Weekend Topic Suggestions!
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Mr Bubbles (AG) may your reputation RIP…………….
Alan Greenspan: The Boy in the Bubble.
http://www.alternet.org/workplace/71197/
‘The Federal Reserve Board’s clout isn’t what it was during Alan Greenspan’s day. Back then the Fed looked and acted all-powerful (even though in the real world it wasn’t). Now it’s visibly failing to unfreeze key debt markets in which giant institutions lend to each other. Those markets have frozen out of fear - no one knows what hidden toxic time bombs are on other firms’ balance sheets, or even on their own.’
‘Am I really saying that the Fed, which to many people still seems omniscient and omnipotent, has lost much of its mojo? I am.’
‘But part of the problem is of the Fed’s own making. Its power has always depended more on its reputation than on its actual resources. But the Fed has lost cred for not trying to pop the stock bubble of the 1990s or the recent housing bubble; it obsessed about nonexistent deflation; it even (unintentionally) exacerbated the housing bubble by not stopping institutions it regulates from offering dangerous products like “liars’ loans” and the teaser-rate mortgages that now plague the financial system; and finally, it keeps bailing out the enablers of financial excesses while penalizing prudent Americans by reducing the rates their savings earn and accelerating the dollar’s decline relative to commodities and foreign currencies.’
Good topic. Do we need the FED? Has it perhaps done more harm than good over the years since it was created?
Actually, when it was explained to me that in fact, money is simply “created” by the FED, I was in shock and couldn’t accept it for years. It’s as simple as they just write down a sum in a ledger and there’s the money. Everyone else has to work for it. Sheesh.
Yep the FED can create fiat money out of thin air, based on nothing but faith. It has the big hammer over all States which can not “create” money, but do have the power to tax.
Perhaps an autonomous Fed? One that doesn’t slave for the white house crime syndicate but congress instead? How is the Fed board of Governors elected or appointed and who the hell is appointing them? We see the appointed Chairman (political hack) out front but what about behind the scenes? Are governors appointed at the whim and will of corporate interests?
Nevertheless, it is about time the Fed start enforcing rules regarding consumer protection relating to mortgages.
Saw this on the internet just now:
‘By Jim Cramer Why hasn’t anyone said that the Fed should be investigated for its role in all of this housing bubble?’
“…Why hasn’t anyone said that the Fed should be investigated for its role in all of this housing bubble?’
Because………….They know NOTHING!…NOTHING!… Quoteth: Mr. Cramas$
Thus quoth the jacka$$.
Perhaps an autonomous Fed? One that doesn’t slave for the white house crime syndicate but congress instead?
Slave for the White House? Methinks not. The President has some appointment power with Congress approving, but the reins are generally already in Congress’ hands. That’s maybe part of the problem:
A truly independent central bank (think of the late Bundesbank) would not answer directly to either White house nor Congress. Especially, a central bank should have one mandate, and that is to maintain price stability.
Unfortunately, Congress (not the White house) added a second mandate back in about 1978 or so: Encourage full employment. This double mandate can make a hash out of policies trying to maintain price stability (ie. the value of the currency).
And making the Fed even more answerable to Congress by giving Congress more say in the matter is a surefire recipe for disaster, a la Argentina, or Italy-pre-Euro, or any number of other countries where the central bank’s power was used for short term political goals.
What we have is a rendition of an autonomous Fed. The point was they were supposed to be independent and not subject to political pressure.
It should be clear at this point, the only autonomous Fed is a decentralized Fed.
Since the Federal Reserve has considerable discretion in carrying out its responsibilities, to whom is it accountable?
The Federal Reserve’s ultimate accountability is to Congress, which at any time can amend the Federal Reserve Act.
Legislation requires that the Fed report annually on its activities to the Speaker of the House of Representatives, and twice annually on its plans for monetary policy to the banking committees of Congress. Fed officials also testify before Congress when requested.
To ensure financial accountability, the financial statements of the Federal Reserve Banks and the Board of Governors are audited annually by an independent outside auditor. In addition, the Government Accountability Office, as well as the Board’s Office of Inspector General, can audit Federal Reserve activities.
federalreserve.gov
Stephen Zarlenga
The American Monetary Institute has been working on comprehensive legislation called The American Monetary Act, to remedy this problem at its root, summarized in our brief statement, The Need for Monetary Reform and presented in full at our web site:
http://www.monetary.org
Mavericks are often labeled as lunatics!
Leigh
MBIA has a liquidity issue, Fitch places on negative watch over 170K muninicpal issues. Banks reporting losses that have never lost money before, even in the Great Depression. California’s debt mushrooms from 4 to 14 billion in 6 months. Florida halts redemptions from its state fund. CA has 90K forclosures in the last two months. A number of midwestern cities are effectivly bankrupt. Anyone see a trend developing?
“Anyone see a trend developing?”
Yup. Good topic. Where is it going to lead? For now, inflation seems the most likely result, since this will add points to the borrowing costs of a whole lot of local government debt issues or at least discourage refunding of existing ones. All roads lead to the taxpayer.
And still wall street rallies!
+74 on dow @ 7:50am CST. I am 94% in cash at the moment …
I hope that cash is something other than $$.
Great topic. Not just inflation costs for additional borrowing, but is that borrowing going to happen? With falling tax revenues you have hard choices–continue to delay maintenance on bridges, roads, water infrastructure etc., or cut services like police, fire, etc. Will they cut current service jobs–again police, fire and teachers, or how will they close the shortfall in public pension liabilities? As I said, great topic.
I have a feeling those “secure” pensions will not exist in their current form for very long.
Anticipating major defaults on state & municipal bonds in the coming years.
No raises/pay cuts for govt employees, reduced healthcare and pension benefits. BTW, for those who don’t know, most public employees do NOT have health benefits after retirement (except for those “grandfathered” in). I’ve seen people argue without knowing the facts here, so just wanted to point that out.
I think there is no way to avoid a very serious recession/depression beginning in 2008. Actually, the recession is already here on the streets, but the statistics aren’t showing it, yet.
How do these guys get away with it?
As Wall Street Bleeds From Mortgage Crisis, Bonuses This Year Spike 14 Percent
http://tinyurl.com/26k8h8
“If you were to normalize our business … you would see we had a record year across the whole enterprise,” said Morgan Stanley Chief Financial Officer Colm Kelleher.
Morgan Stanley, the second-largest U.S. investment bank, reported compensation rose 18 percent to $16.6 billion from $14 billion a year earlier. This comes after the investment bank reported Wednesday the first quarterly loss in its history amid a $9.4 billion writedown due to the credit crisis.
If you were to normalize our business … ? Does that mean if they took away all the lousy SIVs, CDOs, and other garbage, that they did a great job?
They have to pay bonuses to their prop traders who made a bunch of money for the firm or they’ll leave. It shouldn’t be across the board though.
I am still long on pitchforks. Sooner or later, some of these folks are going to have to hire personal goons.
I’m long marshmallows for the bonfire.
It’s good to make most of your money off of fees. Fees get paid before everything goes sour. The fact that they had a good year despite the slow down in everything after August and the losses on the unsold stuff, just shows you how much money they were making from January through July.
LONDON (MarketWatch) — In a further sign of the crisis hitting the U.K.’s commercial property market, life insurance group Friends Provident has frozen its 1.2 billion-pound ($2.4 billion) commercial property fund for the next six months after a surge in withdrawal demands.
Friends Provident (UK:FP: news, chart, profile) said investor demand for U.K. commercial property has fallen sharply following the credit crunch at the end of the summer and added it will have to sell off some of the underlying property in the fund to meet withdrawal requests.
The move follows a similar bar on withdrawals by Aviva (UK:AV: news, chart, profile) division Morley Fund Management earlier in December and also came after New Star Asset Management (UK:NSAM: news, chart, profile) marked down the value of its property fund assets by over 8%.
Other managers have seen their cash reserves dwindle as they meet increased withdrawal demands from customers.
IS THERE A NEW TREND DEVELOPING IN COMMERCIAL PROPERTY AS WELL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
” .. it will have to sell off some of the underlying property in the fund to meet withdrawal requests.”
Since there is no market for the junk in their portfolio they will have to sell off the good stuff, the stuff where a market exists. That means the unsalable junk will be left to continue rotting the fund, which royally screws the fund’s bagholders.
The smart money is the first to cash in their chips…
“The smart money is the first to cash in their chips …”
Also among the first to cash in chips is the inside money and the cautious money - the ones believing there is never only one cockroach.
This leaves the nieve and gullible money - the joe 6pks - as bagholders.
The beat goes on.
Any thought on the impact of a commercial RE market crash?
I don’t expect a commercial real estate crash, except perhaps in retail. If a minor crash did occur, I think it would be so dwarfed by the housing bust no one would notice.
I wouldn’t put money on that line of thought…
WtEconomist,
Are you following the Macklowe saga? That huge balloon payment is due in Feb. They look to be skating pretty close to the edge.
Unlike you, I think commercial will take a serious hit.
“I don’t expect a commercial real estate crash, except perhaps in retail.”
Don’t branch or plant eliminations often go with lay-offs? If we are expecting employment to take a hit as the economy slows, I would think commercial real estate would be the next domino.
Merrill get 5billion injection from Singapore Sovereign Wealth Fund
Dec. 21 (Bloomberg) — Merrill Lynch & Co. rose in German trading after the Wall Street Journal reported that the world’s biggest brokerage firm may receive a cash infusion of as much as $5 billion from Singapore’s state-owned Temasek Holdings Pte.
Merrill climbed 3.3 percent, the biggest gain in more than two weeks, to $56.32. The New York-based firm, reeling from the biggest loss in its 93-year history, would join Citigroup Inc., Morgan Stanley and UBS AG in tapping a sovereign wealth fund for capital. Temasek’s board has given preliminary approval for the investment, the Journal said, citing people it didn’t identify. “
Our financial groups are running around all over the globe with hat in hand. Next stop?
Next stop Mars with its untapped reserves of precious metals, tourist attractions, and little folding-green men.
May not be a good time to travel to Mars…
http://ap.google.com/article/ALeqM5gh4pCIVMODpYJ8IeyIaDkqK6hWIQD8TLL5700
See, they are making more real estate!
I always carry my joules & celestons with me, when traipsing around the universe…
http://en.wikipedia.org/wiki/Nation_of_Celestial_Space
The next stop is that these firms are officially declared insolvent, rendering the foreign stake worthless.
They never really were “our” financial groups. They may have originated in the US, they may have taken advantage of our taxpayer funded legal system and infrastructure for themselves, but they’ve used the gifts of freedom in the US and the forebearance of the US citizen and taxpayer like toilet paper to wipe their collective butts and then toss it back in our faces. IMO, they should be de-chartered as corporations and their boards, management and personnel expelled from the US and see how well they do in some other country under different circumstances.
I’ve discussed this topic with my sis, who has done some consulting work for hedge funds, et al, up in the NY area. These are not companies that contribute to the system very much. Mostly they take from the system and contribute to themselves. In other words, parasites. I just realized they’ve gone abroad because they’ve pretty much killed off their US hosts.
In other words, parasites.
I’m thinking it may be impossible to count all the parasites we have in “our” system, from your town hall to D.C.
Agree. And I’m thinking it is time for a good fumigating or purge, from top to bottom.
I second that motion!
“They never really were “our” financial groups.”
While you are correct, I fear that fine point will be wasted on the foreigners they screw. They are likely to overlook the fact that the American people were screwed by these crooks as much as themselves, and just blanket-hate America as a bunch of lying-no-good-thieving-bast@rds.
This is what will cause the entire world to hate America, not the anti-Bush dreams of the dems. And considering the royal screwing they are in the process of receiving, I can’t say I blame them.
“I’m thinking it may be impossible to count all the parasites we have in “our” system, from your town hall to D.C.”
better to be a parasite and leach from the gov’t than be an actual honest working citizen getting screwed by the gov’t especially with taxes . CA and Fed props up/bails out deadbeats, debtors, and rich bankers but screws the middle class citizenry
Peter M
The hedge funds are off-shore for a variety of tax reasons that have nothing to do with having sucked our nation dry. It started with mutual funds adopting the master-feeder fund structure back in the 90’s (possibly 80’s - I wasn’t around then) to get around rules that require mutual funds to charge all investors proportionally for investment advise. By having a variety of mutual funds invest in (or “feed”) the off-shore “master” fund, the mutual funds could offer large investors a break on investment managment fees while letting small investors buy into the same investment pool. It also allowed them to offer a product to non-US investors without them having to provide non-resident status documents to the IRS.
Some of those issues don’t apply to hedge funds, but some of them do. It has been pretty standard invesment company practice for a long time.
Do you really think the US is the only country that has a parasites? Take a look at the corruption that exists in other countries. We are not the first nor will we be the last with corruption. Besides prostitution, corruption has been with us since the dawn of mankind.
Three cheers, palmetto. This ties in with an excellent point you made a few weeks ago: these corps love to preach free-market economics but their entire existence depends on an arbitrary govt- granted exemption from liability.
I’m starting to wonder why we need corporation laws at all. Pretty much all productive economic activity can be carrried out by smal businesses and general partnerships.
Yes, but 1,000,000 small businesses are next to impossible for the government to control and don’t give the kind of kick backs the mega corps do. The feds would much rather have a few mega corps than a butt load of small businesses (traditionally the backbone of America).
Houston, The Answer to Immigrant Prayers
Leading the exodus from Cali to Texas, the Vietnamese-American community, making Houston the 3rd largest Little Saigon. And they’re bringing their businesses with them. LATimes reports that radio/newspaper and community events in this community in SoCal now extol the cheap housing, and business friendly community in Texas, and the outmigration from Cali picks up traction.
http://www.latimes.com/news/local/la-me-houston21dec21,0,3054899.story?coll=la-home-center
Two good Texas movies this weekend
Charlie Wilson’s War (must see!)
No Country for Old Men
CWW looks really interesting, especially if one enjoys reading politics and history.
I always thought that Hank’s Vietnamese neighbor Kahn on “King of the Hill” was suppose to be commedy by absurdity. I mean who realy thinks Texas is full of asians?
Then I moved into a nice Houston subdivision that was 40% Vietnamese (of course Houston is more an international city than a Texas city, but still…).
Kahn is from Laos. I remember a great converstation on the show:
Hank: So are you chinese or japanese?
Kahn: We Laotion.
Hank: From what Ocean?
Kahn: No! We Laotion! From Laos!
Hank: So are ya chinese or japanese?
Good morning from Nairobi Kenya. Big billboard “How about a new bathroom?” Driver yakking about credit bubble, here in the form of every impoverished soul and his many children all having separate car loans to pay off.
AZ — recommend you try to find Alan Bobbe’s Bistro — great food, tiny place. Tamarind used to be excellent, too and there are a few really good Indian restaurants in town. For continental, try the Red Bull, along the hooker street around the corner from the Hilton - left, left out the door. If your first time there, then the Carnivore is a must-do (unless you’re a vegan). Have fun; watch your wallet.
(Bobbe is pronounced “bobby”)
Wow, az - that sounds interesting and fun. Business or vacation?
Dr. Greenspan: Dr. Evil or deluded dupe?
I believe that Greenspan allowed himself to be manipulated into whatever behavior the banking community desired. His motivating button was fame and praise. Correct behavior was reinforced by copious accoloades in the press and among giants of finance and economics.
He is like the cranky writer whose bestseller is now to be converted into a major motion picture. He is contrary and denies all adaptations, until the producers bring him to Hollywood and ply him with starlets, glitter, fame, parties, etc. He sells out and comes around, and is putty in their hands.
Likewise, Greenspan may never have really agreed or believed in his policies, but allowed himself to be seduced by the continued praises showered on him when he did what was desired. This is a sign of weak character, of course, but the only other interpretation is that he deliberately induced high risk behavior out of sheer cussedness.
I don’t buy that he was mean, just that he was a sock puppet.
We Can Build a Snowpig
http://www.stockmania.com/index.php?showimage=118
This is the last weekend before Christmas. The retail ‘analysts’ have been constantly telling us that the shoppers are waiting until the last minute this year, as an explanation for why retail numbers are so low.
This is an assumption that there are actually buyers out there with a pent-up demand, the same desperate assumption made repeatedly by NARies.
What kind of frenzied buying activity are we seeing this weekend after all?
What kind of frenzied buying activity are we seeing this weekend after all?
Our Malls have been packed to the max since last weekend, of course I have no idea if they are all buying like mad. The American consumer is well trained though, so I would expect they are doing their job. We’ll see.
Well if things don’t go as planned, they’ll blame the weather — copious snow in the Northeast, ice in the Midwest…
Our IT guy said the same thing yesterday txchick did I think about hitting the mall during midday…….said he couldn’t find a place to park, it was so packed. During the middle of the day….that seems odd.
Yeah, that was me. My one foray into the mall for the year was a bust. Silly me, I thought I’d save the shipping cost of buying it online but nope. Dallas is the shopping capital of the U.S. though.
Unless it weighs a ton, it’s a wash between out of state shipping or Texas sales tax. For high-end items I prefer to purchase on the internet.
I do too. I’d rather pay the shipping company and at least theoretically recycle the money into the economy. In this case, the only place that had it was the brick and mortar store.
Amazon was my shopping mall this year. In just an hour or two, I went through my list and knocked off 80% of what I needed. OK, there and a couple of other sites.
Better yet, what with my scattered family, the pieces were shipped to the recipient via 2-day shipping (Amazon Prime is great for that), and lots of them got the $4 or $5 gifr wrapping job done for me. Gawd I’m lazy! But I’ve managed to not set foot in a single shopping mall this week, and I even think I got people what they want — or at least what I think they want. We’ll see.
Oh, and as for the economic bright side, UPS and DHL are the big beneficiaries this year. The sellers are doing as well (or as poorly) off of me as last year. The local and state government, however, are getting nearly zero — and even if they did hound me and audit me about these purchases, these gifts all went straight to the out of state recipient! So there! Ha! Stick it in your eye, tax man! Merry Christmas!
They can’t blame it on the weather this weekend either. It’s supposed to be fairly nice — at least no major snowstorms of freezes.
I guess is depends on where you are. The midwest is due for a snow/ice storm tomorrow. Alas.
Actually I did see a last minute shopping frenzy. Kohl’s had been empty the 2-3 times I had been in it since Thanksgiving. Last weekend as I picked up my popcorn popper w/my earned Kohl’s bucks, the store had 2 lines at least 30 deep at one point feeding customers into the cashier lines. The shopping center’s parking lot was packed to overflowing. I think people were waiting for last minute bargains but in the end didn’t want to look like Scrooge.
That being said, I did post earlier that the local media was interviewing shoppers in the mall and for several the cuts in the Christmas budgets from last year was deep. (ie, 50%, $600 down from $1600)
Here in San Diego, the malls are even busier this year than 2006 and 2005.
Maybe people are depressed about the economic malaise and are doing some “therapy” shopping?
How about what, if anything, should the government do about what is going to happen next year? You know they are going to do something, so we might was well provide our advice.
I think the feds need to create a new Fan and Fred in case the old ones fold (or to make it so we don’t have to care if the old ones fold), with temporary full federal backing, to ensure convetional loans are available based on conventional metrics.
The new orgs. could be allowed to give a special dispensation for the FBs — a “do over” for people who were otherwise responsible (no livin large HELOCs) but were nailed by an ARM and falling housing prices. FICO doesn’t really measure anything relevant anymore, does it? If they save up a downpayment and otherwise stay debt free, they could be allowed to buy a house.
To get around the fact that no one will have a downpayment for a few years, the new orgs could also could create a “rent to own” loan. An investor could buy a foreclosure, and hand out a five-year “rent to own” lease. The new org would provide a guarantee of financing (25 year self amortizing) if the household can save up a downpayment and take on no other debt during the five years. This will allow those with no cash left to pursue ownership, eventually.
In other words, don’t stop the foreclosures. Let the current mortgage investors take their losses and housing prices collapse. Just make sure people can buy at the new, lower prices.
“Just make sure people can buy at the new, lower prices.”
As long as it is owner occupied, good loan to income ratio, they have a 20% down payment, no reasonable additional debt load, etc…you could probably run the office out of a McMansion’s 3 car garage.
“no one will have a downpayment for a few years”
I dispute this. Plenty of people on this board have downpayment money, and I bet there are other folks who do as well.
And, why encourage people to keep putting their money into housing anyway. Money saved by renters not paying property taxes and maintenance could be saved and invested and available for business investment which the country could use. Why divert more of the country’s savings into housing, of all things.
“I think the feds need to create a new Fan and Fred in case the old ones fold (or to make it so we don’t have to care if the old ones fold), with temporary full federal backing, to ensure convetional loans are available based on conventional metrics.”
Better way to restore affordability: Scrap the old GSEs and let the unfettered credit market take it from there.
No govt intervention necessary. Let prices fall to such a point that qualified buyers are able to buy based on traditional lending standards (20% down, 28%/33% debt-to-income ratios, 6 month’s reserves in the bank, stable job history…full docs, of course).
I can see no good reason to eliminate the negative marks on the FB’s credit reports. Foreclosure or bankruptcy should be noted for at least 7 years — lender beware. Foreclosure is the kind, benevolent way for these FBs to lose the albatross around their necks.
Merry Christmas y’all,
Q1 - When a bank sells a foreclosed home do all of the liens “absolutely” roll over to whoever the new buyer is?
Q2 - Do the comps in the area consider a home that was foreclosed on?
Met a guy with two homes, one was on the market in Surprise, AZ, who said that the bank never has to pay any of the tax liens, HOA liens, etc. Also said that the comps don’t use the sales price on repossessed homes. I didn’t think either of these were true.
By the way, in the course of travel these days it’s almost impossible not to hear about someone with a housing problem.
Oh yeah, NYCBoy, still need to converse about our bet.
Lip
Lip - I think the misleading part of what the guy said is about the bank. Heck, nobody has to pay the tax liens. He left out the part that after a certain number of years, the house goes bye-bye (unless Texas has some special and illogical perpetual-forbearance statute). Most places, a tax certificate is sold at the courthouse, bid dutch auction relative to the yield to the successful bidder. Winner pays the taxes for X years and at the end of the statutory period either gets the house outright or gets first dibs on proceeds of the court-ordered auction of the property (for all tax paid plus all back interest), depending on the state.
When a bank forecloses on a first mortgage it gets title and all junior liens are extinguished. The bank’s title is second only to the lien for property taxes (old common law tradition where all land is viewed as owned by, or derived from, the sovereign). So holders of junior liens (mechanics liens, 2nd and 3rd mortgages, judgments, HOA dues, etc.) are left in an unsecured position. Leases are also terminated unless tenants in possession are given special rights under State law.
Mechanics liens on new construction supercede the first.
Lip,
When the bank forecloses and takes ownership, they need to get clear title. So, they must pay off Senior liens (mechanics’ liens, IRS, etc.) and they foreclose out the Junior liens (HELOCs, HOA liens, etc.) Senior lienholders can either play hardball and demand 100% of their lien or negotiate it down before they release their lien. The Juniors are usually screwed and can only protect their position by buying out the first mortgageholder - otherwise, the liens just drop off.
If you buy from a bank, you must demand clear title and require a title insurance policy - pretty standard. If you attempt to buy from a bank through a short-sale situation, you have to be more careful. Then it is up to you to order title insurance to see what else may be lurking on the chain of title.
As far as comps are concerned, the appraiser chooses three or four similar properties/transactions to determine comps. He/she may or may not use bank sales as comps. If there are several non-related party transactions to use, they’ll just use those. Easier to “hit the number” that way. If OTOH, there are limited other transactions as comparisons, he/she would likely use bank sales, but would adjust the price based on conditions of sale, financing, etc.
Glad to see your politically incorrect but appropriate greeting.
Merry Christmas
1) No
2.) No
Met a guy with two homes, one was on the market in Surprise, AZ, who said that the bank never has to pay any of the tax liens, HOA liens
Not true - or at least not true everywhere. Real estate taxes are a creature of state law and very from state to state.
23 bank owned REOs are going to foreclosure in my county for unpaid real estate taxes.
And no - they are not kidding. There is a 6 month redemption period and, if not the taxes are not paid, the county owns them and will sell them at auction outright.
Will Moody’s and the other bond rating services survive this fiasco? How will investors in future new bond issues determine the true risk? Will they continue to rely on Moody’s et.al. or will some new rating entity, with a different business model, spring up?
That’s a good question. There are economies of scale in evaluating credit quality, and having two entities do the work is more efficient than having every individual investor try to evaluate every bond, but the raters are completely discredited.
One can also say underwriters are discredited, appraisers are discredited, bond insurance is discredited, mortgage brokers are discredited, real estate brokers are discredited, etc.
According to the Greenspan article from 1963 quoted a day or two ago on Bloomberg, he believed reputation and trust were so important in finance that no one would dare betray that trust. But what if everyone betrays that trust? In the U.S. who can you trust?
Mellow yellow is feeling the benefit of the inability to figure out what computer blips in cyberspace are truly worth…
I think there will be political pressure on state governments to guarantee the bonds of lower-level governmental units, at least to some extent. And, comrades, I would not be shocked for some opportunistic congressperson to propose a new federal agency or office that will come up with umbrella protection for the states.
I like this one. Actually, I am in favor of a particularly geeky discussion topic for this weekend. Just as a counter to the overall frenzy of the season. And I would love to hear from anyone here who has experience with the raters. I never dealt with that end of things when I was in private practice.
Predictions for 2008?
- The economy will remain in the purgatory between recession fear and stock market fluctuation in a trading range
- The trading range will do nicely to offer a chance to pump in liquidity on the first sign of stock market weakness
- Wall Street bankers will continue to be well paid and get large bonuses
- It will feel like there is a recession on Main Street, but the statistics will not show it
Predictions for 2008?
“Withdraw demands, margin calls, hedge redemptions,: …sing to the tune of: …”these are a few of my favorite words”
Confidence can return if only the focus on an ever-rising stock market can manage to supplant worries about elephants hiding off balance sheet. Meanwhile, so long as it plays out in dribs and drabs of $3 bn - $10 bn, perhaps the bubble can be written down on a fog of little cat feet so that nobody will take notice.
Overview: Credit market concerns persist
By Dave Shellock
Published: December 20 2007 18:23 | Last updated: December 20 2007 18:23
Persistent credit market concerns kept a lid on global equities on Thursday as Bear Stearns reported its first quarterly loss after writing down $1.9bn on its mortgage inventory – twice the amount expected.
The news came hard on the heels of Morgan Stanley’s revelation of $9.4bn of subprime writedowns.
Investors also remained concerned about the outlook for bond insurers after MBIA revealed some $30bn of exposure to collateralised debt obligations. On Tuesday, Standard & Poor’s lowered its ratings outlook on several bond insurers, or monolines.
The steady drip of grim news offset this week’s central bank liquidity injections, which have helped relieve some of the stress in money markets by bringing down interbank lending rates.
Neil Mellor, currency strategist at Bank of New York Mellon, said: “Notwithstanding the fact that some sterling and euro interbank rates remain at fairly elevated levels, the liquidity auctions of the past few days have undoubtedly met with success.
“Nevertheless, uncertainty as to the sheer dimension of the subprime lending crisis remains at a heightened level and to the detriment of confidence across equity markets.”
http://www.ft.com/cms/s/0/3f0dc1b4-af28-11dc-880f-0000779fd2ac.html
I think we need to talk about the bill known as “The Deadbeat Specuvestor Tax Relief Act of 2007″.
Perhaps analyze the text line by line, and try to predict how much harm it will cause.
(I suggested to my Senators that they eliminate the Mortgage Interest deduction to pay for it!)
Rental costs. Which way will they go?
REIC says up and uses the high number of foreclosures as the reason with so many people having to take up renting. On the other side, many more properties are turning to rentals after failing to sell for the wishing prices. I would guess that this number exceeds the foreclosures. Also consider the number of condo conversions that have been reversed for lack of sales.
It is my opinion that rental monthly asking/wishing prices may be increasing as a result of so many FBs trying to cover as much of the PITI as possible. And the MSM is quick to headline and/or forecast rent increases for some reason, but that real rents have nowhere to go but down for a while.
My question is how long until the public and press go back into denial. The public doesn’t really have a long attention span when it comes to news and I think we’re hitting the point where people are going to start saying “not another housing piece.” I also think most people don’t really care about the Fed or what the bigboys are doing. Until it actually hits their own little sphere of life on a daily basis, it just doesn’t matter. What percentage do you think really follow these issues on a day to day basis or really care?
I believe the plan from top policymakers is to keep denial alive long enough so that behind-the-scenes measures can stop the housing bubble stages of grief in their tracks by respiking the bubble punch bowl. It worked for AG numerous times, but fooling games have their limits, as mammals (including humans) habituate.
How about what to get your favorite used house salesperson, or FB for Christmas?
A pre-paid bus ticket, if it’s a metro area. Recommend a particular row.
Now that the short sale tax break is official, I’d love some of the more mathmatically inclined HBBers to propose a formula or rule of thumb for working it into the predicted price drop rate and floor.
In other words, if we expected a 30% drop by the time 2011 rolled around, I’m thinking that we will shave off a year, but also drop another 2-3% as a buyer will insist that sellers ask their debtowners for a price break… and given the need for capital, the banks will give in.
Mike - interesting idea. Hope it does not give far too much credit to the reasoning abilities of the average FB. It could be some time before most of these people even hear about tax forgiveness. First few times they hear it, they’ll think, “Shucks, that applies to rich people or sumpin’, not me.” Even if it dawns on them that they might be the ones stuck with the tax bill, many of those will not have a clue as to what that means to their wallet. I think that a huge percentage of FBs will be in this clueless category. The people the tax break will help most, then, are the people the whores in Washington most want to help - the relatively well-off who screwed up.
Not that there is no trickle-down benefit to that. If the caving-in begins at the top of the food chain, it will force down prices all the way to the 1979 Fleetwood trailer at the bottom.
Competing predictions for 2008:
1) The economy will slow, but not recess, thanks to strength in tech stocks and U.S. exports, led by dollar weakness. Thanks to monetary stimulus, inflationary pressures will cause the Fed to worry, but ongoing concerns about the credit crunch will give good cover for ignoring inflation until it becomes much more worrisome. Thanks to the Teaser Freezer and other measures to keep foreclosures from flooding on to the market, housing prices will remain soft but not correct by much more than they already have before the wave of liquidity recently unleashed on global money markets buoys them up again. Goldilocks will not be as happy as normal, but she will carry on.
Best strategy: Get ready to either invest or buy a home soon, or else get inflated out of the market forever.
2) Bailouts? What bailouts? I keep hearing politicians talk about them, or even claim to pass them, but very few people will be impacted by the measures that have already passed or any that are likely to pass in the foreseeable future. The Fed has enough sense to realize that respiking the punchbowl from here is futile, as there is already a huge McMansion inventory glut, and any effort to artificially prop up home prices (e.g., through measures sold as “save our homes” which are really “save our banks”) will only encourage further malinvestment, as builders add new construction to an extant glut.
This market is too big to bail. Home prices will slowly correct from here on out through 2012 or later. And a recession is baked in the cake, as every time since 1955 when U.S. residential investment fell by 25 percent or more, there was a concurrent GDP recession. Goldilocks will catch a severe case of the flu, which will lead to a pandemic rivaling that of 1918.
Best strategy: Stock up on food, guns and ammo.
3) _______ (You fill in the blank)
Or, the laws of economics are not overturned.
There is a finite amount of capital that can be employed in any given marketplace before saturation occurs. When this occurs, the profit for the capital of stock becomes zero, or negative. At that point, the misallocation becomes blatantly obvious. The misallocated resources must be liquidated.
The processes/symptoms of liquidation can be masked via various methods, but will still take place. The more that resources are further misallocated (in the effort to mask the initial misallocation),the longer the period of liquidation.
The antithesis to this principle is the fallacious claim, “It’s different this time.”
Adam Smith wrote extensively on the veracity of this maxim, and no, it won’t be different this time.
I’d be interested in discussion about the ramifications of the new forgiveness of income tax liability on a short sale. Apparently Congress just passed such a provision, based on what I’ve read here.
I don’t know what the text of that new provision covers, but at least in the past it was a practice for companies to move high-level employees, and to provide low cost mortgages.
With this new plan, why couldn’t a large corporation purchase a house and provide it for purchase to its executives? The corporation holds the note. The executive then sells the house to a ‘friend’ in a short sale. The corporation writes off the loss. The executive benefits by not having any tax implication. Later the friend sells back to the executive at cost.
If this is possible, why not just a corner m&p grocery doing the same thing for the owners?
Ronin — that’s a creative-enough gambit, but I suspect that “short sale” will be very clearly defined and will not allow what you describe. For that matter, if it doesn’t benefit bankers, it won’t be included, IMO.
Our children. What will become of the twenty-something generation?
They are facing great trepidation, and are not aware of what is around the corner.
Our grandparents. The one’s whom have already lived through a great depression. There are whispers in this croud…I talk to my gram every day, and she is aware of the signs. If it were not for her counsel, I seriously doubt I would give a care.
Our parents, the baby boomers (some of us are in each of these groups), ready to retire, but some folishly HELOCed, refinanced, purchased at the wrong time, need to downsize, but are stuck in the alligator. (fill in the blank).
Our friends and neighbors, who, are loyal, kind, honest and prudent; but for the luck of the draw, bought into a neighborhood that is forclosing around the very lives they hoped to secure for themselves and their family.
Last, but not least, for those who do the right thing because it’s the right thing to do. The ones with eyes that are brighter than any star, smiles that light a universe of hearts ~ often mocked as ignorant ~ for truly they are contagious ones in the sea of sanity.
Best Always,
Leigh
To all the plumbers, roofers, carpenters, HVAC mechanics getting pink slips TODAY. May there be a brighter future.