I'm glad that video is there. I do recall that segment. For my sins I usually watch that 2 hour block called Business News on Fox on Saturday mornings - and I will NOT comment on it for fear of derailing this topic except to say with the DVR I usually compress the 2 hours into maybe 40 minutes and a blood pressure of 180/110 at the end of it.
Its good that video is there. I hope the clients that Peter Schiff got from appearing on those shows have compensated him for the mockery and derision he's suffered on the shows - he was of course totally right.
House Whisperer, it is amazing that this video is just from one year ago. The best part is near the end when the one guy smirks as Schiff speaks.
Stein tries to have it both ways. He does the same thing in his NY Times piece:
I started an e-mail correspondence with Dr. Hatzius, pointing out what I believed were a few flaws in his paper. Among them were his hypothesis that home prices would fall an average of 15 percent nationwide (an event that has never happened since the Depression, although we surely could be headed in that direction) ...
Is forecasting a 15% decline a "flaw"? Didn't Stein also say "we could be headed in that direction". That seems like a contradiction to me - and in the video, Stein says the housing correction will last a couple more years - but go out and buy. ROFLOL.
I'm so tired of the "yes" men and sycophants. Sure, these guys have been proven to be fools but how many people rushed out and bought houses due to the advice of these idiots?
Hard to be the only voice of reason poor Peter. I am so glad I was listening a few years ago. I rent and I am glad because it is about 40-60% cheaper to rent.
How many bought? Hard to say. But there have been a few stories (naratives, whatever) lately where it is obvious those people listened, believed and bought.
I've read a few of Stein's articles on NYT and think they are arrogant and digusting. This latest one left me speechless. The height of arrogance. Or the one a few weeks prior were he tells people not to worry about the economy and have a taco supreme. I think it's a shame that NYT gives this fellow a column.
Oh if they brought all these people back again and showed this clip to comment on.. put it on PPV I'd pay to see it.
So would I: how about a PPV iron-cage tag-team grudge match for real family entertainment! Since mainstream media is projected by our mental masters, Id be pleasantly shocked to see a reprise back on Fox, so maybe this could be a new concept in PPV niche programming.
Even with the you-tube technology that allows this CR knitting circle to call out and scoff at the shills, I assume the 24/7 broadcast stuff running this minute continues to tout fixes (rate cuts, M-LEC, teezers in the freezer, etc). Guess this is supposed to be evidence of the benign intent and reassuring ability of the PTB to save home-debtors and their enablers. Naturally it is this message thats the takeaway for a viewership desperate for answers.
CR, after reading Krugman, I'm surprised you're not busy wringing out the household equity model you put together a couple of weeks ago using census data. Krugman and his friend, Wile E. Coyote, are starting to sound more and more like Conjure Bag. Two weeks ago you were talking about the likelihood of a 20% drop. If house prices are to drop 30%, maybe now might be a good time for me to consider the wisdom of selling-off the beemer for a couple of good horses and a buggy.
Amazing jaw-dropping stuff from these err "experts"
At the end the anchor guy anounces the next segment "if you could have ONE stock in 2007 what would it be"
With hindisight, well, CFC of course!! what else?
Maybe the three gentlemen who were so agressively putting down Mr Schiff, all bought CFC shares by the truckload and are now enjoying their HUGE returns on such investment.
how many people rushed out and bought houses due to the advice of these idiots?
Probably not many. We all tend to make up our minds first and then look for information to confirm. Both sides were presented, if anyone had done the rational thing and looked further into the claims made,...Ah well, what are you going to do? As Dorothy Parker once said,"You can lead a horticulture, but you can't make her think."
Wonderful clip. A great reminder of how fast things change, even though it feels a snail's pace.
And how about all the billion dollar losses coming out in drips and drops? At some point you'd think that someone would say, "Hey, that's a lot of money!" But we just watch it grow bigger and bidder.
P.S. Stag Mark: If you're digging, might as well plant potatoes like Dryfly said.
So that before purchasing, one experiences oneself as acting in a virile way, creating a situation; while afterwards the time of acting has passed: one is deflated and experiences oneself as having been acted on by the former virile self;
"So now we are down to losses of about $33 billion to $34 billion.
"The rate of loss in subprime mortgages keeps climbing. In time, perhaps it will double, maybe back to $67 billion
"But by the metrics of a large economy, it is nothing. The total wealth of the United States is about $70 trillion. The value of the stocks listed in the United States is very roughly $15 trillion to $20 trillion"
Here Stein is confusing valuation with hard wealth. The $70T that Stein refers to cannot be liquidated as such, any more than the S&P 500 could be liquidated at anything close to its total market cap now.
Loans, however, represent HARD money that has either been recycled into the economy via MBS or created by the Fed (I still would like to know the ratios here . . .)
Hard money is what pays peoples salaries and powers their consumerism. Those $30B in subprime losses represent the post-tax salaries of 1 MILLION workers in this country.
Stein is also either fooling himself or misleading the reader in not referring to timescales. $30B being ground out of the economy via FCs every year over the next 5-15 years (if Japan is any model) is a lot more horrendous than the one-off instantaneous picture of mid-2007 that he painted.
And of course Stein ignored the Alt-A and Prime sectors. A more elucidating look at the situation is to consider that AT LEAST 10% of the total mortgage borrowing activity of 2002-2006 is going to be toxic loss.
Americans took on an additional $4T in mortgage debt 2002-now. 10% of that is . . . $400B in vaporized wealth.
I'm so tired of the "yes" men and sycophants. Sure, these guys have been proven to be fools but how many people rushed out and bought houses due to the advice of these idiots?
The deep problem with US TV is that in most cases it uses the least knowledgable, in fact sometimes the completely ignorant, in-house hack to analyze things rather than someone from the outside who actually knows something about the matter. This goes not only for questions of economics but also politics and foreign affairs.
Ben Stein has no formal economic education, but he's definitely skilled in argumentation (as a lawyer) and seeking publicity (as an actor), so why would anybody want to listen to his economic views just boggles my mind.
Subprime Debacle Traps:
Even Very Credit-Worthy
As Housing Boomed,
Industry Pushed Loans
To a Broader Market
By RICK BROOKS and RUTH SIMON
December 3, 2007; Page A1
One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn't have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
I've been considering these bailout programs that California and now the federal gov't are looking at and have only been disgusted by the whole thing. I've been responsible with my finances so why the hell can't everyone else!?
Jose Miralla, who lives in Beaumont, is already three months behind on the mortgage on his four-bedroom house. His troubles began on closing day, when he was presented with a higher interest rate than he expected. With a credit score of 670 Miralla says he could have qualified for a better rate. But he accepted the subprime rate for fear of forfeiting a $5,000 security deposit.
Miralla, who sells home alarm systems and works on commission, figured he could make the payments although money would be tight. But his sales figures slipped. A newlywed, he now wishes hed backed out of the deal.
All the dreams we had to be together, to have a life together have just been ruined, he said.
Now sure... we cannot even hope to protect people from themselves (even if we ever wanted to) but this narrative got to me a bit. This poor schlup was worried about his $5,000 deposit (fair enough) and so begrudgingly agreed to the revised terms AT CLOSING! At least this one is not right in my book...
But, now I'm just more confused. Maybe the "Cram Down" is good route to take after all... get a human in there (or, failing that, a W appointed judge)
For all the experts out there who think huge drops in prices are impossible, consider this:
Before the Bubble inflated (let's say 2000 or so, though CA was inflating before then), houses were already priced at what salaries could bear for most regions.
Since then, salaries have been flat to declining as our nation's economy has been gutted. Meanwhile, housing prices have more than doubled. Since prices were at the limit of what salaries could bear BEFORE the Bubble, and salaries have not really increased, why wouldn't housing prices drop down to where they were before the Bubble? Nothing has fundamentally changed, save for the 5 to 7 years or so of toxic loans, which are now going away or going under.
With rampaging inflation (despite the numbers from Big Brother), people have LESS money to blow on big houses than they did years ago. They also aren't getting rich on internet stocks, so the "easy money" effect is gone. This will serve to further depress (or crush) housing prices for years to come.
Barring massive, government forced increases in everyone's salary, there is no way we'll see just a small drop from the peak. Even if the government drags this nonsense out for years, the truth is people cannot afford a house 5, 6, or even 10 times their annual salary (unless they are super-rich), especially in a nation with a negative savings rate, runaway inflation, crumbling social support programs, etc.
Severe CDO rating cuts over, "healing" ahead: Fitch
The worst of severe rating cuts of collateralized debt obligations tainted by U.S. subprime mortgages is probably over and 2008 should begin a "healing process," a senior director at Fitch Ratings said.
Deteriorating value of U.S. subprime mortgage debt has resulted in $67 billion of rating cuts of CDOs by Fitch, including top-tier "AAA"-rated debt that now has been lowered on average to "BB"-rated debt known as junk bonds.
Asked if Fitch expects further CDO downgrades ahead, Richard Hrvatin, a managing director at Derivative Fitch in New York, said the worst cuts were behind.
Democratic presidential candidate Hillary Clinton is expected to call for a 90-day moratorium on foreclosures and a five-year hold on adjustable mortgage rates, the Wall Street Journal reported, citing an interview with the New York Democrat.
Hrvatin declined to comment about rating cuts of underlying residential mortgage-backed securities, which he said will depend on U.S. home prices and the American consumer. Further losses experienced by those mortgage securities would however "naturally trickle down" to CDOs, he said.
With home prices rising 100-200% or more during the past 5 years, is a 15-30% sell-off a big deal? Are 2005 prices the high for the next 5-10 years, or will it be a high like the NASDAQ (50% correction) or a high price we never see again?
If it's only a 15% correction and RE prices shoot back to the highs, will it really effect anyone but the people who bought the last 2 years? People with HELOCs would also be hurt. But, most RE owners I know would still have monster sized gains.
If 2005 is the high for the next 20-30 years or we never eclipse that high, then we have a problem.
It seems as if even the most bearish on housing are in the 15% camp. Any thoughts on where we are heading?
"Paulson, 61, said in the ABC interview that homeowners who can tolerate higher interest rates won't be offered a ``freeze.'' People who are unlikely to be able to keep their houses even if rates are fixed will also miss out.
``We're focused on those in the center -- the middle group -- that are going to have a problem meeting their payment,'' he said. "
They can't possibly be this stupid. Homeowners who can afford the resets would simply refinance and those who are truly "in the middle" can't be identified because their tax return says they supported a family of 5 on 20K last year.
Paulson is either so insulated his instincts are worthless or he wants the banks to be able to foreclose before property values drop further. (Actually maybe it's both.)
It would appear that some 'no-doc req'd' freeze plan would seem the only option that has a chance of delivering. Meaning a freeze on the teaser rate if it's above the current 30 year fixed rate or allow a rise to the 30 year if the teaser is below that.
If the latter puts you out of your house, then you most definitely can't afford the mortgage and should not have been allowed to play homeowner in the first place.
The only thing that can save the Time from further embarrassment over Ben Stein is to simply announce that Ben is just "playing" being a clueless columnist, in the same way Stephen Colbert on Comedy Central plays a clueless TV personality.
That would be very meta, as the hipsters would say back in the 1990s.
[Stein] said he also believed the theory of evolution leads to racism and ultimately genocide, an idea common among creationist thinkers. If it were up to him, he said, the film would be called From Darwin to Hitler.
"What freedom-loving student wouldn't be outraged to discover that his high school science teacher is teaching a theory as indisputable fact, and that university professors unmercifully crush any fellow scientists who dare question the prevailing system of belief?"
Ben Stein on O'Reilly Factor about Intelligent Design
(For the record, the scientific point of view is that evolutionary theory has nothing to say about the original source of the universe or life or the existence of God - but that a theory without evidence or acceptance does not belong in science class.)
Ben Stein's next movie, a pro-creationism "documentary," is being being released in February, so that should remove any remaining doubts as to Stein's complete lack of integrity or intellectual capacity.
You can address the housing bubble/mortgage/subprime debacle all you want, but doing so is like looking at a dinosaur fossil and trying to determine the cause of death: While you might be 100% correct regarding your specimen, you shouldn't forget that all of the other dinosaurs also died.
All of those who say the worst is over are reiterating and spinning the "contained" meme.
There is contagion as well as interdependence of asset classes/investment vehicles to be considered.To ignore these relationships is to miss the big picture.
There's also the curious situation of huge financial firms slowly and incompletely disclosing the extent of their losses. Why do y'all think this is? Do you think they don't know how badly the pooch was screwed? We are forming long-term prognoses based on less than full disclosure. What will we be laughing at in a year? The idea that the talking heads were trying to sell us a meager 15% loss - just one short year ago.
Better to pull the bandage off quickly and completely.
I went to a CRE meeting in Orlando a few months ago. One guy from NAMB: "What`s the worst case scenario? Prices went up 50% and now if they were to go down 50% we would be back to where we started". Brilliant!!!
I'd like to see a post on these proposed "moratoria" and rate hike delays.
I'm very far from a Friedman fundamentalist, but there are two things I don't understand about these proposals.
How do they restore liquidity? Investors are already terrified of investing. Now, we're adding a mandatory rewrite of the contracts, possibly to the investors' detriment (haven't seen any attempt to work out whether saving them from carrying foreclosed properties is worth the rate hike limitations to them). How does that entice the investors to return to the market? "Buy this--your return subject to arbitrary change at any time?"
How does this help the homedebtors, locking them into a still-overpriced declining asset rather than letting them walk away.
Holy crap, Ben Stein is a creationist crank, too! I don't believe it...
I think I might have to buy some NYT puts. This is reminiscent of the time a two years ago I heard countrywide had created a program to market mortgages to illegal immigrants...
Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air. "10% is normal!" "What lax lending standards?" And they're mocking Peter Schiff...
"Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air. "10% is normal!" "What lax lending standards?" And they're mocking Peter Schiff..."
I'm sorry, but this comment made my morning! Thank you very much my friend
I found this updated clip (from last week) of Schiff from Fox (hoping he was getting better treatment for his prescience). And Fox still found a Realty Babe to spin the news and hold that "the rebound in housing is near." Amazing stuff.
Just because the Daddy (Herb Stein, held several top econ posts in the 60's and 70's) was a good economist does not mean the son is.
As to where we are headed, it strikes me that the nautural rate, the one that persisted for most of the 20th century was for the price of a median home to be about 3x the median income. Granted people in the bottom quartile of income generally are not buyers of houses, but it was a fairly persistent ratio. At the top of the bubble we were at 4.86x median income. Thus in real terms we are probably looking at a 40% decline in prices over several years. In nominal terms probably 25-30% from the peak.
Pondering: One theing that has changed is that durring the bubble we had unprecidented new home construction, adding to the supply. Residential construction has rarely exceeded 5.5% of GDP, the most notable times it did were in the immediate post WWII era as we dealt with teh pent up demand from the depression and war, and housed all the returning vets (i,e, birth of Levittown and the modern suburb) and in the early 70's twin peaks, as the baby boomers moved into prime age for buying 1st homes. At the peak we reached 6.3% of GDP, with no fundimental demographic push. Houses are after all manufactured goods. How many people buy a car or a sofa and expect them to appreciate over time. If the price goes up, more are made. Same with houses. land is not manufactured (except in Holland), but most of the US has plenty of land available and it is always (except for zoning) possible to build up rather than out where land is scarce (i.e. hi rise condos in NYC).
I fail to see what Ben Stein said that was so objectionable. "Buy something you like, and it will be worth more in 10 years" seems pretty reasonable to me. Those of you who say renting is 50% cheaper must be referring to some very specific locations. I doubt it would be a good idea for me to rent my 4100 sqft house that I paid $386K for. It is only an investment for the very long term. I have no intention of moving in the next decade. Meanwhile, I get to live in this big house. I guess people who think of a house as a short term investment deserve to get burned. A house is first and foremost a dwelling. The recent bubble doesn't diminish the wisdom of long term home ownership.
Chris M: the property I am looking at acquiring is depreciating at about 3% a year, or about $1500 each and every month.
My rent I pay the landlord is $1500/mo, so right now I'm essentially getting free rent by staying out of the market.
I'll buy that property when I'm good and ready. Depends on employment here and also interest rates, but as long as prices aren't going UP there's no hurry to buy.
Ben Stein may not have adequately supported his implication of a Goldman conspiracy, but his points about Goldman's heavy short + selling of the same products, and their history of selling + promoting crap, are true.
It's interesting that CITI, B of A, and the like are on the reputational hook for SIV's but GS escapes again.
"Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air."
It wouldn't matter; with these asshats you can be sure that if housing declined 30% over the next year they would blame it on Bill Clinton or Nancy Pelosi or their Islamofacist sympathizers in the liberal media for spreading pessimistic doom and gloom.
Hope Now Alliance (god I can't stop saying that....it's just so funny..in an almost Orwellian way) will at best have a neutral effect on credit availability. In other words it does nothing. In the short term, if could stem defaults in a VERY SMALL SEGMENT (when you look at who will actually qualify) of subprime FBs (f***ed borrowers). It will also scare the bejesuz out of investors by introducing the spectre of political risk and confiscation without due process. I expect there to be legal challenges that will gum up the works and make the whole thing fade into ocscurity.
The people that are in trouble likely had high LTV when they bought...and are now upside down. Furthermore, what their IO or teaser rate payments are probably equal to or greater than what they could rent it for.
Templeton says housing will drop 80%. I agree. If it does it will solve the social security problem because old people will be forced to change their behavior and keep working and young people will be able to buy homes for very little -- leaving more of their earnings free to pay higher social security taxes to old people, and relative burdens on the old and young as the boomers retired will be more balanced. The goverment looks at social security as a generational thing -- young people save while old people spend but this can be altered some to keep social security going. This is the "society as a situation" solution that I'm betting will occur. A game theory approach.
This is the "society as a situation" solution that I'm betting will occur. A game theory approach.
I've been saying pretty much the same thing for a long time though my base case is a little different.
Society really can't save in the sense that it can make stuff now, the fruits of production if you will, to consume later in our retirement... You can only eat what you grow in the year it is grown. Every year you have to grow more if you want to eat that year.
Same thing applies to almost all consumable products - even homes - if they lay empty & untended for too long they perish.
Society therefore has to have productive capacity to produce & maintain those goods continuously. Saving in the sense of diverting consumption forward can only go into added and expanded capacity (or improved efficiency) if you want it to be there in the future (when you retire).
Having a bunch of bonds in the vault - or even gold - isn't going to produce the goods & services we'll need to consume in the future... You can't eat bonds and you can't eat gold. Now if plenty of other folks built capacity so that there are sufficient surpluses and people still value bonds & gold then they will continue to work as 'exchange agents' buying you goods and services others produced. But somebody still has to produce them.
In short the capacity has to be there and part of capacity is 'labor'.
But you say we are now a service economy... well in a service economy it is even MORE important to have lotsa capacity because you can't inventory (store) services at all. Services are consumed as they are produced - by definition. So if you plan on havin' services available to a lot of elderly then you better plan on having a whole lot of people in position to provide services or there will be shortages.
The only thing more money, bonds or gold will do is effect the 'price' of that constrained service capacity.
So we are going to need to keep people working for as long as possible so those same people will be able to consume the stuff they need to keep living!
It doesn't mean old folks will be doing the same jobs as when they were young - stuff will change. But my guess is most Boomers (of which I am one) will not have the same kind of retirements their parents had. We'll be working right up to the end helping to take care of out liter mates.
And it will make no difference whether our retirement accounts are privatized or come from the gov't via SS. It doesn't change the demographics.
dryfly: thanks again for writing clearly some of the thoughts I've contemplated.
When you note that untended homes become wasting assets prematurely, I envision a future wherein the nuclear family undergoes fusion and once again, extended families will huddle together under the remaining roofs. I, too, am a boomer who recalls the stories (and have the photo's) from two decades before my birth when both sets of grandparents, their sib's, and a dozen children (including my parents) managed to stay alive in Detroit and Chicago, by cramming together in a few apartment rooms and shared a single bathroom with two or three other extended families.
I've steeled my wife to the prospect of our very successful 28 year-old daughter returning home when her executive LA job with a major consumer fashion corporation goes bye-bye.
Not to disparage, but to observe: are the immigrants who are doing this now (here in SoCal) merely a bellweather for the rest of us?
.
Very interesting posts from dryfly and David. Much better than the partisan nonsense that is more prevelant here. I think that more important than what your house is "worth" in some bubble market, is what it costs you to actually live there. I'm happy to owe $215K on my $400K house. I've been hammering away at the principle as much as possible. I look forward to the day that the mortgage is payed off, and I pay just the $12K/year tax bill. I have 4100 sqft on 1/3 acre, so I'm pretty content to stay here for decades. I'm also committed to not enrichening any realtors if I can help it. It's a real insult to pay 6% for such a trivial service. I'm 36, and I plan on staying put at least until my 5yo daughter is out of college. So many people are so flighty and short sighted. There's nothing conservative about that.
I usually can't stomach much Fox news, but that was hilarious. Most of their "experts" are consistently wrong about everything and continue to get asked back. Does the lohghaired guy have his own show yet?
Isn't it just absolutely amazing?
Wonderful clip. A great reminder of how fast things change, even though it feels a snail's pace.
I'm glad that video is there. I do recall that segment. For my sins I usually watch that 2 hour block called Business News on Fox on Saturday mornings - and I will NOT comment on it for fear of derailing this topic except to say with the DVR I usually compress the 2 hours into maybe 40 minutes and a blood pressure of 180/110 at the end of it.
Its good that video is there. I hope the clients that Peter Schiff got from appearing on those shows have compensated him for the mockery and derision he's suffered on the shows - he was of course totally right.
-K
House Whisperer, it is amazing that this video is just from one year ago. The best part is near the end when the one guy smirks as Schiff speaks.
Stein tries to have it both ways. He does the same thing in his NY Times piece:
I started an e-mail correspondence with Dr. Hatzius, pointing out what I believed were a few flaws in his paper. Among them were his hypothesis that home prices would fall an average of 15 percent nationwide (an event that has never happened since the Depression, although we surely could be headed in that direction) ...
Is forecasting a 15% decline a "flaw"? Didn't Stein also say "we could be headed in that direction". That seems like a contradiction to me - and in the video, Stein says the housing correction will last a couple more years - but go out and buy. ROFLOL.
Best to all.
Another wonderfully shallow conversation courtesty of Faux. Surprise, surprise.
It would be funny to get all those people back on again for a longer segment, though. "So, Tom Adkins, why were you completely wrong about RE prices?"
I'm so tired of the "yes" men and sycophants. Sure, these guys have been proven to be fools but how many people rushed out and bought houses due to the advice of these idiots?
Ha! 15% is "in the bag" LOL
Hard to be the only voice of reason poor Peter. I am so glad I was listening a few years ago. I rent and I am glad because it is about 40-60% cheaper to rent.
How many bought? Hard to say. But there have been a few stories (naratives, whatever) lately where it is obvious those people listened, believed and bought.
FYI:
Dollar dropping again vs. Euro and Yen.
http://finance.yahoo.com/q/bc?s=USDEUR=X&t=1d
CR, thanks for this post.
I've read a few of Stein's articles on NYT and think they are arrogant and digusting. This latest one left me speechless. The height of arrogance. Or the one a few weeks prior were he tells people not to worry about the economy and have a taco supreme. I think it's a shame that NYT gives this fellow a column.
Oh if they brought all these people back again and showed this clip to comment on.. put it on PPV I'd pay to see it.
There is a special place in hell for those 'commentators' who were mocking Schiff. Oh to see their faces now . . .
Short anything Ben Stein recommends. Ask later.
Ain't it great?
Cal:
Oh if they brought all these people back again and showed this clip to comment on.. put it on PPV I'd pay to see it.
So would I: how about a PPV iron-cage tag-team grudge match for real family entertainment! Since mainstream media is projected by our mental masters, Id be pleasantly shocked to see a reprise back on Fox, so maybe this could be a new concept in PPV niche programming.
Even with the you-tube technology that allows this CR knitting circle to call out and scoff at the shills, I assume the 24/7 broadcast stuff running this minute continues to tout fixes (rate cuts, M-LEC, teezers in the freezer, etc). Guess this is supposed to be evidence of the benign intent and reassuring ability of the PTB to save home-debtors and their enablers. Naturally it is this message thats the takeaway for a viewership desperate for answers.
CR, after reading Krugman, I'm surprised you're not busy wringing out the household equity model you put together a couple of weeks ago using census data. Krugman and his friend, Wile E. Coyote, are starting to sound more and more like Conjure Bag. Two weeks ago you were talking about the likelihood of a 20% drop. If house prices are to drop 30%, maybe now might be a good time for me to consider the wisdom of selling-off the beemer for a couple of good horses and a buggy.
Amazing jaw-dropping stuff from these err "experts"
At the end the anchor guy anounces the next segment "if you could have ONE stock in 2007 what would it be"
With hindisight, well, CFC of course!! what else?
Maybe the three gentlemen who were so agressively putting down Mr Schiff, all bought CFC shares by the truckload and are now enjoying their HUGE returns on such investment.
how many people rushed out and bought houses due to the advice of these idiots?
Probably not many. We all tend to make up our minds first and then look for information to confirm. Both sides were presented, if anyone had done the rational thing and looked further into the claims made,...Ah well, what are you going to do? As Dorothy Parker once said,"You can lead a horticulture, but you can't make her think."
CR,
That seems like a contradiction to me - and in the video, Stein says the housing correction will last a couple more years - but go out and buy.
At least Ben Stein shows you the lipstick he is putting on the pig, which is better than most optimists would do, lol.
On that note, here's my shovel. I'm diggin' a hole to nowhere!
sdtfs,
We all tend to make up our minds first and then look for information to confirm.
I knew there was a reason I keep searching for stagflation, China inflation, and housing deflation!
It pales in comparison to Buyer's Remorse though, especially as home prices fall.
A purchase, unlike many decisions in life, is invariably either reversible or at least recoverable and should not be a source of enormous anxiety.
Keep in mind that part was written in September, 2005 (according to the wikipedia history). Writer's remorse may be setting in soon.
Wonderful clip. A great reminder of how fast things change, even though it feels a snail's pace.
And how about all the billion dollar losses coming out in drips and drops? At some point you'd think that someone would say, "Hey, that's a lot of money!" But we just watch it grow bigger and bidder.
P.S. Stag Mark: If you're digging, might as well plant potatoes like Dryfly said.
sdtfs,
It was more of a rhetorical hole. Speaking of rhetorical holes, I'm ready to write a headline.
Optimism Surges on Hopes of Pessimism Based Interest Rate Cuts
So that before purchasing, one experiences oneself as acting in a virile way, creating a situation; while afterwards the time of acting has passed: one is deflated and experiences oneself as having been acted on by the former virile self;
Hmmm,...my puerile mind,...
sdtfs,
If you experience a deflation for four hours or more, be sure to seek monetary treatment immediately.
From Stein's Aug 12 column:
"So now we are down to losses of about $33 billion to $34 billion.
"The rate of loss in subprime mortgages keeps climbing. In time, perhaps it will double, maybe back to $67 billion
"But by the metrics of a large economy, it is nothing. The total wealth of the United States is about $70 trillion. The value of the stocks listed in the United States is very roughly $15 trillion to $20 trillion"
Here Stein is confusing valuation with hard wealth. The $70T that Stein refers to cannot be liquidated as such, any more than the S&P 500 could be liquidated at anything close to its total market cap now.
Loans, however, represent HARD money that has either been recycled into the economy via MBS or created by the Fed (I still would like to know the ratios here . . .)
Hard money is what pays peoples salaries and powers their consumerism. Those $30B in subprime losses represent the post-tax salaries of 1 MILLION workers in this country.
Stein is also either fooling himself or misleading the reader in not referring to timescales. $30B being ground out of the economy via FCs every year over the next 5-15 years (if Japan is any model) is a lot more horrendous than the one-off instantaneous picture of mid-2007 that he painted.
And of course Stein ignored the Alt-A and Prime sectors. A more elucidating look at the situation is to consider that AT LEAST 10% of the total mortgage borrowing activity of 2002-2006 is going to be toxic loss.
Americans took on an additional $4T in mortgage debt 2002-now. 10% of that is . . . $400B in vaporized wealth.
I'm so tired of the "yes" men and sycophants. Sure, these guys have been proven to be fools but how many people rushed out and bought houses due to the advice of these idiots?
The deep problem with US TV is that in most cases it uses the least knowledgable, in fact sometimes the completely ignorant, in-house hack to analyze things rather than someone from the outside who actually knows something about the matter. This goes not only for questions of economics but also politics and foreign affairs.
OT: Let us weep, comrades, for our great friend Chavez has been spurned by the people.
Funny how Stein, who fully contradicts himself, effectively saying nothing, is lauded as "the voice of reason". Nice gig.
Ben Stein has no formal economic education, but he's definitely skilled in argumentation (as a lawyer) and seeking publicity (as an actor), so why would anybody want to listen to his economic views just boggles my mind.
And to think that when I was younger I admired Stein for his practical economic application...
OT
More of Tanta's trope: We are all subprime now---
Subprime Debacle Traps:
Even Very Credit-Worthy
As Housing Boomed,
Industry Pushed Loans
To a Broader Market
By RICK BROOKS and RUTH SIMON
December 3, 2007; Page A1
One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn't have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.
Subprime Debacle Traps Even Very Credit-Worthy - WSJ.com
One more graf:
An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.
I've been considering these bailout programs that California and now the federal gov't are looking at and have only been disgusted by the whole thing. I've been responsible with my finances so why the hell can't everyone else!?
Then I read this: (The Housing Bubble Blog » The Tables Have Turned In California
Jose Miralla, who lives in Beaumont, is already three months behind on the mortgage on his four-bedroom house. His troubles began on closing day, when he was presented with a higher interest rate than he expected. With a credit score of 670 Miralla says he could have qualified for a better rate. But he accepted the subprime rate for fear of forfeiting a $5,000 security deposit.
Miralla, who sells home alarm systems and works on commission, figured he could make the payments although money would be tight. But his sales figures slipped. A newlywed, he now wishes hed backed out of the deal.
All the dreams we had to be together, to have a life together have just been ruined, he said.
Now sure... we cannot even hope to protect people from themselves (even if we ever wanted to) but this narrative got to me a bit. This poor schlup was worried about his $5,000 deposit (fair enough) and so begrudgingly agreed to the revised terms AT CLOSING! At least this one is not right in my book...
But, now I'm just more confused. Maybe the "Cram Down" is good route to take after all... get a human in there (or, failing that, a W appointed judge)
For all the experts out there who think huge drops in prices are impossible, consider this:
Barring massive, government forced increases in everyone's salary, there is no way we'll see just a small drop from the peak. Even if the government drags this nonsense out for years, the truth is people cannot afford a house 5, 6, or even 10 times their annual salary (unless they are super-rich), especially in a nation with a negative savings rate, runaway inflation, crumbling social support programs, etc.
Severe CDO rating cuts over, "healing" ahead: Fitch
The worst of severe rating cuts of collateralized debt obligations tainted by U.S. subprime mortgages is probably over and 2008 should begin a "healing process," a senior director at Fitch Ratings said.
Deteriorating value of U.S. subprime mortgage debt has resulted in $67 billion of rating cuts of CDOs by Fitch, including top-tier "AAA"-rated debt that now has been lowered on average to "BB"-rated debt known as junk bonds.
Asked if Fitch expects further CDO downgrades ahead, Richard Hrvatin, a managing director at Derivative Fitch in New York, said the worst cuts were behind.
Severe CDO rating cuts over, healing ahead: Fitch
| Reuters
From Bloomberg
Democratic presidential candidate Hillary Clinton is expected to call for a 90-day moratorium on foreclosures and a five-year hold on adjustable mortgage rates, the Wall Street Journal reported, citing an interview with the New York Democrat.
Ok, the end is near.
The real cut: Moody's May Cut Ratings on $105 Billion of SIVs (Update3) - Bloomberg.com
Oh if they brought all these people back again and showed this clip to comment on.. put it on PPV I'd pay to see it.
I wonder how much of what is being said today could be ridiculed a year down the road.
Ready Set DVR !
Money quote from Fitch on CDO's et. al.:
Hrvatin declined to comment about rating cuts of underlying residential mortgage-backed securities, which he said will depend on U.S. home prices and the American consumer. Further losses experienced by those mortgage securities would however "naturally trickle down" to CDOs, he said.
Hmmmmm...
Yal,
No doubt! Aren't most of those SIV's set up that they are supposed to go into irreversible liquidation if their NAV hits 50% (or something like that)?
With home prices rising 100-200% or more during the past 5 years, is a 15-30% sell-off a big deal? Are 2005 prices the high for the next 5-10 years, or will it be a high like the NASDAQ (50% correction) or a high price we never see again?
If it's only a 15% correction and RE prices shoot back to the highs, will it really effect anyone but the people who bought the last 2 years? People with HELOCs would also be hurt. But, most RE owners I know would still have monster sized gains.
If 2005 is the high for the next 20-30 years or we never eclipse that high, then we have a problem.
It seems as if even the most bearish on housing are in the 15% camp. Any thoughts on where we are heading?
From Bloomberg this morning:
"Paulson, 61, said in the ABC interview that homeowners who can tolerate higher interest rates won't be offered a ``freeze.'' People who are unlikely to be able to keep their houses even if rates are fixed will also miss out.
``We're focused on those in the center -- the middle group -- that are going to have a problem meeting their payment,'' he said. "
They can't possibly be this stupid. Homeowners who can afford the resets would simply refinance and those who are truly "in the middle" can't be identified because their tax return says they supported a family of 5 on 20K last year.
Paulson is either so insulated his instincts are worthless or he wants the banks to be able to foreclose before property values drop further. (Actually maybe it's both.)
It would appear that some 'no-doc req'd' freeze plan would seem the only option that has a chance of delivering. Meaning a freeze on the teaser rate if it's above the current 30 year fixed rate or allow a rise to the 30 year if the teaser is below that.
If the latter puts you out of your house, then you most definitely can't afford the mortgage and should not have been allowed to play homeowner in the first place.
Repoman,
Looked into different predictions of future U.S. home values a couple of weeks ago:
"Future Home Values: Gloom To Doom"
Boom2Bust.com » Blog Archive » Future Home Values: Gloom To Doom
So when did Michael Bolton start working for RE/Max??
The only thing that can save the Time from further embarrassment over Ben Stein is to simply announce that Ben is just "playing" being a clueless columnist, in the same way Stephen Colbert on Comedy Central plays a clueless TV personality.
That would be very meta, as the hipsters would say back in the 1990s.
Then there's Ben's movie where he says the Darwinists are suppressing Intelligent Design, aka creationism.
Scientists Feel Miscast in Film On Life's Origin - NY Times
[Stein] said he also believed the theory of evolution leads to racism and ultimately genocide, an idea common among creationist thinkers. If it were up to him, he said, the film would be called From Darwin to Hitler.
Ben Stein to battle Darwin in major film
"What freedom-loving student wouldn't be outraged to discover that his high school science teacher is teaching a theory as indisputable fact, and that university professors unmercifully crush any fellow scientists who dare question the prevailing system of belief?"
Video on O'Reilly
MilkandCookies -
Ben Stein on O'Reilly Factor about Intelligent Design
(For the record, the scientific point of view is that evolutionary theory has nothing to say about the original source of the universe or life or the existence of God - but that a theory without evidence or acceptance does not belong in science class.)
"Short anything Ben Stein recommends. Ask later.
Ain't it great?"
Ben Stein's next movie, a pro-creationism "documentary," is being being released in February, so that should remove any remaining doubts as to Stein's complete lack of integrity or intellectual capacity.
15%? 30%? 66%?
You can address the housing bubble/mortgage/subprime debacle all you want, but doing so is like looking at a dinosaur fossil and trying to determine the cause of death: While you might be 100% correct regarding your specimen, you shouldn't forget that all of the other dinosaurs also died.
All of those who say the worst is over are reiterating and spinning the "contained" meme.
There is contagion as well as interdependence of asset classes/investment vehicles to be considered.To ignore these relationships is to miss the big picture.
There's also the curious situation of huge financial firms slowly and incompletely disclosing the extent of their losses. Why do y'all think this is? Do you think they don't know how badly the pooch was screwed? We are forming long-term prognoses based on less than full disclosure. What will we be laughing at in a year? The idea that the talking heads were trying to sell us a meager 15% loss - just one short year ago.
Better to pull the bandage off quickly and completely.
I went to a CRE meeting in Orlando a few months ago. One guy from NAMB: "What`s the worst case scenario? Prices went up 50% and now if they were to go down 50% we would be back to where we started". Brilliant!!!
Broker,
Barbi was right... math is hard.
I'd like to see a post on these proposed "moratoria" and rate hike delays.
I'm very far from a Friedman fundamentalist, but there are two things I don't understand about these proposals.
Someone please 'splain.
Holy crap, Ben Stein is a creationist crank, too! I don't believe it...
I think I might have to buy some NYT puts. This is reminiscent of the time a two years ago I heard countrywide had created a program to market mortgages to illegal immigrants...
If Ben Stein is an economist, then I'm a supermodel.
Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air. "10% is normal!" "What lax lending standards?" And they're mocking Peter Schiff...
"Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air. "10% is normal!" "What lax lending standards?" And they're mocking Peter Schiff..."
I'm sorry, but this comment made my morning! Thank you very much my friend
I hope that motherless fuck mike norman and the long haired douchebag get absolutely creamed in this market.
Watching that video just ruined my breakfast...
I found this updated clip (from last week) of Schiff from Fox (hoping he was getting better treatment for his prescience). And Fox still found a Realty Babe to spin the news and hold that "the rebound in housing is near." Amazing stuff.
http://housingpanic.blogspot.com/2007/11/peter-schiff-makes-fox-news-worth.html
let me try that link again...
HousingPANIC - The Housing Bubble Blog with an Attitude Problem, 2005 - 2008: Search results for schiff
Just because the Daddy (Herb Stein, held several top econ posts in the 60's and 70's) was a good economist does not mean the son is.
As to where we are headed, it strikes me that the nautural rate, the one that persisted for most of the 20th century was for the price of a median home to be about 3x the median income. Granted people in the bottom quartile of income generally are not buyers of houses, but it was a fairly persistent ratio. At the top of the bubble we were at 4.86x median income. Thus in real terms we are probably looking at a 40% decline in prices over several years. In nominal terms probably 25-30% from the peak.
Pondering: One theing that has changed is that durring the bubble we had unprecidented new home construction, adding to the supply. Residential construction has rarely exceeded 5.5% of GDP, the most notable times it did were in the immediate post WWII era as we dealt with teh pent up demand from the depression and war, and housed all the returning vets (i,e, birth of Levittown and the modern suburb) and in the early 70's twin peaks, as the baby boomers moved into prime age for buying 1st homes. At the peak we reached 6.3% of GDP, with no fundimental demographic push. Houses are after all manufactured goods. How many people buy a car or a sofa and expect them to appreciate over time. If the price goes up, more are made. Same with houses. land is not manufactured (except in Holland), but most of the US has plenty of land available and it is always (except for zoning) possible to build up rather than out where land is scarce (i.e. hi rise condos in NYC).
Rex: OMG!!! UR hawwt!!
On the coasts 30% decline would be modest.
I am thinking closer to 2001 prices are sensible, historic long term rise.
Funny what the RE agents for the builders will think, pricing for last years' prices.
I hope the costs are not locked.........
I fail to see what Ben Stein said that was so objectionable. "Buy something you like, and it will be worth more in 10 years" seems pretty reasonable to me. Those of you who say renting is 50% cheaper must be referring to some very specific locations. I doubt it would be a good idea for me to rent my 4100 sqft house that I paid $386K for. It is only an investment for the very long term. I have no intention of moving in the next decade. Meanwhile, I get to live in this big house. I guess people who think of a house as a short term investment deserve to get burned. A house is first and foremost a dwelling. The recent bubble doesn't diminish the wisdom of long term home ownership.
Chris M: the property I am looking at acquiring is depreciating at about 3% a year, or about $1500 each and every month.
My rent I pay the landlord is $1500/mo, so right now I'm essentially getting free rent by staying out of the market.
I'll buy that property when I'm good and ready. Depends on employment here and also interest rates, but as long as prices aren't going UP there's no hurry to buy.
Goldman's Jan Hatzius has been bearish on housing for a long time.
Here's his forecast from January 2006:
*Housing would subtract 1 1/2 points from GDP in late 2006 and 2007. Check.
*The Fed would cut interest rates by 100 basis points in 2007. Check.
*10-year Treasury would fall to 5% in Dec 2006 followed by a further rally in 2007. Check.
Looks like Jan's Ph.D. from "Oggsford" is better than that phony paper Stein got from Buehler High School.
Ben Stein may not have adequately supported his implication of a Goldman conspiracy, but his points about Goldman's heavy short + selling of the same products, and their history of selling + promoting crap, are true.
It's interesting that CITI, B of A, and the like are on the reputational hook for SIV's but GS escapes again.
"Mike Norman and the long haired community-college dropout should be reminded of this every time they're shown on air."
It wouldn't matter; with these asshats you can be sure that if housing declined 30% over the next year they would blame it on Bill Clinton or Nancy Pelosi or their Islamofacist sympathizers in the liberal media for spreading pessimistic doom and gloom.
Me, too. Remove Ben Stein's column ASAP.
Markel,
Both your points are 100% money.
This plan helps no one.
Templeton says housing will drop 80%. I agree. If it does it will solve the social security problem because old people will be forced to change their behavior and keep working and young people will be able to buy homes for very little -- leaving more of their earnings free to pay higher social security taxes to old people, and relative burdens on the old and young as the boomers retired will be more balanced. The goverment looks at social security as a generational thing -- young people save while old people spend but this can be altered some to keep social security going. This is the "society as a situation" solution that I'm betting will occur. A game theory approach.
This is the "society as a situation" solution that I'm betting will occur. A game theory approach.
I've been saying pretty much the same thing for a long time though my base case is a little different.
Society really can't save in the sense that it can make stuff now, the fruits of production if you will, to consume later in our retirement... You can only eat what you grow in the year it is grown. Every year you have to grow more if you want to eat that year.
Same thing applies to almost all consumable products - even homes - if they lay empty & untended for too long they perish.
Society therefore has to have productive capacity to produce & maintain those goods continuously. Saving in the sense of diverting consumption forward can only go into added and expanded capacity (or improved efficiency) if you want it to be there in the future (when you retire).
Having a bunch of bonds in the vault - or even gold - isn't going to produce the goods & services we'll need to consume in the future... You can't eat bonds and you can't eat gold. Now if plenty of other folks built capacity so that there are sufficient surpluses and people still value bonds & gold then they will continue to work as 'exchange agents' buying you goods and services others produced. But somebody still has to produce them.
In short the capacity has to be there and part of capacity is 'labor'.
But you say we are now a service economy... well in a service economy it is even MORE important to have lotsa capacity because you can't inventory (store) services at all. Services are consumed as they are produced - by definition. So if you plan on havin' services available to a lot of elderly then you better plan on having a whole lot of people in position to provide services or there will be shortages.
The only thing more money, bonds or gold will do is effect the 'price' of that constrained service capacity.
So we are going to need to keep people working for as long as possible so those same people will be able to consume the stuff they need to keep living!
It doesn't mean old folks will be doing the same jobs as when they were young - stuff will change. But my guess is most Boomers (of which I am one) will not have the same kind of retirements their parents had. We'll be working right up to the end helping to take care of out liter mates.
And it will make no difference whether our retirement accounts are privatized or come from the gov't via SS. It doesn't change the demographics.
Finally got around to googling this Mike Norman person.
He's got his own website - Economic Contrarian Update - the first thing I noticed was the typo at the top of the page "Exmaining Arguments....."
How pathetic.
How do these people sleep at night?
Disgusting
dryfly: thanks again for writing clearly some of the thoughts I've contemplated.
When you note that untended homes become wasting assets prematurely, I envision a future wherein the nuclear family undergoes fusion and once again, extended families will huddle together under the remaining roofs. I, too, am a boomer who recalls the stories (and have the photo's) from two decades before my birth when both sets of grandparents, their sib's, and a dozen children (including my parents) managed to stay alive in Detroit and Chicago, by cramming together in a few apartment rooms and shared a single bathroom with two or three other extended families.
I've steeled my wife to the prospect of our very successful 28 year-old daughter returning home when her executive LA job with a major consumer fashion corporation goes bye-bye.
Not to disparage, but to observe: are the immigrants who are doing this now (here in SoCal) merely a bellweather for the rest of us?
.
Very interesting posts from dryfly and David. Much better than the partisan nonsense that is more prevelant here. I think that more important than what your house is "worth" in some bubble market, is what it costs you to actually live there. I'm happy to owe $215K on my $400K house. I've been hammering away at the principle as much as possible. I look forward to the day that the mortgage is payed off, and I pay just the $12K/year tax bill. I have 4100 sqft on 1/3 acre, so I'm pretty content to stay here for decades. I'm also committed to not enrichening any realtors if I can help it. It's a real insult to pay 6% for such a trivial service. I'm 36, and I plan on staying put at least until my 5yo daughter is out of college. So many people are so flighty and short sighted. There's nothing conservative about that.
I usually can't stomach much Fox news, but that was hilarious. Most of their "experts" are consistently wrong about everything and continue to get asked back. Does the lohghaired guy have his own show yet?