Bits Bucket for February 6, 2011
Post off-topic ideas, links, and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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May you find great bargains on Ebay today…you will probably be the only bidder
Meh … not everyone watches the Souper Bowl
I’m going to a movie tonight. Me, a medium popcorn, and the theatre to myself = perfect moviegoing experience.
I’ve been watching it play out, right here on the HBB, since 2005…
Got popcorn?
“I’ve been watching it play out, right here on the HBB, since 2005…”
Man, I just checked the archives. Over 4,000 posts for me, and my first when in August of 2006, although I lurked for a while.
Thanks, Ben, for all these years…
Got popcorn?
Didn’t Neil trademark that?
I won’t watch it. Baseball is so boring.
hubby, stepson, and his stepdad just hit the road for cali - yeah they really care about the super bowl..
Just for my understanding… stepson should be your hubby’s son or… a stepson of your hubby? really hard to understand 3 men that are: hubby, stepson and his step dad!
I think it is a father and son (step son of Montana) and the husband of the stepson’s mother? It is nice to thing of a family that can get along like that. The current and former husbands of a child’s mother taking him on a road trip.
I hope so. I’m watching a couple of auctions of replacement parts for my refrigerator. One ends right before kickoff and the other ends during the game.
Of course, a person can watch the Super Bowl, while at the same time his sniper program can do his bidding for him.
jBidwatcher is your friend!
It seems to me that the Fed’s inflationary policies are another bailout for the banks and financial institutions, paid for by the average American.
The fed floods the system with cheap easy money. The financial institutions pump up the value of commodities inflating the cost of everyday necessities. Going to the grocery store or filling up the car becomes more expensive. The money flows from the average person to the big financial institution. This is even better than TARP, for the financial institutions, because it doesn’t have to be paid back. A gift from the FED to the big banks. The average American gets the shaft once again.
‘The average American gets the shaft once again.’
http://www.charlieglickman.com/wp-content/uploads/2011/01/tiny-violin.jpg
‘The average American gets the shaft once again.’
http://www.palmbeachpost.com/blotter - 40k -
Ben,
You don’t do sarcasm often but I love it when you do!!!
That was just so awesome. Please indulge repeatedly
Is that what a same-priced violin will look like next year?
You just figured this out? Have you been paying attention?
‘pump up the value of commodities’
It’s interesting to listen to ‘Merikans’ get all worked up about stuff like this. Because of the US$s world reserve status, most of the inflation we’ve kicked off for decades has been sent over-seas. And if you buy a box of Rice-a-Roni, most of the cost is actually packaging and marketing. But in poor countries, where they earn a couple of dollars a day, and buy bags of these raw foods, they’ve seen prices skyrocket recently.
It’s not just printing money; what about the Yen carry-trade, that investment house speculators used to drive all sorts of global imbalances? These central banks are responsible for many ills all over the world, but USAans don’t feel the worst of it.
Jeebus, we use corn to make auto fuel.
Exactly. Like I said before. while it’s a nuisance for us, for the global poor food price inflation is a catastrophe.
There are 50 million of us for whom it is more than just a “nuisance.”
Far more.
“Jeebus, we use corn to make auto fuel.”
And to add insult to injury, we use fuel (petroleum products in gasoline, fertilizer, etc) to make corn. Makes no sense unless you follow the ag subsidy money.
“What’s for supper?”
“And to add insult to injury, we use fuel (petroleum products in gasoline, fertilizer, etc) to make corn. Makes no sense unless you follow the ag subsidy money”
What gets a beef calf from 80 to 1,200 pounds in 14 months are enormous quantities of corn, protein supplements — and drugs, including growth hormones.
That’s also includes the hidden cost estimate of 284 gallons of oil to produce each beef.
Bon Appetit
Montanto. Its what’s for dinner.
Montsanto: Improving on God’s work since 1901. One mutation at a time.
I’m drunk already. When is the kickoff for the next leg down?
From Wikipedia - Green Revolution
The agricultural development begun in Mexico by Norman Borlaug in 1943 had been judged as a success and the Rockefeller Foundation sought to spread it to other nations. The Office of Special Studies in Mexico became an informal international research institution in 1959, and in 1963 it formally became CIMMYT, The International Maize and Wheat Improvement Center.
In 1961 India was on the brink of mass famine.[2] Borlaug was invited to India by the adviser to the Indian minister of agriculture M. S. Swaminathan. Despite bureaucratic hurdles imposed by India’s grain monopolies, the Ford Foundation and Indian government collaborated to import wheat seed from CIMMYT. Punjab was selected by the Indian government to be the first site to try the new crops because of its reliable water supply and a history of agricultural success. India began its own Green Revolution program of plant breeding, irrigation development, and financing of agrochemicals.[3]
Ahh…the concept of privatizing the gains….socializing the risk rears its ugly head once again.
Who says it’s endemic only within our borders and not cross-border?
We have really gone astray in this country - a return to Constitutional mandates might help quite a bit. Instead, our “leaders” now are trying to circumvent the Commerce Clause to achieve continued privatization of gains and socialization of risk (i.e. “health care”).
No, its not just a gift from the Fed to the banks. This is the way the central bank of the US lies, cheats and steals from everyone in the world. The american economy is underpinned by oil and cheap goods produced elsewhere in the world. This way they exchange value for printed fiat.
Even the food consumed by you has a huge percentage of oil calories. As inflation is going to kick in elsewhere in the world, other countries will gradually allow their currencies to rise against the dollar to feed their people and overnight you shall see that the cheap stuff at walmart is not so cheap anymore.
There is no painless exit from the delusions of our chairman of the food riot corporation (Fed). The average American will eventually get the shaft once again, it will be big and thick.
“you shall see that the cheap stuff at walmart is not so cheap anymore. ”
Good
1) We’ll stop being hyperconsumers
2) We might actually start making our own comsumer goods again. Socks will cost a bit more, oh the humanity!
And a lot of manufacturing jobs in China will evaporate because of lowered demand. Are their own people ready to take over American consumer demand? Is India? Or Brazil?
GM sold more cars in China in 2010 than in the US.
Many reports are that the Chinese have reached critical mass of self sustaining consumerism.
I defer to Rio on his reports of Brazil. But an expanding middle calss and job protection from globalization would indict “yes” as well.
I don’t buy the argument that all consumer goods would be more expensive if made in America. I think the savings in offshoring is seen by the executives, not the end consumers.
Correct, contrary to common belief, the savings are not passed on to the customers.
Exactly.
Some think that this is a good idea, if others allow their currencies to rise against the dollar it will bring jobs back.
IMHO a big NO, as the dollar falls against the world currencies, the cost of gas, food and everything goes up. This means that there will be less money to compete for in the aggregate, in a shrinking market the companies here will cut costs and layoff more people to find a dollar and offshore more.
In the above argument, I have not even included the negative effects of the bloated pension plans and the tax increase from the govt which finds its knees cut off from the inflation. There will be layoffs everywhere not just the private but the government sector to balance the budget.
Forget about jobs, they are gone for good. The lifestyle downgrade will be permanent.
“the companies here will cut costs and layoff more people to find a dollar and offshore more. ”
But it won’t be cheaper to offshore jobs if the dollar has weakened, if anything many jobs that were just marginally cheaper to offshore will come back. Our exports will be more competitive.
And the US is a net exporter of food, so high world food prices aren’t as devastating to our economy as they are to food importing countries.
We’re not as dependent on low onion prices as some of our up-and-coming competitors are.
Well that is one way to look at it. The other side of the coin is that if the companies that offshored jobs also sold lots of their products overseas, joey will not benefit. A majority of the companies on the S&P do. The stronger RMB/USD INR/USD makes them sell less widgets and are thus less profitable, those hired will be likely fired.
“IMHO a big NO, as the dollar falls against the world currencies, the cost of gas, food and everything goes up.”
Which means we offshore less and buy less from you.
Too bad. We’ll survive. Don’t know how your export centric economies will fare.
Not really, at least not until the world is living a lifestyle lower than yours. Do not get me wrong, I am not interested in the rest of world and us. Its a chauvinistic argument with no facts underlying it.
The facts are there are big blocks of people in the world waving a big flag saying that they will work for a bowl of rice and clothes for their kids.
Thus as long as there is a place with a lower wage than in America, there will be no reversal of off-shoring. So yes someday the jobs may come back but that likely will not happen in your lifetime.
Before you wave the patriotism flag (really it does not matter how patriotic you are, markets and its numbers do not lie) just take a look at where some of your biggest corporations are making money. They are making more overseas than here.
The facts are America is a middle aged nation and the rest of the world is like a couple of decades younger than you. So who is going to consume more Chindians 2.5billion or 300 million americans? and the customer is the King.
The trend will not change anytime soon unless you open the doors to a flood of immigrants and grant green cards on arrival and pay them something slightly better than third world wages. That’s how capitalism works.
You clearly don’t travel.
Also, the fewer recycled dollars from the reduced amount of currency manipulation will mean lower asset prices (e.g. houses and perhaps even commodities) and fewer financial bubbles.
So basically, this adjustment means the junk that I don’t need becomes more expensive, while a lot of the stuff that I do need gets cheaper, along with me actually having a job to pay for everything. Sounds like a good trade-off to me.
“So basically, this adjustment means the junk that I don’t need becomes more expensive, while a lot of the stuff that I do need gets cheaper, along with me actually having a job to pay for everything. Sounds like a good trade-off to me.”
Ding, ding, ding!
This is how we used to live and it was just fine. We can survive if the prices of flat panel TVs, laptop PCs, IPhones and other “toys” goes up.
I don’t think that our Asian “partners” will fare so well. Their 25 cent an hour labor force won’t be picking up the slack on consuming, especially if the price of onions keeps going up.
“The facts are America is a middle aged nation and the rest of the world is like a couple of decades younger than you. So who is going to consume more Chindians 2.5billion or 300 million americans? and the customer is the King.”
Given that the averge Chindian can’t afford to put rice or onions on the dinner table anymore (not surpising given the low wages), my vote is with the USA.
@Colorado, DF
There will always be food on the American table compared to the rest of the world, it is not without nutrition that it is home to the fattest people in the world. The title will likely be unchanged, the Krafts, Pepsi’s and Monsanto’s of the world will make sure a bag of chips is cheaper and more accessible than a healthy meal.
In your reply you forget that as the Chindian currencies gain against the dollar they will be able to afford that onion more easily. You will pay more for your onions too because your farmer now can get a better price if he sells it outside the US given Chindians wages are constantly rising due to their strengthening domestic economies.
While highlighting the food problems around the world, we must be careful to not use too broad a brush to paint a picture of starving people. The thing is growing food is not rocket science, especially if you have a tropical climate. One can throw a mango in India come back in a year and find a tree there. So if food becomes more expensive people will grow a small garden. Of course not everyone can do that, but those that do will no longer be plugged into the national food grid.
My key point on the American economy is that whatever the consumer gains are in some categories it will be canceled by rising prices in another category given the debt and obligation load in this country. Take Illinois for example, they increased their state taxes 67% overnight. NJ and CA are issuing IOU’s and vendors have not been paid for a long time. This picture does not get any better, but in fact gets downright scary, if you add SS, Medicare, Medicaid, Pensions and Federal debt.
Agriculture and food alone has not what has defined Americas image. Instead it is that it is a powerhouse for new ideas/technology, manufacturing prowess and affluence. This came about because of the turn of events in history as I mentioned in an earlier post, not because it is inherent in its DNA, geography or divined.
Frequently we judge our tomorrow based on our yesterday, and assess your opportunities and competition in that prism. However, that is something that’s a limitation when you judge people who are new players.
American dominance requires a continuous fountain of new ideas. Ideas require great talent, luck and cheap capital. If global exchange rates trend towards a weak dollar and stronger international currencies it will be a net negative for quality immigration. The key ingredient which powered America.
So fewer immigrants will find it appealing to come here and instead start companies overseas. This is why the treasury keeps talking of a strong dollar. Believe me if you suffer a negative population growth the future will be that of Japan. If weaker dollar is the way it goes then the next Google and Facebooks are going to be started in New Delhi or Shanghai. So I am not sure how that would make America stronger.
Every bit of your analysis requires numbers to back it up. You claim that the relative gain in the prices of some goods will offset anything Americans can do including reducing their amount of consumption. And you inexplicably claim that lowering the relative cost of American labor will cause more offshoring. Bring some numbers to the table to prove your claims.
I think that most Americans can handle a reduction in the volume of their spending and not suffer too much. Not sure that woul apply in the places you claim will benefit so greatly.
@polly
It is a fact. It is the debt that will do Americans in unless you default on it. If you do that and change the tax code yes jobs will comeback and you get to start on a clean slate. However, the pain will be tremendous, you will lose the dollar as a reserve currency, lose most of your military and political strength and unemployment will shoot upwards but last only a while giving way to real green shoots with a steady growth rate. Not the brown weeds the chairman of the food riot corp mentioned on tv.
Well all the data is there, you only need to add it up. Take the civilian labor participation rate and the debt.
http://research.stlouisfed.org/fred2/series/CIVPART
http://en.wikipedia.org/wiki/File:USDebt.png
Does it look like you can handle a big revaluation of the RMB/USD or INR/USD and keep your unfunded obligations like SS, Medicare and Medicaid? What about the military that you need to keep your oil flowing?
For general info, employer (metals industry service, N. Ohio) announced on Friday that everyone back on a 40 hour work week (from 35). Lasted almost a year, 20% of management left for other jobs, 20% of hourly laid off or quit. Only new hiree: a time and motion study “engineer”. No other hiring anticipated in 2011.
Voting to KEEP tax breaks for offshoring jobs is big part of the problem.
The average American is up to his eyeballs in debt, unless he or she has gone bankrupt recently.
The average powerful American is well placed to direct, or take advantage of, whatever public policy outcomes arise.
Hedging the political consequences of this is something we serf savers might have failed to consider.
Exactly. Its global not more local, its tacos for dinner.
The average Joe6pk has not realized how good he has had it. Due to a confluence of global events like WW2 leaving the rest of the worlds infrastructure bombed out, communism and its fall, big economies like Chindia being dark and only now coming online.
The future is one global super bowl of goods, services and its people. He will have to get used to taking the seats at the rafters or further back if he is unlucky.
“…global super bowl of goods…”
You misspelled Souper Bowl.
No kiddin…Prof yer right.
Its soup with beans for lunch and tacos for dinner
, wait until the rest of the world realize that they will never live the American dream of a car and house for everybody. There is just no oil left to support the 150+ mbpd it would require.
Luckily, beans and rice couple to make a nutritionally complete dinner!
Home cooking. The only certain wave of the future in America. Soaking the beans right now. $3.00 for a 5 pound+ crock of the best home made baked beans in Ohio. Plus, get free heat to heat the house. Get used to it gang. Unless you took Aladinsane’s advice very early on, that is.
Beans and Ham Prof, beans and ham.
Stay away from the fireplace Carlos4, we do not want to see those beans on TV ;).
I wont be traveling to Malawi anytime soon.
Not necessarily. You also need the doctrine of free trade/neoliberal economics to make that reality possible.
Yes, thanks to cheap oil and cheap telecommunications, it’s cheaper to move goods/services around the globe than in the past. But you also need governments to allow this movement to freely happen. If governments make this movement more restricted, then the reality which you describe ceases to exist.
Free trade is not an inevitability of today’s technology — it tends to ebb and flow throughout history. We might be heading towards a more protectionist world in the next 10-20 years.
China business
Underground world hints at China’s coming crisis
By Peter Foster and Zhang Wei in Beijing 8:00PM GMT 30 Jan 2011
To understand how far ordinary Chinese have been priced out of their country’s property market, you need to look not upwards at the Beijing’s shimmering high-rise skyline, but down, far below the bustling streets where nearly 20m people live and work.
In Beijing, where the average monthly salary is 4,000 yuan, the average person would take 50 years to buy an average apartment, assuming
they saved every penny they earned. Photo: Getty
…
In Beijing, where the average monthly salary is 4,000 yuan, the average person would take 50 years to buy an average apartment, assuming
they saved every penny they earned…………………..
Golden Opportunity for Goldman Suchs!
Just think of it. A structured mortgage product for low-income earners that will allow entry into the hot Chinese housing market and a payment stream for 50 years, backed by real estate. Then, they can sell these AAA loans to pension funds and trust funds for a sizable fee plus derivatives.
Just think of all the money~!
Imagine a Chinese Christmas morning 40 years from now. The grandkids are opening their gifts (most probably made in Africa).
Little Quang Li asks her grandmother, after opening her gift, “grandma, what is a mortgage assumption application for?”.
A Wall Street fairy tale.
Chinese apartment REITs, anyone?
Chindia is gonna crash so hard it’s gonna be epic!
50 years? Remember Japan and the 100-year loans?
I realize the U.S. markets are supposedly decoupled from Asia’s, but I am nonetheless curious about how you think the fallout from the inexorable Chindian property crash might impact asset markets on this side of the Pacific?
Perhaps a “flight to safety” in the US?
“Remember Japan and the 100-year loans?”
I do, very clearly. I thought it was insane then and my view surely hasn’t changed since.
I think we did 99 year bonds for Coke or Pepsi once. The argument against them was that they exposed the holders to company risks for so long that they really should be considered equity. We weren’t willing to do it for too many companies, but somehow the assumption was the sugar water people would still be around. But you can’t have an equity stake in a country, so I don’t see how the lawers could have objected. Then again, stupid isn’t illegal.
Personally I find 30 year loans reprehensible. No mortgage should go longer than 15 …
I know real estate prices would really tank then!
Now I guess an analyst cannot speak her mind regarding asset price risk without the risk of becoming the messenger who gets killed by Congressional inquiry. Free markets don’t work very well, except as Griftopian bubble machines, if bearish perspectives are outlawed. In my ideal world, there would be a Constitutional Amendment protecting analysts’ freedom of speech to say whatever they wish about assets, so long as it reflects the facts, thereby giving would-be buyers the basis for an informed decision about whether to invest.
Markets
Congress Wants to Hear from Meredith Whitney on Muni Call
By Charlie Gasparino
Published February 03, 2011
A congressional subcommittee investigating the recent implosion of the $3 trillion municipal bond market wants analyst Meredith Whitney to come clean and explain her doomsday prediction of hundreds of billions of dollars in muni defaults over the next year.
The subcommittee, headed by Congressman Patrick McHenry, R-NC, has launched a broad investigation into the struggling market for debt issued by states and cities to determine, among other matters, whether states should be able to declare bankruptcy amid widespread fiscal woes, particularly in the Northeast, and exactly what has caused a sharp decline in prices in recent months.
As part of this inquiry, the subcommittee is looking into the validity of Whitney’s call made on national television that predicted between 50 and 100 major municipal bond defaults over the coming year, which would cost investors hundreds of billions of dollars in losses. The call sparked massive panic among small investors — the largest purchasers of muni bonds — because of the tax advantages.
Many small investors unloaded their bonds, and redeemed shares of municipal bond mutual funds, at a loss.
Many top municipal bond analysts have taken issue with Whitney’s prediction, saying such levels of defaults are unprecedented even during tough economic times. McHenry told FOX Business the subcommittee called Whitney to get to the bottom of the debate.
“We want her to fill out her views one way or another,” he said.
But Whitney has so far rebuffed the committee’s attempts to have her appear at the hearings scheduled for February 9, and there is talk on the committee about subpoenaing her to appear, as well as subpoenaing her to produce her controversial report on municipal bonds.
…
Many top municipal bond analysts have taken issue with Whitney’s prediction, saying such levels of defaults are unprecedented even during tough economic times.
Sounds a lot like: ““we have never seen housing prices fall on a national level.” ……B. Bernanke..
So, we expect prices to perhaps level off……..yea, good call.
The bond salesman are pizzed, because stating the obvious/the truth costs them money.
The government is pizzed, because their ability to borrow money at 0% has been compromised.
She’s an analyst. You don’t have to believe what she has to say. Obviously, the market thinks she has some credibility.
There are two real issues with the predition. One is that it assumes that there are that many municipalities that don’t have any accounting tricks left to allow them to pay their bond payments and be in compliance with balanced budget requirements. Interesting prediction. Meredith Whitney is probably in a good position to knwo this.
The second is more problematic. The prediction means she thinks that they will choose to default on the bonds before they default on other things, like contracts in place for building projects, commitments to other spending, pensions, etc. and won’t be able to get tax increases or state/federal aid to get through. I agree with not getting state/federal aid, but the rest is awfully hard to predict. She might be right - it is probably easier to screw some unknown bondholder than the retired cop who lives down the street, but municipalities are very dedicated to their ability to borrow in the future.
I don’t see how Congress can demand that an analyst give up her propiatary information in open session. It is exactly the same thing as demanding that Microsoft let anybody have a copy of a valid installation disk for Windows for nothing just by visiting a government website.
“……dedicated to their ability to borrow…..”
Why do municipalities borrow? Usually to finance/upgrade infrastructure.
This may be important to some municipalities. Many others, forecasting little or no growth in their local economy/tax base, may go into “bunker mode”. Others, like Detroit, are actually reducing their footprint to fit their tax base.
A lot of places are going to have no need/ability to issue bonds for quite a while.
The only people who actually have income to tax, are all threatening to take their balls and go play somewhere else, unless the status quo is maintained.
“I don’t see how Congress can demand that an analyst give up her propiatary information in open session.”
It sounds illegal (i.e. un-Constitutional) to me, which is quite ironic, given that Congress is charged with upholding the Constitution.
Human nature never changes. The Elites summon lesser beings to attend their own public mocking.
She’ll give the “elites” an earful. They’ll all be buying mountain retreats when her testimony goes viral. Gold should add at least a hundred that day.
In my ideal world, there would be a Constitutional Amendment protecting analysts’ freedom of speech to say whatever they wish about assets, so long as it reflects the facts, thereby giving would-be buyers the basis for an informed decision about whether to invest.
Um… doesn’t the First Amendment already pretty much cover that??
think he means tenure.
Good luck with that!
Ever tell a Stepford Wife some honest truths about investments? Or a Valley Girl? Or a Silicon Valley bimbo with my-husband-got-options?
Seriously, you need to get out more. Human nature is entirely predictable and no amount of laws or “truth” or common sense will change that.
Do you think anyone cares about Constitutional Law? Most people never read it. Look here: Article ONE, Section 8, Clause 6: To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.
It’s a FEDERAL Crime to Counterfeit money and Ben Bernanke and his buddies at the FED are giving away printed “money”, without any backing, ………by the TRillions.
The Founders thought it a serious crime to debase the currency.
(Sarcasm tag on)I thought the Fed was the only entity authorized by the U.S. government to create currency, but I now stand corrected.(Sarcasm tag off)
The currency was debased when money that would never be repaid was loaned to buy inflated assets. Sure the Fed could allow all the bond holders to go belly up, and probably should, but can you imagine the S and the fan right now?
What most do not realize is that individual debt becomes national debt when sufficient numbers default - see Ireland and Greece for examples!
Where was all the outrage when our currency was being debased in 2000 - 2006? Now it is just a matter of deciding who will carry the losses.
Uh… did you ever hear of sarcasm? Next time I won’t forget to include the tags…
I imagine Lawrence B. Lindsey knows full well what Meredith Whitney is up against.
Could it be that her prediction was based in part on the new majority House Replublicans statements about not bailing out states and municipalities?
Could he be upset because her public statements let the cat out of the bag too soon and some of the rubes escaped?
Or is McHenry simply clueless - an innocent pawn in the game - concerned that municipalities won’t be able to further borrow themselves into oblivion?
What’s wrong with making market predictions on national TV? Guests on Nightly Business Report does this every week, Cramer does it every fricken night, and Fox News does it every hour. It’s not Whitney’s fault that investors took her advice — what about that vaunted Personal Responsibility? Nevertheless, it looks like Meredith Whitney has been targeted for termination.
McHenry is of those up-and-coming staunch rah-rah-USA neocons at the far right of the spectrum, who likely knows less about this than we do. By acting as the vehicle to discredit Whitney, he is earning his future wingnut welfare.
A congressional subcommittee investigating the recent implosion of the $3 trillion municipal bond market wants analyst Meredith Whitney to come clean and explain her doomsday prediction of hundreds of billions of dollars in muni defaults over the next year.
Perhaps they should also summon Jim Cantore to the hill to explain his prediction that it will get dark later tonight.
“We want her to fill out her views one way or another,”
What language is that? A 3rd grader would flunk English if they wrote and spoke like that.
Municipal bond yields rise as market rally stalls
February 04, 2011|By Tom Petruno, Los Angeles Times
The municipal bond market’s recent rally has run out of steam this week, as some potential buyers apparently don’t see current tax-free yields as high enough to compensate for the risks.
The annualized tax-free yield on the Bond Buyer newspaper’s index of 40 long-term muni issues nationwide rose to 5.76% on Thursday, up from 5.73% on Wednesday and 5.71% on Tuesday.
Hey Jamie, so JPM didn’t make risky loans like the other banks? I guess no one could have ever imagined a 13,500-home, 2,000-acre New Urbanist community in the Nevada desert being anything but a rousing success….
Bankruptcy Judge Bruce Markell in Las Vegas on Thursday approved the involuntary bankruptcy petition filed by banks against South Edge LLC, developer of Henderson’s Inspirada planned community.
Lenders led by JPMorgan Chase Bank on Dec. 9 filed the petition, charging defaults under a $585 million credit agreement in which $328 million is still owed. Because of the recession, homebuilders that own the company had stopped buying land in Inspirada to build homes, making it impossible for South Edge to meet its debt obligations.
http://www.lasvegassun.com/news/2011/feb/04/judge-approves-bankruptcy-petition-filed-against-i/
Texas Rep. Rubén Hinojosa files for bankruptcy
An eight-term Texas congressman who serves on the House Financial Services Committee has quietly declared personal bankruptcy, blaming his family meat company for his problems.
Rep. Rubén Hinojosa, D-Mercedes, has $2.9 million in liabilities, according to his filing last Dec. 18 in federal bankruptcy court. Almost all of the owed money, $2.6 million, is a claim by Wells Fargo Bank, the nation’s fourth-largest bank.
The Financial Services panel has jurisdiction over legislation affecting banks. House aides and outside experts said the House has no rules forbidding a lawmaker who owes large sums to a bank from serving on that committee.
Clerical error no doubt….
The congressman’s latest personal financial disclosure form does not mention the Wells Fargo claim or any asset or liability as large as $2.6 million. His latest disclosure form covers 2009, and he updated it on Jan. 5 of this year.
Lawmakers are required to file the documents with Congress every year. Rodriguez and Hinojosa’s congressional spokeswoman, Patricia Guillermo, did not respond to an e-mail inquiring why the line of credit did not appear in the disclosure documents.
http://blogs.chron.com/txpotomac/2011/02/texas_rep_ruben_hinojosa_files.html
Kind of puts J6P’s 20K in CC debt into perspective, doesn’t it?
Is there any more doubt that we’re doomed?
Most forecasts are way too long on specifics for my taste, as they reflect the equilibrium between the public’s taste for fortune telling and analysts’ hubris about the accuracy of their crystal balls. The thing about Whitney’s muni bond forecast which I like is that it strikes a nice balance between the general-purpose gloom-and-doom quality of a religious prophet’s end-of-time warning with a specific asset class and time period: She is warning investors that a lot of muni-bonds will blow up soon, without pretending to know exactly which ones. Good on her, and too bad for the losers who currently own them. (I have to assume lots of wealthy Congressmen are among the losers; otherwise why would they be so interested in interrogating her?)
Markets & Finance February 3, 2011, 5:00PM EST
Whitney’s Muni Forecast Is Short on Specifics
While standing by her gloomy call, she says “quantifying is a guesstimate at this point”
By Max Abelson and Michael McDonald
BW Magazine
“There’s not a doubt in my mind that you will see a spate of municipal-bond defaults,” the banking analyst Meredith Whitney, nodding her head, said on a Dec. 19 segment of CBS’s 60 Minutes.
“How many is a spate?” correspondent Steve Kroft asked.
“You could see 50 sizable defaults, 50 to 100 sizable defaults, more,” said Whitney, 41, who made her name covering bank stocks. “This will amount to hundreds of billions of dollars’ worth of defaults.”
Those two sentences set off a month of fireworks in the almost $3 trillion muni market. California Treasurer Bill Lockyer called the prediction “apocalyptic arm-waving.” The National League of Cities’ research director cited her “stunning lack of understanding.” Pimco’s William H. Gross, who runs the world’s biggest bond fund, simply said he doesn’t subscribe to the “theory.”
…
Meredith just said what a bunch of us folks out here in the wastelands have been thinking for some time. It’s simple logic. Most cities and Counties depend on real estate taxes to provide a large portion of their budgets.
A few years back, they were all expanding their debts as higher assessments led to higher revenues.
Like all useless government dopes often do, they projected the windfalls of the housing boom into perpetuity. That means bigger salaries, bonuses, early retirements, big projects, and lots of spending.
Unfortunately, the long-term projections have fallen short, which was inevitable..
What would be a natural conclusion? Lots of cities are in trouble with too much debt and not enough revenue. It doesn’t take too much analysis.
Meredith’s words didn’t crash the value of the munis, her words crashed the prices.
The values were crashed long ago by those who thought they could forever spend more than they took in.
Meredith just said what a bunch of us folks out here in the wastelands have been thinking for some time.”
It seems to me that it doesn’t take much thought to reach her conclusion when the big talk is about allowing the states to file BK. Why would I buy any state bond until after BK, and why would I not run to sell before any BK is declared.
“It seems to me that it doesn’t take much thought to reach her conclusion when the big talk is about allowing the states to file BK. Why would I buy any state bond until after BK, and why would I not run to sell before any BK is declared.”
Well said. Curious that Congress can’t (won’t?) grasp those four lines without Meredith coming down and explaining it to them personally.
Politicians do not want to be the source of bad economic news. Its the weather’s fault, its global warm…. er, climate change, its earthquakes in Chile; if Meredith lays it all out they can claim astonishment at this unforeseen black swan.
Like you said.
As the saying goes, it’s obvious to the most casual of observers.
I don’t read much of Whitney’s words. If this is representative of her best thinking, then I’m glad I haven’t. A waste of time.
The reason “starve the beast” has not worked to date on municipal govts is that the beast has a credit card!
It should be pretty easy to pick out municipalities that built grandiose structures during the boom and now have falling revenues due to the RE crash and high unemployment. Also those who struggled along on Fed stimulis money which is drying up. There can’t be that many.
Meredith thinks there are 50 to 100 or more. Sounds like a reasonable assumption.
And a pretty small percentage of the total number of municipalities.
Ever heard of CAFRs?
All of you REALLY should familiarize yourself with them to see why there is so much worry.
You see, government at every level is invested in the financial markets. YOUR tax money has already been going to Wall St. for a long, long time.
At that’s just the tip of the iceberg.
Thursday, February 03, 2011
Pimco Privately Wages an ‘All-Out War’ Against Meredith Whitney, Reports Gasparino
By: Armie Margaret Lee
Fox Business’ Charlie Gasparino is reporting that Pimco, in meetings with brokers, has “launched an all-out war to discredit” research from analyst Meredith Whitney.
Pimco is said to be unhappy with Whitney, who in December appeared on CBS’ 60 Minutes and warned of billions of dollars of defaults in the municipal-bond market. She sang the same tune in subsequent appearances.
“In the wake of Whitney’s prediction….investors have sold their muni holdings in droves,” reports Gasparino, adding that Pimco “has been hit particularly hard.”
…
If Pimco, or anybody else, thinks that Meridith Whitney is wrong then they should thank her for helping to crash the municipal bond market which provides an opportunity for such bonds to be bought at huge discounts.
Low prices favor buyers. If munis are such a good investment then buyers should be estatic.
I have a brother who thinks so. He has been buying Muni’s recently.
He believes that large cities like Denver will not default and have a great advantage; the ability to raise taxes. He also likes the tax-free basis which makes them more attractive.
But zero taxes and a 50% return of the initial investment just don’t sound like a good investment plan to me.
I would bet that if you looked at a Muni verrrry closely you would see Ten Foot pole marks all over it.
I wouldn’t touch one. Very similar to the GM bonds that were being peddled with favorable interest rates right before the end.
We all know how that turned out.
Rule of law? Right.
I disagree.
Modestly.
There will be a time for Muni’s.
THIS is not that time.
Every investment is a good idea at a given price, and the same “every” investment happens to be a terrible idea at a higher price. One shouldn’t be terribly attached to anything (or detached, for that matter.)
Goldman Sachs got some bonds they will sell you. They are a sure thing per GS research dept.
“He believes that large cities like Denver will not default and have a great advantage; the ability to raise taxes. ”
Tell him to read up on TABOR.
http://en.wikipedia.org/wiki/TABOR
“Under TABOR, state and local governments cannot raise tax rates without voter approval and cannot spend revenues collected under existing tax rates if revenues grow faster than the rate of inflation and population growth, without voter approval”
My impression from the many articles about Bill Gross’s War on Whitney is that he must currently possess a large quantity of munis he wishes to sell, which makes your point about the great opportunity to buy them at huge discounts somewhat moot.
The smear team will in short order declare her a Tea Party wacko.
IMO she is merely stating what is blatantly obvious, the emperor has no clothes.
If you or I said ‘muni bonds are a sucky investment and anyone who buys them is a greater fool who wants to lose his shirt,’ I doubt Congress would call us in for a turn in their inquisition proceedings. We would easily be dismissed as tinfoil-hat wearing conspiracy theorists. The reason Meridith has peeved the PTB is that she already has a lot of cred on The Street for her other crash predictions that came to pass, against the failed predictions of the “No One Could Have Seen It Coming” throng.
Agreed.
Whoa! They’ve told us how badly they’re exposed!
Amazing!
Anyone care to hazard a guess on the present day value of the six billion?
With more than 24 years of experience in the real estate industry, Focus Property Group Chairman and CEO John A. Ritter has made a national name for himself and his company as one of the most effective property investment companies and creator of financially successful master planned communities in the Southwest region. Ritter has led the accumulation of a portfolio with a valuation of approximately $2 billion. The company’s current projects total more than 13,500 acres in Las Vegas and throughout the Southwest, and his company has been involved in transactions exceeding $6 billion since its inception.
Through Ritter’s leadership, Focus Property Group has dominated the BLM land auction process established by the Southern Nevada Public Lands Management Act, winning four straight auctions of major land parcels from 2002 to 2005. These master planned communities in Southern Nevada include the 3,500-acre Mountain’s Edge in the southwest part of the valley, the 1,200-acre Providence in the northwest, the 1,953-acre Inspirada development in Henderson (purchased and developed with a consortium of seven leading homebuilders) and most recently the 1,710-acre Kyle Gateway Project (purchased and developed with a consortium of eight national and local homebuilders). All of these communities have become reality through Ritter’s successful bidding strategy at the BLM land auctions. Additionally, the company is creating The Crossings, a 450-acre master plan in the city of Victorville, Calif., a 950-acre master plan with a working title of The Gateway at the entrance to Pahrump Valley, Nev., and a 70-acre commercial site in Denver. In total, the company’s portfolio includes approximately 30,000 residential lots, along with commercial and mixed use property.
http://www.snwa.com/html/cons_wcc_exec_ritter.html
‘winning four straight auctions of major land parcels from 2002 to 2005′
Long time readers may remember that a BLM auction that fetched 50% of previous amounts was the first big crack in the Vegas market. The BLM then canceled the auctions.
‘a 450-acre master plan in the city of Victorville, Calif., a 950-acre master plan with a working title of The Gateway at the entrance to Pahrump Valley, Nev’
http://thehousingbubble.blogspot.com/2005/03/its-going-to-be-another-pahrump.html
‘It’s mainly a lot of hills and flats and Joshua trees, punctuated by a couple hundred widely spaced homes, most of them modulars or trailers..a single convenience store, operating off someone’s back porch; and no post office..By the time the bypass is completed, Rhodes plans to be..building more than 20,000 dwellings on the 2,000 acres it now owns here, along with an “urban center”. If the homes were already in place today, they would probably be priced in the mid $100,000s.”
‘Local innkeeper John McNeely likes the idea, “This area is so depressed, it will help the tax base.” But the expected boom does have a downside. “I used to go out in the yard in my underwear,” said Tom Lusk, longtime resident,”I can’t anymore. I got neighbors.’
http://thehousingbubble.blogspot.com/2005/05/in-las-vegas-they-sell-condos-twice.html
‘First it was the housing market, now it’s the condo market. It’s almost a given in Las Vegas, buy low and sell high. But Jim Snyder has a story that one attorney says could badly hurt the condo market in Las Vegas. ‘Imagine my disgust when I get a similar package in the mail that says, it’s not a half a million dollars any more, it is eight hundred and seventy-four thousand,” said one burned speculator.’
“They all attended a Vegas Grand sales event, put down anywhere from five thousand to 25 thousand dollars and signed letters of intent to buy a unit. That all screeched to a halt when they got a notice in the mail telling them they had two options: pay a revised price almost double the amount they agreed to, or get their deposit back with five percent interest. ‘Personally, my feeling is, they have dollar signs in their eyes and they know that if they can get rid of me they’re going to make a whole lot more money off my unit.’
http://thehousingbubble.blogspot.com/2005/02/las-vegas-or-bust.html
‘here is a story of some people who found themselves on the wrong side of a home price bubble. “They claim Pulte burned them by inflating it’s home prices and steering them to in house lenders who were all too happy to underwrite their dreams”…”We came with the hopes of buying two houses. We left the first day owning four. Within the next week, owning 6 — all the way up to 19.”
”We came with the hopes of buying two houses. We left the first day owning four. Within the next week, owning 6 — all the way up to 19.”
And the truth is, however, they did not “own” a single one.
They leveraged their way to payments due on 19 properties in hopes someone else would come along and pay the bill.
It’s sad that money was so easy to get if you wanted to “buy” a place to speculate.
This archived material is just great Ben…I enjoy reading it…
I have had a jaundiced view of auctions since overpaying for a phone book at one as a child. I think the true winner is the seller, not the final bidder.
there is so much more to go in this whole mess. I am amazed at the amount of disinformation being put out there by the Fed and the administration.
“I am amazed at the amount of disinformation being put out there by the Fed and the administration.”
The real tragedy is that many people don’t want the bare knuckled truth because they can’t do anything about it, so they tune-out anything negative; it’s all good until it invades your personal sphere. Maybe a form of apathy?
It’s easier to watch the Souper Bowl.
No matter if very few Americans think muni bonds are a smart investment. These tax shelters only ever made sense for the top 1%, anyway.
Americans skeptical about municipal bond investing
* Muni issuers lax in filing financials: study
NEW YORK | Thu Feb 3, 2011 5:39pm EST
NEW YORK (Reuters) - Fewer than a quarter of U.S. consumers view municipal bonds as a smart investment, according to a survey released on Thursday.
…
Everyone save FOMC members seems to be worried about incipient inflation.
James Saft
Good luck hedging against inflation
Feb 3, 2011 08:42 EST
…
For most savers, not to mention pension funds and endowments, the more useful question is how do you hedge against inflation for the longer term?
The results for equities were not encouraging.
“Equity returns decline in the months following an inflation shock and do not experience a meaningful recovery thereafter, leaving them as the worst performing asset class in our sample,” according to the study.
“Our findings are consistent with evidence from a range of earlier studies and add further weight to the evidence against the theoretical arguments for equities as a real asset class providing inflation protection when inflation is rising.”
Over the 18 months after the shock, real returns were negative, though less negative than bonds, which get hammered by inflation. Equities improve a bit over the next couple of years, but even when looked at in the long run of more than five years an inflation shock makes for losses in real terms.
IN THE LONG RUN WE’RE ALL …
As for the other asset prices, inflation proves very difficult to hedge against even over the longer term. Take commodities, the star performer in the first 18 months after inflation bites; spot prices decline in the medium term and when you get above five years after the inflationary event you are looking at actual losses in spot prices. This might be because inflation hits demand, but also might be because high prices spur greater investment in efficiency, which over the long term also moderates demand.
While bonds get killed in the first couple of years after an inflation shock, after about three years returns improve, presumably partly because investors demand higher yields to make up for nasty recent experiences.
Cash returns do a bit better, but even cash, which can go where it likes in search of better returns as inflation increases, fails to serve as a perfect hedge over the longer term.
So, how to hedge against inflation? Inflation-protected bonds such as TIPS would work, but to be a hedge you have to buy and hold to maturity, as outside forces can easily distort returns through the life of a given bond.
Given that inflation is a portfolio killer, why then are equity markets booming? Well, in emerging markets where inflation is kicking in first they are not. In developed markets, investors seem to be placing a touching amount of faith in central bankers. After all, if the Federal Reserve and ECB don’t pull the plug on stimulus in time, inflation can easily get out of control.
Or perhaps equity markets are betting the central banks will fail to stoke growth and be forced to blow a larger asset market bubble as a consequence.
Or maybe everybody thinks they will be the genius who gets out in time.
My former broker mentioned TIPS to me. He said “They are inflation protected”. I said “who determines the inflation rate?”. He said “The Federal Government”. The very same one who consistently tells us inflation is very low? I said “No thanks”.
The best way to “hedge” for inflation is to not be old and not have a defined pension.
It’s pretty hard to hedge against “old,” though I am trying (horizontal jogging is part of the fitness plan)…
I’m being facetious (although factually accurate.)
I seriously doubt that you have a problem. Nor I for that matter. Nor anyone on this blog for all the p_ssin’ and moanin’ that goes on around here!
Tail events do happen but there’s not much to be gained from betting on them.
The “New Normal” across the pond:
Middle class bears the brunt of rise in inflation
The typical middle-class family is bearing the brunt of painful rises in the official inflation rate, according to new analysis which underlines the pressure on Britain’s so-called “squeezed middle”.
The Government’s measure of inflation, the Consumer Prices Index (CPI), hit an eight-month high of 3.7pc in December and is expected to pass 4pc in the next set of figures.
However, the “real” rate of CPI inflation for an average middle-class household is already significantly higher at 4.5pc, according to a study for The Sunday Telegraph by Capital Economics.
telegraph DOT co DOT uk/finance/economics/8306323/Middle-class-bears-the-brunt-of-rise-in-inflation.html
= more house price collapses.
Sounds good. It’s called Japan, and it’s coming soon to a house near you.
There is some good news out there:
Trustee hands ex-mayor setback on bankruptcy
Hammond, Ind. - A federal trustee says former East Chicago Mayor Robert Pastrick makes too much money to quality for Chapter 7 bankruptcy.
The 83-year-old Pastrick filed for bankruptcy in December as the state moved to collect a $108 million civil judgment against him for racketeering.
Federal court documents filed Friday show the trustee determined there was presumed abuse in the bankruptcy filing. Court records show Pastrick has an average monthly income of $6,315 from Social Security and his state pension.
Pastrick’s attorney, Gordon Gouveia, didn’t immediately return a phone call seeking comment Saturday.
A federal judge in March ordered Pastrick and two former aides to pay $108 million in civil damages because his campaign used public money on private driveways, patios and walkways to court voters in the 1999 Democratic primary.
http://www.wthr.com/story/13976182/trustee-hands-ex-mayor-setback-on-bankruptcy
I wouldn’t think this was a big deal, the guy pays a few grand a month in a Chapter 11 and then he’s done, except I thought retirement monies were untouchable.
Also, he should be filing his case from a jail cell.
I guess that female Obama supporter who proclaimed the big O was going to put gas in her car was close. She meant to say she was gettin’ new concrete.
I say we continue the concrete giveaway indefinitely. My proposed program will require the shoe sizes of all elected officials.
http://www.alternet.org/media/146005/we_stand_on_the_cusp_of_one_of_humanity’s_most_dangerous_moments/?page=1
The levers of power have become so contaminated that the needs and voices of citizens have become irrelevant. The election of Barack Obama was yet another triumph of propaganda over substance and a skillful manipulation and betrayal of the public by the mass media. We mistook style and ethnicity – an advertising tactic pioneered by the United Colors of Benetton and Calvin Klein – for progressive politics and genuine change. We confused how we were made to feel with knowledge. But the goal, as with all brands, was to make passive consumers mistake a brand for an experience. Obama, now a global celebrity, is a brand. He had almost no experience besides two years in the senate, lacked any moral core and was sold as all things to all people. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertisers want because of how they can make you feel.
We live in a culture characterized by what Benjamin DeMott called “junk politics.” Junk politics does not demand justice or the reparation of rights. It always personalizes issues rather than clarifying them. It eschews real debate for manufactured scandals, celebrity gossip and spectacles. It trumpets eternal optimism, endlessly praises our moral strength and character, and communicates in a feel-your-pain language. The result of junk politics is that nothing changes, “meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.”
Sammy, that’s a great article. We thought electing one of the oppressed would prove more egalitarian, but Obama was just an extention of the Great Ponzi. History will not recall this era as the Great Recession but something more morbid and accurate if any are left to note it.
I think integrated oil cos. (XOM, CVX) and tobacco cos. (PM, MO, BTI) would hold up fairly well in inflationary periods. They have scale, products everyone needs, and the cos. are immensely profitable with borad and deep international exposure. That’s where I am putting my money…
Thank you.
“…tobacco cos. (PM, MO, BTI)…”
On a related note, can anyone suggest any cancer research plays? With strong globally-positioned tobacco products companies and an aging baby-boom population, demand for cancer cures will boom over the next several decades.
“… cancer research plays.”
From what I have seen the cancer research field is full of scam companies. One should be VERY carefull before taking the plunge.
The field is perfect for scams; Companies can show a lot of promise without being required to deliver on the promise.
For amusement (and educational) purposes only, one might want to look into the history of GNTA. Especially browse through the Yahoo message board for GNTA.
I was cold-called on this stock about six years ago; My newest best friend - a fast-talking boiler room hustler - wanted to make me rich! GNTA, he VERY strongly implied, had just found a cure for cancer and was ready to break the news to the world.
Buy now or be priced out forever! The price then was twelve-something, the price now hovers around a penny.
So I take it you are buying the stock at a penny?
I’m going to go all in!
Good boy!
“…the cancer research field is full of scam companies…”
That thought crossed my mind as I recently heard a relatively-wealthy friend mention that he was considering such an investment. He personally knows the guy running the fund, and hence has a form of (legal) insider information on which to assess scam risk.
Of course, one might readily point out that Madoff had plenty of personal friends as well.
The beauty of the cancer research scam is that you can’t be held accountable if what you make doesn’t work. All you have to do to lure in investors is find the right wording that suggests it will work without actually saying so.
And it’s cancer research: Who can be opposed to that? Who doesn’t want a lot of money spent on cancer research?
It’s an emotional issue as well as a financial issue. Save humanity and grow rich at the same time!
Back in college, my brother did senior research on fuel cells*, and I remember his talk on the subject pretty well. He ended the talk with “Will I be investing in this? No. Here’s why…” and he went on to explain how long fuel cells were likely to still be in development, the cost-to-output ratios, and so on. As he did this talk in 1997, and we still don’t have much in the way of fuel cells, you can see how right he was.
“Cancer cures” fall in the category of “not quite ready for prime time.” There’s a lot of promising developments, but almost anything you see written up in the newspaper is at least a decade away, if not more.
*i.e. testing to destruction. Engineers get to play with some pretty cool toys.
Check out ONCY. I have held several thousand shares for some years, and continue holding. For good reason, I believe.
The top performing stock in the NASDAQ last year was….
drum roll……
Cost Plus?
The best performer on the technology-heavy Nasdaq Stock Market last year doesn’t sell software, Internet ads or computers. Instead, it hawks handcrafted door knobs and embroidered pillows [to remind you of Chindia].
Cost Plus Inc., the Oakland home-goods retailer, gained 851 percent in 2010, besting the other 2,673 members of the Nasdaq composite index, including Silicon Valley titans Apple Inc., Oracle Corp. and Google Inc.
The company is benefiting from consumers increasing their spending on [cheap foreign] goods for the [FB's] home as the economy recovers [sic].
My edits.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/02/06/BU4U1HIMBP.DTL
“I’m not a deadbeat or a scumbag,” Blackley said. “I tried to do the right thing.”
I would just like to take the hundreds of thousands of $$$$ I stole and move on with my life.
Lenders compound court errors
By Christine Stapleton and Kimberly Miller
Palm Beach Post Staff Writer
Posted: 8:18 p.m. Saturday, Feb. 5, 2011
Scores of Palm Beach County homes were foreclosed on with faulty paperwork that banks are now trying to sidestep with a legal maneuver experts say doesn’t even exist.
Defeated by an interest-only home equity loan, and frustrated with failed attempts at a loan modification and a short sale, Patrick Blackley gave up on the Loxahatchee home he built in 1999 for his wife and two sons.
It was sold at auction Nov. 8.
But Blackley’s May foreclosure judgment for $370,000 was based on a court affidavit signed by Stephan, the robo-signer. The Florida Default Law Group filed a motion to ratify the judgment on Oct. 12, including a new affidavit signed by another GMAC employee. The motion was never ruled on.
Blackley, 48, isn’t interested in challenging the foreclosure. He’s moved his family to Florida’s west coast and is rebuilding his life.
Still, he now feels deceived by a banking system that cut corners to take away his home and a court system he felt lost in and confused by.
“I’m not a deadbeat or a scumbag,” Blackley said. “I tried to do the right thing.”
Three bidders jockeyed for Blackley’s 3,000-square-foot home during the county’s online auction. The winning bid, cast by Wells Fargo Bank, was for $132,100.
http://www.palmbeachpost.com/money/lenders-compound-court-errors-1235736.html - -
Type: MTG
Date/Time: 6/10/1999 04:06:16
CFN: 19990237990
Book Type: O
Book/Page: 11164/599
Pages: 8
Consideration: $145,900.00
Party 1: BLACKLEY PATRICK T & LAURA A
BLACKLEY LAURA A (M)
Party 2: COMMUNITY SAV
Legal: ACREAGE 14 42 40 POR ACRE
Type: MTG
Date/Time: 5/29/2001 08:17:06
CFN: 20010221888
Book Type: O
Book/Page: 12589/955
Pages: 4
Consideration: $82,045.00
Party 1: BLACKLEY PATRICK T & LAURA A
BLACKLEY LAURA A (M)
Party 2: FIRST UN NAT BK
Legal: ACREAGE 14 42 40 POR ACRE
Type: MTG
Date/Time: 5/22/2002 09:32:09
CFN: 20020259115
Book Type: O
Book/Page: 13728/1155
Pages: 6
Consideration: $98,000.00
Party 1: BLACKLEY PATRICK T
BLACKLEY LAURA A
Party 2: FIRST UNION NATIONAL BANK
Legal: 14 42 40 POR ACRE
Type: MTG
Date/Time: 10/18/2002 15:28:08
CFN: 20020551769
Book Type: O
Book/Page: 14288/515
Pages: 21
Consideration: $189,800.00
Party 1: BLACKLEY PATRICK T
BLACKLEY LAURA A
Party 2: VIRTUALBANK
Legal:
Type: MTG
Date/Time: 2/26/2004 15:16:57
CFN: 20040105197
Book Type: O
Book/Page: 16594/1248
Pages: 23
Consideration: $238,000.00
Party 1: BLACKLEY PATRICK T
BLACKLEY LAURA A
Party 2: IMPAC FUNDING CORP
IMPAC LENDING GROUP
Legal: 14 42 40 POR ACRE
Type: MTG
Date/Time: 3/16/2005 15:46:06
CFN: 20050151656
Book Type: O
Book/Page: 18271/366
Pages: 16
Consideration: $307,500.00
Party 1: BLACKLEY PATRICK T
BLACKLEY LAURA A
Party 2: MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC
DECISION ONE MORTGAGE COMPANY LLC
Legal: 14 42 40 POR ACRE
Type: MTG
Date/Time: 3/30/2006 14:30:33
CFN: 20060187697
Book Type: O
Book/Page: 20128/557
Pages: 7
Consideration: $140,000.00
Party 1: BLACKLEY PATRICK T
BLACKLEY LAURA A
Party 2: CITIBANK FEDERAL SAVINGS BANK
Legal: 04 42 40 POR ACRE
Type: JUD
Date/Time: 8/12/2010 18:13:20
CFN: 20100298967
Book Type: O
Book/Page: 24007/236
Pages: 6
Consideration: $0.00
Party 1: WELLS FARGO BANK NA TRUSTEE
Party 2: BLACKLEY PATRICK T
BLACKLEY LAURA A
CITIBANK FEDERAL SAVINGS BANK
Legal: 14 42 40 POR ACRE
I can’t follow the mortgage deals from the posting. It looks like he started out with a 145k loan in 1999 and then became a second mortgage holder and serial refinancer…..307k in 2005 and another 140k in 2006. I guess he was skimming off money every year or so.
So, naturally, he was taken advantage of, and given predatory loans.
“Still, he now feels deceived by a banking system that cut corners to take away his home and a court system he felt lost in and confused by.”
It`s funny how he didn`t feel deceived by a banking system that cut corners to write him those fat checks in 2001, 2002, 2004, 2005 and 2006. Or the system that let him live rent free for 3 years.
“he felt lost in and confused”
Led Zeppelin: Dazed And Confused Lyrics
Been Lost and Confused for so long it’s not true.
Interest-only home loan, never bargained for you.
Lots of people talk and few of them know,
Thought Stanley`s commercial was the right way to go.
You hurt and abuse tellin’ all of your lies.
Those home equity loans, Lord how they hypnotize.
Sweet little baby, I don’t know where you’ve been.
CITIBANK FEDERAL, here I come again.
Every day I work so hard, bringin’ home my hard earned pay
I can`t pay this mortgage, now there just aint no way.
Don’t know where you’re goin’, only know just where you’ve been,
Brand new Mercedes, I want you again.
Been lost and confused for so long, it’s not true.
Interest-only home loan, never bargained for you.
Take it easy baby, let them say what they will.
We`ll live here for years and we won`t pay the bill.
+1 Love it!
The COMMENTS section from; Lenders compound court errors
Has given me a new profession.
“Jeff Saturday” is a mortgage broker here in town so I don’t take his opinions too seriously. I chalk up his comments as a guilty conscience.
Bank Insider
10:23 AM, 2/6/2011
Hey Jeff
My mortgage broker and loan originator gave the bank false info, altered the documents, changed the interest rate and falsified RESPA, TILA and HUD documents. I called the state and OCC. They told me 30-40% of private label loans originating in Florida between 2005-2008 have flawed documents and serious errors created by incompetent and thieving brokers.
Jeff is calling homeowners deadbeats???? Are you the pot or kettle?
WL
11:41 AM, 2/6/2011
Jeff, Don’t lump everyone in the same basket. You should know as well as anybody who caused this mess. When a broker pushes a product, it is because the lender is giving you a much better yield spread premium than a another product. Does this sound familiar? (monthly adjustable YSP -3.00 to the broker on the back end…..30 year fixed -.250) Go back in your hole with all the other lenders and brokers that are blaming the public.
Don Duck
12:47 PM, 2/6/2011
I am clearly under attack. It`s Night of the Living Deadbeats.
Jeff, let’s see what skeltons you have in the county recorders office. Sounds like you are trying to figure out what happened all of sudden in your life. Afterall the mortgage brokers have to start picking at their savings. Unless you put it all in the real estate. If I were you I would educate myself for when your time comes. You may need some of these people for advice one day. Don’t call the Kettle black.
cmc
1:00 PM, 2/6/2011 REPORT ABUSE
Don Duck, “WELL SAID”…..
cmc
12:51 PM, 2/6/2011
cmc
If you checked the county recorders office you would find that my mortgage was satisfied in Aug. 05 when I sold. Yes about the time you were telling people “they`re not making anymore land you know” and “House prices never go down” Now if you checked those records on the 2 LLs that I have rented from since then you would find that they have collected $1,700 a month rent without paying the mortgage. But good luck to you and your fellow Victims.
jeff saturday
1:37 PM, 2/6/2011
Just what we need, the Feds pokin’ their nose in to health insurance..
Feds investigate health-plan firm that left Coloradans uninsured
U.S. Department of Labor officials are investigating the failure of a small-employer-benefits company that left 4,000 Coloradans without insurance and many holding unpaid hospital bills.
Those employees are now struggling to negotiate settlements with Colorado hospitals. Natalie Bustamante, director of commercial sales for Greater Denver Mr. Rooter, has $70,000 in bills for a ruptured appendix and a cyst removal, and she is taking beauty-school classes to supplement her income in case her wages are garnished.
http://www.denverpost.com/news/ci_17306524?source=rss
From an earlier story:
The firm`s founder, Gerry Rising, said the number of affected employees was less than 1,000 but declined to be more specific. He said he has been trying to help clients find new insurance but declined to answer questions about clients` funds.
“There`s obviously no money to pay claims,” Rising said.
Burlington had $285,000 in unpaid claims through the plan and is not yet sure how those can be covered, said administrator Bob Churchwell.
A lawyer in Boulder is representing at least 20 clients against RHPI, Churchwell added.
Deepening the pain is the lack of any backup for the small-group plans, said Bill Bishop of the Lockton Cos., a Denver broker helping some of the groups find new insurance. If the employers` money meant to be in trust is now gone, and the employer can`t find replacement money, the hospitals or doctors who provided care could pursue each employee for payment, he said.
Burlington`s attorney is asking local providers not to send collection notices to employees for now. The town`s lawyers have not found proof for Rural Health Plans` claims it had backup insurance with Lloyd`s of London, Churchwell said.
“It does not look good,” Churchwell said.
If the money is gone, he said, the town will have to find money in the $9 million annual budget to pay past claims.
Rising said he has offered proof of the Lloyd`s insurance to clients who have asked for it. Asked by The Denver Post what happened with client funds like Burlington`s, Rising hung up.
http://www.fortmorgantimes.com/ci_16660394?source=most_emailed
My former employer was pocketing all the payroll deductions for taxes, insurance (Medical, LTD, and Life, 401K contributions, etc……seems that what they were doing is “legal”, because they took the deductions on every pay period, but their payouts were (supposed) to be made quarterly). this is when they conveniently decided to file Chapter 11.
One of the employees died during this period. Sorry, his life insurance was cancelled because the company didn’t pay the premium that they had withheld from his check.
Of course, all of this is legal.
Some on this blog think that all of this is okay, that J6P should have exercised more due diligence. Be careful what you wish for. The USA is going to become a very inefficient country, if everyone starts to believe that everybody else is working full time to break it off in their azz.
Right! We’ll be spending more time doing due diligence than working.
And no matter how smart we are, no one person can know enough about everything. At some point, we have to trust that specialists are giving us good advice, whether that is a lawyer or doctor or mechanic or plumber or accountant.
Even specialists have to be specialized. I wouldn’t go to a real estate lawyer for advice about an injury case nor to a GP if I need surgery.
SO CA REO Will paint, carpet, new range & micro wave. Looks like the banks might be waking up, or this is just a tease. Look at the MLS history. No pool and not the ideal location, but making progress on the price. Still overpriced, imo.
http://www.redfin.com/CA/Simi-Valley/5959-Cochran-St-93063/home/4608032
“Still overpriced, imo.”
Yeah, that $213/sqft is a show stopper.
“I’m not a deadbeat or a scumbag,” Blackley said. “I tried to do the right thing.”
did you pay your loan as originally agreed? No. You are both a deadbeat and a scumbag. The bank fulfilled their end of the bargain by providing you the loan, you did not hold up your end. Another victimless victim…
One acronym……
GTFO
Just GTFO. Do not delay. Time is of essence. GTFO.
Caveat emptor of debt-beat, cash-hungry builders:
Realty Q&A
Feb. 4, 2011, 12:01 a.m. EST
Builder fails to deliver homes as promised
Why an escrow account is essential for home buyers
By Lew Sichelman
Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 40 years, responds to readers’ questions on real estate.
WASHINGTON (MarketWatch) — Question: I read in my local paper here in Maryland that a home builder has been ordered to pay restitution to 10 families because he failed to start or complete their homes as promised. How could this happen in this day and age? Aren’t there protections in place that would prevent this from happening? — D.S.B., Virginia Beach, Va.
Answer: Instances such as the one you describe should set the alarm bells ringing for anyone, anywhere who is contracting to build, buy or fix up a house. The warning: Make sure your deposit money is placed in separate escrow account. Otherwise, the builder, real-estate broker or contractor can commingle your deposit with his other funds and use the money pretty much as he sees fit.
Only a handful of states protect new home buyers by requiring that their deposit money be put aside for safekeeping. As best as can be determined, most other states allow builders to use their customers’ cash.
…
Small and custom builders very definitely use their customers’ cash to fund the construction of the house. However, if a contract with that type of builder is drawn up correctly the contractor receives his money in a series of “draws,” with each draw being contingent on completing some milestone in the construction. Such as: contract signing, lot cleared and foundation poured, under roof, exterior completed, certificate of occupancy issued, punch list completed.
And in dealing with such builders, always assume the warranty ends when the last payment is made and the last truck pulls out of the driveway.
A contract isn’t a contract without a schedule of values. All payments are founded on this schedule and any contract isn’t a contract without 5-10% retainage to be paid after substantial completion and the owner has beneficial use of the structure.
MarketWatch First Take
Feb. 4, 2011, 12:49 p.m. EST
Only thing we know is job crisis isn’t over
Commentary: January jobs report is a muddled mess
By MarketWatch
WASHINGTON (MarketWatch) — If ever there were a time to advise against overanalyzing a piece of economic data, this would be it.
The January jobs report was a muddled mess, providing us with very little reliable information about the economy, and a whole lot of confusion. It’d probably be best just to ignore it and wait until the February report for clarification. Read our complete coverage of the January unemployment report.
The key take away from the report should be that the labor market is still terrible, but slowly improving. Just as it has been for a year.
…
EVERY single recovery of the last 5 recessions has been “jobless.”
Awesome article: http://www.nytimes.com/2011/02/06/world/americas/06argentina.html?_r=1&hpw=&pagewanted=all
“The young people don’t have that experience. They are going into debt thinking they will beat inflation. But you can never beat inflation.”
Ummm, hello?!? I wouldn’t lend money to anyone under the rate of inflation, would you?
The whole world is retarded. That they think that they can just get out of this mad incident of house price inflation without any pain is so freakin’ absurd!
The FED is loaning out lots of money at rates substantially under the rate of inflation.
Your point, counsellor?
“The whole world is retarded.”
That would make a great T Shirt! Although the politically correct thing would probably hold back sales. It would have to read….
The whole world is Developmentally challenged.
The Whole World Rides the Short Bus ©®™
Deferring other planned major credit-funded purchases (cars, furniture, appliances) until after closing sounds to me like a credit scam. Hopefully the colonoscopy mortgage qualification process will make note of this kind of deception, in order to protect the American taxpayers who guarantee F&F loans.
Debt could be a mortgage deal-breaker
By Kenneth R. Harney / The Nation’s Housing
Sunday, February 6, 2011
One loan officer describes it as a “financial colonoscopy” on your credit, and he suggests that anybody applying for a mortgage be prepared for it.
What he’s talking about is the combined effect of new credit transparency standards that have been imposed on lenders by mortgage giants Freddie Mac and Fannie Mae. As of Feb. 1, Freddie Mac began requiring lenders to dig back 120 days into your credit bureau files to detect any “inquiries” -—signs of your applying for credit anywhere else — and then to check out whether any applications were approved. If they resulted in significant new debts, your mortgage deal could be affected, and your lender might have to revise the terms or the rate you’re being offered.
Meanwhile, Fannie Mae is requiring lenders to track or review your credit behavior after you’ve been approved for a mortgage but haven’t yet gone to closing. That period often extends for 60 days or more. If inquiries pop up on your files during this time, lenders must check them out to determine whether any new debt might require a re-underwriting of the originally quoted terms.
For example, if the mortgage quote is tied to specific debt-to-income ratio maximums — say 31 percent of monthly income for housing, 43 percent for total household debt — a new credit card account with a $5,000 balance might require a new underwriting or even a higher rate. If the new card account shows up late in the game — a day or two before closing, with moving vans on the way — you could face some serious problems.
“We now tell our customers that they need to be ready” for much more rigorous screening of their credit, said Matt Jolivette of Associated Mortgage Group Inc. in Portland, Ore, who made the reference to a “financial colonoscopy.” “They (Fannie and Freddie) want to know everything.” This means full disclosure on any credit accounts, big or small, that consumers have shopped for in the months immediately preceding and following their application.
“Our advice is this: Don’t buy cars, don’t buy furniture or appliances on credit until we close,” said Jolivette. “You don’t own the house yet, so don’t buy anything for it” unless you pay in cash.
…
“…unless you pay in cash…”
And how is it that making major purchases in cash rather than on credit would put a household on a stronger financial footing, other things equal? This advice makes absolutely no sense whatever, except as a possible strategy for deceiving a mortgage lender.
Desperate homeowners seek free legal help fighting foreclosure
February 05, 2011|By Paul Owers, Sun Sentinel
MARK RANDALL, Sun Sentinel
Desperate and indignant, about 30 homeowners met Saturday with a Royal Palm Beach law firm offering free foreclosure defense to the most compelling cases.
Ice Legal, which helped expose the nationwide “robo-signing” controversy last fall, will announce 25 recipients Monday. It said it will choose the cases that “show the most promise of winning a favorable result, whether that be by settlement or trial.”
Phillip Lamb, 50, a self-employed roofer, told an Ice lawyer that he and his wife were bullied at a foreclosure mediation into leaving their five-bedroom West Palm Beach house, even though the lender had not taken title to the property.
Another homeowner, Debra Levin, 52, of Boynton Beach, said her lender, Bank of America, sent her a letter telling her that it had canceled the January foreclosure sale of her Boynton Beach condominium while the case was under review.
A few days later, though, she received another letter informing her that the bank had repossessed the property. A Bank of America spokeswoman said Saturday that she could not respond to individual allegations.
“I panicked and started crying,” Levin said. “It caused a lot of anxiety and stress.”
…
“A Bank of America spokeswoman said Saturday that she could not respond to individual allegations.”
It must be challenging to try to keep millions of foreclosure actions straight…this is why I don’t think Megabanks should be involved in mortgage lending, at all.
My loverly wife intimated to me last night that although the place we rent is a bit too small for us, she has come to feel OK with renting. Life is great when you are adaptable to circumstances!
She’s a keeper!
And I mean that unironically. Life is good when you don’t desire more.
“Life is good when you don’t desire more.”
There it is. Pure freedom.
Strongly agreed.
When you don’t desire more, you also take more pleasure in what is already around you. You see, smell, taste, hear and feel more of what is really wonderful.
When was the last time most adults turned over a rock just for the hell of it to see what was underneath?
On that note, I will state that I DO desire more.
I desire to speak other languages better. I desire to cook other cuisines more perfectly. I desire to read books and re-read them.
I desire, i desire, I desire.
I desire a lot. It’s just not what other people desire.
Life is VERY short. Embrace it!
“When was the last time most adults turned over a rock just for the hell of it to see what was underneath?”
A realtor ?
“When was the last time most adults turned over a rock just for the hell of it to see what was underneath?”
Good way to find a used St Joseph statue.
I am at a point where I’m almost afraid to go back and become a property (mortgage slave) owner. I am very, very comfortable renting and like the freedom to move should I choose. No taxes, no hidden bond issues, if earthquake hits or flooding, just move along.
Some men see things as they are and say why. I see things as they are and say WTF.
WTF! that’s what I say every 2 weeks when I look at my paycheck.
Someone once told me, “Cheer up, things could be worse….”
They were right…..I cheered up, and things got worse.
any predictions for any Black Swan events in 2011?
Dow 14k. No jobs. Food and energy more unreasonable, inflation tame.
I am watching a beautiful tribute to Ronald Reagan in Simi Valley, one of our greatest Presidents and public enemy #1 to the global communist movement.
“The people have always some champion whom they set over them and nurse into greatness…This and no other is the root from which a tyrant springs when he first appears he is a protector.” -Plato
JFK?
More like FDR.
Thank you, St. Ronnie, for firing Volcker and replacing him with Greenspan. A gift that kept on giving.
Thank you Saint Ronnie for abdicating your responsibilities and turning over the country to Wall Street via appointing Merrill Lynch CEO Don Regan. Well done Lord Ronnie.
nickpapageorgio
I use to live across from the Reagan Library in Wood Ranch. I’ve been to the Reagan Shrine many times. I thought he was an American Icon too, until I did some reading on his domestic policies.
I always divide my Presidential Worship into Domestic and International.
Enjoy.
Did they mention during the beautiful tribute how he drowned us in debt?
I thought not.
You are living in the world Reagan created.
Cognitive dissonance, much?
All right, HBB folks who know the math, I have some concrete examples from my neighborhood and I want to know what the relationship is.
The first example is a house for sale, paid-off, deceased owner and the kids don’t want to keep it. 3/2, approximately 1550 square feet, etc, etc. Sale price is $180,000 because they don’t need a wishing price, and the house is in good condition.
The second is a house for rent, the same stats (and probably the same floor plan), monthly nut $1295.
Am I correct in assuming that those are roughly equal?
NB: We got our slightly larger house for less, but it was a foreclosure fixer (nothing really bad, but a lot of ugly and a lot of upgrade room.) Most of the wishing prices around here have been higher, but so have the rents. I don’t know how to calculate PITI, so I’m just going by gut feeling here.
The first is $116/sqft, which is high unless you have year round good weather.
The second at 100 x monthly rent is worth no more than $129,500 if it were for sale.
I vote for #2 since prices everywhere are likely to drop until the employment picture improves.
Hmm. For context, our PITI is less than the rent above. Obviously, if you account for the need to do the upkeep on the house, we’re probably paying out more in total, but I will certainly accept your numbers if somebody can figure what the PITI will be for the house for sale.
Our weather is pretty good, but I don’t believe in a major weather premium, only a weather detriment if you live in, say, Minot.
Nov 4, 2006 … “I’m in debt up to my eyeballs… somebody help me!”
http://www.youtube.com/watch?v=hn5EP9StlVA - 123k -
“When banks compete, you win.”
Ummm, maybe the best way is to not have debt in the first place?
“People are Smart!”
- Ditech
http://market-ticker.org/
Major problems with commercial real estate.
Jesus, can’t Slash just borrow some money from his dad or something?
market pulse
Feb. 5, 2011, 4:00 p.m. EST
Fannie, Freddie shares hit late Friday
BOSTON (MarketWatch) — Shares of Fannie Mae (FNMA 0.68, -0.11, -14.26%) and Freddie Mac (FMCC 0.73, -0.11, -13.21%) fell sharply late Friday afternoon after CNBC reported the Treasury Department is set to announce an overhaul of the mortgage giants that were placed into government conservatorship in the credit crisis. The revamp will call for a significant reduction of their share of the U.S. mortgage market, and an increase in the cost of government-backed mortgage insurance, CNBC reported. The Treasury plan will back a reduction of the government’s share of the mortgage market to below 50% from the current 95%, CNBC said. Shares of Fannie Mae and Freddie Mac closed Friday down more than 13%.
How soon until I can get my paperback copy?
Jan. 27, 2011, 10:21 a.m. EST
Government, banks to blame for crisis: FCIC panel
Years of deregulation and bank self-regulation cited for meltdown
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — The financial and economic crisis that shook the economy to the brink in September 2008 was caused by failures of “30 years of deregulation” and a banking industry eager to trade in toxic subprime mortgages but blind to the attendant dangers, according to the conclusions of a federal fact-finding panel released on Thursday.
“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public,” according to the conclusions of a much-anticipated book released after a one-year examination by the Financial Crisis Inquiry Commission.
Throughout the book, criticism focused on government, the banking industry and over-leveraged borrowers — each receiving much of the blame for hardships and difficulties that continue to ripple through the economy.
The book is being delivered to President Barack Obama and Congress and is scheduled to become available on the commission’s Web site and as a paperback and an e-book.
WSJ Europe editorial page editor Brian Carney responds to the final report of the Financial Crisis Inquiry Commission.
Much of the blame was heaped on the Federal Reserve, with a focus on both current Chairman Ben Bernanke and predecessor Alan Greenspan.
The report argues that the U.S. central bank failed to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. It also points out that the Securities and Exchange Commission failed in its responsibility at the time to require that big banks hold enough capital.
…
Would the management teams have behaved so stupidly had they known there was no too-big-to-fail insurance program available to richly reward them when things blew up?
FCIC: The Private Sector Failed
Jan 31 2011, 12:25 PM ET By Ben W. Heineman Jr. 2
After the Congressionally appointed Financial Crisis Inquiry Commission issued its report last week, there was a virtually unanimous, critical reaction.
The report said little new. Its analysis was undermined by sharp partisan division because the six Democratic members differed with the four Republicans about the role of regulation. And its impact would be limited because it appeared after Congress enacted major financial services reform (Dodd-Frank).
But these assessments ignored a fundamental agreement among nine of the 10 members — a source of the report’s continuing importance. The bipartisan commissioners emphatically concluded that one of the primary causes of the meltdown was massive failure of private sector decision-making, especially in major financial institutions.
…
The Commission’s Democratic majority describes in narrative detail the serial failure of homeowners, mortgage originators, mortgage brokers, speculators — then, ultimately and most consequentially, the failure of major financial institutions which created toxic mortgage backed securities and unsecured credit default insurance. These majors failed to see warning signs of a housing market bubble and ignored risk by creating too many unsound assets and assuming too much leverage with too little liquidity. They, not the government, drove us to edge of another Great Depression. The conclusion about massive private sector failure is summed up in a quote from JP Morgan’s CEO Jamie Dimon who, when reflecting on the causes of the crisis, told the Commission: “I blame the management teams 100% and no one else.”
…
Final Report of the National Commission
on the Causes of the Financial and
Economic Crisis in the United States
…
• We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but in us.
Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The tragedy was that they were ignored or discounted. There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities, unregulated derivatives, and short-term “repo” lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.
The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures: financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk. What else could one expect on a highway where there were neither speed limits nor neatly painted lines?
…