The End Is Nowhere Near In California
The North County Times reports from California. “Real estate agents and builders need to modify their business models in order to survive the current mortgage crisis, senior real estate executives said during a conference Wednesday. The suggestions ranged from copying car sales strategies to conducting more honest assessments.”
“‘The one thing I can tell about you Realtors is that you’re all liars,’ said Joseph Anfuso, president of Florsheim Homes, a builder in California’s Central Valley.”
“Anfuso told agents during a Wednesday real estate conference at the University of San Diego that they need to stop inflating or hiding sales numbers and swallow a hard dose of reality on their cash flow if they expect to remain in business as sales continue to plummet.”
“For real estate agents to survive this downturn, they need to know where their businesses are going over at least the next five years, said Jason Hall, co-owner of RE/MAX Associates in San Diego.”
“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”
The Union Tribune. “Optimism was largely absent yesterday at the University of San Diego’s annual residential real estate conference. Survival through the next 12 to 24 months figured into almost every speaker’s perspective in the half-day session held on the Linda Vista campus.”
“Over the next year, home prices, which have dropped about 11 percent since their all-time peak median of $517,500 in November 2005, may drop further to approach the 17 percent peak-to-trough decline experienced in the last downturn from 1990 to 1996, said USD economist Alan Gin.”
“That is a relatively small correction considering that prices have jumped more than 250 percent in the past 10 years, he said.”
“Robert Kleinhenz, chief deputy economist for the California Association of Realtors, painted a relatively bleak picture through next year. The Federal Reserve, Kleinhenz noted, ‘knows the end is nowhere near’ on housing’s downturn, and positive mortgage-investor confidence is ‘a ways from happening.’”
“Joseph Anfuso, president of Florsheim Homes, said that when prospective buyers come window shopping at a development, ‘treat them like a rich grandfather, as if you’re in the will.’”
“In an answer to a question about the availability of jumbo loans for mortgages exceeding $417,000, Steve Atwood of National City Mortgage, said large money-center banks appear to be the only reliable source.”
“But their capacity to absorb many more such loans into their portfolios ‘is not going to last much longer.’ Previously, such loans were sold off as packaged securities on Wall Street.”
The LA Times. “In Stockton, real estate agent Cesar Dias believes there are fortunes still to be made. That’s why he leads the weekly Repo Home Tour, filling two 18-seat buses with prospective buyers eager to view foreclosed houses that can be snapped up at dramatically reduced prices.”
“Dias said that when he started the free tour in September, some residents criticized it as a tasteless marketing gimmick. But as headlines announce record foreclosures and weeds sprout in the yards of abandoned homes, their tune has changed.”
“‘We’re bringing in homeowners to get the grass green again,’ he said. ‘At this point, I wish the foreclosures would dry up. We could use an end to the free-fall.’”
“At the waterfront Stockton Arena on Dec. 1, about 500 anxious residents lined up at a foreclosure workshop to see loan counselors. Pete Ponce de Leon said he and his wife were barely keeping up with their monthly mortgage payments, which shot up from $1,700 a year ago to $2,500 now.”
“He said he cashed in two IRAs, sold his tools, sold a truck and was bracing for another rate increase this month. Along the way, he lost his job, and his lender refused to cut him a break. ‘Why don’t they just screw us all at once instead of a little at a time?’ said Ponce de Leon, who has found another job and hopes to renegotiate his mortgage.”
“Asked whether the higher payments took them by surprise, Ponce de Leon struck the same note as many other homeowners in trouble. ‘We just thought we’d be OK,’ he said, explaining that he and his wife had planned to use what they’d expected to be the rising equity in their home to refinance the adjustable loan at a lower rate.”
“It was a bet that backfired. Like homes almost everywhere else in California, the Ponce de Leons’ lost value and their interest rates kept going up.”
“Monaliza Botello said she was surprised when her father, who brings in $4,500 a month, last year secured a loan requiring a $4,000 monthly payment.”
“The idea was that Monaliza’s father would own the new $495,000 four-bedroom for a year or two, at which point she and her husband, could afford to buy it from him with a refinanced loan. But the three of them, who were all living there, fell behind in their payments, and Monaliza lost her dream home.”
“‘It still hurts,’ she said. ‘We were getting phone calls and notices from the lender: ‘If you give us the balance in full, you can keep the house.’ It was nothing like ‘Call us and we’ll see what we can work out.’”
“As home prices plunged, Botello’s cousin around the corner also went into foreclosure, as did her godmother — a real estate agent nearby. ‘Everyone was going, ‘We can’t refi? How can we afford this?’ she said. ‘Everyone was just shocked.’”
“Occupied by Monaliza’s family for just seven months, the Botello home in Lathrop, just south of Stockton, is on the market for $300,000.”
“‘Not to be callous about it, but what goes up must come down,’ Dias said, adding that he expected the market to boom again in a year or two.”
“Dan Noel and his wife were checking out homes for themselves. In fact, the Noels, who live in a one-bedroom apartment with two teenage sons, had already put money down on a home they discovered on a previous tour.”
“‘We’re so excited we can hardly contain ourselves,’ said Dan Noel, who said their full-price offer of $179,450 for the three-bedroom house beat seven others.”
The Orange County Register. “Real Estate Disposition Corp. tonight in Long Beach will peddle 22 converted condos from the Monterey Villas in Santa Ana. Nineteen are 2-bedroom, 2-bath units with opening bid from $179,000 to $209,000, or about half the old prices.”
“According to a February ‘06 news item from CoStar, ‘Pacifica Cabrillo LLC purchased the 272-unit apartment complex…in Santa Ana for nearly $51.73 million, or $190,165 per unit. The buyer intends to convert the apartment complex into condominiums.”
“SoCal bankruptcies were up 73% in the third quarter vs. a year ago. The rest of California’s bankruptcy courts saw 10,053 filings in the third quarter, up 69% in a year.”
The Desert Sun. “Home sales in the Coachella Valley continued to fall in October, with 564 properties being sold, or a 43 percent drop from last year. The median price also declined 7.9 percent to $350,000, according to DataQuick.”
“The only bright spot was the condo resale numbers, which grew 15 percent on sales of 138 units. However, the median price of condos dropped to $292,000, down 14.1 percent.”
“Patrick C. Veling, president of Real Data Strategies Inc. of Brea, says the monthly data ‘points out the flaw in using median price for anything except real macro analysis. ‘The statistical sample (of homes sold) is now small enough that the median price misrepresents what buyers and sellers are dealing with.’”
“The DataQuick data for October saw sales range from a low of $180,000 in Thermal to $7.2 million in Indian Wells. The median price per square foot also showed a drop of 12.7 percent to $204 across the valley.”
The Press Enterprise. “The Federal Reserve surprised the financial world Wednesday by announcing a plan to inject cash into the international banking system. Banks have been reticent to finance business investments in recent months because of the dramatic increase in foreclosures in this country, because many loans for new investment are backed by mortgages held by people on Main Street.”
“Inland Southern California saw 31,661 foreclosure-related filings in the third quarter, including defaults, foreclosure auctions and lender repossessions. That was one filing for every 43 households, more than four times the national average.”
“Redlands-based economist John Husing said the inclusion of foreign central banks underscores how serious Federal Reserve now views the meltdown of the subprime mortgage market.”
“‘It’s the issue we did not see,’ Husing said of the international credit crunch. ‘We thought that mortgages were all about the regional housing market. But, internationally, it’s much bigger and much scarier.’”
Ponce De Leon? Monaliza? These can’t be real.
FBs would be nothing without their creative names. Me, I’m only a “Bob,” but I’m fiscally prudent.
I got the better end of the deal, I think.
Ponce de Leon has discovered the fountain of eternal indebtedness.
‘We just thought we’d be OK,’ he said, explaining that he and his wife had PLANNED to use what they’d EXPECTED to be the rising equity in their home to refinance the adjustable loan at a lower rate.”
One thing I have learned in financial contracts if the facts that are laid out in black & white dont rely on wishes, dreams, or expectations of promises to pay; then neither would I hope n wish that the contract will magically change to my benefit, if I just ” expect ” it to. The payments are due, a set, clear number, every month. No ifs, ands, or buts. It’s not based on the lenders ” expectations ” or “wishing” that somehow things will work out. It’s a deal, that is backed up by a hard asset; your HOUSE !! I would never, ever agree to a deal that insists I pay a set amount on a time schedule that I THINK or WISH or HOPE for a financial improvement on my end to meet the obligation. ESPECIALLY with something so goldanged important as the HOUSE MY KIDS ARE USING AS SHELTER !! GOLDAANNNG PEOPLE, YOU NEED TO OWN UP TO YER GREEDY STUPIDITY ALREADY.
Futhermore, and ipso facto, all these people act so shocked when their vague plans & promises, by PEOPLE WHO STOOD TO GAIN FINANCIALLY from the deals, did not come true. I mean, CMONNN, gimme break already. And the sudden claim of english no comprende?? BS with a capital B ! Bring a non-latino looking spanish speaker into the room when yer there to secretly listen to the spanish end of the borrowers complaints & bet you get an earful of translated ” screw these guys, dont admit notheeng “.
I know - because brother(hermano), lemme tell ya, Yo savy muy bueno, and it cracks me up to no end listening to spanish remarks cast my way from catty compliments from women amongst themselves to the insults from the men, thinkin the gringo ” no savy nadda ” … until I tell adios later in fluent espanol & reply to their comments in the same language.
Yeah, they all turn about a 3 shades of beet red with open jaws & sheepish smiles …. ay yai yi ,,, no offense senor. pardone me.
hilarious, actually
lol. You are so on the money, Aquis.
An add the other thing:
When any plan is contingent upon something happening, unless you are dumber than dirt, any sensible person says
“And if it doesn’t happen, what will I do then?”
It is called having a Plan B which is backed up by Plan C in case things do not go as planned.
Good blog, Frank. And I’m not even a car person.
Hey Slim…we’re out. Just closed today and the deed recorded. We have mixed feelings about leaving Tucson because it’s such a nice time, but some pretty good opportunities await elsewhere. Now we can watch the carnage from the bleachers with our fellow renters.
Thanks Slim.
“Ponce De Leon? Monaliza? These can’t be real.”
Why do you say that? My neighbor, Junipero Vasco de Gama, is worried about his ARM adjusting, too. His wife, Isabella Magellan, has had to take a second job. Their oldest son, Amerigo Donatello Boticelli, may not be able to go to private school much longer.
What’s going on in Stockton? Medeival explorers meet the Teenage Mutant Ninja Turtles?
SFer, stop it. You’re making me laugh uncontrollably.
No kidding, I’m so glad I wasn’t drinking something when I read that. If nothing else, this blog has uncovered the most motley assortment of chuckleheads in the world.
Hi CVG!
First rule of reading Ben’s blog………
Drum roll…………
Avert eyes when tipping liquid to face!
Leigh
[url]http://mwhodges.home.att.net/statistic-wizardry.htm#Housing[/url]
“In 1983 the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country’s economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.
The BLS solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called “Owner Equivalent Rent” component based on what a homeowner might rent his house for.
The result of this statistical sleight of hand was immediate and gratifying, for the reported inflation index quickly dropped to 2 percent. (This was in part because speculators needed to offset their holding costs by renting out their homes while their prices skyrocketed, thereby flooding the market with rentals, which pushed down the cost of renting a house or apartment.)
While the BLS was correct in assuming that this statistical ruse would fool the average citizen into believing that inflation was only 2 percent (and therefore be willing to accept a meager 4 percent return on his bank savings), what is remarkable is that the ruse also fooled the bond traders, and apparently continues to do so, leading analyst Peter Schiff to describe these supposed savvy bond traders as the “hormonal teenagers of the capital markets.”
The current subprime credit crisis can be directly traced back to the BLS decision to exclude the price of housing from the CPI. It is now clear that the “benign” inflation figures reported over the past 10 years in no way reflected the skyrocketing rise in home prices, with states like California experiencing annual home price increases of as much as 30 percent annually. With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectation of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the “teaser” rates that quickly escalated to unaffordable levels. As long as home prices continued to skyrocket, buyers could refinance based on the increased value of their equity as collateral, but once home prices stabilized and even declined, many families were forced into foreclosure.”
“‘Not to be callous about it, but what goes up must come down,’ Dias said, adding that he expected the market to boom again in a year or two.”
This kind of idea does not exist at the bottom of a real estate market. More pain to come….much more.
I see your “much more” and raise you a “much, much more”!
“‘Not to be callous about it, but what goes up must come down,’ Dias said, adding that he expected the market to boom again in a year or two.”
And I expect to win the lottery and buy an island somewhere..
So why not buy the island now Ann? Ya gotta live for today. You’re ENTITLED you know. You can just refi when you win the lottery. I’m sure someone can you get you in a NINJA loan today, and then you can pay on Tuesday. I say go for it Ann. You only live once.
sarcasm off
I’m thinking……(I know that is dangerous…..:)
The more of these “The bank screwed us over and won’t help us refinance” stories that get published, whether legit or not, the more likely that future FBs just trash the place and/or leave the keys
“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”
- Larry Yun just felt a ‘chill’ go up his back … a disturbance in the ‘Force’.
Or he had deja-vu, which is a glitch in the Matrix.
Or… to butcher Carlin, he may be having “Vuja De”, in which he knows he’s been here before, and refuses to accept it.
I spect Larry will be changed positions more times than Jenna Jameson
The NAR must think this is the 1940’s no t.v. and no internet.
But my old Wal-Mart job won’t pay for the Escalde, Rolex, or $800K McMansion I bought !!!
Speaking of Wal-Mart, I have the TV on and all of a sudden this commercial came on that was completely dissing Wal-Mart for doing business with Communist China and selling tainted products and urging people to think about why Wal-Mart is so cheap and then it directed viewers to go to:
http://www.wakeupwalmart.com/
I know it is a bit off-topic, but it totally took me by surprise. I don’t mind saying, I’m glad to see Wal-Mart revealed for what it is. Yes, it’s a labor group that is apparently doing the dissing, but I say TESTIFY, brothahs and sistahs. Wal Mart sucks.
Rant off.
Walmart just put in a SuperCenter in our town, one stoplight south of Target, and two north of K-mart. The old Walmart is on the far north side of town by the “mall”. I am sure the move must have ruffled at least a few feathers. Hopefully it won’t make the traffic too bad in that area (there’s pretty much only one main North-South artery in town).
Palm,
Over Saturation = is unrelated to the value?
Ya just can’t make this stuff up!
Leigh
I’m okay with Walmart. If you know what you want, you can get the best price. The less middlemen I need to pay the better. When you can add value somewhare in the supply chain I’ll consider hooking you up with a cut.
One of the articles at the above site discusses child laborers making 29 cents an hour for 15-hour days.
I think American consumers can buy goods from a store that doesn’t rely upon child labor as SOP.
where, pray tell?
Like someone just walked over his professional grave…
After reading “The Federal Reserve surprised the financial world Wednesday by announcing a plan to inject cash into the international banking system” it got me thinking about foreign banks.
Does anyone know anything about
Allied Irish Banks (NYSE: AIB)
This is all I could find
Together, The Bank of Ireland and Allied Irish Banks reportedly house more than 70% of all deposits in Ireland, essentially creating a powerful duopoly. Allied produces quality loans, has a broad product line, generates solid returns, and remains committed to growing operating income 3 percentage points faster than costs. Great fields, green clovers, green leprechauns, and lots of greenbacks! (OK, Euros.)
Allied also has retail operations in Ireland, the United Kingdom, and Poland through its 70.5% ownership stake in Bank Zachodni. In addition, it has a Capital Markets division and a 22.5% equity stake in M&T Bank (NYSE: MTB) in the United States.
Any advice would be greatly appreciated. Thanks.
http://moneycentral.msn.com/companyreport?Symbol=AIB
Although AIB claims its exposure to subprime is low, AIB recently acknowledged that it marks to model like the rest of the financial scum…
“Our total credit exposure to US sub prime mortgages is low. We have 2 portfolios - a “whole loan” i.e. not tranched portfolio of c.$200m and an asset backed securities (ABS) portfolio of around $300m. The whole loans were purchased in 2007 from a top US originator and comprise collateral selected by AIB and purchased after extensive due diligence and the onset of the sub prime crisis. These loans offer strong risk adjusted returns and are performing well within our expectations. Within the ABS portfolio, c. 80% of the collateral was originated prior to 2006. All payments are current and the portfolio is held to maturity. This portfolio is marked to model, regular reviews are undertaken and following a recent examination we have taken a charge to our income of c. $35m which we consider adequate to cover all likely losses. We have no exposure to conduits or SIVs, either directly or through backstop facilities. Other CDO/CLO exposures total c. EUR 550m and are all performing well. This is greater than the figure disclosed at the interim stage primarily due to the reclassification of securities already held together with the addition of 1 new security.”
https://www.marketwire.com/mw/release.do?id=800162
I think you just saved me a ton of money.
Thank you so much. If you’re ever in santa monica, I owe you a drink.
It’s hard to knowing whether “marking to model” is in itself a tremendous liability. Several statements would be true of my own loan portfolio: mostly originated before 2006, all payments current, and all to be held to maturity. Actually I’m probably worse off than they are, I can’t really say 80% originated before 2006. And I certainly don’t Mark to Market — there is never a reasonable market for the purchase of my loans. I am much better off just taking the 9%-10% interest. BUT i am not asking icouldbewrong40 to invest in my operations.
‘Everyone was going, ‘We can’t refi? How can we afford this?’ she said. ‘Everyone was just shocked.’”
Once again, a FB eloquently sums up the bubble in a nutshell.
Florsheim Homes?? any relation to the old shoe store chain?
Yes…..Originally started in the Merced/Medesto area…Now based out of Stockton….He may be in big trouble…May not have the deep pockets like the bigger guys…
He might be lying to himself also…
“Florsheim Homes?? any relation to the old shoe store chain?”
I think they make houses for old women with lots and lots of kids!
Crazy!
Shoe folks investing in mortgages!
Car folks investing in mortgages!
Builders investing into mortgages!
Tax folks investing into mortgages!
THE world investing into mortgages!
Good night Irene - we’ve lost our collective minds!
Jeesh,
Leigh
Mortgage: In the word mortgage, the mort- is from the Latin word mori (via old french mort) for death and -gage is from the sense of that word meaning a pledge to forfeit something of value if a debt is not repaid. So mortgage is literally a death pledge.
Correction, from the Word-Detective.com—
Dear Word Detective: What is the origin and true definition of the word “mortgage”? We’ve heard that it is from the Latin roots “mort” (death) and “gage” (grip). Is this true? — Brad Hubbell.
Not exactly, by which I mean that there are things that are literally, indisputably true (such as raspberry being the best flavor of jelly doughnut), and then there are propositions that, while perhaps not entirely true per se, embody a higher sort of truth.
The higher truth of mortgages, as I discovered when I first descended into the wonderful world of home ownership a few years ago, is that the “homeowner” doesn’t really own the house. The mortgage company owns it, and merely permits the “homeowner,” for a hefty monthly fee, to sit inside the house and watch it fall apart. There is, of course, an art to crafting mortgages. A perfectly calculated mortgage (from the mortgage company’s perspective, natch) is one that finally conveys full legal ownership to the “homeowner” at the precise moment when the house has collapsed into a shambles suitable for occupancy only by myopic chickens.
A “mortgage,” as the word is commonly used today, is a loan agreement by which the purchaser of real property is loaned money (usually most of the purchase price) by a mortgagor in return for a lien on or conveyance of the property, which will revert to the purchaser when the loan is repaid. If the loan isn’t repaid, the mortgagor retains the property. In simple English, they loan you the money to buy a house, and if you fail to pay them back the house goes bye-bye.
The first part of “mortgage,” the “mort” part, does indeed mean “death” or “dead” in both Latin and Old French (from which we borrowed “mortgage” back in the 14th century). But the “gage” part has nothing to do with “grip.” A “gage” is a pledge or, particularly, something of value offered to ensure payment of a debt, and comes from an old Germanic word (”wathjam”) that also gave us the English words “wed” (as in “wedding,” a ceremony of pledging) and “wage.”
The logic of “mortgage” is that of a “dead pledge,” meaning that if the borrower repays the loan as agreed, the property becomes “dead” to the lender, who has no further rights to it. And if the borrower fails to pay, all of his or her rights to the property cease.
Does Mr Florshiem live in a shoe now like Buster Brown did….and do his buyers walk away from their deposits in his shoes…..or walk a mile in his shoes….and did he find out too late that if the shoe business dont fit he must a quit….and did he discover that the housing business stunk worse than the rotten shoe business? ….and for the old timers…”Plunk Your Magic Twanger, Froggy!” In a puff of smoke, Froggy appeared, laughing at the housing bubble.
“As home prices plunged, Botello’s cousin around the corner also went into foreclosure, as did her godmother — a real estate agent nearby. ‘Everyone was going, ‘We can’t refi? How can we afford this?’ she said. ‘Everyone was just shocked.’”
Does this mean that stupidity is genetic, or a product of environment?
Well if the godmother is a “real estate agent nearby” one could make the case that it is a product of environment.
who do you think got them into those houses ?
“Inland Southern California saw 31,661 foreclosure-related filings in the third quarter, including defaults, foreclosure auctions and lender repossessions. That was one filing for every 43 households, more than four times the national average.”
I can hardly wait for the Inland Empire to lead the country in forclosures …. the next step after that might be to lead the international community in forclosures.
IE is going to be an awesome meltdown, no doubt. I was looking at inventory numbers this morning and wow! Here we are in Dec and they’re not much off their summer highs. What happens after the superbowl?
“Inland Southern California saw 31,661 foreclosure-related filings in the third quarter, including defaults, foreclosure auctions and lender repossessions. That was one filing for every 43 households, more than four times the national average”
The IE is writhing in pain and agony and on its final death throes . Collapse was long forseen and inevitable. The big story now is the upcoming RE collapse in the Big Cahuna, LA . It is underway and painfully evident to all but the absolutety ignorant and illiterate blind fools. Not just a RE collapse but real harbingers of a likely recession. I just went to a toyota dealer to get my Car fixed and noticed that it was dead, no customers, nada, zilch. Not surprized but very painful to see a major local car dealership sinply empty of customers and the employees idling about and doing nothing. A bit scary!
Car dealers are where real estate agents serve their apprenticeship
“The world………flabby hunk of whale sh#t……car salesmen….”
I thought it was the perfume counter at Macys?
The real estate world is packed with “liesure suit larrys”. Best of all they get to call themselves “professionals”. Most professionals require many hard years of training and school to become a professional, bu tin the world of realtors …
RE: I just went to a toyota dealer to get my Car fixed and noticed that it was dead,
If the Toyota dealer was dead, think of what the Ford, Chevy, and Chrysler haunts must be like…adios Big 3.
“painfully evident to all but the absolutety ignorant and illiterate blind fools.”
Hmmm… apparently that would be pretty much everyone in our fair city.
We needn’t worry though, all the new Hollywood condo’s are selling like hotcakes! The market is just fine!
“SoCal bankruptcies were up 73% in the third quarter vs. a year ago. The rest of California’s bankruptcy courts saw 10,053 filings in the third quarter, up 69% in a year.”
That’s a big number! So we have BK skyrocketing, the Drudgereport this morning headlining inflation fears, world banks coordinating an injection of liquidity into the market…..all is well, no need to worry!
“‘It’s the issue we did not see,’ Husing said of the international credit crunch. ‘We thought that mortgages were all about the regional housing market. But, internationally, it’s much bigger and much scarier.’”
“Scarier.” WTF? This is what shamefully passes for a professional summation of the housing market by one of today’s economists.
What a joke.
Oh wait, I realize now that Husing was expressing an opinion on the credit debacle. I guess using the term “scarier” is okay then.
Yep Bob.
We have Husing with scarier.
Toll with deep doo doo.
Citi Chuck Prince saying, “As long as the music is playing, you’ve got to get up and dance.”
Jeesh, I think my IQ just slid 10 points!
Smiles,
Leigh
“Monaliza Botello said she was surprised when her father, who brings in $4,500 a month, last year secured a loan requiring a $4,000 monthly payment.”
Wasn’t their lender a bit surprised, too, when Botello’s father sought a loan with 88% of income?
“The idea was that Monaliza’s father would own the new $495,000 four-bedroom for a year or two… “Occupied by Monaliza’s family for just seven months, the Botello home in Lathrop, just south of Stockton, is on the market for $300,000.”
40% declines already. And I’ll bet it won’t sell higher than $275k.
Given the median household income, if the house IS median then make that +/-175K.
“The idea was that Monaliza’s father would own the new $495,000 four-bedroom for a year or two… “Occupied by Monaliza’s family for just seven months, the Botello home in Lathrop, just south of Stockton, is on the market for $300,000.”
Seems like every one of these Sob stories are about the same: A dreamy-eyed couple had some sort of ‘ingenious’ plan on how to miraculously shoehorn themselves into a home with any number of little tricks… like buying the house from grandpa, letting mommy stay home with the runts and sell crap on Ebay, or the most classic being that they just gambled on something they couldn’t buy and ‘hoped’ the value would go up.
The stories just seem to never end do they?
“The stories just seem to never end do they?”
Give us another 5 years and they might come to an end. I am an optimist by nature though.
Don’t forget the dreamy eye broker who cashed in the commission check to upgrade his 1992 civic to a hummer…
(by the way I pass the hummer everyday with the “for sale” sign in the windshield..he’s back living in mom and dad’s basement)
Ann,
(by the way I pass the hummer everyday with the “for sale” sign in the windshield..he’s back living in mom and dad’s basement)
Is this true?
Leigh
P.S. Honest question - I’m not sure?
I’m calling BS!
One, as educated as youself, would not possibly recognize an insignificant basement dweller!
My, my! Stop pulling my toes!
For you are above such visuals!
“‘Not to be callous about it, but what goes up must come down’, Dias said, adding that he expected the market to boom again in a year or two.”
Keep on thinking, Dias, that’s what you are good at. And keep on paying on that mortgage; the system needs your liquidity.
“the system needs your liquidity”
The System Needs YOUR Liquidity!
That almost has a Orwellian kind of tone to it - I can see big screens over highways and in airports flashing this message to the shuffling drones…
Keep on thinking dreaming, Dias, that’s what you are good at.
There, fixed.
Crikes, the strike tag doesn’t work…
“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”
Maybe one of the few positive ramifications that come out of this debacle…
“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”
Funny stuff…and no where near reality. Agents don’t control the market anymore the banks control the market now as they did during the last downturn. It’s at best a dice roll going forward. Knowing where your next five deals are coming from is akin to licking you’re finger and sticking it in the air.
What he should have told them, is if you don’t have enough gas money to last you the next 6 mo’s it’s over. It’s volume time…anybody can survive but it’s going to take work and lot’s of it. The days of sticking a sign in the ground and waiting for the phone to ring are dead and gone.
The ‘profession’ of real estate was once based on a person’s connections - selling to a former customer; his/her kid; belonging to countless community based organizations. It took work, moxie, a thick skin and a certain personality type: aka a professional.
REFERRALS - because you didn’t lie, jack people around, and rip them off just so you could earn a commission.
The rest of the lying, cheating rats can go back to Walmart, McDonalds and TJMaxx where they belong.
There are some on this board who’ll fiercely debate whether those are professional qualities. Going forward, once this downturn really gets going, the true “professional” will make the business version of Hannibal Lecter look like the tooth fairy…it won’t be pretty and they’ll have the Fed’s working overtime to keep them in check…but they will survive. You won’t like them but if you want to make some money and don’t have the time to do it yourself I’d embrace a couple and get on their money list…if you can find them.
i agree.. professionalism is about building a clientele. You might not hear from a client for 10, 20, or 40 years down the road, but they remember… and, if asked for a referral, they tell their friends and relatives about you. But screw someone, or even accidentally get someone into trouble and it’s over.
That sounds right to me. All my business comes from word of mouth. Being fairly cautious, I never have all my money lent out in mortgages, so I can always be “nice” about someone’s need to restructure — so long as they don’t all come asking forbearance at the same time. Right now nobody is asking forbearance. (I still don’t quite understand why not, unless they think the “foreclosure” headlines are a sign of lenders’ intransigence.)
‘Cause you have your sheet together
az_lender .. if you’re wondering what’s going on with them, maybe send them all Holiday cards.. include a little note.. “How are things going for you /and the / kids / wife/ mom/ dog / mistress /..?”
joey, I never send them cards, but some of them always send ME cards — “Thanks for helping us get our beautiful manufactured home”
Perhaps manufactured homes are losing value less rapidly than real houses at this point in time. Maybe they are the smart ones right now.
I know one of those connection-based real estate agents. She’s been in the biz for over 30 years, and you know what? The work, moxie, thick skin, and professional personality type fit her to a tee.
The days of sticking a sign in the ground and waiting for the phone to ring are dead and gone ??
I think thats what he ment by its now a “professionals-only field”…
From reading the article he was soft-selling. He needs to tell the real deal.
The only proper ending to that fantastic wake up call speech to the effin realtors would be Alec Baldwin walking onstage & yelling :
” dont you lying scumbags go NEAR the refreshment table. Coffee is for CLOSERS … !! “
grrrr…
LOL
“What are you gonna do about it…a$$hole!” “What you’re hired for is to help us. To help us…not to fu*k us up!” “When I find out whose f’in cousin you are, I’m gonna figure out a way, to HAVE YOUR A$$; FU*K YOU!” I love that movie!
Baldwin’s best role, ever, gained lots of respect for the guys acting abilities. In the spirit of the holidays:
Alec Baldwin’s SNL Always Be Cobbling skit:
http://www.uvouch.com/video-SNL-Always-Be-Cobbling-with-Alec-Baldwin-2843
“Monaliza Botello said she was surprised when her father, who brings in $4,500 a month, last year secured a loan requiring a $4,000 monthly payment.”
88% of income — wasn’t their lender a bit surprised, too?
“It was nothing like ‘Call us and we’ll see what we can work out.’”
What possibly could be worked out? Even at interest-only, at 6%, it’d still need 55% of his income.
“‘Not to be callous about it, but what goes up must come down,’ Dias said, adding that he expected the market to boom again in a year or two.”
What Dias meant was, “What comes down most go up”. Not true with gravity, and probably not with real estate either.
This sure is a refreshing blast of honesty:
“Real estate agents and builders need to modify their business models in order to survive the current mortgage crisis, senior real estate executives said during a conference Wednesday. The suggestions ranged from copying car sales strategies to conducting more honest assessments.”
“‘The one thing I can tell about you Realtors is that you’re all liars,’ said Joseph Anfuso, president of Florsheim Homes, a builder in California’s Central Valley.”
“Anfuso told agents during a Wednesday real estate conference at the University of San Diego that they need to stop inflating or hiding sales numbers and swallow a hard dose of reality on their cash flow if they expect to remain in business as sales continue to plummet.”
“For real estate agents to survive this downturn, they need to know where their businesses are going over at least the next five years, said Jason Hall, co-owner of RE/MAX Associates in San Diego.”
“‘With fewer transactions, it’s going to be a professionals-only field….If you don’t know where your next five transactions are coming from, you won’t be around next year and should start thinking about what you used to do,’ Hall said.”
To which I say, who let him into the conference? And were things thrown at him while he was speaking?
“‘Why don’t they just screw us all at once instead of a little at a time?’ said Ponce de Leon, who has found another job and hopes to renegotiate his mortgage.”
Because if they did it all at once you’d stop paying them?
Old Ponce screwed himself. But, like a good serf, he cashed in his IRAs, sold his truck, and kept paying. There’s nothing to negotiate, the IE is kaput, he’s underwater and and he’s going to stay there.
By early spring, he’ll be busted and foreclosed.
“Dan Noel and his wife were checking out homes for themselves. In fact, the Noels, who live in a ***one-bedroom apartment*** with two teenage sons, had already put money down on a home they discovered on a previous tour. ****“‘We’re so excited we can hardly contain ourselves,’**** said Dan Noel, who said their full-price offer of $179,450 for the three-bedroom house beat seven others.”
THIS is what buying a house is supposed to mean! Good for them!
Exactly. I’m not familiar with the area or the property, but that sounds like a reasonable, pre-bubble price for Cali and they’re actually buying it to live in. What a concept!
Not to rain on the parade here, but I had to ask myself whether this couple can afford a $179k mortgage given that they were living in a one-bedroom apartment with two teenage sons. Assuming a reasonable affordability measure of the mortgage being no greater than 3x annual household income, a couple making $60k should have been able to afford more than that, i.e., at least a two-bedroom apartment so their sons could have shared one.
yes, this sounds awfully shady to me too.
It might sound that way, but there are a number of reasons why or how this can happen. The one that immediately comes to mind is that they were saving money for a down payment. Could’ve been a temporary situation. There’s an apartment complex near here where I used to see three or four family members in a one bedroom, there was a bonus room or partition in the living room area. And eventually these people would upgrade, so I dunno, it isn’t always shady.
I lived in a one-bedroom apartment with my two daughters for years. Saved money like mad until I could afford to move.
I once slept in my car during the week days for 1 year while working in Sunnyvale. I stayed with my parents during the week ends to clean up (sleeping in a car is not easy).
This was not because I was poor, my salary was in the top 25% (professional engineer). I simply wanted to save a lot of rent money. The rent was $30/day and at that time it was a lot of money (minimum wage was $3.40)
Don’t judge a persons weath
There’s an apartment complex near here where I used to see three or four family members in a one bedroom,…
I hate that sort of thing. At this complex here, the more heads of multiple working-age individuals in a unit, the more likely they’ll be parking more cars than they’re supposed to in the unmarked stalls.
And then there’s all the crappy-looking mountain bikes belonging to those who don’t have cars that are chained to various poles around the complex…
“I once slept in my car during the week days for 1 year while working in Sunnyvale. I stayed with my parents during the week ends to clean up (sleeping in a car is not easy).”
Wow, now that’s hardcore. The worst thing about sleeping in the car is the danger involved. You’re basically a sitting duck.
Bantering, aren’t you a happy home-owner now? Tell us about it.
In bubble times, $1600/mo would get you a one bedroom apartment. I hear rents are a little lower now. My in-laws just came back from a short stint in Mountain View and their 2 bedroom apartment cost $1900/mo.
Maybe they opted for the one bedroom instead of stretching the family budget?
Maybe they were saving up and *gasp* being super-conscientious with their money. Ah, who knows, but $179K ain’t a bad start. I’d be thrilled if I could find a place for less than three times that amount in my area.
Hey, even if this is a streatch to 4x income, that would be 46K a year, which in Clownifornia, would be excellent right now.
Sure, we don’t have all the essentials, but living in South OC, I can only dream that homes will cost this much.
“LOL” Out of curiosity would you want to live there if it does. That would actually be scary. Bodies on the streets everyday I would imagine…
dan- you seem smart. why waste away in oc?
Hey..that’s how may parents got our first home..we stayed in a studio apartment for 5 years, as they SAVED UP the money for the downpayment..
Just cause they could afford more doesn’t mean they needed too…goes back to the same old housing bubble issue..buy what you can afford or even a little less to give you room to breathe..
I knew some people who lived in Lathrop several years ago. Huge house. The numbers look about circa 2001/2002? (someone correct me if I’m off here.) Let’s just hope their income supports the payments and that they didn’t sign up for any stupid *loan package*.
BayQT~
Story of the world..one man’s misery is another man’s good fortune…
Hope the media starts talking about how this is finally helping those that sat on the shore line while the other idiots rode out the wave till it crashed.
ah ah ah. Doesn’t it say they already bought a house - why are they looking at more houses? Did I miss something here?
“He said he cashed in two IRAs, sold his tools, sold a truck and was bracing for another rate increase this month. Along the way, he lost his job, and his lender refused to cut him a break. ‘Why don’t they just screw us all at once instead of a little at a time?’ said Ponce de Leon, who has found another job and hopes to renegotiate his mortgage.”
How stupid is this. He sells the tools of his trade and also cashes in his future retirement (and, if not a Roth, paying taxes) to save a depreciating asset.
it’s so stupid that it sounds like a lie..
just what I thought. angling for a sympathy vote.
maybe he saw the light.. realized bank and/or creditors might come after him.. liquidated everything and stashed the cash or gold.
I had a neighbor who sold his truck prior to dumping his house. Once he had no truck he realized he couldn’t work so he didn’t. Talked to someone who told him it would take 6 months to get him evicted so he didn’t pay. In the mean time he bought a brand new truck and he told me he was going to drive across the border and move to Central America where his wife was from. I am sure he had no intention of paying for his new truck either. i haven’t seen him since the day he moved out. When I originally met him, he was the final straw in the camels back of how bad this mortgage thing had gotten. I knew things were screwed up if he could afford to pay 80k more for his 500 feet smaller house than mine with his minimal income. i told my wife he would be the first to go once all this changes direction and he didn’t even make it a year and that includes the 6 months free rent he received.
Also, what he should have done, to increase his cash flow; lease the house the week before he left to some other (2 or 3) families or individuals, collect first and last plus deposit, then head for the border. Could have scammed another 10 grand that way. Hope you didn’t lease from this guy? hehehehehehe
He won’t make it to his final destination. Mexican Police will confiscate his new truck.
“.. filling two 18-seat buses with prospective buyers eager to view foreclosed houses..” ..snip.. ‘At this point, I wish the foreclosures would dry up. We could use an end to the free-fall.’”
… on Dec. 1, about 500 anxious residents lined up at a foreclosure workshop to see loan counselors.
Yo! Alan.. You need bigger buses.
I beg to differ. We all know what the short bus is for…
The Orange County Register. “Real Estate Disposition Corp. tonight in Long Beach will peddle 22 converted condos from the Monterey Villas in Santa Ana. Nineteen are 2-bedroom, 2-bath units with opening bid from $179,000 to $209,000, or about half the old prices.”
How do half-off condo sales in The OC mesh with Gary Watts’ price increase forecast?
“The Orange County Register. “Real Estate Disposition Corp. tonight in Long Beach will peddle 22 converted condos from the Monterey Villas in Santa Ana. Nineteen are 2-bedroom, 2-bath units with opening bid from $179,000 to $209,000, or about half the old prices.”
From the OC register blogger responses to those converted SA Condos i hear that they are real stinkers. Basically U are buying into what was a large apt complex converted to cheap condos. That area on Cabrillo park drive/ave is somewhat away from the absolute bombed out ‘tijuana central’ residential area of SA but it is still SA with the inevitable gangs and crime. Saving grace is that Tustin is several blocks away as a safety outlet.
I would think hard about paying $200,000 for any condo unit anywhere in SA . Cheap it is but SA is entirely a tijuana-sized urban riffraff zone, an illegal-alien sanctuary city, gangsta haven and OC’s verson of SCentral LA.
Update from North County: A 2nd home on my block is getting ready to be foreclosed (Arrowood). The renters in the house have 60 days to vacate. These renters aren’t renters because they were financially savvy but believe it or not they “couldn’t get a loan” in 2005 of 2006. They are trying to work out a deal with the owner/FB. The other house on the block has been vacant for over a year now. The bank had quite a few offers for slightly more then they are trying to get now but had turned them down to being too low. They have recently tried putting lipstick on the pig to the tune of about 5k. (the previous FB took everything to include the hot water heater / fixtures.) I think the bank is going to ride this house all the way to the bottom. If it does Iwill buy it and turn it into a rental since I have access to the best renters on Earth -Military!! They generally stay 3 plus years so low turnover. I know how much they make, how much housing they can afford and have access to their command should their be any problems and can get them to place an allotment to ensure I get paid. Oh did I also mention they will not get hurt by this coming recession.
Today one of the FT stories was the $18 billion paid out in bonus to GS. Other banks -Citi and UBS - are disclosing problems but after Nov 30 when bonus is determined and agreed to pay.
Another writer in FT notes that Central Bank collaboration announced yesterday will inject (ie depreciate currencies) by 110 billion about the expected bonus payments to banks and investment banks this year.
Let’s say bonus received by bankers at these firms totalled $200 billion over the last 2-3 years. Why does it seem that this will be the tally of what banks write off and then run, run run, to the Middle East and Asia to repair their balance sheets.
Bonus paid for securitized financing -what an irony - could possibly end up giving control of these banks not to our best friends!
How about taking a page from the stock market playbook? Instead of DCA (Dollar Cost Averaging), how about HCA (Home Cost Averaging). Everyone should buy a house every 6 to 12 months to help ride through the price fluctuations that naturally occur with such a volatile asset. The stress of seeing +/-70% jumps would be replaced with a more stoic outlook. We need to think outside the box people, a new paradigm is forming and I’m here to guide you through the process.
\sarcasm way off
“Real estate agents and builders need to modify their business models in order to survive the current mortgage crisis, senior real estate executives said during a conference Wednesday. The suggestions ranged from copying car sales strategies to conducting more honest assessments.”
You go first, Friar John, I be right behind you.
The anger, or outright rage is starting to show through as prices continue to fall drastically, and the bagholders are attacking the bubble bloggers. Check out this recent post on the renorealtyblog.
“…many of the posters on this site are lazy professionals who are into real estate as a business. They’re not going to say anything positive unless they’re skimming money out of the paychecks of hard working people. They’re bitter because right now they can’t make easy money off of us real workers. Just like our politicians, they are removed from the rigors of everyday life. They are useless landlords and middlemen (and women) waiting like spiders in a web for the right opportunity to pick the pocket of the working class…In other words, they sit at home all day writing posts on the internet hoping to drive prices even lower so they can buy up cheap properties and then rent them at a premium to hard-working Nevadans so they can continue sit at home on their fat lazy asses collecting a portion of poor folks paychecks.”
http://www.renorealtyblog.com/2007/12/cheap-house-in.html#comments
“They are useless landlords” Hmm, I thought providing a clean, safe, well maintained property at a reasonable rent was being useful. Silly me !
Crap, they are on to me…well, at least, the fat lazy asses part…
No, I don’t need to drive prices down in order to sit on my fat lazy ass collecting a portion of poor folks’ paychecks. In fact, I am really not collecting a portion of “poor” folks’ paychecks. Trailer park or no, my clientele think of themselves as “middle class.” Hence their Middle Class devotion to paying promptly and not buying a home they can’t afford. A very drastic decline in the price of lowest-end housing would put me in a bind, I am sure; but it’s not happening so far. Thus, I sit on my F. L. A. contemplating which new loans to make and which to refuse.
Az_
Honor.
You make this a better place.
Leigh
Thanks, but my point was, sort of, that one can sit on one’s FLA collecting OP’s money without a pile of worry, if one is just not TOO greedy.
Again,
Honor, even on the said F.L.A~
I love seeing this! The run up in prices has made me ill for the past few years. And I REALLY love seeing the real estate agents’ noses get rubbed into the mess they have made of this!
A quick primer of how the Fed manufactures inflation and easy-credit bubbles for the uninitiated.
PART 1 (FF & easy-money lending):
The Federal Reserve cannot directly set mortgage or CP lending rates, but the Fed sets the Fed Funds rate, a.k.a. “overnight rate” (not the same as LIBOR, btw), which has a powerful impact on short-term lending rates, especially key indexes, such as LIBOR - London Interbank Offered Rate), the Prime rate, and to a lesser extent, U.S. Treasuries. LIBOR and the Prime rate are typically used by mortgage lenders as an index on which to base adjustable mortgage interest rates (ARMs). The formulae lenders use to set FRM rates varies, but are usually based in part on the 10-year U.S. Treasury.
The banks and other lenders generate profits by “borrowing short” and “lending long”. That is, they borrow money from the Fed or each other at a low rate for short durations (such as the FF/overnight rate), then lend it out to consumers at a premium for longer duration loans, such as mortgages, HELOCs, car notes, CCs, etc. The “spread” between what interest rate they must pay vs. what consumers must pay (plus fees, points & commissions) is how they make their profits. So, the primary lever the Fed uses to “prime the pump” (to encourage more lending) is to drop the cost of borrowing money for its member banks –in other words, dropping the FF/overnight rate.
When the Fed dropped the FF rate below 2% and held it there for 2 years (including a full year at 1%), this had the macroeconomic impact of hitting the gas and keeping the pedal to the floor for a very long time. When the Fed drops the overnight rate far below prevailing inflation (officially ~3%, based on the CPI; or ~6-7% per ShadowStats), the banks are basically getting “free money” in real terms from the Fed. They are being “paid to lend”. This makes lending money so profitable & easy for the banks –even assuming a sizable % of borrowers eventually default on their debts– that the lure becomes virtually irresistible. Plus, lenders can shift default risk away from themselves to other investors, thanks to MBSs & CDOs (more on that below). Not surprisingly, what we saw during 2001-2006 (the period coinciding with the Fed’s rate-easing) was all caution, risk underwriting, and lending standards being thrown to the wind. By cutting too far and keeping the pedal to the metal for too long, the Fed initiated a bubble and encouraged this reckless lending. We all know the drill: anyone who could fog a mirror received unlimited credit via NINJA-ARMs, fraud became rampant, and speculators entered the RE game en masse.
PART 2 (Inflation):
The FF rate is also the primary lever that the Fed uses to create “new money” in the system via M3. Under our fractional reserve system, new money is primarily created by banks issuing more debt to consumers or businesses –not by telling the Treasury to simply print more dollars, as some might (incorrectly) assume. Of course, when you greatly increase the supply of money in any economy, without a correspondingly large increase in the goods produced, you inevitably create inflation: in simple terms, inflation is more money chasing the same amount of goods. Another way to look at it is, when you inflate your country’s money supply, you are debasing your currency (same amount of money buys less of the same basket of goods).
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “hard” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “hot money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
PART 3 (Summary):
In short, by cutting the FF rate to 1%, the Fed engineered an easy-money lending bubble, which inevitably led to a speculative asset bubble (in housing), which absorbed the $Trillions in new money (M3) the Fed was creating.
If the FF rate were to rise near the true rate of inflation (not the hedonically “adjusted” CPI) which is close to prevailing prime-borrower mortgage interest rates, banks would simply stop lending because there would be little or no profit in it for them. The “spread”, or profit, between borrowing short from the Fed vs. lending long to the consumer would be negligible, and not enough to compensate them (or MBS/CDO investors) for the risk. Severely hiking mortgage interest rates could restore this spread, but few borrowers today would be able to make the new payments, thanks to current bubble-inflated house prices. This is why the Fed is busy slashing the FF rate and injecting cash into the banking system now –they are terrified that credit markets will simply seize up and the banks will stop lending altogether. Raising the FF rate would have the opposite effect of the Fed’s current easy-money/dollar debasement policy, and is basically what Volcker did in the early 1980s to combat inflation (and is what Bernanke should be doing now). Of course, they could just peg the FF rate to inflation (again, not the CPI) and simply allow housing prices to fall until they are in line with rents and incomes. Unfortunately (for us), propping up asset bubbles and preventing the market from self-correcting seems to be the Fed’s chief mandate these days.
I think BB is too weak to do what Volcker did. He will continue down the rate cut path but very slowly since he realizes this is not the medicine that the economy needs. The market is crying for a half point so he gives them 1/2 of what they want instead of taking a stance and giving the economy what it needs. I believe he is going to try to allow the U.S. to get into recession but try to control its depth. He knows he can’t prevent one and his only option to to try to make it orderly on the way down.
I bet their next move will be to float the FF’s rate.
You said this yesterday, Ron (I was paying attention). What does it mean? They don’t set any target rate, just let the open market determine the rate? I thought their whole beef was that banks wouldn’t lend to one another at ANY rate. Hmm, I don’t understand the wider world of finance.
Funny, I posted a “PART 2 (Inflation”, but it keeps getting swallowed up in moderation.
how about this.. dotcom crash and people don’t like the stock market .. WTC towers go down and people don’t like anything financial.
Fed keeps rates low to stimulate the economy. Investors dump their money into something traditionally solid, like real estate.. MBS, etc.. the public catches on and RE booms.
One more try…
PART 2 (Inflation):
The FF rate is also the primary lever that the Fed uses to create “new money” in the system via M3. Under our fractional reserve system, new money is primarily created by banks issuing more debt to consumers or businesses –not by telling the Treasury to simply print more dollars, as some might (incorrectly) assume. Of course, when you greatly increase the supply of money in any economy, without a correspondingly large increase in the goods produced, you inevitably create inflation: in simple terms, inflation is more money chasing the same amount of goods. Another way to look at it is, when you inflate your country’s money supply, you are debasing your currency (same amount of money buys less of the same basket of goods).
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “hard” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “hot money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
PART 2-a (Inflation):
The FF rate is also the primary lever that the Fed uses to create “new money” in the system via M3. Under our fractional reserve system, new money is primarily created by banks issuing more debt to consumers or businesses –not by telling the Treasury to simply print more dollars, as some might (incorrectly) assume. Of course, when you greatly increase the supply of money in any economy, without a correspondingly large increase in the goods produced, you inevitably create inflation: in simple terms, inflation is more money chasing the same amount of goods. Another way to look at it is, when you inflate your country’s money supply, you are debasing your currency (same amount of money buys less of the same basket of goods).
Something in the second part of this keeps triggering the spam filter. Oh well…
PART 2-b (Inflation):
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “hard” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “hot money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
Ok, one more try (I think a word may be triggering the spam filter):
PART 2-b (Inflation):
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “h@rd” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “h0t money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
Nuts… wish there was a “delete” feature when everything suddenly gets approved.
hee hee hee, the same thing has happened to all of us at least once
A quick primer of how the Fed manufactures inflation and easy-credit bubbles for the uninitiated.
PART 2 (Inflation):
The FF rate is also the primary lever that the Fed uses to create “new money” in the system via M3. Under our fractional reserve system, new money is primarily created by banks issuing more debt to consumers or businesses –not by telling the Treasury to simply print more dollars, as some might (incorrectly) assume. Of course, when you greatly increase the supply of money in any economy, without a correspondingly large increase in the goods produced, you inevitably create inflation: in simple terms, inflation is more money chasing the same amount of goods. Another way to look at it is, when you inflate your country’s money supply, you are debasing your currency (same amount of money buys less of the same basket of goods).
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “hard” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “hot money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
In short, by cutting the FF rate to 1%, the Fed engineered an easy-money lending bubble, which inevitably led to a speculative asset bubble (in housing), which absorbed the $Trillions in new money (M3) the Fed was creating.
If the FF rate were to rise near the true rate of inflation (not the hedonically “adjusted” CPI) which is close to prevailing prime-borrower mortgage interest rates, banks would simply stop lending because there would be little or no profit in it for them. The “spread”, or profit, between borrowing short from the Fed vs. lending long to the consumer would be negligible, and not enough to compensate them (or MBS/CDO investors) for the risk. Severely hiking mortgage interest rates could restore this spread, but few borrowers today would be able to make the new payments, thanks to current bubble-inflated house prices. This is why the Fed is busy slashing the FF rate and injecting cash into the banking system now –they are terrified that credit markets will simply seize up and the banks will stop lending altogether. Raising the FF rate would have the opposite effect of the Fed’s current easy-money/dollar debasement policy, and is basically what Volcker did in the early 1980s to combat inflation (and is what Bernanke should be doing now). Of course, they could just peg the FF rate to inflation (again, not the CPI) and simply allow housing prices to fall until they are in line with rents and incomes. Unfortunately (for us), propping up asset bubbles and preventing the market from self-correcting seems to be the Fed’s chief mandate these days.
I think we just set a record for how many times I had to skip an overly long post.
Yeah….. but I hope you didn’t skip over the content….
The recipe of how this financial opera works
If that stuff was new to you then you haven’t been paying attention here for the last few years.
Good posts Harm ,all of them .
Thanks –and sorry about the multiple posts. Everything came out of moderation all at once.
The short version:
Masters of the Universe; all powerful, all knowing, all seeing.
Haaarup!
Leigh
“Over the next year, home prices, which have dropped about 11 percent since their all-time peak median of $517,500 in November 2005, may drop further to approach the 17 percent peak-to-trough decline experienced in the last downturn from 1990 to 1996, said USD economist Alan Gin.”
As I have posted a few times recently, the median list price for used homes on SD’s ziprealty.com currently stands at $450,000 (there are at least 200 homes within $1000 or so of that level). This in and of itself suggests that market values are already off by more than 13 percent* as I type, especially since homes typically sell for less than listed in a ‘buyer’s market.’
“That is a relatively small correction considering that prices have jumped more than 250 percent in the past 10 years, he said.”
That is the mere beginning of a relatively large collection since most sources of purchase budget moneys for people who only needed to be breathing to qualify for a loan to buy a home they could not afford have recently vaporized into thin air.
* (450,000 / 517,500 - 1) X 100% = -13%
A quick primer of how the Fed manufactures inflation and easy-credit bubbles for the uninitiated.
PART 2 (Inflation):
The FF rate is also the primary lever that the Fed uses to create “new money” in the system via M3. Under our fractional reserve system, new money is primarily created by banks issuing more debt to consumers or businesses –not by telling the Treasury to simply print more dollars, as some might (incorrectly) assume. Of course, when you greatly increase the supply of money in any economy, without a correspondingly large increase in the goods produced, you inevitably create inflation: in simple terms, inflation is more money chasing the same amount of goods. Another way to look at it is, when you inflate your country’s money supply, you are debasing your currency (same amount of money buys less of the same basket of goods).
Inflation acts as a tax on savers and responsible, prudent borrowers, as they watch the value of their savings shrink faster than the rate of return on their money, and the overall cost of living goes up. It also tends to favor leveraged asset speculators, who are rewarded via appreciation of “hard” assets they bought using borrowed money, which they are later repaying with dollars that are worth less and less as time passes. It also tends to favor “hot money” lenders who can quickly churn any loans they originate (take your fees and get the loans off the books ASAP) over more conservative lenders, who tend to keep loans they originate on their own balance sheets, and are thus much more exposed to inflation risk. The idea is to shift any inflation or default risks downstream to other investors (or taxpayers), just as we’re seeing happen today with those wonderful new free market “innovations”: Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs). Once the bank gets their commissions and origination fees, they package and sell all their fraudulent, toxic loans downstream and are free to lend to the next speculator, and so the cycle repeats (until investors get wise to what’s happening, that is).
Update from my neighborhood A 2nd home on my block is getting ready to be foreclosed (Arrowood). The renters in the house have 60 days to vacate. These renters aren’t renters because they were financially savvy but believe it or not they “couldn’t get a loan” in 2005 of 2006. They are trying to work out a deal with the owner/FB. The other house on the block has been vacant for over a year now. The bank had quite a few offers for slightly more then they are trying to get now but had turned them down to being too low. They have recently tried putting lipstick on the pig to the tune of about 5k. (the previous FB took everything to include the hot water heater / fixtures.) I think the bank is going to ride this house all the way to the bottom. If it does Iwill buy it and turn it into a rental since I have access to the best renters on Earth -Military!! They generally stay 3 plus years so low turnover. I know how much they make, how much housing they can afford and have access to their command should their be any problems and can get them to place an allotment to ensure I get paid. Oh did I also mention they will not get hurt by this coming recession.
OT but per Wall Street Journal -
BREAKING NEWS:
Citigroup plans to consolidate its structured investment vehicles onto its balance sheet. Full article coming soon.
Thought you guys might be interested.
Reuters in Beijing
5:09pm, Dec 11, 2007
The central government on Tuesday ordered state enterprises to start paying a dividend next year of 5 per cent or 10 per cent, depending on which sector they were in, in a long-awaited move to better distribute the nation’s wealth.
The Finance Ministry said companies in resource industries - including oil, petrochemicals, power, telecommunications, coal and tobacco - would have to pay a 10 per cent dividend
******
what a joke…. the farce that China is engaging rivals that of the Soviet Americans
where in:
oil, chemicals-petro style, power, telecom, coal? and tobacco is inflation real? and where is it confiscation?
ya see, this is about what people are willing to pay really top dollar for.
The sale of technical information to the emerging markets is all national security…. guess what folks, the next war is about information, currency, interest rates, and civil content…throw in some celebration in the Games of Aught Eight…..
I have this sinking feeling its gonna feel like 1980…
I guess their stock price will go up tomorrow on this bad news?
Here comes the sunshine! sorry for the China bash I was gtting to the last of my day……..here’s the story.
“Citigroup to Consolidate Seven SIVs on Balance Sheet (Update1)
By Emma Moody
Dec. 13 (Bloomberg) — Citigroup Inc. will bail out its seven structured investment vehicles, bringing $58 billion of debt onto its balance sheet in the biggest move yet by a bank to rescue the failing funds.
Citigroup followed HSBC Holdings Plc and WestLB AG in saving the funds and averting forced asset sales. The New York-based bank said it made the decision after Moody’s Investors Service and Standard & Poor’s indicated they may cut the credit ratings of the SIVs.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=amwIRXuKwRR8&refer=home
got it figured..
all the pensions that are caught in the SIV et all…. are gonna go on all the balance sheets of the Deposit Institutions, then they go to the Window or the Term auction..
problem solved….. bailout is underway.
ahhh, I feel so much better.
get ready for blow off top—- remember this is a brave new world where bad news is really good news.
HA! DC
SIV Smiv…
Consolidate $100B SIVs.
Let’s take this from the beginning…it’s too big!
Why?
Market to market - zero = er, nadda.
Nuclear physicists - finance = quants - reality.
I love math.
So sad morons are skewing for their greed.
Sigh,
Leigh
It’s Different Here! (But not in a good way)
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/121407dnbusforeclosures.116fae35.html
Forecasters predict that as many as 2 million Americans could lose their houses to foreclosure during the next year and a half..
547 days.. 2 million foreclosures.. That’s 3,656 foreclosures per day.
That’s a big twinkie.
“‘The one thing I can tell about you Realtors is that you’re all liars,’ said Joseph Anfuso, president of Florsheim Homes, a builder in California’s Central Valley.”
What I would have given to have seen the looks on those realtor’s faces when he said that.
That’s going to be one of the milder statements directed at realtors in the coming months.
“What I would have given to have seen the looks on those realtor’s faces when he said that.”
What makes you think the looks on their faces changed?
Oh, it’ll change as they “swallow a hard dose of reality” as part of their new job.
Can’t help but point out that this quote was nowhere to be seen in the UT coverage of the same event. hmmmmm
I’m still trying to find a reason to care anymore…first I find out people who signed legal documents are victims of other people because they didn’t read what they were signing or do the math to see they really couldn’t afford to put 50% of they’re take home pay to the mortgage, insurance and taxes, but now I read on msnbc.com that all of this is causing domestic violence and homelessness….
“Social service agencies say homeless rates are on the rise not only as families lose their own homes to foreclosure but also as renters are evicted after their landlords default. Financial analysts warn that state and local governments will soon feel the pinch of sharply reduced property tax revenue. And counselors say divorces and reports of abuse are rising as families burdened by impending foreclosure take their stress out on one another.”
I can hear it now….”You dumb*ss! You said it would all work out! You said just sign the papers and we’ll get rich! Now look at us, we’re living in my mom’s garage and the kids out back in the shed!”
I’m sorry but I’m still driving down Idon’tgiveadamn street. The only people in this whole mess I feel anything for are the ones who lose their home because the dweeb they rented from couldn’t cover the negative cash flow becasue of the stupid loan they took out. The rest of them are getting what they deserve.
As for the Real Estate agents and brokers…I hope they go belly-up and have to get jobs at Walmart selling garden supplies…
Thanks I feel better.
Rant Off
Ray, you just insulted garden supplies.
Naw - he said “Walmart garden supplies”
I’m an dedicated gardener with more sq feet of perennial gardens than there are in most McMansions.
Walmart garden centers suck. Poor quality plants and wat over priced as compared to my local nursery.
The “I don`t give a damn street” is really funny !!
One of the great things about Ben’s blog is it makes reading the mood of the market easier. A year ago everyone was positive. We had all this happy talk in the MSM. The happy talk was pretty much non-stop for a decade. Now we read the “not so happy” talk. The fear is spreading. Reality is setting it. More and more “experts” are going negative. This talk weighs on sellers (and buyers). Day by day they grow weaker. And they are being setup perfectly for the next act: recession. Give it a few more months and the sellers (and potential buyers) are going to seriously cave. And then the serious price drops become more pronounced.
The mood has changed a lot and that is hammering them. Be patient. The best is yet to come. Just wait until the recession is undeniable. Act II of the crash will begin.
Don’t consider buying until recession is an acknowledged fact by the sheeple and MSM.
Mood is everything. This blog makes tracking it easy.
My brother has already started talking about buying. I keep telling him to just chill out for at least one year (even tho I wouldn’t buy then unless a miracle happened). If the deals are good now, then what will they be like in one year? In two years?
I really dont like the OC. There is never a good time to buy there, unless you love wasting away in traffic and in lines.
If you live in Scottsdale, it appears that these guys will have made the market turn upward again by one or two years from now: http://www.nov30live.com
So I just got an e-mail from a realtor representing a small development in Sunnyvale. One of their buyers wormed out of the contract because they were late on delivering the home, and the buyer used that as an escape. He sent me an e-mail saying she’d ‘asked’ to be released because the date had been pushed back and because the builders were such nice guys, they let her, and because I had inquired about the development back in… oh… February, I had a great chance to get into a 3 bed, 1300 sq ft house on a 3200 sq ft lot in Sunnyvale next to the as yet unfinished Town Center redevelopment. (Bets on it getting finished?)
I wrote back :
She asked to be released due to plummeting house prices and the credit
crunch causing her to no longer be able to get an Option Arm Neg-Am
loan for 100% of the purchase price, I’m sure.
For $650k, I’d consider seizing that postage stamp sized yard.
Otherwise, I’ll wait 2 years and buy a better house in foreclosure for
less.
It’s so funny. The friends I argued with 2 years ago about the bubble prices are now telling me “how bad the market is.” They conveniently forget that what is happening is exactly what I predicted. Not one has said “you were right” to me.
FYI don’t hold your breath waiting on that acknowledgment…
I just look at them and smirk, laugh, roll my eyes with a knowing grin on my face, remind them I was say all this would happen 3 years ago and revel in my overwhelming foresight and intellegence. Then say; “You used to call me Chicken Little….now you can call me Nostradamus.”
Honestly though when the conversation does come up anymore I buffer my comments by saying that I knew this would happen but I didn’t think it would potentially cause our entire financial system to collapse. It honestly scares the crap out of me sometimes to think the rampant greed and easy money which drove this bubble would go this far.
Same here. Selective memories abound. They’re all a bunch of wankers.
Hey, this is the first serious trouble that I am detecting in my zip code. Look at this listing. It hasn’t moved even with the big haircut. I’m putting the champagne in the fridge…
MLS 07-205207
10720 Ohio Ave. #13, 90024
aprx. 1700 sq.ft (condo)
Listing price: $839,000
Listing date: 7/23/07
Original listing price: $1,055,00
Oh, it’s coming in LA. The brice cut action is beginning in the “marginal” zip codes. Check out 90019 (south of Hancock Park/Grove area) Lotta stupid prices, but I’ve seen at least 2 500k price cuts, and a lot of 1-300k chops. These places still aren’t moving. Also, foreclosures/NOD #’s there are INSANE.
Too bad this ‘hood is also ghetto adjacent, there are some *really* nice old houses there…
I used to drive through there on the way to work 15 years ago. I loved those old houses, too.
“Too bad this ‘hood is also ghetto adjacent, there are some *really* nice old houses there… ”
90019 seems to be a buffer zip code area , a grey zone which blends from the hi-end hancock park /country club park estate mansions down to the marginal ‘ghettoized ‘ slumburbs south of pico blvd. Only a 10 minite drive down Crenshaw blvd from tony wilshire down to pico and crenshaw and U get into ghettoland.
The Grove/fairfax districts are also not that far off from some marginal questionable neighborhoods mainly south of Pico blvd running down to Venice. And ordinary 3/2 plain-jane stuccos in these areas were only less than a year ago asking for a cool million.
RE can turn around rather quickly even in the Vaunted Westside(or mid-wilshire/hancock park district)toward the downside. The merest hint of a recession and /or some steep stock market declines will only hasten the inevitable Re declines in West LA.
“Hey, this is the first serious trouble that I am detecting in my zip code. Look at this listing. It hasn’t moved even with the big haircut. I’m putting the champagne in the fridge…’”
That is a prime area of the Westside. Close to UCLA, Westwood, Century city, Bev hills, 5 min to Santa Monica. Off 405 fwy close to santa Monica blvd and wilshire blvds. Must be problems in the westside housing market if hi-end condo in that area won’t move for $800,000. Maybe the hollywood strike may be affecting things in the WS also.
Depends on where on Ohio it is. If it’s east of Westwood Blvd,that’s not too bad, but if it’s West of the Blvd there’s crazy ass traffic on little 2 lane narrow roads. Still, how crazy is that price for a condo.
Great blog!! Funniest one out there and educational.
We all welcome you to the HBB (Housing Bubble Blog)!!
Funny, but…. people are now coming here in DROVES….. must have something to do w/ us veteren HBB’ers being RIGHT the whole time…. bwahahahahahaha.
http://www.marketwatch.com/news/story/schultz-sees-apocalypse-now/story.aspx?guid=B4657333-B68C-4A34-A493-266821FC09AB&dist=JSIMostRead
Thanks tx. Guess Harry Schultz would approve my huge Aussie govt bond position, not that it’s been doing very well recently.
Is this our old friend Hedge Fund Analyst?
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_gilbert&sid=ah_W.QuTCDWo
lol. I doubt it, HFA never displayed that good a sense of humor. Or humility.
Yeah, where is ole “don’t try this at home, I do this for a living” HFA? I miss that guy!
I love Bloomberg. Unlike MarketWatch, they are willing to tell it like it is.
LMFAO!!!!
Ok, here are some numbers. I looked up some stats to see how things are shaking down.
Total number of Housing Units in the U.S.: 115,904,000.
(figure from 2001)
This includes houses + condos.
Current number of houses for sale:
5,000,000.
Now if you add 2 more million homes to the For Sale market through foreclosure, that now becomes 7,000,000 houses. That represents 6%, a shocker.
RE inventory in SD is just under 50K - it jumped to that from 26K a
few months ago, and from about 5K back in Spring/Summer 04 when
I sold. Order of magnitude change!
Been watching SD quite carefully via redfin and other sources. Some places are holding the line, others are off 30-40% already.
Saw a 3/2 condo for 220K in the Rancho Bernardo area the other day. Still a bit of a rip (275 HOA kills it) of course, it last sold for 360K, so that is hitting the 30-40% mark in discount.
Whoops, that should be 10x not x^10. I’ve been working waaaay too much and my brain is partially fried.
Where did the 50,000 number come from? According to ZipRealty There are 21,356 active homes in San Diego, CA. as of this AM…
if your still wondering what all this is about:
simply put:
a rising necessary cost.
this is a great post from Rubinis Blog:
What got us into this mess is found at a much earlier date. It was during the late 1960s -early 1970s that the rate of economic profit in many of the main OECD countries (including the U.S.) began sharply falling away, not as a result of a yet-to-be oil price shock but a general overaccumulation of production capital, i.e. the cumulative rise in mass and changed quality of capital relative to productive, surplus value creating labor. The changes in composition of capital had at the same time assisted in creation of an expansive service sector, most of which - from the perspective of production capital - was both necessary and unproductive, that is, a rising necessary cost. To which should also be added VietNam war spending and the sectoral disproportions which it intensified as well as rising rate of inflation from money flow into that mil-industrial unproductive consumption.
Anyway, counter-cyclic monetary policy is reactive, is not begun until after the fact or until the phenomena of recession are already becoming evident on the surface. So we saw the Fed engage in what used to be called ’stop and go’ action with the funds rate - up for a period than back down then up then down - as it attempted to simultaneously hold rate of inflation down while also mitigating real economy damage. As became clear at the time, it was unable to do this…and has remained so, i.e. all the notions of ‘fine tuning to endless prosperity’ were broken in fact during the 1970s and, by end of that decade had transformed into what has been labeled permanent crisis management. The capital system had entered into long-run crisis and as OECD growth, etc, data indicate, the Long Slowing had begun. (Which does not mean that there has been some linear decline but instead a decades long inability to reestablish earlier rate of profit*, unemployment, wages, et cetera; perhaps better termed Long Stagnation)
Worth noting as well that one, perhaps the primary, reason for the Volker Fed’s sharp rate increases was not unrelated to the decline in the financial sector’s rate of profit, largely due to the accelerated rate of inflation. The fact that industrial capital could have been so squeezed on the alter of finance say something about a shift in relative power between the industrial class segment and its parasitic counterparty, the financial. Please don’t see this as an ‘either/or’ but as a shifting or transition which took place over a number of years and, even while helping to drive greater transnationalization of production, also generated the post-1983 stock market rise, the long bull market…during which time rate of financial sector profit has risen while nonfinancial has at best lagged. The financial glitz, the Casino, while adding nothing has certainly provided a spectacle of wealth , all the better to cover underlying decay.
Long story really short: The Fed does not control but is controlled (not to be taken as conspiracy but structural) until we arrive at where we are and the ever more evident levels of uncontrollability which, as Nouriel correctly states, also has to do with the rise of non-banks ‘banks’. The whole structure of financial intermediation has been dramatically changed as crisis induced deregulation and false hopes that this would solve what prior policies could not.
my thanks to Juan6pack
The fix is in
http://biz.yahoo.com/ap/071213/citigroup_sivs.html
Recap
1. FED announces plan for banks to bid on credit using any piece of toilet paper as collateral. The biggest feature of the plan is that they can do this annonymously. No mention of what happens when the bank defaults on the loan. Will the FED go after the lending institution or just confiscate the collateral.
2. Answer comes today when Citibank takes SIV assets onto it’s ballance sheet. My guess is these will be used as collateral. Then in 30 days Citibank will go to the FED and say hey we can’t repay that loan. You keep the SIV assets and we’ll call it even. Because the entire transaction will go on behind closed doors no one will know that the FED is buying CITIbanks loosing lotery tickets for full price with freshly printed dollars. No M3 money report, No press reports about how large banks are getting bailed out.
3. The average man on the street will pay for Citibanks gambling losses with inflation caused by newly printed US dollars.
Hi measton,
OK. SIVs.
Where to begin?
A thousand pardons.
Structured Investment Vehicles are a conduit for a fixed income fund.
SIVs are not transparent, and, get this, FLIP!
(No, this is not an acronym, finacianal managers speculate their value, like other assets, wishingly hope to flip SIVs at a speculative, unknown rate…sound familiar?)
The risk is two-fold, shorting…betting against the hedge, and long, holding the risk beyond it’s peak.
Summation:
Russian roulette?
Sigh. Many sources, by some accounts $300 B…b…b…illion opaque funds.
Good night Irene, this will not end well.
No super fund for you! (not you per se, just no fund.)
Dang! I so wanted Sir Hoz to be correct in his analysis!
M-LEC funded is a great way to let the air out slowly.
Rats butt,
Leigh
Post eater!