Too Much Inventory Already In The Marketplace
Some housing bubble news from Wall Street and Washington. Bloomberg, “D.R. Horton Inc., the second-largest U.S. homebuilder, said orders in the fiscal fourth quarter plunged to the lowest in almost six years as customers canceled and banks restricted lending. Buyers agreed to purchase 6,374 homes from the Fort Worth, Texas-based company, 39 percent lower than a year earlier. The value of those fell 48 percent to $1.3 billion.”
“Customers canceled 48 percent of homes they reserved, up from 38 percent in the previous quarter. ‘We expect the housing environment to remain challenging,’ said Chairman Donald Horton. ‘Buyers continued to approach the home buying decision cautiously.’”
“The five largest homebuilders have reduced the value of their real estate and incurred expenses totaling $4.7 billion in their most recent quarters, in the worst housing slump in 16 years.”
The Street.com. “The sharp order drop was disappointing since Horton was facing an easy comparison from a year ago, when orders declined 25% year over year.”
“The question now becomes whether the big sales drop came even amid aggressive price cuts. If so, that’s bad news for the homebuilding business, since it points to an even larger supply and demand imbalance than most analysts had been projecting.”
“Orders came in lower across all of Horton’s markets. California was among the worst, with a 58% plunge.”
From MarketWatch. “Morgan Stanley analyst Robert Stevenson said D.R. Horton’s preliminary results ‘underscore the continued decline in housing operating fundamentals and further extends our timetable for stabilization.’”
“He said the nearly 50% cancellation rate for the quarter ‘illustrates that the problem is industry-wide and not merely focused on the smaller builders in significant financial trouble.’ There are concerns some companies may not have the financial strength the weather the downturn.”
“‘Given falling home prices and the various mortgage-market issues, we expect cancellation rates to be [at least 40%] for most builders this quarter,’ Stevenson wrote. ‘Coupled with the level of oversupply and our view that there could be another [10% to 15%] hit to home prices from foreclosures in 2008.’”
“Banc of America Securities analyst Daniel Oppenheim in a report Tuesday said D.R. Horton has been ‘extremely aggressive’ on price cuts in recent weeks in two speculative markets, Phoenix and Southern California, and is gaining market share.”
“‘We think Horton’s aggressiveness is likely to reset the bar even lower for home prices as other builders react by matching these price cuts, which should trigger significant further impairments,’ Oppenheim said.”
“Wells Fargo & Co., the biggest bank on the U.S. West Coast, said third-quarter profit rose less than estimated after losses from home equity and consumer loans climbed.”
“Chief Financial Officer Howard Atkins said in an interview the weakness will also hurt fourth-quarter results. ‘The decline in home prices accelerated’ in the third quarter, ‘which produced somewhat higher losses than we anticipated,’ Atkins said.”
“The bank reported net credit losses of $892 million, up 35 percent from a year earlier. About half of the increase stemmed from home equity loans, where lower home prices caused steeper- than-expected losses, Chief Credit Officer Mike Loughlin said.”
“Mortgage originations at Wells Fargo dropped 12% from a year earlier to $68 billion. Wells Fargo said that mortgage applications in the pipeline fell 18% to $45 billion.”
From Reuters. “Challenges facing homeowners today are so manifold that even lenders’ best efforts to stave off foreclosures may never work, according to a major lender and a community group.”
“The combination of falling home prices, rising payments on adjustable mortgages and higher unemployment in some regions have created problems so diverse that single solutions, such as widening the Federal Housing Administration’s reach, will not be enough, said Mary Coffin, an executive VP for Wells Fargo & Co.’s loan servicing group.”
“‘You have so many factors happening at once that there are some customers (the industry) cannot help,’ Coffin told Reuters at the Mortgage Bankers Association annual meeting here. The industry must be careful about making blanket statements suggesting it will be able to help all borrowers prevent foreclosure, she said.”
“Just getting the customer to call is a big frustration for Wells Fargo, which found 30 percent of borrowers it services have contacted the company, she said.”
“Options may still not keep people in their homes, according to consumer group NeighborWorks America. Some borrowers who because of falling house prices owe more than their home is worth are able to sell their home to the bank at the appraised value, freeing themselves of the debt, said Douglas Robinson, a spokesman for NeighborWorks.”
“‘Not everyone can be helped in the way they want,’ he said.”
“Treasury Secretary Henry Paulson, defending an effort he spearheaded to stabilize credit markets, has ‘no interest in bailing out lenders or property speculators,’ the New York Times reported on Tuesday.”
“Later on Tuesday Paulson will call for new regulations for mortgage lenders, changes in credit-rating agencies’ practices and stepped-up oversight by financial regulators, the Times reported.”
From CNN Money. “Paulson did not allow borrowers to escape without their share of blame. ‘Buying a home today is a complex process, but that in no way excuses home buyers from their obligation for due diligence.’”
The Associated Press. “Paulson also stated, ‘When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators.’”
The International Herald Tribune. “At least give Peter Kasch, managing partner of Catalyst Capital, a London real estate firm, credit for his brutal honesty. With a hint of nostalgia, Kasch recalled the heady days when low-cost borrowing and willing investors made European real estate a business in which it was hard to go wrong.”
“‘A lot of us only had to get out of bed to make money,’ Kasch said.”
“Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.’”
“Problem is, the issue was never just subprime loans, it is the far wider and deeper problem of loans made on overly optimistic assumptions secured on U.S. real estate, which is now in a once in a generation slump.”
“The banks, in isolating the better mortgage debt, run the risks that the market either offers them a price that would force damaging writedowns of other mortgage debt held on or off balance sheet, or worse, refuses to fund at all.”
“‘I’m not sure it will be easy to find people to buy this stuff,’ said Jochen Felsenheimer, head of credit strategy at Unicredit . ‘It’s not just a subprime-linked problem. The problem is that we have used securitization instruments to create a bubble. We sold a lot of risk just knowing that the CDO or other manager would buy it.’”
The New York Times. “The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening. ‘The idea is to avoid a fire sale of assets,’ said one banker involved in the initiative.”
“Josh Rosner, an expert in mortgage-backed securities at Graham Fisher, an independent research firm in New York, questioned why the banks needed to establish such a vehicle.”
“‘If they really believe these are good assets being mispriced in the market,’ he said, the banks could just buy them and wait for the asset values to recover. ‘This raises the question of whether the banks are doing this just to avoid taking their losses.’”
“‘I don’t really see that this is going to make a significant difference,’ said Jan Hatzius, chief United States economist at Goldman Sachs. ‘It seems a little more like a P.R. move, frankly.’”
“Mr. Hatzius said he wondered ‘why this is going on when previously the official word was that things were getting better.’”
“During the summer credit crisis, investors concluded that the default rates on subprime mortgages made last year would probably prove to be the highest in the industry’s history. But there appears to be another contender for that dubious honor: subprime loans made in the first half of this year.”
“Borrowers who took out loans in the first six months of 2007 are falling behind on payments faster than homeowners who took out loans last year, according to a report by investment bank Friedman, Billings, Ramsey.”
“The report’s author, Michael Youngblood, a portfolio manager and analyst at Friedman, Billings, Ramsey, said that most mortgage companies and banks had not tightened lending standards for borrowers with weak, or subprime, credit until July or August, even though early this year regulators, analysts and mortgage investors knew that the easy lending policies of 2005 and 2006 were producing high default rates.”
“‘There are $10.6 trillion of mortgage loans outstanding in the U.S., and even if the brakes had been slammed, it was going to take a long time to slow this locomotive down,’ said Youngblood, who has researched home lending for more than 20 years. ‘And I don’t see that the brakes were slammed on or that the engineer had a new track to follow. That track only now seems to be appearing.’”
“He noted that Countrywide Financial, the largest U.S. lender whose practices are often emulated by smaller companies, did not significantly tighten standards until August.”
“And it was only in mid-July that Moody’s Investors Service and Standard & Poor’s, the large ratings agencies, said they would make major changes in the assumptions that they use to evaluate pools of home loans sold to investors.”
“Standard & Poor’s on Monday cut its ratings on $4.6 billion worth of residential mortgage-backed securities exposed to subprime mortgages, citing expectations of further defaults and losses in the securities.”
“The downgrades include 402 pieces of 138 transactions. All are backed by first-lien subprime mortgage loans issued in the first three quarters of 2005.”
“‘These rating actions incorporate our most recent economic assumptions, and reflect our expectation of further defaults and losses on the underlying mortgage loans and the consequent reduction of credit support from current and projected losses,’ S&P said in a statement.”
“In response to a question by Henry Kaufman, the former Salomon Brothers Inc. economist, Federal Reserve Chairman Ben S. Bernanke said investment firms ‘need to be as transparent as possible’ about how they value their assets.”
”This current financial stress is not likely to disappear overnight; partly it is an information problem,’ Bernanke said. ‘It is going to take a while for investors to appropriately value these assets.’”
“‘I would like to know what those damn things are worth,’ Bernanke joked, referring to the products that investors have shunned in the credit rout. ‘This episode has revealed a weakness in structured credit products,’ namely the difficulty in coming up with valuations in periods of stress.”
“Moody’s Investors Service last Thursday downgraded another $33.4 billion in mortgage-backed securities, noting that it now assumes losses tied to currently delinquent loans will be 40% to 50%. ‘The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,’ says James Bianco, president of Bianco Research.”
“U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the biggest mortgage financiers said Monday.”
“Officials with government-sponsored mortgage companies Fannie Mae and Freddie Mac and CEOs from two major mortgage banks told the Mortgage Bankers Association’s annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.”
“‘It’s going to be a long time before we see it bottom out and recover,’ said David Lowman, CEO of JPMorgan Chase & Co.’s Global Mortgage unit. ‘There’s too much inventory already in the marketplace.’”
‘Banc of America Securities analyst Daniel Oppenheim in a report to clients Tuesday wrote D.R. Horton’s quarterly order decline was much steeper than his expectation of a 5% to 10% pullback.’
Ah, yes, the industrys ‘top analyst’ who called a bottom in the first quarter of 2007, I believe.
Add all the unanticipated losses to the SuperConduit. Treasury said they can beam that sh!t across to the next galaxy. Einstein is supervising the next launch. Don’t you know that’s how black holes are created?
The SuperColliding SuperConduit?
What is the symbol for the speed of light again? Is it, c ?
You can’t make this sh!t up. Sometimes, it writes itself.
yep C is the speed of light….for RE, the theory of relativity can be written as
E=MC^2 Where
E is the equity erosion rate( if there is any to begin with )
M is the morgage payments
C is the speed at which your house value depreciates
What about this c?
http://www.marketwatch.com/quotes/c
I C said the blind man.
Let’s name the new SIV Super-Massive-Black-Hole.
I C said the
blindorange man.To be followed by this year’s “wall st. bonus” superconduit..
I frankly don’t know why they need to create a new black hole when the existing one at FNM would appear adequate to swallow up more toxic mortgage debt with a little tweaking of the rules of the game?
Superconduit indeed. Theory here is that the “bad loans” are scaring investors away from the “good loans,” and by splitting these up, the market appetite will return. Sorry boys - I think the market now realizes that even your (currently) performing “good” loans are secured by collateral that’s losing value, and will eventually turn into garbage as well. The point was made - if this stuff is good paper, why don’t the banks just hold and recover? But you’ve got to hand it to them for trying to keep the bubble going. This is what the flippers were doing - selling property back and forth to themselves to create the illusion of a liquid and growing market. I really hope investors throw up all over this concept and C has to take responsibility for its actions.
They clearly need to find a govt institution to eat the collateral until its value can be reflated, and to meanwhile prevent the market from revealing the fire-sale valuations.
I kind of thought that is what this is all about.
http://www.nahb.org/news_details.aspx?sectionID=134&newsID=5498
Builder confidence - new record - should be lack of confidence.
From the article, “Buyers holding out for better deals and negative news coverage”.
First of all, how about overpriced and saturated market?
And we all know the media was a day late, and a story short!
Ah, the highlight of my week: BIG gunshow on Saturday! Yipee for me!!
Smiles,
Leigh
9 year old computer, brand new firearms???? Gotta love this blog.
Sig or Beretta? I’m in the market….
Toooo funny : )
The gun show host many used guns as well : )
I can buy a computer when this old clonker kicks the bucket : )
Smiles,
Leigh
Analyst? I would like to be an Analyst and make all that money. My problem is two-fold: 1) I’d have to be trained on how to be wrong all of the time, and 2) I don’t know how to spin my error into being correct. I’m sorry but when I am wrong I usually say I am. That is prolly the cause of my mediocre financial success. I wish I could lie better.
Roidy
Ah, yes, the industrys ‘top analyst’ who called a bottom in the first quarter of 2007, I believe.
Ben: I believe you are correct. They made the same predictions as was made by the NAR. Both are wrong!
I discount all analysis by Youngblood - he claimed Bakersfield would be up 46% in 2006. He is a total moron!
Why The Housing Bubble Won’t Burst
Veteran analyst Michael Youngblood explains his unusually optimistic take on the real estate market.
He bases this assessment on a new economic model he created that forecasts housing prices in 379 metropolitan statistical areas. Associate Editor Toddi Gutner spoke with Youngblood about his upbeat view and his surprising prediction that the greatest price appreciation will be coming in so-called bubble markets.
What makes you more optimistic than other housing experts?
I look at two economic indicators that I think drive the housing market: the growth in employment and the growth in personal income. Getting a job or a salary increase is what motivates people to buy their own home. This is different from the data the National Association of Realtors and other organizations rely on. They are more concerned with technical indicators such as the inventory-to-sales ratio and the number of months a house is on the market. These aren’t leading indicators. Instead, they move with current changes in the market, rather than predict those changes.
Do you think the housing bubble argument is overblown?
Absolutely. It’s overblown because there is no national housing market, so there can’t be a national house-price bubble. However, there are bubbles in 75 of the 379 markets I studied. A bubble exists when the ratio of the median existing house price to per capita personal income exceeds 6.8 times. This definition is based on historical data of when other markets, like Houston and Boston, had bubbles
What markets are likely to show the biggest price gains and declines this year?
We expect the greatest gains in Bakersfield, Calif. (43%), Fort Myers, Fla. (42%), Stockton, Calif. (39%), and Punta Gorda, Fla. (35%); the biggest declines in Harrisburg, Pa. (8%), Odessa, Tex., Roanoke, Va., and Utica, N.Y. (all 6%).
http://www.businessweek.com/magaz
ine/content/06_20/b3984102.htm?chan=search
So a bubble doesn’t exist when the median house price is only 6.7 times personal income… glad we got that straight.
Hysterical. How are those 42% price gains in Fort Meyers working for you Mr. Youngblood?
No kidding - this is the worst point spread prediction since USC (-42) vs. Stanford [sorry if this is a sore spot, Tojan fans]
Wow that has to be *the* single-most idiotic set of predictions I’ve seen in my life. I fully expected that article to be from 2004 or 2005, but it was from May 2006! Prices had already started downward *very* sharply by that point in Fort Myers and Punta Gorda, and I’m sure in CA as well. That would have been one wicked backlash rebound.
“He bases this assessment on a new economic model he created that forecasts housing prices in 379 metropolitan statistical areas.”
ROTFLMAO.
How does that work? You base house prices on personal income, then conclude that, because house prices are about 2x what they should be given personal income, they ought to go up by 46% in one year?
Sooo … 2.5x = x ???
Oh, I see.
x = 0 !
FBR messed up as much as anyone, but they make a good point that lending wasn’t tightened up until late in the summer. So much has happened since then that we forget it at times, IMO.
Agreen it has tightened.
I just don’t want these “johnny come too late” types to get away with - “I told you so”.
I get the impression that tightening has morphed into puckering.
test
IMHO the writing was on the wall in late 2005 about where everything was going ,in fact Katrina was the point at which the housing market should of contracted big time .Instead the lenders put another 2 years of bad loans on the books and the lenders continued to fund faulty projects by the builders based on the 2005 hype and pre-construction contracts . Alot of this hype kept the markets going and we all know the main stream media didn’t start reporting the problem until about August of this year, as if it was some sort of a surprise . Who can forget the NAR’s ‘GOOD TIME 2BUY ” 42 million dollar ad campaign during 2005 that ended up putting some of the most fraudulent loans on the books with the cash backs and incentives .
“…main stream media didn’t start reporting the problem until about August of this year, as if it was some sort of a surprise.”
Lots of folks who should not have been surprised in the least sure appeared to be caught off guard by the August watershed event.
This was too “delicious” not to post:
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=487915&in_page_id=1770
What turn of events witnessed on this blog. From reading about “feeding the squirrels” to now being fed by them!!! Holy Mackerel…
ROTFL
Now when that bay area couple starts to serve them as appetizers to open house guests… They promised to feed the squirrels; I do not recall them promising not to serve them in gourmet treats.
ROTFL
Got popcorn?
Neil
We have black squirrels. Are they even more tasty?
A little background, in case you don’t get it from the article. The Gray Squirrels being eaten are an invasive species in England (native to the US - sort of a reverse colonization) and they’re causing the population of native Red Squirrels to crash. Sort of a literal version of “when you’re given lemons, make lemonade”.
“I haven’t tried grey squirrel but people I know who have say it tastes like chicken used to taste when it tasted like chicken.”
They gave us the red fox, we give them the grey squirrel.
Question: How does a grey squirrel get to England? Is that like the migratory European swallow?
“”Grey squirrels can be eaten and there is no reason why they shouldn’t be eaten.”
I can think of at least one reason: have you ever tried butchering one?
I’ve got a whole bunch of pack rats I could donate.
I have found squirrel easier to butcher than a rabbit (I dislike cleaning rabbits).
blecch.
(flashback to little 8 yr. old phillygal watching her dad skin a squirrel he shot)
icky
I find squirrelly finances easier to digest, but I digress.
Hoz:
Are you the same one who proposed the shooting of all cats not directly under the control of their owner?
What? Has there EVER been a cat that was under the control of their owner? I’m pretty sure cats in general do not acknowledge such a silly concept. They think the bald smart monkeys exist to serve their whims and bring the food.
You’d have to shoot every cat on the planet, if that was the rule.
i’m still not sure if stray cats served as ‘chicken’ in many nyc chinese restaurants is just an urban legend….
I advocate the shooting of feral cats and dogs.
Cats spread disease in the wild, kill native American animals for pleasure, are considered a pest in every state and by not eating what they kill spread rats and other pests. Cats do more damage on rural property than any other species.
Cats are not native to America and should never be allowed outdoors. Cats should be neutered.
This does not mean I do not like cats, (I have three), but they are not allowed outside ever.
I do shoot cats on my property.
Cats don’t have owners. They have staff.
Ahhhhhh!
The New York Times. “The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening.
‘The idea is to avoid a fire sale of assets,’ said one banker involved in the initiative.”
- Heeheehee.
Stupid dumbass’s - that is like putting your finger the dykes hole.
“Josh Rosner, an expert in mortgage-backed securities at Graham Fisher, an independent research firm in New York, questioned why the banks needed to establish such a vehicle.”
“‘If they really believe these are good assets being mispriced in the market,’ he said, the banks could just buy them and wait for the asset values to recover. ‘This raises the question of whether the banks are doing this just to avoid taking their losses.’”
What a rude thing to say! Mr. Rosner, why do you hate the free market? Why do you hate America?
“..The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,’ says James Bianco, president of Bianco Research…..”
If you owned the banks crappy positions you would do anything to get out, this is just another RTC. And like the RTC, the taxpayers will get stuck.
If I were a bond manager, I’d just stay in the bathroom and hope it all goes away.
I think that is what is called “the point of recognition”. Maybe we are getting to the first inning on that one but with rapidly declining liquidity in everything it wouldn’t be difficult to see some serious self reinforcing gaps downwards in a whole lot of asset prices. Getting real scary out there and halloween is still a couple of weeks off.
“..The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,’ says James Bianco, president of Bianco Research…..”
Then it’s back to the bathroom to throw up.
Those bond managers probably earned more income the last few years than most of us in a lifetime. Who’s crying now?
So it’s price gouging to keep gas prices high by colluding amongst producers, but it’s not when you’re keeping debt products and housing prices high?
in my business we pay commissions on sales. when those receivables go bad guess what? we chargeback the salespeople
I was just pondering that last night. I decided that people, by nature, are just hypocrites. They’re incapable of understanding the inherent danger of price fixing.
The only thing that upsets them is when they have to pay more for something. It’s fine when they get to sell for an overinflated price. In that case, it’s not price fixing, it’s, like, unionized selling or something.
Coffin Ails
“The combination of falling home prices, rising payments on adjustable mortgages and higher unemployment in some regions have created problems so diverse that single solutions, such as widening the Federal Housing Administration’s reach, will not be enough, said Mary Coffin, an executive VP for Wells Fargo & Co.’s loan servicing group.”
I’d say she pretty much “nailed” it. Sorry, it was too easy to pass up.
Do coffins have lifetime guarantees?
Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.”
Would have gotten away with it? 15 % tax and also risk will be backed by the taxpayers via tax and inflation. What DIDN’T they get away with here? Ruh-Ro Raggy…
It if wasn’t for those pesky subprime loans, there wouldn’t be any “it” to get away with. But I give them credit for mentioning it’s not just suprime. I cannot to see a few Primes foreclose on their pergola’d and wine cellar-ed I/O refi’d McMansion.
And then the article goes on to mention a “once in a generation slump.” I didn’t hear them complaining when it was “a once in a generation” hot streak…
Oh wait, it wasn’t once in a generation, it was a new paradigm.
‘it was a new paradigm’
- Everything is Unwinding … anything reported by the media must be treated as a ‘Trailing Indicator.’
–
Breaking News..
Housing Mkt Index DOWN, Again, and at a Historic Low
October 16, 2007
Sorry for being a broken record for 8 months in a row. THE MAIN INDEX, AT 18 (= Horrible), lowest in history. “Traffic of Prospective Buyers,” at 15, is also in horrible territory.
Data:
http://www.nahb.org/generic.aspx?sectionID=134&genericContentID=529
The recession deniers have a blind spot. It is called the housing depression.
Jas
–
More…
Only “Single-Family Sales: Next 6 Months” is avobe 20. Present is horrible but future prospects are better. They have been saying that for months.
Jas
The market appears to suffer from a shortage of willing knife catchers with bank.
Traffic of Prospective Buyers
40 39 33 29 27 22 22 23 26 23 26 29 28 27 22 22 19 16 17 15
Might this be the last month we even see this index reported? Maybe it will go the way of M3 and all those other pesky numbers?
Funny. Our realtor called this morning. She asked if we “decided” on any of the zillions of homes toured.
When I first contacted her a few months ago, I told her we would likely purchase in Feb or Mar 08 if we felt the conditions were right for us.
I reminded her again of this tidbit this morning. She said she remembers, but all the FBs are calling her nonstop to see what we *think* of their little slice of heaven. Giggles.
She is one of the nicest people, and I’m sure she wants to have a nice holiday for her children, but we’re not budging!
Thanks to all who post here!
Smiles,
Leigh
This index may have bottomed out at this point, if for no other reason than it is very close to a technical lower bound on how negative sentiment can get in an industry known for its generally buoyant outlook.
On the other hand, the overall NAHB index bottomed out at 20 in the last cycle (versus its current record low level of 18), and that was in January 1991 — six months after the onset of a nasty recession. Given that we are already down to a level of 18 with no recession in sight, there actually is room for builder sentiment to decline further from here.
“The biggest banks in the United States, with active encouragement from the Treasury Department, unveiled a plan yesterday to keep the housing-related debt crisis from worsening. ‘The idea is to avoid a fire sale of assets,’ said one banker involved in the initiative.”
It sounds like a plan to bail out fools who are too-big-to-fail by short circuiting the price-setting function of free markets.
’short circuiting the price-setting function of free markets.’
You keep repeating that prediction, meanwhile prices are falling in just about every US market I can think of.
LOL!!
Ben -
How do you think this plays out for the PTB? Will they just stand on the sidelines and keep making speeches? I agree that the costs of a bailout is way too big…
A large market like this can only follow supply and demand, IMO. Why are we so overbuilt? Artificially high prices spurred builders to do so, and encouraged speculators to go along.
How does any oversupplied market play out? Prices fall and production stops, allowing for demand, helped by attrition, to catch up. But these ’sticky’ prices keep the builders going, even when they are undercutting existing homes by $100k, like here in Arizona. And they will continue to do so, IMO even at $200k or more. So I don’t see how anything will fix the market except serious price declines.
Governments and other forces can fix prices for small markets, like sugar or bananas, but not real estate. Can they distort prices and cause misallocations? Sure, but in the long run natural forces will prevail, so I expect the PTB will attempt to mitigate the political damage and make a few bucks along the way.
It is quite concerning to me that despite an embarrassment of riches in their concentration of PhD economists, the Fed has not conceded this point from basic economics (yet).
I guess PhD’s in econ learn the principles in undergraduate school, then spend grad school learning how to hide and doubletalk those principles.
“…spend grad school learning how to hide and doubletalk those principles…”
Naw — that comes from on-the-job training.
“…Why are we so overbuilt? Artificially high prices spurred builders to do so, and encouraged speculators to go along….”
IMO it is because the Fed’s response in 1987 (0% fed fund rate) allowed investment to be seen as much less risky (the ‘Put’):
In the US the Glass-Segal Act, which limited commercial bank exposure to risky investments, was repealed in 1995;
and the world interest rates have been able to be held low and asset values have boomed for two decades - thus providing households with the wealth to increase consumption as well as increasing corporate profits.
The development of the CDO/CLO market allowed banks to create moneys at will. Banks could create unlimited credit with no cash reserves.
The CDO market was and is under no entities (public or private) control or regulation.
When placed in sequence, housing was just one side effect of this greatest finance bubble.
this greatest finance bubble = The Greenspan Bubble (aka The Bubble which Must Be Named)
I think I have read that the Glass-Steagall Act was tossed in 1999, just as this thing was about to get on a roll.
“Governments and other forces can fix prices for small markets, like sugar or bananas, but not real estate.”
additionally, consumers don’t generally go into debt for about 1/3rd of their income and life in order to afford bananas and sugar.
When loans are no longer made to people who can’t afford to repay them the market will start to reprice.
What was that statistic about the housing prices from the boom before the Great Depression? Something about it took 30 years for housing to reach the level of the prices during the peak before the collapse …
you are correct, 1999. The roll started in 1994. In 1995, reserve requirements were cut on mortgage property of less than $1.4 M to $0.00.
“I think I have read that the Glass-Steagall Act was tossed in 1999, just as this thing was about to get on a roll.”
At some point, thinking at the Fed that markets don’t work very well without a rule of law gave way to the flawed notion that less regulation is always better.
I never said I thought the effort to do this would work. In fact, I have said over the course of many comments that I don’t believe that government interference can fool the market mechanism in the long run. I do predict that won’t stop them from continuing to try, though.
I saw your point. I think ole Ben was looking for clarification on your part.
With so little opacity in these derivatives markets, there’s just no way this can be contained, no matter how noble the efforts of these institutions may be.
Time to pay the piper, America.
Please. Then why all the rants about the “demo-rats” and their so-called bailouts? For someone who believes these plans won’t have any long term impact you get pretty worked up, pretty regularly.
Perhaps he just likes to get worked up. Ranting is pretty fun, you know.
It is important to drop sharp lines between barking moonbat brigade bailouts (the kind which unashamedly dump the bailout tab on to the lap of the U.S. taxpayer in a quid pro quo for future D-ratic Congressional campaign contributions) and the kinder, gentler R-can bailouts, which sweet talk banking bosses into doing the right thing for the good ole U.S. of A.
“barking moonbat brigade”? haha, you sound like Rush. Don’t forget to footnote when you quote a wingnut, Professor.
Rush might use it, but he didn’t coin it.
http://en.wikipedia.org/wiki/Moonbat
“kinder, gentler R-can bailouts, which sweet talk banking bosses into doing the right thing for the good ole U.S. of A.”
I’m going to call you on that one also, Prof. That’s a really naive statement.
Cleaning up after credit innovation
Published: October 15 2007 20:36 | Last updated: October 15 2007 20:36
The credit squeeze is not yet over, to judge by the US government’s involvement in an effort to unfreeze the commercial paper market. The Treasury-backed plan involves the pooling of about $75bn of assets from banks’ off-balance sheet investment funds in the hope of soothing investors’ nerves.
This is the biggest US intervention since the Federal Reserve co-ordinated the bail-out of Long-Term Capital Management in 1998. Unlike the Northern Rock rescue, it does not involve any commitment of public funds but it still raises the question of whether the Treasury should have any role at all.
http://www.ft.com/cms/s/f8eb0e76-7b51-11dc-8c53-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ff8eb0e76-7b51-11dc-8c53-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Please explain how this is an intervention. Is it part of the laxing of Fed rules? Do you see the Fed eating these things?
I personally don’t understand how the Superfund scheme can get off the ground without some bagholder on whom to dump the toxic subprime debt. But perhaps this reflects my ignorance of high finance, rather than any shortcoming of the bailout proposal.
Yes, PB. The banks are trying to fool people into thinking two things:
1. The banks are not taking huge losses. Since they’re buying this paper at artifically high prices, they don’t have to mark down the rest of their paper until after their upcoming report.
2. The banks are “backing” commercial paper, or they have confidence in it or whatever. The thinking is supposed to be that they wouldn’t have bought it if it were no good. The reasoning I’ve been hearing is that if the mortgage market is really A-OK, then why don’t the banks just hold their own paper?
I don’t think the plan is going to work. I think even the moronic investors who had previously eaten this stuff up have figured out that the paper’s no good and this is all a ploy.
I suspect that this new fund is simply a vehicle to facilitate an accounting scam to hide asset losses. Bank controlled SIVs move the SIV assets, along with the commercial paper liabilities, into the new “super fund.” The banks borrow money from the Fed and then lend it to the fund. The fund pays off the commercial paper and continues to hold the assets which are not written down. The banks charge the fund a higher interest rate than what they pay to the Fed and recognize net income. The cash shortfall (due to non-performing MBS loans) is simply capitalized to the balance sheet (just like with option ARMs).
End result is that as the banks’ financial condition deteriorates they recognize more income. The bank executives hope that this increase in “paper” income will support the stock prices and allow for year-end bonuses and option exercise profits.
It’s sort of like thinking your problem disappeared when untreated syphillis goes from the primary to the secondary stage.
“It’s sort of like thinking your problem disappeared…”
It’s sort of like a two year old who thinks his mommy disappeared when she left the room for a second. ARE MARKETS REALLY THIS DUMB?
“It’s sort of like thinking your problem disappeared when untreated syphillis goes from the primary to the secondary stage.”
hmmm, have you a lot of experience with this condition tux?
“Investors in subprime mortgages lost money. An ABX index tied to 20 securities rated BBB- and backed by home-loan payments from people with poor or limited credit histories slumped 46 percent in the third quarter, according to Markit Group Ltd.”
Bloomberg
This is before any fire sale. The current bid for these ABX bonds are 23 offered at 24. Mark that to Market.
There was an interesting aside in the WSJ’s article on Citi today — they are suspending share buybacks.
I have heard that doing so is a sign they are really hurting, because it is not something executives want to do. Why? Because executives get massively wealthy by granting each other stock options, and if this isn’t balanced by share buybacks, they are watering the stock and devaluing it for existing investors.
Something to watch at other firms.
No point issuing stock options if they think the share price is going down… but that money they save from not doing a buyback will pay for some nice bonuses in cold hard cash.
Beyond that little bit of self interest, they will need significant cash reserves if their conduit thing doesn’t fly and those bad MBS investments are forced back onto their books.
The EPS is $2.60 with a possible dividend of $2.16 (requiring FDIC approval) the bank does not have moneys available to buy stock back as well as complete acquisitions in China and India. The dividend, for many investors, is the only important thing, if the FDIC does not allow the dividend….
The FDIC will (IMO) allow the dividend or there will be further flight from the US markets. Historically the ratios of reserves & earnings are not sufficient to support the dividend let alone stock buybacks; but in this era of opacity, anything is possible. (On the other side, maybe C made a bucket of moneys in their SIVs that are not recognized for legitimate tax avoidance - not very likely but possible.)
“‘The downgrades are coming so fast that you could go to the bathroom, come back to your desk and find you’re a junk bond manager,’ says James Bianco, president of Bianco Research.”
Don’t worry, James. You are not missing anything when you go to the sh!tter. Everything is going into the sh!tter.
“the more you eat…the more you sh!t”… Woody Guthrie
“‘A lot of us only had to get out of bed to make money,’ Kasch said.”
Let me guess, you didn’t save any.
“‘A lot of us only had to get out of bed to make money,’ Kasch said.”
Now a lot of them will have to STAY IN BED to make money.
Haw!
Wow, you’re handing out some good ones today, ghostwriter.
1st National Bank of $haggy
“Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.’”
Unfortunately there is no Freddie to come to the rescue, he split with Shaggy and is in Las Vegas with Velma and Daphne.
Paulson Urges Action on Housing Crisis
http://biz.yahoo.com/ap/071016/paulson_housing.html
Paulson: Aggressive Action Needed for Housing Crisis, Which Is ‘Significant Risk’ to Economy
Thanks to Goldman Sachs for creating this junk and selling it off then shorting it. Now they are long on it. Time for Hank to get the ball rolling and do his part.
Are you suggesting GS’s fire sale asset purchases are already ‘in the bag’?
Why are our leaders so clueless? If people like Hoz and WTEcon were treasury secretary, we would never have gotten in this mess. The people in charge have to be proactive, not reactive, or we’ll continue this way forever.
Anyone care to loan this sob story dude some money? Craigslist begging.
http://newyork.craigslist.org/que/fns/448990991.html
I am looking to Refinance. However, I need to borrow $4k first. Rd on
——————————————————————————–
Reply to: serv-448990991@craigslist.org
Date: 2007-10-14, 5:19PM EDT
Hello ,
I am looking to refi my mortgage.
I have a 90 day late in december of last year so I am waiting until december to refinance. My loan amount will be $452,000 and I am looking for lowest payment possible as I am going to be selling my house in couple of years.
My interest rate currently is at 9.9% and I was out this month and do not have money to pay my mortgage. I dont want to be 30 day late this month so I am looking to borrow $4,000. I can either pay it back in a few weeks or if you are a mortgage broker you can refinance my house + charge me an extra point to pay this off.
Please, please help. Thanks
90 day late last year, and now short again. Wow, that’s a great investment risk!
don’t they have that prosper dotcom thing for guys like this?
Jingle mail. One year late.
Sell a kidney.
Did they outlaw that type of thing in the first world yet?
He’s probably already sold one, and it would be pretty hard to function without any . . .
He doesn’t understand that lenders give out money FOR THEIR OWN BENEFIT, not for the benefit of FB.
“Treasury Secretary Henry Paulson, defending an effort he spearheaded to stabilize credit markets, has ‘no interest in bailing out lenders or property speculators,’ the New York Times reported on Tuesday.”
Paulson is drawing a line between infusions of taxpayer money (aka moonbat bailout proposals) and coordinated efforts to encourage the financial sector to fix their own problems. Judging from today’s print edition articles, the WSJ editorial board apparently lumps the latter class of policy measures into the bailout category as well.
Cleaning up after credit innovation
Published: October 15 2007 20:36 | Last updated: October 15 2007 20:36
The credit squeeze is not yet over, to judge by the US government’s involvement in an effort to unfreeze the commercial paper market. The Treasury-backed plan involves the pooling of about $75bn of assets from banks’ off-balance sheet investment funds in the hope of soothing investors’ nerves.
This is the biggest US intervention since the Federal Reserve co-ordinated the bail-out of Long-Term Capital Management in 1998. Unlike the Northern Rock rescue, it does not involve any commitment of public funds but it still raises the question of whether the Treasury should have any role at all.
http://www.ft.com/cms/s/f8eb0e76-7b51-11dc-8c53-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Ff8eb0e76-7b51-11dc-8c53-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
who wants to borrow money from this Craigslist genius, and spelling bee champ?
REAL ESTATE INVESTORS 2.50% MORT RATES ON YOUR REFIS OR NEW HOMES
——————————————————————————–
Reply to: serv-427277066@craigslist.org
Date: 2007-09-20, 10:49AM EDT
REAL ESTATE INVESTORS IMGAINE ONLY PAYING 2.50 2.50% ON YOUR INVESTMENT PROPERTIES REFINANCES AND PURCHASES.
HAVE YOUR RENTS GONE DOWN OR YOUR MORTGAGE PAYMENTS GONE UP ON THE THE PROPERTIES
WELL LET ME HELP YOU LEVERAGE YOUR MORTGAGES WITH 2.50% MORTGAGE RATES FOR INVESTORS
IMAGINE SAVING 40 TO 50% ON YOUR MORTGAGES AND HAVING THOUSANDS EXTRA EACH MONTH TO SAVE MORE MONEY.
LOWER YYOUR RIST BY REDUCING YOUR LIABLITITES AND INCREASING YOUR PROFIT MARGIN
I HELP REAL ESTATE INVESTORS ALL OVER FLORIDA SAVE HUGE EVERY MONTH, THEY HAVE MORE MONEY TO SPEND ON OTHER PROPERTIES AND NOT TYING ALL THEIR CASH UP IN ONE PROPERTY. 813-516-5210———-813-516-5210———–813-516-5210
Can you repeat that phone number please? I don’t think I got it.
order now and receive the exciting new HAIR WIZ at no additional cost!
that number again is XXXXXXXXXXXX
our operators are standing by
C’mon - someone with a stong constitution (and who works from home) has to give this guy a call and ask “how it works”
Of course, I’d say there’s a 98% chance you’ll just get an answering machine - this guy’s just trolling for phone numbers for some kind of boiler-room penny stock or equity-stripping scam. Obviously anyone who responds to his ad has self-identified themselves as ripe for a too-good-to-be-true proposition.
According to the new FOX Business Channel that is featuring real estate all day long said that when they asked people whether they had a fixed rate mortgage or something else 34% said they did not know what they had.
faux d’gras
My mortgage documents are in my safe deposit box. To be double-y sure that I do indeed have a 30-year fixed, I recently made a pilgrimage to said box.
Since mortgage paperwork can be pretty voluminous, I asked an employee of the financial institution where said box is located to help me. Since she was from the loan department, she was quite familiar with mortgage paperwork, and she went through my papers with me.
Together, we found the place where it says that I have a 30-year fixed. I put that particular info on top of the stack of mortgage paperwork, then I re-filed the stack in my safe deposit box.
What I just described took about five minutes — tops.
Moral of the story: Keep your paperwork in a safe place, go through it carefully (with help if you need it), and you can indeed find info on what your flavor of mortgage is.
That’s four minutes and fifty five seconds too long for today’s crop of RE investment whizzes.
About a year after I bought my house (2002), I started getting all the usual refinance inducement junk mail. A high percentage of them referred to refinancing my “adjustable” rate (and referenced my current interest rate and mortgage balance). I finally gave in and dug out my mortgage DOC’s just to make sure there wasn’t anything I missed or was misled into at closing. Fortunately, it’s fixed. I guess some of those mortgage refinance trolls put “adjustable” on them them just to see if they can scare a few more confused people into calling THEM and getting hooked into the sales pitch.
Don’t get us in a Jan, with your comments~
Stay on message!
“‘I don’t really see that this is going to make a significant difference,’ said Jan Hatzius, chief United States economist at Goldman Sachs. ‘It seems a little more like a P.R. move, frankly.’”
“Mr. Hatzius said he wondered ‘why this is going on when previously the official word was that things were getting better.’”
“Orders came in lower across all of Horton’s markets. California was among the worst, with a 58% plunge.”
Good luck with the market share gains, Horton. It’s funny when you gain more market share but sell less homes. ROTFLMAO — idiots.
I visited with a relatively large building developer this morning in the Washington DC area that is working to sell a recently completed condo tower. Less than 20% of the condos have been sold in the 8 months it has been marketed. They can’t take the building ‘apartment’ because the folks who bought in would demand top dollar to buy back. So there they sit, paying the bulk of the condo fees and trying to sell $850,000 condos with $300/month fees to yuppies making $125-$150.
I suspect this downturn will have a considerable impact on almost every developer, as most could not resist the tempation to put a condo building in the pipeline.
Centex still hasn’t broken ground on two huge condo projects in Arlington near my old place. They just sit. Large, empty, fenced-in lots full of gravel and weeds. A decaying sign out front, “Open - Fall 2007″
(Trying to sell $850,000 condos with $300/month fees to yuppies making $125-$150.)
Sounds like they ought to be selling for $375 to $450, if that is the income of the folks they hope to sell to. The difference between the Northeast and Florida is that affordable pricing will bring sales. When will we get it?
Quote:
#####
So there they sit, paying the bulk of the condo fees and trying to sell $850,000 condos with $300/month fees to yuppies making $125-$150.
#####
This is a bad joke on the value of the U.S dollar currency. A damn condo cost $850K… What is this nation is coming down to, only God knows.. The LOW of the lows !
“We must help as many able homeowners as possible stay in their homes,” Paulson said. “Foreclosures are costly and painful for homeowners.”
and
“When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators.”
What separates a homeowner from a speculator? If I make $13 an hour and I buy a 400K home am I a speculator? IMHO? Yes.
“Paulson also stated, ‘When investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes. I have no interest in bailing out lenders or property speculators.’”
He also said they were going to review off balance sheet SIV accounting, it’s all contained, and the US has a strong dollar policy.
How can you tell when kitchen-sink financial reporting tells the full extent of the loss?
AFX News Limited
Bad news disclosure better than uncertainty for markets - IMF official
10.16.07, 11:40 AM ET
WASHINGTON (Thomson Financial) - The best thing banks and investment managers could do to speed up the normalising of financial markets is to disclose their losses, their risks and how they intend to manage them, a senior International Monetary Fund official said.
‘Even if there are losses, when you openly declare them, bad news is even better than uncertainty,’ said Jaime Caruana, the IMF’s director of monetary and capital markets.
http://www.forbes.com/markets/feeds/afx/2007/10/16/afx4224980.html
“I would like to know what those damn things are worth,” Bernanke joked, referring to the products that investors have shunned in the credit rout.
That’s right butt-boy, this is all just one big joke. The rampant fraud and corruption by all involved parties in this mess has been truely mind boggling. But to have the dishonesty run all the way to the top and have them still lieing about it has produced a revelation of biblical proportion for me.
This is not the country God blessed and the founding fathers created, but has been taken over by the robber barrons and their toadies that Teddy temporarily eradicated. It’s not enough for this collapse to happen. The whole system needs to be purified so that this never happens again. And that won’t happen with any of the current crooks in power.
“I would like to know what those damn things are worth,” Bernanke joked…
Great that some participants see the levity in the situation…
“Great that some participants see the levity in the situation…”
‘Scuse me Prof., I’d like to upgrade that to “conspirators”.
“This is not the country God blessed and the founding fathers created, but has been taken over by the robber barrons (sp)”.
“Most who use the term “robber barons” are confused about the role of capitalism in the American economy.” Mises Institute
Most of the 19th century “robber barons” were true capitalists and did not require government assistance.
All of today’s scum got there because of government’s assistance.
A huge difference with political patronage paving the way.
In the 19th century: weren’t the railroads granted huge tracts of land from the gov’t? Weren’t, gov’t troops used to “remove” the native inhabitants? Weren’t gov’t troops also used to put down strikes? There was gov’t assistance back then too.
The Truth About the “Robber Barons”
By Thomas J. DiLorenzo
Mises Institute
“…In some cases, of course, the entrepreneurs commonly labeled “robber barons” did indeed profit by exploiting American customers, but these were not market entrepreneurs. For example, Leland Stanford, a former governor and US senator from California, used his political connections to have the state pass laws prohibiting competition for his Central Pacific railroad,[1] and he and his business partners profited from this monopoly scheme. Unfortunately, the resentment that this naturally generated among the public was unfairly directed at other entrepreneurs who succeeded in the railroad industry without political interference that tilted the playing field in their direction. Thanks to historians who fail to (or refuse to) make this crucial distinction, many Americans have an inaccurate view of American capitalism….We know this because, just as many roads and canals were privately financed in the early nineteenth century, a market entrepreneur built his own transcontinental railroad. James J. Hill built the Great Northern Railroad “without any government aid, even the right of way, through hundreds of miles of public lands, being paid for in cash,” as Hill himself stated.[2]
Quite naturally, Hill strongly opposed government favors to his competitors: “The government should not furnish capital to these companies, in addition to their enormous land subsidies, to enable them to conduct their business in competition with enterprises that have received no aid from the public treasury,” he wrote.[3] This may sound quaint by today’s standards, but it was still a hotly debated issue in the late nineteenth century….
…All of Rockefeller’s savings benefited the consumer, as his low prices made kerosene readily available to Americans. Indeed, in the 1870s kerosene replaced whale oil as the primary source of fuel for light in America. It might seem trivial today, but this revolutionized the American way of life; as Burton Folsom writes, “Working and reading became after-dark activities new to most Americans in the 1870s.”[30] In addition, by stimulating the demand for kerosene and other products, Rockefeller also created thousands upon thousands of new jobs in the oil and related industries.
Rockefeller was extremely generous with his employees, usually paying them significantly more than the competition did. Consequently, he was rarely slowed down by strikes or labor disputes. He also believed in rewarding his most innovative managers with bonuses and paid time off if they came up with good ideas for productivity improvements, a simple lesson that many modern corporations seem never to have learned.
Of course, in every industry the less efficient competitors can be expected to snipe at their superior rivals, and in many instances sniping turns into an organized political crusade to get the government to enact laws or regulations that harm the superior competitor. Economists call this process “rent seeking”; in the language of economics, “rent” means a financial return on an investment or activity in excess of what the activity would normally bring in a competitive market. This sort of political crusade by less successful rivals is precisely what crippled the great Rockefeller organization.”
for more examples
Mises.org
http://tinyurl.com/f3ker
Interesting and informative, but there is an acknowledgement in there that huge land grants were being made - or else why did J.J. Hill lobby against them for his competition? As for the use of U.S. troops in “taming” the West - it is indeed unfair to imply that “robber barrons” were the sole benificaries - but their enterprises did benefit from those policies nonetheless. Those early examples of government assistance show the state has always aided and abetted capital, and admittedly that role has grown dramatically of late - to the point where the boundary between the state and corporations is very blurry indeed.
Most of the 19th century “robber barons” were true capitalists and did not require government assistance.
My economic history was weak, but I vaguely recall most of the robber baron money came from
a) working employees nearly to death or lending them money at usury rates.
b) taking advantage of monopolistic pricing, until Beloved Teddy stepped in.
So, how exactly are the 19th century robber barons are little different than the 21st century versions….
except we will have our beloved “Hillary” step in :-0
(rosebud)
Ahaw! Ahawhawhaw!
Oh, goodness, thank you for that one aladinsane.
Really, there have been some terrific posts here today.
I was just explaining that one to my kids last night. Funny.
OC DOWN 9.5% YOY - I guess its in the bag?!??!
http://www.latimes.com/business/la-fi-homeschart17oct17,0,7056141.story?coll=la-home-business
There it is in print — The O.C. housing market’s darkest hour has arrived. The market can only go up from here
LMFAO!!
Honestly, I am shocked. I thougth this market would not take a dump until 2008. WOW!!
The Stepford State of, being there.
P.S. Lansner’s blog says the median resale house price is off 11 percent since the peak in June 07 (a short three months before September 07). A rough measure of how fast resale house prices are crashing in The O.C. on an annualized basis is:
[(1-0.11)^(12/3)-1] X 100% = -37% annualized rate of decline.
What separates a homeowner from a speculator? If I make $13 an hour and I buy a 400K home am I a speculator? IMHO? Yes.
So, what do you call someone making $13 an hour buying an $850K home then? I really had to educate some $13/hr folks on their $850K house. I called the action STUPID. Comments?
“$13/hr folks … $850K house”
STUPID speculator, with a STUPID lender to boot
More like fraudster. Even with teaser rates 13/hr couldn’t qualify for even the first month’s payments.
I’m just trying to figure out where we, under Paulson’s guidance, should draw the line between ‘homeowner’ and ’speculator’. How stupid is stupid enough to put one in the ’speculator’ bracket? Also, if they are ‘homeowners’ doesn’t that sort of imply no mortgage to worry about?
The function of the bank fund, according to Katherine Pender in this morning’s SF Chronicle is to keep the bad loans off the balance sheet. This allows the banks to keep the bad loans off their balance sheets–at least theoretically. Pender seems to think that it just puts off the day of reckoning.
“The function of the bank fund, according to Katherine Pender in this morning’s SF Chronicle is to keep the bad loans off the balance sheet.”
Didn’t Enron’s top brass have to walk the plank for doing something similar?
Perp Happens
Unless your off-balance-sheet toxic debt accounts are perfectly legal, that is.
bwahahahahahahahaha! sorry… nothing to add. But really can’t stop laughing at that! bwahahahahahaha!
I got bumped from my CFC short today. That’s my first indicator for the next leg up.
Would you mind explaining this?
Well, I enter my shorts on each cycle according to moving averages and chartist signals and then average in either up or down to grow the position. Once I’ve got a position to the good I’ll begin to trail it with a stop loss that eventually “catches up” with the market price and then I get bumped out. The movement in stop price is associated with the volatility of the issue. My cycle rate of CFC is around 6 weeks, give or take. I’ll look for a double bottom or a few days of sideways motion as my confirmation of this short term bottom.
My overall goal is to make some good coin while staying as much as prudent in a position to make a windfall off the expected plunge. I’ve traded longs for years, even this year in some cases, but right now I’m just a lot more comfortable with short postions.
I trade part time (15 hours a week) and I’ll have to comment that this explanation was loaded with jargon. Even down to slang “good coin” for simple word like “worthwhile profit”
I really doubt the person who asked really understood at all what you were saying.
Sorry about that, I’m sure CCC will ask for clarification if needed. I would bet he’s like me and looks to other traders to see how they are doing things in order to improve his own game.
CFC = Countrywide Stock?
I think I heard they tanked after hours today at close, way way down.
.04 down last I checked. That’s .010 below my triggered stop. One of my most important rules of investing is “never cry over lost gains”.
One seldom if ever can call the top or bottom exactly so I don’t try.
“Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.’”
Hey. That was my line! I swear these MSNers are reading this blog and stealing our stuff.
Wouldn’t you do the same if you were in their shoes???
it’s gonna take a lot to fill some of those shoes.
at least two shovelsful
You’re right, I do remember that from — yesterday, I think.
Maybe we ought to plant a few catchy terms to see if they show up.
Sell now or be priced in forever!
Kahuna-huna Bear, Where Are You?
We got some work to do now.
Kahuna-huna Bear, Where Are You?
We need some help from you now.
LONDON (Reuters) - Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, “We would have gotten away with it, if it wasn’t for those pesky subprime loans.”
“Most of the 19th century “robber barons” were true capitalists and did not require government assistance.”
Right, such as those railroad tycoons. No help from government whatsoever.
Subprime is (not) contained
shocked I am………..just shocked!!!!
http://www.bloggingstocks.com/2007/10/16/paulson-and-bernanke-subprime-is-not-contained/
We are now watching a mexican stand-off poker game between the Financial Gangsters of Wall Street, the big builders, the mortgage brokers and even the realtors who are playing poker with the government and the Fed. Yeah, I know - the Fed is independant (lol). The Wall Street Financial Gangsters know that they cannot be allowed to fail.
Who is going to blink first as property values and sales continue to tank. Following close on it’s heels is the US economy as tapped out consumers close their wallets and put away 19 out of the 20 credit cards they each hold and tell little Snotlee (btw, great name txs chick and my friends are all using it to describe the little princes and princess’s around this area) he cannot have that $400 video game for xmas.
I can tell you who is going to win the game right now. The Financial Gangsters of Wall Street. They in turn will pull the brokers and realtors along in their wake as Bernanke buys a few more printing presses and starts dumping $100 “bricks” out of his phantom helicopter. Even though I’m a liberal, I fear for the USA if Hillary gets in with people like Barney Frank and Schumer pulling at her coats tails.
Why will the Fed and the government blink first? Because one of the Godfathers of The Wall Street’s Financial Gangsters is in now in government. Hank Paulson. He’s a double agent and his true loyalty lies with the other Financial Gangsters of Wall Street.
Remember, these “economists” and Wall Street Godfathers, were telling us just a short time ago that the sub-prime was no problem. The same way they are telling us there will be no recession and inflation is running at 2% (lol).
$100 a barrel oil is just around the bend depending on Turkey or some other unforseen event. Gold is very likely to hit $1,000 in the next 6 to 12 months. At the moment, the stock market is being propped up by pure manipulation by the Wall Street Gangsters. They want their bonus payouts at Xmas.
Also remember this folks. The average american certainly doesn’t have $20 or $30 or $0 or $50 or upwards to $1 billion million in the bank like Bush and Cheney’s and Paulson’s and the other 5% who own 85% to 90% of the USA. I don’t know what the average america has in cash in the bank or in CD’s but if the dollar tanks, the real value of that $100,000 they might have saved over 40 years, is going straight into the toilet, losing anything up to 50% of it’s value. The Bush, Cheney’s, Paulson’s of the world couldn’t really care too much if that $50 million + drops by 50%. Actually, they probably have most of it out of the USA. There was a story recently which said Cheney had been sending money out of the USA for the last 2 years.
“$100 a barrel oil is just around the bend depending on Turkey or some other unforseen event.”
The futures markets suggest otherwise, and point lower over the next several years — perhaps they foresee an event that is not discussed in MSM reports?
right idea…wrong crew.. check your facts better on who runs the usa. i will give you a hint..duponts
“Moody’s Investors Service last Thursday downgraded another $33.4 billion in mortgage-backed securities, noting that it now assumes losses tied to currently delinquent loans will be 40% to 50%.”
I say it again… it isn’t the number of foreclosures that will make this bust significantly more costly than past busts. It is the loss per foreclosure.
6-9 months ago everyone from bankers and politicians to the Fed and analysts kept coming out with predictions of 1.5-2.5 million foreclosures over the following 2 years, at a cost fo $40 billion, $60 billion, $80 billion.
They were assuming a that house prices would not drop dramatically, so the bulk of the loan could be repaid by selling the house. It was just the $20-40K legal fees, marketing costs, carrying costs, etc. that they expected per foreclsoure.
Now they are waking up and realizing that the bulk of the foreclosures will be in the bubble areas where peak values were $200K overproces, and therefore their average loss will be $200K per foreclsoure.
Take those 2 million foreclosures and multiply the expected loss by 5-10 larger loss per foreclosure than they expected.
Now factor in the second wave of foreclsoures. After everyone that can’t afford their home has been foreclsoed on and killed market values, then the people that technically can afford thier house, but decide it is stupid to pay twice as much for a house as it is worth, start walking.
So, multiply the amount of loss per foreclsoure by 5-10, and multiply the number of foreclosures by 2.
Those $40-60 billion loss estimates suddenly become something close to $1 trillion.
A $1 trillion loss in foreclosures is not inconceivable given a $5 trillion decline in paper value to restore affordability across the country. Figure another $1 trillion in losses absorbed by homeowners who are housepoor but continue to make payments.
The other $3 billion? People who bought before the bubble, didn’t HELOC, and have no reason to care — the money was never really there to begin with.
Based on Bernanke and Paulsons recent comments on the debt markets, along with this push to create rescue SIVs, I think it is clear we’re getting at least .25% rate cut at the end of the month. Maybe another .5%.
Thoughts?
BB will keep dropping the FFR until either the credit crunch ends or he is pushing on a string.
Maybe, but I do not think the US can afford any cut at this time. The reason is the US dollar.
The Euro nations, China, India, Japan, Russia, Brazil and the oil nations do not wish to support and have been net sellers of US treasuries. A further drop in the Fed Funds Rate will result in more selling of the dollar and the treasuries.
There was foreign intervention supporting the dollar today. If the US does not get its act together, there will be little support of the dollar.
“Maybe, but I do not think the US can afford any cut at this time. The reason is the US dollar.”
It is either the dollar or the stock market, IMO. Something’s gotta give.
If the foreign investors pull out of the dollar, the stock market implodes.
There is no flight to safety in the dollar. There is no level of security afforded with US equity positions. The debt structure in the US corporate world has never been worse and the US has no moneys.
“…the US has no moneys.”
I guess you don’t believe in the possibility of ongoing seigniorage creation with the giant printing press, then?
http://en.wikipedia.org/wiki/Seigniorage
A little Thai baht role reversal.
I heard they’ve been working on a CDO-Risk-Transporter. It disperses risk particles to a parallel universe outside of our own. Consequently, they may not need to lower rates. They’ll just push the easy button and all the risk will evaporate.
“Like a villain in a Scooby Doo cartoon, the banks behind the new $80 billion bailout fund are essentially saying, ‘We would have gotten away with it, if it wasn’t for those pesky subprime loans.’”
“Problem is, the issue was never just subprime loans, it is the far wider and deeper problem of loans made on overly optimistic assumptions secured on U.S. real estate, which is now in a once in a generation slump.”
finally…