When she was with the Dalla Morning News she was a straight shooter. I was sad to see her leave. It looks like she might be drinking some kool-aid now.
Seems like the last two mitigating factors were the same thing. If banks aren't willing to lend, or consumers aren't willing to borrow, any interest rate move by the Fed is meaningless.
The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans (better late than never FDIC!) FDIC: Press Releases - PR-95-2007 11/16/2007
"Third, even if the tightening of mortgage credit standards undesirably slows aggregate demand, monetary policy could still, if need be, help offset the overall effect by stimulating the economy via lower interest rates. This would bolster net exports..."
"This would bolster net exports" appears to be Dallas Fed-speak for "The Euro will still be a buy at $2.50".
Excellent job pointing out the wave of payment option arm "recasts" that will follow subprime.
Why is no one in the financial press talking about the pending disaster of payment option arm resets/recasts?
When a payment option arm recasts, the minimum payment usually increases by nearly 100%. Not even prime borrowers will be able to handle that type of payment increase (much larger than the 25% subprime increase cited by Kroszner); especially with little equity left because of negative amortization and falling home values.
One last thing to add: I don't think the graph of pending payment option arms accounts for those loans hitting their "negative amortization limit". By my calculations that will typically move the payment reset/recast up 6 -12 months on loans originated between 2004 - 2007.
Has the market already priced in the pending payment option arm disaster?
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth. This gives policymakers inflation-fighting credibility, which enables them to coax down market interest rates should the economy need stimulus."
Translation: Core inflation is on things that have low rate of price increases. Things needed daily, that go up a lot and negatively impact the peasants are not counted. IB's are in deep doo, so we're going to lower rates until said doo ain't so deep.
She makes some nice hypotheses there. She did forget to mention that the national debt is now at $30,000 per capita and the unfunded Prescription Drug Plan might add another $2,000 to that number. I don't know why economists never mention that.
Stating the wave of Option ARM first resets (actually recasts) in 2010 is somewhat misleading. If other lenders are anything comparable to Downey Financial they should hit their maximum neg am balances well before then.
From Downey's 10Q:
"Assuming no prepayments as well as no changes in interest rates or borrower use of negative amortization, approximately $3.4 billion or 30% of our residential one-to-four unit loans held for investment are subject to having their payment recast to a fully amortizing payment at the fully-indexed interest rate by year-end 2008."
By my math Downey's total neg am as a percentage of loans with neg am is 5.3%. The vast majority of their option arms have a 110% balance cap so it seems highly unlikely they'll make it out to 2010.
More aggressive lenders with 115%+ balance caps may be a different story but I'm not sure how common those are.
"the effect of slower home-price gains on consumer spending is likely to be drawn out, giving monetary policy time to adjust if necessary."
Well, she's gotta says that, doesn't she? These people are her bosses.
This is the part that worries me a bit:
"the effect of slower home-price gains on consumer spending is likely to be drawn out, giving monetary policy time to adjust if necessary."
Given that the US economy badly needs a rebalancing away from PCE and towards the export sector, let's hope the Fed isn't overly eager to "adjust if necessary."
Which gets back to the credibility (or lack thereof) of all that inflation-fightin' mojo. Because the Fed's nut here isn't the domestic inflation rate, it's relative inflation rates. If the spread is too wide, real $ appreciation will offset the nominal depreciation and we'll end up back where we started, except with a bombed out consumer sector and not enough trade adjustement.
"Third, even if the tightening of mortgage credit standards undesirably slows aggregate demand, monetary policy could still, if need be, help offset the overall effect by stimulating the economy via lower interest rates. This would bolster net exports and business investment and help cushion the impact of higher risk premiums on the costs of financing for firms and households."
Translation:
Screw the dollar. It's going down. J6Pack has no bargaining power for higher wages in this economy, so goodbye middle class. We hate the middle class anyway. Poor people don't ask too many questions because they're too busy working 14 hour days just to get enough food to hold off starvation.
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth."
It seems to me that the ability to slow core inflation by lowering interest rates is somewhat self-defeating. Several of the core inflation indicators (transportation, clothing etc.) are kept down by cheap imports. A weak dollar translates into higher import prices, which boots inflation.
Wow. If this isn't evidence of muzzling (or JJ Guyana pt 2) I dont know what is. This barely sounds like the same person who used to write for the DMN. How sad. Guess that is the price she decided to pay.
Good insight. My thoughts exactly. What I can't figure out is why the financial press hasn't picked up on the pending payment option arm crisis. (Maybe the market has priced it in? or maybe it's misclassification of payment options arms as subprime?)
When the minimum payment on a payment option arm resets/recasts, it increases by as much as 100%. Much more than typical subprime resets.
Payment option arm borrowers' equity is currently being wiped out by neg am and falling home prices. It will be a disaster bigger than subprime.
The Option ARMs resets will be a moot point because anyone that is negatively amortizing their loan currently will have hit their neg-am cap (typically 115% of original loan amount) at which point the loan automatically resets. This was a very popular product in California which is now falling off a cliff.
I have done a lot of work on the Euro housing market and while they are certainly cooling off, I don't think you'll see anything like what we've seen in the US. The market most likely at risk of a US-style correction is the UK given how poor affordability is in the UK right now. Other markets to watch out for are Ireland and Spain, which are slowing down meaningfully, but these markets have been supported by real fundamentals over the last decade of lower interest rates and strong immigration (GOP: Please note positive effect on housing from immigration).
The rest of Europe looks fine. France, Italy, and Germany never saw their residential real estate markets heat up so no problems there.
Rob - I beg to differ. UK is screwed, Ireland's pretty much the same. I have plenty of friends who are in the process of doing the US Fall of 2005 sell-off. They are basically two years behind us and in largely the same boat. Massive overbuilding, huge speculation. While I will grant you that there was a demographic push in Spain noticeably absent in other markets, they also have overbuilt to the extreme, and the speculative purchasers from around the globe could touch off a major reversal. Their economy has been completely juiced on residential investment and debt accumulation. (Sound familiar?) As for France and Italy, theyve also enjoyed a very nice run-up, but are also at risk, albeit not nearly to the extent of UK and Ireland or Spain. Germany, that's a whole different story - they were largely left behind. But lumping Germany with France and Italy makes me think you aren't paying attention.
It's clear that the effect of MEW is overstated. A larger part of the consumer spending is by renters. Therefore as more homeowners are dispossessed, they will be able to increase spending using the Rental Equity they have been forced to realize. All the money that would have gone into home ownership is quickly freed, so that they'll be able to support the economy. We need to accelerate foreclosures.
That's the point exactly. Unscheduled recasts because of neg am will happen before 2010.
When they happen, the payment increases by close to 100%. No borrower can swallow that financially. It will be a disaster. (Especially for California!)
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth."
That little pat on the back might be a bit premature.
Speaking of growth, here's a recap of this morning's economic data:
Industrial production in October came much weaker than expected, posting a sharp decline. Overall industrial production fell 0.5 percent in October, following a 0.2 percent up tick the month before. Overall industrial production was sharply below the consensus forecast for a 0.1 percent rise in October. The manufacturing component dropped 0.4 percent in October, following a 0.2 percent gain the prior month. For October, utilities output fell 1.6 percent while mining output declined 0.6 percent.
Overall capacity utilization fell in line with the output drop, declining to 81.7 percent in October from 82.2 percent the month before. The latest came in below the consensus forecast for an 82.0 percent capacity utilization rate and compares to September's initial estimate of 82.1 percent. The capacity utilization rate for manufacturing stood at 80.1 percent in October, down from 80.5 percent in September.
By market groups, weakness was primarily in consumer goods, construction supplies, and business supplies. Consumer goods were down 0.7 percent; construction supplies, down 0.4 percent; and business supplies, down 0.8 percent. Business equipment edged down 0.1 percent.
Not all option arms go up significantly. I have a 5 yr/fixed ARM @ 4.25. When it resets, it can only go up 2 points for the first year to 6.25. (after that I'm not sure) which untill recently was lower than the 15y fixed. I have been paying extra and when the time comes to reset, my principle will be so low (under 60k) that the 15 yr fixed should be lower than what I am currently paying when I refi. I realize not everyone has this scenerio but thought I would share mine for what it's worth : )
The key point I got from this is what I've heard from the Fed on many other occasions: that they think they can talk inflation down without taking any other real, substantial action. The approach has been to use actions (rate cuts) to address the market crisis, and use words to address the falling dollar and inflation.
The bad news is that the Fed's words just don't count for anything any more. At some point, words have to be backed by action, and it's clear that the Fed is not going to take action on inflation, so all of the Fed-speak in the world isn't going to take inflation down by even a single basis point.
girlbear: "When it resets, it can only go up 2 points for the first year to 6.25. (after that I'm not sure)"
Not to be critical, but I would re-read what you just put in the parentheses there. Don't feel bad, you're certainly not the only one. It sounds like you're planning on refinancing; and with 60k in remaining balance, you probably have significant equity, so I don't think you're facing a potential problem.
But even so, I would strongly recommend sitting down with all the documents and figuring out exactly what happens if, worst case scenario, you can't refinance.
Kerpowski, Rob, good points and I agree on these OA recasts. I just wanted everyone to know the problem doesn't end with the resets on the Dallas Fed chart.
the challenge is for us to know the age of these OA's. I think intuition says BKUNA OA's are younger and FED + DSL are a bit older. Then we also need to know whether the caps are 110, 115 or more. And then we have AHM, WAMU and more.
CR, Tanta,
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
How often is equity re-evaluated by the lender? If the limit is 115% for neg-am loans, but the market value of the house is decreasing, that 115% would be hit very quickly if the amount was re-evaluated say every year. If this was true then I would think resets would happen very soon. (2008-2009)
I didn't realize how much truth telling I got from my Dallas Morning Snooze until DiMartino wrote this Fed fluff financial fortune telling piece. But, then I worked at FDIC for two decades having reports revised by 3-5 levels of mgt. For another laugh read the below Citi job description (from the WSJ)to replace Prince. Are You Right for Citi Job? CR and Tanta should apply. Are You Right for Citi Job? - WSJ.com
AAA, come on down!! It's your turn to play "Price it right!"
Anyone notice in the midst of all that green the new highs and new lows on the NYSE? 38 new highs to 376 new lows. But that's a sign of a healthy market, right?
I agree there is risk in the UK, Ireland, and Spain. However, in terms of the industry pushing exotic mortgages like we saw here in the US, there has not been such a phenomenon in those Euro markets. As for France, Italy, and Germany - I was saying that those markets do not have the same risk as the others. Home prices certainly went up in France and Italy but if you peel back the onion and look at consumer debt service and affordability you'll find that those increases are supported by fundamentals.
Let's not forget that rising home prices does not always mean they need to crash.
Lenders don't make home price adjustments when looking at the neg-am cap. It's strictly a function of whether or not the current loan balance is 115% or higher than when the loan was first taken out.
Now obviously, we can all see the problem that is starting to hit. You have neg-am'ed your loan to 115% of its original balance and now find that your house is worth 20% less. That's why the keys are getting thrown back to lenders en masse. That's also why I am 100% convinced that Countrywide Financial will go bust very soon.
Girlbear does have a "hybrid" option arm. Option arms are available with initial fixed interest rates periods of 5 years. For example, Wachovia's Pick-a-payment mortgage.
However, Girlbear, just because the interest rate is only set to increase 2% when the loan recasts/resets, that doesn't mean the minimum payment is limited to that increase. The minimum payment will increase by a substantially higher percentage.
Your initial minimum payment was not based on the 4.25% fixed period rate. It was based on a starter rate -usually 1 to 3 percent.
See, these payment option arms are trouble. Very few people understand them. It will be a disaster!
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
Well, for "issuer" sure. That is, for securitized OAs.
But DSL and FED and all these other folks are portfolio lenders. So their OAs don't count in any report you see of securitized volume.
How often is equity re-evaluated by the lender?
NEVER.
The balance cap is precisely a balance cap: it means that the loan amount can never be higher than some percent (110%, 115%, whatever it is) of the original loan amount.
It has NADA to do with the property value. There is no mortgage loan in this country that involves changes to a borrower's loan terms because of changes in value of the collateral. We just do not do that. Residential mortgage loans are not margin loans. They cannot be "called" literally or via changes in the rate or payment terms because the collateral value changes. This is an incredibly important principle of residential mortgage lending.
All lenders have to live with changes in value of property. Good, bad, or ugly. That is why setting LTV maximums and getting good appraisals up front is so terribly important: because you can't do anything about it after the fact. You can't add borrower-paid MI if you didn't require it up front. You can't force anyone to prepay the balance. You can't up the interest rate because the loan is now upside down. (It isn't even legal on a mortgage to up the rate when the loan is in default. They can do that on credit cards but they cannot do that on mortgages.)
So bear that in mind: some of these people will hit a balance cap, but they started with an LTV of 70%. So, say their loan amount when they cap out is $77,000. It was $70,000 when the loan was originated, and the property value was $100,000 when the loan was originated. Let's say the value of the property drops by 20% to $80,000. The borrower's LTV is now 96%. Sucks, but you can see that this borrower requires both maximum neg am and a big value drop to go underwater.
O-Joe....snap out of it already. In case you havent noticed, Q4 hasnt been reported, and as things continue to deteriorate, the chance of negative growth in that quarter rises. Since an officially defined recession is two consecutive quarters of negative growth, we could still already be in recession. As you are probably not aware, these things tend to be back dated.
I have said before that "you can't have a recession with unemployment at 4.7%". And in general, I do not side with those who blame their faulty predictions on "the government's lying statistics".
However, the always level-headed Econbrowser has a piece today that gives me pause:
Anyone want to explain if there's anything nefarious about these preferred stock offerings? I don't know anything, but it seems like insiders' attempts to funnel money away from shareholders before the whole thing comes ccrashing down.
Fannie Mae Prices $500 Million of Preferred Stock
Friday November 16, 4:40 pm ET
WASHINGTON, Nov. 16 /PRNewswire-FirstCall/ -- Fannie Mae (NYSE: FNM - News), today priced $500 million, or 20 million shares with a stated value of $25 per share, non-cumulative, perpetual, fixed-rate preferred stock (CUSIP 313586760) at a dividend rate of 7.625 percent per annum, designated as Series R. Fannie Mae will have the option to redeem all or part of the Series R preferred stock, on or after November 21, 2012.
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Lehman Brothers, Inc. and Morgan Stanley are the lead underwriters of this issue. The co-managers for this deal are: Bear, Stearns & Co. Inc., FTN Financial Capital Markets, LLC, Morgan Keegan, RBC Dain Rauscher, Sandler O'Neill & Partners, L.P., and Vining-Sparks IBG, L.P.
Application will be made to list the shares on the New York Stock Exchange under the symbol "FNMprR." The shares are expected to be issued on November 21, 2007.
There is nothing unusual about preferred stock. It's just a way for the company to raise capital at a time when perhaps the common stock is not so popular...
Just wonderingÂ…I vaguely recall you having some circular flow chart-type diagramsÂ…Where they on similar subject matter as the ones used in this report? Or something else entirely? Tried to hunt them up on your blogÂ…but your site is getting too damn big.
I agree there is risk in the UK, Ireland, and Spain. However, in terms of the industry pushing exotic mortgages like we saw here in the US, there has not been such a phenomenon in those Euro markets...
I was really surprised to learn that British and Australian consumers have even higher debt-to-income ratios than US consumers.
They've had the same steep rise in consumer debt (again relative to income) over the past decade that we've seen in the US (actually moreso according to the data I've seen).
To me that suggest their economic growth over the past several has also been fueled by people spending more than they make.
These situations typically end badly.
The evidence just doesn't support that this is a "US only" problem.
In some aspects it may actually be worse in other countries (e.g. UK and many other European countries have seen much more house price appreciation than the US).
Hawk Girl,
One way to look at Preferred Stock (mostly preferred for dividends) is as a bond where the issuer can postpone interest payments if necessary.
It also make some financial ratios look a better, but I don't think that's the motivation there.
4.25% does seem a little low, but there are payment option arms with 5 year fixed interest rate periods. Google "secure payment option arm".
All the other mechanics (and risks) are the same as monthly adjusting POA's -the minimum payment will increase substantially at the end of year 5 (or before if the neg am limit is reached).
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
O-Joe
No way. This is like hunting for Big Foot. It never stops being fun, even if you never find anything.
Thanks for the corrections, I have learned so much from this site. Yes, I have a 5/1 ARM and I plan to refi when due (8/08). I will shop it but having checked with my lender (BofA) they say with my credit score (801) and principle amt (60k)and equite ($500k but dropping!I'm in CA) I won't have a problem getting into a 15y fixed at a good rate (although BofA never has the best).
Thanks for the help!
OA recasts are the coup de grace for the California housing market and economy. Those borrowers may not be underwater at recast, as Tanta says, but they will default in droves. So the question for CA is, what happens when all those recasts go to Exit Plan A. What's Exit Plan A for an OA borrower? SELL!
The logical minimum sale price for an OA default is the LTV. They will quickly take prices to that level. The thing is, they have a "put" at their LTV, which is commonly known as "jingle mail". When they exercise that put, we'll see yet more pressure on house prices.
Never before has a region (CA) had such prevalence of Neg-am lending. The effects will blow regression correlations out the boardroom windows of Magic, PMI, Ambac, and other ultimate put-writers.
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
O-Joe
Optimistic Joe | 11.16.07 - 4:51 pm | #
If there is no recession then AND our average debt/income ratio is trending down then I would rethink my position.
Otherwise we are just still piling straw on the poor ol' camel.
This blog is a lot of fun, yes?
Plus, fear has made me learn a lot of finance and econ real fast! I feel like I have gone up to the cockpit to ask the pilot about his training only to get the response: "I saw a plane landing in a cartoon once."
OT: Somebody at Financial Times is a little unclear on how bonds work. In fact it looks like it took the effort of two people to botch this one up:
US inflation reaches 14-month high
By Eoin Callan and Krishna Guha in Washington
Published: November 15 2007 15:55 | Last updated: November 15 2007 15:55
Bond yields tumbled as US annual inflation reached a 14-month high and signs of trouble in the economy mounted.
The cost of living increased 3.5 per cent compared to a year ago after consumer prices rose another 0.3 per cent last month, driven by higher fuel costs, according to official figures.
The big jump in prices underlines the Federal ReserveÂ’s concern that inflation could pick up pace and make it more risky to continue cutting interest rates to keep the threat of a recession at bay.
US stocks fell and the yield on benchmark 10-year US Treasury bonds dropped 2 basis points to 4.23 per cent as investors priced in less likelihood of rate cuts despite fresh signs of a weakening job market...
Quoting Roubini, "Thus, the repeated statements by Fed officials that they may be done with cutting the Fed Funds rate are both hollow and utterly disingenuous. The Fed Funds rate will be down to 4% by January and below 3% by the end of 2008."
This is essentially what I said in another thread. There are those on this board who believe Fed officials (Kroszner specifically) when they talk about their concern with inflation. Recall the teeter-totter analogy with the risks balanced, etc. The Fed does not and can not view the risks as balanced. If there is risk to the financial system, they will ease.
True there is a liquidity trap risk and yes, there is an inflation risk, but they only have one tool at their disposal, and BB will use it if he has to.
If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want.
This was the whole point of Bernanke's "helicopter" speech years ago. The Fed will not repeat their mistakes of the 30's. The 70's... maybe. But not the 30's.
Somebody said that just because housing prices go up, they don't have to come back down. This comment is worthy a single laugh - haha - and is just sad. Yes, we're all going to pay twice as much as we can for houses and lose them in a few years and then repeat the process. It's the new paradigm.
The obession over a recession is getting a bit extreme, IMHO, for a few reasons:
1) The people in charge can make up whatever number they want to. The last GPD results with the hilarious 0.8% inflation deflator prove that. Why do they have to even admit to a recession? Just juggle the inflation numbers to only measure housing and plasma TV prices and - poof! - we have deflation, then add that number to the increased sales by gas stations and food vendors (which are measuring skyrocketing inflation), and we have endlessly high GDP growth? A bit extreme, yes, but not entirely out of the question.
2) We don't need 2 adjacent quarters of negative growth for life to suck. Maybe we'll have lots of quarters around 0% growth that oscillate up and down. Maybe we'll have excellent growth, but only for the upper 1% of the population - you can't afford food, but yacht sales are up, so don't worry!
The point is this: people are buried under staggering debt loads, jobs are being lost all over the place (and I don't count a McJob as a manufacturing job, nor do I consider a person losing a good job and having to work 2 McJobs as an improvement in employment numbers), people are losing their homes (which they couldn't afford anyway), inflation is running rampant in the things we need, and there are a host of other problems.
Facing that mountain of worries, it seems limiting to focus merely upon GDP numbers and if they are negative twice in a row: one easily manipulated number does not measure the health of an economy, an economy that is rolling over and dying, despite the claims of a few perma-bulls.
I can tall you without a shadow of a doubt the UK is in real trouble with housing prices, and so is Spain. Ireland is in trouble too. France etc not so much as they didn't sell in the same way, and much of the sales were to British etc. Brits are the Californians of Europe - selling overpriced properties at home and driving the price in remoter locations way up and beyond the ability of the locals to pay.
When I bought in the UK in 1995 I struggled to get them to give me a mortgage at 3x my income. I regularly see offers at 6x from major, reputable, lenders. That's a recipe for disaster. I also hear that 'lie-to-buy' is almost as common in the UK as here in CA.
Young people have been buying by a) pooling their money and several buying the place, b) taking loans that are crushing them, and c) paying the deposit by getting their parents to MEW it.
It's not 'subprime' in the UK, it's just general lack of affordability. Couple that with the massive 'buy-to-let' purchases that have resulted in ghost towns of entirely empty apartment buildings and it's a recipe for oversupply and poor demand.
So while the US experience won't repeat in the UK, it will rhyme.
With a significant liquidity contraction in progress I don't think deflation is out of the question. Holding out for the FED to save the day by lowering interest rates to zero may provide some sort of slow down effect which is probably better then a straight drop into a big depression. For that I would be thankful.
"One mortgage executive close to Morgan Stanley's Saxon Mortgage group said the Wall Street firm is talking to Fannie Mae and Freddie Mac about selling loans to the two GSEs. The loans, in theory, would be "subprime" in nature but would be underwritten to standards the GSEs would be comfortable with. A Morgan spokesman said, "We are not exiting subprime but we are being smart about it." On Thursday Saxon suspended originations of two subprime products "ScorePlus" and "ScorePlus2." It's all there on its websiteÂ… "
Thanks for that - I am getting desensitized as the dollar value downgraded now seems low - though it did strike me that the rating category that took the most hits was AAA...
If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want.
This was the whole point of Bernanke's "helicopter" speech years ago. The Fed will not repeat their mistakes of the 30's. The 70's... maybe. But not the 30's.
I actually tend to agree with you here, but I still think there are a couple of obstacles that could ground the Fed's helicopter:
1) The fact that everybody calls the Fed chairman "Helicopter Ben" indicates that there is widespread awareness and concern about his ideas for fighting deflation. If people are watching the Fed carefully and flee from the dollar en masse at the first sign they may be "printing money", the whole thing could backfire. Large scale capital flight could cause the real cost of borrowing to surge suddenly and negate the effect of the "money rain".
2) Part of the reason Japan has had problems combatting deflation is because it's actually popular with anybody who's got money -- deflation means the value of money is increasing just sitting around doing nothing. Likewise the value of high-grade bonds and loans tend to go up substantially. Politically it can be difficult to combat something that is popular with the people who have a lot of wealth. And these people might just take their wealth to another country if they don't get their way.
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
Not that I know of but from DSL and BKUNA's respective 10Qs we can get the following data (all numbers in 000's):
DSL has Residential loans of $7,104,531 that have neg am with a balance greater than the original loan amount. The amount of neg am included in these loans is $386,626 (roughly 5.4% of loans with neg am) and the weighted avg age is 27 months.
BKUNA doesn't break it out as cleanly so I don't have the avg age of their loans...
$6.3 billion representing 85% of the option ARM loans, had negative amortization of $222 million. This is roughly 3.5% of the outstanding OA balance. All of their OAs have a 115% balance cap so seems unlikely they'll hit that before the 5yr recast (compared to DSL's 5.4% current neg am and 110% cap on the vast majority of their OAs).
However, BKUNA also have an average LTV at origination of 80% compared to DSL's 74%.
I don't follow WAMU, AHM or others as closely but I can dig through their 10Qs this weekend.
ac and MadJock, you are mistaken, that the Europeans are in trouble. The Europeans are going to save the U.S. housing market; they are merely awaiting O-Joe and Sebastian's cue.
Only slightly off topic but I will not believe deflation is even possible until college tuitions decrease.
College tuition increases have largely been driven by demographics. Look at this chart.
The peak Echo Boomers are about to turn 18. Their Helicopter Parents are at their peak income and spending years aren't afraid to mortgage the roof over their head to fund their childs education.
Compare the above chart to this chart that shows college tuition from 1980-2000:
Tuition peaked in 1982 about 20 years after the peak in Boomer births.
Dropped for about 7-8 years and then peaked again as the second "peak" hit 20 years.
Dropped again until the Echo Boomers started to college. Should peak again in 2010 and then drop or stagnate for almost a decade.
"1) The fact that everybody calls the Fed chairman "Helicopter Ben" indicates that there is widespread awareness and concern about his ideas for fighting deflation. If people are watching the Fed carefully and flee from the dollar en masse at the first sign they may be "printing money", the whole thing could backfire. Large scale capital flight could cause the real cost of borrowing to surge suddenly and negate the effect of the "money rain"."
So, you do think my position on this is possible. Wasn't this my position when we had our discussion on inflation/deflation a week or so ago?
Or maybe that was with dryfly...
With Roubini joining me on the Dark Side, I'm now fairly nervous.
Can someone explain how pay option loans are securitized? It seems that it would be near impossible to predict the cashflow.Is this why so many pay option loans seem to sit on the books of the originators?
What I am trying to say is that unlike in securitizations, we don't know the vintage of loans that are sitting on balance sheets. We know how many loans BKUNA has and we know how many they originated each year, but without company-specefic refi data, we are lost...
You are not really asking for a referral of an appraiser who will provide loose or inflated values to a consumer?
To ask anywhere or anytime is unfortunate much less on a website that the media has access to and may be watching your every move, and now they have your contact info. I hope they use your contact info in anyone of the 100 articles that are being written right now - Go figure
by seethruit November 16, 2007
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alright everyone, I appreciate your concern in my posting, I have a desperate buyer that may loose it all 15 year old empire of investments. just trying to go with the highest comp, isnt that what we do? find the best for our clients. Im sure the media wont be using this posting against us all. In this market, we are all bad guys,there are very few of us that care for the client and do our very best and provide the very best service. this is simple, get pricing and stop seeing the glass half empty.
by Jbaca November 16, 2007
So, you do think my position on this is possible. Wasn't this my position when we had our discussion on inflation/deflation a week or so ago?
I wouldn't rule out any outcome. I intentionally try to argue both sides of a position in part because sometimes you just can't know the outcome ahead of time, and sometimes by looking at something from a different perspective you realize you're wrong.
I'm not married to any specific belief. I don't care whether we have inflation or deflation; I just want to know which outcome is more likely. And if I'm wrong about where things are headed, that doesn't bother me either - I just want to know that I'm wrong as soon as possible.
I'm not married to any specific belief. I don't care whether we have inflation or deflation; I just want to know which outcome is more likely. And if I'm wrong about where things are headed, that doesn't bother me either - I just want to know that I'm wrong as soon as possible.
Translation:
Screw the dollar. It's going down. J6Pack has no bargaining power for higher wages in this economy
I agree. The only inflation the Fed really cares about is wage inflation, to avoid a wage-price spiral, and that is not going to happen with global competition. The Fed can and will decrease rates to steepen the yield curve and save banks. Even slightly higher long-term yields might be welcome, even if they pressures the housing market further down - banks and wages are what the Fed is concerned about, to rescue enough of the former and keep the latter in check.
On NBC Nightly News they had a segment about how Starbucks' decline in store traffic is a harbinger of recession. Noted Penney's, Macy's & Kohl's profit warnings as well.
Well, look at it this way...a few years back it looked like we had asset inflation and price deflation on goods, with growing service inflation. What the hell does one call that? Nothing. There is no name for it that can be summed up. And now, we have asset deflation, goods prices pressured up and down at the same time, and service prices still soaring. What's that? Dunno either. Ahead, we've got more asset deflation, no reason to see service prices slow, unless of course there is a pretty serious economic downturn, and then there is the whole issue of policy response and global response to policy response and decoupling. Who the hell knows how all those play out together. But it sure looks like the risks of a deflationary environment are rising lately, even though the short term could see more credit and money supply inflated ballooning of a various commodities, etc. That doesnt last in a global slowdown most likely.
I just think the debate on deflation inflation isn't one worth having at the moment, especially when no one will even start by defining what they are describing (US, Globe, sector, etc)
Has anyone here looked into the European Housing market? From the little I know it sounds like they are set-up for a worse fall than we are.
How is that eventually going to affect the euro vs. dollar?
Despite or just because of having one currency, the house prices in Euroland behaved quite differently: In some countries like Ireland or Spain, the Euro as a stronger currency has led to historically low interest rates, leading to a housing bubble similar to the US. In Germany, the interest rates are not historically low, and the population is shrinking: house prices were stagnant. But it doesn't seem to be rates alone: In the Netherlands, house prices have boomed, too. How will it play out: Euroland is still inhomogenuous, and Germany wants higher interest rates to cool down inflation while Spain wants lower interest rates to deal with the economic slowdown. The ECB could tip in either direction but most likely will held rates steady for a while.
Thanks CR & Tanta for keeping up the outstanding work. Mothing like it anywhere for objective (and mildly bearish for obvious reasons) analysis and insight to current economic reports/news.
Please keep it up. I know you do this as a hobby, but just the same, I like to kick into the tip jar once a month, which I hope helps keep your interest level up. I would encourage the rest of you grouchy bears to consider the tip jar too.
And the bearish comments here are outstanding. Even the o-joes & banker's comments are welcome, even though they're usually absurd.
13th largest builder one step closer to the grave:
SAN FRANCISCO (MarketWatch) -- Tousa Inc. said late Friday it was informed by NYSE Regulation Inc. that its stock and debt securities will be suspended before market opening on Monday. Tousa is making arrangements for its stock and debt securities to be traded on alternate markets. The homebuilder still plans to appeal the decision by requesting a review by the NYSE Regulation but noted that it may not be successful in its efforts
I'm still looking for the real evidence of this export boom. Shouldn't at least one catagory have gone up in October?
First, as you noted, this is not export information. I think the best way to look at data like this however is year over year so any seasonality gets addressed. By that standard, every category was up. I'll go hunting for export data later and see what I can find.
BTW, Harrumphing is a real banker thing to do, just sayin.
Re the export boom saving the U.S... Doesn't it seem a bit of a stretch that the one country who's over-consumption has fueled a huge chunk of the export boom in the rest of the world, is suddenly going to join the party as an export led economy? Just who is going to be doing all this importing, the good people of Tralfamadore?
There is no mortgage loan in this country that involves changes to a borrower's loan terms because of changes in value of the collateral.
Isn't there a possibility for the borrower to stop paying PMI when his/her equity is over 20%, even if it's due to appreciation rather than paying down principal?
PS. Roubini has been smoking crack, completely over the edge this time, couple of sell-siders buckle and he urinates all over himself & declares Armegeddon. ROTFLMAO
OK, so I'll bite. There's been a lot of discussion of "liquidity traps", so I'll chime in.
The liquidity trap created by that idiot Keynes was that as business investment increases the value of aggregate investments approaches the interest rate. That means that at the margin, when Capital Investments Profits = Interest Rates, no mobre borrowing takes place. Economists should have realized this is absurd on its face, as the only reason the money was invested is that entrepeneurs believed that said investments would IMPROVE the bottom line MORE than the interest rate. Thus, more money would be available for investment (i.e. productivity increases)
In fact, there appears to be a 1 to 1 correlation that the opposite is true.
Krugman has changed the liquidity trap model (Krugman is a hard core Kyensian..'nuff said) and replaced investment by businesses' with consumption, which is the opposite of investment (except in the Keynsian world. In the Keynsian world, since investment capital is consumed making things there's no difference between consumption and investment. In the real world investment expands the quantity of goods available to the market, whilst consumption decreases the quantity of goods available to the market. Do capital assets get consumed? Yes, but the cost of such depreciation is captured in the cost of final goods sold, so that the investment, if profitable, is self renewing). Thus he argues essentially that at some point as increasing CONSUMPTION decreases the marginal utility of said consumption it approaches the interest rate. When they are equivalent, consumption dries up.
Fair enough, and I agree. However, the point is, that pushing consumption is the same thing as eating one's seed corn. And when interest rates are driven amazingly below what the savings rate dictates seed corn gets eaten (Read: Manufacturing jobs and other high order high paying jobs disappear).
The problem with the Krugman like "liquidity trap" argument then lies in the fact that K and like thinkers, still hold to Keynes' prescription, lower rates and increase gov't deficit spending. Thus eating more seed corn.
At some point the silos are empty and this medicine no longer works. This is what Keyneseans now call a liquidity trap. Rates drop, there's lots of fiat to lend, but no one is taking it.
However, it is nothing of the sort. The real problem is that the seed corn is gone, debts are piled on top of debts, (but debts have no value if there is no seed corn...i.e. over production of mal-investments) and thus there is no one who wants to borrow. Further lenders have bad debts on the books that aren't paying and become skittish to lend. So it is not a "liquidity trap" but the necessary consequence of loose lending and below market rate interest.
Here's a nice analysis of Japan if you made it this far:
Re Downey, check out the great graph at creditbubblestocks.com. It illustrates how their nonperforming assets are increasing exponentially! Whoops!
If I were an evil hedge fund manager I would read creditbubblestocks.com every day to find all the "hot" stocks that everybody is shorting because the company is facing imminent doom.
Then I'd borrow billions of dollars and slam it into these stocks on the long side (maybe with some help from my hedge fund manager buddies) and bankrupt the happless readers of creditbubblestocks.com with a short squeeze that comes out of nowhere and doubles, triples, or quintuples the stock price before they can even type the password for their E*TRADE account.
I would then sell into the ensuing short-covering panic for a handsome profit, and then short the stock myself at the peak of the buying frenzy.
Afterward I'd go to creditbubblestocks.com and post about what a great site it is.
"Just who is going to be doing all this importing, the good people of Tralfamadore??"
I said this earlier,
but the Chinese are beginning to change their ways.
CNBC had a report that discussed how the Chinese are becoming much more consumption oriented. Partially due to their newfound wealth, but also partially due to inflation eating away their dollars. SO many are starting to consume now rather than lose out later.
There is obviously not enough time for them to take up the slack... but one has to think of the emerging markets as part of the "decoupling" force...
If we drive our dollar down far enough, China will eventually either need to face severe hyperinflation or depeg. If they depeg, suddenly their people have significantly increased purchasing power... if they stay employed.
Thanks for the link to Econbrowser and a scholarly examination of the questionable methodology of current unemployment statistics due to Birth/Death model adjustments. I found it striking that a bit over a year ago, about 1/3 of the labor force growth was a result of the B/D model adjustments, while in the latest stats over 80% of the labor force growth was due to B/D adjustments.
CNBC had a report that discussed how the Chinese are becoming much more consumption oriented. Partially due to their newfound wealth, but also partially due to inflation eating away their dollars. SO many are starting to consume now rather than lose out later.
In China consumption is declining quite rapidly as a percentage of GDP.
This could be very ominous because the explosive growth in China has been primarly due to a build up of production capacity. But with the relative importance of consumption declining and production driven growth dominating the economy, that begs the question "Who's going to buy all the goods produced by this enormous capacity growth?"
From the data I've seen it looks like the capacity buildup is far exceeding increases in consumption. So far this hasn't really been a problem because the industrial goods being produced are being used to build more industry. There's demand, money changes hands, and profits are made. But what happens when these producers start trying to sell the "final goods", that's ultimately the goal of all this capacity, only to discover that (perhaps) consumption growth has in no way kept pace with production. Worse, what if China's most reliable consumers who, somewhat inconveniently live in the US, are being restrained by a recession?
Chinese industry could literally be facing a catastrophe of overcapacity, massive excesses of goods, and no one to sell them to.
This could turn into a nighmare of falling prices, falling wages, job losses, bankruptcies, and a sudden realization that much of the work and investment put in building up this great production capacity is not going to produce any returns in the forseeable future.
When the economy is going gangbusters due to industry and capital formation it's easy to forget that the purpose is ultimately to generate profits by selling "final goods" for consumption. And this justifies the tremendous costs of rapid industrialization and business development.
In the end if there's too much production and not enough consumption, there's going to be a lot of investors and businessmen with empty pockets, idle factories, and no hope of profits because the stuff they produce can't be given away.
I don't know that this is where China is headed, but some economists think it's a possibility.
Consumption and production must be balanced.
I don't need or want 12 microwave ovens in my house no matter how cheap they are.
Exactly. It's called mal-investment. Cheap money is leading to a massive expansion of capacity that is unsupported by market fundementals.
However, if the Chinese are smart they will allow the invetments to get written down to real market values, and will have a strong industrial base. They are after all, increasing productive capacity. The US is decreasing it. So a write down in China will be painfull, but will excrusiating to the US.
Chinese industry could literally be facing a catastrophe of overcapacity, massive excesses of goods, and no one to sell them to.
I agree with you on China. The key word is "could" to me, and I would put at least 50/50 odds on it (especially since China could/would downplay those risks opaquely, as opposed to the "transparency" we're recently seeing in our banking system).
I really get the feeling that they are doing everything in their power to recreate our Great Depression. Rapid exponential growth is a lot of fun until it stops though. Ask any locust in the swarm.
So a write down in China will be painfull, but will excrusiating to the US.
I would argue the reverse is true. It will be (very) painful for us but would be worse for them.
The expectations for us are rather low. The expectations for them are rather high. They have a lot further to fall.
If their economy was truly strong, they'd be offering real rates of return on bank deposits and cranking up the value of their currency. Why can't they do either of these two things?
I think it is because they are as fragile as we are and the inflation we're exporting them is causing a lot more pain than they are willing to admit.
My problem with that analysis is that whilest they are making mal-investments, they assets are productive. Further they can be used to make other things. Lathes don't care what they make. Retooling may be painful, but not excessivley.
In the US we have been losing productive capacity. When the fit hits the shan, where do we go?
I suggest we simply assume that my usage of the locust quote is worth $10 a use. Further I suggest we assume that it will get used 1000times/year.
Then I suggest we sign a contract based on that, and that you get it rated by Moody's as AAA paper. then we make a side bet where in you pay me $0.10 per usage as insurance in case I miss the 1000 uses per year. Then I will get that rated by Fitch as uber high quality and sell that to the market for a nice sum plus fees. I'll write the contract in such a way that you and Fitch earn some fees.
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
Prince Saud Al-Faisal was overheard ruling out a proposal from Iran and Venezuela to discuss pricing crude in a private meeting at the oil cartel's conference.
In an embarrassing blunder at the meeting in Riyadh, ministers' microphones were not cut off during a key closed meeting, and Prince Al-Faisal was heard saying: "My feeling is that the mere mention that the Opec countries are studying the issue of the dollar is itself going to have an impact that endangers the interests of the countries. "There will be journalists who will seize on this point and we don't want the dollar to collapse instead of doing something good for Opec."
After around 40 minutes press officials cut off the feed, which had been accidentally broadcast to the press room.
Prince Al-Faisal added: "This is not new. We have done this in the past: decide to study something without putting down on paper that we are going to study it so that we avoid any implication that will bring adverse effects on our countries' finances."
Iran and Venezuela have argued that the meeting's final communique should voice concern about the level of the dollar, which has recently fallen to new record lows against the euro. They are pushing for oil to be denominated against a basket of currencies.
The greenback also weakened slightly against the pound, although sterling's own recent weakness has pushed it down from $2.10 to $2.0457 during the week.
Nigerian finance minister Shamsuddeen Usman said that Opec could declare in the communique that: "While underlining our concern for the continued depreciation of the dollar and its adverse impact on our revenues, we instruct our finance ministers to study the issue exhaustively and advise us on ways to safeguard the purchasing power of our revenues, of our members' revenues."
I was surprised the toggles got done too. If that can happen, the straight-rate bonds have got to be doable. It is good news in the sense that it is $1 billion less of exposure than they had this morning.
"Barclays Capital has also opted not to sell its $800m slice of the loan package until next year."
So Barclays bridge is a pier until next year when they hope the pier is a bridge?"
This is a good deal when the bottom of the article states theis:
"The Alltel deal will stir the debate on Wall Street about whether the credit markets will continue to be receptive to large leveraged buy-out deals.
When a debt package for TXU, the Texas-based energy group acquired by KKR and TPG, was sold by banks close to par value last month, some private equity executives viewed it as a sign that investor demand for risky paper was not as poor as feared.
However, the size of the coupon on the Alltel deals suggests that underwriters will have to sweeten deals to attract investors.
Citigroup, which leads the two groups of underwriters behind the bond and loan deals, declined to comment on Friday."
Seems like the coupon on this thing is what drew buyers of a deal negotiated months ago. If this is a good thing then the Martoonies are interacting with the Super Colander Tin Foil Hat's electromagnetic system leading me to misinterpret as a desperation Hail Mary.
Good one. As the soft landing bears drift into the hard landing camp, engage in ad hominem attacks. That'll save the economy. No need to rebut the positions taken. Just assume that Mish and Russ are wrong and then tar Roubini with them.
I may where a Super Colander Tin Foil Hat, but I am not unintelligent. Offer an argument for your position risk capital.
Joseph Mason in a Bloomberg interview says that the effects of the subprime/CDO debacle could linger around till 2012. He says it could be CDO resets in 2009 and corporate debt resets in 2010/2011.
Buckle up , its going to be a fun ride!!!
"In May, his total monthly payment swelled from about $2,400 to $3,500. Now, with credit cards maxed out to help cover the payments, Bracone needs to find a buyer before another mortgage reset takes effect next month."
Anecdotal, but says something about where the next impact may be felt.
to each is own, if you enyoy those people, more power to you. I enjoy reading CR for one reason, the attempt to present accurate data without ever having a problem immediately correcting an error.
I find the "others" flawed, some often, and full of sensationalism.
Nothing for you to become upset over, we just differ in what we are after.
I have no doubt that This administration will support a strong dollar with all the vigor that they have displayed in supporting democracy in the middle east.
Screw the dollar. It's going down. J6Pack has no bargaining power for higher wages in this economy, so goodbye middle class. We hate the middle class anyway. Poor people don't ask too many questions because they're too busy working 14 hour days just to get enough food to hold off starvation.
Misean | 11.16.07 - 4:03 pm | #
I don't like the way this sounds. It is very true.
jo6pac
"the attempt to present accurate data without ever having a problem immediately correcting an error."
You have some evidence? No of course not. That would take time and research.
I like CR because when I have a thought about this stuff, I will go to such places as Mish and Russ, but I seldom post. There, I'm preaching to the choir.
Let's take a look at Mish and CR of late, shall we.
"Cerberus Capital Management has pulled out of its $7bn deal to buy United Rentals, making the planned private equity takeover of the worldÂ’s largest equipment lender the latest casualty of the credit squeeze. The news sent the companyÂ’s shares plunging 30 per cent to $23.76. Cerberus had agreed in July to pay $34.50 per share."
I seem to remeber that CR had a post on this as well.
Hmmm. The two greatest things about this blog is:
CR is ahead of the other two by at least a day.
There is a MUCH MUCH greater diversity of opinion here. Chatting with people who I only agree with is called group think. But to say that these other opinions are beyond the pale and Roubini coming over to the Dark Side is just silly, given the current circumstances.
So establish your position and defend it. You just retreated from the battle field.
Alt-A loans are typically considered A-minus credit loans (above subprime and below prime) and loans that have less than full documentation and include limited or no verification (low doc/no doc)
Aw man love ya for seeing that way up the chain. But now risk capital will take it out of context cuz you didn't include that it was a translation of fed speak.
Misean, to the best of my knowledge, there are no rules here requiring riskcapital, or anyone else for that matter, to defend his/her position. This is not a debate club, but a free forum where you can take it or leave it.
I respect the work of von Mises, but I certainly wouldn't accuse someone who differed with me of "leaving the battlefield" if he wouldn't argue with me. Sorry, but that's a cheap shot.
There is no mortgage loan in this country that involves changes to a borrower's loan terms because of changes in value of the collateral.
Isn't there a possibility for the borrower to stop paying PMI when his/her equity is over 20%, even if it's due to appreciation rather than paying down principal?
Peter T
Absolutely there is that possibility but it has nothing to do with the "terms" of the borrower's loan. The "terms" are spelled out clearly in the NOTE and there is no mention of mortgage insurance in a NOTE.
Generally to get PMI eliminated from a payment a borrower has to have a new appraisal done (probably not a good option right now), have paid down the principal balance to at least 80% of the original purchase price or, depending on when the loan was closed, be at 78% loan to value from the original purchase price-in which case the PMI drops off automatically. The final item may require due diligence on the part of the borrower-just sayin'
The borrower can also do a refinance to eliminate PMI but that would generally also require a new appraisal and depending on how long ago they purchased the property there may be seasoning issues.
How is that eventually going to affect the euro vs. dollar?
IMHO, the Euro can't lose against the dollar, unless Sarkozy gets his way.
The Germans have had their hyperinflation; they won't let the Euro get trashed:
“The population should be protected against inflation. This is very important. That is why the independence of the European Central Bank is the alpha and omega. And that is why Germany will not budge on this.” Angela Merkel
You're right. That this statement I found rather gratuitous:
CR-
I put Roubini in the same league now as Mish, winter, and market-ticker-
one could be deemed entertainment (similar to banker), the others are just blowhards.
risk capital
And asked for a follow up... OK.
You're probably right. But I do get feisty, and let's just say that there is another on this site who's middle name is feisty squared. Not equating myself there, just saying...
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
This is complete nonsense, as Mish has pointed out recently. Oil, like gold and all other commodities, is "priced" in all convertible currencies simultaneously. There is no USD price tag on a barrel of oil like on a copy of Playboy.
The talk from Venezuela and Iran of non-USD "pricing" of oil is just irrelevant blustering. They can and do sell their oil in whatever currency is mutually convenient to buyer and seller, just like every other product on the planet. There is nothing magical about either the USD or oil and no magic connection between them.
the last US recession- there was talk of a 'double dip'. never happened. Maybe this time around we'll get the double dip. I forget, did any other countries go into recession or double dip concurrently back then?
Oh, and with the low interest rates, the house construction industry boomed. what will get the US out of the next (current) slowdown (recession)?
I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion. This blog allows a poster to post their opinion free of reciprocity. Does this mean that those who disagree should shut up? So if I say the market is going to go up 10000 points Monday, no one should be able to question me?
I was requesting that risk capital substantiate his position. I was not requesting that he play NDT debating games with me. That would be unfair...I won the NDT in the early 90's.
What I like about this blog is that when I am not clear, off-base, and or wrong, sometimes someone will correct me. And if it is one of the respected regulars, I try to be thankful for the correction. Hard to take sometimes, but worthwhile. Of course usually I'm so obviously right there's no denying it.
"I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion. "
Agreed.
"Does this mean that those who disagree should shut up?"
Absolutely not.
"So if I say the market is going to go up 10000 points Monday, no one should be able to question me?"
Conjure Bag certainly would.
Misean, one ad hominem attack does not deserve an ad hominem counterattack. You make good comments here, so does riskcapital. Let's all try to keep it that way.
If Conjure and I wanted to slum, we'd be on the Yahoo Finance boards.
By the way, I/we enjoy reading Mish and Conjure devours everything Nouriel writes. I/we should add, however, that doesn't necessarily mean I/we agree with them on any or all occasions.
"I/we enjoy reading Mish and Conjure devours everything Nouriel writes. I/we should add, however, that doesn't necessarily mean I/we agree with them on any or all occasions."
Nor do I. But I enjoy the fact that we're on the same page.
Speaking of being full of it,...
I facetiously suggested that consumption would benefit when a foreclosure happened, since the money that would have gone to a futile cause (maintaining a declining asset) would be "freed". After thinking about it further, I can't see why it wouldn't happen. After all, the bubble markets are those whose home prices are out of whack with the rental rate, the mortgage is non recourse, the ones in trouble spend to their limits, and,... damnit, I must be missing something. Oh yeah, and I don't really care about the lender.
There is a MUCH MUCH greater diversity of opinion here.
I think it helps that many people here tend to think in terms of "calculated risks." If the odds of something happening were 0% or 100% we wouldn't need a calculator and there would be little room for friendly debate.
In contrast, I have a hard time reading Roubini's "with the recession becoming inevitable" headline. Not even a 0.0001% chance to avoid it? Really? There's not even a hope that Mr. Fusion will be invented in the morning bringing this country untold real prosperity?
That being said, I'd give a recession at a 50/50 chance within a year (which is up from the 1/3rd chance I was picturing a year ago).
"(Fortune) -- Fannie Mae sought to reassure nervous investors Friday after questions arose about a key change in the way the mortgage lender discloses its bad loans -- and whether the shift is camouflaging mounting losses.
At issue is Fannie Mae's method for calculating its credit-loss ratio -- an important indicator of its bad loan losses as a percentage of its overall loans. Investors have used the credit ratio to assess the credit quality of Fannie Mae's mortgages.
...
Fannie Mae's latest controversy dates to August, when the company estimated that its credit-loss ratio for the year would be between four and six basis points (or, in layman's terms, between 0.04 and 0.06 of a percentage point). For Fannie Mae, a ratio of four to six basis points is nothing alarming.
And last week, Fannie Mae said it had an annualized credit-loss ratio of four basis points for the first nine months of the year, well within the company forecast.
But the company used a new method of calculation to get that number. If it hadn't changed methods, Fannie Mae would have had a credit loss ratio almost twice the four basis points. Recalculated under the previous method, the credit-loss ratio comes to 7.5 basis points, high enough to start making investors nervous.
The company and some analysts insist that Fannie Mae disclosed the change properly. However, none of Fannie Mae's financials for the third quarter ended Sept. 20 showed that 7.5 basis point number. Instead, enterprising investors had to parse the new disclosures and do some extra math to calculate the 7.5 basis point figure.
When companies typically provide new ways of calculating key metrics, they disclose the metric under both the old and new methods for a period, so investors can make an easy comparison.
...
Essentially, the company was able to lower the ratio by excluding a certain type of loss known as an SOP 03-3 loss.
Here's how SOP 03-3 losses work: Fannie Mae guarantees mortgages, which have been packaged and sold to investors as bonds. If a homeowner falls significantly behind on his payments, Fannie Mae has to buy back the loan from the bondholder. If the mortgage has an outstanding amount of, say, $100,000 and unpaid interest of $5,000, Fannie Mae would have to pay $105,000 -- its full value -- to make the bondholders whole.
However, the $105,000 loan may actually be worth less on the market. It is Fannie Mae's job to estimate the market value, or fair market value, of the loan and to record that price on its books. So if the fair market value is $80,000, Fannie Mae takes a loss of $25,000 (the difference between $105,000 and $80,000). That loss is considered an SOP 03-3 loss -- so named after the applicable accou
That loss is considered an SOP 03-3 loss -- so named after the applicable accounting rule.
Until recently, Fannie Mae included SOP 03-3 losses as part of its credit-loss ratio. But here's the trick: Fannie insists that, based on past trends, it can recover a large part of that $25,000 loss by, for example, helping the borrower renew payments. So it simply decided to stop including SOP 03-3 losses in calculating its credit-loss ratio.
Investors have plenty of reasons to be spooked by that move.
The timing is suspect. Fannie Mae's decision to exclude SOP 03-3 losses coincide with their shocking rise: In the third-quarter ended Sept. 30, 2007, the company's SOP 03-3 losses came to $670 million, up from $37 million in the same period a year ago.
It's not clear why SOP 03-3 losses are skyrocketing, but it suggests that Fannie Mae is having credit problems and is having to buy a lot more bad loans back from bondholders.
Not so, counters Fannie Mae. The company argues that the increase in SOP 03-3 losses is driven chiefly by a decline in the fair value of mortgage loans in the market -- and not because the company has been forced to buy back a large amount of bad loans. However, when asked on the call, Fannie Mae executives did not provide numbers to back up that claim.
Some analysts doubt that Fannie Mae can, despite its claim, recoup most of its SOP 03-3 losses. Executives failed to provide numbers showing what proportion of those losses get recovered, but promised to disclose them in the future.
One possible reason why Fannie Mae doesn't want to provide data on recoveries is because it might be using assumptions that are too optimistic, potentially underestimating SOP 03-3 losses.
Also, why would Fannie Mae exclude SOP-3 losses at a time when balance sheet valuations are under the spotlight at some of the world's largest banks, from Merrill Lynch (Charts, Fortune 500) to Citigroup (Charts, Fortune 500) to UBS (Charts)?
Investors, regulators and auditors are pressing lenders to apply rigorous market values to assets like mortgages, even if the lenders don't like those values. Yet, Fannie is now excluding market values from its credit loss ratio.
Using fair value accounting, Fannie Mae's capital -- the company's net worth -- has declined sharply this year. According to a fair value version of its balance sheet contained in a recent filing, Fannie Mae's capital was $34 billion on Sept. 30, a 20% drop from the end of last year.
Capital is the key number to watch at Fannie Mae. The company can choose to keep those SOP 03-3 losses out of its credit loss ratio. But accounting rules prevent the company from leaving them out of capital calculations.
According to a fair value version of its balance sheet contained in a recent filing, Fannie Mae's capital was $34 billion on Sept. 30, a 20% drop from the end of last year.
Very interesting. If the capital trend continues, would yields on Fannie's bonds rise? That would decrease the spread between jumbo and conforming mortgages in a different way than most expected.
Lyndal, It sounds more like semantics when you write:
Absolutely there is that possibility (to stop paying PMI) but it has nothing to do with the "terms" of the borrower's loan.
You might call it not a "term", but borrowers can respond to market changes and reduce their monthly payment. Lenders, on the other hand, cannot respond to market changes with a "margin call" and demand a higher higher monthly payment because of the higher loan-to-value ratio. The lender, of course, are supposed to include that risk in higher interest rates from the start.
Nemo: "If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want."
This game is not in a vacuum. This is hyperinflationary. The outcome will be a flood of USD's being spun faster than we can say "velocity".
Hey, I can fly off a bridge, once. And the Fed you say can do the same thing. Nice idea; should it happen, I'm applying to borrow all the USD in the world, and buy everything I can with them yesterday... and pay for them on the last day the USD has a scintila of value.
OT. The UK residential market has not (yet) seen the falls experienced in the US market. However the UK commercial market s another story. I have been reading about the dire state of this market for a while. Is it a taste of what is coming to America?
"Commercial property braced for further falls as credit dries up"
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
Yoghurt wrote:
"This is complete nonsense, as Mish has pointed out recently. Oil, like gold and all other commodities, is "priced" in all convertible currencies simultaneously. There is no USD price tag on a barrel of oil like on a copy of Playboy."
--
Although I techincally agree in principle, I think Mish and others forget a key point. It matters because people THINK it matters.
Gold is valuable only because people think it is. Same with a Renoir. And same with Fiat Currency. One of the reasons for foreign govts to hold dollars is because they can ALWAYS buy oil with them.
now obviously a country can simply take reserves in any currency, convert them to dollars, then buy oil...
but psychologically, many important people think that dollar value is linked to pricing in oil.
That includes basically every world leader- the President of the US, several oil nation rulers like the quote above, Hugo Chavez, etc.
From some work that I have done, I tend to believe that highly volatile markets, at least in the short term, are best modeled as a minority game. Leaving the erudite b.s. behind, it means that when things are bouncing around wildly, the money is made by jumping back and forth to the side that is in the minority. A bunch of sentiment indicators are currently aligning themselves at the overly bearish end of the spectrum. In addition at the margin, mainstream economic view has turned decidedly negative. All these opinions are highly correlated with peoples own books. Not many people are rip roaring bulls or bears, when their money is in the opposite direction.
If I had to hang my hat on some other reasons the US equity market might rally over the intermediate term, I would hang it on the strong decline in the 10 year rate. Just to review some simple discounting math, one dollar of earnings discounted by 5% rate 10 years in the future is 1 / 1.05^10 or about 61 cents. Change the discount rate to 4% and the value goes to about 67 cents or about 10% higher. From an economic standpoint, the people who are going to take the biggest hits in the housing sector are the people who owned the paper. The vast majority of the subprime house owners had zero skin in the game so walking from their mortgage will have almost no influence on their income and spending patterns, which might make consumer spending much more resilient than otherwise might be expected...
David in CT has an interesting point . . . . . Patrick the Starfish on Spongebob Square Pants might call "Minority Game" a fancy-pants synonym for Contrarianism, but it's quite clear that broad brush sentiment is extremely negative, AND for Honest-to-God qualifying homeowners/consumers (you know, the ones with verifiable incomes, pretty 1040s, equity in their homes, only one mortgage to their name, etc) interest rates have come down.
In fact, the two year treasury rate is WILDLY below the FF's rate, suggesting that one of those two interest rates is very wrong (for now).
At the very least, certain overly shorted market segments are poised again for a snap-back bounce . . . . . . . . nothing wrong with buying low and selling high, no matter what you call it -- just don't forget to "sell high" I suppose.
The new news about accounting problems and Fannie Mae would suggest that the calls for Fannie to buy jumbo and/or subprime bonds will be less likely. Perhaps someone has already mentioned this. This seems just one more step in the tightening of credit, especially credit for RE construction.
In contrast, I have a hard time reading Roubini's "with the recession becoming inevitable" headline.
Recessions are always inevitable, similar to death. They are bound to happen at some point, without regard to timing. Economic cycles have not been repealed.
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
but psychologically, many important people think that dollar value is linked to pricing in oil.
Yearning to learn has it right. If more and more people think other people don't want to hold dollars, they won't want to hold dollars, and it spreads. It could turn in to a "run on the bank".
Yea the problem is that economics are not like mathematical or physical rules where 2+2 = 4 and things fall to the center of mass. Economics depends on the psychology of people and people often do stupid things.
The poor old perma bears including myself, often assume a logical rule based system where folks do reasonable things. We miss where folks do irrational things. Thus the last recession should have been deeper and the recover weaker but folks invested in RE and asset based wealth boomed, though based on emotion and not 'facts'. The upcoming recession should have happened sooner but lenders lent to anyone with a pulse and RE sellers sold likewise. Untested financial instruments were traded like gold bars. Meanwhile the Central Bank of China did things illogical under 'classical' capitalism in order to keep keep their economy booming.
So yea, the poor old perma bears were wrong, but only because their assumptions about truth did not take in to account man's irrationality.
You have done nothing but engage in ad hominem attacks (that means name calling). You have provided no argument against the positions you call "sensationalist". You simply think by disparaging them you've made some kind of point.
O-Joe also never provides any kind of substance to his rantings. I shall now pass by your comments as I do his.
Nice that you posted Sat. am. I guess you were hoping I might not peruse new posts with my morning coffee, eh?
One of the reasons for foreign govts to hold dollars is because they can ALWAYS buy oil with them.
Oh sure, but how much oil can you buy with those dollars, compared to 5 years ago?
How much oil does a Euro or CDN$ buy compared to 5 years ago?
Is it not self-evident that if there were some sort of magic connection between the USD and oil, its purchasing power for oil could not have declined against other major currencies?
Psychology is not reality. Reality, in this case the markets, always catches up to you.
What matters is not overall sentiment, but sentiment weighted by assets under management. The more wealth is under control of fewer entities, the less meaningful broad-based sentiment indicators become. And it becomes more concentrated every year (not a judgment call; just a statement of fact).
So to invest successfully based purely on contrarian psychology, you need to know not the general sentiment, but the sentiment of the large trading houses. This is extremely difficult -- I believe it is impossible -- which is another reason I never put money behind short-term calls.
"What matters is not overall sentiment, but sentiment weighted by assets under management. The more wealth is under control of fewer entities, the less meaningful broad-based sentiment indicators become. And it becomes more concentrated every year (not a judgment call; just a statement of fact)."
Um, that is brilliant.
And because we have a fiat monetary system, the more the wealth is concentrated, the more likely the bail out. So, as the concentration increases, the bets become riskier. This increases the chance that the bets get "covered" by monetary authorities. Which increases the concentration and risk of the bets.
IF Fannie Mae management had a history of pristine conservative accounting, and IF FNM had initially fully disclosed their Non-performers with and without SOP 03-3 treatment (current and prior period for comparison) and IF FNM had detailed comprehensive documentations showing that the eventual losses on SOP 03-3 recoveries was much less than the initial write-down to fair market value amount, then I might be tempted to believe them.
However, the company's accounting historically has been byzantine and misleading, management clearly tried to sneak this change past investors without directly disclosing it, the change is enormously favorable to the company at a time when markets are focused on NPA's with a near-hysterical intensity and they seem to have absolutely no available documentation showing that the actual realized losses are materially less than the initial write-down amount.
And all this at a time when you know with near-certainty that home prices are going to continue falling and that managing mortgage workouts and recoveries is much more difficult in declining markets than flat markets AND we may be facing a recession in 2008.
The nuts have taken over the asylum, truly, if they expect people to believe a single word of the presentation, including "good morning".
"My only quibble is that gold is a physical asset, fiat is illusionary."
True. But many things are a physical asset and yet nearly worthless (such as hairclippings after I shave).
Others are worth even more than their weight in gold (like a Picasso)
Gold is "true money" only because we believe it to be so.
I am not arguing the merits of gold as money... rather that gold is money because people in general BELIEVE those merits.
In the same way, fiat is money because people BELIEVE in its merits, no matter how flawed those merits may be.
Goldbugs focus on the flaws of fiat. I agree there are many. I agree that gold based currency is vastly superior.
All fiat currencies eventually go to zero. But I also find it interesting that Gold doesn't remain money forever either. (I think) thus far all gold currencies have eventually gone to fiat.
I would assume that in each case there was some social/psychological reason for that.
Oh sure, but how much oil can you buy with those dollars, compared to 5 years ago?
How much oil does a Euro or CDN$ buy compared to 5 years ago?
Yogurt:
you miss my point. As I stated, I agree wholeheartedly with the RATIONAL case as to why $US value should not fluctuate simply based on whether or not oil is priced in $US.
And if I belived that markets acted rationally, then I too would believe that the $US will not lose value if OPEC goes to a non-$US pricing scheme.
but the rational case doesn't matter. ALL of the major market participants believe that the $US value is tied to oil being priced in $US. that is what matters.
if it didn't matter, we wouldn't have news stories about OPEC maybe pricing in Euros. Hugo Chavez wouldn't make a big deal out of it. People wouldn't believe that we attacked Iraq because they started pricing in other currencies, etc...
And FWIW:
I'm only saying that the $US is the only fiat currency ASSURED of being able to buy oil, not saying that you'll get a better deal because of it. Other currencies can theoretically have problems doing so. (as example the Argentinian Peso during their currency crisis)
Gold is of course the other currency assured of buying oil.
I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion.
The liquidity trap created by that idiot Keynes...Krugman is a hard core Kyensian..'nuff said)
Misean, you should always practice what you preach. Ad hominem on Keynes is indefensible, and the Krugman cheap-shot is also imposing bias. For a debate champ, you're slipping.
"Gold is "true money" only because we believe it to be so."
Couldn't agree more. But you have to admit that if we were batering and in my left hand I had a piece of coloured paper with my face on it and in my right han I had a shiny one ounce gold coin, and I asked which would you take for what you had for sale, you'd take the right hand coin. No?
That was the basis of my quibble. However, I think you are entirely correct, just with my quibble.
If you'd like to defend them I am more than prepared to defend that position. That's my point.
I think my post after that idiot Keynes substantiated my view. You may disagree, but I staked out a position and defended it. Krugman is a Democratic party hack just like Kudlow and Ben Stein are Republican party hacks. And I think I did a good job on Kudlow on Thursday night.
If you review, you will find that I asked, repeatedly for some substance to the insult. I regularly agree, in fact I promote, that I am a tin foil hat wearer. But give me a bloody reason for the criticism.
Look, when I disagree with Banker, or ac, or dryfly, or Stag Mark, or the rest of the hoard, I EXPECT to be challenged. And if I pop off, they'll hand my head to me on a silver platter. Go back through the posts: I have regularly admitted that I was wrong, appologized, tucked my tail between my legs and gone on.
Is risk capital (Yeah the blog is Capital Risk, so he names himself that. Kinda like the oily guy at the office who always parrots the boss's line) immune to the same kid of things that you all do to O-Joe? Or Sebastian? Sorry, I'll defend my insults to Keynes.
Economics is a philosophy NOT a science. The school of that philosophy that I belong to believes Keynsianism has been a disaster to our civilization. I refuse to be quiet about it.
I facetiously suggested that consumption would benefit when a foreclosure happened, since the money that would have gone to a futile cause (maintaining a declining asset) would be "freed". After thinking about it further, I can't see why it wouldn't happen. After all, the bubble markets are those whose home prices are out of whack with the rental rate, the mortgage is non recourse, the ones in trouble spend to their limits, and,... damnit, I must be missing something. Oh yeah, and I don't really care about the lender
Most people that I know that have gotten over-extended are embarrased and never want to be in that situation again. So while some cash flow may be freed by converting from over-extended borrower to renter, I suspect that we will also see changes in consumption behavior by that group.
How many of us know anybody who has gone through a foreclosure or bankruptcy and NOT changed their behavior. Maybe my anecdotal evidence is atypical - being here in Omaha and all.
You have hit, spot on, the reason why housing prices are "sticky". People don't want to admit that they F'd up and try to "make it work". The sad thing is they can't "make it work" so they waste their resources until they fail.
That is the evil of this housing bubble. Because the Banksters know this.
I would like to note that roubini has also not been backing up his claims lately, especially his latest post. Same thing with RC. But at least RC had good predictions in the summer so I guess he deserves attention. Recently he said HY debt is the problem and it looks like this is taking place slowly, at least with CDS premiums and pier loan renegotiations... but anyway, it's true that comments not backed by proof are worth very little. I wish I knew how deep this recession will be. RC claims to know the exact depth. That's a big prediction on his part and frankly it screams of speculation. If you look at predictions some of the other have been making, including CR, we do not predict the end of the world but at least we are open-ended in our predictions
When she was with the Dalla Morning News she was a straight shooter. I was sad to see her leave. It looks like she might be drinking some kool-aid now.
Seems like the last two mitigating factors were the same thing. If banks aren't willing to lend, or consumers aren't willing to borrow, any interest rate move by the Fed is meaningless.
"This gives policymakers inflation-fighting credibility"
Whatever she's toking...
The FDIC Issues Tips on Shopping for and Negotiating a Good Mortgage in the New, Tougher Climate for Loans (better late than never FDIC!)
FDIC: Press Releases - PR-95-2007 11/16/2007
"Third, even if the tightening of mortgage credit standards undesirably slows aggregate demand, monetary policy could still, if need be, help offset the overall effect by stimulating the economy via lower interest rates. This would bolster net exports..."
"This would bolster net exports" appears to be Dallas Fed-speak for "The Euro will still be a buy at $2.50".
How many components of the "core inflation" calculation are net-imports?
GM wants to be DDM when she grows up.
FDIC's BOD meeting 11/5. Here are the docs:
FDIC: Board Meetings
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth."
That little pat on the back might be a bit premature.
Is analysis or P.R.?
Excellent job pointing out the wave of payment option arm "recasts" that will follow subprime.
Why is no one in the financial press talking about the pending disaster of payment option arm resets/recasts?
When a payment option arm recasts, the minimum payment usually increases by nearly 100%. Not even prime borrowers will be able to handle that type of payment increase (much larger than the 25% subprime increase cited by Kroszner); especially with little equity left because of negative amortization and falling home values.
One last thing to add: I don't think the graph of pending payment option arms accounts for those loans hitting their "negative amortization limit". By my calculations that will typically move the payment reset/recast up 6 -12 months on loans originated between 2004 - 2007.
Has the market already priced in the pending payment option arm disaster?
It's FED Speak spoken in Texan. Remember Alberto?
FFDIC
I guess "liquidity trap" doesn't translate into Texan...
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth. This gives policymakers inflation-fighting credibility, which enables them to coax down market interest rates should the economy need stimulus."
Teee heee..smirk...tee hee...cough...Bwahahahahahahahahaha!
Translation: Core inflation is on things that have low rate of price increases. Things needed daily, that go up a lot and negatively impact the peasants are not counted. IB's are in deep doo, so we're going to lower rates until said doo ain't so deep.
She makes some nice hypotheses there. She did forget to mention that the national debt is now at $30,000 per capita and the unfunded Prescription Drug Plan might add another $2,000 to that number. I don't know why economists never mention that.
Sure, liquidity trap translates into Texan.
My septic tank has one...
Max, do you see deflation?
I do, but I don't know why.
CR,
Stating the wave of Option ARM first resets (actually recasts) in 2010 is somewhat misleading. If other lenders are anything comparable to Downey Financial they should hit their maximum neg am balances well before then.
From Downey's 10Q:
"Assuming no prepayments as well as no changes in interest rates or borrower use of negative amortization, approximately $3.4 billion or 30% of our residential one-to-four unit loans held for investment are subject to having their payment recast to a fully amortizing payment at the fully-indexed interest rate by year-end 2008."
By my math Downey's total neg am as a percentage of loans with neg am is 5.3%. The vast majority of their option arms have a 110% balance cap so it seems highly unlikely they'll make it out to 2010.
More aggressive lenders with 115%+ balance caps may be a different story but I'm not sure how common those are.
-Kerpowski
"the effect of slower home-price gains on consumer spending is likely to be drawn out, giving monetary policy time to adjust if necessary."
Well, she's gotta says that, doesn't she? These people are her bosses.
This is the part that worries me a bit:
"the effect of slower home-price gains on consumer spending is likely to be drawn out, giving monetary policy time to adjust if necessary."
Given that the US economy badly needs a rebalancing away from PCE and towards the export sector, let's hope the Fed isn't overly eager to "adjust if necessary."
Which gets back to the credibility (or lack thereof) of all that inflation-fightin' mojo. Because the Fed's nut here isn't the domestic inflation rate, it's relative inflation rates. If the spread is too wide, real $ appreciation will offset the nominal depreciation and we'll end up back where we started, except with a bombed out consumer sector and not enough trade adjustement.
"Third, even if the tightening of mortgage credit standards undesirably slows aggregate demand, monetary policy could still, if need be, help offset the overall effect by stimulating the economy via lower interest rates. This would bolster net exports and business investment and help cushion the impact of higher risk premiums on the costs of financing for firms and households."
Translation:
Screw the dollar. It's going down. J6Pack has no bargaining power for higher wages in this economy, so goodbye middle class. We hate the middle class anyway. Poor people don't ask too many questions because they're too busy working 14 hour days just to get enough food to hold off starvation.
I guess that what I am saying is that the surgery will be successful but the patient will die.
The banks will be saved, but the consumer will be dead.
Is that correct?
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth."
It seems to me that the ability to slow core inflation by lowering interest rates is somewhat self-defeating. Several of the core inflation indicators (transportation, clothing etc.) are kept down by cheap imports. A weak dollar translates into higher import prices, which boots inflation.
Wow. If this isn't evidence of muzzling (or JJ Guyana pt 2) I dont know what is. This barely sounds like the same person who used to write for the DMN. How sad. Guess that is the price she decided to pay.
Max, do you see deflation? I do, but I don't know why.
What I see is people having less money. Inflation is meaningless if people won't buy at any price.
"How many components of the "core inflation" calculation are net-imports"
Excellent...gotta go clean the spit off the 'puter scree
arbogast,
Sounds about right to me.
Cheers,
Kerpowski-
Good insight. My thoughts exactly. What I can't figure out is why the financial press hasn't picked up on the pending payment option arm crisis. (Maybe the market has priced it in? or maybe it's misclassification of payment options arms as subprime?)
When the minimum payment on a payment option arm resets/recasts, it increases by as much as 100%. Much more than typical subprime resets.
Payment option arm borrowers' equity is currently being wiped out by neg am and falling home prices. It will be a disaster bigger than subprime.
Has anyone here looked into the European Housing market? From the little I know it sounds like they are set-up for a worse fall than we are.
How is that eventually going to affect the euro vs. dollar?
The Option ARMs resets will be a moot point because anyone that is negatively amortizing their loan currently will have hit their neg-am cap (typically 115% of original loan amount) at which point the loan automatically resets. This was a very popular product in California which is now falling off a cliff.
stealthwii:
I have done a lot of work on the Euro housing market and while they are certainly cooling off, I don't think you'll see anything like what we've seen in the US. The market most likely at risk of a US-style correction is the UK given how poor affordability is in the UK right now. Other markets to watch out for are Ireland and Spain, which are slowing down meaningfully, but these markets have been supported by real fundamentals over the last decade of lower interest rates and strong immigration (GOP: Please note positive effect on housing from immigration).
The rest of Europe looks fine. France, Italy, and Germany never saw their residential real estate markets heat up so no problems there.
Rob - I beg to differ. UK is screwed, Ireland's pretty much the same. I have plenty of friends who are in the process of doing the US Fall of 2005 sell-off. They are basically two years behind us and in largely the same boat. Massive overbuilding, huge speculation. While I will grant you that there was a demographic push in Spain noticeably absent in other markets, they also have overbuilt to the extreme, and the speculative purchasers from around the globe could touch off a major reversal. Their economy has been completely juiced on residential investment and debt accumulation. (Sound familiar?) As for France and Italy, theyve also enjoyed a very nice run-up, but are also at risk, albeit not nearly to the extent of UK and Ireland or Spain. Germany, that's a whole different story - they were largely left behind. But lumping Germany with France and Italy makes me think you aren't paying attention.
It's clear that the effect of MEW is overstated. A larger part of the consumer spending is by renters. Therefore as more homeowners are dispossessed, they will be able to increase spending using the Rental Equity they have been forced to realize. All the money that would have gone into home ownership is quickly freed, so that they'll be able to support the economy. We need to accelerate foreclosures.
Reset charts on a Friday after 4pm ?
come on CR give the people what they want.
down-grades!
down-grades!
down-grades!
down-grades!
down-grades!
down-grades!
down-grades!
down-grades!
...
Only slightly off topic but I will not believe deflation is even possible until college tuitions decrease.
As to resets on ARMs; does anyone have a feel for the time delay twixt the actual reset and the reporting of 60-90/lates/NODs/NOTS?
Rob-
That's the point exactly. Unscheduled recasts because of neg am will happen before 2010.
When they happen, the payment increases by close to 100%. No borrower can swallow that financially. It will be a disaster. (Especially for California!)
"Second, the Federal Reserve has been successful in slowing core inflation while maintaining economic growth."
That little pat on the back might be a bit premature.
Speaking of growth, here's a recap of this morning's economic data:
Industrial production in October came much weaker than expected, posting a sharp decline. Overall industrial production fell 0.5 percent in October, following a 0.2 percent up tick the month before. Overall industrial production was sharply below the consensus forecast for a 0.1 percent rise in October. The manufacturing component dropped 0.4 percent in October, following a 0.2 percent gain the prior month. For October, utilities output fell 1.6 percent while mining output declined 0.6 percent.
Overall capacity utilization fell in line with the output drop, declining to 81.7 percent in October from 82.2 percent the month before. The latest came in below the consensus forecast for an 82.0 percent capacity utilization rate and compares to September's initial estimate of 82.1 percent. The capacity utilization rate for manufacturing stood at 80.1 percent in October, down from 80.5 percent in September.
By market groups, weakness was primarily in consumer goods, construction supplies, and business supplies. Consumer goods were down 0.7 percent; construction supplies, down 0.4 percent; and business supplies, down 0.8 percent. Business equipment edged down 0.1 percent.
for a while there i thought it was thursday, but then i saw this:
http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/2,1,1,3,1148449321673.html
Not all option arms go up significantly. I have a 5 yr/fixed ARM @ 4.25. When it resets, it can only go up 2 points for the first year to 6.25. (after that I'm not sure) which untill recently was lower than the 15y fixed. I have been paying extra and when the time comes to reset, my principle will be so low (under 60k) that the 15 yr fixed should be lower than what I am currently paying when I refi. I realize not everyone has this scenerio but thought I would share mine for what it's worth : )
Yay!
Bacon has delivered the bacon!
My bacondreamz are being fulfilled
The key point I got from this is what I've heard from the Fed on many other occasions: that they think they can talk inflation down without taking any other real, substantial action. The approach has been to use actions (rate cuts) to address the market crisis, and use words to address the falling dollar and inflation.
The bad news is that the Fed's words just don't count for anything any more. At some point, words have to be backed by action, and it's clear that the Fed is not going to take action on inflation, so all of the Fed-speak in the world isn't going to take inflation down by even a single basis point.
"the effect of slower home-price gains on consumer spending is likely to be drawn out, giving monetary policy time to adjust if necessary."
I wish I knew what that means -sic
Roubini is turning even more bearish!
RGE - With the Recession Becoming Inevitable the Consensus Shifts Towards the Hard Landing View. And the Rising Risk of a Systemic Financial Meltdown
52% of AAA closed-end seconds?
It's Friday, alright.
girlbear: "When it resets, it can only go up 2 points for the first year to 6.25. (after that I'm not sure)"
Not to be critical, but I would re-read what you just put in the parentheses there. Don't feel bad, you're certainly not the only one. It sounds like you're planning on refinancing; and with 60k in remaining balance, you probably have significant equity, so I don't think you're facing a potential problem.
But even so, I would strongly recommend sitting down with all the documents and figuring out exactly what happens if, worst case scenario, you can't refinance.
Kerpowski, Rob, good points and I agree on these OA recasts. I just wanted everyone to know the problem doesn't end with the resets on the Dallas Fed chart.
Best to all.
kerpowski,
the challenge is for us to know the age of these OA's. I think intuition says BKUNA OA's are younger and FED + DSL are a bit older. Then we also need to know whether the caps are 110, 115 or more. And then we have AHM, WAMU and more.
CR, Tanta,
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
How often is equity re-evaluated by the lender? If the limit is 115% for neg-am loans, but the market value of the house is decreasing, that 115% would be hit very quickly if the amount was re-evaluated say every year. If this was true then I would think resets would happen very soon. (2008-2009)
Or is the 115% based on the loan amount?
I didn't realize how much truth telling I got from my Dallas Morning Snooze until DiMartino wrote this Fed fluff financial fortune telling piece. But, then I worked at FDIC for two decades having reports revised by 3-5 levels of mgt. For another laugh read the below Citi job description (from the WSJ)to replace Prince. Are You Right for Citi Job? CR and Tanta should apply.
Are You Right for Citi Job? - WSJ.com
stealthwii,
click on top of CR for Tanta's ubernerd collection and read the article called "negative amortization for ubernerds"
ABX AAA 06-1
AAA, come on down!! It's your turn to play "Price it right!"
Anyone notice in the midst of all that green the new highs and new lows on the NYSE? 38 new highs to 376 new lows. But that's a sign of a healthy market, right?
girlbear, you don't have an OPTION ARM. You have a 5/1 ARM. Different animal; barely the same species.
Geoff -
I agree there is risk in the UK, Ireland, and Spain. However, in terms of the industry pushing exotic mortgages like we saw here in the US, there has not been such a phenomenon in those Euro markets. As for France, Italy, and Germany - I was saying that those markets do not have the same risk as the others. Home prices certainly went up in France and Italy but if you peel back the onion and look at consumer debt service and affordability you'll find that those increases are supported by fundamentals.
Let's not forget that rising home prices does not always mean they need to crash.
Stealthwii-
Negative amortization limits are based on the original loan balance, not equity - which just delays the pain as home prices fall.
Thank you for the info - I'll shut up and listen for a little while now.
stealthwii -
Lenders don't make home price adjustments when looking at the neg-am cap. It's strictly a function of whether or not the current loan balance is 115% or higher than when the loan was first taken out.
Now obviously, we can all see the problem that is starting to hit. You have neg-am'ed your loan to 115% of its original balance and now find that your house is worth 20% less. That's why the keys are getting thrown back to lenders en masse. That's also why I am 100% convinced that Countrywide Financial will go bust very soon.
Girlbear / Shnaps-
Girlbear does have a "hybrid" option arm. Option arms are available with initial fixed interest rates periods of 5 years. For example, Wachovia's Pick-a-payment mortgage.
However, Girlbear, just because the interest rate is only set to increase 2% when the loan recasts/resets, that doesn't mean the minimum payment is limited to that increase. The minimum payment will increase by a substantially higher percentage.
Your initial minimum payment was not based on the 4.25% fixed period rate. It was based on a starter rate -usually 1 to 3 percent.
See, these payment option arms are trouble. Very few people understand them. It will be a disaster!
I was going to make a wise-crack about Danielle and Kool-Ade, but a lot of you have beaten me to it.
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
O-Joe
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
Well, for "issuer" sure. That is, for securitized OAs.
But DSL and FED and all these other folks are portfolio lenders. So their OAs don't count in any report you see of securitized volume.
How often is equity re-evaluated by the lender?
NEVER.
The balance cap is precisely a balance cap: it means that the loan amount can never be higher than some percent (110%, 115%, whatever it is) of the original loan amount.
It has NADA to do with the property value. There is no mortgage loan in this country that involves changes to a borrower's loan terms because of changes in value of the collateral. We just do not do that. Residential mortgage loans are not margin loans. They cannot be "called" literally or via changes in the rate or payment terms because the collateral value changes. This is an incredibly important principle of residential mortgage lending.
All lenders have to live with changes in value of property. Good, bad, or ugly. That is why setting LTV maximums and getting good appraisals up front is so terribly important: because you can't do anything about it after the fact. You can't add borrower-paid MI if you didn't require it up front. You can't force anyone to prepay the balance. You can't up the interest rate because the loan is now upside down. (It isn't even legal on a mortgage to up the rate when the loan is in default. They can do that on credit cards but they cannot do that on mortgages.)
So bear that in mind: some of these people will hit a balance cap, but they started with an LTV of 70%. So, say their loan amount when they cap out is $77,000. It was $70,000 when the loan was originated, and the property value was $100,000 when the loan was originated. Let's say the value of the property drops by 20% to $80,000. The borrower's LTV is now 96%. Sucks, but you can see that this borrower requires both maximum neg am and a big value drop to go underwater.
Barry - a POA fixed for 5 years at 4.25%?
whatever you got, take another puff and then pass that over to...
O-Joe....snap out of it already. In case you havent noticed, Q4 hasnt been reported, and as things continue to deteriorate, the chance of negative growth in that quarter rises. Since an officially defined recession is two consecutive quarters of negative growth, we could still already be in recession. As you are probably not aware, these things tend to be back dated.
Dallas area unemployment continues to fall - 3.8% in Oct per TX Workforce Comm.
http://www.bizjournals.com/dallas/stories/2007/11/12/daily44.html?f=et59&ana=e_du
Houston area unemployment fell to 3.8% in Oct
Houston area unemployment continues to fall - Dallas Business Journal:
Central Texas reports job growth in Oct.
Central Texas reports job growth in Oct. - Houston Business Journal:
I have said before that "you can't have a recession with unemployment at 4.7%". And in general, I do not side with those who blame their faulty predictions on "the government's lying statistics".
However, the always level-headed Econbrowser has a piece today that gives me pause:
http://www.econbrowser.com/archives/2007/11/trusting_the_bi.html
Maybe the recessionistas are right.
The Intrade prediction market still puts the odds of an '08 recession at just under 50%.
Roubini is turning even more bearish!
Now forcasting that the odds of a recession are up to 175%.
Anyone want to explain if there's anything nefarious about these preferred stock offerings? I don't know anything, but it seems like insiders' attempts to funnel money away from shareholders before the whole thing comes ccrashing down.
Fannie Mae Prices $500 Million of Preferred Stock
Friday November 16, 4:40 pm ET
WASHINGTON, Nov. 16 /PRNewswire-FirstCall/ -- Fannie Mae (NYSE: FNM - News), today priced $500 million, or 20 million shares with a stated value of $25 per share, non-cumulative, perpetual, fixed-rate preferred stock (CUSIP 313586760) at a dividend rate of 7.625 percent per annum, designated as Series R. Fannie Mae will have the option to redeem all or part of the Series R preferred stock, on or after November 21, 2012.
ADVERTISEMENT
click here
Lehman Brothers, Inc. and Morgan Stanley are the lead underwriters of this issue. The co-managers for this deal are: Bear, Stearns & Co. Inc., FTN Financial Capital Markets, LLC, Morgan Keegan, RBC Dain Rauscher, Sandler O'Neill & Partners, L.P., and Vining-Sparks IBG, L.P.
Application will be made to list the shares on the New York Stock Exchange under the symbol "FNMprR." The shares are expected to be issued on November 21, 2007.
Hawk Girl --
There is nothing unusual about preferred stock. It's just a way for the company to raise capital at a time when perhaps the common stock is not so popular...
Dear CR
Just wonderingÂ…I vaguely recall you having some circular flow chart-type diagramsÂ…Where they on similar subject matter as the ones used in this report? Or something else entirely? Tried to hunt them up on your blogÂ…but your site is getting too damn big.
Just kinda curiousÂ…
Best regards,
Maybe those diagrams were about MEW...?
I agree there is risk in the UK, Ireland, and Spain. However, in terms of the industry pushing exotic mortgages like we saw here in the US, there has not been such a phenomenon in those Euro markets...
I was really surprised to learn that British and Australian consumers have even higher debt-to-income ratios than US consumers.
They've had the same steep rise in consumer debt (again relative to income) over the past decade that we've seen in the US (actually moreso according to the data I've seen).
To me that suggest their economic growth over the past several has also been fueled by people spending more than they make.
These situations typically end badly.
The evidence just doesn't support that this is a "US only" problem.
In some aspects it may actually be worse in other countries (e.g. UK and many other European countries have seen much more house price appreciation than the US).
Hawk Girl,
One way to look at Preferred Stock (mostly preferred for dividends) is as a bond where the issuer can postpone interest payments if necessary.
It also make some financial ratios look a better, but I don't think that's the motivation there.
Shnaps-
4.25% does seem a little low, but there are payment option arms with 5 year fixed interest rate periods. Google "secure payment option arm".
All the other mechanics (and risks) are the same as monthly adjusting POA's -the minimum payment will increase substantially at the end of year 5 (or before if the neg am limit is reached).
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
O-Joe
No way. This is like hunting for Big Foot. It never stops being fun, even if you never find anything.
girlbear here;
Thanks for the corrections, I have learned so much from this site. Yes, I have a 5/1 ARM and I plan to refi when due (8/08). I will shop it but having checked with my lender (BofA) they say with my credit score (801) and principle amt (60k)and equite ($500k but dropping!I'm in CA) I won't have a problem getting into a 15y fixed at a good rate (although BofA never has the best).
Thanks for the help!
Dear CR
I found 'em...they were your infamous Virtuous and Vicious Cycle...
Virtuous Cycle about to Become Vicious?
Hey by the way I didn't deserve a hat tip...(blushing) but cool anyway!
Regards,
It is always sad to see someone succomb to a substance abuse problem, especially coolaid.
"As you are probably not aware, these things tend to be back dated."
Was there ever a recession that was revealed OTHER than by looking back?
OA recasts are the coup de grace for the California housing market and economy. Those borrowers may not be underwater at recast, as Tanta says, but they will default in droves. So the question for CA is, what happens when all those recasts go to Exit Plan A. What's Exit Plan A for an OA borrower? SELL!
The logical minimum sale price for an OA default is the LTV. They will quickly take prices to that level. The thing is, they have a "put" at their LTV, which is commonly known as "jingle mail". When they exercise that put, we'll see yet more pressure on house prices.
Never before has a region (CA) had such prevalence of Neg-am lending. The effects will blow regression correlations out the boardroom windows of Magic, PMI, Ambac, and other ultimate put-writers.
So, if we don't have a recession by July 2008, will the discussion be over then or are we then finding the ultimative real-real-real "straw that breaks the camel's back"?
O-Joe
Optimistic Joe | 11.16.07 - 4:51 pm | #
If there is no recession then AND our average debt/income ratio is trending down then I would rethink my position.
Otherwise we are just still piling straw on the poor ol' camel.
This blog is a lot of fun, yes?
Plus, fear has made me learn a lot of finance and econ real fast! I feel like I have gone up to the cockpit to ask the pilot about his training only to get the response: "I saw a plane landing in a cartoon once."
OT: Somebody at Financial Times is a little unclear on how bonds work. In fact it looks like it took the effort of two people to botch this one up:
US inflation reaches 14-month high
By Eoin Callan and Krishna Guha in Washington
Published: November 15 2007 15:55 | Last updated: November 15 2007 15:55
Bond yields tumbled as US annual inflation reached a 14-month high and signs of trouble in the economy mounted.
The cost of living increased 3.5 per cent compared to a year ago after consumer prices rose another 0.3 per cent last month, driven by higher fuel costs, according to official figures.
The big jump in prices underlines the Federal ReserveÂ’s concern that inflation could pick up pace and make it more risky to continue cutting interest rates to keep the threat of a recession at bay.
US stocks fell and the yield on benchmark 10-year US Treasury bonds dropped 2 basis points to 4.23 per cent as investors priced in less likelihood of rate cuts despite fresh signs of a weakening job market...
FT.com / US & Canada - US inflation reaches 14-month high
Quoting Roubini, "Thus, the repeated statements by Fed officials that they may be done with cutting the Fed Funds rate are both hollow and utterly disingenuous. The Fed Funds rate will be down to 4% by January and below 3% by the end of 2008."
This is essentially what I said in another thread. There are those on this board who believe Fed officials (Kroszner specifically) when they talk about their concern with inflation. Recall the teeter-totter analogy with the risks balanced, etc. The Fed does not and can not view the risks as balanced. If there is risk to the financial system, they will ease.
True there is a liquidity trap risk and yes, there is an inflation risk, but they only have one tool at their disposal, and BB will use it if he has to.
Nice catch, ac. What the heck is FT talking about??
("Bigfoot" comment was hilarious, btw)
If the Fed adopts the more expansionary monetary policy, but nobody (banks or otherside) is lending to anyone, will the policy be still expansionary?
"I guess "liquidity trap" doesn't translate into Texan..."
Right on!
I don't know how people expect that the Fed's policy work magic independently of frozen credit market and struggling banks.
I heard that Texans have 27 words for making fun of women on death row. Is that true?
Mitch, you beat me to it!
Gab, I'm not disputing that BB will continue to lower, but if the result is a liquidity trap, then his only tool has wilted.
mitch --
If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want.
This was the whole point of Bernanke's "helicopter" speech years ago. The Fed will not repeat their mistakes of the 30's. The 70's... maybe. But not the 30's.
A few points:
1) The people in charge can make up whatever number they want to. The last GPD results with the hilarious 0.8% inflation deflator prove that. Why do they have to even admit to a recession? Just juggle the inflation numbers to only measure housing and plasma TV prices and - poof! - we have deflation, then add that number to the increased sales by gas stations and food vendors (which are measuring skyrocketing inflation), and we have endlessly high GDP growth? A bit extreme, yes, but not entirely out of the question.
2) We don't need 2 adjacent quarters of negative growth for life to suck. Maybe we'll have lots of quarters around 0% growth that oscillate up and down. Maybe we'll have excellent growth, but only for the upper 1% of the population - you can't afford food, but yacht sales are up, so don't worry!
The point is this: people are buried under staggering debt loads, jobs are being lost all over the place (and I don't count a McJob as a manufacturing job, nor do I consider a person losing a good job and having to work 2 McJobs as an improvement in employment numbers), people are losing their homes (which they couldn't afford anyway), inflation is running rampant in the things we need, and there are a host of other problems.
Facing that mountain of worries, it seems limiting to focus merely upon GDP numbers and if they are negative twice in a row: one easily manipulated number does not measure the health of an economy, an economy that is rolling over and dying, despite the claims of a few perma-bulls.
Rob
I can tall you without a shadow of a doubt the UK is in real trouble with housing prices, and so is Spain. Ireland is in trouble too. France etc not so much as they didn't sell in the same way, and much of the sales were to British etc. Brits are the Californians of Europe - selling overpriced properties at home and driving the price in remoter locations way up and beyond the ability of the locals to pay.
When I bought in the UK in 1995 I struggled to get them to give me a mortgage at 3x my income. I regularly see offers at 6x from major, reputable, lenders. That's a recipe for disaster. I also hear that 'lie-to-buy' is almost as common in the UK as here in CA.
Young people have been buying by a) pooling their money and several buying the place, b) taking loans that are crushing them, and c) paying the deposit by getting their parents to MEW it.
It's not 'subprime' in the UK, it's just general lack of affordability. Couple that with the massive 'buy-to-let' purchases that have resulted in ghost towns of entirely empty apartment buildings and it's a recipe for oversupply and poor demand.
So while the US experience won't repeat in the UK, it will rhyme.
Nemo,
I second your comment: "However, the always level-headed Econbrowser has a piece today that gives me pause".
Go check it out if you haven't already. The last chart is revealing.
With a significant liquidity contraction in progress I don't think deflation is out of the question. Holding out for the FED to save the day by lowering interest rates to zero may provide some sort of slow down effect which is probably better then a straight drop into a big depression. For that I would be thankful.
"One mortgage executive close to Morgan Stanley's Saxon Mortgage group said the Wall Street firm is talking to Fannie Mae and Freddie Mac about selling loans to the two GSEs. The loans, in theory, would be "subprime" in nature but would be underwritten to standards the GSEs would be comfortable with. A Morgan spokesman said, "We are not exiting subprime but we are being smart about it." On Thursday Saxon suspended originations of two subprime products "ScorePlus" and "ScorePlus2." It's all there on its websiteÂ… "
http://data.nationalmortgagenews.com/columns/hearing/
bacon brings home the...well you get the idea!
Thanks for that - I am getting desensitized as the dollar value downgraded now seems low - though it did strike me that the rating category that took the most hits was AAA...
mitch --
If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want.
This was the whole point of Bernanke's "helicopter" speech years ago. The Fed will not repeat their mistakes of the 30's. The 70's... maybe. But not the 30's.
I actually tend to agree with you here, but I still think there are a couple of obstacles that could ground the Fed's helicopter:
1) The fact that everybody calls the Fed chairman "Helicopter Ben" indicates that there is widespread awareness and concern about his ideas for fighting deflation. If people are watching the Fed carefully and flee from the dollar en masse at the first sign they may be "printing money", the whole thing could backfire. Large scale capital flight could cause the real cost of borrowing to surge suddenly and negate the effect of the "money rain".
2) Part of the reason Japan has had problems combatting deflation is because it's actually popular with anybody who's got money -- deflation means the value of money is increasing just sitting around doing nothing. Likewise the value of high-grade bonds and loans tend to go up substantially. Politically it can be difficult to combat something that is popular with the people who have a lot of wealth. And these people might just take their wealth to another country if they don't get their way.
dotc,
There was a similar new highs/new lows for the monster rally on Tuesday!
probert,
I seem to forget, is there a really good breakdown somewhere of OA originations by issuer and by year?
Not that I know of but from DSL and BKUNA's respective 10Qs we can get the following data (all numbers in 000's):
DSL has Residential loans of $7,104,531 that have neg am with a balance greater than the original loan amount. The amount of neg am included in these loans is $386,626 (roughly 5.4% of loans with neg am) and the weighted avg age is 27 months.
BKUNA doesn't break it out as cleanly so I don't have the avg age of their loans...
$6.3 billion representing 85% of the option ARM loans, had negative amortization of $222 million. This is roughly 3.5% of the outstanding OA balance. All of their OAs have a 115% balance cap so seems unlikely they'll hit that before the 5yr recast (compared to DSL's 5.4% current neg am and 110% cap on the vast majority of their OAs).
However, BKUNA also have an average LTV at origination of 80% compared to DSL's 74%.
I don't follow WAMU, AHM or others as closely but I can dig through their 10Qs this weekend.
-Kerpowski
ac and MadJock, you are mistaken, that the Europeans are in trouble. The Europeans are going to save the U.S. housing market; they are merely awaiting O-Joe and Sebastian's cue.
OAs should be OBs as in option to buy.
OK, I hereby declare that we WILL have a recession thru 2013.
Anyone care to counter this?
Happy bear weekend!
O-Joe
Only slightly off topic but I will not believe deflation is even possible until college tuitions decrease.
College tuition increases have largely been driven by demographics. Look at this chart.
The peak Echo Boomers are about to turn 18. Their Helicopter Parents are at their peak income and spending years aren't afraid to mortgage the roof over their head to fund their childs education.
Compare the above chart to this chart that shows college tuition from 1980-2000:
Tuition peaked in 1982 about 20 years after the peak in Boomer births.
Dropped for about 7-8 years and then peaked again as the second "peak" hit 20 years.
Dropped again until the Echo Boomers started to college. Should peak again in 2010 and then drop or stagnate for almost a decade.
ac,
"1) The fact that everybody calls the Fed chairman "Helicopter Ben" indicates that there is widespread awareness and concern about his ideas for fighting deflation. If people are watching the Fed carefully and flee from the dollar en masse at the first sign they may be "printing money", the whole thing could backfire. Large scale capital flight could cause the real cost of borrowing to surge suddenly and negate the effect of the "money rain"."
So, you do think my position on this is possible. Wasn't this my position when we had our discussion on inflation/deflation a week or so ago?
Or maybe that was with dryfly...
With Roubini joining me on the Dark Side, I'm now fairly nervous.
Thank jrfsm (?) for the Roubini bomb.
Cheers,
Can someone explain how pay option loans are securitized? It seems that it would be near impossible to predict the cashflow.Is this why so many pay option loans seem to sit on the books of the originators?
kerpowski,
What I am trying to say is that unlike in securitizations, we don't know the vintage of loans that are sitting on balance sheets. We know how many loans BKUNA has and we know how many they originated each year, but without company-specefic refi data, we are lost...
Apropos of nothing, but thought this thread on BO was kind of funny. Wonder how we could get it into the media?
Mortgage Grapevine: Non Conservative appraiser needed for refinance in Oregon
Non Conservative appraiser needed for refinance in Oregon
I need to do an appraisal on a property in Oregon please send me your contact infomation so that I can order comps and appraisal. thanks everyone
jessebacarealestate@yahoo.com
by Jbaca November 16, 2007
...
This is a joke ... right?
You are not really asking for a referral of an appraiser who will provide loose or inflated values to a consumer?
To ask anywhere or anytime is unfortunate much less on a website that the media has access to and may be watching your every move, and now they have your contact info. I hope they use your contact info in anyone of the 100 articles that are being written right now - Go figure
by seethruit November 16, 2007
...
alright everyone, I appreciate your concern in my posting, I have a desperate buyer that may loose it all 15 year old empire of investments. just trying to go with the highest comp, isnt that what we do? find the best for our clients. Im sure the media wont be using this posting against us all. In this market, we are all bad guys,there are very few of us that care for the client and do our very best and provide the very best service. this is simple, get pricing and stop seeing the glass half empty.
by Jbaca November 16, 2007
kerpowski,
actually, we do have company-specific data on how many $loans were repaid, but not the origination dates of those loans.
Ken,
Bwahahahahaha...cough.
From dictionary.com:
Tip-o-the-iceberg: eAppraiseIT.
Cheers,
OT: Industrial Production
I'm still looking for the real evidence of this export boom. Shouldn't at least one catagory have gone up in October?
Hrrumpff!!
OT : another one bites the dust :
The page cannot be found
Long long long long long way to go in Florida on this front.
I feel like I have gone up to the cockpit to ask the pilot about his training only to get the response: "I saw a plane landing in a cartoon once."
Remember, some say that every crisis is unique.
The Flight of the Phoenix (IMDb)
So, you do think my position on this is possible. Wasn't this my position when we had our discussion on inflation/deflation a week or so ago?
I wouldn't rule out any outcome. I intentionally try to argue both sides of a position in part because sometimes you just can't know the outcome ahead of time, and sometimes by looking at something from a different perspective you realize you're wrong.
I'm not married to any specific belief. I don't care whether we have inflation or deflation; I just want to know which outcome is more likely. And if I'm wrong about where things are headed, that doesn't bother me either - I just want to know that I'm wrong as soon as possible.
I'm not married to any specific belief. I don't care whether we have inflation or deflation; I just want to know which outcome is more likely. And if I'm wrong about where things are headed, that doesn't bother me either - I just want to know that I'm wrong as soon as possible.
Amen.
I agree. The only inflation the Fed really cares about is wage inflation, to avoid a wage-price spiral, and that is not going to happen with global competition. The Fed can and will decrease rates to steepen the yield curve and save banks. Even slightly higher long-term yields might be welcome, even if they pressures the housing market further down - banks and wages are what the Fed is concerned about, to rescue enough of the former and keep the latter in check.
On NBC Nightly News they had a segment about how Starbucks' decline in store traffic is a harbinger of recession. Noted Penney's, Macy's & Kohl's profit warnings as well.
Well, look at it this way...a few years back it looked like we had asset inflation and price deflation on goods, with growing service inflation. What the hell does one call that? Nothing. There is no name for it that can be summed up. And now, we have asset deflation, goods prices pressured up and down at the same time, and service prices still soaring. What's that? Dunno either. Ahead, we've got more asset deflation, no reason to see service prices slow, unless of course there is a pretty serious economic downturn, and then there is the whole issue of policy response and global response to policy response and decoupling. Who the hell knows how all those play out together. But it sure looks like the risks of a deflationary environment are rising lately, even though the short term could see more credit and money supply inflated ballooning of a various commodities, etc. That doesnt last in a global slowdown most likely.
I just think the debate on deflation inflation isn't one worth having at the moment, especially when no one will even start by defining what they are describing (US, Globe, sector, etc)
Despite or just because of having one currency, the house prices in Euroland behaved quite differently: In some countries like Ireland or Spain, the Euro as a stronger currency has led to historically low interest rates, leading to a housing bubble similar to the US. In Germany, the interest rates are not historically low, and the population is shrinking: house prices were stagnant. But it doesn't seem to be rates alone: In the Netherlands, house prices have boomed, too. How will it play out: Euroland is still inhomogenuous, and Germany wants higher interest rates to cool down inflation while Spain wants lower interest rates to deal with the economic slowdown. The ECB could tip in either direction but most likely will held rates steady for a while.
Thanks CR & Tanta for keeping up the outstanding work. Mothing like it anywhere for objective (and mildly bearish for obvious reasons) analysis and insight to current economic reports/news.
Please keep it up. I know you do this as a hobby, but just the same, I like to kick into the tip jar once a month, which I hope helps keep your interest level up. I would encourage the rest of you grouchy bears to consider the tip jar too.
And the bearish comments here are outstanding. Even the o-joes & banker's comments are welcome, even though they're usually absurd.
13th largest builder one step closer to the grave:
SAN FRANCISCO (MarketWatch) -- Tousa Inc. said late Friday it was informed by NYSE Regulation Inc. that its stock and debt securities will be suspended before market opening on Monday. Tousa is making arrangements for its stock and debt securities to be traded on alternate markets. The homebuilder still plans to appeal the decision by requesting a review by the NYSE Regulation but noted that it may not be successful in its efforts
NYSE to suspend trading in Tousa securities Monday - MarketWatch
dotcommunist,
I'm still looking for the real evidence of this export boom. Shouldn't at least one catagory have gone up in October?
First, as you noted, this is not export information. I think the best way to look at data like this however is year over year so any seasonality gets addressed. By that standard, every category was up. I'll go hunting for export data later and see what I can find.
BTW, Harrumphing is a real banker thing to do, just sayin.
Re Downey, check out the great graph at creditbubblestocks.com. It illustrates how their nonperforming assets are increasing exponentially! Whoops!
Nice DSL NPA chart! A new meaning to going vertical.
Re the export boom saving the U.S... Doesn't it seem a bit of a stretch that the one country who's over-consumption has fueled a huge chunk of the export boom in the rest of the world, is suddenly going to join the party as an export led economy? Just who is going to be doing all this importing, the good people of Tralfamadore?
Tanta, You wrote:
Isn't there a possibility for the borrower to stop paying PMI when his/her equity is over 20%, even if it's due to appreciation rather than paying down principal?
16 ticks and we have a 3 handle on the 10 year-
any doubting Thomas's still out there??
PS. Roubini has been smoking crack, completely over the edge this time, couple of sell-siders buckle and he urinates all over himself & declares Armegeddon. ROTFLMAO
OK, so I'll bite. There's been a lot of discussion of "liquidity traps", so I'll chime in.
The liquidity trap created by that idiot Keynes was that as business investment increases the value of aggregate investments approaches the interest rate. That means that at the margin, when Capital Investments Profits = Interest Rates, no mobre borrowing takes place. Economists should have realized this is absurd on its face, as the only reason the money was invested is that entrepeneurs believed that said investments would IMPROVE the bottom line MORE than the interest rate. Thus, more money would be available for investment (i.e. productivity increases)
In fact, there appears to be a 1 to 1 correlation that the opposite is true.
Krugman has changed the liquidity trap model (Krugman is a hard core Kyensian..'nuff said) and replaced investment by businesses' with consumption, which is the opposite of investment (except in the Keynsian world. In the Keynsian world, since investment capital is consumed making things there's no difference between consumption and investment. In the real world investment expands the quantity of goods available to the market, whilst consumption decreases the quantity of goods available to the market. Do capital assets get consumed? Yes, but the cost of such depreciation is captured in the cost of final goods sold, so that the investment, if profitable, is self renewing). Thus he argues essentially that at some point as increasing CONSUMPTION decreases the marginal utility of said consumption it approaches the interest rate. When they are equivalent, consumption dries up.
Fair enough, and I agree. However, the point is, that pushing consumption is the same thing as eating one's seed corn. And when interest rates are driven amazingly below what the savings rate dictates seed corn gets eaten (Read: Manufacturing jobs and other high order high paying jobs disappear).
The problem with the Krugman like "liquidity trap" argument then lies in the fact that K and like thinkers, still hold to Keynes' prescription, lower rates and increase gov't deficit spending. Thus eating more seed corn.
At some point the silos are empty and this medicine no longer works. This is what Keyneseans now call a liquidity trap. Rates drop, there's lots of fiat to lend, but no one is taking it.
However, it is nothing of the sort. The real problem is that the seed corn is gone, debts are piled on top of debts, (but debts have no value if there is no seed corn...i.e. over production of mal-investments) and thus there is no one who wants to borrow. Further lenders have bad debts on the books that aren't paying and become skittish to lend. So it is not a "liquidity trap" but the necessary consequence of loose lending and below market rate interest.
Here's a nice analysis of Japan if you made it this far:
Japan's Bust: An Austrian Critique of the Fed's Explanation - Christopher Mayer - Mises Institute
Cheers,
Re Downey, check out the great graph at creditbubblestocks.com. It illustrates how their nonperforming assets are increasing exponentially! Whoops!
If I were an evil hedge fund manager I would read creditbubblestocks.com every day to find all the "hot" stocks that everybody is shorting because the company is facing imminent doom.
Then I'd borrow billions of dollars and slam it into these stocks on the long side (maybe with some help from my hedge fund manager buddies) and bankrupt the happless readers of creditbubblestocks.com with a short squeeze that comes out of nowhere and doubles, triples, or quintuples the stock price before they can even type the password for their E*TRADE account.
I would then sell into the ensuing short-covering panic for a handsome profit, and then short the stock myself at the peak of the buying frenzy.
Afterward I'd go to creditbubblestocks.com and post about what a great site it is.
"Just who is going to be doing all this importing, the good people of Tralfamadore??"
I said this earlier,
but the Chinese are beginning to change their ways.
CNBC had a report that discussed how the Chinese are becoming much more consumption oriented. Partially due to their newfound wealth, but also partially due to inflation eating away their dollars. SO many are starting to consume now rather than lose out later.
There is obviously not enough time for them to take up the slack... but one has to think of the emerging markets as part of the "decoupling" force...
If we drive our dollar down far enough, China will eventually either need to face severe hyperinflation or depeg. If they depeg, suddenly their people have significantly increased purchasing power... if they stay employed.
just a'sayin...
oops... should be
"Inflation eating away their Renmimbi"
not dollars...
eek.
barely,
I hit the tip jar quarterly.
As to Seb's comments I agree, but I appreciate Banker's comments. Helps to keep my thinking and analysis honest.
Cheers,
BBC NEWS | South Asia | Dollars no good for the Taj Mahal
ac,
Wasn't being critical of you.
Cheers,
Nemo,
Thanks for the link to Econbrowser and a scholarly examination of the questionable methodology of current unemployment statistics due to Birth/Death model adjustments. I found it striking that a bit over a year ago, about 1/3 of the labor force growth was a result of the B/D model adjustments, while in the latest stats over 80% of the labor force growth was due to B/D adjustments.
Also of interest was an earlier Econbrowser post on labor force participation rates How many people should be working in America?.
Another adverse Ohio foreclosure decision from Judge Thomas M. Rose this time. (found at iamfacingforeclosure.com)
http://iamfacingforeclosure.com/files/RoseRuling20071115.pdf
Here's a nice analysis of Japan if you made it this far:
Thanks for the link: Any all this time I thought they suffered from deflation!
CNBC had a report that discussed how the Chinese are becoming much more consumption oriented. Partially due to their newfound wealth, but also partially due to inflation eating away their dollars. SO many are starting to consume now rather than lose out later.
In China consumption is declining quite rapidly as a percentage of GDP.
This could be very ominous because the explosive growth in China has been primarly due to a build up of production capacity. But with the relative importance of consumption declining and production driven growth dominating the economy, that begs the question "Who's going to buy all the goods produced by this enormous capacity growth?"
From the data I've seen it looks like the capacity buildup is far exceeding increases in consumption. So far this hasn't really been a problem because the industrial goods being produced are being used to build more industry. There's demand, money changes hands, and profits are made. But what happens when these producers start trying to sell the "final goods", that's ultimately the goal of all this capacity, only to discover that (perhaps) consumption growth has in no way kept pace with production. Worse, what if China's most reliable consumers who, somewhat inconveniently live in the US, are being restrained by a recession?
Chinese industry could literally be facing a catastrophe of overcapacity, massive excesses of goods, and no one to sell them to.
This could turn into a nighmare of falling prices, falling wages, job losses, bankruptcies, and a sudden realization that much of the work and investment put in building up this great production capacity is not going to produce any returns in the forseeable future.
When the economy is going gangbusters due to industry and capital formation it's easy to forget that the purpose is ultimately to generate profits by selling "final goods" for consumption. And this justifies the tremendous costs of rapid industrialization and business development.
In the end if there's too much production and not enough consumption, there's going to be a lot of investors and businessmen with empty pockets, idle factories, and no hope of profits because the stuff they produce can't be given away.
I don't know that this is where China is headed, but some economists think it's a possibility.
Consumption and production must be balanced.
I don't need or want 12 microwave ovens in my house no matter how cheap they are.
ac<
Exactly. It's called mal-investment. Cheap money is leading to a massive expansion of capacity that is unsupported by market fundementals.
However, if the Chinese are smart they will allow the invetments to get written down to real market values, and will have a strong industrial base. They are after all, increasing productive capacity. The US is decreasing it. So a write down in China will be painfull, but will excrusiating to the US.
Cheers,
ac,
Chinese industry could literally be facing a catastrophe of overcapacity, massive excesses of goods, and no one to sell them to.
I agree with you on China. The key word is "could" to me, and I would put at least 50/50 odds on it (especially since China could/would downplay those risks opaquely, as opposed to the "transparency" we're recently seeing in our banking system).
I really get the feeling that they are doing everything in their power to recreate our Great Depression. Rapid exponential growth is a lot of fun until it stops though. Ask any locust in the swarm.
Stagflationary Mark,
"Ask any locust in the swarm."
I like that. Mal investments lead to over feeding, which leads to starvation down the road.
Mind if I put it in my analogy repertoire?
Cheers,
Misean,
So a write down in China will be painfull, but will excrusiating to the US.
I would argue the reverse is true. It will be (very) painful for us but would be worse for them.
The expectations for us are rather low. The expectations for them are rather high. They have a lot further to fall.
If their economy was truly strong, they'd be offering real rates of return on bank deposits and cranking up the value of their currency. Why can't they do either of these two things?
I think it is because they are as fragile as we are and the inflation we're exporting them is causing a lot more pain than they are willing to admit.
Misean,
Feel free to use the locust analogy.
I wouldn't even know how to charge you anyway.
Is it a penny for my thoughts or is it my two cents worth?
Stagflationary Mark,
My problem with that analysis is that whilest they are making mal-investments, they assets are productive. Further they can be used to make other things. Lathes don't care what they make. Retooling may be painful, but not excessivley.
In the US we have been losing productive capacity. When the fit hits the shan, where do we go?
Cheers,
Stagflationary Mark,
I suggest we simply assume that my usage of the locust quote is worth $10 a use. Further I suggest we assume that it will get used 1000times/year.
Then I suggest we sign a contract based on that, and that you get it rated by Moody's as AAA paper. then we make a side bet where in you pay me $0.10 per usage as insurance in case I miss the 1000 uses per year. Then I will get that rated by Fitch as uber high quality and sell that to the market for a nice sum plus fees. I'll write the contract in such a way that you and Fitch earn some fees.
We'll be rich in a few days.
Cheers,
AC,Stag-Mark, Misean,
That was the most thought-provoking and useful exchange of comments in weeks here. Thanks.
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
Prince Saud Al-Faisal was overheard ruling out a proposal from Iran and Venezuela to discuss pricing crude in a private meeting at the oil cartel's conference.
In an embarrassing blunder at the meeting in Riyadh, ministers' microphones were not cut off during a key closed meeting, and Prince Al-Faisal was heard saying: "My feeling is that the mere mention that the Opec countries are studying the issue of the dollar is itself going to have an impact that endangers the interests of the countries. "There will be journalists who will seize on this point and we don't want the dollar to collapse instead of doing something good for Opec."
After around 40 minutes press officials cut off the feed, which had been accidentally broadcast to the press room.
Prince Al-Faisal added: "This is not new. We have done this in the past: decide to study something without putting down on paper that we are going to study it so that we avoid any implication that will bring adverse effects on our countries' finances."
Iran and Venezuela have argued that the meeting's final communique should voice concern about the level of the dollar, which has recently fallen to new record lows against the euro. They are pushing for oil to be denominated against a basket of currencies.
The greenback also weakened slightly against the pound, although sterling's own recent weakness has pushed it down from $2.10 to $2.0457 during the week.
Nigerian finance minister Shamsuddeen Usman said that Opec could declare in the communique that: "While underlining our concern for the continued depreciation of the dollar and its adverse impact on our revenues, we instruct our finance ministers to study the issue exhaustively and advise us on ways to safeguard the purchasing power of our revenues, of our members' revenues."
The Spectator
Here's a new bone for you guys the other one is almost chewed up.
"13th largest builder one step closer to the grave:"
crispy&cole,
That is one ugly chart. Sucks to be 13th.
Alltel sells $1 billion in toggle bonds after all. Ugly pricing at 10.375 coupon (I wonder if they were sold at a discount).
These markets are really weird right now. But this getting done is good news.
FT.com / Telecoms - Alltel sells $1bn in high-yield debt
risk capital, I read the sell siders actual reports, and I didn't think they were as negative as Roubini suggests.
FFDIC, Tanta did a great job of explaining what these decisions really mean (nothing much). They are amusing though.
Banker, I'm surprised any toggle deals are getting done. Reading the release, this means more pier loans for the IBs.
Not exactly good news, but not the worst possible news either.
Best to all.
CR,
I was surprised the toggles got done too. If that can happen, the straight-rate bonds have got to be doable. It is good news in the sense that it is $1 billion less of exposure than they had this morning.
Misean,
Is that the same Chris Mayer that writes "Capital and Crisis?" ,the author of that article on Mises.org?
DH,
Yes.
Cheers,
Banker,
I found it interesting, glad you did too.
By the by, have the presents for your distinguished guests arrived yet?
Cheers,
Buyers of TXU see interest payments quadruple... The new company Energy [No] Future must pay around $3.6 billion a year in interest compared with the $830 million for interest expense and related charges TXU reported for 2006. Analysts have warned that the new owners might seek to reverse the situation by eventually hiking prices [sky high].
Buyers of TXU see interest payments quadruple |
News for Dallas, Texas | Dallas Morning News
| Dallas Business News
Abu Dhabi takes 8% stake in AMD
FT.com / Technology - Abu Dhabi takes 8% stake in AMD
Now we're importing dollars.
CR-
I put Roubini in the same league now as Mish, winter, and market-ticker-
one could be deemed entertainment (similar to banker), the others are just blowhards.
Banker, CR
This is a good thing how (mostly Banker on this).
"Barclays Capital has also opted not to sell its $800m slice of the loan package until next year."
So Barclays bridge is a pier until next year when they hope the pier is a bridge?"
This is a good deal when the bottom of the article states theis:
"The Alltel deal will stir the debate on Wall Street about whether the credit markets will continue to be receptive to large leveraged buy-out deals.
When a debt package for TXU, the Texas-based energy group acquired by KKR and TPG, was sold by banks close to par value last month, some private equity executives viewed it as a sign that investor demand for risky paper was not as poor as feared.
However, the size of the coupon on the Alltel deals suggests that underwriters will have to sweeten deals to attract investors.
Citigroup, which leads the two groups of underwriters behind the bond and loan deals, declined to comment on Friday."
Seems like the coupon on this thing is what drew buyers of a deal negotiated months ago. If this is a good thing then the Martoonies are interacting with the Super Colander Tin Foil Hat's electromagnetic system leading me to misinterpret as a desperation Hail Mary.
JMHO.
Cheers,
risk capital,
Good one. As the soft landing bears drift into the hard landing camp, engage in ad hominem attacks. That'll save the economy. No need to rebut the positions taken. Just assume that Mish and Russ are wrong and then tar Roubini with them.
I may where a Super Colander Tin Foil Hat, but I am not unintelligent. Offer an argument for your position risk capital.
Cheers,
Joseph Mason in a Bloomberg interview says that the effects of the subprime/CDO debacle could linger around till 2012. He says it could be CDO resets in 2009 and corporate debt resets in 2010/2011.
Buckle up , its going to be a fun ride!!!
From an earlier thread today, Misean referenced "California Home Sales Plunge"
Forbes.com File Not Found
"In May, his total monthly payment swelled from about $2,400 to $3,500. Now, with credit cards maxed out to help cover the payments, Bracone needs to find a buyer before another mortgage reset takes effect next month."
Anecdotal, but says something about where the next impact may be felt.
Misean-
to each is own, if you enyoy those people, more power to you. I enjoy reading CR for one reason, the attempt to present accurate data without ever having a problem immediately correcting an error.
I find the "others" flawed, some often, and full of sensationalism.
Nothing for you to become upset over, we just differ in what we are after.
could someone tell me what an alt-a style loan is? thanks
I have no doubt that This administration will support a strong dollar with all the vigor that they have displayed in supporting democracy in the middle east.
Screw the dollar. It's going down. J6Pack has no bargaining power for higher wages in this economy, so goodbye middle class. We hate the middle class anyway. Poor people don't ask too many questions because they're too busy working 14 hour days just to get enough food to hold off starvation.
Misean | 11.16.07 - 4:03 pm | #
I don't like the way this sounds. It is very true.
jo6pac
risk capital,
Right then stand down.
I love this:
"the attempt to present accurate data without ever having a problem immediately correcting an error."
You have some evidence? No of course not. That would take time and research.
I like CR because when I have a thought about this stuff, I will go to such places as Mish and Russ, but I seldom post. There, I'm preaching to the choir.
Let's take a look at Mish and CR of late, shall we.
Mishh posted this yesterday:
Mish's Global Economic Trend Analysis: MBIA, Ambac, and Pandora's Box
Hmm.. seems that CR had a post about this too.
Today Mish had this late:
Mish's Global Economic Trend Analysis: Goldman Sees "Substantial Recession" Risk
A post about Kroszner??? Naw not on CR.
What about Russ?
Yesterday he posted this:
"Cerberus Capital Management has pulled out of its $7bn deal to buy United Rentals, making the planned private equity takeover of the worldÂ’s largest equipment lender the latest casualty of the credit squeeze. The news sent the companyÂ’s shares plunging 30 per cent to $23.76. Cerberus had agreed in July to pay $34.50 per share."
I seem to remeber that CR had a post on this as well.
Hmmm. The two greatest things about this blog is:
So establish your position and defend it. You just retreated from the battle field.
Cheers,
Alt-A loans are typically considered A-minus credit loans (above subprime and below prime) and loans that have less than full documentation and include limited or no verification (low doc/no doc)
jo6pac,
Aw man love ya for seeing that way up the chain. But now risk capital will take it out of context cuz you didn't include that it was a translation of fed speak.
Cheers,
They way i've been reading toggle bonds suggests that the 'coupon' does'nt matter...
just tack on new obligations like an OA..
ac at 8:14, that was a great laugh, and I needed it. Thanks.
CLF
Misean, to the best of my knowledge, there are no rules here requiring riskcapital, or anyone else for that matter, to defend his/her position. This is not a debate club, but a free forum where you can take it or leave it.
I respect the work of von Mises, but I certainly wouldn't accuse someone who differed with me of "leaving the battlefield" if he wouldn't argue with me. Sorry, but that's a cheap shot.
Somebody get that woman a blog. Crappy newspapers are holding her back.
Tanta, You wrote:
Isn't there a possibility for the borrower to stop paying PMI when his/her equity is over 20%, even if it's due to appreciation rather than paying down principal?
Peter T
Absolutely there is that possibility but it has nothing to do with the "terms" of the borrower's loan. The "terms" are spelled out clearly in the NOTE and there is no mention of mortgage insurance in a NOTE.
Generally to get PMI eliminated from a payment a borrower has to have a new appraisal done (probably not a good option right now), have paid down the principal balance to at least 80% of the original purchase price or, depending on when the loan was closed, be at 78% loan to value from the original purchase price-in which case the PMI drops off automatically. The final item may require due diligence on the part of the borrower-just sayin'
The borrower can also do a refinance to eliminate PMI but that would generally also require a new appraisal and depending on how long ago they purchased the property there may be seasoning issues.
stealthwii wrote:
Has anyone here looked into the European Housing market? From the little I know it sounds like they are set-up for a worse fall than we are.
Note that this is from 12/7/2006:
Premium content | Economist.com
Germany and Switzerland are in a much different category than the rest...
Stealthwii also wrote:
How is that eventually going to affect the euro vs. dollar?
IMHO, the Euro can't lose against the dollar, unless Sarkozy gets his way.
The Germans have had their hyperinflation; they won't let the Euro get trashed:
“The population should be protected against inflation. This is very important. That is why the independence of the European Central Bank is the alpha and omega. And that is why Germany will not budge on this.” Angela Merkel
"
OK MP,
You're right. That this statement I found rather gratuitous:
CR-
I put Roubini in the same league now as Mish, winter, and market-ticker-
one could be deemed entertainment (similar to banker), the others are just blowhards.
risk capital
And asked for a follow up... OK.
You're probably right. But I do get feisty, and let's just say that there is another on this site who's middle name is feisty squared. Not equating myself there, just saying...
Cheers,
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
This is complete nonsense, as Mish has pointed out recently. Oil, like gold and all other commodities, is "priced" in all convertible currencies simultaneously. There is no USD price tag on a barrel of oil like on a copy of Playboy.
The talk from Venezuela and Iran of non-USD "pricing" of oil is just irrelevant blustering. They can and do sell their oil in whatever currency is mutually convenient to buyer and seller, just like every other product on the planet. There is nothing magical about either the USD or oil and no magic connection between them.
this is what most of my econ profs used for macro
Y=C+I+G+EX-IM
wasn't it ross perot who said we'd be about 7% better off if we quit importing?
the last US recession- there was talk of a 'double dip'. never happened. Maybe this time around we'll get the double dip. I forget, did any other countries go into recession or double dip concurrently back then?
Oh, and with the low interest rates, the house construction industry boomed. what will get the US out of the next (current) slowdown (recession)?
mp,
This and I will let it go.
I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion. This blog allows a poster to post their opinion free of reciprocity. Does this mean that those who disagree should shut up? So if I say the market is going to go up 10000 points Monday, no one should be able to question me?
I was requesting that risk capital substantiate his position. I was not requesting that he play NDT debating games with me. That would be unfair...I won the NDT in the early 90's.
Cheers,
Probably shouldn't say anything but,...
What I like about this blog is that when I am not clear, off-base, and or wrong, sometimes someone will correct me. And if it is one of the respected regulars, I try to be thankful for the correction. Hard to take sometimes, but worthwhile. Of course usually I'm so obviously right there's no denying it.
stdfs,
dig well taken. But I think I take myself with a huge grain of salt. If not well....
Cheers,
"I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion. "
Agreed.
"Does this mean that those who disagree should shut up?"
Absolutely not.
"So if I say the market is going to go up 10000 points Monday, no one should be able to question me?"
Conjure Bag certainly would.
Misean, one ad hominem attack does not deserve an ad hominem counterattack. You make good comments here, so does riskcapital. Let's all try to keep it that way.
If Conjure and I wanted to slum, we'd be on the Yahoo Finance boards.
By the way, I/we enjoy reading Mish and Conjure devours everything Nouriel writes. I/we should add, however, that doesn't necessarily mean I/we agree with them on any or all occasions.
mp,
Good deal, as I said that was my last post on it.
"I/we enjoy reading Mish and Conjure devours everything Nouriel writes. I/we should add, however, that doesn't necessarily mean I/we agree with them on any or all occasions."
Nor do I. But I enjoy the fact that we're on the same page.
Cheers,
I would like to add that those who frequent this place are not your average bears (pun intended).
Give them credit for knowing when someone is reasoning, venting, propagandizing, shilling, or just plain full of shit.
Speaking of being full of it,...
I facetiously suggested that consumption would benefit when a foreclosure happened, since the money that would have gone to a futile cause (maintaining a declining asset) would be "freed". After thinking about it further, I can't see why it wouldn't happen. After all, the bubble markets are those whose home prices are out of whack with the rental rate, the mortgage is non recourse, the ones in trouble spend to their limits, and,... damnit, I must be missing something. Oh yeah, and I don't really care about the lender.
Can't ignore this element in the equation:
Achieving Global Accord on Iran Sanctions May Be Harder - WSJ.com
The Bush Administration has neutered the United States. I don't know whether that's ad hominum or not, but it's true.
mp,
Oh, I am always full of shit.
Just ask Conjure Bag...
Cheers,
How do these jackasses achieve any position of authority with this type of thinking?
49.9999% chance, feel better?
Misean,
There is a MUCH MUCH greater diversity of opinion here.
I think it helps that many people here tend to think in terms of "calculated risks." If the odds of something happening were 0% or 100% we wouldn't need a calculator and there would be little room for friendly debate.
In contrast, I have a hard time reading Roubini's "with the recession becoming inevitable" headline. Not even a 0.0001% chance to avoid it? Really? There's not even a hope that Mr. Fusion will be invented in the morning bringing this country untold real prosperity?
That being said, I'd give a recession at a 50/50 chance within a year (which is up from the 1/3rd chance I was picturing a year ago).
Stagflationary Mark,
What can I say? bygones be bygones. I got in a bit of a snit because of risk capital's post. I still think deflation, but that's my bit.
Cheers,
Stagflationary Mark, mp et al,
Good night all, I'll catch you in the morning.
Cheers,
I think Dale commented on this in the last thread with a link to an AP story. However, I was wondering if Tanta or MOM could comment more on this.
Fannie Mae's credit losses still in doubt - Nov. 16, 2007
"(Fortune) -- Fannie Mae sought to reassure nervous investors Friday after questions arose about a key change in the way the mortgage lender discloses its bad loans -- and whether the shift is camouflaging mounting losses.
At issue is Fannie Mae's method for calculating its credit-loss ratio -- an important indicator of its bad loan losses as a percentage of its overall loans. Investors have used the credit ratio to assess the credit quality of Fannie Mae's mortgages.
...
Fannie Mae's latest controversy dates to August, when the company estimated that its credit-loss ratio for the year would be between four and six basis points (or, in layman's terms, between 0.04 and 0.06 of a percentage point). For Fannie Mae, a ratio of four to six basis points is nothing alarming.
And last week, Fannie Mae said it had an annualized credit-loss ratio of four basis points for the first nine months of the year, well within the company forecast.
But the company used a new method of calculation to get that number. If it hadn't changed methods, Fannie Mae would have had a credit loss ratio almost twice the four basis points. Recalculated under the previous method, the credit-loss ratio comes to 7.5 basis points, high enough to start making investors nervous.
The company and some analysts insist that Fannie Mae disclosed the change properly. However, none of Fannie Mae's financials for the third quarter ended Sept. 20 showed that 7.5 basis point number. Instead, enterprising investors had to parse the new disclosures and do some extra math to calculate the 7.5 basis point figure.
When companies typically provide new ways of calculating key metrics, they disclose the metric under both the old and new methods for a period, so investors can make an easy comparison.
...
Essentially, the company was able to lower the ratio by excluding a certain type of loss known as an SOP 03-3 loss.
Here's how SOP 03-3 losses work: Fannie Mae guarantees mortgages, which have been packaged and sold to investors as bonds. If a homeowner falls significantly behind on his payments, Fannie Mae has to buy back the loan from the bondholder. If the mortgage has an outstanding amount of, say, $100,000 and unpaid interest of $5,000, Fannie Mae would have to pay $105,000 -- its full value -- to make the bondholders whole.
However, the $105,000 loan may actually be worth less on the market. It is Fannie Mae's job to estimate the market value, or fair market value, of the loan and to record that price on its books. So if the fair market value is $80,000, Fannie Mae takes a loss of $25,000 (the difference between $105,000 and $80,000). That loss is considered an SOP 03-3 loss -- so named after the applicable accou
That loss is considered an SOP 03-3 loss -- so named after the applicable accounting rule.
Until recently, Fannie Mae included SOP 03-3 losses as part of its credit-loss ratio. But here's the trick: Fannie insists that, based on past trends, it can recover a large part of that $25,000 loss by, for example, helping the borrower renew payments. So it simply decided to stop including SOP 03-3 losses in calculating its credit-loss ratio.
Investors have plenty of reasons to be spooked by that move.
Not so, counters Fannie Mae. The company argues that the increase in SOP 03-3 losses is driven chiefly by a decline in the fair value of mortgage loans in the market -- and not because the company has been forced to buy back a large amount of bad loans. However, when asked on the call, Fannie Mae executives did not provide numbers to back up that claim.
One possible reason why Fannie Mae doesn't want to provide data on recoveries is because it might be using assumptions that are too optimistic, potentially underestimating SOP 03-3 losses.
Investors, regulators and auditors are pressing lenders to apply rigorous market values to assets like mortgages, even if the lenders don't like those values. Yet, Fannie is now excluding market values from its credit loss ratio.
Capital is the key number to watch at Fannie Mae. The company can choose to keep those SOP 03-3 losses out of its credit loss ratio. But accounting rules prevent the company from leaving them out of capital calculations.
The fuzzy math goes only so far."
Very interesting. If the capital trend continues, would yields on Fannie's bonds rise? That would decrease the spread between jumbo and conforming mortgages in a different way than most expected.
Lyndal, It sounds more like semantics when you write:
You might call it not a "term", but borrowers can respond to market changes and reduce their monthly payment. Lenders, on the other hand, cannot respond to market changes with a "margin call" and demand a higher higher monthly payment because of the higher loan-to-value ratio. The lender, of course, are supposed to include that risk in higher interest rates from the start.
Nemo: "If you are thinking deflation will take hold, I think you are wrong. The Fed has many weapons in their arsenal should they choose to use them. If necessary, they can lend to anyone against any collateral they want. For that matter, they can create dollars and outright purchase anything they want."
This game is not in a vacuum. This is hyperinflationary. The outcome will be a flood of USD's being spun faster than we can say "velocity".
Hey, I can fly off a bridge, once. And the Fed you say can do the same thing. Nice idea; should it happen, I'm applying to borrow all the USD in the world, and buy everything I can with them yesterday... and pay for them on the last day the USD has a scintila of value.
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Good read on how the ABCP market in Canada was affected in August. Interesting to note that the effects have only been delayed and not fixed yet.
OT. The UK residential market has not (yet) seen the falls experienced in the US market. However the UK commercial market s another story. I have been reading about the dire state of this market for a while. Is it a taste of what is coming to America?
"Commercial property braced for further falls as credit dries up"
Commercial property braced for further falls as credit dries up - Times Online
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
Yoghurt wrote:
"This is complete nonsense, as Mish has pointed out recently. Oil, like gold and all other commodities, is "priced" in all convertible currencies simultaneously. There is no USD price tag on a barrel of oil like on a copy of Playboy."
--
Although I techincally agree in principle, I think Mish and others forget a key point. It matters because people THINK it matters.
Gold is valuable only because people think it is. Same with a Renoir. And same with Fiat Currency. One of the reasons for foreign govts to hold dollars is because they can ALWAYS buy oil with them.
now obviously a country can simply take reserves in any currency, convert them to dollars, then buy oil...
but psychologically, many important people think that dollar value is linked to pricing in oil.
That includes basically every world leader- the President of the US, several oil nation rulers like the quote above, Hugo Chavez, etc.
psychology=reality.
From some work that I have done, I tend to believe that highly volatile markets, at least in the short term, are best modeled as a minority game. Leaving the erudite b.s. behind, it means that when things are bouncing around wildly, the money is made by jumping back and forth to the side that is in the minority. A bunch of sentiment indicators are currently aligning themselves at the overly bearish end of the spectrum. In addition at the margin, mainstream economic view has turned decidedly negative. All these opinions are highly correlated with peoples own books. Not many people are rip roaring bulls or bears, when their money is in the opposite direction.
If I had to hang my hat on some other reasons the US equity market might rally over the intermediate term, I would hang it on the strong decline in the 10 year rate. Just to review some simple discounting math, one dollar of earnings discounted by 5% rate 10 years in the future is 1 / 1.05^10 or about 61 cents. Change the discount rate to 4% and the value goes to about 67 cents or about 10% higher. From an economic standpoint, the people who are going to take the biggest hits in the housing sector are the people who owned the paper. The vast majority of the subprime house owners had zero skin in the game so walking from their mortgage will have almost no influence on their income and spending patterns, which might make consumer spending much more resilient than otherwise might be expected...
Misean-
Allow me to restate, once again, what I said earlier, if you garner value from those that I find full of sensationalist views, then more power to you.
I will be the first to admit that due to my backround and education, I look at things differently than most.
To copy and paste point by point statements from the sensationalists accomplishes nothing and wastes time.
You may enjoy reading the comics on Sunday morning as well with Silly-putty in hand. That is your choice and perrogative.
Some enjoy Bankers banter here, I find it to be entertainment, that is my choice and interpretation.
I enjoy the delivery and intellect of CR, that too, is my choice and interpretation.
If you wish to speand your time playing with Silly-putty and reading comics, have at it!
That said, enough on the subject due to my now becoming extremely board.
"We'll be rich in a few days."
Misean
Yes, but then who would rich be?
(Sorry couldn't resist. Figures he's not posting this thread.)
David in CT has an interesting point . . . . . Patrick the Starfish on Spongebob Square Pants might call "Minority Game" a fancy-pants synonym for Contrarianism, but it's quite clear that broad brush sentiment is extremely negative, AND for Honest-to-God qualifying homeowners/consumers (you know, the ones with verifiable incomes, pretty 1040s, equity in their homes, only one mortgage to their name, etc) interest rates have come down.
In fact, the two year treasury rate is WILDLY below the FF's rate, suggesting that one of those two interest rates is very wrong (for now).
At the very least, certain overly shorted market segments are poised again for a snap-back bounce . . . . . . . . nothing wrong with buying low and selling high, no matter what you call it -- just don't forget to "sell high" I suppose.
Misean | 11.16.07 - 9:38 pm | #
When the fit hits the shan...
Wow! That's an obscure reference, unless of course there are more sci-fi readers on this forum than I thought.
Very interesting side effect of securitization:
NY Times Advertisement (nytimes)
The new news about accounting problems and Fannie Mae would suggest that the calls for Fannie to buy jumbo and/or subprime bonds will be less likely. Perhaps someone has already mentioned this. This seems just one more step in the tightening of credit, especially credit for RE construction.
ac,
looks klike your strategy with DSL is working like a charm....
Recessions are always inevitable, similar to death. They are bound to happen at some point, without regard to timing. Economic cycles have not been repealed.
While GM has dialed back on the assumption-o-meter, Aaron Krowne and Co have not:
Judge Demands Documentation in Foreclosures
True Sale, False Securitizations
The dollar could collapse if Opec officially admits considering changing the pricing of oil into alternative currencies such as the euro, the Saudi Arabian foreign minister has warned.
Jay-Z: Euros are the new bling bling (some of the other links on the page may be NSFW)
Yearning to Learn wrote:
but psychologically, many important people think that dollar value is linked to pricing in oil.
Yearning to learn has it right. If more and more people think other people don't want to hold dollars, they won't want to hold dollars, and it spreads. It could turn in to a "run on the bank".
rich
Yea the problem is that economics are not like mathematical or physical rules where 2+2 = 4 and things fall to the center of mass. Economics depends on the psychology of people and people often do stupid things.
The poor old perma bears including myself, often assume a logical rule based system where folks do reasonable things. We miss where folks do irrational things. Thus the last recession should have been deeper and the recover weaker but folks invested in RE and asset based wealth boomed, though based on emotion and not 'facts'. The upcoming recession should have happened sooner but lenders lent to anyone with a pulse and RE sellers sold likewise. Untested financial instruments were traded like gold bars. Meanwhile the Central Bank of China did things illogical under 'classical' capitalism in order to keep keep their economy booming.
So yea, the poor old perma bears were wrong, but only because their assumptions about truth did not take in to account man's irrationality.
risk capital,
I was done with this last night but ok.
You are a teacher's pet. A suck up.
You have done nothing but engage in ad hominem attacks (that means name calling). You have provided no argument against the positions you call "sensationalist". You simply think by disparaging them you've made some kind of point.
O-Joe also never provides any kind of substance to his rantings. I shall now pass by your comments as I do his.
Nice that you posted Sat. am. I guess you were hoping I might not peruse new posts with my morning coffee, eh?
Cheers,
One of the reasons for foreign govts to hold dollars is because they can ALWAYS buy oil with them.
Oh sure, but how much oil can you buy with those dollars, compared to 5 years ago?
How much oil does a Euro or CDN$ buy compared to 5 years ago?
Is it not self-evident that if there were some sort of magic connection between the USD and oil, its purchasing power for oil could not have declined against other major currencies?
Psychology is not reality. Reality, in this case the markets, always catches up to you.
Of course, sentiment was quite bearish in early 2000 before the S&P declined by ~50% over the next two years and change...just sayin'.
What matters is not overall sentiment, but sentiment weighted by assets under management. The more wealth is under control of fewer entities, the less meaningful broad-based sentiment indicators become. And it becomes more concentrated every year (not a judgment call; just a statement of fact).
So to invest successfully based purely on contrarian psychology, you need to know not the general sentiment, but the sentiment of the large trading houses. This is extremely difficult -- I believe it is impossible -- which is another reason I never put money behind short-term calls.
Andrew @ 11.17.07 - 2:39 am,
Really nice take. And thanks for the explanation of SOP 03-3. I read the news, but couldn't wrap my head around it. Now I can...and I am disturbed.
Yearning to learn, Vader
"but psychologically, many important people think that dollar value is linked to pricing in oil. "
My only quibble is that gold is a physical asset, fiat is illusionary. It is a minor quibble though, because as Vader says:
"We miss where folks do irrational things."
Nice takes.
Cheers,
Nemo,
"What matters is not overall sentiment, but sentiment weighted by assets under management. The more wealth is under control of fewer entities, the less meaningful broad-based sentiment indicators become. And it becomes more concentrated every year (not a judgment call; just a statement of fact)."
Um, that is brilliant.
And because we have a fiat monetary system, the more the wealth is concentrated, the more likely the bail out. So, as the concentration increases, the bets become riskier. This increases the chance that the bets get "covered" by monetary authorities. Which increases the concentration and risk of the bets.
Rinse, repeat.
That's one tidy bit of thinking nemo.
Cheers,
IF Fannie Mae management had a history of pristine conservative accounting, and IF FNM had initially fully disclosed their Non-performers with and without SOP 03-3 treatment (current and prior period for comparison) and IF FNM had detailed comprehensive documentations showing that the eventual losses on SOP 03-3 recoveries was much less than the initial write-down to fair market value amount, then I might be tempted to believe them.
However, the company's accounting historically has been byzantine and misleading, management clearly tried to sneak this change past investors without directly disclosing it, the change is enormously favorable to the company at a time when markets are focused on NPA's with a near-hysterical intensity and they seem to have absolutely no available documentation showing that the actual realized losses are materially less than the initial write-down amount.
And all this at a time when you know with near-certainty that home prices are going to continue falling and that managing mortgage workouts and recoveries is much more difficult in declining markets than flat markets AND we may be facing a recession in 2008.
The nuts have taken over the asylum, truly, if they expect people to believe a single word of the presentation, including "good morning".
Nemo, Misean,
Keen observation there - speculatively, how does the data in the COT report reflect that sentiment - and how to interpret that data?
"My only quibble is that gold is a physical asset, fiat is illusionary."
True. But many things are a physical asset and yet nearly worthless (such as hairclippings after I shave).
Others are worth even more than their weight in gold (like a Picasso)
Gold is "true money" only because we believe it to be so.
I am not arguing the merits of gold as money... rather that gold is money because people in general BELIEVE those merits.
In the same way, fiat is money because people BELIEVE in its merits, no matter how flawed those merits may be.
Goldbugs focus on the flaws of fiat. I agree there are many. I agree that gold based currency is vastly superior.
All fiat currencies eventually go to zero. But I also find it interesting that Gold doesn't remain money forever either. (I think) thus far all gold currencies have eventually gone to fiat.
I would assume that in each case there was some social/psychological reason for that.
Oh sure, but how much oil can you buy with those dollars, compared to 5 years ago?
How much oil does a Euro or CDN$ buy compared to 5 years ago?
Yogurt:
you miss my point. As I stated, I agree wholeheartedly with the RATIONAL case as to why $US value should not fluctuate simply based on whether or not oil is priced in $US.
And if I belived that markets acted rationally, then I too would believe that the $US will not lose value if OPEC goes to a non-$US pricing scheme.
but the rational case doesn't matter. ALL of the major market participants believe that the $US value is tied to oil being priced in $US. that is what matters.
if it didn't matter, we wouldn't have news stories about OPEC maybe pricing in Euros. Hugo Chavez wouldn't make a big deal out of it. People wouldn't believe that we attacked Iraq because they started pricing in other currencies, etc...
And FWIW:
I'm only saying that the $US is the only fiat currency ASSURED of being able to buy oil, not saying that you'll get a better deal because of it. Other currencies can theoretically have problems doing so. (as example the Argentinian Peso during their currency crisis)
Gold is of course the other currency assured of buying oil.
somebody posted there thoughts on a 3 handle tenYr...
Federal Budget Spending and the National Debt
is that thought because we would'nt be able to service the debt at higher rates? with '08 estimated to $480 billion?
I think it is wrong to allow ad hominem attacks to go unchallenged, as it allows the ad hominem attacker to bias opinion.
The liquidity trap created by that idiot Keynes...Krugman is a hard core Kyensian..'nuff said)
Misean, you should always practice what you preach. Ad hominem on Keynes is indefensible, and the Krugman cheap-shot is also imposing bias. For a debate champ, you're slipping.
Yearning to Learn,
"Gold is "true money" only because we believe it to be so."
Couldn't agree more. But you have to admit that if we were batering and in my left hand I had a piece of coloured paper with my face on it and in my right han I had a shiny one ounce gold coin, and I asked which would you take for what you had for sale, you'd take the right hand coin. No?
That was the basis of my quibble. However, I think you are entirely correct, just with my quibble.
Cheers,
dotcommunist,
If you'd like to defend them I am more than prepared to defend that position. That's my point.
I think my post after that idiot Keynes substantiated my view. You may disagree, but I staked out a position and defended it. Krugman is a Democratic party hack just like Kudlow and Ben Stein are Republican party hacks. And I think I did a good job on Kudlow on Thursday night.
If you review, you will find that I asked, repeatedly for some substance to the insult. I regularly agree, in fact I promote, that I am a tin foil hat wearer. But give me a bloody reason for the criticism.
Look, when I disagree with Banker, or ac, or dryfly, or Stag Mark, or the rest of the hoard, I EXPECT to be challenged. And if I pop off, they'll hand my head to me on a silver platter. Go back through the posts: I have regularly admitted that I was wrong, appologized, tucked my tail between my legs and gone on.
Is risk capital (Yeah the blog is Capital Risk, so he names himself that. Kinda like the oily guy at the office who always parrots the boss's line) immune to the same kid of things that you all do to O-Joe? Or Sebastian? Sorry, I'll defend my insults to Keynes.
Economics is a philosophy NOT a science. The school of that philosophy that I belong to believes Keynsianism has been a disaster to our civilization. I refuse to be quiet about it.
Sorry for the rant dotcommunist.
Cheers,
I facetiously suggested that consumption would benefit when a foreclosure happened, since the money that would have gone to a futile cause (maintaining a declining asset) would be "freed". After thinking about it further, I can't see why it wouldn't happen. After all, the bubble markets are those whose home prices are out of whack with the rental rate, the mortgage is non recourse, the ones in trouble spend to their limits, and,... damnit, I must be missing something. Oh yeah, and I don't really care about the lender
Most people that I know that have gotten over-extended are embarrased and never want to be in that situation again. So while some cash flow may be freed by converting from over-extended borrower to renter, I suspect that we will also see changes in consumption behavior by that group.
How many of us know anybody who has gone through a foreclosure or bankruptcy and NOT changed their behavior. Maybe my anecdotal evidence is atypical - being here in Omaha and all.
Robert,
You have hit, spot on, the reason why housing prices are "sticky". People don't want to admit that they F'd up and try to "make it work". The sad thing is they can't "make it work" so they waste their resources until they fail.
That is the evil of this housing bubble. Because the Banksters know this.
Cheers,
Risk Capital,
your comments about the comics and silly putty were not helpful.
Knowing what to reference, or cut and paste as you put it is a matter of judgment.
I agree with misean, and would look forward to reading your defense of your opinion regarding roubini et al.
so far you have not backed up your claim.
I would like to note that roubini has also not been backing up his claims lately, especially his latest post. Same thing with RC. But at least RC had good predictions in the summer so I guess he deserves attention. Recently he said HY debt is the problem and it looks like this is taking place slowly, at least with CDS premiums and pier loan renegotiations... but anyway, it's true that comments not backed by proof are worth very little. I wish I knew how deep this recession will be. RC claims to know the exact depth. That's a big prediction on his part and frankly it screams of speculation. If you look at predictions some of the other have been making, including CR, we do not predict the end of the world but at least we are open-ended in our predictions
somebody posted there thoughts on a 3 handle tenYr...
Federal Budget Spending and the National Debt
is that thought because we would'nt be able to service the debt at higher rates? with '08 estimated to $480 billion?
any ideas what the Federal debt will be on 11/17/2008?
Does this reset timeline vary much across different areas of the country?
Also, has anyone seen regional information online about 1) scheduled resets, and 2) what percent of all outstanding mortgages are ARMs?
A breakdown by city or zip code would be very interesting.
you may want to look at:
real estate charts under 'reports'
for some of the data you are asking for...
Put simply, there ared more shoes left to fall than if a Parkinsons victim were to move Imelda Marcos' wardrobe.