An Accident Waiting To Happen
Some housing bubble news from Wall Street and Washington. New York Times, “For all the pain in the mortgage market, investors who hold bonds backed by risky home loans have continued to receive their monthly interest payments — until now. Collateralized debt obligations — made up of bonds backed by thousands of subprime home loans — are starting to shut off cash payments to investors in lower-rated bonds as credit-rating agencies downgrade the securities they own, according to analysts and industry executives.”
“‘At this point, it’s fair to say that everybody expects this shoe will drop,’ said Mark Adelson, an independent mortgage securities consultant and analyst. ‘It’s a foregone conclusion. But when it happens, there will be a market reaction to it.’”
“Investment banks issued some $486 billion in debt obligations linked to mortgages in 2006 and the first half of 2007. In the last two weeks, leading investment banks have written down about $20 billion, much of it in collateralized debt obligations and mortgage-related securities.”
“Most mortgage securities have not yet had significant losses, which are only recorded when homes are foreclosed and sold. Up to two years can pass between a borrower’s falling behind on payments and an auction.”
“‘As far as the security is concerned, it’s only once the property is effectively sold that a loss is recorded,’ said Nicholas Weill, chief credit officer at Moody’s. ‘The process of foreclosure is a long process. It doesn’t just happen overnight.’”
From Reuters. “Barclays and Royal Bank of Scotland have lined up emergency funds of up to $30 billion from the U.S. Federal Reserve to bail out American clients caught up in the global credit crunch, a paper said.”
“The banks would have to put up assets as collateral with the Fed to gain access to the credit line, which has been set up as a contingency and may not need to be used at all, the report said.”
From MarketWatch. “Royal Bank of Scotland is in exclusive talks to purchase the assets of Cheyne Finance, a structured investment vehicle, or SIV, that entered receivership last month, people familiar with the matter said Monday.”
“It wasn’t immediately clear how much RBS is offering for the assets. S&P marked all of Cheyne Finance’s assets to ‘D,’ or default, said the book value of the portfolio is $6.19 billion plus $948 million in cash equivalents.”
“On Wednesday, the vehicle stopped repaying its maturing debt after the receivers determined there had been an insolvency event. Two people familiar with the situation said junior capital noteholders would likely get nothing while mezzanine lenders will get some of their investment back.”
The Wall Street Journal. “The real-estate slowdown that hit the U.S. is spreading to Europe. Home prices in some of Europe’s hottest markets are falling after a decade of double-digit-percentage increases. The reasons resemble those across the Atlantic: higher interest rates, faltering confidence and tighter lending standards.”
“‘A year ago it was all, ‘no problem,’ but now they’re making us jump through hoops,’ said Iciar Caro, a 29-year-old school psychologist in Spain who can’t find a bank to give her a mortgage on a €236,000 ($337,000) house in a northern suburb of Madrid.”
“The housing boom was a global phenomenon, affecting virtually every developed country outside of Japan during the past 10 to 15 years.”
“Tomas Gonzalez bought a spacious, three-bedroom apartment in downtown Madrid last fall, with help from his in-laws. He and his wife felt monthly payments of €800 on a 35-year, €200,000 loan were manageable.”
“Now, the payments have risen €200 a month after the European Central Bank’s gradual lifting of interest rates, which it began in 2005. Plus, the Gonzalezes fear their home is worth less than they paid for it. One set of neighbors have repeatedly cut the price of their home in a yearlong effort to sell.”
“Mr. Gonzalez has stopped eating out and curtailed his purchases of books and music. ‘We are trying to save something for the lean times ahead,’ he said.”
From Bloomberg. “Commerzbank AG, Germany’s second- largest bank, dropped in Frankfurt trading after Chief Executive Officer Klaus-Peter Mueller warned of larger-than-expected losses related to U.S. subprime investments.”
“Mueller told the Financial Times Deutschland that the original 80 million euros in provisions set aside for writedowns on 1.2 billion euros of subprime-linked investments ‘won’t be enough,’ spokesman Peter Pietsch confirmed today. Analysts forecast subprime-related losses of 100 million euros to 450 million euros, according to M.M. Warburg’s Andreas Plaesier.”
From China Daily. “Autumn is usually the best time of year in Beijing, but for the city’s property developers, the season may already feel like a chilly winter.”
“After raising the down payment and mortgage rates for second home buyers on September 27, the government has now further tightened the screws on property developers by requiring them to pay land-use fees in a lump sum rather than in installments.”
“‘Developers before could get loans from banks once they acquired the first certificate. Sales from the first block were then used to finance the development of the remainder, which meant they could embark on several projects with limited capital,’ says Peter Pan, CEO of Care Property Holdings.”
“Insiders say it was a common practice for developers to postpone paying the government for rights acquired at high prices. Some even privately negotiated about the payment process.”
“‘In that case, most of the risks are transferred to financial institutions,’ says Pan. ‘Once one of the links goes wrong, banks may foot the bill.’”
The China Post. “Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.”
“‘Come take a look.’ ‘You’re welcome to visit.’ ‘Over here!’”
“Surrounding the agents in this upscale neighborhood are vast swaths of empty apartments that just a few months ago were selling at record high prices.”
“China’s central bank has raised interest rates five times this year and upped reserve requirements for commercial lenders eight times. ‘What China is doing nowadays can be described as crossing a river by fumbling for stones. The Chinese government is in fact fumbling for the right path for Chinese economic development,’ said Huo Deming, an economics professor at Peking University.”
“An unusually high degree of risk-taking across asset classes made recent financial market turmoil all but inevitable, former Federal Reserve Chairman Alan Greenspan said on Sunday.”
“‘The financial crisis that erupted on August 9th was an accident waiting to happen,’ Greenspan said in a speech on the sidelines of the International Monetary Fund and World Bank meetings. ‘Credit spreads across all global asset classes had become suppressed to clearly unsustainable levels. Something had to give.’”
“‘If the crisis had not been triggered by a mispricing of securitized U.S. subprime mortgages, it would eventually have erupted in some other sector or market,’ Greenspan said.”
“‘Central banks around the world have essentially lost control over the markets beyond maybe three or four or five years out. In other words, there is no evidence that we at the Fed had the capability of affecting mortgage interest rates,’ he said, noting that even when the U.S. central bank began raising rates in 2004, mortgage rates remained low.”
From AFP. “‘Credit spreads across all global asset classes had become compressed to clearly unsustainable levels,’ Greenspan said.”
“Greenspan noted that housing bubbles had emerged in nations throughout the globe where the Fed does not control interest rates.”
“‘If indeed, it is short-term interest rates that created the bubble in the US, what created the bubble’ in Europe, Australia and other parts of the world, Greenspan asked.”
“Former Federal Reserve Chairman Alan Greenspan said the dollar’s depreciation may reflect growing unwillingness among foreigners to buy U.S. debt.”
“‘Obviously there is a limit to the extent that obligations to foreigners can reach,’ Greenspan said. The dollar’s decline to its lowest since 1997 may be ‘an indication America is approaching this limit.’”
“Greenspan’s warning came after the U.S. Treasury reported last week that international investors sold a record amount of U.S. financial assets in August. Total holdings of equities, notes and bonds fell a net $69.3 billion after an increase of $19.2 billion in July.”
“The dollar has declined about 8 percent against the euro this year and 4 percent against the yen.”
“Greenspan was critical last week of a plan by some of the U.S.’s biggest banks to help revive the asset-backed commercial paper market, which seized up because of investor concern that too much of the paper was backed by securities containing subprime loans.”
“Greenspan was quoted as saying that he was unsure ‘the benefits” of the plan ‘exceed the risks.’”
“‘These peculiar financial structures that have become very prominent in the past four or five years are about to disappear from the scene,’ Greenspan said, citing ‘various variations’ of collateralized debt obligations and ’special’ investment vehicles as examples.”
“‘They have been tried and they have failed,’ Greenspan said. ‘The failure is the basic way that investors have been misled as to what the value of these products is.’”
“Greenspan questioned whether there was any longer a market for such ‘peculiar’ assets. He noted that demand for sales of debt backed by subprime mortgages has dried up.”
“It pains me to say this, but this time Alan Greenspan is right about housing. His latest pronouncement, that the market rescue plan being pushed by Henry Paulson, the Treasury secretary, is likely to make things worse rather than better, looks all too accurate.”
“Supposedly safe investments suddenly turned into junk bonds when the housing bubble burst. High profits reported by hedge funds…turn out to have been based on wishful thinking.”
“Thus, when two hedge funds run by Ralph Cioffi of Bear Stearns imploded last summer, it came as a huge shock to many investors, and helped trigger a market panic. But a recent BusinessWeek report shows that the funds were a disaster waiting to happen. The funds borrowed huge amounts, and invested the proceeds in questionable mortgage-backed securities.”
“Even worse, ‘more than 60 percent of their net worth was tied up in exotic securities whose reported value was estimated by Cioffi’s own team.’ We’re profitable because we say we are — just trust us. That hasn’t ever caused problems, has it?”
“Mr. Greenspan’s take, expressed in an interview with the magazine Emerging Markets, seems broadly similar. ‘If you believe some form of artificial non-market force is propping up the market,’ he said, ‘you don’t believe the market price has exhausted itself.’”
“Translated: this rescue scheme could be seen as an attempt to hide the bad debts everyone knows are out there, and as a result could delay any return of trust to the markets.”
“Bankers remain wary of plans to launch a massive investment rescue fund to soften the blow of the U.S. subprime meltdown, saying it could interfere with a market recovery and stall a resolution to the credit crisis.”
“‘It might be better to let the markets work it out. Trading platforms like that are always a difficult task,’ Carl Stalberg, executive chairman of Swedbank, told Reuters on the sidelines of a banking conference.”
“Despite the U.S. government’s active role in seeking support for the plan, many bankers and investors remain cautious, with some saying they have nothing to gain by participating.”
“‘Markets are rather suspicious about that policy. It could interfere with the market mechanism and introduce biases,’ said Olivier Garnier, deputy general manager at Societe Generale Asset Management.”
“The scope of the losses won’t be clear until buyers regain confidence, he said, and then the holders of the assets will likely have to face up to losses.”
“‘Once liquidity returns and impaired assets can be marked to market, some investors or financial institutions will see the true losses and will be forced to sell and deleverage further,’ Garnier said.”
“The markets from some complex derivatives remain broken and may recover only gradually, said Randall Kroszner, a governor of Federal Reserve Board on Monday.”
“‘I would suggest that….the recovery may be a relatively gradual process and these markets may not look the same when they re-emerge,’ Kroszner said in a speech to the Institute of International Bankers.”
“Trading in some derivatives, such as collateralized loan obligations, or CLOs, and collateralized debt obligations, known as CDOs, has ground to a virtual halt since August.”
“Kroszner said these markets broke down because investors didn’t do sufficient due diligence and the products were complex and opaque. ‘Put simply, investors suddenly realized that they were much less informed than they originally thought,’ Kroszner said.”
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“The markets from some complex derivatives remain broken and may recover only gradually, said Randall Kroszner, a governor of Federal Reserve Board on Monday.”
Kroszner’s bosses, Greenspan and Bernanke, have constantly praised the financial innovation and the “flexibility” they bring. Inflexibility is what they have wrought.
Jas
In a nutshell: “Overeasy credit — and the artificially suppressed real, risk-adjusted interest rates it engenders — unfailingly encourages too much investment in too many false projects. Financiers become reckless, investors switch what savings they still make into more speculative, longer-lived vehicles and — showered with the resulting bounty — entrepreneurs are misled, en masse, to see real opportunity where there is only the shimmering mirage given off by hot money.”
“‘As far as the security is concerned, it’s only once the property is effectively sold that a loss is recorded,’ said Nicholas Weill, chief credit officer at Moody’s. ‘The process of foreclosure is a long process. It doesn’t just happen overnight.’”
Which, on a positive note, means we’ll be able to enjot this blog for years to come.
Grab some popcorn, keep your Joshua trees tuned-up, and enjoy the ultra slow motion train wreck.
Which, on a positive note, means we’ll be able to enjot this blog for years to come.
ROFLMAO!
Thank god so many people are f**ked, otherwise we might not have as much time left to enjoy each other’s company at Ben’s graciously provided blog!
It goes beyond that — the reason why we seem to need one another’s company is that so many people have f**ked THEMSELVES — we have pursued a certain unconventional course of behavior consistent with financial prudence, and we have had a hard time persuading our friends and relatives that they are damaging themselves by relying on RE as a major investmt vehicle.
With appreciation for those words of wisdom Az, here’s hoping that the sane and prudent don’t suffer too much financial blowback from the cillective callapse of all of those OP shacks and those little picket fences.
Chef: Why do all you guys sit on your helmets?
Soldier: So we don’t get our balls blown off.
Ben’s graciously provided blog!
Thanks Ben for all the hard work, and thanks to all of us who support Ben financially. Remember, servers ain’t free.
I have been reading this blog for several months, and I still don’t understand the Joshua tree references … explanation, anybody?
The trees have these big ass thorny “pine cone like” seeds. Some of the minions have suggested using these as anal probes for real estate agents.
Joshua tree ass missles for all Fed members.. You get the picture.
And their spiny protrusions are inclined upward, which provides an added effect that doesn’t require explanation (If that doesn’t make your winker twitch, nothing will).
That beautifully austere Joshua Tree forests were bulldozed to make room for horrendously ugly and overpriced housing developments in places like Victorville and Palmdale adds some poetic justice to the metaphor.
J-trees are awfully prickly…
the joshua tree, with it’s distinctive twisted and thorny branches, is often used as a symbol of suffering or penance …
“Joshua Tree Because the name ‘Joshua’ in Hebrew translates to ‘Jesus’ in Greek, this can be interpreted as the ‘Jesus Tree’ and its sometime suggestive shape reminds some of the outstretched arms of Jesus on the cross. In the Old Testament Joshua was leading the Hebrews in their follow-up victory at Ai, Judg8:29, and he hanged their king on a tree until sunset. “
Oops…….starting to feel a little irreverent for their use as a punishing suppository.
Palmdale, or as a friend used to call it…
“Where Jesus lost his sandals”
Did Greenspan just admit that the Fed is no longer in control?
Shouldn’t the markets be very concerned about that?
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Now, Greenspan is a contrary indicator! More Greenspan sounds alarm higher the market goes. The old man can’t deal with the loss of power, says Mr. Market.
Jas
Greenspan himself I believe claims to subscribe to a libertarian philosophy. If true, and if he also subscribes to the Austrian model, perhaps now that he is rich and retired, he has decided to practice truthful economics as a hobby?
The stock market (nearly) always goes up, no matter how dire the news or how nasty and blunt the utterances out of AG’s mouth.
Perhaps, but Ron Paul should be pleased!
What is a market that it can be concerned about anything?
Since you can show mathematically that once a real time distributed system gets beyond a certain size, it can’t be centrally controlled, then it follows that the fed hasn’t been in control for a long time, if ever. Greenspan pretty much admits this in his book.
I believe the Fed hasn’t been in control form sometime as well. What I am currently very interested in is the perception of control and panic.
That’s pretty much it, i think. By everybody’s favourite analogy, most theatre’s could be safely emptied if people just walked calmly towards the exits - but if you get a stampede, then the exits get jammed and it’s just a mess.
Similarly, given time, the current mess can be sorted out, but if there’s a panic then all bets are off. And whilst i have some sympathy with the gotterdammerung crowd on this blog, personally, i like civilisation. Central heating is a good thing, as are public libraries.
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“‘The financial crisis that erupted on August 9th was an accident waiting to happen,’ Greenspan said…”
And who encouraged the process, Mr. Greenspan? You feel lucky to get out in the nick of time, don’t you?
Jas
Mr. Greenslime should keep his big mouth shut. I hope no everyone realizes his “put” created this entire mess we’re dealing with now.
Interesting timing, isn’t it? He drags his dead carcass out in public, JUST when the subprime mess is about to destroy the economy. Notice how he smoothly pins the blame on others, or he denies responsibility by saying “We tried to do something, but we couldn’t”. The fact that he kept interest rates down to 1% created this monster.
He’s just dragging his sorry ass out NOW before everyone figures it out. Of course it was his fault.
Moral of the story:
Never pay attention to a man who looks like a big-mouth bass.
One thing I’ve come to wonder after hearing about the Fed doing this and that is about how much damned money does the Fed happen to have? It would seem limitless.
Ummm….it is. They own the printing press. And with every new dollar printed, the existing dollars out there (like the kind that the readers here have been saving for years) are worth less and less.
good answer. I’ve been rather curious about the Fed for awhile and will readily admit that until perhaps two years ago didn’t understand exactly how it worked.
Wow, if you know exactly how it works now… I’m impressed! I still don’t know how it works.
oh- I don’t admit to knowing exactly how it all works. I don’t even think Greenspan does.
Who really does the printing, Treasury or Fed?
The United States Mint does the print. And I’m a poet and don’t know it.
Wish they would just print the US $Dollar on rolls and get it over with.
Pour George
There are limits to the Federal Reserves actions in the real world. Too much money leads to hyperinflation. Additionally, the stresses put on resources by making money free are damaging to the health of the economy in the long run. Investments will be made in things that make little economic sense.Too many houses, cars, luxury items, debt levels. People worldwide will eventually not want to hold a currency that is being actively depreciated for political or economic reasons. The federal reserve cannot save the economy from reality forever as much as their leaders may be deluded into thinking so. Fiber optic cable installation was a perfect example of delusion. Housing is now the current example. Without subprime what is the value of the current housing stock?
sort of OT.
Has anyone else noticed that the bills you get from the bank these days is very very old?
I noticed this when I was asking for a “nice” couple of bills for a wedding gift. the teller at my bank let me know that they get new bills each January, so the newest ones circulating now are at least 10 months old.
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Fed has a big balance sheet but it is anything but limitless. “Printing Money” is a myth that wouldn’t go away. Fed creates no spendable money for anyone. All spendable money is created via debt, including the Federal govt’s, that must be paid back or refinanced. Federal govt. refies several times every week in open market. It is the household debt that is the problem and the Federal Reserve can’t do much about it.
Jas
The Fed is perhaps the strangest aspect of our government. I’d say that the argument on what or how it deals with currency and supply can seemingly be argued on both sides.
Here’s around 10 pages of explanation per wikipedia. A good read.
http://en.wikipedia.org/wiki/Federal_Reserve_System
“It is the household debt that is the problem and the Federal Reserve can’t do much about it.”
Well, actually they could but it would cripple the system that has been staggering through the last 36 years.
this is what i have been thinking for sometime, no one can control an individuals spending of money. all they can do is spin doctor the commercials and advertizement that people read. i have ignored this all my life. i dont like to see people getting fooled into that spend, spend, spend mentality that ive seen going on for years now. it is time for the public to wake up and realize that we need to do more producing and less buying of that crap that we get from overseas. until the lot of them go hungry i dont think it will happen. you cant eat that hummer for dinner.
I thought I was immune from advertising until I woke up one day with six Abdominizers.
What you’re referring to as “dollar” should really be referred to as FRN (Federal Reserve Note). And don’t forget that a “note” is a promise to pay [something] Every single “dollar” [FRN] is loaned into circulation - with interest.
People use the word “dollar” every day and don’t have a clue what it means. “Dollar” is a unit of measure, just like “gallon” or “pound”. It’s supposed to be defined as a specified weight of gold defined by Congress. Read about the history of our monetary system.
“Kroszner said these markets broke down because investors didn’t do sufficient due diligence and the products were complex and opaque.”
If the products were not opaque, no one would buy the junk at yesteryear’s prices.
“The products were complex and opaque”
And they will become even more complex and opaque with the launch of the SIV Superfund which is going to be little better than marrying off your sister to your brother. You cannot get more opaque than that, but at least you will end up keeping everything in the family.
if they were not opaque and no one bought it, it wouldn’t be for sale.
But the blame rests on the investor… buying stuff s/he does not fully comprehend adds untold amounts of risk.
That risk of buying the unknown was willingly accepted.
The only hard and fast rules that I adhere to without exception for investing are: 1) understand what I am investing in; and 2) never use leverage.
Sometimes, I miss out on outsized returns, but I also miss out on things like Enron. I was in other energy stocks when Enron collapsed, but I declined to invest in Enron because I never did understand their business model. My first rule saves me a lot of trouble when things like that happen, and the second rule ensures that even if I do guess wrong, an investment never turns into a debt - at worst, it turns into worthless paper.
There wouldn’t have been much of a credit bubble if more people had common sense, which apparently isn’t so common.
Used to work for a large utility in Mpls, I seem to remember one of our VP’s announcing in a large employee meeting that “… we will become the Enron of the North!”. I kid you not. I too looked at their business model and saw that it was a house of cards too. Shortly after Enron began imploding, our company quietly began disengaging from the for-profit retail business and chose to refocus on their core product (electricity and natural gas). Also began the bloodletting process by eliminating over 4,000 jobs over the course of 3 years.
This was in bits. It’s seven pages long, and while not the easiest read, certainly worthwhile. It really explains why these dang things are so opaque, and why the fund managers themselves don’t know heck is going on in their own house(s)!
Thank Tx!
Leigh
Comment by txchick57
2007-10-21 08:12:19
http://www.technologyreview.com/Biztech/19529/?a=f
i can sum the 7 pages up in a sentence or two..
A bunch of geeks, using various formulas, saw high returns if the investment wagon was hitched to a particularly unusual market trend (not realizing the trend was a real estate bubble).
People then jumped in the wagon, not knowing or caring where it was headed, having been assured the vehicle can only go “up”.
The geeks in question used highly specialized mathematical computation, without the element of human anaylsis.
Can a complex computerised model factor human greed?
My guess is no.
Also noteworthy, these models must be updated continuously, and they lose efficacy as the complexity of the model accelerates in real time.
The real question is should we turn our finacial system over to quants? It sure has proven dangerous, if not down right lethal!! The reliability of quantitative fomulae is suspect, IMO.
Best,
Leigh
Can a complex computerised model factor human greed?
Can a mathematical model based on greed ignore it’s own greediness?
I’d love to see what the model looks like now with a few updates. Must look like the ABX charts.
“It pains me to say this, but this time Alan Greenspan is right about housing. His latest pronouncement, that the market rescue plan being pushed by Henry Paulson, the Treasury secretary, is likely to make things worse rather than better, looks all too accurate.”
I’m amazed by the sudden clarity of Greenspan’s comments
Looks like he can speak english after all….
In his recent book, he admits that he intentionally spoke highly obfuscated FedSpeak (his word), in order to convey as little actual information as possible. I always thought it was because he was senile.
“‘They have been tried and they have failed,’ Greenspan said. ‘The failure is the basic way that investors have been misled as to what the value of these products is.’”
Comrade Greenspan’s forthrightness makes me effing speechless.
I have just one question for you Mr Greenspan and I want a forthright answer.
Have you been lying to us all those years when you were at the Fed?
LOL. I’ve been thinking the same thing. All of a sudden I can understand the crusty bastard, when for years he could of been speaking Swahili for all I knew.
yo, get an ARM loan homie”
AL G 2004
Can someone with a better idea of Chinese idioms translate for me?
“What China is doing nowadays can be described as crossing a river by fumbling for stones.”
Does that mean they’re trying to swim across a river with stones in their pockets?
it means to proceed in a gradual manner.. fumbling from one stone to another carefully, like when crossing a river fumbling for a stone to hangon to before fumbling for the next stone..
“What China is doing nowadays can be described as crossing a river by fumbling for stones.”
I think this is a reference to feeling for stones to step on to cross the river. Just imagine not being able to see your feet, crossing a rushing stream, and feeling step by step for the next rock with cold toes. Easy to make a mistake.
i think it means they are trying to cross a river wanting to feel a stone under their foot at every step.
like my dad always said:
“want in one hand and shit in the other…see which one gets the fullest”.
No school like the old school.
it means:
Jeezus H! This Capitalism stuff aint as easy as it seems.
omfg Har! you owe me a new monitor.
Given the PRC’s views on christianity, that’s hysterical.
“What China is doing nowadays can be described as crossing a river by fumbling for stones.”
Think Wesley Crusher in the Holodeck on “Encounter at Farpont, part II” the series premier of Star Trek: The Next Generation.
And yes while I’ve outed myself as a total geek, dozens of HBBers recognized the reference instantly.
“Mr. Gonzalez has stopped eating out and curtailed his purchases of books and music. ‘We are trying to save something for the lean times ahead,’ he said.”
Right, these kinds of behavioral adjustments by consumers are not going to have any impact on the broader economy or producers around the globe.
Yet, Mr. Gonzalez is acting rationally, and IMO that still puts him in the minority. Many more still cling to hope, feelings, and confidence - that they will not see in their remaining lifetimes anything they have not yet already seen.
Mr. Gonzalez is going to get a visit by the RIAA! Obviously he cut his music spending by piracy.
Seriously, we have two situations:
1. People wanting to buy are cutting spending to save up a down payment.
2. FB’s are cutting back because they have no choice (if rational) or else just going into foreclosure. Both shrink the economy.
3. Most of the interest is going to foreign nationals. Ok, that will help us sell food and aircraft. (I include wine and other alcohols as part of food exports.)
But that certainly isn’t going to help us compete for oil on the open market.
Europe is an exporter, so they’ll be able to dig their way out faster by selling fancy stuff to China, the middle east, and India. Not to mention the tourist industry is far better developed in Europe. The US? We’ll be really cutting back. So much for those luxury vacation packages.
I still expect coworkers to take 2 month jaunts around the world. These are the well invested savers. But the REIC is about to find out what its like to live on $50k or less a year. Say goodbye to those $300k incomes for being a transaction agent.
But Europe has another issue. As the Mr. Gonzales give up, their banks will be undermined (if the SIV portfolio of US debt hasn’t already done the job).
Not much comments today. I have to go out and stop one of my three sister-in-laws from buying a home this coming weekend! (Taking time off work to do this too.) Groan! She and her hubby should be buying in 90274, not Lomita! WTF are they thinking. I’m going to convince them to rent two blocks from the beach and wait it out.
Oh, the hubby went back to Japan for three years due to the extreme amount of money his company is making there. By his company, I mean *his company,* not his employer.
Groan! How can smart people make such huge mistakes! My next job is to convince him at the end of the current run to not reinvest so much back in the company. (He isn’t very liquid due to the costs of rapidly expanding the business.)
Got popcorn?
Neil
“My next job is to convince him at the end of the current run to not reinvest so much back in the company.”
Ask any Enron or Worldcom Employee.
Or IBM.
“Former Federal Reserve Chairman Alan Greenspan said the dollar’s depreciation may reflect growing unwillingness among foreigners to buy U.S. debt.”
“‘Obviously there is a limit to the extent that obligations to foreigners can reach,’ Greenspan said. The dollar’s decline to its lowest since 1997 may be ‘an indication America is approaching this limit.’”
Hi Ben, Big Al here. How are ya? Hey, if you’re thinking about lowering interest rates again, think again. I screwed that pooch one too many times buddy. It’s not going to work anymore. Sorry about that…well, not really… I’m retired. So anyway, I gotta run - gotta go sign some books for the “maestro-worshippers” out there. Sucks to be you. Ta ta.”
Yup, funny how the guy pointing out it’s raining often turns out to be the one peeing on your head.
Obviously Ben needs to hire Big Al as a consultant.
Getting interesting!
What’s up with the stock market? That is the funkiest shape for Dow prices I can recall!
Got popcorn?
Neil
“Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.”
Global Twirlers — they’ve expanded the franchise. I didn’t know Twirlers Inc. was a multinational.
“Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.”
Does that really work? (j/k)
Quid pro Quo, no more
“On Wednesday, the vehicle stopped repaying its maturing debt after the receivers determined there had been an insolvency event. Two people familiar with the situation said junior capital noteholders would likely get nothing while mezzanine lenders will get some of their investment back.
Q: Does an “insolvency event” involve bowl movement?
A: Depends.
Greenspan spawned this mess. He Knew nothing about the nature of greed running through the mortgage market/secondary market. Mortgages with flawed perceptions already existed (125% financing, sub prime, piggy back, stated income and cash back purchases), when the rate declines ensued. Lower interest rates may have stimulated the market and kept the U.S. economy afloat but in truth all the mathmatical models were just a smoke screen to delay the reality which started with the pre 2000 bubble.
Greenspan’s record as Fed Chief is impressive but one thing that always gave me pause was his signing off on Linclon Savings back pre S&L implosion. He was not running the Fed then and I always wondered if he really knew anything about mortgages.
Do you really mean that you don’t think Greenspan was in on this, but that he is actually just a clueless moron?
oooh, I think he helped King George, with some panic over 9/11. He too is subject to ego and the our way or the highway speak. But yes, I do believe that he was not up to speed on the mortgage market and the human condition. I guess it is all of the above,
that is HILARIOUS as HELL I tell ya what !!!
the actual AGENTS themselves out there spinning signs.
Oh MY EFFIN GOD - I hope every real estate agent in the US reads that story/ what a wake-up call. Like the expensive american union auto workers reading about their foreign counterparts doing the same job for far less.
cant you just imagine the US snotty hoity toity lexus driving real estate agents recoiling in horror at the very idea of them out there on the ..shudder.. streets waving a sign!??!?
how declasse’ ! how unprofessional!!
oh DEAR OH DEAR No No NOOO someone make it all stopppp rewind to 2002 please please dear goddess of the PTA referrals leslie appleton (dont forget the hyphen young), tell me its not true !?!??!
love it. L-O-V-E I-T! I savor every word of that article. thank you ben. youve made my week.
‘Greenspan noted that housing bubbles had emerged in nations throughout the globe where the Fed does not control interest rates.’
‘If indeed, it is short-term interest rates that created the bubble in the US, what created the bubble’ in Europe, Australia and other parts of the world, Greenspan asked.’
He makes a good point, but not good enough. All the central banks created too much money/debt. It doesn’t get him off the hook for the US bubble, and one could argue that the US Fed led the pack.
It was a conspiracy between China, Japan, US, and the ECB. You peg your currency and we will hold rates down, China. You keep buying debt and we will enable the carry trade, Japan. Everyone who took part is now feeling the pain; that is why conspiracies to evade market principles are a bad idea.
“Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.”
Global Twirlers — they’ve expanded the franchise. I didn’t know Twirlers Inc. was a multinational.
I wonder if we’ll see our agents here out there twirling signs. Seems to me they can’t afford to pay anyone to do it for them anymore.
I saw them yesterday in two locations. The first was in Manassas across from the courthouse, and the second was near Potomac Hospital on Opitz Blvd.
My wife stated that stunts like those to get people to stop and see new houses are a joke.
They make me want to shift into higher gear and pedal furiously past them. On my paid-for bike.
hey, i heard they get paid $10 an hour to dance with those signs here in bakersfield. i always wondered if any RE agents would try to take those jobs to keep from going under.
ROFL.
Come to FL. I can drive 4 miles and see 10 of them on a Sunday (assuming I go towards the new developments, otherwise I will only see a few).
They are a new menace on the roads, they distract the birdies and make them drive EVEN WORSE (if that’s possible)…
Oh well.. I have resigned myself to the fact that I will be involved in 1-2 accidents a year as long as I live in FL. And EVERY SINGLE one of them so far has been a hit in the rear on 95/TPKE. Until you drive 20K miles a year in SFL, you don’t know what “bumper cars” truly is… And, unfortunately, this is bumper cars at 80MPH, with a blue hair out there weaving in and out of traffic while the painkillers take effect on the way to the early bird special at Dennys…
Early bird specials should be outlawed!! There is NO reason to encourage those who DON’T work to get on the road during rush hour!!
Can you tell I had a near-death experience on the highway last week? Sorry if it’s still bleeding through!
But Mike
The AARP will fight you to the DEATH, for 3 things:
1) no cuts to SOCIALLLLL SECURITYYYYYYYYYYY !!!
2) no extra DMV testing for seniors
3) the right of seniors to pilfer salt/pepper/sugar packs by the case
from any early bird special diner, especially Denny’s.
bonus: Canadians are gods. Florida residents should bow down & be thankful they spend their hard-earned money there.
Used to be mildy amusing seeing the canucks slip their cheaper canadian quarters into the FL money system, like leaving ONE for a tip!! No, I kid you not. Ask any FL food server.
You can bet yer arse these cheapskates wont be doing that anymore since the US dollar lost value. (they always claim it was an honest mistake using canadian quarters, gosh darnnit they’re so similar n all dontcha know … funny how it happned by mostly cheapskate seniors trying to stretch their snowbird funds out while in FL.)
now mike, those seniors cant move those fused neck bone vertebrae enough to look around while on the road. I think the national symbol of Florida should not be a flamingo, but rather a white-haired old lady peering over the dash of her caddillac wearing those effin black wraparound cataract gargoyle sunglasses, staring straight ahead in a zombie-like, blinders-on gaze only at the road dead ahead, with death-grip-white-knuckled-claws on the steering wheel !!
When I lived in FL i gave EVERY CADDILLAC a 1000 yard buffer zone of danger .. .. learned to expect ANY move, anytime.
sucks when they hit you from behind /not a lot you can do there …..
take it ez paison
I found that by leaving a larger gap in front of me, if/when traffic slows down I don’t have to slam the brakes, which gives the tailgater a better chance to slow down too. With the bigger gap, sometimes people go in front of me. But that’s ok, it’s not a race.
“‘If indeed, it is short-term interest rates that created the bubble in the US, what created the bubble’ in Europe, Australia and other parts of the world, Greenspan asked.”
Securitization and heavy reliance on short term funding from the ABCP. The model is the same at Northern Rock in England, RAMS in Australia, IKB in Germany, CountrFried in California, Russian Standard Bank, Alliance Bank of Kazakhstan, and a bunch of other lenders around the globe.
“Country Fried” is really funny. Bravo
‘Obviously there is a limit to the extent that obligations to foreigners can reach,’ Greenspan said. The dollar’s decline to its lowest since 1997 may be ‘an indication America is approaching this limit.’
There was a time when these comments from AG would have sparked a market crash. Is everyone just shell shocked these days or does no one listen to him anymore?
There is still time for the markets to crash.
Cheney said deficits don’t matter so I don’t understand why we still talk about this issue.
Nothing matters in America is seems. Johnny can’t read, add or balance a checkbook it seems, but he can’t understand ARM resets but understands how to access excess home equity. What a country we have become.
It takes a while now for the news to sink in. Every FB has their TV on mute as they field a calls from a dozen different collection agencies.
“Bankers remain wary of plans to launch a massive investment rescue fund to soften the blow of the U.S. subprime meltdown, saying it could interfere with a market recovery and stall a resolution to the credit crisis.”
Let’s see, thats the only article that jumped out at me. Score 1 for common sense.
Right . . . no one did, from the buyer to the lender to the anyone. No diligence.
Flames are heading towards Foothill Ranch in Irvine to a place called the “Vineyards”. Condos for miles.
BUllseye
I wonder how many are owner occupied?
Worried about son’s girlfriend who lives in Irvine. She’s 17 and trying to get home right now.
KTLA TV channel 14 in San Diego.
No extra firefighters to rescue these helpless people.
Yep, all the money went to the rich pensions, so there isn’t any for the understaffed and underpaid people still on the job. I’m not sure San Diego got hosed worse by pensions than the rest of us, but it did get hosed sooner.
This could be the Gonzalezes in Los Angeles, just as easily.
“Tomas Gonzalez bought a spacious, three-bedroom apartment in downtown Madrid last fall, with help from his in-laws. He and his wife felt monthly payments of €800 on a 35-year, €200,000 loan were manageable.”
“Now, the payments have risen €200 a month after the European Central Bank’s gradual lifting of interest rates, which it began in 2005. Plus, the Gonzalezes fear their home is worth less than they paid for it. One set of neighbors have repeatedly cut the price of their home in a yearlong effort to sell.”
How about this accident:
250,000 being evacuated in SD………ok if say a fraction of those houses burned, will that solve the housing glut in SD? They gotta live somewhere.
http://www.breitbart.com/article.php?id=D8SEDVFG2&show_article=1
It could result in a reduction in housing demand (although there was little evidence of that after the Cedar Fire in October 2003).
Couldn’t this end up being a huge liability to the insurance companies? Would the insurance companies then ask for a bailout from the government to pay the finance companies and participate in a lateral bailout?
How exactly does funding get fed to “disaster areas”?
Think of all the FB’s that can torch their house now! Most likely never will be caught and out of the current risk of home ownership.
Actually, the Insurance companies might make out like bandits on this one.
Replacement costs are going to be vastly bigger than what a bank owned REO is asking for in San Diego.
They can offer to replace the lost home by giving them a bigger home nearby.
can someone tell me why the market is up today with all the bad news?
Crazy,
I’ve been shaking my head all day on that one!
Leigh
Do not make the mistake of confusing reality with the stock market. The stock market will do what ever it can to cause the most amount of pain to the most people.
VIVA LAS VEGAS!!!!!!!!!
I know there is some blame to the Fed in all of this (lions share in fact) however China and their central bank should get heat as well.
Bush & the republicans for getting into too much debt.
Anyone involved in the LTCM bailout too.
There is this drive for all the Fed guys to think in terms of velocity of money. Unfortunatly they don’t seem to pay attention to the acceleration factor that it causes. Debt growth goes faster than real economic activity. So, malinvestment crops up very fast.
Anyhow, the fractional reserves getting to be so low is going to be the death of us all.
–
“China and their central bank should get heat as well.”
I disagree. Chinese leaders are doing what is good for China, in their opinion. We can’t blame bad American leadership of the economy on the Chinese. 90% of the problems in the US economy are caused by pushing of debt for consumption. I am all for income based consumption, or production driven consumption.
It Is the Debt, Stupid!
Jas
Ironically, money isn’t money until its borrowed.
“‘These peculiar financial structures that have become very prominent in the past four or five years are about to disappear from the scene,’ Greenspan said, citing ‘various variations’ of collateralized debt obligations and ’special’ investment vehicles as examples.”
“‘They have been tried and they have failed,’ Greenspan said. ‘The failure is the basic way that investors have been misled as to what the value of these products is.’”
Now that Mr. Market has given securitized exotic subprime loans an F grade, I guess it is up to the govt to step in and start propping up the market for them.
“The Group of 24 developing countries noted wryly in their communique that, for once, a financial crises began in one of the advanced nations instead of in Asia or Latin America, as has happened in the past.”
and from same article
“Spain’s Rodrigo de Rato said recent turbulence in credit markets, the worst in a decade, is a warning that the continually expanding global economy of recent years cannot be taken for granted.
“We still do not know the full extent of the decline in the house market and the subprime problems of the U.S. economy”.
Did you see this article on declining markets across the country?
The interesting case for a New Yorker is San Francsico. Clearly the area is no undesirable, and despite the job losses its economy is OK. What happened is that with the possibility of dot.com riches gone, young people woke up one day and asked “why am I slaving to live in poverty in a few square feet?” And left in droves.
In NYC, young people with college degress live four to a room to afford it here. For how long?
Good Old Shoe…
“‘At this point, it’s fair to say that everybody expects this shoe will drop,’ said Mark Adelson, an independent mortgage securities consultant and analyst. ‘It’s a foregone conclusion. But when it happens, there will be a market reaction to it.’”
They have been dropping shoes left, right, center, Norths, South, East and west.
The rights of spring in the Midwest, when you can tie your old tennis shoes together and throw them over the power lines.
During the week I watch CNBC and read HBB. With all the fire stuff going on I can’t sit and read HBB. Ben Jones should sign up to XM to get a radio show. He could make a killing.
So sick of big business news.
What happened to Ben and Jerry’s ice cream?
Oh and who invented kettle popcorn?
How risky is the commercial bond market?
KKR with an admirable track record is selling its bonds on its acquisition of TXU. Interest rates on these bonds are between 10.25 and 11.00% .
KKR has a better track record than any CDO.
How much will Citigroup have to write down from this transaction?
‘Zero-percent contained’
we agree
I was remembering back to when subprime was contained
Here in Southern California, the media is reporting that houses are just being left to burn because there is not enough manpower, not enough trucks, etc. The authorities are having to divert people who are guarding the border to fight the fires and it still isn’t enough. The reason this is happening? Many of those who would be available to fight the fires - are deployed in Iraq. The Bush excuse that, “If we didn’t fight them over there they would be over here,” is total b.s. This moron is a bigger threat to US security than the terrorists in my opinion. There just doesn’t seem to be an end to the list of f*ckups GW Bush has created by his amazing incompetence.
You are absolutely correct. Those resources, in the past, have been a big help. But now they are gone. Same as New Orleans.
Don’t worry, GW will come riding in to save the say just as soon as they can figure out how to fleece the people for another “free market” solution. Because let’s face it, unless there is cash to spread around to their buddies, we can all rot in hell.
Burn baby burn.
I’m not defending GB Jr. one bit here but I have to point out a little fact that ground pounders can do very little to stop a fire with fast region wide santa ana’s blowing at low teen’s or lesser humidity levels. Embers a flying horizontally at 50 MPH.
All they can do is herd the egdes and not get caught in the middle.
I grew up in Southern California and saw my share of wildfires. I don’t remember ever seeing a big military presence. There’s probably a reason for that — possibly because soldiers are better at blowing things up/setting things on fire than putting fires out. (How do you fight a fire with a tank?)
I don’t remember seeing a lot of up-armored red fire trucks being sent to patrol Baghdad.
Fires have always been fought mainly by firefighters and specialized firefighting equipment. Sure, you could give the 82nd Airborne shovels and try to hand-carve firebreaks — but with the borders of just one fire being upwards of a couple hundred miles long, what’s the point? Ever try clearing heavy brush with hand tools? Do you have any idea how long it takes to make even a ten-yard-deep firebreak — which any healthy fire will blast right over, or go around before you’ve had time to extend it a mile long?
I don’t recall the military doing much, if anything, against the fire that burned down a good part of Laguna Beach in 1993.
I can’t believe how close the fire is to Professor Bear’s cave.
CARenter posted she got her evacuation call this am. I’m pulling for a low impact event for you CA.R! And that goes for anyone else who’s gotta leave everything behind to move to safety.
Are Captain Hook and Tinkerbell co-investors, on the island of Neverland?
http://en.wikipedia.org/wiki/Peter_Pan
“‘Developers before could get loans from banks once they acquired the first certificate. Sales from the first block were then used to finance the development of the remainder, which meant they could embark on several projects with limited capital,’ says Peter Pan, CEO of Care Property Holdings.”
“Insiders say it was a common practice for developers to postpone paying the government for rights acquired at high prices. Some even privately negotiated about the payment process.”
“‘In that case, most of the risks are transferred to financial institutions,’ says Pan. ‘Once one of the links goes wrong, banks may foot the bill.’”
SIV Vicious
Why is it that when the beltway guys and the generals retire do they suddenly get honest. We here Greenspan’s truthiness now and I won’t even go into the generals about the Iraq War.
Because Jim, it is all about protecting their career, while in office. My strongest hatred goes to those generals that never spoke up. To busy trying to protect their retirement benefits.
What about gerald ford waiting until he was dead and gone, before dissing the current occupant of 1600 Pennsylvania?
Mike,
It’s GW’s fault? Come on, I’m not a fan but at least blame something or someone more responsible.
First try nature and weather. Second, try the environmental dumbshit’s that prevent clearing old and dead underbrush. Third, I didn’t hear you volunteering to help. Fourth, maybe California should spend another 20% of it’s budget that is already underwater for more firefighters, since the last time I looked local fire fighting is not a Federal responsibility.
Try blaming the psychopaths who start (most of) these fires during the Santa Anas. The one that’s burning towards Portola Hills/Foothill Ranch was definitely arson.
You could deploy the whole bloody Army against these fires, but once they’ve got a good head of steam, there’s nothing you can do until the winds stop. (Hopefully, tomorrow afternoon.) A better use for the military might be to keep the backcountry roads under observation — with rules of engagement permitting them to pop anyone they see heading into the brush with a highway flare.
Of course, there’s that Posse Comitatus Act issue, so that wouldn’t work, either.
If only we had some physically fit young men and women in the military, to help out with fighting this onslaught of fire?
whoops~
They are already under fire, elsewhere.
Yes, nature and weather are the cause but, in prior years before this clown got elected, there were plenty of resources. As for dead underbrush and dumbshits stopping the clearing? Not true. The dumbshit environmentalists (as you call them) NEVER try to obstruct the brush clearing and the local fire departments are always warning property owners to clear brush around their houses. Firefighting in California might not be the responsibility of the Federal government but the Federal government has sent many of those who would be available to help fight the fires in California, to that incredible and expensive money sucking Bush mess in Iraq. As for helping - seeing as I’m closing in on 70, I doubt if I would be of much use.
However, I will agree on one thing about the money spent on for more fire fighters EXCEPT, the police, firefighters, etc, in California and most State workers (like Federal workers) suck up so much of the budget in California, with early retirement and excessive incomes and nothing short of incredible perks like 100% medical insurance($100,000 per annum income not being an unusual income for a state worker) that the state cannot afford to increase the numbers. I suppose that’s what we get for having a Democratic Governor - oh, I forgot - he’s a Republican. No, it’s no good trying to defend Bush on ANYTHING. He’s a total disaster.
“After raising the down payment and mortgage rates for second home buyers on September 27, the government has now further tightened the screws on property developers by requiring them to pay land-use fees in a lump sum rather than in installments.”
I have to hand it to the Chinese. Even though their attempts to slow down their bubble may be too little, too late, at least they tried. This must be the 5th or 6th major change they have made going back at least 2 years to slow things down.
Where the flock was our government? Are we at a point now where a COMMUNIST government can out-govern the morons we have?
AWOL since the millennium…
Mike,
Have a good night with no fires. I’m rooting for Indianapolis.