Bits Bucket For October 13, 2009
Post off-topic ideas, links and Craigslist finds here. Please visit the HBB Forum.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
April 2025 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
Good morning all.
Mauldin has a newsletter that, IMO, is definately worth a read. For a copy google-up “mauldin third quarter 2009″.
An excerpt: “…The uncomfortable conclusinon of Fisher’s analysis is that major business cycle fluctuations are, in fact, caused by over-indebtedness and the fall in asset prices. Our present situation appears to mirror the exact sequence of events that have occured in previous depressions. This suggests that our current ‘great recession’ may morph into a more serious and enlongated downward business cycle.”
The New York Times has been running a series of articles of late that all point to excess indebtedness as causing the downfall of a number of companies.
The funny thing is that I get how individual people fall into this trap. It probably doesn’t occure to many individuals exactly how much their income can change down. And too many parents don’t discuss debt with their kids - the only time I can really remember it being discussed was a very short conversation with my mother about how she was paying off all the credit cards because the interest was no longer tax deductible and it made it much too hard to carry them and besides, it was good to get rid of the debt anyway. And, as we all know, most Americans are innumerate.
But, companies have entire corporate finance departments devoted to nothing but crunching numbers. How anyone can miss the risk of increased fixed costs is beyond me. Yes, they are balancing it against the increased profits from leverage, but still, there is a measurable risk. If our revenue goes below $X, we won’t be able to operate at all at $Y level of debt at Z% even if we can get the variable costs (like employees) down to zero. Do the business schools never even mention this? Maybe it is time for the cost of equity capital (dividends are not deductible) and the cost of debt capital (interest is deductible) to be evened out a bit. It would be the corporate equivalent of reducing the mortgage interest deduction.
I seem to recall in the late 80’s that companies that didn’t have any debt and too many assets were plundered by Wall*Street raiders.
Maybe they see debt as a sort of garlic to keep away the bad guys.
“But, companies have entire corporate finance departments devoted to nothing but crunching numbers. How anyone can miss the risk of increased fixed costs is beyond me.”
During the good times, risk taking was rewarded. Those that took the risks got promoted and those that favoured caution got left behind. The ‘natural selection’ effect of the workplace helped ensure that no one was around to see the downturn coming.
Risk taking = “positive outlook”
Pointing out the downside exposure = “pessimism, negativity, not a team player”
I wouldn’t allow a corporate finance type who only considered the benfit of a particular strategy during the boom to teach a kindergarden class. Can you imagine? It is like teaching kids that playing on the monkey bars is good fun and safe during dry weather so you should do it no matter what the conditions are - even in a driving ice storm that makes it impossible to hold on.
Pointing out the downside exposure = “pessimism, negativity, not a team player”
You forgot “Lacks ‘can do’ attitude”.
Yeah, after all, it was a “new paradigm”!
A paradigm is only 20 cents. Highly overrated.
Someone here recently said (or was it on the radio?) that leveraged buyouts only work because people are willing to buy the company from the raiders after it has been laden with debt. If people didn’t buy stock of companies with absurd fixed costs due to debt, they raiders would be stuck only selling assets off bit by bit. It is a little harsh, but if a company is actually worth more selling off its bits an pieces and completely abandoning its value as a going concern, then it deserves to die, but the leveraged buy outs are an entirely different enterprise. They require gullible stock purchasers on the other end.
If the damn pension fund and mutual fund managers would start working for a living, maybe we could fix this.
Honey, my stocks have hidden debt. Alot of these LBOs were the corporate game of “flip this company.” A little fresh paint, a round of layoffs, granite countertops, corporate restructuring and we’ve added value. Just don’t ask about the cracked foundation or the debt structure.
Saw this firsthand a couple of years ago.
Private Equity company bought out division of company that was itself bought out by private equity company……..laid off 1/3 of staff and engineering people, who were immediately hired by a major competitor 60 miles down the road.
Kept scheduling work as if they were fully staffed. Projects coming in the front door, then sat for weeks, because they had no staff to support them. Only projects in work were those that had contractural completion dates, or who raised enough hell up the food chain to get attention. If you were a first time customer, you were screwed, because they knew you wouldn’t be back anyway.
But none of this mattered, because their numbers looked good, at least for a few quarters; long enough to flip it to another buyer.
Corporate Raiders..
They remind me of the old “Chop Shop” parts market. The individual stripped parts of certain luxury or high demand cars and truck were worth many times the total value of the complete stolen vehicle which couldn’t be easily sold on the open market.
Sadly, we don’t have the stomach to hang bankers, corporate raiders, black market parts dealers or even horse theives anymore.
If the damn pension fund and mutual fund managers would start working for a living, maybe we could fix this.
How about setting up a legal structure that doesn’t encourage risky behavior from the outset? Like repealing shareholder limited liability?
If the damn pension fund and mutual fund managers would start working for a living, maybe we could fix this
Actually, I think the opposite track would be better. Pension fund managers should not only stop working but we should fire them and save the million dollar salaries wasted on them.
A 50/50 Index portfolio with fixed allocations and strict rebalancing would beat 95% of pension fund managers who are simply gambling with people’s retirement money.
Mossy,
I’ve no doubt of that and just look at the way CalPers -screwed- the lenders of the Koin Building in Portland? ‘Bought’ in 2007? Who needs a ‘manager’ to f’ up like that?
Still, my wife is in “set it and forget” Fidelity Funds through work. It barely worked for any of the upside and to look at her acct. statements ( you’d think the DOW is -still- at 6,500! )
Buy & Hold hasn’t worked since the 90’s. Sad but true.
We had a whole generation of young managers taking the helm of companies, having never known any reality other than permagrowth, easy money and good times.
Unfortunately, Fidelity Freedom Funds are *stoopid*. There’s 27 different actively managed mutual funds in there. On addition, every fund is 85%-100% stock except for the ones really close to retirement.
So really, I don’t like Target funds at all. Instead, I set my own fixed allocation with automatic rebalancing. My portfolio has already regained my 2007 peak returns — and I’m way beyond the total portfolio value from new contributions. I have make some minor timing moves … e.g. I won’t move 100% of money but I might move 25% when I think things have gone up too much or gone down too much.
Your comment is very funny….and I think you could be correct.
Lane
too many parents don’t discuss debt with their kids ??
Probably because to many of them are up to their eyeballs in debt themselves…Got to lead by example…
In fact I have had a recent email exchange with all three of my children regarding this given the state of affairs in our economy and knowing that they are seeing carnage occur all around them…
The saying goes that when that little sprog (T-Chick Lingo) comes into your life it does not come with a owners manual and it doesn’t, but if there is one thing that I have seemed to accomplish in teaching my children it is; saving, living within your means and avoiding debt, particularly credit cards….I think the rewards and peace of mind from learning that lesson are front and center for them right now…
I’ve worked in corporate finance for more years than I care to count and I can tell you that while the the subject of Corporate Capital Structure is taught ad naseum in undergraduate and graduate school, when the powers that be in the executive suite decide that for what-ever reason an expansion or acquistion is needed, economic analysis is undertaken only to justify the decision.
My first real job after my indenteured servititude to the Big 8, now 4 accounting profession was in a nice publicly held mid-large diversified construction materials company. The company had been around since the 30’s and had never reported a quarterly loss, even during the depression. The CEO, the grand-son of the founder, in 1979, in conjunction with the Boston Consulting Group, decided that the REAL STRATEGY was to make acquisitions of sufficient magnititude to propel the company into the ranks of the Fortune 500, and to use BORROWED MONEY to do so. I can still remember the old time finance guys in the company (I was still wet behind the ears, so really didn’t apprecate the argument) grousing that this was a highly risky strategy and given the track record of the company, unnecessary. But, BCG knows best (they don’t get paid to say “retain the status quo”), so the company borrows a couple of hundred mil, (real money in 1979) on floating rate debt, and the rest they say, is history. By 1980, prime had gone to 18%+, construction activity had ground to a halt, the company was out of money, & I and several hunderd others were looking for work in that recession. The company has since been acquired BY a couple of European conglomerates.
It is a lesson that I have carried with me since, but I still find that, even in relatively sophisticated companies, the decisions are based more on ego than economic models.
Facts are facts.
Boston Consulting - gotta luv ‘em.
Debt is the disease. It’s poison. Now plenty of people poison themselves, in chemotherapy for example. But only for desperate reasons, and they stop doing so as soon as they can. Not so going into debt, it seems. That’s more like heroin.
I’m trying to get off the debt but I got a woman that seems to feel otherwise.
Of course, if I bail, then I get to feed her habit from afar not to mention taking most of the debt with me.
Everything seems to sink in about it being a problem. Then a couple weeks later there was another couple hundred dollars that “had” to be spent for stuff that we “need”.
Feel like every time my head gets above water, she pulls me back under.
Kind of waiting to get laid off then will declare bankruptcy. No credit for a decade or more.
Its a sinking feeling. I get ahead, see that I’ll be debt free in 1 1/2 years. Then come home to another grand in the hole.
Go back to work, cancel the 401K contribution and try to dig out again. Wait for the meager tax refund to make a big payment or the three paycheck month. But that woman can smell money in the distance.
Find checks written out to discover and come home early and its a package at the door from ebay. Home is full of junk, she doesn’t work and it’s too much to ask for the laundry to be done.
It’s a downward spiral and I’m thinking bankruptcy and divorce are in the future.
Can you convince her to find work of any sort? Volunteering? Spending on crap is often a diversion from boredom, trying to fill the void of not having a purpose. Sometimes small fixes can work.
Wimmin like yours are a penny a dozen these days…How about making her useful?
by sending her to pole dancing lessons
It’s a downward spiral and I’m thinking bankruptcy and divorce are in the future.
I feel for you, man. One time we came home from a trip that the Ex had planned - we just HAD to go - to find the power had been cut off for non-payment.
Fortunately, I skipped the bankruptcy part.
You need to talk to a lawyer, preferably one that does both divorce and personal bankruptcy, immediately. There may be certain things you can do with regard to joint accounts and joint credit cards to protect yourself (nothing illegal). You may need to have documentation in place about the source of certain debts. You may just need to take pictures of the house or record that you had conversations with your wife about her spending.
Yes, this is coming from a lawyer, and you need to recognize that the lawyer’s advice sure as heck won’t be about how to solve the underlying problems. You need to go elsewhere for that sort of thing (couselor, clergy, etc.), but talk to the lawyer too. Please.
Been there, dude. I feel for ya.
I can’t recommend enough that you contact a good divorce lawyer before you do anything.
Try to hide some cash (for the lawyer’s retainer, if nothing else). And remember that in a divorce you will have to split any 401K and retirement accounts ACCRUED DURING THE MARRIAGE. So time is not on your side.
Also, GET THE GUNS OUT OF THE HOUSE, and put them somewhere not easily accessible. It’s going to get ugly, and it’s going to get depressing. Suicidal/homicidal thoughts never came into play during mine, but I can see where they could……..
Doing the divorce thing sucks, but sometimes it’s the best of bad alternatives.
James, do it sooner - not later. And for glod’s sake don’t have kids.
Not so going into debt, it seems. That’s more like heroin.
Or meth, perhaps — debt in the past decade was cheap, ubiquitous, easy to acquire, and composed of common household items …
Meth is the nastiest, worst drug out there. It’s devastated entire rural communities, and large swaths of larger areas in the western states, and midwest. It’s moving into the south, and slowly making it’s way to the northeast. It’s another thing that this country needs to be very concerned about.
Its been in the South for years.
Now that you can make it in a 2 liter plastic bottle with a couple of packages of Sudafed expect it to really explode.
At least you can easily pick out the addicts by their lack of teeth.
is definately worth a read ??
Yep…
The money quote:
With consumers’ asset prices falling so rapidly and banks increasingly afraid of failure, banks are more interested in collecting loans than in lending. So with fewer consumers now credit worthy, loan volumes are collapsing. As loans are paid off, deposits are destroyed, and the money multiplier that should stand at nine has gone to zero. This is evidenced by the fact that the six-month change in M2 has fallen to a 1% growth rate, meaning that monetary stimulus is on hold. Get set for negative GDP in 2010.
There it is, the answer to my LOC doubling without asking for it. thanks.
With consumers’ asset prices falling so rapidly and banks increasingly afraid of failure, banks are more interested in collecting loans than in lending. So with fewer consumers now credit worthy, loan volumes are collapsing.
I love poetic justice.
I hope none of you own that great CIT company:
http://finance.yahoo.com/news/CIT-debt-swap-struggles-rb-62878914.html?x=0&.v=3
I say FDIC sheila bair this morning, talk about a bullshitter.Now they want banks to prepay their payments for three years because they are insolvent.
That has been around for a few weeks. Yes, it is just an accounting trick, but it is the solution the banks want rather than having a general increase in fees or a special assessment. Pre-payment means the FDIC gets the money from the banks now, but the banks, who are on accrual accounting, put it in their revenue statements over the 3 years. They don’t have the cash, but for fulfilling their regulatory reserve requirements and for profit/loss purposes (bonuses) it looks like they still do.
As long as the fee increase/special assessment happens down the road (when the real second wave of failures arrives) rather than a bailout, this is stupid and benefits the bonus recipients more than anyone else, but hardly a tragedy.
At least she is not charging it all to your kids’ and grandkids’ credit cards!
I’m trying to figure out the net effect on taxpayers due to banks that get closed down in the next two years.
Good morning Bitter Renters!
A goodie from Marketwatch. Ben, I hope I didn’t post too much, but the article is full of goodies. There’s a big comment section too.
Hopes run high for tax-credit expansion
Mortgage bankers look for legislative win as regulators
By Steve Kerch, MarketWatch SAN DIEGO (MarketWatch) — The expansion — or, at a minimum, extension — of the $8,000 first-time-home-buyer tax credit that is set to expire Nov. 30 is at the top of the legislative agenda for the Mortgage Bankers Association, with one of the MBA’s leaders saying the trade group is “very close” to winning that battle in Congress.
“We are pushing for expansion of the tax credit, and we are very close to winning this one,” said David Kittle, MBA’s outgoing chairman…
Political analyst Paul Begala, an adviser in the Clinton administration, predicted the credit would be extended, in part because of a feeling among a lot of the American people that they have gotten little out of the financial bailout that kept large institutions afloat…
…at least 20 bills have been drafted in Congress regarding the credit. Some proposals would not only extend the first-time-buyer credit into next year but would expand it to include all buyers, remove income restrictions and raise the maximum value of the credit as high as $15,000…
The mortgage bankers have made three major legislative proposals, trying to stay ahead of the financial regulatory reform they know is coming in the wake of the global meltdown that started in 2008. They have suggested <b?their own set of reforms in a Mortgage Improvement and Regulatory Act, set out a new framework for the secondary mortgage market and come up with ideas for adding liquidity to the hard-hit warehouse lending business…
But major challenges lie ahead. New rules governing the Real Estate Settlement and Procedures Act are set to go into effect Jan. 1, and many mortgage bankers here are complaining that those rules, particularly modifications to the good-faith estimates that mortgage providers are required to prepare for borrowers, will complicate life for consumers and force up the cost of loans…
———–
I’ve bolded the funnier points.
I’m REALLY not liking the phrasing coming from the Mortgage Bankers Association: “winning a battle,” or “setting out their own reforms.” Sure, ask the Fox how to curb his chicken addiction.
Sen. Durbin was right. Banks really do own the place.
I don’t put much stock into the proposal with the $15K credit open to everybody. That’s a pie-in-the-sky conservative bill coming straight from CNBC, and probably won’t make it into committee, much less to the Floor.
As for the new rules — let ‘em whine.
“Winning” = successfully forcing taxpayers to pay tribute to my industry
Hey, it’s National Policy, the Cost of Living in America is going Up!
Can I interest you in a new house or a credit card today ?
Do you mean to tell me the Fed does not plan to contain inflation, the way subprime was contained?
“…successfully forcing taxpayers to pay tribute to my industry”
When is National MegaBank Inc. Day? 4/1/2010?
There needs to be a “Quit Creating Market Anomalies” lobby in Washington.
Jeez, Al. I like that. Are you one of our Canadian friends? That smacks of the calm logic I associate with Canada.
The groups that do this (or rather hire the lobbyists who do this sort of thing) are called Associations. They invariably represent the benefit of a particular industry and get their money from dues that the industry participents all pay. If you aren’t going to represent a the focussed interests of a particular group, it is almost impossible to get enough money to be a player. The only way do it outside a group with easy access to money is to dumb down your goal a lot and get people angry and doing stupid stunts. I’m afraid your idea is a little too sophisticated for that. But I still like it.
I am one of the Canadian HBBers. I’d still be willing to chip in a few bucks to help get such a lobby going.
The only way do it outside a group with easy access to money is to dumb down your goal a lot and get people angry and doing stupid stunts. I’m afraid your idea is a little too sophisticated for that. But I still like it.
“No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”
— H. L. Mencken
Now _there’s_ a PAC I would contribute to!
I think lawmakers will weigh the alleged benefits of making the credit $15K against the howling of the people who did it at $8K and don’t think it is fair to give the next group a bigger piece of pie (or a real pony). This is especially a problem if they expand it to include people with higher incomes and who currently own homes. Nearly doubling the benefit after you relax the rules to include older/wealthier people? The “not fairs” would rend the sky. Not worth it.
If they do extend, it may loosen the income and “first time” restrictions but I don’t see the increase in amount happening. And it will probably be for only 6 months as anything else removes all sense of urgency and reduces the volume until the deadline approaches.
Just a guess. The real world may vary.
I’ll just wait for the 10th iteration of this incentive/joke. I figure by then they will be handing out free houses.
I’m sure you will be seeing that in some places, before this debacle is over with,
Detroit??
And a bunch of places in flyover country.
You can buy a semi-decent house for under $100K around here.
Where are you, X-GSfixr? Please describe the semi-decent houses you’re referring to. Thanks.
Take a look anywhere in Kansas (other than the KC/Johnson County/Lawrence areas), anywhere in Oklahoma or Nebraska) especially now that the economy is crap.
About 10 years ago, a big transportation company shut down most of their California operations, and transferred all the positions out here.
Because of the boatloads of equity they came with, you had a situation where low level supervisors and bargaining unit guys were buying McMansions, next door to the local bank presidents, doctors, etc. This of course, jacked up local housing prices.
Agreed - six month extensions as far as the eye can see. The bounty will be upped if the housing / foreclosure situation gets worse.
As I said, inflation is coming. In the x_th incarnation of this bill Uncle Sam buys every loser a house plus a $100K stimulus check in the mail. I really do hope they pass a $15K tax credit for everybody. Cos I could sell my house to an unsuspecting sucker for a tidy profit plus it would guarantee that the next wave hitting this wreck of an economy would finally sink it. We need to get rid of every last one of these criminals in DC & Wall Street before there’s any hope that we can rebuild this country.
/rant over
If you really thought inflation was coming, you would buy the most expensive house you couldn’t afford and be able to easily make the payments in a few years.
If you really though inflation was coming you would plant a garden.
Price inflation != wage inflation
If you really thought inflation was coming, you would buy the most expensive house you couldn’t afford and be able to easily make the payments in a few years.
That would only be true if:
- Houses were liquid and zero-carrying-cost assets (like stocks)
- Houses weren’t still high relative to other assets (like tech stocks in 2000)
In other words - yes all things being equal, if inflation is coming buying a house is a great investment. However all things are not equal.
Price inflation != wage inflation
A huge myth.
Over the long run yes it very much does.
Just think about starting salaries say in the 1950’s vs. now, and prices of goods and services in the 1950’s vs. now. No correlation? Hogwash.
Over short periods and in specific sectors yes there can be discord between the two. However in larger scales they are indeed correlated.
I’ve been anticipating a slow decline in the standard of living for the Western World. This will happen as prices rise more quickly than wages for an extended period of time. Prices have dropped compared to wages due to efficiency gains over most of history, but we seem to be destined for a reversal of this.
Price inflation ≠≠> wage inflation.
Price inflation ==> outsourcing.
Price inflation ==> credit inflation.
The Federal Reserve of Cleveland has published a policy research paper that indicates price inflation leads to wage inflation.
You read that right. Price inflation causes wage inflation.
http://www.clevelandfed.org/research/PolicyDis/pd1.PDF
You read that right. Price inflation causes wage inflation.
Why wouldn’t it?
Where do people think that extra money goes? Down the toilet?
A good example is tech in the late 1990’s. People were paying big bucks for telecom equipment - the industry I was in. As a result guess what - people who made such equipment were making big bucks. Some wages, some stocks options and the like - same thing in essence.
Same for housing on the frontside of the bubble. Why do you think there were so many people becoming realtors? Because there was boucou bucks being made (wages) when home prices, and therefore commissions, went up.
I’m late here, but I don’t agree. The realtor “wages” were not high because of a weak dollar. They were high because Real Estate Always Goes Up. Those dollars were a sort of invisible-hand thank-you from the banks. Thank you for giving us this loan, which will be paid back with interest. The banks got those dollars taken from future profits, when the loans actually were paid back with interest. [of course, those loans will never be paid back. They are now part of the taxpayer's National Debt.]
As long as it gets people paying local property taxes….
You could make it a 30K tax credit for buying the shacks.
The owners and RE vampires would just try roll it into the new and improved price of the moneypits and claim the recession is over.
That’s my plan. I’d like to sell before the homestead goes completely underwater. I’ve got probably $100K equity in the house now & its probably dropping like $5K/month.
I just need to find a couple of young suckers, er first time homebuyers, to unload this thing on. Then I will sit it out for a few years & buy the place back for a song after the kids lose everything they have now and in the future.
You’re only 3+ years late on that plan, Jon.
“…the people who did it at $8K and don’t think it is fair to give the next group a bigger piece of pie…”
Good things will come to those who wait. I am holding out for the $25,000 tax credit, after home prices have dropped at least another 10 percent. I am a bonafide quasi-first-time-buyer cargo cultist who is holding out for maximum helicopter drops before I buy.
“Some proposals would not only extend the first-time-buyer credit into next year but would expand it to include all buyers, remove income restrictions and raise the maximum value of the credit as high as $15,000…”
This is absolute BS. It’s nothing but a giveaway to speculators and the wealthy. It hurts the little guy. It will, of course, push prices on lower end properties up, but at the expense of those deserving of a house. However, people now need to qualify based on income, and that will prevent any significant price increases. BTW, is this just a blank check? I seem to recall the C4C having a ceiling, but is the dough-for-dumps program unlimited? These politicians are spending away our country.
It’s BS, but since the speculators and the rich are the only people who actually have any cash, they are “going where the money is”.
The government realizes that everyone is fooked, unless they manage to stop house prices from falling, so they are pulling out all the stops to ATTEMPT to “stabilize housing prices”, preferably at as high a level as possible.
Read something a week or so ago that the Wall Street boyz were figuring that MBSs were worth on average about 24 cents on the dollar. Which implies an approximate 70% drop between bubble price and actual price of some properties.
X-GS,
Agreed w/ the exception of “implies an approximate 70% drop between bubble price and actual price”
The reason for the overshoot is that this stuff is a PITA. Acquisition costs, property taxes ( probably delinquent? ) evicting etc. The paper has to be a lot more discounted than the underlying security but your point is well taken!
I suspect they’ll be pushing on a string when all is said and done.
Given the avalance of resets coming, I foresee them pulling out all the stops which will more than likely include another stimulus package. Question is will the stimulus go to the banks and will they be able to wait until after the 2010 elections before they propose another stimulus package.?
Question is will the stimulus go to the banks and will they be able to wait until after the 2010 elections before they propose another stimulus package.?
BINGO if it’s after the election you can bet it will go to the banks, if it is before they will have to throw a bone to the Joe 6 Packs to keep them from setting things on fire.
If it’s after the election, I predict a sharp drop in the market, a lot of talk about the sky is falling so we have to give our first born to the hungry bankers.
“It’s nothing but a giveaway to speculators and the wealthy.”
I wonder if there will be a limit on how many times you can claim the credit. For instance, if some clown speculator flips four houses during the proposed extended credit, could they claim $60K?
Don’t have time to check this, but my recollection is that it must be for a primary residence and that you have to give the money back if you sell the house within three years, so there is some limit on serial flipping.
The problem is, there is a lot less flipping and a lot more long term holding going on with these speculators. Low end properties are starting to cash flow, and these parasites are driving up the prices, pinching out legitimate families looking for homes to live in long term. While it’s legal, I find it disgusting. We should name this “The Great Speculative Depression”. I’m just sick to death of the greed.
Apparently the gubmint’s housing price support policies play nicely into the hands of greedy speculators, who are perfectly happy to help price families out of the owner-occupied housing market in order to satiate their greed.
So when CIT finally kicks the bucket, how much bailout money will be lost?
NEW YORK — CIT Group Inc., one of the nation’s biggest lenders to small and midsize businesses, said Tuesday its chairman and CEO Jeffrey M. Peek plans to resign at the end of the year.
Devastated by the downturn in the credit markets, CIT has been trying to avoid bankruptcy for months as it restructures its operations.
I had at least three people at the office ask me why I wasn’t buying instead of renewing my lease or moving to a new rental.
People seem to think the real estate market here in DC is going to follow the stock market.
It is rather infuriating. I’ve kind of stopped putting it aside. Now I’m perfectly ready to tell them I can save way more money while renting than I would be making in appreciation/puting money towards equity in a mortgage. Then I telll ‘em that I don’t trust condos if a substantial number of units have changed hands during the bubble. Then I have generally managed to let off enough steam to ease back, but sometimes I go on to talk about how much tighter credit is going to get if the government stops being the provider/insurer of all mortgages and passing them out with absurdly low downpayments.
Found someone in my complex who is advertising on Craig’s list to subsidize someone to take over their lease at $1250 a month (slightly smaller 1 bedroom to mine). Landlord is trying to renew mine at 30% higher than that. God, I love the internet.
Most of the residential leases I signed were very specific in denying subletting. Maybe DC is different?
Most allow “roommates” though…
“together and several” was the phrase I remember. Means they can sue ANY of the roomates for the entire rent if one of ‘em skips out on the rest of them.
Not subletting. Taking over the lease. They would have to be approved by the landlord at the current rate. Then the people leaving would give the new tennant enough cash to cover the difference between the current rent and $1250 a month.
Hold steady, Polly! Your life is your life. I too am stunned that nobody seems to realize that TTTimmy, Heliben and the Messiah have only succeeded in landing the plane on the Hudson. The majority of passengers think they are safe and are starting to retrieve their luggage. They don’t realize that the plane has yet to sink. Now is the time to shed baggage, not take it on.
That’s an excellent analogy, enjoyed it and will try to remember it at upcoming Halloween and Thanksgiving parties.
Halloween? Thanksgiving? Good God that can only mean one thing: Super Bowl will be here before you know it and then the big spring real estate push begins! We’re saved
Good analogy!
W/regards to DC - to a *certain* extent DC is different - at least for a while. Federal government job expansion is in full swing, while the private sector shrinks. DC area unemployment is way below the rest of the country now, and will remain so for quite a while. This in itself will prop up DC housing prices more than other areas.
That being said - though DC is coming off a spring/summer bounce - it will still feel the inevitable pull of the general housing market. Prices will come down some more - so IMO you’re doing the right thing polly in holding off. This is from a man who owns a house in Loudoun, BTW.
In the long run DC will more equalize with the rest of country, though probably at a somewhat higher level, as I just can’t see the size of the government shrinking down to what it once was.
How many of those jobs in DC are truly federal jobs, and how many are government contractors? The defense contractors surrounding the government buildings may take a big hit as the government moves from the “with us or against us” mentality to the “Nobel Peace Prize” mentality.
“The defense contractors surrounding the government buildings may take a big hit as the government moves from the “with us or against us” mentality to the “Nobel Peace Prize” mentality.”
= “War is good…let’s keep at it.”
How many of those jobs in DC are truly federal jobs, and how many are government contractors?”
Most of them are lobbyists/lobbying jobs, IIRC.
Little known fact: Federal government contractors now employ more people than the federal government.
I for one am waiting for the cold winter pricing to hit PWC & LoCO
Everyone in NoVA/DC buzzing & feeling all warm & fuzzy that things are rebounding
We’ll see where everyone’s at come mid-January when that empty McMansion still has no Buyers, even with the 8K bribe
The 8K bribe isn’t a drop in the bucket for a house some clown wants 759K for…..
People look at homes as forced savings program (the “building equity” concept). I can “build equity”, ie improve my net worth, by renting at a reasonable rate.
As long as I can improve my net worth at a greater rate by renting than by owning, I will continue to rent.
My sisters buying a condo in the DC area. Told her I didnt think it was agood idea, showed her the sites I read, shes doing it anyway. Oh well, shes a grownup.
Good morning all. Woke up to an amazing storm here in San Jose, but CA needs it, so no complaints from me.
I guess I really am the first and that’s a first.
I really am the first ??
More coffee ??
Sorry scdave
Have another cup of coffee …and get in line.
That was for Pbuyer posting directly above me Mikey….
1st…
Can we give up on the “first” thing, please? “First” appears to be decided by a random server in some undisclosed location, likely under the hood of Ben’s truck.
Exactly…thank you.
All this first nonesnse sounds like Casey Serin’s old blog with “first”, “murst” and all that crap.
Anything that brings back memories of Casey is like so many nails on chalkboard.
So is it pretty much up to the Fed’s discretion at this point whether to punish those who are long US dollars or those who are long US stocks? Who grants them the power to create winners and losers in the asset markets?
At some point the government is going to have to tank stocks and support the dollar IF they want to keep interest rates low. Right now they’re burning the candle at both ends, though.
It appears that for now, they have decided that maintaining low interest rates is more important than supporting the dollar.
And how long before the Chicoms tire of this?
Don’t worry, we have a tariff on tire.
What does the government have to do with interest rates. The Fed is setting rates by buying debt. Is there a limit to how much they can buy?
You should believe there is a limit only if you believe in the existence of a macroeconomic budget constraint. Otherwise, the Fed can electronically print dollars and use the newly created liquidity to buy down interest rates for as long and as much as they desire.
Who grants them the power to create winners and losers in the asset markets?
Congress did, in 1913. They just didn’t know it at the time.
I say the dollar continues to get punished…To many pensions tied to stock market returns…
Anything that cannot go on forever will end.
– Herbert Stein –
I guess as long as the dollar crash continues at a snail’s pace, so there is no risk of a disorderly market dislocation, we will be A-OK?
Currencies
Oct. 13, 2009, 11:05 a.m. EDT
Dollar slumps, tugged by gold, stocks
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar slumped to a new 14-month low versus major counterparts on Tuesday as investors favored gold, often viewed as the most stable currency, with the greenback’s losses softened by a drop in U.S. stocks amid concerns about the strength of the economy’s recovery.
The dollar pared some earlier losses that pushed the commodity-oriented Australian and Canadian dollars to levels not seen since before Lehman Brothers declared bankruptcy.
“It almost appears as if traders cannot stop selling dollars,” said Kathy Lien, director of currency research at Global Forex Trading. “Newton’s Law fully applies right now — the dollar will continue to fall unless it has a good reason not to.”
…
The dollar is down because Gold is up? I think there may be something wrong with that correlation.
What is the price of gold in Zimbabwean dollars today?
The correlation is correct, just not the causation. In reality gold is up because the dollar is down and/or expected to be down in the future.
How much did the dollar drop against rival currencies since 2000 before this sneaking suspicion crept into the Russian Finance Minister’s mind?
Dollar’s Role in Global Reserves to Drop, Kudrin Says (Update1)
By Paul Abelsky
Oct. 13 (Bloomberg) — The dollar’s share in global foreign currency holdings will decline, giving room to “supranational” currencies in a “gradual diversification,” Russian Finance Minister Alexei Kudrin said.
“As the period of ‘flight into quality’ ends, the question of changing the structure of reserves is being raised again,” Kudrin said in an interview with the magazine Promyshlennik Rossii, according to a transcript published on the Finance Ministry’s Web site today. “That’s linked to speculations about the possibility of the dollar’s devaluation.”
…
The Financial Times
The rumours of the dollar’s death are much exaggerated
By Martin Wolf
Published: October 13 2009 22:17 | Last updated: October 13 2009 22:17
It is the season of dollar panic. These panic-mongers are varied: gold bugs, fiscal hawks and many others agree that the dollar, the dominant currency since the first world war, is on its death bed. Hyperinflationary collapse is in store. Does this make sense? No. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.
…
Wall Street’s dragon slayer has downgraded another fire breathing giant:
* The Wall Street Journal
* BUSINESS
* OCTOBER 13, 2009, 9:36 A.M. ET
Whitney Downgrades Goldman
By BRENDAN CONWAY
NEW YORK — As earnings season gets under way, noted banking analyst Meredith Whitney cut Goldman Sachs Group to “neutral” from “buy” Tuesday morning in a move that bucks the Street’s recent optimism on the shares.
The Goldman downgrade comes ahead of the firm’s scheduled quarterly earnings on Thursday, and is consistent with the caution Ms. Whitney has voiced over the airwaves and on Op-Ed pages in recent weeks.
It also follows a six-week surge by the shares that prompted some analysts to say it could go higher still.
Ms. Whitney, who gained renown during the financial crisis for bearish calls on the stocks of large banks that were ultimately proven correct, spoke favorably of Goldman shares as recently as last month.
Goldman stock spent most of August in the low-to-mid $160s. It broke $180 in mid-September, and some analysts then said the shares have room for further growth.
In new coverage last week, Deutsche Bank rated Goldman shares a “buy,” the day after Calyon Securities analyst Mike Mayo, also known for his banking downgrades, raised his Goldman price target to $230 from $194.
…
Weren’t these guys pretty much just lieutenants at Megabank, Inc? I personally would rather see the justice system go after the subprime mortgage lending kingpins, rather than see sacrificial lambs go to the slaughter.
Jury Selection Begins For Ex-Bear Stearns Bankers
October 13, 2009
Jury selection begins Tuesday for the trial of Matthew Tannin and Ralph Cioffi, two former bankers at the defunct investment bank Bear Stearns. Their investment funds put clients’ money in high-risk mortgage securities. According to prosecutors, they promoted the funds in public, but sent e-mails to each other about their fears of collapse. They could face 20 years in prison.
PB,
Ah… those pesky emails again! In the end they were the undoing of Jack Grubman ( former telecom analyst ) Meeker, Blodget and countless others.
Here’s a tip for would be fraudsters: Get off your azz and walk down to the guy’s office in person! ( Note to self )
Or write your misdeeds on paper. No investigator worth his salt would bother trying to find the ‘paper trail’ on actual paper anymore.
The justice system has to have good evidence that a law was broken before it can go after someone. Evidence of what they said to clients being in direct conflict with what they really believed is hard to find. You are lucky to find it with people at this level.
A general assertion that the big players set up a system and they really must have known in their hearts that it couldn’t last forever is not a prosecutable offence that I am aware of. Would you like to suggest a statute that they have violated? What are the elements of the crime? How are you going to prove each element? Being “bad” isn’t illegal. Being an evil greedy bastard isn’t illegal. Telling clients you are going to put their money in safe investments and then putting them in securities that you know to be anything but safe is illegal.
polly,
I’m by no means an expert in securities law and you’re right, it’s not against the law to be greedy. Just as we’ve found in altogether lackluster prosecution of local bank failures ( evidently it’s not again the law to be STUPID either! )
Yet this is the first ‘thread’ that regulators can begin to ‘tug’ on and see what unravels? It’s simply stunning to me ( after the last incredibly embarrassing debacle ) that these people wouldn’t have learned better?
The fact that they are going to jury selection means that attempts to “get” the higher ups failed. The prosecutors had access to the emails. Probably all the blackberry texts as well. They surely tried to use a plea bargain offer to get the lower downs to rat on the higher ups. If these charges against these defendants are the ones that are going to trial, then this is the best they could do.
Even if they know about other stuff, it is likely they can’t prove it to the level required in court. Prosecutors have a responsibility to do that even if they think they might be able to seat a jury pissed off enough to convict a ham on rye that used to work for an investment bank.
We used to call the perfect piece of evidence a “smoking memo.” I only ever found one (please note, this was to prove something in private practice, I was never a prosecutor). When I sent a copy over to the partner he immediately called me yelling at the top of his lungs, “Do you know what this is? Do you understand what this is?”, so it seems he had never seen one before either. Even then we couldn’t use it because of the way it came into our possession - not our fault, but still not useable.
“A general assertion that the big players set up a system and they really must have known in their hearts that it couldn’t last forever is not a prosecutable offence that I am aware of.”
Product Liability Laws?
Chines made drywall = US made MBS*
I suppose this would be a civil case, as apposed to criminal. I’d be inclined to name the company Execs as apposed to the company itself.
* I wonder if China would have the guts to put an import ban on faulty US financial products?
Why would they, Al? They know the game being played and are just as dirty as our guys.
“Would you like to suggest a statute that they have violated?”
Securities fraud? Certainly there must be some kind of statute against painting lipstick on pigs and selling them as prize heifers?
What about accounting fraud? Hiding losses off balance sheet, a la Enron? Is that legal nowadays?
For instance, suppose a bank has millions of properties which serve as collateral on mortgages where the borrower has stopped making payments. The bank has obviously lost a bundle of money, but it drags its feet about accounting for the collateral as REO, since to do so would be tantamount to reporting a massive balance sheet loss. Can the bank delay reporting this forever, or would to do so eventually constitute accounting fraud?
Would it be illegal for a bank which posted billions and billions of losses, and was then handed TARP funds to shore up its balance sheet, to use the TARP monies to pay bonuses to the managers which threw money down the toilet, screwing over shareholders in the process? Aren’t there some kind of fiduciary requirements that public countries are required to follow in order to look after their shareholders’ interests before paying off top managers with money they did not rightfully earn?
Is there a law against public corporations whose stockholders have been reamed to the point where they want to scream out loud paying their employees at record levels of compensation?
If there is not, I sure hope one gets passed soon!
* The Wall Street Journal
* OCTOBER 14, 2009
Wall Street On Track To Award Record Pay
BY AARON LUCCHETTI AND STEPHEN GROCER
Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street’s pay culture.
…
* The Wall Street Journal
* MANAGEMENT
* OCTOBER 14, 2009
BofA Emails Show Pique at U.S. Over Dividends
By DAN FITZPATRICK
A Bank of America Corp. director wrote to another director in a January email that pressure from the federal government to slash the bank’s dividend meant “unfortunately it’s screw the shareholders,” according to people familiar with the exchange.
The previously undisclosed email was recently handed over to the House Oversight and Government Reform Committee and New York Attorney General Andrew Cuomo’s office, according to one of these people. The House committee and Mr. Cuomo’s office are conducting probes of securities firm Merrill Lynch & Co.’s takeover by Bank of America, as well as discussions in December and January about a Merrill-related U.S. bailout.
The email exchange reveals how worries about the unintended consequences of buying Merrill had extended inside the board of the nation’s largest bank by assets.
The Jan. 15 email was sent by Charles Gifford, a Bank of America director who joined the Charlotte, N.C., company’s board as part of the 2004 purchase of FleetBoston Financial Corp. Mr. Gifford was chief executive of the Boston bank. The recipient of the email was Thomas May, another director who joined the Bank of America board as part of the Fleet acquisition.
Messrs. Gifford and May couldn’t be reached for comment.
…
Is it illegal to use porcine beautification to mislead your investors about the true value of what you are selling them?
If yes, how does the securities and hedge fund industry make money without breaking the law?
The Fraudential Times
Hedge funds misrepresent facts, says research
By Sam Jones, Hedge Fund Correspondent
Published: October 13 2009 23:15 | Last updated: October 13 2009 23:15
One in five hedge fund managers misrepresents their fund or its performance to investors during formal due diligence investigations, research from New York University’s Stern School of Business suggests.
The research is likely to be a further blow to the reputation of a battered industry, which has faced increasing demands for transparency from investors in the wake of the credit crisis.
…
Sorry about that — I meant to type “The Financial Times” but my dog sat on my hands just as I was typing, and it accidentally came out “Fraudential”…
(just joking — I actually don’t own a dog…).
“The justice system has to have good evidence that a law was broken before it can go after someone.”
Do they actively pursue such evidence, the way the cops lurking along the roadway with radar gun in hand seek evidence that I am driving too fast, or do they work really hard to presume innocence until a preponderance of evidence is thrown into their faces?
Home rescue plan delaying, not solving crisis.
ALBANY, Ohio/WEST PALM BEACH, Florida (Reuters) - Within weeks of taking office, U.S. President Barack Obama rode to the rescue of homeowners resigned to financial ruin.
Obama, grappling with the worst U.S. housing crisis since the Great Depression, pledged to help as many as 9 million families keep their homes by reworking their mortgages.
Eight months later, the plan is plagued by delays, red tape and, some critics say, a reluctance by banks to do their part. Just 17 percent of eligible borrowers have had their loans modified and monthly payments cut. Hardly any have been given a cut in the amount they owe on homes which are now worth less.
That means many successful applicants are left with loans that they still will not be able to afford in the long run. So instead of resolving the housing crisis that pushed the U.S. economy into recession, America may be prolonging it and, in the process, stunting the global recovery.
“Every single policy we’ve seen has merely kicked the problem down the road,” said Laurie Goodman, a veteran analyst at broker-dealer Amherst Securities Group LP, which specializes in residential mortgage-backed securities.
“But there is no easy solution to the underlying problems.”
Are they talking about cramdowns, or about re-working the interest rate? I still favor limited cramdowns (only as part of a BK), but Congress is too bought for that.
‘Are they talking about cramdowns…I still favor limited cramdowns (only as part of a BK)’
No, they are admitting that “cramdowns” don’t exist, and that what the government is up to is making things worse. (Gee, how many years has this blog been pointing that out?) While some internet clowns insist on fostering this legal myth, the truth is that contract law can’t be rewritten after the fact. And it doesn’t matter if some politician is “pushing” for it.
One other bit of financial ignorance that should be dispelled; contract law is always subject to prevailing bankruptcy law. So loan modifications are by definition not “cramdowns” under BK law, but rather a part of the contracts the minute they are signed.
“Cramdowns” happen all the time in commercial real estate, as do the kinds of BS loans that sank 1,000 banks and 1 million homeowners.
Theoretically, unlike powerful commercial borrowers, under the bankruptcy reform passed just before the explosion of such loans, and given the provision that mortgage loans (unlike other loans) cannot be discharged in bankruptcy, people can be compelled to give up their daughters for auction to girl-challenged China to repay. Politically, however, that may be difficult.
A “cramdown” is always voluntary on the part of the lender, because they find it better than a foreclosure. Any mortgage modification counts. And the lender can always choose to make a new loan to pay off the old one, if they are willing to take the loss, getting around the contract problem.
It isn’t that cramdowns aren’t possible. It isn’t that they are preferable in the long run to a foreclosure auction and the bank taking the property and evicting the homewoner, if there is a homeowner. It is that either there is no homeowner, as you say, or the banks prefer “extend and pretend” or “delay and pray.”
‘always voluntary on the part of the lender’
That’s not what the internet clowns say. In their fantasy world, legions of judges (ie the government) force note holders to accept new terms for the FBs, contract law be damned.
‘Any mortgage modification counts.’
Loan modifications are as old as loans.
‘preferable in the long run to a foreclosure auction and the bank taking the property and evicting the homewoner’
Which is why they are voluntary.
See, the “cramdown” artists have concocted a new legal world, in which contract law no longer exists. The only problem is the little problem of the entire 600 year history of contacts, which doesn’t stop at state or national borders. Since this BS got started last year, we were told it was just around the corner, any day now, that all the FBs would be let off. Funny how that hasn’t happened, and now there are more foreclosures than at any time in modern history. But now the people who push this myth keep changing the definition. Now ANY loan modification counts?
BTW, this term doesn’t exist in a legal sense.
Next!
“The only problem is the little problem of the entire 600 year history of contacts, which doesn’t stop at state or national borders.”
A lot of the functions of society are based on trust. We trust currency will be accepted, we trust property rights will be protected, we trust the legal system will be as fair as possible, we trust government will make good use of the resources we provide. It seems like that trust is being abused at every turn. It will be interesting to see if contract law can survive.
Well at some level, bankruptcy is ALWAYS about judges “rewriting” contracts. It’s the recognition that the debtors are NOT going to fulfill the terms of their agreements. The judge is there to:
1.) ensure that the debtor isn’t hiding assets that could be used to repay creditors.
2.) equitably distribute said assets to creditors according to priority.
3.) make sure that even if everybody doesn’t go away happy, they do go away.
The problem with this mess is that to some extant that bankruptcy laws are predicated on the idea that the debtor HAS equity, wants to keep the house, and that this is a good thing for him. So mortgages have a sort of “special priority” in bankruptcy court: they don’t get cram downs, and other creditors don’t get to mine equity as part of the general settlement. But this doesn’t really apply when house depreciation or serial refinancing mean that the PRIMARY source of a debtors negative net worth is the negative equity in their home.
Ben Jones,
While I’m not arguing ‘any’ of that, what WT Economist, myself and a limited group of others have advocated is simply that cramdowns put the pain where it belongs. With the banks. In ‘theory’ anyway.
I’m not scoffing at Contract Law by any measure, but in this day and age ( w/ REIT’s not even paying out their dividends and hunkering down in “cash preservation mode” ) and the FASB and IRS silently nodding along, how bent out of shape are we supposed to get over CD’s?
Wouldn’t the proper steps have been to say that ( by charter ) the REIT mgrs. have violated their… covenant and forfeited their status as a REIT altogether? Why are we bending the rules for some but not others? Just askin’.
“No, they are admitting that “cramdowns” don’t exist, and that what the government is up to is making things worse. (Gee, how many years has this blog been pointing that out?) While some internet clowns insist on fostering this legal myth, the truth is that contract law can’t be rewritten after the fact. And it doesn’t matter if some politician is “pushing” for it.”
+ a trillion… and I wish the MSM would start spelling that out that out as clearly as you just did.
I think the issue — well I know that *my* issue was — that many of us don’t know the BK laws on mortgages. I didn’t know that mortgages are not dischargeable in current BK law. I only vaguely know about retirement and student loans.
So the only way to change this “contract law” would be to rewrite part of the BK law, and make mortgages partially discharagable, just like pension funds, which airlines discharge on a daily basis. Why is a mortgage so special and a pension fund not?
I understand now what Ben is getting at. But allow me to respectfully disagree “600 years.” 600 years of success doesn’t necessarily make something right, and there are some egregious examples of that.
“Obama, grappling with the worst U.S. housing crisis since the Great Depression,…”
Cheney-Shrub: “We want him to succeed as president, we really do.”
It’s still different this time.
Jay Bookman
Empty homes a symbol of pain, economic and otherwise
7:57 am October 13, 2009
…visiting a high-end gated golf community in the northern suburbs of Atlanta this weekend, it was sobering to see the same phenomenon on a different scale — empty house after empty house, proud mansions of brick and stucco with no cars in the driveway, no grills on the back porch, no balls in the yard, no sign of human activity at all.
Abandoned mansions — there’s something about that image that grabs your attention.
Most of the houses were 5,000 square feet at a minimum; many were new enough that they had probably never been occupied. So developers and banks, which in some cases means taxpayers, had been forced to eat the loss. Others, however, had been dream homes to families that had been forced to pack up and leave that dream behind.
According to Zillow dot com, high-end housing made up 30 percent of foreclosures in July, the most recent numbers available. “Compared to 2006, top-tier homes now make up nearly twice the proportion of foreclosures,” writes Zillow analyst Jon Prior. “At the height of the real estate bubble, properties in the lower one-third of home values made up 55 percent of all foreclosures, while homes in the medium range accounted for 29 percent. The top one-third represented only 16 percent of foreclosures, according to the data.”
…
No, it won’t have the generation-defining impact of the Great Depression. But like the Depression, this recession shows no sign of being temporary. The dislocation and redefining of goals are long term and massive in scale.
…
PB,
I can’t tell you how many “high end” open houses my wife and I attended in 2004-2006. Here in Oregon ( where it was decided “we were late to the party” ) only to find the owners -themselves- tripping all over their realtor to point out all the wonderful attributes of their McMansion!
They clearly had no confidence in their agent and it was obvious they were frantic to get out from under it. This mind you as early as ‘04. Of course given the time frame, RE bulls dismissed this as nothing more than “anecdotal” and probably “an isolated case”.
Question is.., what will become of all these abandoned places?
There are only two possibilities, so far as I can tell:
Either their owners will lower the asking price and sell them at a level the market will bear, or they will remain abandoned forever at an asking price that nobody is willing to pay.
Either their owners will lower the asking price and sell them at a level the market will bear, or they will remain abandoned forever at an asking price that nobody is willing to pay.
Detroit stands as testament that both outcomes can occur, multiple times, in far greater numbers than most reasonable people could’ve imagined.
The fresh-baked cookie smell is long gone.
“Question is.., what will become of all these abandoned places?”
I understand Fast Eddie (aka Doctor Flame from Detroit) is finally out on parole. Of course, he’s not as fast as he used to be, but he’s probably still happy to make housecalls if the price is right.
Future Frat houses!
“Question is.., what will become of all these abandoned places?”
New digs for Mennonites, Hutterites, Taoist Amish communes…Does Oregon give rebates for solar installations?
Hwy, no self-respecting Amish person would be caught dead in these crapshacks.
I predict, and I mean this seriously, that the larger crapshacks will be torn down to the foundations leaving the electical and sewer intact. New houses, likely one-story, will be well-built on top, recycling the kitchen and bathroom fixtures. The larger lots, if there are any, will be turned into mini-communes.
Zero-lot-line shacks smaller than 2000 sq ft on postage-stamp lots will become new digs for raccoons and wombats.
“Visiting a high-end gated golf community in the northern suburbs of Atlanta.”
OK, how about some re-use proposals.
Homeless housing?
Section 8, to help the poor get out of Atlanta proper?
Senior housing?
New prision?
Section 8 housing with a private golf course would be SWEET……..
“Section 8 housing with a private golf course would be SWEET……..”
For sure…besides, we have enough prisons with private golf courses as it is !
Why do you think Madoff confessed?
“Senior housing?” I have no problems w/ that. Problem is far too many had huge… vaulted ceilings, winding ( but oh-so-impressive ) staircases and virtually useless 2nd floors.
Just looking back, I think it was so telling that sellers and their agents were practically ‘goading’ you into making an offer? Like they’d throw this, that or the other amenity ( later cars ) into the mix? Any reasonable person would have to ask themselves if this was such a sure-fire House ATM ( why were they so eager… to get off of it? )
Pigman flu pandemic forecast to lead to over 25 million US foreclosures. Better hurry up and renew that first-time buyer tax credit before all these homes hit the market!
Foreclosures May Top 25 Million
Foreclosures could top 25 million homes and other properties, according to a new report by Housing Predictor.
Destin, FL, October 13, 2009 –(PR.com)– Foreclosures could top 25-million homes and other properties in the U.S. if government officials don’t take drastic action to lessen the impact of the foreclosure epidemic, according to a new report by Housing Predictor.
The real estate research firm was the first to forecast the foreclosure epidemic that would trigger the worst economic turmoil since the Great Depression. Read the new full analysis at Housing Predictor dot com.
In a new Housing Predictor survey nearly 1 in 3 mortgage holders say they will walk away from their homes if housing prices continue to fall. The action would leave bankers on the hook for trillions of dollars in unpaid mortgages and send the U.S. economy into a worsening financial crisis. It would also result in the highest number of renters in the U.S. housing market in decades.
…
“In a new Housing Predictor survey nearly 1 in 3 mortgage holders say they will walk away from their homes if housing prices continue to fall.”
Is it safe to say that this survey result increases the risk that the ’strong dollar’ policy will give way to a deliberate attempt to prop up the value of US housing through currency debasement?
Yes.
Wow… 1 in 3 is the nuclear option.
Seriously that will rock the economy. Exactly what can be done to prop up housing during the ‘blaa Winter months?’
[crickets chirp]
I do not know when, but the little Dutch boy is about to have the dam break.
Got Popcorn?
Neil
Obama will be staring as the little Dutch boy.
Not that I think he deserves this either.
Bush had the dotcom meltdown, Sept 11, Katrina, the TARP on his watch.
Obama is going to get his amazing shot at history. I’m wondering who will be left alive in all of this.
LOL - OK that’s a bit over the top. Yeah we may get to a scenario where 25 million homes don’t have their mortgage paid - but in that case there won’t be *any* foreclosures happening, because we’ll be in the midst of WW3.
My concern is that the PTB have to know that at some level of price decline (say, in line with what was experienced in the Japanese housing market from 1989-2009), the volume of walkaways would crush the banks. This realization will provide political support for each and every harebrained financial engineering scheme to prop up housing values that is proposed by REIC lobbyists and their lackeys.
I agree Pbear…I am in the camp that the vehicle to that outcome is low mortgage rates…Even lower than they are now…The “unexpected” and “unknown” consequence may be the backside of this policy three or four years from now when mortgage rates may be 8% or more…
Ongoing low mortgage rates with an artificially-suppressed inflation risk premium go hand-in-hand with dollar debasement and ‘higher-than-expected’ inflation. I guess it is all up to the Fed to decide whom to protect and whom to punish going forward?
Yeah, I could see rates as low as 2% as an incentive to keep people from walking. Don’t think it’ll work though.
If pessimism is sufficient for containing l-t T-bond yields, then why is the Fed still working mightily to cram them down?
market pulse
Oct. 13, 2009, 11:05 a.m. EDT
Fed buys $2.949 billion in Treasurys
NEW YORK (MarketWatch) — The Federal Reserve Bank of New York bought $2.949 billion in Treasurys maturing from 2016 to 2019 on Tuesday, one of its last operations in its $300 billion program started in March. Dealers submitted $13.484 billion for the central bank to buy. Policy makers plan to finish the buybacks later this month, which have been an effort to keep down borrowing costs, particularly for companies and homebuyers. After the buyback, yields on benchmark 10-year notes, which move inversely to prices, remained down amid concerns about the strength of the economy’s recovery. Ten-year yields fell 8 basis points to 3.31%.
It’s going to be really interesting to see what happens in the coming weeks after the Fed’s done with that program.
Is it too early to release the sequel? Dollar Devaluation Part Deux ( subtitles in Mandarin )
If you take a look at those declines in Japan, our’s may end up in simialr territory. So, we are going with that plan and it might take just as long.
Remember what we talked about in 06-07 as the wheels came off.
Housing might not be a good buy for the rest of our lifetimes.
Could be a slow bleed for two decades. So multiple decades of price destruction and deflation. All the monetary distortion will flow out of the country too.
We are also looking at potential for forced savings, a la Japan, in SS.
The similarities are striking. We are assuming we are very different because we are bigger. However, in terms of the global economy perhaps we are more alike than we’d like to admit.
“…after the Fed’s done with that program.”
Always bear two things in mind with respect to the announcement that any govt (or quasi-govt) program will soon end:
1) It can always be summarily extended.
2) There is a temptation to delay the announcement of the extension until the last possible minute, in order to maximize the psychological stimulus created by the juxtaposition of belief that a program is ending against the surprise on learning that it is extending.
This is why I think inflation is baked into the cake. The housing market is still too beset with inventory overhang to re-pump the housing bubble itself exclusively. The only way out - to stem the tide of strategic defaults - is to weaken the dollar itself, and allow the rising tide of general inflation to pull housing prices up with it.
Not only that, but the PTB lexicographically cater to the whims of the REIC, even if it means plaguing Main Street with high prices for housing and other consumer necessities on top of a very high level of unemployment.
lexicographically
Wow. Have to say - I’ve never actually seen that used in a conversation before.
Though I’m not sure it means what you think it means - I believe it generally refers to compilation of a dictionary or the like. Maybe referring to the endless stream of TARP, TALF, etc. acronyms created for their benefit?
Which means wages will have to increase for inflation to be effective.
Which means wages will have to increase for inflation to be effective.
Yep. They very much are increasing though, in the fastest-growing segment of the economy - the Federal government.
Though I’m not sure it means what you think it means - I believe it generally refers to compilation of a dictionary or the like.
It can also refer to defining, systematizing, and analyzing the relationship between words in a language, so I think the Professor is on reasonably solid ground, lexicographically speaking.
Inflation fixes the problem when
1. Labor can bargain for higher wages.
2. Families can send another member off to work.
3. People have savings to increase spending.
4. People can borrow money.
I don’t see any of these things happening.
Inflation will just shift spending from manufactured wants to needs like food and fuel. There will be less money for houses and cars and thus falling requirements for labor. If there is rapid inflatition things will get just as bad as if there were rapid deflation. Massive unemployment.
I still believe the best case scenerio is stagflation where the FED keeps everyone guessing on deflation vs inflation, the FED will be like the bar for a tightrope walker. If people start thinking inflation is going to get out of hand the FED will raise rates or talk up the risk of deflation. If deflation becomes entrenched the FED will do what the FED does best.
Take a look at the last week. FED reportedly argueing about the need to raise interest rates. They are staging an arguement to try and keep the dollar from falling to rapidly.
If the dollar collapses they won’t be able to buy enough treasuries to keep interest rates low. If interest rates rise rapidly housing and the banks are toast.
“Which means wages will have to increase for inflation to be effective.”
Agreed. I don’t see how dollar debasement increases housing prices without said debasement being fuelled through wage increases. Otherwise, everything is going up in price and less wages are available for mortgage payments.
Here’s a compromise: Increase “wages” through a $100,000 tax credit on purchase of a new home buy anyone. The increased national debt being funded by the Fed Reserve. In the end, your printing money and giving it to the banks.
“Though I’m not sure it means what you think it means…”
Economists use it in a different way than the rest of the world.
Someday my post will come.
Labor: I posted a link showing that wages very much *are* increasing in the Federal government sector, which happens to be the fastest growing sector of the economy.
Borrowing will increase as banks have increased cash reserves - e.g. via the Fed buying all their MBS, which is already happening, to the tune of $1+ trillion.
This bubble has proven that people don’t need to save money to be willing to spend money.
Economists use it in a different way than the rest of the world.
Well - thanks - I learned something new today.
lexicographically
Hooray! Thanks, PB.
Labor: I posted a link showing that wages very much *are* increasing in the Federal government sector, which happens to be the fastest growing sector of the economy.
Post it again if you can’
I did see something that suggested hourly wages had gone up, but I’m sure this is due to an utter collapse in low wage jobs. Sorry don’t need the car washed now, I’ll mow my own lawn, I’ll cut my own hair, ect ect. Given the unemployment rate I find it very hard to believe that total take home wages for the bottom 98% has increased in the last 6 months. Factor in the huge cost shifts of health care, and increased state taxes, and fees ect I’d bet the amount of spendable cash is dropping like a stone.
Borrowing will increase as banks have increased cash reserves - e.g. via the Fed buying all their MBS, which is already happening, to the tune of $1+ trillion.
We still haven’t seen increased lending. Banks are still sitting on huge piles of bad debt according to many. Total mortages outstanding is what 11-12 trillion, then there’s commercial and credit card ect. Then factor in all of the leverage. It’s hard to imagine that 1 trillion is a fraction of the problem.
FDIC will be increasing their take from the banks.
This bubble has proven that people don’t need to save money to be willing to spend money.
On that we can agree, and memories are short so if credit becomes available and lending increases it may be off to the races again. My guess is this time the race will be mighty short.
It finally appeared - see it up above a few posts.
Where I live, hourly wages have down along with hours worked.
If the PTB successfully initiate HIGHER than current price inflation, it will be a disaster.
“…gone down…”
Damn I wish we could edit our posts.
we’ll be in the midst of WW3 ??
Maybe amongst ourselves…
Civil War II? Between the banksters and the Paulites?
Goldman and the rest of Wall*Street.
Since North vs South has been done, East - West makes sense.
Your thinking too linearly. Try rural vs urban. Then go look at the election results map from last year. Dots of blue in a sea of red.
This could finally be the “wash out” that we need. It would do away with any optimism or denial. We can then start the recovery.
Roidy
“The action would leave bankers on the hook for trillions of dollars in unpaid mortgages…”
Not if the esteemed members of the United States Congress have anything to say about it.
In a new Housing Predictor survey nearly 1 in 3 mortgage holders say they will walk away from their homes if housing prices continue to fall.
Shame on them. Whatever happened to personal integrity? I guarantee 1 in 3 mortgage holders wouldn’t have to walk away - they just would. We are a nation of spoiled crybabies. Something doesn’t go your way? Throw a hissy fit and storm away.
How about redefine your own personal plan? Thought you were going to sell for a profit in a few years? Not going to happen? Then stay put, suck it up, and be quiet. The writing was on the wall - who’s fault is it that these people didn’t bother to read it?
Whatever happened to personal integrity?
The banksters were the first to throw it to the wind– and I see no reason why homeowners should be held to a higher standard when dealing w/them.
They need to watch out for joeyinCA, though– according to him, defaulting on a mtg is as bad as robbing a bank at gunpoint.
“The banksters were the first to throw it to the wind– and I see no reason why homeowners should be held to a higher standard when dealing w/them.”
Exactly and even J6P ain’t that stupid. Trust me, they KNOW “…good for the goose, good for the gander.”
The Investment Banks have already “walked” (by handing their MBS liability to the taxpayer).
If I was at a point where I was making $50K/yr, but had a house that was half a million bucks underwater, I’d have to walk, personal integrity or not.
Personal integrity is overrated. It sure hasn’t done me much good.
I don’t see where walking away has anything to do with personal integrity.
If I look someone in the eye and shake their hand on a deal, I am honour bound to make good on that deal.
If I sign a contract in 10 different places, a contract written by a large institution with all sorts of lawyers, I’m honour bound to do the best for myself within the limits of that contract.
“It sure hasn’t done me much good”
Well, we ALL have days where we feel like that and… since this thing has taken hold I’ll have to admit to having those days more often than I’d care to admit?
Still, I think it’s hysterical that all these REIC’sters are all of a sudden ‘rediscovering’ accountability? Well, not really… They’re just changing firms ( or the ‘name’ of the firm ) and being a little more cautious going forward.
But the truth is, they shouldn’t even ‘have’ that option. They should be blown out. Out of the biz altogether. And when you look at the way they’ve been able to operate without the slightest scrutiny, yeah, ya’ wonder why you bother..?
“Whatever happened to personal integrity? I guarantee 1 in 3 mortgage holders wouldn’t have to walk away - they just would.”
This is what happens when too many people go to B-school. You end up with national “business ethics.”
“Pigman flu pandemic forecast to lead to over 25 million US foreclosures.”
LOL, I love it. “Pigman flu”. Sweet.
People told me that being a renter meant you were a loser but I’ve now found out that I was just slightly ahead of my time.
This might have been posted before, an article in the Seattle Times asking for a break for renters:
America’s renters deserve better treatment from federal and local governments
Welcome back to renting, writes columnist Neal Peirce. It’s the easy-to-grasp idea that you pay methodically, month by month, for the roof over your head, without the fear of a toxic mortgage.
Syndicated columnist
Goodbye to the era of homeownership as the powerful, pervasive symbol of the American Dream. Who believes any longer that owning your own house is a sure ticket to building wealth and assuring yourself an easy retirement?
So, welcome back to renting — the plain vanilla, easy-to-grasp idea that you pay methodically, month by month, for the roof over your head.
…
read it at http://seattletimes.nwsource.com/html/opinion/2010034814_peirce11.html
owning your own house is a sure ticket to building wealth and assuring yourself an easy retirement ??
Who conjured up this prophecy ?? I did not buy my house so I could build wealth…The value of my house is irrelevant…Its not for sale…30 years and counting…
I’ve put away a lot more money since I’ve been renting and I don’t have to worry about open houses, shifty realtors, etc.
Geez scdave, but but but, what about all that equity wealth…just sitting there!
The true value of home ownership (not debtorship) is the imputed rent that accrues as income to the household.
is the imputed rent that accrues as income to the household ??
Assuming you only put a momentary value on that ownership…The value “to me” far exceeds any imputed rent accrual…
My point being, pensioners shouldn’t have mortgages.
momentary = monetary
Long-time posters on this blog have been predicting this development for years, but it is nonetheless amazing to see it in print.
Next up: MSM financial journalists discover that when prices drop in the top tier, they are mashed down in all lower tiers, as the top sets an upper bound on the market value of all lower-quality housing.
As to foreclosures leveling off in later 2010, I thought the high risk mortgage reset tsunami tide was not scheduled to crest until 2011, with unemployment to remain high?
* The Wall Street Journal
* REAL ESTATE
* OCTOBER 13, 2009
Foreclosures Grow in Housing Market’s Top Tiers
By NICK TIMIRAOS
…
Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.
The prime category includes so-called exotic mortgages that were increasingly used to buy more expensive homes, including interest-only mortgages that allowed borrowers to defer principal payments during an initial period. Borrowers often aren’t able to refinance out of these products because the drop in home values has left them with little equity in their homes.
Default rates are particularly high and expected to rise on option adjustable-rate mortgages, which allow borrowers to make minimum payments that may not cover the interest due. Monthly payments can increase to sharply higher levels after five years or when the outstanding balance reaches a certain level. A study by Fitch Ratings found that 46% of option ARMs were 30 days past due last month, even though just 12% of such loans have reset to higher monthly payments.
Zillow estimated that nearly one in four homes with mortgages was worth less than the value of the property at the end of June. Mr. Humphries said he didn’t expect to see foreclosure volumes level off until later in 2010.
“Next up: MSM financial journalists discover that when prices drop in the top tier, they are mashed down in all lower tiers, as the top sets an upper bound on the market value of all lower-quality housing.”
This is a point I have been arguing for years, and to which people continue to disagree with me. I keep hearing “the lower end has bottomed”, and I find that impossible. As those $750k houses become $300k houses, those $150k houses don’t just stay at $150k. They become the under $100k market. This is obviously a very crude example of course.
“…to which people continue to disagree with me.”
Do they also think that a chicken whose head is cut off remains alive, so long as it continues running around the farm yard?
Agreed Griz. Of course housing can’t be divided into discreet tiers (high end, low end, whatever) because it’s actually a continuum. When a $300K house becomes $290K, the houses already priced at $290K become less attractive by comparison and have to be reduced to $280K. The houses already priced at $280K houses become less attractive by comparison….
Unlike the political science version, this version of the Domino Theory (the one that pertains to the pecking order in housing values, based on relative desirability) happens to be correct.
Spot on Grizzly. It’s called price compression. What we’re seeing right now is those who couldn’t even come up with a few thousand down payment during the bubble years are the bulk of the buyers today. What are they buying? The bottom end. And what happens when those buyers disappear and/or default? The bottom end falls further with the weight of all the tiers above that price point coming down on it. Hard.
Prof,
The “high end” is getting a little stressed, you say?
Look at this!
http://www.realtor.com/realestateandhomes-detail/620-S-Ocean_Manalapan_FL_33462_1108389456?source=web
I’m gonna catch a falling knife on this one! Let me know when this gets to be $175k. I always wanted to live in a “Wonderful World of Disney ” house. I think is is a “spec house” though.
Of course, it is about $30 Million. I wonder if they’d take a low ball offer?
Roidy
I’m gonna catch a falling knife on this one!
Use the Bob Uecker (MLB catcher - turned comedian) approach. When asked about the key to catching knuckleballs - he said “The key is to wait until it stopped rolling, and then just pick it up.”
Uecker & Joe Isuzu & Baghdad Bob…my hero’s! Anyone for bowling & beer?
Tankxs for the remembrance packy…
looking at this abode, the words “sprung a leak” take on a whole new meaning…
>I thought the high risk mortgage reset tsunami tide was not scheduled to crest until 2011
Again I must point out that yes on paper the reset/recast wave crest is in 2011-2012 but in fact almost 50% of these Option-ARMs/Alt-A are already in some state of default as of today based on current MBS securities delinquencies behind these loans. Thus anyone waiting for a sudden big spike in defaults for these type of loans in 2011 will likely be disappointed. They are happening now and will continue to to happen going forward so by the time 2011 rolls around the vast majority of these loans will be in some state of default already.
And how many times have we heard about FB’ers who haven’t made a mortgage payment in many months with no NOD from the bank? Technically they may be in default but until a bank sends a NOD, it’s as though they’re current from a legal perspective.
Yes, that’s why MBS delinquencies tell you more: if the income stream has stopped from FBs then the MBS security income receipt falls and thus you see it irrespective of whether the bank sents the FB a default notice or not.
No mortgage payment = no MBS income = some type of default, regardless of bank sending a notice of default or not.
Also remember that foreclosures which produce the real downward pressure occ about 6 months later, and in many cases have been delayed beyond this due to law or banks desire to avoid write downs.
The recast wave originally peaked in 2010 in the second wave. However, due to refinancing its always a moving wave.
I believe the bulk of the really bad origination will be recast by next year. Resets will peak later.
My guess is we are looking at another 3-4 million forclosures.
I think you’re right. And I would qualify this:
Resets will peak later.
as referring to “later” being when interest rates are finally raised; at least with regards to reset-driven defaults. Right now interest rates are still insanely low so that people who’s ARMs are resetting won’t be as apt to walk away; the reset rate isn’t that much higher. However when (if?) rates start going up - watch out! Though the volume of ARM resets will be less, the volume of resulting walk-aways may be more.
Hyperinflation aside, of course.
But how can you refinance if the values of your house fell below that of the mortgage? You can’t, unless you come to the table with cash, and that just doesn’t happen. Thus the thing to do is walk away.
Reset is not much of an issue now due to low interest rate, recast is a bigger issue. That may change when and if rate goes up.
But how can you refinance if the values of your house fell below that of the mortgage?
You find an appraiser that doesn’t allow that to happen.
I’ll add to this that I am seeing many notes as old as ‘02 - ‘03 defaulting. Even well seasoned loans are going sour due to un/underemployment and walk away investors.
How many of those though have a HELOC tacked on, as a contributor to the default?
Many, good point.
Jim the realtor called that effect ‘The great Squish down.’
Got Popcorn?
Neil
‘The great Squish down.’
+1 Neil…
I know off topic…but what do you guys think of this?
http://host.madison.com/wsj/news/local/article_ae184f7e-b5f3-11de-a4cc-001cc4c002e0.html?mode=story
I think he looks fine. Plus it might be a useful deterrent to anyone thinking of getting frisky with him in the showers……
It was a pre-existing, self-inflicted injury acquired prior to his extended holiday with The State of Wisconsin Slammer System…Request for new head…Denied
next problem
Implied prison rape reference in the first reply! Because prison rape has been rampant for a long time there is lots of data available about how it destroys people and dramatically increases the chance of future criminal activity. Using tax dollars to increase criminality through rape of incarcerated citizens seems problematic, particularly if justice is the goal.
It might be better to throw him in a chair with 20k volts?
“I do understand that institutions are responsible for providing necessary medical treatment,” Hraychuck said, noting that as sheriff, she ran the Polk County Jail. “Now my job is to protect taxpayers … and make sure they’re getting the best bang for their buck.”
Well scarface got the best bang for his buckshot. Let’s get the UW med students do their plastic surgery training on this guy.
Inmates routinely die in prison due to lack of medical attention to diagnosed illnesses. I don’t know why this particular institution is so dedicated to reconstructing this guy’s face. Maybe the local med students do need a live body.
Welcome to Bizzaro World.
This is what happens when “the victim” has a name and a face, but Joe Q Taxpayer is just some kind of nameless, faceless, entity that has to cough up the bucks to comply with government “policy”.
Standing alone, this kind of deal isn’t a budget breaker…….but multiply it by thousands/millions, and you are talking real money.
It might be possible to link this to bubble dynamics. We have a bubble of medically uninsured people. If treating people was considered the normal thing to do anyway then this wouldn’t be such an issue. We also have a bubble of incarceration. Is spending time being housed and served by the state actually going to help anything in this case? Is it possible that other changes such as no fault divorces and free referral to counseling might prevent similar crimes in the future?
This issue is being framed as why should the state pay to help a criminal, but behind this situation are larger issues about what the state should and should not do. Should the state use laws to force insurance to be the only way to pay for medical coverage? Should the state continue to warehouse criminals even though we know this not only doesn’t help, but tends to make things worse at great expense in most cases? Should the state continue to use its power to manipulate human relationships instead of letting people work things out for themselves? Most will ask why the state is getting into this situation, but what I want to know is why my tax dollars are being used to create this kind of situation. There seems to be a really big bubble in fear of tax dollars being used for compassion. Weapons systems and optional wars overseas are no problem, but the atmosphere and this guy’s face are bothersome intrusions. As always, do the math and follow the money and you may find that popular outrage misses the mark.
1ST: “What? …he’s going on a date?”
2ND:
“Doctors have an ethical duty to prevent and limit suffering of patients in their care, and a duty to practice medicine in a neutral way without fear or favor,”
I guess the AMA does not have a doctors “Pro Bono” registry in Wisconsin?
That waste of skin should have been flash fried from the get go.
If home values have another 10 percent decline ahead on a national basis, how much farther will they have to fall in markets formerly referred to as “a bit frothy”? 20 percent? 30 percent?
Be sure to factor currency debasement into your estimates.
P.S. For those who thought they were too clever by half by taking advantage of the first-time home buyer credit before it expires, note that (1) it looks like it is almost certainly going to be renewed (as I and others here have predicted all along); (2) unless the value of your first-time faux chateau was less than $80,000 when you bought it, a further ten percent decline in home values will wipe out all of your tax credit.
Home values expected to fall 10% nationally
Unemployment and tight credit hinder recovery of market
By Roger Showley
Union-Tribune Staff Writer
2:00 a.m. October 13, 2009
The Mortgage Bankers Association held a panel discussion. Some housing markets are expected to do better than others.
The nation’s mortgage bankers painted a short-term gloomy picture of the housing market yesterday, even as they described steps they are taking to revive the home lending industry.
David H. Stevens, head of the Federal Housing Administration, told a panel at the Mortgage Bankers Association convention at the San Diego Convention Center that all signs point to a further 10 percent drop in home values by the first quarter of next year.
Panel moderator Michael D. Berman, chief executive of Boston-based CWCapital, followed up in an interview to say the 10 percent prediction applies nationally but some markets will likely do better than others.
“I think we’re approaching stability,” Berman said.
…
“I think we’re approaching stability,” Berman said.
I thought we at apprx FUTURE #28…but really I haven’t a CLUE!
Comment by clue
2008-12-04 09:45:47
From the London Banker website (comment section):
HISTORY
1.Margin calls on hedge funds
2.Sudden contraction of global market liquidity
3.Huge sales to meet margin calls
4.Trillions of dollars of value wiped off balance sheets
5.High levels of hedgie redemptions
6.More sales of assets
7.Collapse in global prices for equities, debt and commodities.
8.Dollar stronger because lots of funds in London struggling to meet their margin calls in New York.
9.Fed doubles balance sheet
10.Taxpayer largesse doled out to Wall Street
11.Bailouts of autos, airlines, etc. wherever (and ONLY wherever) Wall Street is at risk from CDS liabilities
12.Huge expansion in the monetary base
13.Banks begin to accumulate massive reserves
14.Incoming margin cash (and a lot of other cash) parked in Treasuries
15.Treasury prices up; yields down.
16.25 November: Bloomberg reports US bailout totals 7.7 trillion
FUTURE
17.Margin calls end
18.Deleveraging stops
19.Reduced demand for dollars
20.Reduced need to park cash in US Treasuries
21.US domestic demand very low and imports greatly reduced
22.US trade deficit declines quickly
23.Exporters to US don’t need to need to buy so many US Treasuries
24.Bank reserves used to buy crashed assets, many outside the US
25.Banks start to sell US Treasuries to finance these purchases
26.Net sales of US Treasuries – prices falter then fall
27.US can’t sell enough Treasuries and starts to monetize debt
28.Dollar starts to fall
29.Global equity markets rise
30.Commodity prices rise
31.Supply-side shock in the US leads to shortages
32.US prices rise and US govt. can’t fudge inflation numbers enough
33.US citizens panic
34.Hyperinflation of prices of consumption goods in the USA
35.Dollar falls
36.IMF overwhelmed
37.Exports to USA reduced even further
38.Global economy shrinks again, worse than ever
39.Global depression That’s the best rewrite of History here yet.
I’d call it as approaching #31.
I’d be more impressed with a time line.
If the median price for which homes are selling is unchanged but the quality mix of homes selling is trending towards more desirable housing, the rather obvious conclusion is that the market value of higher quality housing must be falling.
No change in median home price
Analyst sees shift in types of properties being sold
By Thomas Kupper
Union-Tribune Staff Writer
2:00 a.m. October 13, 2009
The median home price in San Diego County stayed at $325,000 last month, unchanged from August, MDA DataQuick reported yesterday.
It was the ninth month in a row that the median has either increased or stayed the same, as the real estate market continues to inch its way out of a collapse that cut the median price nearly in half.
But DataQuick analyst Andrew LePage said the increase has been driven less by any improvement in individual property values than by a shift in the mix of properties that are selling.
Although more than half of all resale homes that changed hands last winter had gone through foreclosure, last month it was down to 36 percent. At the same time, LePage said, more homes are selling in higher-priced areas, notably coastal North County.
“In the context of the last couple of years, it was not a bad September,” he said.
…
“…improvement in individual property values…”
So long as affordable housing is a desirable policy outcome, shouldn’t improvement…in property values be interpreted to mean a decline in values?
f the median price for which homes are selling is unchanged but the quality mix of homes selling is trending towards more desirable housing, the rather obvious conclusion is that the market value of higher quality housing must be falling.
Hey PB. Be sure and give me a holler when I can buy a 3/2 in Solana Beach for less than $300k
What happened to that REIC troll Fast Eddie after his highly annoying series of posts yesterday?
Just in case Ben happened to taze him, I would like to express a personal word of thanks..
Fast Eddie is at the pawn shop today selling his gold chain.
Good Riddance EddieTheTard.
I always thought Fast Eddie was Joey .All of a sudden Joey is gone and
Eddie appears .
Aw man, where’s the love,the care and compassion for your fellow man. We are now in the “hopey changey” era, it’s all good. Eddie may have been a tard but that’s okay.
He just talked tarded.
Yeah….. likely JoyBoy.
Its terrible when you can only find the truth about our situation in other countries. He is also raising warning flags about the housing bubble raging in Australia.
Economist warns of RBA rate rises
US - no recovery in sight Hudson doubts a US recovery likely in the near future.
‘We still consider it going deeper and deeper,’ he says. ‘People talk about a recovery, but there’s no recovery in labour; unemployment is now at 10 per cent. So we’re looking at an L-shape here.’
He says while the stock market has gone up, the economy hasn’t.
‘It’s easy to have the stock market go up when the government gives $13 trillion worth of investment to the financial sector. Of course that’s going to raise the stock market!’
And while it may seem all doom and gloom, Hudson says there is light at the end of the tunnel.
‘The good news is that when a country really hits the wall and prices turn down, they change the environment.’
Switzer asks if there an adjustment process going on at the moment in the US.
‘Eventually, everything goes up again. I don’t know whether that’s the right direction. People think they’re going to go down for at least another year and a half and when an economist says that, that means as far as the eye can see.’
http://www.skynews.com.au/finance/article.aspx?id=382540
I am not sure if this article was linked to yet, but this is my choice for quote of the week:
“It has nothing to do with the value of the home,” said Mike Wasmann, president of the Arizona Association of Realtors. “It has to do with people not having any money.”
http://www.azcentral.com/arizonarepublic/business/articles/2009/10/11/20091011biz-vhv-main1011.html
It certainly appears as if crude will remain at a permanently high plateau for the time being. I drove 900+ miles last Thursday to pick up my new (used) motorcycle. The price was right even when factoring in the fuel used and time spent. On my trip, I never paid less than $3 per gallon, and it was over $4 at some far flung stations in the sticks.
The new motorcycle allows me the freedom to make short trips to the store, etc., without so much as noticing the price of fuel. I will get more than 40 mpg, and the bike cost me less than $4k. It’s exactly what I was looking for, a dual sport, and I feel that I have seriously weened myself from the need for copious amounts of the greedy pigmen’s speculative juice.
Next step is to sell the full size GMC with the V8. I’ll be sad to see it go, as it was purchased new in 2005, and the nicest vehicle I’ve ever owned (though it had mass warranty issues). It was to be the last truck I’d ever buy. Things change. It makes sense to unload it now, as it still has less than 80k. I’ll soon find out if there is a market for it. I always price my used vehicles below blue book, and leapfrog anyone else selling a like product. I always make sure they are sparkling clean, inside and out. I’ve never had a problem.
I’m not sure what vehicle I’ll purchase to replace the truck, but I’ll take my time, and it will certainly be something much cheaper in both fuel and purchase price. The days of high priced vehicles are over, for me. It’s a scam when you think of the high cost of repairs in addition to the huge cash outlay for the product itself. A new transmission on a newer truck is more expensive than just buying an old beater truck. That model is broken, though. I see a resurgent market for older, less complicated vehicles as this depression unfolds.
Older, less complicated vehicles are being subsidized and regulated out of existence.
Congrats
There is no better investment that energy efficiency right now. It’s an inflation hedge with an almost guaranteed return (Don’t let the bike get stolen w/o ins).
If you are interested you should look at Vectrix (electric motorcycle), for a while on Ebay you could pick one up for 3500 essentially new as the company was going out of business, I think they are going to get bought up so they might be higher now not sure.
Gas is +/- $2.20 here.
Happy Act…Hell yea! Why not.
Will Max be a tax break? Can Fido help with FICA?
Animal shelters are overflowing with abandoned pets.
A bill making the rounds on Capitol Hill marries two feel-good propositions — tax cuts and pet ownership — to generate a novel idea: A tax break of up to $3,500 per person for pet care expenses.
The measure is a legislative long shot. But it’s been championed by a veteran Hollywood tough guy and by a conservative Michigan congressman, and has drawn the enthusiastic support of animal rights groups eager to promote pet ownership during economic down times.
“We think this is as much a health care bill as any,” said Nancy Perry, vice president of government affairs at the Humane Society. “It’s a human health issue to ensure that pets are provided with better care because of the role they play in our families.”
The measure even has a snappy acronym: the HAPPY Act, as in Humanity and Pets Partnered Through the Years.
Gov’t money for abandoned pets in America…or…more “green paint” for Baghdad?
Jack Benny: “Decisions, decisions…”
Ohhhh boy. That will NOT end well. I can see many desperate folks adopting a shelter pet just to get the tax credit, only to turn the poor animal loose when it has served its purpose.
I suppose renting is the new black……
http://www.nytimes.com/2009/10/11/realestate/11cov.html?hpw
What blithering clueless airheads. Yet they have jobs…
How can they be so crass. $5000 a month for rent….these morons sell at the top of the market then throw away all the profits on a luxury rental.
And he is unhappy without his Viking stove and walnut floors????
“What blithering clueless airheads. Yet they have jobs…”
You’ve just cut to the heart of what’s wrong with this country. What’s worse… they are probably managers.
Wheeeee!!!
‘“Whenever our friends see us, they say, ‘We have a place half as big as yours and we’re stuck with owning,’ ” said Ali Reza Farahnakian, 41, a former “Saturday Night Live” writer who owns the People’s Improv Theater.’
Ha! The guy owns a NYC Theater, but not a home, and he feels lucky to rent!!
Buttonwood over on The Economist has it correct:
“Many Americans think much of this money might as well have been tied up in bundles and burned.”
He is talking about the bail out money and all of the debt guarantees.
I agree.
Roidy
“Many Americans think much of this money might as well have been tied up in bundles and burned.”
Actually, tying it up in bundles and burning it would have been a much _better_ outcome; at least doing that would not have distorted the economy, pushed the stock market to absurdly high heights, etc.
“Americans were the world’s champion consumers. Just lend them money; they’d spend it. But when they stop spending it brings a hush to the entire planet. The malls go quiet…trucks slow down…ships are idled…and finally factories are shut down. Clerks, drivers, stevedores and assembly line workers all go home. That is what a depression is all about.
“The feds are trying to get consumers to spend again. They’ve given them tax rebates, incentives, loans, and bribes. They’ve run a federal deficit three times higher than the previous record. They promise $1 trillion deficits “as far as the eye can see.” And they put at risk a sum of money equal almost to the entire US GDP.
“Still those hardheaded consumers won’t consume like they’re supposed to.
“Suddenly, it’s the ‘Age of Thrift.’ ”
< These remarks by Bill Bonner would have been laughable during the late economic boom, which has ended in an embarrassing slowdown of the American buying spree. Consumers are being beat over the head as heavily as ever with advertising, but they have developed a level of sales resistance we would have thought impossible not so long ago when they were buying everything in sight….on the cuff.
The slowdown is terrible news for the corner boutique and the upscale restaurant, but a great many consumers have abruptly changed their habits. No longer is endless debt so attractive. The idea of paying down debt and even saving a few bucks is suddenly attractive.
Have Americans discovered they can’t borrow themselves rich?
It’s obvious that Bill Bonner never had a child that “needed” that “special” “limited edition” “retired” beanie baby…now!
Or the latest $299 Hootchie mama Halloween outfit made of imported used high thread count silk bedsheets from bangkok
Oh, my kids “needed” stuff like that. I guess my wife and I are bad parents. We prepaid the kids college educations in full. The other stuff they so critically needed went into the “pent up demand” category.
Let me put it this way, it isn’t my pent up demand.
Roidy
Have Americans discovered they can’t borrow themselves rich?
Well if by discover you mean they can’t borrow because they are already in debt up to their eyeballs and the banks won’t lend and they just lost their job, and their health care costs are going through the roof, and states are increasing taxes on the middle class and cutting services and raising fees.
Then yes they have discovered this, but my guess is that if given free money again the orgy would continue.
“but my guess is that if given free money again the orgy would continue”.
With out a doubt! We are well trained to consume any and everything, but we will need mo money, fast and easy.
President Obama has come under withering attacks from right-wing politicians, pundits and Tea Party throwers. But the Glenn Becks of the world could learn a few things from Ralph Nader when it comes to criticizing the President.
Here’s a sample of what the famed consumer advocate and former Green Party presidential candidate says of Obama in the accompanying video:
His early months in office have been “very disappointing.”
Obama is “a frightened man,” who won’t take on corporate power.
Obama is “conflict averse” - and a “harmony ideology type,” who’s being taken advantage of by the sharks in Congress, of both parties.
He’s “Bush-Cheney redux” when it comes to military and foreign policy, “albeit with better speeches” to the Muslim world. Given Obama’s handling of the wars in Iraq and Afghanistan, Nader wonders in amazement: “And they gave him the [Nobel] Peace Prize?”
Nader’s main gripe is that Obama has “turned his back on the very people” who voted him into office, imploring the President to invite representatives of consumer, environmental and worker groups to the White House — “as they elbow their way between the hordes of corporate execs, speculators and criminals that have received invitations there.”
Notably, the accompanying interview was conducted prior to reports that Obama has backed away from a campaign promise (threat?) to raise taxes on corporations overseas profits.
It would be interesting to see how the world would turn out with a Nader or Paul in office. Differing views on the roll of gov but common strong belief that what we have now is organized theft.
‘Obama has “turned his back on the very people” who voted him into office,…’
Hello! I’m still here…
Utah bankruptcies soar 62 percent over first nine months of 2009
The Salt Lake Tribune 10/13/2009
Utah’s struggling economy and the accompanying high unemployment rate is exacting a bitter financial toll on the lives of thousands of the state’s residents.
The U.S. Bankruptcy Court for Utah has reported it received 10,706 bankruptcy petitions during the first nine months of 2009. That’s a staggering 62 percent increase from the same nine month period a year ago.
Utah isn’t alone.
Bankruptcy filings nationally surged past the 1 million mark during the first nine months of 2009. It was the first time that seven-figure number has been hit in any nine-month period since the overhaul of the nation’s bankruptcy laws in October 2005, according to the American Bankruptcy Institute, a nonprofit research organization
that studies issues related to insolvencies.
“Bankruptcy filings continue to climb [nationally] as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt,” said Samuel J. Gerdano, executive director of the American Bankruptcy Institute.
Sherri Overby at Globous Financial Relief, a Salt Lake City-based company that provides counseling to those who are considering filing for bankruptcy, said many Utahns now seeking help are hoping to save their homes from foreclosure.
Again, consider how bad it really is in light of the so called bankruptcy “reform” that went into effect 4 years ago.
They made filling even harder and yet fillings are at record levels and climbing.
Bernie Madoff got into a prison yard fight over trading crimes.
I guess that tells you what kind of prison he is in. It ain’t Oz.
Roidy
Behold my numbered responses, Roidy. Today I’m being organized and stuff.
1. I enjoyed watching ‘Oz’. One question that never was answered to my satisfaction was: How the heckfire did Adabisi keep that little beanie cap stuck to his smooth bald noggin? Amidst all the beatings and killin’ and general excitements? That one niggling question remained like a speck of gravel in my brain-pan.
I once watched my cousin prepare her darling baby girl for Sacrament meeting on Sunday and she glued a precious pink bow to the helpless child’s head with Elmers School glue…maybe the same thing.
2. I am gonna go google this subject Madoff prison ‘fight’ subject. I have long wondered why this guy is even ALIVE. If I lost my life savings to this guy I wouldn’t have been contented to write a grumpy victim-letter to the judge, that’s for sure.
I once watched my cousin prepare her darling baby girl for Sacrament meeting on Sunday and she glued a precious pink bow to the helpless child’s head with Elmers School glue…maybe the same thing.
Aha!
I’ve been wondering if I’ll have to duct tape winter hats to my son’s head in the next few months to keep them on, but your cousin may be onto something ….
My guess is that if some prisoner takes him out there will be a muffled chear like there was with Dalmer.
Let’s also not forget that many of his clients pretended innocence of his activities.
Listening to the radio on the way to work this morning, there was an ad for a mortgage refinancing place. They tout the “average 14% savings” for their clients.
Then I heard the “fine print”: Only <= 80% LTV and jumbo mortgages excluded.
I guess I’m not aware of what the limit for jumbos is these days, but in the Seattle area, you’d be hard pressed to find a place < 400k (the old limit), and 80% LTV…really?
So what, maybe one person in the metro area can benefit from their offer? Nice…
“A million dollar hamburger? Are you crazy? Just how many of those do you expect to sell?”
“I only need one customer.”
Cool, just what we need, a way more bigger bomb than the MOAB. This one is called a “massive ordnance penetrator”… MOP’um up baby!
US wants bunker-buster fast, denies Iran is reason.
Oct 13, 6:35 AM (ET)
WASHINGTON (AP) - The Pentagon is speeding up delivery of a colossal bomb designed to destroy hidden weapons bunkers buried underground and shielded by 10,000 pounds of reinforced concrete.
Call it Plan B for dealing with Iran, which recently revealed a long-suspected nuclear site deep inside a mountain near the holy city of Qom.
The 15-ton behemoth - called the “massive ordnance penetrator,” or MOP - will be the largest non-nuclear bomb in the U.S. arsenal and will carry 5,300 pounds of explosives. The bomb is about 10 times more powerful than the weapon it is designed to replace.
The Pentagon has awarded a nearly $52 million contract to speed up placement of the bomb aboard the B-2 Stealth bomber, and officials say the bomb could be fielded as soon as next summer.
Pentagon officials acknowledge that the new bomb is intended to blow up fortified sites like those used by Iran and North Korea for their nuclear programs, but they deny there is a specific target in mind.
“I don’t think anybody can divine potential targets,” Pentagon press secretary Geoff Morrell said. “This is just a capability that we think is necessary given the world we live in.”
The Obama administration has struggled to counter suspicions lingering from George W. Bush’s presidency that the United States is either planning to bomb Iranian nuclear facilities itself or would look the other way if Israel did the same.
The administration has been careful not to take military action off the table even as it reaches out to Iran with historic talks this month. Tougher sanctions are the immediate backup if diplomacy fails to stop what the West fears is a drive for a nuclear weapon.
finance.yahoo.com/expert/article/mortgage/195143
In 2002 I wrote a column contrasting the housing finance systems of Denmark and the U.S. Recently,
The core of the Danish system is eight specialized mortgage banks which originate all home mortgages, as well as a mortgage bond market where the loans are funded. Each new loan is immediately sold in the market for the equivalent bond. If the new loan is a 30-year FRM, for example, it will be sold to investors as an increase in the balance of the 30-year fixed-rate bond. There are bonds with fixed and adjustable rates, and within each category there are separate bonds for different terms.
The Danish system makes it easy for borrowers to shop for a mortgage. On a given day, all borrowers pay the same interest rate on a given type of loan. (Borrowers either meet the credit and other requirements, or they don’t.). The interest rate on a new mortgage loan is the current market yield on the specific bond that will fund the loan, plus the mortgage bank’s markup. Bonds are traded on the Copenhagen stock market, and their yields are readily available.
Danish mortgage banks do not adjust the interest rate for points, nor do they tack on a series of fixed-dollar charges to cover specific expenses, as is the practice in the U.S. Total upfront fees are modest and pretty much the same at all the mortgage banks.
The strength of the Danish system consists of its transparency and low origination costs. Its major weakness is that it does not serve as large a segment of the population as the U.S. system. Loans are not priced for risk, so borrowers who have poor credit or who cannot make a down payment of 20 percent are not served. In a financial crisis, however, this “weakness” is a source of strength, as we have recently learned.
Both countries were afflicted by the worldwide loss of confidence in financial institutions. Both governments responded by guaranteeing the liabilities of banks and other financial firms, including mortgage banks in Denmark. However, in Denmark that guarantee did not include mortgage bonds, because it was not considered necessary. The Danish mortgage bond market continued to function normally during the crisis, which meant that new loans continued to be written as before.
In the U..S, in contrast, markets in mortgage-backed securities (MBSs) not guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae ceased functioning
The market for private MBSs collapsed because investors incurred — or anticipated that they might incur — horrendous losses, whereas investors in Danish mortgage bonds did not suffer any losses at all. One reason is that the Danish mortgage bond system is inherently stronger than the MBS system. A Danish mortgage bond is a liability of the mortgage bank issuing it .
“Securitization does not mean the banks is off the hook, now if we could claw back from CEO’s we’d have something.”
The second reason the private MBS market in the U.S. collapsed and the Danish bond market didn’t is the much higher default rate on mortgages in the U.S. In addition, investors incurred larger losses on defaulted mortgages because defaulting borrowers in the U.S. had less equity.
Why? A major reason is that, in the U.S., down payments of less than 20 percent were the norm well before the bubble began, and no-down payment loans became increasingly common during the bubble. When the bubble burst in 2007, therefore, a substantial proportion of the homes purchased in the prior two to three years had no equity.
In contrast, the down payment requirement in Denmark was 20 percent well before the bubble and remained 20 percent during the bubble.
all mortgage borrowers in Denmark have personal liability which is enforced by lenders
Hmm sounds deflationary
DENVER – Colorado will become the first state to reduce its minimum wage because of a falling cost of living.
The state Department of Labor and Employment ordered the wage down to $7.24 from $7.28. That’s lower than the federal minimum wage of $7.25, so most minimum wage workers would lose only 3 cents an hour.
Colorado is one of 10 states where the minimum wage is tied to inflation. The indexing is thought to protect low-wage workers from having flat wages as the cost of living goes up.
“Honey, we’re going to have to sell the yacht.”
We’ve seen Cash for Clunkers and Cash for Crapshacks. Now how about Cash for Criminals?
Disappearing boats
September 28, 2009 5:57 PM
Peter Schaller
Expensive boats are turning into quick cash for criminals. This weekend another local Yacht dealer takes a hit. Its more than just one boat at one dealer, some in the the marine industry are protecting their products with state of the art security systems and armed guards. Big problems for big boats, that can pull in big bucks on the Treasure Coast.
“If you don’t have a security system, these dealers are like sitting ducks,” said Lou Lentine, a Stuart boat dealer.
…
This guy should be a Walstreet CEO, wasted talent
A rural Juneau man accused in a civil lawsuit of ensnaring his church and fellow parishioners in a non-existent investment scheme has twice been convicted on federal felony charges of bank fraud.
Arthur Eith, 66, pleaded guilty to one count of bank fraud in 2007 and was placed on probation for five years, according to federal court records. The 2007 case references a prior conviction in 1991 for federal bank fraud for which Eith spent two years in prison.
Records from the 1991 case were not immediately available for review due to the age of the case.
Eith is at the center of a lawsuit filed by St. Bernard’s Catholic Church in Watertown. The congregation alleges that Eith convinced his parish priest, the Rev. Thomas Marr, that he needed a large sum of money up front in order to receive a paycheck he was due from the government of Nigeria.
The lawsuit says Marr provided Eith with at least $55,000 from a church account and another $400,000 or so from parishioners, priests and others. Eith allegedly had promised to donate $1 million to the church once he secured the Nigerian money.
Eith told the State Journal on Monday he did not pitch the idea as an investment opportunity but had simply turned to his parish priest for help. He maintained his innocence Tuesday and claimed again that he has been to Nigeria “many times over the years to do (consulting) business.” He declined to provide proof to a reporter of his trips there.
In the 2007 conviction, federal prosecutors said Eith’s wife, Barbara Haase, obtained a $305,000 loan from M&I Bank in 1998 to purchase cows. As collateral, she pledged to maintain a herd of at least 100 cows.
In March of 2002, Haase filed for bankruptcy and disclosed to the court that she possessed 77 cows. In June of 2002, M&I Bank seized 32 remaining cows.
Haase, principal of Saint Katharine Drexel School in Beaver Dam, a Catholic grade school, was not charged. Although Eith was not a co-signer of the loan, federal prosecutors say he handled the loan negotiations and sought to deceive inspectors about the number of cows in the herd.
In two instances, federal prosecutors say Eith approached other farmers about short-term loans, suggesting to them that if they bought cows from him, Eith would buy them back within a couple of weeks for a greater sum. Eith allegedly told the farmers he needed money fast to “participate in an overseas investment opportunity,” according to court records.
Tuesday, Eith called the case old news and not relevant.
The Financial Times
Deep job cuts ‘give US groups an edge’
By Richard Milne in London
Published: October 13 2009 20:12 | Last updated: October 13 2009 20:12
US companies appear to have cut far more jobs than their European rivals during the crisis, providing a possible explanation of why American groups are performing better than their competitors across the Atlantic.
Chief executives and analysts said the trend also offered a reason why economic growth in the second quarter was higher in the eurozone than in the US and UK.
They said while US corporate profitability was boosted by the jobs cuts, the economy might suffer in the short-term from the shock of them.
US companies cut about 640,000 jobs in the first five months of this year compared with 350,000 at European groups, according to research by the International Labour Organisation based on media reports.
Asian groups cut 240,000 jobs in the same period.
The figures only show the absolute numbers of job cuts reported in the media. They do not take into consideration the number of companies in each region or small job cuts that fail to make the newspapers.
Hans-Paul Bürkner, chief executive of Boston Consulting Group, said: “If you lay off people massively, you destroy confidence in the economy as a whole and inside the company.
“You see the performance of companies not picking up so dramatically in Europe because they are not so focused on the short term.”
…
Oh bugger! A selloff is in the cards once DJIA = 10,000 is reached. Why bother buying now if prices are about to tank, anyway?
Oct. 13, 2009, 4:27 p.m. EDT · Recommend (6) · Post:
With Dow near 10,000, stocks might get stuck
Some strategists say sell-off might be in the cards
By Nick Godt, MarketWatch
NEW YORK (MarketWatch) — With the Dow Jones Industrial Average fast approaching the 10,000 mark, more than a year after plummeting through it near the height of the financial crisis, market strategists believe passing the magic level convincingly might prove a sticky affair.
…
Please remind me again why residential development such as tract housing and apartment complexes qualify as “commercial” real estate? I am endlessly confused on this point.
P.S. The evil gremlin who some times sits on my left shoulder cannot wait for this deal to collapse into default
* The Wall Street Journal
* REAL ESTATE
* OCTOBER 14, 2009
An Apartment Complex Teeters
High-Profile Tishman/BlackRock Property in New York in Danger of Default
By LINGLING WEI and CRAIG KARMIN
The giant Stuyvesant Town apartment complex on Manhattan’s East Side, shown Tuesday, was developed by MetLife for World War II veterans.
One of the biggest, most high-profile deals of the commercial real-estate boom is in danger of imminent default, say people familiar with the matter, signaling the beginning of what is expected to be a wave of commercial-property failures.
The sprawling Manhattan apartment complex known as Peter Cooper Village and Stuyvesant Town — acquired for $5.4 billion in 2006 by a venture of Tishman Speyer Properties and a unit of BlackRock Inc. — is running out of cash. As of the end of September, it had $33.7 million left of the $400 million in interest reserves set up to service its debt, according to the people familiar with the matter. At its current burn rate of about $16 million per month, the reserve could be depleted before the end of the year, the people said. Others have said the venture could avoid default until February.
…
* The Wall Street Journal
* OPINION
* OCTOBER 13, 2009, 11:01 P.M. ET
The Message of Dollar Disdain
With U.S. debt set to exceed 100% of GDP in 2011, it’s no wonder people are looking for alternative ways to preserve wealth.
By JUDY SHELTON
Unprecedented spending, unending fiscal deficits, unconscionable accumulations of government debt: These are the trends that are shaping America’s financial future. And since loose monetary policy and a weak U.S. dollar are part of the mix, apparently, it’s no wonder people around the world are searching for an alternative form of money in which to calculate and preserve their own wealth.
It may be too soon to dismiss the dollar as an utterly debauched currency. It still is the most used for international transactions and constitutes over 60% of other countries’ official foreign-exchange reserves. But the reputation of our nation’s money is being severely compromised.
Funny how words normally used to address issues of morality come to the fore when judging the qualities of the dollar. Perhaps it’s because the U.S. has long represented the virtues of democratic capitalism. To be “sound as a dollar” is to be deemed trustworthy, dependable, and in good working condition.
It used to mean all that, anyway. But as the dollar is increasingly perceived as the default mechanism for out-of-control government spending, its role as a reliable standard of value is destined to fade. Who wants to accumulate assets denominated in a shrinking unit of account? Excess government spending leads to inflation, and inflation plays dollar savers for patsies—both at home and abroad.
…
What we need is more Baby Bear government: Not Too Much and not Not Enough, but Just Right.
* The Wall Street Journal
* OCTOBER 13, 2009
Rage at Government for Doing Too Much and Not Enough
By NAFTALI BENDAVID
WASHINGTON — Americans have historically swung between anger at big business and anger at Washington. This year their rage has targeted business and government with equal fury.
Public frustration over Wall Street failures that led to the financial crisis was typified by the uproar over bonus payments to American International Group Inc. executives. Those feelings haven’t dissipated, political strategists say. At the same time, Americans are equally upset at what they call overreaching by Congress and federal bureaucrats, with protesters taking to the streets to decry “socialism” and a “government takeover” of the economy.
Policy makers face a quandary. With voters simultaneously recoiling at laissez-faire policies and a big-government approach neither party in Washington seems capable of corralling an angry public.
“I think this is a very populist moment,” said Vin Weber, a former Minnesota congressman and now a top Republican strategist. “People held onto their distrust of big business and Wall Street, but what has happened is their distrust of big government has come back as well.”
…
Who’d ‘ave thunk it: October 2008’s $700 bn TARP was a precursor to a subsequent October when Wall Street offered its top scam artists record pay!
* The Wall Street Journal
* OCTOBER 14, 2009
Wall Street On Track To Award Record Pay
BY AARON LUCCHETTI AND STEPHEN GROCER
Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street’s pay culture.
Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.
…
* The Wall Street Journal
* REVIEW & OUTLOOK
* OCTOBER 14, 2009
MBS, R.I.P.?
A Treasury rule on loan modifications riles the securities market.
The $1.7 trillion mortgage securitization market is still a mess, despite (or in part because of) the Federal Reserve’s $700 billion splurge into the market. But another reason may be Treasury’s decision to undermine private mortgage-backed securities (MBS) contracts.
BlackRock Inc. Chairman Laurence Fink went so far recently as to call this “one of the biggest issues facing American capitalism.” He’s worried that to protect banks from billions of dollars more in writedowns on bad second liens (a.k.a., home-equity loans), Treasury is trashing private contracts. “There is modification going on protecting our banks, protecting their balance sheets” and “I’m just very worried about it.” Until that issue is cleared up, he says, we won’t “get a vibrant securitization market back.”
One reason the MBS market blossomed in the first place is because investors who bought a mortgage security believed that first mortgages were senior to second liens. In the event of a foreclosure, second liens would be extinguished first and holders of the first mortgage would get what was left because that’s what the contract said.
This changed in April when Treasury announced that instead of foreclosing on delinquent borrowers and wiping out second liens, mortgage servicers (mainly the biggest banks) would be given incentives to modify both loans, thereby spreading the losses. In mid-August, Treasury announced the details of its “Second Lien Modification Program,” or 2MP, calling it “a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans.”
Treasury says it is merely trying to help borrowers stay in their homes. But there’s little evidence that modifications are stabilizing the market. Treasury’s recent release of second-quarter mortgage loan data showed that redefault rates are stubbornly high, even though most new modifications now provide for lower monthly payments of interest and principal.
…
“…a comprehensive solution to help borrowers achieve greater affordability by lowering payments on both first lien and second lien mortgage loans.”
That sentence is comprehensive bullsh!t which ignores that affordability happens when a home is bought outright, not after the borrower realizes they face an affordable debt burden.
I meant “unaffordable debt burden”…
must be time for bed.
Given rampant inflation in raw land prices, I suggest many speculators believe the Fed’s anti-inflation rhetoric about as much as most currency traders believe TTT’s “strong dollar” rhetoric.
Which is to say, not very much.
The sad news is that if the Fed thought showering money on Wall Street was going to somehow restart the construction industry, this article suggests they may have shot themselves in the foot.
* The Wall Street Journal
* HEARD ON THE STREET
* OCTOBER 14, 2009
Builders Grounded by Land Prices
By JOHN JANNARONE
Glimmers of a home-price recovery mean that some home builders may soon return to the black. But, with prime land plots tough to find, investors shouldn’t set their sights on healthy profit margins.
Over the past few years, many builders have shed some of their best land holdings and hoarded cash to strengthen balance sheets. Many expected to be able to restock at low prices when competitors fold, conscious that the last big property bust in the early 1990s led to plenty of cheap land sales.
It hasn’t yet worked out that way. Even with many private builders going bankrupt, the supply of desirable lots has run dry.
That’s partly because many lenders who have taken possession of land are wary of selling while the market is soft. So land costs are rising in locations where builders are most keen to invest.
Take California, where the likes of D.R. Horton and KB Home have a sizable presence. In prime locations, prices of finished lots have risen 10% to 30% in the last four months, according to Jeff Spindler of land brokerage Park Place Land Advisors.
…
Can someone please explain the “Strong Dollar” concept to me? Is the idea to trash the dollar so far and so long that it will ultimately have to strongly rebound?
* The Wall Street Journal
* OCTOBER 14, 2009, 9:20 A.M. ET
U.S. Dollar Retreats to Yearly Lows as Stocks, Commodities Rally
By ALEX FRANGOS
The dollar retreated to yearly lows amid continued rallies in stocks, commodities and overall economic sentiment.
The U.S. Dollar Index — a measure of the dollar against a basket of currencies — fell 0.7% to 75.63, its lowest level this year in midday trading. The euro hit a new post-crisis high against the dollar, up 0.23% to $1.4887 per euro. The dollar was mostly flat against the yen, falling to 0.03% to 89.65 yen.
Driving the dollar lower was the continued awakening of investors to the global economic recovery. China reported better-than-expected trade and loan-growth numbers. J.P. Morgan issued a reassuring earnings report and U.S. retail sales exceeded forecasts. Treasury yields were sharply lower.
Tuesday’s late news that Intel Corp.’s earnings surpassed forecasts led investors in Asia and Europe to shift low-yielding dollars into riskier assets, especially in emerging markets and commodity-linked countries such as Canada and Australia.Stocks in Asia and Europe were up strongly Wednesday, and spot gold hit a new high in Asian hours of $1,071.80 a troy ounce. Oil hit $75 a barrel for the first time this year Wednesday on growth hopes.
“As long as risk appetite rally continues, the dollar will be on its back foot,” says Paul Mackel, foreign exchange strategist for HSBC Holdings PLC in London. He says traders have been taking advantage of short rallies in the dollar — as happened Monday and Tuesday — to continue to bet against the buck.
“This dollar bear trend is picking up momentum,” Mr. Mackel says. “In some respects it’s getting to quite high levels for the different exchange rates. But what can policy makers do? It’s not a disorderly move by the dollar,” he says.
…
The dollar is still (slowly) dropping like a rock against almost all major currencies.
But at least the stock market is doing well today!
From Bloomberg:
CURRENCY VALUE CHANGE % CHANGE TIME
EUR-USD 1.4894 0.0040 0.2661% 09:54
GBP-USD 1.5948 0.0022 0.1416% 09:53
USD-CHF 1.0183 -0.0034 -0.3284% 09:53
USD-SEK 6.9244 -0.0460 -0.6606% 09:54
USD-DKK 4.9982 -0.0122 -0.2445% 09:53
USD-NOK 5.5609 -0.0520 -0.9266% 09:54
USD-CZK 17.3490 -0.1169 -0.6694% 09:53
USD-SKK 20.2260 -0.0552 -0.2719% 09:53
USD-PLN 2.8201 -0.0240 -0.8439% 09:53
USD-HUF 179.3450 -1.8800 -1.0374% 09:53
USD-RUB 29.4150 -0.1306 -0.4421% 09:54
USD-TRY 1.4455 -0.0094 -0.6478% 09:53
USD-ILS 3.7119 -0.0097 -0.2607% 09:52
USD-KES 75.1500 -0.3500 -0.4636% 09:31
USD-ZAR 7.2752 -0.0509 -0.6948% 09:53
USD-MAD 7.6596 -0.0109 -0.1418% 09:53