Bits Bucket And Craigslist Finds For March 16, 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.
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Where is the bottom? I am seeing selected deals at below 2001 prices. $100-$110/sf in Sacramento. I bought a house in 1990 (top of the last bubble) for $97/sf. It went down to $76/sf by 1995. It rented for $.50/sf in 1995 (down from $61/sf in 1990.) This was 12 times the annual rent. Bringing the 1995 value forward at 3% annual inflation, you get $111/sf. The houses today are renting for about $.75/sf. Using the multiples commonly posted on this blog of “120 times monthly rent = value”, that suggests $91/sf is a reasonable target value. However, rents are depressed, so is it reasonable to use that factor. Regardless, it appears deals between $90-$110/sf are worth considering. They are not that difficult to find in good solid areas, where foreclosures and short sales are common. I am buying my second property next week for $109/sf. I hope to heaven this proves to be a wise move. I hold for long term cash flow, which I am getting at a reasonable level (5% after tax cash flow, 8.9% plus, when I add back management and vacancy and account for amortization paydown on the loan).
One of the few nice things about inflation is rents go up along with everything else. I own a duplex and have seen rents go up about $150 in the last year alone.
I’d argue that rents only go up a lot if you have wage inflation. If prices are going up on food and gas people have less money to spend on housing.
The announcement by Martin Feldstein that the U.S. economy is headed into recession will not do much for landlord’s ability to raise rents. However, this factor is countervailed by a sudden preference for renting over catching a falling knife in the home purchase market.
Only if the landlords worship at the Pedestal of the Economist Prognosticator which is doubtful but I get the Feldstein to MSM to landlord route.
Yes — the MSM must serve as intermediary between the High Priests of economics and J6P. They pretty much have to serve this role, or be seen as out of touch.
Oops — I meant to say “J6P landlord.”
PB - here in Florida, at least, so much additional rental inventory is being added by FBs that it looks impossible for rents to rise in the near term. There is a whole lot of shadow inventory that sat vacant for a long time and finally the “owners” have acknowledged that getting something is better than nothing. Only massive foreclosures - and lenders holding those vacant - can reverse this in the short term, IMO.
My rent in Phoenix has gone up less than 3% per year the last 3 years. Still a great deal. Real estate pump and dumpers keep trying to scare renters into buying overpriced POSs. I won’t bite that bait.
Where is the bottom?
I wouldn’t worry about being the first to recognize the bottom. What if you think we are at the bottom, but then you end up being 2 years off? I’d rather be 6 months late than 2 years too early.
Also, you can’t compare loose lending prices to conservative lending prices. There could be an over inflated appraisal that was made to allow for cash back at closing.
Where is the bottom?
Remember the pit Gandalf fell into with Balrog?
Hahaha!
Perfect analogy!
Except this time, the Balrog wins!
Tiger, you are exactly correct. The seller paid $606,000 for the house and Bear Stearns lent $710,000 to finance the purchase. Amazing what is revealed when you dig into the undercurrents….
Tiger, two more comments:
One, I do believe I am getting the best properties today. What is left over at the bottom may not be of such high quality. However, those properties may provide better cash flow (just less appreciation).
Secondly, if I am getting good cash flow today (5% after tax, 8.9% given self management) why would I not buy? Should I invest in the stock market instead? Or buy RMBS bonds? Or anemic buy T-bills with no upside as interest rates rise? I would rather control my destiny to at least some degree.
hey, if the rent covers the mortgage plus 20% why not buy? it would be cash-flow positive.
buying anything cash-flow negative (including wear & tear, etc.) would be foolish, though.
I don’t really know about the quality of properties in your area. I’m from the bay area. I was only a landlord a few years with one house. My parents are landlords and I know a lot of people who are landlords also. It is a lot easier to be a landlord if you rent to people of higher than average incomes or people of average income in areas that are too expensive to buy. Multi family buildings in questionable or bad areas can end up being huge time wasters from what I have observed. It may look good on paper, but you have to factor in spending time repairing holes punched in walls or getting non paying tenants evicted. You have to figure in some percent loss for your income in those cases. My father has 2 houses in a nice neighborhood that he rents to higher income people (not CA) and when they move out, he barely has to do anything to it to get it ready to rent again. He’s also done better renting to Mexicans for some reason…a lot in one house. They always pay on time. Also, property managers don’t seem to do what you ask half the time.
As for me and real estate, I would like to see prices fall a lot more and I wouldn’t mind having mortgage rates at 8 or 10% so it’s difficult for people to buy. That way my cash will go farther. I owned a small house in the sf east bay, that would have gone for 600k a couple years ago and no houses were below 550k at the time, now I see ads for houses in the high 300k. I’m sure glad I sold.
I am not a financial expert. Maybe in a few years. My feeling is that the stock market is on a long decline. Other people here can give you better advice than me on the financial markets. I would be happy to at least protect my money from inflation and the falling dollar. Probably the best investment would be learning as much as you can about whatever people are talking about here.
wmbz’s post got eaten. Here it is:
Shifts Paths…
http://www.nytimes.com/2008/03/16/business/16bernanke.html?_r=3&ref=business&oref=slogin&oref=slogin&oref=slogin
Absolutely disgusting. We are in serious trouble and so few people realize it. Every day the same thought goes through my mind a million times. “How do I protect myself from others stupidity?” I still don’t know the answer.
“I still don’t know the answer.”
Neither do I. That’s why I’m bunkering up into a large cash position.
Events can unfold in any number of ways, none of them good.
Best bet is to keep one’s job (i.e. defer early retiremnt plans), stay out of debt, stay liquid, keep living costs low, IMO.
Right, this is not the time be caught flatfooted. Play it as it comes - stay liquid and loose with low overhead.
I know several couples that are already starting to struggle due to decreasing paychecks tied to sales commissions.
Both of these couples like to find easy monthly payments to take up every extra cent that they would earn, with the thoughts that they could ever actually make less money never crossing their optimistic minds.
Want to talk about a world of hurt. Those payments on crap are fixed for another couple of years, gas is thru the roof, food following gas out of the new hole in the roof and a decreasing income.
One guy is trying to put a positive spin on taking a part-time job at Lowes stalking shelves. He will be able to get a discount on stuff for his house. I didn’t have the nerve to tell him that he might be counting his chickens before his eggs are hatched, if he is assuming in this slowing housing market that he can walk right in and get a job at Lowes. Couldn’t bear to do it, just like I had a hard time telling him that he might not be able to just go into HR and withdrawl his 401k money to pay down some debt. And just two weeks ago he bought his son $500 worth of Wii video game crap for his birthday, I am guessing it was put on a credit card. Priorities.
Lowes? Bad idea - a better use of his time might be to volunteer for a local political campaign as it is an election year. Use the time to network and make connections for the future.
i am sure many are thinking i will just go to lowes or home depot for a 2nd job
how are sales at those places these days?
i too make a salary and commisions but i have prepared for this lower level of pay
not living paycheck to paycheck is possibly one of the nicest things i can think of
We must have the same friends. The good times will never end but when they do make sure that you act like you’ve been victimized.
who could possibly be friends with you?
you are very mean and insentive to the plight
of these delusional self absorbed egotistical
self entitiled whining fb’s and ib’s
you must have a softer side we don’t get to see on hbb
I think there are plenty of these people scattered across the country.
As my one friend likes to say there will be “One Heck of a Huge Yardsale whenever those credit cards are finally maxed out and there is no money left for gas for the car.”
I think they will be pretty disappointed whenever they find out that used Plasma TVs, CDs, DVDs, IPODs and used video games bring very little in comparison to what they cost to purchase on credit.
I prefer to call them acquaintances not friends.
“You are very mean and insentive to the plight
of these delusional self absorbed egotistical
self entitiled whining fb’s and ib’s”
LMAO!!
Have an acquaintance at Redhat S/W, they’re having layoffs there. He’s a muckety-muck, high up in the structure, and he’s thinking if he gets laid off he can get a job at the local college. A little better than Lowe’s, but probably won’t happen.
Everyone’s thinking the old paradigm still holds in everything except housing, but it’s gone with the wind. Nothing’s the same anymore. We’ll all have to retrain our brains to think differently about the world.
/sarcasm detector off
Seriously, cash + liquid + job (2 in fact) is my strategy so I hope you are right. Cash is looking a little hairy with the $ and all, but once we hit a ZIRP it’s GOTTA turn around sometime.
Personally I think making yourself extremely more flexible about work (willing to travel long distances for more money) is a good substitute for having a low cash position. Most people are inflexible and will sit out unemployed instead of work thousands of miles away from their permanent residence. Note you can still have money left over after taxes and expenses. Also you can continue to have more words to add on your resume that you were gainfully employed during times that are bad.
You can have a personal economy that is booming and in good times while the macro economy is having bad times. Just get rid of baggage. I’ve been living simply and very flexibly since 2000. Interestingly, the U.S. can be in a false economy, like it has been in since 1996, but you can prosper and save like a squirrel (in cash and gold). No Problem!
Part-time jobs at Lowes are very much in demand around here. A friend of mine is working there part-time after losing his fulltime job ( he has his own business and is working under the table too ), and says it’s amazing how many guys walk in and think they’re going to do Lowes a favor by working for them part-time. They’re amazed when they find out that there are hundreds of applications on file…
Peter Schiff says gold, international value stocks, and cash, cash, cash! For international value stocks I suggest DODFX (Dodge & Cox International mutual fund). Its expense ratio is about 0.70. Other than that, Vanguard has a good selection of international funds with lower expense ratios.
“…so few people realize it.”
That is the singular most remarkable fact of the economic situation, IMHO. I note the same comment applies to the situation in early 1930. I don’t mean to insinuate that we are about to relive the 1930s — just noting that broad perceptions and media perceptions can sometimes become extremely disconnected from underlying economic reality.
We are about to relive many humanistic reactions of the early 1930’s…
Conditioning wouldn’t have us do it any other way.
It only took us a few generations to become a nation of shoppers, imagine the imprint a thousand generations has left?
“The Fed has already lowered its benchmark federal funds rate to 3 percent from 5.25 percent, and investors are betting that it will cut the rate to just 2.25 percent on Tuesday.”
Oh goodie, I get to watch our savings rates go under 3% now.
Just move it abroad.
If cash is king, then cash is king in ANY safe currency and that doesn’t mean the dollar. Why all the hand-wringin’?
I am doing just that. I am moving the family to Japan for 3 years in July to step aside from this mess. My job will require I go to many countries around there, Korea, Thailand, Australia etc, It is my intent to go to those countries to learn more about their economies and political situation. I think in summer of 2011 might just be a good time to buy, If not I may take another job overseas or extend. I have already converted much of my money to Asian currencies so I have little to lose by going there
Yup, I’m in the same boat. Decided it’s time to deep six the savings account holding the 6+ months of expenses.
http://www.everbank.com is on the table as an option. The Yen looks attractive. Never played with currencies. Bottom line - it’s time I come up with an alternate strategy.
Yen, and the four R’s — Ringitt, Remnimbi, Real, and Rupee.
I think the Euro is about to enter the world of Euro-sclerosis.
Man, never thought the day would come where I would recommend the Real and Rupee over the Dollar. I wonder if this is what dropping acid feels like. Any posters with, er, inside knowledge wanna help me out with my metaphor?
“Number nine
Number nine
Number nine
Number nine
Number nine
Number nine”
I have no idea what you are talking about.
I want what Elliot had…….. “Love potion number 9″
I have Heard that there are good trips and bad trips. The bad ones often seem as though they will never come to an end. As soon as you think you are finally coming back to your senses, everything starts to turn dark on you again. No place to hide.
So yeah, from what I have heard it is exactly like what you are talking about:)
don’t forget about precious metals and commodities. Prices are going to go nowhere but up after this cut. Then once the economy truly dies it will take the world with it and other central banks will be forced to cut.
Dubya was against nation building, and supported a humble foreign policy before the panic of 9/11.
Bernanke was against seat-of-the-pants policies and for policies based on consistent principles, before the credit market panic of mid-2007 and 2008.
The reason these men said one thing in quiet, thoughtful times and did the opposite in panics, is because they are falling prey to emotion.
Principles are created in quiet times based on contemplation of prior experience and thoughtful predictions. They are designed to work when the chips are down, things are moving at a whirlwind, and the blood is up.
Notice how both Dubya and Bernanke have changed course 180 degrees in panics, going in opposite directions, contrary to what they have espoused in thoughtful, quiet times. This is because they are human beings.
The key is to hold fast to the principles, because they are most likely to work. They have been considered over time. The panic behavior has been seen in the past too, and has been rejected because it has been found not to work.
Flailing about, in an emotional panic, while it feels better, will lead to disaster. Dubya’s experience in Iraq and Afghanistan underscores why our policy should not be nation building. Namely because of the proven cost in blood and treasure, and the strong likelihood of failure. And with the economy, our policy should not wildly pumping money into Wall Street firms, because that will create the moral hazard, allow more malinvestment, and likely lead to the next bubble. And the popping of that bubble could be utterly devastating to the economy.
Perhaps the housing bubble is that “next bubble”…
“This is because they are human beings.”
Correction: This is because they are hypocrites. One of the most hypocritical moments in political history was how W criticized the opposition for having “no energy policy”. If you asked the public, they’ll take no energy policy over the mess we’re in now.
Agree ,good post ,does seem like the powers decisions are panic -driven . The inflation is already very destructive . Again i say ,I think it’s a mistake for the powers to kid themselves in thinking that they can make bad loans goods . First is acceptance that it was a speculation mania that was financed by faulty and fraudulent underwriting and appraisals .
Just like it will take years for the value to come back to the peak real estate market ,it will take years to absorb the losses .The lenders and investments banks had their folly ,so just like the borrowers ,the next decade should be dedicated to getting out of debt and paying back losses . The borrowers are blackmailing the powers that they will walk and the investment firms and lenders are saying ,” bail me out or we will fold causing a financial disaster “.
Just like a hard money loan for a borrower who is buying time until they are foreclosed on ,the lender and investment banks are asking for a hard money loan ,financed by the government ,that they know they might not be able to pay .
Ok ,so if we all know what is going to happen ,than start to set policies that will revive the economy ,not ones that bail out bad loans to borrowers ,lenders or investment firms , that will never be good . If some of these firms can be made solvent with time ,than give them a loan that they pay back with interest into the future .
Since investors were suppose to spread out the risk of losses with the creation of CDO’s and MBS’s ,than why isn’t that being done . Why isn’t the loss being spread out to all the millions of investors that are losers . In theory those losses would only be a small portion of the investment package that most investors would have ,right ?
I think the real truth is that the investor will not take this lying down ,and they have legal points regarding being conned . Because investment banks and lenders can no longer sell someones stake to another greater fool investor ,to avoid lawsuit ,they have to pay back a lot of the investors . So I’m saying that the kooky policies that the powers are adopting are for the purpose of avoiding lawsuits that would make the investment firms carry the liability of the loss anyway .
Until the money flows stop, nothing will change.
Much of the past several years seems like a financial pyramid scheme financed by borrowing ever more money. Now that that flow of borrowed money is slowing to those at the base of the pyramid, the pyramid may be starting to collapse.
But, if the borrowed money flows just keep on coming, nothing will change.
However, the money flows still seem to be moving along. Isn’t mortgage activity - new ones and refinances - still pretty robust? How does that square with a paralyzed credit market? This seems to mean that the credit market is still moving along, but not as fast as it did with the lax underwriting standards of the past 10 years.
Might the smartest guys in the room pulling a fast one on the Federal Reserve?
“In a research note on Friday, Merrill Lynch’s chief economist, David Rosenberg, wrote that the Fed’s new lending program ‘does not address underlying credit problems, does not materially improve the solvency of the institutions exposed to assets under stress, and does nothing to put a floor under home prices.’”
The average $50k income can only support a $125k mortgage; we have to eat, buy cars, health insurance, go to school, etc., so what is there to understand? We are talking about simple mathematics here.
In fact the Fed policies that are feeding inflation are the very policies that are making the ability to afford a higher loan amount go down .
Something is wrong here .
First the powers are saying they are making new laws that mortgage fraud is a crime .Excuse me ,but those laws were already on the books .
Second. The powers cannot explain why the private investor losses are of concern regarding Fed policy . Were not the CDO’s and MBS’s a investment whereby the risk of loss was suppose to be spread out ?
Trying to bring the interest rates down to rates the FB’s can afford is useless because these borrowers are walking because of lack of equity . So why are the fed trying to save speculators that can’t be saved and aren’t even calling to get a re-write ? Why are the Fed policies engaged in attempts to prop up property values that were false to begin with ? Bailing out borrowers who were fraudulent liar loan applicants is more evidence of kooky policy …,but why ?
Are all the Feds actions to avoid what would be the biggest class action lawsuit in history ?
Third . Why would investment firms losses be of concern to the Feds policy.
low balling or knife catching ???
http://www.nytimes.com/2008/03/16/realestate/16cov.html?_r=1&ref=realestate&oref=slogin
“Others on Wall Street voice frustration over what they see as the Fed’s incremental moves. In a research note on Friday, Merrill Lynch’s chief economist, David Rosenberg, wrote that the Fed’s new lending program ‘does not address underlying credit problems, does not materially improve the solvency of the institutions exposed to assets under stress, and does nothing to put a floor under home prices.’”
A floor under home prices. Perhaps a legal requirement that new households be required to pay far more of their incomes for housing than past generations, or be shot, would do the trick?
I think what this gent is saying is that unaffordable loans were made in anticipation of foreclosure and resale at still higher prices, and unless things go as planned…well who knows.
imho, Fed OSHA and in my particular case, CalOSHA has been toothless for years from an inforcement standpoint. If I recall, this regulatory agency of jobsite safety lost its ability to inforce rules and regulations(yes, I know some of the rules were stupid-the cowboy on his horse loaded up with safety devices). Well, anyway, lack of adequate staffing and support by fed and state govts. gutted these employee protection agencies. We have been and will continue to reap the benefits of our neglect.
Finally with foreign and illegal employees who have no work experience with the manufacturing and construction hazards associated with various types of employments, they are not aware that their life and health are in danger. It just makes it so much easier to keep costs down.
One way or another, its a case of privatizing the profits and socializing the costs( increased public and private medical/disability coverage among many).
Just one person’s experience in the insurance/safety profession for 30 years in No. and So Calif. and Texas.
LC,
Agree totally. In addition, without any regulatory agency watching what the financial markets were doing, the US allowed all of these easy credit loans to flow into our financial markets. Now fear of what these instruments (CDOs, SIPs, etc) hold or because of the damage they’ve already caused, our markets are frozen.
Lip,
Just out of curiosity, how much of these toxic instruments do you think insurance companies hold on their balance sheet?
Do not mean to be impolite, however, I suspect a number of insurance companies will file BK. Think AIG.
Just my personal opinion.
LostContol
I am also in the safety profession. Many years with large insurance companies and have a CSP and ARM designations. In fact that is way I started to play golf (insurance companies love to have golf outings). I have heard the same about AIG. I know a few people who still work there - I’ll try to get info.
yeh, another safety professional!
AZgolfer, can you tell me why insurance companies have this attraction to employing sports figures to management positions. Is it marketing or weak egos?
I remember Gary Beban, former UCLA quarterback who has a executive position with a life insurance co. In my many travels, it seems that this is the case.
golfer, can you tell me why insurance companies have this attraction to employing sports figures to management positions.
Three words:
Brothers-in-law
I guess “family values” still count for something.
It’s really because vast swathes of middle management are, well, representative of middle America.
They love football, golf, etc. and will give their right arm to meet a football/golf legend, etc. That they are being conned into deals by the other side is obvious even to them but they don’t care.
It’s sorta kinda the ultimate wink-wink-nod-nod. Everyone’s in the know but nobody can do anything.
So who’s getting scammed? The shareholders.
If I were running a shop, I’d hire them too even though I couldn’t give a cr@p about football or golf.
The sports personality are riding upon their past “glory”. Just a marketing tool, like safety specialists. They keep them around, if they think it will get increased income.
Plus I am not really that stupid. I have known for a long time the actual worth of former sports heroes. Its a trade off, one does it to sell name recognition and in exchange for a cushy desk job. Most college athletes couldn’t write their own name if there life depended upon it (sorry, I said most, not all). All most colleges do is provide a training ground to build up the skills of their student athlete.
And I will tell you, I have seen the arrogance of these primadonnas during and after my college years, involved in rape,misrepresentation and theft during their college years.
Great Athletes know how to work hard, compete and win. enough said
I love all of the Free Market Capitalists. They want to dictate what people pay for housing. Up yours, Larry Kudblow!
“Competition is a nice Economics 101 concept, but all capitalists hate the idea of competition. Competition is hell on profit margins and makes for an uncertain future. Eliminating the competition is the arguably the primary goal of every industry and profession, particularly their trade and professional groups.” –Wade Frazier
I agree! If you want to see true capitalism, look at the restaurant business. Easy entrance, no barriers to entry and no govt. support. Farmers, prior to the Great Depression also fell into this group, but no longer with financial costs of entry and govt. price supports.
Just my humble opinion.
“…made in anticipation of foreclosure and resale at still higher prices…”
At least the foreclosure part of the equation worked out quite well. One out of two ain’t bad…
Yep, pretty much sounds as though the guy from Merrill Lynch won’t be happy until the US Government comes in and buys all of the Investment Banks bad loans at face value, Freezes housing prices at todays prices through some new mechanisms and let’s them get back to printing money.
Absolutely no regret whatsoever for what they have done to the world economy. The only regret is that they are now struggling and nobody is coming to their rescue fast enough to keep their gravy train on track.
Absolute and utter tosh. There is no way the IB’s would act in such a fashion if the government was the buyer.
They would expect AT LEAST 105.
RE: that new households be required to pay far more of their incomes for housing than past generations,
LMAO…while at the same time GM initiates contracts with the UAW to pay the next generation of workers ONE HALF of what their contemporaries are earning.
DOES NOT COMPUTE!
All bad for those at the end of the Ponzi scheme.
“It’s like the Wild West out there right now,” said Terry Sciubba, the owner and broker at the Sherlock Homes Realty Corporation in Glen Cove, N.Y., on Long Island. “I do have customers where if a house is listed at $600,000, they’ll put in an offer for $350,000. That really, really happens.”
Careful what you wish for - I suspect even $350k is still catching a knife.
“These people in Greenwich are not in the position other people in America are in,” Mr. Wiesen said. “These are wealthy people who can sit on their houses, and they do.
Let’s see if that remains true if the recent WSJ article predicting up to 20% of Wall Street jobs disappearing comes to pass.
major crane collapse in nyc on what else but a new condo tower
4 dead 10 seriously hurt and 3 unaccounted for
and hundreds relocated
just another lovely perk of the bubble
i would like to see some prison time for the responsible parties
as many locals were warning of this for quite some time but the
nyc dept of buildings (rubber stamp squad) did nothing
my prayers go out to the injured and killed and their famalies
A tornado in Atlanta collapses four floors in a condo building and no-one gets hurt.
Think anyone was living there?
“No fatalities had been reported by Saturday morning, though crews were still combing through a condominium building in the southeastern part of the city where four floors had fallen on each other, making search and rescue operations difficult and dangerous.”
http://www.nytimes.com/2008/03/15/us/15cnd-atlanta.html?ex=1363233600&en=f3f8cbf46f211935&ei=5088&partner=rssnyt&emc=rss
I walk by these new buildings as quickly as possible, in fear that something will fall off. The hardhat union guys are the biggest bunch of jerks I’ve ever seen. They act like they own the world and if they drop something on your head, it’s your own fault. They are protected by their unions and act like organized criminals. Yeah, unions are great. They take from the many to give to the few and cause a sense of being above the law. As long as these builders remain so arrogant we are sure to see more of this.
Just a thought, do you think that part of their ability to do their work requires this type of attitude? Did you know that next to mining, construction is close to the top as a hazardous trade?
I don’t about you, but you have to think you are superman to climb out on steel I-beams many floors above ground level. I don’t know about you, but I would starve before I performed this type of work.
just my humble opinion.
PS, I get a noise bleed on a 3″ carpet! Something about age. The older you get, the more you realize all the stupid things that you did in your youth that could have killed you!
Maybe there is something to the saying, the older you get, the wiser you get. imho.
Come to the City and talk to some of these guys. Decide for yourself.
If you were ever on a construction site. Its totally disorganized. Nothing ever goes according to plan. Like the military, its hurry up and wait. By the way, I am surprised that that formen/jobsite managers don’t have heart attacks at an early age. Everyone screaming about schedules, quality of work performed, pieces not fitting correctly, intermediate sub running into delays, forcing follow up work to be performed double time. A construction project is a very complex endeavor, and nothing is built according to schedule. The cost overruns eat into whatever profits were projected.
imho, construction projects are bidded based upon the “best case” with like room for error.
lol- so true- huge project on the corner by my office
with similar crane that collapsed yesterday, they have a scaffold up but i always walk on the other side of the street as these scaffolds look like they can collapse at any time.
nyc is one big construction zone and the accidents happen all the time and many are dying daily
just listen to the conversations in the deli at lunch
it is all you need to hear and you too will walk on the other side of the street as well (think liquid lunch)
my cousin is a union tile setter for 15 years and he tells me some of the conversations at lunch and it is funny stuff
one of his co-workers was referring to arkansas as
r-kansas. hmm r-kansas where is that?
Construction workers have a hardned attitude towards life-don’t give a f@#k attitude. They see people around them get hurt or killed.
I guess its like a soldier in a combat zone or a police person on the job. Your attitude towards life and other are slightly warped compared to people who in their course of employment are not worried about where their next paycheck will come from if they are seriously injured.
By the way, not all construction workers are unionized, unless its a govt, institution or large corporation requesting the construction. I am not sure what union disability benefits are, however, workers compensation benefits are no better paying that unemployment rates and you can not pay the mortgage on that, imho.
“r-kansas. hmm r-kansas where is that? ”
It’s how the portion of the Arkansas River in Kansas is pronounced. I doubt that construction worker was either aware of or would grasp that distinction, however.
no greg he was from brooklyn and somethings me
has not seen much else
You see that attitude in auto workers quite a bit so I don’t think it’s always because of the nature of the job.
Exactly. When organizations use inflatable rats as tools of intimidation then there is a major problem. I am disgusted by the tactics of organized labor in this city.
the rat is a common sight but it used to be alot worse
think broken limbs and gunshots
the rat comes a few bucks change hands and the rat moves on
The good old days?
When I worked in Midtown I regularly saw dudes in hard hats chugging beers on their lunch hour.
Are you guys discussing the Mexican border or NYC?
cracker jim this is in nyc
a common practice is to go the pub for “lunch”
as well as sending the apprentice for “supplies”
the smokeable snortable kind
i know this first hand as i once worked as a tile apprentice in the mid 90’s
Again from further up blog..UK, 2 weeks ago, crane toppled, guy was killed walking other side of the block. Crane operators were interviewed ‘fogged over screen/and voice distortion’ to protect themselves.
Apparently they are not allowed breaks in the crane, Foremen/owners will fire them immediately.
Big problem in the UK and probably everywhere there is no union to protect them.No breaks in 8-10 hr shifts.
You and I wouldn’t want the job, but NYCboyz, we all don’t have the same skills . Every snowflake is different.
Sorry NYCB, you don’t know what you’re talking about here. Having worked in a union in the construction trade, I can tell you that it’s the union, who want to make sure it’s members, you know, stay alive, which are much more safety conscious, and push to maintain safety standards, than the companies, which are always looking at the bottom line over everything. If you have ever visited a non-union construction site, where keeping your job means pleasing the bosses, you will see how little safety can be valued.
Your resentment of people making a living wage is uncalled for.
And BTW, I’ve seen plenty of union workers get in trouble and lose their jobs over safety issues. I’ve rarely seen corporations pay a price.
Ed:
I agree my father was a bricklayer, and i know a few times in his life he walked off the job because he felt the scaffolding or the job didn’t feel right. and twice has was right, and he was safe at home not getting paid. Nobody died but a few got really hurt bad.
I think I’m more than qualified to comment on NY skilled trades and construction considering it’s my stock in trade. You DO NOT want to be one of these guys. They get injured and “we didn’t see anything” is the soup du jour. Plain and simple, you’re SCREWED and “the union” isn’t gonna help you and the contractor will deny deny deny. Yeah, the executive boards of these unions are literally ongoing crime syndicates but guess what….. If you want something built right, you’re not gonna get it from a scab outfit generally speaking. And for obvious reasons. The skilled trades have extensive apprenticeship programs and require a minimum level of skill. Yeah there are hackers but the hackers are the same guys sitting on the bench year after year. It’s blistering cold and blazing hot hard work and you’re gonna have to pay if you want the work done and that really is the bottom line.
Oh yeah. The inflatable rat is an extremely effective tool when some scumbag outfit won’t comply with with contractual agreements.
As a former Teamster, I have to agree with Exeter.
Personally, I’m not a fan of unions. The time I spent as a union worker convinced me that the union system discourages hard work and ambition. I can’t tell you how many times I was humping 70-lb boxes up a wobbling ladder while 5 of my co-workers sat on their rear ends and watched me work. Or all those times when we were in the bus driving to a jobsite and the guys would be yelling at the driver: “Slow down! We’re on triple time!” That’s what the union system does to people — it discourages hard work and ambition. Seniority means that everyone gets paid the same. Why push it when there are no incentives to perform?
That said, you CANNOT beat union workers for quality. This is 100% true. As a mover I worked with a lot of union tradesman and those guys were FANATICS about quality. FANATICS. I literally saw a big, tattooed guy brought to TEARS one time when someone dropped a desk and almost scratched it. The carpenters, plumbers, etc. were the same way.
So even though there is a lot wrong with the union system, I personally think that the premium for union labor is well worth it. When I finally buy a house, if I even need to bring in a tradesman I won’t hesitate to pay for union labor. Union tradesman do OUTSTANDING work. The union system has a lot of flaws, but unions really do deliver the goods where quality is concerned.
The union system has a lot of flaws, but unions really do deliver the goods where quality is concerned.
Why were American cars so ass in the 1980s and 1990s, and still substandard even today?
Or take the NYC subway every day and tell me how great unions are.
So you’d rather ride on a subway where the driver or conductor has to worry about his job if he follows safety codes even if it cost the bosses a few bucks, Or where a worker is protected if he looks out for safety issues.
And tell me, what profession has these great non-union workers that are so much better, Banking? Wall Street? Retail?
We’re talking about skilled trades here. Not civil service. And your opinion that american cars are substandard is like a touch hole….everyones got one. But put your money where your mouth is…. find me ONE pickup with a foriegn nameplate capable of hauling a 16k pound livestock trailer, car hauler, RV etc etc. And further to the point, how is it that quality is the problem of hourly workers but not part of decision making by management??
“Having worked in a union in the construction trade, I can tell you that it’s the union, who want to make sure it’s members, you know, stay alive, which are much more safety conscious, and push to maintain safety standards, than the companies, which are always looking at the bottom line over everything. If you have ever visited a non-union construction site, where keeping your job means pleasing the bosses, you will see how little safety can be valued.”
I agree that this would be an awful situation but it shouldn’t excuse the behavior of others. It is amazing that so many workplace safety rules have been adopted but obviously enforcement seems to be a huge problem. The system stinks.
Gotta take issue with this ‘union bashing’. It would seem as earlier posted and observed in the UK, that Owners and Foremen are eager at all costs, to finish the jobs, hence the current lack of crane safety. Not the guys who operate the cranes who want a break but can’t for fear and threat of losing the job itself.
This is where those “unions” came in handy from the late 1800’s till now, so that people were safe in their own jobs and weren’t afraid that if they took a potty break, when they returned they would still be working.
Just saying, we would have had no middle class if not for our ancestors fighting for child labor laws,job safety, and something more than minimum wage while the Robber Barons, of which we have quite a few now,or Lords of the Realm getting ALL the money just cause they know how to lie,cheat,steal better and have more golf buddy networking connections at the WH.
Gosh, there is always a bit of ‘over do’ in any situation, but WE would not be enjoying what we have if not for unions and the formation of the middle class. IMHO
I agree whole hardedly! Yes unions screwed up in their demands, however I would take a union job over a non union job any day.
By the way I saw slides of the scaffolding used in Hong Kong. You will not believe it, but their scaffolding is made out of bamboo. The workers are like monkeys climbing up it 10-20 stories in the area( roughly 100-200 feet above ground).
Personal question: Do you know why workers compensation rates are higher for employees working less than 3 stories than over three stories? If you fall from a hight greater than 3 stories, you will most likely be killed. In CA death benefits under wc are lower than permanent disability. Something every underwriter knows.
I don’t have a problem with unions. I have a problem with their members acting like such jerks which I see all the time. It is funny how people on this blog act so open-minded then can’t accept the slightest criticism to their own sacred beliefs.
I think the union issue shows that building is corrupt all around. I never use the bad deeds of one group to justify the bad deeds of another. I don’t see where some criticism of unions, and the mentality of many of their members, should make anybody think I’m against the working man. The whole system stinks and I think unions can be a part of that problem. It doesn’t make me the devil it just makes me realistic.
I’ve been looking for a place to post this. Thanks for the thread
I went into town last week to run some errands and in front of my regular pharmacy was the big red “Shame on ***********” union banner and the crew of street kids they hire to wave it. I’m quite fond of this pharmacist and his family operation. He and his wife (also a pharmacist,) are first generation American citizens from Dehli, and by working their butts off 24/7 for the last ten years have managed to put together two pharmacies and a small strip mall…which is just nearing completion. (Its likely fate is another story altogether, but nonetheless.)
So I go up to these three kids holding the picket banner and ask why are they picketing _____– he’s a good guy? The huge, tatted homeboy unplugs his IPod long enough to hand me a sheet of paper with the word “RAT” in 32pt font on top. “This will tell you everything you need to know.”
Not really. So I go into the pharmacy and ask ******** what’s going on. He tells me that they’ve been out in front picketing all month because the general contractor on his mall project used a drywall sub who wasn’t union. I almost choked; drywall in these parts is done almost exclusively by (um, illegal) Mexican labor –union or no. “I had no say in who the general hired.” he told me. “What am I supposed to do, fire him in the middle of the job? Besides, the job is finished. I’m not sure why they’re here.”
So I went back out and who should be standing there but the union boss down from Fresno to check on his picketing crews. Let’s call him, Ron. “So, Ron.” I say. “Why are you picketing *********? He’s a pharmacist.” Ron goes on about how carpentry is the world’s second oldest profession, (as opposed to say, hunting, or herding, or healing, or….) and gives me the Jesus was a carpenter routine.
I’m scratching my head of little old lady white hair. “What’s that have to do with a pharmacist and drywall?” I ask. “Why do you guys only picket the nerdy Indian doctors in town (they do, almost exclusively,) and not the contractors?” (Who tend to be short-tempered, white ex-construction workers who don’t give a crap about unions.) Ron starts getting all up in my face about “fat cats” and “universal health care.” Everytime I ask a pointed question, he diverts with rhetoric.
So I turn to the kids holding the sign.
“Are you guys getting health insurance from the union? **********pays HIS employees’ health insurance. And how about a pension and profit sharing plan, you getting that? **********’s employees do. He also pays their hourly wage for the time they spend taking continuing education. Does the union pay you to go to school?
The banner-wavers look at their feet trying not to snicker. Ron’s toady looks like he want to jump over the planter and punch me in my capped teeth. Then M13 Tattoo Boy brightens. “Ah’m on Medi-Cal!” he offers helpfully.
God. Bakersfield.
“John LaGreco, owner of the ****Fubar**** tavern on the townhouse’s ground floor, returned Sunday to the devastated scene where an employee and a second person in the bar, which was closed, had been rescued, ”
Fubar?
Is this some Asian thing, or the military acronym?
Spook
Some of my co-workers hang out there. I’ve never been. I think it’s just a regular, neighborhood bar.
It’s a description of the clients when they leave.
Heard a clip from crane operators, guess it was in the UK, where if the crane operators did NOT do what they were told to do, with out rest breaks, potty breaks, and lunch etc, they would be fired on the spot and someone, not legal would take over and usually did. That is why in the UK there is a serious issue with crane operations safety right now.
Guess the Foreman got his orders from owners and everything will go up no matter what or who is killed. A guy walking a block over got killed from a crane toppling.
I mean, one day you are just walking along, minding your own business, and smack. Boy, ya just gotta wonder what your day will bring.(this is a sad event, but my ornery and sick funny bone is eager to take a whack at this impending joke-sorry) HOlding back.Cause its Sunday?
Reports were that the crane co had 13 safety citations issued against them. It’s a story that reflects the “oversite w/o teeth” problems discussed above.
Bear Stearns via Bloomberg: the choices are “socialism for the rich, which is both inefficient and morally objectionable” and “disaster.”
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aY2RvFA.yO_Q
What me may instead get is “socialism for the rich” followed by “disaster”.
“Former Treasury Secretary Lawrence Summers said the Fed is trying to navigate through a once-in-a-generation financial and economic storm.”
“Panic selling is lowering the value of stocks and bonds, spurring more selling. Unemployment is rising, reducing incomes and spending, and falling asset prices — including homes — are leading to a contraction in credit.”
“That three-way combination feels like something we have not seen in this country in a very, very long time,” Summers, now a professor at Harvard University, said in a Bloomberg Television interview in Washington. “It’s a near-certainty we are in a recession and there is a real prospect that it could be a serious one without strong policy action.”
I have my doubts that even “strong policy action” will be enough now.
“Most lending happens outside of bank balance sheets,” said Mark Gertler, who has written papers on central banking with Bernanke and is a professor of economics at New York University. “We are seeing financial innovation, so you should expect innovation in the lender of last resort facility.”
I keep seeing references to “financial innovation” everywhere, and every time it is linked to major problems. “Financial obfuscation” seems more appropriate, since apparently the only thing all this “innovation” did was obscure inter-dependent, risky leveraging. Nothing innovative about that.
How about we leave the innovation to Silicon Valley, and Wall Street sticks with the old boring methods of financing the economy that didn’t collapse upon themselves so readily and (apparently) threaten the solvency of the entire system? And how about we call a spade a spade and stop dressing it all up as genius and innovation gone unpredictably wrong?
jpm and c are screwed.
http://www.occ.gov/deriv/deriv.htm
Could you please explain what you are looking at and your reasoning? And does this explain jpm’s “benevolence” in helping da Bear?
I keep seeing references to “financial innovation” everywhere, and every time it is linked to major problems……………….
Let’s call is what it is. A financial scam. These brokerages placed “Bets”, based on rosy scenerio “models” at HUGE leverage. When you leverage and the bet goes bad, you LOSE lots of money, probably ALL of the money.
These financial institutions are essentially BANKRUPT. They cannot pay off the bad bets.
The FED is now covering their bad bets at OUR expense.
Call it what it is………thievery. These folks should be stripped of their assets and thrown out on the street, their businesses boarded and in receivership.
OH! That’s too painful. These are our captains of industry and finance………let’s lend them a hand (more free money) until we can get through the rough times.
It’s an outrage.
When Bernanke finishes destroying our money, the entire economy will be in a state of total depression.
You can’t destroy a nation’s currency and have it survive. We are in big trouble with these goings on.
The Spring’s Tale.
Exit Bear.
Bear Stearns via Bloomberg: the choices are “socialism for the rich, which is both inefficient and morally objectionable’’ and “disaster.’’
I believe the FED is going to do the first scenario to bailout WS and IBs (can’t be dumping too many yachts and penthouses now can we) and we are still going to have the second scenario with much higher (if possible to imagine) debt for our grandchildren and beyond.
Bear Stearns’s Cayne Was Playing Bridge, WSJ Says
March 15 (Bloomberg) — Bear Stearns Cos. Chairman James “Jimmy” Cayne was playing in the North American Bridge Championship in Detroit over the past two days, the Wall Street Journal reported.
Cayne and a partner were placed fourth in a pair’s event on March 13, the newspaper reported yesterday, citing the American Contract Bridge League’s Web site.
The event took place while Bear Stearns Chief Executive Officer Alan Schwartz held a series of conference calls with company directors to discuss a cash pledge from the Federal Reserve and JPMorgan Chase & Co., the Journal said, citing unnamed “insiders” and people familiar with the matter. Cayne participated in at least some of the discussions, the newspaper said.
Cayne was playing the game yesterday as the investment bank’s shares plunged, according to an unnamed attendee, the Journal reported, adding that Cayne declined a request to comment.
Legislation in CA to establish a Common Interest Development Bureau to mediate HOA disputes:
http://tinyurl.com/2gygln
“Homeowners who feel they’ve been wronged by the associations that oversee many of California’s housing developments may find solace in proposed legislation that would establish a state-level bureau for resolving such disputes.”
“While one-fourth of the state’s housing stock is governed by homeowner associations, in San Diego County the figure is closer to 60 percent. ”
“Under the bill, as it’s written now, the bureau would have the authority to issue a citation and potentially levy a fine if a law is violated. A homeowner association board would then have the option of correcting the violation or appealing the citation, Engel explained. Ultimately, if the association did not comply, the bureau could file an action in Superior Court.”
“The agency would be funded through an annual fee of $5 levied on all housing units governed by associations. Similar programs exist in other states, such as Nevada and Florida.”
“There is no enforcement mechanism or state assistance to common-interest developments, so the only way to enforce the law is through a lawsuit, and that’s not a great way to resolve community disputes with your neighbors,” said Brian Hebert, executive secretary of the commission.
This is long overdue. If you want to start an interesting conversation at work, ask a coworker who lives in a house governed by an HOA what they think of that HOA. If in CA, you’ll likely get an earful with little of it positive.
WaPo article on foreclosures. I sure you all will really appreciate the heroine’s life choices. (I cannot believe a single mother would quit a good job to go into home daycare (!), but I am dull and risk-adverse.)
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/15/AR2008031502404.html?hpid=topnews
*(As a side note, home daycare providers in my area charge $300/week for full time care, and can take a ton of tax deductions, so they do quite nicely. But everything is spendier in Arlington vs. PG County so who knows what she was bringing in).
I feel for the kid, because he will suffer due to the stupidity of the adult of the house, but grow up not realizing this and think the world of his mother until the cay comes when he understands that this was all the product of her stupidity. That day will be a shocker!!
I have no idea why the media picks people who’ve created their own financial disaster. I am sure there really are some folks who deserve sympathy for what is happening out there as the bubble deflates, but for some reason the MSM just never seems to find them!!
Illness and job loss from globalization are the two groups I feel for. Those in the REIC knew what was up. The liars and speculators are well deserving of their fate. Those of us waiting with cash and sensibility, are part of the solution.
“….Her loan officer steered her to an 8 percent adjustable-rate mortgage, assuring her that she could refinance later and return to a fixed-rate interest loan…..”
Her loan officer probably did not mention he put her into this loan because the lender paid him a $20,000 rebate or “Yield Spread Premium”. This is a big part of the problem with mortgage brokers. The lenders pay them to put the FB’s into the highest interest rate they can sell to the FB. It is a serious conflict of interest, but there are no fiduciary obligations for the broker (ignoring moral obligations). In 2002, a normal 30-year fixed rate was probably 6% for a loan equal to 80% of the value. This kind of steering by brokers should be a crime. I am not saying it would have saved the family in this case, just that the system is set up to screw unknowing borrowers.
That’s why those same FBs should have taken the responsibility of protecting themselves instead of trusting the input of those involved in the deal. They were buying houses for pete’s sake - the biggest purchase most will ever make - and they never thought to consult family, a lawyer, coworkers, their pets?
And not to mention the quality of the pre-owned home resale folks they have to pick from. Their educational qualifications and moral compass are 0.
Should buy a house like you buy a car (only 10 times more careful). Don’t trust anyone who makes money off of the deal - and ask lots of questions of friends and family.
“should buy a house like you buy a car” or like many folks pick a spouse…oops, that is purely hormones and some get lucky and some..seriously some of our major decisions aren’t chosen as well or as thoroughly vetted as they should be, certainly when we are younger.
I say ‘we’ cause there are some things we are all susceptible to somewhere in our lifetime. Hence the reason some on this blog do not like women, marriage, unions,dems, or???
I have seen just as many young men fall for the t/a as well as seasoned men of age (annanicolesmith). Hopefully this blog and life will continually award us with a good education.
“Federal Cash Cow Out of Milk”
http://tinyurl.com/2sq6e3
“This is no longer some far-out discussion of “why we left the gold standard.” Our nation is on the verge of a potential 1929 catastrophe; if not immediately, then in the long run.”
In reading accounts of the period leading up the the 1929 crash,
http://www.mises.org/books/bubbleworld.pdf
(first 30-40 pages)
there were an increasing series of efforts in the period leading up to the crash to try to prevent a collapse. Those efforts clearly failed. What’s happening now reminds me of a similar period in 1929. We are seeing a series of increasingly extraordinary actions by the Fed, apparently to try to avoid a collapse. I remain unconvinced that the efforts this time will be any more successful than those of 1929.
Here is an excerpt from the latest newsletter (pay site) at http://www.the-privateer.com
The whole 12 page letter is absolutely chilling.
The Actual State Of The US Financial System:
Is shown by the Fed’s Z-1- or “flow of funds” - report. This report is, as always, required reading for
anybody wanting to understand the US financial system and, as its economic reflection, the US economy.
The Z-1 report almost always makes for hair raising reading. Total US credit has expanded a record $US
3.998 TRILLION or 8.9 percent over the past year to reach a height of $US 48.808 TRILLION. Given
the fact that US GDP is about $US 13.2 TRILLION, this shows that the US economy is carrying a debt
load of 370 percent of annual GDP. A closer economic look shows that $US 3.998 TRILLION of this
$US 13.2 TRILLION economy was generated by new credit. Subtract that $US 4 TRILLION new credit
infusion and the REAL non-credit supported US economy comes to a size of $US 9.2 TRILLION.
A Return To The REAL Economic World:
In economic reality, it is this real $US 9.2 TRILLION US economy which has to carry a debt load of $US
48.808 TRILLION. That debt load is 530 percent of the real non-credit US economy. In this situation, to
even stabilise the US economy would require ending the current credit expansion of $US 4 TRILLION
per annum. That, in turn, would place the US economy on its real $US 9.2 TRILLION foundation, but it
would also cause a nominal contraction of the purported US GDP to the tune of that $US 4 TRILLION.
That would be the same as an economic contraction of 30.3 percent. And that is the real reason why the
Bernanke Fed is fighting any such contraction tooth and claw. But by following this policy of extending
the present US credit expansion even further into the future, if successful, means that the amount of credit
(and therefore debt) inside the US economy will climb by another $US 4 TRILLION over the coming
twelve months. That will sustain the nominal size of the US economy while the height of US debts will
climb further to reach $US 52 TRILLION. In fact, it is this economic trajectory of the US economy
which is unsustainable over time, for the very simple reason that the total of all US debts outstanding
would have to climb in perpetuity. That is impossible.
The External Dimension Of The REAL Economic Situation:
The thing that shows that the US economy has been on global “life support” for the last four years are
these facts from the latest Z-1 report. The report includes data on the world’s holdings of US financial
assets which have climbed an astronomical $US 7.222 TRILLION or 88 percent! Just try to imagine what
the US economy as well as the international value of the US Dollar would have looked like if that $US
7.2 TRILLION had not arrived. But they have arrived, so far. The rest of the world increased holdings of
US financial assets by $US 1.573 TRILLION or 11.4 percent last year. And still, the US financial system
continued its full out credit expansion. Total US bank credit was expanded at a $US 1.270 TRILLION or
13.8 percent rate over the fourth quarter of 2007 to reach $US 9.163 TRILLION.
The Latest Non Headline US Employment Report:
The latest US government report showed that jobs fell by 63,000 in February, the biggest drop in nearly
five years and much bigger than economists had expected. The US Labor Department has also revised the
January numbers to a drop of 22,000 rather than 17,000 while the December figure was revised from a
rise of 82,000 to one of just 41,000. Had the public sector (read Federal, State and local government) not
taken on nearly 40,000 people last month, the number of jobs lost would have exceeded 100,000. Real
US employment is worse than these figures show. US manufacturing shed 52,000 jobs in February and
has lost almost 300,000 jobs over the past year.
The US has a shrinking manufacturing base and an expanding bureaucracy powered forward by a credit
expansion which is drowning the US under a mountain of unrepayable debts, both in the US internal
economy as well as internationally with the ever climbing height of US external debts.
It is into these mismatched economic pieces of a US economy that the Bernanke Fed is infusing its credit!
Greg — I have a similar opinion. The conventional wisdom says that BB studied the Great Depression and has learned from the mistakes made then, but I am increasingly of the belief that the mistakes were made in the 1920s and the 1990s, and there was little policymakers could do but slow the pace of correction in the aftermaths of both periods.
How ironic that BB concentrated his studies on the Great Depression, only to be Fed chairman while something similar may be unfolding. And Alan Greenspan is probably sitting on a beach somewhere sipping a Pina Colada, far away from the mess he helped create.
I see strategy where you see irony.
i think this was planned. ever wondered why paulson and bernanke are at the helm at precisely the right time.
more like paulson and bernanke were selected because someone was expecting to need them both at the same time at the right moment.
Bear Is On the Auction Block This Weekend..with JC Flowers and JP Morgan Chase the bidders. Lots of jobs and money at stake.
“Because of that S&P downgrade, bankers have now come to the conclusion that a deal must be done by Monday morning because no one on the street will trade or lend to Bear Stearns, which is rated a notch above junk bond levels. If the downgrade hadn’t happened, Bear management would have had more time to work the Street for a deal, sources said.”
http://www.cnbc.com/id/23651058/site/14081545
Add onto that Wall Street earnings announcements this week and its going to be ugly. With the liquidity crisis, no one can get anything off their books so they can do new deals. Instead, they are paying millions and millions to their attorneys to do collateral restructurings and credit/liquidity wraps which is just a net loss for them. Housing is a related peripheral issue at this time. Banking liquidity is the 500 lb gorilla in the room since this threatens the core of our economy and needs to be alleviated on an extremely short time line to avoid disaster. I know of many major institutions in default due to the failure to post collateral to satisfy mark-to-market financial covenants. So far the investment banks have been putting off blowing up their clients. As these banks struggle, triggers will have to be pulled. The entire system is at risk. As investment banks implode, so do many of their clients.
Tim,
I read sincere concern in your remarks here and previously regarding this oncoming train. You are near the front so you see the headlights looming. As an average guy a thousand miles from WS, I agree with you 100%. This is going to get very ugly.
However, I am more of a pessimist; I don’t think having the FED throw possibly trillions down the hole will change the outcome for the Man-On-The-Street.
I am not an optimist. I dont know if we can avoid the train wreck, and have my own doubts we can. I’m all cash (or equivalent). I just know what will happen if we dont do anything. I still dont think that ppl understand the extent that securitizations and derivatives products have created a symbiotic relationship between the investment banks and their clients, such that there destinies are linked. This was another form of insurance policy or safety valve that the brain trusts inserted into the system to limit their risk by ensuring ppl will think twice before letting them go down. Risk hedging is what these ppl do best. Someone made a reference “too big to fail” to one of my other posts (no context implied). While I certainly feel at some point they may need to fail, or will be allowed to fail, they were smart enough to create war chests and take hostages at the peak. It’s not all about bailing out the rich as some view it. These ppl really do have the Country up against the wall and we allowed it to happen. We need snipers not nuclear bombs. And please dont take my posts as blessing any action taken. All I’m saying is action is needed and proposals need to be looked at with an open mind, I intend no general acceptance or rejection of any specific action taken unless I do so specifically. For those not dealing with Wall Street, the liquidity crisis is so severe its hard to explain unless you live it. They are totally crippled. I don’t even want to think about year end earnings. In housing things are slow, on the street the mark-to-market and need to move things off balance sheet makes every crisis move at the speed of light.
Tim
Please keep us posted. It is good to have a knowledgable insider viewpoint. I think some of the backlash posts to your points are rooted in fear. I know that is my feeling.
“In such a world, the quality of the assets matters less than whether you can finance them, how liquid they are.”
Mohamed El-Erian
“I’m all cash (or equivalent).”
Are you willing to divulge what your equivalents are?
I hate to keep posting excerpts but this week was a particularly insightful and direct newsletter at http://www.the-privateer.com
Now clearly there is many issues that are interwoven into this problem we are collectively facing. However it was always my belief that at the heart of the problem was a monetary system set up requiring debt issuance for money to be created (thus requiring ever-increasing creation to service existing debt) as well as a system that has lent itself to ever increasing amounts of gaming/complexity in order to skim fees and keep the ball in the air (so to speak).
The privateer explains this in a slightly different way but one that I felt was noteworthy. Apologies to the Captain for posting so much of his newsletter.
““So they’re trying to keep the credit machine going, albeit at a somewhat slower pace than the one that
Jane (Newsweek/Bloomberg.com reporter) referred to as a bubble. And that’s really what they’re trying
to do, because the economy, the lifeblood of the American economy, is credit, the ability to borrow,
individuals, homeowners, and businesses. And if that stops, then the music stops.”
Mr Paul Wessel - WSJ Economics Editor - PBS News Hour - March 14, 2008.
How many times, and in how many contexts, have you heard it said that “credit” is the “lifeblood of the
economy”? There is no getting away from the fact that it is the lifeblood of the modern financial system.
The proof of that fact is precisely the growing inability - and unwillingness - to lend or borrow which has
brought about its present plight. Credit/debt is certainly the lifeblood of the modern financial system.
But is it the lifeblood of the economy?
Alone In Nature:
The most fruitful starting point for the study of economics is the examination of one man or woman alone
in nature. Strip away all the complexities introduced by human interaction and the situation becomes
clear very quickly. The derogatory term for this practice, coined by the theorists and practitioners of our
modern financial system, is “Crusoe Economics”.
How does an individual survive when there is no-one to lend to, nothing to borrow, and no means of
payment, direct or indirect? There is only one way to do it. One must produce REAL economic goods.
To survive in more than the most rudimentary way, one must consume LESS than one produces. One
must save. In nature, there are no “sovereign consumers”. There are the producers - and the dead.
Obviously, the lifeblood of an economy is the production of goods. That is true whether the “economy”
in question is one man alone on a desert island or 300 million people living on a politically prescribed
land mass of almost 10 million square kilometres (2.53 million square miles). The reason that “Crusoe
Economics” is derided by financial theorists and practitioners is to prevent any discussion of basic
principles from entering the debate. In economics, as in any other area of human knowledge, basic
principles are crucial. To deny, deride or ignore them is fatal to the body of knowledge which rests upon
them. That is what has happened to economics. And that is the root cause of the current financial crisis.”
I was able to get into 5% - 5.25% 1 yr CDs 5 months ago for my savings. No more than 100k at any institution. I was lucky as they usually quote around 3.5% or less now. My 401k has a conservative model portfolio I am in as well (GICs, bonds, treasuries, etc., that is probably only going to turn 4% or so, maybe less). I will examine the landscape in 7 months and am not committed to any reinvestment plan yet. With all the intervention and volatility in the markets, I am too scared to day trade. Not making a killing, but compared to housing or equities, I saved a hell of a lot so far. I love to invest, but wont until I see stability. I see none right now. I want to save the principal with respect to my savings anyway, as I want to use it to buy a house in three years.
Thx, Tim. I did not see Forex in your list.
I am advising someone on what to do with a cash windfall that will serve as a downpayment on a home at some unspecified future point in time. My inclination is to advise this individual to go 20 pct s-t U.S. savings bonds, 40 pct s-t T-bill mutual funds, 20 pct inverse l-t T-bond yields and 20 pct FOREX, with the option to gradually move up to 20 pct from the s-t T-bill fund into a broadly diversified U.S. stock mutual fund in case the market ever corrects to l-t trend or lower. I hope my advice is OK, as I don’t fully trust my own advice when it is not my own skin in the game.
I dont know enough about FOREX to advise on that subject, but your other options seem safe. I will be rotating back into equities at various targets. Some at S&P at 1250, and each 50 increment below that. My own personal belief is that it should be somewhere between 1000 and 1100 to expect a historical normal rate of return, but as with housing, things dont move directly to historical norms, but often take a long road to get there, with inflation having its effect. The amazing part is that I find I do best if I buy when common sense tells me we over-corrected and sell if I cant believe how high it is.
Japan opening will be very interesting to watch. They were closed when the BSC bailout was announced and when the downgrade occurred.
Naked capitalism has some sobering details on what could happen over the next few days…
And last week when the Fed announced their latest cure ($200 billion injection) the Dow was up 400 points. But it is obvious that the Fed move was merely to try to deal with the Bear meltdown. So, will the next Fed move be seen as a dead canary and cause a panic selloff? Just because it worked once, doesn’t mean it will continue to work.
Tim,
I appreciate your posts over the last few days. I’ve learned a lot from them. Can you clarify how mark-to-market is impacting the investment banks? I didn’t understand the part about the covenants.
“Mark-to-market” means that for purposes of valuing assets (whether on your books or pledged to you as collateral) you use the current fair market value as opposed to par (i.e., par on a note would be the principal amount of such note, whereas mark-to-market would be what a buyer would pay for the note excluding accrued interest), usually the valuation agent (in most cases the investment bank) gets to use its sole discretion exercised in good faith with respect to how to value hard to value assets such as notes, mortgages, pledged equity, etc. Say for example you are a real estate developer that gets financing from an investment bank. The investment bank would typically have a financial covenant with you that you must pledge or post non-cash collateral in an amount equal to 120% of the debt. If you are a developer this will usually be in the form of a mortgage on the project being financed. The bank will on a monthly, or more often, basis come up with its valuation of the project and if the developer is below the required posting collateral requirement based on such valuation it will have to post more collateral. Similarly, say an investment bank has securities on its books that have never defaulted, but because of lack of liquidity and market manipulation, they can only sell them for 50%. For various purposes, the investment bank will have to mark them down to their current market value of 50% of par which will result in a write down of their asset valuations.
When a client of an investment bank has to post more collateral due to mark-to-market (i.e., the investment bank says we are now valuing your collateral at X although you need Y posted, this is called a collateral call). Many collateral calls are not being meet, placing the investment bank in the situation whether to collapse the deal and force the possible insolvency of the client or hope it will get better, or agree to some other form of acceptable collateral. I am seeing a lot of pledged equity now, which is the very last form that is usually acceptable. After that, they have nothing left to post. And pledged equity is falling in value quickly. There really is nothing left unless as long as de-leverage continues.
In short, investment banks for many purposes continually re-value assets/collateral to what current circumstances dictate. If the valuations are going down, defaults occur with respect to collateral posting requirements or reserve requirements unless the beast is continually fed with more assets/collateral. Given the credit/liquidity crisis, defaults are system-wide right now. It’s all being held together by a very weak thread in the hopes that valuations will stabilize. Note that unlike home prices, valuations of some assets due to the liquidity crisis are actually below historical norms and still have not stabilized.
Thanks Tim - that was a very good explanation. It seems like new capital is the only way to stop this since both the investment banks and their clients are dependent on the value of the collateral (which looks to continue falling). I see why you are so worried.
I have one other question about mark-to-market. I’ve heard it alleged that firms are being forced to mark down assets below their long-term value (because of the lack of liquidity). Do you think this is true? And, if so, how could anyone know the true value?
No one knows the true long term value. That is the problem. As far as forced marked downs because of liquidity problems, that is clearly the case. You have ppl bidding 50 cents on the dollar for debt that has never been in default, and will probably never be in default. Even historical norms would suggest it should be valued at par. Why? Because they can since they know those currently holding it on their books need to get their books. Cash really is king.
I didn’t see the second part of your post before I made mine - I see the point now. Thanks again.
Tim,
thank you for the generous amount of time you put into those explanations. I was riveted and will be looking forward to subsequent posts.
Thank you Tim for helping me understand. A chill ran through me. We are indeed in very deep crapdoodoo.
I am glad I did not buy the dip last Friday.
something tells me they may be some more dipping to come
on wall st this week
bought more popcorn yesterday for the show
Loser! I bought Jack Daniels and you bought popcorn? Who is going to win this one?
NYCityBoy: 1
mgnyc: 0
If my reading of the tea leaves is right, Bloomberg says Dow future contracts are down 167 points. Looks like another interesting opening on Monday.
What can the Fed do to induce another rally? Every rally the past 6 months has been due to Fed news. That tells me that none of the rallies have legs. I am not a technical analyst but it seems like we should be much lower by now.
Anybody else warning their friends and family that the stock market may not be the place to be right now? Or am I all alone?
I tried to tell everyone ,including this blog ,10 days ago ,that all the bad news had not been priced into the stock market .I was saying we were ready for a correction in the stock market downward . Of course it was just my gut feeling .
I think a lot of people thought the correction would not take place until later on in the year ,but under this tight credit situation ,it had to take place sooner .
You would think that from the time anyone had knowledge that great losses would take place with lenders and investments firms,that one would know the ax could fall at anytime . Tim is in safe havens because of this .If you notice all the stock talking heads talk about value that will be past tense value in a recession .
I don’t know the true value of stock or what price they should be at ,all I know is that this up one day, down another day on the stock market cycle has not been anything but the cheerleaders creating action that someone is making money on it.
Anyway ,good luck to anyone who can make money in stocks at this time ,and be able to guess or know what the next piece of news will be that will send it up or down .
March 16 (Bloomberg) — Goldman Sachs Group Inc. will announce asset writedowns of about $3 billion this week, partly based on the declining value of its stake in Industrial & Commercial Bank of China Ltd., the Sunday Telegraph said, without citing anyone.
The investment bank may report a decline in first-quarter earnings of about 50 percent, the newspaper said.
Goldman will write down about $1.6 billion from its leveraged loans business and a further $1.1 billion from assets owned by the bank’s private equity arm, the Sunday Telegraph said.
Shares of ICBC, which is held separately on Goldman’s balance sheet, have fallen by 12 percent in Hong Kong so far this year. Its stock also trades in Shanghai.
“Goldman Sachs Group Inc. will announce asset writedowns of about $3 billion this week”
Poof!
The picture must be brightening somewhat if we are back to the $3 bn writedown, which is where writedowns started last fall before increasing to the $10 bn+ range.
I wish they would stop moving the big losses up and down so much…
I’m getting seesick…
(reporting safe & sound from one of the S.S. Titanic’s lifeboats, awaiting rescue by the Carpathia)
What? how come they let you out? I’m still rattling the gate that keeps me on the lower deck!
Is this because I’m not a Bowie fan? Well, except for in Labyrinth. That was hot.
March 16 (Bloomberg) — Goldman Sachs Group Inc. will announce asset writedowns of about $3 billion this week, partly based on the declining value of its stake in Industrial & Commercial Bank of China Ltd., the Sunday Telegraph said, without citing anyone.
http://tinyurl.com/3yetbl
There’s that three-billion dollar figure again. Three billion seems to be the standard unit of write downs, as someone else pointed out some weeks ago. Interesting.
Not to p*ss on anyone’s favorite conspiracy but that may just be some kinda “least count” thing.
If I called my sister every time I lost $10 or even $100, she might be a little peeved. Instead, if I lost $10K, or heaven forbid, $100K, she might be interested.
Same with these guys and these numbers. Not that I’m attributing great credibility to them but the hand-wringin’ and moanin’ is getting tiring.
” … but the hand-wringin’ and moanin’ is getting tiring.”
Stay tuned; The wringin’ & moanin’ has just begun.
For them.
Hopefully, not for me, and not for this crowd either.
Don’t care about them.
I don’t get what noting the frequency of $3 bn writedowns has to do with hand wringing and moaning? Perhaps I am blinded to this connection due to my alleged fondness for hand wringing.
Yes, kind of like capturing the number 2 man in Al Queda, over and over.
and over, and over, and over, and over…
good point lots of #2 guys in al kada
Question for Ben and everyone else: A couple people have brought it to my attention that Montana is a non-disclosure state. I take that to mean we can’t find out final selling price. Therefore on Zillow for example, all we have are offering prices if known and Zestimates. Our local realtor org recently pulled its sales stats, though I have no idea now whether they used offer or final prices.
Wouldn’t nondisclosure tend to keep prices higher, buy keeping buyers in the dark? I’m running for the legislature (again) and looking for issues. I’m a Republican but I love getting in the realtors’ faces
Utah is also a non-disclosure state. It’s a royal pain in the butt, as it means everything’s a big secret and thereby the used house salespeople have a higher level of control over things. Also appraisers. You have to just trust their numbers (so they say), and there’s no way to refute them. I’m sure this must make for a higher market, as they aren’t accountable to anyone.
When I bought/sold in Moab, I talked to everyone in town, trying to educate myself on the area and prices. That’s the only way you can get any real information, as far as I know. I prefer full disclosure, even though when I sold my house in Colorado I had a guy come to me and try to argue I should lower the price because he knew what I’d paid for it. He obviously didn’t understand how markets work.
Possibly ignorant question:
How can non-disclosure be Constitutional for Public Records?
Does this mean certain “special” groups (such as real estate buffoons) have access to the Public Records while Joe Blow does not?
One thing I’ve found out about here in NH is that the tax transfer stamp is public knowledge. The tax is calculated at $15 per $1,000 of sale price. Basically divide the tax stamp by 15 and multiply the result by 1,000 and that is the sale price. Perhaps there is a similar system in other states?
That tax calc is how it can be done for sure.
In CA, RE friend helped me calculate how much a vacant prop sold for 5 yrs ago. Sale price not listed.
Thanks, that’s a potentially valuable piece of knowledge.
Tax transfer stamp? Is that a NH thing? or for calculating cap gains?
I can look up taxable values online, but those are usually lower than sales price.
IRS spending $42 million on rebate reminders
The notices are going out this month to an estimated 130 million households who filed returns for the 2006 tax year, at a cost $41.8 million, IRS spokesman John Lipold confirmed.
That works out to about 32 cents to print, process and mail each letter. It doesn’t include the tab for another round of mailings planned for those who didn’t file tax returns last year but may still qualify for a rebate.
Democrats accused the Bush administration of wasting time and postage.
“There are countless better uses for $42 million than a self-congratulatory mailer that gives the president a pat on the back for an idea that wasn’t even his,” Sen. Charles Schumer said Friday, arguing the IRS could more effectively spend the money to catch tax cheats.
http://www.cnn.com/2008/US/03/08/tax.letter.ap/
I just received that yesterday. At first look I thought it was going to be a scam. I had the same thought when I realized it was just a letter saying what we all already know. WTF!
“At first look I thought it was going to be a scam.”
Oh no, you were right, it is.
it is for the masses who do not read the papers or basically live under a rock
money well spent
Yup - when the new president is elected they should tell us who the lucky person was by sending us a letter. And when the next war starts send us a letter. Fed lends a hand to keep Bear Sterns afloat - send a letter.
dont ever forget that Average Jan and Dean 6P are not paying attention, they are doing the same thing they have always done. I suspect that the majority who received the letter thought it was great news….helps get the confidence up.
Since getting the rebate requires doing what your supposed to do, filling a tax return, the notice seems pointless.
the notice seems pointless, only if you are paying attention.
I think the notice is designed to say -
1. Hey, wake up, we know times are tough and here’s some free money from your good friend Bush. Also, don’t forget to spend the money.
2. Go back to sleep.
They should have added a blurb to the letter that reiterates the strong dollar policy for types like me who are not completely asleep.
#3 and this is just a loan from next years tax refund.
I received my notice this week, which demonstrates that they didn’t even bother screening out those who won’t be receiving a check because they earn too much. Total waste of money.
Washington Post editorial this morning
Shhh . . . Don’t Say ‘Recession.’
By Dan Ariely
Sunday, March 16, 2008; Page B03
“If (as is often the case) talking about sex makes people more interested in having it, does that mean that the current talk about a recession could actually be creating one?
Well, maybe. ”
http://tinyurl.com/3xp4gv
About time a behavioral economist opined.
The modest rose puts forth a thorn
The humble sheep a threatening horn
While the lily white, Shall in love delight.
Nor a thorn nor a threat stain her beauty bright.
—————————
the guessing game on the financials continues from the ides of march through Palm Sunday.
(c) David Bindman:
…the poem points out a close relationship between passive virtue and aggression, Modesty and humility depend on self-posession, which makes an enemy of impulse-in the self and others…..confining desires and thus generating unsatisfied longings.
Two buck Chuck Stearns.
JP Meltdown.
Merril Lynched.
Goldman Sacked.
Scary, but good stuff:
http://www.nakedcapitalism.com/2008/03/bear-death-watch-update-and-nightmare.html
The last few lines are the scariest. We all know they are operating by the “seat of their pants” but seeing it in print somehow makes it more dire.
And these guys ” by the seat of their pants’ are the ones with the MBAs and the ones getting all the money.
LIke a MD, shouldn’t they have a better idea what to do next?
Sheesh. And you wonder…
Few, if any, can accurately predict human behavior.
Booster Socialism in the Desert
By George Will
http://www.realclearpolitics.com/articles/2008/03/boost_socialism_in_the_desert.html
Just another way of throwing the rich a bone. Both parties are responsible and all I want to ask it, When is it all gonna stop?
We need tax reform and we need spending controls, but who in Congress is going to do it?
On the Local Scene, They’re Selling the Front Doors too!
http://phoenix.craigslist.org/fur/607110052.html
Repo/Moving out of state sales are booming in N PHX
This “gift” of developer keeping the taxes is exactly what Walmart did to the city of Cathedral City for 10 yrs. And then when the 10 yrs were up, Walmart just picked up shop and moved to another city. Leaving Cathedral City in the lurch for no contractually promised taxes.Walmart just walzes off with the cash. I wouldn’t doubt that WM and other entities do exactly this and that is their bottom line.
Condo market driving housing starts: CMHC
Toronto action soars 50 per cent over one year ago
http://www.thestar.com/article/339472
“Solid local economic conditions and accommodative borrowing costs promoted many households to purchase a condominium apartment,” said CMHC analyst Jason Mercer, noting work on many developments will start this year.
Not learning from the lessons of their sounthern neighbor, yet.
Leaders
Credit crunch
Plugging holes
Mar 13th 2008
From The Economist print edition
Central banks’ latest moves to increase liquidity will ease but not solve the credit crunch
Buttonwood
Privates on parade
Mar 13th 2008
From The Economist print edition
- Before you get your hopes up, this article has nothing to do with Elliot Spitzer.
- Interesting study by Josh Lerner and Anuradha Gurung is discussed. The detail that grabbed me: Out of $3.6t in transactions included in their study over the period from 1970 - 2007, 75 pct ($2.9t) of the transactions occurred post-2001. I wonder how those post-2001 deals will work out for the buyers?
- My favorite line: “After all, if the smart money was selling, who would be a buyer?”
$2.9t$2.7t
Sorry — basic arithmetic is not my forte. (Anyways, what’s $200 bn between friends these days?)
Sorry to once again engage in speculation without substantiation, but I cannot help myself from wondering what percentage of the “who would be a buyer?” group were pension fund managers? It just seems so easy to make stupid investment decisions and justify them with the argument that “everyone else was doing it,” especially if most of the skin in the game is someone else’s skin (pensioners and plan participants).
Gee all of that, the .75% occured After,um, after, 9/11/01.
I know you didn’t say 9/11 but lets consider. When W said lets go shopping, guess he really meant it.
Saving American jobs and/or insulating the richest principals from huge financial loses?
..some of the biggest U.S. taxpayer-funded bailouts:
1971 - Lockheed
1979 - Chrysler
1980’s/1990’s - Savings and Loan crisis (including: Home State Savings, Lincoln Savings, Silverado Savings (Neil Bush involved in this one), Phoenix Savings).
2008 - Bear Stearns
Anybody still buying the logic that “national interests” must prevent the collapse of these businesses?
Notice how Bars Stearns went tits up…
on The Ides of March?
S.P.Q.A.
I think you mean SPQR
http://en.wikipedia.org/wiki/SPQR
http://tinyurl.com/yunt5n
Interesting quotes from the CEO of Thornburg:
“Alt-A has been the precipitating event; it’s just been feeding on itself,” Mr. Goldstone says. “You have AAA-rated mortgage securities trading with junk bond yields. That makes no sense.”
“I can’t believe it came to this,” Mr. Goldstone says. “The step down in the last two or three weeks is beyond anything I’ve ever seen, and I’ve been in this business 25 years.
“I’ve been sleeping two or three hours a night and working seven days a week for the last three weeks,” he adds.
This guy still thinks a AAA rating means something. Do these guys really believe their own BS?
US No Longer the World’s Largest Economy…Now We’re Number 2
Eurozone now Number , says Goldman Sachs.
http://www.reuters.com/article/idUSL1491971920080314
Temporarily.
Let’s just wait till the SHTF in Euroland, and we get to watch the p*ssing contest between the Germans on one hand, and the Irish, Italians and Spaniards on the other.
And the EU laws are set up so that the central banks have their hands hobbled.
My advice? Go long popcorn.
Back in the USA, hanging out with friends in Torrance…
They tell us of nearly everyday gang shootings somewhere in el lay, the past month.
Just a mile from the “safe-suburban” home, the Hispanics & Black gangs are rumbling all the time now against one-another.
“White Flight” is not an option this go round, like who’s going to buy your house?
Crazy world we live in…
This is perhaps what I find the most unnerving about SoCal. Knowing that gang bangers are waging war just a dozen blocks or so from my home would certainly keep me awake at night.
I’d like to ask Hoz, PB, Tim, TxChick and others for their opinions on Oil/Energy related stocks.
About 45% of my brokerage account is now in cash. I’ve owned GDX and GLD for several months and purchased BP and BHI on the dips, within 2% of their 52 week lows.
I keep seeing more and more market mavens talking about the relative safety energy stocks, since they’re is “always a market for oil” as one commentator put it on the Nightly Business Report a few weeks ago.
So I guess my question is if I’m being too nonchalant is assuming these energy companies are going to be better insulated from this credit crisis than most other companies, or if you believe that their stocks are also at risk.
Any thoughts would be appreciated.
Thanks!
I’m long energy, but have pared my E&P company holdings back and am keeping my servicers. Higher oil prices actually hurt profits for the majors because oil is their upstream cost. Overall I still like energy, especially nat gas producers.
Buy what China buys.
Brazil raw materials and oil.
What if the U.S. economy takes CH down with it? (Or are you sure that can’t happen?)
To rephrase my question, does it seem reasonable to expect that unprecedentedly high correlation in a boom will be followed by decoupling in the bust phase?
China’s financial system is even dodgier than ours, and they’ve not been through a major financial crisis since emerging from Maoism. They were much more insulated from the world financial system when the 1997 Asia crisis hit, than they are now.
China is going to slow down hard. The tide will go out fast and we’ll see that most of their investment is unproductive speculation. When that happens, watch out for all the ‘China plays’ like Brazil and Australia, which are already priced up to the stratosphere.
A world addicted to easy credit must go cold turkey
For too long, those who warned that the borrowing bubble would burst with terrible consequences were dismissed as congenital gloomsters. Greedy lenders, their irresponsible customers and incompetent ministers formed an unholy alliance to perpetuate a myth: that consumers, companies and governments could keep spending more than they earned and suffer no penalty.
We heard new and intriguing justifications for excess. Banks seemed able to acquire rubbish and recycle it as triple-A securities. It was a sophisticated version of the second-hand shop that advertises: “We buy unwanted junk and sell valuable antiques.” Instruments of financial leverage became so complicated that even those trading them did not fully understand how the system worked. All they cared about was the potency of magic that enabled welfare claimants to borrow five or six times the income they were not earning and still make the numbers add up.
Mr. Containment becomes Malcolm X: by any means necessary:
WASHINGTON - The Bush administration will “do what its takes” to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.
http://news.yahoo.com/s/ap/20080316/ap_on_go_ca_st_pe/paulson_credit_crisis
PPT meeting Monday:
ttp://apnews.excite.com/article/20080316/D8VEJDP80.html
President Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Fed Chairman Ben Bernanke and Paulson. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into recession.
Peter Schiff says we crash tomorrow:
http://www.europac.net/Schiff-FBN-3-14-08_lg.asp
Gold book index…
Went to B&N bookstore at “The Avenue” in White Marsh (just north of Baltimore city) this morning. Found two books boosting gold. Far more books about stocks and stock options per se.
When Time magazine puts gold on its cover, treasury note rates are above 6%, your cab driver talks about gold and a whole shelf of books in the investment section of your favorite new books store boosts precious metals, you best sell all your gold. We’re not there yet!
Social commentary on drinking on the job!
Could not squeeze this comment in its appropriate place, because we ran out of space, however:
It was a common occurrance for labors/trades person’s up to Prohibition, to be drunk on the job. Maybe this was because the water was bad. Do not know for sure, however, how do you think the Irish got their reputation. (a lot of irish immigrants around this time).
Just a thought you may want to ponder, imho
Maybe this explains the WS/IB crap. Do they belong to a union?
Were they drinking on the job (I mean other than Kool-Aid)?
Today’s Kool-Aid drink:
Raspberry flavored, with a shot of Gin (bathtub) and laced with arsenic.
No, I suspect you have a desk job like I do. My grandfather was a brick layer in the 20-50s until his heart attack. He and fellow family members/trades man were like gypsies moving from job to job through the western US. I have/had three brothers in the unions, bricklayer/welder, fitter, and steel worker.
I have seen them make fast money and spend it just as fast. If it wasn’t for their wives (when they were married), their children would have starved or on state support(food stamps, etc.).
And no they probably didn’t drink on the job, though I suspect that they were stoned.
Comment by LostControl
“No, I suspect you have a desk job like I do. ”
My comments on this subject have been light hearted as a matter of course. I do have a desk job; President and owner of a mid-sized engineering/construction firm, a union one I might add (construction portion). However, I also hold a journeyman wireman ticket in the construction Local of the IBEW (International Brotherhood of Electrical Workers, I am a 37 year member). I went through a 4 year apprenticeship program many years ago and subsequently completed my BSEE degree on an IBEW Founders Scholarship so I owe a lot to the IBEW. Commenting on some of these posts seems irrelevant to me as I really have first hand knowledge but most of it differs from the mainstream thoughts which are basically anti-union. Not being critical, just stating facts.
Good For YOU!! Unions have made this world better for millions of people.
This should inspire confidence in the markets…
““I’ve got great confidence in our financial markets and our financial institutions,” Paulson said. “Our markets are resilient, are flexible. Our institutions — our banks and investment banks — are strong.”
Paulson repeated his support for a “strong dollar,” and said the long-term strength of the U.S. economy would be reflected in the country’s currency.
President George W. Bush is scheduled to meet tomorrow with his Working Group on Financial Markets. Paulson chairs the group, which includes Bernanke and Securities and Exchange Commission Chairman Christopher Cox.”
From Bloomberg.
Economic policy uncertainty is ever increasing.
saw paulson on fox news sunday this morning repeating his “stability in the markets” mantra, and felt like shooting my tv set. seriously, this guy’s manner and bearing are nothing but thug. give him a jersey accent and he’d be right at home with the Sopranos. i’m beginning to think the financial markets, all the way up and through to this guy’s level, are totally compromised. maybe it’s not merely “socialism for the rich” but simple organized crime.
I have had your same thoughts so many times Kr .
Hi,
Slightly OT, but…we would like to take advantage of what I assume would be cheaper rates for condo rentals in Florida. Any recommendations for a laid-back family vacation by the beach? We are on the West Coast, and most of our Florida exposure was the Miami airport en route to South America.
Years ago, I heard good things about the Sarasota area. Any comments/suggestions are appreciated.
Just want to add, this vacation plan brought to you by the weakening American dollar. We have relatives in Italy so lodging would be free, but the thought of airfare and other Euro expenses has put the good ol’ US of A at the top of our list.
So maybe the weak dollar policy is “working”?
Trying to be positive.
Opening bills, including tax payments, and it makes me totally tremble. It’s inborn, and it’s one reason I never bought a house. I hate bills.
Brother said to spend my savings and stop talking about the economy and housing to other people. He said I might sound like an anarchist or a revolutionista.
I hear ya! I just ran my numbers through my tax program yesterday. This year I owe $2600 more in taxes. I can handle it but did not expect to owe. It only means less spending in other areas. And no, I did not qualify for one penny of the 2008 Bush tax rebate. Glad to be of service to the American public to support $1,500,000 studies of the sex lives of tse tse flies with my tax dollars though.
“It only means less spending in other areas”
I have a “me too” policy. When I pay hurtfull bills like taxes, I go spoil myself with a mini gift.
Who wants jello?
Wall Street waits for the next domino to fall
By Francesco Guerrera and Michael Mackenzie in New York
Published: March 16 2008 20:22 | Last updated: March 16 2008 20:22
Tonight so far itthe domoino is the dollar
Yen 97.500
Euro 1.5765
EuroYen 153.75
No the domino is BSC!
JP Morgan buys BS for $2 a share.
That’s the going price for a pig in a poke.
This is the equivalent of taking title of something for $1. Basically it just says that JPM is willing to take both the assets and liabilities as a wash. So far markets aren’t doing much of anything; if anything they’ve improved a bit and dollar firming. Discount rate cut 0.25% to 3.25%. Could that be a hint not to expect such a big cut in funds rate?
Nikkei down 322…
Heard on TV that sale price is less than the value of their building.
Bear sold for $2 a share, and Fed cuts rate by .25%
The meltdown has begun…….
Wall Street futures through the roof tonight. (up 150)
more shock and awe tomorrow?
ok, back down now.
Spare a thought for the guy who bought a billion’s worth of BS
shares at $110 back in Sept. Now thats a bet.
Joe Lewis lifts stake
in Bear Stearns
Joe Lewis, heavyweight champ, Knife Catchers.
I think we’ve just overtaken him in Forbes rich list
Fed just cut rates a quarter points. Asian markets are crashing. Gold is up $20. Dollar is breaking down bigtime against the yen. Assume crash positions.
No your wrong Standard and Poors said that most of the write downs are done.
Last week when the first deal for BSC went through I read that people would be going over their books this weekend. I wonder what they found?
RTTNews) - The U.S. dollar has seen its recent decline accelerated on Sunday ET evening after the U.S. Federal Reserve implemented an emergency rate immediate 25-basis point reduction in its benchmark credit rate, dropping the rate to 3.25 percent.
The board also approved an increase in the maximum maturity of primary credit loans from 90 days from 30 days. The Fed board also voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to securitized markets. The facility becomes available at the open of business on Monday.
I can’t get futures quotes…not a good sign.
Gold is way up 1032 per oz
I was reading teasers in Yahoo News and lucked into the note, just as it came out, that the Bear deal was complete/approved, only a half-hour or so before the Asian markets were to open. So I kicked my wife out of the TV chair (thank you, TIVO) and started scanning for news. Only the totally-unprepared fella on Asian Squawkbox had any live comment and he was really struggling. I kept looking for more coverage, since we’re into econo-history book territory, and nada. Relinquished the chair and came back to the computer. Should be a lot of “Holy S—!” tomorrow morning. It’s a bit of a strange feeling, watching all this unfold “live,” while so many people who might be very concerned don’t have a clue. Gotta love those Friday/Sunday evening biggies.
http://www.kitco.com/market/
Gold up $22 an oz to $1027 an oz - looks the the flight to quality - make that the stampede to safe haven - has begun in earnest as Beranke & Co. evicerate the dollar.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.kwMtvHsOL0&refer=home
JP Morgan buying Bear Stearns for $240 million - a tenth of its value last week. Wonder who’s going to buy JP Morgan for a tenth of its “value” before the year’s end?
Hang Seng down 7.5%–1096…
http://www.mreinfo.com/civilian/mre/civilian-mres.html
Here’s how I’m spending MY “stimulous” check.
LOL. They’re not that bad - I’ve eaten them and would guess that if you were stuck and had to replace your normal dietary goodies with these packs, you’d gain weight.
One of the articles -either first or second on bloomberg.com has one analyst saying Fed is begining to place US Treasury “in peril”. Oh great.
And one other observation. Nikkei flatlined for a period today. Looks like they pulled the plug on all trades for awhile.