Bits Bucket And Craigslist Finds For December 3, 2007
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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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I thought you guys might like to see what some troll was posting last night:
‘And doesn’t holding off from buying because you don’t like the market price likewise mean you aren’t a buyer, but a person who wishes they could afford to buy what they want to buy … but can’t? Market price is still market price, and the only people fooling themselves are those who won’t acknowledge that its the market that sets the price … i.e., those people who are actually selling and those people who are actually buying. And not those just sitting on the sidelines in either camp.’
‘Well, if you believe a bubble really exists, then yes, the kooky scenario laid out by the bubble myth actually does far more harm to the people who believe in it than to the responsible homeowners who knew better than to believe in such b.s. But fortunately, you may as well believe in the Santa Claus and the Easter Bunny too if you are going to believe in the bubble myth.’
The delusion of these popular manias runs deep.
I have to say that everything in the first paragragh is pretty much true but was twisted into FB/NAR speak when the poster grafted on the following line:
“but a person who wishes they could afford to buy what they want to buy … but can’t?”
That line just shouts out “FB/bagholder/NAR” to my seasoned senses.
The one that I laughed at was the ‘bubble myth.’ Hadn’t heard that in a couple of years. Even Greenspan and just about every major media group/economist openly acknowledges it’s a housing bubble (although they don’t mention they called us crazy for pointing it out in the past.)
Well that’s just confirmation that the poster is the infamous “last sucker in the pipe” if he/she is not aware of the bubble at this stage. Sheesh!
Probably related to the Port St. Lucie CFO that ran into the burning building to deposit $30 million on the same day that the Florida SBA was frozen.
That line about bubble myth got to me too! Sounds like my buddy the real estate “tycoon” with 2 florida condos, a house being built in Jamaica, and 160 acres of timber in Iowa but probably only $40,000 in retirement plans. LOL.
People who are still calling it a ‘bubble myth’ are wearing tinfoil hats!
Please leave their tinfoil in place. We need people to aid in price discovery on the way down, and I’m sure not a willing candidate.
Sounds like a po’d fb, or maybe a realtor.
And he doesn’t acknowledge that the lending environment influences the market price. When fewer people can get a mortgage, I will be able to buy more with what I want to pay. Standing on the sidelines is essentially my assertion that I think lending is going to get tighter - nothing more.
“Standing on the sidelines is essentially my assertion that I think lending is going to get tighter ”
I’ll second you on that one, polly, and add that another reason we’re on the side is our assertion that wages are stagnating and in some cases, may be soon reversing which should add downward pressure on home prices in the long run.
Agreed, though I don’t know that I am going to wait for downward pressure from falling wages to perk through the DC market. Also, of course, staying on the side lines until sellers realize 2005 prices aren’t coming back. That is a big one, too.
And he/she is wrong about sideliners not influencing prices. Buyers are scarce now, and that induces the price reductions we’ve seen nationwide. I went to a few open houses yesterdays, and at each, the realtors asked me “do you know any buyers?” This happens everytime now, and never happened 1-2 years ago. They also now distribute fliers of every house they list, not just the one I’m looking at.
“but can’t?” Answer: but won’t.
When people say bitter things like “‘And doesn’t holding off from buying because you don’t like the market price likewise mean you aren’t a buyer, but a person who wishes they could afford to buy what they want to buy … but can’t?” you know they are a FB.
The saddest part of the story for the dopey troll is I could write a personal check for the typical box in a typical neighborhood.
I’m sure the trolls neighborhood is “different”.
Probably has a community pool.
I know, s/he seems to exist in a universe where cash buyers are non-existent.
His use of “can’t afford” is troubling. There’s a big diffence between being unable to afford an object and refusing to pay for an overpriced object.
LMAO. You can’t make this up.
For those that still believe in the tooth fairy & the real estate market, a little diddy from Crowded House…
http://www.youtube.com/watch?v=dZZfuCJ970w
Either that or he needs to find ten or so GFs on whom to unload his ten or so investment properties.
It’s pretty easy to turn the tables on his first paragraph:
‘And doesn’t over-pricing because you don’t like the market price likewise mean you aren’t a seller, but a person who wishes they could afford to sell what they want to sell … but can’t? Market price is still market price, and the only people fooling themselves are those who won’t acknowledge that its the market that sets the price … i.e., those people who are actually selling and those people who are actually buying. And not those just sitting on the sidelines in either camp.’
The fact of the matter is buyers have all the power now. It’s the reason inventories across the country are exploding and will continue to grow until we reach a sane equilibrium — an equilibrium that will ultimately be set by the buyers NOT the sellers.
‘And doesn’t holding off from buying because you don’t like the market price likewise mean you aren’t a buyer, but a person who wishes they could afford to buy what they want to buy … but can’t?’
During the bubble, those who can’t afford to buy did. During the bust, those who can afford to buy don’t. If the financial industry had done its job, and people only bought what they could afford, there woudl never be a bubble in the first place.
This RE cheerleader has missed the economic point, willingness to surrender consumer surplus on the part of buyers above the market price. There is a entire population of buyers/consumers for a given good, e.g. housing. Each consumer is different in regards to the amount of “consumer surplus” (amount market price that consumer/buyers are willing to surrender to sellers). Sellers want to capture as much consumer surplus as possible. Different consumers are will to surrender different amounts of their surplus to purchase a good. Being that even in this modern cookie cutter era, each house is still different, a home or location may trigger a desire to surrender more surplus. During the bubble years many consumers were willing and able to hand over large amounts of consumer surplus to purchase a home. Now consumers are no longer willing and able to surrender such huge amounts of consumer surplus above the market price. Hence, just like the Sunday coupon section or the auto rebating or tossing in free options/upgrades, sellers need to know focus on consumers who are only willing and able to purchase a good at a price that is not at market but below market price, i.e. a dead weight loss. That loss being accepted by the seller to just move the unit and clear out inventory, just the Detroit has been doing to move cars. The end result of both of these dynamics is a resetting of market price, during the bubble inflation years up, during the bubble burst years down.
“During the bubble years many consumers were willing and able to hand over large amounts of consumer surplus to purchase a home. Now consumers are no longer willing and able to surrender such huge amounts of consumer surplus above the market price.”
Excellent post!
Having a massive inventory glut on the market (e.g., six or more homes all priced similarly that would all meet a given prospective buyer’s housing needs) tends to severely erode a seller’s market power (the ability to capture consumer surplus).
In one sense, the Realtors are right in saying this is a buyer’s market: Prospective buyers currently hold the market power, and can extract producer surplus from sellers. (That does not mean that now is a good time to buy, though, unless one is wealthy enough to afford the pleasure of owning at the price of catching a falling knife.)
Again, his first paragraph DOES make some sense. It ISN’T true that pricing is set by the buyer alone. In a normal market, there is consididerable overlap between the lowest price the seller is willing accept and the highest price a buyer is willing to pay. Determinimg the price within that range is what negotiations and selling/buying tactics are all about. Judging by the number of houses on the market for 9 months or more, there are many cases now where there IS no overlap. I don’t think however, that there is a large pool of homeowners waiting on the sidelines. Especially in bubble areas there are very few buyers compared to the number of houses on the market.
“In a normal market, there is consididerable overlap between the lowest price the seller is willing accept and the highest price a buyer is willing to pay.”
By contrast, there is very little overlap in the current market, as sellers some how missed the memo about the credit crunch, which has pretty much knocked the legs out from under demand.
“I don’t think however, that there is a large pool of homeowners waiting on the sidelines.”
More like a small pool of strong hands awaiting the fire sale.
You made my day, PB.
The consumer surplus that drove the boom was in large part a surplus yet to be realized, now vaporized.
Let’s imagine a world where interest rates climb to 8 or 9 percent on a 30 year loan. Then let’s imagine no one being able to buy or sell a house because that’s what would happen and most likely will and only a sharp downward correction in prices will balance things out.
Good luck bagholders.
Let’s imagine a world where interest rates climb to 8 or 9 percent on a 30 year loan
There are others more knowledgable than I regarding the bond/treasury/mortgage markets and if my take on this is wrong, please correct me… I don’t see an adjustment like that happening anytime in the near future, as long as the FED is more interested in easing rates and paying lip service to inflation. 30yr fixed mortgages tend to track 10yr Treasury yields plus approx. 1.75%.
Even if fixed-rate mortgages break that trend and diverge from the 10yr because of perceived risk in mortgages, adjustable-rate mortgages based on the MTA rather than the LIBOR, will be lower because of FED easing.
Any way you look at it, I just don’t see significantly higher interest rates for prime, non-jumbo mortages anytime soon. If mortgage rates were to increase to the level of 8-9 percent (like they are with subprime adjustments now) you would have much higher foreclosures and an economy in shambles (moreso than now). The government doesn’t want that additional downward pressure given their current bailout efforts. IMHO.
Just came across this on MSNBC… it kind of supports my view that more adjustable rate mortgages will be based on the lower MTA averaves in the future and the FED will drop rates to nothing, Japan style.
http://money.cnn.com/2007/12/03/news/economy/libor_fed.ap/index.htm?postversion=2007120313
But I COULD afford to sell. I owe only 83k on my house. If it lost 70% I would not be bringing a check to closing.
“And doesn’t holding off from buying because you don’t like the market price likewise mean you aren’t a buyer”
Yes, exactly…I’m a shopper at this point, and not a buyer. So what? Is the distinction taht big a deal? Will I not be invited to fancy dinner parties? I’m already shunned from fancy dinner parties as a renter; I don’t think that being labeled a “shopper” rather than a “buyer” is going to do much to my dinner party chances.
I’m just a shopper, yes I’m only a shopper, and I’m sitting here with tons of gold, paper, and copper…
Sorry I missed the troll
I would have said that I will not buy an over priced home.
I look at the home prices in 95-96 and add the percentage of inflation ( from the government data) for each year since then. If there were significant improvements I will add in a few thousand dollars . That is what I will pay.
I had a Realtor turn blue when I pulled out my sheets of government inflation data and a calculator. I had already done the research on the house and knew the price in 1996.
He said that is not how pricing works. The market decides the price . I said. “Well then the ” market” will have to buy this over priced house” and I left.
Inflation is not universal and does not affect all prices equally. It has been well established on this blog that inflation brings home prices down as interest rates go up and other needs limit room in the budget for housing. Housing prices are directly related to wage inflation, population growth, and housing supply. The biggest mistake you could make is assuming that a falling dollar means that all things go up in price equally.
perhaps, he’s young and can overcome such obstacles.
if this bubble is Generationally Removed, his children will know.
Sorry if posted already:
“…Sen. Hillary Clinton is expected to call today for a 90-day moratorium on home foreclosures, as well as a five-year freeze on the rates of adjustable mortgages…”
and
“I’m very pleased the administration is responding to this crisis,” said Mrs. Clinton, adding that she has “high regard” for Mr. Paulson.”
There you go Professor Bear, so much for your Demo-rats, etc. We have big problems in this country and all politicians are at fault.
ask her why she voted for the bankruptcy reform in 05
“ask her why she voted for the bankruptcy reform in 05″
Because of her number one constituent, Citigroup! And where are those self-righteous bankers now, bitching about their deadbeat customers? Freezing assets and selling out to the Middle East.
I’ve always assumed politicians are rats, what I want to know is where the hell are the bond vigilantes. With the threatened removal of free market mechanism in a nation that always gives lip service to free markets, bond yields should be in the teens at the very least. This is a backdoor default on US sovereign debt, via the GSE “guarantee” of mortgages.
My guess: The Fed is deliberately dangling the sword of recession fears over the bond market in order to suppress yields. So long as inflation “stays low” (never mind food and energy inflation) and the prospect of a recession looms, bond yields can remain in a state of suspension between death by fire (inflation) and ice (deflation), and rate cuts can keep the market from freezing to death.
The other part of the “plan”: So long as the stock market keeps going up (and the MSM financial news ignores the steadily-eroding FOREX value of the dollar), everyone will assume the economy is coming in for a soft landing, and hence there can be no recession. Further, higher stock prices are not inflationary, as stocks are assets, not consumption goods. Rather, ever-higher stock prices create a never-ending wealth effect that can buoy the U.S. economy through thick and thin.
Is HC a Democrat?
Yes, and it’s a big love fest with the Republicans now. Funny, I don’t see you denouncing their crazy schemes. There is no good side in Washington, IMO.
You have misconstrued my purpose. I only denounced the “D-rats” to do what little I could to help thwart their bailout plans. It just so happens that the politicians (primarily Dodd, Schumer and Frank) who were leading the PR campaign to dump the toxic subprime loans on the GSEs were all “D-rats.”
I don’t hear those D-ratic Senators talking up that plan any longer, do you?
No, and I said at the time it was mere grandstanding. It is impossible to actually bail-out a market as large as housing, IMO. Sure, some will try to make political hay out of any issue, so this stuff is inevitable, but not worth wasting energy on.
And as I’ve pointed out before, the US will never pay off its debts. The Fed even said so in a report. Everyone should prepare for that.
Can you direct us to that report?? Thanks.
“No, and I said at the time it was mere grandstanding.”
That’s exactly where history gets interesting. Had the GSE-provided bailout plan gathered momentum and passed through Congress (thanks in part to Larry Summers’ international lobbying campaign on the pages of the FT and WSJ), then it might have turned out differently, no? And some hedge hogs who were banking on a GSE bailout would be in hog heaven about now…
“Funny, I don’t see you denouncing their crazy schemes.”
I generally try to give equal time, but more time to the loudest voices…
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
“The national debt — the total accumulation of annual budget deficits — is up from $5.7 trillion when President Bush took office in January 2001 and it will top $10 trillion sometime right before or right after he leaves in January 2009.”
http://tinyurl.com/3dfoxu
Look out - Here comes Hillary with a “PLAN”!!!
Something for everyone - including compulsive gamblers and spenders, deadbeats, frauds, failed flippers, Trump wannabees, and ATM freaks; (but not responsible people who pay their bills, of course). Just F R E E Z E the “problem” and voila! here we have the economic bandaid we all needed to insure that the voter thinks all is well in the “Economy”, once again, after the politicians get involved.
Hillary can visit faithful husband’s Bill’s New York City office area in Manhattan to see how “freezes” work, or more correctly, DON’T WORK. For many, many years, Democrat regimes had imposed RENT CONTROL in New York City - sounds great doesn’t it? What rent control actually accomplished was to make vast areas crime infested broken down slums where people froze in the winter and rats and cockroaches ruled the roost. “Harlem” degenerated from simply a residential area into a Third World slum. This is what Democrats do best: interfere, corrupt, and ruin. As opposed to what Republicans do best: rape, pillage and plunder.
No wonder politicians are held in such high esteem, just below Child Molesters and just above REALTORS.
Freeze the turkeys, freeze the ice cream, freeze my warts off, but don’t try freezing the economic aspects of life. Doesn’t work; never has; never will.
How much time do you set the microwave for, when defrosting loans?
“Harlem” degenerated from simply a residential area into a Third World slum. ”
Kinda sounds like half of LA county and 60% of LA city.
IMO, this is an exaggeration where Harlem is concerned. Now, Washington, DC, *now* we’re talking…
(disclaimer–I lived in the DC area for several years)
Haarlem degenerated long long before Dems or HC.
It was where the whites allowed minorities to live and whites didn’t allow money to follow.Infrastructure etc.
I’m not a fan of rent control, but I think you may be a little off base. Rent-stabilized buildings exists all over the city, not just in Harlem. I know because I live in one of them. And it’s not a slum. I object to it because it reduces mobility and screws younger generations. Those without rent-stabilization pay more than true market price to rent in Manhattan.
Yes, these people have not the slightest idea of what is going on. They are so busy campaigning that they don’t educate themselves about what is going on in the economy. On the other hand, Paulsen knows exactly what happened, and what is happening now - he personally planned it and benefited from it!
The whole left/right and Democrat/Republican paradigm is the second biggest scam in the world, after organized religion.
Amen Brother!
The Clintons and the Bushes are very close…Bill golfs with old George on a regular basis. The Bush White house has been making purring noises over Hillary, even Bush stating that she is the most “serious” candidate in the race. The handover from Bush to Clinton will be seamless, and the same policies in force.
Still waiting to find a reporter who can track down Jeb Bush, who’s apparently in hiding. He and 2 other trustees oversaw the SBA in Florida, buying those “investments’ from Lehman, then joining them as a consultant in August. He pulled the same stunt with Enron, holding the shares in the SBA until Florida had 3x the losses of any other state retirement fund.
Dem or Repug are only flags of convenience for the power brokers.
stay on the case…..
too many insider handoffs……
Ben,
I’m another one of those super-crunchy west coast liberals and I can’t believe she is coming out on this. Any bailout scheme should be viewed as a 3rd rail issue. A measure that screams favoritism for unresponsible borrower and huge bailout for the lenders that may help 8% of the home owning public? Ouch! I’d love to see the polling on this.
Her campaign advisors are really letting her down.
Just think of the campaign contributions, and you will get the picture…
I think we would be disappointed by polling results. People just don’t seem to care or understand the relationship between housing and the overall economy, even though it affects everyone.
I suspect that this may be a troll for someone to come out with an even more idiotic plan. I suspect that several are being drafted to one up her even as we speak.
oops, forgot to link:
http://online.wsj.com/article/SB119663648146011092.html?mod=googlenews_wsj
“…Sen. Hillary Clinton is expected to call today for a 90-day moratorium on home foreclosures, as well as a five-year freeze on the rates of adjustable mortgages…”
And this does what? Just postpones the inevitable. Gotta love holding a mortgage with some dead beat squatting on your property and the Gubmint tells you to bad you have to wait, you can’t foreclose right now.
IMO, the thing most overlooked with these schemes is what it will do to future lending. Who is going to lay down big money with people trying to change the contracts as they go along? Mortgage rates might go double digits after this stuff.
Mortgage rates might go double digits after this stuff.
—————-
We can hope.
Here’s another thing that just occurred to me…what if the Fed just lowered rates so the bag-holding lenders would be more willing re-negotiate the terms of the FBs mortgages?
After claiming that inflation was a threat & that he wasn’t very much in favor of lowering rates, he just seemed to do a 180 & is now willing to drop rates through the floor.
Is it a coincidence that the rates were lowered just a few weeks/months before the bailout programs are trotted out?
As a fixed-income investor, things are bleak (for new investments, just like 2003/2004). They’re trying to force us back out into the higher-risk pools. Forget keeping up with cost inflation, even at that.
If rates are down, that 5% “fixed” might look mighty good to a lender, not to mention they can mask that 30%+++ write-off for a bit longer.
what if the Fed just lowered rates so the bag-holding lenders would be more willing re-negotiate the terms of the FBs mortgages?
I think that is exactly the plan. Cramer explained this in a recent video clip that this is how the lenders will stay in business. And like his “they know nothing!!” spiel about rate cuts, I think this one is all too likely to happen.
Double digit rates? Maybe, but that doesn’t really mitigate the problem of people not being able to afford the mortgages 3 months after they sign the documents. People have to make payments for a while for a high interest to make up for an involuntary change to the terms down the road. Of course, that requires an analysis of each mortgage which securitization has killed so the double digits might come back.
It also might bring back the risk assessment of each borrower (though I have no idea where they will get the people who actually know how to do it). This would bring the disappearance of: adjustable rates of any kind, loans made to folks where the PITI is more than 28% of verifiable income, loans to folks with significant other debts, loans to people who haven’t had verified employment for several years, etc.
Now that is my kind of mortgage market.
Heck, you might even bring back the downpayment that has to be accumulated through savings, not gifts, down payment assistance, or magic.
“Mortgage rates might go double digits after this stuff.”
ZACKLY Ben. I cheerlead the tinkering by politicos, even though their efforts will be fruitless.
Practically anything the politicians do at this point will make it worse. Who in their right mind would invest in MBS if the mortgage terms change randomly? We’ll be back to the banks (gasp!) holding onto their loans and performing body cavity searches before giving them out.
This seems out of touch to me. Clinton and the administration work together to do this, then in 90 days everything is vastly worse and busting at the seams. This makes Clinton look bad and associates her with the administration, either tanking her campaign outright or causing her to fail in November 2008.
The long term effect on lending is going to be dominated by bubble dynamics, and those can be oddly fleeting. At first potential borrowers will look at people who barely got away from falling knife assets with a loss and others who labored and payed like crazy for ages just to keep their homes. People were horrified by the real estate bang up in the early 1980s, but by around 1990 the idea that people and worked themselves to the bone to pay off as much as one hundred thousand dollars of debt on a house seemed like some kind of joke. A hundred thousand dollars? Who cares? A house for that much is a great deal? With the trajectory of the dollar, in the future a quarter to a half million dollars will be a similarly laughable amount and people will be ready to invest in the next sure thing using borrowed money.
“…in the future a quarter to a half million dollars will be a similarly laughable amount and people will be ready to invest in the next sure thing using borrowed money.”
So are you suggesting a quick devaluation of the dollar is the path to affordable housing, then?
I think that mole man is simply pointing out how people don’t seem to learn anything from a bubble - they just make the same mistakes again fifteen years later.
I wonder how a 500K can be seen as cheap without wage inflation ? We seem to have commoditiy inflation as the dollar goes down but I don’t see wage inflation not with a Recession upon us. That big mortgage debt may stay big for some time.
And how many bond holders would challenge this in court as a “taking?” I don’t think that these plans have much of a chance when daylight hits them.
Here is a link to Paulson’s “Great Bailout” idea
http://money.cnn.com/2007/12/03/news/economy/bc.apfn.mortgagecrisis.ap/index.htm?postversion=2007120310
I have a couple of thoughts on this idea
How will this impact the pension funds who bought these MBS? If they get less return many of them will be unable to meet their obligations to retires. Then what? Another bailout?
What happens to all the people who have already had their home foreclosed? Can they go back and sue the lender for changing other people’s contracts so they could keep their homes?
If this forestalls home prices from coming down to be in line wages, how many potential buyers will this permanently chase away. Contrary to the RE line no one ” needs” to buy a home, they can rent.
His idea is a freeze of teaser rates for 5-7 years.
Can new buyers demand a teaser rate of 1 % for 5-7 years? If not, isn’t this discrimination?
Interesting times!
“How will this impact the pension funds who bought these MBS? If they get less return many of them will be unable to meet their obligations to retires.”
I believe one of the selling points is that a foreclosure tsunami will do more damage to RMBS than would the teaser-freezer policy. Seems like whoever is left holding the RMBS bag is hosed either way at this point.
It almost seems as though this policy was cooked up with no thought to the likely consequences…
Nothing like throtling an income stream to bring on the constipation pain. If this keeps going at it’s current pace, the only place to get a loan will be FHA. Now if FHA has a US citizenship requirement (I’ve never seen one in all the information I’ve read but it would be extremely popular politcally) then you have a possible protectionist strategy.
Could someone pass me the tinfoil? my brainpan feels a might bit exposed.
“Just postpones the inevitable.”
It might accelerate the bust on the banking side.
How about some good old price controls like Nixon tried in the early 70’s? A house cannot be sold for any price less than listed or else!
… a house cannot be sold for anything less that the original purchase price plus closing costs (including 7% transfer tax), or otherwise government will compensate the seller for the difference. We have that in the Netherlands (covers about 75% of homes) and it shows
Just when I think that things can’t get any crazier here, YOU point out that it’s already crazier in the Netherlands.
haha. yeah, i was thinking that price controls on housing was someone making a joke
It was until nhz responded. Now I’m not sure.
What about credit card debt, and auto loans ??
“… as well as a five-year freeze on the rates of adjustable mortgages…”
OK, so you have a real batch of people staying in mortgages they never should have qualified for in the first place, and the lenders have been forced to restructure the mortgage. Having been burned once, will they continue to provide mortgage money at bargin basement prices? Or will the rates for QUALFIED buyers go up to cover their losses?
Will it help, or will it hurt?
As people have noted, maybe it slows down the collapse, the FBs simply give up over a longer period of time.
Or, maybe it just captures a voter or two in Iowa? Nah, that can’t be motive, can it?
As we said before. These items won’t stop house prices from falling. The freezes on rates of adjustable mortgages will only mean the cab drivers and burger flippers who bought at 10+ times their incomes will be occupying the developments traditionally only affordable by upper income folks. Upper income renters will certainly not want to rub elbows with rap music listeners and low riders. Not a chance. So prices will continue to fall to the 50% haircut level or lower. Also no new loans by liars will mean that upper income people will just wait a few years until brand new upscale developments are built, and then buy, just to be sure they don’t have to live in ghettos.
Well in bubbly places like CA alot of the working class are in either the same marginal neighborhoods as they were before, or new marginal neighborhoods in extreeme exurbs. They simple paid PRICES that were “traditionally only affordable by upper income folks.” That’s the 500k cr*pbox in Compton effect.
The ex-1st lady is just trying to lock up the nomination, by offering up a sub-time on the sub-primes, to those in a pickle financially.
Should this malarkey come to pass, 91 days after it does, those on the verge of failure will still be there.
Nope… they’ll have gone over the cliff.
I’m beginning to see a pattern Bush, Clinton, Bush, ? .
I guess it remains to be seen whether the American voter has forgotten about MONICA LEWINSKY or not.
Politics aside, I’m really tired of the Bush/Clinton era. I sincerely hope Ron Paul gets the nomination (saw a sign in downtown Burlington of all places) but at this point I’m voting for anyone who is not named either one.
B.C. = Before Clintons
Oh please, please. Give us a president who only lies about consenting sex between two adults. Please!
don’t forget lies about golf scores - a much more heinous crime!
ment by jsocal
2007-12-03 09:15:32
don’t forget lies about golf scores - a much more heinous crime!
Then I am surrounded by Liars.
Give us a president who only lies about consenting sex between two adults. Please!
I am no fan of GW Bush or Republicans in general but if you think that is true I have some real estate to sell you.
“Give us a president who only lies about consenting sex between two adults.”
Does it matter to you whether they do it in the Oval Office?
Can they freeze my 1.9% credit card teaser rate too? What about my no-interest for 12 month loan on furnature? Can these loans be rates for 5 years???
CC debt is the next bubble to pop. Let’s see if some other Pres candidate calls to freeze that next summer. And then everyone gets to keep their toys. Ugh.
What is still not addressed and probably won’t be is how many FB’s are upside-down in their home. Even if their rates are frozen for five years, the average homeowner stays in a home 5-7 years, what happens when they decide to sell. Cash back at closing?? I don’t think so.
More than a few will figure out that regardless of interest rate or monthly payment, it makes financial sense to walk away . . . rather than continuing to overpay for a home. Any freeze might sound good to the public, but will provide relatively small benefits IMO. The only stories we will here if this thing passes are the feel good stories about how politicians and lenders saved the day . . . total B.S.!
And of course many of these “teaser rates,” were only on payments not the actual interest. Tacking 5 years of negative ammortization on top of 3-4 years of negative equity would mean that litterally EVERYBODY loses.
Gives me all the more reason to vote for Ron Paul!
Sheila Bair, chairman of the Federal Deposit Insurance Corp., has been working with Paulson and favors extending introductory rates for between five and six years. The Office of Thrift Supervision, which hosts today’s conference, advocated a three-year freeze.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOOocR6F4wSM&refer=home
Here’s where I get confused. How does this differ from FBs refinancing into new teaser-rate mortgages?
Back in 2004, I knew it would take a while for things to really get going because we had to wait for the resets, and was dismayed by the number of people who kept pushing out the day of reckoning by serial refinancing.
At some point, these FBs will have to pay the principal and interest amounts, no???? If not, how does it differ from renting? If it doesn’t differ from renting, why doesn’t Paulson do the right thing and let them move to cheaper housing in the form of official rentals?
As long as they try to prop up prices, people will not be able to afford their homes & buyers will be forced to continue using toxic financing.
If they want to freeze rates, let them do it for the full term of the loans. That way, they won’t just be pushing the problem into the future.
“Here’s where I get confused. How does this differ from FBs refinancing into new teaser-rate mortgages?”
That’s were I get thrown for a loop also. Doesn’t make sense for present investors unless someone is kicking in some fresh money.
The only thing I can come up with is that by showing the possible exit/solution investors will be better able to quantify their losses thereby indicating where the medium term floor “should be” for vulture funds and risk taking investors to enter the market instead of an endless freefall which completely paralyzes the market.
JUST CALL THE LOANS…
EXCELERATION EVENTS PROVIDE RELIEF GOING FORWARD….cmon more bullshit bailout.
the “freezing” notion is for ORDERLY SELLING…..
Didn’t you know that wage increases are going to take care of it? 5 to 10 times income loans are going to become 2 to 3 times income in 3 years without significant inflation because of increases in US worker productivity. Yup, every time I get a better computer on my desk I get twice as productive at work and my salary doubles.
We’ll be lucky to get 2% raises.
typically, my employer offers a cost-of-living adjustment that is equal to whatever Denver figures inflation is. This year, Denver figured inflation at 3.5 or 4%, i think, and our COL adjustment is 1.8%
could be worse, but still a sign of things
My employer has told us quite plainly that cost of living raises are a thing of the past.
Isn’t this the type of thing that happens during a…uh…what’s the word…recession?
Yeah, except that my employer is on track to make about $100,000 profit PER EMPLOYEE.
Money is too tight to mention.
My arena will be lucky to not see more concessions/less pay.
Living in China and being paid in $, I expect my salary in Yuan terms will be down 8% by this time next year. This is not counting price inflation (in Yuan) running 6-8%. But I’m not complaining.
This doesn’t help because they aren’t building any equity. They are renting from the bank all the while why they pay taxes and insurance and watch the value of their home decline. I still see tons of people walking away.
I hope so Tom, but never underestimate people’s ability to continue being stupid. If all they cared about was a low payment three years ago, chances are that all they care about it a low payment now. It might never occur to them that they are trapped.
Trapped loan-owner will still have more cachet in this society than frugal “renter”, sadly.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., has been working with Paulson and favors extending introductory rates for between five and six years. The Office of Thrift Supervision, which hosts today’s conference, advocated a three-year freeze.
http://tinyurl.com/25rghz
————————–
Can somebody explain how this is any different than serial refinancing from one teaser loan to another?
What happens at the end of three or five years????? Hoping the dollar drops enough to make them whole?
As I see it, the real fear is an avalanche of foreclosures in 2008. This could crush the economy way out of all proportion to the actual financial damage. The hope is for a gradual stream of foreclosures, which will soften the blow.
These people are toast and will eventually default.. it’s just a matter of controlling the collapse. Extending teaser rates will do nothing more than keep most of them in their (unaffordable) homes, sending checks to the lenders for a bit longer than otherwise. Prices will still fall.. FBs, lenders and investors will still eat it.. but perhaps a few businesses and jobs, which might otherswise be sucked under can be preserved.
That’s how I see it. All these words serve to generate much needed hope to the FBs, hope that will inspire the FBs to dig deeper into available resources such as 401ks, IRAs, family, and so on.
The more hope they have, the deeper they will dig.
I want to keep the words flowing, to keep the hope alive so that the much needed liquidity will continue to flow into the system and slow the decline.
It’s obvious there’s no elegant solution here. I’m not onboard for a bailout, however, I also don’t want to see the foriegn investors owning the banks.
Lol, that’s the most evil suggestion ever. Have them drain their retirement accounts and crash the market, making lots of dough for bears. Then they lose the house anyway, have no savings, and are condemned to endless penury (as the pension funds and SS are bankrupt too).
A quick crash would be better for the FB’s too!
Yup, its a desperate attempt to buy time and hope for a miracle.
Crystal ball gazing and watch for an EVENT that will take sheeples minds off the truth again.
The Event will turn out years later to be once again, planned.
Just an educated hunch. Forgot I don’t have a crystal ball.
Yep, that is exactly how I see this plan. They aren’t forgiving anything, just pushing back the payoff and putting off the day of reckoning.
This might actually be a good thing in terms of reducing the degree of economic shock. But for the bagholders, it is certainly not a good deal. They make more payments on a home that they will eventually lose regardless.
Speculators won’t take the bait and will continue to walk. Some owner-occupying bagholders might continue making payments, but (i) many can’t afford the house even at teaser rates; and (ii) many will just walk away if upside down. I’m just not sure that this plan will have much impact.
If you are a lender you want to agree to this plan and then when no one is looking foreclose on all of your late payments. You know property prices are going to fall so if you get out first you win. My guess is unless they put teeth into this agreement you’ll get a lot of this.
Assume a $300K mortagage. With a 3% rate, payment is $1264, of which between $500 and $600 goes to paying down principal. At the end of 5 years the remaining principal has been reduced to $266K. That means the buyer has carved out $34K of paper equity…
It might be that the buyer then has enough equity to offload the house before he/she is forced to make payments at market rates.
BTW, had same buyer taken out a 30 year fixed at 6.5% the monthly would be about $1900 and the principal balance after 5 years would be $281K.
34K of equity?
it looks like you’re assuming the house market price will be maintained at 300K .. with all the excess inventory around i doubt that will be the case.
I did say ‘paper’ equity
yeah, you did.. everything’s cool up to the point where the buyer attempts to offload the house.
a 3% rate would have been a teaser rate or neg am. No way would they have thet much equity after 5 years.
While I really don’t like it, I guess I can handle it if existing FB’s stay in their little fantasy for a little longer. What I don’t want to do is pay for it, not in any way.
As long as they don’t dip into my tax money to pay for these extensions
As long as this is for existing FB’s only and not new buyers
As long as this is primary residence, non-fraud, non-HELOC only
As long as this doesn’t keep prices from dropping (which it shouldn’t, since the buyer pool will still be shallow)
…then I can eventually stop being a bitter renter. But even then, we’ll all get it in the tush because we’ll be ponying up for the same overpriced food and gas as the FB’s.
Parley…
http://www.signonsandiego.com/news/business/20071202-9999-lz1b2mortgage.html
Sounds like the loan was probably converted to a neg-am loan.
Let’s face it they are just renting the house at an above market rent cashflow wise while (most likely) their liability grows. Probably not much of a deal if all the finer points and options were examined in more detail. Sckers!
Maybe it really was an interest only loan but who knows. I don’t believe anything written in the press anymore.
The article said it would be interest only for a few years, then convert in three years to fixed interest at 5.25%. That means that they’ll be stuck in a condo forever. They said that they could “potentially ride out the housing market long enough to see their property start gaining value”, but we know that condos are going to depreciate for the next two years at least, then stay stagnant. They also have a second mortgage for $87K. That means that they have $435K worth of mortgages on a condo that will likely be worth $200K in three years, without a dime of equity. They are treading water.
Soooo many of these people would be better going the foreclosure/bankrupcy route than dragging the pain out for a decade.
I’m thinking it will only be a matter of time before FBs realize that they are in the driver’s seatl, and start walking into a bank with, “I’m ready to walk on this loan. What will you do to keep me in this house?”
Freezing teaser rates won’t help with these growing problems:
Recession Hits U.S. Corporate Profits; Economy Might Be Next
http://tinyurl.com/38xqtj
The biggest hit to the economy from fading financial profits may come from tighter lending standards. The Federal Reserve reported last month that banks were making it harder for businesses and consumers to borrow. Analysts including Sinai expect terms to tighten further.
Advanta Corp., a Spring House, Pennsylvania-based provider of corporate credit cards, cut its 2007 earnings forecast Nov. 27 and withdrew its 2008 estimate as late payments rose.
“Higher delinquency rates will continue for some time,” Chief Executive Officer Dennis Alter told analysts. “What is not clear is where the economy and consumer behavior is headed.”
This is the first acknowledgement by MSM(Bloomberg is quite accurate) that recession is a likely possibility.
Easing everyone into it? I think so.
Bloomberg is good on it’s reporting. They interview plenty of bears. I wouldn’t call Bloomberg as part of the MSM cabal.
I’m waiting till March to see if Michael Bloomberg decides to take at run at the Presidency.
There were some pretty nasty slow down stats at the end of that article too, ie, Bayliner having the worst year since 1965. I had to wonder if that was a typo it seemed so extreme.
“Scarce credit could make things even tougher for companies such as Brunswick Corp. of Lake Forest, Illinois, maker of Bayliner boats. The firm is cutting 170 jobs as it struggles with what Chief Executive Officer Dustan McCoy suggested might be the weakest U.S. boat market since 1965.
Foreign companies are starting to feel the fallout from weakness in the U.S. — a reversal of the recent trend, in which American firms benefited from strength overseas.
Stockholm-based Ericsson AB, the world’s biggest maker of wireless networks, said Nov. 20 that fourth-quarter sales may be at the lower end of a forecast it gave a month earlier as demand falters in North America and Europe.
Shares in Morgan Crucible Company Plc, a U.K. ceramics maker for the steel industry, plunged the most in nine years today after saying a weaker dollar and a slowdown in the U.S. construction and automotive markets will almost erase revenue growth.
Wolseley Plc said Nov. 28 it will cut 1,300 jobs in the U.S. after the decline in homebuilding led to a 15 percent fall in profits at the world’s biggest distributor of plumbing and heating equipment.
“Looking out over the next 12 months, the U.S. is going to be very challenging,” Chip Hornsby, chief executive officer of the Reading, England-based company, said on a conference call.”
Seems like those Asian consumers had better be ready to fill the consumer void. We’re going to need them, en masse, armed with credit, and with a lust for all things material.
We=the world economy.
Ok, here is my outline/summary/gist of the talk Dr. James Glassman gave at the conference I attended last week.
He started with a joke about accountants and economists that no more than 5 or 10 people laughed at out of a room of over 300. (I didn’t get it either, and I’m afraid I don’t remember it.)
Treasury yields going down as precipitously as they have recently is a sign of trauma. There is lots to worry about BUT consumers don’t cause recessions. Reduced capital spending by businesses causes recessions, and that capital spending comes from corporate profits which are at record highs.
The world economy is waking up so the US economy can slow way down without corporate profits going down.
The stock market would predict it if a recession were coming.
The economy grew at a rate of 5% in the third quarter which would have been the best year ever if you exclude the housing sector. Emerging markets came alive starting about a decade ago.
Homes in some places became unaffordable so people stopped buying, but despite the turmoil the economy has only slowed. (He said there could be a very mild short recession, but seemed to think it was more likely to be slower growth, never actually going negative) In the past housing has been like a canary in a coal mine, and it goes down fast. This slow down is not from rising interest rates, but by mispriced credit (implied that this means this canary is not predicting a problem for anyone but the canary).
New home sales were too dependent on sub-prime borrowing which was dependent on collateral, not ability of the borrower to pay.
Economist believe “it” won’t get worse. (Sorry. I don’t seem to have a clear antecedent for “it” in my notes.)
2009 is the earliest possible turn around for the builders. They will have at least a year of sub-par growth and then it will get better. (Someplace in the speech he said something about this not being the right time to hold shares in the building or the financial sectors. I think it was here.)
Except, this summer lenders realized they had credit risk they didn’t know about. There were too many degrees of separation between the investors and the assessment of risk, but financial crises don’t derail the US economy.
Now is fundamentally different than previous problems and challenges our ideas of our financial system. That system used to be bank centered. Now it is securitization centered. (He obviously thought this was way better than sliced bread.)
People are just realizing the risk issue and if people want more compensation for risk we are in trouble because it is a problem when credit is choked up.
The solution is to push down the cost of risk-free returns so you can get a better spread/reward for taking the risk (I think he meant lowering the return on the risk free returns meant that there wouldn’t have to be much increase in the absolute price of riskier credit). The is what the Fed is doing. It will have to get more aggressive. The question is where will the risk-free rates have to go to fix it.
“There is lots to worry about BUT consumers don’t cause recessions. Reduced capital spending by businesses causes recessions, and that capital spending comes from corporate profits which are at record highs.”
Consumers don’t cause recessions… only corporate profits. Now, what happens to corporate profits when consumers quit spending?
He thought that increased sales overseas would make up for lack of sales to US purchasers.
The stock market would predict it if a recession were coming.
Generally true… recessions are preceeded by falling stock prices. Now, if you look at the S&P (or DOW or Nasdaq) normalized to the USD (inverse) or to gold, you find that the stock market has been declining since 2001.
So early 2001 was a lot like 1929? Then when does 1932 hit?
2008?
James K. Glassman? The dishonest J. Glassman from the ongoing crime syndicate called American Enterprise Institute or the other J. Glassman?
You mean THIS one?
Yeah, that one. LOL. Hahahaha.
Given the possibility of hyperinflation, perhaps he will be proven correct.
OK, that is the end of my notes, though I think we ended with a few platitudes. There was one question that I didn’t hear clearly about the decline of the dollar and inflation. He said that Europeans (maybe others too) wouldn’t raise the price of goods they sell in the US to maintain profits. They would go to other countries that are even lower cost producers to preserve their profits instead. And somewhere in there was the comment about the changes to the economy being the equivalent to the renaissance. Again, I presume he meant bringing new countries into the world of global trade, not some sort of flowering of art, architecture and science.
Then I started the final applause instead. Actually one person at my table asked if I was a plant to start the clapping. I told him, truthfully, that I didn’t want to be rude and leave in the middle, but I had to get back to O’Hare and catch my plane. However I certainly did have a few questions.
Given the answer to the last question about other countries just finding lower cost producers to maintain profits, what sort of growing US economy is he really predicting? Because if he thinks corporate profits here are going to be maintained by US companies (and others) making stuff in the lowest cost countries and selling them outside the US, won’t it eventually only be the lowest cost countries that have any manufacturing jobs? Are we all supposed to just serve food to each other, run cash registers, fix toilets, remove appendixes, make TV shows and a few other things? Do manufacturing jobs matter at all?
Is there really enough waking up going on in the economies of the rest of the world to absorb the reduction in the 70% of the US economy that is consumer spending that will occur as more and more jobs go there? Even if it is only capital spending by businesses that can cause a recession, doesn’t it matter where they are spending it?
…if people want more compensation for risk we are in trouble because it is a problem when credit is choked up.
…The solution is to push down the cost of risk-free returns
Rather than manipulate risk-free returns, how about just letting the collateral (property market) unwind so risk can be accurately determined?
Most of the credit constipation is due to a currently unknown amount of risk, imo.
btw.. thanks for staying late and taking notes and sharing that with us.
“The stock market would predict it if a recession were coming.”
The PTB’s realization thereof provides a very powerful incentive to help ensure that the stock market always goes up.
P.S. Nonetheless, the stock market having reached 10 percent correction territory last week could be construed as an indicator of a looming recession. (Indicators are not 100 percent reliable, though…)
But I thought consumers were 70% of the economy and the big fear is that they’ll stop spending. BTW - what’s with the holiday spending stats? I’m not seeing anything since black Friday.
“Beware our shadow banking system”
“We have a secret banking system built on derivatives and untouched by regulation, says Pimco’s Bill Gross. Here’s how to protect your pocketbook.”
http://money.cnn.com/2007/11/27/news/newsmakers/gross_banking.fortune/index.htm
The WSJ editors serve up some early New Year’s Schadenfreude here, including some choice remarks from Gross. John Bogle shares some accumulated wisdom as well.
Lessons Learned From a Wild Year
What should investors take away from 2007? And how should they apply it in 2008? Here’s what a dozen pros say.
By CAROLYN CUI
December 3, 2007; Page R1
…
JOHN BOGLE
Founder
Vanguard Group
I have to tell you, I am concerned. The volatility is enormous.
http://online.wsj.com/article/SB119646127811809899.html?mod=todays_us_nonsub_journalreports
right. At the high, the VIX was still only 50% of the level achieved during the LTCM selloff.
give me a break.
So my wife and I and another couple we know, go for a little overnight backpack in the High Sierra on Saturday night and wouldn’t you know it, our friend starts talking about her sister that lives in one house and has 2 house payments, and because nobody else lives in the other house, as she is trying to sell it, desperation is sinking in…
You can’t avoid talking about the housing bubble, you can only hope to contain talk of it.
I have two relatives in this boat. Both had to move because of a job change.
The first one (in TX) was a few years ago. I told them that they needed to get rid of the old house, even if it meant “giving it away”. They instead chose to be landlords. After dealing with deadbeat tenants who trashed their house, they can’t sell it now and are on the verge of defaulting.
The other couple just moved (NC). I suggested that they not buy a new house until they sell the old one, and I suggested fire saleing the old one. Again, they don’t want to “give it away”, plus they are buying now because they have a limited time offer from their employer to pay closing costs. I told them that if they wait the prices will come down more than the closing costs. They did it anyway.
Got a notification from the hotel I regularly stay in St. Anton, Austria (a ski resort) that it has a number of rooms available during the Christmas and New Year’s Week. This is the first time in the past five years that I have received such a notification.
I got a coupon that extended summer rates in a ski area in VT. Not a good sign.
I went to the Carousel Mall in Syracuse 2 days in a row. One was to chaperone a child’s b-day party and the 2nd day was to shop. Saturday was pretty packed but Saturday night hubby and I headed to Target at 7:30. The store and the parking lot were so completely dead I asked him if there was some major party we had been the only ones not invited to.
The next day I head up to Carousel to actually shop. Now the mall is expanding so they have lost (I believe) about 10% of their parking to construction. Still the parking lots had huge empty spaces and the mall was dead. This at noon on Sunday 3 weeks on Christmas. It was eerie.
That’s an easy one: Get two entertainers to throw a party for the general and invite all the old troops for a reunion… Throw in a catchy tune and the economy just might pick up.
I booked a hotel in Paris for this Christmas, just a few minutes walking from all the sights (best possible location). Two months ago, the price was 295 Euros per night. Last month it was 225 Euros per night, and this month it is down to 195 Euros per night. We’ve canceled and rebooked at each price drop, of course.
Yes, splurging on travel is our vice
This is what I’ve been predicting as MEW disappears. Big ticket discressionary items for several thousand dollars (cars, fancy vacations, remodeling) are the first affected because sheeple get the HELOC money before they spend on them. Smaller total discressionary items (eating out, small electronic items, clothing) are affected later because people buy them first with a credit card and THEN pay off the CC with a HELOC.
Could it be because the snow has been so cruddy of late? Or they’re just getting tired of the Brazilians….
Suggested new acronyms for Wall Street
D.F.E.N.S. (Disappointing Financial Equities, No Sale)
F.U.B.A.R. (Fiscally Unsaleable Bonds @ Risk)
Pleas for rate cut; interbank system collapse
The sterling interbank market has collapsed at the fastest rate in modern history, prompting pleas for immediate rate cuts from a chorus of top British economists.
“This is one hell of a shock to the financial system,” said Professor Tim Congdon, a leading monetarist at the London School of Economics.
“A market that has taken 30 years to build has completely imploded in a matter of months. Lenders have been squeezed savagely. We’ve moved into a different era,” he said.
Patrick Minford, a professor at Cardiff University, called for a three-quarter point cut, accusing the MPC of “standing idly by” as three-month Libor spreads rocketed by 75 basis points - a severe tightening of credit.
“I regard the Bank’s behaviour as highly irresponsible, neglecting a century of monetary teaching from Bagehot on. It is time for some sense to prevail. The Bank look like fools,” he said.
http://tinyurl.com/25649r
He’s channeling Cramer. I think it’s time to let the histrionics through.
yen rising:
Dec. 3 (Bloomberg) — The yen rebounded from a two-week low against the dollar after Moody’s Investors Service said it is preparing the biggest credit-rating cuts since subprime-mortgage defaults rocked financial markets.
The yen rose versus all 16 most-traded currencies as investors retreated from carry trades and sold higher-yielding assets bought with loans from Japan. The yen also advanced as Bank of Japan Governor Toshihiko Fukui signaled interest rates may have to rise.
http://tinyurl.com/29pg7q
florida assets; fire sale?
Dec. 3 (Bloomberg) — Florida schools and towns with money frozen in a state-run investment account are unlikely to get their cash back tomorrow, when officials meet to discuss a crisis prompted by withdrawals that drained almost half of the fund’s $27 billion in assets, a policy officer said.
“If we reopen the window without limitations on Tuesday, and we see behavior like we’ve seen up to now, there’s simply no way to meet that demand without having a fire sale on assets,” said James Francis, senior policy officer for the State Board of Administration, manager of the Local Government Investment Pool.
Officials raised the possibility of paying less than 100 cents on the dollar to governments seeking cash in a conference call with participants Nov. 30, a day after freezing withdrawals. The board also hired BlackRock Inc., the largest U.S. publicly traded money manager, as an adviser
http://tinyurl.com/2ennbc
“The board also hired BlackRock Inc., the largest U.S. publicly traded money manager, as an adviser”
Great idea. Let’s invite the foxes into the henhouse and get this slaughter on.
They aren’t from Black Rock City, are they?
http://wikitravel.org/en/Black_Rock_City
Old Soldiers of Fortune: BlackWater
New Soldiers of Fortune: BlackRock
dollar faces new sell-off:
Foreign exchange markets are on alert this week for the embattled dollar to face a further, severe sell-off after key talks between the Middle East’s Gulf states that could lead to them scrapping their currencies’ pegs to the greenback.
Rulers of the six nations of the Gulf Cooperation Council (GCC) meet today and tomorrow in the Qatari capital of Doha amid significant pressures to sever their currency ties to the falling dollar, which is fuelling record inflation in their countries.
Officially, the GCC states have insisted that the key currency issue is not on the agenda for the rulers’ summit talks. However, there is intense speculation that mounting economic and social strains inflicted by the currency pegs could see them scrapped, or the Gulf currencies revalued, either at the meetings or within weeks of them.
http://business.timesonline.co.uk/tol/business/economics/article2988001.ece
Subprime Bailout
http://www.stockmania.com/index.php?showimage=104
I am guessing that someone other than the perpertrators of this mess will end up getting hurt with this bailout.
I am guessing you are on to the evil plan.
Isn`t this just government sponsored repuiation of debt? Who will want to lend in the future?
If it makes rates go up, let them repudiate all they want. There will be fewer free riders than one would expect.
Good one, kahuna!
Lennar sells/transfers/moves land for 40 cents….
http://online.wsj.com/article/SB119664527659511255.html?mod=hps_us_whats_news
Shocking revelation in today’s WSJ: Prime customers were duped into taking subprime loans!
Subprime Debacle Traps
Even Very Credit-Worthy
As Housing Boomed,
Industry Pushed Loans
To a Broader Market
By RICK BROOKS and RUTH SIMON
December 3, 2007; Page A1
One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn’t have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
http://online.wsj.com/article/SB119662974358911035.html?mod=hps_us_whats_news
The next shocking revelation will be that subprime customers were taking prime loans!
Electroloan-Shock-Therapy
Maybe the subprime people who should be prime and the prime people who should subprime should trade loans so everything is fair. That’s what they get for trusting a high school drop out with a criminal record to process their loan for them. WIth all this talk about the rate freeze for subprime, what happens to all the people who got loans from CW and were subprime, but later CW made them prime, did CW ever tell them that loan was being packaged as prime to be sold to investors.
“That’s what they get for trusting a high school drop out with a criminal record to process their loan for them.”
Is this the kind of guy whose lending institution qualifies for a too-big-to-fail bailout, just because it is a sufficiently big lending institution?
Frankly, if you’re dumb enough to lie your way into a high interest neg-am ARM with a teaser rate that you can barely afford, you ARE subprime, no matter what your FICO says about your previous propensity for paying your bills on time.
The most interesting bit is the last quarter of the graphic (Q2 2007). First off, lending “style” has reverted back to 2000. But more interesting is that compared to previous years, almost none of the ’subprime’ loans are going to folks with good FICO scores (the top two groups). It’s as if that group wised up, and decided to stay away from funny loans. But, their numbers were made up by those straddling the subprime edge (620-659), suggesting that those folks were financially bright enough to see the handwriting on the wall.
I haven’t heard this spoken of much, but I knew many that chose ARMS when they could have received 30 yr fixed because the monthly payments were lower and they knew they could refi into a 30 yr fixed later on. People treated us like we were nuts because we chose a 30 yr fixed.
And if it was 1985 and mortgage rates were greater tha 12%, they would probably have been right. But in 2003 with mortgage rates at ~5% I just can’t stand the stupid.
I got a little break on a 5 year ARM vice fixed in 2001 because I really couldn’t imagine the idea of staying in Texas longer than that. “Luckily” the rates dropped in 2003 so I refinanced into a fixed loan. The good: I have a great loan. The bad: I’m still here.
Re: Senator Clinton.
To understand her, remember that she is not from New York. She is from a generic place called “middle to upper-middle class suburb” that exists all over the country, including New York.
Her constituents are people who earn a good bit, but spend more, because they must keep up with those around them. Thus, they are the “needy” who are always in need of assistance.
Many Republicans have the same constituents, but seem them as people who cannot afford to pay taxes.
Put it together, and you have people who need government assistance but cannot afford to pay taxes, and who need to borrow but cannot afford to pay it back, despite being well educated and working two-plus jobs per family. Back to the wall, gun to their own head, completely controlled by the commercials on TV.
To understand HC, one needs to realize that (1) many American voters (perhaps even a majority) hate her, and (2) there is no reason to believe that this fact would make her unelectable in the present day political climate.
P-Bear, you’re living in that world of talk radio that isn’t as big as the propagandist hosts would lead you to believe. Do you really believe that possibly most people “hate” HC? Seriously, what has the woman done to anyone or anything to be hated, except be denegrated by her husband’s misdeads? Your use of Republican talking points and catch-phrases is very unbecoming and taints your otherwise insightful comments.
I don’t listen to talk radio. Ever.
What’s talk radio?
“The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different.”
Aldous Huxley
Krugman:
The freezing up of the financial markets will, if it goes on much longer, lead to a severe reduction in overall lending, causing business investment to go the way of home construction — and that will mean a recession, possibly a nasty one.
Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.
In a direct sense, this collapse of trust has been caused by the bursting of the housing bubble. The run-up of home prices made even less sense than the dot-com bubble — I mean, there wasn’t even a glamorous new technology to justify claims that old rules no longer applied — but somehow financial markets accepted crazy home prices as the new normal. And when the bubble burst, a lot of investments that were labeled AAA turned out to be junk.
http://www.nytimes.com/2007/12/03/opinion/03krugman.html?_r=1&oref=slogin
“Behind the disappearance of liquidity lies a collapse of trust: market players don’t want to lend to each other, because they’re not sure they’ll be repaid.”
This is where the Fed’s rate cut engineering seems destined to come up short…
Wall Street may need to find religion (or at least morality) in order to fix its present woes.
“…market players don’t want to lend to each other, because they’re not sure they’ll be repaid….”
This is credit insolvency, not a credit crunch.
Triple-AAA rated batteries that leaked losses…
Hoz, Thanks for your insight. I love to hear it, I think you`re right, but it scares the bejesis out of me.
‘Credit crunch’ is a euphemism, similar to ’soft landing.’
“The shocker is the fraction of subprime borrowers who appear to have had credit scores good enough to receive cheaper, conventional loans: 55 percent!”
http://krugman.blogs.nytimes.com/
Even people that should have been taking fixed long-term loans were taking the risker loans.
They did it because they needed to stretch their hh budget to the breaking point in order to “afford” the house they wanted.
Or their mortgage brokers needed the YSP
It takes two to get screwed (at least when an at will, signed contract is involved with the screwing).
Subprime mess to get worse before better: Fed’s Rosengren
By Greg Robb
Last update: 8:15 a.m. EST Dec. 3, 2007
WASHINGTON (MarketWatch) — Research at the Boston Fed suggests that the foreclosure crisis in subprime mortgages will get worse before it gets better, said Bank president Eric Rosengren on Monday. Just how much worse depends on the outlook for the economy and housing, he said. “Our forecast is quite dependent on how far home prices fall,” Rosengren said.
http://www.marketwatch.com/news/story/subprime-mess-get-worse-before/story.aspx?guid=%7BD6A2E50A%2DA4A8%2D4111%2D8C36%2D81B7F2BD7A84%7D
KERPLUNK!
http://www.marketwatch.com/tools/marketsummary/
T-bond yield curve is getting whacked right off the bat this morning…
http://www.bloomberg.com/markets/rates/
Another interesting chart…
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TYX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=1&freq=7&startdate=&enddate=&hiddenTrue=&comp=tnx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
Hit the “Draw Chart” button if you don’t see TYX and TNX at the same time…
Choose the “6 mos” view to see where bond yields have trended since the onset of the credit crunch…
December 3, 2007 10:20 A.M.EST
BULLETIN
U.S. NOV. ISM MANUFACTURING INDEX EDGES LOWER TO 50.8%
Stocks flop on factory drop
Stocks lower after manufacturing data shows fifth straight month of slippage and with auto-sales reports to come
• ISM factory index drops for fifth straight month in November
The U.S. stock market is experiencing a predictable “bad news for Main Street is good news for Wall Street” rally on the ISM news release.
Attention Investors
Here’s a Craigslist Income Property for the discriminating investor looking for a turn-key income property in beautiful sun kissed California. Hurry, this one won’t last!
sweet, $2770 monthly (assuming the tenants don’t ever leave and cause no damage) to pay a $600k mortgage. where do I sign?
If you want a real potential income property that is priced under 110 X gross monthly rent, than take a look at this one:
http://southcoast.craigslist.org/rfs/497496398.html
The back of the napkin calculation for Cap Rate on this is 19%/yr…
There is going to be a casino in that town (Middleboro, MA) in a couple years, so flophouses are a growth industry, too.
Then again, he may be a motivated seller due to some premises liability cases that are pending…
C-SPAN forum on housing right now - streaming online. Mozilo, Toll, Moody.
Attention and Asset Prices: the Case of Mad Money
Abstract:
“We document market inefficiency in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average overnight return following a first-time recommendation by Cramer is 2.86% for our entire sample and 6.76% for the smallest quartile but these gains disappear (reverse) within several trading days. We also find that trading volume and short sales volume are all significantly higher than normal on the day following Cramer’s recommendations. Using television viewership data from Nielsen Media Research as a unique measure of attention, we find that attention - in particular, the attention of wealthy households - exacerbates mispricing and leads to increases in trading volume. We also find that the level of mispricing and volume depends on whether Cramer spends more time making his recommendation, whether there are fewer other recommendations, and certain characteristics of the recommended stocks (price and idiosyncratic volatility). After an earlier version of this paper received press attention, we find that the relationship between attention and mispricing has waned.”
JOSEPH ENGELBERG
Northwestern University - Kellogg School of Management
CAROLINE SASSEVILLE
Northwestern University - Department of Finance
JARED WILLIAMS
Northwestern University - Kellogg School of Management
May 1, 2007
http://tinyurl.com/jpkqa
Social Science Research Network
The current relationship is now 1.6% pop, before dropping back.
Sounds like Cramer’s recommendations are a great guide for short sellers…
He makes his own weather.
A fine lending institution, which was bailed out just a few months ago, seems to be running into its share of legal issues these days…
U.S. Expands Scrutiny of Home Lenders
By AMIR EFRATI
December 3, 2007; Page A4
The federal agency that oversees bankruptcy courts has stepped up its scrutiny in recent months of mortgage servicers and lenders, and has sought in-depth information on how companies such as Countrywide Financial Corp. treat homeowners.
Attorneys from the U.S. Trustee Program, a division of the Justice Department, have taken aim at mortgage lenders, servicers and their lawyers in at least six states, including Georgia, Massachusetts and Pennsylvania, since last year, according to court records. The agency is probing representations made to courts about what homeowners owe and the handling of their payments during bankruptcy, both areas in which consumer advocates say there are pervasive problems.
Leonard DePasquale, an assistant U.S. trustee from Rhode Island, said in a November hearing in federal bankruptcy court in Pittsburgh that after reviewing cases filed since 2002, “we have a specific and grave concern that Countrywide” is trying to obtain money and property from debtors “under false pretenses.” In one case he cited, Countrywide allegedly inflated the amount owed by the borrower by more than $7,000. He spoke of “the harm that’s done to debtors who are in a financially disadvantaged position that cannot litigate and fight one of the world’s largest financial corporations.”
http://online.wsj.com/article/SB119665012398011359.html?mod=googlenews_wsj
NY TARGETING COUNTRYWIDE
By ZACHERY KOUWE
(ANGELO MOZILO Sun-kissed CEO.)
December 1, 2007 — Two big New York pension funds were named lead plaintiffs in a series of investor class-action lawsuits accusing mortgage giant Countrywide Financial of inflating earnings and overstating its ability to weather the housing slump.
http://www.nypost.com/seven/12012007/business/ny_targeting_countrywide_273305.htm
Blasts form Europe: or Why I believe France will be the first to panic.
Interview with Patrick Artus, chief economist of Natixis SA and one of France’s most listened-to pundits: He is an economic adviser to the French government.
“Artus:…What I’m saying is that there’s no point setting central-bank targets in stone, until the end of time.
It was perfectly legitimate for central banks in the 1980s and 1990s to have price stability as their target. Inflation was the problem back then.
Maybe in the future, say by 2010, with the rise in commodity prices, inflation will become our main problem again. But since the mid-1990s, inflation in the classical sense is not the problem. The problem now is asset-price inflation, and indebtedness, the reason being that globalization has wiped out inflation risk.
`A Mess’
Nayeri: Joseph Stiglitz went on the record on Nov. 16 as saying that Greenspan had “made a mess” and that the U.S. now faced a recession. Do you agree?
Artus: Yes. Greenspan was an arsonist and a fireman combined. He derived all his glory from his reaction to the savings-and- loans crisis, to the collapse of Long-Term Capital Management LP, and to Sept. 11, 2001. But LTCM and the savings-and-loans crisis were his doing. He absolutely failed to see where the malfunctions in the U.S. economy were.
Greenspan came up with a phrase, “irrational exuberance,” in 1997, but he didn’t do anything about it.
Nayeri: How would you sum up his track record, then?
Artus: He was a very bad Federal Reserve chairman. He created four major crises: savings and loans, LTCM, new-technology shares, and subprime mortgages.
Nayeri: But surely you will acknowledge that Greenspan saved the planet at crucial turning points?
Artus: Yes, but after the fact. He’s congratulated for his role as fireman, but he’s the one who started the fire. …”
Bloomberg
http://tinyurl.com/yon86n
Check out this ridiculous Red Herring, that the powers that be have made out of the Delta Smelt, in regards to the drought in California.
They have turned the problem of little snow in the Sierra Nevada, into the fault of a 3 inch fish, dividing the camps of contention into environmentalists vs. everybody else.
I was just up in the Sierra @ around 9,400 feet and there is no snow to speak of, so far, early this winter…
“We who live in Los Angeles know we live on the edge of the desert. Our city could not exist if we did not import huge volumes of water every day. Yet in August, U.S District Judge Oliver Wanger ordered state and federal water managers to reduce pumping from the Sacramento-San Joaquin River Delta, a move that could cut the supply of water flowing from Northern to Southern California by 30%. Why? To protect the Delta smelt, a thin, almost translucent fish threatened with extinction. His Honor ruled that the gigantic pumps of the California Water Project were trapping and disorienting the poor little fish.”
http://www.latimes.com/news/opinion/commentary/la-op-braunstein2dec02,0,1084620.story?coll=la-news-comment-opinions
California environmental justice: Three-inch fish are more important than people.
That op-ed writer is a jackass.
He ends with this:
We are an endangered species. We had better realize it and change our behaviors if we want to survive.
And yet he wants continue sucking water from multiple watersheds (Sierras included) so the Plastique People of LA can be sustained in the lifestyle to which they are accustomed.
Up on the Columbia river the amount of money spent on Salmon recovery amounts to roughly $80k/salmon. You should see the sea-lion pups chow’n-down when the Salmon run starts — gotta be the most expensive meal in the U.S.!
The MMPA takes away fish from high-end restaurants and feeds it to the sea lions.
Re: New Hope programs, thought you might enjoy this from our old friend Robert Cote:
“The government is going to create an underground economy. The government is going to disinscent saving. The government is going to experience tax avoidance of an unprecedented magnitude.
I looked at the participants of the Hope Now program and they all have two obvious goals; preserve the status quo and get as many payments out of borrowers before foreclosing.
If the teaser freezer goes through you are going to have cases where the prudent honest buyer sees his neighbor who lied and took out a toxic mortgage and overpaid now paying less and the lower payment is funded by the higher tax bill the prudent buyer is paying because of the bad neighbor’s purchase price. It is exactly a situation like this that the Founding Fathers were so insistent upon a solid Second Amendment.”
What’s an Amendment?
“A well regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms shall not be infringed.”
The Supreme Court will hear a very important case involving Washington D.C.’s ban on handgun ownership next year.
In addition to the above, possible upcoming Constitutional crises include the possibility that Justice Stevens passes away before the end of President Bush’s term, and the Dems refuse to confirm any nominee so that the new Dem President Hillary can nominate after the election and transition. This would, of course, require that the Supreme Court can resolve a 4-4 deadlock on a contested 50-50 presidential election.
Think about it. Hide yer guns.
The supreme court took the case. Who do you think runs the supreme court and decides which cases to take. This is being done for the election.
Do those come with signing statements?
Paulson and other government officials have held talks with lenders and investors that would create a broad system to make it much easier for borrowers with subprime adjustable-rate mortgages to temporarily freeze in their starter rates to avoid foreclosure. The plan has not been finalized, and Paulson withheld some specifics, such as how long an interest-rate freeze might be in place.
What they’re saying to business is that it doesn’t pay to do business in the US. You make a valid, lawful contract with someone, and the government will step in and renegotiate the terms of it!
I wouldn’t mind if they determined that fraud was involved (on either side) and invalidated the entire thing! But to just modify an existing contract between two fully-informed parties seems, well, UnAmerican.
If the banks determine that they’d it would be best lower the rate and keep these customers, wouldn’t they decide that for themselves?
Mr. Freeze’s “Hope Program”
1. 1-800 number
2. Mass mailing
3. Counseling
4. Potential municipal and state financing (like Florida and California have some room on their credit cards to pick up the FB tab)
The Characteristics of Offshorable Jobs
November 14, 2007
Per the Economic Policy Institute
8 Million more jobs will be offshored in the next 5 years primarily college educated working in IT. The wage advantage to eliminate/offshore was ~$8K for college educated and $4K for non college. There are 31MM jobs in the category, 25% elimination.
The paper refines and expands the work of Mr. Alan Blinder earlier this year. (Offshoring: The Next Industrial Revolution?)
http://tinyurl.com/npg5v
They estimate that 22% of the jobs in the US can be offshored (25 to 30 million jobs).
Caution 12 pg pdf.
http://tinyurl.com/25q3f2
This is downward wage pressure.
The beat goes on!
I may be wrong, but I feel that this is PRECISELY why the FED is trying to devalue the $. To close the gap so that it is not enough of a cost cutting measure to outsource jobs to another country.
Since when did the Fed or anyone else care about millions of folks across the country that have lost jobs since 2001 and are un-employed/under-employed? The Bush administration does not care, the Congress is constantly trying to bring in more H-1Bs, heck even some state Governers (including CA and AZ) recently argued for an increase in the H1-B visa quota; and the corporations sure as heck don’t care.
Most ordinary folks have been living off the equity made during the housing bubble - either by selling their homes or through HELOCs and/or using credit cards.
If the outsourcing stops or some of the jobs come back, it is merely an unintended consequence of this collapse, IMO.
I’m neutral on the H1-B program. It may be a net win to import more “taxpayers”. (People with professional jobs who are likely to be paying a reasonable amount of taxes.)
I think we pay for H1-B (and offshoring) in terms of quality. I think the quality of American software products in particular has not advanced as much as it could have because business wants to find the cheapest computer programmers it can, and do lowest-common-denominator work.
I have a B.A. in math, a M.S. in Computer Science, and am a licenced P.E. (i.e., I can legally call myself an “engineer” unlike most of the illegal “software engineers” you meet.) I don’t work in software anymore; Outside of a very few groups in certain companies (Google, Adobe), you’ll find too many H1-B sweatshops making crap.
Reuven:
1. So you answered some multiple choice questions about steam turbines. Fantastic, but how exactly does that make you a better software “engineer”?
2. Last I checked I actually had a degree in Engineering, but not PE. Does the PE soceity have a trademark on the term “engineer”?
3. If you think Google and Adobe don’t hire H1-Bs, think again.
4. The alternative to H1-Bs is the full outsourcing of this industry, which is what will happen if quotas are tightened. Companies are already starting up development centers outside the US. The H1-B engineer comes to the US at no cost (school and college education costs were borne in his/her country of origin); unless they become a permanent resident or citizen, the H1-B engineer is liable to SS tax but no benefits.
There certainly is an issue of quality, and that is something that is separate from the H1-B visa. There are bad apples in every tree.
1. If it’s so easy to answer a few multiple questions about steam turbines, why don’t you have your PE?
4. Exactly why I said “it may be a net win to import more taxpayers”. I’m not convinced the H1-B program is harmful. That’s why I’m “neutral” on it.
Subprime standards out ’soon,’ Paulson says
Government, industry still working on plan for troubled borrowers
By Robert Schroeder & Greg Robb, MarketWatch
Last update: 10:32 a.m. EST Dec. 3, 2007
WASHINGTON (MarketWatch) — The Treasury Department is working with mortgage-servicers and investors to come up with a plan to modify and refinance loans for certain subprime-mortgage borrowers, Treasury Secretary Henry Paulson said Monday.
In prepared remarks to a conference about housing, Paulson didn’t provide details about a reported plan to freeze interest rates on certain troubled subprime loans. See earlier story.
But he did suggest more details will be forthcoming. As more subprime loans reset next year, he said, “we will need an aggressive, systematic approach to fast-track able borrowers into a refinance or mortgage modification,” Paulson said.
He said he’s confident a coalition of mortgage industry participants will “soon” finalize standards for loan modifications.
Paulson reiterated that the downturn in the housing market is “the biggest challenge to our economy,” but said the Treasury’s plan to help out subprime borrowers doesn’t include spending taxpayer money on funding or subsidies for either the industry or homeowners.
http://www.marketwatch.com/news/story/paulson-sees-subprime-standards-soon/story.aspx?guid=%7B2D0BD676%2D5CD5%2D4D8D%2D87B9%2D3A10FEC099E7%7D&dist=sp_inthis
His plan transfers the risk directly from the banks to the tax payers.
At no cost to taxpayer, no less! Sounds like magic.
The preliminary discussions: “Today, we are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancing,” Paulson told a housing conference sponsored by the Office of Thrift Supervision. “If enacted, this would reduce the cost of innovative mortgage programs.”
So take the mortgages from the banks and finance with municipal bonds. This is doomed from the start. Cities cannot even get school funding bills approved. Why expect any municipality to approve a mortgage bailout?
“The State has always been the patrimony of some privileged class or other; a priestly class, an aristocratic class, a bourgeois class, and finally a bureaucratic class, when, all the other classes having become exhausted, the State falls or rises, as you will, to the condition of a machine; but it is absolutely necessary for the salvation of the State that there should be some privileged class or other which is interested in its existence. And it is precisely the united interest of this privileged class which is called Patriotism.”
Mikhail Bakunin
While I agree that an awful lot of FB’ers had no business buying a house in the first place, there are some of us, like myself, who did save and put down 30% on a house that is now, after 2 years of remodeling it ourselves with blood, sweat and tears, losing value. Yeah, we bought in ‘05. Some of us are too young to have known that no, real estate does not “always go up”, but there sure were plenty of shills around to brainwash us into thinking so. These people should be held accountable. They created a psychological atmosphere of panic, of “buy now or be priced out forever”, and I am ashamed to admit that I behaved sheeple-ishly and bought into it. Now we can handle our payments just fine, thanks to the 30% and also buying a starter home, but now we are going to move overseas, the sooner the better, and I’m already planning to offer 3% closing costs as well as asking for only the price I paid plus the money we sunk into the old money, and I am still afraid it won’t sell. Some of us were responsible buyers and still got the shaft.
All you have to do to know that real-estate doesn’t always go up is to look at historical prices. At the very least, you could see that, in any given area, prices can drop dramatically in a downturn. You could also see that, in any normal market, you could not expect to make back your costs in two years and break even. Either you were expecting to stay in your house long term and your plans changed - so you’ll have to take the normal loss from living in a property only a short time OR you planned to “flip that house” living in it two years to avoid capital gains while banking on massive appreciation to make you rich. So, why should I pay you your overinflated costs plus 100% of your rehab costs? No thanks. Sorry to sound harsh but I did *not* buy at peak and do not have any obligation or desire to make sure you break even.
“You could also see that, in any normal market, you could not expect to make back your costs in two years and break even.”
A friend of mine that I am now considering an idiot still thinks that she can buy a house today and make a profit in two years. She and her husband currently need to sell their house, and are moving to a city 45 miles away. The husband has a clue, though, and has been trying to convince her that if and when they can finally unload their place (that they bought in 2005), that they need to rent for a couple of years. I’ve tried to talk to her about this for the last three years as well. I even tried to talk them out of buying the house that they are currently in. It’s becoming increasingly difficult to be friends with someone who you’ve determined is a spoiled little rich kid who’s turning in to a semi-adult, entitlement attitude bozo.
Chad, your friend is definitely an idiot - get rid of her - you can do better. On the other hand, I think Md is being tough on the young FB. Every young person makes a bad investment decision - young FB will dig himself out of the hole and benefit from the experience. He wasn’t asking for a handout - he was acknowledging the problem he has.
Some of us are too young to have known that no, real estate does not “always go up”,
One of the more frustrating aspects of the bubble is witnessing young people - 20somethings - take this bait. This past spring, a young woman I know purchased a home with her boyfriend, with the blessing of both sets of parents. Her mom is a friend of mine but I never counseled against buying. After all, the young buyer’s older sister was a newly minted realtor, and had professional knowledge and experience of about four months holding a license. Plus she pocketed the commission on the sister’s purchase. So who was I - Miss Buttinski - to say anything about it?
These people should be held accountable
Who exactly, and how? If you can take any consolation out of your situation, it’s that you’ve learned firsthand how a bubble operates, and that realtors are not your friends.
Your own family are not your friends.
I remember dealing with early 20-somethings during the dotcom boom. They thought they were investment geniuses for “picking” stocks that went up 30%, 50%, 100%. It was hard to buy anything during that time that didn’t go up!
(I got the last laugh! In 1999, I bought some BRK when it took a dip into the 40K range. It’s up over 350% from them, and pets.com, etc, are history. I just have to remember to sell it *before* Buffett dies.)
I’m sure you realize that what you spent has no relation to it’s current value or it’s future selling price. If you need to sell it then it needs to be the best priced house on the market relative to similar houses. I’d be 5-10% lower so you can catch the very next buyer. You’ll need to keep checking prices and adjusting your price since you are now in the unenviable position of following the market down. Just my unsolicited opinion of course.
Newsweek’s 11/26/07 Perspectives features a Thanksgiving cartoon depicting a conversation between two turkeys. The one with its head intact says to the one whose head was just chopped off, “You think you have problems — I have a house I need to sell.”
Sorry I cannot find an online link…
At this point, you have already lost money. There is no point crying over spilled milk (or spilled remodeling costs). What you paid and what you spent on remodeling doesn’t mean squat. Price your home significantly below comps and sell it. This is NOT the time to be stubborn as many sellers will learn the hard way.
You need to take your losses and get out ASAP because the market will continue to fall over the next couple of years, then face a long period of either slow decline or flat nominal prices.
We are looking overseas at nicer houses in much nicer areas than our third world overseas “starter house” (read: a house a well-to-do local could live in.) My wife was shocked that the price of a smaller (than our US) house in the overseas gated community was about the same as our 4 x median income US house.
I guess she always knew that the people living in those places were rich, she was just shocked to find out that they were as rich as Americans.
The gated communities are becoming very popular due to crime increasing, especially home break-ins. In Costa Rica where we are headed, my SIL just bought a very nice 4bdr/4 bath concrete/stucco home in a gated community for $230k. Not cheap at all, but the same in the U.S. in a warm climate like that would cost double. We know an expat couple who built a very nice 3/2 home there for 70k. If we can sell our home without taking too much of a hit, we can almost build one like that. We’ve had the land forever. I guess I should see that as offsetting the potential loss of money put into our home. Now if we want to live in a gated community, that is a different story. SIL was fortunate in that her friend was the community’s builder and gave them a 0% mortgage. Can’t beat that.
Global Economic Forum
United States
The Earnings Recession
December 03, 2007
By Richard Berner | New York
“It’s official: An earnings recession is now underway. That’s true whether the metric is S&P 500 operating earnings or corporate profits that economists project. Measured by the S&P 500, our strategy team estimates that earnings per share declined by 2.8% in the third quarter compared with a year ago. And while statisticians estimate that the broader gauge in the US National Income and Product Accounts (NIPAs) rose by 2.7% over the same period, there are clear signs of deterioration pointing to weaker future results. Indeed, I think a squeeze on profit margins and slower volumes are doubly crushing earnings growth. Wall Street analysts have begun to get the message: As recently as November 2, the consensus forecast for fourth quarter S&P 500 operating earnings was for a gain of 8.4%. My colleague Bill Smith calculates that the consensus now predicts a gain of 2.2% in the fourth quarter. And the team’s S&P 500 earnings revision factors signal further downward movement over the next several weeks.
The key questions: How deep will the earnings downturn be, how long will it last, and what are its implications for the economic outlook? In my view, it promises to be nasty. High operating and financial leverage argue for a significant contraction in earnings even if the economy skirts recession. Even with moderate growth, I think earnings will contract in 2008, but the margin squeeze will magnify the downside risks to earnings by a multiple of four or more. In other words, in a 1-2% GDP economy, I think earnings may contract by 2-5%, but in a 0-1% growth environment, they may decline by 5-15%. Moreover, the earnings recession carries downside risks for the economic outlook: Pressures on profit margins will contribute to weaker capital spending and perhaps depress hiring….”
Morgan Stanley
http://tinyurl.com/2xyg9c
Meant money we sunk into the “old money pit”. I’d rather have done that though, in a nice WW2 era concrete block home than have purchased a chipboard-and-vinyl suburb house! At least…
We like to call them vinyl villages in Omaha. Has a catchy ring to it.
Kirkland’s Plans Closures of Many Mall Stores
By Debra Hazel
Kirkland’s
JACKSON, TN-In order to improve cash flow during a difficult environment for home furnishings, Kirkland’s will accelerate its closure of underperforming units, mostly in regional malls, executives said during its third-quarter conference call.
The company will close 30 stores in January 2008, and anticipates reviewing another 100 units over the next 18 months for potential closure. Many of those to be closed likely will be mall units, as the company continues its shift to off-mall locations. Currently, about 41% of the company’s stores are located in malls, and Kirkland’s is aiming that percentage to drop to between 15% and 20% of the store count, located in a much tighter geographical spread. …”
http://tinyurl.com/2zwge3
Commercial real estate is the next to plummet as stores consolidate to survive.
“A large number of really nasty stores will close a year from January”
Wow, a CEO calling some of his own stores “nasty”.
Also noticed on the “industry quick links” section that there is one for WalMart Realty. Jeeeeeeeeeeeeeeezzzzzzzzzz.
Bought AMZN this a.m. They should do well at Christmas.
Especially since this year you can do MP3 downloads
A bit (maybe a lot) OT, but possibly these chimps are available and can set economic policy, since at least the chimps have a memory.
Young chimp beats college students
http://tinyurl.com/3blbgn
“No one can imagine that chimpanzees — young chimpanzees at the age of 5 — have a better performance in a memory task than humans,” he said in a statement.
The administration’s new education program will be “no chimp left behind,” since the kids were left behind long ago.
This is not suprising to me at all. What else does a monkey have going through his mind at the time possibly besides throwing dookie and eating bananas? Easy to concentrate on something when your mind is clear. At least college students can blame it on all the beer and weed.
Big loud party saturday night an a house on the other side of the canyon. Just happens to have been sold to lender 30 days prior. One last big blow out. I looked up this guys and he owned 3 other properties all which have gone back to the lender in the last year. This one was the last one and apparently one he occupied.
Probably said to his buddies, “I’ll provide the beer if you rip out all the plumbing.” Destruction parties, cool.
“…Will the decline of USD become disorderly? Our call for a weaker dollar rests on three ideas. First, we expect the US economy to continue to be the source of dollar weakness in the coming months. The housing recession, where no end is in sight, is joined by an adverse impact on consumption from rising energy prices, as well as a restriction of credit. To counter that we now expect the Fed to cut rates by another 75bp, with the first installment due in December. Second, the present financial crisis has as its epicenter US financial institutions and US financial products. We are concerned that Europe may increasingly be subject to a risk premium, but until this happens the dollar is mostly at risk. Thirdly, the dollar is under pressure from a structural change in the management of central bank reserves and sovereign wealth funds. While we believe that the near-death of USD as a reserve currency has been greatly exaggerated, we do find signs of a structural headwind against the dollar. Further, US rate cuts and rising inflationary pressures in Asia and the Middle East are making life harder for dollar peggers to the point where a change in GCC dollar pegs as well as an accelerated rise in CNY could be underway….
…A further deterioration of the global financial crisis, prolonged dollar weakness and unwinding of carry trades all point to a stronger yen in coming months. These argu-ments are joined at the domestic level with a significant improvement in the trade balance as well as by a partial reversal of the net capital outflows that helped weaken the yen to record lows earlier this year. In line with our call for a rise in EUR/USD, we have lowered our forecast for USD/JPY and we now look for a move to 100 in six months time (115 previously). For the first time in almost two years, we also forecast a drop in EUR/JPY, although we expect this move to occur hesitantly as long as the ECB retains a credible bias to tighten….”
December 03, 2007
Teis Knuthsen, Chief Strategist, +45 45 12 84 95, tekn@danskebank.dk
Danske Bank (caution 5pg pdf.)
http://tinyurl.com/22cnsz
Countrywide Chairman says Fannie, Freddie can help ease housing crunch
By Michael R. Crittenden
Last update: 12:16 p.m. EST Dec. 3, 2007
WASHINGTON (MarketWatch) — The ongoing housing crisis will continue due to a lack of liquidity in the mortgage market and falling housing prices but Fannie Mae (FNM 36.99, -1.43, -3.7%) and Freddie Mac (FRE 33.92, -1.15, -3.3%) can be “more active” to try to ease the credit crunch, Countrywide Financial Corp. (CFC 10.66, -0.16, -1.5%) Chairman and Chief Executive Angelo Mozilo said Monday.
Speaking on a panel organized by the Office of Thrift Supervision, Mozilo cited a “total loss of confidence” in the secondary mortgage market as a major cause of the current downturn. That lack of confidence has stemmed the flow of funds available to lenders and helped exacerbate the downturn in housing prices.
“We’re in a terrible cycle here and the problem is how you get out of it,” Mozilo said.
http://www.marketwatch.com/news/story/countrywide-chairman-says-fannie-freddie/story.aspx?guid=%7BB2E9D42A%2D8A83%2D4432%2D8597%2DCAF0A36EEA55%7D
Hopefully the cloud of doubt cast by Cuomo’s subpoenas, not to mention many balance sheet questions, will all be cleared up before the GSEs’ “dominant role in housing finance (grows) still further.”
Fannie and Freddie are here to stay
By Clive Crook
Published: December 2 2007 18:09 | Last updated: December 2 2007 18:09
Bromley illustration
Until recently it was possible to regard the US system of housing finance as one of the best – if not the best – in the world. Just as it was intended to, it has supported very high levels of home ownership, notably among the less prosperous. But the semi-public entities chiefly responsible for that success, and the financial technologies they devised and promoted, are deeply implicated in the housing market crash that now threatens the US and world economies. Will that turmoil lead to a scaling back of their role? Most likely no. They are cast as part of the solution. Their already dominant role in housing finance is set to grow still further.
http://www.ft.com/cms/s/9a90d374-a0f4-11dc-9f34-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F9a90d374-a0f4-11dc-9f34-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
“Treasury Secretary Henry Paulson said he is confident there will soon be an agreement…Countrywide Financial Chairman CEO Angelo Mozilo praised the plan: “It’s a good plan,” Mozilo told CNBC. “We’ve already done about 55,000 of these loans in terms of saving them from the reset. We’ll do 70,000 by the end of the year. And we expect to do another 40,000 to 50,000 next year depending on where rates go.”"
Ahahahahahahahahahahahahaha! 70K helped this year, and LESS (40,000 to 50,000) forcasted to be helped next year…and Countrywide is one of the biggest players. What was the forecast next year for loan resets again?
The fed teaser freezer plan? Drop in the bucket.
I know a lady with a CFC loan for 550 on a 650 - sold a TX mansion that had appreciated to 850 to one of the last GFs (buyer went into default within 6 months, BTW), and probably paid off some credit with the rest of the gain since her loan is >8% going to >15% early next year. Freeze would let her stagger on for awhile. Even if the freeze happens in time, I imagine CFC will find some way to let her twist in the wind though.
She did a lot right: Not only did she sell her white elephant/millstone at or near the peak, but she even got some serious equity in the new house. (Unfortunately, she still bought too large ;( ) That equity will hang her with CFC, likely. (And imagine the credit rating that gets >8% ARM with 100K down…)
http://biz.yahoo.com/ap/071203/mortgage_crisis.html
we all should have just bought homes. Here comes the bail out for the asshats!
Anyone able to give some help researching a property? My in-laws would love to know what the scuttlebutt is on it.
I saw my first bank auction sign–it was huge–in a property in Moreno Valley, CA near my in-laws this weekend. Here’s the details:
24911 Gold Star Dr.
Moreno Valley, CA 92551
The auction is on 20 December at 1 p.m..
The minimum bid is $100,000.
There is a 10% buyer’s premium (BLECH!).
There are open houses prior to the auction.
The house is probably totally gutted. It looks terrible from the outside. I am not sure $110,000 plus $20,000 in repairs would get it to a rentable condition, and even then $1,300 per month would be a tough sale in that neighborhood. The minimum bid should be lower. I wonder if this will sell.
A Google search shows the address linked to “Johnson’s Transportation,” a trucking “company.” Probably a self-employed casualty of the housing bubble.
Thanks, All!
CCC
My Zillow research shows 2 sales–one in 1999 for like $90,000 and one in 2003 for over $250,000. Would really like to know about the loans used in the 2003 purchase, and any refis / HELOCs.
Not sure about the financing / HELOC’s, but here is an assessment, and note that there are taxes due from a previous year. Outrageous “value”. That’s one that you’d have to fight with the Riverside County assessor on, to be sure.
https://riverside.ca.ezgov.com/ezproperty/review_detail.jsp?ezPropertyId=4851010049
Ironic having ex-Goldman Sachs Exec (now US Treasury Secretary) talking about mortgage “deals” when he was part of the problem lending. Hilarious or pathetic (or both). Google “The Long and Short of It at Goldman Sachs” and checkout Ben Stein’s take from yesterdays New York Times Business Section. I often don’t agree with Stein’s opinions, but I have to hand it to Ben for writing this article.
BTW, Battipaglia normally comes off as somewhat of a permabull…
December 3, 2007 2:09 P.M.EST
BULLETIN
Monday gloom gives way
Stocks lower on continued concern about the economy and financials, as investors study auto-sales reports and weak manufacturing data.
• Battipaglia says stocks could lose 15% on recession risks
marketwatch.com
“Borrowers with steady incomes and relatively clean payment histories” will be the focus of the mortgage restructuring deal, Secretary Paulson said.”
Irresponsible borrowers from the get-go, but that’s OK - with just “relatively clean” credit you’re good to go. Where can I get my something for nothing?
http://news.yahoo.com/s/ap/20071203/ap_on_go_ot/nation_in_debt_4
National debt grows $1 million a minute
The government is in the same predicament as the average homeowner who took out an adjustable mortgage,” said Stanley Collender, a former congressional budget analyst and now managing director at Qorvis Communications, a business consulting firm.
What else is new about government lies, he asked deceptively?
“A new U.S. intelligence report says Iran halted its nuclear weapons program in 2003 and it remains on hold, contradicting the Bush administration’s earlier assertion that Tehran was intent on developing a bomb.
The new National Intelligence Estimate (NIE) released on Monday could hamper U.S. efforts to convince other world powers to agree on a third package of U.N. sanctions against Iran for defying demands to halt uranium enrichment activities….”
Reuters
The failure to invade Iran is going to cost T. Boone Pickens dearly. He already has made more money in the last five years than in his entire career up to that point. The gravy train may be forced to stop.
Wish I could say ‘/tinfoi’, but I can’t.
US downgrades Iran’s nuclear threat
By By Daniel Dombey in Washington and Stephen Fidler and James Blitz in London
Published: December 3 2007 18:42 | Last updated: December 3 2007 20:42
US intelligence has downgraded its assessment of the risks posed by Iran’s nuclear ambitions with a surprise declaration on Monday that Tehran halted its nuclear weapons programme in 2003 and may not have restarted it.
The conclusion undermines arguments for prompt US military action against Iran to stop its nuclear programme and provides support for intensifying international diplomatic and economic pressures on Tehran.
http://www.ft.com/cms/s/41824020-a1cf-11dc-a13b-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F41824020-a1cf-11dc-a13b-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
This has got to be the most brilliant off-think yet.
I can see Condalezza arguing that we attacked Iran because our intelligence assesments in Iraq were 100% wrong. So if our intelligence shows that Iran is not going nuclear than it must be going nuclear because intelligence is always wrong.
LOL! On second thought, not that funny.
How many think this intelligence estimate is a way to drive oil prices down to help the economy? They say there is a 20% risk premium on oil. If they can decrease the risk oil prices may fall.
Hoz,
Intentional Deception is going to stop, when the gov. shuts down from “budget perspective”….. tell it to the FED.
Guess this explains the hundreds of “New” auto’s being “parked” at the local Wal-Fart…do the local cities get revenue from leased out painted lines? Because it’s certain… the Walton family does.
U.S. auto sales slid in November, led by an 11 percent drop at General Motors Corp
GM’s sales chief Mark LaNeve echoed that sentiment. “We don’t want to bury our dealers in inventory,”
http://www.reuters.com/article/ousiv/idUSN0343205520071203?sp=true
From 12/03/07 Dow Theory Letters”
“Lest there are any doubts, here is the Richard Russell position on the stock market. We are in a primary bear market. The bear market was signaled when, on November 21, the D-J Industrials Average closed below its August 16 low of 12845.78, thereby confirming the prior breakdown of the Transports.”
A classic line in this craig-ad for Dana Point, CA: “Homes currently on the market are often taken before you know it.” Yeah righhht.
http://orangecounty.craigslist.org/rfs/497511550.html
Citigroup receives another bailout.
Office property owner SL Green Realty Corp (SLG.N: Quote, Profile, Research) has reached an agreement to buy Citigroup Inc’s (C.N: Quote, Profile, Research) downtown office complex for $1.575 billion, a source familiar with the deal said on Monday, underscoring the health of the Manhattan property market, despite turmoil in the lending markets.
Canadian real estate investment firm SITQ also will take a 47.5 percent stake in the complex at 388-390 Greenwich St. when it closes later this month, said SL Green, which will retain a 52.5 percent stake. … blah, blah, blah”
Reuters
Just a routine bailout by a sale-leaseback so that the bank has more cash on hand. Anything to reach Tier 1 levels by December 31.
220, 221…. whatever it takes.
Im callin February Meltdown, just prior to the CHINESE Olympic, single feed “techno revolution” on the RED DRAGON. I need to rest, just like the furious traders on the floor at the Asain Exchanges.
I have been recently reading “Market Ticker” by Karl Denninger.. Today’s subject is on the money/credit cycle. Interesting article. Since I am not an economics geek, how qualified is he in his opinion?
Thanks in advance for your opinions
http://tinyurl.com/ytn8ru
I don’t know how qualified he is, but he’s no dummy. It’s Finance 101B, not taught in schools. Here’s the deal:
1. Debt/Credit is being DESTROYED, i.e. a credit freeze or credit crisis. Assets that can be financed, have been, to the hilt, and are collapsing in ‘value’. Foreclosures, short sales and distressed sales of all types of assets, or debt secured by those assets, are currently in the processing pipeline. This can be generically be called “deflation”.
2. The velocity of money is hitting the wall. No new debt/credit is being created. The compound interest formula is NOT happy.
The compound interest formula requires growth of debt/credit and is additionally fed by velocity.
3. The result, if the compound interest formula is NOT FED daily: Debt implosion, systemic financial crisis, and crash. Or as he puts it, a ‘reset’ of the financial system.
So the answer is yes, he’s basically correct. He’s wrong on gold though, in my opinion. Even in a deflationary collapse of financeable assets.
Caveat, I have been drinking beer.
fredddie,
your gonna get along quite well with Hoz……cut of the same jib.
Voz is back…… the hemmoragin of money continues as the new money enters the market…. case in point, look at the interest in Jan 2010 puts for LLTC… on friday, the only interesting open interest was 7500 PUT @ $12.50
the big money sees the implosion. Last go round, LLTC got cut from 60 to 30, this time its 30 to 10. Of course, no bubble must be blown in “alternative” energy…..for that to happen, oil should go to 45 (oil at 45 kills alternative energy)…. if an alt-energy bubble is to manifest itself, oil must go to 110-130, and gold to 1100-1400.
If too many people are looking for the bubble, it cannot manifest itself before its too late to profit.
thanks for coming out.
NEW YORK (AP) — The chief technology officer of chip maker Linear Technology Corp. indirectly exercised options for 30,000 shares of common stock, according to a Securities and Exchange Commission filing Thursday.
In a Form 4 filed with the SEC, Robert Dobkin reported a trust that controls the options exercised them for shares Thursday at $12.97 apiece and then sold 70,000 shares the same day for $31.01 to $31.04 apiece.
Insiders file Form 4s with the SEC to report transactions in their companies’ shares. Open market purchases and sales must be reported within two business days of the transaction.
Linear is based in Milpitas, Calif.
if the chief IT guy is bailing out…….jump ship.
debt = money supply, OK I think I get it as banks loan money they create most of that money and it adds to the money supply ( I think I learned that in college accounting class ). the easier the credit conditions the more money is created. Now if all the borrowers can’t pay back the money out of their wages the banks have to take back the colateral in this case houses which they don’t want at least anymore. So a plan to keep the borrowers in the houses and paying back the loan is made.
too much money was created causing inflation in housing and now the plan is too keep the housing inflated or else risk the loss as the colateral goes down in price.
And reset is a new lower money supply which equals the worth of the collateral. Already this sounds bad that housing value is going down fast in a deflationary mind set of why buy now when it will be cheaper tomorrow?
So if no one borrows to create more money supply what do you do? Didn’t Bernake say he has a printing press and hes willing to use it ? So he prints money and loans it to the banks so they can loan more money but nobody is borrowering because they have too much debt already. So what do you do ? Refinace their exsiting debt so they can borrow more.
Is that what they are trying to do?
$10.43, per share dividend…… is this a joke?
I thought it was my “imagination” attacking me, but OIH really does have a 10 dollare “one-timer” at 10 bucks on November 23, 2007….. is that was has top-kicked oil?
If oil crashes (along witht the commodity complex) people are gonna get hurt….. and nobody will be able to get out of the way of the stampede.
last word:
It should also be mentioned that the Fed has not conducted a single coupon pass since May 3, 2007.
Today, is December 3, 2007
days of no coupon bond issuance?
Russ Winter has this point pegged.
“Despite the erratic behavior of FCB purchases it must be mentioned that FCB holdings have hardly grown since July 26 when they stood at 2.011.8 trillion. They were at 2.033.5 trillion on Nov. 29th. It should also be mentioned that the Fed has not conducted a single coupon pass since May 3. This combination is important as a measure of liquidity flows, and just outright runs counter to the conventional wisdom that a flood of fresh liquidity has been provided to deal with the credit crisis in the US. The reality is in fact quite the opposite.”
the containers are going to stop arriving with Flat screens, Plasma’s, guitars, cell phones, games, cars…. and all the other delfationary “wants” of the US and A.
Id like to here about how the FED is doing on coupon passing, versus all the coverage on overnight ops that are never going to end.
American house prices
Fantasy or phobia?
Nov 29th 2007 | PORTLAND
From The Economist print edition
It’s no fun playing any more on the property ladder
…
More evidence emerged this week of just how bleak the real world has become for homeowners—and not just those saddled with subprime and adjustable-rate mortgages. On November 27th the S&P/Case-Shiller National Home Price Index reported a fall in American house prices of 4.5% in the third quarter compared with a year earlier, the biggest drop recorded in its 20-year history. Robert Shiller, the Yale University economist who helped design the index, does not provide a forecast for next year, though he says that futures prices on the S&P/Case-Shiller Composite traded in Chicago anticipate that they will fall a further 5%. On the other hand, declines of 50% are not “out of the question”, he says.
http://economist.com/finance/displaystory.cfm?story_id=10225023
nd not just those saddled with subprime and adjustable-rate mortgages.
I hardly think they were “saddled” with them! More like they hitched thier own carts to the sub-prime horse. “Saddled” is just MSM-speak to victimize one of the culprits.
Sub-prime homeowners who couldn’t really afford their houses, combined with dishonest mortgage brokers, conspired to steal money from the minority of Americans who work hard, pay taxes, and have savings.