December 9, 2007

Bits Bucket And Craigslist Finds For December 9, 2007

Please post off-topic ideas, links and Craigslist finds here.

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Comment by 0/1
2007-12-09 05:10:53

Ive come to distrust government numbers regarding the economy. Like many people Ive come to rely on my own set of “tells” I use to guage the health of the economy. The mens shelter now has a line extending onto the street on saturday mornings in DC.

Comment by nhz
2007-12-09 06:08:01

for more honest numbers check:

Comment by Salinasron
2007-12-09 07:34:19

Great charts, thanks for the posting.

Comment by We Rent!
2007-12-09 07:41:09

Why should this website be any more trustworthy? People here seem to believe that if they dug something up on the internet, it must be true.

Comment by BubbleViewer
2007-12-09 09:25:44

Hey We Rent!,
Why don’t you instead take a few minutes to check outJohn Williams’ site or take a moment to investigate what methods he uses. You just fire off an idiotic statement, implying that because the info is on the Internet, it is suspect.
If you have a specific complaint about his methodology, let’s hear it. But I think you will find Shadow Government Statistics is of high integrity.

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Comment by Professor Bear
2007-12-09 07:45:36

I’d like to see some shadow unemployment rate statistics. 4.7 percent three months straight against the backdrop of a real estate bust is highly suspect.

Comment by aladinsane
2007-12-09 08:09:02

Trust your government, they no best.

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Comment by txchick57
Comment by Danni
2007-12-09 06:22:06

I went to CVS the other day and the line at the pharmacy was huge….anyway, when it was my turn I pulled out my wallet to pay cash for the prescription and the cashier sighed and rolled her eyes. Apparently the draw was giving her problems and as long as people were paying plastic her life did not get complicated….
I mentioned that I felt like one of those people from the commercial. She said she wished everyone paid with plastic because then all transactions would be a no brainer…..

Comment by NYCityBoy
2007-12-09 07:28:28

I can’t believe how often we go to lunch and I have co-workers paying the $5 pr $6 on plastic. They never have any cash. And these are guys? The American male is becoming more sissified by the minute.

Comment by Craven Moorehead
2007-12-09 07:42:54

I was in line at Home Depot yesterday, in the self checkout area.. the regular suburban looking dude at the machine next to me had a few items, Christmas decoration schlock, maybe a $30 purchase.. swiped his debit card, threw in the PIN.. denied. He ditched his purchases right there and left, acting as if it probably happens frequently.

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Comment by Tom
2007-12-09 07:42:55

I keep mine in a money clip. A $100 bill on the outside and a crap load of ones on the inside.

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Comment by NYCityBoy
2007-12-09 08:01:46

I have a $1 bill on the outside and a crap loan of $100s on the inside.

Comment by WantsOut
2007-12-09 08:45:17

Beat me to it NYC.

A single 100 on the outside with lesser notes on the inside was always refered to as an Italian bankroll in my neck of the woods. Not sure where the phrase came from.

Comment by Blackbox
2007-12-09 09:40:22

I have a tesser 100 Euro bill on the outside, and crappy US dollars on the inside

Comment by WantsOut
2007-12-09 14:52:32

Good one

Comment by doug r
2007-12-09 19:30:13

Don’t you remember “Goodfellas”. Fazools ALWAYS go on the outside, if you’re a hoodlum.

Comment by ex-nnvmtgbrkr
2007-12-09 08:13:56

Cash is filthy stuff. I try to avoid it all costs. Plus, by avoiding it, you stay away from accumulating it’s annoying byproduct - change. I’ve got no problem with debit cards, or even CC’s if they’re paid in full at the end of every month.

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Comment by arizonadude
2007-12-09 08:30:19

I carry no cash at all.everything is on debit card.Thuis would include trips to mcdonalds and starbucks.

Comment by spike66
2007-12-09 08:30:34

Cash works. When NYC has trouble, pwer blackouts or whatnot, only cash works. The ATMs shut down, but so do many stores, with electronic cash registers. The Korean delis last time shut their doors, and sold milk and water thru pass thurs only to those with cash. I think everyone ought to have a week or two of cash at home in a safe place. Even if the ATMs are working,you don’t want to be stuck in a line when the machine runs out.

Comment by Asparagus
2007-12-09 09:24:22

CC’s and debit cards give you a print out of all your expenditures at the end of the month. That can be valuable.

I try to use my debit whenever I can. I like getting a statement at the end of the month that includes virtually all of my expenditures. It’s been good during the increase in gas prices.

Comment by ex-nnvmtgbrkr
2007-12-09 10:00:49

Not saying i don’t have emergency cash on hand, I just will only use it in an emergency. Truth be known, I’d bet more crap is spread through handling money.

Comment by sartre
2007-12-09 13:39:58

Using cash is like giving away frequent flyer miles.I charge everything, even dollar purchases. We haven’t paid airfare for yearly vacations in years. We also happen to be Credit card “Deat beats” i.e. paying the balance in full every month.

Comment by ChicagoANT
2007-12-09 09:45:06

I have a friend that likes to use plastic when we in a group. She will pay the total and everyone gives her their share in cash. She says that she doesn’t like to carry cash bc it’s unsafe. But I’m suspecting that she likes accruing reward points off of everyone else’s purchase also.

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Comment by sm_landlord
2007-12-09 11:14:50

BTW, that’s a convenient way to avoid trips to the ATM machine to get cash…

Comment by dan
2007-12-09 10:01:25

>> I can’t believe how often we go to lunch and I have co-workers paying the $5 pr $6 on plastic.

that’s a really intelligent comment…

i’ve started doing this. it’s often faster than cash , and i never carry a balance anyway, so it doesn’t cost me anything. plus, now i have a convenient record of what I paid for what and when, which i wouldn’t have if i paid cash.

not sure wht this has to do with being a man though.

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Comment by ahansen
2007-12-09 09:57:16

Last week, in Newport Beach I tried to pay for some lab tests in cash…$68. First she wouldn’t take a hundred dollar bill. Then, I swear this is true, when I dug up the exact change, she PHOTOCOPIED all the bills. (Maybe if I’d tried Euros?)

Comment by CA renter
2007-12-10 02:59:18

Now that’s funny!

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Comment by Salinasron
2007-12-09 07:38:38

Reminds me of the late ’60’s when I was in college in SD. I needed to go to a dentist and couldn’t find one who took cash, they only took you if you had a dental insurance plan. I finally called the county dental society who gave me the names of two dentists who would take me for cash. It’s not only CC but insurance plans that add fuel to the mix.

Comment by rms
2007-12-09 09:48:05

I spend about $5k/yr for dentistry for our family. The dental business is a scam whose foundation is an effective lobby that keeps prices high.

Comment by jbunniii
2007-12-09 10:06:19

I spend about $5k/yr for dentistry for our family

How is that possible?

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Comment by uptown
2007-12-09 15:28:10

One of the reasons I keep dental insurance is even though they don’t pay much of big ticket items, you get free exams/cleanings and the discounted insurance rate on everything else.

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Comment by Gulfstream-sitter
2007-12-09 19:14:25

That, and convincing the mommies of America (don’t believe me? go check out the orthodontist’ office) that their kid’s will end up being uneducated trailer-trash if they don’t have 5 grand worth of braces.
I find it amazing that the human race survived as long as it did with crooked teeth.
And don’t start this “TMJ” crap…the dentist’s have been telling me for 20 years about all the dire things that would happen to me if I didn’t get it fixed. None of it has happened yet.

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Comment by tcm_guy
2007-12-09 20:17:05

Last week I called just about every dental office in town and nearby towns getting prices for a first-visit cleaning. The most expensive Dentist (about 40-60% higher than his peers) is a guy I know, we have played tennis. This guy likes to get very hot under the collar, yelling out loud about how he is telling his children not to have anything to do with medical, because there is no money in it anymore.

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Comment by Muggy
2007-12-09 05:25:50

I saw on Patrick about Lahde Capital making 1000% in year betting against subprime. At first I was happy to just avoid buying a house, but now I am filled with greed (haha)….

But seriously, how can we profit? Has that train already left? Are there any funds I can get into for less then $250k (Lahde min).

I know this is a tricky thing for blog managers. Can we all agree to just ‘think aloud’ as opposed to ‘giving advice.’

At this point I would like to not only miss the bust (check), but profit from it.

Comment by txchick57
2007-12-09 05:21:52

You can survey the landscape and look for other big themes. This one was not hard to figure out. How many times in the past couple of years have you read about this beeing a “once in a lifetime” bubble? Any time you hear “once in a lifetime” start trying to figure ways to profit from the OTHER side of it. Timing is important though.

Comment by txchick57
2007-12-09 05:34:29

I seem to be wordy this a.m. but there was an element of luck in Lahde’s windfall too. If he had made that bet a year or two earlier, he’d have lost his ass.

Some say that commercial RE could have a similar drop (in fact, I read somewhere that Lahde is making that bet now). You would have to believe that the entire economy is coming down before betting money on that outcome. In the 1990s, large skyscrapers and shopping centers everywhere were in bankruptcy. In late 1989 and 1990, half the Dallas skyline was in chapter 7 or 11; strip centers everywhere (former tax shelters) went belly up, as well as apartment complexes and other buildings. This was caused in large part by a “once in a lifetime” bust of the S&L industry. Extrapolate. Can you find reason to believe, a chain of events, in the current financiers of these properties, that would match? If you can, similar money could be made betting against commercial RE. I’m not convinced yet, myself.

Comment by joeyinCalif
2007-12-09 05:46:16

i drive past McDonalds and there’s a long line of cars waiting. People can still afford to waste gasoline idling in line and overpay for fast-food meals.. how long will that last?

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Comment by txchick57
2007-12-09 06:01:10

A long time! I read somewhere a survey where they asked a group of women how to turn a piece of raw broccoli into something edible and something like 80% couldn’t answer.

Pizza Hut, anyone?

Comment by P'cola Popper
2007-12-09 06:07:50

Uh, wash it and eat it?

Comment by Ben Jones
2007-12-09 06:08:18

cut it up and put salad dressing on it…

Comment by Tom
2007-12-09 07:01:53

Steam it and eat.

Comment by NYCityBoy
2007-12-09 07:30:59

I am amazed at how often I have heard women in my office brag about not knowing how to cook or clean. They are some real prizes. I won’t even tell you what I think they would do if you gave them a big stalk of broccoli.

Comment by Tom
2007-12-09 07:41:53

THey might look for the power switch : )

Comment by Salinasron
2007-12-09 07:44:45

“I have heard women in my office brag about not knowing how to cook or clean.”

I tell my sons and daughters that if they can’t find a mate that can exist on their own before marriage, to move along. Of course I get a lot of lip from my wife and daughter when I tell my sons that if they want to know what the gal they are dating will look like in the future, just look at the gals mom.

Comment by phillygal
2007-12-09 07:59:27

I am amazed at how often I have heard women in my office brag about not knowing how to cook or clean.

In my family not knowing how to cook was a capital offense. The only crime that beat it was if one of us girls had smaller than a “C” cup.

Comment by NYCityBoy
2007-12-09 08:03:06

“The only crime that beat it was if one of us girls had smaller than a “C” cup.”

Why? Did you cook with your bra?

Comment by desi dude
2007-12-09 08:03:55

I always tell, watch gal/guy treats his parents to see how he/she will treat you…:)

Comment by manhattanite
2007-12-09 08:19:23

re bra-ccoli:

cut it up and microwave for 5 minutes. add some cheese for the last minute. delicious!

Comment by P\'cola Popper
2007-12-09 08:31:16

“The only crime that beat it was if one of us girls had smaller than a “C” cup.”

Note to self: Keep a lookout for Phillygal at the HBB reunion!

Comment by NYCityBoy
2007-12-09 08:36:54

You might want to bring safety goggles.

Comment by phillygal
2007-12-09 12:59:53

Note to self: Keep a lookout for Phillygal at the HBB reunion!

Sorry to disappoint, P’cola. Something was lost in the translation when my family crossed the pond to live in the USA. All the women who were born in the old country were “healthy”, as they say. But those of us who were born in America experienced a boob downsizing.

Must be something in the water over there.

Comment by de
2007-12-09 05:50:41

I’ve seen signs that commercial real estate is beginning to decline. I know, there’s a big difference between decline and come down hard, but…

I’ve held SRS (Proshares ETF - Short 2x CRE index) for a few months and have done well. Note: SRS is COMMERCIAL real estate, not residential. A lot of people once thought they could capitalize on the residential problem using it. Not so. But it’s an easy way to take a bet on commercial going down.

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Comment by Hondje
2007-12-09 07:52:44

I agree with de that SRS is worth a look. I bought some SRS last week at $94.50/share and I’ve been in-and-out of SRS about 6 times this year and made money on each trade (a couple times with returns of 20% or more).

Like txchick says, timing is very important when shorting, and I don’t think we’ll see many obvious opportunities like shorting LEND at $50/share or the homebuilders when they were all-time highs a couple years ago, but keep an eye on SRS and if you do take the plunge and purchase some shares, don’t get too greedy….a 15% or 20% M/M return is possible given the volatility in the market and the growing concerns about commercial RE, but don’t expect a 75%+ return on SRS.

I’m bearish on commercial b/c I do think fundamentals are pretty bad….lots of newly built office complexes in the NoVA area sitting empty, for example, many big-box retailers showing decling SSS and stand-alone stores like the Make-a-Candle biz we read about on the HBB going bust….this could mean trouble for the companies that manage the large shopping malls. And finally there are the REITs associated with apartment rentals that could take a hit since there’s a huge glut of condos and McMansions sitting empty that can be rented out.

Comment by Paul in Jax
2007-12-09 10:35:17

One of the best tracking stocks for commercial RE is SHLD. I lost money betting against this one years ago and so have been scared off and missed the big 40% down move. But I wouldn’t be surprised to see it go back below 50, another 50% lower.

Comment by WT Economist
2007-12-09 05:56:02

There was a price bubble in commercial, but the fundamentals are nowhere near as bad as in the late 1980s. There was much less overbuilding. Some markets have seen little new construction since then.

The only real estate type likely to get hosed is older shopping centers in declining, land-rich Midwestern metros where lots of new centers have been built.

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Comment by nhz
2007-12-09 06:19:46

in my country commercial RE has been doing well for about 15 years, despite surging vacancies (30-40% in many areas). It’s all about easy money - no subslime mortgages, but something similar is going on. Banks loan the money based on the official rents (because that is how they determine what a commercial building is worth), even if most of the building is unoccupied. The companies that rent out the building prefer to keep rents high (and rising) because this means they can borrow even more money from the bank (at extremely low cost, their own net cost is far below inflation). Just like with private RE speculators, the gains in asset value of the building are often more important than the actual rent income. This situation seems detached from fundamentals, but it can continue for many years.

The situation might start to unravel now, because there is a snowballing fraud scandal in the Dutch commercial RE industry. Many buildings were passed between owners while the ‘gains’ where pocketed by insiders (directors of pension funds etc.). It now becomes clear that many buildings were sold for far too much, and maybe some banks are getting nervous about the return of their capital now. About 40 people are in jail because of this investigation, among them the creme-the-la-creme of the Dutch commercial RE business; I doubt anyone of them will get a serious punishment though.

Comment by nhz
2007-12-09 06:11:12

many people made similar bets in Europe (where prices went up far more than they have in the US) and lost their shirt. There is always and element of luck involved, especially regarding timing. One could say that the Dutch housing bubble with its near 1000% price gains is the chance of a lifetime to bet against, but I doubt there are much housing bears left that want to risk going against the government and the RE mob, after seeing what those forces can do every time again to prop up the bubble for another few years.

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Comment by Matt_in_TX
2007-12-09 08:01:27

I was driving along one of the inner ring roads in the Dallas side of Dallas-Ft.Worth yesterday (I-635 west of “Las Colinas”) and it seemed every lot that hadn’t been built yet had a concrete shell of a large commercial building with no visible activity on the ground. I hope they were just off for the winter/weekend and took their vehicles and piles with them.

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Comment by txchick57
2007-12-09 08:35:52

Incredible, isn’t it. What possible commercial activity could take place out there other than warehouses or trucking facilities.

Comment by sm_landlord
2007-12-09 11:22:37

Indoor farming? :-)

Commercial buildings tend to have heavy-duty electrical systems.

Comment by Muggy
2007-12-09 05:39:57

Good morning tx,

As a regular HBB’er, I’ve read many of your posts… I suspect many others here are in my situation: we are just average working Joe’s that have more-than-average wits, sensibility and diligence.

I do realize there are some heavy-hitters here, which sometimes makes it intimidating for guys like me. I would love to invest my downpayment fund into something like Lahde. My problem is bank; $25k (my ‘house fund’) isn’t a lot to most investment folks, but I would obviously like to get a higher return. Crap, even last night I had a relative tell me, “the housing thing is way over-reported. There won’t be a crash.”

Beyond safely managing my retirement funds and MM, I am completely clueless on the process. What makes us different is that you pick up the phone and pull the trigger. I don’t even know where to start.

Comment by uptown
2007-12-09 15:36:01

I would start by:
Read Phil Town’s “Rule #1″.
Go to (American Association of Individual Investors).

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Comment by cactus
2007-12-09 16:22:40

Have you read Jack Boogles book on Mutual funds?

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Comment by joeyinCalif
2007-12-09 05:33:44

The vice funds might be a good bet.. VICEX .. guns, gambling, liquor and tobacco..

But since it’s best to invest in what you know, and since I’m not personally familiar with any of those evil things, i hesitate to go in that direction. ;)

Comment by combotechie
2007-12-09 06:15:21

“But seriously, how can we profit?”

By mostly doing nothing. By saving, not spending, by paying off debts and going to cash, by allowing chaotic events to unfold around you without your participation.
Cash is king. If you don’t believe that statement then look around and notice that the root of most people’s problems is their desperate need for cash, cash as in American dollars.
Yeah, I know people here like to trash the USD but if it’s the only currency you know and the only one you use then I’d stick with it; Dabbling in foreign currencies can be an excellent way to lose your a$$ if you don’t know what you are doing.

So, again, how can we profit? IMHO by mostly doing nothing.

Comment by Muggy
2007-12-09 06:43:14

“So, again, how can we profit? IMHO by mostly doing nothing.”

That’s basically what I’ve been doing since 2005. But, but… 1000% is sooooooooooo tempting! Lol…

The reality is that I will do what I’ve always done: stay steady, neither loosing my ass nor making ‘mad money.’

I’m quite content living below my means and living a simple life.

Comment by combotechie
2007-12-09 07:13:30

“I’m quite content living below my means and living a simple life.”

Definitely a winning formula.

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Comment by MD_renter
2007-12-09 07:49:55

Just don’t bet what you can’t afford to lose. Don’t chase insane “too good to be true” profits and end up learning all about bankruptcy laws.

Comment by Professor Bear
2007-12-09 09:08:57

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

-Charles Dickens-
“David Copperfield”

Comment by NYCityBoy
2007-12-09 07:35:40

Just remember Muggy, people that chase huge returns often end up begging for bailouts. I agree that the best return you are going to get is on holding your cash. As prices come down even the American $ will gain buying power. A 30% drop in house prices gives you an immediate 30% return on those savings. You shouldn’t be risky with your hard-earned house fund. Good luck to you and be careful!

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Comment by Professor Bear
2007-12-09 07:54:26

“…the root of most people’s problems is their desperate need for cash…”

It is not just individuals or households who are desperate for cash these days. Despite the Fed’s best efforts to dump liquidity into the money market since August, conspicuous evidence shows that banks still can’t get their hands on enough of the virtual green paper.

For instance, there was this item on p. A2 of Friday’s Wall Street Journal:

Home Foreclosures Surge to a New High
by Sudeep Reddy

The Fed also said borrowing to banks at its discount window surged over the past week. Discount-window loans jumped to $2,100 million through Wednesday, up from just $8 million a week earlier.

Comment by JimAtLaw
2007-12-09 08:06:08

Well, your metals-bug types would tell you that the value of our fiat currency will soon be even further eroded by the crushing U.S. debt and by the Fed’s/government’s attempt to inflate our way out of both the housing bubble and the trade deficit (in part by breaking the Chinese peg)… buy gold? Or perhaps keep your savings in a variety of currencies, plus precious metals, as a hedge?

Comment by JimAtLaw
2007-12-09 08:15:58

If you think about it for a second, there is really no “staying out of it and not betting on anything” play - if you hold assets in dollars, you are betting that the dollar has hit bottom versus other currencies, as opposed to further devaluation.

You’re always betting on something, you just have to acknowledge that and make a conscious decision what you’re betting on, and do it, rather than be paralyzed by fear of being wrong, and then end up actually betting against your instincts by inaction vis-a-vis your current holdings. (Guilty as charged here…)

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Comment by Professor Bear
2007-12-09 08:24:34

Bingo — we are all gamblers now, whether we like it or not.

Comment by Professor Bear
2007-12-09 08:29:43

I have frequently given BIM (and Gekko before him) a hard time over their broken-record advice to use dollar cost averaging or other diversification strategies across time or asset classes, but I honestly agree with them on this point, provided one diversifies outside the box of the traditional collection of assets the investment advising industry likes to pimp (U.S.-dollar-denominated stocks, bonds and cash).

Comment by aladinsane
2007-12-09 08:49:04

The Crowd loves Dollars.

Comment by Housing Wizard
2007-12-09 09:24:49

I can’t take any risks because I’m to old to make it back again ,but ,if I was younger it would of been kinda fun to play with these market swings .

When I was young I use to go for stocks that had to do with basic needs like food stores and big truck companies and waste management ,utilities ,etc. Now ,I can’t stand the way the cheerleaders sway the market . Gosh darn ,with government intervention with everything nothing makes sense anymore . I can’t stand this short term thinking ,one day good news ,next day bad news ,how do they PR the sheep to spend money they haven’t got . So, cash for me right now in spite of low yields that are going lower .

Comment by tuxedo_junction
2007-12-09 10:27:09

I view the entire investment spectrum as consisting of 10 asset classes. US cash, foreign cash, US debt, foreign debt, US equities, foreign equities, US real estate, foreign real estate, gold, and commodities. First picture the world 2 to 5 years from now. Then determine broadly what asset mix will do well in a change from now to then. (Don’t put all of your eggs in one basket - diversify across 4 or more categories). After that, it’s a matter of research to drill down to specific investments within each category.

Comment by will
2007-12-09 11:12:44

I never invested before this year outside a 401k. I made about a huge return this year buying puts on lenders, mortgage insurers and builders. I started with 4k and have 20k now. I lost money at first thinking I could time the market month to month, but I think the writing is on the wall and the odds are in my favor going forward. Not a 100% chance of more returns but much higher than 50%. I think we hit a breaking point and many of these companies have a broken business at this point with little chance of turning things around.Take a chance, but not with all your money.

Comment by motepug
2007-12-09 08:53:23

By doing nothing, your savings will evaporate, surely as the sun rises in the morning, through inflation. Yes, your housing dollar is getting more valuable, because house prices are falling. But against virtually everything else, energy, food, Walmart crap, etc, the dollar is falling like a brick, and thus your dollar will buy less, meaning prices are going up.

No new taxes, what a joke, the govt just creates more money, pays some bills, fights a few wars, etc, instead of raising taxes. So easy, so painless, no new taxes, ha, ha. Unfortunately, this wipes out the savers by devaluing the dollar.

Comment by Professor Bear
2007-12-09 09:04:34

“Yes, your housing dollar is getting more valuable, because house prices are falling.”

I am pretty sure part of the Fed’s ‘plan’ is to offset this, but the plan is doomed to fail, thanks to a massive glut of new homes priced to never sell, which will only grow if punch bowl respiking operations succeed in keeping home prices propped up on a temporarily high plateau.

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Comment by vozworth
2007-12-09 10:01:43

punchbowl re-spiking is a desperate attempt to ignite another bubble…..

Comment by Kime
2007-12-09 09:50:52

“No new taxes, what a joke, the govt just creates more money, pays some bills, fights a few wars, etc, instead of raising taxes.”

I have mentioned this before, but the housing bubble dwarfs any inflationary efforts of the government. The inflation we have been seeing in the past few years has been mainly caused by the housing bubble, and the deflation of the housing bubble will shrink the money supply, so it is hard for me to see where all this inflation will come from. The fact is that the inflation has already happened, and just as when stocks have had a big run up is when the most people are bullish, the recent run of inflation is causing people to see future inflation without really evaluating that the cause of the inflation has turned and a collapsing credit bubble is in progress that will reverse the inflation of the money supply. This is not to say that I believe that everything will go down in price, but I am saying that it is not at all a sure thing that inflation will be in the cards the next few years. I believe we will see some deflation in more areas than those that are tied to real estate.

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Comment by Jas Jain
2007-12-09 11:40:47

“…the govt just creates more money… instead of raising taxes.”

Are there people out there who really believe this stuff? Why would there be any debate on taxes??

“Printing Money” is a propaganda mantra and I can only laugh at people who actually believe this to be true. Yes, Bernanke is in propaganda business.

Rapid growth in the Total Household Debt (THD) has been the single most important cause of economic growth as well as controlled inflation regime under Greenspan-Bernanke. Without it, or in its absence in the future, economy and inflation will go into the negative territory. Hence, the forecast for deflationary depression when the mortgage debt (the most important component of THD) can’t be increased. Every time that THD growth has fallen below 5.5%,YoY, the economy was already in recession.


Comment by cashedin05
2007-12-09 11:56:25

I am with you Kime. Many I know are cutting back here and there on monthly recurring expenditures. Lower speed on internet, no bug spray guy, less services on their phones, no landscape guy, no nfl ticket and so on. These are people that I would refer to as the last of the big time spenders and if they are cutting back look out below. This will all begin to trickle down and decreased demand will have to begin to erode prices, not in all areas but many.

Comment by motepug
2007-12-09 12:10:57

Sigh, read up on your monetary facts. Household debt, corporate debt, govt debt, etc, doesn’t matter - money is created via the fractional reserve system (banks lending money they don’t have, ie leverage, some call it outright fraud), and by the Fed creating money to buy govt bonds, when someone else doesn’t want to lend the govt money. The greater the total amount of money, the greater the price of goods/services will be, simple economic rules. It is actually impossibly complicated, because not all asset prices necessarily inflate/deflate at the same rate. However, in sum total, the price of assets is directly proportional to the total number of dollars/credit in circulation.

Total Household Debt is just one part of the picture. The US govt debt certainly is another, as is corporate debt. One may be an better indicator of something, beats me.

Another interesting fact, if every debt, govt, personal, corporate, etc was repaid, there would be no dollars! Na da, none, because every dollar is a “note”, ie debt instrument.

Comment by Jas Jain
2007-12-09 12:11:35


Can anyone give a clear example of how the “printed money” is actually used to buy goods and services in the economy? The last I checked the only money the US govt can spend is the revenue collected, including taxes, and by borrowing in the open market, more than once a week. If the USG can “print money” why was it paying 22% a year to borrow short-term and 15% to borrow long-term during 1980-81?

Collecting interest, in the most timely manner, from the USG for years and being able it spend on necessities and the rest,


PS: In all my speculative accounts I keep sizeable amounts in T-Bills at ALL times (I roll them over when they mature). US Treasury is thousand times trustworthier than the corporate crooks and “Gangs of New York.”


Comment by Jas Jain
2007-12-09 12:23:45

“…because every dollar is a “note”, ie debt instrument.”

Bingo! Debt that must be paid back with interest. That IS my point. Debt that is paid back with interest is NOT “Printing Money,” got it or still have problem distinguishing between the two?


Comment by aladinsane
2007-12-09 13:06:42

Owning t-bills is like giving explicit approval to the “Gangs of New York” to play with your money, as they see fit…

Comment by Jas Jain
2007-12-09 13:34:03

“Owning t-bills is like giving explicit approval to the “Gangs of New York” to play with your money, as they see fit…”

This debate is getting ridiculous. Time for me to quit arguing will those who can’t distinguish between US Treasury and “Gangs of New York.” No one has lost money in USTs since 1777 while lot of people have lost money with scams operated by “Gangs of New York.” Who created CDOs and other toxic mortgage products?! Who “operates” the Scam Market?


Comment by aladinsane
2007-12-09 16:59:18


Gang member:

Ever heard of the phrase “Not worth a Continental”?

Hyper-inflated Currency issued until the 1780’s, by our government?

“Unfortunately, without solid backing by gold or silver and because so many notes were printed, Continentals soon became devalued. This lead to a popular expression of the day–”not worth a Continental.” Even George Washington was heard to say, “A wagonload of Continentals will hardly purchase a wagonload of provisions.”

Comment by Paul in Jax
2007-12-09 19:15:56

Hear, hear. Simply look at growth of monetary base versus budget deficit. This will tell you how much of the debt is being monetized (net Fed buying of government securities for its own account, which results in an increase of the monetary base, or “printing money”). Has typically been in the neighborhood of 10%.

Bottom line: most deficit spending is NOT printing money.

Comment by txchick57
2007-12-09 05:28:19

The guy who wrote the piece about the SD bankruptcy court which I posted it yesterday added a little to it. This judge made the ruling sua sponte which is even more interesting! Wow, you don’t see that very often.

“One of of our lawyers was sitting in court waiting on a hearing and heard what happened. This was a relief from stay motion. Something the lender has to do to proceed on a bk. The motion was unopposed meaning the debtor did not defend it. THE JUDGE DID THIS ON HER OWN!!!!. The lawyers fell off the bench when they heard it.

We are now going to oppose every relief from stay if the names on the mortgages don’t match the parities filing in court. Same as the Boyko case in Ohio but in an NON-Judicial foreclosure state.

EVEN BIGGER though is that if the lender has not perfected their lien when the bk is filed, we can avoid it. Meaning they lose their security and stand in line with the rest of the unsecured creditors. The debtors get a 75k homestead that stands in front of the now unsecured lender.

This is a huge problem for securitized mortgages.”

No more legal paper free ride — the parties must prove they are a successor in interest to the original mortgage.”

Comment by Graspeer
2007-12-09 06:32:34

“”No more legal paper free ride — the parties must prove they are a successor in interest to the original mortgage.””

That’s going to be hard since from what I understand much of the modern RE financial system goal has been to slice and dice and separate out responsibility so that investors could get the money without the liability. Now they have to put Humpty Dumpty back together to prove who actually owns what.

Comment by auger-inn
2007-12-09 10:41:19

Hey Tx, this is HUGE if I’m understanding you correctly. If folks right away file for BK BEFORE the bankers, et al, correctly organize the paperwork by making sure that the true owners (if known) are on the title at the county clerks office then the borrowers will recieve the homestead exemption (in this case 75K) from any forced sale to recover assets? Please advise.

Comment by txchick57
2007-12-09 12:02:26

Sure looks that way.

Comment by auger-inn
2007-12-09 12:05:01

Just WOW!

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Comment by wmbz
Comment by WT Economist
2007-12-09 06:00:45

“There ought to be costs to both the borrowers and lenders, but right now you’re just giving a freebie to homeowners,” he says. “They still get to live in their house and benefit from any appreciation in the value of the house over the next few years.”

Fantasy. The borrowers are taking more than half the hosing, if they don’t do the smart think and walk away from the house. What appreciation in the next five years? If there is appreciation, which there won’t be, the rate goes up, the borrower fall behind and is kicked out, and the lender sells after sucking lots of fees out of the foreclosure process (revert to plan A).

Comment by Professor Bear
2007-12-09 07:35:03

“They still get to live in their house and benefit from any appreciation in the value of the house over the next few years.”

Just what exactly is the benefit of negative appreciation?

Comment by Professor Bear
2007-12-09 07:41:09

I just remembered: It’s the elimination of federal tax on debt forgiveness which will allow folks to live in falling knives for years with no severe tax consequences when they sell at a loss down the road.

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Comment by Professor Bear
2007-12-09 08:06:46

sell at a loss hand over the keys

Comment by aladinsane
2007-12-09 08:51:40

We took away the possibility of shame, so long ago.

Comment by wmbz
2007-12-09 05:30:41
Comment by NYCityBoy
2007-12-09 07:45:59

“During the entire period up until 1980, it took about $1.40 worth of extra credit to produce a single extra dollar of GDP. Since then, the ratio has deteriorated…with recent figures showing as much as $7 in new credit per additional buck of output.”

Holy crap. That is scary. That is a great article. The destructive force of naivete is unleashed. About 6 months a co-worker told me, “I’ve never seen anybody as averse to taking on debt as you.” He saw it as a criticism. I saw it as a huge compliment.

Comment by Hondje
2007-12-09 08:15:52

On Friday’s Nightly Business Report on PBS, their Market Monitor guest cited this $7 in new credit per additional $1 of output and said that this was absolutely unsustainable….and if I remember correctly, he was basically arguing that much of the GDP growth reported by our govt is really driven by inflation.

Comment by vozworth
2007-12-09 10:05:58

this is approaching “zero hour” when it takes more than a “freshly printed” dollar to create penny in GDP growth….. more money is not the answer.

GDP growth as a function of inflation is in the “severely diminishing marginal utility” part of the equation.

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Comment by exeter
2007-12-09 14:28:19

Now tell me it is a coincidence that it was 1981 that we began the insane path of “spend our way to prosperity through borrowing” a’la supply side economics.

Comment by CA renter
2007-12-10 03:21:44

Bingo, exeter!!!!

Comment by aladinsane
2007-12-09 05:35:31

“For centuries, the mystics of spirit have proclaimed that faith is superior to reason, but have not dared deny the existence of reason. Their heirs and products, the mystics of muscle, have completed their job and achieved their dream: they proclaim that everything is faith, and call it a revolt against believing. As revolt against unproved assertions, they proclaim that nothing can be proved; as revolt against supernatural knowledge, they proclaim that no knowledge is possible; as-revolt against the enemies of science, they proclaim that science is superstition; as revolt against the enslavement of the mind, they proclaim that there is no mind.”

John Galt

Comment by oc-ed
2007-12-09 10:02:10

aladinsane, I appreciate your references to Atlas Shrugged. They are timely and relevant IMHO.

Comment by P'cola Popper
2007-12-09 06:05:56

Who ever says RE cannot be worthless hasn’t been to Detroit. CFC has a few choice properties in the Motor City listed for $1.

Below find the CFC property owned website. Pick “MI” for Michigan and then choose sort “by list price” to see the great deals!

Comment by palmetto
2007-12-09 06:12:50

Hey, Popper, I just took a look. Unbelievable! I’m waiting for that to happen in Florida. Ah, the frustration!

Comment by Tom
2007-12-09 07:09:07

They must be crack houses.

I guess CFC is done with the upkeep and taxes on these albotrosses. CFC is begging FHA to buy these junk things for the full appraised value.

Comment by txchick57
Comment by palmetto
2007-12-09 06:45:36

You know, when people say Americans are stupid, you just have to wonder why so many foreign interests didn’t do their own due diligence and why they bought this crap, too. I mean, if we’re that despised abroad, (and if we weren’t before we sure are now) why buy this stuff from American firms?

Comment by NYCityBoy
2007-12-09 07:52:34

I posed the question yesterday, Palmetto. Do we really think the Pig Men on Wall Street are any more piggish than the Pig Men in Zurich, London, Hong Kong, Beijing, etc.? These guys all know what they are. If anybody got taken it was because they were overcome by their own greed, not because Americans are master swindlers. A pigman is a pigman.

Comment by Housing Wizard
2007-12-09 10:50:55

However ,I would be pretty pissed as a investor if I relied on faulty ratings on SIV’s, CDO’s. At the time I think there was a general belief that you can’t go wrong with real estate and in the past, mortgage loan investment was a good bet . The bubble was prolonged and the foreclosure loss didn’t start until 2006 But as you said, it goes back to the higher the yield ,the greater the risks ,so on a account that isn’t insured ,there are risks and investors should of known .

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Comment by dennisd
2007-12-09 06:41:48

Pensacola, FL

Desperately hoping for a GF to come along:

Comment by Rally Mitigation Team Member Bob
2007-12-09 06:42:57

How to Solve a Subprime Mess? An Iowan Says, Let’s Caucus

Published: December 9, 2007

A HALF-DOZEN years before subprime mortgages were on the national agenda, Tom Miller, the attorney general of Iowa, led teams of state officials from around the country in negotiating settlements totaling more than $800 million with two large home lenders that were accused of misleading and overcharging borrowers.

Now, as the mortgage boom of the last few years unravels, Mr. Miller is leading another multistate campaign to help consumers. This time, he is not threatening major litigation — at least not yet. Rather, he is trying to stem what most experts say will be a surge of foreclosures by cajoling and pressuring mortgage servicing companies to modify loans before borrowers fall too far behind.

“It’s not an obvious law-enforcement attitude,” Mr. Miller, 63, said in early November in his office in Des Moines. “But we view ourselves as consumer protectors and we see an avalanche of foreclosures sitting out there and you have to learn from experience.”

The preference of Mr. Miller, a Democrat, for prevention over prosecution sets him apart from a newer, younger crop of attorneys general in other states. His counterparts in New York, Ohio and Massachusetts, all of whom are also Democrats, have filed lawsuits or publicly discussed their intention to bring cases against mortgage lenders, investment banks and credit rating agencies.

The difference between Mr. Miller and his peers highlights the challenges facing policy makers as they decide how to respond to the mortgage crisis. Should they look to mete out punishment, try to stem rising foreclosures or focus on enacting new standards for future lending?

Comment by palmetto
2007-12-09 07:09:28

“The preference of Mr. Miller, a Democrat, for prevention over prosecution sets him apart from a newer, younger crop of attorneys general in other states.”

Prevention and prosecution should go hand in hand. But more to the point, we really don’t have much of a rule of law left in the US anymore. That, perhaps, is the one fundamental agreement on which this country is based and yet our gov’t, illegals, Wall Street, the banks, et al, seem to think it is sort of a quaint idea.

When the rule of law goes by the boards, the rule of force takes over. That’s something I, for one, wouldn’t like to see happen. Guns and fists seem to be the order of the day. Did anyone see the 20/20 “report” the other night, where one girl beat up another in a school restroom and it was caught on tape and posted to the internet? And there’s ABC, mildly interviewing the girl who did the beating, along with her family, as if it was some 4H club dispute. My question is, why wasn’t that girl arrested for assault on the spot and thrown in juvie detention? I don’t want my little niece in a school where she has to be worried about some a-hole student just deciding one day to have a beat-down. So much for school psychologists. The schools are overrun with them and yet the kids are getting more savage and more creative with their savagery. Yessir, we’ve got the rule of law here, but if you break it, we can work it out. Cue the Beatles’ song.

Comment by An Observer
2007-12-09 08:03:07


I agree 100%. What I find amazing, is that so few people seem to recognize this is happening to society….

Comment by An Observer
2007-12-09 08:09:43


Another comment on the 20/20 report. How about the segment on the two teen boys who drive around screaming crap at people from their car? They were so proud of themselves. If these segments are representive of the upcomming generation, we are really spiralling down the toilet…

Comment by JimAtLaw
2007-12-09 09:22:38

I ride my bicycle (ok, actually a tricycle, but still) in the downtown L.A. area where I live for exercise, and people are always yelling out the window at me. I get far more positive comments than negative, but the number of idiots who yell at me obnoxiously, honk in my ear, etc. when I’m not impeding traffic or doing anything else other than just riding along is incredible. It makes you realize where our society is headed. Think Tijuana. And this seems to be a conscious choice by the powers that be, perhaps because they recognize that in Mexico (among other examples), those powers have been even more successful at concentrating the wealth and stealing from the people than they’ve been here.

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Comment by Komondor
2007-12-09 10:00:01

My SO is a principal in a school district in So. Cal. The school staff does not hesitate to call the police when assaults occur.

Recently, five delinquents beat up a student just after school ended. Some other students witnessed the activity, and identified the five. The next morning, the five were called into the office, where a couple of uniforms were waiting to take them to juvie.

So, palmetto, rest assured that there are some districts that take student violence seriously.

Comment by auger-inn
2007-12-09 10:58:36

As usual Palmetto, I agree completely. I’m waiting for the day that the asshats in charge agree that students aren’t going to be coddled any longer. I’m all for giving someone a chance but some actions call for dispelling and criminal charges. Those who are worried about dispelling those “students” who show up to cause disruption need to understand that all the students pay for allowing this conduct to go on and appeasement serves no one in the long term.
I’m for turning unused buildings into detention centers where the assh*les can be sent to serve out their school terms. I could really care less about them other than some attempt should be made to teach them a skill while they are amongst their peers at the detention center. Make it a bootcamp for all I care.
Teachers are spending more time parenting these thugs than teaching and I for one will not allow my daughter to go to a school where the administrators are more concerned with keeping attendance up so that they can garner more Federal money than they are about making sure the kids are in an environment where they can feel secure and learn. Bunch of f*cking idiots running the system, imo. Sorry for the rant.

Comment by txchick57
2007-12-09 07:29:20

If Mr. Miller wasn’t 63, I’d say he has presidential aspirations. Instead it appears that he just gives a damn. Stop the presses.

Comment by Professor Bear
2007-12-09 08:03:55

Settlements to the tune of $800 m in response to problems which have already led to $50,000 m in sumpprime debt writedowns, with more in the pipeline, sound on the face of it like a bit of a wrist slap. I know I may be comparing apples and oranges here, though…

Comment by Jas Jain
2007-12-09 06:45:16

Q: What can you predict from “digidollars” and various Money Supply numbers?

George Ure: “Did I mention that digidollars are still being created at a 17% annual rate while paper currency/real money (M1) is being created as a 1-10th of one percent rate (NSA) per the latest YoY money stock numbers? Oh, and that means currency is disappearing as remember the population of the US has gone up more than 1-10th of one percent in the past year, so less paper for each of us…”

OK, what can you predict from “digidollars” and various Money Supply numbers?

Can you predict the future direction of the economy and inflation rate from growth in M3 or other measure of “money?” Why there are, or were, more than five money supplies measures? Also, did you know that Greenspan admitted that in early 1990s (following the recession) the money supply numbers stopped working? He said that we put buckets of money out there but it didn’t do anything. He said that only after Wall Street created CDO products and took debt off the banks did banks started to lend more money, i.e., increase in money supply didn’t do anything by itself.

Money supply is an effect and not a cause. Money is created via credit, or more accurately, increase in debt. The money supply numbers say nothing more than what they measure, i.e., it is counting goats, pigs, horses, beef, etc., on a farm.

Total Household Debt (THD) is the single best predictor of the economy and the future direction of the inflation rate. For example, since 1950 when the YoY growth in THD fell below 5.5% the economy was already in recession. Also, as the THD growth falls it signals future fall in the inflation rate. I can guarantee outright deflation within months of THD growth falling to zero, i.e., Peak Debt would guarantee deflation within months. The music would stop when the desperate act of pushing more debt on the households by the Fed stops to work. And there is nothing like massive debt defaults to accomplish that. Oh, BTW, now we have already gone wild with the CDO products and they are now going to “stop to work” as did the “buckets of money that ‘we’ put out there.”

Just as all good things come to an end, all bad things (pushing debt) will come to an end too. It will be painful like withdrawal symptoms.


Comment by tg
2007-12-09 07:38:08

Well written, Jas

Comment by watcher
2007-12-09 08:26:23

You predicted oil under $40 and guaranteed Bernanke would not inflate.

Comment by Professor Bear
2007-12-09 09:21:34

He did not say by *when* oil would drop under $40, though, did he?

Comment by watcher
2007-12-09 10:21:11

Just pointing out some parts of his record that Jas never brings up.

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Comment by Jas Jain
2007-12-09 11:54:55

OK, I don’t reply to lot of nonsense, but since you persist oil was $10 less than ten years ago and why wouldn’t it be $40 during the 2008-10 depression? How long ago was oil at $50?

Another thing, oil and many commodities have been in a bubble for the past few years. I predict the commodities bubble burst within a year of the beginning of the recession, which I think has already begun.

Now you got your date.


Comment by walt526
2007-12-09 16:02:16

You know, I am not sure if Jas is right about everything (or even anything) that he posts. But he sure often makes me re-think basic assumptions that I hold about the economy. And really, that’s all you can ask from a blogger. Please keep posting, my friend.

Comment by Jas Jain
2007-12-09 16:52:21

“You know, I am not sure if Jas is right about everything (or even anything) that he posts.”

Right you are, Walt. I constantly question my own conclusions and assumptions. I endeavor to lessen my illusions and false beliefs. I question everything until I am satisfied with it being true or false, keeping in mind my own limitations and biases (or prejudices). We all have our biases and prejudices that we don’t fully grasp.

“But he sure often makes me re-think basic assumptions that I hold about the economy. And really, that’s all you can ask from a blogger. Please keep posting, my friend.”

That is the best compliment that I can hope for. Thanks.


Comment by nhz
2007-12-09 09:52:54

paper currency/real money (M1) is being created as a 1-10th of one percent rate (NSA) per the latest YoY money stock numbers. Oh, and that means currency is disappearing as remember the population of the US has gone up more than 1-10th of one percent in the past year, so less paper for each of us…”

really? I thought the whole USA has been living on credit cards for at least 10, 20 years already. Don’t you think the amount of paper currency is totally irrelevant by now, and only the digital vaporware variety is relevant? Are there any FB’s that pay down the mortgage with paper currency??

Comment by measton
2007-12-09 10:33:12

???Does this explain the fall in mortgage rates. It boggles my mind that with the dollar crashing that you can get a mortgage for less now than a year ago. The gov is pushing cash into the system and there is no place for it to go, ie no one qualifies for loans or wants loans to buy houses that are depreciating.

Comment by Blue Skye
2007-12-09 12:45:06

“Every time that THD growth has fallen below 5.5%,YoY, the economy was already in recession.”

“I can guarantee outright deflation within months of THD growth falling to zero”

I see a possible contradiction in the predictive indicator following the result.

JMO, a strong correlation can lead to false assumptions about cause and effect.

I wonder if this THD referred to is just the liability side of the balance sheet or the net asset/liability balance.

Comment by Kime
2007-12-09 14:43:04

“a strong correlation can lead to false assumptions about cause and effect.”

I don’t think that Jas said it was a cause and effect relationship. He just said that a falling THD was a good predictor of recessions, not that it caused them.

Comment by Rally Mitigation Team Member Bob
2007-12-09 06:49:34

A Subpar Plan to Save Subprime Borrowers

By Michelle Singletary — Washington Post
Sunday, December 9, 2007; Page F01

How timely that just as President Bush was announcing a deal to help homeowners struggling with their mortgage payments, new data were released showing that foreclosure starts set a new record.

In a news conference Thursday, Bush trumpeted a private-sector plan that would help some struggling subprime borrowers by freezing their current teaser interest rates for five years. Eligible homeowners would be those who got adjustable-rate subprime mortgages between Jan. 1, 2005, and July 31 of this year — and whose rates would jump by July 31, 2010.

Bush said the relief for borrowers will come in one of three ways: by refinancing an existing loan into a new private mortgage, by moving borrowers into an FHA Secure loan, or by freezing borrowers’ current interest rate for five years.

Although I’m glad some homeowners are getting interest rate relief, this plan doesn’t help enough people and doesn’t address the systemic problems that led to this mess. The fact is, too many people are in homes they can’t afford today, tomorrow or probably five years from now. The bad lending practices that prompted people to buy homes they could ill afford won’t go away by helping the worst-case situations.

“While we certainly all hope this will be a shot in the arm for the housing slump, it is hardly a panacea,” said Sen. Charles E. Schumer (D-N.Y.), the chairman of the Joint Economic Committee. “There are too many families who may be left out, too much left up to the voluntary willingness of the private sector, and too little disclosure and transparency to ensure families who do qualify are being helped.”

Schumer pointed out that the Hope Now plan excludes borrowers who are not current on their payments, which immediately disqualifies 22 percent of subprime loan holders from receiving relief.

When asked what happens after the five-year rate freeze ends and people’s interest rates significantly jump, Paulson said, “This plan is not a silver bullet.”

2007-12-09 08:52:47

why do they call this “private sector”? isn’t the toker-in-chief simply announcing that he will not enforce certain existing laws (banking regulations)?

Comment by Professor Bear
2007-12-09 06:54:13

Bush’s plan on mortgage problems isn’t enough
December 9, 2007

The White House ambulance belatedly arrived at the scene of the subprime mortgage crash last week, with President Bush and some banking industry paramedics trying to stanch the bleeding of the battered housing market.

But Bush’s proposed remedy is only a small bandage on a gaping wound. It may lessen or slow but will not halt the economic problems associated with the mortgage crisis. And there’s even a chance that it could make matters worse.

Over the next two years, nearly 2 million adjustable-rate subprime mortgages – designed for people who lack the credit history needed for cheaper, more conventional prime loans – will reset from their low “teaser” rates into much higher rates.

Many borrowers were stretching to make ends meet with the teaser rate and will be unable to pay their bills once the rates go up. Analysts fear that the problems emanating from the resulting spike of foreclosures could push the economy into a major slowdown or even a recession.

The foreclosure threat is particularly serious in places like San Diego County, where adjustable rate mortgages helped push prices into the stratosphere before the market peaked two years ago.

Comment by txchick57
2007-12-09 07:30:57

REad the creditslips thing I posted on the California thread to get the real skinny on why this was done.

Comment by Professor Bear
2007-12-09 09:43:43

This article is outstanding. Its many excellent points are quite hard to digest in one reading.

Many borrowers should have been in prime rates in the first place. The Federal Reserve Bank of Boston last week released a study showing that half of subprime mortgage borrowers had a FICO credit score of higher than 620 when they took out their loans. A score above 620 means that you have an adequate credit record, while 680 means your credit is good and 700 means it is excellent. FICO is named for Fair Isaacs Corp., which formulated the rating.

First American LoanPerformance, a research firm, estimates that 61 percent of subprime borrowers would have qualified for fixed-rate, prime loans. Of course, they would have qualifed for smaller loans, which would have made it hard to buy a house in, say, the pricier areas of San Diego County. And they would have had to actually show that they had a salary somewhere and could afford a down payment.

Comment by Professor Bear
2007-12-09 09:47:12

Some critics say Bush’s plan will worsen the mortgage crisis by artificially propping up home prices.

“Current home prices are still too high, having been a function of the lax lending standards and rampant real estate speculation that got us into this mess in the first place,” said Peter Schiff, who heads Euro Pacific Capital in Newport Beach.

If Bush simply let the foreclosures happen, home prices would fall, allowing more buyers to enter the market, said Michael Pento, senior market strategist for Delta Global Advisors.

“Would it be a pain-free process? Certainly not. We’re well past that point,” Pento said. “But by keeping unqualified consumers as homeowners, (the administration) fosters an artificial environment of unfairness and inflation.”

Schiff and Pento have a point. But they shouldn’t worry too much. The fact is that Bush’s plan will freeze rates for such a relatively small number of people that it might not have the effect they’re warning about. Home prices will keep falling sharply even after Bush implements his plan.

Comment by Kime
2007-12-09 10:49:24

“Some critics say Bush’s plan will worsen the mortgage crisis by artificially propping up home prices.”

But at the same time it will cut the flow of funds available for home loans, so how much propping will it do?

Comment by Professor Bear
2007-12-09 14:48:54

Refer to the last line of the passage (the one I highlighted in bold).

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Comment by Professor Bear
2007-12-09 10:44:08

“If the borrowers had been steered into prime loans, would they have been able to pay their bills? Anecdotal evidence suggests the answer is yes.

Of course, if those loans would have been used in the first place, there would have been a lot fewer home buyers in the market. Which means that home prices would not have been driven so high. Which means that this crash might never have happened. Which means . . . well, we can dream, can’t we?”

Comment by LookinInCali
2007-12-09 19:19:42

“If the borrowers had been steered into prime loans, would they have been able to pay their bills? Anecdotal evidence suggests the answer is yes.

I call BS on this one because it seems that a lot of the loans that they’re talking about were “no-doc” or “low-doc” loans. I think they need to include “if the incomes reported were correct…”

Comment by Tom
2007-12-09 07:07:11

My mortgage broker friend is losing about 5k a month. She pulled 60k out of the house she lives in that saw massive appreciation to put down on a condo. She waled away and lost 60k that SHE has to pay back.

Her friend rents a house from her for $1500 a month. The friend who owns the house and is renting it to them told them she would give them 10k if they bought the house. She said, “It will take them 2 years to throw you out so you don’t have to make any payments.”

It’s sad I say she is a friend because her profession? She is a mortgage broker. Who would prosecute her for fraud? No one, the government wants to bail people like her out. She also told her friends that the Gov’t was moving forward with a plan to make it even harder for them to be foreclosed on and it might be 3 years before they have to move out. She said she can STILL get them in a mortgage even with all the tightening.

Comment by Professor Bear
2007-12-09 07:19:38

Going forward, I expect plenty of posturing by top govt officials about cracking down on mortgage fraud and abuse, coupled with back door policies that reward its continuation.

Comment by Tom
2007-12-09 07:39:52

The problem is she doesn’t want to mess up her credit. She is essentially paying someone else 10k to buy her house. She will then put them in a mortgage and make a commission on it (to neglect the 10 grand she pays out) and they will not make any payments, taxes, insurance etc. If you, as a mortgage broker, put someone in a loan you know will not be paid, in fact you promote that, isn’t that fraud?

Comment by txchick57
2007-12-09 08:37:38

This business of not wanting to “mess up” their credit shows that the bubble is not dead. It’s not even sleepy in the minds of these idiots. Preserve the credit at all cost, that means you can try again because real estate always goes up!!

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Comment by Blue Skye
2007-12-09 12:52:57

What we’re going to end up with is a plan to stop all foreclosures for people who are current on their mortgage payments.

Comment by Professor Bear
2007-12-09 07:09:35

Why is a “cost” of $6.4 m even worth discussing in print when aggregate subprime debt-related writedowns have already reached the neighborhood of $50,000 m with more in the pipeline, and some top managers at home builders bagged hundreds of millions in personal stock sales right as the bubble began to bust? At a glance, $6.4 m sounds like a slap on the wrist.

I am also curious about the mention of First American in the article; isn’t it one of their affiliates that was named along with WaMu, Fannie Mae and Freddie Mac in Andrew Cuomo’s appraisal fraud investigation?

Kickback scheme costs builders $6.4 million
December 9, 2007

WASHINGTON – Rigged appraisals, lax underwriting and toxic loan products may dominate the headlines, but they are hardly the only issues causing problems in residential real estate. The federal government and state regulators are targeting other housing-related misdeeds that can cost consumers big money – especially involving under-the-table kickbacks among builders, real estate brokers, loan officers, mortgage bankers and title insurers.

The largest settlement was announced the week before Thanksgiving. First American Title Insurance Co. agreed to shut down 84 “affiliated partnerships” formed in Florida with real estate brokers, mortgage brokers, banks and home builders. Federal and state investigators charged that while the affiliates claimed to be title companies, they were actually referral conduits that performed few, if any, title services. Officials said they existed primarily to steer lucrative title insurance business to First American, which split consumers’ insurance premiums with participating “partners.”

In effect, according to the investigators, home builders, lenders and realty firms could pocket part of home buyers’ closing costs without their customers’ knowledge. On paper, the partnership affiliates appeared to be ordinary title agencies, carrying names such as Security First Title, USA Title Partners, Discount Title Services LLC and the like.

But investigators from the federal Department of Housing and Urban Development (HUD) and Florida insurance regulatory agencies found that “all regular title services required to effect title insurance were performed by First American, not the limited partnership agency,” which was essentially a shell entity constructed “to compensate (participants) for the referral of the business.”

Comment by Professor Bear
2007-12-09 07:24:14

First American Wants Suit Dismissed
By Associated Press November 27, 2007

First American Corp. and its home-appraisal unit have asked a federal judge to dismiss a lawsuit by New York Attorney General Andrew Cuomo for allegedly colluding with Washington Mutual Inc. to inflate mortgage appraisals.

Comment by Professor Bear
2007-12-09 07:27:53

How to Solve a Subprime Mess? An Iowan Says, Let’s Caucus
The New York Times
Published: December 9, 2007

A HALF-DOZEN years before subprime mortgages were on the national agenda, Tom Miller, the attorney general of Iowa, led teams of state officials from around the country in negotiating settlements totaling more than $800 million with two large home lenders that were accused of misleading and overcharging borrowers.

Across the spectrum from Mr. Miller is Andrew M. Cuomo, New York’s attorney general. Among government officials, he has been one of the most vocal about wanting to bring cases intended to highlight what he considers systemic problems in the mortgage market, like inflated appraisals and a lack of oversight of the secondary market where loans are packaged into securities.

He recently filed a suit accusing the First American Corporation of overstating property appraisals to please Washington Mutual, a client; both companies deny that. Mr. Cuomo has also demanded that Fannie Mae and Freddie Mac hire an independent examiner to review loans they bought from Washington Mutual, and he has promised to bring more cases.

Comment by Professor Bear
2007-12-09 07:31:27

Sorry to reiterate a point which has already been often suggested here, but I think the real estate sales industry needs to go for a new, Realtor-free business model!

Comment by aNYCdj
2007-12-09 09:27:26

Hey Professor;

What about making The agent and broker pay back all their commissions if the borrower defaults in a year?

And if the agent/broker cant pay up, well they have to have their paychecks attached or file for BK just like the borrower….sounds fair to me.

Comment by JimAtLaw
2007-12-09 09:31:21

In effect, according to the investigators, home builders, lenders and realty firms could pocket part of home buyers’ closing costs without their customers’ knowledge.

Sounds like good cause for a buyer to sue the Realtor, builder, and everyone else for the ultimate remedy in the event of a falling market - rescission. Let the participating builders and lenders take the homes back and refund the buyers’ purchase prices! Let the fun in court begin!

Comment by Professor Bear
2007-12-09 07:11:44

Santa’s bag of home equity filled with coal
By Mike Meyers

December 9, 2007

In every holiday shopping season from 1995 through 2005, Christmas was on the house.

Not this year.

The housing downturn that started last year and has accelerated this year has barred the chimney to Santa in many homes, as owners find they no longer have the growing equity that can be tapped again and again to finance spending.

For the first time in years, ready cash from home financing won’t be fattening the wallets of shoppers prowling the mall this season. Home equity loans in the past have been seen as a kind of personal ATM to pay off holiday bills.

“People have been using their home as a very large ATM for a number of years,” said Keith Leggett, senior economist at the American Bankers Association in Washington. “With housing values declining, rising defaults and greater concern about excess of risks, clearly we’ve seen banks pull back on underwriting. They’ve tightened their terms of credit.”

Comment by aladinsane
2007-12-09 07:30:55

a FB xmas song…

I’ll be losing my home this Christmas

Got no equity

Police have showed and I must go

And my presence is no longer needed

Christmas Eve will find me

Where the motel light gleams

I’ll be keeping my home this Christmas

If only in my dreams…

Comment by Professor Bear
2007-12-09 07:56:43

Funny and sad at the same time…

Comment by WantsOut
2007-12-09 09:10:40

Kind of scary if you are of the belief that we are in the early innings. What will we be seeing this time next year if prices drop another 5-10%?

Comment by Professor Bear
2007-12-09 09:19:54

Buyer’s remorse?

Comment by Professor Bear
2007-12-09 09:13:35

What does it mean to have $10 trillion in home equity “available”? Are lenders still making home equity loans these days even though home values are dropping in local real estate markets across the land?

On the other hand, Cutts noted that home equity remains a vast pool of wealth, with aggregate home value still far above what it was only a few years ago. Homeowners “have about $10 trillion in home equity available, according to the Federal Reserve Board,” she said.

Comment by Tom
2007-12-09 07:12:13

Meltdown Panel:

Angelo Mozillo, Mark Zandi, Robert Toll, and Maria Bartoromo.

Comment by NYCityBoy
2007-12-09 08:00:46

I couldn’t watch more than 2 minutes. I wanted to toss my cookies. Talk about asking the wolves how to guard the henhouse. And that Maria B is one nasty skank. That video should have to carry a warning label.

Comment by Tom
2007-12-09 08:06:08

OOPS Not safe for work : )

Comment by Professor Bear
2007-12-09 07:15:08

Caveat underwriter.

Foreclosure pattern points to loan fraud, experts say
By Tom Brown
December 9, 2007

(The 643-unit condo building known as the Club at Brickell has the highest number of foreclosure proceedings involving any single south Florida property.)

MIAMI – At first glance, the 43-story building in Miami’s international banking district seems little different from other high-rise condominiums overlooking the turquoise waters of Biscayne Bay.

But the 643-unit condo building known as the Club at Brickell is a leader in mortgage foreclosures and it appears also to stand at ground zero in a blizzard of fraud that may lie behind many of the failed loans threatening to bury the U.S. property market.

America’s subprime mortgage crisis is partly due to predatory, or aggressive, lenders, hard-sell tactics by mortgage brokers and an easing of underwriting standards in the $10 trillion home-loan industry.

But fraud accounts for a sizable share of the bad bets on mortgages, according to many industry experts, and lenders may have been victimized as much as anyone else.

The lenders are holding the bag now; that’s what we’re finding out,” said Glenn Theobald, head of a mortgage fraud task force formed in Miami-Dade County in September.

Comment by oc-ed
2007-12-09 10:46:22

The lenders were victimized because they chose to turn a blind eye on the applications they processed that anyone with half a brain could see were bad candidates for loans. Lenders made their choice based on greed and fear of losing share to competitors. They are holding the bag they have sewn. I say go after the fraudsters and get what you can back from them and let the lenders pick up the slack to pay for 100% of any bail outs.

Comment by Professor Bear
2007-12-09 14:42:59

“…lenders pick up the slack to pay for 100% of any bail outs.”

And likewise ask investment bankers to chip in some of those record bonus payments to make up for the billions and billions of dollars in sumpprime losses they generated for their shareholders. Leave the rest of the country out of it.

Comment by NYCityBoy
2007-12-09 07:20:11

In response to Aqius yesterday, “yes, there is an A-train”. We take it all the time from 3rd Street near the old rat-infested Taco Bell. They are doing some work on the Bell. It will be funny if they reopen it as a food joint. The A and C run together on the blue line. The A is the express train and goes all the way out to Far Rockaway. I have never taken it that far.

Comment by Professor Bear
2007-12-09 07:43:36

No hope now
Sunday, December 9, 2007

President Bush announced his HOPE NOW program to ease the nation’s mortgage crisis last Thursday. The plan is neither “hope” nor “now,” nor will it ease the nation’s mortgage crisis.

It’s baffling why an administration that believes in the free market as much as this one does would attempt to intrude on an inevitable economic correction. There are two possibilities, both of them desperate: 1) 2008 is coming up, and both parties need to look like they’re doing something for Americans who are losing their homes, and 2) The administration is panicked about what might happen should those who invested in mortgage debt start calling off their deals with the banks that sold them.

Desperation rarely leads to good policy. (To be fair, the Democratic counters to the Bush plan are equally irresponsible.)

Comment by txchick57
2007-12-09 08:19:08

and you all wonder why I wanted to get shorter on Friday? If the rally was based on optimism over this?????

Comment by Professor Bear
2007-12-09 09:17:29

I don’t buy it. There are not enough noise traders on the planet to make the market that stoopid.

Comment by Captain Credit Crunch
2007-12-09 09:31:55

I *did* get short on Thursday. The spike in CFC was too good to pass up. But in anticipation of the rate cut this week, I set aside half to get shorter if it spikes further.

Comment by tj & the bear
2007-12-09 19:31:16

I’ve learned (the hard way) to trust tx’s instincts. If she ever starts a newsletter, I’ll be her first subscriber.

Comment by aladinsane
2007-12-09 07:49:17

Paulson the snowman knew

The sun was hot that day

So he said

Let’s avoid a bank run and

we’ll have some fun

now before I melt away…

Comment by aladinsane
2007-12-09 08:06:08

Alan, from Arizona writes:

“Mr. Paulson Do you anticipate bank failures like England saw with Northern Rock?”"

Henry Paulson

“Alan – I’m glad you asked this. The U.S. banking system is thoroughly regulated and well capitalized. We have a strong deposit insurance system that provides good coverage for the savings of hard-working Americans. Another thing to remember as we work through this mortgage market turmoil is that we’re confronting these challenges against the backdrop of a strong global economy and a fundamentally healthy U.S. economy. Business investment has expanded in recent months, our exports are being boosted by the strong economic growth of our trading partners and the healthy job market has helped consumer spending continue to grow. But I have also been very clear that the housing decline is still unfolding, and I view it as the most significant current risk to our economy.”

Paulson, the snowman…

Pretty much just told us to get ready for bank failures, including the runs.

Comment by manhattanite
2007-12-09 08:27:49

just hear nytimes david leonhardt, as commentator on npr’s ‘morning edition’ say (during extended discussion of the housing bust):

“it’s not clear that we want too big a bailout because in spite of many people getting hoodwinked into bad loans, the truth was many got loans for houses they simply couldn’t afford and had no business getting into in the first place.”

it was refreshingly contra the attempt to set up the fb’s as victims by show host.

Comment by aladinsane
2007-12-09 08:33:54

Here’s a new name for the financial titans, birds of a feather one and all…

Jackdaw - a bird noted for thievery

Comment by Michael Viking
2007-12-09 08:55:40

Around my neighborhood not as many people have Christmas lights up. I asked my neighbor if he thought I was making it up, but he agreed. We’ve had plenty of fine weather to get them up, too. I can only think people are trying to save on their electric bills. Anybody else notice the same thing?

Comment by vozworth
2007-12-09 10:16:41

2 schools:
1. lights on lights on blow crap made in china…..big show.
2. broke, no food, poor job…….big low.

the “big lows” are the dominating theme.

Comment by matt
Comment by kckid
2007-12-09 09:05:38

Global bankers seek to raid taxpayers over subprime fiasco

Now that people are looking for someone to blame for this debacle, the banking community, including even the Federal Reserve, is shifting the blame to the consumer for having made poor borrowing decisions in the first place. After all, nobody forced them to submit an application for a loan that they couldn’t afford. They should have known better.

Yet, it was the banking community that structured the loan offers that lured unsuspecting borrowers into their lair. For years, TV ads for mortgages and credit cards dominated the airwaves. Many consumers received dozens of credit card offers by mail each week. Is it right for the bankers to say that they were merely responding to market conditions, to give the foolish consumers what they demanded? In fact, the average person looks to his banker as an “expert adviser”, expecting knowledgeable answers that will be in the borrowers best interest.

Comment by Professor Bear
2007-12-09 09:29:59

Watch out for your wallets, America!

Comment by arroyogrande
2007-12-09 09:39:19

“Their markets were artificially created by the very advertising they flooded us with. Advertising creates expectations that can only be filled by purchasing the advertiser’s products.”

Yes, I blame the financial industry for this mess, they knew, or should have known that loosening standards this much was “a bad idea”.

However, stating that “people can’t help buy things that are advertised to them” is, well, retarded. People CAN just say no to buying $600,000 houses when the family income is only $60,000 a year. They CAN say no to taking out a HELOC and buying granite counter tops, entire housefuls of new furniture, and a Hummer H2 and jetskis in the driveway. They CAN say no to running up credit cards to go to Bali and Vail once a year ‘becasue they deserve it’.

I *know* they can, because many many people resited the herd mentality of the “sheeple” and actually made intelligent, prudent financial decisions during this time. Giving others a “pass” on their disastrous (and dare I say it, hedonistic) behavior is like telling my neighbor “I know my kid stole from your wallet, but give him a break, you just left your purse lying around and open, what did you expect him to do?”


Comment by sagesse
2007-12-09 09:43:43

“When You’re $100,000 In Debt, It’s Your Problem. When You’re $1,000,000 In Debt… It’s The Bank’s”.
Tagline from the beautiful movie “Rosalie goes shopping”, with the most wonderful actress Marianne Saegebrecht, playing a German housewife who discovered the pleasures of credit cards when living in Texas.

Comment by Housing Wizard
2007-12-09 10:02:50

This PR that the bankers and Wall Street are trying to sell that the lending community and the REIC are blameless is a joke .The Lenders sold poorly designed toxic loans that were based on real estate going up ,they didn’t underwrite the loans in a proper way ,and they resorted to hit the mark appraisals (which encouraged mass fraud ).To add insult to injury they mass marketed these SIV’s to the investors based on faulty ratings on risk, causing the money supply to keep going on the easy money ,that the sheep bought into . The media continued to not challenge the fake bubble and the advertisers continued to foot the bill for the real estate mania .

The Realtors breached their duty by selling the concept of leverage and real estate always goes up to justify talking the sheep into going on toxic loans they couldn’t afford ,while they conspired with mortgage brokers to push appraisals and push faulty loan applications into the system .

When real estate reached the level of peak in 2002 ,the market should of contracted at that time , but Wall Street , the REIC ,the Advertisers, and market makers ,(all the people making money on this baby), were not ready to call a spade a spade and the fake market with fraudulent faulty lending went into full swing . From late 2005 onward it was clear that the demand was not there ,so the industry proceeded to make even worst loans (cash back fraud and incentives ) and builders continued to overbuild for another two years in a attempt to keep the party going .False advertising campaigns ensued by the NAR/CAR in 2006 ,stating it was a “Great Time To Buy “.

Now the government wants to freeze loans make from 2005 onward in a attempt to bail out the Crime Wave RE mania in which many parties are to blame ,including the borrowers ,at the taxpayers final expense when those loans default to save the greedy system from true Justice .

Comment by WatchingTheSagaUnfold
2007-12-09 10:23:27

Once again, used house salespeople talk to the hand.

Comment by BJ
2007-12-09 09:09:54

Iran has taken the path that Saddam took for Iraq and has stopped selling their oil in USD.

Another war on top of the mortgage melt down would finish us off.

Comment by aladinsane
2007-12-09 09:24:57

They had a Yen to go elsewhere…

Comment by Professor Bear
2007-12-09 09:28:01

I guess the value of the $US will be higher on the FOREX markets tomorrow in response to this bad news?

Comment by P'cola Popper
2007-12-09 09:56:27

This does not mean that the underlying sales contracts are not denominated in USD nor that the underlying contracts do not reference a USD benchmark for the pricing of crude.

Perfectly reasonable action by Iran. All USD transactions have to clear through the US which in the present environment carries a higher than normal risk for Iran.

Comment by BJ
2007-12-09 09:43:43

I guess this would be why the Bush administration continues to beat the drum about Iran even though the CIA report said they stopped their nuclear program 4 years ago.
We seem to start wars in March.
Those who took their homes off the market to re list when things pick up in Spring may be in for yet another shock.

Comment by Professor Bear
2007-12-09 09:53:48

Easy prediction: Once the oil price is no longer denominated in $US, the U.S. economic slowdown will turn out “worse than expected” and the world price of oil will crash.

Comment by vozworth
2007-12-09 10:21:27

PB I sure hope your wrong on this one.

For alt energy or sustainable energy to really work, the energy commodity complex must reach outlandishly ridiculous prices under the current models. If however, your oil crash scenario plays out, it will be soup lines.

Comment by Professor Bear
2007-12-09 10:48:19

I am talking about the short term, and you are talking about the long term. There is no contradiction.

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Comment by auger-inn
2007-12-09 11:37:40

except for the issue of alternative energy taking the back burner again but right at the time it is needed on the front burner. imo.

Comment by exeter
2007-12-09 13:15:14

The incessant fear mongering regarding “terrists” is what has destroyed any credibility (not that they ever had much) the GOP had left.

I encourage the screech monkeys to continued the worn out drumbeat.

Comment by jbunniii
2007-12-09 09:50:16

I don’t know who Sean Olender is, but I like the cut of his jib!

Interest rate ‘freeze’ - the real story is fraud
Bankers pay lip service to families while scurrying to avert suits, prison

But unfortunately, the “freeze” is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with “working families,” keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

Comment by txchick57
2007-12-09 10:16:21

He is spot on. It is ALWAYS about saving your ass and avoiding lawsuits. That’s why Bear Stearns tried to liquidate those hedge funds in the Cayman Islands too.

Comment by Professor Bear
2007-12-09 10:45:58

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

Wow — wow — wow…

Comment by Professor Bear
2007-12-09 10:54:48

the current media discussion = political smoke screen

Comment by arroyogrande
2007-12-09 17:01:49

“The goal of the freeze may be to delay bond investors from suing by putting off the big foreclosure wave for several years. But it may also be to stop bond investors from suing. ”

No way, otherwise they would not have limited this to sub-prime, and to such a limited percentage of sub-prime. They *know* it will barely make a dent, hence it must just be political posturing, and trying to control panic, at least for a few more months.

Comment by Professor Bear
2007-12-09 09:51:19


Amendment 1 - Freedom of Religion, Press, Expression. Ratified 12/15/1791.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Comment by matt
2007-12-09 10:45:50

It will be interesting to see how the chinese markets react, they have been very resilient up until now.

Comment by yensoy
2007-12-10 02:37:32

Greetings from China! Markets up 1.4% today, even with the reserve requirement close to 15%.

You have to keep in mind that there is a lot of savings in this country and limited places to park it. There is also visible evidence of bubble economics at work.

Comment by Blue Skye
2007-12-09 13:16:11

My sister and I finished moving our mother into her appartment this weekend. Big stress for her downsizing from the “house” (sold amazingly). Her vision has deteriorated and she keeps moving her chair closer to the little TV. So I went to buy her one of those large LCDs. She can see this puppy from across the room!

So, I was in an electronics megastore in affluent North Jersey in the middle of the day on Saturday a couple weeks before Christmas. Twelve salespeople in suits watching me and two other customers like starving vultures. Parking lot for hundreds of cars. I guess they drew straws or something to see who got to help me. I asked the guy “How’s the holiday shopping season holding up for you guys?” He said it was “dead, pathetic, awful”.

Interesting footnote; He wasn’t a pushy salesman until it came to checkout. He resisted my paying cash, wanted me to sign up for the store credit card, teaser interest rate and all. Very pushy about that. He finally relented when I told him that I had gotten rid of all my credit cards and the woman who used them. lol.

I’m safely back in my mountain retreat watching the snow fall. It will seem a pretty ordinary Christmas for me, but I get the feeling it isn’t going to be so normal down in the city.

Comment by MazdaMan
2007-12-09 21:03:24

From Euro Pacific Capital’s website on rate freeze:

The Mother of all Bad Ideas

Without question, the Bush administration’s mortgage rescue plan will exacerbate, not alleviate, the problems in the housing market. As the plan will sharply reduce the ability of new buyers to make purchases, it really amounts to a stay of execution and not a pardon.

Although there are mountains of uncertainty as to how the plan will be structured and implemented, there is no question that as lenders factor in the added risk of having their contracts re-written or of being held liable for defaulting borrowers, lending standards for new loans will become increasingly severe (higher down payments, mortgage rates, and required Fico scores, lower loan to income ratios, and perhaps the death of adjustable rate loans altogether). The result will be additional downward pressure on home prices, despite the fact that in the short term fewer homes will be sold in foreclosure than what might have been without the rescue plan.

Most homes temporarily saved from foreclosure will continue to depreciate as new buyers fail to qualify for loans. As a result, lenders will be on the hook for more losses than had the foreclosures taken place sooner. Of course, as these chickens will likely come home to roost after the next election, that’s a trade-off incumbent politicians will happily make.

Compounding the problem is that subprime borrowers with frozen payments on loans that exceed the values of their homes will likely choose not to pay property taxes, condo or homeowners fees, or maintain the condition of their properties. Were these properties to be sold in foreclosure now, at least their new owners would have financial incentives to maintain the value of their investments. Upside-down subprime borrowers will have no incentive to throw money down a rat hole: why make additional payments on properties in which they have no equity and which they will likely lose to foreclosure anyway? When these homes do go into foreclosure, back taxes and other fees on dilapidated properties will inflict even greater losses on lenders.

Also, subprime borrowers with frozen resets will be unable to either borrow additional money against their homes or sell them. As rising credit card payments, higher food and energy bills, and stagnating wage growth or unemployment make even paying the frozen rates increasingly more difficult, this lack of flexibility will prove fatal. Also, the moral hazard inherent in offering help to only those who can demonstrate an inability to afford the reset rates, or restricting the bailout to borrowers with low credit scores, guarantees that borrowers will alter their circumstances to qualify for the aid. Therefore more loans will be frozen than are currently forecast, and the financial circumstances of the borrowers will be that much more impaired as they endeavor to pile on added debt or reduce their incomes to conform to the requirements of the bailout.

Lost in current discussion is the fact that few subprime borrowers have any skin in the game in the first place. Having put nothing down or having extracted equity in previous refinances, most subprime borrowers will lose nothing if their homes go into foreclosure. In some cases the teaser rates were so low that borrowers actually paid less than what they might otherwise have paid in rent. In fact, those who have already extracted equity have received huge windfalls from their homes and will leave their lenders holding the bag.

Also missing from the dialogue is the fact that those individuals and companies that sold these homes to subprime borrowers in the first place pocketed large sums of money they never would have received if these exotic loans were not available. Is anyone going to ask them to give some of that money back in order to compensate the lenders for their losses?

Finally, it’s the camel’s nose under the tent that is the most troubling. Delinquencies on auto loans are now at record highs, and with no home equity left to extract and a weakening economy, this problem can only get worse. What is next, a moratorium on car payments? Of course if the government can “require” private parties to rewrite contracts, what about the government’s obligations to re-pay its debts? After all, the Federal government is the biggest subprime borrower of all and it has committed the American taxpayer to the mother of all adjustable rate mortgages. With the majority of our near 10 trillion dollar national debt financed with short-term paper, what happens when interest rates rise? Will the government extend the maturities of one-year treasury bills, tuning them into 10-year treasury bonds, forcing holders of government debt to accept below market returns for extended time periods? These are real risks that will not go unnoticed by a world already saturated with depreciating U.S. dollar denominated debt.

Ostensibly, this plan is being offered in an attempt to stem the tide of foreclosures that might otherwise cause further weakness in home prices. The reality of course is that current home prices are still too high, having been a function of the lax lending standards and rampant real estate speculation that got us into this mess in the first place. A return to prudence in lending also means a return to prudence in pricing. Everyone seems to agree that a return to traditional lending standards is a good idea, but no one seems willing to accept a return to rational prices as a consequence. The government’s attempt to orchestrate such an outcome is doomed to failure, as it is impossible to maintain bubble prices after the bubble has burst!

The final absurdity is the Government’s attempt to portray their plan as voluntary. Of course the authorities point out that if their “suggestions” are not adopted by lenders, much more draconian legislation will surely follow. Let freedom ring.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

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