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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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Is the world financial system truly on the brink of collapse, or is Soros being unduly alarmist?
And do carpet bombs of newly-created liquidity from the major central banks, as we saw dropped out proverbial helicopters this past week, serve to increase or to decrease global financial stability?
December 1, 2011, 4:20 PM ET
Soros: World Financial System on Brink of Collapse
By Brenda Cronin
The world financial system not only isn’t functioning, it’s on the brink of collapse, according to investor George Soros.
The Hungarian-born philanthropist, who recently spent time in areas where his charities are active, such as Africa, said he sees a growing bifurcation between emerging and developed countries – and he’s more confident about prospects for the emerging ones.
Despite their assorted problems, including corruption, weak infrastructure and shaky government, developing countries are relatively unscathed by the “deflationary debt trap that the developed world is falling into,” Mr. Soros said at a New York gathering to mark the 10th anniversary of the International Senior Lawyers Project, a group that provides pro bono legal services around the world. Mr. Soros was among those honored by ISLP, for his work as founder and chairman of the Open Society Foundations, which supports democracy and human rights.
The current global financial system is in a “self-reinforcing process of disintegration,” Mr. Soros warned, and “the consequences could be quite disastrous. You have to do what you can to stop it developing in that direction.”
…
The world financial system has already collapsed. They are throwing clearly worthless government fiat promises at it in an attempt to keep fooling people into believing that global financiers are wealth creators instead of wealth destroyers. As time goes on more and more people will realize that despite their faith, they can’t actually eat those promises, nor gas up engines with those promises, or protect their homes against the elements with those promises, etc. That is the core problem that this current generation must resolve. This generation must eventually break down the Big Lie and call it a big lie. Only when such a thing is liquidated, can a real economic recovery begin (just in time for Expensive Oil to hit, alas).
What concerns me about dire pronouncements from top financiers is that they might serve as smoke screens for central bank discretion to bail out those who gambled foolishly and lost big. When the end of the world as we know it is at hand, the usual rules are abandoned, and massive wealth transfers can be made without raising any serious objections.
Has there been a fundamental shift in how Americans, particularly young Americans, view Wall Street? “Greed is good” said Gordon Gekko twenty-five years ago, and a generation thrilled to his words, and followed them to Wall Street, seeing that as the most lucrative, exciting, and glamorous career choice.
But how does the new generation see Wall Street? In the words of one student a Harvard:
“The recession has taken away job opportunities for us, and it’s also changed the kind of jobs we want. In 2007, 47 percent of the graduating class at Harvard planned to enter either finance or consulting professions, according to a survey published by the university newspaper, the Crimson. In 2011, that number fell to 21.7 percent. Finance has traditionally been the most popular field for Harvard alums, but in 2011, education surpassed Wall Street as the most common choice for graduates.
“At least among my friends, one of the casualties of the Great Recession is the allure of investment banking. It’s tougher to get a job in the field, but it’s also more difficult to justify the profession as a way to spend one’s adult life. None of us needed a degree in finance to recognize the havoc that American banks inflicted on the country. Few of us want to play for that team, and, at least for now, we aren’t running toward Wall Street in the same way our parents did.
“Perhaps it’s too early to say, but the silver lining of the economic downturn could be that people my age will continue to aspire to the jobs they wanted when they were younger. I hope so. I hope we’ll become workers, teachers, inventors, entrepreneurs, activists, writers. In other words, I hope we’ll become people who actually make things.”
The Recession Kids Grow Up
How the economic downturn has shaped Generation Y.
By Peter Fulham
Slate
http://hive.slate.com/hive/invent-your-future/article/the-recession-kids-grow-up
The Fourth Turning.
Nice try, with all the fancy book-learning words in your post, but as unquestionably established in Thursday’s bits bucket, any discussion of Wall Street less than an objective, sociological treatise is just class warfare
sociopathological
goonster-
The pretenses may be pure, but the presumptions render our evil friend more pompous than portentous.
One gets the impression that SOMEone was denied tenure recently….
The pretenses may be pure, but the presumptions render our evil friend more pompous than portentous.
I just love alliteration!
Az adores alliteration.
Pusillanimous poltroons !
Patooie.
—Thursday’s bits bucket, any discussion of Wall Street less than an objective, sociological treatise is just class warfare—
That would be one ill-informed interpretation of today’s discussion.
Few of us want to play for that team, and, at least for now, we aren’t running toward Wall Street in the same way our parents did.
Happened in mine own family back in the 1940s.
As I’ve mentioned before, my father’s father was a Wall Street bonds broker. My dad, being of a very analytical turn of mind, was drawn to mathematics like flies to honey.
Grandpa very much wanted my dad to join him on The Street. But my dad wanted no part of that scene. Instead, he went to college, studied chemical engineering, and worked in that field for many decades.
Doesn’t matter.
All they need is the psychopathic 1%.
The Dartmouth College valedictorian of 1983 (I think, or maybe it was 1979?) included something reasonably like the following in his remarks:
If we are to use our liberal arts educations in a way to best serve our society, we may just have to say, “No, thank you, Paine Webber.”
Sorry, here is the real quote:
If we as individuals , and society at large, are to prosper fully from our liberal arts education, we must ultimately have the courage to say:
No thank you, Paine Webber.
The speech was generally about combining pragatism with idealism rather than look at a world gone awry and take it as a reason to look solely toward personal gain.
Unfortunately, that was after Paulson’s time. Geithner must have been sleeping through commencement.
I wore Groucho Marx glasses (complete with big nose) to mine. My best friend sat next to me, proudly wearing her Blues Brothers style sunglasses.
I put a masking tape dollar sign on my grad mortarboard hat.
Get this, Paul Volcker was the keynote.
This was before my time. I found it in one of my uncle’s alum magazines and was impressed. When he tossed them, I spent forever finding this one and saving the issue.
Polly — we may have been through this before, but when did you graduate?
Suggested topic: Negative wealth effects of a housing bubble collapse
Those Who Lost Jobs in the Recession Also Lost Ground
Posted: December 2, 2011 at 6:21 am
The Heldrich Center at Rutgers has issued a new report that says only 7% of people who lost their jobs after the financial crisis have made it back to their former levels of work and financial security. This 7% of those surveyed said they have “MADE IT BACK and consider themselves in excellent, good, or fair financial shape and have experienced no change in their standard of living due to the recession.” It is a picture of the jobs market that is reflected throughout the U.S. workforce and the prospects for improvement are small.
At the other end of the spectrum in the Rutgers study, 41% of people said they were “DEVASTED” or “WRECKED.” The people who did the survey said this translates into 2.25 million to 3.60 million, a huge portion of what the workforce was in 2008.
…
“You work three jobs? Uniquely American, isn’t it?” - the Decider, 2005
Nov. 29, 2011, 12:01 a.m. EST
10 reasons the crisis isn’t over
Commentary: There may be a lot more bad news to come
By Brett Arends, MarketWatch
BOSTON (MarketWatch) — Boom!
Stock markets around the world soared yesterday. The Dow jumped more than 300 points.
News out of Europe says they’re working on a fix to resolve the crisis there. Reports here say the holiday season may be off to a strong start. Sales on “Black Friday” may have hit a record.
So, is that it? Is the crisis over? Is it time to ramp up your equity exposure, take on more risk?
Heavens. Anything can happen. And, OK, there are stocks out there that look pretty decent value.
But here are ten reasons to be skeptical. This so looks like a dead cat bounce.
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7% of people who lost their jobs after the financial crisis have made it back to their former levels of work and financial security
Whoohoo! I’m part of the 7% :-). Sometimes it’s good to be lucky, and tech seems to be a lucky place to be right now.
Same story here. When I tell people that I was able to find a new job that pays more than the old one in just two months, their eyes boggle.
I do try now to crow about that around those I know who are hurting.
Is now the time to buy into Europe? And is the doom and gloom overdone (case in point: Soros article posted above)?
Dec. 2, 2011, 12:01 a.m. EST
Where to invest when Europe recovers
Commentary: Euro-zone’s grim outlook is overdone
By Conrad de Aenlle
LONG BEACH, Calif. (MarketWatch) — Europe and its fragile financial system and markets have been dragged back from the edge of the abyss with a little help from their friends.
Click to Play
Euro zone might be near debt-crisis end-game
European Union leaders and institutions look to be hatching plan to solve the euro-zone crisis ahead of the EU summit next week. What will the plan look like and will it be sufficient?
Major central banks around the world, including the Federal Reserve and European Central Bank, will allow private banks to borrow in U.S. dollars cheaper, with less collateral, and for longer than before. The news sent European and U.S. stocks sharply higher on Wednesday, with the Standard & Poor’s 500-stock index (SPX +1.09%) enjoying its best trading day since March 2009.
So, is it time to join the fun and buy European stocks?
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How bad (good) is it in Europe, now that the central bankers have ridden to the rescue?
Dec. 1, 2011, 1:07 p.m. EST
False bravado undercuts Fed’s risky Europe loan
By Jon D. Markman
Stocks raced higher Wednesday after central bankers around the world ganged up to announce a titanic effort to improve bank liquidity in Europe on the same day that China loosened credit big-time to help its own beleaguered banks.
It was nice but unsettling to see markets move up so strongly because there was a lot of false bravado in the sprint. This was the markets on financial steroids, not to mention artificial sweeteners and a shot of adrenaline. We may look back on this day like we view a late-career Mark McGwire home run blast: Big but fake.
The central banks’ coordinated action was so powerful and unexpected that it suggests the liquidity and solvency situation in Europe must be really bad. There were persistent rumors that a major French bank was on the verge of going bankrupt and that common financial transactions were on the verge of a total halt.
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Notice how anytime the business environment is in decline, we have reached an abyss. Especially if lots of free, easy money isn’t delivered to the Banksters to “loan” out. If printing lots of money is such an easy solution, and we want to “stimulate” the economy, then why don’t we just credit everyone $5000 to their personal accounts, a simple matter of digital transfers, and let them go out and have a really jolly Christmas?
Using round figures of 80 Million eligible working age adults, that would be, let’s see…..80,000,000 x 5,000 = 400,000,000,000.
400 Billion.
Did I get that right? Seems like a pittance.
And we’ve been dealing with bailouts in the Trillions.
Let’s just give all the working families, and even the welfare recipients, and the retirees $5000 bucks each to “stimulate” the economy.
Why don’t we do it?
Because it would just devalue the dollar and create a “temporary” spurt in activity. It doesn’t create WEALTH. It transfers the wealth already created. The real reason for printing is controlling who will be the beneficiary of the transferred wealth.
That is what this is all about. And it’s not you and me.
If printing lots of money is such an easy solution, and we want to “stimulate” the economy, then why don’t we just credit everyone $5000 to their personal accounts, a simple matter of digital transfers, and let them go out and have a really jolly Christmas?
When I lived in Mexico in the 70’s and 80’s year end bonuses (AKA aguinaldo) was mandatory. Everyone got 20 days extra pay, and yes, people did whoop it up over the holidays. I recall seeing people buying cases of booze, heading off to Acapulco or Cancun, etc.
Back then government workers would get … now hold on to your hat … NINETY DAYS of bonus pay.
Because inflation was so high, no one held on to the cash. Some would buy appreciating assests with them, but most simply spent it, often for purchases that had been put off.
Greenspan suggested it and GWB’s economics team did something along these lines. I believe the household-level helicopter drops amounted to about $2K a piece; my wife has a fine viola bow to prove the wealth effect that resulted.
Note that the payroll tax cut is intended to serve a similar purpose, though it is obviously regressive (i.e. favors high earners over low- and no-earners), a point seemingly lost on the GOP genius trust.
Whoo hoo…Dio….$5000 maannnn you are too much
I was only asking for $3000 to pay down everyones credit card……
What are the implications for the U.S. housing market of a collapsing Chinese housing bubble? For instance, will the number of all-cash Chinese investors snapping up U.S. homes at fire sale prices decrease?
Dec. 2, 2011, 4:05 a.m. EST
PBOC: China’s housing prices reach turning point
By Esther Fung
SHANGHAI (MarketWatch) — China’s housing prices have reached a turning point, the country’s central bank said in a statement Friday.
Growth in property investment has declined from its peak, property developers’ cashflows have become tighter, land transaction volumes and land prices have fallen, while growth in property loans has slowed, the People’s Bank of China said.
Housing prices in 100 major cities in China dropped on a monthly basis for a third consecutive month in November and posted their biggest month-on-month decline this year, according to the privately compiled China Real Estate Index System, as Beijing’s two-year tightening campaign to cool the red-hot property market pressured developers to cut prices to boost sales.
…
What are the implications for the U.S. housing market of a collapsing Chinese housing bubble? For instance, will the number of all-cash Chinese investors snapping up U.S. homes at fire sale prices decrease?
Bomb Thrower, I’d be inclined to answer your question with a loud and hearty “Yes!”
And, if the Chinese investors are anything like the ones I’ve seen in this nabe, prepare for a lot of lousy landlords. As in, they have trouble understanding English when it comes time to maintain or repair anything. But don’t dare be a nanosecond late with your rent.
Are the Chinese investors coming here with money from cash-out refinancings or from business profits? If the later, there still could be a slow down in the investors coming over, but there might be some delay on the impact. Or there could be a big surge (get the cash out of China) followed by a slow down. I doubt this is a simple relationship.
The relationship could get simpler over time, depending upon how much “worse than expected” the Chinese real estate bubble collapse turns out…
Here’s an interesting story on actions of the SEC, our “watchdog” for Securities Fraud and Corruption. I will provide the link to the full story here:
http://www.financialsense.com/contributors/fred-sheehan/2011/12/01/the-sec-day-in-court
It’s an interesting story about how a Federal Judge has intervened to stop the “deal-making” between the SEC and at least one bank. Essentially, the banks and the SEC have been working with each other to avoid prosecution, and the SEC just uses the banks as a skimming operation, collecting fines and fees, but never having the bank acknowledge and “wrong-doing”. I.e., the is no proof of FRAUD, since no charge was filed and then the investors who lost all their money have no claim to file, since no charges are brought against the litigants.
Then, a Judge, how should be determining the facts and making a ruling, simply “signs off” on the agreements between SEC and the people they are supposed to regulate. In other words, when people should be charged and imprisoned for FRAUD, they aren’t being charged, and the case is swept under the rug by the Regulator for a “fee”. A very symbiotic relationship. Read below. I did not copy the full article.
Judge Jed S. Rakoff of the United States District Courts of the Southern District of New York struck a blow against the Securities and Exchange Commission and in support of the “public interest.” The Securities and Exchange Commission had asked the Court to approve a Consent Judgment between Citigroup and the S.E.C. Judge Rakoff (cutting to the chase) wrote he could not do so: “An application of judicial power that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free-roving remedy to be invoked at the whim of a regulatory agency, even with the consent of the regulated. If its deployment does not rest on facts - cold, hard solid facts, established either by admissions or by trials - it serves no lawful or moral purpose and is simply an engine of oppression.”
Judge Rakoff summarized the lawsuit of U.S. Securities and Exchange Commission vs. Citigroup Global Markets: “According to the S.E.C.’s complaint, after Citigroup realized in early 2007 that the market for mortgage-backed securities was beginning to weaken, Citigroup created a billion-dollar Fund (known as “Class V Funding III”) that allowed it to dump some dubious assets on misinformed investors. This was accomplished by Citigroup’s misrepresenting that the Fund’s assets were attractive investments rigorously selected by an independent investment adviser, whereas in fact Citigroup had arranged to include in the portfolio a substantial percentage of negatively projected assets and had then taken a short position in those very assets it helped select.” There is more, but this gives a sense of Citigroup’s conduct.
The settlement required Citigroup to disgorge its ill-gotten profits and to pay the S.E.C. a $95 million civil penalty. This is pocket change for a bank that makes or loses $10 billion a quarter. Judge Rakoff said as much: “If the allegations are true, this is a very good deal for Citigroup; and, even if they are not true, it is a mild and modest cost of doing business.”
Judge Rakoff’s rejection of the Consent Judgment is in contradiction to past and current practices: the securities firm under investigation (all of the big ones, all of the time) engages in a questionable practice; the SEC investigates; the parties agree to a settlement, the defendant neither “admitting nor denying the allegations of the complaint…” (All quotations are from Judge Rakoff’s Opinion and Order, unless otherwise noted.) The November 29, 2011, Financial Times addressed the context: “Citigroup did not admit or deny wrongdoing - a standard practice for four decades in SEC settlements.”
These side deals are rubber-stamped by the Court even though it “has not been provided with any proven or admitted facts upon which to exercise even a modest degree of independent judgment…. [T]he court has become a mere handmaiden to a settlement privately negotiated on the basis of unknown facts.”
Judge Rakoff hints such agreements are privately negotiated within the White Shoe Club: “Although [the charges against Citigroup] would appear to be tantamount to an allegation of knowing and fraudulent intent… the S.E.C., for reasons of its own, chose to charge Citigroup only with negligence….”
This “deals a double blow to any assistance the defrauded investors might seek to derive from the S.E.C. litigation, in attempting to recoup their losses through private litigation, since private investors not only cannot bring securities claims based on negligence… but also cannot derive any collateral estoppel assistance from Citigroup’s non-admission/non-denial of the S.E.C.’s allegations.” ["Collateral estoppel assistance": The S.E.C. structured the settlement so that private litigants cannot use any admissions/statements Citigroup made during this S.E.C. action.]
This helps explain why every bank CEO and director sat in front of post-meltdown, Congressional committees and pleaded idiocy. They “never saw it coming.” That was negligent, which cannot be litigated. The dumbbells have escaped (at least, until now) charges of “knowing and fraudulent intent” since it was beyond their comprehension that mortgages on which the buyer never made a single payment (common by early 2007) should not be bundled and sold to the public. It was quite a sight to watch Bob Rubin, former partner (and certified genius) at Goldman Sachs, testify he was denser than Wall Street shoe shine boys.
I keep telling people that the SEC is worse than useless. It chases small guys who can’t defend themselves, but lets the billions-scaled crooks off the hook with pittances of non-guilty determinations, letting the market therefore believe that the small guys are corrupt while the large guys aren’t. The SEC is overturning the process of due diligence. We would be far better off if we just didn’t have this sort of SEC in the first place. Obviously the SEC remains the same despite who sits in the House, Senate and White House, so we should just get rid of the SEC. Then people would do due diligence based on public information, and rightfully conclude that most of these big guys are either scheming crooks or too uncooperative to be worthy of being given your money.
I’ve said things like this since the 1990s when I noticed what the SEC was really doing, but nobody wants to listen.
Enforcing these rules requires people. They don’t have them. Never have. There is issue with regulatory capture, but being hopelessly understaffed is an issue too. They are trying to enforce laws against organizations that can throw $10 million dollars worth of lawyer time or more at an issue just to produce the documents that the SEC asks to see and then doesn’t have the staff to review properly. If they can bury the smoking gun in five truckloads of documents, they have already won.
A state attorney general would have to offer a very generous plea bargain if the expected time needed to prosecute one murder case at trial would use up all his staff for 8 months too.
what you are saying is that they are “too big to prosecute”.
If this is so, then they need to be broken up under the anti-trust laws as a threat to the financial system.
That is what should have happened starting in 2008.
Wow, a coworker just told me his retirement plans, both he and spouse about to turn 66 in a couple years and collect full SS while continuing to work..cars paid, no credit card debt…just a $1700 mortgage payment. Yikes.
I would be interested in knowing what are the terms and conditions of the mortgage and the “current value” of the real estate. I assume it’s a house.
If the house is worth 350k and they only have 5 years left to pay, it seems reasonable. If the house is “worth” $150k and they have 15 years left to pay, it’s probably a very bad plan.
I guess it all hinges on what they think their property will be worth when they finally decide to “liquidate” it. And move into an apartment or condo where all the chores are handled by someone else.
Are they planning to work indefinitely? For two more years? Do they have have retirement savings that they just want to top off, or do they have nothing and realize that SS isn’t enough to live on.
Story needs a lot more facts.
Montana
IIRC they means test your SS, and any 1099 or W-2 income effects your SS payment. I think the limit was just N of 14K and you take an SS hit. Captial Gains ( Rental Income, Dividends)that sort of thing doesn’t get means tested, IIRC. They better due their due diligence.
There is no means testing for SS.
You do, however, pay taxes on your SS + income.
I think he meant the SS Earnings Limit. If they are full retirement age when they retire, and it sounds like they may be, it won’t apply.
Income Earned After You Reach Full Retirement Age
Once you reach full retirement age, you are no longer subject to the annual earnings limit; you can earn as much as you like without incurring a reduction in your social security benefits.
Easy to read version
well around here we don’t make that much money, so it is doable. You all who are in *the income bracket* probably couldn’t hack it in the more expensive areas. This is Oil City, MT after all.
I think they’ve had their house about 5 years.
Are both China and India about to enter economic recession at the same time?
What percent of the global labor force are we talking about here?
3 Dec, 2011, 02.02AM IST, ET Bureau
India, China may be hit too as world nears another recession, says UN
NEW DELHI: The United Nations has warned that the world is at the cusp of another recession, pointing to the slowdown in economic growth in all countries including the growth engines- India and China. In a report ‘World Economic Situation and Prospects 2012′, released Thursday the UN has downgraded its global economic growth forecast by one percentage point for 2012 to 2.6% and 3.2% for 2013.
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The eurozone crisis explained in 5 simple graphs
Governments have collapsed. Bailouts have run into the hundreds of billions of euros. Greece is drowning in debt, Italy ousted longtime leader Silvio Berlusconi in a bid to claw its way out, and Spaniards rejected the ruling Socialists, hoping that political change might spare them the woes of their neighbors. Still, the two-year debt crisis builds. How did the eurozone get here?
The graphics below paint part of the picture: untaxed shadow economies, low productivity, and deficit spending. While deficits have been curtailed significantly since 2009 due to austerity measures, some see deeper systemic problems.
Take Greece. “For 10 years, investors basically believed that Greece was Germany,” says Jacob Kirkegaard, of the Peterson Institute for International Economics in Washington. But, he says, Greece is “fundamentally a corrupt, dysfunctional government that is unable to raise enough tax revenue to pay for all of its expenses.” Then there’s Spain. The size of its debt relative to its economy is a manageable 67 percent, but sluggish growth undermines investors’ faith that it can repay loans. Those who lost money in Greece are in no hurry to lose more in Spain.