Ten-year credit default swaps for Treasury debt rose to a record 40 basis points, or $40,000 a year to insure $10 million of debt, up from 36 basis points late Friday, according to data from CMA Datavision, a specialized data provider.
The prices of these investments today show that investors think they have more of a chance of getting back money lent to McDonald's than to the Irish Government, according to Peter Oakes, director of Compliance Ireland, a Dublin management consultants.
CDS prices are measured in spreads and the more chance a company has of repaying a debt, the lower its spread is.
The CDS spread on McDonald's corporate bonds last Friday was 0.33, compared to 0.67 for Irish Government bonds.
he cost of protecting Alltel Corp.'s bonds from default has doubled over the past two weeks, signaling some investors may be concerned Verizon Wireless will abandon its purchase of the rural mobile-phone company.
Credit-default swaps on Little Rock, Arkansas-based Alltel climbed to 226.8 basis points today from 113.4 points on Sept. 25, according to CMA Datavision in New York. The swaps traded at 91.6 basis points June 6, a day after Verizon agreed to buy Alltel for $5.9 billion in cash and $22.2 billion in debt.
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession.
Right about now people are opening their quarterly retirement statements and calculating that if they keep paying their mortgage for the next 7 years and prices stabilize and start appreciating at historical rates they will still have no equity in 2015. It stopped being a judgement call 10% ago.
Comments here about the US government CDS spreads are quite pertinent to CR's post...
Just think how many more will be underwater on their home loans when US interest rates, and therefore mortgage rates, shoot up as a result of our creditors demanding higher rates of return to fund our foolishness. Make no mistake, rates will be going up...in the medium/long term. Higher mortgage rates are gonna drive down house prices even further. All these desparate actions by "the authorities" will just get us there via a different path.
Wow. 29% of those who purchased in the past five years are under water.
I've been thinking that all the money the FED has been pumping all over the place has got to risk a monetary inflation if they overshoot. Maybe the plan ought to be to make that overshoot go to the middle class, in the form of wages or relative buying power. But I guess they need to inflate at least domestic prices to try to catch up with inflated assets, lest the air continue to deflate out of overpriced equity everywhere.
On the equity side, I gotta stop looking for bottoms, and start looking for hard core book value. I can ride out a long stint waiting for book value, but can't wait for a dead cat to bounce, especially with the danged things still falling 5% per day.
Cent21, it's really not that hard to do a bit of work to keep up a 5% cash return. You should have at least 3/4 of your stash that way. Ride this out, everyone else loses, you come out way ahead in terms of your net worth compared to the value of things you have to buy. No need to watch your 401k disappear only to hope that 15 years later it might attain 2007 values again.
jingle mail was very common in texas in the mid 80's. I remember it referred to as "jingle mail" at that time.
I've heard that "1/3 of Americans own their own homes" (without a mortgage). Does anyone know if this oft repeated statistic is true? I can't find any figures that seem reliable.
Kona, BAC did get the shares out but price kept falling in after hours to stabilize at $23
Wells Fargo is due for a jump down in stock price (their own book, the Wachovia deal, and getting on the stock issuance train) to catch up with banks like JPM
National City Corp won't be able to raise the capital it did in the last 2 quarters, credit cards are maxed out so HELOCs so their losses will have only accelerated in growth, and their credit rating has been downgraded. Earnings on Oct 21, might be cut off from funding before then given the level of trust in the market
I've talked to several re: short sales here in Jacksonville, FL-most banks are not dealing yet. This is a huge disconnect to me. Considering the PMI index has JAX as 97% chance of declining market for next two years. Can anyone explain? Accounting issue I am missing?
Once again, CR is days ahead of the McCain campaign and David Brooks regarding the Republican think-tank housing mortgage bailout program. It's so ... two or three weeks ago, which in today's frenzied financial market is OLD.
I was going through steel today. Very impressed with Posco and ArcelorMittal. Fertilizer companies also have their earnings locked in for a few years and are oversold due to their position in indexes/mutual funds/etc. All of those have dividends, stable earnings, and no credit constraints
A family member recently passed away. She was able to secure a $15,000 loan with two TVs and a stereo as collateral. We're not talking about high end electronics either.
My mother has owned her house since 1992 in Fort Worth Tx it is now worth approximately what she paid for it then. After 16 years she has maybe 20000 in equity.
I am currently renting a 700k house at peak that didn't sell for 500k after a year on market for 1800 a month. I just looked it up on public records and gave the guy a call. He almost fell over himself to rent it. Fortunately he bought in 1998 so he has equity and will not forclouse. You couldn't beat me to buy again.
About 75.5 million U.S. households own the homes they live in ?
They have the power to WALK!
That's it.
Main Entry: own
Function:
verb
Date:
before 12th century
transitive verb
1 a: to have or hold as property : possess b: to have power or mastery over 2: to acknowledge to be true, valid, or as claimed : admit intransitive verb: to acknowledge something to be true, valid, or as claimed used with to or up
Captain Fish,
Did she secure the loan before or after she passed away?
Before, shortly before. She was about as bad a risk as a lender could take. We're looking for the title to her car now; lord knows how much she got for that. Who knows, she might have a couple of condos in Florida care of Countrywide.
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession]
I sure didn't. I've been long BAC as a hedge against the weaker financials that I have bearish positions on. OUCH.
This is why the government needs to take money from the 50% of Americans who either rent or own their homes outright and use it to inflate home prices while subsidizing those who put the least into their obligations.
Re: when US interest rates, and therefore mortgage rates, shoot up as a result of our creditors demanding higher rates of return to fund our foolishness.
I was on here earlier today, bitching about the emergency need to lower mortgage rates and provide a covered bond like structure to separate short term liquidity problems from long end instruments that could be used to store future value. All the cash in the world is being tossed at short term obligations and that will just crash yields and increase debts for the future.
They need to shut down wall street and suspend derivative trading, like CDS, CMOs and dis-connect real assets from casino bets!
I have said this over and over, this chaos is like the Hunt Brothers multiplied by a thousand times!
Re: Exchanges could impost a "liquidiation only" requirement, which was last used to break the Hunt brothers' attempted corner of the silver market in the early 1980s.
I have been lurking here since 2005. I have never posted before.
I work in San Diego for a public agency that employs several hundred people and will probably be able to ride out any kind recession (knock on wood).
Several of my co-workers (who are the "joe six-packs" often spoken of on this blog and in the msm), bought during the bubble; however, most of them have fixed 30 year mortgages and can afford their payments.
Recently, a couple of these guys quit paying their mortgages and others are seriously considering it.
They have realized that they paid way too much for their places, and have decided to cut their losses. (one guy paid $250,000 for his Golden Hill condo and two identical units were recently sold for $80,000).
I believe, it has been questioned, here whether or not people are actually turning in their keys because they're upside down. I think it is starting to happen.
I talked to one employee today who decided to stop paying his mortgage 2 months ago. He bought a house for 680,000, it's worth 400,000 now. The $3800 a month meant he drove up his cc debt and took a $25,000 personal loan. His plan is to live free until evicted and pay off his other debt. He presumes that in the future, a single forclosure during the "bubble" years with no other blemishes will be treated as good as good credit risk.
He says there are many other employees in the same bought around work and the word is to stop paying and live free, save aggressively and then rent for two to three years. By then you'll have a good down payment (if you decide to buy).
The point is that this is common knowledge and a viable strategy. Many who could muster through see safety in numbers and see it as a "bailout" for the average joe.
This will be viral and hard to stop. Once it's fashionable, its all over, like what was once a hat on crooked, or pants down around your thighs, now becomes the proper way to dress.
"As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes."
Woohoo! Gravy Train time...
(Only 300 Billion according to McCain's campaign). What if the value today is only gone down half of what the neighborhoos will experience? Can you line up twice or three? Do all home debtors get to say 'renegotiate me'? Who decides which mortages will get stamped 'bad debt worthy of government purchase'?
Any this the candidate of fiscal responsibility? And the candidate of the party that hates government intervention?
This should be done in the morning in London and then wall street, i.e, instead of silver, place restrictions on derivatives and shut SIFMA down and all the fucking lobby groups! I'm serious as hell!
FYI: Finally on January 7th of 1980 the COMEX changed their rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. . The CFTC promptly backed up the ruling. On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt's silver position was worth $4.5 billion dollars bringing their profits in silver to $3.5 billion dollars. On January 21st the COMEX announced that it was suspending trading in silver. They would only accept liquidation orders. Silver dropped $10/oz and stayed around $39/oz until the end of January. Scrap silver, old silver coin collections and silverware came into the market - about 22 million oz in all. In early February the Hunt group took delivery of another 26 million oz from Chicago. The Hunt's North Sea oil through Placid Oil was coming on line and generating $200 million /year from that venture alone. There was talk of a takeover of Texaco Oil. Bunker was also talking to other Middle Eastern rulers about putting together another silver buying group.
What's interesting is that Roubini has predicted 40% of all US homeowners to be negative in equity before this debacle ends... and that 1-in-5, as a conservative estimate, will utilize "jingle mail."...
Then what?....
401 Killed
Oct. 8 (Bloomberg) -- South Korea's won slumped to a decade-low as a seizure in global credit markets forced banks and companies to tap currency exchanges to meet their dollar financing requirements. ...
Remember the theory that when our real estate crashed (like in florida) that due to the weak dollar we'd have European investors swooping in to buy up property on the cheap.
I also thought perhaps a severe drop in our stock market we'd have foreign investors comming into to buy cheap shares. Even I didn't imagine a simulataneous global sell-off in stocks, commodities, and realestate.
This is one scary time.
I thought we'd be close to bottoming at these stock price levels, but we have too much pain to still get through. I was gonna buy when we got into the 8000's (thinking it may go to 7700 but not lower). Now I don't know what the hell I'm gonna do with all my cash.
Average Joe- I do a lot of "micro" economics research, i.e. ask all of my neighbors how they are doing. One told me one more year until they get US passport and they will be walking...away from 5 properties and going back to home country. Average Joe and Jill now know they can live rent free for a year or more. Hence, my short sell question above.
Jim...I agree, that was the most ridiculous statement of the night.
Why not just buy and raze every third house. Probably would cost the same and would definitely cut supply. Neighbors would be pissed but we could give them stock in CAT
Why mail back the keys when you can live rent free? Not only that, if you have a Countrywide mortgage they might reduce the interest and maybe even the principal. With a potential upside like that, I'd stop paying and ask my lender to sell my mortgage to Countrywide/BofA.
are you kidding me writes:
Jim...I agree, that was the most ridiculous statement of the night.
It was one of the smartest statements of the night - from a visceral emotional J6P political calculus. They might as well have said, to paraphrase George C Wallace (circa 1968) ... "We aren't going to be 'out mortgaged'." If you are old enough to know Wallace's original quote then you'll understand the irony.
The CBOT launched the worlds first interest rate futures contract, Government National Mortgage Association (GNMA), in 1975. A year after the CBOT tested the waters, the CME listed a U.S. Treasury-bill futures contract. The CBOT volleyed with the U.S. T-bond contract in 1977. Federal Reserve Chairman Paul Volcker provided the boost that the interest rate futures markets needed with his October 1979 announcement that the Fed would focus on the money supply rather than interest rates in fighting inflation. With that, the market was free to establish interest rates, and with rates in double-digits, interest rate risks were on the front burner and so was interest in interest rate futures.
Anyone know how to find out increases in common search terms in google? I have seen people refer to increases in search terms like "recession" as a leading indicator?
"walk away" probably has seen a significan increase in hits.
yogi,
To be clear, I didn't tell you to do anything -- you took the risk and you won the gain. I can't recommend trading on the Japanese market because funny things do happen, however if they are crosslisted like Honda or Nintendo ... maybe. Honda will stay healthy, I know their company from the factories on up; but this will not be a boom time for Japanese exporters.
I don't know how your account works or what you have access to, but maybe you want to keep playing with currencies?
US Earnings: Company Earnings Calendar - Yahoo! Finance
I think come Friday we'll start to see some buying of winners to separate them from the global 40% equity decline. If shorts and regulatory stability come back, that allows the options markets to set up resistance levels and give some confidence that people are not buying into a freefall.
Heavy manufacturing has slowed down, or have no orders lined up. I like steel (I see the contradiction but consolidation brings efficiency and pricing power. India + China are still growing demand with orders safe through 2012), I like fertilizer (you can't rebalance trade by cutting food supply, relative price increase at least, also medium term locked in contracts), and I like tech but there are some big forecast revisions to come from the big-tin players so wait that out. In fact NASDAQ has had the most decliners by volume for a while, Advances & Declines - Yahoo! Finance. I wouldn't consider buying anything until liquidations/unwindings slow down, so look for advancing stocks to be 40%+, and up volume to be 30%+ before taking a long hard look.
As for Intel someone mentioned above, I think AMD will win their anti-competitive lawsuit against Intel. The Mubadala deal is exactly what AMD should have done, the new CEO is an improvement. That will give it a pop, but Intel's key operations are extremely good. Intel may carry significant debt, but only because its profitable, they have excess cash.
Unlike past recessions, computers below the server level are not expendable purchases and much more is spent over their lifetime in support costs than the capital purchase. CPUs have a healthy future as computers trickle down into smaller and smaller cracks like netbooks/cell phones are doing. They are now a commodity like pencils and pens.
Now for my question. When there is a first mortgage, second mortgage and a home equity line of credit -- what are the seniority rankings of that debt? 1. Sr mrtge 2. Jr mrtge 3. HELOC?
EMB- re: short sales.
Read bubbleinfo.com Jim Klinge posted his experiences with short sales and it's just a big clusterf*ck with no happy news for the lender.
Sidd, I think the number of mortgages is slightly over 50 million. Something like 51 million or 53 million. Another 31 or 32 or 33 million own homes outright (including me on 1).
20 million of 50 million would approach a 40% underwater rate at the peak. A few months ago I thought Zandi and/or Goldman Sachs were predicting a 30% underwater rate on mortgages at the peak.
If we get a 40% underwater rate, the national equity number is going to be significantly below the recent 45% reported (which itself was the lowest in history).
Ok, if nobody here doesn't get, the derivative markets will have to be suspended immediately, with no chance of opening until a full blown suspended market can be established!
Anyone know how to find out increases in common search terms in google? I have seen people refer to increases in search terms like "recession" as a leading indicator?
Are there any figures (estimates) available for what the $$ value is of this underwater equity?? That would be the price tag for McCain's "ponies for deadbeats' economic plan announced tonight.
The Commodity Futures Modernization Act of 2000 or CFMA (H.R. 5660 and S.3283) is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single stock futures in 1982. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts.
Contents [hide]
1 Legislative history
2 The "Enron loophole"
3 H.R. 4577
4 References
This act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000; the legislation thus became law as a part of H.R. 4577 - Public Law 106554, §1(a)(5).
The act has been cited as a public policy decision significantly contributing to Enron's bankruptcy in 2001 and the much broader liquidity crisis of September 2008 that led to the failure of Lehman Brothers and American International Group[1] and to the creation of the U.S. Emergency Economic Stabilization fund.
Hmmm, if the government offered to purchase 300 billion in bad mortgages, it seems like the default rate would go from under 5% (?) to about 80% in a heartbeat- don't you think? I mean, why the hell not?
The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron loophole," 7 U.S.C. §2((3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by lobbyists for Enron working with senator Phil Gramm[3] seeking a deregulated atmosphere for their new experiment,
PeakVT writes:
So what does Harry and Harriet Homeowner worry about more: their upside-down mortgage, or their imploding 401k? Decisions, decisions.
PeakVT | 10.08.08 - 12:56 am | #
Their jobs - even people in their early 60s worry most about their jobs - all else evaporates FAST if they lose their jobs before they are 'safely' into retirement.
That's what has the wonks scared more than anything - the wave of job loss coming.
"The $3800 a month meant he drove up his cc debt and took a $25,000 personal loan. His plan is to live free until evicted and pay off his other debt. He presumes that in the future, a single forclosure during the "bubble" years with no other blemishes will be treated as good as good credit risk."
This should be the best evidence possible that humans are actually very economically rational, contrary to what has bedeviled many economists.
It's also the undoing of our capitalist system because it says that the best, winning-est, most rational choice is to renege on commitments and push the cost of your default onto others. With little to no cost to the least responsible, least law-abiding, least contract-respecting members of society.
We have arrived at the point where greed, speculation, and lawlessness are rewarded and anyone who makes the sacrifices necessary to meet contracts and commitments is exposed as a dupe.
I have reached capitulation - I don't believe in this country, this system or this government anymore.
Trading will remain suspended until further notice, the exchange said in an e-mailed statement. Exchange President Erry Firmansyah couldn't be immediately reached on his mobile-phone to comment on the suspension
lurker, AverageJoe, EMB; re: People just walking away
I have for some time talked about the change in culture when it comes to bankruptcy when it is common. That is once a certain level is breached, the tipping point is crossed and acceptance of bankruptcy becomes viral.
For this reason more than any other I think some economists underestimate the level of defaults/foreclosures even once they accept prices will return to historical rent to income or case-shiller levels.
It is very logical to walk away from a negative equity mortgage. You record an instant sale profit, would only be a blemish for 7 years at worst but if credit companies play tough-love with everyone that had such a blemish (one unlikely to be repeated) then they would kill their own business, and in a time of increased cost-of-living it sure helps out a monthly budget. I didn't mention the costs such as the hassle of moving, sentiment, or social embarrassment because people find it easier to do anything if its for money, and we're talking about a lot of money.
I didn't even mention that homeowners are on to the game that their mortgage will not be renegotiated until they stop payment for a few months. So in terms of game theory, even if you absolutely do not want to move -- there is an advantage to apply pressure to the lender
Their jobs - even people in their early 60s worry most about their jobs - all else evaporates FAST if they lose their jobs before they are 'safely' into retirement.
Not quite there in age, but I do prefer 'semi-retired' to 'underemployed' myself. It's really just an attempt to maintain a shred of dignity.
Not hard to understand.
On policy, agree that's what scares the hell out of the wonks.
There is no distinction between a 'hungry mob' and an 'angry mob.' A full stomach, though, makes the world seem far less threatening.
Howard Kurtz - Press May Own a Share in Financial Mess - washingtonpost.com
WAPO
Press May Own a Share in Financial Mess
"Charlie Gasparino was so anxious to get on the air that he phoned in to CNBC, rather than walking to the studio, to report that nervous federal authorities were considering a bailout of the insurance giant AIG.
"I was sweating through my underwear. That was scary,"
yogi, if you want a sense of currencies becoming overbought/oversold take a look at the following chart USD/CAD Currency Conversion Chart - Yahoo! Finance
It takes the comparison back to 2003 when things last unwound and found a level of stability. Right now we're seeing a temporary spike in USD + JPY for financial settlement, combined with European currencies coming back down from their speculative valuation which their 60:1 banks helped support.
Even if we see catastrophic economic destruction, we'll at least pause at those levels first.
So What? It's a snapshot and most homes are not that far under water. Not the first time this has happened and it won't be the last. The point isn't to treat your primary residence like an investment, rather to treat it as shelter. Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
Kona writes:
Maybe we will witness an epic generational paradigm shift in social norms and people will walk away from wall street and government. Global anarchy?
Kona | Homepage | 10.08.08 - 1:09 am | #
Better hope we don't have anarchy - that's a sure fire way to see the planet drop population by say 3 billion people in a hurry... and a not very pleasant hurry.
Anarchy works fine in a sparsely populated resource rich world - not on a stretched to the limit over-populated planet.
While he's at it, McCain needs to cover my stock losses and help me with payments on my sports car. The payments are just killing me - isn't it supposed to automatically reduce until I can afford it?
This is a big middle finger to all Americans who were responsible enough to have real equity in their homes. Why did you put your life savings into a down payment, when 0% down would give you the same equity with fixed interest to boot? McCain's government supplies your down payment retroactively!!
Hong Kong to cut base lending rate by 1 percentage point - MarketWatch
Hong Kong to cut base lending rate by 1 percentage point
The Hong Kong Monetary Authority said Wednesday it will cut the city's lending rate by 1.0% effective Thursday. The HKMA, which manages the city's U.S.-dollar pegged currency, said it would change the formula it uses to set the base rate, reducing the spread above the U.S. federal funds rate from 150 basis points to 50 basis points. The reduction will bring Hong Kong's base rate to 2.5% from the current 3.5%.
Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
Tom Lindmark | Homepage | 10.08.08 - 1:14 am | #
Easier said than done - a lot of the underwater should have thought of that say six or ten years ago but instead listened to some asshat real estate broker instead and bought WAY more than they could ever afford. After all real estate only goes up.
Sure, this puts a lot of homeowners at risk of default, but the real hit here is on the resale market, especially for trade-ups. No equity, no sale, definitely no trade-up.
Bubble markets (like here in SoCal) were built up on decades of equity trade-ups. No more.
I think I hear Sebastian banging on the hatch of the bankerdome right now. Seems he is having trouble turning the key on the Wright Model B padlock. It could be he's having trouble because the lock is placed inside a depression in a convex area.
Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
I think a lot of those who bought way more than they could afford, also thought they'd be moving in a few years; to take advantage of the appreciation(!) don't cha know?
GOVERNMENTS and central banks do not understand markets, so it is "foolish" to trust them to resolve the current global financial crisis, British rogue trader Nick Leeson said. Leeson gives fraud speech
Nikkei down 72% from all time high and still falling. Nick Leeson croaked at Nikkei 19,000. DOW only 35% down. Long way to go.
dryfly,
I agree with the concept that some people bought more than they could afford. If they did and can't afford the true cost now that their mortgage reflects a real world interest rate then they can give up the property. Not get bailed out.
If they bought what they could afford and just got caught in the downdraft, then my comment is still valid. Don't worry about the current value, it's irrelevant. By the time they pay it off, the house will probably have appreciated. If not, they still have shelter and an asset free and clear.
Exchanges in Russia and Brazil halted trading as their benchmark indices plummeted 18 and 10 per cent respectively.
India's Sensex index lost nearly 6 per cent, as foreign investors fled amid fears that a serious global downturn beckoned.
China's CSI 300 Index lost more than 5 per cent, to extend its losses for the year to 60 per cent.
"Foreign funds are panicking," said Deven Choksey, of KR Choksey, the Bombay brokerage.
The Indian slump has been driven by the exodus of nearly $US10 billion in overseas money this year, as investors seek sanctuary in US Treasury bonds.
Meanwhile, that cash sends Treasury yields down, while increasing the price of bonds, which causes a short term liquidity crunch which is connected to CDS which are connected to defaults which are connected to MBS which are connected to foreclosures that are linked to cash burn that is linked to CDOs, that are linked to hedges that are backed by derivatives that are indexed to ETFs that bet on India going bust...
Tom Lindmark writes: Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
dryfly writes: . . . a lot of the underwater should have thought of that say six or ten years ago but instead listened to some asshat real estate broker instead and bought WAY more than they could ever afford.
I actually feel bad (okay, just a little bad) for those who drank the koolaid and overbought. It was hyped constantly to them.
I don't have any sympathy for the HELOC crowd, though. Their overindulgent consumption was pathetic. It was like everyone in town won the lottery.
I'm watching the 'walk-away' story with great interest. I want to see how many of these "underwater due to spending habits" people honor their commitments . . . I'm not optimistic.
we're not out of liquor, we're out of liquor deliveryboys. But call now for your breakfast-opening bell favoites. And remember, we feature Val-U-Rite brands.
Crap, I'm going to bed, Bloomberg is too depressing.
Hmmm, if the government offered to purchase 300 billion in bad mortgages, it seems like the default rate would go from under 5% (?) to about 80% in a heartbeat- don't you think? I mean, why the hell not?
A rational actor in the economist's Universe would stop payment on a current mortgage so as to become a "bad mortgage" subject to repricing under McCain's policies, save that money in a mattress or somewhere more obscure, and if Obama got elected negotiate a redo on the mortgage. Or just live rent-free and move out when the sheriff arrives. Someone asks where the money went, you blew it in Vegas.
I am not advocating this approach, but it is rational. If I were a policy maker, I would think about these things. McCain clearly has not. Repricing bad mortgages is going to reprice everyone, and who wouldn't want to be on the bad mortgage gravy train. This single policy, at least as stated, is a knockout punch for McCain (self inflicted) in my eyes. He know not what he doeth.
Tom - I'm not calling for bailout... I'm just saying its too late for the 'house as home' meme for a lot of those who are now underwater or soon to be.
There are just a whole lot of people who can't make their payments AND make their other payments... something is gonna give. They could only justify their current price of their 'home' based on HPA & teasers especially if they could serial refi & HELOC the HPA... without that they were screwed.
Now they are screwed - a lot of them. To lecture them that well they should have known better & only looked at their house as home and not an ATM is well a little late. That train left five years ago.
Lehman has 228 adhering parties for its settlement auction
Fannie + Freddie for comparison had 651
Everybody and their dog are with the Lehman one.
I've never been involved with CDS, but I take it the adherence are the parties agreeing to let the ISDA set the price and close the contract, while the bidders list should have the parties with the most to gain/lose playing. I can't remember how many of the bonds are auctioned off, but its a minority and they take the middle price and that's what everyone settles to
CDS Index futures give institutional portfolio managers a simple means of acquiring or laying off standardized investment grade corporate bond price exposure. For many users, CDS Index futures should result in lower administrative costs relative to over-the-counter (OTC) alternatives.
Each day CDR LLC publishes the spot value of the CDR Liquid 50 index.
By combining appropriate numbers of CBOT CDS Index futures with CBOT 5-Year IRS futures, an investor or trader can assemble a futures position that mimics the price exposure of a generic portfolio of liquid investment grade US corporate bonds.
As noted earlier, the underlying reference for CBOT CDS Index futures is the CDR Liquid 50 North America Investment Grade Index, maintained and published by Credit Derivatives Research LLC.In broad overview, the index mechanism is delightfully simple: an arithmetic average of standard 5-year single-name credit default swap spreads, quoted on each of the 50 corporate names represented in the index. Index components are selected on the basis of their credit quality -- all must be issuers of investment grade debt and on the basis of trading activity in the single-name credit default swaps that reference them.
Using CDS Index futures eliminates the administrative (e.g., accounting, manpower, record-keeping) costs frequently required in maintaining a book of OTC credit derivatives.
The price of houses are now guaranteed by the government! They will not be allowed to drop, but if they do you will get a payout by the government for the difference!
Make the lowest down payment you can, 0% if possible! McCain will give you instant equity by lowering your mortgage balance each year on a down year. Then it's free money on the up years.
Take out as many HELOCs as you're allowed! If you get underwater, the government guarantees you and pays you the difference! If you appreciate, that's another HELOC of free money!
America just invented 3 new business models for banks to leverage. Money really does grow on trees, starting today!
CME Group (CME Group | Page Not Found is the world's largest and most diverse derivatives exchange. Building on the heritage of CME, CBOT and NYMEX, CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on trading floors in Chicago and New York.
CME Group's clearing member, Lehman Brothers Inc., is a subsidiary of
Lehman Brothers Holdings Inc., but is a separate company with its own
accounts, assets and customers.
One thing to talk about how many homeowners are underwater and quite another to talk dollars. I suspect a lot of those owned outright homes are old and cheap. The underwater homes are new and financed to the hilt.
Number of owners underwater is a screwy metric. How much is better question.
LJR writes:
One thing to talk about how many homeowners are underwater and quite another to talk dollars. I suspect a lot of those owned outright homes are old and cheap. The underwater homes are new and financed to the hilt.
Number of owners underwater is a screwy metric. How much is better question.
Indeed. I remember sfdfs (?) making that very point at some time in the sped up past (a week? two weeks?)
It's also the undoing of our capitalist system because it says that the best, winning-est, most rational choice is to renege on commitments and push the cost of your default onto others. With little to no cost to the least responsible, least law-abiding, least contract-respecting members of society.
Our version of the moral damage of the Weimar inflation. As Pearl Buck said about the Weimar inflation:
They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.
Dryfly,
No lecture intended. My point, which perhaps I made poorly, is that if you are in the fifth year of a 30 year mortgage, in a comfortable house that you and your family enjoy and have gotten nicked for $10K or $20K don't buy into the idea that you should chuck it all. There is more to it than just an investment. If you treated it like an ATM and have no hope of paying the mortgage or ever getting back to even then walk.
By the way, I don't buy into the concept of bailing any of these people out regardless of the situation. It is however going to take some grass roots screaming to get the politicians to understand that 94% of us don't want to pay for the other 6%.
Nikkei down 6% tonight looks bad, but looking at fed sponsored, credit-binge 20 year prices for DJI and SPX, and where they're going to catch up to Japan, is worse.
He has drawn a line in the sand... he will not be 'out mortgaged' by Obama.
reminds of the dem. primary, when Clinton and Obama were talking economic stimulus packages. Clinton threw out a number and the following day Obama added $10B to Clinton's number...
Anarchy works fine in a sparsely populated resource rich world - not on a stretched to the limit over-populated planet.
If by anarchy you mean widespread state failure -- you'll never see it outside the context of a crisis like a resource-starved overpopulation.
The nature of administrative technology is such that it allows untenable situations to persist until they reach the tipping point where nothing can keep them flying. That's not really the purpose, but it's the effect.
You don't get failure to provide political goods during fat times because prosperity papers over compromised administrative and logistical structures. It's when things are really tight that you find out who can't cut the mustard.
It's during administrative / logistical pinch points that vested interests' ability to game the system via influence becomes apparent. Critical constituencies postpone or preferentially frame reform until the system is past the tipping point where there are time and resources to implement policy choices critical to systemic survival.
Sometimes you get effective reform, sometimes you get a systemic lapse that provides a bookend to an epoch. These failures are relatively common, but it's in the nature of states seeking legitimation and the ego of man as a species to minimize these concerns as those of a bygone era.
The sage Ipu-wer from the First Intermediate Period in 2150 BC described the situation in Egypt on a papyrus, which is now in Leiden, Netherlands, when the Nile was merciless to the people because of civil war, hostility, and disorder: "The man goes to his field carrying his shield ... The wicked are everywhere ... the great ones of yesterday are no more there ... The Nile inundates, but none ploughs his field ... everyone says, 'We don't know what happened to the country ... ' Khnum ceased creating (new) children ... the situation in the country is bad ... the poor became owners of precious things ... the one who didn't have a sandal (was barefoot) before, became rich. Hostility is upon the whole land and blood is everywhere ... The dead were buried in the river that became a cemetery and the place of embalming is the river ... The river became blood ... Both old and young say, 'I wish I could be dead.'"
What are the current trends in the credit derivatives market that prompted the CBOT to list a futures contract on a CDS index?
The credit derivatives market has been one of the fastest growing markets over the last two years. According to the British Bankers Association (BBA) 2006 Credit Derivatives Survey, the global credit derivatives market has grown from $5 trillion notional outstanding in 2004 to $26 trillion in 2006, and it is projected to grow to $33 trillion by 2008.
Is off-exchange trading available for CBOT CDR Liquid 50 NAIG Index futures?
Yes, CBOT CDR Liquid 50 NAIG Index futures are eligible for Exchange for Physical (EFP), Exchange for Swap (EFS), and Exchange for Risk (EFR) trades. In addition, wholesale transactions are available in amounts greater than 100 contracts (i.e., approximately $100 million notional value). This allows market participants to negotiate trades in an OTC environment with the streamlined clearing and operational efficiencies of an exchange-traded contract.
Aug. 22 /PRNewswire-FirstCall/ -- CME Group Inc. (NASDAQ: CME) today announced that it has completed its acquisition of NYMEX Holdings, Inc. (NYSE: NMX). The combined companies will provide customers around the world with access to all major benchmark asset classes, including interest rates, equity indexes, foreign exchange, energy, agricultural commodities and metals. CME Group Class A common stock will continue to trade on the NASDAQ under the ticker symbol "CME." NYMEX Holdings, Inc. common stock is being delisted and will no longer trade on the NYSE.
CME Group's clearing member, Lehman Brothers Inc., is a subsidiary of
Lehman Brothers Holdings Inc., but is a separate company with its own
accounts, assets and customers.
Shares of futures-exchange operators CME Group Inc. and IntercontinentalExchange Inc. are trading higher on reports the Federal Reserve is holding meetings this week to discuss creating a regulated market for credit default swaps, the derivative instruments at the heart of the financial crisis.
The New York Federal Reserve is hosting a meeting with financial institutions this week to discuss plans to develop a central counterparty for the roughly $60 trillion unregulated CDS market, according to press reports. CME and ICE are seen as the biggest potential beneficiaries and are reportedly in talks with the Fed to create a CDS exchange.
If by anarchy you mean widespread state failure -- you'll never see it outside the context of a crisis like a resource-starved overpopulation.
But the systemic 'safety valve' is depopulation... that was my point... not that anarchy is impossible in our over stretched world but that you don't want to 'wish' for it. It will produce a self-correcting set point.
Imagine the 'Nile' document on the whole planet w/ 6, 7, 8 billion people.
I was looking at some auctioneers because they should be priced off cash flow, which for some will be picking up as industrial debtors default on loans (rates are high enough and the economy is not great looking forward)
Anyways, long story short: I found the world's best recession indicator. Sotheby's stock, it only goes back to 1988 but it gives about a 1 year warning before it peaks around the time of a recession starting Sotheby's - Google Finance
OT, medium term junk bond mutual funds are returning 10% these days...no lack of credit, it just costs more if you are in the cross hairs of the grim reaper. Does The Fed understand this?
My point, which perhaps I made poorly, is that if you are in the fifth year of a 30 year mortgage, in a comfortable house that you and your family enjoy and have gotten nicked for $10K or $20K don't buy into the idea that you should chuck it all.
I think you're missing the magnitude of the problem. Somebody in Omaha who's off 20K isn't the problem. The problem is somebody who bought a a $600,000 house in California on a $60,000 income (i.e., paying the mortgage would take almost their entire takehome pay) and that house is now $350,000 and dropping fast. There is nothing possible but default or principal foregiveness.
By the way, I don't buy into the concept of bailing any of these people out regardless of the situation. It is however going to take some grass roots screaming to get the politicians to understand that 94% of us don't want to pay for the other 6%.
Except you will pay. The homedebtor can't and the bank can't. That leaves the government, and ultimately you, to clean up the mess. In many cases principal forgiveness will make sense because the choice will be forgiving $300,000 and letting them stay or kicking them and losing $400,000 on the foreclosure sale.
Bush tomorrow: Japan was really never important in the big picture and I look at the big picture. Now, your 401(k) is another matter. It is going to take a BIG hit. Oh, I said that yesterday. Excuse me.
dlr wrote:
One simple step the government should take immediately to clean up the CDS market, is to make it illegal for anyone to buy a CDS unless he owns the underlying bond.
It was under the Office Vacancy Rate Rises Sharply discussion - started around 3:30 within the discussion.
PPT vs. everyone else. Thought it could hold 9600. Then they had to retreat.
Began around 20 minutes after I go into my boss' office to talk about our endowment account. He comes back to my office watching me laugh at the computer screen and yelling something about Panzers...
Billionaire investor Warren Buffett's instant paper profits on Goldman Sachs Group and General Electric have been wiped out amid the stock market's worst yearly slump since 1937.
Goldman, the most profitable Wall Street firm, fell 7.3 percent Tuesday in New York trading to US$115 (HK$897), the price at which Buffett can buy US$5 billion of shares at any point in the next five years.
When the deal was announced last month, Goldman closed at US$125.05, meaning Buffett was US$437 million ahead.
Goldman and GE also sold Buffett a combined US$8 billion in preferred shares that pay a 10 percent dividend, allowing his Berkshire Hathaway to earn US$800 million a year without the warrants unless the companies collapse.
When Templeton died this summer, they used the opportunity to flog their asian mutual funds for a time when there was domestic pessimism. I can't imagine the cajones it takes to charge 2 to 5% of assets on top of a 20% loss
Now I get why my grandparents saved Cool-Whip containers in a shed and saved every nut, bolt and screw they ever had in coffee cans. Maybe their local numismatist didn't have any supply?
You ever seen a documentary about the ant lion? It sits at the bottom of a little pit and when an ant stumbles into it, it flicks grains of sand at it, and it slips a little farther down the funnel. The ant scrambles back up and another little flick of sand rolls the slope down and the ant slips again. Sooner or later the ant arrives at the bottom and gets eaten. That's what this economy looks like to me,...that ant.
Goldman Sachs Group, Inc. (GS:
today announced it has closed GS Loan Partners I with $10.5 billion in equity and leverage commitments, including more than $1 billion of equity from the firm and its employees. This is the first senior debt fund of its kind raised by Goldman Sachs and the 15th fund formed by the firm's Principal Investment Area (PIA) since 1986.
Yen has got to go down, or dollar has to go up.
Essentially what this means are European currencies either are going down a lot, or going down a lot more
First, you say that the problem is not the marginally under water but those grossly under water. Maybe true, maybe not, need some data to prove your point.
Second, you assert that kicking out homeowners who default is more expensive then absorbing the loss. Again, numbers would help. Given the miserable track record of modifications, least loss usually indicates that foreclosure and sale are the best alternatives.
The assertion that the banks can't absorb the loss is speculative, not factual particularly in light of the fact that they will put much of this to the government. Is your point that the government can't absorb the loss or that it is socially preferable to forgive the debt?
Nemo!
i'm loving it!
first?
US 5yr CDS 30bps, Mcdonalds 5yr CDS 27bps. US debt now more risky than that of a burger joint.
John Mccain announced that $300 billion would be enough to buy up all the underwater mortgages and rework them and stop the price decline..
Speaking of our good friend Nemo, could his name be a reference to being underwater, as in negative equity? (Trying to tie in to the thread here.)
Under water? So, they swim away?
Where's Nemo!
I am the proud owner of over 3/4 of a million in underwater property!
Lay me off and it will be jingle mail time!!!
How they gonna deal with that on wall street?
Oh yeah two helocs- and two big loans.
Fuhgetaboutit.
Someday this war's gonna end...
Ten-year credit default swaps for Treasury debt rose to a record 40 basis points, or $40,000 a year to insure $10 million of debt, up from 36 basis points late Friday, according to data from CMA Datavision, a specialized data provider.
The prices of these investments today show that investors think they have more of a chance of getting back money lent to McDonald's than to the Irish Government, according to Peter Oakes, director of Compliance Ireland, a Dublin management consultants.
CDS prices are measured in spreads and the more chance a company has of repaying a debt, the lower its spread is.
The CDS spread on McDonald's corporate bonds last Friday was 0.33, compared to 0.67 for Irish Government bonds.
CR- YIKES!!! How long until we get to 20 million or more?
take off another 5% for agents fees ...
where I live
city and county transfer taxes ... 6% agent fees in this market ...
"..or they simply decide to mail in the keys."
Wow, does that really happen?
EMB, 20 million will happen when prices are off about 30% (they are off about 18% right now nationwide).
All, I guess I'll stay up a little late tonight and catch the UK announcement (7:30 AM London time). This should be interesting ...
Best to all
man we will have a great underwater basket weaving team at the next olympics
ifaforo,
my rental propety will be jingle mailed upon my layoff- asap.
I will not even attempt to short sell it- not worth my time with the underwater heloc.
So yes, they really do it here in Phoenix.
someday this war's gonna end...
Ive got a time share I wont ever get to use in 20 million props. Yay!
he cost of protecting Alltel Corp.'s bonds from default has doubled over the past two weeks, signaling some investors may be concerned Verizon Wireless will abandon its purchase of the rural mobile-phone company.
Credit-default swaps on Little Rock, Arkansas-based Alltel climbed to 226.8 basis points today from 113.4 points on Sept. 25, according to CMA Datavision in New York. The swaps traded at 91.6 basis points June 6, a day after Verizon agreed to buy Alltel for $5.9 billion in cash and $22.2 billion in debt.
Looks like Moody's Economy.com is releasing (or WSJ is quoting) data circa 3-6 months ago
CR, thanks for the coverage!
I missed this:
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession.
Sorry I meant 3 months ago.
In any event winter is the worst selling season, so prices maybe be 25% off peak by the time Spring rolls around
Right about now people are opening their quarterly retirement statements and calculating that if they keep paying their mortgage for the next 7 years and prices stabilize and start appreciating at historical rates they will still have no equity in 2015. It stopped being a judgement call 10% ago.
Comments here about the US government CDS spreads are quite pertinent to CR's post...
Just think how many more will be underwater on their home loans when US interest rates, and therefore mortgage rates, shoot up as a result of our creditors demanding higher rates of return to fund our foolishness. Make no mistake, rates will be going up...in the medium/long term. Higher mortgage rates are gonna drive down house prices even further. All these desparate actions by "the authorities" will just get us there via a different path.
I'm shocked, SHOCKED, to hear that there are people in this country who owe more on their house than their house is worth.
Whatever are we to do about this?
Wow. 29% of those who purchased in the past five years are under water.
I've been thinking that all the money the FED has been pumping all over the place has got to risk a monetary inflation if they overshoot. Maybe the plan ought to be to make that overshoot go to the middle class, in the form of wages or relative buying power. But I guess they need to inflate at least domestic prices to try to catch up with inflated assets, lest the air continue to deflate out of overpriced equity everywhere.
On the equity side, I gotta stop looking for bottoms, and start looking for hard core book value. I can ride out a long stint waiting for book value, but can't wait for a dead cat to bounce, especially with the danged things still falling 5% per day.
Cent21, it's really not that hard to do a bit of work to keep up a 5% cash return. You should have at least 3/4 of your stash that way. Ride this out, everyone else loses, you come out way ahead in terms of your net worth compared to the value of things you have to buy. No need to watch your 401k disappear only to hope that 15 years later it might attain 2007 values again.
jingle mail was very common in texas in the mid 80's. I remember it referred to as "jingle mail" at that time.
I've heard that "1/3 of Americans own their own homes" (without a mortgage). Does anyone know if this oft repeated statistic is true? I can't find any figures that seem reliable.
cent21
dividends pay you while you wait ...
solid companies only ...
Is Intel's dividend at 4% yet ?
Kona, BAC did get the shares out but price kept falling in after hours to stabilize at $23
Wells Fargo is due for a jump down in stock price (their own book, the Wachovia deal, and getting on the stock issuance train) to catch up with banks like JPM
National City Corp won't be able to raise the capital it did in the last 2 quarters, credit cards are maxed out so HELOCs so their losses will have only accelerated in growth, and their credit rating has been downgraded. Earnings on Oct 21, might be cut off from funding before then given the level of trust in the market
McCain in the debate announced a new plan not heard before except from some of the wildest-eyed radicals out there:
Order the Secretary of the Treasury to buy up the bad home mortgages, and issue the owners new mortgages based on the current value of the houses.
Wow.
Can people just email him their statements? Or does he also want them to send in the keys to Republican headquarters?
So Asia is tanking. Does that mean a rally tomorrow?
Housing stats:
Residential Finance Survey - Detailed Regional Tables: 2001
I've talked to several re: short sales here in Jacksonville, FL-most banks are not dealing yet. This is a huge disconnect to me. Considering the PMI index has JAX as 97% chance of declining market for next two years. Can anyone explain? Accounting issue I am missing?
Once again, CR is days ahead of the McCain campaign and David Brooks regarding the Republican think-tank housing mortgage bailout program. It's so ... two or three weeks ago, which in today's frenzied financial market is OLD.
dividends pay you while you wait ...
solid companies only ...
Is Intel's dividend at 4% yet ?
mmckinl
I was going through steel today. Very impressed with Posco and ArcelorMittal. Fertilizer companies also have their earnings locked in for a few years and are oversold due to their position in indexes/mutual funds/etc. All of those have dividends, stable earnings, and no credit constraints
Citi just cut Ford and GM to sell
"The number will probably rise to 20 million or more by the time house prices bottom."
CR - So does this push you into the deep recession camp with UnEmployment rate > 8% ?
Off Topic Sign of the Apocalypse:
A family member recently passed away. She was able to secure a $15,000 loan with two TVs and a stereo as collateral. We're not talking about high end electronics either.
Citi just cut Ford and GM to sell
GM responded by cutting Citi to sell.
Captain Fish,
Did she secure the loan before or after she passed away?
OT
EvilH. I bought those yen as you recommended and am up 3% already but they're just sitting in my Etrade acct. at 0%. Any way to get a safe yield?
Much thanks.
My mother has owned her house since 1992 in Fort Worth Tx it is now worth approximately what she paid for it then. After 16 years she has maybe 20000 in equity.
I am currently renting a 700k house at peak that didn't sell for 500k after a year on market for 1800 a month. I just looked it up on public records and gave the guy a call. He almost fell over himself to rent it. Fortunately he bought in 1998 so he has equity and will not forclouse. You couldn't beat me to buy again.
About 75.5 million U.S. households own the homes they live in ?
They have the power to WALK!
That's it.
Main Entry:
own
Function:
verb
Date:
before 12th century
transitive verb
1 a: to have or hold as property : possess b: to have power or mastery over 2: to acknowledge to be true, valid, or as claimed : admit intransitive verb: to acknowledge something to be true, valid, or as claimed used with to or up
Captain Fish,
Did she secure the loan before or after she passed away?
Before, shortly before. She was about as bad a risk as a lender could take. We're looking for the title to her car now; lord knows how much she got for that. Who knows, she might have a couple of condos in Florida care of Countrywide.
Rob Dawg writes:
Housing stats
Thank you
Indonesia just suspended stock trading indefinetely. That must give people with stocks a warm fuzzy.
[Kona writes:
I missed this:
Bank of America Corp. tumbled 26 percent after cutting its dividend in half and saying it plans to sell $10 billion in common stock to brace for a recession]
I sure didn't. I've been long BAC as a hedge against the weaker financials that I have bearish positions on. OUCH.
Shorts allowed tomorrow? That should be interesting
CR - Does this estimate represent only purchase money or does it aggregate home debt including 2nds/HELOCs ?
This is why the government needs to take money from the 50% of Americans who either rent or own their homes outright and use it to inflate home prices while subsidizing those who put the least into their obligations.
tew
The government should do short sells on the MBS paper they buy and kick the fools to the road.
short,
Re: when US interest rates, and therefore mortgage rates, shoot up as a result of our creditors demanding higher rates of return to fund our foolishness.
I was on here earlier today, bitching about the emergency need to lower mortgage rates and provide a covered bond like structure to separate short term liquidity problems from long end instruments that could be used to store future value. All the cash in the world is being tossed at short term obligations and that will just crash yields and increase debts for the future.
They need to shut down wall street and suspend derivative trading, like CDS, CMOs and dis-connect real assets from casino bets!
I have said this over and over, this chaos is like the Hunt Brothers multiplied by a thousand times!
Re: Exchanges could impost a "liquidiation only" requirement, which was last used to break the Hunt brothers' attempted corner of the silver market in the early 1980s.
Blah, blah...
I have been lurking here since 2005. I have never posted before.
I work in San Diego for a public agency that employs several hundred people and will probably be able to ride out any kind recession (knock on wood).
Several of my co-workers (who are the "joe six-packs" often spoken of on this blog and in the msm), bought during the bubble; however, most of them have fixed 30 year mortgages and can afford their payments.
Recently, a couple of these guys quit paying their mortgages and others are seriously considering it.
They have realized that they paid way too much for their places, and have decided to cut their losses. (one guy paid $250,000 for his Golden Hill condo and two identical units were recently sold for $80,000).
I believe, it has been questioned, here whether or not people are actually turning in their keys because they're upside down. I think it is starting to happen.
i think only 50 million of the properties are mortgaged. so 12 million households underwater is about 1/4 of all mortgages
or am i rong ?
Anyone else think the debate was ridiculous?
I talked to one employee today who decided to stop paying his mortgage 2 months ago. He bought a house for 680,000, it's worth 400,000 now. The $3800 a month meant he drove up his cc debt and took a $25,000 personal loan. His plan is to live free until evicted and pay off his other debt. He presumes that in the future, a single forclosure during the "bubble" years with no other blemishes will be treated as good as good credit risk.
He says there are many other employees in the same bought around work and the word is to stop paying and live free, save aggressively and then rent for two to three years. By then you'll have a good down payment (if you decide to buy).
The point is that this is common knowledge and a viable strategy. Many who could muster through see safety in numbers and see it as a "bailout" for the average joe.
This will be viral and hard to stop. Once it's fashionable, its all over, like what was once a hat on crooked, or pants down around your thighs, now becomes the proper way to dress.
Texas Thread Music:
YouTube - I Don't Wanna Play House
TAMMY WYNETTE
I Don't Wanna Play House
Point is we are, most are, under water - we owe more than what we are worth.
John McCain, the socialist. He has no clue on the financial and economic crisis we are facing. He'll say anything to get elected. What a fraud.
I thought McCain was ridiculous...
McCain tonight:
"As president of the United States, Alan, I would order the secretary of the treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes -- at the diminished value of those homes and let people be able to make those -- be able to make those payments and stay in their homes."
Woohoo! Gravy Train time...
(Only 300 Billion according to McCain's campaign). What if the value today is only gone down half of what the neighborhoos will experience? Can you line up twice or three? Do all home debtors get to say 'renegotiate me'? Who decides which mortages will get stamped 'bad debt worthy of government purchase'?
Any this the candidate of fiscal responsibility? And the candidate of the party that hates government intervention?
circuit breakers or rally tomorrow???
Honestly I thought both were pretty ridiculous. Each would say anything to win.
This should be done in the morning in London and then wall street, i.e, instead of silver, place restrictions on derivatives and shut SIFMA down and all the fucking lobby groups! I'm serious as hell!
FYI: Finally on January 7th of 1980 the COMEX changed their rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. . The CFTC promptly backed up the ruling. On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt's silver position was worth $4.5 billion dollars bringing their profits in silver to $3.5 billion dollars. On January 21st the COMEX announced that it was suspending trading in silver. They would only accept liquidation orders. Silver dropped $10/oz and stayed around $39/oz until the end of January. Scrap silver, old silver coin collections and silverware came into the market - about 22 million oz in all. In early February the Hunt group took delivery of another 26 million oz from Chicago. The Hunt's North Sea oil through Placid Oil was coming on line and generating $200 million /year from that venture alone. There was talk of a takeover of Texaco Oil. Bunker was also talking to other Middle Eastern rulers about putting together another silver buying group.
H.L. Hunt's Boys and the Circle K Cowboys
Does this estimate represent only purchase money or does it aggregate home debt including 2nds/HELOCs ?
The whole tenor of the article, including anecdotes, was "aggregate."
Meanwhile, lurker and Average Joe, combined with the colander hats here, make me wonder if I should be upgrading ancient armaments.
Can people just email him their statements? Or does he also want them to send in the keys to Republican headquarters?
oops | 10.08.08 - 12:15 am | #
The 'mother of all pandering' - might work too - that is work in winning him the Whitehouse.
Wahoo, I just won 500,000 pounds in the London City Lotto Online Programme. This is really great news.
o/t
I see nothing but a sea of red, Asia takes a hit!
What's interesting is that Roubini has predicted 40% of all US homeowners to be negative in equity before this debacle ends... and that 1-in-5, as a conservative estimate, will utilize "jingle mail."...
Then what?....
401 Killed
Korea Won Drops to Lowest Since 1998 as Dollar Shortage Deepens
Korea Won Falls to Lowest Since 1998 as Dollar Shortage Deepens - Bloomberg.com
Oct. 8 (Bloomberg) -- South Korea's won slumped to a decade-low as a seizure in global credit markets forced banks and companies to tap currency exchanges to meet their dollar financing requirements. ...
Do all home debtors get to say 'renegotiate me'? Who decides which mortages will get stamped 'bad debt worthy of government purchase'?
Your voter registration card might be a clue, at least for the next 3 1/2 months.
suspend trading indefinitely. hookodanod?
Remember the theory that when our real estate crashed (like in florida) that due to the weak dollar we'd have European investors swooping in to buy up property on the cheap.
I also thought perhaps a severe drop in our stock market we'd have foreign investors comming into to buy cheap shares. Even I didn't imagine a simulataneous global sell-off in stocks, commodities, and realestate.
This is one scary time.
I thought we'd be close to bottoming at these stock price levels, but we have too much pain to still get through. I was gonna buy when we got into the 8000's (thinking it may go to 7700 but not lower). Now I don't know what the hell I'm gonna do with all my cash.
Average Joe- I do a lot of "micro" economics research, i.e. ask all of my neighbors how they are doing. One told me one more year until they get US passport and they will be walking...away from 5 properties and going back to home country. Average Joe and Jill now know they can live rent free for a year or more. Hence, my short sell question above.
Jim...I agree, that was the most ridiculous statement of the night.
Why not just buy and raze every third house. Probably would cost the same and would definitely cut supply. Neighbors would be pissed but we could give them stock in CAT
[one guy paid $250,000 for his Golden Hill condo and two identical units were recently sold for $80,000]
70% OFF SALE! Nice!
Wow: Nikkei -648.42 @ 9,507.48
http://www.nni.nikkei.co.jp/CF/FR/MKJ
Jingle mail is utterly foolish.
Why mail back the keys when you can live rent free? Not only that, if you have a Countrywide mortgage they might reduce the interest and maybe even the principal. With a potential upside like that, I'd stop paying and ask my lender to sell my mortgage to Countrywide/BofA.
[circuit breakers or rally tomorrow???]
I am taking both sides out of the money on the SPX.
just got home and flipped on cnbcporn
surprised to see a technical analyst who was actually honest
maybe we see a small short term bounce but longer term 1-2 years more of grinding bear market
to me that means we'll reverse to somewhere around 96-97 levels, maybe 60-70% peak to trough
sounds about right to me, and would be absolutely vicious to go through
are you kidding me writes:
Jim...I agree, that was the most ridiculous statement of the night.
It was one of the smartest statements of the night - from a visceral emotional J6P political calculus. They might as well have said, to paraphrase George C Wallace (circa 1968) ... "We aren't going to be 'out mortgaged'." If you are old enough to know Wallace's original quote then you'll understand the irony.
The CBOT launched the worlds first interest rate futures contract, Government National Mortgage Association (GNMA), in 1975. A year after the CBOT tested the waters, the CME listed a U.S. Treasury-bill futures contract. The CBOT volleyed with the U.S. T-bond contract in 1977. Federal Reserve Chairman Paul Volcker provided the boost that the interest rate futures markets needed with his October 1979 announcement that the Fed would focus on the money supply rather than interest rates in fighting inflation. With that, the market was free to establish interest rates, and with rates in double-digits, interest rate risks were on the front burner and so was interest in interest rate futures.
Nikkei -743.82
Anyone know how to find out increases in common search terms in google? I have seen people refer to increases in search terms like "recession" as a leading indicator?
"walk away" probably has seen a significan increase in hits.
Just guessing.
yogi,
To be clear, I didn't tell you to do anything -- you took the risk and you won the gain. I can't recommend trading on the Japanese market because funny things do happen, however if they are crosslisted like Honda or Nintendo ... maybe. Honda will stay healthy, I know their company from the factories on up; but this will not be a boom time for Japanese exporters.
I don't know how your account works or what you have access to, but maybe you want to keep playing with currencies?
US Earnings: Company Earnings Calendar - Yahoo! Finance
I think come Friday we'll start to see some buying of winners to separate them from the global 40% equity decline. If shorts and regulatory stability come back, that allows the options markets to set up resistance levels and give some confidence that people are not buying into a freefall.
Heavy manufacturing has slowed down, or have no orders lined up. I like steel (I see the contradiction but consolidation brings efficiency and pricing power. India + China are still growing demand with orders safe through 2012), I like fertilizer (you can't rebalance trade by cutting food supply, relative price increase at least, also medium term locked in contracts), and I like tech but there are some big forecast revisions to come from the big-tin players so wait that out. In fact NASDAQ has had the most decliners by volume for a while,
. I wouldn't consider buying anything until liquidations/unwindings slow down, so look for advancing stocks to be 40%+, and up volume to be 30%+ before taking a long hard look.
Advances & Declines - Yahoo! Finance
As for Intel someone mentioned above, I think AMD will win their anti-competitive lawsuit against Intel. The Mubadala deal is exactly what AMD should have done, the new CEO is an improvement. That will give it a pop, but Intel's key operations are extremely good. Intel may carry significant debt, but only because its profitable, they have excess cash.
Unlike past recessions, computers below the server level are not expendable purchases and much more is spent over their lifetime in support costs than the capital purchase. CPUs have a healthy future as computers trickle down into smaller and smaller cracks like netbooks/cell phones are doing. They are now a commodity like pencils and pens.
Now for my question. When there is a first mortgage, second mortgage and a home equity line of credit -- what are the seniority rankings of that debt? 1. Sr mrtge 2. Jr mrtge 3. HELOC?
ikkei going into freefall
this is now becoming real, and scary, even for a realist like me
EMB- re: short sales.
Read bubbleinfo.com Jim Klinge posted his experiences with short sales and it's just a big clusterf*ck with no happy news for the lender.
Bearly writes:
[circuit breakers or rally tomorrow???]
I am taking both sides out of the money on the SPX.
Bearly | 10.08.08 - 12:47 am | #
Could easily be up 500 or down 500. My guess is a repeat of today. selling into morning strength results in afternoon free fall.
anyone with a link to realtime Nikkei
If you are old enough to know Wallace's original quote then you'll understand the irony.
Sorry, I was in Vietnam that year. Missed the election. Didn't matter, though, I wasn't old enough to vote.
Sidd, I think the number of mortgages is slightly over 50 million. Something like 51 million or 53 million. Another 31 or 32 or 33 million own homes outright (including me on 1).
20 million of 50 million would approach a 40% underwater rate at the peak. A few months ago I thought Zandi and/or Goldman Sachs were predicting a 30% underwater rate on mortgages at the peak.
If we get a 40% underwater rate, the national equity number is going to be significantly below the recent 45% reported (which itself was the lowest in history).
its above a few posts - nikkei
Re: nikkei going into freefall
They need to take a longer tea break!
thanks
Oh my G0D!
\t-1,960.94
Now -702
stdfs-Thank you
Japan has stopped being orderly. Sake wore off and traders are grumpy.
...no, bouncing back by 90 points. Wheeeee!
OT, but what happened to Wachovia? Sheila said there was going to be a resolution on Monday, but now Tuesday's come and gone with no news.
free falling. you ain't seen nothing yet.
Ok, if nobody here doesn't get, the derivative markets will have to be suspended immediately, with no chance of opening until a full blown suspended market can be established!
I had no idea Japan watches our presidential debates.....
Anyone know how to find out increases in common search terms in google? I have seen people refer to increases in search terms like "recession" as a leading indicator?
Google Zeitgeist
Ooops, wrong screen....
So what does Harry and Harriet Homeowner worry about more: their upside-down mortgage, or their imploding 401k? Decisions, decisions.
Are there any figures (estimates) available for what the $$ value is of this underwater equity?? That would be the price tag for McCain's "ponies for deadbeats' economic plan announced tonight.
Nikkei will have to hold the loss at 707/708 to match the Dow at 9447.
Why doesn't Japan get its own index, anyway, and stop copying ours?
The Commodity Futures Modernization Act of 2000 or CFMA (H.R. 5660 and S.3283) is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single stock futures in 1982. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts.
Contents [hide]
1 Legislative history
2 The "Enron loophole"
3 H.R. 4577
4 References
This act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000; the legislation thus became law as a part of H.R. 4577 - Public Law 106554, §1(a)(5).
The act has been cited as a public policy decision significantly contributing to Enron's bankruptcy in 2001 and the much broader liquidity crisis of September 2008 that led to the failure of Lehman Brothers and American International Group[1] and to the creation of the U.S. Emergency Economic Stabilization fund.
A dive like this on the Nikkei is going to tank the NYSE tomorrow... The orderly selloff will be done with.
Average Joe:
Google Trends: Dec 7, 2009
Any foreigners watching the debate must have an itchy trigger finger to sell treasuries.
google trends...
Google Trends
Google Zeitgeist
Hmmm, if the government offered to purchase 300 billion in bad mortgages, it seems like the default rate would go from under 5% (?) to about 80% in a heartbeat- don't you think? I mean, why the hell not?
i heard the mikkei and dow are being merged so as to keep the value above 9k (and to save administrative expenses)
thanks for the google links you guys. I'll play with it for a while
2.25% feds fund rate cut tomorrow
mikkei that was a nice typo
So what does Harry and Harriet Homeowner worry about more: their upside-down mortgage, or their imploding 401k?
Google Zeitgeist: it appears they are more concerned with #9) Aubrey being kicked out of danity kane
The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron loophole," 7 U.S.C. §2(
(3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by lobbyists for Enron working with senator Phil Gramm[3] seeking a deregulated atmosphere for their new experiment,
BTW- ZOFO, that album's got a lot of song lyrics that are appropriate for these times.
Bets on whether the NYSE even opens tomorrow?
does anyone in Nippon suffer from fat finger disease?
besides the Sumos....
EHP
I think that's the order, although many second mortgages will wouldn't see a penny after foreclosure in this this environment.
Thanks for the help. Have no fear, since I'm not paying you anything, you can be Wall Street and I'll be the taxpayer, as to gains and losses.
PeakVT writes:
So what does Harry and Harriet Homeowner worry about more: their upside-down mortgage, or their imploding 401k? Decisions, decisions.
PeakVT | 10.08.08 - 12:56 am | #
Their jobs - even people in their early 60s worry most about their jobs - all else evaporates FAST if they lose their jobs before they are 'safely' into retirement.
That's what has the wonks scared more than anything - the wave of job loss coming.
"The $3800 a month meant he drove up his cc debt and took a $25,000 personal loan. His plan is to live free until evicted and pay off his other debt. He presumes that in the future, a single forclosure during the "bubble" years with no other blemishes will be treated as good as good credit risk."
This should be the best evidence possible that humans are actually very economically rational, contrary to what has bedeviled many economists.
It's also the undoing of our capitalist system because it says that the best, winning-est, most rational choice is to renege on commitments and push the cost of your default onto others. With little to no cost to the least responsible, least law-abiding, least contract-respecting members of society.
We have arrived at the point where greed, speculation, and lawlessness are rewarded and anyone who makes the sacrifices necessary to meet contracts and commitments is exposed as a dupe.
I have reached capitulation - I don't believe in this country, this system or this government anymore.
Oct. 8 (Bloomberg) -- Indonesia's stock exchange halted share-market trading after equities plunged.
Trading will remain suspended until further notice, the exchange said in an e-mailed statement. Exchange President Erry Firmansyah couldn't be immediately reached on his mobile-phone to comment on the suspension
the statistic of upside down mortgages is sort of like the tsunami
on the whole it is a statistic, almost unable to be comprehended
on the granular level, it is a tragedy, and has real visible effects that threaten to destroy the fabric of our society
gold seems to be going up, hmmm
CathyG,
Im with you.
Very hard to shake the cynacism.
a person's job is his/her bond
you put in your human principal (capital), out comes a nice coupon payment
if the coupon payments stop, uh oh, your human capital is now worthless
defaulting on your own bond is as bad as it gets.
Re: Indonesia's stock exchange halted share-market trading after equities plunged.
I would think you will see a wave of closings and then London should close and get nasty with derivative pirates!
Their jobs - even people in their early 60s worry most about their jobs
True, that.
Also, I was previously unaware of Danity Kane. Damn you, learning curve! (Hopefully I'll never hear them.)
Yen/USD now 101. I remember when 117 was going to be the tipping point crushing the carry hedgies. Wow.
CathyG - spot on. I think a lot of folks on this blog have reached that point.
Indonesia's stock exchange halted share-market trading after equities plunged.
Fools, they could have pulled a Pakistan and made everybody a lot of money instead.
And people thought I was kidding Saturday when I said the there was a possibility of the markets not opening.
lurker, AverageJoe, EMB; re: People just walking away
I have for some time talked about the change in culture when it comes to bankruptcy when it is common. That is once a certain level is breached, the tipping point is crossed and acceptance of bankruptcy becomes viral.
For this reason more than any other I think some economists underestimate the level of defaults/foreclosures even once they accept prices will return to historical rent to income or case-shiller levels.
It is very logical to walk away from a negative equity mortgage. You record an instant sale profit, would only be a blemish for 7 years at worst but if credit companies play tough-love with everyone that had such a blemish (one unlikely to be repeated) then they would kill their own business, and in a time of increased cost-of-living it sure helps out a monthly budget. I didn't mention the costs such as the hassle of moving, sentiment, or social embarrassment because people find it easier to do anything if its for money, and we're talking about a lot of money.
I didn't even mention that homeowners are on to the game that their mortgage will not be renegotiated until they stop payment for a few months. So in terms of game theory, even if you absolutely do not want to move -- there is an advantage to apply pressure to the lender
you know its bad when a market holding the line at a 7% decline is considered a victory
Rob Dawg,
you may be on to something.
Put the whole trading session in a SIV and call it a day. Mark to Myth at Dow 10,000.
Their jobs - even people in their early 60s worry most about their jobs - all else evaporates FAST if they lose their jobs before they are 'safely' into retirement.
Not quite there in age, but I do prefer 'semi-retired' to 'underemployed' myself. It's really just an attempt to maintain a shred of dignity.
Not hard to understand.
On policy, agree that's what scares the hell out of the wonks.
There is no distinction between a 'hungry mob' and an 'angry mob.' A full stomach, though, makes the world seem far less threatening.
They know that.
Walking away ?
What about the CEOs who get the sack and walk away with tens of millions ... ?
What's good for the millionaires is good for JP6
Maybe we will witness an epic generational paradigm shift in social norms and people will walk away from wall street and government. Global anarchy?
can we peg the us equities markets like iceland has tried to peg the krona?
and evilhp - sadly (or not?) you are dead on. this is the proverbial next shoe to drop.
the nikkei chart on that link has the line drawn off of the chart now! that is funny stuff
The Big Picture
Someone needs to do this for CNBC.
Network - "I'm as mad as hell" speech
YouTube - Network - "I'm as mad as hell" speech [english subtitles]
A full stomach, though, makes the world seem far less threatening.
And a warm place to sleep...
Motto for the midterm elections of 2010:
"Three hots & a cot for everyone!"
Howard Kurtz - Press May Own a Share in Financial Mess - washingtonpost.com
WAPO
Press May Own a Share in Financial Mess
"Charlie Gasparino was so anxious to get on the air that he phoned in to CNBC, rather than walking to the studio, to report that nervous federal authorities were considering a bailout of the insurance giant AIG.
"I was sweating through my underwear. That was scary,"
"I was sweating through my underwear. That was scary,"
Erin maybe but NOT Charlie...
yogi, if you want a sense of currencies becoming overbought/oversold take a look at the following chart
USD/CAD Currency Conversion Chart - Yahoo! Finance
It takes the comparison back to 2003 when things last unwound and found a level of stability. Right now we're seeing a temporary spike in USD + JPY for financial settlement, combined with European currencies coming back down from their speculative valuation which their 60:1 banks helped support.
Even if we see catastrophic economic destruction, we'll at least pause at those levels first.
If anyone is interested in what impact the US switching from net borrower to net saver will have on the economy, and specifically balance of trade. Good short vox eu article, Aug 8 Vox EU article, What must happen to fully rebalance the US current account?
So What? It's a snapshot and most homes are not that far under water. Not the first time this has happened and it won't be the last. The point isn't to treat your primary residence like an investment, rather to treat it as shelter. Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
Kona writes:
Maybe we will witness an epic generational paradigm shift in social norms and people will walk away from wall street and government. Global anarchy?
Kona | Homepage | 10.08.08 - 1:09 am | #
Better hope we don't have anarchy - that's a sure fire way to see the planet drop population by say 3 billion people in a hurry... and a not very pleasant hurry.
Anarchy works fine in a sparsely populated resource rich world - not on a stretched to the limit over-populated planet.
"I was sweating through my underwear. That was scary,"
Hmm. It used to be called pissing your pants. I wonder what other new euphemisms there are out there.
While he's at it, McCain needs to cover my stock losses and help me with payments on my sports car. The payments are just killing me - isn't it supposed to automatically reduce until I can afford it?
This is a big middle finger to all Americans who were responsible enough to have real equity in their homes. Why did you put your life savings into a down payment, when 0% down would give you the same equity with fixed interest to boot? McCain's government supplies your down payment retroactively!!
Indonesia's stock exchange halted share-market trading after equities plunged.
Second 10% drop this week. That's gotta hurt. Locals probably got crushed by hot money.
Hong Kong to cut base lending rate by 1 percentage point - MarketWatch
Hong Kong to cut base lending rate by 1 percentage point
The Hong Kong Monetary Authority said Wednesday it will cut the city's lending rate by 1.0% effective Thursday. The HKMA, which manages the city's U.S.-dollar pegged currency, said it would change the formula it uses to set the base rate, reducing the spread above the U.S. federal funds rate from 150 basis points to 50 basis points. The reduction will bring Hong Kong's base rate to 2.5% from the current 3.5%.
Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
Tom Lindmark | Homepage | 10.08.08 - 1:14 am | #
Easier said than done - a lot of the underwater should have thought of that say six or ten years ago but instead listened to some asshat real estate broker instead and bought WAY more than they could ever afford. After all real estate only goes up.
Better clean out the lifeboat for tommorrow.
Wherever might Sebastian be?
Have a look at the carnage going on in asia.
Major World Indices - Yahoo! Finance
Sure, this puts a lot of homeowners at risk of default, but the real hit here is on the resale market, especially for trade-ups. No equity, no sale, definitely no trade-up.
Bubble markets (like here in SoCal) were built up on decades of equity trade-ups. No more.
First Quote Of The Day:
Banking Finance Editor Patrick Hosking "No one trusts the banks anymore, it has to come from politicians."
That's one hell of a choice.
Mish's Global etc.
Sebastian is probably out thinking this is just mental depression.
河豚
ふぐ
Lefty! Do you deliver?
I think I hear Sebastian banging on the hatch of the bankerdome right now. Seems he is having trouble turning the key on the Wright Model B padlock. It could be he's having trouble because the lock is placed inside a depression in a convex area.
Correction:
Sebastian is probably out thinking this is just a "mental" depression.
I cannot see her tonight.
I have to give her up
So I will eat fugu.
Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
I think a lot of those who bought way more than they could afford, also thought they'd be moving in a few years; to take advantage of the appreciation(!) don't cha know?
ikkei is trying its hardest make sure it matches dow's close to equivalent significant figures
will make it easier to track relative percentage moves going forward
GOVERNMENTS and central banks do not understand markets, so it is "foolish" to trust them to resolve the current global financial crisis, British rogue trader Nick Leeson said.
Leeson gives fraud speech
Nikkei down 72% from all time high and still falling. Nick Leeson croaked at Nikkei 19,000. DOW only 35% down. Long way to go.
Those Wright B's were never meant to fly in a hurricane.
dryfly,
I agree with the concept that some people bought more than they could afford. If they did and can't afford the true cost now that their mortgage reflects a real world interest rate then they can give up the property. Not get bailed out.
If they bought what they could afford and just got caught in the downdraft, then my comment is still valid. Don't worry about the current value, it's irrelevant. By the time they pay it off, the house will probably have appreciated. If not, they still have shelter and an asset free and clear.
Exchanges in Russia and Brazil halted trading as their benchmark indices plummeted 18 and 10 per cent respectively.
India's Sensex index lost nearly 6 per cent, as foreign investors fled amid fears that a serious global downturn beckoned.
China's CSI 300 Index lost more than 5 per cent, to extend its losses for the year to 60 per cent.
"Foreign funds are panicking," said Deven Choksey, of KR Choksey, the Bombay brokerage.
The Indian slump has been driven by the exodus of nearly $US10 billion in overseas money this year, as investors seek sanctuary in US Treasury bonds.
Tomorrow: Court for Citi + WFC for WB. Expect for each of those stocks to lose on whatever the result.
Also WaMu and Lehman CDS settlements are coming up. Lehman one could be interesting as it seems a lot of people distrusted them in their final months
International Markets Home - Markets Data Center - WSJ.com
I like watching all the obscure markets now, makes for some kind of red-tinted modern art
Leftys Liquors and Lubricants writes:
Better clean out the lifeboat for tommorrow'
Wait and see for a couple of days!
strangely, the European indexes have been down little yesterday
These folks that are underwater... if they leave they'll be renters for the foreseeable future.
No credit, no equity, no savings, no stock or bond value, and (before too long) no pension either.
all that glitters is not gold, especially if it's paper
Asian markets plunge to new low - Times Online
Asian markets plunge to new low
Tom Lindmark writes:
Regardless of its cost relative to its current value, pay it off and you have some place to live for the rest of your life.
dryfly writes:
. . . a lot of the underwater should have thought of that say six or ten years ago but instead listened to some asshat real estate broker instead and bought WAY more than they could ever afford.
I actually feel bad (okay, just a little bad) for those who drank the koolaid and overbought. It was hyped constantly to them.
I don't have any sympathy for the HELOC crowd, though. Their overindulgent consumption was pathetic. It was like everyone in town won the lottery.
I'm watching the 'walk-away' story with great interest. I want to see how many of these "underwater due to spending habits" people honor their commitments . . . I'm not optimistic.
"underwater due to spending habits" people honor their commitments
They made commitments?
we're not out of liquor, we're out of liquor deliveryboys. But call now for your breakfast-opening bell favoites. And remember, we feature Val-U-Rite brands.
Crap, I'm going to bed, Bloomberg is too depressing.
sdtfs writes:
Hmmm, if the government offered to purchase 300 billion in bad mortgages, it seems like the default rate would go from under 5% (?) to about 80% in a heartbeat- don't you think? I mean, why the hell not?
A rational actor in the economist's Universe would stop payment on a current mortgage so as to become a "bad mortgage" subject to repricing under McCain's policies, save that money in a mattress or somewhere more obscure, and if Obama got elected negotiate a redo on the mortgage. Or just live rent-free and move out when the sheriff arrives. Someone asks where the money went, you blew it in Vegas.
I am not advocating this approach, but it is rational. If I were a policy maker, I would think about these things. McCain clearly has not. Repricing bad mortgages is going to reprice everyone, and who wouldn't want to be on the bad mortgage gravy train. This single policy, at least as stated, is a knockout punch for McCain (self inflicted) in my eyes. He know not what he doeth.
Tom - I'm not calling for bailout... I'm just saying its too late for the 'house as home' meme for a lot of those who are now underwater or soon to be.
There are just a whole lot of people who can't make their payments AND make their other payments... something is gonna give. They could only justify their current price of their 'home' based on HPA & teasers especially if they could serial refi & HELOC the HPA... without that they were screwed.
Now they are screwed - a lot of them. To lecture them that well they should have known better & only looked at their house as home and not an ATM is well a little late. That train left five years ago.
Dollar Falls Below 100 Yen, First Time Since Apr 1 - Bloomberg News
Tomorrow: Court for Citi + WFC for WB. Expect for each of those stocks to lose on whatever the result.
WFC will win in court and therefore its stock will drop more than C.
I have a buy order on WFC at 12.
It might take a while (GTC).
Nikkei Down 895.52!!!!!!
why the sudden drop (2% in like 1 minute)
Lehman has 228 adhering parties for its settlement auction
Fannie + Freddie for comparison had 651
Everybody and their dog are with the Lehman one.
I've never been involved with CDS, but I take it the adherence are the parties agreeing to let the ISDA set the price and close the contract, while the bidders list should have the parties with the most to gain/lose playing. I can't remember how many of the bonds are auctioned off, but its a minority and they take the middle price and that's what everyone settles to
CDS Index futures give institutional portfolio managers a simple means of acquiring or laying off standardized investment grade corporate bond price exposure. For many users, CDS Index futures should result in lower administrative costs relative to over-the-counter (OTC) alternatives.
Each day CDR LLC publishes the spot value of the CDR Liquid 50 index.
By combining appropriate numbers of CBOT CDS Index futures with CBOT 5-Year IRS futures, an investor or trader can assemble a futures position that mimics the price exposure of a generic portfolio of liquid investment grade US corporate bonds.
As noted earlier, the underlying reference for CBOT CDS Index futures is the CDR Liquid 50 North America Investment Grade Index, maintained and published by Credit Derivatives Research LLC.In broad overview, the index mechanism is delightfully simple: an arithmetic average of standard 5-year single-name credit default swap spreads, quoted on each of the 50 corporate names represented in the index. Index components are selected on the basis of their credit quality -- all must be issuers of investment grade debt and on the basis of trading activity in the single-name credit default swaps that reference them.
Using CDS Index futures eliminates the administrative (e.g., accounting, manpower, record-keeping) costs frequently required in maintaining a book of OTC credit derivatives.
WFC will win in court and therefore its stock will drop more than C.
How about all the new holders of BAC? Instant losses are likely if the trend continues.
re: Nikkei down 895 ... oh crap!
Somebody wake up W! We need some leadership now!
The price of houses are now guaranteed by the government! They will not be allowed to drop, but if they do you will get a payout by the government for the difference!
Make the lowest down payment you can, 0% if possible! McCain will give you instant equity by lowering your mortgage balance each year on a down year. Then it's free money on the up years.
Take out as many HELOCs as you're allowed! If you get underwater, the government guarantees you and pays you the difference! If you appreciate, that's another HELOC of free money!
America just invented 3 new business models for banks to leverage. Money really does grow on trees, starting today!
I am not advocating this approach, but it is rational. If I were a policy maker, I would think about these things. McCain clearly has not.
McCain ABSOLUTELY has thought his policy through - all the way to the Whitehouse! Worry about that later - its the election he has to win first.
He has drawn a line in the sand... he will not be 'out mortgaged' by Obama. It was political calculus not economics he was considering...
CME Group (CME Group | Page Not Found is the world's largest and most diverse derivatives exchange. Building on the heritage of CME, CBOT and NYMEX, CME Group serves the risk management needs of customers around the globe. As an international marketplace, CME Group brings buyers and sellers together on the CME Globex electronic trading platform and on trading floors in Chicago and New York.
So about 25-30% of all home loans in potential default????
The dollar fell below 100Y - think that accelerated the Nikkei fall. They should just close it, too.
Love the banner ad CR. "Not a bank". Bank a new four letter word???
Bankers Might Need 50 Years to Regain Credibility: Joe Mysak - Bloomberg.com
Bankers Might Need 50 Years to Regain
How long will it take to rehabilitate the profession? Is it three years? Five years? A decade? Fifty years?
One thing to talk about how many homeowners are underwater and quite another to talk dollars. I suspect a lot of those owned outright homes are old and cheap. The underwater homes are new and financed to the hilt.
Number of owners underwater is a screwy metric. How much is better question.
Um, didn't that subsidiary just declare BK? or was that another Lehman sub? it's so hard to keep track these days.
Anyone?
Check this out:
Video - CNBC.com
Around 3:20 she reports that some European stores are no longer accepting UK credit cards.
Stick around until 5:15 and you will hear a good quip that Hank hired the winner of the "Dr Evil look alike contest" to run the $700B bailout.
DJIA futures down 193
"Somebody wake up W! We need some leadership now!"
Please God let him go on vacation again.
LJR writes:
One thing to talk about how many homeowners are underwater and quite another to talk dollars. I suspect a lot of those owned outright homes are old and cheap. The underwater homes are new and financed to the hilt.
Number of owners underwater is a screwy metric. How much is better question.
Indeed. I remember sfdfs (?) making that very point at some time in the sped up past (a week? two weeks?)
It is truly ugly in "have a mortgage" land.
It's also the undoing of our capitalist system because it says that the best, winning-est, most rational choice is to renege on commitments and push the cost of your default onto others. With little to no cost to the least responsible, least law-abiding, least contract-respecting members of society.
Our version of the moral damage of the Weimar inflation. As Pearl Buck said about the Weimar inflation:
They had lost their fortunes, their savings; they were dazed and inflation-shocked and did not understand how it had happened to them and who the foe was who had defeated them. Yet they had lost their self-assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, of ethics, of decency.
Why do I even have a 401K and a Roth if it's only in a money market...
I'm a sucker, that's why?
sdtfs!
Dryfly,
No lecture intended. My point, which perhaps I made poorly, is that if you are in the fifth year of a 30 year mortgage, in a comfortable house that you and your family enjoy and have gotten nicked for $10K or $20K don't buy into the idea that you should chuck it all. There is more to it than just an investment. If you treated it like an ATM and have no hope of paying the mortgage or ever getting back to even then walk.
By the way, I don't buy into the concept of bailing any of these people out regardless of the situation. It is however going to take some grass roots screaming to get the politicians to understand that 94% of us don't want to pay for the other 6%.
Nikkei down 6% tonight looks bad, but looking at fed sponsored, credit-binge 20 year prices for DJI and SPX, and where they're going to catch up to Japan, is worse.
Steady As She Sinks.
ikkei is trying to win the race to 8000
no fair they have a one day head start on us
How long will it take to rehabilitate the profession? Is it three years? Five years? A decade? Fifty years?
FFDIC | 10.08.08 - 1:41 am | #
Took 50 years from 1930 to 1970... before the public looked favorably on banking as a 'profession' again. Something like that. Could repeat.
He has drawn a line in the sand... he will not be 'out mortgaged' by Obama.
reminds of the dem. primary, when Clinton and Obama were talking economic stimulus packages. Clinton threw out a number and the following day Obama added $10B to Clinton's number...
Like they say on Jack FM (SoCal): "Your 401k is more like a 0.01k." :/
dryfly writes:
Anarchy works fine in a sparsely populated resource rich world - not on a stretched to the limit over-populated planet.
If by anarchy you mean widespread state failure -- you'll never see it outside the context of a crisis like a resource-starved overpopulation.
The nature of administrative technology is such that it allows untenable situations to persist until they reach the tipping point where nothing can keep them flying. That's not really the purpose, but it's the effect.
You don't get failure to provide political goods during fat times because prosperity papers over compromised administrative and logistical structures. It's when things are really tight that you find out who can't cut the mustard.
It's during administrative / logistical pinch points that vested interests' ability to game the system via influence becomes apparent. Critical constituencies postpone or preferentially frame reform until the system is past the tipping point where there are time and resources to implement policy choices critical to systemic survival.
Sometimes you get effective reform, sometimes you get a systemic lapse that provides a bookend to an epoch. These failures are relatively common, but it's in the nature of states seeking legitimation and the ego of man as a species to minimize these concerns as those of a bygone era.
The Nile in the ancient Egyptian Litterature
The sage Ipu-wer from the First Intermediate Period in 2150 BC described the situation in Egypt on a papyrus, which is now in Leiden, Netherlands, when the Nile was merciless to the people because of civil war, hostility, and disorder: "The man goes to his field carrying his shield ... The wicked are everywhere ... the great ones of yesterday are no more there ... The Nile inundates, but none ploughs his field ... everyone says, 'We don't know what happened to the country ... ' Khnum ceased creating (new) children ... the situation in the country is bad ... the poor became owners of precious things ... the one who didn't have a sandal (was barefoot) before, became rich. Hostility is upon the whole land and blood is everywhere ... The dead were buried in the river that became a cemetery and the place of embalming is the river ... The river became blood ... Both old and young say, 'I wish I could be dead.'"
Took 50 years from 1930 to 1970... before the public looked favorably on banking as a 'profession' again. Something like that. Could repeat.
Oopps meant to say 1980 (Reagan years)... time to go to bed. Crash will have to go on w/out me.
ikkei now going for the full wipeout
i always appreciated the japanese sense of honor - whatever you do, do it to the best of your ability
-930
Nikkei down over 9% -921
uugh -930
cleaning shotgun
How long will it take to rehabilitate the profession? Is it three years? Five years? A decade? Fifty years?
About 20 years in modern America. Look at the repeats: 80s to 00s for the bubbles, 1980 to 2000 for presidents offering a free lunch.
996, so close to the big 4 digits, but then they backed off, maybe they really want the americans to take the lead
-996 Ughh is right
but much more important
yen broke through to 99 against usd
that is way more important
carry is unwinding furiously now
-970
*******>>>>
$60 trillion unregulated CDS market
1.What are credit default swaps (CDS)?
CME Group | Page Not Found
What are the current trends in the credit derivatives market that prompted the CBOT to list a futures contract on a CDS index?
The credit derivatives market has been one of the fastest growing markets over the last two years. According to the British Bankers Association (BBA) 2006 Credit Derivatives Survey, the global credit derivatives market has grown from $5 trillion notional outstanding in 2004 to $26 trillion in 2006, and it is projected to grow to $33 trillion by 2008.
Is off-exchange trading available for CBOT CDR Liquid 50 NAIG Index futures?
Yes, CBOT CDR Liquid 50 NAIG Index futures are eligible for Exchange for Physical (EFP), Exchange for Swap (EFS), and Exchange for Risk (EFR) trades. In addition, wholesale transactions are available in amounts greater than 100 contracts (i.e., approximately $100 million notional value). This allows market participants to negotiate trades in an OTC environment with the streamlined clearing and operational efficiencies of an exchange-traded contract.
CME Group's clearing member, Lehman Brothers Inc., is a subsidiary of
Lehman Brothers Holdings Inc., but is a separate company with its own
accounts, assets and customers.
The New York Federal Reserve is hosting a meeting with financial institutions this week to discuss plans to develop a central counterparty for the roughly $60 trillion unregulated CDS market, according to press reports. CME and ICE are seen as the biggest potential beneficiaries and are reportedly in talks with the Fed to create a CDS exchange.
How long will it take to rehabilitate the profession? Is it three years? Five years? A decade? Fifty years?
About 20 years in modern America. Look at the repeats: 80s to 00s for the bubbles, 1980 to 2000 for presidents offering a free lunch.
Sooner. They'll just change the name of the profession and pretend it's something new. Look at multi-level marketing schemes!
Erin is going to moan on about this tomorrow guys. I can hear it now.
If by anarchy you mean widespread state failure -- you'll never see it outside the context of a crisis like a resource-starved overpopulation.
But the systemic 'safety valve' is depopulation... that was my point... not that anarchy is impossible in our over stretched world but that you don't want to 'wish' for it. It will produce a self-correcting set point.
Imagine the 'Nile' document on the whole planet w/ 6, 7, 8 billion people.
I was looking at some auctioneers because they should be priced off cash flow, which for some will be picking up as industrial debtors default on loans (rates are high enough and the economy is not great looking forward)
Anyways, long story short: I found the world's best recession indicator. Sotheby's stock, it only goes back to 1988 but it gives about a 1 year warning before it peaks around the time of a recession starting
Sotheby's - Google Finance
Ok .... just, wow. Wow.
NNNgggnnahhh. Or something.
FFDIC writes:
Erin is going to moan on about this tomorrow guys. I can hear it now.
FFDIC | 10.08.08 - 1:53 am | #
Erin moaning? That should be good for ratings no?
FFDIC writes:
Erin is going to moan on about this tomorrow guys. I can hear it now.
mental image of Santelli standing on a deserted trading floor
the yen usd is the single most important cue to the us equity markets
its rapid break to under 100 is a major major event
I found the world's best recession indicator
And we're going to name it the EvilHenryPaulson Model A.
1.What are credit default swaps (CDS)?
Boom goes the CDS | The Economist
Economist - Boom goes the CDS
looks like theyll escape the 1k
Anyone have real-time on the mini DOW?
monta, I was just reading (either Bloomberg or Reuters) and $/Y was below 100 in March, it said.
mental image of Santelli standing on a deserted trading floor
Anoddamoose | 10.08.08 - 1:54 am | #
Is that trader guy to Santelli's right ever going to get a haircut?
FFDIc- Any word on This American Life bank failure episode?
Japan market to US market: "anything you can do, I can do better. I can do anything better than you"
-987
No PPT there I guess.
FFDIc- Any word on This American Life bank failure episode?
sdtfs | 10.08.08 - 1:57 am | #
No, but we lost our age discrimination case. Judge Urbina filed his motion on 9/18 but I just found out about it today...
the break below 100 usd-yen is a big deal, if it stays there it is even more important...
march, you will recall, was very close to very very bad
we are now much worse
FFDIC- Sorry to hear that.
My guess is you will get intervention... strong yen is bad for japan.
That nni.nikkei site is getting buried.
Nikkei VS DJI and SPX: halo drops it, but DJI and SPX are 7 times higher since 1984.
I went back to look, it was April 1:
Yen Climbs to Six-Month High as Stocks Drop, Carry Trades Cut - Bloomberg.com
which, if you think about it, was a little over 2 weeks past 3/17 debacle. And today we're a little over two weeks (say 3) past Paulson's dark moment.
egative. down. worthless. bankrupt. zero. nada. empty. kaput. none. zilch. goose egg. out. insufficient funds. taken off the board. delisted. lights out. tits up. nipples skyward. not functioning. dead. zombie. no pulse. game over. insolvent. bounced. terminated. gone. switched off. slaughtered. shot. nothing. wiped out.
Just some of the terms we will hear more of this month.
Current futures quotes:
/NQZ8 1312.75 -23.75 -1.78%
/ESZ8 984.50 -21.30 -2.12%
/YMZ8 9349.00 -189.00 -1.98%
OT, medium term junk bond mutual funds are returning 10% these days...no lack of credit, it just costs more if you are in the cross hairs of the grim reaper. Does The Fed understand this?
Nikkei web server overloaded. Wonder how their order system is doing.
Europe set to open down 4-5% across the board.
ice job by ppt in jp
avoiding 1k drops is highest order mandate
My point, which perhaps I made poorly, is that if you are in the fifth year of a 30 year mortgage, in a comfortable house that you and your family enjoy and have gotten nicked for $10K or $20K don't buy into the idea that you should chuck it all.
I think you're missing the magnitude of the problem. Somebody in Omaha who's off 20K isn't the problem. The problem is somebody who bought a a $600,000 house in California on a $60,000 income (i.e., paying the mortgage would take almost their entire takehome pay) and that house is now $350,000 and dropping fast. There is nothing possible but default or principal foregiveness.
By the way, I don't buy into the concept of bailing any of these people out regardless of the situation. It is however going to take some grass roots screaming to get the politicians to understand that 94% of us don't want to pay for the other 6%.
Except you will pay. The homedebtor can't and the bank can't. That leaves the government, and ultimately you, to clean up the mess. In many cases principal forgiveness will make sense because the choice will be forgiving $300,000 and letting them stay or kicking them and losing $400,000 on the foreclosure sale.
Bush tomorrow: Japan was really never important in the big picture and I look at the big picture. Now, your 401(k) is another matter. It is going to take a BIG hit. Oh, I said that yesterday. Excuse me.
Gotta go sleep. Japan's got either another hour or another 2 minutes - can't tell and don't care anymore.
"Homeowners with Negative Equity"
1600 Pennsylvania Avenue
The PPT "war" on here earlier today was the thread of the year....
ikkei ppt kicked in...-883
yeah it was
"Homeowners with Negative Equity"
HNE
The Honey Pot ???
The PPT "war" on here earlier today was the thread of the year....
It's falling | 10.08.08 - 2:04 am | #
Which thread? I missed it watching Dancing With The Stars...
the PPT is only morphine for the dying patient
and tony - listen to what the man says, 10 or 20k is small fries
for us californians the amounts tthat people are underwater are 2-3x their yearly gross income
that math is simple
walk away
I think I'm going to open a KOA Campground franchise. Business should be good here in SoCal.
Wow, Nikkei's website is down for the count.
Follow along @ International Markets Home - Markets Data Center - WSJ.com
@ Markets: World, Asian, European and the Americas, Find Market and Global Index Prices Online, Find Currency Prices - CNBC.com
Both show Nikkei at -842 / - 8.3% right now, although I think they are delayed quotes
Time to buy Public Storage companies and discount canned goods makers.
looks like yen destruction team drafted the nikkei ppt's best members
FFDIC,
I like the one comment there:
dlr wrote:
One simple step the government should take immediately to clean up the CDS market, is to make it illegal for anyone to buy a CDS unless he owns the underlying bond.
looks like -952
if your gonna go to third base, why not just head for home?
Dow minis off 200 as of 10 min ago.
Nikkei down 952.58 9,38%
Now, your 401(k) is another matter. It is going to take a BIG hit. Oh, I said that yesterday. Excuse me.
Its almost like he's trying to make an even bigger mess now that the outcome of the election is pretty much set.
I have -831.79
efficient japanese - no settle
It's back to life!
9,203.32 - 952.58 @ Close. -9.34%
Still doesn't have the same ring as -777.77
It was under the Office Vacancy Rate Rises Sharply discussion - started around 3:30 within the discussion.
PPT vs. everyone else. Thought it could hold 9600. Then they had to retreat.
Began around 20 minutes after I go into my boss' office to talk about our endowment account. He comes back to my office watching me laugh at the computer screen and yelling something about Panzers...
you are 15 minutes behind us and many hours behind japa
I have -996.09\t-
ok the Nikkei is below the Dow on bloomberg futures
Bloomberg Ticker: 952.58
Billionaire investor Warren Buffett's instant paper profits on Goldman Sachs Group and General Electric have been wiped out amid the stock market's worst yearly slump since 1937.
Goldman, the most profitable Wall Street firm, fell 7.3 percent Tuesday in New York trading to US$115 (HK$897), the price at which Buffett can buy US$5 billion of shares at any point in the next five years.
When the deal was announced last month, Goldman closed at US$125.05, meaning Buffett was US$437 million ahead.
Goldman and GE also sold Buffett a combined US$8 billion in preferred shares that pay a 10 percent dividend, allowing his Berkshire Hathaway to earn US$800 million a year without the warrants unless the companies collapse.
another morning nastygram for folks who bought into the close.
this bear is mean.
Take that, America!
When Templeton died this summer, they used the opportunity to flog their asian mutual funds for a time when there was domestic pessimism. I can't imagine the cajones it takes to charge 2 to 5% of assets on top of a 20% loss
NIK and Jakarta down 10%. We're going in.
buy CDS and the underlying bond. what fun is that?
Iceland turns to Russia for bailout. This financial crisis will create new allies and enemies around the world.
Now I get why my grandparents saved Cool-Whip containers in a shed and saved every nut, bolt and screw they ever had in coffee cans. Maybe their local numismatist didn't have any supply?
Iceland is on fire sale?
You ever seen a documentary about the ant lion? It sits at the bottom of a little pit and when an ant stumbles into it, it flicks grains of sand at it, and it slips a little farther down the funnel. The ant scrambles back up and another little flick of sand rolls the slope down and the ant slips again. Sooner or later the ant arrives at the bottom and gets eaten. That's what this economy looks like to me,...that ant.
Goldman Sachs Group, Inc. (GS:
today announced it has closed GS Loan Partners I with $10.5 billion in equity and leverage commitments, including more than $1 billion of equity from the firm and its employees. This is the first senior debt fund of its kind raised by Goldman Sachs and the 15th fund formed by the firm's Principal Investment Area (PIA) since 1986.
why iceland is being forced to turn to russia i will never understand
the danes, the brits and the norwegians need to step up and save their nato and eu brethren
iceland matters. it matters the same way hawaii does. one day their military importance will come back to haunt those that overlook them.
turning our backs on them now will have repercussions.
btw, Yen at 99.89 to the dollar.
Yen has got to go down, or dollar has to go up.
Essentially what this means are European currencies either are going down a lot, or going down a lot more
evil HP - bingo
FairEconomist,
Lot's assumptions in your comment.
First, you say that the problem is not the marginally under water but those grossly under water. Maybe true, maybe not, need some data to prove your point.
Second, you assert that kicking out homeowners who default is more expensive then absorbing the loss. Again, numbers would help. Given the miserable track record of modifications, least loss usually indicates that foreclosure and sale are the best alternatives.
The assertion that the banks can't absorb the loss is speculative, not factual particularly in light of the fact that they will put much of this to the government. Is your point that the government can't absorb the loss or that it is socially preferable to forgive the debt?
Iceland turns to Russia for bailout. This financial crisis will create new allies and enemies around the world
Like Pakistan, the Fed could bail out Iceland with pocket change. Stupid not to.