Lenders Credibility With Investors Is In Shambles
Some housing bubble news from Wall Street and Washington. MarketWatch, “Swiss Re on Monday said it was taking a $1.1 billion loss after insuring a client’s portfolio exposed to the U.S. subprime mortgage meltdown and related credit-market turmoil. Swiss Re’s credit solutions division had put together protection to insure an unnamed company against a ‘remote risk of loss.’”
“The loss is one of the first major subprime-related hits reported by a reinsurance company. ‘The full effect of the U.S. subprime crisis is finally washing on the shores of Continental Europe,’ said analyst Catherine Stagg-Macey. ‘Up to this point, the U.K. financial services firms had taken the brunt of this storm.’”
From Forbes. “Swiss Re refused to give details about the client it had been underwriting, but it did say that the client’s portfolio was made up of mortgage-backed securities and asset-backed collateralized debt obligations whose value had fallen to zero.”
“The client’s entire portfolio, underwritten by Swiss Re, saw its value fall by 31.6%…because of the ratings downgrades in October.”
From Reuters. “Swiss Re faces a risk of further downgrades, said Chief Financial Officer George Quinn on Monday. ‘There are no similar transactions elsewhere in our portfolio,’ Quinn said. ‘There is a risk of further downgrades in the portfolio,’ he said.”
“National Bank of Canada said on Monday it expects to record a fourth-quarter pre-tax charge of $587 million on its holdings in non-bank asset-backed commercial paper, a higher-than-anticipated hit and the largest by a Canadian big bank for exposure to these troubled debt investments.”
“Canada’s non-bank ABCP market, worth about C$35 billion, broke down in August when investors suddenly stopped buying the interest-paying securities on concern their underlying assets were exposed to the default-hit U.S. subprime mortgage market.”
“Several other Canadian big banks, as well as a number of companies invested in the paper, have already announced write-downs of up to 15 percent in the value of their ABCP as it remains unclear what the non-trading instruments are worth.”
“‘National Bank’s provisioning represents more than 25 percent of its exposure, one of the highest levels that we have seen to date,’ Dundee Securities analyst John Aiken said.”
“Impac Mortgage Holdings Inc, a struggling mortgage lender, said on Monday it expects to report a larger third-quarter loss, and its chief executive said the company’s viability was a concern.”
“Impac projected a greater quarterly loss than the $127.7 million it posted a year earlier, but could not estimate the size. It also said the value of liabilities on its books will exceed assets, creating a shareholder deficit.”
“‘We are truly disheartened by the chain of events that, despite our arduous efforts, has led to the significant and abrupt loss of our stockholders equity,’ CEO Joseph Tomkinson said in a statement.”
“‘As we continue to manage through this unprecedented real estate and mortgage business environment, which historically has never seen this magnitude of losses or lack of liquidity in the capital markets, we will do what is necessary to maintain the viability of the company,’ he added.”
From Bloomberg. “Impac specialized in Alt-A mortgages, which fall between prime loans given to the most creditworthy borrowers and subprime loans.”
“‘As a result of continued deterioration in the real estate market during the third quarter, the company expects to significantly add to its loan-loss provisions primarily due to increased delinquencies in our long term investment portfolio and increased loss severities related to the sale and liquidation of real-estate owned properties,’ Tomkinson said.”
“Northern Rock Plc’s 25 billion-pound ($51 billion) loan from the Bank of England won’t be extended indefinitely, limiting the value of potential bids for the U.K. bank that was bailed out in September.”
“Interested parties ’should not assume at this stage that the current Bank of England loan facilities will be available’ beyond February, the Treasury said in a statement.”
“All offers for the Newcastle, England-based lender are ‘materially below the market price’ on Nov. 16, Northern Rock said in a statement today.”
“‘Materially below’ could mean half the market value,’ said Colin Morton, a fund manager at Leeds-based Rensburg Sheppards, which oversees about 13 billion pounds. ‘Anyone who owns this stock is taking a complete gamble.’”
“A jump in credit costs in August and September left Northern Rock, which specializes in mortgage lending, unable to write new loans, forcing it to seek aid from the Bank of England. That announcement sparked depositors to stand in line to withdraw their savings in scenes that caused Richard Lambert, the country’s chief business lobbyist, to liken the country to a ‘banana republic.’”
“‘The value to shareholders from any of the proposals…remains highly uncertain and will be dependent, among other things, on when and if there is an improvement in market conditions…’ the company said a statement.”
“Separately on Monday, rating agency Moody’s downgraded Northern Rock’s financial strength rating to D+ from C-, citing the delay in finding a corporate solution to its situation.”
“As banks disclose more multibillion dollar write-downs spurred by the collapse of the subprime mortgage market, investors increasingly want to know what the banks knew, and when they knew it.”
“‘When we are talking about numbers of this magnitude, there really is no excuse for people to suddenly discover that they are confronting potential risks many billions of dollars higher than what they anticipated,’ said Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission.”
“‘The problem really relates to the internal capacity at any of these banks to identify with some degree of accuracy what their true risk profile is,’ he said.”
“The banks could also face legal liabilities for not disclosing these issues fast enough. Under U.S. Securities and Exchange Commission rules, banks are supposed to notify shareholders of a material event within four days of learning about it.”
“‘(The banks) didn’t know until four days ago they had a big problem?’ said Mary Beth Kissane, head of investor relations at corporate public relations firm Walek & Associates. ‘Either they don’t know, which is a competence issue, or they do, which is a criminal issue.’”
“At least nine shareholder suits have been filed against Citigroup Inc and Merrill Lynch & Co Inc executives in the last month, after the firms announced big write downs.”
“‘Citigroup’s credibility with investors is in shambles,’ shareholder Jeffrey Harris, claimed in one such suit filed last week in U.S. District Court in Manhattan.”
The Wall Street Journal. “Chinese authorities are slamming the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world’s third-largest economy.”
“In recent weeks, regulators have quietly ordered China’s commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals.”
“The lending freeze shows how the slowing U.S. economy may be complicating Chinese policy making. Lower interest rates in the U.S. give Beijing less room to push up rates…as China already has done four times this year… without creating a ripple effect.”
“By raising rates further China could risk boosting the value of its currency, the yuan, too much for the comfort of its exporters, a critical part of the Chinese economy.”
‘ BEING THE FEDERAL RESERVE BANK CHAIRMAN may make you feel like a know-it-all, but it doesn’t actually make you one.’
‘Ben Bernanke demonstrated the truth of this axiom on Capitol Hill recently when he suggested that secondary mortgage-market giants Fannie Mae and Freddie Mac temporarily be granted the authority to buy jumbo home-mortgages of up to $1 million’
‘let’s take a quick look at what happens when a 1 percent teaser-rate loan resets to the market rate of 6.5 percent. According to the report, monthly payments jump from $965 to $1,897 - a 97 percent increase.’
‘The new mortgage payment is likely to be unendurable,’ the report acknowledges, since it requires nearly 60 percent of income. Sixty percent! That is, indeed, ‘unendurable.’ ‘Since there’s no equity in the property, a resale or refinance are not options,’ the study says. ‘A default is probably in the future of this mortgage holder.’
China slammed on the brakes too late, a global slowdown is in the cards.
I’d agree. Some anecdotal evidence I have is that I went to Harbor Freight tools last weekend. They’re an importer of cheaply made Chinese tools. Mostly rough-cast, low end power tools. Just a few years ago, you could buy a chop saw or power drill for 1$5-$20. I bought a chop saw last week for $59, and it was on sale, regular price- $89.
They days where you could buy crappy Chinese products and keep them until they broke and could buy more with money leftover instead of buying US branded tools seems to be over. China’s advantage were the dirt-cheap prices. Noe they are in a precarious position where the quality needs to keep improving, and therefor the prices will also increase. I foresee China becoming like 1970.s 1980’s Japan.
They have a serious image problem to deal with, much worse than the Japan of the 80’s.
The US image problem is much worse than Japan of the 1980s, too.
Exactly. Now do the math and look at Japan’s (or Korea’s) oil consumption per person and apply it to China’s population. The average Chinese will want to live a lifestyle comparable to what the average Japanese and Korean now enjoys and will want to consume the oil that makes that lifestyle possible.
In Japan, which is a very energy efficient country, the average person still consumes about 15 barrels per person, per year.
China (and India) currently consumes about 1 or 2 barrels per person per year.
The greatest failure of the human race is its inability to understand the concept of exponential growth.
Frightening stats.
It’s clear something has to give, but figures like that illustrate just how much the largest nations on Earth would gobble up per capita if they even get close to G-8 consumption patterns (I’m sure Japan is quite frugal compared to, say, the USA).
As Jared Diamond makes clear in his book “Collapse”, it’s not merely a matter of not enough energy for the Chinese popn — there’s not enough readily accessible steel, copper and other metals to support another 1+ billion people having a first-world lifestyle. It’s simply not going to happen.
Betamax–great book. For anyone who hasn’t read it, it is well worth a read.
I think the key to your comment is “readily accessible”. There are natural resources (oil, steel, etc.), but they are going to be harder and harder to obtain. Like most things in this world, it will boil down to price.
We’ll see alternative energies and composite materials become more common in production (Boeing Dreamliner, anyone?). The 21st century will be marked by great leaps forward in materials science, nanotech, and alternative energies. All these things become more and more feasible as the potential payoff goes up.
There will be many opportunities as the use of traditional materials becomes less and less feasible. The US should be pumping massive amounts of $ into these sectors to be world leaders in these areas going forward.
Too many people on the planet, WAYYY too many people and too few resources to support them. Nature tries to take corrective action in times like these. For those of you worried about all the “boomers” retiring, take heart. Epidemics usually take their toll on the older folks and the very young.
It may not be one big epidemic, but a whole lot of regional disease breakouts. Warming, for example, brings waves of tropical diseases in areas that never had them before. Now there’s some “super-cold” bug that can actually cause death. If we don’t get a grip on population, Mother Nature will do it for us. She’s pissed…
Anyone else remember zero population growth? Imagine if society had taken seriously those outrageous hippie claims about ruining the earth and using up all the resources back in the 70s. Or how about if the press and society hadn’t made fun of Carter saying turn down the thermostat and put on a sweater.
To me the problem isn’t population. The problem is efficiency in the way that people live. Anyone that feels that the planet is getting too populated should take a cross-country drive across the US. I did when I moved from TN to CA.
Approximately 90% of what I saw was NOTHING. I mean literally NOTHING except vast expanses of unpopulated areas with few if any amenities and a giant freeway blazing right through it.
One of the biggest reasons we had a national housing bubble wasn’t because there isn’t anymore land. The problem is perception. People live in SF, Bay Area because the job market-aka- tech industry is healthy there, and therefore lucrative… unless you buy a house. Similar reasons go for much of the East Coast with it’s tie to financial industries and so forth.
The stupid thing is that we don’ t need to live close to our jobs anymore. What do you think the internet was all about? It was about bringing communication instantly to government defense installations manned by people who would never see each other. That was it’s true reasoning and perhaps the more pre and efficient use of it.
As it is now, we all live crammed together, go to work and sit on computers, communicate with people on the other side of the country, sit in hours and hours of traffic uselessly burning gas, wearing out cars prematurely, blowing income on ludicrously overpriced housing so that we can live close to our jobs.
We need to utilize and reinvent the modern workplace.The tools are already here and have been for over a decade. Why in the hell are we still going to an office building every day? Trust me- If I could do what I do remotely, I would live in the absolute middle of nowehere. Nebraska, Arkansas, you name it. I’d GLADLY take a life of not having to drive anywhere and work at home via computer over living in a so-called”progressive” environment.
I think both ideas are valid. Waste is not good no matter how much we have. I totally agree about telecommuting. I wonder what percentage of jobs really could be done at home? Working in admin, I know there was nothing I couldn’t do at home except the babysitting of spoiled execs that don’t want to dial a phone or take care of their personal needs or the kiss assing and looking busy required by middle management. People could live where they could afford, could stop wasting energy and time commuting, and could attend to their children and community. And they idea that technology would cut down on paper is a sham. Too many people want their emails printed and filed, totally defeating the purpose. Way too much office space is needed just for filing cabinets.
responding to jetson boy, I’m not saying there isn’t plenty of land, just too few resources other than land. We could re-distribute population to empty areas and we’d still have problems, IMO. There’s lots of land (Death Valley and the Sahara come to mind) that is unpopulated for good reason, that it doesn’t support life as we know it. I don’t think the planet can support the population it has, even if it was evenly distributed.
To me the problem isn’t population. The problem is efficiency in the way that people live. Anyone that feels that the planet is getting too populated should take a cross-country drive across the US. I did when I moved from TN to CA.
Approximately 90% of what I saw was NOTHING. I mean literally NOTHING except vast expanses of unpopulated areas with few if any amenities and a giant freeway blazing right through it.
One of the biggest reasons we had a national housing bubble wasn’t because there isn’t anymore land. The problem is perception.
To me this is conflating two separate issues:
1) REIC “we’re running out of land” canard –obviously untrue.
VS
2) Carrying capacity of the earth.
These are two, distinct and very separate issues. We are not likely to “run out of land” on which to build houses or other structures anytime soon –even if the current population triples.
Now on the other hand, if we’re talking about arable land –i.e., land with good topsoil and a sufficiently reliable, abundant source of fresh water, that’s a completely different matter. By that measure, many parts of the world have already “run out of land” or are close to reaching that tipping point –Australia being a good first-world example.
The earth has already far exceeded the population that can be sustainably supported at first-world living standards. Even if we all switch to hybrids, replace our old bulbs with fluorescents, replace out toilets with low-flush models, and install solar panel on our roofs, etc., there’s simply no way some 2.4 billion Indians & Chinese, 1 billion Africans, and a couple more billion assorted people living in “developing” countries around the world can all attain a U.S. standard with anything close to current technology.
But, thanks to government bureaucratic inertia, religious fundamentalism opposed to family planning/birth control, and a general ignorance of the problem and apathy among the general public, it doesn’t look like we’ll have voluntary ZPG or even a reduction in population growth anytime soon. Of course, Mother Nature may “step in” and correct the problem for us –just not in a nice way.
“But, thanks to government bureaucratic inertia, religious fundamentalism opposed to family planning/birth control, and a general ignorance of the problem and apathy among the general public, it doesn’t look like we’ll have voluntary ZPG or even a reduction in population growth anytime soon. Of course, Mother Nature may “step in” and correct the problem for us –just not in a nice way.”
Testify, brothah! That was the point I was trying to make. You’d think the idea of birth control would have caught on south of the border by now, but noooooooo.
NGOs like the Rockefeller Fdn have been all over the third world trying to get them to reduce their numbers for well over 50 years, pushing birth control and condoms etc. Hectoring other races goes only so far. And while we diminish our population here others are more than willing to come in and take our place.
Hectoring other races goes only so far. And while we diminish our population here others are more than willing to come in and take our place.
I don’t equate educating ignorant people and incentivizing/subsidizing birth control in countries that badly need it with “hectoring”, especially in poor countries with extremely high birth rates. I also tend to think that such “hectoring” might accomplish a bit more had the current occupant of the White House not cut off U.S. contributions to the UN Population Fund back in 2002.
RE: “others are more than willing to come in and take our place”, isn’t this basically a race-to-the-bottom, “do as the lemmings do” type of argument? Just because most every other country is hell-bent on overpopulating until every square patch of ground is crammed with starving people, every natural resource is consumed, every river is polluted, and “forests” and “wild animals” are things that exist only in books and old films, doesn’t mean that we should too. On such a contrarian-minded blog, I would hope we could all resist the urge to succumb to destructive group-think.
Betamax said:
“there’s not enough readily accessible steel, copper and other metals to support another 1+ billion people having a first-world lifestyle. It’s simply not going to happen.”
key word being “another.”
A billion people leaving the first-world lifestyle seems a possibility.
Re: population growth, that was largely a function of the Third World getting access to Western medicine before adopting the other aspects of Western industrialized civilization. As someone said, populations skyrocketed during the twentieth century not because people suddenly started breeding like rabbits, but because they stopped dying like flies.
The result was that you suddenly had subsistence farmers having their usual ten kids — but not losing half of them to diptheria. Kaboom, went the population.
That’s not the whole story, though. The industrialized civilization that, in the West, was growing up alongside modern medicine (which was actually a laggard among other innovating fields), tends to suppress birthrates. Mechanized agriculture allows a much smaller percentage of a nation’s people to produce all its food — in fact, because of its economies of scale (and subsidy-grabbing legislative influence), agrobusiness tends to force all but a small number of farmers into other fields.
Farmers have lots of kids, because traditionally, that meant free additional labor for the family business. Workers (either traditional blue-collar or Information Age) don’t; you generally can’t take your twelve-year-old to the factory or law office with you, even as he eats your pantry bare. So children go from a profit center to a net liability.
Then you have the fact that an industrialized economy generates the excess resources to pay for broad-based education, which triggers all sorts of birth-suppressing mechanisms, like equal rights for women (and their resulting increased participation in the workforce, which tends to delay marriage and reduce the opportunity for childbearing), decreased religious enthusiasm (which generally also reduces the cultural impetus to have lots of children), and so forth.
The bottom line is that as countries develop and increase their standard of living, their birthrates fall, often dramatically. There is a major body of literature demonstrating that this may, in fact, go too far; aging populations in much of Western Europe and Japan are predicted to cause major strains on social welfare systems. (Most traditional pension systems, for example, work on the assumption that there will be more active workers than retirees; declining fertility threatens to reverse the equation.)
Even Mexico’s birth rate has fallen dramatically. (Although to be fair, some might suggest this is less a function of any change in the fertility patterns of the original population, but rather a function of much of the export of the high-fertility category of that population to the U.S.)
Basically, then, we’re facing two related graph curves: As economic development spreads, global birthrates fall, so that increased per-capita consumption is offset, at least in part, by decreased total population. At the same time, increasing economic development puts additional strain on resource stocks.
The $64,000 question is: which curve is steeper? Will economic development burn through resource stocks faster than it decreases world population?
I’m actually pretty optimistic, for a number of reasons. Not only does development decrease population, it also drives innovation and efficiency. The result is that, at least potentially, fewer resources may be required to maintain a given standard of living.
The ideal, as I see it, is for development sufficient to afford everyone a decent, developed standard of living to become general around the world, concurrently with enough of a decrease — driven by population decline and increased efficiency — in resource use to allow time for development of practical alternative resource technologies.
I think there’s a fair chance of that happening. Even if you take the position that the present global economic model requires abundant supplies of cheap oil, “cheap” evidently includes costs of close to $100/bbl, which don’t seem to be having any drastic effect on the world economy as yet. (The impetus for the coming slowdown will be the exhaustion of exotic financial fuel, not expensive actual fuel.) And there are practical substitutes for traditional, liquid reserves of fossil petroleum that are economically viable at less than $100/bbl. That ought to give us more than enough time to develop a truly sustainable resource economy for a smaller, stabilized population.
Don’t panic, in other words. Unless you’re a FB, in which case by all means panic enthusiastically.
Thomas, really interesting post. Thanks.
The third world still needs more births per female than the developed world for zero population growth, but their fertility rates are trending down to it, quickly.
As Thomas mentioned above, the problem in the developed world is that our economies are increasingly set up to REQUIRE population growth to function without disruption.
In Europe where the local populations are much farther along than in the US toward far less than zero population growth, and are also more dependent on population growth to support entitlements, is where the economic/societal strains will likely be the largest (first). Collapsing socialist systems or huge in migrations… or both at once?
Some UN data
Total Fertility Rates
Asia (excluding Middle East)
1960-1965 … 5.62
2000-2005 … 2.43
Europe (Including Russian Fed.)
1960-1965 … 2.59
2000-2005 … 1.41
China alone (incl. in Asia above, here less Hong Kong and Macau)
1960-1965 … 5.72
2000-2005 … 1.70
Somewhere above 2 is replacement rate. (2.1 or so for developed countries, IIRC)
Source
Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, 2005. World Population Prospects: The 2004 Revision. New York: United Nations.
http://www.un.org/esa/population/unpop.htm
I’d like to be as optimistic as Thomas, but I do differential equations as a career. I’ve monitored telemetry during an airplane crash. The aircraft had a better trajectory. The societal disruptions required to “pull this one out” are going to be “interesting”.
You frugal/thinking people get procreating or the FB genes will take over the world! Seriously: once their credit cards are cancelled, what else are they going to have to do?
jetson
intersting comment re the cheap chinese tools. I recently purchased a Hitachi Chop saw from Lowes, after mulling it over for a few weeks, comparing other saws, brands, poking n prodding the shelf displays. Not having any formal construction/shop training, I splurged for the laser model, figuring I needed all the techo gizmos available to help keep all my digits in place during use. (If my postings start missing letters you’ll know this didnt work so good)!
It seemed to me that the other few brands like Black & Decker were less expensive while reflecting poor quality. I’ve had very good history w/Hitachi electronic products, so I surmised their attn to detail and quality would most likely carry over to construction tools. I know Hitachi is japanese, but I’m just sayin that yer right in noticing build quality in relation to price.
Been looking at the 10″ HItachi table saw for next purchase. Almost ready to buy, I just need a lawyer, buyers agent, title insurance, a St. Joe statue to proceed.
Oh wait, its just a saw, not a house.
The interesting thing about “Chinese tools” is that these days no matter what you buy, you’ll more than likely be buying a Chinese made tool. I sold power tools before I got a job as a graphic designer. This was 4 years ago. Back then, Dewalt, Porter Cable, Hitachi, and even some Black and Decker tools were made in their respective national origins. Towards the end of my tenure as a salesman, almost all of those brands had closed their shops and converted manufacturing in China.
I think what would surprise many people is exactly how that many of the higher quality, even pricey items are now made in China. Some of the quality is spot-on. At the same time, some of the worst crap is slung out of there.It really is all over the board which is intresting since when Japan first became an international player, it seemed like their products by and large improved drastically and all on the same level. This isn’t the case with China.
Another interesting thing is to look at some of the cars now made in China. The Chinese designed and made Buick Park Avenue is actually a quite stunning sports sedan that rivals BMW. It costs $40,000 US dollars, has a wine chiller, and heated seats. It has a very aggressive design.What’s more is that Buick is one of the best selling brands in China and the brand caters to upper execs and the new rich. A total contrast to the meaning behind the marque in the US.
One day we’re going to wake up and realize that China has bridged the quality gap. I suspect in some ways that has already been reached but we don’t see it since we buy mainly US and import (Japanese and European) brands that are actually made in China, hence hiding behind their nameplates.
Once the image of quality becomes associated with China, it’s all over for whatever remains of US manufactures.
I worked on a TV for the manager of our local Harbor Freight. When I told him I liked his store for throwaway tools he showed me a notebook he had of pictures in catalog’s of name brand tools and then the picture of the Harbor Freight tool. He said that a lot of factories work 2 shifts in china. One for a name brand, then at night they crank out the same thing under a generic brand. He said that the only thing different was the quality control and the price. I can concur that I’ve seen the exact same thing in HF and Lowes for wildly different prices such as the wet saw I got from HF for 34.99 vs the exact same (color, switch, and everything) from lowes for 69.99.
Exactly. I shake my head when people believe that country X has a lock on quality. The US used to laugh at the quality of products made in Japan, then Taiwan, then Korea in cars, electronics, etc. Then when the quality improved, the US laughed at their lack of innovation. Now, as we hit the 21st centuries, who are the premiere brands in these areas where the US used to laugh at these companies and where are they from?
You start on the low-end first, you learn your craft, then you learn how to improve, then you innovate.
The US is living on memories, not reality. People here like to blame the politicians and corporations, but I have no problem placing an equal amount of blame on the general citizenry who have think the status of the US is an entitlement rather than a reward.
“By raising rates further China could risk boosting the value of its currency, the yuan, too much for the comfort of its exporters, a critical part of the Chinese economy.”
They can contain the effect on export prices by adding a little more lead to the paint that goes on the toys.
Or more to the food we get from there.
“The lending freeze shows how the slowing U.S. economy may be complicating Chinese policy making. Lower interest rates in the U.S. give Beijing less room to push up rates…as China already has done four times this year… without creating a ripple effect.”
“By raising rates further China could risk boosting the value of its currency, the yuan, too much for the comfort of its exporters, a critical part of the Chinese economy.”
So is anyone else here wondering if this was the Fed’s goal all along?
These and other statements by the economist POS known as Bernanke continue to reinforce my belief that he is simply a clueless academic without any grasp of practical economic causes and effects.
Sorry, but this kind of inside-the-Beltway disregard for reality tweaked me when I worked in D.C., and it hasn’t gotten any better since I left.
Would the $1m GSE-securitized mortgage guarantee qualify as ‘low hanging fruit?’ My guess to the answer would be a resounding YES.
THE FED
Stern warns against knee-jerk subprime regulation
No ‘hanging fruit’ for regulators, Minneapolis Fed president says
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal regulators should be cautious in efforts to craft a regulatory response to the disastrous subprime mortgage meltdown, Minneapolis Fed President Gary Stern said Sunday.
Stern said he was not defending the status quo but simply urging caution.
“My comments … are meant to suggest that there is likely little, if any ‘low hanging fruit’ to harvest and that, specifically, reforms may well impose inefficiencies and other costs of their own,” Stern said in remarks prepared for delivery to a conference on credit-market risk in Singapore.
Stern is the longest-serving of the 12 Fed bank presidents.
http://www.marketwatch.com/news/story/stern-warns-against-knee-jerk-regulation/story.aspx?guid=%7B1F69C377%2D23FC%2D4A9D%2D964C%2D5EE21ABBACAD%7D
He doesn’t have to worry, the market response is far worse than any regulations they can come up with.
IMHO he is hoping to get more subprimes in houses. Just what the F’d banks need, more losses.
Speaking of Fed stupidity:
Nov. 18 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the dollar’s decline hasn’t affected the global economy and is a “market phenomenon.”
“So long as the dollar weakness does not create inflation, which is a major concern around the globe for everyone who watches the exchange rate, then I think it’s a market phenomenon, which aside from those who travel the world, has no real fundamental economic consequences,” he said today.
Evidently the moron hasn’t bought any groceries or gas lately.Thank all the tools who bought houses the past few years for higher gas prices.Our money isn’t worth as much to the people we buy oil from.
Actually he is technically correct. The dollar weakness is not causing inflation. The dollar weakness is a result of the inflation of the dollar supply. By him and his heirs.
doesn’t this seem like the biggest scam ever?? i mean, i’ll make you a loan of any size you want, and i don’t really care if you can pay it back or not, so i won’t ask if you can.
“The banks could also face legal liabilities for not disclosing these issues fast enough. Under U.S. Securities and Exchange Commission rules, banks are supposed to notify shareholders of a material event within four days of learning about it.”
Bahahahaha! Yeah, right… Like Shrub’s SEC is really going to take enforcement action here. They’re a total pile of bernanke in that respect.
The lawyers will pick up the ball the sec dropped, all the way into the end zone for a td!
Except that approach didn’t really work out very well after the dot com implosion. The shareholders still got screwed, although to be honest, I didn’t have much sympathy for most of them.
Makes for some rich lawyers, though. BKX is at a critical support, my guess is they will support the bank stocks at all cost.
http://stockcharts.com/h-sc/ui?s=bkx
There is no “they”. There are bottom pickers, short coverers and fund sellers.
The most redeemed mutual fund is Vanguards S&P500 index with fund draw downs of 12%. 40% of the S&P500 is financial. It is possible that this may be a double bottom and that the banks could have a 10% bear market rally. But until the banks start reporting some accurate risk assessment there is no reason to buy and the funds are selling. If you wish to get long for dividends, one is better off buying the banks debt and shorting the stock.
I don’t think the SEC has to do the suing.
The SEC was negligent and is in a fiduciary responsibility to promote the accuracy of the information reported. The SEC failed its duties.
We’ll find out soon enough that this was WAY too big (and fast) for them to handle.
Think Pink:…Chrissy Cox wears pink short sleeve shirts while strolling & shopping at “Fascists Island” in Newport Beach, CA…his hometown.
Unfortunately, there are no RE agents with Joshua trees stuck up their you-know-whats in this video!:
http://abcnews.go.com/Video/playerIndex?id=3882563&affil=wsoc
A consumer-led recession, with a 3 percent decline in spending (the most since the 1970s, is in the cards thanks to the end of home equity extraction.
http://www.msnbc.msn.com/id/21838083/
“The subprime crisis, however, marks the beginning of the end for the long consumer borrow-and-buy boom. The financial sector, wrestling with hundreds of billions in losses, can no longer treat consumers as a safe bet. Already, standards for real estate lending have been raised, including those for jumbo mortgages for high-end houses. Credit cards are still widely available, but it may only be a matter of time before issuers get tougher.”
“What comes next could be scary—the largest pullback in consumer spending in decades, perhaps as much as $200 billion to $300 billion, or 2%-3% of personal income. Reduced access to credit will combine with falling real estate values to hit poor and rich alike.”
And since much of consumer spending is baked in — the value of occupancy of owner-occupied dwellings and health care paid for by the government and insurers, discretionary purchases outside of food and energy will take a massive hit.
China will not be unscathed.
“Today, imports of consumer goods and autos run about $740 billion a year. That’s fully one-third of consumer spending on goods outside of food and energy. As a result, most of the spending cutbacks won’t cost Americans their factory jobs — those factory jobs have mostly fled offshore anyway. Workshop China, in contrast, will get hurt.”
Bloomberg agrees.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aS8qyeqQhtXk&refer=home
Affluent consumers, pinched by shrinking stock portfolios, falling property values and smaller bonuses, are behaving like their less-well-off peers: They’re reining in spending. That portends a steeper slowdown than originally forecast for the U.S. economy, or even a recession, because the richest fifth of American households accounts for almost 40 percent of consumer spending, the main engine of economic growth.”
What I first recognized as a late-1980s type housing price bubble, which I then learned to be part of a financial bubble, may in fact have been the last leg of a 25-year excess consumption boom. Remember the 1970s? Next years is probably going to hurt.
Didn’t I see in bits & buckets that the upper 20% spend 60% and they’re doing better and better. If it’s only the lower middle class and poor that are suffering, will the consumer fueled economy keep plugging along? I see all the financial bonuses will be even higher this year - $38 billion ($36 billion last year). The rich get rich and the poor get children (the original lyrics).
Class warfare is childish. The bubble hit everybody, high end homes are dropping faster than any other price range.
I think you need to discount the FBs from the “everybody”. People who bought a zero-down house and then “lost it” (boo hoo!) are the WINNERS here! They got income tax free, when the Government decided that forgiven debt isn’t income.
The only victims are people with money in US Bonds, Equities, and savings accounts. No sensible count of personal “net worth” counts any imagined value in a primary residence.
So, if people with bank accounts are “rich”, then I guess it did affect the rich.
I fail to see how the non-saving, not tax-paying classes of the “poor” and “lower-middle class” are affected (yet! They will be during The Greater Depression.)
If “class warfare” is so childish, then why do those who declared it (those in the wealthy class) continue to wage it?
Your question is invalid as it includes a false statement.
Nice duck and weave. I see it doesn’t take much to stump the rogue loons.
There is nothing “childish” about class distinctions and the growing disparity between the top income levels and the rest of the country. Political and social stability in this country have been premised on a large middle class, straddling the union workers and skilled blue collar workers through the professional classes (doctors, lawyers, etc.). We’ve largely outsourced the middle-class blue collar jobs, we’re outsourcing the middle level pink collar jobs, and the professional classes are feeling heat as overseas rivals take on marketing, engineering, design and IT jobs. And it continues. The housing crash will rout a great number of folks who thought themselves middle class…as the reality of their economic prospects becomes clearer, political and social tensions are bound to grow. We’re walking into a hard economic winter, and few of us, FBs or not, will be unaffected.
““The banks could also face legal liabilities for not disclosing these issues fast enough.”
Assuming of course that these banks have told us the whole truth *yet*. For all we know (and many of us *assume*) the banks are still sweeping the really scary numbers under the carpet.
The bigger question of course is: Does Bernanke know, and is he even capable of assuming? Or is he lost in his ivory tower of official statistics and doctored numbers?
Because if this problem is 2x, 3x or 4x bigger than Fannie Mae, Citi and Merrill are currently claiming then at the very least lets hope those in charge of economic policy are not flying in the dark.
Any bets on the next Fed move? I’m starting to think a 25 bp cut, contrary to the last statements by the Fed.
30 yr trading under 4.5%
this is a total disaster.
IMO, the talking heads and wall st miss the point on yeilds. With gold where it is, the dollar having fallen, oil, etc, why the falling rates?
Over the years, as interest rates declined the Treasury, under both Clinton and Bush, moved more and more of the Treasury Debt from long term to short term. There is a “supply” problem with respect to long term Treasuries. (The Bureau of Public Debt has on-line the Treasury maturity schedule.) The Arab oil governments and central banks may now be the only buyers of long term Treasuries but their purchasing power is large relative to supply.
Short-term Treasury yields are falling as retail and institutional investors move from risk debt, including Money Market Funds, into T-Bills.
I wouldn’t take a position based on Treasury yields remaining low. The fundamentals (falling dollar, falling tax revenues due to recession, increased government spending) indicate that rates will rise. The best place to park cash safely is insured, short-term CDs.
So, what do I do with my 401K money? My options are treasuries, bond funds that hold MBS and ABS, or a variety of stock futual funds.
What to do with that money? CD or gold or oil is NOT an option.
One option - if your broker supports it (I think maybe just Fidelity but there may be others), is the gold mutual fund FSAGX.
Treasuries aren’t going to get you much of a yield and you lose the tax benefits but they are extremely safe - a lot safer than stocks and bonds funds at this time. Be glad you have Treasuries as a choice - imagine a “stable value” fund run by Merrill Lynch or Goldman Sachs or bad bond and stock funds only. You can put them in for a few months (the shorter the better as i-rates may go up :D) for now until you have a better idea of the fallout.
How is this — rather than demanding higher yields, the remaining savers are reducing the number of people to whom the are willing to lend. You still have too much money chasing too few borrowers, because the number of relevant borrowers has collapsed.
The model for us is Japan. We’ll have a US version of Japan’s ZIRP before you know it.
Economic responsibility isn’t a dial that you can crank up to 10 after years of being irresponsibly set at 0.
Lending standards will improve, but central-bank monetary discipline won’t be coming our way for decades.
I’m thinking the “supply” problem of 30-yr Treasuries being rare is also affected by the typical “prerefunded” muni issues — a municipality will borrow a gazillion dollars from the public, use the proceeds of the loan to buy that same quantity of 30-yr Treasuries, use the diff between Treasury interest and muni interest to do the actual public works that were the target of the bond issue. I might have the details wrong, but am quite sure the states and/or cities create a built-in demand for the limited supply of 30-yr Treasuries. This also explains why 30-year Treasuries ALWAYS yield less than 25-year Treasuries. Sometimes less than 20-yr Treasuries.
I’m thinking .25% cut as well. They REALLY want to take control of the markets, but the markets still have control of them.
fnm/fre finally getting hit
still hiring and you get FREE healthcare after 5 years
-tell me these GSE’s aren’t BIG GOV
OT but interesting:
got my Notice of tax rate from the great state of Oregon outlining unemployment tax rate. A little kiss called Special Payroll Tax Offset bumped my tax rate by one tenth of one percent.
Guess what it pays for?
“Special Payroll Tax Offsets are used to fund various state programs, including the Wage Security Fund (BOLI) and the Supplemental Employment Department Administrative Fund (SEDAF). The BOLI fund pays final wages to persons who are unemployed and whose employer could not afford to make a final payroll. The SEDAF fund is used to provide Employment Department services.
Special Payroll Tax Offset will be collected in all four quarters of 2007.”
its not negotiable…. Im a little pissed this morning.
vozworth,
Seriously? I hadn’t heard that. Are you self employed? Oregon always figures out a way. It was good to see measure 50 get voted down by so many people that don’t even smoke! It was one of those “it just might work” type measures they like to try once in a while.
Which means of course that because of these rising taxes you are forced to lay off one employee, and pass the increase to your customers, who will then not be able to hire the laid-off employee whose last paycheck you helped pay…
Ahhhh, Dow below 13,000. Love it. Maybe Hoz is right, we’ll see 11,000 before year end. Wouldn’t hurt my feelings.
But, but… Dr. Bob Froelich said the Dow would be at 15,000 by year on BubbleVision.. He also said oil would drop below $30…How do these guys show their face in public???
Good question…
*****
“I just don’t think we have what it takes to prick the bubble… I don’t think prices are going to fall, and I don’t think they’re even going to be flat.”
Diane C. Swonk, chief economist at Mesirow Financial in Chicago
New York Times, “Trading Places: Real Estate Instead of Dot-Coms”, 3/25/05
*****
Bob Toll (President of Toll Brothers - 2005?):
“‘In Britain you pay seven times your annual income for a home; in the U.S. you pay three and a half.’ The British get 330 square feet, per person, in their homes; in the U.S., we get 750 square feet. Not only does Toll say he believes the next generation of buyers will be paying twice as much of their annual incomes; in terms of space, he also seems to think they’re going to get only half as much. ‘And that average, million-dollar insane home in the burbs? It’s going to be $4 million.”‘
*****
“Will the good times last another year? Gary doesn’t hesitate. ‘Fifteen percent is pretty much in the bag for Orange County in 2006′, he says. ‘It’s impossible for prices to go down this year.’”
******
“Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that ‘South Florida is working off of a totally new economic model than any of us have ever experienced in the past.’ He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.”
New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
******
“Byron Alvarez of the REMAX Real Estate Center, a 27-year real estate veteran, expects prices to jump by 10 percent or more in 2008… Experts believe Northern California home prices will start to rise again over the next 18 months. Waiting for rock bottom, however, could be risky.”
Reporter John Lobertini, “NorCal Real Estate Market Heating Up, Realtors Say”, KPIX-TV April 5, 2006, 6:47 pm
Houses might be $4 million when gas prices hit $200/gal and we’ll be bringing home wheelbarrows full of greenbacks each week and burning them to keep warm.
Ooop, oop, trying to make a comeback. Sometimes a good purge is the best thing for what ails ya, but when someone keeps trying to stick a cork in your a$$, it can be most annoying.
Let’s not forget the job loss and pain to those who advised that the mortgage backed securitization exposure was unwarranted and predicted the credit and liquidity crisis, but were not listened to, as those generating all the money (i.e., those taking on risk without regard to exposure) took the spotlight and got all the praise and bonuses. I am one of them. I may not be able to keep my job, but I do get to say I was right all along. For every bastard that deserves to get fired or take a hit, there are several underlings with potential that will caught up in the mess. Many undeservedly. The only difference is that the bastards have golden parachutes and the dedicated workbees who tried to warn or question what was going on are left with nothing.
The only good thing is I have a large cash position. I pulled completely out of real estate and stock last year. Perhaps I will lay low and come out with my own vulture fund in two years.
“Let’s not forget the job loss and pain to those who advised that the mortgage backed securitization exposure was unwarranted and predicted the credit and liquidity crisis, but were not listened to, as those generating all the money (i.e., those taking on risk without regard to exposure) took the spotlight and got all the praise and bonuses.”
Don’t bother relocating to the public sector to find a more reasonable situation. It works the same way there. The truth is seldom as profitable as the fiction executives/politicians like to sell.
Tim,
That’s what makes these blogs all that much more important! We serve as a permanent record to all that a dedicated group of street smart traders and investors were able to figure this whole thing out just by applying a little common sense!
No Nobel Prize winning technical revolution required. We also serve as a warning to those looking to create “the next big thing” and the MSM is now well aware of presence as well. Sometimes, “whistle blowing” from the inside is viewed as insubordination! (At least I’ve never had it work for me). Too bad a lot of the REIC employees didn’t salt away a few bucks too. Thankfully you did.
Nope P: I just noticed they were able to get it to edge back up to 13005.
Off-topic, but I’m not sure most HBBs read the bits in the afternoon…
I’m engaged in a debate with a co-worker over rules of thumb. If a SFH rents for X, what figure should X be multipled by to get a reasonable sale price? I’ve seen 100 tossed about, but that seems to be an awfully low threshold in the DC metro area. In fact 200X seems around where we were in say 2002. Anyone care to share the guidelines you would suggest as a historical norm?
My family has been in apartments for over 50 years. We have always used 100 times rents as a maximum for purchase.
We are not buying much right now and have been net sellers since about 2000.
In fact 200X seems around where we were in say 2002.
But that was still not normal.
Compare it to a FDIC insured CD. If you buy SFH with cash, you expect a rental return in excess of what you could get in a CD. A CD paying, say, 5% in 12 equal payments over a year had better be smaller than the rent, otherwise the smart bet is to go get a CD.
Put another way, 240X is what you get from a CD. The rent better compensate better than that. 200X is not enough to cover taxes, upkeep, insurance, vacancy, etc. 100-120X is the common rule of thumb.
Reasonable SFD rent multipliers vary widely by part of the country and neighborhood within an area. Anything from 100X to 200X seems OK. In 1996 I rented a 1-year old townhouse in Northern Virginia outside of the beltway but in Fairfax County for $1000 per month. At the time the property had a market value of $150k to $175k. The Northern Virginia residential market was at a bottom from 1995 through 1997.
PS I bought a townhouse farther out in 1997 and sold in late 2005 (just missed the peak).
Why use rent as the barometer? I thought purchase should be no more than 3X income. BTW, is that income # gross or net? And, when looking at monthly payment, should one include, taxes, insurance, repairs & maintenance?
Why use rent as the barometer?
Because your income only determines what you can afford to pay, not the value of the underlying asset. To put it another way, just because I make $100K/yr, doesn’t mean I’m getting a good deal on a $300K house. I can afford the house at 3X my gross income, but if the house rents for $1000/mo, the the true value (for an investor) is probably $100K - $120K. The 100-120X gross rent rule is really just a guideline to provide a rough valuation method.
Bingo, as someone who makes more than 3x the “value” of the home I live in, I still choose to rent, and will choose to rent until prices come way down (or rents come way up).
So what if it is DC? There is a certain dmeand for housing based upon population. The price which the consumer will pay depends upon their income.
Rents are going to be higher in DC because of the demand and the ability of the consumer to pay. You are not compaing a house in Alexandria with a house in Appomattox so you do not need to adjust the multiplier for the location.
If a house rents for X, take that amount and deduct the cost of the insurance and the taxes based upon owner occupancy with a homestead exemption. That is what is left to pay the mortgage. Figure out the amount of a loan where the adjusted amount (after the 2 deductions) will make the payment as if you put 0 down on the purchase. There is the value of the house.
Here is a way to estimate the real estate taxes as a % of the rent.
(1) check on the tax rate.
(2) check on the appraised/taxable basis formula.
In my area, here is how it works:
Sale value = taxable value so a house sold for $100,000 is appraised as having a value of $200,000 with the taxable value of $100,000. (They inflate the taxable basis.) The tax rate is $40/100,000 of taxable value. Homestead exemption is 50% of calculated tax. FInal property tax = {($100,000 divided by 1000) x $40} x .50 = $2000 or 2% per $100,000 of taxable valuation.
Here is an example:
Rent $700/month
Insurance $55/month
Property taxes with homestead exemption $166.66/month
Amount available for mortgage payment = $478.33 which would cover a 0 down mortgage for 20 years of $64,768 at 6.38% for 20 years.
$700 in rent is a 1::92.5 ration to the valuation based upon mortgage payments. This ratio will change depending upon the tax rate.
Even if you are buying the property for cash or putting more down a large amount, you still need to take into consideration the earning value of the money if invested.
The mortgage deduction is, right now highly overrated. If you are paying a mortgage for, say, $400,000 that carries a total of $25,000 in interest alone in one year, that deduction is only worth $7000 to someone in a 28% bracket or $583 a month - a sum which will pay the roofer, the plumber and all the other things that need fixed on a house.
Mortgage deduction is worth about 2 payments a year for me — that’s how I figure it. Or — it reduces my effective interest rate by 1.5% or so. I kind of see it as nice bonus. I use the money to pay down the mortgage further.
But — it certainly doesn’t fix making an overpriced or uneconomic purchase. My Mom thinks everything that is a tax deduction means you get all the money back. Needless to say, Dad/accountant does the taxes.
It seems perhaps retail investors are no longer “Yield Starved” like they were in the early 2000’s? Back when the NASDAQ was on it’s way to triple digits and mmkt returns weren’t even a whole number, the dollar flow toward MBS’s was relentless!
Now that there are endless choices of equity-based ETF’s (with the… “potential” for upside) and ZERO Int. Rate Risk WhoTF needs MBS!? I mean, c’mon. With monthly pay-outs of 8-9%+ why would anyone in the right mind throw a dime at MBS? Now OR… in the future?
What?? Where do I get an investment vehicle with a monthly payout of 8% or 9%? Or even an annual payout like that? Are we talking about … LEVERAGE? In that case, I respectfully decline to participate and get wiped out by the next mkt downturn…But seriously DinOR, what ARE you talking about? I get 9% from retail mortgage clients (reliably), but would just as soon get it without working for it. Hence my liberal loans to the governments of Brazil and ICeland…
“The loss is one of the first major subprime-related hits reported by a reinsurance company. ‘The full effect of the U.S. subprime crisis is finally washing on the shores of Continental Europe,’ said analyst Catherine Stagg-Macey. ‘Up to this point, the U.K. financial services firms had taken the brunt of this storm.’”
I may have missed any previous discussion on this, so I’ll ask what others think or suspect.
I have the strangest feeling that the terms “sub-prime, and Alt-A” have had their definitions changed in the last few months, and that there are a growing number of what used to be considered “Prime” loans that are being lumped into these catagory labels. It would seem quite easy to do since these debt instruments cannot be clearly deciphered.
What do all of you think/suspect?
Jim
I think the reality is that over the past 2 years, the labels changed. Many loans that would be considered subprime in 2000 or before were characterized as “Alt-A” or “Prime” in the height of the madness. It is certainly possible that they are now putting the proper labels on the loans to protect the already fragile and beaten psyche of the US housing consumer.
Try to imagine the sheer magnitude of people who fell for the ol interest only loans, believing they would buy up or out in 2/3 years. It’s kind of like, it’s the ATMs stupid! (not you) Have you seen the chart?
http://www.smugmug.com/photos/136440158-O.png
Best,
Leigh
I hadn’t seen this chart. Thank you Liegh.
This goes beyond worrysome (contained) and definitely breaches terrifying.
I see what you mean by protecting the “fragile and beaten psyche of the US housing consumer”, Rental Watch. It’s as though by containing disaster to sub-prime/alt-a, J6P may believe he’s actually prime, and may only slow down consumer spending until he finds out that he’s got no funds left.
Whoh, that chart is scarier than I thought. This first wave is subprime. Even though subprimes got loans later in the bubble, they’re resetting sooner. But all hell is going to break loose in the next wave, when even the primes (looks like cash-outs) are going to go down, just when the builders and subprimes have destroyed the comps. And all those option ARM’s…bye bye banks.
Thanks for posting this again Leigh. Some of us have been looking at it for 8 or 10 months, but it’s good that someone should post it on this board every few weeks for anyone who has not seen it before. It tells such a powerful story.
You’re welcome Az
It’s all about exotic loans. It doesn’t matter a whit whether the buyer was Prime or Alt-A or subprime. It all depends on whether they had the income to make the payment, either now, or when the exotic loans reset.
At the end of the day, the $120K guy in the $1M McMansion will be just as subprime as the $32K guy in the $280K condo.
IndyMac Volatility
I’ve been short IndyMac for 18 months and have noticed that the price now fluctates 5% to 10% within a trading day. The volatility is greater than that of gold mining shares! I’d appreciate an explanation of these major intra-day price swings.
PS My target is to close the position at 5 or June, 2008, whichever comes first.
Clearly you’re on the right side of the trade (despite dividends too), but wow, that seems like a long time to hold a short position. I think my broker would charge me for holding a short for any length of time. Who are you with? Looks like you won’t have to wait until June to see 5.
‘Home builders‘ confidence stayed at record low levels in a November reading released Monday, as a slight uptick in buyer traffic was balanced out by a slightly more pessimistic view six months down the road.’
‘The overall National Association of Home Builders/Wells Fargo index was 19, which was the same as the upwardly revised October reading.’
‘The index measuring how builders view buyer traffic edged up to a reading of 17 from 15 in October. But the subindex measuring builders’ view of the market six months from now slipped to a record low 25 from 26 a month ago.’
Builders have widely reported offering incentives such as covering closing costs and extra features on a new home for free in order to spur demand.
“Many are reporting that their special sales incentives are having limited success in terms of getting buyers in the door,” said a statement from NAHB President Brian Catalde, a home builder from El Segundo, Calif.
He said builders are particularly concerned that negative media reports about the weak housing market are dissuading buyers, and fueling unrealistic expectations regarding home price discounts. Those reports are helping to spread weakness from troubled housing markets with a glut of homes available to more healthy markets, he said.
why are they blaming the media for their rotten sales? cant they realize that most of their previous sales were to specuvestors! and that pool of buyers is drying up!!
“Many are reporting that their special sales incentives are having limited success in terms of getting buyers in the door,”
We got a postcard from Ryland for a “weekend sale”… it arrived a week after the sale weekend. Shucks. Guess we’ll have to wait until next year.
Sorry for the repeat from the bits bucket, but given that the NAR almost always releases its quarterly metropolitan area data on the 15th of the month, why will it come out on the 21st — the day before the four-day Thanksgiving weekend — for 3Q 2007?
I’m not usually a conspiracy theorist, but I wonder what’s going to be in the numbers? Might enough houses have sold at market across all housing sizes to bring the medians down?
“I’m not usually a conspiracy theorist”
The number will be just fine, but please do not look behind the curtain.
Well after they revise last months numbers up… everything will be right in line with Yun’s expectations.
Has the Wall Street investment banking business turned into a survivor episode?
I am wondering what are the implications of the deteriorating balance sheet (and off-balance-sheet) picture at Big C and rivals for the viability of the Superfund SIV? How will they figure out the nonmarket value of the assets that get dumped into the Superfund SIV given ever-worsening credit woes?
THE RATINGS GAME
Goldman says sell Citi amid credit woes
By Greg Morcroft, MarketWatch
Last Update: 10:26 AM ET Nov 19, 2007
NEW YORK (MarketWatch) — Goldman Sachs analyst William Tanona on Monday recommended that clients sell Citigroup shares, because the bank’s financial problems are likely to grow, and spread beyond current write downs for subprime mortgage losses and into its consumer business like credit cards and retail banking.
He said, those issues, combined with an ongoing search for a new CEO and growing concern about possibly having to trim its dividend preclude any “quick fix” for the shares.
“The lack of leadership at this point in Citi’s storied history could not have come at a worse time. With deteriorating consumer and housing metrics, Citigroup is facing mounting pressure across many businesses,” Tanona said.
http://www.marketwatch.com/news/story/goldman-says-sell-citigroup-amid/story.aspx?guid=%7BF0EC293B%2D5D07%2D4C83%2DAA9D%2DE86C868136C6%7D
“‘Citigroup’s credibility with investors is in shambles,’ shareholder Jeffrey Harris, claimed in one such suit filed last week in U.S. District Court in Manhattan.”
And if investors’ credibility with Citigroup had been the same, perhaps we wouldn’t be in this mess.
“At least nine shareholder suits have been filed against Citigroup Inc and Merrill Lynch & Co Inc executives in the last month, after the firms announced big write downs.”
Boarding now for non-extraditionville, the plane is about to pull away from the station…
“At least nine shareholder suits have been filed against Citigroup Inc and Merrill Lynch & Co Inc executives in the last month, after the firms announced big write downs.”
Boarding now for non-extraditionville, the plane is about to pull away from the station…
Goldman Sachs is advising a sell on Citibank? WHoaaaaaa. ..
Ok Ok, correction: CITIBANK. there now, simmah down all you nattering nellies.
“The loss is one of the first major subprime-related hits reported by a reinsurance company. ‘The full effect of the U.S. subprime crisis is finally washing on the shores of Continental Europe,’ said analyst Catherine Stagg-Macey. ‘Up to this point, the U.K. financial services firms had taken the brunt of this storm.’”
Yet another…
Swiss Miss
Lordy Lordy old habits & distraction to the SMUD crew outside leads to typos. update to CITIGROUP. aight now?
http://www.nytimes.com/2007/11/18/nyregion/18towns.html?_r=1&bl&ex=1195534800&en=0ae1ba5e8549db3c&ei=5087%0A&oref=slogin
Funny Songs Are Inspired by Sad Times for the Rich
“At Georgica Beach, one windy morn/A mortgage bond trader sits forlorn/In the Hamptons.”
It’s true that the country singer Merle Hazard has never been to the Hamptons.
Jon Shayne, as Merle Hazard, performing a satire on the woes of hedge funds and the Hamptons in a video on YouTube.
Merle Hazard Meets Arthur Laffer and Sings “In the Hamptons”
But he does bill himself as America’s first and only country music star to sing about mortgage-backed securities, derivatives and leveraged buyouts, and he slightly knows the economist Arthur Laffer, best known for the supply-side Laffer Curve beloved by anti-tax conservatives.
Hence Mr. Hazard’s credentials to be the auteur behind the YouTube music video “In the Hamptons,” one of those marvels of instant pop culture likely at some point to be forwarded to an inbox near you.
Eh. Hazard is just a little too gentlemanly to really run with the material. Somewhere there must be a hip hop rapper whatever with enough anger and enough smarts to take on the material and truly disembowel a few targets, but don’t look to familiar music or comedy faces. What we’ll get instead is Springstein or Mellancamp coming out with some dreck album bemoaning the loss of homes and corporate/government pensions - almost clued in…but not really so much.
the youtube video link:
http://www.youtube.com/watch?v=B8PwqQ5guYk
US vs China
US has a large illegal population it can dispose of in a major economic downturn.
China has more young males who will need to be absorbed into workforce or Army.
The US gov’t has proven it lacks the will or capability to police its own borders, much less “dispose of” the 11 to 20 million illegals in this country. Since they didn’t accomodate Uncle Sam by going through the legal immigration process, I doubt that they’ll be so obliging as to meekly shuffle on back to whatever overcrowded barrio or village they came from south of the border.
I have a feeling Atzlan and the Reconquista are going to get a major boost from the legions of unemployed illegals who reason that instead of going back to no-future Mexico, they can re-expropriate their “stolen lands” from the gringos.
http://www.numbersusa.com/index
The employers will be held accountable when the voting public is in danger of losing jobs to illegals. I remember the outcry against H1b’s after dot com bust. This was just after the election and George Bushes free trade policy.
Now imagine what will happen with illegals and general election round the corner. George Bush will get Conservative base fired up by holding up laws.
Or perhaps a crime wave attributed to illegals.
The story in Texas is still that illegal crime rates are lower than that of the general population. I’m willing to accept that statistic, so far. As long as they stop stealing trusting co-eds cars and burning them with the owners body inside.
Then we have a local Dallas suburb deporting at a rate of 1% of its population/year simply by referring those with iffy status who come into incidental (and otherwise) contact with the Irving, TX Police Department to ICE. We have an illegal door-to-door salesmen who has his mother drive him around due to fear of coming in contact with the police. The Mexican Consulate in Dallas advising its citizens to avoid the city of Irving. I would be surprised if this policy persists through the next election cycle, given that Irving is 40% Hispanic.
Unless the crime rate among all illegals starts to increase for some reason, making their pubic relations campaigns harder.
Or perhaps the legislative activists are being distracted by another suburb which is trying to impose penalties on land lords who rent to illegals. (Full circle to on topic?
)
We don’t need to round them up and ship them back. We just need to get VERY serious about making it very hard for them to get jobs.
The first step is ensuring that their IDs have real Social Security numbers that match their names. Then we need to track how many jobs people have, and since we have their address for tax purposes, double check with them when they “get a new job” to combat identity fraud.
Mr. Smith… our records indicate you work as a computer programmer, and it was just reported that you took a job as a landscaper for Jose’s Lawn Care. If this is not you, please contact us immediatly as you could be liable for all taxes on income reported to your new job position.
Then, we go after business that “work with” independnat contracotrs… 1099s. Yesterday’s artcle about layoffs based on I9 reviews had an owner of a taxi company that caters to the hispanic market braggig that since most of their workers are independant contractors (1099) she doesn’t have to do I9’s, making her virtually immune from the new law putting sanctions on businesses that hire illegals.
Sure, we’re never going to stop a home owner from driving into a Home Depot arking lot to pick up a couple guys to spread the gravel in his side-yard or repaint the trim on his house… but we can slice the number of illegal workers DRAMATICALLY by going after the jobs.
They come here for work, and if we can lock down the jobs, they’ll go home on their OWN!!!
Arizona is already trying their own experiment with this idea, correct?? (Or is it Nevada…)
All day today, CNBC is running story after story on how great Dubai is. Heck, they just had Erin Burnet trying on a burka… It’s really confortable and not as hot as it looks….
Why do visions of Sarajevo and Beruit come to mind?
If they like it so much why don’t they move their studio there?
Only interesting idea I have with burkas is how would men judge suitability of women for relationships of any type if they couldn’t see them? What would happen to all the industries that revolve around women pathetically trying to gussy themselves up to attract men?
Arranged marriages are still the norm in much of the world.
I know this makes me politically incorrect, but the whole reasoning behind a burka makes Muslim men look totally pathethic. I have noticed that the vast majority of males I know manage to function and interact with women who have the audicity to show their face and occasionally quite a bit more. I have no idea what what men are thinking about, but I do know they don’t spend 24 hours a day boinking if that was their preference.
Aparently, however, in orthodox Islamic countries men can’t make it through the day unless unless the women turn themselves into laundry bags. With that much self control, I’m sure those mollahs are quite the catch.
yeah it is pathetic…
multistupidism is a big problem - lefties love it
my local school has brail in 7 languages
“multistupidism is a big problem”
The LA times has a story today about some LA School District chump called Fonseca who decided to hold the parent council meeting in Spanish. Caused a real outcry from the Americans there.
Ben thanks to you again for your work.
My favorite post of each day is the news from Wall Street and Washington. It gives me some good perspective on what will ultimately be hitting every housing market across the country. Driven up by free money, prices will come down eventually in every market, as it becomes more and more clear that free money is not coming back for a long time. And that tone is set by Wall Street.
In any event, my gut feel is that we are at the precipice of some big events that will makes things even worse. Regardless of everything that has happened so far, we have not seen any big names go under, or be bought just before an inevitable BK. Before this is over we will see some of this–and that will mark a point in time where things are really trending downward quickly.
It feels to me like that moment on a roller coaster where the last car going over a peak is completely released from the chain. We are already going down at an increasing pace, but we haven’t hit free-fall yet.
Oh amen to that brother! I’ve been using this exact roller-coaster analogy to everyone who will listen (and a lot of people have started listening in the past two months as the MSM starts getting on board with what we have been saying here for, oh, the past two years now).
Good analogy.
“Ben Bernanke demonstrated the truth of this axiom on Capitol Hill recently when he suggested that secondary mortgage-market giants Fannie Mae and Freddie Mac temporarily be granted the authority to buy jumbo home-mortgages of up to $1 million”
and now…
Reuters
Monday November 19, 11:19 am ET
“Freddie Mac’s subprime losses may hit $5 billion: CS”
Hellooooooo, Ben Bernanke, helllooooo, anyone hoooommme?
$5 billion? Is that for this quarter? Surely their losses will be much,much,much,much,much larger.
Goes to show you that Freddie Mac’s can’t screen loans either ,and the policy makers want to raise the limit to one million ?
I just don’t know why the private sector can’t insure loans to solve their credit crunch problem on the Jumbo loans .If the current loans are so bad and future Jumbo loans might be just as bad ,than why do the powers want to have anything to do with them ,unless it’s a bail out for lenders ?
The Fed Chairman and his Senator friends need to be asked hard ball questions . The Feds have loaned alot of short term money to the banks and apparently the lenders have to keep rolling the Feds discount window short term loans .
I think we now live in a kleptocracy.
Whether you sum it up as “Privatize the profits and socialize the gains” or as “the government is owned by corporation and ensures that the rich get richer”, it is hard to deny that the laws are being selectivly enforced to the benefit of the well healed.
Immigration laws are openly ignored, to hold down wage and increase corporate profitability.
Banking regulations are ignored, mortgage fraud is not investigated, international trade laws are made optional (think intellectual property piracy in China), interest rates are manipulated to keep stock prices high, exchange rates are controlled to protect investors…
Tax funds are used to build stadiums and theme parks so that people that own land in the area can make obscene profits on the value of their land.
People that out covert CIA operatives are pardoned. Millionaires get away with murder (literally). Millionaires get repeatedly caught drunk driving, and they spend 45 minutes in jail.
Stock prices of financial companies fall upto 50% because they have $40 billion in writeoffs, and their execs and traders are still going to get $30 billion or more in bonuses.
The housing market goes into a slump, so agencies with the assumption of being backed by the U.S. Treasury are authorized to buy more and riskier loans to keep the market fluid.
My grandparents paid 2 years of income to Social Security and got back the 5 years of income my parents paid in. Stealing my parents retirement….In addition to their Social Security, my grandparents placed such a burden on corporation through pensions, that corporations have had to stop offering them, further killing my parents retirement. Ben, is that too close to the edge of generational warfare?
The big battle last presidential election was how much from the U.S. general budget would be transferred to Medicare so that it could find its way to the drug companies.
Changes to bankruptcy laws that effectoutstanding balances, effectivly altering credit agreements retroactivly. (and now ideas to alter them again to alter mortgage agreements).
Other examples? Anyone? Anyone?
One that hits me personally. CO had a law that you had to pay child support to the primary custodian on a full time student, until they turned 22. Some dads took it to the Supreme Court that clearly rules it is unconstitutional to force someone to pay child support on an adult (18) or otherwise emancipated minor. So, CO had to fix the law…. They made the new cut off age 19… and gave the child the right to seek child support if they are a full time student until they turn 22. Wait… That is still CLEARLY unconstitutional… I don’t have to pay child support on an ADULT!!!! So, take it back to the Supreme Court sucker!
Should we talk about alimony? That is like being forced to put gas in your old car after it was stolen by your worst enemy.
One that hits me personally. CO had a law that you had to pay child support to the primary custodian on a full time student, until they turned 22. Some dads took it to the Supreme Court that clearly rules it is unconstitutional to force someone to pay child support on an adult (18) or otherwise emancipated minor. So, CO had to fix the law…. They made the new cut off age 19… and gave the child the right to seek child support if they are a full time student until they turn 22. Wait… That is still CLEARLY unconstitutional… I don’t have to pay child support on an ADULT!!!! So, take it back to the Supreme Court sucker!
The Feds and states love to play around with the age of majority so it suits their needs. Could 20 year old child of happily married parents force them to pay for college? I have bones with the entire college financing system because it assumes that a legal adult is still a dependent. (You can vote, smoke, serve in the armed forces, enter into contracts but can you please go get your parent’s tax returns? Their income is still yours…)
I also have bones with the drinking age for the same reason. If someone is old enough to vote and serve then for better or worse they are old enough to drink.
Once they get married or pregnant they are fully emancipted and no longer elegible for support.
Darrell, one thing you have to realize about your grandparents’ generation is that they had the willing collusion of your parents’ generation. At the very beginning of SS, life expectancy beyond 65 was very little, so SS could generously pay a lot of people who had never put much in. In the 60s-70s, the youthful left ALLIED itself with seniors to get a COLA in SS, etc. The thinking was basically socialistic. All of us boomers would do anything to build an alliance with other groups for the purpose of getting the US out of the war in Vietnam. As time went forward, and longevity was increasing, it became pretty clear after a while that the country cannot afford paying SS to everyone for 20 years, and that the COLA is a problem. So the govt redefined inflation to exclude everything that really matters. Well, my point was, your grandparents may have wanted a fun retirement for themselves, but they were not “fighting” your parents’ generation, your parents’ generation just figured the govt could afford everything. And now, anyone about to receive SS would rather receive it in devalued dollars than not receive it at all, or “save” it for YOUR generation. Yawn.
Besides after WWII, the US controlled over 70% of the world’s wealth (according to William Manchester, “The Glory and the Dream”) and so your grandparents could not see any bankrupting system in the future.
and now, not so much.
Best rant ever award!
Just wait until people start to actually question why they should be paying anything to Social Security. Plenty of young people lose a significant part of their paycheck to an organization which they know full-well, will never keep its promise to them. So why allow it to happen? Just wait until young people wise up to the fact that the older generation is [a] lying to them and [b] stealing from them.
Where in the Constitution does it say that participation in this utterly broken retirement plan (ie: scam) is mandatory?
OMFG!
DJIA stays at 12,958.44 for more than just a few seconds. Crash?
Sorry. Didn’t hear bell. I know, I’m an ass.
David Rosenberg of Merrill Lynch summarized expertly the elements of the current USEconomic recession into twenty points. Since he is paid by a Wall Street firm, he chooses to sit on the fence of an outright declaration of recession. Instead he calls it PURGATORY.
1) Real average weekly earnings peaked in January
2) Motor vehicle sales peaked in January
3) Univ of Michigan consumer expectations peaked in January
4) Truck tonnage peaked in March
5) Conference Board ‘Plentiful Jobs’ index peaked in March
6) Construction spending peaked in May
7) Household employment peaked in May
9) Transportation services index peaked in May
10) Bond yields peaked in June
11) Long Beach container shipments peaked in June
12) Institute for Supply Mgmt (mfg and non-mfg) indexes peaked in June
13) S&P 500 earnings per share peaked in June
14) Dow Transports peaked in July
15) Morgan Stanley Commodity Index of cyclical stocks peaked in July
16) Manufacturing orders peaked in July
17) Real manufacturing sales peaked in July
18) Commodity Research Bureau Industrials index peaked in July
19) London Metal Exchange copper inventories bottomed in July
20) Railway car loadings peaked in September