Looks like Paulson needs to spend the second half of the TARP ASAP.

Just how will investment bankers survive with only 1/2 a proper bonus?

Expired

Duarte-
I was just thinking the same thing. With health insurance and food so high, front end DTI's above 30%, and back end above 36% are just REALLY high for anyone making under 100k.

How many people actually look at their personal budget, put a PITI at 40%, account for all other costs, and think 'yea we can do this'? I'm thinking not too many actually budget this way.

Mike D - that's right.

I appreciate Krugman's sentiment, but honestly, for a guy who can't get enough government bureaucracy - he ought to have a soft-spot for acronyms.

Don't forget, DTI is calculated on gross income.

1 currency soon [yogi] there are websites that can tell you an approximate revenue generated by a blog. I have no idea their accuracy however. Anyway they say CR is worth 44K and pays approximately 14K a year. Remember the proceeds were split. For coverage 7 days a week and lots of prurdy graphs I'd say Mr CR earns every nickle!

........

RE DTI.

I think every company under the TARP should abide by the same total debt to income ratios!

......

The whole approval system looks FUBAR to me. YMMV.

FDIC released a list of orders of administrative enforcement actions taken against banks and individuals in October. it's longish, see if you can find your bank!

FDIC: FDIC: Enforcement Decisions and Orders 

I really don't understand why we ever have economic problems. The solution is so base(ic).

I'll go out on a limb - there won't be prosperity for the majority.
Angry Saver

Just think of all those foolish failed countries throughout history.

All they had to do is "borrow, print, and spend" their way to success!

It's so easy... "Duck & Cover Economics".

Lacker states low interest rates were the problem. No one apparently wants responsibility for the impressive list of underwriting sins.

Lacker states low interest rates were the problem.

Volcker's presence seems to be increasing the confidence of those trained in the dark side of the Force.

It's bizarre that median home valuations are not considered. You don't lend at even 80% LTV when valuations have gone parabolic. The stack of underwriting sins are unbelievable.

We're using the updated eCONomics text - "Lame Duck & Cover with a TARP"

I'm still convinced that you can survive at ground zero of a 100 megaton blast if you just drop to the ground fast enough. Those civil defense animation guys were good:

Duck and Cover 

If Burt were an economist he would know that "Print & Spend" can get you through even the worst economic nuclear detonation.

You don't lend at even 80% LTV when valuations have gone parabolic.

Sure you do. Real estate only goes up. Also, debt = wealth.

FT:Struggling homeowners granted 'mortgage holiday'
Gordon Brown is to grant homeowners in financial difficulty the right to demand a two year "mortgage holiday" guaranteed by taxpayers, in a dramatic bid to prop-up the housing market.

Wowzers, imagine 2 years of no mortgage payments!

I was just thinking the same thing. With health insurance and food so high, front end DTI's above 30%, and back end above 36% are just REALLY high for anyone making under 100k.

I may be considered a dinasaur for saying this, but way back (7 years ago) I distinctly recall being told that 28/32 DTI was the metric.

And I thought those figures were pretty high at the time, considering an average 40% cumulative (Fed+FICA+state+local) tax rate on your gross income would leave you less than 30% for "everything else".

I guess I just don't get the whole "love being a slave to my alligator" Pride-of_Ownership thingie.

Some communities just have not got it. Home prices five times average family gross income are too high. Somehow they try to keep the balloon up.

I think Bernanke is re-thinking his great moderation theory as it seems stability led to instability.

It now appears Ben is trying to un-ring a bell hoping that instability will lead to stability.

OCDan-
I'm in much the same boat as you. Although we both work, we're budgeting for my income alone as we're wanting to start a family soon. And wanting to live in Huntington, things look a bit tight.
And yes, the mortgage isnt the problem - its the high prop taxes and everything else that make up the PITI. Thats why the DTI being > 36% is just stupid. Its not practical.

Also, anyone notice all the costs that went up when gas prices went up? But notice how gas is down >50% and prices havent dropped back to where they were? yeeeaaaa...

PTDBD - coffee on screen - thanks

In early 2006 (bubble peak here), it reached nearly 12X.

That's insane.

Looks like the rally is over, I was just sure that Nessie formation was bullish...Did some good news come out to cause this precipitous drop?

Kristina:
Did some good news come out to cause this precipitous drop?

Selected from BBerg Headline Stack:

•Fortress Halts Withdrawals From Macro Fund After $3.51 Billion of Requests

•Corporate Debt-Protection Costs Climb Amid Concern Over Global Depression

•Commercial-Mortgage Delinquencies to Spike as Economy Slows, Barclays Says

OCDan-

I'm not sure if we'll see prices super low, but here's my theory (aka: hope):

in 89 the multiplier was 5.7, up from a median 4.7 - a ~24% increase. It dropped to 4.1 - ~12% below the median of 4.7. So the bottom below the median was half of what the top above was.

This time around, lets say the top was 9, which is a ~92% increase over the median 4.7. If we drop 46% below the median (half of the top side increase), our bottom would be a multiplier of 2.5!

Yea, I dont think its gonna happen either, but a girl can dream.

Ancient Chinese Secret,

There's an old saying about going to hell in a handbasket. As Brown gathers the bankrupt homeowners from hell into one basket he'll be creating another crisis and another...domino effect.

Pass the popcor

Homes
Easily
Looted
Of
Cash

citizen energyecon(Excellent) writes:
'zactly, something tells me it isn't going to be the legacy admits who get the short straw...

I am waiting for the local all-encompassing all-ambitious regional medical center to admit how badly they muffed it.

Spouse got a "how we lost your retirement" letter from the 401k side, and I figure that was the "B" team of managers for sure. The aces in the endowment management team were probably excitingly over their heads in the cashflow enhancement game.

They have a lot of capital expenditures that I imagine will never see the expected financing stream, and they are a major consumer of advanced medical goods.

Something for dryfly maybe, since he mentioned clients (ill-advisedly) getting into the biomedical biz -- I bet every would-be regional medical citystate is similarly blessed with fiscal misfortune. Big cash piles but only "b" grade talent to man it compared to the WS sharks. Many will be found to have gotten into derivative products as the sucker party to a trade.

I can't wait til they throw themselves on the state for a bailout.

@ dryfly, "Every time I read stuff like this ["Chrysler exec: failure could spark depression"] I want to revisit that 'prepackaged bankruptcy' discussion we had last night."

Chris Whalen argues that a GM/F/Chrysler credit event will precipitate a big CDS chain reaction, and that such an event should be used to unwind the CDS markets and liquidate banks (C) with fatal exposure:

The bailout of AIG represents the last desperate rearguard action by the CDS dealers and the happy squirrels at ISDA, the keepers of the flame of Wall Street financial engineering. Hopefully somebody will pull President-elect Obama aside and give him the facts on this mess before reality bites us all in the collective arse with, say, a bankruptcy filing by GM (NYSE:GM).

And many of these CDS contracts were written two, three and four years ago, at annual spreads and upfront fees far smaller than the 90 plus percent payouts that will likely be required upon a GM default.

s. calculus,

interesting point.

In this case however, there are multiple fuses alight and headed for the mega-powder-keg.

As they used to advise in the 1950s informational films to school children during a nuclear explosion...

...duck and cover...

But CDS is the most significant final nuclear shoe to drop its fallout all over the place.

The rest is just municipalities going bankrupt, along with counties & states, poverty, and starvation.

As to PMs. We are reaching the no return on your dollars from interest stage, i.e. all risk and no return on a medium of exchange that is in the process of being significantly devalued.

In addition, always remember this phrase from Bernanke and especially in a period like today:

A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation.

Gold and silver are tangibles that have and are continuing to act as currencies (chart the dollar vs gold) as well as a store of value. Usually PMs have the disadvantage of not paying interest (excepting lease rates) but this is of no issue today.

There was good reason why Homestake (as a proxy for the gold price) increased from the lows of ~$70 in 1929 to about $490 in late 1935, at a time when the DOW fell dramatically.

Now tell me objectively where your risk is higher?

OCDan(Unrated) writes:
Why in the world is this market not worse?

Retirement account equities investors with buy-and-hold "value investing" mentalities.

quite frankly,

I agree with dryfly. My preference is to invest intelligently, pragmatically, and effectively.

I prefer a diverse high-value economy with good high-value jobs to the machine-gun compound economy to our south. The Haves keep the Nots at bay, or else.

That being said, the Federal Government can exercise its super-sovereignty and renegotiate and capitalize the auto industry sans executive management. Or else.

Mostly Lurker,

I saw this same thing. I see it every day. I hear it every day. Fox, Cnn, nbc, cbs, npr, doesn't matter.

Nobody looks at it historically. Nobody asks the hard questions, what would dollar cost averaging get you in 1928-1950: answer: break-even in 1951 in non-inflation adjusted dollars (if you're lucky).

Next point: the assumptions behind this strategy ignore the bigger picture. It reminds of that Steve Martin skit about how to make a million dollars.

Step 1: First you get a Million Dollars.
Step 2: Don't pay your taxes.
Step 3: When asked why you didn't pay, tell them you forgot.

It's about the same grade of advice minus the satire.

Negligent Assumptions:

1) You have a job and have spare cash to invest.
2) You will have a job and will have spare cash to invest.
3) You have cash to invest that can be put to no other productive use.
4) The market will correct soon.
5) It's already in a correction.
6) It has already corrected.
7) Happy times are just around the corner.
8) These are not the Jedi you are looking for....

/urgh

Pardon me, 20% of what it is now -- 80% smaller. Der.

Every dollar that's sent down the US automaker sewer is a dollar that can't be invested in useful, or even profit-making, enterprises elsewhere.

How do we know that a Detroit bailout won't eventually lead to poverty anyway, or make it even worse? We don't. All it does is preserve the power of the UAW to overprice labor a little longer, and that's all this is about.

We need to retool it so that we are not dependent on leasing/buying a new one every 2-3 years.

A fully funded (via gov't insured but privately funded DIP) prepackaged bankruptcy could get you there lickety split. God I wish there were some brains on either side of the isle in congress.

In case no one has mentioned it today. This is not going to end well.

How do we know that a Detroit bailout won't eventually lead to poverty anyway, or make it even worse?

You don't but the opposite all but assures poverty - lots of it. And political turmoil.

All it does is preserve the power of the UAW to overprice labor a little longer, and that's all this is about.

Prepack BK rewrites union contracts & pension provisions.

What is the current bailout about then? Protecting the bond holders of the big three... well in a BK they even get preferential treatment (compared to equity, unions & mgmt - IF the judge is half assed)...

I believe Ford is going to stop matching contributions to 401k's

Dec. 3 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC, struggling for support in Congress for aid, won money-saving union agreements to delay contributions to medical funds and suspend a program that pays laid-off workers.

here's what i dont get. Why do we need 3? We dont. For the majoriy of models by each brand, if they disappeared, people would choose a car from one of the other bigger 2. Its not just that people are waking up to the fact that most us cars are junk. Toyota and nissan also fell nearly 40% last month. So to dryflys point...id also prefer that we keep making some cars. But as long as we owe retirees what we promised there is no market share gain that can make these companies profitable any time soon. So id personally let one of them go bust, or force it into a sale of parts... So that say gm's corvette still gets built by some US firm. Then when youve consolidated....assuming most US buyers still buy US...you are probably back where you started. But whom! Who goes TU first? You and what if all do? Well...so? All roads take you back to bk and forcible restructure...even if you pour in money now that only means one of two things....the snl skit (an in finite series of huge payments) or a short series and back to Bk.

I don't believe in the inevitability of history. There are crossroads & choices and they are not all 'predetermined'.

I'm not talking about destiny, I'm talking about process. They surely will make choices -- it will be pure free will when they make the mistakes. The people objecting to it aren't complaining because it's a good idea. Some might be doctrinaires but please don't assume everyone is a Randian.

I get real tired of the party lines - we could avoid a lot of future pain if we did some thinking instead.

I don't think anyone disagrees with that.

The results of consideration can be different, though -- even given the same data seen the same way, you will have 2 people with different opinions based on scope considerations around framing outcomes.

BTW - if the only choice I had was between which shit sandwich? Bail out or failure? I'd go with bailout now

That's clear, and we're not trying to get you to give that up. Just keep in mind that I see the same thing... and then 3 major industrial firms on life support when the state starts having difficulty funding operations.

How far forward will this bring the day of the Treasuries panic? There's a point, and I don't think it's very far off, where helping anyone is going to hurt everyone. I think it's wise to budget our compassion with the understanding of the very finite world we are going to live in shortly.

If we are thinking of the people, let's think of the people. If we are thinking of the technology, let's think of the technology. Both are legitimate concerns for the state. Car companies? Car companies the state needs not.

Sril(Unrated) writes:
Banks that need $4.5 Trillion for life support - does the state need that?

"Lol whut?"

4.5 tril, you are like 4 trillion behind.

Maybe more, have I missed any new 500bn facilities?

This crap should have all been BKed long ago. This is a policy crisis -- politicians won't let those they are beholden to go out of business. There's the crisis.

ATTENTION:

UAW AGREES TO STOP SAWING OTHER LEG.

/that is all

While you guys agonize over whether we should all be wearing hair shirts, Conjure and I are working on our next euro play.

We're thinking about precursors for timing the next move.

Thoughts?

While you guys agonize over whether we should all be wearing hair shirts...

LOL mp - I was thinking about you when I opened that can of worms...

Going back to MI is a return to reality. MI is designed to calculate a risk plus profit buffer for every home buyer, and hold the insurer liable for that estimate. You know, like how a free market normally works.

dryfly(Excellent) writes:
We aren't even close to having difficulties funding the federal gov't - NOT YET.

I think this is where we differ. I think we are potentially very close to the end of the game, and when it's up, Treasuries will SOAR. It will end in a panic, not an upward march of yields.

"The EURO as a final flight to safety post USD collapse?"

Yes. I'm thinking euro and gold when $US tanks. It will tank, that's pretty much a given. The question is when? I'm looking for precursors. Conjure and I are thinking the usual things, debt, etc.

By the way, Jesse has an interesting post re the UN's take on $US. It isn't good.

Thought about the Chinese, but it makes no sense to park money there, despite Rodgers' thinking. You can be sure that, in a pinch, they'd do something stupid and unpredictable.

So, its euro and gold.

I think we are potentially very close to the end of the game, and when it's up, Treasuries will SOAR. It will end in a panic, not an upward march of yields.
Comrade Byzantine_Ruins | Homepage | 12.03.08 - 3:59 pm | #

I agree that when that happens it will be too late. And I do expect it to happen just not quite as soon as you. But I'd like to see a BK reorged auto industry get on the ark before the deluge if possible. I still think we have some time... if the f-nuts can all compromise on a sensible reorg.

mp:

The question is when? I'm looking for precursors. Conjure and I are thinking the usual things, debt, etc.

Somewhat non-quantitatively -- My feeling is when the UST ceases to be a proxy for the amount of money the US can create / skim from the economy, and becomes a proxy for America's future economy prospects. When it is a referendum on America's future prospects rather than American's future prospects for paying off Treasuries, the vote will be no.

Dryfly:
But I'd like to see a BK reorged auto industry get on the ark before the deluge if possible.

So would I. I just don't think that's what we're going to get. I would love to be wrong but I think Pelosi speaks truly when she says BK is not in the cards, because her will is the truth.

The key point to recognize is that the problems of the Detroit 3 are primarily a colossal management failure caused by an incredibly resilient groupthink in the white-collar workforce, not the unions. Job banks and huge retiree overhangs are a symptom, not a cause. Unfortunately, retirees and even current production workers will have to be screwed over because the situation has deteriorated so much

There needs to be a huge changes in the corporate culture of all three. (In my ideal bailout I would go so far as forcibly moving the headquarters of one of the survivors over 4 hours away from Detroit so as to shake up the white collar workforce entirely.) But I think muddling through a while longer with the current management is far better than letting one or more fall into an unplanned CH11 right now. That would destroy all kinds of really good jobs that we should be interested in keeping, on top of providing a potentially devastating shock to a fragile economy.

The current bailout costs more than the Marshall Plan, Louisiana Purchase, Moonshot, S&L Crisis, Korean War, The New Deal, and NASA's all time budget COMBINED. We could even throw in hundreds of smaller projects like the Hoover Dam and the Panama Canal - projects that produced more jobs and had actual utility other than rewarding failure.

2008 Bailout Costs As Much As Several Large And Famous Government Projects Combined - The Consumerist

Ha! I guess that is why Krugman is getting bank from NYT and Princeton but you are doing this great service for Free!

Thanks for the blog!

dryfly(Excellent) writes:
LOL so Barack might rule Rome but Nancy rules Barack? Where have we seen that before?

He really must destroy her. Before he comes to power if at ALL possible.