A Self-Cleaning Of The Economy
Some housing bubble news from Wall Street and Washington. Miami Herald, “When historians look back on the great economic scare of 2008, they will note that it was not until July 14 — at least one year after the housing bubble burst — that the Federal Reserve Board finally remembered that part of its job is to prevent abuses in the marketplace. Not until yesterday, though, did the board issue mortgage rules designed to offer a measure of consumer protection.”
“In announcing the new rules, Fed Chairman Ben Bernanke said, ‘It seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower.’”
“You think?”
“Hundreds of worried IndyMac Bancorp customers lined up Monday to pull as much money as they could from the failed financial institution. In Miami, Marizela Rodriguez, whose mortgage was held by IndyMac, said she didn’t understand her option adjustable-rate loan meant her payments would soar. When they did, she was unable to cover the payments and went into foreclosure.”
“Seeing her lender now go belly-up itself was ironic, but Rodriguez, after multiple attempts of trying to work something out with the company, she said she was not sorry about it. ‘It’s their own fault at this point,’ Rodriguez said.”
“Rodriguez said she sought help from several attorneys and even HOPE NOW. ‘Every time I mentioned I had a mortgage with IndyMac they said ‘Forget it,’ Rodriguez said.”
The Wall Street Journal. “Mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers. Stung by growing defaults, lenders are offering borrowers fewer ways to avoid purchasing private mortgage insurance.”
“Michael Zimmerman, a spokesman for industry leader MGIC Investment Corp., says, ‘So far, we’re only losing the business that we no longer want to write. The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability.’”
“At ShoreBank Corp., a community-development bank with branches in Chicago, Cleveland and other cities, the insurers’ tighter standards are ‘wreaking havoc,’ says Michelle Collins, director of mortgage lending. For a popular conventional loan package, ‘easily 70% of the previous set of borrowers will not be able to buy,’ she adds.”
From Bloomberg. “Martinsa-Fadesa SA…the largest Spanish developer to seek protection from creditors since the decade-long real estate boom ended last year…failed to secure a loan that banks had demanded as part of a debt refinancing, which led to ‘grave cash-flow difficulties,’ the La Coruna-based company said after the market closed yesterday.”
“Martinsa, which has been suspended from trading, has a market value of 680 million euros ($1.1 billion), 64 percent less than the peak reached in March. Martinsa-Fadesa was created by the acquisition of Fadesa Inmobiliaria SA by Grupo Martinsa for 4 billion euros last year. Chairman Fernando Martin owns 60 percent of the stock and the stake’s value has plummeted to 408 million euros from 1.1 billion euros in four months.”
“‘The secret is to buy low and sell high,’ said Jose Carlos Diez, chief economist at Intermoney SA. ‘He did the opposite.’”
“Home prices in Spain fell for the first time in almost 10 years in the second quarter, Spain’s Housing Ministry said today. Homebuyers in the country are particularly vulnerable to increases in borrowing costs because about 96 percent of purchases are financed by variable-rate mortgages.”
Mortgage Solutions. “Prices in the prime country house market fell by 3.9% during the second quarter of 2008, according to Knight Frank. Liam Bailey, head of residential research, said after a period of static conditions, the malaise in the UK’s housing market had finally begun to depress values for prime country houses.”
“He explained: ‘For the first time since 2005, prices for prime country houses have fallen on a year-on-year basis - and, at 2.8%, by the biggest margin in the history of the index.’”
From CCTV International. “Shenzhen second-hand property market entered a slump this year. Industry insiders say the shrinking business in the second-hand property market has caused many property-owners to put their houses onto the rental market, which increased overall supply.”
“Housing Agent, said, ‘Some property-owners with many properties are facing greater mortgage pressure. So they are willing to rent some of their units out at a discount of one or two hundred yuan.’”
The Financial Post. “Canadian home prices have started falling, marking the first decline in almost a decade, according to the Canadian Real Estate Association. ‘The frenzied pace of sale activity last year has faded, with buyers now better able to shop around before making an offer,’ said Gregory Klump, chief economist with CREA.”
The Malaysian National News. “New figures from (Australian) property analyst Residex showed house and unit prices in nearly every city and rural centre fell last month, News Ltd reports. The last time all states fell at the same time was just before the Great Depression. The slump is affecting the top end of the market as well as the lower end.”
“Residex CEO John Edwards has warned of tough times ahead. ‘It looks like we’re moving into a one-in-100-year event,’ Edwards was quoted as saying.”
The Washington Post. “The federal government’s assistance plan for Fannie Mae and Freddie Mac steadied the financial markets yesterday but failed to end concern about the future of the mortgage finance giants.”
“Yesterday, one senator, Jim DeMint, released a statement skeptical of the Treasury proposal. ‘Congress should not use this ‘crisis’ to rush the government into the mortgage business,’ the statement said.”
The Star Tribune. “Tim Bendel, president of the Minnesota Mortgage Association, noted that with Fannie or Freddie around, 6.25 percent is a common interest rate on a 30-year fixed mortgage. ‘Rates without Fannie and Freddie would be 8.25 or in that range,’ he said.”
“Bendel views problems with home mortgage defaults and write-offs as part of a larger pattern of concern over consumer credit.”
“‘America is kind of living check to check,’ Bendel said. ‘It doesn’t matter where you make $50 grand or $250 grand, you don’t have a lot of money left over to weather a storm. When a storm comes, the boat sinks.’”
The Boston Globe. “Real estate industry professionals said the US government plan to prop up the mortgage giants, while crucial to restoring confidence in the market, will also perpetuate a self-defeating cycle characterized by jittery creditors, tougher scrutiny of buyers, and fewer sales overall.”
“That uncertainty may already be undermining pending deals. Broker Judy Moore said a closing on a home sale she brokered was abruptly delayed Thursday when the lender raised new questions about the financing, even though the prospective buyer had offered a 50 percent down payment and had near-perfect credit.”
“She said it’s an example of the extreme jitters in the mortgage market, now being made worse by Fannie’s and Freddie’s troubles. ‘Red flags are popping up for reasons that don’t make a lot of sense,’ said Moore, whose agency is in Lexington. ‘There doesn’t seem to be any rhyme or reason to it.’”
From WLNS TV 6. “Local experts say keeping the mortgage giants in business is crucial to reviving Michigan’s struggling housing market. Scott Watkins, Anderson Economic Group: ‘They really provide the funding and the securitization that helps people get money to buy houses and maintain the residential real estate market that the U.S. has come to know.’”
“‘We all know there’s a lot of supply currently out there. That’s just going to push housing prices even lower, which the government and any homeowner has no interest in seeing,’ Watkins said.”
The Tampa Tribune. “The current troubles are no surprise to those who have watched Fannie Mae and Freddie Mac greedily run up their debts by buying huge numbers of risky, high-interest mortgages.”
“Two years ago, before the housing bubble burst, the Wall Street Journal repeated a joke that editors had heard from financial insiders: ‘What’s the difference between Enron and Fannie Mae? The guys at Enron have been convicted.’”
The Memphis Daily News. “As the U.S. prepares for a presidential election and looks forward to the Olympics in China, the year strikes an uncanny resemblance to 1988. Just like what’s happening in politics and sports, the mortgage industry is experiencing a little déjà vu.”
“‘I feel like we’ve turned the clock back 20 years,’ said Mary Floyd, senior VP at Financial Federal Savings Bank. ‘We’re back to the old standard.’”
“The old standard has taken a toll on mortgage counts in Shelby County following a few years of extremely lax lending practices. ‘The guidelines continue to change and shift on a regular basis,’ said Chris Bowers, president of the Memphis Mortgage Bankers Association. ‘Many times they will come in with the expectation that a particular program that they heard about a month or two ago and should be available to them is now gone.’”
“The mortgage woes in the Memphis area are substantial, but not always as bad as other markets, where values have nosedived. ‘The best thing that could happen, in some ways,’ said West Beibers, president of Delta Trust Mortgage Corp, ‘is to unplug CNN and unplug CNBC and get a grip.’”
The Las Vegas Business Press. “From high-rise condos and regional shopping malls to billion-dollar resorts and mixed-use developments, dozens of projects announced for Las Vegas have yet to materialize and some probably never will.”
“You better not have plunked down a deposit for a luxury condo at places like Spanish View Towers, Vantage Lofts or Mira Villa. Construction is stalled on those projects as they proceed through bankruptcy protection. Cosmopolitan, a $3 billion condo-hotel on the Strip, is in foreclosure.”
“Already laid to rest are The Curve, Las Ramblas, Ivana, Icon, Spa Lofts, Pinnacle, Urban Village and W Las Vegas Hotel.”
“The recession is a ’self-cleaning of the economy’ that will sift out developers who came to the party late, said Avi Ruimi, principal of Woodland Hills, Calif.-based Blue Marble Development. He bought the land for Paxton Walk in northwest Las Vegas before the runup in prices. Paxton Walk suspended sales until the market recovers.”
“‘They all had good intentions. I feel bad for them,’ Ruimi said. ‘Each of them made a different mistake. I can analyze those mistakes in retrospect. At the time they made the decision, they were right. It’s very difficult to predict a market like Vegas. It’s not a market that gives you a sign before the bubble bursts in your face.’”
“Seeing her lender now go belly-up itself was ironic, but Rodriguez, after multiple attempts of trying to work something out with the company, she said she was not sorry about it. ‘It’s their own fault at this point,’ Rodriguez said.”
“Rodriguez said she sought help from several attorneys and even HOPE NOW. ‘Every time I mentioned I had a mortgage with IndyMac they said ‘Forget it,’ Rodriguez said.”
_____________________________________________________________
I wonder what HOPE NOW says about other banks with dodgy mortgages, like IndyMac?
That has to be in my Top 10 funniest HBB stories.
Anybody up for a financial Fleet Enema?
_______________________________________________________________
“The recession is a ’self-cleaning of the economy’ that will sift out developers who came to the party late, said Avi Ruimi, principal of Woodland Hills, Calif.-based Blue Marble Development. He bought the land for Paxton Walk in northwest Las Vegas before the runup in prices. Paxton Walk suspended sales until the market recovers.”
I absolutely love the depth of CREA’s analysis. The market was frenzied, but now it is not so buyers can take their time shopping. What they don’t mention is that:
1) Slowing sales, even from a frenzied pace will result in falling prices.
2) Without rising prices, demand will fall as speculators get out, thus pushing prices down further. Supply will also increase since the speculators won’t be holding as much/any inventory.
3) Builders are still going nuts in many markets due to the still high prices, and alot more inventory will come on line before they react to the new reality.
4) The economy is slowing, which will slow demand as well.
CREA cannot claim any superiority over the NAR.
“‘They all had good intentions. I feel bad for them,’ Ruimi said. ‘Each of them made a different mistake. I can analyze those mistakes in retrospect. At the time they made the decision, they were right. It’s very difficult to predict a market like Vegas. It’s not a market that gives you a sign before the bubble bursts in your face.’”
Its easy to overlook the signs when you are consumed with greed. Thats how the casinos have stayed in business soo long.
Mira Villa, Paxton Square, Sullivan Square are all away from the Strip. They are located in unhip, uncool suburbia. In LV when you move a couple blocks east or west from the Strip you are in crime invested swamps. Then sprawl for miles in both directions until you get to some nice master planned communities (Summerlin, Green Valley, Aliante etc). These areas while clean and well maintained are not hip edgy locales that call out for mixed use attached product.
Local experts say keeping the mortgage giants in business is crucial to reviving Michigan’s struggling housing market. Scott Watkins, Anderson Economic Group: “‘They really provide the funding and the securitization that helps people get money to buy houses and maintain the residential real estate market that the U.S. has come to know.’”
Wrong.
What the U.S. has come to know about Realtwhores is not fit for print.
What the U.S. wants to KNOW is, when do you start to prosecute the developers??
We bought 52 more SLV this afternoon.
As long as the prices of housing continued to soar, and the financiers were secure in the knowledge that those who couldn’t pay off their debt would wind up in forecloseure, the PTB were happy as clams. Now that the shoe is on the other foot, why should we be surprised that the FED now sees a need to act to socialize the potentially devastating losses by the financiers? LOL
Because this is a country of the rich people, by the rich people and for the rich people.
“As rich as an Argentinian” early 1900’s saying
“As rich as an American” early 2000’s saying
“As rich as a Chinese man.” - 2100’s
no worries, we will be dead by then
not just the US, in Europe it is exactly the same.
Banking authorities are still not worried about all the crazy loans going on in the Netherlands (10x income with 0% down? no problem if you shop around). Homeprices are still rising here and the worry about loose lending will probably start when the market is near a bottom (in 10-30 years or so).
“Nothing in this world is harder than speaking the truth, nothing easier than flattery.”
Fyodor Dostoevsky
“Michael Zimmerman, a spokesman for industry leader MGIC Investment Corp., says, ‘So far, we’re only losing the business that we no longer want to write. The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability.’”
The focus and drive were never on affordability. It was on commissions and profits. Be honest, Mark.
I mean Mike.
You mean arsehole.
Hey!
What??? sustainability??
You mean they should be able to keep up the payments for more than a couple of months??
Isn’t that “affordability”?
Please………I’m confused.
Emptiness is loneliness, and loneliness is cleanliness
And cleanliness is godliness, and god is empty…just like me
-Smashing Pumpkins - Zero
“Local experts say keeping the mortgage giants in business is crucial to reviving Michigan’s struggling housing market. Scott Watkins, Anderson Economic Group: ‘They really provide the funding and the securitization that helps people get money to buy houses and maintain the residential real estate market that the U.S. has come to know.’”
how are they going to revive the market when they are running out of fools to buy the overpriced homes?
by finding foreign fools that want to provide mortgages for these overpriced homes with their depreciating dollars; maybe Hank and Ben need some more dirty tricks if the foreigners don’t jump on the opportunity right away.
Mirages can fool a visitor to the desert into thinking that somethings there, when there is actually nothing to see…
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“From high-rise condos and regional shopping malls to billion-dollar resorts and mixed-use developments, dozens of projects announced for Las Vegas have yet to materialize and some probably never will.”
“You better not have plunked down a deposit for a luxury condo at places like Spanish View Towers, Vantage Lofts or Mira Villa. Construction is stalled on those projects as they proceed through bankruptcy protection. Cosmopolitan, a $3 billion condo-hotel on the Strip, is in foreclosure.”
“Already laid to rest are The Curve, Las Ramblas, Ivana, Icon, Spa Lofts, Pinnacle, Urban Village and W Las Vegas Hotel.”
“Mortgage insurers have been dramatically tightening their standards throughout the U.S., further squeezing potential home buyers.”
“The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability.’”
The irony here is twofold:
1) The sole focus on affordability (as defined by govt housing policy folk) has driven home prices to unaffordable levels.
2) The mortgage insurers’ renewed concerns about sustainability are likely to provide a serendipitous return to affordability that eluded the affordable housing social engineers.
OT… Looks like the stimulator checks have warn off. Internet porn sales may drop off also, I would guess. They got the biggest boost from what I read.
“We’ve already seen the maximum boost from the rebates,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “Spending will be weaker in coming months.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKoJ23KF64xU&refer=home
Yesterday wife and I went to Big bank A, to move $50K from little bank B, so as to get under the $200K joint account coverage limit in B. We were sitting at a customer service desk while the lady opened up a money market account for us. When she saw the bank on which our check was drawn, she remarked that several people had moved money from the same B to A previously in the day. Never underestimate the strength of herd movements.
The FDIC booklet says you can have more than $200K covered if it is in trust accounts POD to, for example your children, but it doesn’t explain exactly who gets the money if the insurance is paid out. Not takin’ any chances with that, and apparently a lot of other people aren’t, either.
So after you’ve successfully moved your dough from Bank A to Bank B, what happens when Bank B looks to be not long for the world?
I expect more and more banks to fail. That’s already a given. But it’s possible that FDIC could run out of money from bailing out so many banks to come. So the question really should be: What if the FDIC fails?
> What if the FDIC fails?
The money will just get printed.
I bank with Wells Fargo…crappy interest rates, but seems rock solid. Any of you psychic geniuses have any thoughts?
Orwell’s Fargo looks doubleplusgood.
Bawahaha. Wells Fargo is up to their eyeballs in subprime toxic waste. If you want safety I’d go with Union Bank of CA. Of course you won’t get sh!t on your CD, they charge for checking but I’ll betcha they ain’t going under. Japanese own them. They have a good CAEL rating too.
Agree.
Union Bank of CA (three star)or Bank of the West (four star).
For bank ratings:
http://www.bauerfinancial.com/home.html
~Misstrial
Not a psychic genius, but last April Wells Fargo decided a home loan that hasn’t made a payment on it within 120 days shouldn’t be counted against earnings until another 60 days have passed.
This should tell you something about Wells, IMO.
I made and idle query on their website about a HELOC during my house search and they did everything but move my hand around with a pen in it to close the deal with ZERO further input from me. Then I get a letter saying they have denied my application. Huh? what application? Then through the magic of the post office forwarding, more notes and packages of paperwork. It was mostly just the timing that was amusing.
“Among other things, these common-sense rules require lenders to verify income or assets when weighing repayment ability, which would do away with so-called ”liar loans” that allowed borrowers to claim whatever level of income was required to qualify for the mortgage — with no verification.”
This alone isn’t enough. There were too many instances when far too much credit was extended relative to income, even when the amount of that income was known and properly verified. Income verification alone isn’t sufficient.
No stability in sight
Historically, Fannie and Freddie were sanctioned with some privileges that give them a competitive advantage above competing lenders. Naturally the competing lenders explored area’s that Freddie and Fannie do not operate in but which are inherently more risky — ultimately leading to the present mess. The mortgage crisis damaged the alternative lenders and ultimately squeezed Freddie and Fannie, which in turn caused the latest government assistance that necessarily increases Fannie and Freddie’s competitive advantage.
Economists like to invoke toy models to predict the future, but I would imagine that essentially any model you pick must show that without some magical tuning, stability only arises when either ALL or NO mortgages originate through the privileged originator. In hindsight, it seems a miracle that the mortgage industry enjoyed the stability that is has had.
Logically, the new assistance to Fannie and Freddie must drive up the cost for competing lenders, increasing the likelihood of their failure and leading to the ALL-Fannie-Freddie solution. Those arguing that market stability requires the new intervention must accept the logical inevitability of this track, namely nationalized housing.
RE: No stability in sight.
Today-Freddie Mac lost $1.64, or 21 percent, to $5.62. Fannie Mae retreated $2.35, or 24 percent, to $7.38.
Wheedoggies…Look at those stock prices!
And not a peep from the entities themselves about heads rolling. Somebody’s gotta be going to jail for this travesty!
LMAO…And FNMA WAS a Top 10er in the Forbes Best Places to Work list a couple years ago.
FNM can still be a good place for your average staffer. Government-style hours, government-style pay, government-style lack of responsibility, everything. As long as you are not personally invested in the stock.
Plus you can gamble for free with other people’s money. If I made a $10,000 bet at work my boss would be all over me for it. At FNM you can make $1,000,000 gamble and that’s just pocket change.
“‘America is kind of living check to check,’ Bendel said. ‘It doesn’t matter where you make $50 grand or $250 grand, you don’t have a lot of money left over to weather a storm. When a storm comes, the boat sinks.’”
If you don’t save any money, you deserve to sink when a storm comes. This guy makes it sound like it’s a disaster instead of a valuable lesson. Never live outside your means, but also, never live on the bleeding edge of your means.
If you’re not saving a minimum of 5% of your income, you’re doing something wrong.
sfbubblebuyer,
Were you at the get together with Ben in San Francisco? Ouro has posted some pictures of the get together and I couldn’t remember who was sitting next to me in one of the pictures. I believe it was you.
I was. I’m the chubby guy with the goatee….
And if your making 250K, and not saving a min of 10% of that (not counting tax sheltered plans), you’re doing something wrong. The higher your income gets, the easier it is to save. Your percentage of savings should go up as you get higher and higher in the income strata (and don’t get me started about people with 250K incomes that have debt at 18%, that’s just nuts).
I kinda expect people in their early-mid 20’s with their first jobs to be idiots and not save much. It usually takes your first job loss, car dying, unexpected massive expense to make you realize you need a safety net. Unfortunately, kids raised in my generation seem to feel credit (esp. cards) are your safety net. (I’m 33, just like Jesus! Talk about a guy who needed a safety net!) This collapse should get some of my contemporaries saving while still in their prime earning years at the cost of some extreme short term pain. I was dabbling in tech stocks back in 2000, where I made some good money until I didn’t. And then I REALLY didn’t. I learned a lesson about bubbles, and I learned a lesson about hanging onto a bad investment waiting for the ‘recovery’. Also, I no longer trade on margin for longer than it takes me to transfer money into the brokerage account.
I DON’T understand people who’ve been around long enough to see one or two downturns/recessions/etc and STILL don’t save any money. My parents saved money for their retirement and for our educations by shopping at thrift stores. They now have a massive house about 15 minutes from a medical center that they paid cash for, and a ton of investments. And they were working with one pretty low income. (Admittedly it was a cheap area to live in.) They bought their first house for a price that was a little over one years income and paid it off quickly. And we lived in that paid off house until the kids left home.
Why save? The empire is going to come down anyway, right? Also, at some point, the government or police or courts will want to just take everything.
In any case, it doesn’t help that wages have gone down in real terms since, say, 1973. It also doesn’t help that the government encourages borrowing and discourages saving.
Ah, musical houses around the world!
I admit I was quite surprised to read about a housing bubble, of any stripe, in CHINA.
By the way, the answer to the next obvious question is YES:
“In New Delhi and other parts of northern India, prices have fallen 20 percent over the last year. Sanjay Dutt, an executive director in the Mumbai office of Cushman & Wakefield, the real estate firm, describes it as an erosion of confidence.”
http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?hp
I admit I was quite surprised to read about a housing bubble, of any stripe, in CHINA.
*Any* country with high savings rates generates asset bubbles. It’s the nature of the beast - people have to put their savings somewhere.
Ok, again - something is missing. People have been buying homes with mortgage bankers for decades. What happened between 2002 - 2006? Why did all the rules (verify income, etc.) stop applying? It’s like nobody gave a damn and all hell broke loose. I swear in 2003, I felt like Keanu Reeves in the Matrix looking around me and thinking WT..? I would have arguments with people at work saying- “now is not a good time to buy, things are crazy, this IS NOT NORMAL. ” The answers were “this happened in Boston a few years ago”, “real estate is a good investment”,”its just the way things are”. I long since changed jobs so I don’t see these people anymore..if only! I do remember one lone teacher complaining about the madness - she was upset about her taxes and she smirked that she was now a millionaire …ON PAPER. She understood, but the massess???? I feel like a friggin genius now which is really scary. Also, who are the bast#$$ that made all the money out of this? Somebody profited off of all this. I just can’t believe the Fed, W , Cheney didn’t see all this happening? I really think we’re headed for a depression. I’ve thought this for years. I just didn’t think our gov’t would corral us into it.
Ya, finally, people have stopped looking at me like I should have a foil helmet on, thought, with my understanding of the true magnitude of the problem, as my prior predictions come true, I keep moving further out. Hm, the banks are insolvent, we could have a depression thing gets the same look that a year ago, there’s a bubble in housing, I wouldn’t buy now got. What comes after a depression?
“What comes after a depression?”
A recovery. Those who have cash get to buy on the cheap from those who don’t.”
those who have cash to buy: the financial elite and the authorities working for them will make sure there are very little ordinary citizens left with some buying power when the recovery starts. They don’t like competition. Think Argentina, but then a lot worse.
We are already in a depression. Most of the country has just started to figure it out. I have been denounced here as a “crackpot” and “full of BS” for predicting the collapse of the share prices of various companies (e.g. Citigroup, Ford, GM, Lehman Brothers, Washington Mutual, Wachovia). Now the reality of the rot in corporate America is hitting people like a sledgehammer.
In a few years, we will know we have worked through the mess when many more large banks fail or are merged with other banks, Ford and GM go bankrupt, and publicly traded homebuilders go bankrupt or merge with other homebuilders.
Keep the popcorn popping,
Red Baron
Do the following to get through the depression: 1. Get and keep a job 2. Rent a place 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.
I don’t know the definition of “Depression”, but I agree with you.
By depression, I mean a multi-year period of declining economic activity. I do not mean that the current depression is going to be like the Great Depression. I also do not mean that the world is going to end and we should run to our bunkers. Life will go on in this depression, just as it has in previous depressions.
There are parallels between the past decade and the 1920s–lots of technological change, strong productivity growth, soaring corporate profits, stagnant wages, substantial and increasing income inequality, tremendous credit expansion as people stretch to buy things they cannot afford–but there are differences as well.
Keep the popcorn popping,
Red Baron
Do the following to get through the depression: 1. Get and keep a job 2. Rent a place 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.
Sounds like a good plan, Red Baron.
During a depression, the truly rich buy things for pennies on the dollar. There may be other buying opportunities related to war and revolution.
The other factor in this is that the US Empire looks like it’s reaching the end of the line, which could make things a lot worse in the US than in, say, New Zealand.
Actually, when the US has to start paring down standing armies and naval groups for financial reasons, leaving the world to police itself instead of keeping nice and dry under our generous umbrella, things could get a lot worse for everyone else. I can imagine the US giving or selling back an awful lot of bases in Japan, Germany and Korea when congress undertakes the debt-driven SuperBRAC that will come, and there ain’t a lot of voters in those countries..
Just imagine if the EU, the rest of NATO, or any other joint international force had to step up and spend the sort of $$$ to, say, keep the sea lanes clear for free trade, keep access to oil supplies, put down regional wars such as Bosnia, Kosovo, or prevent genocides (as the world failed to do in Rwanda and is failing to do in Sudan)?
Can you imagine what such spending would do to already-creaky balance sheets devoted to social programs such as healthcare or welfare? Frankly, I’m looking forward to it.. If the rest of the world isn’t gonna play along with the fiction that the dollar is a “reserve” currency (and we lose the benefits thereof), then it’s only fair we kick the free-riders off the bus…
New Zealand: I agree about the relatively bright future for the country, but doubt that is true for the financial prospects of most of their normal citizens, with the huge debt they have run up over the last years.
This is mildly amusing:
‘L. William Seidman, former chairman of both the FDIC and the Resolution Trust Corporation, stated, “The banking problems of the ’80s and ’90s came primarily, but not exclusively, from unsound real estate lending.”‘
From: http://en.wikipedia.org/wiki/Savings_and_Loan_crisis
Guessing you could tack on the ’00s to that…
From one former dc renter to another, I say there are answers to all your questions.
1. Why did the rules (the filters that kept out the riff-raff) stop applying? Because our responsible parents and grandparents used to actually pay a mortgage back — all 30 years of it — one way or another, starting with a down payment. Spoiled by years of safety in the paper, lenders (and moody’s, and wall street) got complacent. Then, due to greedspan’s low interest rates, the riff-raff got in the game. So, while banks continued to base their accounting on the assumption that the responsible borrower would pay back all 30 years of the mortgage, the irresponsible FB’s based their own accounting on NOT paying the mortgage at all! FB’s all intended to sell or “refinance later” before they had to pay any actual principal back. Banks were so busy collecting fees and living high on the hog, they didn’t see that the underlying assumption was no longer true.
And, all that down payment $$ and principal $$ that lenders counted on but FB’s never had, and will never have? That’s your missing liquidity.
2. Why did the masses buy, even at high prices? Failure of logic on the part of the buyers. Past history says that: the younger you are when you buy a house, the wealthier you will be later in life. (there are other versions, but it’s the basic premise of why people are so anxious to buy.) But this isn’t exactly right. The truth is in those filters again. You have to be a resonsible person to pass the filters to buy, and it’s that responsibility that makes you rich, not actual house. Only during the bubble did the house make people rich, in a classic example of self-fulfilling prophrenzy. All those zombies who lumbered around chanting “muuuust buuy…muuuuust buuy” thought it was the house itself that made them rich. They didn’t look back far enough to the original origin, which was the responsbility.
3. Easy. The bastards that profited are the ones who skimmed fees on the way up, and will skim again on the way down.
4. The Fed saw it happening, but didn’t want to ruin the economy or piss off Congress.
5. W was too busy clearing brush in Crawford, falling off his bike, and reading My Pet Goat. They didn’t want to confuse him.
6. Cheney saw it, I’m sure. He will loot and scoot, as usual.
1: you forgot that the riffraff, as a constituency, had their congresscritters pushing for homeownership for all, even the riffraff..
2: in other words, correlation does not (necessarily) prove causation..
4: “We’ve got to protect our phony-baloney jobs gentlemen!!”
Great points, oxide. This is one of the most clear and right-on summaries of the clusterf*k I have seen yet.
“Two years ago, before the housing bubble burst, the Wall Street Journal repeated a joke that editors had heard from financial insiders: ‘What’s the difference between Enron and Fannie Mae? The guys at Enron have been convicted.’”
Enron took California for a financial ride to the tune of around $30 Billion, Fannie’s Mae be around a few Trillion…
That’s the DIFFERENCE
And even stranger: On July 14th, the SEC who has turned a blind-eye for years on the pervasive (and illegal) practice of naked short selling would do something even stranger. Today they declared that naked short selling of bank stocks was illegal. This is tantamount to admitting that they *do nothing* to stop illegal naked shorting of all other stocks — and it also indicates that they *could* have been doing something up to this point, but they don’t because they’d have to arrest 80% of Wall Street.
In other words, fraud and theft are “illegal” (nudge nudge, wink wink) but the SEC does nothing to enforce the law — until of course you steal from our buddies on Wall Street — then it’s *really* illegal and this time we mean it.
Today the SEC pulled back the curtain and showed us how absolutely and utterly full of sh*t they are.
Bravo !!!
Excellent post.
Why is it that they haven’t prevented naked shorting in all stocks? It gives a huge advantage to Hedge Funds over the average investor. Why is it that even now they are not cracking down on all Naked Shorts.
Here’s a Q… Any recommendations for retail banks with decent branch coverage in the mid-Atlantic region (PA/DE/MD)? I’ve had an account with Citibank for about 15 years, and it ain’t much, but frankly I would hate to be stuck waiting weeks for even fully-insured deposits to be repaid.
I have been nervous about Citi for awhile, but it seems the game really _is_ afoot now…
I keep a bank account in Iraq. They actually pay 12% on their cd’s. It used to be what I considered the high risk part of my portfolio. Ironically, now it seems much safer and better run than the banks here at home.
News from Spain: Spanish Martinsa-Fadesa Seeks Bankruptcy Protection
after EUR 5.4 bln debt and EUR 680 mln market value. This is one of the biggest bankrupts in Spanish history.
Martinsa-Fadesa
“Martinsa-Fadesa was one of the main real estate and construction groups of Spain before the crash of the Spanish property bubble.”
http://en.wikipedia.org/wiki/Fadesa_Inmobiliaria
http://www.ft.com/cms/s/0/86426a60-525e-11dd-9ba7-000077b07658.html
I actually have a bank accont in Iraq that pay 12% on their cd’s. It used to be what I considered the high risk part of my portfolio. Ironically, It may turn out to be better off there than here.