Bits Bucket And Craigslist Finds For January 12, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Value of Britain’s homes tops £4 trillion for first time. The combined price tag of the 22 million homes in the country has more than trebled in the past decade. The sale value of all homes is nearly three times as great as the £1.4 trillion gross domestic product (GDP) of Britain, and more than half of the US GDP, which is £7.4 trillion.
‘Britain ia home to perhaps the world’s most overextended borrowers. British consumers owe $2.7 trillion on credit cards, mortgages, and other consumer loans, more than the value of all the goods and services produced by the economy in a year.’
‘The Nationwide Building Society reported that home prices nationwide fell 0.5 percent in December after dropping 0.8 percent in November. The situation is worse in London, according to data from Rightmove. They show that in the month ending in mid-December, house prices fell by by 6.8 percent in London, which translates to an average decline of $56,000.’
‘Many parts of space-starved Central London are still wildly expensive. According to Knight Frank, some exclusive properties in the Central London neighborhoods of Chelsea and Knightsbridge still fetch as much as $6,000 per square foot — nearly twice what top-end properties are getting in New York.’
I live in the UK in the cold North of England. Nothing is moving, houses near me have been on the market for months. Looking at the stats house prices havn’t moved upwards since 2005, in fact if anything they have fallen. A house at the other end of the street was bought by a flipper from a lady in trouble for £183,000 in September, he put it back on the market two weeks later after a paint job for £219,995 and there it sits. He hasn’t do the rest of the desperate sellers any favours as the details of the price he paid are now on the net. In the case of one DS they have already dropped there asking price from £270,000 to £230,000 with no intrest (house has been on the market for 18 months) only to be undercut by the flipper.
Frankie it sounds like the housing scenario in your back yard is identical to ours on the West Coast of the USA. Sure makes the world seem smaller! Keep us up to date with your interesting posts here.
We were in London in February ‘03. We stopped to look at some real estate postings. These insane prices didn’t just creep out of nowhere.
I visited England in 2005, and was duly impressed that the flavor of real estate investing religious fundamentalism was even more extreme in England than in So Cal. People looked at me like I was daft for not immediately grasping the obvious financial wisdom of holding buy-to-let mortgages on multiple houses.
Hey I figured it out.Manifest destiny is back.God wants everyone to own real estate and get rich.Party on.
The difference was - that until only a couple of months ago, a mortgage was actually cheaper than renting in England, so the buy vs rent equation still made sense, whereas where we are in CA - at least for the last 5 years or so that has not been the case, it was cheaper to rent.
We’ve got friends who were posted to London for work for two years. Paid in dollars, dealing with the real estate there.
They can’t wait to come home. Oh, a lot of the volunteer coaches and referees in my daughter’s soccer league are Brits. I expect to see more of them in NYC.
Cost will be a factor in the share of global financial business that takes place in NYC, London, Singapore, etc. NYC is more like London than any part of the U.S. And they are both overpriced!
When I worked in NYC in the early 80s the IB I worked for wanted me to go London to learn foreign exchange trading. Besides the fact that The City was 10 years behind Wall Street in automation (we already had “Bloomberg machines” in NY) , at that time a “salad” in The City meant a hunk of iceberg lettuce with a dollop of mayonnaise, steak meant a gristle-laden slab of overcooked mystery meat, and all the pubs had been turned into these trendy wine bars that served shockingly bad white wine which was just as “too cold” as the beer was too warm. But, I digress.
The real nightmare was the lack of affordable housing. I finally found a room in Kensington for around $1000, more than twice what I was paying in Chelsea, and gave a down payment, but by the time I got back to NY I was thoroughly unenamored with the idea of living that kind of life, and refused to go, which now that I think back on it, was the beginning of the end of my inchoate Wall Street career.
With the pound worth about $2 a 6.8% drop does not sound like a loss of 23,000 pounds. That would mean that the average price in London was around 294,000 pounds and I know that is wrong.
Actually WAman, that doesn’t sound too far off the mark, depending on what parts of London you’re talking about.
Southeast London actually had a big hike in prices back in the mid-90’s when the DLR (Docklands Light Railway) finally made it to places like Lewisham and Greenwich.
Places that had been under 100K suddenly appeared on the market with an extra ‘1′ in front of the asking price - the colossal 6-bed, 4-floor unconverted Edwardian villa, next to me when I still lived in London, went from 85k (oh, if only I’d had the money at the time….) to a staggering $200K in about 18 months, and last time I heard changed hands for something near half a million (Pounds, no less).
Friends bought a semi-detached in Lee (S.E London, near Greenwich) early last year for 275K - so its not out of the bounds of possibility for houses to go for much more in posher areas of London (S.E London has historically been ‘working class’, and not very affluent).
I sold my late mother’s garden flat in Putney (S.W London, by the river Thames) last december for over 350K, which was the subject of a bidding war, and sold literally the same week it went on the market. Knowing what I did at the time about the US market (thank you HBB for the ‘edumacation’
), I was surprised at the fervour - but wasn’t going to turn the money down, if people were willing to throw it at me.
Putney is a nice area, but not as swanky as places like Chelsea, Kensington/Knightsbridge or to the north of London, in places like Hampstead and Islington - these places have been the bastion of the more affluent for decades, so prices will be commensurately higher.
And, it is true, they aren’t making any more land in London - there’s a ‘Green Belt’ all around London, where new building is difficult if not impossible, (which effectively stops London from spreading all over South East England wholesale).
It’s been breached in a few places over the last decade or so, but its still safe to say that in London, you either build upwards, on reclaimed industrial land, or smaller….
Yeah, I can totally believe a median of 294K in London. For how much longer…who knows?
I’m online with a few UK mates, and they’re completely in denial about the UK bubble. They have difficulty in connecting the mess this side of the pond with anything to do with them.
‘What has the US Sub-Prime mess got to do with us?’ they keep on saying.
I’ve tried to explain how interconnected the global financial system is, but its hard figuring out the connections between affordability in Los Angeles with selling a maisonette in Wembley.
Ah, well, I wish them the best….
As every soccer hooligan/flat-letter knows, because the U.S. has a large military and no National Health Care™, the U.S. housing market is not a valid model for the U.K. housing market.
I lived in London for a while. Sure, you can get places cheaper outside the M25, or small places cheap with a bedroom window smack against the A4, etc etc., but 294k GBP doesn’t sound too wide of the mark for anything average and reasonably close to the center. Prices gone mad, yeh?
“Value of Britain’s homes tops £4 trillion for first time.”
Equals $8 trillion for only 60 million people in UK in 2007, which is almost exactly 20% of U.S. population. Thus, value of housing per capita in U.K. Is very close to 2 X U.S. value/pop. (US value=~$20-21 trillion).
Anybody still want to buy British pounds, or Canadian dollars?
Yes, but they aren’t making any more land in Britain.
Re: people talking about the dollar vs. the pound. My wife and I go every summer to visit family in the U.K. but we just can’t afford it this year (especially because we are saving *gasp* for a downpayment). Funny story though: my wife teaches at a private school and last summer the Nordstrom family (yes, THAT family) casually told her they were skipping their trip to England that year because they couldn’t afford it. It sure gave us pause.
My wife worked at that same school. Riley. We should compare notes about the view from the summit
Withholding of Data…
http://www.nytimes.com/2008/01/12/business/12lend.html?_r=2&ref=business&oref=slogin&oref=slogin
I had no idea until I read this article that “pride of ownership” in real estate ads was a code-phrase for “you can get a loan from us if you mow your lawn and your neighbor doesn’t”! Amazing.
‘The New Century Financial Corporation, for instance, waived its normal credit rules if home buyers put down large down payments, had substantial savings or demonstrated “pride of ownership.” The once-highflying lender, based in Irvine, Calif., filed for bankruptcy last year.
William J. McKay, who was the chief credit officer at New Century, said the company usually made exceptions so homeowners could borrow more money than they qualified for under its rules. In most cases, the decisions raised borrowers’ credit limits by 15 percent, he said.
New Century measured pride of ownership in part by how well buyers maintained their homes relative to their neighbors, Mr. McKay said, adding that this usually was not enough on its own to qualify a borrower for an exception.
Investment banks often bought the exception loans, sometimes at a discount, and packaged them into securities. Deutsche Bank, for example, underwrote securities backed by $1.5 billion of New Century loans in 2006 that included a “substantial” portion of exceptions, according to the prospectus, which lists “pride of ownership” among the reasons the loans were made.’
“Reports commissioned by the banks raised red flags about high-risk loans known as exceptions, which failed to meet even the lax credit standards of subprime mortgage companies and the Wall Street firms. But the banks did not disclose the details of these reports to credit-rating agencies or investors.”
Wait a second, these “exceptions” didn’t meet the lax standards that they’d established, i.e. the borrower was breathing? I wonder how many family pets got home loans?
The awful pileup on I-4 the other day involved an extended family traveling in two vans to a construction site. Their lawyer refuses to acknowledge whether or not they are legal.
If the state accidentally loses control of a fire, and the resulting smoke causes a crash, can you sue the state if you are an illegal?
I can’t even believe anyone would start a “controlled burn” when the area was covered by pea soup fog to begin with. I-4 majorly sucks, even without fog or smoke.
As to whether or not illegals can sue the state, I don’t know the answer to that, but I sure expect them to try.
Of course you can. You can sue ICE even if you are “undocumented” for raiding places where they work, as currently being attempted by the likes of ACLU for “uncalled for tactics”. This is happening now in Danbury, CT and the meat plant Swift raided last year in the mid-west. However I think in this case if the state is negligent in setting “controlled fire” that led to a bunch of people being killed in accidents as a result, then state should pay up no matter what.
I have a bunch of lawyer friends, so I occasionally follow cases like this. It’s just another one of those, “you didn’t know you couldn’t see?” situations. I understand it’s a complicated issue, and I certainly am not passing judgment - because I wasn’t there, and one of those dudes if fighting for his life - but, if I went to another country illegally, drove through blinding smoke, crashed, and ended up in a hospital, I’d be thankful for being saved.
Instead they lawyer up.
And yes, this has everything to do with the housing bubble. Apparently they’re still grinding away in Central FL, even though we’re well past the “R” word and the bubble’s peak.
This is another one of the bubble’s unintended consequences (not that this is new for anyone who’s lived in Florida for some time). Either way, it’s annoying.
I don’t know the details of this particular situation, but isn’t negligence is still negligence? I think it would still be murder to walk up to an “illegal” person and shoot them. If I rob someone at gunpoint while they are double-parked, may I be excused?
Suppose the U.S. economy gets so bad I am literally having trouble feeding my family. Suppose Canada’s economy is booming like crazy, and everyone there, including the government, seems to look the other way about U.S. citizens crossing the border and getting absurdly high-paying (compared to the U.S.) jobs. Would I continue to hold the laws of Canada in such high regard that I would watch everyone I know getting rich while my family starved?
It’s too easy to blame these people for a situation created by the government (theirs and ours) and everyone else who was benefitting from their presence before housing went south.
In regards specifically to having the right to sue, I guess my point is that if they don’t have that right, the impunity could make a bad situation even worse; employers would feel they could do basically anything and get off with nothing more than a fine.
Hey, I know there are some surf fans on here. This Mavericks contest is on a webcast today. Looks great.
http://www.myspace.com/maverickssurf
Big Pats fan here - looking forward to a great game tonight.
Really? I got a hand groomed JT for Brady, right next to the one reserved for Gary Watts.
Brady’s okay. He was so cute when they gave him an SUV for winning the 2002 Superbowl MVP. “My car? No, it’s not my car, it’s a team car!” he exclaimed, in the spirit of 9/11 unity. And I don’t doubt his skill. That second pass to Randy Moss was such a machine-perfect copy of the first one that Moss dropped, I thought it was the instant replay.
No, it’s spy-gate Bellichick I don’t like. And Dan Snyder, owner of the Redskins. ugh.
Spy-gate was a gift that keeps giving. Thank you Manjudas.
I hope you realise that videotaping games( and yes, even the defensive signals) is legal, and most teams do it or have done it. It was only a rule infraction for doing it on the sidelines that was blown out of proportion by the Belechick hating media.
25 years from now this generation of sports players will be known as the 16-0 season with an asterisk in front of it HGH / steroid taking bunch. Not sure Brady deserves to be lumped in here. Also suspect the financial analysts will still be analyzing and talking about the housing crash of 2007-20xx
Every game Snyder’s Redskins lose is a good game. He read Steinbrenner’s playbook but forgot to read the chapter that says a city will put up with an a**hole only if he’s a winning a**hole.
Go jags.
Big Pats fan here too. I’m pretty confident it’ll end the same way it always does when the pretty-boy Del Rio comes to Foxboro in the post season.
I think pretty boy brady is going be stareing at the ground a lot tonight.Teams are figureing out how to beat the pats.Was moss arrested again?
jackonsville will lose.
not sure the pats can beat dungy again though.
16 other teams weren’t able to get to Brady much and Belechick has had 2 weeks to prepare. If they bring the rush, Brady will kill them with the short timing pass and screen. If they bring every one up to defend that, Moss and co. will have a big night.
No, Moss was not arrested. Isn’t Fred taylor still hurt?
Thanks!!
I have surfed in Hawaii, California and Australia. If I could hang out all day, that is what I would do. Talk about enjoyment.
I had a good friend who took the 9 year plan at San Diego State so he could surf everyday. Happiest guy I know!
That’s why I do what I do. I could care less about fancy houses and cars, etc. I’d prefer to be a river and rock rat. Working doesn’t fit into this. I’m going to surf camp again this summer.
Where at? (surf camp)
Mexico.
The guys that surf Mavericks have the biggest balls in the world.
What is the name of the surfer that found it, again? He started surfing there as a freshman in high school. Surfed it on his own for 10+ years before it was “discovered.” That guy had balls when he was 14.
Jeff Clark. There’s a good movie about all that, “Riding Giants.” Highly recommended.
“That’s why I do what I do. I could care less about fancy houses and cars, etc. I’d prefer to be a river and rock rat. Working doesn’t fit into this. I’m going to surf camp again this summer”
My idea of ‘leisure’ vacations is doing a 9 -day Sierra club mid-level outings Backpack trip, which are part boot camp forced marches, hauling a 50 ib backpack up 3000 ft on a 30% slope , all offtrail , huffing and puffing 12-15 miles per day, encountering occassional mt blizzards, getting sprained ankles, swimming and diving in 10,000+ ft 40% glacier- fed lakes and rushing mt rivulets, ect. Did most of this action travel stuff back in 90’s but the spirit of wild extreme adventure travel never leaves U. Can’t stand cruises or soft packaged tour crap-prefer a week wandering the SE desert jumping sandstone boulders and canyon narrows than a week touring Tokyo or Rome.
NOAA predicting buoy 12 at 15ft……not epic Mavericks, but should be fun to watch. Now December 4th was epic…..
http://www.surfline.com/video/video_player/video_player.cfm?id=12653
Hey Tex, did you check out what they were doing out at Cortez Banks a few days back? Insane……
http://www.billabongxxl.com/main_page/index.html
No, but I’ll look. That is one freaky place
I have been to Cortez Banks once on an old boat. I started to wonder why boats do not have cycle meters on the hull. The boat moaned so much going out there that I always kept a eye on the inflatable dingy and you have a new apprication for the term “every man for himself!”
I’ve been a few times. Unbelievable fishing if you can find a window of good weather. The place is a trip though. It must be a little freaky for the guys that surf it ’cause there is no dry land in sight. It’s a hundred miles straight off the So Cal coast, a seamount that almost breaks the surface - therefore, almost an island but not quite.
A friend of mine say there was a new record set off the coast of CA at Sea to Cortez bank?
Have not seen the video as of yet.
Sacramento update: A family of knife catchers!
Members of a SF/bay area Filipino family all gathered together in April 2006 and bought 7 houses from a Sacramento builder on a “close out special”. Little did they know it was they who would become “closed out?” The sale prices were 10-15% below the latest comps, and all reportedly received $50-100,000 cash back out of the 100% loans (thank you Option One!). They were such happy campers with each purchase. They had a little jingle in their jeans and nice big homes that were certainly worth more than they paid for them.
Nine months later, public records show 3 of the 7 houses are in default. I expect the rest to go down soon. The sale prices were $525,000 to $710,000. Market values, 9 months later = $325,000 to $490,000! Even though they used Owner Occupied loans, they immediately rented the houses to tenants and had $3,000/mon negative cash flows! So now, the neighborhood will have another round of foreclosures, driving the prices down further. It is becoming a vicious cycle. Option One will lose $1,500,000 on $4,400,000 of loans over the next 12 months.
I never heard the term “knife-catcher” until I started reading this blog. It seemed descriptive, but I had some doubts it was a real phenomenon. It exists and it is brutal. These idiots jumping into the housing bubble are not looking both ways before they cross the street. The are nice hard working families caught up in their own greed, deception and the enticing business practices of the Real Estate Industrial Complex. It was the loan broker that was intsrumental in making these deals happen and it appears she was a master crook.
The sale prices were 10-15% below the latest comps, and all reportedly received $50-100,000 cash back out of the 100% loans (thank you Option One!).
And now, that is all TAX FREE income…ever feel like a fool for working a job a saving money?
Recent legislation made the amount lost on SHORT SALES free of tax. I don’t think a ‘cash back’ purchase qualifies as a short sale.
If the IRS wants to pursue this I think they would find all of this money is taxable, and when they get through the justice department might even want to talk to these nice people about fraud.
The FBI and the IRS have been making house calls in the neighborhood lately. The conversations related to me by a guy who lives in the neighborhood and rents one of the houses indicates the both federal agencies are building cases against the mortgage broker and the real estate agent, plus the buyers are going get audited for filing false income tax returns. Believe me, this is one group of Filipino Fraudsters who wish they had never heard of Sacramento real estate. Even with the cash back, they will owe the IRS income taxes, penalties, interest and possibly do some time as tenants in a very exclusive gated community. And that does not even mention the effects on their credit records. Some of these families have children ready for college and you can be sure they will not qualify for any educational financing from Sallie Mae. Crime does not pay. A lot of people thought mortgage fraud was easy and no one was looking. Well, there is a distinct paper trail with notorized signatures. The FBI just takes a year or so to follow up and they like to tow an IRS agent along with them just for good measure.
Internal Recreationvehicle Sales.
The income tax is not a just tax nor does it apply to most people. If the government does not have a right to confiscate your property without a trial by jury (due process and all), what privilege government granted/licensed activity were you performing that was the subject of the tax? Income is the manner of determining the amount of the tax, but the tax is on exercising privilege of holding federal government positions or working in US territories (not union states).
Sadly, the IRS attempts to enforce it illegally.
“all reportedly received $50-100,000 cash back out of the 100% loans”
So, you have a family of scam artists. And I would not describe 50-100k as “a little jingle”. I think that’s real money.
And by what stretch of the imagination do you describe said folks as “nice hardworking families”?? You’ve just sketched the outlines of a criminal conspiracy.
“..a little jingle..” = irony. These people will be broke and must be going thru hell waiting for the axe to fall. “..nice hardworking families…” = regular people just like you and me. They have jobs, some in the public sector (fed, state, municipal, etc,). They have never committed a crime in their lives. They are the kind of people who make great neighbors and seem like regular people. In many ways, they were led down the path of “everyone is doing it, so it must be O.K.”. Don’t get me wrong, I am all for letting the anvil of justice squash these bugs, but there is/was something seriously wrong with the process, that they could so easily be cajoled into committing felonies. It started with Wall Street.
Jingle,
sorry, didn’t mean to jump all over you, but people like this are not great neighbors. That they have public sector jobs makes their actions even more egregious. They are not uneducated, and they are familiar with government rules.
As for “they have never committed a crime in their lives”…I’d amend that to “they have never been caught committing a crime”. Nobody just gets into fraudulent cash backs of 50-100k from jump street. When the IRS starts looking more closely at their bank accounts and tax returns, a little previous gamesmanship may surface. You can’t cheat an honest man….and no adult, especially gov’t employees, decides to participate in fraud just because some loan broker floats an idea. Innocents lead down the garden path?…no freaking way.
They calculated their odds of getting caught, figured they were low, and went for it. With luck, they’ll do jail time.
So if they had 100% funding, and got back, say $100k, and rented the house for a negative $3k/mo for 9 mos, aren’t they still about $73k ahead when the lender forecloses?
Like you said, it sounds like Option One is the one taking it in the a$$.
7 houses? Are they insane? They totally deserve what they are going to get. Why in the world every one suddenly decided that they want to be trump(?) in 1 day?
Our Economic Crisis Must Become the Top Political Issue in 2008 - By Danny Schechter
http://www.alternet.org/story/73001/
And, like refugees of that whirlwind of destruction, the subprime victims will simply pick up stakes and make new lives elsewhere: “People will move out to areas like Alabama and Idaho, where there are jobs and there is growth and there is not enough housing. So they will build more and that will add to economic growth.”
This naive silver-lining thinking is riddled with illusions. Avinash Persaud, chairman of Capital Intelligence, an investment advisory firm in London, calls the housing bust a catastrophe. “American consumer boom was financed with real-estate debt: Americans have spent 130 percent of their income over the past five years. “They borrowed money against their property,” he said.
“The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history,” says Thomas Jordan, a Swiss central bank governor.
By the time government acts, it’s usually too late to have the desired affect. And is government expected to bail out all the screwed banks, FBs, credit card junkies, home builders, mortgage brokers, real estate agents, retail chains, and so forth that profited mightily from the government’s exceptionally low interest rates and lax regulation?
Anyone have any idea what inning we are in now?
“Anyone have any idea what inning we are in now?”
I think I just saw Roger Clemens shooting up with HGH in the clubhouse so he could take the mound for the top of the 3rd. His a$$ has really gotten big.
Lol, that stuff cracks me up. And like Liberace, there he is filing suit for libel. Everyone knows you were doping, Roger.
Oh, come on. Everyone knows that it was vitamen B12 because Roger himself said so.
I take lots of vitamens but the thought of injecting them with a friggin needle would never enter my mind.
That’s almost as believble as catching your kid with drugs in his room and him saying “I was holding them for a friend.”
Getting Vitamin B-12 injections used to be quite chic, when I lived in NYC in the Seventies and Eighties. You would go out clubbing all night, then go to your doctor’s office for a B-12 shot, then go to work. There is even a scene in a movie (”Performance”?) where a woman (Anita Pallenberg?) is giving herself a shot in the hip, and says when somebody walks in on her, “A little vitamin B-12 never hurt anyone!”
“Anyone have any idea what inning we are in now?”
I’d say maybe the second inning. People are beginning to realize they’re in a game and they think they’re a little behind. Most don’t yet understand they’re going to lose and they’re going to lose big.
We’ve seen enough to know where this is headed, but there’s a lot we haven’t yet seen. So far, the more we know, the worse it gets.
“Anyone have any idea what inning we are in now?”
First inning Rodger walked in two runs and hit a batter and bases are loaded with no outs, looks like he doesn’t have his best stuff tonight. The manager is on the phone to the bullpen to warm up anybody who can get the ball over the plate and get a out. As Vin Scully would say “I would think that the mound at Dodger Stadium right now is the loneliest place in the world” . Still a lot of baseball to play.
I vote that we have only 1 out in the 1st inning. The subprime catastrophe is going to affect the fixed mortgage prime market too. Those selling set the comps for the rest of the market. And I truly believe that a lot of companies employ Enron accounting principles when doing their Profit and Loss statements. The govt is going to be collecting a heck of a lot less in taxes while the govt spending is increasing. It don’t look good.
Who wants to bet that the game just peters out and never finishes. Might just be the end of baseball as we know it.
We are in the early innings still.
I have been making offers on homes her in SD that are about 40% lower than the asking price.
There was a 3-1 condo listed for 279K and the realtor got the bank to accept my 178K cash offer. The property had sold in 2006 for $315,000. The bank has about 280K in it for a serious haircut.
I was set for a quick flip until I inspected it for the first time and I also had my mortgage buddy determine that this property was only worth about $215,000…and that is this month, next month it will be worth less.
I had the realtor tell the bank I will offer them 160k now because the numbers don’t work and the safety net is REALLY thin at 178k. They are holding an open house this weekend. It remains to be seen if gets sold this weekend and if not, we’ll see what the bank says about my offer.
Can you imagine what the banker is thinking when an investor is turning down a property at a $100,000 haircut?
In an illiquid market, you’re playing with fire trying to be a flipper.
“NEW YORK (Fortune) — Guess who’s helping Bank of America pay for its $4.1 billion purchase of Countrywide Financial? Answer: The taxpayers of the United States.
That’s because Bank of America (BAC, Fortune 500), which is solidly profitable, will be able to use some of Countrywide’s losses to offset its own taxable income. ”
http://money.cnn.com/2008/01/11/news/companies/sloan_countrywide.fortune/index.htm?postversion=2008011115
That’s okay. Knifecatching BOA will need all the help it can get in digesting Countrywide. Everyone else will benifit due to BOA actions in injecting their liquidity into the morass.
It really doesn’t matter all that much; BOA’s tax breaks will be snuffed out by their enormous market losses.
Praise to the knifecatchers and their sacrifices of liquidity into the system.
BofA will just be H&R block replay except that the losses will be of many magnitudes larger. Remember that the more money BofA loses the bigger will be the bonuses/golden parachutes for management.
Change BOA’s name to DOA.
The dumbest merger of the tech bubble was AOL-Time Warner. When they were having their press conference to announce why it was such a great merger, Gerald Levin stood up and said that their combined company was all about subscribers. They had millions of AOL, cable, and magazine subscribers. These were captive customers whos were sending a payment every month and had the opportunity to sell them lots of new stuff. Three years later “AOL” was dropped from the company name and it was decided that the AOL part had zero value; and there was never any synergies from cross-selling.
Fast forward to 2008, the stupidest financial merger (so far), CFC-BAC. What does BAC say about the merger. Countrywide is the largest mortgage servicer in the country. We want these customers because they are stable (captive) and we get the opportunity to sell them other banking products.
Now, remember, the merger isn’t final for another two or three quarters. If Countrywide ends up going into the toilet between now and then, BoA might back out. Besides, all BoA wants is the servicing part of the business.
Countrywide might be a good shorting opportunity (cheap lotto tickets).
Read FT posts below on why CFC is too-big-to-fail before you get too short-happy.
Merger was not so dumb for the AOL guys who sold at the top.
ITEM: House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) on Friday asked President Bush to meet with them to discuss an economic stimulus package after he returns from a Middle East trip. The Democratic leaders expressed their concern over the “deteriorating state of the economy” and said they would urge Bush to work with the congressional majority to jointly fight off a potential recession.
it’s a setup- so when it gets voted down it was the dems as the savior machine and gop as Bad Daddy
Good point — this is a variation on a common political ploy.
1) Propose an outlandish policy which you falsely claim would save the world from all its problems but which you also know your opponent will veto.
2) When your opponent vetos the measure, claim it is your opponent’s fault that all the world’s problems are not solved.
Go D-ratic Senators! Go HC!!!
“Go D-ratic Senators! Go HC!!!”
Is this the best you’ve got?
“they would urge Bush to work with the congressional majority to jointly fight off a potential recession.”
This is rich. The cumulative effects of the Clinton/Bush eras…off-shoring the manufacturing base, outsourcing jobs, massive deficit spending, wars financed with Enron-style off-the-books accounting,
an army of 20-30 million illegals creating a huge, untaxed, black market economy, stagnant wages, non-existent personal savings, a collapsing housing market, underfunded public pensions…and the list goes on and on.
And now the dems and repubs are going to stand together on the beach and hold off the tsumami. Makes a pretty picture.
And now the dems and repubs are going to stand together on the beach and hold off the tsumami. Makes a pretty picture.
Sure does… when does the ‘Oh S%#t’ moment arrive wehn they realize it’s begger than the both of them?
“Sure does… when does the ‘Oh S%#t’ moment arrive wehn they realize it’s begger than the both of them? “
Actually I sensed a tinge of fear in Paulson’s voice this past week. The administraton certainly knew what was going on, but the money being made by their benefactors prevented any hope of throttling the debt balloon. Ever been around a failing business and watch the employees make-off with everything they can once they realise that the business is beyond the salvage point?
“Ever been around a failing business and watch the employees make-off with everything they can…”
Thanks for reminding me of the news stories about the keepsakes the Clintons took along when they vacated the WH. One would almost get the impression they doubted their chances of ever returning…
I will say it again:
Bush is the GREATEST president we have ever had in creating UNDERGROUND JOBS.
All the 1099, cash only, Independent contractor, commission only jobs” are incredible on Crigslist and even the New York Times.
And Worse all the “INTERN” jobs that require you to have some job experience..or even a wireless laptop and a blackberry …. for an INTERN job …….. geez
“…non-existent personal savings”
Does this effect how people will be able to “qualify” for a mortgage ;-)…or do houses have to become “affordable” first…then it will take less money to become “qualified”… or do you think that there is just going to be more “bitter” renters…
“Paulson conceded that U.S. economic growth “is slowing down rather materially,” but insisted that he still thought it would keep growing rather than fall into recession…”
if consumers are 70% of the economy, what are they gonna stimulate?
The main reason any halabaloo is even coming from the mouths of the Treasury Secretary is because the equities markets have begun to take a beating as the earnings discount season of discontent is underway…as I recall, when the DJIA was hitting all time highs as the housing bubble popped the catchphrase was “containment”.. now the catchphrase is “Stimulus” and ” Slowing materially” .
on the Federal Reserve front, Bernanke, in a complete 360 degree move, has abandoned the obfuscating nature of policy delivery and come right out and stated that rate reductions are on the way. Why? oh yeah, Rates are sky high and must come down? (if this were actually correct Financials would not be borowing at 9-11% on debentures to support failing capital structures)…
Two very important turning points in my opinion, Paulson failing to convince anyone that the Super-whatever-BS-money-churn idea was gonna solve some problems… then, “We are about to throw money at stuff and see what happens” approach. And the FED delivering straight-faced rate cuts on the way, inflation be damned..
Must the US lower the cost of borrowing and begin the printing of money to convince people that inflation is real and working to support the current values of Ficticious Capital?
This is very dangerous as the liquidity trap is set to go off. Those who may think the “shock and awe” approach to the current flatline in the economy is gonna do any good need only to look inside themselves and ask one question… What has happened to our nation after the platform entities have off-shored most industrial capacity?
Not only is supply side delivery ready for a breakdown, but pull through demand is stumbling blindly forward in any attempt to salvage what little remains of the dry powder.
buckle-up folks..hard landing manifesting on all fronts, nobody is immune from this one.
i was watching some talking heads on t.v. yesterday, and one of them were screaming that there was no inflation right now and that the fed needs to bring down the interest rate to 1 or 1.50 % so that wall street could be happy and get things moving again. now the only conclusion i could get from this is that they think a whole lot of people still qualify to borrow large sums of money. my opinion is that no matter how low they drop it, that still will not work. there is too much debt out there that wont get paid back. anybody and everybody who was going to go down the road of destruction already went! does anyone know why wall street thinks that low borrowing costs really matter at this point?
Black-Scholes,
this works right up until Counter-Party insolvency means something.
Which gets at the reason why price-discovery avoidance is recently such a paramount policy priority.
Chinese rescue…
http://www.ft.com/cms/s/0/c6eb81e0-c083-11dc-b0b7-0000779fd2ac.html
Well, this is how we do it. Get those foreign sources of capital to make some US investments in a big way and then everything goes into the crapper. Just like Japan back in the day. More billions up in smoke, as Ben would say.
Sheesh, I would have to say that China and the Saudis must be the ultimate knife catchers.
“Sheesh, I would have to say that China and the Saudis must be the ultimate knife catchers.”
How will those parties feel about playing that role? Might the Saudis let their good ‘ol boyz loose, again?
wow
“That involved a complex security that converts into Citi shares with a generous 11 per cent coupon.
I have a friend that bought an AIG aa bond that pays 9%
how is that possible ?
You know, there was a long period when the United States had a trade deficit but a current account surplus, due to the net earnings on U.S. investments overseas vs. foreign investments here. No longer. America has spent itself to serfdom.
What happens when all the Primary Dealers at the Fed are foreign owned?
“Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
(Paul Warburg, drafter of the Federal Reserve Act)
Little events are what I rely on to really show me what is happening in the real world. I have said time and again that I don’t live in the real world. I live on a little slice of make believe, amongst some of the biggest dreamers in the world and I seldom leave this island except for work.
Yesterday was one such time when I had to leave the island for work. After meeting with some clients I was speaking to a co-worker. Last year this co-worker told me I was crazy not to buy. Rent is, drum roll please, “throwing your money away”. What a change between last year and yesterday. Her mood was glum. All she could talk about was how expensive everything is. It is difficult to afford a home and gas and food. Her Con-Ed bill last month was $700. It was a chilly month but mothra-frogger, that is a lot of dough. I tried not to be too direct but I asked if she knew other people in the same predicament. She said that things were bad.
All might be good in New York City (it really isn’t) but it sounds like the real world is not having such an easy time. These moments of reality inform me but they also scare me. It sounds like things are moving very fast. The sheep put nothing away for this bad time and they are getting scared.
From Beantown,
1. Invited a friend over to watch the game tonight. He can’t come b/c had to get rid of his car in order to make the mortgage payments. I’ll be going there.
2. The state has a program that allows people to get assistance with their heating bills. The requirement is that your income can’t be more than $41k for a family of 4. The US median income is $48k.
thanks hugo chavez
Make the minimum level just a skosh below actual stats. Nice work idiot congress /senate. Just throw out a bone that is just a “fixed” mirage.
Clean house in the WH and congress/senate. and Corps.
Heating assistance is not based on median income. It is based uppon Federal Poverty Level.
$41k is 2 times Federal Poverty Level for a household of 4 - referred to as 200% FPL. For 1 person it would be $20420, for 2 $27K, for 3 $34K+….
The median household income is $48200. The median household has 2.69 people. That is 298% of Federal Poverty Level.
Doubt that woman would qualify unless her income was a lot lower than I would think it.
Different in different states. Some cap assistance at 150% FPL. And some, like here, are out of money for assistance.
Was the $700 for gas and electric both? How big a house does she have? Sounds like a lot.
Must have been a big christmas tree she was lighting.
It was the lights on her huge christmas tree.
It will end with;
“Once I built a railroad, made it run, made it race against time….”
G W Bush, the man who made Hoover look good.
Right Ed, with Gore or Kerry we would’ve been a lot better off.
Yes I can definitively say that with Gore or Kerry we would have been a whole lot better. At this point, after 7 years of the worst President in history, for some one to say there is no difference is just willfully naive.
Nope, the next president will be the Hoover of our time.
Could be. People don’t realize how much the policies of Coolidge led to the Great Depression.
Coolidge, Ronald Reagan’s favorite President.
Her Con-Ed bill last month was $700.
Holy Cow! Our bill last month (G&E) was $200, and it was very cold! This is for a 3000 sq ft house.
The Northeast uses heating oil - which is very expensive. The West uses natural gas - not expensive at all.
Natural gas is only cheap by comparison. In 1980 I was paying $2 /1000 cubic feet (no additional fees), now I pay $9.75 / 1000 cubic feet, but with all the new fees added in, last month’s bill worked out to $13.56/ 1000 cubic feet. About 678% of the price 28 years ago.
Ummm, that’s more than my annual bill in my rental, AND I run two a/c’s to cool it off in summer, AND I cook a lot, a hell of a lot.
I can’t even imagine what she is doing with a $700 monthly tab!
That does sound crazy. I am in Pennsylvania, and I rent a 2 story 2 bed, 1 bath house and my annual natural gas bill is pretty close to $700. The house has been completely remodeled with new insulation, siding and new gas furnace, but still it is tough to picture that big of a difference unless the house has no insulation, they are using Heating Oil and she keeps the house at 80 degrees.
A few years ago I was banished to the hinterlands of n.w. Illinois. Drafty farmhouse. Oil furnace. Filled the tank for $350……Ran that out in 2 weeks with the upstairs registers (but for the bathroom) closed.
Decided to run it twice a day: to take the chill off in the morning, and briefly before my husband came home from work, then an hour or two in the evenings. Wore numerous layers indoors, visited a lot, looked forward to trips to the grocery store. Ran a space heater in a tiny room if I chose to read for a couple of hours.
Could not believe anyone would put up with that….not to mention the $350/mo electric bills for the a/c and dehumidifer in summer. To the disappointment of family much stronger - or more obstinate - than I, I moved back to Oregon post haste. $700 oil bill? You bet I believe it.
The NYTImes does a long piece on NY RE. Reality is a tough concept for the Times, so it’s still sort-of upbeat. Sort of.
http://www.nytimes.com/2008/01/13/realestate/13cov.html?_r=1&oref=slogin
“He predicts that by the end of 2008 employees at the top will be hurt the most: those whose total compensation of salaries and bonuses is more than $1 million could see cuts by 40 to 50 percent; those in the $500,000 to $1 million range could see cuts of about 20 percent; and those with pay of less than $500,000 could see 10 percent cuts.”
BOO HOO.
Anyone who tells you NYC is immune to the housing collapse is a fool or liar or both. Just ask them about 1987.
You don’t know what you’re talking about. Have you even been to New York City. It’s amazing how many opinions are floating out there by people that don’t know their subject matter.
Hahaha. The apartment is clean. We have a huge pot of spaghetti sauce perking. We’ll see you and your wife at 5:30 tonight. Plan to eat a lot.
My favorite part:
“We changed our guidelines in response to shifts in the real estate market, including oversupplies in Florida, Las Vegas, Arizona and other condo markets outside of New York City,” he wrote in an e-mail message. “Our mortgage purchase guidelines are national in scope.”
But… I thought all real estate was local…
I guess this is obvious, but the people in DC who are selling out America don’t give a damn about you, and only care their own job and their career. I know many career employees in the Commerce, State, OMB and USAID departments, as well as a security analyst at FNM and a lawyer specializing in CDOs.
What’s amazing to me is if I subtly breach the subject of debt, China, and how we are selling parts of America one piece at a time, they have nothing to say. They really don’t care. All they want is an interesting job that will help their career. I’ll talk briefly about some of the interesting of ideas Ron Paul has. Some will ask, ‘Who’s Ron Paul?’ Unbelievable.
Yesterday’s article on the the US possibly loosing it’s AAA rating was a Ron Paul moment. The article and the report focus on pensions healthcare and social security. To paraphrase RP, what about the war? What about applying $1tr to our long term problems….
http://www.ft.com/cms/s/0/fcc631cc-bfe6-11dc-8052-0000779fd2ac.html?nclick_check=1
(In defense of the article, it does mention security, but focuses on the other aspects)
I reckon I know more people at State than you and I think your idea that people there do not care about the U.S. is, to be mild, wrong. There is a good chance they may not know sh!t about economics, but the problem is not lack of caring, I would guess it is too much information.
AMTRAK DISCOUNTING AUTOTRAIN
I got this email last week, but I’m lazy and didn’t read it until now. Amtrak is offering Autotrain fares of $68 one way. I have NEVER gotten an email of this sort, even though I’ve been on Amtrak email for years.
I am seeing snowbirds here in Gainesville, but I guess in general there must be less travel to Florida for Amtrak to be offering “special” fares for all dates through March 31 (if you book by Jan 21).
This is NOT good for Florida!
I know one couple who always wintered in their place in FL didn’t go this year because of health reasons. Another went to AZ every year, but not this one. No real reason, just decided not to go. You’re going to see more and more elderly with places in FL putting them on the market as it gets to hard to travel with all their health problems. Can’t help the economy.
That says something for two reasons:
It was just reported that Amtrak’s ridership hit a five year high - so people are riding the rails - just not to FLA. And, the time of year - cutting fares to FL in the winter of all times!
One Night In South Carolina…
http://www.lewrockwell.com/orig4/kauzlarich5.html
Ron Paul has obviously pissed somebody off in the media, and bad. He’s doing pretty well for someone with a total media blackout on his head. Lots of Ron Paul posters here in G’ville. (Just an observation–I’m an Obama supporter myself.)
Excellent - thanks.
Anyone who supports John Mcain should watch the video online and see his snide remark about some people (Ron Paul) wanting to trade with terrorists, and then Ron Paul’s response where he mentions that actually the US has traded with both Saddam and Osama. The video shows John Mcain with a doubting, incredulous smile, as if Ron Paul is just making it all up.
You’d think McCain would know better when there are pictures: http://www.thewashingtonnote.com/archives/001723.php (Rumsfeld and Hussein, back in the Reagan administration)
Too bad Paul didn’t bring up trading with Iran, too. Was Paul referring to Halliburton’s post-Gulf War dealings with Hussein (with Cheney as CEO, natch)?: http://www.truthout.org/docs_01/02.01E.Cheney.Hussein.htm
There are a lot of folks who need their heads washed in Cape Town. Apropos the mentioning of South Africa yesterday. Seemingly insatiable gusto everywhere seems to go into the putting up of housing (super luxury kind only), in a city where no white person ever walks (unless they are tourists). There’s the electric fence on top of the 10 foot fence, plus the security guards. Well, FOREIGNERS will buy there, of course. Like, e.g. the British, as soon as the upcoming soccer worldcup creates the right mood. The stage is set by the SUV driving, nail polished, skirt swinging, self importance exuding RE crowd. Why do they look the same all over the world?
And an observation on the side, what is it with those young couples who “buy” houses just like that, just because they spend a couple of weeks per year in a location? Is this some kind of virus?
I am reading more and more comments like this on the intra-net…
Many experts are now predicting that home prices will dip 30% by the end of 2008. That means that nearly 20 million homeowners will be ‘upside-down,’ that is, they will owe more on their mortgage than the current value of the house. (Imagine owing $400,000 on a home that is currently worth $325,000!) 40% of all homeowners in the US will be upside-down by the end of next year. This is a grave systemic problem that will have widespread implications. Experts already know that when mortgage holders have ‘negative equity’ they are much more inclined to put their keys in the mailbox and skip town. Hence, the name for this increasingly common practice ‘jingle mail.’ Secretary of the Treasury Henry Paulson is desperately trying to put together a national ‘rate freeze’ to avoid, what could be, the most devastating surge of foreclosures the world has ever seen. Paulson’s rate freeze does not offer ‘New Hope’ as promised but, rather, a lifetime of servitude paying off an asset of ever-decreasing value. Underwater homeowners are better off taking the hit to their credit and letting the bank repo the house. Let the bank worry about it. They created this mess.
it does not matter if americans are upside down on their homes
nobody ever loses their job in this economic freight train of an economy or get sick or divorced or relocated etc etc
party on they will just rent it out and wait for the market to come back in time
A 30% price dip would turn a 400K home into a 280K home. -120K how long does it take to save 120K? 10years? 20years? never?
Jingle mail and the midnight dash thats what banks have to look forward to for many years now.
don’t 35%+ own free and clear ?
And many more live where homes have not increased at all in the past five years. There are basically several states that are going to be hit real bad. CA, FL, OH, MI and probably a few smaller places here and there.
Even where homes haven’t appreciated many were suckered into refi’s that obliterated their equity. This delightful map shows that the real scary stuff is currently restricted to CA, NV, AZ, CO, IL, IN, MI, OH, TX, AK, TN, GA, FL, NC, VA, NJ, CT, and MA. http://matthewyglesias.theatlantic.com/archives/2008/01/the_housing_issue.php
I can testify that AL will get it too. I’m sure many more delightful surprises await us.
“…(Imagine owing $400,000 on a home that is currently worth $325,000!) 40% of all homeowners in the US will be upside-down by the end of next year.”
Imagine being “upside down” & they have a HELOC & no savings…& x1 of their jobs is real estate related.
Here’s a blurb from Barron’s Online:
Bill Gross: I’ll start with the economy. It’s important to distinguish between the U.S. economy and the global economy; the U.S. economy is much worse, and is nearing an inflection point. We’re looking at slow growth, and maybe, in a quarter or two, negative growth. Risk markets are at risk, and without the ability to pump up consumption through asset inflation, we’re going to have a difficult time in 2008 and beyond. For years the economy’s growth has been predicated on asset inflation — stocks in the 1990s, then housing. There are no large, classic asset categories left to inflate, and as some assets deflate — namely housing — credit contracts. Economic growth will be below zero or mildly above it for a long time, and nothing like what we’ve grown used to in the past 10 to 15 years. Get used to anemic growth or a mild recession in terms of the economy, job creation and wealth creation. It’s not a favorable forecast.
“Economic growth will be below zero or mildly above it for a long time, and nothing like what we’ve grown used to in the past 10 to 15 years.”
In aggregate, won’t stagnation have the same detrimental long term effects in a consumer economy as an out and out crash? It’s been “grow or die” to max - every expectation is for limitless growth. Stagnation will smash everything connected to the consumer - which is pretty much everything at this point.
“For years the economy’s growth has been predicated on asset inflation…There are no large, classic asset categories left to inflate…”
So we have an economy that defines “growth” as asset inflation…nothing so old-fashioned as actually producing anything.
As for inflation candidates…well, there’s ag products, precious metals, healthcare insurance, and of course, energy.
nothing so old-fashioned as actually producing anything.
Making stuff? That is sooooo 3rd world. Why make anything as long as we can borrow foreign money using inflated assets as collateral?
The sad thing is that this is what our fearless leaders actually believe.
nothing so old-fashioned as actually producing anything.
or actually setting money aside from your income….
“There are no large, classic asset categories left to inflate”
Come on, where’s your faith in the American can-do spirit? We can inflate any asset class. I’ll start a list of prospects:
1) Collectable Elvis and John Wayne Plates
2) Beanie Babies
3) U.S. Mint Hand-painted corvette commemorative one-dollar coins
4) scrap metals bound for China
Others?
We took some iron to snitzer steel last week and got 100.00/ ton for prepared iron and 1.60/lb for clean radiators.Got 800.00 for the pickup and trailer load.I think they are shipping this stuff to china.It is loaded on rails 1st and then bound for the bay area I think.
And one more blurb from the Barron’s article I posted above:
Zulauf: The world economy is slowing, and the U.S. has the biggest problem. You have underestimated in the U.S. how much asset-price changes impact gross domestic product. It is underestimated on the upside as well as the downside. Home values probably are five to six times the size of GDP, and if home prices rise by 10%, that creates new assets and borrowing power equal to 50% of GDP. Asset prices have a dramatic multiplier effect on the economy, something that has worked extremely well for a long time and now is reversing. Home prices are down around 10% on average, and there may be another 15% to 20% to go.
The excesses in the U.S. aren’t as big as they were in Japan, but the same process is at work. First, you have an event that surprises the markets, which think it will end quickly. When that doesn’t happen, households and financial institutions become more cautious. In Stage 3, the corporate and household sectors begin to repair their balance sheets. At the end, the government gets involved, usually through fiscal help. The U.S. is between Stages 2 and 3. Monetary policy — cutting interest rates — won’t be as effective as it was on the way up, when asset prices were rising. In 2008 and ‘09, the Fed may be pushing on a string. They will cut rates and the markets will rally, but over time they’ll realize it isn’t enough. Economic growth will be on surprisingly low. Whether the economy technically is in recession I can’t say.
As Krugman points out, monetary policy mostly works through housing prices: http://krugman.blogs.nytimes.com/2008/01/11/worries-about-the-fed-a-wonkish-post/ Until the bubble is deflated, they can’t do much, although if they can convince the market rates will remain low indefinitely, rent/own equivalence will happen at a higher price and the bubble will not fully deflate.
–
Credit squeeze is spreading out
Merrill Lynch Top Ten:
…
5) For the consumer, it’s all about home prices
6) Home prices are in a freefall
7) Consumers hanging on by using their credit cards
…
“Credit squeeze” will squeeze the beejesus out of the America’s Consumed, easily doped by propaganda, that directly account for some 70% and indirectly 80% of the GDP.
The debt-binge party is over and the hangover lies straight ahead. Fed abused its powers to the hilt to get us here and now it is impotent to do anything good. But, that wouldn’t stop it from doing whole lot of bad.
Recession has begun and depression lies in the waiting. Three years of credit crisis that began last year will leave the US economy in a pickle. 2010 will find the US in deep depression.
Jas
No way we fall into a depression - a nasty recession, oh yeah that was a certainty with all of the toxic loans out there.
“No way we fall into a depression”
Yeah, there are no similarities between today and ‘29.
Plenty of similarities, but the nature of the economy and markets is vastly different than it was in the late 1920s. History does rhyme, but it seldom repeats. I do not believe that a “Greater Depression” is inevitable, although I do believe that it is distinctly possible given sufficient bad luck and stupid moves by governments.
I agree that Jas Jain’s “Greater Depression” scenario is not inevitable, but I have to question on what grounds you claim “the nature of the economy and markets is vastly different than it was in the late 1920s”?
Some top dog academic economists recently weighed in on this question of whether “this time it is different.” They generally disagree with your opinion, and they also give reasons.
Economics focus
Same as it ever was
Jan 10th 2008
From The Economist print edition
What do earlier banking crises reveal about America’s travails today?
http://economist.com/finance/displaystory.cfm?story_id=10496807
Relatively speaking, the first and second world are more tightly coupled, and much much richer than they were in the 1920s. The standard of living of a poor person in the U.S. today is better than almost anyone but the very richest enjoyed in the 1920s. Therefore the population in general can take a much bigger financial hit and still not starve or go without clothing, let alone television and cell phones. The closer coupling is of a much larger world economy which is much more diverse than the U.S. was in the 1920s, and diversity, tend to support resilience. So I’m postulating that the impact will be spread over a larger, more resilient economy, which will better withstand the blows.
Of course, I can’t prove this, because that would involve predicting the future. It may turn out that a large, diverse, global economy is actually easier to tip over than a relatively un-integrated national economy. But we’ve never seen exactly this situation before, so there is still reason to be optimistic about a less-than-worst-case outcome IMHO. And then there’s coincidence (or luck). Everything that *can* go wrong doesn’t *always* go wrong at the same time, so we *could* get lucky.
For example, if widespread crop failures due to another “Dust Bowl” don’t coincide with the upcoming recession, food will not be as much of a problem as it was in the 1930s. Of course, something even worse could happen, but who can predict that with any certainty?
Yeah, no Depression.
Just finished the book “The Worst Hard Times” and it seemed to me that about every three pages something was written that sounded strangely familiar.
Good Read.
WBBR interviewing Christopher Thornburg Friday afternoon. T-Burg stated 20% national median decline and a greater decline in out of control areas.
Just a note…. Bloomberg radio interviews seem more frank and succinct on Fridays. People want to bail out of NY at the end of the week? Whatever… just an observation.
http://www.economist.com/finance/displaystory.cfm?story_id=10498907
This is an awesome (near-) contemporaneous indicator (see chart w/ article).
The Economist’s informal R-word index is also sounding alarms. Our gauge counts how many stories in the Washington Post and the New York Times use the word “recession” in a quarter. This simple formula pinpointed the start of recession in 1981 and 1990 and 2001. In the past few years the R-word index has been extremely low. It began to rise in the second half of 2007 and, measured at a quarterly rate, has soared in early 2008 (see chart). Although the number of stories is still lower than before previous recessions, the recent jump—if sustained for a quarter—is similar to that which preceded the 2001 downturn.
One has to wonder, though, which is cause and which is effect. If enough people believe that a recession is happening, their behavior will create the result. Many trends are self-reinforcing, e.g. the housing bubble. The fact that this indicator seems to lead the event lends some credence to this.
Not that I am not already convinced that recession is either imminent or already in progress, but psychology affects the economy as well, and feeds energy into the oscillation at a minimum.
It’s quite fascinating to watch this happen in real time with all of the great input from this blog.
“If enough people believe that a recession is happening, their behavior will create the result.”
This is why you will find a great reluctance among top economic policymakers to ever admit the economy may be nearing the brink of a recession — never mind how many times the ‘R’ word appears in print in leading newspapers!
“Many trends are self-reinforcing, e.g. the housing bubble.”
I believe this behavioral feedback is a key reason that CBs around the world are beginning to seriously question the Greenspan doctrine of only acknowledging bubbles after they pop.
Agreed.
And Greenspan’s occasional jawboning about “irrational exuberance” pretty clearly didn’t help much if at all, so maybe, just maybe, the CBs will do a better job next time. We’ll see.
Here is the Government Account Office presentation about the state of the economy and govt fiscal health, as of Jan 9, 2008. David Walker, Comptroller of the US Govt, tells it like it is, well worth skimming. Be sure to have an airline barf bag or trash can handy, makes the housing collapse look like small potatoes. It’s a pdf file.
http://gao.gov/cghome/d08417cg.pdf
Walker has been speaking publicly about the disaster we find ourselves in for a while. He’s a model of what a public servant should be…
Question for any econogeeks reading this: Does the concept of ‘economies of scale’ apply to firms which obtain a market survival advantage by growing ‘too-big-to-fail’?
I suppose that strictly speaking, CFC no longer survives. Instead, we now have Bank of Americawide Foreclosures.
Insight: Increasing pressure on the biggest banks
By Gillian Tett
Published: January 10 2008 16:35 | Last updated: January 10 2008 16:35
…
Meanwhile, another issue rattling investors is a spate of rumours that Countrywide, the US mortgage lender, is about to go bankrupt.
Unsurprisingly, the company itself denies this. And I, for one, believe it. Irrespective of the health (or otherwise) of Countrywide’s core business, the single biggest reason to expect the lender to remain in business is the presence of the Federal Home Loan Banking system.
As I pointed out a few weeks ago, the once-obscure state-backed FHLB system has furtively provided a crucial lifeline for US mortgage lenders in recent months, pumping in some $750bn in loans last year. And Countrywide has been a particularly eager recipient of this public largesse: by September last year, it had received $50bn of loans (and I would guess the current figure is much bigger.)
This is staggering stuff, given that the FHLB never used to lend more than a total of $150bn in any single year.
http://www.ft.com/cms/s/0/a22652a8-bf99-11dc-8052-0000779fd2ac.html
I can’t find the refs, but I looked into this and the “750B last year” is not correct. The *total outstanding* loans in 2007 were 750B, not the difference between 2006 and 2007. Of course this makes CFC’s 50B line even more egregious.
Damn cartoon people on Fox Saturday morning were basically saying that 70bn is nothing and it won’t fix anything, so don’t be afraid of all the government foreclosure fixes and stimulous packages and whatever being discussed.
Sure, it is a drop in the bucket and won’t fix much. But the idea that the new president can just float in and toss 70bn at a problem like that isn’t real money really annoyed me.
That is over 4 times larger than NASA’s entire budget.
Here’s one for Karl
http://www.dallasnews.com/sharedcontent/dws/classifieds/news/homecenter/realestate/stories/011108dnbusrecol.25b79c2.html
I hope Gillian Tett is working on a book about the role of the FHLB system in the U.S. housing bubble. If he is not, he should be.
Insight: A vital safety valve for US lenders
By Gillian Tett
Published: December 20 2007 18:36 | Last updated: December 20 2007 18:36
Why exactly did Northern Rock collapse? That question has prompted endless handwringing in the UK, as the political implications of this troubled saga continue to grow.
Over in the US, some policymakers are also furtively mulling over this issue – but in reverse. For what people in the US are trying to understand is why the Northern Rock saga has not been repeated all over the Land of the Free in recent months.
After all, the US has plenty of lenders who (like Northern Rock) carve a business by using mortgage collateral to raise finance in the markets.
Yet, when the mortgage securitisation markets froze this summer, the US did not see a string of embarassing failures – even though mortgage lenders such as Countrywide were flashing red on regulators’ screens.
Why? Some US bankers like to attribute this difference to superior treasury skills. Some might also point out that the country has a better system of retail depositor insurance than the UK. And, of course, the US Federal Reserve took a more active and soothing stance than the Bank of England during the early autumn.
However, I suspect the real reason for the contrast lies in an issue which is almost never publicly discussed: the presence of the Federal Home Loan Bank system.
http://www.ft.com/cms/s/13c04ba2-af29-11dc-880f-0000779fd2ac.html
Between the GSE’s and FHLB, there is quite a bit of “implicit” federal guarantee out there. Hundreds of $billions? I sure would hate to see those chickens come home to roost.
Local busybodies are pushing for downpayment assisstance for new cop hires, and while they’re at it, why not nurses, teachers etc. But there are a lot of nice newer 3/2 places for rent at about 1200. Why can’t the new hires rent? What am I missing here?
teachers and cops are closer to God than you
-gov employee unions are much scarrier than AL Kada
“teachers and cops are closer to God than you”
Teachers brainwash the next generation of slaves and cops protect the masters from the slaves - hence, they are glorified. As members of the lower class, the teachers and cops revel in their newfound glory.
>>Local busybodies are pushing for downpayment assisstance for new cop hires
government bennies paid for by taxpayers, who themselves receive no such benefit.
Like some medieval lords, the modern lords take from the people and give to themselves. Time for… Robin Hood!
The benefit the taxpayers receive are the protection and education of the citizens.
What am I missing here?
That its much, much better to work for the government than the private sector. Wages are competitive (lots of cops, teachers, firefighters and other gov’t employees live in my neighborhood), pensions are still offered, they still get 3-4% annual raise, etc.
Wages are competitive …
Not in many places. NYC starts new police officers at $25-28,000. Pretty much the norm and rural areas are usually less than that coming in around $20-25K (and some are even lower.)
Wrong - that’s the pay for recruits. As soon as they graduate from the Academy, they get a raise.
“Start receiving full pay and benefits from your first day of recruit training ($25,100 per annum). Upon the completion of the Police Academy (six months), your annual salary increases to $32,700. Salaries will continue to increase every year and upon completion of 5½ years of service, base salary will increase to $59,588. In addition to these base salaries, there is overtime earning, holiday pay, night differential and uniform allowance.”
That’s why you need to become a NYS Trooper…
http://www.troopers.state.ny.us/Employment/Trooper_Employment/Salary_and_Benefits/
$25k? ha!
“Wages are competitive (…), pensions are still offered, they still get 3-4% annual raise, etc.”
Not for long. It is simply not possible for governments to keep this up while the private economy is eliminating pensions, healthcare, automatic COLAs, etc.
Around here, firefighters retire at age 50 with pensions equal to 100% of their last year’s income including overtime. And they can get another job without losing their pension income. Pretty sweet, speaking as someone over age 50 who works eighty hours per week.
Not for long. It is simply not possible for governments to keep this up while the private economy is eliminating pensions, healthcare, automatic COLAs, etc.
True, as tax bases degrade, gov’t will have to scale back, at least at the municipal level.
Also, you have a “medical problem”, stress, bad back, knee and get it all tax free!
Ask any fireman, cop etc. they all get a medical pass on retirement taxes.
Wages aren’t competitive. The government monopolizes services and pays workers more than they would earn doing similar work in the private sector. In fact, once the work has been taken over by the government there is not similar work, because monopolies spawn inefficiencies that aren’t tolerated in the private sector.
Compare the speed of movement of a USPS employee and a UPS employee. Compare the suitability for their job and the efficiency or purpose of a police investigative team and a private investigator. Compare city firefighters and contracted mercenary firefighters. Or, why are private math and reading learning centers such a growth business?
Speaking of being a former federal government employee. I must say that the civilian side is much, much better. I get better health benefits, better pay, better dental, better vision (which was non-existant for the gov’t). I even have comparable retirement (no pension here buddy, it was all TSP (aka gov’t 401k)). My company treats me way better (meaning sometimes my company even pays for working lunches and it’s Christmas party). No, the only way I will go back and work for the gov’t is if there is absolutely no job anywhere in the US that I can’t find.
That doesn’t mention having to miss the opportunity to do other’s peoples jobs for them because they are lazy and realize that they can’t get fired.
Part of the story was, we’re offering the best cop pay in the state FWIW. But recruits complain about housing cost. What’s wrong with renting until they see if they even like it here. Save up the down. Oh hell no, it’s assumed you can’t save on your own, just in a 401k and in a house. As bad as whole-life insurance.
http://www.burlingtonfreepress.com/apps/pbcs.dll/section?Category=BUSINESS
Just a few weeks ago, the Free Press was running article about price increases in Burlington, Vermont
My theory that one of the signs of increasingly cash strapped people is the number of dents and broken headlights. Lot more broken 1 eyed cars “smack.”
A lot of opprutunitys are showing up also. One of my hobbies is collecting: Ebay UK in a year looks good. Action houses that deal in high end estates are starting to look good. What normally would have been kept by the heirs is getting sold for cash.
Guitars: I cant believe people bought guitars as art. Or boomers wanting to pretend they were rock n’ rollers. There was a bubble in guitar prices. Some bought and stored them expecting to them to go up in price. They are known as “investment” guitars.
So how is that going now? I have a friend who told me his guitars are worth hundreds of thousands. Old Les Pauls, Paisley Telecaster etc. It did sound like the prices were outrageous but I thought that was because a few famous collectors were keeping the prices up.
No, people like your friend did. Working musicans can’t affort those prices.
In broken English, one woman told Clinton how she wasn’t making money as a broker anymore.
“I have no income at all,” she said. “So how will I survive?”
Choking up with emotion, the woman said, “In my neighborhood, there are brand-new homes, but the value is nothing. I’m glad you are here so I can tell you, because you’re going to be the president, I know.”
A man shouted through an opening in the wall that his wife was illegal.
“No woman is illegal,” Clinton said, to cheers.
Summing it up at the end, Clinton said, “We’ve only talked to a few people, but each of them talk about some part of the problem we are confronting. This is a problem that is only going to get worse if we don’t address it.”
Clinton said unscrupulous lending leads to bad mortgages, which lead to foreclosures, which lead to people with nowhere to go and vacant neighborhoods that can go rapidly downhill.
http://www.lvrj.com/news/13702902.html
http://rabbit-hole-journey.blogspot.com/2007/11/campaign-contributors-of-media-anointed.html
How ironic, then, that Hillary’s top financial supporters are unscrupulous lenders.
Great link, Sammy. I really wish we could do something about campaign finance. It’s such an obvious problem (but I guess without an obvious fix). How can we expect our elected officials to resist corporate interests if the officials can’t be elected without corporate support?
Remember yesterday there was an article about Cleveland’s mayor suing mortgage companies using the nuisance law. We they had a spot on local tv and it’s like I said yesterday, they’re suing because of the boarded up, vacant, rat infested houses throughout the area. The nuisance is because they have to eventually come in an clean up these messes. I’d look for more towns to do the same thing.
Central Pacific expects to hit due to subprime loan crisis
HONOLULU (AP) - Central Pacific Bank says it will set aside $32 million to $34 million during the fourth quarter to cover potential loan losses due to the subprime crisis.
The state’s fourth-largest financial institution says it’s Hawaii loan lending operations are healthy.
But the bank says a number of residential housing projects it financed in California are weak.
New York probes Wall St. banks over suprime data: report
Sat Jan 12, 2008 12:41pm EST
…
EXCEPTION LOANS
Industry officials say the so-called exception loans make up anywhere from 25 percent to 80 percent of the $1 trillion subprime mortgage market among portfolios they had seen, the Times said.
The banks also failed to disclose how many exception loans were backing the securities they sold, with underwriters using such words as “significant” or “substantial,” securities law requires banks to disclose all pertinent facts about securities they underwrite, the report said.
Blumenthal said the disclosures in the banks’ securities filings appeared to be “overbroad, useless reminders of risks,” the Times said.
“They can’t be disregarded as a potential defense,” the newspaper quoted him as saying. “But a company that knows in effect that the disclosure is deceptive or misleading can’t be shielded from accountability under many circumstances.”
New York state law would allow for criminal as well as civil charges, the Times said.
Cuomo declined to comment, but the Times said he had subpoenaed Wall Street banks including Lehman Brothers and Deutsche Bank, as well as major credit-rating companies Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. Mortgage consultants including Clayton Holdings in Connecticut and the Bohan Group, based in San Francisco, were also subpoenaed.
Officials at Wall Street banks and the American Securitization Forum declined to comment, the Times said, while credit-rating firms would not say they had been subpoenaed, but that they were generally not provided due diligence reports even when they asked for them.
http://www.reuters.com/article/ousiv/idUSN1233607820080112?sp=true
Mortgage Markets Get a Hand
BofA Purchase Is Vote
Of Confidence in Revival
Of Housing Industry
By JAMES R. HAGERTY
January 12, 2008; Page A5
The giants are taking control of the home-mortgage market.
Friday’s agreement for Bank of America Corp. to buy Countrywide Financial Corp. for $4 billion shows how size and financial solidity are trumping everything else in mortgage lending. With the heft to withstand rising defaults and falling home prices, these big companies are helping prevent a total shutdown of mortgage lending.
“Bank of America stepping in right now is a very good thing for the market” because it signals confidence in an eventual revival of the housing and mortgage markets from what appears to be the worst slump since the Great Depression, said Susan M. Wachter, a finance and real-estate professor at the University of Pennsylvania’s Wharton School.
There is a price to pay: Their greater role means less competition and higher costs for consumers, at least in the short run.
http://online.wsj.com/article/SB120009769402185203.html?mod=hpp_us_whats_news
As homeowners get more desperate, the insurance industry is bracing for an increase in arson:
http://money.cnn.com/2008/01/09/news/economy/birger_arson.fortune/index.htm?postversion=2008011013