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It’s all good here in Dallas. Busloads of FBs wanting to buy up all these “incredible deals” in foreclosed houses. Only problem is, you may have one person on the bus who could qualify. The average Dallasite doesn’t have the credit to buy a piece of bubble gum.
http://www.dallasnews.com/sharedcontent/dws/bus/stories/022908dnbusforeclose.1cbcd65.html
I thought the housing bubble passed by Texas. Hee hee
wow, there could actually be a gum bubble!
You mean a bubble gum bubble?
Dallas - home to the $30,000 a year million aire. Everytime I got there, I wonder how people manage to keep up appearances.
My commuting through Southlake this week. Past a just and quickly sold major mansion: acres, trees, Spanish style long low house well off the road, 4 car garage, 3 full size Atlas moving vans stacked up outside. Yesterday, just in sight and across the street, two process adaptive Southlake police cruisers parked to block both ends of the circular driveway (obligatory for this neighborhood) of a rather smaller house. Hopefully the new mansioneers weren’t up early…
Go on to Pacer and read the schedules of a few consumer chapter 7 cases. You’ll find out.
My nephew the flipper moved there from Socal last summer and bought two places. Is there any way to look him up by name to see if he’s still holding them? I’m afraid to ask..he was flying pretty high a couple years ago.
found one of his houses on the property database - appraised at 44k? Sheesh, no wonder he moved there.
The average Dallasite doesn’t have the credit to buy a piece of bubble gum.
That is bad news because you can’t inflate a bubble without the gum!
http://money.cnn.com/
Expert: Inflation worse than Fed says
Very interesting video on the front page. The guy seems really, really credible.
Our monetary system is based on inflation. Unfortunately, that phenomenon has been masked for a few decades for a few different reasons. To compensate for that masking, the amount of overt inflation required to salvage this unconstitional monetary system will be substantial. (Yes, giving a private bank the legalized monopoly of creating their own currency based on debt is most certainly unconstitutional).
If the attempt to manage this substantial amount of overt inflation fails and deflation takes hold, the same upheaval will occur. This isn’t a new phenomenon. Those folks who founded the country (electorate as well as politicians since the people constituted the government) knew these pernicious effects of this type of monetary system, and they chose something different. The actions have already occurred. The better question is what will those of today chose on the other side.
Unfortunately, it looks like the choice will be corporations and the government deciding what the production and distribution of goods and services will be (fascism) versus the individual determining the production and distribution of goods and services (market economy, capitalism, liberty).
‘If the attempt to manage this substantial amount of overt inflation fails and deflation takes hold.’
I would suggest that if there isn’t wage inflation, true inflation hasn’t occurred. If gas is three bucks a gallon and my wages are flat, I still only have so many dollars. People like to point to past inflations with wheel-barrows of money. I don’t see anyone walking around with stacks of cash.
And for the thousandth time for the inflation people, why are rates so low? Commodity price spikes happen for various reasons, but if people can’t afford the product, consumption falls and with that prices.
Commodity price spikes happen for various reasons, but if people can’t afford the product, consumption falls and with that prices.”
But now there is a rising global market that can afford the product; Asia. They are consuming at the higher prices and demanding even more products. American demand no longer determines prices; by 2010 China, not USA, will be the worlds’ largest oil consumer. They already consume 25% of world milk production, etc. If Americans can’t afford higher prices, we will go without.
‘there is a rising global market that can afford the product…If Americans can’t afford higher prices, we will go without.’
I haven’t heard of a global increase in wages and if USAns go without, that is more likely a decrease in standard of living, and not neccesarily inflation.
Commodities are soaring. Is it different this time or is it mania?
Not sure about globally, but I know China is going through massive wage inflation as I type. I think India as well.
Chindian wage inflation 20%
Commodity inflation 10%
US wage inflation 0%
Result: Chindians can buy more stuff, americans can buy less stuff. Chindians get richer, americans get poorer.
“Commodities are soaring.”
Bernake’s new cheap money is being used for commodities speculation. How ironic its not helping home prices but hurting the guy whos’ barely hanging on.
‘Chindians can buy more stuff, americans can buy less stuff. Chindians get richer, americans get poorer.’
Yeah, history is full of rich commie/socialist societies. And when the US trade gutting ends? I don’t see a sustainable economy in China, anyway. They have as much of a bubble as anyone, and many say the same about India’s RE.
When land outside Chandigarh is priced higher than Manhattan, I think it’s pretty safe to say that Indian RE is not just in a bubble but a fairly absurd one.
I have wondered how China will avoid going through a similar downturn if the U.S. stops spending like it does.
I didn’t say they were rich. I said they were getting richer. We send them dollars for plasma TVs, they use the dollars to buy food and fuel.
So.
Food and fuel go up while plasma TVs get cheaper.
In a perfectly globalized world a factory worker in Bangalore or Shanghai or Des Moines would have exactly the same standard of living and there aren’t enough resources for 6B people to live like north americans. So the inevitable end of globalization is a drop in american standard of living.
I agree. China and India’s economy is based on us buying their crap (China’s) and their services (India).
The world is changing. Who moved my cheese? You might want to give up your accounting job and go buy a farm because exports from the US are going to take off. People will buy our food, our wheat, our corn, our soybeans, our Oranges?
Now I also agree with Ben. If we consume less, China and India also hit a recession, demand drops for commodities, and all those people trying to hedge against inflation, end up getting burned by less demand and less purchasing power from their consumers which means deflation.
That’s the problem with trying to define “inflation.” There’s Fed-inspired inflation (i.e., growth in M0 or bank reserves artificially), and then there’s bank-inspired inflation (money multiplier effect coupled with velocity of money).
What we’ve had lately is bank-inspired inflation due to holding very low reserves in a fractional reserve system. The banks use their own inflated leverage to create more and more debt, which is a form of inflation. The problem with this form of leverage is that a few losses pile up quick when the bank can’t pay back original depositors.
The icing on the cake was external money (CDO, MBS) that bought the loans from the banks without reviewing them, and that external money was also based on leverage and debt.
We can blame the Feds for providing low interest rates and easy overnight lending to pad the banks’ reserves, and we can blame the investors of CDO and MBS schemes for not reviewing their investments, but in the end, the whole problem revolves around fractional reserve banking, which allows for this debt-liquidity system to prosper and create bubbles.
I don’t see a sustainable economy in China, anyway. They have as much of a bubble as anyone, and many say the same about India’s RE.
A good friend of mine just returned from a visit to China last week. He said real estate prices in Beijing are outrageous — sub-500 square foot apartments for the wage equivalent of 300K USD. They are displacing tens of thousands of people for the Olympics, and Beijing is one big construction zone. China has gone into development overdrive, but it can’t be sustained forever.
“I don’t see a sustainable economy in China, anyway. They have as much of a bubble as anyone, and many say the same about India’s RE.”
Just wait until the unraveling of the symbiosis lays to waste the decoupling theory. You ain’t seen nothin’ yet.
Ben,
The US Treasuries are an indicator of corporate solvency.
From a large investors viewpoint, it is better to go through a couple of years of crappy or mildly negative returns and have the principle intact than to subject moneys to an uncertain market.
This is not to say deflation will not occur. It is just Treasuries are not an early indicator of deflation or inflation.
The negative return US Treasuries had during the great depression did not occur until 1933, banks went under etc. But by 1933 the US was climbing out of the depression (to be shot down by the Federal Reserve tightening up lending standards.)
but if people can’t afford the product, consumption falls and with that prices.
Only if the product is discretionary. But what if it’s something essential like gas, or food, or water, or (increasingly) health care? That’s where the government ostensibly, badly or not, steps in to provide those essentials.
And btw, why do people use the price of gas as a measure of inflation? The cost of gas is not stable. You have refinery capacity, security premium, expensive technology for deeper drilling, OPEC controls, or many reasons for gas to just cost more time/labor/materials/etc per gallon to get to the pump, even if there is no inflation or speculation at all.
but if people can’t afford the product, consumption falls and with that prices.”
This statement would be true in a closed system, with stable supply and demand. Today markets are global and many commodities are experiencing increased demand and limited supply. Push-pull.
Is it different this time?
The Global system is a closed system.
If commodity prices are out of whack it’s due to inefficiency, imo.
The global market is still a bit immature. Money moves around a lot faster than does supply/demand statistics.
The globe does not have stable supply or demand. Oil production varies with the producer & the quality of the well, wheat production also varies from year to year, consumers acquire what they want & are able to get, etc.
Commodity inflation is contained……to Planet Earth.
Interesting snippet from today’s WSJ (page A3):
“Crude-oil inventories in the U.S. are swelling, while gasoline stocks are at 14-year highs.”
Furthur evidence that America’s thirst for oil is declining.
Another snippet from the same article:
“‘The feeling right now is that the price is very high, but not because of fundeamentals,’ said one senior OPEC official, who estimates that at least a third of teh price run-up over the last year is due to what he calls ‘pure froth’ - basically, speculative flows of money into the oil market.”
We’ve heard it all before. RE always goes up, blah blah blah. Now the commodity harpies and gold knuts are right for once in 30 years? Speculate, pump, speculate, dump.
How come everybody that is anti-Gold, can only go back 30 years in history?
If we go back any further, it make my case even more.
Please feel free to go back further, as far back as you’d like, to make your case.
I can wait thousands of years, for your answer…
Aladin… with all due respect, you’ll never concede until you lose money on it. And you’re convinced you never will bit history proves you wrong. If you on the winning side of the trade I’m happy for you but based on your persistent defense, there is no question you have serious doubts about gold. If that isn’t the case then you’re just giving gold a shameless plug on a housing blog.
Considering deflation is occuring and that people will sone realize this. Big correction in prices.
There is a lot of speculation and its a commodity bubble. Don’t know how much longer it lasts.
Mprime is apparently negative.
M3 is also negative.
So, I’m thinking this is the expectation inflation economist always talk about.
We’re just in front of a historic plunge in commodity prices.
It takes 6-12 months for our spending slowdown to hit China. They are already drastically trying to increase domestic consumption but once the Olympics is over, it’s game over for them as well. Commodity prices (cement, copper, iron, oil) will drop like a rock once their building binge stops, as our binge here has already stopped.
Oh yeah - I think gold is a major bubble. It probably has another 1/3 of a way to rise before it goes back to 400-500 an oz.
The more pedestrian commodities will certainly suffer from the world-wide slowdown, but Gold is a special case.
There is only enough to satisfy 1 out of every 50 units of fiat moneys in the world, and sadly every last currency is going to bite the dust.
No survivors, mutually assured monetary destruction.
I can’t wait to see the panic of those 50, trying to fit into a size one dress…
“but Gold is a special case”
So gold is different.
Gotcha.
Someone above said M3 is negative. Only M1 is neg - both M2 and M3 are growing. I can’t put my hands on M3 numbers right this second, but here are M1 and M2:
http://online.barrons.com/public/page/mlab_money_supply.html
As for gold - I had to take a lot of abuse when I called for a 20% rally from $660, and I have sold out twice since then and am now flat (wish I wasn’t), and although I am not sure I would agree that gold is a special case (since in the very long run, we must be able to establish some relationship among all prices, or else one would go off to infinity, which is not an acceptable outcome), I would say that gold was undervalued for so long that it’s current level is not at all out of whack with other asset prices, such as equities or Old Masters paintings.
Even from here, gold is likely to outperform a suit of clothes (the conversation I was having before gold moved 50% and a suit moved, what, maybe 3%?).
As a corrolary to the inflation/deflation debate which I always find facinating, how about some discussion as to indicators of the commodities bubble topping out? Are there any already present?
I previously believed that there wasn’t another asset class big enough to replace real estate as a bubble, but I’mm beginning to believe that commodities as a whole may just fit the bill.
The guest was John Williams of Shadow Governments Statistics (shadowstats.com). He’s very credible. M3 is growing at the greatest rate since 1971. He says we’re facing a severe recession with inflation greater than it is now. It will be the worst business cycle since the Great Depression. He expects this to evolve into a depression by the end of next year. I wasn’t sure from the way he phrased it whether he meant the end of 2008 or 2009.
I thought he meant the end of 2009 which is why he says whoever takes over the presidency at the end of this year is already thoroughly screwed as he or she will be blamed for this depression.
I don’t think so Guess Who’s. This mess is well documented and the perp/perps are known to everyone.
The average person on the street is still oblivious to the whole thing. I think the next president will certainly be blamed for a lot of our coming economic mess– especially when they try to “fix” it.
Feb. 29 (Bloomberg) — Financial firms are likely to face at least $600 billion of losses from the financial crisis, UBS AG analysts said in a report today.
Financial institutions have written down or lost about $160 billion so far. Losses from banks and brokers will make up more than half of the losses at $350 billion, according to estimates from UBS’s global banking team.
(From Bloomberg, this am).
Liquidity crisis, subprime crisis, predatory lending. No matter where you look, it’s the biggest news story and political topic of the day. But if you start from the wrong assumptions, how can you properly address the problem?
‘The subprime lending problem, just a faint blip on the radar a year ago, has snowballed into a full-blown crisis and is the subject of many proposed remedies. Those include legislation to curtail predatory lending, which is generally thought to be one of the factors that led to the issuing of so many subprime loans to borrowers with poor credit. But what is predatory lending? And what are the conditions that make it flourish?’
‘As the subprime mortgage crisis continues to expand and the FBI begins to investigate unorthodox mortgage qualifying guidelines, the causes of the crisis are yet to be examined outside the paradigm of lending practices and within the context of do-gooderism gone awry.’
‘Economists define predatory lending as creditors deceiving households into borrowing more than they are able to pay back, implying deception and lack of transparency.’
‘Yet this phrase is being attached by coercive utopians with increasing frequency and decreasing accuracy to any financial transactions that includes a low-income borrower. As with any phrase tossed willy-nilly into a mix of financial reality and social engineering, it is impolite to unearth and impolitic to assault.’
I’ve seen write-ups that say this was a credit bubble. But a credit bubble doesn’t explain people sleeping on the grass to buy a condo that doesn’t exist. If anything, the credit situation fueled the housing bubble, but doesn’t change the nature of the beast.
The media and the politicians will mention the housing bubble, but only in passing. The HB is just a term though. It refers to a financial mania. And if we have just experienced a true, tulip style, financial mania in housing, aren’t all the current approaches wrong-headed and doomed to fail?
It is a law of nature that each person acts to maximize their satisfaction. Actions of one may seem abnormal to another since the beliefs of the former may not be known to the other. A couple of examples.
The monk who lives a life of solitude. That may seem illogical to an observer. If one understands that a monk may believe that this lifestyle will lead to an eternal life of bliss in the afterlife, then it begins to be a little less unreasonable-from the standpoint of his actions in this life (discounting whether you agree with his beliefs).
Take the person who donates large amounts of money to charity. You are making judgements based on your valuations and beliefs. Perhaps he maximizes his satisfaction by the feeling he obtains from giving. If the person has billions and gives a million, it means much less to him than to someone with a hundred thousand (marginal utility intertwined with beliefs and satisfaction).
That is why a monetary system like ours is destined to these massive swings. There is a small central group who are making decisions about the value of money and about the fiscal policy. What are the chances their values and judgements will be in accord with the other billions of actors? Obviously, not all the time. In a system where the individuals control the money, misallocations have an infintesimally smaller chance of causing systemic calamities.
This group that does the planning are influenced by numerous beliefs and values. Ideological, personal, political, corporate, etc. Unfortunately, there is no guarantee that their actions will be in accordance with the constitution. A society can’t have a belief in liberty and a monetary system like ours at the same time. It violates the laws of nature. This shouldn’t be a secret. It has been documented, literally, throughout history.
There is a small central group who are making decisions about the value of money and about the fiscal policy.
In this case there was a very large group of people who determined current fiscal policy.. the people who started it all.. Blame it on the borrowers, lenders and investors who fueled the bubble.
This situation was not the result of some “planned” operation by the powers that be.. it was an example of the potential results of free, open markets.
Much of whatever happens from here on in is likely to be unduely influenced by a small group, but they didn’t get us into this mess.
You are putting the cart before the horse. People borrowed too much money because they were allowed to do so. If rates had not been artificially low there would have been no speculation because people could not borrow 100% or more the value of a house.
I think I’ll bypass the notion that people do whatever they are allowed to do..
Lets suppose rates were high.. but everyone and his momma believed RE prices would only go up and up.. could there still have been a bubble? Certainly.
Rates aren’t everything.
Pretty much rates and easy credit WERE everything. There could not have been a bubble if households earning $50G could not have got the credit to make $400G. That is what caused the bubble.
Hopeless loans were approved because the underlying asset was guaranteed to appreciate in value.
Why not lend $400K on a house that will certainly be worth $1M in a couple months? maybe $2M ..
From the maniacal perspective, the borrower’s ability to repay was as inconsequential as was the the monthly payment.. or interest rates.. or inventory.. or location.. or condition. None of the fundamentals mattered.
I’m afraid this is completely incorrect. There is no group planning anything, nor is there anybody trying to determine the value of money. There used to be, kind of - it was called the Gold Standard, now we have freely floating currencies which adjust their value based on international supply and demand.
The laws of nature concerning the monetary system are currently not well understood, but would generally come under the rubric of “emergent systems”. The reason the swings are particularly massive at the moment, is that we’re going through a communication latency change, which is generating much bigger wave effects than normal. It is the interaction of the behaviours of all the billions of actors that is creating the wave effects, and the chance of systemic calamities is ironically, far greater in free societies, which operate in a much larger communication space, than in centrally controlled ones.
In fact, if you wanted to eliminate the swings, the only way to do it would be a centrally controlled society. But the price you would pay would be a much, much slower pace of technological and economic development. And the occasional visits at 4am by the men in black cars.
The Board of Governors determine the rental price of money, and Congress determines the fiscal policy. That is a group of 547. It is a much smaller group than 300 million.
Good point. It is only miraculously expanding because they are zoomed in on the growing snowball, ignoring the sounds of snapping trees from the rest of the avalanche…
I’m begining to think the housing bubble was itself just the final, largest manifestation of something larger — the “I want it all, I want it now, and I don’t want to pay for it” culture.
“I’m begining to think the housing bubble was itself just the final, largest manifestation of something larger ”
Me too, but I was thinking more along the lines of a stampeding herd of cattle running off a cliff.
“E pluribus unum” somehow turned into “Pro Omnibus $”
The United States is the POOREST country in the world with less net worth per capita than Zimbabwe! (Not counting natural resources) We have exported most of our wealth producing industry. We owe a huge amount of debt to foreign interests. Unless we cancel social security and medicare our future liabilities are FAR beyond what our current or future economy is capable of supporting! The rest of the world knows this. All of the social security projections were based on the assumption of a strong economy, as this crash continues tax revenue will fall dramatically causing even larger deficits. Anyone can look rich when living on debt, but that doesn’t change the reality that those who live beyond their means today must live an equal or greater amount below their means in the future (unless their means increases significantly).
Our banking system is bankrupt. For the first time in the history of the Federal Reserve System total non-borrowed reserves is -18 billion AND GROWING! (instead of over +40 billion in normal times) The federal reserve has taken to monetizing bad mortgage debt in an effort to save the banks from defaulting. Home prices across the country need to fall another 20-30% to be inline with incomes and when they do it will take out the entire banking system unless trillions of dollars are created out of thin air to monetize bad debts. It is the policy of the Federal Reserve to protect the banks, not the dollar (despite claims to the contrary). If you listen carefully, you will see that the FED is more concerned about “inflation expectations” than “inflation”, the FED and the government deliberately mislead the public about what inflation is and how fast it is happening.
FDIC is preparing for a surge of bank failures and I have seen credible estimates that as many as 1/3 of all banks will fail. (twice the size of the S&L crisis) FDIC has $50 billion dollars to back 2.8T in insured deposits. Once these bank failures get underway the government will be forced to monetize a significant amount of that 2.8T in order to meet FDIC obligations.
Popular wisdom holds that to avoid / get out of a recession consumers need to be stimulated to spend. These popular economists want people to consume without producing! It is savings that is reinvested to enable production. You can count on a host of New Deal type government spending programs as the government attempts to fight the recession and get the economy moving again. Regardless of who gets elected we are looking at universal healthcare. The democrats will be more than happy to hand money out to “deserving” “victims” of the banking crisis. This all represents more government spending and more inflation.
You have probably heard the news reports that we need $2.3 billion of capital inflow from foreign sources per day. Starting last October we have had a record exodus of money from our country. China and other countries are no longer buying our treasuries. Many countries who use to peg their currency to the dollar (through buying treasuries) have unpegged their currency to save themselves from importing our inflation.
The money supply is currently growing at 16% per year. The 1980’s CPI formula reports price inflation at 12% per year. There is usually a 12-18 month delay between money supply growth and price inflation. (1 year ago the money supply was growing at 12% and CPI at 8%). We are not seeing wage inflation in the United States because our factories are now in China and they are seeing 10%/year wage inflation. The result of this is that as food and energy costs increase the amount of money available to rent or purchase a house falls. This will push down average rents and the affordable mortgage payments. Each dollar increase in necessary expenses reduces home prices by $16. This will further exasperate the losses the banks are facing! The same can be said for tax increases!
As prices start to increase, the cost to the government will increase which will accelerate the problem. This becomes a POSITIVE FEEDBACK LOOP!
Hyperinflation is usually triggered when the following are present: Government Spending as a percent of GDP approaches 40%, there is a large amount of government debt owed to foreign interests, and a country has undermined its industrial base. Even in good times government spending represents 30+% of our national GDP. As we experience a severe recession the total GDP will shrink and cause the percentage of government spending to increase (unless the government manages to cut spending, ha!) The official GDP numbers are bogus because they are based upon the bogus inflation numbers provided by the government. In reality we have had significant negative GDP growth for the past several years. To make matters worse, the majority of the growth over these past few years has been in the housing industry!
Hyperinflation is not just “really bad inflation”, it is the complete break down of the medium of exchange. This will cause a break down in the supply chain and shortages nation wide. There is no such thing as a loan greater than 2-3 weeks with hyperinflation. Typically governments try to legislate the hyperinflation away via price controls (which cause shortages), anit-hoarding laws, outlawing non-dollar transactions, etc. None of these things work. The stock market may go up in nominal terms, but in real terms the market will crash. Companies cannot do business. The income tax laws would have to be canceled or significantly changed or else the government will be taxing false gains due to inflation.
Buy now or be priced out forever!
I’m sensing a bull market in wheelbarrows. Shopping carts will no longer be needed. People will wheel in their cash and wheel out their groceries. (No wonder the son of the inventor of the shopping cart committed suicide.)
No wheelbarrows are needed in the e-banking era.
“Better living through science!”
with hyperinflation cash is the only money that is accepted because the 30 days delayed payment on your CC can cause the value of your money to drop to nothing!
The HBB inspired tome is is going to be a great book. Maybe future readers can read it in the library.
I expect capital controls to be implemented any time. They have to lock you in the currency to keep the game going.
USD savers are going to join the angry mobs of FBs in the streets as the government destroys their wealth. Sadly, many HBBers who pat themselves on the back for avoiding the housing trap have incorrectly deduced that the correct protection is hoarding dollars. Well, a chicken costs 15 million zimbabwae dollars now. How many chickens will Americans be able to buy for $15 million US?
Holding dollars is just throwing money down the drain.
so is holding most stocks
You have no idea what you’re talking about.
The financial system is so multifarious and complex that this is completely impossible. You would have to shut off all outflows via banks, prime brokers, mutual funds, and direct connections. You would pretty much have to shut down the entire FIRE economy cold (and I’m not even going to talk about the complex derivatives that you all have to negate.)
If you can’t (or won’t) see the complete and utter operational impossibility of this, there’s nothing someone can tell you.
However, why let facts get in the way of an opinion?
Okay VT Dan, assuming everything you write is correct, and that is a HUGE assumption . . . what are you gonna do about it?
Store up a 2 year supply of food. Hold hold / silver. Own a retreat location that can get by without power. Buy guns. Pray!
If there are hundreds of millions of handguns in our country and people have nothing, then whomever is the best marksman, will end up owning all your stuff, after killing you.
There is still time to move your assets out of the USA, to countries where the cult of the gun, doesn’t exist.
I did a few years ago…
VirginiaTechDan, I post at a liberal/lefty discussion board “democraticunderground”. I was wondering if you would mind my posting your comment here in its entirety? You’ve summmed up a very likely scenario in a very concise way, and I’d rather credit you than try to paraphrase you.
please feel free to repost… with a link to my blog: http://dailymoot.com/articles/view/93 where I have posted the contents of that comment with some revisions.
Thanks, Dan. Done. And thanks for the nice article. (PS - there is no writer credit on the dailymoot article page).
VirginaTechDan,
I think you brought up a lot of good points….thanks for taking the time to post.
I keep hearing about the “impending failure of the US banking system” what does this mean in lay men terms? Everything you had in a bank goes poof or you get less of the new ‘dollar’? Having never had the ‘priviledge’ of going through a banking failure how does one prepare? How does one even go about preparing for this doomsday type of scenario?
Best way to prepare is to do some of your own research IMO. “Impending failure” is truly a doomsday scenario . . . very unlikely scenario.
Here’s a start from the FDIC latest release. Bottom line it was a rough quarter for banks, as losses were concentrated in a few large banks. The bigger banks are the ones with the most exposure to the real toxic crap, smaller banks will have exposure to land development and construction loans, but not likely on the investment side. On the whole, as the article states, FDIC insured banks are still well capitalized and nearly all are still profitable. That, of course, can change if deterioration among lines of business continues.
The last stat I saw about troubled banks is that there are approx. 100 on the list, whereas there have been over 1,000 on the list in previous troubled times. Keep deposits below $100k in each bank you deal with and you won’t lose any money. Right now, the reserve system is flush and a troubled bank would likely be bought by another before it would completely close down.
http://www.fdic.gov/news/news/press/2008/pr08015.html
http://www.lifeaftertheoilcrash.net/Archives2007/AlphaGeekPartOne.html
Hey VirginiaTechDan, do you mind if I reproduce your comments verbatim and credit to you on a lefty political forum I post at?
Thanks.
Feel free to repost it!
Oops
A CNBC commentator said the bailout of bond insurer Ambac (ABK) has hit a fairly significant snag over the amount of capital the consortium of banks are willing to put up, which is also weighing on sentiment.
I had to laugh at the CNBC goon squad today. Suddenly they have discovered inflation! These are the people that for months screamed and begged for rate cut after rate cut, and now they say the Fed has lost credibility because inflation is raging. There’s no honor among thieves.
I guess NONE of them own cats……Iams has just downsized its cans to 5.5 ounces from 6 and the same price.
Even lowly cat littler is up $1 per 14lb jug…….
How about a “how are we screwed” argument on inflation vs. deflation? Most of those who post on this blog believe housing prices and consumer spending will have to collapse back to the level income can support, but there seems to be a difference of opinion as to how it is going to happen.
I see it, in part, as a choice — and the choice that is being made is inflation, even if that means the dollar will no longer be the world’s reserve currency and the rest of the world will never lend to us again. After all, goodwill is an asset, and the generation now in charge never saw an asset it didn’t want to suck the life out leaving nothing behind.
We’ve had 3 solid months of rising consumer prices and over a year of falling home prices. What’s more, the credit crunch is widening its grip. People are so hopeless, they are walking away from their homes. The entire financial system is in chaos. Unless wages rise for the masses, we are heading for depression. It’s an economic disaster.
“Unless wages rise”
***GASP*** Oh my word!!! Blasphemous I say. How dare you suggest people demand higher wages!!! /sarcasmoff
But how, exactly, would this come about? Government/city workers may have the safest and most recession-proof jobs, but the bureaucracy in those institutions moves so slowly that it would take a couple of years before any wage increases were instituted. City and state revenue will fall in a recession, making a wage increase unlikely.
How about the “free market” (ha ha)? In the private sector, of course, sky-high CEO wages could come down and regular worker pay could come up, but how likely is that? If anything a tanking economy will result in more layoffs and more downsizing while the suits keep getting bonuses. This will continue until shareholders finally realized they’ve been getting fleeced for the last couple decades and demand an end to over-the-top CEO compensation. I won’t hold my breath on that.
So what’s that leave? Maybe increase the minimum wage to an actual livable level, like 15 bucks an hour? Corporations would fight that tooth and nail.
I see no viable scenario for wage inflation.
I work in IT as an independent contractor. Every new contract I get, I keep upping my rate by ~$5.00/hr. Helps stave off those inflationary blues.
I suppose on could argue that my job could be outsourced, but I’m not terribly worried about that - they’re already tried that. They discovered that it ends up costing them a lot more when the server in India breaks and you have to depend on someone 10,000+ miles away to get your company operational again.
Or the server here breaks and it takes the guy in India that’s 10,000+ miles away hours to figure out that a maintenance guy accidentally popped out the ethernet cable and plugged it back in to the wrong port.
Better to pay someone like me a little more and have a much better uptime/performance to show for it.
Plus I get the feeling that Linux and open source solutions may become a lot more desirable when money is tight. Actually it already is with execs/managers who are intelligent enough to see past the complete fallacy that Linux and open source have a higher TCO.
When you get your first million dollar bill for ONE year of Oracle SUPPORT(just the support - nevermind the cost of the actual software), things like MySQL and/or PostgresSQL start to look mighty appealin’….
Not that there isn’t a place for commercial software, but there comes a point where “free”(as in beer) + support staff starts to look more appealing than “costly” + support staff.
When economic times get tough, it’s all about adaptability and helping to minimize cash outlay for your customer.
Feb. 29 (Bloomberg) — Consumer spending in the U.S. rose more than forecast in January, reflecting a jump in prices that is eroding Americans’ buying power…. After adjusting for the increase in prices, spending stalled for a second month, raising concern the biggest part of the economy is faltering as fuel costs rise, property values fall and banks restrict lending.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQTfcR2S0I3Q&refer=home
I agree WT.
Whatever happened to Casey Serin?
He’s the HBB equivalent of Lindsay Lohan in rehab, or Britney or Brangelina so I think we are entitled to the latest updates.
I heard he’s trading commodites
I’m sure he is making some ’sweet deelz’ somewhere.
It will be at least another year before he gets in on ‘buying gold’ on leverage.
RIP, Global Warming, 1992-2007. Even for those who still believe, you’ve been put on the back burner (so to speak). Like a Newsweek cover heralding the housing boom, Sheryl Crow signalled the top with her one-sheet-of-toilet-paper harangue.
Here in New Zealand, they get a lot of their electricity from hydropower and one of the main lakes in the South Island, is at dangerously low levels, due to the drought.
This in a country that is largely rainforest and glaciers…
Denial is not an option, anymore.
We have over 180″ of snow up here and it still leaves us in drought conditions.
Northern Wisconsin
Is the macroeconomic budget constraint beginning to bind? Or are the borrowing sources for mortgage finance, municiple and state budgets and student lending “decoupled”? Policymakers who are pushing measures to throw money away on mortgages ought to mull this one over…
KAI RYSSDAL: You know how every now and then we bring you a completely obscure term from the world of high finance and try to explain it? We’re not doing that anymore. At least, not for a little while. We figure you’ve had about all you can take of structured investment vehicles and auction rate securities. Suffice it to say the municipal bond market took another turn for the worse this week. The latest to blow up are things called variable-rate demand notes. Look that one up for yourself if you really want to know. Or drop us a line, we’ll tell you. What it means in practice is that cities and states are seeing their borrowing costs more than quadruple while revenues are going downhill.
From New York, Marketplace’s Jill Barshay reports now on the double whammy of the real estate crash and the credit crunch.
——————————————————————————–
JILL BARSHAY: The gods seem to be conspiring against municipalities these days. A couple weeks ago their borrowing costs soared when something called auction-rate bonds fell apart. Now the same thing has happened with this other finance source.
CYNTHIA KROLL: Well, it’s like the next shoe dropping. Who knows how many shoes we have out there to drop?
That’s Cynthia Kroll. She’s a regional economist at the Fisher Center at UC Berkeley.
http://marketplace.publicradio.org/display/web/2008/02/28/municipal_bonds/
How much credit should the FASB get for all the “off balance sheet” accounting we have seen in recent years (Enron and SIVs come to mind)?
It is time to “look under the hood” of rules related to the treatment of these off-balance-sheet vehicles, Robert Herz, chairman of the Financial Accounting Standards Board, said in an interview. He said the board still is gathering information about these vehicles and whether problems were due to …
http://online.wsj.com/article/SB120424784526601699.html?mod=hpp_us_whats_news
I have a request for input from the bloggers:
I have been technically homeless for about 2.5 years. My work requires extensive travel, often abroad. I took the opportunity to go homeless (read: company paid hotels and temporary apartments) to save some cash but also get the heck out of LA.
Now I am trying to narrow down a base. I need a base for sanity purposes (rented at first, of course). I also get the feeling that I may end up with some time off soon due to worsening economic conditions. Not to worry, I am one of those dreaded savers with a large emergency fund.
I am an unmarried 30-something male who has travelled most of the planet. I have spent extensive time in Europe and love their version of an urban lifestyle. Important city attributes to me: people, culture, ease of transport, affordability, and a bit of architectural integrity.
I have lived for lengths of time in central Illinois, Tucson, San Diego, NYC, London, and Los Angeles. I love Europe; have many friends there, but the sinking dollar and immigration issues make it difficult to settle long term.
I have been considering the following:
Chicago: pros being friends, architecture, local people, culture, huge international airport, low use of a car is possible and relative affordability (LA/SF/NYC). Cons being winter weather and barren landscape outside of the city
Phoenix: pros being a love of the desert, proximity to CA and skiing, increasing affordability, 8 months of good weather; cons being ever increasing congestion, illegals, oven-like temps in the summer, and over-reliance on a car.
Nashville: pros are no state income tax, affordability, central location, and friendly people; cons being a bit hickish and slow (I am not a country music or NASCAR fan)
Austin: pros being vibrant culture, no state income tax, music town, temperate weather during winter, and relative affordability; cons being horrific summer temps, property taxes, and californication (hypocritical, I know)
Sorry for the long post. Your input is valued as I am a reader and occasional poster of 4 years.
That would be a no brainer for me. Phoenix. Austin second.
A LOT of people in my business base in Phoenix, so that is a built in social network. Thanks
I’d like to be in Chicago myself for the trading opportunities but no way could I endure that cold weather. Nashville, meh. Hick town. I love Arizona. Phoenix isn’t the best place there obviously but some super places are pretty close.
Aaah, it’s not that cold, what’s a little 30 below wind chill.
If you like urban living — walking to things, taking transit, shared amenities like parks and culture — and want to save money, you are better off outside the U.S.
Why? Because most U.S. cities have collapsed into social landfills. Subsequently, the number of people who decided they wanted to live in viable urban environments rose, and sent the price of the remaining such places to the moon. Europe has plenty of them, but we do not.
If you want to stay in one place and are willing to pay, on the other hand, you can do worse than NYC. That’s where you find the greatest concentration of jobs within a commuter shed, making it easier to change jobs without changing metropolitan areas. Buy you pay, oh do you pay.
WT -
I write this from Copenhagen, an ideal urban city but VERY expensive for an outsider like myself. The dollar is getting crushed. I know places such as SE Asia may still have some value for the USD, but those locales are a bit out of the way.
NYC - tried it for a bit back in 1999/2000. Wow, I felt poor! Chicago has many of the same opportunities/attributes, but less hassle and expense.
Thanks again.
I visited Chicago once and liked it, for exactly that reason — the same opportunities/attributes, but less hassle and expense. Except that the opportunities are not as great. And the expense here should drop soon, at least outside Manhattan.
A true urban bargain is Philadelphia, except that no one has been willing to take advantage of it. A high murder rate and high inner city taxes has something to do with it. But the commuter-rail system has some connections other areas lack, allowing out-commuting to the suburbs, where most of the economic vitality is.
I like Baltimore for its character and relative undervaluedness, but like Philly, it’s not a town for everybody.
Not on your list, but I would consider the Denver or Santa Fe areas strongly, then Austin.
Denver & Santa Fe are both nice choices.
I vote for Chicago, but I’m biased.
The summers are fantastic, and the winters are manageable. Learn to layer properly, buy a scarf, and you’re fine.
Chicago is a very unique North American city in that they have really maximized the lakefront. The merchants of 100+ years ago donated millions and waged lengthy court battles to ensure that the lakefront is forever free and clear.
I haven’t owned a car in years (weekend rental rates at the business-oriented places like Hertz are $20-30 a day) and live just west of the Loop - right on the other side of the river. I walk to work, walk to the grocery store, walk to the movies, walk to hundreds of bars and restaurants, walk to Millennium Park and Grant Park, walk to the marina to rent a sailboat, etc. And my cost of living is no more than half of Manhattan or San Francisco.
You can’t beat it, if you can handle the winter
Single and mid 30’s? Boston hands down.
I know it’s not on your list but you might consider Charlotte. I have spent time in many CBDs and find uptown Charlotte the nicest of all. They are always having a downtown event so there’s a lot to do, and the basketball arena and the football stadium are downtown. Since Wachovia and B of A are headquartered there, there is a growing downtown population, with much more to come. There are a lot of young, college educated professionals. It’s a bit of a breederville, so if you are looking for a spouse this is a good place to be.
It’s within a few hours of the ocean or mountains, centrally located, changing seasons but not outrageously hot or cold weather. Prices are much bettern than northeast, california or florida. There is a state income tax though.
There is a huge nascar influence, which you indicate is a con. I love nascar so it’s fine with me. Also there is very limited public transportation other than buses. In the last year the first leg of the rail opened which has really linked uptown to the south end.
“It’s within a few hours of the ocean or mountains”
No offense, itk, but I always hated this argument, which has been repeated throughout the Piedmont of NC for at least 100 years. If you want the ocean, live in Florida or CA. If you want the mountains live in the Rockies.
Personally, I still think Miami is a great place to live, anywhere from the Key Biscayne Bridge south to Pinecrest. (Only place where you can get a decent flan - the way the Cubans make it, dense and heavy on the caramel, not like the Mexican-inspired crap you get in the SW.) Even N. Florida is too chilly in the winter for me.
“Since Wachovia and B of A are headquartered there, there is a growing downtown population, with much more to come”
intheknow?
I lived briefly in Charlotte and my verdict was: HELLHOLE.
Single??? Dallas, of course. 3 single women to 1 single man.
Phoenix is a hell hole for 33% of the year.
Chicago-too much male shrinkage for 33% of the year.
San Diego-Great if you can afford it and it’s getting more affordable as I type.
Hey (fellow) SD renter — do you think we have 55 pct YOY price drops in store (as were reported today in the SD Union Tribune business pages)?
Clarification: The 55 pct YOY drops were reported today for Napa Valley (not SD — yet)…
Portland, Oregon.
Pros: Moderate temperatures, walkable city, little need for car, very afforable.
Cons: Hippies.
Silence, man! How many times must I say it? The PNW is just awfullllllll. Rainy, foggy, moss grows on your head, Bigfoot is a jerk, everyone is pale and translucent…say it with me. ‘I don’t ever want to move to Oregon or Washington’.
Well, I’m partial to Chicago myself. Though I understand people’s issues weather, it’s a very livable big city (as I’m guessing you know already). The winters also keep away the kind of jackasses that seem to swarm to towns like Atlanta (though it could be argued we’re saddled with lots of jackasses, they’re just a different breed of jackass).
I like Austin a lot. I considered moving there myself a few years ago but the timing didn’t work out. I’ve never had to last an entire summer there, though.
Have you considered Knoxville, TN, instead of Nashville, TN? I like the pace of life there … and the proximity to the Great Smoky Mountains.
There is absolutely NOTHING in Phoenix culture-wise. It is a spread-out car-only suburban wasteland. If you like chain restaurants and fern bars, you’ll be fine, otherwise you’ll be bored outta your mind.
Somebody above suggested Dallas. Dallas is even worse.
I’m actually thinking about leaving Austin myself due to the californication you described. Maybe some of the bad will get flushed out of this town with the end of the boom, but esp. in the last couple years Austin has rapidly slid into becoming a kind of gross mini-L.A. One thing in it’s favor you didn’t mention, however, is the large number of state and national parks in the immediate vicinity, if you are an outdoorsy type.
Chicago - I have often thought about moving there. I love the city except for the bitter cold winters…
Nashville - friend of mine just moved there last year from Austin and loves it. Says it IS a bit slower-paced, but lacks the gross-ness that Austin has taken on recently and is much cheaper. And there IS some good country music, you know!
South-east Asia, if you can deal with the time zone difference. I would move there in a second if i could.
You lived in Tucson but are considering PHX? Phoenix is hotter with much worse air quality. I would take Tucson over phoenix any time. At least you can get nice summer thunder storms in Tucson. I like the north part of Tucson.
Only would consider Phoenix because it is a *bit* more cosmopolitan and has a true international airport. I spent 10 years in Tucson (85-94) and the “old Pueblo” mentality grew old. I may feel different about the city now that I am older and appreciate the slower pace. No doubt, Tucson is 10x more beautiful. I went to Sabino High School (near the canyon of the same name) - I had no idea how good I had it at the time. My high school job was working at Canyon Ranch.
Thanks to everyone for their valuable input!
Why not Canada? Montreal/Toronto get cold, but Vancouver’s temperate, vibrant, great neighborhood areas…….
Is Ben or anyone else keeping a timeline of events during this crash? I think it would be an excellent tool years from now when your children want to understand what and how this happened.
As a side bar, what do you people say is the lag time between the time observations are made on this site and when they are made in the MSM?
I think this would be very interesting. I would also like to see an online poll of the HBB community about issues such as:
inflation/deflation
hyperinflation/stagflation
gold/silver vs cash
owner/renter
avg. net worth
estimated worst case scenario
estimated best case scenario
It seems to me that the MSM is usually waits until the effects are being felt before they report on the original cause. I would say that the lag time varies according to how said information fits into their agenda.
Here’s the time-line: (1) Event is predicted by HBB. (2) Event occurs. (3) Event is predicted by MSM.
“(3) Event is predicted by MSM.”
Slight editorial suggestion:
Event is confirmed by MSM prediction thereof.
In what county’s local real estate market (nationwide) are prices falling the fastest? Here is one possible candidate:
Napa Valley feeling housing slump blues
Famed wine country seeing foreclosures, even plunging prices
By Evelyn Nieves
ASSOCIATED PRESS
February 29, 2008
NAPA – For many residents of this, one of the most storied valleys in the world, life is still a bowl of grapes. But beyond the picturesque vineyards and stonewalled estates, times are shaky, the future unclear.
In the San Francisco Bay Area, where home sales tumbled in January to the lowest levels in 20 years, Napa County suffered the sharpest drop of all – more than 55 percent from a year earlier.
Napa County still has some of California’s highest home values but is feeling the nation’s housing slump.
Tourists sipping their way up the 30-mile valley from the city of Napa to Calistoga may never see this other Napa Valley. But this celebrated wine country is proof that there are few places in the nation left unsmacked by the housing crisis. Beautiful Napa is experiencing foreclosures, plunging housing prices, unheard of drops in home sales and the nervous sense of foreboding that has spread across the country like a flu.
“I don’t recall anything like this, and the end is not in sight,” said John Tuteur, the Napa County assessor-recorder-county clerk, who has witnessed several recessions in the three decades he has served the county.
http://www.signonsandiego.com/uniontrib/20080229/news_1b29napa.html
“Credit crunch” loss estimates keep growing. What do these measure (aggregate value of past and future writedowns?), are the estimates reasonable (yet), and at what level will they top out?
My conjecture: There can be no bottom in housing bust or the liquidity freeze until these estimates stabilize…
UBS analysts estimate $600 billion of credit crunch losses
By Steve Goldstein
Last update: 8:48 a.m. EST Feb. 29, 2008
How about, would the lending regulations that the Bush admin quashed have done anything to prevent this catastrophe? I really do not know one way or the other, and it’s going to come up.
My hunch is that it was much more than predatory lending. Consider the tech wreck, then 9/11 and the increased urge to coccoon that resulted, plus the age of the boomers and gen Xers, plus the HGTV shows fanning the flames. No one trusted securities anymore. Lots of late-saving boomers like me trying like crazy to catch up in time for retirement. Real estate seemed so much more…REAL. I could feel it here in 2002, the market was just white hot. I got angry at our realtor for under-appraising my first house at 84k, though in real terms she was right on. But in bubble terms it was “worth” more like 100k and is now around 140k But it never would have gotten more than 500 in rent, so she was right. It’s been demolished since then, the owners builing a duplex in its place. It was too much of a mess to remodel.
Where will people invest now? This is going to be a beeyotch.
“How about, would the lending regulations that the Bush admin quashed have done anything to prevent this catastrophe? I really do not know one way or the other, and it’s going to come up.”
Objections by state regulators completely disregarded by the administration. Clearly the bubble was contrived at the top.
“Where will people invest now? This is going to be a beeyotch.”
I asked this question on a thread the other day and nobody responded.
?
And don’t say canned goods and dry beans…
“Where will people invest now?
I think the better question would be, “What will people invest now?”
This strikes at the heart of the inflation/deflation debate and is, in my opinion the greatest single factor that points to deflation.
As for topics, how about the death of the auction rate securities market. The MSM won’t touch that with a ten foot pole.
Not housing related but heck, this board is more of a financial blog/forum anyway.
Hello, am in Aspen, Colorado, the hotels are empty, was a news program on the radio about it, record low vacancies, very few tourists, great snow.
Did you mean record low occupancy? Going to Winter Park next week before the spring breakers, yippee!!
Sorry, did mean low occupancy, and I also meant to put this in the Bits Bucket.
Possible weekend topic:
“Where will down payment requirements end up after all of this plays out”.
Wells Fargo tightens mortgage guidelines
http://biz.yahoo.com/bizj/080228/1597695.html?.v=1
“It has ratcheted down the maximum amount of loans it will make in relation to the value of a property, which means home buyers will need to put more money down. In markets considered severely distressed, for example, it will not make a loan for more than 75 percent of the value of the home.
Twenty counties in California, including Los Angeles County and Orange County, are on the severely distressed markets list. ”
Los Angeles County Home Resale Median house price (Jan 2008): $475,000
Down payment required using Wells’ guidelines: $71,250
Orange County (CA) Home Resale Median house price (Jan 2008): $583,000
Down payment required using Wells’ guidelines: $87,450
Sorry my mistake…I was thinking that they were saying that Wells was going to require 15% down…the actual value is 25% down!
So make that a $118,000 and a $145,000 down payment for a median house in LA and The OC…
Weekend topic?-
How low will new home prices go?
Here’s a 4,000 sq. ft. for under $52 per sq. ft.
http://tinyurl.com/2umqz5
Between $50 and $55 sounds reallllll sweet to me.
I always thought things would crash down but what I am seeing just amazes me.
That place is a nightmare. And what does “from” $X mean? Notice that all the cheapest per sq ft. will be second floor same living area as first, which is the cheapest way to build out square footage (no additional roofing, for example). Few people want to live like that, and it makes even less sense in the desert due to the tremendous heat stresses and the resultant difficulty of cooling the second floor. No, thanks.
Well I agree with that, and its not anything I would care for.But, how many people will not look at things that way?Not care about cookie box floorplans and fall in love with the price?
Some will just see how much house they can get for thier $.
$52 per sqft in pretty low.
What if the commodities spike finishes off the consumer then we fall into a general deflation? The price of commodities would be falling from a peak while new supplies increased. Also, what if the recent action in commodities is more of a reflection of fear than fundamentals?
I am a little disturbed by some of the racist and bigoted feel to some of the post on HBB.
Now I have no problem with comments about stupid FBs. But when someone in a story which is discussed is Black or Hispanic, the remarks often go toward racial and cultural stereotypes. “Black people are all on welfare”, “Hispanics are all illegal immigrants” and so on.
It’s a partially free country and people are free to post whatever Ben will allow. But it’s still gets a little ugly around here.
Change your handle to PC edhopper.
“Black people are all on welfare”, “Hispanics are all illegal immigrants”
You might want to reference that, especially since you throw quotation marks around it. I’ve certainly not read anything like that. (I do recall, however, that one of the posters who has announced himself to be a liberal just recently pointed out that National City (SD) was mostly Hispanics and blacks - is that who you are referring to?)
Your slapping this post up, a propos of nothing, has a bit of a racist and bigoted feel to me.
I have two suggestions for this weekend:
1. HBB role call (location, % you spend on rent, changes in spending/saving) + how you plan on spending/saving/investing the rebate.
2. I’d like to examine the opportunity costs for HBB’ers “house funds.” It’s a continuation of a late-day thread from a week ago. For example: pay down debt? Invest? Hoard? Move? I dunno.
It’s hitting the fan in ways that are worse than I imagined and I do not want to lose the advantage that began for me in October, 2005 when I embraced the bubble.
How so? It’s been pretty much “paint by numbers” so far. What did you not expect?
How about, guess the age? Guess each others’ ages. And hair color, or lack thereof. Women would be allowed to lie (slightly) about their ages, and men slightly about their hair.
Cup size? Length? Girth? LOL
I am interested in all the smart big words stuff, bubble-gum bubbles, commodities bubbles, inflation vs. deflation suggested for weekend topics, but on the other hand, my brain was battered by a lot of alcohol last night, and it’s only up to little tiny words, slowly spoken.
Right now my interest is in yard sales, because the season is approaching. Olympia has FABULOUS yard sales. I used to go antique-store hopping with friends in Utah, and the best those ever got were not as good as the average little old yard sale hereabouts, where some grandma insists on two whole dollars for a walnut dresser made in 1930, with brass handles. (yep. Really. I offered her more, because I disapprove of taking advantage of grandmas, but she just wanted it gone. I keep my jammies, socks, and summer shirts in it.)
So, will yard sales this spring get even more exciting–because everyone has to get rid of their stuff when they get foreclosed and downsize, or sell their stuff to make some bucks to try to hang on and/or buy some food, OR will yard sales have less good stuff, because no one can afford to buy any more, new stuff?
Topic- similarity of japan monetary/fiscal stimulus vs us policy action
Japan “cushioned” its deflation by going from net-creditor to the world to a serious debtor. The US has no such luxury. THE END.
Thanks for playing!
Japan raised interest rates, do you think the US will raise interest rates in a softening economy?
No, but in order to expand credit the banks have to lend to someone.
Who’s left to lend to? Carry traders?
We could do a poll on how you think your city will hold up ? Most home buyers think it better were they bought their home. I think we may have a different view on that especially if we rent. I live in Phoenix and expect it to be worse than most cities because its newer and had over investment in homes and home related retail stores. I used to live in Moorpark CA and expect it to hold up better because of strict growth control , still a 30% drop in Moorpark would equal a 60% drop in Phoenix in acually dollars.
I had to go into (shudder,) Bakersfield early yesterday morning, and on my way in noticed a significant uptick in the number of homeless people camping right out in the open. No shelter, no pretense of remaining out of the public view. They aren’t even bothering to hang out under the overpasses or downtown anymore. There were people, (mostly men,) sleeping in open fields and industrial parks on the outskirts of town, pulling roll-along suitcases along Hwy 58 towards the orchards, and most significantly, set up along the railroad tracks.
It’s been a long time since I saw any ‘boes riding the rails. Is anyone else noticing the same thing?
Noted—
The guys at the surveyor’s office moved out of their recently restored (at great expense,) downtown digs into a more modest location to the East. Said they are still getting commercial jobs, but residential subdivision is non-existent.
No lines whatsoever at the County Services (building, planning, environmental,) Building, although the same arrogant attitude prevails among some of the staff. And at the Registrar’s office I noticed something called a “Confidential Marriage License.” Seemed rather oxymoronic to me seeing as how marriage is supposed to be a public declaration of one’s commitment to another. So I asked the clerk for an explanation. She said that police, fire personnel, and judges use them so their marriages are not part of the public record.
Wonder what they’re scared of?
Strike that.
Wonder WHY they’re scared.
Strike that.
Must be an interesting place in which to live….
Seedless grapes of wrath…
I suggest a weekend thread about what top policymakers cannot foresee:
1) The Fed cannot foresee bubbles inflating until they pop.
2) The CIC cannot foresee any recession on the horizon, but rather just a slowdown.
3) BB cannot foresee any future prospect of stagflation.
4) The FDIC cannot foresee a surge in bank failures.
Any other examples?
FDIC doesn’t see bank failures surging
Analysts also cry foul on Fed chief’s testimony that some small banks will close
By Riley McDermid, MarketWatch
Last update: 3:20 p.m. EST Feb. 29, 2008
NEW YORK (MarketWatch) — The Federal Deposit Insurance Corp. is trying to rehire 25 former employees specializing in bank insolvency, but the agency that insures bank deposits said it does not expect a surge of failures in the industry.
http://www.marketwatch.com/news/story/fdic-doesnt-see-bank-failures/story.aspx?guid=%7B18D803BB%2D9452%2D4691%2D96B8%2D482F142E543B%7D
Just an aside, I went to the grocery today to buy a can of chicken broth and was shocked to find it cost $1.50 at one store and $1.79 at another. Soup for God’s sake, averaging over a $1.50 for a 10.5 oz can. I make my own to my own taste, and now it seems I’ll make and freeze chicken broth.
Foreclosures seem a necesseray evil to decrease house prices to affordable levels again. Some foreclosed house, however, develop into a nuisance and sometimes even a danger for the neighbourhood. If grass is not cut, garbage not removed, and doors not properly locked, the city can step in and do it themselves instead, for a hefty fee, of course. I have heard once that the city’s claims (for fees and for property taxes) cannot lead to a foreclosure in less than a year - is that information correct? If yes, wouldn’t it be a prudent step to decrease that period to, for example, three months, to force title holders to care about their vacant houses or to sell them, for whatever they can get?
“Just an aside, I went to the grocery today to buy a can of chicken broth and was shocked to find it cost $1.50 at one store and $1.79 at another. Soup for God’s sake, averaging over a $1.50 for a 10.5 oz can. I make my own to my own taste, and now it seems I’ll make and freeze chicken broth.”
Yeah, you’re right. The cost to make that broth and the markup to the POS purchaser are obscene. At least we have the choice to say no to that. Problem I see is that we can all try to curb expenses and scrimp and save here and there, but when a medical emergency comes around all bets are off on fiscal restraint in our personal finances. Bigtime medical expenses kick some serious a_s. I went through it with my late wife - ungodly expenses, reams of documentation, incomprehensible documentation, countless phone calls, etc.,etc. all while you’re an emotional wreck. Those medical plan liaisons who are supposed to be helping the grieving family members navigate the whole sea of medical bills and proper payments for every procedure? Guess who they really answer to? I hope the kids don’t read this and get depressed, maybe things will improve one day in the distant future. Then again, maybe elephants will learn to fly too.
Can the death of corporations be that far away?
Their model was built upon continual expansion, and contraction is not in their playbook.
What replaces them?
Mom and Pop stores went away 10 to 20 years ago, and younger adults don’t seem to want to work all that much…
“Their model was built upon continual expansion,…”
Limited liability = take in the suckers’ money then run incentives…
Trying again (eats, shoots and leaves…)
take-in-the-suckers’-money-then-run incentives
Hedges are in flames at the same time liquidity is in the deep freeze. Doesn’t this violate the laws of physics?
Muni Bonds Fall for 13th Day Amid Hedge-Fund Squeeze (Update1)
By Michael Quint and Jeremy R. Cooke
Feb. 29 (Bloomberg) — U.S. municipal bond yields rose for a 13th day on investor concern that hedge funds may be selling holdings squeezed by rising floating rates on notes they issue and declining values on long-term debt used as collateral.
Hedge fund managers sought to sell as much as $3 billion of municipal securities, traders said. “Bids wanted” totaled $1.1 billion yesterday, breaking $1 billion for the third time this month, after averaging $600 million the past 90 days, according to a Bloomberg index.
“Market values are being marked down so much that in order to meet margin calls, some of the entities out there have had to liquidate muni bonds,” said Narayan Prasad, president of Anchor Capital Group, a municipal hedge fund in New York. “That has resulted in a spiral in which the liquidation of muni bonds has already depressed prices in an unstable market.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWWO0Lh1nDaA&refer=home
Buffett Warns Insurance Business May Get Tougher
By Mike Barris and Karen Richardson
Word Count: 845 | Companies Featured in This Article: Berkshire Hathaway, Ambac Financial Group, MBIA, American International Group
“That party is over.”
Berkshire Hathaway Inc. Chairman Warren Buffett, in the billionaire investor’s widely followed annual letter for investors, warned that the insurance business is likely to get tougher in 2008. (Full Berkshire Hathaway Report)
Berkshire posted an 18% drop in fourth-quarter net income on lower investment gains and a drop in insurance-underwriting fees. “It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008,” he wrote.
http://online.wsj.com/article/SB120431947117103627.html?mod=hpp_us_whats_news
AIG’s Cloak Of Invincibility Showing Tears; Unit Chief Is Out
By LIAM PLEVEN
March 1, 2008; Page B1
American International Group Inc.’s slogan, “The strength to be there,” has been reinforced by operations in more than 130 countries, diverse businesses and a strong balance sheet.
But AIG no longer looks invincible. A record-setting, $5.3 billion quarterly loss for the insurance giant, caused largely by an $11.1 billion write-down, prompted investors on Friday to dump AIG shares, which fell nearly 7%, or $3.29, to $46.86, in composite trading on the New York Stock Exchange. The stock, which had fallen about 4% in regular trading Thursday and 2% after-hours, is now trading near where it was 10 years ago.
This article has evolved from the version which showed up in this morning’s dead tree edition. I am going to take a stab at translating the following beautiful quote from the print edition:
‘Those charges… stemmed “primarily from the significant, rapid delines in mortgage values” of mortgage-backed securities in the quarter “for which AIG cannot reasonably determine that the recovery period will not be temporary.”‘
Translation: We’re SOL, and just flushed billions of investor dollars down the toilet forever.
declines
I’m concerned with bank failure after hearing the news that the FDIC is getting ready for it. Therefore, for a weekend topic, I’d like to see people complete the following sentence: “You can tell a bank is failing when…..”
Pride cometh before the fall.
Hedge funds
Peloton runs out of road
Feb 29th 2008
From Economist.com
A hedge fund is unsaddled by subprime troubles. It may not be the last
Shutterstock
AFTER hubris comes nemesis. On January 24th more than 1,000 leading figures in the European hedge-fund industry gathered for a dinner at the swanky Grosvenor House hotel on London’s Park Lane to witness the EuroHedge awards for 2007. Out of the 20 awards, two—credit fund of the year and new fund of the year (for non-equity strategies)—were awarded to Peloton Partners, a credit manager set up by ex-Goldman Sachs employees in 2005.
But Peloton (the word is related to platoon and refers to the pack of riders in a cycle race) had already hit a sizeable pothole. On Thursday, just five weeks after being honoured with the awards, the fund’s founders, Ron Beller and Geoffrey Grant, were forced to send letters (see link) to investors explaining that they were suspending redemptions from the fund.
http://www.economist.com/daily/news/displaystory.cfm?story_id=10789098&top_story=1
Here is a well-timed article about the separation of equity and credit markets, one day before they converged in a Wall Street meltdown…
Finance & Economics
Buttonwood
Structural fault
Feb 28th 2008
From The Economist print edition
Why debt markets and shares have parted company
IF BOND and stockmarkets are driven by the economy, they should tell similar stories. American two-year government bonds are yielding around 2%, suggesting a dismal economic outlook. Similarly, corporate bonds are trading as if many of them are expected to default. So why are global stockmarkets, after a wobbly January, acting as if they had barely heard of the credit crunch?
The disconnect is not total. Over the past week better news about the health of America’s “monoline” bond insurers caused stockmarkets to rally and bond spreads to fall. Nevertheless, there is an impression that, as Charles MacKinnon of Thurleigh Investment Managers puts it, the credit markets are pointing to the beginning of a savage recession but the stockmarkets are suggesting that companies, if you overlook the crisis-ridden banks, are in fine fettle.
http://www.economist.com/finance/displaystory.cfm?story_id=10766926
UNION-TRIBUNE EDITORIAL
Mortgage follies
‘Solutions’ eyed by Congress risk disaster
February 29, 2008
The U.S. mortgage crisis will be with us for some time. With 7 million subprime mortgages on the books – some held by homeowners who will be unable to come up with their monthly payments when initial “teaser” interest rates ratchet upward – hundreds of thousands of foreclosures appear inevitable this year alone.
Now Congress appears to have decided an unprecedented intervention by the federal government is necessary to deal with this mess.
The Senate is considering legislation that would allow judges to unilaterally change the terms of mortgage contracts and reduce mortgage debt to current fair-market value – both without lenders’ consent. The House is considering a plan to set up a massive government agency to buy up bad mortgages and revise their terms to head off foreclosures.
These are extraordinarily bad ideas. Not only are they grossly unfair to the great majority of homeowners and businesses who behaved rationally during the housing bubble, but they would make a future encore of the current debacle much more likely.
http://www.signonsandiego.com/uniontrib/20080229/news_lz1ed29bottom.html