It looks like the price was cut to $439K on May 2nd, below your suggested price of $475K. Perhaps someone was reading your site. The power of CR knows no bounds!
Don't worry, the price is going to go up to $600k again by the end of the year. Why? I don't know how, but that's what all the older folks at work are constantly telling me... the end of the year is going to be a great time to buy and prices will sky-rocket again next year!
I swear I don't work with relitterers either! Whenever someone says this and sticks around I ask them why and explain that median wages are out-of-line for median price, and what makes them think housing prices are going to keep sky-rocketing. They mention that California has limited real estate and everyone wants to move here... (I guess they haven't been following the migration of citizens into and out of the state).
All those mortgage companies and relitteres have done a great job at brainwashing people...
YLSP, it's because they have to believe it. Everyone I work with over the age of 45 is depending on cashing out their house and moving to a cheaper location - this is primary and sometimes their sole retirement plan. Can you imagine how desparate some of these people must feel?
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
I thought the Los Angeles index included Orange County.
On their methodology explanation, at least, the report mentions the inclusion of Orange County though it describes the metro area as Los Angeles-Long Beach-Glendale, CA, none of which is in Orange County.
YIKES! No wonder all the left-coast posters act like the end of the world is coming. Here on the right coast the recent numbers are out for March and we're 15.72% down in nominal median price from peak with a whopping 32.3% yoy decline in sales.
However, in the choice Boston locations, the median price was down 1% to 475,000 (for a condo!), with sales down 22.3%. Btw, the median price in the South End is 600,000 and in the Back Bay/Beacon Hill in excess of 1M.
This is interesting, btw, because if you look at the data, I think it becomes clear that the market is very plugged up and a lot of the normal condo churn (people selling because they are getting married, having a family, changing jobs etc) has stopped. Couple the stagnant/declining prices with more stringent loan rules and anyone that bought in the past couple of years can't get out and buy something else because there has been no appreciation to roll over into another property.
Does this indicate that, when the market unfreezes that there will be pent-up demand, or does this mean that this points to an even longer RE cycle as appreciation has to catch up to allow people to move? I'd probably say both.
So, not including overshoot on the downside, we can expect prices to revert to where they were in year 2000-2001 (right before the entire residential lending industry went completely mad)?
giacutter, by the numbers i calculate that we're going to cross under 2002 median price by june here. our peak was in august of 2005. you can look forward to the same results if yours was later, i would think.
ipodius,
I went through an extensive job search and interview process in 2006 that took me to nearly every region in the country. Included in each trip was the obligatory rigorous interview, facility tour, and of course, afternoon out with the local real estate agent.
The impression I got was that the West Coast is leading the East Coast in the market cycle by 6-12 months. This is in terms of timing of peak prices, timing of REOs/foreclosures gaining steam, and local attitudes toward the real estate market.
This is just a 'gut feeling', and my opinion is obviously worth what you paid for it.
This is true, Ipodius. Talk of bailouts makes people lose their sh@t here (myself included though I try and temper my reaction), because of the unbelievable prevalence of this crazy get-rich-quick scheme. Of course, there isn't the money to bail out Southern California, and the tenuous social connection between neighbors makes any significant plan extremely unlikely to pass, but the topic will rile people up.
Not to feel too entitled, but when the top 5 percent of income can't afford the 50 percentile home, there is a strong temptation to covet and envy. The only thing separating me from lower-earning people who believe I will never afford their homess is that they happened to be born 5 years earlier, and that doesn't seem right. The price to income ratios are just further out of whack here.
Housing has always been a good inflation hedge. Over hundreds and hundreds of years as currencys rose and fell and as economies boomed and then collapsed RE has always held a steady. When RE corrects back to its inflation adjusted average it will become a good inflation hedge again. Still needs to drop another 260K, ouch!
sanity clause, thanks - I added a hat tip for you. I think a mix is closer because Orange County resembles San Diego in some ways, but I could have just used LA.
metabear, total inflation (CPI less housing) has been about 5% since the price peak, and these numbers were rounded a little.
DeathtoSpeculators, thanks for the update on the price! ROFLOL.
Perhaps it was here that someone posited that the recovery cycle will take longer this time, whenever the bottom does finally arrive (2011-2012 IMO) for this reason: until the advent of truly stupid SISA / SIVA loan products, there was a 'natural' population of first time buyers entering the market each year. They would typically take the lower rungs and permit move-up buying to occur.
Then 2002 rolled up in a shiny suit, and now everyone could buy. So the wannabe segment quickly morphed into an indebted segment. Because the 'normal' turnover got sucked in faster, an entire population of not-really-ready buyers came into the game. Finally, the stock of new buyers was down to fingerlings.
So now we sit with a completely depleted stock of would-be buyers, like an over-fished school of cod. And the stock that normally would have been counted on to take up the supply slack has already been fished out, and are now impoverished from trying to keep the mortgage up, or credit-whacked because they can't, or both. And so there is not only a dearth of first-time buyers, but a decimated population of move-up buyers. And it will take several years before these move-up buyers fish are 'big' enough to buy again, but even when they are, will they be ultra-wary of playing the game, having already been burned once?
I'm in OC and currently know of a house in south county that listed at $1.55M last summer. It has now sold for under $1M, slated to close escrow in June, over 35% below the peak. Take a look at Laguna Niguel (92677) Redfin figures sometime, near the coast but not quite on it. Mark-to-fantasy prices are slowly coming down... but not quick enough.
We contacted a realtor awhile ago about a foreclosure. Now I get an email about every 3 weeks which is fine. I told we were going to wait and sent her a link to this site.
Her reply was "that she had read this site before and it was a good source of information but traffic was picking up and it was a good time to buy."
I have looked at houses on Redfin and they give what 3 sites think is the true price. Here in No. VA that is usually 100k below what is being asked. It puzzles me how anyone is going to get a loan if the house dosent appraise at or above the price.
" the end of the year is going to be a great time to buy and prices will sky-rocket again next year! "
Oh Yeah! Good news. That mean there is a hell of a lot of downside left. Prices will only level out when RE is recognized as the worst investment period.
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
Haha... well I think the idea is to take your money and toss it to the less fortunate.
That's your punishment for being responsible and paying off your house.
bzb, did you read Ballmer's letter? It pretty much says that MS will do everything possible to prevent Yahoo from partnering with Google, if you read between the lines. This does not bode well for Yahoo's stock holders. Their shares will drop on Monday, as recent gains were on the specualtion of a deal. Their numbers do not justify the price they were asking, or the current share price.
We can be a little more generous potentially with this house. If I remember correctly, home prices have historically grown by about 6% on average. So if we use the sale price of $177,500 in Sep 1994 as the base value, by Sep 2008 that would make 14 years of appreciation. If we compound the house value over those 14 years, you'd get $401,000. That might provide a ceiling for some potentially interested buyer.
But then the obvious questions become, is 1994 the right year/price at which to start the compounding? What would an overcorrection imply for the eventual sale price of this house? And other questions I'm sure I haven't thought of...
But maybe that's an upper-bound for what the seller might "reasonably" (rather than deludedly) expect.
I think Yahoo is toast on Monday, and I bet Yang is already getting some very angry phone calls.
I hate to keep this OT going but if the shares plummet the next stockholders meeting is going to be a doozy. But as the wsj astutely pointed out, the same thing happened in the BEA/Oracle deal. Ballmer is very smart for walking. He could end up paying even less in the end.
According to Shiller, home prices have historically grown by less than 1%, in real dollars, on average.
that's 1% over the rate of inflation, El, not 1# total. So if the inflation rate is what some people would like it to be around here, perhaps CA prices are totally justified. ha.
We all know that. However, the calculation of inflation has changed over time such that we can't be sure that it's apples to apples if we look back historically.
That's why I used the "nominal" increase over time (instead of inflation +1%), which I believe historically is around 6%. Is that right??
Nervous about your nominal real-estate values in that frigid, constipated backwater called Boston?
Who me? I own three properties all bought prior to the bubble. I could care less about RE values personally. In terms of the state and it's general health I do care, your ignorant comments nothwithstanding.
so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there is indeed a defacto stealth printing of money that is occurring. A few hundred billions worth so far. No?
ipodius - How do you think things would look if inflation really was understated by the CPI, but salaries/wages were exactly what they are? Infrastructure not getting fixed, generally takes 2 wage-earners to raise a family, costs a fortune to get sick (or have a baby),???
oh another ad hominem about typing from El Cliffo. can't you be a little more intellectually rigorous and toss some trenchant analyasis in that disagrees with my stand on anything? or is all you've got spelling and typing?
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there is indeed a defacto stealth printing of money that is occurring."
The repos are being rolled (paid back and rolled into a new loan).
The operations are sterilized: the Fed takes in one set of paper, and replaces it with another. No money is created - their balance sheet size is unchanged.
What this does is allow the banks to then use the Treasurys to get funding from money markets via Treasury repos.
The Fed is acting as an intermediary, using its balance sheet to get funding from money markets to the banks. And getting paid to do it.
Folks, the Fed is probably going to make a fortune this year. If they took 20% of the P/L (the market rate), Benny and the Boys would have about a yard(*) of bonus money to split up.
You would not recognize trenchant analysis even if it was wearing a contrast-collar button-down shirt, like Kudlow.
I didn't attack you--you attacked me with an incorrect assumption, and then made a grammatical errorwhile you were defending it.
I stand on my comment that Boston is a frigid, constipated backawater. Are you saying millions of Americans are flocking to that high-tax, highly-regulated, preppy-infested Arctic wasteland, and waiting to buy property there? I don't think so.
HEY! That's a frigid constipated Chablis-sipping backwater to you pal.
MLM, frugality is in. We're now sipping two buck chuck, didn't you get the memo? and now that i think about it, it is pretty freezing here today. i do wish to remind people that we were the ones first in revolution before, so we'll let you know when it's time again.
Hey bond guy, I just happen to have my brand spanking new copy of Grant's sitting here, so I checked the growth in the Fed's balance sheet over the last year -- only 18 yards on 850.
Then I checked the balance sheet of their proxies (that's bait for you ipodius!) in the ROW. That's 330 yards on 1,918.
There's a whole lotta flatin' goin' on out there somewhere. But it's not the Fed's fault. Whocoodanode?
I wish to dispel Cliffo's high tax meme once and for all. We have a 5% sales tax that excludes food and clothing (except restaurant food and expensive clothes). We have a 5% income tax. My property tax is peanuts compared to most other states around here. There are no city or county taxes allowed other than sales an excise tax (tax on your vehicle or boat).
Our taxes on a per person basis are actually pretty low. Amd we have civil right here, great schools, actual public transportation that you can use, beautiful beaches, the berkshires, and sailing on the Charles. Also some of the best hospitals in the world. Oh and boston has the best public parks system i've ever seen.
"MLM writes:
Hey bond guy, I just happen to have my brand spanking new copy of Grant's sitting here, so I checked the growth in the Fed's balance sheet over the last year -- only 18 yards on 850.
Then I checked the balance sheet of their proxies (that's bait for you ipodius!) in the ROW. That's 330 yards on 1,918.
There's a whole lotta flatin' goin' on out there somewhere. But it's not the Fed's fault. Whocoodanode?"
The last time I checked, the Fed can't set Chinese currency policy. Yes, the ROW has inflation problems, precisely because they cannot sterilize the inflows.
But in reference to the U.S. economy, a $1 holding in UST's is no more inflationary if it is held by PIMCO or SAFE (Chinese central bank asset manager). They are outside the U.S. government, and they have taken UST paper in exchange for dollars.
"Printing" is when the central bank goes out monetizes stuff - in size.
Well, the Census Bureau says that Massachusetts as of 2005 was only the 7th-highest-ranked state out of 50 in state taxes per capita. At least that's better than first-highest!
Canadien avec, if i come to you and pawn my car, and you give me 10,000, is the price of the car on the market 10,000? have you placed 10,000 in circulation and increased the money supply? No the exact same amount of money exists, it's just been transferred temporarily. If you didn't pay me back i would quickly find out what the car was actually worth when i went to the market with it. But until that happens, nothing has been created or destroyed.
thanks for the explanation ipodius. Do you think that there is a snowballs chance in hell that the collateral for these loans is worth what the Fed says it is.
El Cliffo, get it right. We have three seasons here: summer (hot and humid), fall (spectacular and the best time to be here from labor day to halloween), and winter. spring happens for about an hour sometime in May or early June. Spring is a waste of time anyhow so we just skip it.
"Printing" is when the central bank goes out monetizes stuff - in size.
And gunboat printing (I made that up myself) is when we 'encourage' other central banks to monetize for us with pegs.
Inflation: one of our biggest exports at the moment. But, sooner or later all good things come to an end. It's a bitch if you have to do all the heavy lifting yourself.
So let's see, I go to the Fed with my 15 year-old beatah cah, which we both agree is worth 5% less than I originally paid for it (can't be too conservative). They accept the car as collateral, and I get the cash. I check back in every 28 days. Woot!
That's not printing, and the Fed's balance sheet proves it.
Exactly - what is the Fed going to do when the decaying collateral hits the trigger to get pushed back to the bank - except that bank would be insolvent with said push back?
MLM, i'll leave you with this: you're trying to roll several things into one argument and they are all discrete:
The mark of the underlying collarteral
The implicit solvency of the institution taking the loan from the Fed
The price of the collateral at the time the Fed disposes of it
None of these are related events and one does not (as a point) follow the other. So you can argue about the mark and the amount of collateral pledged for the loan from the fed, you can talk about the solvency of the entity going to the window, and you can talk about whether the current mark reflects the true market price or if it's being distorted by the present financial sector climate. but to talk about all three as if they follow one on the other won't do.
(teases you by tugging on the line with his fin, and swims away just as you think you've set the hook)
For a really good steak, you've got to go to Vegas. please! vegas is the world capital of tacky.
have you been to grill 23? trust me, there's plenty of red meat in the city. and my personal favorite, suburban chinese food! who doesn't love a platter of completely un-chinese things with flames? or a chinese restaurant that severs japanese sushi, blind to the fact that they've hated each other forever?
let's not, but the point is the mark of the collateral is directly tied to the ultimate disposition of the loans that make up the tranche. no one knows that yet, and it doesn't depend on financial institution solvency at all. it depnds on the cash flows. So that takes care of 1 and 3, the mark of the collateral now, and the mark later on. The later on may be influenced by the amount of paper on the market at that point in time, but the Fed doesn't have to fire sale anything.
Don't you think that someone at the Fed knows when a bank steps up to the window what the condition of the institution is? Don't you think the pledge reflects that? Is not the Fed first in line to be repaid? That takes care of point 2 because the shareholders will get stiffed if the bank is taken over and assets sold to cover the debt before the bank is merged into another institution.
And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury.
if you really want to go all yankee you'll have to eat salmon and peas, brown bread, indian pudding, pot roast (cooked within an inch of its life where everything on the plate is some shade of gray), lobster newburg, chowda (with milk those provincials from NY put tomatoes in there), steamers, and drink something called Moxie. If you survived that as a kid, you get to have dinner at Mistral
the mark of the collateral is directly tied to the ultimate disposition of the loans that make up the tranche
No, the mark of the collateral is directly tied to the solvency of the institution (assuming it's too big to fail). "Oh jeez Vikram, I see what you mean. I thought that was a turd, but it's really a diamond in the rough!"
You know, I generally don't wear a tinfoil hat, but I think desperate times call for a desperate wardrobe.
You seem to think we're by and large in business as usual mode. But we aren't.
No, the mark of the collateral is directly tied to the solvency of the institution
nor unless they're pledging their own stock, and that isn't on the list of acceptable items. they're pledging high-grade (!) securities. now you can argue about the mark of what they're pledging, but unless you know the securities (and they aren't public which is why some here argue about transparency) you have no idea.
Now go have a Moxie (who but some old NE Yankee would think up a soda who's base is prune juice?) amd get some sleep.
You know, I generally don't wear a tinfoil hat, but I think desperate times call for a desperate wardrobe.
You mean, like shopping at Marshalls or TJ Max instad of Barney's (we'll just ignore that little "of New York" part)? Besides, tin foil isn't in this season.
The trick is to be rational when everyone else isn't. Then you can take them to the cleaners. do you really think that all of BSC was only worth 10 a share on an enterprise value over time? not at all. it was only worth that at the time the deal went down because no one else stepped up to the plate. i bet when it's all said and done, it's worth somewhere around 25.
they're pledging high-grade (!) securities. now you can argue about the mark of what they're pledging, but unless you know the securities (and they aren't public...)
Is there an oxymoron in there anywhere? They're high grade (because the rating agencies say so, and I have every reason to trust them), and the mark is helping the Fed in "carrying on an undertaking of great advantage; but nobody to know what it is."
You're right though; I have no idea. And neither do you. What I do know is that they're faced with the choice of liquidating or inflating (as mp so tersely put it earlier today). Based on that, I can guess what's really going on. And it ain't pretty.
As for Moxie, I'll pass. As I'm from Colorado and still stinging from the Series, I've got to draw the line somewhere. Somewhere before Moxie seems like a pretty good idea.
"... And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury. ..."
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 213.528 (1982-84=100) was 4.0 percent higher than in March 2007.
I suppose 6% nominal price appreciation on a house is okay if wages also went up 6% annually. Still gets back to the notion that median wages have to be able to make the payment on the median house price. Anything else is getting us back to the general insolvancy problem the US economy/consumer is struggling with.
other Jim; I know your speaking about national averages. Still...
I like Brad DeLong's argument. Location, location, location. Homes near infrastructure and jobs will recover far sooner than car-based extraburb developments - if at all.
Median home prices for a locality can exceed median wages. That's due to gentrification and/or re-valuing access to infrastructure.
..the Q1 GDP figures were ugly. The headline +0.6% hides a fall in real final sales of domestic product as a build-up of inventories of unsold homes added 0.8% to GDP; the payback will come in Q2 as unsold inventories are unwound. In Q4 GDP growth was also 0.6% but final sales growth was a strong 2.4% and a run down of inventory of 1.8% subtracted that much to GDP. So with final sales growth slowing from +2.4% or a -0.2% the collapse in final demand in Q1 is extremely sharp. We were already in a recession in Q1 that will get much worse in Q2.
Once i heard brad delong's desire to Punish speculators in the BSC play, i tuned out. somewhat childish and vindictive, for an educated scholar. He has heard of futures market's , has'nt he?
Can someone dredge a comparison chart of tax burden by state divided by median income? More meaningful I think. The Glob did an Ideas back page pie chart extravaganza a while back that gave a more positive look at MA's tax situation. And not to nitpick, but state tax is 5.3%, unless you volunteer to pay 5.85% on line 22 (some do).
although I agree it is not printing money, are these term facilities not creating money nonetheless?
I do NOT understand this, so this is an honest question.
the way I've thought about it is that a bank holding illiquid securities has problems with their reserve ratios. Thus, they are unable to lend. This is the essential problem and the cause of the "credit freeze".
by swapping out these illiquid securities for Treasuries they can then change their reserve ratios, allowing them to lend.
thus, they are able to lend and you get somewhere near the 10x effect on money creation, no?
in the end, I thought I was correct in my above simplified thinking because I thought that was the GOAL of all these facilities, to unfreeze credit.
and it would be supported that this is what is happening, based on the reports of "nonborrowed reserves" going negative.
what am I missing, or where am I wrong.
this would seem to be somewhat important, because they are increasing the size and the duration of these lending facilities.
yearning, let's see if i can do a decent job here. the Fed has a balance sheet like any other company. so all money is accounted for there. the issue right now is liquidity. i'll use the phrase cashflow right now because that will help. banks have a cashflow problem because the normal markets have dried up in which one goes to for ongoing cash for operations. that's the liquidity problem.
so the banks can't lend because they can't get cash in the door fast enough as the value of their holdings and the money from fees/deposits/etc is either below demand OR they are holding cash because they see losses that need to be paid out. that speaks to solvency. in the meantime the normal capital markets are stuck because this funding has dried up because of the uncertainty about what the losses will actually be and where all the paper they are holding will end up in the loss column.
the fed, then, greases this situation by taking collateral and handing over cash. on the balance sheet the right and left sides are equal: they gave out cash and put the securities on the balance sheet. and they charge interest for this. so no money has been created in the process, it's a simple balance sheet operation and is "sterile". now the banks, in theory, have more cash that they can put to work. they are being changed a lower rate of interest for the cash and can lend at higher rates, helping out their own balance sheets.
so the exposure here is the collateral, and how much the fed required against what was loaned. this is emphatically NOT printing money, and if you go to a reputable place where analysis is done, you will find that the money supply is actually shrinking and has been for a while. That is NOT inflation. And it is NOT printing. Money and credit is being destroyed faster than it can be created in the system, and this is why the Fed is using these facilities to alliviate that bottleneck.
although I agree it is not printing money, are these term facilities not creating money nonetheless?"
No, they are sterilized.
Yes, they allow banks (including investment banks) to get funding they probably wouldn't have gotten otherwise. But that's because they can borrow against Treasurys, and not the MBS collateral. But that does not create money. "Liquidity", perhaps, but that's a meaningless term.
You need to step back and see what the Fed does. The Fed is an interest rate targetter: specifically the fed funds (effective) rate, which is the rate at which excess reserves are traded amongst U.S. banks.
Let's say the Fed goes out and buys something (anything!) outright. They create new money in the banking system (assume it's not specie (cash) which can then "disappear" from the banking system). That means that there will be excess reserves in the system.
The banks holding the excess reserves will trade them away in the fed funds market, driving down the fed funds (effective) rate below the Fed's target.
Since the Fed is now missing the target, the Fed's open market desk will now have to conduct operations to drain reserves from the system. Thus the money that was previously created will be drained.
In other words, in an interest rate targetting environment, the Fed cannot print money at will. They have to supply the amount of money to the system that is needed to hit their interest rate target.
If you're fascionated by the topic, you can look up how interest rate targetting differs from gold price targetting (Gold standard pre WWII; Bretton Woods (for the U.S.)), money supply targetting (Volcker in the 1980s) and currency targetting (China now).
I'd wager that most people's complaints about Fed actions are based on monetary models from books that were written during the gold standard/Bretton Woods period.
"RE writes:
"... And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury. ..."
And one more point yearning...at some point in time as the picture become clearer, the losses will be able to be estimated with reasonable accuracy. banks will know what to put aside for this, and will flush the losses. their need to cash will be lessened and these loans from the fed will not be renewed. they will simply take back their collateral.
the issue now is these items are supposed to be marked to market. and my model for this is what is your house worth? the answer is it depends on when you sell it and the market conditions at the time. many people believe the mark on a lot of these securities is going to be higher than it is now. some think it will be lower. the answer, again, is uncertainty. and humans don't like uncertainty so they make things up. there has been NO tax money spent up to this time, and no money created by the Fed. I con't seem to be able to hammer that home to people because they go with their political ideas and try to make reality back into them. instead they should do the analysis and see where reality is, and then develop a strategy. but hey, that why some people come out on top and some don't in fincancial transactions.
I understand that on the FED's balance sheet the facilities are sterilized... and I've never argued that the Fed is printing money.
I think this next question will help me understand why money is not created...
so Bank A has assets against which it cannot lend. It borrows Treasurys from the Fed, using the assets as collateral
it now has Treasurys.
as bond guy says: But that's because they can borrow against Treasurys, and not the MBS collateral.
so when they borrow this money using the Treasurys as collateral, from who do they borrow? in other words, where does the cash come from?
because if they take those Treasurys to the Fed and get cash from the fed, they have in essence traded assets for cash with the Treasury as a sort of "flowthrough instrument".
Once Bank A has that cash, how does this stop the principle of reserve lending (simplified $100 deposits can become $1000)
is it because Bank A gets it's cash-for-Treasurys not from the Fed, but from Bank B?
(so bank A's increased lending ability is "Sterilized" by bank B's lower lending ability?)
lastly: I understand that the Fed's actions do not overcome deflationary forces... I'm not arguing there is overall monetary creation, I'm asking if the Fed's lending facility actions (in and of themselves) are inflationary in an attempt to lessen overriding economic deflatio
I think you have to keep it simple, yearning. The fed wishes to inject some liquidity into the system. it has a balance sheet and it's own reserves or "cash in its bank" if you prefer. the fed then says "i will auction off the ability to put your collateral against these reserves for a rate". banks bid, and the fed then takes the securities, and puts cash into the bank that owns them. this is a lending operation. and the bank at the window's balance sheet is unaffected by this, and the fed is also unaffected by this. the bank will pay interest to the fed for this loan which is pledged against collateral.
This is distinctly different from open market operations where treasuries are used. There the fed either buys outstanding treasuries and retires them (increasing the money supply) or sells treasuries and drains (decreasing the money supply). The treasuries here are their own instruments. in the window operations, they are the "lender of last resort".
so how would this be inflationary, if you define inflation as the expansion of money and credit? what has expanded in the window operations? if GE sells commercial paper on the market to fund ongoing operations, is this inflationary? was money created? the problem is people get all tweaked because the fed is a government institution, but it behaves like a normal bank with the exception that it actually CAN create money by using the open market operations. this creation affect interest rates which, btw, the fed doesn't "set". it tweaks the money supply to get the disired result. that's why the fed speaks of "target rate". the availability of money sets the rate, NOT some fiat of the fed.
"Yearning to Learn writes:
as bond guy says:
But that's because they can borrow against Treasurys, and not the MBS collateral.
so when they borrow this money using the Treasurys as collateral, from who do they borrow? in other words, where does the cash come from?"
They could sell the Treasury, or more likely, use a Treasury repo operation.
In a Treasury repo, they go to a counterparty (a money market fund, say) and they borrow against the Treasury collateral. I.e., they delivery the Treasury, and get cash in return. The repo is overcollateralized (102% typical). This can be done overnight, or for a term (a week, say).
From the money market fund's point of view, the repo is pretty much the same thing as a T-Bill. They lend for a week, essentially to the U.S. Treasury. In the case of a T-Bill, it's obvious. In the case of the repo, it's pretty close. They seize the collateral, and sell it in the open market. Since we assume the UST will not default (and the UST market will always be open), they should be able to sell the collateral and get their money back.
And yeah, they have agreements to maintain the mrgin of overcollateralization in the case of rate changes on the Treasury collateral.
The alternative for the bank is to go the money market fund and borrow on an unsecured basis (commercial paper, or whatever), or a repo on the private sector collateral. Now, those options are either expensive (on a spread basis) or impossible.
[Ipodius: yeah, we seem to be on the same page here. Sooner or later they'll accuse us of being one person posting under two aliases.]
"Yearning to Learn writes:
lastly: I understand that the Fed's actions do not overcome deflationary forces... I'm not arguing there is overall monetary creation, I'm asking if the Fed's lending facility actions (in and of themselves) are inflationary in an attempt to lessen overriding economic deflation"
Those who would agree with what the Fed is doing would say this: what they are doing is "inflationary" in the sense of raising the inflation rate. However, it's raising it from the -10% or so it would be if the entire financial system caves in.
Mr. Market, the bond and credit markets (at least) is concerned about systemic risk. That's my take on the UST 10-year trading below 4%. There's no way to reconcile bond market pricing with the inflation concerns expressed by posters here.
The bond market pricing could be wrong; but there's a lot of history on its side. Believe it or not, the inflation rate is currently the lowest it's ever been headed into a recession. (I know that's true based on the official stats, but it's probably true even if you start correcting the rates for methodological changes. If you incorporated house prices in the CPI, like was done for a period in the 1980s, the CPI would be heading to 0% soon, regardless of gasoline prices.)
[Ipodius: yeah, we seem to be on the same page here. Sooner or later they'll accuse us of being one person posting under two aliases.]
sometimes the comments on here astonish me with the lack of understanding about how the financial system actually works, and how a political agenda drives the comments not a critique of the logic of the actions themselves.
Let me address the bailout issue here, yearning. I am using bailout in the sanse of "spending government money" on the problem. The checks going out now in my view is a "bailout" of the consumer. Like my definition of inflation, bailout does not include "providing grease to the financial markets by providing lending services" services which, i will again state, the fed charges interest for, borrowing at the window is NOT free! the fed makes a nice spread on this and, at the same time, provides some loan largesse to the financial sector because it's in the greater public good, as they see it.
The worst that could happen is some entity goes down while the collateral is still in the Fed's hands, and the Fed cannot cover the loan with the sale of the asset. This is highly unlikely because the FDIC and the Fed would be working hand in velvet glove on that institution. Could the Fed lose on the BSC deal? If the collateral that the Fed has taken in pledge cannot be sold for enough to cover the 29B loan, the answer is yes. that remains, however, to be seen. No one knows what the face amount of the collateral is, or what the collateral is except the Fed and JPM now. So anyone saying anything about it is conjecture.
ipodius, you crack me up. What are you, a theoretical physicist? Do you think the Fed has 30B worth of Schrodinger's cats on their balance sheet?
If anybody could sell this crap on the market at anywhere near what they paid for it, they would have. Then we wouldn't have to be conjecturing about it.
I am using bailout in the sense of taking money out of my treasury-backed money market to make a loan to my ne'er-do-well brother-in-law so that he doesn't lose his house. My balance sheet looks exactly the same. He assures me it's just temporary, and besides, I've got his flea-bitten dog as collateral. There's gotta be somebody out there who'd love that dog enough to pay me what he's worth. I'm sure they'll turn up if I wait long enough.
bond guy - The bond market has a history of being really wrong at secular turning points. Take a look at the early 80's, for example.
If this isn't a turning point, and we don't manage to inflate median wages fast enough to catch falling house prices, great ugliness will ensue.
I say 17% annualized M3 growth is a sign the Fed understands the problem (http://www.shadowstats.com/alternate_data) completely. They need to keep long rates low (or mortgage rates will rise) while inflating median wages. Export inflation to every trading partner that will put up with it, while begging them to recycle the money into U.S. bonds. Cross their fingers and wait for wages to start going up as a response to rising goods prices.
By the way, what ever happened to the flurry of accusations about the housing crisis being worse in zoned land, that part of the country in which governments had taken (some) control over private land use? I generally like Ed Glaesers work, and applaud his understanding of the benefits of concentration, but the concept of zoned land being 4 units per acre does not exactly put cites- New York and Chicago and Boston and San Francisco- in the same category as suburbia. Where are most of the housing crisis problems? Not in cities.
"MLM writes:
bond guy - The bond market has a history of being really wrong at secular turning points. Take a look at the early 80's, for example.
If this isn't a turning point, and we don't manage to inflate median wages fast enough to catch falling house prices, great ugliness will ensue.
I say 17% annualized M3 growth is a sign the Fed understands the problem (http://www.shadowstats.com/alternate_data) completely. They need to keep long rates low (or mortgage rates will rise) while inflating median wages."
The market was wrong in the 1980s, but that was partly due to the wildness of the markets and Fed policy. Obviously the bond market is not always right, but as good a forecaster as it gets. Where does the yield curve (that goes into the beloved Wright B model) come from? The equity market, by contrast, stinks as an economic indicator. (Think NASDAQ 5000.)
The M3 growth has very little to do with the fed; it has everything to do with people piling into money market funds. (They're out of auction rate paper, ABCP, and corporations are drawing down bank lines.) Those are asset allocation decisions out of the control of the Fed. If anything, the growth is payback for easier policy years ago.
As for inflating median wages, the Fed hasn't done a great job, based on what the market pricing is telling me. Real wage growth is negative, and they pushed the economy into recession (sorry Sebastian). The rising unemployment rate is probably going to push real wage growth even more negative, even while inflation falls (on any measure).
Note that I don't necessarily agree with what I see as discounted by the markets, but I have to respect it.
If anybody could sell this crap on the market at anywhere near what they paid for it, they would have. Then we wouldn't have to be conjecturing about it.
MLM this is where your thinking goes completely wrong. The problem is that the securities and derivatives in question are based on suppositions that turned out to be wrong. Do you know what the default rate, in total, is for any of the packaged tranches out there? Do you know where this will settle down? No you don't. Because no one does. And THAT is what the problem is. You can hem, haw, and posture all you want but you can't set the ultimate value of any of this.
I don't get why people can't wrap their heads around this. Is uncertainty that hard? I take 1000 mortgages in OC and put them in a tranche. Based on models of the past I figure out what the average default rate is, when they will be paid off, etc etc and then plug this all in and put a value on the cash flows. The model turns out to be wrong. Now the model says something different. It was different 3 months ago. It will be different 6 months hence as reality catches up. What's the tranche worth? NO ONE KNOWS.
These ARE schrodinger's investments my friend. Does that bother you? It should, but not for the reasons you're putting out here. So put on your don't panic button and learn to love the Fed. They're all you've got now, and they stand between catastrophe and recovery.
Nobody knows what IBM's equity is going to be priced at 6 months from now either. Or what U.S. Treasuries are going to be priced at either. That doesn't stop the market from setting a price.
The problem here is that the banks and dealers can't handle the market price, so the Fed is bailing them out by loaning them money or treasuries at above the collateral's market price.
I have never argued (as some here have) that we ought to have just let the system fail. But the Fed is bailing banks out left and right. And this and their other actions will ultimately be inflationary, as they no doubt fervently hope.
Of course, as bond guy points out above, first we have the little problem of a recession to get through.
Calc Risk, can we have a chart that shows the housing bubble against downpayment needed? Seat of the pants says bubble = lousy mortgages but I think there's proof to be seen. And if the chart goes back enough we might be able to judge late 80's ARMs against that run-up and decline...
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
mjc | 05.03.08 - 7:36 pm |
You can die, you ex-wife can get the house in ghetto westchester and she and her ex-landscapper/new man won't have to pay a death tax.
I can't believe nobody has pointed out yet that on the front page of the OC PDF article, the self proclaimed real estate expert Jonathan Lanser predicted the median home price to reach 1 million.
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Very Good. Thanks.
It looks like the price was cut to $439K on May 2nd, below your suggested price of $475K. Perhaps someone was reading your site. The power of CR knows no bounds!
Don't worry, the price is going to go up to $600k again by the end of the year. Why? I don't know how, but that's what all the older folks at work are constantly telling me... the end of the year is going to be a great time to buy and prices will sky-rocket again next year!
I swear I don't work with relitterers either! Whenever someone says this and sticks around I ask them why and explain that median wages are out-of-line for median price, and what makes them think housing prices are going to keep sky-rocketing. They mention that California has limited real estate and everyone wants to move here... (I guess they haven't been following the migration of citizens into and out of the state).
All those mortgage companies and relitteres have done a great job at brainwashing people...
YLSP, it's because they have to believe it. Everyone I work with over the age of 45 is depending on cashing out their house and moving to a cheaper location - this is primary and sometimes their sole retirement plan. Can you imagine how desparate some of these people must feel?
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
That graph reminds me of something else in the OC:
http://www.cphelps.id.au/images/Xcellerator.jpg
I thought the Los Angeles index included Orange County.
On their methodology explanation, at least, the report mentions the inclusion of Orange County though it describes the metro area as Los Angeles-Long Beach-Glendale, CA, none of which is in Orange County.
It's on page six:
http://www2.standardandpoors.com/spf/pdf/index/SPCS_MetroArea_HomePrices_Methodology.pdf
CR,
Explain to me how adjusting for inflation only went from 22% to 26%.
YIKES! No wonder all the left-coast posters act like the end of the world is coming. Here on the right coast the recent numbers are out for March and we're 15.72% down in nominal median price from peak with a whopping 32.3% yoy decline in sales.
However, in the choice Boston locations, the median price was down 1% to 475,000 (for a condo!), with sales down 22.3%. Btw, the median price in the South End is 600,000 and in the Back Bay/Beacon Hill in excess of 1M.
This is interesting, btw, because if you look at the data, I think it becomes clear that the market is very plugged up and a lot of the normal condo churn (people selling because they are getting married, having a family, changing jobs etc) has stopped. Couple the stagnant/declining prices with more stringent loan rules and anyone that bought in the past couple of years can't get out and buy something else because there has been no appreciation to roll over into another property.
Does this indicate that, when the market unfreezes that there will be pent-up demand, or does this mean that this points to an even longer RE cycle as appreciation has to catch up to allow people to move? I'd probably say both.
So, not including overshoot on the downside, we can expect prices to revert to where they were in year 2000-2001 (right before the entire residential lending industry went completely mad)?
giacutter, by the numbers i calculate that we're going to cross under 2002 median price by june here. our peak was in august of 2005. you can look forward to the same results if yours was later, i would think.
ipodius,
I went through an extensive job search and interview process in 2006 that took me to nearly every region in the country. Included in each trip was the obligatory rigorous interview, facility tour, and of course, afternoon out with the local real estate agent.
The impression I got was that the West Coast is leading the East Coast in the market cycle by 6-12 months. This is in terms of timing of peak prices, timing of REOs/foreclosures gaining steam, and local attitudes toward the real estate market.
This is just a 'gut feeling', and my opinion is obviously worth what you paid for it.
This is true, Ipodius. Talk of bailouts makes people lose their sh@t here (myself included though I try and temper my reaction), because of the unbelievable prevalence of this crazy get-rich-quick scheme. Of course, there isn't the money to bail out Southern California, and the tenuous social connection between neighbors makes any significant plan extremely unlikely to pass, but the topic will rile people up.
Not to feel too entitled, but when the top 5 percent of income can't afford the 50 percentile home, there is a strong temptation to covet and envy. The only thing separating me from lower-earning people who believe I will never afford their homess is that they happened to be born 5 years earlier, and that doesn't seem right. The price to income ratios are just further out of whack here.
Housing has always been a good inflation hedge. Over hundreds and hundreds of years as currencys rose and fell and as economies boomed and then collapsed RE has always held a steady. When RE corrects back to its inflation adjusted average it will become a good inflation hedge again. Still needs to drop another 260K, ouch!
sanity clause, thanks - I added a hat tip for you. I think a mix is closer because Orange County resembles San Diego in some ways, but I could have just used LA.
metabear, total inflation (CPI less housing) has been about 5% since the price peak, and these numbers were rounded a little.
DeathtoSpeculators, thanks for the update on the price! ROFLOL.
Best to all.
Hallelujah...
Perhaps it was here that someone posited that the recovery cycle will take longer this time, whenever the bottom does finally arrive (2011-2012 IMO) for this reason: until the advent of truly stupid SISA / SIVA loan products, there was a 'natural' population of first time buyers entering the market each year. They would typically take the lower rungs and permit move-up buying to occur.
Then 2002 rolled up in a shiny suit, and now everyone could buy. So the wannabe segment quickly morphed into an indebted segment. Because the 'normal' turnover got sucked in faster, an entire population of not-really-ready buyers came into the game. Finally, the stock of new buyers was down to fingerlings.
So now we sit with a completely depleted stock of would-be buyers, like an over-fished school of cod. And the stock that normally would have been counted on to take up the supply slack has already been fished out, and are now impoverished from trying to keep the mortgage up, or credit-whacked because they can't, or both. And so there is not only a dearth of first-time buyers, but a decimated population of move-up buyers. And it will take several years before these move-up buyers fish are 'big' enough to buy again, but even when they are, will they be ultra-wary of playing the game, having already been burned once?
I'm in OC and currently know of a house in south county that listed at $1.55M last summer. It has now sold for under $1M, slated to close escrow in June, over 35% below the peak. Take a look at Laguna Niguel (92677) Redfin figures sometime, near the coast but not quite on it. Mark-to-fantasy prices are slowly coming down... but not quick enough.
We contacted a realtor awhile ago about a foreclosure. Now I get an email about every 3 weeks which is fine. I told we were going to wait and sent her a link to this site.
Her reply was "that she had read this site before and it was a good source of information but traffic was picking up and it was a good time to buy."
I have looked at houses on Redfin and they give what 3 sites think is the true price. Here in No. VA that is usually 100k below what is being asked. It puzzles me how anyone is going to get a loan if the house dosent appraise at or above the price.
" the end of the year is going to be a great time to buy and prices will sky-rocket again next year! "
Oh Yeah! Good news. That mean there is a hell of a lot of downside left. Prices will only level out when RE is recognized as the worst investment period.
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
Haha... well I think the idea is to take your money and toss it to the less fortunate.
That's your punishment for being responsible and paying off your house.
Let that be a lesson to you.
OT: Microsoft Withdraws Its Bid for Yahoo
Bid for Yahoo Is Withdrawn By Microsoft - NY Times
bzb, did you read Ballmer's letter? It pretty much says that MS will do everything possible to prevent Yahoo from partnering with Google, if you read between the lines. This does not bode well for Yahoo's stock holders. Their shares will drop on Monday, as recent gains were on the specualtion of a deal. Their numbers do not justify the price they were asking, or the current share price.
ipodius, I agree. I think Yahoo is toast on Monday, and I bet Yang is already getting some very angry phone calls.
Ceiling price calculation on this property???
We can be a little more generous potentially with this house. If I remember correctly, home prices have historically grown by about 6% on average. So if we use the sale price of $177,500 in Sep 1994 as the base value, by Sep 2008 that would make 14 years of appreciation. If we compound the house value over those 14 years, you'd get $401,000. That might provide a ceiling for some potentially interested buyer.
But then the obvious questions become, is 1994 the right year/price at which to start the compounding? What would an overcorrection imply for the eventual sale price of this house? And other questions I'm sure I haven't thought of...
But maybe that's an upper-bound for what the seller might "reasonably" (rather than deludedly) expect.
The Numbers Racket
Is inflation underestimated? | MetaFilter
Harper's article, links, and discussion. Includes commentary from The Big Picture.
According to Shiller, home prices have historically grown by less than 1%, in real dollars, on average.
I think Yahoo is toast on Monday, and I bet Yang is already getting some very angry phone calls.
I hate to keep this OT going but if the shares plummet the next stockholders meeting is going to be a doozy. But as the wsj astutely pointed out, the same thing happened in the BEA/Oracle deal. Ballmer is very smart for walking. He could end up paying even less in the end.
According to Shiller, home prices have historically grown by less than 1%, in real dollars, on average.
that's 1% over the rate of inflation, El, not 1# total. So if the inflation rate is what some people would like it to be around here, perhaps CA prices are totally justified. ha.
Yes, I know that. Everyone knows that. Nervous about your nominal real-estate values in that frigid, constipated backwater called Boston?
HEY! That's a frigid constipated Chablis-sipping backwater to you pal.
"1% over the rate of inflation"
We all know that. However, the calculation of inflation has changed over time such that we can't be sure that it's apples to apples if we look back historically.
That's why I used the "nominal" increase over time (instead of inflation +1%), which I believe historically is around 6%. Is that right??
Nervous about your nominal real-estate values in that frigid, constipated backwater called Boston?
Who me? I own three properties all bought prior to the bubble. I could care less about RE values personally. In terms of the state and it's general health I do care, your ignorant comments nothwithstanding.
I'm trying to find ipodius:
From a previous thread:
so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there is indeed a defacto stealth printing of money that is occurring. A few hundred billions worth so far. No?
ipodius - How do you think things would look if inflation really was understated by the CPI, but salaries/wages were exactly what they are? Infrastructure not getting fixed, generally takes 2 wage-earners to raise a family, costs a fortune to get sick (or have a baby),???
Since you use "it's" to mean "its," it seems like you're the ignorant one, Mr. Bagholder.
Monsieur le Canadien - that's not printing, that's just loaning. It's all 'sterilized' you see.
oh another ad hominem about typing from El Cliffo. can't you be a little more intellectually rigorous and toss some trenchant analyasis in that disagrees with my stand on anything? or is all you've got spelling and typing?
Canadien avec ! I answered you on that thread, and MLM (even though snarky) is right. He's just putting the word lending in ironic quotes
ipodius - If we start lending money against something we never lent against before, and we never stop, is it still 'sterile'?
"un autre Canadien avec popcorn writes:
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there is indeed a defacto stealth printing of money that is occurring."
The repos are being rolled (paid back and rolled into a new loan).
The operations are sterilized: the Fed takes in one set of paper, and replaces it with another. No money is created - their balance sheet size is unchanged.
What this does is allow the banks to then use the Treasurys to get funding from money markets via Treasury repos.
The Fed is acting as an intermediary, using its balance sheet to get funding from money markets to the banks. And getting paid to do it.
Folks, the Fed is probably going to make a fortune this year. If they took 20% of the P/L (the market rate), Benny and the Boys would have about a yard(*) of bonus money to split up.
(*)yard = $1 billion.
You would not recognize trenchant analysis even if it was wearing a contrast-collar button-down shirt, like Kudlow.
I didn't attack you--you attacked me with an incorrect assumption, and then made a grammatical errorwhile you were defending it.
I stand on my comment that Boston is a frigid, constipated backawater. Are you saying millions of Americans are flocking to that high-tax, highly-regulated, preppy-infested Arctic wasteland, and waiting to buy property there? I don't think so.
HEY! That's a frigid constipated Chablis-sipping backwater to you pal.
MLM, frugality is in. We're now sipping two buck chuck, didn't you get the memo? and now that i think about it, it is pretty freezing here today. i do wish to remind people that we were the ones first in revolution before, so we'll let you know when it's time again.
oops, typos. . .should be "error while" and "backwater"
Hey bond guy, I just happen to have my brand spanking new copy of Grant's sitting here, so I checked the growth in the Fed's balance sheet over the last year -- only 18 yards on 850.
Then I checked the balance sheet of their proxies (that's bait for you ipodius!) in the ROW. That's 330 yards on 1,918.
There's a whole lotta flatin' goin' on out there somewhere. But it's not the Fed's fault. Whocoodanode?
I wish to dispel Cliffo's high tax meme once and for all. We have a 5% sales tax that excludes food and clothing (except restaurant food and expensive clothes). We have a 5% income tax. My property tax is peanuts compared to most other states around here. There are no city or county taxes allowed other than sales an excise tax (tax on your vehicle or boat).
Our taxes on a per person basis are actually pretty low. Amd we have civil right here, great schools, actual public transportation that you can use, beautiful beaches, the berkshires, and sailing on the Charles. Also some of the best hospitals in the world. Oh and boston has the best public parks system i've ever seen.
Thus ends my MA sales pitch.
We're now sipping two buck chuck, didn't you get the memo?
Hey man, my parents are drinking two buck chuck. I'm a boomer, I'm HELOCing the good stuff while I can!
Then I checked the balance sheet of their proxies (that's bait for you ipodius!) in the ROW. That's 330 yards on 1,918.
It's late MLM so you just snagged a fin with that hook (swims away)
And winter six months a year!
"MLM writes:
Hey bond guy, I just happen to have my brand spanking new copy of Grant's sitting here, so I checked the growth in the Fed's balance sheet over the last year -- only 18 yards on 850.
Then I checked the balance sheet of their proxies (that's bait for you ipodius!) in the ROW. That's 330 yards on 1,918.
There's a whole lotta flatin' goin' on out there somewhere. But it's not the Fed's fault. Whocoodanode?"
The last time I checked, the Fed can't set Chinese currency policy. Yes, the ROW has inflation problems, precisely because they cannot sterilize the inflows.
But in reference to the U.S. economy, a $1 holding in UST's is no more inflationary if it is held by PIMCO or SAFE (Chinese central bank asset manager). They are outside the U.S. government, and they have taken UST paper in exchange for dollars.
"Printing" is when the central bank goes out monetizes stuff - in size.
Damn it!
Well, the Census Bureau says that Massachusetts as of 2005 was only the 7th-highest-ranked state
out of 50 in state taxes per capita. At least that's better than first-highest!
Canadien avec, if i come to you and pawn my car, and you give me 10,000, is the price of the car on the market 10,000? have you placed 10,000 in circulation and increased the money supply? No the exact same amount of money exists, it's just been transferred temporarily. If you didn't pay me back i would quickly find out what the car was actually worth when i went to the market with it. But until that happens, nothing has been created or destroyed.
thanks for the explanation ipodius. Do you think that there is a snowballs chance in hell that the collateral for these loans is worth what the Fed says it is.
bond guy gave you a reply...I'm still swimming
El Cliffo, get it right. We have three seasons here: summer (hot and humid), fall (spectacular and the best time to be here from labor day to halloween), and winter. spring happens for about an hour sometime in May or early June. Spring is a waste of time anyhow so we just skip it.
"Printing" is when the central bank goes out monetizes stuff - in size.
And gunboat printing (I made that up myself) is when we 'encourage' other central banks to monetize for us with pegs.
Inflation: one of our biggest exports at the moment. But, sooner or later all good things come to an end. It's a bitch if you have to do all the heavy lifting yourself.
yeah, thanks bond guy as well
(spectacular and the best time to be here from labor day to halloween)
Especially if you like traffic. El Cliffo, try Quebec in the fall, it's less crowded and the food's better.
bond guy gave you a reply...I'm still swimming
Gonna have to ask dryfly for some fishing lessons.
Especially if you like traffic. El Cliffo, try Quebec in the fall, it's less crowded and the food's better.
great strategy! send him to the canadians! and hey, just like london, the food is way better in the last 15 years or so!
Well, the Census Bureau says that Massachusetts as of 2005 was only the 7th-highest-ranked state out of 50 in state taxes per capita.
oh boy and MA and number 32, Nevada, are separated by less than $800. Thanks I'll stay here for that much money.
So let's see, I go to the Fed with my 15 year-old beatah cah, which we both agree is worth 5% less than I originally paid for it (can't be too conservative). They accept the car as collateral, and I get the cash. I check back in every 28 days. Woot!
That's not printing, and the Fed's balance sheet proves it.
MLM your over-baiting the hook but i'm still swimming...you'll have to try putting a steak on it instead of a crummy worm....
I thought all you ate out there was cod and scrapple. For a really good steak, you've got to go to Vegas.
Canadien,
Exactly - what is the Fed going to do when the decaying collateral hits the trigger to get pushed back to the bank - except that bank would be insolvent with said push back?
Decaying. Decaying?? That's such a harsh word. It would be better to think of it as collectable.
MLM, i'll leave you with this: you're trying to roll several things into one argument and they are all discrete:
The mark of the underlying collarteral
The implicit solvency of the institution taking the loan from the Fed
The price of the collateral at the time the Fed disposes of it
None of these are related events and one does not (as a point) follow the other. So you can argue about the mark and the amount of collateral pledged for the loan from the fed, you can talk about the solvency of the entity going to the window, and you can talk about whether the current mark reflects the true market price or if it's being distorted by the present financial sector climate. but to talk about all three as if they follow one on the other won't do.
(teases you by tugging on the line with his fin, and swims away just as you think you've set the hook)
ipodius -
Let's say you're Ben. You desperately need to:
Keep the financial system from imploding
Inflate the s$(t out of the dollar
Keep long rates low
What would you do?
None of these are related events
Bwahahahaha. Take it easy.
For a really good steak, you've got to go to Vegas. please! vegas is the world capital of tacky.
have you been to grill 23? trust me, there's plenty of red meat in the city. and my personal favorite, suburban chinese food! who doesn't love a platter of completely un-chinese things with flames? or a chinese restaurant that severs japanese sushi, blind to the fact that they've hated each other forever?
Awe hell, you mean I've been eating baked beans and scrapple in Boston all these years and I could have had a good steak?
I'm just ahhh, playin' the fish here. I love Boston and have had some great meals at Grill 23, among other places.
Let's say you're Ben.
let's not, but the point is the mark of the collateral is directly tied to the ultimate disposition of the loans that make up the tranche. no one knows that yet, and it doesn't depend on financial institution solvency at all. it depnds on the cash flows. So that takes care of 1 and 3, the mark of the collateral now, and the mark later on. The later on may be influenced by the amount of paper on the market at that point in time, but the Fed doesn't have to fire sale anything.
Don't you think that someone at the Fed knows when a bank steps up to the window what the condition of the institution is? Don't you think the pledge reflects that? Is not the Fed first in line to be repaid? That takes care of point 2 because the shareholders will get stiffed if the bank is taken over and assets sold to cover the debt before the bank is merged into another institution.
And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury.
eating baked beans and scrapple
if you really want to go all yankee you'll have to eat salmon and peas, brown bread, indian pudding, pot roast (cooked within an inch of its life where everything on the plate is some shade of gray), lobster newburg, chowda (with milk those provincials from NY put tomatoes in there), steamers, and drink something called Moxie. If you survived that as a kid, you get to have dinner at Mistral
the mark of the collateral is directly tied to the ultimate disposition of the loans that make up the tranche
No, the mark of the collateral is directly tied to the solvency of the institution (assuming it's too big to fail). "Oh jeez Vikram, I see what you mean. I thought that was a turd, but it's really a diamond in the rough!"
You know, I generally don't wear a tinfoil hat, but I think desperate times call for a desperate wardrobe.
You seem to think we're by and large in business as usual mode. But we aren't.
No, the mark of the collateral is directly tied to the solvency of the institution
nor unless they're pledging their own stock, and that isn't on the list of acceptable items. they're pledging high-grade (!) securities. now you can argue about the mark of what they're pledging, but unless you know the securities (and they aren't public which is why some here argue about transparency) you have no idea.
Now go have a Moxie (who but some old NE Yankee would think up a soda who's base is prune juice?) amd get some sleep.
You know, I generally don't wear a tinfoil hat, but I think desperate times call for a desperate wardrobe.
You mean, like shopping at Marshalls or TJ Max instad of Barney's (we'll just ignore that little "of New York" part)? Besides, tin foil isn't in this season.
The trick is to be rational when everyone else isn't. Then you can take them to the cleaners. do you really think that all of BSC was only worth 10 a share on an enterprise value over time? not at all. it was only worth that at the time the deal went down because no one else stepped up to the plate. i bet when it's all said and done, it's worth somewhere around 25.
they're pledging high-grade (!) securities. now you can argue about the mark of what they're pledging, but unless you know the securities (and they aren't public...)
Is there an oxymoron in there anywhere? They're high grade (because the rating agencies say so, and I have every reason to trust them), and the mark is helping the Fed in "carrying on an undertaking of great advantage; but nobody to know what it is."
You're right though; I have no idea. And neither do you. What I do know is that they're faced with the choice of liquidating or inflating (as mp so tersely put it earlier today). Based on that, I can guess what's really going on. And it ain't pretty.
As for Moxie, I'll pass. As I'm from Colorado and still stinging from the Series, I've got to draw the line somewhere. Somewhere before Moxie seems like a pretty good idea.
Well, I bet when it's all said and done BSC is worth 2500
Gotta go, see you around.
"... And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury. ..."
Fed's TAF auctions 30 bln usd 28-day loans at 3.123 pct
Now why does that strike me as very cheap money, i.e. FREE money, in fact even a money MAKER?
Consumer Price Index Summary
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 213.528 (1982-84=100) was 4.0 percent higher than in March 2007.
Um, you guys are hammering on Vegas:
I ate here: Las Vegas Restaurants and Dining at Caesar's Palace Las Vegas
Excellent.
Not cheap, but excellent.
Now, are you going to tell me the JB foundation doesn't recognize good food?
Vegas is a foodie paradise these days.
Someday this war's gonna end..
I suppose 6% nominal price appreciation on a house is okay if wages also went up 6% annually. Still gets back to the notion that median wages have to be able to make the payment on the median house price. Anything else is getting us back to the general insolvancy problem the US economy/consumer is struggling with.
other Jim; I know your speaking about national averages. Still...
I like Brad DeLong's argument. Location, location, location. Homes near infrastructure and jobs will recover far sooner than car-based extraburb developments - if at all.
Median home prices for a locality can exceed median wages. That's due to gentrification and/or re-valuing access to infrastructure.
From Nouriel Roubini's latest post:
..the Q1 GDP figures were ugly. The headline +0.6% hides a fall in real final sales of domestic product as a build-up of inventories of unsold homes added 0.8% to GDP; the payback will come in Q2 as unsold inventories are unwound. In Q4 GDP growth was also 0.6% but final sales growth was a strong 2.4% and a run down of inventory of 1.8% subtracted that much to GDP. So with final sales growth slowing from +2.4% or a -0.2% the collapse in final demand in Q1 is extremely sharp. We were already in a recession in Q1 that will get much worse in Q2.
Once i heard brad delong's desire to Punish speculators in the BSC play, i tuned out. somewhat childish and vindictive, for an educated scholar. He has heard of futures market's , has'nt he?
Not to flagellate an expired equine...
Can someone dredge a comparison chart of tax burden by state divided by median income? More meaningful I think. The Glob did an Ideas back page pie chart extravaganza a while back that gave a more positive look at MA's tax situation. And not to nitpick, but state tax is 5.3%, unless you volunteer to pay 5.85% on line 22 (some do).
ipodius/bond guy:
although I agree it is not printing money, are these term facilities not creating money nonetheless?
I do NOT understand this, so this is an honest question.
the way I've thought about it is that a bank holding illiquid securities has problems with their reserve ratios. Thus, they are unable to lend. This is the essential problem and the cause of the "credit freeze".
by swapping out these illiquid securities for Treasuries they can then change their reserve ratios, allowing them to lend.
thus, they are able to lend and you get somewhere near the 10x effect on money creation, no?
in the end, I thought I was correct in my above simplified thinking because I thought that was the GOAL of all these facilities, to unfreeze credit.
and it would be supported that this is what is happening, based on the reports of "nonborrowed reserves" going negative.
what am I missing, or where am I wrong.
this would seem to be somewhat important, because they are increasing the size and the duration of these lending facilities.
yearning, let's see if i can do a decent job here. the Fed has a balance sheet like any other company. so all money is accounted for there. the issue right now is liquidity. i'll use the phrase cashflow right now because that will help. banks have a cashflow problem because the normal markets have dried up in which one goes to for ongoing cash for operations. that's the liquidity problem.
so the banks can't lend because they can't get cash in the door fast enough as the value of their holdings and the money from fees/deposits/etc is either below demand OR they are holding cash because they see losses that need to be paid out. that speaks to solvency. in the meantime the normal capital markets are stuck because this funding has dried up because of the uncertainty about what the losses will actually be and where all the paper they are holding will end up in the loss column.
the fed, then, greases this situation by taking collateral and handing over cash. on the balance sheet the right and left sides are equal: they gave out cash and put the securities on the balance sheet. and they charge interest for this. so no money has been created in the process, it's a simple balance sheet operation and is "sterile". now the banks, in theory, have more cash that they can put to work. they are being changed a lower rate of interest for the cash and can lend at higher rates, helping out their own balance sheets.
so the exposure here is the collateral, and how much the fed required against what was loaned. this is emphatically NOT printing money, and if you go to a reputable place where analysis is done, you will find that the money supply is actually shrinking and has been for a while. That is NOT inflation. And it is NOT printing. Money and credit is being destroyed faster than it can be created in the system, and this is why the Fed is using these facilities to alliviate that bottleneck.
I hope that helps.
"Yearning to Learn writes:
ipodius/bond guy:
although I agree it is not printing money, are these term facilities not creating money nonetheless?"
No, they are sterilized.
Yes, they allow banks (including investment banks) to get funding they probably wouldn't have gotten otherwise. But that's because they can borrow against Treasurys, and not the MBS collateral. But that does not create money. "Liquidity", perhaps, but that's a meaningless term.
You need to step back and see what the Fed does. The Fed is an interest rate targetter: specifically the fed funds (effective) rate, which is the rate at which excess reserves are traded amongst U.S. banks.
Let's say the Fed goes out and buys something (anything!) outright. They create new money in the banking system (assume it's not specie (cash) which can then "disappear" from the banking system). That means that there will be excess reserves in the system.
The banks holding the excess reserves will trade them away in the fed funds market, driving down the fed funds (effective) rate below the Fed's target.
Since the Fed is now missing the target, the Fed's open market desk will now have to conduct operations to drain reserves from the system. Thus the money that was previously created will be drained.
In other words, in an interest rate targetting environment, the Fed cannot print money at will. They have to supply the amount of money to the system that is needed to hit their interest rate target.
If you're fascionated by the topic, you can look up how interest rate targetting differs from gold price targetting (Gold standard pre WWII; Bretton Woods (for the U.S.)), money supply targetting (Volcker in the 1980s) and currency targetting (China now).
I'd wager that most people's complaints about Fed actions are based on monetary models from books that were written during the gold standard/Bretton Woods period.
"RE writes:
"... And don't forget this money is not free. The loan carries interest. So cheer up. The fed is making money off of these loans which goes back into the treasury. ..."
Fed's TAF auctions 30 bln usd 28-day loans at 3.123 pct"
The alternative for the Fed is T-Bills, which yield 2% (give or take).
That's 120+ basis points of carry for the Fed. A lot of people would have killed for 120 basis points of (high quality) carry in 2006.
And one more point yearning...at some point in time as the picture become clearer, the losses will be able to be estimated with reasonable accuracy. banks will know what to put aside for this, and will flush the losses. their need to cash will be lessened and these loans from the fed will not be renewed. they will simply take back their collateral.
the issue now is these items are supposed to be marked to market. and my model for this is what is your house worth? the answer is it depends on when you sell it and the market conditions at the time. many people believe the mark on a lot of these securities is going to be higher than it is now. some think it will be lower. the answer, again, is uncertainty. and humans don't like uncertainty so they make things up. there has been NO tax money spent up to this time, and no money created by the Fed. I con't seem to be able to hammer that home to people because they go with their political ideas and try to make reality back into them. instead they should do the analysis and see where reality is, and then develop a strategy. but hey, that why some people come out on top and some don't in fincancial transactions.
good lord bondguy we were online at the same time. it looks like a gang attack
I understand that on the FED's balance sheet the facilities are sterilized... and I've never argued that the Fed is printing money.
I think this next question will help me understand why money is not created...
so Bank A has assets against which it cannot lend. It borrows Treasurys from the Fed, using the assets as collateral
it now has Treasurys.
as bond guy says:
But that's because they can borrow against Treasurys, and not the MBS collateral.
so when they borrow this money using the Treasurys as collateral, from who do they borrow? in other words, where does the cash come from?
because if they take those Treasurys to the Fed and get cash from the fed, they have in essence traded assets for cash with the Treasury as a sort of "flowthrough instrument".
Once Bank A has that cash, how does this stop the principle of reserve lending (simplified $100 deposits can become $1000)
is it because Bank A gets it's cash-for-Treasurys not from the Fed, but from Bank B?
(so bank A's increased lending ability is "Sterilized" by bank B's lower lending ability?)
lastly: I understand that the Fed's actions do not overcome deflationary forces... I'm not arguing there is overall monetary creation, I'm asking if the Fed's lending facility actions (in and of themselves) are inflationary in an attempt to lessen overriding economic deflatio
and again, Thanks in advance.
oops: internet etiquette... gotta go will check your response (hope you respond!) later today
I think you have to keep it simple, yearning. The fed wishes to inject some liquidity into the system. it has a balance sheet and it's own reserves or "cash in its bank" if you prefer. the fed then says "i will auction off the ability to put your collateral against these reserves for a rate". banks bid, and the fed then takes the securities, and puts cash into the bank that owns them. this is a lending operation. and the bank at the window's balance sheet is unaffected by this, and the fed is also unaffected by this. the bank will pay interest to the fed for this loan which is pledged against collateral.
This is distinctly different from open market operations where treasuries are used. There the fed either buys outstanding treasuries and retires them (increasing the money supply) or sells treasuries and drains (decreasing the money supply). The treasuries here are their own instruments. in the window operations, they are the "lender of last resort".
so how would this be inflationary, if you define inflation as the expansion of money and credit? what has expanded in the window operations? if GE sells commercial paper on the market to fund ongoing operations, is this inflationary? was money created? the problem is people get all tweaked because the fed is a government institution, but it behaves like a normal bank with the exception that it actually CAN create money by using the open market operations. this creation affect interest rates which, btw, the fed doesn't "set". it tweaks the money supply to get the disired result. that's why the fed speaks of "target rate". the availability of money sets the rate, NOT some fiat of the fed.
"Yearning to Learn writes:
as bond guy says:
But that's because they can borrow against Treasurys, and not the MBS collateral.
so when they borrow this money using the Treasurys as collateral, from who do they borrow? in other words, where does the cash come from?"
They could sell the Treasury, or more likely, use a Treasury repo operation.
In a Treasury repo, they go to a counterparty (a money market fund, say) and they borrow against the Treasury collateral. I.e., they delivery the Treasury, and get cash in return. The repo is overcollateralized (102% typical). This can be done overnight, or for a term (a week, say).
From the money market fund's point of view, the repo is pretty much the same thing as a T-Bill. They lend for a week, essentially to the U.S. Treasury. In the case of a T-Bill, it's obvious. In the case of the repo, it's pretty close. They seize the collateral, and sell it in the open market. Since we assume the UST will not default (and the UST market will always be open), they should be able to sell the collateral and get their money back.
And yeah, they have agreements to maintain the mrgin of overcollateralization in the case of rate changes on the Treasury collateral.
The alternative for the bank is to go the money market fund and borrow on an unsecured basis (commercial paper, or whatever), or a repo on the private sector collateral. Now, those options are either expensive (on a spread basis) or impossible.
[Ipodius: yeah, we seem to be on the same page here. Sooner or later they'll accuse us of being one person posting under two aliases.]
[Covering a final question]
"Yearning to Learn writes:
lastly: I understand that the Fed's actions do not overcome deflationary forces... I'm not arguing there is overall monetary creation, I'm asking if the Fed's lending facility actions (in and of themselves) are inflationary in an attempt to lessen overriding economic deflation"
Those who would agree with what the Fed is doing would say this: what they are doing is "inflationary" in the sense of raising the inflation rate. However, it's raising it from the -10% or so it would be if the entire financial system caves in.
Mr. Market, the bond and credit markets (at least) is concerned about systemic risk. That's my take on the UST 10-year trading below 4%. There's no way to reconcile bond market pricing with the inflation concerns expressed by posters here.
The bond market pricing could be wrong; but there's a lot of history on its side. Believe it or not, the inflation rate is currently the lowest it's ever been headed into a recession. (I know that's true based on the official stats, but it's probably true even if you start correcting the rates for methodological changes. If you incorporated house prices in the CPI, like was done for a period in the 1980s, the CPI would be heading to 0% soon, regardless of gasoline prices.)
My buddy in Naples sent me a listing that sold for 715k in Dec'05 thats now on the market ("bank owned") for 199k!
Here's the link.
[Ipodius: yeah, we seem to be on the same page here. Sooner or later they'll accuse us of being one person posting under two aliases.]
sometimes the comments on here astonish me with the lack of understanding about how the financial system actually works, and how a political agenda drives the comments not a critique of the logic of the actions themselves.
Let me address the bailout issue here, yearning. I am using bailout in the sanse of "spending government money" on the problem. The checks going out now in my view is a "bailout" of the consumer. Like my definition of inflation, bailout does not include "providing grease to the financial markets by providing lending services" services which, i will again state, the fed charges interest for, borrowing at the window is NOT free! the fed makes a nice spread on this and, at the same time, provides some loan largesse to the financial sector because it's in the greater public good, as they see it.
The worst that could happen is some entity goes down while the collateral is still in the Fed's hands, and the Fed cannot cover the loan with the sale of the asset. This is highly unlikely because the FDIC and the Fed would be working hand in velvet glove on that institution. Could the Fed lose on the BSC deal? If the collateral that the Fed has taken in pledge cannot be sold for enough to cover the 29B loan, the answer is yes. that remains, however, to be seen. No one knows what the face amount of the collateral is, or what the collateral is except the Fed and JPM now. So anyone saying anything about it is conjecture.
ipodius, you crack me up. What are you, a theoretical physicist? Do you think the Fed has 30B worth of Schrodinger's cats on their balance sheet?
If anybody could sell this crap on the market at anywhere near what they paid for it, they would have. Then we wouldn't have to be conjecturing about it.
I am using bailout in the sense of taking money out of my treasury-backed money market to make a loan to my ne'er-do-well brother-in-law so that he doesn't lose his house. My balance sheet looks exactly the same. He assures me it's just temporary, and besides, I've got his flea-bitten dog as collateral. There's gotta be somebody out there who'd love that dog enough to pay me what he's worth. I'm sure they'll turn up if I wait long enough.
bond guy - The bond market has a history of being really wrong at secular turning points. Take a look at the early 80's, for example.
If this isn't a turning point, and we don't manage to inflate median wages fast enough to catch falling house prices, great ugliness will ensue.
I say 17% annualized M3 growth is a sign the Fed understands the problem (http://www.shadowstats.com/alternate_data) completely. They need to keep long rates low (or mortgage rates will rise) while inflating median wages. Export inflation to every trading partner that will put up with it, while begging them to recycle the money into U.S. bonds. Cross their fingers and wait for wages to start going up as a response to rising goods prices.
thanks for your responses ipodius and bondguy.
I'll mull them over and make sure I understand the details.
I may have another question in the future, but I'll harangue y'all later.
now I must weed!!!
By the way, what ever happened to the flurry of accusations about the housing crisis being worse in zoned land, that part of the country in which governments had taken (some) control over private land use? I generally like Ed Glaesers work, and applaud his understanding of the benefits of concentration, but the concept of zoned land being 4 units per acre does not exactly put cites- New York and Chicago and Boston and San Francisco- in the same category as suburbia. Where are most of the housing crisis problems? Not in cities.
"MLM writes:
bond guy - The bond market has a history of being really wrong at secular turning points. Take a look at the early 80's, for example.
If this isn't a turning point, and we don't manage to inflate median wages fast enough to catch falling house prices, great ugliness will ensue.
I say 17% annualized M3 growth is a sign the Fed understands the problem (http://www.shadowstats.com/alternate_data) completely. They need to keep long rates low (or mortgage rates will rise) while inflating median wages."
The market was wrong in the 1980s, but that was partly due to the wildness of the markets and Fed policy. Obviously the bond market is not always right, but as good a forecaster as it gets. Where does the yield curve (that goes into the beloved Wright B model) come from? The equity market, by contrast, stinks as an economic indicator. (Think NASDAQ 5000.)
The M3 growth has very little to do with the fed; it has everything to do with people piling into money market funds. (They're out of auction rate paper, ABCP, and corporations are drawing down bank lines.) Those are asset allocation decisions out of the control of the Fed. If anything, the growth is payback for easier policy years ago.
As for inflating median wages, the Fed hasn't done a great job, based on what the market pricing is telling me. Real wage growth is negative, and they pushed the economy into recession (sorry Sebastian). The rising unemployment rate is probably going to push real wage growth even more negative, even while inflation falls (on any measure).
Note that I don't necessarily agree with what I see as discounted by the markets, but I have to respect it.
If anybody could sell this crap on the market at anywhere near what they paid for it, they would have. Then we wouldn't have to be conjecturing about it.
MLM this is where your thinking goes completely wrong. The problem is that the securities and derivatives in question are based on suppositions that turned out to be wrong. Do you know what the default rate, in total, is for any of the packaged tranches out there? Do you know where this will settle down? No you don't. Because no one does. And THAT is what the problem is. You can hem, haw, and posture all you want but you can't set the ultimate value of any of this.
I don't get why people can't wrap their heads around this. Is uncertainty that hard? I take 1000 mortgages in OC and put them in a tranche. Based on models of the past I figure out what the average default rate is, when they will be paid off, etc etc and then plug this all in and put a value on the cash flows. The model turns out to be wrong. Now the model says something different. It was different 3 months ago. It will be different 6 months hence as reality catches up. What's the tranche worth? NO ONE KNOWS.
These ARE schrodinger's investments my friend. Does that bother you? It should, but not for the reasons you're putting out here. So put on your don't panic button and learn to love the Fed. They're all you've got now, and they stand between catastrophe and recovery.
ipodius -
Nobody knows what IBM's equity is going to be priced at 6 months from now either. Or what U.S. Treasuries are going to be priced at either. That doesn't stop the market from setting a price.
The problem here is that the banks and dealers can't handle the market price, so the Fed is bailing them out by loaning them money or treasuries at above the collateral's market price.
I have never argued (as some here have) that we ought to have just let the system fail. But the Fed is bailing banks out left and right. And this and their other actions will ultimately be inflationary, as they no doubt fervently hope.
Of course, as bond guy points out above, first we have the little problem of a recession to get through.
Did they report the income from the boarders to the IRS?
Calc Risk, can we have a chart that shows the housing bubble against downpayment needed? Seat of the pants says bubble = lousy mortgages but I think there's proof to be seen. And if the chart goes back enough we might be able to judge late 80's ARMs against that run-up and decline...
What happens when people realize that the house is only worth about $200,000? Talk about things getting "interesting!"
I am one of those (well) over 45, and our house is paid for (in Westchester, CA) and we have no plans to refinance, heloc, sell or move. We like it here.
My question: In this situation, how can we take advantage of all the money being tossed at those less fortunate:)
mjc | 05.03.08 - 7:36 pm |
You can die, you ex-wife can get the house in ghetto westchester and she and her ex-landscapper/new man won't have to pay a death tax.
You're welcome.
I can't believe nobody has pointed out yet that on the front page of the OC PDF article, the self proclaimed real estate expert Jonathan Lanser predicted the median home price to reach 1 million.
Housing always goes up, right?
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