The Housing Bubble

I said nothing about either party in that post. Where do you see that?

If you want regulators to do a better job, you have to give them the right to hire enough people to do it. That will never happen, so complaining they aren’t doing a good job is a little like complaining that one person can’t beat a basketball team.

It is worse if the one person doesn’t want to win, but even if he does try as hard as he can, he isn’t going to have a lot of success.

Yes, let’s reward regulatory failure by increasing their budgets and personnel. What a novel idea.

You can only enforce the laws you have. And you can’t review millions upon millions of mortgage transactions with dozens of people or even a few hundred. You just can’t.

I used a basketball team vs a single individual in my previous post, but it is really more like a football team vs. a individual. If you can figure out a way to win a football game against a whole team with one person, let me know. We’ll see if some aspect of your strategy would work for regulators vs. Wall street.

Please note, having the one person show up to the game with a machine gun is not allowed.

That is why keeping a portion of the risk is one of the best strategies and why it could work. It does two things. It makes it worthwhile for the bankers to do the due diligence themselves since they take the first losses (my version, not the version under consideration where they only get a sliver of the first losses), and by requiring the investment banks to keep some capital in the game, it lowers the volume of transactions so that if regulators did have to go in, there might be some chance of getting through the work. It is also fairly easy to check and see if they are doing it.

“Yes, let’s reward regulatory failure by increasing their budgets and personnel. What a novel idea.”

By this BS reasoning, you would “reward” an understaffed and failing ER by cutting staff even more.

Polly,

RE: football team vs 1 person

This is the truth for any law enforcement. You have one trooper on the side of the highway looking for speeders while 100 cars drive by. Chances are 50 of them are speeding. But only 1 of them will be ticketed. Do you propose having 100 troopers looking for speeders to make sure every car is clocked?

You can’t have a 1:1 cop:citizen ratio. Well I suppose you can, but I don’t want to live in a country that does.

Thanks Polly…….for the most depressing thing I’ve read all year.

The short version: Nobody is going to jail. The banks will continue to be above the law. The banksters/1%er will continue calling the shots. “Free markets” will become an oxymoron, at least for essentials; housing, food, and fuel for transportation/heating/cooling.

Time to replace the 50 stars on the US flag with 50 bananas.

‘The ringleader of a mortgage fraud scheme was sentenced Tuesday to prison and ordered to pay million of dollars in restitution. Chief U.S. District Judge Ted Stewart sentenced Christopher D. Hales, 30, who last lived in Midvale, to 7 ½ years in federal prison and ordered him to pay $12.7 million in restitution.’

http://www.sltrib.com/sltrib/money/52827862-79/hales-fraud-prison-restitution.html.csp

I come across these types of articles so often, I don’t bother posting them anymore.

‘the most depressing thing I’ve read all year’

I can’t understand this thinking. The world has always been messed up, corrupt, full of lying thieves, you name it. Life is too short to let it ruin even one hour of one day, IMO.

“Time to replace the 50 stars on the US flag with 50 bananas.”

You think this is something new? The oldest profession is prostitution. The second oldest is thief.

Life is too short to let it ruin even one hour of one day

Eyes agree Mr. Ben.

(Mostly eyes use these daily reminders as a “bidne$$” Rolodex for the types that contains the word “ProFEE$ional!” next to their name. They’re all filed under the letter V )

V as in Verify
V as in Validate
V as in Villainou$
V as in Vamoose

That reminds me of the bookkeeper I knew who filed everything under “T”. The electric company. The payroll, etc

“I can’t understand this thinking”

Because you haven’t been were I’ve been.

Those of us in technical/manufacturing fields have been on the receiving end of the bankster class cramdowns for 30 years.

And now everything I see tells me that the “good old days” are done, and that things are going to really suck for the forseeable future.

Sure, there are going to be opportunities. Too bad I don’t have the training, connections, or cash to take advantage of any of them.

My mental state would be better, if I was totally oblivious and ignorant of what’s going on. My J6P friends and acquaintances are like ants. They know they are being toasted, but they don’t/can’t comprehend that the bankster/1%ers are holding a magnifying glass over them, frying their azzez.

Could be worse. I could own a house.

That reminds me of the bookkeeper I knew who filed everything under “T”

BWAHAHAHicHAHAHicHAHAHAHAHicHAHAHic* (DennisN™)

“T” as in Tankxs Mr. Ben, eyes now have the missing clue as to where $ir Greenis$pent has hidden:

“The Box Index!”

Polly, perhaps the protesters understand all that, but all that shows is the system is rigged and whether it’s legal or not does not make it right.

Perhaps that’s what they’re protesting against. Which is, after all, their overall message. It’s ALL rigged.

fixer,

People will go to jail. But precious few (if any) will ever even have to answer for the violations that are all similar and number in the millions. Millions of people who lied on mortgage applications. Thousands (at least) who changed numbers on the application documents to get them approved when the original docs wouldn’t have passed muster. There aren’t enough people to pursue it; there aren’t enough courts to hear the cases; and you sure wouldn’t want to pay the price of punishing them all. Saftey in numbers. The worst of it (not disclosing that a bond was created in order to fail) will be pursued. That is all they have time to do.

Imagine getting rid of all consumer safety laws. You don’t technically need them. Our system pretends that getting hurt and then getting paid for it “makes you whole.” Well, do you really want to live in a world where you have to research every purchase to see if the item is safe and have to risk getting hurt or killed and then getting compensated through the court system (assuming that “tort reform” wasn’t part of the getting rid of consumer safety laws)? Me neither.

Well, we got rid of the financial system safety rules. We need to bring some back. I don’t want to go through self-correcting crisis after self-correcting crisis. A few more rules will help. I don’t think we are going to get them in the next two or three years. I just don’t see enough momemtum that way yet. But society has cycles and we will see a time when there is more safety built into the system. There were robber barrons before and we have the modern equivalent now. But there was a nice stretch where they were held back a bit. I think we can find that place again.

eco,

I love that these protests are happening. I don’t even know that it matters exactly what they understand. I’m sure it varies wildly since there are so many of them.

And, despite what GEG and sammy have made up in their over excited minds, I don’t think it is a great idea to prosecute every single person who lied on a mortgage application or drives a few miles over the speed limit or whatever. I’ve been around too long to waste time fantasizing about things that can’t be accomplished. In a perfect world, you tweek incentives so that people do the right thing most of the time because it is in their best interest. It isn’t easy to do, but it should be the goal.

In finance, keeping a chunk of the risk with the actors best situated to prevent that risk from getting exessive is the right thing to do. Those are the people who originate or securitize the bonds, not the elected official of a little town in Norway who wants to add some “safe” US bonds to her town’s retirement plan portfolio. That person has no chance of evaluating the risk of those bonds so it is econmically inefficient to expect her to be the one doing it.

We covered all this in the class called “Law and Economics” for pete’s sake. It was required.

I’m sure it varies wildly since there are so many of them.

Exactly. And we all know who will get the media attention.

Those of us in technical/manufacturing fields have been on the receiving end of the bankster class cramdowns for 30 years.”

way back in the early 1990’s we were all told by the company I worked for ( Loral ) they could sell the company and put the money in the bank at 10% ( the going rate) and make a better profit than keeping us employed. so thats what they did.

But now you can’t get 10% anymore. have to do real work for money what a concept

And, despite what GEG and sammy have made up in their over excited minds, I don’t think it is a great idea to prosecute every single person who lied on a mortgage application or drives a few miles over the speed limit or whatever.

When have I ever made such an asinine statement?

The imbalances were legislated into existence. The point of the tax was not to give money to DC. I want to destroy leverage. The idea of the tax is not to collect revenue but discourage the very creation of these synthetic instruments in the first place.

I’m all for a transaction tax for one simple reason: It would put the HFT black box algos - which are responsible for 50-70% of daily volume in the market - out of business. These HFTs buy and sell in fractions of a second and are part of Wall Street’s rigged game against small retail investors. I’d happily pay a 1% transaction tax if it means watching all the front-runners and algos go up in puffs of black smoke.

I don’t think the proposed tranaction taxes are close to 1%. More like 0.1%. Some of them may be less than that.

They really are targeted at hindering the microsecond arbitrage market.

I’m with Sammy here. I’d gladly pay 0.1% every time my brokerage sold or bought a stock. They would have tos top and think a moment before they did it. That favors fundamentals.

“The financial services sector has grown from 10% of GDP to over 30% of GDP”

And what has the federal govt sector grown to at the same time? More people work for the govt today than work in manufacturing. Govt spending is more than double today what it was in 2000.

But yes, by all means let’s focus on the growth of financial sector.

Government doesn’t have a problem with taxing the crap out of stuff they view as being “destructive”. Taxing tobacco is Exhibit #1. Personal use of business airplanes is another.

Why has manufacturing gone to crap? Because the ROI was better by playing financial games, or investing overseas, or flipping houses.

It is way past time that government realign it’s incentive program.

Where do they get 30% from?
It’ not even close to that.

Total GDP in 2010: $13,248 Billion
By industry:

Real Estate, Rental and Leasing: 1713
GOVERNMENT: 1660
Manufacturing: 1554
Finance and Insurance: 1129
Health Care: 959
Retail: 831
Information: 691
Construction: 431
Mining: 271
Transportation: 348
Utilities: 209

1129 out of 13,248 is 8.4%

If you induce R/E as financial services, which you shouldn’t but say you do anyway, it’s still not even 20% of GDP.

Err, include that is, not induce.

“More people work for the govt today than work in manufacturing. ”

Just the other day you were touting the wonders of employing most efficient workers, and that only poor countries made trinkets. Evidnently, the corporations listened to your BS and offshored the manufacturing.

Now you’re complaining that we don’t have enough people in manufacturing.

Go away.

Oxide,
“Now you’re complaining that we don’t have enough people in manufacturing.”

I didn’t say that. I said more people work in govt than in manufacturing. This is not an opinion. This is fact.

People like you love to complain about the lack of manufacturing in this country. But you fail to ask yourself if maybe, just maybe, there is a correlation between the decline of manufacturing and the increase in govt. Every one of those govt bureaucrats either directly on indirectly adds to the cost of doing business here. And for manufacturing being such a capital intensive sector, the impact is magnified.

In other words, maybe, just maybe, the thousands upon thousands of regulations on business, maintained and enforced by the millions of govt employees, just might have something to do with manufacturing going overseas? Nah, that’s crazy talk. Let’s just scream about greedy, evil CEOs and banks instead.

And yes

But you fail to ask yourself if maybe, just maybe, there is a correlation between the decline of manufacturing and the increase in govt.

It has nothing to do with that.It has to do with workers in other countries being paid 1/10 of US minimum wage.

I listened to a rep of the ATF talk about cigarette smuggling from North Carolina. They are evidently spending a lot of resources to combat it. Because the money is being used to fund terrorists. No, really, that was his justification.

http://privateinvesigations.blogspot.com/2011/11/black-market-for-cigarettes-thrives-in.html?spref=tw

Higher sin taxes just create black markets.

It would be a good source of money for terrorist funding. You only have to operate inside the US so once you are here, you are good to go. You can do it by car which can be done with cash (if you skip e-z pass) and you don’t have to worry about bringing high value items through an airport. Plus you can do it using small bills and avoid needing a bank account to turn large sums into spendable currency.

But I don’t see why terrorists would be the first thing you would cite. It is also good money for drug cartels and organized crime. Less risky than illegal drugs or other illegal activities.

See, but that is the thing. It wasn’t them telling me what I could qualify for. They asked me how much I wanted and then said yes. It was very odd.

Anyway, it hardly mattered at that point. I had already figured out that anything other than a small one bedroom at a price I was comfortable paying was over an hour commute each way in an ideal situation (short walk to Metro, no transfers, assume no delays on the train and short walk to office on other end). That just seemed absurd. I think that is when I started to google “housing bubble” and found this place.

Yesterday and today’s Oklahoma earthquakes, courtesy of USGS.

“The proof, however, will be found in the pudding if fracking within a certain radius of Washington is forbidden.”

I say start in DC and then work your way out from there!

Sadly, I’m guessing that most of the denizens of Oklahoma will blame divine retribution for some alleged collective sin rather than a fuel-extraction technique with huge environmental consequences.

The New Madrid fault line runs not too far away. The last major earthquake was in 1812. The area might be over due.

By what definition of “not to far” is New Madrid near OK?

Uhhhhh…..from what my Oklahoma relatives are telling me (one works for Halliburton), there aren’t fracking in Oklahoma.

No fracking in Virginia either and they had a bad one (5.9) a couple months ago… bad enough to shut down both the North Anna nuclear plant and the Washington Monument.

“Uhhhhh…..from what my Oklahoma relatives are telling me (one works for Halliburton), there aren’t fracking in Oklahoma.”

Examination of Possibly Induced Seismicity from Hydraulic Fracturing in the Eola Field, Garvin County, Oklahoma

http://www.ogs.ou.edu/pubsscanned/openfile/OF1_2011.pdf

This USGS report is for earthquakes in early 2011 and is currently undergoing peer review.

‘Whenever I think things can’t get anymore outrageous, there appears new evidence why I am competely wrong’

It’s been hard to watch. As bad as the housing bubble is, the govt actions the past few years may be worse.

I admit I could be wrong. But if we go the way of Japan, and it looks that way, the outcome could haunt us. Consider that Japan was financially stronger after their bubbles than the US is today. It’s possible that we could see unemployment rise to levels never experienced and then stay there. It’s really this simple; the stock and housing manias distorted the economy. Real stabilization and growth can only occur when these mal-investments are purged and resources are allocated to sustainable purposes.

It’s not going to happen with stimulus programs or tinkering with mortgages.

I rarely disagree with Ben but I’m going to chime in.

As bad as it is in the US, it’s far worse in the rest of the world.

Chindia have an almost absurd bubble that on any metric makes the US bubble look like a joke. There’s a commodity bubble that’s holding up Canada and Australia.

All are collapsing as we speak.

The US has a high degree of productivity and none of the demographic problems that Japan faces.

Being a betting man, the US has issues up the wazoo but I’d put my money on the US.

FPSS - Never underestimate the ability of our government to do the exact wrong thing.

I’m going to agree with FPSS here. As bad as the levels of crony capitalism and regulatory capture are here, there is NO comparison to how bad it is in China.

FPSS,

Your assertion that the US will come out ahead at the end of this BS implies the “man behind the curtain” has it all under control. At least that’s my interpretation of your post.

There was a time not long ago that I believed this 100%. I still do in some ways. I believe there is a shadow war going on between the US and China central banks and the citizens of both countries are the casualties as a result of the distortions they intentionally create.

Personally I’ve lost patience with it and no longer have a desire to discuss anything anymore.

I’m angry.

You really overestimate the ability of “other” governments to do the “right” thing.

Seriously!

“Being a betting man, the US has issues up the wazoo but I’d put my money on the US.”

As did everybody else who bought Treasuries in the most recent crisis.

Betting on the US is not the same as buying Treasuries but surely a winkle-brain such as yours which allows multiple levels of precision to co-exist must’ve figured that one out, no?

Top News Send to a Friend Printable View
Analysis: Is student loan, education bubble next?
JUSTIN POPE
From Associated Press
November 06, 2011 5:01 PM EST

First the dot.coms popped, then mortgages. Are student loans and higher education the next bubble, the latest investment craze inflating on borrowed money and misplaced faith it can never go bad?

Some experts have raised the possibility. Last summer, Moody’s Analytics pronounced fears of an education spending bubble “not without merit.” Last spring, investor and PayPal founder Peter Thiel called attention to his claims of an education bubble by awarding two dozen young entrepreneurs $100,000 each NOT to attend college.

Recent weeks have seen another spate of “bubble” headlines — student loan defaults up, tuition rising another 8.3 percent this year and finally, out Thursday, a new report estimating that average student debt for borrowers from the college class of 2010 has passed $25,000. And all that on top of a multi-year slump in the job-market for new college graduates.

So do those who warn of a bubble have a case?

The hard part, of course, is that a bubble is never apparent until it bursts. But the short answer is this: There are worrisome trends. A degree is an asset whose value can change over time. Borrowing to pay for it is risky, and borrowing is way up. The stakes are high. You can usually walk away from a house. Not so a student loan, which can’t even be discharged in bankruptcy.

But there are also important differences between a potential “student loan bubble” and an “education bubble.” Furthermore, many economists think the whole concept of a bubble is a misleading way to think about what’s happening, and may actually distract from the real problems. College affordability is a serious issue, but it’s a different one. Borrowing for college and borrowing for, say, a house, are fundamentally different in important ways.

To be sure, there are some classic bubble warning signs:

—Everybody wants in. The idea that higher education is the only way to get ahead has become widely held. College enrollment has surged one-third in a decade. With rising demand, college tuition and fees have more than doubled over that time, outstripping inflation in every other major sector of the economy — energy, health care and housing, even when housing was bubbling itself.

—Those bills are paid with borrowed money. The volume of outstanding student loans is rising rapidly and now exceeds credit card debt, though recent reports of it crossing $1 trillion may be premature. Moody’s Analytics puts the number at around $750 billion. But while credit card debt is declining, student loan debt keeps going up.

—Just like housing, many student loans were made with little or no research into whether borrowers were fit. Federal Stafford loans are basically automatic for college students, and government backing for other types of loans gave other student lenders little reason to be picky.

—Defaults on federal student loans jumped from 7 percent to 8.8 percent in the most recent fiscal year. That measures just recent borrowers who were already behind within two years of their first payments coming due.

Those numbers are all alarming. But putting them in context requires thinking separately about the ideas of a “student loan bubble” and an “education bubble.”

First, one thing that’s important about the possible student loan bubble is that it poses much less of a threat than housing debt did to drag down the entire economy. Yes, many individual borrowers may find themselves in trouble. But total student loans probably amount to less than 10 percent of outstanding mortgages. Every single student loan could default and it still probably wouldn’t match total mortgage defaults during the recent downturn. More importantly, unlike mortgages, Wall Street isn’t knee-deep in securities comprised of bundled student loans, as it was with mortgages. (It also helps that it’s also harder to speculate in student loans; an investor can flip a house, but not a brain.)

The other big difference with student loans is the dominant role the federal government has assumed in the market in the last few years: it accounts for roughly 85 percent of student debt.

That matters for several reasons.

First, the government is answerable to voters and not shareholders, so it’s more likely than private investors to take steps such as those announced by President Barack Obama to try to relieve student debt burdens.

Second, notes Mark Kantrowitz of the website Finaid.org, it’s important to remember what actually causes a bubble to burst. It’s not simply a run-up in prices. What bursts the bubble is a liquidity crisis, when borrowers suddenly can’t get the money they need. Even during the depths of the 2008 financial crisis, when private student loans dried up, the government’s dominant role kept student loans flowing.

That doesn’t guarantee the bubble won’t slowly and painfully deflate over time. But it insures against the chaos of a “crash” where suddenly students can’t get loans at all — a scenario that could shut down untold numbers of colleges whose students rely on financial aid.

None of that, however, changes the fundamental risk for individual student borrowers: they could borrow heavily to pay for a college education and find the return much less than expected.

It’s here, looking at the debate from an individual borrower’s point of view as opposed to the entire economy, that the debate over the term “bubble” gets tricky. Can an education lose value?

Certainly a college degree can.

A key measure is the wage premium for bachelor’s degree recipients over those with just high school diploma, and there are various ways to measure it. All show the wage premium is substantial, though after rising steadily for years it appears to have slipped some lately. Wages for the median bachelor’s degree recipient are roughly $55,292, compared to $34,813 for those with only high school, according to the latest data from Georgetown University’s Center on Education and the Workforce.

That reflects a premium that has fallen from roughly 67 percent a few years ago to 59 percent (the latest Bureau of Labor Statistics data put the 2010 premium at 65 percent for weekly wages). Still, all told, estimates for the lifetime earnings advantage of a college degree range from a conservative $500,000 to more than $1 million, according to the Census Bureau. Even with recent price increases, for the average student loan borrower that remains a very high return on investment.

It’s true the unemployment rate for new college graduates is more than 10 percent. But unemployment for college graduates overall is 4.2 percent, compared to 9.7 percent for those with a high school degree.

Could college prices rise so much, and the premium fall so far, that a degree is no longer worth it? Of course, for some degrees. But in a modern economy, it’s difficult to imagine that happening across the board. Here’s where a degree is truly unlike other assets — most should correlate at least somewhat with skills that are useful in the world. Particular degrees may prove bad bets, but to imagine the premium on education itself dropping off a cliff is to imagine a world where things have gone so wrong that job skills no longer matter.

Or, as Kent Smetters, an economist at the University of Pennsylvania’s Wharton School, puts it: “In that case, nobody’s worried about paying back their loans. Everyone’s heading for bunkers in Idaho and canned goods and that kind of stuff.”

Here’s the rub: Nobody earns a generic “college degree.” Degrees are earned from different schools, with different reputations, and in different majors with much different payoffs. What counts most, says Georgetown’s Anthony Carnevale, are the courses you take and your major. Roughly 30 percent of associate’s degree recipients earn more than people with bachelor’s degrees. A graduate with a mere certificate in engineering will earn roughly 20 percent more than the average bachelor’s recipient.

That suggests there isn’t one big bubble, but many smaller but significant ones stretching across different sectors — certain liberal arts grads, artists, lawyers who borrow six figures for law school and can’t find a job, and students at for-profit colleges. The signs of a bubble at for-profits are unmistakable: Enrollment has tripled in a decade, roughly 96 percent of graduates have loans and borrowing is substantially higher than at other types of institutions. Default rates recently jumped to 15 percent.

But what’s most important is the huge numbers who never earn a degree at all. At community colleges and for-profit schools, roughly one in five aiming for a bachelor’s degree fail to secure it. Even at four-year public universities, the failure rate within six years is almost half. Anyone who borrows a large amount of money and then fails to complete a degree is in a world of hurt — quite possibly worse off than if they’d never even tried to go to college in the first place.

http://www.borderlandbeat.com/2011/11/mx-agents-missed-vehicle-wguns.html

Mexico isn’t quite as blameless in that whole affair as they’re letting on.

“the ATF wanted to try again and wanted Mukasey to persuade Mexico’s attorney general to provide a team of corruption-free Mexican agents who would assist in the effort.”

Corruption-free Mexican agents. (giggle) If such an animal exists, he or she is quickly done in by cartel agents, sometimes from within the system.

Muck Fexico.

V’s character in the graphic novel is different. He is more of an anarchist than the crusader he is in the movie.

Wal-Mart an every craft store carries scrapbooking stuff. It doen’t look expensive, but wow does it ever add up.