Bits Bucket For October 2, 2008
Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
November 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
Finally!, Housing is starting to be “marked to market”
Bid of $1.75 on eBay gets abandoned Saginaw home
http://news.yahoo.com/s/ap/20081001/ap_on_fe_st/odd_cheap_home
I heard that Congress is going to pass a law that removes this requirement and allows housing to be marked to future expected value, ie, 2005 prices or better. This has been hailed as a no-cost way to prop up housing prices and thereby “keep people in their homes”. Of course, sales will go to zero but it doesn’t matter since nobody will be under water and therefore refinancing and equity withdrawal can resume.
In a thrilling 1-2 punch, mortgage rates have been targeted to reach -2% by the Spring of 2010. The first step in this process will be a ZIRP instituted by the Fed, which will be kicked off with this weekend’s emergency 50bp cut which will be the gravy on the $700 billion bailout (window) package that will pass because 25 Republicans switched, even though everyone held their breath when 12 Democrats also switched in the opposite direction.
Mortgage rates will reach 0% by Fall 2009, then continue into negative territory. Since mortgage holders would now be paid to hold a mortgage (the cashflow from which could be used to pay down the principal, thus allowing refinancing to an even lower rate), there will be an incredible surge of demand to buy a house. Thus fired up, the economy will swell like never before, with the Dow moving up from 5500 to emphatically break the 10000 barrier again by 2012.
And we will have 100% home ownership, no renters, and no homeless. All the empty houses will be gated off in sections and used to replace the prison system, and the existing prisons will be turned into sweatshops, returning America once again to the Golden Age of Manufacturing. This will be enough to enable President Palin, now mother of seven, to earn a second term in a landslide defeat of Hillary Clinton.
Interest free money is no fiction. It was created several times in history and lead to prosperity. When banks found out, they pressed governments to make it illegal. Google for “stamp scrip”, “freigeld”, “benjamin franklin”, “silvio gesell”.
I don’t know, 1.75 could also get you a donut and can of soda. That might be the better investment.
“Foreclosures jump 18% in SE Wisconsin. Statewide, foreclosures rose nearly 10%, to 2,066 in September from 1,880 in August”
http://www.jsonline.com/story/index.aspx?id=801772
Wow Cheez,
JSonline reporting foreclosure news - shocking!
Ya know it’s different here.
Leigh
But there was no bubble in the Midwest? Right? The lakefront bubble in Wisconsin, alone, should sink that entire state. The rest of the country is going to be amazed just how overpriced the “conservative” Midwest became. Prices soared there, just like they did in every other area.
People will be surprised when they find out that it’s not just Chicago, the North Shore suburbs, Milwaukee, Minneapolis-St. Paul, Bloomfield Hills and other “obvious” Midwestern areas that overbuilt — there was a run-up in Peoria, there was a run-up in Kankakee, there was a run-up in hundreds of little towns few of us could locate on a map. There are humdrum “subdivisions” carved out of farmland all over the Midwest.
A few years ago, a friend and I used Realtor.com to look around the nation and see how far the madness of the Housing Bubble had spread. We started with seemingly unlikely towns to find overpriced houses and new, even more overpriced McMansions… and we found them… Then, we tried even more out-of-the-way towns… and still found them… Finally, when we found the Bubble growing away in relatively obscure towns in North Dakota (no offense to folks from that fine state!) we realized just how far the madness had spread! The only place lacking the Bubble was Camden, New Jersey. If you’ve ever been there, you’ll understand why… point being that just as the Bubble was everywhere, so shall the Crash be everywhere.
Does a 15,000 sf estate qualify as a McMansion? If we all pool our money we can buy McCain’s former abode in Phoenix–where he raised his 2nd family– for a cool 12 million. To my more Spartan taste, it’s rather hideous…
http://www.liveleak.com/view?i=2bd_1222895901
If it’s a McMansion, it’s the grand-daddy of all McMansions. And wow, what decor.
The only thing I found attractive was the (Moroccan-looking) outdoor fireplace - the only note of austerity on the entire property. Normally I like a Persian carpet, but I couldn’t really appreciate one in that setting. And that bedroom ceiling! That would keep you from sleeping on your back.
At first I thought the decor was vulgar, but then I spotted the Mona Lisa above the fireplace. So I guess it’s actually really high class and I’m just a rube.
Now for an HBB challenge: Is there anyone here whose taste is NOT more spartan than this?
Dang, I totally missed the Mona Lisa. Good eye. Maybe there’s a Pinkie and The Blue Boy lurking in one of the 13 bedrooms.
I’d be willing to bet on it.
Speaking of 15,000 properties for sale,
apparently John and Cindy McCain’s (one of many) home is being auctioned off in Phoenix.
It has 7 garages.
It is in the classifieds of the Phoenix newsrag.
Foreclosed? Hard to believe that.
Yup, that’s the McEstate we’re talking about. Check out the weblink above for the grand tour.
Yes, my relatives outside of St. Louis insist they had no bubble and $180,000 for a very small outdated starter home is normal and sustainable (1,100sft). This in an area where most jobs are (were) construction and auto factories. About 10 years again these houses were going for 70-85K. LOL
We fished this weekend in Monticello.
My heavens - the foreclosures and for sale signs are mind numbing.
Folks are nice as ever - and oblivious to the chaos.
I love this state, yet I feel like I’m on a different planet.
Leigh
I love Green County, it’s close enough to Chicago but a million miles away, if you catch my drift. Father-in-law has an old a-frame on the run of the Sugar River near Brodhead. We were last up there over labor day weekend and it was really depressing to see all of the real estate signs up in town. The bar in the square was up for sale…
Yep.
Sis has an A-Frame in Marquette on a small lake.
Time out of mind.
A BAR for sale in WI - I am on a different planet!
Leigh
Years ago when I was working in Madison, a friend and I did a cycle / camping trip from Black River Falls to Duluth - Superior. I wanted to do some bird watching and berry picking in the woods, stop in county parks and look around. My very competitive friend would ride on, I would make my stop and then have to catch up with her. When I did, she would pick up the pace…
To preserve our friendship, we ended up riding separately and meeting up - either the first bar after a particular intersection, or the first bar after a particular time of day. It worked - there was always right one at hand.
(And she didn’t usually get there much ahead of me despite my stops, because she didn’t ride particularly fast except when I was coming up to overtake her.)
SW WI is awesome - and you’re right - Chicagoans don’t venture west of I-90/Madison much making it all the quieter/nicer.
On my bookshelf is a book detailing the rise and fall of the railways of SW WI. The parallels between RE speculation then and now are chilling. Brodhead, Monroe, Fennimore, Plattville, New Glarus, etc. etc. - what those towns went through socially and economically from 1850 onwards is fascinating reading and it really puts today’s events in a sobering context.
Edgewater, what was the name of the book?
Sounds interesting.
Saw the PBS docu on history of Chicago.
They believe it was a black man who was the first non native who resided in the areas of todays Chicago.
Yep, DD, our first non native Chicagoan was Jean Baptiste Pointe du Sable. Pretty cool.
Edge, was that book by Daniel Lanz? (There’s a book on amazon by him that fits your description–I’d love to read that.) There’s a large pdf file on the web that’s a “Green County History” that is fun to pour through as well if you’re into the area.
Finally! Housing is “marked to market”
Bid of $1.75 on eBay gets abandoned Saginaw home
http://news.yahoo.com/s/ap/20081001/ap_on_fe_st/odd_cheap_home
Congress Bloats The Bailout Bill
Brian Wingfield and Joshua Zumbrun 10.01.08, 9:35 PM ET
Only in Washington could a $700 billion financial rescue package get $110 billion bigger to protect taxpayers. But that’s exactly what happened Wednesday night as the Senate passed its own version of a bill aimed at unfreezing credit markets and steering the economy out of a crisis, putting pressure on the House of Representatives to do the same later this week.
With a vote of 74-25, the Senate made its best effort to create something they think will stave off crisis, coated with enough sugar to make it politically palatable.
“I am very, very happy with this vote tonight,” said Senate Majority Leader Harry Reid, D-Nev. “I think it shows that when we work together we can accomplish great things.” Senate minority leader Mitch McConnell, R-Ken. said: “This has been the Senate at its finest.”
http://www.forbes.com/topstories/2008/10/01/senate-vote-bailout-biz-beltway-cx_bw_1001senate2.html
Did the guys on wall st really think NINJA loans were consequence free? Did they honestly believe Joe 6Pack would work 3 jobs to pay an upside down mortgage? Wall St’s recap plan is really going to motivate the folks on Main St. to stay in their homes.
Did the guys on wall st really think NINJA loans were consequence free?
Actually yes they did.
1. Book Ninja loan payments as “paid fully amotized” when it was really “paid neg-am Option.”
2. Collect AAA rating on Ninja from Moody’s.
3.. Sell AAA Ninja up the food chain to Northern Rock or some pension plan in Norway/China/India who still thought that “mortage” meant “down payment” “responsible” “seasonsed” etc.
4. Collect fee and bonus.
Consequence?…that’s like, in the future!
Actually, there are no consequences for being a crook.
- They all got to make lots of money (more than any honest person will ever make) AND KEEP IT despite everything.
- The taxpayers will be stuck with the bill, either in the form of higher taxes or runaway inflation (or my personal bet - both.)
- They’ll move on to some other scam and succeed there as well since nobody will put their heads on pikes where they belong.
In fact, there will be museums, colleges and libraries named after them, since in their doddering years they’ll want to have a faux legacy to hand down to their trust fund kids. Actually, maybe not. This generation of ne’er-do-wells are too narcissistic to make such a grand gesture.
“I am very, very happy with this vote tonight,” said Senate Majority Leader Harry Reid, D-Nev. “I think it shows that when we work together we can accomplish great things.” Senate minority leader Mitch McConnell, R-Ken. said: “This has been the Senate at its finest.”
They did nothing of consequence and think they did great things. Nice job of standing up to the voters to pass something that will be costly and do little. If that’s the Senate at its finest, then the bar’s on the floor in the lowest point in Death Valley.
But the Senate bill is also laden with pork, including:
$223M for Alaskan fisherman
$192M for rum producers in Puerto Rico and the Virgin Islands
$128M for auto racing
$33M for companies operating in American Samoa
$10M for film & TV production
$6M for producers of wooden arrows
i know this happens all the time, but to see it attached to this bail-out is mind blowing!
Money for “motorsports racing track facilities”? I guess we will start seeing race cars with “US Taxpayer” emblazoned on the hood as a sponsor.
I wonder how strong the Nascar fetish is nowadays in the South, where people are bumper-to-bumper maneuvering their cars occasionally @ 2 mph, while waiting for their share of go-juice…
I would love to see W grow a pair and do some line-item vetoing on his way out. Won’t salvage his legacy obviously, but would send a positive message to the voters.
The line-item veto is not legal at the federal level, though the president briefly had line-item power in the mid ’90s. Many states do grant that power to governors, however.
The Supreme Court ruled against the line-item veto in 1998:
U.S. District Court Judge Thomas F. Hogan ruled on February 12, 1998, that unilateral amendment or repeal of only parts of statutes violated the U.S. Constitution. This ruling was subsequently affirmed on June 25, 1998, by a 6-3 decision of the Supreme Court of the United States in the case Clinton v. City of New York. The case was brought by the then New York City mayor Rudy Giuliani.
Link
There is no line item veto for the president. It was declared unconstitutional. He can either sign this bill or veto it. He’s yet to veto a bill for pork.
The Alaskan fisherman bailout is a direct cause and effect of the Exxon OIL SPILL. They were sued for millions(or more) for the damages caused yet settled for tens of thousands instead.
So there you go, another Oil company not being held responsible for their actions and now it is passed to us.
$223M for Alaskan fisherman
So how soon will it be before Sarah Palin claims she opposed it? Tonight’s debate?
And both of our presidential candidates voted for it.
You guys still think their is a reason to chose between the two jokers?
It’ll be a sad day in America when saddling taxpayers with 800+ billion in debt is legislating “at its finest”.
Oh wait, this just happened.
Could they at least use some lube while legislating? That’s a lot to absorb.
Letter to both of my senators (It made me feel slightly better anyway):
Senator __________:
You failed to follow the will of your consituents. You have just opened the door to a ten-year depression by supporting this unethical, UNAMERICAN legislation. Perhaps you and your comrades (and I use that term purposefully) should have considered researching similar economic events in Japan, South Korea, and Russia to see how they handled their crises. The Japanese still refer to their economic crisis as “The Lost Decade.” Russia and South Korea, on the other hand, took their lumps and came back stronger.
But the financial lobby and Paulson’s cronies whispered promises into one ear and shouted threats into the other and you were either a) too lazy to do any real research or b) too fearful to stand up for what you know is right.
Either way, you are not qualified to be my representative.
You will not be reelected. I will work for your opposition in any way I can. I will make sure that everyone I know remembers how you voted on the Bailout when we come to the next election. I will work tirelessly, conscientiously and with single-minded glee to effect your ouster from my government.
Sincerely,
Alexandra
Teacher
Excellent letter!!! We’ve also been faxing, e-mailing and calling our representatives…if the bail out Wall Street, we will not vote for them. It’s a single-issue vote for us.
Wilbur Ross just said that the bill should no longer be called the Wall Street Bailout Bill. It should be called “The Lobbyist Reward Bill”. In the spirit of the housing bubble, does this do anything to slow down the price discovery in housing? I don’t see how it can.
One of the central arguments in the long-term housing issue is inflation vs. deflation. I see this as inflationary but I am no expert on the subject. I did notice that the dollar is strengthening (bye bye export advantages) and gold and silver are getting pounded. That seems like it would be deflationary. What do I know? I am just a poor boy.
For what it’s worth, Warren Buffett was on Charlie Rose last night, and agrees that all these measures are inflationary.
His view was (essentially) that we need to worry about the credit market lockup now, and worry about inflation later.
“and worry about inflation later”
Tell that to wage earners who haven’t seen a raise in years.
And of course Charlie Rose pointed out that Warren Buffet has a LARGE personal interest in the bailout bill going through, right?
The assumption that Buffets interests and therefore his opinions mirror the interests of American taxpayers is just wrong. This should always be pointed out whenever he’s given the soap box, but of course it’s not.
Warren’s the only go-to guy that anybody believes anymore.
If his Wall Street cred doesn’t get us out of this jam, the donald is waiting in the wings to save us. (gulp)
Did you watch the video? Do you know *anything* about Warren Buffett? He’s about as true of an American as you’ll find. You are aware that he’s against things like stock option offerings and nutty compensation for CEOs, right?
Let’s make it simple: tell me what you *do* know and we’ll start from there.
I would bet that Mr. Buffett would benefit more from a situation where there were no stock options nor highly-compensated CEOs.
Guys, Mr. Buffet is a good guy, but his stock holdings are among the largest in the country. He stands to lose more than anyone else if the market continues to tank. If I owned a lot of stock I’d be doing the same cheerleading that he’s doing now.
Buffet gave away over 90% of his money—to charity. I dont think he really cares about this. He is just going through the motions because he likes the game.
It is true, he said he wouldn’t have done the GS deal without the expected passage of the bill. While I agree on Buffett on many things, it seems he is throwing his good weight around on this issue because he just dropped a few billion into GE and GS. To say he doesn’t have a personal interest in this is wrong, maybe he justifies it as his profits will go to charity.
He’s less crooked than most guys on WallStreet, but in this case he doesn’t have the taxpayers in mind. If he did, he would have told Paulson to give the taxpayer the same deal he gets, an equal number of warrants, preferred shares and 10% interest. That is a FAR better deal than what we get, toxic assets, no interest, and warrants at Paulson’s discretion.
NYCityBoy
re: housing bill & inflation vs. deflation
1. “In the spirit of the housing bubble, does this do anything to slow down the price discovery in housing?”
2.One of the central arguments in the long-term housing issue is inflation vs. deflation. I see this as inflationary but I am no expert on the subject. I did notice that the dollar is strengthening (bye bye export advantages) and gold and silver are getting pounded. That seems like it would be deflationary. What do I know? I am just a poor boy.”
-
Anyone? Anyone?…Professor? Hoz? ….Anyone?
Inflation is only for poor people.
Delfation is only for rich people.
“In the spirit of the housing bubble, does this do anything to slow down the price discovery in housing?”
I think no. Housing is unaffordable as compared to incomes, plain and simple. In an economy with wages and employment shrinking and credit tightening, housing will have to come down in price to reflect the greater risk and uncertainty in the economy(higher cost credit) and less money (shrinking wages). This bailout won’t change banks or buyers perceptions of value or the current market trend, nor will it give buyers raises or homeowners money to make up for lost wages.
“I see this as inflationary but I am no expert on the subject. I did notice that the dollar is strengthening (bye bye export advantages) and gold and silver are getting pounded. That seems like it would be deflationary.”
To me, the recent strength in the dollar is a “flight to safety and liquidity” The Euro is under pressure because their economy is slowing dramatically and rate cuts are assumed. Also, there is no consensus of a bailout in Europe, unlike the US.
Demand for silver in industry is waining due to the slowing economy. Look at other industrial metals recently as an example. As far as gold, I feel the physical and electronic markets have disconnected. Funds are liquidating positions to meet redemption and margin calls. Meanwhile, physical demand is quite strong and will probably get stronger as the financial chaos continues (look at the suspension of Buffaloes by the mint). Which side will win, I can’t say.
Both inflationary and deflationary forces are at war within our economy. The Fed and Treasury are desperately trying to get money flowing (thus increasing money supply and inflation), but banks are hoarding and the economy is contracting. Without physical printing, growth in the real economy, or a global FCB shift in demand away from dollars, I don’t see how inflation can win here.
Just my $.02.
Also, there is no consensus of a bailout in Europe, unlike the US.
That’s because the Germans, who successfully prevented a housing bubble with the same simple measures that would have worked everywhere else (tax speculators, restrict mortgage lending), are not willing to pay for the excesses of those (Spain, Ireland, etc) who didn’t.
The UK of course is outside the Euro and is free to trash its currency and mortgage its future as it wishes.
The reduction in credit is massively deflationary, the government’s response will be to attempt to spark some inflation which would in normal circumstances be exceedingly inflationary, but depending on how quickly the credit driven deflation occurs might not be able to counter the deflation.
Inflation=the rate of growth in the product of the amount of money times the number of transactions money touches. The government can only control the amount of money, while currently the number of transactions has shrunk and appears likely to decline massively.
So if currently the amount of money is 1000 and the number of transactions is 10, but due to credit pressure the number of transactions drops to 1-2 it doesn’t matter if the government increases the money supply to 2-3x what it was there will still be pretty major deflation (when that would clearly be exceedingly inflationary any other time).
That’s pretty much the Keynesian theory of money and the government is racing to prevent a Keynesian depression.
Is the US government the ultimate FB?
I don’t understand how we can spend trillions in bailouts, and make the bailout more palatable by cutting treasury revenues (i.e. tax giveaways).
Can someone explain how we can have these massive and limitless increases in expenditures while revenues actually go down? Sounds like classic FB thinking to me.
You, sir, are obviously “a terrorist”. Somebody call the Department of Homeland Insecurity on this guy.
No, I think he’s an “enemy combatant”.
NoSingleOne …I don’t see how they can afford raising the FDIC limits
as well as have the 700 billion dollar toxic loan buy out, plus have the
the addition pork in this bill .Its just a massive unlimited obligation to cover all the bad debt of the Banks . I was only in favor of them shoring up the current 100k limits because the banks have really not paid for that additional increase in premiums ,and than forget the Paulson Plan clause . In my view ,they just raised the Bail-out plan to
a unlimited amount . Next thing they are going to ask for is that all
stock market accounts are insured with the tax payers paying for it This is getting crazy .
The FDIC has shown itself to be quite adept at letting senior bondholders become senior bagholders when a bank threatens to actually cost them money. The guarantee doesn’t change much regarding the cost of the guarantee (how many accounts go over 100,000–big accounts get a little extra protection but there aren’t many of those and it was easy to structure around them anyway), but provides cover to have hesitant house voters to point at something that could benefit constituents.
Cutting revenues and increasing expenditures leads to growth, a healthy economy, and pays for itself. Especially if you cut taxes for rich people. And definitely cut taxes for people who live off of financial investments instead of actually producing something. This is Economics 101.
Makes sense to me.
Been saying it for a while. It’s those other guys that are guilty, you know, those other guys, you know the ones I’m talking about, the ones with the sense of entitlement that are to blame for this mess.
Whatever you call the bill, I see it as sandbagging a crumbling Hoover Dam. Still going to get liquidated.
We do a kayak trip starting out just below Hoover Dam, and the guide always laughs as we put in, “if the dam gives way, we’ll see you in Mexico”.
Hoover DARN, please.
Children might be reading this blog
Tooooooooooooooooo Funny!
Housing costs go low—extremely low
South Side woman buys Michigan home on eBay for $1.75
—Robert Mitchum
October 2, 2008
Joanne Smith normally uses the online auction site eBay to fish for bargains on used purses and shoes.
But when Smith checked her e-mail Sept. 24, she found that an impulse bid made earlier that day had netted her a much bigger prize: a house in Michigan, for the price of a small coffee.
A bid of $1.75 had won Smith, a 30-year-old hairstylist and finance student, a small home in Saginaw, nearly 300 miles from the apartment she rents in Chicago’s South Shore neighborhood. (Cont’d)
http://www.chicagotribune.com/news/nationworld/chi-talk-cheap-house-02-oct02,0,2514754.story
Leigh
And she plans to sell it rather than move in. Considering the lien for back taxes and mowing, I suspect that this flip will fail too…
But people are smart - laugh out loud funny.
Leigh
What’s the mortgage payment (assuming a 30 year mortgage) on a buck seventy five?
Loan amount $1.75
Interest rate 5.750%
Term 30 years
Monthly Payment $0.01
I think it is overpriced if you have to mail in your payments with a stamp
“What’s the mortgage payment (assuming a 30 year mortgage) on a buck seventy five?”
But can she qualify for the loan?
How goes it Mr. Vegas?
qualify? What’s this qualify you speak of?
I can’t wait until she goes to the bank for a HELOC.
Somewhere out there, there’s a AAA-rated CDO with a portion of the $1.75 mortgage in it. Sadly, it will soon be in default…
If she can’t flip this for a profit, I’ll be shocked… But then again… there ARE places in slums where you can’t even give the houses away!
Did you see the last line?
“do flights even go there?”
yeah, this will end well for this particular savvy investor
“Do flights even go there?”
See - people are smart!
Ya, this will end well.
Leigh
Nobody expects the housing imposition!
“I don’t care what people say, land always gains in value over the years.”
:::sigh:::
I bet she will apply for some kind of Federal aid for home buyers and make out like a bandit!
I’ll give her $2 for it after she spends the $800 to pay back taxes/fix the yard…..
NOT!
The other housing rescue starts today
The FHA’s $300 billion Hope for Homeownership program is now open for business. But will banks be willing to sign up?
NEW YORK (CNNMoney.com) — Amidst all the chaos surrounding the $700 billion Wall Street bailout plan, the federal government’s other housing rescue program quietly opened for business Wednesday.
But will any mortgage servicers come knocking?
The Federal Housing Administration unveiled its $300 billion Hope for Homeowners program, which allows struggling borrowers to refinance into more affordable mortgages backed by the federal government. The legislation, which was signed into law in late July, was hotly debated for months on Capitol Hill with Democrats supporting it and Republicans opposed.
Before the so-called Wall Street bailout emerged, this FHA program was the federal government’s answer to the mortgage crisis. It was seen as a primary means to stemming the foreclosure tide and stabilizing the housing market.
Even now, foreclosure prevention measures in the current bailout legislation call for the Treasury Secretary to modify more loans through the FHA program.
RE: FHA
For 12 years I was a member of the FHA/HUD approved appraiser board.
Initially, I would say the program was a niche offered to a not necessarily large particular market segment.
However, as the mortgage standards loosened, I came to see it more as a marketing mechanism for seller’s to unload poorly located, heavily depreciated; marginally maintained property’s onto unwitting and unsophisticated purchaser’s egged on by real estate agents hell-bent on securing easy commisssion’s.
The ability of FHA to further expand the taxpayer’s obligations relative to the financial liabilites inherant to foreclosures was enhanced by the gutting of the autonomous FHA directed rotational system of appraisal assignments to a previously established board of certified appraisers, to a system whereby the ORIGINATING LOAN OFFICER would personally select their own appraiser for their loan.
This action by Congress pretty much trashed the credibility of their appraisal staff. The hordes of newly minted appraisers created by the federal licensing process were easily coerced into fudging on the property physical condition rating sheet and the estimations of REMAINING ECONOMIC LIFE, which is rubber stamped at 30 years-because the number MUST reconcile with the length of the mortgage.
However, even as shoddy as FHA’s underwriting and appraising became, the property condition rating criteria was an underwriting hurdle the private sector sub-prime gangsters wanted to avoid at all costs.
For the layman, the essence of the above is…
FHA/HUD guarantees the mortgages of worn-out POS property’s which in the majority of cases should be torn or burned flat because they are lead infested, poorly maintained housing GARBAGE, as evidenced by the federal billions now being funneled into city housing agencies to re-hab these “blighted” neighborhoods which were trash to begin with.
And now Congress seeks to further load this agency up with the trash from the enormous inventory of the congurent private sector sub-prime hucksters who were hell-bent on avoiding any
underwriting oversight.
It’s all complete insanity.
But WTF…this will all save the intergrity of everybody’s (401)K.
JQP ain’t got a clue.
WE ARE WAL-MART NATION.
“WE ARE WAL-MART NATION.”
I still prefer Target.
For 12 years I was a member of the FHA/HUD approved appraiser board.
I made minor edits to the next sentence.
The appraisers were coerced into fudging the physical condition of the property and the estimations of REMAINING ECONOMIC LIFE, which were rubber stamped at 30 years because the number had to reconcile with the length of the mortgage.
I changed the tense of some verbs so that all verbs in the sentence are in the past. The meaning though is very troubling, if these abuses are still happening then what is the point of a $700 billion bail-out?
“, I came to see it more as a marketing mechanism for seller’s to unload poorly located, heavily depreciated; marginally maintained property’s onto unwitting and unsophisticated purchaser’s egged on by real estate agents hell-bent on securing easy commisssion’s. ”
What’s alarming is that someone who can’t properly form a plural noun would be on the FHA board.
anonymous: True enough.
45 and anonymous,
Does it really feel that good stroking your weak egos pointing out minor grammatical errors?
Why not re-direct your lame-ass OCD traits back on yourselves, take a step back and actually self-monitor a little bit.
HINT: If you’re not a complete idiot, you’ll see how boring and socially clueless you come off to intelligent readers prioritizing cogent content over perfect spelling and form.”
Anti-Grammar Nazi rant off.
DOC
RE: What’s alarming is that someone who can’t properly form a plural noun would be on the FHA board.
Ya know azzhole, after posting on this blog for 3 years I’ve never made a comment attacking anyone personally.
The only thing I destest more than politico’s are cheap-shot schmucks who hide behind a computer screen.
So, blow me, you jerk-offs!
hd7:
Always enjoyed your posts and input.
Please keep posting.
I am lurker since the early days and rarely post so u must be an a-hole to get me going. You are both cowards. I too enjoy hd74man’s posts. I am certain that no one in here enjoys any content or substance that you have brought to this blog with your petty grammatical attacks….bug off!
First, Let’s Stabilize Home Prices
http://online.wsj.com/article/SB122291076983796813.html?mod=googlenews_wsj
Now, what about mortgages on homes that are worth less than the total amount of the loan? These mortgages could be refinanced into a 30-year fixed-rate loan to be held by a new agency modeled on the 1930s-era Homeowners Loan Corporation. New mortgages would be made of up 95% of the current value of a home.
The government might use two approaches to mitigate its losses. It could offer owners and servicers the opportunity to split the losses on refinancing a mortgage with the new agency. Servicers would have to agree to accept these refinancings on all or none of their mortgages, to avoid cherry-picking. Or the government should take an equity position in return for the mortgage write-down so that the taxpayers profit when the housing market turns around.
Our calculations based on deeds and Census data suggest that the total amount of negative equity for all owner-occupied houses is $593 billion. However, capping an individual’s write-down to $75,000 would reduce the government’s total liability to $338 billion and cover 68% of individuals with negative equity. Even this loss will be reduced as the proposal spelled out here raises housing values and economic activity, and contemplates loss sharing with lenders, hopefully matching the experience of the old Homeowners Loan Corporation.
I don’t have all the answers, but when I read these experts, I cringe. It doesn’t seem to matter who writes this nonsense, they never say that homes are too expensive as a relationship to income. The 3x income number never seems to enter their equations. And giving every FB a start over card will contribute to the loss of confidence in the system, since there would be no penalties for bad decisions. If home prices continue to deteriorate, does the government jump in with more relief? Why is it so difficult to understand that concept? The financial system will continue to deteriorate until there are honest and transparent accounting practices and realistic prices of real estate and securities. Sorry for the ramble, but this bailout of everything gets old fast. My 1998 Saturn has depreciated; buy me a new one uncle sam!
There was a very honest statement in this essay. The authors said “let’s give everyone a new mortgage.”
Including those who have lived modestly and paid theirs off.
The mortgage revisions have nothing to do with fairness, and everything to do with incumbents getting re-elected. The problem is that the party bosses with the money want a “yes” vote, and the majority of actual voters want a “no”.
I see this vote as proof that we are either a representative democracy, or an oligarchy of out-of-touch incumbents and special interests.
I hope this will not be seen as a political remark because that is not my intention. The only number I saw was that Feinstein received 91K phone calls about the bailout and 85K of them were against it. She voted “yes”. I would be willing to bet dollars to doughnuts that the numbers were the same on both sides of the political aisle and had the same impact.
These Senators must have been shown some DIRE numbers behind closed doors that so many of them went against their constitutents, R and D alike. That’s all I can imagine.
What REALLY bothers me is all the stuff that will happen if “the credit markets seize up.” 40 years ago, that would mean that people would have to live off cash. Big ticket items (cars, houses, furniture) would take a hit but that’s all, right?
Now they are saying that businesses depend on credit to MAKE PAYROLL? WTF? Does nobody, and I mean NOBODY have any rainy day fund of any kind? What the heck is going on in Accounting?
I noticed both she and Boxer voted “Yea”, along with Obama and McCain. Two more leeches I won’t vote for when they come up for re-election. This is a defining moment for this nation, where our public servants have blatantly defied the demands of the people they were elected to represent. Either the people are going to have to rise up against this tyranny NOW or forever lose their voices. I urge everyone here to write McCain, Obama and their representatives and voice their dismay for supporting this sham.
Oh… and I read a Peter Schiff quote the other day. He is advising people having trouble paying their mortgages to stop paying them and instead buy gold and stock up on food. He says it’s going to take years for the gov’t to wade through all the bad mortgages and actually evict people and in the meantime, people can live rent-free. Now I wish I’d bought a house with a sub-prime mortgage. I could be stashing away loads of cash right NOW!!!
Yey they are also saying that raising the FDIC insurance from 100k to 250k will help small businesses. SO which is it? Do businesses have cash or don’t they? It just seems they are all talking out their rear ends at this point. Nobody really knows anything, they just make this $hit up as they go.
All I know is bailout or no bailout, housing is screwed. Even if this bailout had a possibility of stopping house prices from falling if it were to be executed perfectly, we all know that aint going to happen. This is Washington we’re talking about. Nothing our government does is efficient or cost effective.
I agree with Peter Schiff, and so does my friend who’s father works for Homeland Security. Friend’s father told her to take money out of bank TODAY, print off bank and investment records, back up all computer files on to CDs, buy gold and silver, have enough cash on hand to last AT LEAST TWO MONTHS, have plenty of food and water in the house, and fill up her gas tank before this weekend. Now why would he tell her that? Perhaps the banks are planning to go on holiday? Could it be that the Rex 84, Garden Plot, or Cable Splicer black ops projects are to be carried out, and soon? Could it be that the credit crisis is MUCH worse than what we’re being told?
is everybody in panic mode?
what are THEY going to do, hold us hostage in our homes without water or electricity? turn off our cable or satellite so we can’t watch football? repo our cars or flatten our tires? then close down the tire shops and the gas stations so we wont be able to escape? maybe steal all our shoes? so if we try to get away, we will have to do it barefoot.
how far will all this panic go?
“But this can stop. The price of a home is partially dependent on the mortgage rate — a lower mortgage rate raises house prices.”
That was my favorite. So, why don’t these guys lend out their own personal savings at 2% so some over-his-head-in-debt consumer can have the house they deserve. If most Americans had the houses they deserve they would be out in the gutter.
Here is the fundamental problem in this whole mess. We HBBers understand that house prices are too high and need to fall. The “experts” think house prices need to stop falling. They are clueless.
Definition of a “fanatic”: Somebody that doubles their efforts after having lost sight of their goal. That describes the “experts” to a T. They say their goal is a strong economy but they don’t even know what that means. We better hope Asia subsidizes our 3% mortgage rates.
“But this can stop. The price of a home is partially dependent on the mortgage rate — a lower mortgage rate raises house prices.”
Gosh, when we refinanced our mortgage from its 1990 rate of 10.75% to its 1993 rate of 6.75%, our payments went DOWN. And our house price didn’t change. Where did we go wrong?
“The experts think house prices need to stop falling”.
They think/hope they stop falling, otherwise we will be talking about another $700 billion dollar bailout next year.
You would think that somewhere along the line some number cruncher would get an approximation of how far prices may fall by taking the current price, and subtracting the 3 times income number for the zip code that the house is located in.
Mort Zuckerman and some guy from the NYT were on Charlie Rose the other night……from listening to them, you would think they read this blog. Zuckerman was saying that house prices are up 60% from 2001, and there is NOTHING keeping them from dropping 60%, to put prices more in line with incomes.
I saw that. I think Zuckerman does read this blog. He may even post, making consistent grammar, spelling or punctuation mistakes to hide his identity as an editor. Deep cover…?
Zuckerman was kicking a$$es on CNBC earlier today.
Next year?? Try next quarter, if not next month. $700 billion is just the first appropriation (well, not counting bailing out AIG, the investment firm bailouts, and Fannie & Freddie). It will be 3, 5, 8 TRILLION before they’re done.
They’ve already tacked something like 6 or 7 Trillion onto the national debt just with what they’ve already bailed out.
It’s not going to stop anytime soon.
Including those who have lived modestly and paid theirs off.
Bingo! I paid my mortgage off in 15 years! What’s my reward? I have to pay for the Hummers and Granite Countertops for Sally Specuvestor.
When I was a teenager, I knew a guy in school who drove a new Mazeratti. 16 year old girls had new Mercedes. One of my friends dad had a personal jet, with a pilot. Lots of folks had ski condos in Colorado. And it all collapsed. When I saw this crazy BS in 2003-04, I knew something wasn’t right.
Back in 2005, some in Washington threw around the term, ’systemic risk.’ Indeed.
Poor Armando, nobody likes it when the fire marshall show up and tries to enforce the maximum occupancy rule….
Serf’s up… (deep in the heart of Texas)
http://www.youtube.com/watch?v=497ZmAsGAT4&feature=related
Ben,
Where did you live when you were a teenager? I assume this was during the S&L crisis of the mid-80’s? It seems to me that your “front row seat” during the previous boom (and bust) gave you a unique perspective on the ensuing one in the early 2000’s.
My question is though, if you were able to foresee this (as a non-participant in the previous bubble), why weren’t bank and housing regulators able to foresee this as well?
Texas during oil boom times, I think.
“”I don’t have all the answers, but when I read these experts, I cringe. It doesn’t seem to matter who writes this nonsense, they never say that homes are too expensive as a relationship to income.”"
Absolutely. Honesty and integrity. Of course that unfortunately is an issue with our country and society as a whole. To borrow Ben’s phrase it is “systemic”.
“The historical spread of the 30-year, fixed-rate conforming mortgage over 10-year Treasury bonds is about 160 basis points. So a rate of 5.25% would be close to where mortgage rates would be today with normally functioning mortgage markets.”
I guess they don’t realize that the 10-year treasury is currently being held artificially low. So, we refinance everybody to 5.25% now, the 10-year yield rises drastically, and new mortgage rates go much higher. What does that fix?
I heard a McCain adviser on Charlie Rose the other night say that what they might do is reduce principal on the FB’s homes, but change the loans to be recourse. Interesting approach.
Excuse my ignorance. What does that mean “change the loans to be recourse”? Thanks…
Example: I buy using $100K mortgage. I foreclose and walk. Bank sells house for $80K. I still owe $20K to the bank.
Non-recourse: The bank gets the house, but only the house. I’m free and clear. Bank loses $20K. The bank has “no other recourse.”
Recourse: Bank gets $80K from the house, and can seize my $15K motorcycle and $5K checking account to get the other $20K. Bank “has recourse” other than the just the house.
Some states are recourse, others are non-recourse. In general, if you re-finance, it’s automatically recourse even in a non-recourse state. For good reason. They don’t want people refinancing, taking the cash to buy toys (on the bank’s tab), and skipping town, leaving the bank with only the house.
Oops, didn’t quite answer the question.
Example: I can’t pay for my $100K mortgage, but I really want to stay. Bank says: “OK, we’ll change it that you only owe $75K. You can make those lower payments. But now, if you do foreclose, we will get that $75K back somehow, even if we have to take your best pig and firstborn. So don’t even think of just walking away.”
It’s a way to “keep” — that is: “TRAP” — me in my home, especially if I’m underwater (owe more than the house is worth).
Honestly, it might not be a bad deal if it’s my only home and you really do want to stay there and pay it off, and pay it off, and pay it off (and pay it off forever, with interest). And, the plan doesn’t work well for fraudsters, second homes, equity locusts, specuvestors, etc.
I definitely would choose Peter Schiff’s option (I posted it above). Homes are not at their bottom now and won’t be until the last of the ARMs re-set in 2011 at the soonest. Why would I want to lock myself into a house that is going to continue to lose value AND put up my best pig for collateral! That’s just stupid!
I think that things will continue on a wide flat bottom after 2011. The nations death rate will be increasing… sorry mom.
Plus there are always time constants in systems like this. People don’t slip underwater at first with heavy debt loading. Those guys have already been creamed.
Normally something happens. Divorce, job loss, spouse dies are big ones. So many people are in a fragile state it will be the little things. A moderate illness will put them behind and they have no way of recovering. Will take credit hits and become more fragile. Then its a flat tire or minor car accident…
This is going to go on for a long while unless we are able to inflate away the problems while defaulting on our foriegn debt. Either way this is a mess.
Why couldn’t we have avoided this whole little party.
Silly rabbit! Serfs aren’t supposed to OWN anything!
Now, get back to working 12 hour days to pay off the “starter home” that is 5x your income!
Argh!
was the only customer in a sports authority store yesterday afternoon. browsed for over an hour.
enjoyed the peace & quiet. definately a change of pace from the usual. hope it lasts.
I’m not a big shopper but I did go in to 2 Foot Lockers in Manhattan yesterday. I had to get a new pair of shoes for our trip to France or I would have shopped online. The first store didn’t have my very manly size 8 on hand. So, I went to a second store. There were no more than 3 shoppers in either store. It was 3 in the afternoon. I usually buy such things online so I don’t know if this is typical or not. I had plenty of people to wait on me. Too bad I had to listen to that hip-hop sh*t while I shopped. I will be going back to my online shopping.
I thought size 8 was sample size? There should have been huge inventory for you. Or is my age showing here?
Lucky you. I always get mauled by sales people.
I always dress like I don’t have two cents to rub together to avoid getting bombarded by sales staff. During the boom it worked great, but now that the stores are empty its not working to well.
costco was half full yesterday, with more employees
than shoppers. Why are there so many worker people at costco?
RE: Why are there so many worker people at costco?
To be on the look-out for shoplifter gangs.
There was a nicely written piece in the New Yorker recently about the pervasiveness of shoplifting gangs and how lucrative they can be. Sobering stuff, if you’re a retailer.
To be on the look-out for shoplifter gangs.
I had the vision of a shoplifter with a 24 pack of TP “hidden” under his coat
My ex-wife’s step son was busted for shoplifting toilet paper.
Chip off the old block, he is…….
“hope it lasts”
I’m no retailing genius, but I would guess that unless aqius bought a ton of crap at that particular store . . . it won’t last.
Stuff will be much cheaper the next time you go - as in going out of business sale.
That’s the trickle down that most people (present company excepted) don’t get, falling retail sales (including dreadful auto numbers) will result in closures, layoffs and even less spending.
“The Senate added the tax provisions to woo Republican votes in the House, where an earlier version of the bailout plan failed by 12 votes on Monday.”
And I thought that silly document that no longer pertains said revenue bill have to originate in the House.
The gloves are off for many Americans now, I just hope there’s enough of them to clear out the incumbents.
RE: The gloves are off for many Americans now, I just hope there’s enough of them to clear out the incumbents.
Doesn’t make any dif. The US voters are being terrorized, black-mailed, and extorted by the PPT in cahoots with the Wall Street gangsters.
Don’t like the bail-out? Here’s another 700 point drop in the DOW to try on for size.
How you like them apples for your 401k retirement fund?
Functioning democracy is dead in this country.
These politico’s will vote whatever way they’re told by the bag-men delivering the pay-off’s from those who pull the puppet strings.
And I thought that silly document that no longer pertains said revenue bill have to originate in the House.
You’re right.
Reid performed some legislative sleight-of-hand to get around that obstacle — ithe bailout measure was attached to a an older proposal for energy tax incentives, I believe.
This non-compliance will make it easier to repudiate the resulting debt when the time comes.
The bill did originate in the house (as an alt energy bill). The bailout is now an amendment.
Marchers to Downtown housing office get only referrals
By Ron DaParma
TRIBUNE-REVIEW
Thursday, October 2, 2008
Chanting “Save Our Homes,” members of a group working to help people facing home foreclosure marched down Sixth Avenue, Downtown, on Wednesday as the government introduced a $300 million program to help troubled homeowners swap mortgages for affordable loans.
…
To qualify, borrowers must be spending more than 31 percent of their income on mortgage payments. Loans made this year are excluded, except for those completed on Jan 1. Borrowers must have made six months of payments on their loans.
…
“Some of these loans are so bad that they are driving people into foreclosure, and that’s part of the problem,” said Maryellen Hayden, head organizer for ACORN in Pittsburgh. “The homes of about 400 families a month in Allegheny County go to foreclosure, and we are really trying to stop this.
“We decided to come down here and ask for help because they took the help out of the $700 billion bailout package.”
Pittsburgh Tribune Review.
Leigh
Austin King, exec. dir. of ACORN, wants a write down on principal, not a rewrite of terms. What this tells me is that people are not interested in staying in their homes, they’re interested in EQUITY in their homes. It also speaks volumes about the success/failure of this bailout. Foreclosures will continue until the taxpayers own every one of these toxic loans or the gov’t reduces principal. Which will happen under Pres. Obama?
Well, he does agree with most people on this blog that house prices must fall. He is just going about it in a different manner.
People would rather have handouts than affordable housing.
People would rather bankrupt the country than accept the fact that their POS house isn’t worth what they hope it is.
I hope they aren’t hoping for money from the local government. Pittsburgh is as broke as they are.
add california to that list of broke states.
For those of you whose idea of “safe money” is to take cash out of banks and bring it home (or you are contemplating such a move):
http://www.nytimes.com/2008/10/02/nyregion/02shoot.html?ref=nyregion
And let me just make this prediction right now: if more and more people make such a move, home invasion robbery will shoot up like a Christmas tree since bank robbers knows there is no more money in the banks and will turn to home invasion robbery instead.
cougar
random home invasions are rare. instead, it usually happens when people mouth-off too much about what they have in their homes.
word gets out & circulates to the “wrong” people!
(notice all the characters in that article. their last names, proximity, etc.
I bet they all ran in the same social circles. probably yakked in the halls, needlessly talked about financial personal details.)
The simplest solution to that problem is to make everybody believe that you are broke, and do not have any money…
Keep your mouth shut about your finances unless talking about it with your accountant, or your financial planner.
“The simplest solution to that problem is to make everybody believe that you are broke, and do not have any money…”
Done and done. That is so easy for me and I’m not even an actor.
I tell my clients to have a checkbook that is not part of their trust so they can write everday checks without the receiver finding out they have a trust. Too many people still believe you have a trust because you are filthy rich, not just because it’s good planning in CA if you own real property and/or have kids.
I may be paranoid but I believe if you have money you don’t talk about it, you don’t flaunt it, and you don’t tell people that it is hidden in your home. (And I live in fire country so any valuable in my home are in huge danger of burning - thus I don’t have any. The real valuables - photos and mom’s art, etc., those will be lost which is bad enough. For my pets I’ll drive through the barricade and run into the fire. It really is time to move.
)
While it is rare now, what happens if the majority of the population takes all their money out of banks into their homes? Think about that. Once famous robber was asked why do you rob banks. He replied “because that’s where the money is”.
My childhood neighborhood went to steel barred windows in the 60s. Welcome to Argentina.
Some great business opportunities for home builders; house hardening.
It mattress not where you keep your long green, but please think of a better hiding spot, and burying your debt instruments 6 feet under seems grave.
It’s not too late to move your moolah overseas, away from the threat of overseize.
It occurs to me that America will be universally blamed for what happens. if it gets uncomfortable to live in the USA, how much more to be an “American refugee”.
85% of Americans don’t have passports, meaning they haven’t been anywhere.
Last year when I renewed my passport, it took 4 months to receive the new one.
Imagine what will happen when people see the light and want to exit stage left, right, bottom or top?
No passport, no exit.
The best storage place for all that gold might not be a foreign country. It might be a foreign planet, like Uranus. How many gold bars do you think Uranus could hold?
Actually, they have changed the law for American citizens, its now:
No passport, no Entry.
Those of you that don’t have a passport, why not?
It’ll cost you around $100.00 to get it done, and you are under no obligation to travel, but at least you’ve opened the door to being able to do so.
Mr. Anderson: ” How many gold bars do you think Uranus could hold?’
Beavis: “Mmmm heh meh mmm mehheheh”
“Imagine what will happen when people see the light and want to exit”
Yes, good point. When America is smoldering wreckage it will make perfect sense to be globe-trotting with satchels of mellow strapped about your thong. Great “escape” plan.
Exactly who and what will you be running from?
“Exactly who and what will you be running from?”
Muggy et al,
A cautionary tale…
My grandfather was a wealthy man in Czechoslovakia in the 1930’s, and he saw the clouds of war coming, and being a patriot, he wasn’t going to let down his country of which he was rightly proud of, by leaving…
He instead tried to insulate himself from the nazi horror show, by depositing 5,000 Pounds Sterling in an English bank in Prague for each of his 3 children, his thinking being that the money was safe.
Almost 70 years ago to the day, adolf & co. were handed the Sudetenland on a platter by England and France, and a year later the nazis took over all of Czechoslovakia, and the poms and the frogs didn’t want to make waves, so they let the 3rd reich have all the money in their banks, including my grandfather’s.
Goodbye 15,000 Quid (approx $250k in today’s buying power)
After the war, the Soviets completed the daily double of theft, by confiscating all grandfather’s real estate holdings, which were substantial.
He died about a year before I was born, a broken man in both spirit & substance.
I’m as much of a patriot as the next guy, but naked totalitarianism ain’t my bag, as we have a family history of having been there and done that, and suffered because of it.
Twice bitten, once shy.
Thanks for posting that. I was actually reading another blog this evening, when I was going to come back to apologize for harassing you (no shit, I’m serious here).
I’d rather communicate with y’all than watch the VP circus currently underway.
Anyway…
I realized this evening why you frustrate me: because you’re smart, but other than housing, we don’t agree on much. So, when you gold bug on me, I ask, “what am I missing here?” I don’t like that you’re betting on what I would say would be a pre-cannibal society, but…
My family is basically Appalachian farmers, until my dad ditched rural Ohio for a paper sales job - No shit, Dwight, Dunder Mifflin. I’ve read a lot of Kunstler in the last few months and it really freaks me out when he pegs technology and progess to cheap oil / fossil fuels. It’s a reasonable argument, and many of your arguments are reasonable as well. Combine all of this with the fact the my wife and I welcomed our first baby into this fragged up world a half year ago… I’m a little tense, sorry. The only reason my wife puts up with this blog is because the bubble has destroyed some of our friends and is starting to munch the edges of our family. This won’t surprise you, because I live in Florida, but it has even affected our childcare… TWICE. I’m hanging on by a thread, but at least I’ve done it all ethically and accepted responsibility all the way. This is why I say at some point, I have to make a stand. I can’t just run all over the world waiting for shit to settle.
If having gold all over the world is what it takes to make it through this, then I’ll die on my front porch (of my rental, nyuk yuk) defending my sprog, wifey, rice sacks, kick ass grill, and sweet guitar collection.
Show me another country that was formed on the principles of the Enlightenment and Age of Reason. Then I will move there.
Does your new country have a Declaration of Independence? I doubt it.
America is going socialist. But it does not mean we will permanently be socialist.
The next 4 years are going to be very bad, and yes, this Congress is doing more harm than good.
But we, the responsible savers, will win in the end. And that’s not really a long time away.
We will all do our best to avoid taxes and invest in gold and other tangibles and just hold them.
We will not sell our stocks and incur capital gains - that will only feed the socialists.
Personally I lost a lot of my net worth in the last 3 weeks. 20%? 30%? I don’t know. I don’t care. I do know that I am not going to incur capital gains. I don’t care if I get 20 cents on the dollar on any of my equities if I sell tomorrow. But see, I won’t sell tomorrow. I will sell well past the next 4 years. I won’t fund the massive waste and socialism that we are going to go through. Thuck Fem! They will make us suffer so much that we will vote for 435 Ron Pauls to Congress and one to the POTUS. At that point there will be no capital gains tax and stocks will build up again. The average american will accept full responsibility for his actions and decisions like it or not.
I’ve thought about that. And how about investing abroad? When we are bankrupt, “American” assets are going to be seized. Judging people was individuals was an American idea only.
>overseas
Ok which country? Inside a bank in that country? What kind of guarantee does that bank have for depositors who are not citizens of that country? Or do you store gold bars in that country?
“Or do you store gold bars in that country?”
And there is the possibility that that country could freeze assests during which time gold values could plummet before you had access to you gold. I’ll take my chances at home.
“It’s not too late to move your moolah overseas, away from the threat of overseize.”
I must say you sure take a giant leap of faith; America bad, anywhere else, good.
In college a “reformed burgler” came to speak to one of my classes. He said his best advice is that if you have cash at home, don’t put it in the top drawer of any piece of furniture; e.g. chests of drawers, bed table, etc. I followed his advice. My home was burglarized (fortunately, I wasn’t home) and that ex-robber was right in my case. The burglars dumped the contents of my top dresser drawer on the floor but didn’t bother with the other three drawers. I had my cash hidden in drawer #2. It was only $200, but that was a lot for a 22-year-old in my day.
Something is off with this report.
Did he know she had money? (cash)
Leigh
I don’t have enough to bother with, but my four dogs would make a burgler stop and pause. They’re good dogs, but he wouldn’t know that - I’ve never had to say siccum, but I bet they would love to have my permission.
Once again, watch Carlin’s comedy skit about stuff. He hit the nail on the head.
And Cougar, you asked yesterday where I’m putting my money after I take it out of the bank - I’m distributing it to various needy and poor friends. none are FBs, they all live under bridges. They have all promised to make good and pay me back someday.
You might be in trouble if he turns out to be a dog thief.
He’d return them after a short time.
you’d have to be a moron to actually keep it in a safe or obvious hiding place…Wrap it in the freezer label it lazagna, Bottom of the cereal box in back, False bottom in a potted plant…
I thought about sticking it in the woodburning stove. Nobody would think to look there, would they?
“And Cougar, you asked yesterday where I’m putting my money after I take it out of the bank - I’m distributing it to various needy and poor friends. none are FBs, they all live under bridges. They have all promised to make good and pay me back someday”
I love you!
Unemployment is increasing. Credit markets are frozen. Stock markets are crashing. Car dealers are folding. Home prices are plummeting. It will soon be a great time to buy a home, no?
The captain just said put your head between your knees and prepare for a soft landing.
30 yr fixed mtg 6.02%
15 yr fixed mtg 5.73%
30 yr fixed jumbo mtg 7.27%
5/1 ARM 5.99%
5/1 jumbo ARM 6.28%
Hard to believe these rates are considered “a dangerous credit crunch”
The credit crisis is in commercial paper. If corps can roll it over then corps can’t make payroll. Economy go boom.
Dang nab it. I think faster than I type. Let’s try that again
The credit crisis is in commercial paper. If corps **can’t** roll it over then corps can’t make payroll. Economy go boom.
Question - how did companies make things work before credit?
One answer: they weren’t huge corporations needing vast reserves to operate, they were smaller businesses closely held and actually managed by people who had a stake in them. I say let the corporate bloodbath begin. Smaller companies will be created to make what we need, if we don’t need it, sayonara.
I view current corporations in the same light as what AMF did to Harley Davidson’s reputation during it’s lost decade of the 1970’s…
==================================
In 1969, American Machinery and Foundry (AMF) bought the company, streamlined production, and slashed the workforce. This tactic resulted in a labor strike and a lower quality of bikes. The bikes were expensive and inferior in performance, handling, and quality to Japanese motorcycles. Sales declined, quality plummeted, and the company almost went bankrupt. The “Harley-Davidson” name was mocked as “Hardly Ableson”, “Hardly Driveable,” and “Hogly Ferguson”, and the nickname “Hog” became pejorative.
http://en.wikipedia.org/wiki/Harley-Davidson
Well, they seem to be considering “nobody will lend to people who can’t pay the loan back” a credit crunch in the consumer arena.
If you look good for paying it back, getting a consumer loan is still really easy.
Why would anybody continue to pay on any mortgage from now on? The prudent thing to do would be to just patiently (while not spending a dime) wait for the government to contact you to discuss how much less your loan principal now is and how much lower your payments will be. This bailout could be a the single greatest thing to happen to homeowners. Barney Frank, you are the man!
Barney is on CNBC right now. This man is a lisping embarrassment to the nation. Good job, Massachusetts!
Oh god, he just said that nobody could have seen how the subprime crunch would “reverberate around the system”. What a crock of sh*t. Anybody on the HBB that didn’t see this coming please stand up and wave to Barney. He’s a lying sack of dung.
I’m waving……..something.
Unfortunately, he may think I’m “trolling”…….
“Barney is on CNBC right now. This man is a lisping embarrassment to the nation. ”
Please keep your homophobic comments to yourself. Not everyone on this site likes hearing hate talk, however thinly disguised.
Barney does have an actual lisp. Nothing to do with homophobic behavio that I can see.
How dare you say he has a lisp? The PC Police, led by Inspector Virtual, might cry if you actually state the truth. I hate all you PC losers.
The good ship lollypop is lisping to port.
I’ll say it again … however thinly disguised.
You’re one tough dude, NYCityBoy.
“I hate all you PC losers.”
Why don’t you get out your brass knuckles and show us how tough you really are? Take out a few of those whimpy fags while you’re at it. I dare you big boy!
Frank has a bad lisp - it’s true. Nobody here is implying that he’s homosexual or that homosexuals are “bad”.
Are you implying that all homosexuals lisp? Hate speech!
No. I’m stating that Barney Frank is a lisping moron. If he stuttered I would call him a stuttering moron.
Paulson is a flaming heterosexual.
Quick question - what does a lisp have to do with being gay? Hadn’t heard that one before . . . .
Ask NYCityBoy to explain.
LOL! You’re the one who inferred people who lisp are gay.
Perhaps you’ve never seen Barney Frank speak? He lisps. NYCBoy can be harsh, but I back him on this one.
Everyone needs to lighten up and stop with all the knee-jerk accusations.
I’ll pay because I promised I would. That’s what people with integrity do. Sleeping like a baby every night is my idea of the good life.
Just read the sob story on WSJ Online about the illegals going home, because they can’t find construction work any more.
My questions: Would the homebuilders have built as many houses as they did, if they had to pay the going rate for “legal” construction workers?
How many man/hours does it take to build the typical suburban 3/2 2000 sq ft house?
How much money does the contractor make when he hires illegals, instead of US construction workers? Labor costs cut in half? And how much did all the available illegal labor affect the “legal” wage scales?
My opinion is that if the contractors were to use the “legal” labor market only, it would have put an upper limit on housing starts.
Now, if we can only halt the exponential growth of the half-a##, mom and pop Mexican restaurants…………
How much faster will the new home fall apart because it was built like S#@t ?
I suspect that if construction costs were higher, the ultimate loser would be the landowner who sells to the developer. After all, the developer is willing to pay (anticipated house price - (construction costs + profit) for the land. If the costs for all the builders is higher, all their bids for the land will be driven down.
“My questions: Would the homebuilders have built as many houses as they did, if they had to pay the going rate for “legal” construction workers?”
Yes.
-
“How much faster will the new home fall apart because it was built like S#@t ?”
Actually, some of the best workers and workmanship that I saw were Mexicans.
Some of the most appalling and illegal work that I saw were blue eyed, pro-Iraqi war, pro-Bush builders, and here’s the punch line: who would hire illegal workers and rail against the immigration policy. The builders would use the cheapest materials and even remove rebar before a pour and after having passed inspection. The Mexicans had more integrity and did the best they could.
That is how I found this Blog years ago, I was looking for forums on shoddy construction.
Muir,
You’ve obviously haven’t spent much time on a construction site. Not flaming you here. The Mexicans overwelmingly work as un-skilled or semi-skilled labor. I’m not saying that the vast majority don’t work hard, they do. But how much sheetrock does a nation need? Hiring illegals is like feeding a stray dog to me. You never get rid of them if you feed them. That’s why I haven’t hired any of them for work around my home. I’m talking about gardening and some much more labor intensive work around the house. I could take the easy way out like a few of my neighbors but they are part of the problem in my opinion. It seems most everybody want’s to take the easy route.
I know it’s very late in the game, but try to look beyond the hood ornament when it comes to your actions.
Don’t feed the wildlife!
Stepping down from soapbox,
Mike
I don’t feed the wildlife, but I would feed a stray dog, and I’d then find it a home, Just sayin.
Agreed Mike, seriously.
My dad has been a contractor for 20 years. He literally can’t compete with the mexican “contractors” who use the same or a fake contracting license or none at all, use illegal labor, and underbid him. They routinely do shoddy work or don’t finish work and then move on to use a new license number or just change their name.
My dad doesn’t live large at all - very much a salt of the earth type guy, but he does like to pay his employees what they are worth. Not possible when the competition is pocketing much of the funds from homeowners for supplies and paying unskilled labor $6 an hour.
What used to really get him was that he had to pay several hundred dollars for his kids to ride the bus to school - money was tight for someone honest in construction during the 90’s, while the illegals kids or those who he knew were cheating on their taxes in construction had their kids ride for free. He also just watched several of these same “contractors” buy several houses in the credit bubble over the past years - all of whom have walked and just changed their names again.
I think you read too fast. I’ll slow down.
-
And, well, I’ll amend a little. In Florida, and this is my only experience, I have seen many contractors and subs hire out the Mexicans and COMPLAIN about illegal immigration and how they are “forced” to these measures.
I saw this in predominately white non-hispanic, per census, Central Florida. (above Orlando in Lake County it is 92%)
I also saw that elsewhere in the State but had front row seat in Lake County.
I only saw one company that was “owned” by a Mexican. The license was under his partner, a good ol boy. Now that company would have workers that were not covered by insurance. When one of the guys had a leg that was crushed, he was sent to live in Mexico with transportation/medical expenses paid for.
All commissioners knew about this, as well as every other builder and supplier.
So… who are the guilty party?
-
The last part is much less important but I’ll mention it. The licensed plumber I used (in business for 30+ years) used both legal and illegal help. The rough plumbing was done by the Mex(illegals) there work was excellent. The final plumbing was done by locals. Guess who were more respectful and professional?
-
Blaming illegals is just another of the victim mentality I see, whether from Lou Dobbs, or in this very Blog some times.
It is so obvious.
It’s like the housing bubble type of obvious!
Who hired them? Because if you did then you can’t say you were the effect, a victim. Yet, that is exactly what happened.
I too do not which to flame and only post because I do believe the original question was valid for HBB: Would the homebuilders have built as many houses as they did, if they had to pay the going rate for “legal” construction workers?”
The illegals were just gravy for them, the answer to me is quite clear.
I don’t blame illegals. I don’t like their presence in my community, but I don’t blame them. I blame their employers and I blame the government for not enforcing the laws, or enforcing selectively.
People have become confused and equate illegals with Mexicans or even Mexican-Americans. I can assure you that many of the Mexican Americans in this area are NOT pleased with the illegal population here. I hired a licensed, Mexican American plumber to fix a job that TWO white trash plumbers couldn’t fix and he was fantastic and worked hard to get the job done. It had nothing to do with his ethnicity. I appreciate anyone who can get the job done, legally.
A co-worker back in 2003 got quotes to re-roof her house.
From the legit contractor: $9,000
From the crew of Illegals: Less than half that.
Guess who got the job?
Our government has enabled this labor free-for-all, to the detriment of the US labor force. (Don’t believe me? Try to go find a Union Meatpacker). Business has more pull in Congress than the average J6P. It’s just a good thing we don’t share a common border with India or China.
If 12 million Mexican/Central American MBAs or Politicians had crossed the border, and were undercutting THEIR jobs and wages, we’d have bumper-to-bumper Bradleys and Abrams tanks along the Rio Grande.
Thank you, your post made my afternoon.
I wish I could communicate as clear as you did in your post.
Thanks again.
Palmetto, The hypocrisy I saw in the building trades in Lake County was unbelievable. Shame really, some of the most beautiful hills for 300 miles around. (or North, if you prefer)
I am all for legal immigration. Almost everybody here is a descendant of an immigrant.
I agree that the contractors who use illegal labor and then complain about the problem is the zenith of hypocrisy. I, in my own way, refuse to contribute to this problem.
And Muir, I don’t think the illegal work force had much to do with the over building problem. It may play a very small role but I think the big boyz would still have done the same thing.
Mike
I have heard that the influx of illegals drove the average construction wage down from $15 per hour to $9 per hour, so I would guess that the profits at least were higher. Also in Florida, the workman’s comp was very expensive and of course you didn’t need that for the invisible work force. I talked to a group going around repairing roofs after the spate of hurricanes in 2004/5 - they were Guatemalan and loved living in motels and getting free breakfast every morning.
Hardly. Those builders were going to build, not matter what.
After homes, cars are the most expensive item most of us buy.
In many bigger cities there are dozens of new car dealers for every make of automobile, if not more.
Many a metropolis relies upon the sales tax levied from chariot sales, and as sales have been fairly predictable for such a long time, one would assume that mark-to-model revenue was an accepted accounting procedure for said burbs.
We aren’t talking chicken-feed amounts of money either. Every new car sold in recent years was around $20k, if not more.
Sales of cars made domestically plunged around 35% from this time last year, and what made yesterday’s numbers so very frightening, was Toyota’s sales were off by 32%, meaning it isn’t so much an issue of perceived quality, it’s more of a total collapse in interest of acquiring a car, any car.
I would suspect that it’s not so much interest, but ability to get “subprime” car loans.
Another reason i’d suspect, is young adults not having the same auto-neurotic-fixation, as we did.
Cars represented freedom when I was a lad, but not so much anymore, as along came a spider weaving the world-wide-web…
Cars are such a waste of $. Hopefully, people will hold on to their cars, awaiting new technologies and rail.
Besides, cars were sold forward. They chewed through an artificial demand.
Nah, they can’t HELOC their home any more.
There is a (possible) silver lining…….
Among the Big 3s problems, is that they have too many dealers. To force a dealer to close/merge, they have to shell out the big bucks. Especially if they decide to discontinue a brand (like Oldsmobile).
It looks like they might get a little help culling the herd. Goodbye Pontiac, GMC, and Mercury?
I’m still interested in someone coming up with a “I paid that much for my first house” chart, comparing home prices to car prices.
Actually, I remember my uncle saying that to me when I was with him while he looked for a new truck in around 1988. We saw a car for 26,500, and he commented to me that the price was more than his parents (my grandparents) had paid for their house not too many years before then. It amazed me at the time and was probably my first real lesson in inflation.
When I was a newborn lad…
A house in el lay was $15k
A gallon of gas was a Quarter
A new car was $2k
Inflation’s been along for the ride my entire life, as now prices are:
A house in el lay costs $500k
A gallon of gas costs $4
A new car is $15k
Ah, yes, Aladin. What you’ve just said “sounds” like inflation. BUT, you’re ignoring the hedonic adjustments to your purchasing power with today’s strong American dollar.
The new car for $15k has air bags, side air bags, a CD player, and a GPS navigation system.
The house for $500K has a great room, in-ground pool, landscaping, and skylights.
Why, even that gallon of gasoline you cite, is a much-improved product today. Surely the value of removing the lead from that gasoline is worth an additional $3.50 a gallon…
Congress now comes with hot-air-bags, and I don’t feel any safer with them driving…
Lead was actually added to gasoline to get rid of the knocking and pinging.
“…..has air bags, side air bags, CD player, and a GPS navigation system.”
NONE of which I want or need, but am forced to pay for, either by the government. or by option “bundling”.
I finished up my early 70’s muscle car project a few years back. I drive it 3-4 times a week when the weather is nice. The main thing that it has reminded me is that, fundamentally, new cars cost a helluva lot more, and are about five times as complex, but they don’t do the day-to-day job any better than something built in the 70s.
Fact: The STEREO in my current driver has more wiring and connectors in it than the WHOLE ELECTRICAL SYSTEM of my old car.
We didn’t have fancy stereos back then……with the engines we had, we didn’t need no stinking stereo….:)
I like whatever it is they replaced the carburetor with, so you don’t have to pump the gas and your engine doesn’t flood and you don’t have to open the hood and unstick the little wing things with a screwdriver anymore.
And a CD player for audiobooks is nice for driving through Oklahoma if you don’t care for country music or radio evangelists.
“To force a dealer to close/merge, they have to shell out the big bucks.”
Not only that, but if Michigan is any example they also have their own association and lobbyists at the state capital which allows them and politicians to throw up various legal hurdles as well.
My fiancee and I just bought a 5-year-old used Honda with very low miles. I estimate the car will last us a good 10 years at least and probably 15 years, from my past experience with Hondas.
We sold the previous car, a 16-year-old Honda with around 270,000 miles on it, to a good friend of ours for a very small amount. Since the car has been well-maintained and not abused, and they will be putting less than 10K a year on it, it’s conceivable that they could get 3 more years out of the car, maybe even more, before the engine needs to be rebuilt.
Many people I know at my income level have been doing the “buy a new car every 3 years” routine for a decade or more - and thus wasting tens of thousands of dollars on depreciation that they could have put in the bank. I’ve called some of them stupid right to their faces; one guy bought (on a 5-year loan, of course) a $52,000 car and I told him he might as well have piled up $17,000 on his front lawn and burned it (32% instant depreciation when he signed the sale contract). Didn’t go over too well!
What I’m saying is that car sales are going to fall off dramatically just because people are gonna hang onto whatever they’re driving for at least a couple more years than previously, even the above-described idiots. Also, people who aren’t idiots will shop smart and buy good used cars and take good care of them.
Every car maker is about to get their asses handed to them at retail. If even Toyota is down a third (!!), it’s a very bad sign for car makers.
I thought most of them leased. So gosh, now what do they do if they can’t get a lease anymore - does bad credit affect leasability? Will standards for leasing plummet due to over supply?
Donated my 93 Honda Civic to charity two years ago after 319,000+ miles of virtually trouble free driving; only changed oil every 3K miles….religiously. Other than normal consumables and an alternator, did nothing. Still averaged 34 mpg in the last year of use.
I paid $55,000 for my little house in 1992 - in post-bust Austin TX, a fundamentally nice but horrible-condition fixer-upper in a great neighborhood (back before the RE people started hyping it with “78704 Not just a zip code … a way of life” bumper stickers and the like - harbingers of McMansions, condos and lofts to come).
A few years ago when our old Land Cruiser was in the shop a lot, one of the Toyota salesman was always trying to get me to test drive, or at least look at, a new one at $56,000 +.
I see MSRP on a 2009 Land Cruiser is $64,755. Cup holders and leather seats, oh my.
Those in the Boston area probably know there a Lexus dealership in Watertown. They started off in a small lot and moved to a humongous lot with a multi-stories garage to house the inventory. Every time I drive by, I see rows and rows of brand new cars and SUV’s. Now that the HELOC money is gone, who can afford a $50,000 Lexus? I give this dealership a year max before BK.
After homes, cars are the most expensive item most of us buy.
Tell that to my Piano!
Well, la-tee-da.
ROFL!!!
Buying a car here in CA is interesting. I live in Salinas, but if I can’t find a dealer here willing to deal and instead spend time and money to travel to Los Angeles to buy the car at a better price I still have to pay sales taxes to Salinas for the car’s purchase instead of Los Angeles.
Heh. Just celebrated 10 years with my ‘96 Subaru. Got another 6-8 years on it I think.
It helps to have a hubby who can work on these beasts.
Finally, real estate “marked to market”
Bid of $1.75 on eBay gets abandoned Saginaw home
http://news.yahoo.com/s/ap/20081001/ap_on_fe_st/odd_cheap_home
Yes, but where is the granite?
I’m not so sure the Saginaw market has reached bottom, as there’s still 7 Quarters to go.
This home will probably cost her hell lot more than $1.75 to cleanup, just wait until city hall comes after her for all kinds of code violations. She is gonna wish she never “won” that house.
The way things are going, she may be able to sell it to the government for a lot more than she paid.
Given she’s from Chicago, she either thinks cheap houses are automatically bargains compared to Chicagoland prices or is a flipper wannabe trying to make an easy few. The house is a teardown.
I think she bid 1.75 on a lark and is stunned that she actually won.
Lowballing is dangerous because sometimes the seller says “yes.”
Maybe she can claim she can’t get financing.
Here in upstate South Carolina ,Not much is selling except lakefront property,which is still rediclosly high.Never could understand the allure of that stuff,with all jet-skies and week-long partys all around you.
Also reasonably priced here is[Under 80K].housing for families is still selling.The Rich Florida people who were coming up in droves,are no longer coming,because they can’t unload their own houses down there.
I agree with you on the upstate South Carolina prices. I keep hoping that prices will drop considerable in the mountains as I want to buy a lot in Western North Carolina. The price drop is very good to see.
Oct. 2 (Bloomberg) — U.S. stock futures tumbled as jobless claims climbed to a seven-year high and rising borrowing costs spurred concern companies will struggle to secure financing.
“The fact that banks are still being cautious, that we’re seeing companies finding it hard to raise debt, means people are going to lose their jobs and that has knock-on effects for the whole economy,” said Andy Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London.
Short the phone book. This sucker is going down.
Comment by cougar91
2008-10-01 17:38:50
on Mr. Warren Buffett: “A guy who started with nothing but now worth > $50B makes extremely smart investment decisions, maybe the best in the history of financial investment arguably.”
Obviously you do not know your history. “Warren Buffett was born in Omaha, Nebraska on August 30, 1930, to Howard and Leila (Stahl). (Howard Homan Buffett (August 13, 1903 – April 30, 1964) was an Omaha, Nebraska businessman and four-term Republican United States Representative.) As the son of a local stock broker, it is likely that he was exposed to markets at a young age. One of his influential mentors was Benjamin Graham. Graham’s philosophy had such an impact on Buffett that he enrolled in Columbia Business School to study directly under him. ”
The son of a stockbroker and US Congressman is not starting from nothing. Most of his early investors were politicians. And it was an average company until he acquired Berkshire. I am not taking anything away from Mr. Buffett, he was a great investor. Is he still a great investor? Time only will tell, but he is still in the game.
“Nothing” was a comparative statement more than anything else, as compared to the > $50B he has now. If he inherited $1B from his parents then he would not have started with “nothing”, as compared to what he has now. I didn’t mean he started as a poor man with barely running toilet in the house, if that is how it came across.
Trump had to overcome his meager roots, too. These guys were born on third base and act like they hit a triple. F-ck Warren Buffett.
I like your anger and will up you a few even better cusswords.
%^$#@2 Buffett and the Lear Jet he rode in on.
%^$#**# Trump and the silver spoon he sucks.
ad infinitum for these poor rich weasels
Well let’s see,
He made billions, for himself and his shareholders.
He pays himself a modest salary, unlike other CEOs, and makes most of his money from added values he generates for his shareholders. No golden parachutes here.
He lives in the same modest house for decades and drives an old pickup truck last I heard, no flashy cars or McMansions.
He is not flashy or attention whore, like Trump is.
He will donate almost all his money to charity when he dies.
So how is Buffet exactly comparable to Trump?
He compares because he has money.
But, if he doesn’t like conspicuous consumption, why the H-E-doublehockeysticks bother to get rich in the first place?
Loser.
Yesterday there was a debate on whether DCF (Discount Cash Flow) valuation model can be used to value MBS when a large # of MBS securities have significant defaults underneath. The answer is that it absolutely can, as long as you model the default probability correctly. In fact all bonds other than Treasury bonds have default assumptions built into them, such as MBS and ABS.
Let’s review:
DCF: PV = Sum(CFt/DFt^t) for t=1 to T, where CFt = cash flow at time t, DFt is the discount factor at time t, and T is the maturity. T is 15 for a 15 year bond and so on.
DF (Discount Factor) = risk-free rate + credit spread. Credit spread is where default assumption is made. So if the risk-free rate is 5%, and the credit spread is 5%, the discount rate is 1.10, compounded annually (or whatever the compounding period is). Credit spread involves estimating the likelihood of default by the debtor.
Default probability modeling - standard methodology calls for using a Poisson process. Poisson distribution is a widely accepted math model that predicts “how-many occurrence of a named event in a given time-period”, such as “how often can a borrower be in default given 15 years of pay-back period”.
Poisson Process: f(k;λ) = (λ^k * e^-k) / k!, k = # of occurrences of a particular event, like default. λ is the intensity parameter that is based on a borrower’s credit profile / ability to pay the borrowed amount. The output from this goes into determination of credit spread used in the discount factor. The higher the default probability -> higher credit spread -> higher discount factor -> lower PV of bonds.
Usually MBS has a prepayment model built in as well but given the credit constraint and lower housing values than mortgage amount one could argue that prepayment assumption isn’t all that important right now.
Aside from the fancy math, what is the point here? It’s not the valuation model or the math that is the problem or can’t be used anymore for some reason. It’s the parameters & assumptions made about them. I remember sitting in my mortgage securities course in 2005 and this was all being explained by a guy who used to do this for a living at Salomon Brothers back in the 90’s when Salomon was king of bond trading on Wall St.. The project that was done by the students used very optimistic default assumptions because the accepted view is that housing was going to keep going up, just not as fast as it has been in the past few years. Thus a borrower’s income / credit profile was not as important of a factor. I remember sitting there saying to myself “Yeah right, just wait until housing prices stop going up and starts going down and you can’t refinance oneself out of the house”. I then jack up the default assumption way up resulted in very high credit spread and a very low value for the MBS bond than everyone else. I was actually called out by others in the class for being overly pessimistic in my model.
Garbage in, garbage out, no matter how bullet-proof the math behind one’s model is, even for long-proven model such as DCF. But yes modeled properly it can valued default-probable bonds such as MBS, as long as you use traditional housing valuations and the probabilities of default given those traditional valuations & borrower’s income.
However, it still doesn’t resolve the issue of DCF vs. mark-to-market debate, and it probably never will, as it is a subjective issue as pointed out by others.
Meanwhile, your $100k in the bank looks more vulnerable with every passing day, as you ply us with meaningless acronyms and weird math that meant something, once upon a time.
Lad, I moved my limit order on GLD down to 10% less than my cost to avoid it being triggered this morning. The shinny metal is taking a beating when, by all traditional indicators, it should be rising. Is the physical price decoupling even more? What gives?
Who said “the market can remain irrational longer than you can remain solvent”?
D.E.L.E.V.E.R.A.G.I.N.G.
We tend to be Dollar-centric at looking of the price of things, seldom seeing it from the other 95% of the world’s population eyes events…
Gold is nearing all-time price highs in Europe in Euro-denominated terms, as it’s the natural fallback position when banks start failing.
You can walk into many, many banks in Europe and buy or sell physical precious metals, as it’s a common practice and has been for centuries.
By contrast here, if you went into a bank with a tube of 10-1 oz Krugerrands, they wouldn’t have a clue what to do.
The amount of Americans that actually own physical precious metals is tiny, almost infinitesimal. The few that think they do, tend to have it in ETF computer blips, not the real deal.
And it isn’t just the Europeans that view Gold as the final financial fallback position, it’s a commonly held view in Asia as well.
How Eurocentric of you.
In terms of houses, gold is just about holding its own.
Are we in the third inning yet?
Why leash yourself to a one-country currency, when you can walk the dog with Ne Plus Ultra and watch the Dollar yo-yo, unconcerned?
“….if you went into a bank with a tube of 10-1oz Kruggerands, they wouldn’t have a clue what to do.”
Which is why Americans don’t own precious metals.
I suspect, Aladinsane, that you have been around precious metals dealers all your life, and know, understand and trust the process, and the people you are dealing with.
Unfortunately, there are a lot of places that have no dealers, and have no exposure to the business at all.
I personally would not be able to walk into a coin shop, and know if I was being ripped off or not. I don’t understand the business (and don’t really have the time or inclination to do so), so I don’t participate, as intelligent a decision as it may be.
There’s a miasma of misinformation about precious metals.
For starters, Gold Bars are a tiny fraction of what goes on, the other 95% of the action being bullion oriented coins in 1/10th, 1/4, 1/2 and 1 troy ounce denominations, or other old school coins like 100 Coronas, 50 Pesos and the like…
Gold being a very dense metal, makes it very difficult to counterfeit, and i’ve never seen a modern Gold bullion coin that was fake, it’s just not possible, as no other metal has it’s specific gravity, and it’s impossible to gold-plate other metals to give them the look of high-karat mellow yellow.
Compare this to the ongoing gilt-trip that is looking more bogus, with every passing day, on Wall Street.
Gulf, great observations. You said it better then I could have. In my area the turn each way would cost 10% and I doubt anyone within 60 miles of my house would buy a sleeve of 10 rands. Lad no doubt is more savy and cosmopolitan, but as I’ve posted before, in these parts you can’t efficiently buy or sell gold or barter with it so its intrinsic value is (practically) limited.
“What gives?”
It’s simple: People need cash more than they need gold.
Ahhh but do they need their speculative oil more than their speculative Gold today. Looks like a little unwinding in both??? Is there a big squeeze going on here.
Dude, as I said before, put your money where your mouth is. I will now sell you a $100K put on FDIC not paying on my insured account for one year for $30K.
Wanna play?
Is false bravado the only arrow left in your quivering mind?
How can it be false when I am willing and ready to go for the proposed transaction? I am just saying I am going to bet US Treasury will print money like there is no tomorrow and inflation be damned BEFORE they let FDIC fail, that’s my bet. I feel confident enough about it that I am willing to sell puts to those who disagree and who thinks it will let FDIC fail without printing the money needed to shore up FDIC, and allow all banks have big runs on their deposit base and a completely failing banking system.
dude,
If the rest of the world sees us bailing ourselves out, you’ll get your $100k back no problem.
We are between a rock and a hard spot.
You let the system collapse or practically announce that hyper-inflation is on the way, which buys cowards like the leadership currently in power, a little time, but the result is the same, if not worse.
Let me put you in the position of an middle class Mexican 33 years ago, with 100,000 Pesos in the bank ($8,000 U.S.).
15 years later, that same 100,000 Pesos was now worth $10.00 U.S.
Mexico’s example of hyper-inflation is a bit extreme, and the reason so many immigrants from that country came here in the past 25 years.
A more likely example would be Argentina, whose currency devalued by 2/3rds, within just a few weeks time.
100,000 Argentina Pesos were worth $100,000 U.S. on this day in 2001.
By early 2002, that same 100,000 Pesos was worth $35,000 U.S.
The world is watching our every move, with ever more trepidation…
100% agree with you on the FDIC/Fed response. There will be no defaulted bank deposits. As Alan Greenspan said the Federal Reserve can guarantee any payment, they just can’t guarantee that it will buy anything.
Cougar, I agree. If we think that a failing AIG is so bad that the US needs to intervene, the only way the FDIC will fail is if the printing presses break…
Sorry, but i cannot see how bank failures are inflationary at all. The FDIC prevents a run on a cash short bank by closing it before it defaults. There is no increase in the money supply, only a small victory over deflation in preventing vaporization of my account. On the other hand, bank stockholders and maybe bondholders get wiped out (deflation). Loans made by the failed bank do not get forgiven (no inflation there). Bank failures are not making the money supply go up and they are not making the price of popcorn go up.
Somebody want to splain to me how bank failures and FDIC insurance are inflationary, even if the Treasury supplies the FDIC funds?
Follow the money trail from bank failure till it’s depositors are made good, and it’s all about creating money out of thin air, nothingness.
>A more likely example would be Argentina, whose currency devalued by 2/3rds, within just a few weeks time.
So your prediction is US Dollar with devalue by 2/3? Against which currency? Or just a basket of world currency? In other words you think relative to the rest of the world, US is that much worse shape, than let’s say Britain, Spain, Germany, Brazil, etc? China and many of emerging countries still manipulates its currency and you know there is no way they will allow a move of that magnitude.
The world is sick of us, and our hegemony over them, and i’m sure the powers that be overseas are formulating some plan for either an existing currency to take over the role, or perhaps an entirely new one?
If it was suddenly 2 RMB to the $, the Chinese minimum wage would be almost $3.00 U.S., and wage parity between them and us would be much closer, as our minimum wage of $8.50 would have the buying power of $3.00.
BTW Aladinsane, DCF (based on time value of money principal), is not useless now nor will it ever be. It actually is the underpinning for much of how money works in society. But then again I am barking up the wrong tree in trying to convince you that the conventional way of looking at value of money/cash in relation to time has merits, since you predict end-of-the-world scenario since whenever.
DCF has a value. It is a tool one of many. It is no more accurate than many other tools used for valuation analysis. It does not instill confidence. It does not take into account Value at Risk.
You can price this SIV list that is floating arround for a bank liquidation. The market is a lot different for the inherent risk than model valuation. This small SIV has a par value of $2B primarily in Credit cards, Student loans and Auto loans. Maybe you will think it is a good buy. The bank does not like the bids. Oh well they can keep it on their books at Mark to Fantasy. Or at quite a few banks ‘off sheet’, so you don’t know what they own. It is AAA paper. This is typical crap in Banks Balance sheets.
AEIT 2005-2 A 02586GAD4 165mm 3.9yr card
AMXCA 2005-7 A 02582JDS6 191mm 3.8yr card
BOIT 2004-A5 A5 06423RBN5 131mm 2.7yr card
CCCIT 2005-A3 A3 17305ECM5 130mm 3.5yr card
CCCIT 2005-A8 A8 17305ECV5 150mm 4.0yr card
CHAIT 2005-A11 A 161571AX2 121mm 4.0yr card
CHAIT 2005-A6 A6 161571AN4 97mm 3.7yr card
CHAMT 2003-6 A 16151RCX9 1mm 0.1yr card
COMET 2005-A10 A 14041NCL3 130mm 4.1yr card
DCMT 2005-4 A2 25466KFL8 149mm 4.1yr card
DCMT 2006-2 A3 254684AE3 36mm 4.7yr card
SLMA 2004-2 A4 78442GLA2 110mm 3.7yr student loan
SLMA 2004-3 A4 78442GLG9 125mm 2.6yr student loan
SWIFT 2004-A10 A 86837VAA7 215mm 0.9yr dealer floorplan
SWIFT 2005-A11 A 86837WAA5 225mm 3.3yr dealer floorplan
Hoz,
I actually agree with you that there are still banks out there not wanting to face the music and mark their assets properly (ie Bear Stearns, Lehman Brothers, etc). My argument is that DCF can’t be discarded as a possible valuation tool for these type of assets if one models defaults properly. VaR also has its controversy as it assume a thin tail of distribution, when a fat tail has been proven again and again for outliers. Again it depends on what parameters you put into the model, garbage in, garbage out.
The famous short seller Jim Chanos recently commented on using hold-to-maturity valuation instead of mark-to-market and he said he doesn’t have a problem with it from a fundamental perspective, as it is arguably a valid way to value a CF positive asset. He just has a problem with it if a bank decides to use one model at one time and then decides to use another model at another time, whenever it pleases. He said it should be consistent and that profit/loss on the asset can not be recorded until it is sold or disposed of if using hold-to-maturity model, which makes sense.
Tools are just tools - you still have to make judgments. It turns out that the Value at Risk models were flawed as well. Taleb argues that too many tools are based on bell-shaped normal distributions, even if it is not obvious that they are.
Hopefully we will see some new tools come out of this experience.
Current banking models (in practice) work for about nine years and blow up in the tenth, but the models are still predicting only hundred-year floods. How much of this is because people choose the models that produce the predictions they want to hear, and how much is simple inertia and the lack of better models is not clear to me.
I don’t have any problem with any consistent valuation.
Mark to Market causes bubbles - An increase in valuation without selling anything. Mark to model is subject to reality of the model in a falling market. Mark to Fantasy is a liar’s wish list.
Of them all Mark to Market is the closest to reality even with its upside risk.
I don’t see first time homebuyers in the senate bill or the MBS models.
After years of asking for 0-5% down, banks are asking for 20%. First time homebuyers are still screwed and therefore so are you if you’re trying to sell.
Of course this is all moot if Fannie and Freddie do 100% of home mortgages and congress says they only need 1% down. That’ll solve the problem. not.
Quant alert!!! Run for cover.
Just an FYI cougar, I’m only kidding. I love this quant stuff. Just read Berman’s book and really enjoyed it. Alas, these modern day magicians didn’t know when to quit, or else the suits just didn’t listen to them when they knew things were getting out of control.
Derman not Berman. I’m done posting for today.
> Just an FYI cougar, I’m only kidding
No problem, but actually I am not a quant. A quant usually has a Ph.D. in physics or mathematics, and I only have a Master’s. I work in IT, but I just happen to have great interest on how finance works, that is all, which led me to do courses on finance theory and products they come up with. Some of them really do more harm than good and you will never hear me defend the indefensible when the fundamentals underneath don’t make sense.
Explain please. Quant. Does not compute. Take me to your dictionary.
The answer is that it absolutely can, as long as you model the default probability correctly.
And this is one area where the valuations can get skewed. In contrast, a market transaction ensures that each participant is truthfully modeling defaults. (money where your mouth is)
>In contrast, a market transaction ensures that each participant is truthfully modeling defaults
I hear what you are saying, but does this apply when a Miami condo sold for $1m when other units were sold for $500K previously? Did that market price modeled defaults properly? I don’t think so. Market price in a crazy market can mask the fundamental values of an asset using traditional valuation measures.
In such a case is a lying CEO interested in bonuses going to find the price any better? Nothing is perfect.
And I think you are overly-discounting the truth of the $1m price. Much of what people on this blog tend to call “overpriced” was really correctly priced for that time. Sure, there were some fundamental problems in the economy (excess capital), but price is price, baby.
I don’t want to start a whole big argument on that, I’m just saying if you want to find the FMV of a thing, you gotta consider the whole environment. If previously 500k condos are currently selling for a mill (even if the period only lasts a few months) then that is the current FMV.
No argument from me, current market value can be very different from the fundamental value of an asset based on traditional valuation measures, whether it is a $1m Miami condo or a MBS bond. That wasn’t my argument at all. If someone isn’t facing an immediate liquidity need and intend to hold to maturity, does that mean they can’t use hold-to-maturity values? Many people disagree about this and even some short sellers can’t argue against that concept.
The value today is what you can trade it for. You are projecting “future value” and therefore trading time for money. Each of us has a different time/value need. In an environment where people need liquidity the pennies today exceed the value of “dollars a few years from now”.
If there is no demand for this form of “savings” due to their long time horizons then the value of these assets must be less.
You keep mentioning modeling default rate on mortgages that are mostly 7% or less in return. In an inflationary environment where we are projecting higher interest rates means that the value of these things could be negative! As interest rates go up, the value of existing loans goes down. As inflation goes up, the value of the interest / principle payments goes down.
Factoring in those “risks” and all of a sudden the market price seems VERY sane.
>mortgages that are mostly 7% or less in return
I think that only applies to comforming mortgages. Jumbos and non-comforming ones are way higher than 7%, and justifiably so due to higher risk.
I agree if one’s immediate need is liquidity to stave off bankruptcy, then hold-to-maturity value don’t matter because you need to sell them now and only present market value comes into play. However for less-leveraged banks that isn’t always the case. Again I argue that mark-to-model has its place but one can not simply write off hold-to-maturity value either.
But with all the appraisal fraud, liar loans, foreclosure freezes, and economic uncertainty, how can anybody reasonably model the losses? That’s the reason nobody wants to buy this stuff. The original modeling was all based upon the historically low default rates during the refi boom. Now who knows? It’s certainly true that some lucky or smart people will buy this stuff for pennies on the dollar near bottom and make out very well indeed. I suspect that Paulson doesn’t have that sort of perspcacity though.
Mathematical financial models are elegant calculators but incapable to consider human factors, such as politics and greed.
The criminally fraudulent (or at a minimum ignorant) misrepresentations found in inflated appraisals, no-income loan applications, and illogical mortgage products were magnified exponentially when the mortgage instruments were leveraged to historical records and used as collateral for other loans.
The liquidity crisis originated from the stack of lies and unfettered greed that borrowers, lenders, regulators, and politicians stacked upon a relatively healthy system.
The economic bubbles seem to have little real negative affect on the poor, who have no skin in the game, and the super-wealthy, who can absorb great amounts of risk. The true cost of the economic destruction, like a Category 5 tornado ripping through the economy, is borne on the shoulders of everyday Americans who pick up the bill for the fraud, ignorance and greed of its fellow citizens, as this most recent bailout package demonstrates.
Americans are working on the next bubble industry right now. But what is it going to be? The requirements for the bubble have to be: (1) The market is accessible for average Americans to enter; (2) The economic model must be misunderstood but with examples of people that initially succeed spectacularly; and (3) Government cannot or will not regulate the industry in real time.
Some of my personal bubble bets: Alternative energy, Carbon credits, Information revenue sharing, Agriculture and the Bond market.
Cut the crap. Watch growth rates and adjust accordingly. It’s not rocket science.
Common sense trumps all that crap but is seldom found.
Actually, as you know, the math is actually not all that fancy. The problem is that it’s not applicable.
The problem is that price movements are NOT a Poisson process (from wikipedia: A Poisson process…is the stochastic process in which events occur continuously and independently of one another). Continuous? Hah! 700 point drop! Independent? Yesterday’s prices don’t affect today’s prices?? Your neighbor’s house just dropped by 50 grand? Give me a break. I.I.D. and normally-distributed? Mandelbrot showed prices were a fractal/power/exponential/Pareto distribution decades ago, starting with cotton futures. House prices falling to an extent never seen since Great Depression? It’s not a normal distribution at all.
I am aware (bond) insurance companies used these models, but that is why these companies imploded. They were choked with 30- and 40-something MBAs who not only did not study history(t=5 - what, price movements only began 5 years ago???), but had no sense of irony.
You know how we dig our super-models, and how beautiful they look and perform…
But it turns out that their hooks were only skin-deep.
Jamie Westenhiser - considering a career in real estate investing - Playboy Playmate - May 2005 - peak of US housing starts.
Your points are well taken, but did you know that if you were to buy a put or a call on a single stock, like Microsoft, all that stuff you just dismissed are used in the pricing of those options? Yeah, Black-Scholes Options Theory uses continuous distribution, assumes people can borrow at risk-free rate, no transaction cost and a complete market where there is no arbitrage. All these things non-realistic to a degree, yet I have not found a single person who is smart enough to game the option pricing model and be able to arbitrage the prices of calls/puts and unerlyings to generate outsize returns. After all, if a model is so flawed then surely the prices generated from those models overprices some assets and underprice other assets and one would be able to exploit that mis-pricing all day long by buying the underpriced assets and sell the overpriced assets.
If someone is able to do this, I have not heard of him.
BTW, Poisson process does not model price movement, it models the likelyhood of “something” happening within a certain timeframe, like bankruptcy within maturity. You are thinking of Normal / Lognormal / GBM process, if you are talking about modeling price movements.
The subprime Airline flight carrying 350 million people crashed into Mt. Saint Angelo near Lake Fannie in the CountryWide National Forest. It was reported that AIG insured the flight.
Washington Post reported that our senators and representatives have been inundated w constituent emails, phone calls, and letters. Overwhelmingly AGAINST the bailout. Which explains why the senate passed the bill anyway. After all, they are INFORMED. The average guy on the street without a lobbyist in his pocket — what the heck does he know?
A legacy of “We need to act immediately” and our successful responses.
First Rebuild New York’s World Trade Center Park
Second capture Osama Bin Laden
Third the Iraq war
Fourth Weapons of Mass Destruction
Fifth the Patriot act
Sixth immediate response to Hurricane Katrina
Seventh immediate need for $700B to save the US economy
I am supposed to believe that this will be a success. What success has this government had in anything?
0 - Place Bush, Cheney, Rumsfeld, Greenspan, Paulson, etc, etc in a maximum security prison for life.
Preferably Guantanamo where they can be cell mates with those they’ve tortured for the past few years.
RE: 0 - Place Bush, Cheney, Rumsfeld, Greenspan, Paulson, etc, etc in a maximum security prison for life.
And give Barney Frank & Company a pass in all this right?
This azzwipe is a major player in the evolution of this debacle.
http://kr.youtube.com/watch?v=cMnSp4qEXNM&feature=related
No child left behind.
You are right! I forgot that and I also forgot the
SUPER SIV from last year.
God my mind, what a terrible thing I lost.
“But now, as throughout history, financial capacity and political perspicacity are inversely correlated.”
“In the autumn of 1929 the mightiest of Americans were, for a brief time, revealed as human beings.”
“Men have been swindled by other men on many occasions. The autumn of 1929 was, perhaps, the first occasion when men succeeded on a large scale in swindling themselves.”
From “The Great Crash-1929″
John Kenneth Galbraith
somebody posted “let them sleep in their hummers” yesterday.
http://news.bbc.co.uk/2/hi/americas/7585696.stm
Did you take a gander at that photo of Bonnie, a former RE agent, now living in her SUV? The British reporter describes her as having a “business-like demeanor”. Excuse me for being rude, but she looks like a homeless person. Is this some alternative universe Monty Python humor?
From CoStar Group
“…Private Research Peers Beneath the Surface
Martin D. Weiss, Ph.D. and president of Weiss Research Inc. sent a report to Congress this past week that painted a more drastic picture than current conditions. Weiss said there are 1,479 U.S. banks and 158 U.S. thrifts at risk of failure, with total assets of $3.2 trillion - more than four times the amount of the proposed federal bailout and 41 times the amount of assets of banks on the FDIC’s list of troubled institutions.
“There should be no illusion that the $700 billion estimate proposed by the administration will be enough to end the crisis,” Weiss said in announcing his report. “Nor should there be any false hopes that the market for U.S. government securities can absorb the additional burden of a $700 billion bailout without putting major upward pressure on U.S. interest rates, aggravating the very debt crisis that the government is seeking to alleviate.”
The bailout plan whether it passes Congress or not, is an insufficient step to deal with our current credit crisis, agreed Campbell R. Harvey, professor of finance, The Fuqua School of Business, Duke University.
“While most of the focus has been on Wall Street, there are hundreds, if not a thousand banks, that may be insolvent if their assets, which include capital market instruments, were marked-to-market. Over the next six months, we are faced with the specter of a massive number of bank failures,” Harvey wrote in a report this week entitled: The Financial Crisis of 2008: What Needs To Happen after TARP.
TARP stands for Troubled Asset Relief Program, the moniker given to the U.S. Treasury’s bailout program.
As a way of comparison, Harvey noted that the Resolution Trust Corp. initiated in 1989 took over and disposed of more that $550 billion in assets in its lifetime, which is roughly $900 billion in 2008 dollars, he added.
“Today’s situation is larger in scale than the S&L crisis. The combined assets of just two firms, Lehman Brothers and Washington Mutual, $946 billion, exceeds the assets targeted during the S&L crisis,” Harvey said. “Note the total assets of Wachovia Corp. were $812 billion as of June 30, 2008.”
“It is naïve to think that the $700 billion TARP program will solve our financial crisis,” Harvey added….”
Sounds like a good case for cash, no? All that money destined to disappear with the soon-to-be-disappearing banks will make the remaining money that much more scarce, yes?
My Big Fat Greek Bank Account
http://www.marketwatch.com/news/story/greece-guarantee-all-bank-deposits/story.aspx?guid=%7B56F91236%2D6D3C%2D416A%2DA9FD%2DA09066C0E752%7D&tool=1&dist=bigcharts&
The U.S. Mint has run out of Silver and Gold to make Eagle and Buffalo coins, but we haven’t heard about the Federal Reserve shutting down the printing presses because of a shortage of ink & paper, have we?
Is it a test of wills or speed?
One of us is going to be wrong, right?
Special SEC rule #86…”Eeny meeny miny moe”
I find it unthinkable that they left out Pep Boys.
The rumor is: The rule applies to any company in the Cheney-Shrub “Blind Trust” accounts.
“The steps (the SEC) has taken are designed to ensure the continued smooth operation of orderly markets. Our actions have been taken in consultation with regulators of the major developed securities markets around the world, with whom we have coordinated in monitoring market reactions.”
The companies covered by the short-selling ban are an A-to-Z of the nation’s financial institutions, including the powerhouse investment banks such as Goldman Sachs Group Inc. and Morgan Stanley and commercial banks running the gamut from Bank of America Corp. to Cape Fear Bank Corp. SLM Corp., which is known as Sallie Mae and is the biggest U.S. student lender, is on the list, as are Charles Schwab Corp., Berkshire Hathaway Inc. and Principal Financial Group Inc.
There were 799 companies named in the SEC’s Sept. 18 order. Another 71 were later added, including General Electric Co., General Motors Corp. and American Express Co.
SEC extends short-selling ban for financial stocks:
http://biz.yahoo.com/ap/081002/sec_short_selling.html
“Cheney-Shrub “Blind Trust” accounts.”
Blind eel is more like it.
Where’s IS Darth Vader these days? I guess a domestic crisis just ain’t his thing, he’d rather launch a nuke.
“The ban, which was to expire Thursday, now will last until the third business day after enactment of the $700 billion financial bailout plan now before Congress. It will end no later than Oct. 17.”
So the crash is delayed a few days? How do they then explain the ineffectiveness of the bailout bill prior to the election?
http://www.businessweek.com/bwdaily/dnflash/content/oct2008/db2008102_554135.htm?chan=top+news_top+news+index+-+temp_top+story
Let me borrow a fine response to this link from my fellow comrades… BWAHAHAHAHAHAHAHAHA!!!!!!!!!!
What affect did/does this have on an ETF like SKF?
Posted this last night but it was late so got no response. This was in response to someone’s question about how safe their 401k was:
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 (newspaper article).
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.
Five investment banks before the sky started falling:
Bear Stearns
Merrill Lynch
Lehman
Morgan Stanley
Goldman Sachs
Dang - thanks for the correction. I thought maybe I had TD wrong.
Fidelity is privately held, mainly by one family. The CEO risks his own money and that of his family. I think that fact alone makes them vastly different that the Lehman’s and others on Wall Street.
would the goldbugs on this site care to comment on gold’s price falling? I am getting nervous.
I’m curious, why are you getting nervous?
because in the late 70’s weren’t goldbugs ultra confident that PM were headed for the moon? If one had purchased at the peak then it would be decades to recover….
And I bought in at $890/ounce….
The Silver Bubble was responsible for precious metals going ga ga in 79-80′.
A bubble not unlike the current housing bubble, as the price of Silver went up 8x, in less than the course of year’s time.
Also back then:
Russia was a net seller of precious metals, to be able to keep ma & pa on the gulag.
India wondered where the next bowl of rice was coming from?
There was probably more value in Fine China here in this country, vs. the combined value of everything in China.
The key to the short term price movements in gold is to watch what the dominant emotion is at the moment and what is being done with it. There was great fear of a collapse without a bailout so the dominant emotion was fear. Then the Senate makes progress on the bailout and many people begin to relax for a week or two and the price drops. But then they notice the federal debt and the risk of the Fed printing money and then they begin to fear inflation - and gold goes up.
The other factor for the huge drops in gold and silver is that the hedge funds are being forced to sell (due to leverage issues) and they just unload their holdings all at once.
The long term outlook on gold and silver is really based upon the outlook for the Federal goverment. If you think that the Feds will continue to print money and try to expand credit, then gold and silver are bound to go up. If Paul Volker gets nominated to be the Federal Reserve Board Chairman, then gold and silver are likely to be bad investments.
Yes we were confident that gold was going to the moon. I was on that train wreck (in a junior seat) and remember it well. The same reasoning was then as now, that deficit spending would destroy our currency. The Hunt brothers act did spike silver to $50, but that was not the reason goldbugs were shooting rainbows out their ass, like they have been again lately. When you are absolutely sure how things work and then they work differently, you have a chance to learn something. I’m not sure what I learned in the 70s, except not to be so cocksure, and not to listen to the loudest voice in the room. My tuition was $120.
I hope you aren’t too far out on a limb, which ever was the wind blows.
Not to worry, the fundamentals for gold are sound.
(Snicker)
“Not to worry, the fundamentals for gold are sound.”
We are different here! The local real estate response to the bubble happening in the next town over.
Snicker, snicker!
I liked you bettor when you were strictly a vegas troll…
Hey Garrett - did you buy all your gold at $890 per ounce back then? Or did you buy some of your gold at that price?
I bought some gold when spot was above $1000 this year. If you bought an ounce or two of gold every few weeks in the late 70s and into the 1990s you would be very well off now.
People here are repeating the extremist investment philosophy that got millions of people stuck in the housing problem. They are 100% some sort of investment.
1. 100% cash - all stocks sold today and cash bought today. Dumb move if any of you did that.
2. 100% gold bought at $1023 spot. Dumb move.
3. 100% real estate - all here on this blog agree it’s dumb, but why not number 1 or number 2?
4. 100% equities - dumb move. Should have several years of living expenses in other assets.
Why can’t people understand market cycles and diversifying?
“Getting nervous” to me implies you’re using gold as an investment, not as a safety net. My advice would be to not do that.
My view on Gold is that it’s like someone who shorted WB (Wachovia) back in 2005 or so. If you look at WB’s stock price - it was really strong right up until October 2007, then started staggering, but didn’t really nosedive until a few weeks ago. However conversely someone may have also shorted JPM expecting the same behavior - but look at it now - it’s near all-time highs.
Simply put - gold is a short-sell of the dollar. It may not bear fruit in our lifetimes. If it does, it will be fast and powerful - it won’t be a slow rise, aside from occasional fluctuations like we’ve had the past couple of years.
You have 2 arguments going here. One says deflation, which is bad for metals. The other says currency crisis, which is good.
Place your bets. It can go either way. But if you ignore the noise, right now I see:
1. Deflation on a lot of fronts
2. Higher dollar
The vote “right now” seems to be for deflation. On the USD index 80 seems to be a good line to watch. It stays above it, the vote is dollar rally/deflation. It goes below 80 we are going to see the dollar implode.
Which is more likely? I think maybe both. We get deflation and take the metals down before the rocket back up. But again, this is just a wild ass guess. I spend a lot of time thinking about it and I still don’t have clarity on the subject.
One more thing. I was very cautious about the metals when the recent crisis didn’t cause a stronger reaction. That was a clear indicator something was wrong with the PM’s.
The charts looked butt ugly too!
Just keep this in mind. No investment should ever make you so nervous that you are uncomfortable with it. That usually means you are wrong. You define your loss threshold before you commit the funds. When that point is reached, you close your position. Of course, this is my perspective. Others would recommend you buy it and then ignore it.
I am not that sort of person.
Relax — gold prices always go up, in the long run.
Tongue firmly in cheek, presumably?
Seriously - in the long run prices for *everything* eventually goes up. Even tulips will eventually eclipse their peak prices. The peak tulip prices during the tulip bubble in 1637 were about 5,000 Guilders, equivalent of about $50. Good tulip bulbs today cost about $1 each. So at say 4% inflation rate - tulips will hit $51 about 100 years from now. So it will have taken 469 years to do it, but tulip prices *will* eventually exceed their previous peak.
Bob Toll was just on CNBC. To call him a “scumbag” is an insult to scumbags the worldwide. He did disagree with Glenn Hubbard (”formerly of the Bush administration”) about giving everybody a 5.25% mortgage. They didn’t ask him about his new paradigms and people living with their parents until they are 40. He did say that you need to be ready to buy because that time is very near.
Jumbo mtg rates at 7.27% today, per Bankrate dot com.
Move over gold bugs, the real money is in real estate.
Awww…another poor mortgage broker who got hung on his own noose…
http://seattletimes.nwsource.com/html/localnews/2008221341_housing02m.html
The first offer Jason Stanifer got on his Factoria town house was in April — six months after he put it on the market and one month after he stopped paying his mortgage, which started the foreclosure clock ticking.
While waiting for the deal to close, he took the town house off the market for more than a month. But that buyer backed out. In July, he got another offer and took the property off for two months. Again, the deal cratered, this time because of financing — one day before the deal was to close.
“What can you do?” said Stanifer, who is banking on a third offer he got just this week to be his reprieve from foreclosure.
Stanifer bought the three-bedroom home four years ago and took out a second loan on it, investing the money in his mortgage-brokerage business.
As his business dropped off dramatically in summer 2007, he did the math. With one of the loans, an adjustable-rate mortgage, about to increase by $1,000 a month, he realized he no longer could make the monthly payments, which totaled $4,000.
So he put the home on the market in October 2007 for $479,000, confident it would sell. But no offers came. When he received his first late-payment notice in March, “I was on my knees over a trash can” getting sick.
He thought the town house would show better vacant, so he moved his family to a rental in May. By the time the third offer came along, he had dropped the price about $115,000 from the original listing.
You know you spend too much time talking about the HBB when you find your 2 1/2 year old jumping up and down in his crib, at 10pm, shouting “housing bubble” over and over!
If you named him Nouriel, you’ve gone too far.
LMAO!
“Safe” derivative promises immunity against excess market volatility
Wed, 01 Oct 2008,
”
Chicago-based Actuarials Holdings, parent company of the Everest OTC Trade Facility and the AE Clearinghouse, has unveiled what it says is a revolutionary ’safe’ derivative called the Clipper that enables traders to control total risk, highly leverage their capital, and eliminate counterparty risk.
Actuarials Holdings says Clippers have been tested by institutional investors in hundreds of thousands of trades during a 10-month pilot period and represents an answer to the turbulent market conditions faced by traders today.
‘Clippers are the most important financial innovation in 25 years,’ says Alger Chapman, chairman of the advisory board of Actuarials Holdings and former chairman and chief executive of the Chicago Board Options Exchange.
‘Not just because they are crash-proof, but because they provide unparalleled capital efficiency to speculators, hedgers, and arbitrageurs. If we had Clippers in the meltdown of 1987, many traders who went bankrupt would have been saved.’…”
http://www.hedgeweek.com/articles/detail.jsp?content_id=269606
Reserve comment til I test.
If it is “safe” the return should be zero.
Enough with mark-to-market vs. hold-to-maturity valuation debate.
Here is another one (controversial again):
If the Congress passed the $700B bailout plan, how far will it go in addressing the US Credit Crisis of 2008? Here is what I see:
Problem assets on US financial institutions:
Roubini: $1.6T
Bridgewater Associates: $1.6T
Writedown so far:
Heard number of $400 - $500 billion.
US Injection: $700 billion.
Left over bad assets: $400 - $500 billion.
I don’t know exactly how US Treasury is going to use the $700B as no details on the process has been forthcoming, but assuming they buy bad assets at “already written down value” and not overbid (BIG IF), then we are already 2/3 or 3/4 way to getting rid of bad assets in US banks as a whole.
I know there are way more pessimistic views of this problem so I would like to hear some counter points.
700B is the size of the bucket, the treasury can use the bucket as many times as they want to scoop bad “assets” out of the market and resell them (for a loss). The only limit is the national debt limit.
It’s all good. The bailout is a “rolling” $700B. That’s just the scooper size, not the total.
We will bail the Titanic with a 700 gallon bucket.
There was a clown on CNN last night. He said bailout will pass because it’s not 700B. In the end, it will cost much less. I almost fell out of my exercise bike.
Can you bail out a ship the size of the Titantic from the bottom of the ocean?
My counter-point is that the fine print of the Bail Out actually gives
the Treasury/Feds/FDIC Authority to have a unlimited borrowed dollars to Bail
Out 3 to 4 trillion of potential Wall Street/Lenders/Banks bad assets or credit obligations . In my view they should of had either the FDIC insurance or the Paulson Plan (which sucks),not both .
First ,Banks usually pay for FDIC ….If you increase the amount of the coverage without charging the Banks the necessary premium ,than they are getting a free ride again . The increase on the amount ,rather than just shoring up the current amount of 100k ,puts a unfair burden on
the Blank Check of the FDIC ,without the industry being charged for that increased protection . This clause is really the unlimited blank check and it was not written up right at all in that Bill ,IMHO
To also add the Paulson Plan ,plus adding up what the Feds and Treasury have shelled out so far ,it’s a Bail Out of epic size ,just unbelievable .
I could of never imagined in all my wildest dreams when I started posting ” NO BAIL OUTS “, that it would become the biggest transfer of wealth back to the big Casino that created this mess ,while it charges the taxpayers the burden . There is no Justice with these Bail Outs ,there is just one big Pardon on the Market Makers greedy gamblers . They will take their money and run ,if someone covers their loser bets at the Great Casino . Not only are these Bail Outs a attempt to change the rules after the fact ,its a attempt to change the bets that were already made by the fat cats /lenders and gambling borrowers . Is this a good for Society that the winner and losers will be picked after the fact . This puts at threat any investment one could make because the powers change the rules after the fact .
The interferences of the Government bail-outs will have a counter -reaction that will again falsely place money into the wrong direction .People will go for the safe havens ,so the credit crunch problem
will still be ongoing . The Chrysler Bail Out was a loan with interest charged ,so it was totally different than this outright taxpayers grant of funds to the Lending Casino . I just don’t understand why they didn’t go the route of giving loans ,with charging interest so banks could have more time to write down their losses .
The Banking and Wall Street lobbyist are hounding the lawmakers and its just sick that they are winning out . Anybody with half a brain can see that this is a trick bill that is proposed . Ben Jones has always said that we don’t have the money for these massive bail outs ,and I agree ,but they are going to do it anyway . In my view ,they will look back in the History Books one day and call this the biggest mistake
the lawmakers ever made and it will not solve the credit crunch .
I would like to know how anyone can come up with a number like $1.6T. Bad assets are very dynamic and feed upon themselves. That $1.6T could become $10T in a recession/depression, or go away all together if folks stopped defaulting on their mortgages.
My vote for best comment of the week.
“I would like to know how anyone can come up with a number like $1.6T. Bad assets are very dynamic and feed upon themselves. That $1.6T could become $10T in a recession/depression, or go away all together if folks stopped defaulting on their mortgages.”
Likely just an estimate of bad housing mortgage based debts.
Then you have commercial loans to companies crashing, then the prime home loans from those employees, then …
On 4 newspaper websites last nite, I posted Stuccos rant about how come the slavemasters couldnt wait to the next admin to decide the bailout. While doing so I noticed the headline in every single one was about a local bank robbery. Everybody taking thier money out or what?
Oh & excuse me for spelling it Yurtle instead of Yertle the Turtle.
Good clark.
We had a tortoise named yertle. she kept getting run over by cars but made her way home with her guts hanging out and healed to roam again. Her guts were blue.
how bout that dow?
How now down dow?
“The son of a stockbroker and US Congressman is not starting from nothing.”
Right, and Buffett was also gifted with above average intellegence and a superior education, which he did nothing to earn.
Now here is the difference. He understands this, and thus is willing to act with integrity and give back. Even though he has contributed a great deal.
Meanwhile, how many similarly advantaged people, who contribute nothing, seem to feel entitled to all they can get their hands on? Would that more Americans had Buffett’s self-knowledge. His generation, and those after, would not have wrecked our nation’s future if they did. It’s sad how much he stands out.
It’s sad when someone who acts with integrity really really stands out from the crowd.
Question - what is the number of the House bill up for vote tomorrow? I’m having trouble finding it.
HR1424?
HR1776 ~ Congress declares independence from the people.
Firefighters Called To Property Three Times
Three times.
GRESHAM, Ore. — Firefighters are investigating a series of suspicious fires at a property in Gresham.
Officials said firefighters were called to a house at 27849 Orient Drive three times in a 13-hour span.
They were first called to a trailer fire on the property Wednesday around noon and again just a few hours later when someone appeared to set a barn on fire.
At around 12:30 a.m. Thursday, firefighters returned to the property for a third time and found the house fully engulfed in flames. (Cont’d)
http://www.kptv.com/news/17606388/detail.html
Holy smokes.
Leigh
If at first you don’t succeed…
Idiots: call the FD out on someones house at the FAR end of the district.
Good luck getting insurance to pay out on that one. I smell a John Grisham story!
Who was the dumbass who called the fire department? Kill joy.
And this is why I don’t tip foodstuffs or liquid to the face when reading this blog - Avert Eyes!
Thanks for the giggle,
Leigh
We had a party @ a friend’s cabin a few nights ago…
About a dozen friends showed up and we’ve known each other for 10-20 years, and i’ve seldom made mention of what’s been happening financially with most of them in our past conversations, as i’d rather dwell on a friend’s conquest of a class 3 peak, or a friend on trail crew telling me the most interesting thing that happened to him, during his 4 month stint deep in the back of beyond, or other mountain adventures, real or imagined.
But the other night was different, my Sierra Nevada band of brothers and sisters started hitting me up for information about what wickedness was coming our way?
My friends earn like $20-30k a year and live larger than life lives on almost nothing, so I told them they’d be ok, as they were used to living la vida ramen already.
It’s the rest of polite society we have most to worry about, we all agreed.
Hey, Lad, what did you guys decide would be the prudent thing to do? I’ve just spent some time filming the autumn colors in the San Juans, camping out, living on ramen and a nice fake sparkling wine from McElmo Canyon Winery and Silverton Chocolates (w/o the chocolate, I hate chocolate).
Most of the scruffians I know are doing just fine (especially the ones under the bridge who are slated to get my money when my CD comes due) - except the old guy up by Blaine Basin who used to rob hikers at stickpoint for their food (he’d only take part of it, being an ethical guy), and he got busted after 25 years. He had been feeding the bears and they finally nabbed him (the bears), although some think he died from old age - he must’ve been in his 80s, proving gorp really is good for you.
Addendum: if you think the above post was totally OT, you’d be wrong. The old guy went missing, that’s why the speculation about his end. Some thought he was an investment banker in hiding, Blaine Basin not being far from Galt’s Gulch (the Ouray Valley in Colorado).
But this IS OT: I was robbed by him once. After the robbery, we got to talking, and a chipmunk ran up his pantleg, really freaked him out, he kept hollering about his nuts. He must’ve keep his gorp stashed in his pockets, the old fool.
I have to ask…
Was he really robbing people or was it just a “fake” sort of robbery? Like if you just laughed and kept walking what happened?
No, he was real, would threaten to take everything in your backpack, securitize it, and sell it to Wall Street.
Actually, he managed to intimidate enough people to survive, those he couldn’t intimidate, he’d joke around with till you got to liking him and shared. Quite the codger.
The rangers never could catch up to him, so they just posted warning signs.
WARNING: BANKER THIEF, HIKE AT YOUR OWN RISK
Nobody took it seriously, they thought, what’s new?
Actually, I have the location wrong, now that I’m thinking about it - it was at Wall Street in Arches NP (Google it).
lol
I think it would delight you to know that I’m thoroughly confused and unsure how much of your tale is a tall one.
But I like stories in any case, even when I don’t get all of it.
blu, a good liar/writer/storyteller (all the same beast) starts with facts and then adds their own facts. Makes reality much more interesting (if sometimes confusing).
Lost:
Our lives won’t change all that much, as Mother Nature doesn’t care how much money is in your pocket when you depart the default world for hers.
If you had a habit of living well below your means, no matter what income, for the last umpteen years, you have nothing to worry about, provided you diversified your investing.
It warms my heart to think that those sorts of folks will be less affected. I sure hope you’re right and it plays out that way.
You make a point worth bearing in mind: if the more important things in your life are things money can’t buy (great friends, adventures, enjoyment of the great outdoors, etc), then you really aren’t at risk of losing the most important things in your life.
A thought occurred to me in the last couple of days: if my company were to have layoffs, and I were to be one of the ones affected, I might well have lots more time to cultivate the most important things in my life. I have a lot of respect for some folks I know who had the stones to make that time/freedom vs money tradeoff consciously, but it wouldn’t be such a bad thing if it were made for me (since I haven’t had the stones to pull the plug myself yet).
Regarding the CRA Revisionism currently making the rounds in Greater Wingnutistan:
“It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.”
— Robert Gordon, American Prospect
It’s ain’t the poor people, it’s the rich people.
Welcome to the Charlotte Cashcar international speedaway…
Driving the #86 Car is HAL.
=========================================
“On Friday, with its stock plunging 27 percent, Wachovia experienced a “silent run” on deposits, but the bigger worry for regulators was that other banks wouldn’t provide the Charlotte bank with necessary short-term funding when it opened for business Monday, sources familiar with the situation told the Observer.”
http://www.charlotteobserver.com/business/story/226799.html
Big Brother, can you spare around 8 Trillion Dimes?
$700,000,000,000 = 70,000,000,000 (70 bn) dimes
Bad math, dude.
There are 10 dimes to 1 dollar. $700B * 10 = $7T.
Meant to leave off the $ - just 7T dimes, not $.
Going over to a friend’s house tonight to watch the vp debate.
It’s a costume party and you have to look Vice Presidential, so i’m going to emulate Cactus Jack Garner and bring over a bucket of warm piss, er cold beer…
p.s.
Any suggestions as what trigger words of Sarah’s we should use to enable us to drink faster?
Like everytime she says _________, you have to drink a shot?
How about “d’uhhh”? Of course you had better have a designated driver if you do that.
maverick, hockey
half a bottle for “lifeline”?
I want to get sloshed, not destroyed.
telepathy over here, been thinking about drinking wine in the middle of the week.
crabby mood, puffy face, not worth it yet.
Try “joe6pack”. I saw her use that the other day. Best thing about it was that I was watching Keith Olberman (sp?)at the time and he had no clue what the term meant, so each looked equally foolish. He used to be great to watch but he has become so partisan lately, way toooooo much like the people he used to mock.
You are right about Olbermann, as he’s now more annoying than entertaining.
I can see why ESPN got tired of his act.
Keith’s act is somewhat necessary, in that it tries to balance the disturbing vibes produced by the O’Reilly and Hannity voices at FOX. If not for Keith, the left would’t have a single voice on main stream TV, but he does grate on me at times with his partisanship.
Loofah OReally is going off the rails from getting lampooned by Olbermann daily. I expect to see LoofahBoy doing the perp walk for physical assault on Keith. Olbermann is the last bastion of reality on TV.
A few options beyond “I’ll try to find you some and I’ll bring ‘em to ya.”
“maverick”
“state’s rights”
“reform”
“change”
“Russia”
“lipstick”
“culture of life”
“drilling”
“oil”
I was also thinking “Russia”
“America” might be a good one too. Three drinks if she says them both in the same sentence.
lol
She will be the first American woman politician to claim these x2 Titles:
“Ms. Congeniality”
&
“Ms. Vague”
3. lacking clarity or distinctness; “a dim figure in the distance”; “only a faint recollection”; “shadowy figures in the gloom”; “saw a vague outline of a building through the fog”; “a few wispy memories of childhood” [syn: dim]
The Russians are coming, the Russians are coming - to AK!
Starring: Carl Reiner, Eva Marie Saint, Alan Arkin, Brian Keith, Jonathan Winters
Jonathan Winters might have done a good impersonation of Palin.
natural gas pipeline
refused earmarks
hockey mom
faith
Bush Doctrine
Tina Fey sucks
“You know”.
How about a swig every time she pronounces “you” as “ya” or after a negative, “cha.” It seems to correlate with the perkiness thing, per Tina Fey.
Or a shot every time she says “like,… such as.” (It seems to be a beauty queen thing.)
Like - gets on my last nerve!
How about “Dude” (first dude).
That way our Sir Alad can get sloshed and not destroyed!
Leigh
I love this blog….I’ve been reading for over 3 years, when it was Housing Bubble Blog 1…just so you know, it’s NOT different here in Belgium. As ex-pats, we kept asking everyone here, do the banks give out these risky loans? “NO!” was the answer we heard time and time again! Guess what! Fortis is now funded by the Belgian government….my husband’s boss predicts a severe 3 year recession–he’s Belgian…I appreciated Polly’s input from Canada, and thought I’d put my 2 cents in!
dude,
where’s my POT stash?
http://www.marketwatch.com/quotes/pot?sid=6235
dude,
where’s my POT stash?
yea that was a flyer of a stock, like dryships a few years ago.
700B to the banks might not be enough to jump start the commodity market.
I had no idea Pot Ash was worth anything…
I’ve been throwing it away all these years~
unfortunately I bought some BG yesterday thinking it might be a relatively safe inflation hedge. It looked safe w a P/E of 5 down over 50%. AG sector got crushed today.
Is it in the phone book?
Lad is our john muir.
Mixed with Ed Abbey
Lost in Utah is our Thoreau.
So, does that mean I’m simple or a simpleton?? LOL
I want to know who John McCain and Barak Obama are nominating for Secty of Treasury - I may change my vote based on the individual selected.
I want to know what the interest rate on a bank bond would be if it came to auction today.
I want to know how a Senator can say they know of an insurance agency that is insolvent and then isn’t in jail for talking his short position. If I said that, the SEC would have me arrested in a day.
I want to know how John McCain can continue to lie and then say he is 100% truthful.
Swaps are widening on everything. There are some US stocks that look attractive, but like all cowards I would rather be right and pay a few points more than pick a bottom.
Some AAA corporate debt is trading 600+ bps over treasuries. The same debt issued last week at 350 bps over UST
Last year 115B in US Corp debt rolled over in September, this Sep 19B rolled over.
Once the Rescue is done, the treasury has to sell the first quarterly issue of
$1 Trillion in treasuries on top of $250 B in agency debt.
Dollar crisis anyone? I hope China is a buyer.
Is Fannie widening for a rate cut, or is that just FED lube spraying everywhere?
A small order $250mm moved the 5 yr spread 6 bps.
A year or two ago 2.5 B might have moved the spread a tick.
OK here are 2 government guaranteed bonds all expiring the same month, 3 different years.
2 year Home Loan paper 30 basis points less than F&F
5 year Home Loan paper 40 basis points less than F&F
10 year Home Loan paper 10 basis points less than F&F
In a normal market, The trade is to lock a huge profit by doing a double ‘butterfly’ selling the 5 yrs and buying the wings and reversing in the position in the other issue. This spread says “you don’t know where the market is going but this should make you money”.
Home Loan gives money to any bank. The assumption is Home Loan Bank not being adequately protected by the US Government. But that doesn’t explain the yield curve.
Just to give you an idea of how spreads are all over the place.
“In a normal market”
Hoz, its no longer normal.
This is out of control.
unless, out of control is “normal”
is this a random event?
thats the question that continues to haunt me. That and knowing when I’m wrong. Thats the toughest question to answer.
“I want to know how a Senator can say they know of an insurance agency that is insolvent and then isn’t in jail for talking his short position. If I said that, the SEC would have me arrested in a day.”
=======================================
There’s something really wrong about Harry…
I’m guessing Allstate.
Maybe I oughta change my insurer…
“Once the Rescue is done, the treasury has to sell the first quarterly issue of
$1 Trillion in treasuries on top of $250 B in agency debt.”
Issue them to US citizens for 30yr @ 10% and I’ll take a large position.
If Asia walks from this auction, 10% might be sooner than you think.
“I want to know how John McCain can continue to lie and then say he is 100% truthful.”
Because he was taught how to do this by a fellow named:
Charles Keating
He was a lawyer…a politician…a banker…if he could have made… Fed Chairman & SEC chief…he had a straight “Royal Flush”
“…best known for his criminal involvement at the center of the savings and loan scandal of the late 1980s. As a result of his actions he is a convicted felon having been found guilty of fraud, racketeering, and conspiracy. His manipulation of five US senators (to whom he had made substantial financial contributions) to argue for preferential treatment from regulators led to those politicians being dubbed the Keating Five in reference to him.”
http://en.wikipedia.org/wiki/Charles_Keating
I hope everyone saw Palin’s comments on Roe v. Wade and compared them to Biden’s. Biden is a heavyweight that knows the details very well. Palin is totally ignorant. All she can do is spout talking points. An empty suite if I ever saw one.
Are we REALLY going to put another idiot in the WH? Have we all not seen the damage that Bush has done for the last 8 years? How dumb is this country?
That is the question we are going to answer in about 1 month. How dumb are we?
Palin has no business being VP, and that says a LOT about McCain’s judgment.
Bill Maher said it best last Friday when discussing Plainlin… “Congratulations America.You’ve suceeded in nominating someone dumber than you are”.
I watched well spoken woman Bloomberg TV who is noted as a “conservative intellectual” say that she cannot bring herself to get behind the gop candidates but “the rest of the country will blindly follow the republican candidates off the cliff”.
“Congratulations America.You’ve succeeded in nominating someone dumber than you are”
That’s only half …right…no Democrats are going to vote for McDame…this includes the: “I’ll vote for any woman… any party “….I love “Hillary” …who would kick a pit bull in the balls, without wearing “lipstick”… type democratic voters.
Hollywood has never longed to know what goes on beyond it’s bastion of power, and is utterly clueless about anything other than looking good…
Imagine them going away of their own accord, like so many lemmings marching off the cliff?
=========================================
“The Screen Actors Guild’s negotiating committee voted Wednesday to support a strike authorization vote, a tactic meant to break stalled contract talks with Hollywood studios.
The recommendation, approved 11-2, now goes to the guild’s national board for review, and would ultimately need approval of 75 percent of the some 120,000 voting guild members.”
http://apnews.myway.com/article/20081002/D93IBBAG0.html
Notes on a Scare Card:
Monday -777
Tuesday +485
Wednesday -19
Thursday -348
I’ve currently got two positions: silver and fetal.
Is it true that in Oregon the police are riding in the cabs of private trucking firms to catch motorist?
Cabs are truckers homes.
Is this the quartering of solidiers in peoples homes?
LOL!!
Now that would be something, a big rig with a trooper riding shotgun, egging on the redneck blue-collar NASCAR loving trucker, barreling down on some clueless soccer mom in her Lexus…
cue CW McCall
We got us a CONvoy…
Totally OT:
www dot youtube dot com/watch?v=YgtzmcGXU9U
A video I made, watch it only if you like feeling poignant and sad and want to see autumn in the San Juans of Colo.
And I can’t help it, I don’t have any filters.
That was Great Lost. I have never been to Colorado, but have always heard great things about it. Your video was awesome thanks for sharing it.
Thanks, it’s so pretty here right now. Wish everyone could come out!
If you do, bring good real cooked food, am tired of eating out of cans.
Rallying cry this weekend…
“Show Me My Money!”
Financial crisis moves from Wall St. to the mall
Online jewelry seller Blue Nile Inc. told analysts last month the credit crunch is hurting sales of jewelry priced from $2,000 to $15,000 because shoppers can’t charge as much on their credit cards.
Sherrie Krieg, 63, had been planning another big year for holiday gifts, most likely spending the same $5,000 she spent last year on her family including two grandchildren.
But Krieg said she and her husband, a retired factory worker, who live in Milwaukee on a fixed income and depend heavily on investments, said they will cut that in half because of the market’s turmoil.
Her grandchildren, she said, “will have to learn it’s not going to be the same.”
http://biz.yahoo.com/ap/081002/financial_meltdown_retailers.html
She spends $5,000 on gifts? Can I be one of her grand-kids?
Gramma, can I have a new TV for Christmas?
A 50″ LCD 1080i? And a BlueRay player too?
Please, please?
$5000? For Christmas? We spend about $600 all told. Of course, we have suffered for years from “financial responsibility” (He smugly claimed).
Roidy
Financial companies borrow record amount from Fed
For the week ending Wednesday, investment firms drew a record $147.7 billion. That was up significantly from $88.15 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch. On Wednesday alone, investment firms borrowed a record $146.6 billion, breaking the previous record set on Sept. 24.
The Fed report also showed that $122.1 billion worth of loans were made to money market mutual funds — via banks — to help the funds, which have been under pressure as skittish investors demand withdrawals.
And, the report showed that the Fed has loaned $61.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide the troubled company a two-year, $85 billion loan.
http://biz.yahoo.com/ap/081002/fed_credit_crisis.html
“…the Fed has loaned $61.3 billion to insurance giant American International Group. In mid-September, the Fed said it would provide the troubled company a two-year, $85 billion loan.”
Talk about drawing down your “credit line”
AIG has withdrawn 70% of a 2 year horizon in what…10 days? All is well, move along…. 
How many days do you think it would take “King” Paulson to drawn down 700 billion $$$$$$$$$$$$$$$$$$$$$$ in US Taxpayer Federal Reserve “Burdens”
Somebody is building a massive war chest using monies borrowed at below market rates. As soon as a bottom is apparent in the housing market, massive fire power will rush in to snap up bargains at fire sale prices, crowding out end-users who could benefit from the chance to buy housing at affordable prices. Since F&F are out of the game, I guess the Fed has to use another means to ensure that truly affordable housing never becomes available to young American families.
Planet Money
Lawmaker Says His Bailout Plan Would Cost Less
NPR.org, October 2, 2008 · Even as the U.S. Senate was passing its version of the $700 billion Wall Street bailout Wednesday, alternate approaches to solving the financial crisis continued taking shape.
The plans include the fanciful, like the viral e-mail that advocates giving a slice of the $85 billion AIG rescue to every American adult as a “We Deserve It” dividend. Other moves appeared more pragmatic, if no less criticized. On Wednesday, the Securities and Exchange Commission moved to ease accounting rules so that banks have better-looking balance sheets — better-looking enough to help them resume lending and borrowing.
That particular strategy finds a home in a bill sponsored by Rep. Peter DeFazio (D-OR). DeFazio says he draws his ideas from the savings and loan crisis of the 1980s and ’90s, when Federal Deposit Insurance Corp. Chairman William Isaac worked through the troubles of thousands of banks. DeFazio’s legislation calls for the FDIC, which covers ordinary bank accounts, to step in again.
Everybody’s plan cost less.
I like Mark Cubans plan
“…Putting the assets into an ETF, as I suggested in my last post, will allow every taxpayer to see just how the assets are performing on a tick by tick basis, just as we follow the performance of any stock or fund we own. Because an ETF allows for the exchange of assets with Shareholders, it will also insure that the assets are managed properly. In addition, because the shares owned by the US Treasury can be sold into a liquid market, the money “invested” in to these assets could be returned far more quickly.
How would it work ? The Treasury would buy the assets , apparently 250B to get started, and put those assets and the costs to manage them into the ETF. It would then issue 250B of shares, probably 2.5B shares at $100 each to themselves.
They would then immediately begin to sell shares to the market. So people like me, you , institutions, anyone who thought that this is a good deal, could buy the shares initially at $100 ea. From this initial offering, the market would take over. If investors thought the assets were being well managed, the price would go up. If not, it would go down.
If demand was strong enough for the shares, and the price went up, the Treasury could issue more of the shares they own into the market, there by IMMEDIATELY REDUCING THE COST TO TAXPAYERS.
As a frame of reference, the marketcap of the fund, based on a 250B initial bailout, would of course be $250B dollars to start, which just happens to be the same marketcaps as MicroSoft and the same marketcap as General Electric. So this is far from being too big for the market to handle.
I promise you, this would work far better than the current plan to keep the assets behind the veil of the government, with no transparency beyond the listing of transactions and assets on government website.”
Then Mr. Buffett could have his 1% etc . It is fair in that the government would not be the sucker of last resort.
Furthermore,
I think it should be MANDATORY that the special pension plans of the House and Senate (I don’t know the name of this plan) have a significant amount of its assets invested in this ETF, retroactively.
This is probably a “pie in the sky” suggestion as there probably is no asset base for their pension plan — just put it on the taxpayers’ tab every year. But, if there were a way to run congressional pensions through this ETF each year so that current (and former) politicians would have their pensions’ asset values adjusted up or down with the value of the ETF, that would be a good thing in my eyes.
Accountability…
This is mostly slides and graphs.
http://www.milkeninstitute.org/10022008slides.pdf
caution 84 pg pdf.
“Demystifying the Mortgage Meltdown: “
Wow - lots of awesome data in there.
I’d love to hear their talking points on slide 82. (Most would be over my head though)
Thanks for warning people Ben.
We are at zero and one….on and off….right and wrong…
If you do the right thing, the most important thing to know is when you are wrong. This has been my toughest lesson over the last 3 years.
True and False are mutually exclusive, dont matter the laungage.
“Remember this. The 1.25 Trillion Dollars plus lost in this crisis, IS MORE THAN THE HAS BEEN MADE IN THE ENTIRE HISTORY OF BANKING . Worse yet, its not the first time they have lost everything they have made in the history of banking.”
Mark Cuban
Mark Cuban is an idiot - pure and simple. A rich idiot - but an idiot nonetheless.
1.25 Trillion doesn’t approach what’s been made in banking.
One single bank - JPM, has made $300B in just the last 3 years.
BAC made $324B in the last 3 years.
Citi made $440B in the last 3 years.
Wells Fargo made $150B in the last 3 years.
US Bank made $55B in the last 3 years.
So there’s 1.25 Trillion - just 5 banks in just 3 years.
P.S. I’ve been meaning to compile a bunch of data like that. Most people would be shocked if they found out how much of their income actually goes to just managing their money.
Right there we have about $400B per year in revenue. There are 300 million people in the U.S. So just those 5 institutions alone made an average of $1,000 per person (about $3,000 per family) just to manage their money.
Now granted those companies also make money overseas, but they are also a small fraction of the total financial management companies.
People will fight tooth and nail for a $5 charge on their phone bill, but have no problem just handing over thousands to the banks every year. Amazing.
Packman,
I agree with you about Mr. Cuban being a rich mope. Why else would he wish to buy the Cubs?
I think you should recheck your earnings statements. While rereading an FDIC paper this morning from Mar 2006 (Scenarios for the Next U.S. Recession), I came across this line.
“Meanwhile, FDIC-insured institutions turned in a fifth-consecutive year of record earnings in 2005, posting net income of $134.2 billion.”
If you haven’t read this report, I do recommend it.
I thought most of the debate was centered around the the Senators running for President voting record….
when you vote, as an individual, always rememebr the no vote is the most important vote you have. Based on this logic, WE, America is about to have the greatest amount of eligible voters participating in 2 generations.
The generation Im most worried about is my childrens children. They are not voters yet. They are babies. What do I want for my grandchildren?
Thus, the current climate is not a vote for a President, rather a vote for a Treasury Secretary. I want the cabinet nominations on the board prior to November. All inclusive and acceptance.
The easiest vote you use everyday is how you spend money, if you dont vote…spend money wisely.
Whoever in govt wants to blame the mortgage mess on the failure of the private market driven by unfettered greed needs to address this. APPARENTLY, THE GOVERNMENT THREW TEN OR SO WRENCHES INTO THE PRIVATE MARKET’S GEAR BOX, THEN BLAMED THE PRIVATE MARKET FOR FAILING TO RUN PROPERLY.
* OPINION
* OCTOBER 3, 2008
How Government Stoked the Mania
Housing prices would never have risen so high without multiple Washington mistakes.
By RUSSELL ROBERTS
Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed.
Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What’s missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.
Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target — 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.
For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be “special affordable” loans, typically to borrowers with income less than 60% of their area’s median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down.
Hear No Evil
What some Congresspeople said about Fannie and Freddie.
Fannie and Freddie also purchased hundreds of billions of subprime securities for their own portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities.
Congress designed Fannie and Freddie to serve both their investors and the political class. Demanding that Fannie and Freddie do more to increase home ownership among poor people allowed Congress and the White House to subsidize low-income housing outside of the budget, at least in the short run. It was a political free lunch.
The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters — their bottom line and the so-called common good. First passed in 1977, the CRA was “strengthened” in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income families.
Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages.
By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.
Fannie and Freddie and the banks opposed these policy changes at first through both lobbying and intransigence. But when they found out that following these policies could be profitable — which they were as long as rising housing prices kept default rates unusually low — their complaints disappeared. Maybe they could serve two masters. They turned out to be wrong. And when Fannie and Freddie went into conservatorship, politicians found out that budgetary dollars were on the line after all.
While Fannie and Freddie and the CRA were pushing up the demand for relatively low-priced property, the Taxpayer Relief Act of 1997 increased the demand for higher valued property by expanding the availability and size of the capital-gains exclusion to $500,000 from $125,000. It also made it easier to exclude capital gains from rental property, further pushing up the demand for housing.
Time for an emergency interest rate hike to reign in inflation and get credit flowing again.
Basic grocery items rise 10.5% from last year
By Matt Andrejczak, MarketWatch
Last update: 4:51 p.m. EDT Oct. 2, 2008
SAN FRANCISCO (MarketWatch) — Families have been feeling increasing financial pain at grocery-store cash registers, exacerbating their difficulties in the souring U.S. economy.
Here’s how much it hurts: A basket of 16 basic food items cost $48.68 over the past three months, up 10.5% from a year ago, the American Farm Bureau Federation said Thursday.
The latest survey from the nation’s largest farm organization underscores the pressures reverberating throughout the food chain, from the American farm to the executive suites of the largest U.S. packaged-food manufacturers.