January 7, 2012

Normal Is Hard To Define After A Period Of Excess

Readers suggested a topic on the latest Federal Reserve actions. “Posted last night: U.S. NEWS, Bank Warns Congress That Tight Lending Standards Threaten Wider Economy. The Federal Reserve, in an unusual foray into housing policy, expressed alarm over the battered home market and called for more aggressive action from Congress and other policy makers. In a 26-page paper sent to top lawmakers on congressional banking committees, the Fed warned that tight mortgage- lending standards threaten to hold back the economy. The Fed also signaled support for more aggressive use of Fannie Mae and Freddie Mac to support a housing recovery.”

One said, “I think these people really believe that if you repeat something enough times it will just magically “become true”. Lending standards are NOT tight. They just aren’t ‘insane’ anymore, no more lending 500K to a strawberry picker with a 10K/yr W2 income. Qualified borrowers are having very little/no trouble finding loans for all kinds of things (houses, cars, boats, RVs, etc) at historically the lowest interest rates in a generation.”

“When interest rates are 18% and the banks will only lend 1X income on a house; that’s tight credit. This is just ‘normal’, banks are qualifying borrowers based on income and credit scores, and, also, banks are trying to keep people from killing themselves by making sure that assets they are lending against (house) is actually worth what the loan amount is for.”

A reply, “Lending standards are not tight if you don’t need to borrow money but they are very tight if you do. If one ‘needs’ to borrow money then the bank will probably not loan him any. Payday stores are there for those who ‘need’ to borrow money. If one ‘wants’ to borrow money then that is a different story. Banks want to to loan money to borrowers who ‘want’ to borrow (as opposed to ‘need’ to borrow). In a contracting economy the reason to ‘want’ to borrow has to be compelling, and these reasons are hard to find.”

One said, “This goes to the heart of the problem with the FED and why it needs to be abolished. They have illegally injected themselves worldwide into the workings of financial markets to ‘play god’ with the direction of the economy. People are becoming more frugal. Rates are ridiculously low, completely manipulated by the FED. Playing with lender of last resort to the world has not worked to get people back to massive borrowing and spending, so the games of old are dying out.”

“But, Bernanke and the boyz at the FED just can’t stand the fact that their manipulations aren’t working, as promised (in an election year), so they are desperate. Now they need to meddle some more with mortgages and housing. What is their job? Keeping the dollar strong? Isn’t that it? Why are they meddling with housing?”

One added, “It might be hard for FOMC members, who entirely missed the ginormous housing bubble that formed right under their proboscises, to objectively judge whether mortgage lending standards are tight or loose.”

Another said, “I must’ve missed when the banks started hanging on to their own mortgages. There is only one lender around me that holds onto their loans and even that loan officer is quick to share that could change at any time. There is just too much pressure on their small bank when everyone else in the area is passing on risk to someone else.”

“Btw, there is usually a basket of potential buyers of our local mortgages. Some were sold on to other investment banks that I’m assuming would do the securititzation. Everyone but that one small bank seemed to sell to BAC. Chase’s name came up often and sometimes Wells Fargo. Then there were those unknown names I always assumed were warehouse lenders.”

One had this, “Most banks don’t have the capital to actually make and hold on to the loans, even with fractional reserve lending. They are still selling the loans. They are just being required to provide better loans for the securitization pools.”

One observation, “Are they actually requiring down payments now? 20% down on a 150k house is still 30 grand. How many people have that kind of money layin’ around?”

“I can only surmise from the prices I see that down payments still must not be a thing, because some of these 150k houses are in really sketchy neighborhoods, and anybody with 30k in cash ready for a down payment wouldn’t want to live there.’

And finally, “Normal times are hard to define after a period of excess.”

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Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 07:49:14

A couple of thoughts crossed my mind regarding the Fed’s latest foray into housing policy:

1) At least they had the good grace this time around to package their recommendations into alternatives for Congress to consider, rather than following the normal bailout procedure of enacting redistributive policy on their own.

2) Since it *is* an election year, perhaps their ulterior motive is to throw a big chunk of red meat into the Congressional gladiator pit, then to sit back and enjoy watching Congressional lions fight tooth-and-nail over the REIC lobbyist bait.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 17:36:53

JANUARY 7, 2012

Fed Up With the Depressed State of Housing

For an institution that jealously guards its independence, the Federal Reserve is wading into treacherous political waters.

With the economic rebound still mediocre at best, the Fed is charging into the housing debate. But in doing so, it runs the risk of politicizing itself, while also sending mixed signals to banks still trying to find their postcrisis feet.

The latest effort was a housing “white paper” sent this week to Congress, along with a series of comments from Fed officials about the importance of housing to the economic recovery. In this, the Fed may be laying the groundwork for further quantitative easing, this time purchasing mortgage securities. But its paper went beyond even the Fed’s already unconventional policies. This included ideas that might require more taxpayer funding through Fannie Mae and Freddie Mac.

But having broached the thorny issue of using government entities to boost housing, the Fed didn’t touch on questions surrounding a needed long-term revamp of housing finance. This left the Fed implicitly endorsing the housing status quo: a market that is almost completely dependent on the government and, in particular, Fannie and Freddie. Whether the government should be involved in housing, or to what degree, is of course a highly contentious political question for Congress.

The Fed’s paper suggested it may be worth pursuing more aggressive actions in terms of loan modifications, mortgage refinancing and sales of foreclosed properties even if they cause greater short-term losses at Fannie and Freddie, and so by extension to taxpayers. And the paper may have led some in markets to believe a new, government housing effort was coming. The Fed’s paper said a possible policy option would be for the government to expand existing refinancing efforts “or introduce a new program.”
[Fedherd] Bloomberg News

Expectations of such action helped spark a nearly 8% rally in Bank of America shares Thursday, although nothing is reportedly planned. Still, the reaction shows many now see the Fed and White House potentially acting together. That underscores how perceptions of Fed independence have already been eroded.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 20:56:28

Housing is indeed important to the economy. But the Fed has to recognize there is only so much it can, or should, do.

Write to David Reilly at david.reilly@wsj.com

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 07:50:49

Fed officials push more help for housing
By Jonathan Spicer
ISELIN, New Jersey | Fri Jan 6, 2012 11:38pm EST

(Reuters) - Three top Federal Reserve officials aggressively pushed on Friday for more stimulus for the housing market, saying the government should be looking at ways to help the sector in order to speed the economic recovery.

In separate speeches, the Fed officials — William Dudley, the president of the New York Federal Reserve Bank; Fed Governor Elizabeth Duke; and Eric Rosengren, president of the Boston Fed — warned that the fragile housing sector was impeding a stronger U.S. recovery.

Their remarks came even as a robust jobs report provided fresh evidence that the recovery was gaining.

The push for action came two days after the Fed entered the thorny debate over how to use the two main government-run mortgage finance firms, Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), to turn around the housing market.

The housing sector was at the heart of the financial crisis and recession and has continued to hamper the recovery.

A 33 percent decline in U.S. housing prices since 2006 has resulted in an estimated $7 trillion loss of household wealth, and about 12 million U.S. homeowners are currently underwater on their mortgages.

Comment by polly
2012-01-07 08:59:00

The Fed can say whatever it wants in this circumstance. And I suppose they can buy more mortgage backed bonds. But other than that, their “comments” and 99 cents will get you a refill coffee at Dunkin Donuts. If the idea is to get Congress to act on their recommendation, well, not enough people are listening for anything to come of it.

Comment by Ben Jones
2012-01-07 09:07:38

I hope you’re right, but they were given more power over the financial sector in Dodd Frank. Congress has to practically threaten them to get details on trillions in loans.

These proposals that are called unusual also offer insight in how they think. Was this a committee decision? Was it Bernanke’s idea? Was there a vote, and if so, what group?

Keep feeding the bear, Feds guys. I even hear radio/TV hosts casually say the Fed should go away. A few years ago that was unheard of.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 09:14:29

“Keep feeding the bear, Feds guys.”

You have to love the sour note they hit by offering up Fannie and Freddie as the potential saviors of the housing market, before the ink has even dried on the suits the SEC brought against their former executives.

DECEMBER 17, 2011

SEC Brings Crisis-Era Suits
Fannie, Freddie Ex-Executives Face Cases Stemming From Subprime Disclosures

U.S. securities regulators accused six former executives at mortgage firms Fannie Mae and Freddie Mac of playing down the risks to investors of the firms’ foray into subprime loans.

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Comment by Diogenes (Tampa, Fl)
2012-01-07 11:30:02

I’ve been say for YEARS that Franklin Raines and his cronies should all be in prison, while that useless slug from California, Maxine Waters (dem.) praised his “Fine job” at getting more minorities into houses they could not afford.
It’s a black thing. If Raines had not been black, I doubt Waters would have been raving over the great job he was doing, while insisting that an investigation of the Regulator should be made for bringing before the Congress the pending collapse of the agencies from Faulty lending.
If you recall, Barney Frank, another useless parasitic slug, was claiming that Fannie and Freddie were just fine.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 12:59:50

‘…praised his “Fine job” at getting more minorities into houses they could not afford.’

Are Democrats really proud of putting so many minority families on the path to future foreclosure and financial ruin?

If so, why?

Comment by SaladSD
2012-01-08 00:04:27

why don’t you ask former CEO of Countrywide, Mozilo, a Republican, why his company was #1 in the nation for selling loans to minorities…and at interest rates higher than their white counterparts of the same credit rating. Follow the money…doh.

Comment by polly
2012-01-07 09:42:35

The Fed’s “job” (what ever their dual mandate is) is to keep the banking sector healthy. Fannie and Freddie taking all the remaining housing risk of the books of the banks would be good for the banking sector. It also would relieve them of the burden of protecting the banking sector by buying lots of mortgage backed securities which is getting a little more scrutiny these days. I think their comments come from that place and you don’t have to go a lot further to explain it.

They are private, but function very much like government. Their goal is to do what they think their job is and not get yelled at. So getting the real government to use Fannie and Freddie to take the housing risk off the books of the banks so they don’t have to do it by buying MBSs (thus avoiding getting yelled at by some observant Congress critter) is exactly what I would expect them to want.

But they can’t do it by themselves.

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Comment by Ben Jones
2012-01-07 11:11:36

‘The Fed’s “job” (what ever their dual mandate is) is to keep the banking sector healthy’

OK, let’s take that theory out a bit. Are we talking about US banks or global banks? Suppose they see an asset that must be at a certain price level for banks to be healthy. So they print and spend whatever it takes to make that happen. Or let’s say they see a certain govt that is a threat to banks, so they have them all killed. After all you can do a lot with a trillion dollars.

What I’m getting at is any “job” these guys have must have some limitations as to how they go about it. Like, say, the constitution? Or regulations and laws? If they don’t have these limitations and they aren’t transparent, who knows what they might get up to. And notice that nobody asked them what they think on this subject. They are getting a little “proactive” huh? What other things can they get proactive about, without congress even knowing about it?

Comment by 2banana
2012-01-07 11:28:10


The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Today, the Federal Reserve’s duties fall into four general areas:

1. conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

2. supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

3. maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

4. providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system


Comment by polly
2012-01-07 11:58:58

If I were looking for the actual limits on the Fed’s powers I would start with the current text in the US Code that establishes the Federal Reserve System.

Title 12, Chapter 3

link here:


though you can find the text of the US code in many places.

Actually title 12 looks kind in interesting in general.


Chapter 29 - Home Mortgage Disclosure

Chapter 37 - Solar Energy and Energy Conservation Bank

and so on and so on and so on….

All laws are subject to Constitutional challenge, but sometimes it is pretty hard to find anyone who has standing to bring a case. You have to show that particular harm has been done to you, and having to pay taxes to support it doesn’t count. An organization that refuses to disclose information is best challenged by a member of Congress that sits on a committee that has regulatory oversight responsibility. Even then, it might only be the chair that can do it - not sure about this. Actually, the standing rules play a huge role in this. It is startling how important they are.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 13:02:58

“If they don’t have these limitations and they aren’t transparent, who knows what they might get up to.”

This brings to mind a bit of humor I stumbled across last night.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 13:05:25

“3. maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

4. providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system”

At what point did the Fed double the scope of their dual mandate?

Comment by Blue Skye
2012-01-07 20:05:14

The Fed’s job……

If you had to narrow it to one thing, might that be to collect interest on our nation’s currency?

They create it to whatever extent entities will borrow it, and collect interest on it. If the banks are not borrowing, because individuals are not borrowing, then they encourage governments to borrow, from them. Every thing they do is to encourage borrowing at some level of society, nationally and globally, ultimately from them.

Did I miss anything? I do tend to oversimplify.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 07:53:46

As the Fed never yet acknowledged the existence of a housing bubble, perhaps they remain oblivious to the role of an epic mania in setting the plate for $7t in housing-related losses?

Comment by combotechie
2012-01-07 08:11:54

If the Fed were to acknowledge the existence of a housing bubble then they would be officially acknowledging that housing prices are overpriced.

If housing prices are overpriced then much of the collateral that backs loans is also overpriced.

If the collateral is overpriced then the value of the loans that is backed by this collateral is also overpriced.

If the value of the loans is overpriced then they need to be written down to a lower value.

If they are written down to a lower value then many of them will go poof.

If many of them go poof then the Fed will have to continue to act as the lender of last resort.

Hence the Fed is forced to refuse to acknowledge the existence of the housing bubble and the policy of Extend and Pretend will continue to live on.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:04:58

“If the Fed were to acknowledge the existence of a housing bubble then they would be officially acknowledging that housing prices are overpriced.”

Sounds like a central banker’s version of Catch 22.

There was only one catch and that was Catch-22, which specified that a concern for one’s own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane, he had to fly them. If he flew them, he was crazy and didn’t have to; but if he didn’t want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. “That’s some catch, that Catch-22,” he observed. “It’s the best there is,” Doc Daneeka agreed.

– Joseph Heller

Comment by Sammy Schadenfreude
2012-01-07 08:16:48


Watch this August 2007 video where Ron Paul calls out Bernanke on the Fed’s roll in causing the tech and housing bubbles while debasing the currency and waging financial warfare on savers and the responsible. Can you imagine Obama or any of the Establishment GOP Hollow Man candidates having a go at Bernanke like this?

Comment by Diogenes (Tampa, Fl)
2012-01-07 11:39:45

The FED prints money on paper and passes it to their buddy banksters to make loans, and to give political contributions……
contributions to the people who support the FED and the banking/wallstreet trading operations.
Ron Paul is not on the donor list.
That’s why he gets all the bad press and is called by most in the media as a “kook”.
Obama and his cronies all get their pockets lined indirectly by FED money printing.
They will criticize them for public consumption in vague terms about the “rich”, but when it comes down to any changes, we get crap like the FRANK-Dodd bill that only provides greater support to the select few who have the privilege of spending money they don’t earn………..just go to the FED window and take a stake of bills.
That’s where amerika has gone.
The FEDERAL RESERVE needs to be killed off, immediately.
Bernanke needs to be brought up on charges of TREASON for counterfeiting money and destroying the economy. If his actions have not been “willful” to destroy us financially, then he needs to be removed and placed in an institution with other mentally ill patients.

Comment by Prime_Is_Contained
2012-01-07 12:39:24

The FED prints money on paper

Not quite, assuming that by “FED” you mean the Federal Reserve.

The Federal Reserve prints money electronically.

The US Treasury (via its Bureau of Engraving and Printing) prints money on paper.

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Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 07:55:48

“20% down on a 150k house is still 30 grand. How many people have that kind of money layin’ around?”

San Diego version: 20% down on a $400K starter house is still $80 grand. Yeesh!

Comment by Bub Diddley
2012-01-07 09:46:12


U.S. savings rate falls again as consumer spending rises


The government said Friday that the personal saving rate — the percentage of after-tax income that’s not spent — fell to 3.5% in November from 3.6% in October. As recently as June, the rate was 5% after being consistently at about that level or higher since late 2009.

…many families are constrained by low wage gains, a depressed housing market and still hefty, though pared down, personal debt.

So, whether 30 grand or 80, just who is dropping these down payments?

Comment by Diogenes (Tampa, Fl)
2012-01-07 11:47:39

But you don’t understand. That’s unaffordable. This is the very reason we need Fannie and Freddie. They can make loans by “insuring” that those people with good credit scores won’t default on the loans and give them loans with basically NOTHING down.
Housing never goes down, so it’s a perfectly safe strategy. Additionally, with so many additional “buyers”, this will make ‘demand’ increase and will boost housing demand and prices, thereby assuring that the 120% loans are ’safe’ also.
You just don’t understand how the market works.
We can get a good inflation in housing and everyone can ride the housing train to higher valuations and endless wealth.

With this new prosperity, people can then borrow against the houses they bought and use the money for ‘consumption’.
America will become a consumer society, living off the ‘gains’ in the values of the real estate it bought for nothing.
It’s an economic miracle. It’s the kind of thing that “ACADEMICS” AND ‘ECONOMISTS’, can dream up in their university towers.
the rest of us just don’t understand.
I expect, soon, that Ben Bernanke will get a nobel prize of “innovative ways” to use a Central Bank.
It’s all beyond the grasp of the average man.
You guys just don’t understand how this stuff works.

Comment by Blue Skye
2012-01-07 20:08:13

“You guys just don’t understand how this stuff works.”

We still have to pay the tab.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 08:08:33

Privatize profits, socialize losses. Get ready for some allocation of someone else’s real estate gambling losses coming your way soon!

Financial Services
Fed’s Housing Fix Means Everyone Loses
By Shanthi Bharatwaj 01/04/12 - 04:06 PM EST

NEW YORK (TheStreet) — The Federal Reserve Chairman Ben Bernanke on Wednesday proposed policies that would force a recovery in housing, but cautioned that there was no single solution to the housing market’s problems and that everyone from investors to taxpayers would need to feel the pain.

In a 26-page white paper, the Fed outlined ways to ease some of the pressures afflicting the housing market.

While some of the weakness was due to weak labor market conditions and poor demand, policies that would address the excess inventory of foreclosed homes, borrower access to mortgage credit and inefficient foreclosure procedures should be considered, the central bank said.

Still, while policy action in these areas could facilitate the recovery of the housing market, “economic losses will remain, and these losses must ultimately be allocated among homeowners, lenders, guarantors, investors, and taxpayers,” the Fed cautioned.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 08:14:29

I see some hope the Republican candidates may widen the debate on what action (or inaction) is best to heal the housing market, outside the radical intervention championed by the Fed.

Jan 5, 2012 3:29pm
Fed Disagrees With GOP Candidates on Foreclosure Crisis
By Huma Khan

Mitt Romney has said the the government should let the foreclosure crisis run its course, but that would help the economy recover, according to a new report by the Federal Reserve that calls on policymakers to take action on the housing front.

“There is scope for policymakers to take action along three dimensions that could ease some of the pressures afflicting the housing market,” the Federal Reserve said in a report on the U.S. housing market.

This would involve measures such as “devising policies that could help facilitate the conversion of foreclosed properties to rental properties — or supporting a housing finance regime that is less restrictive than today’s, while steering clear of the lax standards that emerged during the last decade.”

The report warns that in the absence of such policies, the downward pressure on the housing market could be prolonged, essentially dragging down the economy.

The housing market remains dismal three years after it crashed. Currently, 12 million mortgages worth $700 billion are underwater. Since its peak in 2006, housing prices on average have fallen 33 percent, resulting in a loss of $7 trillion to U.S. households.

Yet, there has been little talk of the housing market or how to resolve the ongoing crisis on the campaign trail.

Romney has presented the most talked-about solution thus far: let them “hit the bottom.”

In an interview with the Las Vegas Review Journal in October, the frontrunner suggested to not “try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up, and let it turn around and come back up.”

At a debate in Nevada later, he added: “The idea of the federal government running around and saying, hey, we’re going to give you some money for trading in your old car, or we’re going to give you a few thousand bucks for buying a new house, or we’re going to keep banks from foreclosing if you can’t make your payments, these kind of actions on the part of government haven’t worked.”

Ron Paul advocates a similar hands-off approach.

“Government’s supposed to be there to enforce contracts, not to undermine the contracts. So we’re going to give them the loan even if the value of the house has gone way down. This prolongs the necessary correction, the liquidation,” he said in a Fox News interview in October. “This is the reason we’ll be in doldrums for a long time, if we follow this attitude.”

Comment by Ben Jones
2012-01-07 08:55:40

Let’s follow this along:

‘devising policies that could help facilitate the conversion of foreclosed properties to rental properties’

They don’t have devise a policy, just sell the houses. But they don’t want to do that. Why?

‘or supporting a housing finance regime that is less restrictive than today’s’

So they want easier lending against an asset they are purposefully keeping the price high on. Why don’t we all just jump under the damn bus?

‘in the absence of such policies, the downward pressure on the housing market could be prolonged’

I’ve asked this before; how much misery is too much? 3 years, or do we go for 20 years like Japan?

IMO, this organization is taking these positions for reasons other than what’s good for the economy. Pick your theories, but what they want and what logic tells us we should do are different things.

Comment by Realtors Are Liars®
2012-01-07 19:43:00

They don’t have devise a policy, just sell the houses. But they don’t want to do that. Why?

ANSWER the question cowards.

Comment by Blue Skye
2012-01-07 20:18:15

The reason this frustrates you, I suspect, is that you really hope they work for you. Isn’t that a lot like thinking a realtor works for you, when you are buying a house?

Comment by Realtors Are Liars®
2012-01-07 22:00:29

The reason you accept this corruption, I suspect, is that you really don’t care about the outcome of this debacle.

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Comment by Montana
2012-01-07 09:16:38

has romney repudiated himself yet?

Comment by SDGreg
2012-01-07 10:52:29

“In an interview with the Las Vegas Review Journal in October, the frontrunner suggested to not “try and stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up, and let it turn around and come back up.”

While I favor letting housing hit bottom, I want the people that buy to be owner occupants. I want the people that work for a living to have access to the cheaper housing. I have no interest in investors buying properties cheaply, then maintaining sky-high rents while paying lower tax rates than those that work for a living.

I don’t believe for a minute that Romney would do anything that would help ordinary people. That’s not who he is or what he does.

Comment by Prime_Is_Contained
2012-01-07 12:11:48

I have no interest in investors buying properties cheaply, then maintaining sky-high rents

Getting the empty houses through the pipeline and back into a utilized state is useful regardless of whether it is an owner-occupier or a renter.

If these houses move into the rental stock, then will push rents down—it’s simple supply-and-demand.

Comment by hamsun
2012-01-07 17:57:04

SDGreg has the right idea. I’m sick of all the speculation in SFHs, too, be it innumerate morons buying too much house just because there is facility there for them to do so, or all the newly minted landlord losers trying to rent grandpa’s rat shack rambler to seven grad students.

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Comment by SDGreg
2012-01-08 02:34:26

“Getting the empty houses through the pipeline and back into a utilized state is useful regardless of whether it is an owner-occupier or a renter.”

One can certainly think of examples, either due to the location and/or condition of the house, that it might be very difficult to get owner-occupied purchases at almost any price. There’s a stronger case for investor purchases in those instances if that’s almost the only means of getting the property occupied again.

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Comment by Sammy Schadenfreude
2012-01-07 08:20:06


William Black cuts through all the BS and summarizes the truth about the housing bubble and the massive Wall Street fraud, abetted by the Fed, that created it, in just eight minutes.

Comment by Hwy50ina49Dodge
2012-01-07 09:07:03

Fraud$? + $cam? + “Bidne$$menmostly” + “little-to-none “PUNISHMENT = $erial Repeat Behavior$ + New $uit & new “game-plan$”

Oh, look the sun’s coming up in the Ea$t,…Again!


Comment by SDGreg
2012-01-07 11:03:46

William Black continues to be right and our bought institutions continue to do almost nothing of what needs to be done.

Comment by polly
2012-01-07 08:54:59

I like just the prompt of the top title of this thread, perhaps with a bit of a twist: Normal is hard to do [sic] after a period of excess.

There was a story on Weekend Edition this morning where they ran short clips by people who are unemployed. One was a woman who got laid off in early December and who must have been living paycheck to paycheck because she said that they had to skip Christmas because of it. Another was a man who talked about not being able to do the “normal” things like get a beer after work. Then he remembered it wasn’t just the money that was the issue, but that he wasn’t coming back from work anymore. Another man said if it wasn’t for his family he’d be living on the streets. A woman talked about watching every penny and not even going to movies anymore.

It was a little odd. I know that I wouldn’t have to “skip” a holiday if I got laid off (or put on furlough, or whatever) just before it because I have savings and don’t spend that much on holiday shopping and do it over a long period of time anyway. I’m in no danger of having to move in with family. But a lot of the other stuff that people talked about as the stuff they missed that made them feel normal (going out to bars and movies and shopping) I don’t do anyway, at least not often enough that it is part of my normal. I go see a movie in the theater if I really want to see it and think that it won’t translate well to a small screen. Other than that, I wait for TV or for the community center to show the DVD. I could afford to spend most of each weekend paying $12 a pop to see movies, but I don’t because most of them aren’t worth it even if I can afford it. OK, so we’ve established that I’m a wierdo, but this is the way that a lot of people are going to have to get used to living (and I consider my lifestyle pretty darn comfortable).

How does a huge portion of the country get used to living in a way that is almost alien to them? How? They can’t all be on a Canadian reality show where a financial planner coaches them through a personal austerity budget with a $5000 reward at the end. Unemployment is still high. Underemployment is higher. A lot of people have taken pay cuts to be employed full time. More people are not getting any more money even though their expenses are up and were spending everything that came in before their costs rose. Some are probably starting to wake up to the need for more retirement savings. Or just figured out that letting their kid(s) borrow a ton of money for college wasn’t a good plan. How do they shift?

Comment by WT Economist
2012-01-07 10:44:21

Basically, each generation of Americans since the one that came of age in the 1960s has become progressively poorer while spending more. That has now collapsed.

One idea my wife and I had from the start was the one way ratchet. It hurts to have your standard of living reduced, particularly in a culture where one’s standard of living defines one’s social value. The best way to avoid it is to only ratchet up when you are sure, absolutely sure, it won’t require a ratchet down.

A later addition, which my wife hasn’t always held to I’m afraid, is don’t provide things for your children, other than education, that they will not later be able to afford for themselves.

The downsizing of American life, if material life is how life is defined, is going to make people very unhappy.

Comment by Moman
2012-01-07 12:18:04

Technically, my standard of living is down from a few years ago, because I spend much less on goods, services, etc. But my life satisfaction has gone way up, due to lack of stress over bills, etc. In short, I disengaged from the rat race, which to me is a zero sum game with no winners.

If people would start to frame what is really important vs. playing the keeping-up-with-the-joneses lifestyle, the quality of life measured by material goods would be lower but the overall satisfaction could be higher.

Comment by Prime_Is_Contained
2012-01-07 12:25:10

Those are brilliant principles, WT! I’ve tried to live by similar ones, but I don’t think I ever expressed them as clearly and succinctly.

Comment by X-GSfixr
2012-01-07 14:52:26

Even out here in BFE, if you are 50, and not making six figure income, and don’t have a nice house and the “right” kind of car or truck/SUV, you are universally considered to be a “loser”.

Your more successful relatives view you as an embarrasment. Your acquaintences/former circle of “friends” don’t seem to be around anymore. Our society isn’t that different than Indian sociaty, except the Indians are more honest about it.

Beyond the enclaves of San Francisco, NYC-Boston-DC, we are a Third World nation living under the illusion that it’s a First World Nation.

Comment by Posers
2012-01-07 17:06:12

Interesting, because I don’t find this to be the case at all. I don’t find flyover country to be the least bit interested in what others are making/keeping up with the Joneses.

The people I know cannot afford to waste time on such trivialities.

Perhaps we run in vastly different circles.

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Comment by CarrieAnn
2012-01-08 16:32:06

So your blog handle means what, again? ;)

Comment by SaladSD
2012-01-08 00:36:08

Interesting. I live in coastal SoCal and I’ve noticed quite a refreshing honesty among friends and family about their challenged and/or altered financial circumstances–given all that’s gone down in the last couple years there’s no shame in downsizing or admitting you can’t afford something or economizing–it’s been very humanizing. People afflicted with a “keeping up with the Jones” mentality are the real losers.

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Comment by skroodle
2012-01-07 10:47:54

If your unemployed you can go to matinee on Monday mornings for $4 or the dollar theaters for $1.

Comment by howiewowie
2012-01-07 17:28:30

Where I live the last dollar theater closed years ago and the cheapest matinee is $7.

Comment by Blue Skye
2012-01-07 20:25:14

I sprung $7.50 to go to the Sherlock movie last night. There were at least 10 other people in the theatre. A rare splurge for us all, no doubt.

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Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 09:09:22

Given the ever more visible green shoots of growth in U.S. jobs, is the Fed fighting the last war with its mantra that there can be no U.S. economic recovery without a housing recovery?

JANUARY 7, 2012

Labor Market Gains Traction
Jobs Report, Showing a Modest Recovery, Poses Conundrum for President’s Republican Challengers

Comment by WT Economist
2012-01-07 10:48:36

A housing recovery has started to take hold. It just isn’t in the same kind of houses that were built from 1980 to 2007. It is in apartments your can walk to things to, where you can live for less.

This has left a lot of people in older generations and banks with mortgages holding the bag.

But building the new housing is going to generate more economic activity than forcing people to move into the old housing. And allowing younger people to pay less for housing will allow more spending on other things.

Younger people only have so much money. The cost of those houses, including the first or second car that is required, the extra gas, the extra taxes, and the extra money for heating and cooling, is going to have to fall to the point where it is competitive with new apartments.

Comment by WT Economist
2012-01-07 11:33:59

To understand the Fed understand this: Ben Bernanke believes that the banking collapse, not the stock market collapse, caused the Great Depression, and that if the financial sector goes under there will be a repeat.

So whatever the Fed is saying and doing, it is saying and doing to save the banks.

Lower housing prices is good for buyers, but bad for banks IF the sellers default. Now the word is out and the underwater are behaving like cutthroat business executives and not moral borrowers, anyone holding a mortgage is at risk.

Moreover, the federal government itself is now holding massive contingent liabilities in housing.

The Fed has been unable, thus far, to have the required real losses take place through inflation. Hence the desperation.

Comment by Blue Skye
2012-01-07 20:30:14

“Ben Bernanke believes…..”

There’s your first mistake.

Comment by dratfin
2012-01-07 16:05:54

Austin is doing great, as usual. We missed the bubble so it was never abnormal here. Seeing YOY 10% gains and everyone still wants to move here.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 17:38:41

Sounds like Austin is quite a real estate investing Mecca, then, just based on your own assiduously-researched personal observations?

Comment by Blue Skye
2012-01-07 20:37:44

Let’s move to Austin, Prof. I think they have pine trees.

Austinitic: without magnetism. corrosinon proof.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:10:59

I’ve been there. My sisters used to live there in the early-1990s, perhaps around the time Ben Jones was a resident. At any rate, while it seemed like a nice place, I felt no irresistible urge to pack up my bags and relocate. The thing I most enjoyed was going out for pizza, and discovering their standard pizza sauce was spiked with hot peppers. (My wife, who was pregnant a the time and who even normally lacks my appreciation for spicy food, had quite a different response to the experience…)

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Comment by Realtors Are Liars®
2012-01-07 22:20:10

Why buy a house in Austin now when you can buy later for 65% less?

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:19:30

A sure sign of a policy designed to give away other people’s money to the REIC: Both the NAHB and the NAR instantly voice their approval.

Friday, January 6, 2012 - 19:24
By David M. Kinchen
HOUSING REPORT: Builders, Realtors Applaud Fed White Paper on Housing Crisis

Both the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) agree with a finding in a new Federal Reserve white paper that blames excessively restrictive lending standards for impeding a housing and economic recovery.

The Jan. 4, 2012 Fed white paper, The U.S. Housing Market: Current Conditions and Policy Considerations, calls for increased lending to creditworthy home buyers and more loan modifications, mortgage refinancings, and short sales to reduce the rising inventory of foreclosed homes and help stabilize and revitalize the housing industry.

Both the NAHB and the NAR have long called for such an approach to help spur the housing market recovery.

“The Federal Reserve’s report to Congress confirms what we have been saying for some time: That extraordinarily tight credit conditions are preventing creditworthy borrowers from obtaining home loans and this is harming the housing market and the broader economy,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

Nielsen added that the lack of credit extends to housing construction loans as well, which is crippling the housing industry and preventing construction of new homes in markets that need and want them. “In scores of markets across the country that are exhibiting signs of job growth and where the inventory of new homes is nearly exhausted, builders should be hiring workers to break ground on new housing developments,” he said.

“…NAR knows that a strong housing market recovery is key to the nation’s future economic strength,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Improving access to affordable mortgage financing for qualified home buyers and investors and aggressively pursuing more loan modifications and short sales is necessary to help reenergize the housing market and spur an economic recovery.”

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:21:51

Posted at 12:46 PM ET, 01/06/2012
The frustrated Fed
By Robert J. Samuelson

Remember the glory days from the mid-1990s to the 2008 financial crisis when the Federal Reserve appeared infallible? Fed Chairman Alan Greenspan was the “maestro.” The Fed could, it seemed, prolong economic expansions and shorten slumps. From 1982 to 2007, there were only two mild recessions. Financial crises were defused. Recall how the collapse of the “tech bubble” in 2000 was contained.

Those days are gone. Despite the Fed’s dramatic interest-rate cuts and massive purchases of Treasury securities, the recovery lags even after Friday’s jobs report (payroll jobs: up 200,000; unemployment: down 0.2 percentage points to 8.5 percent). A desperate Fed is grasping at almost anything to stir the economy from its lethargy.

Evidence of the frustration surfaced in two actions this past week. On Tuesday, the Fed revealed that members of the Federal Open Market Committee (FOMC), its main decision-making body, would begin providing detailed forecasts of future interest rates. The next day, the Fed sent a 26-page report to Congress with suggestions on how to revive the ailing housing sector.

Neither move will boost the economy much. Both reflect the Fed’s impatience and desire not to be seen as passive.

Start with the housing report. It brims with grim reminders of the problem. Since their peak in 2006, home prices have dropped about a third, representing $7 trillion of lost value. The ratio of home equity to disposable income is 55 percent, the lowest since 1950, when these calculations began. Only a few years ago, the ratio peaked at about 140 percent. Some 12 million homeowners are “underwater”: Their homes are worth less than their mortgages. Declines in home equity for middle-income families (2007 household incomes of $40,000 to $65,000) averaged 66 percent, almost twice the 36 percent drop for high-income households (2007 incomes exceeding $150,000).

One Fed idea is that foreclosed homes owned by Fannie Mae, Freddie Mac and the Federal Housing Administration — about half of all homes owned by financial institutions — should be sold more quickly. But the Fed can’t compel that. The power resides with the housing agencies and their federal regulators: the Federal Housing Finance Agency, the Treasury and the Department of Housing and Urban Development. The Fed report seems mainly an attempt to prod others to do more.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:24:03

QE3 in 2012? ‘Only as a last resort’
By Hibah Yousuf @CNNMoneyMarkets
January 5, 2012: 11:44 AM ET

Fed chief Ben Bernanke is worried about European debt problems spilling over to the U.S. economy. Most experts surveyed by CNNMoney say that the European debt crisis could be the catalyst for the Fed to launch QE3 in 2012.

NEW YORK (CNNMoney) — Debate over whether the Federal Reserve would pull the trigger on QE3 started even before QE2 ended last summer.

Now, six months later, the verdict is still out, but most of the investment experts surveyed by CNNMoney largely agree on one thing: the U.S. economy will have to get worse before Fed chief Ben Bernanke will even consider launching yet another round of asset purchases, a policy known as quantitative easing or QE.

At this point, the outlook is murky.

Those who say QE3 is out of the question cite the quietly improving U.S. economy: including an unemployment rate that ticked below 9% for the first time in two-and-a-half years in November, and renewed signs of strength in manufacturing activity.

But of the nearly 75% of those surveyed that say QE3 may be in the cards in 2012, more than half point to Europe’s raging debt crisis as the primary catalyst.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-01-07 21:26:09

I’m half expecting my debt-happy BIL to join this club some day:

Doctors going broke
By Parija Kavilanz @CNNMoney January 6, 2012: 9:39 AM ET

Doctor Mike Gorman has taken out an small business loan to keep his rural solo practice running in Logandale, Nev.

Dr. Mike Gorman has taken out an SBA loan to keep his rural solo practice running in Logandale, Nev. “If things don’t improve fast, I will have no choice but to close my doors,” he said.

NEW YORK (CNNMoney) — Doctors in America are harboring an embarrassing secret: Many of them are going broke.

This quiet reality, which is spreading nationwide, is claiming a wide range of casualties, including family physicians, cardiologists and oncologists.

Industry watchers say the trend is worrisome. Half of all doctors in the nation operate a private practice. So if a cash crunch forces the death of an independent practice, it robs a community of a vital health care resource.

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