Those Days Of Easy Money Are Barely A Memory
The Denver Post reports from Colorado. “At first, it looked as if David Fedeli might catch a break. Although his southeast Aurora home was listed among the 237 foreclosure filings in that part of town in the first quarter of 2009, he and his wife weathered the process in order to renegotiate a burdensome interest-only loan. Soon afterward, though, Fedeli joined 1,406 others in his area on the unemployment rolls when his job with a printing company evaporated. But here’s the economic indicator that hits him right where he lives: 80013. The ZIP code’s estimated 70,000 mostly white-collar residents earn a median household income of about $68,000.”
“With more than half its workers in sales, office work or professional jobs, the area has been particularly vulnerable to Colorado’s economic downturn. ‘This recession is a lot different than any of the ones that I can remember because it’s touched everyone,’ said Gary Horvath, research director at the University of Colorado’s Leeds School of Business. ‘It’s hit all sectors. It’s much deeper than we anticipated.’”
“From his front porch in The Conservatory, an enclave of 3- and 4-year-old homes in the $250,000 to 350,000 range, Fedeli pointed to several houses hit by foreclosure. ‘It’s the young people getting killed,’ he said. ‘It’s the new buyers, getting those 110-percent loans. I remember when we were buying, my lender told me, ‘If you can fog a mirror, I can get you a loan.’”
“Those days of easy money are barely a memory amid the economic realities of 80013, where over the past 15 months, there have been more than 1,300 foreclosure filings.”
“As owners of high-end mountain homes try to make their properties stand out in a crowded market, an increasing number are going the auction route.at least 15 Vail Valley homeowners are considering including their homes in Slifer Smith & Frampton’s first scheduled auction in July, said Ric Souto, head of the company’s newly created auction division.”
“‘It used to be thought of as a last resort, but that’s no longer the case,’ Souto said of the auction mentality. ‘It’s an accelerated way to sell real estate. Figuratively speaking, it’s on steroids.’”
“Real estate auctions have been relatively rare in resort communities until now, said Byron Koste, director of the University of Colorado Real Estate Center. ‘We like to believe we’re above the fray,’ Koste said. ‘It just has taken longer to get here because we have been hit less heavily by the downturn.’”
The Arizona Daily Star. “At the Aldea del Rey subdivision in Corona de Tucson, finished town houses with granite countertops and high-end appliances sit empty with their doors wide open to the world. Down the street, unfinished town houses that are now overgrown with weeds are crumbling away. Their cinder-block walls have been pushed over by the wind as rebar juts out in every direction.”
“It’s a suburban ghost town plagued by errant golf balls. ‘For a while, there was only one (other) person in the neighborhood,’ said William Smith, who has rented in Aldea del Rey for the last two years. ‘It’s quiet. That’s the upside.’”
“The state’s Real Estate Department lists 24 projects in the greater Tucson area where the developer is either in ‘financial trouble’ or bankruptcy. These projects range from the sprawling Saguaro Springs development in Marana — where hundreds of acres were bladed and graded, but only three model homes were built — to smaller custom developments like the Enclaves at Gates Pass that never took form. Both of those projects are now going to auction.”
“‘Early buyers in these neighborhoods often have little recourse for shoddy construction, and those who bought at the market’s peak now owe far more than their homes are worth. ‘For the people who bought into these subdivisions, they are probably the ones getting worked over the most,’ said Jay Q. Butler, realty studies director at Arizona State University. ‘And yet they did nothing wrong.’”
“During the peak market, town houses sold there for roughly $300,000. They now go for $130,000. ‘It’s sort of bureaucratically stuck,’ said builder Michael F. Teufel. ‘Technically I am the owner (of any unsold lots and homes), and technically we are in default. And with that, it’s really hard for the owner to do anything when the property is worth so much less than the debt.’”
“Rob Hallberg, an agent with Long Realty who bought a home in Aldea del Rey in 2007 for $240,882, said he would like to see the bank clear the project off its books. He rents his property at a loss — but he sold homes there at the peak of the market and continues to sell homes there now.”
“One of his listings is for $130,000, significantly less than when he bought. Has he ever considered walking away from his own home there? ‘I don’t want to have anything bad on my credit, and I am going to meet the obligation that I originally set up for the property,’ he said. ‘Is it ever going to come back to that price? I think, eventually.’”
The East Valley Tribune in Arizona. “Chandler is forging ahead with a $2.4 million program to ’stabilize’ neighborhoods by purchasing vacant, foreclosed homes even as investors move in to snap up the cheap houses, city officials say. The homes sit in the 85225 ZIP code, where the foreclosure rate approaches 40 percent.”
“Judy Register, Chandler’s neighborhood services director, acknowledged the market could solve the problem of neighborhood decay caused by high home vacancy rates. Having investors buy foreclosed homes to rent to tenants would arrest that decay, she said. But renters often don’t keep up their homes or feel as invested in the neighborhood as homeowners, she said. ‘We’d rather have owner-occupied,’ Register said. ‘The goal is to have successful home ownership.’”
Inside Tucson Business in Arizona. “The next group of mortgage holders likely headed for trouble are those holding five-year adjustable rate mortgages from the housing boom of 2004 and 2005, which are coming due for rate resets. Elliot Eisenberg, senior economist with the National Association of Home Builders, says that after federal officials’ slow reaction to the initial problems of the housing markets, it’s especially important they be prepared to move quickly to address the next problem.”
“One solution is the establishment of a ‘housing czar’ — one in each of the five most-affected states, Arizona, California, Nevada, Florida and Michigan — who would work to minimize the potential amount of foreclosures that could be on their way. The czar idea is being supported by Eisenberg having started in Tucson from Roger Yohem, vice president of the Southern Arizona Home Builders Association.”
“‘We have two immediate problems ahead of us,’ Eisenberg said. ‘First, we don’t have the infrastructure for the millions of loans that need to be reworked and second, loan default numbers will be going up rapidly in the next six to seven months. That’s why we have to act quickly.’”
“Specifically for Arizona, Eisenberg said the focus needs to be on practical and pragmatic loan modifications. ‘We have to get the homeowner an opportunity to feel like they are creating equity in their home so they will want to stay,’ Eisenberg said. ‘In many cases the work-outs haven’t resulted in a lower payment and those kinds of work-outs aren’t working.’”
“‘Most foreclosure sales are for homes that went into default in 2008 and are just now being sold on the market,’ said John Strobeck, whose Bright Future Business Consultants tracks data for the new home building industry in Southern Arizona. ‘The lag time has been a little longer than usual as there was a moratorium on foreclosures while waiting to see if there would be a program from the federal government to stem foreclosures and to assist those headed into foreclosure. So far, no program of any significant volume has been enacted and the foreclosure process is once again in full force.’”
The Spectrum in Utah. “As the recession creates financial distress for many locals, property management firms and owners said a substantial number of area renters have been forced to leave their homes. With many locals facing job losses or reduced income as a result of widespread cutbacks, Leasing Agent Amy Lee said she has never seen such a high volume of tenants leaving their rented homes and apartments.”
“‘People are getting out of St. George because there is nothing to keep people here,’ Lee said.”
“Rental Coordinator Bobbie Jo Allred said the local rental market has been flooded with properties, as a growing number of homeowners attempt to stave off impending foreclosure by placing their homes on the rental market. With an influx of supply and diminished income among many renters, Heidi Miller, Executive Director of the Cedar City Housing Authority, said many property owners in Southern Utah have been forced to provide additional incentives to attract new tenants and sustain their current level of occupancy.”
“Stan Esplin, a local property owner, said he has reduced rent prices by about $100 or more per month as 20 percent of his tenants have submitted ‘move out’ notices. ‘In a stable time I wouldn’t have as many move out notices,’ he said. ‘I don’t know that we’ve seen the worst of it.’”
“Tara Rollins, executive director of the Utah Housing Coalition said financial pressures have forced a growing number of Utah families to share small rental units designed to accommodate single families with one another. ‘They are doubled up in bedrooms or on couches,’ she said. ‘That is an indication that people cannot afford to live in a community.’”
“Rollins said there is a surplus of rental inventory in the Washington County area, but most properties are out of reach to the average worker. ‘People are falling down the ladder,’ she said, as many face diminished earnings as a result of job losses. ‘They (builders) really need to look at the inventory and the people who are living within the communities, and build for them (the people), not for greed.’”
“Facing a collapsed housing market and scarce demand for his products and services, Brian Jones, the owner of Cabnicon in Hurricane, has reinvented the company’s business model, adapting to a radically changing market. He founded Cabnicon in 1985, crafting custom cabinets and furniture while serving as a general contractor for construction projects.”
“Business was booming several years ago at the height of the housing boom in Washington County, Jones said, but the company is now struggling amid pervasive economic instability. ‘In January and February I had nothing,’ Jones said. ‘Three years ago, we were so busy that we couldn’t keep up.’”
The Nevada Appeal. “Ray Smith watched businesses fail for months when he got a call Wednesday morning. The 63-year-old Lyon County man said he knew he would lose his job, he just didn’t know when. Businesses can’t afford a lot of things in a recession, he said. His 13 years of experience as a janitor couldn’t change the economy. ‘People who think their jobs can’t be eliminated are pure stupid idiots,’ he said.”
“March statistics show Lyon County had a 15.2 percent unemployment rate, compared to Nevada’s overall 10.4 percent rate and the nation’s 8.5 percent. Lyon County’s population growth that fueled construction and the jobs it brought earlier in the decade stopped suddenly last year. Nevada had been one of the fastest-growing states in the country for 20 years until recently. Lyon was one of the fastest growing counties in the state. It tripled in size in the last 20 years.”
“But Lyon County’s growth fell sharply from that peak until population actually declined in 2008. Jered McDonald, a state research economist, said the county fell hard and fast for several reasons. Stagnation in population growth stopped the need for construction jobs to build new houses on cheap available land, he said. After that, the county didn’t have an industrial base to fall back on.”
“Doris Richardson of Dayton drives 45 miles to Sparks for an on-call casino job that keeps her in her 28-foot trailer. She lost her full-time job as a card dealer in February. Richardson said she had to search for five weeks before she found her new, unsteady work. ‘I don’t know how people can make it,’ she said. ‘I want to say, ‘God help us all’ because our government is not helping. I’m worried about us.’”
The Reno Gazette Journal. “There were 366 sales of existing single-family homes in Washoe County in March, up 24 percent from the previous month and 58 percent from March 2008, according to the Reno/Sparks Association of Realtors. The numbers only include existing stick-built single-family dwellings and do not include condos, townhomes, new properties and manufactured or modular homes.”
“Median prices continue to post steep declines in the area year-over-year, falling to $200,000 in March. It represents a 27-percent drop from March 2008. The steep price declines that followed the collapse of the housing bubble in Northern Nevada have led to an undervalued housing market in the Reno metro area, according to a recent report by IHS Global Insight and PNC Financial Services Group.”
“Studies on market valuation, however, should be taken with a grain of salt, said Ken Wiseman, broker-owner of Reno Rancho Realty. ‘”Yeah, it’s a great study and all, but value is in the eye of the beholder,’ Wiseman said. ‘Isn’t the value of something what the buyer is willing to pay for it? That’s where the real value is.’”
“All local markets continue to be in solid ‘buyers’ market’ territory, said CalNeva Realty owner Mitch Argon, who keeps track of local foreclosures. Lower-priced housing also is being bought at a ‘fairly rapid rate,’ leading to falling inventory in all markets except Tahoe and Carson City, Argon said. ‘(This) indicates a trend towards a balanced market where prices will be declining less and eventually stabilize,’ Argon said. ‘All of this said, distressed properties continue to dominate the buying activity, and I have not personally witnessed any slowdown in activity as a result of recently announced federal programs.’”
“Pending sales of existing homes rose significantly in the greater Reno-Sparks metro area in April, with distressed houses making up the lion’s share of the properties yet again. Distressed properties continue to drive pending sales in the area, accounting for 78 percent of pending inventory in March. Among new listings, the percentage of distressed homes rose from 59 percent to 63 percent in the same period.”
“Homes priced at $250,000 and lower were at a 5.6 month supply in March. In comparison, inventory for homes priced from $351,000 to $450,000 were at 19.9 months while homes priced between $451,000 to $1 million was at 28.6 months.”
The Las Vegas Sun in Nevada. “After engineering last week’s rescue of CityCenter from the brink of bankruptcy, the urban planning major who created the concept for the resort complex — and has shouldered the blame for the way it has imperiled MGM Mirage — defended the company’s investment in the $8.5 billion project. MGM Mirage CEO Jim Murren said in an interview that CityCenter’s critics, including competitors, ‘just don’t get it’ and will be proven wrong when it attracts new visitors to Las Vegas.”
“Murren doesn’t believe Las Vegas’ ‘build it and they will come’ business model is dead. At least not as it applies to CityCenter, which will fight for business alongside resorts offering half-price rooms when it opens this year.”
“‘You have to differentiate between capacity that’s going to bring people to our community and capacity that’s going to absorb existing tourists,’ Murren said. ‘The consumer here is extraordinarily spoiled and we love that.’”
The Las Vegas Business Press. “The ownership of Turnberry Towers may be decided by a court. Turnberry financial partner Prudential is suing the developer for millions of dollars and seeking total ownership of the project, claiming Turnberry failed to make its loan payments, misappropriated funds and breached its contract. One observer is also saying the Turnberry default allegations, if true, might have played a role in lenders’ decision to pull the plug on $800 million in prearranged financing for the developer’s other local project — the $3.1 billion Fontainebleau Las Vegas.”
“The 640-unit, two-tower Turnberry Towers development was completed last year but has fallen on hard economic times as property values have plummeted. In an interview last month, local Turnberry officials said the newer 320-unit west tower had about 150 unsold units at that time. Fifty other units remained vacant in the 320-unit east tower.”
“Bruce Weiner, president of Turnberry, Ltd. blamed the economic downturn for the troubles at Turnberry and the litigation. ‘Unfortunately, the downturn in the economy and its severe impact on the Las Vegas real estate market in general, required Prudential in its role as financial partner to fulfill certain onerous contractual obligations,’ Weiner’s statement said.”
The Review Journal in Nevada. “It may not be the best of times to show off luxury mansions in Las Vegas, considering the down housing market and an economic recession that has forced the wealthiest of the wealthy to reconsider where they’re throwing their money. During the 18 months of preparation for the 2009 Parade of Homes, the ‘perfect storm’ swept through Las Vegas, destroying home values at every price segment and siphoning available credit, said Lisa Hester, executive producer of the tour.”
“After holding up well into early 2008, the high-end market hit the skids like the rest of the real estate market, said Kenneth Lowman, broker and owner of Luxury Homes of Las Vegas. Prices have declined 25 percent to 45 percent, depending on the neighborhood, quality of construction, age and amenities, he said. He knows of a 13,000-square-foot home inside three gates that was originally listed for $14 million and can now be bought for $6.5 million.”
“It’s not uncommon to see $1 million price reductions in many luxury communities, he said.”
“‘Who moved my cheese?’ Hester said. ‘It’s a different setting in Vegas. When you’re in an economy like this, adjustments happen that have to happen.’”
‘Elliot Eisenberg, senior economist with the National Association of Home Builders, says that after federal officials’ slow reaction to the initial problems of the housing markets, it’s especially important they be prepared to move quickly to address the next problem. The czar idea is being supported by Eisenberg having started in Tucson from Roger Yohem, vice president of the Southern Arizona Home Builders Association. ‘We have two immediate problems ahead of us,’ Eisenberg said. ‘First, we don’t have the infrastructure for the millions of loans that need to be reworked and second, loan default numbers will be going up rapidly in the next six to seven months. That’s why we have to act quickly.’
Infrastructure? How about we discuss the impossibility of stopping the housing bubble from collapsing? Or how about this? Why don’t we get the builders to give up their HB loot in the effort?
‘On a recent Monday evening in suburban Philadelphia, two dozen sober-suited executives huddle around a giant conference table for the weekly “ops” meeting inside the nerve center of Toll Brothers, the hottest homebuilder in America…His lieutenants reassure the boss that their customers are bona fide primary- and vacation-home owners who just keep coming, and that speculative building isn’t widespread. Finally, with his paranoia assuaged, Toll allows himself to do what he loves best: ratchet up prices.’
‘On this night he’s so confident that people will keep buying that he lifts the prices on projects in Florida, Las Vegas, and other markets by 1%. That amounts to about $10,000 for each house over the list price from the previous week. It’s nothing new; he’s been hiking prices Monday after Monday. At Toll’s Frenchman’s Reserve community in Palm Beach Gardens, the price of a Florida rococo confection called the Signature has jumped $200,000 just since January, to $1.4 million. That’s an average increase of $15,000 a week. “People just keep buying anyway,” Toll marvels. “I’ve never seen anything like this in almost 40 years in the business.”
“I’ve never seen anything like this in almost 40 years in the business.”
You can say that again Mr. Hole.
“Or how about this? Why don’t we get the builders to give up their HB loot in the effort?”
Damn Marxist! LOL
Oh, grrrracias, Senorrrr Ben for the lovely blast frrrrom the past. I’m glad you saved that delightful link to prrroduce with a flourrrish.
His lieutenants reassure the boss that their customers are bona fide primary- and vacation-home owners who just keep coming, and that speculative building isn’t widespread.
HAHAHAHAHAhahaHAHAH! *gasp, gasp * HAHAHAHAAHAHAH!
‘On this night he’s so confident that people will keep buying that he lifts the prices on projects in Florida, Las Vegas, and other markets by 1%. That amounts to about $10,000 for each house over the list price from the previous week….It’s nothing new; he’s been hiking prices Monday after Monday…
HAHAHAHaHAhaaHAHahahah! *gasp, gasp * HAHAHHA!
Sooo….how’s that workin’ fer ya, Senorrr Toll?
HAhahaahH!…
….Oh, no! I just a’sploded my head from all the laughing.
Dangit.
“Why don’t we get the builders to give up their HB loot in the effort?”
Ben, good question. Why ‘don’t’ we? Everybody on down to Ray Smith the 63 y.o janitor in LV have all had to tighten their belt a notch, but not NAHB! Or NAR or NMBA etc.
They realize there’s a New World Disorder and they’re only to willing to cash in on the chaos. The louder they’ve continued to whine, the less likely anyone is to say; “Hey! Wait a minute here?”
But DinOR belt tightening is for the little unimportant people like teachers, janitors, cops and their like, not for valuable folks like CEOs, Superintendents, Chief Financial Officers, politicians and administrators. Ditto for accountability.
Wickedheart,
And where “I” am concerned there’s a lot of misplaced aggression when it comes to those “valuable folks”. We can’t seem to get -close- to getting Tangelo, Michael Perry ( formerly ) of IndyMac and a cast of thousands behind bars, so we direct nearly ALL of that toward FB’s.
Look, at this point, I’m beyond caring whether or not they knew or should have known they couldn’t afford the house payments? If they can show their names weren’t on multiple deeds, I say work w/ them.
Now… once each and every one of those lying bastards are taking turns “playing house” ( and getting to be the mommy ) in the Pen, THEN I might have some bile left over for FB’s!
Thanks Oly. Before you made that comment, I was really scratching my head.
One solution is the establishment of a ‘housing czar’ — one in each of the five most-affected states, Arizona, California, Nevada, Florida and Michigan — who would work to minimize the potential amount of foreclosures that could be on their way.
What are the chances they would be able to accomplish this you might ask? Well that would be the Eisenberg uncertainty principle.
Wow. References to Werner Heisenberg on the HBB. This group never ceases to amaze me.
Did you hear the one about the physicist that was stopped for speeding? “No, Officer, I don’t know how fast I was going. But I do know exactly where I am.”
How ’bout the bumper sticker that I saw: “Heisenberg may have slept here.” Classic IMO.
I can’t get enough of this quote. You just want to go back in time and b..ch slap that guy.
“We’ll reach the point Europe reached 20 years ago, where families pay 45% of their income on housing and married couples have to live with their parents for years before they can afford houses”
He must have never driven across the countryside and noticed that we have a lot of something that Europe does not: empty land!
This was the idea of a 2 family house…my parents lived over my grandmother…then when we moved out into our own 2 family house, she rented it for 3 years until my aunt got married and they moved in upstairs….
—————————–
married couples have to live with their parents for years before they can afford houses”
And the government, in the thrall of the FIRE (Finance, Insurance, Real Estate) industries, is doing all it can to help that vision come true.
Exactly.
The goal is equality - poverty - for all, except the special folks at the top, of course.
April 18, 2005 “People just keep buying anyway,” Toll marvels. “I’ve never seen anything like this in almost 40 years in the business.”
Thats funny. I wonder what hes saying now ?
There’s one odd statement in the Toll article….
In the mid-1980s, Bob Toll decided that land was vastly overpriced, so he stopped buying and hoarded cash. When the market collapsed a few years later, he vacuumed up parcels on the cheap, paving the way for Toll Brothers’ expansion.
Back in the 1980s, Bob Toll appeared to have a clue about bubble prices in land. What changed his mind 20 years later?
It’s all good. The FED has decreed an end to all this turmoil Q3 & 4 of ‘09
So, he’s figured out a way we can return to spending 110% of our income, forever, without actually having to pay on or for any of the debt? SWEET!
“‘Who moved my cheese?’ Hester said. ‘It’s a different setting in Vegas. When you’re in an economy like this, adjustments happen that have to happen.’”
Oh, bueno! That makes me think of delicious nachos, and that is Cinco De Mayo-ish! Maybe I will draw on a luxuriant General Zarrragosa mustache after all.
On the other hand, and in spite of my sincere appreciation of cheese, what the blazes does this Lisa Hester mean? Is it some sort of quaint local custom? Folks run around shouting ‘Who moved my cheese?’ But that’s a minor detail, although a niggling one.
Also from the same article:
… knows of a 13,000-square-foot home inside three gates that was originally listed for $14 million and can now be bought for $6.5 million.
It can be bought for $6.5 million, but WILL it be bought for $6.5 million? I bet not. I’d be interested to see if it ever sells, and for how much less.
*resumes singing mariachi chorus *
‘Ai ai ai ai ai aiiiiiiiiiieeeee……’
There’s a booklet called “Who moved my cheese”. Its a secular parable on how sometimes we have to move on and find new opportunities (i.e. the cheese).
I thought it was an instruction booklet for HR on how the employees are like rodents.
shhh! They’re not supposed to know that part…
I hated that book.
R . U. Kidding.
Not a little book to us working out here for years in Corp. Land.
The M.B.A.s came along and said, “You are paid too much”.
Then they moved the cheese. You fool, it is not a small screed, but a tomb of great importance! This told the story of how the Corps. and the M.B.A.s who don’t give a s*****t about the Companies or the customers, let alone employees, got a gig where they can get that bonus before everyone notices that the whole company is going to hell.
They move on to “Wall Street” in that they have a great C.V. (predicated on the prior work.) and repeat.
Here we are, M.B.A.’d. (which University that creates these MBAs is the worst.)? Hmm? A failure of Capitalismn, or Lefty Us.?
Oly;
This a book: “Who Moved my Cheese?” I remember we actually had a class with a videotape and were given the book to read, study, ponder. This is a book for those who are being: “rightsized”, “downsized”, “economically displaced”, “early retirement”, or otherwise about to get wacked (job-wise and/or economically).
Sorry, forgot the last part, I was part of a “reorganization” at NSP (Northern States Power), NSP was acquired by New Centry Energy (Denver CO) which orginally was Colorado Public Service (I think) which then bought Southwest Public Service (Amarillo TX) to become NCE, and later after the NSP acquisition Xcel Energy.
Wacked jobs left and right (went from over 15,000 to under 10,000 in about 18 months year 2000-2002).
But NOBODY will admit those 5000 were useless slugs….or were they? Has service or repairs gotten any worse? We don’t hear much of that in the media or on blogs…
———————
Wacked jobs left and right (went from over 15,000 to under 10,000 in about 18 months year 2000-2002)
This is a book for those who are being: “rightsized”, “downsized”, “economically displaced”, “early retirement”, or otherwise about to get wacked (job-wise and/or economically).
Correct. The book implies that there are plenty of opportunites out there (huge piles of cheese waiting for us), and that we just have to get off our keisters and find them, instead of waiting for the previous cheese (our old jobs, careers, double digit home appreciation) to come back.
An underlying messager that I got from that book is that people are disposable.
I also found the Who Moved My Cheese book disturbing and insulting.
It’s the ONLY book I’ve ever returned to a books store for a refund.
Yes, to those in charge, people are disposable.
And no, in this economy, there aren’t other opportunities.
The book is just about distracting people with false hopes of some “better future” while destroying their income.
By now, the stink in that Toll Brothers Philly boardroom is so strong that those well clad execs may be asking “who cut his cheese?”
I went to take a look at Naval Square (a Toll Bros development on the grounds of the old Phila Naval Hospital) in fall 2007. Have been getting glossy brochures from them ever since. They don’t know upon whom they are wasting their money.
Whoever smelt it, dealt it.
Whoever smelt it, dealt it.
Shortened to, Smelteth, dealteth.
This article had all my places covered. Thanks Ben!
But you are still a Marxist!
I doubt Marx would like my ideas much. But whatever happened to the rock-star coverage the media used to give CEOs like Toll? The CNN article mentions his picasos, etc. And how many of you guys remember the ‘windfall profits tax’ that got dropped on the oil biz back in the day?
These builders are the ones asking for a ‘housing czar.’ Why don’t we give em a little Czar treatment?
“Why don’t we give em a little Czar treatment?”
Toll and his corporate ilk suffering the same consequences as the Romanovs?
Where do I sign up for this volunteer work?
Right, Czar Appointments are only done “great times of need” and we’ve had one for everything ‘else’ that ails us, so why not!
He can start by figuring out what we’re going to do with the millions of new homes we can’t seem to find occupants for in the first place?
I -will- give BO credit in that they seem to have been able to do the math on tax benefits for home ownership and… it strikes me that they’ve come to the conclusion we’ve -already- bent over backwards about as far as we can?
If they charged for the right to be the one to deliver the coup’ d’ grace, I bet they could fill some of the budget holes. And televising it would certainly generate some revenue.
In government speak, “czar” translates to “does not fit into the actual hierarchy of the existing departments and agencies, so has no control over anyone else’s budget or salary and therefore has no power.”
Such a person can have press conferences and mutter reassuring words, but he/she would have a hard time even calling a high level meeting unless the bosses of the people going to the meeting want them to be there for other reasons. Getting anyone to do something would be next to impossible.
Do not fear the czar.
Nor the Surgeon General.
Didn’t we have a Drug Czar? Mexican cartels have huge pot growing operations right here in the US. So much for the Drug Czar. Or maybe I’m confused, maybe the Drug Czar was responsible for the promotion of Big Pharma. In that case, give the guy a gold star and a dacha in the Russian countryside.
Are we talking Russian Czar treatment? If so, I am all for it Ben. But don’t forget aholes like the tan man!
The added scary aspect of this is that values are STILL dropping. Condos…not the highest end condos….are HALF OFF. South Strip…just plain ugly. Manhattan, where the bottom end was in the $300s…same units will soon be less than half that.
Its easy to talk about the numbers. Its hard to consider the impact this is having on all of those homeowners. Literally, they are upside down by 30-50%. IF they had to sell they would lose the home for foreclosure (smart ones would see via a short sale). Long term ramification on peoples credit, mindsets about housing….thats the next story to be told.
“‘People are getting out of St. George because there is nothing to keep people here,’ Lee said.”
Wasn’t it just a couple of short years back that St. George was the fastest-growing city in America? Luckily the Fed has scheduled a financially-engineered real estate recovery for year-end 2009, at which point growth can resume in St. George and other real estate investing Meccas.
PB,
And you’ve no IDEA how many people I’ve fought off over that damned place! ( No offense to anyone from Utarrr )
St. George, seriously, tell me, what do you know about this place, I mean ‘other’ than what the realtor TOLD you? ( blank stares )
I personally have visited St. George at various times over the past two decades, so I know what it looked like before and after the ravages of a real estate mania struck a sleepy town in the middle of the southwest desert.
PB,
The scourge of the Rolling Bubble. It was just incredible how many people were breathlessly sharing this “undiscovered gem”. Typically the “logic” I was given was that it was only ____ miles from LV and even ‘closer’ to Mesquite!
And I’m like, WhereTF is ‘Mesquite’?
Yep, it was. It just goes to show you that you can’t believe a damn thing you read, or hear from the “experts”.
St. George = a good overnight stop for someone leaving Los Angeles on a weeklong drive to Toronto via Wyoming. Motel 6 easy to find.
!
That is exactly what I… was thinking! LOL.
The “pitch” ( actually from B’Week IIRC ) was that “it has all of the small town values, nature and beauty of a remote area and yet it’s only an hour’s drive to Sin City BABY!”
( or words to that effect )
Some nice golf courses too.
I was in St. George this weekend and the outlet mall was full of shoppers pretending the bottom hasn’t fallen out of the St. George model. I grew up in Salt Lake and for most of my life St. George was somewhere you stopped for gas on your way to California or Las Vegas.
The building that has gone on the past 10 years staggers the imagination given the total population of the state and the fact that the vast majority of folks living there are not making an income that would support 350k homes.
We were driving around and I kept looking for office parks or large buildings and all I saw was a fed x distribution center on the edge of town.
Just another victim of the housing bubble. Maybe those mythical foreign buyers will swoop in and save the day……
St George is typical of a phenomenon I’ve seen numerous places out west - that is, suburban/exurban sprawl with no real anchor city to speak of. Oh, there’s usually an old town center somewhere, maybe it’s even restored a bit. But mostly it’s just your typical sprawl and nothing else. No real business, no manufacturing, nada. Walmarts and golf courses, though. Who would want to retire to a wasteland like that?
Carbondale/Glenwood, CO is another place like that. Great place, but they’ve all but ruined it.
iftheshoefits,
And.. to add insult to injury, had a legit employer ( for whatever reason ) estimated a strategic advantage to said “wasteland” there were cries of “quality of life” etc!
Here I’m thinking ( WHAT “life”? ) We’re outside of Salem, OR and other than bed & breakfast’s, micro-breweries, rest’s and art galleries, everything else is just evil.
We know a young couple in the medical field who
bought a show case home in St. George in ‘06 and
were ecstatic that they were able to get it fully
furnished, a model home, in a very high up scale
development. They got an incredible deal paying just over $500k. I don’t think they’re still quite that
ecstatic now.
Rancher!
My man, what’s up?! We spent the last weekend in a dizzying property search in and around K’ Falls ( and still managed to show up for Uncle Sam? )
We made the rounds of the usual haunts ( yikes ) like Harbor Isle right on the lake ( lots… of vacant/fo’ rent stuff there ) but also took the time to drive out to Bonanza, Dairy, Olene etc. Bonanza reminded us a lot of Molalla, OR if you’ve ever been there. Nice folks.
Now we didn’t make it Merrill but fully intend to next month. One of the guys was a rancher in Bonanza and of obviously ‘he’ had a high opinion of himself ( I mean ‘it’ ) Hey, you gotta’ be tough out there right?
It just occured to me: all real estate purchases are based on the assumption of inflation.
That’s the game — you borrow at fixed rates, locking in most of your costs, which eventually fall to zero when the debt is paid. And then you either collect or (if a homeowners) avoid paying rent that continues to rise.
We’ve had nearly 70 years of inflation of a greater or lesser amount. Now, nominal wages and rents are falling, something no one now alive is likely to have experienced and few can wrap their heads around.
Tax rate never falls to zero.
.
It does if you have no (taxable) income =D
Even if you have not taxable income, you will still owe property taxes. I imagine even if the value of your property falls to zero, you would still owe property taxes.
There was a second game going on. Population growth. You buy on the outskirts of town before there are good roads or strip malls, wait for town to reach you, sell for massive profit.
This worked well post depression as there were more WWII gen than prior. Then, of course, it worked EXCEPTIONALLY well for 20+ years as the Baby Boomers rolled into adulthood. AND, despite the baby bust, there were still far more GenXers coming into adulthood than there were depression era dieing off.
Use mass immigration, legal and illegal, to augment the GenXers. A simple birth/death comparison says population should be increasing 1.7 million a year, but we’re actually growing more than 3 million a year.
It worked well.
Now, many immigrants are leaving. We’re about to see Baby Boomers (still the largest generation in Americna history) entering the years of mass die off, combined with an echo baby bust as the kids of the baby bust gen enter child bearing years.
It is no wonder the politicians are so eager to see “a path to citizenship” for illegals. Could you imagine what will happen to real estate prices if 30 million illegals leave at the same time we see a negative birth-death ratio for the first time in American history??? FALLING population? YIKES!!!!!!
Just as the reduction in auto sales may be permanent, so the reduction in jobs may be permanent. When things pick up the jobs and level of economic activity way increase, but no to anything like it was before, at least for a very long time.
Just a few weekends ago the local new Ford dealer went under. The same people continue to operate a used car lot, at a mile down the same road.
The father (now deceased) started that Ford store, and it has been operating under the same father’s name for many years by a son. I counted the number of new car dealers in this county and in surrounding counties and it does not make sense why so many dealers have been able to operate in such a sparsely populated area. There is a Pontiac dealer in my home town and three Pontiac dealers in opposite directions of my hometown each about 30-40 miles away. Is Pontiac selling so many cars that there is enough wealth and prosperity to spread around like this? In a rural area? There will be no 2010 model Pontiacs, GM is discontinuing that brand of cars. What will happen to these people who work at these Pontiac dealers?
I can remember when owning a new car meant that people “had arrived.” People took pride in their ownership of new cars. Now a new car is what every other college student drives. We may never go back to 36 mo loans, but once the gov’t gets out of the car and banking businesses and the 0.0% financing is gone for good then the exclusivity of owning a new car (purchased at an interest rate that is set by properly working credit markets) may return some day.
As an anecdote, I may add that the reason new car sales are off by 40% from a year ago is because many people are so jacked up on house mortgage payments that there is simply no room left for any other type of big ticket purchases. If a household bought a house ANYWHERE in America in recent years, there is a good chance that the buyers s-t-r-e-t-c-h-e-d to be able to get the mortgage. Even if they live in a not so bubbly area, and they got a “good” mortgage, (the NAR and CAR “affordability indexes” be damned) they are still stretched thin with their payments, to the point that a conventional new car loan is now beyond their reach.
This way of life is only a few paychecks away from economic disaster, and it is unraveling before our eyes in exactly this fashion. Still, at this late date, many do not realize that we are headed for some really hard times. I do not really see that much in behavior modification. My school is graduating maybe 17 electrical engineers this year. Where are the engineering, math, and physics majors?
I freelance for ad agencies with (japanese) car accounts and they are scared S-less. They’re doing layoffs to re-trench in the face of reduced ad budgets.
The general sense is: no one is expecting to sell many new cars in the short term. The market is saturated with late-model vehicles sold new during the credit bubble, and consumers are pulling back — buying used or not at all — out of fear of job loss / hard times. It was a great party, now comes the hangover.
“Where are the engineering, math, and physics majors?”
in Chindia
Hey, physics major here.
But of course I’m now retired.
The children of engineers saw how shabbily their dads were treated by corporations, especially in comparison to sales, marketing, etc. people. No wonder college students shun tech and scientific majors.
this is my candidate for quote of the week..
“We have to get the homeowner an opportunity to feel like they are creating equity in their home so they will want to stay,’ Eisenberg said. ‘In many cases the work-outs haven’t resulted in a lower payment and those kinds of work-outs aren’t working.’”
bring out the magicians and life coaches to see if they can get future FBs to bypass reality with happy talk.
‘those kinds of work-outs aren’t working’….
buwhahahahahahahaha!!
My “quote of the week” is also from Eisenberg, the one where he says “loan default numbers will be going up rapidly in the next six to seven months” — throw that at anyone calling a “bottom”
Deer Valley Lodging faces involuntary bankruptcy
Company has 20 days to respond
by Andrew Kirk, OF THE RECORD STAFF
Posted: 04/30/2009 05:02:38 PM MDT
If Deer Valley Lodging has been pondering bankruptcy, condominium owners at The Lodges at Deer Valley forced its hand Monday.
Park City attorney Joseph Tesch filed a petition for involuntary Chapter 7 bankruptcy in federal court on behalf of five condominium owners, most of whom are also board members of the homeowners’ association.
… Premier Resorts International… said the filing “complicated” the company’s search for a solution to the 500 plus owners who have not been paid for February and March rentals. …the filing “will likely affect our ability to attract financial assistance.”
http://www.parkrecord.com/ci_12265628?source=most_viewed
From the original post:
“During the peak market, town houses sold there for roughly $300,000. They now go for $130,000. ‘It’s sort of bureaucratically stuck,’ said builder Michael F. Teufel. ‘Technically I am the owner (of any unsold lots and homes), and technically we are in default. And with that, it’s really hard for the owner to do anything when the property is worth so much less than the debt.’”
Well, here’s Slim, the sometime neighborhood activist, checking in from Tucson. And to Mr. T, I say a whole bunch of bad words that can’t be repeated on this-here blog.
And why might that be?
Well, because Mr. T was one of the major developers of what we Tucsonans refer to as mini-dorms. They were old houses on properties that Mr. T had rezoned. And then he re-developed them into housing for University of Arizona students.
How would you like to see that old SFR next to you re-jiggered into something that houses 12 rowdy students? Who park their cars all over the yard and on your street? And come and go at all hours of the day and night? Welcome to your new life among the mini-dorms.
Sorry, Mr. T, but bankruptcy is much too lenient for you.
‘Teufel’? Well, that’s apt.
It means ‘devil’ in German.
Thanks, Oly! I’ll share that one with my neighbors. They’ll be happy to send you all sorts of Cinco de Mayo treats.
translate.google.com verifies the translation. Wow, sounds appropos.
A little like Louis Sifer
Another stupid comment raises my blood pressure:
‘For the people who bought into these subdivisions, they are probably the ones getting worked over the most,’ said Jay Q. Butler, realty studies director at Arizona State University. ‘And yet they did nothing wrong.’”
They absolutely did do something wrong!! They bought into a mania and OVERPAID!!! They thought they could just “buy” real-estate and the rising prices were their road to riches, like so many other FOOLS.
It was these kinds of people that made it impossible for the rest of us to buy property at an affordable price, since they came out in droves to bid up the prices.
They could have simply said: “NO!” “I don’t want this overly-inflated turkey!” “You keep it.”
They’re all saying that now. It’s a little late.
Diogenes knows better than to Look For An Honest Man among 2004-2006 house buyers. I agree.
They could have simply said: “NO!”
Amen.
Another moron opens his mouth:
. ‘We have to get the homeowner an opportunity to feel like they are creating equity in their home so they will want to stay,’ Eisenberg said. ‘In many cases the work-outs haven’t resulted in a lower payment and those kinds of work-outs aren’t working.’”
They are ALREADY underpaying for the loan. You expect it to be a LOWER payment?????
Of course they aren’t working. The “buyer” never could afford the house. The teaser rates were to get them “in” until they could refinance when the prices went up.
Plan failed. AMOUNT DUE >>>Ability to pay.
Only solution…………Cram downs. Make the lender eat the difference between the amount the owner can pay and the amount owned on the loan, an OUTRAGEOUS proposition under contract law.
diogenes,
I’m in no way implying that nearly everyone here has done -anything- but express reverence for CL. In no way. It’s not a recent “oh and yeah btw” revelation here.
But are we about “making housing affordable” or making ‘those’ bastards PAY! At this point, I… hardly see that it matters. I get stiffed all-the-fricken-time. I probably ‘could’ go after people that break agreements w/ me, but for the most part, I just make a note of it and move on.
Besides, every dollar *not fed into the REIC Sacrificial Offering Machine is another one that can go toward either paying down other debt or toward keeping people off public assistance. But I know… everyone loves a show!
Idiocy Abounds today:
2008. The steep price declines that followed the collapse of the housing bubble in Northern Nevada have led to an undervalued housing market in the Reno metro area, according to a recent report by IHS Global Insight and PNC Financial Services Group.”
That was the word that idiot New Yorkers and Clownifornians used when they came here to Florida to “buy” investment properties: UNDERVALUED.
No. They weren’t undervalued. They were overpriced. Now, they are at market value relative to incomes, where they should be.
As recently as 1 year ago, they were breakign ground on a large condo/apartment project near my house. On a large plot of land at Thunderbird and the 101 in Peoria.
The project moved forward quickly with 5-6 buildings reaching the fully framed in stage, with roofs going on.
Then, suddenly, construction on all buildings exect one just stopped. Piles of spanish tiles have been stacked on the rooves for many, many months. Plywood and timbers are exposed to teh elements. No doors, windows…etc. Construction equipment sits unmoved for months on end.
One building was rushed to completion, and now sports huge “no leasing” banners.
Yeah, right.
Drove past City North over in Phoenix last night. Huge parking garage next to a shopping/condo mixed use facility. Narry a car in sight.
SOOOOOOO much pain yet to come. SOOOO much pain.
I love the smell of rotting plywood in the morning…………………………it smells like….victory!
Darrell,
The fact they even -got- financing ( and what about RE *isn’t about the financing ) so recently, is simply amazing to me. Hell…o? Well, anyway, I’ve no doubt everyone involved has already been thoroughly and completely -stiffed- so I’m going w/ lagging indicator..?
This is commerical real estate. I don’t think the pain has been felt yet. I call this, anothr shoe yet to drop.
Everyone is waiting for “the other shoe” not realizing this is a centipede.
I was up in Peoria visiting a friend last month. Was amazed at the amount of idled construction. And the projects that had been completed but weren’t selling.
The “no leasing” sign is a result of their using PB’s spellchecker. They meant “now leasing.”
Darrell,
I’m pretty sure everyone who is of an interest is well aware of what has been taking place there. What the operators are fearing is that if they plead for an extension on the re-fi of their comm. loans, they’ll basically be allowing them to call the shots.
The bank ( yeah I know… of ALL people ) will dictate their LTV’s, new int. rate, terms etc. And NO body wants ‘that’. If you take the time to look at many of the models out there, they are not in nearly as bad a shape as what is being made out. If you’ll recall when Gen Growth Prop. went belly up others in the sector commented they were grossly over leveraged compared to their peers. Pain? You bet.
They were building condos in Peoria?
Peoria has a boonie-to-boonie diameter of 6 miles. Not exactly city living.
“Rob Hallberg, an agent with Long Realty who bought a home in Aldea del Rey in 2007 for $240,882, said he would like to see the bank clear the project off its books. He rents his property at a loss — but he sold homes there at the peak of the market and continues to sell homes there now.”
I have to think that trying to sell homes in a community where you are renting at a loss with negative equity would be miserable job. I wonder if he tells any of the prospective purchasers. It would really bother me. At the peak you might really convince yourself the hype is true. Trying, however, to get others to make the same mistake you did is more problematic.
“We have to get the homeowner an opportunity to feel like they are creating equity in their home so they will want to stay,’ Eisenberg said.”
Who is this “we” he is referring to?
If I ruled the world, everyone who use the phrase “perfect storm” would be taken out and shot, no appeal.
It has pretty much become the “Mother of All” Cliches.
“Taken out and shot”… what an overused Cliche.
I would rather be taken out and shot than to endure the perfect storm that would ensue if someone like you ruled the world.
We’d put him down in the south forty.
We’d put him down in the south forty.
Isn’t that ground zero?
Well, at the end of the day, you’ll have people snapping up homes in the middle of the perfect storm.
If we’re going to pass sentence without appeals, those using the phrase “snapped up” are definitely worse than those who use the phrase “perfect storm.”
’snapped up’ is the worst
..but,but..they were all “savvy” buyers.
http://www.lssu.edu/banished/archive/2008.php
Fast said living in Lyon County is not like living in Carson City or Reno.
“When you have to drive 20 miles to the grocery store, it’s a lot different,” he said.
My sister lives in Lyon County (Silver Springs to be exact) and yeah, it is different, alright. I used to tease my sister that they didn’t have homeless just trailer trash. Meth is a pretty big problem there too. When I saw houses on postage stamp lots in Dayton going in the $300k’s I couldn’t believe it.
How the tzar is going to address the unemployment in Michigan or the afordability issue of the overpriced california market?
Thanks in advance for the answer.
Simple.
The unemployed of Michigan will be redeployed to California (as dust dusters) with inflated government salaries. This will drive foreign investment into the area until the next time the bubble bursts.
After that bubble bursts, the US will be more like Medieval Europe than anything resembling current times.
I’m working furiously at setting up my own inflated govt. salary.
Well, Obama and Bernanke seem to have figured out a way that we can return to spending 110% of our income, forever, without having to ever pay on or for any of the debt.
If we can fix that, then surely we don’t need to worry about lack of jobs or inability to afford houses that are 10x income.
Come on man, get on the “recession is over” bandwagon.
It is a Tinkerbell economy. If you just believe strongly enough, it will live. Everyone clap your hands if you believe in debt based, hyper-consumption, supply-side, trickle-down economics….
When I hear “spending 110% of the income” it reminds me an anecdote from my native Bulgaria. The former dictator went to visit India and they want to impress him with some yoga stuff there, no food or drink for a month, levitation 1 meter above the ground… interesting stuff, you know. But our gay is not impressed and says “you guys should see my financial yogas, I have around 8 millions of them. They have $200 salary, they spend $300 and save $100! ” I have seen that spending more than 100% of the income before, last time it didn’t end well.
Hi Dan. Glad to see another bulgarian at HBB.
The real tzars in DC are already addressing unemployment in Michigan…by stiffing the bondholders. As someone remarked last night, this does not bode well for the future of corporate borrowing from the public.
There’s no need for that anyhow. They can just line up and feed at the fed trough.
If there’s one thing that frustrates me (okay, many many things frustrate me), it’s the crowding out of private capital by the federal reserve and treasury. There *IS* money out there, but why pay market rates when you can suck from the fed firehose?
Read the replies to the Denver Post article. Denial runs deep in Aurora, CO.
Aurora must be the sea of roofs off the tollway (most expensive toll in the country??). Desastrous, and I thought, if only the rest of the world could see where their alphabet investments are.
Where at ten in the morning, a starbucks is empty, and the drugstore across the street is empty, while being surrounded by thousands of houses, and new roads. I felt sorry for the employees.
Two Milpitas mortgage brokers sentenced in $8M theft, forgery case
http://www.mercurynews.com/valley/ci_12299621?nclick_check=1
By Mark Gomez
Mercury News
Posted: 05/05/2009 12:15:28 PM PDT
Updated: 05/05/2009 12:15:32 PM PDT
Two Milpitas mortgage brokers who were convicted of multiple counts of grand theft and forgery in an $8 million fraud case involving sub-prime mortgages will spend most of the next two decades in state prison.
Esperanza Valverde and Herman Covarrubias, both 41, who used their business, Summit Mortgage One, to prey on mostly Spanish-speaking homeowners, were sentenced to 23 years and 8 months and 19 years and 8 months respectively, according to the Santa Clara County District Attorney’s Office.
The two brokers were also ordered to pay more than $900,000 in restitution, which includes interest, to their victims.
“Mortgage fraud has severely damaged our national economy and our community,” District Attorney Dolores Carr said in a statement. “This office is committed to holding crooked mortgage brokers accountable, and this case will send the message that these crimes carry stiff penalties.”
Quick, shut those barn doors now that the cows have gotten out.
Hey, I’m just happy to see that they’re actually prosecuting *someone*. Sure, there were plenty of opportunities to stop much of the fraud before it happened, and they’re certainly only prosecuting a small percentage of it (what about borrowers who lied on loan apps?), but I’m happy to see *someone* going to jail rather than no one.
“‘We have two immediate problems ahead of us,’ Eisenberg said. ‘First, we don’t have the infrastructure for the millions of loans that need to be reworked and second, loan default numbers will be going up rapidly in the next six to seven months. That’s why we have to act quickly.’”
At the risk of beating this quote to death, first of all, millions of loans do NOT need to be re-worked. So, no infrastructure needed. There is, however, plenty of infrastructure for the foreclosures. There’s not shortage of attorneys, realtors, etc. Local gov’ts might need a little beefing up in their RE departments, but hey, that’s what the stimulus money is for, no?
Also, did anyone catch the ABC evening news? There was footage of some builder plowing under homes at some ghost development in CA. Said it cost him more to maintain them than destroy them.
Another prediction of Ben’s come to pass.
“May 5 (Bloomberg) — Regulators have determined that Bank of America Corp. has the largest need for new capital among the 19 biggest U.S. banks subjected to stress tests, according to people familiar with the matter.
Citigroup Inc.’s shortfall is more limited because the company already plans to convert government preferred shares to common stock, the people said. JPMorgan Chase & Co. doesn’t need a deeper reserve against losses, according to people familiar with that company’s result. Bank of America may need $31 billion of capital, according to one estimate by Friedman, Billings, Ramsey Group Inc. analysts based in Arlington, Virginia. ”
Bank of Italy not doing so good these days
There’s one item in one of the Tucson stories above that really puzzles me.
Their cinder-block walls have been pushed over by the wind
Ah, how can sturdy cinder-block walls be pushed over by the wind if they were intended to be walls of a house? Would the house be “pushed over” by the wind once completed? Or does this indicated massive faults in the pouring of the foundation?
That photo of Lewis with Spitzer lips keeps resurfacing…
Wall Street Journal
* BUSINESS
* MAY 6, 2009
BofA Faces $35 Billion Gap
Government Stress Test Finds Capital Cushion Inadequate; New Pressure on Lewis
By DAN FITZPATRICK and DAMIAN PALETTA
Regulators have told Bank of America Corp. that the company needs to take steps to address a roughly $35 billion capital shortfall based on results of the government’s stress tests, according to people familiar with the situation.
The exact amount of the needed infusion couldn’t be determined late Tuesday, and Bank of America officials either declined to comment or couldn’t be reached.
Regulators began notifying the 19 financial companies subjected to the government tests of the results Tuesday.
An official announcement is expected after the close of U.S. stock-market trading Thursday.
Bank of America Chief Executive Kenneth Lewis.
At Bank of America, the government’s findings are likely to set off a scramble over how to fill the capital hole at the nation’s largest bank in assets.
Wall Street Journal
* REAL ESTATE
* MAY 6, 2009
At Fallen Mortgage Titan, Tragedy Amid the Turmoil
By JAMES R. HAGERTY and GARY FIELDS
MCLEAN, Va. — David Kellermann struggled for months with the pressures of his job as acting chief financial officer of Freddie Mac. Yet on Tuesday, April 21, there was reason for optimism at the battered housing-finance giant.
Mr. Kellermann had won a favorable accounting ruling from the Securities and Exchange Commission. His boss, John Koskinen, acting chief executive officer, was pleased, and told the finance chief to stop worrying about whether Freddie would meet its May 15 deadline for filing quarterly results. “If we’re late, we’re late,” Mr. Koskinen recalls saying.
[David Kellermann, Freddie Mac's CFO, was found dead on April 22.] Freddie Mac
David Kellermann, Freddie Mac’s CFO, was found dead on April 22.
But Mr. Kellermann, 41 years old, was visibly stressed. Mr. Koskinen says he advised his CFO to take a few days off. That evening, Mr. Kellermann said he would take off the next day. Mr. Koskinen suggested the rest of the week, at least. “We’ll be in good shape.”
Less than 10 hours later, at 4:48 a.m., Mr. Kellermann’s wife, Donna, called 911. When the Fairfax County police arrived, they found Mr. Kellermann hanging in the basement of the couple’s 3,900-square-foot brick home in Vienna, Va., where they lived with their 6-year-old daughter. Police believe the death was a suicide.
Wall Street Journal
* OPINION
* MAY 6, 2009
Banks Need Fewer Carrots and More Sticks
Insolvent institutions should be taken over by the FDIC.
By R. GLENN HUBBARD , HAL SCOTT and LUIGI ZINGALES
The results of bank stress tests — expected tomorrow — will no doubt prompt calls for further government guarantees and capital injections. But continuing to prop up the banks with government cash is a mistake. There is a better approach.
[Commentary] Getty Images
A well-capitalized banking sector is a necessary ingredient for effective intermediation and economic recovery. But today’s system is not well-capitalized. How can we move in the right direction?
In a market economy, the government can create the right incentives by using a combination of carrots and sticks. Thus far, the government has only used carrots with the banks. One major carrot is the Troubled Asset Relief Program (TARP). The initial infusions were very generous — the Treasury got back securities worth $78 billion less than the $254 billion it invested — as the Congressional Oversight Panel pointed out recently. In addition, the FDIC’s guarantee of short-term debt was worth $100 billion just for the original nine TARP-participating banks. And the mortgage-related asset guarantees offered to Citibank and Bank of America were worth tens of billions of dollars more.
A new round of expensive TARP injections — by converting the government’s preferred stock into equity — may follow the release of the stress-test results. In addition, the Treasury’s Public-Private Investment Program (PPIP) plans to subsidize the purchase of banks’ “toxic assets” by hedge funds and other investors. We estimate that the government will spend $2 for every $1 the private sector will put in. Yet even with this large subsidy, PPIP’s chance for success is low because of the substantial gulf between the bid and ask prices on the toxic assets, and the reluctance of investors to partner with the government.
Not only is the carrot approach not jump-starting lending, it is also angering the American people. It’s hard to justify to taxpayers that we need to reward the same group of people who, rightly or wrongly, are perceived as responsible for the current situation.
It’s time for government to use the stick, beginning with creditors. The first step should be an announcement that the FDIC guarantees of short-term debt, set to expire at the end of October, will not be renewed. Insolvent banks — defined not by stress tests, but as those that cannot fund themselves in the private market — will be taken over by the FDIC. Of course, this takeover plan must be clear and credible. Otherwise creditors will play “chicken” with the government, knowing that at the last minute the government will flinch and fail to remove the guarantees.
…
Green shoots hypothesis:
Do the bank stress tests take the future economic outlook into consideration? If so, the green shoots and bottom call may be ploys to paint lipstick on the stress test results. Never mind whether the green shoots actually prove to be green paint on a brown lawn or green algae in former swimming pool turned into a West Nile virus mosquito breeding pond.