Bits Bucket For December 25, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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OMG… I’m just getting home… I’m super drunk, and I can’t sleep… I’ll blame all of this on being a Gen-Y guy
Couldn’t you just blame SS and be done with it?
Drunk and can’t sleep? Watch Greenspan’s capitol hill testimony reruns. Not recommended if you aren’t drunk though.
I don’t think putting the bottle through the tee-vee is a very good way of starting the day.
Putting a bottle through the TV sounds like a great way to start the new year, though. Not much on there that would really be missed.
Sounds great to me, too — kill two birds with one stone, by venting your anger in a manner which reduces future wasted time watching the boob tube.
One of life’s greatest pleasures is using a TV for *target practice.
*Disclaimer: Don’t do this at home.
My tee-vee (such as it is) is used for movies (movie buff here.)
I don’t even have a tee-vee hookup. Putting a bottle through it might be counterproductive. Plus, who’s going to clean up the mess, huh?
MERRY CHRISTMAS ALL!!!
So will there ever come a day when these POS are prosecuted and if so what would the charges be?
Once Trusted Mortgage Pioneers, Now Pariahs…
“We are team-oriented, highly ethical, extremely competitive, profit-oriented, risk-averse, consumer-focused, and we try as much as possible to squeeze out any ego. Hubris is the beginning of the end.”
— Herbert Sandler, June 2005
SAN FRANCISCO — Herbert Sandler, the founder of the Center for Responsible Lending, is standing in his bayfront office watching a DVD that trains brokers to pitch mortgages by extolling the glories of the real estate boom.
The video reeks of hucksterism, and it infuriates Mr. Sandler.
“I would not have approved that!” he declares. “I don’t think we should be selling our loans based on home prices continuing to go up.”
But the DVD was produced in 2005 by a mortgage lender that Mr. Sandler and his wife, Marion, ran at the time: World Savings Bank. And the video was a small part of a broad and aggressive effort by their company to market risky loans at the height of the housing bubble.
The Sandlers long viewed themselves — and were viewed by many others — as the mortgage industry’s model citizens. Now they too have been swept into the maelstrom surrounding who is to blame for the housing bust and the growing number of home foreclosures.
Once invited by Congress to testify about good lending practices, the Sandlers were recently parodied on “Saturday Night Live” as greedy bankers who handily sold their bank — and pocketed $2.3 billion in shares and cash — in 2006 before many of their loans began to sour.
Last month, the United States attorney’s office in San Francisco announced dual inquiries into whether World Savings engaged in predatory lending practices or misled investors about its financial well-being. And the bank has been sued by numerous borrowers who claim they were misled into taking out mortgages they could not afford.
At the center of the controversy is an exotic but popular mortgage the Sandlers pioneered that helped generate billions of dollars of revenue at their bank.
Known as an option ARM — and named “Pick-A-Pay” by World Savings — it is now seen by an array of housing analysts and regulators as the Typhoid Mary of the mortgage industry.
Pick-A-Pay allowed homeowners to make monthly
Watch that video that the Times had!
But the people who bought these mortgage products and are now calling themselves victims are just as bad.
In fact, the Sandlers sold their company at the peak, and haven’t needed any taxpayer bailout. On the list of evil-doers in this whole thing, they’re pretty low on the list.
According to that article, there are TWO MILLION people with pick-a-pay mortgages!
Now held by an estimated two million homeowners, the option adjustable rate mortgage will be at the forefront of a further wave of homeowner distress that could greatly delay or even derail an economic recovery, mortgage industry analysts say.
That’s a near guarantee of two million more defaults. Anyone who thinks housing will bounce back is either crazy or a liar.
BTW: I found out that my first cousin, a school administrator who should be thinking about retiring in a few years, is instead thinking about bankruptcy. He “bought” a house two years ago, to flip. He can’t sell it. He’s still in a fantasy world, thinking that if he just stages it right with rented furniture, he’ll find a buyer.
So now he has a two mortgages on his primary home to pay, a mortgage on this investment property to pay. Not to mention, a less than honest mortgage application that lists him as a primary occupant of the house.
In the past he’s hit us up for money. We’ve always said “no.” He knows better than to try this time!
Great article on pick-a-pay (neg-am ARM) on MSNBC.com in the business/real estate section. No wonder so many people are underwater. Mortage brokers were given double the commissions for a neg-am. One mortgage banker was warned (and eventually fired?) because she wasn’t filling her quota of 45% neg-am.
The article also has a detailed graph depicting the second hump of that famous ARM reset timeline.
Aw… To bad…It’s just not fair.
Woes of U.S. auto industry cross border into Mexico
The U.S. auto bailout lifts the threat of imminent collapse of plants that have been a steady source of jobs in Mexico. But the rescue, backed…
By Alexandra Olson
The Associated Press
MEXICO CITY — The U.S. auto bailout lifts the threat of imminent collapse of plants that have been a steady source of jobs in Mexico.
But the rescue, backed by American taxpayers, is likely to slow investment in Mexico’s auto industry, one of the fastest growing in the world.
Lured by low labor costs, with wages as low as $1.50 an hour, Detroit’s automakers have been key to an industry that now makes up 3 percent of Mexico’s gross domestic product and accounts for one-fifth of its exports.
The 13 plants run by Ford, Chrysler and GM account for more than 50 percent of Mexico’s auto production.
While nothing in the $17.4 billion government loan package prohibits it, expansion outside of the United States using taxpayer money would most likely create a huge backlash.
“They really need this money, so my guess is that they will try to stay away from making new investments in Mexico in the short term because it would look very bad,” said Juan Pablo Fuentes, an economist with Moody’s Economy.com.
Lawmakers have made it clear they expect U.S. automakers to keep jobs at home. And they have leverage: $4 billion of the auto-loan package will be made available only if Congress votes to release $350 billion that remains in the financial-industry bailout fund.
“I think they are very much aware of Congress’ concerns and would do nothing untoward that would in essence breach the trust that we have extended to them,” U.S. Rep. Sheila Jackson-Lee, D-Texas said in an interview.
Mexico is heavily reliant on exports to the United States. Three-quarters of vehicles produced in the country are exported, 70 percent of them to the United States, according to the Mexican Auto Industry Association.
As U.S. car sales plummeted, Mexican auto exports fell nearly 8 percent in November and production declined 2.1 percent.
Looks like they’ve decoupled.
lol
I see the execs have learned their lesson from the coporate jet incident — for now. They’re like little kids. They do something wrong, you punish them. They act really really good for a while to stock up on good will. Then they go right back to being brats. Keep an eye on them, Congress.
Right. And who’s keeping an eye on Congress?
How will this bailout ever work? Have these idiots realized what a $ 30,000 /60 mo. car payment amounts to. Because that is the median price of GM’s cars ( scratch that- ALL new cars). IMO, all car makers are in deep doo doo. This will take massive changes in the automotive industry. Thousands of jobs lost. It makes me think of the housing bubble, and I can’t fathom the stupidity. There’s just not enough good credit out there to sell more than 8 million cars a year. Happy Holidays to all the sane people left in the world. Best of luck to the rest.
BLANO - Thank you for the kind words yesterday. As always, I wish you the best.
Thank you Natalie!!!
Lurking here today is going to be challenging
Many thanks to Ben and the merry crew of regulars who’ve helped lots of us see through the cultural BS regarding “owning your own home” and recognize it as a money pit. It’s OK to be a happy renter, finally
This little happy renter just got the Turkey in the oven and is taking a kitchen break.
Meeeeeeeeeeeeeeeeeeeeeeeery Christmas!
Leigh
It would be ironic if the only advantage in buying over renting is the right to kep multiple pets.
I think you pinned it. And I think right now that is the only advantage of buying over renting.
I have two 70 pound Aussies and a cat. We rent, but it is a rural setting where pets are expected, and besides, the rental agency’s owner likes her poodles and expects landlords to do like pets. The real problem I find is that we have had to move twice because the landlord wanted to sell. The first time was because of a divorce. The second time was because the landlord was a real estate broker and wanted to sell, and he did just before the prices started going down. The landlord is trying to do a short sale on the house we are in. The price has gone from $625,000 when he bought it to $349,000 last I heard. We did have State of California correctional officer come by to look at the place a week ago, the first person to have a look at the place since it went on the market last summer. However, that was the day that our governor announced he wanted to have state workers take two days off per month without pay and cut 10% of the work force. I doubt he is going to buy anything now.
The one advantage I would really like is to have some gardening space, but since that’s a lousy reason to get chained to a mortgage, perhaps I should just campaign for community gardens here instead. No need to buy now and be stuck with an albatross forever.
Lots of moat-fillers and chainsaw-catchers out there though.
I worry a little bit about that too. Apartment dwellers are always a little less self-sufficient and depend on more on just-in-time than homeowners who have the security and space to grow stuff and stock up.
Oh well, I still think we’re a long way from MadMax yet.
I don’t know what you mean when you say apartment dwellers are a little less self sufficient. If you are talking about having a garage so we do our own repairs to cars, furniture, and what-not, then I would understand.
I don’t do manual labor - don’t know how to weld, lay bricks, shoe a horse, or whatever. My silver bullion will be used to get me basic services in case we will turn our backs on the information age and return to the iron age, like most of you are suggesting.
Since I tend to live or work in big cities, I doubt if I will have to know how to put horseshoes on a horse or be a blacksmith.
My Total holiday spending…………………drumroll: $32.50
$13 gift for my nephew at 70% discount, my GF got as an employee at The Met. Museum of Art….$11.50 tolls and $8.00 gas to see my mom and family today.
Thanks Ben for Enlightening us and to all the fun intelligent posters here…..we knew something was wrong. Our BS and red flag detector was up>
But I couldn’t even talk sense to my Cousin (no kids both nearing 45 years ols) who tore down a perfectly good split level 60’s house and put up a prefab McMansion 5 bedrooms, 3 car garage plus a very high basement they wanted to put in a 2 lane bowling alley…..and he works as a supervisor in mortgages at HSBC, and his wife is insurance. I pray she doesn’t work for AIG. Thanks all
It WON’T be just the monthly PITI nuts for these MCMansion Caves and their 3 car Garageasaurus Hexes that KILL off these housebound Neanderthals and their spawn.
ALL of the Monthly Services/Taxes Charges from States, cities to their Health Club, Super Phones and high end Cable TV bills to name a few will MURDER THEM with a job loss, divorce or foreclosure.
Someday, we should make a Blog List of some of these numerous totally useless and wasted SERVICES and CHARGES that these clowns signed up for and are DOOMED to pay for until their Creditors drag them from their Dens and Gnaw upon their stupid carcasses
Observations from Deepest, Darkest Devon
The local estate agent has a bunch of properties under a “SALE - 20% off” sign, which is truely a first. This still makes them about twice the price they should be, but it’s a start.
Pre-Christmas sales (also pretty much unheard of), are ranging up to 50% off. For DVD sets it seems to be about 75%. Apparently retail quarterly rents are payable on the 26th in the UK. Layoffs are just starting. As is the realisation of just how much of the economy depended on the financial sector. Oops.
The combination of sales discounts, and the very rapid decline in the pound, is even creating arbitrage opportunities on Amazon (buy on amazon.co.uk and sell on amazon.de or .fr (germany or france), so i suspect the entire of Europe will be piling in for the January sales.
hang on for an interesting ride next year - and best wishes to Ben and everybody else here.
– w
–
Locally, prices getting close to the pre-bubble levels…
Large New House (2005) In Tehachapi Close to Everything (Schools, Shopping, Restaurants) For $85/SqFt
1009 Clearview Street Tehachapi, CA 93561
$214,900 4 Bed, 3.5 Bath | 2,445 Sq Ft | MLS ID #9957959
http://www.realtor.com/search/listingdetail.aspx?sby=1&pg=10&sdir=1&srcnt=393&sid=75f33d359cf242bebbd533850f9ff68f&fhcnt=8&loc=93561&usrloc=93561&mnp=100000&mxp=1000000&bd=2&bth=2&typ=1&ml=8&fhpg=2&lid=1104073910&lsn=97
My forecast is that in most parts of CA prices will be back to 1995-98 levels some time in 2010.
Jas
Jas, have you ever been to Tehachapi? I, for the live of me, have never been able to understand why
anyone would want to live there. It’s literally out in the middle of bum &^%$ Egypt.
live = life
More coffee please….
Well, yes, but if you are going east out of central California, you go through Tehachapi and I always stop for gas so I can make a run to Arizona without paying high gas prices in the desert. Also, Tehachapi has a large prison outside side of town that needs a lot of people to run it.
“Jas, have you ever been to Tehachapi?”
Jas lives there, IIRC. And he began with, “Locally,…”
Merry Christmas to all.
I’m heading up to Vermont this afternoon. Very, very glad that I decided to get the cheap plane ticket, as the doc says I may have a meniscus tear and driving over 10 hours would have been pretty dire. I’ll get an MRI to check. But I do have a question. How did they diagnose it before MRI’s? He pushed and pulled and said that I screamed at the meniscus tear test, so doesn’t he already know? I should be OK for the flight which is less than an hour and a half.
Lets all think about texas chick and her Christmas morning tradition of going out to breakfast and giving the waitress/er a $100+ tip. Someone is getting a very much needed financial respite this morning in Dallas.
“How did they diagnose it before MRI’s?”
Just as you described. But since MRIs are now available and since doctors must practice defensive medicine, you’ll get the MRI as well.
Merry Christmas all. I feel bad that many folks will be looking forward with dread to what 2009 brings.
Polly,
In the old days, they would have made about a 10 inch incision and opened up your knee, poked around for a while, fixed the problem and sewed you back up leaving a nice 10 inch scar.
With the MRI they have a more precise picture of the problem. They will make two one inch incisions on either side of the problem area, fix the probem, sew you back up leaving two small scars. The operation will be done much more quickly and your recovery time greatly shortened.
Be very diligent with your physical therapy and there will be hardly any pain.
Good luck with the knee surgery. Mine was very successful. I was skiing and wearing heels in less than a year.
Pre-apocalypse. Saying anything for the me me moola:
http://www.youtube.com/watch?v=SObcUm1GDdw
Merry Christmas from an unusually warm Tokyo, well it’s going to be cold
again tomorrow though.
Yes it’s creepy here too and getting creepier…
Do tell!
Leigh
Lived in Tokyo back in 97 - rents were $5,000 a month. Wonder what they are today.
Merry Christmas guys…..thanks for being there through all the years of sharing our thoughts. It has certainly helped me with my business to be here.
I fear next year will reveal darkness even we had not forseen. Time to step up and deal with it regardless of what the big boyz do. They have forstalled it but no way it can be stopped.
Merry Christmas, dime. And Merry Christmas to all from the palmster.
–
Calif. (SFH) Median Resale Price Down 52% In 18 Months
Date_________________ Nov-08 MAX (May 2007) Loss From max
Calif. (SFH) Median Resale $285,680 $594,530 51.95%
At list part of the decline is due to mix of homes being sold now versus before the Crisis. All other data support the fact that prices in California, as a whole, are down more than 40% from the peak prices. In 90% of the zip codes, prices are down between 20-65% from the peak. We are headed for 50-80% decline from the peak in 95% of the zip codes by 2010.
Going forward, the worst hit zip codes are likely to be the high-priced zip codes in San Mateo and Santa Clara Counties and some in L.A. Area. 2009 would be the year when these areas catch up with the rest of CA and in 2010 they would the leaders.
Latest report at:
http://www.car.org/newsstand/newsreleases/novembersales/
Jas
I thnk “location, location, location” today means proximity to the highest paying jobs, best colleges, great transportation and best climate. Well at least most of these. Manhattan has all except climate. The beach cities of LA have all except transportation.
Now let’s talk about Fresno, Bakersfield, Lancaster, Indio, and Victorville. They are only bedroom communities with no other advantage and are certainly going to be abandoned when oil price hikes return with a vengeance.
It’s no wonder that I still see prices hardly budged at all in the mile wide strip of land from Pacific Palisades to Malaga Cove (by Redondo Beach).
I hope you are right though, that the more exclusive areas of California will see huge price drops. If trashy people moved in the neighborhood and get housing assistance from Dodd, Frank, and their fellow thugs, the trashy people will certainly bring down the values of the neighborhoods.
If trashy people moved in the neighborhood and get housing assistance from Dodd, Frank, and their fellow thugs, the trashy people will certainly bring down the values of the neighborhoods.
Those “trashy people” you speak of are the core constituency and voting base of the Democratic Party. Thanks to demographic shifts and our national march down the road to IDIOCRACY, said trashy people, and the political overlords of the DNC, have discovered that they can sustain the Dems in permanent power so long as Pelosi, Dodd, Frank, et al. can deliver the riff-raff and ever-growing entitlement classes benefits from the public treasury, that they won’t have to pay for. So you might want to get used to having a huge and growing population of them around, since you’ll be paying their bills - while being systematically disenfrancised from any representation of your interests - long past the breaking point.
And no, today’s Republicans, the whores of Wall Street and big business, aren’t the answer, either. The productive middle and working classes in this country have been sold out by BOTH parties.
Perhaps the luxury islands off of Dubai will be the last holdouts for the truly responsible individuals.
But I think a minimum of $10,000,000 will get you in as a contender for living there.
The destruction of the middle class and their values, pride, personal responsibility and committment to freedom has been destroyed by Washington D.C.
Correction: The destruction of the middle class and their values, pride, personal responsibility and committment to freedom has been achieved by the politicians of the two largest political parties in Washington D.C.
I used to live in Moorpark Ca I wouldn’t mind a price rollback to 1998 levels for 93021. I may move if I can get a house there for about 400K which is what I sold my Townhome there in Moorpark for in 2006. I’m thinking a few more years.
Yeah I remember driving through Fillmore and Moorpark on the way to Santa Barbara many times to visit my sister. I lived in the high desert at that time. This was back in the late 80s and early 90s. Very nice area. I probably would not recognize it at all these days. Santa Paula was kind of nice on the days when the orange blossoms would be out.
I think you will get a good deal in a few years.
Each night I try to watch the PBS Newshour and Nightly Business Report which follows. Last night there were a couple of interesting segments. This is all paraphrased.
1. On the Newshour, they had a panel of experts talking about the $700B bailout money and how it had been spent. Marty Feldstein(?) was on again. This is the guy who was on the show a couple weeks ago, screaming that house prices MUST be stabilized by the government. Maybe he owns a condo? I guess somebody stuffed some pie in his piehole since then, because last night he was better behaved. He only referred to the systemic housing crisis, which must be solved, and waaah waaah why didn’t the government buy troubled assets like they said they would. (I guess that buying troubled assets would stabilize house prices, so maybe Paulson’s buying capital was a better idea. The other experts, Alan Blinder and Alice Rivlin, thought Paulson had done the right thing.)
But the expert who stunned me was the representitive from the American Bankers Association. She insisted, twice, that “The banks are healthy; we didn’t ask for this program, we don’t need the money.” Banks are healthy? And you DIDN’T ASK for this program?!? Then what was all that caca del toro we heard back in October, that banks were on life support, and that if Paulson didn’t get his billions and billions right this very minute then half the world would be smote with fire and brimstone and the other half would fall into the sea?
2. On Nightly Business Report, Hillary Cramer actually called a bottom. She’s has been on every couple weeks, preaching the coming of the capitulation. Finally, it is not quite here. She is predicting that
a. Stock market bottom will come late summer 2009. There will be a last optimistic bounce in the spring (she doesn’t mention Obama, but that might be a cause for optimism), misleading people to think that the bottom had passed, and misleading them to buy. But they will lose most of the spring gains with the real capitulation. After the real bottom, there will be an incredible bull run.
b. Reported unemployment will reach double digits, but real unemployment in some areas may go as high as 20%.
c. Oil prices will go back up, but only to a sustained $60-70/barrel.
d. Consequently, there will be a meltdown and Depression in the Middle East. Countries like Saudi Arabia bought a lot of stuff depending on a revenue stream based on high ($100/b?) oil prices. Their bills will come due soon as well.
Transcripts aren’t up yet, sorry.
I doubt if the middle east will get into a depression. Over $100 per barrel of oil will be back.
Government is printing dollars like crazy to try to inflate us out of this (so far) light depression. House prices won’t get back up to their 2006 levels for another 20 years because the liar loans allowed cretins to move in and trash upscale neighborhoods and turn civilized quiet areas into slums. If not for liar loans and housing assistance, I would say that house prices will go up the next few years as the dollar goes down. Instead, gold and stocks will go up.
I have similar hunches. My guess is that stock prices will increase relative to housing over the next few years, as housing is constrained by J6P’s borrowing constraints while stock valuations are driven by Daddy Warbucks’ willingness and ability to gamble. The stock market is a loaded spring, thanks to the Fed’s printing press jubilee juxtaposed against the ephemeral headwinds of burning hedge funds deleveraging their stock holdings and panicked individual investors avoiding the market like the plague.
I realize more unexpected falling shoes will fall from the sky onto the stock market, but consider (1) how much worse can things get in the wake of a collapse of the investment banking sector, (2) how much intervention is the govt willing and able to use to prop up the market (either housing or stocks), and (3) which asset market will correct soonest. So far as I can tell, the answers to all of these questions favor buying stocks over residential real estate, at least over the next several years.
Post-Christmas is my favorite time of year. All the fake smiles are gone, but more importantly, dividends are dispersed, my matching 401k contribution of $3,000 or so comes in January, and my smaller paychecks in January mean I’m buying international, small US Value, and large US growth stock funds every week!
I like to tally how many shares I buy weekly. The more the better! And for my IRA I do $100 per week into a stock fund indexed to the S&P 500. Lower valuations? Bring ‘em on!
Speaking of oil prices, in light of still falling crude prices (less than $36 per barrel) gasoline around here has gone up nearly 30 cents per gallon since I last filled up. WTF?
Merry Christmas from Norfolk, VA! (Where prices have only come down a bit.)
Merry Christmas from Vancouver, Canada, where the mania had begun to abate! May 2009 bring another -20% down for us all. Ho ho ho.
Merry Christmas All!
Thanks Ben for all you do.
Ditto.
Merry Christmas from Philadelphia, where prices are back in the $120sqft range!
–
Radar Logic PPSF for the metro is $143. The recent price decline rate is 35%, so we should get to $120 and $100 PPSF soon enough.
Jas
Jas — Thx for the Radar Logic lead. I calculated some annualized rates of change for the 28-day average PPSF in San Diego between major breaks in the slope since 2000. Here are the results:
Price per square foot on 3-Jan-00 = 134.24
Period / PPSF at end of period / Annualized rate of change
3-Jan-00 to 28-Sep-01 / 173.89 / 16.1%
28-Sep-01 to 15-Dec-03 / 257.583 / 19.4%
15-Dec-03 to 21-Jul-04 / 324.243 / 46.8%
21-Ju-04 to 18-May-06 / 357.342 / 5.5%
18-May-06 to 20-Mar-07 / 343.868 / -4.5%
20-Mar-07 to 22-Oct-08 / 209.86 / -26.6%
Conclusions:
1) The most rapid period of increase in PPSF was from 15-Dec-03 through 21-Jul-04, at a red hot 46.8% annualized rate
2) The most rapid rate of decrease so far was the period from 20-Mar-07 through 22-Oct-08 (the latest data point) at -26.6% annualized
3) An annualized rate of decline of 26.6% exactly offsets an annualized rate of increase of
(100/(100-26.6)-1)*100 = 36.2 pct.
4) Interesting questions going forward:
a) Will the rate of decline going forward ever reach a level sufficient to fully offset the maximum 46.8% annualized rate of increase in 03-04? This offsetting rate of decline is
(100/(100+46.8)-1)*100 = 31.9 pct.
b) Will the PPSF settle out at a lower level than the 134.24 PPSF at the start of the available data? (Note that the data is not inflation adjusted, and the Fed is currently trying to create a wall of inflation with the printing press.)
Another interesting question: At the recent annualized rate of price decline, how long would it take to get back to PPSF = $134.24?
209.86*((100-26.6)/100)^t = 134.24
t = log(134.24/209.86)/log((100-26.6)/100) = 1.44484 years
= 1 year and 162 days.
One year from now is obviously December 25, 2009. 162 days after that is determined by the following exercise:
Month / Days
12/09 6
1/10 31 (30+1)
2/10 28 (30-2)
3/10 31 (30+1)
4/10 30 (30+0)
5/10 31 (30+1)
6/10 n = 5
Total = 150+(6+1-2+1+1)+n =157+n=162
Don’t buy in San Diego before June 5, 2010, unless you want to pay over $134.24 per square foot!
(Caveat: The actual trajectory of future PPSF declines is unpredictable!)
Me thinks CA prices have another 33 pct decline ahead in PPSF terms…
Thanks Ben for all you’ve done and a special thanks
to all who contribute to this blog. It proves that even
an old dog can still learn a few things.
Greetings from a cold and wet Grants Pass, Oregon.
Merry Christmas to all!
Merry xmas from Colorado/US Virgin Islands!
We made an all-cash offer two days ago for an REO in 80027. Offered less than 50% of ask, and 10% less than 1999 sales price.
My realtor relatives haven’t made a sale in over a month in Colorado.
mkl42
Congratulations on your REO offer done fearless with due diligence. I think we’re on the same path. Any insight, or is it too early?
Merry Christmas to Ben and everyone.
Thanks, wipeout. It’s a bit early. The seller’s realtor said he has an offer in hand, but would wait to see ours. Ah, the old phantom offer trick. That did get me to raise my offer from $155,000 to $160,000.
My realtor is a rookie, but doesn’t need the money, and is eager to learn about REOs. Mostly I think she wants to get out of the house (six kids). She made the offer verbally to be sure that we wouldn’t get laughed at, but no, they said write it up.
An interesting tidbit was on Zillow. The property was sold two months ago for $235,000, but Zillow won’t use it for setting price, as they feel it’s not a valid transaction — not arm’s length, they say. Whatever. Low-balling is fun!
mkl42
Thank you for the scoop (reply). It’s truly appreciated.
*Did you get to inspect the house, even a look into the windows?
*Did you use the Assessor’s Office as your main data point?
* Can you give me a clue to whom to submitted the offer to?
Zillow is a worthless site, in my humble opinion. I’ve been using a calendar to record my former residence (Ventura County, So Ca-we’re sold a while now) and it showed a $20K increase in 30 days (4th qtr ‘08). What utter bs.
Keep us informed as the offer unfolds.
I just got a blistering e-mail from a local real estate professional who appears less than appreciative of the $300K offer I made on a listing of her’s that is currently being marketed for $585,000. She might have been put off by the extensive list of repairs that I also insisted on for the 80+ year old property. The gist of the letter was that they are experts in pricing homes for the market, that my offer “is simply not realistic,” and she has three potential buyers who are very interested in the house at the current price. To which I responded, my offer is good for 30 days. Any future offers will be at least ten percent lower, reflecting market realities and the onrushing depression.
I just love spreading Christmas cheer.
You are my new hero!!!
If more people used their brains like you then we would get this painful correction behind us. instead so many knife catchers are busy cementing their losses for next year. We will have to tolerate at least one more round of defaults by the 2007/2008/2009 knife catcher turds.
The I.E. auctions I attended this time last year saw houses going for a 50% discount on fake bubble loans. the winning bidders were so proud of themselves for being the ones willing pay more than anyone else bidding, they actually reffered to themselves as the auction winners?
Last week i revisited some of those houses and they are now worth $60-$80k less than their “winning” bid and no bottom in sight.
We should give intelligence tests to loan buyers so the dummies are no longer able to over-pay and hurt the rest of us.
merry x-mas from nyc where it is different
bwahahaaaaaaaaaaaaaaaaaaaaaaaaaaaaa
enjoy the holidays
From the MSNBC webpage:
——–
Mortgage re-defaults up; no sign of slowing
Number of delinquencies rose across all loan categories
WASHINGTON - The rate of home mortgage borrowers defaulting after their loans are modified is rising and shows no signs of leveling off, U.S. banking regulators said on Monday.
The rest of the short piece is badly written (don’t they have editors anymore?), so here’s the gist.
1. 3 months after modification, 19% of the refi’s were 60 days late.
2. 6 months after modification, 37% of the refi’e were 60 days late.
3. Subprimes had the highest delinquency rates, but there were delinquencies over all loan classes. Contained? Ha. Wait two years for the false primes in the garage majals exhaust their 3-year I/O Escaladic MEW from 2006.
4. The usual suspects are “troubled” that deliquencies rise with each month after modification. gee, was this such a surprise?
5. But “9 out of 10″ of mortgages remain current. that’s 10% default, for you math-challenged congressfolks.
———
So, maybe somebody should ask all those “keep people in their homes” folks in congress:
Refinance? Refinance into what?
What % of these people will be able to keep up those payments for 30 years?
Merry Christmas everyone!
Thanks for everything!
Merry Christmas to all from Detroit, where we await the seemingly inevitable and historic thumping this coming Sunday thanks to hoz’s beloved Packers.
The curse of the Favre?
“Warm & Fuzzy”
http://www.youtube.com/watch?v=Yc7V7q5Y7Hs
“Dax” & “Lehman” (Lehman how ironic huh?)
http://www.youtube.com/watch?v=pyo20WItd3g
..watch your wallets in ‘09
Yesterday, my sister and I were walking around New York. Well, we just happened to walk along Fifth Ave. before we went to dinner.
It was like a morgue. The staff at Harry Winston were just standing around looking devastated; the fancier labels (Zegna, Missoni, Pucci, etc.) were TOTALLY empty. Not one single shopper in any of them.
Manolo Blahnik had sale signs. They’re not feeling any love any more. Looks like the era of the HELOC is over.
Sale signs everywhere. Staff with horrified looks mobbing any shopper who entered a store.
This is gonna be epic. There’s a lot more love coming down the tailpipe.
“Manolo Blahnik had sale signs.”
NOOOOOOOOO! Not the Manolos, sob, sniffle…
What about Jimmy Choo? Surely the Jimmy Choos are safe?
How can the ultra-high end be suffering? I thought that these people were the people that all the wealth from the supposed “wealth transfer” was transferred TO.
Patrons of Madoff, maybe?
And wouldn’t it be weird if Harry Winston or Tiffany’s went down? Elizabeth Taylor and the appraisers from Antiques Roadshow would go into irreversible shock.
It’s the trickle down effect.
When they say trickle, they MEAN trickle. (always did)
For a lot of FBs, the love is going to be coming UP the tailpipe.
Happy Happy from the Housing Wizard to all . Spent the last 10 days at the
hospital most the time ,but now I brought my spouse home who is in a wheel chair now .Had to wrap presents myself ,(something I never do ).
Had to send out wrapped gifts to Nephew or he wouldn’t of had a Christmas . Now I have to cook ( something I usually don’t do ). On top of everything else a tree came down and blocked my driveway . I feel good
because I fixed us a big old steak last night in a warm cozy house with a fire . Life is good again and one more time I have to make adjustments
for circumstances that are beyond my control . Its a good thing I know how to tap dance . Merry Merry to all and don’t worry ,you can get through anything .
“Spent the last 10 days at the
hospital most the time ,but now I brought my spouse home who is in a wheel chair now…Merry Merry to all and don’t worry ,you can get through anything.”
Many, MANY good vibes and SuperHappy Greetings to you ad yours, Housing Wizard. Sounds like you’ve had a challenging holiday season, to say the least.
And, to All…try to be safe and happy today (and every day, if you can).
The Housing Wizard-
My heart goes out to you. If you need to share, please feel free to. We are all a HBB family. I am in a slightly different caregiver mode for 2 family members.
You show remarkable strength and acceptance. My thoughts and prayers are with you.
Housing Wizard,
All the best to you and your spouse this Christmas season. My mom was seriously ill with pneumonia at Christmas time a few years back, so I know first hand how tough it can be for a family to cope with illness during what should be a time of happiness and togetherness. Your positive attitude towards circumstances beyond your control are very inspirational.
Merry Christmas Wiz and Mrs. Wiz (and all HBBers).
Our thoughts and prayers are with you at the Leigh house.
I miss your posts.
Best Always,
Leigh
Housing Wizard,
Is your spouse (wife?) permanantly in a wheelchair, or just post-op?
Thanks everybody for your good wishes . Sammy ,in answer to your question ,its looking like a long term condition and a downhill type thing ,but I saw some improvement in just a couple of days actually / I’m finally being forced into learning how to cook ,but I’m up for it ,it might be fun .
The latest statistics show that the number of homeless families sleeping in municipal shelters in New York City has reached 9,720. It’s the highest number reported since the city began keeping track of it’s homeless population in 1983.
There are more than 36,000 homeless people in New York and 16,000 are children.
The more the merrier in the twisted mind of an big business apologista.
Since the population in general is at its highest ever, why shouldn’t the homeless population be at its highest, regardless of the economy? And how many of those using shelters are illegals?
The news here in Tampa keeps hitting us with sob stories, but nobody says whether the percentage of homeless people is higher, or how many of the reported homeless have simply flocked here for the winter. I can report that every time I haul trash to the curb for pickup the next day, somebody steals most of it before the garbage truck ever gets there (and apparently, without even opening the trash bags to see what’s inside). The first time shocked me; the second time creeped me out; the third time really depressed me. This has gone on for a month, now, but I still haven’t caught anyone trash-handed.
I think it’s in percentage terms too.
No more homeless stories after January 20th, for at least the next four years.
That would make sense as BO will actually do something about the issue. It is exactly why he got elected; he campaigned on issues instead of hobgoblins, subterfuge and knownothingness.
Merry Christmas to all from West Palm Beach
Merry Christmas from the Portland area!
Thanks everybody for the great posts, recommended links, etc.
Thanks Ben!
Merry Christmas from the Grants Pass, Oregon area.
Merry Christmas to everyone from Chandler, AZ, and a great new year. Home prices are dropping here in the outlying areas (85249) significantly.
I’ve learnt a lot from this blog. SO went to Whole Foods yesterday afternoon; he said he found a wrapped meat package (the one you get from the meat department) in one of the frozen food sections. Was marked about $23.00. It looked like some one had ordered a cut of “Filet Mignon” from the meat department, then had a change of heart about buying it and didn’t want to return it to the meat department, so left the package in another section.
I went shopping for some last minutes things last night at Walmart; saw a few people thinking twice about buying the micro-plush throws (blankets) in the middle of the store for $6.00, marked down from $10.00. Some went with the cheaper but not as soft throws ($3.00).
2009 will be tough for a lot of folks. It scares me.
Merry Christmas and Happy Chanukah! from Green Vally Henderson, I am glad the snow only lasted one friggin day!!
OR for those who are offended–
Happy Non-Denominational Holliday– no Its Christmas you tard!
Happy Non-Holiday from China
Come on over and celebrate with us, Yensoy, even though it will be yesterday by the time you get here…or is it already?
Anyway, we’ll save you some eggnog.
Merry Christmas from Tampa, FL.
Merry Christmas from South Hillsborough! Seen any good squat houses up in Tampa?
And Merry Christmas to all from Parrish, FL!
Hi, dave, Merry Christmas, wow, are you ever lucky you got out of that Lennar house in Riverbend. I don’t know if you saw the thread where we discussed the sulfuric drywall from China, but I thought of you. All the best to you over there in Parrish.
Merry Christmas Ben and all,
I woke up with running water for the first time in a week and a half. I wonder if everyone had to haul in their water for just a day if we would no longer have a shortage. Miracles do happen. May you all just be thankful to have clean, running water. Best present ever.
Barb
Barb .. were you one off Unitil’s “lucky” customers? One of my coworkers lost some of her stuff when, after 12 days without power in the Fitchburg MA area, the pipes finally froze in the building where she’s renting an apartment.
You’d think this was in frigging wartime Bosnia from the length of time it took them to restore power.
sltrib dot com (Utah)
San Juan County officials have declared an emergency on remote Navajo Mountain where the community’s culinary water line - and only source of drinking water - has been severed.
Officials plan to truck water to the southeast Utah community - the most remote in the state - but the forecast calls for strong winds and snow that could make the task more daunting.
The community of 380 residents may have enough water to get through today, San Juan County spokeswoman Tammy Gallegos said Wednesday.
CHRISTMAS CAROLS FOR THE DISTURBED
* 1. Schizophrenia— Do You Hear What I Hear?
* 2. Multiple Personality Disorder— We Three Kings Disoriented Are
* 3. Dementia— I Think I’ll be Home for Christmas
* 4.Narcissistic —Hark the Herald Angels Sing About Me
* 5.Manic —Deck the Halls and Walls and House and Lawn and Streets and Stores and Office and Town and Cars and Buses and Trucks and Trees and…..
* 6. Paranoid— Santa Claus is Coming to Town to Get Me
* 7. Borderline Personality Disorder— Thoughts of Roasting on an Open Fire
* 8. Personality Disorder— You Better Watch Out, I’m Gonna Cry, I’m Gonna Pout, Maybe I’ll Tell You Why
* 9.Attention Deficit Disorder — Silent night, Holy oooh look at the Froggy - can I have a chocolate, why is France so far away?
* 10.Obsessive Compulsive Disorder - — Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells, Jingle Bells
Love it!
A+
Merry Christmas from Syracuse NY
MERRY CHRISTMAS TO EVERYONE!…. From South Carolina, it’s warm and we are running the air conditioner.
That’s soooo not fair!!!
Not running mine yet, but maybe later..
50s, overcast and quite humid in this part of the upstate. Certainly not a/c weather, BUT the daffodils are starting to poke through the mulch in the front yard.
They always start blooming by late January. I will never love winter but at least I can tolerate it here.
Had to turn mine on last night….
I know things look pretty grim out there. I just wanted to maybe get a reality check on some of the things that could come out of this that would be good, realizing of course that the term “good” can be very subjective. I wanted to list out some of my own positive items:
1) First and most important, housing prices decline, making housing more affordable.
2) We will go back to more stringent qualifications.
3) Although not all, a lot of white collar criminals and quasi criminals will go down.
4) The bubble burst just in time in many cases, before even more environmental damage could be done.
5) The country can now take stock of how far we have strayed from the important things, like jobs, production and decent, safe communities.
6) HOAs and Condo associations will fall out of favor, as people realize they are paying extra for their less responsible neighbors.
7) There’s a tremendous opportunity here for people to get their governments, local to Federal, back on track and to get some sane regulation in place. Now it the time to break the backs of the pigmen and financials.
9) Many companies will become more reponsive and listen to their customers, instead of dictating what products people should have.
10) People will demand better education.
11) Deflation can take place, and perhaps prices will be fueled more by reality and not so much credit.
12) Dimedropped’s services are now in demand, rather than being passed over in favor of less honest appraisers.
Feel free to add to this.
Imagine, houses “half priced.” Well that only would take them to 2003 levels. Most of us predict the prices will undershoot the natural bottom.
I just bought a modest $1285 worth of a stock fund last night at 57% off its price one year ago. If stocks in general drop to 10% of their peak, then that $1285 will be $295, which is a 78% drop from this point.
But I don’t know how to time the stock market. The rest of you certainly do know how to time the market and you buy stocks only on the 10 worst trading days in a 10 year period and you sell stocks on the 10 best trading days in a 10 year period. You all rock!
John Kenneth Galbraith seems to be an economist for our time. He thought that as society becomes more affluent the basic needs are met. Therefore, this requires business to advertise and create a demand for goods and services. However, the public sector is neglected because of the advertising and as a result, while we purchase luxury items, infrastructure like roads, parks, and schools are neglected, pollution increases, and kids go to schools that do not educate them. Galbraith proposed curbing consumption through taxes of these unneeded items; say McMansions and SUV cars. He wanted to “invest in men” through education programs to empower J6P and have J6P be entrusted with the future of our country.
And what will these “men” do once their basic needs are met? Sit around training the next generation?
Sounds like the perfect recipe for hell for me. Hairshirts for everyone independent of whether they want them or not.
I’d rather have the worst excesses of the financial types than have a pointy-headed poindexter from Haah-vahd make my consumption decisions for me.
Point taken, puddytat. But getting trained to do something useful and do it right isn’t a bad idea, especially if you’re an MD or engineer.
We got in with no weather delays, whew… Merry Christmas from Rochester, NY (rimshot!)
Merry Christmas from Stafford, VA where it’s a balmy 50 this morning. Wonderful change from the 12 inches of snow we received while in Palmdale last week.
Noticed that there are a lot more homes for rent here in Stafford and the rents themselves are about 30% off of when we moved here in October 2007.
In case my other post doesn’t come through…….Merry Christmas to all from Detroit, where we are NOT running an air conditioner.
Ah, there it is, but a double dose of happiness for all of you anyways.
Worked yesterday until 2pm when the corporate HQ told us to enjoy the rest of the day off. My buddies, also non-Christians, and I were looking forward to getting beers at the nearest microbrewery a quarter mile away from the office. Closed. All the other local spots in old town Torrance: closed. We ended at an Irish pub, Paddy O’s. Of course it was packed. Very lively and fun for 2:30 pm on December 24!
I gave gifts of around $1200 last December. This time I’m taking a break and sending out E-cards (I apologize to my sisters). I still am going to try to scrounge up some money to help my unemployed sister a bit. She has been a straight arrow in regard to productivity and independence for almost 30 years and never was unemployed.
Here’s to the underdogs, the responsible savers, the humble, the ones who had the proper upbringing to not be a burden to anyone else and not try to take advantage of anyone else. Very few of you left in the USA. But millions of people are learning your ways are the best ways. Humble pie is being served on a lot of tables tonight.
Season’s Eatings!
I hugged my property manager this week and told her I love my rental. It was touching.
I wonder if ben is meeting up with the french film crew this week.
Merry Christmas Ben! …Thanks for all your efforts & edicating!
Merry Christmas to the HBB “All things Economics & other Nuggets-N-Bits” gang!
Mr. Cole & I brought supplies & hay to a snowed in senior & his horse…Mr. Cole had the pleasure of having a “conversation” with x3 wild turkeys wandering around in the snow…I tried to convince them that we weren’t the ones who ate their cousin Lulu…they didn’t seem too convinced.
We are just hangin’ out with the usual Christmas suspects: Bugs, Daffy, Foghorn, Yose-mite, Roadrunner, Wile E. Coyote, Marvin the Martian, Taz…later this afternoon Snoopy, Woodstock, Charlie Brown & the whole Peanuts gang are joining us for a gaggle of Xmas Cheer!
A hearty “Port” salute to you ALL!
Happy 4th day of Chanukkah, everyone!
Listening to NPR this morning; it’s clear they’re not getting it.
They described a short sale as a “win-win” because the homedebtor gets rid of the house and the bank doesn’t have to lose more money doing a foreclosure.
We all know it’s a win-win-lose-lose because we, the Taxpayers, take up the slack in two ways: bailing out the bank, and covering the taxes that should have been paid by the homedebtor on the forgiven debt (that has been excused by Congress and W.)
Merry Christmas from Girdwood, Alaska. Went snowmobiling on Tuesday. I guess I over dressed b/c I was sweaty a lot of the time (5+ hour trip) and came up sick yesterday.
The realtor family (they had signs on their PT Cruiser) only did the 2 hour trip. The wife, brother and I joked they couldn’t afford the longer trip. Of course they had two kids so that makes it more expensive too…
Hope you’re better, blu.
Thanks, I’m getting there. I guess this good southern boy just aint used to all this cold weather and snow.
Honestly, I’m not sure if I picked up a bug on the plane, or if it was the wet head (from sweat) out in the cold all day that got me. oh well, in any case its beautiful up here. This is the first time I’ve been somewhere that compares with Arkansas for natural beauty, IMO. Its really amazing here. Yesterday was a clear day (evidently unusual here) and my wife took pictures at the top of the mountain. She has some amazing photos and is putting together a huge panoramic.
Merry Christmas from Moab, Utah. Gray somewhat windy day and big storm coming in.
I’m fasting today and have donated what my Christmas dinner would have cost to the food bank. My dogs will eat in style though, they’re getting welsh rarebit (they think it’s rabbit, they’re all stoked).
My last Christmas in Utah, then off to the frozen northern realms of Montana. May you all stay warm and be happy and have the best day of your lives so far!!
PS And Happy Hanukkah to Aladinsane, wherever he is, I miss his wit.
Congressmen benefit too much under the status quo to muster the will to change it.
ECONOMIC ANALYSIS:
The Federal Reserve Abolition Act
by Stephen Lendman
Wednesday, 24 December 2008
The right to create and control money belongs to the people through their elected representatives. But for the past 95 years, powerful bankers accountable to no one have had it. Bankers have essentially run the country (and own it), and unless We the People change things, we’ll continue to be victimized by economic & political tyranny.
On June 15, 2007, Ron Paul introduced HR 2755: Federal Reserve Abolition Act. There were no co-sponsors, no further action was taken, and the legislation was referred to the House Committee on Financial Services and effectively pigeonholed and ignored.
Dec 25, 2008
Loaned, sold, gone - and doomed
By The Mogambo Guru
I was slurring my words pretty badly, and I forget where I saw it because it mysteriously disappeared in a frenzy of cutting and pasting back at the office, but I’m telling the bartender that some bozo was saying that if the Treasury’s gold (or the Fed’s gold, depending on who you figure has it) was revalued up from its current and historical book value of $42 an ounce, then the financial picture of the United States doesn’t look so bad! Hahahaha!
Merry Christmas from Phoenix were winter is the best time of the year, and yes we have a little rain but its a dry rain.
cactus
Merry Christmas from Western Pennsylvania. Some layoffs are finally hitting some of the local manufacturing businesses here in town. It’s a shame, because a lot of these people weren’t very well paid to begin with, and what they do get in unemployment probably will make life even tougher.
But just like the movie, we have seen this over and over again….Kind of makes the movie Groundhog Day appropriate for what really goes on here in town.
Merry Christmas from Palo Alto, CA - happily renting and waiting for the drop. Best in 2009 to everyone.
Merry Christmas and Happy Chanukah to all.
Ben, thanks for being the creator and driving force behind this site, which has been a bastion of sanity and reason amidst the lunacy all around us - informing and entertaining at the same time.
Aladinsane, here’s to you, hope you’ll be back shortly.
Please remember those less fortunate through no fault of their own during these hard times. Help allievate their plight with compassionate deeds, not “thoughts & prayers.”
“Help allievate their plight with compassionate deeds, not “thoughts & prayers.”
Well said.
Markets
Red meat for the doom and gloomers
Posted by Scott Van Voorhis December 24, 2008 08:00 AM
Ok, here’s more evidence that hopes for a housing market recovery are on hold.
Single-family home and condo sales posted year-over-year declines of 22 percent and 27 percent respectively this November, the Massachusetts Association of Realtors reports.
There were some signs over the summer that sales were starting to rise, even as prices were continuing to plunge. Given the lag time it takes to close a home sale, those rising sales were reflected in the September and October home sales reports.
But the November numbers are the first clear indication of the impact the global financial and economic crisis that erupted this fall is having on home sales in Massachusetts.
And it doesn’t look good
Happy Festivus everybody ! I am sure there are many who celebrate Festivus on here
Just put my coat rack away for the season a few minutes ago. Another Festivus season comes to an end. For some reason Festivus just didn’t feel as Festive this year with so many innocents suffering.
This is a genuinely sad story and a cautionary tale wrapped into the same package.
The land that Christmas forgot
By Sarah O’Connor
Published: 17:17 | Last updated: 17:17
Designer boutiques are empty, traditional businesses are suffering and more people than ever are dependent on handouts this holiday season. Sarah O’Connor goes in search of Christmas in Iceland - a once wealthy country devastated by this year’s financial crisis
Financial Times
Keynes offers us the best way to think about the financial crisis
By Martin Wolf
Published: December 23 2008 18:06 | Last updated: December 23 2008 18:06
We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race.
The ghost of John Maynard Keynes, the father of macroeconomics, has returned to haunt us. With it has come that of his most interesting disciple, Hyman Minsky. We all now know of the “Minsky moment” – the point at which a financial mania turns into panic.
Martin Wolf’s wisdom is one of the saving graces of the financial crisis. Though I am not entirely sure about the dichotomy between a morality play versus a technical challenge. A third choice would be to combine short-term rescue efforts with a long-term objective of eliminating the moral hazard which led to an era of foolish risk taking. Unfortunately, rescue measures in isolation only serve to reinforce the notion that when the going gets tough, supersized financial entities get bailouts. Heads they win, tails the rest of the world loses.
Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.
This same moralistic debate is with us, once again. Contemporary “liquidationists” insist that a collapse would lead to rebirth of a purified economy. Their leftwing opponents argue that the era of markets is over. And even I wish to see the punishment of financial alchemists who claimed that ever more debt turns economic lead into gold.
Yet Keynes would have insisted that such approaches are foolish. Markets are neither infallible nor dispensable. They are indeed the underpinnings of a productive economy and individual freedom. But they can also go seriously awry and so must be managed with care. The election of Mr Obama surely reflects a desire for just such pragmatism. Neither Ron Paul, the libertarian, nor Ralph Nader, on the left, got anywhere. So the task for this new administration is to lead the US and the world towards a pragmatic resolution of the global economic crisis we all now confront.
The urgent task is to return the world economy to health.
I do find it quite curious how all the major economists whose comments I have recently read (including Wolf’s) manage to overlook the rather obvious problem with today’s bailouts planting the seeds for tomorrow’s moral hazard. Viewed in another light, today’s financial crisis is a direct natural consequence of the bailouts of yesteryear. Rational expectations for bailouts gives firms the incentive to engage in foolish gambles. How else can one explain Megabank, Inc funneling hundreds of thousands of dollars to help Jose Strawberry Picker buy a $700,000 McMansion on $20K worth of annual income if not through expectations that the Fed will eventually relieve Megabank, Inc of the burden of its devalued sumprime MBS?
Perhaps the immensity of the global financial meltdown has collectively clouded the economics profession’s vision? (Or was it already cloudy before?)
P.S. I have enjoyed the optimal amount of wine today: Enough to be able to tolerate being trapped indoors all day with my family, but not enough to cause permanent liver damage.
What ever happened to Martin Wolf’s admonition that “Central bankers should not bail out fools?” He has lost sight of the moral hazard problem, which Anna Schwartz still sees clearly as the light of day at the ripe age of 93. Taken from the Op-Ed piece on her October 18, 2008 WSJ interview:
In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. “They should not be recapitalizing firms that should be shut down.”
Rather, “firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.” The trouble is, “that’s not the way the world has been going in recent years.”
Instead, we’ve been hearing for most of the past year about “systemic risk” — the notion that allowing one firm to fail will cause a cascade that will take down otherwise healthy companies in its wake.
Ms. Schwartz doesn’t buy it. “It’s very easy when you’re a market participant,” she notes with a smile, “to claim that you shouldn’t shut down a firm that’s in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that’s their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn’t have to save them, just as it didn’t save the stockholders and the employees of Bear Stearns. Why should they be worried about the creditors? Creditors are no more worthy of being rescued than ordinary people, who are really innocent of what’s been going on.”
It takes real guts to let a large, powerful institution go down. But the alternative — the current credit freeze — is worse, Ms. Schwartz argues.
“I think if you have some principles and know what you’re doing, the market responds. They see that you have some structure to your actions, that it isn’t just ad hoc — you’ll do this today but you’ll do something different tomorrow. And the market respects people in supervisory positions who seem to be on top of what’s going on. So I think if you’re tough about firms that have invested unwisely, the market won’t blame you. They’ll say, ‘Well, yeah, it’s your fault. You did this. Nobody else told you to do it. Why should we be saving you at this point if you’re stuck with assets you can’t sell and liabilities you can’t pay off?’” But when the authorities finally got around to letting Lehman Brothers fail, it had saved so many others already that the markets didn’t know how to react. Instead of looking principled, the authorities looked erratic and inconstant.
24 December 2008
A Question Worth Considering for the New Year…
What is at the heart of the US financial crisis?
Is it that the US has been precipitously cut off from some foreign source of funding? Has there been an oil embargo, a supply shock imposed such as the one that triggered the financial crisis of the 1970’s? Are the problems caused by some external change, some actor outside the system?
I think most will say the answer is ‘no.’
The problems are internal to the US, to its financial system.
So, how would you fix a system that has broken from an internal flaw in this way?
Try more of the same, business as usual, apply fresh debt to a failed system based on a growing pyramid of debt without making any substantial changes?
The US financial system, the housing, equity and Treasury markets, are all Ponzi schemes, with the need for a constantly increasing source of fresh money to keep going. That funding is new debt, new dollars based on nothing produced, just the trust and confidence of the participants.
Would you fix the Madoff Ponzi scheme by giving Bernie more money, public money, to keep his payments flowing to his ‘investors?’
I think most of us would say, no, no more money.
But what is the difference between that and what Paulson and Bernanke are doing today? Is there a graceful exit strategy? Have any serious reforms or changes been made or even proposed? Has there even been a frank disclosure and discussion of exactly what happened, and what is continuing to happen, beyond blaming the victims?
No. The key participants in the Ponzi scheme are continuing to take their gains out, in dividends and bonuses, front running the final collapse and admission that “its all gone, we’re bankrupt.”
Think about it.
What would you do if its a Ponzi scheme, and its teetering on the edge?
Jesse’s Cafe Americain
Merry Christmas all!
Having just seen the Music Man, I think:
a) There is trouble in River City.
b) We should apply the “Think” plan
c) It really helps if the boys in the band can magically learn to play all by themselves, without any practice
d) When did Wells Fargo transition from productive moving of packages to the unproductive shuffling of paper? In any event, the Wells Fargo Wagon is coming into town.
e) I really need to reform my phraseology
I am guessing Obama’s economic team is planning to use some variant of the “think method” to get us all singing, dancing and making music again. And the economy will magically get fixed, once we are all happy and spending again. Isn’t that pretty much the plan? Get everyone in the mood to spend, spend, spend?
In the long run, Keynes is dead, including his ideas which are guiding he current bailout measures.
Cargo cultists expecting bailouts are a leading causal factor behind the current financial disaster. People who are dumbfounded by all the stupid financial decisions made by the smartest guys in the room seem to overlook the role of the predictable bailout policy response in guiding the stupidity.
How can all the major MSM-cited economists (including Martin Wolf and even Robert Lucas) miss this? The only economist I have read who seems to “get it” is Anna Schwartz.
Merry Christmas to all from SE Texas, where it’s 76, cloudy and trying to rain.
Can’t really complain about that.
What is your best real estate flipper-turned criminal story? Here is an example…
India Journal — South Asian News for Southern California
Techie Formally Charged in Slaying of Indian CEO
Date Submitted: Fri Nov 28, 2008
SAN JOSE, CA - A ‘fired’ Silicon Valley engineer of Chinese origin has been formally charged with killing his three colleagues, including the Indian boss.
Jing Hua Wu, 47, former test engineer with SiPort, was formally charged with three counts of murder in the gunshot slayings of colleagues — Sid Agrawal, 56, Marilyn Lewis, 67 and Brian Pugh, 47 — who met him after he was fired for “poor performance” on November 14.
Police say the three senior executives met in a conference room with Wu on the same day, where he allegedly shot them dead with a 9mm gun.
Judge Jerome Nadler agreed to Wu’s attorneys’ request to continue the case until December 18.
No motive for the killings has been disclosed.
The engineer also owned over a dozen investment properties whose value apparently has diminished in the real estate crisis, San Jose Mercury News reported.
The Economy: A Sour Holiday for Housing
Sharp declines in new and existing home sales in November highlight a round of economic reports released Dec. 23
By BusinessWeek, Standard & Poor’s, and Action Economics staff
U.S. economic reports released Dec. 23 were a mix of the unsurprising and dispiriting. While a revised report on third-quarter U.S. gross domestic product came in about as expected, and the University of Michigan’s consumer sentiment index for December was revised upward slightly, weak home sales reports for November illustrated the intractable weakness in the housing sector.
“Overall, the mix of data provided a slight downspin to the economic outlook as we approach the Christmas holiday,” says Action Economics.
Merry Christmas! Merry Christmas! Merry Merry Merry Christmas to all of you, from Utarr! It’s me! Here I am! Especially Merry Christmas to you, Ben Jones! I hope you got hundreds of great presents and are full of rum and egg-nog presently.
Goshamighty, I’m covered in snow and pretty drunken, too. We just took a break from Christmas festivities and ran over to the dairy for some milk–gingerbread absolutely must be consumed with milk, of course–and we took the opportunity to go a’slidin’ off’n the road and into the Hiatt’s cherry orchard. Serves them right for being dumb, is what I said, and then I pointed out that we should have done what IIII sugggested, and simply run out there and squeezed Esperanza the goat, and then we wouldn’t be in a snowbank, but then Big Dave reminded me that I had that idea LAST year, and that I ’bout got my head kicked off at that time. Oh yeah. I remember now. Why IS Esperanza so contrary sometimes?
Anyway, we soon got out and back on the road and got milk, so all’s well that ends well. You know what, my town is so small that they can still sell milk on the honor system, putting yer money into a cash drawer and then walking out. That’s great!
Okay, off to watch Al lose a limb.
Merry Christmas! Merry Christmas! Merry Merry Merry Christmas to all of you, from Utarr! It’s me! Here I am! Especially Merry Christmas to you, Ben Jones! I hope you got hundreds of great presents and are full of rum and egg-nog presently.
Goshamighty, I’m covered in snow and pretty drunken, too. We just took a break from Christmas festivities and ran over to the dairy for some milk–gingerbread absolutely must be consumed with milk, of course–and we took the opportunity to go a’slidin’ off’n the road and into the Hiatt’s cherry orchard. Serves them right for being dumb, is what I said, and then I pointed out that we should have done what IIII sugggested, and simply run out there and squeezed Esperanza the goat, and then we wouldn’t be in a snowbank, but then Big Dave reminded me that I had that idea LAST year, and that I ’bout got my head kicked off at that time. Oh yeah. I remember now. Why IS Esperanza so contrary sometimes?
Anyway, we soon got out and back on the road and got milk, so all’s well that ends well. You know what, my town is so small that they can still sell milk on the honor system, putting yer money into a cash drawer and then walking out. That’s great!
Okay, off to watch Al lose a limb.
Merry Christmas, all of you!
Tomorrow I’m gonna’ catch up on all the days I missed. I got the shakes and gotta het my HBB fix.
Merry Christmas to all, from South San Francisco. Merry Christmas Ben.
Aladinsane must be in hog heaven today, as it looks like the liquidity pump effect is driving the price of the precious through the roof.
How large of a liquidity infusion is needed to move the price of The Precious(TM) from $846 to $872 over the matter of a few minutes?