The Housing Bubble

Sorry about being out of pocket today (Saturday). A friend needed my help first thing and I didn’t realize it would take all day.

I wish that I could say that being deprived of HBB made me more productive. But I did get get through some of the pile of periodicals that build up by my chair.

From the August 1 Sofia Weekly, because there just isn’t enough news posted about the housing bubble in Bulgaria .

UK Owners Start Selling Real Estate on Bulgaria Black Sea Coast

A number of UK investors are already selling the real estate properties on Bulgaria’s southern Black Sea coast that they just bought two or three years ago.

The news was announced Tuesday by the Bulgarian business newspaper Pari, which cites the manager of the Lux Real Estate Agency Nikola Stoyanov.

Most of the UK owners are registering losses as they bought property in the Sunny Beach resort for EUR 1100 per square meter, and are now selling it for EUR 850-900 per square meter.

According to Stoyanov, only the weak pound saved them from losing a lot of money, because they somewhat compensate the difference when they converted the euros into the British currency, which was now weaker than at the time purchase deals were made.

Stoyanov also predicted that abandoned construction sites would be seen in Sunny Beach within a couple of years because the re-sale of real estate property was hurting the prices of the newly constructed apartments.

and I thought we were moving past the US housing bubble. Dont get me wrong, plenty of fallout remains, but it is mostly now about which banks survive, only an idiot would buy a house right now, everybody knows that.

ITs all on sale, if you ever wanted one….. it really has never been a better time to buy.

just my 2 cents.

I have been reading “While America Aged” by Lowenstein this weekend–is it ever timely (and scary.) Particularly now that GM announced a 15.5 billion quarterly loss. In the book he talks about the “stunning” losses in 2005 of a billion a quarter; it all seems so quaint now. I am now into the section on the NYC transit workers pension fiasco and it brings to mind a question. I know WT Economist and some others on here have said some pretty ominous things about public pensions and future costs–they are obviously into the numbers. What I would like to know is how we can find the pension obligations of where we live? This is going to determine future tax rates, available investment for infrastructure and the general health of an area. If these future obligations are large–it may be best to get out now. Or are these places so economiclally strong that this will not destroy them like it did GM.
He speaks of IL, NJ and a few others that are particularly deep, but is it any better to be in a low tax, low service state if that chokes econmic development? How would a non-actuary evaluate this.

For you Greenspan lovers….or haters:

August 01, 2008

The Maestro Won’t Face the Music
by Peter Schiff

In an interview yesterday on CNBC, former Fed Chairman Alan Greenspan cast his eyes on the charred landscape of the national real estate market and offered high-minded criticisms of the obvious excesses and irrationalities that brought on the devastation. Greenspan’s attitude was akin to a retired drug dealer lamenting the urban blight caused by rampant addiction. He noted that housing prices were still too high, that too many homeowners were upside down on their mortgages, and that Fannie Mae and Freddie Mac were accidents waiting to happen. Methinks the serial bubble blower doth protest too much.

The housing bubble was Greenspan’s doing pure and simple. He gave birth to it, nurtured it, protected it, and guided it during every stage of its development. In fact, if there was a deck of playing cards featuring the key players in this debacle, Alan Greenspan would be the ace of spades. The fact that the media still holds this joker in such high esteem is a testament to just how clueless they are. Rather than fawning over his every word, journalists should be grilling him like a CIA interrogator.

In his new post-Fed incarnation, Greenspan does show an increased willingness to speak the truth … perhaps sharp candor generates higher speaking fees the murky academic jargon. However, conveniently missing from his belated admission that home prices are too high is that his irresponsible monetary policies propelled prices to those heights in the first place. In fact, even as the housing bubble was inflating, Greenspan repeatedly denied its existence. He took every opportunity to talk the real estate market up and went out of his way to justify irrationally high home prices.

His concerns about upside down mortgages are particularly offensive given his consistent praise, when he was Fed Chairman, of the ability of home equity extractions to fuel economic growth. In fact, during the final years of his tenure there was no greater proponent for cash out re-financing than Alan Greenspan. Not only did the Maestro routinely commend homeowners for their sophisticated approach to “managing their home equity”, but he applauded Wall Street and mortgage lenders for their creativity and ingenuity. Of course, home equity extractions are largely responsible for so many homeowners now owing more than their homes are worth!

His most brazen contention was that he had tried to warn us of the dangers that Fannie and Freddie could pose to the entire economy. Excuse me, but when exactly did he sound this alarm? His points that Fannie and Freddie should not exist, and that the moral hazard of private profits and socialized losses is an accident waiting to happen would have been right on point had he actually made them while still Fed Chairman. Too bad Maria Bartiromo did not remind Greenspan that the accident has already taken place. Fannie and Freddie’s flawed design may have rendered them destined to slip but it was Greenspan himself who supplied the banana peel.

http://www.safehaven.com/article-10887.htm

LJayCox,

You might like the pdf file: http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/State_policy/pension_report.pdf
about state pension obligations from the Pew Trust.

Here’s a fun one:

http://www.sandiegohomes4u.com/san_diego_real_estate_bubble.htm

Looks like it was written in 2005, but they still have it online. I found it through Google search, not from a link on their site. It’s hosted by Dennis and Sunshine Smith: “We make home buying & selling easy!”

———————
San Diego Real Estate Bubble, Fact or Fiction?

As with any emotional issue, there a many opinions. Some are informed and many are not. Many are from the media. We all know that they will rarely print good news, they find bad news in the good, and they love to print bad news, whether it is right or wrong. Some people even make a crusade on the bad news.

Where are you getting the news that you are relying on?

There has been a lot of talk about a Bubble in the San Diego Real Estate market and elsewhere. This talk has been going on since 1999 and prices have more than doubled in all areas of San Diego since then. Will the Bubbleists eventually be right? Maybe? Even so, Real Estate will always be a great long term investment.

Could the “Bubble” burst, flatten or continue to inflate but at a slower level? The answer is yes!

According to the following experts, the third option seems to be the most likely.

Since I do not have a “crystal ball”, I rely on those people whose job it is, to study the marketplace.

Here is what some of the real experts are saying.
———————–

lots of stuff after that

Im sure you have a neighbor, brother-in-law, cousin, or college friend whos expenses always exceeds his income. And I’m sure this guy has come to ask you to borrow money. And maybe you have loaned him some money in the past; but in the back of your head you know the only way he will ever pay you back is by borrowing more money from someone else. In this guys head, when he borrows money, he doenst think of it as a liabilty, he sees it as money to spend; and the initiative is on you to hound him to repay the money; in his mond the money is his and you are just another unsecured creditor at the back of a long line.
Now think of the federal government, social security, local government pensions, corporate defined benefit pensions, municipal bonds, pay-option mortgages as the same thing. When you have a pension with the government, you have just lent your retirement savings to your irresponsible neighbor . good luck ever getting it back. The dirty little secret of all these obligations, they are never going to get back, they are structurally setup to blow up. Whether its hyperinflation, local government bankruptcies, corporate bankruptcies, or collapse of the US goverment; these obligations are not being paid back.

Just got back from Vegas. The halt of construction of the Echelon (second biggest construction project in the city) was the big news of the week. Thousands of jobs lost. The housing bust is all the dealers and locals talked about (other than busted good poker hands - which I tune out). City surrounded by half built skeletons. I’ve never seen highrise skeletons before that would never be completed. Guess I better get used to it.

Personally I would prefer completion and foreclosure as it would as it would drive prices lower and allow the city to eventually recover.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9_eX.qiuTao&refer=home

Ben,

You should set up Bit Buckets in advance in WP. just set the date & time to future dates and you’re covered.

http://www.reuters.com/article/ousiv/idUSN0136691620080802

Small Florida bank is the 8th to go under this year. 72 million more of FDIC funds go, “poof”.

Okay, a question — and it’s not a trollish one, since I’m very sceptical of this data.

Apparently, the NAR data shows an increase in the national median and average prices for both condos and SFH; this is month over month, since February.

The data is here

I think this is likely rubbish, since Case-Shiller contradicts it. But I’ve not been able to find any discussion of it by googling: how do they get these numbers? How reliable are they?

In one of yesterday’s threads, Carrie Ann was wondering of the woman who was attacked by a bear in CA was our ahansen. She does look very similar and lives in the same general area, IIRC. Anyone in contact with ahanse off-line?

http://cbs2chicago.com/watercooler/bear.mauls.woman.2.786178.html

Watch this to the end and then thank me.

http://www.youtube.com/watch?v=xNuBN9KJRs8

One-bedroom apartments not selling in Manhattan because first time buyers can’t get financing.

http://www.nytimes.com/2008/08/03/realestate/03cov.html?ref=realestate

Or perhaps they merely can’t get financing at a price that is so high relative to their income?

“One-bedrooms are sitting on the market largely because the buyers most likely to purchase them can’t get mortgages…Brokers say that many people who bought their apartments at or near the top of the market and now must sell are often simply trying to avoid losing money on the deal.”

I recall lots of my friends living in one-bedroom apartments they couldn’t sell with two kids after the 1980s bubble. Just think about this — if one-bedrooms are sitting on the market in Manhattan, the island of desire, what will happen in Brooklyn and Queens?

Kodak announces plan to cut benefits for
20,000 retirees

http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20080802/BUSINESS/808020334/1001

The company on Friday started notifying retirees and current employees via mail and e-mail that it would end
dental coverage and company-paid life insurance in 2009 and begin a 10-year phase-out of providing medical
coverage for dependents.

Former large companies are going to be doing this more and more. I guess that’s the price you pay
when you have more retirees than workers. Kodak has about 9200 local workers and 20,000 retirees. The
automakers will soon be doing the same.

http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=2008808010354

A check of Monroe County Clerk’s Office records Thursday showed that the problem has been serious over a longer period, with 2,958 foreclosures in the past 12 months. Statewide, there have been about 50,000 foreclosures in that period, and state officials estimate that 38,000 more homes could be in foreclosure this year.

The housing debacle is finally being recognized in upstate NY by the “it can’t happen here because
we didn’t have a bubble” crowd.

OT:

I didn’t know where else to post this since I couldn’t use my handle to register on the new forum recently, but apparently there’s someone over there posting as:

“sf jaack”

So just for the record - it’s not me.

sf jack

“the original”

(using only one “a” since handles were required beginning in Q3 2005 and posting anonymously before that…)

Ben Stein on CBS Sunday Morning explaining why he’s an idiot. Just not as dumb as the crooks and frauds on Wall Street.

Just when you thought that Stucco reinforced with Chicken-Wire was as low as they’d go in construction standards . . .

http://www.abc.net.au/news/stories/2008/08/03/2322734.htm

(Note: I’m actually prepared to accept that this professor’s proposed material is quite appropriate for the local conditions.)

State doesn’t have money to pay pensions in 2009
Gertrud Levit

“In 2009, pensions are growing by EEK 2.7 billion when compared to this year, taking up 21 pct of state budget. The state, however, can’t cover the growing pensions from social tax.

Pension insurance markets got a dope

Pension index is recalculated every year and it depends on the yearly growth of consumer price index and accruing of social tax. That is why in the coming year a fifth of the planned state budget (EEK 20.4 bln) is taken up by pensions. The state can’t cover all of it from social tax, the Ministry of Finance shed light to the state budget, writes aripaev.ee.

Both inflation and the growth of social tax have been higher than expected, which is why pensions will be growing more than usual in the coming year as well.

The Ministry of Finance isn’t worried about only pensions. The capacity of foreign investments, co-investments and setting aside money for health insurance fund are jumping higher as well, but most of the money accrued to the state budget has a certain goal. Meaning that the funds can’t be used to cover holes, even if the state treasury has the needed amount of money.”
Estonia
http://www.balticbusinessnews.com/Default2.aspx?ArticleID=3a4562c1-8394-43ea-b067-ea0f1e4c1523&open=sec

from article comments:
“nuucha
01.08.08 21:20
of course this was a situation awaiting, but i am really surprised that it came SO QUICKLY. it was set to be a 10 - 20 year trend. but it happens now.
lets see how long will it take to happen in Latvia were i am from.”

Another country with a pegged currency about to bite the dust. Latvia is gone, Nuucha - a 20% current account deficit and fewer sales to the Euro bloc and the US. When Latvia defaults, how many banks will it take down with it?

The only question remaining is which Euro nation quits first. I still puts my moneys on M. Nicholas Sarkozy and France. (I concede that Italy’s penchant for economic upheaval is the joke of the Euro Bloc).

Rx For Economic Pain: Deal With Reality
by Steve Chapman

“… The recession cures being bandied about by the presidential candidates and others miss the real source of our current pain and what can be done about it — which is not much.

“There’s a great misunderstanding of what’s happened,” says economist Allan Meltzer. The main trouble, in his view, is not that Americans are suffering from weak or negative economic growth. It’s that they have suffered a loss of wealth, a very different ailment. …

…the loss stems from two major factors. The first is high oil prices, which are the equivalent of a huge tax increase. The second is the housing bust, which has vaporized more than a trillion dollars worth of assets.

What does all this mean? Our standard of living has declined. Or to put it bluntly, as Meltzer does, “We’re poorer than we were, and it’s unpleasant, but it’s a fact.” We can no longer afford all the things we used to, because so much of our income is now going to pay for gasoline. …

When you have a loss of wealth, the best way to cope is to accept it and adapt to a lower standard of living, sooner rather than later. Sending out rebates, eliminating gas taxes, bailing out homeowners and accelerating monetary growth, among the proposed remedies, do exactly the opposite. They spare us the obligation of dealing with reality by making us feel richer so we can keep on as we were before.

But they don’t change the stark fact that we are poorer now and will remain that way for some time. And they ultimately backfire by wasting money, igniting inflation or both.

In the long run, we will adapt to the new realities, the economic impact will moderate, and the pain will fade. Till then, our least destructive option is to do something no politician would dare suggest: Suck it up. ”

http://www.townhall.com/columnists/SteveChapman/2008/08/03/rx_for_economic_pain_deal_with_reality?page=full&comments=true

“The credit losses associated with subprime have come to light and they are fairly significant. Some estimates are in the order of between $50 billion and $100 billion of losses associated with subprime credit problems.”
Mr. Ben Bernanke
July 19, 2007

June 29, 1930
“The worst is over without a doubt.” - James J. Davis, Secretary of Labor.

“No one can possibly have lived through the Great Depression without being scarred by it. No amount of experience since the depression can convince someone who has lived through it that the world is safe economically.”
Isaac Asimov

there’s an article in the l.a. times business/real estate section today about whether or not it’s time to buy. it features that husband/wife team of economists from pomona/claremont college that we ridiculed here a couple years ago.

WSJ article here on “ghost towns” in new developments (front page of Friday’s paper.) You may have to be a paid WSJ subscriber to see it:

http://online.wsj.com/article/SB121763228998406131.html

MANETTA
The ‘57 meeting was about how we
were going to divide up the whole
country. This meeting is about
how we’re gonna survive. You got
‘made’ guys informing for the
Feds; bosses going to jail;
everybody’s dealing drugs; people
are getting whacked without
permission. And on top of
everything, now we got the Chinese
Triads and these crazy Russians to
deal with. Everything’s changing.
We need a leader. Someone with
fresh ideas. Someone like you.
It’s gonna be a new century, Paul.
We gotta change with the times.
VITTI
What are we gonna get, a f**n’
web site?

Analyze This or Federal Reserve meeting notes?

DEAN CALBREATH
In mortgage crisis, look for the signs of recovery

August 3, 2008

Happy anniversary! It was one year ago this month that the Great American Mortgage Crisis boiled over into the Great Global Credit Crisis, with banks in Paris, London and Frankfurt seizing up because of their investments in the U.S. housing market.

President Bush serendipitously marked the anniversary Wednesday by signing a 700-page housing bill that includes a possible bailout for Fannie Mae and Freddie Mac as well as helping some homeowners keep their properties out of foreclosure and making it a bit more lucrative for first-time buyers to purchase a house.

Despite the billions of dollars earmarked in the bill, few people foresee a rapid end to the housing crisis.

A day after Bush signed the bill, former Federal Reserve Chairman Alan Greenspan, one of the primary architects of our current dilemma, told CNBC that the housing crisis is “nowhere near the bottom,” adding that this is a once-in-a-century kind of downturn.
…
Affordability. Even after nearly three years of declining prices, home prices still remain too high for most households to afford.

Michael Pento, senior market strategist at Delta Global Advisors, an investment advisory firm in Huntington Beach, notes that by historical norms, the nationwide median price of a home is usually three times the median household income. Today, home prices are more than four times the median income.

In coastal areas such as San Diego, home buyers have long exceeded the national income-to-home price ratio, stretching their budgets in exchange for a moderate climate and pleasant surroundings. Even by that standard, however, today’s prices seem too high for local salaries to handle.

In the city of San Diego, the median home price of $355,000 is about 5.5 times the median household income of $65,238, as estimated by the San Diego Association of Governments. The home price is close to eight times income in Del Mar, six times in Imperial Beach and five times in Chula Vista and Poway.

“We have become accustomed to high prices and thinking that’s just the way things are,” said Herb Greenberg, founder of Greenberg Meritz Research & Analytics in Carmel Valley. “But once you take away the creative financing we’ve had in the past few years, you realize that you have to be able to afford the house you’re buying. And you have to be able to put 20 percent down, without taking it out of your IRA or 401(k) fund. In the end, housing’s all about affordability.”
…
Foreclosures. So far this year, default notices in San Diego County have gone out at about twice the rate as the year before. In the past quarter, 4,807 homes were foreclosed upon, compared with 1,417 in the same period of 2007. Those foreclosures lower property values throughout their neighborhoods, because lenders typically sell them at bargain prices to get them off their books.

But we’re still only in the first phase of foreclosures, according to Greg Brooks, a regional manager for the San Diego Mortgage Network.

In a recent commentary on the brokerforyou.com Web site, Brooks noted that a large number of “teaser” mortgages – loans with introductory rates of as low as 1 percent – will adjust sharply upward between 2009 and 2011, peaking in 2010. A homeowner who was paying less than $1,600 per month on one of those loans in 2005 could be paying more than $2,100 by 2010 – too high for many to handle.

That problem may worsen as more homes go “underwater,” meaning that the principal on the loan is more than the market value of the home. Right now, the median price of a home is about what it was in May 2003, suggesting that many people who bought their homes in the past five years are currently underwater.

Brooks estimated that a home that was worth $550,000 in 2005 might only be worth $400,000 by 2010. The homeowners will find it hard to sell or refinance such a home for close to the price they bought it for. If their mortgage rate rises as their home value deteriorates, many will simply walk away from their loans, resulting in a new wave of foreclosure.

“These loans and properties are in all areas of San Diego, not just the newly constructed properties on the outskirts of town,” he wrote. “The fallout of these foreclosures in San Diego will hit higher-end and coastal areas and everywhere in between.”

I don’t know how Mr. Brooks cooked up his estimate of the value of homes by 2010, but he seems to optimistically assume no further price declines from here on out. Based on the highest SD median sale price of around $517,000 in 2005 and the recent median sale price of $370,000, prices are already off by roughly (370/517-1)*100 = 28 pct. 28 pct below $550,000 will get you down to (1-0.28)*550,000 = $396,000. And, as Calbreath points out, home prices are still high relative to incomes when compared to long term norms. So I will suggest that homes priced $550,000 in 2005 will drop a considerable amount below $400,000 before the San Diego housing market finds a bottom.

The suggestion that a $7500 zero-interest loan from the gubmint to first-time home buyers will serve to turn around the housing market crash is about as optimistic as the notion that piss!ng in the ocean will cause a measurable rise in sea levels. For perspective, consider the fact that California home prices were recently reported by the C.A.R. as falling at a 38 pct YOY rate, which translates into a loss of $190,000 on a home whose value fell by 38 pct from a previous level of $500,000. Is a $7500 repayable “tax credit” going to make it worth facing this kind of a falling sword, particularly as rising unemployment rates bring to mind the risk of losing one’s job right after making a large investment in a home purchase?

My personal view is that those who are lured by this paltry stimulus into making a home purchase they would have otherwise delayed will enjoy the pleasure of helping to drive down the comps, but in retrospect, not many of them will prove to have bought near the price trough.

NATION’S HOUSING KENNETH HARNEY
Know when housing bill tax credit is due to expire

August 3, 2008

WASHINGTON – Anybody who’s been sitting on the sidelines hesitant to jump into real estate until conditions settle down should know these dates: April 9, 2008, through June 30, 2009.

They mark the eligibility time span to qualify for the home purchase tax credit created by the massive housing bill approved by Congress. If you have not owned a house during the past three years – or are considering buying your first home – and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).

The new credit is expected to benefit hundreds of thousands of buyers, although Congress set no limit on how many people can qualify. Since the specifics of the credit changed during the past month as the Senate and House negotiated a final compromise, here’s a quick overview of the credit in its final form:

The basic idea: To jump-start housing sales and clear out local unsold real estate inventories, Congress is offering tax credits to pull in new purchasers. Buy any house – new, old, any location or condition, any price range within the designated time period – and the IRS will cut up to $7,500 off your tax bill for either this year or next.

The recent reinstatment of downpayment requirements is just one of a bevy of reasons that U.S. housing prices are nowhere near a bottom just yet. Few MSM commentaries I have read have noted that a sudden dearth of zero-downpayment loan offers implies an immediate large drop in demand and implied housing valuations.

Buyer beware: Market’s tight and down payments are back
By Marcie Geffner
BANKRATE.COM

August 3, 2008

Not long ago, no-down-payment loans were the height of fashion for home buyers.

But now that lenders have tightened their standards, borrowers once again are expected to “put some skin in the game,” to use the industry’s favorite catch phrase. That “skin” refers to the borrower’s own cash, and it means down payments are definitely back in style.

The blowback from bank failures is difficult to gauge, but it does not work in favor of a near-term bottoming out of the U.S. housing market.

FDIC warns four US banks over liquidity
By Sarah Mishkin in New York
Published: August 1 2008 23:42 | Last updated: August 1 2008 23:42

The Federal Deposit Insurance Corporation revealed on Friday that it had issued warnings to four small US banks that lacked sufficient reserves to cover potential loan losses.

The cease-and-desist orders issued in June said the four banks needed to raise more capital, expand their loss allowances and better oversee and diversify their loan portfolios. A fifth bank was cited for violating consumer protection laws.

Losses on mortages and other loans have helped bring down eight US banks this year, including one small Florida institution on Friday. Last month, Indymac, a California lender with $32bn in assets, became one of the largest banks to go under in US history. It filed for Chapter 7 bankruptcy protection on Friday.

The banks receiving cease-and-desist orders in June were MetroPacific Bank in Irvine, California; Bank Haven in Haven, Kansas; Clarkston State Bank in Clarkston, Michigan; and Hastings State Bank in Hastings, Nebraska.

What we can learn from the US mortgage crisis
(01-08-2008)
by Phan Manh Ha, Complex Equity Manager Local Equity, Anphu Fund Management Company.

Current turmoil

Until now the global credit crisis has been a story of pheripheral interest to most Vietnamese. Last week, a large California-based mortgage lender with loans of about US$33 billion, IndyMac Bank, was placed under the regulatory control of the Federal Deposit Insurance Corporation after $1.35 billion in deposits was withdrawn in one month, a run that sent it to the wall. The bank’s business resumed under a new name, IndyMac Federal Bank, but the cost to American taxpayers of keeping the bank alive and avoiding any wider avalanche effect will be substaintial.

The solvency and liquidity of Fannie Mae and Freddie Mac are no longer in their hands. These two giants in the mortgage market own or guarantee about 40 per cent of American’s home loans.

Like IndyMac Bank, they will not be allowed to fail or rather cannot be allowed to fail but the cost of federal intervention, should it be required, will be a test of the US economy.

Fannie and Freddie orginated the use of mortgage-backed securities in the US, which in turn encouraged the issue of non-securitised loans to borrowers with little or no income, no jobs and no assets (so-called ‘No logo’ mortgages).

They were principal causes of the housing bubble, so the fact their executives and boards look like being spared the consequences of their folly is ironic although, of course, the US government and its regulatory authorities, which turned a blind eye to the reckless lending practices in the belief they would extend home ownership, also stand condemned for imperilling the American economy.

I spent Saturday in Pacific Grove and Carmel. More businesses have disappeared in the last several weeks. One big Art Gallery in Carmel that has been there for years is gone. Lots of visitors in Carmel, Monterey and Pacific Grove but very few high end buyers. One owners said the only ones buying are women from Texas out here for the cooler weather. Another said that almost 50% of the homes in Carmel are second homes. Most businesses said that there was a lot of foot traffic but few buyers. I had a great visit to an Art Gallery preview with free wine and goodies.

Big Numbers, Made Smaller

This week we have had $11.7 billion in quarterly profits from one company, which sells gasoline, and $15.5 billion in quarterly losses from another, whose products use too much of it.

Do those numbers mean anything to anybody? Not to me. I have no feel for how much a billion dollars is. So I cut them down to size. There were 7.9 million seconds in the second quarter. Here are the relevant figures per second:

Exxon revenues: $17,370
Exxon profits: $1,469

G.M. revenues: $4,800
G.M. loss: $1,946

One more calculation: G.M. sold 2.29 million vehicles in the quarter. The losses came to $6,756 per vehicle.
NYT

Mortgage crisis affects even the ‘best’ investment — in education
Bill McClellan
By Bill McClellan
ST. LOUIS POST-DISPATCH
08/03/2008

Jon and Linda Green should be weathering the current economic downturn without much trouble. They didn’t buy a house they couldn’t afford. They haven’t lived beyond their means. They didn’t invest in iffy stocks. In fact, they invested in education, which is generally considered the best investment of all.

And yet, “We’re in the mortgage crisis,” said Jon, when I visited last week. He was smiling when he said it because it was a little bit of a joke. More sad than funny. They’re not in the mortgage crisis caused by adjustable rate mortgages or questionable credit. They’re on financial thin ice because Jon can’t find work.

No quick fix seen for crisis in home loans
By Chris Giles, Economics Editor
Published: July 29 2008 03:00 | Last updated: July 29 2008 03:00

There is no quick fix for Britain’s mortgage crisis and the long-term funding of mortgages should be left to the market, a report to Alistair Darling will conclude today.

The interim report from Sir James Crosby, the former HBOS chairman asked by the Treasury to lead a review into improving wholesale mortgage financing in April, is likely to receive a cool response from lenders who have been lobbying the government for rapid action to break the logjam in the mortgage market.

The Crosby report will also say that Britain should avoid US-style government-backed agencies to tackle the funding crisis.

I played the game described below during the S&L crisis in the late 1980s. The FSLIC made good on principle plus above-market interest on a CD I had parked in a failed S&L.

Protect Yourself From Bank Failures
By SHELLY BANJO
August 3, 2008

Can you bank on the safety of the money you’ve got stashed in banks?

Some consumers are worrying as banks report billion-dollar losses from bad loans and in the wake of the seizure of IndyMac Bank, the third-largest bank failure in U.S. history.

The good news is that you can eliminate the risk of losing money in a bank failure — by making sure none of your accounts exceed the limits of federal deposit insurance. Many people have not been diligent about doing that, however.

Meanwhile, savers may get higher yields if they are willing to park money in insured accounts at banks facing significant financial challenges.

How long does the FDIC take to pay off on the account? Is there a timely manner which they cut a check and pay you, or is there typical government foot dragging until the money is almost forgotten? Just curious you know.

http://www.foxnews.com/story/0,2933,390241,00.html

Ron Paul on why he opposes a housing bailout. Compare his principled and well-reasoned opposition to the craven pandering of Hollow Men Republicrat “leaders” Obama, McCain, and Bush.

Yesterday this housing bubble vulture ventured forth on a trial run. No, not house-peeping…that’ll come much later, when the carrion is piled in heaps. I bought a beautiful, solid cherry bedroom set, original price $12K, for $3900. The woman I bought it from let it slip that she was “downsizing” and moving to a rental because owning [it was an older Victorian home] had been “too much stress.” Of course that caught my interest. Turns out she’s a classic FB - blamed “them” (some kind of “invester” or investment club-type thing) for telling her real estate was a sure bet and drawing her into it as an investment. She’s letting her house go into foreclosure, after the secondary lender turned down a short-sell attempt. Apparently she was also involved in some kind of rent-to-own scheme that she got burned on, too.

To her credit, she’s taking her dog with her instead of dumping him in the street like so many other FBs have done. For that I commend her.

I would like to make an observation, if I may,

What can the govt do to take away your wealth? PM, stocks, bonds and RE can be confiscated, because title is held in corporations readily accessible.
If the bank system collapses, I believe we all know that FDIC as only 1+% of the needed capital to pay up to the $100k per account. Other countries’ stock, bonds and RE may end up with greater declines than the USA.

The only remaining thing of value is what you hold personally imho, assuming that you did not make significant purchases with your CC which is being tracked by the govt.

Like life, no one, and I mean no one is going to come out of this situation alive in the worst case.

My suggestion, unless you are fast on your feet, knowledgeable about the markets and possibly a day trader, accumulate over time small denomination of gold and silver coins, a modest amount of cash in small denomination bills and stock of food. If you are more defensive, then buy guns and ammo, though this may cause more problems than its worth.

Oh, by the way do not forget the popcorn. Its going to be one heii of a show for the next few years!

one of my posts got garbled, so Im doin it again for everyones benefit.

I watch housing in small town Oregon. I happened to stumble across two transactions, within 10 day/2weeks of one another (last month). This is the story.

HOUSE A and B

both for sale over a year, one a rental that could be a family home, the other a retired school teachers house. 3 bed,2 bath..garages

One sold for 147k the other for 245k, they are across the street from each other. Very similiar in appearance, view, both 25+ years old, the 147 does have just a single car garage, but living space is almost identical.

—-
Morale of the story?

Confusion exists mostly with the buyers, real sellers, actual people… will take a deal, any deal. Find a seller that matches your criteria. When I bought my place, I new I wanted a retired individual who could no longer care for the house, but still maintained it as a personal residence. They simply wanted out.

I paid less for my place than the 147k deal almost 2 years ago….. jeez, based on relative comps….Ive actually aquired equity over the last 2 years…I can promise you neither of the recent transactions have as good of financing.

ben I dont understand why my house A and B posts are not showing up.

They are almost the same house.
House A 245k.

House B 147k.

transactions are days apart…less than 30 days ago.

FT Home
The big freeze: A year that shook faith in finance
By Gillian Tett
Published: August 3 2008 19:46 | Last updated: August 3 2008 19:46

(Ben Bernanke with Henry Paulson)

Just over a year ago, Hiroshi Nakaso, a senior official at the Bank of Japan, started to fear that the global financial system was heading for a jolt. Back then, most American policymakers assumed that the western banking system was extraordinarily strong. Thus while US mortgage defaults were rising, western officials were convinced that such losses would be easily “contained”.

But as Mr Nakaso watched western markets in July 2007, he had a sense of déjà vu. “I see striking similarities in what I see today with the early stages of our own financial crisis [in Japan] more than a decade ago,” he privately warned international contacts shortly after IKB, a German lender, imploded as a result of subprime losses. “Probably we will have to be prepared for more events to come … the crisis management skills of central banks and financial authorities will be truly tested.”

A year into credit crunch, more pain expected
Government bailouts limit the damage, but may delay recovery
By Alistair Barr, MarketWatch
Last update: 7:37 p.m. EDT Aug. 1, 2008

SAN FRANCISCO (MarketWatch) — “Troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system,” — Federal Reserve Chairman Ben Bernanke, June 5, 2007, during a speech from Cape Town, South Africa.

Just two months later, last August, those words seemed a distant memory. The financial system was in disarray, forcing the Fed and the European Central Bank to pump more than $250 billion into short-term funding markets to keep them working properly. The subprime mortgage crisis had gone global and the credit crunch had begun.

As the first anniversary of the crisis arrives this coming week, the Dow Jones Industrial Average is down 14%, U.S. economic growth has more than halved, financial institutions have suffered $350 billion in write-downs and fired chief executives and thousands of workers, while house prices have slumped as much as 40% in some areas. Bear Stearns, the nation’s fifth-largest investment bank, had to be bailed out by the Fed and J.P. Morgan Chase. Fannie Mae and Freddie Mac, the bedrock of the U.S. mortgage market, may be next.

Eight U.S. banks have failed since the beginning of the year, including First Priority Bank of Bradenton, Fla. late Friday. See full story.
“I doubt we’re even a third of the way through it,” said Michael Burry, head of Scion Capital, LLC, an $800 million hedge fund firm, which made huge returns betting against riskier parts of subprime mortgage-backed securities. See related story. “A real recovery won’t happen until late 2010 or early 2011. A lot of the bills from the credit bubble haven’t come due yet.”

Hedge scum carnage…

Hedge-Fund Sluggers Strike Out
By Cassell Bryan-Low
Word Count: 517 | Companies Featured in This Article: RAB Capital

In the world of hedge funds, it is harder to hide from the financial crunch.

Since the crunch began, these elite money managers have generated strong returns by focusing on areas such as commodities, emerging-market stocks or betting against troubled banks.

But as hedge funds as a group look set to turn in their worst monthly performance since July 2002, even those investment strategies that had been doing well have run into trouble. Some previously highflying funds are sustaining declines in the double digits. Several managers are down more than 20% for the year.

What % of AAA bonds are realy investment grade.

According to bloomberg 74 of 80

http://www.bloomberg.com/apps/data?pid=avimage&iid=iQUy2GaasArs

CEOs = scumbags, liars and thieves. For how many companies is this statement unfair?

Companies Tap Pension Plans To Fund Executive Benefits
By Ellen E. Schultz and Theo Francis
Word Count: 2,206 | Companies Featured in This Article: Watson Wyatt Worldwide, Intel, CenturyTel, CenturyTel, Intel, Watson Wyatt Worldwide, Milliman, RSA Insurance Group, Hartmarx

At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives’ retirement benefits and pay.

In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives’ supplemental benefits and compensation.

The Fed is pushing on a string. I wonder if Bernanke ever heard of this concept, much less the notion of leaning into the wind, which is a good way to preemptively avoid falling into the trap of pushing on a string?

Fed’s Cuts Seem Toothless As Rates Resist
By Mark Gongloff
Word Count: 456

In the fight against the credit crunch, the Federal Reserve’s interest-rate-cutting weapon seems to be clicking on an empty chamber.

Fed policy makers will gather in Washington Tuesday to discuss the economy and their target for the federal-funds rate, their main tool for managing growth and inflation.

The Fed has cut its rate target 3.25 percentage points since last September, trying to help the economy stagger through the housing crunch. Without those cuts, the economy might be in far worse shape than it is now.

My main questions:

1) Are western central banks colluding on monetary policy?
2) If yes, is the strategy working as they had intended?
3) Is such a strategy sustainable?

Watchful central banks to hold rates
By Krishna Guha in Washington
Published: August 3 2008 19:13 | Last updated: August 3 2008 19:13

The Federal Reserve, European Central Bank and the Bank of England are likely to keep interest rates on hold this week, amid a deteriorating global growth and continued high inflation.

As the first anniversary of the credit crisis looms on August 9, when the ECB first moved to pump €95bn ($150bn) into money markets suddenly starved of liquidity, the outlook confronting policymakers remains grim.