From One Excess To Another
A weekend topic starting with Palo Alto Online. “Just after sunset in mid-January, my colleague and I were seated at a square, maple-colored table located near the entrance of the Starbucks on California Avenue, waiting to meet with a potential client. As we sipped bottled water and coffee, we prepared our talking points on recent market activity. Going through the colorful charts, graphs and comps before us, we tossed out market data. To that point, the statistics revealing the past three-year run-up of 51.2 percent for a median-priced Palo Alto single-family home left us both a bit stunned. Essentially, a home worth $2 million three years ago is now worth $3 million.”
This Kansas City Star article originally was published on Jan. 23, 2011. “Tom Hoenig waged the biggest battle of his career with the financial security of most Americans hanging in the balance. Last year the longtime Kansas City figure stepped reluctantly into a national spotlight that few Midwesterners find. He broke with others on the powerful Federal Reserve committee in Washington that sets interest rates to trumpet the populist voice of his region. Reinforced by lessons from 36 years at the Federal Reserve Bank of Kansas City, 19 of them as president, Hoenig spent all of 2010 fighting the Fed’s persistent easy-money policies.”
“His case was this: The Fed’s response to the subprime mortgage debacle and financial crisis was necessary but had gone on far too long. ‘Experience tells me and economics tells me … you may end up making things more difficult later on,’ he said in a recent interview.”
“Each time the Fed committee met last year, Hoenig voted against the policy its members agreed on. Unable to persuade any other voting members to join him, Hoenig’s eight consecutive dissents put him further out on a limb than any member of that exclusive group had gone alone. Along with his unflinching policy dissents, Hoenig has spent nearly two years criticizing how the Fed helped bail out banks and other financial institutions deemed ‘too big to fail’ by merging them into even larger financial behemoths.”
“A determined Hoenig voted against all eight of the Fed’s policy statements in 2010, including its November decision to spend $600 billion on government bonds to help lower long-term interest rates.
Hoenig defends his stand by telling audiences that the Fed’s tools are the wrong ones to help unemployment at this point. He reminds them that the jobless rate was 6.5 percent eight years ago when the Fed drove interest rates down to 1 percent. But the consequences – the housing bubble and financial collapse – drove unemployment higher still.”
“Hoenig’s other battle with the Fed focuses on how it bailed out banks and other financial institutions deemed too big to fail during the financial crisis. Nearly all were merged into other large rivals, making them even bigger. He believed instead that the failing banks’ management and owners should be wiped out and their lenders lose part of their investments. Hoenig delivered his March 2009 ‘Too Big Has Failed’ speech in Omaha, Neb.: ‘Why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with the large volume of ‘toxic’ assets they created.’”
This Sri Lanka Guardian editorial was written by Ismael Hossein-zadeh, Professor Emeritus of Economics, Drake University and Anthony A. Gabb is Associate Professor of Economics at St. John’s University in New York City. Titled, “Financial Oligarchy vs. Feudal Aristocracy”.
“Like the feudal rent, the hidden tribute to the financial sector, the nearly 40 percent of consumer spending that is appropriated by the financial sector, helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get increasingly richer at the expense of the poor—not just because of greed or the blind forces of the market mechanism but, more importantly, because of deliberate monetary/economic policies, which have steadily come under effective control of the financial oligarchy. Indeed, the very mechanism of money creation and/or monetary policy itself exacerbates inequality.”
“The insidious mechanism of redistribution in favor of the financial oligarchy is expertly sanitized and benignly called monetary policy. Private central banks (such as the Federal Reserve Bank in the U.S.) are usually the main institutional vehicles that carry out the monetary policy of redistribution. Central banks’ polices of cheap or easy money benefits, first and foremost, the big banks and other major financial players that can outbid small borrowers who must borrow at much higher rates than the near-zero rates guaranteed to the big borrowers.”
“By thus gaining privileged access to nearly interest-free money, the financial elites can enrich themselves in a number of ways. For one thing, they can snap-up income-producing assets at the expense of small borrowers who lack access to cheap money. For another, they can boost the value of their wealth by creating an artificial demand (such as stock buybacks) for those ill-begotten assets with the cheaply borrowed money. In addition, they can skim vast wealth by loaning out the cheap they obtain from central banks to everyone below the top of the wealth/income pyramid—at near four percent (mortgages), at seven or eight percent (auto, student and other loans), and above 15 percent (credit cards). Obviously, this would funnel much of the national income stream to those who can borrow cheap and lend at much higher rate [4].”
“Instead of regulating or containing the disruptive speculative activities of the financial sector, economic policy makers, spearheaded by central banks, have in recent years been actively promoting asset-price bubbles—in effect, further exacerbating inequality.”
“Proxies of the financial oligarchy at the helm of monetary/economic policy making apparatus seem to believe that they have discovered an insurance policy for bubbles that burst by blowing new ones: ‘Both the Washington regulators and Wall Street evidently believed that together they could manage bursts. This meant that there was no need to prevent such bubbles from occurring: on the contrary, it is patently obvious that both regulators and operators actively generated them, no doubt believing that one of the ways of managing bursts was to blow another dynamic bubble in another sector: after dot-com, the housing bubble; after that, an energy-price or emerging market bubble, and so on’ [5].”
“It is obvious that this policy of effectively insuring financial bubbles would make financial speculation a win-win proposition, a proposition that is aptly called ‘moral hazard,’ as it encourages risk-taking at the expense of others—in this case of the 99%, since the costs of bailing out the ‘too-big-to-fail’ gamblers are paid through austerity cuts. Knowing that the central bank/monetary policy would bail them out after any bust, they go from one excess to another.”
“This shows how the proxies of the financial oligarchy, ensconced at the helm of central banks and their shareholders (commercial banks), serve as agents of subtlety funneling economic resources from the public to the financial oligarchy—just as did the rent/tax collectors and bailiffs of feudal lords collected and transferred economic surplus from the peasants/serfs to the landed aristocracy.”
From the last link:
‘Many critics of parasitic finance capital have called for a robust regime of regulation of the financial sector. Experience shows, however, that as long as the dynamics and structures of the accumulation of capital are left intact, regulation cannot provide an effective long-term solution to the recurring crises of financial bubble and bursts.’
‘For one thing, due to the political influence of powerful financial interests, financial regulations would not be implemented in a meaningful way, as evinced, for example, by policy responses to the 2008 financial implosion and the ensuing Great Recession.’
‘For another, even if regulations are somehow implemented, they would provide only a temporary relief. For, as long as there is no community or real democratic control, regulations would be undermined by the influential financial interests that elect and control policy-makers.’
‘The fraudulent compensation of Wall Street’s gambling losses at the expense of everyone else is testament, once again, to the demagogical pretentions of the champions of austerity and neoliberalism that the government should stay out of the market’s affairs.’
These guys forget that nationalizing banks isn’t what got rid of the “feudal lords”. It was sticking a pitch fork up to their rectums and telling them to piss off.
“Experience shows, however, that as long as the dynamics and structures of the accumulation of capital are left intact, regulation cannot provide an effective long-term solution to the recurring crises of financial bubble and bursts.”
After reading the article, it’s apparent he’s an old-school Marxist who thinks capital formation is the root of evil. If only the government ran everything, it would all be good and we’d live in a workers’ paradise.
That’s one of the concerning things about these bubbles and the reactions to them: all the old crackpot ideas float to the surface again.
The author loves the phrase ‘parasitic finance capital’. I guess that’s the new ‘capitalist running dogs’. And he actually makes the argument that people were better off under feudalism.
He writes like a college student who has never grown up and is still railing against Daddy. He’s a ‘professor emeritus’ and all his citations are for popular books, some of them pretty bad (Ellen Brown!)
“The author loves the phrase ‘parasitic finance capital’.”
So do I! I love both the phrase and I love what it produces.
LOL@Mr. Banker
I love your honesty and naked greed. Why hide it and skulk about? If only all bankers were like you…
‘The fraudulent compensation of Wall Street’s gambling losses at the expense of everyone else…’
Wait for it:
‘…is testament, once again, to the demagogical pretentions of the champions of austerity and neoliberalism that the government should stay out of the market’s affairs’
dem·a·gogue also dem·a·gog (dĕm′ə-gôg′, -gŏg′)
n.
1. A leader who obtains power by means of impassioned appeals to the emotions and prejudices of the populace.
2. A leader of the common people in ancient times.
When I started this blog, one of the most outspoken web sites on the housing bubble was the LaRouche people. Anybody can see what’s going on, but our solutions would vary.
‘Instead of regulating or containing the disruptive speculative activities of the financial sector, economic policy makers, spearheaded by central banks, have in recent years been actively promoting asset-price bubbles—in effect, further exacerbating inequality.’
‘Proxies of the financial oligarchy at the helm of monetary/economic policy making apparatus seem to believe that they have discovered an insurance policy for bubbles that burst by blowing new ones.’
What was Bernanke’s solution to the great recession, which followed the housing bubble? Higher house prices and stocks. Foam the runway for the banks. I don’t care if these people want stock bubbles because I don’t have to be involved. But allowing houses into it was a grave mistake.
It could be stopped in an instant; just cap loans - permanently. Or better yet, how about getting the government out of the housing loan biz all together? After all, haven’t we “nationalized” Fannie and Freddie? Isn’t that privatizing gains and socializing losses?
“1. A leader who obtains power by means of impassioned appeals to the emotions and prejudices of the populace.”
Like Trump or Sanders?
Ain’t no capitalism since the 1920s
Not much anyway
US Housing Demand Plummets To 20 Year Low
http://2.bp.blogspot.com/-yX5B5Hn95bQ/VYC3Wr6ihBI/AAAAAAAAj7I/alOslZa-cK8/s1600/MBAJune172015.PNG
‘the statistics revealing the past three-year run-up of 51.2 percent for a median-priced Palo Alto single-family home left us both a bit stunned’
Indeed as it should. As you gazed at the square, maple-colored table sipping bottled water and coffee, how fortunate you must feel making scads of money while doing practically nothing.
Prices of houses should never, ever go up this fast. And it has happened and is happening all over the US and the world. Hello! Alarm bells!!!
Multiple years of double digit house price increases is abnormal and destructive. This is even beyond that. But for a small few it’s great and not a bad racket if you can get it. What’s worse is that it is convincing all the same suckers as last time to jump back in. Because of the bailouts and recent run up, people think you can’t lose with real estate. Even acknowledging the last downturn, they know daddy sugar will make them whole.
Where’s daddy sugar?
‘Imagine being an award-winning investor at just 24, only to end up owing banks $3 million by the age of 27. What a roller-coaster ride that would be. But that’s exactly what ‘Property Investor of the Year 2012,’ Kate Moloney, claims has happened to her. Moloney has recently written a book, explaining how the tumbling value of her property portfolio has left her ‘living with financial cancer.’ On her website she explains that the portfolio was worth $8.5 million when she won the award, but just three years later, ‘if we were to sell our properties, we would still owe the banks about three million dollars (not including arrears interest and selling costs).’
‘When you see these foreclosures — that’s families without a job and a home,’ said real estate agent Angela Walker as she points out all the homes for sale on one block.’
‘Byron Calais lost his job two weeks ago working for an oil and gas maintenance company. Adding to the stress, the family just bought their home five months ago, and now they’re not sure how they’ll keep it. ‘I’m nervous,’ Calais said’
‘A year ago, people were in shock, then they were in denial, now they’re angry,’ says Todd Hirsch, chief economist at ATB Financial, an Alberta crown corporation. ‘They’ve lost their job. Their neighbour has lost their job. They’re watching this thing we built come collapsing in on itself.’
http://thehousingbubbleblog.com/?p=9508
This was from yesterday, not 2008.
‘If we don’t know the value of what we’re buying, we don’t know if we’re paying too much, and we certainly don’t know whether to sell or hold on. We become fools, gambling that a greater fool will throw more money at us. That may work, until it doesn’t. Then it’s a robbery where accomplices scram’
Prices dropping 30-40 percent in a mining town in Australia is a long way from what I see going on overall here in the US. Yes, maybe some crashes in small pockets that were former boom towns, but otherwise I’m seeing double digit price growth over the time period that woman’s portfolio of houses collapsed.
I think like you that this is terrible and will lead to massive pain eventually, but I also think daddy sugar will print print print til it no longer works. And the suckers on my block learned nothing and all think RE is awesome again.
’some crashes in small pockets that were former boom towns’
Like Manhattan, where a lux condo flipper just lost a million bucks on a unit he took possession of less than a year ago? Houston? The condo king in Miami is talking about a bubble with sales way down and thousands of condos going up. And as we learned recently, it’s not 30 or 50% down there. The speculators found ways to refinance the deposit and buy more.
“what I see going on overall here in the US.”
I see collapsing housing demand. Just like everyone else sees.
Well, thank you for that. I get discouraged to see it continue sometimes, especially when I see a house down the block pop up as sold, for 8 grand over asking. It ain’t worth close to that.
That’s a positive. A few straggler and outlier sales at grossly inflated prices isn’t much of a market.
Watching demand collapse is very encouraging.
January 27, 2016
“The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang. Not now. Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.”
“Across the U.S., the story is much the same. The world’s economic woes — from China to Russia to South America — are damping sales in the high-end real estate market. In the Los Angeles suburb of Arcadia, where Zhang is struggling to sell the six-bedroom home, dozens of aging ranch houses were demolished to make way for 38 mansions built with Chinese buyers in mind. They have are priced as high as $12 million. Many of them sit empty because the prices are out of the range of most domestic buyers, said Re/Max broker Rudy Kusuma, who blames a crackdown by the Chinese on large sums leaving the country.”
“In Sunny Isles, Florida, faraway currency fluctuations are endangering the sale of a $3.7 million condominium. A Colombian woman who put down a 50 percent deposit is fretting over how she’ll cover the other half over the next year, said her agent, Mauricio Rojas. In Houston, the plunge in oil prices to a 12-year low is killing the luxury boom. The whole Houston real estate market is going to take a hit ‘but the upper end is going to be impacted most,’ said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.”
“Even in San Francisco, where the market for luxury properties remains strong, the inventory of listings for $2 million or more jumped in October to a record level, said Patrick Carlisle, chief market analyst for Paragon Real Estate. Both buyers and sellers were getting increasingly worried about the direction of the economy, he said. ‘More sellers are jumping in and more buyers are holding off because they’re worried about where the volatility is going,’ Carlisle said.”
DNA Info New York. “Much has been made of the effect of foreign investors on driving up New York real estate prices, with some local real estate companies specifically soliciting foreign buyers for upcoming projects before soliciting New York residents. A wave of condos where foreign buyers purchased — as investments to rent out — are flooding the rental market, causing a glut of high-end listings as other high-end rental buildings are simultaneously opening, said Karla Saladino, managing partner at Mirador Real Estate.”
“‘We’re seeing major price drops below last winter’s rent,’ she said of rentals. For instance, when marketing a ’stunning penthouse’ in the Flatiron, Saladino looked at comparable units for pricing information. Usually, she’d find about four similar high-end units. This time she found 48.2.”
The Broward Palm Beach New Times in Florida. “The U.S. government announced two weeks ago that it will begin monitoring all-cash home sales of $1 million or more in two counties — New York (a.k.a. Manhattan), and Miami-Dade, where fraud is also expected. In response to an article about the new program, Melissa Hoff Roth, a Fort Lauderdale realtor, shared her own thoughts about the crackdown on Miami’s condo market on Facebook. She wasn’t exactly upset. ‘Got cash?’ she wrote. ‘The Ft Lauderdale market is hot and a better deal than Miami anyway! Give us a call!!’”
“That’s right: Hoff Roth, and her business partner, Howard Elfman — who is both the president of the Fort Lauderdale Association of Realtors, and director of the entire state’s Association of Realtors — believe the federal monitoring program will push these foreign buyers out of Miami and up into Broward. And they think this is a good thing. ‘It’s a blessing for Broward,’ Hoff Roth said. ‘We’re going to say, ‘We’re not going to look into your pocketbooks, your bank accounts. If you have money, if you can provide a cashier’s check. We’ll work with you. And it’s happening just as Miami is falling.’”
The Denver Post in Colorado. “Metro Denver apartment rents leveled off and vacancies rose sharply between the third and fourth quarters after a surge in new supply left more landlords scrambling to fill their units, according to a quarterly update from the Apartment Association of Metro Denver. In a sign more downward pressure on rents could be coming in the months ahead, the area’s apartment vacancy rate surged to 6.8 percent from 5 percent in the third quarter. It was the biggest quarterly surge in vacancies since heavy job losses caused people to move out of their apartments back in 2008 and 2009.”
“Vacancy rates were highest in northwest Denver at 17.4 percent; Boulder County, excluding Longmont and the city of Boulder, at 14 percent; downtown Denver at 11.2 percent; and north Douglas County at 9.6 percent. Developers have focused on those areas for higher-rent apartments. Given that owners of new apartment buildings may not be familiar with the survey, or may be too busy leasing units to respond, the actual vacancy rate in those areas might be understated, said report co-author Ron Throupe, a real estate professor at the University of Denver.”
http://thehousingbubbleblog.com/?p=9479
101 to 200 of 2500
https://denver.craigslist.org/search/apa?s=100
1 to 100 of 792
https://denver.craigslist.org/search/apa?is_paid=all&search_distance_type=mi&query=first+month+free
‘Three years ago, about 30 percent of renters in the Denver area paid rents below $1,000. That number now sits at 11 percent, as of the last Multifamily Housing Council survey.’
(In three years! Can you hear the alarm bell Janet? Mel?)
‘Surprisingly, asking rents in Denver saw a slowdown over the past quarter. Following a strong rise during the start of 2015, prices for one- and two-bedrooms units trailed off in fourth quarter.’
‘One-bedroom units ended the year with a median of $1,250, up 3.3 percent net in the year, but down 5.3 percent in the last quarter. Two bedrooms showed a similar trend, up a substantial 13.1 percent in the year, but down 4.4 percent in the last quarter to settle at a median of $1,730.’
The photo at the top of the page has this caption:
‘One Observatory Park near the University of Denver sold in December for $387,324 per unit.’
“But that’s exactly what ‘Property Investor of the Year 2012,’ Kate Moloney, claims has happened to her. Moloney has recently written a book, explaining how the tumbling value of her property portfolio has left her ‘living with financial cancer.’”
The poor victim!
” What’s worse is that it is convincing all the same suckers as last time to jump back in.”
No, what’s worse is that it draws non players into the game. Crazy financial decisions carry over into the rental market (high rents) financially destroying those trying to save and improve their lot in life.
“Hello! Alarm bells!!!”
My guess is that this time, just like the last time, the alarm bells are going to be ignored right up until the point when the next wave of bubble collapse sends panicked financial authorities scurrying to authorize the next round of bailouts.
Meanwhile, it’s all contained.
“Essentially, a home worth $2 million three years ago is now worth $3 million.”
Let’s try looking at this statement a bit differently …
“Essentially, a home PRICED AT $2 million three years ago is now PRICED AT $3 million.”
There.
And not a buyer in sight at a fraction of that amount.
If one can equate price with value, or in this case “worth” (which is the same thing), then one can create wealth out thin air just by increasing prices.
And these prices are easy to increase because the payer of these prices do not actually pay them, instead they commit themselves to paying them. If they were actually required to pay them, pay these high prices, then they couldn’t, and if they couldn’t then the prices could never reach up as high as they have gone.
Which would be unfortunate for a lot of people who equate what Zillow has to say about the state of their wealth, a state of wealth determined by prices - prices that most people cannot pay but can only commit themselves to paying.
Maybe the buyer doesn’t actually lump down the cash, but the seller gets a lump. And Zillow lists recent sale prices also. I don’t put much stock in value, but it’s easy to figure out what things are selling for.
“Maybe the buyer doesn’t actually lump down the cash, but the seller gets a lump.”
This is what is magical about the process: The seller gets his price but the buyer doesn’t have to pay it, doesn’t have to pay the price; The buyer only has to COMMIT to paying the price.
If the seller get his price and the buyer only has to commit to paying the price then there is a great incentive for prices to rise - both from the seller’s point of view AND (amazingly) from the buyer’s point of view.
I say from the buyer’s point of view because in a market where the draw is rising prices then buyers want prices to rise just as the sellers do.
I say from the buyer’s point of view because in a market where the draw is rising prices then buyers want prices to rise just as the sellers do.
I noticed a touch of this insanity in my own mind—back in 2001/2002, IIRC. I owned a house at the time, and the Seattle market prices were going up so quickly that I remember thinking that my income hadn’t gone up nearly that much, nor could I have saved the difference…
Here comes the crazy bit: I remember thinking “If I had paid a bit more for my house, and it had gone up at the same percentage rate as the market, I would be sitting on larger gains!”
Then sanity returned, and I realized that in a rational market, the house would sell for its true value, and having paid more should have left me with LESS gains. But here I was, in an insane market, where no one knows what true value really is, so paying more probably would have affected what future buyers would have offered me—e.g. because the past sale price of my house when I bought it would have been a particularly relevant comp.
“but the seller gets a lump”
The seller gets what’s left after the respective debt is paid off.
Which, with rising prices the last few years is a huge lump unless you bought around the peak years
And that stock that was priced at $52/share is now priced at $18/share.
Or less.
Poof. Now you see it, now you don’t.
San Jose, CA Housing Prices Crater; Prices Plummet 8% YoY On Ballooning Housing Inventory
http://www.zillow.com/san-jose-ca-95111/home-values/
The link shows a 1-year increase of 9.5%. Where’s the “crater”?
Down 8% and falling my friend.
You have a problem with the data, my friend.
And they’re going to keep falling my friend.
Remember….Nothing accelerates the economy and employment like falling prices to dramatically lower and more affordable levels. Nothing.
Seriously HA, yet another made-up handle? You really do need to seek professional assistance. Having meaningless conversations with yourself on internet discussion boards is not healthy.
You can do the same, using Word on your own computer, and you will be amusing the same number of people.
Falling housing prices my friend. Falling housing prices.
Sacramento, CA Housing Prices Crater 7% YoY
http://www.zillow.com/west-sacramento-ca/home-values/
‘He broke with others on the powerful Federal Reserve committee in Washington that sets interest rates to trumpet the populist voice of his region. Reinforced by lessons from 36 years at the Federal Reserve Bank of Kansas City, 19 of them as president, Hoenig spent all of 2010 fighting the Fed’s persistent easy-money policies’
The article mentions he made $400k that year. Blow that trumpet, you populist voice! I might stick around for 30+ years at that rate too.
He’s right about some things, but what exactly is the point of the central bank keeping people like this around, when we all know it’s easy money, bail-outs and one crash after another? Is he there so they can pretend to be judiciously debating how many billions they are going to stuff in wall streets pockets?
I love the first article Ben posted about the realtors and their clients meeting at Starbucks. I’ve mentioned a bunch of times on this blog that I think half the Starbucks locations in existence would shut down if there were no real estate bubble.
Every time I go in one here in DFW, it’s filled with realtors and their marks. It’s interesting to watch the slick realtors working these people over. On the one hand, I feel bad for some of these potential homebuyers, many of whom are obviously not too sophisticated. But on the other hand, they are exactly like the young partners we read about yesterday who have “financial cancer” due to buying a crazy amount of real estate in some Australian mining town thinking they were going to hit it big.
More than that.
Twice a week I take a quiet break from the office - drive to SBs and work down my email. In the greater Seattle.
Tt is amazing how many folks how many folks are pushing various pitches (franchises, investments etc.) to other people in their late 40s and 50s. Of course I am dipping / listening to the conversations
I cannot understand if they are early retirees, or whether they were RIFed and trying desperately to get a personal cashflow.
Honestly, I feel like saying - if its too good to believe, it is
If you take on mortgage debt at current massively inflated housing prices, you’ll enslave yourself for the rest of your life.
“Debt is bondage.”~ Suze Orman, May 11, 2013
Don’t Be A Debt Donkey®
‘American and British regulators are likely to charge several banks with rigging interest rates, including Citigroup, the third-largest U.S. bank, and London-based HSBC Holdings, the Wall Street Journal reported on Friday.’
‘The U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority were preparing a final round of civil charges against the banks for rate manipulation in the Libor scandal, the newspaper reported, citing people close to the investigation.’
‘Libor is a short-term rate financial institutions charge each other for loans that is calculated based on submissions by a panel of banks. Hundreds of trillions of dollars in short-term interest rates, swaps and other financial products are pegged to Libor.’
http://www.reuters.com/article/us-libor-probe-idUSKCN0VL25U
How do you like them apples? Hundreds of trillions. Yesterday I heard Deutsche Bank has $40 to $50 trillion in derivatives on its books. That’s roughly equal to the annual global GDP, the radio said.
The U.S. Commodity Futures Trading Commission
The commission; White House appointees, the former TARP boss, one investment bank lawyer and a Diversity Manager. Two posts vacant. Obama appointees.
No banker will be harmed in the making of this movie.
Derivatives and the Great Default: http://www.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/
*A really scary graphic*
Jumpin’ Jehoshaphat!
That money and markets chart is something, isn’t it? Scrolling down the page is like strolling down the beach on a sunny day, looking at little grains of sand and pebbles until suddenly the sun is blocked by a giant tsunami bearing down on you.
That’s just fantastic — thanks for sharing.
A few take homes:
1) China comprises a mere 2 percent of global stock values and is shrinking rapidly. Why all the fuss? Doesn’t it seem odd for the tail between the legs to wag the panicky dog?
2) Bitcoin represents a minuscule share of global money, disproportionately small for its share of global financial media coverage. (I realize blockchain technology is the greatest financial innovation since the invention of coinnage, blah, blah, blah…)
3) The Fed’s swollen balance sheet is smallish compared to total debt, which in turn is dwarfed by derivatives.
When one digs a hole they should know why.
I think the Fed are lazy. They say they are smart and cannot see outside of the hole they dug. Must be laziness then.
Now their hole is so big the world is about to wallow in it.
The hard decisions will have to be made some day. Why not now ?
The hard decisions will have to be made some day. Why not now ?
Because if you can defer it long enough it becomes “someone else’s problem”.
Smart and myopic, not to mention blinded by a faith in their peer reviewed- and vetted-economic models which borders on religious fervor.
“Hoenig’s other battle with the Fed focuses on how it bailed out banks and other financial institutions deemed too big to fail during the financial crisis. Nearly all were merged into other large rivals, making them even bigger. He believed instead that the failing banks’ management and owners should be wiped out and their lenders lose part of their investments. Hoenig delivered his March 2009 ‘Too Big Has Failed’ speech in Omaha, Neb.: ‘Why would anyone assume we are better off leaving an institution under the control of failing managers, dealing with the large volume of ‘toxic’ assets they created.’”
Hoenig lost his one-sided battle with Bernanke and other crony capitalists, but he is on the right side of history.
‘ Are central banks‘ aggressive monetary policies to blame for the today’s economic woes? Former Dallas Federal Reserve President Robert McTeer says yes. Speaking to CNBC’s “Fast Money” this week, McTeer explained that while the Fedis comprised of smart and carefully minded individuals, they dropped the ball when it comes to their current approach.’
“[The Fed] waited too long to begin the tightening process,” noted the former FOMC member and 36-year veteran of the Federal Reserve system. The central banker’s critique echoed that of other economists, whom have argued that the trillions of cheap dollars flooding the system have exacerbated the current downturn, and made the market addicted to the liquidity.’
‘McTeer admitted that bad luck and unfortunate timing has compounded the current undesirable circumstances. He told CNBC that “as soon as they took the first step [to tighten], international developments overwhelmed the situation.” At that time, China’s slowdown became more pronounced, upsetting markets.’
‘McTeer further believes that the Fed’s delay enabled other central banks—from Japan to the European Central Bank—to enact negative interest rates, a policy move with which he disagreed.’
‘Negative rates, however, is an idea McTeer does not endorse. The central bank “is not going to do it, but furthermore they can’t do it,” he noted, speaking of the Fed’s next potential move.’
‘In McTeer’s interpretation, negative rates are not an options because the Fed has adopted a new mechanical procedure for establishing the Fed funds rate, which is the interest rate that banks use to calculate overnight loans to other institutions. The rate currently calls for a positivity on bank deposits. McTeer believes that if the Fed tries to go negative, it would take years to re-work the system.’
‘Negative interest rates are now a reality in the world. The prospect seems to be for more nations moving into negative interest rates. What does this mean? Nothing good.’
‘Central banks have moved to negative interest rates in an effort to force holders of “idle cash,” especially commercial banks, to move into riskier assets, which, they hope, will help achieve faster economic growth.’
‘These central banks are also being sneaky — one side effect of this policy is that it helps to weaken currencies. Why should a bank, or, anyone for that matter, hold the currency of a country that has negative interest rate? It encourages banks, and investors, to sell the native currency for other currencies from countries that have positive rates of interest. Weaker currencies encourage exports that can also help increase growth rates.’
‘However, this doesn’t always work. For example, the Bank of Japan, in a surprise decision in January, took a policy rate into negative territory. Since that move, the Japanese Yen has actually strengthened against the U.S. dollar. On February 1, 2016, it took 121 to purchase one dollar. Yesterday at the close it took only about 112.’
‘The free flow of capital throughout the world is the foundation of the globalization of trade. Central banks cannot just focus on domestic results because with the free flow of capital domestic results are just one part of the whole picture. Investor sentiment across world financial markets cannot be ignored.’
‘This is unknown territory. It is a global world where domestic interests have to be put within the context of everything else that is going on. Such a world will experience volatile swings. Let’s hope that central bank behavior does not add to the volatility.’
It’s only volatile when it goes down.
My imagination is just not big enough to consider the madness of these central bank monsters.
‘Negative interest rates are now a reality in the world.
I remember when I was in college in the early 80’s. Back then banks were paying double digit interest rates on CDs. I also recall that there was “creative financing” to mortgage houses. IIRC, that was when the “teaser” interest rate was first introduced for variable rate mortgages.
Had you told anyone back then that mortgages would someday be in the 3-4% range and that CDs would pay less than 1%, there would have been a chorus of laughs.
Will any of us be laughing when interest rates are negative?
Seattle, WA Housing Market Craters; Prices Plunge 7% YoY On Ballooning Mortgage Defaults
http://www.zillow.com/high-point-seattle-wa/home-values/
Buy-to-let investing just became a very, very bad idea
The maths has changed. And the Chancellor and the Bank of England could well change it further
http://www.spectator.co.uk/2016/02/buy-to-let-investing-just-became-a-very-very-bad-idea/
“This shows how the proxies of the financial oligarchy, ensconced at the helm of central banks and their shareholders (commercial banks), serve as agents of subtlety funneling economic resources from the public to the financial oligarchy—just as did the rent/tax collectors and bailiffs of feudal lords collected and transferred economic surplus from the peasants/serfs to the landed aristocracy.”
This guy nailed it. Central banks are the institutional enablers if the secular First Estate of the New Era.
Dallas, TX Housing Market Craters; Prices Plunge 15% YoY As Price Declines Spread Nationally
http://www.zillow.com/lake-highlands-dallas-tx/home-values/
What’s the biggest employer in Palo Alto? Palantir. They have a great product (software used to track bad guys) but no way the company is worth 20 billion like they claim.
I think HPE still has a bigger market cap, and if you combine HPE and HPQ it’ sover 40B, I believe.
It does seem fitting that a firm which makes spyware for .gov should be considered “valuable”
“Why Commercial Real Estate Is Next: ‘Challenging Technicals’ Are About To ‘Become Weak Fundamentals’”
http://www.zerohedge.com/news/2016-02-14/why-commercial-real-estate-next-challenging-technicals-are-about-become-weak-fundame
We’ve know all along the financial minefield commercial RE is so this isn’t news.
Some interesting comments there too. Thanks!
An editorial:
‘This week an article by an investigative Globe and Mail reporter alerted the public to a dirty little secret that many in the real estate industry are well familiar with: a shady practice known as “shadow flipping.”
‘Any North Shore real estate agent can tell you about it. Some describe it as unethical. But there’s nothing to stop it, including any meaningful self-policing from within the industry.’
‘That the real estate council will now be investigating the practice – which it’s obviously known about and tacitly accepted for some time – hardly fills us with confidence. (This is the same self-regulating industry that has denied the influence of foreign capital in Vancouver’s overheated real estate market, despite mounting evidence to the contrary.)’
‘Foxes, there are some chickens we’d like you to look at.’
‘Equally ridiculous is the province feigning shock at the practice. Victoria has been happy to adopt a don’t-ask-don’t-tell attitude to valid concerns about the real estate market – from allegations of money laundering on down.’
‘One reason nobody has been prepared to talk about these issues is the charge of racism that gets levelled against many who raise them. That is utter nonsense when it comes to public policy concerns that impact us all.’
‘Another reason the issue has gone unchallenged is it’s in a lot of people’s financial and political interests to allow it to continue. Homeowners with substantial equity make up a large chunk of voters. And real estate is certainly a booming business with deep pockets these days.’
‘It’s hard to say which explanation is more unsettling.’
The balloons are up and mort rates down. The” missed the boat “buyers are troling my hood.
Maybe the 10 yr will go below 1%
Next weekend begins dc area buying season. Since j6p’s recent savings got blown away where will be get the down payment?
Next up: no-down / no-doc loans?
Iceberg, right ahead! Hard a’starboard on the engines! “The world is now facing a crunch that could see a collapse in property prices, including those in London; a new global banking crisis; waves of cheap commodities savaging Western industrial centres; and the need for debts to be written off on a grand scale.”
Read more: http://www.thisismoney.co.uk/money/news/article-3445861/Look-heading-crash-warns-William-White-central-banker-predicted-2008-crisis.html#ixzz40Bb1xJ40
Follow us: @MailOnline on Twitter | DailyMail on Facebook
The world is now facing a crunch that could see a collapse in property prices, including those in London; a new global banking crisis; waves of cheap commodities savaging Western industrial centres; and the need for debts to be written off on a grand scale.
Read more: http://www.thisismoney.co.uk/money/news/article-3445861/Look-heading-crash-warns-William-White-central-banker-predicted-2008-crisis.html#ixzz40Bb1xJ40
Follow us: @MailOnline on Twitter | DailyMail on Facebook
“… and the need for debts to be written off on a grand scale” means people who think they have money because somebody owes them money are about to have their sense of humor put to the test.
“… and the need for debts to be written off on a grand scale”
The last time that this happened, the Fed and other central bankers just bought up the debts that were being savaged; what makes the author believe they won’t just do the same thing the next time around?
I really look forward to seeing how Maiden Lane et al are wound down—in another 25yrs or so.
http://www.thisismoney.co.uk/money/news/article-3445861/Look-heading-crash-warns-William-White-central-banker-predicted-2008-crisis.html
Sorry to seem like a buzzkill, but a collapse in property prices is just what is needed to restore sanity to global financial markets.
“…a collapse in property prices is just what is needed to restore sanity to global financial markets.”
The big “fixed-income” funds know this, but they’ve promised too many annuitants the good life. Joe Sixpack will just have to lean against that yoke a bit more and expect less in return.
Apology for the dupes. My connection wasn’t the best.