People Believed It Would Be To Their Benefit
A weekend topic on the movie, The Big Short. From Intercept, “The Big Short is a movie that normal people will actually enjoy and understand, and that will make them as angry as they should be about what’s been done to us. After you’ve seen it, please come back here and read the rest of this. As good as The Big Short is, the housing bubble was such a gargantuan crime that no movie can capture more than a tiny corner of it. There’s much more to what happened, and even seven years after the bailout, little of it is widely understood.”
“In all the financial industry’s history it’s invented maybe three scams total, which it cloaks in an infinite number of ever-shifting disguises. And the housing bubble was one of those basic scams: In essence, it was a gigantic counterfeiting operation. During the 2000s housing bubble, the market “value” of U.S. homes swelled to about $8 trillion more than it would have been if prices had followed historical trends. To give you an idea of how big a bubble that is, the entire U.S. Gross Domestic Product in 2005 — that is, the value of literally everything produced by the United States that year — was only $13 trillion.”
“Wall Street joyfully issued bonds “backed” by trillions of dollars of that imaginary wealth, and paid ratings agencies to certify that the wealth was real. The effect on the economy was more or less the same as if Lloyd Blankfein had printed trillions in cash in Goldman Sachs’ basement and somehow persuaded everyone it was real and belonged to them. We all felt richer — for a while. The reason financial bubbles are so common is that they feel so good to almost everyone on the way up.”
“In 2010, when Greenspan claimed on Bloomberg TV that ‘everybody missed it, academia, the Federal Reserve, all regulators,’ he was specifically asked about the people featured in the book version of The Big Short who saw it all coming. Greenspan answered: ‘You have to ask yourself why would they make that judgment. The problem that you’re raising is a statistical illusion. … If you took 1,000 people and you split them into two and you had them toss coins against each other, when you get down to the last two guys, tell them that they don’t know how to toss coins.’”
“The second part of what Greenspan said was completely true — that is, correctly calling the timing of a bubble’s collapse is largely luck, and it’s unlikely anyone in The Big Short will be able to do it again as well with anything else. But for Greenspan, that was also completely irrelevant. As Fed chair, he didn’t need to know precisely when the bubble would deflate, something that was essentially impossible. He only needed to know that it existed, something that could be figured out by anyone with a subscription to The Economist.”
From Todays Zaman. “For those who still can’t understand the American mortgage crisis’ cancerous takeover, and how it sank the world economy, this film presents enlightening and understandable information for the layman through simplified examples that are directly explained to the audience through mini-sequences acted out by real-life celebrities. Meet the nerds of Colorado — partners Charlie (John Magaro) and Jamie (Finn Wittrock) — who run a small hedge fund in New York and also make the same bet with the aid of capital coming from retired banker aka “The Man Who Sold His Ferrari,” Mr. Ben Rickert (Pitt).”
“Charlie and Jamie are smart and sweet dudes, but they’re so hyped about becoming rich that they don’t get the big picture. When they accuse Rickert of lacking a celebratory attitude, Rickert replies bitterly, ‘How do you expect me to be celebratory when millions of people have lost their homes?’”
“You wonder whether these men realize their own hypocrisy. They probably do. At least we are relieved that Baum and Rickert do, yet does it really make a difference? Towards the end of the film (there are no spoilers, we all know what happened in 2008) McKay shows how so many lower level employees were fired from the financial institutions they worked in along with the downfall of the rest of the underprivileged population and reminds us that those at the top were not put behind bars but were awarded with a bail-out.”
“We are told that even the American system is rigged and the same thing is happening all over again.”
“If you don’t want to be left with a bitter taste in your mouth, look into what Iceland is doing today. It has jailed 26 bankers and every Icelander will be paid from the sale of the banks. At least there’s still hope in some places in the world.”
From Morningstar. “The Big Short implicitly confesses its sins by periodically informing viewers that an incident ‘really happened.’ We are left to wonder, probably correctly, about the veracity of the incidents that are unaccompanied by that promise.)”
“Well, that’s entertainment. ‘The Big Short’ accurately relates the basic story: Housing prices had soared and mortgage-lending standards had plunged, leading to the creation of millions of dubious mortgages (mostly with adjustable-rate features that would boost required payments when short-term interest rates increased). Those loans were packaged into complex securities that received higher credit ratings than their underlying collateral would have. As 2007 began, few understood how large that time bomb was and how easily it would be triggered by rising short-term rates.”
“Ultimately, the film deconstructs itself. ‘The Big Short’ wishes to have it both ways, deriving comic effect from the mass cluelessness while casting Wall Street banks as Ernst Blofeld. But that circle cannot be squared. Either those Wall Street workers were caught up in the moment along with everybody else or they were not. And the film shows that they were not. Greedy? Sure. Unlikeable? Check. But criminally knowing? Not many. As with most giant financial flops, the mortgage-bond con was largely unintentional, with those who received, wrote, securitized, and bought mortgages all happily believing in the housing fairy.”
“So, too, did those who wrote government policies that supported home ownership, and those who worked in agencies that furthered that aim. The villains of the business press’ version of this morality play (and make no mistake, ‘The Big Short’ is very much a morality play), Fannie Mae and Freddie Mac, receive nary a mention. As the business press has (mostly) told the story, government drove private enterprise into this disaster. ‘The Big Short’ portrays just the opposite, with government’s only fault being that it policed the baddies too loosely.”
“Those are two sides of the same elephant. ‘The Big Short’ is correct that the usual human failings of greed and arrogance drove Wall Street to make and distribute bad products, products that eventually would not only impoverish many retail investors, but also sink several Wall Street banks themselves. And the business press is correct that government policies, also created by flawed humans, offered support and encouragement for these mistakes. They are both right–and they are both wrong.”
“To which I would add the failings of Main Street. Homeowners have delighted in feeling aggrieved, sometimes at ‘The Big Short’s’ demon of the big banks and sometimes at business press’ demon of government. In blaming others, Main Street has been outstanding. In accepting responsibility, not so much. The greed inspired by the house-flipping TV shows and the arrogance of coworkers who turned real estate profits was no different than the greed and arrogance found at Wall Street banks, aside from scale. Nobody was forced to buy a house. Nobody was forced to overstretch for a mortgage. Just as nobody was forced to write a mortgage or package them into bonds. People did all those things because they believed it would be to their benefit.”
“If we look into a mirror, we will see who caused the mortgage-bond bubble. I certainly did my part, upgrading to a pricier house in early 2006. Fortunately for those who purchased my mortgage–the bank sold it almost immediately–I have obediently made my monthly payments.”
“My point? ‘The Big Short’ implies that if government clamps down hard enough on Wall Street, market bubbles, and therefore market crashes, may be averted. The business press suggests a similar result–if government is kept at arm’s length. Each has a point, but each is deeply flawed in believing that bubbles come from a single, evil source. Bubbles, at least of the very large variety, come from throughout society, and from people behaving … just like people. That is how they become so thoroughly encompassing, so difficult to identify, and so challenging for investors. Bubbles are us.”
The Worcester Telegram. “One of the many things that enraged me about that crisis was the oft-repeated false statement that nobody had warned authorities about the pending collapse. Let’s look at what is nefarious about the link between Wall and Main and how that played out during the 2008 financial crisis. The problem I refer to is the heads-I-win, tails-you-lose game that Wall Street plays with Main Street. In December 2006, I argued that subprime lender NovaStar Financial, whose shares then traded at $106 apiece, was heading for a huge fall because borrowers would be unable to repay the loans. NovaStar was delisted in 2008 after its shares fell below $1, changed its name to Novation and now its shares sell for 14 cents.”
“I was not alone. According to The New York Times, in 2005 ‘there were 1,628 articles in major world publications included in the Nexis database that used the term ‘housing bubble.’”
“A key question that the movie raises in my mind is where is the next big short opportunity? The movie does not provide an answer, but it suggests some signs to investigate. First, the bubble must be built globally by many different industry participants. Second, those participants must be motivated by an incentive system that rewards closing deals fast, not long-term profitability. Third, it must be based on borrowing large amounts of money. Finally, it must depend on convincing Main Street that it can win the lottery.”
I liked Margin Call better.
“….In blaming others, Main Street has been outstanding. In accepting responsibility, not so much….”
Here is a Main Street story I posted almost 9 YEARS ago. I was investing about 20-30 hours a week ferreting out and reporting mortgage fraud to the authorities. It was everywhere! I started a web site for you HBB’rs to report fraud! I was going to clean up the world of all this mortgage fraud!
It was not that easy, as shown below:
2007-01-21 04:58:23
Sacramento Mortgage Fraud Update 1/20/07
Many of you have followed my frustrating pursuit of justice for a suspected mortgage fraud case where a flipper/Realtor got stuck with 6 houses and sold 2 of them at $300,000 over market value. The buyer (and probably the seller) received 100%, 80/20 subprime financing from First Franklin and Long Beach Mortgage (aka Washington Mutual). This happened in October 2007 and these houses have been vacant and abandoned since the purchase. This all takes place in a little town of Lincoln, outside of Sacramento, California.
It has been a long struggle these last few months. I submitted the basic suspected mortgage fraud scheme to the FBI in writing on October 9th. Just for grins, I anonymously copied the Realtor on the cover letter, because she had 4 more houses on the same street. Within days, the Realtor disconnected her cell phone and her brokerage office claims they never heard of her. It is pretty hilarious. She also cancelled all the listings she had with herself and listed her properties with a Keller Williams agent in the neighboring town of Roseville.
Every now and then, I would call the FBI and try to follow up on the fraud case, which I identified as Hillwood Loop (you may see photos right here on Ben’s blog, slides #6 & 36). I was getting nowhere. Let me tell you, the FBI has some important priorities, but none of them involve customer service. The calls basically went like this:
FBI, “How may I help you?”
Paladin, “I want to follow up on my report of mortgage fraud”.
FBI, “How much money did you lose?”
Paladin, “None”
FBI, “Then how do you know there is a crime?”
Paladin, “Hey, if I saw a murder, I would not be dead, but I still would want to report it.”
FBI, “O.K., how may I help you?”
Paladin, “I want to report mortgage fraud.”
And this would go on for a few minutes until it was clear this ape on the other end of the phone was a receptionist and could not get his arms or brain cells around the concept of a third party reporting an observation of mortgage fraud. Finally, I asked him if I could speak with an agent. After the third request for an agent, he put me on hold for 7 minutes. Then an agent came on the phone. This did not go any better. The agent would not give me her name and could not comment on whether they had an open investigation on this incident of mortgage fraud. Oh! To the moon, Alice! Basically, she said I would have to come into the FBI office in person for an “interview”. Hello, Agent Alice, I am the good guy here. I hung up the phone feeling somewhat frustrated and angry, wondering if there was a Taliban club in Sacramento I might join (just kidding, folks).
That was in mid October. You will be interested to know that 12 more cases of suspected mortgage fraud have been committed on Hillwood Loop, totaling over $2,500,000, since that very day. That’s right, folks. While the Feds slept, the caseload grew to 14! In the 90 days it took me to get the posse to saddle up, TWELVE more suspected cases of mortgage fraud have been completed at The JTS Estates at Lincoln Crossing in Lincoln, CA, just outside of Sacramento.
In the meantime, some of you fellow bloggers suggested I contact the lenders. You will be pleased to know New Century (4 loans) and First Franklin have opened internal investigations and have been somewhat cooperative. However, getting a lender to voluntarily declare a $200,000 loss on their own loan is like getting a 5-year old to admit he took some taffy out of the grocery store bin. Even if you find the candy wrapper, there is not much you can make him do about the taffy.
New Century and I have actually established a cordial relationship. They “examined” their first loan and determined all was in order and closed the case. Now that I have prepared additional evidence and told them they have four loans and $800,000 in losses coming, the case has been reopened. First Franklin has given me some lip service, after my sixth e-mail to the president, Andrew Pollock. The other lenders, WAMU (aka Long Beach), Alliance, Axiom (4), Bear Stearns, Mortgage Investment Lending Associates (3) have all done nothing. There are 5 houses in foreclosure on Hillwood Loop and every one of these lenders loans exceed the average outstanding balance of the houses being foreclosed!
The fact I work 60 hours a week at a real job, have a family and employees and responsibilities was all put aside, while I took 3 hours during workday one week ago last Thursday to go down to the FBI. I was not going to be denied. I was just upset enough to invest 6 hours on the prior Saturday assembling a 25 page, 7 section book outlining the 8 cases of mortgage fraud (I was not aware of the next 6 at that time). I was also just lathered up enough to make 10-copies of that very report, because I was going to get justice, even if I had to stand naked on the steps of California State Capital and hand one report out to Arnold himself. Actually, I mailed a copy to the Placer County DA, the U.S. Attorney in Sacramento, and kept the extras in reserve (more on that later).
Going to the FBI is not like picking up a deli sandwich. I pulled up the building and saw an armed guard in front of a huge vehicle barrier. Once again, the surrealistic exchange occurred.
FBI, “May I help you?”
Paladin, “Yes, I am here to report mortgage.”
FBI, “I am sorry, you will have to make that report over the telephone. I can not allow you to enter.”
Paladin, “I have already done that. They told me to come down here.”
FBI, “Oh, who are you meeting with?”
Paladin, “I don’t know, she won’t tell me her name”
FBI, “Very well go park over there and approach me without your phone, camera, recording devices, or weapons.”
This guard took me past the armored gates and into the lobby. There I walked thru a metal detector and was scanned with a body scanning device. I half expected him to pull on a surgical glove and ask me to bend over. I then asked the receptionist, seated behind bulletproof glass, if I could see the “Duty Agent” to report some mortgage fraud. He said fine and to have a seat. I did….for 25 minutes. The FBI is a pretty interesting place and the people who come and go make for good people watching.
However, I was freezing my toes off. I went over to the thermostat and read the temperature. It was 62 degrees. No wonder my feet were getting numb. I forgot to bring my cold weather gear to the FBI lobby. I asked the receptionist, in his cozy office behind the bulletproof glass if he could give me a little heat. He laughed (asshole) and said they could not figure out how to get heat to the lobby. Great, the agency that is charged with protecting the U.S. from terrorism, can not figure out how to work a thermostat (or does not care.). I tell him I am going to go stand outside, where it is warmer, but no, I am not to be allowed out on the grounds “unescorted”. As a compromise, he puts me in an interview room. Tick, tock, tick, tock, tick, tock, another 15 minutes goes by while I am in this little closed in room about the size of large desk. I am not happy and the steam is starting to escape out of my ears.
Finally, Duty Agent X (remember, he can not tell me his real name) enters a room on the other side of this tiny bulletproof glass window. I slide my 25-page report under the window and ask him to read it. A few minutes go by as he reads the report. The steam continues to leak out of my ears.
Then, I cannot help myself as I go off on a rant directly at him and the FBI. I tell him about my frustrations of trying to get this case opened, how I submitted the initial report in October, how all the people contributing to Ben’s blog are laughing at him, how the criminals are blatantly committing felonies at an alarming rate right in front if his eyes. I actually feel like an idiot and Duty Agent X is embarrassed, but I can tell right then, he gets it. For the love of God and country, it is a blissful moment of epiphany. This guy is on my side. He understands what I am saying. He gets it! He starts asking intelligent questions and the next half hour is intense. He is going to take personal responsibility to make sure I get an agent assigned to me and this case gets worked. Of course, I still don’t know with whom I talked and I have no way of following up with him.
In the meantime, because I had been getting nothing from the FBI, I called the Lincoln Police Department. The detective I called had never returned any of my calls for over 30 days. I kept trying. Finally, I reached him and we set an appointment for a Friday morning. Then he calls to reschedule, because he has to be in court that Friday. I leave him a message with some dates that work for me. Somehow, a Detective Sergeant for the unit calls me back and wants to know what I need with the detective. I explain I have developed a lot of information about mortgage fraud and we were going to review it. Now, if you have never dealt with a “Detective Sergeant” of a small town police department, let me tell you, it is very weird. I have never met a more self-important idiot in all my life. The “Detective Sergeant” would no longer let me talk to the sergeant and I could not talk with the “Detective Sergeant” either. He insisted I come in a file a report with an “officer on duty”. Wow, this is weird. Anyway, I was able to get into the police department and leave the 25-page, 7-section report. I waited around for 20 minutes for the “officer on duty”, who never showed up. I then left because I had an 8:00 AM appointment at my office.
The “officer on duty” calls me later that morning and takes down my information. I ask him if he has read the report. He says yes, and that he has discussed it with the “Detective Sergeant” and they see nothing unusual or illegal here. This is a civil matter, if it is anything at all.
Oh! To the moon Alice! How can this be happening? I am incredulous, but I can only lead the horse(s ass) to water, I cannot make him drink. I tell him thank you very much and hang up. I stewed on this for about 5 minutes and called the “officer on duty” back and start ranting at him! He started to see the light.
Paladin, “Can you tell me how a single woman living in an apartment in Fremont, 200 miles away, buys two homes on the same day for $785,000 each, paying $250,000 over market value? She now has them listed for rent, where the rental income will total $3390/month, yet her costs will exceed $11,500/month. That negative cash flow exceeds $90,000/year.”
Somewhere, a light bulb flashed in the back of a dim mind. The “officer on duty” agreed to go back and read the entire report. He calls me back in 30 minutes and tells me he understands the situation and they are opening a case. Wow, I am jubilant! After 90 days of trying, I have a confirmed case number at the local PD. The officer asks if I can develop some more information and provide some details. Yes, I am happy to help.
Ironically, 30 minutes later, Special Agent XX (he actually tells me his name this time, but I will not reveal it) with the FBI calls me and leaves a message to call him back about this case. Wow, the El Nino of criminal investigations is underway. A tsunami of crime fighters is now at my disposal.
Next, the Lincoln officer calls me back with more questions, telling me the whole police station is buzzing about this case. I am getting excited too. I tell him Special Agent XX at the FBI is working on this too. He asks me for the agents phone number, which I provide, assuming the Lincoln Police will want to work this case together. Unknown to me, the Detective Sergeant immediately calls the FBI Special Agent to tell him the Lincoln PD has opened a case file and the FBI is not to work on the case. Augh! To the moon Alice! By the time I return the call to Special Agent XX, around noon, he delivers the bad news to me. If the Lincoln Police claim the case, he will not work on it. I am again incredulous.
Now, it gets interesting. The Lincoln Police had asked me for more details, which I developed during lunch and wanted to e-mail to them that afternoon. I called the Detective Sergeant who sheepishly told me the Placer County District Attorney had kicked him off the case. What?
I had been submitting e-mails to the DA for several weeks, to which a deputy DA responded by sending me a victim’s consumer fraud complaint form to fill out. I was baffled, as they clearly were not reading their e-mails very closely. Never the less, I filled out the form and sent it into the DA, along with the 25-page, 7-section notebook. The book really made him sit up straight and take notice.
The DA called the State of California Department of Real Estate to inquire about my report. Keep in mind, I had submitted a copy of my initial fraud report to the DRE on October 9, but all my inquiries went unanswered. However, an inquiry from a DA gets a little attention and the DRE pulled rank on the Lincoln Police and took the whole investigation away from them.
So where are we today? The DRE and the FBI are going to work together. There are 19 mortgage fraud investigations ongoing in Sacramento as we speak. One of them is mine. The FBI agent and I are on a first name basis and we are proceeding to kick some ass and take some names. I have developed a program to identify more fraudulent loans and will be paying a college kid to work the program. I think I can provide 50 more cases within the next few days.
I also have a team in place and we are starting a web site to report mortgage fraud on a national basis. We have purchased 7 domain names and are building the site as you read this. Bloggers around the nation will be able to report mortgage and real estate fraud with a few simple keystrokes on this new web site. We will download this information directly to the FBI and other appropriate law enforcement agencies. We hope to stop mortgage fraud before it starts. We are going to notify lenders their loans are fraudulent, with a cc to the FBI!! The lenders will not be able to sell the bad loans into the secondary market. Bingo, game over. No lender is going to approve any more fraudulent loans if they know we will find them and expose them before they can off load it to some unsuspecting 401(k), pension fund or insurance company.
Within a few days, I will post the new web site address here and on other blogs. We are hoping you all will provide us with a boatload of information. We will also have a PayPal account and a snail mail address where you may send donations. It is all my seed money so far, but if we can raise 100 donations of $50 each, we will kick some more ass and take some more names and bring sub prime lenders and their destructive loan practices to their knees in very short order.
Paladin
“Wire Paladin, San Francisco”
Have Gun, Will Travel
http://thehousingbubbleblog.com/?p=2211
And now you’re neck deep in it.
Good Lord Jingle. You’ve copy/pasted a whole book chapter. That guy is gone. Let it go.
I am writing the rest of the book.
Oh, Paladin. And did anything ever come of your epic efforts? Did anyone of the brokers who facilitated this endemic scam ever go to court — let alone prison? Did the FBI ever investigate the mortgage banks, the WS “bundlers”, the systemic rot at the highest levels of international finance? Of course not. The FBI had phones to tap, bank accounts to confiscate, potheads to prosecute.
At least you understood the process well enough to profit from your perch on the periphery, but ten years on, the chicanery and outright fraud openly encouraged during this era have permeated every aspect of our daily lives. At least you can go to sleep at night knowing you tried to make a dent in the corruption, and for that, I salute you, Sir.
My motto for 2016 is “If you play fair, you lose.”
It’s time to adapt to the corrupt system we find ourselves in.
Obama simply ramped it up by orders of magnitude.
That’s cute Russ.
ahansen, one fraud ring (24 houses) and a pair of sisters (Edwinna Firmeeza & Cynthia Lorica) who bragged about buying 72 houses were busted and did jail time. The banks lost at least $5,000,000, probably much more on both sets of crimes.
Your point is well made: the fraudulent activities of so many people just overwhelmed the FBI. It still overwhelms me! I still see houses and defaulted borrowers today with unresolved situations related to 2005-07.
That doesn’t even count the MILLIONS of people in 2005-07 who innocently, unknowingly paid 30-40% more to buy their homes, because they were competing with the fraudsters for shelter. They have good jobs, are making their house payments and reducing debt, but will contribute $200,000 or more to their cost of living over the last 10 years. Even more going forward.
I was lucky and saw the bubble forming (thank you HBB). I wanted to buy a house in 2005-06, but rented instead. I don’t believe in shorting, mostly because I don’t like to bet on people or companies failing. I did save my capital and ended up buying houses in 2008-10. I was scared, but liked the fundamentals.
Now 8 years later, I can tell you how it has played out: About $225,000 in investment cash now returns over $30,000/year cash flow and the equity value exceeds $800,000. It has been a life changing lift for me economically. This will allow me to retire more comfortably in 10 years. It will buttress my Social Security and make life more comfortable. I also get to live in a house I could never have achieved or afforded, but for BofA selling it for 60% of their 2007 loan amount.
I feel fortunate. I also work hard and I take care of the people who rent from me. They are my clients. It is a win/win for them too.
I also understand Ben’s angst (and others’) about profiting from the bubble misery. I actually see myself as more like Ben than different from him. I bought zombie houses from banks and returned them to rental inventory. I don’t raise rents on existing residents. However, i think Ben rails against the system so he can effect change. I guess I have abandoned trying to change it, have accepted it for what it is, and move forward within it to create win/win situations where I see opportunities.
…and I get know people like you, a, and like them and feel compelled to answer them when they ask questions. It’s good to know you are still out there.
“About $225,000 in investment cash now returns over $30,000/year cash flow”
I could say this as well but the about $225k figure would be total cost with a little thrown in for improvements. But then I started in the late 70s and had the backwind of inflation. You do have the advantage of low, low interest rates… I can remember thinking 13.5% was a good deal.
So low interest works in your favor as you are paying principal from the start. As long as there are high paying jobs surrounding the seat of the world 8th largest economy you may be able to keep it up.
But forget about the $800,000 equity. That’s just froth and has no more substance than the seafoam you see at the ocean.
Be sure to set yourself up with a healthy maintenance fund because the repairs are going to start kicking in 8 - 15 years from now.
Margin Call was great. I need to re-watch it - free on Amazon Prime, for anyone who’s a member.
Margot Robbie makes more money taking a bubble bath than I do as an engineer working all year.
‘At least you understood the process well enough to profit’
Like the movie, what seems to have more importance is profiting than what’s wrong with the process. I decided tech stocks were a bubble in late 1999. I emailed Jim Rogers about shorting it and he warned me that it would be costly if I timed it wrong, and I backed off. He was right. Anyone who successfully shorted QQQ was lucky. These guys in the movie were lucky. But why is there a bubble at all? And what that was broken has been fixed?
The Federal Reserve has more power, and it’s been their choice to foam the runway for banks. It was Bernanke’s decision that a wealth effect from higher stock and house prices would solve our problems. Look around; Jingle’s happy face is that wealth effect. The lines at Applebee’s are the wealth effect. The new cars. I remember in 2004 walking into a parking lot where I worked and noticing almost all the cars were new. I remember going back to Sedona that year and everyone I knew acted like they were on some kind of money drug about houses. They either owned some, sold them or worked on them in some way, and were making money hand over fist.
It’s hard to realize the wealth effect is an illusion of sorts. Yes, the cars are real. The meals are real. The profits are real. But if I am right they will be seen in retrospect as not being so real in light of the recession that follows. No one can print wealth. Many trillion in fiat have been created and we are on a huge sugar high - again. Because we didn’t send anyone to jail, we didn’t take the opportunity to build a sustainable economy, we didn’t take our medicine and allowed the PTB to do what they have done, we are right back where we were.
If only we were headed right back where we were before all this. I’m afraid that isn’t likely.
I believe we are a long way from where we were in 2006, which I consider the bubble top in the U.S. The conditions with subprime loans today is fractional, compared to then.
The bigger question is really about China. How bad is it? Hard to tell. How will it effect the U.S.? Well, we don’t export much to them, but we do trade a lot with the rest of the world…who trades a lot with China.
I went 50% liquid with stocks in 2015, I put 10% of it back in when the Dow hit 15,900. I am guessing I’ll be buying more stock soon at sub 16,000.
….and just for the record, I bought my car used, it is 8 years old and has 144,000 miles on the speedometer!
Jingle_Fraud,
3% down payment mortgages which has been the standard for the majority of mortgages is the definition of sub-prime.
Odometer. If you have 144 on the speedometer, you will be blogging from county jail.
Miami, FL Housing Prices Crater 6% YoY; Massive Excess Inventory Grows Nationally
http://www.zillow.com/downtown-miami-fl/home-values/
“If we look into a mirror, we will see who caused the mortgage-bond bubble”
Maybe not so much for the HBB crowd.
The housing bubble was/is a ship full of fools, but condemnation is especially in order for the supervisors who decided to disable and remove all safety devices.
Bahahahahaha … here’s a five-minute video of some of my bought-and-paid-for political lackeys debating Glass Seagull and other speed bumps to endless banking profits …
http://money.cnn.com/2015/10/14/investing/democratic-debate-what-is-glass-steagall-act/
How much did you have to bribe top economists to get their endorsement of that bad idea?
People were only too happy to beleive you could get something for nothing. All but a few on HBB included. How can all this phony valuation during “the bubble” stuff be peddled at the same time houses have pretty much returned to those same bubble prices in the last 3-4 years ? It was fraud then and its fraud now.
It’s like Lola saying: I believed my boyfriend was treating me so super nice then I caught him cheating on me, but that’s over now and he’s treating me super nice once again.
It is all about the belief you can get something for nothing. Given that most Americans believe in the Social Security and Medicare systems, and refuse to see that these are nothing more than giant Ponzi schemes, it’s not surprising they believe(d) the fairy tales about the stock market, dot com’s, the housing bubble, Uber and SnapChat being worth billions, etc.
We’ve been trained since birth over the last century to believe in tooth-fairy economics, and only a few of us, who some people refer to as ‘the Remnant’ see through the illusion.
From The Big Short link …
“Thus the real criminals are exactly who you think they are: Wall Street, plus the Republicans and Democrats who execute their orders.”
Bahahahahaha … “Republicans and Democrats who execute their orders” is a good indicator that no matter who it is that wins elections the True Shotcallers - the money guys - will always - ALWAYS - enjoy a win.
Pukes vote every two years or so and a bit more than a half of these voting pukes get to enjoy the feeling of a win, while all bankers get to sit back and relax and get to enjoy a win every single day.
“But the biggest crime they committed isn’t their spectacularly creative financial fraud. It’s been their absolute refusal afterward to allow us to use our own government to fix the disaster they created.”
And just why would a True Shotcaller want to “fix” a good thing they have going?
Dummys, dummys all. God’s gift.
Massachussetts Housing Prices Crater 6% Statewide
http://www.zillow.com/ma/home-values/
San Clemente, CA Housing Prices Plunge 9% As Demand Plunges To 30 Year Low Statewide
http://www.zillow.com/san-clemente-ca/home-values/
“And the housing bubble was one of those basic scams: In essence, it was a gigantic counterfeiting operation. During the 2000s housing bubble, the market “value” of U.S. homes swelled to about $8 trillion more than it would have been if prices had followed historical trends.”
And the US housing market prices are still grossly inflated 250% higher than historical trend resulting in housing demand collapsing to 20 year low.
There’s a reckoning coming and it won’t be pleasant for anyone who bought a house the last 16 years.
It’s not a good day to be neck deep in debt, that’s for sure.
If you had a 15-year amortization, you are just fine. And since it may be another 15 years to a 2007 style meltdown, a 30-year amortization my do well too!
It seems the next 2007 style meltdown is underway. Look outside the window before posting!
You may be right, but I believe it is 3 to 5 years away. Plus the factors involved the current economic situation are much less imbalanced than 10 years ago.
The meltdown is already underway. Falling prices, collapsing demand, global recession ramping up and unprecedented levels of mortgage and appraiser fraud.
25 MILLION excess, empty and defaulted houses CHECK
Housing demand at 20 year lows and falling CHECK
Housing prices inflated by 250% CHECK
Household formation at multi decade lows CHECK
Rampant housing fraud CHECK
A media corrupted by the housing industry CHECK
Population growth the lowest in US history CHECK
Immigration flat to slightly negative CHECK
“much less imbalanced than 10 years ago”
Less is more.
A Global Bubble floating over Ben’s aptly named “Sea of Deflation”.
You had me at 25 MILLION…..
Not! HA! Ha, ha, ha….
Remember Jingle_Fraud…… Nothing accelerates the economy like falling prices to dramatically lower and more affordable levels.Nothing.
“The Entire Risk Paradigm Is Shifting” - Stocks Join Global ‘Reality’ Adjustments
This is increasingly taking on the proportions of a global reset.
http://www.zerohedge.com/news/2016-01-08/entire-risk-paradigm-shifting-stocks-join-global-reality-adjustments
The deliberate interference with the correction in 2008-2010 simply enlarged the size and scope of the reset that is now manifesting itself globally.
Hang onto your hat cowboys because you’re in for the ride of your life.
How soon until the gang who recently bought U.S. residential real estate with a plan to rent it out for a couple of years before flipping for a quick profit discover that they are priced in forever?
Unless the Fed is going to keep these REITs whole, why wouldn’t they exit quickly in a price decline?
Last week’s Wall Street action has cast serious doubts in my mind that the Yellen Fed is as willing to rescue reckless speculators as the Bernanke Fed was.
The Fed is a club for bankers only.
Financial movies usually s k
Where was the big oil short?
No one hear called it and folks here are paying attention
I called it my friend. Many months ago.
The multitudes were deeply involved in creating the housing bubble but not so in creating the oil bubble.
Put in a different way: The housing bubble was the product of a mass mania while the oil bubble was a product of manipulation.
The oil price boom was a proxy for the building boom. The one would be done when the other rolled over. We talked about it, especially in response to our old buddy Dan.
We never seem to be able to figure out what TO invest in, but we’re good at figuring out what NOT to invest in.
Cash Russ cash!
figuring out what NOT to invest in
The big short.
Sure we have ideas on what to invest in. They just aren’t always right. Getting out of debt has been a good strategy.
I’m not a gambler, and note how many times people talk about these guys “betting” on this or that. I had a guy email me in 2006 I think, who said he was making $60000 to $70000 a week shorting shack builders. I admire that, but it’s not for me. Another poster lamented a bunch, and I suggested he short Fannie and Freddie like Jim Rogers was doing. Their stock plummeted and afterward he said, “I shouldn’t have to short anything”. What he really wants is a government guaranteed 15% return. Good luck with that.
I’ve mentioned many times, copper has been telling us all we needed to know. And copper has been known to be right for decades.
I don’t like Lewis for reasons I’ve mentioned before. But this movie seems to have brought up a subject that sure feels like unfinished business. It reminds people of the unfairness of the outcomes. That billions could be made betting that houses had become a casino.
“If you don’t want to be left with a bitter taste in your mouth, look into what Iceland is doing today. It has jailed 26 bankers and every Icelander will be paid from the sale of the banks. At least there’s still hope in some places in the world.”
Would any of the current field of presidential candidates possibly follow a similar approach?
Maybe Bernie Sanders?
Barney Saunders is pro-debt slavery.
A socialist is not likely to work to give people their hard earned savings back. That’s not what socialism is about.
Cash is paying .3 to .5%. I’ve been buying munis at 2.5 - 3% but understand there is risk involved. Timed to pay off when I’ll be headed towards the ALF.
If one believed in deflation I suppose annuities would be the way to go. But it would have to be gentle deflation rather than a crash that wiped out the insurance company.
You must have slept through fall 2014 and all of 2015. A lot of us were all over the oil crash and its connection to the Chinese implosion, Crow Boy excepted.
January 1, 2015
Housing Bubble Predictions: 2015
What are your new year housing bubble predictions? Six months ago, “Okay midyear prediction. I was wrong last December. But I keep trying. Anyway: Stocks will do well through early November. The S&P 500 will finish 2014 positive. Could be in the double digit percentage gain at least by election day in November. If the percentage gain is above 20% by then, watch for a correction taking the S&P down, but overall finishing in the single digit percentage gain on the closing bell the last trading day of the year compared to opening bell on the first trading day of 2014.”
…
Posted By: Ben Jones @ 3:18 am
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212 Comments »
Comment by Jingle Male
2014-12-31 03:44:54
It is always fun to review the year and the predictions. Oil prices dropping 50% came out of the blue. Thanks Ben!
Reply to this comment
Comment by Whac-A-Bubble™
2014-12-31 05:15:26
Is oil somehow special, or is it possible other assets (housing, stocks, etc) could follow a similar price path in the aftermath of many years of intervention?
Reply to this comment
Comment by Shillow
2014-12-31 06:11:49
Isn’t oil special in that the price is set by an open cartel?
Reply to this comment
Comment by Whac-A-Bubble™
2014-12-31 06:16:06
Not sure how OPEC compares to central banks when it comes to price fixing efficacy.
(Comments wont nest below this level)
Comment by Shillow
2014-12-31 06:48:07
OPEC can obviously do it very quickly. We’ll see how temporary it will be, but I’m not sure OPEC’s game is to repeal gravity like the central banks.
Comment by Whac-A-Bubble™
2014-12-31 06:53:39
It’ll be interesting to see how OPEC’s pricing power holds up against the lifting of the US export ban. It almost looks as though someone had their bluff called.
US eases oil export ban in shot at Opec as crude price slumps
American move to allow more oil exports will escalate price war with Opec and potentially force crude oil even lower in 2015
A gas flare burns at a fracking site
US escalates battle with Opec for control of world oil markets
Photo: REUTERS
By Andrew Critchlow, Commodities editor
10:29AM GMT 31 Dec 2014
President Barack Obama has fired a shot at the Organisation of Petroleum Exporting Countries (Opec) in the war to control global oil markets by quietly sanctioning the easing of America’s 40-year ban on exporting crude.
The US government has reportedly told oil companies they can begin to export shipments of condensate - a high-grade crude produced as a by-product of gas - without going through the formal approval process. The move could signal that a full opening of the export ban, which has existed since the oil shock of the 1970s, is imminent.
Brent crude fell sharply on the news, first reported by Reuters. The global benchmark opened down almost 2pc in London at $56.85 per barrel as it closes in on its biggest annual drop since the financial crisis in 2008. Brent has lost 50pc of its value since reaching its year-long high in June.
The ending of America’s self-imposed embargo on oil exports would mark a serious escalation in the unfolding oil price war with Opec led by Saudi Arabia. The kingdom has made it clear that it is willing to watch the price of oil fall lower in order to protect its share of the global market. Opec share has fallen to about a third of world supply, down from about half 20 years ago as the flood in shale oil drilling in the US and new supplies from Russia and South America have created a global glut.
Meanwhile, the sharp fall in the value of oil is placing economies in major producing nations such as Venezuela and Russia under extreme strain.
…
Comment by Albuquerquedan
2014-12-31 08:47:17
It doesn’t change anything fundamental. Oil cannot be produced at these prices in sufficient quantity to meet demand. Spiking the dollar may keep oil and gold prices down for a while, the first six months of 2014 both rose until the manipulation began, however, it is going to have a major impact on multinational profits and it is very difficult to see how they can continue to spike the dollar without causing a recession in this country. What Obama is doing is just a little more sophisticated than Mugabe but in the end it is just trying to set prices by fiat. It did not work in the old Soviet Union or in Zimbabwe and it will not work now. We lost 35 rigs just last week, oil production instead of going up one million barrels per day in the US in 2015 may drop. In the end the physical market will prevail over the paper (futures market) despite the manipulation.
Prediction: $70 plus oil by the end of 2015 and gold over $1300.
…
I forgot about Shillow, he was a good fellow.
Indeed he was.
“Comment by Whac-A-Bubble™
2014-12-31 05:15:26
Is oil somehow special, or is it possible other assets (housing, stocks, etc) could follow a similar price path in the aftermath of many years of intervention?”
In retrospect, that was a damn good question to ask a year ago.
Now at the outset of 2016 I have a closely related question:
Is U.S. housing somehow special, or is it destined to follow other high risk assets (foreign housing, junk bonds, commodities, stocks, etc) into the black hole created by the Chinese economic implosion?
You and Jingle both posting whole books of old bones.
If you don’t know where you’ve been, you won’t know where you’re going!
Then get your eyes off the rear view mirror and on the road and look whats coming at you head on Jingle_Fraud.
It irks me when someone who posts almost nothing of substance makes unsubstantiated claims, like
“Where was the big oil short?
No one hear called it and folks here are paying attention”
If you skim my long post, you can see we were already all over the oil crash (aka one of the biggest news stories of 2015) as of December 31, 2014.
“Auto Sales Are About To Choke: Increase In Non-Revolving Credit Is Smallest In 4 Years”
http://www.zerohedge.com/news/2016-01-08/auto-sales-are-about-choke-increase-non-revolving-credit-smallest-4-years
Did you ignore your gag reflex and pay a grossly inflated price and magnify your losses by financing?
Don’t forget “on a rapid deprecating asset.”
I reserve that expression for the depreciating asset that results in the greatest losses: Houses.
“Auto Sales Are About To Choke…”
There’s a “funny-money” story here.
I’ve been looking for a $10k used Toyota Tacoma 4×4 pickup w/extended cab for my son, pay cash, no collision insurance. I can use it to tote my hang gliders to the launch sites on various weekends. I have been looking at Craigslist patiently, but everything in my price range has 180,000-miles or more! Holy chit!!
Recent news stories abound about 62% of Americans have less than $1,000 in savings, or living one paycheck from the street. I know from my repo days that when the automobile stops running the payments also stop too. Enter financing. So who is writing $10k loans on worn-out vehicles? Is someone bundling these auto loans into junk bonds and selling them to the fed to keep things moving along?
I always thought used car financing was unavailable. Maybe it’s the credit unions?
IIRC, banks have been financing used cars for a long time. And by used, I mean cars that are fairly new and low mileage, not cars with 180K on the odometer. I have no idea who is financing those, other than the ubiquitous “buy here, pay here” (very) used car lots
A couple years ago we were gonna get the wife a new car. Chase would finance a car as long as it was 4 years old or newer.
Good luck finding a decent used Toyota 4×4, the prices those things command you are almost compelled to buy new.
“Good luck finding a decent used Toyota 4×4, the prices those things command you are almost compelled to buy new.”
The steep insurance costs on a new vehicle keep me from going that direction. I can afford to “eat” a $10k loss, so avoiding comprehensive insurance saves a bundle especially for Honda and Toyota brands. I bought an “always garaged” $10k, 115,000-mile, Honda Accord EX-L Coupe for my daughter a few months back; a very nice vehicle. Finding a decent Toyota Tacoma 4×4 w/ext cab is a bit more of a challenge.
There’s no point fighting liability insurance costs and young drivers, and I have no argument there; man up, dad.
Millbrae, CA Housing Prices Dive 5% YoY
http://www.movoto.com/millbrae-ca/market-trends/
If only you could read. How is a house selling for $799/SF “crashing”?
HA, Ha, ha, hahaha……idjet
Here’s your problem Jingle_Fraud. They’re not selling.
Remember…… Housing demand in California is at 30 year lows and falling.
One of my best friends lives in Millbrae. Everything listed sells within just a few days or weeks. If the stats show fewer sales YoY, it is because no one is SELLING!
You are so ignorant, it is a shame. It is also a sham! HA!
Falling housing prices in Milbrae, CA Jingle_Fraud. Falling housing prices and collapsing demand.
Yet the stats you post show prices rising! HA!
Down is up in your degenerate gambler world Jingle_Fraud.
Pacifica, CA Housing Prices Crater 13% YoY As Mortgage Defaults Surge
http://www.movoto.com/pacifica-ca/market-trends/
‘In a recent post about the new movie The Big Short, I argued that it’s not actually necessary to decipher the abstruse jargon of the 2008 financial crisis — i.e., credit default swaps, mezzanine tranches, synthetic collateralized debt obligations, etc. — in order to understand what happened. What the big banks did during the housing bubble of the mid-2000s was in essence straightforward counterfeiting. The difference between what they did and regular counterfeiting was simply the kind of fake paper; regular counterfeiters print fake, valueless cash, while the banks were printing fake, valueless bonds.’
‘However, I then made a very serious mistake — I claimed there was a “small difference” between regular counterfeiters and the ones on Wall Street: “Regular counterfeiters generally want to spend all their bad paper themselves, whereas Wall Street just took a percentage for running the presses. Then they often, though not always, passed their bad paper along to others.”
‘What I didn’t understand, and commenter Larry Headlund pointed out, is that counterfeiting cash actually does work the same way. That is, counterfeiters would not print up $100 million in cash and then spend it all themselves. Instead, they sell their fake cash to others for a percentage of the face value.’
‘Ben Tarnoff explains the process in his book Moneymakers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiters: ” Counterfeiting cash in large quantities posed a problem. Spending it was risky, particularly among people who had reason to doubt you earned it honestly.”
“The solution was to let others pass it for you either by selling them the counterfeits in batches or … lending the notes on consignment. At the top of the counterfeiting scheme was the engraver. … Next came the printer. … At the bottom were the passers, who exchanged the fake bills for real money, thus generating the profit that fueled the venture.”
‘Another book, A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States, quotes an observer about how similar counterfeiting can be to “honest” business: “One contemporary, marveling at the growing complexity of the market in counterfeits … observed that “this counterfeiting traffic … as with honest mercantile business, has all its branches, and descends from the wholesale to the retail vendors, and generally ends in the hands of the poorest and most simple individuals.”
‘So there you have it: I was wrong, and apologize to Wall Street for drawing too stark a distinction between them and regular counterfeiters.’
‘Single-family housing starts jumped in November. As compared to the month prior, starts rose eight percent on a seasonally-adjusted, annualized basis to reach 768,000 units. A “started” home is one on which ground has been broken and November’s figures mark a 15% improvement from one year ago and the highest reading since early-2008.’
‘The nation’s builders are scrambling to meet surging buyer demand which has been fueled by rising rents, cheap mortgage rates, and an abundance of low- and no-downpayment mortgages. The 80/10/10 piggyback loan has been in high demand, and buyers are finding the Fannie Mae HomeReady™ home loan to be an interesting alternative to FHA lending.’
‘The math for “Should I rent or should I buy?” is shifting and this month’s housing starts data reflects that. Builders are adding supply, which may help prices to fall. It’s an excellent time to shop for a home.’
‘Multiple-offer situations are common and homes are selling quickly. If you’ve been in the market for a home, no doubt you’ve noticed. It’s a competitive market and putting your best foot forward is essential if you want to “get the house”.’
‘The good news is that mortgage approvals are getting simpler. In addition to reducing their loan approval standards, mortgage lender have recently lowered minimum credit score requirements, made concessions for self-employed income, and granted leniency on loans which “make sense”.
‘Furthermore, there are more low- and no-downpayment loans available than during any period this decade. In addition to the Conventional 97 program and HomeReady™ programs, which are backed by Fannie Mae and require just 3% down, demand for the FHA 96.5% LTV program is high, as are requests for “piggyback loans”.
‘There are also the VA and USDA loan programs — both of which allow 100% financing.’
How soon until the current wave of subprime buyers gets wiped out?
Do you mean how long until the realization that they are wiped out?
I had in mind concrete indicators like falling home prices, mortgage defaults, foreclosures, eviction notices, etc. I guess it’s too early in the cycle for all that to happen again just yet.
There is a global recession. It will be realized here soon with another bout of massive layoffs. Maybe that will blow some of the fairy dust off.
Something ‘massive’ is happening in the economy: Pal
Leanne Miller
Saturday, 9 Jan 2016 | 5:03 PM ET
CNBC.com
China’s market turmoil and an extended downturn in oil wreaked havoc on stocks this week, with the S&P 500 Index and the Dow Jones Industrial Average off to their worst start of a year.
The sell-off has some questioning the strength of the U.S. economy, but few think the world’s largest growth center is at risk for a contraction. However, one widely regarded investor says there’s little debate: the U.S. is likely already in a recession—and he claims to have hard numbers to bolster his case.
Looking at International Monetary Fund data, “the year-over-year change in global exports is at the second lowest level since 1958,” Raoul Pal, Publisher of the Global Macro Investor told CNBC’s”Fast Money”this week.
Basically, it means economies around the world are shipping their goods at near historically low levels. “Something massive is going on in the global economy and people are missing it,” Pal added.
The steep decline in 2015 exports is second only to 2009, when the global recession led to a 37 percent drop in export growth.
…
“Builders are adding supply, which may help prices to fall. It’s an excellent time to shop for a home.”
They neglect to mention that building permits are still at 1960s level.
“They neglect to mention that building permits are still at 1960s level.”
And organic housing demand at early 1990’s level.
‘Furthermore, there are more low- and no-downpayment loans available than during any period this decade. In addition to the Conventional 97 program and HomeReady™ programs, which are backed by Fannie Mae and require just 3% down, demand for the FHA 96.5% LTV program is high, as are requests for “piggyback loans”.’
Step right up and get your Subprime Sam Special while they laat!
I kept re-reading this post, looking for the 2006 date, in honor of the Big Short. It’s 2016. I guess a decade is enough time to forget. Strangely, we are still seeing foreclosures in our neighborhood related to 2006 purchases.
Not to mention the defaults racking up from all the suckers who overpaid 200% from 2009-2015.
25 million excess empty and defaulted houses didn’t magically disappear.
Strangely? Most foreclosures in the entire country are foot-printed in that period and have been all along.
‘Rising interest rates could be mortgage servicers’ saving grace in 2016.’
‘While servicers are still dealing with high levels of problem loans in their portfolios, they are hopeful that rising rates will slow the outflow of loans they lose when borrowers refinance. At the same time they are counting on loans they’ve lost to refis to be partially replaced by stickier purchases, balancing out their portfolios and bolstering their bottom lines.’
“With mortgage rates potentially increasing in 2016, loan origination volume will play a large part in a successful outlook for mortgage servicers next year,” said Robert Parker, the mortgage servicing manager at Trustmark Mortgage Services, a division of Trustmark National Bank.’
‘That’s the good news in the outlook for mortgage servicing in 2016. The bad news is that, even as delinquencies and foreclosures have declined over the last couple of years, servicers are still stuck with scores of problem loans that require constant – and costly – monitoring.’
‘The cost to service a performing loan jumped to $170 a loan per year in 2014, down from $205 in 2013 but far above the $59 in 2008. The cost of servicing a nonperforming loan is now more than $2,300, from $482 in 2008, according to the Mortgage Bankers Association.’
“Mortgage servicing is so hard these days, even the current stuff, you just can’t make money at it,” said Andy Laing, the chief operating officer at Fay Servicing, a Chicago special servicer. “Costs have gone up across the board.”
‘Brock Vandervliet, an executive director and senior analyst at Nomura Securities, sees an upside from the more than $460 billion in nonperforming and so-called reperforming loans still left over from the crisis.’
‘He estimates there is four years’ worth of potential nonperforming loan volume that could be sold, and nearly six years of reperforming loans, so more mortgage servicing transfers are ahead. (The majority of the loans are being serviced for Fannie Mae, Freddie Mac and the Federal Housing Administration.)’
“There’s a lot of raw material for a servicers but they have to stay on top of those borrowers to make sure they continue to write checks,” Vandervliet said. “It’s not a one-time fix and they move on.”
‘But Fay’s Laing isn’t so sure. He says smaller and regional servicers might not have the capacity to handle the volume of nonperforming and performing, but still risky, loans that larger servicers are looking to unload. “The message for 2016 is there are still a lot of nonperforming loans out there,” said Laing. “The No. 2 issue is who is going to be able to take on this volume?”
‘While servicers are still dealing with high levels of problem loans in their portfolios, they are hopeful that rising rates will slow the outflow of loans they lose when borrowers refinance. At the same time they are counting on loans they’ve lost to refis to be partially replaced by stickier purchases, balancing out their portfolios and bolstering their bottom lines.’
The currently mortgaged borrowers who don’t eventually default are likely to find themselves paying comparable monthly payments to new buyers a few years from now, except that the values of their homes will have to adjust downwards to reflect the higher portion of new buyers’ payments covering interest.
Yup, I had that Economist subscription, and read The Housing Bubble Blog and others like it. And I remember the 1980s bubble, which was less geographically broad and mostly affected commercial real estate.
The problem is that millions of people were in on the fraud, spending money they didn’t have based on borrowing more than they could pay back.
And all that debt has covered over rising inequality. Or at least it did. In fact, without soaring debts the huge increase in inequality could not have occurred, because business would not have been able to pay people less and then sell them more.
https://larrylittlefield.wordpress.com/2014/03/09/debt-and-inequality-go-together-rising-debt-is-the-cause-of-rising-inequality/
The entirety of government action since 2008 has merely served to keep the wolf at the door, without solving the problem. And to achieve this, governments backed themselves into a corner with inflated debt and zero interest rates.
And those who benefitted the most, instead of being chastened by bankruptcy, now arrogantly demand that food stamps be eliminated.
Why not both bankruptcy and no food stamps for the able bodied lazy?
truth is most able bodied lazys have a severe functional illiteracy problem, and people are too scared to address it cause you know its racis
that’s why i always propose they sit in class 15 hours a week and learn English and Math for their EBT card
Nobody will hire them. They have no skills and can’t learn any. When they begin to starve, they’ll turn to crime, and end up in jail costing us 5x as much.
Food stamps are the cheap option.
How many people in this country know about foaming the runway for the banks? It was government policy, Fed included, yet how many know the entire foreclosure “rescue” was to benefit lenders?
How could gamblers make billion betting house prices would fall? Isn’t the real question, why were house prices too high in the first place? I always chuckle when stocks or something go up rapidly. Hurrah!! Then when they fall it’s “boo hoo, how could this happen?” How many consecutive dozens of months have house prices gone up double digits in California? Get ready for the boo hoo.
I’m ready for the “ha ha.”
It’s the Housing Bubble Larry. 15 years ago there were less than 20 million on what we now call SNAP. Now there are 45 million. During this period the cost of housing doubled, the cost of food and energy doubled and our less than equal pay did not. Aside from the “inequality”, this is what the Fed and their bubble blowing has done to the country.
Stop that beast and our cost of living will fall dramatically all on its own.
“Greenspan answered: ‘You have to ask yourself why would they make that judgment. The problem that you’re raising is a statistical illusion. … If you took 1,000 people and you split them into two and you had them toss coins against each other, when you get down to the last two guys, tell them that they don’t know how to toss coins.’”
WTF?!
I didn’t get that either ?
“If you took 1,000 people and you split them into two…”
Sounds disgusting and lethal!
Typical incoherent Greenspan Fedspeak: The words by themselves make sense, some of the concepts make sense but the overall thought makes no sense.
Forest Gump made more sense than Greenspan.
Greenspan is saying by the time only two guys are left in the coin tossing game, they will believe themselves to be highly skilled coin tossers! Nothing you can say will dissuade them from believing they are geniuses.
He is making a comparison to the big short participants.
So Greenspan is trying to conflate coin tossing with identifying bubbles?
I think the point is more about the timing needed to make a billion plus dollars on your big short bet. Much of the movie is focused on the period when the short guys were losing their shirts and dropping F-bombs in every sentence. Only at the end do they all make out like bandits while the rest of the world loses.
Oh I see. Greenspan is trying to say it was pure luck that they spotted that the mortgage finance market was rotten.
To be fair though, it was a cover story in The Economist five years earlier.
However, if one wishes to believe something, one is going to believe it until faced with incontrovertible evidence to the contrary.
“Greenspan is trying to say it was pure luck that they spotted that the mortgage finance market was rotten.”
- Many spotted the rottenness.
- Few were able to correctly time the market’s judgment in the Keynesian beauty contest in order to profit.
Seriously, I am sincerely curious about what possible link Greenspan might see between:
1) The last two participants in a coin-tossing competition
And
2) People identifying the mortgage finance market was going to implode, and figuring out a way to short it.
Greenspan just sounds like he’s making incoherent aphorisms again.
When he was the “Maestro”, he was making a lot of people rich, and pundits didn’t want to state he was making no sense for fear of looking stupid or alienating sources (i.e. Emperor’s New Clothes Syndrome).
Your interpretation may be correct, but his Delphic utterances nonetheless remain incoherent.
July 20, 2005
‘Greenspan also warned that the “boom” in housing prices could reverse itself in certain geographical areas. “We certainly cannot rule out declines in home prices, especially in some local markets,” said Greenspan, adding that there are “signs of froth in some local markets where home prices seem to have risen to unsustainable levels.”
http://money.cnn.com/2005/07/20/news/economy/fed_greenspan/
Fed Officials Saw Housing Bubble, Kept Rate Policy
‘Federal Reserve staff and policy makers identified a housing bubble in 2005 and failed to alter a predictable path of interest-rate increases to slow down the expansion of mortgage credit, transcripts from Open Market Committee meetings that year show.’
“Whatever froth there is in the housing market is becoming contained at this stage, and it’s getting contained largely because mortgage rates have moved up and are beginning to have an impact,” Greenspan said, according to the transcripts. “If we can contain the presumptive housing bubble, then we have a really remarkable run out there.”
http://www.bloomberg.com/news/articles/2011-01-14/fed-saw-housing-bubble-in-2005-failed-to-alter-policy-of-rate-increases
Everything changed after this:
Warning PDF:
http://www.federalreserve.gov/pubs/feds/2007/200720/200720pap.pdf
Sources and Uses of Equity Extracted from Homes
Alan Greenspan and James Kennedy
March 2007
Then one reporter noted ” Greenspan said a national bubble was impossible, now he won’t shut up about it.
March 16, 2006
No ‘Greenspan Put’ For The Housing Bubble: Kohn
These Fed comments have been posted in the comments, but just for the record. “The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech.”
“In his remarks, Kohn attacked the popular ‘Greenspan put’ theory that Fed policy would always protect investors from sharp asset market drops while doing nothing to restrain these markets when prices rise. ‘This argument strikes me as a misreading of history,’ Kohn said. ‘Conventional policy as practiced by the Federal Reserve has not insulated investors from downside risk,’ he said.”
“‘Whatever might have once been thought about the existence of a ‘Greenspan put,’ stock market, investors could not have endured the experience of the last five years in the United States and concluded that they were hedged on the downside by asymmetric monetary policy,’ Kohn said.”
“‘The same consideration apply to homeowners: All else being equal, interest rates are higher now than they would be were real estate valuations less lofty; and if real estate prices begin to erode. Homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said.”
“‘Our actions will continue to be keyed to macroeconomic stability, not the stability of asset prices themselves,’ Kohn said.”
http://thehousingbubbleblog.com/?p=292
“The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,’ Kohn said in a speech.”
Things would have turned out much differently if Wall Street had given Kohn the nod instead of Ben Bernanke.
As far as the “No one saw it coming” assertion, The Economist had a 2003 cover story called “House Of Cards” about the real estate bubble.
So, the assertion is nonsense. A lot of people saw it coming. With the vast inside access to data, the Fed, of all organizations, should have known more than any of us, about what was going on. And they did.
The reality is that the Fed is a highly political entity, not the Vulcan-like technocrats operating outside the ken of mortal men image they wish to portray. And they didn’t want to end the party. There is a revolving door between Wall Street and the central bank.
Raghuram Rajan, head of the Indian central bank, said in his book “Fault Lines”:
“There really is no reason other than political pressure for the Fed to take us from bubble to bubble by cutting interest rates to near zero and flooding the market with liquidity. Ironically, the lesson friom the Great Depression - that letting the banks go under is not a good idea - has been so well absorbed by the Fed that it is played for a patsy by the banks.
A rock-bottom nominal short-term interest rate prompts risk-taking and makes price bubbles more likely; it is unclear, however, that it is much more helpful in prompting corporate capital investment and job growth than a somewhat higher but still low nominal short-term interest rate.”
Congress is generally incompetent and corrupt. They’re very good at raising money and hiding where the cash is coming from. Leaving economic policy up to the central bank while just having Congress fight over how much they take back to their districts might be the least bad choice we have. On the other hand, it’s a very poor choice.
It’s true that we vote for these people. On the other hand, the primary system has been heavily rigged. The cattle walking to slaughter are walking of their own free will, but the rails and walkways guide them to their destination.
“A society cannot be both ignorant and free.” - Jefferson
I agree - a lot of people saw it coming. My 70 yr old mother with a high school education knew “it couldn’t last”. During the height of it, it was like watching everyone around me (DC) high on cocaine. The utter lack of common sense and love of money is what really disturbed me. Everyone should have been asking what the hell was going on. People were foregoing home inspections to buy an asset worth hundreds of thousands of dollars to live in! Housing was was increasing 20% a year here and nobody asked any questions? DC was undervalued compared to other cities but I thought that was due to a mainly government focused workforce. A workforce that is now part of an elite class that is almost impossible to fire!
To say that some people were near genius to “figure it out” is ridiculous. Anyone who was in the mortgage/financial industry could see that it was not “normal”.
So now prices are nearly what they were before the bust. And STILL people are saying “it couldn’t happen again - things are different now”. Why are people so willing to believe in this mass fraud?
<em?Why are people so willing to believe in this mass fraud?
Fear of missing out. They see others getting something for nothing, and they want “their share”
“FOLO”: Fear Of Losing Out.
California Most Impoverished State In The US
http://en.wikipedia.org/wiki/List_of_U.S._states_by_poverty_rate
(COL adjusted)
118-meter-high Never-used Building in NW. China Demolished
‘The building was 118 meters high (27 floors) with a total construction area of over 37000 square meters. Having been left unused for too long, the building could not be brought back into use so local government decided to demolish it.’
‘It is reported to be the highest building that has ever been demolished in China.’
http://en.people.cn/n/2015/1116/c90000-8977146.html
It seems the US might take a hint and use the Chinese playbook to address the massive excess, empty and defaulted residential and commercial space inventory.
“China Goes Full Keynesian-tard: Demolishes Never-Used Just-Built Skyscraper”
http://www.zerohedge.com/news/2016-01-09/china-goes-full-keynesian-tard-demolishes-never-used-just-built-skyscraper
This is the end result of “no work, no eat” in a rapidly automating world with more people than jobs.
Maryland is starting to do this with Baltimore (the governor made his millions in real estate):
“Here’s four key facts about what is being called Project C.O.R.E.
The plan calls for about 4,000 vacant properties to be demolished in Baltimore over four years at a cost of $94 million. Most of the money will come from the state.
The properties will first be turned into green space before redevelopment is explored.
The state, through the Maryland Stadium Authority, will offer an estimated $600 million in financing for developers to rebuild the blighted areas.
In West Baltimore’s Sandtown-Winchester neighborhood, where the program was announced, about 34 percent of rowhouses are vacant. Only Old Town and Greenmount East in East Baltimore have higher rates of vacant houses.”
http://www.baltimoresun.com/news/maryland/politics/blog/bal-highlights-of-the-baltimore-vacant-rowhouse-demolition-redevelopment-plan-20160106-story.html
I was going to school in Newark NJ when they did this in 1970. The locals pitched in and saved the state a lot of money by burning it down one block at a time.
‘The blow to living standards is leading some to draw parallels with Russia’s previous financial crisis in 1998, when the government defaulted and the rouble lost three-quarters of its value. “It feels like the 1998 crisis all over again. My salary’s value in dollars has more than halved, I now earn less than I did in 1997,” said Yelena, a Moscow-based newspaper journalist who asked that her surname not be used.’
http://finance.yahoo.com/news/oil-collapse-stole-russias-christmas-141327903–sector.html
‘Borrowing on international bond markets or privatizations are also possible but neither is attractive in view of depressed share prices and high borrowing costs.’
High borrowing costs?
Russian 10yr bonds are at 10%. Junk corporate must be astronomical.
Brazil is at 16%.
Friday I read ccc US corporate bonds were at 18%.
Arlington, TX Housing Market Craters; Prices Plunge 8% YoY
http://www.movoto.com/arlington-tx/market-trends/
“So, too, did those who wrote government policies that supported home ownership, and those who worked in agencies that furthered that aim. The villains of the business press’ version of this morality play (and make no mistake, ‘The Big Short’ is very much a morality play), Fannie Mae and Freddie Mac, receive nary a mention. As the business press has (mostly) told the story, government drove private enterprise into this disaster. ‘The Big Short’ portrays just the opposite, with government’s only fault being that it policed the baddies too loosely.”
I found the absence any role for Fannie Mae, Freddie Mac, the FHA, or any number of other federal government subprime lending sponsors from the story a glaring omission. But that’s Hollywood entertainment for you; it’s impossible to pack all the relevant context into a feature length film.