The Housing Bubble

Enjoyed it all Ben.

Our fine HBB lady perhaps summed it up best with the poker game analogy and her statement that “this game is over”.

The REIC “marks”, the tourist speculator gamblers and the FB losers …just haven’t got this simple yet full and final message yet

Who are the “I don’t sleep with renters” crowd sleeping with now? I can’t imagine the “housing scum” gets as much action these days. There has to be an angle. They may be a new “gotta car” crowd developing, but I drive a 10 year old Accord.

finally I am not at the office on HBB and I can see the videos. nice work!

Optimistic, progressive, forward thinking but professionally skeptical — that is a great set of prerogatives, Ben!

I tried to make it to LV but the schedule didn’t fit. I sent in a donation as if I was going. I have been enjoying the replays. I hope Ben and the rest of his bloggers appreciate all of the good they have done. I have been reading this blog for over three years and it represents a history of the greatest mania ever. Something has to be done with this history. I have never posted before but I hope this one gets on. God bless all of you.

Who is that cute Ruler of the Universe girl?

The baby is pretty cute.

BTW, Obama is well aware that we need to get back to an economy based on something other than housing and debt. He’s been very clear on that in all his speeches. He is also aware of detractors who are urging him to let the banks fail (many liberals really want to see AIG kick the bucket, and not just because of the bonuses.)

The problem is that the hole is very deep. And — unlike quick-fix accounting tricks and derivatives and other nonsense — the long-lasting solutions will take some time to kick in. And, those dang banks are too big to fail. This is pretty well known.

This history is being written as we sit here. We are only in the early parts of this mess. The thrill we experienced in the last few months as we saw our fears realized and watched a market cascade will be replaced by the thrilling fear of seeing a cascade beyond anything we ever imagined.

I truly believe that we are at the tipping point right now, what came before was a taste of the meal we must eat.

I am saddened for the innocent ignorant masses, but I am glad that some of us here recognized the signs and began the preparations.

It will be people like the ones here, particularly Ben, that lead us out of the coming storm.

Excellent job, everyone!

Ahansen’s poker analogy was fantastic. Also, Ben’s summary at the end was spot-on.

Hopefully, the PTB will figure out that we need REAL jobs and real work. The problem with our current economic model is that it’s based on transferring assets back and forth, with each successive buyer taking on more debt in order to raise the price even more. We hope there is a succession of greater fools after us, who are willing to take on more and more debt so they can pay ever-higher prices for the assets we are looking to sell. We are supposed to believe this can go on forever…

Great job.

$100k homes.. that would be sweet.

I am not one of the Govt should do this or that folks, but maybe the govt should “release” tracts of govt owned land carved up into 1/4 acre lots and set a cap on the price of what the land can be sold for and link the valuation of that land to some sort of inflation index, so a 10k lot doesn’t become a 100k lot.

Slightly OT (but not much).
I have a friend making a “real estate decision” who needs access to some recent, good analysis.
Has anyone with any sense put out a decent report this spring, about price trends where we are in this treck to affordability?
I need to forward something to counter the pumpers who are arguing now for the “V” shaped blastoff.
Thank You, and the video is great, I will forward a link to that.
I know some folks around here have had access to great written work over the years.

A top economist with a MSM bully pulpit is suggesting that hair-of-the-dog stimulus accomplished through a War on Savers might be the best way to fix the dearth of consumer spending.

Why do so many top macroeconomists seem oblivious to the Parable of the Broken Window? Or to the crucial role of yesteryear’s War on Savers in bringing about the collapse of the financial system we currently face?

Economic View
It May Be Time for the Fed to Go Negative
By N. GREGORY MANKIW
Published: April 18, 2009

WITH unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers.

Let’s start with the basics: What is the best way for an economy to escape a recession?

Until recently, most economists relied on monetary policy. Recessions result from an insufficient demand for goods and services — and so, the thinking goes, our central bank can remedy this deficiency by cutting interest rates. Lower interest rates encourage households and businesses to borrow and spend. More spending means more demand for goods and services, which leads to greater employment for workers to meet that demand.

The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them.

In many ways today, the Fed is in uncharted waters.

So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.

The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.

Unless, that is, we figure out a way to make holding money less attractive.

The Fed figured out how to do this back in the early 2000s, and reaped the consequence of severe overinvestment in housing as a result.

At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)

Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.

BWAHAHAHAHAHAHAHAHAHAAAA!!!!!!! ON WHICH PLANET DOES THIS GUY LIVE? PLANET HARVARD???

That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.

Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an incentive isn’t a flaw — it’s a benefit.

The idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it. John Maynard Keynes approvingly cited the idea of a carrying tax on money. With banks now holding substantial excess reserves, Gesell’s concern about cash hoarding suddenly seems very modern.

If all of this seems too outlandish, there is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.

Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.

Ben S. Bernanke, the Fed chairman, is the perfect person to make this commitment to higher inflation. Mr. Bernanke has long been an advocate of inflation targeting. In the past, advocates of inflation targeting have stressed the need to keep inflation from getting out of hand. But in the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative.

The idea of negative interest rates may strike some people as absurd, the concoction of some impractical theorist. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers.

Bad analogy.

Maybe some economic problems require the same trick.

N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.

Mortgage industry changes throw new hurdles in borrowers’ way

Fannie Mae and Freddie Mac are tacking on extra fees for many loan applicants, while some lenders are going even further in tightening underwriting rules.

http://www.latimes.com/classified/realestate/news/la-fi-harney19-2009apr19,0,6099613.story

“I am the supreme ruler of the Universe!”

Oly girl?

Well my posts don’t make it, but in short, Thank you Ben. You made me aware that the fears I harbored were valid and well-founded.

Looking at the baby, I couldn’t help but grieve for the massive debts and legacy problems that current generations are so heedlessly passing off to the next generations.

Thanks for all the Maglev talk here the other day. It got me reading up on how they worked, and what countries are coming on board, or already using high speed trains.
http://images.businessweek.com/ss/09/03/0306_speed_trains/

I didn’t know whether to laugh or cry watching these videos from the Daily Show of an interview with Elizabeth Warren, Chair of the Congressional Oversight Panel on TARP. She seems very smart and likable, and also very skeptical about the program. When the people in charge laugh about how they don’t know where the money is going, how can these programs retain support?

Part I

Part II

Economist article: Shelter, or burden?

Love the title!!!

OK. I’m all geeked to go home later and look at the rest of American visionaries.

In an off topic note: I realize the horses have left the barn already and things are already messed up like heck. However, I picked this from another web site. Fan/Fre are going to require independant apraisals and 455$ a pop. If you want another you have to kick out another 455$. Paid by the buyer. Ouch. That will cut down a substantial amount of new fraud in the portfolios and stow flipper activity.

Beginning May 1, Fannie and Freddie are refusing to fund loans with appraisals that do not follow a set of new rules known as the Home Valuation Code of Conduct. Among the procedural changes: Mortgage brokers no longer can order appraisals directly, but instead must allow lenders or investors to use third-party “appraisal management companies” to assign the job to appraisers in their networks.
…
Starting April 15, all good faith estimates provided to applicants must indicate a flat $455 charge for appraisals arranged through the appraisal management company. The broker previously charged $325. Consumers will now have to pay the appraisal fee upfront — before any inspection or valuation is completed — using a credit card, debit card or electronic fund transfer.

What happens if the appraisal comes in low and the applicants can’t qualify for the refi or purchase program they sought? Tough luck: They’ll have just two choices: Pay another $455 for a second appraisal — with no assurance that it will solve the problem — or cancel the application.

Banks that require additional capital will first have to rely on private markets, National Economic Council Director Lawrence Summers said today on NBC’s “Meet the Press” program.

“The first resort for more capital is going to the private markets directly to raise equity,” he said.

Summers, Obama’s top economic adviser, said options for adding private capital go beyond issuing new stock to investors and include “so-called asset-liability swaps that would have the effect of perhaps diluting some shareholders, but also fortifying the level of capital.” He didn’t elaborate.

___

hmmmm…
This is going to be an interesting week.

___

President Barack Obama said he’ll demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators.

“We’ll try to use as light a touch as we can, but I’m not going to simply put taxpayer money into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens,” Obama said at a news conference today in Trinidad and Tobago as he wrapped up his first Summit of the Americas.

The stress tests will show “different banks are in different situations,” Obama said today. “They are going to need different levels of assistance from taxpayers, and as I’ve said before, if taxpayer money is involved I’ve got a responsibility to ensure some transparency and accountability.”

____

Everglades frog legs.

Frog legs are all lean meat with no fatty tissue, so they’re a delicious low-in-calories meal. In my opinion, Everglades’s frog legs are the plumpest, most delectable you will ever find, but then again, Cross Creeks are good, too. Cover the legs with a pie tin while they’re cooking. That way they will come out moist.

2 pounds fresh frog legs

1 quart milk or stale beer for soaking frog legs

5 eggs, beaten

1 ½ quarts milk

Flour for dredging

Salt and granulated garlic to taste

Butter

Lemon wedges and fresh parsley, chopped, to garnish

1. Soak frog legs in milk, water, or beer for at least 2 hours.
2. Season to taste with salt and granulated garlic. Mix together eggs and milk then dip in frog legs. Roll in flour coating all parts of legs well.

3. Heat a buttered grill, griddle or heavy fry pan. Add frog lets, and then cook until golden brown on each side, about 10 minutes, turning once or twice. Use two large spatulas for ease in turning.
4. Garnish with lemon wedges and chopped parsley.

Serves: 4

Preparation Time: 5-8 minutes
Cooking Time: 10 to 15 minutes
Soaking Time: 2 hours

I’ll repost this tomorrow.

How things really work (I really suggest all HBBrs read this)
Read the names, companies and titles of all parties.
Even if you, like me, don’t know who’s who.
____

Fannie Mae CEO Allison Nominated to Run TARP
President Barack Obama nominated Fannie Mae Chief Executive Herb Allison Friday to oversee the Treasury Department’s Troubled Asset Relief Program, putting him at the heart of the administration’s drive to bolster the U.S. financial system.

Michael Williams, currently Fannie’s chief operating officer, is expected to be named to succeed Mr. Allison as CEO, according to people familiar with the situation.

If confirmed by the Senate, Mr. Allison will become assistant Treasury secretary for financial stability and counselor to Treasury Secretary Tim Geithner. He also will serve as an adviser on policy matters, the White House said.

In choosing Mr. Allison to head TARP, the administration is turning to an experienced manager at a time when it is having trouble filling key finance posts.

Fannie Mae and fellow mortgage company Freddie Mac are vital cogs in the administration’s plan to aid struggling homeowners. Both have experienced management turmoil; Freddie Mac is without a permanent CEO.

Mr. Allison, 65 years old, has been at the helm of Fannie Mae since the government took over the mortgage titan in September. He is a former TIAA-CREF chairman and Merrill Lynch executive.

If confirmed, Mr. Allison would succeed Neel Kashkari, who has run TARP since its creation during the George W. Bush administration. Mr. Geithner had been searching for months for someone to run TARP.

Mr. Allison’s nomination comes as the White House wraps up its bank stress tests, the results of which are expected early next month. The Obama administration also may have to return to lawmakers to seek additional rescue funds, a process in which Mr. Allison would likely play a large role.

The White House also said Mr. Obama will nominate William Wilkins to be chief counsel for the Internal Revenue Service and an assistant general counsel at the Treasury. Mr. Wilkins has been a partner in the Tax Practice Group of Wilmer Cutler Pickering Hale & Dorr LLP since 1988.

For exeter, blue skye, SUguy and any other upstate NYers:

From the NY Fed (april 2009) a look at upstate NY’s subprime mortgages in foreclosure

http://www.ny.frb.org/regional/2009_Facts_Trends_Vol_2_1.pdf

NOTE: PDF file!

Great video, Ben, and the HBBers who traveled to Vegas!

Slightly off topic, but…

I JUST SIGNED A 6 MONTH LEASE RENEWAL AT 20% LESS PER MONTH HERE IN THE SOUTH BAY (A MILE AND A HALF FROM THE OCEAN)!

Sorry for the caps, but I’m very excited! Rent down from $1590 to $1270 per month. I have $320 extra each month.

I tell you, the renters all over America are going be able to save more if they want, spend more if they want. They will be the ones who help the economy recover. Not the FBs.

I think my rent will be dropping more at this apartment if I renew in December. Partly why I did not choose the 10 month or 12 month lease!

This is good news to me and not good news for South Bay real estate. We have only begun seeing LA Beach city real estate price drops.

Equity Rally Reaches Escape Velocity

“The “crap rally” accelerated further on Friday, one of the lowest volume options expiration days in recent memory. Gravity defying common equity prices of fundamentally “basket case” businesses advanced further. The move can no longer be described as parabolic. A space shuttle launch trajectory is the most accurate depiction of the move. The only question is if this is mission STS-51-L of Challenger or STS-107 of Columbia. We will know the answer fairly soon.

The MSM did its best to give legitimacy to insanity. In a widely reported State Street Institutional equities flows report from April 18, the FT reported: “Institutional investors are backing this rally,” says the trust bank in its latest research.”

My prediction: An evil word will be emphasized by Obama Administration. That word will be “Hoarding”. Failure to spend money and save = “hoarding”. Buying gold = “hoarding”. Buying extra water or food = “hoarding”. Any activity that attempts to preserve capital will be considered “Hoarding”

Once hoarding is an established term and recognized that hoarding is a trait more common among those with “means”, the masses will support government intervention to punish “hoarders”.

Policies will be put in place to tax not only income but actual after tax account balances. Unfettered ability to buy and hold gold will be restricted or outlawed. Taking money out of the country will be restricted. Death tax reinstated and increased to prevent multi-generational “hoarding”.

With Obama rehetoric, and the help of liberals from Harvard and the media, the government will be empowered by the Masses to take care of “hoarders”. How dare you not deploy your wealth for the “common good” of society!

Ya, weren’t we the renters that had only $4k in net worth…wait, I have that in cash and silver in my safe (not counting the gold :-)). I guess now atleast we have positive 4k in net worth, beats the hell out of going 4k further into the hole each month!

WASHINGTON (Reuters) – Obama administration officials have determined they can avoid asking Congress for more bank bailout funds by converting existing loans to the largest U.S. banks into common stock, The New York Times reported on Sunday.

President Barack Obama’s top economic advisers now say such a conversion would let them stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, the paper said, citing administration officials it did not identify.

Converting the loans to the 19 biggest U.S. banks into common shares would turn the government aid into available capital and give the government a large equity stake in return, the newspaper said.

Some critics would consider the option a back door to nationalization since the government could become the largest shareholder in several banks, the report said

Maybe my faith will be restored.

Would they then sell the shares of Banks and drive down their price?? I may have to buy some FAZ.

Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable …

people are earning less, and they are borrowing less. I still don’t see inflation anytime soon.