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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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Name:Ben Jones
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Let’s talk about how to profit from the bust. Nyuk.
I’m glad you brought this up, as some posters missed the earlier threads along similar lines. Not long ago, one poster was posting about a possible govt program to help Fannie Mae if it went under. I suggested that if he really thought that likely, why no place a bet against the companies stock? It might be retirement time if he had.
I realize this stuff requires risk-taking, courage and conviction. But I haven’t seen that lacking from many of the posters here. And doing nothing is a risk too.
A long time ago, I ran into a high-school friend of mine. After the Texas bust he had bought rental 13 houses in our hometown. They all cash-flowed from day one. He didn’t have any background in RE, particularly. Even by then, he had them almost all paid off and he and his wife mostly travel. I realize that landlording isn’t for everyone. My point is, financial shakeups produce opportunities if one looks hard enough and takes a chance. (And, yes, I understand that SFHs won’t cash flow yet.)
“I understand that SFHs won’t cash flow yet.”
Tell that to the group of moneyed investors guided by a Wall Street friend of mine. They’re currently buying REO SFH’s by the dozen from banks at 10% off list. When I mentioned the risk to my friend, he said these investors already have buyers. I don’t believe it. Most of this investment group are MD’s.
“Most of this investment group are MD’s”
That I believe as I spent a large part of my working career with both doctors and law enforcement. Most of the MD’s just fed the investment shills. Many rode the stock market crash down and then switched heavily into RE gaining most of their properties in the worst markets at their peak.
In Bakersfield I knew a banker in the ’70’s that bought the best foreclosures from the bank (BofA) and turned them into rentals. Some of us would classify the properties as ’slum’ but they cash flowed because you didn’t have to fix them up for the type of people needing a roof overhead. Today you have a problem in CA with disclosure once you want to sell, so if your property is not up to snuff but cash flows it might not resell later without a lot of fix-up expense. Bakersfield has had its share of settling problems in different areas of town (bluffs is one area that comes to mind), some areas are on septic, some areas were sprayed heavily with chemicals before recently being turned into housing; ergo know the area well before jumping in.
“In Bakersfield I knew a banker in the ’70’s that bought the best foreclosures from the bank (BofA) and turned them into rentals. Some of us would classify the properties as ’slum’ but they cash flowed because you didn’t have to fix them up for the type of people needing a roof overhead.”
This sort of slumlord stuff is disgusting, IMO. The idea that, because somebody can’t afford much, that they don’t mind, or are even deserving of, substandard housing is despicable. Some of those slumlords need to be taken out back to the woodshed in the worst way.
The greed disease runs deep in this country. Without naming names, it’s even apparent on this blog. There’s nothing wrong with being financially successful. But there are moral and ethical principles which people should adhere to. Unfortunately, it’s not always the case. Taking advantage of the disadvantaged is ugly any way you look at it.
“This sort of slumlord stuff is disgusting, IMO. The idea that, because somebody can’t afford much, that they don’t mind, or are even deserving of, substandard housing is despicable. Some of those slumlords need to be taken out back to the woodshed in the worst way.”
Or maybe instead the property owners could fix up the homes, and pass on the additional cost to the renter in the form of higher rent?
Oh I forgot, slumlords by definition sit on their butts all day, rubbing their grubby bellies and laughing as they thumb through their envelopes of cash, dead cigars dangling from their lips. They’re all masters of maintenance and thus just need to apply their ample free time to spic-and-spanning with no extra charge.
(You generalize to the extreme - so can I)
Looks like I hit a nerve. You wouldn’t happen to be dealing in slum housing, now would you?
The idea that, because somebody can’t afford much, that they don’t mind, or are even deserving of, substandard housing is despicable.
Not sure about despicable, but “they don’t mind’ is certainly accurate. People who can’t afford things up to your standard are almost always will to settle for less as a cost savings. That applies to everything including housing.
“Slum lord” is a term invented by rich people (like you) to make them feel better, by “fighting” against the “plight” of poor people. If you force “slum lords” to upgrade properties to higher end stuff, then there would be no more slums and people living there would then become homeless.
How about this, if you feel so strongly that one person should be forced to provide another person housing at below-market or below-cost rents, you can demonstrate your convictions by buying RE and doing exactly that. Until then, you don’t have much credibility to be able to knock someone else for not doing what you also don’t do.
discipline over conviction
“he said these investors already have buyers”
Then (assuming he was telling the truth) it sounds like your friend is just trying to flip to new FB’s to make a few bucks in the middle. In that case, I can see why the cash flow doesn’t matter.
If you’re right, then these investors are the new FB’s. Either way, 10% off is a guaranteed formula for failure.
My buddy isn’t “trying” to flip anything. He’s negotiating with bank REO departments on the infestors behalf.
RE: currently buying REO SFH’s by the dozen from banks at 10% off list.
There are so many bad, bad development idea’s which got floated with the aquisience of bought and paid for appraiser’s that you, as a novice bottom feeder could find yourself in deep shite whether you got deep pockets or not.
RE: currently buying REO SFH’s by the dozen from banks at 10% off list.
There are so many bad, bad development idea’s which got floated with the aquisience of bought and paid for appraiser’s that you, as a novice bottom feeder could find yourself in deep shite whether you got deep pockets or not.
“And doing nothing is a risk too.”
This is my problem. I came to this blog to understand housing, and now I find myself googling all kinds of crazy terms you guys toss around. I’m by no means a simpleton, but I also am not looking to get into any other game(s). I’ve learned though that this isn’t really an option, sitting on the sidelines (as one poster commented the other day, “we’re all in the game, this is capitalism”). I did the right thing by not buying a home in Florida, now what?
Last February I moved all of my retirement loot into TIPS funds much to my dad’s dismay. He’s always trying to give me “investment advice.” He means well, but still doesn’t get why VG star is down. He’s like every other boomer that just doesn’t want to wrap their mind around the bust. Last I checked I’m still getting around 6% and he’s losing 6-8%.
I am trying to be prudent and knock off the last amount of debt I have, but that opportunity could be at a great cost. I’d love to short the balls off some companies I know are doomed.
So… what should I do? Start an online account and go nuts? My approach would be like when I go to the casino - bring X dollars and stop when they’re gone, or pull out when I’m ahead. Maybe I’d start with $5k and see what happens.
Seriously, where should I start? I am willing to get on the bleeding edge.
I am cautious. If you have money set aside to buy a house, I would keep it somewhere where principal is protected and not take short-term gambles, as I feel housing will be a sure bet in two years. Assuming you have a stable job and are not worried about job loss, you may be able to play with your retirement funds. For me personally, there is a disconnect between when I think things should happen and when they actually do happen, and the timing of bailouts and other news is almost impossible to predict. Like I said this morning, I will probably stick 5% of my 401k monies back in aggressive funds each month and just sit on them for the long haul, or remove during the peak of the next bubble. Getting in near the bottom and holding long term is safest for ppl like me.
Smart idea. I cringe at all the ‘buy and hold’ propaganda I hear daily.
ie. I learned my lesson in 2000
Cash, relative to real estate, is increasing in value, which means you should relax and allow the market to complete its work.
IMHO.
I think you’re dead on right.
Just curious,
Whether or not you have positive cash flow depends on how much you put down. So for those with experience in the matter, should you expect positive cash flow with 20% down (10%, 5%?)? How much cash flow makes for a good investment?
Cash flow itself does not make for a good investment. You have to look for return on investment dollars less the opportunity cost of your down payment. If you think you can predict the future, you can also factor in appreciation, but I can’t and don’t.
In recent years, it has taken about a 50% down payment to make apartments “cash flow”, but typically that’s not a very good investment because of all that cash tied up compared to rate of return.
Once upon a time, I actually purchased a building with no money down. Now *that* was a good investment, although highly unusual.
More generally, I would consider buying more apartment buildings if I could find units that “cash flowed” with 15 to 20% down. I have not seen anything like that for many years.
And I wouldn’t touch single-family houses as investments unless they were practically giving them away. Even then - what a hassle for not much income.
exactly. ROI is the more important metric.
Put a different way, I look at whether you can buy at a cap rate that is higher than the cost of any debt on the property. If so, the property might be worth buying.
If not, the bank’s debt is making a greater return than your equity, and it is senior to you (less risk). That doesn’t make sense.
By the way, I heard the other day that if FNM and FRE stopped lending on apartments, market cap rates would go up by ~200bps almost overnight. Even if they keep lending, they’ll need to raise rates to attract the capital to buy the notes.
It’s not a good day if you’re an apartment developer and needed to sell at a 6% cap rate.
Wouldn’t it be the case that first you look at all costs other than principal outlays, such as interest, HOA, maintenance, taxes, insurance, etc., which anticipated rent would surely have to cover. Then you have to take an assumed rate of home appreciation/depreciation and then determine if such assumed rate plus all amounts of rent in excess of the first calculation (i.e., costs minus principal) would give you a rate of return on your projected prinicipal outlay that would exceed the expected rate of return on other investments?
For most long term owners, appreciation is a bonus if it happens. What matters is whether on a monthly basis your rent covers the mortgage payment and puts some good money in your pocket for the equity and time you’ve invested.
My view is that if the investment works with no rental growth, it will work really well with rental growth (the best source of appreciation is rental growth, IMHO).
“How much cash flow makes for a good investment?”
That’s gonna depend on your tolerance level. Some landlords will put up with those hassles for the joy of making $100-200 a month on a property. I used to think I was one of them, now I don’t. I’d rather pursue cash some other way. The same decision for pain tolerance applies to stocks, bonds, gold, etc. etc.
Along same lines… Many folks here talk about what ancestors did to survive during the depression.
That’s fine and all, but I’m more interested in what folks did to *capitalize* on opportunities in the 70’s, 80’s or 90’s…
For instance, brother is a union pipefitter. He tells me during 70’s here in Seattle (”last one to leave, please turn the lights out”) many tradesmen picked up houses for nil, held on to these cash flow-ing homes, when construction projects were slow in 80s/90s they had a cash flow buffer and upon retirement, a nice augment to pension.
Today, I’m actively on the lookout for businesses to buy and/or assets of companies with cash-flow problems. Seeing very few today (wishing prices with valuations based on last 3 years of ‘free money’). But as biz credit lines are shrunk/cutoff, there will be opportunities.
Another: currency/fuel/commodity arbitrage opportunities today. From bit/buckets, smart Chicago family fills idle shipping containers with grain and ship to Asia. http://tinyurl.com/5v5j8e — brilliant, now shipping 4,000+ tons a day.
Any other anecdotes/opportunities spring to mind?
“Any other anecdotes/opportunities spring to mind?”
Here’s one:
In 1969 I bought my second stock, a up-and-coming small cap growth stock full of promise. It was the leader in its field (radiological pharma), enjoyed both revenue and earnings increases above 20%, and no LTD. Its price was in the low thirties and its P/E was at 32, down from a bull market high of forty-something.
Five years later, in the fall of 1974, the stock had fully lived up to its promise with 20% annual gains in revenue and earnings and still had no LTD. The only thing that had changed was it’s price and its P/E. The price went to $6 and the P/E went to 3.
A P/E of 3 for such a company is a screaming buy, and logic told me to buy more. But I didn’t buy more because of the fear that Mr. Market was seeing something that I wasn’t. Eventually the company was bought up (by GE, I believe) and I more or less broke even.
Lessons:
1. Mr. Market is a manic/depressive psycho who will dream he is with Goldilocks one year and suffer the nightmare of economic collapse just a few years later.
2. During bear market bottoms those with knowledge and deep pockets will buy up for pennies on the dollar excellent companies that are dumped by those whose lives are dominated by emotions rather than logic.
It’s the same in real estate. There are people right now buying up residential land for pennies on the dollar. When they look back in 2012/2013, they will be glad that they did.
>>
2012/20132022/2023
Combotechie, the moral of your story is that there are vultures everywhere, and the smartest, fastest and toughtest vultures are going to get the biggest hunk of the meat. But, if you are on the right side of the vulture bet, you can still do OK without taking all of the risks.
In tough times, Stronger companies will buy very good (but struggling) companies at a deep discount due to market fears and tight credit.
Maybe it might be a great time to invest in solid, well financed and well managed companies and let them take some of the risks.
Because a lot of us on this blog can’t afford to go short, it might be cool if those in the know can give some of us novices some advice so at the very least we might be able to attach our sails to a good wind.
During the last depression, at least until 1933, they made bathtub gin! I guess the modern equivalent would be a meth lab?
yep you have to buy when most are scared and selling, I think bottom fishing is easier than selling at a top anyway.
I met with some foreclosure specialists the other day (they buy at the courthouse steps). Mentioned a few locales in No. Cal. where you can buy homes on the courthouse steps for 100x monthly rental.
We’re getting there…
Another great week, here on HBB!
Thank you Ben for moderating this forum - seriously -
Ben, the Captian of this ship…and I’m getting closer to my home…
Thanks for the comfy chair in your den.
I’ve missed some posts, but today!
Today, your (Ben) post(s) gave me a gitty-up! (er…that’s a compliment).
WOW!
Opportunites abound…great advice.
Best Always,
Leigh
I think the problem here, Ben, is that most of us here tend to think rationally, while the market and the insane government forces working to prop things are not rational unless one considers the entire purpose of the market as a way to transfer wealth to the rich (which is a topic for another time.)
Also, most people here are not rich, so we can’t afford to toss 10 grand here or there to “get rich.” When the bet goes wrong because the government did or did not bail out or not bail out some entity, we’d be screwed.
Now, don’t get me wrong: I’ve been making some money during this bust and preserving most of the rest, and I’ve been doing reasonably well in getting into and out of things in time. That being said, I am definitely not ready to start dabbling in various options, naked shorts (oh, wait - they’re illegal now for the Bail-out Entities), and so on. More power to those who are good at such things, but don’t be harsh on every poster who isn’t juggling a few dozen options at any given time. Not all of us can afford such expensive “hobbies.”
Finally, those of us who want sanity to return to the market are not whining; it bugs when people think there is something wrong with NOT daydreaming about the next big, “get rich quick” scheme, be it selling houses or shorting banks. Is it too much to ask for a society where one can work a productive job and not spend several hours a day sorting through financial news and crooked Big Brother Speak to try to figure out how to make a bit of money or at least not have one’s saving destroyed by inflation? Yeah, I know - we have to work with what we have, but there’s no harm in wanting things to be better, IMHO.
Thank you, Pondering. I especially liked this part:
Is it too much to ask for a society where one can work a productive job and not spend several hours a day sorting through financial news and crooked Big Brother Speak to try to figure out how to make a bit of money or at least not have one’s saving destroyed by inflation?
Money can be made in good times and bad, as we all know. As a small (pool) contractor I have shifted to something I had not done in 25 years. Advertising to fill them in, so far two contracts. Swimming pools cost a good bit in up keep and many households no longer get much use, for many reasons. Also in many cases a pool is a negative for someone trying to sell a house, in fact one I’m filling in is just for that reason. Adjusting to a changing market can be very tough for some folks, but my business was off, so I tried a different approach. I’ll keep doing what is necessary.
Good for you, wmbz! Hope you continue to do well.
For those of us keeping our powder dry on RE purchases for another year or more, and who also don’t want a large exposure to commodities given their current prices -
The stock prices of banks and lending institutions have almost all gone into the tank. Many will never come out, obviously, but others will. For those that will make it, I’m suspecting that there may be an incredible opportunity to go long on these stocks in the near future. They will likely recover their value much more quickly than real estate. Which companies should we be watching closely, and what about the timing of such moves?
I think there is an argument for buying a Homebuilder index as well.
I personally feel that the timing will be to average in over about 12 months after we have had 3-4 months of Option ARM reset stories in the MSM.
I think the timing will be sometime in mid 2009…
US Sales of Vespa scooters have doubled in the past several months. I’m thinking it’s time to start looking at this and other companies that stand to benefit from high fuel costs.
Interesting that you should bring that up. My daughter suggested that since I live so close to work (6 miles) that I should consider buying one…save the wear and tear on my car AND gas money. Those pups get, what, 60-80 miles per gallon? Only drive my car for the out-of-the-area destinations. I can get with that.
BayQT~
They get about 70 mpg. Of course, I’d also have to factor in my legal expenses from beating up all the F150 riding dudes who would make smart-ass comments about my ride, and my medical expenses as a result of sharing the road with cell phone gabbing women who never seem to notice motorcycles, much less Vespas.
Don’t get a Vespa, buy American. Cheaper and just as stylish!
http://www.genuinescooters.com/index.html
Some of those prices are outrageous for what you get. Almost four grand for a 150cc scooter? No thanks. I’ll take a used motorcycle for much less, which can actually handle traffic, etc.
…and I just found out that while it is an American company, the scooters are not made in America. Feel free to disregard my suggestions if you wish
Manufacturing is stoop labor.
We’re the innovators, or something.
Good point. FWIW the symbol for them is PIAGF (Piaggio - Italian company).
Motorcycle sales in general may do OK, though the problem is most people treat them as toys not as real transportation. Companies that are geared more towards scooters and mopeds will do well it seems.
I’m beginning to think you can’t invest in anything the way things are going, but when they get there you’ll be able to invest in everything and do OK if you still have any money left that is worth anything.
Given that I don’t make a lot of moves, I’m wondering when to put cash back into the stock market. My wife was hard to convince to pull 401K money out — “can’t time the market,” etc. Now I get the feeling it will be hard to convince her to put it back in. Dow 10,000?
you don’t need to go all in. just start moving in lots one at a time.
Well, I wish I had shorted Fannie and Freddy! That was more of a sure thing than trying to get cash flow out of rentals.
I shy away from shorts because of the potential of “unlimited” losses. I just don’t have the patience and temperament for it. Of course, as we’ve learned, investing in R-E is a sure thing! Just walk away, and wait for your bailout check!
If you’re afraid of unlimited losses, you should consider buying longer term put options. That way you can limit your losses.
Or, set a max pain threshold on your short by buying a call option.
I need to learn more about this whole put option thing. I’ve never traded them, and I don’t trade things I don’t fully understand.
Any money that I have in the US is either in Bonds, or a hand-picked set of Low PE, dividend paying companies with international businesses and a lot of cash.
Is everyone finally realizing this thing is too big to bail?
Yes. So let’s talk about what would happen if Freddie and Fannie went BK, their stock went to zero, and their bonds traded at about 40% of par value. Would other players be able to step in, raise capital, and start offering traditional 20% down mortgages to 700+ FICO borrowers? How long before that could happen, i.e., how long would it take for a stable mortgage market to rise out of the ashes? What would it do to the house price decline- make it worse? have little impact? extend the length of the decline? Would the ultimate number of foreclosures be affected?
Put on your central planner hats and give this some thought.
There’s a lot of problems. Like Fannies off-shore special purpose entities; once reported to number over 1,000. They hired 1,500 accountants to sort it out, and then nothing. What about all the counter-parties? The fraud, the quietly silenced criminal charges?
As one poster has mentioned, what is so special about these corporations? Even if you think they should exist, why not just fold them and start new ones?
FWIW, there is not widespread recognition of “too big to bail” yet. Bernanke just opened the discount window to GSEs. FRE is in the green.
And lest my comment be misinterpreted: My personal view is that the politicians fall into three categories on the GSEs:
1. They don’t understand that there’s a real problem,
2. They understand a problem exists, but don’t understand the magnitude,
3. They understand a problem exists, and are demagoging the public by pretending that the magnitude is manageable. (The kick-the-can-down-the-road strategy.)
And as I said about a year ago……….Franklin Raines, the Architect of mortgage pushing to unqualified buyers for LOTS and LOTS of BONUS money……like $100 Million, give or take a few millions………..
Walks away and lives a lavish lifestyle with all the money and a $1,000,000 per year retirement fund.
Anyone looking into this FRAUD????
While I’m in full agreement that Raines and the boyz should be keel-hauled, it’s important to remember that even keel-hauling won’t solve the fundamental problem in front of us. It might even prove to be a distraction.
Breaking News just minutes ago: The FED says the Discount Window was NOT opened to Freddie & Fannie. Looks like someone started a rumor which took in more suckers, and they are all catching a falling knife right now. Remember the movie “Wall Street”, that’s how this game is really played. Pure lies and rumors. Be careful this going to end very ugly, don’t be fooled.
Do you have a link?
FWIW, my info was Marketwatch:
Federal Reserve Chairman Ben Bernanke told Freddie Mac and Fannie Mae they can use the discount window, Reuters reported Friday afternoon, citing a source familiar with the matter. Bernanke’s comments came during a Thursday-afternoon phone conversation with Freddie Mac Chief Executive Richard Syron, according to Reuters.
To answer my own question: Bloomberg reporting no talks between fannie/freddie and Fed.
Let’s see. No Fed-Fannie/Freddie connection. IndyMac shut down.
Monday is going to be VERY interesting.
This just in:
4:48 p.m. [FRE] Freddie Mac says it’s ‘adequately capitalized’
So forget about that panic today. Everything is just fine after all.
And they lived happily ever after.
The Fed comments it has NOT opened the discount window to Fan & Fred is on the http://www.Bloomberg.com website under special reports.
Maven, I keep saying that this is too big. Now I’m hearing that Freddie and Fannie are going to bring down Western Civilization if they are allowed to fail, and they might.
I’ll say it again: It’s just too big. I’m really worried that the gov’t can only help Fred and Fan so much. I’m pretty sure that it is not enough.
A word of caution: Be careful from this point forward when one is considering any investments. If there is a miscalculation or a mistake anywhere, then there may very well be global collapse. Wall Street really needs to stop their whining and get to helping fix this IF IT CAN BE FIXED. I’m just not sure it can. See, no one knows what they are doing. We have never been here before. Al “Prunes” Greenspan said this when he talk of a “conundrum” in 2004. That was an “Oh Shit!” moment for me.
Right now, almost any crisis will start the ball rolling: Iran blocking the Hormuz, terrorist attack, some Wall Street idiot or Bernanke making yet another mistake at the wrong time, that foreclosure that broke the camels back.
This is damned serious.
Roidy
Dang, I want my mommy! (There’s my whine for the day)!
When the word “conservatorship” starting bouncing around in some MSM articles, the marbles is my head went to warbling.
I agree iz tooo beeeg. Sigh.
I need a hug!
Leigh
Wait, didn’t this happen because some people finally decided that Fannie and Freddie would need to raise a few tens of billions to become adequately capitalized?
FNM and FRE will be around, they may just get a cash infusion from some oil rich country or the US to help recapitalize–existing equity owners will be wiped out, or close to it.
The ramifications of this are not insignificant. The cost of borrowing will go up for everyone because FNM and FRE will need to offer higher rates on their bonds to attract capital. Voila, home prices go down some more, further weakening FNM, FRE and all mortgage backed securities.
Making borrowing rates go up even more.
Rinse, repeat.
Here comes less liquidity, and higher interest rates.
Yes, this is the beginning of the mortgage death spiral, IMO.
If the govt attempts to bail the GSEs, it’s possible we see **very high** inflation/hyperinflation as they try to cover all the losses. Maybe we get a new currency out of this?
If the govt does not bail the GSEs, we could see debt deflation that takes us back a couple of decades, financial markets could seize up, and we literally run out of money to conduct business in the U.S. GSE debt is held everywhere by almost everyone. Though most of us despise the idea of a bailout, the potential for GSE insolvency is probably the greatest financial event in modern times. We are definitely in a quandry.
Anyone have a “Plan C” that could save the financial system, yet avoid a hyperinflationary scenario at the same time?
I don’t buy that we have to “save” the financial system. We won’t run out of money, people will still get along. The problem is the govt. As long as they keep trying to spend/use vast amounts of resources, we will have a problem.
Here’s an idea: get to a solid currency (gold standard, floating rates, whatever) and let the chips fall where they may. People losing money (even on a large scale) is not a bad thing. In fact, it servers as a signal better than any other to be more considerate with how you treat your resources.
A new currency?
Yeah, I think so. My suspicion (prediction, actually, as per Ben’s prediction thread a fw weeks back) is that our government will attempt to further socialize the risks (as a fellow poster aptly says) by encouraging the formation of the Amero, a North/Central/South American currency to compete with the Euro and with Asia.
Since the USA can’t force illegal aliens to come here in the numbers needed (150-200 million+) to bail out our social welfare programs (which now includes housing), we’ll need to diversify/move our debt into other economies.
New currencies that were issued all over Latin America in the 1980’s and 90’s, only papered over gigantic problems and nobody was fooled by the emperor’s new close.
It won’t be any different here.
Once you’ve lost Blind Faith, you can see for miles…
ACH ,I am taking this mess very serious . It is very important for the right moves to be made by the people in power right now ,IMHO .
What you see right now is all the different special interest groups trying to be the ones that get the bail-outs or the lawmaking branch of the government making the reckoning more favorable to their interest .
IMHO ,bad loans can’t be saved ,and any attempts to prop up the market prices of real estate have not worked because it was a fraudulent mania . So, at this point it’s a matter of damage control . Damage control should also be just and fair and not create a moral hazard ,or change a capitalist Nation into a socialist Nation .Also ,there are situations in which crimes were committed ,and they need to be addressed ,along with corrupt systems .
The powers are tampering with contract law, the powers are being bias in where the bail-out go .In general ,the powers seem to be running around like chickens with their heads cut off trying to throw money or easy loans at any sign of market forces responding to the true situation .
When you observe guys like Paulson ,Dodds and the Fed Chairman ,you can only say that their moves are very anti Main Street America . Since this problem is a big old threatening one ,one wants whats best for the Country ,and not some band-aid that only makes the problems bigger down the road . The problem is one of losses ,and who is going to take them ,and how they are going to be taken. I want the ones that created the mess to take more of the rightful burden of their own acts.
Everybody knows that I think more money should be put into job creation ,and addressing the true economic problems of America not being independent energy wise or labor force wise or manufacturing base wise. Nothing improves a economy more than
switching to the areas that are productive and create jobs and spending .
Fannie and Freddie bailed out from this mess?
Now the ‘hyperinflationists’ think that Ben will just print up money and drop it from helicopters, whether literally or otherwise. Well, you’ve already seen what injecting $250 billion in ‘excess liquidity’ has done to the dollar, to oil, to the price of food. Now consider this - the losses involved here that have to be “papered over” are somewhere between $2.5 and $3 trillion dollars. Or more importantly, 10x what’s already been injected. Would you like your gasoline to be $15/gallon? It could easily be, if they were to try to paper over this in that fashion.
If you’re in debt? Your_____
Instead of just timing the bottom, let’s map it out. Will there be more or less regulation? Heads rolling at the Fed? RTC 2.0? Unrest in the suburbs threatening the gentrified city core and art district riverside lofts nearby?
Will we see an acceleration in the decline of prices once the FDIC begins taking over multiple financial institutions? My understanding is that in the past they generally have moved to dump properties relatively aggressively. Will the government relax capital requirements for banks as to keep them technically solvent to prevent accelerated declines in pricing?
What’s the over/under on bank failures for 2009?
Well one thing to keep in mind regarding the FDIC is that they are only capitalized to a very limited extent. The failure of one big bank could wipe out their entire reserves. I don’t think enough people realize this.
From a legal perspective wouldn’t the type of failure you are talking about require the government to pony up more funds to re-capitalize the FDIC?
“”My understanding is that in the past they generally have moved to dump properties relatively aggressively.”"
Perhaps have the 12 Fed districts set up an RTC-like corp and true dutch!
Sigh, iz the tooo beeeg thingy that may this suggestion unworkable.
Leigh
1. What would be the impact of the nationalization of Fannie Mae and Freddie Mac on the housing market?
2. How should people save or invest their money now to be prepared to take advantage of fire-sale prices of assets in the future?
Keep the popcorn popping,
Red Baron
Do the following to survive the depression: 1. Get and keep a job. 2. Rent or live in an RV so you can be mobile for your job. 3. Save at least 25% of your after-tax income. 4. Eliminate debt unless you could pay it off if you lost your job.
#5 get and stay healthy.
“#5 get and stay healthy.”
That should be #1.
Hard for me with a kid to do #2 without appearing (to myself, even) as if wearing an aluminum foil hat.
Well, maybe not an RV, but you can certainly rent. Most of us do and are just fine.
How does the infamous “garbage truck camper” suit ya’?
http://www.snopes.com/photos/automobiles/garbagecamper.asp
Didja hear about the entrepreneur that made his money selling Americans converted trash trucks, described as condo-hotels, with an elevator?
The 2008 housing olympics this summer:
800 meter congressional procedural hurdles
Javelin toss-you-out-on-the-curb
Synchronized lying
hardwood floor exercises
2000 meter payment de-lay race
Canoeing (without a paddle)
100 meter run-on-the-bank
Squat
and thrust200 meter butterfly, carrying granite countertops
I know it’s the summer version, but we have to include…
Figure-Skating
p.s.
Don’t forget to do the COMPulsories
Figure skating, that’s a good one.
Sadly, I think think this bubble will still be deflating for the winter games in 2010 so it’s good to start thinking ahead for the winter games.
Reminds me of the flick “i’m gonna get you suc’ka” when the urban youth were able to compete in events “they could relate to” such as competing as a team to see how quick a car could be stripped or the individual race of running from the dogs while carrying a 19″ tv. We could have a new set of reality tv, olympic style. How quick can someone strip a house, who can squat the longest aka “trading places”, trash the house quickest aka “, hiding cars from repo by a show called “dude, swap my car”, best HELOC bank makeover (who cashed out the most)
“The Running Man” staring our Governor of CA.
Gold running faucets
Why hasn’t there been more talk of homebuilder problems - e.g. bankruptcies? Most of the major ones seem to be OK, in part presumably since prices are still high. But it’s inevitable that many will go out of business. A while back there was lots of discussion of problems at Beazer, WCI, etc. - but the last few months there as been surprisingly near zero discussion of the homebuilders. Odd.
It’s usually when someone comments about the silence that something begins to happen…
How about the relationship between how fast the sales are dropping and the cost of gas? Surely, if gas prices weren’t in the nosebleed area, many would *think* they could still afford to drive between point A (home in the boonies) and B (work, play, entertainment, etc). To hear a friend tell it (who drives over the Dunbarton Bridge to work from Oakland to Palo Alto) the number of cars traveling that route during commute hours has gone down considerably in the last year or so. I suspect that either they are carpooling, taking public trans, or those who could eliminate that commute, did.
What’s also kicking in is a new (2006?) California labor code whereby a lot more people will be hourly workers instead of salaried, and will have to be paid for actual overtime work. As the companies cut down on the overtime or work it so that the employee does not accrue any, there will be less money in some pockets. Less money means…..well, we all know what that means.
BayQT~
What will the effects of gas prices be on centrally located communities? It seems like the demand for homes close to jobs should go up (at least relative to the suburbs and exurbs). I’m mainly thinking about the Tampa/St. Pete area where prices of homes close to jobs have been stubborn to come down while those in some of the suburbs (e.g. North Tampa) have fallen fairly dramatically.
How about a thread on all the real estate agents who think selling foreclosures is a consequence free way to line their pockets in a down market?
http://tinyurl.com/5jn24t
That’s a bullshit move…in short the agents don’t own the properties…they should be ticketing the owners…the agents are just easy targets…they should allocate some of those meatheads who are overpaid on the public dole to track down the owners and ticket them…the problem with that is the banks will tell them to get bent…
1) What country should we flee to?
2) Who will take the next mtg related perp walk?
3) How high will mtg rates go in/when the US gov bails out Fannie and Freddie?
4) How much will food and energy cost us next year?
Answer to #4: Gotta be less. After all, deflation is in the bag.
1a) Which country will let us in?
1. They all have major problems, so we may as well stay here and fix our own country.
We are about to embark on a 1-way trip in a few weeks, as things are nearing the boiling point, and as much as i’d like to watch the goings on up close and personal, personal safety & well-being trumps everything else…
I think this weekend would be a good time for some discussion on the outlook for the financial industry - banks, mortgage companies, GSEs, investment banks, credit industry - in the weeks and months ahead.
With the woes of Fannie, Freddie and Lehman in this past week — along with still-plunging share prices of publicly traded banking operations, it just seems like scary things are really starting to accelerate in the financial world.
Are we on the verge of some major bank failures? GSE failures? And what - if anything - can Wall St. and Washington do about it?
This is the #1 topic right now, IMO. Very interesting times.
I don’t think that the GSE’s will be able to handle the burden of being the only lender in town ,as well as being the buyer of current loan
paper floating around or the re-worked ones (at least not in their present form). God ,what happen to the concept of spreading out risk . We lost a big secondary market for loans when the housing crash came . Investors don’t like to lose
money .
I remember when interest rates were at 17% and nobody was getting “new money” loans under those conditions . People started putting money in the banks because the saving rates were so favorable . The Banks started
building up so much money ,but they weren’t making any loans .A lot of purchases were made by using “old money” and the sellers took back second trust deeds to make deal work . They had a lot of assumable loans back in those days ,and you could actually sell your house quicker and for more if you had a assumable loan and were willing to take back a seller financed second TD . Many people were also doing “wrap-around mortgages “,which in essence was assuming the current loan without the lenders permission .For most part however ,it was a really dead market and money was as tight as it gets and not many people were able to afford or willing to pay a 17% interest rate . People who were not distressed simply just stayed in their houses and continued to make their payments and waited for a better time .A small % of the market was short term investors in those days ,and even if they were they had ability to stick it out .
This housing crash is a lot different because people are walking and they can’t afford to hold out until they can sell at a better time (maybe 15 years from now will be a better time. )
So, the issue is how will the losses be handled ,and who pays for them .
For each of the last 3 years, I’ve payed $5K or more towards the principle balance on my 30 year fixed mortgage. I owe $208K on a $386K purchase (possibly overpaid in ‘04 @ $94/sqft, but I do love the house.), and I’m paying 5.625% interest. I’ve always figured that paying off the principle early is almost the same as buying a 15 year CD at that same interest rate. But the more I put in, the shorter that term becomes. I just got a $10K bonus (1/2 of last year’s - hard times), and could repeat this if I chose to. Is this a good strategy? Or should I take my wife to Hawaii instead? Boy, this economy just is killing me.
if the rates are the same, it is better to pay off the house, since you would have to pay tax on the CD earned interest. you are doing the right thing.
Well there’s the mortgage interest deduction to take into account, but I doubt that would outweigh the tax on CD earnings.
Easy way to find out. Go into Turbo Tax or talk to your accountant and ask him what your overall tax bill would look like if your mortgage interest deduction went down by $281.
Subtract this number from $281 and divide by $5,000. This is your after-tax cost of borrowing.
I suspect it is higher than what you can earn after-tax on a CD. Better to pay off the debt…
A) I’d kill for $94/sqft.
B) I say take the wife to Hawaii.
Six months ago I thought shorting companies producing motorcycles and motor homes was the way to go as both were toys needing a HELOC to buy. Today, with $5 gas on the horizon and housing tanking, some rethinking might be in order.
Sure MC sales will increase but having ridden one in my youth I know first hand how quickly accidents can happen. I was trained by someone who raced them and thus was able to walk away when I got carried away once. The ER visits and litigation are surly to go up.
MH users on the other hand may soon be the new gypsies in America. They can be written off on taxes, can be bought cheap now because of gas prices, don’t have to be sold when applying for a new job anywhere in the country and adds lots of mobility. Let’s just bulldoze down some of these inner city developments for monthly MH hookups in the name of true affordable housing.
There actually are several “long term” motor home parks in this neck of the woods. They are used mainly, I am told, by contract employees for a nearby power generating facility. If you don’t have kids you can make it work, but with kids, not so sure.
My take on motorcycle and scooter sales is that it is currently a bubble that has already peaked, for 5 reasons:
1. Two-wheeling, like traditional homeownership, has a statistical limit. In other words, there are just so many people ‘born to ride’ as the t-shirts say. People are panicked about gas, etc., so they buy the cheap scooter. Most can’t hack the reality of a** on seat living. I hereby predict you will be able to buy one for half price with about 20 miles on it next year.
2. Oil is a bubble. Prices are coming down, and there’s going to be a lot of pissed off Honda Fit owners out there. [Conversely, anyone looking to get a nice SUV cheap should be looking now, with cash in hand.]
3. I have a scooter site that is screaming traffic right now, and am running stories from every podunk paper and tv station in the country about the latest ’scooter craze.’ The tone and volume of the articles suggests to me scoots are a bubble.
4. Everyone who gets on a bike puts it down. Everyone. The accident and death rates are going to soar and that is going to make for some nice counter-bubble coverage.
5. With the exception of SanFran, other major cities and university towns, most locales are not suited for the scooter lifestyle, often leading to conflict and casualties. See number 4. Also, consider environment. I lived in Texas, I love Texas. I wouldn’t drive a scooter in Texas without a Dune-style stillsuit. Up north? Think testi-cicles.
So I don’t think MC and scooter businesses are a great idea — maybe 2 years ago, but the opportunity is mostly gone, IMO.
“Think testi-cicles”
I’d rather not…………:)
Reminds me of the scene in “Dumb and Dumber” where they are riding the mini-bike up the mountain to Aspen, frozen snot streaking back from their nostrils, stuck on the mini-bike with frozen pee………..
How about a topic on who we think would be better for the economy - Obama or McCain.
Oh, please no. We get enough of that s*** daily b/w Txchick, Exeter, et al anyway.
I think the general concensus is that they’d both be pretty horrible.
I should add, this being a housing blog and all, that McCain now supports the housing bailout legislation along with Obama… so… yeah, both of their policies are severely misguided.
“What are you doing to prepare for the future that you foresee? Be as specific as possible.”
I’d love to see a weekend thread on that topic. Note that this is NOT just about investing ideas–it’s wide-ranging, any kind of preparation you’re doing.
We discuss lots of bits of this here and there, but it seems to be spread throughout the blog, and much as I love it, I sometimes can’t read it all! Lots of readers have not really expressed what they’re doing to prepare–does that mean they’re doing nothing. Or even when readers do express their intentions, it may be only a very small part of their plans, or it may not be very specific.
Ben, I’d love to know what you’re doing to prepare, for example. I don’t think you’ll dramatically swing markets by telling us, as some suggested yesterday.
It’s hard to be a bubble blogger and not get caught up in the overwhelming bearish sentiment - not that I don’t think there’s good reason to have been bearish for a while, but I don’t let it interfere with living my life. You gotta keep on keeping on, regardless of what’s happening. To me that means starting a family, hopefully buying a house in a few years and continuing to do most of the things I enjoy doing. But at the same time I do these things from the perspective of knowing that heightened risk is everywhere, so I maintain proper emergency funds, have switched my retirement portfolio to “wealth preservation” mode (cash), maintain zero debt, and keep living expenses low.
I like it!
General: (not in any particular order)
-bits of metal
-mattress cash
-food staples
-guns/ammo/able hands to wield them (only if forced to defend)
-rent in nice nabe (so far)
-looking for a small slice of land, ranch w/workshop for hubby
-hubby in welding class (I could rent him out an be a zillionaire in a year! He can fix anything professionally, right down to replacing microwave electronic keypad without zapping himself).
-mostly home cooked meals
-efficient car, plus truck for said hubby’s talents
-zero debt (excluding rent/utilities)
-simple, happy, healthy life with warm family and friends
(List is not inclusive, but ya get the jist, eh)?
Leigh
BTW: current Nickels, and pre 1982 pennies are worth more in melt than face value. I have my watercooler jugs of nickels and pennies in the garage, just waiting for when the SHTF! They’ll still be worth something and they’re “free” to accumulate now, unlike gold and junk silver.
There’s a handy chart here:
http://www.coinflation.com/
I filled up the burlap basmati rice bag full of pennies and coins. It’s in the shed.
Tons of food in storage, juice, soup, crackers, dried fruit.
5’s 10’s 20’s 50′ and some 100’s.
If I don’t come back it’s because I just opened my water bill.
Someone might steal your bag thinking there’s RICE in it! Have you seen rice prices lately?
Speaking of water bills, I’m thinking of getting a “pirate well” here. We’d never get permits for a well, but I’ve been trying to see if I can get someone to come dig one in the middle of the night. (It’s a little obvious to see a well dug….) I wouldn’t drink the water, but I’d use it for irrigation, laundry, toilets.
We’re renting, and the bulk of our assets is in cash. Our 401K is still in equities and bonds since retirement is a long way away.
We’re growing a few veggies in containers; there is really only so much gardening you can do in a rented townhouse. It wouldn’t be nearly enough to sustain us, but its better than nothing and we’re enjoying the education.
A small store of rice, boxed food, toilet paper, etc. Not going crazy, though. Probably wouldn’t last us much over a month.
Living frugally, as always. We might do some splurging when we finally do buy a house, but until then it would just be more stuff to move so we think, “Why bother?”
MARKETWATCH FIRST TAKE
Fed can lend to just about anyone
Fannie, Freddie and even your Aunt Mabel could go to the discount window
By MarketWatch
Last update: 3:44 p.m. EDT July 11, 2008
WASHINGTON (MarketWatch) — Shares of Fannie Mae and Freddie Mac bounced higher Friday afternoon on a report that the companies had been assured by Federal Reserve Chairman Ben Bernanke that they could borrow from the Fed if necessary.
That was a nice statement of support from Bernanke on a day when Fannie and Freddie needed all the friends they could get. See full story.
However, what Bernanke said goes without saying.
The fact is, even your Aunt Mabel could get an emergency loan from the Fed.
Snow Says Fannie Mae, Freddie Mac Followed `Hedge Fund’ Model
By Brendan Murray
That’s rich, Snow was Treasury Secretary when the only “good” economic news was the housing boom and Bush bragged about his “ownership society.” Snow is a jerk.
Government just shut down mortgage lender IndyMac.
“Indy, Indy, O-oh Indy Mac,
when are you comin’ back.”
They’re not. Like Elvis, Indy has left the building.
We should have bank failures as a weekend topic! They’re going to start falling like dominoes now. It’s already a pain-in-the-a$$ to have CDs with the FDIC limit. You have to keep track of a bunch of banks. And once people hear of folks with more than the FDIC limit losing their money, nobody will buy CDs any more, switching to Treasury bonds, TIPS, foreign bonds, etc.
Will their REOs go to auction? Get liquidated quickly? Or is it possible IMB will get bought out a la Bear Sterns?
One interesting thing about the IndyMac takedown is that the FDIC is directly running the bank, not selling it to another as is usual in FDIC bank closures. Another thing is that Indy Mac’s online banking will not be functioning this weekend, only debit cards, ATMs & checks.
Actually, per this MSN.com article, they are preparing for the sale of the bank:
“The FDIC, which will seek a buyer for IndyMac, estimated the cost of the bank’s failure to its $53 billion insurance fund at between $4 billion and $8 billion”
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080712&id=8886270
I think the reason they’re not hurrying is that they know there is a few more of these to come soon.
It’s Mad, Max.
I would like to see a discussion in basic layman’s terms of the whole Fannie and Freddie thing. How would you explain it to the average person who understands the housing bubble, knows something is wrong and wants to understand, but doesn’t have the detailed financial knowledge so many people here have?
I’m having a hard time grasping the whole thing and I’m sure I’m not alone.
Thanks!
Picture a football game with the rule-making committee holding a meeting on the sidelines and implementing new regulations during the course of the game, and you will get the rough idea.
Fannie Mae, Freddie Mac May Gain Access to Fed Cash, Dodd Says
By Steve Geimann
July 11 (Bloomberg) — Fannie Mae and Freddie Mac may have several options for capital and liquidity, including gaining access to the Federal Reserve’s discount window, Senate Banking Committee Chairman Christopher Dodd said.
Dodd, a Connecticut Democrat, said the Fed and the Treasury Department are considering a “number of options,” including making the companies, the biggest buyers of U.S. mortgages, eligible to borrow from the central bank.
“There are a number of things, including things like the discount window, that they’re, I know, considering,” Dodd said at a Washington news conference today. “They are certainly examining what other means might be taken in order to shore up a situation should it become necessary.”
…grrrrr…
conservatorship…
The things they do with words - flinging poo right back at you, ya S.O.B.s! (not towards posters).
What really miffs my nostrils! The masters of the universe believe it’s all relative.
Weekend topic: Do the masters of the universe (third rock from the sun) exist?
Toooooooooo deep,
Leigh
July 11, 2008, 3:10 pm
Fannie, Freddie, Meet the Bernanke Put
Posted by David Gaffen
This changes things. Shares of Freddie Mac are now in positive territory, after Reuters reported that Federal Reserve Chairman Ben Bernanke told Freddie Mac’s chief executive, Richard Syron, that he and Fannie could take advantage of the Fed’s emergency discount window.
Did Dodd appoint himself to the FOMC?
Fed says discount window not discussed with GSEs
Fri Jul 11, 2008 9:51pm BST
I don’t know your circle of friends, but to mine I would say we are Fukked.
Some would take that as good and some would take that as bad. I would have to go get a fresh beer to let my slower friends know that even though houses in our area are cheaper than they were in the 90’s we are still fukked. We are in a Multi-national world now, and people are just not moving to our part of Pennsylvania. There is no demand for housing. The job market is stable, because people know that most people in the area are willing to work for slave wages. The nice thing is that if both people in the household are willing to work at slave wages they can actually afford a decent home.
IndyMac Seized by U.S. Regulators Amid Cash Crunch (Update4)
By Ari Levy and David Mildenberg
July 11 (Bloomberg) — IndyMac Bancorp Inc. became the second-biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the California mortgage lender short on cash.
With IndyMac out of the game and the GSEs on the rocks, I am wondering where mortgage lending will obtain funding for the next couple of years?
I have a few conjectures to share, and would welcome opinions, whether or not they agree:
1) The record rate of U.S. housing price declines will continue for at least the next year, possibly getting worse before it gets better;
2) The U.S. housing market will bottom out much more quickly than the Japanese market did in its early 1990s crash, thanks to the unexpectedly rapid rate of housing price declines underway;
3) Within five years, the lending industry will once again be able to make loans that pencil out, and buyers will be able to make a purchase safe from the risk of catching a falling knife;
4) It will suck financially to be a home owner for the next five years.
Disagree on 2 and 3.
Most of the country averages out with prices at the 2001-2002 level. (The mid-Atlantic through New England havn’t gotten the memo yet, and are up around 2004-5.)
Nobody’s going to credibly buy until prices hit 1990. Few if any first-time buyers have down payments saved up. Almost any interested prospects can’t obtain loans for the still hyper-inflated home prices. It will unwind very slowly as sellers continue through the years to dig in their heels and refuse to budge on any prices, whatever they are established at.
As job loses mount, any buyers that are left will continue to offer lowball figures. That situation won’t change until manufacturing returns to this country.
If oil states don’t bleed us dry, the healthcare industry will (emboldeded by the establishment’s crowing of Massachusetts privatization “reform” as a compulsory model for the nation).
While housing stock rots on the vine, with kicked-in sheetrock dust and broken glass accumulating on their floors behind boarded up windows, most will be effectively enslaved at subsistence service-job wages, if they can find work at all.
More will cobble together dense commune-like households in the cities which shave increasingly scarce dollars off their respective rents. The rural poor will become poorer monetarily, but their food needs will be adequately addressed.
Dude — I thought I was a bear, but I cannot hold a candle to your bleak view of the future.
Let’s hope that em3 is wrong, PB.
If not, many of the Hedonist Generation (born 1938 to 1954 or so) are going to be horrifically surprised when they turn 75 only to find Medicare bankrupt and services eliminated by 80 percent.
Lots of people in their 50s and 60s still have their heads in the sand…a serious disadvantage to their future well being.
Who says that generations of drones born after 1970 won’t throw their own Tea Party and say ’screw you’ to those 40 years older than they who are more than happy to bleed them dry?
4) It will suck financially to be a home owner for the next five years.
Burns my bum, because the honest ones will be taxed to the hilt.
Leigh
Curiouser and curiouser! We might soon get a chance to see how $300 bn in mortgage guarantees stacks up against $5,000+ bn in dodgy GSE-owned mortgage debt.
REAL ESTATE
Senate Passes Housing Legislation
Bill Faces Hurdles
Before Bush Signs;
Relief for Owners
By MICHAEL R. CRITTENDEN
July 12, 2008
WASHINGTON — The U.S. Senate passed an extensive package of housing legislation Friday, reacting to the continuing erosion of home prices and growing foreclosures by taking their most aggressive step yet to address the housing crisis.
Despite the vote, which came after weeks of political wrangling, House and Senate lawmakers will still need to overcome a number of impediments before President George W. Bush can sign the bill into law.
Senators voted 63-5 in favor of the package of tax relief for homeowners, changes to the Federal Housing Administration, and a $300 billion program to refinance mortgages headed toward foreclosure into affordable loans.
They won’t stop until the $ is completely trashed. I think the time comes to shorting T’s.
Why would the Congress want to destroy our nation’s currency? ‘Tis a puzzlement.
Deflating a currency is hard work and people get upset when they have nothing, so the illusion of plenty (hyper-inflation) is the way cowards like Congress will go about buggering the almighty Dollar.
What kind of second carrers are Boomers going to take on?
What kind of money saving costs are higher institutions going to take on?
Florida is combining the two, looking for volunteer seniors to teach classes at the local community college new State College.
I’m trying to figure out if refinancing my home (to the same rate, resetting it 30 or taking it down to 20) might get me the in-your-face appraisal information Palm Beach County requires to lower my taxed appraisal (currently 1/3 more than I paid for the house because I screwed up my Homestead exemption the first year).
Or HELOC first to put in solar, then beat down the appraised taxable value … not like I’m moving short of death in the family and I’d take any price I could get at that point.
And when to do something about your bank - one ugly bank (IMO) I use is holding steady at 3 stars, 1 dropped from 4 to 2 almost overnight, and the one with my stupid CD dropped from whatever it was (2?) to 1. And I can’t get my money out of the last one until 3 days before the end of the quarter.
Is it rude to ask for breakfast to be served at your sleepover house showing?
Sleepover showings
In markets where buyers rule, some are asking for more than a walk through
By Amy Hoak, MarketWatch
Last update: 7:22 p.m. EDT July 10, 2008
CHICAGO (MarketWatch) — In most markets, home buyers have the upper hand these days. That often means they have greater negotiating power when it come to price or the ability to squeeze out extra perks from sellers ready to make a deal.
But on occasion, they’ll ask a seller for even more, a request that will help get to know the home better and determine if they’re ready to commit.
They’ll ask to sleep over.
Thanksgiving came early this year…
Fannie and Freddie are feeling unwell
Published: July 11 2008 19:14 | Last updated: July 11 2008 19:14
With the price of a barrel of oil exceeding $146 and stock markets reeling, the global economic turmoil has worsened this week. Yet most remarkable of all has been the sight of socialist turkeys coming home to roost in the US, home of free-market capitalism. These sorry birds, colloquially known as Fannie Mae and Freddie Mac, are “government-sponsored enterprises”. What exactly that means we may soon discover.
With combined liabilities of $5,300bn, about 38 per cent of US gross domestic product, these massive fowls are universally deemed too big to fail. Since they account for nearly three-quarters of new mortgages, they are too important to do so. If they ceased to lend, the housing market might collapse, so devastating US financial stability.
“If they cease to lend ,the housing market might collapse ,so devastating US financial stability .”
The housing market has already collapse ,and US financial stability is already threatened by the losses of that ongoing collapse. The issue is who is going to pay for the current losses and the ones to come until the
RE market prices stabilize and lending is a safe enterprise .
Based on the current volume of business of qualified buyers ,it’s more a issue of qualified buyers to lend to ,than a issue of no lending being available to qualified buyers .
Notice caption to chart: Major mortgage insurers share prices down 91 pct, 96 pct and 97 pct… Black Swans are aloft and are flooding the skies!
REAL ESTATE
Insurance Dilemma Adds to Distress
By LIAM PLEVEN
July 11, 2008; Page A12
Amid their many problems, Fannie Mae and Freddie Mac also are contending with woes in an industry that is supposed to help reduce their risk: mortgage insurance.
Hopefully this is a sign of a growing trend for U.S. municipalities to go after the subprime lending kingpins for failure to maintain the vacant homes they own. I don’t see the problem with tracking down the owner, as county records normally keep track of the owner of homes. If the owner happens to be a very large bank, the bank has the free choice to either sell their property, properly maintain it, or pay fines; what could be more fair than that? And if there is a Constitutional issue here, I am sure missing it.
REAL ESTATE
Cincinnati Group Sues Over Homes
July 11, 2008; Page A12
Frustrated with the impact of vacant homes on a Cincinnati neighborhood, a nonprofit group has sued a unit of Deutsche Bank AG and other financial institutions, alleging that they have failed to maintain foreclosed properties properly.
The lawsuit, filed Thursday in state court in Hamilton County, Ohio, alleges that Deutsche Bank National Trust “has allowed its properties to deteriorate and become blights in the neighborhood.”
To his considerable credit, HP is going to great lengths to stamp out at least some dimensions of the moral hazard potential that comes with bursting bubbles.
Fannie, Freddie Stay in Spotlight
PAGE ONE
Rescue Debate: Paulson Insists
Fannie, Freddie Holders Lose
By DEBORAH SOLOMON, JAMES R. HAGERTY and SERENA NG
July 12, 2008; Page A1
As the crisis worsens for mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Henry Paulson is insisting that any potential government rescue plan not benefit the companies’ shareholders, according to people familiar with the matter.
So, how you going to pull that off Mr. Paulson . When you bail out companies or give loans to companies ( to offset their bad loans) that they will never pay back ,aren’t you giving a benefit to private parties ,such a shareholders ,at the expense or risk of the taxpayers.
Why don’t we just get every Corporation that is having problems stand in line at the discount window .
Nothin’ worse than an ugly Fannie…
What do y’all think of the WSJ editors’ suggestion for pulling the GSEs through the worst crisis of their existence?
REVIEW & OUTLOOK
Fannie Mae Ugly
July 12, 2008; Page A10
Investors continued to flee Fannie Mae and Freddie Mac yesterday, almost as frantically as the political class tried to reassure everybody there was nothing to worry about. Allow us to sort the good (there isn’t much) from the ugly.
In the good category, Treasury Secretary Hank Paulson swatted back reports of a government “nationalization” of the companies – which would mean making explicit what has long been an implicit taxpayer guarantee of their liabilities. This would instantly add $5 trillion in liabilities to the federal balance sheet, doubling the U.S. public debt burden and putting America’s AAA credit rating at risk. This is the nightmare scenario for taxpayers.
Less reassuringly, Mr. Paulson said, “our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission.” This suggests that Treasury thinks the two companies have enough capital, or can raise enough in private markets, to ride out any mortgage losses. We’re not so sure, and neither are investors, who have kept bidding Fan and Fred shares to new lows on fears of insolvency.
The most immediate danger is that investors will shrink from rolling over the debt of the two companies, leading to a run a la Bear Stearns. Mr. Paulson is trying to reassure people that the companies are sound, but after Bear everyone has the heebie-jeebies. With so much on the line, we’ve been suggesting that Treasury and Congress step up now with a public capital injection to help the companies ride out their losses.
Yes, this would mean putting some taxpayer cash up front, but in the cause of avoiding the far greater risk of a collapse or Bear-like run. If the capital injection was made in the form of a subordinated debt or preferred stock offer, taxpayers would get a stake in the companies and some return on their investment once the crisis passes.
Value Hunting’s Sharpshooters Hurt
As Financial Stocks Hurt Mutual Funds
By GREGORY ZUCKERMAN and DIYA GULLAPALLI
July 12, 2008; Page B1
As financial stocks such as Fannie Mae and Freddie Mac continue to struggle, there is plenty of pain to go around. But those taking a real beating include superstar investors who focus on so-called value stocks.
Several notable hedge-fund and mutual-fund managers — including Marty Whitman, Richard Pzena, Bruce Sherman and Wally Weitz, among others — are down about 20% or more this year in certain funds they run, partly because of heavy dollops of financial shares.
Try not to catch yourself a falling knife.
Stop Worrying, and Learn to Love the Bear
By Jason Zweig
Word Count: 780 | Companies Featured in This Article: Berkshire Hathaway
When you bought into the gospel of “stocks for the long run,” did you have any idea how long the long run can turn out to be? Exactly 10 years ago, the Standard & Poor’s 500-stock Index was at 1164; it closed Friday at 1239. That’s an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market.
Meanwhile, this newspaper, and most of Wall Street, has declared that stocks have officially entered a bear market now that the Dow Jones Industrial Average is 20% below its record …
Fannie & Freddie
Published: July 11 2008 14:43 | Last updated: July 11 2008 19:24
Fannie Mae and Freddie Mac are like a sweet old couple who have suddenly become unhinged and taken their neighbours hostage. For decades, they have been the backbone of US housing, using their implicit government backing to raise cheap financing to take on or guarantee millions of mortgages – about 43 per cent of the overall market currently.
In other words, the already dreadful US housing market would implode if the two government- sponsored enterprises went under. That is why fears of outright failure are misplaced – Washington could not let it happen. Officials insist the GSEs have excess capital. The problem is no one knows how far down house prices will go. Raising more capital looks unavoidable and legislation currently being debated could force Fannie’s and Freddie’s hand in doing so. The realisation on the part of shareholders who believed they enjoyed government protection is why Fannie’s and Freddie’s already battered shares fell by as much as half on Friday.
Truth or fiction?
From ‘Web of Debt’ by Ellen Hodgson Brown
“In 1934, in the throes of the Great Depression, Representative Louis McFadden…stating on the Congressional record:
Some people think the Federal reserve banks are United States Government institutions. They are not Government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.
In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into States to buy votes to control our legislation; and there are those who maintain an international propaganda for the purpose of deceiving us and of wheedling us into the granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.
Those 12 private credit monopolies were deceitfully and disloyally foisted upon this country by bankers who came here from Europe and who repaid us for our hospitality by undermining our American institutions.”
Pardon my anger, but remember how vocal that fu***g c**t
Diane Feinstein was in pushing for Fannie and Freddy to increase the conforming loan amounts to $700K+?
I would love to see if she had any personal interest in the mortgage industry, like that filthy liar Chris Dodd or Laura Richardson. It is obscene that our elected officials will support legislation that would cost Taxpayers like me TRILLIONS so they can salvage their own personal $500K mortgage.
Here’s the letter that Diane F. sent out when she proudly supported putting Fannie and Freddy out of business:
On December 14, 2007, the “FHA Modernization Act of 2007″ (S.2338), sponsored by Senator Chris Dodd (D-CT), passed the Senate by a vote of 93-1. I voted in favor of this bill that would increase FHA single-family loan limits in both high and low cost areas to 100 percent of the median home price, or the government sponsored enterprise conforming loan limit of $417,000, whichever is lower. It also lowers the minimum down payment to 1.5 percent from the current requirement of 3 percent. On September 18, 2007, the House of Representatives passed a similar bill to reform the FHA, the “Expanding American Homeownership Act of 2007″ (H.R. 1852). Please know that I appreciate hearing your support for FHA reform.
Things are going to get really bad, fast. Previously honest people will start working off-the-books. There comes a time when you need to have a ‘tea party’ and resist your government. Attempts to tax high wage earners even more will backfire as they’ll simply stop working.
I have an extremely conservative portfolio. My losses over the past year were only 5%, as compared to the 20% for the general market. Still, that’s a 6 figure loss. And nobody gives a shit about me. I honestly think that my governement would rather I be dead. They have no interest in being my government. They want a nation of debt slaves, and some wheeler-dealers at the very top.
As much as I hate to keep bringing this up, I am puzzled how the mortgage rescue of 400,000 or so deserving loanowners might need up to $300,000,000,000 in new insurance (or $750,000 per loanowner helped). Am I the only one who thinks that sounds like a humongous amount of insurance???
Even from as far away as Australia, I find it hard to take “anger” seriously when it’s selectively applied to the representatives of one party. (And the party currently out of executive power at that.)
She’s one of my two senators. And I voted for her! That’s why I’m so Angry.
How did we go from, “It’s not a bubble; it’s froth. Heck, use an ARM; you’ll save.” to “Hurry, Mr. 6Pack. You’re doomed unless we get a signed blank check that we don’t need and promise not to use?”
I don’t know who the government is going to take the money from in order to pay for these bail-outs . Keeping the interest rates low is creating inflation and taxing everyone right now .
So far I have lost about 70K on my house (I put 50% down on my house when I bought it ,and I have a fixed rate ),my earnings have gone down about 25k a year because of the low interest rates ,my buying power is getting creamed with this inflation ,and I’m looking forward to a tax increase in the near future to pay for all these bail-outs in spite of paying a lot of tax already .
This baby is hitting everybody . Still ,there are people that are getting hit harder than me ,especially people who are losing jobs or can’t find jobs .
Job creation ,by any means, is the best way to stimulate the economy in my view . I wish this whole damn world would get off real estate as the only industry that Americans can generate income from .
Hamptons House Prices Fall Amid Wall Street’s Decline
http://www.bloomberg.com/apps/news?pid=20601213&sid=axViQpHcCnuU&refer=home
How the wannabee rich are being tossed around by the housing market.
I’d like to see more discussion (actually I’d love to see some flowcharts) on how state and local governments are likely to react to the new twists and turns of the bubble collapse.
For example:
Farifax, VA wants to buy 10 foreclosed houses to turn into affordable housing.
Will they wait to see what the housing bailout bill brings?
What happens when they begin to see the funds they have invested start to drain away (let alone decreased transfer tax revenue)?
Do they change direction on the purchases?
Raise taxes! (you can be burned at the stake in several parts of VA for suggesting such a thing)
Adopt a deficit spending is OK attitude?
Cut back on services? Ration gas for official vehicles?
Freeze hiring? Eliminate programs? Contract out?
Delay projects? Cancel projects?
Get their as**es voted out.