The Housing Bubble

Real estate report:

There is…over building. Bet you didn’t see that one coming. I was staying in London, Ontario (pop 353,000 according to the sign). It is a nice small city with a big regional hospital and a university and even an international airport (a few direct flights to Detroit). My hosts live in a very nice house, much nicer than what I grew up in. Three bedrooms upstairs with the two smaller ones sharing one bathroom and another bathroom in the master suite. Eat-in kitchen, small dining room, smallish living room, largish den, small office, powder room and laundry area downstairs. Double height foyer and sort of swoopy staircase to the upstairs. Two car garage. The houses look large for their plot sizes to me, but this is well within city limits. I wouldn’t call it a mcmansion neighborhood cause I’ve seen much worse, but some might. This particular house is not very “updated” – the kitchen is pretty much 100% white laminate on surfaces and the fridge is 30 years old. My host told me that it would sell for no more than CA$400K and that the median income of the households in the subdivision was substantially north of CA$100K. Older areas of town seemed to have smaller houses on larger plots.
I drove to Stratford, Ontario (population a bit above 30,000 and home of the Stratford Shakespeare Festival and the Ontario Pork Congress) each day to see my play or plays. It was about 60 kilometers each way, but I reached the city limits of London within 5 or 6 kilometers. By that time I had passed a sign claiming to be willing to build to suit in a new subdivision, another for condos, and a large mid-rise “luxury” apartment building already renting out units despite being obviously unfinished. It was also directly next to a gigantic corn field. The fields extended on until you reached the city limits and beyond. The farm facilities included huge grain storage silos and possible ethanol processing equipment. Substantial land was either fallow or had been left for hay that year. A very few kilometers later (in the village of Arva), I passed a flour mill. This area gets very rural very quickly. My hosts get all their eggs from a farm which sells out what the hens lay every single day. Your eggs are never more than 24 hours old when you buy them. Yummy.
When I asked my host about the condos, he said that people were moving out from Toronto because of the ridiculous prices (this directly after telling me Canada didn’t have a bubble). The Air Canada in-flight magazine had a huge ad for a Trump Tower just starting development in downtown Toronto. So, is Trump’s motto “better late than never”?
I don’t think London is natural candidate for condos, or even 10 plus floor apartment complexes that close to the edge of town. Even more ridiculous, was the card for the “Market Square” Lofts left on my windshield in Stratford on Sunday. The festival goes from April to November (most active during June, July and August) and may have as many as 14 productions plus the actors doing the occasional concert during the season, but this is not an urban loft kind of town, it is a light industrial town with a big tourist attraction added on. The card asked if I was interested in 500 to 600 square feet or 600 to 700. It also asked about price ranges from CA$140K to CA$250K. On the high end, that is over CA$350 per square foot. This in a town where adorable craftsmen cottages and three story Victorians are the norm. I admit, that the town has a naturally evolved downtown area that is much more interesting than any new urbanism artificial imitation, but good luck actually buying something useful – for that you will have to drive to a mall. The river makes a nice place to stroll, but when they open the dam up too much it can stink. So can the corn fields in and around the London condo/apartment developments when the manure is newly laid.
I did not see an unreasonable number of for sale signs on houses. Seemed to be in line with previous years. I did notice more signs where large chunks of land were for sale and a few sold signs on 100 acre lots. Looks like someone is thinking about more development – if they can get financing.

Commodities/farm report:

Gas prices seemed to change almost daily. I paid anywhere from CA$1.13 to CA$1.15 per liter, but I saw as high as CA$1.19. It cost about CA$40.00 to fill up an older Toyota Corolla when it needed about ¾ of a tank.

OK, here is the real reason for a commodities report. I was listening to CBC on the radio quite a bit. For a few days they were plugging a preview of a show about why Niagra area farmers were bulldozing perfectly healthy, mature, producing peach trees and burning them. Sounded like some horrible infestation was on the way. Well, I finally heard the report. The last peach canning plant in the province closed down. The peaches they grow for canning are different than the ones they grow for fresh consumption, so this particular farmer was ripping up his peach trees that produced for canning when the plant closed. He was immediately replanting with the fresh consumption peach saplings. So, peach fans who live near the Niagra region, your fresh peach season is going to be a bit longer by around 2012. These are good peaches. I’ve never tasted a southern peach that could compare to these babies. Wonderful. The farmer implied that the government had zoned the area as farming only, which I guess means it is off limits to developers. They are also growing more grapes for wine. The produce was generally wonderful. And I already mentioned the fresh eggs, didn’t I?

Why Canadians think they are immune to the housing bubble/bursting of the housing bubble:

My host told me flat out that it wouldn’t happen in Canada, because their banks wouldn’t lend out at anything more than two and a half times income. However, he is a retired doctor, and hasn’t gone looking for a mortgage in more than 30 years as far as I know. If he is right about the value of his house (about CA$400K), and the incomes of the people who live in that subdivision (quite bit more than CA$100K), then it seems likely that people can afford their homes in his location. But while a larger supply can’t raise prices, it sure as heck can lower them. If the new houses and condos and luxury apartments aren’t filled with the people fleeing Toronto’s high prices (that isn’t a bubble either?), then the prices could come down to meet them. Or the new supply could be impossible to sell at prices that won’t bankrupt the developer.

I also heard some additional analysis on the CBC. They did a “man on the street” interview with a worker on Bay Street in Toronto (equivalent of Wall Street), who said flat out that the banks had lowered their lending standards recently. He didn’t think it was as bad as in the US, but he acknowledged the change quite clearly. An economist from Scotia Bank was doing a little more cheerleading, but it was largely based on Canada having a better and more diverse economy than the US. This seemed to be largely based on them having substantial export oil production. He acknowledged that southern Ontario was in trouble for now because of the downturn in the automotive industry. Seems Ontario has more in common with Michigan than a boarder. By the way, the TSX (Toronto Stock Exchange) went down even more than the Dow on a percentage basis on Monday. Reporters said that was because oil went down and that is a bad thing for Canada.

Despite all this turmoil, their election seemed to be focusing on things like the current prime minister saying that ordinary Canadians couldn’t relate to artists complaining about their subsidies when the complaints were made at galas with everyone eating nice food and wearing nice clothes. Also something about whether all the candidates spoke French well enough to get through the French language debate properly. It was a refreshing change of pace. Wish they hadn’t tried to cover the US election so much.

I posted this yesterday, but it fits in this Canadian discussion. Is this guy off the mark?

Canada’s housing bubble could soon burst: Merrill Lynch

It may just be a matter of time before the Canadian housing market tanks like the U.S. market did, Merrill Lynch Canada economist David Wolf said, warning that Canadian households are now nearly as overextended as households in the U.S., and even more so than those in Britain, prior to the bursting of the housing market bubbles in those countries.

http://www.canada.com/topics/news/story.html?id=04fe6225-ae78-4e70-84e0-6d340844ab01

This post seems to have been eaten. Here’s another try.

General economics report:

The festival is hurting this year. I saw mostly full houses, but a local told me they are pretty much giving away tickets to productions in the largest theater and even that isn’t working. She said Romeo and Juliet (which I didn’t see) is playing to one third houses even with anyone connected to the theater being given 10 comp tickets each. They are pricing last minute tickets to get as many butts in seats are they can. This is probably a ploy to get people like me to become members to get access to early ticket buying and pay full price in November and December for next year’s productions. I’ll probably do it anyway. I like getting great seats and if no one paid full price, the whole thing would go under, but they have to be seriously hurting. Especially since the newest of the theaters is very small and can’t possibly break even for a show with even a moderate sized cast and a sold out house. I think the musicals (in the second largest theater) are selling out. At one matinee, the program included instructions on how to get rush seats to an evening performance by just walking up to the ticket window after the matinee got out. 50% off, and you didn’t have to be a student to get them.

I did not see a whole lot of turnover in the merchants in the center of town, but the same local told me the turnover is there, just a little further out from the very center of town. Perhaps the landlords are being a little less unreasonable with rents this year? There are way more interior design stores/studios than there used to be in town. Those places used to be clothing and knickknacks. General consensus of the merchants I talked to is that Americans are spending way less than they used to and the dollars being in parity is largely to blame (also gas prices).

Although the shops that I frequent aren’t gone, I noticed a distinct change in the inventory they are carying. The Theater Stores run by the festival had much less merchandise and much less stuff specifically connected to the shows. They used to carry lots of fairly expensive candleholders, vases, jewelry, hats, placards, theater oriented toys and books, and gobs of things imprinted with the name of a particular show. The volume of the inventory is down, and what is there is MUCH less likely to have the name of a show on it. After all, the show specific stuff has to be marked down by 50% or more when the show closes. Also, the store at the main theater has been moved into a new space outside the theater building and the old store space has been turned into the café where they can sell expensive sandwiches and cheese plates. The Kiwanis, who used to sell a very nice grilled chicken for CA$5 got kicked out in favor of a fancier lounge for the big donors.

Another store downtown that used to have a very prominent corner location and plenty of room for CD’s and expensive sort of Gothy accessories and house wares has moved to a smaller space next door and sold off a lot of its more expensive inventory. Looks like they are going to concentrate on the CD’s and give up a lot of the other things. The owner was actually in the store every time I even walked by so he may have let go of the staff he had last year. He is supplementing his income playing in a small band that works some local pubs.

A used bookstore/antique store that took up the bottom floor of a house (presumably with the family living upstairs) has completely closed off one of the downstairs rooms (previously scifi and westerns) and rented it out to the owner’s brother. That means her inventory is down about 15%. The other independent bookstores downtown seem to be moving more and more to used books over new ones, but that could be the internet as much as the economy. The extremely overpriced kids clothing store seemed a bit less crowded to me too – and they did not have the raincoat with printed ponies on it that I wanted to get for my niece (I got the name of the company and ordered it off the internet). Toy stores seemed to be doing OK.

Downtown restaurants were beyond packed Saturday night. I couldn’t get a seat anywhere with wait staff. The cafeteria style café worked just fine, thanks.

Next spring’s vegetable garden begins today! Convert your gm stock into a bicycle.

We had dinner with a friend from Charlotte last night. It was interesting to hear the fear that she has about her retirement. Her and her husband are responsible DINKs that don’t live the typical “look at me” Charlotte lifestyle. They should be fine but she is afraid. I think the level of anxiety is much higher than us HBBers might think. If you knew this was coming you are not shocked right now.

I asked her how Charlotte was feeling now that Wachovia, one of their main businesses, was toast. It seems that they are denying that it will have any impact. After all, “we didn’t have the crazy run-up in prices”. No, they just built $600,000 houses way out in the boondocks. That won’t be a big deal. All those bankers can buy them up. Oh, wait. Sorry!

Cargo cultists unite!

Hovnanian on CNBC this am demanding gov’t put a floor under home prices. His argument is that houses now cost less than replacement value, mostly due to land prices.

The insanity in his eyes tells me he thinks it is perfectly reasonable to put people in overpriced mortgages because they are needed to prop up the credit cycle.

No one asked him:
– Are your costs high because you overpaid for land?
– How much is your annual compensation?
– How much do you spend on management salaries?
– Can Wilbur Ross build a house for less than you?

“All the people on Main Street betting and hoping the recapitalization package is going save their businesses, retirements, etc.”

Is this what many people think, really? Well, I remember in school that they went to great lengths to glorify the New Deal - so I suppose that’s precedent enough for many to believe in this.

Too bad the average ‘Merikun history text book omits large swaths of reality.

RE: After reading some of the news reports this morning, I felt like taking a second shower. The filth is overwhelming. All the people on Main Street betting and hoping the recapitalization package is going save their businesses, retirements, etc., etc. are in for a rude awakening.

As I have oftened wondered of late when sitting, watching the overweight, sloppily dressed, tattooed crowds wander by at a public event…Just WTF do all these people do to earn a living. and how the fook do they all get by in life.

The general ignorance ofJoeQP, berift of virtually any basic understanding of economics, history, law, and politics is truly mind-boggling.

Of course all this will be addressed with O’Bama’s more money for education programs.

FWIW, I just called Sen. McCain’s office and said, “NO bailout!” The guy on the other end sounded like they’d been getting quite a few of those calls.

And, on a personal note, The Credit Crunch has just bitten Slim. I noticed that, on my latest Visa card billing period, the credit limit has been reduced by $25.00. I guess that’s the punishment I get for never taking that card over the limit and paying it off in full every month.

It doesn’t make me feel better when I read about old ladies losing hard earned pensions and family wealth. The shortsightedness of today’s leaders is damning.

“There will be money to be made with this mess. When? How?”

Buy a $700,000 house in Waxhaw. That will be a huge winner for you.

The money I have on the sidelines in my 401k is still worth much more today than it was back in April or May. I could move it over and say, “I bought at a 20% discount.” Why buy at a 20% discount when a 40% discount may be right around the corner? The keys to surviving this mess seem to be patience, patience, patience. Every time I have acted with impatience, even when I knew I was right, I have gotten my a$$ kicked. I wish I had more patience.

No need for correction, as it was right before. There always is a disaster of one sort or another.

Short the phone book. It’s all a disaster, everything!

There’s no way these municipalites can afford the upcoming pension and retiree healthcare costs. Firemen and policemen retiring after only 20 years, at the age of 40, with 80% or more of their salaries (including massive amounts of overtime in the final year of work) and full healthcare, for an average of 35 years until they die. You have two generations getting these benefits at the same time. The way healthcare costs are increasing, they’d have to raise property taxes above the average household income to pay it all.

Texas counties are filing in bankruptcy court against Wamu and Lehman in order to get taxes owed them.

http://www.star-telegram.com/business/story/943269.html

I imagine all of the banks & trading companies are not going to be paying the property taxes owed this year. That is going to be putting even more of a squeeze on local municipalities.

I would bet that the main reason is the timing. Municipalities’ incomes skyrocketed during the bubble due to real estate tax revenue, but conversely have also been coming down dramatically the past couple of years both due to the slowdown in home sales and the reduction in values.

Personal incomes though have yet to come down significantly - we’re just now starting the upslope of unemployment.

Ever try to foreclose on a muni? What do you get? A street? A sewer?

Vallejo CA went bankrupt only a couple of months ago, after the PD and FD refused to back off on wage and pension demands.

Trust me, they’re not that smart.

Memo to Sarah: Jesus was a community organizer. Pontius Pilate was a governor.

Well the fear is that they won’t feel hampered by the massive federal debt that they inherit. Just as mounting deficits never slowed the current administrations perpetual call for more tax cuts. A crisis can give one excuses for either spending more or gathering less with equal ease.

Will it be possible to… provide universal healthcare, with no money to work with?

Governments in the US (all levels combined) currently spend more tax money per taxpayer on health care than many countries that have universal health care, such as Canada and Japan.

Yes that’s right. If the US adopted the same health care system as these countries it would spend less money to cover everyone. That’s how screwed up the current system in the US is.

“IF” they win? A strong 3rd party candidate could enter and the dems would still win.

Just keep talkin’ Sarah.

“The sheeple are demanding a change. Let’s screw things up so badly and leave the next administration with no money to work with. They won’t be able to keep any of their campaign promises and wala, our party returns to power in a landslide in 2012.”

The next administration is going to be extremely limited by the actions of the current administration.

Primary options for cost savings and/or enhancements:

- Reduce wars of choice and otherwise shrink the military
- Single payer health care (cut costs, expand care by cutting out the insurance companies)
- Alternate energy (peak oil will force big changes)

The biggest challenge for the next administration will be explaining what is happening and why.

While the electorate may punish the next administration, some people will have a very long memory about what’s been done to them the past 8 years (one could go back 30 years or so, but the past 8 years have been particularly egregious). Those that have done the greatest harm should never be trusted with power again.

For starters, how about the new admin just take away the tax cut the previous W admin gave the wealthiest of the wealthy, first?

Lets start with that one.

Undo the first tax cut to the wealthy. How does that pencil out?

“(Disclaimer: they have my vote, I am an independent)”

So, in other words, you’re a liberal. You’re no independent. Re-read the rest of your own post. You’re such a liberal that you think ANY adminstration’s goal is to saboutage the next.

Are these the latest words from salon.com?

This is because erudite people understand that this $700 billion bailout is only the beginning and there will be worse problems soon after that requiring $100s of billions more.

Social Security,
Medicare,
war with Iran, perhaps a world war
The distortions to the economy and the backfire - house prices still falling for 5 to 10 years following the bailout.

One reason I bought a house in 1990 was to live with a different class of people - stable, responsible, quiet, supportive of property rights.

With a bailout that will keep strawberry pickers living next door to people who saved for years and paid off their house, I may as well continue to rent next to the strawberry pickers. If the neighborhood goes way downhill like one I lived in where people were shot and stabbed to death in the early 1980s, I could at least get out to the lesser violent neighborhood.

This bailout is the socialists ulterior motive of integrating neighborhoods by income. This destroys pride in those who produce and earn. This destroys values.

I wrote to both my senators and my representative and told them no bailout.

Sounds that way. Isn’t this what got them into this mess to begin with? Lying about the value of assets?

Yes, isn’t it great! I am sending my congressman my own addendum to the bailout which would be: Send evey american a rubber stamp to convert every $1 bill to a $20 bill. It would be so easy. Just stamp over the existing number and go spend it. This would give govt printing presses a much needed break.

Yep. They want to literally suspend disbelief. Disgusting.

Yeah, I wanted to ask about this. I thought a lot of mortagage backed securities and derivitives were already considered level 3 assets due to general illiquidity and subject to mark to model. All of a sudden there is all this talk about MTM and how it hurts companies.

So, to what degree were these companies already using mark-to-market and to what degree using mark-to-model?

Sure, the lower tranches of those bonds backed by HELOCs are going to pay off at 95 cents on the dollar.

So that bond mutual fund hasn’t lost any value, and has a high yield.

So go ahead and put your money in (so someone else can get their money out).

I’m afraid that any shift out of short term Treasuries to anything will merely put me on the hook for unadmitted losses. And this is supposed to make me move to other paper assets?

I have thought about this for the last few days. For anyone who has taken a course in asset valuation, of course you were taught Discounted Cash Flow (DCF) to valuation:

DCF = Sum (CF/DF^t) for t=1 to n time periods, DF = discount factor (interest rate + credit spread), CF = Expected CF.

DCF values asset held to maturity, like a bond. Mortgage bonds fall under this category. The problem with DCF of mortgage bonds right now is that you can’t sell them at that value in this extreme mortgage market, it’s dead.

Mark-to-market says that the asset value is as much as the last transaction that took place for the type of asset you hold. The problem I see with this is that during extreme market conditions like we have now for the mortgage market, short-term prices don’t reflect long-term values. For example, if we have at $15T mortgage market and conditions in this market is so extreme that some desperate seller (ie Merrill Lynch) dumps $20B of it at $.22 on the dollar, does that mean everyone else’s mortgage is now only worth $.22 (or similar measuring stick as I have no idea how bad Merrill’s mortgages were in terms of sub-sliminess) on the dollars, even if they are not in dire straits and have to sell them now, and intend to hold-until-maturity?

I don’t pretend to have a right answer for this but I don’t believe mark-to-market is the correct valuation method for all markets at all times. DCF is a tried and true method of valuation of interest-bearing or zero-coupon bonds.

I know we are all bears on housing one way or another but I would love to hear some points and counter-points. Just because I think housing will keep going down until supported by income and interest rate doesn’t mean that I necessarily agree with mark-to-market if the transaction volume is an extremely tiny percentage of the notional outstanding. Remember, this can be turned around on the way up to: remember back during the hey days of house flipping in 2005? If all condos in a building in Miami was only sold for $300K, and one unit all of a sudden sold for $500K to some dumb buyers from out of state, does that mean now all units are now worth $500K, even though income/interest rate only supports pries of $300K?

“So the SEC, with Congress’ backing, is going to officially allow mark-to-fantasy?!

Isn’t that what they tried in Japan in the ’90s?”

Why would anybody invest in a market where that is allowed? I would rather sit on the sidelines. One time I come up to bat and I am told I get 3 strikes. The next time I come up and I get 1 strike. I come up for a third time and get 6 strikes. When I come up to the plate and I am told that the umpire hasn’t yet determined how many strikes I get, that is when I put down my bat, take my balls, and go home.

The train is off the track, a Minsky moment, already rammed the iceberg. Rather than prepare for the inevitable, they want us all to suspend disbelief for as long as possible, carry on like nothing happened. Decisions. Watch your decisions. They can’t un-ring this bell.

Yes. This is the lie they are attempting to extend. A GOP House representative was making the case to eliminate mark to market on the news last night. It’s outrageous. Transparency is precisely the reason for this FASB rule and now you have our elected reps attempting to further hide losses associated with what we know to be worthless mortgage paper by eliminated the mark to market rule. It’s BULLSHIT folks.

So the SEC, with Congress’ backing, is going to officially allow mark-to-fantasy?!

To clarify, Section 132 of the bailout bill apparently gives the SEC authority to suspend mark-to-market if the SEC determines it’s in “the public interest,” but FASB 157, which implements mark-to-market, is still on the books.

I haven’t waded through the language of the bill, so I’m not sure how long this “suspension” could last.

If they do this, I think homeowners ought to also be able to suspend mark-to-market.

“Oh, I know that the market says my house is worth $300k, but once the normal market returns it will be back to $550k. Really. So can I get a fat check for my place now, or at least a HELOC?”

I’ve tried so hard not to be materialistic, but it’s been unraveling recently. Buying lots of gadgets and other hedonistic delights is at least an alternative to being on Prozac, and I suspect a lot of Americans are behaving similarly. However, my saving grace is that I refuse to carry a credit card balance or consumer debt other than a mortgage.

as it does in excessive housing ??

Got plenty of that around here….Homes with Ice Rinks and full court basketball Gyms…Friend of mine is working on one that is costing around $3,000. per square foot !!

Reminds me of Farenheit 451…wall TVs all around the living room

The size of the screen is menaingless. What’s needed are jacks in the back of one’s neck - like in Ghost in the Shell for you Sci-Fi geeks. Just plug in and tune out.

Just a bigger home to house the TV! Amen! We are all saved!

“Ben: any of the 535 congressional morons read this blog?”

I’ll take “Highly Doubtful” for $200, Alex.

Congressman can read??

Its failure sent shock waves up and down Pennsylvania Avenue and all the way to Wall Street, where investors wiped away $1.2 trillion in value from retirement funds, mutual funds and individual stock holdings.

http://biz.yahoo.com/ap/080930/economy.html

this is just more eye opening for people not to put their trust in the hands of wall street with their retirement funds.

Obviously. That’s why I said self-serving members of Congress had to vote contrarian. If it doesn’t pass, better to vote yes, so you won’t be blamed. But if it does pass, better to vote no, so you won’t be blamed.

I’ll bet 3/4 of those voting no were hoping it would pass.

reception recession

(7a Freudian slip there; perhaps reception works too?)

A more reasonable explanation is that the banking system is an arm of the government in creating the economy, particularly since most “money” is now virtual.

If it goes down, what about the economy and the government?

1. The Federal Reserve sells Treasury Bonds. (The documentary says they get them “from a few select firms.” Who are these companies and how much do they profit?)

The Fed buys Treasuries. It sells them if it wants to decrease the money supply.

If we tried printing our own money, we would be put in jail too. It would be called counterfeiting. Oddly enough, the Treasury can print money without it being illegal. Also, oddly enough, the Fed being a quasigovernment entity is also empowered to supervise the borrowing of money into existence. The mechanisms of printing vs borrowing have rather different consequences, but “illegality” doesn’t come into it.

Someone needs to create money, since money is an artificial entity. The question is, who does it, who gets the money, and who controls the money supply. The growth in the money supply through interest is justifiable so long as the economy grows in a real sense. Growth in the money supply alone is not inflation; rather growth in the supply in the absence of real economic growth is. The problem arises when the economy is not really growing in a sustainable way (like through the allocation of capital to the creation of giant non-productive asset bubbles.) or ceases to be able to grow due to resource limitations. Then you’ve got trouble.

We’ve got trouble.

Congratulations on taking the blue pill. Now you can truly see how deep the rabbit hole goes.

Read “Creature From Jekyll Island” to understand how JP Morgan and his cronies started this global Ponzi scheme. Money creation is so simple to understand yet 99.9% of the American people don’t understand how the game is played. If they did, there would be blood on the streets.

And yes, the end goal of these crazy Fabian f****heads is basically global socialism controlled by an Uber class who owns everything. And their nefarious plans couldn’t possibly be working better thanks to the serfs who have their collective heads wedged deeply into their collective buttocks.

I can’t wait not to vote this November for the CFRs new US puppet.

Oh gosh, I’m spewing crazy talk again…..

There’s a great book called “A Nation of Counterfeiters” about how money used to work in the United States. It was a lot WORSE before with every bank issuing their own currency.

It’s worth a read, as soon as you’re done with Amity Shlaes’ “The Forgotten Man: A New History of the Great Depression”

If my understanding is correct, it seems that the bankers will eventually own everything!

That is, in fact, a concise summary of their Evil Plan.

(Insert maniacal laughter here.)

You got it more or less right. Other explainer videos you may want to watch: Money As Debt and Money Masters.

If you want to read more about the Fed, you could do no better than to pick up G. Edward Griffin’s “The Creature from Jekyll Island”. Once you learn how it is though, there’s no going back.

One more followup, there’s various stuff out there from the author of The Creature from Jekyll Island, including this interview, if you want to have a look:

http://www.financialsense.com/transcriptions/2006/1018griffin.html

I always enjoy reading little stories like this. Thanks for sharing.

Err - what about the Alt-A resets?

Link?

I assume a score near 100 indicates the sucker is going down?

It all depends on the price!

Palo Alto is one of those neighborhoods where, at some price, a house will sell.

(There are plenty of areas where houses won’t sell at ANY price. You can tell because there are 20 other identical houses for sale on the same block…)

I assume they have a good broker and its not in East Palo Alto…With that said, it will likely sell in a couple of weeks…If its unique is some way (Huge lot or Historical House) it will likely sell with multiple offers…

By the way, although it has been “fixed up” with paint, plants, redone hardwood floors, it’s a 1930s bungalow and IMHO a scraper.

Very worthwhile - this was the best comment on the bailout that I’ve seen yet.

Jim Rogers is sayin’ it! “Short and sharp” is better.

He appropriately hammers the ringleaders in the Wall Street-Washington duopoloy, especially Geithner (sp?) of the NY Fed.

“Countries that have tried to use Band-Aids have suffered for a decade or so…”

Homebuilder stocks seem to have rallied dramatically in the past hour. I doubt the dip$hits making the laws will admit, or even understand, that house builders were a big cause of this mess. No, they will say that house builders are dream makers. We need them more than they need us.

The ongoing oversupply of housing is likely to increase in the wake of industry subsidies. Think of this measure as another form of affordable housing policy and relax.

Go ahead, why not a $50,000.00 tax “credit” it won’t make a damn bit of difference, it didn’t work at $7500.00. These clowns also think once the bailout is passed it’s back to 2004.

…replacing a $7,500 incentive enacted earlier this year that they contend failed to stimulate demand.”

Homebuilders say the most obvious things. Of course it wouldn’t stimulate demand, nobody can get that money till next year when they do their taxes. Geesh!

Wasn’t that a loan?

Nice analysis of the problem
Dark Matter in bank financial statements.

“A security is carried at its par value as long but their is a column in the reporting statements for the “fair value” which is in reality the market value.” If banks did this, few would currently loan money to a bank.

If the bailout plan passes then the reserve requirement may be 0%. The mark to market exemption is just another way of establishing a 0% reserve requirement by having “artificial” reserves.

In my opinion if you count an asset as “reserves” for the purpose of immediate liquidation in the event depositors demand their money then it must be mark-to-market because todays market price is the only price that matters with respect to using the asset as a “reserve”.

I would like to point out to everyone that FDIC is nothing more than a pre-planned bailout package and we should all be as against FDIC as we are every other bailout package. Just because this bailout package was passed years in-advance doesn’t change the fact that it is still a bailout package and that every dollar it pays out ends up on the national debt. Remember, the FDIC fund is just treasuries and no different than the social security fund.

What’s more, it gives him or his successor the power to chose winners and losers across the entire financial spectrum.

Yup. And if this “rescue” bill doesn’t pass, you better run out to the store IMMEDIATELY or there will be no presents left for your kids this Christmas because the stores can’t get the credit to buy anything. At least that’s what CNBC keeps implying. I’d guess the Halloween Store will have leftover costumes, however.

My brother works for a tire company that sells to the big 3 (and others). This will not be good news for them.

A buddy of mine got a reassuring ‘hang in there; the ship is turning’ letter from CEO of WaMu. Eight days later, SPLAT! He’s puzzled and confused.

I’m with you Lost in Utah. Been working on this over the last few years. It does feel good.

Amen. That’s a Big Can Do.

Watcher, where are you?

(sorry if double posted, got an error and message does not show up). Maybe this is why:

France is proposing a 300 billion euro bailout plan this weekend to help poor EU banksters, homeowners and other speculators. It’s not official yet but I’m nearly 100% sure the rumour will prove correct. After this first drop, the printing presses at the ECB can keep running full speed because there are always more poor souls that need some financial help from the government. And we don’t want the euro to rise, do we? That would be bad for EADS, Mercedes and the like to totally unacceptable to the EU kleptocrats.

And maybe the IMF can donate their 400 tons of Gold for the good cause this weekend?

I’m hearing that the euro’s not as strong as it used to be. Seems that Fortress Europe is coming unglued. At least from a unified currency standpoint.

Going down the ship eh?

Actually I don’t think even Buffet is buying it, he bought high-yielding preferred in Goldman with a warrant at a decent entry price. To him that is a low risk/high return trade if the economy / financial system completely collapsed in the next few years, but that view is of course controversial on HBB, mind you.

The Texas TPG boys were the ones who took the bad mortgage off Merrill’s books using a guaranteed loan from Merrill to boot. It’s like buying a house from someone and gets a put option to put the house back to the seller if the house prices go down. It was a very good deal for TPG but not so good for Merrill but since it was desperate, beggars can’t be chosers.

Stop paying debt, but withdrawal all your savings first, that will be the double whammy that brings the banks to their knees.

I’ve been looking at mine. It’s actually still going up, cuz I got out of the market last December.

My co-workers, not so much. Most of them are losing principal funds. I’ve tried to point this out, but they’re not comprehending.

I wonder if the bimbos from CNBC had to drop to their knees. Another 17% APR for Mr. Buffett. I’d start holding out for 20%+

Good for you! (really) It is just what the doctor ordered. Now, to all the bankers and Wall Street: Take your medicine!

Question: what did you do with all that cash? I asked for a zero-risk option for cash and yet I have found one.

MHO is that the bailout is all but baked in now that J6P got a look at his 401K Monday night and freaked out. There will be a litte pop, at which point hedge funds, waiting with their finger on the trigger, will sell because they need cash to make good on their redemption requests.

A lot of companies went on spending freeze about a month ago. Will be interesting to see if anything loosens up in the new quarter. I’m not terribly optimistic - we haven’t seen October yet, and coming off of a September like the one we just had…

I would expect this to be the toughest job market since right after 9/11.

Actually, I have been wondering from the beginning why a scapegoat hasn’t been pushed forward. I fully expect a big, flashy case against someone. Not a conspiracy, just a natural progression of events

Sort of like this:

Wall Street: “Mistakes Were Made, it’s terrible. We admit it. Give us money. What you’re still mad? Hang on a second. Ahem. OK Mistakes Were Made…by that guy over there. We’ll all be happy to testify against him. Now stop bothering us, we have a fund to hedge”

Washington: “Mistakes Were Made, and after a gajillion committee meeting chaired by each of us respectively (aren’t we great?), we have discovered, they were especially made by that that guy over there . We will do everything in our power to prosecute him to the full extent of the law, thanks to the co-operation of Wall Street. Now that the bad guy is gone, you can invest, etc. It’s safe now. Blah, blah, founding fathers, Lincoln, Roosevelt, blah blah, America, blah de blah. Now stop worrying about it and move on. We have a campaign to win”.

Do you think I can sell pitch this masterpiece to Oliver Stone?

And GM is offering that “Employee Discount for Everyone” plan again. In the commercials? Big trucks and SUVs.

Clearly, it’s the “DEAR GOD PLEASE BUY OUR GAS-SWILLING TRUCKSTERS PLEASE OH PLEASE PLEASE” plan.

Cars cost a lot of money, and most people buy them on credit, borrowing tens of thousands of dollars. So, when there’s a credit crunch and fewer people qualify for loans…

People like us here, on the other hand, can buy a nice used ‘03 Honda (which will last 10 years, and is user-serviceable too) with a loan from a smaller bank, because we didn’t “buy” a bubble house, and thus our credit scores are 800+.

It’s gonna be rough for the carmakers, all of them, for the foreseeable future.

PB you need to send that comment to all the media outposts.
Truly.

All I can say is…

“Investment accounts are not insured by the Federal Government and may lose value, including loss of principal.”

You’re probably about as safe as anyone else, at this point.

I think mostly market risk, inflation will hurt cash deflation may hurt stocks. Bank failures yes, Government seizure risk low unless you think higher taxes or inflation is seizure.

Along those lines (pertinent to your question) - here’s a dumb question for those in the know. What is the difference between an investment house like Fidelity vs. one like Bear Stearns?

It’s been stated recently that there were 5 investment houses at the beginning of 2008:
- Bear Stearns
- Lehman Bros
- Merrill Lynch
- TD Waterhouse/Ameritrade (I think)
- ?? (I forget the other)

and now there will be none, since I believe the last two are set to be re-classified as commercial banks by the bailout bill, at least from what I heard.

So - what is the difference between these companies and ones like Fidelity, and Prudential, and for that matter E-trade? Are the latter just just “management” companies that don’t really hold the assets, whereas BS etc. actually held the assets - and thus the latter were subject to the asset losses whereas the former are generally not?

I have my 401k in Fidelity, so am curious as well as to the risk.

Thanks. (If no response I may ask this again in the morning).

aznerd, I’m 49 years old. Most of my wealth is in 401ks and IRAs. All of that amount is in stocks. I’m in very good health (not obese and do not smoke). I would not mind working another 20 or 30 years.

I think for the next 4 to 8 years America will go into the dark ages. But After that period there will be a golden age again. I’m going to keep investing fully into stock funds in my 401k and IRA. We are the 5th most free economy in the world (after Hong Kong, Singapore, Ireland, and Australia). But we have the Bill of Rights. We will overturn this irresponsibility and the punishment will be dealt on the right people while the honest ones will come out on top.

Human brains will keep producing, creating, imagining. That is why stocks are a better long term bet than anything else.

Outside my retirement funds I’m very paranoid and am in precious metals and government securities. If you won’t need this money within 20 years, you asked a ridiculous question - your tax deferred plans should be 100% equities.

She also inherited a bill for back taxes and yard care in the amount of $850. She seriously overpaid.

Almost forgot one:

4) The cost is literally astronomical, while the benefit is an unknown unknown.

I did see that McCain voted for it. He had said he would.

He had a chance to take a leadership position on this issue - on the side of the American public even, and blew it big time. IMO he has now lost the election for sure.

I wrote to both the McCain and Obama campaign promising them that if they voted FOR this bill, I would NOT vote for them. I intend to keep my promise. Any ideas for a fun write in? I’ll donate $25 to Ben’s blog in the name of the winner.

bim get a life.

Now way down.

Oops.

It’s a tax bill, no?

So far, the Senate’s passage of the bailout has resulted in stock market drops and no discernible effect on credit markets.

They predicted that last night. Said no real effect going to be seen until the House vote.

They should have passed the FDIC increase instead.

Completely agree.