Weekend Topic Suggestions!
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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‘Not once did the National Association of Home Builders’ chief economist utter the term ’smart growth’ as he urged local government officials not to do anything that would raise new home prices. He offered statistical evidence that local home building gives more to the economy than it takes in government services — counter to smart growth proponents’ argument that sprawling new subdivisions are stretching public infrastructure too thin.’
‘He said house prices for new homes in Corpus Christi are low and those low prices are too valuable an asset to give up by adding costly regulation. Elliot Eisenberg, senior economist for the National Association of Home Builders, made his remarks at a luncheon Wednesday of the Builders Association Corpus Christi Area, which commissioned the study.’
‘I can’t stress how important low house prices are worth protecting,’ Eisenberg said. For every 100 houses built in Corpus Christi, the study says, $12.6 million in local income, $1.2 million in taxes and other revenue for local governments, and 285 local jobs are generated in one year.’
‘So when people ask you if new home construction pays for itself, the answer is yes,’ Eisenberg said.’
‘Among Eisenberg’s findings is that a new house pays for the required public services investment in 14 years — faster than government bonds are retired. The impacts were calculated assuming that new single-family homes have an average price of $196,959, are built on a lot for which the average value of the raw land is $6,977, require the builder and developer to pay an average of $4,734 in impact, permit, and other fees to local governments and incur an average property tax of $4,629 per year.’
‘Eisenberg said construction accounts for the fourth largest industry in Corpus Christi, creating about 16,145 jobs, according to the American Community Survey compiled by the U.S. Census Bureau. Education services, retail trade and the arts and entertainment industry, which includes food service, create more jobs than construction.’
‘He said Corpus Christi’s construction industry creates more jobs compared with other Texas cities and the United States. Martinez said home construction is a valuable economic generator for the city.’
‘Dr. Eisenberg’s research clearly makes the case that home construction more than pays for itself in contributions to the vitality of the local economy,’ said Martinez, whose professional background is in title services and real estate. In response to a question from the audience, Eisenberg acknowledged that if new houses were leaving older houses empty that otherwise would be occupied, ‘you’re just rearranging deck chairs on the Titanic, but I don’t think that’s what’s happening here.’
‘But local economist Jim Lee of Texas A&M University-Corpus Christi cited statistics suggesting a danger of over-building. Based on the data from the Real Estate Center at Texas A&M University, he said, the Corpus Christi metropolitan area so far this year has seen a decline of home sales of 15 percent in housing units, an increase of 16 percent in total listings, and an increase of 1.7 months (to 7.6 months) of housing inventory.’
‘What these numbers basically mean is that the area is experiencing an excess supply over demand. The amount of home foreclosures is rising across the country. I am seeing many more new vacant homes or homes for rent today,” Lee said in an e-mail response. “I haven’t seen home buyers coming from out of town for a while, as they did in the past few years. If those new houses will ever be purchased, and probably at depressed prices, they will be purchased by existing home buyers (moving out of their old homes). What this means is that there will be no ‘increase’ in property tax revenues.’
‘Lee said that given the surplus in the local housing market, a continued supply of new homes will depress home prices for both new and existing homes. ‘Lower home prices will reduce the wealth of home owners, which may eventually adversely affect the entire economy and property tax revenues,” he said. “The California housing market in the 1990s is a good example.’
‘Eisenberg was hired by the Builders Association Corpus Christi Area for a fee of $500, plus travel expenses, said Becky Lopez, the association’s executive officer. Eisenberg and other members of the association hope to speak with City Council members about the issue during a public commentary period at Tuesday’s council meeting.
I deal with builders and builders associations every now and again, and I must announce that the ones with whom I am familiar spill lies out of their little noggins as often as they breathe. Maybe more often. Lies and creative deceits sprinkle down like multi-colored party confetti. Yes, it’s a Carnival of Falsehoods with the builders, and it’s all year round.
“Among Eisenberg’s findings is that a new house pays for the required public services investment in 14 years — faster than government bonds are retired. The impacts were calculated assuming that new single-family homes have an average price of $196,959, are built on a lot for which the average value of the raw land is $6,977, require the builder and developer to pay an average of $4,734 in impact, permit, and other fees to local governments and incur an average property tax of $4,629 per year.’
Does he also take into account that once people move into a house and start paying property taxes, they also start to use services that are paid for by those property taxes? Kids, especially, eat up government services so it is a little disingenuous to say that they property taxes are going to offset public services investment. If you count it that way, where do you get the money for public services operation.
At one point in my home town, officials estimated that none of the houses in my neighborhood provided enough in property tax revenue to support themselves if two kids were in the school system. Things looked a lot better for the town if the kids went to parochial school.
For a $500 speakers fee sounds about like they got their moneys worth based on the drivel in this article.
How could natural disasters change the nature of the Housing Bubble?
How many Miami speculators would have loved another Broward hurricane, as newer buildings might survive a Cat3 better and be available for sale after a storm.
How many Cali homeowners forecast their profit projections based upon the recurrence of earthquakes and fires?
The mini housing boom after Katrina in 2005 (now a bust) encouraged rampant speculation. What would a 7.2 at Northridge do to stabilize the markets and mop up excess supply? How much was this built into the investor’s calculations?
On another note, Thanks to all on this site- you have been a truly Delphic presence, and the web will allow this site to be a fascinating date-and-time history book.
Another weekend idea- Blasts from the Past- post some 2005 threads.
Funny you should mention the past. Every now and then I’ll poke around at Ben’s old site (an addict looking for another fix, I suppose). A few minutes ago I was doing just that. Here’s one I saw from 4.30.2005:
” At 8:46 PM, Stay @ home Mom said…
My personal story
My family just recently moved back to Southern CA in Oct 2004. We left before the RE boom (Oct 2001). My husband makes $100K a year. We have $200K in the bank, but we are sure the market will tank as it did in the early 90’s (maybe worse). I (mom) left the engineering field with an income of $125K a year in 2001 and feel if we stay here and buy I will need to go back to work to afford a track home in Antelope Valley. We our currently renting and I feel as though I need to apologies and explain why we are renting to the moms at my kid’s school. My in-laws who live in the San Diego area tell us we are being left out! These are the same people that I have to help set their cell phone option to vibrate and program their VCR. God is really paying some tricks on the college educated who use logic and reason! Being a mom I feel the need to nest like most women. I went to look at a model home for the third time and was about to go for it when in walks a man who could hardly speak english and worked as a landscaper about to purchase the same $400K home. It was a reality check for me!! He probably has no clue what a melo-roos tax is and I’m sure the sales rep didn’t offer an explanation (he’ll probably clue into what it all means at the closing when his escrow payment is $200 a month higher then he expected). Wages in the Antelope Valley just can’t support these prices. What makes usually educated, rationale folks think it can go any higher?
At 9:30 PM, Ben Jones said…
Stay at Home Mom,
Great insight, thanks. We all learn from folks that are at the front-lines of the boom. You know your right. Hang in there. Good luck. Wages are the key, and they ain’t rising enough.”
I remember reading this one back then. In a way, things seemed so quaint. Short, concise thread topics. 28 comments. Anonymous posters posting responses in series. No SIVs or CDOs or ABX.
Ben, you’ve really come a long way. Terrific job on taking the lead and getting this stuff out there. Thanks again!
It would be interesting to know what happened to this family , wouldn’t it? If “StayAtHomeMom” is still reading Ben’s blog, please let us know.
How can a $125k be so unlettered? “track home,” “in Antelope Valley,” etc. The best part was when she complained that someone else could “hardly speak English.”
Also I enjoyed the blast from the past about VCR’s - does anyone still use one today?
‘Also I enjoyed the blast from the past about VCR’s - does anyone still use one today?’
I touched one the other day, by accident. But then I quickly went and washed my hands.
Also I enjoyed the blast from the past about VCR’s - does anyone still use one today?
I do occasionally (I have the original Star Wars trilogy on VHS and I enjoy its poor quality, it really adds something to the viewing).
“…I enjoyed the blast from the past about VCR’s - does anyone still use one today?”
Yep, $59.00 @ Fry’s… Toshiba dual video & DVD…in my 5 year’s old room…pick up the video’s at yard sales for 25-50 cents each. Check them out at the library for free!, nice bicycle ride over there as well. Free WiFi…Google…Ben’s HBB…America, what a country!
“Also I enjoyed the blast from the past about VCR’s - does anyone still use one today?”
I believe there is one is the CPI “basket.” You know - another product proving that inflation is very low.
What is mello roos?
My understanding is that it is an assessment on buyers of newly-constructed tract homes to pay for new infrastructure that was required for development to occur.
Its a special property tax imposed on homes that fall within it’s boundaries that are used to fund a particular bond, such as community improvements and schools.
You are told about these at the time of purchasing a house and typical equates to X amount added onto your monthly payment. Typically the RE Agent will roll it of the tongue like it’s just an amenity to the house: 5 bedroom/3 bath, beautify landscaping and a mello-roos. Much like a destination charge is explained at the car dealership.
Well, basically…it’s a type of HOA HELL!
“Ben, you’ve really come a long way.”
People who post these days are better speller, too.
I meant to type “spellers”. Sheesh.
We survived Andrew and things changed a lot. There was one heck of a scramble for housing and landlords took full advantage. Rents skyrocketed because we needed housing not only for survivors, but for insurance adjusters and construction workers of all kinds.
I took this into consideration when trying to decide to stick with our house or become bubble sitters. It’s astonishing how much a hurricane can change the housing market.
“How many Cali homeowners forecast their profit projections based upon the recurrence of earthquakes and fires?”
Virtually none. Fires have little or no impact unless it’s your home that burns. Even with big fires, you lose no more than a few thousand homes. With around 20000 homes on the market in San Diego currently, this doesn’t make a dent. Also, there was very little impact after the Cedar fire a few years ago when the market was far tighter.
As for the impacts of an earthquake, that would depend on how strong and where as well as the state of the local housing market.
A strong quake now in the Inland Empire might just result in a lot of damaged homes being abandoned. If a strong earthquake occurred in more densely populated portions of Los Angeles, a more likely scenario would be dislocations to adjacent areas as rebuilding occurred. There would be an impact, but it won’t “save” the market.
As for South Florida, I don’t think a major hurricane would “help” much now as compared to Andrew. While there had been much (very shoddy) building prior to Andrew, that was to accommodate refugees, not speculative building. In the 20s, Miami was not “saved” by the hurricane that occurred at the end of that speculative boom. It was the final nail in the coffin. If you had one now, you might soak up empty units in adjacent areas, but in no way re-inflate the bubble.
I was at a party a couple of days ago at which one of the main topics of conversation was: Is it ethical to take advantage of the misery of others? The discussion started when one of the guests admitted he was buying his next-door neighbor’s house, because the neighbor couldn’t pay his ARM. Granted, a lot of people in the room were religious and really care about being good Christians, but still. It seemed like a good question. So, my proposed topic is: Subprime: What Would Jesus Do?
Homeless…Jesus & his parents.
I recall he told one of his would-be followers to sell all that he has, give to the poor, and follow him. On the other hand, he told a soldier to avoid bullying people & to be content with his pay. There’s no one answer to your question.
Topic: When will the CDO SHTF?
S&P says State St-managed CDO liquidating assets
By Eric Burroughs
Reuters
TOKYO, Nov 9 (Reuters) - A collateralised debt obligation (CDO) managed by State Street Global Advisors has started selling assets, ratings agency Standard & Poor’s said late on Thursday, raising worries that a wider array of structured securities may do the same.
S&P said it slashed its ratings on Carina CDO Ltd’s top tranche of securities by 12 notches to the junk level of BB from the top-notch triple-A. S&P also chopped its ratings on the subordinate levels of the CDO, one all the way to CCC-minus.
The trustee of the Carina CDO has started selling the asset-backed securities making up the CDO at the direction of the structure’s noteholders, S&P said.
“We believe the liquidation process has begun,” S&P said in its press release.
CDOs repackage assets ranging from mortgages and credit-card receivables to corporate bonds into securities. The tranches of a CDO are divided so returns depend on credit risk, with the lowest tranches the first to suffer from any asset defaults.
Ratings agencies have slashed the ratings of many CDOs and structured securities this year as surging defaults in U.S. subprime mortgages and the resulting credit crunch have hit the value of their underlying assets.
The S&P action stirred more fears about the exposure of U.S. financial institutions to credit markets, helping drive the dollar to a fresh record low against the euro EUR= in Asia trading and hitting regional equity markets, traders said.
Last month, S&P put 590 ratings on 176 CDOs on watch for a possible cut, affecting $20.6 billion in debt.
The ratings cut on the Carina CDO is more severe than would be justified by the deterioration of the underlying assets because the decision to liquidate will depress prices and affect all notes that were issued, S&P said.
S&P said the ratings on the top two parts of the CDO would only be trimmed by one or two notches if the assets were not liquidated, but any selling will lead to material losses and market prices may not recover during the liquidation period.
Any asset sales from the Carina CDO would come after its trustee received an event of default notice, a step before potential asset liquidation.
S&P said 14 CDOs have received such default notices, twice as many as the agency said had received the notices a week ago.
Credit analysts at Bank of America Securities said in a note to clients this week they expect more hefty asset write-downs tied to CDOs as “valuation uncertainty and further market erosions will imply continued increased losses.”
The Carina CDO is managed by State Street Global Advisors, a unit of State Street Corp (STT). A spokeswoman at State Street in Boston could not immediately be reached for comment.
State Street has become embroiled in the problems plaguing financial institutions from the surge in defaults on subprime mortgages that led to this year’s credit crunch.
Three customers of State Street filed a suit last month against State Street Global Advisors and affiliate State Street Bank over losses suffered from exposure to subprime mortgages.
State Street is also involved in the asset-backed commercial paper market, which ran into trouble in August when investors balked at rolling over their holdings on worries about the exposures of some funds to subprime mortgages.
http://www.ibdeditorials.com/IBDArticles.aspx?id=279412744579314
Will Banks’ $80 Billion Super-SIV Provide At Least A Temporary Fix?
Proponents of the new fund point out that it isn’t a bailout, because no federal money is involved; it’s the banks that will be putting their names on the line. But it is a bailout: a chance for banks and investors to rethink having structured, sold and bought all of these assets without having done much analysis of the underlying debt.
It still is not obvious that the Super SIV, which should launch within the next few weeks, will work. First, if the Super SIV is going to buy the smaller SIVs’ best assets, who on Earth will buy a security left behind in a smaller SIV without assigning a deep discount to its price? Second, how can investors be confident that the Super SIV’s purchases reflect true market prices, since it won’t be an independent, arm’s-length “market” buyer?
But even if the Super SIV succeeds in reducing, rather than simply stalling, deep losses, institutions already may have learned that not everything can be securitized and backed by short-term liabilities, at least not without incurring significant, uncontrollable market risk.
This realization could alter indefinitely the demand for future securitizations, which was relentless before summer. Lower demand would sharply cut activity in what has been one of Wall Street’s biggest bread-and-butter operations for the past decade. It also would make it harder for all but the most desirable borrowers to get loans on terms to which they have grown accustomed — well past the few months that the term “credit crunch” implies.
Without a doubt the banks are trying to pull something. Sure, right now they are saying the government won’t be involved, but they will be eventually. Otherwise the banks aren’t accomplishing anything with their SIV shuffling.
Simple rules of arithmatic mandate that just splitting these things up will not make them worth more. If you have a mortgage tranch with a weight of 40 and a value of .85 bundled with another tranch weight of 40, value .65 and another at weight 30, value .25 you get a grand total of weight 100, value .675.
([40x.85]+[40x.65]+[30x.25])/100 = .675
Now the banks/investment firms were the ones who bundled these things all together to begin with. Now all they are claiming they are doing is unbundling them, which has no effect on the underlieing value. A possible reason may be that no one will buy the bundle at all and it needs to be split up just to sell the top valued tranch?
The SuperSIV toxic holding fund could dovetail quite nicely for the big banks with the Fed’s flip flop on bailouts (BB suggested at the Senate inquisition that GSEs could insure $1m Jumbo mrtgs).
I wonder what many of these companies financial statements will look like in 6 months..since as many have said, “We have yet to reach the bottom!”
I am in some ways happy to see the market finally take a hit..How can a market survive on Google and Apple alone?
Holiday spending? My father who is 80 years old thinks this year the great American consumer will rein in spending. While I would love to think that will be the case I know America and Americans are credit junkies. So what do you think will we save retail and melt the numbers off our credit cards this holiday season?
No because a smaller perfect storm has hit the credit cards too. Tney’re having to use them for living expenses and even to pay the mortgage now - so no credit limits available for junk.
You want to get a good feel for this - read the “wanted” boards on Craigslist. The Christmas begging started a month ago. Very early.
Right, It’s just as I watch these spoiled “I want it now” brats running around with the screw you attitude I’m thinking they will run the cards to the max and then some. I stood behind a fellow in line not long ago and he went through 5 cards until they found one with room on it, and the bill was $37.00 and change!
I think if that were me, I’d go home and stick my head in the oven.
“I think if that were me, I’d go home and stick my head in the oven.”
On broil and ask someone to slam the door shut.
You mean that the card swiper machine actually refused cards that were going to go over limit??? I thought that credit card companies deliberately DIDN’T tell you you were going over limit, because they wanted to bang you for the late fee (and kick in Universal Default.)
I heard they do this at the ATM too. If you try to take out more cash than what’s in your checking account, the machine lets it run through. Then the bank says, Oh, you’re a good customer, so we gave you a “loan” for that overlimit. btw it carries a 89% interest rate (or more).
this is true, debit cards are allowed to overdraw.
I thought that credit card companies deliberately DIDN’T tell you you were going over limit, because they wanted to bang you for the late fee (and kick in Universal Default.)
No worries - they can set the cutoff point to $100 above the credit limit, thereby earning their late fees AND limiting their potential losses.
Txchick makes sense (as usual), but consumers don’t. So, I expect to see a last gasp plastic spending spree. I don’t think that it will do much good… it won’t be a winter wonderland for retailers, but it will serve as good fodder for the CNBC talkiing heads as they blab on about the GAC (great American consumer)
I was out last weekend, not Christmas shopping, but looking for a few household items and the stores were quite packed (this is in Iowa). I think that the places that have been hit really hard already CA, FL, OH, etc. we’ll see some major retail pain, but perhaps other areas won’t feel the crunch as deeply, yet. However, I didn’t see anyone buying big ticket items, mostly just crappy sweaters and towels, so maybe people are cutting back on the cost of items even if the quantity is staying the same. I try to avoid shopping areas if possible, so I can’t say for sure.
Kids needed winter boots so I headed out to the new LLBean discount store. It was jam packed with lines at the register. I have been in the stores when things were quiet but usually I’ve noticed that places are pretty packed. They are leaving with big bags full.
Some of my friends have mentioned they need to start Christmas shopping now since their husbands are out of town on business almost every week. (Is this what happens when you’re based in a low density business area w/a slowing economy or are companies stretching their executives thinner?)
I remember a few years back in 2001 all of a sudden both of my credit card limits increased $1000 (Without asking!!!) …….right about now in Oct/Nov……..wonder if that will be the next Bernake surprise?
Oddly enough, I’ve just had unrequested credit limit increases on two cards ($1500 & $500). Those of us who pay may be getting temptation thrown at us.
And the Great Pumpkin will come out too this year. I heard this doom and gloom about holiday spending last year, the year before, and so on since 2001.
1) I’m going to go on a vacation to Hawaii in February for a break.
2) I’m buying $5000 worth of Vanguard mutual funds for my traditional IRA after New Years Day.
3) I’m buying $1200 of DODFX also after New Years.
And yes, I am buying more platinum in a few weeks.
I don’t worry. I started diversifying a long time ago. I’m wrong about any single investment, so I don’t park more than 60% of my wealth in any single asset.
Were you formerly Bill in Maryland? I am curious which Vanguard funds you go for.
I have to agree that the American consumer will gleefully spend as much as possible so long as they can get more credit. My barometer is my brother in law - a mechanic who has gone BK twice, has some $30K in cc debt and has no problem whatsoever getting new cards, a new truck every couple years, and a new cell phone plan. He’s still spending like nuts. However, he did try to buy a house recently and was turned down.
Duh. I meant Bill in Phoenix.
DODFX is a winner. You forgot MSFT back in ‘05. I’m up 40+% on it.
b.i.M,
Why do you like platinum so much?
“So what do you think will we save retail”
Nothing…Christmas ‘07 will be the first visible sign of the consumer pullback. Joe Sixpack and Nancy Pinot Nior are cutting expenses as I type. They borrowed from the future, now comes the belt tightening (either voluntary or forced). I stand by my Christmas ‘07 prediction, that it will be reported as a very disappointing selling season, followed by talk of a contraction/recession.
My son (money manager for movie stars and others in Hollywood) is advising all his clients to “hunker down”! Words to live by, in my book. Wonder if they will take the advice. Probably not.
Same advice I gave my dad last spring. Looks like I was not that far ahead of the curve…
arroyogrande,
“…They borrowed from the future, now comes the belt tightening (either voluntary or forced)”
Previously noted:
Cause and effect in American economics: 2007 and beyond
“Irrational exuberance” precedes: “Rational emaciation”
Subject: Financial behavior of the masses (individuals)
One of the goals:
Anticipate
5. to nullify, prevent, or forestall by taking countermeasures in advance:
3. to perform (an action) before another has had time to act.
Emaciated:adjective
Origin: 1640–50; L émaciātus, wasted away, equiv. to é- e- + maciātus, ptp. of maciāre to produce leanness (maci(és) leanness + -ātus -ate1)
emaciated: in CancerWEB’s On-line Medical Dictionary
Kernerman English Multilingual Dictionary (Beta Version) - Cite This Source
emaciated [iˈmeisieitid] adjective
having become very thin (through illness, starvation etc)
substitute credit for flesh (although it could lead some to actually become emaciated)
Arabic: نَحيل، هَزيل
Chinese (Simplified): 憔悴的
Chinese (Traditional): 憔悴的
Czech: vyhublý, vyzáblý
Danish: udmarvet; underernæret
Dutch: uitgemergeld
Estonian: kurtunud
Finnish: riutunut
French: amaigri
German: abgezehrt
Greek: αποστεωμένος, σκελετωμένος
Hungarian: girhes
Icelandic: horaðr
Indonesian: kurus
Italian: emaciato
Japanese: やせ衰えた
Korean: 쇠약한, 여윈
Latvian: novājināts; novājējis
Lithuanian: sunykęs, išsekęs
Norwegian: radmager, uttært
Polish: wychudzony
Portuguese (Brazil): emaciado
Portuguese (Portugal): macilento
Romanian: slăbit
Russian: изнурённый;истощённый
Slovak: vychudnutý
Slovenian: shujšan
Spanish: demacrado
Swedish: utmärglad, avtärd
Turkish: bir deri bir kemik
I think you will be surprised to when Joe and Jane Six Pack haul the kids around the malls this season. They will look lovingly into the wide eyed smiles of the offspring and turn to glance and exchange a look that speaks without being heard;
“WTF, we won’t be able to next year, let’s let them be happy just once more.”
Stores will gladly abide. Look for the big chains to aggresively and frequently push store credit cards this season.
SAVE 20% when you open a card with US!!!!!!!
Distressed buyers and Desperate retailers will throw caution to the wind and have one final wild fling during the holidays.
Look for a massive spike first payment defaults on newly minted department store credit in Jan 08.
Christmas ‘07 will be the first visible sign of the consumer pullback.
A good friend has shared that her husband is trying to get her to stick to her $500/week food bill and that recently it has gotten much more difficult.
She is a warm and generous person and has trouble keeping the budget because she enjoys taking care of a long list of others.
But she is also the one that says she doesn’t care to think about money. One night after another of “those discussions” with her husband she downed a bottle of $35 red to deal w/her agitation of having to practice self-discipline. I would have to guess this is going on in households all over the country.
I’m sure her husband loves her warm and generous spirit and isn’t so sure he wants to shut that down. But I am worried for them to think what will happen as this situation deepens. I try to explain to her its happening to everyone. Her husband is not being unreasonable. I don’t think she’s listening.
italics off
I need a key. If someone could help me close italics…. My apologies.
I think it will be a sad Christmas for a lot of children. Even if parents have the money to spend, there are no safe toys to buy, as the toys are all made in China.
Thank God we are “out” of the toy stage…and into the Wii stage…so far no toxic games…maybe some garbage, but not yet toxic…
The latest toxic toy scandal is unbelievable - swallowing aqua beads releases GHB. Apparently it is a very popular toy. Now the older siblings will swipe them to get stoned. They’ll be stolen and sold on the street. What a freaking mess.
“..the toys are all made in China”
Google: 1 China: 0
http://www.toysmadeinamerica.com/
America…land that I love!
What will be the next shoe to drop in this housing and credit saga?
Litigation
Cuomo led off with investigation of the WaMu appraisal practices. What’s happened has been nothing but an amazing example of just how guilty everyone involved is, and how they are trying to cover their butts.
WaMu is blaming everything on the appraiser. But, it turns out WaMu sold many of those loans to Fannie Mae, and Fannie is saying, they will force WaMu to take back any loans with dubious appraisals.
Tanta, at Calculated Risk, says, “Trust me; all of that stuff is detailed and specific enough that it isn’t that hard to find contractual grounds to declare breach and demand repurchase of a loan. WaMu knows that perfectly well, as do all mortgage lenders: those loan sale contracts with all those warranties against all those representations add up to major potential repurchase liability.
The ugly thing is that the lenders (WaMu in this case) may be forced to take back loans which are now worth 50, 60, or 70 cents on the dollar. This is a direct hit to the banks, and not just to WaMU, but to all lending banks.
Oh, my. I ran out of popcorn. Time for a run to the store.
Consumer spending will be hit hard. It’s all about “Sentiment.” If people are worried, it dampens their profligacy. 70% of the U.S. economy is consumer spending, and up to 70% of some retailers’ income is the Christmas season.
http://news.google.com/news?hl=en&ned=us&ie=UTF-8&ncl=1123150951
As Grim as it looks for Christmas, what’s happening to fuel prices will only compound the problem. $3.00 per gallon is a price point for gasoline. Once it passes that level, it will probably go up several percentage points. And every dollar someone spends for car gas or heating fuel is one less dollar for holiday spending.
Again…the holidays are all about media hype….my family as never made that part of the holidays.. for us its buying toys for tots, donations for a family in need, seeing Christmas lights with a thermos of hot cocoa in the car, and the smells of homemade cooking in Christmas eve…presents are only for the kids…
Then it is off to “Savers Prison” for you!
Why do you hate America?
Corrected URL
http://www.baltimoresun.com/business/bal-bz.retail09nov09,0,2032783.story
TV for next week
Next Week on PBS NOW
NOW travels to Minneapolis to take a look at the
mortgage meltdown that has left the city scarred with
boarded-up and abandoned houses.
barclays imploding - buy ?
ishares are a good product
I’ve had enough fun for one week.
they won’t mention the failed “great society” central planning
NOW loves big gov sht
of course. PBS is about the only programming I can stand but their bias gets very tiresome.
True about the bias, but they are fair and factual. For fair and factual with the other bias, I read The Economist magazine.
Beats Fox News and the New York Times.
Atlantic Monthly
Flat…. you’re a one trick pony.
But, but, but…it’s different there! People will always move to Minneapolis, because Hazelden is there, and they after rehab they stay in Minneapolis, to stay sober.
Yesterday a poster asked if there was a flow chart that one could easily follow that would simplify what it was that happened that caused the bubble. I think the idea has merit.
I see the main cause of the bubble as a product of the evolved disconnect of risk from reward that was created by the securitization of the loans. Others may see the main cause as the Fed’s ultra low interst rates.
I think a good weekend topic would be a discussion of all the factors that contributed to the bubble.
There have been illustrative diagrams in both the Wall Street Journal and the Financial Times of London showing how the mortgage lending securitization sump pump operates.
“created by the securitization of the loans.”
That may have been a contributing factor; however, as far as I know, loan securitization was happening even before the bubble…how long have Fannie and Freddie (and GNMA) been operating? Loan securitization was facilitator, but not the catalyst. There must have been some other “spark”.
What you needed for the bubble was low perceived risk (in lending, buying, etc.) coupled with high perceived reward (house appreciation, loan servicing fees, commissions, leverage, etc.) Some thing or combination of things must have tipped the balance of the housing market to cause buyers and lenders to throw caution to the wind and ignite the bubble. Maybe it was lower rates followed by house price appreciation? I don’t quite know. But once it got started, it fed on itself.
Stupid People —> Bad Decisions —> Bubble
Very interesting! Watch this video this weekend:
http://www.dallasfed.org/news/friedman.cfm
So this is it
-Stocks are in freefall
-Everyone knows we had a bubble
-All the toxic and radioactive banking instruments are revealed as a ponzi scheme
-rumblings in Pakistan and Iran
-worldwide bubble totters on the brink of the abyss
-peak oil
-global warming becomes noticable reality
What’s a Chicken Little to do?
Sit back and enjoy the popcorn
It won’t be long now before the first “Ponzi Perps” make their departure from an airport near you, their excuse being that they want to spend more time with another country..
Weekend Topic Suggestion:
Clearly there are a number of smart active traders on HBB. I can tell there are also some less active traders, but people who nonetheless have taken the time to think about asset allocation.
I’d like to see a topic about what a bearish investor sitting on the sidelines with Cash that is getting throttled by inflation, stocks that are getting pummeled, and an overall bearish sentiment on the state of the US economy can REALISTICALLY do to maximize their safety while concurrently not overexposing in any one class (such as foreign currencies, gold, other commodities or whatever else)?
If you search the blog archives, you will discover there have been many such discussions over the past three years. Here is one option to check out:
https://www.everbank.com/
If you are *really* bearish on the US stock market (and the S&P 500 in particular), there are always the contrary plays, like UltraShort S&P500 ProShares (SDS).
There’s also Short QQQ(Q), Short Dow 30, etc., and the related UltraShorts on all of them.
My play money is in the SDS.
Idea:
No one can time the market perfectly but does the following sound like a good idea.
2 or 3 year LEAP puts on financials, luxury consumer, and big momentum stocks like AAPL and GOOG.
2 or 3 year LEAP calls on commodities, energy, precious metals.
I never hear much talk about LEAP’s but considering that the big players and the Fed are willing and capable of commiting anything to prevent the needed collapse, they can’t succeed for that long. And if they do manage to keep the music going that long. I can not fathom the absolute armageddon that would unleash.
I guess we’ll have to discuss the following?
Should the government insure jumbo mortgages?
And after we finish ranting…
Who wins and who loses if it does?
Don’t say high priced markets like New York win. Being so high priced is not good for NY in my opinion. It certainly reduces the odds that my children will stay nearby when become adults.
“Should the government insure jumbo mortgages?”
I think that the question should be “should the government insure *any* mortgages”?
It seems that the private market is doing fine for itself…nationally, 30 year fixed jumbos are only about 58 basis points higher than 30 year fixed conforming loans. That tells me that the risk premium (as the market sees it) is about half a percentage point more than what the GSEs are charging.
Having the GSEs (Freddy, Fannie, GNMA) not guarantee the loans would (in theory) only raise the costs of loans 58 basis points (as of today’s rates), and would go a long way in pricing in the perceived risks.
The graph of conforming vs. jumbo:
http://www.bankrate.com/brm/graphs/graph_trend.asp?tf=91&ct=Line&prods=1,325&gs=275,250&st=zz&c3d=False&web=brm&cc=1&prodtype=M&bgcolor=&topgap=&bottomgap=&rightgap=&leftgap=&seriescolor=
1) Are NYSE trading curbs gone for good?
2) Does this explain why the DJIA no longer magically levels off any more every time it plunges by one percent?
3) Will the sheeple misinterpret the effect of this change in technical rules against the backdrop of a credit-crunch-driven market correction as a good reason to stop buying the dip and to dump stocks instead?
US STOCKS-NYSE says trading curbs rule is history
Wed Nov 7, 2007 8:03pm GMT
NEW YORK, Nov 7 (Reuters) - The New York Stock Exchange has scrapped its trading curbs rule as of Nov. 2, a spokeswoman said on Wednesday.
In an advisory sent to heads of equity trading desks and chief compliance officers, the exchange said the rule was no longer effective in curbing market volatility.
The rescission of Rule 80A, which addressed a type of trading strategy known as index arbitrage, has no effect on the circuit breakers in Rule 80B or trading halts due to extraordinary market volatility.
http://uk.reuters.com/article/usMktRpt/idUKN0754389920071107
“and the market will close if the slide happens after 2 p.m.”
“and then…it went dark.”
Ode to (triple-bbb rated)
http://www.youtube.com/watch?v=wH8YDL1HGrE
Did BB’s $1m GSE Jumbo guarantee comment yesterday constitute a Fed flip-flop on bailouts?
And what is the difference between just letting the GSEs buy loans up to $1m versus guaranteeing them? At a glance, it would seem to shift the tab for a future SOL moment from wealthy GSE share holders to poor J6P taxpayers. It is easy to see how guardians of Richistan at the Fed and the Congress would easily agree this was a good course of action.
Now that BB has “floated” this idea (and thereby sprinkled the holy water necessary to legitimize it), I expect quick passage through the Congress.
J6P in the Rust Belt will soon be providing mortgage loan guarantees to owners of million dollar homes along the golf course out on the coasts.
Idea of Jumbo-Loan Guarantee Is Floated
By DAMIAN PALETTA
November 9, 2007; Page A2
WASHINGTON — Federal Reserve Chairman Ben Bernanke yesterday floated a new idea to fix the troubled market for mortgages too large for Fannie Mae and Freddie Mac to buy: Allow the companies to securitize jumbo-size mortgages but have the federal government guarantee them.
Fannie and Freddie currently can buy mortgages only up to $417,000, and Congress — so far — hasn’t acted to lift that limit despite distress in that market that has made jumbo mortgages at “somewhat tighter terms and higher prices,” as Mr. Bernanke put it.
As an alternative to lifting that $417,000 cap, Mr. Bernanke offered a surprise answer to questions on Capitol Hill. He suggested that Congress could consider allowing the companies, known as “government sponsored enterprises,” buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors.
http://online.wsj.com/article/SB119455499562686966.html?mod=googlenews_wsj
I guess if the U.S. taxpayer is asked to prop up the value of homes valued up to $1m, then any issue of GSE appraisal fraud will magically vanish?
“Mr. Bernanke’s idea is significant because it could potentially extend the government’s support and exposure to the mortgage market…. For years, the Fed and the Bush Treasury have complained that investors believe the companies have an implicit government guarantee of their debt.”
Bush and Treasury had been saying “we don’t guarantee Freddy and Fannie, you just think we do”, and here comes Ben saying “hey, let’s guarantee Freddy and Fannie ‘for reals’, and let them take $1M loans to boot”.
And “let’s do it only temporarily - during a time period when the risk is highest that the insurance will actually be used.” That’s about as intelligent as insurers offering hurricane policies in Florida only during hurricane season.
More like offering U.S.-taxpayer-backed insurance to NOLA households three days before Hurricane Katrina made landfall.
Are you a “Bunker Monkey”? This guy has the “cure” for your disease:
“…This kind of market action has encouraged familiar warnings from those “bunker monkeys” who link the dollar’s decline to dark visions of a disorderly global collapse.”
TheStreet.com
Doomsayers Dead Wrong About the Dollar’s Decline
Friday November 9, 5:59 am ET
ByMark Dow, Special to TheStreet.com
http://biz.yahoo.com/ts/071109/10389205.html?.v=4
Funny he didn’t mention anything about the unimaginablly vast amounts of funny money (counterfit) US dollars, all these other nationals are purging.
No one put much effort when the dollar was strong, but now that it is losing value, all of a sudden foreign banks, retialers, cab drivers, hotels, etc… are refusing old US money and an increasing trend won’t take it at all.
All these bills are coming home to roost and chace fewer and fewer goods.
Mad Dog Cramer is foaming at the mouth over the national airwaves once again. I guess so long as there is no probe to shine a bright light on the cockroaches scurrying about on the kitchen floor, the presumption of innocence implies that whatever happens at WaMu, First American and the GSEs was and remains legal?
TV host Jim Cramer slams Andrew Cuomo for probe
BY STEPHANIE GASKELL
DAILY NEWS STAFF WRITER
Friday, November 9th 2007, 4:00 AM
CNBC’s ‘Mad Money’ host Jim Cramer slammed state Attorney General Andrew Cuomo for wreaking havoc on the mortgage industry by investigating one of its biggest lenders.
“This guy is going to shut down the mortgage market,” Cramer fumed on air Thursday during CNBC’s “Street Signs” show. “Cuomo is about confiscation. The Chinese are capitalist. We’ve got a Communist here.”
“Why doesn’t he just destroy any opportunity we have to move the $1.25 trillion in houses sitting on the market right now?” the money guru fumed.
http://www.nydailynews.com/news/2007/11/09/2007-11-09_tv_host_jim_cramer_slams_andrew_cuomo_fo.html
Where is Mad Dog Jim hoping that $1.25 trillion in toxic mortgage debt will move? I am guessing he is talking about getting the U.S. taxpayer guarantee of GSE debt in place before any level of awareness or political outrage can materialize.
What’s up with Cuomo’s GSE probe? What role do Fannie and Freddie have which lead to their subpoenas? And will any new GSE scandle torpedo Bernanke’s bright new idea of having the U.S. taxpayer provide GSE-securitized loan guarantees up to $1m? (Mad Dog Cramer seems to think so…)
It looks to my untrained eye like the Fed and the Senate better act quickly to get their taxpayer-funded GSE loan guarantee in place before Fannie and Freddie shareholders eat the cost of securitization of fraudulently-inflated loans. Of course, this would only be true if Cuomo’s suspicions are borne out by the facts of the situation.
Got popcorn?
Last updated November 8, 2007 8:29 p.m. PT
Home appraisal subpoenas questioned
Regulator: Finance firm risk overblown
By MARCY GORDON
THE ASSOCIATED PRESS
WASHINGTON — The federal regulator who oversees Fannie Mae and Freddie Mac accused New York’s attorney general on Thursday of overstating risks that the mortgage finance companies face from faulty home appraisals.
James Lockhart, director of the Office of Federal Housing Enterprise Oversight, sent a strongly worded letter to Andrew Cuomo a day after he issued subpoenas to government-sponsored Fannie and Freddie as part of a widening investigation of inflated appraisals.
In response, Cuomo insisted through a spokesman that his investigation has uncovered clear evidence of pressure on home appraisers to inflate their assessments and that many of the tainted mortgages were purchased by Fannie and Freddie.
http://seattlepi.nwsource.com/business/338940_mortgages09.html
Does Mad Dog Jim Cramer espouse collusion? Or is he just so certain that no collusion to encourage systemic appraisal fraud has taken place that Cuomo’s investigation is not warranted?
And why is Schumer unconcerned that D-ratic constituents may disagree with the rush to pass toxic GSE debt onto the backs of J6P Main Street taxpayers? Should D-rats fear that somebody might call them out on their hypocritical claims to protect the interests of the downtrodden?
I personally wish Cuomo all the luck in the world with establishing whether systemic appraisal fraud has occurred, and prosecuting the perpetrators to the maximum extent of the law.
Cuomo Investigation
Fannie Mae, which owns or guarantees about 20 percent of the nation’s $11.5 trillion residential mortgage market, also released results for the first and second quarters today, bringing it up to date on its earnings reports. A return to regular filing is a step toward shedding the restrictions imposed by the Office of Federal Housing Enterprise Oversight after the company began revealing $6.3 billion of accounting misstatements.
Fannie Mae is also facing new scrutiny over the possibility that mortgages it purchased may have been tainted by inflated home appraisals. New York Attorney General Andrew Cuomo said Nov. 7 he subpoenaed Fannie Mae and smaller competitor Freddie Mac as part of his probe into what he calls “widespread” collusion between lenders and property appraisers.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ao9L5ClKH8TM&refer=home
Does the U.S. banking system (starting with the top leaders at the Fed) need to take a collective training course on business ethics?
For instance, how did the word trust become historically associated with lending institutions?
The Fed leaders seem to think they can perpetually rely on smoke-and-mirror fooling games combined with taxpayer-funded bailout measures to engineer a reflation of the bubble economy. But as I have pointed out before, once the banking system’s most precious form of capital, trust, has been destroyed, it is not a simple engineering problem to restore it.
Mandatory HBB Weekend Meeting
For San Diego.
Any suggestions?
Near Hwy’s truck parked in Leucadia. Off the 5.
Someplace with WiFi?…Moonlight Beach area near downtown Encinitas?…Coaster station area?…Carlsbad / Coaster station area?
Get food at Juanita’s meet at Beacon’s or Ponto’s…Heck, everywhere around has a place to walk on the beach…Vigilucci’s / Yogi’s Sportsbar near Cardiff? It’s all good!
What’s that noodle/Japanese place in Pacific Beach that’s been there forever? Ichiban?
hwy50 that is what I was thinking. I love the Jaunita’s idea. I’m a Beacon’s original but moonlight is easier for our friends who live over near the 15.
Sunday afternoon might be sunny and clear. I’ll bring the camera. PB it won’t be a meeting w/o you.
So thats two so far.
Topic: emergency emergency!
Moonlight / Encinitas sounds good…easy directions too…exit the 5, go west 1/2 mile..till ya hit 3rd & “B”…free parking. I’ll see if I can get the “Red Kite” up in the air for the huddle! Bring your Kids…make a “Beach” day of it!
Here’s a direction link:
http://maps.google.com/maps?tab=wl
Juanita’s at: 290 N Coast Hwy corner of Marcheta & Coast 101 Hwy
Great food $$… cash only!… about 1 mile north of Moonlight Beach.
Now about the time?
hwy:
See if you can reel in a few more HBBers from the San Diego Chapter.
The sun finally came out first time since fires.
Sunday 1 or 2 ish. Red kite sounds cool.
I’ll post on Saturday…all are welcome!
How about a topic about what silly commercials you have seen on TV or heard on the radio that are due to the housing bubble or its collapse.
On the radio, I have heard a commercial (a long time ago) by the radio station I was listening to where they were trying to poach real estate agents for their sales division. That commercial was on a lot, but then all of a sudden it stopped. (Too many resumes, low quality of applicants perhaps?)
Another commercial I heard on the radio was for a home inspection company. In the commercial they recommended that you have a house inspection on a “regular basis” to detect problems.
On TV I still see this commercial for ITT Tech and its construction management program. It’s filled with talk about how the demand for construction managers is going to be “high” for the next several years. I wonder if ITT Tech will get sued for false advertising when its graduates from this program can’t find work.
I don’t remember what the ad was for (that often seems to be the least memorable part of the things), but I swear I heard a TV ad where a man was complaining that he got married, found out that his wife had terrible credit after the wedding and now he was living (with wife) in his parents’ basement when he could have been single and living in his own house.
Maybe it was for creditreport.com? Like the one where the guy is singing about id theft?
Anyway, before the bubble burst having a spouse with bad credit wouldn’t have kept anyone from getting a loan….
Two commercials that amaze me are: ‘mail us your old gold and we will mail you a check’, followed closely by ‘mail us your unwanted expensive watches (Rolex, Patek, etc.) and we will mail you a check’.
If people really do this, and I assume they do, I am considering running a commercial that goes ‘mail me some cash and I will mail you a (smaller) check’.
Put up an ad that only says, “Last chance to mail your $50 to …” and watch the money roll in. Be sure not to promise anything in response.
Ben:
My suggestion: “How can raising the “conforming loan” cap to $1Million help anything?
From today’s WSJ:
Mr. Bernanke’s idea is significant because it could potentially extend the government’s support and exposure to the mortgage market…. For years, the Fed and the Bush Treasury have complained that investors believe the companies have an implicit government guarantee of their debt. Fannie Mae and Freddie Mac purchase loans on the secondary market and either package them into securities or hold them in their portfolios, which now total $1.4 trillion.
Sen. Charles Schumer (D., N.Y.), chairman of the Joint Economic Committee, where Mr. Bernanke was testifying, said he would consider introducing a bill very soon to accomplish Mr. Bernanke’s suggestion. “I think that’s a very good idea,” Sen. Schumer said.
Rep. Carolyn Maloney (D., N.Y.), who chairs the relevant subcommittee in the House, endorsed the plan. She said Mr. Bernanke’s idea could be added to a broader legislative effort to overhaul oversight of the companies.
The House of Representatives has already passed such a measure but it has had little traction in the Senate.
The logic of raising the limit for a gov-backed mortgage from $417K to $1M makes no sense to me. How can it “help” anyone.
1. If I wanted to buy a 1.2 Million dollar house today, and I put $250K down and could show an income of, say, $350K, I’d have no problem getting it. (These are based on traditional lending standards). I don’t need any government help.
2. House prices are going down EVERYWHERE. So suppose our usual example Welfare Mom has an 800K mortgage (including a 200K HELOC) that’s now “worth” 600K. In order to refinace, she’ll have to come up with –at least–200K cash? Are we taxpayers going to loan Welfare Mom that money? Or will we be relying on phony appraisals?
So who can these extended loan limits possibly help? I can’t think of anyone this would benefit.
‘The logic of raising the limit for a gov-backed mortgage from $417K to $1M makes no sense to me. How can it “help” anyone.’
It can help GSE shareholders quite a bit, by putting the U.S. taxpayer on the hook for their toxic mortgage debt before a plethora of SOL moments that await over the next few years.
Is BB’s upbeat “no recession” optimism misplaced? Denial ain’t a river in Egypt…
ECONOMIC REPORT
Consumers in ‘danger zone’ of worry
By Ruth Mantell, MarketWatch
Last Update: 11:52 AM ET Nov 9, 2007
WASHINGTON (MarketWatch) — Consumers are worried and getting more worried.
Their view on current economic conditions has been lower only once during the past 15 years — when the United States invaded Iraq in 2003, according to a survey released Friday by Reuters and the University of Michigan.
“Sentiment readings are now out of the caution area and into the DANGER zone,” wrote Robert Brusca, chief economist at Fact and Opinion Economics. “Things do seem to be unraveling a bit faster.”
The current economic conditions index fell to 91.0 in November from 97.6 in October.
Overall sentiment is at its lowest since widespread worries about oil prices after Hurricane Katrina. This month’s reading is at 75.0, below Wall Street’s expectations of 79.5 and the prior month’s reading of 80.9.
The sliding consumer sentiment readings in recent months “is not untypical of the pattern seen when the economy is entering recession,” wrote John Ryding, chief U.S. economist for Bear Stearns.
http://www.marketwatch.com/news/story/consumers-danger-zone-worry/story.aspx?guid=%7B56B42DEA%2DDB07%2D4957%2D9374%2D0EAEC41357A0%7D
Stock market participants around the planet are slightly less upbeat than BB.
Gloom envelops world markets
By Saskia Scholtes and Michael Mackenzie in New York
Published: November 9 2007 20:54 | Last updated: November 9 2007 20:54
Stock markets on both sides of the Atlantic concluded their worst week in months on Friday as deepening economic gloom prompted investors to ratchet up bets that the US Federal Reserve would be forced to cut rates again in the face of mounting credit losses.
The S&P 500 was down 3 per cent for the week at midafternoon trading on Friday.
http://www.ft.com/cms/s/454b9f04-8f04-11dc-87ee-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F454b9f04-8f04-11dc-87ee-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
We seem to be heading into an Edgar Allan Poe market.
DURING the whole of a dull, dark, and soundless day in the autumn of the year, when the clouds hung oppressively low in the heavens, had been passing alone, on horseback, through a singularly dreary tract of country; and at length found myself, as the shades of the evening drew on, within view of the melancholy House of Usher. I know not how it was –but, with the first glimpse of the building, a sense of insufferable gloom pervaded my spirit.
NOVEMBER 19, 2007
By James C Cooper
THE BUSINESS WEEK — BUSINESS OUTLOOK
Tipped Toward Recession
The Fed seems to think inflation-recession forces are in balance, but softening labor markets, tighter lending standards, and nearly $100-a-barrel oil say otherwise
Are the upside risks of inflation and the downside risks of slower economic growth roughly in balance? Federal Reserve policymakers said they were when they trimmed a quarter-point from their target interest rate on Oct. 31. Only time—and more economic reports over the next few weeks—will tell, but right now, despite the Fed’s considered judgment, labor-market trends make a strong argument that the scales are still tipped toward recession worries and away from concerns about inflation.
http://www.businessweek.com/magazine/content/07_47/b4059030.htm
Topic suggestion: What are you doing day to day to budget your spending and how has it changed your quality of life?
Some people here are able to save a large percentage of their gross income. How are you doing that? Have you cut out things that you used to think you needed, but have found that your life is better without them? Do you use coupons and shop stores by price for consumables?
Gathering this kind of information from the learned and experienced may help others to become more frugal. This may be a very good thing as this train wreck continues and it looks like it is getting worse as a result of the attempts to “manage” it.
My wife and I retired and aside from increased real estate taxes, the powers that be will not be able to forcibly extract, that which is not theirs to take.
I am retired also. I don’t know if it counts but I am in the process of painting my house myself (note - I’ve done similar but smaller projects like this in the past, would not try this without prior experience). I live in a warm climate (Mobile), spend 2-3 hours a day on this project. Its good exercise plus I save a good sum of $$$s.
I think it is stupid to save a large share of your gross income when a War on Savers is underway at the Fed. I do it anyway because it seems even stupider to be deep in debt or to be long risky assets (e.g., stocks, corporate bonds, houses, etc) at the onset of the worst credit market conditions of my lifetime.
It’s better to be stupid than stupider!
Corollary: It is better to be Dumb than Dumber…
http://en.wikipedia.org/wiki/Dumb_and_Dumber
This is kind of a conundrum to me. I feel indecisive about how best to save and invest.
The things people say here about stealth inflation v. saving make sense to me, but I’m unwilling to keep everything in stocks or PMs, either. It’s horrifying to think about one’s saving shrinking away due to inflation, too.
Sigh.
I comfort myself with the knowledge that the people here will be better off than most, even without an especially advanced financial acumen (I put myself in that camp, at least vis a vis the regular contributors here).
I’m with you ET. I am not the sharpest pencil in the pack in econ and I am very grateful I found Ben’s Blog and the folks here. I have learned so much over that last few years here. I’m just a normal guy trying to be smart about my money and savings. There seem to be so many pitfalls and schemes in the financial markets that one needs to be on guard at every turn. The basics of spending seems to be one place where many people can benefit from those who have found a way that works for them.
I have scrubbed my budget twice in the last year and I am spending much less as a result. And yet I am sure that I have more that can be scrubbed and more saving to be done. That, to me, is the first step, decreasing the burn rate. This stops the bleeding or at least improves the amounts we can keep and invest/save. What to do with it has been hashed over many times here.
One kid graduated from college this year. We had talked about traveling overseas with the savings, but given the state of the dollar we’ll save the money. Our son is now living with us for the first time in four years. He’s saving money like a champ - no new clothes, no restaurants, no toys. The only thing he bought is Christmas presents. I guess we taught him something!
I have thought about this and some people have touched on this issue. There is a housing bubble and it is deflating right before our eyes. What about the higher education bubble? Every year, the cost of educating exceeds the rate of inflation. Is there a point where receiving a college degree is just too expensive? Part of the problem is many recent grads are being weighed down by all that college debt. To make ends meet, many of these recent grads take financial gambles they would not have made if education was not so expensive.
Maybe I am crazy, but the colleges and university have done a great job of avoiding criticism. IMHO, every parent should be screaming bloody murder at the cost of getting a higher education.
johnbanner,
I can only say…I shutter to think that someday I’ll be on the Dr. Phil show being ravaged by the audience & Dr. Phil for starting my 5 year old son out on: The “Looney Tunes Gang” & “Reno 911″ & public kindergarten in a rural community. I can almost feel Dr. Phil breathing down my neck as I type…to quote Jay Leno: “What where you thinking?”
How about everyone share the most bullish comments, discussion, email dialog they have had thrown at them over the past few years with the HBB community?
I’ll start, Here is an email exchange with the names changed to protect the innocent. The killer is that if he had checked a bit deeper on Zillow he would have seen that his house was a flip that was bought the year before for $260,000 less than he paid for it when he bought near the peak. And note the canned REIC talking points that were made too. When I last spoke to Koolaid I told him that at some point one of us will have to capitulate and take the other out for a beer and hand him a Benjamin. I have not heard a peep yet, but the burst is young
Hi Koolaid,
As per our wager the evening of the Super Bowl I’m calling in the marker mate.
See attached image for proof that home prices in 92627 do indeed go down.
We agreed that the measurement would be the OC Register home prices and sales metric for 92627
and this past weekend it went negative. Not by much, but it is a negative in that column.
Cheers
–
oc-ed
Koolaid wrote:
oc-ed-
I hope all is well. Our bet (as I remember it) was that year to year on the same month (ie June 05 vs June 06) I said
NO WAY would pricing go down and so far I believe I am correct. We need to know what the median was LAST YEAR at this
time! I know I was sober at the game what about you? :)!
Sincerely,
Koolaid
Ah, ok, I thought we had settled on using the price movement column in this chart. Well then we’ll just have to give it more time then because as sticky as prices are going to be I still believe they are coming down. As far as a
trigger, if your position is that there is no way they are going down that implies no limiting time element and,
tee hee, I am a very patient housing bear
All is well here and I hope the same for you all too.
Cheers,
oc-ed
Koolaid wrote:
oc-ed-
READ MY LIPS ED:
PRICES WILL NEVER COME DOWN IN THE 92627 ZIP CODE YEAR TO YEAR. YOU COULD HAVE MADE 23,000 IN THE LAST YEAR IF YOU
HAD BOUGHT. GET IT YET????
Koolaid
Koolaid wrote:
oc-ed-
Hey dude. Additionally, I checked out Zillow.com and our house that we bought for 770K in July 05 is now worth
868k in September 06. NOT BAD!
Sincerely,
Koolaid
How far downhill will E-Trade’s toxic mortgage scheist roll?
E-Trade’s Mortgage Mess Spreads
7:09:40 PM November 9th, 2007 Permalink | Comments (4)
When I wrote the column last August headlined, “How E-Trade mortgages its past, future” CEO Mitch Caplan sounded as if everything was under control. His bottom line was that, even with the mortgage mess at the time, E-trade hadn’t changed the midpoint of its earnings estimates for the year.
My, what a difference a few months makes. Today, in the wake of a disclosures of an SEC investigation into its mortgage trading and a further slide in the value of its mortgage portfolio, the company stopped offering guidance for the rest of the year.
The latest news caused longtime critic Egan-Jones Ratings Co., an independent ratings agency, to downgrade E-Trade’s debt; the action comes a month after a ratings affirmation with a positive bent by Moody’s. In its downgrade, Egan-Jones wrote that the most recent disclosures is confirms its original concerns regarding the valuation of $47 billion in mortgages and loan receivables.
http://blogs.marketwatch.com/greenberg/2007/11/e-trades-mortgage-mess-spreads/
The smartest folks who left the room (early), besides maybe Alan Greenspan…
Smartest Folks in Finance? Golden West’s Sandlers
9:40:36 AM November 9th, 2007 Permalink | Comments (19)
With Wachovia’s announcement today that it expecting bigger loan losses, it’s time for a bit of reflection: If you really want to zero in on a top in the real-estate markets, mark down the date May, 7, 2006.
That was a Sunday — the day Wachovia announced it was buying Golden West. On Monday its stock tumbled from a five-year high, and has never looked back, as investors saw the deal for what it really was: Golden West’s husband/wife team of Herb and Marion Sandler, widely regarded as the shrewdest of the savings and loan set, were getting out when the getting was good — even if that’s not what they meant to do.
Jesse Eisinger, then writing for the Wall Street Journal, penned a column that was headlined: “Golden West sale might foreshadow an unhappy end to the housing boom.” Wrote Jesse, “…When smart people cash in some of their chips, it’s rarely a good time to bet. Even if they tell you not to worry.”
http://blogs.marketwatch.com/greenberg/2007/11/smartest-folks-in-finance-golden-wests-sandlers/
How are those Fed Funds Rate cuts working out to keep inflation contained?
Oil’s long tail
Rising cost of crude oil pushes prices higher on a slew of consumer products
By Jennifer Waters, MarketWatch
Last Update: 8:17 PM ET Nov 9, 2007
CHICAGO (MarketWatch) — Let the consumer beware: Costs are going up on almost everything the average American family consumes.
Blame it on crude oil. The rocketing price of crude oil is not only sharply hiking the costs of fueling the car and heating the home, but is bidding up prices on the raw materials that go into goods from produce to perfume.
http://www.marketwatch.com/news/story/costly-crude-fuels-price-hikes/story.aspx?guid=%7BBB5FACF8%2DDF6E%2D4E7F%2DA19F%2DE9F952002268%7D&dist=hplatest
N.Y.’s Cuomo alleges appraiser, lender collusion upped home values
Carolyn Said, Chronicle Staff Writer
Friday, November 2, 2007
In a major legal action alleging misdeeds in the mortgage business, New York’s attorney general has accused appraisers of helping fuel the nation’s foreclosure crisis by pumping up home values at the behest of lenders and other real estate professionals.
Andrew Cuomo sued a leading nationwide real estate appraisal management firm and its parent company on Thursday for allegedly colluding with the nation’s largest savings and loan firm to inflate the appraised values of homes.
The lawsuit said that First American eAppraiseIT, a subsidiary of Fortune 500 company First American Corp., caved in to pressure from Washington Mutual to rely on “proven appraisers” who were willing to inflate home prices.
Washington Mutual profited from the artificially high appraisals because they allowed the company to close more home loans at greater values, the lawsuit said. First American, a provider of business information, title insurance and related services, wanted to win more business from Washington Mutual, the suit said.
The companies denied the allegations.
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/11/02/MNO8T4NNM.DTL
http://cnyhomes.com/Listing/Search/info.cgi?mlnum=179549
Almost $400k for a 1781 sq ft butt ugly home in the lake effect belt north of Syracuse. Prices in this town are still going up! Do any of the locals have any idea what’s going on? (besides SUguy of course!
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Posters on the local RE board still arguing the housing pain reported in the papers can’t happen here. I’m embarassed at this point.