Bits Bucket And Craigslist Finds For February 24, 2008
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
June 2025 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
Tacky-
http://www.mercurynews.com/localnewsheadlines/ci_8351043
Update from AZgolfer
I am off this fine morning to play the AWGA (Arizona Women’s Golf Association) season opener in Florence, AZ. Played golf yesterday at my home course (Bellair) and one of the girls in my foursome (no foursome comments please!) is a building inspector. She said that February 8th all 109 employees were brought into the office one by one and told whether they still had a job. Each employee had to sign a paper saying they will not show emotion as they walked past the other employees waiting in line. Half the employees were laid off and were escorted out of the building by a sheriff. She still has a job but said it was the worse experience she ever had. Said she wanted to go into the bathroom and puke but no one was allowed to leave the line and the Sheriffs were there to enforce this rule.
The house two doors down that started at 239K then 229K then 215K lastly 195K was taken off the market and rented (north west valley). House across the street that is bank owned is still sitting vacant. Former co-worker still has her 1,150 sq ft home built in 1978 listed for 198K down from 213K (she bought in 1999 for 94K). I checked the records and the most recent comp in the area is . . . . . 110K. Ha Ha If she had priced it at 175K a year ago it would have sold . . now who knows how low it will go.
I did not play to my 15 handi cap yesterday. Hoping for a better day today.
1. Good luck with the golf game today!
2. Wow. Unreal how employees are treated — as if they were prisoners in a jail. Not sure why anyone would sign something that restricted their right to show emotion or say whatever they wanted.
Free country my ass
That’s the most bizarre layoff method I’ve ever heard of. Seems cruel.
I work in a cubicle environment though - things are different and a lot easier (per se), at least on the ones I’ve seen. Manager comes around and tells you sorry you’re gone, then watches while you pack up your things. Everyone avoids the area because they know what’s going on.
Guess you’d have to do it differently for people who don’t have desk jobs. Still though that sounds weird.
So many of these “organization men” (and women) are due for a rude awakening as to their expendability to the corporate cartels who run our economy and control the Republican and Democrat dualopoly. Maybe being thrown under the bus is just the wake-up call these drones need. They might finally start asking themselves what’s wrong with this country and its leadership that allows so many productive jobs to be shipped abroad and tolerates such predatory, unchecked robber capitalism.
They might finally start asking themselves what’s wrong with this country and its leadership that allows so many productive jobs to be shipped abroad and tolerates such predatory, unchecked robber capitalism.
This is Globalism!! A global trade for goods, global tade for labor. The US has been the benefactor of globalism for decades. We are now on the losing end of it. Our wages (globally are still way too high) 1 options lower wages or devalue the dollar to where it lowers it on a global market. People will fight to keep the wages up the best they can so the dollars devaluation is an almost certainty. Either way we are going to go through a decade or so of adjustment and the standard of living is going to be decreased for Americans unless we produce something valuable. IMHO it will be alternative energy.
“Each employee had to sign a paper saying they will not show emotion as they walked past the other employees waiting in line.”
That sounds like a scene from the movie Brazil. I wonder if the employees who got the shaft actually signed that paper?
Great update, AZ. At my last place of employment people signed a waiver stating that they wouldn’t sue. For this they received 2 months pay and 2 months COBRA benefits. I never got the joy of signing that one. I wouldn’t sign anything unless I was getting something in return.
At my wife’s place of employment a few years ago they had a mass firing. Emailing porn around the office was frowned upon. She said that she had never seen so much security in all her life. Many of the people getting fired were women with 20 years with the company. They were breaking down and crying and screaming. So maybe keeping everybody calm is the best thing to do. I don’t know how anybody thinks that getting somebody to sign a piece of paper will keep them from losing it.
Good luck with your foursome today. If there are any photos you might want to send them to Ben so he can post them.
wait…
what did emailing porn have to do with it?
Yea, the emailing porn thing seemed like a Freudian slip or something
It seems that staff had been emailing porn back and forth for some time. Somebody must have complained. H.R. swooped in and fired anybody that was found to have forwarded any pornographic emails. I think 11 or 12 people got canned. Some of them had as many as 25 or 30 years with the company. Apparently there were approximately 10 security people to walk out each person. It was surreal from what I heard.
Wow. I guess Steve Ballmer wouldn’t have lasted there. Apparently his (ASCII?) porn collection on the MicroSoftie servers was legendary.
This was in the 80’s, of course. You don’t hear MS employees talk much about porn now. Or sex at all. I guess they finally did cave and switch to unix! (har har har)
“You don’t hear MS employees talk much about porn now. Or sex at all. I guess they finally did cave and switch to unix! (har har har)”
Now that was good, really good!
You said many of the people fired were women? And they were fired for e-mailing porn? How come none of the women at my office ever send me porn?
Who`s brilliant idea was it to make sex a crime?
At my last place of employment people signed a waiver stating that they wouldn’t sue. For this they received 2 months pay and 2 months COBRA benefits. I never got the joy of signing that one. I wouldn’t sign anything unless I was getting something in return.
2 months pay and COBRA is not something in return?
At my former employer, they offered you the option of staying on the payroll for 2 extra months in return for signing the waiver. You received the normal paycheck, health benefits, etc. If a prospective employer called them up, they said yes, this person is currently employed here. I understand that helps quite a bit - makes it look like you are just out looking for a transfer somewhere else instead of being someone who was just terminated. You got a week to sign the waiver and mail it back to them. Whether you signed it or not you got a severance check and COBRA eligibility, which kicked in as soon as you were off the payroll.
When the dot com bust happened, they tried the mass layoff crap as described here. It was terrible. Not a single bit of work got done for at least a week. The people that were left lost all sorts of respect for the company and the management. As the tech bust/recession wore on, they tried more humane methods. By the time my layoff happened, they announced the number of people that would get laid off and the next week they discretely talked to each person in private to notify them. We were given a folder with tons of information and contacts to various agencies, etc. And then we were told that the layoff would happen in two months and that from now on our main priority was to find a new job. If you didn’t show up for work, that was ok. So essentially you got 4 months pay and then a severance check after that. And unemployment.
Obviously an expensive way to lay people off, but nobody left with any hard feelings.
I would not be surprised it somebody files a lawsuit. Not that I am lawsuit happy, but that deserves one. That goes beyond protecting their property.
What pos HR Attorney decided to try that experiment?
I have always said the final act of this disastrous drama would be “The Lawsuit Phase”. Everybody will be suing everybody. When you have Slash (Guns & Roses) suing his real estate agent then you know we are close to that phase. Game over!
Where do we go? Where do we go now? Where do we go?
That is a crazy scenario for firing employees. Why not just line them all up in a rented gymnasium and tell these people to step forward. Then tell all of the people in the back row they are fired and will find their boxes of personal items in the locker room.
Sad, I only went thru the slow decline of one company. It was really sad seeing Middle Aged woman coming out of the conference room crying while cleaning out their cubicals. After a while you got a bit immune to it all and would actually look forward to the day when you could exit the pressure cooker environment, and leave before paychecks started bouncing.
The method of that layoff speaks volumes about the quality of the management.
BTW, rule of thumb: Average employee lawsuit in CA cost the company $100K, win or lose. So it was in the best interest of the company to offer 30K to just settle.
Good information for my “toolbox”. Thanks.
Our company used to escort people out with security guards. Then they used the approach of calling them down to a conf room off our lobby, then they weren’t allowed back in, except to collect their stuff. One guy was at home, and they called him to come in for a “meeting”. He knew that it was “firing day” so he trashed a few files and programs on our mainframe. Guess what he is now….wait for it… a real estate agent! Found his own level…
Maybe he really wanted a career change, but things are now better with our company and a lot of people that got laid off in that event have been hired back…
WTF? If they knew they were firing the guy why didn’t they lock out all network access first? It is obvious which employees might do such things when getting canned. There is no excuse for not being prepared. They got what they deserve on that one.
That puzzled me too. Maybe he was already logged in, heard what was going on, and started deleting. This layoff was a large one, and it didn’t all happen at the same instant. It went on for a few hours as they tapped people on the shoulder to leave. I suppose they could have run a mass job to block the firee’s access, then posted a notice “Anyone having trouble logging in please report to Conf Room A. By the way, take your coat.”
That’s actually not a bad thing imo. I mean if people were out there crying because they just got laid off it would be pretty rotten to go out there smiling and laughing. They were just trying to spare the feelings of laid off employees.
When our company did layoffs they took people into a room and told them they were laid off, and escorted them out of the building. Then someone else boxed up what they though belonged to them out of their desks. These are people that we worked with for like 10 years, and we had to treat them like possible criminals because they got the pink slip. I’d rather have let them be laid off and had to sign a contract like that so I could say goodbye and let them collect their stuff in a civilized fashion.
Sorry, but being laid off is a real and emotional event. Who would be smiling or laughing, the person who didn’t get laid off?Hardly. When we had a re-sizing at our REIT, those of us who were spared didn’t smile, we were sad, and had empathy for those who weren’t as fortunate. Then the next wave of lay-offs came…
Been laid off, and it can be done in a decent way. Handshakes all around, no hard feelings, etc.
Understand the whole lawsuit and emotional business. However, to state that “it must be so” is absurd.
The really ol’ school decency still works (admittedly in smaller less institutional contexts.)
Funny, I’ve been “laid off” too and I and several others were in pretty decent spirits and shook hands with co-workers, etc. No one was high drama - at least not at work - and no one went around destroying things either.
There were no ‘escorts’ of any type to lead us out of the building. I guess management didn’t see the need for it. We were given 1/2 day to pack up our stuff on our own and we left.
And no one sued anyone either.
The more enlightened companies will give you notice and at least severance pay so as to soften the blow of loss of income. That way, no one leaves totally in tears. (Mgt has got to understand the impact that the way layoffs occurs effects the remaining staff.
Just one person’s opinion!
Yeah, sounds about right.
Look, it’s the modern world. A job is a contract, and if it doesn’t work for either party, you shake hands and call it a day. This can be done in a decent way or a nasty way.
Never figured out why institutions prefer the latter. Dumb, dumb, dumb.
I was laid off after Sept. 11 (and two weeks before Christmas), but it was done in a decent, humane way. No drama or lawsuits.
A mistrustful work culture makes the event more difficult and stressful for all involved.
My mom had worked for blue cross blue shield for over 25 years. She was in the North tower when the plane slammed into it. She got out fine but lost 8 of her coworkers. The company yes Blue Cross Blue Shield used the attacks as a justification to lay off many senior employees. They then turned around and replaced those experienced employees with 25 years old at 25K.
True Facts
On my first professional job I replaced a retired Air Force Colonel who liked to come in, read the paper for a half hour each morning and eat cereal at his desk, and then “delegate.” They axed him and brought me on board for less than half of what they were paying the dead-weight old guy. Too bad for him, but it was the start of my career, and mutually beneficial for the company and I.
I would think that most of us would concur that the biggest expenses for most companies is staff and litigation. (Yeah, many companies shoudl spend a great deal more in R&D, but we know that ain’t happenin often nowadays).
That said, any employee that is making a great deal more than fellow employees doing similar work is more likely to get canned than anyone else when ties are tough. It’s a fact of life and why everyone should save for a rainy day.
Yeah, I’m preaching to the choir about a very simple concept, but it’s often the simple stuff that’s forgotten.
Like Faster Pussycat says above, a job is a contract (mostly non-binding) and nothing more. Companies (non-union) don’t owe you anything more than a paycheck and safe work conditions in line with the demands with the job. If they don’t want - or can no longer afford to - provide you with a paycheck, tough.
You can get up and leave whenever YOU want, why can’t they get rid of you if THEY want?
“Each employee had to sign a paper saying they will not show emotion as they walked past the other employees waiting in line.”
That sounds as though it should be illegal if it is not. If I were one of those employees made to walk the line, I would ask an attorney about this coercive procedure.
Strikes me as possibly enforceable (at least for a private employer). Maybe not, but in any event I think the employer would be nuts to bring a breach action based upon your violation of such a provision. I’d be heavily inclined not to sign anything with such a clause, unless the company is offering a really, really nice deal on the way out the door.
Wow, that one hits close to home. I’ve been warning my city for two years that there was a storm coming. I just hired a new building inspector to replace one that quit. When I suggested not replacing the position my supervisor told me to either hire someone or look for work myself. She told me she intended to double the size of the development department. Sad part is that development has really dropped off. I’m projecting a million dollars decline in fees this year. The chief accountant says it’s different here. The planners in the department just sit around all day trying to pass time.
Had your story included a full cavity search, then it would be interesting. Next add it and elaborate, even if it didn’t occur.
I agree!! Never ever let the truth get in the way of a good story
And the lay off train moves on. That is pretty darn egregious - promising not to look relieved that you haven’t been fired? The only point to it that I can think of is so the people who were fired cannot see who wasn’t fired. Obviously the not-fired ones will see who was fired at work the next day. Well, assuming the fired ones don’t see who else is leaving in the parking lot, they could probably find one another on the internet. Bingo - instant information.
Speaking of jobs, I am really upset this weekend. A dear friend called and told me she had been dismissed from her general counsel job. I’m not going to go into a lot of details since it isn’t my story to tell, but she had a singular talent for not completely alienating clients even when saying “no” to them. Most lawyers stink at it. I thought the job was a great fit for her and would likely be safe even in a downturn - certainly much better than a big bank or hedge fund. Poof! There goes safe. We were out of work together in the last recession. I went government and moved to DC. She stayed put in the New York market and found something a few months after I did. It is like she is living the nightmare we went through the last time all over again - looking for work in a down market. I knew I wouldn’t be able to do it again. That is why I decided to trade off money for stability (also enjoying my work, but I didn’t know that when I started). Well, that is my risk tollerance, and hers is very different, but it is hard to deal with. As selfish as my lizard brain is, I keep thinking that it could have been me, if I had decided to stay in NYC.
Joe’s point about the stability of high end lawyer jobs from yesterday is very very true. I graduated a few years before he did, and I think a few people in my class actually did the “start at one big firm to pay your dues, move to a smaller one a few years later and make partner” career path, but it wasn’t very many. And talent and skill is almost irrelevant. It is largely timing and luck. Perhaps a few people were smart enough to see the door closing and go to the medium sized place as their first job and made partner there. Of course, with law firm mergers, even being a partner isn’t a guarantee of future employment.
And yes, she and her husband now have a mortgage and while I am sure they can live for quite a while on his earnings, their savings and her severance, they really need her salary to pay it long term.
By the way, the company will still have a general counsel. But the new one is an old buddy of another executive. My guess is that business is drying up and they need another rainmaker/golf course schmoozer to court clients more than they need someone to actually help make the business run, but that is just a guess. Maybe it is as simple as the other guy getting laid off from an i-bank or hedge fund and getting a job from a friend.
Its not what you know, but who you bl@ow!
I am sorry, but its connections that saves jobs, unless the entire company collapses!
Whether you sleapped with an influential person, know where the skeletons or you are the perfect fall person to take the blame for your boss, if things go south.
Being laid off, even if you know its coming, it a brutal experience. It happened to me back in the dot com blowout days. Company was going down the tubes so they cleared house. Even though I knew it was coming during the meeting my heart was still pounding pretty fast, mind racing about what next? Those were to not so good old days of the term “RIF”. If you were in tech back then you know what I’m talking about.
There’s no way I couldn’t have shown emotion - paper signed or not. That’s ridiculous. Human nature.
I only got laid off once in my life, but it was kind of humiliating as I couldn’t make a quick getaway because my car was in the shop that day. I had to ask a co-worker to take a break and drive me to the auto shop. Quite embarrassing.
That is truly an amazing tale.
It sounds very Kafka-esque.
Is this the United States of America……Land of the “free”.
Just because you are an “employee”, doesn’t make you a servant. This sounds like a police-state in Korea or Argentina:
“Said she wanted to go into the bathroom and puke but no one was allowed to leave the line and the Sheriffs were there to enforce this rule.”
Storm-troopers? KGB agents to watch over the proletariet??
WTF>>>>>???
You are not your own master when you work for someone else. And most work is for someone else. Best thing is to be as independent as possible. Consultants have much more security than regular employees - if they’re smart they do, anyway, as they have more than one “employer.” One goes under, no problem, as you have others to take up the slack. Yet many people think consulting is less secure because you have no benefits. But consultants charge more and pay their own benefits and choose which they want to pay for. The other way to go is to start your own company.
It’s critical to have no debts and savings for either of these choices. People who have huge house payments, car payments, etc. are locking themselves into servitude, the old golden handcuffs thing. It’s a vicious cycle - the more debt, the more unhappy you are, so you go buy more stuff looking for happiness. Happiness is easier to achieve when you’re free.
Lost in Utah you are so right. Working for yourself or starting a company gives you the ability to be free. You tend to make more money, shelter more money and if the business is good you become rich. It is so much easier and enjoyable. Once you are self employed you will never want to work for someone else. America is still the land where dreams can come true. It is the land of the free and the home of the brave.
Lost, I’m with you this time. I can’t imagine being upset about being laid off from a job - severance pay and freedom at the same time!
I’m with you, too, Paul.
Lost in Utah, I agree with you 100%. The client company has a very high turnover rate. Nothing I’ve seen before compares to it. Some of the losses were firings. Most were just from looking elsewhere for better conditions. Some consultants were fired. Their fault. I’ve consulted there for nearly 5 years. Still going strong. I owe my longevity to professionalism and being cavalier - knowing I will find a gig elsewhere pretty fast within the 48 states. Client tried to get me to be a hire several times (there is an anti-competition clause in my contract, so I would have to get bought from my shop). But I prefer consulting. I don’t need free life insurance. I don’t take many vacations. I pay $100 per month health insurance and their “free” health insurance is not enough to make it lucrative.
I was at a party last night and housing came up. It was awful. I stuck to my original game plan: quiet, modest and surprised. My line has always been, “we’re renting because we’re deciding if we want to stay” (Which is somewhat true.)
I still wish none of this had happened, but I agree with Ben. For many of us it’s the largest financial event of our lives and has a reasonable shot at being the largest in our nation’s history. I can freak out or stay cool and thrive.
In any case, I had planned all along to be nice when TSHTF. Last night was the first time I had to deploy the game-face. Divorce, foreclosure, job loss… you name it. And there were no Casey Serin types, just average J6P’s that bought at peak or will be losing/already lost their jobs.
This is something we all need to keep in mind on this blog. Lots of really nice people, and lots of not-so-stupid people, will be hurt badly in this downturn - either directly or indirectly due to housing. One thing I cringe at is all the posts I see that include glee and scorn at others misfortunes. Yes some people deserve it - many (most, I venture) do not however, and still catch it.
“This is something we all need to keep in mind on this blog. Lots of really nice people, and lots of not-so-stupid people, will be hurt badly in this downturn”
Friend and Acquaintance Scorecard:
- A good friend bought last August. I begged him not to buy. He became very angry. I felt I was going to lose a friend of 20 years if I didn’t back down. He bought any way.
- Another friend is in over his head with a house that he can’t afford. He should have sold at the time of a divorce. I didn’t talk to him about it but if I had I know he wouldn’t have listened.
- We have a couple that we really love. He is a contractor. We told them in November ‘05 to be careful because the boom would not last. They told us how this time was “different”. We feel they are now in dire financial straits as they never prepared for a bust.
- The woman at work selling in Westchester. I lied out the complete case why even Westchester wasn’t immune to falling prices, as she put her house for sale. I told her not to buy if she was able to sell her place. She priced her house at an ‘06 price. It hasn’t sold. She is now dumping money in to update 2 bathrooms. She has not lowered the price. The only thing that kept her from buying something new was that she did not sell the old.
I could keep on going. These are nice people. The only way a lesson will be learned is if it is painful.
You will lose this friend anyway. They will resent the fact that you are right.
It’s just shocking but that’s how this works. There are no good outcomes.
I agree that overt cruelty directed en masse will hit many who do not deserve it. Specifically, those taken in by the REIC deceptions. But, I know that at some point in this bubble run up it became very clear to me that prices were simply too high. And when the Used House Sellers tried to convince me to use “sophisticated loans” to make these overpriced properties “affordable” I did the math and saw the risk. So the question is why did people surrender their critical reasoning and buy overpriced properties? Why did they suspend rational analysis and take on mortgages they could not afford? Who is being hurt? Who is suffering as the bubble deflates and why? Are there any who are truly innocent in this?
And do not be too quick to quiet the gleeful here. We all were subject to some very rude treatment by the kool aid drinkers and this blog was one of the few communities where we could safely express our dismay at what was going on without being belittled. Give us the space for our Schadenfreud here without guilt.
Have to agree with NYCB and oc-ed.
A number of us have been trying to warn people for YEARS about what was happening. Almost without exception, we were ridiculed, called “foolish,” screamed at, etc. All the Kool-Aid drinkers just kept lining up, no matter what we said.
Most of us seemed to have come to the same conclusion: shut up. Nobody wanted to listen. They were smarter than we were and were on their way to unimaginable riches. We bears were definitely in the very tiny minority, swiming against the current.
Can’t help but feel some satisfaction, even if we don’t say, “I told you so,” out-loud.
I remember 2 or 3 blind dates I had with women in 2005 who were in the market for a new home and I’d warn them to be careful/do their own due diligence instead of simply drinking some the Kool-Aide offered by the NAR and taking the plunge in to home debtorship.
Well, all of these women thought I was nuts b/c, ya know, real estate is the best investment choice ever.
Did you get any?
Any what??
boooty!
Hondje -
Of course they would think you were nuts, it’s an “asset”.
The New York Times told them so, as it was well documented during the bubble how smart, savvy and forward thinking all women buyers were - below is just one example.
*******
“It is an asset, a symbol of their financial strength and proof that they need not wait for a man of means to provide them with the security they crave…
Of course, the most radical gender stereotyping occurs in fairy tales, where women are rescued by knights in shining armor and whisked off to roomy castles. Little boys know they have the role of the knight locked up. Rather than accepting the role as damsel in distress, girls are increasingly growing up to be concerned about establishing their financial security.
As Heidi Oleson, an agent at Dickson Realty in Reno, Nev., put it: ‘They’re just not going to wait to live happily ever after anymore.’”
*******
Or maybe instead, within the last year or so, they’ve been “dis-establishing” their financial security and in turn living unhappily.
http://www.nytimes.com/2006/02/12/realestate/12cov.html
More tripe from the NYT (Sept 2006), including buying near friends so you can “cat sit” for them (just like the dorms in college!):
“Brokers say that women are betting that even if they buy in a declining market, the values won’t drop as much as they would have spent on rent. They’re more comfortable buying in the same neighborhoods and buildings as their friends do. By purchasing condominiums that they could eventually rent out if they needed to move, they’re also hoping that they can hold on to these properties until the market improves.
‘A woman will say, “I’m still saving money in the long term.”‘ said JoAnn Schwimmer, an associate real estate broker at DJK Residential. ‘They’re able to see the bigger picture, while a guy says, “I have to get the best deal.”‘ She said that her female clients who bought four years ago have male friends still waiting for prices to drop.”
http://www.nytimes.com/2006/12/10/realestate/10cov.html
Yeah, man, rule #1 is to get some before expressing our bubble beliefs.
When asked, I have always been open with people about the reasons that I sold (Sept 06). But I keep my answers short and I try not to scare anyone too much. I’ve learned a great deal about human psychology over the past two years. Ignorance is bliss; denial runs deep.
The only time I take time to explain the housing bubble in detail is when I discover that friends are in a situation that can be improved by getting good information.
Over the past two months, sales volume and pricing have declined so quickly that nearly everyone I have tried to help is out of time. And given the speed and depth of price declines, I now think that most of these people will be better off losing their homes. They are beyond hope–and accepting that is liberating (for both of us).
What I don’t get is after NYT article yesterday, that the gov is Upping the Jumbo to $719k -ish to allow more people to be able to afford a bigger loan. I just don’t get that one. Can someone ’splain that one to me? Sure some CA homes are so much more $$$ $$$$$ but , what ? Is this just a REFI thingy set up by the Gov?
The article seemed real upbeat on the new “deal”.
And then we have real life.
Co worker said he owns in DT Chic town and that things are not selling. That Feedblitz.com has daily updates on Chi town condos.
The market is frozen, people can’t get loans because no fool will ensure them for the banks. If they charge a safe fee for the loan, the few remaining knife catchers will go to someone else.
The government wants to get the housing market moving again so they are doing everything they can to move people under falling knives in order to buy overpriced assets. Oh yeah, a lot of people live and vote in CA and FL.
Yes, haven’t you heard. Families that make 250K a year are “entitled” to have the govt help subsidize their loan.
Pardon me while I go barf up my breakfast..
What a crock of sh*t. If you can afford a 700K home, you DO NOT need the govt to help lower your rate. You’re rich, FILTHY rich in most parts of the country. You want a 3/4M dollar home; it’s gonna be expensive. Deal with it.
NO ONE needs government help to lower their rates.
What EVERYONE needs to do is live at or below their means. People need to stop asking for handouts to bail them out of their own piss-poor judgement. Don’t ask others to suffer for your mistakes.
it sounds a bit like what has been going on in the Netherlands for many years: people get a 50% subsidy on all money spend on the home (including closing cost, all improvements / extensions, new swimming pool / garden etc. etc.) plus an effectively free mortgage guarantee from the government; while all money from selling your home is tax free, even for the most expensive homes. Which in reality means that people with the higher incomes profit the most, because they can spend a far bigger part of their income on housing (if they want, and many choose to do so). As a result homeprices keep rising and starters and single income buyers have been priced out for a few years now - unless they are ‘disadvantaged’ (no savings at all) in which case they can loan all the money they want with the government guaranteeing the whole sum. Politicians always come up with brilliant new ideas to keep the pyramid game going.
If they pull this off in the US it might prolong the bubble for a few more years, at least in some parts of the country.
nhz, are you an American ex-pat, or is your command of English that good? I know many of you folks in Holland are conversant in English, but your command ranks considerably ahead of most.
That said, it’s sad to learn of the pyramid games over there. Par for the course the world over, I imagine.
“We all were subject to some very rude treatment by the kool aid drinkers”
Exactly. Everyone around seemed to be boasting and coveting their “real estate holdings” knowing all too well that I personally don’t own. I always had the decency not to mention land held in a trust with my name on it as much as I wanted to disclose it. I have no qualms about stating the HARD HISTORICAL FACTS related to RE cycles. So long as I stay factual GRACEFULLY. This part of the cycle is our friend, our vindication and our counsel. We need to do little in the way of convincing…. just the hard historical facts.
“So the question is why did people surrender their critical reasoning and buy overpriced properties? Why did they suspend rational analysis and take on mortgages they could not afford?”
Two reasons: greed and fear. I would have to conclude that most of these people are, historically, poor decision makers. Not the types of individuals you want to count on in times of crisis or emergency. Unfortunately, this is a huge swath of the entire population.
Packman… thank you.. your observation is noted for sure.. However, please remember, the REIC and this unbelievable bubble and all the BS that was associated with it, helped turn this country into a dog-eat-dog world where neighbors are pitted against one and other more than any time probably in our history due to the increased stakes that are involved. The problem is not with the bloggers on here or the non-believers who, granted, are enjoying watching their predictions or gut instincts in not buying into the BS come to fruition.. I’m one of those, I’ll grant you.. The problem remains with the REIC and what are they and the rest of the profiteers of this mess are prepared to do to right this ship? I don’t see, yet, the REIC or the Wall Street thugs (eg Paulson being one) fully acknowledging their roll in this mess. I also certainly don’t see them stepping up to the table in the manner that fully addresses THE CENTRAL issue of house pricing…
Every time I hear someone say “he / she bought too much house that he / she can afford, I want to barf..”.. WRONG !! In many cases, he / she bought just the right size house for his / her family, but the price was hyper-inflated at the time of purchase due to fraud and a host of other false inflators and hype… In many of those cases, the buyer was unaware of that fraud.. In many other cases, they participated.. What sympathy I have remains for the former only..
All that said, I take no pleasure in knowing that real, honest hard working people are seeing their lives savings evaporate before their eyes or their credit ratings decimated because of the fallout of this mess. That’s why I’d like to see more of the kingpins go down.. I saw my first mug shot of CFC’s Angelo Mozzilo about 8 months ago thanks to this blog.. With very little research afterwards, I shorted his company the very next day, and I’m not a very sophisticated investor (at all)… That’s what I think about the REIC… hooey to em’ all..
I understand what you mean, but it is perfectly possible to buy just the right size house for your family based on square footage, number of bedrooms, and general amenities and still have it be “more house than you can afford” based on the price.
“Lots of really nice people, and lots of not-so-stupid people, will be hurt badly in this downturn - either directly or indirectly due to housing.”
The fact that some posters have direct family members caught up in the mess should help promote empathy. I personally have a sister, a niece and a sister-in-law who all purchased inappropriately larger, more expensive homes than their household financial situations suggest they can comfortably purchase within the past two years (Spring 2006-Summer 2007).
My niece, who was newly-wed in Spring 2006, married the scion of a local real estate developer, so renting was pretty much out of the question, even though (as I discussed w/ an economist who attended the wedding reception) a bubble on the brink of bursting was plainly evident in the local residential RE market (Lexington, KY). I don’t trouble my sister by asking her about how my nieces’ mortgage payments get made, but I have to guess that the parents are chipping in to help.
Stucco, that sounds like the drowning man syndrome. Many of us will be asked to help out those that didn’t listen. You can bet it’s coming.
I have only driven through Lexington. I stayed down the road in Winchester. The amount of development was sick. I thought the horse farms were incredibly beautiful but the local developers seemed intent on destroying that.
VA? I live here in Winchester va and development has been explosive and shoddy. Watching it implode via realtytrac and the manual version:counting for sale signs.
I really embarass my daughter. I will holler “you watch right side and ill watch left and we will combine the count at the end of the ride”
She is 14. Very easily cringes with mom-the-jackass. I looove it.
Winchester, KY.
thanks. There is a lexington va southwest of winchester va, so figured i would ask.
Yet does it stir enough empathy for the family and friends of such people do invite them to live in THEIR homes while the bankrupt work to bail themselves out?
Nah. Of course not.
Instead, you have numerous fiends and family members - on addition to the bankrupt - running around asking expect everyone ELSE to bail their friend or family member out.
Unless someone got shot in the head and were wiped out financially because he or she was on a respirator for a year, I have little, if any, empathy.
If your friend or family member is bankrupt, YOU help them out.
The way I look at it is: Does the person currently in trouble have a history of helping in the past? I won’t help selfish people, but I will bend over backwards to assist family members who are in a rough patch now but who previously have helped others.
That’s a very admirable approach. Thank you for mindset and your willingness.
Well, Packman, on this one I can’t agree.
I think they ALL deserve to get thrown out on the street. The AGREED to PAY for something they could not reasonably afford to do. PERIOD.
That mentality is what drove all this mania. Everyone wanted in on the real estate game.
Where is there MINIMUM 6 months savings? Is the payment more than 30% of gross income? Will it be more than 30% if you took a Neg-Am mortgage?
Have you provided for repair and maintenance? Is the insurance bill or taxes going to go up substantially?
I can almost assure you that people in trouble did not figure any of the real costs of owning a home. The just wanted in on the game. I know this from experience when I went to buy and we had multiple bidders willing to pay 10’s of thousands more for an already high priced house.
With all the stories from all the people involved in the new “paradigm”, it matters not. Did you do your DUE DILIGENCE and determine if you could “afford” to buy the house at the price you bid??
With rare exception, they did not. Now they are stuck. The average price of a house here in Florida should be $100-$150k. It is higher because of “creative financing”. It should not be. It should never have been, and just like the drug slogan: JUST SAY NO, this all could have been avoided. No Tears here.
This is something we all need to keep in mind on this blog. Lots of really nice people, and lots of not-so-stupid people, will be hurt badly in this downturn
And lots of greedy and snooty people pushing up prices of homes 200% or 300% of what their proper value should be - keeping traditional savers out of home ownership.
I have no sympathy for anyone who bought houses after January 2004. It was noticeable in many places at that time that there was something out of kilter when incomes were going up 2% annually but home prices shot up 10 to 20%. Let the blood run in the streets. I certainly will not allow for any bailout.
“really nice people”
– I always keep it in mind that these Really Nice People drove house prices out of my (reasonable) reach.
well said.
The big real estate appreciation scheme that was sold and marketed by the industry was a false ponzi-scheme that wasn’t challenged by the media ,the financial experts ,or the government ,or the underwriters and appraisers .The buyers were conned into the scheme either out of fear of being priced out or out of greed because they were looking for the easy money investment .
It is bizarre that so many borrowers were willing to commit fraud on loan applications or so many people in the real estate business were willing to help these people get in on the unchallenged real estate scheme of easy money .
Many of these low/no down borrowers are walking ,but the borrowers that put money down and didn’t lie on their loan applications are the real victims IMHO because they purchased in “good faith ‘ after saving and sweating to purchase a home .These people believed that the lending industry would only approved a loan on qualifications .
The investors in the secondary market are real losers because they will lose hard core cash also because they had a belief that their investments were AAA paper ,and it was really junk paper .
How this real estate mania could of become so widespread is the million dollar question and it goes back to faulty lending . The loans were a defective product ,the marketing of homes was build on hogwash ,and the borrowers didn’t really qualify with little skin in the game .
Real Estate purchasing has always been a conditional sale . It stands to reason also if real estate property taxes have always been levied on the value of real estate ,fake prices would produce false property taxes levied ,so real estate prices would generally follow the local wages and borrowers ability to qualify . It was sort of a check and balance system that worked well for decades if loans were approved the old traditional way .
Wall Street and the market makers had no right to tamper with the delicate balance of real estate pricing by allowing unqualified buyers to purchase defective designed toxic loans ,(without even qualifying or having any skin in the game ).
For a industry to tell borrowers that they can just “refinance later” as a excuse to put them on a defective loan they wouldn’t qualify for in a short time ,is the marketing crime of all times .
So, I do feel sorry for borrowers that really believed the loan conn job .
This RE boom was the hey-day for the commissioned sales people ,and they showed us what they will do if they are not watched and policed .We also found out that borrowers will take out more than they can afford if allowed .
A lot of blame to go around ,including the borrowers ,but at the time ,people/borrowers were not getting very much in the way of counter-data to balance out their thinking about possible risks .It was mass brain-washing people to the concept of leverage and easy money ,while the authorities allowed it .
So, I guess I look at the mess as a “easy money concept real estate mania ” in which it’s going cause a lot of innocent people pain while it weakens America and the middle class . Many people will lose money and unfair taxes will be levied .Justice will not prevail to the extent it should with this mess ,and overall it will go down in the history books as one of the most bizarre chapters in history that threatens in every way what our fought for Constitutions intent was .
Greed is as greed does. Greedy people do not have my sympathy, no matter the circumstances. It is heartbreaking, though, to watch what’s happening to the innocent children and animals.
There are so many screwed people in my office. I regularly talk to a guy in my office who like me sold and started renting. We now have to go outside and make sure nobody else is around before we start discussing the economy or housing so we don’t make anyone feel any worse then they already do. I also don’t want to get shot
That’s the problem and the reason why I’m so pissed at what this greedy fake housing run-up caused . For God sakes ,the housing mania got so nuts that salespeople were throwing baseball bats around to get loans approved and renters were being attacked for being commitment phobic if they didn’t buy .The fact that we have to be careful about upsetting the FB’s is also a troubling aspect of this mess . I hate it when a glazed look comes over the eyes of a FB when you give them some facts and you dare to burst their little daydream of easy money .
The governments attempt to rescue a insane RE Mania of false prices and faulty lending is just foolhardy .Really ,the whole period of the housing boom was just nuts .
What is interesting lately is that people are being told that this slowdown is only going to last one year .(no doubt this is what the Realtors are saying ).People are making decisions on this faulty advice from the industry and I think that criminal . So ,”Buyer Beware” ,and “Seller Beware” because there are a lot of desperate people around .
Did no one on a median salary ever look at the house that they were about to purchase and say, “gee we make $ X NET a year and this house is 4,5,6,7 …pick a number times $ X NET, that’s too a big a sum to pay back EVER for us?
More of the mess, if banks can’t produce the notes, judges will not foreclose….
“The home-loan industry has had a central electronic database since 1997 to track mortgages as they are bought and sold. It’s run by Mortgage Electronic Registration System, or MERS, a subsidiary of Vienna, Virginia-based MERSCORP Inc., which is owned by mortgage companies.
MERS has 3,246 member companies and about half of outstanding mortgages are registered with the company, including loans purchased by government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae, said R.K. Arnold, the company’s CEO.
For about half of U.S. mortgages, there is no tracking mechanism.
MERS rules don’t allow members to submit lost-note affidavits in place of mortgage notes…”(From Bloomberg, this a.m.).
wow ! WTF !
no wonder nod’s are going out so slowly, if at all
I know a woman living for free for almost a year- not a peep from the bank…………now I’m getting spooked
Wait! A free house! KEWL!
Roidy
Only several more years to go, then Adverse Possession, baby!
Seriously, I wonder.
Adverse possession of what? She already has title to the house.
KEWL? (i don’t know that one)
It’s not an acronym, just a Bart Simpson-type spelling of cool.
The Delusion Of Home Ownership…
http://www.wrisley.com/delusion.htm
Date check that. Published over four years ago…relevant then, releavant now, relevant forever…
Yep people are so stupid. They can’t understand these concepts.
“Wait! That’s not entirely true, either. As long as the local government has an automatic lien against that property it will forever exercise that lien and collect money from the homeowner.”
I used to think, “hey, at least I own my johnson”. Then I realized my wife had a lien against that. I’ve never looked at property the same since then.
ROTFLMFAO! Oh NYCityBoy that was a coffee on the keyboard post!
“…my wife had a lien against that.”
I am mildly embarrassed to admit I was married for over a decade before this wisdom sunk in…
LOL
How long -yuckyuck- does it take you guys? PB? hehe
Sadly, too often that lien rarely gets exercised, as I found out as well.
You have to drive a harder bargain. The lien is supposed to be mutual.
And yes, “harder” was a double entendre.
I agree, sadly it doesn’t always work that way.
Trade it in for a model that does work.
I rent.
“I used to think, “hey, at least I own my johnson”. Then I realized my wife had a lien against that.” I now know the cost of mine, a quarterly million in assets, and another 200 k in payments (thanks “family court”). From this perspective, makes real estate appear undervalued….
On a more serious note…
It seems to me, banks are raising credit costs to consumers (cc rates, student loan rates,) while Fed is lowering. Increasing the spread between borrowing costs and lending costs to help our banking instituitions, not a good sign for savers or borrowers at the consumer level.
One other thing bouncing around in my head. As real estate finds it’s level in price, many on this site may be assuming borrowing costs (ie mortgage rates) are going to remain static.
Back in the early eighties, a modest house priced at 30 K was almost unaffordable with the only financing being available a mid teen adjustable rate mortgage. While this will not have an impact on cash buyers, rising interest rates have a strong impact on monthly carrying costs.
Nice post, Trapper. The last paragraph especially.
“As real estate finds it’s level in price, many on this site may be assuming borrowing costs (ie mortgage rates) are going to remain static.”
… at near historically low interest rates.
I think most here have spit out the koolaid and have bought into the “buy at low price (affordably) and high rates… then refinance in the future if rates go down” strategy.
I bought at less than 5% fixed, thinking low rates were neat. But now I’ve learned.
the government “helped” people to own homes
soon many will vote for “help” with all kinds of life’s expenses and problems
If the Gov. really wants to help, they could lower taxes.
No, they could lower spending. Lower spending and the taxes will take care of themselves. People don’t seem to understand this.
I am beginning to understand this. Macroeconomic budget constraints exist, in the long run.
EXACTLY. The raise taxes/cut taxes argument is irrelevant. The problem is spending.
Yes Exactly!!!!
More Bush style “tax cuts” No thanks! HEre’s a suggestion to Washington - cut spending 1st…then cut taxes.
Here in California we actually had a responsible tax cut in the 90’s when tax revenues were burgeoning during the tech bubble. The auto registration tax was cut with a provision to raise it again if the tax situation changed. The first thing that a$$ Gov Ahnold did was make the lower tax permanent. California has had a structural deficit ever since.
35,000 year old warrior is against the housing bubble!
http://dj-astellarlife.blogspot.com/2008/01/j-z-knight-ramtha-channeler-fights.html
Bill Bonner sums up the status of the war on inflation: “Inflation has become a worldwide phenomenon. High cost copper…expensive oil…and rich food prices are working their way into the whole global consumer price structure. Inflation in China itself is over 7%…with wages rising more than 10%. Yes, the trend toward lower consumer prices led by China and Wal-Mart seems to have bottomed out.
“Now, we’re looking at higher labor costs in China…and higher prices for Chinese exports. Along with higher prices for just about everything else. Everybody loved inflation when it pushed up their stocks and house prices. But they hate it when it boosts the cost of their bread and taxi fares.”
NOTE: In terms of gold the price of a loaf of good quality bread has hardly changed. An ounce of gold would exchange for 230 loaves of bread when we were born, prior to the Great Depression. Today, an ounce of gold will buy 236 loaves of healthful bread. (Bread with food value, not the cheap white stuff passed off as “bread.”)
Even our local newspaper will not run any stories on what causes monetary inflation. Mainstream media hate the subject. For one thing, the journalist who understands it is rare. It’s not taught in most journalism schools.
Or maybe we’re just getting around to a “Flucht in die Sachwerte” and crack-up boom in commodities. We’re in the latter half of a commodities bull market. Coffee, wheat, oil, gold, and silver are all up. (”Base metals” are going nowhere and lumber is down, thanks to dropping demand for materials, but they’re the exception.)
The talk of bailouts has investors fleeing from T-bills and pouring into commodities. Rumors of widespread investor hoarding are growing louder. Even as demand in gold and oil weakens, speculators drive the prices higher.
Is this really inflation? Monetary inflation? Look around you. Ficticious Capital is dying left and right. And when Wall Street finally clues in that the failure of ARS auctions is a tape bomb for those formerly sound companies who hold them, the previous months of bear market are going to look like a cakewalk.
These things always go on longer than we’d like. Housing bubble took forever to burst. Probably this parabolic blowoff in oil, gold, and wheat will go on longer than we or our pocketbooks care for, but when the party is over, they will drop like a knife. Of sharpened German steel.
Let’s hope the Russians and Brazilians are plowing their profits into real capital investment. (We know the Saudis never will.)
The price of things we need will continue to rise as long as the world’s population continues to eat. Farmers use fuel to grow grain. More people in China, India and the Middle East are using fuel while production remains flat. Grain production will fall globally due to weather’s increasingly irregular patterns.
Gold and silver will continue to rise because they are money. Their value will rise as more people begin to recognize synthetic money for what it is. Industrial metals will fall with the global construction slow down.
“Farmers use fuel”
Fuel for agriculture use was up 54% last month in the US. For last year, it was up 104%. And I don’t pay any road use taxes on that fuel.
How much of that fuel-use increase is due to the production of ethanol, a product that provides less energy value that the energy used in its production?
Good time to be a farmer…bad time to be an environmentalist whack job. Thanks to the whack jobs out there, costs are way up for all corn and wheat products and energy use is now greater than it would have been otherwise.
I should have written “Fuel cost for agriculture …”
Most environmentalists didn’t want ethanol as part of the energy bill. Article in the last Science explains why.
“Thanks to the whack jobs out there, costs are way up for all corn and wheat products and energy use is now greater than it would have been otherwise.” Follow the money/votes and try again.
MrBubble
Mr. B., I doubt very much that Eudemon will read that article.
“Good time to be a farmer…bad time to be an environmentalist whack job. Thanks to the whack jobs out there, costs are way up for all corn and wheat products and energy use is now greater than it would have been otherwise.”
Whack jobs couldn’t care less, as reality is not their stock in trade.
Why wouldn’t I read it, Lost in Utah? That’s rather presumptuous on your part. If Mr. Bubble and Science magazine are correct, then that’s great! Finally, people are waking up.
Too bad they aren’t waking up to the serious environmental flaws in electric car batteries and mercury in 2012 lightbulbs. Has Science covered those topics, too? Let’s hope so.
Tell me, Lost In Utah, what are the four areas/phases of energy use in the production of any manufactured good or service rendered? If you can name those, then I’ll assume you were presumptuous for reasons other than your politics. Thanks.
The world needs to move away from internal combustion, for many obvious reasons. Had the appropriate resources been applied towards this goal back in the 1970’s, we would be well on our way to accomplishing the goal. Unfortunately this has not been the case, and there will be hell to pay because of it.
Oil demand is not decreasing; it is increasing globally. How about $200 oil?
http://www.itulip.com/forums/showthread.php?p=28307#post28307
Besides Alberta, there is tons of oil in Montana and North Dakota. If you think oil is going to $200, buy a house in Williston, N.D.
It’s too bad we don’t have a regular Brazilian visitor on this board. I’d like to hear what he or she has to say.
Talk about a country gunning for an economic boom! Nearing total energy independence even before huge oil deposits were found off the coast, 200 million consumers, etc.
“Brazil, the world’s largest emerging-market debtor for decades, became a net foreign creditor for the first time in January. International reserves, swelled by investment inflows and record exports of agricultural commodities and oil, probably exceeded gross foreign liabilities last month by about $4 billion, the Banco Central do Brasil said today in a report.
Brazil’s shift to net creditor status may add to already growing investor confidence in what is Latin America’s largest economy and help the country achieve investment-grade rating. Brazil finished paying off its debt to the International Monetary Fund in December 2005.
Brazilian exports have tripled since President Luiz Inacio Lula da Silva took office in 2003 on rising world demand for soybeans, iron-ore, beef and cars. An accompanying surge in foreign direct investment, including stock and bond purchases by non-residents, has led the currency to appreciate to what is its strongest level in more than eight years.
International reserves, including cash and other financial assets, rose to a record $171.6 billion in January, more than ten times the $17 billion that the country had when Lula assumed power. At the end of 2003, Brazil’s debt topped international reserves by $165 billion, the bank said.
Foreign bond buyers have been lured by the prospect Brazil could attain an investment grade rating this year or next, making the country’s bonds the world’s second-best performer over the past five years, returning 191 percent, according to JPMorgan Chase & Co. data. Only Ecuadorean bonds, which gained 234 percent, rose more.
Brazil’s foreign currency debt rating of BB+ by Standard & Poor’s and Ba1 by Moody’s Investors Service are both one level below investment grade. Investment-grade standing gives a country greater access to international capital at lower borrowing costs.
The yield to the 2015 call date on Brazil’s 11 percent bonds due in 2040, one of the most widely traded emerging-market securities, fell 9 basis points, or 0.09 percentage point, to 5.59 percent, according to JPMorgan Chase & Co. The bond’s price rose 0.6 cent to 132.65 cents on the dollar.
The world economic slowdown may test whether Brazil’s efforts to diversify export markets and bulk up reserves are enough to safeguard long-term growth after almost five years of record commodity exports and low borrowing costs.
An over-dependence on commodity sales abroad may cut Brazil’s growth to 3 percent this year from about 5 percent should a slowing U.S. economy reduce demand, according to a Morgan Stanley report released Dec. 10.
The real rose for a fourth straight session, advancing 0.8 percent to 1.7095 per dollar today. It touched 1.7046 earlier in the day, the strongest level since May 1999. The central bank has purchased U.S. dollars in currency markets almost every day since July 2006 to slow the real’s appreciation and increase international reserves.
In a separate report, the bank and the National Treasury said that local and foreign debt fell 1.7 percent to 1.31 trillion reais in January from December. The stock of local debt, which makes up 90 percent of total Brazilian liabilities, fell 1.7 percent and foreign debt dropped 1.4 percent last month, both institutions said.”
Brazil Economy Watch
Feb 22, 2008
Brazil has been the next big thing for decades. It will take more than natural resources to make Brazil an economically and politically stable environment for investors. The economic imbalances, crime and other issues there are daunting.
Ever tried opening a bank account in Brazil? Or a business?
Try it. Just try it once. I double dog dare you.
You’ll never complain about “Taxachussetts” again!
Tell us more.
FP,SS
Now, It is not that difficult. It is easier than transferring moneys to India. And you can always back door it. Remember the same brokerage and banks that are in use in the states are located in Brazil.
Yeah OK. India is a separate circle of hell.
FWIW, I do bank wire transfers to India quite often with no problem. (Biggest problem is dealing with the idiots at Bank of America in Florida.) Of course, getting the correct merchandise is a separate issue.
Hoz, thank you very much for that information - I’ve cut and pasted what you included here. I may have some questions for you re: Brazil in the future if you don’t mind. You know more than I.
One thing everyone responding here thus far has forgotten re: Brazil. The country has an added strategic need to get its act together: Hugo Chavez.
“Probably this parabolic blowoff in oil, gold, and wheat will go on longer than we or our pocketbooks care for, but when the party is over, they will drop like a knife.”
Just as history proves this point. Yet the conspiratorial loons will wheel out the obligatory boogeymen at every opportunity and insist we’re living in a new paradigm. Precious metals will defy gravity they yammer.
housing in most of the world still defies gravity, and in Europe the get-rich-easy-with-RE spirit is still untouched. Maybe in UK, Ireland and Spain some well-informed players are getting cautious but even there most think the slowdown is just temporary - and who knows what the ECB has in store for the future. Manias definitely take longer than most people can imagine, and new paradigms like the internet are definitely not helping to cure the maddness.
What does history indicate for the future of fiat? Perhaps your understanding of history spans only 28 years.
Wheeling out the boogeyman? Here’s your case in point folks.
“we’re living in a new paradigm.”
Exeter, you missed my point. Unless, of course, you believe it is different this time.
By all means, don’t buy things you can’t afford and don’t understand, and continue your hope that the government will tax the wealthiest 50% (me) and give it to the poor and indebted (you).
There’s been a lot of talk this last week about lenders suddenly yanking HELOC’s. A thought just struck me, which I’m putting out on a few of my favourite blogs. (Including this one, obviously.
)
Does anyone know if lenders have the same latitude in Option-ARM’s? By that I mean can lenders declare force majeure on the basis of declining valuations and refuse to allow further neg-am even before hitting reset (or even recast) points?
If they can, I can imagine an imminent acceleration of price discovery in some areas.
I know this doesn’t help much, but if it was in the original documents, they can. If not, they can’t. Whether the measure of when the “option” to pay at the negative amortization rate is based only on the original valuation or can change based on a new apraisal of the house or inferred from real estate stats for the area would be part of the contract.
Anyone know the typical terms of the suicide ARMs?
How many of you have ever seen a situation where a person gets it pointed out that an error was made in their favor? This usually happens by the person being asked to pay an amount that is greater than what they are used to paying.
Counter girl: “That will be $22.99, sir.”
Customer: “What? I only pay $13.99 for that.”
Counter girl: “About that sir. It seems that we have been under charging you for the past 2 years. You should have been paying $22.99 but because of an error you were paying less.”
Customer: “That’s not right.” Getting angrier he states curtly, “I want to speak to your manager.” He then proceeds to make a royal Lereah of himself.
How many people have ever seen this type of situation? That appears to me to be what the U.S.A. has coming. We are about to find out we’ve been under paying for years. I doubt people will look upon it and be grateful that they have been getting a break for so long. Instead they will act like the jerk customer that feels they are entitled to continue receiving special treatment. Think about this boorishness being acted out by an entire nation. It will be ugly.
yo LIErah , how them FL condos doing ?
Your darn right it will be ugly, because a large portion of the population in the US is ill-equipped to afford their lifestyle as it stands right now. It is obvious when you look at how the average US consumer has been supplementing their incomes with credit cards (income), Home Equity Extractions (Income) and tapping into 401k(Income). What many didn’t, can’t or won’t admit is that these supplemental sources of INCOME are not income at all, but are going to be their downfall, if they don’t rapidly increase their REAL EARNED INCOME. Which, is not real easy to do in a declining economy that is experiencing relatively high inflation for the basics of life.
If prices continue going up the stress levels of a big portion of our population are going to get close to the boiling point. Credit lines getting cut back, right when they have become the equivalent of a very flexible part-time job, Interest rates going up on Mortgages, Home Equity lines and many credit cards.
Wages have been stagnant for quite some time and very little hope of increasing enough to beat inflation.
The easy money high earning jobs of the real estate boom appear to be disappearing at a rapid rate. These jobs were about 40% of the recent economic expansion if I recall, so as they disappear or commission checks start to reflect reality there will be a lot of disposable income pulled out of the country, especially once all of their sources of “SUPPLEMENTAL INCOME” are tapped out, closed off or delinquent.
Lots of pain, and I think almost everybody will have to be very careful to keep themselves from getting splattered whenever the SHTF. But like Ben says, if we keep our wits about ourselves and keep our powder dry this could be one of the greatest opportunities of our lifetimes in financial terms.
Behind a woman at grocery paying with debit, denied,said she would be right back- but the clerk said to that woman, ‘oh you aren’t buying these?’ DUH
debit cards? credit cards? home equity loans/lines?
I read an article the other day about an ATM type card that is somehow connected to one’s 401K.
I wonder how many how many people could just start paying cash for anything/everthing that they consume.
Not with the banks putting severe limits on the amount of cash you can withdraw on a daily basis. I, for one, would hate to have to plan ahead not to buy food on the days immediately preceeding rent being due so all the cash withdrawal limit could be applied to rent.
Sorry, CC’s that are paid off each month are just too convenient.
Try booking a flight with cash. Go on, show me. Now do it on a regular basis.
It’s like talking to my dad. He just doesn’t get it. After a while, you just want to go whatevaaaaaaaaa.
I’m with you. Use credit card, but pay it off every month. No harm in that (IMO).
Last summer in this tourist town I live in, a guy with two small kids..tourist was buying a $3.50 birthday card..wife..using his credit card!!!! As usual, I couldn’t help myself..I blurted out ” are you nuts “!
We have this discussion again and again on this forum. Credit cards in the hands of right people are a great thing. I pay everything with CC’s, even 50c purchases and I have never carried a balance my entire life. In addition I checked my airline mileage account this morning, about 200k miles–all with CC purchases. Whats so wrong with that?
You don’t know nearly enough information to make a judgment on a situation like that, so why bother?
I direct deposit my paychecks to a bank that’s local but I don’t drive by on a daily basis. On a normal month, I probably spend less than $40 in cash. Everything goes on the credit card, and the whole thing gets paid off at the end of the month in one transaction. It’s more convenient for me than going to the bank and keeping a whole lot of cash on hand, and Visa pays me to do it. 1% of $4 might not be a whole lot, but it adds up to maybe $125 a year or so.
Just because I pay with a credit card doesn’t mean I’m living on credit.
“$3.50 birthday card..wife” on credit, WTF?
I know.
I had to change to cash from credit recently because the damn card was $5.50. If my wife ever found out I bought a $5.50 birthday card for her, I’d be joining the foreign legion.
From what I have seen and from talking to friends, very few people that I know are truly living within their means. Most of them aren’t living an extravagent lifestyle. It is just that the prices of almost everything have gone up, and wages haven’t kept pace.
I truly feel that the next big trend to overtake the country will be frugality, even if it is forced. The fashionable will try to justify their new found toned-down consumerism as being environmentally conscious. While the more honest will just say they had no choice, they just decided to pay down their debt and only use the cards in an emergency.
I don’t live in an area that had a lot of housing appreciation, but people are still struggling. Most of the people that I know could make relatively minor cut-backs and get back in line with their earnings. But for the people in the Super-Appreciation-Bubble areas, I just can’t see how they will make the adjustment without major changes in their budgets and living arrangements.
http://tinyurl.com/34wumc
“…the wave of affluent retirees, except for Utah’s southwest corner in St. George, has mostly gone elsewhere…”
ALERT: All persons in the vicinity of the world, BOLO for wealthy retirees with craploads of money… last seen in a two-tone Prevost towing a matching Volvo… missing since 2005… Capture & detain… last known: Tuscon,Land ‘O Lakes, Bozeman, Uhh, I mean Asheville, San Diego, possible traveling abroad, Valenica, Costa Rica, Montreal.
Use of unnecessary force in the apprehension of wealthy Boomers… has been approved.
I think I have seen them and other cohorts here in St George, the winter home to Montana and Idaho snowbirds. We just finished a week of over supply of wealthy boomers due to the parade of homes http://www.paradehome.com/ . No one working in this area can afford the homes shown, the median household income is $43,100.
“Mr. Bishop, a 27-year-old sales executive, has ridden the wave of economic life. He went into real estate when Salt Lake City was exploding with growth. He bought and sold a house and had two children with his wife, Bene.
Now he sells training packages to people learning to work a new growth sector: foreclosures and bank-owned properties. It was boom times here before, Mr. Bishop said, and now boom times again, sort of.
“It’s a little different angle,” he said. “But we’re just going with the market.”
Utah, home of the scam (remember ephedra?).
Bernanke’s Surprise…
http://www.lewrockwell.com/north/north608.html
Ok, I read this. What I need now is an experienced opinion on what he claims. Yes, it appears he is correct. The M1 has been shrinking. Still, there must be more to it than that.
Roidy
“…more to it than that.”
Indeed. I begin to suspect the Fed has fallen into a Frankenstein liquidity trap of its own creation.
I’ve known Gary North for over a decade and talked to him face-to-face at many gold conferences. I’m the guy who asks the tough questions whenever he’s filming for DVD footage, ha. I agree with him about 80% of the time.
In this case, I agree that M1 is declining, but I disagree that the Fed is doing this. The Fed prints cash as M0 (paper money), it also injects liquidity into M1 (book balance money). M1 is calculated also by what is on the books from member banks (demand deposits).
I have been telling my private newsletter readers for over 1 year to hoard cash off-book. Many have. I’ve spoken with very wealthy people (aggregate net worth of $50m or more, mostly in the Chicago area). Many of them are hoarding cash as well. Not huge amounts, but definitely in the 6 figures “under the mattress.”
These numbers are difficult for the Fed to control. If you have some cash (M0) and put it into the bank (M1), the bank uses the money multiplier effect to create more M1, hence inflation. If the money multiplier is 8x, M1 can be 8x whatever M0 is on the books in M1. But, if M0 is decreased off the books (mattress), M1 can drop by 8x that decrease. This is figured in the drop of M1 as charted by ShadowStats.
I watch the M1 figure closely, because it gives me great hope that people are actually hoarding; I don’t believe for a moment that Ben is reducing M1 through fiat. M1 is a mystical force for the Fed, because they have little control over how people use their money. As more money goes black market due to increased taxes and fees, more M1 money disappears from the books, and therefore M1 aggregates because of the loss in money multiplication from the fraudulent fractional banking system.
North and I disagree on this thought, and have disagreed for a decade. Back in 2003, I asked North at Camino Coin’s Gold Conference if he thought the Fed would ever encourage deflation and he said “Absolutely not.” Then I asked him (again on camera) if savers would encourage deflation. He said (paraphrased) that savers are stupid and wouldn’t know how to deflate if they tried. He ignores the money multiplier effect, and the effect it has on the true aggregate M1 figures.
Take M0. Take M1-M0. Look at the two figures. Now tell me how that happened. How is it that you can have “$500″ in M1 deposits, but only “$100″ in M0 cash? What happens if I withdraw $100 from my M1 deposit into my M0 cash, but there is only $100 total in M0? Where is the reserve for M1 in the remaining $400 deposit if little ole me holds the $100 M0 cash reserve?
It is ugly folks. We WILL experience massive inflation (gold prices versus everything) along with massive deflation (dollar prices versus everything). Hold dollars, hold gold, but don’t invest in anything that puts money back in the M1 figure, which is every investment you can imagine.
I’m with you on this one. I’m one of those “horders” who is stashing cash money. Not the bulk of it, yet, but a substantial sum. I had posted in the recent past that if Bernanke and his pals LOW$ER rate$ again, that we should withdraw all of our money in CASH and simply sit on it. This would cause them to end the war on savers. They could not use the money for lending and the multiplier effect would make the banks withdraw more loans from the market.
Let’s face it. 3 years ago, I was getting 0.75% PER ANNUM in a money market. That is losing money.
The bank was lending it for mortgages to people who couldn’t afford them. I was, therefore, enabling the housing boom.
I have yet to pull all of my money, but $2000-$3000 income on $100,000 savings is crap. That is before taxes. FED is taking about Lowering more. We should just pull the money out and let the banks collapse for lack of savings.
Totally agree.
I’ve started using the mattress with greenbacks and will continue to add to it. In addition i’ve been sending funds offshore to try to get away from the coming sh*tstorm and what i feel are the inevitable exchange controls that probably will have to be invoked at some time by TPTB in oreder to “save us from ourselves”.
Also have been buying and adding to long term physical gold and silver positions for years and years.
I really don’t see anything out there in the paper world that one can even come close to thinking “safe” for long term investment purposes when everything in this paper mania is in the final analysis tied together with a string.
People have posted that we now have a negative savings rate if you subtract inflation. They also say the government has the ability to tax your savings instead of giving interest for it. I thought that was total BS because the banks need our money more than we need them to hold our money. The arguement that is given above shows this to be true that people will pull money from the banks. My question is at what point do the masses start trying to pull out their savings? (Bank collapse) I also ask why save devaluating dollars when one can save other forms of fiat currencies that are in better shape? I am saving gold / other currencies. I am also going to move to Japan for 3 years to try to better understand global economics and position myself outside the US should things unravel
In April my wife and I have two CDs (one our joint home down-payment savings and one my personal savings) that mature. We locked in 5.3% at our local credit union in October for 6 months and we have watched that rate deteriorate to 3.5% to date. I am certain more rate drops will come, and if we can expect a 3% return for the next year I will do as you suggest and have cash on hand. I have a briefcase ready for just that purpose, although I suspect we will get a safety deposit box.
I want to hear more about http://www.saverstrike.com
Hah, looks like you’ve already made a page.
Didn’t someone post here some time ago that it’s illegal to put cash in a safety deposit box? Anyone know?
Here’s a blog review, tho I can’t vouch for it.
A few years ago i siphoned a few 20s every check and put the cash in my SDB. The teller whispered to me that I was obviously putting cash in the drawer and that it was illegal, but that they wouldn’t turn me in.
Illegal to hoard dollars? I didn’t get it.
Last place I’d put cash is in my SD box. When it hits the fan, too easy for PTB to freeze access without inspection for whatever they want to find. Good home safes are reasonable to buy, pretty much fireproof and some are easy to hide. IMO, a false room is excellent, but be sure to tell one or two of your heirs how to find it.
Three cures for three crises
By J. Bradford Delong
Tuesday, Jan 01, 2008
“…A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won’t solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency….”
(That , in Mr Delong’s terms, is the third crisis.) ” As Fed Vice Chair Don Kohn recently put it: “We should not hold the economy hostage to teach a small segment of the population a lesson.”
No policymakers are yet considering the possibility that the financial crisis might turn out to be in the third mode.”
http://tinyurl.com/2tlagf
Taipei Times
Brad makes this central banking business sound as boring as dentistry.
I wish getting dental work done was boring.
The link below is from a local newspaper (today-2/24-Sunday) reporting on the Treasure Coast of Florida: Indian River, Martin, and St. Lucie Counties. About 25 sales for each Martin and St. Lucie for the week, and none reported for Indian River.
http://www.tcpalm.com/news/2008/feb/24/treasure-coast-single-family-homes-and-condominium/
Also in today’s tcpalm edition (link below) is a listing of foreclosures for just Indian River County. For the week about 50 foreclosures filed.
http://www.tcpalm.com/news/2008/feb/24/courthouse-news/
And the local fishwrap would not be doing it’s job without a feature article on it being a buyer’s market–Foreclosure Tours. Ugh!!
http://www.tcpalm.com/news/2008/feb/23/30gtforeclosure-tours-put-fresh-spin-on-house-a/
What are we likely to see in tomorrow’s (I think) January EHS numbers?
If last week’s Dataquick results for California are any indication, they could be quite ugly.
http://www.dqnews.com/RRCA0208.shtm
That’s what a “Crash” looks like. Good night.
The median price paid for a home last month was $383,000, down 4.7 percent from $402,000 for the month before, and down 17.1 percent from $462,000 for January a year ago. The median peaked last March/April/May at $484,000.
Much of the drop in median is due shifts in the types of homes selling,
lol. That’s right! Buyers shifted from buying types of homes that had higher prices to those which had lower prices.
What “buyers”? They appear to be going the way of The California Condor.
Maybe not a good analogy, as the condor is making a comeback.
SD DataQuick numbers appear in today’s SD Union-Tribune Homes section. Here are the YOY (Jan 07 to Jan 08) single-family residence sales volume and median sale price changes by area:
Location / Pct change in no. sold / Pct change in median sales price
—————————————————————————–
Central San Diego / -39.7% / -11.2%
East County / -27.1% / -20.9%
North County Inland / -39.3 / -12.7%
North County Coast / -38.7% / -11.6%
South County / -16% / -17.3%
Tentative conclusion: Real estate does not always go up.
The most telling SFR sales statistics on the page are not hard numbers, but can be gleaned by a close inspection of the graphs at the bottom of the page. Based on my best visual approximations, I see a peak sales volume over the past five years of about 3,900 per year, in late winter-early spring 2004, compared to a current level of 995, for a 75% drop in sales volume over four year’s time.
By contrast, the median SFR sales price appeared to have reached a permanently high plateau of about $580,000 as of Spring 2005, which continued until the onset of the credit crunch last August. From August 2007 through January 2008 the median SFR sales price fell from around $580,000 to $451,500, for roughly a $130K drop in five months. This recent decline occurred at an annualized rate of ((451,500/580,000)^(12/5)-1)*100 = 45% per year. Good thing the economy is merely slowing down and not going into a recession, or this pace of home price decline would be quite worrisome.
One more thing: I know it is different this time, but traditionally, declines in sales volume have been leading indicators of future home price declines. The fact that sales volume is off by 75% from the peak in early 2004 while prices are only down by 22.1% ((451,500/580,000 - 1) * 100) from the peak offers a hint that prices may have a ways to go from here before a bottom is reached. Looking on the bright side, if prices continue falling at a 45% annualized rate for any length of time going forward, a bottom cannot be that far off in the future.
Excellent post-Pb.. what i have been barking about is how the beach will fall and fall fast once the option arm and Alt-a resets start kicking in.. these people are not that rich nor do they have a true income to support a 500k house or much less 1.m +++ I sold my house to a realtor/condo converter in sept 04.. How this guy will handle his reset is anyones guess the taxes alone are 20k plus insurance, utilites, upkeep he is 2.5k per month before he starts chewing on his 1.6 million 1st & 2nd combo option arm and heloc… the beach willl fall fast and hard people.. my guess is 50% off highs.. no buyers or lenders who want to play those games any longer.. rents on properties make your gator to much to deal with.. then add in beach crowd of renters. My advice is the standard keep your powder dry and your flip-flops ready!
It’s different in DC:
Richard Clinch, a researcher at the University of Baltimore, said that from 2001 to 2005, as much as half of the job growth in metropolitan Washington was linked to the soaring real estate market.
http://tinyurl.com/yp7qft
Half? Didn’t the military contractors explode with work during that time frame? If real estate more than balanced out that increase plus any other increases that just happened normally, the DC area is not in trouble, it is about to implode.
When I first moved her in ‘02, I was shocked at home much of the traffic during my commute consisted of contractors’ vans and pickup trucks as well as larger building-related trucks, such as cement trucks and dump trucks. Judging by the mix of traffic, for a good while it seemed like the entire region must be under construction.
As for defense contractors, I wonder how many of the new jobs were taken up by laid-off AOL and MCI/Worldcom employees?
Pensacola, FL
Yesterday, while out driving, I saw an older lady sitting in a lawn chair and holding a large wooden sign with the words, “New Homes for Sale”. The sign included an arrow pointing the way to the new homes.
In fact, someone has been sitting in that lawn chair holding that sign every time I have driven that way since before Christmas. Before leaving home to run my errands yesterday, I almost took my camera with me in case I happened to see the sign-holding lady. Anyway, I decided against it for various reasons.
I’m not sure why the builder just didn’t plant the sign on the right of way. I guess the sight of an older lady holding a “New Homes For Sale” sign is intended to invoke one’s compassionate nature so you just whip in and buy a new house. I reckon this is just a modern variation of the “Eat at Joe’s” advertising technique.
Was she wearing a t-shirt that read, “I’m with stupid” and had an arrow pointing upwards?
Not a bad way for the nice lady to make a few extra dollars. It sure beats going to WalMart and working as a greeter.
Especially if she brings a book.
Everybody knows those signs have gotta be twirled like a Sunday driver on an icy highway to have any real effect.
Property taxes off balance (Rochester, NY area)
http://tinyurl.com/2dp4wr
A home assessed at the median value of $114,000 in Monroe County would carry an average property tax bill of $3,953. Using the statewide median tax rate of $29.18 per $1,000 assessed value, a $114,000 home would have a tax bill of $3,327, a difference of $626.
“It certainly is a deterrent in terms of attracting businesses here and keeping our people here,” said Sandy Parker, president and chief executive of the Rochester Business Alliance, who is an adviser to Spitzer’s new tax commission. “People are at their limits in terms of property tax costs.”
This is for those who enjoy comparing property tax rates while sipping Sunday coffee. And the wizards of NY government wonder why people are fleeing upstate for states less taxed.
Holy schmidt! Nearly $4,000 on a home of $114,000? Before we sold we paid $1,600 on a house with a tax valuation of $284,000. That was in North Carolina. I’m not one on this blog waiting to buy. Who needs the headaches? But anybody seeing that should consider “owning” to not be worth it.
3%??? You might as well rent! Gack!
The more I run the numbers, the more sense it makes to rent the place you live in, and rent out the property you own. Otherwise, costs + opportunity costs eat you alive. (Granted, I rent a pretty small place … and the smallest HOUSE I could buy, since buying a condo makes no economic sense, is a lot larger, hence a greater cash hit even if I buy cash, once you count maintenance, insurance, and taxes.)
3%/yr property tax?? That is truly amazing. Assume the value of the house is stable, highly doubtful, but say it is. That means in 30 years or so, you will have paid the entire value of your house in local real estate taxes. You don’t even own the house, the local govt does. A sad state of affairs.
Isn’t 3% a year what they pay in Texas?
Mine Texas rate is about 2.5%. Actually dropped a bit this year as they changed the way they taxed cities for rural schools (or something). I’m lucky I pay around 5500/yr for taxes. Otherwise, with the little interest I pay I wouldn’t have been able to save $750 on my income taxes this year - woo hoo!
It does shed some light on previous observations that Rochester NY has almost the lowest house prices of any metro area in the US
And remember, that tax burden is with NYC paying $22 billion in state taxes and getting $11 billion back.
When NYC declined in the 1970s, Black and Latino people ended up on welfare, and were despised. When Upstate declined after the mid-1980s, white people there got state and local government jobs with early retirement pensions, and continued to despise people in NYC.
And this tell you something about the prospects for a bailout. Some people don’t get them because they are responsible for their own problems, and some don’t because society is to blame. There may be some ideologically consistent people on this blog willing to throw the FBs, I-bankers, builders, Realtors, HELOCers etc. to the wolves. But they may be the majority.
I’ll tell you what I’m seeing. Lots and I mean lots of hope for the spring selling season. This is gonna be very interesting come July/August. Very interesting.
I expect St. Joe statue sales to be at record levels by May 1st. That poor little guy will be more upside-down than the owners.
I did this and prayed for divine intervention and it happened in the form of having an epiphany to cut my price by 10% from my current asking price which was already 5% under FMV. That brought out a knife catcher and I thank St. Joe everyday for the divine wisdom he gave me that day when I realized my desperation was rooted in my own greed, and by letting go and dropping the price the relief and freedom it gave me was priceless!!!
the spring selling season (more appropriately, the not-selling season) is only a month or so away.
What is making people think that all of a sudden things are going to be so much better?
Because they HAVE to be.
Pen, get the Sunday Herald and work your from back to front.
Hi all,
Repeat from yesterday..
Anyone have any thoughts on the Massachusetts market?
Thx.
Pen
Yes. It’s a bubble.
Massachusetts has earned its reputation, in spades.
What do you want to know?
http://www.bostonbubble.com/
http://www.nytimes.com/2008/02/23/business/23real.html?em&ex=1204002000&en=a692632c91f0410d&ei=5087%0A
“For a high-priced home, 1 percent can make a big difference. A monthly payment on a jumbo 30-year loan of $729,000 at 7 percent would be $4,850. Monthly payments on a conforming loan of the same amount, at 6 percent, would be $4,371, a $479 difference.”
Should a difference of $479 per month make any difference between borrowing $700K mtge or not?
It would seem to me that if you are borrowing that much money, then $500 per month should be pocket change.
I suspect that if the $479 per month “magically” makes the loan “affordable”, then the FB is just kidding himself.
Any thoughts?
Pen
Exactly! The FED is trying to get sales moving a some sort of pace. No, this is not enough to get the high priced market really moving again, but it may be enough to get something going. The real reason is not to save homeowners who are beyond hope but to keep the prices from a complete crash. Slow but steady sales will help support the comps.
Roidy
As some posters have pointed out, the FED’s shortsighted attempt to reflate the residential RE market is futile, as prices are still above their long-term fundamental value, and builders will continue to add to the excess inventory pyre so long as this disequilibrium condition persists. Nonetheless, I don’t expect the Fed to assume any culpability going forward for the malinvestment their policies encourage, in the form of a huge oversupply of McMansions relative to the number of American households that can afford them.
Yep, how many freakin’ times do we have to point this out?
If they persist in keeping prices up, the builders will build into the Second Coming (of the JT, that is!)
The priority of this policy is intended to sway the median prices upward as they feel it is the absence of ‘affordable’ Jumbo mortgages which is causing the alarming drop in median prices. An important side effect they are also counting on is the potential for FB’s to refinance rather than sell to keep them.
Even if they raise the lending limits, the “new” tightened underwriting standards, will IMHO null out the limit adjustment. Since only the upper 2% of the wage earners can afford a 700K homes, and the banks will / SHOULD be checking, NOTHING will come of this.
If the reporter was honest the article should be titled
“Stimulus Plan Aids ?”
The answer is remarkably easy from all sorts of public records. The increased loan limits will do what they were intended to do and that is not to help the home owners.
Why the glee at falling house prices? Let me give the explanation I would give those who thought they were better than me because they owned a house.
It is a simple response to the glee and snobbery given to us by those who bough pre-bubble (or during the bubble). So, if you we smiling about the fact your house went up $100k last year, I will smile when it falls. And, if you made snide remark about being part of the community, I get to smile when you realize that renters are much better for a community than bank-owned property.
This includes family. If you spent a few years asking when I am going to buy, I get a few years of pointing out that I can pay two years of rent with last years fall in house prices.
So, once the scales are balanced, I will be sympathetic. I may lie to keep good relations. But, after years of listening to this, it’s my turn now.
And, just as you enjoyed your turn, I am going to enjoy mine.
Preach it!
It’s funny how much less people want to talk about the downside and how everyone thinks where they live, their city, street, house, etc. is different.
I’d truly hate to see people lose their house because of illness or job loss, etc., but as far as those that just plain over-extended..too bad.
I like your anger!
From the field- 12 orders this week for appraisals. 9 were DOA as they were all refi’s on 2005-06 purchases. I did not even have to leave the office. The remaining 3 were for refi’s for people who have lost their jobs in real estate and were pulling out equity. Getting really really ugly.
Trying to understand this more clearly. I think you are saying 9 of the 12 needed to “hit” a certain number that was definitely not a reasonable appraisal. So you didn’t need to do a specific appraisal, you just told the requester that the value was lower than [the desired number]. Vis-a-vis the other three, it’s amazing that the lenders want to buy these properties from the former RE workers — that clearly will be the long-range outcome of these MEWs.
It is fairly simple these days. If the home was purchased in the past two years there is no point in proceeding. Yes- it is that fast and that bad. Lenders are only asking for appraisals in new projects where their computers can’t figure out what is going on. They are called AVM’s, automated valuation models. This is a garbage in, garbage out system and yes they are still using old data. Where there is none they request an appraisal. We simply look at the project and say, “sorry, no can do!”
The real devil is in the details and that is you have to look only at resales. We will not and have not used builder sales for 2-3 years as there is so much back room dealing going on.
In many many projects there are no resales so we go outside and look in. Fraud is rampant. I recently called a big bank to let them know that they were heavily exposed to fraudulent sales in a particular project and they made it clear they did not really want to know.
“They are called AVM’s, automated valuation models. This is a garbage in, garbage out system and yes they are still using old data.”
Do deals go through based on these garbage appraisals? If so, behold the source of tomorrow’s listings which will not sell anywhere near the sellers’ wishing prices.
Fraud is rampant. I recently called a big bank to let them know that they were heavily exposed to fraudulent sales in a particular project and they made it clear they did not really want to know.
————————–
Thank you for your update, DD!
BTW, I think this statement above is what the politicians need to hear.
The banks are counting on a bailout, and are sticking their heads in the sand right now.
UBS may be legal target….
http://www.marketwatch.com/news/story/ubs-may-legal-target-due/story.aspx?guid=%7B46417CB3%2D856D%2D4531%2D9766%2DCFB4FA56492D%7D
This is incredible! Not that it may be the first bank sued over this fiasco, but the CDO issue is one that I would have believed to be immune even at this time!
“HSH Nordbank’s claims are tied to CDOs known as North Street 2002-4.” These were issued in 2002 covering loans to be generated to Mar 2004.
And a 3B bailout of ambak is going to save us.
Amazing. I gave a seminar for them (HSH) last Fall and at this point there were still mostly claiming that no recession would hit the US and that their subprime losses were “only” $100 million. Cross-defaults are in full swing so their real losses must be well, well beyond those figures. I also remember recently that one of my students confidently stating that he was working for UBS and that they were immune. He was also very happy that managers such as B-Sterns were in trouble since it would bring them more business.
Did anyone watch suze orman last night on cnbc? she devoted here whole show on mortgages/homes…LOT of upside down callers…lot of people calling with advice on short sale, how to avoid bankruptcy, there was this couple who has negative amortization loan and they did not even know about it..lol…another couple from portland, OR bought a house with no contingency before their existing hom was sold thanks to the advice of their agent and mortgage broker…it was a mess
Did she tell them to hand over the keys to the house and run?
nope her advice was to ask the agent to help sell the first house with no comission…ha ha
And if that does not work then rent it out..
My wife and I were laughing at Horman’s suggestion that they ask the realtor for no commission when the house sells.
If the realtor isn’t selling the house at FULL commission, how hard is that realtor going to work for NO commission? DAH.
I saw a few minutes of it.
Couple with $250K mortgage on house quickly falling in value that was near retirement. The question was… Over then next x years we planned to put about $100K toward our IRAs (I missed the “x”). Should we instead put that money to paying down the house.
Her answer seemed more generic. Not for them specificly.
If you retire while still making $1800 a month payments, then the interest on $400K of your nest egg at 5% = $20K will make the payments on the house. AND, that assumes you can make a nice, safe 5%. AND assumes you don’t mind principal being eaten away by inflation.
So, it is better to enter retirement with a paid off house instead of $250K extra savings and $250K mortgage.
Wouldn’t it be better to say that you shouldn’t borrow at 6% and invest at 5%?
What’s with all these “retirees” still having mortgages anyway? Talk about asking for trouble - entering into fixed income living with lrge debts - crazy.
If you must pull an extra $20,000 a year out of your retirement accounts to make your mortgage payments, it will toss you into a higher tax bracket (less the deductible interest portion) in retirement. Since I have taxable and non-taxable accounts, I consider retiring without a mortgage to be of paramount importance. Then I only need to pull living expenses out of the taxable accounts, hopefully at low taxable levels. Other needs (travel, investment capital gains, discretionary spending) are then incurred only as I choose. Each year I can decide what tax bracket I want. Tax rates are most likely to increase in the future as SS & Medicare burdens increase. The ability to manage my personal tax burden is greatly facilitated by having a very low housing cost.
I did watch last 20 min of it . It was a massacre. Every one was chastised for buyring more than the they can affort, be it remodelling/moving up.
I had my 14 year old watch that with me too. he is an expert about Home prices ( for his age) since he watches me (I make it a point) when I explain stuff to people I care.
I do share the principles common to this blog with him
Living with in means
saving and buying
I’ve seen him tell couple of adults he knows about house buying, ask my dad he is an expert at it
The coming change in psychology at the Mainstream Level.
Less is More…… and the more that this becomes evident, the (likely) faster adjustment to reality.
“When asked, I have always been open with people about the reasons that I sold (Sept 06). But I keep my answers short and I try not to scare anyone too much. I’ve learned a great deal about human psychology over the past two years. Ignorance is bliss; denial runs deep.”
It is not just enough to be right. The good folks on this blog can do much service in predicting the nature of this downturn. In the big picture, we are living out a huge historical event that will have ramifications at least 50 years into the future.
From today’s Reuters:
“One-tenth of U.S. homeowners hold mortgages that are larger than the worth of their homes, Moody’s Economy.com said on Friday. Nearly 8.8 million homeowners, or 10.3 percent, are in over their heads, its chief economist, Mark Zandi, estimates.”
And the irresponsibility of that 10% will bring down the other 90%.
And seek *empathy* don’t ya know.
They ought to empathize with the 90% of their countrymen that they are screwing over.
Sorry, they are screwing over nobody.
The prices are going to adjust to their long-term price/rent and price/income ratios.
Insanity does not mean that the long-term owners are getting screwed. It just means that things got crazy, and they are reverting to the non-crazy.
Are you saying, then, that tightening credit in most areas of the economy is affecting only the 10% who defaulted on their mortgages? I hope not.
The 10% out there most definitely have negatively affected the economics of those around them. This includes solvent homeowners who are struggling to - or can no longer sell - their homes at 2000 prices…BEFORE most of the housing madness began.
Those individuals that are upside down - or down and out - are just as much responsible for damaging the economy as is any company or the government. They just don’t want to admit it.
Too bad there’s not a sin tax applied to individuals who are reckless with other individuals’ economic status. Maybe the latter ought to sue the former. Hell, why not? We’re a litigious society. Screw thy neighbor!
Of course this last paragraph is insane…but it makes its point.
Sorry if this is a repost, but I am wondering about the implications of the collapse in the auction-rate market for the ability of cities like SD to prop up residential RE prices?
Market Place
New Trouble in Auction-Rate Securities
By JENNY ANDERSON and VIKAS BAJAJ
Published: February 15, 2008
SOME well-heeled investors got a big jolt from Goldman Sachs this week: Goldman, the most celebrated bank on Wall Street, refused to let them withdraw money from investments that they had considered as safe as cash.
http://www.nytimes.com/2008/02/15/business/15place.html
State sours on auction bond sales
February 22, 2008
California, the biggest borrower in the municipal bond market, will replace $1.25 billion of so-called auction-rate bonds with traditional debt after a series of auction failures nationwide sent rates soaring.
The state will convert $400 million of auction-rate general obligation bonds sold in 2003 and $500 million of power revenue bonds and $350 million of water bonds sold in 2002, debt manager Paul Rosenstiel said Thursday. The bond sales will occur within months, he said.
“We plan to redeem these as soon as we can so that we are out of auctions,” he said.
http://www.latimes.com/business/la-fi-wrap22feb22,1,4684049.story
Okay…just like FBs who were getting ARMs when rates were at multi-decade historic lows…why in the world were govt entities using what equates to adjustable-rate loans instead of locking-in a nice, low rate?????
Debt eaters… I suspect that through the lense of history, this policy of CBs eating real-estate ABS will look like monies thrown down a bailout rat hole. A question of great interest to me is whether these monies need to ever be repaid; common sense dictates that repayment is unlikely. Gold bugs must be rejoicing over this development, as it clearly bodes poorly for the future values of G7 fiat currencies.
Central bank lending
Published: February 21 2008 09:42 | Last updated: February 21 2008 20:57
All central banks are facing difficult choices in how to deal with the credit crunch. The European Central Bank is widely regarded as having responded effectively. But worries are growing that its success at easing liquidity constraints has come at the price of accepting low-quality assets, particularly mortgage-backed securities, as collateral.
Europe’s banks have pledged increasing amounts of asset-backed securities (ABS) as collateral against borrowing from the ECB. By the end of September, ABS represented 17 per cent, or €215bn, of €1,300bn total eurosystem collateral, up from 12 per cent in 2006 and zero in 2003. The Bank of Spain, one of the few national central banks to provide updated information in advance of the ECB itself next month, says net lending by the ECB to Spanish banks, much of it presumably ABS-collateralised, has increased from €18bn in August to €40bn in January.
http://www.ft.com/cms/s/51420bc8-e061-11dc-b0d7-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F1%2F51420bc8-e061-11dc-b0d7-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Not all ABS are RE related. The problem is differentiating the good from the ugly.
Real Gold Bugs never rejoice.
They suffer on the way down and (if they have a real conscience), they suffer on the way up. It’s really a bit of a bitch being a true gold bug.
I’ve decided to use my house fund to pay down a car loan and some student loan debt. Now that no safe investment is returning over 4% I figure why not throw the money at my families’ debt.
I figure by doing this I can help drive down prices further by spending available cash NOT on housing. As long as renting is cheaper, why not, right?
I also figure that I will just keep spending my money in NOT housing until two working adults can afford a reasonably home. I will do this until the bottom, at which point I figure my bulletproof credit score, a few bucks, and verifiable income will gold to lenders (whoever is still lending).
Any thoughts on this? I’m serious.
Fab credit and verifiable income and a “few” bucks won’t get you the best mortgage when we are really near the bottom. Keep more than just a few bucks around, but paying off debt is a worthy goal. Also, no guarantee that your household will always have two working adults. Debt free is great. Having some serious living expenses money around is great too.
I sent you a post, but I think it got eaten by a slip onto the windows quick-key.
I’ll check back later.
Muggy,
I’ll try to be brief. Conventional wisdom the past boom period is not to have money “tied up” in real estate, but leverage out and invest. That’s a great plan in a bull market environment. We are now in a bear market environment that could be protracted. All those folks that have “investments” are getting NEGATIVE returns now. Great Plan. They, like the upside-down home owners are waiting for the market to “turn around”.
Don’t hold your breath.
Eliminating Debt is always a good idea. It provides you with more disposable income. It makes you free, not a wage-slave. However, you must also be mindful of having enough cash on hand to get a good deal when it presents itself. Do you?
It is my belief that the housing market in the Tampa area will continue to decline for the next year or so. Good deals will start to become available. The greedy brokers over-extended. They already bought up all the inventory they could get, and many are upside-down.
Remember the “strip this mutha” Realtor ™? She can’t outbid you or me now. She doesn’t have the money or the credit. Three years ago these pigs kept pushing prices higher with their NEG-am loans. Game over.
In this new environment, you will need at least 10% down to get a good loan. Will you have that 10-12 months from now if you use the money to pay off the other stuff?
Conversely, if you pay off the other stuff, could you then save at a faster rate in the coming 12-24 months to be able to get in on a foreclosure? IF so, I would say, go ahead. If not, you might want to hold some of your cash in the MM to have available for bargaining power.
(I am not a licensed financial advisor. No information provided here should be taken as financial advice. Please consult a professional advisor, your attorney and a ouija board before proceeding with any changes to your financial plans. You may also try astrology.)
-D.
Do it. Peace of mind, no debt,frees up your income stream, no loss to interest payments, if something happens to your ability to make money, no worrying about that, at least.
Muggy,
My wife and I have $100,000 in combined student loans, but we were smart to consolidate and to lock in fixed interest rates in 2005 (32k @ 1.625% and 69k @ 2.75%). I have thought many times about taking my personal savings and wiping out my 32k debt, but always decide against it for the following reasons:
1) We get to play the bankers’ game by borrowing low and generating a higher return on the money we save instead of paying the loan down (although we have considered striking).
2) A bit of debt is a wonderful hedge against rampant inflation. If we get a few years of 7% then my student loan payment will be the equivalent of buying a cheeseburger.
I agree with what some of the posters here say. Be sure to keep enough living expenses and be sure to have at least 20% down in the price target you intend to purchase.
The rest of the decision in my opinion depends on the interest rate of your student loan obligation.
“If we get a few years of 7% then my student loan payment will be the equivalent of buying a cheeseburger.”
What if your wage does not keep up with inflation? You’ll get neither the cheeseburger and still have a loan to payoff. It’s always good to pay off all debts. Peace of mind is priceless.
If my wages don’t keep up, then I could always pay off the loan. I’m holding the cash, I can make that choice any time. It’s not like I’m consuming with it.
This is a great thread I;d like to continue. Maybe a suggestion for next weekend? If not a whole thread, maybe we can pick it up Saturday morning in bits?
The good news for now is that I can do a little of both: saving & paying down principal while not giving up one for the other.
What complicates my scenario is that I’m not sure if I will stay in Florida long-term. If I do stay, I wouldn’t want to miss the bottom.
Anyway, next weekend…
Follow up article on that Clarkdale, AZ developer I mentioned last week: http://www.journalaz.com/empire%202-20-08.htm
Never mind the fact that the Clarkdale and Verde Valley business community was pumping this development up until the end. Typical clueless, revenue hungry, “what’s in it for me?”, Central Arizona municipalities.
Do S&P, Fitch and Moody’s rate the quality of collateral that CBs accept on their loans to banks?
Does it even matter what the mark the rating agencies give? Might as well have children in kindergarten rate debt using crayons.
Now that the ratings agencies are under severe scrutiny, it is beginning to matter.
“It is hard for a Packer to support a Bears fan,” the Illinois Democrat said, triggering some boos. “But you would not want some guy to come up here and say he was a Packers fan, when he’s a Bear’s fan….You gotta stick with your team, even when they don’t break 500, even when they don’t make the playoffs, even when they make you tear your hair out.”
Sen. Barack Obama in Green Bay Feb 4th
Illinois politicians give the best quotes. Usually it is about how they aren’t really guilty and they are appealing their jail sentence.
Just to clarify my previous post today - Empire was building a housing development in Clarkdale (Arizona), but their corporate headquarters is located elsewhere.
Marc Dann Ready to Subpoena More Lenders
Kerri Panchuk | 02.20.08
Ohio Attorney General Marc Dann, who filed a lawsuit against Freddie Mac earlier in the year, told a crowd of reporters attending the Reuters Housing Summitt in New York Wednesday that his office may take similar actions against Fannie Mae, according to Reuters news agency.
The lawsuit, if filed, would be about the company’s lack of disclosures in relation to securities backed by subprime loans, Reuters reported.
http://www.dsnews.com/view_story.cfm?id=2091
Here is the Reuters article referenced in the article linked above. I will give Andrew Cuomo and Marc Dann a hard look if they ever enter the national political scene.
And BTW, what is California AG Jerry Brown up to these days? He appears MIA regarding the mortgage debacle.
Ohio expands mortgage industry probe
Wed Feb 20, 2008 3:44pm EST
Related
Ohio AG considers Fannie Mae case
20 Feb 2008
NEW YORK (Reuters) - Ohio Attorney General Marc Dann on Wednesday said he would issue more than 15 new subpoenas to a range of mortgage companies, expanding his investigation into boom-time industry practices that are now causing pain for struggling homeowners and investors.
Last year, Dann said, he issued about 15 subpoenas probing a range of players in the mortgage industry — from mortgage brokers and appraisers to rating agencies and Wall Street investment banks that created asset-backed bonds. Dann argues that industry players knowingly sold loans to inappropriate customers as others passed on risky loans to investors.
“We’re going to issue our next wave of subpoenas in the next couple of weeks. We’re working our way up the ladder,” he said at the Reuters Housing Summit in New York.
http://www.reuters.com/article/IndiaInvestment08/idUSN2064104120080220
Ohio AG considers Fannie Mae case
Wed Feb 20, 2008 12:04pm EST
NEW YORK (Reuters) - The attorney general of Ohio said on Wednesday his office was considering bringing a shareholder lawsuit against mortgage buyer Fannie Mae over disclosures of subprime holdings.
Attorney General Marc Dann last month sued Freddie Mac, another government-sponsored housing enterprise, on behalf of the Ohio Public Employees Retirement System, contending it had engaged in securities fraud for failing to disclose risks from its investments in the subprime mortgage market.
http://www.reuters.com/article/domesticNews/idUSN2036654920080220
Even as far back as the late ’90’s I can remember real estate developers selling overpriced commercial real estate assets to Ohio PERS. They have been well known on the street for being unsophisticated investors. Sounds like they used the same acumen to get into the residential MBS market.
Ohio PERS = Bagholders
Happy Valentine’s Day!
BUILDING CUTS ‘LIKELY’
“The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes. Further cuts in home building and in related activities are likely.”
– FEDERAL RESERVE CHAIRMAN BEN S. BERNANKE TO THE SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, FEB. 14
http://www.signonsandiego.com/uniontrib/20080224/news_1h24porchm.html
What’s Pushing Up Crop Prices
By Luke Mullins
Posted January 24, 2008
US News and World Report
“…Increased meat consumption has stoked agricultural commodity prices, since more grains are needed to feed livestock, says Ryan Davies, a senior trader at Titan Commodities. “Literally 2 billion people are going from a grain-based society to a meat-based society,” Davies says. “It takes a lot more grains to feed a cow than it does to feed a person.”
This trend should continue to influence agricultural commodity prices, with the United Nations anticipating global meat production to more than double from 2001 to 2050—that’s roughly twice the projected rate of world population growth for that period….
The weakening U.S. dollar also lifted commodity prices in 2007 by making crops cheaper for foreign buyers. “You have the price of gold going north and the U.S. dollar going south,” says William Fordham of C&S Grain Market Consulting. “People don’t understand how important a low dollar is to agricultural exports.” In addition, the falling dollar has triggered fears of future price appreciation, prompting investors to put more money into commodities to protect against inflation….
But while individual crop prices may stray from projections, one thing appears certain: “The maintaining of historically high prices is most likely here for at least a few years,” says Randy Mittelstaedt, the director of research at R.J. O’Brien, a commodities and futures brokerage firm. “Global demand is strong, U.S. demand is strong…and we are looking at just a huge increase in demand on the ethanol side.”
http://tinyurl.com/24372l
Yet another reason to go vegetarian… (contrarian in the land of beef cattle)…plus it tastes better
Are there any frozen vegetarian “meatballs” you would recommend? I like Trader Joe’s but they are pricey.
Probably could find some recipes online, but I don’t know. But a lot of fake meat products are soy, Google “reasons not to eat soy” and do so in moderation (eat soy, that is, not Google).
The weakening U.S. dollar also lifted commodity prices in 2007 by making crops cheaper for foreign buyers.
generally not true, and you can see it from actual food price inflation numbers in Europe, China etc. (up more than 20% in one year). For non-$ buyers, the dropping US dollar has only compensated a small part of the pricegains in commodities. Some are up 3-5x, you would need a 66-80% or so $ exchange rate drop to compensate.
High food prices may force aid rationing
By Javier Blas in Washington and Gillian Tett in London
Published: February 24 2008 22:02 | Last updated: February 24 2008 22:02
The United Nation’s agency responsible for relieving hunger is drawing up plans to ration food aid in response to the spiralling cost of agricultural commodities.
The World Food Programme is holding crisis talks to decide what aid to halt if new donations do not arrive in the short term.
http://www.ft.com/cms/s/451604c4-e30b-11dc-803f-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F451604c4-e30b-11dc-803f-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Reminds me. No one ever questions why we currently are borrowing the money we give to other countries in foreign aid.
http://tinyurl.com/27vsmd
More pearls of wisdom from Bill Gross. Why doesn’t any reporter ever ask him what what his financial interest is in suggesting such solutions?
I like Mr. Gross’ plan better than Mr Alan Blinder’s
New York Times
February 24, 2008
Economic View
From the New Deal, a Way Out of a Mess
By ALAN S. BLINDER
“… A third reason for focusing on foreclosures is that we’ve seen this film before. During the Depression, President Franklin D. Roosevelt and Congress dealt with huge impending foreclosures by creating the Home Owners’ Loan Corporation. Now, a small but growing group of academics and public figures, including Senator Christopher J. Dodd, Democrat of Connecticut, is calling for the federal government to bring back something like the HOLC. Count me in.
The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks — most of which were delighted to trade them in for safe government bonds — and then issuing new loans to homeowners. The HOLC financed itself by borrowing from capital markets and the Treasury….”
http://tinyurl.com/2fj83o
This is the first stage 3 proposal - nationalization of the debt.
Except the US is not a net creditor and the USD will probably collapse sending long-term rates soaring. Then, they can buy long-dated treasuries too.
Only one problem. Time frame is all wrong. You need most of this to happen “now” not 12-18 months later.
Theoretically, all of this is possible. The question is it it “likely”? I’m betting on NO.
Also worth noting where the U.S. economy stood in 1933 versus now. Pols cannot easily institute drastic measures unless drastic conditions are apparent, and at the moment, they are not.
“The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford.”
That was then, this is now.
A lot of things are different. In the 1920’s -30’s most speculation was in stocks. The crash came from leverage in the stock market. There was little speculation in LAND and housing, except in Florida, but that had already crashed by 1930.
Stocks were falling continuously and the market continued its downward spiral until FDR got us into war. The war machine ended the depression.
Those people had a hard time paying debt because of lack of income and a declining economy. Those things haven’t even hit home yet. They were over their heads from the beginning. They were hoping that price inflation would pay the bill for them, with a few refinances and a HELOC or 2. Didn’t work out.
What kind of financial alchemy will get over-extended borrowers the ability to pay off loans they can pay at ZERO percent interest? There is none.
The only solution is default.
Is the proposal to let the “government” eat the losses to keep a “homeowner” in their house?
Probably so. Welcome to George Orwell’s vision of America.
Even if the government eats the loss, the price/income is all wrong.
Nobody is going to pay that nut even at 0% because they don’t have the income. Unless you come up with an “income-boosting” scheme, all of this is not going to work.
“income-boosting” scheme
I suggest liar loans.
I suggest the government set the correct price by lowering and lowering it until the banks squeal: that is, stop making campaign contributions.
Oh! never mind.
Rising tide of risk management
Online brokerages now pitch measures for shielding assets
By Joe Bel Bruno
ASSOCIATED PRESS
February 24, 2008
NEW YORK – Breaking even has never sounded so good.
As a once-bull-market boom extends its descent into bear-market misery, the Big Three U.S. online brokerages are having to rewrite their sales pitches. While Charles Schwab, E-Trade and TD Ameritrade used to talk about making money for investors, now, in the credit-crisis era, it’s about preserving capital instead.
“Active traders today aren’t swinging for home runs anymore; they’re happy with base hits,” said Joseph Vietri, vice president of Charles Schwab Corp.’s active trading and investing services.
Indeed, the focus is just navigating choppy market conditions. The Dow Jones industrials are off 6.7 percent for the year, and since the start of the month have jumped sharply one week only to pull back the next.
http://www.signonsandiego.com/uniontrib/20080224/news_1b24market.html
Paying off debt suddenly seems like a smart financial planning move.
MONEY MAKEOVER
Fiscal path seems headed in right direction Pace of paying off debt earns planner’s praise
By Melanie Stevens
February 24, 2008
http://www.signonsandiego.com/uniontrib/20080224/news_lz1b24makeove.html
Another outstanding piece by Dean Calbreath. I would cancel my Sunday SD-UT subscription if it were not for his breath of fresh air in financial reporting.
DEAN CALBREATH
Speculation helping keep price of oil stratospheric
February 24, 2008
As the price of oil jumped above $100 per barrel last week, pundits were falling over themselves to come up with explanations for the price spike.
Maybe it was that oil-refinery explosion in Texas, they said. Or maybe it’s because Venezuela is about to cut off oil shipments to the United States. Or maybe it’s because OPEC is going to slash production.
None of those ideas passes the sniff test:
-There was a fire at a tiny refinery in Texas, but it affected only 70,000 barrels of crude oil a day, .004 percent of the daily production in the United States or .0008 percent of the world’s daily consumption. That’s hardly enough to make oil rise as high as $100.74 per barrel before settling down to a still-stratospheric $98.75 at the close of the week.
-Venezuela’s Bush-hating President Hugo Chavez did threaten an embargo of the United States this month, but by the time oil was nearing the $100 mark, he had already backed down, as was expected.
-The Organization of Petroleum Exporting Countries will probably vote to trim its production at its meeting March 5, but that’s no big news. Demand for oil typically recedes in spring, and it may drop more than normal if the global economy slows. OPEC is simply rejiggering its output to make sure its supply doesn’t outstrip demand.
Why have oil prices jumped so much?
…
The past dozen years have been a daisy chain of speculative bubbles and bursts, starting with the investments in obscure foreign currencies – such as the Thai bhat – that provoked the Asian economic crisis of 1997 and 1998.
Now, the same folks who drove up currencies in the mid-1990s, dot-com stocks in the late 1990s and housing prices in the early 2000s are at work with oil and other commodities, seeking other get-rich-quick investments.
Each bubble has been fueled by easy money from the Federal Reserve and other central banks. Each time a bubble pops, the bankers’ answer has been to pump more money into the economy, inflating the next bubble.
…
http://www.signonsandiego.com/uniontrib/20080224/news_1b24dean.html
Each bubble has been fueled by easy money from the Federal Reserve and other central banks. Each time a bubble pops, the bankers’ answer has been to pump more money into the economy, inflating the next bubble.
yeah, just imagine how high the oil (and gold) price will go if this bubble gets bigger than housing. $ 1000 oil maybe?
Don’t worry about drops in the value of your stock holdings — it is time to buy the dip!
GAIL MARKSJARVIS
Losses don’t always mean mutual fund is a loser
February 24, 2008
Do you have a mutual fund that’s a loser? One you hate? One that has been draining your 401(k) of your hard-earned savings since October?
Say, for example, you have a mutual fund that invests in large companies – a fund that might have “large cap” in its name and invests in stocks like Google, Wal-Mart Stores and Exxon Mobil.
If so, it would not be surprising if you have lost 13 percent of the money you had in the fund in early October.
A Northwestern University graduate student thought a drop of 13 percent was reason to sell his fund. “I’ve lost $3,000 in my mutual fund,” he complained to me recently, as he sought an idea for a “better fund.”
But as I told him, and other people who have written to me about evaporating money lately, a loss in a mutual fund is not necessarily a reason to sell. And a loss alone is no indication that your mutual fund is a loser, or that your fund manager has lost the ability to pick stocks skillfully.
http://www.signonsandiego.com/uniontrib/20080224/news_1b24marks.html
NHZ, if you’re around, could you chime in w/ regard to the income tax in Netherlands?
(I was offered a job SW of Amsterdam, it pays around EUR 75K/yr)
You need to consult the tax treaties. You won’t necessarily be taxed like a Dutch citizen.
yes, I agree; I have no idea how this works for foreigners.
median income in Netherlands is a little above 30K, so this is a well-paid job. Under Dutch tax law you would pay between 40 and 50% taxes on this, but if you buy a home all costs related to that in a very broad sense are 100% deductible. If you rent you are out of luck because you get no subsidy at all (only available for people with lower or no income, cheaper homes and limited savings). In your case the cost of renting could be seen as part of the necessary cost of getting the job, so maybe there is some way around that.
What to make of this?
http://www.nytimes.com/2008/02/24/business/24view.html
Oops, Hoz referenced this already. My bad.
http://www.nytimes.com/2008/02/24/business/24view.html
Not to suggest this as a solution, but I thought the historical event that lifted the U.S. out of the Great Depression was WWII, not the New Deal?
The historical event that lifted it was that the bad debt was completely written off. Wars do not benefit an economy.
In WWII, the entire industrialized world’s output was wiped out, and the US was left standing. That benefitted the US not the world as a whole.
If you repeat that, it’ll work again. I don’t recommend it though.
“The historical event that lifted it was that the bad debt was completely written off.”
Then what stands in the way of this solution presently?
I hear this a lot. It makes me uneasy. I fear that if there is a massive economic collapse that the conventional wisdom will be we will need a war to somehow get us out of our troubles, like after the Great Depression. Never mind that we are currently in an unsuccessful war that hasn’t helped our country or economy at all.
Defense spending for WWII was still government spending, yes? Just because it was for guns and bombs doesn’t make it more magical than money spent on anything else that could also potentially revitalize the economy. Currently, half our budget is already going to defense spending, in most cases for cold-war era technology such as fighter jets, nuclear subs, and other boondoggles which won’t even help in the so-called “war on terrah.” If there had to be a large government spending initiative to get us out of a depression, it wouldn’t necessarily have to be directed at producing the tools to kill people. A massive program to revitalize the US infrastructure could put many Americans to work and also build something constructive.
But there is another aspect. The American people underwent many deprivations voluntarily during the war. Rationing, “Victory Gardens,” buying war bonds, etc. This was also a factor in winning WWII. Would the American people be willing to do so again? It is easier by far to mobilize the masses against an evil “other” (the krauts, the nips, towelheads, insert any other ethnic slur here…) than to get them to agree to do something “for our own good.” Unfortunately, the current poor state of the economy is largely “our” own fault as a nation (I know, I know, the posters on this blog are not responsible, but “we” are still more responsible than any foreign “they” might be…)
Appeals to patriotism could persuade the rich to give up some profits for the greater good in the 40’s. They could also motivate the lesser-privileged to volunteer to serve their country, risking life and limb. We currently have lots of people, across all income levels, who contribute little to “the greater good.” Bush’s response to the 911 attacks was to basically tell the American people to keep shopping, that the “American way of life” must continue. People were ready and willing, for once, to look at something larger than their own short-term interests and the opportunity was squandered.
Cultivating that sort of sentiment (what’s it called? Citizenship? Never heard of it…) may be critical to our future.
Wars help the Banksters. Banksters always have and always will play both sides of war. Banksters love wars because 99.9% of countries must finance war through debt.
“Currently, half our budget is already going to defense spending…”
Semantics — most of that, IMO, is going toward OFFENSE spending.
Good post, BD!
The new deal stabilized the economy, WWII revived it and post WWII policies (new deal continuation in the form of the GI bill and retooling the economy from one producing war equipment to one producing durable consumer goods) combined is what pulled the US out of depression. Thus it took two decades to undue the damage done by the destructive fiscal policies of the roaring 20’s.
Nice, succinct summary!
Birds Do It. Bees Do It. Dragons Don’t Need To.
“DRAGONS and virgin births are the stuff of myth and religion. Except, that is, in Kansas, where they have recently come together in a way that should alter the way many of us look at nature and demonstrate the risks in our habit of using it to help us make ethical decisions…
Virgin birth, known to biologists as parthenogenesis (from the Greek, “parthen” meaning virgin or maiden and “genesis,” beginning), has been seen in other species over the years….
The big question these virgin births raise is this: If some females can get along without males, why does any species have males?….”
http://tinyurl.com/2xovpl
New York Times
“A woman without a man is like a fish without a bicycle”
Ms. Gloria Steinem
The conventional scientific argument against it is “genetic diversity” or “mutative ability”.
With, the same genes propagated, you have a significant possibility that an agent will sweep through the population destroying it. This is actually a real problem for “conventional” growing of cattle and pigs CURRENTLY in the US. That’s why they get antibiotics. Once again, this is a current problem not some “untestable theory”.
Kansas is to science what the NAR is to RE. We keep having to debunk the same theories again and again and again and again and again and again… ad fuckin’ nauseam.
“why does any species have males”
Who, then, would open the pickle jar or get the plates down from the top shelf?
LOL!! BTW, the juniper tree is monoecious (has separate male and female reproductive units (flowers, conifer cones, or functionally equivalent structures) on the same plant; from Greek for “one household”).
Eliminate male humans and some female humans will modify their behaviors to fill the evolutionary niche. (This has already happened in some same sex hhs with which I came in contact when we lived in the SF Bay Area.)
Another wonderful day in Joliet Illinois
Feb 22, 2008
Check out the name of the school!
http://tinyurl.com/34o8vy
cbs2chicago
More Illinois news, and a good read to boot:
http://tinyurl.com/26zamd
“But now the magic is beginning to wear off. Instead of the second coming of Jesus Christ, some of us are beginning to sense the second coming of Jim Jones. Instead of a new redeemer, we’re looking at an undistinguished first-term senator with no paper trail, a wife with a major-league chip on her shoulder, a politician from the insalubrious precincts of Bathhouse John Coughlin and Hinky Dink Kenna’s old hometown of Chicago.
As another famous Illinoisan once said: You can fool all of the people some of the time and some of the people all of the time, but you can’t fool all of the people all of the time. And then he suspended habeas corpus and went on to fight and win the Civil War.
Do-over, anybody?”
http://tinyurl.com/26zamd
Submitted for your approval:
To Serve Man…
It’s a set of cooked books!
Lad, now I KNOW you’re really in New guinea.
HSH to sue UBS over subprime losses
By Bertrand Benoit in Berlin and Haig Simonian in Zurich
Published: February 24 2008 20:19 | Last updated: February 24 2008 20:19
UBS, the European bank worst hit by the subprime crisis, faced another blow after HSH Nordbank, the German public sector lender, said it would sue to recover subprime losses.
HSH said Sunday it would file a suit this week to seek repayment of “hundreds of millions” of losses on a portfolio of collateralised debt obligations structured and managed by UBS. UBS declined to comment.
EDITOR’S CHOICE
Ospel gains breathing space at UBS - Feb-22
UBS contacts bankers over chairman role - Feb-21
World View: UBS position poses tricky riddle for Fiat - Feb-21
Green light for UBS in India - Feb-18
UBS predicts ‘another difficult year’ - Feb-14
Greater disclosure fails to allay concerns - Feb-14
http://www.ft.com/cms/s/4abc1802-e313-11dc-803f-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F4abc1802-e313-11dc-803f-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Unless I am overlooking it, the article linked below features a significant absence of any suggestion that the GSEs should play the key role in foreclosure prevention.
Prevent US foreclosures
By Lawrence Summers
Published: February 24 2008 19:16 | Last updated: February 24 2008 19:16
The American economic outlook remains highly uncertain. But macroeconomic policy is now properly aligned, as the economy will benefit over the next several quarters from fiscal and monetary stimulus. To the extent conditions warrant and inflation risks permit, monetary and fiscal policy are appropriately poised to provide further stimulus.
Policy towards America’s failing housing sector is in a far less satisfactory state. All honest analysts accept that policies adopted so far, such as the “teaser freezer” limits on resetting mortgage interest rates and increased federal support for mortgage lending, have had only a marginal impact on what may be the most serious crisis in housing finance since the Depression.
It appears house prices are down by 5-10 per cent from their peak, with derivatives markets predicting further declines of about 20 per cent. Price falls of this magnitude are likely to mean more than 10m would have negative equity in their homes and more than 2m foreclosures would take place over the next two years.
http://www.ft.com/cms/s/0/471e6794-e2e7-11dc-803f-0000779fd2ac.html
Why is “negative equity” such a big deal?
So what if people have negative equity? They still have a place to live. They can still afford the mortgage. They’ll pay it off eventually. Why should taxpayers be forced to pay them for unrealized profit?
I think the Home Ownership Preservation Corporation should be named the Profit Margin Preservation Corporation.
“I think the Home Ownership Preservation Corporation should be named the Profit Margin Preservation Corporation.”
Ditto.
Because they CAN’T afford the mortgage.
In some cases, the money they pulled out as home equity loans was the money they paid back for the mortgage. Other people have seen their teaser interest rates reset to higher rates. Either way, they can’t cover mortgage payments from current income.
US recession danger as house prices tumble
By Liam Halligan
Last Updated: 12:07am GMT 24/02/2008Page 1 of 3
Last week, some grim statistics came out of the United States. I’ve been bearish about the world’s largest economy for some time. This column first warned that America faced recession back in January 2007!
But even I was spooked by the minutes of the Federal Reserve’s most recent policy meeting, held last month. For the US central bank not only cut this year’s growth forecast but, at the same time, raised its estimates for 2008 inflation.
Fed policy-makers predict the US will grow only 1.5 per cent this year - down from the 2.2 per cent forecast they made back in October. That’s certainly not consistent with “recession” - defined as at least two successive quarters of negative growth - for two reasons.
Firstly, the economy could contract for six months, then expand during the second half of the year, while still registering a 1.5 per cent annual growth rate. These forecasts could also spell recession as it’s impossible, at a time like this, for the Fed to be anything other than as optimistic as it can possibly be.
Just imagine if Ben Bernanke, Fed chairman, had said growth was about to fall off a cliff. The markets would go into total meltdown - and in a presidential election year. No - this is about as bearish a forecast as the Fed would ever allow itself to make, lest it provoke the deep recession it wants so much to avoid.
The real extent of the Fed’s concern, though, can be gauged from the text of the minutes [PDF] - which nerds like me read, but which rarely get into the newspapers.
…
http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/02/24/ccliam124.xml
the minutes [PDF]
http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20080130.pdf
Lending industry motto: Privatize profits, socialize losses. Lenders who “volunteered” to make stupid loans appear to have been banking on bailouts to pay off their gambling debt.
News Analysis
A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered
By EDMUND L. ANDREWS
Published: February 23, 2008
WASHINGTON — Over the last two decades, few industries have lobbied more ferociously or effectively than banks to get the government out of its business and to obtain freer rein for “financial innovation.”
But as losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion.
http://www.nytimes.com/2008/02/23/business/23housing.html
http://tinyurl.com/3xtccf
Buy this if you want to REALLY get high…as in 12,500 feet. Maybe there’s gold, but how would you ever get to it? Helichopper? Or maybe you could open a high-altitude training center for Everest expeditions…
Stock market bulls have pinned high hopes on bailout talk…If nothing else, bailout talk gives good cover for otherwise inexplicable increases in share prices against the backdrop of a steady barrage of gloomy economic news.
MARKET SNAPSHOT
Investors seek calmer waters amid bailout hopes
Anticipated Ambac rescue plan, worries about economy to influence trading
By Nick Godt, MarketWatch
Last update: 12:03 a.m. EST Feb. 23, 2008
NEW YORK (MarketWatch) — Investors hope that a last-minute plan to bail out ailing bond insurers next week will spark optimism for a market that has remained plagued by the ongoing credit crisis and worries that the economy is on the brink of recession.
http://www.marketwatch.com/news/story/stocks-seek-light-end-tunnel/story.aspx?guid=%7BD30ADA20%2DF0E3%2D4DC4%2DB356%2D1197D16B5EB3%7D
“…U.S. stocks staged a late rally on Friday on news that banks were near a deal to bail out bond insurer Ambac Financial, and that a rescue could come this week, though a source told Reuters that while progress has been made the deal might still fall through….”
Reuters
Sun Feb 24, 2008 7:12pm EST
The market is grasping at straw men.
It’s getting to be a bit of a new pattern - Japan up, US futures up, most of Asia up. . . and Shanghai down hard.
Markit ABX indexes are all at or almost at their all-time low. I guess not everybody believes a bailout will make it all good again?
Markit ABX.HE Closing Prices
22-Feb-08 Overview
http://markit.com/information/products/category/indices/abx.html