"PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble."
Considering how shaky loan practices have been, I'd be surprised if only $1 trill of a $5 trill pool went south.
Is he still short treasuries and long GSEs? If so that's been a disastrous trade up to this point.
I've never heard somebody talk their book so much as Bill and as far as I'm concerned he's the poster child for corporate socialism.
Basically if taxpayer dollars are going to be used to boost the value of Fannie and Freddie bonds, a good chunk of that money is going straight into Bill's pocket.
Again, I think it gets to the point where the financial industry extends so far beyond it's useful size that it becomes one giant economic and social parasite.
What are these guys really doing to make people's lives better?
He wants you retarded boobs and boobers to drive the price down of bonds, so that ... yah, I hear yah, yah, Gross wants to buy more bonds that are being driven down in value, because of what, huh, because, because, Gross wants yields to go down so that the price will go up, which does what -- it allows him to sell one package of yields for another and this guy, this Gross, he aint selling, he's buying and selling and he loves your misery in being caught in a web that he profits from! He's nothing but a dumbass retarded spider caught in a web that will implode -- having yah ever seen a spider caught in its own web, huh, huh...punk, have yah -- take a look at Gross trying to get in position!
My back of the envelope figuring last Oct was half a trill to a trillion and a half. The figures have gone up, up, up. I think we'll reach my upper bound soon. I posted my back of the envelope method some threads down.
If I, with some common sense, but not any knowledge of financial calculating, came to this conclusion 9 months ago, why should we think that the media crew are anything other than fraudsters? Why should we
read them at all?
I don't think his funds can short, but he did load up on GSE debt.
Lately, I find his commentary a little muddled. He calls for some kind of massive bailout but it's hard to tell what he has in mind. I think he finds himself in a box because he insists home prices need to be supported, but there is clearly no way of doing it in real terms.
It's either massive inflation, or take our medicine.
"Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns stop going down in price and then to make them go up again. "
Bright guy, but this shows that he doesn't get it at all, whether through ignorance or willful idiocy.
I read The Trillion Dollar Meltdown over the 4th weekend. It was a good read, and explained some things that hadn't been clear.
Things you don't learn in school like how do you get tranches. (chemical engineering schools at least.)
My comment really is
1- I recommend the book
2- The Trillion dollar mark has been floating around for a while between the book, Roubini, CR's estimate, and
3- It has been denied and sunshined away by those who would know if its true.
we're coming around to acceptance and where $1T is becoming the center of the range rather than the crazy outlier. Who's the out-liar now?
((The book BAD MONEY is nowhere near as easy to read/follow and plagued with parentheticals, it seems to me.))
Whew, that was weird, but to wit, negative feedback is like back flushing a toilet while Katrina is flooding your street, i.e, unlike re-arranging deck chairs on a sinking mega boat, we have, well, well shit, you fill it in, you started this..
"Again, I think it gets to the point where the financial industry extends so far beyond it's useful size that it becomes one giant economic and social parasite.
What are these guys really doing to make people's lives better?"
Naked Capitalism reported a study by Ray Dalio of Bridgewater Associates, the 2nd largest hedge fund, estimating total banking (IB and Commercial Banks) losses from all sources for the cycle at 1.6 trillion (this includes leveraged loans, CRE, credit card, auto, student et al) as well as residential (sub prime, alt A and prime)
What cost Sic Million in 1973 would cost $29431613.82 in 2007.
Also, if you were to buy exactly the same products in 2007 and 1973, they would cost you $6000000 and $1257423.40 respectively.
Reflector: I think it's more like when superman tries to reverse the spin of the earth while water is draining counterclockwise down the toilet as Dolly begins to reverse engineer herself. (as long as we're being silly). Come to think of it, I have seen you before.
I don't trust Gross. He might be brilliant and knows exactly what he is doing, but I left his fund awhile back. Something about him gets my Spider senses tingling.
.
Uncle Billy Vs. Mt. Pelerin writes: Well it's a feedback loop. And it's negative because it's bad, right?
A feedback loop is one in which the output affects the input.
It is negative feedback when the affect of the feedback is to decrease the change in the input - such as your thermostat and furnace - it gets cold, the thermostat turns the furnace on and wrms up the house, which makes the thermostat turn off the furnace.
It is positive feedback when the feedback increases the change in input in the same direction - so: house prices go down, causing foreclosures, causing banks and builders to drop house prices even lower. Or: house prices drop, causing transaction fees and taxes to the cities/states to drop, causing the cities/states to cut spending and/or employment, causing demand for houses to drop, causing house prices to drop. Those are positive feedback loops with a decidedly negative result.
We're seeing a lot of these today, with potential for more. That's why this can get so bad in a hurry.
bulls on parade, this has gotta be the biggest shopping spree ever for the elitists, they're gonna get all this for next to nothing - three years time you'll be able to get 18% on a CD when they increase the value of the dollar, oops their dollar
.
Uncle Billy Vs. Mt. Pelerin said: Bob, that's why engineers should be running the economy, not economists. I think they've got the engineers at the quant funds.
If only.
No, I think they have mathematicians at the quants - whole different ball of wax: "2 + 2 = 5, for large enough values of 2" - plus the assumption that stuff this complicated can be understood well enough to model mathematically.
It's going to be between 2-3 trillion and Gross is talking his book and want his ass bailed out just like the rest of these scumbags on Wall Street. I can think of a lot more colorfull things to say about that ass wipe but I shall refrain.
Well it's a feedback loop. And it's negative because it's bad, right?
Technically speaking, there is a difference between how engineers use the term "negative feedback" and how it's used in the financial world.
For engineers, negative feedback is a good thing -- it keeps the system stable -- while positive feedback as bobn explains is bad because the system becomes unstable.
It is the exact opposite of how Gross uses it.
Is it not a coincidence that $1 Trillion is becoming the "motto" of the next decade for Bill Gross has already addressed "President Obam" as "The Trillion Dollar Obama" in his recent Economic Outlook at PIMCO's website.
The one or two trillion dollar loss to the US economy is painful to think about but it is comprehensible when compared to a $9 trillion national debt and $17 trillion GNP. Here is something that I do not understand.
This is the credit default swap marker of $500 trillion. One of the reasons I heard that Bear-Sterns needed to be bailed out was that they had $15 trillion in play in this market and if they defaulted on all of their positions, is that it could have had repercussions in the real economy. Presumably these CDS bets are private and between consenting adults
and should not impact the real economy.
cr -- the thing i don't understand is how gross proposes to manufacture a halt to price declines.
prices were set in a period of solvent banks and GSEs -- so nationalizing the lot and recapitalizing them a la sweden 1994 is the step he seems to be advocating as a "solution".
but -- and please correct me if i'm wrong -- the requisite is not only recapitalizing the system with treasury debt (ie, chinese central bank capital) but getting the system to return to its old ways. providing the capital isn't enough; they'd have to use it, and in a similar fashion to 2005. this means sparking up the originate-to-distribute model, the shadow banking system, et al -- all the things that would push credit pricing and availability back to 2005 levels.
gross knows that cannot happen. so isn't he really suggesting that the GSEs be nationalized and made to replace the old originate-to-distribute mechanisms by policy fiat? this means not only backstopping the GSEs existing obligations but turning them into one a far more titanic public subsidy than it already is -- essentially using the reputation of the treasury to undercompensate chinese/petrodollar investors and pass on the discount to american mortgagors. that sound like nothing so much as an excellent way to spark the run on the american treasury that so many live in fear of -- turning a big problem into an unsolvable one.
As many here have already pointed out, $1 Trillion in losses on $5 Trillion in bad loans is an unrealistically LOW estimate, not a "worst case".
Casey Serin "buys" a $150k house at bubble's peak for $450k in the CA central valley using 108% LTV neg-am wonder, with closing costs and buyer "instant equity" (quasi-legal kick-backs) baked in. Balance is already $486k on Day 1, before the negative amortization really kicks in.
By the time Snowflake hands the keys back 1-2 years later, he owes at least $500k, not including legal costs, damage from squatters, neglect, etc. House is back on market for what is owed to the lender, and sits.... By the time the lender wises up and prices to sell, it's back down to $150k (supported by local incomes and rents). And it sells.
Estimated loss for the lender: $350k, or 70% Multiply a few million times and... you quickly see why $1 Trillion will be an absurdly LOW estimate.
I am interested in the variance of the estimates of losses over time, that is an indication an end point. Loss estimation will reach the normative residual error rate, and the bubble has moved on.
Future value estimates would follow the dynamics of a linear predictor after a shock.
Gross can just kiss my blank, sorry to contribute so little intellectually, but after sending his minions out for almost a year, whining for taxpayers to bail out his errors, he gets his pie this weekend,
I can do nothing more, I am betrayed by congress and all i asked is that i not hear his name for a week or so,
I know, but I still think 20% is far too optimistic. Wasn't there a post here a couple days ago showing that ~50% of non-performing loans were concentrated in CA & FL?
A Trillion $ loss in a 17T economy should be survivable. It is like I earn $100K p.a. and suffer a $6000 catastrophic loss. But my gut feeling is this is worse than that. Economically, I think, USA will resemble UK when this is all over. (A hallowed out and poorer economy).
Easy credit got us into this mess, and now to get us out of it Mr. Gross wants more easy credit. Granted, Mr. Gross is a smart man, but even smart (or even brilliant) men can make unwise choices.
ONE Trilllllionnnnn Dollars.....
He's just pumping his position as usual!
Thanks Dr. E
"PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble."
Considering how shaky loan practices have been, I'd be surprised if only $1 trill of a $5 trill pool went south.
But... we'll know next year.
Gross is late to the party. One trillion has been Roubini's lower bound for quite some time now.
Mohamed El-Erian fears as a negative feedback loop.
It's a POSITIVE feedback loop, Mohammed.
I still think $1 trillion in mortgage losses is pretty much the worst case.
CR, OK, but what if you add in CRE losses, credit card losses, LBO losses, and for the UK banks, mortgage and CRE losses there?
Is he still short treasuries and long GSEs? If so that's been a disastrous trade up to this point.
I've never heard somebody talk their book so much as Bill and as far as I'm concerned he's the poster child for corporate socialism.
Basically if taxpayer dollars are going to be used to boost the value of Fannie and Freddie bonds, a good chunk of that money is going straight into Bill's pocket.
Again, I think it gets to the point where the financial industry extends so far beyond it's useful size that it becomes one giant economic and social parasite.
What are these guys really doing to make people's lives better?
It's not even a very good parasite, because in this case it appears likely to kill its host.
Gross isn't selling, Gross is buying!
He wants you retarded boobs and boobers to drive the price down of bonds, so that ... yah, I hear yah, yah, Gross wants to buy more bonds that are being driven down in value, because of what, huh, because, because, Gross wants yields to go down so that the price will go up, which does what -- it allows him to sell one package of yields for another and this guy, this Gross, he aint selling, he's buying and selling and he loves your misery in being caught in a web that he profits from! He's nothing but a dumbass retarded spider caught in a web that will implode -- having yah ever seen a spider caught in its own web, huh, huh...punk, have yah -- take a look at Gross trying to get in position!
So a trillion in losses marks the bottom?
My back of the envelope figuring last Oct was half a trill to a trillion and a half. The figures have gone up, up, up. I think we'll reach my upper bound soon. I posted my back of the envelope method some threads down.
If I, with some common sense, but not any knowledge of financial calculating, came to this conclusion 9 months ago, why should we think that the media crew are anything other than fraudsters? Why should we
read them at all?
I don't think his funds can short, but he did load up on GSE debt.
Lately, I find his commentary a little muddled. He calls for some kind of massive bailout but it's hard to tell what he has in mind. I think he finds himself in a box because he insists home prices need to be supported, but there is clearly no way of doing it in real terms.
It's either massive inflation, or take our medicine.
I'll take the medicine if Currently Smoking Cannabis will share.
"Why should we
read them at all?"
Because the more we do the more they make, and per trickle-down theory, the better off we are. Doncha see?
What Lionel said. People misunderstand the feedback loop concept. It is a positive not a negative feedback loop.
Well it's a feedback loop. And it's negative because it's bad, right?
"Back in the U.S., the Calculated Risk blog sidestepped the colorful language. . . "
Aw, fame. . .
The money quote:
"Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns stop going down in price and then to make them go up again. "
Bright guy, but this shows that he doesn't get it at all, whether through ignorance or willful idiocy.
Oh my freakin' goodness ...
now BARNS are dropping, too?!
If this has already spread into the collateralized obligations/barns ("Cobs") market, there really is no stopping it now ..
Where will it all end?
I read The Trillion Dollar Meltdown over the 4th weekend. It was a good read, and explained some things that hadn't been clear.
Things you don't learn in school like how do you get tranches. (chemical engineering schools at least.)
My comment really is
1- I recommend the book
2- The Trillion dollar mark has been floating around for a while between the book, Roubini, CR's estimate, and
3- It has been denied and sunshined away by those who would know if its true.
we're coming around to acceptance and where $1T is becoming the center of the range rather than the crazy outlier. Who's the out-liar now?
((The book BAD MONEY is nowhere near as easy to read/follow and plagued with parentheticals, it seems to me.))
Re: feedback loop??
Deja vu, have I been here Uncle B, or WTF? I know I've fuc-ing been here and it was maybe not with you, but I was here, wasn't I? Oh yes: Closed timelike curve - Wikipedia, the free encyclopedia
Whew, that was weird, but to wit, negative feedback is like back flushing a toilet while Katrina is flooding your street, i.e, unlike re-arranging deck chairs on a sinking mega boat, we have, well, well shit, you fill it in, you started this..
"Again, I think it gets to the point where the financial industry extends so far beyond it's useful size that it becomes one giant economic and social parasite.
What are these guys really doing to make people's lives better?"
so true !
Naked Capitalism reported a study by Ray Dalio of Bridgewater Associates, the 2nd largest hedge fund, estimating total banking (IB and Commercial Banks) losses from all sources for the cycle at 1.6 trillion (this includes leveraged loans, CRE, credit card, auto, student et al) as well as residential (sub prime, alt A and prime)
FYI, the six million Dollar Man is now worth:
What cost Sic Million in 1973 would cost $29431613.82 in 2007.
Also, if you were to buy exactly the same products in 2007 and 1973, they would cost you $6000000 and $1257423.40 respectively.
YouTube - Six Million Dollar Man & Bionic Woman clips
"It's either massive inflation, or take our medicine."
Massive inflation is to societies as concentrated acid is to organic tissue.
Dissolution of social bonds, and anything may happen.
Reflector: I think it's more like when superman tries to reverse the spin of the earth while water is draining counterclockwise down the toilet as Dolly begins to reverse engineer herself. (as long as we're being silly). Come to think of it, I have seen you before.
I don't trust Gross. He might be brilliant and knows exactly what he is doing, but I left his fund awhile back. Something about him gets my Spider senses tingling.
.
Uncle Billy Vs. Mt. Pelerin writes:
Well it's a feedback loop. And it's negative because it's bad, right?
A feedback loop is one in which the output affects the input.
It is negative feedback when the affect of the feedback is to decrease the change in the input - such as your thermostat and furnace - it gets cold, the thermostat turns the furnace on and wrms up the house, which makes the thermostat turn off the furnace.
It is positive feedback when the feedback increases the change in input in the same direction - so: house prices go down, causing foreclosures, causing banks and builders to drop house prices even lower. Or: house prices drop, causing transaction fees and taxes to the cities/states to drop, causing the cities/states to cut spending and/or employment, causing demand for houses to drop, causing house prices to drop. Those are positive feedback loops with a decidedly negative result.
We're seeing a lot of these today, with potential for more. That's why this can get so bad in a hurry.
Hmm... $1Trillion in losses should look good added on to the public debt and Joe taxpayer.
Bob, that's why engineers should be running the economy, not economists. I think they've got the engineers at the quant funds.
Re: Come to think of it, I have seen you before.
Yes, but where?
Tell the truth, CR.
You never imagined FNM or FRE going down for the count, did you?
hee hee hee
Something about him gets my Spider senses tingling.
First it was the stache. And now, the lack of it.
bulls on parade, this has gotta be the biggest shopping spree ever for the elitists, they're gonna get all this for next to nothing - three years time you'll be able to get 18% on a CD when they increase the value of the dollar, oops their dollar
.
Uncle Billy Vs. Mt. Pelerin said:
Bob, that's why engineers should be running the economy, not economists. I think they've got the engineers at the quant funds.
If only.
No, I think they have mathematicians at the quants - whole different ball of wax: "2 + 2 = 5, for large enough values of 2" - plus the assumption that stuff this complicated can be understood well enough to model mathematically.
A bit OT:
Does anybody know why CR and Roubini think we're looking at recession rather than depression?
Frankly, if the world decides we're no longer AAA, don't we have an L-shaped recession, a permanent lowering of living standards?
It's going to be between 2-3 trillion and Gross is talking his book and want his ass bailed out just like the rest of these scumbags on Wall Street. I can think of a lot more colorfull things to say about that ass wipe but I shall refrain.
PWN3D.
Things you don't learn in school like how do you get tranches. (chemical engineering schools at least.)
I think you guys call them aliquots.
Well it's a feedback loop. And it's negative because it's bad, right?
Technically speaking, there is a difference between how engineers use the term "negative feedback" and how it's used in the financial world.
For engineers, negative feedback is a good thing -- it keeps the system stable -- while positive feedback as bobn explains is bad because the system becomes unstable.
It is the exact opposite of how Gross uses it.
Is it not a coincidence that $1 Trillion is becoming the "motto" of the next decade for Bill Gross has already addressed "President Obam" as "The Trillion Dollar Obama" in his recent Economic Outlook at PIMCO's website.
USD 1 trn of mortgage losses would IMO mean total losses of well over USD 2 trn, inc. consumer credit, LBO, etc.
The figure is likely to be closer to 2 trillion. 1.8 or 1.9 trillion.
Good news is that this write down is likely to firm up the US dollar in the process. A costly process to our citizens.
shanondoah writes:
Gross is late to the party.
One trillion has been Roubini's lower bound for quite some time now.
shanondoah | 07.24.08 - 2:45 pm | #
I don't work in this industry but I agree with this number is to low.
jo6pac
USD 1 trn of mortgage losses would IMO mean total losses of well over USD 2 trn, inc. consumer credit, LBO, etc.
Re: feedback loops
I think the modern term for a technically positive feedback loop that has negative consequences is an Adverse Feedback loop
.
.
.
or clusterf$%K
as you prefer
It was a positive feed back loop on the way up. And, it's a positive feed back loop on the way down. Only this time the numbers are negative.
The one or two trillion dollar loss to the US economy is painful to think about but it is comprehensible when compared to a $9 trillion national debt and $17 trillion GNP. Here is something that I do not understand.
This is the credit default swap marker of $500 trillion. One of the reasons I heard that Bear-Sterns needed to be bailed out was that they had $15 trillion in play in this market and if they defaulted on all of their positions, is that it could have had repercussions in the real economy. Presumably these CDS bets are private and between consenting adults
and should not impact the real economy.
Can anyone explain what is going on here?
cr -- the thing i don't understand is how gross proposes to manufacture a halt to price declines.
prices were set in a period of solvent banks and GSEs -- so nationalizing the lot and recapitalizing them a la sweden 1994 is the step he seems to be advocating as a "solution".
but -- and please correct me if i'm wrong -- the requisite is not only recapitalizing the system with treasury debt (ie, chinese central bank capital) but getting the system to return to its old ways. providing the capital isn't enough; they'd have to use it, and in a similar fashion to 2005. this means sparking up the originate-to-distribute model, the shadow banking system, et al -- all the things that would push credit pricing and availability back to 2005 levels.
gross knows that cannot happen. so isn't he really suggesting that the GSEs be nationalized and made to replace the old originate-to-distribute mechanisms by policy fiat? this means not only backstopping the GSEs existing obligations but turning them into one a far more titanic public subsidy than it already is -- essentially using the reputation of the treasury to undercompensate chinese/petrodollar investors and pass on the discount to american mortgagors. that sound like nothing so much as an excellent way to spark the run on the american treasury that so many live in fear of -- turning a big problem into an unsolvable one.
As many here have already pointed out, $1 Trillion in losses on $5 Trillion in bad loans is an unrealistically LOW estimate, not a "worst case".
Casey Serin "buys" a $150k house at bubble's peak for $450k in the CA central valley using 108% LTV neg-am wonder, with closing costs and buyer "instant equity" (quasi-legal kick-backs) baked in. Balance is already $486k on Day 1, before the negative amortization really kicks in.
By the time Snowflake hands the keys back 1-2 years later, he owes at least $500k, not including legal costs, damage from squatters, neglect, etc. House is back on market for what is owed to the lender, and sits.... By the time the lender wises up and prices to sell, it's back down to $150k (supported by local incomes and rents). And it sells.
Estimated loss for the lender: $350k, or 70% Multiply a few million times and... you quickly see why $1 Trillion will be an absurdly LOW estimate.
I am interested in the variance of the estimates of losses over time, that is an indication an end point. Loss estimation will reach the normative residual error rate, and the bubble has moved on.
Future value estimates would follow the dynamics of a linear predictor after a shock.
Gross can just kiss my blank, sorry to contribute so little intellectually, but after sending his minions out for almost a year, whining for taxpayers to bail out his errors, he gets his pie this weekend,
I can do nothing more, I am betrayed by congress and all i asked is that i not hear his name for a week or so,
HARM, not everywhere is as crazy as CA and the scope of losses won't be as high.
Still high, mind you. Just not that high.
@George,
I know, but I still think 20% is far too optimistic. Wasn't there a post here a couple days ago showing that ~50% of non-performing loans were concentrated in CA & FL?
A Trillion $ loss in a 17T economy should be survivable. It is like I earn $100K p.a. and suffer a $6000 catastrophic loss. But my gut feeling is this is worse than that. Economically, I think, USA will resemble UK when this is all over. (A hallowed out and poorer economy).
Easy credit got us into this mess, and now to get us out of it Mr. Gross wants more easy credit. Granted, Mr. Gross is a smart man, but even smart (or even brilliant) men can make unwise choices.