Unorthodox Demand With Unorthodox Capital
Some housing bubble news from Wall Street and Washington. Bloomberg, “As residential real-estate prices stage a comeback, Federal Reserve policy makers may be gaining an extra motivation for lifting interest rates for the first time in nearly a decade: They don’t want to let recovery evolve into excess. San Francisco Fed President John Williams said in a speech on Monday that he sees ’signs of imbalances’ emerging in asset prices — especially real estate. After saying that conditions haven’t yet reached a tipping point, he recalled that in the mid-2000s it was too late to ‘avoid bad outcomes’ by raising interest rates once the housing boom was in full swing.”
“Williams told reporters that his housing market warning is ‘not about fighting bubbles, or trying to deal with financial stability’ — it’s more a response to why interest rates need to rise even though inflation remains low. ‘The reason you don’t just let an economy rip — let it grow, and grow, and grow, and just see what happens, is because that usually ends badly,’ he said.”
From CNBC. “While home prices nationally have not yet returned to their peak of the last housing boom, some local markets have surpassed it. Now, some claim the housing market is in a bubble far worse than the devastating one in 2006. The argument: Housing is far less affordable today than it was back then, and the home price gains are driven not by healthy, end-user demand but by a lack of construction, artificially low interest rates, and institutional and foreign all-cash buyers.”
“‘In the days of ‘anything goes,’ ninja financing caused housing prices to lurch higher, which forced people to rush in and buy, which in turn pushed prices higher, thus increasing volume more, and so on. But when it comes to the new-era, end-user buyer, that can’t happen any longer, as buyers actually have to fundamentally ‘qualify’ for the mortgage for which they apply,’ wrote housing analyst Mark Hanson in a note to clients. He calls it an exact replay of the last housing boom, ‘when unorthodox demand with unorthodox capital would pay any price it took to hit the bid.’”
From FOX Business. “During an interview with Maria Bartiromo on FOX Business Network’s Mornings with Maria, former Federal Reserve Chairman Ben Bernanke was asked about the current state of the housing market. ‘There doesn’t seem to be anything remotely like we saw before the financial crisis, people have to look at their individual market, make good decisions, banks have to make good lending decisions, all those things,’ notes Bernanke.”
“He does acknowledge that prices are getting ahead of themselves in places such as New York, San Francisco and Miami. ‘Look, I know prices in New York are really high, that’s actually a good thing in a sense that one way of thinking about house prices is to ask whether the price/rent multiple like a price/earnings multiple on a stock, is really high or not.’ Bernanke continued: ‘In the housing bubble, the prices of houses were way, way higher than the rents seemed to justify. In this case, you’ve got the high rents at least providing some kind of fundamental, which suggests that house prices in those particular areas, it’s certainly not a national thing, should be high.’”
From The Intercept. “Former Federal Reserve Chair Ben Bernanke joined practically everyone in America by saying in his new memoir, The Courage to Act, that more Wall Street executives should have gone to jail for criminal misconduct that led to the financial crisis. Unlike practically everyone else in America, however, Bernanke in a pretty good position to actually facilitate criminal misconduct proceedings, if he wanted to see them so badly — as head of the nation’s most powerful bank supervisory agency from 2006 to 2014.”
“The Fed, like all banking regulators, can initiate criminal referrals to the Justice Department for individuals they find to have broken the law. This acts as the first line of defense to discipline criminal misconduct on Wall Street. But such activities were absent during the period when Bernanke was chair, according to criminologist and law professor Bill Black. ‘The Federal Reserve appears to have made zero criminal referrals; it made three about discrimination,’ Black told Bill Moyers in 2013.”
“And when Bernanke took action, his stumbling attempts at accountability weren’t just inadequate; they were absurd. The one major action his Federal Reserve took regarding specific conduct regarding the financial crisis wound up as the most embarrassing display of fake accountability in the history of the Obama Administration.”
From DNS News. “Amid all the good news for housing lately, foreclosure starts were up by 7 percent in August—driven by a rise in the amount of repeat foreclosures, according to the August 2015 Mortgage Monitor released by Black Knight Financial Services. Repeat foreclosures accounted for 57 percent of the 80,500 foreclosure starts reported in August, the largest share of repeat foreclosures for one month on record, according to Black Knight. While all foreclosure starts saw an increase of 7 percent month-over-month in August, the number of repeat foreclosures jumped by 13 percent.”
The Palm Beach Post. “The federal Hardest Hit Fund has been a flop in keeping Florida homeowners out of foreclosure, a federal inspector general concludes. Only 20 percent of homeowners who applied for help in Florida got it, amounting to 22,400 homeowners in a state that saw hundreds of thousands of foreclosures. A report from the Special Inspector General for the Troubled Asset Relief Program paints a damning picture of Florida’s performance on the Hardest Hit Fund.”
“In a state known for rampant mortgage fraud, federal and state authorities ran no background checks on applicants to the Hardest Hit Fund. ‘Rather than conduct due diligence to ensure compliance with the DoddFrank Act, Treasury has shifted the burden to the homeowner to self-report in an affidavit affirming no mortgage fraud conviction within the past 10 years,’ the inspector general writes.”
The New York Times. “The promise of widespread relief for homeowners facing foreclosure in the wake of the housing bust has never been realized. The government did not require the banks to rework bad loans, which in many cases the banks offloaded on the federal agencies that insured them. Now these same agencies are selling some of these loans at a discount to hedge funds and private equity firms.”
“One of the firms The Times’s report focused on — Lone Star Funds, a $60 billion private equity firm that has become a major force in the market for distressed mortgage debt — has relied largely on foreclosure and resale of the homes to make money. Loan modifications that reduce borrowers’ principal have been virtually nonexistent.”
“In the aftermath of a bust, there is a legitimate role for distressed debt investors who seek to extract what value remains in impaired assets. But the federal mortgage sales are apparently occurring before all borrowers have been given a chance to apply for and receive help that was promised under the terms of the bank bailouts and, since then, under various legal settlements and regulations intended to prevent foreclosure abuses.”
‘Bernanke began the book tour for his new memoir, “The Courage to Act,” with the former Treasury secretary Timothy F. Geithner at the Barnes & Noble in Union Square on Tuesday evening.’
‘The event reunited the only two people who served as senior government officials throughout the financial crisis: Mr. Bernanke as Fed chairman, and Geithner, first as president of the Federal Reserve Bank of New York and then as Treasury secretary.’
‘Geithner began by joking that the reunion was in some respects painful. “It brings back bad memories,” he said, “not just reading the book but sitting here with you. You were cool to work with, but we had to do some terrible things.”
The title of his book is missing the words “Lack of”.
‘we had to do some terrible things’
Bill Bonner pointed out years ago that Greenspan and company used to talk about moral hazards a lot. When was the last time a central banker mentioned moral hazard?
We’re these “terrible things” letting Bear Stearns and Lehman collapse? Was it terrible that they couldn’t save their cronies?
A real jokester, Geithner is. And of course he has his own memoir for sale in that bookstore. Both of those guys can #*)% off.
‘Q: The U.S. has had interest rates at near zero for seven years. Monetary stimulus has added trillions to the Fed’s balance sheet. So why is the economy still so weak?’
‘A: Well, the Fed can do two things: It can help the economy recover from recession, and it can keep inflation low and stable. Inflation is certainly low and stable—in fact, below the two per cent target—and, measured in unemployment and labour-market slack, the economy has made a lot of progress. The pace of growth is disappointingly slow, mostly because productivity growth has been very slow, which is not really something amenable to monetary policy. It comes from changes in technology, changes in worker skills and a variety of other things, but not monetary policy, in particular.’
Let’s not miss this statement: these changes you speak of require markets to function. Companies need to fail, people get fired, look for a new way to make a living, etc. In short the economy is weak because nothing has changed much. No one went to jail, so they are at it again. The plan, from people like Bernanke, is that house prices go up, stocks go up, we all spend a little more money and the lenders/wall street continue to make huge profits. Sort of just a re-do. Courage indeed. Give the man a $150,000 tip.
“Inflation is”
No Bernanke, perpetual increases in the CPI is not inflation. When you start with a lie, everything that follows is part of that lie. You and your buddies made a skim off every dollar you lent into being and the CPI hardly begins to capture the magnitude of it.
Coppell, TX Housing Prices Crater 9% YoY As Falling Oil Prices Accelerate National Economy
http://www.movoto.com/coppell-tx/market-trends/
They don’t want to let recovery evolve into excess.”
maybe late
BTW yellen is driven in a huge suv like a despot
how much do taxpayers pay for the fed to consider short term interest rates
anyone on this board could do that
BTW yellen is driven in a huge suv like a despot
Were you expecting her to drive around in a Fiat 500?
I half expect her to be driving around in this:
http://matthewlesko.typepad.com/photos/uncategorized/mini1.jpg
http://i.ytimg.com/vi/z7En0RFE1WQ/maxresdefault.jpg
I always wondered what kind of car The Riddler drove.
‘Q: Let’s go back to before the crisis. You’ve taken heat for dismissing the housing bubble. How much of that was you not seeing the bubble, versus you not wanting to panic people by talking about it as such?’
‘A: We certainly knew house prices were very high, and understood there was a good chance they would have to come back down. We also understood that subprime mortgages—I’m talking now about after I became chairman in 2006—were failing at increasing numbers. But what we missed was really the possibility that the losses in subprime mortgages would create a financial panic that would almost bring down the financial system.’
Any reader of this blog knew:
Saturday, December 11, 2004
Subprime Lending Surges
‘Pricing bubbles often end in a parabolic rise, which we probably saw last year. It is no surprise that what is holding up the market now is lending to so-called subprime borrowers. I view this as bad news for this market as these folks will be in financial trouble even faster. Consider that the risk to mortgage lenders increases, suggesting some desperation for borrowers. “Overall, new originations of subprime mortgages totaled an estimated $375 billion through the end of September, a figure that marked a 63 percent year-to-date rise. Putting that number into perspective, one out of every six new residential mortgages made this year has gone to a credit-impaired”..borrower.’
Don’t we see this in loans now? Almost every day an “innovation” of some sort or easing in standards? It’s just the greedy slip-and-slide we saw years ago.
And this:
‘We certainly knew house prices were very high, and understood there was a good chance they would have to come back down’
From the Fox bit:
‘In the housing bubble, the prices of houses were way, way higher than the rents seemed to justify. In this case, you’ve got the high rents at least providing some kind of fundamental, which suggests that house prices in those particular areas, it’s certainly not a national thing, should be high’
Bernanke, you don’t know how high house prices should be. Only a market can determine that.
“some kind of fundamental”
Click!
rent / price ratio in my hood is 190
for most of my life it was 120
300% higher than long term historical price trend. Call it what it is.
Surpassing the highs of the last bubble (rife with fraud and crookedness) is the conventional definition of a recovery.
I’m gonna get drunker than ever before. Woohoo.
‘But what we missed was really the possibility that the losses in subprime mortgages would create a financial panic that would almost bring down the financial system.’
It’s pretty embarrassing to think a ragtag band of posters here fully anticipated what the Fed Chair blatantly missed. People have some times criticized me for pessimistic views, but it was the posters here with far more pessimism than I who really nailed the severity of the 2007-08 financial meltdown before it happened, about the same time Bernanke was assuring anyone who would listen that “subprime wil be contained to $200 bn.”
‘Q: In the book, you argue that the panic itself caused more damage to the economy than the actual trigger, the housing bubble. But how can you separate the two, because the panic was a response to nobody knowing the value of those toxic assets created in the bubble?’
‘A: That’s right, but financial panics typically start with some kind of trigger, which creates uncertainty. If the financial system is vulnerable or weak enough, it can spread into a forest fire of a panic. The fear of subprime losses led investors to stay away from any kind of credit product, even things like credit cards and automobile credit that actually did fine. So it was the panic throughout the system that was the really costly part of the collapse. Of course, the housing collapse was important, too, but the collapse in jobs didn’t happen until after Lehman, and then it was intense. Meanwhile, house prices actually weren’t falling very quickly, but after Lehman, and after the crisis intensified, that’s when house prices really began to fall sharply. So it was the intensification of the panic in September of ’08 that really led to the very sharp decline in the U.S. economy.’
See, it was all about Lehman Brothers and wall street. The house prices were a side-show. All those millions of people and their shacks; who cares? It was some corporation in New York full of guys in suits, THAT was the cause of it all.
Bernanke is full of you know what and the media doesn’t call him out on it.
Ventura, CA Housing Prices Dive 5% YoY; Housing Demand Plummets
http://www.movoto.com/ventura-ca/market-trends/
“San Francisco Fed President John Williams said in a speech on Monday that he sees ’signs of imbalances’ emerging in asset prices — especially real estate. After saying that conditions haven’t yet reached a tipping point, he recalled that in the mid-2000s it was too late to ‘avoid bad outcomes’ by raising interest rates once the housing boom was in full swing.”
_______________________________/
He lives in San Francisco, and he admits to seeing “signs of imbalances”? What, pray tell, would a tipping point in conditions look like? $2 million in cash for a single-family house in Palo Alto? Oh wait, we’re already there. Maybe $3 million will be the tipping point.
By their definition, it isn’t a bubble until after it collapses.
Some very interesting YOY statistics this month for Santa Rosa, 50 miles north of San Francisco. Inventory is down 57%, list price down 13%, days on market up 39%….looks like maybe Bubble 2.0 is finally beginning to pop locally.
http://www.movoto.com/santa-rosa-ca/market-trends/#city=&time=5Y&metric=Median%20List%20Price&type=0
Gave up over three years of price gains in one month.
11,017 nearby properties found Denver, CO Real Estate and Homes for Sale
http://www.realtor.com/realestateandhomes-search/Denver_CO?ml=4
3,673 nearby properties found Denver, CO Price Reduced Homes for Sale
http://www.realtor.com/realestateandhomes-search/Denver_CO/show-price-reduced?ml=4
A full 33% of sellers in Denver reduced their price at least once
denver popped on labor day weekend
in col missed it
tsk tsk
Falling housing prices my friend…. falling housing prices.
enver popped on labor day weekend
I’m surprised it took so long to pop.
It just takes a long time for prices to bottom out.
‘Chinese money flows into US housing’
‘Cash is a distinct advantage in today’s tight housing market, and clearly Chinese buyers know that. “These people are not about flight capital. They are about changing their lives and moving out of China for a variety of reasons,” added Sloane.’
‘A judge in the United States has ordered the Bank of China to hand over detailed information about Chinese bank accounts used by a counterfeiting ring that allegedly sold millions of dollars of fake Gucci handbags and wallets in the US.’
‘The decision by a New York court could have far-reaching impact on the ability of US courts to extract information about criminal activity from Chinese banks, which serve as safe havens for counterfeiters and money laundering on a large scale, investigations and lawsuits in the US and Europe show.’
‘Chinese banks have resisted, claiming that such disclosures would be an affront to China’s sovereignty.’
‘At stake are fundamental questions about whose rules Chinese banks operating in the US must play by. Major state-run Chinese banks are frequently used by counterfeiters to move their ill-gotten gains beyond the reach of Western law enforcement, the Associated Press showed in an article this year.’
‘China’s financial system is also used to launder money, both by members of the Chinese diaspora and criminal groups of other nationalities, lawsuits and investigations in Europe and the US show. Yet under China’s legal system, it’s difficult to get detailed banking records that can help investigators trace the flow of criminal profits and to freeze illicit funds.’
‘an exact replay of the last housing boom, ‘when unorthodox demand with unorthodox capital would pay any price it took to hit the bid.’
Why are there fundamental questions about whose rules Chinese banks operating in the U.S. must play by? Is the answer not obvious? I guess I’m missing this.
Actually, the real fundamental question is whether the U.S., or China, have enforceable rules when it comes to bankers. I had to stifle a laugh this morning when I read about the Justice Department loading up to investigate fantasy football websites.
I was wondering how long until there was online ff gambling. I love the ads where some actor pretending to be a rube brags about winning tens of thousands of dollars and how easy it was (and will be for you too!)
But yeah, it shows where the prosecuting priorities are.
Why are there fundamental questions about whose rules Chinese banks operating in the U.S. must play by? Is the answer not obvious? I guess I’m missing this.
The real fundamental question is whether the U.S. and China have any enforceable rules when it comes to banks. I had to stifle a laugh this morning when I read about the Department of Justice loading up to investigate fantasy football websites.
Sorry for the double post; technical difficulties.
‘Wall Street sentiment on the presidential race mirrors betting venues more than polls.’
‘While populist insurgents Donald Trump and Ben Carson top Republican polls and Bernie Sanders draws crowds of Democrats, Wall Street donors and fundraisers so far show little sign of abandoning mainstream candidates like Jeb Bush, Marco Rubio, and Hillary Clinton.’
‘Gingold says many on Wall Street—himself excluded—care less about policy than about betting on the fastest horse. “They have no ideology, they don’t care,” he said. “They want to be with the winner and be invited to the White House.”
It seems like there is a lull while the oligarchs try to figure out how to run at this problem (on both sides) of no one wanting their candidates.
WPA
“Nice try but it’s the conservatives on this board who suffer from Multiple Personality Disorder.”
‘US Democratic presidential candidate Hillary Clinton said Tuesday that she will lay out her plan to rein in Wall Street “abuses” within the next week.’
“I’m going to be proposing in the next week what I think will be the best way to go after Wall Street abuses and rein in the too-big-to-fail banks and other institutions,” Clinton said at an Iowa campaign stop. Clinton said her plan would focus on more than banks, taking into account any kind of financial institution that causes disruption in the marketplace.’
‘Clinton was widely considered the ‘inevitable’ nominee of the Democratic Party in 2008, before she was defeated by Obama, then a first term US Senator who won a series of early primary and caucus battles against for former First Lady.’
‘In the first quarter, Clinton raised three times as much money as Sanders, so the virtual tie in the so-called ‘money primary’ is a stunning development.’
‘Most of Clinton’s warchest came from fundraisers hosted by big donors across the country, many held in the wealthy enclaves such as Manhattan and Hollywood. She raised at least $19 million from about 60 events where a ticket cost $2,700, the biggest donation allowed by law.’
BTW WPA this isn’t a “board”, it’s a blog. A blog that was right when Greenspan and Bernanke and Yellen were dead wrong. Will they be wrong again is the question.
I am on the left and I feel confident in saying that Hilary Clinton, if elected President, would do even less than Obama to rein in Wall Street abuses. As a general proposition, neither the Democratic nor the Republican parties have any authentic desire to do that.
I mean, this isn’t complex. Prosecute crimes and send lawbreakers to jail. Stop appointing lackeys and insiders to head the DoJ and SEC. Do you really need to triangulate and calibrate that position before announcing it?
‘Why Eric Holder’s new job is an insult to the American public’
‘The former Attorney General who made “too big to jail” a national joke now re-joins his old corporate law firm.’
‘If Las Vegas took bets on whether recently departed Attorney General Eric Holder would return to corporate law firm Covington & Burling, the casinos would have run out of money faster than Greek banks. Newborn infants could have guessed at a homecoming for the former partner at Covington from 2001 to 2009. Last year, Holder bought a condo 300 feet from the firm’s headquarters. The National Law Journal headlined the news, “Holder’s Return to Covington Was Six Years in the Making,” as if acting as the nation’s top law enforcement officer was a temp gig. They even kept an 11th-floor corner office empty for his return.’
‘If we had a more aggressive media, this would be an enormous scandal, more than the decamping of former Obama Administration officials to places like Uber and Amazon. That’s because practically no law firm has done more to protect Wall Street executives from the consequences of their criminal activities than Covington & Burling. Their roster of clients includes every mega-bank in America: JPMorgan Chase, Wells Fargo, Citigroup, Bank of America. Yet Holder has joined several of his ex-employees there, creating a shadow Justice Department and an unquestionable conflict of interest. In fact, given the pathetic fashion in which DoJ limited punishment for those who caused the greatest economic meltdown in 80 years, Holder’s new job looks a lot like his old job.’
‘Covington’s real meal ticket is white-collar defense. They literally promote their aptitude in getting bank clients off the hook in marketing materials. I wrote in Salon last March about the firm’s boasting, in a cover story in the trade publication American Lawyer, about avoiding jail sentences and reducing cash penalties for executives at companies like IndyMac and Charles Schwab. Included in the praiseworthy article is Lanny Breuer, who ran the Justice Department’s criminal division under Holder. Breuer, a vice chairman at Covington, vowed not to represent companies under Justice Department investigation, but his presence in a marketing document specifically wooing bank clients is clear: Sign up with Covington, and you get access to insiders at the highest level.’
‘That’s precisely Eric Holder’s value to the firm. He’ll never end up as lead litigation counsel for Citigroup, and he can’t be involved in any cases dating back to his Justice Department tenure for two years. But he’ll be able to advise behind the scenes, a compelling prospect for banks in trouble.’
But posters like WPA will still run around, “conservatives, bahh!’ while these people rob us blind. I can remember when the Occupy Wall Street movement had 90+% approval in this country. But go ahead, fall back into the false dualism’s that keep us divided and the PTB in power.
We are encouraged to focus on the differences between the two parties allowed us. Stay divided on various issues important to different groups of people. Meanwhile both parties are the same when it comes to things that would make everyone’s lives better. No change. Actually there is steady change now, for the worse.
The financial power structure vets the puppets we vote for on both sides. I think this is the normal state of affairs in the world. Moments when they lose control, like when this country was first formed, are relatively brief.
Also Eric Holder is scum.
Remember…. A ‘housing recovery’ is falling housing prices to dramatically lower and more affordable levels by definition.
“Farmland Prices Fall 11.3%”
http://www.businessrecord.com/Content/Real-Estate-Development/Real-Estate-Development/Article/Farmland-prices-fall-11-3-percent/173/835/70292
“Big Reasons Not to Buy a House”
http://money.usnews.com/money/personal-finance/articles/2015/10/07/big-reasons-not-to-buy-a-house
“Four more years and counting,” Boles says, referring to when she can dump her house,
http://www.latimes.com/local/california/la-me-1007-lopez-water-glutton-20151007-column.html
how they do in CA bel-Air style
Bill Black is right on the mark yet again. The first in line to go to prison for the misdeeds of the latest and arguably still current financial crisis is non other than BB (Ben Bernanke) himself. What a coward he was and still is. Many others that were and are still in government belong there as well.
It is unfortunate that most Americans just are not in a position nor will ever be in a position to demand this. The judiciary are also full of cowards and corrupt individuals who base their action/decisions purely on politics. Pathetic.
Bill Black is the man. But the list is long. Of course Ben should be jailed, but who should be first, tough call. I might vote for Robert Rubin, or Larry Summers. So hard to pick: Lloyd “god’s work” Blankfein, Jamie Dimon, Hank “jazz hands” Paulson, Timothy “poison elf” Geithner, Alan “the maestro”, Mozilo the orange… so many.
You do realize that most of these people are merely pawns of the PTB, right? Even if they were jailed, it would not change anything.
“During an interview with Maria Bartiromo on FOX Business Network’s Mornings with Maria, former Federal Reserve Chairman Ben Bernanke was asked about the current state of the housing market. ‘There doesn’t seem to be anything remotely like we saw before the financial crisis, …’ notes Bernanke.”
Is chronic blindness to the economic status quo a qualifying factor in selecting a Fed Chair?
“The federal Hardest Hit Fund has been a flop in keeping Florida homeowners out of foreclosure”
But the people running the program made out like bandits.