The Housing Bubble

But doesn’t this plan require foreknowledge of knowing when interest rates are going to go up and down?

No one knows that stuff in foresight. In hindsight, it’s easy to look at a graph and say, “If you bought here and sold here, you’d have made a fortune.” Hindsight is 20/20.

Greenspan’s advocacy of ARM’s may be valid. But it’s a gamble. It just so happened that interest rates have been relatively low throughout the 90’s, till today.

His advocacy of innovative financial products is the real problem. “Innovative financial product” mostly means “creative loan repayment structure” - basically new ways to squeeze more money out of the debtor without his realizing it.

That’s the thing that damages his credibility the most, IMO.

“His advice was very technical, but it was good. And it wasn’t to go get a sub-prime loan or facilitate stretching for more home than the buyer could afford.”

Bluto - apologies for replying so late as to appear unfair, but I think his message was received by a huge number of people, and likely quoted by a whole lotta loan merchants, as to have been quite effectively a tout to take out an ARM regardless of personal circumstances.

IMO, that is what he will be remembered for. Timing and delivery matter when you are a big cheese and front-page news.

the only reason that they are now predicting 1 trillion in losses is that they want to pressure EU/Asian governments into bailing out the crooks with 1 trillion of taxpayer money. And I’m sure the IMF is going to make a nice profit for themselves on the side, like arranging some of these bailouts. They are desparate to get their fingers in some new business, the times of cheap and easy credit did not work out well for IMF balance sheet.

I couldn’t agree more. Naomi Klein’s got an excellent book out The Shock Doctrine that discusses the economic shocks the IMF and related corporate entities have given to countries in the name of democracy that simply serve to weaken the country so that the corporations can loot it more effectively.

I fully expect to see that the proposed banking reforms - once the Bush administration is through with it - to include some version of the IMF central banking independence that were inflicted on countries from Chile to South Africa to be inflicted on us.

OT but:
I was checking out an expensive Hallmark birthday card at the supermarket yesterday when I noticed that it was “Made in China”!. I went back to the card rack and found one just as nice that was USA made and the same price. We are in deep doo-doo here in this nation!

I’ve seen that a lot. Manufacturer moves production overseas to reduce labor costs 90%, but retail price of product remains the same. Difference goes straight into the sellers/manufacturers/wholesalers pocket.

This works great, until nobody has a job, and can’t afford to buy anything anymore.

My husband just got back from Australia, where he made a special stop at a special jewelry store to buy me some Australian opal cuff links. They seemed strange (definitely not like the opals I remember seeing when I was last there), so I flipped the box over (after he was out of the room) and, sure enough, they were Made In China. I didn’t have the heart to tell him.

“We are in deep doo-doo here in this nation!”

My teen age daughers wanted me to get some apple juice from the store (the pre-prom “I’ve gotta lose ten pounds!” Ramen panic diet….).

ALL of the apple juice made from concentrate was from China.

The stuff alongside the Tropicana/not made from concentrate stuff in the store freezer is still “Made in USA”
(probably by illegal immigrants, but I digress…)

Forewarned is forearmed.

I noticed the same with apple juice sold at a local Safeway probably a year ago (though I’m not on the prom diet…).

I hope no one is buying items stamped “Concentrate from China.”

Spook, you’re always great for the defense

Most of the Irish I know are decent.

make sure and wear some heavy shoes or boots

I stand corrected brother Hoz

I’m not aware that the U.S. owes the World Bank anything. The WB usually provides loans to what it considers “developing” countries AFAIK.

I think Lost is just comparing the debt of the 3rd world countries to the current debt the U.S. owes to foreigners in general, not necessarily saying that we owe directly to the World Bank.

correct, thanks Blu

My god the horror of spending cuts. What will we ever do without $500M bridges to nowhere and $1M Woodstock museums? You’re right there will be riots in the streets.

Amen! me too.

That would be a nightmare here. Gas is currently around $3.09.

My UK relatives tell me they’re paying GBP1:10 a litre at the moment.

1GBP ~= 2USD and 1 US gallon ~= 3.75 litres, so that’s about $8:25 a gallon.

For years I’ve heard people in the US who work at the post office lecture about what people in parts of Europe pay for postage. Those who run gas stations used to lecture about what people in Europe pay for petrol. The attitude was always slanted toward how we should be paying the same. I guess they’re getting their wish, but then, I don’t think we here in the US get the same bennies that some Europeans get. Like the same mandated paid vacation time people get in parts of Europe, the public health, and whatever subsidies, etc.

gas in Netherlands was around $9/gallon recently and is expected to go past $10 soon because most of the oil price gains have not been priced in yet.

I don’t think we here in the US get the same bennies that some Europeans get. Like the same mandated paid vacation time people get in parts of Europe, the public health, and whatever subsidies, etc.

An excellent point.

Then again, we have a couple of wars, a mountainous deficit and a whole lot of no-bid contracts to pay off.

Vacation is for the soft and weak anyway, unless you happen to be the leader of the free world, in which case you may feel you’re entitled to a record-breaking number of vacation days, plus some other sweet bennies, too.

RE: I don’t think we here in the US get the same bennies that some Europeans get.

Yeah, like well designed, stylish auto’s with 6-speed turbo-diesels which cruise along at 90kph while getting 55/60 mpg.

We are Pig-Mobile Nation.

Ahh yes ‘free’ health care in England.

Free in the sense that anyone making above 33,000 pounds ($66K) is in the highest marginal tax bracket of 40%.

In the US at $66K you’re at 15%. Even in the pre-Bush days the top marginal rate in the US was 39.6% and that only kicked in around $300K a year.

And if that weren’t bad enough every employee pays another 8 to 12% as a health insurance tax in jolly old England.

If that’s what ‘free’ health care means, I’ll continue paying for it thank you very much.

“Vacation is for the soft and weak anyway, unless you happen to be the leader of the free world, in which case you may feel you’re entitled to a record-breaking number of vacation days, plus some other sweet bennies, too.”

I don’t particularly admire Bush any more than the next guy, but to be fair, I don’t think President of the US is a job that allows time off on weekends. If you count those, a typical salaried worker ends up with 52×2 =104 “vacation” days a year.

“but to be fair, I don’t think President of the US is a job that allows time off on weekends.”

Did you miss Bush talking about Paulson “having to work over the weekend” to bailout Bear Stearns? He repeated, with wonder in his voice, that Paulson even “worked over the weekend”. No, I do not think George “works” over the weekends.

Why the high rape statistics? A shortage of women, or too much drinking and drugging or what?

RE: Why the high rape statistics? A shortage of women,

I think the stats include moose and bears.

Among women my age, there is a floating piece of advice: if you can’t find a date, go to Dutch Harbor (AK). Men will pick you up on the street, in line at the supermarket, even as you wait at a traffic light with your car window rolled down. Over 60? No problem! I’m not sure about over 90; you may need to be at least ambulatory.

That lunacy has always bothered me. Okay, so you do $5,000 of upgrades on the kitchen or whatever. Why should that raise the price by $10,000? Can’t the new owner - since they intend to flip the house quickly - just do the same work for the same price ($5,000). If anything, they might not like the choices that were picked and might have to redo part of it, resulting in well under 100% return on investment.

But no… for years, the dreamers have assumed a new paint job = price of house goes up by $20,000 or whatever. Unreal!

Well a little painting and landscaping is probably the only thing that DOES pay for itself. But fresh paint and a reasonably nice lawn is assumed. The assumption on buyers part is that if you can’t manage even that, then there’s no way that you kept up on basic maintenance.

A good Austrian friend of mine with whom I worked in Europe used to always come out with his quote every time we saw yet another government regulation/restriction in the USA: “Ach ja, Land der Freiheit, oder?”

Sarcastic, but he was right. There were and are areas where the USA gives more freedom than the typical European country, but there are lots of others where the Europeans are more free than Americans are.

I know my mind has been corrupted by living and working outside the USA for much of my life (and not as an expat for an American firm), but the problem with Rush and others like him is that they know so little about day to day life in Europe; thus they assume quite incorrectly that the US is more free on all counts, and it just ain’t so.

Try denying the holocaust in Germany and see how far you get before the polizei show up at your door. Or try being a Scientologist and see how far you go. Or go to Canada and write an article in a magazine saying something anti-Muslim and see how long it is before you are brought up before a Human Rights Commission. Or for real s**ts and grins see what kind of reaction you get in Russia for challenging Putin.

My favorite example of freedom of speech in Europe is the rapper who was jailed for calling France - and I quote - “a slut”.

You tell ‘em, Manny!

What is the difference between capitalism and communism?
In communism, man abuses man. In capitalism, the reverse is true.

Summers’ unfortunate speech about women in science was only an excuse for his ouster. Summers was a bad manager, fired many great and beloved people, replaced them with incompetent soulless bureaucrats, and alienated pretty much everybody he came in contact with (except the students, who loved him). Harvard is functioning much better, now that he is not the President.

“RE: free speech

You might want to debate that with Larry Summers -ex prez of Harvard.”

Hi, spike, I don’t know if it is just a Florida thing. Hillsborough County has a very good public health care system for county residents. There are even some wealthy people who pay full price at the local clinic because they prefer it. You don’t have to speak Spanish, but a lot of the patients do. I found out about it through a friend who went there for dental work. A lot of people are unaware of what is available in their area. But the illegals around here sure know the ins and outs of every benefit. Like Tony Montana in Scarface: “I just want what’s coming to me”.

I have seriously been thinking of starting a non-profit benefits counseling office for middle class American citizens and vets in this area. People have no idea of what’s available and they should know. It’s their money, so they might as well take advantage.

A friend’s husband suffered a stroke not too long after he had left his place of employment to start his own business. During his rehab, she confided in me that they were having trouble meeting expenses. I asked if they were getting SSD. She didn’t think her husband would qualify due to his being a self-employed white collar professional. I asked her if they paid their SS taxes, she confirmed that they did. So on that basis she agreed to apply, and they did get disability for him while he recovered.

Where do your “illegals” come from?

The way to deal with that would be to take a cut out of the money payments being sent to Mexico. If someone owes money, take 50% out of the payment. It would be interesting to see what would happen if they were held accountable. Call it step 0 on the 9 step process of amnesty. Jail time for those that fail to pay Federal taxes could be step 1.

“The problem with illegals is that they don’t have any assets to lose.”

Not true. Reading this blog,you know they own homes and investment properties, trucks and cars, and have mortgages and credit cards, courtesy of Bank of America among others.
What they also have is “sanctuary” in some areas, they give them freebees, or fake id, including fake driver’s licenses, that they carry if stopped. So, who are they? Easier for the collections folks to chase Americans, and wrap the bills run up by illegals into the hospital charges.

Saw a report on one of the network news shows last night.

This ONE hospital (I believe it was in Brownsville) has $200 MILLION dollars budgeted for health care to illegals……the maternity ward sees women coming over from Mexico whos how up at the hospital with their clothes STILL WET from crosssing the Rio Grande, to have their US anchor babies.

They interviewed one of them….she said “God will provide….”

Pi##ed me off about as bad as the PBS show about the Somali “refugees” in Boston.

Will there be any discussion around the country club when the new children look like the gardener? With enough body art, the children won’t look like anything human.

Good for a laugh, I thought you were referring to relatives who worked for the SEC.

Your analogy would be complete if the thief and the officer were members of the same group with the same ultimate goal, that is, to liberate you of your money.

This is a government of and for big money interests. Everything else is, as I said, a matter of appearances. They want to simultaneously give the big money interests license to steal while making it appear to be “regulated” for your sake.

Again, this is just a difference of appearances. Nothing is really different. The same people are still in power whether they have GW or Obama in hot seat.

ROFLMAO!!!

Skip,

Let’s not encourage you know who

The best investment is long underwear!

What do you do, from a job standpoint when the GOV/Microsoft/Google starts putting constraints/filters on the internet?

What do you do, from a job standpoint when the GOV/Microsoft/Google starts putting constraints/filters on the internet?

vpn

Can you elaborate on that? The debt might disappear (through bankruptcys, foreclosure, etc) but the cash is still floating around. Someone borrows $X on a house and spends it on jewelry, TV’s and vacations. The value of the house drops below what they owe. Regardless if they stick around and pay it off or send in jingle mail, all those dollars are still floating around out there.

Blue,

The physical cash never existed in the first place. The transactions were probably electronic and just result in account deficits and credits.

As the debt defaults the value of physical currency increases. Hence why people hoard cash in a deflationary period. Its going up in value.

Home equity is a function of Collective Public Opinion, otherewise known as Mr. Market.
When the the moodswing-ridden Mr. Market decides homevalues are going up then the homeowner’s equity also goes up. Note that this equity is based on the wispy opinion of Mr. Market.
When the homeowner decides to cash in on this equity, meaning exchange this wispy equity for some very serious debt, then he gets access to some very spendable cash. Note that the equity was not spendable until it was converted into cash. The only way to convert equity into cash and still keep the house was to borrow against the house’s market value, a value determined by Mr. Market.
Now the homeowner has debt that is backed by his house’s perceived market value.
All is well … until moodswing-driven Mr. Market decides the previously perceived home value is no longer there, that the value of the house is now less than the debt that collaterized it thus making the value of the debt questionable, meaning whoever holds the mortgage note may not get all his money back.
This mortgage is where the thin-air money will revert back into thin air. As the house price declines the value of the mortgage backed by the house price will decline along with it.

Cambo, that money became (as you point out) manifest once a loan was taken. Those real dollars were spent and still exist in the market. When the loan was made, one could argue that those dollars represent money that expanded the money supply. When the debt becomes bad, the dollars don’t go back to where it came from, they are still out there in the market.

If you take out all the ways that money gets from the Fed to consumers essentially what happened is that when a homeowner took out a loan, dollars that didn’t exist came into existance. Let’s say a person took out a 100,000 loan against a house, that money now exists in the market. The money supply is derived from the new dollars, not the loan. If the money supply were derived from the loan, then it could be said 200,000 was new money (100,000 for the loan owed + 100,000 for the cash now in the hand of the borrower). This is clearly incorrect, the increase in money supply should only be counted once.

When that 100,000 is spent, all that money goes out there and floats around. When the debt goes bad, since the money supply is related to the money and not the debt that doesn’t really change the money supply.

James, as to the issue of physical dollars, it doesn’t matter if the money is manifest as paper or binary digits. When the Fed loans money to a financial insitution those dollars become real and available for use. Physical dollars are a convenience and provided as needed. If 1,000,000 of dollars exist “on the books” but most of that remains as deposits, then the only portion of physical paper needed is the portion which people are using. If we assume in my example that the amount of physical paper dollars in circulation is 200,000 it doesn’t mean the other 800,000 doesn’t exist, it just isnt’ manifest in physical form.

When dollars get circulated back to a bank via loan payments they are usually loaned out again.
But in times of credit contraction, i.e.when banks are holding junk mortgages, these dollars are not reloaned; they are kept by the bank to rebuild the bank’s depleted reserves, reserves depleted by junk mortgages.
Thus these dollars are taken out of circulation and new dollars backed by depleted reserves will not be created, hence the money supply is reduced.

blu
The total money in the economy is much larger than the currency that exists. The multiplier is called the money multiplier. I believe currency and coins are about 300 billion or so and they become a much larger amount of money. In a deflationary slowdown, the multiplier drops pretty dramatically and money is removed (even though the level of currency doesn’t change).
If you’re familiar with physics money is sort of like momentum, with currency being the weight and the money multiplier being the speed. When it slows, you lose lots of momentum even though the mass doesn’t change.

The total money in the economy is much larger than the currency that exists.

I understand that, but cambo’s original assertion was that a default on a loan is a decrease in the money supply. As far as I know loans don’t count as any part of the money supply. So I was trying to get a grasp on how that assertion could be true.

But the other side of that loan does show up on the lender’s balance sheet and is considered “wealth”.

Though the money borrowed still exists, the wealth can be destroyed. If the lender has reserves against loans, and the loans default, the depositors/investors will not get the REAL money that they deposited, right? Perhaps that is one way to look at what some might consider decreased money supply.

Maybe???

stop that.

thank God I wasn’t drinking anything; the keyboard woulda gotten soaked.