Bits Bucket For August 24, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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” The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.”
http://news.yahoo.com/s/afp/20080822/wl_canada_afp/canadauseucrimemoney_080822212441
First Giselle and now the drug lords? This is getting serious. I heard it is so bad that many addicts won’t even snort lines of coke with a rolled up dollar bill any more. Unfortunately, snorting coke with rolled up gold is a real pain in the a$$.
” Methamphetamine production in Canada, meanwhile, has risen to meet expanding international demand with several “super labs” set up for foreign distribution of late.
As well, Canada, the Netherlands and Belgium are now the primary source of ecstasy to the world, said the report.”
Can’t we manufacture anything in this country any more? I think we need a federal program to help meth lab operators. Maxine Waters and Nancy Pelosi could head the effort.
We need a “Drug War”, but think more along the lines of a “Gas War” of the 1960’s.
Gas Wars was one gas station competing against one-another, sometimes selling it below cost to get you as a customer, as it was quite common for just about every station to have a full-time mechanic that could work on just about any car.
There was no self-service.
Heck, they’d even give you stuff every other month, with a fill-up.
L.A. Rams glass tumblers, Cutlery (a different knife every month), and more.
But back to the original point~
The Sierra Nevada is infested with Mexican Drug Lords growing massive quantities of Marijuana.
Last year was the summer of the 20,000 plant garden, this year they’ve upped the ante to a 420,000 plant garden.
There must be a market for it, otherwise they wouldn’t go to the effort of growing 20x as much as last year?
We can act as if this market doesn’t exist, or control it ourselves by admitting the war on drugs was an abysmal failure, as it begot us a very shaky neighbor down under, many cities of which are now controlled by said Drug Lords.
California is so under the gun, financially.
We could scoop up untold billions from the stoner next door, by legalizing it and taxing it.
Redeem yourself by doing the right thing, Arnold.
And how many of the high living in this country would lose money if any drugs were legalized? I would guess quite a few. People forget that money laundering goes hand-in-hand with drug trafficking. Those guys in suits don’t sell the drugs but they do launder the profits. They don’t want to see that cash cow slaughtered.
It would put some downward pressure on local law enforcement budgets.
No more copters for Mayberry.
It would probably make it more difficult to justify illegal searches, as well.
My buddy in law enforcement that was in on that 420k bust, told me that there were quite a number of SWAT teams from bigger cities involved in it.
When a big city spends an awful lot of money on a resource rarely used, the press from being involved in a Billion Dollar
Bust allows it to get the funding again next year.
dog-and-pony-show
NYCboy
THINK LAWYERS…They make tons of money by keeping drugs illegal…..we cant have 100,0000 lawyers out of work can we?
Edgewater
Actually with the amount of people to arrest going down, police can solve real crimes, and again we night have to lay off 100,000 police officers for lack of work. And close jails too!
My idea: Grow your own, but still make it a felony to sell it……and i haven’t smoked weed in probably 20 years
Not getting into the question of morality whether current illegal use of drugs is a victimless crime or not:
IMHO the only reason drugs are made illegal is that the government cannot determine a means of taxation.
Agricultural companies would stand to make a windfall profit from the GMO research already done and an even larger profit from GMO research to be done to enhance potency and yields.
If you can’t tax it, ban it.
The damage being done to our forests is utterly remarkable.
The drug lords hired hands (campesinos) clear away huge swaths of wilderness, using the most lethal defoliants, raping the land and laying waste to a fragile ecosystem, not that they care…
aNYCdj:
Isn’t your idea essentially already in place (or was at one time) in Alaska? Maybe I’m wrong, but I thought that AK allowed (more accurately decriminalized) possession of small quantities for personal use, but retained the penalties for dealing. I don’t know whether it has ‘worked’ in the sense of reducing drug related crime, misallocation of law enforcement resources, etc.
My personal view is that the War on Drugs has been a colossal failure and boondoggle, but this country simply lacks the will to take any kind of responsibility for the unintended consequences of leagalization.
In some counties of California, one can legally grow up to 99 plants, if you have a medical marijuana card.
As we discussed recently, marijuana growth and distribution — even with its uncertain legal status — is one of the few economic bright spots in California right now.
The problem isn’t just state legislation, however, it’s also contingent upon federales who have a completely different mandate and often choose to enforce the current US law …
I’m thinking the country is going to swing pretty hard to the left, when Obama gets in, a knee-jerk reaction to the broken-mirror world of the last 7 years we’ve had to endure…
Marijuana is a lefty leafy~
Part of the reason the number of plants being discovered is rising is that the trend in growing over the past twenty years has been to grow smaller plants. The per-plant yield is down significantly.
Part of the reason for the trend is the drug war. It is easier to hide smaller plants and the time to market of product is significantly faster.
To quote George Clinton: “There’s more money in fighting it and pretending we’re stopping it than there is in selling it.”
Just like mortgage fraud: “There’s more money in fighting it and pretending we’re stopping it than there is in selling it.”
alladinsane,
About 20 years ago, some “hippies” were growing pot on my dad’s property in the Sierra Nevada mountains. Had at least an acre with very sophisticated irrigation and camouflage systems from what I hear.
Of course, they were a bit less dangerous than the Mexican drug lords, but I think the growers have been in that area for a long time.
Agree with you that marijuana should be legalized and TAXED. It’s no different than cigarettes and alcohol, and there’s lots of money to be made/saved by legalizing it. (No, I don’t smoke the stuff.)
Except…it’s really hard to grow high quality tobacco; it doesn’t really grow at all north of virginia, and it takes a lot of time to brew beer. The greenweed, on the other hand, is a weed. Anyone can grow it just about anywhere. It can sprout up on its own accord without any human intervention whatsoever. People aren’t going to go to corner store and spend $15 for a joint when they can fill their patio up with free plants.
As someone said earlier, “If you can’t tax it, make it illegal.”
I think the Netherlands (and Israel) have been the main source of ecstasy for quite some years, nothing new there. Belgium may be playing a bigger role lately because - after many years of doing nothing - Netherlands is cracking down a bit on big cannabis producers. This has moved some of the production over the border to Belgium; maybe some production of other drugs has moved along.
Belgium - The land of beer, chocolate and ecstasy
How do I get a visa?
I visit Brussels often but have never been ecstatic, just chocolated/beered.
I will pay more attention, if only I could get past the chocolate and beer!
nhz- since you posted last USA has socialized housing completely
happened fast
One of the big appeals of the euro is the 500 euro note (worth about $750 US). For every 500 euro note you smuggle out, you would have to carry more than seven $100 bills. That’s 7.5 times the weight and bulk.
Drug lords have to smuggle the drugs in, and also the profits out of a country.
With the switch to euros, there’ll be lots more worthless US paper printed years ago comin’ home soon to buy up more US assets and raise prices of commodities.
News Analysis August 22, 2008, 12:01AM EST text size: TT
The Final Fate of Fannie and Freddie
Partial bailout or full-on takeover, here’s how the rescue of the troubled government-sponsored enterprises could ripple through the financial system
by Ben Levisohn
Investing
The market’s pummeling of Freddie Mac (FRE) and Fannie Mae (FNM) eased up a bit on Aug. 21, after four days of selling. But with the stocks both down more than 85% year-to-date, investors appear to believe it’s a question of when, not if, the Treasury Dept. will be forced to use its newly acquired powers to bail out the mortgage giants.
Of course, the authority Congress granted to Treasury Secretary Henry Paulson to invest in Fannie and Freddie’s shares—or make loans to the troubled companies—was supposed to strengthen them. It’s had the opposite effect. The stocks are now both trading under 5, a sign that investors believe the companies’ common equity will be wiped out in any bailout package.
Backstopping future financial failures on account of a financial failure’s dubious advice can only lead to failure.
If God had sent Paulson and Bernanke to Egypt, instead of a bunch of frogs, the jews would have been given their freedom immediately.
Sorry, I meant Jews or Jewish people. I had a capitalization malfunction.
You sure they didn’t get there eventually? Boils are a little further down the list….
Unless the boils occurred in the anal cavity, it doesn’t really qualify.
“If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it is not the end of the world, it is the end of the current international financial system.”
Yu Yongding
A former adviser to China’s central bank
No worries, because a primary purpose of the recently-passed Mortgage Rescue Plan is to bail out the GSEs.
Did anybody choose “Yu Yongding” as their porn name? If not, I would like to take that name.
Yu sure got a pretty debt!
(cue dueling banjos)
Cream of sum-yung-gai?
Whatever happened to that thread for made up porn names?
Pixie or Sugar Johnson
In the Central Valley, the Ruins of the Housing Bust
Jim Wilson/The New York Times
In Merced, Calif., frames of houses in the Riverstone development have bleached in the sun for more than a year. Three-fourths of existing-home sales in Merced County are foreclosures. More Photos >
By DAVID STREITFELD
Published: August 23, 2008
THE NEW U.S. HOUSING LAW: A closer look
BY KATHY KRISTOF | Tribune Media Services; Staff writer Ellen Yan contributed to this story.
August 24, 2008
Tax breaks for owning real estate are undergoing another shift, thanks to the Housing and Economic Recovery Act recently signed into law by President George W. Bush.
The main focus of the bill was on its provisions to stave off foreclosures and to bail out mortgage giants Freddie Mac and Fannie Mae. But there also are measures of interest to first-time home buyers or those planning to buy a home who haven’t owned one in three years, for homeowners who don’t itemize their federal tax returns, and for people with vacation homes.
Here’s a rundown:
Was that article written by a 5th grader. If not then we can say, with 100% certainty, that she is indeed NOT smarter than a 5th grader. It is embarrassing what passes for journalism.
“Was that article written by a 5th grader.”
Maybe her intended audience is the general public?
The ever-elusive housing market recovery will remain one year away into the indefinite future…
RECOVERY COMING IN MID-2009?
The San Diego County housing market remains in a slump, but a recovery could begin in mid-2009, according to Josh Seime, manager of the local division of Metrostudy, a national real estate research company.
Demand for all types of for-sale housing has been reduced by tightening credit and the slowing economy, he said. Home builders have responded by reducing construction activity and offering discounted prices. The key to stopping price declines is a reduction in the inventories of resale and foreclosure homes.
“It is likely that prices will continue to be pressured downward through 2008,” Seime said. “Until we work through the excesses that were the result of the run-up in prices, we won’t be able to move forward.”
“It is likely that prices will continue to be pressured downward through 2008,”
The printer must have left off, 2009,2010,2011 etc… Using football as a analogy where are we? Half-time?
Few these ‘experts’ ever back up their claims with any meaningful facts/basis for their comments. If and wish is all it is, seems to me.
“The key to stopping price declines is a reduction in the inventories of resale and foreclosure homes.”
What a f-cking dope! The key to stopping price declines is for local incomes to come back into balance with prices. With interest rates rising that will be even more difficult. Personally, I don’t see a massive bailout of Fannie Mae, Freddie Mac, CitiCorp, GM, Ford, and every other malcontent on the planet, causing long-term interest rates to decrease.
It’s like clown school, every day, here in the good old U.S.A.
At least he didn’t say it was dependant on loosening credit.
LOL! Are they really expecting La Jolla prices in El Cajon just because the supply of houses in El Cajon is limited?
Maybe, just maybe, new buyers will move on to more affordable pastures.
To use a probabilistic analogy, the time-time-to-recovery random variable follows an exponential distribution, which has the famous “memoryless” property. Hence the expected time until recovery remains constant at one year into the future.
“In the aftermath, the bitterness, recrimination, and search for scapegoats - all normal - were extreme, as was the avoidance of mention of the mass mania that was the true cause. Those who had contracted to buy at the enormously inflated prices defaulted en masse. Angry sellers sought enforcement of their contracts of sale; the courts, identifying it as a gambling operation, were unhelpful. Not less than with the failing banks and saving and loan associations in recent times, the state then emerged as the recourse of last resort. Alas, the only remedy would have been to restore the price of the bulbs (houses) to the precrash level, but this was manifestly impractical, and so the so recently rich were left with their loss.”
I am reading “A Short History of Financial Euphoria” written by John Kenneth Galbraith. That passage, of course, was written about the Tulipomania in 1636 and 1637, not our current housing stupidity.
Galbraith’s key point in this very short book is that all of these manias are the same. They are all attributed to some “innovation” (Internet, securitization, Reaganism, etc.). They all end the same. They all begin again the same way. The circle is unbroken.
Galbraith’s writings are like a Rosetta Stone, in describing the present goings on.
Whilst reading “The Great Crash 1929″ all I had to do was substitute the word “stock” for the word “houses”, and it was like refreshing my browser, 4 score more.
This book was written in the early 1990s, just before the onset of the tech stock bubble and crash, followed in synchronized succession by the housing bubble and crash. There are lots of books around about the history of crashes, but Galbraith’s prophetic timing was singularly impeccable.
Using football as a analogy where are we?
Quarterback’s sacked at the bottom of the dog pile swearing next quarter they’ll make forward yardage.
The downward pressure hasn’t peaked. Claiming its almost over is a joke.
Got Popcorn?
Neil
On the optimistic side of the argument, a double-digit rate of price declines can only go on for so long before the value of an asset drops to zero, and clearly the housing market will bottom out long before home prices have fallen all the say to $0 (unlike the prices of certain financial company stocks).
For example, if home prices are falling persistently at a 38 percent annual rate (as the California state median sales price recently has been), the time (in years) it will take for them to drop to one third of their previous value will be given by the solution to the following equation:
(1-0.38)^t = 1/3, which is given by
log(1/3)/log(1-0.38) = only 2.3 years.
Given that price declines only kicked into high gear about one year ago, the above scenario would result in a bottom around the end of 2009 at 2/3 off peak prices.
“Given that price declines only kicked into high gear about one year ago, the above scenario would result in a bottom around the end of 2009 at 2/3 off peak prices.”
If we were to look at the total reduction in valuations from peak
(sales x amount less than peak value), that number must still be relatively modest due to the low numbers of sales. That amount should begin to grow substantially as prices near the “bottom” and sales begin to increase.
There still seems to be a lot of denial as to how far prices have fallen, how far they are going to eventually fall, and how long it might take to ever return to anything near peak bubble prices. There still seems to be the idea that it’s only really crappy properties or properties in less desirable areas that have fallen a lot or are going to fall a lot.
When does the realization finally hit that the declines are broad-based, substantial, with no return to anything near peak bubble prices for decades? How many more will walk away once that happens? Will the “bottom” actually be a series of successively lower plateaus each with a lesser decline than the preceding one?
Does this same logic apply to the up trend in prices from 2000 to 2005?
Those recovery forecasts are always 9 to 12 months away. Plenty of time to move them forward another 6 to 12 months.
Does this story put you in the mood for buying a $76m home?
Villa on French Riviera sold for $750 million
By Roger Showley
STAFF WRITER
August 24, 2008
Real estate may be tanking in the United States, but get this. A 106-year-old villa on the French Riviera has reportedly sold for $750 million, 10 times the costliest home on the market in San Diego today.
It Takes A Villa…
(hey, whatever happened to the hill-billy team that David Cee used to give money to, trying to impress us?)
“whatever happened to the hill-billy team that David Cee used to give money to, trying to impress us?)”
ANSWER: I’ll get someone from my staff to get back to you on that !!!
QUESTION: And how many houses do you and the Mrs. own?
CONCLUSION: Hillary lost to “Dumb and Dumber”
CONCLUSION: Hillary lost to “Dumb and Dumber”
I’ll give you that one, but really the PTB only gave us;
“DUMB, DUMBER, and DUMBEST” to choose from.
Osama Hussein Obama owns at least one $1.4 million dollar house. Saw his wife and one of their kids get off a gulfstream liberal machine (a major carbon footprint jet aircraft) on the news today.
The Osama Bamas earned over $4,000,000 last year in income and they want to increase the taxes of their “inferiors” who earn $250,000 per year.
This leaves me puzzled, you cee (I mean see).
Again, BiM your hatred is only exceeded by your inability to see what has been in front of you for 8yrs.
Ouch! That hurts by proxy.
I think BiM makes a valid observation, which supports our collective hypothesis. That is, IMHO, that they are all crooks, or hypocrites, or some combination thereof. The solution is to boot them all out of office and write in Ron Paul and a host of other as-yet uncorrupted folks.
Frankly, the country would keep on ticking regardless of the goons in office, thanks to the thousands of anonymous career civil servants who fly under the radar.
Eight years of an administration and Congress doing nothing more than a holding pattern, unable to pass more legislation, unable to extend temporary measures? Sounds pretty benign to me.
Not able to vote in new entitlements.
Not able to extend tax breaks.
Not able to pass omnibus legislation with thousands of pork items.
Not able to further indebt the nation.
I’m tellin ya, it could be a lot worse than eight years of our domestic overseers being unable to get unwrapped from around their own axles.
Somewhat better than our prospective outcome: yet another Administration bought into office on the promise of lower taxes and more entitlements.
Another bank gets closed. #9:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9iX_1ShWWAs&refer=home
Raising the bar
Prices may be down, but loans are harder to get
By Emmet Pierce
STAFF WRITER
August 24, 2008
The surge in foreclosures has made real estate in San Diego County less costly, but there’s an important catch for those who view the housing slump as an opportunity to move into homeownership.
…
“Let’s say you were to make a $500,000 purchase two to three years ago with a 1 percent negative amortizing loan,” he said. “The payment would start at $1,608. Take the same loan today with rates up to about 6.5 percent on a 30-year-fixed loan. The payment today is $3,160.”
The dual perspective on this illustration is more informative, IMHO: Given that a homeowner can afford monthly payments of $1,608, how much house can they afford given tightened lending standards?
The answer: $1608/$3160*$500,000 = $254,430.
This provides some indication of where a price floor might be found in terms of end-user demand.
The reality of incomes relative to debt levels is exerting itself. The fantasy that people could service mortgage debt of ten times their income has evaporated. Thank God!
Now we just have do something about these loonies that still want to put people into homes with no money down, via seller provided down payment assistance.
My illustration may be overly optimistic for many reasons:
1) It only considers the demand side of the market. But there is much more inventory on the market now than in 2005, plus new foreclosures happening faster than lenders can sell the old ones (at least for the prices they are trying to sell them). These supply side factors further contribute to price weakness in the same direction as the tighter purchase budget constraints households face with tighter lending standards.
2) The demand side is further weakened by (a) growing evidence that San Diego is sliding into a recession, giving would-be home buyers a serious case of cold feet; (b) general awareness of a price slide in progress, compared to a general belief in never-ending gains to future home equity riches circa 2005; (c) reinstatement of lender downpayment requirements; (d) consumer goods price inflation (e.g. gas and food) hammering the percentage share of household budgets available for making mortgage payments compared to 2005; (e) higher FICO score requirements; (f) income and asset verification requirements; (g) mortgage lending rates that remain persistently high, despite the Fed’s best efforts to contain them; (h) disappearance of the entire private subprime lending sector from the face of the planet; (i) breakdown of the mortgage securitization sump pump; (j) foreign creditors who used to fund our mortgage market developing a severe case of MBS investment heebee jeebies.
Generally speaking, fundamental factors on both the supply and demand sides of the market all point in the direction of market valuations overshooting my simple fifty percent off example on the downside.
Plus, the dreaded media has turned against the mania. Did you see the new show on HGTV called “Hope For Your Home” or something like that? It is hosted by Kirsten Kemp, also famous for Property Ladder.
Last night’s episode was nice and depressing. There was a family of 5 in a shabby little California home. Hey mother in the show, pluck those eyebrows. I was waiting for a family of condors to pop their heads out of those nests. The couple was paying $3,000 for mortgage payments. Holy zoinks! That is for a mortgage payment. That is insane. The house sure looked like a $120,000 house to me but, I know, California is so special that every house should pay for 4 times the price of any other part of the country.
The show gave these mouth-breathers $10,000 to fix up their place so they could, get this, get a new appraisal for a refinance. The couple worked hard on the crappy little place. They had to scrape and paint the outside. They expanded a bathroom. All the old plumbing was garbage and had to be replaced. The house was staged. Miraculously, the appraisal was just good enough to refinance to a new mortgage that would be $2,325 per month. WFT? This couple clearly can’t afford that.
Anybody watching that show should be depressed just by seeing it. I guess this concept of “hope” is a little like rope. Some smoke their rope and live pleasant lives. Some hang themselves with their rope. This couple looked intent on hanging themselves.
LOL, I just watched this show and posted something about it on another popular bubble site
I just can’t get my head around that couple. He works full time and goes to school part time. She goes to school part time.
guess what?? time for you too to quit school and make some money!!
that show is ludicrous
I saw it. How does $10,000 in repairs plus a little of your sweat make a house worth $ 50,000 more.? To me it’s worth $10,000 more(max).
And what was with the wife? She called herself a full time student. Their headed for foreclosure and she’s going to school. She needs to get her a$$ down to Walmart and get a job. Go to school part time.
Weren’t they hoping to get the appraised value back up to something like 400k (which is what they paid for the shack)?
That was a 60k house in Tampa today, and a 10k house in Tampa five years ago. How it could possible appraise for 350k before their makeover is beyond me. And in a trashy neighborhood to boot. Desperately trying to hold on to a vastly overpriced dump makes no sense at all.
I saw it too; however, I believe a RE agent “estimated” their home value at x and a mortgage broker “estimated” their home payments of x. There was no mention of an actual appraisal. Seemed like a bunch of bull to me.
Last year there was a scandal because so many of the flipping house shows turned out to be faked, with paid actors pretending to be flippers, etc. I wonder if this is another hoax.
They keep these things going because the home products companies (Lowes, Home Depot, and so on) pour tons of advertising dollars into them, and millions of viewers seem to love the fantasy. Unfortunately, many of those millions think it’s all for real, and that shacks really are worth what the realtors claim.
RE: How does $10,000 in repairs plus a little of your sweat make a house worth $ 50,000 more.
Crooked appraisal number hitters can do miracles!
maybe i’m just dumb, but how does a higher home valuation reduce monthly payments??
It was an intrest only loan. They wanted to refinance to a traditional 30 year-fixed loan.
The lower mortgage quoted in the show was for a 30 year fixed.
Left off this part…
They had little or no skin in the game when they bought and the interest only pushup the loan amount evenmore.
The house was appraised for 250K they needed to get 20% in equity to refinance.
Only in USA can 10K of improvement = 50K in apprasial.
I guess I left a few reasons off my list; perhaps the list of strikes against demand could be expanded to a full range from (a) to (z) with a little effort?
(k) dissapearance of the appraisal fraud premium;
(l) virtual end of Alt-A lending (aka liar loans);
(m) incipient end to federally-sponsored downpayment gift program;
(n) phase out by many surviving lenders of option ARMs with teaser rates;
(o) anticipation of many more high-end homes hitting the market in a couple of years due to prime and Alt-A resets that go into foreclosure;
(p) anticipation of higher future interest rates in the future due to a lack of evidence that inflation is contained (higher interest rates = reduced home purchase budgets for the same income streams = further drop in demand);
C’mon guys, only ten letters to go!!!
PB.. I’m already seeing some foreclosures , at 65% off peak value, that don’t need that much work .I’m looking in San Diego and surrounding areas ,but my problem is I like Del Mar and places like that and it’s just to expensive .
Housing Wizard,
So far I see few if any signs of a panic by lenders and investors holding on to falling knife inventory they will eventually want to unload, possibly due to getting their hopes up over the mortgage rescue plan. With Indymac out of the picture and the GSEs close to collapse, I am wondering if the pace of foreclosure sales might not pick up soon, in which case Del Mar and similar areas might become a lot more reasonably priced going forward. I am guessing a lot of unsustainable prime and Alt-A ARMs helped push Del Mar prices through the roof, with resets due over the next three years.
(q) Trust has evaporated from the global banking system, with no sign any action taken to date by central bankers or other policymakers has had any heft. Until this situation is resolved, the U.S. housing finance system will remain broken (and broke).
————————————————————————
Libor Signals Credit Seizing Up as Banks Balk at Money Lending
By Liz Capo McCormick and Gavin Finch
Aug. 25 (Bloomberg) — Most of the bond strategists and salesmen that Resolution Investment Management Ltd.’s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there’s no end in sight, and it may even worsen.
“It’s like an ongoing nightmare and no one is sure when we’re going to wake up,” said Thomson, a money manager in Glasgow at Resolution, which oversees $46 billion in bonds. “Things are going to get worse before they get better.”
In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report that nations accounting for half of the world’s economy face a recession.
The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.
“These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,” Thomson said, citing a figure of $88 billion. “The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn’t any.”
A bailout too far?
Fannie, Freddie Woes Vex Experts And Leave U.S. Hard Choices
By Sudeep Reddy
Word Count: 827 | Companies Featured in This Article: Fannie Mae, Freddie Mac
SOME OF THE U.S.’s top economists figure the government’s response to Fannie Mae and Freddie Mac has come to a critical turning point: They expect Treasury will be forced to inject funds into the two firms, but they’re not sure whether pulling the trigger will be enough to bolster the sagging economy.
The woes of the two mortgage-lending giants were the talk of the Federal Reserve Bank of Kansas City’s annual conference at this mountainside resort. When the central bankers, academics and Wall Street economists met a year ago, the housing-market problems had just begun to deepen global-credit problems.
Drove by 2 signers today for DRHorton. Signs say 0 down.
Today.
hmmm.
Also, saw 3 developements that didn’t get off the ground.
1 is finished but has over 1/2 homes empty.
1 has 12 homes empty, 21 lots , and 10 homes sold. Original price 500k.
1 had fence all around, signs but zip dev. No houses, no grading, just flags and signs.
That was in Desert Hot Springs.
At least the signers weren’t hot today. Only 107 degrees.
Pretty day!
To get bank loans. No wonder banks as balking at lending money, real estate not a safe place for money no more.
“The office manager asked me directly: ‘If I sent you out to appraise a million-dollar home and the comps (comparable values) only came in at $800,000 … but in your heart you knew it was worth a million dollars, what would you bring it in at?”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/08/24/RE9512D5H3.DTL&tsp=1
The point is that what facts would make it true that the value was 1 million rather than the comps in the area of 800k ,so you would have to prove it . For instance ,does the subject property have a 360 degree view of the ocean while the comps don’t,maybe that could explain it . Did the owner just spend 300k upgrading the property
while the comps didn’t .Does the comp have a thousand more sq feet
and is it sitting next to 2 million dollar properties with no comps .
My point is that if the property is worth 200k more than the comps ,
than the appraiser ought to be able to prove it rather than just some feeling . In a declining market you would error to the side of the lower value anyway and that sale could very well be a cash back fraud deal .
Excellent point Professor.
Even better - all the FBs with pay option 2/28-5/25 REFIs; when the principal begins amortization over 25-28 remaining years, the payment jumps even more substantially. This is going to be like adding extra fuel to the REO fire, especially when the jumbo dumbos in Cali try to refi and find out rates are 8%+, if they can even qualify.
Neil, please pass the popcorn.
“Several weeks ago, Casselman moved into the house with her son, her daughter, a son-in-law and two grandchildren. Built in 1957, the property sold for $325,000. Casselman paid a 3 percent down payment on a fixed-rate loan. Her interest rate is 6.25 percent.”
Why doesn’t the author finish the paragraph with a $1,940/month payment excluding Insurance or Taxes? These stories are deceptive to Joe and Rita Sixpack!
Collateral damage
Fallout from the housing meltdown is reaching local credit unions, but the risk-averse institutions appear stable and should weather the storm
By Mike Freeman
STAFF WRITER
August 24, 2008
Economy forcing many to let go of luxury toys
Boats, motor homes being repossessed as housing slumps
By David Hasemyer
STAFF WRITER
August 24, 2008
With paperwork in hand, Ashley Sparks set off in search of his newest target – a 2005 Winnebago motor home.
Sparks, an adjuster for ABA Recovery Service, found the vehicle on a well-manicured street in Point Loma, surrounded by homes nearing the million-dollar mark.
Hatteras Yachts
Lake Forest, IL
More than 300 people have lost their jobs at Hatteras Yachts’ boat-building plants in New Bern and Edenton. The Sun Journal of New Bern reported that employees learned Thursday of the terminations, which were effective immediately. It was unclear how the 325 lost jobs were divided among the plants. The layoffs were announced by Hatteras Yachts’ parent company, Lake Forest, Ill.-based Brunswick Corp. Brunswick spokesman Dan Kubera said the company began reacting to the domestic market in June by finding ways to cut $300 million in costs. The last major cutback at Hatteras Yachts was in January 2003, when 250 jobs were eliminated in New Bern. According to market research data, sales of new boats have been slipping nationwide virtually every month since mid-2004.
The Associated Press - August 15, 2008
I like Bertram Yachts, but Hatteras is a nice heavy cruiser.
One of the items killing yacht sales is the lack of financing. Many people would buy a yacht with a home loan. ((As long as the yacht has a galley and facilities, it qualifies as a 2nd home). In today’s finance market, fugget about it.
Brig out your debt!
One of my In laws is in the yacht business. There is no market below 55′ right now. Probably due to who needs financing and who doesn’t. So they’re making bigger and bigger yachts (numerically, fewer per year, but growing the dollar volume).
The low and mid boat market is dead. It wasn’t just loans on the boat… I know of dozens of people who took out ~$250k on their home to buy their boats. Some made a good lifestyle choice for themselves. Most will regret it.
Note: I also know six boat owners anticipating upgrading! One lives on his boat and he figures that he’ll be able to upgrade to a 10′ longer boat (largest that will fit in his slip) in the next year or two.
Got Popcorn?
Neil
Ahoy Polloi
“It’s easy to grin
When your ship comes in
And you have the stock market beat
But the man who’s worthwhile
Is the man who can smile
When his pants are too tight in the seat”
Do they have nonconforming prime and Alt-A loans available to help with supersized yacht purchases?
Sounds about par for the course. The hotshot bankers who made all the money off this bubble will buy their monstrous yachts and sail off into the sunset, leaving in their wake a world of financial ruin never seen before. Crime pays BIG.
Will be in the market for a “luxury SUV” in early November. Will just drive it 5 miles per day on the average during weekdays and hardly ever on weekends. Returning to work in the Redondo Beach area in early November and will live only 2 miles from the office. My budget (including gas guzzler tax and California registration) is $10,000. I’m open to any make. I think I will get some good deals by taking advantage of other people’s woes.
Expect to own the vehicle 12 to 18 months and then sell it for a $3,000 loss. Cheaper than renting a car all that time though.
BTW: My name will change to “Bill in L.A.”
“…will live only 2 miles from the office.”
Why not bike or walk it……..and…….then send me a check for $10,000?
Seriously though, short drives are tough on engines, better keep the oil clean.
“… will live only two miles from the office.”
Think bicycle.
Buy a good bike for $500 and spend the rest on hookers. You will be in better shape and you will be happier. Your carbon “footprint” will be much smaller.
Guys, great ideas. As for hookers…LOL! I
But I think I will losing $3,000 on the gas hog when I sell it. Saw a reasonable a 2001 SUV for under $8,000 on some major website.
I’ve spent $200 to $250 per week on renting cars here in Maryland since last September. That’s $10,000 minimum spent already. I’d rather lose $3,000 than lose $10,000.
Scrimped and saved for quite awhile in my career and now that I’m in my late 40s I figure I can gradually increase my indulgences.
Well then take a drive on the weekend, go to Vermont look at the trees, go to NY watch a show, drive over the Chesapeake bridge just because you can. Stop in the middle and sing to the seagulls: “No nickel and diming today, because I can hahahahaffffoooorrrd it.”
Ca is nice just be careful they want you to pay for their ( state government workers) standard of living. so don’t make too much money go to the beach instead.
August 19 - Wall Street Journal (Justin Scheck): “California’s months-long budget standoff hit a low Sunday night when an emergency State Assembly meeting failed to produce a compromise between Democrats and Republicans over how to compensate for a shortfall exceeding $15 billion. At issue is the Democrats’ proposal to make up for the deficit largely by increasing taxes on California’s wealthiest residents — a plan that Republicans oppose. In a vote Sunday, not a single Assembly Republican voted for the plan to raise $6.7 billion in revenue largely through income-tax increases. Republicans account for 32 of the assembly’s 80 seats, but California requires that two-thirds of the legislature approve the budget. ‘We’re fundamentally saying ‘no tax increases,’ said Mike Villines, the Assembly Republican leader. If the tax standoff continues, California state workers could have their pay reduced to minimum wage, and the state could be forced to take out high-interest loans to fund ongoing operations.”
Thanks Cactus. I’m going to get a hefty tax break for that California position for a good period of time, abeit finite. I would not do it any other way. Perfectly legal break. I won’t say which IRS form/publication it falls under. Any tax break that becomes ommonly used is short-lived. It’s the same major tax break I use right now on the east coast!
If you are on-line on HBB this Friday I’ll see if you still want to meet me in the Ahwatukee area for that cup or those cups of coffee. I fly into Phoenix Thursday night.
OK sounds good I should be around.
I knew a guy that traveled around working systems like you. He bought himself a desiel pusher and lived in that close to work sites. Instead of getting paid for the hotel room he got his RV paid for. Pretty smart if you ask me.
There are several people who discuss doing that. But see my comment above about my rationale to indulge. Nice to have no maintenance worries, a fitness center with free weights, full size washer and dryer, and so on all rented.
A few years ago in California, a strawberry picker pulling down $20k a year, “bought” a $700k+ house.
Yesterday, one of the stories in the Ca. thread was about an investor trying to buy houses in the Central Valley with 30% down, and the banks wanted nothing to do with him…
Have we come full circle yet?
“Have we come full circle yet?”
Not yet, but we’re getting there.
Money is no longer easily borrowed into existence, no? This makes the existing money already borrowed into existence that much more scarce, which makes it more valuable, yes?
You win.
Rectangles rule…
Actually, I am rooting for the goldbugs. The more stashed-away money they trade for gold the more money put into circulation, which benifits the rest of us.
It’s good to be the king.
Some rectangles rule more than others. A US dollar is better than a Zimbabwe dollar, no doubt.
That said, I don’t see any reason why the Fed wouldn’t dramatically increase the money supply if the economic nosedive intensifies. If its really going to take trillions to bail out all the bad mortgages, then the printers will be putting in some serious overtime.
“Have we come full circle yet?”
I would say “yes”, except for the fact that I don’t believe that article. I believe that what was printed was not exactly the facts. It’s one thing for Mr. BigShot to say he was putting 30% down and another thing for it to be true. With the state of journalism I think this was just another poorly researched article.
Don’t go drawing circles with a rusty protractor handed out by the MSM.
Protraction potential possible, protractor.
ELLIE WOOTEN, the likable mayor of this likable Central Valley city, is on her way to the office when her cellphone rings. A constituent wants her mortgage payments reduced, and is hoping that the mayor has some clout with her lender.
Although Merced has one of the highest foreclosure rates in the country, this borrower isn’t in such dire straits. She’s not even behind on her mortgage. But her oldest daughter is turning 18, which means an end to $500 a month in child support. She just wants a better deal.
http://www.nytimes.com/2008/08/24/business/24house.html?_r=1&ref=business&oref=slogin
Good stuff there, especially on page 4. HSBC backing out of an FHA loan - and - the developer Glieberman had some comments that clearly show you can’t trust the REIC - ever.
Oh yeah, and this:
“They believed — because who was telling them differently? — that the good times would be endless.”
So is that what it’s going to be now? Will people have to be reminded to wipe their own azz too?
OT, but years ago when I was an undergrad in CA at a school known for its high nerdiness, a board contract was mandatory to live on campus. It turns out the year before I started there was no on campus food service and many students didn’t eat, causing their parents distress which made its way to the school administration.
The mayor hangs up and shrugs: “It’s a surprise her daughter is turning 18? You’d think she could have planned ahead.”
I would say that sums up nearly every “victim” in this current mess. “F-ck ‘em”, is what I say.
It reminds me of an argument that I had with a co-worker a few years ago. He was giving one of his usual excuses why he didn’t get something done. I was getting irate at yet another tale. He then said, “well, the holidays this year set me back”.
I replied, “yeah, it was amazing that we had those holidays this year. They just came out of nowhere.”
To all you phony victims everywhere, “f-ck you!” from the bottom of my heart.
I like the photo that they led with! Everyone thought I was either nuts or somehow “jealous” when I said that there will be boarded-up / abandoned McMansions because they’re building more houses than people need….
A constituent wants her mortgage payments reduced, and is hoping that the mayor has some clout with her lender.
I think I’m going to write to my (Sunnyvale) Mayor and ask that they lower my Cable and DSL bills!
Interesting article from Washington Post:
When Cutting the Price, Take a Big Bite, Not a Bunch of Nibbles
Declining home prices overall are working against sellers, of course, giving buyers an incentive to wait. “You want to make sure consumers don’t really want to wait,” Zhang said. “Offer incentives right away. A big chunk. Make it a once-in-a-lifetime opportunity.”
Sinai, the real estate professor, offered an approach geared more toward sellers who are willing and able to wait for the one buyer most likely to pay top dollar (at least today’s top dollar) for a specific home.
http://tinyurl.com/3sls3r
Way,Way OT… But a damn good move IMHO…
Environment
Bush Seeks to Protect 3 Pacific Island Chains
WASHINGTON (AP) — President Bush next week will seek formal comment from his Cabinet agencies on a plan that could make three of the world’s most remote and pristine island chains off limits to commercial fishing and mineral exploration.
The action, which could be completed before Bush leaves office, would rank as one of the largest marine conservation efforts in history.
Bush’s proposal would conserve parts of the Northern Mariana islands, the Line Islands in the central Pacific and American Samoa, environmentalists who participated in a 40-minute conference call about the plan on Friday told The Associated Press. Making them off limits to fishing and energy development is the most stringent of the possible measures outlined.
http://www.livescience.com/environment/080823-ap-island-chains.html
’ssshrubery’s legacy is assured in Samoa, now.
off limits to any development, for as long as they exist I guess? With the US going full steam towards even more global warming, it can’t take long before of these islands have completely disappeared ;-(
“But a damn good move IMHO…”
Really? Could you elaborate? For instance, what fishing currently takes place there, is it sustainable, and what will be the value of lost fishing opportunity of this proposal succeeds?
Or do you just assume that any move to protect stuff is for the greater good?
Really? Could you elaborate? For instance, what fishing currently takes place there, is it sustainable, and what will be the value of lost fishing opportunity of this proposal succeeds?
I must say that I do not know exactly what type of fishing goes on there. However having spent a number of years fishing commercially I can say that Globally, long liners and drift netters really know no bounds and break maritime laws all the time. I am sure they ply those waters also. The aquatic destruction is amazing. So I really don’t mind when I read of some areas being restricted in some ways. P.S. I really don’t give a rats ass about ‘the greater good’.
“Buy now and lose 25% + any inflation”
Many thanks. 25% piled on to the 31% drop that already occurred will get you down to
(1-(1-0.31)*(1-0.25))*100 = 48 pct off.
That seems conservative (i.e., underestimating how far prices will ultimately fall) — see my (a)-(p) list of strikes against housing demand going forward, which I am convinced could be extended to the end of the alphabet with just a slight amount of additional effort. Tighter underwriting standards absent any other factors ought to get you down to about 50 pct off the peak for San Diego.
Speaking of lowering prices, pb, the developments that I mentioned above, in Desert Hot Springs( which is an armpit, to be nice)started at 500k and are now stating 289-319k, and still empty. Developer has signs everywhere stating , BONUS,none of the empty houses have been finished.
I heard a great research presentation recently about a bunch of South African poachers who targeted abalone in marine protected areas off the South African coast. They had super-duper high speed vessels which could outrun the feds, and somehow were using the abalone operation to launder drug money.
Marine protected areas are not a panacea for correcting bad fishing practices.
“protect” sounds like such a good word. Who wouldn’t be for “protecting” something? Maybe you don’t like children either.
“…would rank as one of the largest marine conservation efforts in history.” lol
So If I start paddling my kayak tomorrow…how long before I reach these “preserved” places?
Cheney-Shrub Legacy List item #72: Environmental safe guard champions of the lower 48 & Alaska… or …When I leave Crawford, I need my own “private Idaho” …”hey you, with black suit & ear thingy, could you start swatting these gnats.”
In football, when a running back intends to cut to the left, he often first fakes right. This move is designed to make the defense commit their resources in the wrong direction. It is my experience that markets often follow a similar path. Just prior to a major move in one direction, markets often make a sharp move in the opposite direction first. With respect to the dollar, gold, oil and other commodities, many on Wall Street have bought into the head fake, and will soon be watching in amazement as the runner sprints to the end zone.
Over the last few months, as the dollar rose more than 10% against a basket of other currencies, and as gold and oil sank to multi-month lows, many investors concluded that a threshold had been crossed, and that the bearish trend for the dollar and the bullish trends for commodities had finally come to an end. But rather than representing a sea change, these counter trend moves more likely signify that the established trends are about to kick it into a whole new gear. My take is that if you thought you had seen a bear market in the
http://www.321gold.com/editorials/schiff/schiff082208.html
Is the RE market doing a head fake?
Think Joe Theisman in November of 1985. That is the real estate market.
LMAO!
Uh, I wasn’t serious, just trying to prove a point. Speculation = unrealistic prices.
Firm Finds Bittersweet Niche in Cleaning Up After Foreclosures
The work has changed how Paxton views the foreclosure crisis.
“I used to just think it was stupid people and people who didn’t matter,” he said. But his crews often find people still living in the homes, mostly renters who haven’t been told the property has been repossessed.
“Especially in Prince William, we were getting a lot of families,” he said. “We’d get there and there’d be six or seven hardworking families in a house and they’d say, ‘What do you mean? We don’t know anything about this.’ “
Be careful out there…
I heard a story from Home-Land Security, that many people have been foreclosed on, because they willingly signed their names to loan contracts containing Arabic Numerals.
If it had been roman we wouldn’t have to worry about the zeros.
Zed nought?
Crain’s Chicago gets bearish on the downtown market:
Sales of new homes downtown are grinding to a halt, casting doubts over when the market for trendy condominiums and townhouses will begin to recover.
New-home sales plummeted 73% to a record-low 685 units during the first six months of this year, compared with 2,443 units in the first half of 2007 …
Sales are expected to continue to fall this year, making it unlikely that the market will reach a total of 1,200 contracts in 2008, far below the previous low recorded by Appraisal Research of 3,258 in 1998.
1998 — I like the sound of that. Developers apparently haven’t gotten the message, or are taking a Charge Of The Light Brigade approach: 9,528 units are scheduled for completion by the end of ‘09.
Linky
Okay, talk about coincidence!
06:44:44 & 06:44:53!
Yeah, that’s big news isn’t it? Jaw dropping numbers. The stories from the outer neighborhoods are getting worse too. You may just get that bungalow at great price after all.
Nine seconds apart, that’s pretty good.
Yeah, the outer neighborhoods do seem to be dropping slowly, though I’d guess the plunked-down condos will be the first things available at real firesale prices — just like the rest of the city.
the problem is that when the firesale happens in these places, you might not want to live there. Rogers park is already getting reclaimed by the ghetto. Bucktown, Logan square and parts of south loop will follow.
While I abhor using the word “crash” to describe what’s going on with housing - sometimes one sees #s that frankly, don’t suggest anything else.
Consider these condo sales volume figures from the Chicago’s downtown area from Crain’s Chicago Business:
# of condoze sold 1H 07 = 2,443
# of condoze sold 1H 08 = 327
I begrudgingly admit those figures suggest a “crash” of sorts.
Furthermore, what’s in store for the future here? Roughly 9,500 more condoze by the end of 2009 in the downtown area. Trouble is, they’re saying sales might not hit 1,200 this year (and based on the #s above - that sounds like a reach). They gave a comparison sales volume from 1998 - when 3,258 sold.
Now we’ll see what prices do.
I begrudgingly admit those figures suggest a “crash” of sorts.
I hope the numbers stay that soft for awhile. It seems like they will. The cranes are still goin’ gangbusters all over downtown, and as you mentioned, that’s a heckuva lot of inventory to clear.
I can’t remember where I saw this number (maybe the Tribune), but city revenue from real estate transfer taxes is expected to be down about $50 million this year. That’s a telling statistic.
These numbers are epic. I bought my first place in 1998 and to think that sales volume for this year is about one third of 1998’s really hits hard. 1998 was still a normal year - prices then were anywhere from 40% to 70% lower than the boom.
Example: my first place was $48k in 1998, by 2003 the person I sold to was flipping it for $94k for the very same unit! Who knows what they were asking 2006 - I was still too busy laughing at the 2003 price.
Banks put stopper in home equity spigot
http://www.oregonlive.com/business/index.ssf/2008/08/banks_put_stopper_in_home_equi.html
Jody Finnell and Tiziano Dalla Gasperina always imagined building their dream retirement home on the Oregon coast. A few years ago, they decided to go for it.
Their finance plan was a juggling act. They’d tap a home equity line of credit on the lovingly restored Southeast Portland home where they’ve lived since 1982 to start building in Rockaway Beach. As construction expenses mounted, the small-business owners would sell their four rental houses so they could own the spacious beach duplex with little debt.
For more than a year — as they designed, engineered and laid the home’s foundation — the plan worked perfectly. “We’d charge the equity line up, then we’d pay it down by selling something,” Finnell said.
Three months ago, the meltdown of the nation’s housing market put an abrupt end to their plan.
Washington Mutual drastically reduced the couple’s equity line of credit, based on a computer-generated analysis that the value of their home had dropped. With far less money to tap into what had become their construction fund, they also got whacked another way by the weak housing market: They couldn’t find buyers for their rental houses.
My heart just aches for these poor people…
Weren’t they reading anything being printed about the housing situation?
Just sitting at home at the kitchen table with their figures, and no outside input. Hmmmmmmmmm.
“With many experts expecting home values to drop even more before the housing market hits bottom, the equity pool could shrink further. In some cases, Portland area lenders already are cutting credit lines based on computer-generated estimates that home values have fallen by 30 to 50 percent.”
That’s huge. Seems that Portland area banks are realistic about the future of local home prices. How long will it take for residents to stop drinking the Kool Aid and accept reality?
The company, the fourth largest provider of senior housing in the country, says it has suffered from the housing and credit crisis. Occupancy rates are down at the company’s 275 facilities in part because would-be residents are having difficulty selling their family homes at the price they want.
http://www.oregonlive.com/news/index.ssf/2008/08/debt_weighs_down_assisted_livi.html
The Tribune Company (parent company of both the Los Angeles Times and Chicago Tribune) is moving closer to default:
Fitch Ratings on Friday cut the issuer default rating on Tribune Co. stock further into “junk” status and said it may lower the media company’s rating again because of accelerating declines in newspaper advertising revenue.
Oh, how the harness makers must have saw their end coming when they glimpsed their first Model T driving down the dirt road, scaring horses…
Newspapers were a constant companion and taught me to read between the lines, and i’ll miss getting my hands dirty, daily.
But really, who wants yesterday’s news today anymore?
- Harness makers
- Stagecoach makers
- Blacksmith
- Cobblers
- Whale oil producers
- Newspapers
Sort of like watching NBC doing Yesterdays olympic events.
And that is another thing that is irritating.. the Decathalon was only shown one event. I mean really, doesn’t that count for something that someone can do so many events and get the gold and …well here ya go, if a tree falls in the forest, will anyone hear it?
Guess not if NBC has anything to do with it.
They started listing the house at $599,000 and after two price drops it’s now at $575,000. “Everyone thought it would go quickly; it’s so cute and it’s a starter home,” Huizenga said. “We’re not trying to be greedy (on the price); we’re relying on our Realtor’s expertise. I toured other houses in Alameda with the Realtor last week to make sure the price was on target.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/08/20/MNPK12DR3G.DTL&type=realestate
Too bad $250,000 isn’t a “starter salary”.
“Too bad $250,000 isn’t a “starter salary”.
Exactly. People don’t want to accept that bubble prices are impossible without bubble financing. And why would someone pulling in that income level WANT to live in a “starter home” in Alameda, for crying out loud.
Wishing prices in the Bay Area are still laughable.
When we bought in Sunnyvale, a little over 18 years ago, we thought house prices were high.
We bought a house for $300,000, with 20% down. That was a $240K 15-year mortgage (now paid off). Our income at the time was just above 100K, so the mortgage was about 2.4x income. That seemed about right. Of course the Realt-whores wanted us to overextend….
Back then, a house in Alameda (which was hardly thought of as “bay area” back then) would have been about $125K.
I think the correct prices now would be about $425K for Sunnyvale, and $200K for Alameda (for a SFH). That’s just factoring in 18 years of wage inflation.
Both areas need to drop another 50% before things are back to normal! (And, even though I own in Sunnyvale, I’d welcome it!)
reuven, we bought our house 14 years ago. We live in Mobile the home prices and pays are (or at least were) about 50% of the numbers you gave. Cal has always been way higher than many other parts of the country (excl, of course, the largest metro areas like NY, DC, etc).
Applying that 50% discount puts us in almost the EXACT same situation as you. They say housing hasn’t appreciated here like other sections of the country, and yet it has. Almost in step with your observation.
I think the entire country is in for a substantial cut in RE.
I’ve about reached the point I no longer care as I’m not moving, not looking, its about time economic sanity returned to this countrty.
Did any of the so called housing bailouts work? Did increasing the loan limits work? Did the Super SIV work? Did the GSE program the government did not need and would not use work? Did lowering interest rates work? Did Hope Now work?
4Q 2008 = end of the rope
When you get to the end of your rope, smoke it.
Edge:
Nelsons Christmas shop thinks so after 68 years:
http://www.nelsons-christmas.com/
Well now, they started their business on the eve of WWII and made it through wartime rationing to thrive and survive for many decades - only to succumb to this mess? That’s really sad.
Economic View
Finding the Mess Behind the Mess
TYLER COWEN
“… The American economy will be tested for its deftness — and the test will be difficult precisely because there isn’t a single enemy on which to focus.
HAVE you ever tried to undo a bunch of tangled wires or cords? If you don’t pull on the right wires in the right order, the mess becomes worse. If you pull too hard, the whole thing can break. But if your first pulls are good ones, the untangling becomes easier with each move.
That’s like our economy’s situation today. If we expect too much too quickly, we’ll make matters worse. But there is a way out of the mess, and it lies in our hands. ” NYT
VS
“…Mr. Buiter slams the Federal Reserve, European Central Bank and Bank of England for what he says was a mishandling of the financial crisis and monetary policy over the past year. He gives the worst marks to the Fed, saying it’s too close to Wall Street and financial markets — responding to their needs to the detriment of the wider economy. Mr. Buiter, a former member of the BOE’s Monetary Policy Committee, said the Fed overreacted to the economic slowdown — misjudging the importance of financial stability to the overall economy — and created a deeper inflation problem as a result….”
WSJ
Don’t think for one second these Winstons don’t understand the consequences of their actions. They knowingly soak the poor to save the wolves.
Suppose somebody spoke truth to power?
Leaders
Alexander Solzhenitsyn
Speaking truth to power
Aug 7th 2008
From The Economist print edition
Alexander Solzhenitsyn’s example—and the heirs who failed him
“There are a thousand hacking at the branches of evil to one who is striking at the root.”
Henry David Thoreau
“You don’t let your borrower determine the value of the collateral offered to you,” Buiter said. “That’s just crazy.”
The integrity of the system is dependent on those charged with overseeing and protecting it. This is no different than getting a short-term fix from yesteryear’s neighborhood mortgage broker.
http://blogs.wsj.com/economics/2008/08/23/a-misguided-federal-reserve-or-one-that-saved-the-day/
A Misguided Federal Reserve, or One That Saved the Day?
The most controversial presentation at the Kansas City Fed’s annual symposium came from London School of Economics professor Willem Buiter. And it wasn’t just because his academic paper, distributed in advance to participants, came in at 118 pages (or 146 including references and charts).
————
(Apparently, a later critique of this paper included this little ditty: If you’re called out for spitting into the wind, well, make a joke. That’ll help, yeah. If people start paying attention now, we might have panic.)
————
One day a little Dutch boy was walking home when he noticed a small leak in a dike that protected the people in the surrounding town. He started to stick his finger in the hole, but then he remembered his moral hazard lesson. “The companies that built this dike did a terrible job,” the boy said. “They don’t deserve a bailout. And doing that would just encourage more shoddy construction. Besides, the dumb people who live here should never have built their homes on a floodplain.” The boy continued on his way home. Before he arrived, the dike burst and everyone for miles around drowned, including the little Dutch boy.
Australian Student Invents Cheap Solar Using Nail Polish and a Pizza Oven
“An Australian PhD student has found a cheap way to make solar cells with nail polish, a pizza oven and an ink jet printer. 23-year-old Nicole Kuepper’s invention, named iJET, doesn’t require the pricey clean rooms and high-temperature ovens of traditional solar panel manufacturing plants, thus dramatically lowering the cost of solar and paving the road for introducing the technology to third-world countries.
Kuepper was awarded two Australian Museum Eureka Prizes, the country’s top science award, for iJET. Unfortunately, it seems like the only page that would explain how iJET works is down right now, but Kuepper said it would probably take five years to commercialize the technology and it’ll help people in less developed nations to “read at night, keep informed about the world through radio and television and refrigerate life-saving vaccines” without all those nasty CO2 emissions.”
Gizmodo
I knew there was a reason for nail polish!
“dramatically lowering the cost of solar and paving the road for introducing the technology to third-world countries.”
Thank God. I’m so glad we’ll have that technology here in the US.
“I knew there was a reason for nail polish!”
Yes, to make otherwise dignified women look like skanks.
You say that like it’s a BAD thing….
Curious about David Cee’s posting yesterday on Las Vegas, I looked up CME Real Estate futures market prices Fridays settlement for the next 4 years: data is for the Las Vegas market.
AUG08 UNCH 158.00
NOV08 UNCH 149.00
FEB09 UNCH 138.00
MAY09 UNCH 134.00
NOV09 UNCH 129.80
NOV10 UNCH 128.00
NOV12 UNCH 140.00
So the market is anticipating a “moribund feline striking the pavement after falling from high altitude” in Nov, 2012. Viva Las Vegas
I’ll trust the futures markets before I would trust data generated during a $160B stimulus package.
David Cee is like one of the 86 people in the world that are convinced we faked the moon landings, all 6 of them.
But you have to wonder about his constant pimping of Las Vegas…
What’s in it for him?
Where’s Bubbleviewer? He is one of the, ahem, “skeptics”, that believes the government blew up WTC7. Last week a comprehensive report was released on what really brought down WTC7. I am sure he and Charlie Sheen are racking their brains on how to prove that the report is wrong.
Nearly all of the events that are attributed to conspiracy can usually be explained by incompetence, greed and stupidity. Especially since there has probably never been a time in history when it was more difficult to keep a secret than it is in this Internet Age. That must really pi$$ off the conspiracy theorists.
Fire my a$$. That building was felled by a controlled demolition. There isn’t a building in all of history that collapsed like that from fire through history…until wtc7.
After seeing several bldgs go down, Just like the WTC,perhaps we will know the truth, when all the liars have died. Until then, they have agendas to promote.
It was confirmed that WTC7 was felled by a random series of fires which miraculously weakened all of the columns in such an even manner that this resulted in all of the columns failing simultaneously and collapsing into the path of most resistance, at the speed of freefall, for the first time in the history of steel building fires. Try to get with the program here, sheesh. You know that all of these “loose ends” (anthrax, WTC 7) have to be wrapped up by Jan 20th. don’t you?
Hoz,
Would you be so kind as to elucidate us on the meaning of the numbers in this graph? For instance, what does it mean if SD housing futures are at 175? And who backstops this market (wondering why the graph gets so flat recently)?
Thx — PB
The numbers scream that if you had bought a house in May of 2006 in San Diego for $1MM, that equivalent house was available in May 2008 for $690K. A 31% drop.
The recent flatline is from May to current until S&P/Case Schiller data is released and final August settlement occurs. (That is also why you see the sharp drops in Feb and May - one day drops on settlement).
The current market is reflecting hope that somebody will buy at these prices and that traders can scoop up a hefty profit before the numbers come out.
There is no ‘backstop’ or support in housing futures. Bids are significantly below the asking prices. Just as there are bottom pickers in housing, there are also bottom pickers in futures on housing. The futures are a lot less risky, a quick cash settlement - instead of months/years listed on the Realtors’ web sites.
The more telling item is what the futures market is saying about San Diego in 4 years. “Buy now and lose 25% + any inflation”
August 22 - Bloomberg (Mark Pittman and Shannon D. Harrington): “Midwest Bank Holdings Inc. Chief Investment Officer Don Wiest is wagering U.S. Treasury Secretary Henry Paulson will rescue him from a failing $67 million stake in Fannie Mae and Freddie Mac. Melrose Park, Illinois-based Midwest and banks from Philadelphia-based Sovereign Bancorp to Frontier Financial Corp. in Everett, Washington, own preferred shares in the beleaguered mortgage-finance companies that have lost more than half their $35 billion value since June 30… ‘I guess we are betting on Paulson,’ Wiest, 54, said. ‘We have to believe that his plan carries the day somehow.’”
heart burn in the banking industry…..
” ‘I guess we are betting on Paulson,’ Wiest, 54, said. ‘We have to believe that his plan carries the day somehow.’”
4th Down, 4th Quarter, no time left on the clock, down 37 to 13, is the time for Mr. September to come through and save us.
Bazooka(in lieu of an ever-growing nose) Paulsonocchio
If Paul$on’s wang shrunk every time he lied, he would have an “innie”, not an “outie”, by now.
He’d have an enormously long tail because it’d be coming out the other end.
Hey Bernake check it out its your future if you choose it…..
August 19 - Bloomberg (Nasreen Seria): “Zimbabwe’s inflation rate surged to a record 11.2 million percent in June, the highest in the world, after almost a decade of recession worsened food and fuel shortages. Inflation accelerated from 2.2 million percent in the previous month… The economy faces collapse with consumers resorting to barter as inflation and a slump in the Zimbabwe dollar erodes the value of cash… ‘The economy is in complete meltdown,’ Victor Munyama, an economist at Standard Bank Group Ltd., Africa’s biggest lender, said… ‘There is a shortage of foreign exchange and they don’t have the resources to import raw materials to sustain production. That’s the bottom line.’”
So, does this mean that gold and silver also went to 0 value in Zimbabwe?
#79 is in one of those .1% moments* presently, in Zimbabwe.
* See yesterday’s bits & buckets
Not sure if this has been posted but a Vancouver update…….used to live there, people are totally Bubble Headed there…I seen my comrades get swept up in the crazy.
http://www.canada.com/vancouversun/story.html?id=82833bf9-06a4-46fc-b13c-d05c01f47826
http://www.exeter1031.com/article_changes_to_section_121.aspx
Tax Free Exclusion on the Sale of a Primary Residence May Be Significantly Reduced under Certain Circumstances
The Housing and Economic Recovery Act of 2008
Modifies Section 121 of the Internal Revenue Code
Kimberly buys her property on January 1, 2009 for $400,000 and leases it out for two (2) years. Kimberly claims $20,000 of depreciation deductions for those two (2) years. On January 1, 2011, Kimberly converts the property and begins to use the property as her primary residence. Kim moves out of her property on January 1, 2013, and subsequently sells it for $700,000 on January 1, 2014.
The period from 2009 through 2010 is non-qualified use of the property because it was held as investment (rental) property. The year 2013, after Kimberly moved out, is treated as qualified use of the property because of the exception provided in the Housing and Economic Recovery Act of 2008 as discussed above.
Out of the $300,000 capital gain, 40 percent or 2/5ths (two years out of five years owned), or $120,000, is not eligible for the tax free exclusion. The balance of the capital gain, or $180,000, may be excluded tax free under Section 121. The $20,000 gain attributable to the depreciation deductions is recaptured, as required under current law.
About time
I see no evidence of the IRS or the State Franchise Tax Board making any effort to collect taxes owed to them by “distressed” “homeowners”. (Sorry for the double lie-quotes, but they’re needed).
I contacted a few organizations a while ago (and had the longest chat with the folks at Judicial Watch) who have successfully mounted taxpayer lawsuits thinking I could get them interested in suing the government to force them to enforce the law and collect these taxes (so the burden isn’t put on honest, hardworking small-businessmen and wage earners.)
Unfortunately, the organizations I contacted all believe that no taxes are good taxes, so they wouldn’t be interested in making sure scammers and get-rich-quickers paid what they owed.
One of the first bubbles I ever saw, was the 1984 Los Angeles Olympic Pins Bubble.
During the games, and for a year or so afterwards, the right “rare” pin might fetch you $1000.
Action was feverish during the games, and a friend that was partaking in the action sold $25 to $100 pins by the dozens and hundreds.
People couldn’t get enough, which is always the high-water mark of any bubble…
“….People couldn’t get enough, which is always the high-water mark of any bubble…”
yet demand for gold and silver is so high that actuall shortages in supply cannot satisfy retail demands… The peoples simply could not get enough….
this time, it really is different…
Nobody needed Olympic Pins, or Pogs, or Baseball Cards, or Beanie Babies or Anvil.com stock, but #79 is money, with thousands of years of history backing it’s role, financially.
I did not say gold is not a form of money. I said exactly what you said, which is: high water marks are formed when “the peoples” couldnt get enough of the “thingy”…
Laddy, you forget that the trend following is what actually produces the bubbles…who has levered up in the gold?
When everyone believes, and everyone gets on board, and everone levers up….I dont think you see the levered up hedge funds blowing up as a significant downside for gold.
Last time Im gonna say it, the “selling points” for gold are panic, deflation, and escape…as opposed to buying points which would be, well, the opposite of that.
just an opinion, dont get “tazed bro”.
When you see something like this happening, is when the Gold Bubble is peaking…
http://images.google.com/imgres?imgurl=http://www.metmuseum.org/toah/images/h2/h2_2002.419.jpg&imgrefurl=http://www.metmuseum.org/toah/hd/cabr/ho_2002.419.htm&h=331&w=500&sz=56&hl=en&start=12&um=1&usg=__Aj1yOBxxz2J-5IVM–0Z5_0gczk=&tbnid=zAncIYDp62F6oM:&tbnh=86&tbnw=130&prev=/images%3Fq%3Dgold%2Bshop%2Bchina%2B%2Bcartier%26um%3D1%26hl%3Den%26client%3Dsafari%26rls%3Den-us%26sa%3DG
fascinating picture.
I am however more concerned by the savvy retail investors who have clamored around the various gold dealers desperate to get their hands on the quickly vanishing supply. Surely with this level of demand, these dealers would have ample supply with which to satisfy these desperate and knowledgeable buyers.
I’ve obviously been misinformed. There is absolutely no way possible for Gold to overshoot on the downside past 700…cant happen, not in this environment.
Jees two of the guys I really enjoy reading having a hissy fit. LOL
The bottom won’t be reached until there are no more bottom pickers.
And Vozzie, The funsy trading is why I have a gas account. If it blows up, not to worry, but it is to have a gas with. Unusual purchases no margin. Just buying CIA front companies. lol
FRPT….
holding off the 10 Q’s and K’s?
analysts dropping coverage?
slow pay military contracts?
tinfoil artistry at work,
I do it for the glory.
not recommended for an Obama Ben Biden dual-ocracy in power. due your own due diligence. Lehmans the number 7 holder, might get caught up in a liquidation of Lehman. The guys who hold gold and oil better start snapping these “thingys” up.
Interesting article from seekingAlpha.
Basically they can manipulate the whole market at 99/1
http://seekingalpha.com/article/91357-the-disconnect-between-supply-and-demand-in-gold-silver-markets
Also Just they city of Mumbai last week bought 1/2 of the years production of silver.
….Oh I know the dollars going up, what with the current bank failures, 10T national debt, FNM collapsing and all…Yup,
Has anyone seen TLC’s new show “Hope For Your Home”?
I saw it for the first time last night…host is the same lady from “Flip That House” I think.
Anyway, the episode featured a nice, but clueless, couple of FB’s with 3 kids. Mortgage was about to reset to a payment they couldn’t afford (50% of their income). Bought at the peak, and now had no equity so they couldn’t re-finance. The show gave them $10K and a 30-day plan to update the house to “recapture” their lost equity so they could either re-finance or sell. They decided to stay and re-fi, which of course, happy ending, they were able to do when the house magically appraised where they needed it to. Never mind they’ll be under-water again in 6 months as the market continues to deteriorate.
But the whole episode was incredibly stressful. These people clearly wanted to stay in their home, but for anyone not as motivated, it’s going to be jingle mail all the way.
And if TLC hadn’t come along with $10K and free labor, those FB’s would have been another foreclosure statistic. 1 down, what, 3 million to go?
I realize that you shouldn’t pay this much (I pay 15%). But I could if I had to, because of my secret strategy of not spending every cent that comes in.
This in my neighborhood is a depressing trend of late.
“Oakland restaurants have been plagued in recent months by nighttime holdups. Many of them have been described as takeover robberies, so named because the assailants take control of a restaurant and order customers and employees to surrender valuables.”
http://tinyurl.com/4jfsko
I hope this is not the beginning of a wave of ‘domestic terrorism’, one that I can see continuing unless we start taking care of our own. Shifting money away from ‘defense’ industry to rebuilding our own country with jobs.
“Shifting money away from ‘defense’ industry to rebuilding our own country with jobs.”
Let’s turn Swords into Solar Panels!
I am very worried about the upcoming crimewave. I wouldn’t call it terrorism, the intent is to steal, not terrorize. Jingle mail, mortgage fraud and white collar crime are examples of the breakdown of a civilized society. When the morals of society are left to disintergrate and go unpunished, an increase in crime and violence will be the next step down.
There’s still time to get away to a little town, far far away from the maddening crowd…
There will be a increase in crime and violence . The fact that so many people were willing to commit crimes under good economic conditions makes you wonder what they are willing to do under bad economic conditions .
It’s “madding”. Madding crowd. Meaning the crowd is acting in a mad or insane way. Maddening would mean the crowd is making you act mad or insane.
And we know you’re niether.
Judicial Watch Files Senate, FEC complaints against Barack Obama:
http://www.judicialwatch.org/news/2008/jul/judicial-watch-files-senate-fec-complaints-against-barack-obama-over-questionable-mort
Wow, no wonder everyone in the Senate ignored Senator Dodd’s loan
kick-backs. Now a Presidential hopeful . The Senate will just enact a law
stating that it’s OK to get favorable interest rates from Lenders ,even
when the rules clearly state it’s not allowed for Senators to get favorable treatment .Better yet ,they will all cop the “Dodds Defense”, which is that he didn’t know he was getting favorable treatment .
In the case of Obama, who did not realize not long ago that ‘Fed Funds’ refers to an interest rate, this might be more plausible than in the case of Senate Banking Committee Chairman Chris Dodd.
William Pesek Jr.
Here’s to Hoping Nouriel Roubini Is Proven Wrong
Commentary
“…One reason to think Roubini won’t be proven wrong is his argument that the problem isn’t the subprime mortgage market — it’s a subprime U.S. financial system. Fixing the problems sending financial contagion around the globe will require tough decisions in Washington and reforms in Wall Street’s securitization system. And that’s hardly happening.
How far Wall Street’s reputation has fallen since the collapse of Bear Stearns Cos. was revealed by the Aiful Corp. saga. Japan’s biggest consumer lender by assets threatened to sue Lehman Brothers Holdings Inc. in June after analyst Walter Altherr called Aiful “arguably insolvent” in a report. …”
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=aETnD_QSZYWU
God please help me with a dose of sanity in this maddening RE speculation.
Here at family reunion for a week. Lunatic brother from Hawaii who just happened to luckily time into the market there in 2001 and bought a small tract and put a house on it for 275k. 2006 reunion he says “my house is ‘worth’ 750k and I’m gonna subdivide the lot and put another house in.” My predictable and responsible reply was “are you sure you want to double down with all the cracks showing?” I also said, “good luck finding a buyer at 750k, it’s over brother” and went onto tell him all the reasons why.
Fastforward to today; He’s now saying a realtard ‘appraised’ his house at 975k last month. Of course he’s got half of the rest of the family believing this too. I’m not sure they believe, they may just lend an ear. I finally had 5 minutes to explain much of the truth we’ve all learned here. He *did* hear me. Of course this was after he said “I can retire right now at 46″, “I’m different”, “Hawaii is different” along with other wacked out speculative expressions.
How do you counter such maddness? His verbal interaction is a whole lot of feelgood, fundamental-less, lofty platitudes that hurt my ears.
I live in the Sandwich Isles, and this state is toast. Which island is he on? Ask him what people make there, and what the cost of food and gas is. Locals can’t afford much more than 200-300K, so he is relying on someone with more money than brains to get on a plane (with high ticket prices now), come here, fall in love with his house, be able to get a liar loan and buy it. Good luck with that. Tourism is the main source of jobs and we just lost 2 airlines to BK and are down to 1 cruise ship from 3, just in the past year. Add in the high costs to fly here and the heloc ATM being shutdown and most are toast. Huge jacked up tracks are very popular on the islands, even amongst females and they have to be getting drained from filling their tanks.
Nobody is buying at the mid to high end (500K+), so people are choosing to rent their places out and lose money over time rather than in one fell swoop. Foreclosure rate is starting to gain steam as the number of short sales is getting to be too much, and many realtors who were some of the prime speculators are giving up their speculative properties - the place right behind me is one such property, 2 houses and a cottage on a few acres.
Depending on the island, check the sales states in kauairealestateweekly.com, mauirealestateweekly.com, etc. Sales are about one third what they were 2 years ago. Prices are off probably 10-20% from peak, in some cases more depending on distress. Many many haoles who used their mainland house as an ATM and bought in Hawaii will be forced to give their homes back to the banks. Back in Cali I worked with several people who owned investment property in Hawaii, including one mid 20s girl who owned a condo with her boyfriend on Oahu and a supervisor who had land but didnt know which island it was on! I think in some ways the collapse here will be worse than California because the job market is so poor and if commodities continue to rise that will really squeeze island economies that import most of their goods.
Bottom line, your brother’s place will probably be back around 300K in the next few years.
Bond fundraising costs soar
By David Oakley, Michael Mackenzie and Nicole Bullock
Published: August 24 2008 19:50 | Last updated: August 24 2008 19:50
Many banks and companies are paying more to raise money in the bond markets than at any time since the recession in the early 1990s amid signs that the financial crisis is deepening.
Growing worries about the health of many banks, rising default rates and deteriorating economic conditions across the world are forcing yields up as investors demand higher risk premiums to buy bonds.
Spreads for US investment grade banks and companies rose to the highest level last week since the early 1990s, according to Lehman Brothers. Spreads measure the extra interest a company must pay above safe government bonds. This is known as the risk premium.
In Europe and Asia, spreads for many investment grade companies are at 10-year highs, according to Lehman.
One of the biggest concerns is the health of Fannie Mae and Freddie Mac, the US government-sponsored enterprises that have run into trouble because of the US mortgage crisis. The mortgage financiers, which underpin the US housing market, paid the price for these worries when both were forced to pay record high risk premiums on dollar-denominated bonds this month.
Other issuers forced to pay very high yields over government bonds this month include Citigroup, American Express, AIG and Deutsche Telekom.
Jim Reid, a credit strategist at Deutsche Bank, said: “I think it is fair to say the crisis is deepening because people are very worried about the health of some financial institutions. Will more fail? The fact is if you mark to market some of the illiquid assets the banks hold at prices they could sell them in today’s climate, it could make many of them insolvent.”
Bankers caught between hope and despair
By Krishna Guha in Jackson Hole, Wyoming
Published: August 24 2008 22:06 | Last updated: August 24 2008 22:43
More than a year into the credit crunch, the world’s central bankers are still struggling to understand the impact of the squeeze on the global economy.
Stanley Fischer, governor of the Bank of Israel, summed up the mood at the annual retreat for leading banking policymakers in Jackson Hole, Wyoming, this weekend. “There is an enormous amount of uncertainty about where we stand at the moment,” he said at the close of the meeting.
Lenders’ crisis is Paulson’s big moment
By James Politi in Washington
Published: August 24 2008 22:06 | Last updated: August 24 2008 22:06
Hank Paulson’s handling of the crisis at Fannie Mae and Freddie Mac is emerging as the main issue to shape the legacy of the former chief executive of Goldman Sachs as US Treasury secretary.
Over the past 10 days, expectations have been mounting that Mr Paulson will have to use the virtually unlimited powers he was given by Congress in July to rescue the government-sponsored mortgage companies with taxpayer money.
Treasury officials continued to work on the issue throughout the weekend, highlighting the urgency of the matter after shares in Fannie fell 36 per cent and shares in Freddie lost 46 per cent last week.
One senior executive at a large US bank told the Financial Times he expected the Treasury would have to go ahead with some form of intervention before Labour Day – a week from Monday.
Warren Buffett, the billionaire investor and chairman and chief executive of Berkshire Hathaway, declared “the game is over” for Fannie and Freddie in a CNBC interview on Friday.
Here is yet another article conjecturing about the GSEs’ fate which ignores the fact that common stockholders have already been effectively wiped out. What is it about a price decline of over 90 percent that MSM financial journalists don’t understand?
The question which interests me is to what degree the drop in value of the GSEs common stock may prove to be a leading indicator of where U.S. home prices go from here.
Fair Game
What Will Mac ’n’ Mae Cost You and Me?
By GRETCHEN MORGENSON
Published: August 23, 2008
THE inevitability of a taxpayer-funded bailout of Freddie Mac and Fannie Mae, the hobbled mortgage behemoths, shook investors last week, and shares in both companies plummeted on fears that existing stockholders would be wiped out.
These government-sponsored entities guarantee or hold $5.2 trillion in mortgages and have been hammered by defaults across the nation. Fannie Mae’s shares closed on Friday at $5, down from almost $70 a year ago. Freddie Mac fell to $2.61, which is down from about $65. Their heavily leveraged balance sheets magnify even a small rise in delinquencies.
There is no certainty about what form a Mac ’n’ Mae rescue would take. Naturally, this is giving investors the jitters. Up and down Fannie’s and Freddie’s capital structure, debt and equity holders want to know how a bailout would affect them.
It is widely assumed that debt issued by Fannie and Freddie will be backed by the taxpayers. Call it “too big to fail times two.”
But in our highly interconnected financial world, where one company’s ills have the potential to infect many others, no bailout exists in a vacuum. And the ripple effects that may result from shoring up these giants extend from the obvious — hammering their shareholders — to the fairly obscure, involving participants in the market for credit default swaps.
This is the huge arena where participants buy and sell insurance to protect against defaults by issuers of debt. Some $62 trillion of insurance has been written, with a fair value of $2 trillion at the end of 2007.
Back to the bailout du jour. Many analysts hypothesize that the Treasury will put cash into Fannie and Freddie, receiving dividend-paying preferred shares in return. Such an investment has occurred before, as noted last week by UBS research analysts in Mortgage Strategist, a weekly research report from the firm. In 1954, when the government began to change Fannie Mae into a shareholder-owned company, preferred stock was issued to Uncle Sam to help finance the process. Those shares were retired in 1968 when Fannie Mae became a publicly traded corporation.
If preferred shares are again issued in exchange for taxpayer cash, common stockholders could lose the most because new preferred shares would take precedence in the payment of dividends and if the companies were liquidated.
The big secret in U.S. housing
What is the US Treasury’s plan for Fannie Mae and Freddie Mac in case of federal takeover?
By the Monitor Editorial Board
from the August 25, 2008 edition
Voters aren’t likely to hear much before the election about plans to end government support for two giants in home finance, Fannie Mae and Freddie Mac. Yet like house prices, the federally backed entities are on the skids – as is the whole idea of Washington continuing to aid investment in a market often treated like a big bet.
But a political campaign is the perfect time to ask candidates what should become of Fannie and Freddie – and the implied federal credit they enjoy that allows them to borrow at low rates, buying and reselling “bundled” mortgages on global securities markets on behalf of private investors.
Politicians don’t want to face such an issue, as it strikes at the heart of federal support for a now-precarious home mortgage scheme that benefits mainly the middle class.
But such a question must be asked as share prices for these “government-sponsored enterprises” have plummeted in recent weeks and the two face difficulty in selling debt. The crisis over their existence may come to a head before November.
The primary cause is uncertainty over the vulnerability of their multi-trillion portfolio to the rising number of home loans that never should have been made to risky buyers. But since July 30, when Congress gave the US Treasury a blank check to buy a controlling share, if need be, in the two if they falter, investors have also become uncertain over how much of a haircut they would take if – or once – Treasury takes over these enterprises.
The authority given for a potential purchase of Fannie and Freddie is turning into a self-fulfilling reality. Famed investor Warren Buffet says, “the game is over.” Meanwhile, the big secret is Treasury’s post-takeover plan for the two and what Congress also might expect.
Fed comes in for some flak
5:00AM Monday August 25, 2008
JACKSON - Do Washington policymakers listen too much to Wall St? A possible bailout of Fannie Mae and Freddie Mac, on the heels of similar action involving investment firm Bear Stearns, seems to send a loud signal to financial companies that the government will clean up their messes.
That was the feeling of some analysts and academics in Jackson, Wyoming yesterday, the final day of a high-profile economics conference. The Federal Reserve’s handling of the worst financial crisis to hit the country in decades spurred much debate.
“The Fed listens to Wall St,” said Willem Buiter, professor of European political economy at the London School of Economics and Political Science. “Throughout the 12 months of the crisis, it is difficult to avoid the impression that the Fed is too close to the financial markets and leading financial institutions, and too responsive to their special pleadings, to make the right decisions for the economy as a whole.”
Critics like Buiter worry that the Fed’s unprecedented actions - including financial backing for JPMorgan Chase’s takeover of Bear Stearns - are putting taxpayers on the hook for billions of dollars of potential losses. They also say it encourages “moral hazard”, that is, allowing financial companies to gamble more recklessly in the future.
Fannie and Freddie threat to banks
By Saskia Scholtes in New York and James Politi in,Washington
Published: August 23 2008 03:00 | Last updated: August 23 2008 03:00
Small regional US banks could face substantial writedowns if the government has to rescue Fannie Mae and Freddie Mac, the two giant US mortgage financiers.
Regional banks, together with US insurers, hold the majority of Fannie and Freddie’s $36bn of outstanding preferred stock, which could be wiped out in the event of a government rescue.
Few banks have taken any writedowns on the preferred shares, which have lost more than half of their value since June 30. This could exacerbate the impact of losses on the preferred shares at a time when many banks are experiencing losses on residential construction loans and home equity portfolios.
Tom Priore, chief executive of Institutional Credit Partners, a boutique investment bank, said: “If the government takes a senior preferred stake, it will crystallise existing losses for the banks and add to them in a way that damages local lenders at a time when they can least afford it.”
Hints to central bankers:
(1) The Superfund SIV was a failure.
(2) Rescuing banks that made bad bets with taxpayer monies creates a moral hazard problem (not that there is anything wrong with that).
(3) If Californian home prices keep falling at over 30 pct per year rates for a couple more years, affordability will be restored and Mr Market will have succeeded in fixing what hair of the dog stimulus programs and a bevy of government-sponsored affordable housing programs could not.
Special vehicle pools could restart markets
By Krishna Guha in Jackson Hole
Published: August 24 2008 20:15 | Last updated: August 24 2008 20:15
Banks may have to pool their troubled mortgage assets into giant special resolution vehicles in order to ringfence past problems and help to restart the financial markets, some central bankers believe.
Such vehicles would be similar in some respects to the aborted “superSIV” proposed by US banks with Treasury backing last year. Governments could provide financial support if needed in return for a share in potential profits once the assets were liquidated.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a5B1EgdRFF4M&refer=home
Trust among banks remains low
Bond Market Flashes Caution Signals for Stocks
By E.S. Browning
Word Count: 967
Stock investors trying to see the market’s future have begun monitoring indicators from the bond market — and they don’t like what they are seeing.
Until the current bear market, stock investors often paid little attention to credit markets. But as troubled financial companies and bad mortgages have pulled the stock market down over the past year, stock investors have begun looking for signals from the mortgage market, the corporate bond market and even the interbank market. And lately, the signals have been flashing yellow and red.
Banks Hit as Fannie, Freddie Get Downgrade
By James R. Hagerty and Serena Ng
Word Count: 1,225 | Companies Featured in This Article: Fannie Mae, Freddie Mac
The fallout from troubles at Fannie Mae and Freddie Mac widened on Friday when some of their securities were downgraded, stinging the banks and insurers that hold them.
Moody’s Investors Service slashed ratings on preferred stock of the two mortgage giants by five notches, to just above the “junk” level. The move highlighted the risk that they won’t be able to pay dividends on the shares.
The downgrade further stoked fears that the U.S. Treasury might have to acquire stock in Fannie and Freddie, effectively taking control. So far, private investors have been wary of putting more capital into them.
U.S. Auto Sales Likely Fell in August
By MIKE BARRIS
August 25, 2008
U.S. auto makers are expected to report big declines in August domestic sales despite stepped-up incentives, according to research firm J.D. Power & Associates, though industrywide sales are expected to improve slightly from July’s moribund rate.
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Ford trucks in a dealership’s storage lot in Chicago. U.S. auto makers are expected to report big declines in August domestic sales, according to J.D. Power & Associates.
The research firm still expects sales in the closing days of the month to improve because of General Motors Corp.’s 100th anniversary sales event, which offers “employee pricing” on most vehicles and cash rebates on selected light trucks.
The J.D. Power report, based on sales through Aug. 17, estimates sales for the month will come in at around 1.21 million vehicles, or 13.4 million vehicles on a seasonally adjusted annual rate. That is down from the August 2007 seasonally adjusted rate of 16.2 million vehicles, but up 6.3% from July.