Bits Bucket And Craigslist Finds For October 14, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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365k? They are dreaming.
http://chicago.craigslist.org/wcl/rfs/448551895.html
When did we lost touch with the fact that $365,000 is a lot of money? That house looks like $150,000 to me.
No kidding, what irks me is seeing real whores advertising homes listed at +300K as great “starter” homes.
I am made to feel cheap and crazy, poor, etc…. when I say I want to spend 200K for my dream home in SF.
I finally found a house to rent yesterday (we moved here almost a month ago), I looked up the mortgage records and couldn’t really make heads or tails of it as there was numerous entries.
Is there any one savvy that could check it out for me?
I want to sign the lease today but I want to make sure I am not making any mistakes.
If you can help please e mail me.
sunkissedbeach@yahoo.com
Personally I would not rent a house bought in the last 4 years. I cannot help you out here, but am glad you are doing your homework.
This home was bought before the bubble, for 100K but it looks like he took out some MEW’s along the way.
He also owns two other propeties, a trailer and the home that he is having built right now.
I hope Mike Fink can help me out on this one or someone else that can read the documents.
The realtor I am dealing with said he would do that for me but I don’t really trust them to much right now.
That pottery barn paint color is worth..oh what..$165,000 extra.
…and look at the sh!tty lots. Since when don’t you get a CHIMNEY for 365k?
really? in the Netherlands this would easily sell for $ 600K, probably even more …
with the current euro/dollar rate probably even $ 800K
If you are commuting to downtown Chicago for work, Plainfield is the edge of the universe.
If you are commuting to downtown Chicago for work, Plainfield is the edge of the universe.
You can always take the train in everyday… Except that there is a 5-8 year waiting list for parking permits at those stations out there. Of course the idea of a multi-level parking garage is out - anything remotely “urban” is immediately ruled out.
OK, in the most remote (2-3 hours drive to big cities) and nasty part of the Netherlands you could probably get a 10-20% discount on that $ 800K. still sounds cheap …
625000 in my hood, land of the permanent fed worker
How does a federal worker afford a 625K house? The GS scale tops out around 150, but the average is probably more like 70K.
Credit is all about job stability.
You aren’t supposed to own a house, the price reflects the credit industry - not the cost to build/produce the house.
This house would be in the high $500,000s to low $600,000s in Boston’s burbs.
..and to show just how insane (stupid) the market has made me, I’d be willing to shell out $365 for it here in MA..
Sucker!
If it is truly 3100 sq ft, then I really don’t think $365 would be that far out, assuming it was quality built…2×6, Andersen/Pella windows, weil-mclein/becket (furnace), etc.
I’m as much as a bear as the next guy, but I am pretty sure that a well built, quality 3100 sq ft home, on 1/4 acre plus lot on Boston’s North Shore, is not going to go much below $350k.
Also, at that price level, I’d pretty much be writing a check for it, so even it did go further down in value, I’d never be upside down on it.
Pen,
would you really live in this badly-designed house? The double garage is the “feature”, it sits on an tract where all the trees have been plowed out, and a few spindly saplings constitute the landscaping, and there isn’t a fence or a bit of privacy to be found.
Please have some coffee and think again.
That’s an 80k tract house, and an unpleasant choice for 80k.
I’d really have to see it up close and tour it.
1 - photos can be deceiving (good or bad)
2 - we don’t really do tract homes here in MA, so I was really commenting on the size
3 - if it was a decent lot, the right landscaping can go a long way
These were built on farm land, flat as a pancake. It’s too bad to, lost a lot of good land to crap housing. Also, the road network in that area sucks.
I’m curious about the fact that they don’t have any fences in this tract . It cost alot of money these days to put a block wall around a house ,which is the only kind of wall I really like .
Whenever I see a builder put a block wall around a project ,but than they put wood fences on the inside between houses , I wonder what else did the builder cut corners on .
Also during the boom it was interesting to me that in alot of starter models the builder didn’t put fireplaces in the house .You would see that the builder would add a fireplace for another 5 to 10 thousand . I wonder how many borrowers added 25k to 50k in upgrades from the builder ,that use to be standard features with a new house .I guess borrowers thought the cheap landscaping thrown in made up for the lack of real features .
i noticed - no chimneys, no brick, no redeemable features
My sister lived in a new development out in that area of the Chicago exurbs. The corner cutting was appalling.
First, and rarely disclosed except if asked directly - the builder didn’t pay up front for utility connections. Homes out there are frequently subject to decade-long special assessments owed to the municipality (in addition to property taxes) to pay for those connections.
Second, building codes specify insulation values for exterior walls, not materials. Unless the original owner paid $20k extra for plywall, it’s highly likely that the exterior wall consists of vinyl siding, a moisture barrier, a foam core layer, the interior insulation between the 2×4 framing, and then drywall. A burglar with a utility knife can cut himself a door into the home in about an hour, bypassing any security system you might have placed on doors and windows.
The trees weren’t plowed out. This was an Illinois corn/soybean field not too long ago.
here here. a look at the crappy siding. it is vanilla - but not madagascar vanilla - imitation vanilla.
H. Wizard: When I was in Illinois, many newer areas did not fence their property lines…..My husband’s sister and husband have a home which backs on a row of similar homes, the “back yards” look like one open green belt. Yes, you can see what kind of cereal the Smith’s across the way are having for breakfast. Freaked me out. They seemed to feel it was normal. AArrrgh.
Ha! Are they serious?
http://chicago.craigslist.org/sox/rfs/448548306.html
That might win the prize of “Ugliest McMansion Ever”.
I want to eat that house!
That thing is horrendous!
That’s an eyesore that deserves to be plowed under.
as tacky as it looks, it appears to have more quality than the house listed at the top of this thread…
While this is bad I have seen a lot worse, I have seen a disturbing trend where they seem to use an almost random mix of exterior siding on houses these days. There is a new house down the street from me which uses 6 different types of siding. Its suppose to look unique but to me it looks like the builder was just using up the scraps of siding that was lying around from other projects.
Umm, really, is this house constructed out of Lego blocks?
Given the current “quality” building, the concept of using random leftovers to build a house seems quite likely. I’d be surprised if they were NOT doing that.
Maybe it will sell around Halloween. It looks haunted to me. If not haunted, maybe cartoonish. Ugly.
Comes with two year supply of clowns if you don’t haggle down the price.
looks like something out of Disneyland to me; but again, by Dutch standards (judging from volume and features) it looks extremely cheap. It would cost at least $1M here, depending on location.
Right nhz ,that house could cost a million or more in alot of locations in California . I can’t get over the fact that the builders doesn’t even include a block wall around the property line ,or is it that I just can’t see it ?
This house in an inner suburb of Chicago would be over a million. This house, though, is built on the edge of nowhere south of Chicago. It was probably a farm 2 years ago.
you mean cinderblocks? nobody does that in my area…
apparently the whole Netherlands is priced like CA (hotspots) … keep in mind that median income here (before taxes) is only 30K euro ($ 40K), and in the more remote areas it is probably below 25K euro. I think wages in CA are a lot higher.
Wow, ol’ Ray looks to be a seasoned veteran of the real estate trade (not!). Perhaps someone from here should call his number and request two medium pizzas, one pepperoni and olive and one sausage and mushrooms for delivery. When he replies “I don’t deliver pizzas” you could respond “Not yet, anyway!”
Alright, back to my coffee:-)
Anybody catch the “6%er’s” blurb. He can’t spell.
ARE YOU SELLING YOUR HOME?
For sale buy owner and discount companies won’t cut it in this market anymore. Too much competition, long market times and negative media have made marketing and selling your home a challenge today.
————–
“. . . made marketing and selling your home a challenge today. Sellers are struggling because they are not recieving proper exposure needed to sell their home.”
It is a good thing that they hired this guy so that he could use his seasoned marketing skills to put an ad on Craigslist.
And it is “i” before “e,” except after “c”. . .
for sale BY owner
he’s a dumba$$
Couple of good ones.
Bubble 2.0
http://online.wsj.com/article/SB119189215196852951.html
Market Cheat Sheet
http://bigpicture.typepad.com/comments/2007/10/market-cheat-sh.html
you seem to find lots of interesting articles to post….
FED desperately trying to encite a bubble, but it appears to me the only thing getting excited are higher commodity prices…. yeah, thats the ticket an “inflation” bubble. perfect timing.
–
Wall Street strategist: “Earnings don’t matter [they could be negative for Q3]; what matters is if Fed would ease.”
The economy is addicted to asset bubbles and Fed knows it.
Jas
I think we need another “survive the crash” thread. I am worried about getting through this damn thing without getting hosed.
Will Monday be the start off another week of bank runs?
Concerning next week…..
****
Subject: ### Martial law coming next week? ###
This may or may not be useful to you, but I urge you to take a look and decide for yourself what weight to give it. It is a serious message.
See:
http://tinyurl.com/2bgtpu
with all due respect, I wish you had provided a PDF warning.
Clicking on that link caused my browser to seize. I had to reboot to get back to normal.
If you have issues with the Adobe Acrobat reader package on the Windows platforms, google for “Foxit reader” … it’s a much more lightweight PDF viewer. It cannot edit forms, but I’ve had great luck with it, since most of my computers are older.
I can hang with tiniest and foiliest of of the hatters, but in the interest of precise, consolidated information, we should restrict discussion here to housing.
Having said that, a “terrorist” attack (one which would involve the relocation of millions of people) would be a convenient solution to the stagnant economy.
Sorry, Ben, I couldn’t resist.
My tin foil hat fell off. What hooey.
My tinfoil hat just caught fire. Now to go buy those airplane tickets to leave the country…
that’s interesting, airline CALL options this time instead of PUT options
http://faultgame.com/images/twilzone.wav
Thanks for the music. How can one embed it in e-mails, do you know?
If you are using MS Outlook Express, format,background,sounds and add the file.
please no, my therapist has respectfully asked me to not read any more “how to be a survivalist” blogs….
Monday may be the day the T-dept’s new Mortgage Mess Superfund plan is unveiled…
Citibank reports on monday and is the prime mover in the ’super conduit fund’. Apparently, Citi was was the bank in trouble in August who needed to go the the discount window, and BoA and the other two were forced to go along to provide cover.
Should provide some entertainment.
How will Citi present the plan without taking the appearance of a beggar with cup in hand?
They will spread the loss over a bunch of quarters.
Sorta hung drawn and quartered then?
So much for “free markets”?
Subprime resets lead to an explosion of foreclosures in the NY area.
http://www.nytimes.com/2007/10/14/nyregion/nyregionspecial2/14Rprimemap.html?ref=nyregionspecial2
There is a map that goes with the article, that shows the loans concentrated in poorer sections of the city and suburbs — between the expanding circle of gentrification moving out from Manhattan and the housing too new to decline in farther out suburbs.
The areas at risk now include many areas outside NYC, and satellite cities such as Newark and Yonkers, including older tract house areas. The older suburbs may be most at risk in a downturn, as their residents are the descendents of the “white flight” folks from the 1960s and 1970s.
According to Credit Suisse, peak reset month is November.
WT Economist, you need to stop spreading this garbage. Aren’t you located in Minnesota? Minnesotans aren’t supposed to lie like this. How do I know you are lying? Because the people around me tell me how different the NYC area is and that we are immune to that stuff that is happening in Florida and Las Vegas.
I believe it is getting very bad in this area. My boss, who thought I was crazy when I said Jersey would see a huge hit, now sees the light. He told me a couple of weeks ago that he saw homes under $500,000 in his Paramus paper. This was unheard of the past couple years. We all know Long Island is melting down. Queens is a disaster. Brooklyn has so many high-end condos coming online that it is ridiculous. And Manhattan is waiting on deck to get hit with a trout. But Manhattan is so special that it won’t happen there. Cities like Newark and Jersey City will get demolished before this is over.
NYCityBoy said, in the summer of 2005, this market is insane and will collapse. “Traitor,” they shouted. Well, here we are and it is obvious that the Real Estate Chernobyl is well under way. Open your eyes New Yorkers. That big mushroom you see is not part of any Broadway show.
The one bright spot in the Metro Meltdown is that one day, I may be able to afford to move back to Queens. But would I really do that???????
Muggy,
no, don’t move to Queens unless you are a recent arrival from the Punjab or East Africa. Brooklyn’s meltdown is going to come with a nice crime wave–too many folks with bank moved in serious and ugly places like BedStuy–volunteering themselves for the first wave of break-ins.
If you hate Manhattan, look at City Island. The harborfront homes are wildly overpriced now, but you could find something in a year, then moor your boat for a quick getaway.
Yeah, its different here in Florida too! Here is a snip from an article in today’s Orlando Sentinel:
“Jump in loan defaults
The biggest indication that the region’s and the state’s mortgage woes are far from over is the recent spike in the number of property owners defaulting on their home loans.
In the seven counties surrounding Orlando, the number of monthly loan defaults recorded in court has jumped from 611 in January to 3,181 in August. Statewide, monthly loan defaults increased from 2,919 in January to 18,676 in August.
In Florida, one in every 33 homeowners with an adjustable-rate loan was in foreclosure as of June, according to Mortgage Bankers Association data, compared with fewer than one in every 100 homeowners with a fixed-rate loan”
By the way, the front page has a block of articles on the forclosure crisis… So now its a “crisis”? I thought that the market was just taking a “breather”… you know, like a “souffle”.
Nicely understated reporting, calling a 5-6 fold increase in 7 months a “jump”.
I just went to the Sentinel web site and had a look around with there foreclosure map. There are at least 5 in the little tract I rent in (Eagle Pointe, Kissimmee). These are not brand new homes they are at least 5 years old. WOW!
Just got back from a week business trip in Florida. (I’m there about one week/month). Just a couple of years ago, everyone was talking about buying condos/lots/etc as a means of financing their kid’s education, etc (usually they tried to pin it to some noble wholesome cause). Now everyone is *really* upset about what *happenened* to them (victimspeak.)
For someone who was only there one week/month (I’ve been doing this for the past 10 years or so), it was really easy to see this coming. There are some funny sites to see there, like the condos pitched “investment property” which were apartments built in an outlet mall parking lot! The sales material touted “Great Access to Shopping” ( http://www.lbvresortvillage.com/ )
I don’t think anyone bought there except for penniless “investors” trying to get rich quick. (People who would actually risk any of their own $$$ or had any $$$ to lose, would have at least looked on a google satellite map before buying.)
So the $10/hr Disneyworld rubberheads can’t afford the payments once their ARMs reset. What a surprise!
Manhattan is different. It won’t get hit with a trout. It will get hit with a fluke.
At least the residents will claim it is a fluke event.
(Because the people around me tell me how different the NYC area is and that we are immune to that stuff that is happening in Florida and Las Vegas.)
They’ve stopped saying it’s different in the NY area. But they are STILL saying it’s different in Manhattan and the better off parts of Brooklyn. I keep saying prices will go down, but no one is going to believe me, because I thought prices were getting too high four years ago, and they keep going up.
“The older suburbs may be most at risk in a downturn, as their residents are the descendents of the “white flight” folks from the 1960s and 1970s.”
Please clarify. Are you saying that the older suburbs were populated by whites who took flight in the 1960s and 1970s and it is their children and grandchildren who are now living there, or are you saying the older suburbs were populated by those who replaced the whites who flew away and now those children and grandchildren are living there?
I really enjoyed growing up in Westchester County. It seems to have stayed the same in certain pockets and changed drastically demographically in other pockets.
That is an interesting observation because that’s about where it seems like things are headed for many of Chicago’s older ‘burbs too. Formerly working class suburbs hold little appeal for current buyers - who either prefer city condos or exurban new construction. Not only is their location currently undesirable - their housing stock is as well - wood frame, slabs, small, etc.
It is quite possible in coming decades that many cities will be ringed by blighted older suburbs - somewhat like Paris.
only if you can work at home. there is a built in limit to hideous commutes
My point is that many of those living in the older suburbs today, if they grew up there, had parents who fled the innner city for those locations in the 1960s and 1970s. They may have different attitudes about diversity, or they may flee again. That is a key question for the suburbs.
“There is a map that goes with the article, that shows the loans concentrated in poorer sections of the city and suburbs ”
The fact that loans were concentrated in poorer areas doesn’t make these folks DUPES or VICTIMS!
In fact, it can be construed as “elitist” to think so.
I like to think that all men, rich or poor, are created equal and are of equal intellect. I’m no elitist!
These folks KNEW that they had nothing to lose! If you have no savings, no bank account, etc, why not sign on the dotted line for a mortgage you can’t really pay for. NOTHING BAD CAN HAPPEN! You get to live in a nice house for a year or so, until the whole thing collapses, then you go back to the way you lived before, except with some HELOC $$$ in your pocket, and a new “victim” badge you can wear next to your others (”Single Mom!” “Recovered Addict”)
So these maps showing poor people “victimized” don’t impress me one bit
Hey HBBer’ get your M-LEC on! What does the latest alphabet soup acronym mean to you?
How about:
Master Leveraged Excretement Consolidation?
I don’t care what the acronym is, the whole concept is giving me (here in Australia) the willies.
As many commentators are starting to point out, the rationale behind this only makes sense in the context of a liquidity problem. However, if there’s a solvency problem this will just make matters worse, by dragging currently uninvolved players into the swamp.
E.F.F.E.D.
extremely fraudulent financials every day
I haven’t done one of these in a while… (my apologies for any errors, I don’t have Ben’s Ninja-like editorial skills):
Smoke ‘em if you got ‘em!
http://tinyurl.com/ysqo6s
http://tinyurl.com/ytsckn
http://tinyurl.com/2xrmjb
http://tinyurl.com/2apuwe
http://tinyurl.com/2zohtn
http://tinyurl.com/23594q
http://tinyurl.com/2qjgf3
http://tinyurl.com/2mrg77
http://tinyurl.com/2lvab6
http://tinyurl.com/2puk9r
http://tinyurl.com/34gmx4
Just had 2 suspicious fires in East Liverpool OH in our county paper this week. There’s usually at least one a month. That city has lots of rundown housing and drug houses everywhere. Someone is probably doing the city a favor and saving them the expense of burning them down.
except firefighters put their lives on the line to put them out…that is unacceptable for that reason
Comparison of the FL tax plans:
http://alt.coxnewsweb.com/palmbeachpost/pdf/state/PropTax101407.pdf
What a clusterf**k this is becoming. Although I disagree with other bloggers on the current system, I am becoming so SICK of hearing all these ways to “fix” the system that do not address the problem!
The problem is spending, plain and simple. You fix a spending problem by controling the amount spent!!! All of these tax proposals are just smoke and mirrors, we are going to make you feel good about the proposal, but do nothing to control the actual source of the problem.
SPENDING CAPS!! It’s really, really simple people!
The Realtors are back at it again trying to get “transaction friendly” legislation. The legislation is not about lowering property taxes for homeowners but about increasing transactions for REIC members.
Right on, Popper. That’s exactly the point and the RE agents around here are waiting in suspense.
One thing we can agree on, Mike, is the spending caps. Seriously, though, as someone who has lived here for over 25 years, it would be better if Tallahassee just left things as they are and let the bust play out and then re-group, if need be. These folks up in Talla have screwed things up royally and right now, ANY action on their part will screw things up even more at this time.
Prior to the bubble, nobody complained about SOH. The real answer right now is just let the bubble burst in peace, with no jiggering. Let people move or stay, as they please. And then shorten the amount of time people can take deeds by adverse possession, to get taxpayers into abandoned housing and fix up the neighborhoods. Just my two cents.
BTW, my fears were just confirmed yesterday by an article in one of the local fishwraps. A gang of five teens were just nabbed stealing cars in the area of a Morrison Homes development (Homes in the high 200s to $300,000) that backs up to a new subsidized farmworker housing apartment complex. I had naively wandered into the apartment complex one day while looking for a rental and was laughed out of the lobby by the “leasing” agent. As I was leaving, I noticed a short row of “guestworkers” sitting against the wall that divides the Morrison Homes development from the farmworker luxury complex. (I’m not even being sarcastic, the place has a pool, tot lot, and clubhouse). I looked over at the development and thought “Uh-oh, this will end badly”. So I did a little informal research. During the bubble, subsidized housing in this area mushroomed, to the point that potential “tenants” turn their nose up at the older complexes in favor of the newer, more “luxurious” complexes. The older places are having to place ads, begging for tenants and I see the same ads in the local fishwraps, week after week. Talk about a complete waste of tax dollars. This area lost a lot of agricultural land to development, which means fewer guestworkers and migrants are needed, right? And yet, subsidized housing increased, with the result that the existing places can’t get tenants. And I’d be willing to bet that many of the “guestworkers” who live in those complexes were or are NOT employed in agriculture, probably lied about it and instead worked construction, landscaping, etc., not to mention the subsidies they get for their anchor babies. So now, as a result of the bust, not only are many not working in agriculture, but they are not working in construction and landscaping, either. One of the consequences of the bubble in this part of FLA is the displacement and re-shuffling of populations and neighborhoods.
I am so thankful I am renting. I cannot believe the “perfect storm” that is hitting Florida right now. We may all lose our shirts, but at least I sleep well. Hey wait, half the dregs in this state are already shirtless, let me rephrase: we may all lose our cans of Coors, but at least I sleep well.
those subsidized farmworker luxury complexes sound extremely Dutch … except that they build them for ‘poor’ pensioners here and not specifically for farmworkers (who are nearly all multi-millionaires here anyway). BTW, poor pensioners in Netherlands are often formerly rich people who gave away their capital to their children or charity (at least on paper) so they can live the good life fully subsidized by the taxpayer. I am told you can also donate to charity and ask them to refund 95% or so to yourself, tax-free, as a charitable gift. Life is great if you know how to game the system.
Geez, I’m hosed. Those numbers don’t seem too bad to me. Here in Ohio, I’ve got a house worth about $140K and pay around $2K in property tax. Add State income tax to boot.
Depends where in Ohio. My house is worth $225k and I pay 2K/yr for property taxes. After looking at FL and other places my taxes don’t look as bad anymore even with state income tax. I figured it up and I’d pay more in FL just for property taxes than I do a year for prop and income tax together. Plus my house insurance is $538 a year. Also car insurances in Ohio just went down again for the 2nd year. I wanted to move south, but now I’m afraid the taxes and insurance alone, not withstanding the killer house prices would kill me.
my house is ‘worth’ maybe 200 - it would easily SELL at that price anyway (smoking weed at 250+ at his point)
I pay 4,000 in ppty tax and another 500 for my car and 115 for fire tax. wtf
The Las Vegas Review Journal has a lengthy article (Part 1 of 3) on the effects of the anemic housing market on the economy. The accompanying charts are eye openers:
http://www.lvrj.com/news/10534567.html
I would love to see an article like this in our local paper, but at last today’s paper just had an article about how 70 year olds can buy houses too, and how great it is that this 70 year old paid $155K for a 2/1 home in Norfolk, VA…. A house that was probably $70K 3 years ago.
“Exotic mortgages with rising interest rates made up 51 percent of all home loans originated in Nevada in 2006, compared with 33 percent of all home loans nationally, according to LoanPerformance.”
Wow! It really is different in Vegas!!
What you Lose in Vegas
Stays in Vegas
Goldman Sachs (GS), Morgan Stanley (MS) and Merrill Lynch all have a trillion dollars each in liabilities and only about 40 billion dollars in equity. They are all leveraged, it appears, 25:1. So a drop of 4% in the value of their assets would wipe out their equity. Right?
If what you right is true and what you suppose is true, then all I can say is..
YIKES!
Insert the stock ticker at finance.google.com and see for yourself.
FNM and FRE are leveraged pretty high as well. If FRE’s assets lose just 3% in value, it appears the equity is wiped out.
If you wanted to explain the current risky financial system to a friend, these numbers alone could do it.
“So a drop of 4% in the value of their assets would wipe out their equity.”
Sounds like these companies need lots of wealth-effect-producing inflation, and fast!
The IBs and money center banks will go to extreme lengths to dress-up their balance sheets and the SEC and FDIC will look the other way. Those institutions live on credit, primarily short term, and who will lend money to a financial intermediary that shows a balance sheet insolvency? Hence we get mark-to-model and mark-to-phantasy.
This is what happened in the early stages of the S&L problem when FSLIC adopted accounting rules to hide the balance-sheet insolvency of numerous thrifts. The negative net worth was due to short-term liablities supporting long-term assets in a rising interest rate environment.
Does anyone really think that their money in the bank is safe? The way this unwind is proceeding and the way the Fed and TPTB are reacting to it says that your money in the bank will not be safe before too long. Thus, for those that have saved and acted prudently and have so far beens victims of the war on savers, don’t be surprised as things continue to deteriorate and implode we may once again become victims of the coming deflation.
Not realy - 1 trillion in liabilites + 1 trillion in assets. GS keeps around $45 billion in short term cash to make sure they can sustain day-to-day business even if liquidity dries up.
“Economics of housing full of inequality”
http://timesunion.com/AspStories/story.asp?storyID=629794&category=COMMENTARY&BCCode=HOME&newsdate=10/14/2007
http://www.timesunion.com/multimedia/video/blight.asp
“The rat was this long”
When you knock down a dilapidated structure…..does this mean in a theoretical sense you are making land?
Anecdote from Tempe Arizona:
My friend Rachel signed her lease on a nice apartment last Fall; shortly thereafter she got a letter saying the property would undergo conversion to condos November 2007 and she’d have to vacate. I told her not to worry too much, I’d be surprised if it happened what with condo conversions going belly-up and/or re-converting to apartments. Rachel got another letter this week; the conversion won’t happen ’til “…at least October 2008.” Yeah, I’d say -at least- 2008, more like 2012- this will be a mighty slump with much weeping and wailing and gnashing of teeth.
Schadenfreude is nothing to be ashamed of.
Another reason there has never been a better time to rent a home:
Nobody home
Loan servicers slow to respond to mortgage turmoil
By Jeremy Herron and Stephen Bernard
ASSOCIATED PRESS
October 14, 2007
… as the housing crash ravages the mortgage sector, millions of servicing contracts are changing hands as parent companies go bankrupt or pare back their lending activities. Amid the turmoil, even homeowners who pay their mortgages on time face the real possibility of falling behind on insurance or property tax payments because of clerical errors at the servicer.
http://www.signonsandiego.com/uniontrib/20071014/news_lz1h14loan.html
Privatize profits, socialize losses. Lather, rinse, repeat.
DEAN CALBREATH
Lenders can’t shovel all the blame on borrowers
October 14, 2007
In recent weeks, the mortgage industry has put out the word that it is shocked, simply shocked at the amount of fraud involved in home loans.
“People are deceiving lenders at an alarming rate,” said Jonathan Kempner, who heads the Mortgage Bankers Association.
Citing FBI estimates that mortgage fraud may have totaled as much as $4.2 billion in 2006, Kempner said the fraud has contributed to the recent wave of loan delinquencies and foreclosures.
But how innocent is the mortgage industry? Were lenders, as Kempner said, “the principal victims of mortgage fraud”? Or did the industry, with its lax standards, create an atmosphere in which fraud became pervasive? And did some mortgage firms aid and abet the fraud?
“(The mortgage lenders) knew the bad credit quality of the loans being originated, they took their profits, and now the ship sinks,” said Bob Simpson, president of Investors Mortgage Asset Recovery Co. in Irvine. “They will all walk away rich. And we are left with neighborhoods full of foreclosures.”
http://www.signonsandiego.com/uniontrib/20071014/news_mz1b14calbre.html
“Citing FBI estimates that mortgage fraud may have totaled as much as $4.2 billion in 2006, Kempner said the fraud has contributed to the recent wave of loan delinquencies and foreclosures.”
Ok, so we have $50 billion in ARM’s adjusting this month, approximately 70% are subprime (per the Credit Suisse Chart), and and a huge chunk of those had falsified income data. Most of the adjustments were from October of 2005 loans. So probably $25 billion in false loans of some sort adjusting this month. And the FBI thinks there was only $4.2 billion in fraud in ALL of 2006?
The lunatics have taken over the asylum.
WAMU is the hotbed for mortgage fraud these days. From the CA thread yesterday:
“Soledad Aviles, an immigrant from Mexico with a 6th grade education who can’t read or write English and makes $9 an hour, was approved for a mortgage of $615, 000 by Washington Mutual.”
Current Update: WAMU just approved a 95%, $870,000 loan for a house at 505 Heathmore in Lincoln (Sacramento metro). The utilities are not even turned on at this property and the same model house just sold around the corner for $490,000. WAMU will lose more than $500,000 on this loan! Absurdity. Absolute absurdity.
The buyer appears to be a suspected mortgage fraudster who purchased two more homes around the corner in 2006. The sellers are Realtors from Century 21, who moved the property into an LLC, before selling it.. The fraud in America appears to be blatantly ongoing, though less than in 2006. The biggest difference today is many of the fraudsters are standing out in the crowd and getting caught. Many arrests are being made in Sacramento now.
Oakmark Select mutual fund has a big stake in WAMU (14%). Their fund NAV is dropping like a rock, down 6% in the last 90 days. They just sent out a memo last month about hanging with Oakmark Select, because WAMU is so well run!! In fact, the Select fund manager said he is buying more of his own fund. I am going to send him an e-mail, cutting and pasting a few tidbits from this blog. Let’s see if Oakmark’s fund manager, Bill Nygren will take action. Here is what he said on August 16:
“Finally, I can assure you that we at Oakmark remain economically aligned with you, our shareholders. Personally, I don’t own stocks except through our funds. My largest investment is in The Oakmark Select Fund, and I have purchased more shares this quarter.”
If WAMU can’t police their own loan officers and stop this mortgage fraud, maybe a few major stockholders will get the board up off their lazy rear ends to bring down the hammer on the WAMU loan officers!! God speed Mr. Nygren.
I will keep everyone here informed of the results.
Great work, Jingle. Thanks and definitely keep us posted, I’m very interested in what happens to WaMU and its satellites.
Yes, Palmetto, this loan could end up in a bail out super fund and you and I pay for it. What a joke. It is time for the FBI to make some mince meat out of these nut jobs.
By far, the bank that sends me the most outrageous HELOC offers is Wamu. Local branches near me send out hokey flyers Xeroxed on brightly colored paper - very amatuer (like adverts for a bake sale) - not at all like the glossy pamphlets from their competition. Wouldn’t deposit money there at any cost.
“By far, the bank that sends me the most outrageous HELOC offers is Wamu. ”
I Have a heloc with my Wamu local branch at 7.25%. Also have WAMU as the agent handling my Mom,s annuities with AIG. Not at all happy with their handling of the annuities and am ready to cash out the $25,000 annuity and put it into a B of A MM Account paying $4.85 %. If it was my money i would have long ago put that money into the Vanguard family of funds.
Why i an choosing B oF A to deposit the $25 grand paying 4.85 % on MMfund? My Elderly Mom will only deal through actual physical bank branchs where she can deal with a live Human acct manager-she cannor deal with internet Banking.
Personally i have no problems with internet banking and know that i can get closer to 6% on MMF’s. or exceed that rate with shrewd diversified investing thru Vanguard family of funds. Also, my feeling is that such banks as Wamu and B of A are too huge to go thru a catastrophic bank failure such as the 1930’s, and the Gov’t-Wall street will prop them up thru bailouts rather than see them fail.
Plus at least i get,for what it’s worth, the FDIC insurance in a MMA which i don’t have with the AiG/WAMU annuity.
WAMU will lose more than $500,000 on this loan! Absurdity. Absolute absurdity.
Maybe true, but someone else is headed back across the border with $500k of the banks…and their customer’s money.
There are winners and losers in every trade. The real loser will be us.
Remember the S&L fiasco. Remember Whitewater?? A development scam with lots of bank money going into developers pockets………..and the pockets of others.
WAMU didn’t lend $500,000 of their money to this person. They have about 1/10th of that in reserves. The remaining amount of the loan was manufactured out of thin air.
If the loan goes completely bad - they’ll lose like $50,000.
This is my understanding of the situation.
If this is accurate, I wonder what this means for the market?
please report that incident…it is heinous obvious fraud
we’ll love you if you do!
Late last night I finally had a chance to carefully digest yesterday’s front page story in the WSJ about the plans to create a toxic mortgage superfund (snippet and link reposted below). I found the closing paragraphs of the article most disturbing, as they suggest the $400b in SIVs play a similar role in big banks’ financial reporting strategy as Enron’s off-balance-sheet debt once did. With Enron long gone, are these big banks with SIVs the smartest guys left in the room?
http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_Room
Big Banks Push
$100 Billion Plan
To Avert Crunch
Fund Seeks to Prevent
Mortgage-Debt Selloff;
Advice From Treasury
By CARRICK MOLLENKAMP, IAN MCDONALD and DEBORAH SOLOMON
October 13, 2007; Page A1
…
Citigroup has nearly $100 billion in seven affiliated structured investment vehicles, or SIVs. Globally, SIVs had $400 billion in assets as of Aug. 28, according to Moody’s.
…
SIVs are purposely kept off the balance sheets of the banks to which they are affiliated. One reason for this is that banks want to keep down the amount of assets on their balance sheets to reduce the amount of capital that regulations require them to keep.
Because SIVs are off the balance sheet, it is difficult for investors to size up the financial risks they pose. Off-balance-sheet liabilities played a major role in the 2001 collapse of Enron Corp., and the makers of accounting rules have generally sought to get affiliated entities back on the balance sheets of the companies creating them.
http://online.wsj.com/article/SB119221840415557568.html?mod=hpp_us_whats_news
My unexpert opinion: SIeVes and financial transparency don’t mix.
http://en.wikipedia.org/wiki/Sieve
Six years ago Enron imploded and took Arthur Andersen down in its wake. A number of people did the perp walk and there were massive calls for financial and accounting reform.
Today the Treasury Department assisted by the Fed is the band leader for organizing a massive off balance sheet Love Canal Superfund for the financial industry’s toxic waste.
What a difference six years can make!
Does anyone who is an accountant understand why this is legal?
Oh maybe it’s because the Chris Dodd, the chairman of the Senate banking committee, has these guys as the top campaign contributors:
http://www.opensecrets.org/politicians/contrib.asp?CID=N00000581&cycle=2006
The thing is, there seems to be an attempt to prevent this entities from being marked to market, and then having the massive losses reported to investors and those who lent to the SIVs.
The argument about economic damage is that banks may feel a need to take the SIVs back to protect their reputation, thereby putting the broader economy (and taxpayer deposit insurance) at risk. But regulators should not allow the banks to take these instruments back. And perhaps those that issued them, and those that bought them, deserve to lose their reputations.
As after the dot.com scandals, the government feels the need to “restore confidence in the market.” Perhaps what it actually required is for people to see the market for what it is. More pain in the short run, but perhaps real reform in the long run.
So what exactly will this fund do?? Buy all the bad assets from all the bad guys at par, declare BK and poof it all goes away?? Is this the PPT Final Solution??
It just seems like there’s too much bad paper for $100 billion to cover it.
“…thereby putting the broader economy (and taxpayer deposit insurance) at risk.”
What’s good for Citi is good for America, huh? Maybe it is time to elect a president who is willing and able to downsize the biggest players in the banking industry. Otherwise too-big-to-fail financial institutions may ultimately morph into too-big-to-bail financial institutions.
Banks in ‘super-conduit’ proposal
By Saskia Scholtes in New York
Published: October 13 2007 03:30 | Last updated: October 13 2007 03:30
US banks are in close discussion with financial regulators to resolve a liquidity crisis in the market for commercial paper, said sources close to the situation.
http://www.ft.com/cms/s/0/684b16de-7919-11dc-aaf2-0000779fd2ac.html?nclick_check=1
The super conduit has been trimmed down to $75b even before it was announced. And they have a fancy acronym (SMLEC), which is pleasantly evocative of the High-Grade Structured Credit Enhanced Leveraged Fund (HGSCELF). Since it is enhanced, it is sure to be effective in promoting market liquidation.
Banks line up $75bn mortgage debt fund
By Gillian Tett in London, Krishna Guha in Washington, and David Wighton in New York
Published: October 14 2007 21:01 | Last updated: October 14 2007 21:01
Citigroup, Bank of America and JPMorgan are on Monday expected to announce plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks.
A person familiar with the discussions said that US banks collectively were expected to put up credit guarantees worth about $75bn for the fund, named the Single-Master Liquidity Enhancement Conduit (SMLEC).
http://www.ft.com/cms/s/0/4550b8c6-7a8d-11dc-9bee-0000779fd2ac.html?nclick_check=1
Still not clear: How will they get their hands on other people’s money needed to fund their super conduit? So far it sounds like a reinsurance scheme without any insurer of last resort in evidence.
And won’t the super conduit take the form of a great big SIV? I guess they are hoping the hair of the dog that bit the credit market will some how provide a cure.
http://en.wikipedia.org/wiki/Hair_of_the_dog
Treasury offers spur to banks’ debt scheme
By Krishna Guha in Washington and Gillian Tett in London
Published: October 15 2007 00:11 | Last updated: October 15 2007 00:11
The idea of setting up a “super-conduit” to address problems with off-balance sheet units, such as structured investment vehicles and conduits, emerged three weeks ago, when the US Treasury summoned leading bankers to discuss ways of reviving the mortgage-backed securities market and tackling the threats posed by the vehicles.
SIVs and conduits were seen as vulnerable to an old-style bank run as a result of the drying up of the asset-backed commercial paper market in August and September. By the time the super-conduit idea was discussed the ABC market appeared to be stabilising, but the risk of a run remained.
That situation posed wider concerns, as the SIVs and conduits are linked to some of the world’s largest banks and financial institutions. The issue was highlighted in August when it emerged that two German banks, IKB and Sachsen LB, had, in effect, imploded as a result of an inability to fund their SIVs.
What was needed, some bankers argued, was a super-conduit with the backing of leading financial institutions, to buy mortgage-linked securities from the existing SIVs and conduits and remake them into products that were more attractive to a nervous market.
http://www.ft.com/cms/s/0/2d3da098-7aa9-11dc-9bee-0000779fd2ac.html
http://tinyurl.com/27odob
A get rich quick ponzi investment scheme that involved recruiting more investors and people to refi into high fee mortgages and played the race card to induce minorities into trusting them. Lovely little housing/mortgage based scam!!
http://tinyurl.com/23zo4u
Exburbs of Metro DC suffering from revenue shortfalls because bubble based property assessments have become the expectancy for tax revenue hence now they will have “short falls” that need to be made up either in cutting services or increases in tax rates.
Still a great selling point to advertise that your home is below the county tax assessment because normally that means its below FMV, but I wonder if that’s the case in this modern housing deflation/recession cycle?!!
How’s your business model looking now?
Talking Points for NAR’s “Buy Now” Campaign
“But these conditions may not last. August pending home sales rose 4.5 percent, and prices are expected to rise again next year. Even the vice chairman of the Federal Reserve says that the housing market outlook is improving.”
http://www.realtor.org/home_buyers_and_sellers/buy_now_talking_points.html
“But these conditions may not last.”
This is true. Buy now, and get priced in forever!
“It’s a great time to be shackled down with a mortgage!”
WHAT? CONFUSION REIGNS SUPREME. Bloomberg is reporting that the HB will hit a 12 year low in starts for September. Lies & more damm lies from the NAR
Oct. 14 (Bloomberg) — Builders in the U.S. broke ground in September on the fewest houses in 12 years, giving the Federal Reserve reason to be more concerned about economic growth than inflation, government reports this week may show.
Housing starts fell 3.6 percent to an annual rate of 1.285 million, according to the median forecast of economists surveyed by Bloomberg News ahead of the Commerce Department’s Oct. 17 report. Consumer prices rose 0.2 percent after dropping in August, Labor Department figures the same day may show.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLStqpDWDanA&refer=home
Meet the foreclosed on, of 1850
“The Outcasts of Poker Flat”
http://www.shortstoryarchive.com/h/outcasts_of_poker_flat.html
Enjoy,
John Oakhurst, ex-gambler
The weather here in Monterey county is still beautiful today. People should be happy but this week I saw my first case of road rage. It was a large contractor truck with two okies inside. Cut right in front of one car and then tried to run him off the road twice when he flipped them the finger. The pickup driver just missed the car by less then an inch twice. I went into Monterey and Pacific Grove yesterday and foot traffic is down in Cannery Row and the shopping areas. More commercial space showing up monthly. At a local business after hours event the talk was about businesses moving out of Salinas and the hotel/motels are complaining about high vacancy rates. Locally in the neighborhood more families have increased the number of family members living in their houses.
Even when you’re not looking, the housing bubble finds you.
Anecdotal from L.A. with Nevada connections
Was taking my grandson to the park on Thursday. A lonely fellow with obviously poor social skills with a dog came up and struck up a conversation. He and his wife bought a house 30 miles east of Reno 2 years ago. He can’t find work in that burgh in architectural drafting that will pay him sufficiently so he’s living in Glendora with a friend while his wife guards the family jewels east of Reno.
But wait, help is on the way. There’s a super Wal-Mart in construction that will make all things right in that town.
This is getting Biblical!
Maybe Nostradamus was right. There’s more than one way for California to tumble into the sea.
i’ll be your house Housetradamus, if nobody else wants to foretell
Wal*Mart’s not stupid! They planned one in Elk Grove (a nicer way of saying Sacremento) near where my Sister In Law lives. Had community meetings, cleared the land, etc. Then abandoned the project just in time.
“It may be said with a degree of assurance that not everything that meets the eye is as it appears.”
Rod Serling
http://www.frontlinethoughts.com/printarticle.asp?id=mwo101207
The GDP Equation
October 12, 2007
By John Mauldin
The GDP Equation
How Low Can You Go?
The Key Variable Problem
The Importance of Fiscal Policy
The Slow Motion Recession
So, while consumer spending may slow somewhat due to rising unemployment caused by the housing crisis, for now rising incomes are offsetting the problems. Because of a rise in income, consumption might fall less than we would expect from the negative wealth affect of housing valuations dropping by 20%. We should never underestimate the ability of the American consumer to spend. Further, as the dollar falls, net exports are going to rise, providing some further help to GDP.
But housing is still an issue. We are very likely to see housing starts drop another 40-50% to around 800,000. Residential construction accounts for about 8% of US employment. We have not seen a great deal of job losses from the drop in housing construction that has already occurred, which is strange. There is good reason to think that the jobs have actually been lost, but that the first persons to lose their jobs were illegal aliens who do not factor into the data. I am reading of anecdotal stories that businesses which cater to Spanish language communities are seeing a noticeable slowdown in their business.
Further, we are starting to see lay-offs in financial sectors from mortgage bank blow-ups and from a slowing segment of housing related industries like furnishings, etc.
If housing related employment drops by only 15%, which is not all that difficult to see happening, we could see overall unemployment rise to well over 5% and maybe as high as 5.5% within a few quarters. That will hurt consumption and put a significant drag on GDP.
If nonresidential investment goes back to its lower trend in the next few quarters, that will also be a drag on GDP. The fiscal government deficit is also falling and that will tend to slow GDP.
Adding it altogether, this seems to argue, for me at least, an extended period of much slower growth, but not a deep recession, and maybe not even two quarters of actual negative growth, although I still think there is a good chance we will see that technical recession. It will indeed be a return to the Muddle Through Economy of 2002.
for now rising incomes are offsetting the problems
HAHAHAHAH!!! Only the wealthy are seeing rising incomes; the rest are offsetting the problems with credit cards.
Exactly! The non-super rich (90%+ of the population who live on salaries, not bonuses) are growing poorer with each day while staring at rocketing inflation and taxes. NOBODY I know is getting much of any raises, and even the best raises are not keeping up with inflation. Ah, but some CEO’s somewhere got a 20% raise, so all is right with the world!
http://www.bakersfield.com/hourly_news/story/259678.html
4 kids and he “went for it”??? fool!
“That house was hanging low and outside, but I went for it. Damn, struck out again.”
http://www.bakersfield.com/hourly_news/story/259701.html
I read this yesterday . The big banks are setting up a pool of money to deal with the RE mess. I don’t understand finance enough to know how will this affect tax payers and future home buyers.
Any comments?
http://www.nytimes.com/2007/10/14/business/14bank.html?ei=5065&en=6489772aacb69342&ex=1192939200&adxnnl=1&partner=MYWAY&pagewanted=print&adxnnlx=1192377824-YomN2zJ0vTS6KqOaRlAgsg
HBB readers should pay close attention as details of this measure are made public so we can collectively discern how the U.S. taxpayer comes into play as guarantor of last resort.
My concern with this idea is if they make $ billions available to buy MBS and if they don’t institute some serious rules on mortgage qualifications then these mortgages will also go into foreclosure in a couple of years.
Also with that much money floating around prices will start soaring again and this mess will take decades to clean up.
Hard to imagine the 1-2 Punch a couple of acronyms can have…
SUV’s & SIV’s
HGSCELF & SMLEC
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BullsIgnoreTechsToughReality.aspx
Contrarian Chronicles10/15/2007 12:01 AM ET
Bulls ignore tech’s tough reality
One example: You’ll see a drearier picture if you look past the facade of the latest earnings report for Research in Motion, the maker of the BlackBerry mobile device.
By Bill Fleckenstein
No reasonable person actually believes this nonsense, do they?
Because the housing and consumer segments constitute better than three-quarters of the U.S. gross domestic product, the entire economy is at risk. Though for momentum-chasing stock bulls, the only risk appears to be in watching from the sidelines as, in their mistaken belief, the four horsemen — Google (GOOG, news, msgs), Amazon.com (AMZN, news, msgs), Apple (AAPL, news, msgs), and Research in Motion (RIMM, news, msgs) — plus Crocs (CROX, news, msgs) and Garmin (GRMN, news, msgs) will deposit Wall Street at the doorstep of the promised land.
Prof,
No they don’t believe that for a second. They just don’t know how to face up to it, nor what to do about it if they did face up to it. It’s easier and safer to do nothing.
Most people aren’t good at swimming upstream or dealing with issues where the solution has not been done before. In this case, we are in a whole new “paradigm” as they say.
Roidy
Primary source of housing market deflation: Serial downward revision of NAR expectations…
Paulson in drive to ease subprime ‘pain’
By Eoin Callan in Washington
Published: October 10 2007 20:47 | Last updated: October 11 2007 01:26
Home foreclosures in the wake of the subprime mortgage crisis will be “painful” for the US economy as well as for American families and neighbourhoods, Hank Paulson, Treasury secretary, said on Wednesday.
…
Fresh forecasts from the National Association of Realtors on Wednesday suggested the housing market was set to fall further, as the group reduced its expectations for the tenth time this year.
http://www.ft.com/cms/s/0/99a87c80-775c-11dc-9de8-0000779fd2ac.html
Blaring in one of the “trust me, never clicked on” adverts on here it says…
“Free Reports-Live Leads”
There’s a strip club not far away from LAX that has proudly advertised “Live Nudes” for a long time, and that’s the way most people prefer them.
One needs to roam outside of U.S. borders to find a truly upbeat take on the housing picture. Denial = 51st U.S. state.
US clings to state of denial
The Fed has calmed nerves with a rate cut, but the housing market suggests the threat of recession is not over for any of us, writes Heather Stewart
Sunday October 14, 2007
The Observer
Thousands of spanking new homes are standing empty on Main Street USA, Alan Greenspan reckons there’s a 50 per cent chance of a recession, and the Federal Reserve has made an emergency half-point rate cut - yet the Wall Street bulls refuse to be cowed. Depending on who you ask, the world’s biggest economy is either a hair’s breadth from disaster, or well on the road to recovery.
Since the Fed’s move in September, there has been relentless optimism among US investors, never mind the backlog of unsold homes, the weak pace of job creation, and a package of measures from the White House to help struggling families avoid repossession.
…
The depression in the housing market has been turbo-charged by what happened to credit markets over the summer,’ says Richard Iley, of BNP Paribas. ‘Banks and building societies have been continuing to tighten lending standards aggressively. We’re going to see substantial house price falls on a national basis for the first time since the Thirties.’
The scale of the downturn in the property market has been extraordinary: prices are already down more than 3 per cent on a year earlier, home-building has dropped by a fifth - and more wary lenders can only make things worse. Martin Feldstein, a Harvard economics professor, has calculated that housing wealth is worth $21trn - so even a 20 per cent total decline in prices could cut consumer spending by $200bn, and could easily push the US into recession.
Paul Ashworth, of Capital Economics, suggests Friday’s drop in the Michigan measure of consumer confidence, to a 14-month low, could be an early sign that the belt-tightening is about to begin, as homeowners adjust to higher interest rates, and the realisation that the value of their homes is no longer rocketing.
‘It seems that the collapse in the housing market is beginning to have a more marked impact,’ he says. ‘This backs our view that the outlook for consumption remains grim’.
http://money.guardian.co.uk/news_/story/0,,2190621,00.html
“Martin Feldstein, a Harvard economics professor, has calculated that housing wealth is worth $21trn - so even a 20 per cent total decline in prices could cut consumer spending by $200bn”
20% of 21Tr is 4Tr……cut spending by 0.2Tr? I don’t think he gets the math. Honey, I lost a hundred dollar bill!!! Oh wait, here’s a fiver, now I’m good.
hey Feldstein, you be as stupid as your pal Retsinas. Boy, Harvard can really pick ‘em.
Central bankers got us in this mess
By Wolfgang Munchau
Published: October 14 2007 19:10 | Last updated: October 14 2007 19:10
Two months after the beginning of the credit crisis, the monetary policy establishment has reached a consensus on its causes: the complexity of some of the instruments, shortcomings in the mathematical models, weakness in risk management and, of course, the role of the ratings agencies. In other words: someone else.
I concede that each one of these factors contributed to this crisis. But to blame ratings agencies is like blaming shopkeepers for inflation. If you look for an underlying cause of this credit bubble, one of the biggest of all time, then surely you are looking at something bigger than a couple of ratings agencies. I believe that the explosive growth in credit derivatives and collateralised debt obligations between 2004 and 2006 was caused by global monetary policy between 2002 and 2004.
http://www.ft.com/cms/s/0/8bcc9f68-7a6a-11dc-9bee-0000779fd2ac.html