Ironic as it is but Lehman http://www.lehmansbf.com/ just posted an ad in the OC Register's business section looking for commercial loan officers. The ad stated the stability of the commercial loan industry.
The last time I recall seeing the number of cranes in my local city (Bellevue, WA), was right around the time of the tech crash of 2000. This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over-retail stuff (Geeze, how many hole-in-the-wall sandwich shops do we need?).
Some of the projects nearing completion today have roots in the 2000 crash, including 3 that went idle for a few years after construction was halted due to lack of demand/financing. I expect their timing to be perfect once again...
If the mortgage puts them over that limit why would anyone lend them more, particularly if it's in a subordinate position?
EEngineer | 04.03.07 - 2:37 am | #
Borrower conspiracy. The lenders are too busy "managing risk" selling those tranches of credit card debt to institutions too big to fail to notice that the borrowers all have brown skin, speak Spanish, and appear to be members of the same family.
The lenders are having the ponchos pulled over their eyes.
This is an immigration policy problem, not a financial problem.
The dead hand of the REIT's on the "full speed ahead" throttle of commercial and multi-family construction continues. New condo and apartment projects still start (where do those investors live-overseas?). More and more see-thru developments complete every day(every suburb wants to have their own town center). REIT's are likely to have a long dry spell coming up-how much of their returns have been driven by the sheer, massive influx of new money?
Marchs full Daily Treasury Statement is in and may give some clues about collecting Bubble taxes as well as taxes from real working people. Taxes for wages withheld checked in at a modest 3.2% year over year at 156,986 versus 152,102. The corporate wash, rinse, repeat tax machine checked in at a decent enough 43,315 versus 38,493, thats up 12.5% but has backed off from the overall robust 16.3% growth seen for the fiscal year as a whole. Individual taxes not withheld which is a measure of capital gain paid on Bubbles and other assets actually dropped year over year to 10,762 versus 11,553. Might be an ominous sign but the big month to watch for this will be April when taxes are due.
How owns that CDOs?
Most experts say its almost impossible to know. Sales teams at investment banks and other firms that offered CDOs wont talk and no one else contacted by MarketWatch has kept track. The Federal Deposit Insurance Corporation, which monitors risk in the banking system, tracks holdings of MBS, but not the different tranches. It has no information on who holds CDOs.
Many experts point vaguely to Asian and especially Japanese investors who have been hungry for any assets yielding more than the almost-nonexistent interest rates offered by the worlds second-largest economy in recent years. But thats where the trail ends, which is a big problem, according to some. Its pathetic, but its almost impossible to find out, which is no good for the system or anyone really, Josh Rosner, a managing director at research firm Graham Fisher & Co., said. On the CDO side we know even less and regulators know even less because there arent very clear reporting requirements.</i>
"This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over- retail stuff"
Same here, lumpeninvestor (in Minneapolis). I work on that stuff for a living and there is too much of it here now. But I'm old enough to have seen a lot of cycles come and go!
I realize this is a very naive view of the relevant economics, but is it possible that the deflation of the real estate bubble will actually boost the general economy? The basis for this is that all the capital chasing yield in MBS will now be forced to find alternative investments. This will make the cost of initiating new (sound) business activity lower. In turn, business activity will increase.
The basis for this is that all the capital chasing yield in MBS will now be forced to find alternative investments.
I think the answer here lies in the word 'capital'. If by capital you mean real money that is not debt based then maybe you would have a point. I think though that in fact you have in this case borrowed money ie credit chasing a higher yield which means risk is involved to offset the cost of borrowing while still getting a return. Also in this mix is the problem which seems to exist of liquidity being seemingly created by a borrower who offers a Mortgage backed security to a lender in return for more borrowing so that they can buy more securities which they can then offer as security for more borrowing. If we were talking real genuine securities then that might not be so problematic but if the MBS is effectively worthless then you have a levered position based on no security. Hence there is an implosion risk if housing tanks.
Basicly to me (and really i know nothing) if housing tanks there is no good outcome that i can see because unlike former times where there were net savings now there are minus savings so when the tide goes out the apparent wealth in assetts obtained by borrowed money will be replaced by the debt that was always there.
I understand the negatives of deflating housing prices. But honestly, having live in the Midwest recently, it seems like there's plenty of parts of this country where people can go and live with excellent infrastructure in place and a very low cost of living. Jobs from large companies don't exist there, but cheap credit to small businesses could create a rebirth of the US economy on it back.
PS, the credit you speak of must be extended by those who have capital (or the ability to mint it like banks with fractional reserve requirements).
I come up with excess square footage of 46 million at the end of the year assuming absorption is 10 million per quarter. That looks like a pretty big overhang to me.
Thanks for the info on CDO's, Boyz with BB Guns...I have some thoughts on where a lot of the capital for real estate investment is coming from here.
"This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over- retail stuff."
They're building a lot of that here, too (Santa Cruz). There is a true shortage of buildable land, so demand is there for the apartments -- but not necessarily at the prices the developers need to get.
We are 'way overbuilt on retail though, and down the road I forsee an endless expanse of marginal businesses -- martial arts studios, head shops, thrift stores -- in these brand spanking-new spaces.
cheap credit to small businesses could create a rebirth of the US economy on it back.
Even now credit is surely cheap? I am guessing that the problem in small businesses is related to a lack of incentive to do the hard years to get it going when easier money could have been made from speculating in stocks or properties?
And do small businesses need much capital to get started? Often it begins like a hobby and then expands. Maybe it is ideas and education that is lacking rather than capital?
In the final analysis giving cheap credit to people who dont know how to make money work for them cant work....as we are already seeing with this subprime thing.
The only hope I can see coming out of the "way overbuilt" condition is that low prices will spawn large amounts of start-up and expansion activity in the production-consumption economy. Besides those "marginal businesses" it will also encourage a lot of smart, entrepeneurial people to start businesses to produce real goods of real value. When light mfg space leases for $10/sf, a lot of good businesses that are impossible at $40/sf become feasible.
In Keynesian econ (hold your commentary, I'm fully aware of its shortcomings. Come along for the ride here), the production-consumption economy and the "FIRE" (Finance, Insurance, Real Estate) economy compete. If RE collapses and no one expects to make any money off of appreciation alone, resources will flow to the production-consumption side of the economy.
Right now, there has been chronic underinvestment in capex, R&D, etc. along with speculative malinvestment in the FIRE side of the economy. When that returns to near normal levels, the production-consumption side will get healthier. Don't have a clue as to how long that will take or the exact mechanism by which it will happen though. Oh, and the FIRE part going down in flames (great imagery here) could tank the whole thing for years to come.
I agree with you -- but it will be years. And in the meantime, lots of thrift shops, etc.
Actually, my thrift shop example sorta fits into your cycle. First, excess retail space. Second, a collapse in demand because of FIRE issues, and massive vacancies. Third, rise of recycled/used/repair businesses -- because there's not yet the money for new production, but peoples' personal needs continue. And then finally, good conditions for new production.
From my understanding, used good, auto repair, and cheap thrills (be it cheap food, entertainment or drink do well in hard times. The Twinkie was born in the Depression as a cheap treat for those who couldn't afford better. And on another blog, a paper products heir told me that his family did just fine selling toilet paper all through the depression.
I think that right now there are a lot of innovative goods and services tand technologies hat are premium-priced for high profit and "perceived value", but could be made available much more cheaply. Someone who finds a way to peddle $5 DSL or cheap solar panels during a depression will do well -- and bring the economy up with him.
Ironic as it is but Lehman http://www.lehmansbf.com/ just posted an ad in the OC Register's business section looking for commercial loan officers. The ad stated the stability of the commercial loan industry.
The last time I recall seeing the number of cranes in my local city (Bellevue, WA), was right around the time of the tech crash of 2000. This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over-retail stuff (Geeze, how many hole-in-the-wall sandwich shops do we need?).
Some of the projects nearing completion today have roots in the 2000 crash, including 3 that went idle for a few years after construction was halted due to lack of demand/financing. I expect their timing to be perfect once again...
If the mortgage puts them over that limit why would anyone lend them more, particularly if it's in a subordinate position?
EEngineer | 04.03.07 - 2:37 am | #
Borrower conspiracy. The lenders are too busy "managing risk" selling those tranches of credit card debt to institutions too big to fail to notice that the borrowers all have brown skin, speak Spanish, and appear to be members of the same family.
The lenders are having the ponchos pulled over their eyes.
This is an immigration policy problem, not a financial problem.
The dead hand of the REIT's on the "full speed ahead" throttle of commercial and multi-family construction continues. New condo and apartment projects still start (where do those investors live-overseas?). More and more see-thru developments complete every day(every suburb wants to have their own town center). REIT's are likely to have a long dry spell coming up-how much of their returns have been driven by the sheer, massive influx of new money?
Using taxes to predict the future:
Marchs full Daily Treasury Statement is in and may give some clues about collecting Bubble taxes as well as taxes from real working people. Taxes for wages withheld checked in at a modest 3.2% year over year at 156,986 versus 152,102. The corporate wash, rinse, repeat tax machine checked in at a decent enough 43,315 versus 38,493, thats up 12.5% but has backed off from the overall robust 16.3% growth seen for the fiscal year as a whole. Individual taxes not withheld which is a measure of capital gain paid on Bubbles and other assets actually dropped year over year to 10,762 versus 11,553. Might be an ominous sign but the big month to watch for this will be April when taxes are due.
How owns that CDOs?
Most experts say its almost impossible to know. Sales teams at investment banks and other firms that offered CDOs wont talk and no one else contacted by MarketWatch has kept track. The Federal Deposit Insurance Corporation, which monitors risk in the banking system, tracks holdings of MBS, but not the different tranches. It has no information on who holds CDOs.
Many experts point vaguely to Asian and especially Japanese investors who have been hungry for any assets yielding more than the almost-nonexistent interest rates offered by the worlds second-largest economy in recent years. But thats where the trail ends, which is a big problem, according to some. Its pathetic, but its almost impossible to find out, which is no good for the system or anyone really, Josh Rosner, a managing director at research firm Graham Fisher & Co., said. On the CDO side we know even less and regulators know even less because there arent very clear reporting requirements.</i>
Boyz with BB Guns
"This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over- retail stuff"
Same here, lumpeninvestor (in Minneapolis). I work on that stuff for a living and there is too much of it here now. But I'm old enough to have seen a lot of cycles come and go!
Asked in previous thread:
I realize this is a very naive view of the relevant economics, but is it possible that the deflation of the real estate bubble will actually boost the general economy? The basis for this is that all the capital chasing yield in MBS will now be forced to find alternative investments. This will make the cost of initiating new (sound) business activity lower. In turn, business activity will increase.
I think the answer here lies in the word 'capital'. If by capital you mean real money that is not debt based then maybe you would have a point. I think though that in fact you have in this case borrowed money ie credit chasing a higher yield which means risk is involved to offset the cost of borrowing while still getting a return. Also in this mix is the problem which seems to exist of liquidity being seemingly created by a borrower who offers a Mortgage backed security to a lender in return for more borrowing so that they can buy more securities which they can then offer as security for more borrowing. If we were talking real genuine securities then that might not be so problematic but if the MBS is effectively worthless then you have a levered position based on no security. Hence there is an implosion risk if housing tanks.
Basicly to me (and really i know nothing) if housing tanks there is no good outcome that i can see because unlike former times where there were net savings now there are minus savings so when the tide goes out the apparent wealth in assetts obtained by borrowed money will be replaced by the debt that was always there.
Worried,
I understand the negatives of deflating housing prices. But honestly, having live in the Midwest recently, it seems like there's plenty of parts of this country where people can go and live with excellent infrastructure in place and a very low cost of living. Jobs from large companies don't exist there, but cheap credit to small businesses could create a rebirth of the US economy on it back.
PS, the credit you speak of must be extended by those who have capital (or the ability to mint it like banks with fractional reserve requirements).
I come up with excess square footage of 46 million at the end of the year assuming absorption is 10 million per quarter. That looks like a pretty big overhang to me.
Thanks for the info on CDO's, Boyz with BB Guns...I have some thoughts on where a lot of the capital for real estate investment is coming from here.
"This time, however, most of it is stick-over-concrete-multi-unit-dwelling-over- retail stuff."
They're building a lot of that here, too (Santa Cruz). There is a true shortage of buildable land, so demand is there for the apartments -- but not necessarily at the prices the developers need to get.
We are 'way overbuilt on retail though, and down the road I forsee an endless expanse of marginal businesses -- martial arts studios, head shops, thrift stores -- in these brand spanking-new spaces.
Name
Even now credit is surely cheap? I am guessing that the problem in small businesses is related to a lack of incentive to do the hard years to get it going when easier money could have been made from speculating in stocks or properties?
And do small businesses need much capital to get started? Often it begins like a hobby and then expands. Maybe it is ideas and education that is lacking rather than capital?
In the final analysis giving cheap credit to people who dont know how to make money work for them cant work....as we are already seeing with this subprime thing.
Bob,
The only hope I can see coming out of the "way overbuilt" condition is that low prices will spawn large amounts of start-up and expansion activity in the production-consumption economy. Besides those "marginal businesses" it will also encourage a lot of smart, entrepeneurial people to start businesses to produce real goods of real value. When light mfg space leases for $10/sf, a lot of good businesses that are impossible at $40/sf become feasible.
In Keynesian econ (hold your commentary, I'm fully aware of its shortcomings. Come along for the ride here), the production-consumption economy and the "FIRE" (Finance, Insurance, Real Estate) economy compete. If RE collapses and no one expects to make any money off of appreciation alone, resources will flow to the production-consumption side of the economy.
Right now, there has been chronic underinvestment in capex, R&D, etc. along with speculative malinvestment in the FIRE side of the economy. When that returns to near normal levels, the production-consumption side will get healthier. Don't have a clue as to how long that will take or the exact mechanism by which it will happen though. Oh, and the FIRE part going down in flames (great imagery here) could tank the whole thing for years to come.
Glen:
I agree with you -- but it will be years. And in the meantime, lots of thrift shops, etc.
Actually, my thrift shop example sorta fits into your cycle. First, excess retail space. Second, a collapse in demand because of FIRE issues, and massive vacancies. Third, rise of recycled/used/repair businesses -- because there's not yet the money for new production, but peoples' personal needs continue. And then finally, good conditions for new production.
From my understanding, used good, auto repair, and cheap thrills (be it cheap food, entertainment or drink do well in hard times. The Twinkie was born in the Depression as a cheap treat for those who couldn't afford better. And on another blog, a paper products heir told me that his family did just fine selling toilet paper all through the depression.
I think that right now there are a lot of innovative goods and services tand technologies hat are premium-priced for high profit and "perceived value", but could be made available much more cheaply. Someone who finds a way to peddle $5 DSL or cheap solar panels during a depression will do well -- and bring the economy up with him.