Bits Bucket And Craigslist Finds For February 20, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Defaults before re-sets…. I doubt anyone is surprised. This is one heck of a mess and we have a long way to go. No amount of spin will fix this.
http://money.cnn.com/2008/02/20/real_estate/loans_failing_pre_resets/index.htm?source=yahoo_quote
It’s more cheerful news to us bubblewatchers though!
“Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates .”
How do you possibly rework such loans? How many of those early “low-interest teaser rates” failures were cash back at closing scams?
“…cash back at closing scams?”
Which in turn makes it highly unlikely these homes will now sell for anywhere near what they sold for last time with the help of a cash back deal and an inflated appraisal.
Part of the Paulson work out plan- ‘hope now’- is probably going to include cash back for every mortgage payment. It better, anyway.
How much is a Christmas tree worth the day after Christmas?
“It turns out that massive interest rate spikes aren’t the problem — many borrowers couldn’t afford these mortgages even at the low, introductory interest rates.”
The MSM has co-opted one of this blog’s most frequently stated points.
Well, they might have arrived at the same conclusion independently. It wasn’t that hard to arrive by.
Then again, pigs might sing and fly too.
Fair enough. At some point, the evidence overwhelms even the MSM.
I was on a panel this weekend in Santa Barbara with a bunch of new (and old) media folks, yammering about blogs. Someone asked me what my favorite blogs were and I allowed that the only blog I read every day was this one. “Oh, I read that, too!” somebody else on the panel said. And a bunch of people in the audience nodded. Though nobody offered their screen names…
This is the only blog I read, too. It’s the best one, has everything I want to read and hear about. I have to get my HBB fix throughout the day, in between making a living and eating bagels and other such trivial stuff.
This is the only blog I read also. If I don’t get my daily fix, I find myself going into withdraw symptons.
From the article…….
“I was rather shocked by the characteristics of the 2007 loans,” said Youngblood.
How often have we heard “experts” say that all the bad notes were written in 04 and 05. Now we have a casual observer say that 07 notes are garbage too.
The greed of this massive mess blows my mind.
……….why should it blow your mind?
Remember? We’re working off an entirely new economic model here in South Florida……the shortage of land and the desire to live here will drive real estate prices higher indefinitely………..Baby-boomers with sacks of cash………rich foreigners………blah, blah, blah.
ALL it really was……….FREE Money buying real estate. Easier to buy a house than get a library card.
Someone else will pay the bill, someday.
That day is now. All the politicians want us to share the losses. I say, screw Washington Politicians schemes. Let the buyers pay. Take them for everything they own to settle their debt. They knew they could never pay the bill either.
“who coodadnoed?!”
Yeah, why is it somebody making $30,000 a year can’t afford a $400K starter townhouse? So confusing it is!
Well Duh… Of course they can afford it! $30,000 has all those zeros and $400k only has two!
Oh wow! I thought the guy quoted in this article had lost his job long ago. Check out this cnbc interview from about 2 years ago, in which said Intrepid Asset Backed Analyst makes an idiot of himself: http://www.cnbc.com/id/15840232?video=156983242&play=1
Here’s one to file under “why most realtors s$ck”.
Warning to knife catchers … do your homework.
Realtor is friend of a friend of a friend. She lives in and specializes in one particular high end community. I was becoming dismayed with her as it seems she was unwilling/insulted? to make low ball offers. I think she looked at it as if we were demeaning\devaluing her community.
Anyway, she shows me this house in the early fall and it needs lots of work, probably in the 100K range. I’m not afraid of sweat equity and the house when modified could be exactly what we are looking for. I usually try to assess what the house would be worth with the improvements, subtract the cost of the improvements, and there lies my ballpark number.
In this case I felt 100K was close to the cost of upgrade, the house was listing in the low 400K’s, and that’s what I thought its top value might be, so I moved on. The property pops up again last week at 370 please please please make an offer. I email realtor and get no real new info. Low and behold days later I find the house is to be auctioned end of this week.
So, we jump in the car to take another look. The first time we looked there were leaves on the trees and all looked serene. This time however I notice that the building across the street is 4 or 5 stories and has rooms\additions popping out of all the strangest places. Pretty weird looking place.
I email the realtor to inquire what the house/building might be as well as several other questions. She emails back and forth several times but never addresses the weird house. Wife (anxious nester) does a little homework and discovers that the house is not a house at all … drumbeat … It’s a hospital, a women’s psychiatric hospital!
Needless to say looking for new realtor.
tie your wife down with several cups of coffee and make her read this blog for a few days should do the trick
unless you like catching knives
why even bother with a realtor do your own research you do have a computer
The way to handle all these “wives” is to let them do all the work, and veto everything on the basis of the Mighty Spreadsheet.
I call it the UN approach to the solution. Nobody proposes much but anyone can veto anything anytime.
You might be spending time in the doghouse though but you could always “invest” in “quality” literature and videos. LOL.
I just lock my hubby in the closet until his condition improves
Yeah, that works too.
The beatings will continue until morale improves.
“tie your wife down with several cups of coffee and make her read this blog for a few days should do the trick”
Cover up your keyboard if you’re going to give her coffee. Many a fine piece of equiptment has been damaged reading the funnier parts on this blog.
Realtor services are free to buyers, at least until there is a purchase. Because of this it makes sense to consult agents to see if they can find something that you might have missed. This is even more the case as inventories swell and the chances of missing a nice fit that is a good deal increases. To optimize purchase decisions it is necessary to get over this kind of irrational loathing of sales people. Living in a capitalist society means having to learn how to deal with this kind of situation or make due with less than you might have otherwise. The real question is where your priorities are.
Ok mr mole man, answer this - is there some sort of obligation to stick with the same realtor? Because I caught a little flack last time I was looking for “seeing” another realtor about a property. I thought it rather hilarious but the realtor in question was pissed, like I’d “cheated” on her.
No obligation at all. My wife and I wanted to see a couple places a few months ago. We called the listing agency for house #1 to set an appt for saturday, then called the listing agency for house #2 to set an appt for sunday.
The agent that showed us house #1 was also “nice” enough (intrusive beyond what I was asking for) to pull a number of other properties we might be interested in. I explained that one of the properties in her list we already have scheduled to see the next day with another realtor.
She clearly was not happy about that and proceeded to lecture me on how I should stick with one realtor because realtors like to develop relationships with “their clients”. I didn’t bother asking her which papers I signed that made me “her” client. Her client is the person selling the house who signed a contract agreeing to a share of the sale price. By that agreement she had the obligation to show the house to any potentially interested party.
Anyway, point being that realtors like to guilt you into doing what they want, since its in their best interest to be a party in any potential sale. But you aren’t obligated to use just one realtor if you don’t want.
omg. I have the funniest story. back when we were renting a little starter house near Chicago we initially had the rental agreement with this little old hag realtor named “Elvira” (kid you not) anyhow fast forward four years and we decide to buy the house from the landlord.
Elvira calls us to renew our lease and we give her this info. She *screams* into the phone “he has to pay me my COMMISSION!”
… I was like … um, hello? … not really my issue, lady.
p.s. we bought the house for a great price (1999) and she got nothing - and liked it.
And if that psych hospital is not in http://www.rottenneighbor.com/
you may want to add it for the auction crowd.
No offense but if your wife doesn’t smarten up, you might want to admit her to the psych ward across the stree.
Your wife’s anxiety will result in you paying too much. Chill her out before she puts your wallet in the deep freeze.
“It’s a hospital, a women’s psychiatric hospital!”
I have a sneaking suspicion Suzanne did not research that one.
Suzanne is probably residing in that one.
Could we go a little easier on the nesters, please? The traditional real estate model was built around settling. Nesting — one house, regular mortgage — was just fine until the greedy fee-mongers on Wall Street (Greenspan & Co.) and the greedy flippers (Casey Serin & Co.) screwed it all up.
Now, if a nester starts acting like the woman in the Suzanne commercial, go ahead and let loose. But regular nesters are not psych cases.
Did you have to bring up the prune faced hag in the Suzanne commercial??
She was not a “prune faced hag”, she was an actor. Let’s see you land a paying role in front of a camera, big guy. And what is with this women are useful only for what beauty I perceive in them thing? The role she was playing in the ad was a loving wife paired with a dedicated husband. In the scenario as portrayed they all behaved like spoiled children and got what they deserved. They weren’t really a pretty couple at all, and if either of them had aesthetic issues it was the fat husband. Did you not notice his being an weak lardpile because you are also several sizes too large?
Actor / realt-whore / crazy person … same difference.
Atleast, in LA. Ha!
I’ll say it again. She was a prune faced hag. And he was a spineless blob of $hit if that makes you feel any better.
It makes ME feel better, exeter. Thanks.
(And may I mention in passing how much I always enjoy your elegant turns of phrase.)
LOL. Now you guys are really cracking me up this morning. Nothing like a little friendly banter to lighten the day.
Why should we go easier?
Either they respond to rational arguments or they can take their “instinct” and stick it where the JT goeth.
The housing model has changed pretty much permanently due to outsourcing, etc. A 30-year mortgage in this day and age is an anachronism. If you have a job for life (tenured faculty, nurse, etc.) it’s fine. Otherwise, you are basically indenturing yourself with no payoff.
So in reply, the traditional RE model is broken beyond and above the bubble.
“The housing model has changed pretty much permanently…”
How long ago was that Florida economist quoted as saying something about a totally new model, and prices at a permanently high plateau.
Well, now we see the other side of the coin. Both are wrong. We may be closer to the bottom than we think.
Yeah, sure. When rents and prices are totally out of whack, prices and incomes are even more out of whack, and the hoi polloi can’t afford the monthly nut.
Pull the other one, dude, pull the other one.
Great point, Pussycat. Nowadays one shouldn’t buy a house for more than one can comfortably pay off in 10 or 15 years, max. Even then it’s somewhat of a gamble.
You can only lead the horse to water, you can’t make him drink. When the horse is ready to drink, they will drink regardless of how much you talk to him about knife catching.
And, might I add — greedy mortgage brokers (Tan Man & Co.), greedy builders (Bob Toll & Co.), and the greedy NAR (Fun Yun, Liarah, & Co). [btw, all men.]
They all contributed to the massive bait and switch by marketing homes using nester terminology and images, and then hit nesters with loans that were anything but “traditional values.” I save my bile for them.
ShangHai, HongKong, EggFooYung, FunYuns lies have just begun.
“btw, all men”
There you go. Proves we definitely need a woman president, NOW!
We soon will. However, her name is Michelle Obama, not Hillary Clinton.
And you’re gonna love her.
lol
And you’re gonna love her.
LOL. Reminds me of the closing scene in “Colossus, The Forbin project” where Colossus, the dictatorial AI that Forbin created to protect the US from a nuclear strike tells Forbin “In time, you will come to regard me not only with respect and awe, but with love.”
http://en.wikipedia.org/wiki/Forbin_Project
oh god that was a hilarious movie. Maybe not intentionally though.
The traditional real estate model is not relevant to this mess except as a comparison or baseline in predicting where all this will eventually end up. Also I question the “greedy flippers” phrase. Should be “ignorant buyers.” If someone said I’ll pay you 75k to paint some rooms in the latest colors and put in $3k in granite counters dont tell me you would say “no, just give me $5k.” If a seller is asking an unreasonable price it is very easy to say FU and walk away. I do it all the time.
I tend to agree here. Builders/flippers can’t make markets they mostly just respond to price signals. If prices are sky high that’s a signal to build more.
“Could we go a little easier on the nesters, please?”
I don’t like to see most innocents banged up too badly however, there was a gaggle of nesters really ragging on the “loser renter” on another blog earlier this week. Those people really make my skin crawl.
I’m real pleased when someone calls me a loser. Not in debt = loser. No expensive SUV/truck/Prius payment = loser. Don’t have to go to the office tomorrow if I don’t want =loser. Small business owner = loser. If you don’t fit a certain mold in society you’re a loser, so I’m dang proud to be one. (If renter = loser, let’s talk about the $2k/month the landlord is losing on her property)
Oxide….”fee-mongers” is a great word for the groups that created this loan risk mess .
Supreme Court Decision came down that 401K pension investors have a right to sue the parties managing their funds . Funny that you would need a Supreme Court Decision to get that right .Look out Wall Street “fee mongers”!
You get to sue if you put in an order to sell stock funds and buy safer fixed income funds and the 401(k) manager refuses to do it or does it so slowly you lose money. The manager does not own your assets, you do. And if your instructions are not followed and you lose money because of it you should be able to sue. I agree with this ruling.
‘But regular nesters are not psych cases.’
Testify, oxide!
it is not surpirsing to see words like Armageddon used in these articles. it still is amazing that they can pass off their surprise at what is going on. how come only the hbb knew? please
i am serving jury duty this week in jamaica queens (ground zero for queens ny subprime collapse) and just driving around there is so much new construction owned by “investors” this will end badly
i am standing pat as long as i have to. prices are not going up any time soon so i will just continue to rent and save
to tell you the truth after hearing all this nonsense about people running from their alligators i have no desire to buy
it reminds me of the analogy my fil said (retired nyc fireman)
i was running into the burning building and everyone is running out
well home ownership at these prices is like running into a burning building and i am not getting burned
What kind of HB type jury trials can we get knocked off the panels for?
“No sir, I am NOT involved in the real estate business in a professional capacity, however I am 5 times as sceptical as any Realtor(tm).”
Challenge!
The B-word in the title….wow, times have changed
http://www.realtor.org/research/commentary_refueling.html
funyun lmao
dead man walking….. or pimping
Wow. Very surprising that the NAR is starting to perhaps even allow that the emperor is not wearing clothes. Very remarkable.
That really shows that the understanding of the housing bubble is starting to permeate the society, when even those salespeople with a vested interest in denying the bubble, are no longer doing so.
It looks like now, we’re moving into a phase where people are trying to assign blame. Yun wants to blame the ratings services. Is he correct? Well, he, Lereah and the NAR have little credibility, but who knows, they may occasional provide accurate information if it suits their purposes.
In a link from the Realtor’s site, we find this academic paper analyzing the housing mess. Lots of fun data and charts included.
I take it(partly) back. I think he does get it. he’s just pimping.
I love how he starts out saying that the mortgage market is totally disconnected from the Fed and instead is dependednt on the bond market to set market interest rates. Fair enough. But then he goes on to say this:
“However, the current low interest rate policies of the Fed are a big help to housing because low rates can begin to furnish genuine potential homebuyers with the financial capacity to think seriously about becoming a homeowner. Furthermore, the rate cut is lessening the degree of forthcoming ARM resets, thereby lessening the burden the current subprime loan borrower faces. So the current policy of Ben Bernanke will help stabilize the housing market. ”
And the fairies will dance in the moonlight, and there will be shooting stars and sprinkles and puppies farting rainbows….. If you only believe!
Holy Shiite dude. If I may inject a shatnerian pause, it’s like……he just….doesn’t…..*get* it.
What part about crap mortgages fueling the historically unprecedented runup in prices does he not get? It’s really not that complicated. He does mention that the Fed funds rate doesn’t directly equate to the mortgage rates, but it does heavily impact overall liquidity and that I think does filter down to mortgages.
Ironic that debt creation may be the only place where trickle down economics kindasorta works as advertised.
Weird al said it best though: “Trickle down economics is where the rich……. trickle down all over the poor and middle class.”
Fun Yun’s a piece of work allright. Pimping analogies most accurate at this point. Or pesky door-to-door salesmen even.
He kinda has that feel about him doesn’t he? “Make sure you buy some snake oil to lubricate that alligator of yours. What are we doing with that Joshua tree? Nevermind that. Think of all the money you will be making with your instant equity!”
401K’s…. What the hell is wrong with people? Stop spending you idiots, just buy the basics and stop with the junk!
BTW I see Sharper Image just filed BK. May be a good sign.
http://www.msnbc.msn.com/id/23241606/
Love the $550/mo lease payments for the BMW he’s trying to get someone to take over.
Yeah, I have that same car - a 335i BMW. It’s an amazing car. Probably set the guy back ~$50k in loans. Personally, I’d opt for letting the mortgage go into default and keep the car.
” It’s an amazing car”
Right!! Amazing if it runs on hydrogen, drives itself, can be serviced for a $20 oil change, etc. What is truly amazing is that it sits outside during the winter cold and summer heat, gets dinged in parking lots, costs maintenance fees, and its biggest asset is getting from point A to point B reliably at reasonable cost and while people here talk about overpaying for a house some see it there duty to overpay for a four wheeled POS.
550/mo for a car? That’s larger than my house payment. I bet he financed his car for more than I owe on my house. BTW, house will be paid off in 8 years or less.
Roidy
What the beep is he doing leasing an overpriced luxury car? And he gonna get out of the lease on it?
HaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHa!
Why anyone considers Eurotrash “luxury” is beyond me. I’ve never seen so much of this overpriced waste of steel in my life than I have in just the last 18 months. And some of the owners are complete retards. One clueless wonder was boasting how great his Vulva is and I asked him why he paid 3x for what amounts to a Ford Taurus and he just looked at me as if I dragged the family skeleton out of the closet.
My wife won’t let me buy a “vulva” anymore, how does this guy get away with it?
She probably felt bad for him after getting pirated while in Queens on a drinking binge. lmao.
LOL. I forgot that story.
I would’ve paid good money to see someone make that complaint.
The new Volvos haven’t had great track records, but I have a 13 years old one (a real one), and have almost 300K miles on it, and I’ve paid maybe 4K in repairs. I bought it new because my mom’s went almost 400K. I hope to get another 2-3 years out of it. Cars are a waste of $ imo.
Volvo vs. MBZ and BMW owners are different people. I am cost conscious, not pretentious.
After 8 years driving the domestically made-worst hunk of junk I ever owned I switched over to the “best selling car in America”. After 8 years with that workhorse, I passed it on to a college student and bought the it’s luxury cousin- hardtop c. The car is a beast. I got hit by a Labcorp truck while stopped at a red light on Fannin in Houston- and the car budged only a few inches. Heavy, quick and smooth, though it is too thirsty for my commute. I like going in to have my scheduled maintenance sessions and not being called “baby” by the mechanics too.
I’d consider a domestic car again, in a heartbeat, if I heard some stories from folks who could give me some evidence of equivalent performance and dependability.
There are many stories out there of complete satisfaction with domestic autos and trucks. People who abide by the constant mantra of “domestic is crap, import is great” seldom will listen to any story that conflicts with their notions.
BF’s 150 looks and runs like new. He bought it in 1998. He does most of the maintenance himself. When he fantasizes about getting a fast car, it’s always domestic, e.g the new Mustang or I think he said Dodge came out with a new Charger. So maybe he goes for the muscle more than the Euro performance. (and persnickety maintenance)
Dodge Challenger…….I’m there, if they price them where I can afford one.
BMWs are the functional equvalents of Fords/Chevrolets in their home country. (As I recall, most cop cars are 5-Series BMWs)
I fondly remember my ‘77 volvo wagon that I drove until the early 90’s. Great car. Changed oil and fed it gas and it kept going over 300k miles. Traded it in for the worst piece of shit made in America - a Mercury Sable. Damn car broke down with less than 50k on the odometer. Replaced every hose by 125K, 3 transmissions, complete upper engine rebuild by 175k. The car was at the mechanics more than it was in my driveway. Turned it in with Lemon Law, but it still costs me about $3500 out of pocket. Bought a BMW, which I love and I’m still driving. I know why American cars don’t sell. They are crap.
1st Chevy truck = 200,000 miles and running good
2nd Chevy truck = 167,000 miles and running good
Current chevy truck = 11 years old 86,000 miles and running good
I don’t understand the obsession with foreign cars. We have an 8 year old Ford in the garage that hasn’t been in the shop ONCE outside of minor warranty work. I still remember when a car was trash after 5-6 years. Had a 1985 Chevy car that lasted to 160,000 miles as well as above.
American cars just as reliable and generally a fair amount cheaper in the long run.
I’ve never understood the obsession Americans have with big-a$$ pickups. I know it is a macho thing; people who drive those things tend to have insecurity issues and like to feel they can force smaller cars off the road. After all, I don’t think 70% of Americans really need a pick-up; they buy them to be a redneck.
I agree with you in general, especially the ass clowns who feel like they can run over over people and that they are secure from anything inside a truck. But you need to point your ire at the SUV drivers of this country, not the farmers and good ol boys driving pickups, and many of them were squeezed the past few years as the yuppies because (and subsequently, ditched) pickup trucks. BTW, we are from the country and actually use a pickup, but many people don’t.
‘One clueless wonder was boasting how great his Vulva is and I asked him why he paid 3x for what amounts to a Ford Taurus and he just looked at me as if I dragged the family skeleton out of the closet.’
He has a Vulva?! Then his problems are just beginning.
Although I too like to brag about how great my Vulva is, I’m beginning to think those things are more trouble than they’re worth. Sure, they can be lots of fun, but they can also get you in lots of trouble.
Oh, well–what you gonna do? At least I didn’t pay 3X more than a Ford Taurus for it.
You got off light! I’ve easily spent 3X more than a Ford Taurus for mine!
“One clueless wonder was boasting how great his ‘Vulva’ is and I asked him why he paid 3x ”
LOL. Sounds like he was a cross-dresser and paid the 3X for a sex change.
I love playing the ‘my car is better than yours’ game. The most common ending is when I offer to show the other person a title, and you wouldn’t believe the amount of people who have never seen one. The last girl to play that game was 41 and had never seen an actual title.
To me the bigger problem for him is that by borrowing 10K he cut his retirement savings IN HALF.
What retirement savings?
He had $20K in savings. He pulled out half.
What will $20K get you? Not even a Big Mac a day!
The best is the spin that he had little choice because he and his wife could not keep up with monthly expenses after American Express reduced the limits on three credit cards.
Huh? That just limits what you can borrow! The real option was to spend less… Oh yea… the sheeple have a right to spend, spend, spend…
Got popcorn?
Neil
He’s 40, an “account executive” (a sales droid) and had only 20K in his 401(k)? At his current savings rate how much will he have when he’s 60? 50K?
The stupidity is just amazing…
More People Tap 401(k) Accounts for Cash
“As home prices fall and banks tighten lending standards, more people are doing the same thing: raiding their retirement savings just to get by and spending their nest eggs to gas up SUVs, pay mortgages or put food on the table.”
http://biz.yahoo.com/ap/080219/borrowing_against_retirement.html
Another great quote from the article:
“Some of the nation’s largest retirement plan administrators, such as Great-West Retirement Services and Fidelity Investments, are seeing double-digit spikes in hardship withdrawals and increases in loan requests, a sharp departure from levels that traditionally varied little.”
Sounds to me like the Fed’s War on Savings is a rip-roaring success, especially if folks are now raiding their 401(K) plans to liberate spendable monies. The strategy makes perfectly good sense to me, given that the economy is merely slowing down, and not going into a recession.
I don’t believe there ever was a War on Savers. Savers are just becoming collateral damage in the explosion of the debt bubble.
I honestly agree. It just feels like a War on Savers if you are a saver. Similarly, a bomb intended for enemy troops can easily kill innocent civilians.
Yes, there is a WAR on Savers!!
The entire concept revolves around a “consumer economy”. Idiots in finance and media think that the Consumer is King. That is a lie. The PRODUCER is king, unless of course you bring in credit. In this economy, anyone with money can buy things…….consume. They just need money.
In the past, it required SAVINGS, based on INCOME, based on PRODUCING things that people want.
Placing the emphasis on consumption, rather than production (a by-product of welfare-statism) got the country into the current mind-set.
Public policy is all about consumers. How do you get people to spend all their money to keep this ponzi -economy going??
Devalue their money. Drop interest rates to ZERO.
Is their any incentive to save? No. It makes more sense to spend, especially sense unbridled lending has caused rampant inflation in commodities and assets. Savers are losers. I should know.
What am i to do with my money??
What does the government want me to do?
Go out and SPEND. Support the economy. Spend.
The FED needs to RAISE interest rates to 7%.
Stop the inflation. Slow down consumption and make people EARN what they spend, by PRODUCING more products and services.
Flipping houses and hedging money markets is not productive labor. Financial speculation is no different than casino gambling. There are no new goods and services produced, but that is what is seen in Amerika as a “growing” economy………..as long as their are money flows……………Until the BILL CoMES Due. Who will pay the bill???
There are no savings. They have all been spent.
I was thinking about this war everyone posts about in light of a comment the other day. It was about why do people expect a high rate of return for no risk. The Fed doesn’t set long term rates, so who is waging the war? It seems to me that either you buy into Bernankes global savings glut theory or there is actually a deflationary undercurrent.
If it’s inflation that bugs you, there are plenty of hedges against that. Currency risk? Get some foriegn CDs (which you can do with FDIC protection).
But I’m not convinced about any real, lasting, inflation until wages rise significantly and rates do likewise.
Historically real returns are about 2%. And the asset I am saving my pennies for, real estate, is dropping like a rock. It seems unrealistic to expect 6 or 7% with a low-risk T-bill. Want to test it? Go out and start any business that can do better. Generating profit seems to be the real problem, with the exception of off-shoring or merging/downsizing (both also deflationary). This suggests the existance of global overcapacity.
I vaguely remember back in the early maybe mid 80’s, when banks were offering jumbo CDs for 10%? Wasn’t that time during a recession?
Historically real returns are about 2%.”
Yes, and currently real returns are negative. In a free market interest rates are equal to or above the rate of inflation. If rates are below inflation, people refuse to save money, forcing rates up to a level that encourages saving. The fact that the government is suppressing rates for years below the rate of inflation is evidence of a ‘war on savers’. The government is interfering with the market by loaning money to banks at artificially low rates. The government is penalizing savers.
Can’t wait for those 10% jumbos to come back.
The honest truth is that if you have been prudent, if you’ve got cash, you’re going to survive whatever happens. The last few years have made it seem like being completely unresponsible was the way to go, but when you read about everyone’s life crashing down after making dumb financial decisions, realize that being prudent has saved you a lot of grief. Maybe you don’t have the E series mercedes, but you also didn’t get that reposessed along with your house and your wife who is now filing for divorce and will need alimony.
I’m human, and I feel the same way sometimes, that I’m being an idiot for putting more money away than I spend and not being part of the consumer culture. part of the reason I searched out this board was that as a fairly successful person I couldn’t believe that housing prices were so darned high (ie who the heck could afford those things). The people who bought too high are losing their houses, the banks who made dumb loans have billions in losses, they’re catching their desserts, and the market will re-adjust, and we’re going to be in good shape. The other thing that we have to remember is that things move slowly overall. The haircuts on the housing market have still been small, soon it will be crew cut central, but it takes time.
So be happy, savers. it’s all good.
This “war on savers” thing is just wacko.
The Fed doesn’t set long term rates, so who is waging the war?
Exactly.
It’s all just supply and demand.
The long-term rates are dropping. What does that tell us? That there is a large supply of money competing for long-term safe return.
Therefore, if you feel like you are being singled out because you’re a saver, it is only because you are competing with other savers who are behaving exactly like you.
BTW, this used to be called “flight to safety”. Maybe “war on savers” sounds more dramatic.
JP says ‘there is a large supply of money competing for long-term safe return.’
Again, what return? Real returns are negative so how is buying something that is guaranteed to lose value a flight to safety? The only people buying Treasuries now expect the Fed to push rates even lower than they already are.
As for the Fed not setting long-term rates, this is covered in ‘open-market operations’ where the government buys its’ own Treasuries to control rates.
Real returns are negative so how is buying something that is guaranteed to lose value a flight to safety?
“Safety” does not equate to “gain value.” You have confused risk with reward.
As for the Fed not setting long-term rates, this is covered in ‘open-market operations’ where the government buys its’ own Treasuries to control rates.
Doubtful. The bigger issue is that you are competing with the Chinese and Saudis, who have a lot of dollars and have little desire for US equities.
Very good post, Steve W.
Of course, I would think so, because I agree with everything you said.
I searched out this blog for the same reason–the housing situation simply did not make any sense. But even aside from this housing/lending bubble, being an obedient uber-consumer doesn’t make sense.
I’d agree with, ‘Be happy, savers. It’s all good’.
In a deflationary market if we are getting any returns at all we will do well. Momentarily there is inflation.We will see if oil/gold/food prices stay high.
If things continue to deflate then those prices will also fall.
“you buy into Bernankes global savings glut theory ”
You don’t beleive this? I thought this is the reason we had so much inflation in Housing, foriegn money buying up toxic mortgages packaged as AAA bonds?
I totally agree with you Ben on your theory of global overcapacity. Greenspan was publicly talking about deflationary pressures right before all of this credit bubble emerged. It is the global overcapacity that is the real culprit and which is similar to the underlying cause of the Great Depression in the 20’s. Our consumers exhibit a few sniffles and the whole world catches the flu.
i am maxing my 401k and putting it into 4% cash posiiton
my company matches 50 cents on the dollar up to 10% of my salary. i am not one to turn down free money
Yes and inflation will eat you alive while you do so…
“my company matches 50 cents on the dollar up to 10% of my salary. i am not one to turn down free money ”
And the tax rate will be ??? when you start pulling out your free money. And you have to pull out your free money at 70.5 years old. Between inflation and higher tax rate plus limited investment choices…not so great
David, practically all of my 401k money was contributed when I was in the 28% tax bracket (plus state rate on top of it). I’m now withdrawing it while in the 10% tax bracket. Works for me.
…little choice because he and his wife could not keep up with monthly expenses after American Express reduced the limits on three credit cards. What does your credit limit have to do with your ability of pay your monthly expenses? This seems to imply that he was adding to his CC balance every month. What kind of stupid is it where people imagine that becoming more indebted every month is living within their means?
Here’s a question for those who may know - when you take out a loan from your 401(k) - is there any effect to the underlying securities?
I ask because that would determine whether or not this kind of behavior would affect the stock market directly. If you simply withdraw funds from your 401(k) (either in retirement, or taking the 10% penalty), then this means you have to sell some securites - e.g. via mutual funds or whatever, out of your 401(k), thus if this is done in large scale, it will have a downward pull on the stock market.
However if you just take out a “loan” from your 401(k) - presumably this doesn’t happen right? However what *does* happen? Does this money get subtracted from the holding company’s reserves? If so - then might the company have to sell some of the stock it owns in order to maintain its reserve levels?
As a related comment - my expectation is that - housing bubble popping aside - I think we’re in for a very long dry spell in the stock markets, due to baby boomers retiring - since they will now be withdrawing from 401(k) and pensions rather than contributing; this will exert a strong long-term downward pull on the markets for probably about two decades. If economic conditions were to remain normal (i.e. no new big bubble like the tech bubble), IMO the DJI won’t hit 20,000, and maybe even 15,000, until about 2025. Would be curious to hear others’ thoughts on the subject.
My understanding is that when you take out a 401(k) loan your holdings are sold to cover the loan, as opposed to the 401(k) being used as collateral on a loan.
I believe that at least in my case, the securities are sold and the REMAINING balance is used as security. That’s why at least from my employer, you can only borrow 50% of your balance. Of course if the remaining money suffers losses your loan doesn’t have enough security, just like when your home price goes down and you have negative equity.
“I believe that at least in my case, the securities are sold and the REMAINING balance is used as security.”
Say you borrow 20K, and 20K of your portfolio is liquidated to cover the loan. Why would you need collateral? If you default on the loan the unpaid balance becomes a taxable dsitribution.
I think the 50%/50K limit is an IRS thing.
Well at some theoretical level, it IS consiered a loan rather than a disbursement.
It isn’t considered a disbursement unless you default.
I’ve been waiting and expecting this to happen for years but haven’t heard much talk about it. You’d think it would be pretty devastating to the market, especially if the withdrawals accelerate due to all these other problems too.
The next step in this 401k loan deal is when the employees start suing the plan administrators for allowing them to borrow their retirement fund. The administrator “should have known” the wouldn’t be able to pay the money back and therefore the employee wants reimbursement.
I am the plan administrator and trustee for a pension/profit sharing plan at my closely held company (approx 80 employees). We do not allow loans and never will unless the Fed starts requiring it, which Clinton/Obama ilk may initiate. Recent Fed rules require the plan to automatically enroll new participants who do not bother to make an election into an equity fund rather than any stable asset funds as previously done. We can not expose them to low risk, we must get them in the market!
It seems to me that you once claimed to be a ‘cracker’–hence the name ‘CrackerJim’– and proud of it, having embraced crackerdom, which I assume means bamboo fishing poles and straw hats and corncob pipes and things. But I think I’m going to have to scream baloney on this, and insist that you change your name to ‘UnCrackerJim’. But you can keep your straw hat.
40-year old borrows half the value of his 401(k) - $10.0k - to make home payments after Amex cuts limits on three cards. Guy pawns diamond ring, tries to off-load $550/month lease on BMW from April 2007.
http://tinyurl.com/2p9t6k - (Yahoo.com link)
Bohica. No other way to say it, get ready for the JT.
should i feel guilty about sending my wife to puerto rico with her girlfriends? i got the money from a hardship withdrawal from my 401k. notttttttttttttt
lets see take money out of a 401k and pay taxes to pay a mtg on a rapidly depreciating asset
makes great sense, at least they are not throwing money away on rent. these dopes are getting their just rewards
loving this from the sidelines
Half the value of his 401k is $10k at 40 years old? He’s got waaaay more problems than amex and diamonds.
Crystal ball sees him & wife living in an 800 sq ft apartment or a double wide in 25 years. Gotta have the best right now? Righhht
I know so many people like this. Living large now: luxury cars, jewels, expensive vacations, and nothing saved. I hope that they like their trailer.
Fools like this give me a great deal of self satisfaction to say that I may live in a 816 sq ft house now, but at 45 I’ve got 260k in my 401k. And I paid cash for my (used) beemer.
I make over 400K per year and would love a double wide in the country. Nothing wrong with that. I could read all day in peace and quite.
No kidding. That is what I thought. But he’s got the THREE Amex cards. No wonder Amex lowered his limits.
To quote Bugs Bunny: “What a Maroon!”
I just said the same thing above, about the half value. Retirement….ha!! This guy is just another lifelong wage slave, he just doesn’t know it.
“Charlton’s predicament arose as lenders are taking steps to rein in credit because more consumers are missing payments on mortgages”
—
No, it is not due to the lenders. It is due to the Charltons spending more than they make.
Also, how can a 40-year-old have only $20k in his 401k? The guy should have been investing his money rather than spending it on BMW leases.
Also, how can a 40-year-old have only $20k in his 401k? The guy should have been investing his money rather than spending it on BMW leases.
But an investment portfolio doesn’t have that “new car smell”! And its hard to impress your friends with prudent savings. Of course, if everybody within your social circle has a car like this, it becomes a lot less impressive.
The first step in saving for the future is not spending every penny that you make. Only after you have that part down pat should you worry about how that money is invested.
Also, how can a 40-year-old have only $20k in his 401k? The guy should have been investing his money rather than spending it on BMW leases.
Agreed. But I can understand that. Try working as a contract sysadmin in the Seattle area. Contractors don’t get 401k’s until they’ve been on the payroll for at least like a year, depending on the company. Problem is, most contracts find a way to end in less than a year, leaving you to start over with some other outfit.
Seems to be the norm in my line of work, at least around here.
Hence, at 36, I too have FAR less than that in my 401k, but more in savings. And I’m damn frugal, if I may say so myself.
There’s also the ridiculous cost of living around the Seattle area, too.
That’s how it can happen to even a very financially prudent guy like myself. I don’t even have a credit card.
That isn’t to say that this guy isn’t a complete idiot. I just wanted to point out that there are many ways someone who earns well and is prudent can still end up with butkis for 401k savings.
I’m 29 and I have triple what he has in his 401k, and I feel like I’m way behind.
“Fidelity Investments, which jockeys with Vanguard Group as the nation’s largest mutual fund provider, said it saw withdrawals surge 17 percent in 2007, with record withdrawals in December, but a smaller increase in loans. Vanguard saw no change.”
The nature of the Vanguard customer. Since Vanguard is basically a co-op, maybe it should get political on behalf of its customers, to prevent them from bailing out the future-sellers.
Next step after selling out your own future — selling your children into sexual bondage. Look for an attempt to legalize this to keep the spending going.
“…with record withdrawals in December…”
They’re decimating their puny 401ks and they still couldn’t manage to boost holiday retail sales! What an absolute waste!
I have no data, but I’d suggest people liquidating their mutual funds aren’t necessarily going to take their cash and run - they’d let it sit in some money market or bond fund while they contemplate their next move. (I did). People can’t move their 401K / IRA money into bank accounts unless they want to pay the tax penalities, and why would you move your investment cash into some bank full of subprime paper? I think people who got their money out of Fidelity and Vanguard are using it to pay bills.
The other way to look at this is that half of the individuals in the Fidelity, Vanguard and their ilk are smart and closed out near the top. There a quite a few individuals that are disgusted by these funds performance over the last 8 years.
Not everybody rides losing positions down.
Bingo!
I borrowed almost half of my 401k money last year and have invested it outside the plan myself, because the options in the plan were terrible. I’ve made about 20% while the money left in the plan is down about 10%.
book of leviticus is your guide.
If you are not maxing out your 401k every year, why in the hell are you even considering buying a house? I wonder where prices would be right now if everyone did not buy a house until their debt was zero, they maxed their 401k, and had 20% for a down payment. Probably where they should be, and will be again. I resent those losers making us take the long route.
Well, FWIW, saving for a downpayment was one of the reasons I was maxing out my 401(k) at a young age. I ended up getting most of my downpayment from a 401(k) loan. Since the loan is secured by your balance, and not the house, I never paid a day of mortgage insurance. Later, as interest rates fell, I got a cash out REFI and paid it back in full. I was explaining this to a friend at a party the other day, and he started saying, “But you’ll never make up for the returns that you would have gotten if you left the money….”
“Dude, this meant that I took money OUT of the stock market in 1999 and put it back in 2003.”
“Oh, never mind.”
It is better to be lucky than good.
Its all in the pricing. Housing was cheap then and stocks were expensive. Today both housing and stocks are expensive. Im keeping my 401k in conservative investments with a little dollar cost averaging on each new low. Historically though its better to leave the money in the 401k.
That was a pretty awesome move. Cudos!
Short View: What ‘decoupling’ means to the credit and equity markets
The equity market seems to think that it can safely ignore the credit markets - but the decoupling syndrome between the two invites closer scrutiny, says John Authers in Wednesday’s Short View column.
If you believe the credit market, things have worsened sharply in the past few weeks. With spreads widening significantly, recession is a certainty in the US and Europe.
http://ftalphaville.ft.com/blog/2008/02/20/11046/short-view-what-decoupling-means-to-the-credit-and-equity-markets/
mortgage apps down:
CHICAGO (MarketWatch) — Mortgage applications filed last week dropped a seasonally adjusted 22.6% from the previous week, as interest rates on fixed-rate mortgages increased, the Mortgage Bankers Association reported Wednesday.
When does the first pundit’s meltdown occur after the “decoupling” between the (Fed’s) short and the longer term rates becomes obvious?
What happens when the NAR realizes that the Fed isn’t looking out for them, rather for the banks? (Don’t stand next to a Realtor in the next few months. Spontaneous combustion from the brain cells sparking unexpectedly is a definite concern.)
“Spontaneous combustion from the brain cells sparking unexpectedly is a definite concern.”
Pfft.. The blast zone wouldn’t contain enough fuel to encompass a thimble.
Not sure about posting possibilities on this dire prognostication…
America’s economy risks mother of all meltdowns
By Martin Wolf
Published: February 19 2008 18:21 | Last updated: February 19 2008 18:21
http://www.ft.com/cms/s/4d19518c-df0d-11dc-91d4-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F4d19518c-df0d-11dc-91d4-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
I read this earlier today. I have always thought that this mess cannot be fixed. I look at a meltdown as an inevitable event. It is just not going to happen overnight. This meltdown will take time to get momentum. BTW, I’ve never been in debt like some of these people. I assume that most people aren’t in hopeless debt FOR THE MOMENT. I do know reasonably intelligent people who appear to accept that a house will cost much more than it really appears to be worth and that debt is a normal condition to be in. This is the heart of this problem - the view that it is normal.
It isn’t.
Roidy
I read it also. At least 10 of the 12 steps to doom Roubini lists seem very likely, and hardly a “doom” scenario.
A 25% to 30% housing market decline, knocking down home equity by $4 to $6 billion and putting 10 million households in negative equity.
A total of $1 trillion in credit losses across not only mortgages but also credit cards, auto, corporate lending to weak companies, and commercial real estate. Not a lot given the loss of home equity.
The failure of a major financial institution (not all of them) and some homebuilders (not all of them).
Etc. etc.
The fundamental problem is too much debt. It will either be written off or inflated away. Lenders will be unwilling to lend on the same terms after that, and some of the debts will be paid back, so the standard of living/profitability will fall for some time as we live within our means.
The doom scenario is a financial accident will so wreck the real economy that we will be even less well off than we ought to be.
“A 25% to 30% housing market decline, knocking down home equity by $4 to $6 billion…”
I think you meant to say`trillion’…
BTW, $5 trillion = $5000 bn. This, in turn, is a 50X the $100 bn or so the global IB players have written down thus far…not trying to suggest $4900 bn in write downs remain, but simply to compare magnitudes.
Maybe he’s a Brit and that’s a European style “long billion,” 1.0e12 rather than the American 1.0e9.
Good theory, but I believe WT Economist posts from NYC.
inside wall streets’ black hole:
The striking thing about the seemingly endless collapse of the subprime-mortgage market is how egalitarian it has been. It’s nearly impossible to draw a demographic line between the victims and the perps. Millions of ordinary people ignorant of high finance have lost billions of dollars, but so have the biggest names on Wall Street, and both groups made exactly the same bet: that real estate values would never fall.
http://tinyurl.com/24l9up
Even that understates the actual situation.
They bet real estate values would continue to rise, and at quite a clip at that. Merely “not falling” wouldn’t be nearly good enough.
Black swan trumps Black Scholes.
Greater Fool Theory trumps both.
Black Sholes is a nice model to use when risk is exogenous to the system. But risk is highly endogenous, especially when Fed bailout policy is involved.
Can you elaborate? Sounds deep.
“At the end of 2006, according to th Bank for International Settlements, there were $415 trillion in derivatives - that is, $415 trillion in securties for which there is no completely satisfactory pricing model.”
There it is, this is where the “thin-air” money is located. This is the money that exists only in the various player’s imaginations.
The day Mr. Market settles on this fact is the day we are totally screwed.
Go to cash; cash is king.
Cash is definitely not king, and the Seal Beach tanker index will not determine the price of oil.
A problem with the derivative market is that over half of all the derivatives are held by just 7 banks.
What IS king, then? Gold? Oil? FICO score? Canned food? Water and raw land (for you peak-oilers)? Pay stub and job security?
That’s why they call it investing; you have to figure out where is the right place to put your money. But cash? Remember Mork from Ork; he brought a bag of sand from his home world to Earth, because sand is incredibly valuable on Ork. Of course sand is common and worthless here. Dollars are like sand.
These sand dollars you speak of are currently
in high demand.
Having these dollars will solve people’s financial problems, financial problems caused by them not having them.
Ummm…. you have to understand that the $415T is in “nominal” value.
That’s not the way the valuation works.
Here’s the problem: let’s say I write you a $1T contract that the S&P will never fall below 10. This is pretty much a wrap in a fiat currency world so I am willing to sell it you for the price of a lollipop.
Nominal value: $1T
Value : 1 lollipop (or even less)
See the problem?
“See the problem?”
The problem I see is that there is no market to value these financial entities; the entities are valued by models.
The derivative market is a zero sum game. Every winning position is off-set by a losing position. If the value of these positions was priced by the market then there would be many winners and many losers.
But there is no market to price these positions; these positions are priced by models. Players on either side of a trade can use different models to determine the value of their positions of the trade, and each player can have his model set up to show that his position is profitable.
Much of these profits are non existent. And when the market realizes this there will be hell to pay.
For all of us.
We had something similar happen to model-based pricing in the mortgage markets. Mortgages were priced by models of past behaviour of real estate prices. When the market repriced these mortgages billions of dollars were written down, meaning the money disappeared into thin air. The disappearance of these billions are causing great disruptions in the world’s economy.
But in the derivative markets we aren’t limited to mere billions subject to become repriced; we are dealing here with hundreds of trillions of dollars.
We are hosed.
Then they can use the fabricated value to borrow money against to invest in other equities bonds cdo’s ect, or to go short against.
When the counterparty defaults, the notional value becomes the actual value.
The notional values become the actual one when the derivative can be exercised. Otherwise, it expires worthless.
Realtor’s lament and other SD housing opinions…
On behalf of myself and the real estate agents in the city who agree with me, we’re fatigued with the Union-Tribune’s ongoing gloom and doom real estate stories. Your so-called experts and economists don’t sell houses on a daily basis; they read reports on housing data retroactively in their offices and cubicles and then pontificate about it. Every agent I talk to agrees that the Union-Tribune can always find the dark lining around any silver cloud when it comes to local real estate.
Yes, it’s tough out there for a real estate broker. But buyers are coming back to open houses, they’re calling off signs, asking questions about how low the seller will go on price, and they appear to be testing the market, which is a good thing. We are in a time of cheap houses and cheap money. What are buyers waiting for? In my longtime experience it’s the cautious buyer who misses their own buyer’s market. The greatest challenge a buyer faces today is not finding the property they want at the right price, it’s coming up with the lowest down payment possible to get into this great market. The days of zero down are over – for now. There are solutions out there around many corners for financing, with as little as 3 percent down.
Is it just me who believes buyers shouldn’t wait for the Union-Tribune to give them permission to buy a house? If they wait for that, they’ll miss what is truly a golden opportunity now.
KIMBERLY DOTSETH
San Diego
http://www.signonsandiego.com/uniontrib/20080219/news_lz1e19letters.html
Kimberly had to go. Her shift at the IHOP is about to begin.
No, I just saw her handing out fries at burger king this morning.
LOL
Maybe she will be your waitress for Chrismas and get a $100 commission from you!!
Christmas not Chrismas Sorry!!
I thought it was $500.
We are in a time of cheap houses and cheap money. What are buyers waiting for?
———————–
Firstly, while money may be cheap, I’m not seeing cheap houses anywhere. Also, cheap money is the very thing that got us into this trouble in the first place. We’ll buy when money is expensive and houses are truly cheap ($100K or less for a starter home), no sooner.
I guess Kimberly thinks she’s an “expert”.
This Realtor(TM) clearly believes the problems at hand are some kind of fiction dreamed up by the SD Union Tribune. Kimberly should read a few back issues of the Wall Street Journal, the Financial Times of London and The Economist before opining.
“The greatest challenge a buyer faces today is not finding the property they want at the right price, it’s coming up with the lowest down payment possible to get into this great market. The days of zero down are over – for now. There are solutions out there around many corners for financing, with as little as 3 percent down.”
Yes Kimberly you nailed it….the greatest hurdle is affordability now quit your whining about the buyers and start getting the sellers to reduce prices.
Dear Kimberly,
Since in your area houses are cheap, please find one for me that meets this criteria. I am comfortably making 80K per year and will not spend more than 2X my gross income (okay maybe 2.5). I currently live on 2.5 acres in a 2000 sf house with a 3 car garage and pool outside of Phoenix, so I do not expect a slum! I commute 30 minutes to work and will not spend any more time on the road as that impacts free time.
This is pretty funny. I googled her name and found this in the same paper:
http://www.signonsandiego.com/news/features/20070121-9999-1c21letter.html
It seems like this realtor is not only bitter, but she is also an FB (she “owns” an investment property) and hasn’t properly saved for her retirement (surprise, surprise). Maybe she can pick up an extra shift at the IHOP to put a little more cash in her IRA.
Nice work. She doesn’t take her own advice. Why should we take hers? And how about that quizzical-vacant facial expression?
As Dan Akroid would say, “Kimberly, you ignorant misguided $lut.”
“On behalf of myself and the real estate agents in the city who agree with me, we’re fatigued with the Union-Tribune’s ongoing gloom and doom real estate stories.”
Could it be that San Diego buyers are fatigued with the high prices?
I cannot think of a more humorous bunch to watch have a collective meltdown than the used house sellers. After decades of watching honest workers get the shaft it is so cathartic to watch them squirm.
The funniest part about it is that they are still under the delusion that their fellow countrymen actually care about them.
the last honest man quits:
WASHINGTON (Reuters) - Comptroller General David Walker, a leading voice for U.S. fiscal responsibility, on Friday announced his resignation to become head of a new foundation that will focus on nagging problems such as skyrocketing government spending and high health care costs.
http://www.reuters.com/article/politicsNews/idUSN1559692520080215
“the last honest man quits:”
Not really. Just another rat deserting the sinking ship, IMHO. But I have to admit, he’s done almost as good a snow job on people as Greenspan did. Here’s the real reason he’s resigned:
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
watcher, I’m a fan of your posts, so this is not aimed at you. Walker sounds reasonable, and that’s what’s so scary, but I caught his hypocritical act on 60 Minutes and went running for the nearest barf bag. I mean, really, touring the country in a chauffeur driven limousine while preaching about how to “reform” Social Security and Medicare out of existence is a bit much. Not one word did he say about the costs of empire, phony wars, no-bid contracts for billions of dollars to companies like Blackwater and Halliburton, nor did he mention that maybe CONgress ought to divest themselves of their own pensions and health benefits if the people have to do the same.
Failed government chieftans never die. They just join think tanks. Wouldn’t surprise me if the “foundation” he’s joining is backed by Wall Street and finance money, so those Social Security “investment accounts” can be set up and siphoned off.
I think the Comptroller General of the United States and the Comptroller of the Currency are offices held by different people.
Ooops, I stand corrected. Bygones.
But I still think Walker is a hypocrite about which aspects of government spending should be eliminated.
I saw Walker give a speech once (I was watching a recording of the talk) to a meeting of accountants, a national CPA convention or something. I found him to be very refreshing, and I say that as a fairly rabid, anti-government borderline anarcho-capitalist.
He was very frank about the fiscal state of the federal government and specifically with regard to unfunded liabilities (which don’t show up on gov’t fund balance sheets). I don’t recall the exact numbers now, but the present value of all future unfunded liabilities works out to be something in the neighborhood of 90+% of the net worth of every single American. I’ve never heard any other political type point out such a profound number; that we have essentially already spent most of our current wealth.
The only parts of the government that matter are health care, social security, defense, and welfare. Everything else is small pickings (except interest which is pretty much a given) compared to the big four (combining health spending).
The entire rest of the government combined (including most of the civil employees, every Roosevelt era work, foreign aid, all the research grants etc) would be bigger than welfare but smaller than defense.
Sure there’s waste in the whole thing, but trying to get several hundred billion in savings from $450 billion in traditional government’s budget is going to be a lot harder than getting it from the $1,527 billion in welfare, health care, and social security.
Eliminating defense entirely still leaves a deficit of about $150 billion. Not that I’d suggest that, but something else still has to be cut.
“don’t recall the exact numbers now, but the present value of all future unfunded liabilities works out to be something in the neighborhood of 90+% of the net worth of every single American.”
I would love to this information!! If this is indeed true the U.S. is much worse than I thougtht and I am pretty pessimistic seeing as I am betting agaist my country I love!!
auction bond chaos:
As municipal bond auctions continue to fail — and to produce very odd interest rates when they succeed — it is becoming clear that the auction-rate market is in crisis and chaos, and many securities may never have a successful auction again.
If they continue, the auction failures could lead to the selling of billions of dollars in municipal bonds. That, in turn, could push up the rates that cities and states must pay to borrow money.
http://tinyurl.com/363b4w
“As evidence of the chaos in the market, among Tuesday’s auctions were two virtually identical securities (differing only in the original underwriter) that produced wildly different rates: one 7.98 percent, the other 5 percent.”
Evidently, the demand side of the market is very sparsely populated at the moment. Thin markets can result in high price volatility, as the minimum order statistic is unstable with only a few bids in the pool.
NY should just sell bonds to its pension funds at 7 percent. It is the only way those funds will get close to the purported 8 percent return, so higher debt payments will be offset by a smaller pension catastrophe.
NY is the only fund that is 99.9% funded.
Yeah, extraordinary, I know. Wouldn’t have expected it myself. Compare that with IL, etc.
Funded based on bullshit assumptions. And that does not include retiree health care.
Well, all the plans have bullsh*t assumptions. This is just the cream of the crap.
In any case, these pensions will never get paid. The productive people and assets will leave the state, and in all likelihood the country.
This is a bunch of BS. Never again. For ever and ever?
Pull the other one.
Structure the notes correctly, and you’ll have a buyer. Might be expensive but there will almost always be a buyer at the right price.
The securities get expensive enough [i.e. interest is too high], there won’t be sellers.
Then they can stick them where the sun don’t shine.
Lenders make the rule always. There is no God-given right to borrow.
The municipalities haven’t figured out that the old rules are over. Nobody is insuring their crap any more, or at least nobody believes the insurance, and there’s a Supreme Court ruling in the pipeline that is making buyers rationally risk-averse.
What ruling is that? Can you provide a link? I am into buying these type of securities, but I might have to stop for a while.
Kentucky v/s Davis.
http://www.law.com/jsp/article.jsp?id=1179751696755&rss=newswire
Thanks!!! I am going there right now…
Reynoldsburg, OH, 19 Feb 2008: Homebuyers awarded $3.2 million from Maronda Homes of Ohio in a lawsuit over home purchase defects. Compensatory damages were tripled because because jurors found the builder acted in “an unfair, deceptive or unconscionable” manner. The original purchase price was $219,100.
Good catch, tresho. And that’s just ONE lawsuit. Multiply that by thousands of potential lawsuits spread out over a number of builders. Maronda is very active here in FLA, too. I’d hate to see what condition the Florida homes are in.
I’m amazed that Maronda Homes was unsuccessful in forcing this into binding arbitration (aka private courts).
Good for the home buyers. Contrary to the wailing of bizness community, the (public) court system works.
I really think Wall Street/investment banks ,the Builders ,the Lenders ,commissioned sales people , borrowers ,etc. ,went to far this time . I don’t think it would be to hard to prove “Bad Faith “,in business dealings in the last 6 or 7 year business cycle . They got LAWS on the books against the type of foul play that was going on in the housing business . The problem with legal remedy is that sometimes there is no money left when its all said and done to pay for the damages . Really ,the whole housing ponzi-scheme was so bad faith and criminal in so many ways . The greater fool borrowers and greater fool investors in Wall Street are not going to take this lying down IMHO .
Is there some way to invest in lawsuits? There’s a lot of money to be made, or recovered, here.
2009er:
LOS ANGELES (AP) - California’s housing crunch will drag into next year, choking job growth to a meager half-percent as the state sheds jobs in construction and finance, according to a new economic forecast.
Despite the lackluster outlook, the state should avoid a recession, according to the Los Angeles County Economic Development Corp. report being released Wednesday.
http://www.mohavedailynews.com/articles/2008/02/20/news/business/biz4.txt
Maybe they should ask the LA County Assessor why he is reviewing the value of all homes purchased from June 2005 to Dec 2007.
I think his opinion matters more than their outlook.
After hearing forecasts from these bozos of the “Los Angeles County Economic Development Corp” for the past several years, I finally checked out their website. Although including “Los Angeles County” in the name gives the impression (at least to me) of objective reporting, surprise-surprise, it is yet another band of shills. Hey media, why don’t you ask about your sources’ objectivity once in a blue moon?
Check here: http://www.laedc.org/membership/board/committee.html
Saw this on the 10 O’clock news last night. Home Tending.
http://www.kutv.com/mediacenter/local.aspx?videoid=33372@kutv.dayport.com&navCatId=5
Oh how I missed the Utah news media, they always are so positive.
The husband and wife in the segment had been foreclosed on. They are now housesitting and staging a place with their own furniture for what amounts to subsidized rent in exchange for being on call 24/7 to anyone who wants to see the place in spotless condition or a few days notice of having to move.
“He loves the fact that he doesn’t feel like a failure because we’re still living in a nice home.”
Does living in less than a 4000 sq. ft. house mean you are a failure?
“Autumn and her husband had to go through the emotional stress of losing their own home in South Jordan. Now, they can take pride in someone else’s.”
“I’m embarrassed for some people, because I’ve seen some homes. So, ya know, keeping clean is very important, I think. And I want to help somebody sell their home.”
Oookaaayyy.
Interesting. I also predicted this person over a year ago.
http://article.nationalreview.com/?q=MWQxY2Q2ZWRmZGRkMDYwNzU1ZWQxMGU4YzY5ODY1YTQ=
As nominee? Agreed. I forecast his defeat in the general.
TxChic, I like Derb too (Radio Derb is very fun.) I also think this scenario is very possible. However, there is no way he’d settle for VP. He’d want the top spot, with Obama as VP.
Right. Same here.
I predicted this person after the 2000 election. Manchurian Candidate.
I don’t see it. I think Derb has it wrong. Gore is dead politically. If he does emerge, Frankenstein-like, his prospects will be very poor. His core constituency is similar to Obama’s. Black and young voters will be disillusioned. Gore would be more like a buzzard than a white knight.
Black voters always vote over 90% democrat THEY HAVE to show up for the general for demos to win. D’s are tied to Obama now, if he doesn’t make it as the nominee black voters won’t show up and to make matters worse for dems they may lose them as a block forever.
The Republicans nominated the only person they had whom anyone with a brain who cared about their country would possible vote for. A large share of them aren’t happy about it, but it will be a good move.
They have nominated Ron Paul? Great news!
Obama is a remarkably weak candidate, similar to Edwards in ‘04. Alone in the general with his faux-pas-inclined wife, he’s very vulnerable, moreso than Hillary I believe, despite current polls. (For example, Hillary can play the patriotism card better than Obama and deliver certain Rust Belt states better than Obama, I think.) McCain also has a much better field of potential VPs to choose from. Without a third party candidate, I think McCain is the favorite against Obama. With a third party, who knows.
keep dreaming. just watch the numbers so you’ll get an idea of who will be the minority is this coming election.
I’m not happy with McCain, and for a while I thought he wouldn’t have a prayer against either Dem. Now I’m not so sure.
Experience? … Go climb a rock!
yaddah yaddah yaddah…blah blah blah…
And just what was Abraham Lincoln’s political résumé before becoming just a so-so remembrance in American Political History?
For a sample of the weaknesses, just a sample, let’s look at the résumé issue.
Hillary: U.S. Senator (7 yrs). Wife of president (8 yrs). Wife of state governor (12 yrs). Amateur, but sensationally successful, trader/investor (2 yrs). Wife of state attorney general (2 yrs). “Rainmaker” lawyer (on and off). Law school, lawyering.
Obama: U.S. senator (3 yrs). State senator (8 yrs). Lawyer on behalf of community groups and discrimination claims (4 yrs). Part-time lecturing (12 yrs). Community organizing (2-3 yrs). Office work (2 yrs). Law school, lawyering.
Old Abe made a name for himself in his run for senator from IL in 1858. The Lincoln-Douglas debates were followed closely by the newspapers, who printed transcripts, and by many voters, who traveled from town to town to follow the discussions and to watch the candidates make their case. Even though Abe lost that election, he gained a great deal of respect & credibility by his performance in the debates.
Yeah, but you see all the “experts” today like… rushlimpballs… would point out that Abe is “weak”… no “experience”… “isn’t electable” … blah blah blah
Slowdown Hits Towns at Outskirts of Texas Boom
LAVON, Tex. — Once little more than a speed trap 25 miles northeast of Dallas, this town started to boom about a year ago, as turreted stone castlettes and modest brick bungalows began springing up in what had been wheat fields.
Big Dallas seemed to be knocking on little Lavon’s door. Thousands of lots were laid out and hundreds of houses built, as developers tried to meet what seemed to be an insatiable appetite for inexpensive single-family homes. Land values soared, the population hit 2,500, and by November, the city was finally flush enough to afford a full-time police department.
But that was when the knocking stopped. Banks were no longer giving mortgages to anyone who could fog a mirror. “For sale” signs went up and stayed up. Weeds, not houses, sprouted on the scraped-earth plots.
http://www.nytimes.com/2008/02/20/us/20exurb.html?hp
I see people on Craigslist all the time trying to sell places in Lavon at ludicrous wishing prices. Good luck with that; unless you work out there or have a helicopter to fly in, no way.
Great article. Another snip. No news to me but maybe to “investors”.
There are other signs of trouble. Home sales, which had been holding up well across the state last year, started to fall sharply in the fall, and by December they were down almost 20 percent in Austin, Houston and San Antonio, and about 25 percent in Dallas and Fort Worth.
And foreclosures, generally high in North Texas, hit record levels this month, according to Foreclosure Listing Service in Addison, a suburb of Dallas. When the federal Department of Housing and Urban Development sent out letters on Feb. 8 offering help to homeowners in areas “experiencing a disturbing home foreclosure rate,” Texas was third on the list after California and Florida.
This weakness is all the more striking because of the state’s continuing growth. Texas has been attracting far more new residents than any other state, according to the Census Bureau, which reports that the state’s population increased by half a million in the year that ended July 1. Dallas added 65,800 jobs last year, more than any other city in the nation except New York; Houston was No. 3.
But even Texas cannot escape the consequences of a housing boom that has gone bust.
This weakness is all the more striking because of the state’s continuing growth. Texas has been attracting far more new residents than any other state, according to the Census Bureau, which reports that the state’s population increased by half a million in the year that ended July 1. Dallas added 65,800 jobs last year, more than any other city in the nation except New York; Houston was No. 3.
But what kind of jobs? Here in Larimer county we are told that job growth is also “robust” and unemployment is low. Yet when the local library had a part time, $12/hr opening there was veritable flood of applicants. People with Masters degrees applied.
there are no jobs in that part of the DFW area. That is a bunch of BS.
I live in the mid cities and I have NEVER hear of Lavon before. Hmmm, on mapquest I can see that if Texas gave a prize for post office farthest from a major road, they would win…
My parents actually shopped some of the new homes in Fate when they were looking for a place to retire. They finally settled on Rockwall. They have a great view of the lake and I like that they are close to their doctors and hospitals. But even Rockwall has sooo much new housing that is just sitting right now.
Rockwall still has that I-30 Corridor, East Texas trailer trash rap plus the drive into downtown from there is not something a sane person would voluntarily sign up for. But for retirees, it’s great.
Victor Davis Hansen radio interview
“We were, the whole country went on this Obama craze, and suddenly, people in the Democratic Party, I think, are starting to say wait a minute, are we going to exchange…we have a choice of the Clintons, two lawyers from Yale, but suddenly, we’re going to get two lawyers from Harvard. And these people are wet behind the ears.”
http://hughhewitt.townhall.com/talkradio/transcripts/Transcript.aspx?ContentGuid=aceea00e-433c-4590-a61d-681b16a3c600
VDH is an amazing intellect, for those of you that don’t know him. Does anyone think the Dems are really thinking this, because if they are, that means they’ll have to go with Hillary?
See above.
“Radio….amazing intellect” is an oxymoron.
So will NAHB and their voodoo priest David Seiders be so stupid as to re-ignite McMansion construction as a result of Fannie and Freddies upwardly adjusted limits? My understanding is that the limits are temporary and will expire but we know how that game works.
Not enough people with enough income to qualify for loans over $400K. Higher limits are irrelivant when buyers have to document employment, document income, have assets, a decent FICO, and not already be drowning in debt.
Interesting comment in this timesonline editorial about the recent Credit Suisse mishap: “This whole thing has to be deliberate. The 2007 results [for Credit Suisse] had to be as clean as possible in order to protect bonuses and con the Qataris [who 48 hours earlier had bought shares in Credit Suisse & even wrote put options on those shares]. The ‘rouge trader’ method of revealing writedowns has other tactical and presentational benefits as well but the first two are the clinchers. Synthetic CDOs are the obvious place to double check but the auditors missed it - just proves we cannot trust any bank results.
What can we do ? Avoid investing in or dealing with any untrustworthy bank. It is no good fuming, whineing or hoping for redress from regulators - just give all Swiss, German, French and US banks a wide berth and maybe one day there will be less of this dispicable behaviour.” The thought that “rogue traders” are being used as scapegoats by the Pig Men had occured to me also.
I, for one, welcome our new Zimbabwean banking overlords.
good one
CPI above consensus.
and it doesn’t include energy or food. LOL.
Funny how if stocks trend upward they are not described as volatile (regardless of beta). They are described as “sizzling”.
CPI most certainly does include energy and food. It is the “core” CPI that does not.
Nice to see an exception to the steady stream of economic data coming in below consensus estimates.
Death Knell for 125% mortgages?
I’m flabbergasted that Uk lenders have only now withdrawn these loans, I assumed the funny money had stopped ages ago. Of course
you can still get a 125%er from Northern Rock. unreal.
Without securatisation, the lenders must be holding onto these
mortgages themselves. The stupid bubble has yet to burst here.
Death Knell for 125% mortgages?
“Of course you can still get a 125%er from Northern Rock.”
Does the govt takeover of Northern Rock have anything to do with this?
I just checked the Nikkei 225 and FTSE 100 on Yahoo Financial. They are down 3.2% and 2% respectively. Any bets that the Fed will really poop it’s trousers over this and cut rates this morning? If so, then by how much?
Roidy
I just covered my BIDU short for an astounding 56 points. In what, a week? I really am floored by the inability of this market to rally. At all.
No moneys.
Waiting for the fed to pooh pooh on the market today.
In and out of SKF 3 times today - all profitable.
A new record of sorts.
ZIRP. What else? /sarcasmoff
ZIRP means Zero Inflation Rate Policy, right?
I thought 0 interest rate policy. My mistake?
My sarcasm.
Are housing starts or building permits a better indicator of future construction activity?
And regarding the comparison to November 1991, does anyone know how these figures compare as a percentage of the existing housing stock or relative to the U.S. population? (I am guessing extant U.S. housing and population were considerably lower in 1991 than in 2008, but please correct me if you have contrary evidence.)
ECONOMIC REPORT
U.S. housing starts post small gain in January
Starts rise 0.8% to begin 2008, but building permits drop by 3.0%
By Robert Schroeder, MarketWatch
Last update: 8:46 a.m. EST Feb. 20, 2008
WASHINGTON (MarketWatch) — The nation’s pace of construction on new homes showed a small gain in January, even as building permits remained in the doldrums, the Commerce Department reported Wednesday.
Housing starts rose last month by 0.8%, to a seasonally adjusted annual rate of 1.01 million, the most since November, the government’s latest data show. In December, starts fell by a revised 14.8% to an annual rate of 1.00 million.
Economists surveyed by MarketWatch had been expecting U.S. housing starts to rise to a pace of 1.01 million. See Economic Calendar.
Building permits, on the other hand, dropped by 3.0%, to a seasonally adjusted annual rate of 1.08 million. It marked the lowest since November 1991.
http://www.marketwatch.com/news/story/housing-starts-tally-small-gain/story.aspx?guid=%7BAE468FE3%2D7BDB%2D4124%2DB232%2D3076B66F2370%7D
By definition building permits are more forward-looking - housing starts lag some, since you have to get a permit before you can start construction. Thus building permits are a better indicator.
Ergo down is a better guess than up for the future direction of residential construction activity.
Fresno Bee reader poll - will housing prices continue to fall?
http://www.fresnobee.com/
Scroll down the page to the “Poll Position” on the left hand side of the page and cast your vote
0.4 pct over one month translates into an annualized inflation rate of (1.004^12-1)*100 = 4.9 pct.
ECONOMIC REPORT
Inflation remains hot in January
Energy, food and a host of core prices rise
By Greg Robb, MarketWatch
Last update: 8:43 a.m. EST Feb. 20, 2008
WASHINGTON (MarketWatch) — Inflation remained hot in January, led by large increases in energy and food prices but also in a host of underlying core prices, the government reported Wednesday.
U.S. consumer prices rose a seasonally adjusted 0.4% last month, the Labor Department reported Wednesday. See full government report.
http://www.marketwatch.com/news/story/us-retail-level-inflation-runs-hotter/story.aspx?guid=%7B4DA3466C%2DF37D%2D49EF%2D9DC8%2D2326516988B4%7D
That may delay further rate cuts…for about three hours.
Is this site for real? Claims increases in asking price in SF, Santa Barbara, a few other markets…Since it is a month to month comparison I guess anything’s possible, right? Still seems counterintuitive based upon what I’ve read on this blog.
http://www.housing-watch.com/home.aspx
San Francisco, CA $679,000 +4000 (0.59%)
San Jose, CA $589,900* -5100 (0.86%)
Santa Barbara, CA $865,000* +6000 (0.70%)
Seattle, WA $424,000 +2500 (0.59%
And I can “ask” $50k for my old beat up farm wagon with a plow on it too.
They can ask whatever they wish. Too bad if they never find a buyer.
I dont see the relevance of the asking price, as opposed to the sales price, except maybe to see how informed or underwater ppl are.
It is relevant as an indication of what offers sellers are willing to accept. I have noticed a sizable drop in the median asking price in some SD County zip codes over the past year (e.g. over 20 pct drop in 92127), which I take as a evidence that sellers are collectively becoming more realistic about what buyers are willing to pay in the post-credit-crunch market.
Well if the sellers can afford to hold on indefinitley, than that matters. If, however they can’t hold and they can’t sell, the wishing price is just a dream to have while wating for the sheriff’s deputy to paste a foreclosure notice on the door.
A word to the wise: Ignore the MarketWatch gloomsters and buy the dip! The Fed will protect your stock market investments with more rate cuts down the road.
February 20, 2008 9:10 A.M.EST
BULLETIN
Major losses due at the open
CPI and housing-starts data reinforce bearish sentiment
Investors get a fresh case of the jitters, playing off data on housing starts and retail-level inflation. Better-than-expected outlook from Hewlett-Packard and a slight easing in sky-high crude prices get short shrift.
http://www.marketwatch.com/
No worries about the rough open. The market has all day to recover.
http://www.marketwatch.com/tools/marketsummary/
SUBPRIME TODAY
Inflation remains hot; mortgage applications dive
By John Spence, MarketWatch
Last update: 9:10 a.m. EST Feb. 20, 2008
http://www.marketwatch.com/news/story/subprime-today-inflation-remains-hot/story.aspx?guid=%7B06C2B0E6%2DB122%2D4F7B%2DBF0D%2D27C61FA41A47%7D&dist=hplatest
I liked the linked layoff chart too, PB.
http://www.marketwatch.com/news/breaking.asp?id=news/story/2007/08/layoffs_page.htm&siteId=
Reminsicent of the tech boom. In the Washington Post technology section, from like 2002 to 2004, there was a section listing companies and how many they were laying off.
And then there was This Site (now dead, but preserved for history).
Up, up and away… (Note to self: Always seriously consider Hoz’s investment advice.)
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TYX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=4&freq=1&startdate=&enddate=&hiddenTrue=&comp=tnx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
What a difference a couple of hours can make! Still, it seems there is a floor under the U.S. stock prices today, which is likely to translate into more asset price inflation (relative to underlying fundamental values of the companies) by day’s end. Isn’t inflation supposed to make l-t T-bond yields go higher? Not sure how this tug-o-war will resolve.
http://www.marketwatch.com/tools/quotes/intchart.asp?submitted=true&intflavor=advanced&symb=TYX&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=1&freq=9&startdate=&enddate=&hiddenTrue=&comp=tnx&compidx=aaaaa%7E0&compind=aaaaa%7E0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013
HP Halo effect?
Ben,
Any chance of a search feature by author name on this forum, or are the older HBB messages not archived after x-number of days?
Given the sizable drop in SD home prices, I am doubting that we will qualify for the highest of the temporarily-increased conforming loan limits. Does anyone have the list of “less than 10″ local markets mentioned below?
REAL ESTATE
Deflated stimulus
Not that many will benefit from higher conforming mortgage limits
By Lew Sichelman
Last update: 7:31 p.m. EST Feb. 19, 2008
ORLANDO, Fla. (MarketWatch) — Only 15 counties in the U.S. have a median house price high enough to qualify for the temporary increase in the maximum loan limits called for in the economic stimulus package, an indication that the big jump may not help as many home buyers and refinancers as originally expected.
The National Association of Home Builders had hoped that as many as 29 metropolitan areas would qualify for the new $729,725 ceiling. But according to a staff member at the group’s convention in Orlando last week, it now appears that less than 10 will make it.
http://www.marketwatch.com/news/story/higher-conforming-mortgage-limit-wont/story.aspx?guid=%7BC6538D77%2DF9C9%2D4D1A%2D9574%2D70334A910F0D%7D
The MSM seems to completely miss the connection between the local income distribution and local demand for owner-occupied housing. SD does not have the household income distribution necessary to keep home prices propped up at a median north of $500K. The only way for home prices to stay that high is either through govt intervention (doubtful though I am that this would work) or a return to debaucherous lending standards (e.g., using liar loans to qualify hh’s earning $30K to purchase homes which cost $600K).
Interesting side note -
Interest rates on mortgages at my credit union are up again - 6.25% for a 30 with no points - however, they are currently offering a refinance deal for auto loans at 5.5% (lower than the 6% they’ve been since I’ve been making payments on my car.) They’ve also dropped the interest rate by a quarter of a point for all car loans.
Well, a house is STILL safer than a car. So my guess is that interest rates are higher for mortgages because the term is longer, and they are afraid of inflation. Very afraid of inflation.
Even so, 6.25% is a good APR for 30 years. In 1994, I paid 7.0% for a 15 year after putting 40% down and having my application reviewed for four months.
Just heard on the news: Stanford University is no longer charging tuition to students whose families make less than $100,000/year! They probably checked their numbers and discovered that this so rarely happens it’s they can appear generous.
I have to see what the exact rules are! Imagine if dad makes $99,000/year your freshman year, and then gets a 5% raise! All of a sudden, you’ll be broke.
The Ivy league schools are doing this as well. Expect every middle class kid with an SAT in the 99th percentile to apply at these schools.
It’ll be the middle-class kids, and the kids in very, very, very wealthy families who also report less than $100K/year income!
As a animated version of Bill Gates once told Homer Simpson: I didn’t get rich by writing checks!
After Harvard raised the limit for financial aid to families making up to $180K, applications went up 18 percent.
I have to see what the exact rules are! Imagine if dad makes $99,000/year your freshman year, and then gets a 5% raise! All of a sudden, you’ll be broke.
If its like Harvard’s system it will be a sliding percentage once above 100K but below X.
p. C1 sidebar in today’s WSJ:
Better title: “Housing is Sucked into the Vortex”
Housing Cycle Is Caught in Vicious Circle
By Scott Patterson
Word Count: 521
Economists have a term to describe what it means when things keep going from bad to worse: negative-feedback loop. One day’s problems create a broad set of behaviors that only make the problems worse.
Consider housing. As home prices fall, more families see the values of their homes decline to less than the amount of money they have to pay back on their mortgages. That gives them an incentive to walk away from their mortgages and leave their homes empty, which puts more downward pressure on home prices, drawing more households into the loop.
http://online.wsj.com/article/SB120347212951278871.html?mod=todays_us_nonsub_money_and_investing
Oh fer cryin’ out loud. These people have no freakin’ clue. They are definitely not engineers!
A “negative feedback” loop is one that is self-regulating. The thermostat in your refrigerator is an example. Temperature too low, turns it off; too high, turns it on.
That’s what “negative feedback” means. You zag when it zigs, and vice versa.
This is a “positive feedback” loop. Price declines lead to further declines.
Where’s the fuckin’ JT? This is getting me really pissed off.
I’m sorry all engineering has been outsourced didn’t get the memo?
Tax-delinquent properties up for sale
Low starting bids set for about 100 sites
By Craig Gustafson
STAFF WRITER
February 20, 2008
Would you pay $69,300 for a two-bedroom home in Vista? Or $116,300 for a three-unit apartment building in the Barrio Logan neighborhood of San Diego? How about $600 for a timeshare in Ramona?
Those are the starting bids for a few of the tax-delinquent properties the county plans to auction Friday in its annual effort to recoup unpaid property taxes.
Owners of about 100 properties have failed to pay taxes for five years or more, leaving the county with the legal right to sell to the highest bidder.
http://www.signonsandiego.com/uniontrib/20080220/news_1m20property.html
Mr. Steven Pearlstein
WSJ
“As a responsible business columnist for a respected newspaper, I know how I’m supposed to respond when people say that government shouldn’t try to stabilize the banking system or bail out the bond insurers or put a floor under the housing market….
I’d be lying if I didn’t admit there’s part of me that takes some perverse satisfaction from the ever-widening crisis that has engulfed Wall Street, humbling its most powerful institutions and exposing its hypocrisy and corruption.
I don’t ask you to join in this schadenfreude, or even excuse it, so much as understand it. In a way, the feeling has been building since the days of Michael Milken and the junk bond craze. …
For starters, these innovations have helped to create a cycle of financial booms and busts that have a tendency to spill over into the real economy, contributing to a heightened sense of insecurity.
They have shortened the time horizons of investors and corporate executives, who have responded by under-investing in research and the development of human capital.
They have contributed significantly to massive misallocation of capital to real estate, unproven technologies and unproductive financial manipulation. …
And by giving banks the tools to circumvent reserve requirements and make more loans with less capital, they have enormously increased the leverage in the financial system and with it the risk of a financial meltdown.
But far and away the greatest damage from all this financial wizardry is the obscene levels of compensation it has generated for a select group of Wall Street executives and money managers. …
So I hope you’ll forgive me, dear readers, when I say that the best thing that could happen to our economy is for a dozen high-profile hedge funds to collapse; for investment banking to enter a long, deep freeze; for a major bank to fail; and for the price of a typical Park Avenue duplex to fall by 30 percent. For only then might we finally stop genuflecting before the altar of unregulated financial markets and insist that Wall Street serve the interest of Main Street, rather than the other way around….”
http://tinyurl.com/239swh
I thought I was disgusted by the antics.
Washington Post sorry
Great post Hoz.
I’ve been bitching about that for years. HedgeFund Analyst said I was mad because I couldn’t make it in NY. I do pretty well with no information; I can imagine what I’d make with the kind of insider knowledge they have. I’ll bet in the next few years in lawsuits and Congressional stuff about all this, you will learn that these people concealed losses and did all kinds of shenanigans to make things look good for bonus time. Kind of like the way companies puffed things up to make earnings reports look better than they were. It’s all about me me me and what do I get out of this?
If you honestly looked at some of the models they deploy for valuation, you would have a cow. Literally.
Theoretically, they have a risk-management unit but it’s a bunch of hooey.
And there are all kinds of shenanigans with knowing the customer flow, etc.
I doubt it will come out though. It’s too technical, and impossible to prove in a court of law, etc.
I’m sure the lawyers will try though.
The whole culture there is so poisonous. I don’t know how you work around it every day.
“If you honestly looked at some of the models they deploy for valuation, you would have a cow. Literally.”
How do you *literally* have a cow? I’d pay good money to see that! (sorry couldn’t resist, no jab intended)
Hope Now news from American Banker
“…Ken Wade, the CEO of NeighborWorks America and a member of Hope Now, questioned the framework’s limiting criteria, saying that many people who do not fit into that fast-track bucket also need help. “It may be too early to suggest the program isn’t working, but obviously it hasn’t served as many people as people had hoped it would when it was rolled out,” Mr. Wade said. “There are some people who weren’t included in that framework. There’s also no question the industry’s not keeping pace with the scale and scope of the problem … . I think the problem is so big we need to get more aggressive.”
Just how many people Hope Now is helping has also become controversial. So far, the success of its loan modification plan has been gauged in two reports released by the group on workout efforts.
The most recent report, released this month, said that 545,000 subprime borrowers had been helped with a loan workout, a modification, or a refinancing.
What really drew attention, however, was a claim that 68% of delinquent borrowers were helped during the second half of 2007. This was a steep upward revision from an initial report saying that 39% of delinquent borrowers had been assisted.
The numbers immediately drew critics who argued that they simply were inaccurate.”
(Sorry subscription only)
The incredible thing is that they are claiming they helped 68%. If that is true, think how much worse it could be.
Decoupling theory POPs. From USAToday:
China’s main market, the Shanghai Stock Exchange, has tumbled about 25% since its peak on Oct. 16, according to the Shanghai Stock Exchange composite index…. Many of those losing money got in just in the past year, buying near the peak and now suffering deep losses…. Though the recent decline is severe, China’s stock market roughly doubled in 2006 and skyrocketed 181% on top of that in 2007.
http://tinyurl.com/2lohyq
Anything that goes up a lot, then doubles, then triples, ends badly, Jim Rogers’ long-term bullishness notwithstanding. This market has to go a lot lower before it finds a reasonable valuation. The biggest human interest story of the Olympics will not be the athletes, but the “unprecendented” drop in the Shanghai stock market (”women and children hurt the most”).
BULLETIN SUPREME COURT RULES 401(K) INVESTORS CAN SUE OVER LOSSES
Supreme Court allows 401(k) plan suits over losses: report
By Wallace Witkowski
Last update: 10:47 a.m. EST Feb. 20, 2008
SAN FRANCISCO (MarketWatch) — The Supreme Court ruled unanimously that individuals can sue 401(k) retirement plans under a pension protection law to recover losses, The Associated Press reported Wednesday. About 50 million workers have about $2.7 trillion invested in such plans, the AP reported. The case revolves around a Texas man who said he lost $150,000 when plan administrators did not follow his instructions to switch to safer investments, the news agency said.
http://www.marketwatch.com/news/story/supreme-court-rules-401k-investors/story.aspx?guid=%7B514535B3%2D4F25%2D42B6%2DB623%2D351AA12C225C%7D&dist=
PB ….I have been waiting to see how the Courts rule on the “Right to Sue” on pensions plans put in high risk investments . Again ,the commissioned sales people breached their duty to protect those funds IMHO.
And in China, from the above-linked story, we want our money back, too:
“Engineer Zhang Guanchao, 25, has found the answer firsthand. Last May, he spent $560, close to his monthly salary, on stocks and mutual funds.
Today, Zhang is $250 down, and he hopes Beijing will bail him out. “The government should make the stock market more stable, not always growing rapidly and falling rapidly,” he says.”
KKR having a bit of a problem with CP
http://bloomberg.com/apps/news?pid=20601087&sid=ag4vbwrJYx5I&refer=home
Hal buys the dip…(funny — I never thought computers were that smart, but now I know better)
BULLETIN DOW INDUSTRIALS 150 POINTS ABOVE INTRADAY LOW AS U.S. STOCKS REVERSE LOSSES
Stocks shed losses as computer-generated programs kick in
By Kate Gibson
Last update: 12:32 p.m. EST Feb. 20, 2008
NEW YORK (MarketWatch) - U.S. stocks turned higher Wednesday after steep losses throughout the morning, with all three major indexes posting gains. “Computer-generated buy programs kicked off at a certain level in the S&P 500,” said Art Hogan, chief market strategist at Jefferies & Co.
http://www.marketwatch.com/news/story/stocks-shed-losses-computer-generated-programs/story.aspx?guid=%7BDD8CD216%2D34E4%2D41AB%2D8C1D%2D09B03FE4CCED%7D&dist=TQP_Mod_mktwN
program trading is like 70% of nyse volume now. All that mumbo jumbo people use to trade. Give me tick, trin and a candlestick chart, that’s all you need to make money. Common sense helps too.
PPT at work today? Seems like a quick turnaround on no news.
I think program trading is way over 90%. It requires the public for liquidity and there is little public in the market. It contributes to the volatility, the funds are ‘locked in’ and the public is not able or willing to step up. This creates enormous volatility with intraday gaps, large price swings and the day traders manna from heaven.
Some of the companies i’m watching, cat and bni, are mostly small trades (100 shares). What limits are trading programs set at?
Some of the ones I set up were million share minimums, others were not to exceed 50% of the average daily trade volume. Many programs were multiple stock purchases as simultaneous transactions. Sell 1000 SPX and buy a basket of stocks based on the R/R ratios desired.
What is important is not worrying about getting into a position, it is getting out of a position. The banks et al have programs that gave great risk/reward characteristics, but no exit strategy was in place if they went south.
If I do not have an exit strategy in place, I do not trade.
Thanks.
(California0 Governor orders cuts in state agencies now
http://www.sacbee.com/111/story/724790.html
“The governor ordered all agency secretaries and department directors to immediately begin reducing their current budgets by 1.5 percent by cutting nonessential services and activities.”
You just can’t make stuff like this up…sooooo, if we are cutting nonessential services and activities, why where we funding these nonessentials in the first place? If they are nonessential, they should have been cut years ago…unless you look at taxpayers as your own personal sugar daddy for your pet projects.
I am reminded of a friend who worked at the admissions office at UCSD (a student job) in the 80’s. He told me about how he had the pleasure one day of throwing several large boxes of glossy UCSD brochures into a dumpster, as they were “Last years” and would be replaced. These puppies had to be expensive. This led me to ask two questions:
Why were last years brochures no good anymore. They didn’t have any information that changed every year (like tuition rates).
Why have brochures at all? Its not like the UC system has ever had to recruit students. Heck, they turn away kids with 4.0 GPAs. Why advertise? Plus there is the expense of mailing these things.
You’ve clearly never worked in a large corporation or a government office, or for the NSF.
Here’s how it works: you are as important as your budget. Small budget = not important. So everyone pads their budgets fully aware that everyone else is also doing so. To not do so would be the height of folly. It’s just game-theoretic.
That’s why the NSF will fund a bullshit $50M project but not a $50K one (for example, the mathematicians who don’t need much beyond pencil, paper, some books and a travel grant.)
Less money means you can’t be very important.
Now, do the above brochures make complete “rational” sense?
Actually, I work for a company with $100 Billion in sales. The waste I described at UCSD would never be tolerated here. Heck, we are mandated to have reduced budgets every year.
That creates its own problems.
Far too easy for a cynical manager to come in, axe everything in sight, f*ck everything up to high heaven, get a fat bonus and leave.
There can be safeguards against it but large institutions can always be abused.
Our cost cutting comes from the top. Wall St. thinks our CEO is the greatest thing since sliced bread. Of course, there are guys working here who haven’t had a pay raise in 5 years.
The only pay raises Wall Streeters want are their own.
TADA
KKR arm in talks with creditors
KKR Financial Holdings, the listed affiliate of the private equity group, has delayed repayment of billions of dollars of commercial paper – due Friday - for the second time and begun a new round of restructuring talks with creditors less than six months after a rescue rights issue. The move is a further embarrassment for KKR, following a $270m bail-out of the leveraged investment vehicle last September, which saw founders Henry Kravis and George Roberts personally inject cash.
FT
20 Feb
for those technicians interested in home prices indexes by city:
http://quotes.ino.com/exchanges/?c=real
Check out this vegas chart:
http://quotes.ino.com/chart/?s=CME_LAV.Q08.E
Plat/palladium look exhausted. Gold and silver doing nicely though.
Wow, PMs making a big move after the COMEX close. Something just got leaked…rate cut?
Au and ag just broke out to the upside. Spot gold at 944!
http://www.kitco.com/charts/livegold.html
Iran’s nookular capabilities.
Deputy Governor Lars Nyberg, speaking to Styrelsekollegiet in Stockholm
Feb 4, 2008
…“What we are seeing now extends far beyond the crisis in the US mortgage market. It has manifested itself in a number of different ways. Investors are now demanding much higher compensation for risk. It has become both more expensive and more difficult to borrow in the market, particularly for financial companies. During the autumn there were also severe shocks to the interbank market. Several central banks chose to intervene to provide the market with additional liquidity. The market for short-term financing appears to have recovered somewhat since December, but far from completely.”
“Another effect is that a number of large, well-established banks have been forced to write down the value of subprime-related assets which they own directly or indirectly. The write-downs currently amount to more than USD 130 billion. This has led to several major financial groups requiring new capital. In many cases it has been possible to achieve this through contributions from public funds and other investors from Asia and the Middle East.”
”At the same time as the pressure has eased somewhat on certain sub-markets, there has been renewed international turmoil. This has in many respects concerned the large insurance companies known as monolines, which specialise in insuring bond loans. The buyers of these companies’ insurances are, for instance, municipalities and states with poorer credit ratings. The insurances give their bond loans top credit ratings and mean they can be sold at better interest rates. But the recent turmoil has now caused problems for monolines, too, as they are exposed in various ways to the subprime sector. Some of the companies have already had their credit ratings reduced, and there are risks of further reductions.”
”When monolines are given poorer credit ratings this also affects the bonds they insure. They also have their credit ratings reduced. However, many institutions that buy such bonds have investment regulations that only allow investment in securities with top credit ratings. They are then forced to sell their holdings. As monolines insure bonds worth around USD 2,000 billion, this could have a major impact on the market. It could also entail further strains on the banks’ liquidity.”
”At the same time, the decline in economic activity in the United States has gained a firm hold, partly as a result of falling property prices. There is evident concern that this will worsen the financial crisis. And of course the financial crisis may also reinforce the economic downturn….
”On the one hand there is a risk that the crisis will be both more prolonged and more profound than we believed earlier. The large interest rate cuts made by the Federal Reserve and the statements that have accompanied these certainly indicate that they are very concerned. It is difficult to determine how a deepening crisis would affect the world in general and Sweden in particular. But the market turmoil is substantial here, too, which is reflected in the monetary policy expectations. Hopefully the markets are wrong in their assessment of economic developments, but as I see it, it is too early yet to say whether this is so.”…
Riksbank
http://tinyurl.com/yrww7o
“Hopefully the markets are wrong….
Good morning from tommorow, in New Zealand…
Bought some 40,000 year old furniture, a few days ago.
Google “swamp kauri” to have a looksee…
Playing with the glowworms?
You’re up early. What’s the purple hair quotient in Auckland these days? And are the oh-so-hip street chicks still wearing those “How dare you presume I’m heterosexual” buttons?
I avoid Auckland like the plague, nobody comes here to see big cities, do they?
Fair enough, but I would like to know, though, aladin: do you find yourself saying things about America in NZ that you would not say in CA? I spent quite a bit of time there in 1985 (hiking, cycling, hostelling - not in the big cities) during the Reagan years, and (unlike Australia, but like Canada) it got a little old being constantly bombarded by what a screwed-up country America was, always in a sniveling-friendly way, as if by me being in NZ I was acknowledging that I preferred it to America. And I know there were a lot of Americans who pretended to be Canadians, or else played the anti-America game, to be more politically correct. Personally, I didn’t like it, and was happy to get back to Australia.
The aim of this publication is to provide an overview of current stories/issues in relation to the financial market
crisis. We will update this regularly going forward. Key points are:
read it yourself - 7 pg pdf
This report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank. Danske Bank is under supervision
by the Danish Financial Supervisory Authority.
http://tinyurl.com/2pd6ol
DanskeBank
Their Deepest, Darkest Discovery
Washington Post
“Researchers in New York reported this month that they have created a paper-thin material that absorbs 99.955 percent of the light that hits it, making it by far the darkest substance ever made — about 30 times as dark as the government’s current standard for blackest black.
The material, made of hollow fibers, is a Roach Motel for photons — light checks in, but it never checks out. By voraciously sucking up all surrounding illumination, it can give those who gaze on it a dizzying sensation of nothingness. …
“The more black the material the better,” said Gerald Fraser, a physicist at the National Institute of Standards and Technology, the federal agency that specializes in fine measurements and industrial standards….
“There are a lot of materials that are very absorbing of light so that once the light gets in, very little is reflected. That is not the big issue,” said John Pendry, a physics professor at Imperial College London. “The big issue is persuading the light to go in there in the first place” — something the New York team accomplished by spacing the nanotubes so widely….”
I do not mean to make light of this material which could have enormous commercial applications in a short time, but did they ever check how black the financial reports of banks have become?
http://tinyurl.com/3xhttd
Great, now I won’t be able to see anyone in a California restaurant in the evening.
Previously:
“…net absorption plunged to a seven-year low in 2006, as the housing boom ended and the companies that supported it downsized or, in some cases, went dark.”
More wishful thinking in Tucson:
http://www.azstarnet.com/sn/biz-topheadlines/225925.php
I was wonder how long until this would be proposed:
http://money.cnn.com/2008/02/20/real_estate/OTC_refinance_plan/index.htm
The mortgage company becomes a partial owner of the house, until it appreciates and is sold.
“The mortgage company becomes a partial owner of the house, until it appreciates and is sold.”
It’s already the real owner; you buy the mortgage and maintain the property, have all the risks and they are the landlords.
Anyone else notice how Bass Pro shops has stepped up it’s marketing? I’m thinking they are currently hurting due to the cut in discretionary spending (as most of the recent shoppers there were the same retards flipping houses when it was cool to be an outdoors man). Just got a new flyer in the mail and it’s 2x the flyer I received for christmas.
I stopped shopping there when they decided to make Toyota their official pickup. It’s ironic the all-American company parterns with Japanese automaker. I took my $1,000 I spend a year on that stuff to Cabelas (and to WalMart this year)
They just built a mega-mega store just west of Baton Rouge. It’s basically a strategy of: if you have everything, and have a destination-family outing location, you can charge full retail for everything. I would say their timing’s not the best.
“Japanese government bond futures fell on Thursday as better-than-expected trade data underlined solid demand for Japanese goods, while gains in shares prompted investors to shift money to equities from bonds.
Government data showed on Thursday that exports rose 7.7 percent in January from a year earlier, beating a median forecast for a 6.4 percent increase and supporting the view that demand for Japanese goods in emerging economies cushioned soft exports to the United States. [nTKV003039]
“JGBs took a hit as the trade data was surprisingly good, showing that exports to Europe and Asia stayed firmer than previously thought,” said Tetsuya Miura, a bond strategist at Shinko Securities.
A 2 percent jump in the Nikkei share average .N225 added to the bearish mood in the bond market.
But bond losses were limited as investors remained reluctant to sell government debt aggressively due to expectations that the Bank of Japan will not raise interest rates from the current 0.5 percent this year.
Swap contracts on the overnight call rate show a roughly 30 to 35 percent chance of a BOJ rate cut by year-end ….”
Reuters
Decoupling has occurred and is doing fine. A world wide party and we weren’t invited.
Not buying it. Japan is a special case, as it had the worst market in the developed world last year. Very poor correlation to Asian or emerging markets.
BTW, just punched up Shanghai: down another 1.5%.
Is the symbiosis on its death bed?
A deepening chill in US-China ties
Published: February 13 2008 19:38 | Last updated: February 13 2008 19:38
There is a dangerous chill developing in the relationship between the US and China. The temperature has dropped further with the withdrawal of Steven Spielberg, the American film director, as an artistic adviser to the 2008 Olympic Games in Beijing because of China’s failure to do more to curb gross human rights abuses in Sudan.
A day earlier, the US announced a series of arrests over alleged spying by China. Mr Spielberg’s decision, like the arrests, underlines US concerns about China’s increasing military, diplomatic and commercial influence in the world.
Xu Zhijun, of Huawei Technologies, the Chinese telecommunications equipment company that is trying together with Bain Capital to buy a stake in 3Com of the US, did nothing to improve the atmosphere when he dismissed the national security concerns of US politicians about the deal as “bullshit”.
http://www.ft.com/cms/s/0/0589299a-da68-11dc-9bb9-0000779fd2ac.html
Durn good thing the U.S. stock market always goes up!
Fresh credit market turmoil
By Sarah O’Connor and Robert Cookson in London and Michael Mackenzie in New York
Published: February 20 2008 19:32 | Last updated: February 20 2008 19:32
Credit markets were thrown into fresh turmoil on Wednesday as the cost of protecting the debt of US and European companies against default surged to all-time highs.
The sharp jump, which rivalled the sell-off at the height of last summer’s credit market turmoil, came as traders rushed to unwind highly leveraged positions in complex structured products.
EDITOR’S CHOICE
Analysis: Markets assess the costs of a monoline meltdown - Feb-20
Ackman plan to hive off municipal units - Feb-21
Pressure builds over CDS settlement - Feb-20
Consumer spending ‘likely to slow’ - Feb-18
East Europe warned on subprime fallout - Jan-15
Turnover of investment talent soars - Jan-14
http://www.ft.com/cms/s/10e297d0-dfe6-11dc-8073-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F10e297d0-dfe6-11dc-8073-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
“In the US, the main investment grade CDX index hit a record wide spread of 165.5bp in early trade yesterday before easing to 157bp in late afternoon trading. The iTraxx Crossover index, which covers mainly junk-rated European debt, burst the 600bp barrier for the first time - up from 343bp at the start of the year. The moves are expected to have real world impact on the cost of raising new debt for companies in the bond markets. Credit default swaps act as a proxy for what real companies have to pay to issue bonds.”
No end in sight for credit crisis
Published: February 20 2008 14:41 | Last updated: February 21 2008 00:00
KKR Financial Holdings (KFN), the specialty finance company with $17bn of assets under management, has been here before. The listed KKR affiliate is in another round of talks with noteholders about restructuring some debt as the deep freeze in the mortgage markets refuses to thaw. KFN is now focused on other assets, such as corporate loans and debt securities, having managed to flog $5bn of residential mortgage loans and mortgage-backed securities last year. But it still has a rump of mortgage assets to deal with, estimated at under $5bn. The noteholders, who are funding these assets, have agreed to extend the date at which some of the debt matures, until early March. What happens next and does it matter?
http://www.ft.com/cms/s/1/d52b1948-dfc1-11dc-8073-0000779fd2ac.html
“Inflation is always and everywhere a monetary phenomenon.”
-Milton Friedman-
Data fuel fears of US stagflation
By Krishna Guha in Washington and Daniel Pimlott and Michael Mackenzie in New York
Published: February 20 2008 15:32 | Last updated: February 21 2008 01:13
Federal Reserve policymakers have cut their forecasts for growth this year but marked up their estimates for inflation, the central bank revealed on Wednesday.
The new Fed forecasts came as data showed prices rose at an unexpectedly rapid pace in January, raising fears that the US was experiencing at least a temporary bout of stagflation.
http://www.ft.com/cms/s/7cbdd984-dfc7-11dc-8073-0000779fd2ac,dwp_uuid=b8efc2ae-d98d-11dc-bd4d-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F7cbdd984-dfc7-11dc-8073-0000779fd2ac%2Cdwp_uuid%3Db8efc2ae-d98d-11dc-bd4d-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Findepth%2Frecession
Since when is hiding elephants under the living room rug part of the Fed’s mandate? It sounds to me as though the Fed is directly interferring at this point with the First Amendment rights of the credit rating agencies, and attempting to scape goat the agencies in the process. Not that I would expect the Fed to submit to Constitutional law or anything — I simply find this interesting.
Feb. 19, 2008, 12:38PM
Waiting for Bond Insurers’ Downgrades
By LESLIE WINES AP Business Writer
© 2008 The Associated Press
NEW YORK — A downgrade of municipal bond insurers _ and in turn, billions of dollars in bonds _ could destroy wealth on financial markets and corporate balance sheets and deal another blow to banks already stung by the ongoing credit crisis.
Yet investors have waited impatiently for credit rating agencies Standard & Poor’s Corp. and Moody’s Investors Service Inc. to act, and while they have taken some steps, like Moody’s downgrade of insurer FGIC Inc. last week, the market believes there’s more to come. Meanwhile, S&P and Moody’s are increasingly being criticized for their inaction _ and also for not warning investors about the risks that the bond insurers have taken _ by insuring risky subprime mortgages _ even as they were charged with eliminating hazard in the credit markets.
There are conflicting pressures on the agencies _ some of them political. Federal Reserve Chairman Ben Bernanke has warned that downgrades would be harmful to the financial system. And it’s true that financial institutions and investors still hold pools of subprime debt marked “AAA” that has not been discounted to reflect its slight worth, and that downgrades of the insurers would compel these assets to be priced lower and the financial companies to take more write-downs.
“The guys on the trading floor have a joke that the reason the agencies don’t issue the downgrades is that if they do they will be audited by the Fed into oblivion,” said T.J. Marta, a fixed-income analyst at RBC Capital Markets. “This joke is a way of expressing the belief that this is a political game at this point.”
http://www.chron.com/disp/story.mpl/ap/fn/5552594.html
Auction-Rate Headaches
Issuers Search for Ways
Around Soaring Costs;
Prior Trouble in Market
By LIZ RAPPAPORT, RANDALL SMITH and TOM MCGINTY
February 21, 2008; Page C1
Hospitals, schools, public utilities and other institutions that have issued auction-rate securities to raise cash are scrambling to get out of this troubled corner of the credit market.
…
The $330 billion auction-rate market became the latest casualty of the global credit crunch last week when dozens of auctions on such debt failed to generate enough investor interest, causing interest rates to soar.
Auctions failed on between $80 billion and $85 billion of such debt last week, according to J.P. Morgan Securities analyst Alex Roever. About half of the market, or $100 billion to $150 billion of such securities, will be restructured in coming months as issuers seek alternative methods of financing, he said.
Demand has collapsed because many auction-rate securities are insured by troubled bond insurers. Investors fear the bond insurance is no longer good, making the auction-rate securities riskier, even though many issuers of this debt are healthy institutions with strong credit ratings on their own.
The path of interest rates after auctions fail can vary, depending on how issuers structured the debt at the outset. Some rates are capped, or tied to the low London interbank offered rate. While some rates soared to 20%, others barely budged.
http://online.wsj.com/article/SB120355364158181495.html?mod=googlenews_wsj