I am beginning to think like a politician. The idea that the BMA should go bust is kind of imaginable. So scary that a behind the scenes bailout would be essential.
CR are you still seeing some kind of mild recession as the most likely event here going forwards?
Worried, I don't see a severe recession (with unemployment hitting 8% or more) - that doesn't mean it will seem "mild".
With consumer spending falling off a cliff in March (anecdotal reports I'm hearing are ugly), and non-residential investment slowing sharply - yeah, it will probably get a little scary. But I don't think we will see enough job losses to push the unemployment rate to the "severe recession" level.
I still think the problems will linger - usually housing plays a key role in leading the economy out of recession - but this time housing is in deep trouble. I just don't see any engine of recovery yet.
OT, but I'm wondering today whether the realty business is going to start eating its own.
Largest realtor in my area is Coldwell Banker and was announced early this week that they were suddenly now with Prudential. In yesterday's paper was a full page ad/letter from CEO of Coldwell Banker at Corp hdq in NJ; was surprised to find out on Tuesday that this was happening...and would be tickled if any of the agents left that (now)Pru agency to return to CB.
The article does not give a street address, alas, but limits their location to "on L Street." I wonder how close they are to the Bureau of Economic Analysis (BEA) at 1441 L Street, NW? Oh, sweet irony!
NAHB is less than two blocks from BEA, just for information.
So if the rule of thumb for personal housing is 3x earning, what is the rule of thumb for CRE? In other words, I wonder what their balance sheet looks like. Of course, with their ten year time line there is no worry, like the man said, any time is a great time to buy.
Then again, there are a quite a few lousy times to owe on a depreciating asset. Who's lending them the money?
Hmmm, and they're going to be in the midst of a move at the most critical juncture for lobbying on mortgages and related stuff. I'm sure they'll be up to the challenge. They're instituting cost cutting measure (what, no teleprompters at the annual meeting! Gasp!), but they can't be thinking of reducing the treats and goodies for the Congress. Hey, maybe they can use the empty space for "entertainment" there's got to be a void now that the Emperor's Club is gone.
Some day you'll have to tell us from whence the new jobs will come to replace those we're increasingly losing.
REIC is dead, CRE is weakening, Wall Street is contracting, government is rolling over, and -- with the demise of the consumer -- retail/services is headed off a cliff. Due to "global rebalancing" manufacturing may hold it's own.
No savings, declining assets & equities, failing pensions, disappearing benefits vs. skyrocketing food, energy and health costs. Oh, and a government so deep in the red and dependent upon foreigners that more Keynesian stimulus is an option only in the minds of clueless politicians.
The "vicious cycle" between these is likely to aggravate circumstances for years. I simply don't see how a recession can be anything BUT severe.
[Of course, it's no secret I'm expecting a Greater Depression.]
tj -- it is incorrect to assert that we have "no savings" as a nation. The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
This is a really amusing report. Kind of makes me smile big way. On another note remeber my wish about a more balanced picture. The issue I see is that you attract almost exclusively readers who delight in other peoples failures (probably as a distraction from their own shortcomings; that's why bad news sell).
[Of course, it's no secret I'm expecting a Greater Depression.]
tj & the bear
TJ,
Yours is an extremely one-sided view. Probably if you lived in a booming midwest agrarian community, the outlook would be completely different. Other than in previous downturns we see robust raw material prices everywhere and US mines and wells are just being started now or re-started from dustballing. Entry-level salaries for geology undergraduates in the oil business are 80,000$ plus sign-on bonus. It's not enough to only look at tech jobs & salaries (albeit they are still good, too). With the "all of a sudden" re-discovered Bakken oil field just starting production, there is immense potential. Also look at ATA tonnage index; this really smells like recovery around the corner. Even CR posts turn ever so slightly more optimistic. The recovery will once again be led by the US, as do the US stock indexes already.
O-Joe
I still think the problems will linger - usually housing plays a key role in leading the economy out of recession - but this time housing is in deep trouble. I just don't see any engine of recovery yet.
Best Wishes.
Calculated Risk
With all respect, this is why I think the recession will turn severe over time. Many of the heavy industries here in the US have been gutted and the jobs sent overseas. I understand there is something of a manufacturing renaissance in Milwaukee (of all places), but for most of rust-belt America, there is nothing new.
The US auto industry is shot. The auto execs have had decades to get their stuff in a row, and for a while it looked like they would actually start listening to customers. But then they went off onto this Monster-SUV thing as though they are the step-bitch of the oil companies and their job was simply to build stuff that burned more oil.
The steel industry isn't doing well as much of our scrap metal for the mini-mills is going to China, as is our concrete and copper, driving up the cost of development here. In fact, the US seems to have slipped into a third world economy where we export raw materials (logs, scrap metal, iron ore, concrete) and import finished goods (cars, stereos, computers).
For example, there are no televisions being assembled in the US. None. The textile industry is in shambles. Even the "cheap food" policy is endangered as grain gets sucked into the ethanol supply line.
A complex economy has many many parts which depend on other parts (segments of the economy). What I am seeing is just the next chapter in the ongoing destruction of the US economy which apparently began in the early 1970s. The US economy is huge and baroquely complex, it's true. And it has taken us, what?, two generations to take it to this level?
Ever notice how things never quite get better than they were before the recession? Of course, if you happen to be a corporate executive, this isn't true. But that's only like one percent of the population. The rest of us who work for a living are quietly being crushed by inflation of assets while wages are held as close to stagnant as possible. I understand wage peonage. I came out of the working class. And I'm seeing it creep up the socio-economic ladder and it's current in the middle-middle class.
Real wages for working people have been pretty stagnant over the past forty years, but real costs for housing, education, and health care have skyrocketed. And our savings rate as a nation has plummeted since the ascension of Ronbo, Patron Saint of Supply Siders.
And all I see running for President is more pro-corporate wannabes.
As I say, it takes time to totally devastate an economy as large and as complex as ours. But it's quite possible to do. Greed is not good, regardless of Gordon Gecko's assertions to the contrary. Unregulated free markets are not good, regardless of Milton Friedman's assertions to the contrary. Every time we see a country go Friedmanite, we see an enormous wealth transfer from the poor and middle class to the already wealthy and powerful, because that's what "free markets" mean. Free for the strong to take from the weak. Free of regulation. Free of enforcement. Free of consequences (for the rich). And free from any tiny shred of fairness, justice, or morality.
I am not saying there is no hope. I am saying that things do not look good, and I don't think things will continue to poke along, business as usual. At some point, there have to be more large systematic failures like the predatory lending debacle and the Katrina "rescue" efforts.
There are people who are benefitting from this, and they are not working people.
Please excuse me, I didn't really mean to write a novel here.
The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
Troy
And if you check the data, you'll find that it isn't the poor or middle class who are banking all that money.
Moreover, you'll find that the single largest asset Americans hold is the equity in their homes, which has successfully been sucked out during the predatory lending debacle.
FTR, I grew up in one of the most productive agrarian counties in the nation. My dad was involved in both the petroleum and mining industries. If you did any research at all you'd realize these industries don't amount to a hill of beans employment-wise.
by the way, some milestones in Silicon Valley, CA:
There are currently more than 1000 SFR's less than $500K in Santa Clara county as of today. This number has climbed steadily from 375 at the new year.
Also, combined SFRs and condos for sale inventory in Santa Clara county is now above 7000. Last year's peak was about 6600 and wasn't reached until late October...and THAT number was a multi-year record high inventory.
Bottom line...all things RE are unwinding quite nicely in this crazy part of the nation. And the wonderful, perhaps even inestimable, individual and societal benefits of Affordable Home Prices are slowly, but certainly surely, being realized here in California's SF Bay Area.
Republicans will send them our tax dollars via the fed. They will probably take the stolen money to them in a van with a license plate that reads: No Bailouts.
Calculated Risk writes:
Worried, I don't see a severe recession (with unemployment hitting 8% or more) - that doesn't mean it will seem "mild".
CR
This non-recession has been limping along for what seems like six months already, never achieving any magic numbers.
Is there a way to calculate or show, or better still graph, the effects of attrition from the unemployment numbers? Benefits last for only so long. Wouldn't a steady trickle of un-replaced job losses distort the official percentages?
Optimistic Joe
I share your sentiment, Brother. The oil boom has come to Philly. Although two of the dollar-stores in my local shopping center closed and the thrift store moved to a smaller store, it's really a good thing. The parking lot now has more than enough room to accommodate the four new oil wells being sunk.
Regarding the post
A sure fire solution is for them to change their name to the Mortified Bandos Association. No more worries... at least until the Rent-A-Sheriffs come along.
(I'm wondering if that video that was flying around for the last couple of days was taken in front of the building on L street.)
R. Manhammer says: "...I'm seeing it creep up the socio-economic ladder."
Yep, you're right. It IS moving up the ladder. Has been since the '80s. I would argue that this downturn will not only hit the middle-middle class, but the upper-middle class as well.
Sooner or later, Americans will have to choose what kind of country they really want. Will it continue to be "I got mine. Screw you" survival of the fittest or ...?
The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
Troy
Much of the buildup of financial assets is courtesy of people exitting the housing market (e.g. oldsters checking out, hopefully to a nursing home...). They have a clean balance sheet - they paid off their mortgage long ago - and the purchase price goes into their pool of savings (or their estate). When you multiply the number of such households times the average selling price, that's a lot of cash being raised.
From an aggregate perspective, the housing stock is unchanged (the household sector owns the housing stock before and after the home sale). But as a result of the sale, the household sector has more cash (the people selling) and more debt (the mortgage of the people who are buying). Thus it looks like homeowners are levering up their balance sheet. This is somewhat misleading as the aggregation ignores the fact that people are liable for their own debts, not the aggregate's.
Former Interior Secretary Walter Hickel once said, "If you steal $10 from a man's wallet, you're likely to get into a fight. But if you steal billions from the commons, co-owned by him and his descendants, he may not even notice."
I was in a meeting with the President of a publicly-traded home builder a couple of weeks ago, and he was commenting that there was plenty of money out there available to buyers (in fact, he said that lenders were beating a path to his door).
Now, this fellow is a perma-bull regarding his own industry, and refused to see the truth regarding the housing bubble in '06, when I first told him that he needed to wind things down, because the end was nigh (he looked at me as if I were the devil incarnate).
This is what he doesn't understand:
The upper-middle class, the middle class, the lower-middle class, and the lower class are tapped out and have wised-up to the the "easy" money, "easy" home "ownership" scam has been exposed to the headlights of reason and reality.
Those holding increasingly worthless dollars have nowhere to offload them.
That's what happens when you take a dump in the community well - everybody gets sick.
That's not to say I am cautious over the next 3-4 days as the market is overbought.
O-Joe
Optimistic Joe
3 or 4 DAYS ? LOL! And there's me reading Russell Napier's Anatomy of a Bear and about the 14, 16, 20 YEAR (secular) bear markets during the last century.
No offence meant, O-Joe - I enjoy your posts; besides I believe we busted you and your playful "tweaking-the-tail" intent a couple of weeks ago.
R. Mannhammer, I liked your long post and generally agree with you.
But do you really think this is a free market? I think thats just the way it is advertised and marketed to the flag waving masses.
Housing is totally subsidized (tax incentives galore), the stock market is a hedge fund bitch, and the monetary system was designed to serve the pigmen. Its no free market.
I have little hope that new regulation, while it might be named in a way to convince the masses that the system is being fixed, would serve to improve the situation.
On the contrary, I believe that such regulation would actually serve to further tilt the market in the direction of the powerful. Cynical, I know.
I mean, look at the Patriot Act. In 200 years, if this country still exists, kids are gonna be scratching their heads when they read about the sweeping changes that happened in this era.
These sweeping changes are happening in full view of the public. But the public (present company excluded), more than ever, is staring at something shiny on TV.
Whenever I talk to my wife about all this, she just can't believe all the enablers could have been so completely thick. She thinks there has to be some cynical explanation, an unseen way they are really profiting.
Well, apparently, some of them are dumb as dirt. A group involved in real estate finance buying a building in a bubble market right at the peak... WTF.
I just don't understand your call for a mild recession (with mild unemployment).
You and others have illustrated that this was a historic housing bubble, and that it is popping. You have cited studies (Baker?) indicating that housing is a key (if not THE key) driver of economic cycles.
More important, in my view, the implosion of a historic credit bubble (extending well beyond housing alone) cannot possibly have a mild downturn as its consequence.
I'm with tj & the bear in thinking that this will be much more severe than anybody is envisioning.
When I read this in the Washington Post, I feel it was poetic justic. The only thing that would be better is if their 10 year financing period is either an interest only or option payment plan. Either way, I look forward to hearing about the building being put back on the market because the previous owner could not make their payments.
Also, I disagree with the mild recession view. While the official numbers may state that the future recession was mild, I expect that it will linger for longer than expected with lasting impacts on the middle class.
Back in the day, I was an underwriter. The realtors and mortgage brokers were getting option ARMs on absurdly priced properties for their own homes. They really BELIEVED it all made sense.
These people weren't geniuses. They were normal folk who fell into something that was making more money than they ever imagined possible. I think subconsciously they knew it wasn't logical, but it was too painful to consciously admit that the money was a fluke. They went to Tony Robbins seminars and Jesus-wants-me-to-be-rich churches. They attacked people who dared be skeptical.
Some of these people were true snakes who knew they were hurting people. Most of these people were just fools who wanted to believe that they were worth 200k/year.
I think the whole thing is amazing...I wonder how many of their members have lost their homes, income, gone BK, have a option ARM or worse MTA loan, upside down in their mortgage, lost their good credit,lost their own businesses and coporate office, getting divorced or on the road to financial disaster? I am sure that the numbers would be amazing!!!
The smart ones, who are true business people, well they put the money away and didn' change their lives...the "got lucky to ride the gravy train" ones and tried to live like Millionaires well you get what I am saying the road they are traveling right now...I guess they will have to settle for the famous line, " I remember when I was..."
I am noticing that many real estate agents and companies are falling victim to the mortgage scam. Is it not possible that the bankers really believed what they were selling were a good product. Several years ago I asked who can afford those houses and I felt bad because my income could not support a 500,000 house (California)I knew better. I was balking at 300,000 because I knew how the ratios worked. I knew I didn't make enough. Even the people that sold these mortgages believed in the system. Noriel Roubini is predicting the coming crash of the commericial market before it's all done. As a dedicated postal employee who processes first class mail all day I have seen mail that I have never seen before. There are apartment complexes (20 million), four plexes, duplexes, land, vineyards, custom lots, child care facilities, medical buildings, office buildings, gas stations, restaurants, ranches, custom homes (5 million plus), way overpriced real estate 850,000 for a 1300 sq ft home on a 6,000 sq ft lot, a few buildings from failed mortgage lenders (huge buildings with many floors), warehouses and failed furniture stores, even a a huge resort for executives with boat docks and golfing with private meeting rooms in a private location with lots of water and views. Never knew they had such places very nice very exclusive no price just bid. It is just absolutely amazing and scary. I always say it shows up in the mail and then it shows up in the news a few months later. Get ready for the next storm the clouds are getting dark.
Funny article! it's a sign of times, unfortunately every industry is going to get whacked, commercial backed securities today is a much deeper crisis than housing and the similarities are parallel to housing with 100X the financing, there is no running from it and it's as crippling as polio, protect your assets by creating offshore accounts it's legal it woks. Stay away from banks keep checking accounts to a minimum, dont gamble on investments, keep media influence to minimum (obviously you know its joke already), keep idle, this is going to be a big crisis, stand by.
R. Mannhammer, I liked your long post and generally agree with you.
Thank you.
But do you really think this is a free market? I think thats just the way it is advertised and marketed to the flag waving masses.
Free in the sense that it is unregulated, de facto, not de jure. With no significant effort from the FDIC, the SEC, or the Fed to enforce the rules already on the books or to let those who made "stupid" mistakes face the actual consequences, then this is simply a bloodless wealth transfer from the poor and middle class to the already obscenely wealthy.
As you already know, the already wealthy will not face any adverse consequences from their adventures in predatory lending. It's been a systematic looting, and it's all over but the transfer of public monies into the pockets of the already filthy rich "in order to preserve our markets."
Housing is totally subsidized (tax incentives galore), the stock market is a hedge fund bitch, and the monetary system was designed to serve the pigmen. Its no free market.
The market I'm talking about here is not the market for houses, but the market for the built-up equity in those houses. That's a very different market. And it is free in that there will be no enforcement, no adverse consequences for the rich. Those who will pay a price are the poor and the middle class.
I have little hope that new regulation, while it might be named in a way to convince the masses that the system is being fixed, would serve to improve the situation.
On the contrary, I believe that such regulation would actually serve to further tilt the market in the direction of the powerful. Cynical, I know.
I think you are quite correct. Any regulation that comes out of this will simply be a mask to transfer money to the uber rich.
I mean, look at the Patriot Act. In 200 years, if this country still exists, kids are gonna be scratching their heads when they read about the sweeping changes that happened in this era.
These sweeping changes are happening in full view of the public. But the public (present company excluded), more than ever, is staring at something shiny on TV.
I am beginning to think like a politician. The idea that the BMA should go bust is kind of imaginable. So scary that a behind the scenes bailout would be essential.
CR are you still seeing some kind of mild recession as the most likely event here going forwards?
I need some hope now!
FT - Take financial talking heads with a grain of salt (nice not-too-long article most CR types will enjoy reading)
FT.com / Columnists / Whitney Tilson - Take financial talking-heads with a grain of salt
Ha ha!
The only thing funnier would be if the NAR suffered the same fate as the MBA is presently.
Didn't the NAB recently say it would stop lobbying? If the MBA stops lobbying too, then it doesn't need a fancy new headquarters in DC!
[Its financing costs are up, its income is down, and the leasing market is slow, leaving it, so far, without a single tenant.]
I've got a buzz, but nonetheless loL!!!!
And to think the Mortgage Brokers Association only has a storage unit in Detroit!
Who the F needs a Hundred Million Dollar building to lobby from?
Worried, I don't see a severe recession (with unemployment hitting 8% or more) - that doesn't mean it will seem "mild".
With consumer spending falling off a cliff in March (anecdotal reports I'm hearing are ugly), and non-residential investment slowing sharply - yeah, it will probably get a little scary. But I don't think we will see enough job losses to push the unemployment rate to the "severe recession" level.
I still think the problems will linger - usually housing plays a key role in leading the economy out of recession - but this time housing is in deep trouble. I just don't see any engine of recovery yet.
Best Wishes.
Wonder if the MBA will go SISA?
OT, but I'm wondering today whether the realty business is going to start eating its own.
Largest realtor in my area is Coldwell Banker and was announced early this week that they were suddenly now with Prudential. In yesterday's paper was a full page ad/letter from CEO of Coldwell Banker at Corp hdq in NJ; was surprised to find out on Tuesday that this was happening...and would be tickled if any of the agents left that (now)Pru agency to return to CB.
Interesting. I love it when there's a good brawl.
As Neal says, got popcorn?
I've got a buzz, but nonetheless loL!!!!
barely | 04.06.08 - 12:41 am
Dude, you know your tastes are maturing when you spend buzz time on a finance/econ blog.
Whoa.
The article does not give a street address, alas, but limits their location to "on L Street." I wonder how close they are to the Bureau of Economic Analysis (BEA) at 1441 L Street, NW? Oh, sweet irony!
NAHB is less than two blocks from BEA, just for information.
So if the rule of thumb for personal housing is 3x earning, what is the rule of thumb for CRE? In other words, I wonder what their balance sheet looks like. Of course, with their ten year time line there is no worry, like the man said, any time is a great time to buy.
Then again, there are a quite a few lousy times to owe on a depreciating asset. Who's lending them the money?
Hmmm, and they're going to be in the midst of a move at the most critical juncture for lobbying on mortgages and related stuff. I'm sure they'll be up to the challenge. They're instituting cost cutting measure (what, no teleprompters at the annual meeting! Gasp!), but they can't be thinking of reducing the treats and goodies for the Congress. Hey, maybe they can use the empty space for "entertainment" there's got to be a void now that the Emperor's Club is gone.
Hilarious post
CR,
Some day you'll have to tell us from whence the new jobs will come to replace those we're increasingly losing.
REIC is dead, CRE is weakening, Wall Street is contracting, government is rolling over, and -- with the demise of the consumer -- retail/services is headed off a cliff. Due to "global rebalancing" manufacturing may hold it's own.
No savings, declining assets & equities, failing pensions, disappearing benefits vs. skyrocketing food, energy and health costs. Oh, and a government so deep in the red and dependent upon foreigners that more Keynesian stimulus is an option only in the minds of clueless politicians.
The "vicious cycle" between these is likely to aggravate circumstances for years. I simply don't see how a recession can be anything BUT severe.
[Of course, it's no secret I'm expecting a Greater Depression.]
I am delicious!
tj -- it is incorrect to assert that we have "no savings" as a nation. The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
CR,
This is a really amusing report. Kind of makes me smile big way. On another note remeber my wish about a more balanced picture. The issue I see is that you attract almost exclusively readers who delight in other peoples failures (probably as a distraction from their own shortcomings; that's why bad news sell).
[Of course, it's no secret I'm expecting a Greater Depression.]
tj & the bear
TJ,
Yours is an extremely one-sided view. Probably if you lived in a booming midwest agrarian community, the outlook would be completely different. Other than in previous downturns we see robust raw material prices everywhere and US mines and wells are just being started now or re-started from dustballing. Entry-level salaries for geology undergraduates in the oil business are 80,000$ plus sign-on bonus. It's not enough to only look at tech jobs & salaries (albeit they are still good, too). With the "all of a sudden" re-discovered Bakken oil field just starting production, there is immense potential. Also look at ATA tonnage index; this really smells like recovery around the corner. Even CR posts turn ever so slightly more optimistic. The recovery will once again be led by the US, as do the US stock indexes already.
O-Joe
That's not to say I am cautious over the next 3-4 days as the market is overbought.
O-Joe
I still think the problems will linger - usually housing plays a key role in leading the economy out of recession - but this time housing is in deep trouble. I just don't see any engine of recovery yet.
Best Wishes.
Calculated Risk
With all respect, this is why I think the recession will turn severe over time. Many of the heavy industries here in the US have been gutted and the jobs sent overseas. I understand there is something of a manufacturing renaissance in Milwaukee (of all places), but for most of rust-belt America, there is nothing new.
The US auto industry is shot. The auto execs have had decades to get their stuff in a row, and for a while it looked like they would actually start listening to customers. But then they went off onto this Monster-SUV thing as though they are the step-bitch of the oil companies and their job was simply to build stuff that burned more oil.
The steel industry isn't doing well as much of our scrap metal for the mini-mills is going to China, as is our concrete and copper, driving up the cost of development here. In fact, the US seems to have slipped into a third world economy where we export raw materials (logs, scrap metal, iron ore, concrete) and import finished goods (cars, stereos, computers).
For example, there are no televisions being assembled in the US. None. The textile industry is in shambles. Even the "cheap food" policy is endangered as grain gets sucked into the ethanol supply line.
A complex economy has many many parts which depend on other parts (segments of the economy). What I am seeing is just the next chapter in the ongoing destruction of the US economy which apparently began in the early 1970s. The US economy is huge and baroquely complex, it's true. And it has taken us, what?, two generations to take it to this level?
Ever notice how things never quite get better than they were before the recession? Of course, if you happen to be a corporate executive, this isn't true. But that's only like one percent of the population. The rest of us who work for a living are quietly being crushed by inflation of assets while wages are held as close to stagnant as possible. I understand wage peonage. I came out of the working class. And I'm seeing it creep up the socio-economic ladder and it's current in the middle-middle class.
Real wages for working people have been pretty stagnant over the past forty years, but real costs for housing, education, and health care have skyrocketed. And our savings rate as a nation has plummeted since the ascension of Ronbo, Patron Saint of Supply Siders.
And all I see running for President is more pro-corporate wannabes.
As I say, it takes time to totally devastate an economy as large and as complex as ours. But it's quite possible to do. Greed is not good, regardless of Gordon Gecko's assertions to the contrary. Unregulated free markets are not good, regardless of Milton Friedman's assertions to the contrary. Every time we see a country go Friedmanite, we see an enormous wealth transfer from the poor and middle class to the already wealthy and powerful, because that's what "free markets" mean. Free for the strong to take from the weak. Free of regulation. Free of enforcement. Free of consequences (for the rich). And free from any tiny shred of fairness, justice, or morality.
I am not saying there is no hope. I am saying that things do not look good, and I don't think things will continue to poke along, business as usual. At some point, there have to be more large systematic failures like the predatory lending debacle and the Katrina "rescue" efforts.
There are people who are benefitting from this, and they are not working people.
Please excuse me, I didn't really mean to write a novel here.
Troy, savings is the excess of production over consumption. An increase in the price of assets I already own isn't savings.
The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
Troy
And if you check the data, you'll find that it isn't the poor or middle class who are banking all that money.
Moreover, you'll find that the single largest asset Americans hold is the equity in their homes, which has successfully been sucked out during the predatory lending debacle.
The average American is less wealthy, now.
Jingle mail for a lobby group; priceless!
Tis is worth looking at in regard to NAR finances and other lobby groups!! This is probably the tip of the berg!
MORTGAGE WOEZ 4 DA MORTGAGE BANKERS ASSOCIASHUN. I CAN HAS SUM MONEY PLZ?
Yours is an extremely one-sided view.
No, I consider it a realistic view.
FTR, I grew up in one of the most productive agrarian counties in the nation. My dad was involved in both the petroleum and mining industries. If you did any research at all you'd realize these industries don't amount to a hill of beans employment-wise.
O-Joe says:
"Entry-level salaries for geology undergraduates in the oil business are 80,000$ plus sign-on bonus."
Well, now we all know that you are completely full of it, as opposed to only partially full of it.
thanks, Joker.
by the way, some milestones in Silicon Valley, CA:
There are currently more than 1000 SFR's less than $500K in Santa Clara county as of today. This number has climbed steadily from 375 at the new year.
Also, combined SFRs and condos for sale inventory in Santa Clara county is now above 7000. Last year's peak was about 6600 and wasn't reached until late October...and THAT number was a multi-year record high inventory.
Bottom line...all things RE are unwinding quite nicely in this crazy part of the nation. And the wonderful, perhaps even inestimable, individual and societal benefits of Affordable Home Prices are slowly, but certainly surely, being realized here in California's SF Bay Area.
abandon all hope
it would be especially sweet to pop this story now and then, especially as the lease changes hands within their organization
their actions will no doubt coincide with their press releases describing the improving environment in mortgages/lending/housing/ WTFE
Republicans will send them our tax dollars via the fed. They will probably take the stolen money to them in a van with a license plate that reads: No Bailouts.
Will JP Morgan end up with this building too? Any news on Mr Macklowe lately?
Calculated Risk writes:
Worried, I don't see a severe recession (with unemployment hitting 8% or more) - that doesn't mean it will seem "mild".
CR
This non-recession has been limping along for what seems like six months already, never achieving any magic numbers.
Is there a way to calculate or show, or better still graph, the effects of attrition from the unemployment numbers? Benefits last for only so long. Wouldn't a steady trickle of un-replaced job losses distort the official percentages?
Optimistic Joe
I share your sentiment, Brother. The oil boom has come to Philly. Although two of the dollar-stores in my local shopping center closed and the thrift store moved to a smaller store, it's really a good thing. The parking lot now has more than enough room to accommodate the four new oil wells being sunk.
Regarding the post
A sure fire solution is for them to change their name to the Mortified Bandos Association. No more worries... at least until the Rent-A-Sheriffs come along.
(I'm wondering if that video that was flying around for the last couple of days was taken in front of the building on L street.)
What about lobbying cost?
R. Manhammer says: "...I'm seeing it creep up the socio-economic ladder."
Yep, you're right. It IS moving up the ladder. Has been since the '80s. I would argue that this downturn will not only hit the middle-middle class, but the upper-middle class as well.
Sooner or later, Americans will have to choose what kind of country they really want. Will it continue to be "I got mine. Screw you" survival of the fittest or ...?
The Fed Flow of Funds report says this household sector in 2003 had $34T in assets against $10T in liabilities (of which $6.9T was mortgage debt).
Q407 ended with $45T in household assets against $14.3T in liabilites (of which $10.5T was mortgage debt).
So money is indeed being banked by somebody in this economy.
Troy
Much of the buildup of financial assets is courtesy of people exitting the housing market (e.g. oldsters checking out, hopefully to a nursing home...). They have a clean balance sheet - they paid off their mortgage long ago - and the purchase price goes into their pool of savings (or their estate). When you multiply the number of such households times the average selling price, that's a lot of cash being raised.
From an aggregate perspective, the housing stock is unchanged (the household sector owns the housing stock before and after the home sale). But as a result of the sale, the household sector has more cash (the people selling) and more debt (the mortgage of the people who are buying). Thus it looks like homeowners are levering up their balance sheet. This is somewhat misleading as the aggregation ignores the fact that people are liable for their own debts, not the aggregate's.
Former Interior Secretary Walter Hickel once said, "If you steal $10 from a man's wallet, you're likely to get into a fight. But if you steal billions from the commons, co-owned by him and his descendants, he may not even notice."
I think people are beginning to pay attention.
I was in a meeting with the President of a publicly-traded home builder a couple of weeks ago, and he was commenting that there was plenty of money out there available to buyers (in fact, he said that lenders were beating a path to his door).
Now, this fellow is a perma-bull regarding his own industry, and refused to see the truth regarding the housing bubble in '06, when I first told him that he needed to wind things down, because the end was nigh (he looked at me as if I were the devil incarnate).
This is what he doesn't understand:
The upper-middle class, the middle class, the lower-middle class, and the lower class are tapped out and have wised-up to the the "easy" money, "easy" home "ownership" scam has been exposed to the headlights of reason and reality.
Those holding increasingly worthless dollars have nowhere to offload them.
That's what happens when you take a dump in the community well - everybody gets sick.
That's not to say I am cautious over the next 3-4 days as the market is overbought.
O-Joe
Optimistic Joe
3 or 4 DAYS ? LOL! And there's me reading Russell Napier's Anatomy of a Bear and about the 14, 16, 20 YEAR (secular) bear markets during the last century.
No offence meant, O-Joe - I enjoy your posts; besides I believe we busted you and your playful "tweaking-the-tail" intent a couple of weeks ago.
-K
R. Mannhammer, I liked your long post and generally agree with you.
But do you really think this is a free market? I think thats just the way it is advertised and marketed to the flag waving masses.
Housing is totally subsidized (tax incentives galore), the stock market is a hedge fund bitch, and the monetary system was designed to serve the pigmen. Its no free market.
I have little hope that new regulation, while it might be named in a way to convince the masses that the system is being fixed, would serve to improve the situation.
On the contrary, I believe that such regulation would actually serve to further tilt the market in the direction of the powerful. Cynical, I know.
I mean, look at the Patriot Act. In 200 years, if this country still exists, kids are gonna be scratching their heads when they read about the sweeping changes that happened in this era.
These sweeping changes are happening in full view of the public. But the public (present company excluded), more than ever, is staring at something shiny on TV.
I fear for my kids.
I love this quote:
"Anytime is the best time to buy," said Kieran P. Quinn, chairman of the association.
Whenever I talk to my wife about all this, she just can't believe all the enablers could have been so completely thick. She thinks there has to be some cynical explanation, an unseen way they are really profiting.
Well, apparently, some of them are dumb as dirt. A group involved in real estate finance buying a building in a bubble market right at the peak... WTF.
CR,
I just don't understand your call for a mild recession (with mild unemployment).
You and others have illustrated that this was a historic housing bubble, and that it is popping. You have cited studies (Baker?) indicating that housing is a key (if not THE key) driver of economic cycles.
More important, in my view, the implosion of a historic credit bubble (extending well beyond housing alone) cannot possibly have a mild downturn as its consequence.
I'm with tj & the bear in thinking that this will be much more severe than anybody is envisioning.
But what about all those Mortgage Banker Associations that can still pay their mortgages? You never talk about them.
...and a question: these Kudlow-esque claims of increasing American wealth is measured in which currency that's dropped 40-50% over that time frame?
When I read this in the Washington Post, I feel it was poetic justic. The only thing that would be better is if their 10 year financing period is either an interest only or option payment plan. Either way, I look forward to hearing about the building being put back on the market because the previous owner could not make their payments.
Also, I disagree with the mild recession view. While the official numbers may state that the future recession was mild, I expect that it will linger for longer than expected with lasting impacts on the middle class.
Back in the day, I was an underwriter. The realtors and mortgage brokers were getting option ARMs on absurdly priced properties for their own homes. They really BELIEVED it all made sense.
These people weren't geniuses. They were normal folk who fell into something that was making more money than they ever imagined possible. I think subconsciously they knew it wasn't logical, but it was too painful to consciously admit that the money was a fluke. They went to Tony Robbins seminars and Jesus-wants-me-to-be-rich churches. They attacked people who dared be skeptical.
Some of these people were true snakes who knew they were hurting people. Most of these people were just fools who wanted to believe that they were worth 200k/year.
I think the whole thing is amazing...I wonder how many of their members have lost their homes, income, gone BK, have a option ARM or worse MTA loan, upside down in their mortgage, lost their good credit,lost their own businesses and coporate office, getting divorced or on the road to financial disaster? I am sure that the numbers would be amazing!!!
The smart ones, who are true business people, well they put the money away and didn' change their lives...the "got lucky to ride the gravy train" ones and tried to live like Millionaires well you get what I am saying the road they are traveling right now...I guess they will have to settle for the famous line, " I remember when I was..."
I am noticing that many real estate agents and companies are falling victim to the mortgage scam. Is it not possible that the bankers really believed what they were selling were a good product. Several years ago I asked who can afford those houses and I felt bad because my income could not support a 500,000 house (California)I knew better. I was balking at 300,000 because I knew how the ratios worked. I knew I didn't make enough. Even the people that sold these mortgages believed in the system. Noriel Roubini is predicting the coming crash of the commericial market before it's all done. As a dedicated postal employee who processes first class mail all day I have seen mail that I have never seen before. There are apartment complexes (20 million), four plexes, duplexes, land, vineyards, custom lots, child care facilities, medical buildings, office buildings, gas stations, restaurants, ranches, custom homes (5 million plus), way overpriced real estate 850,000 for a 1300 sq ft home on a 6,000 sq ft lot, a few buildings from failed mortgage lenders (huge buildings with many floors), warehouses and failed furniture stores, even a a huge resort for executives with boat docks and golfing with private meeting rooms in a private location with lots of water and views. Never knew they had such places very nice very exclusive no price just bid. It is just absolutely amazing and scary. I always say it shows up in the mail and then it shows up in the news a few months later. Get ready for the next storm the clouds are getting dark.
Funny article! it's a sign of times, unfortunately every industry is going to get whacked, commercial backed securities today is a much deeper crisis than housing and the similarities are parallel to housing with 100X the financing, there is no running from it and it's as crippling as polio, protect your assets by creating offshore accounts it's legal it woks. Stay away from banks keep checking accounts to a minimum, dont gamble on investments, keep media influence to minimum (obviously you know its joke already), keep idle, this is going to be a big crisis, stand by.
R. Mannhammer, I liked your long post and generally agree with you.
Thank you.
But do you really think this is a free market? I think thats just the way it is advertised and marketed to the flag waving masses.
Free in the sense that it is unregulated, de facto, not de jure. With no significant effort from the FDIC, the SEC, or the Fed to enforce the rules already on the books or to let those who made "stupid" mistakes face the actual consequences, then this is simply a bloodless wealth transfer from the poor and middle class to the already obscenely wealthy.
As you already know, the already wealthy will not face any adverse consequences from their adventures in predatory lending. It's been a systematic looting, and it's all over but the transfer of public monies into the pockets of the already filthy rich "in order to preserve our markets."
Housing is totally subsidized (tax incentives galore), the stock market is a hedge fund bitch, and the monetary system was designed to serve the pigmen. Its no free market.
The market I'm talking about here is not the market for houses, but the market for the built-up equity in those houses. That's a very different market. And it is free in that there will be no enforcement, no adverse consequences for the rich. Those who will pay a price are the poor and the middle class.
I have little hope that new regulation, while it might be named in a way to convince the masses that the system is being fixed, would serve to improve the situation.
On the contrary, I believe that such regulation would actually serve to further tilt the market in the direction of the powerful. Cynical, I know.
I think you are quite correct. Any regulation that comes out of this will simply be a mask to transfer money to the uber rich.
I mean, look at the Patriot Act. In 200 years, if this country still exists, kids are gonna be scratching their heads when they read about the sweeping changes that happened in this era.
These sweeping changes are happening in full view of the public. But the public (present company excluded), more than ever, is staring at something shiny on TV.
I fear for my kids.
quackprogrammer
Rightly so.
There is a God............
Hey, they can still walk away. Why won't they do it? What, they are afraid to lick their own spit?