Weekend Topic Suggestions
Actually, for the next four days.
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
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I wanted to have some weekend topics partly because I will be away on business early next week. But also, there is a housing bubble question regarding the government and central bank that needs to be addressed at this point in time. What are the consequences of post housing bubble policy?
It is well known that Japan had twin manias in both stocks and real estate in the 80’s. Their policy makers chose to hide losses off-shore and to prop up many corporations. Then the country went into a recession that never really ended. But why? What did the post-bubble policy have to do with the recession and what might have been different?
After years of thinking about it, IMO the answer is fairly simple; a market economy relies on a survival of the fittest contest to weed out inefficient organizations and reward those that make better choices. In the long run, taking this discipline away didn’t save the Japanese economy, but rather made it weaker. Never having cleansed the economy of these non-functioning structures, they sit mired in recession.
So here the US stands a similar juncture; we’ve had twin bubbles, and our government/central bank appear to be taking the Japanese route. We hear a lot about the Fed chief and the Great Depression. But IMO, the GD is ancient history. What about the much more relevant Japanese experience with financial manias?
And where are headed is not just our a matter of our elected (or unelected, in the case of the Fed) decision makers. We just had an election. Yet many of the same individuals that watched over the housing bubble are the ones calling the shots in its wake. What does that mean for the post-bubble economy?
And lastly, considering all this, what course do we as individuals take in our financials and careers?
That should keep us thinking.
Your thoughts dovetail with my question: What is the likely tragectory of this bust.
oops, trajic spelling
I thought that you meant it and I liked it. It’s a portmanteau word: tragic trajectory = tragectory. It’s perfect!
Was the policy in Japan of holding down the value of the Yen to support exports a last-ditch effort of maintaining some economic activity?
If their economy “froze up” due to combination of credit excess and bad govt policy it may be the only option left was to export so they could get money from other people in the world. Perhaps we will see something similar in the U.S., although it would require rebuilding a manufacturing base.
I also think at some point we will see an increase in the rate of savings which will generally shift the balance of the economy such that some productivity is shifted from late-stage (retail and consumable) to early-stage (e.g. product development) production. This is not a one-year thing I think, but more like a 10-year or generational effect.
‘rebuilding a manufacturing base.’
That’s a tall order even if you have people in DC that want to do it. But we have these jokers that think sending factories/jobs out of the country is sound policy! As for saving, that’s something the Japanese do, boom or bust, where the US does just the opposite.
Didn’t GD1 create a generation of savers? Something similar could happen again if the downturn is long enough, severe enough and tough enough.
*shrug* maybe not.
I was looking at the comment about rebuilding a manufacturing base as well. Rebuilding the base might be doable, but is it profitable? The industrial base eroded because the products were too expensive compared to foreign competitors. It pains me to say this, but until wages in the western world are more in line with the rest of the world, I don’t see this changing (allowing for productivity differences and transportation costs of course). That is unless we reject capitalism.
The industrial base eroded because the products were too expensive compared to foreign competitors.
———————–
That’s one way of looking at it.
I see it another way: corporations wanted to increase their profit margins. By exploiting slave labor overseas, they could bring down their costs significantly, but only dropped their prices a little bit. The consumers of these goods were predominantly Americans.
As our wages stagnated/declined, we continued to pay high prices by going deeper and deeper into debt.
Personally, I LOVE to buy American or European products that cost more, but last longer and are free of toxins. I also don’t want to support companies that exploit poor people. Try finding U.S.made products anywhere…you’ll find it’s amazingly difficult to do so.
What we need to do on a global basis, is RAISE the living standards of those in developing countries by only doing trade with companies that pay decent wages and provide good benefits and working conditions for their employees.
Free trade is good when we’re talking about buying a product that is better or more easily made in another country, and we export something that we’re better able to make (or have more readily available resources to make those goods). Free trade is not exploiting the workers of the world in an attempt to drive the living standards of **productive people** down while enriching the capitalist class (corporations, investors, and bankers, etc.).
We need to move to fair trade, and harshly punish companies that try to skirt their responsibilities to their employees.
I am not the sharpest nail on the paw, but I have been around the block several times with several re-inventions and have lived to tell the tale. IMHO, we need to look at the multiplier effect of the ‘credit crisis’ meme. Regardless of third world wages, the operating environment displays insolvency, and opacity among financial institutions. Without verifiable trust, in an environment where the masters of the universe are scrabbling for the loose nickel, no entity will trust another enough to lend or accept reciprocal credit or agreements. Hence, frozen credit. Global. Ho hum.
The elephant on the table: every link in the global supply chain is credit-dependent.
Freeze the credit, freeze the supply chain. The ripple effects are seen locally - I recently posted my observations about supply chain failures already in a popular tourism location (the Outer Banks, North Carolina). The result? No milk, bread, potatoes, eggs, Coca-Cola (sorry, I consider Coke a life staple on par with rice and beans) — or butter in the local markets. Even the chain supermarket was out of potatoes for several days after Christmas.
Extending the observation: manufactured goods which have been offshored cannot be brought to the U.S. because no carriers are sailing. Cf. other posters on Baltic Dry, Long Beach backlogs. This is likely to be a long term effect.
It would be good to have domestic manufacturing capability again. Eventually, with enough empty shelves, domestic manufacturing and supply will reestablish. For a couple of years, factories can get their stuff to cities by factoring receivables, the old barter thing on a corporate scale. I hope the “credit crisis” lasts long enough for that to happen. In the interim, things that we used to take for granted — Mach III blades, towels, blank DVDs — may be in short supply. How in heaven’s name are they plentiful now, if you believe the stats on Baltic Dry Goods?
So, it’s more than a ‘consumer tightening belts to live within means’ thingie. It’s also a ‘frozen supply chain’ thingie.
I’m tellin’ ya, mechanical engineers — manufacturing engineers — electrical engineers — chemical engineers — jacks of all useful trades — will once again rule the world. Can’t wait for it to happen. The Wall Street types have proven that their highest and best use is making general ledger entries by hand in some PRODUCTIVE company’s first floor annex.
OK, that’s my two cents. I wore out my three brain cells. I won’t go into the fact that two of them are inhibitory.
Ben:
As much as i hate the idea but it seems like all we have left is work at home ” gigs”…getting a real job , setting the alarm clock and have some sort of social interaction I think is going to be a pipe dream for a few or longer years.
I really think my idea of “REPAVE AMERICA” is the fastest way to get a million construction workers and bosses to work. Asphalt prices have collapsed so why not do it now, last year prices were so high, cities stopped repaving streets and filling potholes…..
REPAVE America !?!
According to my calculations, if 27-28 MORE Walmart containers, 8 US metric tons of concrete and 3 illegals LAND in California…the Earth WILL ….FLIP over
Ben,
The Japanese were able to save money because they experienced lasting delfation. So, although interest rates plummeted, the mere fact of holding money in cash was profitable because the cost of living fell.
We are not settig ourselves up to experience deflation. Although prices are currently falling, that is merely a temporary effect of falling demand. We have more stores than we have demand for their inventory.
When inventory meets demand two things will happen. First, prices will rise as competition evaporates. Second, there will be a second real estate collapse. It will be commercial real estate because their occupants will close. This event will be much more painful than subprime.
The other important factor regarding delfation. As bankruptcies are filed, that money is destroyed. So it is easy to assume that the money supply contracts and deflation ensures. However, we must remember that the Fed is being run by the mad helicopter bomber, Bernanke. He printed 2 TRILLION dollars in November!
Also, The bailout is not 700 billion. The treasury has now guaranteed 9 TRILLION in debt. Note that we bought AIG, the derivatives queen. Of course they assure us that those guarantees will never come due.
While keeping in mind that banks will not be eager lend the bailout money until the economy recovers. Who in their right mind will risk an imperfect loan during a collapsing economy? We must recognize that the Fed will lend the money. So, although we should have deflation of the money supply, helicopter Ben will not let that happen.
So how does this play out? Well, IMO the money supply will expand, and it will expand massively. As the that happens each individual unit of currency (each dollar) will lose value… a lot of value. Therefore it buys us less. Translation: inflation.
When a currency loses value, interest rates must rise. Imagine, if everything is doubling in price, do you think that banks will keeps rates at 5%? Their profits must exceed inflation or they will fail. Also, foreigners will refuse to lend us money if our currency devalues faster than it pays interest. So the FED funds rate will be forced to rise.
This sequence will kill the bond market, real estate markets and savings. There should be a tremendous wealth transfer from paper wealth (stocks, bonds, ETFs, derivatives, insurance, etc.) to physical wealth (productive land, prescious metals and manufacturing).
A note of caution. The wealth ingested by the physical markets might not be eternal. For example, if silver rises faster than inflation (cash). In other words, it goes up faster not only in price, but in purchasing power. It is unlikely that this new purchasing power will remain there for a very long time. So the move, IMO is to get out of this metal before other assets catch up with it.
Of course, the big questions are when? and how long? And for those answers, please consult your local psychic.
The whole problem with “rebuilding the manufacturing base” is that it won’t bring back anywhere near the amount of manufacturing jobs that were sent offshore. For the last several years no country on this planet has had a net increase in the number of manufacturing jobs, not even China. This is because of increased automation. Bringing manufacturing back is probably a good idea regardless of the number of jobs generated, but bringing back manufacturing will only increase the demand for automation. In other words it isn’t going to help out much with the job picture at all. For instance, Japan has a lot of domestic manufacturing, but it is the most automated manufacturing by far in the world. That is what the US would be looking at with manufacturing back in the country.
Like I said, this doesn’t mean we shouldn’t bring manufacturing back, but we have to realize that manufacturing will never be a large scale job generator ever again.
Bringing manufacturing back is probably a good idea regardless of the number of jobs generated, but bringing back manufacturing will only increase the demand for automation.
I agree completely, but it still needs to happen because it will help the balance of trade. Wages are a small part of the manufacturing cost when automation is used heavily. US manufacturers need to focus on high-margin products where the profit margin offsets the increased cost of labor in the US. I worked for a manufacturer like that… their products were in the mid-high end of their industry due to the heavy emphasis on engineering value and were priced accordingly.
Also consider the supply chain. A manufacturer will increase employment along the supply chain, and if time/distance is a factor, which it often is, that means jobs in the same area/region/country.
Manufacturers that don’t compete on price alone can do very well in the US. Of course, nationalized healthcare would go a long way towards making us even more competitive, as many other countries already have this, putting US companies that offer health care coverage at an immediate cost disadvantage.
Manufacturers that don’t compete on price alone can do very well in the US. Of course, nationalized healthcare would go a long way towards making us even more competitive, as many other countries already have this, putting US companies that offer health care coverage at an immediate cost disadvantage.
This is an important point. Good post.
IMHO Public Policy should be as follows:
The new “leaders” in this country should have the immediate following responsibilities.
1. Identify all of the Ponzi scheme operations from RE to Wall street, the Housing con artists to the High Finance Boyz and their money “Fun and Games”.
2. Freeze their assets and/or their ability to operate , salvage what is possible and allow these Criminal enterprises, Corporations, CEO’s, sharholders/investors/gamblers/con men to ACCEPT THEIR LOSSES.
3. Re-regulate or impliment new regulations to prevent this nonsense from EVER getting to the point of endangering the NATIONIAL SECURITY of the UNITED STATES and it’s hard working Taxpayers EVER again.
4. Bring back PUBLIC HANGINGS on the Washington Mall for Fraud and White Collar Crimes involving amounts of MORE than $4,999.95.( I AM a little flexable on the exact amount UNDER the $0.95 amt.)
5. Rename Guantanamo Bay Camp X-Ray, “CEO FIRE Island”, and use it accordingly and indefinitely for lessor amounts
Wish I had the insight that this would be an original thought. Some critical thinker whose post or article I read today mentioned that the number of manufacturing jobs we can create will be far less than years ago, due to automation.
Once, working with a merchandising company, I got a tour of a huge Budweiser facility. I remember seeing tons of automation and three to seven actual employees in the phenomenally-large plant.
After the tour, I received a certificate of “Honorary Brewmaster.” Hand-crafted, my ass.
Engineers will create the drawings for the machinery, a few workers will produce the machines, and a few low-paid workers will feed, maintain, and collect the product of the machine.
Sound to me like a service-the-manufacturing sector service economy! -
That reminds me of the photos I saw last week of some geeenormous new ship, maybe the biggest freight carrier ever built, that had IIRC a total crew of 13.
“…that’s something the Japanese do, boom or bust, where the US does just the opposite.”
Did their central bank drop myriad open indications of its intentions to inflate away the value of their currency? Oh contraire — their currency steadily appreciated for most of the past eighteen or so years…
Ben -
To add to your topic, I’d like to suggest that perhaps where manufacturing takes place around the world matters little. That will piss off this board’s numerous engineers, but there it is.
Regarding Japan versus USA: I think the scenarios are quite different and will remain so, with the USA in a much more favorable position to get out of its current mess than Japan ever was. Why? Social, business and cultural mores and norms. Japan is highly patrician/patriarchal and heeds the traditions of its elders. The United States is not. To date, we’ve thrived on innovation and exported that innovation, whether it be manufactured or service. In return, we get a world that is much more akin to our way of living.
I remember back in the late 1980s/early 1990s when USA business couldn’t get enough of Kaizen culture, maquiadoras, Quality Assurance and all that largely unproductive nonsense. (Quality Assurance - talk about an unbelievable money pit! Geez, it might have well as been a Federal agency.) I remember arguing with folks, taking the position that in no way was Japan’s business model going to allow it to “take over the world”. I was repeatedly told I didn’t know what the hell I was talking about. Well, we all know the vaulted Japanese Way has turned out. Kaizen, etc., might work well in a patrician society, but not here.
Our problem in the USA is a lack of ethics and individual responsibility/consequence. We now are largely a country of thieves and backstabbers, at all levels. Government, business, individual. Few people want to pay for anything, work for anything. If it feels good, do it. Why? Because you DESERVE it. Because everyone else is doing it.
Maybe it’s time to get back to literally lopping off the hands of thieves. Crude? Yes. Effective? Quite possibly. Rather than see Madoff go from court date to court date via limosine, perhaps everyone should witness Madoff’s hands get amputed on live television, then see those hands put through a shredder. Maybe amputate and shred his legs, too.
The Chinese have been holding down the value of the yuan. The yuan should have gone up with all the goods they exported, raising the prices for us and lowering import prices for the Chinese.
Not so good now.
“And lastly, considering all this, what course do we as individuals take in our financials and careers?”
good question I planned to wait out the bust in Phoenix and then move back to moorpark CA when RE prices made sense. Now the whole economy is bust layoffs everywhere.
I busted my career when I quit being a test engineer circuit board designer and took a technician job in Phoenix but I figured the money I would save by selling and renting would make up for it. It has.
Financials I have 50% bonds 15% stocks and 35 % cash money market I guess I will switch to 50% stocks if this thing ever bottoms out BUT if the US follows the japan model I could wait the rest of my life in Bonds.
I’m 48 a cusp boomer and don’t have all the time in the world anymore.
what course do we as individuals take in our financials and careers?
With regard to career, overseas? Is there a place which is relatively safe, has or could have a thriving economy and which has not yet shot its wad on credit-driven expansion?
“We just had an election. Yet many of the same individuals that watched over the housing bubble are the ones calling the shots in its wake.”
Yeah, I can take the huge change that is happening but this point above shivers me timbers.
Your timbers are shivered because you live in a democracy and they live in a plutocracy. That’s why I didn’t vote, and will probably never vote, again. Cheers.
“What are the consequences of post housing bubble policy?”
Bailing out bad actors sets a bad historical precedent, but perhaps this is business as usual based on earlier bad precedents. Further, it is always hard to say how things would have turned out if another course of action had been pursued — maybe they would have been even worse?
Sure, things probably would have been worse; but worse for whom?
Seems to me like there are two teams here. Savers and risk-averse types like HBBers and the leveraged idiots from Wall Street to Main Street.
Things would have been worse for the leveraged dolts, but I don’t think that’s such a bad thing. As it stands, I feel like those of us who tried to do everything the “right” way, and who saw the ponzi scheme for what it was, are being shafted.
BTW, almost all of the homes that were listed in my area have just gone pending in the past couple of weeks, and some of them went for list price or above. Not sure if people are trying to hedge against inflation, or if there’s a new batch of straw buyers, but it’s a bit frustrating.
Also, didn’t see it noted here, but ocrenter (one of our long-time posters who ran the BMIT site) bought a house a couple of weeks ago, too.
Lots of posters on piggington’s seem to be buying or are looking more seriously at buying.
Prices are still nowhere near where they should be in our area, maybe 10-15% down from peak.
‘As it stands, I feel like those of us who tried to do everything the “right” way, and who saw the ponzi scheme for what it was, are being shafted.’
We are easy targets, being in the minority and all…
“Lots of posters on piggington’s seem to be buying or are looking more seriously at buying.”
To each his own. I personally cannot see myself catching a knife falling at a 40 pct annual rate, but if others are comfortable with that sort of thing, more power to them!
“a market economy relies on a survival of the fittest contest to weed out inefficient organizations and reward those that make better choices”
Exactly. And when you take that away you reward the losers and punish the survivors. And ultimately we all pay the price. Of course, these people gave a lot of money to “our” politicians, so in the end this is what you get with….Fascism.
Call it crony capitalism. Call it Fascism. It is NO DIFFERENT than what imploded the Soviets 20 years ago.
None at all.
I heard this quote recently
The flip side of too big to fail is
Too small to succeed.
ie no sense starting a new business. When gov picks winners and loosers people will just stop playing the game. Just think of those small well run banks across America that would have had a great chance to grow had the large banks been allowed to fail.
Exactly. This entire episode blows.
Ironically, the only new business I see starting up in the Sarasota/Bradenton FL area lately, beside a restaurant or two, are small banks. A banker told me it is because they want to be bought out by larger banks, so they operate for a couple of years and then make themselves available for acquisition. Cronyism presumably gets them the permits or licenses to get started. I should have asked why the big banks bother, rather than trying to recruit the customers directly - maybe it’s cheaper for them to pay a premium to buy the customers.
Modern politicians in America know that most Americans are like spoiled children and don’t know how to save money, so the free market fix is not an alternative (no stimulus but just let the inefficient businesses and individuals go broke). So without the free market fix, we have the junkie’s delight of another stimulus to last another short term before we suffer severely for a decade or so.
With that, if one must be in stocks, they should be dividend paying stocks and stocks of emerging economies where the middle class is emerging (India, China). Better to be a boss of an Indian or Chinese as a stockholder than to be in debt to them. Investments outside of stocks would be US Savings bonds, TIPS, T-bills, AAA municipal bonds, and gold bullion.
House prices in great locations (clean air, great schools, great climate, great jobs, great transportation) have yet to fall, and they will fall. Probably stay flat for 15 years after 2012. Gen-x and Gen-y would be better off saving in dividend stocks for their retirement than to consider a house as an investment.
What is this “dividend paying stock” of which you speak, KemoSabe????
DODFX and VEIEX both yield above 4%. VFINX yields above 3%. Let’s say you had $1,000,000 divided among the three today. You would be getting a $30,000 to $40-something annual income from the mix, even though the NAV could fall 50% next year. Granted, large companies could drop their dividends but not all large companies will drop their dividends.
Bill,
The savings rate in America is low because holding cash at an interest rate below inflation is a losing bet. When the FED stocks manipulating interest rates, the savers will return. As we are now, people with cash are forced to speculate in various markets.
correction: “when the fed STOPS manipulating rates”
As we are now, people with cash are forced to speculate in various markets.
——————–
Exactly. And this is what caused all the problems in the first place. All the pension plans, insurance companies and other institutions that rely largely on safe, fixed-income investments were forced to move further out on the risk curve. That’s where we got all the demand for MBSs, CDOs, CDSs, and related “invesments.”
I used to think Ron Paul was right, but a little extreme WRT abolishing the Fed entirely. I’m beginning to re-think that.
Clarification: re-think how extreme he is. He’s looking less extreme as this Ponzi scheme explodes.
I would humbly recommend reading the Federalist. Publius’ words aren’t necessarily the “truth”; however, like most documents of this sort, they are thoughts on a subject. That notwithstanding, the Federalist is an excellent source - especially the facets dealing with monetary issues - that actually debates the issue of money, who should have it, who should create it, how it should be regulated, and how it dovetails into the tax issue (used to be such a thing as a direct/apportioned tax but not anymore).
It is actually a debate with a pro and con, not just varying degrees of the same idea. We must also realize that the proposed monetary system was compatible with a system of governance based on the concept of establishing justice and securing the blessings of liberty for them and their posterity - us.
The cornerstone of all our symptoms today was debated then. We don’t have that system anymore, and are reaping the pernicious effects of a system they feared.
Ben, we not only have inefficient organizations but also have massive debts, public, financial, corporate and personal. That makes this different from Japan — and the Great Depression.
That is what is bringing on a recession without end — people can only spend what they earn, only earn what other people spend, with the interest on the debt as an ever-expanding wedge between the two. Get rid of the debts, or continue to be poorer. One way or the other, savers will get screwed. And there is no easy way out.
The question is how?
You seem to be arguing for mass bankruptcy — of firms, people, state and local government (by all means let’s get rid of those pension obligations). That would mean the value of most savings is wiped out, and everyone would start with equal wealth. Perhaps the federal government would aquire actual physical capital for pennies on the dollar, and re-sell it into the private market.
Another alternative is the reduction of debts through inflation.
What seems to be happening, however, is a nationalization of the debts, to limit the losses to older generations (who control most wealth), combined with promises to cut down on government benefits for younger generations, with future taxes just going to pay the debts off. I would prefer one of the first two alternatives.
Those pension obligations were already earned.
If the Fed didn’t artificially supress interest rates, I think these pension plans would have been fine.
Pensions are never earned.
They’re stolen.
They are a part of the compensation package which both the employer and employee agreed to. They were already **earned** no matter how much you might dislike them.
Ben…I would love a discussion on the impact going forward of retiring baby boomer’s on housing, the markets and the overall economy…I really think understanding the coming changes due to this would be helpful and profitable…
It seems pretty clear to me that right now the folks running The System (and by this I mean the global economy,) are attempting to salvage the system itself rather than its individual components. And we’ve not even BEGUN mop-up operations, let alone repairs.
I am envisioning this all as an ill-conceived but long-running chem experiment with say, formic acid bubbling away in a gooseneck to some end, various compounds being added from time to time with no apparent effect, when suddenly, the technician, lacking proper restraints and common knowledge of basic material science, makes one small adjustment, and the mess in the flask takes on a life of its own, self-generating until it begins to breach the containment vessel. Now it is threatening to blow up the lab and contaminate the whole campus. But you can’t just turn it off, you have to let the reagents coalesce on their own. Cracks appear in the beaker. HOLY MOLEY it’s boiling over, it’s running out the sides, it’s gonna BLOOOOWWWWW! (And glagh, the deadly stink!) Lights flash! Buzzers sound! People run screaming from the building!
So we’re frantically wrapping tape around and around the exterior container as quickly and gingerly as possible, trying to stem the flow of caustic liquid and keep the glass from cracking clear through–not to save the contents so much as to let enough out slowly to save at least a portion of what’s left to study “for next time” and keep the toxic spew from eating through to the foundation. After the managed outflow, THEN we can figure out whether to attempt hugely expensive repairs to the equipment or design a new vessel and start completey over again with new, uncontaminated materials. Or something like that.
Sorry for the extended metaphor…it’s just that what’s happening in our financial world right now reminds me of the time I nearly blew up the Keck lab.
Yeeeeaaaah. Good times…..
Have a great weekend, everyone! Hope you’re feeling better, Ben.
My wife and I are out house hunting here in North Hollywood, a suburb of LA in the San Fernando Valley.
Because we are not independently wealthy we are out looking a places in the 200 to 300 thousand range.
What we are finding at that price are at the bottom of desirability range with an occasional halfway decent home. We decided to put offers on a few and have found us in the middle of bidding war with 7 or 8 others. We even put in an offer at 20 thousand over asking and were outbid.
I’m very confused.
So here the US stands a similar juncture; we’ve had twin bubbles, and our government/central bank appear to be taking the Japanese route. We hear a lot about the Fed chief and the Great Depression. But IMO, the GD is ancient history. What about the much more relevant Japanese experience with financial manias?
Japan spent nearly $125T Yen in a decade of which half went to public work programs, mostly in construction. The government and corporations were corrupt and spent money producing things that nobody wanted and didn’t meet consumer demand. (I have no idea what demand that would have been, and apparently neither did Japan or her people).
Additionally, Japan nationalized their banks - we can see how that worked out for them. They admit to propping up the stock market. Again, how did that work out for them?
The government invested in RE and values fell 80% in the ‘90s. Ahem, sound familiar?
Oh, and they introduced corporate and personal tax cuts. Broken record anyone?
They managed to spend over 100% of the GDP. Sigh.
The U.S government and her citizens must realize that a laissez-faire approach will sort out market inefficiencies. Only then can we progress toward a more rapid recovery.
As we all know, this will not end well.
Ya just can’t make this stuff up!
Leigh
Lifted from misses.org
Here is one. Tell me how this happened?
http://online.wsj.com/article/SB123093614987850083.html
That would make a good WE topic for me. I could tell some stories about these houses I’ve seen. Like the one where the guy let his pets use the house as a litter box for a few months and left a ‘predatory lending’ article from the Orange County Register he printed out sitting on the kitchen counter. I’m pretty sure he got under the house and took a hammer to the PVC too.
hope he gets aids in jail
respecting property rights is the dif between USA and Africa
if you sign for it -pay for it
everyone is a “victim” and deserves a bailout
that’s the new America
I’ve heard a few stories…. a friend’s coworker went through the whole ordeal of buying a house. The lender slipped in a few pages right at signing. The lender played it off like the paperwork was just what was discussed, no big deal. While signing his coworker caught some differences, including a pre-payment penalty on the ARM loan of something like $40-50K. He ripped up the paperwork and almost got in a fight with the lender. Said it appeared to have messed up his coworker a bit mentally, knowing that he almost got taken. He said in the discussion there was no mention of this. Remember, both sides will cheat each other. There are going to be some victims that got taken my lenders. Some were eager to get taken, but I assume some just wanted to pay and buy a house.
The essence of a credit-expansion boom is not overinvestment, but investment in wrong lines, i.e., malinvestment.
-Ludwig von MIses
“…but investment in wrong lines, i.e., malinvestment.”
Old Order Amish discussing their own malinvestment:
Skinny Davie: “The Gov’t says we gotta have reflective lites on our buggy’s…”
Porky Dan: Well, the solar panel is alright aye…but them LED turn indicators is a bit much, Lars will be truly disappointed in ye.
I think we would be doing a public service by finding the crappiest crapshack in Cali, Arizona, or Florida, that had the biggest mortgage that went boom,…..
Then buy it, and donate it to the National Park Service as the future “Ground Zero of the Greatest Meltdown” National Park.
You could build an adjacent Visitor’s Center, with interactive features like the “Housing Bust Mortgage Calculator”, where visitors can put in their own income info, then see a comparison of how much you could borrow during the bubble, vs. traditional mortgage financing (Sponsored by Washington Mutual)
The Memorial Wall, commemorating all the Banks, Mortgage Companies, Builders, etc. who went down the tubes due to the bust. (made of granite, of course)
An additional “Memorial for the Unknowns”, for all the properties that no one can figure out who the hell actually owns it, or the paper, or where the name of the owner is known, but can’t be found. (make this one out of OSB, Tyvek, and stucco).
An appropriate marker for the numbers-hitting appraisers (sponsored by Viagra or Enzyte).
And finally, the “Joshua Tree Garden” saluting the bubble bloggers and other people who saw what was coming……..featuring a central rock garden, in the shape of a Joshua Tree being stuffed up an appropriate orifice……..
I had a dream……since I’m looking for a job anyway, maybe I should apply to be the Curator.
GS, great idea, You can have an interactive area, where you put some fancy pavers together for $15,000.
Added value? 30,000
Ms. Halterman hasn’t had a job for about 13 years, she says. She receives about $3,000 a month from welfare programs, food stamps and disability payments related to a back injury
$3000/month! $36K a year (tax free?) for doing nothing? Holy Crap!
Welcome to the socialist utopia. From each according to how much he saves, to each according to how unemployable they can be (or seem).
The fact that she can collect this much means she’s an experienced “taker”, with expertise at finding all the system has to give her. She must have been completely aware of the mortgage scam that she was participating in.
Think about how many working class taxpayers it takes just to support Ms. Halterman on a monthly basis.
Mrs. Haltermann…. she’s so powerful she could take down the entire country. She’s an one woman evil empire.
A relative of yours?
You missed it…. again.
“Here is one. Tell me how this happened”
Easy… cheap money, lax underwriting, securitization and lots of idiot investors
Ha! Teachers Retirement System of Oklahoma bought 500k worth of the MBS that turd was bundled in! TRS used to be a well managed fund that kept getting raided to shore up other badly managed OK pension funds. They’d beg lawmakers to appropriate money to get them back to even but were always ignored.
I was checking out their investments whileI was cashing out my account two years ago. It was page after page of Ford Motor preferred stock. I warned my account manager of the impending housing bubble doom, he related stories of his similar experiences during the oil bust. Looks like no one listened, now they’ll be hit twice as hard.
I wondered why all the Ford stock, turns out a university president and former senator was on the board.
Are we (as a culture) going to continue as an instant
gratification, indentured debt slave midde class,
sharecropper society?
OR
Will we work hard, innovate, save and invest?
Will we start to produce rather than consume?
Take any Friday night and try, just try to get into a Red Lobster or Cheesecake Factory in a town of at least 100,000 without waiting 20-30 minutes. Two people can barely get out of there under $40 anymore and that’s if you do not have a glass of the red.
Save and invest
Yeah riiiiiight
“Save and invest
Yeah riiiiiight”
Correct, this idea is completely foreign to the majority of the masses. They will keep waiting, hand out for the gubmint to take care of them.
Short CAKE (cheesecake factory)
Downturn largely priced in on CAKE. Don’t bother with the short.
I like to go to the bar areas of Red Lobster, On The Border, and so on. I can always find a place at the bar and get the same food, the same Red Lobster biscuits. I’ve noticed a few months ago when I was about to leave Maryland that there are fewer and fewer patrons. I think this is the same in most restaurants these days. People eating out less.
People eating out less ??
Yep…Have a very close friend who owns and operates 5 Restaurants…Anyone from around here would instantly know the names…He tells me this is the worse he has seen it in 35 years…
Place I ate lunch yesterday was packed. Little family run mexican food place where you can get entree, rice, beans and soda for $6.
I thought that was in my Soviet near DC
wow, you’re right spend ++++++++ till you die
Take any Friday night and try, just try to get into a Red Lobster or Cheesecake Factory in a town of at least 100,000 without waiting 20-30 minutes.
Not where I live. In fact I see the opposite: half empty restaurants, even on Friday and Saturdy nights.
You really have to nail down what “invest” means - or *should* mean. Remember, many people thought they were “investing” when they bought their little OptionARM piece of the American dream…
Is there any way to distinguish TARP injections into banks which are necessary to keep the U.S. financial system from collapsing from those which are giveaways of public monies to keep private corporations afloat which actually should fail based on poor decisions and abysmal lack of foresight by their CEOs?
Professor Bear,
There is no difference between them. Many companies survive bankruptcy. They come out of theses processes stronger. If they are too weak to survive bankruptcy, they are not viable.
The TARP has side stepped this natural market realignment. The TARP, as Jim Rogers says, “takes assets from competent people and gives them to the incompetent people.”
It is not the role of politicians/bureaucrats to decide who should be saved. The moment officials assume to themselves the power to decide what companies should be viable, and which should not, we cease to be a free market economy.
The only way a bureaucratically managed economy can survive is if the bureaucrats control what consumers must buy. If we leave their survival to be determined by consumers’ freedom, the weak fall by their own weight, and the strong take over the assets of the weak.
Centrally managed economies don’t work. In a nutshell… if bureaucrats have the power to fix the economy, they also have the power to ruin it! STOP THE BAILOUTS AND DECENTRALIZE POWER.
The power to choose which corporation lives and which dies vests in the PPT God-like power. Don’t expect them to willingly relinquish it. Machiavelli would approve of HP’s pretend disgust at the need to exercise such power.
There’s the rub.
I had hopes that Obama would bring in some new blood, to do some creative thinking on what needs to be done. But, as Ben said, it appears that he is stocking his cabinet with Clinton area retreads/Democratic Party shills (Aka, the same people that had a big hand in generating this mess).
Just one question…..Have the Alt-A resets (and subsequent foreclosures) started to hit yet, and has it been “priced in” yet? Nobody seems to be talking about it in the MSM.
Yep, I gave up all hope for Soetero when he appointed Timothy Geithner to Treasury. Complete joke. Wait’ll we drop the bomb with Hillary and Rahm, too.
“Wait’ll we drop the bomb with Hillary and Rahm, too”.
How could that be, the Hildabeast recently stated that ‘they’ will govern intelligently. LMFAO! “Gubmint intelligence”.
at least you can skim now
point to geithner and say the boss gave you permission
I had hopes that Obama would bring in some new blood…
With all due respect, you and millions of others were very easily fooled. I could see another GWB/Clinton a mile away. McSame/Obama/Clinton/Bush. Convince me what you find from those four that stands him apart from the other three, will ya?
“Convince me what you find from those four that stands him apart from the other three, will ya”?
Can’t be done, he is just another empty suit that talks a lot and says nothing. Wash rinse and repeat, but the dumb masses can’t understand that and will follow along blindly and keep playing the blame game. The pols know it very well, our revolutionary backbone departed long ago.
“Convince me what you find from those four that stands him apart from the other three, will ya?”
Easy. McCain has never been nor will be President.
Disclaimer: I voted for McCain.
My alternative was voting for one of the “no way in hell will they win” candidates, or voting for McCain……..not that McCain himself was so bad, but between his “heartbeat from the Presidency” airhead/blubber eating/MILF running mate, and knowing a vote for McCain was a vote for letting the current brand of neocon religious right Republitards keep their hands near the tiller…….
Obama hasn’t even been sworn yet…….the true test will be when someone in government admits that this Charlie-Foxtrot is too big to fix.
Maybe I should vote with my feet, next time. It will be fun if I beat the rush. Can’t wait until the Feds start telling people, “You can’t leave, until you settle your tab……..”
Well, you know half of Gulfstreams current sales are overseas… your’re lookin for a job…. they are dying for someone with real Gulfstream experience over there…….. might be the time to vote!!
Wouldn’t be a bad idea to check it out, GS.
Good luck, and best wishes to you in your job search!
“With all due respect, you and millions of others were very easily fooled.”
The thing with Hope is that one sees what they are looking for behind the veil.
HURRY! HURRY! HURRY!!!
Stockholders threatening mayhem? Need a BIG infusion of capital FAST?
You only have until November 14th to get YOUR application in. HUndreds of billions of dollars in TARP funds are just waiting for YOU to claim them! So pick up your mouse and click this link right away! Takes only minutes to give YOUR “bank” a fresh new start. Examiners are standing by…!
(CEOcompensationrestrictionsmayapply)
http://www.sba.gov/idc/groups/public/documents/sba_homepage/guideline_tarp_capitalpurchase.pdf
Here’s one. Why the hell is Bernie Madoff not in jail after pulling off a $50 BILLION fraud? You know the guy that steals $50 goes straight to the slammer.
And a follow on discussion. WTF was the SEC doing if Madoff could run a $50B Ponzi, never make a single trade, and not get caught???
OOoooh!
Like that topic!
He used a smile and a handshake instead of a gun.
Someone over on MarketWatch has nicknamed him, “Bernie the Smirk.”
Posting bail is stimulating the economy assuming he’s no OR.
BR,
The officials reasoned they could get more information regarding disposition of the 50B if they kept Mr. Madoff comfortable.
Is it possible Mr. Madoff indicated he would take his life if put in jail? If that is the case, the statement “easier to get infomation if he stays comfortable” takes on new meaning.
That POS doesn’t have enough dignity to take his own life.
Nope. I’m guessing he has the goods on some much higher-ups.
Blackmail, IMHO.
Just conjecture…
Because, like it or not, he is considered innocent until proven guilty by a prosecutor to a jury. If he posts the bail, he gets to stay out of jail until then. The restrictions placed on him (stay at home, I’m sure he has had to turn in his passport, mail is being searched) is more strict than most because there are ways for him to further screw over people by hiding assets, but this is not the norm. Now, his house arrest is way nicer than most people’s and is that way because of his crime, but that doesn’t mean he doesn’t get that trial thingy, first. Confessing to his kids will be part of the evidence, but it doesn’t mean he doesn’t get the chance to go to trial or try to negotiate with the prosecutors.
In other words, that Constitution thing that so many of us are so fond of says, “patience, Grasshoppers.”
What are the consequences for the rest of the economy of going to such lengths to backstop Megabank, Inc with unlimited financial life support (capital injections and guarantees)?
Much like the Titanic, the people in First Class get the lifeboats, while the steerage folks were left to go down with the ship.
The only difference, is that the movers and shakers are kicking the women and kids out of the lifeboats and are rowing away as fast as they can, instead of doing the honorable thing and giving up their seats.
stagnation for a long time. we are paying off what has already been built and consumed instead of making /investing in new things. deflation will make way for stagflation new inventions will be delayed because of a shortage of investors.
I can remember when people were willing to throw all kinds of money at dot.coms and tech startups, because (supposedly) the great rate of ROI.
In the meantime, anyone needing money to invest in “dinosaur” industries that had a slow but steady rate of return couldn’t get an appointment with the janitor.
“we are paying off what has already been built and consumed instead of making /investing in new things”
Yet some members of the absurderati insist the fix is to respike the home building punch bowl. LOL!
Wouldn’t know how to word it, but I see it everyday.
In my building, and really in South Fl, most are underwater.
Solution?
Don’t pay!
This has got to be the most underreported story on the post bubble.
There’s been a little reporting on this, but just a little.
They refuse to pay unless the bank writes down the debt and interest!
And, some banks do!
This will last years.
Since we are approaching the end of the Bush debacle, a very good topic would be how much blame he deserves for this mess. Also, a reflection on how people feel who actually voted for this nimrod. Is there any guilt felt from Bush supporters for helping to destroy this country?
Throw out your shoes on the 20th. In the streets!
How many of us would it take to buy us some senators (like the bankers have been doing for eons)? Get em to stand up and speak for the Constitution!
Well, it was nice to think about it anyway.
I hear ya BS.
Are we in Jas’s Greater Depression now?
Op-Ed Columnist
Fighting Off Depression
By PAUL KRUGMAN
Published: January 4, 2009
“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case.
…
The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.
…
We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas of the University of Chicago, in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
For that remark, Robert Lucas just may go down in history as the Irving Fisher of the current century.
I agree (presuming your topic) that a thread on the evolving reasons GD2 is likely or not would be interesting - coupled with the implications for the housing market as a result.
I’m wondering if 401k-mutual fund-DCA model is toast. Is it really “saving” to put money in every pay period and see it evaporate willy nilly? From all the sob sister stories I’m seeing, I don’t see how long joe and jane sixpack are going to put up with this game. The PTB rags on them for not “saving” enough, but then this happens. Even if you’re not retiring for another 20 years, it would make you feel like a chump. Would regular passbook-type savings ever make a comeback if there were decent interest rates?
This doesn’t affect me personally, of course, since I got out in Nov. 07 thanks to the HBB.
401k=another crony capitalist/fascist, supply side scam.
Unfortunately no. You still have people like Suze Orman, Bob Brinker etc.. telling people DCA is still the way to go. Especially now. Your money can buy more stock then previously.
I can remember having a passbook savings account while working during the summers in the late 70’s thru early 80’s, saving for college expenses.
In fact, I found it among some old papers a few years back. Records showed it paid 6.6% APR. I actually opened the account in 1979…..I had to keep a $ 500.00 minimum …but as long as I kept a $ 500.00 minimum that account would deliver 6.6% APR . This was with a bank in southwest Virginia, where I am originally from.
I wish I could find a savings account that would pay that kinda interest today. I would rather do that than buy TIPS like I did last spring.
Of course, I sold cars in college back then as well. Interest rates on new auto loans were like 13-16%, and the banks required 10-15% minimum down payment; along with a good Beacon score. It was even higher for used cars, and the banks wouldn’t finance junk either. We would floorplan the new cars and some of the pristine used cars, and we would own the junk trade-ins outright.
If you didn’t have a good Beacon score then no way no how were you driving off the lot in a new car……unless you paid the total amount on the spot in cash.
The fact that the banks wouldn’t finance bad credit caused many dealers to do there own “Buy Here Pay Here” financing on less desirable used car models. It gave them a way to get rid of old inventory and junk and charge exorbitant interest rates to risky buyers.
My older brother made a fortune buying used cars off the dealer auction blocks in Statesville, NC and Greensboro, NC and then selling them to poor coal miners with bad credit and financing them at like 20% APR. The fact that the banks wouldn’t touch people with bad credit gave rise to a whole new business model for the dealers, which some aggressively pursued.
My brother actually split off a “Buy Here Pay Here” operation back then from his Chrysler / Subaru dealership and had a separate location across town where he could take his back-row trade ins and auction stuff to sell to the “uncreditworthy”. He was the first in the area to do so……and he told me more than once that some months he was making more money from “Buy Here Pay Here” than he was running a full-service new car dealership….not only that, but the overhead was much, much lower. Sometimes he would “sell” the same car 2-3 times before somebody finally paid it off and claimed the title. This is the type of churn-and-burn that Tony Soprano would love
Boy, have things changed.
In retrospect, I think we may actually see some return to this situation where banks will pay a decent APR for savings, charge higher APR’s for lending to creditworthy borrowers with money down, and absolutely refuse to loan to the unwashed, uncreditworthy masses.
“Records showed it paid 6.6% APR.”
They loaned that money to me at 17% to buy a house (bank kept the mortgage).
Sure you will see interest on savings accounts. You will see other things that go along with it!
Sometimes he would “sell” the same car 2-3 times before somebody finally paid it off and claimed the title.
A local realtor/broker was famous for doing just that–only with his properties. $3,000 down, $300/month…until they defaulted, he foreclosed on, and then relisted it. Even used the same photos and copy in his ads over the years. For every ten he sold, maybe one mortgage ever got paid off. (Mine among them.)
To Ben’s question; And lastly, considering all this, what course do we as individuals take in our financials and careers?
Financials;
Save and live below your means as best you can…Invest conservatively…Buy a house if need be but only if you are not moving for min. 10 years…
Careers;
Do something you enjoy…and always remember this quote:
A watch is a prison
You wear it and it shines
But if living life is your mission
Then your enemy is time
I DCA’d Berkshire last week and am still hurting. We’ll see.
As a premature retiree, I spend time walking local retail strip and regular malls. Fascinating to see the economy reflected. Circuit City has already cut back their high-end home theater and high-end audio, and is actively moving their high-markup, made in China, not Chino, furniture. No discounting in the computer products where the Acer monitor I bought from Amazon for $160 was for sale at $229. They will liquidate it for $179, I predict, advertising a $50 savings (a whopping 21% discount).
Crappy mini-mall with Circuit City and Burlington Coat Factory as the anchors.
I predict that Burlington may go down, Radio Shack (I once worked for and now makes most of their money selling cellphone plans and overpriced batteries), Cheesecake (mentioned on this blog), possibly California Pizza Pizza Kitchen and Red Lobster.
Love to see fellow bloggers (and your) opinion(s) of which retailers will fail and who will thrive.
Wall Street Journal
* REVIEW & OUTLOOK
* JANUARY 17, 2009
Mugging Bank of America
No good financial deed goes unpunished.
So much for being a good corporate citizen. Bank of America CEO Ken Lewis earned kudos last year for stepping into the breach when the mortgage market and Wall Street cratered. BofA’s purchase of Countrywide Financial and its September agreement to buy Merrill Lynch offered a welcome dose of optimism and private capital amid the panic.
In December, Mr. Lewis realized that he had been too optimistic. And when he considered breaking off the Merrill engagement, Washington arranged a shotgun wedding. After BofA shareholders approved the Merrill purchase on December 5, Mr. Lewis saw Merrill’s assets plunge in value and began to explore a way out. At least he wanted a better price given the erosion in Merrill’s real estate and corporate portfolio.
Mr. Lewis’s effort to protect his common shareholders was vetoed by his most important shareholder, the feds. In October the U.S. Treasury had insisted on investing $15 billion in his bank. Come December, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke told him that Merrill had to be saved, and that BofA had to be the savior. Mr. Lewis said yesterday that the government was “firmly of the view” that canceling or delaying the Merrill deal might result in “serious systemic harm.”