January 31, 2008

The Most Difficult And Challenging Year In Decades

Some housing bubble news from Wall Street and Washington. MarketWatch, “Pulte Homes Inc.’s orders for new homes fell harder than those of peers in the latest quarter, suggesting it’s offering relatively thinner price cuts and incentives, a move that could hurt the home builder later, a Wall Street analyst said. The Bloomfield Hills, Mich., company reported a wider fourth-quarter loss as new orders fell 29% from a year earlier to 4,562 units.”

“The loss included $543.3 million of charges related to inventory write-downs, other land-related charges and impairment of goodwill.”

“‘To us, this indicates that Pulte did not respond to market trends as much as Ryland Centex, which reported order declines of 7% and 10% respectively,’ wrote Banc of America Securities analysts led by Daniel Oppenheim.”

“‘We think this will lead to two issues: further declines in margins when they adjust pricing and more importantly, increased cancellations as buyers in backlog see the lower prices,’ the report said.”

“Pulte’s CEO, Richard Dugas, during a conference call Thursday was cautious in his outlook for the U.S. housing market. ‘For the home-building industry, the year 2007 will likely be remembered as one of the most difficult and challenging in decades,’ the CEO said.”

“Pulte’s strategy since the third quarter of 2007 has been mothballing communities rather than selling homes at a deep discount, according to Anna Torma at Soleil Securities Group.”

“‘Additionally, the company announced it would reduce pricing and use incentives only in select communities where closings would lead to positive cash-flow generation,’ the analyst said.”

“Dugas said on the conference call that the company has more than 50 communities that are mothballed.”

The Detroit Free Press. “‘The question is, can they continue to convert the homes and the inventories into cash?’ asked Jack Lake, an analyst at Victory Capital Management, which owns Pulte shares. ‘The better they can do that, the better off they’ll be.’”

“Revenue for the builder of Del Webb-brand homes for retirees declined 34% to $2.9 billion.”

From Bloomberg. “MBIA Inc., the world’s largest bond insurer, posted its biggest-ever quarterly loss and may raise more capital to offset a slump in the value of subprime-mortgage securities.”

“MBIA posted $3.4 billion of losses from marking down the value of residential and commercial mortgages as well as CDOs that it guarantees, according to the statement.”

“MBIA CEO Gary Dunton is trying to shore up capital and retain a AAA rating for the company’s insurance unit by selling stock and bonds. Without the AAA stamp, MBIA’s business would be crippled and ratings on $652 billion of securities would be thrown into doubt.”

“Standard & Poor’s yesterday said it cut or may reduce ratings on $270.1 billion of subprime-mortgage securities and 572 CDOs valued at $263.9 billion that could extend bank losses.”

“‘We’re paying for those mistakes and I don’t just mean MBIA, I mean all the monolines,’ MBIA CEO Gary Dunton said on a conference call.”

The Associated Press. “Fitch Ratings slashed FGIC Corp.’s financial strength rating on Wednesday, harming the bond insurer’s chances of winning new business and potentially reducing the value of hundreds of billions of dollars in bonds.”

“The company, which insures almost $315 billion in debt, said it had a plan to address Fitch’s concerns, but Fitch said FGIC has yet to raise the cash. The plunge in the value of mortgage debt has damaged bond insurers’ balance sheets because of their exposure to more defaults. FGIC reported its contracts insuring risky debt lost more than $100 million in value during the third quarter.”

From Reuters. “Credit rating company Moody’s Investors Service on Thursday said it raised its assumptions for losses on loans backing subprime mortgages as much as 85 percent in response to deteriorating performance.”

“Average losses for loans made in 2006 — as underwriting standards were loosened more — will likely fall between 12 percent and 24 percent.”

“‘We see delinquencies still going up, not having reached a plateau,’ Moody’s Chief Credit Officer Nicolas Weill said. ‘There are also more concerns by the Moody’s economists on the potential for higher unemployment and recession’ and home price declines.”

“Defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, an industry report today showed.”

“The number of insured borrowers falling more than 60 days late on payments jumped to a record 64,384 last month from 46,921 in December 2006, according to the Mortgage Insurance Companies of America.”

“Defaults increased 5.5 percent from November, the prior high. The number of delinquent insured mortgages that returned to good standing fell to 34,813 in December from 37,137 a month earlier, according to the report.”

This Is Money. “Standard Chartered could take on debts of up to $7.15bn (£3.59bn) to bail out its structured investment vehicle Whistlejacket Capital in the latest case of the credit crunch squeezing banks.”

“Standard Chartered effectively committed itself to buying any of the commercial paper issued by Whistlejacket up to its total asset value of $7.15bn. The bank, which sponsors and manages the SIV, said the assets in Whistlejacket were ‘high quality with very little subprime exposure indeed’.”

“Whistlejacket, based in the U.K. Channel Islands, holds asset-backed securities and bank bonds with an average rating of AA, the third-highest investment-grade ranking. Less than 5 percent of Whistlejacket’s assets are linked to subprime mortgages, Standard Chartered said.”

“Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. reported a combined $3 billion of third-quarter losses from mortgage investments, causing profits at Japan’s two biggest banks to slump.”

“Mizuho had 530 billion yen in overseas residential mortgage backed securities at the end of December, of which 30 billion yen was backed by subprime mortgages, Mizuho said today. Mitsubishi UFJ had 282 billion yen in subprime-related investments at the end of the same period.”

“‘Mizuho didn’t know the risks and followed what U.S. banks were doing,’ said Edwin Merner, who oversees $1 billion as president of Atlantis Investment Research Corp. in Tokyo. ‘Mitsubishi is slower at doing new things and that was fortunate this time.’”

“Japan is probably already in recession, ending the longest period of economic growth in more than 60 years, Goldman Sachs Group Inc. economist Tetsufumi Yamakawa said this week. Lending by Japan’s 10 so-called city banks, including Mitsubishi UFJ and Mizuho, fell 1.7 percent in December, declining for the ninth straight month.”

“Bristol-Myers Squibb Co. wrote off $275 million in investments in the quarter, which could rise to as much as $417 million, said Rebecca Goldsmith, a spokeswoman for the drugmaker.”

“‘Some of the underlying collateral for the auction rate securities held by the company consists of sub-prime mortgages,’ the company said today in a statement. If credit and capital markets continue to deteriorate, Bristol-Myers said, it ‘may incur additional impairments to its investment portfolio.’”

“A former employee of Countrywide KB Home Loans has filed a lawsuit claiming he was wrongly fired after he reported fraudulent lending practices to superiors and refused to approve mortgages for unqualified applicants.”

“In the suit, Mark Zachary contended he was given an excellent performance review last February then fired three months later after he blew the whistle on fellow employees and outlined instances in which appraisers were ‘being strongly encouraged to inflate homes’ appraised value by as much as 6 percent.’”

“Countrywide Financial Corp., the largest U.S. mortgage lender, was subpoenaed by Florida Attorney General Bill McCollum over the company’s lending practices, Bloomberg News reported.”

“Bankruptcy trustees and others say they want to know if home-loan companies made false claims against bankrupt homeowners or used questionable proof to make them pay.”

“The subpoena comes amid a national probe of lenders, including Countrywide, in the wake of the subprime collapse.”

The Wall Street Journal. “The New York attorney general’s office, pursuing an investigation into whether Wall Street firms improperly packaged and sold mortgage securities, is latching onto a powerful regulatory tool: the 1921 Martin Act.”

“The state law, considered one of the most potent legal tools in the nation, spells out a broad definition of securities fraud without requiring that prosecutors prove intent to defraud.”

From Fortune. “The mortgage industry has officially replaced Big Oil as Washington’s favorite political punching bag.”

“But before our elected officials in Congress get too preachy about the lousy lending practices that led to today’s mortgage mess, first they ought to consider Congress’s own role in laying the groundwork.”

“The fact is, neither the expansion of the subprime market nor the proliferation of exotic interest-only or option-ARM mortgages would have been possible without federal laws passed in the 1980s.”

“Says Patricia McCoy, a law professor at the University of Connecticut: ‘Congress never likes to blame themselves, but in this case there’s no question they bear some of the responsibility.’”

“McCoy points to two key pieces of legislation that are at the root of the current mortgage crisis: the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) and the Alternative Mortgage Transactions Parity Act of 1982 (AMTPA).”

“The former abolished state usury caps that had limited the interest rates banks could charge on primary mortgages, and, in the process, gave banks more incentive to make home loans to folks with less-than-perfect credit.”

“It is AMTPA, the 1982 law, that McCoy sees as most problematic.”

“Prior to the passage of AMTPA, banks were barred from making anything but the conventional fixed-rate, amortizing mortgages. AMPTA lifted those restrictions, giving birth to all the new and exotic mortgages that have so many borrowers in hot water today.”

“‘One of the problems was that there were no substitute regulations to make sure these new mortgages didn’t turn out to be exploitative,’ says McCoy.”

“Much of the grief being visited upon borrowers and lenders right now could have been avoided, she contends, if Congress had required that the underwriting standards on the new, adjustable-rate loans be applied not to the teaser rates but to the maximum rates.”

“All the problems that are rampant today existed on a smaller scale in the 1990s, which is why McCoy faults the 1990s Congress for not acting at that time.”

“‘Certainly by the late 1990s, Congress knew of the problems,’ says McCoy. ‘It had plenty of time over the past 10 years to do something, and it did nothing.’”

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Comment by Ben Jones
2008-01-31 11:40:14

And to think that as late as last October, we had posters lecture us on how housing bubble ‘just happen’ and are caused by the FBs alone, and can not be prevented.

Lo and behold, AGs and economist and politicians are digging up all kinds of crimes, lack of oversight etc, regarding house prices. Funny, how this ‘just happens.’

Comment by crispy&cole
2008-01-31 11:45:38

And what are they doing about it now to prevent another bubble - ZIP! ZERO! NADA!

Fraud will run rampant again in some other bubble. I can’t wait for the next one. LIBOR is now near 3.00%, that is below inflation. The cheap money crowd will find their way to the punch bowl again and we will repeat the same cycle again (maybe not in housing, I have conceded you guys are right)…

Comment by NYCityBoy
2008-01-31 11:51:57

The stupidity bubble is already reinflating. Last night you had Cramer telling everybody to buy a house. Today I am hearing the same stupid “buy now” crap from co-workers. “People are dumb.” That’s right. “People are just plain dumb.” And don’t forget greedy, arrogant and self-serving. And then they want to blame everybody else. I hate the fact that I have “The Ethics Gene”.

Comment by waaahoo
2008-01-31 12:07:24

NYc Boy, I just saw a comment from cramer plugging homebuilders

“The looming housing shortage could buoy these groups.”

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Comment by Not_In_Montana
2008-01-31 13:38:18

I saw that. he’s on crack. They need to retire these boobs when they get too busy to even keep up on things. What a jerk.

Comment by Ben Jones
2008-01-31 11:54:15

‘Fraud will run rampant again in some other bubble.’

Ya know, this concept has taken on a life of it’s own. I don’t see any data behind it, just ‘it’s gonna happen.’

Think about how rare true financial manias of any size have been. Every century or so. Then we get Japans stock/housing bubbles and now the global one. People that argue that commodities are in a bubble are misssing the point, IMO, because they are such tiny markets. More currency trades every day than all of those put together, I believe. And that’s just paper and blips.

I am going to post an article in the WE topics thread on the idea that we are seeing a fundamental change in financial history in the making.

Comment by aladinsane
2008-01-31 12:16:01


People are so used to dealing in fantasy-based financials and thinking it’s true, because it’s worked out ok for so very long, that they can’t figure out that a major sea change is occurring before their very eyes.

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Comment by sohonyc
2008-01-31 12:48:00


Here’s my vote to re-start your “Money & Metals” blog. (I was a regular reader.)

I think the first time out was premature — people didn’t get it. Now it’s time. Everyone gets it!

We need a breakaway discussion for those of us who reisited buying a house, but steadfastly refuse to be part of this insane bailout.

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Comment by wittbelle
2008-01-31 13:46:42

Clearly not everyone “gets it”. NOTHING but bad news coming out, unemployment up, Bond insurers write downs, consumer confidence down, recession looming, oil up, the dollar down and the dow? That’s right. Up. Nope, not everyone gets it.

Comment by Desertdweller
2008-01-31 16:33:44

Just wait for tomorrows Employment report…
should be way interesting.
I know lots of folks losing employment, well, they are now working for minimum wage at McD and so on or WM..
Even saw a Mtg banker who used to work at CalFed then went onto WaMu then is now at a small chain.
He was always good, trust him, in the hard times 90s.
Surprised to seem him move down.

Comment by ginster
2008-01-31 12:55:20

Yes, we are seeing a fundamental change. The implosion of fiat based currency and fractional reserve banking.

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Comment by Red Pill
2008-01-31 13:02:04

I agree Ben. Those in the financial world are spoiling a trust that took decades to develop.

Those providing financial services were supposed to be professionals. Professionals (like physicians, engineers, and lawyers) operate with both a skill set AND a code of ethics. The code of ethics is important because people must trust you have indeed competently learned and honestly execute that skill set for the individual paying you for your expertise.

It is clear that a large percentage of the financial world thought of their knowledge of finance and the relative ignorance of their clients as something to be taken advantage of for their own benefit. How many times have we heard someone scoff at not doing due diligence. Well, that is why I hire a PROFESSIONAL.

The population WILL realize that these people are not professionals but instead are skilled con artists.

The financial world will be unhappy to be treated like the used car salesmen and saleswomen they are.

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Comment by AndyInJersey
2008-01-31 14:06:17

This is why I do 99.99% of everything myself, professionals suck! And their sucky services are WAY overpriced, generally not very complicated, time consuming, in most cases basic common sense for anyone with an IQ over 115, sales are based on creating insecurity through fear and obsfucation of basic knowledge, and then monopolizing on the fear they created, and generally breaks down often and/or doesn’t work properly or fails to solve the original problem, often with a new expensive ’solution’ offered by the alleged professional.

Comment by AndyInJersey
2008-01-31 13:58:43

The only thing sizeable about the metals market is the short positions by the PTB. Get those out of there and the price would skyrocket.

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Comment by aladinsane
2008-01-31 15:19:15

Many of us feel we’ve got them by the short & curlies…

Comment by SDGreg
2008-01-31 12:18:27

Legislation has been introduced in the California Assembly that “would mandate that people who want to buy a home can actually afford the mortgage, property taxes and insurance.”

That would substantially reduce the potential buyer pool unless prices drop a lot.

Comment by ex-nnvmtgbrkr
2008-01-31 14:04:04

“substantially reduce”? More like practically eliminate the buyer pool!

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Comment by jetson_boy
2008-01-31 14:48:08

Holy Sh!t. For once, California actually suggests a law that isn’t self-destructive and only beneficial to baby boomers and those who ‘got in’ at the right time. Please by all means pass this law because that will make anything that either Obama or Hillary pass if they get elected meaningless here.

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Comment by Hailey
2008-01-31 17:55:13

I’m still shocked that we need a law that says people have to be able to afford what they want to purchase.

Comment by Earl 288
2008-01-31 19:07:43

Hailey, excellent point!!

Comment by polly
2008-01-31 12:35:01

Bumped into an office friend on the Metro on the way to work today. This is the one that bought a condo in northern VA for an investment about a year and a half ago - he has a tennant but is losing over $500 a month on the carrying costs.

He told me that the real estate market was about to bottom out because of falling interest rates. I said that it wasn’t just the rates, it was the underwriting standards and those aren’t going back, but I don’t think he believed me. Then I started to explain how raising the limits for GSE conforming loans could kill the market for non-conforming jumbo loans up to the new limits and I think I completely lost him.

The more things change the more they stay the same I guess. However, he did volunteer that there might not be a huge and immediate bounce off the bottom. I think that is a big difference in attitude.

Comment by RoundSparrow
2008-01-31 13:25:19

He told me that the real estate market was about to bottom out because of falling interest rates.

Well - a small up tick in buying activity might actually trigger some competition [and price lowering] with the sellers.

It could be that a lot of talk about prices going back up could be exactly what the Doctor ordered.

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Comment by Mike G
2008-01-31 16:15:54

Japan dropped mortgage rates to 1% and still had about a decade and a half of residential house price deflation. Last time I checked, prices in Tokyo were about 60% down from the peak in the early 90s.
When prices get too ridiculous during a credit bubble, manipulating interest rates to adjust demand doesn’t work anymore — it’s pushing on a string.

Comment by Bostonian
2008-01-31 21:23:24

Good point.

Comment by Ostriches
2008-01-31 14:26:35

Polly, I am currently renting in Alexandria, so please do not take what I am going to say the wrong way because prices need to drop in this area by at least 50% to return to affordability.

That said, I fear that housing in this area may never drop low enough because as the rest of the country gets beaten down and people lose their jobs, they will all flock to DC to suckle off of its sweet, sweet teet.

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Comment by polly
2008-01-31 15:19:51

Rockville, MD here, Ostriches, so I understand your pain. Bethesda may never come down enough either. And I won’t consider Siver Spring until I know how bad the safety is going to regress on that end of the red line.

People in this area have some serious congnitve dissonance going on about the local economy. On the one hand they say that things can’t get bad here because of the underlying support of steady federal jobs and on the other they talk about how much more diverse the economy has become in the last decade. You can’t have both folks. There were always fed workers. There were always contractors, though there are more of those now. But that isn’t all there is.

I’ve only been here 3 years. I don’t know how downturns normally impact the DC area. But I think this one is going to hit harder than other ones - despite not knowing what that means.

Pass the popcorn….

Comment by Jim D
2008-02-01 17:13:00

Oh good God, doesn’t anyone in that town remember the 80’s? The fiscally mandated contraction of gov’t spending we’re about to see will be breathtaking. DC is going to get *killed*.

Comment by WT Economist
2008-01-31 12:01:40

I don’t think “all kinds of crimes, lack of oversight etc, regarding house prices” caused the bubble. I think the bubble attracted the fraud, and all the money is generated for insiders gave them the political muscle to fight off oversight.

In my view fundamentals (low interest rates, reasonable prices) got prices rising, and then a “buy now or be priced out forever” upside panic (plus an aversion to stocks) kept prices rising beyond the fundamenals. To me, that explains the bubble through 2004. In 2003 and 2004, I thought prices were out of hand and started advising people not to buy.

But it kept going. Chalk up the persistance of rising prices, and the lack of a correction, in 2005 and 2006 strictly to fraud and malfeasance. It would not have been possible otherwise, because with real incomes and real appraisals the mortgages would not have been made.

The 1980s bubble was initially similar — Northeast real estate was way underpriced, and interest rates were sky high, so when the region’s economy recovered and interest rates came down prices soared, and then kept going as people worried about being priced out forever. But we didn’t have that third, fraud-driven leg.

Comment by DrChaos
2008-01-31 12:35:51

Well, the lack of oversight is exactly what let the fraud through and made the bubble a bubble, and not an economically justified reflation.

It’s the ideological abandonment of traditional, prudent regulation, on the books and enforcement thereof, that is the primary cause of the bubble, as a bubble.

We need regulation to both prevent lenders and borrowers from doing foolish things, and likewise with brokers to prevent them from doing illegal things.

Comment by Fuzzy Bear
2008-01-31 15:13:30

Funny, how this ‘just happens.

In the meantime, business leaders are looking for low cost solutions. I have a report for a business case pertaining to offshoring for a major corporation I am reviewing. Why are jobs leaving the USA?

1. Lower cost of living and salaries.
2. Large pool of well educated professionals.
3. English speaking employees.

The number one reason is the cost of living that has been inflated via the housing bubble which tends to drive up salaries. The consumer needs to wake up and realize that the large increases in home prices were driving inflation and the cost of living which in turn has been driving jobs out of the USA. The consumer needs to stand up and say NO to the high costs of housing and refuse to pay the high costs or they risk losing their job to some low cost country.

Comment by crispy&cole
2008-01-31 11:41:16

Loan forgiveness proposal:

WASHINGTON (MarketWatch) — The mortgage industry is moving too slowly on modifying loans under risk of default, said Sheila Bair, chairman of the Federal Deposit Insurance Corp. in congressional testimony Thursday. Bair said credit problems are developing outside the subprime sector, and urged regulators and the industry to work quickly to develop programs to modify Alt-A and prime nontraditional loans. With prices falling and credit tightening, “hundreds of thousands of additional mortgage foreclosures” could be seen in the next few years. Lenders and homeowners alike might be better served by forgiving part of the debt, she said.


Comment by crispy&cole
2008-01-31 11:48:30

I might stop paying on my house if this passes! Maybe I can get a few bucks hacked off…

Comment by Professor Bear
2008-01-31 11:52:52

Seems like some federal regulators are almost openly encouraging homedebtors to stiff their creditors. This appears to constitute govt meddling in private contracts from my vantage point.

Comment by Ben Jones
2008-01-31 11:59:00

Come on man, have some guts. Go out there and buy 2 or 3 more right now to prove how rich this will make you.

Comment by crispy&cole
2008-01-31 12:09:40

I am joking…this will never pass. UGh!!

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Comment by Ben Jones
2008-01-31 12:16:21

It doesn’t have to pass. She’s talking about the Hope Now thing, right? It is voluntary and looks like it ain’t working either.

Comment by Bye FL
2008-01-31 12:28:57

If this passes, I will buy a big, expensive house and simply stop paying the mortgage and have the bank “forgive” some of my debt so I can keep paying. Then ill stop paying again soon, rinse and repeat. Everyone will do this and this would just reinflate the house bubble all over! *mad*

Comment by crispy&cole
2008-01-31 12:31:11

I think this is a new proposal - which will meet the same fate as Hope Now, Super SIV, Monoline Insurer bailout, etc…

Comment by Bye FL
2008-01-31 13:28:00

It’s shocking how such stupid proposals even get conjured. If any of them pass, itll be a major disaster

Comment by AndyInJersey
2008-01-31 14:09:32

Like a child, they keep trying to pull a coin out of their own ear and find repeatedly it just doesn’t work. Remember people, these are our wise men; are pharasese.

Comment by Bye FL
2008-01-31 16:28:51

The government has already done dumb things, such as walking away from a house and giving it back to the bank incurs no tax penality. Now a much larger number of people are walking away free.

Comment by Desertdweller
2008-01-31 16:40:47

Or like a child who asks one parent then another hoping to get the answer the child wants.. I see it from customers all the time.

Comment by txchick57
2008-01-31 12:31:40

lol. I can’t even summon up the stones to buy one!

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Comment by ex-nnvmtgbrkr
2008-01-31 14:11:00

How ’bout you lend me your identity and I’ll do it for you?

Comment by Desertdweller
2008-01-31 16:42:44

Now hos does that work exactly?
You ‘buy’ another persons credit identity, then you close then POOF the credit identity gets dropped off??
How and when and is that at all possible.
I can only imagine how scary a deal that must be for the Seller of the credit identity..otherwise they could be stuck holding the bag.

Comment by AndyInJersey
2008-01-31 14:12:37

There’s a reason the average IQ is 100. Apparently these people make up the bulk of the bell curve. Considering IQ is only relevant to the group, that would make todays 100IQ about a 75IQ compared to 60 years ago. Sounds about right, borderline retarded. Pretty obvious too when you look around.

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Comment by Bye FL
2008-01-31 16:31:26

Does this mean my ~140 IQ doesn’t make me very superiorly intelligent?

Comment by spike66
2008-01-31 17:33:08

Negative 140? Even the short bus is closed to you. But the government might have a nice group home for you.

Comment by tuxedo_junction
2008-01-31 12:08:12

Before the S&Ls died from poor credit risk management they were ailing seriously from duration mismatch problems. The FSLIC came up with an accounting gimmick to allow S&Ls to defer losses on low interest rate loans that they sold. I would not be surprised if soon banks are allowed by the FDIC and SEC to defer the loss on any debt forgiveness that accompanies a home loan modifaction. For example, reduce a $400k I/O to a $300k fixed-rate amortizing loan, defer the $100k loss, and amortize it into income (expense) over 10 years.

I expect FDIC management to do what FSLIC management did; hide significant losses to avoid placing insolvent banks into receivership.

Comment by bluto
2008-01-31 13:10:22

They recognized the losses, but created a huge amount of regulatory goodwill (basically a phantom asset that gave them a huge amount of capital). A large infusion of assets and a steep yield cuve for enough time cures all ills in banking.

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Comment by cayo_ron
2008-01-31 13:28:29

Please forgive my ignorance of the inner workings of banks, but wouldn’t that radically destabilize a lot of banks in terms of reserves to loan ratios, thus precipitating a Depression-era climate?

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Comment by Lurker
2008-01-31 15:07:40

Check out the current non-borrowed reserves. It appears that it already happened.

Comment by aladinsane
2008-01-31 11:54:22

She did an ok job when housing was a Bair market, doesn’t have a clue what to do in a bear market.

Comment by edgewaterjohn
2008-01-31 12:38:12

In between the lines there seems to be a strange mix of annoyed disbelief and uneasy dread that this is spreading out of subprime - even at this late stage.

Comment by Leighsong
2008-01-31 13:13:51

My eye’s are peeled to the prime, I/O, pick a payment, Heloced ones.

This will not end well.

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Comment by JP
2008-01-31 11:57:17

I think it’s a wonderful proposal. All you have to do is get all the parties that own a piece for all the CDO slices for your house, get them to write down an appropriate amount (say 50%) of the loan, and presto, the problem is solved.

I don’t know why this upsets you crispy, it sounds so easy to implement.

Comment by JRinUT
2008-01-31 11:59:19

Surely they can forgive some of the debt I have on my car, too. Theres some risk of defaults in that industry too, no?

Comment by CasaTostada
2008-01-31 13:42:29

You know, I don’t think I read my lease agreement carefully enough and now I’m underwater. My dream of becoming a homerenter is turning into a nightmare. I think I’ll stop paying, go to my legislator and ask him/her to give me a three year grace period and subsidize my rent. I can’t help it that I am a moron and got caught in the renting hype. Plus, with the money I save, I can buy TIVO and jumpstart the economy. Everyone wins!!!

Comment by ex-nnvmtgbrkr
2008-01-31 14:14:23

C’mon! Why hasn’t someone whipped up my “little monkey humpin’ the football” thingy I asked for?! If I had it I’d be slappin’ about a dozen of them on crispy’s comment.

Comment by Earl 288
2008-01-31 19:13:20

How much debt would SHE forgive??

Comment by Professor Bear
2008-01-31 11:50:49

If you dig deep enough, there is some good stuff buried in the bowels of section A in today’s WSJ…

BTW, doesn’t the U.S. Constitution give the states the rights to go after criminals who harmed them? I don’t buy into this notion that federal regulators should have exclusive rights to guard the mortgage lending chicken coop.

Some articles on p. A12 — sorry, no link:

Tensions Rise in Lending Probes
By Kara Scannell

WASHINGTON — Tensions are beginning to rise between state and federal authorities as the number of agencies investigating mortgage fraud continues to grow.

New York AG Andrew Cuomo is in a tussle with the Office of Federal Housing Enterprise Oversight, the federal regulator that overseas mortgage giants Fannie Mae and Freddie Mac. Their dispute is over who should be the investigating (SIC) allegations of fraudulent appraisals and mortgage fraud.

And another…

Subpoena Deepens Countrywide’s Woes
By Ruth Simon

Countrywide Financial Corp. confirmed yesterday that it received a subpoena from the Florida attorney general seeking information on its business practices.

The subpoena adds to the problems for the Calabasas, Calif. lender, which has drawn the ire of bankruptcy judges, borrowers and consumer groups for months.

Comment by Seattle Renter
2008-01-31 12:22:40

Well, at least they’re fighting over who gets to go after these steaming turds&#153 that caused this mess. I figured we’d be sitting around here till the cows came home wondering why nobody was going after them.

I actually think it’s rather encouraging….

Comment by DrChaos
2008-01-31 12:37:28

Republicans love Federalism when it means that people get less rights, but when states crack down on protected (rich) people, they hate it in some name of ‘efficiency’ or crap like that.

Comment by sohonyc
2008-01-31 12:51:06

Exactly. And they’re the first to champion the cause of free markets — and the next minute they start pleading for the Fed to lower rates. (Somehow forgetting that Fed moves are the very definition of an “unfree” market).

Comment by Seattle Renter
2008-01-31 13:56:57

Good call.

Privatize profits, socialize risk/losses. I’m tired of these j@ckoffs having it both ways. It’s double dutch door action and “We the People” are on the bad end.

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Comment by chicagorefugee
2008-02-01 00:41:23

I’ve noticed that conservatives support States’ Rights right up until the point that those states legalize marijuana. Then their support for Federalism goes, well, up in smoke.

Comment by bluprint
2008-01-31 13:15:20

The answers to all your questions, especially those political in nature, can be found by following the dollars. Who get’s paid? I assure you these people aren’t fighting over who is going to do the work out of a sense of obligation.

Comment by RoundSparrow
2008-01-31 13:54:11

Office of Federal Housing Enterprise Oversight, the federal regulator that overseas mortgage giants Fannie Mae and Freddie Mac

I know many of us do this in the forum… but we aren’t publishing for a living ;)

Comment by sam
2008-01-31 11:51:12

walkaway — from ur house
— from ur debts
we r heading towards the crisis bigger than great depression, people are just walking away

Comment by Ernest
2008-01-31 12:00:03

Just walk away Renee…

Comment by Asparagus
2008-01-31 12:05:34

Just walk away Renee B of A

Comment by Melvin Frumph Hoppe
2008-01-31 12:20:04

Futurist and trends forecaster Gerald Celente, director of the Trends Research Institute in Rhinebeck, NY, predicted the 1987 stock market crash, the collapse of the Soviet Union in 1989, the Asian economic implosion of ‘97, the decline of the dollar beginning in 2005, the meteoric rise in gold prices in an age of currency volatility, and the turn of events that may be the blessing of our era, the subprime mortgage crisis.

Now in his Report for 2008, issued in mid-December, he carried the news every thinking American already knows. “The United States of America,” Celente pronounced, “has gone from first class to third rate.” It’s a “nation on the skids and heading down.” Celente projects economic and political crisis in the coming year. “In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen,” he wrote on December 17. “Just as they didn’t see 9/11 coming and were frozen in shock when terror struck, [Americans] will be frozen in shock when terror strikes again.” He predicts “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities…the stage is set, the big one is on its way.”


Comment by david cee
2008-01-31 12:33:06

Futurist and trends forecaster Gerald Celente, director of the Trends Research Institute in Rhinebeck, NY, predicted the 1987 stock market crash, the collapse of the Soviet Union in 1989, the Asian economic implosion of ‘97, the decline of the dollar beginning in 2005, the meteoric rise in gold prices in an age of currency volatility, and the turn of events that may be the blessing of our era, the subprime mortgage crisis.

Gee, if I was this good, I’d be rich and retired, living well and spending without a worry. EZ to predict when there is no money on the line.

Comment by aladinsane
2008-01-31 12:35:22

The United States was much better prepared for the Pearl Harbor sneak attack, than what’s coming our way, soon.

Comment by PDX Renter
2008-01-31 12:42:31

Wow…we are in for one helluva ride. Get out of debt NOW

Comment by DenverLowBaller
2008-01-31 13:00:58

Get out of debt NOW.

This scenario bends my mind toward going into debt for the first time since college. And I mean serious debt. As it all goes back to zero, a la Tyler Derden(Fight Club), they won’t be able to collect anyway. We are already seeing some of the confusion from the securitzation of the mortgage industry. Who owns my house anyway, and are you sure you have the right authority to throw my stuff on the lawn, sheriff? Or what happens when there isn’t enough local gov’t. money to pay the sheriff dept. to execute foreclosures? Just a quick ramble……

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Comment by Asparagus
2008-01-31 13:04:00

I don’t know. Part of me says max out the credit cards on canned goods, solar panels and guns. When debt becomes completely worthless, it won’t be worth coming after you.

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Comment by RoundSparrow
2008-01-31 14:17:12

Gasoline generators are perhaps more practical than solar. If there is a raise in unemployment to 10 or 15% that is going to seriously cut commutes and people willing to commute. As they leave their overpriced houses they are going to be moving in.

Right now we probably have way too much square foot of house per person in the USA. As that cuts back, I expect a dramatic decline in car usage and cars in general. It almost seems to me the chain right now is:

iPod –> Car —> House

In other words, you buy a car to match your iPod and you buy a House to match your car. Needs [vs. want] and income don’t even factor into people’s thinking. That will change, they will suddenly be looking for practical housing [having a room in a house close to work] and not having a cool SUV and commuting 90 minutes each way to work.

Petrol will be plenty. The middle east doesn’t exactly have a lot of other exports.

Comment by polly
2008-01-31 13:26:56

In some ways, having cash on hand can be more important than getting completely out of debt if the debt is not callable. Even if you assume people will try to collect on the debt and that inflation won’t make the debt meaningless, a person who has just lost her job has much more use for $10K cash than she does for erasing $10K of debt at a fairly low rate that is due over 10 years.

If you mean credit card debt, I’m with you all the way.

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Comment by Arizona Slim
2008-01-31 14:28:39

Credit card gets paid off every month. In full. And, other than my mortgage, I have no debt.

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Comment by edgewaterjohn
2008-01-31 12:46:47

So…I shouldn’t be listening to Cramer???

(Sorry Mel, had to interject some levity)

Comment by KayLaw
2008-01-31 12:54:24

I just walked in from picking up my sons from school and Cramer was on TV predicting a housing shortage. No lie.

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Comment by aladinsane
2008-01-31 12:58:03

He’s bought & paid for, by somebody.

Comment by cayo_ron
2008-01-31 13:35:51

I think Cramer must be doing coke offstage to get all hyped up like the schmuck he is.

Comment by Melvin Frumph Hoppe
2008-01-31 13:15:48

No problem edgie john, humor is very much appreciated especially at Cramer’s expense. . the predictions made by Ketcham are very bleak indeed. I kept waking up in the middle of the night because of them. I am hoping for the sake of us all, our families, that it is wrong.

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Comment by bluto
2008-01-31 14:04:04

Why do you think people are scrambling to dampen the effects so much. A little perspective. In 1929, about 1% of households had stock accounts with margin. In 2005, about 70% of households owned a home. Falling home prices aren’t just going to bring deals to those who waited, 10 years from now there will scarcely be people who weren’t directly impacted by the fallout.

Comment by aNYCdj
2008-01-31 13:37:23

Well all those abandoned houses will not be habitable for long. The squatters Looters, unexplained fires…

How about a closed up house in West Palm Beach, can you say Black mold, or Michigan busted frozen water pies warped floors ceilings

So in the end he might be right.

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Comment by Dinasmom
2008-01-31 15:36:12

I see a new industry here- Flip for RENT! All of the experienced flippers could get together with all the stuck banks and refurbish empty properties in exchange for a roof over the head; length of time commensurate with improvements made. That would at least work towards keeping these properties somewhat liveable. Nothing goes downhill faster than an empty house.

Comment by sohonyc
2008-01-31 12:54:00

Where was he 12 months ago? Celente seems good at announcing that the horses are no longer in the barn.

Comment by Sekar
2008-01-31 12:55:15

Did Cramer really say this ?

So is the subprime mortgage mess the catalyst for the Big One, what Celente calls the Panic of ‘08? Stock guru Jim Cramer, host of CNBC’s Mad Money and co-founder of TheStreet.com, seems to think so. “There are a group of insurance companies that insure all these bad mortgages,” he told Chris Matthews on Jan. 18. “And I think they’re all about to go belly up. And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down. This is going to happen in maybe two, three weeks, Chris. It’s going to be on the front of every paper. And no one in Washington is even willing to admit it. I am telling you these companies do not have the capital to make good. And, when they do fall – I believe it is when – if the government doesn’t have a plan in action, you will not be able to open the stock market when they collapse…No one is even talking about it.”

Comment by Not_In_Montana
2008-01-31 13:54:47

Oh, but that was on a different show..

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Comment by aladinsane
2008-01-31 14:03:29

He’s like the slimiest of stock brokers that tells 50% of his clientelle to go one way, and 50% of his clientelle to go the other way, ensuring that only half of his investors will be mad at him.

Human flotsam

Comment by wittbelle
2008-01-31 14:21:10

“CRAMER: … which is that there are a group of insurance companies that insure all these bad mortgages.And, Chris, they‘re—I think they‘re all about to go belly up.
CRAMER: And that will cause the Dow Jones to decline 2,000 points. They have got to be shut down and the insurance given to new resolution trust. This is going to happen in maybe two, three weeks, Chris. It‘s going to be on the front of every paper. And no one in Washington is even willing to admit it. ”


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Comment by sm_landlord
2008-01-31 13:35:14

Interview with Gerald Celente from 1-10-08.

Podcast hosted Here

This guy says: “People are Freaking Out!”. 26 minutes running time.

Comment by SoCalRugger
2008-01-31 12:01:40

“Pulte’s CEO, Richard Dugas, during a conference call Thursday was cautious in his outlook for the U.S. housing market. ‘For the home-building industry, the year 2007 will likely be remembered as one of the most difficult and challenging in decades,’ the CEO said.”

Fast Forward - Commenting on 2008 #’s, Mr. Dugas stated ‘after the year we had in 2008, we long for the low cancellation rates and pricing from 2007′.

Comment by Jimmy B
2008-01-31 12:14:52

I think he will be saying “…the year 2007 will likely be remembered as the year we still had jobs.”

Comment by RoundSparrow
2008-01-31 14:25:00

I’m normally only a currency trader… but I couldn’t resist opening a stock account and shorting PHM today. I’m betting only a few % of my cash… but still.

Up 17% on today’s news is insane.

Comment by RoundSparrow
2008-01-31 14:26:24

Actually they were up as much as 22% today alone. Insane.

Comment by Hmmmmm
2008-01-31 12:04:47

(i) “Why did the less desirable areas increase so much? I’ve noticed this in California as well as Florida. Back when prices were at their peak, $200k to $300k got you little more than a shack in the ghetto. But add just another $50k to $100k and you could already get a decent house in a middle class neighborhood at $350k to $400k price.”(i)

I thought this was an interesting question from below. I am not an economist, just a consumer. I also noticed the same thing. In the DC Area everything floated up to around $500k and up. My theory is that it is all about the financing. The funny money was stretched as much as possible and the real bottom rung for the most liberal of lenders was around this level. Since the bottom was set at this level, the rest goes up, but not as much. For example if an entry level home in the outer suburbs was going for around $100k in 2001 a mid level home was around $350. If the entry level home goes up 5x to $500k, the upper level home does not move the same because the middle class wasn’t going to believe that they could afford a $1.75 million dollar house no matter what. Much of the middle moved to the mid $700’s to $800’s in our area, a little more than double. Even with fancy financing you have to believe that you can buy the house. While a family might think they could stretch to afford an $800k home for a few years before refinancing, no way would they think that on an almost $2 mill home. It seems like a natural flattening at the top. JMHO.

Comment by Bye FL
2008-01-31 12:40:39

Good explanation. Even with “creative” financing based on a 2% teaser rate, the monthly cost would be too high on a house more than around $750k for middle class. Ive also noticed that speculators bought up “cheaper” houses more than “expensive” houses.

Explains why bedroom communities are the first to drop and will be crashing harder as they became more inflated than cities. As those got priced out of cities, they started inflating suburbs as it appeared “cheap” for them.

The same applies to bad neighboorhoods. I am gonna guess it was speculators buying there with no intent to live with the crime while the middle class bought in good neighboorhoods.

Do you think other states will crash hard as well? Lots of Floridians moved to the Carolinas, Georgia, Tennessee. Yet for some reason im not seeing much of a drop in those states but huge drops in Florida. Was Florida the same price as the other states before the bubble?

Comment by Sekar
2008-01-31 13:31:25

Are you sure about Georgia ? Atlanta had one of the highest rates of increase in foreclosures in the country of any large metro city. I think it was pretty much a nationwide bubble. While some areas were worse than others, I think the falling tide will lower all boats accordingly.

Comment by flatffplan
2008-01-31 14:34:48

only commodity area w corn or oil are even money-the rest are down

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Comment by jetson_boy
2008-01-31 15:03:45

All I can say about Atlanta is that it has the WORST traffic I’ve ever seen… and I live in California. It is a case of a city that has grown too fast and lacks the infrastructure to handle it. On the other hand, it has more young professionals than any other city. I have friends who live there and love it. I’d say the foreclosures are due to the fact that Atlanta has a HUGE chunk of a population under the poverty level.

I haven’t been in years. I wonder if it has gotten better or worse? And Bye to Fl, it depends on what price level you’re looking at. They built a lot of 350-400k Mcmansions in TN and GA. Those aren’t selling at all. But the lower end of the market, meaning the 100-200k market is doing moderately well since this is still within reason for most people who live there. My dad just sold his rental house for 98k. First day.

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Comment by Bye FL
2008-01-31 16:45:09

It’s funny that “lower end” is now $100k to $200k. I would need $40k to $75k annual salary and 20% down to afford those homes. What is the median per person salary in those locations? Even if it’s $40k, this barely gets you into a $100k house and you need $20k down at that. I do not consider those prices reasonable if they were much cheaper before the bubble. My dad bought an upper middle class house(3777 living sf) in West Palm Beach on an acreage lot(with pool and tennis court) for $225k back in 1995. He sold his middle class 5/3 2300 sf house for $105k.

Wages in 1995 were almost the same as wages today and the cost of living was much lower due to cheaper gas and food. Nowdays essentals take a bigger chunk out of wages, leaving less available for houses. I honestly think a $100k house today isn’t any easier to afford than a $100k house before the bubble.

Comment by packman
2008-01-31 12:59:02

Agree completely. I bought a house in CA in 2000, in a mixed area. I was amazed that as my $310k house increased above $600k - the $1.2M houses about 200 feet away from me increased only to about $1.3M.

So I think for the most part there was a large compression in the range about 500k-1M, with houses above 1M barely going up at all during the bubble. Everything below 500k went bonkers (e.g. my house, which I sold in 2006 for 675k).

Comment by CasaTostada
2008-01-31 13:50:33

I agree with the above. It brings to my mind the fact that homes in Fontana, CA (NPR piece last night) increased to above $500,000 during the bubble. Simply crazy. That place shouldn’t support a single home above $300,000.

Comment by OCDan
2008-01-31 15:10:07

AMEN to that! I lived there for 10 years and got out 2 years ago at just about the tome for that area. 300K for the best house in that city is generous. Based on demographics and socioeconomic sumbers as well as quality of life, that place really shouldn’t be more than 200K for a home unless it has quite a lot of property and maybe a pool, which is very desirable in the summer.

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Comment by WT Economist
2008-01-31 13:52:14

“Why did the less desirable areas increase so much?”

Let’s say the number of affluent people exceeds the number of houses for sale in affluent areas. Those people are pushed to less affluent areas, where they bid up the price.

That’s why the gentrification line expands in NYC during housing booms.

It works in reverse too. What if the number of houses for sale in an affluent area exceeds the number of affluent people who want to move there? Some sellers must sell to the less affluent, at a price they can afford.

Comment by jetson_boy
2008-01-31 15:08:20

I think it is even more simple than that: Population. If you look at CA, the Northeast, and other really expensive areas, they’re also the most populated areas in the country. More people= more competition. It has nothing to do with the actual house because out here in CA, a 800k home is a teardown from where I come from. My home state has less people than SF. That makes a difference.

That and I don’t think the sugar-coating of ” we’re special” that permeates these expensive areas helps either.

Comment by Bye FL
2008-01-31 16:47:05

Then explain why much of Texas remains affordable, yet population is high? Also people are leaving by the millions from expensive states, why aren’t house prices falling fast?

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Comment by Desertdweller
2008-01-31 17:12:19

Tex has no unions to speak of.. ‘right to work’ or get ripped off state, which is why corps like to move into TX. In general, workers salaries/wages aren’t enough to support high priced homes, JMHO.

Comment by Professor Bear
2008-01-31 12:08:22

“It is AMTPA, the 1982 law, that McCoy sees as most problematic.”

“Prior to the passage of AMTPA, banks were barred from making anything but the conventional fixed-rate, amortizing mortgages. AMPTA lifted those restrictions, giving birth to all the new and exotic mortgages that have so many borrowers in hot water today.”

Noice. The problems we see now had their seeds planted early in the Raygun years, before AG took over at the Fed, before any Bushes or Clintons held the reins of power, and likely before all but a small handful of present-day Congressmen took office. And the pernicious effect started out like the acorn which takes root and sprouts a small oak tree. Now the tree is casting a considerably large shadow over the global financial system, and nobody still in government bears direct culpability.

Comment by DrChaos
2008-01-31 12:40:06

The rate structures aren’t the central problem (though exploding teaser rates are inherently deceptive).

The lack of downpayment is the central problem. Low down encourages speculation, fraud, and leads to huge losses.

Welcome to the endgame of movement conservativsm, turning back the economic clock to 1910, but without the morality of 1910 or Teddy Roosevelt.

Comment by aladinsane
2008-01-31 12:45:19

Reagan’s legacy gets a little more tarnished, with every passing day.

Comment by az_owner
2008-01-31 13:14:19

Ted Kennedy was around in 1982, and his party controlled Congress for the 30 years preceeding, and 12 years after this AMTPA was passed. Maybe someone should ask him why he didn’t do anything back then to prevent today’s problems, or now, as his party has been BACK in control of Congress for over a year, and STILL doesn’t do anything about this.

It’s like the guy has seen it all happening right in front of him for 26 years through seven Presidential terms and just doesn’t care…

Comment by SanFranciscoBayAreaGal
2008-01-31 14:08:20

Can’t we just agree both parties were at fault here. What good does it do to blame demo, repub, demo, repub. Eh gawds, and what were we the voters doing during those times?

Comment by Hoz
2008-01-31 15:25:18

“He’s not anti-American, he’s anti-Yankee. And where I come from, everyone hates the Yankees.”

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Comment by spike66
2008-01-31 17:45:25

Man, those Cheeseheads are sore losers. So the Packers ate dirt. Won’t be the last time. The Yanks will nail another Series before the Packers rise from the ashes.

Comment by Desertdweller
2008-01-31 17:18:17

okeydoke, so is this who gets the blame? TK?
Hell that was during the time he was drinking so darn much.
Maybe now he gets it.
But he didn’t close all the state run mental hospitals which opened up the floodgates to homelessness and he didn’t fire all the Air traffic controllers to make a point. but that is only one of many.. yes, aladinsane, rayguns is going to get his due.
Hopefully those in tv will stop praising that departed Pres.

Comment by Mary Lee
2008-02-01 00:06:29

Tough to keep track after that 3-martini breakfast

Comment by Desertdweller
2008-01-31 17:14:33

Amen on that one PB..so they can all say “who me?” or it wasn’t on my watch, or it isn’t my table..
Yuppers it was during rayguns time even starting by things he did during his term as gov in Ca.

Comment by passthebubbly
2008-01-31 12:08:38

Bristol-Myers has subprime exposure? Bristol-Myers!??!

OK, I read through the earnings release. They’re valuing what they’re calling “auction rate securities” at about 50c on the dollar (and for some reason, marking them down to only about 70c). Oh, and they’re moving them from current assets to “illiquid” securities, so who konws what they’re worth. But hey, they’re still paying interest, even if they can’t sell them!

Comment by cynicalgirl
2008-01-31 12:27:43

Yup, they’re a drug company. It’s “contained” alright.

Comment by txchick57
2008-01-31 12:32:57

Ciena got hosed on that too. Back in December.

Comment by bluto
2008-01-31 13:47:35

Corporations have extra cash which they have to invest. Sometimes they buy bad paper. Look back a few years and you’ll find the same thing with airplane leases.

Comment by aladinsane
2008-01-31 12:39:26

In the Smithsonian magazine a few months ago, one of the articles was about the amazing year of 1908, and everything that happened…

2008 and is shaping up to be one of those seminal years, as well.

Comment by aladinsane
2008-01-31 12:46:55

The 4th estate is 4th rate.

Comment by Lost in Utah
2008-01-31 13:54:52

the unreal estate

Comment by aladinsane
2008-01-31 13:55:45


Comment by pressboardbox
2008-01-31 12:50:36

Cramer says we’re going to have a housing shortage one year from now. Buy!buy!Buy!

Comment by Bye FL
2008-01-31 13:31:06

Do the opposite of whatever he says and you are golden ;)

Comment by Tom
2008-01-31 14:25:00

He also said Google was going to $800. WTF?

Comment by wittbelle
2008-01-31 23:40:11

I think Cramer is SERIOUSLY bi-polar. He needs meds.

Comment by packman
2008-01-31 12:53:31

“Pulte’s strategy since the third quarter of 2007 has been mothballing communities rather than selling homes at a deep discount, according to Anna Torma at Soleil Securities Group.”


They’re breaking ground on new townhomes right across the street from me as we speak. This in an area that’s got record-high inventories (about 3x historical norms) and plummeting prices.

Comment by spike66
2008-01-31 13:05:44

Volker Backs Obama…First Time He’s Spoken for a Candidate

“Jan. 31 (Bloomberg) — Democratic presidential candidate Barack Obama won the endorsement of former Federal Reserve Chairman Paul Volcker, his campaign said.
The Wall Street Journal earlier reported the endorsement on its Web site, citing a statement from Volcker. Volcker said he had been reluctant in the past to endorse candidates in political campaigns, yet had decided that “a new leadership and a fresh approach” were needed, the Journal said.

“It is only Barack Obama, in his person, in his ideas, in his ability to understand and to articulate both our needs and our hopes that provide the potential for strong and fresh leadership,” Volcker said, according to the newspaper. Obama campaign spokesman Bill Burton confirmed the endorsement.”

Comment by aladinsane
2008-01-31 13:50:44

The last time we had a brilliant intellectual mind, in pursuit of the Presidency, he had the bad luck of running against a bonafide World War 2 Hero, not once, but twice.

This time is different, as Barack will be running against an aged ex-p.o.w.

Comment by Ernest
2008-01-31 14:21:55

“in his ideas”

Exactly, what are those ideas?

Comment by Not_In_Montana
2008-01-31 15:42:33

We need to get beyond ideas! lol

Comment by spike66
2008-01-31 13:19:26

Volcker Backs Obama

“Jan. 31 (Bloomberg) — Democratic presidential candidate Barack Obama won the endorsement of former Federal Reserve Chairman Paul Volcker, his campaign said.
The Wall Street Journal earlier reported the endorsement on its Web site, citing a statement from Volcker. Volcker said he had been reluctant in the past to endorse candidates in political campaigns, yet had decided that “a new leadership and a fresh approach” were needed, the Journal said.

“It is only Barack Obama, in his person, in his ideas, in his ability to understand and to articulate both our needs and our hopes that provide the potential for strong and fresh leadership,” Volcker said, according to the newspaper. Obama campaign spokesman Bill Burton confirmed the endorsement.”

Comment by FutureVulture
2008-01-31 13:24:50

CNBC ALERT: Moody’s affirms AAA rating of that homeless guy at the corner of 5th and Main St.

Comment by Hoz
2008-01-31 15:47:38

I googled, dang I am stupid! LOL

Comment by wittbelle
2008-01-31 23:34:35


You are not kidding.

Comment by mgnyc99
2008-01-31 13:25:46

ot- i clicked on a link and found this article

do not drink hot beverages while you read it


it is from last year

Comment by Desertdweller
2008-01-31 17:23:04


61 prs of same $1,200.00 shoes?

Comment by wittbelle
2008-01-31 23:37:00

Gordon, come out of the closet…. it’s okay. Tell your dad he should come out, too!

Comment by wittbelle
2008-01-31 23:47:34

These people would be sickened to see how my ex-husband’s grandmother lives. She made loads of money selling some apartment buildings to USC in the mid-eighties. She used that money and bought a bunch more properties in Santa Monica and now is a multi-multi-millionaire. She’s super old and senile now, but when I was still in the picture, she used to buy all of her clothes used and drove around in an old Lincoln. Most wealthy people are that way for a reason. They don’t waste their money on $1200 shoes. What a mo.

Comment by Bye FL
2008-01-31 13:26:00

Comment by jetson_boy
2008-01-31 11:56:11

“expensive” is relative. 100-150k in TN sounds reasonable to me. Why? Because I am very familiar with the region. My whole family lives there. None have ‘fantastic’ jobs. My mom is a teacher. Dad works as an HR manager. They both make less than 80k per year combined. Yet they have 18 acres, a pool, a somewhat large home, two newer cars, and a nice workshop. Their property was last valued at 160k. It is only 15-20 minutes from Knoxville. Most of my friends and family who still live there make close to the same, meaning they are squarely middle class people living in modest homes within their means. They have a mortgage ( my parents paid theirs off years ago) and they have 9-5 jobs.

Compared to the quality of life I have in CA, where I make more than double of anyone back home, Their lives are actually far more secure than mine. So yes- I feel that TN and a number of other states have a more reasonable living and price to income ratio than most of the coastal states.

I have read your posts on here repeatedly and as much as I hate to say this, I think your expectations of a house being 30-40k are unrealistic and makes me wonder if you should be saving and seeking ways to expand your income instead of moving to the rust belt. I’m not trying to be critical, but you have to at least be realistic and realize the economic reasoning behind price in certain areas, as contrary to this blog as that might sound. Good luck.

My comment: Why don’t you move back to TN and be with your family? The biggest reason im leaving south FL is unaffordable homes and high crime. You may earn half as much when you move back to TN but houses are several times cheaper and you have family back there.

Would it be unrealistic to expect houses for less than $50/foot anywhere in Tennessee? Are jobs that good in TN, even northeast TN such as Bristol?

The rust belt is looking good for retired people and self employed people who can work remotely anywhere by internet(such as me) where do you think rust belt prices will go? Alot of people say prices will keep dropping. If so, ill be able to get a very nice house on many acres of land for cheap. My quality of life will be far better in the rust belt than any city.

Even if I was offered a high paying job in a city, if the salary is not enough to offer me comparable quality of life vs. a semi rural area, ill decline the job. You seem to be in that situation where you make double salary, yet could be living in TN with much better quality lifestyle.

Comment by jetson_boy
2008-01-31 14:56:43

It really depends on what you line of work is. What’s important to understand is that the professional and industrial landscape of the Southeast is developing rapidly. I left almost 11 years ago and back then, you had two choices: work for the government ( TVA, ORNL, Etc) or work in a service industry job. Since I left, there has been a fairly dynamic change. I myself work as a designer for a ad firm in SF, but I’ve noticed a lot of new studios opening shop in Nashville, Knoxville, and other cities like Atlanta and Raleigh,NC. I’ve also found the pay to be almost 70% of what I now make.

So ya, the situation there is improving. The problem is that the Southeast is pretty much sucking the Rust belt of whatever manufacturing and related industries away. With it comes people. So I imagine that within another 5-10 years, depending on how bad the economy gets, the opportunity will not be as good as it is now. It could very well fall into the same general category of suckiness as most other metro areas.

My goal is and has been for years to save, save, save until me and my wife have enough to buy a modest home there, put a modest amount in for retirement, and perhaps another 20-30k as emergency money. We’ve pretty much met that requirement, but the state of the economy has me thinking that I should pad that amount even further and save up as much as possible.

I basically want complete and total detachment and reliance on the US economy to facilitate any of my major purchases. I find the way in which the US economy works these days as highly volitile. I would hope to separate myself from it as much as possible.

Comment by hd74man
2008-01-31 13:43:17

“In the suit, Mark Zachary contended he was given an excellent performance review last February then fired three months later after he blew the whistle on fellow employees and outlined instances in which appraisers were ‘being strongly encouraged to inflate homes’ appraised value by as much as 6 percent.’”

Only 6%? No way…Even Re-location companies give you 4%.

My guess the inflation factors are to closer to 15/20%.

More if located in a junk neighborhood.

Comment by flatffplan
2008-01-31 14:03:29

lol >>>6 % - he should be canned
it was 10-20 yo

Comment by bizarroworld
2008-01-31 13:52:14

Headlines read:
MBIA Loses $2.3 Billion on Write-Downs
Consumer Spending Slowed in December
Jobless Claims Rise

Dow up 250? NAS up 50? I guess as long as the good news mentioned above continues to roll in, the market should see 14k soon? Sorry, merely confused again.

Comment by aladinsane
2008-01-31 13:59:10

As a catch and release fisherman, I take great umbrage at the way my line is being constantly slandered…

“‘We’re paying for those mistakes and I don’t just mean MBIA, I mean all the monolines,’ MBIA CEO Gary Dunton said on a conference call.”

Comment by Captain Credit Crunch
2008-01-31 14:24:16

This doesn’t seem like a bear market to me! I’m getting crushed in my puts on the financials; I thought 50% rise was meteoric last week. Today’s nuts.

Comment by Bye FL
2008-01-31 14:31:54

Poor TXchick(if she hasn’t sold her puts yet), but she did mention several months ago that it was getting risky to short as most of the losses have been realized already.

Too much weirdness going on to buy options at this point. Buy funds and hold onto them for long term capital gains.

Comment by sm_landlord
2008-01-31 14:38:34

That’s called a “bear market rally”, my friend. Mr. Market is calibrated to cause the greatest possible pain to the largest possible number of participants. :-)

Comment by Hoz
2008-01-31 15:45:34

“Lemme splain” Mr. Ricky Riccardo to Ms. Lucille Ball

Today is the last day of the month. Funds adjust positions to make them not look so stupid. If ABC stock has a good performance during the month the fund owners of XYZ (which may be a better company) sell and buy ABC.

It is not smart to get enthusiastic about market action on the last day of any month. If short, either hedge up or liquidate- generally the day before but never later than noon EST. If long sell at the close of the last day of the month. This is CYA.

The performance of the funds is so pathetic that to avert mass defections and redemptions from the various funds, adjustment has been huge. The performance of the fund has not changed but the end of the month holdings will look good on paper.

Comment by Not Mssing It
2008-01-31 14:48:05

Have you guys seen what these boneheads are paying for a pair of Nike Jordan xx3’s on ebay?

Scotty beam me up this place sucks!!!

Comment by Bye FL
2008-01-31 16:48:32

How much? $100? bah ripoff. I never pay more than $40 for sneakers

Comment by Big V
2008-01-31 15:03:49

I sent this to Feinstein. I hope you all do the same with your senators. Will do Boxer later:

Dear Senator Feinstein:

I recently sent you a letter explaining why it would be disasterous to allow the government-sponsored mortgage agencies to take on mortgage loans for up to 10x median income. I hope you read that letter and understood it. This letter is to explain why it would be wrong to use $25 billion of taxpayer money to buy bad mortgages from banks and allow irresponsible debtors to keep the houses that they never could afford to begin with.

Right now, houses in the United States (and many other countries around the globe) are terribly overpriced. Today’s prices were only temporarily enabled by the insane lending that banks engaged in once mortgages became securitized as a matter of course. Now that the pyramid scheme has run its course, house prices are declining to their natural, healthy levels. They are becoming more affordable, and that’s great news! Because affordability is returning all on its own, there’s really nothing that you need to do.

Senator Dodd’s hair-brained scheme will only serve to artificially prop up the housing market, thereby keeping home ownership out of reach for today’s young families. It will lock in ownership and false profits for those irresponsible people who gambled on the market and lost. It will also increase my taxes and decrease public services, making it even more impossible for me to escape from this perpetual trap of renting and secure a stabe financial future for myeself. This is even more important when you consider the possibility that my generation will receive tragically insufficient support from the Social Security Administration. My generation and our children may never recover if you rob us of our ability to purchase houses with the wages we earn.

Please do all you can to prevent Senator Dodd from succeeding with his plan to buy other people’s houses with my money.

Comment by montana jim
2008-01-31 15:14:20

“…folks with less-than-perfect credit.”

The phrase: ‘less-than-perfect’ must’ve been conjured-up on a used car lot in response to a potential buyer’s question: “What’s that knocking noise??”

Wouldn’t that be comparable to calling Countrywide’s loan portfolio less-than-AAA rated?

Comment by CarrieAnn
2008-01-31 15:37:55
Comment by Dinasmom
2008-01-31 15:57:56

Comment looking for a place to nest.

Nothing goes downhill faster than an empty house. It would make sense for banks to cut a free or subsidized rental deal with people who would contract to improve the property rather than letting it go to seed. Win-win… for both parties (and for the big home improvement stores).

Comment by Kyle
2008-01-31 16:34:04

If the house were owned by an individual they might do just that.
However, banks like most large organizations have so many layers of intiative-killing, ass-covering management, bureaucracy, inertia and inflexibility that they are unlikely to go for something this sensible because it doesn’t fit into their procedures rulebook.
Everything has to be pre-approved, there’s risk and uncertainty, and nobody wants to take responsibility because they’ll be scapegoated if it fails.

Comment by Professor Bear
2008-01-31 18:20:20

There are a few potential problems I can think of here:

1) If deals start getting cut, then the media would naturally catch wind of these, and might start noticing the huge supply of empty houses across the U.S. and reporting on it. This would tend to make the value of empty houses deteriorate more quickly than forces of nature do.

2) Banks may be holding out hope for a GSE bailout which would let them unload toxic loans on the U.S. taxpayer. It might help their cause to keep the massive size of REO inventory out of plain view until this possibility is resolved.

3) Banks may be holding out hope that the market will turn around before they have to sell. A would-be seller would not care to deal with the problem of evicting a tenant and cleaning up their mess before selling.

4) Given that (at least according to my impression) many of the empty houses have never been lived in, renting such places out would qualitatively change their status from new to used homes, potentially knocking many $thousands off their market values.

5) There may be a negative stigma attached to homes formerly occupied by renters, especially in a slow market where there are many homes for potential buyers to choose from.

6) Renters can be harder on a home than leaving it sit vacant, especially when dogs and/or children are involved (speaking from first-hand experience here). Wear-and-tear costs offset the rent which can be collected from tenants.

Other than these potential problems, I can think of no reason why banks would not want to rent out homes and earn some income rather than keeping them empty and gaining nothing while holding on to rapidly devaluing assets.

Comment by Dinasmom
2008-01-31 22:12:48

Well, they will rent, and already are renting out many of the foreclosures while others sit empty and neglected. I can evnvision a scenario where families contract to take care of landscaping (mow lawns, trim trees and shrubs), perform basic maintainance and interior cosmetic work for lessened rent and no rent if they made substantial improvements. Granted, that wouldn’t work for all properties or all persons, but it would be wonderful for families that REALLY needed the help and were willing to put some sweat into having the chance to live in a home. The alternative of letting space sit empty as prey for vandals or squatters and paying yard crews anyway to keep up the exteriors seems as expensive as working out something like this- a hand up instead of a hand out.

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