In other news Credit Suise announced that 6 plus 8 equals 4! That would make about as much sense as saying that 6.5 million foreclosures will cause a mere 15% drop in prices over two years.
Amazing how big financial institutions never have the courage to follow their own analysis to it's logical conclusions. Even the bad news has to be sugar-coated to avoid "spooking the markets".
Tom Stone, those huge percentage numbers of YOY foreclosures seem stunning. But remember, the number of foreclosures last year, in many of these counties, was zero. Not hard to have 100's of percents' increase from that.
The way I see this calculation is to take the normal rate of homeownership and subtract that from each year's climb during the runup (say from 2002 to 2006). Take the result and multiply it by number of homes sold in each year. Subprime or prime it doesn't matter because these increases in that rate over the historical norm is what matters.
By doing that I think it's a great back of the envelope and probably close to the truth. I think they might be a little high on this estimate, though.
AllenM, this is 15% in addition to the 10% prices have already declined (as of Q4 2007). So they are projected a 25% price decline or so - pretty signficant.
Barring some sort of government plan, I think they are on the low side of foreclosures.
SFV,the foreclosure numbers have been low,but with a nominal 29% drop from the peak price,and a 20% YoY price decline in March I would not be surprised to see a 500% increase in YoY foreclosures reported in a year's time...this is the end of the beginning,not the beginning of the end.
I suspect that the US government will become the world's biggest lien holder before all of those mortgages go into foreclosure. After all, isn't it our right as Americans for the government to protect us from ourselves? We're all victim!
This is SO wall street. Way late as usual. At this point even the flippers know it's game over.
Even the so called "good" analysts like Meredith Whitney are clueless tools of the sales force.
I recall Jack Grubman of Citi didn't put a sell label on Worldcon until after they filed for bankruptcy. Similar story for analyst recommendations on Bear Sterns, and all the failed mortgage lenders too.
Isn't this getting close to Roubini's "best case scenario"? 16 m homes go under water and 50% will walk away or be foreclosed? Well, plus mimus 1.5 million.
Economics has a way of imposing reality on consumers, governments & central banks. It just takes time.
The latest wall street tripe is that food & commodity inflation is due to soaring demand. No mention of the true reason - negative real interest rates and excessive money creation.
Why the subterfuge from wall street? Higher CPI inflation means higher interest rates and lower stock & bond prices. Wall street doesn't fear a Minsky Moment. Wall street fears a "Volcker Moment." Tight monetary policy would be helpful to the middle class, but devastating to the bloated financial community.
Let me follow up by saying that anyone that does lease/rent land or property owned by Federal/State/local governments IS directly responsible for the taxes owed under the "proprietary interest" tax laws.
"Let me follow up by saying that anyone that does lease/rent land or property owned by Federal/State/local governments IS directly responsible for the taxes owed under the "proprietary interest" tax laws."
Yes, in California it is called 'possessory interest'.
My tinfoil hat is suddenly worth a whole lot more. While 6.5m foreclosures is possible based upon market conditions I expect intervention before then. Is it really a foreclosure when people retain ownership and continue to live there?
Credit Suisse has been shopping a bailout on Capitol Hill, so they have some reason to pump up the numbers. But to me, the bigger number is all the more reason to keep taxpayers far away from this mess.
CR, the longer we go without any viable response other than the pathetic ruminations of Wall Street fantasy folks, the further we will go.
I think the Credit Suisse scenario would have been possible with serious efforts last year.
Too much inertia built into the growth of the crisis. Too many points of failure not covered by current proposals that will fail. For instance, CFC has a $100 billion portfolio of garbage- who really is going to soak the losses- probably $20 billion there alone?
Right now nobody is commenting much on the screaming dive the bubble states are taking in their public finances. Got $20 billion for California alone?
The knock on effects are starting to build toward a perfect storm with strains becoming apparent in every direction!!!
A couple of commenters have said their tin foil super collanders have begun to short out. I agree that this crisis is starting to spiral outside the Feds control. The only backstop after that is Congress, and they are politically deadlocked until next January.
I predict the next President will suffer a crisis the first 100 days not seen since 1933.
In days of yore before you joined the CR community, I several times posted comments based on exactly the calculation you proposed above. The excess came to about four million homes for the period from 1995 through 2005 (the home ownership rate was rising about 0.5 percentage points per year during that period). I didn't try to estimate how many more housing units were sold to speculators not occupying them.
My calculations were based on the Census Bureau surveys of US households, in which they actually ask a large number of heads of households whether they "own" their dwelling. So the owner/renter ratio is directly measured and presumably quite accurate. Their stats for the absolute number of households however are estimates, and subject to large revisions, so those numbers need to be used with care.
With four million occupant homeowner foreclosures, another 2.5 million in non-occupant foreclosures would give 6.5 million. Sounds about right to me.
FT - US Regulator Fears Wave Of Bank Failures
"US bank failures could rise above "historical norms" as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator.
In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed." FT.com / UK - Regulator fears wave of bank failures
Not to sweat: 2.5M of those homes are the non-owner-occupied "ski chalets" that gave Moody's that "comforting feeling" when reviewing their ARMs pools. So, it's all priced in.
"Jack Grubman". Thanks for the laugh. I covered telco stocks in the bubble and he would visit our mutual fund and tell us what great investments the telco's were. companies that were burning a few hundred million a year for the next 5 years and "projected" to be free cash flow positive 10 years out. a complete tool.
Does anyone know if all these dire forecasts of foreclosures and poor house sales assume rates stay at their current level? 30 year jumbos have risen by over .75% in the past month- and I'd bet that is just the beginning. If rates go 2, 3 or 5% higher, the pessimistic projections of today may look optimistic in 2009.
In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets,'' Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co., said in an e-mail.The lowering of stamp duty is among the most aggressive steps the government could have taken to improve sentiment.''
This is no different than what's happening here with the TAF and other public relations stunts - sheesh
"Most of the really stupid loans will be over and done by 2009."
Journeyman
Do you mean that they won't be done any more past 2009? Ok, I'll buy that.
But if you mean, they would have been recasted with new rates and people would have foreclosed by then, etc. I think you're a little off.
Interest only's and option arms are not yet defaulting at "alarming" rates. A little higher than was expected (what else is new), but not crazy numbers like subprime.
They will hit the subprime default figures by 2010. The peak volume was done in 2005 and it takes about 5 years neg am to max. Some say a little less, but the true rate within the program has come down in the last years extending the neg am time. Most are based on either COFI's, MTA's, or CMT's.
Just remember,33% or so own outright. They are generally lower priced homes. I mentioned this to the parents the other day...Boy talkin about gettin em wound up. Their place is worth about 160k. They don't have much sympathy for 300/400/500k and higher purchasers who are in trouble. I actually think if it came to a direct bailout plan we might be able to kill it or at least minimize the effect. There are still a lot of frugal(I'm cheap) people in this country. Just might have to go out of our way to get organised.
Do we, at this blog, have anything to do with this mess?
doom | 04.23.08 - 11:07 pm | #
It's kinda nice being the troll who hides in the corner and fixes trucks. I have heard thru the grapevine that the morning meetings have gotten really nasty since all OT was cut out 3 weeks ago. I have had more than one driver bitch he will have to work until he croaks. I want to ask "Who's fault is that" but it is not considered PC enough as a answer. So I keep the piehole shut.
Let's see: 12.5 million foreclosures times maybe $50,000 loss per foreclosure is only $625 billion. That ain't so bad, is it? Unless you start figuring the derivatives based on that loss. Oops.
SF Chronicle headline: "San Francisco prosecutors say landlords ran amok, terrorized tenants"
"The charges stem from tactics the [landlords] allegedly used after they bought a six-unit, three-story apartment building on Clementina Street for $995,000 in 2005"
" When one of the tenants, Scott Morrow, successfully fought eviction, the couple allegedly told workers in September 2006 to cut the beams that supported his apartment's floor. They also shut off Morrow's electricity, cut his phone line and had workers saw a hole in his living room floor from below, prosecutors said.
Economics has a way of imposing reality on consumers, governments & central banks. It just takes time.
The latest wall street tripe is that food & commodity inflation is due to soaring demand. No mention of the true reason - negative real interest rates and excessive money creation.
Why the subterfuge from wall street? Higher CPI inflation means higher interest rates and lower stock & bond prices. Wall street doesn't fear a Minsky Moment. Wall street fears a "Volcker Moment." Tight monetary policy would be helpful to the middle class, but devastating to the bloated financial community.
Angry Saver | 04.23.08 - 9:45 pm | #
Angry - I agree with a lot of that except the last paragraph - while the big shots do a fear a Volcker Moment, it would be equally devastating to the middle class. Maybe even MORE devastating.
When Volcker did his thing it sucked for average folks and yet we were a net saving nation, a net exporting nation and pretty much debt free in aggregate - at least by our standards today. All of that has changed for the worse.
Today, if the Fed tightened money A LOT - like Volcker - we'd see unemployment like we haven't seen since the 30s. Make 70s & 80s UE look like a party in comparison.
I talk with operational folks at companies and they all have their finger on the pink slip trigger ready to pull it the minute they see significant decline in demand - they'd cut office staff especially because that's where the head count & money is.
The only way they cut blue collar head count enough to make a dent is to idle whole plants, maybe whole divisions. But they are prepared to do that too.
A buddy I do business with told me he knows his company is considering that option - as a result he is thinking about early retirement... at about 55. If they RIF'd him now he won't work again anyway so might as well 'retire'.
His company hasn't seen extreme demand decline - not yet. Heck they've had record quarters recently & even moved work back from Asia due to dollar weakness. But that can all go away and then some in a hurry. He said they already have contingencies in place should that happen - the vast majority of the pain would be felt in middle management on down.
People think this current price inflation sucks & it does... when we finally get our 'Volcker Moment'... and my guess is we will, that they are just picking their time & place to do battle with inflation... when that happens people will learn just how much a Volcker Moment (even if needed) will suck.
Middle class is in for a rough time no matter how this plays out.
"Thanks so much for following up. Please make sure to keep in touch with
them so that when that deal falls apart well be here.
It will only be a matter of time before the Seller universe understands
that there are really only a handful of real buyers out there and that
they require value today. As in deep value today.
This is why these cycles take YEARS to unwind. This property will go under
contract, theyll extend a few six months at a time etc etc, and then at the
table the buyer will crap out and the seller will only realize then that he
agreed to LDs with the EMD and then is FED with no SP.
Then it comes back to market at a discount from the first time and yes were
still here but now that its been a year we want to pay less. And before you
know it were paying 30/ft FAR and actually gonna gear up for a ground up
spec condo building in 2014.
And by then WE will be lucky as the buyers if the bank hasnt taken it back
and then decided to hold on to it as REO instead of writing it down due to
new regulatory minimums they have to keep on their hold for investment
portfolio.
Then, and only then, well be waiting here with our smart money. And then,
sheila, youll make a mint by having stuck with us."
Remember one borrower can default on more than one loan for it is typical of the foreclosures in our area that the borrower has a second, third and in a few instances even a 4th mortgage on the same property...when on goes, they all go.
"The only way they cut blue collar head count enough to make a dent is to idle whole plants, maybe whole divisions. But they are prepared to do that too."
dryfly,
This was what I took away from a meeting with our director 5 weeks ago.
We kept up with growth by working people OT and buying newer assets. Some guy asked if they thought about any type of early retirement. No hesitation..."NO" very loudly from the director. I really think my company is worried if they did,it would be a mad rush to the exits. It happened a few years ago with managment and damn near crippled us...
bring on the foreclosures. The faster we can get home prices down to affordable levels the quicker this housing market can bottom, but we have a ways down to go before that happens.
3 times incomes still ways off.
Can anyone explain how these crooked investment banks can stick the tax ppayors with their garbage holdings while continuing to pay a dividend to its shareholders?
This POS firm GS needs to take it up the $%$!
Without a long drawn out backstory lets just say I was the only person to speak in favor of expanding the local mine. 100+ good jobs. A local group flew in protestors from out of state...
"Can anyone explain how these crooked investment banks can stick the tax payors with their garbage holdings while continuing to pay a dividend to its shareholders?"
The explanation is called the go-vermin. They haven't grown a pair yet (if ever) to tell their donors in IBs higher management that Pr. Pain is overdue for a visit to their quarters.
It's an asset-based econ we got here, remember? Those who hold the assets rules and that is that.
It is a game of mind over matter: They do not mind and we don't matter!
No hesitation..."NO" very loudly from the director. I really think my company is worried if they did,it would be a mad rush to the exits. It happened a few years ago with managment and damn near crippled us...
A funny story from the 80s.
I was a young engineer & went to lunch with a late-50ish guy... a friend of my dad. He had been offered early retirement in the previous recession & turned it down - he felt he was too young... it was early rust belt & his first experience with a really shitty recession. That was something like 5-8 years prior to this.
When we went to lunch it was recession again (one of Reagan's')... and rumors of early retirement buy outs were everywhere again. I mentioned to him... "Well you wouldn't be interested anyway - you've turned those down before..."
He got quiet. Put his fork down and slowly wiped his mouth then calmly said...
"If they offered me early retirement now, today... I wouldn't even go back to the office from lunch. I'd go straight home, grab the wife and get the hell out of town before they had a chance to change their mind. They can clean out my f%$^@ing desk..."
I laughed so hard I almost cried. Poor SOB never got his offer - worked up to 65. I just hope he didn't die soon after that - hope he had some time to kick back.
Declining incomes, declining equities, declining real estate, declining dollar. Rising commodities, rising cost of living. Could the fed have done a worse job?
Negative real interest rates do not create or maintain jobs in aggregate. Irrational investments become rational when money is devalued - all part of the fiat bubble cycle.
As Rome burns, the Fed promises to add more fuel to the fire:
Even while downside risks to the economy persist, officials remain unsettled about inflation. While they expect rising unemployment to put a cap on wages and prevent a wage-price spiral, they worry that inflation fears may be feeding a fall in the dollar and the rise in commodity prices, and that further rate cuts could aggravate that inflationary psychology.
Declining incomes, declining equities, declining real estate, declining dollar. Rising commodities, rising cost of living. Could the fed have done a worse job?
High unemployment trumps all - all the rest of that is minor compared to having no job.
Article about wheat projections. Looks like Australia,China and India might be off to decent starts this year. We should know buy June 1 how yields in the US will look...
What happens if a whole bunch of countries have record crops ??? Thats why Chris don't touch the stuff.
Of the 6.5 million foreclosures estimated by CSFB, I wonder how many of them are going to be fraudulent/manufactured foreclosures due to Mortgage Servicing Fraud?
And of those, I wonder how many of them are going to be fraudulently manufactured by CSFB-owned Select Portfolio Servicing, formerly known as Fairbanks Capital Corp...
There will be pain and that is unfortunate. Nothing can change that now. But you can't maximize output in a bailout/ponzi economy. All the incentives are wrong.
Personally, I think Volcker went too far and helped plant the seeds of today's bubble economy. Volcker allowed short term money to earn a ridiculus REAL return. That's just as silly as Bernanke & Greenspan's negative real interest rate policies. Money should be neutral. I see no better way to equate money & work. That equation is the key imo.
"bring on the foreclosures. The faster we can get home prices down to affordable levels the quicker this housing market can bottom, but we have a ways down to go before that happens.
3 times incomes still ways off."
Renterfornow | 04.23.08 - 11:38 pm |
Foreclosures aren't comps. They don't bring down prices. They are illusory only. Don't you know anything? Oh, maybe you do.
Personally, I think Volcker went too far and helped plant the seeds of today's bubble economy. Volcker allowed short term money to earn a ridiculus REAL return. That's just as silly as Bernanke & Greenspan's negative real interest rate policies. Money should be neutral. I see no better way to equate money & work. That equation is the key imo.
I agree. BTW I do believe we will get our Volcker Moment again. it will come the minute the FOMC thinks the banking sector has enough strength (built up sufficient reserves) to withstand the blow... if J6P isn't completely ready then, well that's tough. IMHO.
I'm not a commodity buyer. Never have been. Commodities are volatile. I like to sleep at night.
I worked at an industrial farm in the 1970s. The farm grew a pile of corn & also manufactured fertilizer.
A farm bust is brutal. I've seen it. But inflation is a family budget killer. I think it is totally wrong to bail out speculators at the expense of prudent American families. The employment schtick is a boogie man imo. The fed is acting to bail out banks, employment is secondary.
Higher inflation is an employment killer. Just look at the historical record. Unemployment lags inflation by about 2 years. BTW, inflation has been rising for five years running.
BTW I do believe we will get our Volcker Moment again. it will come the minute the FOMC thinks the banking sector has enough strength (built up sufficient reserves) to withstand the blow... if J6P isn't completely ready then, well that's tough. IMHO.
dryfly | 04.24.08 - 12:12 am | #
I think that is the playbook. Makes sense too. The last thing we need is a rash of Northern Rocks.
is the fed really to blame? i mean yeah things happened. but since when is the fed's job to expand its purvey?
investment banks, hedge funds and the like did not fall under the same regulatory structure.
getting thr fed to look at these issues is a legislative process as far as i can tell.
sure rates are this and that, but do we want to expect that the quasi-governmental quasi-regulatory bodies have the power to expand their dominion unilaterally?
How did the fed (mis)manage things so badly?
Angry Saver | 04.24.08 - 12:28 am | #
It wasn't just the Fed - that's been my point all along. Its every FCB in the world trying to position their currency to maximize exports into US. Then couple that with a spend but no tax gov't and borrow and no save citizenry.
The FCBs bought all the debt we would feed them - public & private - as long as they can export. They & our banks, insurance pools, retirement accounts, etc., all end up with tons of sketchy paper.
Now it is all unwinding and I DO believe the immediate fear & response by the fed is to save jobs - if banks go down & industrial CP goes away - you can't IMAGINE how tough it is run a plant. It doesn't run on cash - it runs on short term credit. Banks get shaky & nothing runs - seriously.
BTW - I've already got BIG industrial customers on cash advance only - my cleints don't ship until they put cash in our accounts & it clears. I haven't seen that since the 80s either.
The fed is trying to keep the wheels on while a couple decades of bad practice tries to unwind FAST... the best they can do is slow it down and that might not be good enough.
But I'd bet money the day they think they got the patient stable enough to roll out of ER - they put him under the knife again and do the Volcker Procedure. But that won't happen until they think patient will live through it. The rest of us are more or less expendable.
I believe that the bond market will react much before the Fed does to the increased inflationary pressures. I am very surprised yields (and spreads) have not spiked yet.
As usual, the Fed will then follow the bond market in hiking short term rates.
We're close to the point where the Fed is pretty inconsequential now, IMO.
China and other debtors won't be getting food or gold sold through swaps. It's an "ace" called nukes and if we ever default on debt... it won't just be treasuries, it'll be every contract we've written with foreigners. See having 1000x more nukes than anybody else is the ultimate "fat stack" at the poker table. It's a bluff that can't be called.
We're in for VERY hard times, no doubt, as is the ROW - but foreigners won't be getting their demands if it ever comes to that. If you haven't done so lately, take a visit overseas somewhere "developing" and tell me what you see...
fffffffffffffffffirst
Buy one get one free!
50% of subprime loans will go into default?
Yowsers!!
Wow this is not counting those who bought last fall/winter will stay in their homes too as well as everyone who is trying to catch a bottom now.
Foreclosures in Sonoma county are only up 472% YoY,where's the problem?
In other news Credit Suise announced that 6 plus 8 equals 4! That would make about as much sense as saying that 6.5 million foreclosures will cause a mere 15% drop in prices over two years.
Amazing how big financial institutions never have the courage to follow their own analysis to it's logical conclusions. Even the bad news has to be sugar-coated to avoid "spooking the markets".
I guess they are a little light on the price decline.
I wonder how mainstream USA would feel about a 30% plus cut like I have had.
Tastes great- Less Filling comes to mind.
Someday this war's gonna end...
The price declines they cite could be 'nominal' - they might not care to venture into the world of 'real' - inflation adjusted - declines.
I personally think they are being a bit optimistic.
But that is just me
Tom Stone, those huge percentage numbers of YOY foreclosures seem stunning. But remember, the number of foreclosures last year, in many of these counties, was zero. Not hard to have 100's of percents' increase from that.
Not enough Hope Now t-shirts. That's the problem.
The way I see this calculation is to take the normal rate of homeownership and subtract that from each year's climb during the runup (say from 2002 to 2006). Take the result and multiply it by number of homes sold in each year. Subprime or prime it doesn't matter because these increases in that rate over the historical norm is what matters.
By doing that I think it's a great back of the envelope and probably close to the truth. I think they might be a little high on this estimate, though.
Bear Stearns
Who knew ahead of time? Linkoff of jesse's cafe american. The Chalmer Johnson interviews are also interesting.
Bear Stearns Buy-Out... 100% Fraud - iTulip.com
Jesse's Café Américain
Check aperitfs on the left
AllenM, this is 15% in addition to the 10% prices have already declined (as of Q4 2007). So they are projected a 25% price decline or so - pretty signficant.
Barring some sort of government plan, I think they are on the low side of foreclosures.
Best Wishes.
"little light on the price decline."
So how many foreclosures if declines are closer to Shiller's prediction?
SFV,the foreclosure numbers have been low,but with a nominal 29% drop from the peak price,and a 20% YoY price decline in March I would not be surprised to see a 500% increase in YoY foreclosures reported in a year's time...this is the end of the beginning,not the beginning of the end.
off topic:
Now Brazil has halted rice shipments. Apparently they had requests from African and Latin countries so they had to join the "hoards"
I suspect that the US government will become the world's biggest lien holder before all of those mortgages go into foreclosure. After all, isn't it our right as Americans for the government to protect us from ourselves? We're all victim!
Now the numbers are beginning to get a little closer to reasonable based on the current information.
Let's see, $50 Trillion of total debt, 12% default, $6 Trillion of defaults.....Roubini still has a ways to go.
Just wait until the municipalities start defaulting.
This is SO wall street. Way late as usual. At this point even the flippers know it's game over.
Even the so called "good" analysts like Meredith Whitney are clueless tools of the sales force.
I recall Jack Grubman of Citi didn't put a sell label on Worldcon until after they filed for bankruptcy. Similar story for analyst recommendations on Bear Sterns, and all the failed mortgage lenders too.
Wall street is a big con with government backing.
Isn't this getting close to Roubini's "best case scenario"? 16 m homes go under water and 50% will walk away or be foreclosed? Well, plus mimus 1.5 million.
How can anybody be surprised by the foreclosure numbers. The boom was a fraud. A chance to bet with other peoples money.
Heads I win, tails I walk away.
They might be right about the timing. Most of the really stupid loans will be over and done by 2009.
I suspect that the US government will become the world's biggest lien holder before all of those mortgages go into foreclosure.
Just wait until the municipalities start defaulting.
If the US Government holds the lien, and then forecloses, does the US Government still owe local property taxes (prior to selling off the REO) ?
My impression has always been that federally owned lands were not subject to local taxation.
Economics has a way of imposing reality on consumers, governments & central banks. It just takes time.
The latest wall street tripe is that food & commodity inflation is due to soaring demand. No mention of the true reason - negative real interest rates and excessive money creation.
Why the subterfuge from wall street? Higher CPI inflation means higher interest rates and lower stock & bond prices. Wall street doesn't fear a Minsky Moment. Wall street fears a "Volcker Moment." Tight monetary policy would be helpful to the middle class, but devastating to the bloated financial community.
RayOnTheFarm writes: My impression has always been that federally owned lands were not subject to local taxation.
Correct. Property owned by any Federal, State or local government is not subject to taxation.
Let me follow up by saying that anyone that does lease/rent land or property owned by Federal/State/local governments IS directly responsible for the taxes owed under the "proprietary interest" tax laws.
Chickenlittle @t 9:24 Pm, your time zone.
Is it possible to short Muni's?
Can one have a indicator of which muni is first?
I can see guy with the alphorn yodling REO-cola... REO-cola...
"Let me follow up by saying that anyone that does lease/rent land or property owned by Federal/State/local governments IS directly responsible for the taxes owed under the "proprietary interest" tax laws."
Yes, in California it is called 'possessory interest'.
My tinfoil hat is suddenly worth a whole lot more. While 6.5m foreclosures is possible based upon market conditions I expect intervention before then. Is it really a foreclosure when people retain ownership and continue to live there?
Has somebody bought f*dmunicipalites.com?
Credit Suisse has been shopping a bailout on Capitol Hill, so they have some reason to pump up the numbers. But to me, the bigger number is all the more reason to keep taxpayers far away from this mess.
CR, the longer we go without any viable response other than the pathetic ruminations of Wall Street fantasy folks, the further we will go.
I think the Credit Suisse scenario would have been possible with serious efforts last year.
Too much inertia built into the growth of the crisis. Too many points of failure not covered by current proposals that will fail. For instance, CFC has a $100 billion portfolio of garbage- who really is going to soak the losses- probably $20 billion there alone?
Right now nobody is commenting much on the screaming dive the bubble states are taking in their public finances. Got $20 billion for California alone?
The knock on effects are starting to build toward a perfect storm with strains becoming apparent in every direction!!!
A couple of commenters have said their tin foil super collanders have begun to short out. I agree that this crisis is starting to spiral outside the Feds control. The only backstop after that is Congress, and they are politically deadlocked until next January.
I predict the next President will suffer a crisis the first 100 days not seen since 1933.
Someday this war's gonna end...
Friday got here quick this week.
ipodius,
In days of yore before you joined the CR community, I several times posted comments based on exactly the calculation you proposed above. The excess came to about four million homes for the period from 1995 through 2005 (the home ownership rate was rising about 0.5 percentage points per year during that period). I didn't try to estimate how many more housing units were sold to speculators not occupying them.
My calculations were based on the Census Bureau surveys of US households, in which they actually ask a large number of heads of households whether they "own" their dwelling. So the owner/renter ratio is directly measured and presumably quite accurate. Their stats for the absolute number of households however are estimates, and subject to large revisions, so those numbers need to be used with care.
With four million occupant homeowner foreclosures, another 2.5 million in non-occupant foreclosures would give 6.5 million. Sounds about right to me.
FT - US Regulator Fears Wave Of Bank Failures
"US bank failures could rise above "historical norms" as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator.
In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed."
FT.com / UK - Regulator fears wave of bank failures
Not to sweat: 2.5M of those homes are the non-owner-occupied "ski chalets" that gave Moody's that "comforting feeling" when reviewing their ARMs pools. So, it's all priced in.
Angry Saver:
"Jack Grubman". Thanks for the laugh. I covered telco stocks in the bubble and he would visit our mutual fund and tell us what great investments the telco's were. companies that were burning a few hundred million a year for the next 5 years and "projected" to be free cash flow positive 10 years out. a complete tool.
Does anyone know if all these dire forecasts of foreclosures and poor house sales assume rates stay at their current level? 30 year jumbos have risen by over .75% in the past month- and I'd bet that is just the beginning. If rates go 2, 3 or 5% higher, the pessimistic projections of today may look optimistic in 2009.
While 6.5m foreclosures is possible based upon market conditions I expect intervention before then.
I can't imagine any possible intervention that wouldn't aggravate the problem. As it stands, nothing TPTB have done has helped matters so far.
Stuff like this just pumps the markets higher. Lets all pray for more news like this!
What was the real purpose of this report? Are we now seeing folks egging Feds to backstop mortgages?
"A public-private partnership to purchase delinquent loans at a discount could help set a floor in home price"
(Actually rather sad 'cause some honest decent folks are going to get caught in the cross fire, er friendly fire)
In recent weeks, expectations have been mounting on the government to take decisive steps to prop up the domestic markets,'' Jing Ulrich, Hong Kong-based chairwoman of China equities at JPMorgan Chase & Co., said in an e-mail.The lowering of stamp duty is among the most aggressive steps the government could have taken to improve sentiment.''
This is no different than what's happening here with the TAF and other public relations stunts - sheesh
"Most of the really stupid loans will be over and done by 2009."
Journeyman
Do you mean that they won't be done any more past 2009? Ok, I'll buy that.
But if you mean, they would have been recasted with new rates and people would have foreclosed by then, etc. I think you're a little off.
Interest only's and option arms are not yet defaulting at "alarming" rates. A little higher than was expected (what else is new), but not crazy numbers like subprime.
They will hit the subprime default figures by 2010. The peak volume was done in 2005 and it takes about 5 years neg am to max. Some say a little less, but the true rate within the program has come down in the last years extending the neg am time. Most are based on either COFI's, MTA's, or CMT's.
Hmmm, wonder what that public-private partnership would look like...
Here's your Minsky Moment.
POTASH CP SASKATCHEW Share Price Chart | POT - Yahoo! Finance
"I suspect that the US government will become the world's biggest lien holder before all of those mortgages go into foreclosure."
No that be the holders of US treasuries when the US does the USSR debt default. The the fun really starts, this is just spring training.
Barley | 04.23.08 - 10:46 pm | #
Just remember,33% or so own outright. They are generally lower priced homes. I mentioned this to the parents the other day...Boy talkin about gettin em wound up. Their place is worth about 160k. They don't have much sympathy for 300/400/500k and higher purchasers who are in trouble. I actually think if it came to a direct bailout plan we might be able to kill it or at least minimize the effect. There are still a lot of frugal(I'm cheap) people in this country. Just might have to go out of our way to get organised.
Chris
"These factors, coupled with snowballing negative psychology, are contributing to a rapid rise in foreclosures," the analysts said.
Do we, at this blog, have anything to do with this mess?
Interesting Times | Homepage | 04.23.08 - 11:01 pm | #
All fundamentals,right?
Thank god the corp I work for doesn't look like that.
Chris
jm:
Interesting Times | Homepage | 04.23.08 - 11:01 pm | #
Datz a nice 20 bagger!
Do we, at this blog, have anything to do with this mess?
doom | 04.23.08 - 11:07 pm | #
It's kinda nice being the troll who hides in the corner and fixes trucks. I have heard thru the grapevine that the morning meetings have gotten really nasty since all OT was cut out 3 weeks ago. I have had more than one driver bitch he will have to work until he croaks. I want to ask "Who's fault is that" but it is not considered PC enough as a answer. So I keep the piehole shut.
Chris
Cobradriver | 04.23.08 - 11:10 pm | #
Now when someone asks if you have any POT, you will truly wish you did.
Let's see: 12.5 million foreclosures times maybe $50,000 loss per foreclosure is only $625 billion. That ain't so bad, is it? Unless you start figuring the derivatives based on that loss. Oops.
So long for the much-touted Ownership Society.
Another property underwater?
SF Chronicle headline: "San Francisco prosecutors say landlords ran amok, terrorized tenants"
"The charges stem from tactics the [landlords] allegedly used after they bought a six-unit, three-story apartment building on Clementina Street for $995,000 in 2005"
" When one of the tenants, Scott Morrow, successfully fought eviction, the couple allegedly told workers in September 2006 to cut the beams that supported his apartment's floor. They also shut off Morrow's electricity, cut his phone line and had workers saw a hole in his living room floor from below, prosecutors said.
Economics has a way of imposing reality on consumers, governments & central banks. It just takes time.
The latest wall street tripe is that food & commodity inflation is due to soaring demand. No mention of the true reason - negative real interest rates and excessive money creation.
Why the subterfuge from wall street? Higher CPI inflation means higher interest rates and lower stock & bond prices. Wall street doesn't fear a Minsky Moment. Wall street fears a "Volcker Moment." Tight monetary policy would be helpful to the middle class, but devastating to the bloated financial community.
Angry Saver | 04.23.08 - 9:45 pm | #
Angry - I agree with a lot of that except the last paragraph - while the big shots do a fear a Volcker Moment, it would be equally devastating to the middle class. Maybe even MORE devastating.
When Volcker did his thing it sucked for average folks and yet we were a net saving nation, a net exporting nation and pretty much debt free in aggregate - at least by our standards today. All of that has changed for the worse.
Today, if the Fed tightened money A LOT - like Volcker - we'd see unemployment like we haven't seen since the 30s. Make 70s & 80s UE look like a party in comparison.
I talk with operational folks at companies and they all have their finger on the pink slip trigger ready to pull it the minute they see significant decline in demand - they'd cut office staff especially because that's where the head count & money is.
The only way they cut blue collar head count enough to make a dent is to idle whole plants, maybe whole divisions. But they are prepared to do that too.
A buddy I do business with told me he knows his company is considering that option - as a result he is thinking about early retirement... at about 55. If they RIF'd him now he won't work again anyway so might as well 'retire'.
His company hasn't seen extreme demand decline - not yet. Heck they've had record quarters recently & even moved work back from Asia due to dollar weakness. But that can all go away and then some in a hurry. He said they already have contingencies in place should that happen - the vast majority of the pain would be felt in middle management on down.
People think this current price inflation sucks & it does... when we finally get our 'Volcker Moment'... and my guess is we will, that they are just picking their time & place to do battle with inflation... when that happens people will learn just how much a Volcker Moment (even if needed) will suck.
Middle class is in for a rough time no matter how this plays out.
real life negotiating from the street:
excerpt from an email sent today:
"Thanks so much for following up. Please make sure to keep in touch with
them so that when that deal falls apart well be here.
It will only be a matter of time before the Seller universe understands
that there are really only a handful of real buyers out there and that
they require value today. As in deep value today.
This is why these cycles take YEARS to unwind. This property will go under
contract, theyll extend a few six months at a time etc etc, and then at the
table the buyer will crap out and the seller will only realize then that he
agreed to LDs with the EMD and then is FED with no SP.
Then it comes back to market at a discount from the first time and yes were
still here but now that its been a year we want to pay less. And before you
know it were paying 30/ft FAR and actually gonna gear up for a ground up
spec condo building in 2014.
And by then WE will be lucky as the buyers if the bank hasnt taken it back
and then decided to hold on to it as REO instead of writing it down due to
new regulatory minimums they have to keep on their hold for investment
portfolio.
Then, and only then, well be waiting here with our smart money. And then,
sheila, youll make a mint by having stuck with us."
thats the real deal
Interesting Times | Homepage | 04.23.08 - 11:18 pm |
That word and DOT physicals really are not much of a match
.
Chris
Remember one borrower can default on more than one loan for it is typical of the foreclosures in our area that the borrower has a second, third and in a few instances even a 4th mortgage on the same property...when on goes, they all go.
"The only way they cut blue collar head count enough to make a dent is to idle whole plants, maybe whole divisions. But they are prepared to do that too."
dryfly,
This was what I took away from a meeting with our director 5 weeks ago.
We kept up with growth by working people OT and buying newer assets. Some guy asked if they thought about any type of early retirement. No hesitation..."NO" very loudly from the director. I really think my company is worried if they did,it would be a mad rush to the exits. It happened a few years ago with managment and damn near crippled us...
Chris
Interesting Times,
POT (known around these parts as PCS) operates a large surface mine north of White Springs, FL. They are not just a Canadian operation.
White Springs facility
bring on the foreclosures. The faster we can get home prices down to affordable levels the quicker this housing market can bottom, but we have a ways down to go before that happens.
3 times incomes still ways off.
Just curious,
Where they among those who scoffed at the Center for Responsible Lending when they said 2 million foreclosures?
Can anyone explain how these crooked investment banks can stick the tax ppayors with their garbage holdings while continuing to pay a dividend to its shareholders?
This POS firm GS needs to take it up the $%$!
RayOnTheFarm | 04.23.08 - 11:38 pm |
Without a long drawn out backstory lets just say I was the only person to speak in favor of expanding the local mine. 100+ good jobs. A local group flew in protestors from out of state...
Blood pressure time...
Chris
"Can anyone explain how these crooked investment banks can stick the tax payors with their garbage holdings while continuing to pay a dividend to its shareholders?"
The explanation is called the go-vermin. They haven't grown a pair yet (if ever) to tell their donors in IBs higher management that Pr. Pain is overdue for a visit to their quarters.
It's an asset-based econ we got here, remember? Those who hold the assets rules and that is that.
It is a game of mind over matter: They do not mind and we don't matter!
No hesitation..."NO" very loudly from the director. I really think my company is worried if they did,it would be a mad rush to the exits. It happened a few years ago with managment and damn near crippled us...
A funny story from the 80s.
I was a young engineer & went to lunch with a late-50ish guy... a friend of my dad. He had been offered early retirement in the previous recession & turned it down - he felt he was too young... it was early rust belt & his first experience with a really shitty recession. That was something like 5-8 years prior to this.
When we went to lunch it was recession again (one of Reagan's')... and rumors of early retirement buy outs were everywhere again. I mentioned to him... "Well you wouldn't be interested anyway - you've turned those down before..."
He got quiet. Put his fork down and slowly wiped his mouth then calmly said...
"If they offered me early retirement now, today... I wouldn't even go back to the office from lunch. I'd go straight home, grab the wife and get the hell out of town before they had a chance to change their mind. They can clean out my f%$^@ing desk..."
I laughed so hard I almost cried. Poor SOB never got his offer - worked up to 65. I just hope he didn't die soon after that - hope he had some time to kick back.
Dryfly,
Declining incomes, declining equities, declining real estate, declining dollar. Rising commodities, rising cost of living. Could the fed have done a worse job?
Negative real interest rates do not create or maintain jobs in aggregate. Irrational investments become rational when money is devalued - all part of the fiat bubble cycle.
As Rome burns, the Fed promises to add more fuel to the fire:
Even while downside risks to the economy persist, officials remain unsettled about inflation. While they expect rising unemployment to put a cap on wages and prevent a wage-price spiral, they worry that inflation fears may be feeding a fall in the dollar and the rise in commodity prices, and that further rate cuts could aggravate that inflationary psychology.
Fed Weighs Pause After Next Rate Cut - WSJ.com
Declining incomes, declining equities, declining real estate, declining dollar. Rising commodities, rising cost of living. Could the fed have done a worse job?
High unemployment trumps all - all the rest of that is minor compared to having no job.
"Rising commodities"
Angry,
A article you might be interested in...
money - Article
Article about wheat projections. Looks like Australia,China and India might be off to decent starts this year. We should know buy June 1 how yields in the US will look...
What happens if a whole bunch of countries have record crops ??? Thats why Chris don't touch the stuff.
Chris
So they are projecting a 32% decline in real dollars?
Of the 6.5 million foreclosures estimated by CSFB, I wonder how many of them are going to be fraudulent/manufactured foreclosures due to Mortgage Servicing Fraud?
And of those, I wonder how many of them are going to be fraudulently manufactured by CSFB-owned Select Portfolio Servicing, formerly known as Fairbanks Capital Corp...
Dryfly,
There will be pain and that is unfortunate. Nothing can change that now. But you can't maximize output in a bailout/ponzi economy. All the incentives are wrong.
Personally, I think Volcker went too far and helped plant the seeds of today's bubble economy. Volcker allowed short term money to earn a ridiculus REAL return. That's just as silly as Bernanke & Greenspan's negative real interest rate policies. Money should be neutral. I see no better way to equate money & work. That equation is the key imo.
Pottersville
Home prices are LUBRICATED.
"bring on the foreclosures. The faster we can get home prices down to affordable levels the quicker this housing market can bottom, but we have a ways down to go before that happens.
3 times incomes still ways off."
Renterfornow | 04.23.08 - 11:38 pm |
Foreclosures aren't comps. They don't bring down prices. They are illusory only. Don't you know anything? Oh, maybe you do.
Personally, I think Volcker went too far and helped plant the seeds of today's bubble economy. Volcker allowed short term money to earn a ridiculus REAL return. That's just as silly as Bernanke & Greenspan's negative real interest rate policies. Money should be neutral. I see no better way to equate money & work. That equation is the key imo.
I agree. BTW I do believe we will get our Volcker Moment again. it will come the minute the FOMC thinks the banking sector has enough strength (built up sufficient reserves) to withstand the blow... if J6P isn't completely ready then, well that's tough. IMHO.
Credit Suisse is a bunch of optimists. Doubt they're considering 8% (reported) unemployment Q109, HELOC/second liens, knock-on prime defaults, 10% inflation eating the consumer alive, etc etc
May need to double that figure before it's all over.
Now tell me how "subprime is contained" has morphed into rice hoarding?
It is not rice hoarding, it is rice whoring. Sex for rice so the kids don't starve.
Cobradriver,
I'm not a commodity buyer. Never have been. Commodities are volatile. I like to sleep at night.
I worked at an industrial farm in the 1970s. The farm grew a pile of corn & also manufactured fertilizer.
A farm bust is brutal. I've seen it. But inflation is a family budget killer. I think it is totally wrong to bail out speculators at the expense of prudent American families. The employment schtick is a boogie man imo. The fed is acting to bail out banks, employment is secondary.
Higher inflation is an employment killer. Just look at the historical record. Unemployment lags inflation by about 2 years. BTW, inflation has been rising for five years running.
How's that "ownership society" going, Bush? Thanks for nothing you fracking idiot. And yes I will blame Bush for this.
It isn't a big deal its only USA dollars.
BTW I do believe we will get our Volcker Moment again. it will come the minute the FOMC thinks the banking sector has enough strength (built up sufficient reserves) to withstand the blow... if J6P isn't completely ready then, well that's tough. IMHO.
dryfly | 04.24.08 - 12:12 am | #
I think that is the playbook. Makes sense too. The last thing we need is a rash of Northern Rocks.
How did the fed (mis)manage things so badly?
How did the fed (mis)manage things so badly?
Angry Saver |
Fear and this thing we call the Patriot Act.
By the way, everyone here is so Patriot Act shy. Can anyone here tell me the authority it gives as far as economic policy to protect the US?
is the fed really to blame? i mean yeah things happened. but since when is the fed's job to expand its purvey?
investment banks, hedge funds and the like did not fall under the same regulatory structure.
getting thr fed to look at these issues is a legislative process as far as i can tell.
sure rates are this and that, but do we want to expect that the quasi-governmental quasi-regulatory bodies have the power to expand their dominion unilaterally?
How did the fed (mis)manage things so badly?
Angry Saver | 04.24.08 - 12:28 am | #
It wasn't just the Fed - that's been my point all along. Its every FCB in the world trying to position their currency to maximize exports into US. Then couple that with a spend but no tax gov't and borrow and no save citizenry.
The FCBs bought all the debt we would feed them - public & private - as long as they can export. They & our banks, insurance pools, retirement accounts, etc., all end up with tons of sketchy paper.
Now it is all unwinding and I DO believe the immediate fear & response by the fed is to save jobs - if banks go down & industrial CP goes away - you can't IMAGINE how tough it is run a plant. It doesn't run on cash - it runs on short term credit. Banks get shaky & nothing runs - seriously.
BTW - I've already got BIG industrial customers on cash advance only - my cleints don't ship until they put cash in our accounts & it clears. I haven't seen that since the 80s either.
The fed is trying to keep the wheels on while a couple decades of bad practice tries to unwind FAST... the best they can do is slow it down and that might not be good enough.
But I'd bet money the day they think they got the patient stable enough to roll out of ER - they put him under the knife again and do the Volcker Procedure. But that won't happen until they think patient will live through it. The rest of us are more or less expendable.
dc1000, thanks for the smile.
Hope all is well with you.
Liked your post, too. Can you translate the acronyms?
... agreed to LDs with the EMD and then is FED with no SP. ... And before you know it were paying 30/ft FAR ...
"FED" I think I understand.
But the others?
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If the Fed's waiting until banks have sufficient reserves to handle a new version of the "Volcker" treatment they're whistling past the graveyard.
This isn't the late 70's, and there are way too many other factors at work.
I prefer a hands off silent fed. Instead we had an active, rock star fed that was always there to bail out speculation and asset inflation.
The result was more & more speculation. LTCM seems like a mole hill now. Even the tech bust seems small.
A lender of LAST resort morphed into a smoker who kept planning on quitting smoking.
The money leaves a slave, it comes back a master.
Quit spanking the money.
This isn't the late 70's, and there are way too many other factors at work.
tj & the bear | 04.24.08 - 12:58 am | #
Congress'll do RTC II first - only cost paper (only). Then Volcker II. But first re-capitalize & build reserves.
China owns a lot of US debt, correct? And there's been some talk of default--as if it's expected.
I'd like to point out that Chinese negotiators will very quietly say, "No problem. We'll simply take what is owed in food."
This is the very real corner that greed has painted this country into.
Food shortages? You haven't seen anything yet.
I believe that the bond market will react much before the Fed does to the increased inflationary pressures. I am very surprised yields (and spreads) have not spiked yet.
As usual, the Fed will then follow the bond market in hiking short term rates.
We're close to the point where the Fed is pretty inconsequential now, IMO.
FT Woods-
China and other debtors won't be getting food or gold sold through swaps. It's an "ace" called nukes and if we ever default on debt... it won't just be treasuries, it'll be every contract we've written with foreigners. See having 1000x more nukes than anybody else is the ultimate "fat stack" at the poker table. It's a bluff that can't be called.
We're in for VERY hard times, no doubt, as is the ROW - but foreigners won't be getting their demands if it ever comes to that. If you haven't done so lately, take a visit overseas somewhere "developing" and tell me what you see...
Scary numbers! And then long long until prices go back to even? Take the 12.7% out of the buyer pool? Slow recovery at best!