Bits Bucket And Craigslist Finds For April 12, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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What is any company worth anymore?
Much of the world’s assets are financial assets. Bonds, mortgages, money market funds, CDOs, CMOs, Auction Rate Securities, Credit Card pools, ect…
These assets total tens of trillions of dollars and are reported as assets on the balance sheets of companies. We know that public home builders are lying about the value of land on their books. What do we know about the trillions and trillion of dollars of financial assets?
Think about this, over 40% of the S&Ps earnings was derived from financially related activities. Remember when GE as a manufacturing company making and selling things? Remember when we built homes financed with loans where people could afford?
Now the housing bubble will morph into the credit bubble!!!
“Now the housing bubble will morph into the credit bubble!!!”
IMO the housing bubble was a product of the credit bubble. The one begat the other.
–
ALL bubbles are due to credit bubble. And all depressions are a result of gross abuse of credit, or “bankers’ mischief.” Most people don’t realize that stock market is a substitute debt market (remember dividends, which were the essential part of publicly traded companies).
Jas
It was always a credit bubble; the housing sector was merely the most obvious manifestation.
for everyman a house— CRA act of 1998
That is false at every possible level. Market oriented conservatives pushed subprime lending in order to expand the number of available customers. Until the bubble trashed appraisal and lending standards everything went just fine.
BS Give me a previous example of a well established credit bubble. People weren’t camping out in front of credit card companies.
the LBO craze in the late 1980s which begat the end of Drexel, etc.
How come no one calls it a credit bubble?The credit follows the mania, not the other way around.
All bubbles are, in the end, credit bubbles because you can’t get the multiplier effect without the leverage. Every single bubble depends on credit in order to pyramid, down to the last one.
The difference here is that the credit has flowed into virtually every asset class that I know of — Indian art, condos in Panama, Turkish and Icelandinc bonds, first editions of rare books, raw land in Kenya.
There is some logic to calling this the greatest credit bubble ever. Housing is just its most obvious manifestation.
‘Housing is just its most obvious manifestation.’
Nobody camps out for a loan. It’s a mania, and people lend to the maniacs.
Would you say the housing mania began on Sept 12, 2001?
People wanted to nest, and interest rates did the rest…
Fine, then there seem to be maniacs of more stripes than just the housing ones.
They’re doing the virtual equivalent of camping out too just in front of their Bloomberg terminals or at Sotheby’s.
If this mother of all credit expansions shouldn’t be termed a “bubble” itself, there sure seem to be a lot of bubbles tethered to it.
Would you say the housing mania began on Sept 12, 2001?
Yes, especially since it followed on the heels of the Tech Wreck and an already-appreciated housing market in much of the country. I think people collectively decided that real estate was a more reliable and tangible investment. Stock market was for fools.
I saw a lot of articles talking about people putting money in RE in 2000 long before 9/11 arrived.
There is a human tendency to pin events on specific things. IMNSHO, it’s rarely that easy, and never true.
“Would you say the housing mania began on Sept 12, 2001?”
No. It was already in full swing by then. But fuel did get added to the fire in the next couple of years.
We bought our house in RPV in March of 2001, and i’ll assure you that there was no housing bubble going on at the time…
Virtually every house we looked @, had been for sale for many months, and we looked at around 40 houses.
“Would you say the housing mania began on Sept 12, 2001?” NO. It began Jan 20, 2000 with the undisputed
lightweight taking over Pennsylvania Ave, and bring on board YES people with limited credetials.
In ‘99 I was house shopping in Phoenix and prices were already a bit frothy.
Looking at what credit is not compared to what it was in 2000, clearly, we have a bubble. There was a reason housing prices did what they did. Easy credit was it. Lenders lending and borrowers borrowing no-down-payment-negative-amortization-option-loans is just as crazy as camping for a Florida condo.
With cheap credit, people will borrow to buy better-paying assets. That’s sensible investing. Then the next thing you know, asset prices rise due to demand, and people buy in the speculative run-up hoping for capital gains, hoping they aren’t the last greater fool. Eventually, even with credit being as cheap and easy as it is, people can’t afford anymore. That’s the credit bubble.
With the NAR talking about “being priced out forever” and “prices never go down” it seemed to shift on to housing this turnaround.
Housing prices were high by 9/11… but in the Bay Area at least that seemed closely related to the tech bubble. I was expecting house prices to go down after the NASDAQ dropped. But we all know what happened instead.
I have to disagree with Aladinsane… Though it wasn’t as pumped up prices were still out of whack in the LA SB.
I think everybody has good points about the bubble but I’m in the credit bubble camp. Banks fed on the fees and did the simple but wrong trend lines based a few years of gains.
Seems like they drank the koolaide or the bosses took the short term gains and pushed off losses. Either way they enabled it.
The mania aspect of it is also a driver. The pop of the bubbles can either be psychological like the beannie babies or due to debt exhaustion. The housing bubble screamed debt exhaustion when the purchases were all alternate financing.
You figure you are close to the end when 1/3 of the loans require exotic financing. Figure every one of those sponsored two other sales. Eventually things were so jacked up, 05/06 time that we had 60% exotic financing which means the distortion went to epic levels. So, the exotic loans were sucking in the plankton but eventually the other ranges had become hyperinflated as well.
On the way down people psychology will play a big factor as real estate becomes a less attractive investment. That causes the acceleration in the decline to be greater and overshoot larger. I think the looser the credit the more ring in the response.
‘“Would you say the housing mania began on Sept 12, 2001?” NO. It began Jan 20, 2000 with the undisputed
lightweight taking over Pennsylvania Ave, and bring on board YES people with limited credetials.’
More revisionist BS. Look to the $500K cap gains exclusion on a primary resident passed by the leading female presidential candidate’s husband for the start of yer bubble.
I’d also say Rubin printed a lot of money and grew M0 and the Fed/Treasury reduced reserve requiremnts back then.
So, things were primed back then as well.
Certainly not giving Bush any credit for lax enforcement, not recognizing the need for SEC oversight and enforcement….
Basically think we have had a trail of two really bad presidents. Bush Sr was OK considering he inherited the S&L fiasco and that was pretty far from the last bubble in occurance.
You’d think that Clinton would have been more on the look out for that sort of thing… but no. Bush… he is just a dang fool. Clinton wanted to be president but is just totally without direction. You get similar results. Both guys were subject to manipulation.
Hopefully, Paulson & Bernake don’t over burden the Fed balance sheet too much and impair other credit marrkets trying to stop the spinning whirlwind blades of death that is the housing bubble. See if the big rate cut and the bear stearns bailout give the markets about a month before things lock up again.
1929
Again, stocks, the credit follows the mania. Nobody offered IO, no doc loans to strawberry pickers in 1996. Next.
I agree with Ben, and in this instance, I attribute the specific mania to the Clinton-era change that allowed people to iterate escape from cap-gain tax in 2-year house flips.
“Clinton-era change”
A vote for HC is a vote for more ‘Clinton-era changes.’ Meanwhile, Paul Volcker is backing Obama. This could be a very potent political-economic force if ever there was one.
“Paul Volcker is backing Obama.”
Carter & Volcker helped me get my first mortgage:
Assumed VA Loan @ 15.5% 30 year for a $26,000 3bdr 1 bth in Nebraska…….1981…. payment $296.00
How many homes will sell in America if mortgage rates start @ 14+% ?
Bring it on bald fat boys:
Now that is some strong backing my book! Now if we can only get him back into the seat as it were.
Could somebody please paint the big picture for me on this whole debt bubble vis-a-vis housing bubble?
I’m no economist, financial guru, or whatever–just a former realtor/loan originator who’s been watching this passion play from the cheap seats. Here’s my take, though:
As far as camping out for a loan (Ben) . . . I think it’s kind of like camping out for Stones tickets. It’s not the “tickets” they want–it’s the “concert”. [Like I learned in sales seminars, people don't buy drill bits because they want to own drill bits--they want holes.]
IMHO, the credit bubble accelerated the growing RE investment movement into a gold rush because housing was where the herd ran after the herd got burned in the stock market. But, easy loans are the “ticket” to the bigger-better-more-houses-for-everyone “concert” that would have been unobtainable in more sane times. That was what turned shoeshine boys into real estate speculators and sent prices into the stratosphere (the “mania” phase). Parties turn into orgies when the booze is free and mom and dad are out of town.
My take, anyway.
The massive shift in “savings rate” in America started well after the “housing bubble”. ???
The RE bubble in Japan happened without a low to negative savings rate.
Q.E.D. (Hmmm, checking to see if I still have both feet.)
But…, yet…, things ARE different here in the US. Local factors affect conditions, surely (CA,FL,vs KA anyone?). At least it certainly affects severity. (If “Things are different here” IS a valid defense, then the Greenspan Fed is blameless.)
> BS Give me a previous example of a well established credit bubble. People weren’t camping out in front of credit card companies.
Saying that un-precedented events haven’t happened so they can’t happen seems… dangerous in a post housing bubble world.
You are saying that the US housing explosion was definitely not a strange perverted outgrowth of peoples increased appetite for credit. And yet the depth of the increased appetite for credit is one of those unprecedented things near in time in the US with the housing bubble. Perhaps the 90’s CA RE crash was a pre-boom boomlet. Are Californians more credit-y than other parts of the country? Did conditions reach the metastasis point there first, go into remission, and more recently burst out everywhere and again in CA as conditions ripened? Other places have higher savings rates than the US, but are they dropping markedly in this generation? (I don’t know)
I didn’t use the “metastasize” concept loosely. Cancer can suddenly explode throughout the body, appearing in other similar organs.
“People weren’t camping out in front of credit card companies. ” didn’t have to they received offers in the mail daily
Does it matter what we clasify it? Isn’t this a chicken-and-egg argument? You couldn’t have had one without the other. The credit bubble enabled the housing bubble, and vice versa. Maybe I’m just oversimplifying things because it’s Saturday and I don’t want to think too hard…
The chicken had to be first, because the chicken has to sit on the egg to keep it warm.
The egg had to be first.
The animal that laid the egg was an almost-chicken, an animal one evolutionary link away from being a chicken.
Can different animals of different species mate? No such thing as a species change from one generation to the next. It takes 1000’s of generations if it were possible.
Ya forgot genetic engineering. It’s only a matter of time with some of the recombitant work that’s going on. “Human mates with chicken - produces 4 legged chick with big breasts!”
There wasn’t a species of animal called a chicken until another species of animal evolved into one.
Two different species of animals didn’t have to mate to produce a chicken; mutations of one species of animal was all that it took.
Hey Dan,
The commonplace that it takes thousands of years may not be true. The famous Russian experiment of breeding foxes based on temperament resulted in dog-like animals, not foxes, and the changes included morphology and DNA. The experiment was curtailed as funding and the old Soviet Union collapsed, but is still a template for further study.
http://en.wikipedia.org/wiki/Tame_Silver_Fox
Wasn’t the great depression sparked by people borrowing money to buy stocks?
“Think about this, over 40% of the S&Ps earnings was derived from financially related activities. Remember when GE as a manufacturing company making and selling things?”
That’s why I wanted tx and Hoz to host a thread on basic principles of trading for beginners. No dig meant to tx and Hoz, I admire the fact that they know how to play the game. But the rest of us better learn how to play the game, too. Because clearly, the money’s in selling nebulous assets and derivatives to each other. Making or doing anything useful is outmoded and it is certainly no longer rewarded. Why bother, when you can make thousands in a day on a good gamble? And forget about investing in a decently run, productive company. Being able to react promptly to rumors and “market forces”, that’s what matters. So we better learn to play the game, because that’s where the money’s at. Seems like nobody wants to pay decent bux for much of anything else.
Again, no dig meant to tx and Hoz. Like I said, I wish I could do what they do, because that’s where the money’s at.
Jeebus, “that’s where the money’s at”. Think I repeated it often enuf? Whew, more cawfee.
The lifestyle most people enjoy, and indeed the economy seems to be based on credit and leverage. Who saves to pay cash for anything anymore? How many people, companies, even governments live within their means? How many actually produce something tangible? We have become primarily a service economy and we are mostly servicing DEBT!
“…the economy seems to be based on credit and leverage.”
Wake up, smell the coffee and stick a fork in it. It’s over.
I won’t agree until a passbook savings rate offers 7.14%
The fat lady is warming up.
Except when the Minsky moment arrives, panic ensues, and that’s where we are now.
I don’t care what other posters say about savings being inflated away, etc. All I know is that I can afford my place and the booze, cook my homemade meals in peace, read and listen to my music, and sleep comfortably at night.
‘Except when the Minsky moment arrives, panic ensues, and that’s where we are now.’
I’m doing my part to keep it contained in my household. Unfortunately, my spouse thinks I am too negative when I try to convey that this paper, full faith, legal tender wealth we have amassed is a declining value asset. My brother tried to tell me years ago that the dollar was a declining asset and I just ignored it. Just wait until everyone starts waking up and looking for a fix. What kind of bubble will ensue then? Food hoarding?
“my place and the booze, cook my homemade meals in peace, read and listen to my music, and sleep comfortably”
Shifting resources to these priorities does wonders to combat the effects of inflation. If inflation is affecting anyone it is affecting those tied to over priced lifestyles to begin with. Right now fuel price inflation, in an indirect way, works to the advantage of savers. Every extra buck sent to the oil companies is one less buck for realtors, Home Depot, Best Buy, etc.
Wait, what?
Sure, it sounds wacky, but the pressure’s on and prices of a lot of stuff is coming down - thus benefiting savers. Food and fuel is high, granted, but there’s a lot everyone can do to minimize those impacts. For instance, eating at home and cooking yourself shaves a lot off of food bills. Of course my bias is that I have come to believe the inflation of fuel and food to be temporary. Of course everyone can draw their own conclusions and should act accordingly.
The dollar doesn’t look good, and it may yet go down before it goes up again, but I’d hold on to it. Tell your spouse you are a contrarian investor. I definitely wouldn’t panic and do some dam fool thing like invest in assets, unless you know how to short the market; and only invest in commodities if you REALLY know what you are doing.
There is nothing “faith” about the dollar. It was “faith” when it was backed by factional reserves of gold. Those days are gone. Now it is solely legal tender. If it was based on faith it would have plummeted to zero long ago. Being legal tender, it’s gonna be around so long as people are holding on to treasury bonds.
I just don’t care.
I’m a fancy cook, and I live so far away from the financial ledge that it’s hard to even see it from here (which is not to say that I don’t keep on top of things, etc.)
I have not seen prices go up for the fanciest imported products. The decimation of demand has more than kept a lid on prices even on the UWS.
I don’t think a lot of people understand that prices have NOT gone up that much for raw materials. Just for “finished” products which include packaging, transportation, and marketing.
The raw materials are still darned dirt-cheap.
Quite possibly, I am also different from the average American. While not being vegetarian (à la txchick), I virtually never eat meat, and only occasionally seafood.
I can cook up a fancy meal for $10/person. Give me $30/person, and I will rock your universe (and you won’t even notice the absence of meat.)
Wine extra.
My kinda cook! We rarely eat out ourselves because quite frankly I’m a far better cook than most restaurant types. Besides, the spicy, off the wall ethnic stuff we like just isn’t available here. I’m with you, $10 a person for a great meal. $30 a person - an UNBELIEVABLE meal.
It’s available in New York, and it’s awesome too but you’re not going to find it in the tourist places, that much I can assure you.
Whatever. I’m happy to ride the subway to strange “scary” places.
AbsoluteBeginner wrote: “What kind of bubble will ensue then? Food hoarding?”. It’s already happening. Have you looked at the price of rice lately? $19 to $40 for 50lb. Our family has 200lb stored. We won’t be needing to buy for at least 6months. The Asian supermarkets are marking the price up daily.
You consume 200 lbs in 6 months?!?
That’s 1 lb of raw rice a day which is roughly 3-4 lbs cooked. You must eat a lot of rice, and very little else.
Just bought a 20 pound bag of Nishiki brand for $12. I go through a lot of rice and I have seen a $4 increase over the last year for the same sized bag.
Heck, our rice cooker goes everyday with 4 cups of raw. It’s usually gone too. If I have leftovers, I make congee the next morning. My Teen can go through some rice!
My Filipino born wife surprised me once by describing the time we had then spent in our new house as “two sacks of rice”.
“Who saves to pay cash for anything anymore? How many people, companies, even governments live within their means?”
I suspect a lot of the people who post on this blog do, and a lot more will in the future.
I think virtually all the people on this blog do, and those that don’t, keep their big bazoos shut about it.
Cash only!
I used to love 12 mo free financing offers if I had to buy something big like a new computer. I have the cash but I’d rather get 12 mos of interest on my ear-marked money then pay it off. With the savings rate decimated, why bother anymore? Cash transactions only.
I sense a sea change happening last summer, a change in perceptions of of the merits of endlessly borrowing-to-spend.
This sea change is rolling through the economy and will influence everybody - governments, corporations, individuals.
Frivilous spending and debt accumulation will be out, saving will be in, and cash will be king.
time to be a contrary investor and start borrowing to spend in order to get bailed out with everyone else or hyperinflation?
Let’s talk power here.
Who holds the money? And who holds the power?
Hyperinflation destroys both. You actually think they are going to destroy themselves, and kill the golden goose?
BWAHAHAHHAHAHHAHAHHHHHHHHHHHHHHHHH!!!
Deflation vs. Itulip.com-style hyperinflation.
Too much credit is destroyed and dollars evaporate faster than the Fed can print, leading to 30’s-style deflation. Or, the Fed overcompensates with the printing while additional dollars held outside the US come flooding back in leading to extreme inflation.
I can see the merits of both sides of the argument. I don’t pretend to have the economic smarts to know which is more likely, I’ve read plausible arguments for both scenarios. Both have happened somewhere before in history.
Maybe this thing will be something we’ve never seen before though, an unholy combination of bad.
Sometimes people get points using their credit card for groceries and stuff. But when I pull out cash to pay for things, the clerks aways look like they have never before seen cash. Even more so - could be my imagination - if it’s not near the 15th or 30th of the month - payday for many.
Pull out a $100 bill on the 25th and people look at you as though you must have robbed a bank.
There already is an ad hoc trading thread. It’s called the bits bucket. There is more than enough info there on a daily basis, often from those you mentioned and others just as astute, to keep one from grave injury in the markets.
But all that is diluted by comments such as mine. If they would start a blog, I would read it.
I’m just sayin’.
Anybody who thinks trading the markets is as simple as being told what to do by experts is a fool who will soon be separated from his/her money. Believe me, I’ve been there.
I read 3 or more hours a day on all things financial and what happens is that over time one’s BS meter becomes attuned and one learns who is spouting dung and who has pearls.
I fervently hope the HBB bits thread and w&w threads never die. They are both outstanding resources.
I spend alot of time researching but it pays off. I ended ‘07 up 58% and I’m doing better in ‘08. I figured out my hourly wage for trading including research and it was $75/hr. It that worth it? That’s for the individual to decide.
I’m not quitting my day job.
Palm, I am going thru the same thing here. I don’t want to learn a new technique, I want to hire someone to trade for me. Is there such a place? My broker is so old school.
I’ve learned more about how the economy & markets work from what is on this blog than I have anywhere else. Thanks to Hoz & txchick especially for their insightful comments.
And thank you Ben for setting up this blog, I’ll be mailing you a check in support of it.
Again, no dig meant to tx and Hoz. Like I said, I wish I could do what they do, because that’s where the money’s at.
Day trading isn’t a big money maker for most. If you survey people in Vegas the percentage who percieve they are winners will be much greater than the actual percentage. You are correct that the system is completely manipulated, Hedge funds and others game the system. There is a stock I own that after the IPO went from an expected 16 bucks a share to over 90 a share then went down to 60 cents on very little new information. Most IPO prices are manipulated. When it was 60 cents a share its market cap was 1/4 to 1/5 it’s cash reserves. I suspect that to some extent this is what was appealing to many about going into real estate. I sat behind a couple of guys on the plane about 4 years ago who were ranting about manipulation of the market, and how they moved all their money to real estate because they were in control and thought they understood it better. My landlord is the same way put 80% of his $$ in real estate because he thought he was in control. Made a lot of money early on, but now he’s had to come out of retirement to put off bankruptcy.
RE:
Remember when GE as a manufacturing company making and selling things? Remember when we built homes financed with loans where people could afford?
USA no more Numba #1, GI!
Chairman Mao Top Dog now!
*be sure to remember the blurb about the mass executions and harvesting of still pulsating body parts next time you shop at Wal-Mart or tune in to the Olympics.
http://www.dailymail.co.uk/pages/live/articles/news/worldnews.html?in_article_id=559133&in_page_id=1811
Hmmm. As mayor Slavor Hardin would say “Its a poor blaster that won’t point both ways”.
Lets see how China does when our consumption really tanks and all that debt they are holding goes boom.
CBO study released late Friday afternoon:
http://tinyurl.com/3rkr6d
“U.S. lawmakers’ plans to aid troubled homeowners would likely help prevent many foreclosures but wouldn’t stop the freefall in home prices or stabilize the economy, a congressional report said on Friday.”
“Such actions could help reduce the number of foreclosures… (but) would significantly shift the risk involved in mortgage losses from the current lenders and investors to taxpayers,” said a report from the Congressional Budget Office, which gives nonpartisan research advise to lawmakers.
Is it worth the risk to taxpayers to reduce foreclosures when the plan would otherwise have no effect on house prices or the economy? I’d say no. Those people aren’t going the be homeless. They’ll go back to renting. Local communities will have to deal with the consequences of the foreclosures, but maybe then they’ll be more careful about the types of development they allow in the future.
‘“Such actions could help reduce the number of foreclosures… (but) would significantly shift the risk involved in mortgage losses from the current lenders and investors to taxpayers,” said a report from the Congressional Budget Office, which gives nonpartisan research advise to lawmakers.’
Isn’t shifting liability for Wall Street’s bad gambling debts to taxpayers the primary purpose of these so-called “guarantees”*? Or am I missing something?
*A true guarantee provides insurance against a loss which has not yet occurred; hence the term “mortgage guarantee” is somewhat of a misnomer in this context.
P.S. “Risk” is also a misnomer for losses which have already occurred. If you want to know what the “risks” are, force some of these financial institutions who are sitting on bad gambling debt to sell some assets and establish the price. Then you will know how much liability is proposed to get dumped on to the taxpayers’ backs.
Didn’t Buffett propose this sometime back?
You can always sell 1% of your portfolio to “mark to market” was his claim, if I remember right.
Exactly.
I don’t know how this works but if you looked at the amount the asset yields on an MBS; then you could make some fairly accurate statement.
If the MBS brings in 100,000 in payments then you could say its either a 2,000,000$ security yielding 5% or a 1,000,000 security yielding 10%. Just as long as you specify how much its bringing in as an asset and tie that to a price then I’m fine with it.
I realize this does not handle the future risk aspect of this. For that you have to do a deeper analysis of the collateral and seasoning of the securities. AKA post a payment history.
You can also look at the collateral and trend from there. Its a big but not impossible book keeping task. Not sure what the complaint about mark to model is. If they show the model then we could make some guesses.
Professor Bear Buffett… pronounced: Boo-fay
double bingo-it’s like universal healthcare- you have to have an excluded group and an unkown-otherwise it’s a transfer payment
Hmmm. Kind of like giving life insurance to everyone, regardless of age, and because people keep living longer and longer it works for awhile? But then, this system somehow inexplicably starts to fail and then the government is given the job of paying out the increased claims…
Transfer payments are just fine, so long as they can be disguised as “guarantees” or “insurance.”
–
“…would significantly shift the risk involved in mortgage losses from the current lenders and investors to taxpayers”
That is a criminal act, IMO. We have USG and the Fed that are essentially involved in criminal activity of rewarding the bad and punishing the good. What could be more criminal ideology, or procedure, than that?
Jas
Two new listings near me, both with bubble list prices to match what were probably bubble land and construction costs. Both are in the Hillcrest/Mission Hills area of San Diego.
New 2/2 Townhouses - 1500sf - $650K, http://www.palomaneuveo.com
From the flyer:
“Managed-growth hardwood, carpet, and tile to suit your taste”
New 2/2 loft - 1642sf - 1 car garage + 1 outside space - $750K,
http://tinyurl.com/3o26ja
From the flyer:
Amazing Upgrades, Build (sic) with Top of the Line and “Green” Quality Materials.
While the neighborhood is decent, I wouldn’t consider the location of either of these properties exceptional. The expansive living room windows on the loft have a great view of the 5-story apartment building to the east. The townhouses are located next to an aging 24-hour doughnut shop. While I like donuts and the smell of donuts, living next door might be a bit much.
On the general topic of current Calif listings, I am pleased to report that the inventory of under-$600K houses/condos in Morro Bay has reached a multi-year high of 45 units (MLS). Of these, seven mention rents currently being received or at least asked. They are laughable –
1. Asking $325K. “has been rented for $800/mo”
2. Asking $379K. “currently rents $800/mo”
3. Asking 379.5K “large lot w/ small house generating $725/mo”
4. Asking $389K “duplex…one unit rents for $750/mo”
[wow, two POS's for the price of 1.05 POS's]
5. Asking $409K “vacation rental $1700/mo winter, $2300/mo summer” [They are lucky if they get 60% occupancy.]
6. Asking $450K “perfect for a $1300/mo rental”
[swell, maybe I'll offer $160K to buy]
7. Asking $455K “tenants painted house in 2006 in return for a lease through 7/31/08 at $1000/mo”
Negative cash flow, anyone?
That’s great. Show that the rent is one quarter to one third the cost of owning while trying to hook a buyer at an obviously inflated price. Are they hoping potential buyers won’t compare the two?
It worked so far, didn’t it?
Bwhahahaha.
Why on earth would they even TELL you what the rents were; those are so out of whack as to be totally insane. The first home should sell for 100K (max), and they are asking 325?? What the heck are they smoking; do they realize that their price is too high by about 3X??
My head is spinning; in my area you can rent 1M (well, that’s what they sold for) homes for about 3K a month; which, just about covers the taxes and insurance on the home. But when your renting a home for 1300/mo and it cost you 450K, I don’t know if you could make that flow cash if it was PAID OFF!!
OK, Ben is right. This is worse than a mania. It needs a new word.
Delusion comes to mind.
My sister’s friend just bought a house in Campbell, CA.
Price? $755K. Loan? ARM, of course with 10% down.
No amount of reason will save these fools. They’re f*rked, and they don’t even know it.
I call it the American enTitle.
“Pandemic”
“This is worse than a mania. It needs a new word.”
I’m not sure a new word is really needed. Ever see someone with a bipolar illness (Affective Disorder) during the height of their manic phase? Not pretty at all. Flat out, jaw-dropping crazy $hit they do.
looking at those prices and then the rents is mind boggling
i would love to have that kind of selection to choose from
homes are just as expensive here and rents are pretty high as well but it is definately cheaper to rent
when i look at the amortization schedule on a 30 yr note
i find it hard to buy and pay all the money in interest
last night people were talking about renting for life
and who knows i just may
nyc was always a majority of renters and wealthy ones at that
the nar/msm tries to portray renters as these transient lowlives
without a pot to piss in or a window to throw it of
i am so glad i do not have the need to try and impress anyone
in my younger years i was not so carefree (exprensive car lol)
impres people by telling them you have no debt now that is impressive in these hyperinflation credit crazy times
all terrible rent to price ratios, typical central coast CA I lived there briefly in the early 1980’s. Good place for retired CA firemen and other high paid state workers. I don’t think there is any work there? fishing? Nuclear reactor technician?
Az,
How do calculate cash flow?
How do you account for payment of interest vs loan principle and do you factor in depreciation?
These rents are in fact laughable though wrt price
The townhouses are located next to an aging 24-hour doughnut shop. While I like donuts and the smell of donuts, living next door might be a bit much. - Thanks for good laugh. Though I one time lived four blocks from a 24 hr doughnut shop - very useful.
The spin doesn’t resonate this time
http://nhbr.com/apps/pbcs.dll/article?AID=/20080411/NEWS01/620807668
Hi Ben,
I wanted to thank you for your detailed answer yesterday - it is now clear that you realize (and have for a long time) the damage the Federal Reserve does to America - many people on this blog and period are confused about this.
I agree there is nothing that can stop the fallout from the bubble, and also from an improving one’s own lot viewpoint that the prices that will come along soon will be the buying opportunity of a lifetime…
But this is also a great chance to show how the federal reserve created the means for this bubble just as it did the tech bubble (not to say they can keep it going, they can’t unless they want to absolutely destroy our economy), and to stick it to them.
Too many people remain ignorant of the continual confiscation of wealth that the Federal Reserve has stuck to the American people for almost 100 years.
“many people on this blog and period are confused about this.”
Really? I was under the impression that a good number of people on this blog understand that fact all too well.
“But this is also a great chance to show how the federal reserve created the means for this bubble just as it did the tech bubble”
Who do you plan to “show,” and how?
“not to say they can keep it going, they can’t unless they want to absolutely destroy our economy),”
Oh, but it will be kept going. Dissolution of the Fed is a pipe-dream, nothing more.
‘Dissolution of the Fed is a pipe-dream, nothing more.’
Ha ha. Yeah, these guys with nice suits are all powerful and invincible. Their secret handshakes and hidden meetings make them impervious to all real world factors. Nobody has ever pulled down oppressive people and put their head on a stick.
And no silly blogger could be right when every one of them was wrong…
Keep worshiping “your” masters Bob.
You seem to be in a foul mood today.
I never said anyone was my master, Ben. Do you honestly think you’ll see the dissolution of the Fed in your lifetime?
I’d love to see that, but it’s not going to happen, just like Paul never had a chance to be voted into the Presidential office. The general public is clueless about financial matters and will remain that way, and nothing will change.
Oh, it’s foul to scoff at lackey comments like yours? I laugh at ‘just not gonna happen’ ‘nothing will change’ statements as they are based on nothing more than arrogance.
“Do you honestly think you’ll see the dissolution of the Fed in your lifetime?”
Check federalreserve.gov “all statistical releases” H3 April 9 release (latest). So far the Fed has loaned out $144 billion, they have $50 billion in capital; there is at least an eventual 50% haircut coming on their toxic garbage serving as collateral - federal reserve would report insolvent today if they market to market, and will eventually crumble like the USSR. Hello Central Bank of the Americas and the Amero. And it’ll be here sooner than later.
Got diversified assets?
“…they have $50 billion in capital; there is at least an eventual 50% haircut coming on their toxic garbage serving as collateral…”
Sounds to me like there is a pretty strong political motive here to ensure that real estate always goes up…
Bob,
I think Ben’s got a point. If things get bad enough, the guillotines will come out and the heads will start to roll (ala the French Revolution), no matter which country you live in. We’re certainly not at that point now, but if things continue to deteriorate we’ll see this happen somewhere in this world we live in.
Is the U.S. immune from this? I don’t think so, and if people figure out that the Fed “screwed the pooch”, they’ll want change. The question is: how ignorant are the masses? I don’t want to put words in anyone’s mouth, but if you take your position you must be of the opinion that people will never figure it out. I am of a contrary opinion. Yesterday at work we actually had a quite spirited discussion about some of the housing bailout proposals (and everyone was QUITE opposed to them). Most of my coworkers are way behind the curve on this thing, but they’re starting to hear bits and pieces and they don’t like what they’re hearing at all…
If the Fed were dissolved under some civil revolt, don’t you think the same activity would be absorbed by some part of the government (presumably the Treasury)? If the same activity is performed by a group of a different name has anything really changed?
The Fed is a manifistation of the problem of central banking. I doubt I see the Fed dissolved in my lifetime (I’m 32 now) but if it is dissolved I would be willing to bet a few ounces of gold that it is converted to more of the same under the Treasury instead of the Fed.
It’s one of the convenient effects of tricking people into believing the Fed is “private”. When the whole thing fails the govt has something it can fix to make everything rosy. It allows the government to come to the rescue of the people who are suffering from the evil corporation.
I think changing the rules of the game in the middle of the game has serious implications for the future of the Fed. This is JMHO. (If you don’t know what I am talking about, please refer to Paul Volcker’s address last week to the Economic Club of New York.)
“Too many people remain ignorant of the continual confiscation of wealth that the Federal Reserve has stuck to the American people for almost 100 years.”
As I said many moons ago…the Amish are American & are suffering…
“Oh, but it will be kept going. Dissolution of the Fed is a pipe-dream, nothing more.”
What’s true is you cannot have a Fed without having a highly regulated economy–I cannot see how the two can be separated. Once the Fed comes in to play, it’s power has to be limited, and they high power legal teams or economics Ph.D.s will find all sorts of ways around those limitations, and then there is further regulation, and so on…
Until change happens, one can invest accordingly.
Here you go…….this could be game on!!!!!!
Banks - 100 days to reveal losses and exposures
http://www.bankingtimes.co.uk/12042008-banks-100-days-to-reveal-losses-and-exposures/
Affordable housing may soon be on the way…
one can only hope
all the news coming out in the financial sector is bad and yet people still have their dream prices out in ny area
i have seen some weakness in prices and the inventory is huge
hopefully it is only a matter of time
everyone i talk to now who would be in the market to buy is staying put .
these are freinds of mine with great jobs, money for dp’s and excellent credit (yes there are a few left)
the tide has definately started to turn here imo
but there are always the it will start going up next year asshats
i ask them based on what? job creation? lower food and fuel costs? and i get the blank stare and hey how about those yankees change of subject
i may even start working on saturdays for a friend of mine
i can always use the extra cash and the money would be excellent
My wife wants me to go house hunting this weekend in a new housing development where prices are off by 37.5 pct from the peak (from $800K-ish to $500K-ish). I will go along to look, but my rule remains fast: We buy nothing until she runs the numbers and decides we can actually afford whatever we purchase at 30 pct of our income. (I have to teach her how to run the numbers first, so we may never actually end up buying
)
(I have to teach her how to run the numbers first, so we may never actually end up buying
I hope you run an inflation scenerio with you numbers. If you can borrow for 30 years fixed at 6% and inflation is running more than that, you are paying off the loan with cheaper dollars, tax free.
The efforts of my landlord to get us to purchase our rental house are just short of comical. It’s a 1 year old, 2500 footer with a plot of land so small you can’t back out of the garage without backing onto the neighbors lawn. She insists we could immediately turn around and resell it for a “$30,000 profit” (she hasn’t been able to sell it in a year with about 3 viewings). Her asking price? $250,000 - this in a declining town with a median income of $31,000 and dropping. She hasn’t budged on the price and I just happen to know that she has a 25% mark-up on the house. Her latest effort? Refuse to give us a long term lease so she can “sell” the house right away - a matter of days according to her. When we told her we would then look for another place, she was emphatic that we not move out till she sells it. After a couple of months of this, we haven’t heard another word… But, we’re still looking for another place, decent rentals are difficult to come by in this tiny place.
J White. Buy an RV.
I’ve tried to get my Wife interested in that or a houseboat (we’re right on the river) but she won’t agree to it - “too small” is her position (too radical an idea is the real reason). A nice $100,000 lightly used RV would be a very nice place to live. We actually have a lovely long term RV park here that’s right on the water and very convenient to town. Oh well.
At the end of the day, if it’s a nice place, and she really really really wants it, sometimes you just gotta make a bad investment.
It’s nicely designed but badly executed. The town has a huge overhang of $200,000 + homes for sale because of ridiculous wishing prices - only a couple have sold in the 8 months we’ve been here. The Wife doesn’t want to buy either, we just want her to get 2 years of incredibly valuable experience under her belt and then exit “stage right” as quickly as possible! We would never be able to sell the house at this pricepoint because prices are dropping even here and the houses began 30-40% overpriced even by the admission of realtors (who are really hurting here).
“I hope you run an inflation scenerio with you numbers. If you can borrow for 30 years fixed at 6% and inflation is running more than that, you are paying off the loan with cheaper dollars, tax free.”
Why are you forecasting inflation when home prices are dropping 20 pct+/year? Makes about as much sense as forecasting housing price declines circa 1998.
Horrors…Some indian guy just bought an attached duplex he said for $740K down the street he owns the one next door……he is renovating the 3 apartments…the permit says 3 dwellings…..I’m not so sure if it will be a legal 3 fam. i only saw 2 electric meters.
But the kicker…..He will be asking $2K 2K for the jr.3 bdrms and $1500 for the 1bdrm semi basement apart…$5500 total rent he hopes to get ……..and his mortgage is almost $6K mo.
Scary good thing.
I’m sorta willing to buy a pig-in-a-poke (Dutch: een kat in de zak kopen) to smooth this over as long as I get to shoot the guy if he tries selling it to me a second time. And knows it. I’m just not that confident in them ever pulling the trigger. Establishing the custom of looking into the bag first hereafter would seem to be a good thing.
just more pandering, jaw-boning, fodder, etc….
State senator proposes freezing foreclosures in Michigan
http://tinyurl.com/697mh3
A state-level mortgage freeze may prove a great way to make sure that no further home loans get made in Michigan. Watch out for future redlining charges against lenders who don’t want to do further business there…
Whatever. They will just walk away.
Remember Geico and NJ? IIRC, they walked in 1974, and didn’t come back until 2004-ish.
bingo
good article on how racism made the RCA and created subprime for all
at lp.org
What are the qualifications to become a Senator?
One wonders……….
Just like it used to be for getting a loan…..fog a mirror.
Freezing not only mortgage foreclosures but also tax-lien foreclosures. I urge all residents of Michigan to discontinue paying their property taxes. Mister State Senator can then work as a volunteer.
There are certainly areas in Michigan where people would angrily refuse to live for free.
My other post hasn’t shown up yet, so if it does, sorry. What I said was that these Detroit lawmakers are so pathetic it’s beyond amazing. Any anti-business and/or Stick It To The Man idea gets a good hearing in Detroit.
And the surest way to lose an election is to have your opponent successfully attack you as being supported by the “suburbs” (think…whites).
You should live in Berkeley sometime (even for a brief bit.) That’ll really fry your noodle.
Is that where you are?
No, I live in New York. Haven’t you heard me talk about it?
Me and California work well together for roughly ten days at a time. After that, it’s time to stop foaming at the mouth, and go back home.
i agree faster i love california for 10 days at a time
but i must admit the last time i was there in 2006 i was
liking alot. it must have been the venice canal house i stayed at for a few days courtesy of my wealthy hedgefund friend
i talk to fast to live in california
I’ve spent a lot of time in the Bay Area in the last five years.
My sister, and virtually all my friends live there now, and I think I might’ve spent at least 16-20 weeks out there over the last 4-5 years. Enough to know the roads without a map even.
Ten days at a time though; ten days at a time.
“i talk to fast to live in california”
Try LA.
“The legislation announced Friday in Detroit would still require homeowners to work out an agreement with their lenders and continue making payments during the moratorium.”
So the plan is that if the houseborrowers continue to make their payments, the banks won’t foreclose. Brilliant!
Apparently it’s too late for this one:
http://detroit.craigslist.org/gms/639027328.html
Sounds to me he might be stripping the place.
What has to be kept in mind is that for as long as I can remember politicians in the city of Detroit, both black as well as the occasional white, are so far left that they made the Communists look like Ronald Reagan.
Most any anti-business or Stick It To The Man idea gets a receptive audience there.
They have a Stick-It-To-The-Man attitude in Detroit?
This is one city that desperately needs The Man and The Man’s money.
These people are fools.
“This is one city that desperately needs The Man and The Man’s money. ”
A “Man” sold his asphalt paving company come years back and wanted to give Detroit $200 MILLION of his own money to foster education and other alternatives in order to increase the pathetic graduation rate. Problem was, his ideas were a little on the free enterprise side, and he was white. They told him no thanks.
As I said, these people are fools.
My “good” local school district is apparently very proud that they didn’t even consider accepting $643k of Texas state money because it would mean giving it to certain teachers as salary increases and not to all.
Former US Fed chief attacks Bear Stearns rescue plan
* John Brinsley and Anthony Massucci
* April 10, 2008
FORMER Federal Reserve chairman Paul Volcker has questioned the central bank’s decision to rescue Bear Stearns with a $US29 billion ($A31 billion) loan.
He said it was at “the very edge” of its legal authority.
“The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,” Mr Volcker said in a speech to the Economic Club of New York.
‘He said it was at “the very edge” of its legal authority.’
Has the Fed turned into a ‘lightly regulated’ hedge fund now?
Greenspan better start this tactic: It was different than anything I did, therefore this MUST be what is to blame.
My personal guess is that a Bear Stearns collapse would have started a meltdown in the 401k industry, which would lead to a true panic. Wall street’s cough is actually tuberculosis, IMHO.
The WSJ claims BSC was headed for chapter 7 (liquidation). Maybe the FED had to act?
Bear Stearns Cos. disclosed that its stock and bond sales and trading business, long the cornerstone of its franchise, plunged “precipitously” following the cash crunch that forced the Wall Street firm to agree to sell itself to J.P. Morgan Chase & Co. for a fire-sale price.
Lawyers for Bear Stearns concluded the day before J.P. Morgan increased the deal’s price that Bear’s “uncertain cash position” would have forced it to file for bankruptcy protection under Chapter 7. Such filings are highly unusual, since they force distressed companies to essentially shut down.
http://online.wsj.com/article/SB120795543391109153.html?mod=hpp_us_whats_news
The objection is not to the Fed taking action per se, but rather to the $29 bn taxpayer-funded deal-sweetener guarantee that was used to encourage JPM to make the $2/share purchase of BSC.
Is an uncertain cash position the same as insolvency?
INDIANAPOLIS — Six men caused nearly 300 foreclosures in Indianapolis by buying homes, not paying the mortgages and then fraudulently selling other homes at inflated prices, authorities said.
http://www.whiotv.com/money/15846918/detail.html
From the link…
“Investigators said the men took out almost $38 million in mortgages under fake companies they created, buying and then reselling 568 homes across the city. They never paid the mortgages on the homes they bought, sending some of the properties into foreclosure.
“They file for bankruptcy to keep from having to pay the judgment on the foreclosure, and it’s just a never-ending circle,” said Barbara Crawford of the Marion County prosecutor’s office.”
Since these six guys sent the properties they owned into foreclosure, won’t they technically qualify for the save-our-homes-from-foreclosure bailout proposals currently circulating through the halls of Congress?
Sure, why not, 568 homes for everyone!
Allow me to go puke up my breakfast now.
And, not to get political, but Hillary almost made a blood vessel in my head explode last night listening to her speech about “Saving the homeowners” of America. Why can’t I get on TV, next to one of these candidates, to show the other face of this bubble? I have been renting responsibly for 3.5 years now waiting for this bubble to deflate. Never late on a single bill or rent payment. Great credit score. Money in the bank to purchase a home. And yet, I am the one (as many of us are) victimized the most by this bubble. These idiots got to live in houses they could never afford anyway. I don’t get to live in the house, I can afford it, and I am the one who is setup to suffer (pay more taxes) so these idiots can keep their homes? Why is the other face of this bubble never shown, it’s almost 40% of the population that is in the other camp (those who are helped by falling prices)??
These guys are now “struggling homeowners”.
“Investigators said the men took out almost $38 million in mortgages under fake companies they created, buying and then reselling 568 homes across the city. They never paid the mortgages on the homes they bought, sending some of the properties into foreclosure.”
“The suspects sold some properties after misrepresenting the homes’ value to potential investors. Investors would borrow money from banks and then buy the homes at the inflated prices, authorities said.”
Apparently not much lender scrutiny of the appraisals. That something this massive could go undetected for so long says a lot about the extreme lack of oversight in most aspects of the house buying/selling process during the bubble. According to the story, this fraud goes back 5 years!
This is a good example of previous sub threads. Clearly a housing mania. Clearly abetted (at least) by wild credit. So wild that banks loan to and don’t even foreclose on proven deadbeats under thin corporate umbrellas.
Abetted or caused by? Clearly, without the crazy credit you couldn’t have anywhere near the severity. Top Fuel dragsters accelerate at 4g without the use of rockets. This is not to say that they couldn’t hit 8g WITH rockets.
How would one lure sheeple with no savings to purchase U.S. Treasuries?
“You’re not getting a lot of professional management in most short-term bond funds,” he* added, “so what you are really paying for is convenience. …But some people probably would feel better having their money with the government — and the full faith and credit of the United States Treasury — than with some fund company, given what we have seen happening in the financial-services business.”
*Jeff Tjornehoj, senior research analyst at fund-tracker Lipper Inc.
Sorry to call Jeff’s opinion into question, but isn’t the U.S. government’s financial leadership typically selected from the top managerial layer of the financial-services business? Not that there is anything wrong with that…
Bank of Sealy anybody?
Banks set to stumble again
http://money.cnn.com/2008/04/10/news/companies/bank_earnings/index.htm?postversion=2008041115
More food riots
Bangladesh workers riot over soaring food prices
DHAKA (AFP) — About 10,000 garment workers rioted Saturday close to the Bangladeshi capital Dhaka, smashing cars and buses and vandalising factories in anger at high food prices and low wages, police said.
http://afp.google.com/article/ALeqM5inStpZmpyc8ZTMcT0n_kgEoHbOcA
chaos spreads:
Gunfire in Haiti. Riots in Cameroon. A government crisis in the Philippines. The effects of skyrocketing food prices have reached every corner of the globe. Now, the World Bank has called for world leaders to take action before it is too late.
http://www.spiegel.de/international/world/0,1518,546551,00.html
Don’t these people know that food prices are not part of the core CPI? Sheesh, they need to get with the program like the U.S. sheeple.
Ethanol And Hunger
Energy: The world’s poor are learning what happens when government subsidizes the burning of food. It’s time to end this madness and let the market decide if any biofuels make sense.
News reports say the poorest Haitians are trying to get by on cookies made with dirt, vegetable oil and salt. Food riots also have roiled Egypt and led to a general strike in Burkina Faso in West Africa. The high cost of corn, wheat, soybeans and other basics of the world’s diet could soon start bringing down governments.
In America, the federal government pushes the production of ethanol from corn with a rich mix of tax incentives and protectionism. Refiners get a 51-cent tax credit for every gallon of ethanol they produce and are shielded from cheaper imported ethanol with a 54-cent-a-gallon tariff.
http://www.ibdeditorials.com/IBDArticles.aspx?id=292806444260566
Gunfire in Haiti?
I’m pretty sure that’s just business as usual.
The Prime Minister is out of a job. Why don’t they fire them on Friday like corporate America? Less chance of anti-revolutionary acts, I guess.
All across our country, there has been quite a run on food banks and most have scanty deposits left, which makes future withdrawals problematic…
As the race to the bottom financially gathers speed, you’d have to expect the depositories to be seriously overdrawn.
Who feeds the crowd, then?
There won’t be any orderly soup lines in that case. Look at how fast things collapse in the inner cities when given a chnace - LA riots, Katrina, NY blackout - These places are all 5 seconds from chaos on a daily basis. Don’t underestimate the capacity for anarchy that resides with our bottom 3% of society. Since Rome placated their dregs with bread and circus we have had to find ways to keep this segment under control. Once those controls are loosened, we “civilized” types will find that we will have to stoop to the same violence to regain that control - it will take a while if this happens, but the damage will be incalculable IMHO.
Don’t forget gangs of angry white people looting Starbucks
Nobody ever expects the biscotti inquisition…
Have you been around some of those people when they haven’t had their caffeine fix??? *shudder*
New York would collapse in two days without electricity.
The subway tunnels rely on the 700-odd pumps to continuously pump water out of the tunnels into the sewer system.
Yeah, I just look at myself in the mirror to see one. On that note, I just got my order of 30 lbs of fresh-roasted coffee. It stays pretty fresh the way it’s sealed, so this will be one less rioter and looter to worry about if things go south.
Bank Heist, 2008 style…
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/03/AR2008040303924.html
Spook is right…it all depends on who is writing the captions on those news photos.
Leaders of the International Monetary Fund and the World Bank have warned that surging commodity prices are leading to serious food shortages in the developing world. The trend is prompting a new round of inflationary pressures amid a global economic downturn.
http://www.cctv.com/program/bizchina/20080412/101383.shtml
What do you think of their plan to sell gold? Could this be a good entry point for PM fence sitters?
surging commodity prices should cause more crops to be planted and end the food shortage. fertilizer stocks are way up POT MOS CF
Already happening.
The Food Chain
As Prices Rise, Farmers Spurn Conservation Program
Will Kincaid for The New York Times
A field that has been in the Conservation Reserve Program in Sterling, N.D., for the last decade is plowed and ready to be put into production again.
By DAVID STREITFELD
Published: April 9, 2008
Out on the farm, the ducks and pheasants are losing ground.
Does this story have a familiar ring to it?
- (Circa 2000): Farmland is converted to houses in response to a bubble in home prices.
- (Circa 2008): Fallow farmland is put back into production in response to a bubble in food prices.
Can someone please connect the dots here regarding the future price of food?
“Now, because of a growing global middle class”
The real “big” future problem:
Convincing the “World” … not to aspire to live & behave like Americans. Of course, this might lead to new innovations & jobs…it’s tough being an optimist these days!
“…not to aspire to live & behave like Americans.”
Topic for future generations of Austrian resource economists to evaluate: How the Fed’s easy money policy helped burn the chair legs out from under the globalized fossil fuel economy…
A Columbus real estate speculator pleaded guilty Friday to conspiracy and fraud charges related to a mortgage fraud scheme that netted him more than $2.6 million.
http://www.bizjournals.com/columbus/stories/2008/04/07/daily38.html
Fed H8: MAJOR Bank Credit Shrinkage
How I love the smell of credit Shrinkage in the morning
http://www.federalreserve.gov/releases/h8/Current/
“MAJOR Bank Credit Shrinkage”
Which results in plain ol’ cash becoming more scarce thus more valuable.
It was both a credit bubble and housing bubble. The housing bubble drove the credit bubble and the credit bubble expanded the housing bubble. The housing bubble was by far the biggest save the derivitives.
Easy money drove many bubbles. An SUV bubble. A flat screen TV bubble. A HarleyDavidson bubble. A credit card usage bubble. A granite countertop and stainless steel appliance bubble. Private equity bubbles. Municipal debt bubbles.
The credit bubble drove a credit repackaging and credit derivitive bubble. It became a big part of Wall Street profits and bonuses. The credit bubble became so big that the bubble is a larger dollar amount than the economy and the economy can’t repay the debt.
You know what that means. Get ready for the biggest bankruptcy in human history where legal ownership evaporates.
Agree, sort of … Although I think it’s irrelevant to debate this as a housing or credit bubble, I believe the thugs on Wall Street that own a big part of this disaster needed a mechanism for increasing profits and the 10-20% down 30 year mortgage wasn’t cutting it, so they loosened, and loosened and loosened, which goosed housing enough to engulf it and then it just fed on itself … an easy and best (by far) vehicle to expand profits given what homes represent to the average J6P… we wouldn’t be here discussing this housing bubble if it were not for the credit bubble enablers ..
Perhaps our inspiring and hard working blog owner and author is a little defensive on the title of blog..
title of “his blog”..
also, I caught myself.. credit bubble (NOT)… debt bubble (YES).. credit is what the WS thugs and media want you to believe as it sounds much more innocent along with this being a “subprime” bubble.. BS to all of that..
No, I just get tired of revisionist bull shit.
That was my favorite comment of the morning by far!
It’s Saturday morning, and I would like to post some good news. The Crave brothers of Wisconsin are my new role models. The own a dairy farm in Wisconsin, and produce cheese as well. But, they use the cows’ manure to produce biogas which produces enough electricity to power their farm and the homes of nearly 200 of their neighbors. In addition, the remnants of the biogas production become potting soil and bedding for animals.
Just when I’m almost convinced that once can-do Americans can’t do anything right, these brothers hit the news. Bravo for the brothers.
http://www.dairyimpact.com/StoryLeads/Archive/0707CedarGrove.aspx
That’s great. Their rope cheese is amazing too.
Bravo Spike.. thanks.. we all need to read stuff like this once in a while, esp us out here in CA after these daily CA threads..
Although this type of thing certainly helps and will be done more in the future, it really doesn’t scale very well and is hardly a solution to the liquid fuels crisis.
The key is energy returned on energy invested. To make an honest evaluation, you would have to calculate the fossil fuel inputs required to grow and produce the food the pigs eat and other energy inputs. My hunch is that whereas the typical Middle East super giant oil field currently has an energy return of about 30 to 1 (one barrel of oil energy required to produce 30 new barrels of oil), this hog farm fantasy probably has an EROEI of 2 to 1, or maybe even less.
it would serve many here well to look into this story.
These types of going concerns are the biggest part of the recovery story that will begin to slowly manifest over the next 6 to 12 months. Small, nimble, low debt, production, and ancillary service coupled with low waste sustainability, in a culturally conservative environment.
Finding that in the S&P 500 aint gonna happen. Some might call value trap on the Russell, but thats where the recovery will start. Small is better, no debt is best, durable advantage of necessity service….
start talking about ways out of the mess, not just mess.
thanks Spike. stay on it.
We’ve had the technology to use methane gas produced by municipal sewage systems for many years…I recall taking a field tour as an engineering student muchos annos ago of a plant doing this and hearing our prof lecture that it would be a big thing in the future…
Curiouser and curiouser…
Finance & Economics
The IMF
Selling the family gold
Apr 10th 2008 | WASHINGTON, DC
From The Economist print edition
The IMF launches a financial rescue plan—for itself
They trot that story out monthly. The market is discounting it almost completely. Selling over a number of years…if they get approval from the US, etc. It’s jawboning. A better question would be; who buys the assets the west is selling?
Japan did during the last real estate bust.
An entity selling $11 billion worth of mellow yellow would have scared the market, not so long ago…
Nowadays, the Russians or Arabs or Chinese or Indians will just do a wire transfer and buy it lock, stock & barrel… (that is, if the IMF doesn’t do a sweetheart deal, and allow a bankrupt American financial concern, to “buy” it)
http://www.nytimes.com/2008/04/11/business/11norris.html?_r=2&ref=business&oref=slogin&oref=slogin
‘Paul Volcker, the former Federal Reserve chairman whose legacy has not crumbled since he left office, was right this week when he said the financial engineers had created “a demonstrably fragile financial system that has produced unimaginable wealth for some, while repeatedly risking a cascading breakdown of the system as a whole.”’
The risk of cascading breakdowns is what legitimizes ad hoc wealth transfers from the U.S. Treasury to the financial sector. I thought that was part of the engineers’ design, and here this fellow is claiming the contraption is not working properly…
To some, a feature; to others, a bug.
There is a real risk that the ad hoc efforts now being made to deal with this crisis will create other problems. Mr. Volcker, who knows how inflation can get out of hand, said the current situation reminds him of the early 1970’s, when inflation began to accelerate. The Fed’s moves to slash short-term interest rates and bail out Wall Street, however necessary they may be, could easily raise inflation and cause more damage to the weak dollar.
It is striking to realize that while Mr. Volcker has been gone from the Fed for two decades, he is, at 80, two years younger than his successor, Alan Greenspan. Had Mr. Volcker somehow kept the job, he almost certainly would have been more skeptical about the new financial architecture — and less popular on Wall Street — than Mr. Greenspan was when times were good. But the bad times we are now entering might not have become nearly so large a threat.
this is the first time i have read in an article that the interest rate cuts were done to bail out wall street! good job to the writer! it needed to be said.
anyone have the turning japanese lyrics for the bubble ?
http://www.lyricsondemand.com/onehitwonders/turningjapaneselyrics.html
OT how about a line on investments folks here are making:
Like Palmetto syas posters here know a thing or 2.
I’ll start:
PKK the prefered of PKX w a huge new steel mill in India paying over 8%- and thats Korean money !
MAY- Malaysia is the only Asian Tiger w it’s own oil and gas
Go long BTUs.
Oil will soon be $160 and nat. gas $15 (by end of year)
The U.S. has been in recession for better part of a year already.
Pay particular attention to last line about increase in “imports.”
That’s the key. Overall, amount of oil available for export is declining rapidly, due to depleting fields, increased, domestic consumption in Saudi, Russia, Venezuela, Mexico, etc.
Also, ask yourself why this story was not reported in US media?
SHANGHAI, China — China’s oil imports surged to a record 17.3 million tons in March, the government reported Friday, as the country nearly unseated Japan as the world’s second-largest buyer of foreign crude oil.
China imported an average of just over four million barrels a day, according to calculations based on data from China’s Customs Administration.
China imports nearly half of the oil it uses. The United States, which imports about 10 million barrels of oil a day, remains by far the biggest consumer.
Japan imported about 4.4 million barrels of oil a day in February, based on data from the country’s Natural Resources and Energy Agency.
China’s oil imports in the first quarter of this year rose 15 per cent from a year earlier, to 45.5 million tons, the customs data showed.
peak gold:
South African gold production has dropped 28.2 percent in the year from February last year, official data released on Thursday showed.
http://business.iafrica.com/news/650844.htm
Peak electricity.
I’m going to Countryside Mall today in Clearwater to:
1. Be patriotic
2. Exercise my constitutional right to fantastic deals at bargain prices
3. People watch
I will report back:
A. The overall mood
B. How many times I overhear “housing”
C. Mall vacancies
D. The number of stupid candles my wife convinces me to buy
I was in a mall last night (shudder), eating in a popular chain restaurant. It was busy but there was no wait, normally would be 30 minutes. Then went to a fun park, which was dead. This is highly unusual on a warm Friday night.
Try this test - at every store you go to, ask what kind of discount you can get for any item you are interested in. There was a story on last night about a woman who does this for everything. At any kind of store (retail as well). She says it nearly always works and “why pay full price if you don’t have to?”. Watching it almost made me want to go shopping today (almost…I actually loathe shopping…I’m missing that gene).
‘D. The number of stupid candles my wife convinces me to buy’
Haha, that’s funny.
It’s true, though, candles do seem to be a gal thing. I have a couple boxes full, partly because living on a peninsula with only one main road in and out means that the power goes out a few times a winter, and sometimes stays out for awhile, and partly because I’m a gal, and gals like candles. I don’t insist that they be shaped like bunnies and smell like mai tai’s, though. I just want them to make a little fire and that’s good enough. Last year I got one whole boxful, a BIG box, at a church rummage sale for one tiny dollar, and almost every single one of them was shaped like Santa, except a kinda warped and bended Santa. I’m thinking of doing some sort of artistic alternative movie with them. En masse, they would creep the hell out of anyone, including Bigfoot.
A. The overall mood:
Many happy people
B. How many times I overhear “housing:”
None
C. Mall vacancies:
A few
D. The number of stupid candles my wife convinces me to buy:
None
I did the bag check though - a lot of people milling about, not many carrying anything; stores mostly empty but the restaurants and food court were packed; those crappy “import” trinket stores were all having 50% off sales; zombies arming the can-I-ask-you-a-question-kiosks were mostly drooling and dazing off into the abyss.
The common denominator of these plans seems to be a transfer of tax dollars into the hands of the lending industry. Wouldn’t an alternative be to let the underwater buyers walk away and leave the keys? And which approach would sooner lead to the “affordable housing” which is supposedly a policy objective?
Boiling Down the Revamp Plans
April 11, 2008; Page A6
The White House, Democrats in Congress and Republican presidential hopeful John McCain are readying plans to help struggling homeowners. All of them use the Federal Housing Administration. While all differ in scope, many of the central elements are similar. Here’s an overview:
What’s the basic idea? In order to make monthly payments more affordable, mortgage lenders would voluntarily reduce loan principles for struggling homeowners. In return, they would get federal insurance to backstop the loan, a big incentive for lenders because it would transfer the risk of a default to the government.
The plans could aid homeowners who owe more than their homes are worth, a problem known as being “under water.” The process would leave borrowers with some equity after their loans are cut in line with falling home values.
According to some estimates, there are about 10 million under-water loans. That is usually not a problem unless a homeowner can’t make monthly payments. It is almost impossible to refinance an under-water mortgage in the absence of this kind of government intervention.
‘In return, they would get federal insurance to backstop the loan, a big incentive for lenders because it would transfer the risk of a default to the government.
The plans could aid homeowners who owe more than their homes are worth, a problem known as being “under water.”’
Again, I maintain that risk is a misnomer in this context. If the loans are “under water” already, the risk has already been resolved, and we are talking about a transfer payment rather than an insurance program.
Missing from the discussion in any MSM article I have seen on the subject of “homeowner aid”: Who gets to pay for these ‘guarantees’ and how? Last time I checked, guarantees were not free, even for truly insurable events (which have not yet occurred).
Consider the thought experiment of pricing this guarantee on the private insurance market, or even purchasing financial derivatives to cover the cost of “guarantees” proposed by all these pols; what would be the true cost of purchasing such “insurance”?
“In order to make monthly payments more affordable, mortgage lenders would voluntarily reduce loan principles for struggling homeowners.”
It’s creates a big incentive to stop making mortgage payments, to get your principal lowered. I expect the cash flow to lenders to take a nosedive, from people not making their payments, in order to qualify for a reduction of their principal owed. It will become the smart thing to do.
Unintended consequences are a b*tch.
Presumably they will need to cook up some kind of loan balance to income qualification metric, such as those who own a loan in excess of six times their income qualify for principal reduction. I.e. those who made the stupidest borrowing decisions will qualify and those who made more prudent borrowing decisions will not.
Higher state tax on beer?
The San Jose Democrat on Thursday proposed raising the beer tax by $1.80 per six-pack, or 30 cents per can or bottle. The current tax is 2 cents per can. That’s an increase of about 1,500 percent.
Beall said the tax would generate $2 billion a year to fund health care services, crime prevention and programs to prevent underage drinking and addiction.
http://www.mercurynews.com/ci_8888028?source=rss
Did he take into account the disincentive to buy beer and just switch to whisky instead?
Or just make your own? The real stuff can’t be beat.
Testify! I have many times urged brethren and sistren HBBers to learn how to home-brew! The real stuff can’t be beat, and it’s a truly valuable skill, methinks. It’s ever so fun, as well.
Especially the taste testing to ensure quality control…
Briefing
The American economy
The long hangover
Apr 10th 2008 | WASHINGTON, DC
From The Economist print edition
America’s economy is in recession. Don’t expect a quick recovery
…
The hangover’s duration will depend on many things, from the strength of foreign economies to the degree to which American firms cut jobs and investment. But top of the list, given the recession’s origins in the property bust and the credit crunch, are the fate of the housing market and the resilience of consumer spending. On both counts, the odds are against catastrophe but on a lasting headache.
By many measures the news from housing is still getting grimmer. Housing starts are at less than half their peak, and builders are continuing to cut back. Although this has begun to reduce the stock of unsold new homes, the frailty of demand means that supply still vastly outweighs sales. At 9.8 months’ worth of sales, the stock is at a 26-year high. The official overhang of existing homes (which excludes those repossessed) is not much lower. The excess of supply over demand means that the fall in house prices is accelerating. According to the S&P/Case-Shiller index, house prices are 13% off their peak. They fell at an annual rate of 25% in the three months to January.
The drop in house prices so far has left some 9m people, or 10% of all those with mortgages, owing more than their houses are worth. Among all mortgage borrowers, 6% are behind on their payments; among subprime borrowers, 17% are in arrears. Lenders are already foreclosing on more than 1m homes. The pessimists expect these figures to climb much higher, adding to supply and further depressing prices.
It’s not what the pessimists “expect” that matters. Nobody gives a cr@p about the pessimists.
It’s the overhang of inventory, you freakin’ morons.
Lately, the Economist has really been p*ssing me off. I have been tossing my copy against the floor repeatedly.
How come “the pessimists” are always right these days? Stupid fooks…
“The pessimists expect these figures to climb much higher, adding to supply and further depressing prices.”..
Sorry, I take offense to this statement… It should (correctly) say that people who believe home prices need to be supported by local wages believe home prices have much further to fall or wages must increase proportionately before this disaster is finished unfolding..” of something like that.. “pessimist ??”.. piss off Economist..
It should say that Economists with a media bull horn are continuing to view the world through rose colored glasses, despite the embarrassment of an ongoing string of overly optimistic forecasts for the mildness of the housing bust.
With the record low consumer sentiment numbers that just came out, I guess we’re in the majority if we’re pessimists.
I was talking about economists, not people who live in the real world.
I loved economic in school, took quite a bit of it too and thoroughly enjoyed it, my professors mostly came from the business world and had their feet on the ground, I just never understood how people who monitor such a real world arena get so from from it>
OK someone please bring some sanity to
I know a girl in Canoga Park LA. Her mother bought her a house 2003 for ~250. Title in moms name.
Appraised at 600K 2 years ago and they took a HELOC out for 200K
She doesnt want the house anymore.
Mom is in the retirement home paid by are medicare taxes.
Daughter has not paid mortgage in 3 months and banks has yet to call.
She is going to let the bank take the house. Live there until they kick her out and take the 200K (ok after all the parties, cars etc its down to 30K) and buy a new house.
Its her moms credit that is effected not hers.
She also know a guy who stopped paying 8 months ago and the bank still hasnt done anything. He has the same plan.
Can someone please advise how I can get in on this racket?
I have zero debt. Enough to buy a house in cash. But am not a current home owner.
If its not illegal and they cant come after you….who cares????
I am supposed to set up a corp so who cares if i would file bankruptcy?
“Can someone please advise how I can get in on this racket?”
By all means — if you can’t beat ‘em, join ‘em.
And that’s exactly what Obama wants you to do! Or plans for you to do! Whether you like it or not.
I don’t think you can anymore, you would need to borrow 100% of the money for the house and then just don’t pay the loan. banks won’t loan 100% anymore for this reason. Game over.
Thanks for this little story.. another lesson for my son on what type of woman to avoid in his future… also a lesson for me and my daughter on what I’ll not be doing for her in her future..
At Easter at my sister’s, was regaled by my brother-in-law telling about HIS brother (not present) who has not paid his mortgage in over a year. I advised him to tell his brother to try to work with the bank on a short sale. He shrugged his shoulders and said “nah, he’ll just let it go into foreclosure”, as if there wasn’t a care in the world. Apparently his brother plans to file for bankruptcy after the whole thing unwinds.
The benefit of the short sale is: the bank won’t send you a 1099 for the forgiven portion of the debt. In a foreclosure scenario, you get a 1099 at the end of the year. And, someone correct me if I’m wrong, if you file for bankruptcy you can’t get out from paying your back taxes on the 1099.
I believe you have the short sale and foreclosure backward. 1099 for short sale (luckily no federal tax on forgiven housing debt for 2008?). Foreclosure in a “non-recourse” loan the bank reclaims the real property. If it is a recourse loan (original loans in some states, or a refinance in more states) then they can continue to chase after your other assets through a deficiency judgement: SURPRISE!
What can the G-7 countries do for Uncle Buck that has not already been attempted?
Get the “smart money” out in time by putting it on the taxpayers bill.
Plaza Accord Part Deux?
Ummmm, competitively devalue?
Yes, this is what created Japans’ problem in the 80’s in the first place. They have still not recovered.
Wiser central banks (any left?) might want to stay away from this.
They are talking about propping up the dollar, not devaluing.
Ummmmm, PB …. the other countries need to devalue to “prop up” the dollar.
Perhaps I misconstrued ozajh’s remark…
We collectively witnessed the largest transfer of wealth probably in the history of this planet w/this bubble, with homes and financial instruments used to “trade” them (not “buy” them) used as the medium for wealth exchange… now we have to listen to all the pundits and BS artists rationalize, deflect and explain away this simple fact …
Only if they had the brains to move the wealth from the upper echelons of the inverted debt pyramid down to the bottom rungs a.k.a. that much dreaded bugaboo out here — cash.
Otherwise, the credit will vanish into the ether where it came from.
That’s somewhat true, but I’ve read hundreds of stories already on this blog of 26 y/o w/no college education raking in $500K / year pumping mortgages.. that’s a wealth xfer in my book..
Let’s talk about the 1998 vs. 2008. Specifically, each period’s credit crises.
In 1998, there was a lot of doom and gloom talk about how the credit problems in Russia and parts of Asia would spread and cause a world-wide disaster. It never happened that way. In fact, markets rebounded in a big way before the inevitable fall in 2000.
Today, some bulls point to 1998 as a reason to believe that our present credit crisis will, too, be short-lived. As a result, the bulls think that this a fantastic time to buy stocks.
So is it different this time? Personally, I think so the magnitude of the problems seems far greater this time. Today, it’s the U.S. that has the primary credit problem. (BTW, the U.K. is similar, with its borrow-don’t-save ways.)
I’d like to here the opinions of the board here regarding 1998 vs. 2008.
Yeah, why is the s&p supposed to go up but the nasdaq has to stay down forever?
Does anybody know a great money manager in the san diego area?
http://www.gabrielwisdom.com/
I am so glad you posted that.
If GH or PB hadn’t responded, I would have freaked.
May I tell him you and I are comrades?
I am so weary from being an investor.
Taxes, cap gains, income, deductions, preferred, notes.
What a maze.
This looks like an admission that the bubble was never limited to just sub-prime:
“Federal Reserve Chairman Ben Bernanke recently estimated that about 45% of foreclosures in 2007 were on private, near-prime or government-backed mortgages.”
http://articles.moneycentral.msn.com/Banking/HomeFinancing/HomeownersWhoJustWalkAway.aspx?GT1=33010
World Finance Leaders Tackle Bank Reform
Saturday April 12, 9:38 am ET
By Martin Crutsinger, AP Economics Writer
World Finance Officials Vow to Revam Financial Regulations to Deal With Severe Credit Crisis
“The weak housing market, together with high energy prices and stress in financial markets, is penalizing U.S. economic growth,” he said. “We must expect more bumps in the road.”
http://biz.yahoo.com/ap/080412/credit_crisis.html
wow, one would have never imagined that loaning money to a bunch of deadbeats would have caused so much trouble in the world. now i know why Ben started this blog so long ago, to warn people who would not listen to the warning signs that are now only obvious to the world leaders who should have known what was going to happen! put Bens name on the presidential ballot this november!
You think the world leaders didn’t want this to happen? What better way to consolidate power than to impoverish the people?
And that’s what Chavez and Barack both plan to do. Barack is just 3-4 years behind Chavez.
Lol, guess I wasn’t the only one last night who didn’t care for Osama Obama’s putdown of us country hicks.
He doesn’t get that people had their guns and religion and dislike for illegal criminals long before the jobs started going away. As I said, this is classic elitist BS which we have to watch being spewed continually from both coasts, especially from the far left, but not exclusively, I will say.
Just from talking from my Dem friends, the Dem party has already lost many of them in November, and they haven’t even picked their nominee yet. The election happens one week before firearms deer season. These comments won’t be soon forgotten by them.
http://www.bloomberg.com/apps/news?pid=20601070&sid=aEMHwBENIzbo&refer=home
Blano:
evangs and gun nuts finally got the right man to lead them down the primrose path to the poorhouse, and now you think they’ve got any sway left, politically?
Barack Obama merely said things that would assure him not getting elected in 2000 & 2004.
That he could say them now, shows you how much the worm has turned…
People of his ilk have been saying that stuff for years. It’s nothing new.
You like to throw out the word elitist. I suppose you think GW is just a guy you could run into at the trailer home next door, don’t worry there are a lot of ignorant people who felt this way.
Yes ignorant people have had their guns, religion and hatred of everything different through out history. I suspect that Obama is just trying to figure out why. Kudo’s for trying. I feel sorry for the kids that go through this type of brain washing, but once they reach adult hood I give them much less credit. These are the type of people who would make the US look like Saudi Arabia, Iran, or maybe one of those fundamentalist LDS churches where old men rape girls.
Trust me the downfall of this country will not come from those like George Soros who was denigrated the other day, but from blind religious types who hand power to a king in the name of God. A king who will rule us the way Sadam, Iran and the Saudi’s rule their sheep. See GW’s signing statements and disregard for the 4th amendment as examples of attempts to aquire king like power.
I would expect that all the well-informed folks who voted for Bush in 2000 and in 2004, will march right up and vote for McCain.
Everything is going so well now,why would they want to rock the boat.
“The hottest places in hell are reserved for those who in times of great moral crises maintain their neutrality.”
Dante Alighieri
Or who support the Yankees…
I find it very revealing that Obama seems to consider the constitution, religious values and border security sub tier issues that are only important because there is no confidence in DCs ability to solve economic problems.
Hell, I don’t have much confidence in there ability to do anything right. It is a straw man argument to put these words in others mouths. I for one am cabable of being a single issue voter in a case where I think the choice for a particular candidate may weaken our constitutional rights, because that to me reveals the nature of a candidates patriotic nature.
It is also revealing where he says that these “low brows” (my words) in small towns turn to their rligion and each other in their community when they are not “heard” by DC.
This sounds like Obamas version of “It takes a village”.
He’s a nonstarter. McCain will run him over.
McCain. What can you say about a guy who had his daughter as the subject of vicious smears by the Bush campaign in South Carolina, and is still willing to crawl on his hands and knees to Bush for the chance to be prez. Not much.
” Osama Obama’s ”
Blano is an avowed Christian. So is Obama. How nice.
What Obama said - it sounded about right to me.
I think that people in small towns (and large towns) are bitter about the incompetence, corruption and greed of our leaders (financial, political, media, religious…) Yep that sounds about right. Many are bitter - heck, I’m bitter.
And we, the non-powerful, big-town people living in small towns and small-town people living in big towns and all the people in between, all have our issues that we cling to - guns, sexuality, religion, environment…
We cling to our issues in hopes that we can work on these issues and make things better. Obama just recognized this. That’s not elitism - or condescension - recognizing that people have their local “bigoted” issues - that also sounded right to me.
The majority of us have been played and the majority need to get a little smarter about how the world works. We can keep our bigoted views and issues, but we need to see that there is a bigger agenda that’s playing us all and we should try not to get suckered. We have been suckered and we should be suckered any more. That’s what I took away from Obama’s talk.
Obama and Ron Paul are the only two who seem to be talking in clear terms about how things s-u-c-k in the great U-S-A.
We seem to attract a high level of intellect to this blog but you seem to be the only one who can interpret Obamas strong message.
Global market overseers start arduous process of rebuilding straw house
By Greg Robb, MarketWatch
Last update: 6:16 p.m. EDT April 11, 2008
WASHINGTON (MarketWatch) - Having watched their straw house of global market oversight get blown down in the winds of the global credit crunch, international financial market regulators released on Friday their architects’ drawings of how to build a stronger house to survive the next crisis. Whether this new house will be built of sticks or bricks won’t be clear for some time.
But the regulators vowed to stay on top of the next generations of innovations from the private sector.
In a report released to coincide with the meeting of G7 finance ministers and central bank governors, the regulators, operating under a little-known umbrella group called the Financial Stability Forum, tried to assure the public that they were not a bumbling band of Inspector Clouseaus chasing jewel thieves.
“Some of the weaknesses that have come to light were known or suspected within the community of financial authorities before the turmoil began,” the FSF report assured the public in a press release accompanying its recommendations.
I am glad they are planning to survive another crisis. I thought the point was to prevent a crisis!
I think the point is to rig the game so crises happen often, and profit from them each time they do.
DUH!!! This is pretty much the essence of 19th century American economic history.
Credit inflation; bank failure; deflation; bankers buy assets at pennies on the dollar.
Go read the allegory of The Wizard of Oz. Both “Emerald City”, and the “Wicked Witch of the East” are completely obvious.
“Wicked Witch of the East”
Having a tornado drop a house on you is even worse than having your house go underwater.
Why would anyone buy a house right now when more price declines are expected? Wouldn’t it make more sense for prospective buyers to wait until prices bottom out?
Silver linings to the Treasury Secretary’s housing price forecast:
1) The govt’s affordable housing objective might finally be achieved.
2) Housing market liquidity will be instantaneously restored once prices stop dropping like a rock.
latest news
Paulson tells G7 to expect more declines in U.S. home prices
G7 sees difficult time, unhappy with currency swings
Anxiety doesn’t stay behind closed doors; more bumps ahead, Paulson says
By Greg Robb, MarketWatch
Last update: 8:06 p.m. EDT April 11, 2008
WASHINGTON (MarketWatch) — The top economic officials of the wealthy Group of Seven nations said Friday that the global economy faces “a difficult period” with a raft of woes that could cause more trouble in the coming months.
“We met today amid ongoing challenges to the world economy and international financial system,” the finance ministers and central-bank governors of the G7 said in a sober statement, released after their closed-door meeting at the Treasury Department.
“The global economy continues to face a difficult period,” the G7 added.
Foreclosures slow in Central Valley
http://www.centralvalleybusinesstimes.com/stories/001/?ID=8385
“Foreclosures slowing” is definitely a relative term in my book.. relative to normal ? or relative to the last few months ? in other words, more RE machine spin..
Slowing? yea right….Another BS article.All one needs to do is go to realtytrac dot com and type in any zip and see in most cases there are more preforclosures and auctions than bank owned.Even Napa County is gaining #’s.Rather than zips you can get county stats by clicking on the maps.
The #’s dont lie but so called experts do.
Nothing is going to stop this trainwreck.Its to late in the game.
Meant “Sonoma County” but checked others too.You know those pricey areas that everyone wants to live in. They are all gaining in foreclosure #s not slowing.
This looks like an admission that the bubble was never limited to just sub-prime:
“Federal Reserve Chairman Ben Bernanke recently estimated that about 45% of foreclosures in 2007 were on private, near-prime or government-backed mortgages.”
http://tinyurl.com/59ysrq
These are the rational people. They may be unhappy now but they will realize the craziness in a few year’s time.
Bankers exist to borrow short and lend long; if they don’t lend, they don’t eat.
All of these morons will be able to buy in a few year’s time at a fraction of the price.
Run, fools, run; don’t walk.
Cooking is my hobby too. I wish we lived closer together. We could make each other kicken Indian food.
Yep, agreed.
Still working my way through Lord Krishna’s Cuisine.
Lovely book. A bit heavy on the ghee though, no? LOL.
I may have some recommendations on that front.
The last ten years have seen a virtual bounty of amazing regional Indian cookbooks. The way people actually eat rather than some funny expectation of “Indian” food. Absolutely amazin’ stuff.
txchick, you can afford the books. Just buy one less Euro-tiara.
Email me offline : cba.fed.ihg AT gmail DOT com
Anyone else, feel free as well. I have a few hundred books on food, and am very interested in both the history and science of food.
Be careful; I bite though but y’all knew that, right?
Will do. Latest one I have is Grains, Greens and Grated Coconuts. That’s a good one.
That’s one of them!!! Awesome, isn’t it?
She’s a bit ol’-fashioned — not gonna taste upfront, what the hell is that Brahmin shee-yat, you’re pulling, lady? You live in Providence!
But it’s very very good, and accurate.
I thought she was in Dallas. She used to be. I heard about that book from Suvir Saran. Do you read EGullet? He used to be on there all the time.
You’re right. She lives in Plano, TX now.
But she did originally did move to Providence from India so I am not crazy.
I like Suvir Saran’s stuff. Kinda nouveau but why not?
I read eGullet and chowhound from time to time. Perhaps I need to do that more often than this blog.
Here’s two others I like a lot. You probably have both of them. Right now, I’m working on injera. OMG, I could eat that all day, by itself.
http://www.amazon.com/Silk-Road-Cooking-Vegetarian-Journey/dp/0934211965/ref=sr_1_5?ie=UTF8&s=books&qid=1208049138&sr=1-5
http://www.amazon.com/My-Bombay-Kitchen-Traditional-Cooking/dp/0520249607/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1208049175&sr=1-1
Me too!!!
I wrote a detailed review of all the Parsi cookbooks that I know of (including that one.)
I love that book but the love needs to be qualified.
Short version is that she is substituting when there is no reason to substitute in the US anymore. All the raw stuff is freely available virtually everywhere.
I took a rockin’ thai cooking course from a thai lady.
Every meal takes two hours to prepare.
Cooking take minutes.
Kasma Loha-Unchit, perchance?
Yes, it was Kasma. I just got chills. lets eat.
Is she still in piedmont?
Thought so.
She’s the real deal.
“Cooking is my hobby too.”
Count me in on the HBB cook-off…
I do indian food too. But the curry in the Patak originals glass jars is so damn good. Yogurt instead of ghee.
PB, all you need to do is announce where you will be on any given weekend and we in sd will just show up.
Who wants curry?
Anyone who mistakes that stuff for the real deal has pretty much no clue.
In any case, sparky, traditional Indian food almost always used yogurt not cream. And the traditional sour yogurt not the pasteurized shee-yat that passes for yogurt out here.
Calling this stuff Indian food is about as accurate as mistaking McD’s for a hand-ground burger made with fresh ingredients.
I love pataks and I stand by that statement. I use it as a marinade, not an indian meal.
I go to indian markets for wildlife.
I saw ravi shankar in concert twice, have you?
O Great Berkeley-ite! Indian culture didn’t start when white firangis discovered it.
It still started with the Indians not with the wannabes.
I was learning the fine art of belly dance but after 911 i switched over to indian stuff.
Before that it was reggae this, bob marley that.
I was a regular Trustafarian
I used to cry when I heard the “I have a dream” speech.
no mo’.
Give me spa day any day.
“…about 45% of foreclosures in 2007 were on private, near-prime or government-backed mortgages.”
Great that we are collectively getting forced by the PTB to back up lots more of these. I guess we can expect lots more foreclosures going forward? How do renters get in line for their fair share of this mortgage bailout money?
‘The plan “offers every deserving American family or homeowner the opportunity to trade a burdensome mortgage for a manageable loan,” he told New York-area small-business owners Thursday.
The plan’s price tag is estimated at anywhere between $3 billion and $10 billion.’
Either this plan is a nonstarter, those numbers are way too low or there are a just a very small number of American families or homeowners who meet the ‘deserving’ qualification bar.
Finally, a bailout that will only help people with jobs.
I like that last article a lot. I hope he wins.
I don’t know if this is an old video or not but here’s Shiller on ABC News talking about the history of the housing bubble. Great cutesy cartoons for the financially unsophisticated that you can pass around to your doubting friends!
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=3906861&cl=7322611&ch=4226720&src=news
Someone at ABC News is reading here!
Hey, I’d didn’t see a WB logo… oh, ABC couldn’t hire Daffy & Bugs…I get it…then they’d have to pay “royalties”
April 12, 2008
Quasi-fiscal scoundrels 4: helping banks
When I hear or read the words ‘off-balance-sheet financing’ or ’special purpose vehicle’, warning lights begin to flash and I grab for my obfuscatometer. Off-balance-sheet financing is any form of funding that avoids placing the owners’ equity, liabilities or assets on the balance sheet of a firm or other legal entity. The most common way to achieve this is by placing those items on some other entity’s balance sheet. A standard approach is to create a special purpose vehicle (SPV) and place assets and liabilities on its balance sheet. An SPV is a firm or other legal entity established to perform some narrowly-defined or temporary purpose.
Totally OT, but this is the third time I’ve left things to cook, gone to check the HBB for just a second, and forgot all about everything until I smelled burning food… I suspect I’m not the only one who’s done this (am I???).
Electric shock
Published: April 11 2008 14:31 | Last updated: April 11 2008 19:20
Bear Stearns has even more to answer for, it seems. The battered broker’s name cropped up three times on General Electric’s first-quarter call on Friday. In roiling the markets, Bear’s debacle was cited as one reason for a collapse in profits at GE’s financial services business. That led GE to miss consensus estimates by a wide margin and cut guidance for the year.
http://www.politico.com/news/stories/0408/9504.html
Lookin good, now that Osama has foot permanently implanted in mouth.
Hey txchic,
Since the “market” is closed…why don’t you just shot gun shoot one of your 20# trout, cut it’s head off and next day deliver it to Obama’s headquarters…is that legal in tay-hos?
Has a republican candidate ever died while running for President? Would you give a sympathy vote to his wife?
Maybe his VP if he picks the right one.
I’m sure the “selected” VP will not be wearing sun glasses.
http://www.youtube.com/watch?v=Sc9PepjyDow&eurl=http://dailydish.typepad.com/
Yeah right , if you read this blog, you would never characterize anyone in America as bitter.
A meaningless story, perpetuated by a bored press that will go nowhere.
“Reverend Wright who?”