Archive for the 'Housing Bubble' Category

“But the CRA forced them to break the law!”

Jul 21, 2011 in Economy, Housing Bubble

The CRA-caused-the-crash myth had all of the right elements to make it popular amongst the brethren. Supposedly, librul Democrats passed the Community Reinvestment Act to force banks against their will to underwrite risky loans to families in urban areas. When those loans predictably underperformed, the hapless mortgage lenders were put out of business thereby paving the way for a government takeover of the private sector. The message of the story is obvious; business-hating politicians pulled the levers of Big Government and used listless Negroes as pawns in their long term goal of steering the USA further down the road towards Communism. There’s a couple things wrong with that story. Mortgage lenders lobbied hard for that legislation (under the twin banners of deregulation and “ownership society” propaganda) and sought to issue more risky loans far beyond what the CRA required because of the potential for higher rates of return. Remember “Lost another one to DiTech”? Who could forget besides the willfully blind? Anyone breathing and with a pulse during the past decade knew how aggressively companies pursued risky borrowers and as it turns out the motive for higher and higher profits obscured all other concerns. Wells Fargo was recently fined $85 million dollars for committing fraud against its customers by pushing them into higher interest sub-prime loans and, among other things, falsifying legal documentation. $85 million is a pittance compared to the tens of billions Wells Fargo received in bailout funds and the free money they continue to receive by borrowing money from the Federal Reserve at 0% interest but it still shows that nobody was forcing giant lenders into a precarious financial predicament. Nevertheless, the CRA myth will carry on. The allure of an easy answer that conveniently absolves the home team of responsibility and heaps it upon minorities is too great for them to resist. Which isn’t racist, of course.

-mg

Oh no, the booze is starting to wear off!

May 27, 2008 in Housing Bubble

Dire news in housing!

U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a closely watched index showed Tuesday, a somber indication that the housing slump continues to deepen.

Standard & Poor’s/Case-Shiller said its national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.

Dear me, can it get any worse? Wait, here’s the punchline:

Prices nationwide are at levels not seen since the third quarter of 2004, according to Maureen Maitland, a S&P vice president. However, the index is still up 60 percent versus 2000.

UP 60 PERCENT since 2000! So if prices merely dropped back to where they were before the nation went insane, adjusted for inflation, this would be interpreted as the apocalypse.

Sorry, folks, but if you want to keep drinking to avoid a hangover, you’re only making things tougher on yourself.

-jb

Revealing?

Apr 14, 2008 in Economy, Housing Bubble, Uncategorized

Huh?

On March 31, Fannie Mae sent out new guidelines to lenders aimed at walkaways and other foreclosure situations. Fannie will prohibit foreclosed borrowers from getting another mortgage through it for five years, unless there are “documented extenuating circumstances.” In those cases, the prohibition is three years.

Even after five years, borrowers with foreclosures in their files will have to put at least 10 percent down and need minimum FICO credit scores of 680.

Call me a fiscally irresponsible and naive librul but I thought ten percent down was the default standard if you planned on buying property and had half a brain.

And to think I spent the last five years trying to pay down my debt!

I could have run up those credit cards and let inflation take care of the balances!

-mg

Perspective.

Apr 07, 2008 in Economy, Housing Bubble

This NYT map puts things into perspective.

Though it may seem a bit abstract we should realize foreclosure to be the disintegration of abstract “wealth”. If a security is purchased under the assumption that it represents the benefit of future dividends then it has value. If that security loses market value (the amount someone is willing to pay for it) then all that hallucinated “wealth” evaporates and our economy shrinks.

-mg

Get out your checkbooks.

Apr 01, 2008 in Economy, Housing Bubble

The Treasury announced that they (we) will be picking up the tab for any losses incurred by the Bear Stearns deal.

-mg

Throwing good money after bad.

Mar 28, 2008 in Economy, Housing Bubble, Welfare of the rich

Ran across this anti-mortgage bailout site perusing the LA Times.

Propping up an unrealistically inflated housing market is wrong in so many obvious ways but it’s also easy to understand why Helicopter Ben and Co. are freaking the f*ck out.  Since we’ve painted ourselves into the domestic economic corner of perpetual expansion and maintenance of suburbia it’s important that we keep the delusion of limitless growth alive.  It also serves as a reminder of how capitalists view government; an obstruction when riches are to be plundered and a necessity when you need to be rescued from your own foolishness.

-mg

My thoughts exactly.

Mar 18, 2008 in Corporate shenanigans, Economy, Housing Bubble, Not a recession!

E.J. Dionne in today’s WaPo:

Never do I want to hear again from my conservative friends about how brilliant capitalists are, how much they deserve their seven-figure salaries and how government should keep its hands off the private economy.

The Wall Street titans have turned into a bunch of welfare clients. They are desperate to be bailed out by government from their own incompetence, and from the deregulatory regime for which they lobbied so hard. They have lost “confidence” in each other, you see, because none of these oh-so-wise captains of the universe have any idea what kinds of devalued securities sit in one another’s portfolios.

As Chomsky says, more often than not capitalism means “free markets for thee, not for me.”  So much for the concept of moral hazard.  Every time the “Masters of the Universe” innovate themselves into financial armageddon it’s taxpayers like me that have to make sure they don’t have to face any scrutiny (in Bear Stearns case that means litigation) for frittering away billions.

-mg  

Yikes!

Mar 13, 2008 in Economy, Housing Bubble

Bank seizures doubled last month.  Foreclosures up 60%.  And I guess the Fed’s plan is just to keep passing the buck off onto the American consumer in the form of inflation.

-mg 

The concept of risk is foreign to these people.

Feb 14, 2008 in Economy, Housing Bubble

Here come the bankers, hats in hand, pleading for a bailout:

WASHINGTON — The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.

This means that you and I will be held responsible for the loans that tank. If they perform well then Credit Suisse and Goldman Sachs get to keep the profits. Ain’t capitalism swell?

-mg

The return of the savings account.

Dec 17, 2007 in Economy, Housing Bubble

Stephen Roach of Morgan Stanley Asia:

This recession will be deeper than the shallow contraction earlier in this decade. The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country’s gross domestic product. The current recession is all about the coming capitulation of the American consumer — whose spending now accounts for a record 72 percent of G.D.P.

Consumers have no choice other than to retrench. Home prices are likely to fall for the nation as a whole in 2008, the first such occurrence since 1933. And access to home equity credit lines and mortgage refinancing — the means by which consumers have borrowed against their homes — is likely to be impaired by the aftershocks of the subprime crisis.

And a lot of homeowners that want to refinance will have a tough go at it because their high debt-to-income ratios are going to prohibit them from qualifying for the rosy rates promised by the carnies at Ditech. So yeah, they’ll have to start buying things with real money again and pay off their revolving credit balances with actual earned wages instead of “equity”, ie- hallucinated wealth.

I have the feeling that beneath all of the working-class hero speeches about ARM reset freezes is another scam to keep these Big Shitpile loans on the balance sheets so the illusion of solvency can be maintained for just a little bit longer.

-mg

UPDATE: Has Limbaugh started blaming the coming recession on a self-fulfilling prophecy promulgated by the liberal media yet?  I’d be surprised if he hasn’t.

Ja, das stimmt.

Nov 11, 2007 in Economy, Housing Bubble, Journamalism

Well, I sure wish I knew what it would take for our country to develop some foresight. Our current version of “looking forward” has gotten us in Iraq, allowed profiteering to drive health care costs beyond our means, and passed massive credit reforms friendly to loan shark credit card companies while respectable members of the elite bellyache about the cost of fighting global warming. That is, of course, an incomplete list. If there’s anything we have planned well for, I’m not sure of it.

The housing meltdown is getting the attention, but there’s so much more. Bankruptcies and homelessness are on the rise. The job market has been weak for years. The auto industry is in trouble. The cost of food, gasoline and home heating oil are soaring at a time when millions of Americans are managing to make it from one month to another solely by the grace of their credit cards.

The country has been in denial for years about the economic reality facing American families. That grim reality has been masked by the flimflammery of official statistics (job growth good, inflation low) and the muscular magic of the American way of debt: mortgages on top of mortgages, pyramiding student loans and an opiatelike addiction to credit cards at rates that used to get people locked up for loan-sharking.

One of the joys of living in America is that we have a nearly useless punditry that works hard to create the experience of being on top of everything while offering next to nothing People like Bob Herbert who are out there digging up the bad news are both rare and ignored. While our news media does manage to record a number of facts available for searches and discerning readers, it has become so enmeshed with foul punditry one must struggle to unsnarl them. Mainstream media outlets have begun to grow dimly aware of encroaching challenges to America’s economy that neoliberal economic policies have engendered. Given the corporate structure of such entities, such a simple pronouncement becomes impossible for them to make, so they must pretend they have no idea what’s causing all this alarm.

There is really no excuse for The New York Times and the rest of the mainstream news media to not understand what is going on out there. The pervasive cluelessness is a symptom of another complex system out of whack — the system that informs us what’s going on. Meanwhile, the danger mounts. The heating season is underway and the furnaces are clanking. Many Americans will have to start choosing whether to pay their mortgage, fill the tank of the Chevy Suburban, buy that brick of Velveeta, or pay the heating oil guy. It looks like China will be spending more of its accumulated dollars bidding up the price of oil (or making favorable contracts with foreign suppliers) instead of buying Freddie Mac bonds. The USA could not find itself in a less favorable position among all these forces roiling the scene. It certainly can’t afford to continue its pathetic pose of cluelessness.

James Howard Kunstler inevitably sounds like a crank, yammering away at how the world is going to turn to shit, writing the book of Revelations for the suburbs via his books and blogging. He makes us feel grumpy and sad. Unfortunately, he is a crank only because fate proves him right every day. Kunstler has looked at the unique nature of oil and its fundamental importance to every facet of modern life, and extrapolated the logical consequences of it running out. They’re not easy to digest, definitely earning a rating of two Tums up.

I prefer Rolaids, but the pun called…

There are some who maintain that the country will simply be unable to react to a true energy shortage until it faces it, and then we’ll fucking grab ourselves by our invincible bootstraps and leap right over the problem. They’re half right.

-jb

Whoops!

Nov 09, 2007 in Economy, Housing Bubble

Here’s a classic case of “be careful what you wish for“.  Lenders are now getting bitten in the ass for pushing harsh new bankruptcy laws through the Congress.  Since homeowners can’t as easily file Chapter 7 or 11 to get rid of credit card debt they’re being forced into delinquency on their mortgage payments.  Unlike credit cards, a home loan is a secured debt, so the homeowners have the ability to leave the keys on the kitchen table and walk.  The entire goal of the so-called “bankruptcy reforms” was to shield a lender from the risk of over-extending themselves.  With the new laws in place, companies like Chase or Citi could underwrite credit lines to customers they knew couldn’t afford the terms and not have to worry about the consequences.  Talk about a colossal backfire.

-mg

Crooked appraisers.

Nov 01, 2007 in Housing Bubble

Any time you have a financial bubble burst it’s always followed by a slew of whistle-blower reports, investigations and subsequent arrests.  I’m guessing we’ll be seeing a lot more of this:

Andrew Cuomo, New York attorney-general, filed a lawsuit against First American, the home appraisal group, saying its eAppraiseIT subsidiary gave in to pressure from Washington Mutual, the largest savings and loan group in the US, to use a preferred list of appraisers who provided inflated values for homes.

Cue the “personal responsibility” trolls crowing about how those affected homeowners are as much to blame because they should have done their own investigations into whether or not their appraiser was on the take.

-mg

Stuck at stage one.

Oct 08, 2007 in Economy, Housing Bubble

Steve Martin and Amy Poehler are offering up a startlingly simple get-out-of-debt plan in this SNL sketch. It’s called “Don’t Buy Stuff You Cannot Afford”. A novel idea, to say the least.

While speculation that consumer spending is holding steady and revised jobless claims numbers for August was enough to keep CNBC lighting cigars last week, the sharp rise in consumer credit should be enough to sober up anybody still inebriated by the Fed’s dramatic interest rate reduction. It also answers the question as to where American consumers are getting cash from in a dismal economy; it’s all going on the plastic. It also means that the denizens of happy-motoring nation entertaining lifestyle obsessions still haven’t made it past the denial stage of loss and grief. Right now they’re stuck in the delusion that the over-valued Toll Brothers “home” they currently occupy will save them from credit card purgatory because the market will turn around and the suburban build-out will continue unabated for another fifty years.

-mg

Don’t look too hard.

Sep 24, 2007 in Economy, Housing Bubble

From today’s Clusterfuck Nation:

It appears that Fed Chairman Bernanke’s interest rate cut was designed mostly to help bail out the big banks, which are in desperate need of cheap loan money to cover the losses that they are suffering from not being able to unload tons of worthless mortgage-backed-securities. Secondarily, the Fed governors might hope that their lowered rates would soften the blow of re-sets on millions of adjustable-rate mortgages — but mortgage rates have de-coupled from Fed rates, so that may just be whistling past the graveyard. The next two months will see a much bigger wave of re-sets than months previous, and the re-setters themselves have to figure in some idea of real inflation if they don’t intend to lose money on those contracts — and whoever these parties are at the re-set end, after years of slicing, dicing, re-bundling and re-selling, they are not liable to be in a charity business of buying houses for people at a loss to themselves in interest rate differentials. So, bottom line again, those poor shlubs who signed “creative” mortgages are going to get re-set upward pretty steeply whatever the Federal Reserve does. The political fallout from folks getting tossed out of repossessed houses is sure to get worse.

With mountains of mortgage resets still on the way there still seems to be an endless supply of Bloomberg, CNBC, and ill-informed blogger pundits calmly assuring us that the worst is over and that we need not pay attention to those predicting any further market mayhem. As if the largest credit run-up in history is going to play out in a cool six months. How they come to the conclusions they do is beyond me.

So, yeah, things aren’t doing that bad – that is – if you don’t look that far. Wheat, corn, oil, soybeans, gold, oil, basically, any commodity that truly matters, are closing at historic highs. Tomorrow, the Conference Board is going to be releasing it’s consumer-confidence index along with some fresh existing-homes sales data. Both of which are forecast to be crummy. Thursday brings second-quarter GDP growth data and figures on new home sales (already revised downward). Finally, the Commerce Department will be releasing reports regarding personal income, spending and saving for August. Despite the fact that all of the above metrics are going to come in looking as shabby as a Chinese motorcycle, Bloomberg is going to have at least one commentator this week that loudly proclaims “we’ve seen the worst!”

-mg

Big government to the rescue! Coke snortin’ edition.

Sep 18, 2007 in Economy, Housing Bubble

I noted here how Bush said that he would offer little salve for the wounds of those bludgeoned by faltering housing markets.  Especially the damage sustained by “speculators”.  Salvation has come not in the form of fool-hardy bailout schemes but a 50 bp Fed rate cut.  Things aren’t as rosy as they may seem, however:

The Fed’s action comes at a cost. It will cement a perception that the Fed cuts rates in response to market crises and so encourage speculation. It also risks the Fed’s credibility as an inflation fighter. In its statement the Fed says that “it will continue to monitor inflation developments carefully”. The Fed had better hope that bond investors and wage negotiators trust it.

One of the greatest dangers is that loose monetary policy undermines the integrity of the dollar. The US trade deficit is financed by foreign investors who are willing to hold US bonds and assets, and if they fear that inflation will destroy their value, they will sell. The 50bp cut turns a dollar rout from very unlikely to just about possible.

Listen to the dunces on NPR and the reaction to the rate cut was “Hey! Hey!  The DJIA went up! That’s good, right?”  Somebody made some quick loot so all is well in the financial world.  Except that it’s not.  Dropping interest rates might give Tom Ashbrook and Wolf Blitzer reason to stroke their chins and marvel at the mystical wonders of the credit rackets but it’s tantamount to fronting a coke-head another eight-ball when he’s already in so much debt.  Sure, he’s high as a kite for a short while but after he crashes and is done licking the residue from the bottom of the bag he’s just that much more in debt and feeling more miserable than ever.

– mg

Texas truck!

Sep 03, 2007 in Housing Bubble

I have a license to deal insurance in Texas and since it’s easily the biggest state in our region I deal with them almost exclusively. One thing that you must know about Texas; just about every SOB in that state drives at least a Ford F150 XLT or a Chevy Silverado Crew Cab. One percent of them are contractors who would actually need a vehicle like that and an even fewer number have four wheel drive capability, bed-liners, running boards, hitches or any feature one would normally associate with owning a work truck. And if paying your insurance premium on time is a reliable indicator of financial well-being then I guess a lot of Texans can’t afford them, either. Regardless, owning and commuting to work twenty miles one way in a large pickup is as Texan as loving the Alamo and drinking Shiner Bock beer so the thought of being separated from that lifestyle is unimaginable and I’ve frequently wondered what the reaction will be when the price of fueling those beasts makes owning them prohibitive to the middle-classes that most covets them. Jim Kunstler shares my concerns, apparently:

The suburban build-out is over. This will come as an agonizing surprise to many. The failure to make infinite suburbanization the permanent basis for an economy will rock our society for years to come. Hundreds of thousands of unemployed men with pick-up trucks and panoplies of power tools will feel horribly cheated. I hope they don’t start an extremist political party when the re-po men come to take their trucks away.

I don’t know who people will blame when their lifestyle obsessions get them into trouble with the re-po men. I’m just glad that I learned my lesson fifteen years ago when I got my first credit card. I couldn’t imagine what it must be like having invested so much of who I was into rapidly depreciating items like cars, lawnmowers or, sadly, overvalued condos or shitty suburban tract housing. Hell, even now after some of my own personal maneuvering I’m not so sure that my own 401k is immune to the current shitstorm since a lot of mortgage-backed security chicanery is off the books. At least I don’t own a Toll Brothers, impossible to heat McMansion thirty miles from my place of business!

-mg

Disclaimer – I drive a Jeep Cherokee Sport with a 3″ lift kit and 30″ Firestone’s so don’t bother hating on me for writing an anti SUV or truck post.

Big government to the rescue!

Aug 31, 2007 in Housing Bubble

Those free-market loving Wall Street traders reacted giddily today (+1.1%!) to Bush’s announcement that lifestyle obsessed Americans need not worry about the mistakes they made when they were mesmerized by the enticing loans offered by Ditech:

President George W. Bush today pledged to help people who have fallen behind in their mortgages keep their homes and to tighten safeguards against predatory lending, while rejecting a bailout for “speculators.”

‘I plan to help homeowners. The government’s got a role to play,’ Bush said in a statement at the White House. But, he said, `It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.’

Holy shit! Did the most conservative, free-market loving Republican in the history of America just say that the government has a role to play in helping out homeowners?? Surprisingly, Republican bloggers are infuriated since he’s undermining their “boot straps” narratives. Chuck Schumer got in a good zinger:

Bush ‘is starting to sound like a Democrat,’ Senator Chuck Schumer, a New York Democrat, said in a news conference minutes after the president spoke. ‘The president has gotten out of his ideological straitjacket and seen that in times of crisis the federal government should help troubled citizens.’

But aren’t those people who thought that they’d be able to buy a Miami condo, shampoo the carpets and sell it for a profit also “speculators”? Granted this housing slump has just gotten underway but let’s not forget that the “Flip This House” phenomenon is still featured prominently on every domestically oriented cable channel and all of the accompanying commercial filler spots.

-mg

Librul ravings!

Aug 20, 2007 in Housing Bubble

Ultra-Left, moonbat, commie Richard Bove says:

“There are too many people who have made too many bad business decisions that are getting bailed as a result of the Fed’s decision,” including Countrywide’s Chief Executive Angelo Mozilo, Bove said in an interview…

There are dozens of people who are getting bailed out and I don’t understand why they should be,” said Bove, a Lutz, Florida-based analyst for Punk Ziegel of New York. Fed Chairman Ben S. Bernanke “should have let the chips fall where they may,” he said.

-mg

Countrywide is bankrupt.

Aug 16, 2007 in Economy, Housing Bubble

Countrywide, like a lot of the home owners they servicem, are completely tapped out:

Aug. 16 (Bloomberg) — Countrywide Financial Corp., the biggest U.S. mortgage lender, tapped an entire $11.5 billion bank line as the global credit crunch curbed access to short-term financing…

… “When a company draws on its bank lines, it just basically gives off the impression that it has run out of options,” said Christopher Wolfe, managing director at Fitch Ratings, which today dropped Countrywide to BBB+, its third-lowest investment- grade rating. “Typically these bank lines are there but not really meant to be used.”

This means that it’s very likely that they’ll be filing for Chapter 11 protection soon. I’m absolutely positive Dana and LL will expend great amounts of time excoriating these 100+ mortgage companies for their short-sighted bumblings and recommend they forgo government protection and simply pull themselves up by their bootstraps. Yup, that Bush economy is ticking right along!

-mg

Long way down.

Aug 15, 2007 in Housing Bubble

What is it about flying that always encourages any latent upper respiratory illnesses you may have lingering in the background to come bursting through with Shakespearean revenge? I just returned from my sister’s wedding in Seattle yesterday and I’ve been hacking up cobwebs and lime dust since our layover in Denver.

I’ve always thought Denver a very unremarkable city. Probably because I went to college at Iowa State University where everybody just looooooves Colorado. Iowans, especially those west of I35, are absolutely enthralled by the state and somewhere along the way all that unchecked adulation left a bad taste in my mouth. I think it’s because for some of these Midwesterners it’s the first major topography they’ve ever encountered in their lives which, understandably, leaves a major impression on the psyche. The mountains are indisputably beautiful regardless of how many times you may have seen them. That is if you can see them through the quite sizable smog layer that accompanies most major metropolitan areas. And like most cities these days Denver is also plagued by rising mortgage default rates. Looking down from the plane you can see miles upon miles of tract housing erected out on the desolate east Colorado prairie. All of them with lawyer foyers and accessible only by car. I thought that it would be interesting if like playing a computer game such as SimCity you could click on an icon and light up all the houses that are currently receiving thirty, sixty or ninety day default notices.

Even while our Empire of Debt is crumbling before our eyes cable news is packed wall to wall with doe-eyed pundits predicting an inevitable upswing delivered just in time for Christmas. Divinations like these couldn’t be further from the truth. Here’s a chart showing ARM reset schedules:

The truth is that we’ve got a long time before the last of the resets start resulting in defaults. In fact, the worst is yet to come because when people finally abandon their foolish pride, leave the keys on the kitchen table and walk out that front door it will take months before those houses move their way through the local inventory and their values slowly erode. And remember, all the NordicTracs, plasma televisions and Ethan Allen davenports that are packed into those ugly tract houses were purchased by loans predicated entirely on imaginary “equity” so the devaluation will cascade through all areas of the economy before we finally hit rock bottom.

-mg

The Phoenix effect.

Aug 13, 2007 in Economy, Housing Bubble

We are no butterfly.

When our wings flap, the earth shakes.

From New York to Frankfurt to Tokyo, markets were jolted in the past week by fears that Americans are failing to keep up with their mortgage payments and the ripple effects that could have on the global banking and financial system.

The fallout could further depress U.S. housing prices by making it harder to find buyers for a glut of foreclosed homes. That, coupled with a drop in the value of investments, could leave U.S. consumers feeling poorer and less likely to spend on domestic and imported goods.

Around the globe, small-time investors are taking a beating. Stock prices have slid in recent days as fears of the market crisis infected markets worldwide. Worried investors sold stocks but finding buyers was hard, which caused share prices to dip even lower.

“We all feel threatened, problems on the stock exchange have consequences for the economy of America and of the world” said Gabriella Savarini, a 69-year-old shopkeeper in Rome. “America influences all, for good or for bad.”

The question is, is this a ruffling of the feathers, or are the wings on fire?

– Total consumer credit: $1.7 trillion.
– Credit card debt carried by the average American: $8,562.
– Total finance charges Americans paid in 2001: $50 billion.
– Percent of U.S. households deemed credit worthy by the lending industry: 78%.
– Number of credit card holders who declared bankruptcy last year: 1.3 million.

Enter the comfortable and dutiful economic columnist to assure us that after the fire, the phoenix will rise again.

When the dust settles, investors will have learned not to put blind trust in rating agencies, which are paid by bond issuers and so have an incentive to exaggerate how safe bonds are. And when the dust settles, the market for subprime mortgages will revive and thrive in dull obscurity.

Don’t worry, folks…the rich will remain rich, and vampire creditors will have figured out exactly how much blood the American consumer can lose before they drop dead.

One might reason that if vampires exist, so also must the phoenix. America has risen from the ashes before, but one must ask, have we truly been in this situation before? History does repeat itself, but which old story is being retold here? The junk bonds fiasco of the ’80s, as Sebastian Mallaby claims, or a much older and familiar tale for mankind, that of Rome?

-jb

The Slight of the Invisible Hand

Aug 07, 2007 in Economy, Housing Bubble

Kiss the money you had wrapped up in those two defunct Bear Stearns hedge funds goodbye:

Aug. 7 (Bloomberg) — Bear Stearns Cos.’ decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors’ and investors’ ability to get their money back.

While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The bank also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.

Do you think the investors into those funds are going to sit back and chalk up the loss to the whimsy and wonder of the free market like good little libertarians or do you think they’re on their cellphones calling their lawyers and their House Representatives?

-mg

Things I see at the beach.

Jul 25, 2007 in Housing Bubble

Did you know that no home in Southern California has a basement? That’s right. That extra floor of your home that most Iowans enjoy for at least storage, if not as a whole extra floor to the house, doesn’t happen here. So when you see a California home, what you see is literally what you get. I don’t have a picture of the shack I saw in Point Loma the other day, but here’s another one advertised that looks awfully close:

Notice the cropping off on the right...

Notice the cropping to the right, altering the picture so it looks like the house keeps on going. It doesn’t.

This shack just sold for $690,000.

Quite a lot to avoid a ten minute drive to the beach, innit?

It’s not that simple. Dr. Housing Bubble notes the price madness in Lakeside, about 30-40 minutes from the beach. $400K for a shithole in the desert rocks, anybody?

California is stark raving mad. Hopefully I’ll be bailing in a few years, but one thing is sure: I will never buy a home in this state.

-jb

The Real OC

Jul 25, 2007 in Economy, Housing Bubble

Dr. Housing Bubble documents the West Coast housing atrocities so you don’t have to. If you can machete hack your way through the ubiquitous text ads (monetize!monetize!!) he’s got a damn good run-down of how people with seemingly healthy incomes wind up in foreclosure. Bummer!

-mg

No big deal!

Jul 19, 2007 in Economy, Housing Bubble

99 mortgage lenders have gone under so far this year.   Who will make it an even 100?

I was told by a coworker yesterday that there’s nothing to worry about because the stock market is doing well.  If this is conventional wisdom then we’re most certainly doomed.

-mg

Bad Fed Data

Jul 10, 2007 in Housing Bubble, Immigration

Like a pack of dumb animals, Republican bloggers, in their perpetual quest to express the highest degree of fealty to this administration, will frequently point to the job market as the basis for all sorts of exotic claims regarding the economy. If jobless numbers go down it’s proof that Bush’s tax cuts were a success, cats are getting along with dogs and all is going well in the universe. If they go up, well, it’s the NEGATIVE LIBRUL MEDIA!! Such is the average analytical capacity of the online devoted. I’m interested in where the economy is headed, they’re interested in defending Bush. C’est la vie.

The big question lately is why has labor remained relatively stable in a market that is beset by tumbling real estate values and the subsequent construction slow down that has impacted most of the country? The answer appears to be that employment has gone down, it’s just that construction companies employ legions of illegal immigrants and are therefore able to keep them off the Feds books.

We seem to be going at the immigration issue the same way we approach cocaine; we blame Colombians because Americans demand it. Immigration reform needs to address those businesses that insist on breaking the law and hiring illegals.

-mg

Tales of Doom

Jun 28, 2007 in Economy, Housing Bubble, Politics

In today’s Gavel there’s some posting on the Budget Committees current hearing entitled “Foreign Holdings of U.S. Debt: Is Our Economy Vulnerable?” Rep. Chet Edwards questions Pete Orszag (Director of the Congressional Budget Office) about how much the Bush (Cheney) tax cuts amount to in proportion to debt and he responds that it’s approximately equivalent. Here’s a great quote:

Orszag:
“Economists generally agree that the current account deficit is unsustainable, because the nation’s indebtedness to the rest of the world will grow faster than its income, and foreign investors will not continue to be willing to purchase U.S. claims indefinitely, as their portfolios become more and more concentrated in such assets.”

I’ve spent a lot of time clickety-clacking away about economic concerns over the past year because I think these issues affect us more than up-to-the-minute updates about the whereabouts of John Edwards, Chris Dodd saying “jackass” in Cedar Rapids (OMG!), or the most boring Iowa news story of the year; the Board of Regents search for a new U of I president. We are able to live our current lifestyles because foreign nations are happy to purchase guarantees on our future productivity (bonds, or, more appropriately, the work of our children). The possibility that such may not be the case indefinitely is a likely situation as long as our attitudes remain preoccupied with the status quo. Websites like this, this and this have spent countless hours detailing how empires are more susceptible to the folly of foolish politicians and ADD-afflicted accountants than they are terrorists and assorted other foreign bogeymen. Or, most importantly, the constant flow of cheap energy which is a luxury that we no longer can rely upon.

-mg

Highlight, Ctrl-C, Ctrl-V

Jun 26, 2007 in Housing Bubble

For those of you suffering from market delusions Doctor Housing Bubble has an entertaining post regarding the five major failures of the housing market.

Here are a few gems:

The demise of many sub-prime outlets is justified. They created their undoing for instant gratification and fast money. Easy come, easy go. When I worked as an agent, I would constantly hit heads with brokers that laughed about creative financing they were able to pull on buyers. I would look at financial statements and shake my head as buyers fudged numbers encouraged by brokers to get into overpriced homes. “Don’t worry, banks never check especially if we go stated income. All we need is your signature here stating you make $100,000.” I would hear statements like this constantly and this was a few years ago. God only knows what has been going on in the shady underbelly of housing since I left the industry. Oh yeah, we are already seeing what is going on. Ridiculous loans on massively overpriced homes with folks unable to afford the monthly payment.  …

We know how scared the market is right now. Remember long ago (in March 2007) with the sub-prime implosion and the stock market dropping 400+ points in one day? Fears of mortgage implosions sent the market down hard. The market recovered quickly because all the talking head pundits would have you believe that it was contained principally to the sub-prime market. They also discussed in great detail the legend of the summer housing easter bunny and how the market will come roaring back. Summer is here and no bouncing bunnies are to be found. We now have Bear Sterns issuing warnings about Merrill Lynch pulling assets out of a mortgage hedge fund that made idiotic bets. Bear Sterns and Merrill Lynch are not New Century Financial. This is as prime as it gets. Bear is throwing money to keep this afloat because it is a major embarrassment to their asset management. The market got hit once again and bad money is chasing more bad money to keep the party going a little bit longer.

Keep in mind that we are only entering the first stages of trillions of dollars in mortgage resets. Nothing is contained. The main question everyone should be asking is can the American public sustain monthly payment jumps while real estate prices fall? If the answer is no, how long can the market withstand jumping resets and foreclosures before a panic arises? Ronald Reagan had one thing right when he said a “Recession is when a neighbor loses his job. Depression is when you lose yours.”

-mg

When bad debt becomes just that…

Jun 23, 2007 in Corporate shenanigans, Housing Bubble

Bad Debt.  Bear Stearns is against the ropes because they failed to heed the warnings of those who foretold doom in the all encompassing housing sector and now one of their most lauded hedge funds is about to tank.  This might knock a little reality into the skulls of those that see a rising DJIA and conclude that all is well.  News flash; the Dow is a dumb animal and merely reacts to immediate stimuli.  It is not a crystal ball.  In fact, it is the opposite:

“The problem is not what we see happening, but what we don’t see,” said Joseph Mason, associate professor of finance at Drexel University in Philadelphia and co-author of an 84-page study this year on the CDO market. “We don’t know the price of these assets. We don’t know which banks are exposed to this sector. These conditions are the classic conditions for financial crises across history.”

Conclusion?  The Street was wrong (and Iowa Liberal was right) when they previously assured investors that housing woes were limited to the subprime market.  Merrill Lynch attempted to sell two of Bear Stearns’ embattled securities (not even the high risk ones) to help raise some capital and came up half a billion short signaling that they’ve got a long ways to go before they hit bottom and this time the Fed isn’t going to be able to turn on the spigot (lower interest rates) to help them.  In fact, Bank of America analysts are calling this the “tip of the iceberg”.

-mg

ARM reset schedule.

Jun 16, 2007 in Housing Bubble

We’re not out of the woods yet.  Here’s an adjustable rate mortgage reset chart.  The next six months are going to be pretty hairy.

-mg   

Not gonna happen.

Apr 25, 2007 in Housing Bubble

Keep dreamin’:

Lereah said he had expected the housing market to recover by this quarter, but that problems with subprime mortgages will delay that until this summer. During the housing boom, lenders gave exotic loans to people with weak credit. Now that delinquencies and foreclosures are increasing, lenders are tightening their standards, at the behest of federal agencies.

This summer a large portion of existing subprime mortgages will be resetting and when the owners of these loans have to bear the added brunt of paying interest on the actual principal of the loan you’re going to see a rather significant feedback loop take place.

Here’s another giggle:

“If you could take the subprime problems out of it, we were recovering,” he said. “I expect a couple of more sluggish months coming.”

Yeah, if we could just eliminate the thirty percent of the market that’s rotten we’d be on easy street. No big deal.

-mg

Fire sale.

Apr 15, 2007 in Housing Bubble

I’ve got a great book for those looking to invest in an already rapidly growing market.  If you buy it today you could probably flip it in a year for fifty cents.  That’s a lot of bird cage liner!

-mg

A look at the big picture.

Apr 10, 2007 in Clueless Conservatives, Housing Bubble, Uncategorized

Why the economy is headed for trouble: 

The EIA has to be more reality-based about current activity than their future projections, because the current import-export and refinery figures are out there for other people and other data-gathering organizations to see. The EIA’s future projections are a joke. They are based on the fantasy that everything will be okay despite what we see happening now. The EIA projects that all the world’s oil producers will increase their oil production hugely by 2030. They see Saudi Arabia shooting up to 17.1 million barrels a day when, in fact, Saudi production fell 7 percent just over the past year alone to 8.4 mm/b/d. They see Mexico shooting way up, despite the announcement last year by Pemex that the Cantarell field (60 percent of Mexico’s total production) is crashing at a minimum rate of 15 percent a year. They see Russia zooming way up, despite the fact that Russia is probably past the 70 percent mark of its original total reserves. If you go to this EIA chart, you’ll see practically everybody’s production shooting way up in the decades ahead, even the US, which, in reality, has seen nothing but steady annual decline for more than thirty years (we produce half now of what we did in 1970).

     The EIA is a perfect reflection of the public it serves. It appears to conduct daily business in a responsible way while it resolutely refuses to face the obvious realities of the future.

Unemployment at 4.4% doesn’t make the above go away, nor does it ensure that our empire of debt can be financed indefinitely because of promises made upon future productivity (bonds) which are in turn predicated on the exact dubious figures represented above.  Couple this with a drop in real estate values (previously assumed wealth, or, “equity) and you’ve got a devalued dollar.  The basic message here is that things are going to get a helluva lot more expensive (transportation in particular) within the coming years whether you’re working or not.  It’s why my boss is buying railroads. 

update:

Something I wanted to add earlier but my cold medicine kicked in: 

For all of you still pointing at the construction industry as proof of an overstated housing bubble keep this in mind; the money for the construction is put in escrow at the BEGINNING of the project. Thus, the project goes forward regardless of whether the builder feels there is a market for the building or not. This explains why construction projects continue to move ahead regardless of whether the developments are economically viable.      

-mg    

50

Apr 06, 2007 in Housing Bubble

Fifty sub-prime lenders have bitten the dust.

Why should you care?  Because consumer spending is sadly the only engine of our economy left.  Home-owners have been spending against the future value in their property for a long time now (in the form of equity loans) and that value has been bundled with a ginormous amount of what are called “mortgage backed securities”.   When that value crashes it means that a lot of imaginary money disappears.

-mg

The Long Emergency

Mar 14, 2007 in Housing Bubble, Uncategorized

I’ve added the Housing Lender Implode-o-Meter to the links.  They’re doing a great job at documenting the sub-prime mortgage blood-bath.

If you don’t care about this topic then you should.  The housing boom has been the cornerstone of our so-called healthy economy.  If developers continued to build houses and more and more people were buying those houses and filling them full of garbage then it meant that the economy was zooming along nicely.  The problem is that a tremendous amount of the loans issued for these over-inflated shacks out in the middle of nowhere were issued to people who had no possible way of paying them off.  Worse yet, a frighteningly obtuse slice of traded securities are predicated on the future repayment of these bogus loans. 

-mg

p.s.  This is what happens when people can’t pay their bills.  They stop spending money they don’t have on shit they don’t need.  And this is what happens when you don’t have a manufacturing base to fall back on when things get rough.            

At the cash machine.

Mar 06, 2007 in Housing Bubble, Uncategorized

The ten year subprime lending fantasy seems to be coming to an awful close coinciding beautifully with permanently rising energy costs. GMAC, the holder of a great many of these idiotic “creative loans” (through their Ditech branch), and others like WaMu and Countrywide, seem to be headed for some bubble-trouble since Freddie Mac is no longer going to be taking up any of the burgeoning pawn-loan slack out there. My advice as your financial advisor? Better get hooked up with a fixed-rate loan before TSHTF before you find yourself sippin’ on Cisco out of a paper bag and begging for change out front of Popeye’s Chicken and Biscuits.

-mg