But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case.
Lately, the market seems to have responded favorably to the mortgage freeze idea. Tol is also very strong today, although I have not really figured out whether it earnings this morning a better or worse than expected. I wonder whether the market will be a little more skeptical when the freeze plan is announced this afternoon. My expectation is that 1) it will be difficult to impliment, and 2) the number of people helped/proportion of people helped will be rather low.
We will know when we hit the bottom when the news articles reach the 1930's as the reference date. I love how it is always "Worst since '98, '96, '90, '86" Keep going media you will get there. Just walk our reference point down slowly.
Even though I think it's unlikely, this makes me think the odds of another bubble are increasing significantly. In the end bubbles are the only tool the Fed has that really works to stimulate the economy, and the board members need to stimulate the economy to keep their jobs.
I think in the end there's a good chance they'll capitulate to job security.
The BoE decision today reinforces that notion.
"Oh this is good because it gives us time to work out the problems in housing and the credit problems (and we keep getting paychecks and worldwide attention)."
But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case.
James | 12.06.07 - 10:27 am | #
Let me guess: You're a Republican. Your Kool-aid stained teeth are showing.
Lately, the market seems to have responded favorably to the mortgage freeze idea. Tol is also very strong today, although I have not really figured out whether it earnings this morning a better or worse than expected. I wonder whether the market will be a little more skeptical when the freeze plan is announced this afternoon.
A lot of heavily shorted stocks are rallying, notably real estate related stuff. So this may not be optimisim so much as hedge funds deliberately fomenting short covering rallies.
Short squeezing is a common tactic employed by fund managers for quick profits.
Things are worse than I thought. 5.59% of all mortgages are delinquent. It would be nice to see a graph of delinquency pct vs foreclosure pct. I would assume the general shape of one would lead the other by a few months, but I wonder how much the amplitude carries from one to the other. I would also guess that when prices are dropping, the amplitude would tend to carry more.
I'm guessing that sometime near the end of 2008, we may see 5-10% of all mortgages in foreclosure. The banks have probably been aware of this for several months. No wonder Paulson is being pressed to act. This is looking like as bad a situation as anyone could have imagined.
Anyone else notice how often the word "hope" is used in conjunction with bullish theses? As in, "stocks rise on hopes that bailout plan will work", or "Fed hopes boost stocks"?
My momma taught me that "hope is not a strategy." If I were to psychoanalyze this market, I would compare it to someone who has just gotten some very bad news but is still in the rationalizing stage, not really dealing with reality.
The strength of the markets indicates that we are no longer concerned with long term productive capital creation. Rather, its safer to bet on asset inflation than to flee to cash. In my view, the Fed is out of amunition. ONLY FISCAL STIMULUS WILL JUMP START OUR ECONOMY. This is like watching bad re-runs of "Welcome Back Kotter"
But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown.
The stock market is a discounting mechanism for leverage.
It has nothing to do with corporate profits or the economy.
The stock market is rallying on the expectation of the Federal Reserve making leverage available on easier terms, as well it should in an environment where the economy has been reconfigured from a wealth-producing mechanism to an asset-leveraging mechanism.
here are somewhat related news from the auto sector
Surge in Auto-Loan Delinquencies
Is Latest Trouble for the Economy
First came housing loans and the subprime-mortgage crisis.
Now, signs of stress are creeping into another key consumer area: auto loans.
Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.
About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month,according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.
Wall Street says: "Quick Ben, get the GREEN BUBBLE. Green is in. We have some new products which will rapidly inflate the Green bubble. Carbon credits, GMOs, GRBS's, GPDO's, GPS's, GSPOTS."
The overall mortgage delinquency rate jumped to 5.59% from 5.12% in Q2 2007 and 4.67% in Q3 2006. This is the worst late payment rate going all the way back to 1986.
The subprime DQ rate jumped again -- to 16.31% from 14.82% in Q2 2007 and 12.56% in Q3 2007. But it's NOT just subprime loans that are souring. The prime delinquency rate rose to 3.12% from 2.73% in Q2 2007 and 2.44% in Q3 2006.
The worst deterioration was evident in adjustable rate loans. Prime FRM DQs only rose to 2.54% from 2.25% quarter-over-quarter, while prime ARM DQs jumped to 5.14% from 4.15%.
Meanwhile, the DQ rate on FHA loans climbed to 12.92% from 12.58% in Q2 2007 and 12.8% in Q3 2007. The DQ rate on VA mortgages rose to 6.58% from 6.15% in Q2 2007 -- but was unchanged from 6.58% a year earlier.
Mississippi had the worst loan delinquency rate at 10.6%, followed by Michigan (8.34%), Georgia (7.93%) and Indiana (7.88%). Several western states had the lowest DQ rates, including Hawaii (2.68%), Montana (2.79%) and Oregon (2.82%).
What about foreclosures? More bad news there. The percentage of mortgages entering the foreclosure process climbed to 0.78% in Q3 from 0.65% in Q2 and 0.46% a year earlier. The percentage of overall loans in any stage of foreclosure climbed to 1.69% from 1.4% in Q2 and 1.05% a year earlier. These are the worst readings on record.
Foreclosure inventory was the worst in Ohio (3.72%), Indiana (3.28%), and Michigan (3.07%). Florida was also relatively high at 2.19%, with Illinois (2.15%) and Nevada (2.15%) not far behind.
the S&P desperately made a run at 1490 but couldn't crack it. important resistance. stocks have gotten a good puff out of Hope Alliance but deep down knows it won't do a thing.
stocks can't reach new highs due to credit freeze and already widespread credit destruction. the trend is down for 2008.
I agree. I don't have a chart for you, but I have done the math for the past few quarters, and yes, the rate at which delinquenies are converting to foreclosure starts is rising. Overall, the ratio of foreclosure starts to delinquencies in Q3 was 14.0% vs 12.7% in Q2 and 12.05 in Q1. For subprime ARMs, the ratio was 25.1% in Q3 vs 22.7% in Q2, 20.1% in Q1. People are missing mortgage payments more, and losing their homes faster, once they start missing mortgage payments.
We are in the inevitable credit crash that follow credit booms. Subprime housing was just the first to show problems. It is not the cause of the problems we are seeing in other credit markets, but the first symptom (IMO).
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases.
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases.
What!!!!, there have been times when the default rate was higher than it is now? Right...next your going to tell me that there is a historical record showing that the planet has been warmer than it is now. ppppfffttt!
"Foreclosure inventory was the worst in Ohio (3.72%), Indiana (3.28%), and Michigan (3.07%). Florida was also relatively high at 2.19%, with Illinois (2.15%) and Nevada (2.15%) not far behind."
I eat breakfast 2-3 days a week at a joint across from a real estate office that does a lot of REO (and marks it as such). I will say that, within spitting distance of the California Coast (where we are), REO sales are moving right along -- once the price is cut 10-20 percent below the original asking price.
Stockton and Modesto, now -- probably a different matter.
. I don't have a chart for you, but I have done the math for the past few quarters, and yes, the rate at which delinquenies are converting to foreclosure starts is rising. Overall, the ratio of foreclosure starts to delinquencies in Q3 was 14.0% vs 12.7% in Q2 and 12.05 in Q1. For subprime ARMs, the ratio was 25.1% in Q3 vs 22.7% in Q2, 20.1% in Q1. People are missing mortgage payments more, and losing their homes faster, once they start missing mortgage payments.
k harris | 12.06.07 - 10:46 am | #
can you provide some additional info on your analysis? Might help me get an idea of how large DSL NPAs will be this quarter.
The basics are: median house about $250K; median household income $48K; and Paulson's rescue based on those with about 7.5% interest that will reset soon.
These mortgage holders are the walking dead.
At that interest rate, the cost of home ownership (PITI) plus a little maintenace is about $2500/month or $30K a year.
How does that $30K fit into $48K?
Not very well now.
Even worse with a future that has falling house values, a slow economy and high commodity prices.
So, they are the walking dead unless the US governmen decides to mail them a check for a grand every month.
While the MBA data does capture the lions share of the total mortgage market it should be noted that it does not include portfolioed mortgages held by the nations 8,700-odd insured institutions or those mortgages securitized by private entities, just ones that were sold to fannie & freddie.
The past-dues rates on those mortgages portfolioed by insured institutions are well below what the MBA data is showing.
The private label securited mortgages are a mess though.
An interesting article on the BIG PICTURE regarding the Birth/death adjustments.
In 2005/6 B/D adjustments made c. 30%
in Oct. 2007 they made up 80% only 20% remained as truly "measured". NFP: birth/Death Adjustments
Nobody expects a recession! Our chief fear is sub-prime... sub prime and alt-a... alt-a and sub-prime...
Our two chief fears are sub-prime and alt-a.... and auto-loans...
Our three chief fears are sub-prime, alt-a and auto-loans ... and credit card debt...
Our four...No...Amongst our chief fears are such elements as sub-prime, alt-a, auto-loans, credit card debt, jumbos, CRE, and a fanatical devotion to the Fed.... I'll start over.
I vote for a Euro Currency bubble. The Chinese will go about destroying their manufacturing base like they have ours. Peak at around $2.25 / Euro as the world flees dollar denominated assets.
Some people might say Wall Street only helped to distribute risk. Well, I believe Wall Street shifted risk away from people who knew what was going on to people who did not
So is hillary (or someone on her staff) a CR regular?
James at 10:41:
Here are some figures for you in case you missed them:
DJI
Date Close
12/6/06 12,309
10/9/07 14,164
12/4/07 13,248
So over the last year the DJI is up 7.1% in nominal terms or slightly less than 4% in real terms.
Over the last 3 months the DJI is down 6.5% in nominal terms or slightly more than 7% in real terms.
I disagree about the next bubble. It is not "green." The best candidate for the next bubble is the entirety of the emerging markets. If it continues to have traction the potential is enormous. It may really screw with bears like me.
I just churned up a bit of the data from today's MBA release. I didn't see anything about cure rates. My guess is that the cure rate is roughly the inverse of the ratios that I created, and that there is a lag between turns in the delinquency rate and in foreclosures, so that there is a lag in the ratios. That's just a guess, though.
"The stock market is a discounting mechanism for leverage. It has nothing to do with corporate profits or the economy."
Insights like this keep me coming back.
But AC, can this persist? As rates re-approach zero, won't the prospect of "turning Japanese" (as another poster riffed, off The Vapors) reverse the new dynamic?
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases. -MAB
MAB, it is no longer refered to as "green". The phrase is "clean tech". More palatable as it sounds less hippie liberal "green" peace froufrou-ish.
Did I or did I not call the Fed Cut/ Santa Claus rally from the day before turkey day.
You can't have a crash just before St. Nick arrives, that would be utterly crushing to our high end retailers. The crash can only occur when the credit card bills arrive and can't be faced with another HELOC draw;-}
Fear and Loathing have returned to Las Vegas in the guise of the repo man. Nothing like doom and gloom from the folks who predicted a small slowdown in Arizona last year: Weak economy projected for Arizona
I was there, the worst comments didn't make the article. Elliot Pollack basically made the point that there is a two year supply of houses on the market, nearing completion, and entering foreclosure. So things will gradually improve once that 80-90k home inventory is absorbed- but he pointed out that would take two years in a good economy. Draw your own conclusion, that is what the man said. My unofficial conclusions are four to five years until recovery- three more years of grinding toward a bottom.
I have to try to keep telling myself why it won't.
James | 12.06.07 - 11:32 am | #
Personally, I don't like my emotions to influence my observations (not that that can be fully achieved). I do , however, talk to myself on occasion.
It's neither doubt, nor wishful thinking, nor pessimism or optimism, nor is it deciding that the light I see ahead is the end of the tunnel and not a train - none of that matters.
An honest assessment is that things aren't going too well with the economy, and they're stacking up to get a whole lot worse.
"The stock market is a discounting mechanism for leverage. It has nothing to do with corporate profits or the economy."
No.
The stock market is a discounting mechanism for future corporate cashflows, in which leverage (the cost of money, weighted average cost of capital, WACC) is the discount rate.
WACC for all but the largest, most solid companies is going up, not down. Look at CDS spreads for current data on cost of capital.
If WACC for a crummy little comapny is 12-15%, there's almost no way that company can grow fast enough to be worth a P/E ratio of 40.
"Top Mortgage CDO Classes May Lose 80 Percent, Barclays Says
By Jody Shenn
Dec. 6 (Bloomberg) -- U.S. mortgage assets in collateralized debt obligations have lost so much value that the top classes of the securities may be worth as little as 20 cents on the dollar in the event of liquidation, Barclays Plc analysts said in a report.
About 20 percent to 30 percent of principal would be covered for the ``super senior'' portions of mezzanine asset-backed bond CDOs, which mainly contain mortgage bonds and other CDOs initially assigned low investment-grade ratings, New York-based analysts Joseph Astorina, Elena Warshawsky and Wei-Ang Lee wrote yesterday. The senior-most classes of CDOs containing highly rated asset- backed bonds would recoup 30 percent to 65 percent, they wrote.
Determining accurate prices for the collateral is hard to do, the analysts said. ``We believe our methodology is analytically rigorous and represents a good jumping off point,'' they wrote.
..."
AQR Suffers Hits in Volatile Times..another hedgie that has seen a decline in value this year and this "Relief was expected this fall after the Federal Reserve Bank cut rates, but so far, credit problems havent gone away. If anything they might have become worse"
I'll go 100% long today, expecting this to be the end of the correction starting around July 27th.
O-Joe
Optimistic Joe | 09.07.07 - 11:41 am
This is capitulation day today for the bulls IMHO. Next week, the bull will resume and leave all the bears behind, not looking back for months.
I'm more concerned that interest rates will also start raising again. I consider selling a t-bond future soon to protect against rasing mortgage payments for our house purchase next year. I know you can get burned in the futures market.
O-Joe
Optimistic Joe | 09.07.07 -
If by months you meant 30 days, you're good. But since that time, the DJIA has moved a whopping 127 points.
MAB, it is no longer refered to as "green". The phrase is "clean tech". More palatable as it sounds less hippie liberal "green" peace froufrou-ish.
Napolean | 12.06.07 - 11:36 am |
The term 'internet' has also fallen out of favor. We now use, 'internets tubes'.
Napolean: "clean tech" has replaced "green" in popular usage? Really? Never heard of it. Very strange that a "Hippie liberal" ideology isn't acceptable until it's couched in conservatively favorable terms.
I think we should call it the Homeland Purity Defense Standard, or something similar.
Which calls total BS on the characterization of this as a 'buyer's strike' with no bid - they just don't want to suck up the pain of the market price as it represents insolvency for some significant subset of the security holders. It is a 'seller's strike' while they hope and pray that bailouts from the Fed and White House will save them.
The proposed "bail out" rate freeze isn't deigned to solve the problem, or even really to alleviate it.
IMHO the purpose of the bail out is to have the people who bought speculative mortgages THINK they'll be bailed out. That renewed sense of wealth will then encourage them to spend this Christmas season sustaining consumption.
At least when they loose their house/condo they'll have a lot of nice stuff.
After reading the profit report from the RBS, which put aside almost 2 billion for worst-case write offs but made profits that exceeded expectations - almost 10 billion - I decided to stop counting the days until a banking collapse. Reading CR is an addiction but it is a tease with ultimately no payoff.
There is too much money sloshing around even with these vaporizing CDOs. This whole mess is just going to end up being a haircut off the top of already excessive profits made by the mega banks. If RBS (to say nothing of the fine gentlemen @ goldman sucks) can make this much money in such a short time.. more than 4 times the already huge write off.. then I am not seeing how the problems with credit defaults translates into a collapse that would excite a perma-bear, and recession. The poo has been too widely distributed, wide distribution means it is offset and matched and exceeded by a wider range of normal business profits.
So I think I'm going to go into bear hibernation. Wake me up when even a single very large bank goes under and strains the FDIC.
Did anyone notice this bit from the Adams Square CDO liquidation?
"According to the notice from the trustee, the sale proceeds from the liquidation of the cash assets, along with the proceeds in the collateral principal collection account, super-senior reserve account, credit default swap (CDS) reserve account, and other sources, were not adequate to cover the required termination payments to the CDS counterparty. As a result, the CDO had to draw the balance from the super-senior swap counterparty."
Translation: the super-senior swap counterparty, Credit Suisse, had to kick in to make good on the Adams Square credit default swap.
Doesn't say how much Credit Suisse paid out, but the questions are:
-how many CDO's of CDS's like this are out there?
-how do the brokers account for them, and what are they on the hook for?
It seems to me that no one has the slightest clue what the answers to those questions are.
And that uncertainty is part of what is driving LIBOR and the TED spread up.
"clean tech" has replaced "green" in popular usage? Really? Never heard of it. Very strange that a "Hippie liberal" ideology isn't acceptable until it's couched in conservatively favorable terms. -Marcus Aurelius
Well the bubble hasn't really begun yet, has it? Good thing I tipped you off so early on!
Today there seems to be nothing more conservative than Nation Building. Except what do they call it now?
Word is that anyone whose home is worth less than their mortgage is excluded"
WHICH WOULD EXLUDE MOST - so I too doubt this but on the flip side who is going to continue making payments on houses worth less than the balance on their mortgage. My bet not many
energyecon:
totally off topic, but your handle suggests an interest in the energy markets. do you have any opinion on what if anything will cause the natgas / oil btu gap to close over the long term?
thanks
d
Mortgage lender Delta Financial Corp. said Thursday that it planned to file for Chapter 11 bankruptcy, buckling under the pressure of mounting losses that have made it impossible for the company to find anyone willing to bail it out.
Woodbury, L.I.-based Delta said it will stop taking mortgage applications and existing applications will be suspended. As a result, the company says it does not expect to complete a transaction first announced in November, which would have raised money by selling Delta senior notes and common stock to an affiliate of Angelo, Gordon & Co.
Delta specialized in fixed-rate mortgages to reduce defaults on its subprime loans, which are geared at borrowers with weak credit or incomplete documentation. Fixed-rate payments are intended to help homeowners avoid the type of sudden monthly bill increases that have prompted a surge in mortgage delinquencies and foreclosures in the last few months.
It has been a quick fall from grace for Delta, whose shares have shed 86% since the end of June. In August, the company suspended dividend payments and lined up $70 million in financing from private investors. But in September, Delta sold $900 million of loans and laid off 300 New York employees. Shares of the company were halted before Thursdays session to allow the bankruptcy news to be distributed. On Wednesday, the stock closed up 10 cents at $1.70.
More than 100 mortgage companies have suspended operations or eyed buyouts this year, including Melville, L.I.-based American Home Mortgage Investment Corp., which filed for Chapter 11 bankruptcy protection on Aug. 6 and slashed about 90% of its 7,500-person staff, including 1,500 jobs at its Long Island headquarters.
According to today's NY Times, announced layoffs in the pharmaceutical industry are 10,000 at Pfizer (10% of workforce), 4,300 at Bristol-Myers (10%), 7,000 at Merck (10%) and 4,800 at J&J (4%).
Big pharma is downsizing to get ready for universal health care and lower profit margins (unless costs can be cut deeply). The fat days are gone because the U.S. can no longer afford it. Across health care sector, employees are the only way to cut deeply into cost structures. Headcount cuts are coming at hospitals, clinics, doctors and nurses. A huge driver of U.S. employment turns negative in 2008-09.
It won't take a single-payer system to drive down health care costs. Regional mandatory cooperatives for small biz, self-employed and now-uninsured would do the same. And big pharma knows it.
Which states will feel the greatest hit from pharma downsizing? Those that can least afford it fiscally: NJ and CA.
James said: "...I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case."
James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
However, the very fact that they have so little to start with means that their financial contribution to the economy is also relatively small. Their losses are going to be miserable for them, but aren't going to have a crippling effect on the economy.
Tanta, who doesn't want to be my neighbor: I know what the rules are---doesn't mean I had a hand in making them, you know?
Funny News of
Austrian State Railway Comp. bought 1 Billion USD ABS paper in 2005. For 2007 they are contemplating to build loss reserves of 100 million $ for this position. Things happen....
A brief greeting from the President of the Arizona Association of Realtors, Frank Dickens, and the Commissioner of the Arizona Department of Real Estate, Sam Wercinski.
James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
Sebastian,
And, in the end, the fuss will not be about the defaulting homeowners.
My feeling is that the reason there's this big "Hope Now" thingy is to prevent swap contracts and other derivatives from hitting trigger events.
There are tens of trillions of dollars in derivatives contracts written against all of these debt vehicles.
It is NOT about the homeowners (in my opinion), it is about preventing a lot of these credit default swaps from being triggered into paying out.
I'm guessing there isn't enough cash in the actual system to handle that sort of stress.
Sebastian, those with assets are being pulverized too.
Who do you think invested in all of these SIVs?
Complexity, contagion, and counterparty risk.
Words for the next year.
The unfortunate truth is that a massive campaign of borrow short/lend long was perpetrated by Wall Street through these swaps, derivative transactions, cdo, cmo, alphabet soup trusts, etc. Now with no credible secondary market beyond the FED, huge losses are pent up in these transactions, and those losses will eventually be marked to market.
What's in your bond fund, pension, municiple investment pool, insurance company?
Intersting thesis, but if its true why then do we have this little tea party at 1:45 EST today?
This sounds like reheated decoupling, though this time instead of from the rest of the world its the US consumer (who was it that had the highest marginal propensity to consume again?). Interesting but not convincing...
By the same logic, I guess the massive defaults and bankruptcies in the homebuilding, construction, building materials and household services industries won't have much impact either, since those industries have grown so poor lately.
And, oh yeah, the banks that made construction loans. They'll be poor soon too.
Sebastian... we are all getting subprime, even here in the ritzy suburbs of NYC. Sorry you can't visit and see for yourself.
Disaster movie redo 10. In other news - Real Estate doesn't always go up. Duh! It has gone down in the past. Sometimes 20 and 30% in some areas. Was it a problem then? Not really. It enabled more people to get into homes at more reasonable prices. Guess what? It will happen again.
Why the noise today? Because EVERYTHING is a disaster movie in the making, enabled by a communications hungry society and a government that leans too close to socialism.
I'm actually glad to see a correction. It will clean out the bad financial deals and build a better base for the future. Good for my kids.
Perhaps you can reconcile your statement about only the folks in the lower economic strata getting hurt with these stats from the MBA report today:
Prime ARM delinquencies Q106 to Q307:
2.30%, 2.70%, 3.06%, 3.39%, 3.69%, 4.15%, 5.14%
Prime ARM Foreclosures Started Q106 to Q307:
.21%, .27%, .30%, .41%, .53%, .62%, 1.02%
5% Prime ARM delinquencies - when you consider that prime borrowers outnumber subprime by about 10 to 1, we are starting to talk real money here.
One more thing, from the front page of the WSJ: "About 4.5% of auto loans made in 2006 to top-rated borrowers [that would be prime, Seb] were at least 30 days delinquent as of the end of September, up from 2.9% the previous month".
Seb, is your resemblance to the guys who were playing the violin on the deck of the Titanic merely a coincidence?
eli said: "...I'm guessing there isn't enough cash in the actual system to handle that sort of stress."
I agree. Except that the amount of stress isn't totally out of our control, is it? It's not like New Orleans and Katrina: We couldn't get enough sandbags (cash) there fast enough to handle the flooding (stress) over which we had no control.
The Superfund, the interest-rate freeze, the behind-closed-door wrangling among the big banks, the Fed, Treasury, the Fed easings---we're exerting conscious control over the amount of stress on the system and how it's distributed. Even if all that turns out to be just jaw-boning the problem, the discussion is affecting policy and attitudes among the players (banks, homeowners, potential homeowners).
Our financial/banking system isn't governed by immutable laws of nature like the tides or gravity from which there is no appeal, but by rules that we can adapt within certain parameters to meet the conditions.
There's a reason why we haven't had a repeat of the Great Depression or a of Weimar-like hyperinflation, even though there have been plenty of opportunities to get our asses in those kinds of slings.
Zig,
Unfortunately, it only takes a few percent increase above expectations to start blowing up RMBS and CDO tranches. The Ben Stein "so what's a few percent" argument ignores the reality of structured finance and the close correlation of asset classes. But don't take my word for it, ask those teachers down in Florida who aren't getting paid whether a few percent makes a difference.
idoc,
i dont believe that the countervailing view is to ignore the data or to refute its accuracy. its just a question of what the effect of the housing market crash will be on the rest of the economy and the financial and banking systems. some (including myself) believe that there is and will continue to be an enormous bifurcation in the economy and the markets. if you are around ground zero then its going to hurt. if you are well enough away then things aint going to be so bad.
i think one of the big mistakes being made when extrapolating to 'trillions of dollars of derivatives' is to confuse bets between parties with general asset price levels. if two parties enter into some kind of a financial bet then the net result is just a transfer of wealth from one to the other depending on the outcome. asset values actual are the yardstick by which nominal wealth is measured. if one steps back and looks at the total asset value book which is under pressure and where it might settle, the problem is not as catastrophic as is being portrayed. a fair amount of the repricing has already taken place.
i would take the cnbc poll as a measure of market sentiment, since just about everyone is going to vote their book. this means that there are an awful lot of shorts in the market chasing what may be from a financial market perspective and old story....
Unfortunately, it only takes a few percent increase above expectations to start blowing up RMBS and CDO tranches. The Ben Stein "so what's a few percent" argument ignores the reality of structured finance and the close correlation of asset classes.
agreed, brian -- i think there's a lot of confusion about what the problem really is.
if 5% of home loans went delinquent, perhps that would be a big deal in and of its own right -- but not a catastrophe.
what makes the current situation uniquely flammable is the LEVERAGE that has been applied to these loans.
even to the point that risk is "distributed" (which it obviously is) by securitzation, that is a void argument without context. if the amount of leverage that existed in 1985 were distributed in this fashion, then i agree that there would be little to worry about.
but it isn't. in 2007, the problem isn't mortgages themselves and isn't car loans themselves. rather, the problem looks like this. it's a credit bubble frankly without much historical precedent, and certainly none in living memory -- therefore, applying the lessons learned by the previous events of our lifetimes and sharply limited experiences is a very dangerously naive course, i suspect.
I wasn't being totally serious, but if I'm sounding like Ben Stein, I need to seriously rethink everything.
In a bubble there is no middle position that makes sense.
Still, bringing up the depression is sort of like throwing hitler into a foreign policy discussion.
It seemed to me like the Sunbelt/Texas crash of the late 80's was bad enough. Or the bubble of your choice. Tech/dotcom, 87 stock market, 1979 attempts at curbing inflation by Carter, etc, etc.
There's a reason why we haven't had a repeat of the Great Depression or a of Weimar-like hyperinflation, even though there have been plenty of opportunities to get our asses in those kinds of slings.
Nothing new under the sun.
Sebastian,
Let's hope so..
Though, when George Soros and other currency speculators popped the Bank of England on Black Wednesday.. you can bet England was trying everything in its power to fight them.
I think society is structured around the illusion of control. Optimism fuels that illusion. Unlike some on this site, I believe optimism is a wonderful thing. I wish I was more inherently optimistic.
Unfortunately, I am not.
Since I lack the requisite optimism, I believe that we may lose control of this wild animal we've created with all these derivatives contracts.
Also, since I am sort of an ignoramus-doof, I like to think of a quote from the schlocky sci-fi "Pitch Black"..
Vin Diesel as the evil Riddick tells the other innocents in the group (fearing the flesh eating monsters that will come out once the sun sets for good):
"When the lights go out, this little pyscho-fuck family of ours is going to tear it's self apart."
So.. unless the government can control all the players.. and keep them from pulling out the knives.. well.. it can get real ugly.
James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
They are meaningless, they never were homeowners anyway.
But they were the tools Wall Street used to push middle class people with assets into ever higher priced real estate.
Tanta is right when she says that almost everyone is sub prime now. It is a failed social experiment, lower class people can never be brought up, forced equality can only be achieved at the lowest level.
The Herstatt crisis in Germany
The Banking Crisis in Norway
Bank Failures in Spain
The Swedish Banking Crisis
The Swiss Case
Case Studies of UK Bank Failures
Bank of Credit and Commerce International
Barings
The US Experience
The Savings and Loans crisis
Continental Illinois National Bank: the pitfalls of illiquidity
Bank of New England: the perils of real estate lending
Bank failures after Basel I: the collapse of sub-prime lenders
None of these cost more then 5% of GDP to resolve and most of them were less then 1%.
unsilentmajority - how does the MBA do subprime delinquency estimates if it does not include mortgages securitized by private entities? The securitization rate for these products has been above 80 percent from 2005 forward. Obviously, the private securitizations are a problem area, so does that mean MBA is severly underestimating the forclosure and deliquency rate if it only uses data from the GSEs?
The only mention I've so far seen of mortgage amount exceeding property value being a possible barrier to qualifying for the interest-rate freeze is from a CNN piece on 30 Nov 2007:
"Under discussions in Washington, relief would only be provided to homeowners who remained up to date on their payments but can't afford the higher rate they will face. Homeowners whose property values have dropped below the value of the mortgage would not qualify."
The deflationary cycle is starting.
The housing cycle continues its bust.
Remember when this was just a subprime ARM problem? That was just a few months ago.
Best to all.
But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case.
So far this has been contained to mortgages.
Lately, the market seems to have responded favorably to the mortgage freeze idea. Tol is also very strong today, although I have not really figured out whether it earnings this morning a better or worse than expected. I wonder whether the market will be a little more skeptical when the freeze plan is announced this afternoon. My expectation is that 1) it will be difficult to impliment, and 2) the number of people helped/proportion of people helped will be rather low.
We will know when we hit the bottom when the news articles reach the 1930's as the reference date. I love how it is always "Worst since '98, '96, '90, '86" Keep going media you will get there. Just walk our reference point down slowly.
Even though I think it's unlikely, this makes me think the odds of another bubble are increasing significantly. In the end bubbles are the only tool the Fed has that really works to stimulate the economy, and the board members need to stimulate the economy to keep their jobs.
I think in the end there's a good chance they'll capitulate to job security.
The BoE decision today reinforces that notion.
"Oh this is good because it gives us time to work out the problems in housing and the credit problems (and we keep getting paychecks and worldwide attention)."
My expectation is that 1) it will be difficult to impliment, and 2) the number of people helped/proportion of people helped will be rather low.
Word is that anyone whose home is worth less than their mortgage is excluded. That alone makes the freeze worthless.
But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case.
James | 12.06.07 - 10:27 am | #
Let me guess: You're a Republican. Your Kool-aid stained teeth are showing.
Lately, the market seems to have responded favorably to the mortgage freeze idea. Tol is also very strong today, although I have not really figured out whether it earnings this morning a better or worse than expected. I wonder whether the market will be a little more skeptical when the freeze plan is announced this afternoon.
A lot of heavily shorted stocks are rallying, notably real estate related stuff. So this may not be optimisim so much as hedge funds deliberately fomenting short covering rallies.
Short squeezing is a common tactic employed by fund managers for quick profits.
Things are worse than I thought. 5.59% of all mortgages are delinquent. It would be nice to see a graph of delinquency pct vs foreclosure pct. I would assume the general shape of one would lead the other by a few months, but I wonder how much the amplitude carries from one to the other. I would also guess that when prices are dropping, the amplitude would tend to carry more.
I'm guessing that sometime near the end of 2008, we may see 5-10% of all mortgages in foreclosure. The banks have probably been aware of this for several months. No wonder Paulson is being pressed to act. This is looking like as bad a situation as anyone could have imagined.
Anyone else notice how often the word "hope" is used in conjunction with bullish theses? As in, "stocks rise on hopes that bailout plan will work", or "Fed hopes boost stocks"?
My momma taught me that "hope is not a strategy." If I were to psychoanalyze this market, I would compare it to someone who has just gotten some very bad news but is still in the rationalizing stage, not really dealing with reality.
Market id done going up, now headed same direction as housing
"Word is that anyone whose home is worth less than their mortgage is excluded"
Doubt it.
The strength of the markets indicates that we are no longer concerned with long term productive capital creation. Rather, its safer to bet on asset inflation than to flee to cash. In my view, the Fed is out of amunition. ONLY FISCAL STIMULUS WILL JUMP START OUR ECONOMY. This is like watching bad re-runs of "Welcome Back Kotter"
But it doesn't make any difference, does it, since the stock market is still going up? I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown.
The stock market is a discounting mechanism for leverage.
It has nothing to do with corporate profits or the economy.
The stock market is rallying on the expectation of the Federal Reserve making leverage available on easier terms, as well it should in an environment where the economy has been reconfigured from a wealth-producing mechanism to an asset-leveraging mechanism.
Moin,
here are somewhat related news from the auto sector
Surge in Auto-Loan Delinquencies
Is Latest Trouble for the Economy
First came housing loans and the subprime-mortgage crisis.
Now, signs of stress are creeping into another key consumer area: auto loans.
Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.
About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month,according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.
Surge in Auto-Loan Delinquencies Is Latest Trouble for the Economy - WSJ.com
ONLY FISCAL STIMULUS WILL JUMP START OUR ECONOMY. This is like watching bad re-runs of "Welcome Back Kotter"
Was it Einstein that said insanity is doing the same thing over and over again and expecting different results?
Link to Bloomberg coverage
Marcus Aurie: Hey I saw the wrong figures; no the stock market has dropped drastically, hasn't it? Gee how did I miss that?
Yours,
Stained Teeth
LOL
POP! There goes the housing bubble!
Wall Street says: "Quick Ben, get the GREEN BUBBLE. Green is in. We have some new products which will rapidly inflate the Green bubble. Carbon credits, GMOs, GRBS's, GPDO's, GPS's, GSPOTS."
Time to blow a new bubble.
Some more details:
the S&P desperately made a run at 1490 but couldn't crack it. important resistance. stocks have gotten a good puff out of Hope Alliance but deep down knows it won't do a thing.
stocks can't reach new highs due to credit freeze and already widespread credit destruction. the trend is down for 2008.
Charlie,
I agree. I don't have a chart for you, but I have done the math for the past few quarters, and yes, the rate at which delinquenies are converting to foreclosure starts is rising. Overall, the ratio of foreclosure starts to delinquencies in Q3 was 14.0% vs 12.7% in Q2 and 12.05 in Q1. For subprime ARMs, the ratio was 25.1% in Q3 vs 22.7% in Q2, 20.1% in Q1. People are missing mortgage payments more, and losing their homes faster, once they start missing mortgage payments.
Hey, the Titanic lasted over 2 and a half hours between hitting the iceberg and sinking.
Don't worry everything's fine so far.
"Word is that anyone whose home is worth less than their mortgage is excluded"
Doubt it.
barely | 12.06.07 - 10:36 am | #
That is what CNN was reporting. Of course, you should take that for all it is worth.
Hope versus housing
Trend Search
On the contrary. Hope is a strategy, just not a very effective one!
We are in the inevitable credit crash that follow credit booms. Subprime housing was just the first to show problems. It is not the cause of the problems we are seeing in other credit markets, but the first symptom (IMO).
CR
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases.
Marcus Aurie: Hey I saw the wrong figures; no the stock market has dropped drastically, hasn't it? Gee how did I miss that?
Yours,
Stained Teeth
LOL
James | 12.06.07 - 10:41 am | #
Just keep on focusing on that. There are no other indicators - only the SM. Fundamentals have nothing to do with it.
Drink up, my deluded brother!
I hope there's a green bubble, maybe we'll get a decent infrastructure.
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases.
You saw this, right?
Here comes another bubble
What!!!!, there have been times when the default rate was higher than it is now? Right...next your going to tell me that there is a historical record showing that the planet has been warmer than it is now. ppppfffttt!
AC
Awesome link.
"Foreclosure inventory was the worst in Ohio (3.72%), Indiana (3.28%), and Michigan (3.07%). Florida was also relatively high at 2.19%, with Illinois (2.15%) and Nevada (2.15%) not far behind."
I eat breakfast 2-3 days a week at a joint across from a real estate office that does a lot of REO (and marks it as such). I will say that, within spitting distance of the California Coast (where we are), REO sales are moving right along -- once the price is cut 10-20 percent below the original asking price.
Stockton and Modesto, now -- probably a different matter.
. I don't have a chart for you, but I have done the math for the past few quarters, and yes, the rate at which delinquenies are converting to foreclosure starts is rising. Overall, the ratio of foreclosure starts to delinquencies in Q3 was 14.0% vs 12.7% in Q2 and 12.05 in Q1. For subprime ARMs, the ratio was 25.1% in Q3 vs 22.7% in Q2, 20.1% in Q1. People are missing mortgage payments more, and losing their homes faster, once they start missing mortgage payments.
k harris | 12.06.07 - 10:46 am | #
can you provide some additional info on your analysis? Might help me get an idea of how large DSL NPAs will be this quarter.
"So far this has been contained to mortgages.
MAB"
You missed the post on auto delinquencies yesterday.
The basics are: median house about $250K; median household income $48K; and Paulson's rescue based on those with about 7.5% interest that will reset soon.
These mortgage holders are the walking dead.
At that interest rate, the cost of home ownership (PITI) plus a little maintenace is about $2500/month or $30K a year.
How does that $30K fit into $48K?
Not very well now.
Even worse with a future that has falling house values, a slow economy and high commodity prices.
So, they are the walking dead unless the US governmen decides to mail them a check for a grand every month.
While the MBA data does capture the lions share of the total mortgage market it should be noted that it does not include portfolioed mortgages held by the nations 8,700-odd insured institutions or those mortgages securitized by private entities, just ones that were sold to fannie & freddie.
The past-dues rates on those mortgages portfolioed by insured institutions are well below what the MBA data is showing.
The private label securited mortgages are a mess though.
ac - very funny. thx.
Hapsburger,
I'm not sure what you are asking for. Can you be more specific? And I'm sure I don't know what "DSL NPAs" are.
An interesting article on the BIG PICTURE regarding the Birth/death adjustments.
In 2005/6 B/D adjustments made c. 30%
in Oct. 2007 they made up 80% only 20% remained as truly "measured".
NFP: birth/Death Adjustments
Neal | 12.06.07 - 11:05 am | #
Do you have numbers for average, instead of median, incomes/house prices?
Was it Einstein that said insanity is doing the same thing over and over again and expecting different results?
Except it always has - just at a higher money supply level (more inflation). Thinking it won't happen the same way its always happened is insane.
Now asking at what level too much money supply is too much is anything but insane - but that's a different question/answer set.
k harris
DSL is Downey S&L
NPA are their Non Performing Assets, which include >90 Day 'Delinquencies'.
So I'm wondering if you have some statistical information indicating the % of delinquencies that don't cure, or trend about the not-cure rate.
thanks
So far this has been contained to mortgages.
Reminds me of a Montey Python skit...
Nobody expects a recession! Our chief fear is sub-prime... sub prime and alt-a... alt-a and sub-prime...
Our two chief fears are sub-prime and alt-a.... and auto-loans...
Our three chief fears are sub-prime, alt-a and auto-loans ... and credit card debt...
Our four...No...Amongst our chief fears are such elements as sub-prime, alt-a, auto-loans, credit card debt, jumbos, CRE, and a fanatical devotion to the Fed.... I'll start over.
For those that don't know what I'm talking about:
Video - Montey Python Script
I vote for a Euro Currency bubble. The Chinese will go about destroying their manufacturing base like they have ours. Peak at around $2.25 / Euro as the world flees dollar denominated assets.
Some people might say Wall Street only helped to distribute risk. Well, I believe Wall Street shifted risk away from people who knew what was going on to people who did not
So is hillary (or someone on her staff) a CR regular?
James at 10:41:
Here are some figures for you in case you missed them:
DJI
Date Close
12/6/06 12,309
10/9/07 14,164
12/4/07 13,248
So over the last year the DJI is up 7.1% in nominal terms or slightly less than 4% in real terms.
Over the last 3 months the DJI is down 6.5% in nominal terms or slightly more than 7% in real terms.
Not exactly a blazing hot market. Right?
I agree: ac's link is short and entertaining
I disagree about the next bubble. It is not "green." The best candidate for the next bubble is the entirety of the emerging markets. If it continues to have traction the potential is enormous. It may really screw with bears like me.
Hapsburger,
I just churned up a bit of the data from today's MBA release. I didn't see anything about cure rates. My guess is that the cure rate is roughly the inverse of the ratios that I created, and that there is a lag between turns in the delinquency rate and in foreclosures, so that there is a lag in the ratios. That's just a guess, though.
AC wrote:
"The stock market is a discounting mechanism for leverage. It has nothing to do with corporate profits or the economy."
Insights like this keep me coming back.
But AC, can this persist? As rates re-approach zero, won't the prospect of "turning Japanese" (as another poster riffed, off The Vapors) reverse the new dynamic?
Apparently the winner of HGTV's Dream House contest is heading to foreclosure:
Video - Breaking News Videos from CNN.com
House goes from listing at over $5 million to $1.4 million. Yikes.
"The stock market is a discounting mechanism for leverage. It has nothing to do with corporate profits or the economy."
I suspect Warren Buffett told you this, didn't he? It sounds just like him.
NY mortgage lender Delta Financial to file bankruptcy
Not exactly a blazing hot market. Right?
Well hardly a recession market, either, right? I keep waiting for it to tank but it won't. I have to try to keep telling myself why it won't.
Can we have a poll or contest trying to predict the next bubble. I'm predicting the "green" bubble, but who knows, maybe it will be buoys and house boats so people can avoid real estate tax increases. -MAB
MAB, it is no longer refered to as "green". The phrase is "clean tech". More palatable as it sounds less hippie liberal "green" peace froufrou-ish.
Did I or did I not call the Fed Cut/ Santa Claus rally from the day before turkey day.
You can't have a crash just before St. Nick arrives, that would be utterly crushing to our high end retailers. The crash can only occur when the credit card bills arrive and can't be faced with another HELOC draw;-}
Fear and Loathing have returned to Las Vegas in the guise of the repo man. Nothing like doom and gloom from the folks who predicted a small slowdown in Arizona last year:
Weak economy projected for Arizona
I was there, the worst comments didn't make the article. Elliot Pollack basically made the point that there is a two year supply of houses on the market, nearing completion, and entering foreclosure. So things will gradually improve once that 80-90k home inventory is absorbed- but he pointed out that would take two years in a good economy. Draw your own conclusion, that is what the man said. My unofficial conclusions are four to five years until recovery- three more years of grinding toward a bottom.
Someday this war's gonna end...
I have to try to keep telling myself why it won't.
James | 12.06.07 - 11:32 am | #
Personally, I don't like my emotions to influence my observations (not that that can be fully achieved). I do , however, talk to myself on occasion.
It's neither doubt, nor wishful thinking, nor pessimism or optimism, nor is it deciding that the light I see ahead is the end of the tunnel and not a train - none of that matters.
An honest assessment is that things aren't going too well with the economy, and they're stacking up to get a whole lot worse.
Just an observation.
Implode-Explode Forums :: View topic - Countrywide Mass Layoffs happening right now
Massive CFC layoffs happening right now - I wonder if they get to keep the wristbands?
"The stock market is a discounting mechanism for leverage. It has nothing to do with corporate profits or the economy."
No.
The stock market is a discounting mechanism for future corporate cashflows, in which leverage (the cost of money, weighted average cost of capital, WACC) is the discount rate.
WACC for all but the largest, most solid companies is going up, not down. Look at CDS spreads for current data on cost of capital.
If WACC for a crummy little comapny is 12-15%, there's almost no way that company can grow fast enough to be worth a P/E ratio of 40.
Wow. Barclay's Analysts predicting that some mortgage backed CDOs will only be worth 20% of par for liquidation purposes.
Top CDO Classes May Lose 80 Percent, Barclays Says (Update2) - Bloomberg.com
"Top Mortgage CDO Classes May Lose 80 Percent, Barclays Says
By Jody Shenn
Dec. 6 (Bloomberg) -- U.S. mortgage assets in collateralized debt obligations have lost so much value that the top classes of the securities may be worth as little as 20 cents on the dollar in the event of liquidation, Barclays Plc analysts said in a report.
About 20 percent to 30 percent of principal would be covered for the ``super senior'' portions of mezzanine asset-backed bond CDOs, which mainly contain mortgage bonds and other CDOs initially assigned low investment-grade ratings, New York-based analysts Joseph Astorina, Elena Warshawsky and Wei-Ang Lee wrote yesterday. The senior-most classes of CDOs containing highly rated asset- backed bonds would recoup 30 percent to 65 percent, they wrote.
Determining accurate prices for the collateral is hard to do, the analysts said. ``We believe our methodology is analytically rigorous and represents a good jumping off point,'' they wrote.
..."
O/T
AQR Suffers Hits in Volatile Times..another hedgie that has seen a decline in value this year and this "Relief was expected this fall after the Federal Reserve Bank cut rates, but so far, credit problems havent gone away. If anything they might have become worse"
HedgeFund.net: Public news from HedgeNews
185 visitors online: that's a good panic level.
I'll go 100% long today, expecting this to be the end of the correction starting around July 27th.
O-Joe
Optimistic Joe | 09.07.07 - 11:41 am
This is capitulation day today for the bulls IMHO. Next week, the bull will resume and leave all the bears behind, not looking back for months.
I'm more concerned that interest rates will also start raising again. I consider selling a t-bond future soon to protect against rasing mortgage payments for our house purchase next year. I know you can get burned in the futures market.
O-Joe
Optimistic Joe | 09.07.07 -
If by months you meant 30 days, you're good. But since that time, the DJIA has moved a whopping 127 points.
1-4 units delinquences increased to 5.59% from 5.12% in Q2.
Prime increased to 3.12% from 2.73% in Q2.
Subprime increased to 16.31% from 14.82% in Q2.
Good thing the government's inflation and employment "numbers" are so low, otherwise, things would really suck.
Or "The Jerk"
"All I need is this lamp..."
MAB, it is no longer refered to as "green". The phrase is "clean tech". More palatable as it sounds less hippie liberal "green" peace froufrou-ish.
Napolean | 12.06.07 - 11:36 am |
The term 'internet' has also fallen out of favor. We now use, 'internets tubes'.
Napolean: "clean tech" has replaced "green" in popular usage? Really? Never heard of it. Very strange that a "Hippie liberal" ideology isn't acceptable until it's couched in conservatively favorable terms.
I think we should call it the Homeland Purity Defense Standard, or something similar.
A Rose is a rose...
Andrew,
Which calls total BS on the characterization of this as a 'buyer's strike' with no bid - they just don't want to suck up the pain of the market price as it represents insolvency for some significant subset of the security holders. It is a 'seller's strike' while they hope and pray that bailouts from the Fed and White House will save them.
The proposed "bail out" rate freeze isn't deigned to solve the problem, or even really to alleviate it.
IMHO the purpose of the bail out is to have the people who bought speculative mortgages THINK they'll be bailed out. That renewed sense of wealth will then encourage them to spend this Christmas season sustaining consumption.
At least when they loose their house/condo they'll have a lot of nice stuff.
After reading the profit report from the RBS, which put aside almost 2 billion for worst-case write offs but made profits that exceeded expectations - almost 10 billion - I decided to stop counting the days until a banking collapse. Reading CR is an addiction but it is a tease with ultimately no payoff.
There is too much money sloshing around even with these vaporizing CDOs. This whole mess is just going to end up being a haircut off the top of already excessive profits made by the mega banks. If RBS (to say nothing of the fine gentlemen @ goldman sucks) can make this much money in such a short time.. more than 4 times the already huge write off.. then I am not seeing how the problems with credit defaults translates into a collapse that would excite a perma-bear, and recession. The poo has been too widely distributed, wide distribution means it is offset and matched and exceeded by a wider range of normal business profits.
So I think I'm going to go into bear hibernation. Wake me up when even a single very large bank goes under and strains the FDIC.
Did anyone notice this bit from the Adams Square CDO liquidation?
"According to the notice from the trustee, the sale proceeds from the liquidation of the cash assets, along with the proceeds in the collateral principal collection account, super-senior reserve account, credit default swap (CDS) reserve account, and other sources, were not adequate to cover the required termination payments to the CDS counterparty. As a result, the CDO had to draw the balance from the super-senior swap counterparty."
Translation: the super-senior swap counterparty, Credit Suisse, had to kick in to make good on the Adams Square credit default swap.
Doesn't say how much Credit Suisse paid out, but the questions are:
-how many CDO's of CDS's like this are out there?
-how do the brokers account for them, and what are they on the hook for?
It seems to me that no one has the slightest clue what the answers to those questions are.
And that uncertainty is part of what is driving LIBOR and the TED spread up.
"clean tech" has replaced "green" in popular usage? Really? Never heard of it. Very strange that a "Hippie liberal" ideology isn't acceptable until it's couched in conservatively favorable terms. -Marcus Aurelius
Well the bubble hasn't really begun yet, has it? Good thing I tipped you off so early on!
Today there seems to be nothing more conservative than Nation Building. Except what do they call it now?
Word is that anyone whose home is worth less than their mortgage is excluded"
WHICH WOULD EXLUDE MOST - so I too doubt this but on the flip side who is going to continue making payments on houses worth less than the balance on their mortgage. My bet not many
energyecon:
totally off topic, but your handle suggests an interest in the energy markets. do you have any opinion on what if anything will cause the natgas / oil btu gap to close over the long term?
thanks
d
Posted 9 minutes ago:
Mortgage lender Delta Financial Corp. said Thursday that it planned to file for Chapter 11 bankruptcy, buckling under the pressure of mounting losses that have made it impossible for the company to find anyone willing to bail it out.
Woodbury, L.I.-based Delta said it will stop taking mortgage applications and existing applications will be suspended. As a result, the company says it does not expect to complete a transaction first announced in November, which would have raised money by selling Delta senior notes and common stock to an affiliate of Angelo, Gordon & Co.
Delta specialized in fixed-rate mortgages to reduce defaults on its subprime loans, which are geared at borrowers with weak credit or incomplete documentation. Fixed-rate payments are intended to help homeowners avoid the type of sudden monthly bill increases that have prompted a surge in mortgage delinquencies and foreclosures in the last few months.
It has been a quick fall from grace for Delta, whose shares have shed 86% since the end of June. In August, the company suspended dividend payments and lined up $70 million in financing from private investors. But in September, Delta sold $900 million of loans and laid off 300 New York employees. Shares of the company were halted before Thursdays session to allow the bankruptcy news to be distributed. On Wednesday, the stock closed up 10 cents at $1.70.
More than 100 mortgage companies have suspended operations or eyed buyouts this year, including Melville, L.I.-based American Home Mortgage Investment Corp., which filed for Chapter 11 bankruptcy protection on Aug. 6 and slashed about 90% of its 7,500-person staff, including 1,500 jobs at its Long Island headquarters.
Delta was not immediately available for comment.
Delta Financial files for bankruptcy - Crain's New York Business
``We believe our methodology is analytically rigorous and represents a good jumping off point,''
Perhaps if they looked up from the model, they might see they are standing at the edge of the Grand Canyon.
Cheers,
OT
According to today's NY Times, announced layoffs in the pharmaceutical industry are 10,000 at Pfizer (10% of workforce), 4,300 at Bristol-Myers (10%), 7,000 at Merck (10%) and 4,800 at J&J (4%).
Big pharma is downsizing to get ready for universal health care and lower profit margins (unless costs can be cut deeply). The fat days are gone because the U.S. can no longer afford it. Across health care sector, employees are the only way to cut deeply into cost structures. Headcount cuts are coming at hospitals, clinics, doctors and nurses. A huge driver of U.S. employment turns negative in 2008-09.
It won't take a single-payer system to drive down health care costs. Regional mandatory cooperatives for small biz, self-employed and now-uninsured would do the same. And big pharma knows it.
Which states will feel the greatest hit from pharma downsizing? Those that can least afford it fiscally: NJ and CA.
The nation's medicine chest? - NJVoices: James Hughes and Joseph Seneca
Will the last person left in Jersey please turn out the lights?
James said: "...I don't think this housing mess has much real effect on the economy other than maybe a wee bit of a slowdown. All you housing bears think it has more impact that it does. Most of these people with foreclosure probably don't contribute much to the economy in any case."
James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
However, the very fact that they have so little to start with means that their financial contribution to the economy is also relatively small. Their losses are going to be miserable for them, but aren't going to have a crippling effect on the economy.
Tanta, who doesn't want to be my neighbor: I know what the rules are---doesn't mean I had a hand in making them, you know?
Sebastia
Funny News of
Austrian State Railway Comp. bought 1 Billion USD ABS paper in 2005. For 2007 they are contemplating to build loss reserves of 100 million $ for this position. Things happen....
This video is hilarious:
A brief greeting from the President of the Arizona Association of Realtors, Frank Dickens, and the Commissioner of the Arizona Department of Real Estate, Sam Wercinski.
YouTube
- Broadcast Yourself.
YouTube -
sorry to pollute this topic
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James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
Sebastian,
And, in the end, the fuss will not be about the defaulting homeowners.
My feeling is that the reason there's this big "Hope Now" thingy is to prevent swap contracts and other derivatives from hitting trigger events.
There are tens of trillions of dollars in derivatives contracts written against all of these debt vehicles.
It is NOT about the homeowners (in my opinion), it is about preventing a lot of these credit default swaps from being triggered into paying out.
I'm guessing there isn't enough cash in the actual system to handle that sort of stress.
Sebastian, those with assets are being pulverized too.
Who do you think invested in all of these SIVs?
Complexity, contagion, and counterparty risk.
Words for the next year.
The unfortunate truth is that a massive campaign of borrow short/lend long was perpetrated by Wall Street through these swaps, derivative transactions, cdo, cmo, alphabet soup trusts, etc. Now with no credible secondary market beyond the FED, huge losses are pent up in these transactions, and those losses will eventually be marked to market.
What's in your bond fund, pension, municiple investment pool, insurance company?
Someday this war's gonna end...
Seb,
Intersting thesis, but if its true why then do we have this little tea party at 1:45 EST today?
This sounds like reheated decoupling, though this time instead of from the rest of the world its the US consumer (who was it that had the highest marginal propensity to consume again?). Interesting but not convincing...
Sebastian,
By the same logic, I guess the massive defaults and bankruptcies in the homebuilding, construction, building materials and household services industries won't have much impact either, since those industries have grown so poor lately.
And, oh yeah, the banks that made construction loans. They'll be poor soon too.
Sebastian... we are all getting subprime, even here in the ritzy suburbs of NYC. Sorry you can't visit and see for yourself.
Disaster movie redo 10. In other news - Real Estate doesn't always go up. Duh! It has gone down in the past. Sometimes 20 and 30% in some areas. Was it a problem then? Not really. It enabled more people to get into homes at more reasonable prices. Guess what? It will happen again.
Why the noise today? Because EVERYTHING is a disaster movie in the making, enabled by a communications hungry society and a government that leans too close to socialism.
I'm actually glad to see a correction. It will clean out the bad financial deals and build a better base for the future. Good for my kids.
Sebastian,
Perhaps you can reconcile your statement about only the folks in the lower economic strata getting hurt with these stats from the MBA report today:
Prime ARM delinquencies Q106 to Q307:
2.30%, 2.70%, 3.06%, 3.39%, 3.69%, 4.15%, 5.14%
Prime ARM Foreclosures Started Q106 to Q307:
.21%, .27%, .30%, .41%, .53%, .62%, 1.02%
5% Prime ARM delinquencies - when you consider that prime borrowers outnumber subprime by about 10 to 1, we are starting to talk real money here.
One more thing, from the front page of the WSJ: "About 4.5% of auto loans made in 2006 to top-rated borrowers [that would be prime, Seb] were at least 30 days delinquent as of the end of September, up from 2.9% the previous month".
Seb, is your resemblance to the guys who were playing the violin on the deck of the Titanic merely a coincidence?
So that means that 95% of prime ARM loans aren't delinquent and 99% aren't being foreclosed?
Where is the 'half full' crowd?
ever mind Seb, James, OJoe, or Tennis. they will never address the data as presented nor provide any of their own of substance.
eli said: "...I'm guessing there isn't enough cash in the actual system to handle that sort of stress."
I agree. Except that the amount of stress isn't totally out of our control, is it? It's not like New Orleans and Katrina: We couldn't get enough sandbags (cash) there fast enough to handle the flooding (stress) over which we had no control.
The Superfund, the interest-rate freeze, the behind-closed-door wrangling among the big banks, the Fed, Treasury, the Fed easings---we're exerting conscious control over the amount of stress on the system and how it's distributed. Even if all that turns out to be just jaw-boning the problem, the discussion is affecting policy and attitudes among the players (banks, homeowners, potential homeowners).
Our financial/banking system isn't governed by immutable laws of nature like the tides or gravity from which there is no appeal, but by rules that we can adapt within certain parameters to meet the conditions.
There's a reason why we haven't had a repeat of the Great Depression or a of Weimar-like hyperinflation, even though there have been plenty of opportunities to get our asses in those kinds of slings.
Nothing new under the sun.
Sebastia
CNBC is reporting that overwhelmingly at a ratio of 50:1 emails are AGAINST the pending IR freeze. lots of anger.
Zig,
Unfortunately, it only takes a few percent increase above expectations to start blowing up RMBS and CDO tranches. The Ben Stein "so what's a few percent" argument ignores the reality of structured finance and the close correlation of asset classes. But don't take my word for it, ask those teachers down in Florida who aren't getting paid whether a few percent makes a difference.
idoc,
i dont believe that the countervailing view is to ignore the data or to refute its accuracy. its just a question of what the effect of the housing market crash will be on the rest of the economy and the financial and banking systems. some (including myself) believe that there is and will continue to be an enormous bifurcation in the economy and the markets. if you are around ground zero then its going to hurt. if you are well enough away then things aint going to be so bad.
i think one of the big mistakes being made when extrapolating to 'trillions of dollars of derivatives' is to confuse bets between parties with general asset price levels. if two parties enter into some kind of a financial bet then the net result is just a transfer of wealth from one to the other depending on the outcome. asset values actual are the yardstick by which nominal wealth is measured. if one steps back and looks at the total asset value book which is under pressure and where it might settle, the problem is not as catastrophic as is being portrayed. a fair amount of the repricing has already taken place.
CNBC is reporting that overwhelmingly at a ratio of 50:1 emails are AGAINST the pending IR freeze. lots of anger.
The republican "faithful" are pissed that this bailout targets left coasters (many of whom have roots south of the border).
Too funny.
i would take the cnbc poll as a measure of market sentiment, since just about everyone is going to vote their book. this means that there are an awful lot of shorts in the market chasing what may be from a financial market perspective and old story....
Unfortunately, it only takes a few percent increase above expectations to start blowing up RMBS and CDO tranches. The Ben Stein "so what's a few percent" argument ignores the reality of structured finance and the close correlation of asset classes.
agreed, brian -- i think there's a lot of confusion about what the problem really is.
if 5% of home loans went delinquent, perhps that would be a big deal in and of its own right -- but not a catastrophe.
what makes the current situation uniquely flammable is the LEVERAGE that has been applied to these loans.
even to the point that risk is "distributed" (which it obviously is) by securitzation, that is a void argument without context. if the amount of leverage that existed in 1985 were distributed in this fashion, then i agree that there would be little to worry about.
but it isn't. in 2007, the problem isn't mortgages themselves and isn't car loans themselves. rather, the problem looks like this. it's a credit bubble frankly without much historical precedent, and certainly none in living memory -- therefore, applying the lessons learned by the previous events of our lifetimes and sharply limited experiences is a very dangerously naive course, i suspect.
Here is the MBAA link if you want to update the post:
Delinquencies and Foreclosures Increase in Latest MBA National Delinquency Survey
I wasn't being totally serious, but if I'm sounding like Ben Stein, I need to seriously rethink everything.
In a bubble there is no middle position that makes sense.
Still, bringing up the depression is sort of like throwing hitler into a foreign policy discussion.
It seemed to me like the Sunbelt/Texas crash of the late 80's was bad enough. Or the bubble of your choice. Tech/dotcom, 87 stock market, 1979 attempts at curbing inflation by Carter, etc, etc.
I've been reading this,
S&L fiscal cost was 2.1% GDP (PDF file; table 6)
and buying mbia puts. Please take back the Ben Stein comment.
There's a reason why we haven't had a repeat of the Great Depression or a of Weimar-like hyperinflation, even though there have been plenty of opportunities to get our asses in those kinds of slings.
Nothing new under the sun.
Sebastian,
Let's hope so..
Though, when George Soros and other currency speculators popped the Bank of England on Black Wednesday.. you can bet England was trying everything in its power to fight them.
I think society is structured around the illusion of control. Optimism fuels that illusion. Unlike some on this site, I believe optimism is a wonderful thing. I wish I was more inherently optimistic.
Unfortunately, I am not.
Since I lack the requisite optimism, I believe that we may lose control of this wild animal we've created with all these derivatives contracts.
Also, since I am sort of an ignoramus-doof, I like to think of a quote from the schlocky sci-fi "Pitch Black"..
Vin Diesel as the evil Riddick tells the other innocents in the group (fearing the flesh eating monsters that will come out once the sun sets for good):
"When the lights go out, this little pyscho-fuck family of ours is going to tear it's self apart."
So.. unless the government can control all the players.. and keep them from pulling out the knives.. well.. it can get real ugly.
James brings up a harsh reality, and it's one that Leamer (one of CR's favorite, often-quoted academics) and MaxedOutMama have alluded to: The homeowners in the most-desperate situations are the ones with the fewest assets and resources.
They are meaningless, they never were homeowners anyway.
But they were the tools Wall Street used to push middle class people with assets into ever higher priced real estate.
Tanta is right when she says that almost everyone is sub prime now. It is a failed social experiment, lower class people can never be brought up, forced equality can only be achieved at the lowest level.
And the globalists have succeeded to the point where the issue is irreversible. Our economy is dead because our human capital is worthless.
American kids, dumber than dirt / Warning: The next generation might just be the biggest pile of idiots in U.S. history
The Herstatt crisis in Germany
The Banking Crisis in Norway
Bank Failures in Spain
The Swedish Banking Crisis
The Swiss Case
Case Studies of UK Bank Failures
Bank of Credit and Commerce International
Barings
The US Experience
The Savings and Loans crisis
Continental Illinois National Bank: the pitfalls of illiquidity
Bank of New England: the perils of real estate lending
Bank failures after Basel I: the collapse of sub-prime lenders
None of these cost more then 5% of GDP to resolve and most of them were less then 1%.
10% of our GDP is $1.3 trillion.
Call me an optimist
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do you have a blog ?
julieng | 12.06.07 - 12:21 pm |
julieng, I do not have a blog, nor does Conjure Bag. Conjure and I have way too much fun polluting this one to start our own.
mp
great you catch up my message,
i'am seeking clever bears, won't you pollute a macro economic forum ?
unsilentmajority - how does the MBA do subprime delinquency estimates if it does not include mortgages securitized by private entities? The securitization rate for these products has been above 80 percent from 2005 forward. Obviously, the private securitizations are a problem area, so does that mean MBA is severly underestimating the forclosure and deliquency rate if it only uses data from the GSEs?
The only mention I've so far seen of mortgage amount exceeding property value being a possible barrier to qualifying for the interest-rate freeze is from a CNN piece on 30 Nov 2007:
"Under discussions in Washington, relief would only be provided to homeowners who remained up to date on their payments but can't afford the higher rate they will face. Homeowners whose property values have dropped below the value of the mortgage would not qualify."
CNNMoney.com: 404 Page Not Found
I can't find any mention of this issue in the current reports, or in the material at the White House's site (http://www.whitehouse.gov)