A $1 Trillion Problem
Some housing bubble news from Wall Street and Washington. Associated Press, “At an emergency meeting of the Citigroup Inc. board Sunday, the nation’s largest bank announced CEO Charles Prince’s widely expected departure, but also estimated it would take additional losses of $8 billion to $11 billion. In the third quarter, it already took a hit of $6.5 billion in asset mark-downs and other credit-related losses.”
The Street.com. “A writedown of that magnitude would make Citi Wall Street’s biggest loser, at least so far, on this year’s collapse of the markets for risky paper. Whether further debt-related losses are on the way at Citi will now become the biggest question surrounding the bank.”
“Indeed, the firm said in its press release announcing the writedown that ‘the impact on Citi’s financial results for the fourth quarter from changes in the fair value of these exposures will depend on future market developments and could differ materially from the range above.’”
From MarketWatch. “Separately, The Wall Street Journal reported that the Securities and Exchange Commission is reviewing Citi’s accounting for a type of funds known as structured investment vehicles, or SIVs.”
“Citigroup spokeswoman Christina Pretto denied any irregularities connected with the SIV funds, telling MarketWatch: ‘Citi is confident that its accounting for SIVs is proper and in thorough accordance with all applicable rules and regulations.’”
“Earlier this morning, Fitch Ratings downgraded Citigroup Inc.’s Long-term Issuer Default Rating to ‘AA’ from ‘AA+’, along with Citi’s other long-term ratings and the Individual rating.”
“Sizable charges are likely for Citi’s exposure to U.S. subprime-related assets, including collateralized debt obligations and other exposures. Recently, prices of these instruments have come under further considerable pressure from end-third quarter-2007.”
“In its securities and banking business, Citi’s direct exposure to U.S. subprime-related assets totals $55 billion, consisting of almost $12 billion of exposure in its lending and structuring business as well as approximately $43 billion of exposure to super senior tranches of CDOs backed by ABS.”
From Reuters. “‘Citigroup’s announcement that it would have to make $8-$11 billion of additional markdowns on its CDO exposures is unwelcome news after the very weak third-quarter results,’ said S&P’s credit analyst Tanya Azarchs.”
“‘Moreover, deteriorating credit conditions in the consumer lending space, particularly in first and second lien mortgages, suggest that the company, not just the investment bank, could face a difficult environment across a number of fronts in the short to medium term,’ S&P said in its statement.”
“‘This could result in a level of earnings volatility incompatible with a ‘AA-plus’ rating,’ S&P said.”
From Bloomberg. “H&R Block Inc. said Chief Financial Officer William Trubeck has stepped down from his position ‘effective immediately.’”
“H&R Block used emergency bank lines in September to pay off more than 90 percent of the short-term debt that creditors refused to refinance in August. H&R Block lost more than $1 billion on its Option One subprime home-loan business over five quarters.”
“The turmoil in the risky subprime mortgage-market is a ‘$1 trillion problem … There are $1 trillion worth of subprimes and Alt-As and basically garbage loans,’ said Bill Gross, chief investment officer of Pacific Investment Management Co., on CNBC Television.”
“Gross said he expects $250 billion of subprime and Alt-A mortgage loans to default and those defaults will fall to the balance sheets of investment stalwarts such as Merrill Lynch and Citigroup.”
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
“Federal Reserve Governor Frederic Mishkin said last week’s interest-rate cut was aimed at reducing economic risks and policy makers can take back the move should it prove ‘unnecessary.’”
“‘Should the easing eventually appear to have been unnecessary, it could be removed,’ Mishkin said at a conference in New York.”
“‘If, in their quest to reduce macroeconomic risk, policy makers overshoot and ease policy too much, they need to be willing to expeditiously remove at least part of that ease before inflationary pressures become a threat,’ Mishkin said.”
“Asked about last month’s agreement among Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to set up a fund to increase liquidity in asset-backed commercial paper, Mishkin said the ‘details’ are ‘not clear to me.’”
“The Bank of Japan is committed to gradually raising the country’s ‘very low’ borrowing costs to prevent investment bubbles, Governor Toshihiko Fukui said. ‘Keeping interest rates lower than the economy’s strength is risky,’ Fukui told business executives in Osaka today. ‘Interest rates need to be increased in a timely manner.’”
“The bank is determined to avoid economic bubbles, Fukui said. ‘Indulging ourselves in worrying about downside risks alone and just doing nothing could lead to a big policy mistake in the future,’ Fukui later told reporters.”
“Bank of Japan policy makers said the U.S. subprime mortgage collapse was caused by keeping interest rates too low, signaling their intention to increase the world’s lowest borrowing costs to prevent investment bubbles.”
“Some of the nine board members said a ‘long period’ of global monetary easing had led to ‘excessive financial behavior’ that resulted in the U.S. home-loan crisis, according to minutes of their Sept. 18-19 meeting published today in Tokyo.”
“Glenn Stevens may become the first Australian central bank governor to raise interest rates in the midst of an election campaign.”
“‘The bank’s board has no option but to increase rates; the economy is at full stretch,’ Bernie Fraser, central bank governor for seven years until 1996, said in an interview from Canberra. ‘Stevens and his board will not be deterred by the election,’ added Fraser.”
“The A$1 trillion economy is in its 16th year of expansion. The jobless rate is at a 33-year-low of 4.2 percent.”
“U.K. Chancellor of the Exchequer Alistair Darling said banks will curtail risky forms of lending after the subprime mortgages slump in the U.S. wiped out billions of dollars of profits, a shift that he said he welcomes.”
“‘Banks will be more cautious about lending and when it comes to revising some of the more foolish lending, such as in the U.S. subprime market, then that is no bad thing,’ Darling told the BBC Radio 4’s Today program in London.”
“The U.S. housing slowdown that propelled 10-year Treasuries to their biggest gains since 2002 may soon make the same securities laggards in the government bond market.”
“Fund managers may ‘no longer buy the 10-year Treasury’ to protect their holdings, said Ajay Rajadhyaksha, head of interest rate strategy in New York at Barclays Capital Inc., one of 21 primary dealers of U.S. government securities obligated to bid at Treasury auctions.”
“In a sign that demand may already be waning, the 10-year note yield rose to 64 basis points above two-year notes, the biggest gap since April 2005. When the rally started in June, there was no difference.”
“Yields ’should be higher than they are now,’ said Michael Schultz, who helps manage $6 billion. ‘With housing prices actually decreasing coupled with tighter underwriting standards, you’ve definitely decreased the number of people who could refinance.’”
“Because fewer houses are being refinanced, the average maturity, or duration, of bonds backed by loans is increasing. Barclays estimates the duration for the mortgage market has expanded to about six years from 4.4 years in September and 3.5 years in March.”
“Rising duration can be bad for holders of longer-maturity securities. The increase has the same interest-rate risk to investors as if the Treasury boosted the supply of 10-year notes by $911 billion, according to estimates by Barclays.”
“‘This may be a unique situation in the mortgage market where rates are going down and mortgages are extending,’ said Douglas Dachille, CEO of New York-based First Principles Capital Management LLC, which oversees $3.5 billion.”
“‘Traditionally, mortgage prepayments would be screamingly fast,’ at current Treasury yields, said John Cerra, who manages $13 billion of bonds at TIAA-CREF. There are no opportunities to refinance loans for ‘any but the best borrowers,’ he said.”
From Builder Online. “Myers Barnes is one of the most respected educators in new-home sales. He sat down to talk to Pat Curry, BUILDER Senior Editor, Sales and Marketing.”
“BUILDER: What are builders doing right during the housing market slowdown? MB: Until we outstrip supply and demand, we’ll be in this situation. They’ve come to realize that building more and trying to hold profits that are phantom doesn’t work.”
“BUILDER: Even if it means slashing prices and piling on incentives?”
“MB: The reason the consumer is so confused is because he doesn’t know where the bottom is. Find the bottom as fast as you can and get it off the books. Quit playing with it….Right now we have ridiculous incentives. Just find the bottom and get it over with. And then we can move on.’”
“BUILDER: So what do builders say to their customers who bought at higher prices?”
“MB: I bought a condo at the top of the market…We’re probably never going to get our money out of it…You’ll never beat the foreclosures and flippers when their units come on the market so the comparables are going to be messed with anyway. So get the inventory out of the way. Find the bottom as fast as you can. Quit playing with it.”
‘Citigroup spokeswoman Christina Pretto denied any irregularities’
You accountants out there know what ‘irregularities’ means.
‘Treasury Secretary Henry Paulson says the U.S. is examining the subprime mortgage crisis to ensure that ‘yesterday’s excesses’ aren’t repeated. He could be talking about himself and his former firm, Goldman Sachs Group Inc.’
‘Paulson doesn’t mention that Goldman still has on the market some $13 billion of almost $37 billion in bonds backed by subprime loans or second mortgages that it created while he was chief executive officer. Those bonds have an average delinquency rate of almost 22 percent, higher than the average of other subprime bonds from the period, according to data compiled by Bloomberg.’
‘He should admit to having been involved in creating the problem that we have now,’ said Representative Brad Miller, who introduced a bill Oct. 22 to make firms packaging subprime mortgages liable for bad loans in some circumstances.’
When does SOX apply to C? If not now then it was a waste of legislation, kind of like the legislation we will get in the future…
Ain’t that the truth. Irregularities.
And I don’t know about the rest of you but I’m sick of the word “subprime”. Subprime was just the outer bands of this hurricane. The eyewall and eye are Alt A and “prime” borrowers who drank the Koolaid and used funky financing to overpay out of greed.
And how does Gross keep his job? I have found report after report that showed A paper going down.
He talks his book constantly, I think the only thing a bond fund “king” has to do is say “rates need to go down (ie bonds go up)”…
He’s the Henry Blodgett of the bond market.
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
That sure worked in Japan.
Mr. Gross has a 30 year history of success. That his success came in the greatest bull market in history should not dissuade his current investors.
On the super plus side, Mr. Gross is one of the most ethical people I know. Like all of us, he makes investment mistakes. (Even Mr. Buffett makes mistakes). His all asset fund is still up over 8% for the year. And that is a super conservative fund.
txchick57 is the Shakespeare of the simile.
Well, Gross is screaming for a bail-out today. Apparently his economics are poor, because a freshman could understand that artificially high prices will only encourage more overbuilding. This simple concept has to be the most over-looked item in the financial media.
“This simple concept has to be the most over-looked item in the financial media.”
There was once a time when the top policymakers at the Fed understood this point.
‘His most famous quote about his central banking philosophy was, “The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting,” referring to the need to raise interest rates when the economy is at its most active.’
http://en.wikipedia.org/wiki/William_McChesney_Martin,_Jr.
IMHO, We are at an “Oh, Oh!” moment.
I frankly do not have any idea what the US treasury or Federal Reserve can do (personally I believe nothing will help), but like Mr. Gross opines, if they do not try something then it can only get worse. It is not just housing, it is the entire structure of the debt markets.
The housing market is toast. Mr. Gross is to smart to think that a rate cut will help home owners, but in this emotionally charged government atmosphere - to say that it is for saving home buyers makes good press.
With a rate cut, Mr. Gross is hoping to stave off corporate BKs.
Corporate Bks? Oh, Oh!
I agree with you. Ben’s selections for this thread present a 11/05/07 snapshot of the broader picture and its dangers (that go well beyond the housing market).
This blog will be valuable reading to our grandchildren when they ask “What happened?” and “How could it happen.”
We have a long way to go.
“IMHO, We are at an “Oh, Oh!” moment.”
I think we are too. Its amazing to me how SSSLLLLOOOWWWLLLYYYY the supposed professionals were at figuring this out. Were they not able to connect the dots ? Judging by their actions they weren’t !
I love, love, love it that H&R is losing their shirt on the mortgage activities. I wish they would go bankrupt. Would be the sweetest irony around. Funny how with all their information and supposed real estate knowledge that they couldn’t see this coming.
The whole situation is really, really sad… unless you are a renter like me !
http://www.broadviewpress.com/tales/emperorsclothes.htm
Having been an HBB stalwart since 2004, the parallels between the timeless tale of the Emperor’s New Clothes, and the legions of “children” in here who ignored the “experts” in calling out the obvious - “But he has no clothes!” - are uncanny.
The emperor walked in the procession under his crimson canopy. And all the people of the town, who had lined the streets or were looking down from the windows, said that the emperor’s new clothes were beautiful. “What a magnificent robe! And the train! How well the emperor’s clothes suit him!”
None of them were willing to admit that they hadn’t seen a thing; for if anyone did, then he was either stupid or unfit for the job he held. Never before had the emperor’s clothes been such a success.
“But he doesn’t have anything on!” cried a little child.
“Listen to the innocent one,” said the proud father. And the people whispered among each other and repeated what the child had said.
“He doesn’t have anything on. There’s a little child who says that he has nothing on.”
“He has nothing on!” shouted all the people at last.
Everything’s contained.
http://www.ft.com/cms/s/0/4cd5c262-8bd6-11dc-af4d-0000779fd2ac.html
“Investors now believe the credit squeeze will last a lot longer.” He pointed out that the future cost of raising dollars in the interbank market rose sharply yesterday in New York. The projected three-month US Libor rate for contracts which will be struck in three months rose to 45bp from 29bp on Friday.”
uuuuuhhhh, guess the dollar has to get cheaper for everything to start working out.
txchick57-
Have you read “Follow the money” - interesting book on Tx money and politics, nothing new, but it summarizes all the slime ball dealings of the Replicans in the lone star state.
Is there going to be something in there I don’t already know having worked in TX law firms for 15+ years, including lobbying matters? LOL
Here’s an investment for ya:
http://news.yahoo.com/s/nm/20071102/od_nm/japan_dc;_ylt=ApYwsY_2ZpzpkLL2fhYMqN_tiBIF
Do they rent the rooms by the hour?
If you are a shareholder do you get a free room for a night or two each year? and the 8% dividend to boot.
Love hotels. Orwell, we never knew you.
Many US hotels & motels rent rooms for trysts under the label of siesta.
I’ve commented on this blog in the past that these were ALL “SUB-PRIME” loans, in that the borrower’s could not service the debt.
I was quickly corrected by an uber-nerd who quickly defined the various differencse in ALT-A, Prime, Sub-prime..
I’m with you. ALL these loans are rolling dice to see if the lender gets paid. They are crap.
I always liked the term “Housing ATM,” as it has a satircal ring to it (You have to pay the money BACK, folks), it covers all levels of loan, and it doesn’t suggest that any one group, borrower or lender, is at fault like “subprime” does.
as a CPA with over 15 years of experience i can absolutely assure you that the sarbanes oxley act was just about the most useless piece of legislation ever passed.
As a Unix/Linux sysadmin with over 15 years experience, I concur.
i can absolutely assure you that the sarbanes oxley act was just about the most useless piece of legislation ever passed.
What do you mean? Do you know how many positions were created in corporate america to deal with just SOX compliance? That law was the modern-day equivalent of Government work programs in the 30’s…
Of course, as a DBA, I have to say the one person I loath above all others is the SOX compliance guy. All he does is make my job more difficult and bureaucratic…
Operative word: “useless.” Useless jobs, useless consultants, useless money spent on compliance. Creates zippo.
People at my office at the time (tax offcie of a large German multnational) called it the “lawyer full employment act.”
Sure as hell benefited the likes of Ernst & Young, Price Waterhouse, etc. though, didn’t it?
The gnomes of Zurich always win >; )
Is anyone keeping track of all these billions lost?
Bear Stearns- 7 billions and counting.
Citigroup-11 billions and counting.
someone help me out here.
I read $40 billion in a Bloomberg article today.
Todd-o on Minyanville predicts >100B in admitted losses by year end.
Wow… $60B in more admitted losses in about 7 weeks will be interesting to watch. ($100B from TxChick57 minus the $40B Ben found Blomberg quoting.)
Really the time for my tagline:
Got popcorn?
Neil
Got Depends?
bwahahahahahahahahaha!!!!!
Is anyone keeping track of CEO departures from finance co’s?
You forgot HSBC earlier in the year $11.6 BN
What about other players: GS, JPM, BofA, Wells, WaMu, Countrywide, GMAC, HSBC, Wachovia, E*Trade ….? This has to add up to more than a Trillion. And I have a feeling that not all may be good on the books of Fannie & Freddie.
A few tens of billions of dollars here and there… soon it begins to add up !
Are “Irregularities” anything like “Currently Recognized Accounting Practices” (CRAP)?
Hey, That’s “Continually Revised Accounting Principles” (CRAP)
Citi announces a ‘come as you are coffee talk’ emergency meeting with other bankers to be held in Las Vegas. Some topics suggested for discussions are ‘win a few…lose a lot, ‘you can’t take it with you anyway….especially where your going’, ‘don’t worry about it’, etc.
After the meeting they will proceed to win back all they lost in wall street.
‘Paulson doesn’t mention that Goldman still has on the market some $13 billion of almost $37 billion in bonds backed by subprime loans or second mortgages that it created while he was chief executive officer.’
No conflict of interest there…
Billions…
I hardly knew you
It’s only USDs, not real moneys…
$1 trillion ain’t worth what it used to be…
I am short the GPDUSD and long the USDCHF.
The dollar is hammered and yet this is as low as it goes?
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
Decisions, decisions. Try to save housing (no chance), or risk killing the dollar and hyperinflation (pretty much a given). Bernanke should take his cue from these recently ousted CEO’s and just go golfing. follow the
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
“To prevent”?
Was this guy asleep for the last 40 days? Didn’t the big cut in Sept. and again last week show him that nothing will stop the fall in housing prices? How many borrowers are qualified to borrow at even 0%? - None if the rest of the traditional LTV/income formula is used. I think Mishkin has already laid out the future path - the dollar will be pulled back from the abyss at the last possible second.
He could care less about the homeowners. None of these guys do. They didn’t start caring until it hit the Masters of the Universe on WS…
What’s more, from the Bloomberg piece:
The average rate on a 30-year fixed-rate home loan is 5.76 percent, the Mortgage Bankers Association estimates. That’s 1.45 percentage points more than the yield on 10-year Treasuries. The gap has widened 32 basis points since June, a sign that the drop in benchmark rates isn’t helping homeowners.
Who wants to buy bad paper for a lower interest rate than today? If mortgage rates decrease because of fed actions will anyone worldwide step up to want a defaulting class of new garbage loans on real estate that is currently overvalued and will remain so in refinancing. Burn me once shame on you…..
By cutting they take more money out of the borrowers pocket to pay their mortgage payment. Pick your poison. By cutting rates they punish everyone.
“…the dollar will be pulled back from the abyss at the last possible second.”
It seems the Fed must either eventually declare a truce in the War on Savers or else give up the dollar’s reserve currency status.
Maybe one of these whining millionaires can answer this question for me:
How low do rates need to go to make houses in Stockton worth $600K again? At what level of Fed Funds are McMansions in the outskirts of Phoenix worth $600K again? If you can’t answer that, then how is a rate cut going to help anything?
Take it a step further….
How low do rates have to be before all the houses that have been built and bought by speculators find real buyers… not to mention more real buyers for the tens of thousnads of more lots that have already been prepped for construction in PHX exurbs?
There are not enough real buyers at ANY rate too keep the construction engine chugging at the pace it has been. If that engine slows down even a little, then it is game-over for the PHX economy.
What good will that do if your house is upside down. Or you are paying interest only. You can’t refinance. The resets will kill you. Gas will be 5 to 6 dollars if inflation keeps up. Wages won’t increase. Will that help?
Mishkin, in the first comments by a policy maker since the Federal Open Market Committee lowered the benchmark interest rate a quarter-point to 4.5 percent, said the easing won’t “materially” change the inflation outlook. Still, he reiterated language from the Oct. 31 statement that rising energy and commodity prices may spur broader inflation.
“With an unchanged policy interest rate, I saw downside risks to the outlook for growth,” especially from “still- fragile” financial markets, Mishkin said at the Risk USA conference on derivatives and risk management. “My vote to ease policy at the meeting was motivated by MY WISH to reduce those risks.”
so, they are baseing all their decisions on wishes???? what the hell is going on? i wish i had a million dollars, but wishing wont make it happen!!!!
No, I believe he is indicating that the Fed (his opinion anyway) is focused on maintaining economic “growth” and are cutting rates to try to that end. Everybody reading this blog regularly understands or should understand the true ‘cost’ of that “growth”.
Mishkin’s defense comes amid the first public split on the FOMC since December. Last week’s vote was 9-1, with Kansas City Fed President Thomas Hoenig preferring to leave the overnight lending rate between banks unchanged. Hoenig speaks on Nov. 15, while Chairman Ben S. Bernanke will discuss the economic outlook Nov. 8 in testimony before Congress’s Joint Economic Committee.
i seriously think that congress members need to be bombarded with e-mails from the public about the inflation we are seeing in the food and gas prices. maybe reality might set in, and “maybe” they “might” just chew bernanke’s a$$ into reversing the interest rate.
“… advocating against easy money at a time when the financial market elite is demanding it…”
Here’s an interesting comment from Juan Carlos Arroyo Calderon (Wall Street Examiner) regarding the three “Lone Dissenters” - one each at the Fed, BOJ and ECB:
“The common thread among Mizuno, Hoenig, and Weber is that all are advocating against easy money at a time when the financial market elite is demanding it. In Europe and Japan, Weber and Mizuno respectively are pushing for higher rates because they think rates are too low. In the United States, Hoenig is pushing against lower rates because he does not want them to fall further. What’s interesting about Hoenig is that he previously enjoyed a dovish reputation among the Fed governors, so I find it unusual he is pushing for a ‘hawkish’ stance now.”
http://wallstreetexaminer.com/blogs/cutting/?p=73
It’s an interesting time for the Fed chairs. There is just no easy answers anymore: lower rates kill the dollar, higher rates destroy what’s left of housing. Leaving them the same? Split is right - the market should react, shouldn’t it?
Notice we hear from nowhere the lifeline of reduced government spending (and/or a tax increase). If it became clear that this country would soon be operating at a surplus, the dollar (and all else this entails), would gain a reprieve. (I know some people here are “Housing Crash Hoorayers” but a crashing dollar is NOT good for this country.*) I find it odd this is not uttered anywhere in any corner by anyone. Election year, I know, but where are the outside voices? (And if they’re there, it’s something the MSM is ignoring.)
* - Housing will go down no matter what, but do we need to wreck the whole financial system as well? I know many here are positioned to weather a housing crashing - but the whole economy?
Ron Paul’s saying it. He’s going to eliminate taxes and eliminate spending and pay off our debt in 4 years.
http://www.ronpaul2008.com/
Ron Paul is having a huge fundraising day today. The rotten, corrupt Republicrat Establishment, having failed in their strategy to ignore and marginalize him, will soon have to pull out their old standby: a smear campaign.
“the lifeline of reduced government spending (and/or a tax increase)”
So, you have a slowing economy and the “lifeline” you throw it is a tax increase?
Lower government spending (particularly on useless earmarks) would be fine but raising tax rates now is like throwing sand into the gears of an engine. Senseless.
Inflation is a stealth tax that is regressive in nature…and we have plenty of that and more to come.
Agree with eliminating useless government spending, like ridding the nation of Homescare Security and entirely useless Education Dept., both bushco. boondoggles. Then exit the black hole that is Iraq by affirming Mission Accomplished. After all, george wouldn’t lie would he?
“‘Traditionally, mortgage prepayments would be screamingly fast,’ at current Treasury yields, said John Cerra, who manages $13 billion of bonds at TIAA-CREF. There are no opportunities to refinance loans for ‘any but the best borrowers,’ he said.”
Ruh-ro! All of those loans that would normally be refinanced at this point are building up pressure. That pressure will have to be relieved somehow. No doubt that it will be coming out of the mortgage holder’s capital and the FB’s credit ratings. Boy oh girl, those “masters of the universe” on Wall Street really pulled a good one this time
How on earth are those well qualified borrowers who can refinance supposed to even get the attention of the banks to find someone to accept their paperwork? The banks are being overrun with borrowers who aren’t qualified to refinance who want “help.” And that is the case even though, at a guess, about half the people who are in trouble are too scared to call.
Same way that we renters stand out from the herd of applicants for a rental property: the mere act of showing up with a tidy package of financial details, and mentioning “I have a credit score over 800, excellent landlord references, and my annual income is over 7 times the annual rent” usually gets you to the head of the queue.
I would imagine that qualified borrowers are in even scarcer supply than qualified renters at this point, so getting a lender’s attention should actually be a breeze.
PS. I would imagine that mortgage brokers are absolutely starving for business right now, so if you can stomach dealing with one, you would probably get their full-time attention.
Keeping interest rates lower than the economy’s strength is risky,’ Fukui told business executives in Osaka today. ‘Interest rates need to be increased in a timely manner.’”
Same old line. The BOJ bankers have wanted to raise rates for years but the financial warlords (exporters) and the politicians have kept a clamp on rates. The yen will be the last currency to appreciate against the dollar.
If you would explain the consequences of the carry trade unwinding, that would be greatly appreciated.
a look at the yen carry trade:
http://www.sirchartsalot.com/article.php?id=55
It’s important to recognize that out-months in futures currency contracts essentially boil down to differences in inflation expectations between countries. There can’t be any information about currency prices in the future that is not contained in spot prices, so the future months changes simply represent a graphing of the consequences of currently available information.
Countries with low expected inflation (like Japan) can expect currency appreciation, other things being equal, versus countries with higher expected inflation. (It is a matter of economic and financial markets debate whether there are central bank interest rate policies which are not captured in inflation expectations and thus in the structure of prices in currency futures markets.)
The so-called “carry trade” is not really an arbitrage play - it is a market bet against the Japanese Yen. Probably the majority of the financial players involved don’t even understand this.
Eventually, the yen must rise against the Euro, because of the growing disparity in purchasing power parity between the two countries. When it does rise, the effect will be equivalent to a short squeeze on those who have borrowed Yen. Whether it does it next week or next year or even a couple years from now is open to question, but bottom line is: TANSTAAFL.
Interest rates reflect both inflation expectationslireelct tyhe rmem
Sorry about the edited but unerased trailer at the end.
Is Fukui pronounced, fook-you-ee?
Not sure, but the guy’s name in front of the tank in Tiananmen Square was “U dum fuk”.
Fukui is pronounced= foo-koo-ee
(oo like the o in who)
But the “Foo” sound is made by not touching your teeth to your lower lip as in the English “Foo”. Just a huffing sound with the oo- then koo-ee.
Is there any good way out of this? Or will the 5% of the American Public who actually has a positive bank account have to pay for it all.
When do you think it’ll be time to seek “asylum” in another country?
Which one did you have in mind?
You’re making a big assumption that they will take us. If you have enough money (in other words, you are financially independendent) you will be welcomed. But if you want to go somewhere else with the intent of finding a job, expect the door to be slammed in your face.
Of course. That’s assuming the country of choice (Canada?) thinks I’m financially independent so I won’t be a burden.
I think Canada may be the best bet. They do have high taxes, but they have a small population relative to land size, and plenty of natural resources.
I just checked! If you have $800 CDN in the bank, and are willing to invest 400K for 5 years, you can move to Canada!
This law firm, for example, has the details:
http://www.akcanada.com/immigrate3.cfm
Be prepared to have another 250K for a condo or 400K for a house when you come up north.
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
How is this possible? With the new lending standards, there are no more buyers! Supply is exploding, demand is dwindling. Hello rock bottom prices!
It is disturbing that the highest levels of government/business remain fixated on housing. Are they, in effect, admitting that the consumer-driven economy blew its wad on housing? That new technolgies will not emerge as quickly as hoped to create new opportunities? These parties should be looking forward, not backwards, unless of course there is nothing to look forward to.
I also don’t understand how it will hurt the economy to let housing fall back to the “correct” prices (based on median income) that would occur without exotic mortgages.
For ever idiot who has to hand his keys back to the bank because he couldn’t pay anything other than teaser rate, there will be some responsible saver who would buy a house he could actually afford.
Won’t it be best just to have a year of lots of foreclosures, and then get on with our economy?
That’s what I have always thought, but now I’m wondering.
Then again, maybe what is happening is just a means of transmission for the pain of paying back the 6% of GDP we borrowed and spent for a generation or so.
I believe the worry is that it will be a 15% drop in GDP. $2T in lost housing equity along with defaults in a $13.8T economy. Or a further reduction in the standard of living.
I also don’t understand how it will hurt the economy to let housing fall back to the “correct” prices
It depends on how you define “hurt”. The PTB want the home ATM cycle to continue indefinitely.
Of course it makes more sense to go back to fundamentals, but that means we will have to stop being hyper-consumers, and the current “economy” is designed around us being hyper-consumers.
The problem is that the bankers and investment firms that pull the strings stand to lose tremendous amounts of money if housing prices fall. A good many of them could even potentially go under. There’s nothing wrong with being fixated on housing, what makes my blood boil is that government fixation is on manipulating housing prices to remain artificially above their intrinsic value.
If the price of housing is not allowed to correct the government will freeze the housing market. People will not buy in sufficient quantities but will rent instead or live at home with their parents.
If housing is so central to the health of the overall economy, it begs the question as to why its own healthy functioning was so neglected in the past boom years.
Supply is exploding, demand is dwindling.
It appears the wonks aren’t taking excess inventory into consideration.
…to prevent a dramatic fall in housing prices …
Why is it so important for house prices to remain high - so everybody can feel “rich”?
One of the key Fed mandates is to keep a watchful eye on inflation in the economy and they have failed woefully in that duty by not doing anything about inflated house prices which is another way inflation rears its ugly head in the economy. Let’s face it these guys are jokers and guess what their new unwritten mandate is: To prevent recessions in the economy at all costs and cut interest rates at the first sign of trouble. Inflation be damned.
“‘If, in their quest to reduce macroeconomic risk, policy makers overshoot and ease policy too much, they need to be willing to expeditiously remove at least part of that ease before inflationary pressures become a threat,’ Mishkin said.”
You FED guys are so out of touch or in denial or just plain lying about inflation it’s scary. Maybe we should all start sending Mishkin our Fuel, Food, and Tax bills for the past year and see if he can figure out what the real inflation rate is !
If the fed cut rates no one will be able to buy a house when the spend all their money on bread.
Precisely.
i was having lunch with 2 co-workers the other day. one is buying a home and the other owns like 3 rental properties. they were busting my balls about the fed rate cut. the one buying the home smiling real big asked the other one how he was gonna spend his extra money from the decreased mortgage payments.
with a full mouth i spoke up and said he was gonna spend it on gasoline.
they were pretty quiet after that.
I love hearing these little stories, Michael. Thanks for sharing your little moment of triumph.
LMAO! Good for you.
Beautiful.
And food, healthcare, heating oil etc.
We just had open erollment at work. Our employer passed on all the cost increases to employees. The total cost increase was about 12% this year (whoopee!). I was able to bring that down a bit by raising our hospitalization deductible from 400 to $1200.
Someone explained to what some of these CDOs are yesterday, and if the explanation is correct, things are much, much, much worse than I thought.
I knew that in the 2004 to 2007 period non-conforming mortgages were issued with terms that could never be met by the borrowers over the long term.
I knew that these were securitized into bond offerings with different tranches, with the tranches getting the first crack at repayments rated investment grade (AAA, AA, A) and those taking earlier losses rated lower (BBB, equity). I suspected that not only would the lower tranches be wiped out in the end, but the investment grade tranches would take losses.
What I didn’t know is that they took the rights of the lower tranches (say BBB) and re-securitized that into a new CDO with its own tranches. And then the higher tranches of that re-securtization was rated investment grade!
So instead of the shocking situation of having low-yield “investment grade” tranches of the original RMBS take, say, a 10% loss you’ll have low-yield, “investment grade” tranches of the re-securitization take a 100% loss. I had thought the CDOs were simple securitizations of loans, like mortgages or credit card debt or business loans. Not the re-securitization of lower tranches. Is what I was told even possible?
Holy moly!!! Is THIS the stuff Bear Stearns was selling to public employee pension funds the taxpayers are required to make good on regardless of the consequencs for taxes/public services?
Worse, they got that investment grade by getting insurance. I thought the mortgage insurance companies that might take losses, reported in the press recently, were insuring individual mortgages. You know, private mortgage insurance, like we all know about and understand. And with defaults, they’ll take losses.
But no!! There are some that didn’t insure the mortgages (most of the houses, after all, will retain some value) or the securitization (some tranches will retain some value). The insured the re-securitization of the lower tranches of the securitization!
It is hard to believe that not too long ago Fannie and Freddie were created by the federal government because the private sector couldn’t create a secondary mortgage market. And they had to have strict standards or no one would buy the bonds. Who is holding the 100% wipeout stuff, and when will the investment banks’ customers be informed?
“Who is holding the 100% wipeout stuff?”
i got a feeling we are gonna find that out in the next few weeks.
I wish it were in the next few weeks!
The CDO market is frozen. It is almost impossible to find a bid for many securities. UBS is doing further write downs. Many US banks boards are meeting this week to discuss additional write downs. There are currently $320B in SIVs, the “true value” is at best (current bid 77) $246B and if some of it is the lower crap (current bid 23)….
It is next to impossible to determine if any of this has value. The most knowledgable people in the market are assessing 12% of the best CDOs to be absolutely worthless.
Wasn’t this all supposed to make everything MORE visible and understandable.
Instead of loans that were held, with book value written down late in the game after a period of non-payment, you have a market in loans which can be marked to market every single day. That was the theory, right?
Except, as it turns out, there was no market. From what I read, most of these poisoned chalices never traded.
“Who is holding the 100% wipeout stuff?”
Bwhahaha……surfin USA
And what other derivatives were made with the CDO’s as their underlying assets? When I talk to people about this stuff, that is where I draw the line. I say and there are bound to be issues with the derivatives (not the CDO’s, those are toast) but I have no idea what they are or who is going to pay for it.
If too many foreign governments own this stuff…well…countries have gone to war over less.
Sorry for the down mood. It is Monday, you know.
Hey, this stuff just went down one more level than I thought. Who is to say there isn’t another?
“…the banks have not yet made write-offs as large as the ABX might imply. Merrill Lynch analysts, for example, calculate that mid-quality ABX debt is on average now trading at 40 cents in the dollar. But these analysts say that Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar – and UBS is still assuming this debt is worth 90 cents. “Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct,” Merrill says.”
> If too many foreign governments own this stuff…well…countries have gone to war over less.
Hah! countries with militaries and these days - nukes. The US has world wide absolute veto power, and this is how it is used - blackmail.
Welcome aboard, WT.
What I didn’t know is that they took the rights of the lower tranches (say BBB) and re-securitized that into a new CDO with its own tranches. And then the higher tranches of that re-securtization was rated investment grade!
what a bunch of morons!!! they should have known this would unwind!! WTF were these guys thinking!?!?? did they do this just to make more profit so their stock would soar and they would get higher bounuses?? if this is correct, the creator’s of this scam needs to be sent to the electric chair!!!
If the published numbers are right, Citi apparently was holding some $55 billion in mortgage securities, and just wrote off about $12 billion. About $10-15 billion of their holdings was in mortgages in the process of being securitized that got caught in the pipeline when the light flipped on, but the rest that they’re holding is supposed to have been in the super-senior tranches that are the last to see pain in the event of default.
That’s about a 20% writeoff of their mortgage holdings. That’s a pretty serious hit for what is supposed to be mostly gilt-edged bonds.
So let’s see… they took a class of a hundred kids and separated out the 30 D students. Then they took the best 10 of the D students, added in 10 B+ students, and called it a class of 20 A students. After all, they were the best of the students at their B and D levels, so you could technically call them “A” students. (am I right?)
You couldn’t get this nonsense by a fourth-grader. And yet these six-figure Einsteins here and overseas bought it hook line and sinker. Not one of them said, Hey wait a minute, how can you support a $550K house with a candle-making shop.
Now the whole world is in special ed.
Now the whole world is in special ed.”
Nah, not us. But the Fed governors and Ben and Hank are all riding the short bus.
I think that is the best layman’s description of this whole CDO thing yet…
The MSM should use that as a way to describe this mess to the rest of the population. Oh wait…the MSM only passed 3rd grade…
I think the reference to “these six figure Einsteins” would be offensive and inaccurate.
More like seven figures and a bonus soon to be unemployed cretins.
Yesterday’s Financial Times has a good breakdown of the CDO, CLO, MBS problems. If interested in reading it.
http://tinyurl.com/yuzf45
There are some excellent graphs and charts of the dollar losses as a percentage. Estimated market in housing related $1.3T. estimated losses - huge.
4th Quarter write downs and losses are expected to be larger than this past quarter.
Maybe I’m not following you are saying but this is what I saw a couple of years go in the software that is used to play with it.
No one is holding the ‘turd’. Turd in fact does not exist anymore. Turd (low FICO, some downpayment) was added to the prime steak (high FICO jumbo full doc ) ( normally in proportions where turds stench was not even noticeable ). That was sliced and diced. In every slice you had a portion of the turd but mostly prime steak. Now those sliced and diced pieces were mixed with other products of similiar slince and dice with a different kind of stench ( such as low FICO no downpayment vs. high FICO, no doc, cash business, business owner ). The combination was sliced multiple times and combined with some other high grade and low grade loans. Pieces of that product is what was sold to investors. The thing is that after they sliced and diced those loans they could actually statstically come up with everything being AAA rated because the smelly turds (low FICO no downpayment no income verification ) were mixed with enough of AAA rated stuff that it did not affect the rating model.
That also seems to be the reason why there are so many problems with restructuring these loans - it is not because there is an evil investor that does not want to restructure the loan, it is because there is no single investor that owns the entire loan!
Evil,
Yeah, saw this myself when I got airdropped into a conduit mess. Got a brain dump on the waterfall, tranche optimization, etc, then looked at the underlying data, and asked, in stunned disbelief, if we were really issuing AAA derivatives on underlyings that included single-wide trailers in hurricane-land.
The biggest problem is that securitization works if you assume that the success of each home loan is independent of the others. This is actually the case…with proper underwriting (ie. borrower can pay the mortgage indefinitely based on their job/income, etc.).
However, once you need to assume that home prices need to keep going up for the underwriting to work, all of a sudden, the “independence” of the various loans comes into serious question.
So, onto the CDO’s of BBB tranches:
If home prices fall, it’s not that only a few of the BBB tranche go belly-up, making some of the CDO still safe. It’s that ALL the BBB tranches go belly up, wiping out the whole CDO.
This whole thing actually works if you can maintain independence of the loan defaults (not rely on home price appreciation, but instead ability to pay a mortgage).
This whole thing actually works if you can maintain independence of the loan defaults (not rely on home price appreciation, but instead ability to pay a mortgage).
And the CDO has -entire- loan. What if you bought a revenue share?
Excellent point, Rental Watch, and you hit the nail on the head:
once you need to assume that home prices need to keep going up for the underwriting to work, all of a sudden, the “independence” of the various loans comes into serious question.
That about sums it up. Yet from the few people I still know in the banking business, they expected till now that prices would indeed keep rising, and at worst merely stabilise. What about big price falls? Since they ruled those out, their models seemed to work. Dumb move, eh?
“Our risk model works great until… uh, until it stops working.”
“The Federal Reserve will have to cut its federal funds target rate to prevent a dramatic fall in housing prices in the wake of the subprime meltdown, said the manager of the world’s biggest bond fund on Monday.”
He keeps saying this, but how will lower interest rates save home owners holding underwater mortgages with principle balances of six or more times their pretax household income? Or interest lenders in qualifying new borrowers at home-price-to-income ratios similar to 2005 levels against a backdrop of an inventory glut, a foreclosure crisis, falling housing market values on a nationwide basis and a sudden reversion to traditional lending standards? Good luck with that plan.
Japan cut rates to zero in real terms and held them there for decades; still their housing bubble deflated. It’s not possible to reinflate a popped bubble, no way no how.
Can we have a negative rate? Where the FED pays you to borrow money and lend it out?
Yes we can. All they have to do is to take the money rate below the inflation rate. By some measures of inflation, this has already happened.
Negative interest rates would be quite possible without currency. But so long as currency in circulation is permitted it arbitrages all rates back to a floor of zero. This is one of the reasons deflation is so dangerous. Zero forms the natural floor for nominal interest rates, but if deflation exceeds a couple of per cent, real interest rates can become quite high.
why doesn’t that apply to electronic money?
Is the Fed pushing on a string already?
That’s leverage.
Where in the Fed’s charter does it say that one of the Fed’s primary objectives is to prevent housing bubbles from deflating? Sorry, I must have missed that part.
The Ron Paul donation drive has just gone viral. Remember Remember the 5TH of November. 2.5 million raised so far today. http://ronpaulgraphs.com/index.html
Be a Part of it.
Be a Part of it!
http://www.ronpaul2008.com/
I am, Brother, I am! Sent another $100 to Ron Paul today - can’t express what happiness it is to support a good and honorable candidate while giving the finger to the corrupt, Wall Street marionettes of the GOP Establishment.
What’s caused the sudden massive spike today?
(sorry don’t have TV)
http://www.thisnovember5th.com/
The 5th of November, not coincidently, is Guy Falkes Day, in honor of the fellow who tried to blow up the British Parliament back in the 17th Century. The date resonates with anarchists and anti-establishment types, who tend to gravitate to Ron Paul. I’m no anarchist - am a conservative, button-down guy, actually - but tremendously admire Ron Paul and his message.
I donated the limit although I won’t vote for the guy. I also threw money away on the campaign of Wesley Clark back in the last election.
Well done, TxChick. Even if you don’t vote for RP, at least you’ve sent the GOP Establishment, as well as their Wall Street wirepullers, an unambiguous message that some of us still value that obsolescent, yellowing document called the Constitution.
This is what I dont understand. These banks pay a ton of suits 200k per year to manage risks and they could not see this coming (every chucklehead here [myself included, i mean a non-expert] knew this was a problem!). Dont they draw graphs all day long and should have been dramatically reducing their exposure as the risk grew??? I dont clame Countrypuke for making the crappy loans, packaging, and selling them, I blame the buyers for purchasing the crap!
I very well could be wrong in this (again, this aint my profession) but I get angry when I see these CEO’s making 50million a year and making such bad calls (ditto for all the other suits that make not-so-big bucks like the 200k folks, I make less than a third of that and could have made this call.)
reducing their exposure as the risk grew??? sounds easy but not if the market is locked up tight.
Risk grew as more cards were dealt, but the money was already in the pot..
To take some of that money back, someone has to “buy” your hand of cards.. and nobody was (or is) buying.
as far as suits making big bucks, good for them.. it’s no skin off my nose.
“…no skin off my nose.”
Over the short term (i.e., our lifetimes), wealth transfers from the lower classes to the upper classes is a zero-sum game, whether in the form of exorbitant salaries, private equity buyouts, or mergers. This results in a lower standard of living for the lower classes.
So, congrats, joey, on having achieved upper class status.
A zero sum game, eh .. meaning new wealth cannot be created?
So when you collect a paycheck, that money is subtracted from someone else’s wealth?
You start a company like Microsoft, spawn an entirely new industry including millions of jobs and thousands of new supportive businesses and no new wealth is created?
I suppose the steady growth in GDP of every nation on earth is a halucination.. just bookkeeping tricks…
btw .. Aside from during occasional recessionary periods, I don’t see anyone suffering a lower standard of living in the last ten, fifty or hundred years or so… but I’m sure you can give me an example or two.. ?
“So when you collect a paycheck, that money is subtracted from someone else’s wealth?”
Yes.
And where did the $80 billion Bill’s got come from? Me and you and the 200 million people in this country with computers. Which most of us charged to a credit card.
And the lower standard of living has been delayed by years of borrowing via credit cards and MEW.
The middle class way of life is going down like Joe Frazier after a George Foreman uppercut.
“Turn out the lights,
the party’s over…”
How do you manage “wealth transfers from the lower classes to the upper classes”?
By all accounts the “lower class” has no wealth to transfer. The “upper classes” is a fiction. People move up and down the income level through their lifetimes. People at the top today are often found at the bottom next year. There isn’t any magical shield the prevents people who are wealthy today from losing their wealth tomorrow if they are imprudent or reckless in their choices. Similarly, there’s nothing preventing someone in the “lower class” from educating themselves and running their life/business/career better overtime. Chances are, if you don’t drink, take drugs, have a kid before getting married and graduate at least from high school you’ll do reasonably well. If your a drunk, druggie, promiscous, illiterate, innumerate and refuse to educate yourself…yeah, you’re probably NEVER going to go up the income ladder.
Read some of Thomas Sowell’s work on the mobility of income. Heck, read Forbes “400 Richest” people issue each year. The number of people who fall off and get on each year, the number of virtual “over-night” billionaires that are created is amazing.
Sure, there are a few Rockefeller and Kennedy families who piled up a ton of money a long, long time ago and had it managed well for them. But even those heirs are seeing their portions fall.
The class warfare stuff hasn’t been accurate for 40 years. Too much turnover (ask Oprah and Rowling about that).
“The “upper classes” is a fiction. People move up and down the income level through their lifetimes”
This post is so deliberately misleading, that I assume the poster has a reason to use RNC talking points. Rove always felt that ridiculing class warfare would somehow make it go away. Wrong. And the glaring and growing income gaps, including the rout of the middle class, will make clear that our financial demographics are now closer to those of Argentina than in any time in the nation’s 60 years.
Want a read on class in America and it’s effects, it’s Paul Fussell’s Class. Paul Kasriel’s client list would probably give you a good idea of which families have maintained their wealth over generations in this country. As would the
alumni/ae lists for Andover, Lawrenceville or Miss Porters.
The real job of many professional people paid to manage or assess risk, or to provide independent judgment or to question assumptions, has turned out to be blessing somebody else’s preordained conclusions.
Isn’t that how we got into Iraq?
Thank god for the internet and places like this blog. I second the sentiment - everyone please email your congresscritter and tell them that you DO in fact buy food, fuel, and housing and as such they should be counted in the inflation numbers.
Further, if they were, we would see that for the average American out there, inflation has been utterly brutal.
Housing can’t be saved by lowering interest rates - Japan has proven this. Let the speculators, wall street ghouls, and irresponsible consumers take the hits they have coming to them.
Protect the dollar and those of us that have worked hard to save a few MIGHT just start helping to rebuild our economy with them when the smoke clears.
Anything else spells total(financial) disaster for BOTH the savers and the rest.
Someone needs to be left standing after everything blows up and it might as well be those few that have acted responsibly through all this.
I don’t have an affiliation with them or really much knowledge, but if you go to http://www.congress.org there is a convenient form where you can just punch in your zip code and they spit up direct links to email you congresscritters.
Please do it. It’s all we have.
Seattle, you’re on a noble mission. But, alas, it’s too late to try and change the establishment by e-mailing the establishment.
We need to vote every single incumbent out of office and start over. All we have to do is convince every citizen to vote against all incumbents. Whether you vote Republican or Democrat, it doesn’t matter. There’s no difference between the two these days on big picture issues.
IMO, it’s the first step in bringing real change to the system.
I’d be pissed too!
http://tinyurl.com/ys3mb8
Subprime bailouts: Chump check
Responsible loan payers are crying foul about the breaks that delinquent borrowers are getting.
NEW YORK (CNNMoney.com) — Not everyone is happy about mortgage lenders’ latest efforts to help troubled borrowers.
Take Teresa Nelson. Instead of going for an adjustable rate mortgage with its lure of low initial rates, she opted for the security of a 30-year fixed at 7.10 percent for a house she bought in Pinellas Park, Fla. in December, 2005.
“I was well aware of what an ARM meant, and was staying far away from those snake-oil pipe-dream promises,” Nelson said. “I also wasn’t shopping for a short-term, big payoff investment - I was looking for my home, until I retire.”
But many delinquent subprime borrowers who went for low teaser rates that shot up to unaffordable levels are now paying lower rates than Nelson as part of a new round of foreclosure prevention packages. And she doesn’t like it.
For example, one subprime borrower had a riskier hybrid adjustable rate mortgage (ARM) with a rate of just under 7 percent that was going to reset in December to 10.5 percent. But last month, as part of a new bailout plan from Countrywide Financial, the lender gave him a rate reduction to 5 percent on his loan, saving him hundreds of dollars a month.
Nelson feels cheated and has little sympathy for people who she believes weren’t as careful as she was. “Everybody was seeing dollar signs,” she said, “and let their greed get the better of them. So, no. No bail-out, no assistance with my tax dollars. Not one red cent.”
What difference does it make to her what someone else is or isn’t paying.. none at all. She called them greedy and now her greed is coming to the surface.
It’s not greed, it’s the American sense of fairness. American’s have a weird sense of fairness where most of us get irritated when other people game the system by acting in an irresponsible manner even if it doesn’t have a direct effect on us. This can be cheating on an entrance exam, cutting in line because you have a buddy up at the front, lying about having a degree, or even riding your motorcycle between all the cars in a traffic jam.
Her complaining is not about fairness.. there was no “gaming the system” assuming the law is followed. She just wants her slice of the “unfair” pie.
You pretend to site similar situations, but they are not at all similar. Cheating on an exam? Cutting in line? Lying about having a degree?
If it is unfair, immoral or unethical for society to bail out the irresponsible, or to help those who need it (or even those who don’t need it), every social program that redistributes wealth to someone else is absolutely “unfair”.
To single this one situation out from among the thousands of others we suffer with is pure hypocrisy.
Wow…Now it’s enraged hardcore conventional Homedebters vrs slippery FB’s and the FED !
Kinda like old kids MAD magazines Spy vrs Spy, you NEVER know when and where the next bomb will go off.
Kicks back, waits for the next RE issue and digs into one of Neil’s winter hoard of popcorn
$1 trillion problem … There are $1 trillion worth of subprimes and Alt-As and basically garbage loans,’ said Bill Gross, chief investment officer of Pacific Investment Management Co., on CNBC Television.”
I saw the interview this morning. he also warned about a lot of bond insurance that is about to bust. If these bond default insurance policies go broke - watch out below!!!!
From the BuilderOnline article:
BUILDER: Many builders feel overwhelmed right now by circumstances that are out of their control. What can they control?
MB: Builders can control the perception of the buyer. Institute a greeting that tells buyers it’s an incredible market. They can control their attitude, their selling skills, who’s working for them, and who’s not working for them. They can’t control the war, gas prices, the interest rates, or the world economy. The only economy you can control is your own. You can control the customer service, the customer satisfaction, and the physical environment of the sales centers and the models.
———————————————————————
I’m not sure if I want to puke or choke someone after reading that.
I think my best “investment” during the crash may turn out to be my “WarOnSaving.com” domain.
Now to hire someone to create a blog site.
I think mine was buying my September 2008 theater tickets in Canada this October when the US and CA $ were in parity. And moving AmEx rewards points to the Air Canada rewards plan.
And I’m cancelling that AmEx card this month.
“Find the bottom as fast as you can. Quit playing with it.”
Hmmmmmm. I don’t quite know what to make of this comment.
“Find the bottom as fast as you can. Quit playing with it.”
I’m sure somebody on this blog will explain it. Where’s “imploder”
I miss “Imploder” he was funny.
i think he’s saying the milk is spilt so stop crying and fretting over it..
Dump whatever needs to be dumped at whatever prices will sell the inventory now, let the market correct and get on with life.
But they don’t want to do that.
They really are “playing with the bottom”. Having worked for builders, I can tell you they are not going to slash and burn. They’ll cut around the edges but they do NOT want to say bye-bye to whatever profit they considered baked in the cake.
The smart ones already took their profits and scaled down anyway.
“Nelson feels cheated and has little sympathy for people who she believes weren’t as careful as she was. “Everybody was seeing dollar signs,” she said, “and let their greed get the better of them. So, no. No bail-out, no assistance with my tax dollars. Not one red cent.”
Amen. This is why bailout talk will be mostly talk. Not everyone participated in this fiasco. Some people bought responsibly, within their means and with fixed rate financing. Some people chose not to buy at all. To expect everyone to roll over so the FB’s can be “helped” is outrageous.
Ok, for whatever it’s worth, I just put my money where my mouth is and used that http://www.congress.org form to email all three of my congress critters. Here’s what I send them - please feel free to copy and re-use it if you like, and I would love any feedback as well:
Please ask Ben Bernanke to stop flushing what little value remains of the US dollar down the tubes in a vain attempt to “save” housing. Inflation is out of control, but they pretend it isn’t by refusing to include food, fuel, and housing when they calculate the rate.
Well I’m writing to you today to tell you that I do in fact buy food, fuel, and housing, and many other things that have been under sever inflationary pressure lately.
Those few of us who saved our money and have acted responsibly through this housing debacle may be the only ones who can step forward and start rebuilding the economy when the smoke clears.
I beg you, please look into the results Japan got when they cut their core interest rates to almost zero - their housing still declined for over a DECADE.
Housing can’t be saved by lowering interest rates - Japan has proven this. Let the speculators, wall street ghouls, and irresponsible consumers take the hits they have coming to them.
Tell Bernanke to raise rates and protect the value of the dollar. It may be the only thing that allows people like me to help get things moving again after it all shakes out.
Thank you for your time and service to our country.
Sincerely,
“Find the bottom as fast as you can. Quit playing with it.”
I agree that we should find the bottom as fast as we can, but going to ten cents on the peak dollar all at once has got to really hurt. I think going to 75% on the dollar and then 50% and then 1/3 and then finally 10 cents on the dollar would be better for the economy.
Well, we’ve already done that in my time.
Got 35c gas for my ‘60 Chevy?
I’m talking about ten cents on the dollar for houses.
$700,000 house discounted to $70,000
I wouldn’t want that to happen too fast. Step our way down over the next 3 years.
Sinking Currency, Singling Country.
http://tinyurl.com/2l3uhw
The euro, worth 83 cents in the early George W. Bush years, is at $1.45
The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.
Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.
Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?
Nope. The dollar has plummeted in value, more so in Bush’s term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.
Is it all Bush’s fault? Nope.
The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.
The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.
A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.
What does this mean for America and Americans?
As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.
This will mean rising prices for the imports on which America has become more dependent…
..and the rising import prices means we buy less and become less dependent on foreign imports.. which means we must produce more products ourselves.. and this is a good thing, imho.
that is right but the problem is we DO NOT have the infrastructure to make the switch from consumer/importer economy to producer economy. So the transition is going to be very very slow and extremely painful and that is what scares me.
Here we go again… more calls for the Fed to ” do the right thing”, or in other words- if homeowners sink, then surely we must ALL sink. I really resent the continual onslaught of ‘victim’ language being used to describe people who bought houses that are about to be foreclosed upon.
Interesting thing I heard on a economic radio show I highly recommend ( Rob Black). He doesn’t really blame anyone, but feels that if you were to find a culprit, it wouldn’t be homeowners or lenders, but Bill Clinotn, who made it possible for those who had poor credit to be better able to qualify, which in turn started the who decade-long housing boom. Interesting.
“…made it possible for those who had poor credit to be better able to qualify…”
This mischaracterizes the problem, which is not so much about who qualified for a loan, but rather about the size of loans recently made relative to household ability to repay the debt.
Service Sector Grew in Oct., Survey Says
http://tinyurl.com/2bfxzr
“The trend appears to be moderating, but the economy is hanging in better than we would have anticipated given what is happening in housing and credit markets,”
Amazing that this little tid-bit of less than stunning news bounces the Dow off the lows and sets it up for its usual 200 point late day surge. I guess the good news of a couple added jobs in the hair salon and janitorial services balances out the shocking bad news of trillion $ losses in the banks/financials.
I posted this on an earlier blog, but I wanted to post it here.
Wall Street suits prancing around their offices with butterfly nets, chasing pretty shiny flutters of inconsequential news. I’ts all smoke and mirrors.
Slightly off topic, but not really — the Fed’s latest survey of bank lending standards shows tightening across the board in residential and commercial RE lending. Here are the details …
Every quarter, the Federal Reserve conducts a study of bank loan demand and underwriting standards. The “Senior Loan Officer Opinion Survey on Bank Lending Practices” (yes, it’s a mouthful!), in the words of the Fed, is designed to shed some light on “changes in the standards and terms of the banks’ lending and the state of business and household demand for loans.”
The latest survey was conducted in October; 52 domestic banks and 20 foreign banks with operations here in the U.S. responded. The results are reported in terms of “net tightening/loosening.” Specifically, the Fed adds up the percentage of banks that either “tightened considerably” or “tightened somewhat” in a given loan category and nets that out against the percentage of banks that “eased somewhat” or “eased considerably.” On the Fed’s historical data page, a positive percentage figure means more banks tightened than loosened; a negative percentage figure means more banks loosened than tightened.
So what did the just-released October survey show? Widespread tightening of lending standards. In other words, we have clear evidence of a nascent credit crunch. The details:
* A net 19.2% of respondents said they were tightening standards on Commercial and Industrial (C&I) loans to large and medium sized firms. That was the highest net tightening percentage
since Q1 2003.
* Spreads are widening. Specifically, Fed data shows that a net 34.6% of banks are charging wider spreads over their cost of funds on C&I loans to large and medium sized businesses. A quarter earlier, a net 32.1% of lenders reported they were making loans at tighter spreads. The October reading was the highest since Q3 2002, an indication that borrowing costs are going up for corporate borrowers.
* So what about residential real estate? No surprise there. Lenders are tightening the purse strings substantially. Please note: The Fed used to report data on overall residential mortgage standards. Now, it breaks the figures out into prime, nontraditional (payment option ARMs, Alt-A loans), and subprime categories .
With that caveat aside, the net percentage of lenders tightening on nontraditional mortgages jumped to 60% from 40.5% in the prior quarter. The net percentage of lenders tightening prime mortgage standards rose to 40.8% from 14.3%. The net percentage of lenders tightening subprime standards was roughly unchanged at 55.5% (vs. 56.3% in the prior two quarters).
For perspective sake, the overall mortgage tightening index last peaked at 32.7% in Q1 1991. So the tightening readings we’re seeing now are UNPRECEDENTED in the history of the data.
* Commercial real estate financing is also getting harder to obtain. A net 50% of banks reported that they were tightening CRE standards. That was up from 25% in Q3 2007 and the highest reading since Q4 1990 (61.68%). This is a big deal. It’s a sign that real estate lending fears are spilling over into the commercial mortgage market.
“If the doors of perception were cleansed everything would appear to man as it is, infinite.”
William Blake
Dangerous, due to fiscal rollover potential…
“Separately, The Wall Street Journal reported that the Securities and Exchange Commission is reviewing Citi’s accounting for a type of funds known as structured investment vehicles, or SIVs.”
Hey Chrissy Cox,
Put on your pink Ralph Polo Logo shirt and gather your Newport Beach, CA hired guns and get the “regulatory posse” galloping at full speed! Maybe you can borrow “Dickey Boy” Cheney’s big White Texas “Cowboy” hat. I hear he has a spare one in VP “Shadow” Gov’t office…where ever that might be… ;-0
Chris Cox was appointed to the SEC because he will never do anything meaningful. That’s why he got the job. Anything can be “reviewed”–means nothing at all, other than a press release to suggest the SEC is not entirely dead.
Apologies if this turns out to be a double post, but here’s what I just sent to all three of my congresscritters. Use congress.org or someplace to pull up their email addresses.
Let them know that you’re tired of them letting the Fed conduct taxation w/o representation in the form of inflation.
Feel free to copy it and send it to YOUR congresscritter, and please, any feedback is most welcome.
My message to my congresscritters:
Please ask Ben Bernanke to stop flushing what little value remains of the US dollar down the tubes in a vain attempt to “save” housing. Inflation is out of control, but they pretend it isn’t by refusing to include food, fuel, and housing when they calculate the rate.
Well I’m writing to you today to tell you that I do in fact buy food, fuel, and housing, and many other things that have been under sever inflationary pressure lately.
Those few of us who saved our money and have acted responsibly through this housing debacle may be the only ones who can step forward and start rebuilding the economy when the smoke clears.
I beg you, please look into the results Japan got when they cut their core interest rates to almost zero - their housing still declined for over a DECADE.
Housing can’t be saved by lowering interest rates - Japan has proven this. Let the speculators, wall street ghouls, and irresponsible consumers take the hits they have coming to them.
Tell Bernanke to raise rates and protect the value of the dollar. It may be the only thing that allows people like me to help get things moving again after it all shakes out.
Thank you for your time and service to our country.
OT: Mortgage huckster couple goes boom one last time:
http://tinyurl.com/2o3yya
..
He: Has that “Good Ole’ Boy” look to him. Goatee and all. Probably weighs around 290lbs and sports a few tatoos. Bet he never finished high school either.
She: looks like she swung around the pole over at Lemans Venus a few times before she hit 34 and wiggled her way into the “mortgage business”.
Typical Mortgage Broker Trash like you commonly see here in FL.
Sad story, really.
..
Hello Walls (hello, hello)
You’re hemoraging CEOs again, today
Don’t you miss making money
Since liquidity up and went away?
And i’ll bet you dread to spend another loanly night with no equity
But loanly Wall Street, i’ll keep you company
Hello window, (hello, hello)
Well, I see that you’re still here
Aren’t you loanly,
Since Honesty appeared?
Well look here, is that a Trillion Dolllars dropped?, sounds like pain
Now don’t you try and tell me that it’s rain
Liquidity went away and left us, all because of loans that panned
Guess we’ll have to get along without it, if we can
Hello ceiling (hello, hello)
I’m gonna stare at you a while
You know I can’t sleep
So it’ll be a bear market for quite a while
We gotta all stick together or else i’ll lose my mind
I gotta feelin’ things will go our way, for a long, long time
(hello, hello Wall)
http://www.youtube.com/watch?v=AbB5X_PdeIs
There are no opportunities to refinance loans for ‘any but the best borrowers
Let us not lose sight of the fact that in normal circumstances, these are the only borrowers who would have been given mortgages in the first place. We are reverting to normalcy.
September 7, 2007
Wall Street firms use mark-to-model techniques to value 9% of the Level 3 trading inventory on their balance sheets, estimates Bernstein’s Hintz. Goldman is top at 15%, while Merrill is bottom at 2%. (See table)
brokerage Percentage of Level 3 trading inventory valued using mark-to-model techniques
Goldman Sachs 15%
Morgan Stanley 13%
Lehman Brothers 8%
Bear Stearns 7%
Merrill Lynch 2%
Source: Bernstein Research
(This could explain GS profits)
Still, Hintz and other analysts are more sanguine about such valuation issues.
“A major concern is that all of the marks investment banks are using to value holdings are wrong and they will have to take large write downs,” Hintz said. “That’s a great press story but highly unlikely.”
(It doesn’t seem unlikely now)
Investment banks track the value of their holdings very carefully, using computers that analyze a huge central “pot” of data. This feeds into other parts of their operations, including accounting, risk management and systems that check on counterparty and credit risks, Hintz explained.
(This is just sad)
Marketwatch Sep 7, 2007
http://tinyurl.com/3656ky
Level 3 accounting is essentially mark to fantasy…and as for the condescending ” track the value of their holdings very carefully, using computers”, give me afreaking break. I am however consoled that soon they will “very carefully” be able to track the value of their holdings using their fingers. As for you Hintz, there’s a Joshua Tree with your name on it.
mark to fantasy?
I thought it was mark to “reasonable stab”?
Thanks for the letter Seattle Renter.
I just sent copies of your letter to both of my senator’s and both of my district’s house representatives. Also choose to have it published in some sort of newsletter/website thing. Hopefully it gets some attention…
I am still trying to fathom what it would be like to have lead my company into an eleven BILLION dollar loss…wow!
You’re very welcome! They may not have the time or inclination to pay close attention to every letter they get, but be well assured they will count them if more than one person writes in on the same topic with the same opinion.
It’s kind of like voting without waiting until election day. These people will sell their soul to raise enough money to get the votes to stay in office. If we threaten to take enough of those votes away, action will ensue.
Democracy(democratic republic) is pretty damn cool when it works as intended.
And with the all new and improved public forum called the internet, they can no longer depend on the “short term memory effect” of the major information outlets to “forgive” them of past misdeeds.
The ‘net records them forever. And then anytime their name comes up in a forum, their past deeds will forever haunt them.
Never let them forget this and maybe, just maybe, they might actually DO something genuinely on behalf of ordinary Americans.
I’ll Post it on http://WeAreThem.com as well (sorry for the plug Ben - I’ll put a link to thehousingbubbleblog on the main page as pennance).
SR
Oh also, I misspelled the word “severe” and wrote “sever” instead. Please correct if you use it :).
That may have been a Freudian typo- every time I write my congresscritters I find myself thinking about the various sub-branches of government I’d like to sever…..
There’s a corrected version posted on wearethem.com - everyone’s welcome to use it or correct the one posted here.
Geez…
The word these experts use was “Contained”.
They didn’t it get it then, they don’t get it now. What makes them think they are the experts. (Feds, investment bankers, idiot Cramer, pro-market CNBC analysts.) bunch of cheerleading idiots.
The best thing to do is to let it take it’s course.
They don`t get it, because they don`t want to get it. All they want to do is to shill up the stock market, to keep the sponsors happy. Why don`t conflict of interest laws apply to them?
CONtestants, here’s today’s final Jeopardy Question…
The Category is ex-CEO’s
“H&R Block Inc. said Chief Financial Officer William Trubeck has stepped down from his position ‘effective immediately.’”
CEOs or CFOs?
“Federal Reserve Governor Frederic Mishkin said last week’s interest-rate cut was aimed at reducing economic risks and policy makers can take back the move should it prove ‘unnecessary.’”
Yeah, right. We’ve already heard Bernanke say that it wasn’t the Fed’s job to bail out speculators or the stock market, right before he cut 50 bp; then talk about how inflationary pressures were mounting, just before he cut 25 bp at the last meeting.
They will never raise rates. They will try everything to try and save the housing market, cratering the dollar in the process.
Unclear: What is the extent of the $1 trillion problem?
This Bloomberg article suggests it is limited to subprime securitization, which presumably leaves Alt-A and prime mortgages, not to mention covenant lite loans, out of the figure.
Goldman, the most profitable investment bank, was one of 14 primary dealers of U.S. Treasuries who contributed to a three- year binge as $1 trillion of subprime mortgages were packaged and sold to investors. The value of Goldman’s outstanding subprime bonds trails Lehman Brothers Holdings Inc.’s $33 billion, out of $106.8 billion created during Paulson’s years at Goldman, and Morgan Stanley’s $28.8 billion, out of $82.5 billion.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aUXYrK3i6juc&refer=home
The bottom line here is that we have created a global economy of greedy capitalists, and they all see opportunity together, hence the Nasdaq bubble followed by crash, now U.S. property bubble
The good news is cycles are much faster than they were before, companies need to take the writedowns and investors take the hit
Hopefully the real estate industry will survive, if it doesnt’ oh well there’s always another opportunity around the corner