The World Changed When Housing Wealth Disappeared
It’s Friday desk clearing time for this blogger. “As property values began to appreciate rapidly in the early 2000s, Phoenix-based Right Place Properties developed an aggressive new sales strategy that included mass-marketing its investments. When the housing bubble burst in 2007, Right Place co-founders Rob Porter and Earl Ricker continued to take in millions of dollars from an expanding network of investors. In November 2008, Right Place abruptly ceased all monthly investor payments and laid off the bulk of its sales organization. The company ceased operations in February 2009, leaving behind at least 42 unfinished condo-conversion projects. Many of the units were uninhabitable, investors said, and several were in pre-foreclosure because of unpaid property taxes.”
“Al Blitz, a 70-year-old resident of Plano, Texas, is among those who invested in the months leading up to Right Place’s demise. ‘Our total retirement income is in jeopardy of being lost because of Right Place Properties’ actions,’ Blitz said. ‘Adding insult to injury, we found out that the two properties for which we paid $74,000 each are only worth about $30,000 each.’”
“Foreclosures are taking a toll on some Las Vegas homeowner associations, some of which are closing pools and deferring maintenance as they deal with a drop in revenue. The financial woes faced by the associations come as they are locked in legal and legislative battles with investors in foreclosed homes who complain they are overcharged for fines and fees by the associations and their collection agencies.”
“David Stone, president of collection company Nevada Association Services, blames investors in part for creating financial strain for the homeowner associations. Many aren’t paying the monthly assessments once they take possession of homes and are instead waiting for the properties to be sold again before the liens are satisfied, he said. ‘Their goal is to hold onto these properties and pay as little as possible,’ Stone said. ‘They are hurting the HOAs’ budgets and their neighbors are picking up the slack for their speculation because they don’t want to pay association dues.’”
“In 2005, the builders of the John Ross tower captured Portland’s condo craze when would-be buyers reserved 80 percent of the building’s units in six days. Five years, one recession and dozens of cancelled sales later, the tower is headed for the auction block. The minimum bids, on average, will be 47 percent below the current list prices and 70 percent below the highest listed prices, said Patrick Clark, a Portland real estate broker working on the sales.”
“With just an e-mail alert in July 2005, brokers at Realty Trust City attracted about 225 potential buyers willing to put down deposits within just six days. ‘This level of sales is unprecedented in Portland, and very rare anywhere in the United States,’ Clark of Realty Trust City said at the time. ‘In the past, it has taken other projects months if not years to reach the same level of sales.’”
“The proverbial sirens started wailing during 2007, warning of the pending collapse of the Northern Colorado housing market. The number of home mortgage failures was rising so fast that the public trustees in northern counties could hardly keep up with them, reaching a crescendo in fall 2008. But even as the housing market now shows signs of recovery, a new crisis is unfolding, according to national media reports. Prominent outlets have said commercial real estate foreclosures will be the next big wave.”
“Office, retail and industrial property owners, with vacancy rates climbing steeply during the past two years, are in fire-sale mode in some quarters, said Michael Ehler, managing broker of the region’s largest commercial brokerage. Before the crash, prime office space on Harmony Road was leasing for $20 per square foot or more. ‘A lot of people are at their wits’ end trying to hold things together,’ Ehler said. ‘We’re doing leases for $10 per square foot. It’s like we’ve traveled back 15 years.’”
“A federal judge Thursday denied a move by developers Steve and Art Sandler to have a $21 million lawsuit against them thrown out of court. Travelers Casualty and Surety Co. of America sued the Sandler and their company for payment on bonds issued to ensure the completion of public infrastructure work on a number of developments. Travelers filed the suit in January after a number of municipalities, including Virginia Beach, called the bonds after development halted because of the depressed housing market.”
“The Sandlers asked the court to dismiss the suit, arguing they have no obligation under their contract with Travelers to pay. The judge ordered the Sandlers to respond to the suit within one week and ordered another hearing in two weeks to address how much collateral the Sandlers should post to cover the bonds. ‘I don’t want to waste any more time,’ the judge said.”
“Thomas Metzold, the co-director of municipal investments for Eaton Vance Corp., sold all his defaulted bonds of Tison’s Landing, an unfinished housing development in Jacksonville, as the debt fell to a third of face value last year. Dumping the so-called dirt bonds at a discount was a better bet, Metzold said, than taking over 218 empty acres from the project’s builder and waiting for a real-estate rebound that may not come until the early 2030s, according to a Moody’s forecast.”
“The day when Florida’s new-resident influx is sufficient to reflate property values may not come soon, a March 2 University of Florida report said. The state won’t return to the 300,000-a-year population gains it averaged over the last 30 to 40 years until 2014 or 2015, said Stan Smith, director of the school’s Bureau of Economic and Business Research in Gainesville. ‘Florida’s gone through numerous booms and busts, but it’s always been bailed out by the fact population was growing rapidly,’ said Richard Lehmann, publisher of a Miami Lakes, Fla., newsletter. ‘That’s stopped.’”
“California’s two big public pension funds took fresh hits to their troubled real estate portfolios this week, suggesting the fallout from the real estate bubble hasn’t completely run its course. First up was CalPERS, which Wednesday walked away from a controversial Boston investment that cost it about $91 million. Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday.”
“Cal-PERS this week notified Massachusetts officials that it’s abandoning a massive mixed-use project called Columbus Center. The project, a six-building condo-hotel complex to be built over the Massachusetts Turnpike near downtown Boston, had been stalled for years. ‘With the deterioration in the market, the project’s no longer viable,’ said Steve Sugerman, a spokesman for Cal-PERS real estate consultant Wilson Meany Sullivan.”
“Toxic assets — home mortgages packaged into complicated bonds that no one wanted to touch when the housing bubble collapsed — are starting to trade again. There’s no store where you can buy toxic assets; you have to know a guy. We know Wit Solberg, a former Wall Street trader. Solberg finds a bond he likes for us. It’s called an Option One Mortgage Loan Trust. Solberg thinks we should offer to buy the bond for “half a cent” on the dollar. That means that, for every $1,000 of the bond’s original value, we’ll offer $5.”
“But it turns out the guy who’s selling the bond wants 17 or 18 cents on the dollar — more than 30 times what we bid. Solberg says these kind of huge spreads are pretty common in the toxic asset business. People just radically disagree about what things are worth.”
“We spend two days with Solberg looking for the right toxic asset. One, full of what appear to be California McMansions, seems promising. We find a beautiful, totally toxic asset at what Solberg thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing.”
“Warren Buffett said last week that the U.S. housing market will bounce back next year, but the truth is, even before the billionaire’s forecast, Korean investors have already begun pinpointing where to buy. ‘People are fast,’ says Choi Yong-il, manager at a California-based real estate consultancy. ‘We’re already seeing increased activity among keen investors who aren’t afraid to be the first to move.’”
“Some properties have lost as much as 70 percent of their value when prices peaked in 2006, experts say. ‘It’s extremely rare to see prices go down this much,’ says Kelly Choi, a Miami-based realtor, who bet that the downward spiral will last longer.”
“While the larger metropolitan areas of the country might still be stuck in a housing rut, that hasn’t really been the case in southern Illinois, according to a few area real estate agents. ‘This year it’s not just the weather, but the incentive for the home buyer,’ said Wanda Miller of Coldwell Banker . ‘It’s a buyer’s market right now. Waiting is a bad idea now because they are going to lose the incentive.’”
“A long-idled plan to create an old-fashioned neighborhood near downtown Libertyville has been rekindled. Despite a weak market for new homes, developer John McLinden and partners want to complete what the Hummel Group started on School Street. A foreclosure stalled the original project in June 2008 after one building of luxury brownstones was erected and the first residents moved in. Hummel’s plan offered connected row houses in the $850,000 range. In the revised plan, the houses would start at about $495,000.”
“StreetScape is proposing 15 lofts, up from the 12 originally approved. Eight of those would be work force housing at an ‘attainable’ starting price not to exceed $230,000. However, because of the difficulty financing condos, developers are suggesting the lofts be offered as rental units for several years before being converted.”
“Randy Fernandez, Port Huron’s assessor, said the city’s average decline is about 13% this year, but some neighborhoods have seen bigger drops. He said this year’s board session was slow because ‘most people have gone down double digits.’ Shawn Gearhart of Port Huron isn’t planning to protest his value. The taxable value of his home dropped to $47,800 from $52,100. Gearhart…in the process of selling the house, said he is OK with the value. ‘I’m fine with it,’ he said. ‘I don’t really think it is a big issue. We should be able to get what we owe even in this market.’”
“Fort Gratiot’s William Staples, said his taxable value also decreased, about $5,000. ‘I was very happy with it going down,’ he said. ‘I figure it should with the way the economy is.’”
“Jeff Catlin is growing weary of treading water to keep his modest three-bedroom home in Pfafftown. He owes more on the house than it’s worth, and he’s been waiting nearly 10 months for a life preserver — final approval of a home-modification mortgage plan. They owe a combined $112,000 for a first and second mortgage on the house, which is valued at $82,000. ‘All it would take is one more mishap, one more piece of bad luck, to put us out,’ Catlin said. ‘We’re just holding our breath that the mortgage company doesn’t come back to us and say, ‘We’re sorry, but we can’t work with you anymore.’ In that case, the home goes back to the adjustable rate interest that we can’t afford.’”
“Carol Newman said they struggled to qualify for a loan-modification program that is providing a $60 monthly reduction in their mortgage. In the past week, however, the Newmans received notice from the bank that it is raising their payment by $20 a month to build up their escrow account for taxes. ‘Our house is not worth what we owe on it due to the housing market,’ Newman said. ‘Our credit counselor has advised us to try again for another modification. We do have that on the back burner at this time. We’re looking at all our options.’”
“Victoria Harris of Chesterfield County had her house foreclosed on Oct. 13, but she is still in the house and hopes to have the foreclosure rescinded. Harris has lived in the house for nearly 14 years. She told the new owners that she hadn’t sold her house and she was in the middle of a loan modification. ‘President Obama said he had a plan to help homeowners lower their mortgages,’ Harris said. ‘That is all I was going on.’”
“‘This is not just something happening to my mother—it is happening to a lot of people,’ said Berneatha Terrell, Harris’ daughter. ‘People get tired, worn out. They are weary. They give up.’”
“The Obama administration’s housing relief plan…was designed to help keep up to 4 million Americans in their homes by preventing avoidable foreclosures. To date, about 116,000 borrowers have had their monthly payments permanently reduced. Nearly 1.3 million borrowers have received offers for trial modifications. ‘With the Obama stimulus package, we are seeing a huge increase in the number of customers who think they are automatically entitled to a loan modification,’ said Sandy Case, default administration manager for Virginia Housing Development Authority. ‘It’s a big downfall when they find out they are not eligible.’”
“Since the end of World War II, Americans have enjoyed rising rates of homeownership, expanded access to credit, and improved living standards by many measures. But now consumers are spending less because, it seems, they have no alternative…Home equity – a reliable source of borrowed capital for homeowners through the mid-2000s – has utterly vanished for millions in a coast-to-coast housing downturn.”
“Call it the new age of the tightened belt. Some observers wonder whether, in fact, a 60-year party has come to a close.”
“For most of the 20th century. Americans saved when they could and spent down savings in hard times, says Martha Olney, an economist at the University of California, Berkeley. When two-income families became more commonplace in the 1980s, Americans were on average saving 8 percent or more of what they earned. Saving was a sign of doing well. The mid-1990s, however, began to invert these behavioral principles.”
“Asset bubbles, first in the stock market and then in the housing market, made Americans feel richer and led them to borrow at attractive rates, so they had less incentive to save. Then as Americans saw their finances take a hit in late 2008, they began saving at dramatically higher rates. In a novel twist, saving became a sign not of doing well, but of financial strain.”
“‘The world changed when housing wealth disappeared,’ says Dean Baker, codirector of the Center for Economic and Policy Research. ‘Now we’re getting savings rates of about 5 percent, which is still relatively low by historic standards. If you go back to the ’50s, ’60s, and ’70s, savings rates were 8, 9, sometimes more than 10 percent. So my expectation is that we are in a permanently different world [in terms of spending] because ’95 to 2007, when savings rates dropped to almost zero, was the aberration.’”
“‘It’s not that people have decided to become thrifty,’ says Steve Weisbart, chief economist for the Insurance Information Institute. ‘It’s that they’re going to become bankrupt if they don’t repay their loans.’”
“Rosemary Hughes of Andover, Mass., lives in a home large enough for 30 family members to dine together at the holidays, and she vacations twice a year. But her investments took a hit when markets crashed, and she now finds it difficult to pay her property taxes, which exceed $11,000 a year. Hence this fall for the first time, she began volunteering at Town Hall to earn credits toward her tax bill. She’s also increasingly vigilant about spending, looking for discounts wherever she can find them.”
“‘I can stay in my house for a while longer,’ she says. ‘I just don’t know how much longer before I’m forced to, you know, sell and go into something smaller.’”
The unfortunate reality is that what we see today - the Great Recession - will be the new normal. High unemployment, crumbling infrastructure, debt piled everywhere, and a slow but steady decline in the standard of living. The only thing that will change is if/when The Powers that Be run out of ways to prop things up and keep the masses deluded that the next Bubble is right around the corner.
Pondering–Not to worry, Larry Summers told us in Bits Bucket that “everyone agrees that the recession is over.” Not me, of course, but I’m not part of Larry’s social set.
http://www.larouchepub.com/other/2010/3704summers_go_now.html
If the rising movement of American patriots is going to clean out the London/Wall Street swamp of the Obama Administration, not only must Treasury Secretary Tim Geithner go immediately; but Larry Summers, Obama’s chief economic liar and cheat, must get the boot, as fast, or faster.
In a national condition of economic collapse, financial speculation, and swindling, brought on since the 70-year-old Glass-Steagall principle of sound national banking was thrown away a decade ago: This is the government official who repealed it. In the national misery of mass unemployment topping 30 million Americans: This is the “theorist” of doing away with unemployment insurance to “make people find a job.” With more millions of homes being repossessed, nearly 40 million Americans depending on food stamps to eat, and real unemployment rising over 20% of our national workforce, this is the economics chief who loudly repeats, “The economy is recovering,” even drowning out members of his White House team who know the opposite is true.
As we will show below, Larry Summers’ economic blunders and crimes are many, and some of them have had devastating consequences for this nation and others.
There never was a recession in Larry Summers’ world, or for anyone with hundreds of millions of dollars. They cannot even conceptualize what it’s like to live on median income, much less below that. They think $150k per year is middle class. Larry Summers, and all his crony capitalist buddies are the rot that needs to be disposed of.
Amen, Grizzly.
Yes, and “all” the economists agree that we need MORE stimulus spending, i.e. government money printing and handouts to get the economy back on track. Keynesian madness, with Paul Krugman cheerleaders have taken hold of the Whitehouse and they ALL agree we need the government to pick up the slack of the private sector.
Marxist redistribution philosophies help provide rationales to this bizzare world of econo-dyslexic-hyper-chondrotic-modeling, also known as the Obama economic program.
“Thomas Metzold, the co-director of municipal investments for Eaton Vance Corp.”..STOP!!! Right there!
I had 5 digits with EV and good ol’ MS took 6 months to liquidate my account after my SELL order when, after perusing HBB, I decided to sell.
Word to the wise: Trust these Walls Vegas hucksters and inside shysters at your peril.
It cost me over 50k and I’ll NEVER, EVER trust those sleezy scum again.
Years ago, I purchased a stock that went up 25% in a little while. Waiting for it to get a little higher made me totally lose the boat and ended up losing the complete investment when the company went bankrupt.
That was the last time I made the mistake of getting too greedy. I have made more $$ from being thrifty and careful than for letting greed get in the way.
Too many people have not learned this lesson.
Except the Wall St boys and the bank,execs Goldmen Sacks, etc. It continues to be good with Billions of bonus money even Now being awarded for “all of their good works” Greed is paying big dividends for the chosen few who created this mess and don’t ever forget this fact as now the evidence is in that even a six grader could understand.
And that’s why I was so vehemently against any Wall Street bailout. They were not made to pay for their own mistakes.
Right. A good portion of them belong in jail, not in the line for million+ dollar bonuses.
The investment pack was fat and happy during the bubble days.
Now, during the bust days, the wolves are just snapping and ripping at each others throats over the remains of GF and FB bones and scraps.
It’s time to bar the door Katie…and bring the danged cat in. Ooops…Oh well, at least bar the door.
http://tinyurl.com/ykare92
Yup. One of the best bosses I ever worked for once sternly warned, in response to my proposal to overreach on something, “don’t get greedy.”
‘Our total retirement income is in jeopardy of being lost because of Right Place Properties’ actions,’ Blitz said.’
‘waiting for a real-estate rebound that may not come until the early 2030s, according to…Moody’s’
Moodys rat-hole service strikes again! Don’t worry Biltz, just call up comrade Mark Zandi; he assures us the US government won’t let your retirement go up in smoke. And I’m sure he’ll personally make it up to you should that happen…
Is there any chance that deliberate deception by MSM-cited experts might be outlawed going forward as part of post-bubble financial reform?
First amendment. You can’t outlaw speculating about the future. There are only a very few instances when this sort of thing is even required to be identified as speculation - disclosures on regulated securities offerings being one of them.
Thanks, Polly.
I expect housing prices on the West Coast to drop another thirty percent by 2013.
Go for it. Exercise those constitutional rights.
When they instead drop another 40% will you come on here and announce that it was “unexpected”?
Surely you jest, PB. If the MSM wasn’t allowed to serve a Ministry of Truth function, their corporate cartel owners wouldn’t be able to herd the sheeple into their incorporated global plantation. While fleecing them every step of the way.
The mendacity of the so-called U.S. financial media, in particular, is nothing short of breathtaking.
Are you kidding? Liable? We can’t even find the rating agencies liable for their putred work. They hide under the auspices of “free speech”. “We can say whatever we want. You don’t have to accept our statements.” That is being challenged in court by CalPERS, but who knows to what end. I believe the rating agencies should be held to the same standard as one who cries “FIRE” in a crowded theater, except the cried “SECURE” for a toxic asset.
I believe the rating agencies should be held to the same standard as one who cries “FIRE” in a crowded theater, except the cried “SECURE” for a toxic asset.
+1
That fat cat was in his 60’s and about to retire, if not already retired, when he supposedly placed all of his retirement savings into some real estate get rich quick scheme at the height of a huge real estate bubble when prices were at least 2x normal fair market value based on any legitimate historical ratio test (even without fraud). Now he blames others for his problems. Greed has no age limits.
I wouldn’t call him a fat cat. Fat cats have the wisdom to diversify.
Was he greedy? Perhaps. My take is that he was a lazy and scared investor who got fleeced by a silver-tongued salesman.
There’s an awful lot of financial illiteracy here in America.
I guess. I just can’t comprehend getting involved, much less for substantial amounts of money, in someone else’s investment scheme. It is so far out of my thought process, it does not compute. Especially one that has enormous transactions costs and is coming late in the game. Unless you are just lucky, true bargains have to be found through hard work and diligence with an understanding of the product, and no one will be calling you to invest therein. If someone is asking you to invest, 99.9% of the time it is a dog, otherwise you would normally have to be asking them to allow you to buy.
I think it boils down to the “insider” mentality. People hope to become “insiders” to get the sweet breaks.
The problem is that it doen’t happen to ordinary people.
In November 2008, Right Place abruptly ceased all monthly investor payments and laid off the bulk of its sales organization, known as Red Door Group.
Porter and Ricker blamed a sharp decline in the condo market, a disastrous turn so sudden that they hadn’t seen it coming a few days earlier, when they had closed on two Houston-area apartment deals.
Yup, it was totally — and unexpectedly — a surprise!
unexpectedly
Cheers!
“…..when they had closed on two Houston-area apartment deals.”
Further clarification needed here:
“…..when they had closed on two Houston-area apartment deals, and booked $350,000 in commissions to themselves.”
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” Upton Sinclair
“Couldn’t see it coming.”
I believe that’s what Tiger Woods told Sir Charles Barkley when his trophy wife went “Getto” on his head with a nine iron.
Good thing for him that she didn’t take a Lorena Bobbit swing !
“President Obama said he had a plan to help homeowners lower their mortgages,’ Harris said. ‘That is all I was going on.”
I heard he was going to put gas in my car!
Where is his stash!!!?
“When the housing bubble burst in 2007, Right Place co-founders Rob Porter and Earl Ricker continued to take in millions of dollars from an expanding network of investors. In November 2008, Right Place abruptly ceased all monthly investor payments and laid off the bulk of its sales organization. The company ceased operations in February 2009, leaving behind at least 42 unfinished condo-conversion projects. Many of the units were uninhabitable, investors said, and several were in pre-foreclosure because of unpaid property taxes.”
Easy lessons learned:
1) Collapsed Ponzi schemes can take years to wind down.
2) Many knife catchers can get burned in the unraveling process.
In November 2008, Right Place abruptly ceased all monthly investor payments and laid off the bulk of its sales organization.”
I was one of the unfortunate investors. I been in the Right Place, but it must have been the wrong time.
Luv,
Jen
Ha! Fantastically funny. <;-o}….
I been in the right place
But it must have been the wrong time
I’d of said the right thing
But I must have used the wrong line
I been in the right trip
But I must have used the wrong car
My head was in a bad place
And I’m wondering what it’s good for
I been the right place
But it must have been the wrong time
My head was in a place
But I’m having such a good time
I been running trying to get hung up in my mind
Got to give myself a little talking to this time
Just need a little brain salad surgery
Got to cure this insecurity
I been in the wrong place
But it must have been the right time
I been in the right place
But it must have been the wrong song
I been in the right vein
But it seems like the wrong arm
I been in the right world
But it seems wrong wrong wrong wrong wrong
Slipping, dodging ,sneaking
Creeping hiding out down the street
See me life shaking with every who I meet
Refried confusion is making itself clear
Wonder which way do I go to get on out of here
I been in the right place
But it must have been the wrong time
I’d have said the right thing
But I must have used the wrong line
I’d a took the right road
But I must have took a wrong turn
Would have made the right move
But I made it at the wrong time
I been on the right road
But I must have used the wrong car
My head was in a good place
And I wonder what it’s bad for
-Dr. John
“‘It’s not that people have decided to become thrifty,’ says Steve Weisbart, chief economist for the Insurance Information Institute. ‘It’s that they’re going to become bankrupt if they don’t repay their loans.’”
Would any psychobabble economics experts in the virtual audience care to offer comment?
Why does it need to be psycho babble? It isn’t very well phrased or explained, but it sounds like he is just saying that folks were making loan payments with additional borrowing until they couldn’t borrow any more.
‘It’s that they’re going to become bankrupt if they don’t repay their loans.’”
It doesn’t exactly sound like passbook savings anyway.
“psycho babble”
That was a backhanded reference to psychological economists who believe that only psychology matters in household financial decisions (i.e., budget constraints don’t matter). Macroeconomists generally don’t pay enough attention to budget constraints for my taste.
Well, to be very fair to them, for a few years there it looked like economic constraints didn’t matter. It is a problem when you ignore the fact that it wasn’t everyone spending a bit more because they felt richer (wealth effect spending). It was a bunch of people (but not everyone) actually spending the cash through MEWs.
Note to all economists - distribution does matter. You miss things when you ignore it.
“…distribution does matter.”
It is definitely in the interest of those at the Fed making the allocation decisions to pretend otherwise.
It isn’t consumer confidence, it’s consumer capacity. People still want to spend all they have and some they don’t. They aren’t choosing to save — others are choosing not to lend them money they won’t pay back, and they are defaulting on the loans they have.
The bottom line is the standard of living has fallen for most Americans, but rising debts covered it up. Now that’s over.
“It isn’t consumer confidence, it’s consumer capacity.”
Exactly my point; budget constraints can derail all the optimism on the planet in a big hurry.
Hey, guys.
I went to a policy interview with Robert Reischauer last night. For those who can’t quite place the name, he used to be head of the Congressional Budget Office. There were two separate topics then some questions. First topic was the budget. Second was Medicare.
The budget discussion was particularly interesting. In a very gentle voice, he basically talked about being very scared of what was coming and hoping that citizens and members of Congress could be educated to the point where they became as scared as he was. He warned that being a major military power and a fiscal basket case was, historically, a bad combination.
All this, we know. But there were a few more interesting points. He explained that while inflation was a very good way for government to get out of a fiscal hole in the past, it is now much less effective because Social Security, pensions, and tax brackets are indexed to inflation. I think it is an important point. Inflation will make folks angry and politicians might find that anger worth facing if the inflation fixes all their problems. Less worth it to face the anger when it isn’t the pancea it used to be.
He also seemed to think that it is much less likely that our creditors will completely cut us off, than they will demand that the debt be denominated in another currency. So we could still borrow, but have to pay the loan back in a currency that we can’t inflate. Another argument that inflation as a policy won’t fix our problems, though it would certainly help with the stuff that is already out there denominated in dollars. Oh, and I loved the phrase he used. He callled the situation being a “fiscal slave to creditor nations.” The horror in the room at the idea was palpable.
Wow, sounds like a good discussion. I hope his message gets out there.
All this, we know. But there were a few more interesting points. He explained that while inflation was a very good way for government to get out of a fiscal hole in the past, it is now much less effective
Again I’d add
Will printing money increase the GDP
1. If people are tapped out (wages stagnant to falling, fees and taxes increase, wife and husband working, and they can’t borrow money) how is increasing the cost of food and fuel going to increase their spending. It’s not it will shift their spending and thus there will be less demand for manufactured goods,housing, and any type of service. This will result in more unemployment. I think the borrowing phase is the last phase where printing money solves the gov problems.
I think they’ve mixed too much vineger and baking soda and we have an unstable chemical reaction building pressure. After the reaction we will be left with a poor population with no money and an elite population with piles of worthless money owning companies that make stuff that people can’t afford.
Paying back large debts with inflated dollars is a long time ploy, and it used to work as long as you got income inflation as well as asset and commodity price inflation. But as has been pointed out here many times over the past few weeks, future obligations like social security payments and pension benefits are pretty much the same thing as debt repayment. And those are now indexed to inflation. And since income tax brackets are too, income inflation increases revenue somewhat, but it won’t get you the really big increases in revenue that would happen if income inflation knocked every one up a marginal tax bracket or two.
Very good post, measton.
Polly,
Thanks for sharing your insights!
I heard Robert Reischauer speak at the University of Arizona’s business school back in ‘08. One of the best speakers they’ve ever had, and you can hear his lecture right h’yar.
“..He warned that being a major military power and a fiscal basket case was, historically, a bad combination.”
Polly,
I have stated here previously that the USA is like a crack addict with a fully stocked gun safe. The crack being foreign debt. Yes it is a dangerous combination.
“He also seemed to think that it is much less likely that our creditors will completely cut us off, than they will demand that the debt be denominated in another currency. So we could still borrow, but have to pay the loan back in a currency that we can’t inflate”
b..b..but that might limit our God Given Rights to wage War agin um !!
And that was exactly his point. When you need China to buy your debt, you might not be “allowed” to sell arms to Taiwan, or talk to the Dalai Lama. If the Gulf states are significant purchasers of your debt, what happens when you want to actually get serious about becoming energy independent?
Slave to the creditor nations - not a nice way to think of your country.
I’m curious to know his thoughts on Medicare
Uh..pretty standard - costs have to come down, mostly by eliminating unneeded visits/tests/procedures. We need comparative studies to let people know what best practices are (if you get the exact same outcome with 6 follow up visits a year as you do with 2, shouldn’t doctors and patients know that and generally choose 2 instesad of 6?). He talked about the moral hazzard of not paying for all of our medical costs but pointed to European countries with no co-pays at all as an example of how to bring down costs, and when I asked a follow up question on that, he didn’t really answer it.
He also commented after everything was over and the cameras were off that he thought that this round of health care reform would probably fail. That sort of cynicism is fairly typical of senior DC folks. Not that he is wrong. I actually think he is right, and the former director of CBO has a lot more experience in Congress watching than I do. But I know we have a number of people around the blog who would like access to a state exchange, so I thought I’d pass it on.
Thanks for sharing, polly. There was an article (I posted it today at end of the bucket) yesterday about this very topic:
Why the U.S. can’t inflate its way out of debt.
“A long-idled plan to create an old-fashioned neighborhood near downtown Libertyville has been rekindled… In the revised plan, the houses would start at about $495,000.”
Here is what I know about Libertyville, IL:
1. Its close to a mall and hundreds of shopping plazas
2. Its close to vast amounts of empty, never-occupied commercial real estate built during the boom
So where are the jobs coming from that will support all these half million dollar houses? Hint: not from all those retail sector jobs!
Another thing about old-fashioned neighborhoods: They tended to have a lot more ethnic and religious homogeneity than many of us would be comfortable with now. As in, you wouldn’t want to be a Black man caught after dark in the Italian neighborhood.
Well, but that isn’t what they really mean when they talk about creating an “old-fashioned” nabe from scratch, is it? Near as I can tell, it just means fairly walkable and with front porches rather than backyard decks. It is the smaller town version of downtown loft condos. They are about a decade too late to make any money on this. Good luck getting financing.
From the original post:
“Warren Buffett said last week that the U.S. housing market will bounce back next year, but the truth is, even before the billionaire’s forecast, Korean investors have already begun pinpointing where to buy. ‘People are fast,’ says Choi Yong-il, manager at a California-based real estate consultancy. ‘We’re already seeing increased activity among keen investors who aren’t afraid to be the first to move.’”
“Some properties have lost as much as 70 percent of their value when prices peaked in 2006, experts say. ‘It’s extremely rare to see prices go down this much,’ says Kelly Choi, a Miami-based realtor, who bet that the downward spiral will last longer.”
To which I say:
As Yogi Berra said, it’s deja va all over again. Just as in the late 1980s, we have Asians overpaying for American real estate.
Yup. Big bounce back. Right as the schools and police and fire departments and state programs have to pull back on employees and contractors. That is exactly what is going to happen. Yessiree….
Gag me.
“Gag me”
That was my reaction, too. And it’s not like I don’t think Buffett is smart in a lot of things, but this tendency for the press to quote him on everything is annoying. Like asking Ben Jones for his opinion on ladies’ lingerie or raccoon repellent.
Yup. Big bounce back. Right as the schools and police and fire departments and state programs have to pull back on employees and contractors. That is exactly what is going to happen. Yessiree….
Exactly right, Polly. Many people are in denial right now about the coming govt employment reductions (IMHO). This, in itself, could easily cause a second wave of losses and deflation.
I’d be interested to know where and what the Koreans are pinpointing to buy. Are they buying bubble-built McTyveks?
I’m very interested in the construction aspect, which is turning this bubble into a giant case of Jarndyce vs. Jarndyce.* By the time the big boyz hash out who owns what asset, there may not be any asset left.
————–
*Spoilers* if you haven’t read/watched Bleak House: The J vs J court case was a contested will over a sizable estate. By the end of the story, they did figure out who inherited the estate, but the lawyers’ costs had eaten through the estate so there was nothing left to inherit. Oh, and the winner died of consumption anyway, leaving behind a wife and baby. That’s Dickens for you.
And that’s a bad thing….?? -
“Al Blitz, a 70-year-old resident of Plano, Texas, is among those who invested in the months leading up to Right Place’s demise. ‘Our total retirement income is in jeopardy of being lost because of Right Place Properties’ actions,’ Blitz said. ‘Adding insult to injury, we found out that the two properties for which we paid $74,000 each are only worth about $30,000 each.’”
I’ve never understood these mass-marketed real estate schemes. Are any of them ever NOT compete Ponzi scheme frauds? Because they are very common.
Someone explain to me how the math works. Someone forms a real estate company with the intention of doing some sort of large-scale investment. Seems to me there are only two possible scenarios here. Either:
1. The scheme actually is destined to be highly profitable in which case the developers should have no problem getting bank financing and would have no incentive to share the profits with anyone. I know one thing for certain, if I have an investment with a guaranteed high rate of return I’m not going to be going public begging strangers to join me. Why would anyone with a sure winning development project waste all the time and money required to rope in a lot of small-time investors? Just take your proposal to Chase and sell them on it.
2. The scheme is a scam from the start and no legit bank would go near it even during the boom years when banks were throwing loans at anyone who could fog a mirror and sign a note.
I’m always hearing about these real estate investment scams and I just wonder what people are thinking. Do they seriously think some company is going to beg them to share the profits in something if it really was a sure thing?
“…if I have an investment with a guaranteed high rate of return I’m not going to be going public begging strangers to join me.”
Yup, I think the same thing every time I see “Cash Flow” on a ‘For-Sale’ sign.
Say, Muggy, what’s your take on this national school closings debacle? I’ve been following this on the news, it is very interesting. St. Louis, Kansas City were the lead stories, one city is closing half the schools (they blame “white flight”, naturally ya gotta have a boogeyman, even though that’s been going on since the late 1960s) Anyhoo, it seems this is happening in 34 states, but Florida isn’t one of them. What’s your opinion on why Florida has dodged that bullet so far? Is it because we never did much with education to begin with, so don’t have a lot to lose?
City of New Albany in Indiana will be closing four schools. This was in the news yesterday and the city might plan to sell the buildings
I reside in about 60 miles from New Albany and the school corporation has difficulty in keeping up with the budget but they have money to send six school employees for two day conference and these employees are going to have fancy hotel rooms. The conference is on Autism. I don’t think there is need for six employees to attend the conference.
I know a contractor who does only commercial work for factories and manufacturing industry. According to him the commercial work has come to halt and only work available is for the schools and other government work.
“only work available is for the schools and other government work.”
Start speaking French, everyone, because that’s where we’re headed.
Years ago, when I was in second grade, my parents rented a house near what they thought was the grade school that I’d be going to. Nice little suburban grade school outside of Media, PA, which, at the time was going to Hades in a handbasket.
Well, the fit hit the shan when my parents and the neighbors found out where we kids were really supposed to go. That was Wallingford School. Several miles away. On a bus.
The district bused Black kids in from Media, and the integration experiment was on. I got along fairly well with the Media kids — one big, tough girl named Sheila even adopted me.
Then, as now, I was short of stature and slender of build, so Sheila became my protector. For the next two years at Wallingford, she was the big sister I never had.
I can also remember Michio (sp?) the kid who moved to the area from Japan. He didn’t know English, and, get this, we kids were given the job of making him feel welcome in this country and helping him learn English. I think he also got some one-on-one instruction, but the rest of us kids were also enlisted to help.
While I was in third grade, my parents bought a wooded lot about 10 miles away from Media, and they started having a house built there. Mom enrolled me in the school that was two doors away from the lot, and that school was mostly white.
There were some Black kids who were brought in from some sort of juvenile offender program, and they were real troublemakers. They were quickly sent to some other school.
What was notable about this almost-white school were the Black teachers. They were the wives of Cheyney College faculty members. (Cheyney was started in the 1800s by the Quakers. Its mission was to educate freed slaves.)
In a word, those teachers were tough. I wasn’t a very talented singer, but the music teacher still pulled the very best out of me and the other members of our school chorus.
And I’ll never forget the day that she told our class about her previous summer’s trip to North Carolina. Where she encountered a laundromat with a “Whites Only” sign. Well, she marched inside, confronted the owner, gave him the Gospel, and told him that she was as much a child of God as he was. Which meant that she had just as much right to be in that laundromat as he did.
Pretty powerful stuff to tell a bunch of privileged middle and upper class white kids.
Then there was my sixth grade teacher. I don’t recall another teacher who had higher standards than she did. She demanded that we write, so we did. She also showed us how to check addition and subtraction by casting out nines, and guess what? I still do that.
I gotcha, Slim, but I still don’t think “white flight” is the real reason they have to close the schools. I mean, considering they’ve been there up until now. Why now? The city kids are going to private schools, charter schools, parochial schools, home school, if they can. That says something about the school systems. For whatever reason, they suck. Time to end the public school system, anyway. At least, in its current form. Not working out.
Public schools have been trying to make rigorous subjects “easier” and “fun,” and “relevant,” for, like, how long now? Since the 1920s?
Can’t be done. So concerned parents are “expelling” their own kids to the private sector.
Sheesh Slim, you remember everything.
The only things I remember from my very early school days was first getting captured. Then being shipped off to Camp Kindergarden 17 and those warm cartoons of milk, dry Graham Crackers and being forced to lie down and take a stupid nap on sunny days by the Gestapo.
I suspected I would be held a Prisoner of War a long, long time by the US Dept. of Ed and I was right.
“The city kids are going to private schools, charter schools, parochial schools, home school, if they can.”
I would contend that that is an aspect of what has been labeled “white flight”, and while it definitely had/has a racial aspect, I believe it is also an economic-class based phenomenon.
Have you ever read any of the articles on how insane the competition is for getting upper-class kids into Manhattan pre-schools and private schools?
The opting out public schools by middle and upper class families has only worsened the problem.
This “white flight” is what caused the downfall of L.A. Unified, IMHO.
Once they enacted the “integration” bussing program, all the white kids got pulled out of the public schools and attended private schools pretty much from then on out. Some of the white kids returned when they stopped that ridiculous social experiment, but the damage was already done.
“What’s your opinion on why Florida has dodged that bullet so far?”
Sorry for the late response — was out and about with the family. Anyway, I can speak for the Bay Area, and the answer to your question is
1. Portables (nobody invested in new infrastructure, they rented trailers to accommodate the boom (thank God)).
2. A big wave of retirements (attrition = less terminations), so there aren’t a ton of layoff stories.
3. I’ve said before, and it’s true, FL has been very aggressive with education funding cuts. I expect an insane amount of layoffs for places like the City of Rochester, Buffalo, Cleveland and so on… they’ve never scaled back, or even thought about it.
Additional fact: the school my wife works at had 2,400 kids in 2005 and has 1,600 now. The physical plant can comfortably accommodate about 2,000. At the height, the school had 10 portable classrooms, and now has none, plus one corridor reverted to offices.
That’s just one example. BTW, Pinellas has closed several schools each year, for the past several years).
Thanks, Muggy, good analysis. Having done business with a few school systems in Florida back in the day, I can attest to all the portables that were used. There was some investment in new infrastructure here in South Hillsborough, though. I think we built two new schools here in the area. Lennard High looks like a bit of a forlorn ghost institution. I think Hillsborough is going to see more trouble than Pinellas, when the time comes. I guess one good thing you could say about Florida is that the large retiree population forced the schools here to be more prudent with their spending, since retirees don’t vote much for increased funding for schools.
“I think Hillsborough is going to see more trouble than Pinellas”
I still can’t tell what the frick is up with Pinellas. I see plenty of abandoned stores, but people swarming everywhere. This year’s snowbird migration seems memorably crushing.
“California’s two big public pension funds took fresh hits to their troubled real estate portfolios this week, suggesting the fallout from the real estate bubble hasn’t completely run its course.”
Both CalSTRS and CalPERS have been criticized when they took a conservative approach to investing. In 1997 the chief investment officer of CalSTRS Thomas Flanigan was criticized for the funds performance compared to CalPERS, 9.9 compared to 12.3. He was replaced because of his belief that the US stock market was overvalued and for keeping a low percentage of the funds assets in stocks.
I remember reading in the SacBee about CalPERS being criticized for not investing more in RE during the bubble. Both were late to the party and just in time for a financial beating.
criticized by who?
Who was drumming up the anger at these conservative investors.
Was it Wall Street? My guess is they wanted a puppet in there. Someone who would way overpay for developments like Struyvesant town in NY, an apartment investment that has lost well over 50% in it’s value. They paid absolute top dollar. MET LIFE, blackrock, and Tischman speyer made out like bandits. Replay this 1000x over all investment classes. MBS rated pure gold by Moody’s etc.
Very true, Wickedheart.
What many people also don’t understand is that the artificially low interest rates also forced the pension funds into riskier investments (to maintain their projected returns…IOW, in an attempt to remain solvent).
I place much of the blame for the failed/failing pension funds at the feet of the Federal Reserve.
“In that case, the home goes back to the adjustable rate interest that we can’t afford.”
If he can’t afford an “adjustable rate interest” loan at the all time low in interest rates, how would he afford a fixed rate loan? Fixed loans have a slightly *higher* interest rate than ARMs. I’m sure what he’s actually looking for is principle deferral, but he doesn’t even know it. People sure are stupid!
“In that case, the home goes back to the adjustable rate interest that we can’t afford.”
From the article: “The plan went into effect temporarily in May, lowering the interest rate on his home from a 9.5 percent adjustable-rate mortgage to a 6.375 percent fixed-rate 30-year mortgage.”
“The Catlins are not alone in being “underwater,” or owing more on their mortgage than the house is worth. In their instance, they owe a combined $112,000 for a first and second mortgage on the house, which is valued at $82,000.” 25% underwater, they are at the threshhold of running away from the nightmare is a better alternative to debt seftdom.
The bank will probably be thrilled to collect 6.375% on $112K, and should consider themselves lucky if the FBs continue in their debt slave role. If it was me, I would strategically default immediately and wait for sheriff escort while building up a $deposit for apartment.
This is just such a thing of beauty that I want to re-post it:
“Solberg thinks we should offer to buy the bond for “half a cent” on the dollar. That means that, for every $1,000 of the bond’s original value, we’ll offer $5.”
“But it turns out the guy who’s selling the bond wants 17 or 18 cents on the dollar — more than 30 times what we bid. Solberg says these kind of huge spreads are pretty common in the toxic asset business. People just radically disagree about what things are worth.”
“We spend two days with Solberg looking for the right toxic asset. One, full of what appear to be California McMansions, seems promising. We find a beautiful, totally toxic asset at what Solberg thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing.”
Some time back I speculated that these toxic assets would be worth 20-30 cents on the dollar, because nobody would ever put in 30 years of payments. The 20-30 cents would come from the bottom feeders on the courthouse steps. But it’s worse than I thought — 17 or 18 cents is the asking price? The broker would probably sell it for 10.
You might be wondering like I was how $36,000 for an asset originally priced at $2.7 million looks on a cents-per-dollar basis:
($36,000/$2,700,000)*100 = 1.33 cents per dollar (lots more than 1/2 cent = 0.50 cents per dollar
)…
It’s called an Option One Mortgage Loan Trust. Solberg thinks we should offer to buy the bond for “half a cent” on the dollar. That means that, for every $1,000 of the bond’s original value, we’ll offer $5.”
The true value of these loans - what someone will pay for them. However - the bank holds them on the books at near par and thus can base their massive bonuses on that amount.
‘Florida’s gone through numerous booms and busts, but it’s always been bailed out by the fact population was growing rapidly,’ said Richard Lehmann, publisher of a Miami Lakes, Fla., newsletter. ‘That’s stopped.’”
YESSSSS! Palmy does the happy dance.
The day when Florida’s new-resident influx is sufficient to reflate property values may not come soon, a March 2 University of Florida report said. The state won’t return to the 300,000-a-year population gains it averaged over the last 30 to 40 years until 2014 or 2015, said Stan Smith, director of the school’s Bureau of Economic and Business Research in Gainesville.
_______________________
How did he come to that conclusion? Did he pull it out of a hat? Stan — it’s not going to happen ever, not in 2014 or 2015, not in a box, not with a fox, not on a boat, and not with a goat.
I’ve been angry and discouraged today after reading a pro-flipper article on MSN. Present company excluded, the utter determination our government has to reflate the housing bubble, and to re-create the culture that accompanied it, is like the 21st century version of the Apollo project. We’re giving it everything we’ve got as a people, at the expense of things much more valuable than whatever high house prices bring us.
In the last five years, I don’t think I’ve seen more than two or three articles with the temerity to suggest that rising house prices are not a good thing when combined with stagnant or falling incomes. And now we’re going to be bidding against Korean speculators. Just great.
Love the riffing on Dr. Seuss, snake. Awesome.
Don’t feel bad about the MSN or any media stuff. Remember how inaccurate they are. We won’t be bidding against Korean speculators in any numbers, anyway. Asian investors just haven’t done well in the US. Temporarily, maybe, but they don’t know when to fold ‘em. I don’t even think China’s going to get out of this unscathed.
Snake - Why don’t you think that migration to FL will go back to 300,000 per year? Large numbers of bay boomers will start turning 65 next year. I think that they will still want to move south from the Northeast and Midwest. They won’t have much income beyond their meager Social Security. Fortunately, Florida will have hundreds of thousands of condos selling for less than $100,000 that they can purchase.
There was a recent article about the baby boomers heading south. Not happening. Most want to stay near their family and friends.
They might eventually move south, but probably not until well after retirement.
In the short term, it’s still too expensive to live here compared to the Carolinas, Tennessee, and other states and even foreign countries that are now competing for retirees. Pension and benefit cuts, and insurance premium and property tax increases, all likely are coming, so from a financial standpoint, I see zero chance for improvement. Plus, our state’s services, roads, and water resources are barely enough to support the people who are living here now, much less 300,000 more people per year, no matter what the developers say.
In the long term, I also think the standard of living Americans have enjoyed for the past sixty years is doomed, primarily for reasons related to declining fossil fuel resources, but also due to demographics and the fact that we’re a hopelessly debt-ridden country which, aside from armaments, doesn’t manufacture anything other than sprawl. What are 300,000 more people per year going to do for work if they move to this state? Run the rides at Busch Gardens? Modern Florida was the product of a unique set of circumstances ranging from cheap oil to suburbia to the whole notion of retirement as something middle-class people easily could aspire to en masse, and those circumstances have ended permanently.
Fifty years from now I fully expect this state’s population to be half of what it is today. I haven’t even covered possible impacts related to climate change and political instability, because I know that will stir up a hornet’s nest.
Trys to pictures Palmy as Snoopy dancing in a Panama hat with a funny colored drink and a tiny umbrella in it.
Hah…won’t work !
OOPs, I screwed up and the HBB ate my post.
CalSTRS and CalPERS have both been heavily criticized in the past when they used a conservative approach in investing their funds. The chief investment officer of CalSTRS, Thomas Flanigan was replaced in 1997. Why? because he felt that the US stock market was overvalued and that risking beneficiaries’ assets in high-risk securities was a bad idea. In 1996 CalSTRS earned 9.9% on it’s portfolio and CalPERS who at the time had invested heavily in the stock market earned 12.9%. I personally think that 9.9% return with a conservative approach is pretty darn good.
I remember reading an article in the SacBee criticizing CalPERS for being too conservative and not investing in RE during the bubble. Both funds were late to the party and in just in time for a financial pummeling.
Rosemary Hughes of Andover, Mass., lives in a home large enough for 30 family members to dine together at the holidays, and she vacations twice a year. But her investments took a hit when markets crashed, and she now finds it difficult to pay her property taxes, which exceed $11,000 a year. Hence this fall for the first time, she began volunteering at Town Hall to earn credits toward her tax bill. She’s also increasingly vigilant about spending, looking for discounts wherever she can find them.”
This is the sweet spot for further housing decline. Upper class retired people who lost a boat load during the crash and pulled their money out to put it in even more conservative investments that now pay next to nothing. Throw in rising taxes, and higher prices for food fuel and medicine and poof these properties will collapse. I’m seeing some big mansions being put on Craigslist as rentals. My guess is the owners want to rent and move into a small 1 bedroom while rented all so they can save the house from foreclosure. These types of houses were not for rent over the last 4 years. I see myself moving into a nicer place next year and playing hardball on the rent.
How many illegal families could you board in a flophouse like that?
“Al Blitz, a 70-year-old resident of Plano, Texas, is among those who invested in the months leading up to Right Place’s demise. ‘Our total retirement income is in jeopardy of being lost because of Right Place Properties’ actions,’ Blitz said.
Um, Al, it sounds to me like your total retirement income is in jeopardy of being lost because of YOUR actions. How’s that “higher returns on your investment!” working out for you?
The older you get, the more conservative your investment strategy should be. That’s been a rule for quite some time.
Wanda Miller of Coldwell Banker . ‘It’s a buyer’s market right now. Waiting is a bad idea now because they are going to lose the incentive.”
Hey Wanda, what happens after that? Check your real-a-tors handbook of dumb assed remarks and let us know.
And when they lose that incentive, will the home price be lowered more than $8000?
Think of it this way: With leverage, an additional $8000 in downpayment money can buy a lot more than $8000 in marginal purchasing power. For instance, take the simple case where a 3.5% FHA downpayment requirement is funded with the $8000 tax credit. The implied addition to the prospective buyer’s purchase budget would be
$8000/3.5% = $228,571.43. I realize this example is stylized, but it makes the point about how leverage can greatly amplify the demand impact of a small increase in the cash that supports a transaction.
Unfortunately for those who thought the $8000 was theirs to keep, leverage will work in reverse once this program is phased out later this year.
Bingo, PB. It’s a much bigger windfall (to sellers) than $8,000.
It’s called an Option One Mortgage Loan Trust, or OOMLT (pronounced om-let).
To heck with buying a vowel. I want to buy an umlaut!
Didn’t these good folks advertise right here on HBB?
Poor Ben.
FLAGSTAFF, Ariz. - It’s hard to believe but Flagstaff, Ariz., has had more snow this year than either Anchorage, Alaska, or Buffalo, N.Y., the National Weather Service says.
The weather service says Flagstaff has racked up more than 11 feet of snow so far and is on the way to recording one of its snowiest seasons ever, the Arizona Republic reported Friday.
March usually produces a lot of snow so this winter could end up being Flagstaff’s fifth snowiest, the forecasters say.
“I’m ready for it to be over,” said David Blanchard of the NWS. “We’re all getting a little tired of shoveling.”
This season’s heavy snowfall is attributed to warmer-than-normal sea-surface temperatures in the Pacific Ocean that can steer wetter storms to Arizona.
The Sunbelt?
Poor Ben?? Man I think that’s great. We should have such snow up here.
My dad has a house in Flag
He visits it a few times a year, I’ve been telling him to sell that place since he took a new job. He keeps telling me he may move back and kept telling him then buy a new place when you do.
End result
House broken into over the last week
TV and a bunch of other stuff taken.
Sorry to hear about that, measton.
That’s one of the reasons I would never want to own a vacation/second home. It just too vulnerable.
Hope he finds his stuff, even though the chances are fairly remote. Still it’s a smaller town, as long as they didn’t leave the area.
“Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday.”
So much for the myth that New York skyscrapers reach to the sky.
This season’s heavy snowfall is attributed to warmer-than-normal sea-surface temperatures in the Pacific Ocean that can steer wetter storms to Arizona.
More snow = results of global warming
Less snow = results of global warming
It is a great scam and it means you never have to say I am wrong…
There is some sense out there:
http://www.msnbc.msn.com/id/35839839/ns/business-real_estate/
“Owners of bad loans are increasingly making deals with borrowers to avoid a foreclosure, which tends to reduce returns for investors and place a black mark on the homeowner’s credit. Lawmakers and regulators are becoming more accepting of these solutions even though they mean the borrower loses the home.”
“The trend comes after more than two years of loan modification programs and foreclosure moratoriums that have produced mixed results, with many homeowners ineligible or defaulting again.”
“Where a modification isn’t feasible, the U.S. Treasury in April will begin paying borrowers who agree to a deed-in-lieu of foreclosure or short sale, where a home is sold for less than outstanding debt. Unlike most modifications, those actions erase excess debt and reset home values, solving the problem of underwater loans that are a top cause of defaults.”
I had said the only way out was the mother of all cramdowns. This is like a cramdown, but with a new owner in the house. I guess that gets rid of the moral hazard of people defaulting who don’t have to — you don’t get to have your house and default it too. But in a couple of years you can get a new one.
This is the ONLY way to solve the problem.
BTW, there’s no reason to give the benefit of the lower price to the deadbeat who willingly took on debt he/she couldn’t repay. Better to reward those who were more prudent, and let the FBs (and lenders) learn a very valuable lesson.
“But it turns out the guy who’s selling the bond wants 17 or 18 cents on the dollar — more than 30 times what we bid. Solberg says these kind of huge spreads are pretty common in the toxic asset business. People just radically disagree about what things are worth.”
Am I being overly optimistic by noting that at least some discussion of toxic asset price discovery is beginning, suggesting a possible spring thaw in the frozen liquidity of these assets?
“We spend two days with Solberg looking for the right toxic asset. One, full of what appear to be California McMansions, seems promising. We find a beautiful, totally toxic asset at what Solberg thinks is a good price: $36,000. Back in the bubble, somebody paid $2.7 million for this thing.”
You might be wondering like I was how $36,000 for an asset originally priced at $2.7 million looks on a cents-per-dollar basis:
($36,000/$2,700,000)*100 = 1.33 cents per dollar.
I do wonder why people believe that those who grew up during the Depression didn’t use credit. They were, in fact, the first middle class generation to use it for ordinary consumer purchases. (Working class people have always relied on credit; we didn’t have any choice.) Macy’s, for instance, was the last major department store to issue charge cards–in 1939. And the Visa that we all know so well was introduced in 1964, a fair number of years before most boomers were old enough to apply for a credit card.
Middle Class Money Angst Still Apparent in Data
The reduction in mortgage debt was not so much the result of homeowners’ newfound probity in paying off their loans as walking away from them.
So, that’s how American families are getting ahead — by falling behind on their house payments. Not exactly the path to prosperity.
In any case, U.S. households’ total net worth still was down 16% from the end of 2007 and 21% from the absolute peak the following year.
Even more stunningly, households’ net worth in real estate was down by more than half — 53.3%, to be exact — from the end of 2006
http://finance.yahoo.com/loans/article/109071/middle-class-money-angst?mod=loans-home
Again, foreclosure is the ONLY path to prosperity for these FBs.
They can go from a net worth of say NEGATIVE $300K to zero. That’s certainly a better path to prosperity than trying to pay back the $300K that they’ll never be able to reasonably afford to pay back.
Barrons
The Federal Reserve reported Thursday that the net worth of U.S. “households” increased at about a 5% annual rate in the fourth quarter, a good deal slower than the blistering 20% pace over the two previous quarters, but still a solid increase.
Most of the gain in wealth
But those gains accrue to a narrow of Americans. “Households” sound like what makes up Mr. Rogers’ neighborhood, but to the Fed’s statisticians it’s a catch-all category for what doesn’t fit into the other neat data cubbyholes. That means that “households” include not just regular families but also domestic hedge funds, which are out of the reach of 99% of the rest of us.
Housing is the key asset of the hoi polloi,
Meanwhile, owners’ equity in household real estate saw a higher absolute and percentage increase, to $6.313 trillion from $6.222 trillion, a 5.9% annual rate of gain. That was aided by a continued decline in households’ mortgage liabilities in the fourth quarter, to $10.262 trillion from $10.315 trillion.
The reduction in mortgage debt was not so much the result of homeowners’ newfound probity in paying off their loans as walking away from them.
Meanwhile, owners’ equity in household real estate saw a higher absolute and percentage increase, to $6.313 trillion from $6.222 trillion, a 5.9% annual rate of gain. That was aided by a continued decline in households’ mortgage liabilities in the fourth quarter, to $10.262 trillion from $10.315 trillion.
The reduction in mortgage debt was not so much the result of homeowners’ newfound probity in paying off their loans as walking away from them.
In all, the latest Fed Flow of Funds data suggest that, to the extent middle class Americans’ finances are improving, it’s because their liabilities are being reduced by default. The gains in asset values are being concentrated by those so-called households with the ways and means to own equities.
inance.yahoo.com/loans/article/109071/middle-class-money-angst?mod=loans-home
Does the Fed’s definition of “households” include banks with ZIRP money to invest?
Remember when this Dick was blaming Lehman’s demise on the short sellers who were supposedly driving down the stock price? The Lord hurts worst the shares of companies whose managers run them into the ground, then try to use accounting gimmicks to hide the truth.
So far, the MSM is suggesting that Fuld will get off lightly; perhaps he will use the standard ignoramus-I-don’t-know-us CEO defense?
March 12, 2010, 6:26 p.m. EST
Do other firms use Lehman’s accounting ‘drug’?
Goldman Sachs, J.P. Morgan, Morgan Stanley say they don’t use tactics
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — Lehman Brothers used an accounting maneuver to make itself look financially stronger than it actually was, and the firm used it so much one executive called it a “drug.” Did other investment banks get hooked?
Lehman (LEHMQ 0.11, -0.02, -16.48%) , which collapsed in the biggest bankruptcy in U.S. history in 2008, called the transaction “Repo 105,” according to a report from a bankruptcy court-appointed examiner that was unsealed Thursday.
What was Lehman hiding?
A 2,200-page report on pre-collapse Lehman Brothers raises serious questions about Enron-style accounting and deleveraging, Peter Lattman reports on the News Hub panel.
Repurchase agreements, or repos, are a common way for investment banks to finance themselves, though the strategy came under intense pressure during the 2008 financial crisis. An ordinary repo involves the transfer of assets to another party in exchange for cash, while agreeing to repay the money and take back the assets at a later date.
The examiner investigating Lehman’s demise said Repo 105 transactions used a clause in accounting rules to classify repos as sales, even though the firm was still obliged to repurchase the assets at a later date. That meant the assets disappeared from the balance sheet, and it could use the cash it received to temporarily pay down other liabilities. This made Lehman look less leveraged than it actually was. Read about Lehman’s use of Repo 105 transactions.
Repo 105 was designed to “work” Financial Accounting Standard 140, which covers accounting and reporting requirements for transfers and servicing of financial assets and extinguishment of liabilities, according to Jack Ciesielski, publisher of the Analyst’s Accounting Observer, an advisory service for security analysts.
Lehman called the transactions Repo 105s because the value of the assets it transferred were worth at least 105% of the cash it received.
The firm “hit the level of collateralization needed to allow a sale treatment,” Ciesielski said. “From what I have heard, that was a stretch.” He added that he didn’t know how common it is for companies to stretch the boundaries of Statement 140 in this way.
Lehman was “stretching the boundaries of the truth, so that is not something too knowable elsewhere,” he commented. “It took $38 million and a year for the bankruptcy examiner to find out how widespread it was in just one company. But sales treatments were widespread everywhere under 140.”
“A Statement 140 sale treatment was not illegal,” Ciesielski remarked. “Distorting results to get to the levels demanded of a sale treatment was what the problem was.”
…
“Goldman Sachs, J.P. Morgan, Morgan Stanley say they don’t use tactics”
And since bankers always tell the truth, we should accept them at their word without questioning them. Never mind cockroach theory — it simply could not possibly apply to a trust-based industry like banking.
“Warren Buffett said last week that the U.S. housing market will bounce back next year, but the truth is, even before the billionaire’s forecast, Korean investors have already begun pinpointing where to buy. ‘People are fast,’ says Choi Yong-il, manager at a California-based real estate consultancy. ‘We’re already seeing increased activity among keen investors who aren’t afraid to be the first to move.’”
Hah hah hah… maybe Uncle Warren and his allied army of Korean real estate investors can work together to help the market find a bottom next year. I know a Korean guy who is just champing at the bit to invest in California residential properties. He seems to have a died-in-the-wool conviction that California real estate always goes up, and that buying some is the sure road to riches.
Before the crash, prime office space on Harmony Road was leasing for $20 per square foot or more. ‘A lot of people are at their wits’ end trying to hold things together,’ Ehler said. ‘We’re doing leases for $10 per square foot. It’s like we’ve traveled back 15 years.’”
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What’s funny is that so few people question the logic of “everything goes up over time.” Yes, that may be, but it’s also entirelly possible to see prices go DOWN for a very long time, IMHO.
This is why the recession/depression will be so protracted. Everyone is conditioned to think in terms of micro-cycles: just a few months (a year or two if it’s really bad), and then it’s off to the races again!
It’s difficult to wrap one’s head around the possibility that we might see decades of stagnation/deflation. They just can’t grasp that for some reason.
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