Trying To Do Something About The Economic Disaster
Readers suggested a topic on financial reform and the economy. “Welcome to Obama-World. Businesses must drastically cut their number of employees due to increased taxes, charges, regulation, fees, etc. Have you read the financial reform legislation? It dramatically hinders the ability of banks to hedge risk and efficiently take advantage of changing market situations. In case you take the position, screw the banks, please note that all fees and charges are being passed down to the borrowers, chilling new American investment.”
“Have you read the new definitions of interest and increased costs being placed into loan agreements recently, especially by Wells Fargo, Citi and BoA, which does just that expressly? This is true even in the 100 million plus range where the borrowers have bargaining power and are represented by competent counsel. Not all regulation is bad, but inefficient regulation targeted to please the angry masses who don’t understand finance is horrible.”
A reply, “Lots of good ammo there why the big banks have to go:
1) They banks dump their risk off on the unsuspecting.
2) They take advantage of changing market situations to the detriment of other investors.
3) They’re passing on fees and charges to the borrowers; can’t cut back on the bonuses after all.
4) They’re so powerful that even large borrowers have to bend over.
Thanks for the ammo!”
Another said, “Knowledgeable people who are against Obama blame him for trying to do something about the economic disaster, because it’s hopeless, not for causing it. Let’s just say I have reason to know all about the financial reform legislation. And it didn’t go far enough.”
One added this, “The problem with the big banks I do think, is that they have given influence money to our elected officials. The guy in the White House is one of the largest recipients. It just cannot end well.”
A reply, “Ultimately, off-shoring of jobs and on-shoring of cheap international labor has come home to roost. I have said for years, who do these companies think is going to buy their products when no one has a decent job any more?”
This was added, “Bingo!!!! It has nothing to do with regulations, and everything to do with Americans having decent, stable, well-paying jobs that enable them to go out and buy all the products at higher prices…which enable companies to higher/keep workers at decent wages, which enable the workers to go out and buy things, which enable the companies to keep paying their workers, which enables the workers to…”
To which was said, “Respectfully, you are wrong. Demand and output is ever so slowly increasing at the manufacturing level.”
“But the number of jobs to fuel manufacturing today are less than the number needed in 2000 - when productive output was 30% less than today ! (cheaper machine tools, software, and lean manufacturing principals). - Oh, and a better ability to use them. And only manufacturing’s higher paid jobs will feed a proper housing recovery.”
From Dow Jones Newswire. “U.S. Treasury Secretary Timothy Geithner defended the Obama administration’s regulatory policies Friday, saying in a television interview that concerns they are harming job growth are unfounded. Geithner noted that the financial system was ‘messed up’ and ‘we had to reform it’ with the Dodd-Frank financial overhaul. But implementation of the 2010 law is ‘not having a meaningful effect’ on reducing jobs nor hamstringing the economy, he stressed.”
“‘If you look at the access to credit for the vast bulk of the American economy, availability of credit is much, much higher today than it was before Dodd Frank bill passed,’ he said.”
“Geithner also dismissed concerns expressed recently by J.P. Morgan Chase Chief Executive Jamie Dimon that new banking regulations would lead to a decline in lending.”
From Reuters. “Bemoaning a rise in ’short-termism,’ departing Federal Deposit Insurance Corp Chairman Sheila Bair urged fellow regulators to resist pressure to ease capital requirements and new rules on systemically important financial institutions. Bair, in her final speech as FDIC chief, said short-term thinking among bankers and lawmakers was fueling calls to roll back some provisions of the Dodd-Frank financial reform law enacted last year.”
“Bair said that the FDIC and the Federal Reserve must fully implement Dodd-Frank authorities that allow them to seize and shut down failing large financial institutions. ‘The FDIC and the Federal Reserve are going to need to stick to their guns and insist that these companies simplify their structure, if necessary, to ensure that they can be resolved without a bailout in some future crisis,’ said Bair, who leaves office on July 8.”
“She said the focus on near-term profits that led to excessive risk-taking in the run-up to the 2007-09 financial crisis is now resurfacing in complaints by bankers about higher capital requirements. ‘This is a terrific example of the sort of static, short-term thinking that got us into this mess in the first place,’ Bair said at the National Press Club.”
“Bair rejected the idea that financial regulators are to blame for the slow U.S. recovery and broader economic problems. She said most Dodd-Frank rules had not been finalized yet but would stabilize the financial sector for the next downturn. ‘What the financial regulators are doing supports a healthy, vibrant, sustainable economy, not the other way round,’ she said in response to questions after her speech.”
Since we are on the topic of how best to deal with economic disasters, this timely article seems to fit in perfectly!
I have a bit of a definitional question:
What, exactly, makes an asset illiquid?
For instance, I own a violin made sixteen years ago by a poor Russian immigrant violin maker. If I tried to sell it at the price of a Stradivarius, then I probably would not have much luck finding a buyer. By contrast, if I put the violin up for auction on eBay with no reserve price, I am pretty sure a buyer would snap it up in a week or so. So I guess in the Stradivarius price range, my violin would be an “illiquid” asset, but at its auction price, it would be “liquid”? This obviously makes no sense.
As regards Fannie Mae and Freddie Mac’s *publicly-owned* assets, isn’t the so-called “illiquidity” problem really a problem of failing to lower the asking prices to levels where investors are willing to assume the risk of owning “sh!tty” mortgage assets?
Reuters Breakingviews
Mortgage Debt, a Lasting Burden
By AGNES T. CRANE and MARTIN HUTCHINSON
Published: June 22, 2011
The government wants to wind down Fannie Mae and Freddie Mac. But the task is getting bigger, not smaller. Impaired and hard-to-sell mortgage debt — more than $900 billion of it so far — increasingly dominates the two housing finance giants’ balance sheets.
The numbers from the Federal Housing Finance Agency, which regulates Fannie and Freddie, are astounding. In a 152-page report shipped to Congress last week, the agency said 65 percent of Fannie’s $789 billion balance sheet at the end of last year was accounted for by illiquid holdings, specifically mortgage loans and nonagency mortgage-backed securities.
Freddie’s hard-to-trade assets represented more than half of its $697 billion portfolio. The subcategory of distressed assets increased nearly threefold to $367 billion from a year earlier for the two firms combined as they bought back severely delinquent loans from the pools underlying the mortgage-backed bonds they guarantee.
The regulator expects the proportion of illiquid debt to increase this year. Barclays Capital estimates the two government-sponsored enterprises are yanking about $10 billion of loans a month out of mortgage-backed bonds. Meanwhile, Fannie and Freddie are required by the terms of their government rescue to reduce the overall size of their balance sheets each year. With bad and risky loans piling up, that means they have to sell or run off good assets. The trend could continue until the still queasy housing market stabilizes.
This pattern makes winding down Fannie and Freddie even harder than it otherwise would be. Illiquid investments are difficult to hedge and costly to hold if financing costs rise. And getting rid of their huge holdings — which the two companies will eventually have to do — is sure to be a challenge. Consider the Federal Reserve’s experience with the much smaller collection of bad assets it bought from the American International Group. The central bank has sold only one-third of the roughly $30 billion of paper it acquired from the insurer, but there are already indications that investors have indigestion.
It’s another reminder that Uncle Sam’s problem with government-sponsored enterprises is festering. The longer Fannie and Freddie remain sick and their treatment is undecided, the more unpleasant — or, worse, ineffective — the results could be.
…
“What, exactly, makes an asset illiquid?”
Create demand and the illiquidity will melt away.
What made Beanie Babies special? Cabbage Patch dolls?
Why do thousands of people care if the Dodgers or the Lakers win games and why do they care what the score was? Why do they even care if they play?
Make your violin special in some way, maybe convince the world that Elvis once played it. Or, better yet, convince the world that Elvis still plays it.
No need to “create demand”; the demand is always there, at the right asking price.
The “illiquidity” problem arises when the seller is not willing to part with the asset at current market value.
“No need to ‘create demand’; the demand is always there, at the right asking price.”
Well, this is true of everything, isn’t it? Or is it?
Offer to sell a house in Detroit for a dollar and it will remain unsold.
Make the house special in some way and people will clamor to buy it. Let’s try getting Hugh Hefner to build a Playboy Mansion next door and see what that would do to the price.
“Well, this is true of everything, isn’t it?
Offer to sell a house in Detroit for a dollar and it will remain unsold.”
Does your demand schedule include negative prices? If it does, then my answer to your question is a qualified ‘yes.’
Your example of Detroit home prices is a case where a prospective ‘buyer’ incurs costs with the purchase, which the seller must cover by offering a negative purchase price in order to attract an offer. Otherwise such houses would be “illiquid” assets.
However, I don’t believe this example pertains to those GSE bonds. I would buy a whole bunch of them at a purchase price of $1 a piece, but couldn’t do so, as many others would do so as well, and the price would be bid up to a higher (positive) level… if only they were offered for sale at their market values, instead of their owners’ wishing prices.
Go back some decades, pick out a spot in the California desert, put some money and a lot of publicity into the place and you have just created Palm Springs.
Something from nothing.
Do the same for The River. Convince thousands of people that they should drive three-hundred miles across the desert IN JULY to the Colorado river so they can swelter in the heat.
Well for that matter, I don’t see why demand for homes in Detroit has to only exist at negative prices. Suppose serious efforts were made to revitalize the economy and to reduce crime; certainly enough of the reasons that Detroit was a reasonable place to settle in 1911 still exist underneath the layers of negatives to make it a reasonable place to live in 2011 if said layers were eliminated?
All it would take is for Donald Trump to buy up vast acerages of Detroit (using other people’s money, of course) and renaming it “Trump City” and then selling out parcels of Trump City to millions of lemmings - er, his followers.
‘Create demand and the illiquidity will melt away…the demand is always there, at the right asking price’
On a similar note, we can see what is driving current policy. How often do we hear the problem is a lack of lending? All sorts of bad decisions spring from this: zero interest rates, too big to fail corporations, warehousing bad debt (and the related assets).
Japan tried all of this and it failed.
A good example along these lines is commercial property. Almost everyone has probably noticed a commercial building or lot with a good location sit vacant or for sale for a long time. If the price is too high, no viable business model will pencil out at that location. Lower the price and suddenly options work, and someone will take the chance and start a business there. Sounds good, right?
So who is it that resists this? Who fights deflation on every front, and has the money to do that? Central banks, the huge commercial banks, and their people in Washington DC.
How often do we hear the problem is a lack of lending?
Yeah…. That’s the beaut I hear on Main street. Genuine sanctimonious pandering it is. The LIE that I hear most frequently is “nobody has any money” when I discuss collapsing sales in the northeast. It makes me go off the rails when I hear it because it is soooooooooo stupid. I maintain composure and reply, “nobody had any money when housing demand was high and that is why we’re where we’re at right now”.
It shuts down the conversation quickly.
Like me, you must be fun at parties!
Yeah. heh. I’m prepared for every single housing crack delusion. Family at gatherings avoid the topic for the most part because they’ve been tied in knots by everything I’ve learned here.
“Like me, you must be fun at parties!”
Some of us have been saying that the problem has to be correctly identified in order to address it. I’m no expert on financial reform of the past few years, but I don’t recall the issue of a housing bubble or mania being involved much. What I do see is efforts to “stabilize” housing prices. IMO, falling prices are stabilizing the market after the bubble peaked. What else could possibly happen?
If one accepts that there was a bubble, there would be no surprise that the GSEs portfolios/losses would worsen. So why do we keep them alive? Why, to provide more housing loans, of course and keep prices from falling (futile exercise, see first paragraph)! Same with the tax credits, lowering GSE caps, first time HUD buyer programs. It’s really endless isn’t it?
This would all be humorous if it wasn’t so serious. These people in DC have managed to make a huge problem a potential threat to the future of the economy. Which brings us to Japan.
If one accepts the concept of a bubble and how to address it, wouldn’t it be wise to look to history? And bam, just a couple of decades back we see an industrialized country experience a stock and then real estate bubble. Isn’t it interesting that Japan still hasn’t fully recovered? What policies did they take? Are we making similar mistakes? Why in the hell aren’t the press/govt talking about this?!
What you would do might make the level of pain somewhat less. But it would also make the timing of the pain much sooner!
Bush I took over after the irresponsibility of the Reagan Administration, and moved to clean up the mess. He lasted one term.
Bush II set out to out-irresponsible Reagan, based on the lessons learned from his father.
The Republicans want Obama to be Bush I. But I get the feeling they’ll have to wait for early 2013 for that.
Where’s our Perot? He was only slightly nuts.
What you’re saying gets to what some of the posters mentioned about globalism, which accompanied the govt actions you mentioned over that time period. I would argue that globalism is a big reason why we have lost our productive base in this country and the PTB resort to fueling bubbles in order to keep things moving along. And when those bubbles collapse, they’re at a loss of what to do except more of what created the problem in the first place.
When it comes to financial reform, the proof is in the pudding. What’s really changed? Are we really relying on the Fed to buy bonds so the stock market goes up and people then buy stuff? Can we stake our economic future on social media IPOs and electronic gadgets made in Asia?
“…except more of what created the problem in the first place.”
Step 1 for getting yourself out of a hole: STOP DIGGING.
“Are we really relying on the Fed to buy bonds so the stock market goes up and people then buy stuff?”
This is such a blatantly stupid idea that I find it hard to believe the Fed pushes it so hard. What percent of all stocks does the top 1% own again? And given how broke most of the rest of America is, how are rising stock prices supposed to generate wealth effects?
‘how are rising stock prices supposed to generate wealth effects’
You hear it repeated so much it’s taken as fact. The masses see an increase in their 401ks, feel better and buy stuff. Never mind that the stuff isn’t made here, or that these same people might be better off saving. We’re the worlds economic engine, so get out there and buy, buy, buy!
The housing bubble served the same purpose. Remember the guy in Sacramento who took out a home equity loan and spent $150k on a backyard entertainment center? To the central bankers, this guy was an economic hero! I wonder if he’s been foreclosed on yet.
It’s so insanely unsustainable, it should be obvious how it will end. Why doesn’t financial reform address this?
“…insanely unsustainable…”
The Fed economists (and other top macroeconomists like John Taylor) seem altogether too willing to overlook the steady erosion of America’s household balance sheets which accompanied the halcyon period known to macroeconomists as The Great Moderation.
At this point, we are paying the piper for decades of steadily-eroding, subpar savings rates.
“… steady erosion of America’s houshold balance sheets …”
Aka “future sellers”.
What they bought at retail prices yesterday they will be dumping at yard sale prices tomorrow.
That’s when cash and patience will rule the day.
The “retail” buy has been priced out of the housing market.
The “wholesale” buyer is the only one buying.
The banks, Fannie/Freddie, Homemoaners won’t sell at wholesale, until they are forced to, one way or another. And they have the US Government backing them.
IMO, this will continue until inflation, or other circumstances. allow them to sell at prices where they can break even.
If this takes 20 years, then that’s what it will be. Looks like I won’t be buying a house for a long time, if ever. I can live with that.
My view is that globalization failed because of debt. Without debt, we wouldn’t have been able to import without exporting.
Japan, as always, is really different. They don’t accept immigrants. The population is aging and probably declining. We also had a crisis when they went south in 1989, but we recovered. But that’s the similarity. This time it went too much, too high, and now we can suffer similar, yet different results. The Japanese still don’t welcome immigrants to make up for the shortfall of bodies. But we do. It makes a difference.
“This would all be humorous if it wasn’t so serious. These people in DC have managed to make a huge problem a potential threat to the future of the economy. Which brings us to Japan.
If one accepts the concept of a bubble and how to address it, wouldn’t it be wise to look to history?”
This assumes that those in DC are actually interested in understanding, addressing, and solving the real problem, but they’re not. The problem, as they see it, is rich and powerful people (bankers and politicians, etc.) losing money due to deflating asset prices. So, they are trying desperately to help rich and powerful people keep their money by inflating prices. They don’t care about you or I, or society in general. That’s the problem. These people- politicians, and rich, powerful people- are the problem.
Grizzly we may have similar ideas about what the problem is or how to solve it. But IMO, it’s neccesary to have these discussions to bring certain things out; to ask pointed questions, so that maybe someday enough people will see what’s going on and we can make the proper corrections.
“…..maybe people will see what’s going on…….”
I’m done beating my head against that wall. Too many people get ALL their news/info from FauxNews and MSNBC.
Until the bankster class is brought to heel, nothing is going to change. And they aren’t going to be brought to heel, because too many people still believe we live in a “free-market” economy, and too many people are making bank with the current gridlock/status quo.
I hereby recommend that the names of the two political parties be changed to Demo-Socialists and Republo-Socialists.
Yes.
This guy seems to get it. The funny thing is, I increasingly take the impression that many, many Americans don’t. From economists in lofty positions of power with direct access to the MSM bully pulpit, down to the man in the street, many are still talking and behaving as though they believe we recently went through an ordinary recession, and are now on track for an ordinary recovery.
I have some dismal news for the “ordinary recovery is already underway” crowd:
THIS TIME IS DIFFERENT.
Taylor: We Are In a Balance Sheet Recession
June 24, 2011
Top economist John Taylor says his “biggest worry” is that the U.S. economy will be anemic for years and unemployment remain high. He does not, however, advocate any additional stimulus from the government or the Federal Reserve.
After listening to most of the interview, I am less convinced that Taylor has any better clue about what caused the crisis or how it should be resolved than any other macroeconomics experts out there. In particular, he doesn’t seem to grasp that deflationary pressures are still pulling very strongly on the economy, and that perhaps without QE1 and QE2, deflation would have turned out to be a very potent force in the aftermath of the housing bubble.
Whether that is a good thing or a bad thing would depend on an individual’s circumstances; for instance, Mrs. Watanabe has done reasonably well under two decades of Japanese inflation, because she has money in the bank. But the Japanese economy as a whole has limped along since the early-1990s crash; the U.S. economy has similarly limped over the past four years.
Taylor goes on and on about the need to “tackle problems earlier” in the context of the Greek debt crisis, while somehow managing to conveniently overlook the ongoing and decidedly untackled problem of crappy GSE mortgage debt hanging over the U.S. economy like the Sword of Damocles.
Taylor suggests that economic growth would have been much stronger in the recent episode w/o the big increase in govt spending, and cites the mid-1990s episode as evidence. Statements like that bring out my inner Keynesian, as the scale of economic collapse in the present episode is orders of magnitude worse than during the early-1990s recession. A more serious disease often warrants a treatment with worse side effects.
“Top economist John Taylor says his “biggest worry” is that the U.S. economy will be anemic for years and unemployment remain high. He does not, however, advocate any additional stimulus from the government or the Federal Reserve.”
That being the case, an anemic economy with high unemployment is not, in fact, his biggest worry. It is whatever measures would be required to get beyond an anemic economy with high unemployment.
Sounds like he would prefer to shrink Uncle Sam’s share of the economy to better allow the private sector grow back to its traditional share of GDP.
He doesn’t really mean it unless he is prepared to talk about where all the money is going. Senior citizens. Not those 54 and under. Those 55 and over.
How can the private sector grow when the government has passed a series of laws requiring US companies to hire an ever-increasing share of foreign workers?
Japan threw a whole generation under the bus to avoid this exact reaction. Today there are millions of people who never were able to get on the career path out of college and now the companies are skipping them over for younger talent fearing the older ones will not have up to date skills and work ethic.. They are most likely correct.
My son remarked a few weeks ago that having a job was pretty much not going to get you anywhere any more.
I would tend to agree we needed to go back to what made America great to begin with - creative individuals prepared to put themselves on the line to be entrepreneurs, inventors, musicians, movie makers and to do what we have always done best forging our own path…
But But But GH:
Just try and get a job when you are smart and can think outside of the box….you are classified … that ugly evil word:
‘”OVERQUALIFIED!” and destined to be passed over every time…..its not age is being smart is the worst skill to have in America today.
SUMMER CLEARANCE SALE ON FORECLOSURE HOMES!
Foreclosures for sale, all homes sold as is
By Kenneth R. Harney, Published: June 24
Looking for a deal where the home seller pledges in advance to contribute potentially thousands of dollars to your closing costs? If so, check out the summer sale terms available from two of the largest and most motivated sellers of foreclosed homes in the country: Fannie Mae and Freddie Mac.
…
Fannie and Freddie both are offering to pay up to 3.5 percent of the price of the house toward buyers’ closing costs, plus they’ll hand over a bonus of $1,200 to participating real estate agents. Fannie’s program covers properties on which contracts are accepted and close no later than Oct. 31. Freddie’s sale requires contracts no later than July 31 and closings by Sept. 30.
Fannie’s program even offers mortgage money to help finance these purchases, sometimes with as little as a 3 percent down payment. The company also has what it calls a “renovation mortgage” option that provides additional mortgage amounts to cover fix-ups.
Freddie does not offer special mortgage financing for buyers during the sale period, but has other inducements, including two-year home warranties and 30 percent discounts on appliances.
All the foreclosed properties are listed with photos and descriptions at either HomePath.com (Fannie) or HomeSteps.com (Freddie). On those sites, you can search by price, local markets, Zip codes and entire states. Featured offerings on HomePath recently included:
• A six-bedroom, five-bath house in Littleton, Colo., with 4,990 square feet of space. Asking price: $424,900.
• A two-bedroom apartment with 1,164 square feet in Las Vegas for $43,999.
• A $184,900 two-bedroom, one-bath home in Long Beach, Calif.
• A four-bedroom, two-bath house in Brentwood, Md. Asking price: $65,000.
The summer clearance sales are part of rapidly accelerating efforts by both companies to get ahead of the tidal waves of foreclosures flowing into their portfolios in recent months. During the first quarter, Fannie Mae acquired 53,549 properties. However, during the same period, it managed to sell 62,814 houses — a record number that produced a net outflow.
Freddie Mac also sold more foreclosures than it took in during the first quarter, acquiring 24,709 homes while selling 31,628. In some parts of the country, Freddie’s offerings are even generating multiple bids on houses, said Brad German, the company’s spokesman.
Both companies are targeting only buyers who plan to live in the homes — rather than non-occupant investors who want to flip them or rent them out — as part of a larger neighborhood real estate stabilization effort.
The contribution of up to 3.5 percent of the sale price toward the buyers’ closing costs can be substantial. On a $200,000 house, the buyers could receive $7,000 toward their closing expenses, which might determine whether they can afford to buy.
Combine that with additional incentives, such as favorable financing or warranties, and the total package can look extremely attractive to first-time and moderate-income purchasers.
Are there downsides or restrictions for would-be buyers on either HomePath or HomeSteps? Absolutely. Top of the list: Keep in mind that these are foreclosed properties, and some of them have been abused by previous occupants. Fannie and Freddie both do repairs to bring houses up to what they believe are marketable standards, but don’t be surprised to find that they are not in pristine condition.
Second, though foreclosures do generally sell for less than non-distressed houses, you need to understand that both Fannie and Freddie are in the business of maximizing returns on assets. Do not assume that the listing prices are deep-discount giveaways. Be diligent in comparing prices and values before bidding, and negotiate just as you would with any other real estate purchase.
Seems like they are trying to move some property before “changes to loan limits that don’t take place until the first of October.”
“Fannie and Freddie both are offering to pay up to 3.5 percent of the price of the house toward buyers’ closing costs, plus they’ll hand over a bonus of $1,200 to participating real estate agents. Fannie’s program covers properties on which contracts are accepted and close no later than Oct. 31. Freddie’s sale requires contracts no later than July 31 and closings by Sept. 30.”
Comment by wmbz
2011-06-25 04:45:57
Lower Loan Limits: Let the Games Begin
By: Diana Olick CNBC Real Estate Reporter
The summer has barely started, but the fight is on against changes to loan limits that don’t take place until the first of October.
Tom Grill
A new study claims lowering the loan limits at Fannie Mae, Freddie Mac and the FHA, “will reduce housing demand and place downward pressure on home prices in major housing markets.”
Today the National Association of Home Builders released its own study claiming that lowering the loan limits at Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA), “will reduce housing demand and place downward pressure on home prices in major housing markets.”
The Fannie & Freddie incentives are not much different from the $8K first-time buyer tax credit incentives, are they? In both cases, up-front money is used to encourage buyers to catch themselves falling knives.
Gotta clear the market.
I think “Forget the incentives; the crooked brokers are providing cheap BPOs on some of their listings; then selling these to their cronies”. I tried to get in on about three of these before giving up for now. (Looking for an investment property for my mother)
Each time I called and was told there was an offer; even though it was 9:00 A.M. on the first day on their site (Freddie Mac’s). Couldn’t even sucessfully arrange a showing.
Luckily(or not) I found a short sale at the right time for myself last year. I offered 117k on a 139k asking price; and the bank was currently in negotiations with the builder who was in the process of going under, so they took my offer. Thru U.S. Bank as it turned out. Dumb luck, not fairness, is how to get into the market, and I am telling my mom to wait awhile as BofA alone has 633 auctions coming up this fall in Deschutes County. If they go thru with them en masse and on time. More likely they will try to trickle them out; but like a flood in ND; too many are piling up behind the dam! Bofa has not auctioned a single prop since October of last year here; and their number of scheduled auctions is creeping up at a rate of 5 per day. So who knows how they will dispose of them w/o massive price reductions.
Good deals through Fannie and Freddie seem to me are hoarded by the brokers who represent them; but they will happily steer you into a crapshack that nobody wants. The better deals last less than an hour on the Homesteps or Homepath sites IME. They may tell you there is an offer before they actually submit one if they have a buyer of choice lined up and won’t even show you the property; then why bother pursuing it because they tell you there is already an offer. Collusion rules, if you don’t know anyone that is connected, stay away from buying from F&F!
Only my opinion based on a little legwork here in Oregon.
Don’t worry about the hoarding of good deals. There aren’t enough dealers for all those deals.
Discussion of a possible U.S. debt default hasn’t gone away just yet. Is/will this be part of the financial crisis response policy going forward?\
And from a HBB perspective, what would be the implications of a U.S. debt default for future home prices and purchase opportunities? My crystal ball is very cloudy on the answer to this question.
America’s debt ceiling
The mother of all tail risks
A US technical default would convulse markets. Nothing else is certain
Jun 23rd 2011 | WASHINGTON, DC | from the print edition
AMERICA’S debt is supposedly the world’s safest, backed by trustworthy courts and an unrivalled capacity to raise taxes and print money. Yet thanks to a quirk of law, talk of default is not confined to the European side of the Atlantic.
Unlike most countries America requires two legal steps to run a deficit: one to pass budget bills, the other to borrow the money. Congress sets a ceiling on how much the country may borrow. In the past it has always raised the ceiling before the Treasury ran out of cash, doing so on 16 occasions since 1993 alone. But it often attaches conditions, and this year Republicans who control the House of Representatives are insisting on particularly onerous terms. With the debt and the deficit at their highest in 60 years, they want to see at least $2 trillion in spending cuts over ten years and no tax increases.
If a deal cannot be reached before August 2nd the Treasury says it will be forced to default. It has not specified on what: it could choose to stop paying pensioners and soldiers before it stopped paying interest on its debt. But outright default cannot be entirely ruled out. What happens if the world’s most trustworthy borrower reneges on its debt?
…
One thing is for certain: In the unlikely event that the U.S. reneges on its debt, a familiar refrain will be heard from many MSM-favored pundits:
“NOBODY COULD HAVE SEEN IT COMING!”
It is hard to miss the resemblance of the current tense debt negotiations in DC to the annual budget Kabuki dance played out between the California governor and state legislators.
The Wall Street Journal
POLITICS
JUNE 25, 2011
Obama Joins Tense Debt Talks
Monday Meetings Aim to Break Logjam; Both Sides Remain Far Apart on Taxes as Deadline Looms
BY JANET HOOK AND CAROL E. LEE
WASHINGTON—President Barack Obama thrust himself into the center of the deficit-reduction talks for the first time Friday by asking Senate leaders to help break a deadlock in negotiations, signaling that the high-stakes effort to avoid a government default is now in the hands of the president and congressional leaders.
The president plans to meet with Senate leaders Monday to restart talks that broke down Thursday, in a bid to close a deal for Congress to raise the government’s $14.29 trillion borrowing limit before an Aug. 2 deadline.
…
California’s budget crisis
Kabuki without end
State legislators go unpaid as California reverts to dysfunctional type
Jun 23rd 2011 | LOS ANGELES | from the print edition
WHAT a lot of history California has been making this month. For the first time since 1933, the (Democrat-controlled) state legislature has the power to enact a budget with a simple majority, thanks to a ballot measure voters approved last year. So it passed a budget on June 15th, meeting the constitutional deadline—also for the first time in years. But the next day Governor Jerry Brown, himself a Democrat, vetoed that budget—apparently the first such veto in California’s history. The budget was not balanced, he said, and contained “legally questionable manoeuvres”.
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“manoeuvres”?
Did they serve hors d’oeuvres?
Obama will NOT make a decision. The only reason we were able to OFF BenLaden is that Leon Panetta gave the GO word.
Member the Great Depression? Cash is Queen.
Sooner or later we will have our own greek moment. Promises that were made will be broken (social security, medicare/caid, retirement accounts, etc.)
The underlying productive economy that is supposed to finance all those promises and the debt service is simply not large enough to make good on all that was promised. Increasing the productive economy is not going to work due to several constraints, one is natural resources and energy, environmental concerns, taxes and policies.
We can probably continue for a while, borrowing and pretending but the day of reckoning will arrive here just as it did in Greece. They are being bailed out right now, but they will be back for more, and more and more, as will the other PIIGS countries. Eventually they won’t be able to kick the can any further.
The longer the can is kicked the larger the ultimate default will be. I would like to see it rather sooner than later but this is not how our world operates.
It would have been smart to use the (borrowed) stimulus money on something that will still be around after the inevitable rest. A high voltage DC power grid, alternative energy, electric rail, etc. comes to mind. Instead the money was wasted on useless short term consumption (cash 4 clunkers, home purchase credit, etc.). Now we have nothing to show for except more debt.
What got us here?
- too many wars and military spending
- too many promises to buy votes during elections
- moral hazard bailing out big risk takers (banks)
- outsourcing jobs (labor laws, environmental regulation, wages) It is more profitable to use slave labor and dump your toxic waste into the closest river.
- misguided policies (ownership society, Glas-Steagal, subsidized gasoline) Yes gasoline is subsidized once you figure in all the military spending that is needed to keep it flowing.
Mike in Miami - very good analysis.
Pretty much makes me think these problems cannot be fixed by men, but will have to run their course. Have you read Isaac Isamov’s foundation trilogy? He basically surmises they cannot prevent the next galactic dark ages and coming economic and cultural crash, but they figure out how to seed the next boom so the downtime is reduced from 10,000 years to a mere 1,000 years. Perhaps we cannot fix what is broken today, but use what resources we have left to seed the next economy?
You mean by spending money on real infrastructure things like roads, bridges, sewers, etc.? Or developing energy sources and distribution systems that don’t require burning dead dinosaurs? Maybe at some point, but I wouldn’t hold your breath waiting for it.
That is what the stimulus should have been spent on. Not repaving roads that still had years of use left in them or any number of other “shovel ready” projects. Shovel ready is just another name for “of benefit to the people who bought the most recent batch of state/county/local politicians.”
Instead the money was wasted on useless short term consumption (cash 4 clunkers
What really blew me away about C4C was that it subsidized imports. Completely insane.
“What really blew me away about C4C was that it subsidized imports.”
And subsidizing imports is what happens when money is dumped into the hands of consumers because money flows toward the source of production.
The root problem of having a consumer-based economy is not a shortage of money. The root problem of having a consumer-based economy is directly tied to the economy being consumer-based.
To fix the economy the term “consumer” has to somehow be removed from the term “based”.
What comes first? The “producer” or the “consumer”. No need for “producers” if “consumers” don’t have the cash/ability to consume.
All of the “producers” moved jobs overseas, for short term profit. Reducing the number of “consumers”. This process continues. Any profits they are able to generate are invested in China, because that’s where all the consumers (supposedly) will be.
History will look kindly on Sheila Bair’s honest and independent leadership at the FDIC, and especially her push back against the folly of too-big-to-fail bailout policy.
“The guy in the White House is one of the largest recipients. It just cannot end well.”
He is looking for another billion dollars in bribe money for his corrupt re-election.
I would have to agree, after assuming the presidency, Obama had a single play for the people and that was to demand real concessions from the TARP recipient banks BEFORE finalizing the deal to give them billions in bailout money. Better yet the money could have been given to the thousands of smaller banks in trouble and the big 5 broken up and distributed to the smaller banks. Pretty much tells me the president position is somewhat of a straw man.
The play was to let the whole house of cards collapse, so the Republicans would get all the blame, instead of acting to preserve the assets of the wealthy and seniors at the cost of a decade of stagnation for everyone else.
But he carried out the bailouts he inherited, the rich benefitted, and yet are ungrateful. And blaming Obama with a bunch of bullshit arguments. Corporations are sitting on cash because they are afraid Obama is a socialist? How about they are sitting on cash because the economy is floating on cheap money, and is set to re-collapse.
Incredibly, the Republicans might give Obama a second chance to speed up the disaster and get it over with, as a clear result of their actions. Can he be taught?
+ 1000
Obama is more Republican than Nixon.
or a Yes Man.
Businesses do not reduce their employee numbers because of regulations and fees. As long as they have profitable work to do, then they will hire someone to do it. They always pay the lowest wage they can get away with.
Also, banks do not increase fees because of lower profits. It’s a matter of supply and demand. They always charge the highest fees they can get away with.
The problems with our economy lie in the lack of law enforcement against corporations and a tacit complicity from the Supreme Court, which is exhibiting signs of Alzheimer’s disease.
Hire an illegal alien? You’re a God. Offshore a call center? You’re a God. Import a temporary worker for the purposes of displacing an American? You’re a God. Oh, and don’t worry. The Supreme Court will not allow consumers to sue you if you do them harm through negligence. They will not allow employees to sue you for discrimination or other violations of labor law. As a matter of fact, you will be allowed to directly tell your employees who to vote for and which campaigns to contribute to. You can even send your own lobbyists to directly bribe everyone in Congress and everyone running for any political seat in America. IT’S OK BECAUSE YOU’RE A GOD.
Oh no, not regulations that prevent banks from becoming too big to fail. Oh no, not regulations that prevent too-big-to-fail banks from acting like drug addicts
Here’s the thing. The FDIC is an insurance company. It is fully within its rights and responsibilities when it says “Hey, your business model is too much of a risk when compared to the premiums you’re paying. We don’t want to insure you unless you can meet some basic standards.” That’s not even regulation; it’s just plain business sense.
Part of too-big-to-fail thinking is that business sense goes out the window when you have the insurance equivalent of a free Chinese iron rice bowl.
Banks will not be as profitable with dramatically increased capital requirements. When revenues fall, costs must be cut. Banks are starting layoffs already. One more domestic industry is entering a multi-year contraction cycle. Oh, joy…
Is more banking regulation a good thing? I think so, even though it will hurt me personally. What would be even better is to enforce the rules already on the books, and also to return some forgotten ones, such as stricter lending standards and mark to market accounting.
However, increased capital requirements are not nearly enough to avoid future busts. Unless you bring the casino of OTC derivatives into the light of day, new crises are inevitable.