Case Shiller: Real National Prices Decline to Q4 2002 Levels
Submitted by
CalculatedRisk on Tue, 08/26/2008 - 7:40am (146 comments)
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1992
Do I hear 1992?
Does PCE count money borrowed for consumption (e.g., credit card purchases)?
ALT A is wave is coming next year. More bank writedowns still to come. I don't think renters should should even bother looking before 2010. At that point all most of the downside risk should have disappeared from housing. After 2010, housing prices should be flat for a bit.
So, I think, except in isolated circumstances, what you are saying is it is way too early to buy. I agree.
WAPO
Federal Diary
Where the Hiring is Hot
Joe Davidson - Where the Hiring Is Hot - washingtonpost.com
Hmmmmmm. Nice flat region between 94 & 97 @ about 110 on the index. Current number = about 155.
Still to come = 30% in real terms. And that's assuming no overshoot, which I think is a bad assumption.
CR,
I totally agree with your housing forecasts. What is driving me nuts is how come you are not translating that into a more severe recession call.
Case/Schiller takes into account prices, however it does not take into account the result from a much tighter credit market. Fannie and Freddie bailout is not there either. There is a possibility that a bail out by the govt, which seems inevitable at this point, could cause a spike in mortgage rates for the short term. About 1 year. The Case/Schiller doesnt take this into account.
I have heard from different Fund Managers that a spike could go as high as 12-13 percent. I wouldn't think a spike would go that high, however, I could see us hitting the long term avg in mortgage rates of about 8%.
So stimulus pkg and expectation of bailouts keeps the party going? This might get ugly.
Brian23,
I think the Freddie/Fannie bailout is too big for this admin. to push through and rightfully so. They will wait for the next admin. to solve it. Paulson and Co. will try to kick the can down the road until then.
Inflation 10%/yr plus home price declines of 10%/yr and we can expect a bottom in 2010. 5% & 5% and not until 2014. I can only conclude that inflation is a necessary component in the Fed's secret plans to unwind the housing asset bubble.
The ratings agencies fired a shot across the GSEs' bow with the recent downgrades. Another puts them into junk ratings on prefs, which is where they should be. Tsy has to clarify their intentions or no one will help FRE/FNM. Bush and cronies caused this mess and suck it up and deal with it.
tyaresun -
I agree. I think the next administration will have to deal with it. Nothing before November. Thats a definite. Again, once the bailout comes in, we could see a spike in rates next year. This will put downward pressure. Plus, my own view is that inflation will not subside enough and they will raise rates around 1Q 09. Nothing will happen before the election.
ot, graph, live
wanna take a ride?
24 Hour Gold Chart - Last 3 Days
gold swoons 12 and jumps 2wice that in 6 hours
CR -- Thanks for posting the inflation adjusted graphs!
Thanks. I'm with you on the 2010 and am one of the renters just waiting for the dust to settle before reinvesting in a home. There is just too much uncertainty out there. The election winner will have some effect, too.
OT: San Diego Business Journal Online - business news for San Diego, California
Banks Striving to Counter Slew of Problem Loans
Tactics Include Bolstering Reserves, Selling Property
By MIKE ALLEN
San Diego Business Journal Staff
Two more local banks are feeling the pain from the rising numbers of problem loans.
Discovery Bancorp reported holding nearly 6 percent in problem loans as of June 30. Discovery said July 25 that it sold its headquarters building in San Marcos and is leasing back the space from the new owner, Windsor Projects, to increase its liquidity and capital base.
Meanwhile, San Diego-based Imperial Capital Bank, with about 3.4 percent of its assets classified as nonperforming, signed a memorandum of understanding Aug. 8 with its regulators to make certain changes to operations following a recent bank examination.
Most banks attempt to keep their problem loans below 1 percent of total assets.
Discoverys sale of its 27,000-square-foot building for $8.4 million gave the community bank a pretax gain of $2 million, which the bank will use for new loans and to improve its liquidity, says Chief Executive Officer Frank Mercardante.
We would have done this in the best of times or the worst of times. Its done all the time, he said.
"It's done all the time." (Especially in the last 6 months) LMAO
A drop in real terms will weigh more in nominal terms as inflation is decelerating fast. A 20% real drop could bring prices down more nominally than the already passed 25%. I also see Phoenix is leading the pack down month over month.
O-Joe
Here in Taos all the Million dollar homes are selling for around $700,000.
Taos writes: "Here in Taos all the Million dollar homes are selling for around $700,000."
Then they ain't million dollar homes.
Kinda silly to take on Shiller, but I must continue to point out...
Just your silly west coast state college MBA.
Paulson and Co. will try to kick the can down the road until then.
I don't think so, Hanky Panky is going to get his buddies set up to make out like bandits on this deal. This will likely be the next stock market prop probably next month on the Wednesday before options expiration to force a short covering rally as that seems to be the pattern with these clowns. Dem's have just as much or more reason to support a bail-out so I don't think that will be much of an obstacle as they are the socialist party.
OT, but can anyone figure out if this play by LEH is anything more than deck-chair rearrangement?
Lehman May Form New Company to Buy Mortgage Assets (Update1) - Bloomberg.com
If the above report by Bloomberg is true, then I'm convinced that LEH demise is imminent. It just sounds desperate.
gold swoons 12 and jumps 2wice that in 6 hours
Looks like some hot bear trapping action.
CR- I ran a comparison of Bubble hot zone (CA, FL, AZ and NV) Case-Shiller numbers vs the rest and there were some big differences. The Hot Zone is off 30% in nominal terms from the peak on average (not-weighted) and 14% YTD. The Rest are down 10% from peak and 2% year to date.
So my question is how does one balance the importance of the disaggregated numbers compared to the national numbers. I would assume there is both the potential for regional divergence in economic performance as well as significant 'contagion.' In other words, are we all Los Angelenos now?
Test, test
On inflation, Gault said he believes the CPI inflation has peaked, and will come down given falling oil prices, and easing in other commodities. Core PCE, however, is expected to be more "stubborn," and will continue to remain above the Fed's target rate of 2% "for some time."
As such the Federal Reserve is likely to keep rates on hold until June 2009. "We don't think the Fed would want to take the risk of raising rates while the economy is so fragile," he said.
On the housing front, Global Insight's housing economist Patrick Newport said, "we're still in deep recession," though he noted there are now some signs of a turnaround ahead.
Newport said the downturn in housing starts, which continued to fall in July, still has several months to go due to continued credit problems, job losses and rising foreclosures.
Existing home sales, meanwhile, are likely to drop another 10-15% with a rebound possible in early 2009, Newport said.
Unemployment Rate Jumps To 26-Year High Of 9.7%
dawg-
Are you trying to kill the dems. voter base??
I don't think you can have enough beer to get through 15 minutes of it.
Ciao
MS
Circuit City watch. $1.60 today new all-time low.
Just 60 cents to delisting.
It would seem that the time is past for anyone to acquire CC.
No Xmas for them. Maybe not much merchandise on the shelf.
Lots of vacant retail CRE coming to a town near you soon. Flat screen sales, too!
What Do Alternate Measures Say About Consumer Inflation, and Why?
What Do Alternate Measures Say About Consumer Inflation, and Why? -- Seeking Alpha
Second, the personal consumption expenditure deflator shows a pattern very similar to that of the chained CPI, despite the fact that what is measured, and at what prices, differs. Recall, the PCE deflator measures costs of consumer goods and services produced by suppliers, but not not necessarily that consumers face. Think medical care,for instance, where consumers do not face the full costs of the goods and services produced. In addition, the shares of each component differ between the PCE and CPI.
jp-
They, LEH, are trying to get something anything done before the qtr. ends. And you are correct it is desperate and amounts to nothing more then it's R3 "arrangement" of precisely the same time frame...at the qtr end.
YouTube - Nearer My God To Thee
"it's the end boys"
Ciao
MS
The bottom line I take from this: there's no doubt that inflation rates are rising. And the standard CPI is rising more than the chained CPI and the PCE deflator, in part because of its quasi-Laspeyres nature
Why just a 15-25% drop? Seems to me that prices will have to drop about 33% in real terms to completely revert to the long term mean.
Personally, I suspect that prices might well shoot below the long term mean (100) due to ongoing credit tightening and the psychology of a bust.
Just like core CPI, we expect the PCE core deflator to have gone up by 0.3% mom again in July: medical care costs have quite an impact and the prices of prescription drugs rose noticeably. The annual rate is likely to have risen to 2.4% well above the Feds comfort zone of 1-2%. We envisage the annual rate declining at the end of the year, but it is not likely to fall below 2.2%. Due to the economic weakness, however, the PCE core deflators annual rate could enter the comfort zone again next year...
PCE core deflator (July): well above the Fed's comfort zone
kicking the can down the road is the hopeful view. Grab what you can, because the party is clearly over - is more likely
I think forecasting the nominal price declines for nation and various regions is more important than real price declines. That's simply because the economy (GDP) ultimately runs on nominal cash flow - and if nominal GDP can't get its head about 3.0% for longer than a quarter here and there, we're in for some serious deflationary trouble.
Latest on Fed Minutes:
2:00 Fed's Fisher worried that firms will raise prices
2:00 Fed majority did not view 2% funds rate as overly easy
2:00 Fed's Fisher worried that firms will raise prices
2:00 Fed majority did not view 2% funds rate as overly easy
2:00 Some on Fed argued for quicker hikes than market now thinks
From Housing Wire:
"leveraged purchases of Freddie debt that could be flipped to the Fed for nearly-guaranteed profit:
Heres how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Feds Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around). At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is this close to being explicitly backed by the Treasury Department. Not a bad deal at all."
It's an outrage!
Huh? This seems contradictory to say the least: Fed majority did not view 2% funds rate as overly easy . . . Some on Fed argued for quicker hikes than market now thinks
Is hiking in your frame of mind or what?
Milkman, PCE is money spent - no matter the souce. It can be from income, borrowed, from selling assets - it's just money spent.
tyaresun, sure, the numbers are grim. It looks pretty sure that CRE investment will fall, that PCE will decline, that the global economy is slowing down with many economies entering recession, and on and on ... and there is no question that it could get really ugly.
But we have to remember that the key to long term economic growth is innovation - not just technology, but process. And we are in an innovation boom. The credit crisis / housing bust is a long slow drag on an economy that would otherwise be growing pretty well (not because of policies - those are poor IMO, but because of innovation).
These is much more - and I'll write about it in September after my trip. I've been working out 4 to 5 hours a day getting ready for this hike, and I'm running out of time every day!
Best Wishes.
CR,
No really, keep up the good work. Have a wonderful afternoo
Anonymous writes:
dawg-
Are you trying to kill the dems. voter base??
I don't think you can have enough beer to get through 15 minutes of it.
This refers to my Democrat Convention Drinking Game (2008 ed.) [click Homepage below]
Sorry for the blog spillover. As to the question; "Are you trying to kill the dems. voter base??"
They are doing a fine job all by themselves.
Seriously and on topic. I don't see any political sensitivity on any side as to the danger the entire economy faces from housing sector so dramatically spilling over into the consumer numbers.
2% is not overly easy???
Good Gahd!!
This is double-speak for continued lowering.
Fed rates will be at .5% by this time next year.
Ciao
MS
Dawg
Can you explain how inflation of 10% is german to anything? Inflation only helkps house prices if it is baked into wages. If people's costs are going up for everything but wages remian supressed, then it is a rediculous argument to suggest that inflation is a way out of the housing situation. I don;t get why this is so hard for people to understand. If you are calling for a wage price spiral then maybe. but iof you are not, inflation does nothing but exporpriate the little saving you have. by the way if inflation was really 10% that would have to mean higher rates. So you are doubly bent over if that is indeed what is in the cards (actually already happening). While they inflate your pruchasing power away they take your savings with it. In another era interest rates had two components nominal and real. No longer. also if you subscribe to the inflation is everywhere and always a monetary deal, then you ignore velocity. Also, the endgame for higher inflation is higher rates (theory tells us that) whcih means lower prices as those monthly payments go up. So right about that time that price delcines bottom, rates will start to rise and put more pressure on prices (as the wage arbitrage isn;t going away). in short, every forecast heretofore has been rosy. This one will be also.
CR, going back to your "smackdown" of Jas Jain, I have to agree that you're much too optimistic about our current situation.
Even the mainstream media has used the "D" word. They acknowledge that without all the extraordinary (re)actions by the government, we would be in a depression.
Take this, for example:
UK seems set for a recession and must hope to avoid a depression - Telegraph
The timing on Jas' prediction was wrong, but his diagnosis may still be right. I, for one, cannot believe that someone with your expertise believes we will merely see a mild recession. We have all the agency debt, worst housing market since the GD, credit crisis, insolvent banks, falling dollar, etc. And we're only in the early innings.
CR - thanks for the simple truth - all the rest is just duct tape on the house of cards!
PCE = CC debt
Once the GSE's buckle, rates march skyward.
CCs usage gets tougher.
Shit gets introduced to fan.
The good news is that we are almost halfway through. Too bad the same things can't be said for the banks.
Fed rates will be at .5% by this time next year.
Wouldn't be surprised. As unemployment goes up and the threat of wage pressures eases look for the Fed to continue to lower agai
I'm not sure Jas was really slapped down, I think he is just down and will return and I hope CR is ready for the knock out punch
I have a theory why PCE is higher than it should and why I don't think we'll see a repeat drop off in PCE of 1990s.
I think that has to do with the fact that Inflation Index has become distorted since 1990 happened.
If you imagine that real inflation is running higher than what the official numbers are saying, and that some of the inflation growth remains even after attempting an "inflation adjustment" on PCE, then the PCE figures of recent years will get inflated, This is the "bleed through" effect of actual inflation due to insufficient adjustments.
In this perspective then, reported real PCE may not decline by much. In the real world purchasing power has dropped and real-world PCE if you used correct inflation values would show it dropped, but in official PCE stats, it would seem that consumer spending held up in real terms.
I, for one, cannot believe that someone with your expertise believes we will merely see a mild recession.
Considering the fact that, as of yet, we're still not officially in recession and GDP has not gone negative, I can't believe you'd bandy about the "d" word.
There are some large problems, but looking at the numbers we've been weathering the storm. If commodities and oil keep declining through the fall, and the credit markets can stabilize somewhat, it will keep us stumbling forward into next year.
What bothers me is that where is all the extra money to hold up PCE coming from?
So all necessities are more expensive, esp less-negotiable things like food, rent, medical and gas and taxes.
What I don't get is where is the money to pay for these increases coming from?
I didn't get a 25% raise. Maybe everyone else on the blog did.
So no increases in income yet I get to spend more on top of a 2 year decline in Real Estate? Where's the money coming from??? Did we suddenly get a whole lot of underground economy?
Isn't this the key part of fed minutes?
Fed staff now sees slow growth lasting until Q3 '09
Weren't they forecasting a uptick in 08 qtr 4 and 09 Qtr 1?
and the threat of wage pressures eases look for the Fed to continue to lower again
The Fed isn't lowering again. To do so would light inflationary fires even more than they already have. And the dollar needs to stabilize and rise a bit, which will happen naturally as the Eurozone has come to a screeching halt (thanks to Trichet's policies, even though I'm sure he'd blanch at the thought of helping us out).
So the Fed is going to talk tough as core stays stubbornly higher than they want, but headline goes down. In fact at this point the Fed doesn't have to do much of anything. Other factors are going to help us out...like the rest of the world hitting the skids, the ECB lowering, and oil going back below 100 soon. Just in time for the election, btw.
might the quant funds be trading on a false seasonal pattern assumption ?
oil going back below 100 soon
Never going to happen. Ever. IMO.
ipodius --
Other factors are going to help us out...like the rest of the world hitting the skids
So a global recession is going to "help us out"?
Out of what?
CR,
Thanks for the reply. Will partcilularly look forward to your Sept. post. Enjoy your hikes.
From what I understand when a bank 'buys back' a distressed property at a foreclosure auction, it's counted on mls numbers as a 'sale'. The bank may then list the REO property with a realty brokerage and if it's sold at a discount, that's another sale. So two sales are then counted in the one foreclosure process. So the numbers need to be scrutinized.
Also the most important numbers like the real banking losses from mortgage derivatives that are being shuffled, handed to the Federal reserve as 'collateral', or just not disclosed or 'written down' would indicate that things may be worse than the official numbers and charts many of which are released by our trustworthy U.S. Government.
So a global recession is going to "help us out"?
Out of what?
Exactly. People will decide all paper currency sucks. I feel the downside risk on the Dollar index is 60 and see nothing to stop it
The Fed just said current rates @ 2% were not "overly easy"....they have already ignited inflationary pressures as witness to the lowering of rates and "ignition" of the comm. trade. Throwing us all under the bus again will resume after Nov. 6th.
Ipod-
Where else are these I-banks going to get yield?? This is the same thing that was done to the GSCI in August '06 but on a much more massive scale.
Commodity trades will again be the fuel for it and lowering the rates will just serve as yet another case of noise but with rather dire consequences.
If rates are not lowered in the Fed meetings after the elections I will banish myself from this site and never return.
Ciao
MS
why compare it to inflation? we should compare it to wages. just because inflation makes house look cheaper doesn't mean anything. in fact, i would say that higher inflation in other areas of consumption should reduce house price.
Ms so are you arguing for a return to higher commodity prices after Nov?
I think commodities are just beginning to rise. The percentage of US income spent on food and energy are still lower than in the late 60's before the energy spikes. I think they will return to the historical means
ipodius, if you're waiting for the government to tell you when it's a recession, you're going to wait a long time. it's just a slowdown, silly. it's a downturn, so don't worry. there's nothing wrong with FNM and FRE, move along.
S writes:
Dawg
Can you explain how inflation of 10% is german to anything? Inflation only helkps house prices if it is baked into wages.
Inflation is germane to housing prices because they are fixed capital depreciating assets. You are commingling two simultaneous events; the housing bubble and global wage arbitration. Even without wage inflation, asset/commodity inflation makes it easier to reliquify the housing market.
Don't get me wrong. I think it is a terrible idea to reliquify the housing market to levels seen in recent years. Residential owner occupied housing used to be just fine as an illiquid asset. Still the market is grinding to a stop and that isn't good either; "Hotel California."
If people's costs are going up for everything but wages remian supressed, then it is a rediculous argument to suggest that inflation is a way out of the housing situation.
Let's be absolutely clear on this point. US domestic wages are headed way down. There is no debate left. Too many years of laissez faire instead of the legitimate government function of property rights protection have irrevocably opened the US to uncompensated expropriation of any national advantages we have left.
That said, housing in a low interest rate, high inflation environment can only serve to bail out the bagholders.
I don;t get why this is so hard for people to understand.
Perfectly understandable. This is an imperfect world with uneven understanding. Add to that there being legitimate opposing views to your perspective and viola; disagreement.
If you are calling for a wage price spiral then maybe. but iof you are not, inflation does nothing but exporpriate the little saving you have.
Uhhh, yeah. That is part of the plan. Cannot have all these people running around with valuable liquid mediums in a world of illiquid
assets. Savers are the center of the bullseye.
Again, I don't think this will work. People can with two mouse clicks transfer away from the old school taxman.
by the way if inflation was really 10% that would have to mean higher rates.
Okay, I concede it is only 9.5% this month. Seriously, the CPI is not inflation no matter how hard the BLS and Fed want you to believe that.
Whew! I thought CR was going to miss an opportunity to do some marketing for Case-Shiller; thankfully, they did not. Hopefully, CR is getting referral fees for broadcasting CS's advertisements.
Thanks, CR and others, for the PCE information.
OT-Red alert-Last vacation coincided with CR vacation and f/f bailout talk with skf flying to 200 in July.
I will be in PVallarta, MX at same time CR is hiking the Pacific Crest Trail (CR enjoy and be safe and breathe deep)..
might be wise to go skf long....coincidences be damned...
jus saying..
Reuters: FDIC says 117 banks on troubled bank list at end of Q2, up from 90 at end of Q1: report 2:26pm EDT
If the FDIC is going to release the Q2 report early to the talking heads, it should be on the f*#$ing FDIC website for the public too!
i would say that higher inflation in other areas of consumption should reduce house price.
There is the paradox usually higher inflation means stronger interest rates which should help bring prices down. Real estate has always been a good inflation hedge. The problem is that home prices ran way past inflation and are now correcting back to the "trend line" of inflation. Without the housing crisis we would have rising wages along with rising commodities.
Cramer is readying his "Dead on Arrival" list.
Bankunited
Downey Financial
Corus Bankshares
Go long!!!
Cramer loves energy stocks again. Oh shit I bought a couple weeks ago!
Cramer is readying his "Dead on Arrival" list.
Ya know, I wouldn't even give Cramer credit for being a contrarian indicator. He's just completely uncorrelated to the market.
Cramer is uncorrelated with reality
Cramer is relevant, because all the fools keep him relevant.
How many times are these so called experts allowed to call a bottom and not questioned about all their wrong predictions?
House Prices will not stop going down for houses until houses become affordable again.
Also most overshoot to the downside.
More banks on the danger list. Why is this any surprise?
These greedy banksterers feasted at the trough while giving out insane loans.
--> Where does one park money in order to keep it from being eaten by inflation?
Did anyone get the impression that this guy case has transformed into a cheerleader?
Maybe someone higher up the chain told him to paint a brighter picture.
I will rent until these stupid house prices no longer exist. It is way cheaper to rent so pocket the rest and save it and invest it so I will be laughing at those fools rattling some cages in retirement.
It is cheaper to live in an abandoned REO than rent.
FDIC's quarterly is out early today but difficult to pull up due to heavy traffic most likely FDIC employees and other regulators..(CNBC has been reporting info from the report for the past 15 min.= from 90 up to 117 banks on the troubled list...)
FDIC: Quarterly Banking Profile
The core PCE price index rose 0.3 percent in June, above economists' consensus forecast for a 0.2 percent rise.
tim-
Yes for the reason you have mentioned and the manufactured reason I already gave. And why?? It worked before so why not try it again while the status quo allows it to occur.
This is the last area left that is woefully under policed and can have many more variables applied to it as reasons, since we always (americans) seem to want a reason for "happenings".
The whole price spike in food stuffs, oil, PM's was a manufactured event with data that did not support it's parabolic rise. Supply/Demand curves only account for some of the action...not at all what we've all seen, paid and been affected by in the last 6 months.
The system got away with the oil aspect of it in August '06-Nov.'06 and we really have to wonder that it was done again this summer but for different reasons. It will happen again and this time many more variables will be offered to explain it.
Disgusting really...
Ciao
MS
Sheila Bair about to speak on CNBC. Get your shampoo ready.
FDIC is running out of ammo and needs to be replenished. Are you listening Congress?
MediaMosaic Library
Ms thanks for the insight.
So a global recession is going to "help us out"?
Of course it is. It's going to stop the slide in the dollar, which helps oil, but the dollar will still be attractive. It will curb the demand for oil and commodities, bringing those prices down. The cycle starts with the US entering recession, that spills over and everyone else slows down, and then the US starts to pull out, and that helps the rest of the world pull out.
In case you have forgotten, the US is the BIGGEST market on the planet still, with only the EU in close second. China and India together aren't even close, and they are not going to be close for a long, long time.
Oil is heading back below 100 for the election. I'm surprised more of you didn't get the memo....
Interesting chart up at Latimes.com, just type in your zip and county here in California and viola welcome to California's foreclosure hell:
SoCal home sales, prices and foreclosures -- latimes.com
My town (Simi Valley a small distant suburb of Los Angeles) - 162 foreclosures, 118 sales this year.
FDIC Boosts Number of Problem Banks, May Raise Premiums
FDIC Boosts Number of ‘Problem’ Banks, May Raise Premiums - Real Time Economics - WSJ
he number of problem institutions grew from 90 at the end of March to 117 at the end of June. Total assets of troubled banks jumped from $26 billion to $78 billion in that time (though $32 billion of that was accounted for by IndyMac Bank, which failed July 11).
In October, the FDIC is going to propose raising assessment premiums on potentially all banks to replenish its deposit insurance fund. The FDIC said its deposit insurance fund fell to 1.01% of all insured deposits at the end of the second quarter, a very low level that doesnt even take into account all potential losses from IndyMac in the third quarter. Such a low level forces the FDIC to come up with an action plan in 90 days.
Banks continued to set aside huge levels of loan loss reserves. At the end of June, banks had $50.2 billion in these reserves, compared with $11.4 set aside at the end of June 2007.
The banking industrys net income was $5.0 billion in the second quarter, the second lowest tally since the fourth quarter of 1991.
At the end of June, 2.04% of all the banking industrys loans and leases were noncurrent, the highest level for the industry since 1993.
Federal regulators say they will downgrade BankUnited Financial Corp.s capitalization rating unless the bank raises $400 million. Its a move that could restrict the borrowing capabilities of Floridas largest bank unless it can raise $400 million.
The Coral Gables-based bank (NASDAQ: BKUNA) revealed the informal agreement with the Office of Thrift Supervision in its quarterly Securities and Exchange Commission filing on Monday.
BankUnited also signed an agreement with the OTS that will impact its operations by:
Terminating its payment option adjustable-rate mortgage program, other than in wealth management and loan modification. These loans have been the source of much of the non-accrual problem at BankUnited.
Notifying the OTS before it opens or moves any branches.
Stopping reduced- and no-documentation loan programs.
Feds pressure BankUnited to raise capital or face loss of borrowing power - South Florida Business Journal:
Dawg,
Respectfully, I follow your line of reasoning with inflation bailing out current bagholders. But at some point, don't the current bagholders have to pass the house to a future purchaser?
If "inflation" is 10% per year and wages are increasing at 5% per year (for illustrative purposes only), how can assets be sold? The cash flow required isn't there.
I remember the 1970's (hazily) and remember: 1) rising inflation, 2) increasing asset prices, and 3) increasing wages. Today, I don't (generally) see #3.
Can you help flesh out this part of your thinking? And thanks.
BTW, what do you think about repealing Prop 13? (ok, now I'm just kidding).
Oil is heading back below 100 for the election. I'm surprised more of you didn't get the memo....
Who would this help? McCain? Don't you know that all Wall St money went to Obama?
Sheila is on BubbleTV looks kind of ambivalent if you ask me. Looking into one of those offshore bank accounts.
2 Q's:
Plenty of evidence of other countries had been manipulating to keep USD high.
Take #1, and extrapolate to a lot of historical statistics. One key thing comes home:
Because if #3 is true.... Boy oh boy, we keep talking about when the "recovery" will occur, when we should be talking about how to "adapt" to the new lower standard of living since it's going to be the new truth for a LONG LONG time.
"This time we're NOT coming back up!"
hc-
Effin a bubba
with the caveat that your #2 reasoning is only temporary. If the Saudis continue to increase reserves by the amount they take out of the ground (ASPO study) then this is REALLY only "buy the dips" opp. should you want to trade oil.
Ciao
MS
Yah know,
This era here almost reminds me of America after 9/11, when people were told to go shop and buy stocks, and to be patriotic. That was a time then, when a lot of CEOs sold into that strength and screwed America and started a new era of backdating options and getting as much cash as possible -- thus as consumer confidence remains robust today, and in denial about economic pressures going forward, there seems to be a consensus that all it takes to get out of debt or trouble, is to spend more and deny reality? Maybe that works again?
Mortgage fraud getting worse. Who'da thunk it.
They just follow the examples of the regulators, top politicians and elected officials.... if they can do it, why not anyone else.
Mortgage fraud jumps 42% in 2008's first quarter - Aug. 26, 2008
Who would this help? McCain? Don't you know that all Wall St money went to Obama?
My friend, even here in gloriously liberal Massachusetts more money (especially from Bain) went to McCain. I don't see oil money flowing to Obama, do you? Do you think Obama is going to help the IBs?
Look for oil to continue a fitful side down below 100. Also look for some world event like the Georgia problem to crop up again too. Come on, read the memo!
We don't but you can argue that many fiat currencies were and are overvalued. As older countries become more indebted to others the implicit guarantee behind them will become suspect.
More Than 80 Detroit Area Properties to Be Offered at FDIC Auction
MarketWatch.com
Do you think Obama is going to help the IBs?
OF COURSE otherwise he would have thrown their money back in their faces. Far from it
FFDIC Your link is.. no work
forget it it does
Still trying to figure out where the recovery is comming from with there being wage arbitration........
Last week, the FDIC announced a program under which thousands of troubled home borrowers with loans from IndyMac will be able to switch into 30-year, fixed-rate mortgages with interest rates capped at around 6.5 percent, in what could be an important test case for future bank resolutions.
The biggest market for what?
Big macs?
A couple of other tidbits from the FDIC report:
The industrys ratio of reserves to total loans and leases increased from 1.52 percent to 1.80 percent, its highest level
since the middle of 1996. However, for the ninth consecutive quarter, increases in noncurrent loans
surpassed growth in reserves, and the industrys coverage ratio fell very slightly, from 88.9 cents in
reserves for every $1.00 in noncurrent loans, to 88.5 cents, a 15-year low for the ratio.
Deposits in foreign offices increased by $46.8 billion (3.1 percent), while deposits in domestic offices fell by $39.8 billion (0.6 percent). In domestic
offices, interest-sensitive deposits fell during the quarter, while interest-insensitive deposits grew.
Domestic office time deposits declined by $50.6 billion (1.9 percent), while other domestic interest-bearing
deposits fell by $19.6 billion (0.1 percent). Noninterest-bearing deposits in domestic offices rose
by $30.4 billion 2.5 percent).
Capital flight? Is that the reason for the elevated CD rates?
Oil is heading back below 100 for the election. I'm surprised more of you didn't get the memo....
I don't think Hurricane Gustav got the memo either, I wonder where the price will go as it starts tumbling around and strengthening in the Gulf over the next week or two.
yea FDIC, FAA sites no workie....
Just a coincidence I'm sure...
Gives massive amount of confidence for all your travel plans this weekend doesn't it?
Ciao
MS
1992 going once....
twice...
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The dollar hasn't been overpriced. Even when the dollar and euro were equal, goods and services in Europe were expensive in USD terms. The euro is today what the 3000sft home was two years ago. It's got a long way to fall. Fortunately for us, the USD is already priced in the new world recession rates. GBP has hopped on the recession wagon. The euro is next.
yea FDIC, FAA sites no workie....
Probably overloaded their servers.
Capital flight? Is that the reason for the elevated CD rates?
I don't think bank withdraws are tied to fear of stability in the system People continue to w/draw their savings as inflation eats up their cash on hand. elevated CD rates are trying to tell people they can keep up with inflation with their savings. Plus they are ready to go under=)
Can we please talk about squirrels and forget Obama, The Dollar, FDIC, GSEs, QSPEs, Paulson, Shiller, economics, finance, corruption, greasy hair, etc?
GBP has hopped on the recession wagon. The euro is next.
Not quite IMO. Although growth may be negative but they calculate inflation diffidently and wages are still rising there
a lower standard of living is a fact of the times we are in. or better yet, a result of the times we've had.
inflation may not be the evil that brings this pain though. a long unwind of our leveraged lifestyle will see to it that charging higher prices for many goods or services is simply impossible. deflation is what would destroy of standard of living.
CR may be right in saying this won't be the most severe of depressions, but does he believe it will be one of the longest?
Ok, NOW the bottom is in...
U.S. Bank Earnings Plunge to Second-Lowest Level Since 1991
By Alison Vekshin
Aug. 26 (Bloomberg) -- U.S. bank and thrift earnings from April through June tumbled to the second-lowest level since 1991, as lenders added to their reserves for mounting loan losses, the Federal Deposit Insurance Corp. said.
FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the same quarter a year ago, the agency said today in its quarterly report on the banking industry released in Washington. The agency reported 117 ``problem banks'' in the period up from 90 in the first quarter.
By any yardstick, it was another rough quarter for bank earnings,'' FDIC Chairman Sheila Bair said in a statement.But the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle.''
The world's largest banks and securities firms have announced more than $500 billion in asset writedowns and credit losses since 2007 linked to declines in mortgage-backed securities.
Nine banks have failed this year, including California- based mortgage lender IndyMac Bancorp Inc., the third-largest federally insured institution to be seized by U.S. regulators. The FDIC is running a successor institution, IndyMac Federal Bank FSB, while it seeks a buyer.
Second-quarter earnings fell from $19.3 billion in the previous quarter. It was the second-lowest net income reported since the fourth quarter of 1991 behind the fourth quarter of 2007, the agency said.
Funds set aside to cover loan losses quadrupled to $50.2 billion from $11.4 billion in the year-earlier quarter. The agency in October will consider a plan to replenish the deposit insurance fund, Bair said in the release.
Lenders on the FDIC's ``problem list'' increased 30 percent to 117 in the quarter from the previous three months, the report said.
To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.
Last Updated: August 26, 2008 14:46 EDT
i did mean most severe "recession", not depression, sorry.
tomato, domato
recession, depression
Same thing really.
OF COURSE otherwise he would have thrown their money back in their faces.
What? Obama's ambition wouldn't let him return anything. He'll take anyone's money, even the IBs who are, after all, using any donation there as a hedge of course.
rich, the US is the biggest market for EVERYTHING full stop. I mean EVERYTHING that's why everyone on the globe wants to sell their crap here. The most free markets, the biggest set of consumers, and the most free cash (up until now ha). The EU is the second. Everyone else is dust. If you don't think so, I suggest you try to sell something in China on the scale you can sell it here and not get it replicated for 1/4 the price in ten minutes all over the rest of the country. Oh or try to open a business in France. While you're at it, try it in Mexico. You can't have really typed what you did...good lord.
Free Market!!??
hahahahahahahahahahha
Still believe that don't you Ipod.
It's free but not for us.
Ciao
MS
ipodius,
The storm hasn't even hit yet. So far we've just weathered a little rain.
Can we please talk about squirrels and forget Obama
If you're at all interested in economics, you'd better be talking about who the next occupant of the white house may be. it's a totally legitimate economic discussion and i think it has a lot to do with how long this "recession" will last and what the end game may be.
And you should be voting your interests and trying to influence others too. Take a page from Bill Gross and talk your book every chance you get.
And you should be voting your interests and trying to influence others too.
Or, conclude that an hour spent voting on either of those two clowns is an hour wasted, and spend it drinking beer at Lefty's instead.
Free Market!!??
MS, free is a totally relative term. Try opening a business in France or laying someone off in France or Germany. Oh and don't forget those pesky EU taxes, trade restrictions, subsidies, etc. None of the markets are "free" but some are moreso than others. It's easy to sell a good in the US or start a business. Or fail one and get another chance.
tj, I think we're now ramping up the second part. The eye passed...
Ed S. writes:
Dawg,
Respectfully, I follow your line of reasoning with inflation bailing out current bagholders. But at some point, don't the current bagholders have to pass the house to a future purchaser?
Sure but in "future dollars" vastly depreciated from the "now dollars" they purchased with. In ten years a $500k mortgage will have a balance of roughly $380k. But in ten years $380k at 5% will be worth $230k. There's going to be some inflationary wage growth but the purpose is to make the current bagholders keep paying by making them think they are building equity.
If "inflation" is 10% per year and wages are increasing at 5% per year (for illustrative purposes only), how can assets be sold? The cash flow required isn't there.
People still need someplace to live and if the alternative is to have cash eroding at 10% versus assets at 5% plus tax advantages... no contest.
I remember the 1970's (hazily) and remember: 1) rising inflation, 2) increasing asset prices, and 3) increasing wages. Today, I don't (generally) see #3.
Again, wages are subject to global wage arbitration. Inflation or no that will go on.
BTW, what do you think about repealing Prop 13? (ok, now I'm just kidding).
Prop 13 has been nibbled to death. Mello-Roos, special assessments, improvement districts, fees in lieu, on and on. The only thing to survive is the one thing that should be fixed; corporate transference of real property loopholes.
Or, conclude that an hour spent voting on either of those two clowns is an hour wasted, and spend it drinking beer at Lefty's instead.
MLM
You damn free rider, MLM. People like you are going to bring down our democracy. See you at Lefty's.
The eye? You're dreaming.
Better to put it in CA terms... we've seen nothing but foreshocks. The primary earthquake has yet to hit.
Better to put it in CA terms... we've seen nothing but foreshocks. The primary earthquake has yet to hit.
tj & the bear | 08.26.08 - 3:57 pm
Yup. Where was the crisis moment? Indymac? BSC ?
Nope... that moment is being saved for the next administration.
The first 100 days will be very interesting.
So the market will finish slightly up today thanks to Fannie, Freddie and Lehman's. That is funny, really, really sad, errr, funny. This unending Bullsh#t is exhausting to watch even without any skin in the game.
Distressed properties are currently distorting the averages downwards. They are usually not marketed very efficiently (a newspaper notice and purchase sight unseen at the courthouse steps) creates a great deal of risk for the purchaser. The unknowns (property condition, status of current tenants, possible legal fees, and bankruptcy proceedings)are imperfect information that leads to market inefficiency. Unless Case Schiller removes prices for foreclosures and distressed properties, which is currently the majority of sales the index will exaggerate price gains in robust markets with few forclosures and exaggerate price declines in housing busts.
We need to remember that real markets are not a nice neat supply and demand curve with price at the intersection. The housing market is wrought with inefficiencies, imperfect information, high transaction costs, unequal tax subsidies, unequal credit availability, and complex opportunity costs. The Case Schiller index is an interesting tool to gauge the market but it is inherently flawed as is any index at describing the dynamics of a complex market.
Case Schiller is also very backwards looking. We are currently getting the updated numbers for sales closed in June negotiated in March and April approximatly 4 months ago. For all those trying to pick a bottom remember that by the time you see a difinitive bottom in the CS index and tried to act, you would be at least 6-8 months late.
Better to put it in CA terms... we've seen nothing but foreshocks. The primary earthquake has yet to hit.
I don't think so tj, although I do agree that this phase needs a sacrificial victim on the order of BSC. I think we're going to get two that were weakened by the first leg of the hurricane. One IB and one big bank...and I mean big. And there will be a lot of banks that fail, but the winds will weaken by the end of Q1. Especially if there is another republican in office, as I expect.
Think larger picture Ipod.
"Or fail one and get another chance."
like these insolvent banks that are getting chance after chance to keep a system that has failed for over 10 year's now.
Remember we didn't ask to be thrown under the bus in an attempt to "rescue" a system that is crap. Spare me the lesson on opening a business in other countries as I am well aware that doing that in the current environment is akin to assisted suicide (that also depends on what type of Biz it is-I'm sure that opening a business in disaster recovery would be fairly profitable at this point,however where to get the capital for that????
There is enough Pie in the sky statements in your comment to keep people here busy for many hours.
Ciao
MS
Rob Dawg, I agree with what you said. The only way to "spread" the pain equally over the whole population is to use inflation.
However, I consider that to be the government's ultimate solution to everything troubling it. Social Security Liabilities, Medicare and retirement-guarentee liabilities, housing bubble, etc.
Inflation is like a massive, hidden tax. There's no incentive to keep it down at all, beyond the fact that at some point the populace will start demanding more for their wages -- well the global wage wars took care of that!
If this wasn't so evil and difficult to pull together by design, I would be spouting conspiracy theories that some inner circle of masterminds have this planned all along.
Well MS, so far the bulk of my predictions on the economy, the FFR, the inflation rate, the price of oil, the price of glod, the exchange rate of the dollar and the euro, the commodities issues, and the price of certain stocks, and where the DOW should be trading has been right on the money.
My next prediction is oil is under 100 for the election. So let's just see if that one is right. I also said unemployment would top out in the high 6's, so that one's still out there. I'm in the shallow and long camp.
I not interested in pie-in-the-sky or any political agenda. I'm only interested in making money and preserving my own capital by analyzing reality without any political or social lens. Do what works for you, but so far, it's working like hell for me.
"Distressed properties are currently distorting the averages downwards."
The distressd properties are the market, so are they really distorting?
Oil is heading back below 100 for the election. I'm surprised more of you didn't get the memo....
ipodius
Amen to that, brother.
O-Joe
"I also said unemployment would top out in the high 6's, so that one's still out there."
And you're source for that is???
Enough said....
You're reliance on official #'s will eventually be your undoing. If you are doing so well then why here??
Just as the official numbers are BS I gather most of your supposed returns are as well.
"my next prediction is for oil under $100 before the elecion"
Wow really making a stretch there aren't ya
and I do agree...you are in the shallow camp...no question about that.
Ciao
MS
ipodius,
you predicted that we would muddle through and have positive growth throughout 08. we have not.
you predicted that the FFR would stop lowering in march. oops.
you have continually predicted that trichet will lower. he has not and has shown zero inclination to do so.
"My next prediction is oil is under 100 for the election."
I'll remember this one.
"There is some correlation..."
yeah, it tracks very well up until 2001.
"I can only conclude that inflation is a necessary component in the Fed's secret plans to unwind the housing asset bubble." - Rob Dawg
The FED is clueless then. You can inflate away small debts. You can not inflate away huge debts when a lot of the debt is short to medium term. The carrying costs kill you (insolvency) before you can make a dent in the debt balance.
Do they believe that they can cook the inflation books forever to keep market interest rate pressures at bay?
Do they believe that they can cook the inflation books forever to keep market interest rate pressures at bay? - BrantW
I know they've been boiling that frog since 1982 with no significant objection.
Pffffftttt.......all over the keyboard.
Consistently the funniest poster, Elvis.
Top notch graphs, as always. I love your Case-Schiller monthly updates.
I send people the link to your posts every time I hear 'Now is a great time to buy' or 'House prices in my neighborhood haven't fallen at all!
I remember the 1970's (hazily) and remember: 1) rising inflation, 2) increasing asset prices, and 3) increasing wages. Today, I don't (generally) see #3.
Hazily is right. As for "increasing asset prices", the 70's saw the worst bear market in stocks since the 30's and the worst bear market in bonds ever. Housing avoided a bear market only because wages kept up with inflation.
BTW, what do you think about repealing Prop 13? (ok, now I'm just kidding).
Mr. Market is going to repeal Prop 13. Taxable assessments on old properties, which can be raised 2% annually (I think), will eventually meet the market price, which will continue to fall and then stagnate for some time.