The Housing Bubble

Interesting local DC article.

http://washington.bizjournals.com/washington/stories/2009/03/02/daily123.html?surround=lfn

FDIC has funds but would like ‘bigger cushion’March 9, 2009 7:47 AM E

All Associated Press newsWASHINGTON (AP) - The head of the agency that insures bank deposits said Monday it has plenty of money to cover any failures this year.

Sheila Bair, the chairwoman of the Federal Deposit Insurance Corp., said the agency has set aside $22 billion to cover any projected losses over the next year, leaving $19 billion. The deposit insurance fund now stands at its lowest level in nearly a quarter-century and is raising the assessment on banks and thrifts to give it more money in reserve.

AIG is beginning to read like one big giant Ponzi scheme. Instead of an investigation, we get more doom and gloom (PR/spin) justification.

March 9 (Bloomberg) — American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.
…
“What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,’’ said the presentation by New York- based AIG. “Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’s adversities, the fundamentals of capitalism are undermined.’’

About the stock market bottom… I keep hearing people say things based upon the premiss that prices are at or below pre-bubble year - X; therefore, they are now fairly valued and we can start looking to jump back in.

I think this approach completely ignores fundamentals. Back in pre-bubble year - X the fundamentals of just about every company were much better than these companies today; therefore, the values of most companies should fall significantly below their “pre-bubble” price.

Think about it, in the past 10 - 15 years consumer debt has gone through the roof, corporate debt has gone through the roof. Both of these factors serve to undermine potential future revenue today vs potential future revenue 10 to 15 years ago. Further more, companies must deal with significant capital loss due to bad bets and higher interest payments.

Just like people on this board do not like to value houses based upon “comps”, but instead look at real fundamentals like rent/income/financing etc, lets not make the same mistake with “comps” of stocks pre/post bubble.

The Banking TaskMasters are marching out that dingbat Erin Burnett to diffuse, misdirect and generally blow smoke of the a$$ of every US citizen. She’s been on Maher and 3 other national shows since Friday nite. As if her sanctimonious excuse making for the wealthy elite on KudlBlow wasn’t enough.

This is a repost of my Landlord Nation post from last night, only it’s in Yahoo now:

http://news.yahoo.com/s/ap/20090309/ap_on_bi_ge/landlord_nation

March 9, 2009
At Foreclosure Auction, Houses Sell, in a Frenzy

By Fernanda Santos, NYTimes

In rapid-fire speech that resembled a horse-race announcer’s, an auctioneer introduced the first of the day’s 375 properties: a seven-bedroom, five-bathroom home in Roselle, N.J., with an estimated value of $565,000 and a starting bid of $129,000. (Final sale price: $245,000.)

On the floor, four men called the bids, screaming, blowing whistles, thrusting their arms into the air and using their fingers to signal how much more was being offered over the last bid.

“One man’s misery is another man’s fortune,” the saying goes, and perhaps nowhere was it more true than at the Jacob K. Javits Convention Center on Sunday, where a mob of potential buyers convened for an auction of foreclosed homes, a fast-paced and somewhat unusual happening in a place more used to trade shows and corporate events.

Some 1,400 people were there, a crowd twice as large as the one last year, when the California-based Real Estate Disposition Corporation held its first foreclosure auction in the city, in a conference room at a Midtown hotel. But there were not nearly as many foreclosed houses then as there are now, said the corporation’s chairman, Robert Friedman.

“The economy is much more severe these days,” Mr. Friedman added. “We’re seeing more foreclosures than any other time in the 19 years we’ve been in business, and we have auctions almost every day all across the country, sometimes more than one auction a day.”

NEW YORK (Reuters) - Warren Buffett said on Monday that the U.S. economy had “fallen off a cliff” and eventually would recover, although a rebound could rekindle inflation worse than experienced in the late 1970s.

Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc went bankrupt and insurer American International Group Inc got its first bailout. “The world almost did come to a stop,” he said.

Buffett also called on banks to “get back to banking” and said an overwhelmingly number would “earn their way out” of the recession, even if stockholders don’t go along for the ride.

“A bank that’s going to go broke should be allowed to go broke,” but customers should not worry about their insured deposits, he said. Buffett said there was a “paralysis of confidence” in banks, which he called “silly” because of safeguards such as deposit insurance.

Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc that the economy was in a “shambles” likely to persist beyond 2009.

On Monday, Buffett said the economy was experiencing “close to the worst-case” scenario, with business activity declining and unemployment rising, and that the economy “can’t turn around on a dime.”

He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.

“It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn’t have any underwear either,” Buffett said.

Maintaining his long-term optimism, Buffett said that “five years from now, I can guarantee you that the machine will be running fine,” although he hoped it would not take that long.

“We do have the greatest economic machine that man has ever created,” he said.

March 8, 2009
What Contract?
By Michael M. Grynbaum, NYTimes

COULD the days of the iron-clad contract be numbered?

It used to be that once a buyer went to contract on an apartment, the terms of the deal were all but set in stone. Sales prices never budged, and if the buyer balked, the down payment went bye-bye.

But double-digit price declines and the lending drought have started to threaten this once near-inviolable pillar of New York real estate. Buyers are demanding concessions from developers on apartments that they say have lost up to 30 percent in value. Others are hoping to back out of their contracts entirely, while keeping their down payments in the process.

For those hoping for a summer pick up here in Northern Ohio, the last remaining steel plant in Cleveland gave notice to some 1200 workers that it will shut down entirely in May; and yet, there remain those who are shocked that one janitor job draws over 700 applicants.

FACTBOX-How far world stocks have actually fallen
… LONDON, March 9 (Reuters) - Here are five facts about stock markets to put the more than one year sell off in perspective:

1) MSCI’s all-country world index .MIWD00000PUS, a benchmark for major institutional investors, was trading just below 173 on Monday, roughly 2 percent above its October 2002 low of 169.48. If it falls below that, it will be at lows last seen 14 years ago in July 1995, before the Asian and Russian crises and when the internet bubble had barely begun.

2) Japan’s Nikkei average .N225 closed on Monday at 7,086.03, the lowest close since October 1982, when Ronald Reagan was U.S. president, the Soviet Union was still in Afghanistan, and “Chariots of Fire” won best picture at the Oscars.

3) The DJ STOXX 600.STOXX, a broad gauge of pan-European stocks, on Monday hit its lowest level since September 1996, when Republican Bob Dole was challenging Bill Clinton for the U.S. presidency, Boris Yeltsin was starting his second term as Russian president, and Britain’s Prince Charles and Diana, Princess of Wales, had just been divorced.

4) Companies traded on the New York Stock Exchange had a market capitalisation of $9.36 trillion at the end of January, according to the World Federation of Exchanges. It is a loss of around $6.3 trillion since the end of 2007. That’s about 40 percent of U.S. Gross Domestic Product and roughly the same as Japan has spent on infrastructure over 17 years.

5) World stocks as measured by MSCI have fallen 24 percent in roughly 2-1/2 months this year. It is already the second largest fall in the 22 years that the all-country world index has existed and more than half of last year’s percentage loss of 43.5 percent. Mathematically, were it to keep losing at its current average rate of 22 points a month, the index would hit zero by year end.

I wonder if there’s some kind of effort to keep Citigroup’s price from going below a buck (again). There sure seemed to be some massive buying at 1 last Thurs. and Fri.

VTDan
When I pull a Max chart on the DOW or the S&P 500 I look at a trend line from 1981 through the end of 2004. I draw a line through and about 5 years out to 2014 and it looks like the history of the tech bubble and the housing bubble.95 through 2000 boom, 2000 through 2003 bust right back up to a twin peak in 07 housing boom and way back down breaking through the 81 through 04 trend line at abut 850 on the way down. Following the 81- 04 trend line it would put the S&P 500 back at 1400 in about 5 years. I am dollar cost averaging in a fund that has a manager who has out preformed the S&P 500 and the DOW substantially in up markets. I don`t claim to know where any bottom is, but for me the worse it is the next 2-3 years the better. If I am wrong I am wrong, I am not investing borrowed money. If I am right I will have a heck of a payday in the next 3,4 or 5 years.

Jeff Saturday,

Are you any relation to Taco Bell Jeff? You have the right idea regarding looking at long term trend lines, but your view of the market is too short. Try looking at the trend lines over a 50 year period. We can, and are very likely to, go below long term trend lines.

Most amazingly, well past a year since the onset of a steady stream of “worse than expected” results, almost all updates on global financial matters are turning out “worse than expected.” And by the way, how’s that decoupling theory holding up these days?

BBC News
Page last updated at 08:35 GMT, Monday, 9 March 2009
World economy to ’shrink’ in 2009
Emerging economies will grow more slowly in 2009

The global economy will shrink for the first time this year since World War II, the World Bank has said.

The bank’s forecast is gloomier than other estimates, which still foresee some growth.

By the middle of 2009, industrial output could be as much as 15% lower than 2008, while trade may record the biggest decline in 80 years, it said.

Developing countries face a financing shortfall of up to $700bn (£497bn) this year, the bank added.

Bail out working, AIG soon won’t be too big to fail
By Scott Ott
Examiner Columnist | 3/3/09 9:32 AM

News fairly unbalanced. We report. You decipher

The Treasury Department announced today that the bail out of AIG Insurance, which began in September under the Bush administration, is working better than expected.

Encouraged by the company’s loss of nearly $62 billion in the 4th quarter of 2008, the Obama administration injected another $30 billion into AIG this week.

“The government stepped in last year with $150 billion because AIG was too big to fail,” said Treasury Secretary Timothy Geithner. “The stock was trading in early September at more than $20 per share.

Today it’s worth less than 50 cents a share. If we keep pumping billions of tax dollars into it, I’d say we’ll soon reach the point where AIG won’t be too big to fail, and then we can stop giving them money.”

Mr. Geithner explained that President Obama is using a similar principle in the housing bail out.

“By forcing banks to cut payments for irresponsible homeowners rather than foreclose, the value of all mortgages will continue to decrease until many banks will cease being too big to fail,” Mr. Geithner said.

“In addition, millions of other homeowners will realize that a mortgage contract is binding only on the federal government, allowing them to reduce their monthly payments as well. Finally, we’ll have affordable housing for everyone,” he said.

This latest infusion of taxpayer cash will increase the federal government’s stake from 80 percent of AIG, to roughly 127 percent, Mr. Geithner said.

“This is a good investment for the American people,” he said, “because AIG is the company that insures thousands of other companies against the risk of a global financial meltdown. What would we do without AIG?”

Went and looked at a house this weekend out of curiousity…I couldn’t believe how cheap it was and wanted to see for myself what was up.

http://www.realtor.com/realestateandhomes-detail/10589-Durango-Pl_Longmont_CO_80504_1102982613

I ended up kind of shocked. I’m not sure when those pictures were taken, because the place is pretty trashed now. My apologies to anyone who lives there, but I think the neighborhood is doomed. The houses were only 5-6 years old, but the whole neighborhood looked like bulldozer bait within the next few years. I knew that there was stuff like this in the really bubbly areas, but I didn’t think that I’d feel that way about anything in Colorado. I came away with the impression that no matter how cheap anything was, it would still be a waste of money in the end.

While I was checking it out, a grandmotherly type from an adjacent backyard came out to talk. She was really talking up the neighborhood and how much they liked it. I asked her if they were the original owners. She said “Oh no, we’re just renting”. That’s when I was sure it was doomed…

People are jumping back into real estate in my neck of the woods. I’ve been watching a bunch of properties for sale in my area that based on the high prices being asked I expected to see listed through the summer. To my suprise, many of these properties have sold within the last month, even bidding wars on some. Even properties that have been sitting have sold. Spoke with my mortgage company rep (who, incidentally, is still offering to lend me more money than I could ever imagine borrowing), and he was elated at how busy he is.

Last week I actually made a verbal agreement to buy a place that had been on the market for over a year, but I backed out before signing, expecting the price to drop even further. It sold this week. And once again I am feeling like I’ve missed the boat, waiting for the price drop that just ain’t gonna happen.

It’s all anecdotal evidence, mind you, but I won’t be surprised to see a huge reported bounce in sales this month. My brain tells me it’s a dead cat bounce, but I’m genuinely sick to my stomach over it.

I fear that my emotion will soon win over and I will be the next knife catcher.

I expect a few dead cat bounces…and a helleva lot of twitching before this housing feline finally rolls over and croaks

Some …Dreams just die HARD

Took a stroll around downtown SF near Columbus and Broadway towards the Financial District and was more than shocked at the amount of commercial real estate available. Swear to God almost every single building had a “for lease” or “space available” sign on it. Building after building. I knew the commercial real estate was in bad shape, but to see it was pretty shocking.

The Next Hit: Quick Defaults
More FHA-Backed Mortgages Go Bad Without a Single Payment

http://tinyurl.com/dzmyyr

More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week.

If a loan “is going into default immediately, it clearly suggests impropriety and fraudulent activity,” said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.

I dunno, ya think? Let’s not jump to conclusions . . .

From NPR this morning:

Where Were The Media As Wall Street Imploded?

http://www.npr.org/templates/story/story.php?storyId=101475670

“I get this from friends, family, you know, ‘How come you guys didn’t see this coming?’ ” said Peter Coy, economics editor for BusinessWeek magazine. “How come all the journalists missed this big story?”

His answer: They didn’t.

“Maybe you don’t remember what we wrote,” Coy said. “Maybe you didn’t read what we wrote. But we were out there covering this stuff.”

Whaaaaaaaaa? Um, OK. You say so.

Citi spends $3.5 million on Smith Barney brokers.
-Okeydokey. Not to gov. take back all the money. Now.

NEW YORK – Embattled banking giant Citigroup Inc. spent about $3.5 million to provide rewards for top-performing advisers at its Smith Barney brokerage unit.

The payments are in lieu of three trips Citi usually plans for its top revenue-generating advisers in the division. Those trips were canceled earlier in the year as Citi attempts to slash costs amid the ongoing economic downturn. Citi has posted five consecutive quarterly losses and received $45 billion in government assistance during the ongoing credit crisis and recession.

Many major financial firms that have received government funding in recent months have drastically scaled back spending on events and perks for employees amid growing anger from politicians in Washington about how they spend money.

Citi said none of the money from the government investment is being used for the rewards.

“This program is funded by operating revenue of Smith Barney and achieves a nearly 80 percent cost saving over some previous recognition programs,” Citi spokesman Alex

Hello everybody , My computer crash and I just bought a new one .
I have ben out of touch with what has been happening because of being at the Hospital all thye time . Im just testing to see if this new computer works ,

Lies and more dang lies on top of them…. from Yahoo/BW

From Business week… markets showing signs of life. Near my brothers place up in Fairfield and Vacaville a few minutes away.

In ZIP codes across the country, as once-inflated property prices bottom out housing sales are increasing dramatically

Earlier this year Herson and Liz Enerio put in a $400,000 bid on a four-bedroom house on a private street in Fairfield, Calif., with three pine trees and a backyard that opens onto a hiking trail.

I can’t believe this crock of bull. First, these people are over paying for living in Fairfield, which has substantial crime due to the military base and the boys getting in trouble. Second, I’m watching that area occasionally with my brother for potential deals. There are plenty of them. Lots of forclosed homes all over the place. You have to go through hundreds of homes before you hit that 400K barrier. The incomes support prices in the 150-250K range in the area. There are hundreds of REO there and many have sat on the market for months.

You can easily get a house far cheaper than these two idiots are paying. There was a 6bd/4bth 3400sq ft golf course home for 360K or 10% less. Private neighboorhood as well.

I don’t know too many people that need/want a house that big either. Its a great white elephant. Its also very hot in the summer so cooling costs are bad.

Well. I suppose these idiots will lose the house in a couple of years too. Great. Another bad loan.

Not to start a s—storm about gold, but has anyone seen this article?

http://www.newsweek.com/id/188138

It’s got someone calling gold, the “precious”. Sound familiar??

10News I-Team Investigations
I-Team Puts Gold Buyers To The Test

The local buyback had the best payout. The pawn shop paid out $18.50 for the ring on a day when gold was valued at over $9 a gram.

wwwdot
10news.com/investigations/17913343/detail.html

..definately inflationary..

http://www.businessweek.com/lifestyle/content/mar2009/bw2009035_187650.htm

please debunk

Noteworthy top headline on Yahoo this afternoon: “Why Renting Beats Buying”

http://tinyurl.com/cz8mz4

Roubini: US Recession Could Last Up to 36 Months

http://biz.yahoo.com/cnbc/090309/29598949.html

Among Roubini solutions: fix the housing market by breaking “EVERY MORTGAGE CONTRACT”

WTF?

Coming to my home town…

Need help making mortgage payments? Help is coming to Columbia
By Yvonne Wenger (Contact)
The Post and Courier
Monday, March 9, 2009

COLUMBIA — The Neighborhood Assistance Corporation of America pledges this weekend to help thousands of South Carolinians who are stuck with mortgage payments they can’t afford.

Bruce Marks, chief executive officer of the nonprofit organization, acknowledges that the work his advocacy group does sounds too good to be true, but he said the results speak volumes.

The group’s counselors use binding agreements with all the country’s major lenders to help homeowners restructure their mortgage interest rates to as low as 2 and 3 percent for the life of the loan.

Marks said the counselors will evaluate living expenses, income and mortgages payments to determine whether a homeowner’s mortgage is unaffordable. The homeowner does not need to be late on payments or in foreclosure to qualify for the free service, and income level is not a factor.

U.S. House Majority Whip Jim Clyburn was credited with drawing the highly sought-after Neighborhood Assistance Corporation of America to South Carolina, where 58,000 homes are in jeopardy of foreclosure.

The Last Shopping Mall? New Jersey Awaits Xanadu
http://news.yahoo.com/s/time/20090309/us_time/08599188354600

“Xanadu is the epic discretionary story,” says Davidowitz. “It’s the epicenter of ‘not needed.’ How can you have this when the consumer is completely decimated? It’s already one of the world’s biggest nightmares.”

What a horrendous misallocation of wealth, resources, and effort. What can I say, but “USA! USA! USA!

“Housing is a bust, but apartments are booming”
(Norfolk / Virginia Beach / Hampton Roads)

http://hamptonroads.com/2009/03/housing-bust-apartments-are-booming

Santa Cruz condo project in trouble: Project not selling, and contractors sue developer to get paid
http://www.santacruzsentinel.com/ci_11858517?source=most_viewed

running out of options?

GE just passed another FDIC bond package, off the shelf.

see, when the underlying CDS are trading at what looks to be16.5%, and you get FREE MONEY…..well, lets just say that works long term, right up till it dont work.

the spread blowout, is a function of “I get free money, and you pay.”

its just that simple. Why is it that simple?

I dont get 16.5% on GE common, unless, of course, I do.

folks, its real and there is no bottom.

Whats the HOLD TO MATURITY on a GE CDS?

that would be ZERO,

we all die in the long run.

Has anybody else seen “The Prime Gig”?

IMHO the current economy will have thousands of former Realtards (TM) and recently released jail and prison inmates “working” together in “rooms” to pay the rent.

You’ve heard of dog eat dog; maybe we’re headed for con conning con.

5 Reasons Renting Still Beats Buying

By Jack Hough

Mar 6th, 2009

This weekend I’ll throw $1,100 down the drain. That is to say, I’ll pay my rent. Pop-finance pundits have long used the drain cliché to describe how renters like me waste money, while homeowners with mortgages “pay themselves” and “build equity.”

In April 2007 I argued something different: Renting Makes More Financial Sense Than Homeownership. Basically, houses produce poor returns over long time periods while stocks and other investments produce good ones, and the outlook for houses is especially poor now, so I’d rather rent cheaply and funnel my extra cash into something other than a house.

Even though house prices have plunged and I have enough money to buy one, I’m still not nearly tempted. In what follows I’ll give five reasons. (The first two form the core of my original argument.) Before all this starts to sound too self-congratulatory, I’ll also explain the one big thing my essay got wrong.
Reason 1: Houses produce lousy returns, while stocks produce good ones

Houses looked like smart investments in 2007. They had returned 9.3% a year for a decade, while stocks had returned just 5.9%. This year, with investors fleeing both houses and stocks, both probably look like a waste of money. But be careful about succumbing to what psychologists call recency bias — the tendency to form beliefs based largely on the most recent observations in a long series of data. For U.S. investors, reliable data on stocks and houses goes back well further than 10, 20 or even 50 years.

Stocks returned 7% a year for 200 years ended 2004, according to Wharton professor Jeremy Siegel. That’s after subtracting an average of 3% a year for inflation, or the gradual rise in prices of ordinary goods. The plunge in stock prices over the past 16 months makes me all the more sure that shares are poised to deliver good returns over the next decade or two. Houses returned 0.4% a year over 114 years ended 2004, according to Yale professor Robert Shiller, co-creator of the most widely used index for house prices. That number is suspiciously close to zero. Indeed, it might have been zero, reckons Shiller, if not for two periods of aggressive house buying, one spurred by government incentives following World War II and another created by the Federal Reserve’s drastic interest rate cuts in 2002 and 2003.

A zero return for houses might sound odd. An editor who re-published my original essay at another web site stuck the word “virtually” before zero, I suppose to soften the message. I made him take it out. If you think about it, zero is the only logical answer, so long as we’re talking about a single-family house and not, say, a rental building built to maximize income. Inflation, recall, is the gradual price rise of ordinary goods. What’s a house if not an ordinary good? Houses don’t spend their days thinking about ways to make themselves more valuable. They just sit there. Subtract inflation from their long-term price increases and there’s nothing left.

Apply heaps of leverage to the numbers if you like, but the outcome only worsens. Mortgage rates now are about as low as they’ve ever been, thanks to more government efforts to, among other things, spur house buying. But you’ll still pay 5.2% to capture long-term price increases that merely match inflation. And today, you’ll tie up a bundle of cash with a down payment. I’d rather pay cheap rent instead of an expensive mortgage and put the monthly cash I save into stocks and other investments. And rent is still plenty cheap, because . . .
Reason 2: House prices have further to fall

Price matters. Few stock investors would think about buying shares of a company before looking at some measure of how expensive it is relative to the value it creates. They might look at the price/earnings ratio, for example. Houses have a price/earnings ratio of sorts — the ratio of their price to the yearly income they could generate if rented out. In April 2007 I noted that price/earnings ratios for stocks were only slightly above their historic average, while price/rent ratios for houses were double their average.

Stock prices were the thing I got wrong. The price/earnings ratio I gave was correct, but the earnings on which it was based were far from ordinary. The fierce housing boom was ringing cash registers at furniture stores, employing heaps of real estate agents, padding the profit statements of lenders and, thanks to home equity loans, puffing up buying power for just about everything. I should have realized that America’s corporate profit was close to a third above normal levels as a percentage of gross domestic product. Profits have reverted to average levels, and stocks have fallen to around 14 times earnings. I recently cautioned readers that, even though stocks are fairly priced, it’s natural to assume that after a long period of above-average prices we can enter a few years of below-average ones.

Houses still seem expensive, though. One recent survey by Moody’s Economy.com found that the price/rent ratio in major markets had fallen to 20 from 24 three years ago, but that for 16 years ended 1999, before the house-buying spree began in earnest, it had stayed below 15.

Numbers like those should inform not only house-buying decisions, but public policy. If a citizen is being made poor by the debt they carry on the house they bought, and if a government policy keeps them tied to that house instead of separated from it into more affordable housing, are we really helping them?
Reason 3: Many houses for sale today seem designed to waste money

“Most men appear never to have considered what a house is, and are actually though needlessly poor all their lives because they think that they must have such a one as their neighbors have.” Henry David Thoreau wrote that about 160 years ago in a long, somewhat preachy but also poignant treatise called “Walden,” which argued against materialism and for simplicity. I’d imagine it applies to today’s houses even more than to ones in Thoreau’s day.

Commercial real estate investors seek to maximize the amount of use tenants can get out of a building, while minimizing the operating expenses. Single-family house buyers have lately done almost the opposite, by buying far larger houses than single families need. From the 1950s to 2006, the average American house size doubled, even as the size of families shrank. U.S. tax policy rewards house buyers who borrow, not renters, and not house buyers who pay cash. So naturally, Americans responded by borrowing, which inflated their buying power and ultimately caused dwellings themselves to balloon. The “dream of homeownership” became more of an entitlement to mansion-ownership. But all those mansions on the market do little for me, financially speaking. They’re expensive to heat and cool, and to fill with a respectable amount of stuff.
Reason 4: Big houses are targets for future taxes

This year, U.S. government debt will increase by the largest amount relative to the size of the economy since World War II. Assuming the country will eventually right its financial course, at least some of that money will have to be paid back. That means higher taxes in the future, and taxes come mostly from people with a proven ability to pay — people with high incomes and people with large, expensive, easy-to-find assets. There’s only muted talk of states raising property taxes now, since the federal government is working to support house prices. I’m worried that property taxes will rise sharply in coming years. Of course, renters pay taxes too, if you figure that landlords merely pass along taxes to tenants. But renters live in smaller spaces.

I might have titled this reason, “Few people truly own their house, anyway.” To me, owning something is defined in part by not having to pay anymore. Condo owners are really renters, if we consider their endless maintenance fees. But house owners, too, must pay rent to the government in the form of taxes, and must pay for plenty of ongoing maintenance besides.
Reason 5: Neighborhoods are changing in unpredictable ways

In March 2008, The Atlantic published a frightening vision of what might happen to America’s suburbs. Low-density suburbs, it theorized, may become what inner cities became in the 1960s and ’70s — “slums characterized by poverty, crime and decay.” I’ve no idea whether anything like that will come to pass. But the popping of America’s giant housing bubble, and a corresponding shift in where people find jobs, seems sure to reshape how and where we live in coming years. For rural folks that might not matter much. (For them, in fact, little of this might apply, since house prices in rural America have stayed pretty sane.) But anyone considering a move to the suburbs should do some careful forecasting before sinking a large portion of their wealth into a house.

I hope all this doesn’t sound alarmist. I’ll surely buy a house one day, when prices are low enough, and I’ll probably even buy one that’s a little bigger than I need. But I’ll do so knowing that I’m spending on luxury, not investing. Also, I hope this doesn’t further the anxiety of readers with mortgage troubles. The trend of the day seems to be to take an angry tone with people who’ve gotten in over their heads — one fellow columnist referred to them the other day as “deadbeats.” But two other parties deserve a full measure of blame, and I don’t mean lenders. First, lawmakers have for decades trumpeted house affordability initiatives like tax breaks, while leaving supply in choice markets constrained. That inflated demand and ultimately produced the opposite of affordability. Second, too many people who do what I do for a living spent most of the housing boom cheerleading instead of doing math. It’s time to stop lecturing renters — and maybe to ask why public policy treats them as less-worthy citizens than buyers.

take me down to the infirmary.

if you take me down down, oh yeah..I wont have to sleep or drink alone.

fetch the doctors glass…. gonna take a steady hand.

the whiskey wont sooth my soul, but if you take me down to the infirmary…

my Ginny Mae is negative….a damp cloth on my forehead, lay me down make me sleep…

let me sleep.

my heart is splintered. Winter girls are waiting.

Overwhelemled by something far ago and far away. each of us a tiny Nation.

For years it has been said on the HBB, that when the tide goes REALLY out, you discover who has been swimming naked.

Denninger below shows that when the financial ponds strts draining, you discover who’s been embezzling. Embezzling, not just from their own company, but from the Treasury, and the taxpayers, and not just the USA:

“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country’s business and banks. This inventory - it should be called the bezzle. It also varies in size with the business cycle.”

That sounds rather arcane, but if you roll it around in your head for a while, it should make sense.

Here are some examples of “The Bezzle”:

Liar loans: The borrower can’t possibly pay off the loan on the original agreed terms and the institution that makes the loan “passes it” to an investor fully aware that the borrower almost certainly lied about credit capacity.
Overly-rosy projections about growth in property values: The speaker is either incompetent (doesn’t understand exponents - a fundamental mathematical concept) or is intentionally deceiving people.
Overly-rosy projections about the stock market: “The market always comes back” and “over long periods of time it outperforms other investments.” Both true, but both misleading; if you’re 18 you might be able to wait for it to come back, but the market has remained flat to down from a given level for more than 20 years before. How long did you say it was before you intended to retire?
“The Internet is doubling every three months!”: It was - for about six months. But that got embedded into the business plans of thousands of businesses, long after the growth rate had started to slow down to something more sustainable. Oh by the way, the fundamental lie of that claim is that in 7 years the Internet would have gone from its original two people to covering more than the entire population of the planet, including the rice farmer in China and the starving child in Bangladesh.
In short The Bezzle is “the lie” that is always present in business.

The truth is always some degree of lying in business transactions - always has been, always will be. And so long as The Bezzle doesn’t become the underlying theme in business, it simply bankrupts the people who try to run it when they get discovered.

But when The Bezzle becomes the underlying premise and basis for business transactions that entire segment of the market is doomed.

Eventually the embezzled discover the fraud, and they get angry that the embezzlers stole their money. They revolt in whatever way they are able - if there is no law that gives them recourse and no government support for outing the bad actors they either turn to lawless actions or simply withdraw from the marketplace, refusing to continue to be a victim of someone else’s grand scheme of theft.

This point was reached for the US Mortgage Market, and the lending market in general, some time around the middle of 2007, when the two Bear Stearns Hedge Funds blew up.

Realization of The Bezzle always starts slowly, but it is an exponential process, because as the pool of liquidity starts to drain that has allowed the hiding of these crimes more and more dead bodies start to surface, and they all stink. This results in more and more people starting to question if they have been scammed; a process that, once it begins, becomes exponential in scope and force.

This is where Government comes in, because only government has the lawful power of deadly force. Only the government has the right to preemptively investigate and arrest people for fraud and embezzlement.

When government fails to discharge its duties in this regard over long periods of time, we wind up where we are now. The “sea of liquidity” covers the dead bodies for a time, and the government refuses to drain the swamp or arrest those who it knows are committing evil acts. Witness Madoff and Stanford, both of which were known to the government for more than a decade and yet no enforcement action was taken. Witness the Fannie and Freddie accounting scandals, which should have led to indictments, prosecutions and a shutdown of these institutions - but didn’t. Witness the appraisers petition dating back to 2000, bearing more than 10,000 signatures, that was ignored by the government.

Of course those who were part of The Bezzle and profited from it will viciously resist the termination of the cycle, because they will be bankrupted - or worse. Witness the story in the WSJ this weekend about AIG:

The beneficiaries of the government’s bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany’s Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

It gets better. You see, Ben Bernanke said he had no authority to regulate AIG in his testimony before Congress. True. But he did have authority to regulate commercial and investment banks in this country, and if he and Greenspan had done their job we would not be here because those firms could not have bought or sold CDS with AIG - a company that had essentially no capital behind its bets.

Bank of America is trying to avoid disclosing the employees who got bonuses from taxpayer funds on a “time-shifted basis” just before it acquired Merrill Lynch; they are claiming imminent “irreparable harm”. One has to wonder if the “grave and irreparable harm” being discussed is violation of certain people’s rear ends in prison should they be sent up the river post-disclosure?

The FHA has been mightily trying to paper over the truth as well but its not working out so well:

With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.

Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

This is yet another government attempt to hide The Bezzle instead of force it out into the open, deal with it, and imprison those responsible for it.

From Aternet: Boomers Going Bust -

It all happened faster than you can say “senior discount.”

Millions of baby boomers born into the dawn of the most spectacular economic expansion in history are being forced to re-imagine their retirement futures. Few news outlets have failed to seize upon the low-hanging pun: the boomers have gone bust.

Among the adjustments forced by the new circumstances, perhaps the cruelest twist for many boomers is the need to join younger generations in the roommate queue. The housing crash has forced record numbers of late-middle age homeowners to take in boarders or risk becoming boarders themselves. From California to Vermont, home-share organizations founded to assist the elderly are scrambling to meet the demands of newly bust boomers.

“In the last few months we’ve experienced explosive growth in interest by homeowners age 50-plus to find rooms and roommates,” says Jacqueline Grossmann, Chicago coordinator for the National Shared Housing Resource Center. “The trend now is getting younger and younger. People in their 50s and 60s are losing their nest eggs and increasingly willing to give up their privacy in exchange for rents of $500, $600 a month.”

“We’ve seen a 400 percent increase over the last few months of people nearing retirement age,” says Rita Zadoff, director of Housemate Match, a shared-housing program serving the Atlanta area. “We haven’t been this busy since we helped Katrina victims find housing.”

Kirby Dunn of Home Share Vermont reports a “huge increase” of boomers seeking roommates in the last six months. “There has been a dramatic shift from elderly clients seeking a ‘protective presence’ to younger people with ‘too much house’ seeking financial help to make mortgage and utility payments,” she says.

Most of the nation’s home-share organizations were set up with the disabled and seniors in mind. They now appeal to bust boomers because they are generally free services that screen potential housemates carefully. “Older people aren’t comfortable finding roommates through Craigslist,” says Zadoff. “They aren’t as used to the idea of letting strangers into their homes.”

Boomers are maximizing room occupancy for the same reason that their kids in their 20s and 30s are still competing for the best group rentals on Craigslist: they’re broke.

March 9 (Bloomberg) — Moody’s Corp., which has been criticized for missing mortgage market problems, plans to release a list of companies tomorrow it deems most likely to default on loans….

The list, called the “Bottom Rung,” contains 283 companies from sectors including retail, casinos and energy….