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I think you're missing a : in that http address.
This one is fun to look back on too:
The Housing Bears Are Wrong Again
You are quite correct, ac. Link fixed.
Tanta,
As I look around at the various deregulated industries, I find that a few benefit substantially while many suffer financially. (ie to cite a few, Energy dereg and Enron, telephone dereg and WorldCom.)
It would appear that dereg. often leads to predatory behavior. Balance is required to regulate the predators and keep the rest of the economy functioning.
I find it interesting that the RE industry sold America on the concept that RE only goes up and you must get in now or never own a home. America bought the concept and now we are told it is the individual consumer's fault. Thus, the industry is immune from the very same principle that they apply to the rest of us "responsibility".
It is not surprising for the government does the same thing. "Responsibility" it appears only applies to the American consumer. Neither, societies nor economies can survive when only one segment is responsibility for the negative actions of all participants.
Laws, (regulations) are written to prohibit certain actions in order to protect society at large. They are necessary in the context of lending institutions who have failing memories.
No doubt they will be first in line to get a government bailout. As we privatize the profit and push the risk onto the backs of the public.
I continue to hope for a soft landing, thus sparing us from the pain of a rapid unwinding of the credit/debt base economy that we have.
OT - If you are not current with the "Failure To Deliver (FTD)" stock issue, facing Wall Street the folks over at Financial News, Economic Education, Analysis & Data - FinancialSense.com have brought together the relevant materials. You can find this in the second hour of their weekend news segment. The referenced materials are definitely worth reviewing before listening to the interview with Patrick Byrne.
Total time investment is about 3 hours.
Ella
The failure of the new liberal economics to deliver on its promises is responsible for the leftward jolt in politics. South America is trending socialists, Mexico almost elected a Communist as a president, countries are nationalizing foreign interest and a return to the 60s.
IMHO, the one and only way, conservative politics survived in this country is that easy debt enabled the folks that were screwed to maintain a stable life style. If we, as a nation , has to suffer a recession for say off shoring, or a otherwise decline in the standard of living, the left would have been ascendant much sooner.
Vader -- what will really nail the conservative coffin closed is its stubborn delusion that good "conservative" policy means allowing business to run absolutley amok -- to the point that they rip off every one of us -- even those who didn't buy into the bubble.
The cart has careened through the village, killing all kinds of innocent bystanders, the axles are falling off and what we hear now is a reluctant "ok maybe it's time to regulate just an itty bit -but gosh let's try not to overdo it" from the maniacs behind the reins.
In what sense (besides that possessed by said maniacs) is this "conservative"?
I mostly try to stay out of party politics (as opposed to what we might call "public policy"), but I just read this after having written the above post and about tossed my cookies.
I have way, way, way, less personal responsibility for predatory and irresponsible lending practices than Mr. Dowd has for what went on in the 2004 election cycle and the war, among other things, that preceded it. And his "restitution" to us all is some self-serving pity party in the NYT followed up by a photo-op with some African babies? My bad, new serve? A mention of an op-ed he claims to have written called "Kerry Was Right" that he never got around to publishing, and apparently has no plans to? He can get access to the NYT op-ed page and won't use it?
"Other people call it karma." Buddha help me.
If this is the kind of "accountability" we can look forward to by the party of business and Main Street and conservative economics, then it's no wonder that the blogs are taking over the only discourse that still has even a faint whiff of intellectual and moral integrity about it. I happen to know that there are large parts of the net, specifically the political parts, which are a snakepit of nutty nasty nonsense. I fail to see why they are considered more dangerous than this kind of crap in the Times.
Tanta...
Agreed...I read it and lost my breakfast,lunch & dinner.....lucky for me I don't eat much.
This is the sort of self serving bs that our leaders and people in powewr spoon out every 'effing day....and people still are not awake to it...
I pox upon him and the others.
rt
damn...that was "A pox..."
rt
I still don't believe this. Weaker lending standards lead to inflated asset prices and, after the new credit runs through the system, makes it just as hard for poor folks to afford a decent home as it was when houses were cheaper and loans were hard to get. The only thing it allows is for the poor to tack on enormous lifetime debt (and potentially go bankrupt in one quick swoop) rather than build actual net worth. And easy credit inflates asset prices, increasing the value of assets, mostly owned by the rich. So which social class is really benefiting?
That statement probably made sense when renting was about as much as owning.... it certainly doesn't apply anymore.
earlier post was in reference to "subprime is a way of serving the poor"
Everyone claims accountability but where is the punishment! All lip service! From the very top to bottom. American's faith in this government, in this system -- politics and economics -- is at a very low point.
--
""Other people call it karma." Buddha help me."
"This is the sort of self serving bs that our leaders and people in powewr spoon out every 'effing day....and people still are not awake to it..."
I wonder when I read these (very common these days) as to what part of -- a govt. of the Crooks, by the Crooks and for the Cooks -- don't American get?
No, I am not a socialist. As a matter of fact I was born in a capitalist family and caste. It has nothing to do with ideal forms of any system; it has to do with People the Leaders and the Led. It is the American People who have allowed the capitalists to turn into Crooks. That is because American People have been thoroughly duped by Capitalists, who control the Propaganda Machine, and instilled with blind faith in Free Market when it is anything but a Free Market.
The biggest Crooks in the world today are Bankrupters and Fraudsters of New York City (BFNYC) supported by the Fraudulent Reserve System. The rest are merely details. With the mortgage market unraveling, their gig is up!
Got it?
Jas
PS: BTW, Buddhism is an offshoot of Jainism, but became much more popular when it was spread to Far East. So, Tanta, for help go to the source.
Tanta, you may have covered this in previous posts, but I just read an item in my Sunday paper about sub-prime lenders dropping requirements for escrow accounts.
Hiddend costs in sub-prime borrowing
Imagine the irresponsibility of not only teeing naive borrowers up for failure by not qualifying them at the fully amortizing rates, but also removing insurance and taxes from the equation. Outrageous. Shame on both the lenders and the state and federal regulators who allowed this to happen.
Mortgage Tree lending and there 50+ branches are done?
Bakersfield Bubble: Mortgage Tree Lending?
*their
Folks, like me, that have hung out at the political blogs, Daily Kos: State of the Nation for example, find the revelations business as normal.
To a large extent, conservatives in this country rejected science, and substituted faith. You find this in the evolution controversially, in economics, in global warming and in foreign affairs. Basically we disagree with science and if we only have faith and eliminate pesky descent all will be wonderful. Maybe its conservative religion aspect of the current conservative movements, but never the less, rejecting reason and debate in favour of follow the leader seems to be the trend.
Got it?
Yes, Jas, we got it. We got it the first time you posted this self-righteous simplistic moralizing rant, and we still get it 50 or 60 times later. You may lay claim to the cultural, intellectual, and religious roots of Buddhism all you want to, and I'm the last person to stop you. But as a long-time victim of good old fashioned American fire-and-brimstone hectoring of anyone who disagrees with you, I get to tell you that you sound like James Dobson to me. Same shit, different tune. If people ignore you, you repeat the same post IN CAPS, in case we're deaf. You may not know this, but repetition of a point--even with additional amplification of volume added--does not increase its truth value or its usefulness.
Join the discussion--and stop treating us like idiots who can't quite follow your lordly proclamations about the world--or get ignored. Those are your choices.
Shantih, shantih, shantih, as the poet* said.
Hut, hut, hike, as the Tanta replied.
*April is the cruellest month.
Tanta: once again, a superb exegesis of a rather dull primary text. You have sorted out the crucial substance of the matter and distilled its meaning into something that I believe can properly be described as wisdom. I only wish that what you and CR are doing here could be stored and referenced in some less ephemeral form than HTML.
Re our political future: the glib assumption that the failure of the wing-nuts will automatically lead to the empowerment of the old-school left is likely to leave many here deeply disappointed. Jim Webb does not equal Hubert Humphrey. For some insight into alternative possibilities, rent a copy of "All the King's Men" and watch the 15-minute documentary on Huey Long in the bonus materials section of the disc.
It's an important issue, number2son, and you're right it doesn't get enough attention. I make two observations as per my memory lane theme today:
Vader, I also see a rejection of science, but am afraid there's something deeper than that at work. I don't think terms like "liberal" and "conservative" work here any more.
The political thing is about emotions. The media machine throws stuff at the politicans over and over and people begin to emtionally bind with one side or the other. The parties are brands.
The blogs are merely the R and X-rated versions with their vicious photoshop "humor" and hyper-ventilating rhetoric.
During the Clinton years they said the economy would be ruined by his tax increases, it wasn't. So they had to tune up the volume on their eight year mud sling.
My favorite thing to do to the Bush genuflectors is "...imagine what you would have said if Clinton did that..." (ie put tarriffs on China) and "...imagine who you would blame if that happened when Clinton was in office..." (military hospitals are a shambles) and it's finally starting to get through to some of them that they're emotionally tied from years and years of marketing.
The beauty of America is how emotionally well trained we are to the marketing pitches. Dowd is just doing what they call brand extension.
My goodness! I think most of us can see the retired PhD Electrical Engineer for all the insecurity he is. Desist! Resist! Don't persist!
Buddha needs no help.
Thanks for this link to what I think might lay claim to the title as the Official history of sub-primes --a summary that informs the Fed's notion that there is little systemic risk in sub-primes.
As you point out it is somewhat dated and I wonder, now that we have fresher information, whether that historical data was like the credit scores that were reported and used in this review: no beacon of responsible reporting. [Beacons need to be useful and shed more light ahead than this one, yes?] The report's conclusion is as moderate as one can imagine: there were 2 periods (risky 95-00 and safe 00-04) and borrowers with low credit scores paid the highest premiums (what does a credit score mean, people?) with the fainest suggestion that this might have been excessively high.
No nuanced reports about who benefits from the shift from primes to sub-primes by lenders.
Tis the Neville Chamberlain report, no?
I see David Altig at Macroblog has engaged this you on this issue.
VennData- "Dowd is just doing what they call brand extension."
Please explain "brand extension".
The parties are brands.
The blogs are merely the R and X-rated versions with their vicious photoshop "humor" and hyper-ventilating rhetoric.
I don't think you mean this blog.
Seriously, this kind of thing has been happening in the US since the invention of the printing press. Blogs are just the enabler.
I think the presence of blogs like this are evidence that a hunger for greater insight does still exist. Not all of us are satisfied to dine on the re-branded Information(TM) spouted by Dodd and the like.
I also believe that blogs like this have a real impact on the course of things. Dodd's trial balloon a couple of weeks ago was immediately and eloquently shot down by the Bubblesphere. He then quickly backtracked. Also, CR and others have commented about where their hits are coming from. Places like senate.gov and frb.org come to mind.
Policy makers do read this stuff. Often times the subject matter is so complex that they're looking for insight themselves. I wouldn't be surprised at all to see some of Tanta's words emanating from Ben Bernanke's mouth at some point.
Interesting times.
Alo: "In what sense (besides that possessed by said maniacs) is this 'conservative'?"
And in what sense is it "liberal", as, apparently, vader would have us believe?
Pure communism and pure laissez-faire capitalism both fail, because they both ignore human nature. Pure communism ignores the human need to own something and encourages freeloading, which the non-freeloaders end up resenting. Laissez-faire capitalism encourages the least scrupulous to cheat the rest of us.
What we need is regulated capitalism, where the regulation promotes transparency and a level playing field without smothering enterprise. And that is neither liberal nor conservative, but just sensible.
Carolyn Kay
MakeThemAccountable.com
I wanna hear him say 'same shit, different tune
Thanks, calmo, I had missed Professor Altig's engagement with CR on that.
I entertain myself by assisting Buddha today. Of course I know Buddha needs no help, and that help can often be a hindrance. But rules are made to be broken from time to time, and I always re-read The Wasteland on April 1.
I think we had better--if not "fresher"--information when that report was written. That's really the point I wanted to make. The 90s didn't happen since the Winter 2006 Issue of the St. Louis Fed's magazine. How anyone who works for the OCC or a Fed Bank can not know what I know about depository subprime lending in the 90s is a little hard to understand. I conclude that it isn't considered relevant.
At the risk of repeating myself and therefore being required to clean my own clock, I say: I am tired of everyone talking about the "mortgage market" and never talking about the mortgage business. I am well aware that your average mortgage business person is probably as gifted a writer as your average internet troll. But why can't a regulator or economist, oh, interview one? They have our phone numbers. I swear you could read this stuff if you were a Martian visitor and have no idea whether mortgage loans are made by businesses for profit or drop out of the sky at the demand of "investor" action-figures. It's weird.
I wouldn't be surprised at all to see some of Tanta's words emanating from Ben Bernanke's mouth at some point.
The Fed Chairman is going to say "same shit, different tune" in front of Congress? That ought to go over like a fart in church.
Sorry, Average Citizen, I wasn't reading fast enough.
HA! Hey, aren't Buddhists aethiests?
It depends on which Buddhists you're talking about and what you mean by "atheist." I'll bet you that the Dalai Lama could conjure up some protector demons that would put the fear of God in God.
A bit off topic, but I assume that the new lending standards for mortgages will also apply to helocs and refis? I haven't seen any discussion about that, at least that I can recall. If the helocs are going to be harder to come by, it seems that MEW and consumer spending is about to take a huge hit.
Now I think you're bringing me up to speed:
I think we had better--if not "fresher"--information when that report was written. That's really the point I wanted to make. The 90s didn't happen since the Winter 2006 Issue of the St. Louis Fed's magazine.
So this is not the information that the Fed responds to in making it's declarations (the subprime market is contained etc), but merely the promotional literature for the interested public that needs to be pacified not provoked.
I'm getting soft in my old age.
There's good reason for an economist not to talk to a business person before setting out to do a paper for publication. Detailed knowledge usually gets in the way of the probability of publication. And I wouldn't leap to the conclusion that just because an economist preparing something for publication doesn't talk to anyone in the front lines that therefore no economist or regulator ever talks to someone on the front lines.
And I don't understand the conspiratorial bent of some of the comments. It seems like a pretty straightforward description of data from Loan Performance - interesting and useful stuff about LTV trends over time, FICO's over time, spreads over time, and the relationships between some of them. I don't find anything in here that particularly says its safe or its dangerous or makes any policy suggestions. Just a pretty flat out descriptive paper.
Keep up with me, calmo. I cant be a Citizen Economist, a Citizen Journalist, a Citizen Music Critic, and a mortgage punk without your help.
I'm not really willing to accuse anyone of agitprop (unless they print stuff on the op-ed page, Dr. Goolsbee) without severe provocation. It just seems to me that we have launched onto this analytic construct, "the mortgage market," which operates on a level unrecognizable to those of us in the sausage factory (not to mention to the pigs). Remember a year or so ago when the NYT editorial board discovered that banks sell mortgages on the secondary market? I was awfully proud of them for figuring that out, but to be honest I'm getting a little tired of waiting for them to get to step 2. I had the same problem with Braunstein's testimony on subprime lending--remember the holy trinity of "national-technological-securitization"? Yes ma'am. We're onto that. Please tell us how that works out at ground level, OK?
Even here at our dear blog, we are getting too habituated to pointing out, again and again, that credit risk has been separated from origination. Anyone who disagrees? I didn't think so. So then the question is, what's the next analytical step?
An atheist holds there is proof of no god(s).
An agnostic holds that there is no proof of god(s).
A theist believes in one or more gods.
Atheism - Wikipedia, the free encyclopedia
Agnosticism - Wikipedia, the free encyclopedia
Theism - Wikipedia, the free encyclopedia
We are all in this together, some of us just proving a piece of the puzzle here and there, some more pieces and some get to put the pieces together.
"that a form of lending that had once been reserved for people with a lot of equity became associated just a few years later almost exclusively with people who had no money at all."
Well it will be interesting to see how "almost exclusively" gets quantified as sub-prime shakes out. Because there is a big difference between "people who had no money at all" and "people who were willing to inflate their income and assets on a stated/stated loan to leverage themselves into another rental property".
Not being able to secure a conventional loan on a piece of property is not the same as being poor or having bad credit. In some times and some places it is just a matter of underwriting standards becoming detached from fiscal reality. Of course there generally comes a time when you see why those underwriting standards exist to begin with. But in 2003 and 2004 they were simple obstacles to easy gains and it is not at all surprising that investors were willing to dodge around them or jump over them to get those gains.
I know that sub-prime loans were written to people with substantial assets, I saw it done first hand. I know people who negociated better job titles because that would allow them to claim higher stated incomes and then turned around to buy investment property on a 'owner-occupied' loan. And I find it hard to believe we were some sort of anomaly.
Because if you sit by and listen to the conversation between a loan originator and a loan representative and hear them discuss the various 'programs' offered and the precise level of documentation needed for each you see an eager buyer and an eager seller, the question has been shifted from "should we write the loan" to "how can we write the loan".
Loan reps are sales people. Just as real estate agents are sales people. And used car dealers are sales people. And gun store owners are sales people. Lots of them are truely awesome, hardworking people. But in the end their paycheck depends on selling that loan/house/car/gun.
Write a bad loan as a bank loan officer? You risk getting fired. Write a bad loan in sub-prime? You get a commission and only risk the whole industry ultimately melting down. Which it kind of is. On the other hand nobody is asking for your commission back.
To my mind the fundamental problem of sub-prime is not the borrower and not the exotic forms of the lending products, it was inherent in a structure that shifted all risk outwards. In contract terms the element of agency was reduced to essentially zero, particularly after the loan was funded. Lending on real estate became the exact equivalent of selling a used car "As Is". It is not surprising that parallel abuses crept into the system.
Countrywide has a new non-prime rate sheet out again, pricing is off the hook. There is no way anyone is originating any loans on that rate sheet, I think they are effectively shutting off that channel, I would love to see their prime rate sheets but I dont have access.
Mozilo on CNBC at 7A Monday. Probably to talk down the "Mutiny on the BoD". The mutiny is eerily Enronish.
Rate sheet info is interesting. They must be suffering massive defaults and attempting to at least appear to be addressing it, ahead of their Q1.
Warning season news?
Carolyn, 'Jinx!*' (now you all can carbon date me), except that on my post here a few weeks ago I deployed the term "pollyanna" to describe both libertarianism and communism.
So maybe some economists are reading this, and mulling a change to more reality-based market models--it's really easy to see that people can be impulsive, greedy and don't always act in their own longterm intrests, let alone other people's. I don't know why it's so hard to incorporate that fact of life into economic theory.
If Ben B. is lurking, I suggest he give us a sign, in the form of another link harking us back to the age of Abba (I think Ben sported a mullet back then)
Now I must go -- working on my Jas Jain Zwinky...
*'Jinx!' - A kind of interjection, aquealed by preteens in the 70s, when they say the same thing at the same time.
waitinginnj, MEW is already taking a big hit. In the 4Q of 2006 home-equity extraction as a share of aftertax income fell to 2.1% whereas four quarters earlier it was at 8%. Economist James O'Sullivan at UBS expects the drag from reduced home-equity extraction to cause a 0.5% drag on consumer spending this year.
I had to stop reading after the first sentence.
Homeownership is one of the primary ways that households can build wealth.
Only because the central bank via inflation has created a game of last deed standing wins. A better description would be that it allows you to hang onto your piece of the pie while everybody else's pieces continually have crumbs stolen from them by the central bank. If holding an asset that produces no income is how you build wealth, then this isn't Capitalism. The real terrorists are the bankers and you are the hostage. Just because science and technology have progressed the standard of living for humanity is no justification for their confiscation of your wealth. Let the banks fail.
To my mind the fundamental problem of sub-prime is not the borrower and not the exotic forms of the lending products, it was inherent in a structure that shifted all risk outwards.
So then the question is, what's the next analytical step?
I think the disambiguation you have performed has done a lot to explain where we are and how we got here. However, from your own comments I get the feeling there are plenty of industry insiders and policy makers who still have no clue. Not that I'm excusing journalists for their lack of knowledge, just that there's a steep learning curve, and they need time to catch their breath on their way to the top.
The next logical step (IMHO) is to get journalists to connect the sob story subprime victim story with the bad loan underwriting story without the Good-vs-Evil(TM) branding.
First, I wish VennData, or someone, would explain "brand extension".
Second, I'm inclined to agree with Dr. Strangemoney on this one.
First, I wish VennData, or someone, would explain "brand extension".
It's a marketing term. See this:
Brand Management
Max, thanks. Somewhat off-topic, but nonetheless relevant. It turns out that-Surprise!- there is "spillover" and credit does correlate, especially when it comes to pickup sales. Couldn't find the Bloomberg link, but this works:
Daily Times - Leading News Resource of Pakistan
"Homeownership is one of the primary ways that households can build wealth."
This historically I think has been correct. But not because housing is such a great investment per se. But because it was the only way people would actually keep some of the money that ran through their hands. The problem with saving is that it's so damn hard to do. Most people can't do it. Before the 401k allowed people to "pay yourself first" and invest money that the earner never can touch, the only way to do this for most people was the principle payment on a 30 year loan. No doubt there were more efficient ways to save with better returns, but the funny thing about investing is that you only get returns on the money you actually don't spend. Anything that forced people to save, even today, is by definition the best invesmtment they can make.
The funny thing is, that recently everyone forgot it was the forced saving that a house made you do, not the house itself that built the wealth. So with that the advent of I/O loans, and neg ams etc, were created to get people in the house, ironically avoiding the very thing about owning a house that made it financially better than renting.
Max: Word.
Alo: You cannot securitize your JJZ without paying me royalties.
"If holding an asset that produces no income is how you build wealth"
Well, not entirely accurate. The asset was assigned special status that allowed what should be a non-productive asset to produce "income" in the form of tax advantages. Of course it isn't alone. Lots of other non-productive assets generate "income" theough contrivances in the tax code. Fix the tax code and then we could have a functioning economy that rewards truly productive uses of capital.
Bruce, when I said "became associated with," I meant that perfectly literally. I am not arguing that subprime is exclusively lending to poor people. I am claiming that it is so in the popular imagination. Further, I am suggesting that some of our intellectual betters have, on occasion, as "popular" an imagination as us Unreal Economists.
APRIL is the cruellest month, breeding
Lilacs out of the dead land, mixing
Memory and desire, stirring
Dull roots with spring rain.
There. Mr. Bernanke can read that to Congress.
I saw something in Centereach, Long Island, NY today that I have never seen before: a for-sale (sign with "Price Reduced") at the bottom in front of a house that was not new and was empty, obviously empty.
If the plankton theory holds, there is trouble ahead, plenty of it.
It wasn't the only sign...not by a long shot.
--
Aren't we touchy, Tanta? There is nothing like unadulterated truth to offend Their Royal Highnesses.
Here is a comment from a British woman who called BOOK TV program this morning: You [Americans] should stop making everyone so unhappy.
Obviously, born-and-bred Americans dont get it that their system is corrupt. And what makes them so angry is that they can't do a damn thing about it.
Got it?
Jas
Slightly OT, but relevant:
April 01, 2007
Cash Versus Mortgage Price of Homes
Note: No, this is not an April Fool joke.
I took a walk around the neighborhood (it is a 2.5 miles hike up and down the hills). I stopped by a neighborhood home to say hello and get the neighborhood news. It is a couple in their late 60s who have been trying to sell their home for the past two years to move to Oregon. At one point friends of mine looked at the property so the so the woman asked me what happened to my friends and I said that one of them has moved to China. She said, I would move out of the US if I could. She was born in the US and all her family is in the US.
There have been offers in the past but they fell thru because of the appraised value versus how much money the lenders were willing to lend to the prospective buyers. The home is in escrow right now with everything taken care of except for the FHA (Federal Housing Authority) loan that is waiting approval. The property is a nice 3-acre lot with a 1+1 sectional mobile home and a big old mobile home as storage unit. The price of sale is $169K and is subject to 97% MORTGAGE from FHA.
As I was talking to the woman of the house (the boss) she told me that if the sale goes thru she would temporarily move-in with her daughter who lives in the same general area closer to the town than where we are. She bought the home for the daughter recently for a CASH price of $45K! This property is on a 2.5-acre lot with 2+2 mobile home and a 2-car garage! It has a well on the property, septic tank, and electric utility. I am sure it is old but everything is functional. She bought the property from an old woman whose husband had died and had someone, a friend or a relative, living with her who was a nuisance and had lot of junk (some 9 old junky vehicles). The old woman who owned the property was sick and tired of the place and wanted to sell and move. My neighbor immediately smelled an opportunity and made her a cash offer for 45K and as it turns out she got it. She had someone who likes junk to take the junk and made the property okay for her daughter.
It is hard to imagine that the value of the two properties is off by a factor of 3.75. At the most the difference is 1.5-2. The rest of the price deflation and inflation is strictly due to CASH versus MORTGAGE, respectively. If people had to pay cash, or mostly cash, for homes the prices will be at most half the current prices. The Housing Bubble is nothing but a manifestation of the Debt Bubble, or what others call the Credit Bubble. Debt-driven bubbles have distorted everything in American and the world economy including the prices of services and goods, or consumer level inflation.
It is the Debt, Stupid!
Jas
Comepletly OT but I wanted to share with you:
Teachers drop the Holocaust to avoid offending Muslims | Mail Online
It is hard to imagine that the value of the two properties is off by a factor of 3.75.
I dunno, Jas. You couldn't pay me to live in Tehachapi. What with all the earthquakes and jailed felons. How strong are those prison walls again?
The funny thing is, that recently everyone forgot it was the forced saving that a house made you do, not the house itself that built the wealth.
Saving does not build wealth. Your payment for production (income) builds wealth. Saving is just the non-act of not spending wealth. Saving that is inflation protected has the appearance of wealth building because the central bank is making everybody not protected against inflation poorer. As long as the CPI price of your genetically engineered RealBeef(tm) protein patty stays constant, who cares if they get their own private island? If the financial system is in dire need of money because they have seriously screwed up their business then somebody better be paying me a lot of money to bail those subprime bankers out. I'm not a charity and I don't like the Federal Reserve's program of forced donations to needy bankers every time their over-optimism doesn't quite pan out.
Max - an Upton Sinclair quote (that I read on a blog) comes to mind:
"It is hard to get a man to understand something when his salary depends on his not understanding it."
If the owners of the press wanted journalists who could figure out the intricacies of the market, they might try to hire some, and encourage them to crunch some numbers. Instead we seem to have a lot of journalists who are bad at math, but good at he-said-she-said quoting... because that is what their bosses want them to be.
Most of the bubble years were only filled with happy talk from the press, or at maximum, some confusing he-said-she-said analysis that never quite gots to the real numbers or puts them into context.
Fortunately, we had blogs like CR's to turn to. For months and months, CR's stuff was here, and free and easily available to anyone in the media wanting to get themselves a clue. But they didn't -- because (see prior quote above).
oops "got real numbers and put them into context" -sorry for grammar
"It is hard to get a man to understand something when his salary depends on his not understanding it."
True. Replace "salary" with "mortgage", and you have a real money quote.
I don't mean to sound soft on the media. They deserve the lumps that they get. I'm just trying to understand them.
This whole situation is a product of complexity. Even the people running the show can't wrap their head around it.
It's Sunday, Alo, not to mention a holiday. I really think the finer points of grammar are more or less optional today. I got tired of my own typos and have obediently trimmed my nails. I hope it helps.
Party on Wayne: Mortgage regulations die at Capitol
Yal:"It'll brag for you."
... unless you lose your job and can't make the mortgage payments. Then it will start whispering behind your back.
I don't like the Federal Reserve's program of forced donations to needy bankers every time their over-optimism doesn't quite pan out.
Yeah, and just wait til they're no longer optimistic, overly or underly. Hell hath no fury like a banker having a bearish mood.
Socks.
--
"I dunno, Jas. You couldn't pay me to live in Tehachapi. What with all the earthquakes and jailed felons. How strong are those prison walls again?"
Earthquakes? You must confuse it with Palmdale and San Andreas fault is 40 miles away. I have traveled all the suburbs of Tehachapi and I have yet to get a glimpse of the maximum-security prison that seems to be well hidden. Anyway, I am on the opposite side of the town.
The news is that lot of people from Palmdale and Lancaster wish to move here because of increased crime in that area but it is not financially feasible for most who would like to move. Anyway I live in the mountains away from everything and at the end of civilization (last power pole on my property) with a magnificent view.
Jas
Upton Sinclair. My kind of guy. We'll be hearing from Theodore Dreisser and the ghost of Mencken next. Bring it on. Let's get radical!
I have some interesting data for the Gold bugs.
In 1975 gold was roughly 150 per oz. Today it is $665 per/oz. That is a 4.76% growth rate annualized. (for 32 years)
In 1975 Vanguard opened a new fund, the "Prime Money Market Fund".
That fund has yielded 6.49% annualized from 1975 till today. 6.49% for something slightly riskier than cash.
Where are all the money market bugs??
Money mkt cash is the best inflation hedge- the 1970-80s stress test proves it.
Plug in the data here if you wanna play with the numbers yourself:
Return Rate (CAGR) Calculator
waitinginnj, MEW is already taking a big hit. In the 4Q of 2006 home-equity extraction as a share of aftertax income fell to 2.1% whereas four quarters earlier it was at 8%. Economist James O'Sullivan at UBS expects the drag from reduced home-equity extraction to cause a 0.5% drag on consumer spending this year.
Yes, but it seems that was mostly due to decreases in value of the homes. In the last couple of weeks, the credit markets have become real particular about what kind of mortgages they want.
The Battle for a Mortgage - NY Times
Now j6p thinks he's fine, because he has plenty of "equity" in his house, so he goes to get another heloc or to refi to pay off his credit cards.. Turns out he can't get it, so now he's stuck actually paying those credit cards bills. So he has to seriously restrain his spending.
So my question is, do these tighter lending standards we're seeing apply to heloc's as well as refis? My guess would be yes, but I don't know that for sure.
Dr. Strangemoney, this one's for you.
YouTube - Snoop Dogg Says: ''F*ck Bill O'Reilly!'' TBOHipHop.net
I think the UBS estimate is low, and there's another way of doing it. Take a look at "Mortgage equity withdrawal and consumption" by Bank of England's Melissa Davey. That'll also give you a good idea of where consumption is going.
Take the sum of MEW and consumer credit and plot the total as a percent of disposable income. Plot consumption as a percent of disposable income on top of that. Nice correlation.
waitinginnj, most of the decline in equity extraction has been from fewer home purchases leading to less money left over after sales. Now funds from HELOCs and cash-out refis are falling and these funds were more likely to be turned into spending.
You're right about consumers turning to credit cards which is bad news because the average interest rate is more than 13%. This trend might raise consumers' overall debt burden which is already at a record high of 14.5% of aftertax income.
Goldman Sachs senior economist Ed McKelvey says "If wage income grows enough to offset increased debt, then consumers will be fine". However, the strength of the job market and the economy depends largely on whether housing woes spread. (Also, Goldman Sachs' own internal hedge fund lost 12% last year so you should be careful with what they have to say).
I don't know the answer to your question about tighter lending standards but I plan to read CR to see if the housing woes are spreading.
Es is noch jetzt Sonntag, also hier ist meine kleine Muzikalischeopferung fuer "ABBA Fan" Tanta:
YouTube - ABBA - Fernando
Does UBS consider multiplier effects? Seems to me the cascading effects of general economic stimulus withdrawn from the economy would represent north of 5% decline. All discretionary.
Money mkt cash is the best inflation hedge- the 1970-80s stress test proves it.
Well, things might have turned out differently if Paul Volcker hadn't extinguished the inflation threat with economy-crushing interest rate hikes.
Further, I would argue that if short rates were keeping up with accelerating inflation, then you wouldn't have accelerating inflation.
I'm the furthest thing from a gold bug - never owned gold, and don't intend to. But if I really thought accelerating inflation were going to be a problem I might have to change my mind (constant but high inflation isn't really a problem because any relatively safe investment that provides real returns would defeat it).
mp, thanks for the ref and here it is for anyone else who wants to see it:
http://www.bankofengland.co.uk/publications/quarterlybulletin/qb010105.pdf
Another walk down memory lane for Tanta:
Subprime lending: Made in Minnesota
Minnesota lenders virtually invented the mass-market subprime loan. And most got into serious financial trouble as a result.
Another walk down memory lane for Tanta:
Subprime lending: Made in Minnesota
Minnesota lenders virtually invented the mass-market subprime loan. And most got into serious financial trouble as a result.
Now a haiku for you:
Bye-bye housing boom
Who will buy my no-doc loan?
New Century dies
With apologies to Mose Allison, "Other people call it karma." But I call it the old shadow GOP rehabilitation team at work trying to save Dowd for future use as a shill and conduit.
/politics off, but don't say you weren't told
At the risk of being ignored down at the end of the thread, I will add my 2 cents worth.
When we bought our first house, we didn't have much equity or down payment. So we bought something we could afford with our $1000 (half from our savings, half from our parents). What we got was a small house, big enough to house us, good enough to keep the rain off, a small enough to afford. Later, when we moved for work, we bought something bigger as the kids were bigger and more of them but still within our budget. Those nasty mean grizzled mortgage fiends required us to stay within the 3 years income limit. The house was still good enough to keep the rain off, etc.
Jim H, you won't be ignored here.
If there is hyperinflation a la Zimbabwe then all bets are off.. But I think anyone paying attention could spot that type of thing coming from far away. But then it would probably be best to leave the country rather than buy gold and stay. Or dump everything on gold and land if you are forced to stay.. and guns...and wooden teeth
JJ:
Yes pricing is a function of money supply and credit increase money supply.
Thanks, David W., and Uffda! to you.
Gagano recalls one analyst in the late 1990s -- so confident that Metris could handle a recession that she titled one of her reports "Bring It On."I guess she got her answer," he said with a laugh.
Now who does that remind you of?
Belated Thanks Max and Tanta for tolerance of temper and typos.
I was going to get mad this morning at Mozillo on squawkbox, but his appearance made me laugh too much. All tanned and pinstriped, you could practically smell his generous cologne, as he gave this kind of angry plea for keeping 100% down loans/liquidity -- "They're good loans!" he croaked. He got a little pinata treatment from the anchors -- who actually asked brought up the Novastar story in the Times (yes, good on you Times -but you owe me something like 1,000 more stories like that before I'll forgive you).
Alo: "*'Jinx!' - A kind of interjection, aquealed by preteens in the 70s, when they say the same thing at the same time."
I predate you by about 20 years. But to me that makes it all the more important that our thinking is so alike. Maybe it means we're talking about something very basic that nevertheless has escaped notice for a very long time.
Carolyn Kay
MakeThemAccountable.com
Just caught MOZO-face on CNBC. He seems desperate to keep the plates spinning. Now, he is blaming the media. "No rush to judgment" he cries. "Plenty of current regulation" he proclaims.
How predictable, of course this industry as well as all others want no or little regulation. How else can they rake off billions? Is there any doubt that they look to what is in their best interests?
I wonder if CNBC would have the serial killer on their show to tell us he/she wants no regulation.
Here we go again! Regulation is good only if it protects them but not if it restrains them and protect us. How long do we as Americans continue to buy into their propaganda.
Talk about branding. Madison Ave has moved from tangible products, like toothpaste, to major concepts of public policy. It is now the benefit of the few that matters and not the benefit of "We the People"
Who is the consumer that drives this economy? Mozo-face? Not likely, the people who live on my block consume more then he does.
Gads, it is very early here on the West Coast. Please excuse any typos.
Vader, the current crop of "conservatives" makes real conservatives cringe. Real conservatives want the minimum amount of government and regulation to keep markets and business honest and transparent. That doesn't take massive amounts of people or resources, just well written rules, and uniform, ironclad enforcement. The problem is that the crooks have influenced how the current rules are written. Accomodating those crooks is not a domain exclusive to one party or another.
Unfortunately, the knee-jerk reaction to the current state of affairs (poorly written regulations, with loopholes big enough to drive a semi through), is to create more poorly designed regulation. I can't remember who said it, but the quote "Those who design easily-gamed systems deserve the lowest circle of hell" springs to mind.
Well said, Glen.
Plus, firing the US Attorneys for rather, well, casual reasons and otherwise making a shambles out of the Department of Justice does not speak well for an agenda of "ironclad enforcement." Federal mortgage lending regulation violations don't go to small claims court. They are the bailiwick of the DOJ. It would be nice to have one.
Jinx!: Now I must go -- working on my Jas Jain Zwinky...
To what do I owe this honor?
In case it matters, I am close to Libertarianism, but like everything in American economy and politics it has been hijacked by Bankrupters and Fraudsters of New York City and their minions, all agents of Money Monster. Satan is ruling over the world from his latest capital in NYC (Babylon is long past). Housing Bubble just happened to be his latest grand act.
Satan can only rule in a nation with morally corrupt population and morally bankrupt leadership. I am not religious; I am just using the metaphors to characterize the situation.
No hard feeling, I sincerely hope. Just my views based on study and observations. I could be wrong but those claiming superior knowledge are definitely prejudiced or wrong at the very least. Open mind is a beautiful thing!
Without taking Buddhas name in vain let us strive towards enlightenment. We can all learn something from others who may or may not think and believe like we do.
Jas
--
"No doubt they will be first in line to get a government bailout. As we privatize the profit and push the risk onto the backs of the public."
A fine example of the govt. of the Crooks, by the Crooks, and for the Crooks. No?
Tanta,
I hate to say it, but other than under the current guise of "trying to figure out" why the current subprime situation exists - which may be nothing more than election year antics - I'm not holding my breath for any kind of federal "investigation" from any agency that actually puts any amount of real blood in the water.
Granted, I've been fighting my own legal battle with an illegal foreclosure from a servicing perspective (Dillon v. Select Portfolio et al which has now been bumped to federal court) but I've already run through the federal alphabet looking for an agency - ANY agency - that would actually take a good hard look at the situation. OCC, OTS, FTC, FBI, HUD, SEC etc. All I have to show for the effort is a lot of bounce passes to other players and a collection of "it's not our jurisdiction" replies on very nice letterhead and most likely my own file in all of their cabinets. I know that SOMEone is watching me. Just not 100% sure who just yet.
Unfortunately, the only thing that I think will really bring anything substantive to light with this situation, as far as actual infractions/violations (dare I say FRAUD) is the discovery process and litigation for individual plaintiffs as opposed to a class action - and that takes money. Something that the vast majority of "subprime" clients have had little of to begin with.
I think I'm going to get to test my own theory, though. I've got a pre-trial conference scheduled in two weeks. We'll see.
Yep, the DoJ is in the process of turning into a political organization, but I'm sure the next guy in will restore it to good health instead of just changing the political stripes.. whoops, my cynicism is showing.
ac:(constant but high inflation isn't really a problem because any relatively safe investment that provides real returns would defeat it).
Ah, but there is the rub. Just to keep your money above water you need to invest it. It makes investment and advancement faster but it robs the unsophisticated of the reward for their labor (but it does so slowly over time). What if I don't want to let the banker play with the fruit of my labor and instead wish to keep it under my mattress? Why should I be punished? Is that fair? What happens in a system where everybody is invested in risk free treasuries? Wouldn't that closed system generate inflation? Money from nothing? I posted previously some research related to the wealth gap and how increasing the savings rate in their simulations reduced the gap (sorry, don't have the link handy). Lowering rates and inducing inflation seems to be the opposite course of action which seems like it would just worsen the Gini coefficient. I have no difficulty running ahead of inflation through productive use of capital. I am just curious about the side-effects on the general populace.