Entering A Second Phase Of The Credit Squeeze
Some housing bubble news from Wall Street and Washington. Reuters, “Beazer Homes USA Inc said it cut 25 percent of its staff, would suspend its dividend and sees at least $230 million in noncash impairment charges in its fiscal fourth quarter. ‘The housing industry continues to face the most difficult business conditions in over a decade,’ CEO Ian McCarthy said in a statement.”
“Last month, Beazer said sales for the quarter fell 39 percent to 3,940 homes. Net new home orders fell 53 percent to 973, and the cancellation rate soared to 68 percent.”
The Charlotte Observer. “Beazer in October admitted some of its employees violated federal housing regulations. It will have to restate earnings for the past three years. It also is late in filing financial documents with the Securities and Exchange Commission. Beazer said preliminary financial data released Monday for the fourth quarter is unaudited and ’subject to change.’”
“Upscale home builder Hovnanian Enterprises Inc said the sales pace in October in most of its markets ’significantly deteriorated’ when compared with recent months.”
“Preliminary fourth-quarter results showed net contracts fell 10 percent to 2,781 homes, while deliveries slid 19 percent. The company said cancellations for the quarter that ended October 31, were 40 percent of gross contracts, up from 35 percent in the previous quarter as well as the year-ago quarter.”
“The company said its contract backlog at the end of October, excluding unconsolidated joint ventures, was 5,938 homes, down 30 percent from last year.”
The Street.com. “Some analysts now expect the homebuilder to implement another round of steep price cuts to clear its large inventory of houses. More than half of Hovnanian’s orders in the recent quarter came during the company’s heavily hyped ‘Deal of the Century’ weekend sale.”
“More pain could lie ahead, according to analyst Daniel Oppenheim. He expected a 25% year-over-year decline in orders. ‘Sales likely fizzled after Hovnanian attempted to pull away incentives from its ‘Deal of the Century’ promotions the weekend of Sept. 14-16,’ Oppenheim said. ‘We expect that Hovnanian will reintroduce discounts similar or greater than before in order to maintain sales and generate positive cash, since competitors who matched its temporary promotions actually set new market prices.’”
The Times Online. “Bovis, the (UK) housebuilder, has given warning that faltering consumer confidence has hit sales and house prices during the key autumn sales period.In one of the firmest indications yet that the housing market is slowing, Bovis said that it expected the average sales price for one of its own homes to fall by 3 per cent this year, compared with 2006.”
“The price fall would mark a dramatic reversal for Bovis and the market.”
The Irish Examiner. “The predicted downturn in the Irish housing market has become a reality with latest figures showing that registrations fell by two-thirds in October.”
“IndyMac Bancorp Inc, one of the largest independent U.S. mortgage lenders, on Tuesday posted a quarterly loss more than five times larger than it had projected, hurt by mounting delinquencies and a collapse in investor demand to buy its home loans.”
“Credit losses at IndyMac quadrupled from the second quarter to $407.7 million, while losses related to the sale of mortgages totaled $167.2 million. Results also reflected costs to eliminate 1,547 jobs.”
The Associated Press. “IndyMac increased its credit reserves by $441 million, or 47 percent, in the third quarter, to $1.39 billion. IndyMac’s charge-offs rose to $146 million in the third quarter.”
“‘We are clearly disappointed with this quarter’s results, which were driven by deteriorating mortgage delinquencies and a declining housing market combined with an unprecedented collapse in the secondary market,’ CEO Michael Perry said in a statement.”
“IndyMac primarily originated alt-A loans for customers who cannot provide documentation like traditional, prime borrowers.”
From Bloomberg. “Commerzbank AG, Germany’s second- largest bank, took a 291 million-euro writedown on its 1.2 billion euros of investments linked to U.S. subprime mortgages after record foreclosures on home loans to borrowers with poor credit histories rattled debt markets.”
“The credit contraction has saddled the world’s biggest lenders and securities firms with more than $40 billion of writedowns during the past four months.”
“Citigroup Inc., the largest U.S. bank by assets, provided $7.6 billion of emergency financing to the seven structured investment vehicles it runs after the SIVs struggled to repay maturing debt.”
“‘The current lack of liquidity in the asset-backed commercial paper market and the resulting slowdown of the CP market for SIV-issued CP have put significant pressure on the ability of all SIVs, including the Citi-advised SIVs, to refinance maturing commercial paper,’ Citigroup said.”
“Citigroup, which created the first SIV in 1988, is the largest manager of the investment companies.”
The Wall Street Journal. “Only last week, Citigroup was telling anyone who would listen that it had a mere $70 million in ‘indirect exposure’ to the subprime mortgage mess. This week, Citi CEO Charles Prince has resigned, Citi is looking at another $8 billion to $11 billion in writeoffs, and some observers are questioning whether Citigroup has the resources to absorb all of the losses.”
“More pain ahead was the theme for this year’s ABS East conference where panelists warned that the worst is yet to come for U.S. subprime mortgages and those securities tied to it.”
“In an opening panel discussion on the state of the structured finance market, investors and issuers agreed that falling home prices, rising defaults and foreclosures along with tighter credit left the U.S. housing market in a tailspin this year. But fallout in the future remained a key concern.”
“‘It’s been a staggering blow. I think there’s more to come,’ said Paul Colonna, portfolio manager at GE Asset Management, during the panel discussion, referring to the subprime mortgage crisis.”
“Colonna said the biggest surprise to him this year, was not the rising delinquencies or declining home prices in the housing sector, but the big disruption to other markets.”
“‘The 90-day T-bill auction in August was a bigger surprise to me. That sent a huge warning to the world that we’re in a liquidity crunch,’ said Colonna. ‘We didn’t even know where rates were in Treasuries then. The U.S. government didn’t know where it was going to finance itself.’”
“‘There’s a major crisis of confidence right now and investors need to be reassured. People are not addressing issues of transparency in ABCP and SIV’s portfolios and their pricings,’ said one investor, who spoke on condition of anonymity. ‘The problem in asset-backeds is that the people who are originating are also taking losses.’”
“At the conclusion of the discussion, the moderator asked panelists what would make the ABS market feel normal again — to which participants responded, an entire restructuring of the structured finance market.”
The Scotsman. “Howard Archer, the chief UK economist of Global Insight, said: ‘What has become clear is that the problems associated with the subprime mortgages in America will carry on for some time to come.’”
“‘It was hoped, back in August, that it would quickly pass, but that was always fanciful. The problem is no-one is really sure who is liable for these debts, as they can be bundled up and repackaged on,’ he said.”
“It has been estimated there could be as much as £100 billion in subprime loans circulating in the system. Peter Hahn, a former Citigroup executive, said: ‘We have accounted for £20 billion, but what about the other £80 billion? It leaves a lot of big questions.’”
The Independent. “The banks remain unwilling to lend to each other, preferring to rebuild their balance sheets and ‘hoard liquidity’ to buttress themselves against any shocks from repatriating off-balance-sheet losses from their special investment vehicles. However, this tightening up has led to a vicious circle.”
“Samir Shah at Landsbanki Securities said: ‘People thought most of the bad news had been priced in. It seems we’re entering a second phase of the credit squeeze. We’re going back to a place where liquidity is drying up and volatility is increasing.’”
“‘There is a concern about the extent of the debts among the banks generally and who will be left holding the debt,’ Richard Hunter, of Hargreaves Lansdown, said. ‘There’s a read-across to Barclays Capital. People are concerned about the exposure it has.’”
“Bank of England Governor Mervyn King said it may take months before commercial banks publish their full losses from the U.S. subprime mortgage slump.”
“King’s assessment of banking conditions is correct, said Martin Weale, director of a research group funded by the Bank of England and the U.K. Treasury.”
“‘In October we saw people saying things were getting better but that’s turned out to be a bit of a mirage,’ Weale said. ‘The wholesale market is still very tight. Banks are now getting into a situation where they are short of capital.’”
“Fitch Ratings said on Tuesday that it may cut the AAA ratings of bond insurers after an upcoming review of their exposure to complex collateralized debt obligations.”
“If the ratings of one or more of the bond insurers are cut, the rating on the bonds they insure will fall too. This may force some investors who can only hold very secure debt to sell, depressing prices which would already be under pressure.”
“It could also touch off another round of writedowns by banks, insurance companies and others who hold instruments insured by these companies.”
“UBS estimates that bond insurers back about $2.2 trillion worth of debt, mostly subprime mortgage-backed securities and municipal bonds.”
United Press International. “The U.S. subprime mortgage crisis probably will worsen over the next 12 months before improving, a Federal Reserve governor said Monday.”
“‘(Two) conditions suggest that conditions for subprime borrowers have the potential to get worse before they get better,’ Federal Reserve Governor Randall S. Kroszner said. The conditions are indications of a weakening in housing activity and the second is that ‘the bulk of resets is yet to come,’ he said.”
“For each quarter from now until the end of next year, on average, monthly payments for more than 400,000 subprime mortgages are scheduled to undergo their first interest adjustment, up from the roughly 200,000 per quarter during the first half of 2007.”
“‘Delinquencies and foreclosures are therefore likely to continue to rise for a number of quarters,’ Kroszner said.”
“Former Federal Reserve Chairman Alan Greenspan and billionaire investor George Soros said the downturn in the U.S. housing market had yet to take its full toll on growth.”
“Greenspan told a forum that high inventories of unsold homes presented a major risk to the U.S. economy and that he was not sanguine about how quickly the glut could be reduced.”
“‘We still need to accelerate the rate of inventory liquidation, and that will mean bringing housing starts down and sales up. We have a long way to go,’ said Greenspan.”
“Former Federal Reserve Chairman Alan Greenspan said Tuesday that cutting excess home inventories in the United States is key to stabilize the financial system at home and the rest of the world.”
“‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Greenspan told a business leaders’ forum.”
“The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is ‘exceptionally difficult’ to do.”
‘We still need to accelerate the rate of inventory liquidation, and that will mean bringing housing starts down and sales up. We have a long way to go,’ said Greenspan.’
And any freshman in Econ 101 can tell you that the only way to achieve these two things is lower prices. So much for price supports.
‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Greenspan told a business leaders’ forum. The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is ‘exceptionally difficult’ to do.’
So the whole international financial system is hanging on the US housing glut, but the Fed shouldn’t have done anything about the housing bubble that created it?
Greenscam loves bubbles; they are much easier to create than a healthy, real economy.
He truly is “Mr. Bubbles.”
The legacy he has left makes him a basic criminal imho. All the incredible blow off markets globally are truly frightening and i can’t recall any time in history that this kind of stuff has gone on other than perhaps things like the Tulip Bulb Mania and the South Sea/ Mississippi Land Bubbles. When this blowoff implodes, and i think it must, the damage will likely be terminal to all our lifestyles. I just hope guys like him and the other promoters and enablers of this mania are held to account for what they have done. No future for our children or grandchildren from what i can see.
‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’
Methinks that he is off by an order of magnitude. There are millions of excess houses in the US.
Me thinks the same. Whenever I have looked at the MLS this year I have been stunned at how many vacant houses are listed for sale. Lots of people carrying two or more mortgages out there. Randomly picking a listing, I would guess the odds are 50-50 that the house is vacant. Unbelievable. 200-300K excess? He must be joking.
I suppose there are a lot of excess houses, but I believe there’s millions of extra square feet in the occupied ones as well. You wouldn’t believe how big the new houses are around the Windsor, Fort Collins area. Families of 4 are living in 4000 square foot houses.
If they measured “housing units” as bedrooms, I think they’d find that there is much more excess inventory over the norm than using the more traditional measure of “housing units” as addresses…
Last week it was reported that there are 4+ million empty houses in the US. Over 1 million for sale. How many additional in foreclosure?
Wait until the international financial system is looking at the international inventory of distressed housing!
Are we in the second inning yet?
Yes, but they’re softball innings. You know, the ones that last a hour each and 20 runs are scored.
I hope this isn’t a game of cricket that we are mistaking for baseball. I think if this went on for “days” I’d get tired of being a “non striker.”
http://www.cs.purdue.edu/homes/hosking/cricket/explanation.htm#basics
Ye-es. My husband wants to buy a newer pickup for hauling wood pellets, building materials, and occasionally our popup camper. We went to look at one a guy had outside Johnstown. Nice guy, but he couldn’t come down at all on the price, because of the size of the loan on it. He lived in a really nice neighborhood with big houses-in his fifth wheel. He was renting out his house.
And what will he move his fifth wheel with, if he sells his pickup? Guy definitely seemed beaten down. Kind of scary to think about.
Tell him you’ll give him full price if the 5th-wheel comes with it. If he gives you grief, tell him purchase incentives have been the recent craze and to get over it.
“Kind of scary to think about”.
Personally, I wouldn’t start with the hard-bartering until the banks or note holders take over and start “dividing-up” the toys.
I don’t want to become a clear, easy to reach target for some FBer that is angry over his/her present financial “difficulties” and isn’t in the mood for my price negotiation skills.
Give me the guys name. I’m looking for a 5ver.
“‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Greenspan told a business leaders’ forum.”
More like 2Million excess units. And it isn’t just selling those units, its repricing the rest of the market to the prices that those units sell for. Say devaluing every house in the US by 40%. And then writing off the difference between the outstanding mortgages and the new, correct value.
The writedown reconciliation process will undoubtedly put more FBs into foreclosure, so add another 1M or so houses to the above number… wash, rinse, repeat…
Its a downward spiral.
I cannot fathom how plain ole dumb Greenspan is.
“I cannot fathom how plain ole dumb Greenspan is.”
But he talks so good. Big words and everything…
Greenspan needs to put HIS money where his mouth is and start buying up the excess inventory he created. He could probably buy a $200K house every day from his income off of his speaker fees.
sounds like the Greenspan solution to the mess Greenspan made is to reflate the housing / stocks bubble by making credit cheaper and looser than ever. B-52 Ben will be happy to arrange just that. Long live the worldwide asset bubble!
That bubble is already being blown-up, but not in housing. Oil & Gold, that’s your fresh bubble.
“That bubble is already being blown-up, but not in housing. Oil & Gold, that’s your fresh bubble.”
Sold all of my gold stock today; plan to sell my oil stock tomorrow–before THAT bubble busts.
I sold half my miners today. What a sweet move that was! I may actually load back up tomorrow depending on what things look like.
I don’t see a correction in the AU ’til next week some time.
Vive la burbuja!!
“The former chairman urged central banks to avoid suppressing asset bubbles which is ‘exceptionally difficult’ to do.”
Come on Mr Greenspan! As ‘exceptionally difficult’ as fighting inflation? What is an asset bubble if it is not a symptom of inflation which is caused by too much money chasing a limited quantity of goods/assets? You might as well tell Central Banks to ignore inflation and run the printing press 24/7. Now let’s look at the flipside: If they are to avoid suppressing asset bubbles then they should also avoid preventing assets crashes and busts. Mr Bernanke are you listening.
From a page in “The Desperate Ramblings of Mister Magoo.”
Day Before Yesterday: Shock world by acknowledging the Oz Behind the Curtain. All of us financial geniuses understood that we were creating a mess of a housing bubble. Deal with it, poor suckers.
Yesterday: Feeling wounded by lack of popularity. No fun not being the guru who knew the chick who wrote Fountainhead. Attempted to deflect blame by claiming that nothing could be done. Feel dejected when this gambit fails.
Today: Push world to create a new bubble. Maybe if the new bubble eclipses the old one, my culpability will be lost in the mania. Yeah, thats the ticket. Get plenty of rest and take meds.
Well - & granted the current mess is something else - but it does appear from the more recent work in this field that any market based trading system will produce bubbles, ie. it’s part of the underlying math of how such systems work. We don’t fully understand how they work at the moment - which is a part of the problem.
I would submit that - for the most part - price declines will not get rid of the excess inventory. That is because the excess inventory isn’t so much of unsold homes as it is unoccupied homes (see the quarterly census data). This is due to the massive overbuilding that took place during the bubble.
Prices are coming down dramatically now, but no one wants to buy a house whose value is decreasing, or is flat even, unless they want to live in that house. The market for speculating flippers is pretty much gone. Thus the only buyers of these empty houses are people who want to live in them. However homeownership rates are already abnormally high - running about 68%; whereas normal is about 64%, thus there just aren’t a lot of people that would be buying houses but aren’t due to high prices. There are some (many on this blog) but not many IMO.
So what will it take then to reduce the excess inventory?:
1. Time - for the population to catch up to the number of houses that exist. This will take IMO probably 10-15 years.
2. Bulldozers.
You are so right on packman .
totally, totally, totally. I’ve been askin’ that questions alot…just WHO is left?
The current sellers are the current buyers, if they sold…and even then, they can’t do it…their style of loan is gone.
And the renters, here and elsewhere, are becoming more entrenched in the idea of waiting longer, or renting better.
“the renters, here and elsewhere, are becoming more entrenched in the idea of waiting longer, or renting better.”
True, that. I am relieved to be a renter in Manhattan. I am so grateful not to own.
What will reduce the excess inventory? Probably the same thing that happened in Houston in the 80’s, governmental housing authorities will buy the empty houses and turn them into public-subsidized housing.
I want to add to the list:
3. Fires
4. Tornadoes
5. Earthquakes
6. Hurricanes
“The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is ‘exceptionally difficult’ to do.”
I fervently pray to God that Greenscam be subjected to the harshest punishment that He (i.e., God) can inflict whenever the ba$tard reaches up there. He created a huge asset bubble that has heavily damaged our economy. And he says the Central banks should not pop bubbles. What a jerk!
This mess is taking down banks and big CEOs. We are seeing their greed to package this crud is going to hurt their bottom line for some time to come
This bubble is not going to get reflated. If the bubble had crashed because of higher interest rates it would be one thing but this bubble failed because they absolutely ran out of people who had any intention of paying the loan back to lend to.
Through 2006 and 2007 they just gave too many loans to people who couldn’t make the teaser payment and were desperately relying on people with even poorer credit quality being able to make even bigger teaser payments.
This is why they always try the close the borders/devaluation/tarrif thing at the end of every bubble because they are trying to keep all the money they create from running overseas to cheaper labor and less distorted economies and it always just screws things up even more.
Regarding that last paragraph above :). In order to reflate they have to drive up wages so people can pay the bigger teaser payments: Thus the close the borders/devaluation/tariff thing.
“If the ratings of one or more of the bond insurers are cut, the rating on the bonds they insure will fall too…UBS estimates that bond insurers back about $2.2 trillion worth of debt, mostly subprime mortgage-backed securities and municipal bonds.”
I can really see the potential for disaster here. Losses in public employee pension fund investments, and falling tax revenues, lead to increasing bankruptcies among local govenments. And, when they can’t pay their “insured” bonds, investors find the insurance companies are broke.
So what is safe? Short term treasuries?
‘We didn’t even know where rates were in Treasuries then. The U.S. government didn’t know where it was going to finance itself.’
“The U.S. government didn’t know where it was going to finance itself.”
Why was this not a bigger news? It is a very big deal when people demur buying Treasuries. I was expecting this to happen after 2020.
There are warning flags posted on buying munis. Beware.
You mean like this?
The Associated Press
Article Launched: 11/06/2007 09:21:33 AM PST
SACRAMENTO—Gov. Arnold Schwarzenegger has directed state agencies to prepare for possible deep spending cuts.
He has ordered state department heads to draft plans for a 10 percent across-the-board reduction. If enacted, it would be the biggest round of budget cuts since Schwarzenegger took office in 2003.
The move comes as the governor has begun putting together his January budget proposal. The state already faces a projected $6 billion deficit next year. His administration has warned for months that the continued housing slump and credit crunch were cutting into state revenues.
http://tinyurl.com/3ajybt
Governator: I told you I’d be back. I am asking Washington to declare Caly a housing decline disaster area eligible to receive unlimited sub prime loans and such forever.
‘agencies to prepare for possible deep spending cuts.’
- Everything is on the table except aid to illegals,
That is ‘untouchable.’
Nov 6 (Reuters) - Credit protector Primus Guaranty Ltd (PRS.N: Quote, Profile, Research) posted a quarterly loss primarily due to higher unrealized mark-to-market losses in its credit protection portfolio, sending shares down over 10 percent.
Hamilton, Bermuda-based Primus also said it will close its Harrier Credit Strategies Fund and will record a related charge of $2 million to $3 million in the fourth quarter. The fund incurred trading losses of $6.5 million during the quarter.
“The market turmoil in the quarter created attractive opportunities to grow our credit protection portfolio but it negatively impacted Harrier, our credit strategies fund,” Thomas Jasper, Chief Executive said.
Primus said third-quarter net loss was $128.4 million, or $2.85 a share, compared with net income of $23.7 million, or 54 cents a share, in the year-ago quarter. …”
etc, justify losses
–
“‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Greenspan told a business leaders’ forum.”
This is absurd. This number may apply to New Homes that are completed and held by the Hopebuilders, but what about all the empty homes held by flippers/invesuckers and other mom and pop builders?
He is severely understating the problem for some reason.
Jas
The whole international financial system rests on 200K-300K American houses???
It’s absurd on it’s face, but if it was true, would be equally scary it seems.
If the whole international financial system rests on a mere 200k-300K American houses I would think that they could raise about $100 billion (300x$333k) then buy’em and doz’em to Save the Planet. This is an absolutely ridiculous statement by Greenspan.
i dont think he’s saying that at all..
Without sales, prices do not change. Without a change in prices, the markets will continue to stagnate.
300,000 sales might be a big enough suppository to get the system flowing again..
think:
HOPE NOW.
of course, no artificial methods will start a genuine recovery.. abandon hope.. now.
real sales are needed .. not refinance assistance.
The word is starting to get out. I was talking with my next door neighbor yesterday and he brought up the economy and housing market. And wonder of wonders he said I “sure was smart for renting”, then voicing his hope that he wouldn’t get burned on his home.
I then said he’d probably be OK since he wasn’t massively in debt and didn’t have a crazy mortgage. Silence. Then he got a sheepish look on his face and admitted he had an ARM that he’s been unable to refi out of so far. I tried to make him feel better popinting out that he didn’t get a crazy loan amount ($130k minus 20% down) and he was in a recession resistant industry.
We talked a little while more and I explained how long it’ll be before we hit bottom and not to believe anything he hears reported in the “news” that it’s much, much worse.
Anyway that’s the first time anyone has called me smart for renting.
good job!
Most people in this situation around me do not want to talk about it. I guess they just gonna bite the bullet silently.
Hopefully soon we’ll have more talk (in the MSM) along the lines of “paying the piper/ taking your lumps / living with the hangover after the party.”
Please, anything that will let us just get on with it.
Ward,
I’m worried about the Beazer…
regards,
J. CLEAVER
“Beazer Homes USA Inc said it cut 25 percent of its staff, would suspend its dividend and sees at least $230 million in noncash impairment charges in its fiscal fourth quarter. ‘The housing industry continues to face the most difficult business conditions in over a decade,’ CEO Ian McCarthy said in a statement.”
“Don’t worry Mrs Cleaver. The stock can only go up from here - check out today’s action.”
“Don’t worry Mrs Cleaver. The stock can only go up from here - check out today’s action.”
Straight from Eddie Haskel’s mouth!
‘Ward,
I’m worried about the Beazer…
- I almost spit my Carne Asada Taco on the keyboard!
Smiles. Guess what? Looks like another CEO bites the dust
http://baltimore.bizjournals.com/baltimore/stories/2007/11/05/daily16.html
LOL. That’s classic!
Greenie has been in discussion with all knowing Oprah, and i’m happy to divulge how they figured out how to get rid of around 300,000 houses, that nobody wants…
You get a House!
And you get a House!
And you get a House!
And you get a House!
And you get a House!
Ad nauseam…
“Former Federal Reserve Chairman Alan Greenspan said Tuesday that cutting excess home inventories in the United States is key to stabilize the financial system at home and the rest of the world.”
“‘The critical issue on the whole subprime, and by extension, the international financial system rests very narrowly on getting rid of probably 200,000-300,000 excess units in inventory,’ Greenspan told a business leaders’ forum.”
Captain Obvious.
No answers, just re-state the question with as many words as possible. Such is the stuff of which government reports are made.
–
The banks can buy all that excess inventory and it would cost less than the losses they are taking with sub-prime related holdings. They need to hire Greenie!
Jas
I agree Jas.
I would suggest that they do one of those around the world Live Aid concerts to raise the funds to purchase the inventory and Save Planet Earth.
“Upscale home builder Hovnanian Enterprises Inc said the sales pace in October in most of its markets ’significantly deteriorated’ when compared with recent months.”
Uhh, wasn’t their Deal of a Century a huge success?
What happend to “deal of the Century”? probably 90% cancellations.
Think about the 10% who followed through - what will they think of HOV’s next “deal of the century”? What the REIC doesn’t get is the lasting damage they are doing with all their desperate pleas and ploys to salvage a lost cause.
Yes, it succeeded in proving that their inventory outside of special promotions is overpriced for the current market.
Mr. Greenspan, please just go away.
The more he talks, the more I realize that FED actions have just been (at best) monkeys throwing darts.
Throwing darts? So that’s what they do when they’re done with the football.
The more he talks, the more I realize that FED announcements have just been (at best) monkeys farts.
monkeys throwing darts have a better outcomes. the Fed behaves more like monkeys throwing their poop.
Didn’t Michael Jackson have a chimp named “Bubbles”? That seems to fit Greenscam well . . .
I thought that was Macaulay Culkin’s bedroom name.
Ahhhh you got the monitor on that one…LOL
I have learned from txchick last night that diet pepsi sparkles when it hits the monitor. However, I have just learned that cottage cheese does not in fact sparkle when it hits the screen. :-/
LOL. Good thing I had nothing in my mouth to test the sparkle factor.
Tasty bear meat
http://www.rgemonitor.com/blog/roubini/224871
This is something to watch for:
Valuation of illiquid assets is a most complex issue; but starting with the November 15th adoption of FASB 157 the leeway that financial institutions have used so far for creative accounting will be much more limited. Valuation of illiquid assets is a most technical issue. But new regulations will limit the ability of financial institutions to put “illiquid” asset in “level 3” securities, i.e. securities where the lack of market prices allows them to use dubious “valuation models” and “unobservable inputs” to value such assets.
Just in time since Citibank’s Level Three assets grew like mushrooms after the rain during the third quarter…
“Citigroup’s disclosure came a day after it announced as much as $11 billion of debt writedowns linked to U.S. subprime mortgages, and the resignation of Chief Executive Officer Charles O. “Chuck” Prince III. The New York-based bank also said in the SEC filing that the amount of securities it owns that are considered hardest to value, known as Level 3 assets, rose 42 percent in the third quarter to $135 billion.”
but starting with the November 15th adoption of FASB 157
TX would you short the banks on the November contract, or do you think the fallout will not hit until December?
Kinda like falling off a cliff - you get to see the bottom way too long before you hit it. Good thing I packed my parachute.
Looks like Morgan Stanley loaded their’s with rocks.
More like the dumbass in basic training (there’s always at least one in every unit) who comes up with the brilliant idea to put a pillow in his ruck instead of all the heavy crap you carry every day but almost never use.
The DI just stopped the formation and ordered everyone to get out their shovel and hold it over their head. Right now most of the rest of the formation are holding up shovels with a smirk on their faces…wait until all of them/us are about 50 pushups into getting smoked on behalf of dumbass and his buddies…
FED FARM CR BK
AAA / AAA
4.950% Due : 2/1/2010 Callable at $X00.000 on 11/7/2007
Thats taken from my own MS account.
Why did my safe bonds get sold off?
I want to buy jewelry and diamonds instead of goldcoins.
I’d rather buy vintage wines instead of buckets of gasoline.
But maybe I could buy a comprehensive ETF that lists every thing:
Tulips,SS pearls, RR’s, Gold, Internet, bonds, houses, coffee, lumber, wheaties, medicine and Google.
That’s a BTF
Acronym Definition
BTF Back to Front
BTF Back to the Future (movie)
BTF Balance Transfer Facility
BTF Battalion Task Forces
BTF Behind the Firewall
BTF Bench Test Fixtures
BTF Bet The Farm (as in a bet the farm project for a company)
BTF Beyond the Floor (environment)
BTF Biometrics Task Force (US Army)
BTF Biotechnology Facility
BTF Black Terror Fighters (gaming clan)
BTF Blessthefall (band)
BTF Boiler Tube Failure
BTF Bons du Trésor à Taux Fixe et à Intérêts Précomptés (French Government Bills)
BTF Bridge Too Far
BTF Brown Trunk Feet (height of palm tree exposed trunk)
BTF Buffalo Teachers Federation
BTF Build To Forecast
BTF Buy The Farm (to die or be killed
“Buy The Farm” …perfect.
Bubble Trading Fund
how bout RYMBX?
RYMBX=Morningstar Risk Rating:
Number of Years Up:
Number of Years Down: 1
Best 1 Yr Total Return (2006): -18.11%
Worst 1 Yr Total Return (2006): -18.11%
“Only last week, Citigroup was telling anyone who would listen that it had a mere $70 million in ‘indirect exposure’ to the subprime mortgage mess. This week, Citi CEO Charles Prince has resigned, Citi is looking at another $8 billion to $11 billion in writeoffs, and some observers are questioning whether Citigroup has the resources to absorb all of the losses.”
So Pride of Chuckie,
You were really just trying not to scare anybody, with your boldfaced lies?
You claimed just $70 million in exposure, when reality is more like $11,000 Million…
157 times as BAD, as you claimed last week.
Hey, come on now… He’s a CEO. Math isn’t his ’stong suit’ (unless it involves salary negotiations or back-dating stock options).
Citigroup GetStuckey to subprime…
Yes i still use Sheetibank…….but only because when i walk to and from the subway its right in my face, the chase and wamu is 5-6 blocks away then i have to double back…..so i am kinda stuck.
Which bank is it there in New York City that has the address of 666?
All of them.
Are you guys talking about the CEO formerly known as Prince?
The –$$$$ formerly known as Chairman Prince.
You were really just trying not to scare anybody, with your boldfaced lies?
You claimed just $70 million in exposure, when reality is more like $11,000 Million…
As long as he got his cool forty mil in shares an options…
“The former Fed chairman urged central banks to avoid suppressing asset bubbles, which is ‘exceptionally difficult’ to do.”
I call BULLSHIT on this. How’s about you actually TRYING it first, before TELLING us how ‘difficult’ it supposedly is? After all, blowing them didn’t look so hard under your chairmanship.
What an ass.
Come on Mr Greenspan! As ‘exceptionally difficult’ to do as fighting inflation? What is an asset bubble if it isn’t another symptom of inflation caused by too much money chasing a limited amount of goods/assets? Let’s look at the flip side: If Central banks are to avoid suppressing asset bubbles, they should likewise avoid doing anything about asset crashes and busts. Mr Bernanke, are you listening.
Hovnanian CEO doesn’t see housing back in balance until 2010
Listen to the freak Greenspan. Mr Bubbleblower #1.
“Greenslime told a forum that high inventories of unsold homes presented a major risk to the U.S. economy and that he was not sanguine about how quickly the glut could be reduced.”
“‘We still need to accelerate the rate of inventory liquidation, and that will mean bringing housing starts down and sales up. We have a long way to go,’ said Greensmug.”
= = = = = = =
There’s only one reason why this old coot is suddenly showing up: to save his sorry hide. He sees what’s happening, and he knows that all eyes will be turned on the man who created this mess: Alan Pondscum. What a joke that he’s now giving advice on how to fix the problem.
Now he wants “excess inventory” cleared out, just like a warehouse full of junk that no one wants. (waves his hand: just get rid of it no big deal)
The problem is, people are LIVING in this excess inventory and it’s going to ruin a lot of lives before it’s through.
You know, Greespans behavior of late reminds me of Clinton’s bizzare performance right after Sep 11 where he couldn’t keep his mouth shut and seemed to be doing major damage control on his “legacy”. Just two more in a long line of crooks in our government system.
It always amuses how the Clinton haterz manage to bring the name up in any given subject. Housing bubble? Damn Clinton! Darfur? Damn Clinton! War on Terriers? Damn Clinton!
LOL. I’m a Clinton hater, huh? While that is accurate as far as it goes, a more comprehensive statement would be that a detest all forms of corruption.
It never fails to confound me how non-thinking liberals freak out over things Bush does, yet they are beside themselves with joy when their guy does the exact same thing. Sometime try standing for principles, not a political party.
it’s a two way street.. insert problem______ and x-pres name depending on the side of the fence you are.. a waste of time.. you could put anybody in the office and we are still in a world of hurt..
Thank you.
Just released in hardcover:
“If I Did It: Confessions of a bubble blower” by Alan Greenspan
LOL…nice.
I don’t think any of the banks have the resources to sustain any kind of serious haircuts on their “investments.” They are casting about for some way, any way, to change the reality of their blunder, but there isn’t one.
The phrase “too big to fail” is thrown about with wild abandon in the media, but who has the resources to bail out insolvencies of the size and magnitude being revealed? Nobody. Not the US federal government, not overseas investors. China might have the reserves, but why would it want to throw those away propping up US banks rather than just cherry-picking valuable assets from them at fire-sale prices?
Perhaps London will resume its mantle as the world’s financial capital. Oh, wait. They have asset bubbles and bank troubles there as well. Perhaps Geneva? Did any of the Swiss banks remain conservative?
It’s no problem for the US government to bail out big banks. The Continental Illinois takeover can be used as the model. Here’s how it would work. FDIC takes over Big Bank as conservator, not receiver. FDIC sells Big Bank’s problem assets at a big loss. The Fed creates money and lends it to Big Bank at 0% interest to offset the cash loss. The Fed also replaces uninsured deposits and borrowings with sub-market rate loans (more created money). Big Bank is reorganized with 90% of the stock going to the FDIC (shareholders take a 90% loss on pre-conservatorship share price). Big Bank now has a ton of free and cheap money and can invest safely at a profit. The profit goes to paydown the 0% interest Fed loans. At some point, when stability is attained, the 0% interest Fed loans are paid off, and the submarket Fed loans are rolled to market financing. At that point the FDIC sells its shares in Big Bank.
All it would take is a massive, immediate increase to M1 by the Fed. The public would pay for this through a still lower US dollar (rising consumer prices).
But if that occurs for more than one big bank at a time, and if the losses are of a size comparable to Citi, then the volume of money is just too large. Continental Illinois had $33 billion in assets. Citi alone has $127 billion in equity with almost a trillion in assets and liabilities. A 50% haircut would be a half-trillion dollar gap. Multiply that by the top ten banks and we get a five trillion dollar gap. If the fed prints or conjures up $5 trillion, wouldn’t the dollar be more good for tissue than anything else?
The paper that dollars are printed on is not very absorbant, so no - it wouldn’t be good for use as tissue (or TP for that matter).
It’s basically a one-to-one replacement of destroyed bank credit with printed up fiat. It doesn’t do anything to M3.
I can print up a trillion quadzillion dollars and it won’t have any effect at all on prices if all I do with it is bury it in the backyard. It has to get into people’s hands as spendable money before it has an effect on prices.
London is the world’s financial capital. Soon to be replaced by Hong Kong.
I vote India Kia!!
They hire thugs to get their money back! Too Funny!
http://tinyurl.com/22a47w
“‘There is a concern about the extent of the debts among the banks generally and who will be left holding the debt,’ Richard Hunter, of Hargreaves Lansdown, said. ”
You’re kidding. What a disaster. You mean that some of the banks that wrote the paper might actually have to hold the paper? Now that is the ultimate in unfairity. People who lend money should certainly not be required to hold debt, should they?
China might have the reserves, but why would it want to throw those away propping up US banks rather than just cherry-picking valuable assets from them at fire-sale prices?
______________________________________________________________
Because despite all the hype, thrit consumer market isn’t even close to big enough to absorb all of their excess production, and neither is anyone else’s. The U.S. housing market is far from the only “bubble” out there. I really don’t think the question is whether China wants to bail us out, but whether they really can, whether their assets are any more “real” than ours . . .
You hit the nail on the head. China is due for a correction. Should be fun watching.
Yeah, it might be worth setting ourselves on fire if we get to watch them go up in smoke too..
Saying that China needs the U.S consumer is one of the biggest lies in all of economics. It’s the equivalent of saying that the serfs need the king because the serfs don’t have enough money to provide a market for their own production.
Why don’t we just auction off the National Parks. We could raise at least 1 Trillion Euros (no dollars please) to bail out the big banks. The sale of the Grand Canyon and Yellowstone alone would probably cover most of the toxic loans that are threatening our profligate spending and our children’s heritage.
sale of Grand Canyon doesn’t sound like a clever idea - the US might need it to bury their excess home inventory; if they have to pay rent forever to bury the stuff there it won’t help much.
CNBC is saying that Beazer Homes is saying its cancellations are at 68%…68% of it’s “sales” are being canceled before closing.
Oil hit $97 today, that’s bullish for stocks!
ha ha ha.
The cancellation rate of all big builders has skyrocketted over the last year. It’s the one statistic that I don’t have access to that I most want at the builder I’m temporarily employed at. My guess is they’re getting slaughtered. Oh, and just last week the owner (where I work, not Beazer) declaired the slump over. Talk about delusional. They recently started talking about how great the company will be in 20 years, using growth data from GE to proclaim that they will be a 10 billion dollar company in 2025.
My professional opinion is they will be lucky to be in existance in 3 years, let alone in 20 years.
Anybody remember when the Federal Reserve said “subprime was contained” and that losses would be “between $50B and $100B”?
“How much will lenders lose from the US mortgage mess? The total could reach as high as $1 trillion (Rs39.3 trillion). In July, Fed chairman Ben Bernanke was talking about $50-100 billion. But Bernanke has been overtaken by events—some frightening numbers on late payments and a bruising batch of write-downs by banks.
So the pessimistic whisper numbers are around $300 billion, reaching up to $500 billion. But even those could prove low. Start with the $1.5 trillion of subprime mortgage debt outstanding. The market’s view on the value of these loans is expressed in various series of the ABX index of credit-default swaps. All but the AAA series are selling below 50% of par….”
http://tinyurl.com/ytw8kv
Livemint WSJ
“But Bernanke has been overtaken by events”
Bernanke has been overtaken by reality—the reality of that Joshua tree sticking out his azz.
These guys really do believe their own BS. An interesting blurb about a realtor who can’t sell his own house.
http://www.cnbc.com/id/21656207
“I didn’t listen to my agent. That’s what consumers need to do. They need to listen to their agent. If the agent says you need to adjust the price, then you need to adjust that price, we’re in a different market today,” Mr. Stevens admitted politely.
HAHAHA I love it.
Tom,
I’ll give you a nickel for the shack…… and you’ll walk away happy.
The whole world will burn over this, were screwed first, europe second, asia third.
My cousin Ehrgood, was married to this lady. What was the comission on this DC place?
http://www.realestatejournal.com/columnists/private/20070119-private.html
commissions are negotiable .. as price goes higher percentage goes down.. might be 1% commission or less on something like that.
interesting history on that building.. used to be a whorehouse.
Can someone please close this crazy market?
Is this all hedgies and tin foilers?
Below is a summary and link to a very good and troubling article in the Asia Times by Martin Hutchinson. A functioning capalistic system must have a healthy banking system. I continue to think this whole thing has an Enron feel to it including the time line with the exception it is much bigger and troubling. My prediction is that by December we will see a massive negative financial event - not sure what form it will take e.g. stock market crash, dollar crisis, major bank failures, but it will be massive and bad.
“The capital underlying Wall Street, at the top, is not all that large - a matter of a few hundred billion. Given the piling of risk upon risk that has been engaged in over the last few years, and the size of the losses in the mortgage market alone that seem probable - my own estimate last spring of $980 billion looks increasingly likely to be somewhat below the final figure - it appears almost inevitable that in a bear market in which liquidity dries up and investors become skeptical, Wall Street’s capital will be wiped out. Only the commercial banks like Wachovia and Bank of America whose investment banking ambitions have been largely thwarted and whose portfolios of Level 3 rubbish are correspondingly lower, are less likely to disappear.
Given the size of the overall figures involved and the excessive earnings that Wall Street’s participants have enjoyed over the last decade, a taxpayer-funded bailout of Wall Street’s titans would seem politically impossible, however loud the lobbyists scream for it.”
Here is the link to above article. Sorry.
http://www.atimes.com/atimes/Global_Economy/IK03Dj03.html
I work with a very intelligent educated retired guy here on a consulting basis. I recently found out his wife is an RE agent in Palm Beach County, epicenter of the global housing bubble. I bring up the topic of housing and he says “I can’t believe the bust is lasting this long”. This guy is no dumbo. Very shrewd regarding markets, money etc….. I can only surmise that he’s been drinking vast quantities of highly concentrated Koolade served by his RE agent wife.
Mark to Moribund
I’d like to “Thank You” for bring this horrible news in a “Laymans” manner to those not in the money market. I have passed on your Blog and hope to see you contnue to bring us the forecast of our nations worest of times. I’m but a basic man with basic needs and your reporting keeps me ahead of the market in the simplest of terms. Good job keep it up.
“Only last week, Citigroup was telling anyone who would listen that it had a mere $70 million in ‘indirect exposure’ to the subprime mortgage mess. This week, Citi CEO Charles Prince has resigned, Citi is looking at another $8 billion to $11 billion in writeoffs, and some observers are questioning whether Citigroup has the resources to absorb all of the losses.”
It looks like last week’s numbers were off by more than a couple of zeros.
“The U.S. subprime mortgage crisis probably will worsen over the next 12 months before improving, a Federal Reserve governor said Monday.”
Word to the wise: Don’t buy a home over the next 12 months!