Bits Bucket And Craigslist Finds For December 22, 2007
Please post off-topic ideas, links and Craigslist finds here.
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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Name:Ben Jones
Location:Northern Arizona, United States
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I’ve asked Santa to stuff my stocking with an HBB Trout. I’m going to ring in the New Year with my relatives, and I’ll need that trout as there will be many, many trout smackings. Sorry, no link…
Muggy, permit me to give you an honorary membership to my family. A growlier bunch of real estate bears is hard to find.
Not visiting this holiday season with my sis, who has been the proud owner of two homes (one she needs to sell) since last December, so no trout is needed.
I wonder how long I can last before bringing up my 2 sisters 5 houses between them, this xmas?
Salt must be rubbed in carefully…
yes, it must, you should may sure he wound is fully open before doing so…
Got Salt?
Don’t salt me Bro!
The angelic side of me says, “be nice. Your sisters have enough to worry about during this Christmas season.”
The devil in me says, “screw it. Hit them with the biggest brick of salt you can find.”
I’m leaning towards the devilish side this morning.
The rules of Behavior Based Safety say to prelude any corrections with about 3 or 4 attaboys, that way the person “might” receive the information you’re providing.
So it might help if you pump them up with BS before you hammer them with the realities of life.
NCBY, regarding that bet, email me at
web4 swedes at hotmail.com if you want your $$$.
just put some packets of salt in their stockings and dont say a thing
I don’t understand why everybody uses trout for this purpose. That is such a waste of good fish. Use a carp instead. I would recommend a real stinky one caught from the banks of the Mississippi just outside of St. Paul, Minnesota.
Pain Street USA: ‘08 housing outlook.
The forecast is for a longer, deeper home-price slump than previously expected, with double-digit declines in many markets.
NEW YORK (CNNMoney.com) — The United States is deep in its worst housing slump since the Great Depression, and according to a new report, it’s not going to get better any time soon.
In a new survey, Moody’s Economy.com says many metro areas will record losses of 20 percent or more during the downturn, with the national median price for single-family homes dropping 13 percent through early 2009. Factoring in discount offers from sellers, the actual price decline would be well over 15 percent.
http://money.cnn.com/2007/12/19/real_estate/steeper_price_slump/
In 2000, the median price of a home in the US stood at $169K, today around $230K or a little over 25% rise in the past 7 years of which they are forecasting 15% will be lost leaving about a 15% increase over 7 years which is actually below the long term charts. That is of course very optimistic under the current circumstances and does not address bubble areas. In areas where prices are up 250 - 400% like Riverside County it is going to be brutal.
We were watching “Nobody’s Fool” on HBO the other night. I believe the movie was filmed in 1992. They showed Paul Newman pumping gas. The price at the pump was $1.059. Riding in a car through New Jersey the other day (I hardly ever leave the island) I saw gas at $2.929. New Jersey is still one of the cheapest states in the nation for gas. That inflation in basic commodities alone should have wiped out any price appreciation in housing over the past 10 years. That fell squarely on the backs of Joey Pickup Truck and Janie SUV.
Town over from me, which is basically an intersection to on the way to the bigger ciites has a gas station that closed years ago, but has never been torn down. The big sign says $1.48 reg.
But, wages have been going up “below trend”.
It is about what people can afford, not about “trend”.
I don’t know anyone whos wages have increased.
I know lots who have lost their jobs.
lots of folks have gotten their wages reduced,hrs increased, and insurance -if they have it anymore-increased, and even pensions removed. After 30+ yrs.
Who are those people whose wages have increased?
Are you serious? I know a lot of people whose wages have gone up. We aren’t to the Mad Max phase yet. Maybe you need to move to a new town.
I’m in California and can attest to the lack of wage growth. Many people we know, even highly-educated with “good” jobs, have seen flat/negative wage growth since 2000.
Flat wages, increased debt, increased costs in things we need, less job security, fewer perks (health insurance, pensions, etc.) means we should have seen much LOWER house prices over the past six or seven years.
I still think that would have been the trend if not for the credit bubble. We are about to see reality rear its ugly head.
“Factoring in discount offers from sellers, the actual price decline would be well over 15 percent.”
It’s different in San Diego. I have sporadically checked the median list price on ziprealty.com’s used SFR listing inventory this year. It stood at $599,000 as of 4/6/07. As I type, it has fallen to $505,790 (by my personal estimate), off from a level as high as $523,989 as of 11/29/07.
The (average) annualized rate of decline since 4/7/07 has been 20.9 percent, but has accelerated to 42.3 percent since 11/29/07. But I am sure that with a $1 m guarantee of GSE-purchased debt on the way, this loss can be contained to less than 15 percent.
GS,
In some parts of SD, prices are already down at least 30% & still falling. Another 20-50% off current prices, and we’ll be back in business!
“But I am sure that with a $1 m guarantee of GSE-purchased debt on the way, this loss can be contained to less than 15 percent.”
But don’t F&F conforming loans mean some sort of test like ability to repay the mortgage?
That’s what I’d have thought. High limits don’t mean squat if the buyer can’t show s/he can pay PITI, maintenance, cars, utilities and food. Hardly any sellers have figured that out yet and the ones who did probably either took their homes off the market or cut the price heavily and sold.
“The forecast is for a longer, deeper home-price slump than previously expected, with double-digit declines in many markets”
The politicians are running around like chickens with their heads cut off proposing all sorts of remedies and quick band-aid fixes to this Mort meltdown. This is way beyond their miniscule powers as it is a national/global banking system seizure . Even the almighty Fed is powerless to stop the credit squeeze despite their attempts to prop up the system thru massive injections of IV fluids (massive injections of US counterfet currency rolling off the printing presses).
The politicians, especially CA variety, are a bunch of useless POS’s , and i have no more use for them as i do the piles of dog poop left on my lawn by my doggies. Everytime i step on a pile of dog poop and scrape it off my boots i think about CA poiliticians, especially the far left socialist loonies infecting the CA legistature.
Excellent !!
Have a Merry Christmas Everyone
“This market is really, really bad,” said Altishin, a sales associate with Realty Executives. “Quite frankly, I’m not interested in taking a listing at this point unless someone is extremely motivated to sell.”
Numbers in Vegas looking very dismal:
http://www.lvrj.com/business/12771057.html
This is why I don’t understand all the attitude toward buyers by these clowns. Without buyers there will be no transactions. It doesn’t take a rocket scientist to see that there are hundreds of houses for every buyer.
“There are 100’s of houses for every buyer”
But not many “sellers”. In the markets I here about(Anaheim,CA and Arizona), a correctly priced home moves. Some REO’s in Anahiem are reporting 10 competing offers. Plenty of sellers have the equity to price right, but seem determined to “chase the market down”.
Oh, Chick, you just don’t understand real estate. You have to insult the buyers to get them to buy. Bwahaha.
Well, you have to insult some sellers with multiple low balls before they become “Sellers”
The pain hit the affordable condominium-conversion market especially hard. The segment, which carries median prices well below $200,000, moved just 67 homes in November, down from more than 1,000 sales at the conversion market’s peak in December 2005
_—————————————–_
Holy $hit. Someone tell what percentage drop that is. LMFAO!!! Where is LV_Landlord???
By my calculations that is a drop of about 93%. That doesn’t seem to be a cause for concern. Bwahahaha.
Good question - where is LV_Landlord? She hasn’t posted here in a long time.
Email to my Rep in FLA - Adam Putman
RE: Subprime.
I trust you to do the right thing regarding subprime mortgage mess.
Please bear in mind the following as you deliberate.
1. There was no talk about bailing me out after the Dot.Com bubble burst. I just had to ‘Man Up’ and take the hit.
2. I have no problem with doing anything reasonable to ease the pain of a legitimate ‘OWNER OCCUPIED’ homeowner who bought at just the wrong time.
3. Whatever you do, please fight the notion of sticking it to the people out here who were playing by the rules by trying to save up for a downpayment as they watched housing prices soar out of their reach.
4. It is evident now that this whole thing became unravled when Wall Street convinced the bankers that it would be OK if they could slice and dice the various tranches and sell them to the general public as AAA material.
5. No Bailout for Specuvestors or people that used their houses as an ATM (HELOC). These people paid their money and took their chances. The sad part is they were the people driving prices into the stratosphere for the rest of us.
6. Lets not add to the pain by proping up unrealistic housing prices at (5x to 10X) yearly income. Home prices need to adjust and the sooner the better for ALL of Florida’s citizens. (Just ask a waitress in Sarasota, Miami, Ft Walton, ect.).
7. Let’s not go down the road of using Capitalism as the model on the way up and Socialism as the model on the way down.
8. When the banks found out that they could shuffle the loan to a third party instead of having to hold the loan to maturity this decoupled their responsibility and this became the major cause of the situation we now find ourselves in.
9. This allowed the bankers to adopt a mini govt. mindset when evaluating the loan.
eg. ‘What the heck, it isn’t my money”.
10. I know you are being pressured to ‘Do Something’.
But, first and foremost ‘Do the patient no harm’.
sorry #2 is mutually exclusive- he’ll vote to stick it to you so that false altruism advances along w aids funding ,doing for the kids,etc……..
Ah, yes, the “For The Children” rhetoric. The justification for more silly things than you can shake a stick at.
Yes, no. 2 needs to go. Folks need to deal with the consequences of their actions. Financial suicide should be just that - financial suicide. People shouldn’t buy at the “wrong time”, no one held a gun to their pathetic heads.
“no one held a gun to their pathetic heads.”
WRONG! They held a gun to their own heads. Wall Street and the lenders made sure every chamber was filled. That isn’t my problem. Let’s just clean up the mess on the wall and move on.
No, Fb’ers played russian roulette with an automatic and a round in the chamber.
I HATE the “for the children” speech (it almost, without a doubt, resutlts in me paying more for something, and, at the same time, a reduced quality of life for the next generation)!
If we are doing something for our children, we should let this mess unwind, and unwind quickly. Our children will NEVER be able to afford to live in places like FL/CA if we continue to find ways to prop this up (and in FL, find ways to move the tax burden to the children as well).
If your “for the children” you are definately against market manipulation to increase home prices.
‘If we are doing something for our children, we should let this mess unwind’
Makes you wonder if a child’s view of what is going on in financial markets smacks of why it is so cockamamie. A kid would ask how is it wealth to borrow. How do you own when you borrow?
Yes, If I can save just one child!
The only way to save children is to hold parents accountable. I don’t see a single politician with the stomach to do that.
The only way to save children is to hold parents accountable. I don’t see a single politician with the stomach to do that.
Speaking of teaching children about financial responsibility. We were driving thru town last night on our way to Arby’s. We could see in the check advance place’s big window and there was a line waiting to get anadvance of money. In that line almost every person had a child or two with them. This is a great way to teach your children about financial responsibility.
#2 can be amended - limit this to the few people who really got sharked. Like those whose mortgage brokers switched the paperwork on them after signing. (Not the people who didn’t bother to read the docs.)
>
A-men, brother.
If there is a bailout, let it be funded by judgements against the greedy lenders, appraisers, RE agents, and buyers who committed mortgage fraud. Capitalism at work, baby…
Otherwise, let homeowners accept price controls by the gubmint on what they can sell for. You simply cannot have it go both ways and expect taxpayers or investors to have confidence in the system.
“If there is a bailout, let it be funded by judgements against the greedy lenders, appraisers, RE agents, and buyers who committed mortgage fraud. Capitalism at work, baby…”
BULLSEYE
There was no talk about bailing me out after the Dot.Com bubble burst. I just had to ‘Man Up’ and take the hit.
It’s hard to believe, but THERE WAS TALK! My local rep, Anna Eshoo, proposed eliminating the tax on the difference between FMV and grant price when options were issued.
Here’s what was happening:
You work for pets.com, and had the right to purchase 1000 shares of stock (i.e., stock options) for $5/share.
On March 1st, the stock was $20/share You exercised your options, but HELD ON TO THE STOCK because you wanted to have them a year to get cheaper cap gains tax.
However, the $15/share discount is TAXABLE under the AMT rules.
Then, next year, the stock is down to $3/share. But you still owe the taxes on 15 (the discount) * 1000 (the number of shares) even though you lost money!
Anna Eshoo believed that people who were doing a complicated transaction in an effor to reduce their taxes were somehow “caught by surprise” and “victimized” (her words) by this tax and wanted to waive the tax.
Fortunately, this didn’t go very far, but they did work out penalty-free payment plans for this.
So they DID try to bail out dotcom-specuvestors!
US banks scrap plans for SIV ‘superfund’
http://tinyurl.com/yr6zva
But it may be seen as a setback for Hank Paulson, the Treasury secretary, who publicly backed the plan and insisted that it would go ahead.
The dang thing is like Lazerus rising from death!
Die you Super SIV!
Leigh
I think the sovereign wealth funds and the TAF are now seen as the saviors for Wall Street. The TAF was created to allow the big boys to hide from the real values of their assets. So the super-SIV is no longer needed. The Fed will allow them to continue to mark to wishing price. Isn’t that their job?
http://tinyurl.com/23qt8p
Saudi Arabia plans to establish a sovereign wealth fund that is expected to dwarf Abu Dhabi’s $900bn and become the largest in the world.
The new fund will be a formidable rival for other government-owned investment funds in the Middle East and Asia, which are playing an increasingly active role in channelling capital to western companies, particularly financial companies hard hit by the US mortgage meltdown.
The Saudi’s and other Middle East entities might as well just take over the entire US banking system, since it looks like they have the cash.
“The Saudi’s and other Middle East entities might as well just take over the entire US banking system, since it looks like they have the cash.”
They have the cash because we sold the cash to them, just as we sold cash to China and India. Don’t be shocked and awed when they cash in this cash by buying up US assets. That’s kinda like what cash is used for.
Remember, cash is king.
Or will it be like the Japanese, who found themselves holding worthless or seriously devalued US assets? If the Saudis take over the US banking system, then it is not the US banking system anymore and, being run by a foreign entity, I and others like me are not obligated to follow laws with respect to a foreign banking system. Which will make it a good time to get off fiat system and go for the gold.
Whether foreign holders of US cash decide to buy junk or not is their choice to make, a choice we as a country gave them by sending them USDs. If they decide to exercise these choices by buying quality US assets then that is their gain and our loss.
People on this blog bemoan the existence of the fiat USD dollar, deeming it worthless due to it not being “backed” by gold or anything else tangible. In truth it IS “backed”; it is backed by everything it can be exchanged for - which is everything that is for sale.
When we sold USDs to other counries we sold them claims on US assets, claims they are now exercising.
Perhaps100 times in the past 100 years, currencies from every part of the world have gone bankrupt, via hyper-inflation.
I’m sure lots of people held onto Marks and Pengos and Yuan and Cedis and Pesos thinking that they were smart, for these currencies had traditionally held their value…
Until they didn’t.
Would it be reasonable to say the sovereign purchases are pumping USD back into the economy in essence creating inflation?
We’ve been concerned with a taxpayer bailout, however, it’s looking more like a bailout funded by the shareholders as the institutions dilute the shares or retirement funds, etc are invested in the bad bonds and the money is lost altogether.
“Would it be reasonable to say the soverign purchases are pumping USD back into the economy in essence creating inflation.”
The money being “pumped” into the economy doesn’t offset the money the economy is destroying. This destruction of money is why prices of these assets are in decline.
The infusion of foreign held USDs act to transfer the ownership of US assets to the foreign holders of these USDs.
“Thin air” dollars are being converted into very real and very tangible US assets.
Will they follow Islamic law and not charge interest?
LOL, Slim! Of course they’ll charge interest, because I believe it is OK to do anything to those not of Islam.
Oops, mis-write. I believe it is “said that it is OK” to do anything to those not of Islam.
I almost had somebody turn me in to homeland security, when it was revealed that I use Arabic Numerals…
Just be careful what name you give your teddy bear.
They just call the interest “Service fees.”
Cash is king? Oh I think the joke will be on them, not us. You forget: We’re the crooks of the international monetary scene. We play hard and dirty. We lie and we trick — and we always have.
We will trash the dollar faster than they know what’s happened to them, and they know it (and they’re not just a little scared).
Furthermore — buying US assets isn’t as easy as some people think. Despite our rhetoric about open markets, the US has none. None. Not only are our equity markets extremely regulated (it’s almost comical to watch the open-markets fanboys of Wall Street clamour for Federal Reserve intervention) but our international commerce is open only up until the point that primary US assets are on the chopping block. Then “national security” kicks in, the sheeple are awakened, and what seemed like it was for sale, suddenly isn’t. (Abu Dhabi ports deal anyone?).
All of this of course, is why housing bears (myself included) shouldn’t openly make bets on price declines. Because betting on a price decline is tantamount to betting on the dollar maintaining its value. (A bet none of us should take). Don’t forget– There *is* a bailout for the housing bubble that no one wants to talk about: Dollar devaluation. Dollar devaluation saves the banks and the homeowners and punishes us. It’s the invisible tax. And its happening right now. Cash ain’t king.
(Woops — Wrong Emirate! Make that the “Dubai ports deal. I’m still pre-coffee this morning….)
All of the people that thought credit was king are going to find out that credit can be a hard master. I would much rather be sitting flush with cash than sitting flush with debt right now. All things being equal I have no intentions to quit living responsibly and being a saver. So far that has created a very nice life for my wife and I.
“Despite our rhetoric about open markets, the US has none. None.”
And there is a simple reason for this. TPTB know that “free markets” from top to bottom don’t work in a mature economy, irrespective of all the clueless hand wringing in defense of them.
You are contradicting yourself quite a bit this morning. Why do you bother with the old commie/capitalist debate anyway?
Tell your PTB buddies hello for me. Oh, that’s right, you’re not invited to tea.
A pint of beer in Manhattan at most bars is about $6. That is a pretty high cost in my opinion. Many bars have happy hours where you can find a pint for $3 or $3.50. Some do 2-for-1 on all drinks. We find those places as much as possible. That seems like a pretty open market to NYCityBoy. And it is a market of which I take full advantage.
The merits or flaws in the borrow and spend mantra and degregulation with the concomitant rhetoric is now a commie/capitalist debate? Further, show me where I’ve expressed a logical inversion this morning.
“I’ve expressed a logical inversion”
methinks someone is using a Rovian technique for twisting the english language.
Sort of OT, I never understand doublespeak. I know why, I just got told growing up, a lie is a lie.
logical inversion=contradiction. Not that every word out of Roves mouth wasn’t a contradiction….. just saying.
FWIW, I agree with exeter. There is no “free market” because those who have the money (power) will always distort laws, regulations and the economy to their benefit.
Without FULL transparency, there can be no “free market” capitalism. Full transparency meaning every one of us knows the same information that the wealthy do (top executives and all their friends & relatives). No way they will allow that to happen.
The Bear Flu: How it Spread
http://www.businessweek.com/magazine/content/07_53/b4065000402886.htm?chan=top+news_top+news+index_top+story
From the article:
At the center of it all was the new breed of CDO pioneered by Cioffi and his team to tap into the $2 trillion universe of money-market accounts in which individuals and corporations stash their spare cash. Cioffi’s CDOs, initially branded “Klio Funding,” were entities that sold commercial paper and other short-term debt to buy higher-yielding, longer-term securities. The Klios were a win-win proposition for money-market funds. They paid a higher interest rate than the usual short-term debt. And investors didn’t need to worry about the risky assets the Klios owned because Citigroup had agreed to refund their initial stake plus interest, through what’s known as a “liquidity put,” if the market soured. Cioffi engineered three such deals in 2004 and 2005, raising $10 billion in all.
That is a super article. Matthew Goldstein is really a great reporter. Everyone should read that.
Another reson is because they bought insurance in case the loan defaulted so it was a safe investment. The problem is MBIA and ACA are going BK. Looks like the owners of the “safe” money market accounts are the bagholders. Bank of America was having trouble with a $2 Billion MM account I think. Never heard what happened as a result.
They ended up liqudiating at something like 98 cents on the dollar, I think.
Mark of the beast is your credit rating?
Hope Cioffi’s not stuck on wearing just solids or plaids.
North… Keep your eye on Bernanke’s shoes…
http://www.lewrockwell.com/north/north592.html
Columbia, S.C….. Typical RE BS.
http://www.thestate.com/local/story/264659.html
You could create a formula for these stories:
1. Sales down.
2. But for some unexplained reason, prices aren’t.
3. It’s not as bad here as it is elsewhere.
4. We’re not like those bubble markets in other states.
5. Our future’s so bright, we’ve gotta wear shades.
And, on a personal note, I’m waiting out a flight delay in the Tucson airport. (Chicago’s socked in with fog.) Thank you, Ben and the rest of you, for making the wait more palatable.
I’m off to find an electrical outlet for recharging this laptop…
Prices aren’t down because people don’t want to pay taxes on the loss. Oh wait, Bush just signed a bill waiving it till Dec 31, 2009. The FED also put out ew mortgage rules. I see this as speeding the process along : )…. You will see prices drop now!
Don’t forget that magical Fed interest rate cut that will save the day. I personally have heard several REALTORS in our town speaking reverently of this Fed salvation.
Now we know why SC is the hub of intellectual thought and applied logic in the Western hemisphere.
Wonder what will happen when they turn, en mass, to their local megachurch for help.
If my own experience with a megachurch is any guide, they won’t get any.
Exactly.
“Now we know why SC is the hub of intellectual thought and applied logic in the Western hemisphere.
“Wonder what will happen when they turn, en mass, to their local megachurch for help.”
That’s hilarious.
Maybe they’ll turn fish into loans?
“When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”
There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.”
That’s quite an understatement. In fact, the explosion of “innovative” home lending that took place in the middle years of this decade was an unmitigated disaster.”
http://www.nytimes.com/2007/12/21/opinion/21krugman.html?em&ex=1198472400&en=cb8b237116754897&ei=5087%0A
I’m wondering how you would go about hanging the FED in effigy. The FED is dead.
I don’t always agree with Krugman, but this time, he hit the nail right on the head.
It seems to me he gives the Democrats a free pass. That’s not right. The lending debacle was a mix of conservative “free market” economics and Democrat “don’t discriminate against those poor minorities” rhetoric. The two combined together and created a toxic brew. Both sides were involved and there are no innocent parties as far as the politics go. We need to rethink the stupidity of both “conservatives” and “liberals”.
Kudos for this guy saying out loud how whimpy the new Fed regulations really are - “modest”. If you read between the lines of the Fed ’s loan guidelines, it’s all soft speak and suggestion. There is not an ounce of enforcement implied. This is stricly Fed CYA and spin. Anybody disagree and think the Fed’s guidelines will cause any change in behavoir beyond what the banks will do on their own to survive/react to the market challenges?
In 48 hours we depart for our 3 week “bubble tour of the world.” We’ll be on 4 continents in 4 days (North America, Europe, Africa, Asia). All the bubble-areas we’re visiting are areas I had considered buying in, just to own property while it is cheap. I expected the bubble to inflate everywhere, but not as high as it went. Now we have to wait years before buying.
We’ll be in Paris, France for Christmas day. I love Paris, just the food, the culture, and the museums are worth the price of the Euro. Lucky for me I bought a bunch of Euros years ago.
Then it’s off to Dubai, my favorite city in the world. I have friends working in construction there, making crazy cash. One friend left a $60,000 / year job in Chicago for 3X the income there. He can barely afford his apartment rental, though. The city is amazing if you’re wealthy, and I don’t mean wealthy by common US standards.
After Dubai, we’ll arrive in Mumbai, India. I have a home in India (I was born in America and am of mixed blood). No worry about a bubble there since the home has been in family blood for generations. After a week of shopping (bespoken tailored clothes, thankyouverymuch), we’re off to Goa, where I was > Paris -> Chicago). Should be 16 days overall, but last year was to be 15 days and I stayed over 30, heh.
Can’t wait to see the atmosphere change. My favorite hotels already dropped from $700/night to $350/night. US tourism seems DOWN in Paris and Mumbai, according to my friends who own businesses in both places. Not one of my friends, rich or poor, can understand how we can take a 5-figure trip during this economic crisis. First, we did it mostly on miles earned. Second, I did buy enough Euros to last me 5 vacations, if needed, plus I negotiated and re-negotiated hotel room rates about 10 times since September.
I know there’s a guy here named “BrianFromChicago” or something that will be in Paris on Christmas. Couldn’t find his email, but if he hasn’t left yet, drop me an email at adam dot dada at gmail dot com. Let’s hook up.
The Bubble Tour of the World: Do it now before you’re locked out. There’s not building any more airlines. Vacations always go up!
And I’ll be reporting on what I see in eastern Pennsylvania. Got the camera, and it’s ready to record…
Ill be reporting from the woods in central fl. I think there is a mosquito bubble here:-)
A.B.
I am sincerely jealous. I have a safe trip …take pictures.
Danni
Sounds like fun! You said Africa?
Enjoy the trip. Loved the “Blue Diamond” hotel in Pune although I think it’s changed it’s name since my last visit.
Peter Schiff has joined the inflation/deflation debate.
I think he must be reading HBB.
http://financialsense.com/fsu/editorials/schiff/2007/1221.html
I forecast more Frost in 2008…
Fire and Ice
Some say the world will end in fire,
Some say in ice.
From what I’ve tasted of desire
I hold with those who favor fire.
But if it had to perish twice,
I think I know enough of hate
To say that for destruction ice
Is also great
And would suffice.
– Robert Frost –
Never ask of money spent,
where the spender think it went,
nobody was ever meant,
to remember or invent,
what he did with every cent.
-Frost
I read that also. I think he’s right on the money. Those who argue that “deflation” lies ahead are correct only from a classical economics perspective — but they ignore the current political and structural realities of our monetary system. Inflation is in the cards. I’ve always liked Schiff.
Seems to me it’s all about timing.
Yes cash will be dumped into the system.
Stocks may increase in value.
How much of that cash is going to go to the housing market?
Hyperinflation will decrease consumption. Schiff believes that the rest of the world will pick up the slack. I’m not so sure about that. His arguement is basically that the rest of the world has decoupled from the US, Goldman Sachs is even backpeddling from this idea.
Most now agree that there will be deflation in terms of housing. Thus the money I’m devoting to a house is in short term treasuries.
I expect inflation in terms of consumer goods for a while but eventually this house of cards will fall unless the decoupling arguement wins.
‘Yes cash will be dumped into the system.
Stocks may increase in value.’
Stocks eventually track earnings. I am not sure of the true nature of earnings being nominal or real in an inflationary environment. Why would stocks rise in price for earnings that are padded on inflated dollar expectations? I would think there would a flight from stocks as they have run their course for the time.
Very interesting argument. And it matches what we are currently seeing: rising consumer prices with falling asset prices. By his reasoning, we have two choices: stagflation or hyperinflation/collapsing dollar. No pretty!
Hunker down and keep an eye for sales on things that people can not afford to own anymore. Real estate. Too much money tied up in it. It can only have value if someone wants its for some reason. Oh yeah, it ain’t portable either really.
A good read. I suspect the real issue will be all of those dollars returning to us from other countries in the form of inflation / hyper inflation.
Guess I’m all alone on this, but it seemed to me that he left out the part about Americans having nothing left to spend now that the home ATM is closed indefinitely. More expensive steak will not be sold; people will switch to hamburger. Foreigners are not going to buy up all the steak.
When you borrow money and create debt you are increasing the money supply. When you pay off debt you are decreasing the money supply. So if you foreclose you are actually increasing the money supply. This could be perhaps realized
by renting instead of owning (foreclosure) and poof you’ve got more money and adding to inflation. I know it sounds crazy; but so does this whole crazy fiat debt system that nobody understands.
“Then it’s off to Dubai, my favorite city in the world. I have friends working in construction there, making crazy cash. One friend left a $60,000 / year job in Chicago for 3X the income there. He can barely afford his apartment rental, though.”
Very interesting point. That’s always the “bubble dilemma”. When the ex and I sold our house at the top of the bubble, we never thought we’d get what we got for it, but then there wasn’t another house to buy in the area that wasn’t at bubble prices. And, at the top of the bubble, for a brief time, rents were ridiculous in the area.
Real Estate News
‘Happy Holiday fix for The Crunch’
——————————————————————————–
Commentary: New loans, bank bailout would thwart recession
Friday, December 21, 2007
In thin holiday markets, The Crunch hasn’t stolen Christmas, just given a mixed blessing: Mortgages fell from 6.25 percent to 6 percent in one week as fear of credit default returned and money raced to quality for safety.
Expectation of economic slowdown has spread during December, now nearly unanimous, modified by disagreement about extent and duration, and total chaos at the subject of what to do about it. Inflation worriers say the Fed should stay put, just ride it out, joined by believers in Mr. Market. The interveners are mostly backward-looking: in the lead, how to prevent foreclosures. Too late for that.
The worst idea came from my rapidly aging hero, former Fed Chairman Alan Greenspan: just give money to the foreclosed households. Pardon? How would you separate the unlucky and imprudent from the deserving — and from the proud souls still making payments they cannot afford? Other ideas that won’t work: a tax cut, or further cuts in the Fed’s rate. They will soften the landing, but not stop the fall.
I promised last week a Happy Holiday fix for The Crunch. It begins by stating the problem. We do not have a traditional problem with aggregate demand, as in a recession following a Fed-whacking of an overheated economy. We also do not have one of the intractable problems of Christmases Past: the horrifying, 20-year ramp up in inflation that took another 20 years of suppressed growth and two recessions to fix.
Instead we have a wreck in the belly of the financial system: Credit losses are so large that if recognized — written off — would bankrupt the whole show. That is very good news because we have been in this pickle before, large- and small-scale; have all the knowledge and tools developed in prior pickles; and the tools can work overnight.
The only impediment: embarrassment. And some frustrated anger. Fix as follows:
1. The best way to reduce the foreclosures ahead is to secure an adequate supply of mortgage credit. The Treasury Secretary should stride to a microphone to say: “The Treasury stands behind Fannie Mae and Freddie Mac in any amounts necessary, as the economy needs their services for the original purpose at Fannie’s founding in the Depression. They will not grow their portfolios, will act as guarantors for fee, and will apply traditionally tough underwriting standards. They may guarantee regionally appropriate loan balances not to exceed one million.”
2. The bailout: a Chrysler/S&L Resolution Trust hybrid. This is the hard part, but only politically. “We (nouveau RTC) will take bad assets (crippled, opaque and illiquid; CDOs, SIVs, ABCP…) and in exchange will take equity positions in those institutions commensurate with bad-asset relief. We will manage these assets for a period of years to prevent fire sale and to maximize return to the institutions and the taxpayer. Given time and recovered markets, as we recover value we will gradually return equity to the institutions involved. If recovery is insufficient to retire all equity, we will sell the equity assets in the open market in the best interests of the taxpayer.”
We need these institutions to start making new loans right now, and bailout beats selling them to China, Abu Dhabi and Singapore.
http://www.mortgage101.com/partner-scripts/inman.asp?ID=65636
“They may guarantee regionally appropriate loan balances not to exceed one million.”
The Bernanke meme has grown some legs.
Interesting idea, but it doesn’t seem to address the problem of underlying asset value (without a radical experiment in unbridled inflation).
It’s not difficult to unscrew the pooch - it’s impossible.
From the Daily Reckoning…
File this one under “how not to run a business.”
“Let’s get the f*ck out of here,” said Sallie Mae’s Al Lord as he ended his first conference call as Sallie’s new CEO. When investors probed Lord for the true value of SLM, clearly seeking assurance that the troubled company could stay afloat, it’s safe to say Mr. Lord dropped the ball. Lord said Sallie Mae might cut its dividend and sell shares, dodged a few questions and got “the f*ck out.”
I could not believe my eyes when I read that earlier this morning!
Now, I’ve served 21 years in the USAF, and those old goats use colorful euphemisms on occasion. Heck, I’ve been known to throw a few about in fits myself!
My point? There is a time and place for said fits, and one would think the investors’ conference call would be exempt!
LOL,
Leigh
I have a few questions for the experts who read and post here about how a temporary expansion of the GSE limit to, say, $1 m would work.
1. What safeguards could be used to make ensure that ‘temporary’ does not become ‘permanent?’
2. Wouldn’t an artificial measure to prop up the value of GSE loans (through implicit taxpayer-provided guarantees of GSE debt up to $1 m dollars) have the unintended consequence of making housing less affordable, directly thwarting the GSEs from achieving their mission of providing affordable housing?
3) Would homeowners suddenly be able to refinance loans of up to $1 m into taxpayer-guaranteed GSE loans?
4) Wouldn’t a sudden ability of homeowners to refinance into guaranteed loans make an unfunded actuarial liability spontaneously vanish from the balance sheets of financial entities currently holding the bag on toxic mortgages which are currently worth pennies on the dollar?
5) On whose balance sheet would this unfunded liability spontaneously appear, and what would be proper accounting treatment thereof?
Thank you for whatever light you can shed on these questions.
AFX News Limited
OFHEO chief Lockhart says housing loan limit hike should be part of GSE reform
12.12.07, 5:54 PM ET
WASHINGTON (Thomson Financial) - A temporary increase in the conforming loan limit ‘might make some sense,‘ but only if mortgage giants Fannie Mae and Freddie Mac that back these loans improve risk management of their portfolios, Office of Federal Housing Enterprise Oversight Director James Lockhart said today.
If an increase were to take place, ‘just like any new product,‘ Fannie and Freddie ‘would need to put in all the proper safety and soundness risk management around it rather than just jumping in,’ Lockhart said in remarks at the American Enterprise Institute, a conservative Washington think tank.
But Lockhart warned that allowing the so-called government sponsored enterprises to enter the jumbo loan market might threaten their mission to provide affordable housing.
http://www.forbes.com/markets/feeds/afx/2007/12/12/afx4433607.html
I’m probably way too simple-minded in my thoughts on this. My thinking is that the increase is principally to milk the taxpayer for a larger number of foreclosure losses. All the rest is pap. The “regional” crap just means that they’ll focus on California and the Northeast and not on that vast number of million-dollar loans in Kansas.
‘Twas the week before christmas, when all though the house
Not a offer was stirring, nothing could arouse
The listing sign was hung on the corner with care
In hopes that a new FB would soon be in there
Real estate transactions in the paper today for our county.
38 Transfers 17 of them were to and from banks
Not a lot of regular transactions going on.
The U.S. Census Bureau lists 3,141 counties. Any hints?
Our county is Columbiana in Ohio.
We already have the Department of Homeland Security…
How about a new one?
Department of Home-Land $ecurity?
Maybe KBR can start setting up tent camps for FBs. Fenced with razor wire and guarded, off course.
http://www.globalresearch.ca/index.php?context=viewArticle&code=%20SC20060206&articleId=1897
KBR got a $385 million contract to set up and staff detention camps for illegals and deportees. Maybe they can add on a few extra wings for FBs and RE industry cast-offs.
The government did a great job with that in Matecumbe during the Labor Day Hurricane of 1935. About 250 of 350 veterans present, who were forcibly encamped there, drowned when the government forgot about them until it was too late.
A bit OT but I don’t live in the US and am curious. What exactly happens to a borrower after he defaults on a home loan? As far as I understand, his credit score will take a beating, and he might have to declare bankruptcy. What are the personal consequences of that? And how long do they last? What about unsecured loans such as credit card debt? Do the authorities garnish wages or seize assets?
Are the records of his default kept forever? If not, can he travel and work abroad and return a few years later? Also, if there are lots of people defaulting and getting foreclosed on all around, as seems likely after reading this blog, how bad will it really be to be have a low credit score?
It seems to me if the US laws were harsher on borrowers, there wouldn’t have been such reckless taking on of debt. Where I live (Dubai) people can end up in prison for not paying the banks, and default rates are very low.
There are 2 mortgage markets in the US. One is government loans which are heavily regulated and the other is sub prime free market.
The sub prime free market is now closed for business. When a borrower defaults he/she can not qualify for a government backed loan for 7 years and has little options other than to rent.
Households and investors had very little to lose and potentially a lot to gain by gambling on housing with zero down free market loans.
Bankruptcy stays on your credit report for 7 years… not sure about foreclosures (probably about the same). Bankruptcy doesn’t automatically discharge one’s debt (though it might freeze it at current levels, i.e. no new interest or fees may be added). In some cases wages can be garnished. Seizure of assets depends on the type of debt and the nature of the assets.
The consequences of bad credit are paying more for everything in the form of higher credit card rates, higher insurance rates (you’re considered “higher risk”), larger deposits required in order to rent, etc. If a credit check is required as a condition for employment, you could be denied that job.
To my knowledge, there are no travel restrictions. However, a person who has been through bankruptcy and/or foreclosure is not likely to have the means to move and resettle to many foreign countries. Bad debts are sold at huge discounts to collection agencies, so if they return, its likely there will be people ready to try and collect.
Wages are only garnished on student loan / child support. The amount of seized assets is generally so small you might as well call it zero.
Also, credit card companies will increase the interest rate on both outstanding and new debt for someone whose credit score decreases. This increase can be huge. A good rate would be about 10%. A bad one can be close to 30%. These rates are regulated under the state where the bank is headquartered, not where the user of the card lives, so just one state with very lax rules can mean a huge percentage of the cards out there only have to comply with the lax rules.
Congress has taken some notice of this recently, but no real action is expected.
Debtor’s prisons will never be an issue in the US. You need a culture in which an entire family or larger group the person belongs to is embarrassed by their relative being in debt for that to be effective. The person in prison can’t earn money to pay off the debt - it would have to come from relatives or other people connected to the debtor. Besides, we don’t allow imprisonment for anything that isn’t proven as a criminal act. Crimes have to reach a “beyond a reasonable doubt” level of proof and you have an automatic right to a jury trial for an offense that can put you in prison. The laws aren’t in place, the states don’t have the resources to prosecute, jury nullification would happen a lot in this situation, etc, etc. We have already had a tightening of the bankruptcy rules. That is as much as you are going to see here. That is why banks that kept mortgages on their books as income producing assets, were very careful about who they lent to.
The governor of California is considering letting 22,159 prisoners go free, so he can save 250 some million. Maybe to pay the interest on that 14,000 million of shortfall.
Credit fraud? That’s worse than murder!
http://video.aol.com/video/tv-max-headroom-security-systems/1648825
Home loans are secured loans. That means if you don’t pay, they take the security. It is a good idea to lend less than the security is worth (for example, require a down payment), in case you have to take it back, since it costs money to hold onto it while you sell it.
The mortgage system sort of neglected the down payment = security part. They were quite happy to risk a $200,000 loss sometime in the distant future in order to make an extra $2,000 today.
I was at the Home Depot twice yesterday (at noon and then the inevitable return trip at 7pm) and the place was completely dead both times. I guess nobody’s getting tools for Christmas this year.
I went to the Disney store at the mall yesterday (saw Angie Harmon there). There were 3 people in line. Last year same day, Friday before Christmas, probably 20 people.
Given the role of conservative ideology in the mortgage disaster, it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election. They should be: It’s hard to imagine a more graphic demonstration of what’s wrong with their opponents’ economic beliefs.
It’s almost like they’re co-conspirators against us. Naw, impossible.
Both sides of the political equation are locked in with the devil that got them there, for they all sold their souls to the highest bidder, corporate America.
Well said.
The corporate slime won’t stop pickpocketing us until they’re hanging from lightpoles.
Had enough?
Say it aint so Al.
“it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election.”
I think that it is merely timing. Making it an issue during the primaries is far less productive than making it an “our Party” issue during the post-primary campaigning. Look for jacked-up attention to this issue by/in late Spring.
Crisp & Cole Update:
http://www.bakersfield.com/137/story/317220.html
investment performance 2007:
http://tinyurl.com/yttctp
http://cosprings.craigslist.org/sbw/504656288.html
They may be FBs with a very large brood, but they’re GODLY FBs, so won’t you please offer them a place to stay?
You have got to be kidding me?
“we are so wonderful, we can’t pay our bills but we sure can procreate and spew anti C illogic”…blah blah blah.
And they want someone to give them a home for free? temporary?
sheesh.
Godly Christian parents with large family looking for fairly large home or ranch with acreage in or near Colorado Springs or Black Forest area to live in temporarily (Until position or business is secured) as soon as possible. Dad’s (with management and business experience) company position eliminated last year. Our home in Florida panhandle’s emerald coast is in foreclosure and soon to be taken by the bank. Willing to work to do what is necessary to take care of property in exchange for rent.
I’m a little hazy on my Biblical knowledge, but seem to recall the scriptures were pretty big on “building your house on solid ground” and personal responsibility/accountability. How generous of these Godly FBs to offer to “take care of the property in exchange for rent.” I’ll no doubt pile up blessings in heaven for covering their utilities & living expenses. But it’s only “temporarily (Until position or business is secured).” Or until the Rapture, whichever comes first….
You folks remember savekaryn.com?
‘Godly Christian parents with large family ‘
I see at least nine able set of hands to remove some rocks from my property.
Hey, then we can stone an adultress!
This is embarrassing……substitute a 20 pound cross for the trout for these clowns.
You can’t trust anybody that has to tell you how “godly” they are.
Practicing law gives you a real good - and cynical - view of humanity.
Learned years ago the minute someone starts spouting on about how they are ‘a good Christian’, look to your wallet cause they are going to be after it but not for good works but for themselves.
I heard that. I’m beginning to think the swelling ranks of evangelical Christians are coming from 12-step programs. Always seems to be a lot of reformed alkies and druggies, and I don’t think their basic personalities change that much just because they’ve joined a church.
Lawyers, on the other hand, can always be counted on to be pillars of virtue and integrity.
What’s that shadow…could it be? Oh NO! It’s the mighty Fist of Darwin!
I’m reading this week’s Business Week (I’m old, so I still read print magazines).
In a column called “10 Worst predictions about 2007″ they have two Bubble-related ones
- “We do not expect significant spillovers from the subprime market to the rest of the economy or two the financial system”– Ben Bernanke, May 12, 2007
- “The steady improvement in [home] sales will support price appreciation [despite] all the wild projections by academics, Wall Street analysts, and others in the media” — David Lereah, Jan 10, 2007
(Just a wacky theory, but you wonder if any criminal charges can ever be brought against bubble-promoters who had a stake in keeping the Ponzi-pyramid going…)
Don’t predict, and you won’t have to worry about a massive Black Swan guano bomb landing squarely on top of your head.
THey sound JUST LIKE
KEN LAY ENRON guys
and didn’t they get convicted…yeah big deal KL died so he is “acquitted”. The other Scam PONZI scheme guys are wearing orange aren’t they.. we can only pray that somehow the crowd nooses up the guys ‘incharge’. soon.
Was doing some research on Celebration FL. 13 foreclosures, pre-foreclosures or short sales. Anyway I research one house 4048 sf for $764,000 short sale. Bought, you guessed it, 11/05 for $881,400. On tax records for $967,700. Owner lives in CA. It’s furnished very personally, including the nursery, so I’m guessing it was a second home. It’s been on the market a long time, so I’m thinking $764k isn’t going to sell it.
This time last year you counldn’t find a property under $250-$400 sf. Just saw one at $123 sf. When we first looked in 1998 propertiess were going for $100-120sf. Looks like it’s headed for pre-2000 pricing.
When a realty firm from Spokane, WA is advertising on the HBB, the end is high…
I’ve taken up writing Barb Boxer EVERY DAY to see if my form-letter response ever changes. Basically, she doesn’t read my letter, and sends the same crap about being “concerned about the subprime crisis.” etc.
Here’s today’s letter: They’re getting nastier:
Dear Senator:
I’m fortunate to have done well in California. I own a home–completely paid for–in Sunnyvale, CA, that I bought the “old fashioned way” with a 20% down payment and a 15-year fixed mortgage back when houses were priced more reasonably.
I would WELCOME a 50% drop in house prices–EVEN THOUGH I OWN A HOUSE. Houses are overpriced. Median house prices should be about 3x median income, not 10x.
Why do you state on your website that you’re concerned about falling house prices? You should be jumping for joy! Finally, houses may be affordable for decent hard-working people, and not just for “specuvestors” with nothing to lose by getting in over their heads with credit.
Your efforts to prop up house prices show that you really work for the banking industry, and not the American People, and that you hate the hard-working taxpaying American citizens that are the foundation of our country.
Sincerely,
Reuven S******
Reuven,
I’m going to post my past and future letters - maybe we will inspire more grass roots!
Trouble is, I run hot and cold, and I’m aiming for consistency (you’re an inspiration!)
The cold is from the darn canned letters!
One poster said s/he was forming a lobbying approach, but I don’t recall seeing a follow-up on what the execution is/would be.
On a side note, I taught my son to write to elected officials in his teens. He has (canned) letters from Presidents, CONgresscritters and the likes!
Also, we vote as a family in EVERY election, and are often the only ones around for the local elections!
BTW, I honor each citizens right to vote or not!
Merry Christmas,
Leigh
Excellent job, Reuven!
I’ve written to Feinstein and Boxer and get the same canned responses you’ve received. (BTW, Leigh, that might have been me you’re referring to — we just need one place where we can go to discuss it, maybe Neil’s blog?)
I’m going to copy your approach, Reuven. Maybe if we bombard them enough, somebody might wake up.
Thank you for sharing!
http://www.larouchepac.com/files/pdfs/071127-lpac_myspace.pdf
[Warning - PDF!] How the financial oligarchy and their media barons are using social networking sites like MySpace and Facebook for Total Information Awareness on the sheeple - and to zombify the young to hasten their incorporation into the incorporated global plantation.
I finally have a “doom and gloom” consumer tidbit to write about. usually I see crowded malls on the days I read posts from fellow HBB bloggers that malls in their areas are not crowded.
Here’s my anecdote. I had a flight scheduled out of Baltimore’s BWI for 6:30 to Philadelphia and then from there to Phoenix. Thinking that the traffic would be awful, I left work at 2:00 to drive the 35 miles to the airport from northern Maryland. I encountered no difference in traffic on I-95. When I went through X-ray at 3:20 PM, there was NO ONE in front of me. I asked a TSA guy where the crowds were. He said he was wondering the same thing. He said perhaps the crowds will appear later that afternoon. I was shocked about encountering no travelers. But pleasantly surprised. Are people not travelling for Christmas? Is this a sign of consumers caught in their bad spending ways and trying to cut back?
AOL has a Presidential straw poll at the time of this post. You can put in your pick. I chose Ron Paul of course.
Great news! Of interest to you folks, for the Republicans, out of 7,669 votes cast, Ron Paul is the leader with 32%, or 2,486 votes. Giuliani is second with 16%, Huckabee has 15%, Romney has 15%, McCain at 13%, Thompson at 8% and Hunter has 1%. I’m an Arizona resident. Reminder to AZ residents, you have to register by early January to participate in the Republican primary. AZ residents, go to the http://www.azsos.gov website to register. Looks like Bible thumping mainstream conservatives are not being liked.
http://www.youtube.com/watch?v=YrdRtu2nnT0
Liv (aka Ron Paul Girl) said it best about the “choices” the Republicrats are offering up. Go Ron Paul!
Nice. I wish there were good looking young women like that when I was in my early 20s and a very active libertarian (the Reagan days). Being 27 years ahead of your time is no fun.
WOW. Ron Paul is ahead in 46 states. I do not recall ever seeing one candidate leading in that many states at one time. Ever.
http://news.yahoo.com/s/ap/20071222/ap_on_re_us/slain_marine_s_dog
This is way off topic - but it strikes me as yet another example of mauldin sentimentality over hard-headed practicality, in the place where we can least afford it: the Military.
A military dog-handler in Iraq was killed, and his K9 injured, by hostile fire. The dog could easily have been returned to duty - military officials thought he had at least two good years left before he needed to be retired - but the family, backed by their Representative, fought to have the dog released to them, because the canine somehow embodied a piece of their son’s spirit. I guess it would be insensitive of me to point out that 1) It’s a DOG, not their departed son’s metaphysical companion; or 2) it costs tens of thousands of dollars to train and deploy a working dog for explosives detection - that trained, experienced dog could and should be saving lives in Iraq, not prematurely retired for dubious reasons.
While I emphasize with the family’s loss and their son’s sacrifice, it seems to me he would rather have his highly trained companion back in the fight, where he could potentially save lives, rather than sidelined because of ludicrous notions that Rover is somehow the living essence of a departed human soul.
Shooting all the war dogs left behind in Vietnam was evidence of hard-headed practicality. Didn’t help us.
I don’t think anyone is suggesting the bomb dog is the living essence of a departed human soul.
Doing something like this helps the military with a lot of good press, plus is indicative of the vastly more sophisticated ‘human engineering’ program Petraeus has put in place to assist with this new counterinsurgency program. And the approach seems to be working, at least a little bit.
Anyone notice that BofA is now using a red background on their logo signage?
What would possess a bank to put their logo on a red field? Think they are trying to tell us something? They use a white background on their website, but on some of the bank buildings the signs are red.
Maybe Wells Fargo gave them a deal on left over paint
Time to get ready for the Red Communist takeover of the Bank of America?
BOO!