they are dishing out to their employees… oh, wait… that’s right - that won’t happen!
Good thing the yacht market will still be doing well after all the executives are done looting and firing! UGH!
–
“The Fed policy of feeding the housing bubble with low rates has been rationalized by claims that low rates are necessary to ’stabilize the markets’ and to save the small homeowner from the economic impact of foreclosure.”
“Nothing could be further from the truth. Homeowners who have put nothing down on their homes have little to lose when foreclosure lets them off the hook.”
“Fed policy can continue to bow to the political pressure for low rates exerted by leaders of big banks and the hedge funds or it can restore the full faith and credit of the U.S. dollar, make housing affordable and dampen the speculative frenzy that brought about the crisis in the first place.”
Amen.
But who all in power are listening? The powerless know the truth!
Jas
You can’t get much less powerful than shouting from the rooftops in Buffalo.
Really? I bet ten thousand people see that article in the next couple of hours.
And that’s just on this blog.
–
OK, 2 million highly educated powerless people versus 20 most powerful, who would win the policy debate?
The remaining 200,000,000 plus voting-age Americans are buried under the weight of propaganda.
Jas
With great respect, Ben, that is your power, not his. Though we are all glad you decided to share with him for a bit.
Also, I’m in a bit of a snippy mood today. Nasty virus going around the office. I hate being sick.
As we speak, the market just sits simply because investors are eager to see what will likely be a bad jobs report- which will make them giddy with glee over the prospects that the Fed will kick in another rate cut. These days it seems like there is an intent to create market calamity for ill-gotten rewards.
yours too? I swear the whole state of minnesota has a headcold or stomach flu right now.
Warren Buffett, by the way, owns the Buffalo News.
That might explain much…
piling on…
Mr. Buffett sold his house in el lay in 2005, and I know he didn’t need the money. Was he trying to tell us something?
–
“piling on…”
Since Apr’98 Mr. Buffett has under-perfomed the long-term US Treasuries.
Jas
Wasn’t it in Laguna Beach (Orange County)?
There is an aspect of the Random Walk that applies when you pick the right time period from which to measure.
Irrelevant or not, I can live like a king here (in Buffalo) on 50-60k. How’d that work for me in LA?
Jas,
You are so right about helping the reckess lender get of the hook with as little pain as possible. I read somewhere the Democrats wanted the Republicans to do something about the predatory lending in 2005 but were ignored. It’s hard to know how of this political spin is true. But if this blog members had figured it out Congress knew what was going on but decided to wait.
“The cost of insuring Beazer Homes USA’s debt with default swaps is trading at distressed levels, costing 18 percent of the amount insured paid upfront, or $1.8 million to insure $10 million in debt for five years, in addition to payments of $500,000 per year.”
Beazer is in real trouble and I see now way for them to avoid bankruptcy. Last time I checked their short position was up to 65%.
I’m sorry, just re-checked and short interest is close to 80% on BZH now.
Oh… short squeeze danger!
They’re toast. Look at those insurance rates. 23% for one year… wow!
Got popcorn?
Neil
Chicken Little will laugh his feathery butt off when they do.
If they do in the near-term, when those who are honest with themselves know this housing mess is far from over, watch the rest of the homebuilders tank.
Will Beazer be selling it’s homes and excess land inventory for more or less once they declare BK? Less. How will that effect their competition? Negatively.
“Homeowners who have put nothing down on their homes have little to lose when foreclosure lets them off the hook.”
Add to that an artificially low starter payment for the first few years, and folks have absolutely no reason to tough it out.
Neil’s right, as this mess unfolds, substantial downpayments (20%, maybe 30% for jumbo financing) may once again be requirements for homeownership.
It boggles me how the down payment requirement for the home above the starter home disappeared.
This credit crunch shows no sign of disappearing. Now the rate of pain increase is trivial, so that makes it feel like all is well… but the market continues to contract. The remaining free lenders will be out of the game just about in time for the Super bowl and the start of the traditional selling season.
I’m still expecting March sales in 2008 to exceed January and February. But the YOY numbers will be ugly. The 2008 to the peak numbers will be eye opening. Bwaaa ha ha.
Got popcorn?
Neil
If credit conditions stay as they were in Aug and Sept, Oh the Humanity!
Hey, when did you become an optimist?
Its still going to drag out.
People are underwater but can’t sell because they don’t have the cash and the bankruptcy will be crushing.
Going to be a very savage time in LA pretty soon.
“Fed policy can continue to bow to the political pressure for low rates exerted by leaders of big banks and the hedge funds or it can restore the full faith and credit of the U.S. dollar, make housing affordable and dampen the speculative frenzy that brought about the crisis in the first place.”
If the Fed raises interest rates and there are no bailouts the housing bubble will be short and painful. If the Fed lowers rates and there’re bailouts then the whole thing will drag on for many years to come, see Japan. Personally I would prefer to get this over with. Crash, burn, lot’s of pain and then a blue sky again. Unfortunately the consensus in Washington seems to be to drag this out for as long as possible.
Then end result will be the same, only the time to get there will differ.
“Unfortunately the consensus in Washington seems to be to drag this out for as long as possible.”
Until after the elections. Then it’s bombs awaaaayyyyy!
Actually, that is a good point. If the powers that be can see what is coming (big if), then it is in their interest to try to make things happen as quickly as possible after an election so that as much of the pain as possible is over before the next one.
My sense is that this isn’t the way Washingto works. One of the popular arguments that the deficit doesn’t matter is that an expanding economy will make even a larger deficit a smaller percentage of GDP and therefore not important. That thinking would lead to a “put off the housing pain as long as possible and maybe the economy will expand enough to use up the excess inventory” policy justification. Doesn’t address the loan amount to income ratio problem, but as many have said before inflation will take care of that eventually.
I feel like Marvin the robot from Hitchhiker’s today.
That argument about the deficit reminds me of one of the RE arguments about buying in with zero down: Rising prices will bring instant equity and so not having a down payment isn’t important. The problem is that real estate only goes up until it doesn’t. Similarly, you’d think the government would want to curb the deficit in case of recession.
I feel like Marvin everyday. Just don’t get me started about the diodes down my left side…
“Doesn’t address the loan amount to income ratio problem, but as many have said before inflation will take care of that eventually.”
I don’t think you should assume that just because we have inflation and the dollar becomes worth less (or worthless?) that you will be holding more dollars as a result. Usually incomes do not keep pace with inflation.
The problem is that average worker is not seeing any of the benefits of the “expanding economy” - all we get are higher prices, stagnent wages, and declining benefits. One can’t support a housing market at Bubble-levels on those fundamentals, but it will take time for that to be understood.
ABSOLUTELY! Let the next schlub dig us out of the war in Iraq, the economic woes, healthcare, social security, etc., etc., etc… The blood will be on their hands, all the responsibility squarely on their shoulders and Bushco can go out with a big, “F#@k you!”
“Bushco can go out with a big, “F#@k you!”
yeah, well, that’s the shrub way for ya. Make a huge mess and leave it for others to clean up. Guy sunk two, possibly three companies before he went into politics. Should have given me a clue about his ability to handle a country. What a loser. Transforming this country into a nation of losers.
Why not? They got theirs. What’s the net worth of the Bush and Cheney families, again?
Or at least through the next presidential election cycle.
Good on ya, Buffalo News….
I know you have no skin the game, in this bubble, being Buffalo and all.
Thus you can speak the truth
Pfft… I can supply you with more than enough evidence on realtor.com to prove otherwise. There are more than enough MCMansions to go around…
Was I hanging around a different Buffalo, where $50k gets you a decent house?
Make sure they throw in the kevlar and some ammo and you’re all set.
Is it as expensive as LA,LV,FLA, etc? No. But to say you can’t find bubble evidence here is incorrect.
From the Telegraph:
“Alberto Matellan, an economist at Inverseguros, said arrears would never reach US levels because of Spain’s “solidarity” culture. “The extended family steps in to help meet the payments,” he said. Defaults are very rare.”
That is true and they also will take over the title and cheat you out of your property. Talking about my own experience with my extended spanish family.
I wouldn’t trust my extended family with the title to a doghouse.
You’re not alone in that.
Where living beyond your means and extended family are concerned one is in for a rude awakening.
I once in a bind and I found out family is social its not a bank.
“That is true and they also will take over the title and cheat you out of your property.”
Wow, that really sucks.
Ouch.
But what does that have to do with all of the British and German flipping in Spain? What are the laws in Europe on walking away from a failed flip? Remember, real estate is set at the margins.
IMO, Spain will see sharper declines than Florida. Partially due to the huge job losses coming down the pipeline. It doesn’t matter whom your family is if they cannot, as a group, pay the mortgage.
Got popcorn?
Neil
I’m pretty sure you can’t walk from a failed flip in Spain; most of these speculator homes are financed with equity gains in the home market, so the owners of the loan might go after the first home. Most of the mortgages are probably under Spanish law, others might be with Dutch and UK banks under Dutch/UK law. Fortunately these Spanish properties are not covered by the Dutch NHG mortgage insurance (although I don’t doubt some clever flippers will pull all the stops to pass their losses to society when things go wrong).
I don’t think Spanish specuvestors are nervous already; RE is still a sure thing in Europe (especially in UK and Netherlands) and most people purchased years ago, they are sitting on tons of gains. Especially since they know that the ECB and all the EU governments will come to the rescue of the speculators; after all, isn’t every poor EU government worker entitled to have some second/third homes in Spain, Rumania etc.?
Just watched another episode of a UK TV series about buying homes abroad. You really get the impression that many people in London (UK) have home speculation as their only ‘job’. They seem to spend all their time buying and flipping properties in the nicer parts of Europe. This bubble will take a generation to deflate for sure.
Thanks for the insight.
I do wonder how fast it will go. With equity extraction being cut off in the home markets, fippers are going to have a very tough time feeding the alligators. I’m betting that Spanish holidays this winter will have bargains!
Got popcorn?
Neil
considering that both gradual but continual price reduction and steady inflation work to burn down the value candle at both ends, it would seem to be logically in the interest of the ptb to stretch this housing bust out as long as possible and thus disguise the true loss in equity that even the most responsble fb’s (who continue to hold on and pay their mortgages) will eventually suffer.
“Northern said today it was axing two-thirds of its mortgage range, although the Newcastle-based bank is still willing to lend up to 125 per cent of a property’s value through a combination of secured and unsecured loans.”
Misery loves company…perhaps we aren’t the most f—-d up country on the planet. What line did they cut? 150%?
Maybe nodocs?
Sounds stupid to me too, but there is one tiny advantage UK borrowers have over US ones. They never have a “no health insurance/get really sick” scenario to deal with. Presumably that reduces the risk of unsecured loan portion a bit since the bank doesn’t have to worry about getting in line behind a hospital.
I have no idea what the UK personal bankruptcy laws look like. Anyone want to help on that?
no idea about the bk laws, but I do know that UK bankruptcies are soaring lately; when home prices start falling it will get ugly.
In a class society the stigma must be unbearable. Besides if the system isn’t set up to forgive you in the future you are screwed.
What do they mean by “mortgage range?”
“Fed policy can continue to bow to the political pressure for low rates exerted by leaders of big banks and the hedge funds or it can restore the full faith and credit of the U.S. dollar, make housing affordable and dampen the speculative frenzy that brought about the crisis in the first place.”
I’m not sure that the Fed has the slightest interest in “restoring full faith”…they’ve been privvy to all the numbers and have purposely acted contrary to evidence….they are Wall Street’s main bitch. That’s why this unwinding will continue for many many years. And at the end of that time, the psychological collective mindset of Americans will have changed. Owning a home? So 2005.
Truly owning a home is a paid off home at retirement, and I believe that will come into vogue again. Staying put in a reasonably sized (one - story), affordable home will be the meal ticket to survival for the 78 million baby boomers, IMO.
Having a Finished Basement will be back in vouge too, All the time we spent in our basement playing games a slotcar track…. listening to music…while its bad weather outside, and the neighbors kids would come over cause ours was heated…
“‘It is not possible at this time to predict how long investors will stay on the sidelines or which markets will be most affected, but it is not unreasonable to expect _ especially for subprime mortgage-related assets _ that current conditions could persist for an extended period of time until the uncertainty is reduced,’ the Washington nonprofit said.”
This report must clearly be a fabrication, because everyone knows the credit crunch is over, and investers are back to business as usual.
‘and investers are back to business as usual.’
- I bought my ‘Mega Millions’ Lotto ticket for tomorrow night.
Aw, Bear, you’re being too negative.
Absolutely true statement by Ms. Cindy Fornelli , also absolutely true by PB. Investors are doing business everywhere except in the US or in the US contaminated securities.
Oh, so now it’s the investors on the sidelines, not the buyers.
The buyers are in the cheap seats munching popcorn.
got attached product?
This report must clearly be a fabrication, because everyone knows the credit crunch is over, and investers are back to business as usual.
Professor Bear, Your right about the investor. Just like the dot com era, the investor has moved on to the next investment and left the RE industry in a smouldering heap that will takes years to cleanup. By the time the general public starts talking about the next hot item to invest in, the seasoned investor has already taken the profit and moved on.
“These labels disguised the true nature of the investments, some say. ‘I will make the conclusion that they were trying to mislead us, by giving Australian names to U.S. assets; you can draw your own conclusion,’ said Councillor Andrew Petrie in Woollahra, which owned Kalgoorlie. ‘If they’d been called ‘Detroit,’ you’d have said, ‘What’s this?’”
We’re even the downtrodden down under.
I talked to a couple of Catholic priests a few months ago, whose beat is a trio of mission churches, down Mexico way…
They told me, the wealthy in Mexico utterly despise us.
That was 32 years of experience telling me that.
If they’d been called ‘Detroit,’ you’d have said, ‘What’s this?
O, be some other name! What’s in a name? that which we call a rose By any other name would smell as sweet;
Kalgoorlie
In June 1893, prospectors …were travelling to Mt Youle when one of their horses cast a shoe. During the resultant halt in their journey, the men noticed signs of gold in the area, and decided to stay put….The mining of gold, along with other metals such as nickel, has been a major industry in Kalgoorlie ever since. The concentrated area of large gold mines ..is often referred to as the Golden Mile, and is considered by some to be the richest square mile of earth on the planet.
Well do we have jobs or don’t we?
yes: http://tinyurl.com/3dd6hd
no: http://tinyurl.com/26l22w
Which one is it… don’t the facts show up truthfully anywhere?
Sheesh
keep eveyone guessing until the bubble starts to really take off, which bubble?
at this point, it no longer matters. The pain is real, and the sheeple are hurting. Let the fervent specualtion of the FED repo money begin…
We’re seeing construction, manufacturing and financial jobs go away, and service sector jobs being created.
According to figures I’ve seen, the jobs we’re losing pay an average close to $45-50K, while the ones we’re gaining pay on average, closer to $25K.
Jobs keep people spending? What about a 50% pay cut?
“(A) gripe was that some of its CDOs, which contained U.S. and European assets, had Australian names, such as Kalgoorlie.”
Kalgoorlie is a Gold producing area, extending the irony out a bit further.
Good as Gold, NOT
The blowback from this is going to be harsh. Bubble blowing IBs beware.
Good as FeS2
A clear difference between full disclosure and hiding losses in BS accounting rule and Regs. “Manly officials say A$3 million of the money the council gave Grange was invested in collateralized debt obligations, bonds underpinned by large pools of debt, including, in one case, U.S. subprime mortgages. As of Aug. 31, Manly was facing a paper loss of A$588,767 on the money it gave to Grange.” So out of A$3M Grange lost A$0.588M by investing “in one case US subprime”.
A loss of 20% with only a some exposure to US subprime. I love American banks accounting practices.
Fool$ Gold
Love the data, I guess Wall Street is looking else where to bring their numbers in, or we don’t see the big picture…or maybe this month we will see the reset? It you use the Dow as a financial barometer just buckle in you are in for a rude awakening.
“TOUSA, Inc. announced today that it has withdrawn all guidance related to 2007 and 2008 due to worsening market conditions impacting the new home industry.The Company does not anticipate providing further guidance in the near future.”
That sounds so much like 2001 ala tech bubble burst, when Chambers from Cisco said in April of 2001 that no guidance was provided. Later that year and in 2002, it was followed by “no visibility” and so on. So we are at least for another 2 years of no guidances and no visibility from the housing sector.
“So we are at least for another 2 years of no guidances and no visibility from the housing sector.”
No problem, tejano, plenty of guidance and visibility on this blog. Stay tuned.
That’s a very good historical analogy, and quite true.
I’ve got quite a bit tied up in Cisco stock, and I definitely recall similar language being used.
If profits are less than zero and falling, say nothing.
All of these factors have contributed to lower gross sales and higher cancellation rates,’ said CEO Antonio B. Mon.”
These predictions should help Antonio feel better:
There must be a moderation in the rate of decline of home sales to around 0%; mortgage purchase applications must rise; 30-year mortgage rates must decline to less than 6%; affordability needs to improve dramatically; inventories need to fall to a seven-month supply; and the number of building permits, housing starts needs to sink to an extreme and oil needs to come down to $50. Until then, his company and any company in this industry will continue to suffer, but it will not be much better when all of these conditions are finally met.
“When American wage earners making $40,000 a year are being tricked by lenders’ teaser terms and the Federal Reserve’s low short-term rates into buying half-million dollar, two-bedroom shacks in the overheated California housing market, it is clear that housing has become today’s tulip bulbs.”
Tricked, huh?
Thank you AUA. Thought I was the only one that caught “tricked”
“…it was followed by “no visibility”
The water is quite murky…those “underwater” are indeed having.. “visibility issues”
“While most banks are well able to weather a downturn, the regional cajas, or savings banks, are vulnerable. Many of the cajas have leveraged their risk by launching their own property ventures, much to the horror of the Bank of Spain.”
This looks like S&L Hell.
I heard from my brother in Spain two weeks ago that some banks (one of them is such a caja) now offer 6.5% rates on internet savings accounts, that is nearly 3% more than on standard internet savings accounts in Netherlands which has the same euro currency … that is a significant risk premium.
There also seems to be some discussion in the papers regarding the risky RE situation (which is totally denied by the Spanish government) and the fact that the Spanish National Bank has sold off more than half of their gold stock in a short time.
Big time gambler takes a 4/10’s of a Billion Dollar hit…
“It wiped out about $405 million in market value from the founder’s personal holdings in the casino group.”
http://www.nypost.com/seven/10042007/business/wynns_a_loser.htm
From the article:
She said the Macau casinos appeared to be just shifting revenue from one place to another instead of creating a new supply of gamblers.
Oops… They were supposed to increase Macau tourism dramatically. Are there restrictions on China to Macau tourism that I do not know about? Any links appreciated.
Thanks,
Neil
I’ve been to Macau a number of times, back in the early 1980’s, when it was a sleepy Portugese colony with casinos…
Chinese LOVE to gamble and Macau is the only place to legally do it in China.
The reason the Chinese stock market is so utterly bubbly, perhaps?
gotta gamble somewhere
Was there last year, very interesting and big money being thrown down. I was playing my little eqivalent $50 USD hand and had people 3 deep betting on my hand. They were betting over $2000 equivalent. At least I won them some money.
Hangover is a nice word for the press to use, in regards to the housing bubble…
Every last hangover I ever had did a bit of damage, but by late the next day, I had recovered nicely.
So this will all be over by tomorrow?
hair of the dog - get back on that horse.
Wow - lots of bad financial news. An person I know bought a house in So Cal for $600K in April. He looked since last Christmas, and is very proud of his lovely home. The problem is that the next door neighbor, whose house in the same sq feet, but needs cosmetic upgrades, is currently on the market for $450K. I ran into my friend yesterday, who upon hearing I want to keep renting, said “Oh yes, I hear they’re telling people to wait right now, whereas it was smart to buy earlier this year.” Wow - its amazing how folks listen to re agents’ stories and try to convince themselves accordingly. Unbelievable.
you should have blasted this person with the reality of his foolish decesion making.
Can he make his payments? Does he have a fixed mortgage? Was he happy with the deal he made? Then what his neighbor’s house is “worth” should mean nothing to him.
but we all know when the neighbor down the street got a better deal, the green eyed monster will appear, no matter what, he wont stay happy very long.
Anyone who says, “Oh yes, I hear they’re telling people to wait right now, whereas it was smart to buy earlier this year” is at least somewhat concerned with the value of the house.
Or, at least he is talking like he cares about the value of the house.
I guess he like to think of his “$650K house” and think that he was 65% of a “millionaire!”
I had a letter in Business Week a couple of YEARS ago:
http://www.robert.to/appearances/BW.pdf
(See the bottom of the first page, “Taking the House out…”)
where I questioned a rosy bar-graph they showed that had “household net worth” rising.
It was a lie because:
1. Unless they’ve paid off any principal, regardless of any perceived increase in value, they’re just counting unhatched chickens.
2. Even with a paid-off house, you have to live somewhere. Counting your home as part of your “net worth” is misleading. Maybe when you’re dead, it counts.
3. Here, in a letter written in 2004, (and printed in 2005) I called Florida a bubble. (All my associates in Florida thought I was a bitter something-or-other, or was simply jealous of their “investing savvy”.)
Well - you certainly have a documented “I told you so” moment! Shove it back in their faces. Fools!
I hope he can make is payments - don’t know if he took out traditional loan or AR - but he does work in the construction business! Yikes.
“‘If you just have a bunch of sizzle and it’s not backed up by what the company is doing correctly, it will backfire and end up undercutting your credibility more….’”
It’s not entirely about keeping up appearances, the OranageOne loves to sizzle.
“the OranageOne loves to sizzle” - hahaa!!
HALLELUJAH! (As we say in my native language.)
Finally a mainstream newspaper article that gets this.
And, as people have been pointing out, if they pulled out some HELOC funny-money to buy a Hummer and Plasma TV, they made out like the bandits they are, even if they have to walk away when the party’s over.
No more sob stories for these folks.
We need a catchy name for them, like Regan’s “Welfare Queens”. How about “ARM Bandits?”
ARMed robbers
“The Center for Audit Quality weighed in Wednesday on credit-market jitters spawned by troubled subprime-mortgage loans, warning the problem may keep investors sidelined and pose challenges for auditors.”
I propose Senate oversight and more regulation!
Comment by polly
2007-10-04 10:37:58
With great respect, Ben, that is your power, not his. Though we are all glad you decided to share with him for a bit.
Also, I’m in a bit of a snippy mood today. Nasty virus going around the office. I hate being sick.
I’m in quite a mood myself. Nasty stuff going around my town, called evil wretched feculent developers.
Last evening I posted all sorts of shouty and colorful rants, but I believe Ben filtered them out because of the many cuss words. Thank goodness, or all of you would no longer believe I am the mature, sedate, reasonable, calm HBBer you have normally witnessed.
” Nasty stuff going around my town, called evil wretched feculent developers.”
Testify, Olympiagal. I’d like to surgically attach a pink flamingo lawn ornament or two to the keisters of some of the developers around here.
Hey how can you insult the pink flamingo
Has anyone thought about the fact that foreclosures are spiking in “battleground” states like Ohio, Florida, Michigan, Nevada, and Arizona? I presume this will affect the magnitude with which the Federal Reserve will cut rates and the congress will “bailout” irresponsible borrowers. This seems to highlight the fact that no one controlling the reins of our government, and therefore the value of our currency, will be motivated to take a moral stand to protect the quality of life of further generations in this country. Plan accordingly.
The fraud is so utterly widespread, where would one start as far as prosecuting those deserving of jail time?
There aren’t enough jail cells to put all of them in.
Coming soon to a neighboorhood near you: The local Debtor prison.
Otherwise known as a McMansion.
We need a Martha Stewart and Ken Lay of RE to make sure people know we are serious about inforcing the law.
The option back dating and Steve Jobs (Obviously guilty) had an OJ card in his wallet.
Unfortunately the consensus in Washington seems to be to drag this out for as long as possible.
Well Yea!!! They have the elections and voter consideration to leverage so I guess the politicians have to get as much milage out of this crisis as the can.
Yeah, that’s some little dog and pony show they’re puttin’ on. When it’s all said and done look for approval ratings to hit the single digits.
“Countrywide Financial Corp, scorched by the U.S. subprime meltdown and smarting from negative publicity about its lending practices, is fighting to salvage its battered reputation.”
“The largest U.S. mortgage lender is ‘playing offense,’ according to a senior executive, and has hired a public relations firm with a reputation for firefighting, to design an ‘attack’ strategy.”
If you read the NY Times piece on CFC this weekend, it’s hard not to see them as almost a criminal enterprise. So now they are going to act like mobsters and “strike back” at those who speak out against them.
I think their aggro PR strategy will work about as well as Wal-Mart’s.
Maybe tanzillo can acquire a s-load of W.I.N. buttons from some government warehouse, where they’ve been sitting for 30+ years?
Tanzillo should have played it a little smarter. If he donated more $$$$ to the Bush and Schwartzenegger campaigns he’d be sitting in a nice foreign country with an ambassadorship like Arnall of Ameriquest.
The CFC Empire Strikes Back.
The ship is going down, the Captian tells you that all is well even though you might be able to swim to shoreline to save your life. For those who jump and make it they made a rational conclusion that the Captian wants to save face not lives, for those who didn’t want to believe that they will sink with the ship.
Moral of the story , you flippers or desperate owners of homes you can’t sell don’t watch talking heads on CNBC or Bloomberg etc. they are Wall Street sharks, the corner used car guy in a to big blazer , they will tell you that the Fed will rescue you with lower rates all the while their stock portfoilo and gold stocks continue to climb while you keep paying ARM’s and taxes on a property you can’t afford.
Jump ship and lower your house and get out from under or at least see what you have to do to save something of your name, these Wall Street people are the same ones who told you buy a house, put no money down, sell it for a fortune in two years, fool me once shame on you, fool me twice shame on me, the gravy train is over, sell and take your losses learn a hard lesson but it is better then drowning waiting for the Fed Rates fund to save you???
keys + envelope + stamp = ____________
You always hear the phrase “mail the keys to the bank”. I wonder how often that happens? An ARM adjusts, and the resident moves out, doesn’t make a single higher payment, and literally mails the keys to the place that he would otherwise mail his check.
Anyone see this firsthand?
Irony is everywhere…
Vietnam no longer believes in the Greenback Dollar
“The Saigon Times said this morning that the State Bank of Vietnam was abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars. The policy is causing the economy to overheat, driving up inflation to 8.8pc.”
Would you call that Vietnamization?
That Buffalo article is awesome. Everyone should click on it and give a full read. Hopefully, it will make it into other US papers in the coming weeks.
Truth!-so powerful! Not to mention refreshing after all these years.
He even points out that foreclosures matter zero..zip..to most homedebtors as they have no skin in the game anyway and that the bailouts are for Wall Street. Ditto for the rate cuts, good for the big guys, disaster for the average Joe.
I love the upstate NY papers, they have a tendency to come out with the absolute unvarnished truth every now and again. Go Buffalo! May you influence more than just your little corner of the world!
“Fed’s action only serves to delay the reckoning”
Fed has been doing it ever since Maestro took the reigns.
Jas
No wonder they prefer to keep the printing presses running at full tilt — who would want to face the fallout from 20 years of the Maestro’s reign as conductor?
You notice how they lower the Intrest Rate and created this mass Credit bubble and at the same time change how filing for Chapter 11 Bankruptcy just before 2005. Did they see the writing on the wall long time ago and knew these reset was about to happen and then Forclouser everywhere!
you hit the nail on the head, i thought this when he signed it. he was trying to save the big boys pocket books.
Of course - that change in the law was no accident. Gotta transfer the wealth to the “right” people!
“When fears arose that this ‘bubble’ might burst, lenders reduced the interest rates on loans in order to allow speculators to continue buying the bulbs and thus keep the bubble going as long as possible.”
“Although it was a recipe for economic disaster, this short-sighted policy only ensured that when the bubble burst the consequences would be far more severe than if the excesses had been wrenched from the system earlier.”
Is anyone at the Fed paying attention?
problem is they’ve already lowered interest rates…we should have had a healthy recession early in this decade but the Fed / Greenspan lowered interest rates so drastically to escape economic slowdown. Perfect environment for a couple years of speculation and euphoria. But was it worth to devaluate the country’s currency like that? Was it worth to have the economy become dependent upon the Real Estate sector? Was it worth to create such a mess that we most likely will face another depression?
It’s time to get rid of the Federal Reserve.
Defaults, layoffs and bailouts are happenin’ everywhere, not just in the USA. I would like to know why anyone is surprised! These problems were caused by unjustified real estate valuations which were the result of loose lending standards which is what you get when you have fiat currency. Currency works only because the person accepting it believes somone else will accept it. Does any country use currency that itself has a value??
Posted: Fri, Oct 5 2007. 12:18 AM IST
Blood on Wall Street, but is it enough?
A fifth of New York City’s financial workforce got the boot in the two years after the 2001 downturn. Similar bloodshed now would mean pink slips for 40,000 Big Apple financiers
Antony Currie / Breakingviews.com
Should Wall Street brace for job cuts? This is supposedly the worst credit crunch in two decades. Repackaging mortgages, in fact the entire structured credit business, has been all but shut for three months. And the private equity business seems to be on an extended break, too. Thus far, the slowdown hasn’t translated into much in the way of cutbacks.
http://www.livemint.com/2007/10/05001805/Blood-on-Wall-Street-but-is-i.html
“Does any country use currency that itself has a value??”
As compared to what?
-Gold? (Can’t eat it or live in it.)
-Cigarettes? (Can at least enjoy smoking them.)
-Pebbles found along the beach? (Easily counterfeited.)
Can’t eater paper or plastic cards or electronic blips.
But strange times when we place any value on them.
Masai hold wealth in cattle, as the Romans did in Antiquity.
frenzied speculators in Holland ran up the cost of a tulip bulb to 3,000 guilders (about $100,000).
as a Dutchman I have to correct this … 3000 gulders at the time was the price of a big merchant home in the city of Amsterdam; current value is at least 1 million euro’s, that’s a lot more than $ 100.000 (that’s probably the price of such a home around 1975). Even around 1900 only a few homes in my city cost 3000 guilders, most of them were far cheaper. Damn those printing presses …
America’s property crisis
The hammer drops
Oct 4th 2007 | MAPLE HEIGHTS AND SAN BERNARDINO
From The Economist print edition
America’s houses are being repossessed at a record rate. What comes next?
http://www.economist.com/world/na/displaystory.cfm?story_id=9905451
“The Senate has appropriated $100m to help community groups advise delinquent borrowers.”
Mmmm-boy, how do I get me some of that? Another government program to be bled dry by “community groups”. I’m sure LaRaza is getting their share.
I had a housemate who i really wanted to moveout. A phD student making about 20k a year in Berkeley CA. His new home solution was to buy a 200k condo in downtown Oakland. He was to get a reduced rate through the California Housing Authority but it was contingent on taking an ACORN “class” on how to be a homebuyer/mortgage owner. In any case, Acorn had no classes available for an entire month which delayed his purchase and his moving much to my anger. These ACORN guys get the state to require people to take their classes and then they cant even provide the classes when people need them. In any case because of this delay, he spent some of his downpayment (gift from his parents) so he didnt qualify for the CA housing authority program anymore. Great program, graft and inefficiency allaround. Helping “low income” but really perpetual student getting handout from parents.
I believe the funding for the ACORN mortgage program comes from the big banks (BofA, Citi, etc) as a result of losing a lawsuit concerning charging certain zipcodes higher interest rates.
“Michael Ciaravino, the mayor of Maple Heights, points out that only three houses have sold in the past two months, compared to a monthly total of between 15 and 50 a few years ago. Once prices halve, he reckons, the market will clear, new families will come in and his suburb will recover. The question, for Maple Heights and America, is how much damage is done in the meantime.”
Yep!
Not to mention how long that process might actually take.
Why do these builder CEOs always have to sugar coat the picture?
“Conditions in all of our markets weakened more than we anticipated due to a number of factors including: recent severe liquidity challenges in the credit and mortgage markets, diminished consumer confidence, increased home inventories and foreclosures, and downward pressure on home prices. All of these factors have contributed to lower gross sales and higher cancellation rates,” said Antonio B. Mon, President and Chief Executive Officer of TOUSA.
More evidence the building sector has bottomed out here?
Year to date, TOUSA shares have lost 81 percent of their value, while the benchmark Dow Jones U.S. Home Construction Index (.DJUSHB: Quote, Profile, Research), is off 46 percent.
“This is supposedly the worst credit crunch in two decades.”
I’m sorry but I am so turned off by the term credit crunch. I think it is something other than that. Could it be a prelude to a credit crash? Is there any other term to describe this looming disaster?
It isn’t a credit issue. It is a valuation of the collateral, issue.
Like the Khan guy from yesterday’s CA thread that makes $150K a year but can’t qualify to refi his $650K loan on a house that is now worth $450K.
It isn’t the number of foreclosures that will kill the lenders. It is the amount of loss on each one. 5 million foreclosures losing $20K each = $100 billion loss. This is what the models are built on.
5 million foreclosures losing $200K each = $1 trillion loss.
This is what people are now afraid of.
“It is a valuation of the collateral, issue.”
Isn’t that why the Fed and BOE are accepting mortgage toilet paper as loan collateral? Doesn’t that pretty much solve the problem?
“5 million foreclosures losing $200K each = $1 trillion loss.
This is what people are now afraid of. ”
Thanks Darrell, this is what I keep saying. So far we have seen maybe $10B in writeoffs. Where is the other $990B?
Got carpet?
And I think $1 trillion may be a low estimate. There was well over $2 trillion in equity extraction. On flat wages, HOW are people supposed to pay that money back?
ummm…just wait until the corporate leveraged crap that was as loosely underwritten the past few years starts going south. Numbers will get real big when you start layering on the $100’s of millions in those deals.
starts going south?
bubba, its finished, why do you think 200 billion went to the FED window last night?
I’m going to post this in the CA thread, but am excited to receive this most recent responses to letters I’ve sent to our politicians. This is an excerpt from Congressman Brian Bilbray (San Diego area):
In response, on September 10, 2007 , Sen. Charles E. Schumer (D-NY) introduced S. 2036, the Protecting Access to Safe Mortgages Act. This bill would provide funds to individuals with subprime loans to allow them to refinance their loan to a new loan at a prime rate. While the bill is well intentioned, unfortunately this legislation is premised on rescuing financially irresponsible borrowers. In our market economy individuals are expected to manage their finances responsibly. By devoting resources to rescuing those who knowingly accepted high risk loans, a dangerous precedent would be created that the federal government will serve as a safety net for financial actors who choose to undertake extreme risk in the market. Furthermore, this approach would also perversely punish people who acted responsibly by waiting until they had the financial means to purchase a home. This bill has been referred to the Senate Committee on Banking, Housing and Urban Affairs. If this bill or similar legislation comes before the House of Representatives for consideration, I will be sure to keep your views in mind.
Again, thank you for contacting me. If you have further questions please call me or my office at (202) 225-0508.
————————-
Glad somebody seems to get it!!!
BTW, I wrote to him a while ago (1-2 months or so) and just got the response today. It’s canned, but the time lag makes me think someone from his office might have actually read it??? One can only hope.
I received a reply from Schumer. He also pointed out that each foreclosure caused the value of surrounding houses to drop by some amount.
I wrote back and pointed out that dropping house prices means that houses are becoming affordable. I then asked if he was against affordable housing.
If affordable housing is good, then dropping house prices is good. If some one wants to keep house prices high, ask them why they are against affordable housing. It’s fun.
If some one wants to keep house prices high, ask them why they are against affordable housing.
Excellent!
Good for you, LIL! I’ve also mentioned this in some of my letters. For the longest time, the pols have been complaining about lack of affordable housing. Now, the answer literally falls from Heaven, and they fight it tooth and nail. Odd, no?