The Housing Bubble

It looks like all the FBs in my life are getting brand new houses and short-selling the house that made them an FB.

My wife’s cousin — the one who bought for $200k in Odessa and did an SS for $68 just bought in Land ‘O Lakes for $139k (FBs paid $290k). I’m not mad at my wife’s cousin, they’re gaming the system and acting predictably (taking the best position for themselves), but seriously, how can you lose $132k of OPM and then go out and get $139k of OPM?

When my wife brought it up, I said, “it’ll be interesting to see if they try to walk away again in five years.”

Somewhat related question: Question (repost): If a bank assigns a mortgage to a person and not another bank, does that mean the bank is giving them the house?

Realtors Are Liars®

I see green shoots.

I wanted to get this post in early, because when oxide revealed she is buying/has bought a house, I can’t help but note that the reaction to this announcement was quite a bit different than when I mentioned my recent house purchase about 2 weeks ago on this board.

Is the different reaction because I’ve been a lurker and oxide has been posting here a long time? Like oxide, I live in Maryland and looked long and hard before buying. Because I think both of us cite the same reasons for purchasing a house:

- Stable, long term job (2 jobs in the case of myself and my wife)
- Proximity to this job (saves time and money otherwise spent commuting) and also to family
- PITI for single family house mortgage is less than renting a typical midscale apartment in the area (for us about $300 less; oxide says it’s 500 less for her)
- The area is very congested in terms of traffic and density of jobs/residents, so adding 5-10 miles to a commute can mean losing an hour of your day each day
- Buying significantly below peak pricing (50% off for us, 40% for oxide)
- Not too concerned about what the property is “worth” at any given time because the house’s primary value is as a solution to a basic need
- House is big enough with enough land and the features we want. I’ve mentioned that my wife and I spent 1/3 of what we could “afford”, but had no interest in a bigger “fancier” McMansion or a tricked out-townhouse with a bunch of features we don’t want.
- Ability to configure the house/yard/garage in ways that enhance daily living/hobbies/family time. Gardening is a hobby of mine and it’s pretty unlikely able to see my garden develop over the years on some rental property. Ditto for all the projects going on in my garage. And I wouldn’t want to move this stuff 5 or 10 times over the (expected) 50 yrs I have left to live. And it would be absurd to make all the upgrades and modifications for a rental house.
-. Really liking the neighborhood you’re in. Where I live, SFHs are rare and almost never available for rent. And the few I know of rent for 20% more than my PITI (1500, whereas my PITI is 1250). Even if prices dropped another 50% in Pikesville or Ellicott City, I am not interested in living there or any other “nicer” place that is more dependent on longer car trips and is further from my job.
- Healthy amount of skepticism about buying a house. Like oxide, I don’t think it’s right for everyone, nor is it “better” or even a “good investment”. It’s simply a way to check off the “shelter” box that is right for us for reasons 1-10 above. When I was looking for a house, I was never in a rush and was a massive pain to our RE agent because of what I’ve learned from HBB and what I’ve seen going to college and law school during the bubble and its aftermath… learning one thing and then the other… and knowing never to assume RE is an investment.

I realize that’s a bit of a jumbled list, sorry I didn’t put a lot of thought into organizing it. Basically, as much as I share HBB’s point of view that the government is actively propping up property prices and prices should eventually fall some more, I’m not that worried about it because my self-esteem and larger financial life are not tied to the “value” of the house I own. Like oxide, my wife and I looked at tons of houses and then lowballed and played hardball on the few worthy houses we saw. There comes a point where you drive the hardest bargain you can, get a house you like at a price that is very affordable, and it doesn’t matter what zillow says in 5 years because the alternative is paying much more to rent one of the few well-located SFHs or else paying money to a landlord so you can live next to loud, rude neighbors (often section 8).

Sorry for the long post. Just wanted to detail why I find it weird that people gave oxide a hard time.

One more thing,
Oxy, you mentioned having good luck with a Ryobi drill yesterday.

Ryobi is absolute crap! Stay away from it. Really.

I am in San Diego and we got a disturbing piece of real estate news recently. The amount of lower end real estate inventory went down 33% from this time last year. We are back to the days of 2005 when reasonably priced low end properties are getting 8 to 15 bids.

I am a hard money lender in San Diego and when I say lower end properties, I mean $350,000 and below. There are no bidding wars for properties in the $700,000 and up market.

Some of my flipper clients are paying too much for the fix and flip deals.
Being a “flipper” sounds sexy at a cocktail party but some of these folks are paying too much to buy themselves a job. A few of the successful flippers who have been established have the contacts who get the “pocket listings.”

There are certainly decent deals that never hit the MLS, for the flippers, it’s good to go after pocket listings, good to develop personal relationships with agents. A pocket listing is one that the agent gets who never puts it on the MLS. If he can convince the bank that he has sold X number of properties to this cash buyer and the buyer actually has a track record of not backing out, the realtor gets a double ended commission.

Say what you want about the realtor being slimy for doing that but the bank just got rid of a headache and can concentrate on the few thousand other properties to get rid of in their portfolio. I am not, however, advocating realtors pocket the listings on well priced properties. If I was the bank, I would probably want the most I could get for the property but on the other hand, I would want that POS off the books ASAP.

With a great reduction in the inventory here in San Diego, what are the banks waiting for the release their shadow inventory? Is it the threat of lawsuits with the robosigning fiasco? Is it lawsuits about who sold what paper and where is the original note? I know for a fact there are still tons of folks in this city who are sitting (I wanted to say squatting) in homes who haven’t made their mortgage payments in many cases 12-24 months.

http://www.youtube.com/watch?v=o0ZS9o6NLnM&feature=player_embedded

For those who associate flash mobs with thuggery and mayhem, here is a lovely Easter counterpoint from Beirut, Lebanon of all places.

If this worked for telephone companies and airlines, I don’t see why it wouldn’t work for Megabanks.

April 4, 2012, 2:42 PM

J.P. Morgan Breakup Would Boost Shares, But So Would Being Quiet
By David Benoit

Nancy Bush just wants a decision.

Break up the big banks, or don’t, but make a decision and free up the shares, says the long-time bank analyst.
…

How should one factor the dictatorial machinations of environmental whackos into California housing rent-or-purchase decision?

CROSS COUNTRY
Updated April 6, 2012, 10:04 p.m. ET

California Declares War on Suburbia
Planners want to herd millions into densely packed urban corridors. It won’t save the planet but will make traffic even worse.
By WENDELL COX

It’s no secret that California’s regulatory and tax climate is driving business investment to other states. California’s high cost of living also is driving people away. Since 2000 more than 1.6 million people have fled, and my own research as well as that of others points to high housing prices as the principal factor.

The exodus is likely to accelerate. California has declared war on the most popular housing choice, the single family, detached home—all in the name of saving the planet.

Metropolitan area governments are adopting plans that would require most new housing to be built at 20 or more to the acre, which is at least five times the traditional quarter acre per house. State and regional planners also seek to radically restructure urban areas, forcing much of the new hyperdensity development into narrowly confined corridors.

In San Francisco and San Jose, for example, the Association of Bay Area Governments has proposed that only 3% of new housing built by 2035 would be allowed on or beyond the “urban fringe”—where current housing ends and the countryside begins. Over two-thirds of the housing for the projected two million new residents in these metro areas would be multifamily—that is, apartments and condo complexes—and concentrated along major thoroughfares such as Telegraph Avenue in the East Bay and El Camino Real on the Peninsula.

For its part, the Southern California Association of Governments wants to require more than one-half of the new housing in Los Angeles County and five other Southern California counties to be concentrated in dense, so-called transit villages, with much of it at an even higher 30 or more units per acre.

To understand how dramatic a change this would be, consider that if the planners have their way, 68% of new housing in Southern California by 2035 would be condos and apartment complexes. This contrasts with Census Bureau data showing that single-family, detached homes represented more than 80% of the increase in the region’s housing stock between 2000 and 2010.

The campaign against suburbia is the result of laws passed in 2006 (the Global Warming Solutions Act) to reduce greenhouse gas emissions and in 2008 (the Sustainable Communities and Climate Protection Act) on urban planning. The latter law, as the Los Angeles Times aptly characterized it, was intended to “control suburban sprawl, build homes closer to downtown and reduce commuter driving, thus decreasing climate-changing greenhouse gas emissions.” In short, to discourage automobile use.

If the planners have their way, the state’s famously unaffordable housing could become even more unaffordable.
…

Are there any legal limits that rein in the Fed’s power? Or is it basically a fourth branch of the U.S. government which is exempt from the Constitutionally-defined checks and balances that limit the other three branches?

Enquiring minds want to know.

Fed Denies Link to Watergate, Iraq’s Saddam Hussein
Written by Alex Newman
Saturday, 07 April 2012 12:20

The Federal Reserve System investigated itself and determined that concerns about undue political influence surrounding its alleged role in the Nixon Watergate scandal and a subsequent cover up, as well as allegations that the Fed facilitated a massive weapons loan to former Iraqi dictator Saddam Hussein, were unfounded. Analysts and critics of the central bank, however, were not entirely convinced.

The establishment press promptly celebrated the findings — inaccurately characterizing the privately owned U.S. central banking system as a government “agency” — while largely omitting the well-documented evidence of widespread malfeasance by the government-backed monetary cartel. Several mainstream media outlets even used the investigation to attack the escalating suspicion and anger about the Fed, its multi-trillion dollar bailouts to entities around the world, its manipulation of markets, and its notorious secrecy.

During a 2010 hearing of the House Financial Services Committee, longtime central bank critic Congressman Ron Paul (above left) — citing reports and past investigations — questioned Fed Chairman Ben Bernanke about the Watergate and Iraq concerns. “Would you grant that the American people deserve to know whether the Federal Reserve has been involved with this and what kind of shenanigans they’re involved with?” he asked.

At the time, Bernanke called the accusations “absolutely bizarre,” claiming he had “absolutely no knowledge of anything remotely like what you just described.” Experts, however, were not buying it. Immediately following the hearing, University of Texas Professor Robert D. Auerbach of the LBJ School of Public Affairs — who assisted in congressional investigations of Fed corruption, abuse, and deception; and later wrote a book about it — sent Congress a letter that was entered into the record.

“I thank Congressman Ron Paul for bringing to the public’s attention the Federal Reserve coverup of the source of the Watergate burglars’ source of funding and the defective audit by the Federal Reserve of the bank that transferred $5.5 billion from the U.S. government to Saddam Hussein in the 1980s,” Prof. Auerbach wrote, noting that the Fed had already voted to destroy some evidence. “The evidence Congressman Ron Paul mentioned is well documented in my recent book, ‘Deception and Abuse at the Fed.’ The head of the Federal Reserve bureaucracy should become familiar with its dismal practices.”
…

Streetwise | SATURDAY, APRIL 7, 2012
A Minor Selling Squall
By MICHAEL SANTOLI | MORE ARTICLES BY AUTHOR
Last week’s stock-market performance doesn’t necessarily mean that “Markets Fear the End of Stimulus,” as one headline put it.

It isn’t wholly incidental that we call news articles “stories.” They arrange facts and inferences into tidy narratives, headlined with assertions. And so, the front page of this past Thursday’s Wall Street Journal offered “Markets Fear End of Stimulus.”

Maybe they do. But this was two days after the release of the minutes of the Federal Reserve March meeting, which withheld explicit promises of further money-printing and bond-buying by the central bank. Id-driven markets don’t wait 24 hours to express such fears. Indeed, Wednesday’s little 1% drop in stock indexes was accompanied by a Treasuries rally — the latter not exactly a sign that investors fear the Fed won’t be buying more Treasuries.

While the popular investor discourse might have been thrown slightly off course by the hint that the Fed was going to wait and see before furnishing additional largess, the stock market has mostly been elevating not on hopes of more free money from the Fed, but on the kind of economic confidence and gradually augmented risk appetites that themselves make extraordinary Fed assistance less likely.

As Dan Greenhaus, global strategist at institutional broker BTIG, wrote Thursday: “Less accommodation from the central bank is unquestionably a good thing for investors. Fundamentals should matter, not central-bank policy nuance.”

All the bulls need is for the fundamentals — with lots of positives already in sight and widely embraced — to cooperate.

In looking at last week’s minor selling squall, it more likely was about an overbought stock market moving past the quarter-opening flush of fresh money and being reminded, by Spain’s difficult bond auction, that while lots of encouraging domestic economic news has been recognized in share prices, another potential eruption of credit stress has not.

The turbulence so far has been minor and manageable, doing little to dent the positive multimonth trend, especially in large-cap U.S. stocks. It will be months before the market closely fixates on the stimulus — amounting to several percentage points of gross domestic product, from government spending and not the Fed — that’s set to expire amid a gridlocked Washington.

Birinyi Associates’ Ticker Sense blog noted last week that the S&P 500 had risen 28% in six months, a feat achieved or exceeded 20 times since 1927. Following such advances, stocks generally chalked up further one-, three-, and six-month gains, but they weren’t gaudy. Only a handful were of the double-digit variety that would have left sidelined investors kicking the dirt.
…

Would now be a good time for dips to buy?

Churn, baby, churn…

Street facing a tough week

Fallout from poor U.S. jobs report likely to continue and investors will assess beginning of earning season, Bernanke speech and China GDP report.
———————————————————————————
If you “sell in May and go away,” here’s what you do: Weekend Investor
Sell in May, go away

After a blowout quarter, investors can’t be blamed for a sense of deja vu: 2010 and 2011 saw a rally followed by a spring downturn. Here’s how to cope.

It seems like North County San Diego home prices have recently crashed as fast as ever. Where does this end?

HOUSING: Home prices sputter for 6th consecutive month in January
By ERIC WOLFF ewolff@nctimes.com | Posted: Tuesday, March 27, 2012 6:30 am

Monthly Case-Shiller home price index with North County median house prices corresponding to the low, high and most recent index points.

San Diego County house prices fell for a sixth straight month in January, a widely respected index showed Tuesday.

In January, house prices in San Diego and Riverside counties lost value and sales slowed after a big end of the year push in December. Buyers in January stayed on the sidelines, waiting to see if prices kept falling.

“People’s perception and concern about the economy, it makes people a little more scared about buying property,” said Leonard Baron, a professor of real estate at the Corky McMillin Center for Real Estate at San Diego State University. “I think people just continuously think prices are going to go down more. That’s what I hear from everybody.”

San Diego County house prices fell 1.1 percent from December and 5.3 percent from January 2011, according to Standard & Poor’s Case-Shiller House Price Index. January marks 12 straight months of year-over-year price declines. San Diego County house prices are 3 percent above a post-housing-bubble low set in 2009, and about equivalent to house prices in August 2002. House prices have dropped 40 percent since peaking in November 2005.

“Despite some positive economic signs, home prices continued to drop,” David Blitzer, chairman of the Index Committee at S&P Indices, said in a written statement.

The Case-Shiller Index measures house resales in 20 metropolitan areas. Of those, 16 saw house prices drop on a monthly basis, with only Detroit, Washington, D.C., Phoenix, and Miami prices rising. Compared to 12 months earlier, only Phoenix, Denver, and Detroit house prices rose. Index authors excluded one of the 20 cities, Charlotte,N.C., because the city was slow to report sales for January.
…
The median house price in North San Diego County in January sank to $380,000, down 9.2 percent from December and down 11.9 percent from January 2011, according to a North County Times analysis of transactions from the San Diego County assessor’s office. The median house price was its lowest since February 2009, when the local market was clawing out of its post-housing-bust crater.
…

Whatever happened to the predicted increase in foreclosure rates after the robo-signing settlement was reached?

Foreclosures fall in California and U.S. — but it may not last
A foreclosured home in Islip, N.Y., sits empty and boarded up. (Getty Images / March 15, 2012)
By Alejandro Lazo
March 14, 2012, 9:05 p.m.

The foreclosure picture brightened last month in California and nationwide, but the improvement may not last, according to Irvine data tracker RealtyTrac.

California’s forclosure activity fell 13% to a 51-month low in February compared with a year earlier, with foreclosure filings going to 48,422 properties in the state, or 1 in 283 homes.

In Los Angeles and Orange counties, all forms of foreclosure filings fell 18% in February from a year earlier. Filings include notices of default, notices of foreclosure sales and repossessions. Foreclosure filings dropped 11% in the Inland Empire and 9% in San Diego County over the same time period.

Nationwide, February filings declined 8% from a year earlier, with 206,900 U.S. properties receiving some sort of foreclosure notice, or 1 in 637 housing units. The February decline was the lowest annual decrease since October 2010, as several states saw foreclosure increases in the wake of the settlement over foreclosure improprieties with five major lenders.

“February’s numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed,” RealtyTrac Chief Executive Brandon Moore said. “Although national foreclosure activity was pushed lower by decreases in a handful of larger states, 21 states posted annual increases in foreclosure activity, the most states with annual increases since November 2010.

Moore predicted that more states will see foreclosure increases in the coming months.
…

Here’s to hoping all the geezers house sitting in underwater, empty-nest family-sized McMansions enjoy “Aging in Place.”

Homes and the demographics of aging
Center for Housing Policy
Housing an Aging Population: Are We Prepared?
by Chris Farrell
Apr 5, 2012

We all know baby boomers are getting older. Here’s just one among many figures to capture the trend: By 2050, the population of people aged 65 or older will increase 120 percent, from 40 million to more than 88 million. Put somewhat differently: One in every five Americans will be 65 and older.

Where will they live? That’s the critical question the Center for Housing Policy addresses in Housing an Aging Population: Are We Prepared?

The report is a call to alarm. Yet what stood out to me is how many older Americans may well have the opportunity to fulfill a common sentiment: Age in place. The homeownership rate exceeds 80 percent for those ages 65 to 84.
…

Your Money
Half a million bucks in student debt?
Interview by Tess Vigeland
Marketplace Money for Friday, April 6, 2012

Student debt is reaching new heights for many American students. Money host Tess Vigeland, senior producer Paddy Hirsch and personal finance expert Liz Weston listen to some particularly harrowing stories of student debt. One med student is faced with $440,000 in student debt, which he says is “not an uncommon number” among his peers. Grads and students shared similar stories of finding cheap and free ways to have fun and giving up material comforts to make ends meet.

Liz Weston — who’s nine-year-old daughter Bea was listening in — said that the conversation about student debt has to start long before the student even start applying for college: Their freshman year of high school. “You don’t have the conversation when they have the acceptance letter in their hands,” she said. Parents must clearly lay out how much they are willing to give towards their child’s education and how to manage debt responsibly.
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For how many more decades will the Euro Zone debt crisis play out?

HEARD ON THE STREET
April 5, 2012, 10:50 a.m. ET

Euro Zone Heading for Another Hot Summer
By SIMON NIXON

Welcome back, euro crisis. Euro-zone bond and equity markets enjoyed a remarkable rally after the European Central Bank agreed to flood the banking system with cheap three-year loans in December. But now that Spanish bond yields are back at levels last seen before the ECB’s Long Term Refinancing Operations and with stock markets sliding, it is clear the mood has changed. Euro-zone leaders should brace themselves for another long, hot summer.

This renewed market pressure largely reflects three things. First, fears that euro-zone economic conditions are deteriorating as austerity policies bite. Recent data paint a bleak picture of a worsening recession in the periphery. Unemployment in the euro area is now 10.8%. March’s Spanish manufacturing purchasing managers’ index showed an accelerating decline in output. The slowdown may even be spreading to the core: The German composite PMI is at a three-month low while France’s suggests renewed contraction.

Second, the market fears a lack of urgency on reform efforts. As market pressure eased, worrying signs of complacency emerged. Spain’s bank reform fell short of expectations and doubts have now emerged over Madrid’s commitment to its fiscal targets. Italy has been forced to make concessions on its vital labor reform; the increase in euro-zone bailout funds looked inadequate; and there has been limited progress on a pan-European growth agenda, including boosting structural funds and deepening the single market.

Third, the market is worried about Spanish banks. Last week Caixabank (CABK.MC -1.57%) wrote off the entire €2.8 billion ($3.68 billion) book value of Banca Civica as part of its agreed takeover, raising doubts about the adequacy of provisions on other bank balance sheets. Yet the government says it won’t use public money to recapitalize the banks and the deposit guarantee fund is out of funds. Meanwhile, Spanish bank customers are now significant holders of bank shares, raising questions about how they will react to severe dilution and the extent to which the equity can be truly loss-absorbing.
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Stories like this make me feel like going out to buy a $10 bottle of wine to celebrate my frugality.

Freakonomics Radio: Do More Expensive Wines Taste Better?
Stephen J. Dubner
12/16/2010 | 10:30 am

Do More Expensive Wines Taste Better?: They should! It’s a cardinal rule: more expensive items are supposed to be qualitatively better than their cheaper versions.

The latest Freakonomics Radio podcast is called “Do More Expensive Wines Taste Better?” (You can download/subscribe at iTunes, get the RSS feed or listen live via the link in box at right.)

When you take a sip of Cabernet, what are you tasting? The grape? The tannins? The oak barrel? Or the price?

Believe it or not, the most dominant flavor may be the dollars. Thanks to the work of some intrepid and wine-obsessed economists (yes, there is an American Association of Wine Economists), we are starting to gain a new understanding of the relationship between wine, critics and consumers.

One of these researchers is Robin Goldstein, whose paper detailing more than 6,000 blind tastings reaches the conclusion that “individuals who are unaware of the price do not derive more enjoyment from more expensive wine.”

So why do we pay so much attention to critics and connoisseurs who tell us otherwise?
…

The Unknown

As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don’t know
We don’t know.

—Donald Rumsfeld, Feb. 12, 2002, Department of Defense news briefing

Real Time Economics
Economic insight and analysis from The Wall Street Journal.

April 6, 2012, 4:02 PM

The Big Uncertainty And The Fed
By Neal Lipschutz

The notion of an uncertain economic outlook for the U.S. is expressed so often by policy makers and pundits that it loses all meaning. It’s a given; boilerplate to the broader discussion.

But maybe uncertainty deserves to get some of its meaning back. There’s uncertainty and there’s UNCERTAINTY, and we are experiencing the latter.

Let’s take this week. To talk in simplified terms, the markets decided on Tuesday after the release of minutes of a Federal Reserve meeting held in mid-March that the odds of more quantitative easing declined considerably, based on tea-leaf reading of Fed members’ views and because of recent data showing more U.S. economic strength than many had expected.

Three days later we get a disappointing report on employment for March (120,000 new nonfarm jobs, much less than each of the prior few months and well below expectations). Because of the Good Friday holiday, the markets aren’t present in force to deliver a definitive verdict, but certainly a collective lowering of the odds of a so-called QE3 from the Fed will be priced in to various asset classes.

It’s reasonable to say the Ben Bernanke-led Federal Reserve has been an activist central bank, prone to do something to keep some economic momentum, perhaps spurred in part by a lack of consensus in Congress on whether or how to further act economically.

And in the wake of the 120,000-job-rise report Bernanke’s recent caution about job creation running ahead of broader economic growth looks on target.

Less discussed, of course, is how much even more quantitative easing would truly do for job creation. You don’t have to be a complete cynic to think markets’ recent responses have more to do with impacts from any Fed actions on asset prices than on analyses on whether and how much more easing would help the jobless.

Before this morning’s March employment data, it struck me that comments by Federal Reserve Bank of St. Louis President James Bullard, prepared for delivery Thursday, got things about right as to where the Fed is and where it should go with policy.

Certainly one month’s jobs data won’t cause screeching u-turns in Fed policy makers’ thinking (and, after all, 120,000 more jobs is something positive). So I think Bullard’s positions still stand.

He played up in the Thursday presentation the need for a “wait-and-see” stance by the Fed in the face of recent and generally stronger-than-expected economic data.

He properly referred to monetary policy as a “blunt instrument” and added, “It may be better to focus on labor market policies to directly address unemployment instead of taking further risks with monetary policy.”

This may be the most relevant point in the talk in light of Friday’s data. The problem, as presumably seen by many at the Fed, is that no one else in government is likely to pick up the cudgel of ‘labor market policies,’ even on long-term issues such as improving education.

Is asset price support really part of the Fed’s mandate?

Why the Fed Will Intervene If Stocks Fall Too Far
Published: Wednesday, 4 Apr 2012 | 12:03 PM ET
By: Jeff Cox
CNBC.com Senior Writer

Investors looking for more Federal Reserve intervention can pretty much ignore the economic data and train their sights on one area: the stock market, and how much of a drop it will take before the central bank comes to the rescue.

Though the recent market selloff is worrisome, it could take as much as a 10 percent drop or more before the Fed acts.

While central bank action ostensibly is geared toward using monetary policy to control the levers of prices and employment, the era of quantitative easing [cnbc explains] has brought with it increased focus on how the equity markets push the economy, and not the other way around.

As such, Chairman Ben Bernanke and his fellow Fed [cnbc explains] officials will be paying great attention to whether the sharp stock decline Wednesday, as well as the market’s generally lackluster performance the past three weeks, signals a need for more stimulus.

“Mr. Bernanke and (former Fed chair Alan) Greenspan made it clear that the stock market is the transmission mechanism for monetary policy,” said Quincy Krosby, chief market strategist at Prudential Annuities in Newark, N.J. “They know that a stronger stock market feeds into a stronger economy, which feeds into investor confidence.

“It is an underpinning for that all-important virtuous cycle that Mr. Bernanke and all economists talk about.”
…

Cramdowns are coming.

US Housing Secretary Pushes Mortgage Write-Downs
Published: Saturday, 7 Apr 2012 | 1:51 PM ET
By: Reuters

The Obama administration wants Fannie Mae and Freddie Mac, which finance the bulk of U.S. mortgages, to start reducing loan balances for troubled borrowers, but with safeguards to prevent them from purposely defaulting to obtain relief.

Housing and Urban Development Secretary Shaun Donovan laid out the case for a program with such checks and balances to convince the Federal Housing Finance Agency, which regulates the companies, to provide more mortgage aid.

“This isn’t about force; this is about making the right decision for homeowners and for the taxpayers,” Donovan said in an interview taped for C-SPAN’s public affairs television that was set to air on Sunday.

The FHFA is evaluating whether financial incentives offered by the White House would be enough to cover the cost of Fannie Mae and Freddie Mac writing down mortgage debt. The agency said it may complete the analysis by mid-April.

“We believe that with the changes that we’ve made over the past couple months that the case is compelling,” he said.

Democrats have mounted pressure on the FHFA to use government resources to subsidize the cost of mortgage loan forgiveness. The agency has been criticized by consumer advocates for focusing too much on limiting taxpayers’ liability for the housing bailout instead of making more targeted efforts to help borrowers.

FHFA Acting Director Edward DeMarco has blocked Fannie Mae and Freddie Mac from reducing principal amounts owed on mortgages, saying that would drive up the cost of a taxpayer bailout of the two government-run firms, which has topped $150 billion. Fannie and Freddie, the two largest sources of housing money, were taken over by the government more than three years ago as mortgage losses mounted.
…

Metals and Mining
Gold’s Bearish Knife Is White Hot
By Eric Rosenbaum 04/04/12 - 03:39 PM EDT

NEW YORK (TheStreet) — Somewhere in the world, Warren Buffett is smiling.

The investment he recently called out as being the No. 1 speculative bubble enemy — gold — is cratering on Tuesday’s Federal Reserve commentary that another round of quantitative easing is likely only if the economic recovery falls off track.

Gold futures trading on the Chicago Mercantile Exchange were selling off by $47.90 in the afternoon, and touched a level not seen since early January, at an intraday low of $1,613. Gold spot prices were recently down $26.80 and had fallen as low as $1,611, according to Kitco.com.

The action in gold was not a surprise to metals traders, who expected that at least in the near-term, the Fed had killed the gold trade in its commentary on Tuesday that another round of quantitative easing would not be merited unless the economy stalls.

“Fed policy has essentially been the fuel pushing this bull market. It’s been about liquidity and that has an impact on all commodities’ prices,” said Phillip Silverman of trading firm Kingsview Capital, who noted the big spike in the dollar on Tuesday. The big move up in the dollar can only result in a downward pressure on gold.
…

Good ole Uncle Warren recently stuck a fork into the gold bubble.

ETF Adviser
Commentary: Use ETFs to hedge rising prices, dollar weakness
February 29, 2012|Steve Beck

PALO ALTO, Calif. (MarketWatch) — Buying gold is now accessible for all, but the sage of Omaha has spoken. Warren Buffett says gold is not an investment — it’s a speculation and does not belong in an investor’s portfolio.

In his annual letter to Berkshire Hathaway shareholders, published Feb. 25, Buffett states:

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

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Is manipulating asset prices really part of the Fed’s mandate? I find the very suggestion incredible, but I will keep an open mind, and would appreciate any evidence to support this conjecture which anybody would care to post.

I sadly suspect the April Fool’s joke of this article is on the U.S. taxpayer.

OPINION
April 1, 2012, 5:49 p.m. ET

Federal Lending Is as Rotten as Federal Borrowing
Uncle Sam has a loan for everyone, and many of them are likely to go bad.
By GEORGE MELLOAN

We all know about the dire fiscal outlook arising from manic federal borrowing. The interest cost of financing and refinancing the burgeoning national debt has climbed 55% over the last three years. The Obama budget predicts net interest expenses tripling to over a half trillion dollars by fiscal 2015 from the 2010 level. That is probably conservative, given the likelihood that the administration has lowballed inflation and interest-rate prospects.

If that isn’t bad enough, let’s consider the risks not from federal borrowing but from federal lending. Those risks are pretty awful, too.

The big bump in federalized lending came in August 2008 when the government took over failing Fannie Mae and Freddie Mac. With the addition of these two giants, the federal government now has a $5 trillion mortgage portfolio, much of it of dubious value.

Since the takeover, Fannie and Freddie have drawn a net $136 billion from the Treasury to cover their losses, and they could cost taxpayers $259 billion through 2013, according to their regulator, the Housing and Home Finance Agency (HHFA). On top of that, the Federal Housing Administration is facing huge losses on the home mortgages it has guaranteed over the years and very likely will also require a taxpayer bailout.

By comparison, the cost of the $700 billion Troubled Asset Relief Program in 2008 is relatively modest, a mere $28 billion so far, according to the latest government audit. Major banks have paid back their share of the loans.

As large as these numbers are and as likely that the HHFA is overly optimistic about the future of Fannie and Freddie, these exposures are only a part of the big picture of federal lending disarray. Government lending, like government borrowing, is a political tool used by Washington to win favor with voters. According to a Congressional Budget Office (CBO) report this month, the government has, in addition to Fannie, Freddie and TARP, a further $2.7 trillion in other loans and loan guarantees outstanding, and some of those loans don’t look so good either.

One of the more worrisome categories is student lending, which the government took over directly in 2010 after having merely guaranteed private loans previously. Student lending has soared along with college tuition, and has even contributed to tuition inflation by flooding colleges and universities with government cash. William Brewer, head of the National Association of Consumer Bankruptcy Attorneys, has been quoted as predicting that student loans will be the next “debt bomb” for the U.S.

The CBO’s new report says that federally issued or guaranteed student loans outstanding have grown to $706 billion from $79 billion a decade ago. (The government’s new Consumer Financial Protection Bureau estimates that all student loans outstanding now total over $1 trillion.) They don’t seem to be very good risks. A Journal story reporting on the CFPB estimate cites Federal Reserve Bank of New York data showing that as many as “one in four student borrowers who have begun repaying” are behind on their payments.

The sad state of government loan programs has produced two opposing views. Liberals want further bailouts for debtors. Dick Durbin of Illinois, the No. 2 Democrat in the Senate, has proposed that bankruptcy laws be liberalized so more former students can shed their debt burdens.

The Obama administration is pushing the idea of forgiving the portions of home mortgage debts that are under water. HHFA acting director Edward DeMarco has opposed forgiveness, telling Congress it would cost taxpayers another $100 billion. But the administration is applying pressure, offering to pay half the cost with unused TARP funds, so look for TARP losses to rise.

Taking a more responsible but politically risky approach, House Budget Chairman Paul Ryan (R., Wis.) is backing a budget bill provision that would put a more realistic value on the cost to taxpayers of government-subsidized lending. Currently, agencies calculate subsidies by comparing the interest rates on their loans to the rates on Treasury securities. Given rock-bottom Treasury rates, that often makes it look as if the agency is getting a positive return. Under Mr. Ryan’s “true value” accounting (backed in the CBO’s March report), the return instead would be measured against market interest rates.

The CBO analysis shows that true-value accounting on direct student loans would convert what the government records as a positive return into a budgetary loss.
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Topic
Student Loan Debt
Friday, Apr 6, 2012 4:45 AM Pacific Daylight Time
The student loan crisis everyone saw coming
President Obama has fought hard to ease the student-debt burden, but Republicans threaten his fragile gains
By Andrew Leonard

When there are Americans whose Social Security checks are being garnished to pay off their outstanding student loan debt, then it is clear that the United States has a problem. And the rising number of seniors who haven’t paid off loans taken out decades earlier is only one of several reasons to be alarmed by a report on student loan debt released by the Federal Reserve Bank of New York in March.

Total debt, as of the end of the third quarter of 2011, had reached $870 billion, a number, the Fed was quick to point out, that eclipses what Americans owed on their credit cards and on their auto loans. According to a more recent report from the Consumer Financial Protection Bureau (CFPB), the amount currently owed on both federal and private student loans has already broken the trillion-dollar barrier.

That’s not just bad for the people struggling to pay off their debt — people who, according to CFPB student loan ombudsman Rohit Chopra, are being punished for “doing exactly what they were told would be the key to a better life.” The burgeoning debt numbers also pose a growing threat to the larger economy: money spent paying back student loans is money that isn’t stimulating overall economic growth. Who will dare risk becoming a first-time home-buyer, for example, or buy a new car, when still struggling to pay back thousands of dollars on their education?
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Do other HBB readers enter the house giveaways/promotions stewarded by media company Scripps Networks’ HGTV and DIY? The latest installment is the HGTV Green Home 2012 sweepstakes set to launch April 12. It is a gorgeous home on a hill in the master planned rural community of Serenbe in Chattahoochee Hillis, Georgia, about 50 miles outside Atlanta. The home is so beautiful I thought why not do a little research online. An Atlanta paper published a story and 19 pictures of a home and a homeowner (who shall remain nameless for her own good) who explains how much she loves her home and life in Serenbe. The story fails to mention that her home has been listed continuously for two years prior, and still hasn’t sold another two years on, even with an offer of owner financing. The story also doesn’t mention our hopeful seller is a real estate broker who listed her home only one year after buying in March 2007. But there’s a silver linning in this cautionary tale: Apparently the publicized seller likes Green living and water conservation. So there is some consolation to being apparently stuck in a home. She’s quoted,”For the first time ever, I can say that I love my toilets.”

The world loves an optimist.

The benefits of the system
Why finance is good for us
A new call to arms
Apr 7th 2012 | from the print edition

Finance and the Good Society. By Robert Shiller. Princeton University Press; 304 pages; $24.95 and £16.95. Buy from Amazon.com, Amazon.co.uk

SINCE the September 2008 meltdown plunged much of the global economy into deep recession, no one has had a good word to say about finance or financial innovation. Adair Turner, Britain’s leading financial regulator, has given well-received speeches questioning whether much of finance is “socially useful” and arguing that it should be a smaller part of the economy. As for financial innovation, a comment by the former chairman of the Federal Reserve, Paul Volcker, that the only useful new concept in living memory is the ATM has garnered widespread sympathy, as has the admission that the day his grandson said he wanted to be a financial engineer was “one of the saddest” of his life.

In this context “Finance and the Good Society” is so contrarian as to be shocking—all the more so because its author, Robert Shiller, is no head-in-the-sand capitalist nor a highly paid Wall Street shill. The Yale economics professor was one of the earliest critics of the efficient-market hypothesis that underpinned much of the financial innovation in securities markets of the past 30 years or so. He has become something of a Cassandra, giving warning of bubbles in many financial markets, including American property before the recent crash. He even inspired the phrase “irrational exuberance” in a presentation about share prices to Alan Greenspan, then chairman of the Fed, in 2006.

Yet, in this new book, Mr Shiller writes that “imperfect as our financial system is, I still find myself admiring it for what it does, and imagining how much more impressive it can be in the future.” Ranging widely—from Adam Smith, Karl Marx and Friedrich Nietzsche to Damien Hirst and the latest findings of neuroscience—Mr Shiller argues convincingly that the good society requires an effective financial sector, and the way to extend the good life to more people is not to shrink the sector nor “restrain financial innovation but instead to release it”. That does not mean that fraudsters and others who broke the law during the bubble years should go unpunished, of course, and Mr Shiller rightly calls for financial innovation to take place in a “way that supports the stewardship of society’s assets”, a philosophical underpinning that Wall Street’s financial innovators seem to have been steadily forgetting since the 1980s.

He starts the book by going through each component of the financial industry, looking at investment managers, mortgage lenders and accountants, as well as lobbyists, educators and philanthropists. Mr Shiller explains the role they play in advancing the greater good, and, in so far as they contributed to the latest financial mess, he analyses what they did wrong and how they might be made virtuous again. Some solutions have already come about, such as renouncing the notion that house prices will never fall, a belief that contributed to the catastrophic mispricing of securitised mortgages. Indeed, Mr Shiller argues that for finance to be further democratised, it should “develop new and better mortgage institutions”.
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My little bunnies with their Easter helmets:

http://i864.photobucket.com/albums/ab205/muggyflo/img94922.jpg

Paging all RECENT BUYERS:
Any advice on counter-offers?
Go up $10K a pop if multiple offers and
home is really nice?
Meet in middle?
30 day + 2 coe a good rule of thumb?

Have never bought resale before.
We’ve always bought new.

This offer we just put in
is the first in 12 months.
We rescinded our last offer
for an REO. The pool cost was
the issue. 44,000 gal pool.