BTW, I just wanted to say how impressed I am with Bill Gross today. He called out everything like it is and expressed the appropriate moral/ethical outrage. We need more people in the finance industry like that.
What's been happening recently is a crime on an extraordinary scale:
It's the Enron business model applied to entire economies.
Nobody should sit back and let that happen quietly.
i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market? chill out peoples... didn't we already knew that low/no doc piggybacks were garbage, whether 'prime' or 'subprime'?
"i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market? chill out peoples... didn't we already knew that low/no doc piggybacks were garbage, whether 'prime' or 'subprime'?"
Exactly. Nothing new from CFC. Like I posted yesterday, the problematic loans are those with high CLTV (piggyback) and low/no doc. Doesn't matter if it's prime/alt-a/subprime/HEL etc. There's no spillover to other segments of loans. To try to argue whether there's spillover from subprime to alt-a/prime is moot point. Of course even the Fed don't really look at the issue the right way, so I guess you can still say they're 'wrong'.
i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market?
The collapse in housing and housing related credit occurs very slooooooowwwlly.
It's like a steamroller that moves one inch every day.
People can ignore it and pretend its not there... for a while.
But it's forward movement is inexorable and crushes everything in it's path.
Any reminder of this stark reality is cause for panic.
As much as we'd like, the housing bust is not going away. But it's slow-motion nature gives us the opportunity to pretend it's not there for long periods of time.
"Ignore it and it will go away."
Until you're backed against the wall and there's nowhere to run.
US housing difficulties cause for concern but no systemic threat: Moody's
Moody's on Wednesday maintained that the accounts of the leading US financial institutions were sound. "Their ability to withstand shocks is very high, perhaps never higher."
It pointed to five securities firms, Bear Stearns, Goldman Sachs, Lehman Brothers, Merill Lynch and Morgan Stanley.
"Profitability is very high, with 45 billion dollars (33 billion euros) accumulated in 2006 as opposed to 12 billion in 1998," the report said.
"The main risk in our view at this juncture is not that the system may suddenly collapse but rather that it derives a feeling of invulnerability from this episode, when losses have been eventually digested," Moody's warned.
That "45 billion dollars" they "accumulated" in 2006 came out of the hide of the non-financial sector (you know...the one that actually makes things out of basic materials rather than reselling), debtors, and the dollar.
Moody's is saying "Banking's going to be fine. (The rest of you look a bit peakED, though...are you sure you don't want to lie down?)"
When the financial sector is strip mining that much money out of everything else, it's time to pack up your marbles and go home before the game gets ugly.
Note that I have no problem with them making any amount (45 billion dollars or otherwise), but if they kill the golden goose (economy) by attaching a vacuum to it's rear end to suck out the golden eggs before the goose can hatch them, I, for one, think they've been allowed to go a bit too far.
Everything is going to be fine because no responsible party is going to stop the party. In the olden days the responsible adults shut down the underage bars. Been there done that; but that is so yesterday as the market will solve all. So until there is a car wreck that gridlocks the roads from LA to NY it's all a-okay.
As one of the regular crappers on the rating agencies around here, I didn't take a great deal of comfort from the limited notion of liquidity they referenced in the article. Just sayin.
I do think that top management of Bear, Merrill and JP Morgan are really excellent (not perfect, merely excellent) and that Klein and Maheras at Citi are exceptional. The talent pool across Wall Street is very strong right now. That gives me some comfort. But I do think it is going to be a lousy rest of the summer.
This is a joke. These guys were the same ones saying that there were no issues in housing 2 years ago. Now that sh*t has hit the fan, they admit to the "subprime" issues. They will wait until this trickles up to the "prime" mortgages. Let's just be patient and it will get there.
Your assumption seems to be that the rest of the economy isn't in action while the housing problem is sloooowly rolling out. It simply isn't true. There always are, and will continue to be, a whole series of competing forces in a capitalist economy.
In fact the slow speed of the housing decline is why I think it doesn't cause a recession (but is likely a continuing drag), there is simply too much time for the economy to adjust. Now an oil spike? That could be a very different issue.
Thanks CR...i've seen their comments. i'm certainly not trying to make the point there won't be spillover from subprime. i was trying to make the point that i literally don't think anything they said was new or surprising, the rating agencies flat out told the market that they were structurally incapable of modeling high CLTV low/no doc, a 'prime' handle won't save you...but to me it was just, "let's reiterate what's going on in the market, it sucks and it's not going to get better for a while and if you weren't aware of any of this, mr. shareholder, ur fake tan lotion must have seeped into ur brain because u can't afford the good shit like Mozilo..."
stated piggybacks are a trainwreck, spreads have exploded, there's no liquidity, we're waiting on new criteria for other nonprime products, resets are going to be painful, housing market sucks, blah blah blah...
ac wrote: What's been happening recently is a crime on an extraordinary scale: It's the Enron business model applied to entire economies. Nobody should sit back and let that happen quietly.
The Revolution is here, it is just waiting for participants.
OT but maybe somebody can tell me what this means:
On housingtracker.net, the inventory for two adjoining housing markets, San Jose, CA, and Santa Cruz, CA shot up 12.5 percent and 8.3 percent respectively in one week. (I live in Santa Cruz.)
What could cause such a sharp increase in housing inventory: somebody releasing a lot of REOs onto the market at one time? Something else? I haven't a clue and hope someone can hazard a guess.
By the way, no other market on housingtracker shows anywhere near as violent a weekly inventory increase as these two (adjacent) markets.
ac again: The collapse in housing and housing related credit occurs very slooooooowwwlly.
It's like a steamroller that moves one inch every day.
I'd like to suggest a new metaphor. The meteor-asteroid. It looks like nothing even as it hurdles toward the planet, destined to destroy 90+% of all life. It looks like nothing even as it gets closer and closer. But as it approaches, its power becomes evident as it starts to block out the night sky and/or the sun. When it gets too near, the panic will hit, but by then it's way too late to stop the eventual destruction. And there isn't much time between the obviousness for the masses and the actual impact.
In protest of the mini-crash in S&P, Shanghai Index is currently up about 1%.
The Shanghai index had been up about 8-9% over the past week as the US indices are witnessing some weaknesses.
I am waiting impatiently for the spillover effect of the weakening US economy to the global markets. I suspect the impact would eventually be felt as a big bang rather than a trickle. It would be big when things eventually start spiralling downwards.
"The main risk in our view at this juncture is not that the system may suddenly collapse but rather that it derives a feeling of invulnerability from this episode, when losses have been eventually digested," Moody's warned.
Uh oh, coming from Moody's I guess that means the financial system is about to collapse.
I am waiting impatiently for the spillover effect of the weakening US economy to the global markets. I suspect the impact would eventually be felt as a big bang rather than a trickle. It would be big when things eventually start spiralling downwards.
Can anyone answer on what 'trading curbs' exist in other stock markets? i.e. Nikkei, Shanghai, FTSE, DAX
There is nothing the Fed can do now.any further rate cuts will fan the flames of inflation. Higher inflation expectations will cause a selloff of the bond markets and soooo...... Valla..h Higher mortgage rates. Welcome to the future.
"In fact the slow speed of the housing decline is why I think it doesn't cause a recession (but is likely a continuing drag), there is simply too much time for the economy to adjust." [banker]
This statement by Banker is not that far from CR's thinking that the longer it takes the housing decline to spread to other parts of the economy, the less severe will be the damage. My thinking is that consumers are trying to maintain spending by borrowing more on their credit cards, and that this will only make things worse down the road. Similarly, the financial markets are not coming to grips with the slowing economy as evidenced by the stock market. Does it make sense that the stock market has soared as the economy has slowed dramatically over the last two years?
And the conventional wisdom, as exemplified by continual assurances from the Fed that everything is fine, does not have a good track record. All this means that when the spillover to consumption is clear and expectations have to be adjusted, the falling stock markets will add to the severity of the crisis.
Had the consumer slowed spending two years ago, around the time of Katrina, then perhaps the stock market would be down and the accumulation of debt would have slowed. In other words, much of the pain would have already been borne. Continuing to borrow and spend is not making things better. The market is not adjusting in any fundamental way...
The Fed's first Mandate is the Economy- Bottom line.
There is inflation in food and energy but the fed can hide behind core CPI and cut to help the Economy.
That day might not be upon us but it's coming to a Theater near you.
On housingtracker.net, the inventory for two adjoining housing markets, San Jose, CA, and Santa Cruz, CA shot up 12.5 percent and 8.3 percent respectively in one week. (I live in Santa Cruz.)
I think housing tracker polls MLS systems, so it at the mercy of whatever is going on in the local MLS. Including changes in how they might count communities.
the subprime is now just one of many grease fires burning in the credit markets. Ken Fisher in the Blomberg Video Yal linked to this weekend certainly didn't think it was going to jump the lines into the junk corporate credit patch,but it's moving quick.
Santa Cruz is a great area but man is it overpriced! When I take Old Santa Cruz rd off summit rd down into Soquel I see lots and lots of 4-sales signs and many have been up for over a year or more. Other then the West Side near the water and Campus I think the town is headed for a pretty large price correction.
Did anyone celebrate DOW 12.8K? Gonna be a lot more retracement and many milestones to pass on the way back down if (AS) credit conditions worsen from here. Every stock had a LBO floor that kept moving up under it...
The underwriters of the debt sale were yesterday discussing plans to take a half or more of a $10 billion piece of the Chrysler auto loan, people familiar with the matter said.
The debt to be held by the banks would bear the first losses if Chrysler has problems repaying. Investors who own the rest of the loan would be given priority over Chrysler's assets if the company ends up in default. Another $2 billion piece of the Chrysler auto loan is likely to be offered at a higher interest rate.
So no Daimler. One reason this is being floated in the press is so the banks can determine whether or not the investors who have verbally committed to an order will "stick" if the deal isn't fully sold. They will know that the rest of the "first-loss" bond will be coming out at some point when the market returns to some semblence of normalcy.
My guess is many will use this to either walk or ratchett pricing/call protection up another notch.
"The talent pool across Wall Street is very strong right now. That gives me some comfort. But I do think it is going to be a lousy rest of the summer."
The Moody's report is titled ``Summer 2007: Another False Alarm in Terms of Banking Systemic Risk but a Reality Check,'' and was prepared by a team of analysts led by Pierre Cailleteau, the New York-based firm's chief international economic analyst.
Investor nervousness'' probably will endure until the size and location of losses is known, the analysts said. Thisis unlikely to be soon and headline risk will probably test markets' nerves,'' according to Moody's.
Let me explain why I think this deal won't happen. It seems to me this is a planted story. This is the best way to reach all possible buyers before the open and to give them time to think about a specific proposal. That is a $4-$5 billion deal on the automaker with the banks swallowing what is effectively a subordinated note under them. The banks aren't close enough to a deal to be able to organize a small series of calls to negotiate with a small group of buyers(the way things in markets like this usally get done). As I said earlier, the deal is simply to big. This smells like a last gasp effort to me. They also probaly beleive (rightly is my guess) is that if they can get the automaker done the finance deal will fall into place.
I think what you may be missing here are Keynes "animal spirits." From the economist:
The colourful name that keynes gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.
Confidence is a big deal and the biggest threat in my view is that everyone gets spooked and takes a step back to "wait and see." it becomes a self-fulfilling prophecy.
perhaps for me since i've been ahead of the curve on this whole thing thanks to this blog and other sources, seems to me liquidity is just the same in the face of the same demons we saw 24 months ago
so same nastiness same loans
and what you speak of seems to be a demand problem not a credit supply problem
"Be that as it may, this is a system which has a built-in instability, which in good times attracts participants who bid up values in a mood of optimism. That mood produces the increase in price for real estate, but particularly for securities, that justifies the expectation. The process then repeats itself. It's a simple fact of life, the speculative bubble, but it's something that, on the whole, economists ignore, the fact that the optimism that attracts people to real estate or securities markets shoves up the price, justifies the expectation, and then the process continues until you run out of optimism, you run out of the means to sustain it, something else intervenes, and you get the inevitable breaking of the bubble.
I am a liberal and I am a bear. I only say that because I was identified as a bull in a recent set of comments.
Other blogs that I read include firedoglake, talkingpointsmemo, juancole, americablog, etc.
Those are my credentials.
The reason I bring that up is that those other blogs don't talk about the economy. I.e. no "perfect storm". A "perfect storm" is when the mendacious, pusillanimous, feculent Bush Administration's policies in Iraq "spill over" into the rest of the country.
And why do I bring that up. Because I agree with Banker. It's all psychological. Maybe today's action was a "blip". Maybe it's Dow 15,000 in a few weeks.
But...the envelope please...the Yen is strengthening.
Banker said,
"Confidence is a big deal and the biggest threat in my view is that everyone gets spooked and takes a step back to "wait and see." it becomes a self-fulfilling prophecy"
So true Banker! That is why the fed must cut. Not that it will do anything real structural but psychological (ie: confidence for the financial system).
tj & the bear,
This is a big deal contrary to popular belief. The integrity of the financial system or rather the confidence in it is paramount. Rate cuts will achieve a psychological "big brother" watching over us therefore putting a "floor" on the damage.
Respectfully, Keynes was a great economist, Galbraith, well...
dc100,
Don't mix up the loons here who see the sky falling every couple of weeks with the smart guys who are trying to connect dots and predict what is very difficult to predict. A good way to distinguish is the more certain someone is in their comments/viewpoint, the less weight you should give to their opinion.
What I'm worried about is the following scanrio, banks shutting off the credit spicket for below IG stuff. This has likely already happened. Homebuilders and mortgage compnaies continue to get lambasted. Stocks for LBO possible supported stocks and the finiancials and the construction and housing related sectors all get clubbed as those companies start playing for survival rather than earnings. The credit markets stay closed for a while. Then both supply and demand for almost everyhting hesitates because of the constant barrage of bad news over a couple of months.
Do I think it happens? No. Could it? You betcha!
Arbo,
That is some set of, um, "credentials."
Just so we can keep things civil, I'll keep mine to myself
Slow,
Way too soon for a cut. We've been seeing consistent bad news for what, a few weeks? The housing stuff for longer, but that alone isn't a big deal. The duration of this is really important. Unless it goes on for a few months, I don't know that it will seep into the main street mentality, and without that, I'm not sure how important this really is.
As was pointed by Tanta, a delinquent subprime borrower could have been prime in the past. Until recently anybody could refinance to subprime. Good credit, bad credit, no credit, no problem. So prime borrower who had financial difficulties due to some random problems (unemployment, divorce, etc.) could have been saved by subprime refinance. Now this path is being closed so we can only start counting prime delinquencies as "prime delinquencies".
Alt-A on the other hand just needs some time. It is virtually impossible to default on a neg-arm loan (except for fraudsters and completely overextended flippers). But when these loans recast, hell will break loose.
But...the envelope please...the Yen is strengthening.
Well I just went over to Yahoo Finance to check (having a Japanese transplant as your largest customer will do that to you) and its now weakening again...
From the chart it looks like USD opened at about 120.12 JPY or so and has been steadily 'increasing' almost straight line to 120.33... probably just a coincidence though, right?
Anyway I wouldn't be surprised to see JPY under 120... but I would be surprised to see it fall without serious 'resistance'.
Countrywide is a mainstreet mentality? I'm not sure that is true. Countrywide's clients are the mainstreet mentality. A buddy of mine, prime quality credit, just bought a new condo (big winner, paid $950 preconstruction and it is worth $1.5 today even if the bears are correct) and he had the same set of borrowing options he had last year. Until THAT changes for prime-quality guys, I'm not sure main street really absorbs this.
"Rate cuts will achieve a psychological "big brother" watching over us therefore putting a "floor" on the damage."
With the USD hovering at 80? You can forget about rate cuts any time soon. The Fed will try to talk tough as long as they can to protect USD and hold the line on rates. If/when a serious GLOBAL recession kicks in, then maybe we'll get some rates cuts, but not while the Shanghai is doing this.
tj: Wow, I agree with Banker. Gotta check my meds...
Banker back hanging around and posting a lot (which I appreciate very much) must mean that some of our fears are unfolding. And back then he probably thought we were just crazy? Lending standards and mark-to-model were crazy. You have a system modeled with Ito calculus and then leveraged to the hilt because of the mathematical confidence -- all built on top of unprecedented lending standards which entirely invalidate any mathematical models you might try to build. The flimsy math is then used to run rough shod over people like Tanta. Meanwhile you have the Fed sunbathing out on the beach of the Bikini atoll waiting to catch a glimpse of all this great new "innovative" "sophistication". More stress will be induced once it becomes widely understood that the math underlying all synthetic CDOs is insufficient. That will probably happen due to some external stress ala Russian default that drives correlations into unfamiliar territory. The repudiation of synthetic-CDO-ology will come at the worst possible time. At a more fundamental level, the system is a function of it's financial instruments so developing new mathematical instruments based on a previously less complex financial system and then introducing the new instruments into the system changes the dynamics of the system. How can the new components predict the effect of their own interference? Hopefully this is all negligible and the stress test goes well. Geithner still looking boyish these days?
Seriously, the financial markets seem to have made the same basic mistake LTCM made. They (we) forgot that probability tails can be very long indeed. As for fears unfolding, it is just too soon to tell how big a deal this credit market situation will be, if it turns out to be a deal at all. In hindsight, LTCM did no enduring damage but it seemed like the world was ending for about 90 days there in 1998.
The folks who claim this could get really, really ugly could be correct. This could conceivably be elephant man ugly. Me? I think it'll just get pimple on the forehead on prom-night ugly.
"The Moody's report is titled 'Summer 2007: Another False Alarm in Terms of Banking Systemic Risk but a Reality Check,'"
What a mealy mouthed title, a perfect side dish to the Fed's statement. The sherpa keeps warning you that you are getting too close to the precipice, and every time you don't plunge to your death you smirk 'false alarm' and move ever closer (or if you ar the fed, 'i have not spilled over')
Do you all remember that fun chart of David Lereah's rosy statments juxtaposed with the housing decline #s? Time to maybe do one with the fed's "no spillover" propaganda, maybe?
What nobody has commented on in this forum yet is :
The Average American "Potential Home-Buyer" now knows full-well that the home-bust is in full swing and is staying away. Too many stories and eye-witness acconts of ARMs blowing up, loans at 7X income.
Wall St. and The Fed can't entice these folks into $400,000 McMansions any more than they could get them to buy Yahoo stock @ $240 in 2001 or 2002.
strangemoney, you are right on with that analysis.
but banker keeps saying this will be 'fixed' the same way LTCM-fallout was 'fixed'. But the problem is that the LTCM 'bailout' was a loosening of SEC regulation allowing for the manipulation of the IPO markets by the LTCM-touched bankers' underwriters, and subsequent dotcom bubble mania.
Problems with the simple bailout theory:
1-There is no way they can pull an IPO scam to increase cash flow during the pinch. Blackstone didn't work out too well at generating a fever, hey guys? But the MSM tried hard to elicit that momentum its first week of trading. No industry out there to feed a hysteria, and no excess money to sop up even if there was.
2-The Treasury doesn't have a surplus to buy back bonds to flood accounts with excess cash for dumping into the overvalued stock market.
Without those BS 'tools' at their disposal, the quick fix cleanup is far less likely (unlikely).
I think that dc1000 and banker are largely correct in claiming that there is still plenty of easy credit out there for those that want it. The problem is, as other posters have pointed out, credit does NOT demand.
To draw an analogy, word on the street has it that the junk the local dealers are pushing is some really bad stuff.
There may be plenty of angel dust available, but nobody's buying now cause they don't want to end up in a body bag.
I believe this will turn out to be a much bigger problem than LTCM.If so you can throw out inflation worries and dollar worries out the door. Rates will be cut no matter what.
I hope I'm wrong.
NEW YORK (MarketWatch) -- Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans.
Still no updates on Janet.
Maybe that new time-release Ambien is doing the trick.
I guess Plosser will be "more nervous" tonight when he reads the CFC press release and the summary of their conference call.
Nah, the orchestra continues to play, self-deceived and oblivious to the Housing Titanic.
Wait until their coats get wet.
BTW, I just wanted to say how impressed I am with Bill Gross today. He called out everything like it is and expressed the appropriate moral/ethical outrage. We need more people in the finance industry like that.
What's been happening recently is a crime on an extraordinary scale:
It's the Enron business model applied to entire economies.
Nobody should sit back and let that happen quietly.
i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market? chill out peoples... didn't we already knew that low/no doc piggybacks were garbage, whether 'prime' or 'subprime'?
ote: "garbage" is to be read with a french accent!
"i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market? chill out peoples... didn't we already knew that low/no doc piggybacks were garbage, whether 'prime' or 'subprime'?"
Exactly. Nothing new from CFC. Like I posted yesterday, the problematic loans are those with high CLTV (piggyback) and low/no doc. Doesn't matter if it's prime/alt-a/subprime/HEL etc. There's no spillover to other segments of loans. To try to argue whether there's spillover from subprime to alt-a/prime is moot point. Of course even the Fed don't really look at the issue the right way, so I guess you can still say they're 'wrong'.
i appear to be slow on the uptake...can somebody please explain to me what countrywide had to say that was new to the market?
The collapse in housing and housing related credit occurs very slooooooowwwlly.
It's like a steamroller that moves one inch every day.
People can ignore it and pretend its not there... for a while.
But it's forward movement is inexorable and crushes everything in it's path.
Any reminder of this stark reality is cause for panic.
As much as we'd like, the housing bust is not going away. But it's slow-motion nature gives us the opportunity to pretend it's not there for long periods of time.
"Ignore it and it will go away."
Until you're backed against the wall and there's nowhere to run.
Bacon
please refrain from using sub- Prime together....
The new terminology is Non-Prime
If we change the name, the problem will go away....
Now, would you like to be part of the problem, or part of the solution?
US housing difficulties cause for concern but no systemic threat: Moody's
Moody's on Wednesday maintained that the accounts of the leading US financial institutions were sound. "Their ability to withstand shocks is very high, perhaps never higher."
It pointed to five securities firms, Bear Stearns, Goldman Sachs, Lehman Brothers, Merill Lynch and Morgan Stanley.
"Profitability is very high, with 45 billion dollars (33 billion euros) accumulated in 2006 as opposed to 12 billion in 1998," the report said.
"The main risk in our view at this juncture is not that the system may suddenly collapse but rather that it derives a feeling of invulnerability from this episode, when losses have been eventually digested," Moody's warned.
Yahoo! 404 - Page Not Found
Add from Yahoo,
Countrywide Home Loans®
4 of 5 approved. The money saver refi. Combine your mortgage and debt. Act fast.
"Act fast" before what all your equity is gone??? LOL
If they are still "approving 4 of 5" then people are still getting loans (even if CW has been more prudent in underwriting).
Obviously they need to be a little more prudent
.
If this is true (4 out of 5 approved)that would mean there is more pain to come for CW.
bacon dreamz, Barry has a summary of some of the CFC comments today.
Best to all.
That "45 billion dollars" they "accumulated" in 2006 came out of the hide of the non-financial sector (you know...the one that actually makes things out of basic materials rather than reselling), debtors, and the dollar.
Moody's is saying "Banking's going to be fine. (The rest of you look a bit peakED, though...are you sure you don't want to lie down?)"
When the financial sector is strip mining that much money out of everything else, it's time to pack up your marbles and go home before the game gets ugly.
Note that I have no problem with them making any amount (45 billion dollars or otherwise), but if they kill the golden goose (economy) by attaching a vacuum to it's rear end to suck out the golden eggs before the goose can hatch them, I, for one, think they've been allowed to go a bit too far.
Everything is going to be fine because no responsible party is going to stop the party. In the olden days the responsible adults shut down the underage bars. Been there done that; but that is so yesterday as the market will solve all. So until there is a car wreck that gridlocks the roads from LA to NY it's all a-okay.
Amazon to save the entire US market... up 15% plus AH...
And , as a thank you , FDX is choosing to cut it's fuel surcharge to customer's(think amzn) up to 25%...
Business & Financial News, Breaking US & International News | Reuters.com
Expired
The key word in the headline was "spreading." Think Exxon Valdez.
"Nonprime" isn't a euphemism for subprime. When properly used, "nonprime" refers to subprime and Alt-A.
Kevin,
As one of the regular crappers on the rating agencies around here, I didn't take a great deal of comfort from the limited notion of liquidity they referenced in the article. Just sayin.
I do think that top management of Bear, Merrill and JP Morgan are really excellent (not perfect, merely excellent) and that Klein and Maheras at Citi are exceptional. The talent pool across Wall Street is very strong right now. That gives me some comfort. But I do think it is going to be a lousy rest of the summer.
This is a joke. These guys were the same ones saying that there were no issues in housing 2 years ago. Now that sh*t has hit the fan, they admit to the "subprime" issues. They will wait until this trickles up to the "prime" mortgages. Let's just be patient and it will get there.
http://housingtsunami.com/blog
AC,
Your assumption seems to be that the rest of the economy isn't in action while the housing problem is sloooowly rolling out. It simply isn't true. There always are, and will continue to be, a whole series of competing forces in a capitalist economy.
In fact the slow speed of the housing decline is why I think it doesn't cause a recession (but is likely a continuing drag), there is simply too much time for the economy to adjust. Now an oil spike? That could be a very different issue.
Queequeg | Homepage | 07.24.07 - 10:08 pm | #
shhhh,,,,TMI
Thanks CR...i've seen their comments. i'm certainly not trying to make the point there won't be spillover from subprime. i was trying to make the point that i literally don't think anything they said was new or surprising, the rating agencies flat out told the market that they were structurally incapable of modeling high CLTV low/no doc, a 'prime' handle won't save you...but to me it was just, "let's reiterate what's going on in the market, it sucks and it's not going to get better for a while and if you weren't aware of any of this, mr. shareholder, ur fake tan lotion must have seeped into ur brain because u can't afford the good shit like Mozilo..."
stated piggybacks are a trainwreck, spreads have exploded, there's no liquidity, we're waiting on new criteria for other nonprime products, resets are going to be painful, housing market sucks, blah blah blah...
ac wrote: What's been happening recently is a crime on an extraordinary scale: It's the Enron business model applied to entire economies. Nobody should sit back and let that happen quietly.
The Revolution is here, it is just waiting for participants.
what does no liquidity mean?
i mean crap. what a yawner.
prime plus one for construction loans -check
130 bps over the ten year for permanent financing on long-term NNN properties - check
requisite credit card offers daily -check
super jumbo 30 yr fixed 6.75% -check
spec apartment buildings -check
prime plus one SBA loans -check
people willing to throw money at any project with an IRR over 10% ? - check
so like um, what you talkin bout willis?
let them eat cake has never been more appropriate
course i'm young and dumb and in real estate so what do i know!!
OT but maybe somebody can tell me what this means:
On housingtracker.net, the inventory for two adjoining housing markets, San Jose, CA, and Santa Cruz, CA shot up 12.5 percent and 8.3 percent respectively in one week. (I live in Santa Cruz.)
What could cause such a sharp increase in housing inventory: somebody releasing a lot of REOs onto the market at one time? Something else? I haven't a clue and hope someone can hazard a guess.
By the way, no other market on housingtracker shows anywhere near as violent a weekly inventory increase as these two (adjacent) markets.
ac again: The collapse in housing and housing related credit occurs very slooooooowwwlly.
It's like a steamroller that moves one inch every day.
I'd like to suggest a new metaphor. The meteor-asteroid. It looks like nothing even as it hurdles toward the planet, destined to destroy 90+% of all life. It looks like nothing even as it gets closer and closer. But as it approaches, its power becomes evident as it starts to block out the night sky and/or the sun. When it gets too near, the panic will hit, but by then it's way too late to stop the eventual destruction. And there isn't much time between the obviousness for the masses and the actual impact.
Welcome to the housing asteroid.
In protest of the mini-crash in S&P, Shanghai Index is currently up about 1%.
The Shanghai index had been up about 8-9% over the past week as the US indices are witnessing some weaknesses.
I am waiting impatiently for the spillover effect of the weakening US economy to the global markets. I suspect the impact would eventually be felt as a big bang rather than a trickle. It would be big when things eventually start spiralling downwards.
Now, would you like to be part of the problem, or part of the solution?
If we're coining new words, may I suggest 'problution'.
Example in a sentence: The Greenspan Fed was notorius for its problutionary approaches.
It can be used as a roundabout way of saying the consensus solution only creates more problems.
And furthermore, it's still a lot better than 'stagflation'.
there you go dc1000....you've answered your own question
plenty of credit, go ahead...take some
glwt
if they kill the golden goose (economy) by attaching a vacuum to it's rear end to suck out the golden eggs before the goose can hatch them
KnotRP, that is some fine allegory. Kudos.
"The main risk in our view at this juncture is not that the system may suddenly collapse but rather that it derives a feeling of invulnerability from this episode, when losses have been eventually digested," Moody's warned.
Uh oh, coming from Moody's I guess that means the financial system is about to collapse.
I am waiting impatiently for the spillover effect of the weakening US economy to the global markets. I suspect the impact would eventually be felt as a big bang rather than a trickle. It would be big when things eventually start spiralling downwards.
Can anyone answer on what 'trading curbs' exist in other stock markets? i.e. Nikkei, Shanghai, FTSE, DAX
Anybody else have plans to cushion a crash?
There is nothing the Fed can do now.any further rate cuts will fan the flames of inflation. Higher inflation expectations will cause a selloff of the bond markets and soooo...... Valla..h Higher mortgage rates. Welcome to the future.
"In fact the slow speed of the housing decline is why I think it doesn't cause a recession (but is likely a continuing drag), there is simply too much time for the economy to adjust." [banker]
This statement by Banker is not that far from CR's thinking that the longer it takes the housing decline to spread to other parts of the economy, the less severe will be the damage. My thinking is that consumers are trying to maintain spending by borrowing more on their credit cards, and that this will only make things worse down the road. Similarly, the financial markets are not coming to grips with the slowing economy as evidenced by the stock market. Does it make sense that the stock market has soared as the economy has slowed dramatically over the last two years?
And the conventional wisdom, as exemplified by continual assurances from the Fed that everything is fine, does not have a good track record. All this means that when the spillover to consumption is clear and expectations have to be adjusted, the falling stock markets will add to the severity of the crisis.
Had the consumer slowed spending two years ago, around the time of Katrina, then perhaps the stock market would be down and the accumulation of debt would have slowed. In other words, much of the pain would have already been borne. Continuing to borrow and spend is not making things better. The market is not adjusting in any fundamental way...
The Fed's first Mandate is the Economy- Bottom line.
There is inflation in food and energy but the fed can hide behind core CPI and cut to help the Economy.
That day might not be upon us but it's coming to a Theater near you.
BTW on the forex USD/JPY under 120...
On housingtracker.net, the inventory for two adjoining housing markets, San Jose, CA, and Santa Cruz, CA shot up 12.5 percent and 8.3 percent respectively in one week. (I live in Santa Cruz.)
I think housing tracker polls MLS systems, so it at the mercy of whatever is going on in the local MLS. Including changes in how they might count communities.
the subprime is now just one of many grease fires burning in the credit markets. Ken Fisher in the Blomberg Video Yal linked to this weekend certainly didn't think it was going to jump the lines into the junk corporate credit patch,but it's moving quick.
Santa Cruz is a great area but man is it overpriced! When I take Old Santa Cruz rd off summit rd down into Soquel I see lots and lots of 4-sales signs and many have been up for over a year or more. Other then the West Side near the water and Campus I think the town is headed for a pretty large price correction.
Did anyone celebrate DOW 12.8K? Gonna be a lot more retracement and many milestones to pass on the way back down if (AS) credit conditions worsen from here. Every stock had a LBO floor that kept moving up under it...
Subprime's a big furball, but Ben, its the interest rates man. You're choosing interest payments over bricks and mortar. Sorry Detroit, builders...
Please that's attaching the vacuum to it's cloaca... I never thought I get to use that word so soon.
Chrysler's Bankers May Take On Debt - WSJ.com
The underwriters of the debt sale were yesterday discussing plans to take a half or more of a $10 billion piece of the Chrysler auto loan, people familiar with the matter said.
The debt to be held by the banks would bear the first losses if Chrysler has problems repaying. Investors who own the rest of the loan would be given priority over Chrysler's assets if the company ends up in default. Another $2 billion piece of the Chrysler auto loan is likely to be offered at a higher interest rate.
So no Daimler. One reason this is being floated in the press is so the banks can determine whether or not the investors who have verbally committed to an order will "stick" if the deal isn't fully sold. They will know that the rest of the "first-loss" bond will be coming out at some point when the market returns to some semblence of normalcy.
My guess is many will use this to either walk or ratchett pricing/call protection up another notch.
I still don't think this deal clears.
Banker
"The talent pool across Wall Street is very strong right now. That gives me some comfort. But I do think it is going to be a lousy rest of the summer."
The Moody's report is titled ``Summer 2007: Another False Alarm in Terms of Banking Systemic Risk but a Reality Check,'' and was prepared by a team of analysts led by Pierre Cailleteau, the New York-based firm's chief international economic analyst.
Investor nervousness'' probably will endure until the size and location of losses is known, the analysts said. Thisis unlikely to be soon and headline risk will probably test markets' nerves,'' according to Moody's.
Moody's Says Subprime Rout Is a `Serious' Worry (Update2) - Bloomberg.com
Looks like they agree with you.
o but really
what isn't so liquid right now for main street?
Let me explain why I think this deal won't happen. It seems to me this is a planted story. This is the best way to reach all possible buyers before the open and to give them time to think about a specific proposal. That is a $4-$5 billion deal on the automaker with the banks swallowing what is effectively a subordinated note under them. The banks aren't close enough to a deal to be able to organize a small series of calls to negotiate with a small group of buyers(the way things in markets like this usally get done). As I said earlier, the deal is simply to big. This smells like a last gasp effort to me. They also probaly beleive (rightly is my guess) is that if they can get the automaker done the finance deal will fall into place.
We'll see.
Kevin,
Doesn't speak well of me does it?
dc100,
I think what you may be missing here are Keynes "animal spirits." From the economist:
The colourful name that keynes gave to one of the essential ingredients of economic prosperity: confidence. According to Keynes, animal spirits are a particular sort of confidence, "naive optimism". He meant this in the sense that, for entrepreneurs in particular, "the thought of ultimate loss which often overtakes pioneers, as experience undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death". Where these animal spirits come from is something of a mystery. Certainly, attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.
Confidence is a big deal and the biggest threat in my view is that everyone gets spooked and takes a step back to "wait and see." it becomes a self-fulfilling prophecy.
I suggest Mr. Plosser to stop reading CNBS and start paying attention to reality...
"To conquer fear is the beginning of wisdom."
banker
perhaps for me since i've been ahead of the curve on this whole thing thanks to this blog and other sources, seems to me liquidity is just the same in the face of the same demons we saw 24 months ago
so same nastiness same loans
and what you speak of seems to be a demand problem not a credit supply problem
and no, I don't have Mesothelioma. Unlike that guy at BSC.
Banker:
John Kenneth Galbraith
"Be that as it may, this is a system which has a built-in instability, which in good times attracts participants who bid up values in a mood of optimism. That mood produces the increase in price for real estate, but particularly for securities, that justifies the expectation. The process then repeats itself. It's a simple fact of life, the speculative bubble, but it's something that, on the whole, economists ignore, the fact that the optimism that attracts people to real estate or securities markets shoves up the price, justifies the expectation, and then the process continues until you run out of optimism, you run out of the means to sustain it, something else intervenes, and you get the inevitable breaking of the bubble.
I am a liberal and I am a bear. I only say that because I was identified as a bull in a recent set of comments.
Other blogs that I read include firedoglake, talkingpointsmemo, juancole, americablog, etc.
Those are my credentials.
The reason I bring that up is that those other blogs don't talk about the economy. I.e. no "perfect storm". A "perfect storm" is when the mendacious, pusillanimous, feculent Bush Administration's policies in Iraq "spill over" into the rest of the country.
And why do I bring that up. Because I agree with Banker. It's all psychological. Maybe today's action was a "blip". Maybe it's Dow 15,000 in a few weeks.
But...the envelope please...the Yen is strengthening.
Fed's Plosser: No Signs Of Subprime Woes Spreading
LA LA LA
I CAN'T HEAR YOU!
In fact the slow speed of the housing decline is why I think it doesn't cause a recession...
Exactly backwards. It's raining, and it won't stop until everyone's underwater.
...but the fed can hide behind core CPI and cut to help the Economy.
slowmo, what makes you think a rate cut will help the economy? Specifics, please!
Banker said,
"Confidence is a big deal and the biggest threat in my view is that everyone gets spooked and takes a step back to "wait and see." it becomes a self-fulfilling prophecy"
So true Banker! That is why the fed must cut. Not that it will do anything real structural but psychological (ie: confidence for the financial system).
tj & the bear,
This is a big deal contrary to popular belief. The integrity of the financial system or rather the confidence in it is paramount. Rate cuts will achieve a psychological "big brother" watching over us therefore putting a "floor" on the damage.
ron,
Respectfully, Keynes was a great economist, Galbraith, well...
dc100,
Don't mix up the loons here who see the sky falling every couple of weeks with the smart guys who are trying to connect dots and predict what is very difficult to predict. A good way to distinguish is the more certain someone is in their comments/viewpoint, the less weight you should give to their opinion.
What I'm worried about is the following scanrio, banks shutting off the credit spicket for below IG stuff. This has likely already happened. Homebuilders and mortgage compnaies continue to get lambasted. Stocks for LBO possible supported stocks and the finiancials and the construction and housing related sectors all get clubbed as those companies start playing for survival rather than earnings. The credit markets stay closed for a while. Then both supply and demand for almost everyhting hesitates because of the constant barrage of bad news over a couple of months.
Do I think it happens? No. Could it? You betcha!
Arbo,
That is some set of, um, "credentials."
Just so we can keep things civil, I'll keep mine to myself
Slow,
Way too soon for a cut. We've been seeing consistent bad news for what, a few weeks? The housing stuff for longer, but that alone isn't a big deal. The duration of this is really important. Unless it goes on for a few months, I don't know that it will seep into the main street mentality, and without that, I'm not sure how important this really is.
As was pointed by Tanta, a delinquent subprime borrower could have been prime in the past. Until recently anybody could refinance to subprime. Good credit, bad credit, no credit, no problem. So prime borrower who had financial difficulties due to some random problems (unemployment, divorce, etc.) could have been saved by subprime refinance. Now this path is being closed so we can only start counting prime delinquencies as "prime delinquencies".
Alt-A on the other hand just needs some time. It is virtually impossible to default on a neg-arm loan (except for fraudsters and completely overextended flippers). But when these loans recast, hell will break loose.
This is a big deal contrary to popular belief. The integrity of the financial system or rather the confidence in it is paramount.
Too late for that. Somebody should have been thinking about that when they were giving multiple mortgages to homeless guys in Florida!
Countrywide is the largest US Mortgage lender and is an FDIC member this is where it Differs from Bear et al.
This is "main street mentality".
Yield spreads widening this fast is wall street mentality.
Im not saying cuts are happening right away but soon if this continues.
But...the envelope please...the Yen is strengthening.
Well I just went over to Yahoo Finance to check (having a Japanese transplant as your largest customer will do that to you) and its now weakening again...
From the chart it looks like USD opened at about 120.12 JPY or so and has been steadily 'increasing' almost straight line to 120.33... probably just a coincidence though, right?
Anyway I wouldn't be surprised to see JPY under 120... but I would be surprised to see it fall without serious 'resistance'.
"Too late for that. Somebody should have been thinking about that when they were giving multiple mortgages to homeless guys in Florida!"
LMFAO
Slooow,
Countrywide is a mainstreet mentality? I'm not sure that is true. Countrywide's clients are the mainstreet mentality. A buddy of mine, prime quality credit, just bought a new condo (big winner, paid $950 preconstruction and it is worth $1.5 today even if the bears are correct) and he had the same set of borrowing options he had last year. Until THAT changes for prime-quality guys, I'm not sure main street really absorbs this.
slowmo,
Who's confidence? Hedgies???
A rate cut would send price inflation through the roof while not doing a damn for J6P's income or debts. I doubt that would spur anyone's confidence.
Oh yeah,
My prior post means dc100 is correct at the moment.
"Rate cuts will achieve a psychological "big brother" watching over us therefore putting a "floor" on the damage."
With the USD hovering at 80? You can forget about rate cuts any time soon. The Fed will try to talk tough as long as they can to protect USD and hold the line on rates. If/when a serious GLOBAL recession kicks in, then maybe we'll get some rates cuts, but not while the Shanghai is doing this.
Darth sounds close to right to me.
Wow, I agree with Banker. Gotta check my meds...
Yes, when the recession goes global the Fed can cut rates because all the CBs will be doing the same. Too late.
BTW, crisrose over at HBB posted this:
Inside scoop - mass layoffs coming to Countrywide.
tj: Wow, I agree with Banker. Gotta check my meds...
Banker back hanging around and posting a lot (which I appreciate very much) must mean that some of our fears are unfolding. And back then he probably thought we were just crazy? Lending standards and mark-to-model were crazy. You have a system modeled with Ito calculus and then leveraged to the hilt because of the mathematical confidence -- all built on top of unprecedented lending standards which entirely invalidate any mathematical models you might try to build. The flimsy math is then used to run rough shod over people like Tanta. Meanwhile you have the Fed sunbathing out on the beach of the Bikini atoll waiting to catch a glimpse of all this great new "innovative" "sophistication". More stress will be induced once it becomes widely understood that the math underlying all synthetic CDOs is insufficient. That will probably happen due to some external stress ala Russian default that drives correlations into unfamiliar territory. The repudiation of synthetic-CDO-ology will come at the worst possible time. At a more fundamental level, the system is a function of it's financial instruments so developing new mathematical instruments based on a previously less complex financial system and then introducing the new instruments into the system changes the dynamics of the system. How can the new components predict the effect of their own interference? Hopefully this is all negligible and the stress test goes well. Geithner still looking boyish these days?
Strange,
I still think you're crazy!
Seriously, the financial markets seem to have made the same basic mistake LTCM made. They (we) forgot that probability tails can be very long indeed. As for fears unfolding, it is just too soon to tell how big a deal this credit market situation will be, if it turns out to be a deal at all. In hindsight, LTCM did no enduring damage but it seemed like the world was ending for about 90 days there in 1998.
The folks who claim this could get really, really ugly could be correct. This could conceivably be elephant man ugly. Me? I think it'll just get pimple on the forehead on prom-night ugly.
"The Moody's report is titled 'Summer 2007: Another False Alarm in Terms of Banking Systemic Risk but a Reality Check,'"
What a mealy mouthed title, a perfect side dish to the Fed's statement. The sherpa keeps warning you that you are getting too close to the precipice, and every time you don't plunge to your death you smirk 'false alarm' and move ever closer (or if you ar the fed, 'i have not spilled over')
Do you all remember that fun chart of David Lereah's rosy statments juxtaposed with the housing decline #s? Time to maybe do one with the fed's "no spillover" propaganda, maybe?
What nobody has commented on in this forum yet is :
The Average American "Potential Home-Buyer" now knows full-well that the home-bust is in full swing and is staying away. Too many stories and eye-witness acconts of ARMs blowing up, loans at 7X income.
Wall St. and The Fed can't entice these folks into $400,000 McMansions any more than they could get them to buy Yahoo stock @ $240 in 2001 or 2002.
'The Madness of Crowds' is what rules now.
strangemoney, you are right on with that analysis.
but banker keeps saying this will be 'fixed' the same way LTCM-fallout was 'fixed'. But the problem is that the LTCM 'bailout' was a loosening of SEC regulation allowing for the manipulation of the IPO markets by the LTCM-touched bankers' underwriters, and subsequent dotcom bubble mania.
Problems with the simple bailout theory:
1-There is no way they can pull an IPO scam to increase cash flow during the pinch. Blackstone didn't work out too well at generating a fever, hey guys? But the MSM tried hard to elicit that momentum its first week of trading. No industry out there to feed a hysteria, and no excess money to sop up even if there was.
2-The Treasury doesn't have a surplus to buy back bonds to flood accounts with excess cash for dumping into the overvalued stock market.
Without those BS 'tools' at their disposal, the quick fix cleanup is far less likely (unlikely).
"it is worth $1.5 today"
I doubt it.
I think that dc1000 and banker are largely correct in claiming that there is still plenty of easy credit out there for those that want it. The problem is, as other posters have pointed out, credit does NOT demand.
To draw an analogy, word on the street has it that the junk the local dealers are pushing is some really bad stuff.
There may be plenty of angel dust available, but nobody's buying now cause they don't want to end up in a body bag.
Where is that 1.5mil condo located?
.
Banker and TJ,
We will see...
I believe this will turn out to be a much bigger problem than LTCM.If so you can throw out inflation worries and dollar worries out the door. Rates will be cut no matter what.
I hope I'm wrong.
As Neal would say "got popcorn" LOL
Last Update: 2:29 PM ET Jul 24, 2007
NEW YORK (MarketWatch) -- Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans.
client had an open house this weekend. 60 couples through. 6 offers, 3 escalations, from 699k to 786k for a 3BR in townhouse in DC.
this was after they were outbid on every 4BR house in Chevy Chase for a year until they just went balls out and bid 10% over asking.
prime is prime baby