Part Of The Real Estate Gamble
Some housing bubble news from Wall Street and Washington. Philadelphia Inquirer, “Radian Group Inc., a Philadelphia insurer of mortgages and bonds, said yesterday that it lost $618 million in the fourth quarter as the credit condition of American households worsened. Claims paid for mortgage defaults more than doubled in the quarter to $164.67 million from $81.14 million in the 2006 quarter. The increase included prime mortgages, which climbed to $53.2 million from $28.9 million.”
“Those payments are expected to reach $200 million in the current quarter and $1 billion for all of 2008, C. Robert Quint, Radian’s chief financial officer, said during a conference call. The company threw out its September projection of $2.16 billion in cumulative losses on mortgage defaults.”
“‘We now believe that losses will exceed those projections, although it’s unclear to us at this point by how much given the prevailing uncertainty in the market,’ Quint said.”
From BBC News. “Credit Suisse has suspended a ’small number’ of traders suspected of inflating the value of mortgage-backed bond investments by $2.85bn (£1.5bn). The Swiss firm blamed pricing errors for its actions, which would cut $1bn from expected first-quarter profit.”
“It also blamed ‘adverse market conditions’ for the write-down.”
“Tuesday’s revelations by Credit Suisse stunned many analysts because they came a week after the Zurich-based firm posted its results for the last three months for 2007. At the time, it reported minimal damage from the US sub-prime crisis, with losses of 2bn Swiss francs ($1.8bn; £938m) last year, less than it had originally expected.”
From Reuters. “Barclays Plc, Britain’s third-biggest bank, raised its 2007 writedown on the value of risky assets to 1.6 billion pounds ($3.1 billion). The bank said its exposure to collateralized debt obligations stood at 6 billion pounds before hedging, while its exposure to Alt-A mortgages rose to 4.9 billion and its exposure to U.S. monoline insurers totals 1.3 billion.”
The Daily Express. “Gordon Brown is under intense pressure to sack Alistair Darling after the ‘disaster’ of Northern Rock’s nationalisation. Northern Rock shareholders were also outraged after being that told their holdings have been made virtually worthless by the state takeover.”
“City analysts warned that investors will get virtually nothing. Sandy Chen, of investment firm Panmure Gordon, said: ‘Shareholders will want to see some money out of their investments but the financial reality is that they are likely to get nothing.’”
“Ministers opted for nationalisation after failing to reach a deal for a private takeover. Plans for potential sales to Sir Richard Branson’s Virgin Group or Northern Rock’s management team both collapsed.”
“A statement from Mr Branson said: ‘We believe that nationalisation is not the right answer and that a commercial solution would have been the best way forward.’”
“Details of the nationalisation were rushed out yesterday and will be debated in the Commons today. Mr Darling faced rowdy scenes in the Commons. Shadow Chancellor George Osborne told him he had taken Britain back to the failed policies of Labour’s past.”
“He added: ‘We can safely say you will never recover your reputation for competence. You are now politically a dead man walking and if the Prime Minister could actually make a decision he would move you.’”
The LA Times. “After years of watching house prices soar even faster than those in America — modest three-bedroom tract houses in the London suburbs were going for $2.2 million at one point — Britons are now weathering a sharp rise in mortgage defaults.”
“Repossessions — the British term for foreclosures — jumped 21% last year, with filings against more than 27,000 homes, according to the Council of Mortgage Lenders.”
“‘There is potentially a huge number of people who may be in difficulties,’ said Adam Sampson, director of a nonprofit group that counsels homeowners seeking to avoid losing their houses to debt. ‘So many of the people we see are husbands and wives who have borrowed against both their incomes. A substantial number have never had to verify their income to their lender.’”
“Dawn Newbury, a mother of three in Cardiff, Wales, saw her payments rise from $1,510 a month to nearly $2,000 when her sub-prime loan’s interest rate reset. The lender immediately sought repossession when she fell behind. Newbury won a reprieve in court, but was hauled back when her payment fell $40 short of the minimum.”
“Newbury found another sub-prime lender who paid off the first. She is now on an interest-only loan at $1,500 a month, which will soon go up to $1,910.”
“‘And then the whole cycle’s going to start all over again,’ she said. ‘They’re vultures, I’m telling you. They give you the money because they know you’re going to default, and they know they’ve got a lovely house coming out of it.’”
The Providence Journal. “A nationally recognized housing expert from Harvard University asserts that the federal government has ‘underreacted’ to the alarming rise in home foreclosures across the country.”
“Nicholas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies, said the initiative announced last week by the Bush administration to grant some homeowners threatened with foreclosure a 30-day reprieve is like a ‘a stay of execution, but it’s not a pardon.’”
“‘Our government, particularly at the federal level, has underreacted to this market,’ Retsinas said before a group of about 60 people. ‘It’s a problem that calls for a very rapid and extensive government solution.’
“Retsinas’ remarks came during a forum titled ‘Lost Homes: Tip of the Iceberg?’ In Rhode Island, ‘10 homes a day’ begin the process of foreclosure, Retsinas said.”
“The ‘epidemiology’ of foreclosures ‘looks like cancer,’ said The Providence Plan’s Bruce Boucek., pointing to maps of Providence with colored dots indicating the spread of foreclosures.”
“Consider the demographics, Boucek said, and the questions multiply. In the West End, 36 percent of the residents fall below the federal poverty level, according to the 2000 census. The neighborhoods showing highest concentrations of foreclosures are the same neighborhoods where more than half of the residents are minorities, most of them Hispanic.”
“‘Why were all of these people sold mortgage products in the first place?’ said Boucek.”
The New York Times. “The mortgage market may be in a historic upheaval, but mortgage companies continue to pump out upbeat advertisements.”
“Countrywide Financial brags in its ads that ‘No one can do what Countrywide can’ and that ‘Countrywide can show you the way home.’ Wachovia ads feature an ‘Approved’ stamp prominently at the top, and Bank of America says, ‘Homeownership is the best medicine.’”
“Also, the National Association of Realtors is running national television ads saying there has never been a better time to buy a home. Home values nearly double every 10 years, the commercial claims, showing a young couple walk up to their white colonial-style home.”
The Associated Press. “Regulators are trying to punish Wall Street for mortgage finance practices that expanded home ownership and spread risk among a host of new players — but also may have duped borrowers and investors who supplied cash to fuel a housing boom that’s turned bust.”
“A handful of state securities regulators and a couple foreclosure-blighted cities have fired the opening shots with lawsuits trying to prove that investment banks and big lenders are guilty of more than just bad business decisions and failing to foresee looming mortgage troubles.”
“Aside from the civil cases, the FBI is looking at possible criminal action, focusing on what Wall Street firms knew about the risks of mortgage securities backed by subprime loans, and whether they hid risks from investors.”
“States have responded by tightening rules governing how lenders and brokers arrange mortgages and are compensated. But lawsuits and administrative complaints are the main tools regulators use to seek fines against companies accused of wrongdoing, or to set examples to deter bad behavior.”
“‘What they can’t enforce through regulation, they will try to accomplish through suing,’ said David Bizar, a Hartford, Conn.-based attorney who defends against subprime mortgage lawsuits brought by consumers and regulators.”
“In the rush to sue big business, there’s plenty of blame to go around in the subprime meltdown, said Bizar. But the mess can be blamed more on unrealistic expectations than fraud, he said.”
“‘You had a lot of people reaching to get into homes they couldn’t afford, on the theory that it would go up in value,’ Bizar said.”
“It is confession season for the world’s big banks as they complete 2007 results and try to account for the full scale of the subprime credit upheaval that threatens to stall the global economy.”
“Over the next two weeks, most major U.S. banks will file annual reports with the U.S. Securities and Exchange Commission, and several of Europe’s biggest financial companies will release 2007 earnings statements.”
“For some, it will be the first audited reckoning of how badly they were hurt by the market turmoil that began with defaulting on U.S. subprime mortgage loans.”
“Kenneth Rogoff, an economics professor at Harvard University and former chief economist of the International Monetary Fund, said write-offs related to the subprime problem were just the beginning.”
“‘We haven’t by any means seen everything,’ Rogoff said. ‘If it were just the subprime debt, it wouldn’t be so bad. We’re just entering the recession, so the defaults are just beginning.’”
“Rogoff recently co-wrote a paper comparing the current banking troubles to five of the biggest financial crises of the 20th century, including Japan’s ‘lost decade,’ which began in 1992. He found that the current U.S. housing-fed crisis was following a strikingly similar pattern.”
“The crises were marked by swift rises in asset prices, mounting debt and steep current account deficits. The rise in the U.S. housing market from 2003 to 2006 was even steeper than the average asset price rises in the other five crises.”
“Full disclosure is a critical step in the restoration of global markets to good working order. That was the point hammered home earlier this month when finance leaders from the Group of 7 rich nations met in Tokyo.”
“‘We need to keep encouraging our financial institutions to recognize their losses, let the market work and raise capital,’ Treasury Secretary Henry Paulson told the U.S. Congress on Thursday.”
From WKRN.com. “While the cheaper prices may be good for newcomers, it is bad news for the hundreds of residents who moved to The Hills at Concord Place in the past year. Some residents want Centex to either sell the new houses at the market price they paid or refund the difference.”
“Resident Joe Calvert said, ‘[It] kills resale. If you’re a person who wants to refinance a mortgage you wouldn’t be appraised at the level you owe.’”
“Through email, a spokesperson for Centex wrote, ‘Lower prices are necessary to sell homes in the current business environment. We don’t control market conditions and pricing is a significant issue nationwide, not just in one neighborhood.’”
“In fact, across Middle Tennessee, home builders are going to extreme measures to get home buyers to purchase their homes.”
“Pramod Panasa bought his home in the Southern Home Builders’ subdivision in January of last year, before builders rolled out the big deals. That, he said, is part of the real estate gamble.”
“‘Right now, I’m sure there are better deals out there, but right now I’m not thinking about it,’ he told News 2.”
“Also, the National Association of Realtors is running national television ads saying there has never been a better time to buy a home. Home values nearly double every 10 years, the commercial claims, showing a young couple walk up to their white colonial-style home.”
Too bad it has become so difficult for stupid people to qualify for loans these days, or this ad campaign might bear fruit.
From the PJ:
‘ Kelly, who is an expert on market ‘bubbles,’ said there were signs that a housing bubble was forming. One clue was the market increase in the purchases of second homes and investment properties. People who buy homes as investments are betting that the market is going up.’
‘Another clue was the market increase in borrowing that went on based on the expected appreciation in their home values. And, he said, there was the fact that house prices had far outpaced the growth in disposable personal income.’
‘Yet, by its very nature, Kelly said, is that ‘it’s impossible to know when the bubble is going to break.’ The only sure thing, he said, is that all bubbles eventually burst.’
“…there were signs that a housing bubble was forming.”
How many years ago was this written?
Kind of like my disconnect between the endless denials of the existence of a bubble, then screeching the Fed and the government didn’t/aren’t react(ing) quickly or strongly enough.
10 year rising while LIBOR is falling - Too many conundrums…
(tried to post this earlier, but couldn’t see it so apologies if it’s a duplicate)
This morning, ESPN Radio LA ran an ad for this guy:
http://www.armandocoaching.com/
Sickens me how he puts out an ad about house flipping, and how he or his company even have money to put up a radio ad….
Bank of America says, ‘Homeownership is the best medicine.’
What does it cure? Hapiness and financial independence?
Yes, those are indeed deadly diseases…for the PTB.
We’re happy homeowners. Our option arm is rolling just one more time this August. I’m guessing interest rates will remain low as the Fed tries to bail the republicans out in the November election. We will soon own the house outright. Yeah, repairs can be frustrating. But on the other hand we wanted recessed lighting in the living room so I hired a nice Jamaican gentleman to tear the ceiling down and put up a new one. I’m not much of a decorator, but once you redo things here and there, repaint, install a grape arbor for outdoor shady eating, plant a massive garden, the place becomes a real expression of yourself. I’ve never felt like that in an apartment. Apartments: the noise, the bugs coming in from people who can’t clean up, and the ciggy smoke from other peoples balconies, the outrageous extra fee to have a cat … yuck. I was always thinking of where the next was going to be and when, but it never got better.
The real trick for us… the mortgage is now .7 of our annual income. I don’t think we even noticed when the teaser rate ended, it was still lower than our average credit card bill.
Sounds like you’ve owned for a long time. At today’s prices, I still can’t see how owning makes any sense for me and my family. We’re far better off renting (it’s not even close to being close).
Here’s the real litmus test.
Would you be willing to buy the home you currently live in for the purported “market value”? I’m guessing you would have second thoughts, regardless of your history with the home.
Well la-de-frickin-da!
“Fed tries to bail the republicans out in the November election”
However much this is completly true, look at the propsed Bail-out talk of the Democrats. Holy nuts, Hillary is talkin pure socialism.
Both sides are bought and paid for by Goldman Sachs and the 4 Horseman of the Apocolypse.
Were going to get Goofy ridiculous stuff from the Reps, and than Goofier ludicrous stuff from the Dems. They are simply 2 sides of the same coin.
“There has never been a better time to LAWYER UP ”
I’m just loving this
I saw a RE Max Tv ad yesterday. The first sentence was ” It’s a great time to buy a home”. Of course it had absolutely no reasons as to why they think it is or how now is better than say- a few years ago.
This is a fundamental advertising flaw: If you are selling a product, you have to back up your claims and give highlights that help people understand the superiority of your service… not just do like this commercial did which was to show kids jumping into the pool of some impossibly expensive looking home in California.
By itself, simply saying that it’s a great time to buy a home sounds ignorant and grossly out of whack with reality. period.
I love the ads where they say they can get you out from under your house. They have this family huddeled together in fear. They mover around the yard, and the house, which is hovering over them, ready to crush them, moves to stay directly above them.
How is this going to get people to buy a house????
Hey, come take these peoples’ place under the impending doom of crushing mortgage debt.
Is that a real ad? Seriously. A house hovering around ready to crush people? That’s hilarious!
What they don’t tell you is that doubling every ten years is a 5% annual return and that you will pay 3-4% per year in taxes, insurance, and maintenance. This leaves you almost even after inflation–if you got the money to buy the house interest free from rich Uncel Fred and didn’t have to pay a Realtor@ commission. Oh yes, you also have to wait a couple of years until the market bottoms to get the 5% appreciation over the next cycle. Otherwise it is a good time to buy.
5% is doubling after a little more than 14 years. But it’s still a good point.
Even when things weren’t bubbly, people were still fooled by the effects of “compound interest”
In non-bubble times, someone who bought a home for 200K and then sells it 15 years later for 400K thinks he’s made a killing! But after you’ve subtracted out inflation, carrying cost, and transaction cost (R-E commision) it’s not all that good, even considering you were able to collect the gain on non-leveraged income.
An example: Suppose you could only have saved an extra $5,000/year by renting, if you can get a 5% return on that, you’d end up with $113,287 after 15 years. (That’s what you get if you save $5000/year, at 5% interest, and add $5000 each year, over 15 years). Until recently, you could get US savings bonds that paid 5%, so this isn’t far fetched. (And you get a comparable tax benefit.)
So, let’s assume that for $416/month less than your mortgage, property tax, insurance, you can rent a suitable place. This is the $5000/year savings in the above example.
And let’s assume that when you sold your $200,000 house 15 years later for $400,000 you paid $24,000 in agent’s fees. So now your profit is only $176,000. We’re getting within spitting distance of the “renting” example. If I assumed you could save $583/month renting instead of owning (let’s say the cost of not having to put a new roof on, call the exterminator, fix a busted pipe–all one-time expenses not usually accounted for), then renting would be ahead!
You should buy a home because you want one and can afford one. Historically, even in “normal” times, it’s not a guaranteed win. Even after the house is paid-up, property taxes/HOA fees/maintenance can actually exceed a comparable rent, as is happening now in Florida.
I look at it much more simply than that, the near term is what matters to me, since long term I’d like to own.
At the current home prices, I can get a guaranteed after-tax return on my down payment of 16% per annum by continuing to rent.
That’s my after-tax additional cost roughly equal to my rent at ~2.6% of the home “value”, multiplied by 5 since my downpayment would be 1/5th of the home price (my reverse leverage, if you will) of 13%, plus the 3% after-tax return on my municipal bond MM fund.
So, I can either:
1) make a pretty risk free 16% per annum after-tax return on my money (the only risk is that I continue to earn 3% on the muni bond fund); or
2) make a bet that home prices are going to go up from here in the near term
Seems like a no-brain decision to me…
You’re right reuven, the NRA is assuming a 7% annual appreciation, impossible except in bubble periods. How long before the next bubble?
7% isn’t supported by historical data. When I’ve seen studies that take into account carrying and transaction costs, it’s a tiny fraction of a percent over wage inflation.
Home values nearly double every 10 years
The NAR advertises this information, but they have no basis to back this claim. False Advertising at it’s best and the regulators just ignore these ads instead of protecting the consumer.
“The crises were marked by swift rises in asset prices, mounting debt and steep current account deficits. The rise in the U.S. housing market from 2003 to 2006 was even steeper than the average asset price rises in the other five crises.”
It can be truly horrific when big name economists plausibly address the facts instead of spinning fairy tales.
When the states are unable to protect themselves…
http://tinyurl.com/2vk7gf
Hey, that’s quite the article there.
I always thought we could trace this stuff back right to the white house and other Fed agency failures.
Like I’ve said before, I would swear this whole debacle was all intentional if I gave them credit for being smart enough to have planned it this way.
But never attribute to conspiracy what can be explained by sheer incompetence.
“Hey, that’s quite the article there.”
I heard some chit-chat about it on Public Radio last week, and I was surprised that it didn’t pop up here. Your right too, this fraud was scripted from the beginning.
It did pop up here several times. One poster mentioned that Mr. Spitzer was just performing the CYA dance. I asked for more details but didn’t get a chance to check back for replies.
I’ll give Spitzer the benefit of the doubt. He had his hands full. He went out on a limb trying to use the fact that the national financial institutions were hqed in NY state to make up for the Bush Administration’s lax (or complicitly fraudulant) national oversight. He did a lot; there was just too much to do. I always wondered if anyone in his office ever slept.
The sole purpose of Bush’s government is/was to make his rich friends richer. It was so blatant from the very beginning. I couldn’t understand why everyone couldn’t see it.
“Some people call you the elite… I call you my constituency”
AHA, so THAT’s why Walker resigned. Mr. Gasbag Comptroller, touring the country in his chauffered limousine, preaching about the looming dangers of Social Security and Medicare and how these programs should be “reformed” out of existence. I KNEW this windbag was a self-righteous prick out to scare and screw the public, while saying NOTHING about all the billions that disappeared in Iraq through no-bid contracts, etc. What a class-A jerk.
For an easy explanation as to why this happened, see:
http://tinyurl.com/2z2gab
And note what is the largest business sector, by far.
Also note:
http://tinyurl.com/25cyu9
$33 million buys a lot of favors.
Seems that the ‘tale telling’ is centered on the belief that the worst is over - that housing is bottoming. Having obscured fact as long as possible, the game is now on to be first with the obiturary on the dead body they couldn’t see five minutes before. But they had better bone up on their forensic anthropology as the various stages of rot have many cycles to go.
‘It’s a problem that calls for a very rapid and extensive government solution.’
Even if you nationalized the banks, or the mortgages, or just forgave all mortgage debt you would not solve the problem. Ask anyone who works in Boston, where this tool lives, and they will tell you; prices are too high! People can’t buy at the current prices because they are disconnected from incomes.
The real irony is that this Trotskyist works at a private university that overcharges for an education, and he wants to socialize housing. Instead of free houses, how about giving free Harvard educations, comrade Retsinas?
private university profs are still commies
far,far from the competition of the real world
Yep and that includes that utterly insane looney who worshipped as a god by Limbaugh, George Wills and all the other purveyors of rapacious and unlimited greed and avarice - Milton Friedman, tenured professor at the University of Chicago.
Ann, So Rush and Will are to blame for the bubble? Since they are “purveyors of rapacious and unlimited greed and avarice” are they also pure evil? So your solution is to socialize housing? According to Obama’s web site he believes we should set up a government fund to bail out the FB, so you may get your wish.
Nice kindergarten logic there. One loon wrongly characterizes democratic principles held by university professors and and another backs him up in the lamest way.
Ann never said Rush and Will are to blame for the bubble. Your ad hominems make you sound like a retarded child. If you are going to disagree with someone, try not to put words in their mouths, ok?
“Reaganomics” (look it up), which were the brainchild of Reagan put into practice by Volcker, Greenspan and Bernanke are what got us into this mess. It takes at least 20 years to start to puncture the prosperity of the richest country on the planet, and we are reaping what was sown.
Reagan openly admired the economic policies preceding the Great Depression, but Duh!, it didn’t occur to him that it was the same capitulation to greed and avarice that caused the Depression in the first place.
Kudos to NoSingleOne however it should be known that Reagan was sold supply side by a small but evil group of brokerage house and federal reserve economists. Supply side was founded upon the Laffer Curve and it’s diabolical creator, Art Laffer who insists to this day that we can spend our way into prosperity. To imagine in just 27 years, we’ve gone from the largest creditor nation to the largest debtor nation all based the flawed theory of the Laffer curve.
Inflation caused the depression . Nothing more nothing less period. To much (easy) money in cirrculation.
You mean that Rush Limbaugh is a communist?
Yeah! Exactly like in the Manchurian Candidate, when Senator and Mrs. Islin were the real Societ agents the whole time. It just makes perfect sense!
How did poor Milton Friedman, who is much too dead and cold to defend himself, get dragged into this discussion?
flatffplan was on his usual rant about government workers, except that this time, the worker was actually in the private sector.
flatffplan is incapable of realizing that his argument was invalid. AnnScott pointed by replacing the premise with Milton Friedman.
flatffplan:
(A) All private university professors are commies.
(B) Retsinas is a professor at a private university.
Therefore, Retsinas is a commie.
AnnScott:
(A) All private university professors are commies.
(B) Milton Friedman was a professor at a private university.
Therefore, Milton Friedman was a commie.
Since Milton was not a commie, it becomes patently obvious that flatffplan’s conclussion is illogical. And that he is a moron.
Please do not use logic novawatcher. It pains the brain of the demagogue followers.
And you hate america too. /sarcasm off
In economics, perhaps. The sciences have abandoned most theoretical work for business applications. Much of what private university science professors do is compete with each other to get money from corporations, so the vast majority of their work amounts to corporate research and development. It is really shameful to label as communist a situation that has been taken over by corporations. Are corporations and their product development processes now to be thought of as essentially communist in nature?
Agreed mole man. Both my brother and my best friend are science profs; they earn much of their income from outside consulting work. I’d hardly call them commies. When this blog veers from housing, it almost inevitably becomes idiotic.
That isn’t true of my husband or his colleagues, who are physicists and astrophysicists. They get most of their funding from NASA, the DOE, and the National Science Foundation. Also, from rich individuals. Never from corporations.
“The sciences have abandoned most theoretical work for business applications. Much of what private university science professors do is compete with each other to get money from corporations, so the vast majority of their work amounts to corporate research and development.”
Um, that’s physics. And a certain subset of physics at that. Economics, some Mathematicians, Biologists, Medical Research, has gone over to the private side. (Get NIH grants to start research, but real money is in patents… socialize costs, privatize profits, cha-ching.)
Can’t speak as to Chemistry (although all the Chemists I know are in private industry), and most of the (tenured) Mathematicians I know live frugal lives but it matters not because they know true beauty. (The non-tenured ones are disgruntled or cranky, mainly because they have to teach classes to non-Math majors.)
Huh?! I worked at one of those private universities for six years (just retired), my husband has been a tenured professor for 30 years, and I don’t know a single person who could be accurately defined as a “commie”. Indeed, there are plenty of Republicans here (not the majority, true, but still quite well represented).
“private university profs are still commies
far,far from the competition of the real world”
Nicholas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies
It always needs saying: That center at harvard is heavily funded by the REIC.
So I guess it’s kind of unlikely he’s a Trotskyist, then?
Face it people - the only socialism the US has, and is likely to get until people wise up, is socialism for the rich.
Thank you. I was going to bring that up. He isn’t a Trotskyite (point to ponder: are there any Trotskyites anymore?). He’s a real estate industry shill.
“It always needs saying: That center at harvard is heavily funded by the REIC.”
The only sane response is to nationalise the excess debt trhough cash hand-outs to ALL Americans regardless of their debt load. Hand out 1x people’s annual income (as reported on 1040) upto national medain of $50K, then drop it 5% for the amount over that.
Hand out $2 trillion, and at the same time, bring back sane banking and lending regulations, mass cuts to goverenment spending, increased taxes… deconstruct the factory that keeps producing these debt bombs!
The stimulus is the right idea, just 15 times too small, isn’t matched with govt spending cuts and tax increases, and doesn’t deconstruct the debt-bomb factory.
The debt of the below average wage earner is not what will bring the country low. Bonuses will not change increase their productivity, rather lower it I’d guess.
The weight is at the top. When that implodes it will crush everything below.
Actually Harvard does waive tuition for any entering student whose parents cannot afford to pay.
“The real irony is that this Trotskyist works at a private university that overcharges for an education, and he wants to socialize housing. Instead of free houses, how about giving free Harvard educations, comrade Retsinas?”
The RE mania continue’s only at a slower pace and hopefully folks with more money that will also face the woodshed downstream, the
middle and upper class have totally bought the idea that the way to great wealth is buying RE.
Let the upper calss push houses up as much as they want. Some of the lowest IQ people I have known have been wealthy individuals that go their money by accident and they can loose it that way. Wait ’till the wealthy have no one to sell up to. BANG!!!!!
“Wait ’till the wealthy have no one to sell up to. BANG!!!!!”
I think we’re far closer to this than anyone is willing to admit. The wealthy elite have one choice; return the $$ they stole via government control.
“It is confession season for the world’s big banks as they complete 2007 results and try to account for the full scale of the subprime credit upheaval that threatens to stall the global economy.”
“Over the next two weeks, most major U.S. banks will file annual reports with the U.S. Securities and Exchange Commission, and several of Europe’s biggest financial companies will release 2007 earnings statements.”
“For some, it will be the first audited reckoning of how badly they were hurt by the market turmoil that began with defaulting on U.S. subprime mortgage loans.”
This is going to be good. I wonder how long these banks will be able to continue covering up the true condition of their finances? I bet alot of these guys aren’t sleeping too well these days.
s
I wonder how long these banks will be able to continue covering up the true condition of their finances?
The Enron example shows us that a cover up lasts until about a week before bankruptcy.
It may be much easier to hide financial rot when it is on a far larger scale than one or two Enrons, as the govt will naturally become complicit in the cover up effort if the problems are sufficiently widespread.
That’s a capital idea! The credit crunch as measured in Enrons!
Can’t wait to see the charts, PB!
The more exciting(?) aspect will be the auditors footnotes. The caveats, qualifications and appraisal of the assets will critical to any recovery of the financial system.
They will cover it the way they always do. Auditors footnotes. How many people ever read financial reports?
“How many people ever read financial reports?”
Probably normally not many, but with these institutions now under such close scrutiny suddenly alot of people will be reading them. Do you think so? New York best sellers list. ;D
s
“How many people ever read financial reports?”
I do, and I read them backwards; I start with the auditor’s letter in the back, then work through the footnotes, then I move foreward and hit the numbers. Last is the CEO’s letter to the stockholders.
Works for me.
Combo, thank you for this info. It’s going to be quite helpful to a lot of people.
You’re welcome.
The more of these statements you read the more patterns you’ll pick up. The honest companies keep things simple; a twelve-year old should be able to follow what they are doing. The snakes and sleezebags try to complicate and obscure as much as possible.
I recommend to anyone serious about handling their own money to learn the language of finance (i.e. accounting) and puzzle out for themselves what is going on in a company and
a particular industry. It’s not difficult to become a decent investor; mainly it’s just an application of some good common sense, IMHO.
I wholeheartedly agree.
Mr. Peter Lynch taught a group of 7th graders how he invested in the stock market then set them up with a 1 yr trading account. 95% of the students beat the S&P500.
Beating the Street
by Peter Lynch with John Rothchild, published 1993
35 years ago, in undergraduate business school, I was taught that the footnotes contain the critical information in audit reports that are part of 10-Ks. Not much has changed in this area.
By-the-way, has anyone ever seen an auditor’s letter where they stated that the firm was unlikely to be a going concern and accordingly they accounted for all assets and deferred items at liquidation values?
Billboard summary: “Auditors say: Nowhere to go but up!”
“I bet alot of these guys aren’t sleeping too well these days.”
One of ‘em is playing Empire these days:
http://en.wikipedia.org/wiki/Roland_Arnall
I saw that appointment as a way to get him out of the states before somebody shot him.
You just can’t make that stuff up.
Wasn’t it Mark Twain that said, the difference between fiction and real life is that fiction has to be believable.
Follow the money…
In the 2003-2005 period, Arnall and his wife raised more than $12 million for George W. Bush’s political efforts, including $5 million for the Progress for America Voter Fund, a self-proclaimed “conservative issue advocacy organization dedicated to keeping the issue record straight.”
I sent this e-mail to the reporter on the Retsinas story:
subject: Retsinas credibility
Consider the companies that sit on the board for the Harvard Center. Is this guy really credible, or a mouthpiece for the corporations losing on their big bet? I believe if you did some research on some of his earlier pronouncements, it was all rosy in housing land. Also, I think you will see he has been modifying his stance over time.
The bottom line is that every overpriced house has to foreclose, then be resold at prices that reflect local income. This problem has nothing to do with interest rates and everything to do with price. If you cover RE for ProJo on a regular basis, focus on reversion to the mean, as opposed to victim stories. People like Retsinas are doing a propaganda turn to get the gov’t to save the housing market, which many do not want to do — it transfers all the bad debt to every individual taxpayer, instead of letting the lenders and the individual homeowners pay the price for their greed.
http://www.jchs.harvard.edu/people/pabmemberlist.html
I sent that too the minute I read the story, along with the Cassandra Wailing rant of his…
Thanks for that article link, at least he’s consistent in his shamelessness.
Northern Rock shareholders were also outraged after being that told their holdings have been made virtually worthless by the state takeover.”
Weren’t they already worthless?
If their shares had actually been worth anything, some private party would have been willing to take over Norther Rock without any government assistance, but it seems this simple conclusion escapes them.
But NR shareholders have long been in fantasyland, as they seemed to think that its 125% LTV lending was the road to success, not ruin.
Bank runs always soil one’s underwhere, in the end.
Did they really call “Nicholas P. Retsinas” a housing expert?
Is this short in anyone’s memory?
http://www.jchs.harvard.edu/media/housing_wail.html
I thought the name sounded familiar.
He wants those who listened to him to be bailed out by those who didn’t.
Thanks for the history lesson. Retsinas was so massively wrong at so many levels. He simply did not understand the basic driver of the bubble - the fires of greed fueled by easy money.
To be at once such an intelligent idiot leaves one to seek the defense of the self-wronged - looking for scapegoats.
ROTFLMAO! Today he argues the gov’t underreacted. Yesteryear, he was calling us names. How does this idiot get out of bed in the morning?
“‘Our government, particularly at the federal level, has underreacted to this market,’ Retsinas said before a group of about 60 people.
Of course the government under-reacted…
They were listening to people like him for advice…
“Cassandra can stop wailing, and Pollyanna can stop cheering. Home prices in some regions are moderating, but for a nation inured to CNN’s headline-of-the-moment, this moderation does not rate high on the Richter scale of cataclysm.”
I strongly concur with Nick. The Cassandras of the world are currently creating a myth of cataclysm in order to legitimize government bailouts to the wealthy. There is no cataclysm, and hence no rationale for bailouts. Let the chips fall where they land.
I heard he wants Congress to step in and modify that position for him.
‘…and pricing is a significant issue nationwide, not just in one neighborhood.’
Hey NAR - Centex Homes didn’t get your memo. Straight from the horse’s mouth - it’s nationwide baby!
“Also, the National Association of Realtors is running national television ads saying there has never been a better time to buy a home. Home values nearly double every 10 years….”
Ah, the American Dream. Sign on to a no money down downpayment assistance program. Sign a few more papers and live off the equity.
“It’s a problem that calls for a very rapid and extensive government solution.’”
But actually extensive government solutions invariably turn into some of the biggest problems ever created.
How about we rapidly round up and send the Ivory Tower professors from coast to coast down to some farms in the country for a few years of re-education? That would be another leftist solution, like the one Pol Pot had.
Hmmm…. Hitler had a few of those camps if I remember correctly.
And who exactly is this “we” who is going to round us up? I would love to see you try to get past my bull terriers!
“How about we rapidly round up and send the Ivory Tower professors from coast to coast down to some farms in the country for a few years of re-education?”
Much as the fantasy of having guns and dogs to protect ourselves against those forces which may form to take away our lives or liberty may be attractive, I fear that organized military forces (whether U.S. or Blackwater or Halliburton) would be too much for any individual.
“The Providence Journal. “A nationally recognized housing expert from Harvard University asserts that the federal government has ‘underreacted’ to the alarming rise in home foreclosures across the country.”
“Nicholas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies, said the initiative announced last week by the Bush administration to grant some homeowners threatened with foreclosure a 30-day reprieve is like a ‘a stay of execution, but it’s not a pardon.’””
Funny, I don’t recall hearing anything about skyrocketing prices from a$$holes™ like this guy when it was happening. But suddenly NOW we need the gubmint to come in and save us. Just about the time the foreclosures might start impacting RE prices in HIS neighborhood I’ll wager….
Hypocrites, the lot of them. Please write your congress people and tell them not to bail these people out with YOUR money. Use congress.org and you can mail them all in one shot.
You can also use this handy link:
http://www.conservativeusa.org/megalink.htm
Enjoy!
Even more disgusting is that all housing capital gains were tax free…so privatize the benefit on the way up and socialize the loseses on the way down.
“A substantial number have never had to verify their income to their lender.’”
———————–
The more I read this the funnier it becomes, almost an “I can’t believe the banks were EVER that stupid!” kind of thing, like reading about “the guy who used a bic lighter to melt the ice away from his gas cap” or something.
In the future banks will look back at the time when simply “stating your income” was enough to be handed hundreds of thousands of dollars as a “Pre-” to some new era that has just begun, like “Pre-indoor plumbing”.
There was a funny article about this around Christmas (can’t find the reference) using Mr. Potter (from “It’s A Wonderful Life”) as an example of a prudent lender and George Bailey as an example of someone who lent on “character” (translation: pride of ownership).
The increase included prime mortgages, which climbed to $53.2 million from $28.9 million
Mon dieus! This cannot be! Eet iz only za subprime mortgage which will come crashing down, no????????
Walk away revolution collateral damage.
From WKRN.com. “While the cheaper prices may be good for newcomers, it is bad news for the hundreds of residents who moved to The Hills at Concord Place in the past year. Some residents want Centex to either sell the new houses at the market price they paid or refund the difference.”
In the same spirit of “Heads I win, Tails you lose”, I would like a full refund of money I’ve lost on my past trips to Vegas. I also believe I am entitled to 100% of my original purchase price when I sell my 10-yr. old SUV –and used car dealers should be *compelled* to sell all new SUVs above my price.
Maybe this will help some folks to stop seeing the people who try to sell them things as ‘friends’.
Preach it, John!
I’ve seen quite a number of people burned after they’ve bought from “friends.” Or have sold something to “friends.”
And lemme tell you something, it’s happened to me too.
That’s led me to make the business decision to sell my services to clients, not friends. And I purchase goods and services from vendors, not friends.
“Some residents want Centex to either sell the new houses at the market price they paid or refund the difference.”
my dad always says…”want in one hand and doo doo in the other…see which one gets the fullest”.
Centex’s response isn’t nearly as entertaining as that builder a while back who, in response to a similar request, asked buyers if they had been planning on paying him more money for their houses if values had gone up.
That was in the Central Valley, Anderson something.
Can I get a refund on the difference between where I bought my WorldCom stock, and where I sold it after they unfroze my 401(k)?
http://www.dallasnews.com/sharedcontent/dws/bus/stories/021908dnbusremodeling.3731509.html
Heh. I just used Home Depot to do an upgrade to my home… I bought siding and gutters. I still have my 30 year old Almond kitchen with an Almond dishwasher, stove and countertops that match. They all still work and I could never understand replacing something that works perfectly.
But I’m still addicted to those remodeling shows.
lmd, I’m with you on that. Just keep using older appliances, and keep replacing worn parts (if you can).
A few years back my hotpoint washer started leaking water. This washer was made by GE in their Louisville plant in the mid 1980’s and it is known as a “GE old style” washer. The xmission exterior housing is solid stainless steel, and all of the internal parts are solid stainless steel. So why would I want to replace it with a new washer where the entire xmission (inside/outside) is made of plastic?
I ebayed a replacement gasket and gasket straps. Washer runs like a champ now. Already replaced the “GE old style” two speed clutch with a good used one some years back, so I am good to go.
Here is what you have to understand before you buy “hard goods”: Why would a manufacturer bother with quality/endurance issues if people are going to replace it for no good reason long before their expected lifespans?
I think this is how some manufacturers have lost their competitive edge. They soldier on with deteriorating financials but there will be a day of reckoning.
“Resident Joe Calvert said, ‘[It] kills resale. If you’re a person who wants to refinance a mortgage you wouldn’t be appraised at the level you owe.’”
I remember quite a few folks in the SD 92129 zip code trying to sue realtors/builders for the exact same thing in the 1991-93 timeframe. I don’t think they got very far then and I doubt they will now. You roll the dice, you takes yer chances.
They gambled, and communties lost…
Tolls are going up in Massachusetts, due to a failure of the municipal bond market because municipal bond insurers also backed complex mortgage instruments.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSsM5ENYiZHI&refer=home
New York taxpayers getting ripped for the same reason.
http://www.bloomberg.com/apps/news?pid=20601010&sid=aT9GH0RKNzNM&refer=news
“The state’s additional weekly interest is equivalent to one year of health insurance payments for 1,300 children, according to state budget documents…New York Governor Eliot Spitzer said last week that banks, rating companies and federal regulators are to blame for the turmoil that has spread to auction bonds.”
I just want to know why I’ll have to accept service cuts, higher transit fares, and higher taxes because someone put NYC, NY State, other NY municipalities, and the MTA into variable rate debt at a time when interest rates are rock bottom. Was that the same group of experts who said the 2000 pension enhancement would be “free?”
“The market for insured municipal bonds is “trying to sort itself out,” said Robert Rich, a transportation specialist with Public Financial Management in New York, who is advising the turnpike on its bond sale. ”
This is the new euphemism - everything and everybody is “trying to sort itself out.” Translation: the market is currently not operating due to an unwillingness to take losses.
“Details of the nationalisation were rushed out yesterday and will be debated in the Commons today. Mr Darling faced rowdy scenes in the Commons. Shadow Chancellor George Osborne told him he had taken Britain back to the failed policies of Labour’s past.”
“He added: ‘We can safely say you will never recover your reputation for competence. You are now politically a dead man walking and if the Prime Minister could actually make a decision he would move you.’”
The British have such a way with words…
I would love to see some live footage of the “rowdy scenes” in Parliament.
They do get quite rowdy. As in, jeering the speaker, shouting him or her down, and similar hijinks.
The U.S. Senate, by contrast, is a model of decorum. You’ll hear Senators referring to each other as “my good friend from Iowa,” or “my distinguished colleague from Nevada.”
Here’s something. Looks like the delineation of the opposition’s psn before the Parliament meeting. No jeering.
http://www.youtube.com/watch?v=Muts9aLmyGE
Here you go PB.
http://www.parliamentlive.tv/Main/Live.aspx
This is a lot of fun to watch.
I think that they show it on CSPAN
I have been kind of bemused at the “vigorous” political debate in the Philippines (where breaking out of your treason trial, walking down the street and commandeering a luxury hotel until the armored cars crash into the lobby is just a normal day), and amused by the free wheeling way the UK does political debate, compared to the U.S. customs.
The U.S. really is some bizarre middle ground of democracy between the old and the new civilizations where we apparently have “a hole in our souls”.
Feb. 19 (Bloomberg) — Drivers on the Massachusetts Turnpike face higher tolls because the state is unable to sell bonds insured by a unit of troubled Ambac Financial Group Inc.
The Massachusetts Turnpike Authority, which oversees Boston’s `Big Dig’ highway tunnels, is spending an additional $300,000 a month on its bonds because investors won’t buy $126.7 million in auction-rate securities backed by Ambac, state officials revealed today. Rising debt costs threaten to derail agency efforts to avoid raising tolls this year, officials said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSsM5ENYiZHI&refer=home
Read the article.
Sounds like Massachusetts is living above its means. If you “have to” borrow money you are dependent on the goodwill of those lending the money, or their desire for a higher return based on risk.
“‘Right now, I’m sure there are better deals out there, but right now I’m not thinking about it because I am soooo screwed,’ he told News 2.”
“Jaime Gomez is feeling the pain. The 28-year-old mortgage broker was laid off from a national bank last year after home-loan business dried up. The one-bedroom Port St. Lucie condo he bought for $110,000 in 2004 is worth about 25 percent less now, he estimates. And a second home he owns with his mother and sister in western Port St. Lucie sits next to an empty foreclosure.”
$110k for a 1/1 condo is a huge ripoff! That thing will be worth like $35k at the bottom. You can get a such condo for $20k to $50k in Texas depending on the neighboorhood and building size. This should give you an idea where condo values will be elsewhere. No excuses on the “land” as each condo occupies very little of it.
Good god, I need a new state. A 1/1 on the L.A. Westside will still set you back 300-350K, minimum. I bet S.F. and Manhattan are similar (the latter may be even crazier).
U.S. homebuilders February index up slightly to 20 as expected
http://tinyurl.com/2yfnoq
Dunn and Seiders said a housing rebound would depend on the ability of Congress to pass legislation that would ‘jumpstart the market’ and ‘bolster consumer confidence.’
So Congress is the reason why new home sales are slow….and I thought it was becasue the homebuilders over-built and overpriced crap that is depreciating in value.
“…‘jumpstart the market’ and ‘bolster consumer confidence.’”
Translation: Pass the trash to the taxpayers so homebuilders can make more $$$.
You forgot, “overpaid for land”.
“Countrywide Financial brags in its ads that ‘No one can do what Countrywide can’ and that ‘Countrywide can show you the way home.’ Wachovia ads feature an ‘Approved’ stamp prominently at the top, and Bank of America says, ‘Homeownership is the best medicine.’”
From almost 10,000 miles away, these clowns reek of desperation…
What a stench!
OT - did anyone see the latest announcement from B of A? they decided to jack up the interest rate to 24% on credit card on 6% of their 40 M card holders. Talk about ripping people’s heart out to make up for losses in subprime/exotic loan losses.
All the more reason to pay cash whenever possible. Or to write a check that you can cover in full.
Why is B of A such a scuzzy outfit? I have to deal with them now because they bought LaSalle from ABN AMRO. I had rather hoped that would not happen and will now take evasive maneuvers to avoid them.
We made more in interest this month on $139 of savings in our credit union than we did in $5000 of minimum balances in our BA (Bank of illegal Aliens) accounts. (Still a few automatic deposits we haven’t gotten around to moving yet.)
Raise my credit card interest: go on, I double dare you.
FYI: America’s economy risks the mother of all meltdowns
http://news.yahoo.com/s/ft/20080219/bs_ft/fto021920081334359078
Oh god, I nearly lost my lunch on that one. This is a more articulate version of the scenario I’ve been outlining to all my friends and relatives the past 18 months. I am so so so glad I have resisted the siren song and forgone the purchase of a house lo these past few years. Instead the wife and I have been squirreling away every dollar we can in average-return accounts at the UCLA credit union. Barely keeping pace with inflation but at least we’ve got 50K when the SHTF any month now.
ING baby, ING. I gave up on the poor interest at my CU two years ago and already see a diffference. If you are long-term saver, you MUST hunt for every last fraction of a % of interest.
But as to that article. I have a complaint with it. His first few steps are housing collapse, followed by auto loan and other consumer credit collapses. Fine. BUT, everyone doing this kind of analysis seems to forget or ignore that the capital goods involved in these collapses get put on the market and become someone else’s bargain. For that receiver of goods, life improves because they got something they needed or wanted cheaper than a stable market would have provided it. That person then has spare cash to spend on something else.
I don’t mean to imply that we aren’t up sh*ts creek sans paddle, but he lists those out as though the economy weren’t a closed system with loops in it.
ING baby, ING. I gave up on the poor interest at my CU two years ago and already see a diffference. If you are long-term saver, you MUST hunt for every last fraction of a % of interest.
No, you must hunt for a money that you can actually save in without being ripped off by inflation. Luckily, there is such a money: the “stateless currency” that has been money for the last several thousand years.
Yeah, I think I let out a yelp when I saw that. Gah! Or some such. Wachovia is a piece of work. They are the last bank left that will put an electronic check into the system used by fraudsters in Eastern Europe and Russia that want to empty a bank account in the U.S. All other banks cut those guys off. So, they are real winners across the board.
That perhaps sounds inflamatory, so here’s a link: http://www.newsinferno.com/archives/2546
It’s a newer link than I was looking for. The organizations trying to fight internet fraud are frustrated as h*ll with that bank.
Here is a draft of the PDF ALERT PDF ALERT comparison to other meltdowns by Kenneth Rogoff PDF ALERT PDF ALERT
Cool paper Mole Man. I like this quote:
“The impact of these defaults on the financial sector has been greatly magnified due to the complex bundling of obligations that was thought to spread risk efficiently. Unfortunately, that innovation also made the resulting instruments extremely nontransparent and illiquid in the face of falling house prices.”
Wow, that about sums it up don’t it? I think people really believed that RE only ever goes up.
But the man on the radio said people are smart…..
From the WKRN article:
“Buyers are savvy. They’re smart. They do their homework and they say, ‘What are you going to do for me?’”
Oh, really? Or is it that they are sheep? They bid up prices thinking they “had to get in now.” Now that things have changed they’re holding off. Following the herd is not my idea of savvy.
you said it
Another record for today.
30 yr. mortgage jumps 3/8 percent in one day!
http://www.reuters.com/article/marketsNews/idUKN1959403020080219?rpc=44
I guess freezing all those ARM contracts has backfired as many here pointed out.