Too Many Bubbles Have Been Going On For Too Long
Some housing bubble news from Wall Street and Washington. CNN Money, “Housing starts and building permits plunged in December much more than expected, resulting in a full-year decline in new home construction that was the sharpest drop in 27 years. And there is little sign things will get better soon. According to government data released Thursday, the full-year total for building permits posted the biggest drop in 33 years.”
“The pace of housing starts in December dropped 14 percent to a seasonally-adjusted annual rate of 1.01 million in December, according to the Census Bureau report. That figure is down from the 1.17 million November reading, which was also revised lower.”
“For the year, housing starts fell 25 percent to 1.35 million. That decline represents the biggest drop since the recession year of 1980 and the third largest drop since the Census Bureau started tracking this activity in 1959.”
From Bloomberg. “Merrill Lynch & Co. reported a record loss after writing down $16.7 billion of failed investments. The writedown included $11.5 billion to account for the plummeting value of subprime mortgages and related bonds called collateralized debt obligations.”
“Merrill also reduced the value of bond insurance contracts by $3.1 billion, saying provider ACA Capital Holdings Inc.’s credit rating had been slashed below investment grade, making it a less-reliable counterparty.”
“The firm wrote down the value of other mortgages by $949 million. Its commercial bank units also took an $869 million charge for their investments in mortgages and related securities.” “The writedowns by Merrill add to more than $100 billion of subprime-related losses reported since May by the world’s largest banks and securities firms.”
“Founder Charles Merrill, who burnished his reputation by telling customers to sell stocks just before the 1929 stock market crash, would be appalled at the firm’s ‘bubble mentality’ of recent years, said Edwin Perkins, author of the 1999 biography of Merrill.”
“‘Things just get out of control, and once you’re involved in it, there’s no way to get out of it gracefully,’ said Perkins.”
The Guardian. “Stricken German lender WestLB will probably foot the bill for two structured investment vehicles (SIVs) by putting them onto its books, its chief executive told Reuters on Thursday.”
“Alexander Stuhlmann said that it would probably take two further SIVs onto its books before the year end. ‘It looks like that is the way it’s going to be,’ Stuhlmann said.”
“These two SIVs, Harrier and Kestrel, have a combined volume of about $13 billion and such a move would erode the bank’s capital base further.”
The Wall Street Journal. “The great CDO debacle has claimed another German scalp. Hypo Real Estate said it would write down €390 million ($578.3 million) on its €1.5 billion exposure to U.S. collateralized debt obligations.”
The Associated Press. “Regional bank Huntington Bancshares Inc. said Thursday it swung to a loss in the fourth quarter due to losses from a relationship with a subprime mortgage lender.”
“Huntington’s financial results for the quarter included $512.1 million in total provisions for credit losses as delinquencies and defaults rise, especially among mortgages given to customers with poor credit histories.”
“CIT Group Inc., the largest independent commercial finance company in the U.S., reported a $123.2 million fourth-quarter loss because of bad home mortgages and the declining value of its student-loan business.”
“The company said it had $1.03 billion in home loans in which payments were past due by 60 days or more as of Dec. 31, or 9.9 percent of its total unpaid balance. That compares with $538.8 million, or 4.9 percent, a year ago.”
“The highest delinquency rates were in Florida and California, Chief Financial Officer Joseph Leone said on the call.”
From MarketWatch. “Bank of New York Mellon Corp. said Thursday its fourth-quarter profit dropped from a year earlier as the company took charges on collateralized debt obligations and a conduit it sponsors.”
“The latest quarter’s results included charge of $180 million to restructure and consolidate the assets of a conduit it sponsors called Three Rivers Funding Corp.”
“Bank of New York Mellon, the company that resulted from the merger of Bank of New York and Mellon Financial Corp., also took a $118 loss to write down the value of collateralized debt obligations, or CDOs.”
“Moody’s Investors Service and Standard & Poor’s increased their scrutiny of bond insurers. Ambac and MBIA dropped in early trading and their risk of default soared after Moody’s said it may cut Ambac’s AAA credit rating.”
“‘No one knows when the end may be in sight, including the raters,’ said Richard Larkin, a municipal bond analyst at JB Hanauer & Co.. ‘The rating agencies have lost as much credibility as the bond insurers. Every time you turn around they’re changing their minds about what’s going to happen in the subprime-mortgage market.’”
“Losing the AAA stamp would cripple the bond insurers’ business and throw doubt on the ratings of $2.4 trillion of debt the industry guarantees, causing as much as $200 billion in losses, according to data compiled by Bloomberg.”
“Ambac yesterday reduced the value of some contracts on debt it guarantees by $3.5 billion in the quarter ended Dec. 31 and ousted CEO Robert Genader. ‘This loss significantly reduces the company’s capital cushion and heightens concern’ about losses on mortgage-backed securities, Moody’s analyst James Eck said in the statement.”
“The risk of Ambac defaulting on its debt soared, trading in credit-default swaps shows. Investors demanded 22 percent upfront and 5 percent a year to protect Ambac’s bonds from default for five years, according to London-based CMA Datavision. That rose from 15.5 percent upfront and 5 percent a year.”
“MBIA’s subordinated notes sold last week tumbled as much as 12 percent, bond traders said. Credit-default swaps linked to MBIA soared 9 percentage points to 25 percent upfront and 5 percent a year, according to broker Phoenix Partners Group. That means it would cost $2.5 million initially and $500,000 a year to protect $10 million in MBIA bonds from default for five years.”
The LA Times. “Countrywide Financial Corp., stuck with tens of billions of dollars in “alternative” mortgages it can’t sell, is pushing customers to refinance into traditional loans that can be easily unloaded by the struggling lender.”
“The home-loan giant seeks to have $12 billion of these exotic loans refinanced into uncontroversial mortgages and has told its sales force to pull out all the stops to get borrowers to go along, internal documents show.”
“It’s unclear exactly what kinds of loans are in the $12-billion refinance mix, except that they are for less than $417,000 — the limit for purchase by Fannie Mae and Freddie Mac.”
“A senior Countrywide loan officer described them as a ‘hodgepodge’ that includes many adjustable-rate mortgages with optional ultralow payments made to borrowers with good credit who obtained them on a ’stated income’ basis — without documenting their earnings.”
“‘Countrywide is desperate to dump them to recoup the capital by refinancing them into marketable loans,’ the loan officer said. ‘It’s the equivalent of a manufacturer who gets stuck with a ton of unsold merchandise after the Christmas season. So he says, ‘Let’s liquidate the inventory.’”
“The documents describing the program make clear that the replacement loans must be ‘conforming’ — adhering to the standards of Freddie Mac and Fannie Mae — or ‘government loans,’ the highly documented mortgages that can be backed by the FHA or VA.”
“‘You must figure out how to originate every loan as a Conforming or Government loan!’ the instructions read. ‘Ineligible Loan Types: Do not originate!!!’”
“If borrowers ask why they are being pitched a new loan, loan officers are told to reply: ‘As you may have read in recent news articles, Countrywide is committed to ensuring our borrowers are in the best situation possible. We want to help you by determining if we can significantly improve your mortgage rate and payment.’”
“For Countrywide’s $12-billion refinancing initiative, its success is ‘by no means certain,’ said Frederick Cannon, a mortgage industry analyst at Keefe, Bruyette & Woods.”
“‘It will be pretty tricky in this market,’ he said. For one thing, Fannie Mae and Freddie Mac, after being burned by the national slide in home prices, now buy mortgages for no more than 75% of a property’s value.”
“‘But I guess desperate times call for desperate measures,’ Cannon said.”
From CNBC. “Next Tuesday, the University of San Diego’s Burnham-Moores Center for Real Estate is holding its 12th annual real estate conference. The keynote speaker: Angelo Mozilo, co-founder and CEO of Countrywide.”
“That drew the ire of locals who formed ‘Disinvite Mozilo.’ They planned to protest the event, feeling it inappropriate for a university to bill an event on the state of real estate around a man some consider part of the problem.”
“But, Wednesday afternoon, USD announced Mozilo was pulling out. His choice, it appears, not theirs.”
“‘Due to unforeseen scheduling conflicts resulting from the proposed acquisition of Countrywide Financial Corp. by Bank of America, Angelo Mozilo, Countrywide’s Chairman and CEO, will not be able to participate in the conference.’”
“This week three major banks are scheduled to testify. Through Wednesday, Citigroup Inc. and J.P. Morgan Chase & Co. had ‘fessed up. Banks ruined their balance sheets and market values for the sake of SIVs and MBSs.”
“Merrill Lynch dove headlong into subprime with its purchase of First Franklin, a lender. Morgan Stanley bought hedge funds and stepped up its trading. Citigroup did it all. New York Stock Exchange member firms made $22.7 billion in 2006 before taxes, nearly double what they made the previous year. The party kept going in 2007.”
“This week alone it’s possible more than $30 billion in assets will be written down among three of the worst offenders.”
“Banks need to start revamping how they evaluate credit, and regulators need to put specific penalties in place against credit professionals that knowingly pass off junk to investors.”
“As former Sen. George Mitchell said in his report on drug use in baseball ‘it is now time to look to the future, to get on with the important and difficult task that lies ahead. That is the only way this cloud will be removed from the game.’”
From Reuters. “Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.”
“Critics blame the ultra-low interest rate policies of the final Greenspan years — when the U.S. central bank steered overnight federal funds rates to 1 percent and held them there for a prolonged period of time — for fueling the housing bubble.”
“‘Too many bubbles have been going on for too long…The Fed is not really in control of the situation,’ the Times quoted Volcker as saying, in clear criticism of both Bernanke and his predecessor Alan Greenspan.”
“…current Fed chief Ben Bernanke is in a tough spot.”
Most homeowners are in a much tougher spot.
There’s a bubble in bubbles!
Don Ho would’ve loved this market…
Oh man, thats deep. I think I need to lie down.
There’s a bubble in bubbles!
There is a bubble in Mr. Bubbles and his legacy of being the best fed chairman is about to pop!
Bubbles Greenspan, it has a ring to it. I wonder if Bubbles from Trailer Park Boys couldn’t have done better.
Reminds me of the construction site joke…
“Hey… did you enjoy blowing bubbles when you were a kid?”
“Yeah”
“Well I just saw him down at the diner… he was asking about you”
Most homeowners are in a much tougher spot.
And the consumer has been wiped out with the bursting of the dotcom and housing bubbles. Think things are bad now, wait until these consumers hit retirement age!
Can’t help but think that retirement will become something we talk about, but not do. Reason: Very few people will be able to afford it.
I know mine is off the books for sure Slim.
Therein lies the solution to the social security underfunding problem.
Work ’til you Drop officially replaces Shop ’till you Drop
only for those who’ll be able to find jobs.
Rionn, was just thinking the same thing. “Retirement” may be another word for “I’m over 60 and can’t find a job anyway, so I’ll pretend it’s by choice.”
There are places in rural Pennsylvania, Maryland and West Virginia where it’s been like that for many years already. My uncle had a bankruptcy in his background, then failing health…and he’s gonna turn 70 next year. He’s diabetic, has heart disease and depression and sleeps most of the time.
Yeah, I know several people who took SS at age 62 and said they had retired, because they hadn’t worked in years. People laid off in the ‘91 recession even.
I have an 84 year old patient with a heart condition who works three days a week at his neighborhood’s carwash. He needs the money and he hates his wife. I don’t know which is the bigger stimulus for him to work.
Mine was looking pretty darn good up until about, oh, March of 2000.
When ppl started paying two or three times what the previous owner paid a few years ago, they gave up their retirement voluntarily. No one that gives a damn about such things is so hasty to enter into so much debt. It was much more important to them to make the seller’s rich then for them to accumulate wealth. The altruism is heart breaking. I wish we could exclude them from Social Security as well.
They scratched the housing lottery card and didn’t even win a free ticket.
Too bad after scratching the ticket they have 30 days to throw it away and cancel the charges associated therewith making it someone else’s problem.
With the 100% LTV products that emerged, if it doesnt bother you to have bad credit for a while and not pay your bills, it wasnt even a gamble. It was actually the smartest thing to do as there was a chance for big reward, with little or no downside. Too bad its not the Fed’s or Bush Administration’s responsibility to prevent major economic collapses. Who exactly is supposed to protect our economy anyway?
So, using the Tan Man example, should those folks who sold their homes for 2 to 3x their value return their ill-got gains? They knew their asking price was inflated. Posters brag all the time about their well-timed home sales, maybe we should deduct it from their Social Security since they obviously don’t need the dough. Goes both ways…
Not really. Seller’s only duty is to disclose latent defects. If after disclosure, some person wants to pay you more than you think it’s worth, I don’t think you have a moral responsibility to sell for less. Buyer’s were free to walk in, look at the price and say F-U before walking out. I did it over 100 times. If incomes rise a few percent a year and housing doubled or tripled in the last few years, there is no realistic expectation for the Buyer to think he will ever make money on the property. None.
I agree. It the reckless and ignorant behavior you want to punish. Seller’s were not reckless and ignorant for asking 2 or 3 times what they paid a few years back. Buyer’s, however, certainly were reckless and ignorant for agreeing to pay it.
“Buyer’s, however, certainly were reckless and ignorant for agreeing to pay it.”
In that case, what were lenders?
It really wasn’t wreckless behavior, as there are many deep puncture wounds that look to have gangrene, in this decaying market.
In my estimation it depends. If someone can afford to pay for a house, and there is no fraud, Lender’s have no duty tell the Buyers they should reconsider. That’s crazy. Now if they helped or participated in fraud that’s another story.
Higher than 90% LTV is a tough issue. Personally, I think there should be a law requiring 10% down at the very least. I could agree to 20%. 100% LTV is a disaster waiting to happen. I’m more mad about no one trying to regulate it than the Lender’s who used it legally. I think they were so dangerous to our economy that the government has to take the blame on that one.
The lenders enabled the reckless behavior and actively encouraged by pushing a wide array of loan products that never should have been offered to most buyers. Without the actions of the lenders, there could have been but few buyers at the inflated prices.
Once again I note the evil role of securitization. As a lender I have no DUTY to tell buyers they should pay less, but as a “real” lender who actually keeps the notes, I have often done exactly this. Am just now in a similar process. One bidder wanted to offer $100K for a property where asking price is $120K, and wanted me to lend $75K. But then bidder lost interest. Another bidder came along, telling me she was willing to put down $8K towards this same property. I sent a sarcastic note saying $25K would be more like it, and I said, “Hint: read the newspapers.” Bidder wrote back saying she could put down $25K, would I lend the other $95K. I wrote back suggesting it was not necessary to offer full asking price.
I agree there were people profiting and manipulating, I just dont understand why buyers cant take responsibility for their actions. I certainly do. If I dont think I’m getting a decent deal that makes economic sense, I renew my lease. If everyone did so, we would not be in this mess. Common sense tells me not to pay someone over 2 or 3 times what the former owner paid a few years ago. Am I alone on this? I dont care if someone is willing to lend me $10,000,000. If I dont think I can afford it and it doesnt work economically for me, I just say no thank you. Why do so many others wait to be told what to do, and get mad if it doesnt work out.
Unfortunately many are not that bright. That’s were regulation is supposed to come into play. I dont think its reasonable to rely on banks for self regulation when their interests are not aligned with those of our Country. That is why we have government. Not only did they not do anything. Greenspan said he thought what was going on was great because it got so many people into homes. I, as we all do, know he was just lying, and that getting people into homes they cannot afford is not a legitimate government purpose.
gov “regulation” brought you this via -hud-fnm-
fre
community banking bill
not the free market
don’t ask for more gov involvement
“That’s were regulation is supposed to come into play.”
Exactly Natalie. And they didn’t. Skillfully crafted regulations are the best means to prevent this in the future.
gov “regulation” brought you this via -hud-fnm-
fre
community banking bill
not the free market
don’t ask for more gov involvement
———————
Have to disagree with you on this, flat.
Fannie & Freddie were part of the problem until 2003/2004, but the private sector took over from there.
Remember when they were being investigaged (leading to the resignation/retirement of many executives and talk of receivership, etc.)?
It’s securitizations/”no-risk” lending, ratings agencies, mortgage insurers, banks, etc. who were most at fault, IMHO.
Proper regulation would have stopped this train in its tracks. The PTB decided to let the “free market” (a.k.a.: greed) destroy the economy. So much for Darwinian capitalism…
Gosh, I didn’t realize the majority of folks are in such bad straits. Does this include the 40% of homeowners who own their homes outright? How about the ones who have the same 30-year fixed they started with seven or more years ago? And I guess even renters won’t be able to retire?
I sense a loss of perspective here.
Even the people you describe adjust their consumption habits when the perceived value of their main asset goes down in value.
They are not in dire straits personally, until they lose their job, their pensions are cut, taxes are raised to pay for ballooning medicare/Soc sec, etc., all due to downstream results from the lowering of home values and decrease in consumption.
Hence, why the gov’t secretly wants illegal immigration. They need the workforce to be as big as possible in order to pay for all the retirees.
Number of births in U.S. in 2006 was highest in 18 years. The reason those babies cry is because they realize how many retirees (like myself) they will have to support once they start working.
There’s no secret about it. McCain is on board with the illegals and has made no secret of it throughout his career.
Well good then, let’s hope they don’t work off the books.
Provided that the new illegal immigrants pay into the system.
Next…
Wealthy may be next in line in home crisis
Thu Jan 17, 2008 2:41pm EST
http://www.reuters.com/article/newsOne/idUSN1530426720080117
“Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.”
The only FED head with the balls to tell the truth. He proved it in the 80’s and is still honest today. He was on this issue in 2004 & 2005 talking about how Easy Al better watch out!
The guy who appointed him was also the only holder of his job with the balls to tell the truth.
And look where it got both of them.
So true, yogurt!!!!
IMO, one of a the few presidents who actually had integrity.
The actor who came after didn’t really dig us out of a hole, he just began the process of papering over our problems with debt. It was Reagan who crafted the beginnings of this credit bubble, IMHO.
I watched a few minutes of Bernanke’s testimony today. He didn’t really say anything, despite much talking and qualification. In fact, if I closed my eyes Ben sounds like a less articulate version of Greenspan.
Question: Is there anyone on this board who ever heard Volcker speak (e.g., testify before Congress)? I know it may be before cable news got rolling. Just curious…
Sidenote: If the average American is as financially illiterate as their Congresspeople, then I thank god that technical PhD’s are in demand in other countries!
His voice was quivering numerous times, he sounded scared. Even my wife (who could care less about this stuff) said “why does he sound so scared”?
Right. I mean even to the most casual observer, it’s pretty obvious. He’s never seemed comfortable in front of the camera but now, painfully so.
Exactly CC, I noticed the same thing and the man is looking haggard as well. I kinda feel sorry for the man. He reminds me of the last kid picked and he is up to bat in the bottom of the ninth with two strikes in a losing effort.
dime,
I didn’t go to school w/ the guy but I think you’re spot on! Great analogy. No pressure. No big deal. If you could even put the ball “in play” we’d have a shot at squeezing the runner home but we all know you swing like a girl so just take a sissy cut so we can go home and try to forget about this whole thing!
*No offense to sissy girls intended!
Volker was a bore ,but he delivered medicine while bb delivers the same mo free sht” as greenspin
where’s Ron Paul ?
I’ve been calling for Ron Paul to nominate, and campaign with, Paul Volcker as his VP of choice. It would bring him a lot more respect from the bears, and also short circuit those who think that Dr. Paul’s economic policies aren’t the most sound ones out there.
What a great idea. What avenues have you used to communicate this to RP ? As another small donor to the RP campaign, I would love to add my voice to this suggestion.
And if you come across a way to contact him, advise him to get some damn charisma. He comes across as such a bitter, self-righteous, “angry at the current stupidity of America” man that most people cannot hear what he has to say. If he just moderated his tone and his passion, he would really turn some heads.
Disclaimer: I’ve donated to his money (a large donation to my mind) and I’m voting for him no matter what.
I can only imagine what this will mean for Fannie Mae down the road. More garbage for the most part, I’m sure. If these borrowers were smart and well-set financially, they would have taken the fixed loans in the FIRST place.
Is it safe to assume that these re-fi’s need fresh appraisals to conform to Fannie/Freddie underwriting standards? It would be fun to observe the pressures and ethical considerations faced by appraisers doing these. Since business is slowing from other sources, I can imagine appraisers won’t need much coercion to “play ball” on this stuff.
One would think new appraisals would be required. That, plus F/F only taking mortgages up to 75% LTV, if true, would seem to kill most of CFC’s potential refi pool.
At this point it’s probably more about CountryFried attempting to salvage as much as they can as quickly as they can. Since “garbage in/garbage out” seems to be what they do best… well let’s just say, it’s SO CRAZY it just might work!
Not.
“‘You must figure out how to originate every loan as a Conforming or Government loan!’ the instructions read. ‘Ineligible Loan Types: Do not originate!!!’”
Hmmm. If that’s not a “suggestion” from the higher-ups to heap new fraud upon old fraud, I don’t know what is.
Whatever you can do to dump these crap loans on to HUD, Fannie, Freddie and VA, do it! That’s what it sounds like to me. Jam it to the taxpayers.
– Judge Smales
“You’ll get nothing and like it”
That’s exactly how I read it.
It’s more about BofA’s buyout of Countrywide.
Clean those books up or else…the buyout doesn’t go thru!
And it seems those new appraisers would be encouraged to appraise LOW, to either get under the $417K ceiling, or to push the price down so that any scrap of equity rises above the 25% floor.
Those poor appraisers. Skew high last year, skew low this year…so confused…
Oxide: I think more like black jack, get as close to 21 but don’t go over! Appraiser looks over house, checks foundation, wiring, looks at comps, yep $410,000 is what she’s worth.
Unless Countrywide forgives some of the debt these borrowers won’t meet FNMA/FHLMC standards. The critical factor is P&I no more than 28% of documented income. If the borrowers had met that standard they wouldn’t have taken out an innovative CFC loan in the first place.
I agree, but what’s the liklihood of that happening? They would be bleeding cash either way.
Subprime is Contained!!!!!!!!
I thought conforming was 29% DTI on PITI, not P&I.
Hypo Real Estate
Omigod, what a perfect name..tell me it’s not real.
Yep, I bet it is real.
Probably he’s talking about something related to HypoVereins Bank, used to be Bayerischen Hypotheken u. Wechelbank (Bavarian Mortgage and Exchange Bank) known by locals as HypoBank. I actually had dealings with them some time back in the 90’s.
SF home sales off 40%. It’s on bloomberg.
link?
Bloomberg.com
I can’t find any such article on Bloomberg.com…
Check out the San Jose Mercury News
http://www.mercurynews.com/news/ci_7998476?nclick_check=1
Home sales in a nine-county region around San Francisco Bay plunged last month to the lowest level for December in at least 20 years, with several counties posting steep median price declines, a real estate research firm said Thursday.
A total of 5,065 homes were sold in the area last month, down 39.5 percent compared to December 2006 and off 1.2 percent from November, according to DataQuick Information Systems.
This is why it’s absolutely paramount we get the Jumbo ceiling lifted so things can get “back to normal”! Don’t you realize some realtors didn’t have a sale in all of ‘07! Remember, realtor commissions are a vital part of the American economy.
I actually know a used homeseller convinced that the federal government will have to step in and keep the real estate game going. “We are too important for the economy, they will have to do something.” Kinda like the steel workers, autoworkers and textile workers, huh?
That reminds me…. Groundhog Day is just around the corner! Yeah, more denial (the delusional kind). This is how their twisted little minds work. At least steel/auto/textile workers could claim to have made a real contribution. If they’re extinct, what chance do realtors have?
The great thing about RE agents is they are completely expendable. Find house on MLS. Contact owner. Make deal. No RE required.
Al,
I think that’s why so many were struggling to swim “upstream” over the last few years trying desperately to cozzy up to builders and developers. Or even their flailing attempts at their own mini projects etc.
In the end it was all futile b/c they kept trying to work the higher end (where all the mark-up is) for one last “big score”! Here in OR we failed in-fill developments by the dozens. What they “should” have been doing is focusing on “shelter” and entry-level homes, but where’s the “glamor” in that!
“The great thing about RE agents is they are completely expendable. Find house on MLS. Contact owner. Make deal. No RE required.”
Makes sense. The only thing the buyer/seller can’t really do on their own is make sure all the paperwork is in order. But thats what settlement attorneys are for.
*Sometimes* the RE agent can give you hints on negotiating tactics and a frame of reference on whether or not you are getting market value…if they’re honest, and if you’re inexperienced. But the fact that seller REs are paid on a percentage basis is what sucks. How much more work is it to sell a 1M McMansion than a 200K house? All they do is list and relist on the MLS or put up flyers. Buyer RE’s should just get a flat fee to get rid of conflicts of interest with their clients. But I agree that the system would in general be better off without them.
Don’t even need “settlement attorney” - in most states one of the ubiquitous title/escrow companies will do it cheaper. Of course you have to check their work as best you can: they pay their employees next to nothing and are prone to many small errors.
A “small error” can cost you plenty. I don’t think ANY contract (RE or otherwise) should be entered into without an attorney…even for boilerplate. I’ve learned that from bitter experience…
I think its 14% Tx….
At least prices are holding up well (aren’t they???).
I begin to wonder if the red hot springs sales season is DOA this year…
“‘Too many bubbles have been going on for too long…The Fed is not really in control of the situation,’ the Times quoted Volcker as saying….”
Well said, sir.
Bring Volcker back as the FED chief.
He sure wasn’t popular at the time. Tight money was blamed for everything. Great CD rates though!
If it weren’t for him, Reagan wouldn’t have gotten so much credit for expanding the economy. Volcker essentially unclogged the pipes and completely cleaned them out. Excess was gone. The economy got back on solid footing. yes it was painful and he wasn’t that popular at the time but sometimes the right thing is not always the most popular.
Tom, the right thing is always painful and always unpopular. Like refusing to cut interest rates in the face of high inflation and collapsing house prices.
Exactly! Have we, as a society, gotten stupider or more greedy in the 21 years that Volcker left? Doesn’t anyone remember that you have to pay the check once the party is over? Volcker bringing interest rates above inflation was the BEST thing that anyone could have done to help the economy, and this is the key, FOR THE LONG TERM! Anyone else remember the 80s? Greenspan and Bernanke are so short-sighted that they apparently don’t give a crap about the economy long-term so long as they take care of today only.
‘It’s the equivalent of a manufacturer who gets stuck with a ton of unsold merchandise after the Christmas season. So he says, ‘Let’s liquidate the inventory.’”
Not a good analogy. Unless the unsold merchandise he speaks of consists of toxic toys from China. There’s no demand for either one!
In this case, they need to take the unsold merchandise (which is losing value daily) back to the factory, convert the toxic cr@p into something with value and then attempt to liquidate it. Good luck with that CFC.
i.e. Turning a sow’s ear into a silk purse.
‘As you may have read in recent news articles, Countrywide is committed to ensuring our borrowers are in the best situation possible. We want to help you by determining if we can significantly improve your mortgage rate and payment.’”
should read:
“as you may have read, our company is one giant POS and in order for BAC to buy our POS company we need unload as much crap we can onto the backs of the U.S. taxpayer”
And don’t you suppose that the GSE’s know about this article by now?
lord i hope so.
Do you think this will fly anway?
Evidently… SOMEONE wasn’t wearing their little green plastic bracelet that day! Oops.
i do not think so but someone obviously does.
Whatever whistleblower leaked these documents, I hope he has a bodyguard. It’s not like firing him is going to do any good — those jobs are gone anyway.
“Critics blame the ultra-low interest rate policies of the final Greenspan years —
Mr. Bubble has been doing this for a long time and then bailing out Wallstreet after the bubbles burst. The remains of the consumer are now found on every street in the USA as a result of the bursting of the dotcom and real estate bubbles. In the meantime, the consumer pays for the bailouts while corporate America showers senior management with millions of dollars in severence packages while at the same time firing it’s lower staff employees who are given nothing but the boot out the door and left unemployed.
I have to laugh at some of the Volker cheerleaders. (I’m one myself)….. Lets understand history. Nixon unlatched from gold in 1971, implements price controls circa 1972, inflation out of control, CARTER appoints Volker and implements strategy to break the back of gold/inflation, plan is successful by 1982? and Raygun takes credit? LMAO.
Except that Carter appointed Bill Miller first who was a complete disaster thus forcing Carter to pick the cigar-chomping finger-wagging Republican instead.
Love his barbecue!
Except Nixon appointed the disastrous Arthur Burns(r) whos policies created out of control inflation for 8 years until fired by Carter. Miller held the chair for an entire 11 months.
And Volker was a Kennedy appointee.
Nice try.
He gets credit for sticking with Voelker during the 1981-82 recession, when everyone was blaming him for the recession that resulted from the tight money policies designed to wring inflation out of the system.
While he doesn’t deserve credit for coming up with the strategy, he does deserve credit for sticking with it when the going got rough, and he WAS getting the blame for the fallout (remember all of the talk of the “Reagan recession in 1981-82?). Let’s understand ALL of history, okay?
Reagan deserves credit for sticking with Voelker when his tight money policies resulted in a severe recession in 1981-82. As I recall, people were calling it the “Reagan Recession” even though it didn’t start during his term.
Reagan doesn’t deserve credit for coming up with the Voelker policy, or even for appointing him, but he does deserve credit for sticking with him through a difficult time.
It is out of the Fed hands now, if you can’t sell your product you either lower the price to a point where it does sell or you close up shop, it is been said the power in this country is the people you just have to say no which buyers are doing,same with oil if the public said no we are going on a 1 week boycott you would see what would happen to gas prices it has always been that way the consumer is capitalism, you decide what to buy and what not to buy the housing crisis tells you that the powers to be are begging for you the public to buy houses and so far you are holding pat either the prices come down or no deal, good for you?
Punctuation?
shadow
agree with yer statement however the only thing that usually gets the complacent lazy apathetic americans off their collective azz to do something is when something of epic proportions happens usually its a tragic event sometimes rarely its something wonderful if you can get the herd moving you notice its caused by a noticable event like when the cowboys crack a whip or a when lightening spooks the herd to a stampede are you the whip shadow are you the big toe sgt hulka
That’s some seriously funny shiatsu there Aquis.
Sprayed the monitor with 1.5 ounces of mouth juice…
“Punctuation?”
Remove the all spaces and it’d be a German word.
Might be easier to read if it were a long German word instead of that!
Sometime I see so many consecutive posts with no punctuation at all I feel like it must be schizophrenics replying to themselves.
I can’t tell. It’s kind of like monotone speaking, in one ear and out the other. C’mon guys, where’d ya’ll go to high school? Anyway, it’s not 100% reliable, but sloppy output usually means sloppy input, in other words, the better presented the data is, usually the better the quality of the info. So when rushed for time, it’s helpful to totally skip some postings and make sure to read others.
(I like to think I’m an old denizen of this place, and one of the things I really like about it is how readable and cogent the remarks are here. Thanks, all. It really adds the value of what Ben gathers and puts up there for us.)
“Sometime I see so many consecutive posts with no punctuation at all I feel like it must be schizophrenics replying to themselves.“
There’s a woman on “seattle.general” who does exactly that.
1 week boycott you would see what would happen to gas prices
That has been proven time and again that it won’t work.
Sure. All the people who operate on less than 1 tank of gas per week just fill it up the day before the boycott starts.
Sufficiently high gas prices will have the effect of reducing consumption somewhat.
Exactly. There’s enough buffer in the supply chain that the big gasoline suppliers won’t hurt. The guy running the station might, though, because you won’t be buying the cigs and coffee there if you’re not stopping for gas, b ut he’s not the price controller.
Now if everyone long term uses less, it’s a different matter. You can see that by looking at gasoline stockpiles versus price in recent years. Use less gas (like this winter compared to summer), and magically, prices go down a tad! Imagine!
I’m always amazed to see how quickly prices go up after they say the price of oil has gone up. The next day gas costs more (even though the gas in those tanks is still the same gas from the day before. They haven’t paid anything extra yet!). But when the price of oil drops…. “Oh, we’ll get around to dropping that price some day. Our sign guy who changes the numbers is on vacation.”
“‘Countrywide is desperate to dump them to recoup the capital by refinancing them into marketable loans,’ the loan officer said. ‘It’s the equivalent of a manufacturer who gets stuck with a ton of unsold merchandise after the Christmas season. So he says, ‘Let’s liquidate the inventory.’”
Of course, the “inventory” in question turns out to be bags of flaming poop. I’m sure they’ll have no problem getting rid of it.
Un-effing-real.
“The home-loan giant [Countrywide] seeks to have $12 billion of these exotic loans refinanced into uncontroversial mortgages and has told its sales force to pull out all the stops to get borrowers to go along, internal documents show.”
Rot in hell, Mozillo!
“…pull out all the stops to get borrowers to go along…”
And what does this mean? There better be a tire iron involved becuase there probably isn’t an equity/cash to work with.
If Countryfried has a $1.5 trillion ‘folio of loans (per the news accounts about the BofA buyout) then can we ASSume that Countryfried only has a total of 12 billion of loans that need this upgrade? (If we do, then what does that say about U and ME?)
Just adding things up…
It looks like this thread wiped out around $100 billion.
O.K, that was a good one. Rather than LOL that was more like STS (snickers to self) only more… evil.
The jig is up! Are we having a crisis in confidence or what?
Even Cramer is starting to tell the truth!
I pull in resolution, and begin
To doubt th’equivocation of the fiend
That lies like truth.
– Shakespeare’s Macbeth –
“Merrill also reduced the value of bond insurance contracts by $3.1 billion, saying provider ACA Capital Holdings Inc.’s credit rating had been slashed below investment grade, making it a less-reliable counterparty.”
It time to get back into the bunker…
Buy barf bags,
Just look at the baseball hearings, very few did their homework most didn’t know a BlackSox scandl from a Blackhawk one, and today a congress women who thought she was asking all the right questions didn’t know where the Fed Chief work before coming the chaiman, she named him as CEO of the wrong company this is the phi bets cappa people we have running this nation and you expect them to know if we are in a recession???
I saw that, even for a member of congress her questioning was stunningly incompetent. She obviously had no idea who Bernake was and what his job was. Did anyone happen to get her name?
She was a Dem from Ohio (Reps were no better)
I think we’ve been in one for quite some time.
Bailout> Seems we all get 300 to 600 bucks wow> wonder if the gov’t want’s you to run out and buy a house with it, like the old days past?
Pathetic. You can’t even get an ounce of gold with that kind of stimulus package.
Now if they made us all buy something American made with our new pesos, they may have something . . . but, sadly we won’t. We’ll buy foreign oil and electronics, probably some jewelry and pay another installment on those groceries we charged two years ago. They might stimulate spending in the short term, but will do nothing for the real economy.
I could pay almost half of my monthly insurance premium for me and my completely healthy wife and child! Gov’t loves small business ownership…..
300 to 600 dollars? I kind of need to know now what its’ going to be. Beazer wants to know what I can put down.
never mind, I read somewhere it was a even thou and I already spent it….I’m a victim!!!
“‘Countrywide is desperate to dump them to recoup the capital by refinancing them into marketable loans,’ the loan officer said. ‘It’s the equivalent of a manufacturer who gets stuck with a ton of unsold merchandise after the Christmas season. So he says, ‘Let’s liquidate the inventory.’”
Comparing bad paper @ 75% off, to xmas wrapping paper with the same discount, just doesn’t seem right.
That’s true. The 75% off wrapping paper will actually be usable next year. The mortgage paper? Well, I guess if it comes in roll form…
“Next Tuesday, the University of San Diego’s Burnham-Moores Center for Real Estate is holding its 12th annual real estate conference. The keynote speaker: Angelo Mozilo, co-founder and CEO of Countrywide.”
“That drew the ire of locals who formed ‘Disinvite Mozilo.’ They planned to protest the event, feeling it inappropriate for a university to bill an event on the state of real estate around a man some consider part of the problem.”
“But, Wednesday afternoon, USD announced Mozilo was pulling out. His choice, it appears, not theirs.”
“‘Due to unforeseen scheduling conflicts resulting from the proposed acquisition of Countrywide Financial Corp. by Bank of America, Angelo Mozilo, Countrywide’s Chairman and CEO, will not be able to participate in the conference.’”
Too bad he can’t make it…
Oh well, i’m sure there’s plenty of Orange kool-aid for everybody.
Amazing isn’t it? We had a local “investment advisor” that had been fleecing customers for years. Not just bad stock picks, SCAMS. Anyway, WHILE he was under investigation he “contributed” to the Univ. of Oregon and had their new economics hall named after himself! Jeff Grayson. Grayson Hall.
We called it: Dis-grayson Hall. Whatever dude. He suddenly became ill and couldn’t do any time so his son Barclay did. Thanks dad.
As a USD alum, I feel disgusted that they invited him.
CEO non grata
Congratulations to PB GS for probably leading or instigating the protest at USD.
WHo is the moronic Congress woman that called Bernanke Paulson the former CEO of Goldman Sachs???
Why are these people asking questions? How did they get elected? geeez…. We are in trouble if the idiots are running the village.
I just found this link. The congresswoman in question was Rep. Marcy Kaptur (D-Ohio). The ignorance of our elected officials knows no bounds.
http://weblogs.chicagotribune.com/news/politics/blog/2008/01/bernankes_got_a_sense_of_humor.html
That’s D’oh! HiYo!
Too late. The idiots are running the village.
That horse has long since left the barn too.
It takes a village idiot.
Comment by aladinsane
2008-01-17 12:33:33
It takes a village idiot…
…riding the horse that left the barn. And his silly idiot hat is on fire, and he’s screaming as they gallop wildly along. Oh, and the horse is wearing a sunbonnet, and is named ‘Buttons’ or ‘Muffins’.
(I like sunbonnets. I think they’re cute, and ‘Buttons’ is a good horse name.)
Man. This story is developing nicely! I can almost see the flames! I hope Buttons makes it out okay!
Cramer’s bond insurer rant. Where is the SEC?
http://www.cnbc.com/id/22706231
haha… i gotta say, he is pretty entertaining.
entertaining is the key word. Some people actually take him seriously.
Wasn’t he just yelling at someone for investigating the mortgage companies. When they announced GS was under investigation Cramer went ballistic and said they shouldn’t investigate fraud. They are going to kill the market doing that.
Well Duh!
I received a call from a lender to appraise a warehouse property about three weeks ago. It is proposed and will be 1/2 occupied by owner /user and the other side is spec.(30,000 s f)
In that short time, 3 weeks, the lender is reconsidering as the risk is rising daily. They called me to ask what my opinion was and although I need the work I had to say that I am very concerned about ALL spec anythings and that my report would definitely address some special risks associated with this market.
I have a feeling my planning on banking this fee may be a bit premature. Commercial is following residential as it always does.
The way things are going now doesn’t seem like a good time to bank much of anything unless you either have cash in hand or the check clears.
Good for you for being honest, DD.
Hope you are rewarded by finding some sort of niche job as this thing unwinds.
In a world of crony capitalism gone wrong, it’s refreshing to see an ex-Fed chief lower the boom…
“‘Too many bubbles have been going on for too long…The Fed is not really in control of the situation,’ the Times quoted Volcker as saying, in clear criticism of both Bernanke and his predecessor Alan Greenspan.”
PPT?
Looks like we’re half way down to 1200 on the S&P.
Wake me up when we get there. I can’t keep retirement money in T-bill funds forever. And I sure as hell don’t want to invest in bonds.
Well it’s going back a few years but in ‘04, 1175 was a nice place you could short at. Maybe that will be support. Good lord, we were 1575 just a few months ago.
I’m going to double my 20% position at the close. This the setup for a “surprise” rate cut tomorrow on option expiration.
50 BP “surprise” cut = US Dollar Index at
They may be running out of powder. Or perhaps the credit market tsunami tide has dampened the powder somewhat?
Comment by aladinsane
2008-01-17 11:46:33
Just adding things up…
It looks like this thread wiped out around $100 billion.
Comment by DinOR
2008-01-17 12:09:20
O.K, that was a good one. Rather than LOL that was more like STS (snickers to self) only more… evil.
Agreed, DinOR! And upon consideration, I’m going to go with a SLEMC for myself. (Super Loud Extended Malicious Cackle.)
That’s one of my personal favorites, you know.
‘The rating agencies have lost as much credibility as the bond insurers. Every time you turn around they’re changing their minds about what’s going to happen in the subprime-mortgage market.’
If the rating agencies have lost credibility, why even continue the charade anymore? That “AAA” rating is simply an illusion… Just because you say a steaming pile is really art, does that make it so — anywhere other than on WS?
Are you talking about Koons or Pollock?
Koons. Pollock actually had an original thought or five >; )
A paint splatterer, nothing more.
‘Just because you say a steaming pile is really art, does that make it so–anywhere other than on WS?’
There, and also it does if you’re a posturing wanker like Jeff Koons, who is as good at being an artist as a wildebeest is at performing brain surgery. Except let’s not get started on that again, since that subject causes me to lose my composure, and then Ben blocks all my posts.
No bubble worries from this point on; The Economist magazine’s current depicts the helicopter brigade on its way to extinguish the credit market inferno with massive cargo drops of sovereign-wealth-funded gold bullion.
http://www.economist.com/printedition/
“According to government data released Thursday, the full-year total for building permits posted the biggest drop in 33 years.”
2008 - 33 = 1975. I guess things are worse now than in the 1980-1982 double-dip recession on Raygun’s watch, then?
1980-82 was barely noticeable compared to 1975. Maybe in the housing world and the oil world 1980-82 was a big deal, but think how the Dow fell from 1000 at end of 1972 to under 600 at the end of 74. Everyone noticed that.
The 1980-1982 recession may have been a blip in Arizona but it was brutal in the Rust Belt. NE Ohio, in many ways, never recovered from it. There was before and after…and the two are very different to this day.
The early 1980s recession crushed the Midwest; the mid-1980s recession nailed the Southwest; and the early 1990s recession nailed the Northeast and California. In each case, other parts of the nation held up.
Not this time.
Sorry, lost my power for 90 minutes. Can you believe it? The SF thing was on Minyanville’s real time buzz and banter. I’ll go back and see if they have a link after the close.
I haven’t seen a selloff like this since 2002.
I hear there will be no comeback tour…
When can we call it a crash? Do we have to hit some high % sell-off? We had that 4% day a while back and that was rough, but today feels much worse, despite being lower percentage (so far, but right now the tick is -).
Right, this brings back memories of 2001 and 2002. It appears that we are now in bear mode and sell rallies instead of buying dips.
Here we go - today or more likely tomorrow is the day the recession goes mainstream. Everything is down - Dow, oil, housing starts - not sure about gold?
Wouldn’t be surprised to see an 11,9xx close to end the week, and then gnashing of teeth all weekend. What did Jack say in Titanic on the final plunge - “Ok, this is it!”?
Will the Fed wait until the 30th to cut, or just go for it on Monday? Or tomorrow even? I see an easy 75 basis cut, if not a whole point.
What happened to the middle class tax cut talk - drop the 28 and 25 brackets to 20, and the 15 to 10? An extra $500 to $1000 per month for the working shmoe WOULD actually do something to relieve this crunch. Heck, that’s a tax cut even exeter could love!
From az_o: What did Jack say in Titanic on the final plunge - “Ok, this is it!”?
Watched that flick for the first time in ten years last weekend. Other possible Titanic moments we might be at:
a. When shots are first fired on the boat deck and Billy Zane’s character says gravely: “It’s starting to fall apart”?
b. When one of the engineering staff fries himself on the circuit breaker panel and all the lights go out?
c. When Captain Smith locks himself in the bridge and the creaks and groans can be heard right before the windows cave?
Just kidding, but driving for 52 wk lows without a respite is a bit “unnerving”.
Nope missed me but dropping the 10 and 15 is a good idea so long as lost revenue us made up by raising the 35.
Being Ben Bernanke…
http://www.nytimes.com/2008/01/20/magazine/20Ben-Bernanke-t.html
“For the year, housing starts fell 25 percent to 1.35 million. That decline represents the biggest drop since the recession year of 1980 and the third largest drop since the Census Bureau started tracking this activity in 1959.”
Curious whether anyone can comment on whether the rest of the economy was in a recession during the first and second biggest drops the writer alludes to (and what were the years for good measure)?
I am going to guess that 1975 will have been the biggest, and apparently 1980 was bigger than the present downturn (so far). We had some kind of economic problems in 1962 and 1970, but not comparable to 1975.
So much for the stock market holding up the wealth lost in the housing crash. What genius said that ? Paulson?
The ppt has left thew building dow down 300+
12000 may be a memory by friday afternoon
Too bad my session on this public library computer runs out in one minute. Very good that I have no equities.!
i sold nmx @ 120.90 on friday it is 92.50 right now
bidu in the low 270’s goog near 600
cme @ 555 and ice down 60 bucks from its high
this is freaking ugly
the contrarian investor would be buying right now, yes? I have my IRAs in stocks with regular contributions, not going to change a thing there.
However, myhouse down payment (plan on cashing out around 2010) is about 50% stocks and 50% bonds. maybe this is the time to buy more stocks, or maybe this is the time to stop buying stocks. gosh. maybe i should just keep it in a 4% savings account since i’m not exactly savvy.
too early IMO, 2008 will be ugly for the majority of stocks.
Brokered, FDIC insured CDs will yield about 4.5% for 6 months. Then there are nervous-Nellie funds such as HSTRX (75% in so-called Treasury Inflation Protected Securities). If 2010 is your cashout year then you might want to limit stocks to those that do well in bear markets. If we are now in a bear market then gold miners and agriculture related stocks should do well. Regardless, with such a short investment period I would not have more than 20% of the portfolio in risk assets.
By-the-way, my target year for buying a house again is 2012. It will be an all-cash purchase (proceeds from the sale of my bubble house). My house replacement portfolio is 80% insured CDs.
Sounds like our plan.
Over 90% of our money is in CDs, Treasuries, foreign currency CDs, and govt MM accounts. The rest is short, with only .5% long.
There are unsuccessful contrarins and successful contrarians. I sold stocks in ‘97 - locked in my gains, but missed a whole lot more. You can’t blindly bet against the crowd, they have the strength of numbers.
You have to have at least decent timing. Sometimes all that happens to a contrarian is they get chewed up by the crowd. You need to wait for the crowd to get tired and then do the opposite. Being too early is a big fault of contrarians.
Has anyone looked at the Nikkei avg - its down over 20% in a couple months. Does it correlate with the Dow at all in this case?
This is where all this gets very interesting. Stocks have a way to go, but ultimately people who can time it right and have the cash will do fairly well. I wonder how long this recession will last. Housing is not going to come back anytime soon. Those with cash, probably many renters, are going to do very well for themselves.
“As former Sen. George Mitchell said in his report on drug use in baseball ‘it is now time to look to the future, to get on with the important and difficult task that lies ahead.’”
Wasn’t that a direct quote from Alan Greenspan’s latest book in the chapter entitled: I May Have Been A Wall Street Whore, But At Least I Wasn’t On Steroids Like Jim Cramer!
I’ve learned many lessons in life, and one of the most important was to never take good times for granted. Things always balance out in nature, same with humans. Being naturally frugal & cautious has served me well in staying out of ruinous debt, but I do admit to years of being perplexed at how so many ordinary people could seem to afford such an expensive lifestyle?
Now we know it was all a sham, financed by fake wealth through housing. I remember seeing the endless parade of high priced cars, homes, vacations, toys, and more made me wonder if perhaps I had it all wrong .. . that maybe I was the fool for not taking advantage of free money & easy opportunities.
It was a great relief when I came across this & many other blogs a few years ago, with like-minded realists searching for confirmation that WE knew the truth, no matter all the lies spun by the media, paraded endlessly on our viewscreens & audio receivers.
Huzzah to Ben, Patrick, and other unsung heroes of the housing underground. May you all have parks named after you, with plenty of pigeons for your statues . . . !!
Hear, hear!
“Now we know it was all a sham, financed by fake wealth through housing. I remember seeing the endless parade of high priced cars, homes, vacations, toys, and more made me wonder if perhaps I had it all wrong .. . that maybe I was the fool for not taking advantage of free money & easy opportunities.”
Excellent point.
The illusion of wealth and the reality of wealth do not sleep in the same bed…