December 23, 2007

Bits Bucket And Craigslist Finds For December 23, 2007

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

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Comment by ozajh
2007-12-23 04:03:23

Article in the Sydney (Australia) Sunday Telegraph today, about a sharp and growing division between the wealthy areas which are doing well, and the poorer areas which are doing badly.

Some suburbs are starting to see very high mortgage delinquencies by Australian standards, while others are seeing 15% YOY appreciation and rapid sales.

So how does the article describe this have/have not polarisation? “Sydney may be turning American.”

Comment by ozajh
2007-12-23 04:09:19

Just watched “The Wind in the Willows” (the BBC remake with Bob Hoskins as Badger) with brother and family.

Occurs to me Toad would make an OK Realtor ™.

Comment by ozajh
2007-12-23 04:14:55

Hope this doesn’t appear as a double post.

One of the Sydney (Australia) Sunday papers today had a feature article bemoaning the fact that Sydney was, in their words, “turning American”.

By which they mean a sharp and growing divide between the wealthy areas (currently enjoying good economic times and rapid RE appreciation) and the poor areas (struggling, with flat to falling RE prices and increasing mortgage delinquency and crime rates).

Is it in fact the case that US cities in general have these charactistics?

Comment by oc-ed
2007-12-23 07:39:21

In my opinion, no. There have always been enclaves of wealthy in cities, but I believe that even the highest end properties will suffer declines here. It’s hard to track accurately because of the overuse of the median prices as the statistic by the MSM. One thing is that I believe there were many wanna-be buyers in wealthy areas who now find themselves on trouble. Those foreclosures will draw down the comps there. Then there are the ultra rich whose properties here in SoCal are going for 10+ million USD (see McMonigle Group in the OC I am mixed on this group. Some are too smart to overpay for property and the rest are too wrapped up in being rich to underpay so there could be some upward movement there while everything else heads down.

Comment by AK-LA
2007-12-23 07:40:02

Generally, the older and/or larger the city, the more this is true.

Comment by CarrieAnn
2007-12-23 08:40:49

I am in a very rural area ozajh and I see that very division occuring here. People with million dollar homes (for which the town has a reputation) in the same small community as the people in a 40 year old dilapidated trailer (with former burned out model w/broken windows still sitting in the back yard).

There is a heavier concentration of wealth than some other towns in this area but if you pull up household income stats the numbers on the low end are larger than you might initially guess.

Comment by txchick57
2007-12-23 04:32:04
Comment by vmaxer
2007-12-23 05:25:14

“He is supplementing his income by selling MonaVie, a nutritional juice that retails for $45 a bottle.”

He goes from one scam to another. It shows the cloth, many of the people in real estate related businesses, are cut from.

Comment by SDGreg
2007-12-23 05:39:31

“He is supplementing his income by selling MonaVie, a nutritional juice that retails for $45 a bottle. He recently dropped health insurance for his family, saving about $680 a month.”

He should hope that juice is really nutritional since he dropped his health insurance.

Comment by Muggy
2007-12-23 05:55:39

“He is on track to earn about $50,000 for the year; He is applying for a state-subsidized health plan that would cover his 9-year-old daughter”

Everyone remember this when we start picking through the FB corpses and low-balling the $hit out of their properties (in 3 years… maybe…).

I will hear no sob stories. We all make our own beds…

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Comment by txchick57
2007-12-23 05:58:03

Look at the picture of Charlene and her mother on the left. Two observations:

Maybe if they’d divert some of their food budget into the mortgage, they could hang on.

Look at that sea of crappy houses in the background. Those would not inspire me to go to great lengths to hold on. Of course, I would not have bought one in the first place.

Comment by Muggy
2007-12-23 06:05:43

“Look at the picture of Charlene and her mother on the left.”

I cannot do that to myself two times in one day, sorry.

“Maybe if they’d divert some of their food budget into the mortgage, they could hang on.”

Pugs ain’t cheap either.

Comment by txchick57
2007-12-23 06:10:10

“Disabled” always sets me off too. I doubt that this woman is too disabled to type or answer a phone. Both would bring in a higher income than 15K per year.

Comment by palmetto
2007-12-23 06:12:46

“type or answer a phone. Both would bring in a higher income than 15K per year.”

Not in Cape Coral.

Comment by Muggy
2007-12-23 06:17:40

“Disabled” always sets me off too. ”

You would hate Florida. I’ve never lived in a place where there are so many people with “sob” stories looking for handouts. It’s gets old, real old. There is no personal responsibility here. On local newscasts they’re always peddling some family who needs “help” so they can send little Billy to Disney or whatever.

Bah, Humbug!

Comment by palmetto
2007-12-23 06:21:39

“On local newscasts they’re always peddling some family who needs “help” so they can send little Billy to Disney or whatever.”

Oh, lordy, Muggy, that is SO TRUE and you’ve put it so well.

Comment by NotInMontana
2007-12-23 07:22:27

“Disabled” = so fat, the knees and hips gave out, got diabetes on top of that and now need insulin.

Check out all the “open space” behind them - subdivision common area? So, so attractive. Better off as someone’s yards, assuming they’d do a little landscaping. We have the same sort of ugly common area around here too. I don’t get the thinking here.

Comment by Muggy
2007-12-23 07:31:12

FRICK! They have satellite TV too! Arrrrggggh.

Comment by NYCityBoy
2007-12-23 08:30:55

“You would hate Florida. I’ve never lived in a place where there are so many people with “sob” stories looking for handouts.”

Obviously you don’t take the subway to and from work. Oyyy.

Comment by crispy&cole
2007-12-23 08:35:17

txchick57- lmfao!!

Comment by AnnScott
2007-12-23 08:57:15

2007-12-23 06:05:43
“Look at the picture of Charlene and her mother on the left.”
Pugs ain’t cheap either.

Another one who is dead wrong.

(1) Pugs (and 99% of all the other breeds) from a reputable breeder such as someone who shows their dogs do not cost that much. It is about $500 for a pet qulaity puppy. It is the backyard breeders who do not screen their breeding stock for hereditary health problems and puppy mills that charge more.

(2) The Natinonal Breed Club’s Rescue (all breed club has one for their breed) will charge around $150 -350 for a dog they are rehoming - just enough to cover healthcare and food while caring for the dog after taking it in.

(And I know what I am talking about as I started showing AKC dogs over 45 years ago and sprawled at my feet are a (1) retired AKC champion and (2) the son, grandson and nephew of Westminster winners.)

Comment by Sammy Schadenfreude
2007-12-23 09:22:26

“Look at the picture of Charlene and her mother on the left.”

Good thing I have a wide-angle monitor!

I wish I had a dollar for every time I’ve seen some lard-ass with handicap plates or sticks pull into handicapped parking and waddle in to their favorite fast food eatery for some supersized solace. I’d reserve those slots for those who truly need them - “disabilities” caused by morbid obesity don’t quite rise to that standard.

Comment by not a gator
2007-12-23 09:55:59

Naw, Muggy is right … of course there are bums begging in the street everywhere, but there are more in Florida … because of the weather.

But what Muggy is referring to are the ‘professionally disabled’. Maybe it’s because the economy down here sucks and there are really very few skilled jobs, as opposed to up North where we still have legions of secretaries working in the public sector … maybe that mops up a lot of shiftless losers who would otherwise be on the dole and at least gives them the dignity of work. (Computers made their jobs obsolete, you see, but since they work for the state, they have job security.)

In Florida if you can’t do hard labor, and you don’t have a college degree, you’re going to have a hard time just picking up work except for service industry–and you can forget about that if you have any hip or knee trouble that keeps you from being on your feet. I’m pretty sure this is true throughout the southeast. I have a friend in Arkansas. She should be in okay shape, but her husband cheated on the taxes and his wages are being garnisheed. He’s also in and out of work because he’s gotten fired a few times. Also she had a friend (so-called friend) living in her place for years for no rent. Now she’s desperate for work, but she has knee troubles. Like, needed surgery and all that. She is very good at copyediting, but she’s a little slow (she has PK). Sure, her defeatist attitude doesn’t help (a more optimistic person would have started an internet business or something), but seriously, there aren’t a lot of low-impact clerical jobs available any more.

The fat fucks get on my nerves. Sure, it’s human biology to eat fatty foods and store energy for later, but why are we, as Americans, sooooo overweight? WTF? We have transit “patrons” (not really patrons, as they don’t pay ONE RED CENT for the service we provide) who have destroyed our wheel chair lifts because they and the chair weigh more than 600lbs (like, WAY more) and they and the chair are wider than 48″ (these are the dimensions defined in the 1990 ADA). This damage costs us an enormous amount of money (road calls, parts, repairs) as well as messing up operations for everyone else. You see, they aren’t even charged a nominal fee for riding the transit bus, whereas they would be charged $2 each way (vs $20-$30 taxi–taxis in Gainesville are EXTREMELY overpriced) to ride paratransit. Which btw they might also tear up, because those lifts are only rated to 1000lbs.

All of these (weight-related) disabilities are caused by overeating PLUS no exercise. You know, Gainesville is extremely walkable, and the weather is quite nice. Yet these slobs won’t get off the bus and walk 5 minutes (even if the bus is going to be sitting at the terminal for 15). They want the kneeler lowered or the lift put down so they don’t even have to climb up the steps into the bus. If they’re late to the bus stop, they want the bus to stop while they shamble to the stop at 2 mph instead of even trying to pick it up into a trot.

Look, it’s human nature to conserve energy, but if you don’t get any physical exercise, you will lose muscle mass and destroy your metabolism … and diabetes and gout will follow. And in the mean time, the rest of society has to pay for your mess.

The saddest thing of all is seeing fat parents who have already made their children obese. 7-year old girls with breasts. 5-year old boys with fallen arches. Now, belatedly, they’re trying to work more Phys Ed into the school day.

In Asia they start the school day with calisthenics. We should do that in the US. Also, they have half-day summer school with calisthenics and PE. Summer is when most of these kids put on the most weight (because their parents are at work and they are at home eating and playing video games). East asians are not fat–maybe it’s because they REQUIRE stretching and exercise as an important part of the curriculum. Sanus corpus, sana mens.

When I walk to work, my coworkers think I’m crazy, but they have the “bus driver belly” and I don’t. Get up and move, people. (It isn’t genetics–my mother was a lardass. Maybe it’s aversion!)

Comment by Incredulous
2007-12-23 09:59:58

But, that’s the norm in Florida. Every fat ass has a handicapped sticker. In my entire life, I’ve never seen an actual handicapped person parked in a handicap space; only some blob, often accompanied by blob friends and relatives.

Comment by SF_Slacker
2007-12-23 11:28:27

didn’t guliani outlaw panhandling? here in san fran, the latter day hippie-liberals have facilitated and encouraged a whole culture of degenerate behavior. i cant walk home without being confronted by half dozen very aggressive panhandlers that talk sht if you don’t give them enough. and i live 2 blocks from bloomies… i can only imagine what its like in “worse” parts of town.

Comment by rms
2007-12-23 14:25:21

“We figure we have at least six months,” Elaine Pellegrino says. “We haven’t heard a thing from the bank for a long time.”

No shame either!

Comment by rms
2007-12-23 15:59:18

“Look at that sea of crappy houses in the background. Those would not inspire me to go to great lengths to hold on. Of course, I would not have bought one in the first place.”

txchick57 — those “crappy houses” are considered above-average housing where I’m living right now (Columbia Basin, WA), and honestly it’s about all I can afford right now with my $70k/yr supporting a family of four as a Civil Engineer. Thanks for the boost! :)

Comment by bill in Maryland
2007-12-23 19:47:19

You folks got me started about those legions of fat people. Disgusting to see morbidly obese people 15 to 18 years younger than me in those electric shopping carts in the grocery stores back in Phoenix. Obesity is a choice. It’s a physical fact. You eat more calories than you burn, you will get fat. You eat fewer calories than you burn, you will not get fat. I heard fat people say that it’s not true. They can deny it all they want, but the “bottom line” (excuse the pun) is that obesity is a choice. Prevent it at the very beginning and you prevent opportune diseases such as diabetes. Once you get diabetes, your resistance to other diseases is much lower.

Comment by eastcoaster
2007-12-23 06:29:34

By 2004, the median house price in Cape Coral and Fort Myers had shot up to $192,100, according to the Florida Association of Realtors — a jump of 70 percent from $112,300 just four years earlier. In 2005, the median price climbed an additional 45 percent, to more than $278,000.

So where do you think the bottom will be in this area? Back to $112,000?

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Comment by Will
2007-12-23 16:55:17

I’d guess the bottom will settle at something more like $140,000 allowing for inflation since 2000. But this will still take 2 or 3 years it could be up to $150,000 or so by then. Smart builders can still build for 2000 prices plus inflation so the cost of new housing will keep pressure on existing home prices until they get into line. Of course prices may have to go even lower for a time just to get the market turned around. Don’t expect to get a precise answer on this (what will Cape Coral land prices do???) and don’t buy as long as it is cheaper to rent.


Comment by not a gator
2007-12-23 09:58:57

Ah, yes, MonaVie! I thought it was a wine MLM scheme. It has popped up on several cars in Gainesville since August.


Btw, this Nation of Islam guy was trying to sell “magic” juice this summer. He started this pitch about how “doctors just want money … they want you to keep coming back … they treat symptoms and not the disease” (um… antibiotics?) and then “this juice will make you well … you drink one every day for the rest of your life” Uh….logical fallacy anyone?

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Comment by sd renter
2007-12-23 13:50:18

She is so fat that when she is on the dance floor, the Band skips.

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Comment by palmetto
2007-12-23 06:17:02

“He goes from one scam to another. It shows the cloth, many of the people in real estate related businesses, are cut from.”

At least he hasn’t gone back to mental health counseling. Yet.

Comment by txchick57
2007-12-23 06:20:00

I would think he’d be on the other side of that desk now.

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Comment by palmetto
2007-12-23 06:25:22

tx, I want to thank you for posting that article. It is the perfect RIP for the bubble. And much of it reads like the Florida RE crash of the 1920s. I’d love to get copies of it and shove it in the posteriors of every Florida rah-rah housing cheerleader.

Comment by bicoastal
2007-12-23 08:48:53

Speaking of which, I recently read a memoir by Eileen Simpson, the first wife of the poet John Berryman. I knew that Berryman was haunted by his father’s suicide, but not that his father killed himself because he lost everything in…yes, the Florida real estate crash of the 1920s. Perhaps, 20 years from now, we’ll have a great new crop of poets!

“And much of it reads like the Florida RE crash of the 1920s.”

Comment by Professor Bear
2007-12-23 08:54:28

I Love Lucy- Vitameatavegamin

Comment by SDGreg
2007-12-23 05:43:51

“At Taco Ardiente in Lehigh Acres, business is down by more than three-fourths, complains the owner, Hugo Lopez. His tables were once full of the Hispanic immigrants who filled the ranks of the construction trade. The work is gone, and so are the workers.”

Some quantification of the type of labor used during the boom which explains, in part, the minimal impact on unemployment stats so far in spite of greatly reduced housing starts.

Comment by Silverback1011
2007-12-23 05:51:18

The disabled widow whose husband died unexpectedly after refinancing their home and buying the 2 businesses is the type of person I feel sorry for when they get caught in this mess. The plungers like the guy with the $17,000 in mortgages are the ones that crack me up.

Comment by polly
2007-12-23 06:12:23

It is always inappropriate for one spouse to let the other spouse handle all of the couple’s financial issues. I don’t care if one is an accountant, tax lawyer and certified financial planner and the other has a learning disabilty that prevents him from adding numbers accurately. Both members of a couple should understand and participate in finnacial decisions. Always.

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Comment by txchick57
2007-12-23 06:24:28

Wow, better not hang out with us ;) I am the financial dictator in our banana republic here. My husband hands over the money and I allocate it. If he’s good, he gets an allowance (kidding!)

Comment by polly
2007-12-23 07:33:56

And my mom was the ruler of the budget in my family. But my dad balanced the checkbook and the budget book so he knew what the heck was going on. Of course, mom wrote down credit card purchases twice (once when charged and once when the card was paid), driving him crazy. I backed him up and told her she was doing it wrong when I was about 12. But she couldn’t stop it. As far as she was concerned both transactions meant she was sending out money. How she lived with a system that consistently told her she was spending more than he made is still a mystery to me.

Understand and participate doesn’t mean that all day to day stuff has to be a collaboration. But you are in trouble if your spouse refinances your house and you don’t know about it. Doubly so if the spouse doesn’t really understand.

2007-12-23 07:50:47

Who did all the work in bed?!

Make me a sandwich!

Ford Fairlane

Comment by not a gator
2007-12-23 10:01:23

It’s called creating an environment of artificial scarcity, and it’s a tactic (usually used by men) to keep spending down and reliably saving. :-)

Comment by exeter
2007-12-23 11:21:44

Exactly what NAR and their media whores did with housing.

Comment by tcm_guy
2007-12-23 06:53:56

$3.5K/mo in rent coming in with -$17k/mo in expenses on four properties. The food bill on his four Florida alligators is $162k/year.

But, but, but, he was banking on 45%/year appreciation forever.

What a loser. People like that should be castrated.

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Comment by 01/20/2009 end of an error
2007-12-23 07:43:17

Sounds like is being castrated to me. However he deserves it shame it didn’t happen before the 4 kids.

Comment by NYchk
2007-12-23 08:17:28

What a loser.

A loser? He made $800,000 a year during best of times. Yes, his income now is reduced, but I bet he has plenty of gains left in the bank. Probably offshore.

It’s we the public who are losers and who’ll end up paying for his early retirement.

Comment by txchick57
2007-12-23 08:29:13

Nah. These people are never smart enough to rathole it away. I’m sure it’s all gone.

Comment by FB wants a do over
2007-12-23 09:31:02

Article mentioned he was into $100.00 dinners each night. It’s mostly gone I suspect.

Comment by Earl 288
2007-12-23 09:43:26

Billary Clinton will want us to bail this guy out.

Comment by Muggy
2007-12-23 05:48:36

James P. Dietz, the chief financial officer of WCI Communities: “We have to generate cash to make payroll.”

Haha. Classic.

Comment by tcm_guy
2007-12-23 05:57:10

I like the sign on that Florida house. “Buy 1st floor, & get 2nd floor free.”

Once corporate and consumer borrowing isn’t so cheap and Detroit is still operating with huge overcapacity, then maybe the big three will start marketing their cars the same way. “Buy a new car, & get the engine free.”

Got 10% down?

Comment by tl
2007-12-23 11:16:35

You know you are fat when your pug looks trim compared to you!!

Comment by Professor Bear
2007-12-23 11:50:01

A click on the Multimedia sidebar (”The Ripple Effect”) shows just how contained things are looking these days. Check out the overwhelming visual evidence of the simultaneous downturn in taxable sales of autos and accessories, consumer durables, building investment and business investment. Correlation really bites on the bust phase of a bubble.

Comment by Professor Bear
2007-12-23 11:55:06

There has never been a better time to rent in South Florida…

When Andrea Drewyor, 24, moved to Cape Coral from Ohio this year to take a teaching job, she found a brand-new two-bedroom waterfront duplex in a gated community with a fitness center, a swimming pool and a Jacuzzi — all for $875 a month in rent.

At night, most of the units around her are dark. The developer can moan.

Not Ms. Drewyor.

“I like not having a lot of people living here,” she said. “This place is awesome.”

Comment by ChrisInBirmingham
2007-12-23 12:38:25

“He is supplementing his income by selling MonaVie, a nutritional juice that retails for $45 a bottle. He recently dropped health insurance for his family, saving about $680 a month. He is applying for a state-subsidized health plan that would cover his 9-year-old daughter. “I’m in survival mode,” he says.”

I hope this @ss suffers big time. Mr. Flashy with his yellow corvette business card and buying $700k homes. I hope we see him behind Kentucky Fried Chicken saying “mmmmm…There’s a bone with meat on it! Dinner tonight!”

Comment by ACH
2007-12-23 04:32:47

Below is a link to an article on Germany’s prudence, economic reforms, and common sense. I read this and found it heartening. It seems that Germany lives within its means. Her companies finance themselves through profits. That they play toward their strengths. That it is … well … prudent.

Here it is:

I wonder if this would work here in the US? Hmmm, naaawwwww. No bling. No bling, no do.

All kidding aside, this problem with the debt load of this country is slowly coming to fruition. It’s far to big to be quick. That is why it appears to be somewhat schizoid. I mean Wall Street can’t make up its mind with 1.5 to 2% swngs being common. Oh, and WS bonuses are the biggest on record. Rate cuts don’t seem to really work to alleviate the credit squeeze. Is the American Consumer really tapped out or is the November performance an indication that things will be fine? Is inflation really that low or is it being understated and by how much? I think what we are seeing is a changing of the economic direction and subsequent social organization of our country. It takes a while to become clear because of the scope and size.

Merry Christmas,

Comment by exeter
2007-12-23 11:37:42

You know whats hilarious? Awful horrible “socialist” Germany has a $150 billion trade surplus with big bad we’re number one “free markets” United States. BWHAHAHAH.

Comment by txchick57
2007-12-23 04:55:00

America’s Perfect Economic Storm
(apologies if this has already been posted)

Comment by flatffplan
2007-12-23 04:57:49

wow a new, new dealer
wants even more gov intervention
when we rubes figure out gov intervention brings us the bubbles

Comment by Professor Bear
2007-12-23 09:07:20

The political tragedy which awaits our future is that interventionists will claim that it was R-cans’ “free market” policies that brought us the mess at hand, conveniently ignoring the role of various govt interventions in the housing market.

Examples include:
- 1997 Clinton $500,000 home equity gains exclusion
- 2003 Bush American Dream Downpayment Assistance Act
- AG’s highly-successful effort to hyperstimulate the housing market by holding the Fed Funds rate to a negative real level over a protracted period of time in the early part of the current decade

I predict more destructive govt interference in the housing market going forward as a consequence of the straw man characterization of free market policy. Adam Smith said that free markets require a rule of law to function properly, not a bevy of market distortions which rob Peter to pay Paul.

Comment by palmetto
2007-12-23 05:36:57

“And we still have a government capable of serious anti-recession spending - if it so chooses. But as the credit crisis deepens, this particular government is still infatuated with free-market fables now thoroughly discredited by events. So we must wait another 13 months before a new government can begin digging out of a needlessly deep hole.”

OK, I’m not the sharpest tool in the financial shed, so somebody please explain to me how the gov is capable of anti-recession spending when we’ve had the biggest deficit ever.

Comment by motepug
2007-12-23 07:25:35

Easy. The government creates more bonds, sells them to the Fed. The Fed creates the money, and deposits it in the government coffers. The government then starts another war, another welfare program, builds a bridge to no where, props up the pig men in Washington, etc, thus spending the newly created money.

What’s another couple trillion in government debt?

Comment by Ben Jones
2007-12-23 07:39:08

Ah, another believer in the all-powerful Fed and government. What you’ve described is illegal and if attempted would destroy the dollar. Like I said yesterday, what would that fix?

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Comment by GH
2007-12-23 07:56:19

A bit off topic, but I saw a bumper stickter the other day. “At least the war on the environment is going well”.

Really, there are no painless choices to be made. Question is do we allow it to fail quickly and all at once, so we can all start over or drag it out over years? The implication of no more printed money would be a widespread collapse of the bond markets and most retirement funds, banks and municipalities. If they do, everyone will get paid, but the paper will not be worth much. What there will not be is a sunny day outcome for most Americans.

2007-12-23 07:58:14

The war part seemed to work pretty well circa 1945. If we expended the equivalent percentage of GDP today, raining fire on every manufacturing center on the globe, I think we’d be alright.

Comment by palmetto
2007-12-23 08:09:06

If anything, the housing bubble has shown how powerful the Fed and government isn’t. Actually, I’ve noticed lately an undercurrent of desperation in some of the media stories on issues that developed along with the bubble. I think it was almost a year ago Tom Brokaw did a shill NBC special on illegal immigration and “the booming economy” in Colorado, featuring Gould Construction. Notable was the fact that the “booming economy” in Colorado was all about building and how desperately the labor was needed. You’d think Brokaw and Gould would have egg on their faces by now. Oh, no. Now it is being politicized. Just this week, Mark Gould was featured in Newsweek (or Businessweek) magazine raving about how he needed the cheap labor to continue building (like we need any more building) and he was going to switch from Republican to Democrat. And in the same week, NBC trotted Brokaw out again like some “Weekend at Bernie’s” redux, this time in IOWA (because of the caucuses). And again, the theme was the “booming economy” in Iowa because of illegal immigration. I was completely flabbergasted, because the video that NBC used to illustrate “the booming immigrant economy” in Iowa was a strip of shabby, rundown storefront businesses with signs in Spanish and, get this, a real success story: a lady who was proudly a former illegal immigrant and is now proudly a REALTOR!

Yep, the Fed and the gov is real powerful. So much so, that their only solution seems to be to stand by while the country is sold off to foreign interests, whether to rich Arabs and Chinese on Wall Street, or illegals on Main Street.

Comment by NYchk
2007-12-23 08:46:08

if attempted would destroy the dollar. Like I said yesterday, what would that fix?

Destroying the dollar would fix the mess (a huge debt) with the least pain for TPTB (while further impoverishing the masses).

If you had a huge outstanding debt to external creditors and lots of overvalued assets, would you

a) make your currency more valuable, so you owe Chinese/Saudis/etc. even more in “real dollar terms”, and they can come in and buy your severely discounted assets for a song, or

b) devalue your currency and pay them back with worthless dollars?

I don’t know, maybe US is special. May be US is so special and honorable and keen to play “by the rules”, that they will choose road #1.

But all the other countries in similar predicament - Russia and Argentina come to mind as more recent examples - ALWAYS chose to default on external debt and/or debase the currency.

I think it’s a mistake to continue evaluating US options as if US is still a “first-world country” with a stable currency that would never stif its creditors. If we put the current predicament into terms of “what would a banana republic do”, the answer is devalue its currency.


Comment by spike66
2007-12-23 09:12:59

I saw that same Brokaw piece on Iowa, and my jaw dropped as well. Notice that old Tom stayed away from the meat-packing plants, now totally staffed by illegals at cheap pay.
Once those were good-paying, if tough jobs, with health and retirement benefits for local citizens. No more. Owners now offer no health benefits, dumping the injured and unemployable on local taxpayers and hospitals, and replacing them with more illegals. Works great for the owners and shareholders, but stinks for local citizens and taxpayers. NBC is of course owned by GE and the bias of corporate America permeates every story they “report” on.

Comment by Sammy Schadenfreude
2007-12-23 09:29:37

Anyone expecting the MSM to produce or air any investigative reporting on the corporate cartels that own them, is a fool. Small wonder that more perceptive people are tuning out their Bubblevision and letting their print media subscriptions lapse, and are turning to the blogosphere for unfiltered news and opinion.

Comment by motepug
2007-12-23 08:57:47

I disagree. The Fed controls the money/credit/debt supply. Since bank reserve ratios are essentially 0%, as dictated by the Fed around 1995, the banks can effectively create infinitely more debt/money. Every little bit the Fed/govt “injects” into the money system can and is magnified many times over.

I think txchick pointed this link out, several years ago. It makes instructive reading.

The Fed can as easily reduce the money supply by increasing the reserve ratios. Somehow, I doubt they’ll will be doing this anytime soon.

You could say the Fed is pretty much irrelevant at this point. Manipulating short term interest rates, or creating more money by “lending” to banks with suspect collateral, is just tinkering around the edges. To really have control of the money supply, the reserve ratio is the biggest club, and the Fed gave up that control when the ratios went to 0%.

No one wants to borrow or lend, because the collateral for the loans is decreasing in value (including real estate), and because no one is sure if the borrower or lender, will be solvent in the near future. The Fed will be solvent however, since they can create money and monetize whatever they want, until the money becomes worthless.

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Comment by Professor Bear
2007-12-23 09:17:05

“Since bank reserve ratios are essentially 0%, as dictated by the Fed around 1995,…”

Got leverage?

Comment by Lip
2007-12-23 07:26:53

“Congressional Democrats are planning a recovery program in the $100 billion range, plus mandatory foreclosure relief. That modest down payment on what’s really needed will doubtless be vetoed by President Bush.”

$100 Billion is a modest down payment??? Does that make the total bill $1 Trillion?

IMO Bush is right to veto the bailout, but one or another we’re all gonna pay for this.

Comment by 01/20/2009 end of an error
2007-12-23 07:48:25

Try 3-4 trillion.

Comment by Professor Bear
2007-12-23 08:57:52

America’s economic perfect storm
By Robert Kuttner
December 21, 2007

FUTURE HISTORIANS are likely to look back on the final year of the Bush administration as a moment not unlike 1930, when government dithered while a financial crisis deepened. At every stage of this unfolding crisis, the official response has been too little and too late.

(more stories like this:

* Fed tries to curb excesses in loans
* Fed endorses plan to curb shady home lending practices
* Fed to unveil home mortgage plan
* Stocks up on growing hopes for rate cut)

I’m not predicting another Great Depression.

Say no more…

Comment by tcm_guy
2007-12-23 09:19:49

“FUTURE HISTORIANS are likely to look back on the final year of the Bush administration as a moment not unlike 1930, when government dithered while a financial crisis deepened.”

Tent cities = Bushvilles?

Comment by ReverendDave
2007-12-23 13:15:10

Nah, Bushvilles are the neighborhoods along the Gulf Coast that consist of destroyed houses, FEMA trailers, and tents. They’re visible from the air due to their blue (tarp) roofs.

Comment by SpacecoastFLRenter
2007-12-23 10:27:36

Free market econ works but only if you leave it alone. It is expected that the extremes of any system will increase due to increased randomness or entropy as cash or enery is added to the system (2nd law of thermodynamics?). These massive appreciation/depreciations are going to continue in cycles and any attempt to dampen them will only delay the inevitable. The massive asset inflation from arificially cheap credit is trying to return to the mean (credit crunch, falling house price and no more BF standing in line) but the intervention by any form of private or govt “bailout” will only delay this process. This gives credibility to those who say free market economies don’t work. I am doubtful if our current political sysytem will allow this hands off policy.

Comment by Professor Bear
2007-12-23 11:38:20

“…leave it alone.”

Even Adam Smith said you need a rule of law.

Comment by exeter
2007-12-23 11:52:55

Exactly GS. Without the rule of law we end up with monopolies and serfs. We’re much closer to that than we’ve ever been in our 200+year history.

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Comment by vozworth
2007-12-23 18:59:44

The empire is crumbling and will go down the road of all empires.

“The average age of the world’s greatest civilization has been two hundred years. These nations have progressed through this sequence. From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance, from abundance to complacency; from complacency to apathy, from apathy to dependence, from dependence back into bondage.”

Alexander Tyler circa 1787 re the
fall of the Athenian Republic.
Anonymous | 12.23.07 - 3:20 pm

Comment by bill in Maryland
2007-12-23 19:50:16

The empire is crumbling and will go down the road of all empires.

Since Britain still survives, but not as the empire it once was, it is not really a bad thing if the American empire diminishes. I doube if America will diminish entirely. It will come back, albeit in a libertarian nonmeddling form, as our forefathers meant it to be.

Comment by rms
2007-12-23 14:37:06

“America now faces an economic perfect storm: a weakened financial system, diminished consumer purchasing power, a swooning dollar, and rising inflation.”

Heck of a job, Dubya!

Comment by ACH
2007-12-23 05:03:59

I have noticed that the “reporters” on CNBC (Olick and the like) have developed a certain cynicism and even some skepticism when they hear people say things that clearly don’t jibe with the facts. This is a good thing. I do not extend this complement to Erin Burnett, Maria Bartoroma, and Mr. I-Consistently-Make-Good-Investment-Analyzes Cramer.

Comment by NYCityBoy
2007-12-23 09:09:11

Erin Burnett is a little hosebag shill. She is an embarrassment to the profession of “journalism”, whatever the heck that means any more.

Comment by exeter
2007-12-23 11:47:24

Burnett has to be the most clueless puke out there. I can’t understand how she believe the BS coming out of her own mouth but she is nothing compared to the Great Distortionist Liar Larry Kudlow and his criminal back up man Art Laffer. I hope both of them have a safe place to hide.

You listening Larry?

Comment by ozajh
2007-12-23 09:19:13

How can you create a list like that and not include Mr. Greatest-story-never-told Kudlow?

Comment by SanFranciscoBayAreaGal
2007-12-23 09:47:38

Rick Santelli is my favorite on CNBC. He has been consistently questioning the rah, rahs.

Comment by vmaxer
2007-12-23 05:16:14

I’ve been thinking about this phenomenon, that seem to be happening frequently now, where the FB walks from the mortgage and protects their credit cards and auto loans. Due to the disparity between the rent to buy ratio, that exists in many areas, it makes sense. If your a FB drowning in debt, you need to make more money or free up cash flow. If some is paying $4,000 a month on a mortgage and they could rent for $2,000 a month, letting the house go frees up $2,000 a month for other expenses. If the difference between renting and buying wasn’t so big, there would be much less incentive to let the house go. Add in the fact that many of these people are upside down on the mortgage and put little or no money down, walking away is an even more attractive solution to ending the pain. I think I heard this week that the IRS will now be forgiving the tax consequences of the forgiven debt, thus removing the last hurdle and opening the flood gates. Letting the house go into foreclosure is looking like a smart move for many people. Even if they can make the mortgage payment, but have a miserable life in doing so.

Comment by SDGreg
2007-12-23 06:15:26

This is what I expect to happen in large numbers once people realize that peak prices of 2005 are not coming back any time soon. This has been a relative trickle so far. At some point reality will reach the herd and the stampede to the exits will start in earnest. With the tax forgiveness measure set to expire at the end of 2009, my guess is the stampede will start some time in ‘09 though there will be a steady stream toward the exits will before then.

How many with loans resets in 2010/11 may chose to default well before their loans reset? Or given the proliferation of option ARM’s in this second wave of resets, how many of these loans may reset higher well in advance of their scheduled resets on account of falling values?

Comment by shakes
2007-12-23 14:01:31

I am SOOOO SICK of our politicians interfering with the markets to the point they fail to fix the issues. People make decisions based upon the incentives they are given. If we offer low teaser rates to people and not ensure they can afford to pay them off over the long run then we should not be surprised that a ton of people who could not truly afford to buy a property DID BASED UPON THE INCENTIVES he /she was given. 1 no skin in the game 2. very little out of their pocket relative to the size / quality they get to live in 3. a short history of people making a ‘years salary’ for doing no productive work and just signing on the dotted line. VERY LITTLE RISK with all the INCENTIVE. Many posters have talked about all the incentives that were provided. Today we are trying to stem the foreclosures and the plan is to eliminate the tax burden on those who do foreclose in order to ‘help’ those who got in over their head. The plan ELIMINATES the incentive NOT TO FORECLOSE and it minimizes the lesson learned by those who gambled thus making them MORE WILLING to gamble in the future!! This does exactly the opposite of what they are trying to fix. It is the same idea as ‘price controls’ etc. I FIRMLY believe every politician must pass ECONOMICS 101 before entering political service. We would have a lot less screwed up laws. Also if they would uphold the laws / regulations we already had in place much of the crisis we now face could have easily be avoided!!

Comment by ACH
2007-12-23 05:20:24

I have a question: Does anyone know what went on behind the scenes at CNBC when it came to accurately reporting the credit and mortgage debacle? I bet that was some “office war”. I’d love to be a fly-on-the-wall during that.

Comment by palmetto
2007-12-23 05:39:31

I dunno, Roidy, but there comes a point when the obvious has to be confronted and try as they might, they just can’t ignore the fact that there are problems.

Comment by tcm_guy
2007-12-23 05:45:03

A small builder in Bowling Green, KY has told me that lots and lots of houses in BG where sold with 115% LTVs. I asked him if he could imagine the local RE landscape when ALL LTVs are 80%, max. He said he could not. I was getting vivid images of a cratered lunar landscape, but I decided not to pursue that conversation any further.

Anybody care to guess on the ETA for 20% DP requirements for all buyers?

Got 10% down?

Comment by flatffplan
2007-12-23 06:07:48

the down payments will be “provided” by gov grants - what a mess- the road to serfdom

Comment by polly
2007-12-23 06:32:31

Not soon enough

Comment by polly
2007-12-23 06:07:43

Would someone please tell me when it is that Christmas became the extreme over consumption fest that it has become today? I mean, I know people always bought each other stuff and tried to make their kids happy, but this is just ridiculous, and it is not limited to exchanges of gifts.

Can you tell that I was watching TV yesterday and there was a review of over the top individual holiday displays and the largest store in the country (3x an average Walmart) that is all Christmas stuff. One family said that the extra electricity was about $6000 and they start the new display as soon as Christmas is over.

I’m really curious. Was there a particular decade when things changed?

Comment by txchick57
2007-12-23 06:26:22
Comment by eastcoaster
2007-12-23 06:46:54

I have to admit - I kind of like the blue lights. (My 3 year old son just saw it and said, “That’s beautiful!”)

Comment by Incredulous
2007-12-23 10:34:52

I like blue lights, too. I’ve done all blue trees, and they looked great. When I was a kid, I liked the blue landing lights on airport strips, and the blue flame in the gas floor heater. The blue goes well with a cold–especially snowy–Christmas theme.

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Comment by palmetto
2007-12-23 06:46:26

polly, the media in the US are, for the most part, a bunch of lying sacks. So I think its so-called “reflection” of US citizens is mainly bogus. Yep, you’ve got people here and there who go over the top. Heck, FBs have a high profile but they are what, maybe 10% of the population overall? (even if they did cause 80% of the trouble). But, because of media manipulation, we come to see ourselves much like the media would have us see ourselves. I dunno, when I wuz a pup, my folks wouldn’t allow the “consumerism” in our Christmas. There were gifts, yet. But none of that “I want, I want” was allowed.

Comment by wmbz
2007-12-23 07:00:24
Comment by tcm_guy
2007-12-23 07:25:52

Up until the end of the 19th Century Christmas was not really celebrated with ubiquitous exchanges of gifts. Madison Ave. led the charge for this change, early in the 20th Century.

Comment by palmetto
2007-12-23 08:19:08

“Madison Ave. led the charge for this change, early in the 20th Century.”

Well, after WW2, anyway. At least, that’s when it switched into high gear, along with the teevee.

2007-12-23 08:03:07

I think Stonehenge was built about 10,000 years ago. People get depressed when the days get shorter. They like to eat, drink, um, cuddle… overindulge.

Comment by SpacecoastFLRenter
2007-12-23 09:39:29

Remember what Christmas is really about….that Santa died for your mastercard.

Comment by txchick57
2007-12-23 10:57:45


Comment by FB wants a do over
2007-12-23 10:05:49

Driving home from the store yesterday and within a 10 minute span heard 3 commercials (different companies) pitching “get out of credit card debt” “We’ll stop the fees and interest.” “We’ll stop the calls.” “Considate to one monthly payment”

I picture folks maxing the last of thier cards thinking all they needed to do was call one of these places. Life is good.

Comment by dwkunkel
2007-12-23 15:05:10

My wife and I were waiting in line at Macy’s yesterday while a 40ish woman and her early 20s daughter in front of us were trying to pay for their purchases.

They tried 3 different credit cards that were all denied, which prompted the cashier to ask if they would like to pay cash. This completely foreign concept was not an option for them, so they just left their selections on the counter and split.

Comment by yensoy
2007-12-23 11:59:01

If it makes you any happier, I am seeing more Christmas trees (sponsored by the local fashion/cosmetics store) in Shanghai than I have seen in the US over the past 5 years. I’m also getting used to the incessant and repetitive caroling at the various malls around here. Foreign as it may be, it’s all a carefully orchestrated ploy to lure people into spending their money on redundant cr@p. I’m not sure how successful it is though - although the malls are jam-packed (not unusual for any square foot of space in Shanghai) I don’t see too many people actually buying stuff at most shops.

Comment by spike66
2007-12-23 07:01:49

Manhattan is funny. I live in the W80s on Riverside, and when I walk the dogs, I watch townhouses for sale. Landmarked one on 83rd, emptied out the tenants, to be sold empty, still sitting for more than 2 years. I’m watching 8 others, all prime, all sitting now for years. Late condo conversions, on 81st, 89th and 92, all with new expensive lobbies, largely unsold. New condo towers at 99th (2) and 94th, still trying to sell. Anecdotal, but realtors in NY control the data. This is a residential nabe, maybe not on the radar for foreign buyers. Wishing prices for average 1-beds, no doorman, 750k, plus maintenance, say a low-ball 800 a month. Top coops,with doorman, 1m plus for 1-beds. This is Zabar’s hood, plenty of money here, also lots of renters with long-term stabilized leases. The realtors’ offices on Broadway–Corcoran, Fenwick-Keats, Warburg, etc.–now have more photos and listings in the window than I’ve seen for a few years. Feels like a stand-off, as if the market is waiting for a definitive shift.

Comment by Ria Rhodes
2007-12-23 07:32:11

“This is Zabar’s hood, plenty of money here”

Yeah. Rich NYC. Que up the Dakota scene and put on a Woody Allen soundtrack. How’s Jean Georges latest prix fix? Yada yada.

Upper East, 79th & a couple blocks off York where I lived, the masses charging groceries they couldn’t afford at Food Emporium, or the folks made of money buying buffalo mozz and pancetta at Agata & Valentino and choosing which of the twelve types of display imported olives to buy at Eli’s ( oh! the escalators). The Zabar’s had that hate thing going on - or did, which one died?). The old Zabar’s with the prepared food downstairs and the food equipment upstairs was the real deal. I could only spring for the baked half chicken with a couple of black n whites..but looking was free.

Comment by spike66
2007-12-23 09:21:18

I’m talking West Side here. i’m guessing you’re talking about EAT on Madison–don’t know if it’s still there, i don’t bother with the East Side. Zabar’s is at 80th and Broadway, been there 70plus years. And that’s an old-line Jewish retailer–very price competitive–and the cheapest and best kitchenware in the City.
Sounds like you’ve been out of town a long time.

Comment by Ria Rhodes
2007-12-23 10:35:11

“Sounds like you’ve been out of town a long time.” Yes indeed I left quite awhile ago.

Two of my fav haunts were Barney Greengrass (on Amsterdam) - borscht in a glass and killer Sable and Nova, and Le Pain Quotidien Bakery (locations east and west side). Btw, I love the original Zabar’s.

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Comment by exeter
2007-12-23 12:06:29

I’ve been a few places but never have I seen a store like Zabars. One has to experience it to understand.

Comment by Ria Rhodes
2007-12-23 07:05:57

“did you see this?

Yes, I did and I’d rather have not. Call me a curmudgeon but wasting electricity in this day and age to display ones bad taste is rather pathetic. Btw, I’m always surprised how those year-round Xmas stores stay in business - you know the Xmas stores in towns like Carmel/Solvang,CA. This excess is right up there with those expensive galleries featuring a single artists work of supersaturated scenes of surreal villages and valleys. Anyone for a $5000 Kincaid painting with your blue aluminum holiday tree? I’ll pass and put my dough in retirement investments, or should I? The governments going to save the boomer’s who made bad financial decisions in life, right?

Comment by sm_landlord
2007-12-23 12:44:39

The deer are the best. This gets the sm_landord award for Most Creative:

Comment by spike66
2007-12-23 07:23:40

Taxes Are Reassessed As Housing Prices Drop

Lowering tax revenues for local governments, most of whom are unprepared for the downturn. More of yesterday’s discussion of reduced services/higher taxes as spillover of the burst bubble continues. More reasons not to buy…why anchor yourself to an uncertain tax landscape, and the changes in social/political demographics that will follow. From the NYTimes.

Comment by Professor Bear
2007-12-23 08:52:14

The prospect of reduced tax assessments provides politicians with a motive for supporting bubble-price-support policies (e.g., teaser-freezer, FHA & GSE bailouts, etc).

Comment by spike66
2007-12-23 07:29:35

A love letter from the LATimes to Sheila Bair…the “savior” of the subprimes. Utterly nauseating.,0,5993755.story?coll=la-home-business

Comment by Professor Bear
2007-12-23 07:32:02

Lending rules 2 years late, a few billion dollars short
December 23, 2007

After more than a year of watching the real estate bubble pop and spatter over the economy, the Federal Reserve finally decided to pull the reins in on the mortgage industry.

Under new guidelines set forth last week, borrowers will have to prove they’re making money before they can get a loan. What a radical concept! Lenders will be barred from making loans without first considering whether borrowers have enough money to pay them back. Amazing!

The Fed has finally started telling lenders to restrain themselves and stick to making loans that actually make financial sense.

And get this: Lenders will also have to tell the truth about loans. Under the Fed’s new rules, you can’t advertise ultra-low “teaser rates” for mortgages or issue loan documents for adjustable rates without clearly warning borrowers how high their interest payments might pop.

Why didn’t anyone think of that before?

Gov. Arnold Schwarzenegger and President Bush made some headlines last month by getting lenders to agree to help qualified borrowers – people who have not missed payments – renegotiate the terms of their loans. And they’ve been touting a toll-free consumer help-line – (888) 995-HOPE – which puts troubled homeowners in touch with loan counselors.

But at a town hall meeting last week in Stockton – the epicenter of California’s foreclosure crisis – Schwarzenegger and Treasury Secretary Henry Paulson heard plenty of complaints that the HOPE line doesn’t provide much hope

John Shields, a troubled homeowner that Schwarzenegger had brought along to tout the benefits of the help line, was lukewarm about its effectiveness.

“It took like two months” to get in touch with his lender, Shields said. “We kept calling them over and over and over, trying to get some sort of feedback and some help.”

Shields got a loan modification package, but he hasn’t heard back from the lender. All he can say is he hopes that his “mortgage company will go ahead and be able to work with us.”

Paulson tried to smooth things over by mentioning all the great stuff the Fed was doing, notably its requirement for clearer disclosures on loan documents. “That’s not going to help you today,” Paulson conceded. “You know, that may help your grandchildren or your children.”

Which is a good thing, for our children and grandchildren. But it will do nothing for the people currently going into default. Their train long ago left the station and is now barreling past the “Bridge Out” sign at Gruesome Gulch.

Comment by Professor Bear
2007-12-23 07:36:26

I assume this projection is (implicitly) based on the Goldilocks-catches-a-cold-but-not-the-flu scenario that most of the pack of MSM-quoted economic prognosticators have kept repeating this fall?

Salaries may rise an anemic 3.9% in ‘08
But better employees to get one-time bonus
By Andrea Coombes

December 23, 2007

SAN FRANCISCO – Base salaries are expected to increase about 3.9 percent on average in 2008, matching the average pay increase in 2007, according to a Towers Perrin survey of about 4,000 companies worldwide. Those results match a number of other salary-expectation surveys.

It’s not much when you consider that inflation in October rose at a 3.5 percent annual rate. But more employers now supplement salaries with one-time bonuses and rewards, with more than 90 percent of employers offering such “variable pay” this year, up from 80 percent in 2006, according to an annual survey of about 1,000 large U.S. employers by Lincolnshire, Ill.-based Hewitt Associates, the human resources consulting firm.

Comment by Professor Bear
2007-12-23 07:39:03

Schemers prey on troubled borrowers
December 23, 2007

WASHINGTON – Fraudsters are targeting troubled borrowers facing foreclosure in a scheme that could leave homeowners with even more debt than they otherwise would face, a new online video warns.

In the video that dramatizes a common case of fraud, a homeowner receives an unsolicited offer to help settle mortgage debt but ends up homeless and with battered credit.

Under a common scheme, a con artist will seek out a public notice of foreclosure and approach the potential victim with documents and the promise of sorting out the debt.

“You sign, thinking you are saving your home but you are really giving the con artist the deed to your house,” according to the video called Avoid Fraud, which can be found on the Internet site YouTube at

Comment by Professor Bear
2007-12-23 07:42:08

Cooling trend
December 23, 2007

San Diego housing isn’t as overpriced as it used to be, Global Insight says in its third-quarter report. The latest median value for single-family homes was set at $443,000, deemed 8.4 percent overvalued, compared to $505,900 in the third quarter of 2005, considered 36.3 percent overvalued.

Comment by Professor Bear
2007-12-23 08:02:02

Where do they come up with this BS? For starters, the values shown are inconsistent; if $505,900 is deemed ‘overvalued’ by 36.3 percent, then ‘fair value’ would be $505,900 / 1.363 = $371,167.

8.4 percent overvalued above that level would be $371,167 * 1.084 = $402,345, not very close to $443,000 by my standard of accuracy.

Secondly, just yesterday I checked the median SFR listing price on’s used homes for sale inventory yesterday, and if memory serves, it was something like $504,000 — about 35.8 percent overvalued, assuming $371,167 represents fair value. I hope someone gives San Diego home sellers the memo about how rich their wishing prices are. I am afraid this little article has merely served to sow confusion.

Those who refuse to do arithmetic are doomed to speak nonsense.

- John McCarthy -

Comment by Chip
2007-12-23 07:53:45

Merry Christmas, Ben! Ditto to those posters who celebrate the occasion, and best wishes for a pleasant, safe and healthy holiday season to those who don’t. Am off to Palmetto’s turf for a few days.

Comment by palmetto
2007-12-23 08:14:31

Chip, Merry Christmas to you, too. Enjoy yourself over here, this area needs level-headed decent family folks like yourself.

Comment by exeter
2007-12-23 12:09:24

WTF…. Wheres our invite P? :)

Comment by Professor Bear
2007-12-23 08:17:15

Now that prices are clearly deflating in areas formerly known as ‘a bit frothy,’ does it make any sense whatsoever to put U.S. taxpayers on the hook for guaranteeing $700,000, or even $417,000, mortgage loans (unless you happen to be the lender who is holding the bag on loans backed by falling-knife collateral)?

I see these proposed McMansion loan guarantees as none other than a taxpayer-funded bailout of the lending industry. Columnists like Harney should expend a bit more effort explaining how it helps a homeowner to keep him on the hook indefinitely for an unrepayable $700,000 debt.

Kenneth Harney: Pair of bills a nice holiday present for homeowners
Sunday, December 23, 2007

(12-23) 04:00 PST Washington —

Reversing months of inaction in a single day, the Senate passed two major bills Dec. 14 that could help thousands of homeowners now struggling with unaffordable mortgages or heading for foreclosure.

The long-stalled FHA Modernization Act - which would reduce down payments and raise maximum mortgage amounts for Federal Housing Administration-insured loans - passed the Senate by an overwhelming 93-1 vote. Senators also approved the Mortgage Forgiveness Debt Relief Act, which would remove the controversial tax on “phantom income” when lenders forgive portions of the balances on mortgages of financially stressed homeowners.

Versions of both measures had already passed the House. The differences between the Senate and House bills will need to be resolved by conference committee before being sent to the president for his signature.

Besides eliminating the phantom income tax for three years, the Senate’s debt relief bill also extends the tax deductibility of private and FHA mortgage insurance premiums through 2010. That benefit had been scheduled to expire at the end of this month.

The FHA modernization bill - once the House and Senate agree on a final version - should provide critical help to large numbers of homeowners stuck with subprime mortgages heading for unaffordable payment jumps. Most important, the range of consumers assisted will extend to higher-cost areas of the country - especially California, the Northeast and the Middle Atlantic states.

The Senate bill raises the FHA’s statutory loan amount limits to $417,000 - the same ceiling as Fannie Mae and Freddie Mac. But the House version would tie the limits to median home prices and could authorize FHA-insured loans in excess of $700,000 in expensive markets such as San Francisco.

Comment by watcher
2007-12-23 08:28:56

1929; a walk in the park?

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world’s central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

“Liquidity doesn’t do anything in this situation,” says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

“It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue,” she adds.

Comment by Professor Bear
2007-12-23 08:47:29

I believe the European central bank’s desperation measure may have triggered a magnitude 9.0+ earthquake that will result in a future financial tsunami. Volatility is baked into the cake now.

Fair disclaimer: I am a bear, not a central banker.

Comment by combotechie
2007-12-23 11:25:33

Get to cash.

Comment by Professor Bear
2007-12-23 11:35:39

In which currency, though? I am a bit unsettled to read that the central banks of Europe, Switzerland, England and Canada are teaming up with the Fed’s reliquification efforts. (Have I forgotten to mention any parties to this central banking cartel arrangement?) I would think this kind of deliberate move away from central bank independence would tend to help spread, not contain, the U.S. subprime problem…

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Comment by watcher
2007-12-23 08:33:23

WASHINGTON - After a slow and stumbling start, official Washington is scrambling to try to prevent the unfolding mortgage crisis from pushing the country into recession during an election year. There is a strong feeling, though, that the government will need to do more to avert a financial disaster.

One former Treasury secretary advocates temporary tax cuts and emergency spending on the order of $50 billion to $75 billion. Such action could help the U.S. from slipping into what Lawrence Summers, who served under President Clinton, fears could become the worst downturn since the steep 1981-82 recession.

Comment by Professor Bear
2007-12-23 08:43:33

I am wondering who would put up that $50 bn or $75 bn of bailout money? I am not a Keynesian, and hence I have no grasp of the “money grows on trees” school of economic management.

Comment by brianb
2007-12-23 09:13:34

No one puts it up. It’s just less revenue for the gov’t. The gov’t then borrows whatever the difference is between what it needs and what it gets. It’ll just borrow more.

Comment by Professor Bear
2007-12-23 09:19:13

“It’ll just borrow more.”

That implies that either future generations of taxpayers or current creditors (eventually) put it up. I suppose this observation again belies the fact that I am not a Keynesian.

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Comment by Professor Bear
2007-12-23 08:40:19

I’ve been reflecting on the tsunami metaphor that some posters here are fond of evoking on an occasional basis. It occurs to me that we have already seen the first and second waves of a multi-stage tsunami. Those who are familiar with tsunami damage realize that the greatest damage occurs as a receding wave washes back out to sea.

The water initially left the beach in the 1997-1998 financial crisis period (Thai baht devaluation / Russian debt default / LTCM bailout, etc). The first massive tsunami wave crest was the peaking and subsequent collapse of U.S. tech & telecom stocks in 2000.

The second tsunami wave crest was the 2005 hyperbolic top in U.S. housing prices. The backwash from this second crest led to the virtual collapse of the subprime lending industry since late 2006 ( ) and deflation of U.S. housing prices (defeating the forecasts of the Fed and the NAR) followed by the onset of a credit crunch beginning in August 2007 which has proved unresponsive to reliquification efforts by central bankers.

At this point, the naked swimmers flopping around on the beach are increasingly visible, and it seems dubious whether intervention measures currently underway will afford them much relief from their woes.

One lesson to be learned: Smoothing short-term volatility can amplify the volatility in longer wave lengths of the cycle. This is a lesson that both the Corps of Engineers as well as the Fed should try to digest.

Comment by edgewaterjohn
2007-12-23 08:49:33

The Onion has its year-in-review-issue out. A timeline of 2007 top stories is on the bottom of page 8.

Two items HBBers might like:

September 20 - “Expired Coupon Gains on U.S. Dollar”

October 20 - “California Wildfires Destory Thousands of Second Homes”

Comment by txchick57
2007-12-23 08:59:33

This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.

Comment by OCBear
2007-12-23 09:02:16

Purchases fell to an annual pace of 718,000 from 728,000 in October, according to the median forecast of economists surveyed by Bloomberg News. The 716,000 pace reached in September was the lowest since 1996

Comment by Professor Bear
2007-12-23 09:33:35

American banks
Unhappy new year

Dec 21st 2007
More subprime damage is revealed

HOW big the final bill will be is not clear. But most estimates put the eventual tally for defaults by America’s subprime borrowers at $200 billion-300 billion. Sensibly with such a big sum, banks are taking the pain in instalments. On Thursday December 20th Bear Stearns was the latest Wall Street bank to add to the $40 billion or so in related losses that its peers have admitted to. The bank suffered a write-down of $1.9 billion in the quarter to the end of November on its exposure to subprime-infected debt and a loss of $854m, its first ever in any quarter of its history.

The day before Morgan Stanley had released its own bad news, a whopping $9.4 billion write-down in the latest quarter. This led to Morgan Stanley’s announcement of its first-ever quarterly loss too, in this case of some $4 billion. John Mack, the bank’s chief said the results were “embarrassing” and will forgo his bonus for the year. James Cayne opted for the describing his bank’s performance as “unacceptable”. He and other top executives at Bear Stearns will also go without bonuses. And both bosses look more vulnerable.

Comment by Matt_in_TX
2007-12-23 18:46:17

Luckily the “Subprime Problem” doesn’t include alt-A or prime loan defaults, by definition. Now that the housing bubble has a name that only includes a portion of the effect, it can more easily be contained ;)

Comment by Professor Bear
2007-12-23 09:36:12

Goldman Sachs
Modern Midas

Dec 19th 2007
From The Economist print edition
Bumper profits and a stellar reputation. Time to worry

“IT IS important to be a bit institutionally paranoid, especially when things are going well.” Thus Lloyd Blankfein, chief executive of Goldman Sachs at a conference in November. After the year Goldman has had, Mr Blankfein cannot be far off hearing imaginary voices.

On December 18th the investment bank unveiled full-year results that contrived to be both widely expected and astonishing. Earnings in the fourth quarter stood at $3.2 billion, a 2% rise on the same period in 2006. Even as most of its peers have been dragged down by subprime-related investments, Goldman’s fixed-income business has boomed, thanks in part to a proprietary bet that the value of mortgage-backed securities would fall.

Comment by watcher
2007-12-23 09:55:49

bill gross wants some sugar:

FT: Where do you see US interest rates going?

MR GROSS: That’s a good question. They have to go low enough in order to provide a floor for housing prices. The real problem here in the United States is now one of the property deflation, and we’ve seen that example in Japan in the late ’80s and the 1990s and what it can do for an economy. It can basically produce a very stagnant, if not deflationary, economy for a number of years if you let it unwind. Same thing happened in the Depression.

Bernanke’s a student of both of those particular historical examples and we’re confident, quote-unquote, that he recognises the need to lower interest rates in order to support housing prices on the downside.

What’s the appropriate rate? Well, the Fed is feeling its way along. I have a sense that they should’ve done more than crawl their way along in terms of lowering interest rates. As a matter of fact, I think they raised rates too high. The five and a quarter percent short-term rate was probably inappropriate fper centr the US housing market. It might have been more than appropriate for the global marketplace, but here, in the United States, in terms of housing prices, it couldn’t be supported with the ultimate 7 and 8 and 9 per cent subprime rates that resulted from that.

So, you know, I suspect they have to go down to at least 3 per cent and maybe more. The -

Comment by Professor Bear
2007-12-23 11:30:18

“They have to go low enough in order to provide a floor for housing prices.”

Didn’t Japan drop interest rates to zero in the early 1990s? How’d that work out so far as providing a floor on their housing prices?

Comment by Matt_in_TX
2007-12-23 18:49:46

The problem is, when he says “floor” he really means ceiling.
Or perhaps he has European roots and really means the floor of the “First Floor”.

Comment by Floored in Va Beach
2007-12-23 10:13:18

Had dinner with my friend and his wife last night. Both are educated professionals and she owns a successful small business (she is a vet with 2 practices). He informed me they are currently looking for a house, which almost caused me to fall off the bar stool since they have a nice townhouse now and I read this blog almost daily.

Then they told me the price range: they want to offer 700K for a house appraised at 885K. The house was bought 10 years ago for 200K, totally redone by current owners, and is on ¾ acre with deep water access (a canal off a river) ~2700 SqFt. The current owners are floating 2 mortgages (he is a Dr.) and the house will need structural repairs as it is settling badly. Their plan is to buy it now, live there for 3 to 5 years, and then level and build new.

I am really at a loss as to what I can say to convince them without sounding negative and causing bad feelings. I heard the phrase, “we can build our dream home there” a few times. While I certainly won’t discount someone’s dreams, I don’t want to see them make a financial mistake of purchasing a sinking (literally) asset that will possibly cause them much pain later. I told them to offer 500K tops, hoping that the greed of the current owners will prevent them from making this mistake.

I mentioned some of the things I have read here, and myself believe that one would be insane to buy in the high end right now (for this area, Va Beach, VA), or any end for that matter. It just doesn’t seem to be getting through that I can see wanting a bigger house on the water, right now is just not the time. As an aside, we saw 100% or better increase in housing values in Hampton roads since 2001-02.

What else can I do? The father in law is a successful builder and has some connections with banks and is most likely willing to help them out, but why not rent a place you love if you have to have it now and see what happens.

Comment by SKB
2007-12-23 11:51:23

I think you should just be happy for them. It seems quite obvious that they are in a financial situation that would allow them to overspend and not care.
They already said they will tear it down anyways so they are cool spending 700K for a piece of land.
They are going to get a great deal on the new build so sounds like they are going in comfortable with everything.

What can you do? butt out.

You said “you read this blog everyday” so continue to do so and enjoy.

Comment by San Diego RE Bear
2007-12-23 23:03:44

Point them to this blog and tell them there is a lot of valuable information available if they are willing to spend some time researching it. If you know the history of your area and how the early 90’s and early 80’s downturns affected it you might show them how the last two downturns took years to correct and we are only two years into this one. Remind them it is considered bad financial form to buy at more than three times income. And finally, if none of that works wish them well and enjoy visiting them in their waterfront home. We have a moral obligation to warn people we care about about the housine bubble and the ongoing ramifications, but we cannot do more than express our opinions. Sadly, it is still illegal to tie them up and beat them until they realize how right we are. :D

Comment by Lost in Utah
2007-12-23 10:21:45

Happy holidays to all my HBB friends and Ben. Eat, drink, and be merry, for tomorrow you may be in Utah!

Comment by Sabrina
2007-12-23 10:50:18

The Chicago Tribune has an article on the front page of today’s Business Section called “Bottom Proving Elusive”.,0,3449639.story

It has a bunch of stories from buyers who recently bought because they thought they were getting “deals” (i.e. buying at 2005 prices etc.) Also a bunch of quotes from Chicago area agents and a bunch of economists- who, of course, disagree about whether or not this is the “bottom.”

The agents:

“I seem to be having an end-of-the-year clear-out,” said Chris Grayson, a Glen Ellyn Baird & Warner agent. “I’m not floating my own boat, but I’ve sold five houses in the past two weeks, some listings that have sat there since April. It’s been very unusual.”

Chicago-based Rubloff agent Mario Greco said he returned from a three-week vacation a few weeks ago to find that his staff had sold nine homes, which he described as his busiest December ever. “Is it a sign of a hot spring, pent-up demand releasing, or an end-of-the year rush or all of the above? I think it’s all of the above,” he said.

The expert:

“No, it is not a good time to buy a house,” said Susan Wachter, professor of real estate at the Wharton School of Economics at the University of Pennsylvania, who sees further turbulence in the economy.

“I wouldn’t say never, but I am close to never. Prices are going to decline in the next period, by another 5 percent or more,” she said. “Without a recession, 2009, not 2008, could see the bottom of the market; with a recession, all bets are off.”

Comment by txchick57
2007-12-23 11:08:19

We’ll see how many of those “sold” houses actually close.

Comment by Professor Bear
2007-12-23 11:42:29

“…with a recession, all bets are off.”

Looking ahead
Recession or not, economists glum about 2008
By Robert Gavin
Globe Staff / December 23, 2007

Some economists predict the US economy will slide into recession next year. Others expect the nation to avoid recession, if only barely. A few even think the economy will see solid growth. But for many middle- and lower-income families, the distinction won’t matter.

Whether called a recession or not, the economy seems certain to slow in 2008, pushing unemployment higher and hundreds of thousands of people out of work. Surging energy costs, falling housing prices, and tightening credit will punish consumers, most analysts agree, putting the brakes on spending and undermining the six-year expansion.

“We are in the danger zone,” said Nariman Behravesh, chief economist at Global Insight, a Waltham forecasting firm. “It wouldn’t take very much to push the economy over the edge.”

Comment by Professor Bear
2007-12-23 11:44:15

Economic View
How to Avoid Recession? Let the Fed Work
Published: December 23, 2007

THE economy is teetering on the edge. Many economists, as well as online betting sites, put the risk of recession next year at about 50 percent. Once we get the final numbers, we might even learn that a recession has already begun.

The question on the minds of many in Congress and in the White House is this: What they should be doing now to keep the economy on track? The right answer: absolutely nothing.

Comment by Professor Bear
2007-12-23 11:56:15

First do no harm.

“But just as patients should avoid doctors who recommend radical surgery for every ailment, voters should be wary of politicians eager to treat every economic ill. Sometimes, bed rest and wait-and-see are the best we can do.”

Comment by Professor Bear
2007-12-23 12:00:37

I am elated to see in print today that Professor Mankiw is a fellow fan of McChesney Martin’s timeless advice! Unfortunately it is a wee bit too late at this point to suggest taking away the punch bowl.

‘A weak currency is a problem if it results from investors losing confidence in an economy. The most damaging cases are the episodes of sudden capital flight, as occurred in Mexico in 1994 and several Asian countries in 1997. This outcome is unlikely for the fundamentally sound American economy, but fear of it is one reason that Treasury secretaries maintain public fealty to a strong dollar.

But if a weakened currency comes about because the central bank is trying to stimulate a lackluster economy, the story is very different. In that case, depreciation is not a malady but just what the doctor ordered. A weaker currency makes domestic goods more competitive in world markets, promoting exports and bolstering the economy. The dollar’s falling value is one reason exports of goods and services have grown more than 10 percent in the past year.

The Fed constantly monitors all these developments to ensure that the economy has the stimulus it needs, but not too much. William McChesney Martin, the Fed chairman in the 1950s and 1960s, famously joked that the Fed’s job is “to take away the punch bowl just as the party gets going.”’

Comment by Sammy Schadenfreude
2007-12-23 12:40:18

Doug Casey interview with Presential candidate Dr. Ron Paul. Both of these guys understand the impact of printing presses and runaway spending in debasing the currency.

Comment by waiting_in_la
2007-12-23 19:06:22

Merry Christmas to everyone on the hbb!

Even in Los Angeles, now, the downturn is undeniable. My most bullish of friends on housing are either pessimistic or mum. I saw some foreclosures listed the other day with seriously reduced prices in nice neighborhoods, a few of them were near or over half off peak 2006 prices. These are singular data points, but with all the supply and lack of funds in the system, it is a sign of things to come.

Here’s where we all get patient and let the market come to us. I am positive this market will overshoot on the downside, just as it overshot the upside.

Happy Holidays to everyone and here’s to a great ‘08 on the hbb.

Comment by Professor Bear
2007-12-23 22:42:49

The credit crunch: How did it happen and where do we go from here?
First in a special six-part series on coping with the financial crisis
Sunday, December 23, 2007
By Tim Grant, Pittsburgh Post-Gazette

Comment by Professor Bear
2007-12-23 22:46:08

Experts predict ugly 2008 as housing slump drags on
By J.W. Elphinstone
The Associated Press
Article Last Updated: 12/22/2007 11:35:08 AM MST

(Click photo to enlarge
An auction sign is seen in front of a foreclosed home.)

The head of one of the nation’s largest homebuilders made headlines early this year by bucking his industry peers’ projections of a housing turnaround by spring and instead predicting the market would ‘’suck, all 12 months of the calendar year.”

Boy, did he get it right. The housing market has gone from a ”correction” to a ‘’slump,” and as 2007 comes to a close, there are signs 2008 will get worse.

Experts are predicting an uglier year as inventories of unsold homes grow and a large number of adjustable-rate mortgages reset, sending more homeowners scrambling to make higher payments and pressuring the already shaky credit markets. What worries industry watchers the most, however, is the possibility that the housing troubles will plunge the economy into a recession.

”I think everyone is expecting the other shoe to fall. There’s still some blood to be let,” said Jim Gaines, a research economist at The Real Estate Center at Texas A&M University. ”And historically, a downturn in the housing market has been a leading indicator of a recession.”

Comment by Professor Bear
2007-12-23 22:48:25

MARKETS WEEKAHEAD-Housing fear dulls Christmas cheer

By Natsuko Waki

LONDON, Dec 23 (Reuters) - World markets, weary from coping with the fallout from the credit crunch, will this week start to look ahead for signs of how much further the crisis has to run and U.S. housing will be critical to that judgement.

Data on U.S. mortgages and real estate prices, the epicentre of the whole credit saga, will give markets the latest insight into the depth of a housing downturn and help investors gauge the looming risk of recession stateside.

Comment by Professor Bear
2007-12-23 22:49:48

Housing slump tarnishes a Fed leader’s legacy
Critics say Alan Greenspan could have wielded his regulatory muscle to curb shady tactics by greedy lenders.
By David R. Francis | columnist
from the December 24, 2007 edition

Comment by Professor Bear
2007-12-23 22:53:49


Egg Cracks Differ In Housing, Finance Shells
December 24, 2007; Page C1

It’s now conventional wisdom that a housing bubble has burst. In fact, there were two bubbles, a housing bubble and a financing bubble. Each fueled the other, but they didn’t follow the same course.

Housing peaked in 2005. By early 2006 it was widely recognized the boom was likely over, and by mid-2006 it was beyond question. In June 2006, sales of existing single-family homes were 9% below their year-earlier level, sales of new homes were down 15% and framing lumber prices were down 19%. The Dow Jones Wilshire index of home-building shares had fallen 41% from its July 2005 peak.

Yet throughout 2006, the folks who financed the housing bubble turned up the volume on their party.

Comment by Professor Bear
2007-12-23 22:57:17

Phew! What a year it has been…

US housing crash set to deepen in 2008 as realtors see record drop
Published: Monday, 24 December, 2007, 03:34 AM Doha Time

New york/ Los Angeles: For US homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008.

The housing market collapse has been anything but the “soft landing” that Federal Reserve Bank of San Francisco President Janet Yellen and David Lereah, former chief economist at the National Association of Realtors in Chicago, predicted for real estate at the start of 2007.

Comment by Professor Bear
2007-12-23 23:01:10

Here is some shocking news, given that the high end of the market is supposedly unaffected by the current slump…

Dec 23, 2007 5:46 pm US/Pacific
Housing Slump Forces Prestige Realtor To Close

LOS ANGELES (CBS) ― In what may be a harrowing sign of the times, a prominent independent Long Beach realty firm is closing its doors because of a deep slump in the local housing economy, it was reported Sunday.

Robert Weil Associates was known as a boutique firm that catered to high-end house transactions in such pricey Long Beach neighborhoods as Bixby Knolls and Naples. It is shuttering its doors after 37 years.

“It’s very disappointing,” said Pam Spoo, a 23-year veteran of the
company, in an interview with the Long Beach Press-telegram. “We were a boutique, stand-alone company.

“I would really call it the premiere real estate company on Long
Beach,” she said.

Comment by Professor Bear
2007-12-23 23:04:12

Remember the Y2K overreaction
Commentary: Fed’s subprime rescue could trigger a bear market
By Bill Donoghue, MarketWatch
Last update: 9:03 p.m. EST Dec. 23, 2007

SEATTLE (MarketWatch) — The Federal Reserve’s answer to subprime woes may not be the panacea that some would hope for. Remember when the Federal Reserve Board flooded the banking system with liquidity in the hope of assuaging Y2K fears?

That action ignited a bear market. Some banks receiving all this unanticipated liquidity chose to lend money to their best borrowers, who pursued “easy” profits in the high-tech, high-potential world of the Internet.

Comment by Professor Bear
2007-12-23 23:05:44

Debt Poets Society:
Credit Crisis Goes From Bad to Verse
By Dana Cimilluca
Word Count: 892

The squalid factories of England’s Industrial Revolution inspired Charles Dickens to write “Hard Times.” The Great Depression spawned John Steinbeck’s “The Grapes of Wrath.” This winter, the global credit crisis has unleashed its own burst of creativity.

If only subprime art were sublime. Most of it is low-grade spoof, such as a “Green Eggs and Ham” knockoff called “Broker Joe.”

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