Bits Bucket And Craigslist Finds For December 5, 2007
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The Housing Bubble
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Commentary, Natalie’s Predicament…
http://www.wrisley.com/comment.htm
Except for the idiotic remarks about Baby Boomers, it’s a good article.
i just don’t see the Treasury wanting to rescue debt-people.. The bail-outs are aimed at supporting and protecting the whole economy (meaning jobs and business), imo.
As far as some guilty parties seeing some benefit from the various proposals, I respond with something along the lines of “It’s better that 10 guilty men go free than one innocent man is imprisoned..”
imo, they believe that a whole lot of innocents will suffer needlessly if the crew simply abandons ship.
Innocents? Even if there are people in trouble who are innocent of any intentional fraud they are guilty of stupidity. That’s a hanging offense in nature and humans ought not to interfere with her brand of justice.
“Innocents? Even if there are people in trouble who are innocent of any intentional fraud they are guilty of stupidity. That’s a hanging offense in nature and humans ought not to interfere with her brand of justice. ”
Agreed.
It should not be taxpayer’s obligation to try and “save” others from the valuable lesson learned from their bad fiscal decisions. Period.
DOC
i see i have to define “innocents”.
Innocents, as in prudent savers, home owners who are not in debt.. kids.. responsible citizens.. responsible businesses, even including some lenders.. in other words, about 75% of the population and business world and perhaps 90% of the jobs.
Many people seem to have no conception of the sort of hellish things that can happen in a sudden economic collapse, or, if they do know, they think they are somehow immune. And then there are probably a few sickos who go beyond schadenfreude and just get off on destruction and mayhem.
Joey I think what you are missing is the fact that the system you want to make sure doesn’t grind to a halt is not a normal system of public commerce whereby commodites and services are rationed by real demand and traded for with people’s hard earned time.
It’s a fraudulent ponzi scheme at best and for anyone to argue for its rescue is insane.
Are a lot of bystanders going to feel the effects? Sure they are. Everyone in Pompeii felt the heat that day. Even innocent babies.
What you’re saying is let’s postpone the day of reckoning until our children have to be responsible for it.
That’s pretty lame.
“Pompey lives after his battles, but his fortune has perished.”
Lucan
I have to assume that you have a blueprint for a better “system”.. lets see it.
The Germans are running their system better than we do ours. Deutsche Bank took massive write-downs while Citi & friends were trying to start up a Super-SIV to hide their losses a little longer.
The problem with economic cycles is that the longer you put off the day of reckoning, the worse that reckoning is.
Check out Money: Whence it Came, Where it Went by John Kenneth Galbraith from your local library. Good read.
I think of it his way, an ideal system is one where you have the freedom to make a wide variety of decisions for yourself, and you bear the consequences of those decisions.
If individuals don’t bear the consequences of their decisions (or someone fixes the game so the consequences are muted), those individuals will continue to make poorer and poorer economic and financial decisions, and economic inefficiencies will grow larger, and larger.
The cycle (the public bearing the cost, mitigating short term pain for an individual’s decision) needs to be broken at some point, or else our capitalist system will weaken, hurting everyone in the future.
I agree that if we let the whole thing crash, lots of “innocents” as you define them will be hurt in the near term (for several years), but those guilty (the other 25%) will be hurt far, far, more. To make the system as I envision it work, THIS outcome is far better long term than one where everyone bears lessened pain pain to be paid for later.
Considering the complete gutting of our economy in recent years, there doesn’t seem like there’s much to “save” other than the ability for people to commit mortgage fraud and jack up the cost of living for those among us who are stupid enough to be honest, save our money, and try to be productive in society.
As long as you have compounding interest, you’ll have a Ponzi scheme.
We just have the luck of being ALIVE at the time of the inevitable implosion - the end of the line when there’s nothing that can be done to reinflate the debt bubble.
The only thing to do now is DELAY it as long as possible and hope we’re dead by the time IT really hits. Mass starvation, poverty and ruins have a way of changing one’s life plans.
Unless you have terminal cancer or get hit by a bus, I wouldn’t hold out much hope. Oh? You have children? Sucks to be them. Just explain the facts of life - 2+2=4 -the piper must be paid and we and our ancestors stuck them with the bill.
Whoopsie - I keep forgetting! Everyone here is chomping at the bit to buy a house for pennies on the dollar! This is just another housing bust that comes along every cycle.
Apologies for mentioning reality…
So…It’s better that ten serial killers go free to continue serial killing than to allow one innocent man get imprisoned.
Wow.
If the one man wrongly imprisoned is you then yes.
“If the one man wrongly imprisoned is you then yes.”
He’s Captain Popularity here don’tcha know. LMAO..
As long as the innocent imprisoned is you, I have no objections; and how could you rationally object?
It’s win-win.
wtf.. this old saying about guilty going free, etc. goes back at least to the ancient Greeks..
Ben Franklin said it had been “long and generally approved and never controverted.” In other words it’s a standard opinion in government and law, and has not been disputed by civilized societies..
I agree in pricinple with the 10 guilty going free vs. the 1 innocent going to jail.
But what you are advocating is akin to pre-pardoning serial killers. It’s a bad analogy. You haven’t even thought about how to seperate the serial killers from the innocent and you are ready to let the serial killers free.
Here’s a hint. If someone making 30K a year bought anything over 100K they’re a serial killer.
Yeah it may be better that a serial killer goes free if there is a doubt, but you still have to arrest him, gather evidence and hold a trial.
waahoo.. from your comments i am sure you don’t have the slightest idea what i am ‘advocating”.. start over..go back and read the article wmbz posted. Then read the whole thread again.
You mine as well empty the prisons now. I am betting on at least 1 innocent is in jail. This argument is silly. Taken to its extreme it makes no sense.
Speaking as one falsely imprisoned, I can only say…it’s heartbreaking.
And VERY expensive.
“imo, they believe that a whole lot of innocents will suffer needlessly if the crew simply abandons ship”
Frankly everyone is guilty - govt, Fed, lenders, middle-men/women as well as FBs. The only people who are innocent are right here on this blog. If you really want to make sure that the innocents not pay for the sins of the guilty, advocate a thorough cleansing. Start with massive number of foreclosures!
“If you really want to make sure that the innocents not pay for the sins of the guilty, advocate a thorough cleansing. Start with massive number of foreclosures”!
100% correct IMHO. Why on earth don’t most folks understand that corrections MUST occur? Prolonging the inevitable only makes the “pain” all the more painful. I guess for the most part we are a bunch of spoiled brats that only want it our way and to hell with what is best for our Country in the long run!
Government likes crisis created or otherwise then they have an excuss for getting bigger and more powerful.
Job security in other words. And yes we will all pay for it.
Perhaps not phrased the most eloquently
but right on the money. Crises give excuses for government to extend its tentacles - e.g. the socialist programs instituted by FDR during the depression that were “temporary”.
That’s what I fear most, by far, about this bubble. I don’t fear the economic downturn itself, even if I’m affected (I already have been some, though haven’t lost my job). An economic downturn in itself, even if it’s a depression, will work itself out and things will eventually return back to normal. What won’t return back to normal is the government policies implemented in the name of trying to “save” us.
Direct bail-outs aside, I look for this thing to eventually be linked to other hot-button issues like health care. When the media starts giving sob stories of people who can’t afford health care because their house was foreclosed on (I’m amazed it hasn’t started already), then of course the natural solution is “universal” (cough cough) health care. That’s the least the government can do for those unfortunate souls.
When the media starts giving sob stories of people who can’t afford health care because their house was “foreclosed on (I’m amazed it hasn’t started already), then of course the natural solution is “universal” (cough cough) health care. That’s the least the government can do for those unfortunate souls.”
Gee, the Christmas season sure brings out the “love thy neighbor” response from our fellow bloggers. I wouldn’t wish for the 1929-1937 depression on America, and if there are some federal governments programs like universal health care to relieve the suffering, bring it on.
.- ‘What would Jesus Do”-.
I’m spending twice as much today as I spent on groceries for myself and the little lady this week on dry goods and canned goods for the local food bank. And I still think a swift hard crash would be the best thing! Clear it out quickly, clean up the mess, and get back to investing in real industries and innovation.
The alternative is 15 years of Japan-style deflation. Fun. I’m sure we’ll all enjoy that.
Forget about reflating the bubble; they would if they could but they’re broke now.
Better 18 months of hardscrabble than 10 years of depression…
Btw, when Rusting Behemoth, Inc’s assets are sold for 10 cents on the dollar at fire sales, newer, more competitive businesses come into being. Saving Rusting Behemoth, Inc hurts our competitiveness in the global market! (But it shore does make those CEO golden parachutes gleam right purty in the sun.)
Testify!
Take the pain! Take the pain!
The recession of ‘80/’81 was as miserable as it could be.
Gaz at historic levels, 21% prime, 16% mortgages, junk auto’s from Detroit, bad music, bad hair…you name it.
So you hunkered down, devised a living strategy, found interests and hobbies that didn’t cost a bundle, and life went on.
However, today with a hollowed out manufacturering base and a trashed currency gettinn’ back on top is gonna be a bear.
Problem is, politicians, being appointed or elected folks, don’t have the balls to leave things alone and let the mess purge itself.
joeyinCalif’s argument closely matches a statement made by Larry Somers (Harvard’s best ex-prez) on the Lehrer News Hour last evening. Somers said Andrew Mellon believed in harsh justice for the imprudent, and that that attitude had promoted the Depression of the early 30’s. Somers said the govt must take some actions to prevent massive damage to non-debtors who have never heard of an ABX Tranche, etc. The “other side” of the debate was another former Treasury guy, Snow (now with Cerberus). But he wasn’t really on the other side either. He thought the Fed should keep cutting rates so that the credit system would “work” again. The notable difference between him and Somers was that Snow was that Somers thought we would probably have a deep recession even WITH great infusions of liquidity by the govt. In that regard, HBBers may generally agree with Somers: govt action will not stop the housing crash, and it may be desirable that the economy remain generally orderly.
the economy could remain orderly and terminally ill at the same time … all this (better than) free cash promotes more cancerous growth in the economy = more suffering at a later time.
The free cash will promote another bubble. I keep hoping the FED won’t cut rates and crash the dollar. Haha
Here comes the next bubble, Gold at 5k oz sounds about right
truth, my SLO brother, but methinks that is only the beginning. Current M3 money stock ($) / ounces of gold claimed to still be in the US Treasury at Fort Knox & West Point (261 million oz) = $41,000 per ounce.
$5000 per oz will be “jacks for openers”
(yes, M3 was discontinued by the Fed back in early ‘06, but you can still track it at http://www.shadowstats.com)
that’s pretty much my feelings.. nothing the Govt does can prevent the ultimate decline. It may be able to temper the decline.. it may not.
There is decline and there is decline. One, at 35,00 feet, is steep.. where you go into the cockpit and shoot the two guilty pilots.
The other is more gradual, where you let them land the plane for the sake of the innocent passengers, before extracting justice.
The innocents are the people that did not buy houses at the peak of the bubble that will have to pay for the bailout with higher taxes, higher inflation, and more financial shinanagins.
Our economic system is based on us buying stuff from China, then borrowing the money back so that we can buy more stuff from China. Now we’re so far in debt we can’t make the minimum payments.
There is nothing that we can do that will allow the current system to keep going. We either need a harsh recession with harsh financial system crash that passes the loss to the Chinese, or we’re going to get 2 decades of stagfaltion.
Stagflation punishes all of the innocents and none of the guilty. Harsh crash will punish most of the guilty and all of the innocents.
Either way, the innocents will get punished.
I generally agree, my addition (which you may or may not agree with) is that in the “harsh crash” scenario, the guilty are punished MORE than the innocents. They have a difficult personal financial situation, AND are will be trying to make a go of it in a more challenging economy. The innocents generally have a more firm personal financial situation, and will be trying to make a go of it in a more challenging economy.
Darryl wrote below:
Stagflation punishes all of the innocents and none of the guilty. Harsh crash will punish most of the guilty and all of the innocents.
Darryl’s absolutely right. We are forgetting what happened to the Japanese economy when they tried to “control” a major correction. Ten years of lousy economy.
There’s no way to avoid the pain. Let’s take our lumps now and then move on.
I assume you call him Harvard’s best ex-prez because it’s best that he’s gone.
I might agree with Joey that if we can spread out the losses somehow for a 10 year period ,rather than take the loss all in one year it might be better . Extreme trauma is never good because it can create a chain reaction that is worst than the original trauma . We as Americans are not prepared yet to replace this real estate driven economy with something better . A slow gradual easing into a different way of life ,while the losses are spread out ,might be more productive for all ,maybe not .
In early 2005 I felt like if they stopped the crazy lending at that time ,the losses would be containable . Another two years of inflation and bad lending put America in a extreme danger position for major fall out from this crash .
Americans are also facing the need for changes in being dependent on oil ,there are changes needed in health care ,and God knows the SOCIAL SECURITY problems are a ax about to fall . The pros and cons of globalism are coming to the surface ,and American survival is at stake .
Could it be possible that the housing bubble is deflated slowly in a orderly fashion ,so losses can be spread out . I am really torn about the best course of action to take because of the extreme nature of this RE bubble and how many different areas it touches . Even if our economy is stagnate for 10 to 15 years ,it would give time to build a new foundation .
I have been in favor of a quick brutal crash and just take the lumps and start with a better premise in spite of the extreme pain of the losses ,but now I’m torn . Really , how is Justice going to prevail with this Crime Wave that hit America in the form of the housing boom . The Court system would be so overworked that it would take 10 years just to get a court date . I don’t know ,it’s the most God awful America between a rock and a hard spot that I have witnessed in my lifetime . Maybe in the final analysis there will be no way of stopping a brutal crash because of the debt load of the American people and the government not being able to afford bail-outs either.
But never fear ,Hilary Clinton is going to announce a plan for sub-prime problems today .
Yesterday we learned several citizens would be testifying at the investigation hearings on unfair credit card practices. I thought, here we go, more boohoo stories–I was wrong. I’m glad they testified! Dang crooks!
http://www.businessweek.com/bwdaily/dnflash/content/dec2007/db2007124_297681.htm
The banking industry has one goal:
To keep others in perpetual debt. Bankers are NOT altruists.
I agree, people who keep demand deposits at banks for no compensation (and even pay fees for the privilege of having your account plundered) are the real altruists.
That’s so true, CA renter. In 2002 when my loan demand was weak, I sent out letters to a bunch of my existing clients offering them lower monthly payments. The way I was going to accomplish this was by a trivial reduction in their interest rate and a significant extension of their maturity date. In other words, I would take a teeny-weeny bit lower interest for a much longer time. Only one of them fell for the Fabulous Offer, but that was an adequate reimbursement for the time it took me to cook it up. In addition, nearly 20% of my then-existing clientele actually did increase their indebtedness to me sometime between 2002 and 2006, with my assent and cooperation. In a couple of cases, I eventually put an end to the ATM approach, telling certain people that they already owed as much as I was willing to gamble on their properties.
The trick now is, I must hope that all these debts amortize faster than the property values are falling. Probably the worst cases are the two 30-year mortgages I wrote on real houses. The one written at the end of 2004 may be OK; if it’s not, I might have to go live in Superior AZ. The one written on the Maine house I sold in 2006 will be OK because I wouldn’t mind taking back the house, and the down payment I received at the time would more than cover the legal costs of doing so. None of the trailer-lot mortgages goes longer than 15 years, so they amortize noticeably in the first few years.
az_
I find it amazing that your clientelle always comes through for you…
Could it be that you are flesh and bone, as opposed to the nameless-faceless lending companies?
That, and he knows where they live and Vinnie & Guido are his buddies….
“I find it amazing that your clientelle always comes through for you”
It’s interesting that you can actually get reliable borrowers if you don’t use FICO scores as your only criteria.
Like what’s wrong with Superior?? (Just kidding)
I lack the economic knowledge or eloquence of the keyboard to be posting much, but if I don’t say something my blood pressure is going to go through the roof. I’m a grandmother who plodded through life bringing in a pay check and raising a family with my husband. We had a modest home with a small mortgage and in 2004 decided to refiance to take advantage of low interest rates. We were incouraged to “cash out” some equity and we declined. No SUV’s, no granit counters, no trips to Europe. Just plodders playing by the rules, marching in an order fashion to retirement. Our neighbors did the opposite and we took care of their place while they went to Europe. Now I should bail them out? Are we just stingy terrible people to feel this is wrong?
Absolutely not.
Discover even applied the higher interest rate to her existing credit card debt, which in my book fits the definition of a retroactive rate increase. — Senator Carl Levin.
I stand corrected; I thought we’d see boo-hoo stories too. But it appears that the Senators are trying to cast this as a breach of contract or predatory lending against regular joe.
And, IMO it IS predatory lending. I know people here say consumers need to “read the fine print,” but that fine print is cast in legal terms beyond the training of the layman. I don’t have a medical degree; I’m forced to trust the doctor who orders the expensive test. Similarly, I’m forced to trust the legal eagles to not use their esoteric training to take advantage of me. At the least, it’s a violation of good faith. Maybe this is what the Senate is investigating.
Repeat after me, Senator: Revolving credit is NOT an installment loan.
Retroactive rate increases are not fair dealing. Heck, it would be illegal if the government did that. If Congress wants to make it illegal, more power to them.
There’s a lot of BS that gets put in contracts that had to be made illegal. Ever wonder why you get fine print contracts from CC’s, manufacturers, and so on with terms like “this clause void in Wisconsin,” “except in Massachusetts,” “fee does not apply in Oregon”, etc?
(Btw, ever notice how Alabammy, Miss’ssippi, Looziana, and Geo’gia are never on these lists? Them thar states’re Bidness Fren’ly, yessirree. Reckon they’re paradises on Earth, yes suh.)
Both the article and you are using this term “retroactive”, I do not think it means what you think it means.
CC debt is not a long-term loan. There is not a “fixed” rate at the time each piece of debt is incurred. Rather, interest is determined by the current rate for each period (however that’s determined according to your agreement).
You don’t have to be a legal eagle to know that CC debt is bad. Everyone knows this, some use it anyway. Nothing to see here.
What they’re talking about is going back to the beginning of the loan and adding finance charges from the time it was incurred until now at a higher rate, not a variable rate which increases from now forward (like an adjusting ARM). This is more like those “90 days same as cash” furniture store rip-off loans.
Sure, it’s *legal*. That doesn’t mean it’s a square deal. Btw, I don’t carry a balance and I never have. I also would NEVER use the CC to raise money.
But this is slimey.
Also, giving people the rope to hang themselves (and then some) is bad policy. Too much collateral damage.
PS–today’s starving children, tomorrow’s teenage hoodlums …
not a gator: That’s not what the quotation says. bluprint is right. My understanding is that since they’re based in states with no anti-usary laws they can raise their rates as high as they wish once they send you notice. CC companies are certainly big users of abusive fees, and for that I soundly condem them, but what the italicized quotation is complaining about is the fact that at the end of every month, you have the choice of paying them in full or refinancing your remaining balance at whatever interest rate they are willing to lend you the money at. That’s the “revolving credit” part. That’s not “retroactive,” every month is a new loan. If you want to borrow money and be sure that your interest rate won’t change over the course of the loan, you should go to the bank and get an installment loan.
And of course even my last sentance there is wrong. It should say: “If you want to borrow money for more than a month and be sure that your interest rate won’t change over the course of the loan, you should go to the bank and get an installment loan. “
What they’re talking about is going back to the beginning of the loan and adding finance charges from the time it was incurred until now at a higher rate
That’s not what the article is talking about:
credit card issuers apply those higher rates retroactively to consumers’ existing credit card debts, which were incurred when lower interest rates were in effect.
The article is referring to the practice of current period interest rates applying to debt which existed before the interest rate changed. The author finds that to be “retroactive”, which is incorrect. The author assumes that debt incurred at a given period should only ever be charged the rates in effect in that period. This demonstrates a misunderstanding of credit card debt.
If the CC companies are doing what you describe, then that would qualify as retroactive. There might be some exceptions (such as the “same as cash” deals you describe, but those aren’t typical credit card companies), but for the most part with regard to a typical CC company, that’s not how they calculate interest. They simply take the current average balance and multiply by the interest rate for the period.
The author is using rhetoric to make the CC companies sound worse than they are. They provide a decent service, and are not intended to be used as long-term loans. Their rates serve as proof that they do not want to be providing long-term loans (except, I suppose, if the rate is very high).
Pay it off every month. The CC makes some money, you get some easy to use (and safe) currency and the stores provide an additional accomodation for their customers.
I was mistaken on one point, apparently there is no “author” here, these are the remarks of a senator proposing new legislation. Of course he uses the term “retroactive” because it makes the whole situation sound more sinister and justifies his own existence (and votes).
Just one more dishonest senator for the books…I keep thinking one of these days people will see through it and we’ll have trials for these sheisters.
I don’t have a medical degree; I’m forced to trust the doctor who orders the expensive test. Similarly, I’m forced to trust the legal eagles to not use their esoteric training to take advantage of me.
Actually both are a bad idea. If you don’t understand why a doctor is ordering expensive test and they can’t explain it clearly, find a new doctor. The only time you “need” to trust a doctor is in an emergency situation.
The same goes with a lawyer. If you are entering into a contract that you don’t understand and your lawyer can’t explain the contract in a way that makes sense to you, find a new lawyer and get a new contract.
Legal and medical terminology is used to speed up communication between professionals, it’s not some sort of mysticism for the privileged few. If the ideas “can’t” (ahem) be translated into common language then it’s nonsense or a scam.
Absolutely.
Many professions rely on what I call “exclusionary language.” Lawyers, doctors, mechanics, and academic types do it. I’m in IT, and we do it.
The good people in any profession can explain complex subjects or arcania to a layperson.
Shibboleths (including fancy math or vocabulary) primarily serve to create and protect club membership benefits.
http://www.ruf.rice.edu/~kemmer/Words/shibboleth.html
Does the Schroedinger Equation count? How about the quadratic equation? What about the Pythagorean theorem? I know most US high school graduates would have a difficult time with that one … never mind how old it is or necessary to civilization.
Math is hard. (If our math scores are the worst in the Western world but our team wins the Math Olympiad, are we still number one?)
Shibboleth is a fine word, Professor Bear. And it fits, I think.
Oxide,
“And, IMO it IS predatory lending. I know people here say consumers need to “read the fine print,” but that fine print is cast in legal terms beyond the training of the layman.”
I read and reread so much my brain hurts.
What I cannot believe is how they arbitrarily raise rates, on models they cannot explain, then backdate the shite!
How is that fair on any level?
This is one hearing I support!
Ya just can’t make this stuff up!
Leigh
“What I cannot believe is how they arbitrarily raise rates, on models they cannot explain, then backdate the shite!”
In reading the article I couldn’t help but wonder if it was a two way street. Do they arbitrarily reduce rates on models they cannot explain, then backdate the shite?
Credit cards are not a nessesity, and if you pay in full everymonth then there are no intrest charges…The whole idea of preditory lending is rediculous, no one put’s a gun to these poeples head and makes them take out a loan on a house they can never afford or to max out credit cards to finanace a life style obsesion beyond there means…
Was this allowed under the new bankruptcy law, or some other bill?? I’d like to find out which law this practice was allowed under, and whether or not Levin (among others) voted for it.
Every day I get credit card solicitation after credit card solicitation. You don’t hear stories like these every day. I knew that anyone who ever ran a balance was a fool. There are lots of fools.
Amen. We pay our card off each month, but now we’re considering switching over to just cash because more and more the credit card companies are looking for ways to gouge money out of their consistant payers. Like when they purposefully mail out the bill AFTER it is due and then double the interest rate because of late payment.
just pay that bad boy online the 1st day of the payment cycle
don’t even give em a chance
Some cards, like Cap One, have moving the due date so if you automatically pay it on the first each month, they count it as paying twice in one month then no payment in the second. This happens a bit with firms that follow a 30 day period and not a calander month.
Gov employee that I am, I get paid once a month and everything goes out on the first promptly. I normally pay it all off each month but they caught me once where I literally paid a day before the next billing cycle began. So I had a $30 fee on a $40 balance which I protested as it was obvious that the payment they received was meant to be applied to the next statement which began on the first. Denied. They got their $30 and my $40 balance and then cancelled the account the day I saw it posted.
When presented with crap like that, I always suggest voting with your feet. It’s the most powerful thing a single consumer will do.
I got hit with a similar charge once. $30 late fee on $24.95 bill.
I calledc the company before sending any money and simply said that I wanted to cancel the card. Customer service rep I spoke to said she had authority to remove the3 charge. I am still a customer there. The fastest way to get their attention is to cancel the card. Therse people spend a fortune sending all of those applications for new cardholders. They don’t want cancellations.
Sounds like it is time for you to either switch card companies or start a class action lawsuit. Better yet, why not do both?
We pay off our balance each month too. But if I were to carry a balance, I’d get a credit card from the local not-for-profit credit union where DH and I do most of our banking. I’ve generally found such local institutions do far less gouging than the big players.
That scam hasn’t happened to us yet, and we do have automatic payments set up. But you still have to go in and manually adjust the amount paid to completely pay off the card to avoid finance charges. I have friends that have been seriously screwed on by their cc company though - one got hiked all the way to 30% rates.
And I have good cards - USAA and Navy Federal Credit Union. It’s just with the current state of greed and fraud in the financial world I’m beginning to feel using cash (we have plenty cash and only use cc for the 2% cash back) is preferred to using any kind of credit or borrowing, even if you intend to pay it right back.
Agreed! My wife has earned a lot of “cash back” on Discover and doesn’t want to give it up, but this kind of crapola is making me VERY nervous.
I used an ATM card exclusively for YEARS. I only ended up switching because I was sick of asking other people to buy my plane tickets for me. (I would send them a check.) I have never run up a balance, but various CC tactics (like mailing statements late, or sending those thief’s friend “credit checks”) always made me very chary. (Yes, I do all my banking online now … and they try to pull stuff on the website too.)
FYI, you get 1% back on signature purchases with your ING Electric Orange debit card. (And they pay ~3% on your balances.) Why take on all that risk for a lousy 1% with Shitibank?
I paid my cable off with cash, cancelled it and moved out of state. Long story short, it didn’t “cancel.” Took months of arguing with the company’s collectors before they gave up.
Sometimes cash sucks too.
Devildog,
Agree. The cc companies are pulling a lot of ‘got ya’s”, so I call their 800 #, get my current balance, and mail a check in way before the due date. The amount is more current than the statement anyway (depending on the date), so it actually exceeds the statement amt. We pay in full every month. I enclosed a xerox of a stub, so they can’t delay posting it. Its all a game.
Congress needs to slab these baboons on the head with 2X4’s. The cc companies are a huge lobby, so this ought to be interesting to follow.
Our FICO’s are in the 800’s, which might actually mean something again.
“Our FICO’s are in the 800’s, which might actually mean something again.”
Unfortunately, what it is likely to mean in the near future is… Prime Sales Target
Great find! I’ve started working on building my score, as I’ve never had the ability to get much credit as I’ve never had much debt. I’m buying a credit score by tossing thousands of dollars into secured credit cards to show high tradelines (Can’t qualify for a lame credit card, but can throw down $10,000 for a secured card. WHAT A COUNTRY!). Anyways, similar to researching the housing bubble I’ve been researching the FICO scoring system and how credit reports work. It’s … pretty much garbage. But unfortunately, it’s garbage we have to live with because so many people depend on the FICO system. I have no real trust for banks or credit card companies. Their glass palaces come on the backs of their customers (Similar to Las Vegas casinos).
Agreed. The system is garbage, it probably doesn’t do what it’s supposed to anyway, and whoop-de-doo, now they use it for your car insurance rates, background checks, getting an apt …
It’s sick.
Apparently my score is low because I have large tradelines but zero balances, can’t seem to get it over 750 without buying something I’d normally pay cash for and carrying it for years. To me, paying those financing fees is like paying for a credit bump. It just cheeses me off.
Having the tradelines open for a long time with no lates seems to be the trick to getting over the 800’s. I just don’t understand how it’s beneficial to shove everyone into the same model. When applying for credit cards and what not, my current monthly expenses never factors into anything, my salary is asked, but that is it. Everything resides on the FICO, and when they do a hard inquiry (during application) it lowers your score. Oh well, I’ll play to get my score up so I can qualify in a few years after the mushroom cloud from the housing market is blowing away.
Why not just go with a company that does manual underwriting?
I have no lates either. Lots of older accounts with large balances that have been paid and closed like my 110k worth of student loans. I don’t own a house but have a decent savings account too and still stuck.
Who does manual underwriting for a CC? Because I’d love to give them my business.
My understanding of the FICO score is this:
1) How much you can borrow (things like high credit card limits and low balances)
2) Payment history - how frequently do you pay on time.
Have 7 years of on-time payments, and run low balances on cards with high (14-20K) limits, and you’ll in the 800’s.
Two places to start:
http://www.fdic.gov/consumers/consumer/news/cnwin0203/
http://www.cbsnews.com/stories/2003/04/29/earlyshow/contributors/raymartin/main551521.shtml
This is yet another example of how a legalistic society works. Be it the drug-dealer-turned-mortgage-broker or the big company and its legal (criminal) minds, the average, law-abiding, unassuming Joe gets di(I
My octogenarian Dad has a six figure income in retirement.
Pays cash for everything including housing and cars.
Got a chuckle this summer when he bought something at a department store and got offered the 15% off deal with a credit card application.
Got the discount but was declined the credit card.
What a country indeed.
Fed has to Re-Liquefy… So what happens if few show up at the window? Keep dropping rates?
http://www.bloomberg.com/apps/news?pid=20601103&sid=a_rZj7Ta608Q&refer=us
“Along with other officials, she noted a “stigma” about banks tapping the loans.”
That’s right we need to cut the disco further so we don’t damage those fragile egos. Don’t want to stigmatize scumbag, leachfck bankers.
“…previous rate cuts haven’t encouraged banks to lend to one another.”
BS
There are banks that need moneys but borrowing from the discount window is shuffling the chairs on the deck of the Titanic. I am amazed that anybody loans moneys to banks (demand deposits) when banks won’t loan each other moneys. Insolvency.
So for the hoardes that don’t get into mellow yellow lifeboats, will they be swimming in a bottomless ocean of hyperinflated cold hard cash, with nary a preserver?
What happens if few show up at the window?
A much worse option, from the article:
The Fed has other options to ease the funding crunch besides reducing the penalty for discount-window borrowing.
One possibility is tripling the length of discount-window financing to 90 days from 30…
Good night Irene!
Leigh
“The Fed has to re-liquefy the markets to reduce the risk of a financial accident,” said Lou Crandall, who used to work at the New York Fed and is now chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that focuses on government debt.
I find the choice of words here interesting.
I once crashed my car and lost my license. In order to get it back, I had to attend classes with other degenerates who also crashed their cars and lost their licenses.
In this class, the first thing we learned was that what happened to us was not a car “accident”; rather it was a crash. An accident occurs when something happens mostly outside of your control. A crash, on the other hand, is totally avoidable and happens because someone makes a (poor) decision leading to the event.
It is an impossibility for there to be a “financial accident” in our system because everything in this economy is related to a decision the Wall Street/Federal Reserve system makes. These decisions are made to benefit the oligarchy, whose endless pursuit of wealth at any cost to society is hardly any different the selfishness of a drunk or a drug addict.
When the Wall Street/Federal Reserve system gets in its car at 3 A.M. after 20 beers, what happens next is not an accident.. it’s a crash.
Craven, from your story we can develop a little analogy.
Here’s the scenario. A guy is drinking at a bar. Let’s call the guy that is drinking Barney. The bartender we will call Moe. I don’t know why I chose those names. Barney is drinking all night long and really getting plastered. Moe is loving it because he is making tons of money. Barney is happy because he is getting stinking drunk. By the end of the night Barney can barely crawl but Moe lets him go out the door.
Driving home that night Moe gets into a head-on crash with Barney. Both of them are badly mangled and might even die.
Who is to blame and who deserves sympathy?
The bank who lent the money to Moe to open the bar.
and the credit card company who financed Barney’s binge.
RE: Who is to blame?
The bank who lent the money to Moe to open the bar.
Pffffffftttttttttttttt! (LMFAO with tears in my eyes!)
Did Barney pay for his drinks before getting into the crash?
I know, this is a trick question… The correct answer is that Moe will be tasered by police and then waterboarded 24×7 for a week. On the other hand, Barney is on his third felony strike and will be imprisoned for life.
The bar owner is to blame because he didn’t provide a drunk bus for his patrons.
I deserve sympathy because my insurance rates go up due to Barney’s driving with a suspended license and Moe driving with no insurance at all.
Hey, Fannie and Freddie were supposed to be the designated drivers. They were getting non-alcoholic sodas for free. However, while they couldn’t order drinks at tha bar, it appears that they were sharing the pitchers of beer with everyone else.
Did Barney use a HELOC to pay for his bar tab?
Moe should’ve given up a tiny bit of profit to send Barney home in a cab. (I am Moe and my trailer-park people are Barney, and I hope I have saved them from debts that they can’t actually pay.)
az -
THAT makes a lot of sense. Not only are you helping you customers avoid debt, but you are protecting your revenue stream, avoiding potential legal costs, saving health care dollars, and preventing the lawyers from making a buck. Beautiful.
Hey NYCityBoy,
Do you watch the Simpsons? Barney and Moe are characters in the Simpsons
You’re all wrong.
Barney and Moe were gamed by the system and will get a Govt. Bailout.
We are all to blame and will pay for said bailout.
My high school driver ed teacher always told us there was no such thing as a car accident - only car crashes. That guy had been teaching driver ed since my mother was in high school. That line has been around for a long time.
It’s also what they taught us in engineering school.
No one wants to borrow at the Fed window because, they don’t know what they own and what they might owe. Consider, if the foreclosures continue banks will take title and become responsible for taxes as further concern.
The inmates are running the asylum.
The preferred stock sale will be managed by Lehman Brothers Holdings Inc. and Merrill Lynch & Co., the company said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_nWbr7A3XsQ&refer=home
In E*Trade Deal, Pain Went Far Beyond Subprime
“Much has been made of E*Trade Financial’s recent fire sale, in which it sold a basket of asset-backed securities with a book value of $3 billion to Citadel Investment Group for just $800 million. Many have debated whether or not this deal — nominally priced at 27 cents on the dollar — sets a price floor for collateralized debt obligations and other securities tied to subprime mortgages, whose value has been notoriously hard to pin down.
The case has been made, often persuasively, that E*Trade was getting rid of particularly toxic assets while under duress, so the deal is hardly a bellwether for other banks and securities firms.
But here is a point worth considering: Only about $450 million of E*Trade’s $3 billion portfolio was made up of the riskiest kinds of securities — C.D.O.’s and second-lien mortgages — that have made headlines recently. …
It shows that more than $1.35 billion of E*Trade’s asset-backed portfolio consisted of prime, first-lien residential mortgages rated “AA” or better — hardly toxic sludge by any stretch of the imagination.
So consider this: Even if E*Trade got nothing — not a cent — for anything but these top-quality mortgage securities, it still sold $1.35 billion in prime mortgage assets for $800 million, or less than 60 cents on the dollar.
That’s just a back-of-the-envelope calculation, but a potentially unnerving one.”
New York Times
http://tinyurl.com/2glkec
The 27% of face is too low, by any reasonable estimate. That would be low if we go into another Depression. Two possibilities IMO:
1) E-trade is doomed, doomed, doomed and Citadel expects to lose money on the junk bond loan because of default. The price is actually higher by Citadel’s expected loss
2) It’s a insider deal. Citadel already owns 20% of E-trade and used their control to buy assets far below value and stick it to the other stockholders.
I favor #2, but we shall see in a year or two. Either way, E-trade is doomed - if it isn’t already bankrupt, its biggest shareholder is looting it.
Could be the case that E*Trade undervalued the assets which were sold and overvalued the equites that were sold due to tax and share price support strategies.
Where are your pension funds invested?
From the article:
`Nobody Will Buy’
“Nobody will buy that paper,” Stavrakos said. The fund owns $168 million of short-term debt issued by KKR Atlantic Funding Trust and $356 million from KKR Pacific Funding Trust, securities whose values aren’t “transparent,” he said.
KKR Atlantic’s ratings were cut to D from B by Fitch Ratings on Oct. 8, while KKR Pacific was lowered to D from B on Oct. 2. Fitch said the reduction to default on the debt reflected non-payment under the original terms. The debt was restructured to extend the maturities to February and March, and interest payments are continuing.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5PJ56devNt8&refer=home
And this will warm your morning coffee:
http://www.kkr.com/who/who.html
Leigh
The Great A & P Wall Paper Company…
I’m having flashbacks to the 80s. (or is that flashdances?)
Found some info. on Stepanovich from 2002:
“Stipanovich has worked for the board since 1999. Before that he was president of an investment consulting firm in Gainesville. He has worked for Paine Webber as a consultant and investment executive. He has a master of science degree in Criminal Justice Administration from Michigan State University and a bachelor of science in criminology from Florida State University.
Democrats have questioned why Stipanovich, whose brother is lobbyist and Republican strategist J.M. “Mac” Stipanovich, was hired. “This administration is taking the friends-and-family plan to the extreme,” Democratic Party spokesman Ryan Banfill said. “A $100-billion fund — it seems to me to be a no-brainer that you would do a national search.”
Critics also have questioned Stipanovich’s role in running the state’s huge pension fund, considering that he was reprimanded by state banking and finance officials when he was a branch manager for Paine Webber.
Stipanovich and another supervisor at Paine Webber were cited by the state for their failure to adequately supervise an employee who caused two elderly investors to lose $11,000 in the late 1980s. Paine Webber was fined $5,000 and ordered to repay the clients in 1992.
But board members said they are happy with Stipanovich’s work. Bush said Stipanovich has a solid reputation for his work at the pension fund.
The fact that he has a politically connected brother shouldn’t disqualify him from being considered for the job or raise eyebrows, Bush said.
“I don’t think that Coleman Stipanovich should be penalized for the sins of a brother,” Bush said.”
http://www.sptimes.com/2002/04/10/news_pf/Business/Pension_board_weighs_.shtml
Great job Stippy!
Actually his degrees in criminology were appropriate to better operate in today’s financial world.
So they’re basically admitting that those with money stuck in the fund are going to take losses, yes?? Seems like that should fire a few people up down there.
Just threw up my morning coffee. These people make me sick.
“…If they are satisfied, Gov. Jeb Bush, Comptroller Robert Milligan and Treasurer Tom Gallagher, who comprise the board, will hire Stipanovich”
Shouldn’t that read “Former” Gov. Jebby Bushy? Flo-ri-duh…that’s the “board” I want running a 100 million dollar fund…well I guess the good folks down in the sunshine state don’t own any pitchforks.
It’s not owning the pitchfork–it’s finding the business end of it.
First everyone would have to take their heads out of their asses, but I get the impression they like it in there.
Boston Globe reporting that Mass & Conn have many millions tied up in SIV’s. I’m sure Ben will post excerpts at noon.
Let’s see budget already a little tight due to diminishing RE tax base now they’re finding out that what cash they do have is in some form of jeopardy. That’s gonna leave a mark!
I believe they’re in the same or similiar boat as Florida!
Would that boat be the Titanic
Nah, its only $150 million in a $5 billion fund. But, like Florida, its a cash fund that shouldn’t have been anywhere near this stuff.
Time will tell if that is true or not.
correction: $134m/5.6b
http://www.boston.com/business/globe/articles/2007/12/05/volatile_holdings_part_of_state_fund/
RE: Mass & Conn have many millions tied up in SIV’s.
Now we know how Harvard endowment and the MAZZ retirement agencies were gettin’ those huge double-digit returns.
People in Wisconsin don’t read about the Florida real estate crisis!
http://milwaukee.craigslist.org/rfs/498568403.html
What a fun morning!
Leigh
Goodness, for just a second there I thought that house was my father in laws which he’s selling and has a suicide loan on. The interior is near identical to his.
In NY we get advertisements for FL houses all the time…..
but Wisconcin, well now, that a bit of stretch
So true Danni!
We just had snow here, so maybe someone thought this was a great marketing opportunity!
Leigh
I considered selling my Jeep in the Rocky Mountains subsection of Colorado through Craigslist, as I have been there enough times to know that it would bring more money than here in Iowa.
Lenders ‘must prepare for worst’
The FSA is also to look at how those in mortgage arrears are treated.
UK mortgage lenders have to prepare for the “very real prospect” of the global credit crunch getting much worse.
The Financial Services Authority (FSA), said a tougher global financial situation could affect the whole UK mortgage market, boosting defaults.
Access to cash could become more difficult - a problem that caused the run on Northern Rock earlier this year.
Lenders needed contingency plans to guard against the “worst outcomes”, the City watchdog said.
http://news.bbc.co.uk/2/hi/business/7127534.stm
What if we reconfigure our silly TSA into the “Trillions $earch Authority”
Was it yesterday or last night they were reporting the possibility of Northern Rock being nationalized? Obviously they are accustomed to socialization but I thought I’d been hearing a large swarth of the UK consumer was at the end of their financial rope. I sort of expected to be hearing about British angst brought on by the news this morning.
it’s like the boiling frog- people slowly get seduced by socialism -then BAM their fckd
like FRE/FNM
Actually, I’m thinking Bambi meets Godzilla. http://www.youtube.com/watch?v=ZpBkc2jK-6w
Or is it Ben B meets Mozillo?
“Ben B meets Mozillo”
Sweet!
Somewhat OT, but with a mention of the American housing bubble.. Japan trades in middle-class, follows U.S. down the primrose path of retail economics; stripmalls spread as downtowns are shuttered:
http://www.nytimes.com/2007/12/05/business/worldbusiness/05gap.html?_r=1&hp&oref=slogin
Thanks for the post–powerful story.
I grew up in suburb of Pittsburgh. I too remember the protests of large box chains, strip malls etc.
Deregulation of American institutions: finance, airline, telecom changed the small town atmosphere nearly overnight.
I joined the Air Force before the change was complete, so I didn’t get to see the entire metamorphosis evolve.
Gone are days of homemade candy shops, bakeries, local funiture stores. The local butcher. The local hardware store.
I don’t peg it to good or bad–just change.
Twice in the article, Japan blamed America for the loss of it’s rural areas! We encouraged them to deregulate.
We sure know how to make friends.
Leigh
Leigh,
I agree with the sentiment of your post, but would argue that over-regulation, not de-regulation is the issue. There are so many Federal, State and Local regulations that ONLY businesses large enough to have economies of scale in meeting these regulations can survive. Here’s an example of what I’m talking about: http://www.westonaprice.org/farming/small_farms.html
Back when small farms could produce and sell meat, fruit, and vegetables for sale, the economy was much less regulated than it is now.
WOW. Thanks for the link.
We have completely lost our collective minds!
We shop locally for veggies, dairy and meats.
We also had to…ahem…be introduced by family to the suppliers.
Counting my blessings!
Leigh
Sometimes it’s not regulation per se, but how it is used.
There was a time when we had regulation to rein in monopolies. No regulation will lead to monopolies, which are by nature wasteful, and have the tendency to impoverish the citizenry.
The big co’s know they can’t compete with smaller, nimbler firms when the gov’t is playing fairness cop, so they use their lobbyists to pay off the government. They get rid of anti-trust regulation (”deregulation”) and they serve up weird regulations meant to keep smaller players out.
For example, they used regulations to smother Southwest Airlines in its crib. Unfortunately for them, the CEO was very determined, and SWA survived. Oops, now SWA is eating their lunch. See, with more “industry-friendly” regulation, SWA would have gone the way of Braniff, and we would be enjoying filthy, late, overpriced, inconvenient air service in all of our markets.
So why don’t we take away the powers that govt sells to the highest bidder? Instead of trying to make sure that every govt action is appropriate, just take away their ability to sell us down the river in the first place.
bluprint,
That would mean people would need to vote, and understand what exactly they are voting for.
Gone are days of homemade candy shops, bakeries, local funiture stores. The local butcher. The local hardware store.
We actually still have those in Loveland (except for the candy store): Schmidts (bakery - great cakes), Penners (furntiture and appliances) Fentimans (butcher).
Same here in Council Bluffs, IA.
Master Furniture and Appliance
Stracka’s Meat
Bambi’s Organic Market
Hanusa Hardware
A bakery that I can’t think of the name of
A local grocer that still DELIVERS
We are experiencing a resurgence.
Oh, and we still have farmer’s markets.
Gone are days of homemade candy shops, bakeries, local funiture stores. The local butcher. The local hardware store.
If anything, I see a resurgence of such small businesses. Part of it is simply backlash from years of bigbox monoculture, but part of it is carving out a niche market. Handmade chocolates, quality baked goods, organic, locally grown vegetables and meats — there is a small but substantial market for these things, and the consumers of such niche items are A.) loyal and B.) willing to pay more for quality.
Fed considers the nuclear option:
Dec. 5 (Bloomberg) — Federal Reserve officials, who are forecast to lower their main interest rate next week, are signaling that they are looking for additional ways to increase credit to companies and consumers.
The Fed may lower the discount rate — what it charges banks for short-term direct loans — by a quarter-point more than the benchmark rate after Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen publicly expressed frustration that previous rate cuts haven’t encouraged banks to lend to one another.
Such a move would narrow the gap between the two rates — normally 1 percentage point — to a quarter-point.
http://tinyurl.com/2yl64j
“Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen publicly expressed frustration that previous rate cuts haven’t encouraged banks to lend to one another.”
Seems as though they are pushing on a string.
Bernanke’s printing press just…won’t…turn…on.
Who knew?
The printing press caused this bubble. If it could keep running, the bubble would continue. What makes bubbles burst is that eventually the ability to use the presses stops and credit contracts. We have arrived at that moment.
Pushing on a string, indeed.
There isn’t anything they can really do - people are at Peak Debt. We tried to run a Virtual economy - or a Bubble economy or Casino ecoomy, depending upon what one wants to call it - where debt replaces income and shuffling and leveraging debt replaces real productivity. The outcome is a crash, and I don’t see any way around it. Oh, there are ways to delay it and make it worse, all of which will be tried, but no way to prevent it.
Bloomy Radio reported this morning that the Bush Administration plan is to freeze the rate resets for subprime borrows for 5 years.
Whatever happened to personal responsibility and integrity?
They buried it with good governance, prudence, and thrift.
Personal responsibility and integrity are behind us. Ahead of us is serfdom, on this road. The good news is you are free to be personally responsible and keep your integrity. It’s good for your own well being to be honest and truthful in all cases except, of course, to defend your individual rights (in the pure libertarian sense). It behooves us to read the first paragraph of the Declaration of Independence and then carefully form our own conclusions and actions.
OIC. Personal responsibility and integrity and all those good old fashioned “family values” that are oh so important in elections aren’t important after said elections. Thank you for establishing that fact.
watch the sheeple try to get free-er healthcare next
then the road is complete as the gov will have your health
“then the road is complete as the gov will have your health ”
I feel that the FDA has already accomplished this. Cancer causing foods and death by prescription - all approved as “safe” by the greased hands of the FDA.
Exactly, Chad!
BUT…who runs the FDA?
Answer: former execs from the pharma industry. (surprise, surprise)
I don’t know who is expecting it to be “free”, other than illegals and other deadbeats. It would be nice, however, to not pay twice as much for it compared to other modern nations.
“It would be nice, however, to not pay twice as much for it compared to other modern nations.”
Instead we have a system where the HMO rob everyone blind. How can anyone be against a govt. administered system???
“We the Sheeple in order to support an imperfect union….”
Consitutionally, I’d like to see them get away with it. Unless the lenders consent. Changing existing contracts? Do the Supremes want this economy to be a joke? Considering that many of the noteholders are foreign, this move would send the world economy into a tailspin as US unilaterally steals OP’s money.
My guess is, what’s meant is some kind of a deal between Bush admin and several major lenders whose paper isn’t worth squat anyhow.
And as an awful lot of our consumer goods are produced by those foreign noteholders, do you think they’re going to take kindly to their consumer junkie ripping them off, and want to sell more junk to the junkie?
“Do the Supremes want this economy to be a joke?”
It isn’t already? Welcome to 1981.
Well I get the impression that the idea is to get the major lenders into a room and persuade them to all agree to this, rather than pass regulations or laws compelling them. I see two problems. They will never get all the smaller lenders to agree, so some of them would have a competetive advantage over their larger counterparts. The bigger problem is that they will never be able to get all the bondholders to agree that this is in their best interest unless the big banks pony up for the losses. I suspect that the threat of class action bondholder suits will prevent this from actually happening. This, and MLEC IMHO can be seen as “jawboning” by the treasury, trying to slow the repricing of assets. This is similar to the FEDs talking down the possibility of rate cuts to minimize Wall Street pre-pricing-in lowered rates and therefore maximizing their impact.
“IMHO can be seen as “jawboning” by the treasury, trying to slow the repricing of assets”
Bingo…also, trying to boost consumer confidence during the Holiday Shopping Season ™.
I find the 5 year number interesting. There’s one year left in Bush’s term and then 4 years for the next president. 5 years. I truely think the Repub party would like to throw the election to the Dems this time around, kind of like last time. So why would they try to cover for the next president, especially if it’s a Dem? One or two years deferal would be adequate for blame shifting purposes.
It’s obvious the policy makers don’t care a whit for us common folk, so the explaination that it’s for the good of the people can be thrown out the window. There’s some ulterior motive behind that number, I can feel it. I just can’t put my finger on it.
You guys have any insight into possible reasons?
December 21, 2012 is when the comet hits and the world ends - so that’s all they need to plan for.
It will actually be kind of freaky is this bailout thing is settled and announced on 12/21 - the Friday before the long Christmas holiday weekend.
Bush wants a 5 year freeze, Hillary also wants a 5 year freeze… clearly both parties are expecting to be in the White House next year and want to be safely elected to their second term before TSHTF.
Yeah, I guess that’s probably it. Depending on when the 5 year term starts it could cover to the re-election. But no one wants to be the bag holder and have their “legacy” tarnished. If that’s the reason, why not push it out another 4 years to completely cover the second term?
Maybe if I put on my tinfoil hat the voices will stop confusing me…
HC = Freeze Lady
I’m so angry. Is there any silver lining to this?
“I’m so angry. Is there any silver lining to this?”
They are not using taxpayers’ money…yet.
I don’t think this plan is going to actually do anything. The MBS/bond holders will not all agree to change their contracts, the people underwater will still send back the keys, and investors will shy away from investing in MBS if the gov keeps messing with their returns.
The silver lining is that this allows the administration to appear like they are solving the problem, while actually not doing anything. Didn’t the lenders already say they are trying to help people refi out of time bombs months ago? The masses feel saved, Bush and Hillary look like heroes, and we can all enjoy our Christmas. My feeling is, come January when earnings are out we will be right back to write downs, lower profits, HBs filing for bankruptcy, and foreclosures up. Remember, it’s just politics and there will be much more of this next year too.
“plan is to freeze the rate resets for subprime borrows for 5 years”
I’d still like to see how they are going to do this…according to the plan, you get the deal if you can afford the current rate, but not the reset rate. So for each and ever participant, they have to go through the individual’s finances with a fine tooth comb. How is this supposed to be different than what they are doing now? If they didn’t have enough people reviewing borrowers’ finances yesterday, how are there suddenly going to be enough people to review borrowers’ finances tomorrow?
Exactly what I was wondering.
“Under the plan pitched by the ASF, distressed homeowners would be offered mortgage help according to their ability to pay.”
This is some ice-cold air-conditioning for Lenin and Trotsky. Such verbiage is pure communism, in case people still think the Republican Party is “conservative.” I’d have expected Al Sharpton to come up with this, but not a Republican administration. Glad I belong to neither.
To sell or not to sell? I’m numb to all the broken deals!
Just when H&R Block thought it had unloaded it’s elephant.
http://tinyurl.com/34v2sh
housing slump echoes at city halls:
As the city of Shakopee rocketed from only 12,000 people in 1990 to nearly three times that today, the last thing anyone ever considered was letting people go at City Hall.
But it happened this year. “For the first time in my 11 years here,” said Mark McNeill, the city administrator, “we have laid a person off.”
A sudden downdraft in the housing market has cut deeply into revenues of a city that once was the fastest growing in the metro area.
http://www.startribune.com/local/south/12138026.html
I was looking through corporate bond offerings for my Roth IRA via ameritrade, and sorted by yield to maturity. Topping the list was a bunch of CFC bonds, which showed a ytm of over 20%. Yikes! How do they manage to stay in business with these borrowing costs?
The yield to maturity takes into account the bond’s discount to par as well as it’s coupon rate.
The coupon rate - the rate of interest that the bond pays - could be quite low but the going price of the bond is low as well which makes the bond’s yield quite high if it is held to maturity.
I see. So these are old bonds whose prices have crashed. But if the aftermarket ytm is this high, this will affect the rate on any new bonds they issue, right?
Their bonds are junk.
They are one rating grade above Bank of America, Citigroup et al. It is a lovely arbitrage
Short BAC bonds and buy CFCs
The spread should pick up 625bps. That is huge.
“new bonds” — good luck issuing any at any price. I’ve been interested to see the spate of “preferred stock” offerings by essentially insolvent big lenders. I am thinking that the usual bond-buyers wouldn’t touch FNMA, Citi, CFC with a 10-ft pole, but the usual retail stock-buyers might be persuaded (by their dipzheet retail brokers) to buy a “preferred” as a “more protected” asset than common stock.
Speaking of “dipzheet brokers” is anyone else getting tired of theirs? I have 2 brokers in order to bounce info off each other and see how they think different. My problem is they may think differently but they are still “cheerleaders” and can’t see what is unfolding. Does anyone have a broker who has a good macroeconomic understanding?
“Does anyone have a broker who has a good macroeconomic understanding?”
He’d have an offshore account and know how to use it! I was nervous enough about the advisor who used to take his clients on bus trips to casinos…
I wouldn’t have one.
UK steady down- I remember when their drop in 04 and rebound was touted as a model for USA in 05 and that there was no bubble
Might be another good day for the bears. Interesting put/call reading yesterday. We’ll see.
Did you see the H&S on the SPX cash (1 day intraday/1 minute chart) yesterday? Bit nervous with the futures up so strong.
No, I took the day off. Other than the puts I got last week, pretty much chilling out the rest of Dec. unless something interesting happens.
Naah, another failing rally. Go to stockcharts and check these: $NYA200 $NYHL $NYA50
What put call reading are you refering to?
Good day for bulls. Just remember, the stock market always goes up, in the long run…
http://www.marketwatch.com/tools/marketsummary/
Also remember that so long as jobs creation is strong, productivity is growing and the stock market is climbing, there can be no recession. Higher stock prices are pretty much a political necessity at this point.
Despite the running of the bovines today, gravitational pull on headline stock market indexes seems unusually strong and volatile…
Are you watching the nyse adv/dec index? Looks like spx 1500 and djx 13,500 might be it for this pop.
http://tinyurl.com/22nbfw
Justice!!!
Foreclosure is turning out to be trickier than many on Wall Street anticipated. Observes David D. Dowd Jr., a federal judge in Akron who joined colleagues in trying to streamline the process for handling foreclosures when the housing bust hit: “I think they liked the procedure we set up–until we started asking nasty questions about whether they actually own the note.”
Lordy, this is turning into a giant legal mess. Of course, no one bothered to think through foreclosures when all these loans were being securitized… didn’t you know, real estate always goes up!
Article has it wrong on one thing - these are US FEDERAL judges in these cases and NOT “Ohio” judges. Using the word “Ohio” to describe the judge means that they are state courts which is way different from Federal Court.
Newspapers in UK talking of British government planning to nationalize Northern Rock if no buyer (so far, Virgin Group trying) succeeds. I’m in IB out here in Asian and was just shaking my head at Bloomberg’s comment that this is “pushed Asian markets higher, giving confidence…..”, blah blah blah. Jeesh. I suppose next thing we’ll be happy to see markets rejoice that oil companies are being nationalized in South America. Doi! This “sheet” is really bad right now, and I’m seeing it from the inside. Not owning any property right now and owning just currency (non-USD) and gold is still making me worried as anything can happen in next 2-4 years. Worst case: Those like myself who own zero property and who prepared ourselves by just being in cash will get fuqqed cuz cash will be worthless or unable to be even wired anywhere to buy things on the cheap (as most of you have probably seen on some blogs that is happening at Citi).
Things are definitely frightening right now, no matter where you stand re: debt and money.
Teaser Freezer Mortgage
http://www.stockmania.com/index.php?showimage=106
Gotta love the terms on this one!
“Ministry of Mortgages”… There has already been talk on the hill of Gubmint direct mortgages. So that sounds about right to me.
Brilliant!
I’d like to be Mortgage Czar for a day.
Borrowers Tap Mortgages of Last Resort
By JEFF D. OPDYKE
December 5, 2007; Page D1
Some mortgage seekers spurned by banks and other traditional lenders are turning to high-cost loans known as “hard-money mortgages.”
Once thought of as a last resort for strapped borrowers, these products — also called “private-money mortgages” — have different lending standards than traditional mortgages and carry substantially higher interest rates and fees. These days, however, they are attracting a larger, more-affluent group of consumers. No organization tracks statistics in this highly fragmented industry, and many loans are made by private investors who report to no one. But anecdotally, business is booming.
Article continues.
http://online.wsj.com/article/SB119681505468613756.html?mod=googlenews_wsj
“Unlike a traditional mortgage, … hard-money mortgages are based almost entirely on the value of the underlying asset. …[lenders] require that borrowers have 30% to 40% equity…”
That part of it describes my business perfectly.
I posted this with you in mind Az
“…30% to 40% equity…”
You must be sitting in the catbird seat, then…
Since so much equity is required, I don’t see how it could help a “strapped” borrower, especially a FB with no equity. Unless they mean strapped as in cash flow wise, while sitting on bunches of equity.
Pensacola, FL
Question for lawyer types. If Paulson, et el. are able to pull off their teaser-freezer plan for ARM borrowers, what is the feasibility of fixed rate borrowers filing class-action lawsuits against their mortgage companies or loan servicers demanding a reduction of their fixed rate? In my simple way of thinking, if loan contracts can be modified, why stop at ARM loans?
Any thoughts?
Chances are None, Zero, Zip, Nilch - Forget about it.
Nothing says that all debtors should get the same deal ‘just because’.
(God, I wish the masses had NEVER heard the phrase ‘class action.’ They think it applies to anything and everything. Add that to the fanatasy that everything is supposed to be ‘fair’ and to wild expectations about some ‘rights’ of theirs which are always non-existent and a far cry from reality and what you get is off-the-wall talk about things that don’t exist and can never happen.)
I wonder whether this 5-year plan (didn’t the Soviet Union use 5-year plans?) is tied to the ruling in Ohio that foreclosing lenders have to prove the own/hold the mortgage. Could it be a way for the big banks to buy time and unravel that?
Long overdue: a big book of the politicians and corporate executives assets in text, with asset totals to include color pictures of properties, air and watercraft owned, businesses affiliated with, etc. etc. Let the American public see it all and formulate their own judgments about who is looking out for who.
Need to include a flow chart detailing campaign contributions from REIC corporations to the politicians who provide them with legislative support.
No way Ria. We couldn’t do that. Don’t you know that the corporatists have your best interest in mind every time they abscond with wage earner cash??
Love it, Ria!!!
Suggested new financial acronym:
L.O.S.E.R. = last out structured equity redemption
Financially Underwater, Caught Knife, Eternal Debtor.
Didn’t Understand Mortgage, Bought Anyway, So Stupid
Fantastic acronyms! s/b a weekend topic thread…
For HELOCers late on their payments:
Real Estate Asset Mined Equity Delinquincy
Supplimental Cash Reserve Emergency, Worry Every Day.
HAHAHAHAHAHAHAHA! My boss is wondering why I’m laughing so loud!
A new lending princple that banks learned about subprime borrowers”
Bet On Nimwit, Expect Default
You guys are making my ribs hurt, and my wife is getting very annoyed!
Looks like Orange County, subprime central, has been sniffing its own supply.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3r_IRjU20O0&refer=home
This is how all of us will be affected — higher taxes for diminished public services.
The Real House Lies of Orange County…
This article just reminds me that I must worry about Merrill Lynch’s money market funds. Must call my ML retail broker as soon as he gets to work in CA in half an hour. Probably must buy Treasury bills instead of leaving large amts in Merrill’s money-mkt thing.
“Orange County’s money is invested in commercial paper under review by Moody’s that was issued by Centauri Corp.’s CC USA Inc., Citigroup Inc.’s Five Finance Inc., Standard Chartered Plc.’s Whistlejacket Capital Ltd. and Tango Finance Corp., according to Rodenhuis.”
Tango, The Dance of Loan
Government bailout inevitable?
http://www.msnbc.msn.com/id/22103383/
“Zandi believes that eventually the government will have to set up what amounts to a mortgage clean-up fund, similar to the Resolution Trust Corp. that was created to buy up loans after the collapse of the savings and loan industry in the late 1980s. Under such a plan the government would buy up mortgages at risk of default — at a steep discount — and work out new terms with homeowners.”
“But the idea of using taxpayer dollars to head off foreclosures still faces opposition. Many taxpayers who believe they acted responsibly are loathe to see their money used to help borrowers who are in trouble, based on mail received by msnbc.com.”
“In most cases both lender and borrower are getting what they deserve,” wrote Lee Goodridge of Marion, N.Y. “Maybe it’s about time these lenders stopped scheming and scamming, and borrowers start living within their means instead of trying to outdo the Joneses, let alone keep up with them. Why should the government be doing anything with this?”
“In most cases both lender and borrower are getting what they deserve,”
I don’t like the term “deserve,” in this context. It implies a moral value that clouds the waters. If one roulette player bets on black, and another on red, does either “deserve,” to win or lose? Either outcome is possible, and should be anticipated. If you can’t afford to lose, you can’t afford to play, but this doesn’t mean that you “deserve,” to lose. Of course if you’re stupid enough to bet your bus money you’ll have to walk home.
The banks are nationalizing themselves anyway… to Dubai
I, for one welcome our new petrodollar overlords.
http://tinyurl.com/2zyqmg
Things do not bode well for the near future.
Too early to say, IMO…
It’s Not 1929, but It’s the Biggest Mess Since
By Steven Pearlstein
Wednesday, December 5, 2007; D01
I agree. Truth is in real short supply so predicting an outcome at this point is foolhardy.
Near the end of the article:
“And it is why the Federal Reserve is now willing to toss aside concerns about inflation, the dollar and bailing out Wall Street, and move aggressively to cut interest rates and pump additional funds directly into the banking system.”
As soon you read that the Fed is “willing to toss aside concerns about…bailing out Wall Street,” you know the dice are loaded, IMO — it’s ALL about bailing out Wall Street.
currency devaluation/race to the bottom:
The Bank of Canada has cut interest rates for the first time since April 2004, saying that the global economic outlook looked uncertain.
It cut rates by a quarter of a percentage point to 4.25% from 4.5%.
The central bank said that it expected financial market turmoil, stemming from a collapse of the US sub-prime mortgage market, to persist.
http://news.bbc.co.uk/1/hi/business/7127605.stm
Got gold?
gold; more precious than ever
Demand still outstrips supply, but with the era of easy exploration gone, investors switch focus to mergers and acquisitions
Roman Abramovich’s investment in Highland Gold Mining underlines that the precious metal is becoming more precious by the month. Gold is increasingly hard to find, but the demand for gold companies is strong.
http://tinyurl.com/299rgm
Michigan getting deeper into the forclos…..I mean mortgage business. As if this state doesn’t have enough problems:
http://www.detnews.com/apps/pbcs.dll/article?AID=/20071205/BIZ01/712050397
Nice interest rate too, if you can get it.
They must believe the mortgage lending crisis is about to bottom out…never mind them falling home prices.
Many FB’s have seen Jumbo, the White Elephant…
417,000 Dollars worth of ivory and irony~
“For the gold-seeking argonauts, it was part of what they called “seeing the elephant,” an Americanism that came into wide use with the Gold Rush. It originated in the tale of the Western farmer who hitches his team and drives to town to see the circus, and on the way encounters the parade of exotic animals led by the elephant. The farmer’s terrified horses buck, pitch and overturn the wagon. When the disheveled husband returns home, his wife asks him how he liked the show. “Didn’t get to the circus,” he replies with a crooked smile, “but I’ve seen the elephant!” The flirtation with deadly danger. Thousands of overland travelers wrote of seeing the elephant in letters, diaries or reminiscences. With the exception of the Civil War, no other 19th century event inspired so many personal accounts from Americans.”
http://www.truthdig.com/arts_culture/item/20071122_faragher_on_the_hard_road_west/
Subpoenas–yesterday Dodd was calling for Paulson to explain his involvement in subprime as GS CEO. Don’t see it today?
http://money.cnn.com/2007/12/05/news/companies/wallst_subpoena/?postversion=2007120506
http://www.nytimes.com/2007/12/05/business/05fannie.html?ref=business
More problems for Fannie and Freddie. I guess the idea of raising the $417k is dead for now.
IMHO Fannie and Freddie do not wish for nor want the limit raised.
In every plan proposed by the incompetent members of Congress and the executive department, the proposed burden has been shifted to these GSEs. They cannot say NO. It is to their disadvantage to facilitate the loans they already own that are undergoing stress. Normally they would let these go into foreclosure. The government will not let them do this. Since the problems these GSEs have is only going to get worse, any additional loans shoved down their throats by raising the loan limits will require a Federal Bailout. Neither Freddie nor Fannie would like to give up the illusion of private company.
I don’t understand why this isn’t getting more attention. Both Fannie and Freddie are cutting dividends, reporting losses and raising cash… why are they hurting if they only dabbled in prime conforming loans?
I still expect 1/2 point cut…or else a stock market crash.
Expectations Vary for Fed’s Move
By Greg Ip
Word Count: 797
With their forecast of economic recovery again endangered by economic turmoil, Federal Reserve officials next week are likely to deliver their third “insurance” interest-rate cut this year.
How big a cut and what to say in the accompanying statement are likely again to be difficult decisions, as they were on Oct. 31 when the Fed cut its short-term interest-rate target to 4.5% and issued a statement suggesting no more rate cuts were likely.
Futures markets expect at least a quarter-percentage-point rate cut and see a two-thirds probability of a half-point cut. Fed officials will likely consider the larger cut, but …
http://online.wsj.com/article/SB119681606229313739.html?mod=hps_us_whats_news
I expect a quarter cut, a cut in the discount rate, and a stock market crash, not necessarily in that order.
But perhaps no rate cut is warranted by conditions in the real economy? This highly-suspect jobs report should help sow confusion and make whatever the Fed does seem like more of a surprise than a done deal.
December 5, 2007, 9:04 am
ADP Report Suggests Jobs Surge
Despite worries about an economic slowdown, the report on November employment from payroll firm Automatic Data Processing shows job creation soaring.
Nonfarm private employment gained 189,000 for the month, according to the ADP tally. Adding in public-sector employment, that suggests Friday’s Labor Department payroll report would show an increase of more than 200,000 total nonfarm jobs. October’s Labor Department report came in with a surprise gain 166,000 jobs.
The figures are compiled by forecasting firm Macroeconomic Advisers using ADP’s payroll data covering some 23 million workers. They include a baffling improvement in industries tied to housing and mortgage lending. Construction jobs fell by 6,000 in November, the smallest since January, while financial-sector jobs grew by 10,000 after months of declines.
The ADP report, if it’s accurately foreshadowing the Labor Department numbers, could lower expectations for larger cut in interest rates next week by the Federal Reserve.
–Sudeep Reddy
http://blogs.wsj.com/economics/2007/12/05/adp-report-suggests-jobs-surge/
Sure 187,000 service jobs added for the holidays. No rate cut needed.
And all these $7/hr jobs can buy the available houses in Paducah, Ky.
My guess: They neglected to seasonally adjust the raw “jobs creation” data in order to claim the surge was “larger than expected.”
Most likely. Then, the numbers will be revised into oblivion at some later point when lower numbers are needed for the game of the week.
I think that jawboning down the probability of a rate cut is the Fed’s way of attempting to prevent Wall Street from pricing in the rate cut beforehand so that it’s impact is maximized. Just like a parent saying “I don’t know timmy, do you REALLY think that you’ve been a good enough boy for Santa to bring you presents?”
Exactimento, Amigo. Of course, the financial markets will anticipate the 1/2 point cut, but creating the appearance that it was a surprise will help to justify the “surprise” rally that is certain to follow on the headline stock market indexes (same as after the last “surprise” 1/2 point cut).
what i would like to know is why our FED does not look at inflation when other countries do?
Australia’s Central Bank Leaves Interest Rates Unchanged at 6.75 Percent
“The board remains concerned about the outlook for inflation,”
http://biz.yahoo.com/ap/071205/australia_interest_rates.html?.v=1
Andrew Cuomo for high office!!!
Wall Street Firms Are Subpoenaed
By Kara Scannell
Word Count: 508 | Companies Featured in This Article: Merrill Lynch, Bear Stearns, Deutsche Bank, Fannie Mae
New York state prosecutors have sent subpoenas to several Wall Street firms seeking information related to the packaging and selling of debt tied to high-risk mortgages, people familiar with the matter say, the latest legal woe to hit the stressed industry.
The subpoenas, sent by the office of New York state’s attorney general, Andrew Cuomo, are broadly written and request information from firms including Merrill Lynch & Co., Bear Stearns Cos. and Deutsche Bank AG, people familiar with the matter say.
http://online.wsj.com/article/SB119682171933713971.html?mod=hpp_us_whats_news
“Andrew Cuomo for high office!!!”
I suspect that that is exactly what he has in mind.
Hmmm, no Goldman Sachs? Color me jaded, the fix is in.
That j/a bill gross from pimco who has been lobying for a gov bailout from the get go is now claiming he’s buying Freddie May and Fannie macs MBS’s, so either he’s lying or has inside knowledge of gov bailout and is buying the MBS’s at discount now to profit on the bailout later…..Time will tell, hopefully he gets burned big time, but it seems unlikely…
Hopefully Andrew Cuomo’s subpoenas will create enough of a cloud of legal doubt over the GSEs to warrant indefinitely suspending their potential involvement in a bailout plan. But I am not optimistic, as I am fully aware of how priorities can rapidly shift in a moment of panic.
I am wondering whether kneecaps qualify as collateral for Mortgages of Last Resort?
Borrowers Tap Mortgages of Last Resort
By JEFF D. OPDYKE
December 5, 2007; Page D1
Some mortgage seekers spurned by banks and other traditional lenders are turning to high-cost loans known as “hard-money mortgages.”
Once thought of as a last resort for strapped borrowers, these products — also called “private-money mortgages” — have different lending standards than traditional mortgages and carry substantially higher interest rates and fees.
http://online.wsj.com/article/SB119681505468613756.html?mod=hpp_us_personal_journal
This is why Casey is down under?
Notice how Big C’s stock price went up 1.4 percent on the news they have the largest sumpprime exposure? I guess a successful bailout is a foregone conclusion…
Citigroup has biggest exposure to riskiest loans: analyst
By John Spence
Last update: 8:13 a.m. EST Dec. 5, 2007
BOSTON (MarketWatch) — Analysts at CIBC World Markets on Wednesday lowered their profit outlook for Citigroup Inc. (C: 32.99+0.44+1.35%), saying the Wall Street giant has the largest exposure to the highest-risk U.S. mortgage markets. “High [loan-to-value] mortgage loans is the greatest risk pool of U.S. consumer loans, and Citigroup has the single highest exposure to it,” CIBC said in a research note. The analysts estimated that Citigroup will incur losses on such loans in the range of $4 billion to $6.5 billion in 2008, or between 31% and 51% of its third-quarter 2007 total loss reserve. As a result of higher estimated provision for losses, CIBC cut its 2008 profit estimate for Citigroup by almost 10% to $2.95 a share.
http://www.marketwatch.com/news/story/citigroup-has-biggest-exposure-riskiest/story.aspx?guid=%7BFFECE4D3%2DEEE4%2D4B2A%2DBD0C%2D59B3CB1597AA%7D
They raised the earnings estimate projected by the street. It now shows that even with the losses for the next three quarters, Citigroup should be able to earn enough to pay dividends. A tad early given no updates on writedowns.
Instead of taking the money and running, hows about if we just make a run for the money?
Florida props up fund for investors
Run on money created turmoil
By Michael M. Grynbaum
NEW YORK TIMES NEWS SERVICE
December 5, 2007
Top Florida officials acted yesterday to stabilize an investment pool for local governments after a multibillion-dollar run prompted the state to temporarily suspend withdrawals by cities and school districts.
http://www.signonsandiego.com/uniontrib/20071205/news_1b5fla.html
Mrs. Plankton may be in for a surprise when she gets her post-holiday-shopping-binge credit card bill.
Even good payers see credit card rate hikes
By Laurie Kellman
ASSOCIATED PRESS
December 5, 2007
WASHINGTON – Check your holiday credit card bills closely because some companies are raising interest rates on good customers even if they’ve paid down their balances, on time, every month.
The reason cited is that the customer’s credit rating has fallen elsewhere.
http://www.signonsandiego.com/uniontrib/20071205/news_1b5credit.html
If you pay down the balance, on time, every month, what do you care what the underlying interest rate is?
I think Ms. Kellman is purposefully confusing the idea of paying the bill IN FULL with making the minimum payment.
Doubtless these are some of the same ‘experts’ who, as recently as last year, confidently assured us that real estate always goes up…
Baja feels the effects of housing downturn
Experts confident slump is temporary
By Diane Lindquist
STAFF WRITER
December 5, 2007
CARLSBAD – The U.S. housing slump has spread south across the border, dampening a coastal real estate boom boosted in recent years by Americans snatching up vacation and retirement homes in Baja California and elsewhere in Mexico.
http://www.signonsandiego.com/uniontrib/20071205/news_1b5baja.html
Apparently ‘temporary’ can last quite a while, as in “Ted William’s body is in temporary storage at a cryogenics lab.”
Developers and financial executives speculated that the slump in Mexico will continue for anywhere from six months to two years – or perhaps even five years.
Good, I cringed when I would see condo’s “Starting @ $300,000 USD” in Cancun. Hopefully they’ll go back to $30,000.
Cancun is on the other Mexican coast from Baja. Remember that all real estate is local!
Great funny video about the Web 2.0 bubble which includes a few jabs at the housing bubble in Silicon Valley.
http://www.youtube.com/watch?v=fi4fzvQ6I-o
The Fed could cut all it wants and it doesn’t matter. The real world value of the Dow Jones is maybe 8200 tops, and that’s assuming no massive amounts of fraud.
I’ve been thinking, well, they can’t go to NEGATIVE interest rates, so, at the day of reckoning may just be delayed, and delayed, until then.
Wow, I’m so articulate.
Subprime securities
Published: December 5 2007 09:41 | Last updated: December 5 2007 09:41
A market that can swing about as wildly as the ABX index – a benchmark for mortgage-backed securities – is probably not being driven by fundamentals. In the last week, the prices of triple-A securities have staged a remarkable recovery.
They had looked oversold. In one index, referencing those mortgages originated in saner times, triple-A securities traded below 90 cents on the dollar, despite it being almost impossible to imagine their impairment. To break that triple-A tranche, one has to assume defaults in all the mortgages that back the lower tranches. Furthermore, one has to assume recoveries on the houses in foreclosure of 50 per cent or less. Such a low rate of recovery, in turn, assumes national house price falls of more than 10 per cent compared with the current 4 per cent. Other triple-A securities, referencing more recent vintages of subprime mortgages, have traded much lower. Overall, Goldman Sachs reckons the discounts in the ABX indices suggest total subprime losses of roughly $400bn, or cumulative losses on the underlying mortgages of 30 per cent – the worst record to date was 7-8 per cent. To illustrate this with extreme scenarios, assume that one in every three people defaulted and there were no recoveries on the forced sale of homes, or that every person defaulted and recoveries were just 70 per cent.
http://www.ft.com/cms/s/e7cb1654-a315-11dc-b229-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F1%2Fe7cb1654-a315-11dc-b229-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Can sovereign govts (or their proxies) buy the underlying for the ABX?
Obviously the FT does not understand the underlying security. The original MBS could be trading at 90% with NO DEFAULTS and the CDO can become worthless. The tranches are designed with interest only, interest and principal and asset value. An asset value tranche with the underlying asset dropping in price triggers defaults on many CDOs. This is primarily what the banks own. In the event of a default, the asset value tranche can become worthless.
As long as hopes are riding high for passage of a subprime bailout, I see no reason for the value of even the lowest-rated ABX tranches to drop all the way to zero.
Dec 4 2007 3:15PM EST
The Weakness of Marking Subprime Bonds to Market
There’s something a bit weird about the ABX prices. Let’s assume, for the sake of argument, that the value of an ABX contract is related to the value of a typical mortgage-backed bond with that rating. (It isn’t, but let’s leave that to one side.) If you look at the current indices, the AAA contract is trading at about 66 cents on the dollar, the AA contract at about 35 cents, and the BBB- contract at about 19 cents.
Now remember that the bonds are structured on a waterfall basis. If there’s any loss on a given contract, that means that all the tranches below it have been wiped out completely. If a AAA tranche is trading at distressed levels, that means there’s a good chance it will see losses. In order for that to happen the AA tranche would have to get no money at all, and the same goes for all the A tranches and all the BBB tranches. But you can go all the way down the waterfall and still see significant non-zero value even in the BBB- tranches. So the weird thing is this: looking at the valuation of the AAA contracts, you’d think the BBB- contracts would be utterly worthless. But they’re not.
http://www.portfolio.com/views/blogs/market-movers/2007/12/04/the-weakness-of-marking-subprime-bonds-to-market
Time value.
Maybe I missed it, but I haven’t heard the NAR chime in on the Paulson bailout plan. Would you think that they are hating this plan since it means fewer foreclosures and more people stuck in their homes? Fewer transactions = less commissions?? Seems like Realtors and Mortgage Brokers will still feel the pain while the banks get the funds, I wonder if they will eventually chime in against such a bailout.
“I wonder if they will eventually chime in against such a bailout.”
You give them too much credit for understanding basic economics.
Subprime containment plan from here on out:
Prop up and mop up.
Guess I was wrong about today. Wish I could say I cared. All noise.
Market Malaisse
my thoughts: adjust positions only as needed, don’t initiate new positions. The bell is tolling.
Have you noticed the upper bband dipping under the 50 day ma on the djx and spx?
Makes me want to go out an buy a baseball or basketball or a pair of Nike’s…need to support the global “showcase” of human performance.
China to evict 1.5M for Olympics
http://news.yahoo.com/s/ap/20071205/ap_on_sp_ol/olympics_forced_evictions
Maricopa County AZ (Phoenix Metro) Notice of Trustee’s Sales
Jan 06 726
Feb 06 687
Mar 06 790
Apr 06 638
May 06 764
Jun 06 797
Jul 06 851
Aug 06 1019
Sep 06 1114
Oct 06 1238
Nov 06 1493
Dec 06 1407
Jan 07 1624
Feb 07 1577
Mar 07 1720
Apr 07 1709
May 07 2007
Jun 07 2325
Jul 07 2501
Aug 07 3248
Sep 07 2834
Oct 07 3458
Nov 07 3544
Exponential growth w/ approximately 11 mos doubling time…
This article was posted late last night ,so I’m posting it again ,hope the poster doesn’t mind .The article compares the 1920’s with the last decade in this Country .
http://smirkingChimp.com/thread/11374
Even more terrifying is when you get to the part of the gov, business, and banking sector reactions when things really start falling apart. Do you think history could repeat itself w/these mistakes?
War vets (bonus marchers) and their children being shot at on the Washington mall. They peacefully marched for their overdue bonuses because they were basically starving. They were demonized as rabble rousers to cover up the fact that the violence against them was not authorized.
Union workers shot and killed by paid militia during sit ins protesting their 15 hour work days. (Could we slide back to maintain competitiveness?)
Andrew Mellon tax breaks for the uber rich to support the always realiable “trickle down” economic theory. He pocketed millions on that one in the first year.
and my favorite…the commie scare. The capitalists had screwed things up so badly they really did leave things open for consideration of other forms of governement by the masses. Nothing like the ole demonization trick to maintain power. (Here’s a thought, boys in charge. If capitalism didn’t grow to become painful for the majority people wouldn’t feel the need to look elsewhere for relief!) How many innocents were destroyed in that fiasco?
It’s easy to look back in hindsight @ the early 30’s and be relieved that fascism or communism didn’t take root, but put yourself in the middle of the action in 1932, after capitalism had failed worldwide, and Mussolini’s Italy seemed to be doing well, and Stalin’s Russia showed a lot of promise…
It’s a miracle we didn’t turn into one or the other?
Also ,what I found interesting about this piece was how the stock market cycle in 1929 went in a pattern much like it’s doing today ,before the big dump . Apparently they had cheer-leading campaigns in 1929 also ,with even the President of the United States endorsing the stock market .Credit expansion ,(he called it installment payments ),was fueling a lot of spending in the 20’s and people were urged to spend spend spend .
H. Clinton is going to reveal her sub prime plan today on CSNBC cable business news channel .
i wont watch it, that brawd makes me sick!!!
A quick question on the Federal Government’s “Teaser Freezer” plan to lock in teaser rates for 5 years:
If I bought a big mansion, and took out a $5,000,000 loan to buy it, and I can afford the teaser rate, but not the reset rate, do I qualify for the rate lock? (Assume I have some ‘equity’ left in the house).
In other words, as far as I’ve heard, there will be no ‘income cap’ or ‘loan cap’ on this program, it’s available to you no matter how much money you make, as long as you can show that you have over extended yourself.
That’s just too funny!
I’d like to see a DTI model applied to eligibility too. They seem to say that will be the case but if they are also ok with $1800 piti on a verified 3k monthly gross income then we’re right back where we were.
(This one’s for you goldbugs.) There’s an old saying out here in the West, “If it weren’t for propectors, the world’s currency would be wampum.”
This was in the days before fiat currency was backed by hot air and fraud. Let the anthropologist in you step back and see the Feds, WS Boyz, and banks for the wanna-be shamans they are, trying to control the wampum, and it suggests it might be in out culture’s best interests to reconnect a few things to reality.
propectors = prospectors. ironically enough, there’s a dealer in Indian jewelry here at the coffee shop and he’s very distracting (Indian jewelry being my one and only weakness).
India consumes nearly 800 tonnes of gold accounting for about 20 per cent of the world gold consumption, of which nearly 600 tonnes goes into making jewellery. The Indian jewellery market, estimated to be US$ 13.5 billion in fiscal 2006-07, accounts for 8.3 per cent of world jewellery sales, according to a study by KPMG.
Personally, I would like to visit a gold souk in the Middle East.
There’s an outstanding one in Sharjah, which is the emirate that neighbors Dubai. The catch is that almost all of the gold is 21, 22 or 23K - IOW very yellow and pretty soft. It is possible to find 18K, but usually it is jewelry that was made in Italy. Best workmanship is in what is called “Calcutta gold,” though the extensive filigree likely is too “busy” for many Western women.
They always price gold jewelry by the gram, so it pays to have a conversion table and a calculator in your pocket.
Gurhan. Check it out. Great stuff. I bid for it all the time on Ebay, sometimes get it, sometimes don’t.
You’re referring to Navajo and Hopi, I presume.
I also love that stuff. Have some nice things, Monongye, Charles Loloma, etc.
Paulson to unveil mortgage plan to Congress
By Stephanie Kirchgaessner in Washington
Published: December 5 2007 22:09 | Last updated: December 5 2007 22:09
The Bush administration will on Thursday reveal before an increasingly sceptical Congress its plan to help at-risk homeowners caught up in the subprime crisis.
To discourage Democrats from moving forward with their own legislative proposals, the plan, devised by Hank Paulson, US Treasury secretary, must be broad and extensive. Mr Paulson is spearheading talks between lenders and investors to address the housing meltdown.
http://www.ft.com/cms/s/c4b23f82-a37c-11dc-b229-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fc4b23f82-a37c-11dc-b229-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Happy Holiday to all of our Jewish friends
http://www.youtube.com/watch?v=5Hmr5YOewww
No bailout
With nearly $400 billion in adjustable-rate subprime mortgages scheduled to experience significant increases in their interest rates next year, Treasury Secretary Hank Paulson has outlined the possible terms of an ill-advised election-year taxpayer bailout for an indeterminate number of distressed homeowners and the investors who hold the homeowners’ deteriorating subprime mortgages in their asset portfolios.
http://washingtontimes.com/apps/pbcs.dll/article?AID=/20071205/EDITORIAL/112050014
Paulson: Taxpayers Should Bail Out Subprime
By Seth Jayson December 4, 2007
http://www.fool.com/investing/general/2007/12/04/paulson-taxpayers-should-bail-out-subprime.aspx
PB, you and I know that as this financing mess gets worse, there will come a time when the taxpayer *will* be called on to come to the rescue, whether from local, state, or federal taxes.
There is already much posturing to the effect of “well, we bailed out the S&L industry last time, we need to do it again to save the economy and help the victims of mortgage fraud”.
The only hope against such an eventual plan is a campaign similar to what derailed the almost sure thing immigration reform plan that went down in flames several months ago, almost at the last minute. No matter which side you agreed with on that debate, you have to admit that the lawmakers AND the media severely underestimated the scope of the “control the borders first” sentiment…until that side became extremely vocal.
*That’s* what will be needed to prevent a taxpayer sponsored bail-out this time. Many in the media and in government are convinced that they have ‘the people’ behind them when they go forth to bail out defaulting mortgages. If ‘the people’ feel differently, they have to raise a shout. A big one.
December 5, 2007, 1:29 pm
Paulson’s SIV, Subprime Rescue: A Convoy to Disaster?
Posted by Dennis K. Berman
Is the “convoy” steaming towards America?
For decades, Japan pursued a “convoy system” for its banking regulation, forcing some of its larger and healthier banks to absorb some of the bad loans of weaker brethren. The approach worked fine for a long time, until the convoy –overloaded with years of mispriced debts — ground Japan’s economy to a terrible halt.
Convoy
It’s worth remembering the convoy as Treasury Secretary Hank Paulson steers his own ship into the credit crisis.
http://blogs.wsj.com/deals/2007/12/05/paulsons-siv-subprime-rescue-plans-a-convoy-to-disaster/
So much for Ivy Zelman’s reset chart.
More serious issue: What does this development portend for the future of private contracts? Is there any similar precedent in U.S. history of mass govt override of signed at-will contractual agreements?
Bush to Unveil Aid to Homeowners
‘Starter’ Mortgage Rates
Will Be Frozen for 5 Years;
Political Stakes Are High
By DAMIAN PALETTA, AMY CHOZICK and JOHN D. MCKINNON
December 6, 2007
WASHINGTON — President Bush is set to unveil a plan to help struggling homeowners avoid losing their properties, including a five-year freeze on low, introductory mortgage interest rates that would otherwise jump higher in the next few years.
The announcement, which could be made as soon as today, comes as anxiety grows about the nation’s economy generally and the troubled housing sector in particular. The concern has begun to resonate on the campaign trail, too.
http://online.wsj.com/article/SB119688188491114732.html?mod=hps_us_whats_news
AP
Five-Year Mortgage Rate Freeze Looms
By MARTIN CRUTSINGER and ALAN ZIBEL
Associated Press Writers
WASHINGTON
Wednesday, December 5, 2007 05:30:38 PM PT
The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.
The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.
http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8TBI7CO1&group=ap.online.headlines.business
A new deal for the housing market
Is it time for the government to step in to stop falling house prices? Tess talks to economist Robert Shiller about the next steps in the housing crisis.
http://marketplace.publicradio.org/display/web/2007/11/30/a_new_deal_for_the_housing_market/
What’s a little scary about this is that Shiller wants MORE “innovation” in lending. (At least he wants more regulation also.)
I can’t wait for the next boom, where the retired stripper with the nose ring is selling me a mortgage with a “Hedge” feature. “It’s, like - way safe dude!”
‘Shiller wants MORE “innovation” in lending.’
Gotta promote his product line.
Predictions:
1) Lending “innovations” will soon be shown for what they are, which is rehashes of failed ideas from earlier times (refer to “Economics in One Lesson” by Henry Hazlitt for the evidence).
2) Lending “innovations” will soon be identified as a root cause for the bubble (in that they helped drive prices to levels that almost nobody could afford).
Flipping art…
Lisa Austin acknowledges the end of the five-year speculative boom is near.
Wednesday, December 5, 2007
Money finds its way to art speculation
Artwork at Art Basel Miami Beach
The art market has experienced what some are calling a price bubble for the last several years. All kinds of records are being set at auctions and private sales. Fine-art consultant Lisa Austin talks with host Tess Vigeland about what’s happening in the art world.
http://marketplace.publicradio.org/display/web/2007/12/05/art_speculation/
U.S. economy jolted by subprime troubles
http://www.chinaview.cn 2007-12-06 13:28:30
By Hu Fang
WASHINGTON, Dec. 6 (Xinhua) — The U.S. economy this year was jolted by a “quake”, with its epicenter at the high-risk subprime mortgage market and its aftermath expected to linger well into next year.
The “quake” hit the U.S. stock markets in early August and has since thrown those across the world into a violent tremor. The market turbulence now seemed gone after the Federal Reserve and other central banks injected billions of dollars into financial systems and cut interest rates.
Investors’ worries and fears, however, persist because troubles in the subprime market, which offers loans to people with lower credit and income, are still there.
http://news.xinhuanet.com/english/2007-12/06/content_7209481.htm
Wonderful blog! Do you have any recommendations for aspiring writers? I’m planning to start my own website soon but I’m a little lost on everything. Would you recommend starting with a free platform like Wordpress or go for a paid option? There are so many choices out there that I’m totally confused .. Any ideas? Thanks!