"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said.
(insert obligatory joke about "steers and queers")
I am guessing he said "principle", not "principal".
Why are we relying on the same people who created this crisis to fix it?
Do these poobahs not realize that housing depreciation is the solution to the problem of over-priced, unaffordable, and unsustainable real estate inflated by debt? Forget last year, prices should probably go down to last decade for normal American workers to afford their homes without resorting to 0 down payment wizardry.
In purely selfish vain, I'd welcome this. I'm certainly not in trouble on my mortgage, but hey, if they're going to bail everybody else out, I'd certainly welcome the opportunity to refi to historically low rates. 30 yrs at 4.75 to 5.0 -- you can't beat that with a stick.
Particularly since it seems like in a few years, rates are going to have to shoot up to offset either inflation or lack of foreign appetite for our debt.
Reason being that the house I want to buy should come down from $2.5 million to about $1 million, and I would like to borrow some cheap money to finance it. After inflation takes off, I can pay back the loan in bogo-dollars. It's a win-win!
BTW, there is an interview video with Gary Shilling over at Tech Ticker. He says there's no near-term bottom in sight for housing, and prices will fall another 20%.
If middle class housing costs more in Quincy, Quincy home prices are too high.
Eastern MA is vastly overpriced by any measure of historical ratios. But around Boston, everyone still wants to live here, and they aren't making any more land, and desirable towns are immune. Etc.
OK - I am from Boston Suburbs. (No, Barney is not my representative.) But in these parts, a dual income household can easily approach 200k, and I mean mid level professional types, which times 2 or 4 gives you a home of 600k-800k. It's not all that whacky to have jumbos.
My point is that I wish we would all reference state and general city location when making anecdotal posts. I would find it helpful.
Having said that, I still say "too bad". There are alternatives to that price range.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans. The additional risk in making jumbo loans must be compensated for somehow regardless of what you call them.
It continues. The politicians/economists/mediaticians are obsessed with getting us back to where we were. That is, a debt-fueled unsustainable economy that inevitably crashes.
$700 Billion TARP funds sent to fractionalized banking system, levered up a minimum 10:1. Presto! 7 trillion for asset purchases. Stabilization and Stimulation.
"We need to trasfer substantial private assets to the public sphere". Private sector doesn't have the income to support it.
Dovetails nicely with Buiter's work, don't you think? Video - CNBC.com play=1
It continues. The politicians/economists/mediaticians are obsessed with getting us back to where we were. That is, a debt-fueled unsustainable economy that inevitably crashes.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans. The additional risk in making jumbo loans must be compensated for somehow regardless of what you call them.
The "risk" of a conforming jumbo has already been established at $729,750 under last year's law.
This is definitely a barn door/horse type of thing. Cutting the limit to the current max of $625,500 is counter intuitive and it does make sense to revert to the higher level. After that, let the market decide.
We really haven't yet managed to transition to a new management team - not in banking, in investment, in corporations or in government. These guys still do not understand the difference between 'get in deeper' and 'withdraw'.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans.
Which is why no one wants to buy them, as we already saw last year. Which is why F&F will have to keep them in their portfolios, helping to take the twins down a second time.
Has anyone ever been to Quincy, holy sh*t hole. Nothing there should be above $350K.
What did that pretty sharp person say "Americans are dillsional if they think they are going to be trading houses back and forth with eachother at ever increasing prices" or something to that effect.
"On Friday, he said one lender was offering a 5.25 interest rate for conventional loans, 5.75 percent for conforming jumbos, and 8 percent for jumbos."
This might be an ignorant question but I thought it was either conforming or not conforming. How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Isnt F&F just buying "conforming jumbos" the same as they are buying all conforming mortgages?
We really haven't yet managed to transition to a new management team - not in banking, in investment, in corporations or in government. These guys still do not understand the difference between 'get in deeper' and 'withdraw'.
2009 is going to be a long year.
wally | 01.06.09 - 1:12 pm |
It's sad. I know personally I always get kind of excited when I see new leadership come along that appears to be more intelligent or enlightened in some way the administration before it.
But somehow we've come to a point in our society where "progressive" thinking is somehow synonymous with a total lack of self-control and self-sacrifice as a nation. That gross self-indulgence and blindness to the long-term consequences is the highest of all virtues.
I don't think there's anymore denying that change simply means "doing exactly what we were doing before hopped up on steroids."
As fascinating and interesting last year was, as I sit here and read about everything from Gaza, US politics and buisness, this year might be better(worse?).Buckle up kids.
Sorry if this has been posted earlier. Krugman shillin' for MASSIVE stimulus using the D-word threats.
In case you missed it, an apparently heavy weight economist voiced a contrary opinion yesterday much to the consternation of the orthodoxy. I would compare the depth of thought and analysis in this article to the stuff that Krugman has been writing recently and see what conclusion you come to:
Why does Quincy need jumbo conforming loans again?
That's easy. So when Quincy sellers sell, they can take the equity and upgrade to a nicer suburb w/o jumbo loans. See. And that's how the real estate industry is going to revive. After all, all it takes is a little push to get this thing going again. Right? Right.
Krugman's nightmare. Keeps him up at night that the government isn't impoverishing future generations into deep servitude.
"All of this leaves me concerned about the prospects for the Obama plan. Im sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Heres my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, its only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy well, you can see where this is going"
....Barney Frank is an utter embarrassment to this country. Why the voters in Massachusetts keep putting him in amazes me!
Black Star Ranch | 01.06.09 - 12:58 pm
they think he is Barney from How i met your mother
PS: RE prices in eastern europes slovakia have already fallen 20-30% during last 6 months and will continue to fall now that all banks have halted 100% mortgages and the only available are 85%. car loans are also collapsing since november now instead of 20-30% paydown one needs 50%.
bad times coming, but people here have incredible savings rate so everything wil be ok, especially since we adopted euro starting 1.1.2009 while getting the exchange rate at the top of eastern europe currency bubble in july. so now we have euro while CZK is down 12%, PLN 24% and HUF 14% vs EUR.
and the economy is kind of ok, cause big companies better take EUR rather play currency rollercoaster with the PLN CZK and HUF in future.
Markel writes:
Median HH income for Quincy, MA is $59K.
Median single-family house is $310K.
Why does Quincy need jumbo conforming loans again?
Markel | 01.06.09 - 1:24 pm | #
Okay, it is only the MEDIAN. HOWEVER, 5X income and in this uncertain economy, that is just nutso.
HH incomes of 59K should not be buying for more than 150K, TOPS!
Again, for most Americans, UNLESS you have a sizeable downpayment, you shouldn't be financing anything more than 200-250K for 30 years. The numbers just don't add up.
Also, Frank and Clowns are trying to prop up these prices because it is all we got left.
If RE goes, kiss it all goodbye. People are tapped out on credit. Jobs suck. Manufacturing is gone. Homes are the largest assest for most and if that goes, goodbye economy.
Not that we aren't in trouble anyway with all the debt we have!
Having lived in Massachusetts recently (suburb of Boston), and having paid attention to house prices at the peak in 2006, I think "average", which is the work Frank used, should mean average, and not something else.
So....average would include not only the wealthiest neighborhoods (the richest only), but rather all the neighborhoods, averaged. Yes?
So my guess is that number, regarless of recent sales, etc., should be closer to $300K than $500K. For instance $350K would not surprise me.
That leaves Frank in the position of advocating....?
What exactly?
Yes, a kind of reverse socialism. Socialism for the rich, at the cost to the middle.
Just out of curiosity, who is offering a conforming jumbo loan for 5.75? Bankrate would seem to indicate that LFKAJ are more like 6.9%. I don't really understand how changing the conforming jumbo limit will make any difference at all, given that $500k loans are running 7%. I guess maybe Obama will simply get into the direct lending business and fix all our woes.
"All of this leaves me concerned about the prospects for the Obama plan. Im sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Heres my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, its only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy well, you can see where this is going"
FWIW I think Krugman's scenario is entirely valid. The thing that Krugman seems to persistently overlook is that another massive round of borrowing may lead to an even worse outcome if it eventually causes a flight from USD based assets.
Krugman certainly knows this is possible - I've read papers written by him before about the potential for a dollar crash. If we see that kind of scenario in the current environment the outcome could well be apocalyptic.
I think he's willing to overlook this possibility because he's on the verge of seeing a bunch of policies he supports being implemented, and any kind of fiscal restraint would threaten that.
Again, I believe power and politics clouds reason.
Hey he is a congress critter and as such has to look out for the interests of his district as well as the nation as a whole. Even though I oppose the increase in the conforming limit (and did so when it was raised last year) I think some of the critisism of Barney is a bit unfair here, comparied to the Bozo's who were running the committees from 94-06 he looks pretty good, but then again that may just be the tyranny of low expectations and easy comps.
Some of us here were saying a month ago that it wasn't too soon to start betting on higher inflation and currency devaluation.
I personally said to go with food (DBA), mixed energy (DBE) and precious metals (GLD, SLV, GDX, SLW).
At that time, other people on this board were ridiculing us to no end. Didn't we know that everything was deflating?
Now, I'd like to see even one of these morons admit they were wrong. Commodities started to turn 4-5 weeks ago, and you could see it first in food. DBA is up 25% since Dec. 5.
It's not too late to get some hyper-inflation protection in your pocket. Some of the industrial metals are even starting to look good. Check out the Dow Jons-AIG iPaths, such as JJC for copper or JJN for nickel.
The story is...deflation, yes, in a lot of goods and services. Clothes, cars, appliances, technology crap...there's so much over-capacity and shrinking demand that they can't give it away cheap enough.
But basic commodities are scarce and a good store of value during times of currency trashing all over the world. These commodities are on a big wave that will roll all the way to the beach and then a few miles inland. It's powerful.
Does anyone see on the horizon any means by which we can service our existing debt AND the add'l $100,000 per household bailout debt heaped by the gov't these past few months?
Total household indebtedness exceeds $600K now.
If you think non-recourse mortgage defaults are bad, what think ye about full recourse state sponsored indebtedness without any payment schedule or debt servicing capacity?
Jumbo conforming limit didn't have much effect, the PMI companies are control in that area. The people who can go FHA and need conforming jumbo are insignficant.
On Barney Frank's reality-denying regulatory machinations, "He also wants to change the way the loan limits are calculated to reflect real market conditions."
rich,
I hope you are not correct! For commodity prices to catch fire while Benny is standing here pouring out buckets of gasoline would create some issues.
a little, OT, but just when I thought I had enough to worry about.......
3RD HAND SMOKE KILLS YOU!
Professor Winickoff said: "The dangers of third-hand smoke are very real - when you smoke - any place - toxic particulate matter from tobacco smoke gets into your hair and clothing." (I wonder if this includes me inhaling my cow emanations)
One factor to consider regarding distorted real estate in MA; the large concentration of colleges/universities means that a lot of SFR type structures can be rented to 4-6 college kids at per person rates that add up to significantly more than even a 2 income household could afford. When you put 2 students per bedroom and charge $300 or more per month a piece for half a bedroom you get a big number for the landlord. Just one piece of the puzzle...
rich writes:
"Some of us here were saying a month ago that it wasn't too soon to start betting on higher inflation and currency devaluation."
Rich, looking out medium term, I'm a believer in your thesis, or at least willing to hedge with some positioning. But the screaming buys seem to be off the table for now, and picking entry points (while looking short sighted 24 monhs from now) are still important to building portfolio confidence.
Its interesting comparing your positions vs. Persecuted, and wrong or right he provides specific technical justifications for his trades (vs. just qualitative). I welcome yours as well.
Does anyone see on the horizon any means by which we can service our existing debt AND the add'l $100,000 per household bailout debt heaped by the gov't these past few months?
The only real option is to default on our debt via inflation.
The problem is if the market decides to preempt this outcome and flee from USD financial assets (especially foreign banks and investors) the result could be disaster.
That's the fallacy of relying on inflation to get out of your debts - your creditors can figure out you're trying to do this and flee before you successfully pull it off.
Destitution: It all depends on your point of view and what you are used to, doesn't it?
For some, hardship is defined by only having 9 garden girls instead of the usual dozen to do the daily chores. A man's Jumbo is relative.
The problem is that these rules are being crafted by men and women with extremely rich tastes and expectations. Some don't even know how many houses they own. Unfortunately, they are being financed from taxes from Nebraska.
But basic commodities are scarce ... rich | 01.06.09 - 1:42 pm | # Ahhh there's the flaw. You'd think the Simon-Ehrlich wager would have buried that theory.
It appears Obama wanted to be President, stayed focused for years to achieve that goal, having gotten this for don't believe he will sell The US out to The Arabs or China.
The last two President's sold their souls, C for more money and power, B I have yet to figure out.
Would like for Klugman to talk about The Strategic Economic Dialogue between Bush, Paulson and China.
"The only real option is to default on our debt via inflation."
In the long term, I think that is fully true. The question, to me, is: will there be inflation in all countries, pretty much equally, or will it be greater in specific countries? I don't see that anybody is going to be untouched by this downturn and I think everybody will be doing 'stimulus' for internal political reasons. It could be another race to the bottom.
He completely encouraged Fannie/Freddies race to the bottom in underwriting. And now is desperately yelling at everyone in hopes that they don't look at him and all the damage he has wrought.
Now, Now, I actually support this in some measure. If it was Zip plus 4 deliniated then it may work. I've got a La Quinta property worth $2m that has a $575k loan on it - 28% loan to value! surrounded by other $2m valued homes. Because it's in the Inland Empire the client cannot refinance for less than 7.0% what with the $471k max loan. Sure, a house in Pedley should be maxed at $417k but a Palm Springs home, values significantly higher, should not be penalized by the lower loan limits for the entire county.
"This might be an ignorant question but I thought it was either conforming or not conforming. How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Isnt F&F just buying "conforming jumbos" the same as they are buying all conforming mortgages?
SGIP,
My opinion re jumbo homes...if you can't afford to pay cash...you can't afford the house. If you're making the kind of bucks that would convince a lender in normal times to give you a loan on a $1M or greater house, save the income, wait a couple of years, and pay cash. Take the cash you would have been spending on interest to get the deduction and give to charity...it's still deductible. Of course, that would be un-American.
OK - I am from Boston Suburbs. (No, Barney is not my representative.) But in these parts, a dual income household can easily approach 200k, and I mean mid level professional types, which times 2 or 4 gives you a home of 600k-800k. It's not all that whacky to have jumbos.
Yes, these type of people can afford to pay a lot of money for a house. These type of people are also likely to want such a house to be really nice, since they are paying a ton of money for it. A sense of value doesn't go away as soon as your earnings cross that 6-figure barrier.
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
Taken somewhat out of context, this is a pretty offensive statement. As if indoor plumbing is still a luxury item in Nebraska. As if surround sound wiring is a ridiculous indulgence in Nebraska. Them corn farmers are like Neanderthals compared to the fine folks in Massachusetts!
Can someone explain something to me? It seems like the hyperinflation crowd forgets the major ongoing/continuing contraction in available credit. If monetary policy is filling a hole that big, the money supply isn't increasing, right? Am I missing something?
The problem in the economy is not about mortgage rates, but the fat that too many derivatives connected too much fraud to a tsunami of over-building and thus too much inventory has impacted value. Rates can go down another 10%, but that doesn't mean unemployed people will come out of the woodwork to panic buy. There are simply too many units available and not enough people with real cash, so suggesting that lowering Jumbos will help is fairly stupid, but then again, Franks is stupid and I assume he is in bed with Yun!
Commodities started to turn 4-5 weeks ago, and you could see it first in food. DBA is up 25% since Dec. 5. rich | 01.06.09 - 1:42 pm | #
Rich -
I learn a lot from your commentary and you are one of my fav authors over here. However, aren't almost all equities up by double digits since the Nov lows. Heck, the REITS have more than doubled from their lows. If you think we are going into a depression, wouldn't that suppress demand for commodities?
Under normal circumstances, an economic depression/recession leads to reduced industrial activity and consumption, which means that commodities are less in demand for use in manufacturing and consumption, leading to a decline in prices. This is why people commonly say that commodities suffer in a recession/depression.
In circumstances where a currency itself is being thrown in front of the unstoppable force of a depression, commodities gain an additional utility beyond their role in manufacturing and consumption -- as a concrete store of value. Where a currency loses its utility as a store of value, commodity prices can be pushed up above and beyond their intrinsic manufacturing/consumption utility by this new value-storing utility. This is why commodities can be expected to rise in this coming depression, and why a sudden rise will be a good indicator of a loss of faith in the dollar.
It doesn't matter, in the end, whether they have in fact destroyed the dollar through their policies. If there is the perception that the dollar is destroyed, if there is a loss of faith in the dollar, which can be evidenced by a flight to commodities, then it is as good as destroyed.
One of the points that Buiter made in his now oft-linked analysis is that Americans have been 'investing' too much in their housing.
In that opinion he is joined by a lot of others. It is a very far-reaching comment. He spends no time elaborating, but this reaches into the questions of infrastructure, private vehicles, suburb paterns, school systems, energy use, social patterns and even opinions of self-worth and value. These things were matters of more serious debate a couple of decades ago, but got blown away by the prosperous years and the me-first days.
As a correlary, because demand is sinking, a rise in commodities will not indicate an increase in demand for consumption or manufacturing. Because these two reasons are eliminated, the only reason for commodities to rise in this environment is if they're being used as a store of value.
Thus you can use commodity prices as a good indicator about the fate of the dollar. It is perhaps the best indicator, because it is, to my knowledge, the only market which is not actively being distorted by the direct purchasing programs of the federal reserve.
It doesn't matter, in the end, whether they have in fact destroyed the dollar through their policies Hoopajoops, LTD | 01.06.09 - 2:13 pm | #
Which currency will take the dollar's place? There isn't enough gold in the world to provide the necessary velocity. As Gary Shilling says, we are the best of the bad lot. The one eyed king in the kingdom of the blind.
How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Tanta wrote about that in the "LFKAJ" post. Jumbos are the first to be refi'd when rates fall, so they alter the convexity of an instrument that securitizes them.
ac says: But somehow we've come to a point in our society where "progressive" thinking is somehow synonymous with a total lack of self-control and self-sacrifice as a nation. That gross self-indulgence and blindness to the long-term consequences is the highest of all virtues.
Say WHAT? WTF? That is vile dishonesty.
This insane take is written at a point in our history when people who are NOT progressive and in fact HATE progressives have presided over the largest worldwide financial calamity since the Depression. Yet this nut blames progressives as somehow to blame for the policies they were fighting and tried to prevent.
Progressives have been steadily fighting the short-term thinking of Conservatives and their Corporate back-office for my entire political life, while Republican Conservative Right-wingers .... you know, it's not worth it. I think I shall just begin pasting in foul-mouthed slurs when I see this logic-annihilating trash. This site has a LOT of it.
CR himself knows that this kind of lying bullshit matters, because he expeditiously deleted a comment by Nemo not giving him enough credit for "forecasting" in a post. Was afraid people might 'see it' but our host has never been afraid they might see the Con apologists lying to deflect blame from their sedition.
I am becoming convinced that the residual Cons are treasonous enemies to my nation, who only want harm for it.
Cons prefer lies for some reason; probably habit, maybe addiction.
I miss CRs longer analysis posts with conclusions. They usually are sensible conclusions that many people read and we need influential people reading concise analysese, with sensible, responsible conclusions right now.
Can someone explain something to me? It seems like the hyperinflation crowd forgets the major ongoing/continuing contraction in available credit. If monetary policy is filling a hole that big, the money supply isn't increasing, right? Am I missing something?
No, it's hard to figure out how much is needed. M1 is definitely increasing and M2 is somewhat above trend. Presumably M3 is increasing slowly at most (more losses, and larger relative to the money supplied).
Based on M2 and the recent jumps in several asset prices, like stocks and commodities, it seems they're successfully overfilling the hole slightly and we'll get moderate inflation. However, we have a (somewhat unclear) promise to inflate further and this would presumably lead to substantial inflation.
The hyperinflationists seem to think we'll get a Weimar inflation if Bernanke paper airplanes a single twenty out of the Fed boardroom. I don't take them too seriously.
To this point in this blame thread, Obama has 12 mentions, mostly in various slurs. The President George Bush has exactly 1 mention.
I smell me a bunch of Cons here.
Some seem to think this is going to be a redo of Reagan's era, or the Conservative Revolution "Contract on America" days, or back to the heady "call your neighbor a traitor" early days of this century ...
There is no other direction than the direction we are headed toward. There is no reversing direction. The lead lemmings march foward and the rest of us follow. There is a cliff ahead but either it can't be seen or can't be believed. Except in the human condition the leaders have parachutes, and golden ones at that!
Yep, the contraction is happening now. But there's so much money being thrown into the system (QE) while they try to "Fix the holes in the bucket" that once the holes are somewhat plugged, there's a correponding rise in pricing.
What I've continued to look at is what's going on overseas and how they're going to view de facto devaluation of the dollar. With the asians being the primary buyers of dollars and seeing their holdings decline in real value as we follow QE, there's going to be a move out of the dollar at some point. And since we got most of our physical commodities (save food) overseas, that's going to leave a mark. Overshoot's going to be a bitch.
Rich:
Went to GLD in IRA in December and will sell that with proceeds to physical bullion.
I still have a mental block about PM backed paper. Rather like a kickstand on a tank...
March of the Lemmings: "There is no other direction than the direction we are headed toward. There is no reversing direction."
Don't feel defeated, life is change. Just because America drank from a bad batch of koolaid does not mean all must be lost. America is only failing because it turned away from the future to live in the past.
The lemmings are the Conservatives with their lockstep talking points and war fantasies and endless planned sedition. Turn and leave that crap in the dust.
Yes, the probable large political sentiment here is either conservative or libertarian, although there are some liberals thrown in for a mix.
As to O:B ratio of 12:1 as you state, it's probably because B is irrelevant for future action and the commentariat is seeing the corrective actions as ultimately destructive of the currency.
Once that's gone, then we're well and truly fucked. It's easier to raise an army or build a school than to re-establish your bona-fides in the eyes of a world that sees you as a deadbeat. Currency is a very pragmatic reflection of how the world views the character, resources and productivity of a nation.
So, bear that in mind before spouting a bunch of anti-neocon stuff. B has been bashed here too.
Hell, they're like Philadelphia sport fans. They'd boo Santa Claus.
Which currency will take the dollar's place? There isn't enough gold in the world to provide the necessary velocity. As Gary Shilling says, we are the best of the bad lot. The one eyed king in the kingdom of the blind.
Vic
i guess you will know when it happens.. and happen it will be..
Homedad and Fair Econ: All that makes sense, but what kind of scale are we talking about? I've heard told that credit markets amount to about $47trillion. Let's say $8trill of pumping gets done - we'd have to see less than a 10% contraction. The fear and loathing feels more like 20% - serious breathing room.
The part about foreign appetite for treasuries seems spot on except this: they already hold so much in reserve, that it seems like they'll prop up demand as a matter of course. Those Asian governments are already like the Debeers of debt: if I discovered a market-shifting ass-load of diamond under my garden, DeBeer's would have no choice but to buy it up. Is there a path to Asia saying "no more" that doesn't involve some new currency? (Glod-bug bait, I know, but we (US) have all that, too.)
It seems like servicing that debt is what really gets us. Am I correct in fearing a default of that kind the most? Even though I'm not sure why?
Homedad, JR is making me rub my forehead, too, but the nonsense did start with ac. The cramdown thread showed how full the comments are of bleaters who just won't let go.
All that makes sense, but what kind of scale are we talking about? I've heard told that credit markets amount to about $47trillion. Let's say $8trill of pumping gets done - we'd have to see less than a 10% contraction. The fear and loathing feels more like 20% - serious breathing room.
Well, the credit market isn't all or even mostly "money". A thousand lost from a checking account depresses demand a lot more than a thousand lost from a hedge fund held for retirement. The 8 trillion in investment losses could probably be balanced out with a few hundred billion in cash, and we've already gotten about 200 billion in M1. Nobody knows the exact ratios (heck, we don't even have a measure of M3 anymore) or even particularly good guesses so big errors to either side are very possible with very destructive repercussions.
I don't know if a run from dollar-denominated assets and the resulting currency crisis is the thing you should most fear but it's certainly a threat. It's not guaranteed - an excess inflation of 20% over 2-3 years would be plenty to keep us from a liquidity trap and that would be tolerable to foreigners, based on their tolerance of recent swings. If it happened, it wouldn't be the end of the world. It would be a massive shock because we'd have to end our trade an budget deficits immediately. We can certainly live that way but to make the change suddenly will be hard.
...Barney Frank is an utter embarrassment to this country. Why the voters in Massachusetts keep putting him in amazes me!
He used to be my rep. He represents a very wealthy and socially insecure set of suburbs outside of Boston. These suburbs fetishize public school education, the reputation of which props up property values. Those property values establish social rank and exclusivity, and successful doctors and lawyers are deep in hock to live in these towns.
Dropping the conforming limit will cost Frank's constituents billions of dollars - no exaggeration. So while I guess he knows it is bad policy, his office is getting lobbied like hell by his constituents and most prominent contributors.
Anecdotal evidence that supports the notion that it can happen here...
While viewing the video shot by "Jim The Realtor" a few days back concerning price drops over time of 4 properties in the La Costa Oaks area of Carlsbad (Corte Romero, Carlsbad, CA, 92009) I got curious as to just where they were located. Well it turns out that the location is about 5.25 miles (as the crow flies) from the ocean. It appears to be a good area (it's near Del Mar) and La Costa Oaks looks like a desirable area in Carlsbad. It does back up on an intersection on what appears to be a very busy freeway (A link to the MS Virtual Earth Map) but in CA they seem to like that sort of location so that might be a plus for all I know
A Link to a Bubble Markets Inventory Tracking blog entry posted back in June of 2007 covering the same area/property (3504 Corte Romero, Carlsbad, CA 92009) wherein they marveled at how much the price had fallen. Ironically it was called "if-only-i-waited-in-la-costa-oaks". The 1st house in Jim's video (actually there are/were 4 foreclosures on that corte that he covers) sold new for $970,400 in April 2006 and resold in Jan 08 (a year ago for $790,000). Considering the current pricing of the neighboring short sale and foreclosure properties it would go for closer to $650,00 today and the bottom ain't in yet...
Let's see..another 20% decline yields $520K which is 47% off the peak. Looks like a $200K dual-income family would qualify under the 'new' mortgage guidelines. Now all they gotta do is come up with the $100K DP...
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
Awesome plan. The best one so far. Almost like a price floor. These people don't even bother reading the rules; the reasons the loan limit fell in Mass. was because home prices dropped! Heck, in SoCal the median home price is now $285,000 so $417,000 is plenty.
What Frank is trying to do is like never allowing the stock market to go down. If it does, at the end of the year we push the big red "reset" button and the market goes back to the starting point.
If you want that "luxury" home, then you need to pay a premium on your note. Just another brilliant plan that'll flush more money down the toilet.
I am slightly confused how people without real jobs (the coming future of most of the nation) benefit from efforts to keep housing prices high... argh!
Yes, I remember Barney Frank saying that the banks would be held accountable, that there was language in the Big Bank Bailout Bill to force them to help borrowers from foreclosure. He lied. The bill only "encourages" the banks to do so. Was it Barney Frank who told banks execs not to worry, that they won't be held accountable?
Barney Frank is a true leader of the movement to keep home prices high. And a few commenters have pointed out why he is on this side of the debate - which is not where you'd expect to find a socialist. Most of his constituents personally benefit from high home prices, and they are letting him know in no uncertain terms that they want him to help them.
In this respect, he is just like almost all the other Congressmen. We get the policies we see today from the politicians, who follow the wishes of the voters. I know some of you think that a small cabal of bankers or New Yorkers or whatever pull all the strings, so the finger should be pointed at only them. The toughest thing to admit is that we, the people, are the ones to blame. People will go to almost any length to point the finger elsewhere.
Hands up anyone who bought property in the last 10 years with less than 20% of their own money down. Or sold a home in the last 5 years and pocketed the gain. Or voted for a politician who voted for relaxing the rules on FNMA or Freddie Mac, or for the bailout, or....
Barney is completely culpable, and needs to be stopped and held accountable, but he is just a particularly articulate, powerful and effective version of the homeowning dentists and doctors and lawyers and business owners etc in his district.
Even assuming a 4 to 1 ratio of loan to income (high) you would need an income of 117k/year to qualify for the upper end of conforming. In ANY town or metropolitan area, that is far above the median. If Quincy is too expensive for you, then live somewhere else.
Guess what Barney, if no one can afford a $468k home with jumbo loan rates, then prices will come to levels that are affordable. Umb dass.
Oh yeah, best idea yet.
Hyperinflation is getting ready in the batting cage.
Oh Christmas Tree, Oh Christmas Tree, thy pork is so enchanting
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
"Lobbying hard." My eyes, my eyes!
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said.
(insert obligatory joke about "steers and queers")
I am guessing he said "principle", not "principal".
Why are we relying on the same people who created this crisis to fix it?
....Barney Frank is an utter embarrassment to this country. Why the voters in Massachusetts keep putting him in amazes me!
Barney Frank is a disgrace.
Do these poobahs not realize that housing depreciation is the solution to the problem of over-priced, unaffordable, and unsustainable real estate inflated by debt? Forget last year, prices should probably go down to last decade for normal American workers to afford their homes without resorting to 0 down payment wizardry.
As a reasonably progressive Massachusetts voter, I say this idiot is due for a primary challenge.
Way to go Barney!!! We can't put the taxpayers money at risk fast enough.
Nemo.....We are all dopes.
Barney Frank is a peter puffer.
You have to be upper middle class to belong in even a 417k house. If middle class housing costs more in Quincy, Quincy home prices are too high.
In purely selfish vain, I'd welcome this. I'm certainly not in trouble on my mortgage, but hey, if they're going to bail everybody else out, I'd certainly welcome the opportunity to refi to historically low rates. 30 yrs at 4.75 to 5.0 -- you can't beat that with a stick.
Particularly since it seems like in a few years, rates are going to have to shoot up to offset either inflation or lack of foreign appetite for our debt.
My selfish take on this is: OK, fine.
Reason being that the house I want to buy should come down from $2.5 million to about $1 million, and I would like to borrow some cheap money to finance it. After inflation takes off, I can pay back the loan in bogo-dollars. It's a win-win!
BTW, there is an interview video with Gary Shilling over at Tech Ticker. He says there's no near-term bottom in sight for housing, and prices will fall another 20%.
Shilling Video
If middle class housing costs more in Quincy, Quincy home prices are too high.
Eastern MA is vastly overpriced by any measure of historical ratios. But around Boston, everyone still wants to live here, and they aren't making any more land, and desirable towns are immune. Etc.
There are too many upper middle class people. Some of them need to be culled.
Ouch. My most reliable trade finally went south. Sold the OIH calls way too early this time. Buh bye OIH.
....lol....that's being done, mal....by the FedGov...
1) Affordable/Cheaper shelter is a bad thing?
2) Subsidized housing in America? No way!
OK - I am from Boston Suburbs. (No, Barney is not my representative.) But in these parts, a dual income household can easily approach 200k, and I mean mid level professional types, which times 2 or 4 gives you a home of 600k-800k. It's not all that whacky to have jumbos.
My point is that I wish we would all reference state and general city location when making anecdotal posts. I would find it helpful.
Having said that, I still say "too bad". There are alternatives to that price range.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans. The additional risk in making jumbo loans must be compensated for somehow regardless of what you call them.
A jumbo loan by any other name....
Please don't cull the upper middle class. They have all the beautiful intelligent women.
It continues. The politicians/economists/mediaticians are obsessed with getting us back to where we were. That is, a debt-fueled unsustainable economy that inevitably crashes.
A jumbo loan by any other name....
deb | 01.06.09 - 1:07 pm | #
Tanta called them TLFKAJ.
$700 Billion TARP funds sent to fractionalized banking system, levered up a minimum 10:1. Presto! 7 trillion for asset purchases. Stabilization and Stimulation.
"We need to trasfer substantial private assets to the public sphere". Private sector doesn't have the income to support it.
Dovetails nicely with Buiter's work, don't you think?
Video - CNBC.com play=1
It continues. The politicians/economists/mediaticians are obsessed with getting us back to where we were. That is, a debt-fueled unsustainable economy that inevitably crashes.
Welcome to the Obamaponzicomony.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans. The additional risk in making jumbo loans must be compensated for somehow regardless of what you call them.
The "risk" of a conforming jumbo has already been established at $729,750 under last year's law.
This is definitely a barn door/horse type of thing. Cutting the limit to the current max of $625,500 is counter intuitive and it does make sense to revert to the higher level. After that, let the market decide.
We really haven't yet managed to transition to a new management team - not in banking, in investment, in corporations or in government. These guys still do not understand the difference between 'get in deeper' and 'withdraw'.
2009 is going to be a long year.
Is it me?, or is this all starting to read like really bad porn.
I just can't get past the idea that legislators think that by calling a "jumbo" loan "conforming", they somehow change the risk involved in making higher limit loans.
Which is why no one wants to buy them, as we already saw last year. Which is why F&F will have to keep them in their portfolios, helping to take the twins down a second time.
Has anyone ever been to Quincy, holy sh*t hole. Nothing there should be above $350K.
What did that pretty sharp person say "Americans are dillsional if they think they are going to be trading houses back and forth with eachother at ever increasing prices" or something to that effect.
.....................
in these parts, a dual income household can easily approach 200k
Heh, we'll see how long that lasts.
Odds of both parties keeping their jobs over the next 2 years are not good.
Tarp Teat writes:
"My point is that I wish we would all reference state and general city location when making anecdotal posts."
Sorry. Santa Monica / Pacific Palisades / Malibu area.
Anybody against high housing prices is anti-American and anti-freedom.
Where is ipodious?
Don't get me wrong - I am not defending home prices. Just an example of adding your general location helps with the context of the anecdote.
Quincy indeed does have some unhappy areas.
"On Friday, he said one lender was offering a 5.25 interest rate for conventional loans, 5.75 percent for conforming jumbos, and 8 percent for jumbos."
This might be an ignorant question but I thought it was either conforming or not conforming. How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Isnt F&F just buying "conforming jumbos" the same as they are buying all conforming mortgages?
TIA
....................
Sorry if this has been posted earlier. Krugman shillin' for MASSIVE stimulus using the D-word threats.
OP-ED COLUMNIST; Fighting Off Depression - NY Times
We really haven't yet managed to transition to a new management team - not in banking, in investment, in corporations or in government. These guys still do not understand the difference between 'get in deeper' and 'withdraw'.
2009 is going to be a long year.
wally | 01.06.09 - 1:12 pm |
It's sad. I know personally I always get kind of excited when I see new leadership come along that appears to be more intelligent or enlightened in some way the administration before it.
But somehow we've come to a point in our society where "progressive" thinking is somehow synonymous with a total lack of self-control and self-sacrifice as a nation. That gross self-indulgence and blindness to the long-term consequences is the highest of all virtues.
I don't think there's anymore denying that change simply means "doing exactly what we were doing before hopped up on steroids."
Barney Frank sure is making a lot of proposals lately. So how did his other efforts turn out?
Sorry if this has been posted earlier. Krugman shillin' for MASSIVE stimulus using the D-word threats.
Krugman bustin' out the old shock doctrine eh? Dick Cheney has trained him well...
Median HH income for Quincy, MA is $59K.
Median single-family house is $310K.
Why does Quincy need jumbo conforming loans again?
One-party states are a bad thing. Doesn't matter which party.
....it's the DC system itself that breeds the elitism and insular lifestyle. Most in government have no idea about "real-life" concerns or needs..
Getting rougher out there:
BBC NEWS | Business | German billionaire kills himself
As fascinating and interesting last year was, as I sit here and read about everything from Gaza, US politics and buisness, this year might be better(worse?).Buckle up kids.
Sorry if this has been posted earlier. Krugman shillin' for MASSIVE stimulus using the D-word threats.
In case you missed it, an apparently heavy weight economist voiced a contrary opinion yesterday much to the consternation of the orthodoxy. I would compare the depth of thought and analysis in this article to the stuff that Krugman has been writing recently and see what conclusion you come to:
FT.com | Willem Buiter's Maverecon | Can the US economy afford a Keynesian stimulus?
Markel,
Quicy is where Frank gets votes. That's independent of whether they need jumbos or not.
Why does Quincy need jumbo conforming loans again?
That's easy. So when Quincy sellers sell, they can take the equity and upgrade to a nicer suburb w/o jumbo loans. See. And that's how the real estate industry is going to revive. After all, all it takes is a little push to get this thing going again. Right? Right.
Krugman's nightmare. Keeps him up at night that the government isn't impoverishing future generations into deep servitude.
"All of this leaves me concerned about the prospects for the Obama plan. Im sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Heres my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, its only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy well, you can see where this is going"
I know when this all ends.
When not one person here knows a single sole who is trying to time the residential real estate cycle.
Till then its not over.
I still know people....
........
Welcome to the Obamaponzicomony
Can we shorten this to the NecrObamaCon?
A sovereign refi and consolidation move?
Jesse's Café Américain: The Treasury Bubble and the Central Banks: Imbalance à Go Go
Balance sheet transfers and time dilations are usually preemptive of selective default or dissolutive bankruptcy.
Drag the keel off the rocks and see if she still floats!
OT Martin Armstrong, the other side of the story. From Cassandra does Tokyo
Cassandra Does Tokyo: The Enigma of Martin Armstrong (revisited)
Link from Jesse's
Jesse's Café Américain
Krugman bustin' out the old shock doctrine eh? Dick Cheney has trained him well...
You'll know they're fully trained when they come out with color coded alerts for the state of the economy.
....Barney Frank is an utter embarrassment to this country. Why the voters in Massachusetts keep putting him in amazes me!
Black Star Ranch | 01.06.09 - 12:58 pm
they think he is Barney from How i met your mother
PS: RE prices in eastern europes slovakia have already fallen 20-30% during last 6 months and will continue to fall now that all banks have halted 100% mortgages and the only available are 85%. car loans are also collapsing since november now instead of 20-30% paydown one needs 50%.
bad times coming, but people here have incredible savings rate so everything wil be ok, especially since we adopted euro starting 1.1.2009 while getting the exchange rate at the top of eastern europe currency bubble in july. so now we have euro while CZK is down 12%, PLN 24% and HUF 14% vs EUR.
and the economy is kind of ok, cause big companies better take EUR rather play currency rollercoaster with the PLN CZK and HUF in future.
"......and the legislation that actually emerges is too cautious"
A democratic spending bill that doesn't include something for EVERYBODY?? Such an animal does not exist nor ever will.
"I'm lobbying hard to get at least last year's level to be put back where it was."
Translation: I'm lobbying hard to sustain bubble inflated prices, aka, price fixing.
Markel writes:
Median HH income for Quincy, MA is $59K.
Median single-family house is $310K.
Why does Quincy need jumbo conforming loans again?
Markel | 01.06.09 - 1:24 pm | #
Okay, it is only the MEDIAN. HOWEVER, 5X income and in this uncertain economy, that is just nutso.
HH incomes of 59K should not be buying for more than 150K, TOPS!
Again, for most Americans, UNLESS you have a sizeable downpayment, you shouldn't be financing anything more than 200-250K for 30 years. The numbers just don't add up.
Also, Frank and Clowns are trying to prop up these prices because it is all we got left.
If RE goes, kiss it all goodbye. People are tapped out on credit. Jobs suck. Manufacturing is gone. Homes are the largest assest for most and if that goes, goodbye economy.
Not that we aren't in trouble anyway with all the debt we have!
Having lived in Massachusetts recently (suburb of Boston), and having paid attention to house prices at the peak in 2006, I think "average", which is the work Frank used, should mean average, and not something else.
So....average would include not only the wealthiest neighborhoods (the richest only), but rather all the neighborhoods, averaged. Yes?
So my guess is that number, regarless of recent sales, etc., should be closer to $300K than $500K. For instance $350K would not surprise me.
That leaves Frank in the position of advocating....?
What exactly?
Yes, a kind of reverse socialism. Socialism for the rich, at the cost to the middle.
Just out of curiosity, who is offering a conforming jumbo loan for 5.75? Bankrate would seem to indicate that LFKAJ are more like 6.9%. I don't really understand how changing the conforming jumbo limit will make any difference at all, given that $500k loans are running 7%. I guess maybe Obama will simply get into the direct lending business and fix all our woes.
"All of this leaves me concerned about the prospects for the Obama plan. Im sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Heres my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, its only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy well, you can see where this is going"
FWIW I think Krugman's scenario is entirely valid. The thing that Krugman seems to persistently overlook is that another massive round of borrowing may lead to an even worse outcome if it eventually causes a flight from USD based assets.
Krugman certainly knows this is possible - I've read papers written by him before about the potential for a dollar crash. If we see that kind of scenario in the current environment the outcome could well be apocalyptic.
I think he's willing to overlook this possibility because he's on the verge of seeing a bunch of policies he supports being implemented, and any kind of fiscal restraint would threaten that.
Again, I believe power and politics clouds reason.
Welcome to the Obamaponzicomony
Can we shorten this to the NecrObamaCon?
Broward Horne | Homepage | 01.06.09 - 1:32 pm |
I believe that's only supposed to be discussed among fellow members of the Illuminati.
I thought this was teh definition of hot action: These guys still do not understand the difference between 'get in deeper' and 'withdraw'.
Hey he is a congress critter and as such has to look out for the interests of his district as well as the nation as a whole. Even though I oppose the increase in the conforming limit (and did so when it was raised last year) I think some of the critisism of Barney is a bit unfair here, comparied to the Bozo's who were running the committees from 94-06 he looks pretty good, but then again that may just be the tyranny of low expectations and easy comps.
Some of us here were saying a month ago that it wasn't too soon to start betting on higher inflation and currency devaluation.
I personally said to go with food (DBA), mixed energy (DBE) and precious metals (GLD, SLV, GDX, SLW).
At that time, other people on this board were ridiculing us to no end. Didn't we know that everything was deflating?
Now, I'd like to see even one of these morons admit they were wrong. Commodities started to turn 4-5 weeks ago, and you could see it first in food. DBA is up 25% since Dec. 5.
It's not too late to get some hyper-inflation protection in your pocket. Some of the industrial metals are even starting to look good. Check out the Dow Jons-AIG iPaths, such as JJC for copper or JJN for nickel.
The story is...deflation, yes, in a lot of goods and services. Clothes, cars, appliances, technology crap...there's so much over-capacity and shrinking demand that they can't give it away cheap enough.
But basic commodities are scarce and a good store of value during times of currency trashing all over the world. These commodities are on a big wave that will roll all the way to the beach and then a few miles inland. It's powerful.
PETER PUFFER PICKED A PAYMENT,
HOW MANY PICK A PAYMENTS DID PETER PUFFER PONZI?
Does anyone see on the horizon any means by which we can service our existing debt AND the add'l $100,000 per household bailout debt heaped by the gov't these past few months?
Total household indebtedness exceeds $600K now.
If you think non-recourse mortgage defaults are bad, what think ye about full recourse state sponsored indebtedness without any payment schedule or debt servicing capacity?
Jumbo conforming limit didn't have much effect, the PMI companies are control in that area. The people who can go FHA and need conforming jumbo are insignficant.
On Barney Frank's reality-denying regulatory machinations, "He also wants to change the way the loan limits are calculated to reflect real market conditions."
The unintentional comedian strikes again.
Rich, your picks have been right-on. I don't invest, but if I did, I'd read every word you type.
rich,
I hope you are not correct! For commodity prices to catch fire while Benny is standing here pouring out buckets of gasoline would create some issues.
Why are we relying on the same people who created this crisis to fix it? - Nemo
There is no way to fix this mess. It's really just a matter of who pays.
Keep in mind, the politicians that fostered the mess, have already bailed out those that benefited most from the mess.
What a sham!
Why can't the size of jumbo loans be indexed to the zipcode's median price or something?
Would that create even more problems?
a little, OT, but just when I thought I had enough to worry about.......
3RD HAND SMOKE KILLS YOU!
Professor Winickoff said: "The dangers of third-hand smoke are very real - when you smoke - any place - toxic particulate matter from tobacco smoke gets into your hair and clothing." (I wonder if this includes me inhaling my cow emanations)
BBC NEWS | Health | Warning over 'third-hand smoke'
Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy,"
Sorry Barney, but your comparison ain't apples-to-apples even though you claim it is. Lying sack of...
That's why the FHFA recalcs the limits individually for each market. That's why what is a luxury home in Nebraska is ALSO a luxury home in Revere.
By the way, a quick glance at home prices in Quincy looks like 400K seems typical. All but one I saw was within the new conforming limits.
MACworld! alert
Didn't they determine that fried food contains cancer-causing substances?
After a point it just becomes so much meaningless yammering. People tune it out.
One factor to consider regarding distorted real estate in MA; the large concentration of colleges/universities means that a lot of SFR type structures can be rented to 4-6 college kids at per person rates that add up to significantly more than even a 2 income household could afford. When you put 2 students per bedroom and charge $300 or more per month a piece for half a bedroom you get a big number for the landlord. Just one piece of the puzzle...
rich writes:
"Some of us here were saying a month ago that it wasn't too soon to start betting on higher inflation and currency devaluation."
Rich, looking out medium term, I'm a believer in your thesis, or at least willing to hedge with some positioning. But the screaming buys seem to be off the table for now, and picking entry points (while looking short sighted 24 monhs from now) are still important to building portfolio confidence.
Its interesting comparing your positions vs. Persecuted, and wrong or right he provides specific technical justifications for his trades (vs. just qualitative). I welcome yours as well.
"But around Boston, everyone still wants to live here, and they aren't making any more land"
That's funny because Boston made more land by filling part of the harbor.
Does anyone see on the horizon any means by which we can service our existing debt AND the add'l $100,000 per household bailout debt heaped by the gov't these past few months?
The only real option is to default on our debt via inflation.
The problem is if the market decides to preempt this outcome and flee from USD financial assets (especially foreign banks and investors) the result could be disaster.
That's the fallacy of relying on inflation to get out of your debts - your creditors can figure out you're trying to do this and flee before you successfully pull it off.
Destitution: It all depends on your point of view and what you are used to, doesn't it?
For some, hardship is defined by only having 9 garden girls instead of the usual dozen to do the daily chores. A man's Jumbo is relative.
The problem is that these rules are being crafted by men and women with extremely rich tastes and expectations. Some don't even know how many houses they own. Unfortunately, they are being financed from taxes from Nebraska.
Got pitchfork?
But basic commodities are scarce ...
rich | 01.06.09 - 1:42 pm | #
Ahhh there's the flaw. You'd think the Simon-Ehrlich wager would have buried that theory.
It appears Obama wanted to be President, stayed focused for years to achieve that goal, having gotten this for don't believe he will sell The US out to The Arabs or China.
The last two President's sold their souls, C for more money and power, B I have yet to figure out.
Would like for Klugman to talk about The Strategic Economic Dialogue between Bush, Paulson and China.
[alybaba writes:
Why can't the size of jumbo loans be indexed to the zipcode's median price or something?]
Because price is irrelevant. Indexing to incomes on the other hand, much less volatile.
US Treasurys Industry Grp Suggests Fees For Settlement Fails
Settlement fails have been high in recent months and tend to occur most frequently during periods of low interest rates, such as this one
"The only real option is to default on our debt via inflation."
In the long term, I think that is fully true. The question, to me, is: will there be inflation in all countries, pretty much equally, or will it be greater in specific countries? I don't see that anybody is going to be untouched by this downturn and I think everybody will be doing 'stimulus' for internal political reasons. It could be another race to the bottom.
p.s. Can Barney Frank be any more of a NAR tool?
He completely encouraged Fannie/Freddies race to the bottom in underwriting. And now is desperately yelling at everyone in hopes that they don't look at him and all the damage he has wrought.
Now, Now, I actually support this in some measure. If it was Zip plus 4 deliniated then it may work. I've got a La Quinta property worth $2m that has a $575k loan on it - 28% loan to value! surrounded by other $2m valued homes. Because it's in the Inland Empire the client cannot refinance for less than 7.0% what with the $471k max loan. Sure, a house in Pedley should be maxed at $417k but a Palm Springs home, values significantly higher, should not be penalized by the lower loan limits for the entire county.
My .02
SGIP
Barney Frank is a tool.
The additional risk
the author of this phrase in an early thread post must be asleep.
There is NO ADDITIONAL RISK
when your govvie backstops Everything
inculding
a)commerical paper(big biz payroll)
b)asset backed securites(asset-rofl;credit card recievables, auto-loans)
c)vanilla MBS
d)chocolate MBS
f)need help...what else!
"This might be an ignorant question but I thought it was either conforming or not conforming. How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Isnt F&F just buying "conforming jumbos" the same as they are buying all conforming mortgages?
TIA
....................
nades | Homepage | 01.06.09 - 1:20 pm | # "
Names have strong mojo.
Is this a joke ?
SGIP,
My opinion re jumbo homes...if you can't afford to pay cash...you can't afford the house. If you're making the kind of bucks that would convince a lender in normal times to give you a loan on a $1M or greater house, save the income, wait a couple of years, and pay cash. Take the cash you would have been spending on interest to get the deduction and give to charity...it's still deductible. Of course, that would be un-American.
OT
Treasury says TARP costs $26.55 million through January
Of the January 31 administrative bill, $1.19 million was projected for direct personnel costs and $24.42 million for contracted services.
Administrative costs for the TARP are ~$6M per month? I'd sure like to know the average cost per employee for the contract work.
Curious - If I recall the average Gs employee gets 360k/year...Does this help?
OK - I am from Boston Suburbs. (No, Barney is not my representative.) But in these parts, a dual income household can easily approach 200k, and I mean mid level professional types, which times 2 or 4 gives you a home of 600k-800k. It's not all that whacky to have jumbos.
Yes, these type of people can afford to pay a lot of money for a house. These type of people are also likely to want such a house to be really nice, since they are paying a ton of money for it. A sense of value doesn't go away as soon as your earnings cross that 6-figure barrier.
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
Taken somewhat out of context, this is a pretty offensive statement. As if indoor plumbing is still a luxury item in Nebraska. As if surround sound wiring is a ridiculous indulgence in Nebraska. Them corn farmers are like Neanderthals compared to the fine folks in Massachusetts!
Can someone explain something to me? It seems like the hyperinflation crowd forgets the major ongoing/continuing contraction in available credit. If monetary policy is filling a hole that big, the money supply isn't increasing, right? Am I missing something?
"Administrative costs for the TARP are ~$6M per month?"
......listen........psssst......do you hear it?.......there.......that's it......the GIANT SUCKING SOUND of your money down the toilet...Unbelievable.
I need to go feed the cow.
"Treasury says TARP costs $26.55 million through January"
This does imply that there is an accounting record... somewhere.
http://www.usatoday.com/money/markets/2009-01-04-foreign-investors-us-securities_N.htm?ref=patrick.net
deep river? it's was the colorado south of Yuma
The problem in the economy is not about mortgage rates, but the fat that too many derivatives connected too much fraud to a tsunami of over-building and thus too much inventory has impacted value. Rates can go down another 10%, but that doesn't mean unemployed people will come out of the woodwork to panic buy. There are simply too many units available and not enough people with real cash, so suggesting that lowering Jumbos will help is fairly stupid, but then again, Franks is stupid and I assume he is in bed with Yun!
Increasing Jumbo limits means locking in inflation.
Commodities started to turn 4-5 weeks ago, and you could see it first in food. DBA is up 25% since Dec. 5.
rich | 01.06.09 - 1:42 pm | #
Rich -
I learn a lot from your commentary and you are one of my fav authors over here. However, aren't almost all equities up by double digits since the Nov lows. Heck, the REITS have more than doubled from their lows. If you think we are going into a depression, wouldn't that suppress demand for commodities?
In the spirit of compromise, increase the conforming limit but don't allow cramdown on the GSE debt.
If the government thinks this is fine for student loans, then why not the GSE subsidy?
When did Nebraska get indoor plumbing? Where do they put the corncobs these days?
Under normal circumstances, an economic depression/recession leads to reduced industrial activity and consumption, which means that commodities are less in demand for use in manufacturing and consumption, leading to a decline in prices. This is why people commonly say that commodities suffer in a recession/depression.
In circumstances where a currency itself is being thrown in front of the unstoppable force of a depression, commodities gain an additional utility beyond their role in manufacturing and consumption -- as a concrete store of value. Where a currency loses its utility as a store of value, commodity prices can be pushed up above and beyond their intrinsic manufacturing/consumption utility by this new value-storing utility. This is why commodities can be expected to rise in this coming depression, and why a sudden rise will be a good indicator of a loss of faith in the dollar.
It doesn't matter, in the end, whether they have in fact destroyed the dollar through their policies. If there is the perception that the dollar is destroyed, if there is a loss of faith in the dollar, which can be evidenced by a flight to commodities, then it is as good as destroyed.
In the spirit of compromise, increase the conforming limit but don't allow cramdown on the GSE debt.
Hmm. A bad idea that won't work and is based on a complete misunderstanding of the problem, but is indeed a "compromise."
Obama, is that you?
One of the points that Buiter made in his now oft-linked analysis is that Americans have been 'investing' too much in their housing.
In that opinion he is joined by a lot of others. It is a very far-reaching comment. He spends no time elaborating, but this reaches into the questions of infrastructure, private vehicles, suburb paterns, school systems, energy use, social patterns and even opinions of self-worth and value. These things were matters of more serious debate a couple of decades ago, but got blown away by the prosperous years and the me-first days.
[If you think we are going into a depression, wouldn't that suppress demand for commodities?
Vic]
I think it's a hedge against currency devaluation across the board in hard assets.
As a correlary, because demand is sinking, a rise in commodities will not indicate an increase in demand for consumption or manufacturing. Because these two reasons are eliminated, the only reason for commodities to rise in this environment is if they're being used as a store of value.
Thus you can use commodity prices as a good indicator about the fate of the dollar. It is perhaps the best indicator, because it is, to my knowledge, the only market which is not actively being distorted by the direct purchasing programs of the federal reserve.
It doesn't matter, in the end, whether they have in fact destroyed the dollar through their policies
Hoopajoops, LTD | 01.06.09 - 2:13 pm | #
Which currency will take the dollar's place? There isn't enough gold in the world to provide the necessary velocity. As Gary Shilling says, we are the best of the bad lot. The one eyed king in the kingdom of the blind.
How is the bank getting away with a extra 50 bp for the "conforming jumbo" status.
Tanta wrote about that in the "LFKAJ" post. Jumbos are the first to be refi'd when rates fall, so they alter the convexity of an instrument that securitizes them.
ac says: But somehow we've come to a point in our society where "progressive" thinking is somehow synonymous with a total lack of self-control and self-sacrifice as a nation. That gross self-indulgence and blindness to the long-term consequences is the highest of all virtues.
Say WHAT? WTF? That is vile dishonesty.
This insane take is written at a point in our history when people who are NOT progressive and in fact HATE progressives have presided over the largest worldwide financial calamity since the Depression. Yet this nut blames progressives as somehow to blame for the policies they were fighting and tried to prevent.
Progressives have been steadily fighting the short-term thinking of Conservatives and their Corporate back-office for my entire political life, while Republican Conservative Right-wingers .... you know, it's not worth it. I think I shall just begin pasting in foul-mouthed slurs when I see this logic-annihilating trash. This site has a LOT of it.
CR himself knows that this kind of lying bullshit matters, because he expeditiously deleted a comment by Nemo not giving him enough credit for "forecasting" in a post. Was afraid people might 'see it' but our host has never been afraid they might see the Con apologists lying to deflect blame from their sedition.
I am becoming convinced that the residual Cons are treasonous enemies to my nation, who only want harm for it.
Cons prefer lies for some reason; probably habit, maybe addiction.
Can we shorten this to the NecrObamaCon?
Broward Horne | Homepage | 01.06.09 - 1:32 pm | #
That is funny!
600K is not an average house in the Q.
I miss CRs longer analysis posts with conclusions. They usually are sensible conclusions that many people read and we need influential people reading concise analysese, with sensible, responsible conclusions right now.
Scary times.
Can someone explain something to me? It seems like the hyperinflation crowd forgets the major ongoing/continuing contraction in available credit. If monetary policy is filling a hole that big, the money supply isn't increasing, right? Am I missing something?
No, it's hard to figure out how much is needed. M1 is definitely increasing and M2 is somewhat above trend. Presumably M3 is increasing slowly at most (more losses, and larger relative to the money supplied).
Based on M2 and the recent jumps in several asset prices, like stocks and commodities, it seems they're successfully overfilling the hole slightly and we'll get moderate inflation. However, we have a (somewhat unclear) promise to inflate further and this would presumably lead to substantial inflation.
The hyperinflationists seem to think we'll get a Weimar inflation if Bernanke paper airplanes a single twenty out of the Fed boardroom. I don't take them too seriously.
SRS is getting hammered today. Who knew CRE was looking so good?
FOMC MEMBERS DISCUSSED MOUNTING RISKS OF DEFLATION, DEPRESSION AT MID-DECEMBER MEETING
To this point in this blame thread, Obama has 12 mentions, mostly in various slurs. The President George Bush has exactly 1 mention.
I smell me a bunch of Cons here.
Some seem to think this is going to be a redo of Reagan's era, or the Conservative Revolution "Contract on America" days, or back to the heady "call your neighbor a traitor" early days of this century ...
There is no other direction than the direction we are headed toward. There is no reversing direction. The lead lemmings march foward and the rest of us follow. There is a cliff ahead but either it can't be seen or can't be believed. Except in the human condition the leaders have parachutes, and golden ones at that!
"Gavshire Hathaway writes:
SRS is getting hammered today. Who knew CRE was looking so good?"
Paulson.
el lurko:
Yep, the contraction is happening now. But there's so much money being thrown into the system (QE) while they try to "Fix the holes in the bucket" that once the holes are somewhat plugged, there's a correponding rise in pricing.
What I've continued to look at is what's going on overseas and how they're going to view de facto devaluation of the dollar. With the asians being the primary buyers of dollars and seeing their holdings decline in real value as we follow QE, there's going to be a move out of the dollar at some point. And since we got most of our physical commodities (save food) overseas, that's going to leave a mark. Overshoot's going to be a bitch.
Rich:
Went to GLD in IRA in December and will sell that with proceeds to physical bullion.
I still have a mental block about PM backed paper. Rather like a kickstand on a tank...
About time! No way they could keep this sucker going without more unsustainable lending!
Obama has 12 mentions, mostly in various slurs. The President George Bush has exactly 1 mention.
I smell me a bunch of Cons here
I smell a guy focused on the past instead of the future.
.
March of the Lemmings: "There is no other direction than the direction we are headed toward. There is no reversing direction."
Don't feel defeated, life is change. Just because America drank from a bad batch of koolaid does not mean all must be lost. America is only failing because it turned away from the future to live in the past.
The lemmings are the Conservatives with their lockstep talking points and war fantasies and endless planned sedition. Turn and leave that crap in the dust.
America can return.
JR:
Yes, the probable large political sentiment here is either conservative or libertarian, although there are some liberals thrown in for a mix.
As to O:B ratio of 12:1 as you state, it's probably because B is irrelevant for future action and the commentariat is seeing the corrective actions as ultimately destructive of the currency.
Once that's gone, then we're well and truly fucked. It's easier to raise an army or build a school than to re-establish your bona-fides in the eyes of a world that sees you as a deadbeat. Currency is a very pragmatic reflection of how the world views the character, resources and productivity of a nation.
So, bear that in mind before spouting a bunch of anti-neocon stuff. B has been bashed here too.
Hell, they're like Philadelphia sport fans. They'd boo Santa Claus.
Broward:
How about the Bama Sutra?
(Thought that you'd appreciate that...)
Horne says: "I smell a guy focused on the past instead of the future"
Actually I believe the future will be better if the (next) Big Lie the Cons are spewing is stopped.
Do you have a function, funny guy? I remember you as being somewhat insightful in the past ... with so many Cons around you never know.
Homedad: the commentariat is seeing the corrective actions as ultimately destructive of the currency.
So do I. I hate this shitty "bailout" and despise the sell-out Democrats.
But I also hate others being blamed for what the Cons did. I despise hypocrisy.
"Do you have a function, funny guy?"
I always thought JR should have died when he got shot.
Which currency will take the dollar's place? There isn't enough gold in the world to provide the necessary velocity. As Gary Shilling says, we are the best of the bad lot. The one eyed king in the kingdom of the blind.
Vic
i guess you will know when it happens.. and happen it will be..
Homedad and Fair Econ: All that makes sense, but what kind of scale are we talking about? I've heard told that credit markets amount to about $47trillion. Let's say $8trill of pumping gets done - we'd have to see less than a 10% contraction. The fear and loathing feels more like 20% - serious breathing room.
The part about foreign appetite for treasuries seems spot on except this: they already hold so much in reserve, that it seems like they'll prop up demand as a matter of course. Those Asian governments are already like the Debeers of debt: if I discovered a market-shifting ass-load of diamond under my garden, DeBeer's would have no choice but to buy it up. Is there a path to Asia saying "no more" that doesn't involve some new currency? (Glod-bug bait, I know, but we (US) have all that, too.)
It seems like servicing that debt is what really gets us. Am I correct in fearing a default of that kind the most? Even though I'm not sure why?
Elvis writes: I always thought JR should have died when he got shot.
Thanks Elv, you were one of the few I thought were okay here.
Back at ya: I always thought Elvis should have stayed dead.
It is my new job here to take the fun out of lying for you Cons. I can't make you into humans, but I can do that.
I always thought Elvis should have stayed dead...
el lurko:
honestly, we're so far through the looking glass that it's impossible to give you any more than a general response to what's likely to happen.
No models, no way to quantify what the foreigners holding debt are thinking. Just sheer sense of what's coming.
JR:
enough already. leave the polemics at the Daily Kos.
In another effort to increase real estate affordability, Barney Frank just voted himself and the rest of Congress another pay raise. That should help.
Homedad, JR is making me rub my forehead, too, but the nonsense did start with ac. The cramdown thread showed how full the comments are of bleaters who just won't let go.
How about letting Quincy prices drop to Nebraska levels?
All that makes sense, but what kind of scale are we talking about? I've heard told that credit markets amount to about $47trillion. Let's say $8trill of pumping gets done - we'd have to see less than a 10% contraction. The fear and loathing feels more like 20% - serious breathing room.
Well, the credit market isn't all or even mostly "money". A thousand lost from a checking account depresses demand a lot more than a thousand lost from a hedge fund held for retirement. The 8 trillion in investment losses could probably be balanced out with a few hundred billion in cash, and we've already gotten about 200 billion in M1. Nobody knows the exact ratios (heck, we don't even have a measure of M3 anymore) or even particularly good guesses so big errors to either side are very possible with very destructive repercussions.
I don't know if a run from dollar-denominated assets and the resulting currency crisis is the thing you should most fear but it's certainly a threat. It's not guaranteed - an excess inflation of 20% over 2-3 years would be plenty to keep us from a liquidity trap and that would be tolerable to foreigners, based on their tolerance of recent swings. If it happened, it wouldn't be the end of the world. It would be a massive shock because we'd have to end our trade an budget deficits immediately. We can certainly live that way but to make the change suddenly will be hard.
Thanks, you two. Appreciate your willingness to educate.
...Barney Frank is an utter embarrassment to this country. Why the voters in Massachusetts keep putting him in amazes me!
He used to be my rep. He represents a very wealthy and socially insecure set of suburbs outside of Boston. These suburbs fetishize public school education, the reputation of which props up property values. Those property values establish social rank and exclusivity, and successful doctors and lawyers are deep in hock to live in these towns.
Dropping the conforming limit will cost Frank's constituents billions of dollars - no exaggeration. So while I guess he knows it is bad policy, his office is getting lobbied like hell by his constituents and most prominent contributors.
Anecdotal evidence that supports the notion that it can happen here...
While viewing the video shot by "Jim The Realtor" a few days back concerning price drops over time of 4 properties in the La Costa Oaks area of Carlsbad (Corte Romero, Carlsbad, CA, 92009) I got curious as to just where they were located. Well it turns out that the location is about 5.25 miles (as the crow flies) from the ocean. It appears to be a good area (it's near Del Mar) and La Costa Oaks looks like a desirable area in Carlsbad. It does back up on an intersection on what appears to be a very busy freeway (A link to the MS Virtual Earth Map) but in CA they seem to like that sort of location so that might be a plus for all I know
A Link to a Bubble Markets Inventory Tracking blog entry posted back in June of 2007 covering the same area/property (3504 Corte Romero, Carlsbad, CA 92009) wherein they marveled at how much the price had fallen. Ironically it was called "if-only-i-waited-in-la-costa-oaks". The 1st house in Jim's video (actually there are/were 4 foreclosures on that corte that he covers) sold new for $970,400 in April 2006 and resold in Jan 08 (a year ago for $790,000). Considering the current pricing of the neighboring short sale and foreclosure properties it would go for closer to $650,00 today and the bottom ain't in yet...
Let's see..another 20% decline yields $520K which is 47% off the peak. Looks like a $200K dual-income family would qualify under the 'new' mortgage guidelines. Now all they gotta do is come up with the $100K DP...
"Even if you accept the principal we shouldn't be financing luxury housing; what's a luxury house in Nebraska is an average house in Quincy," Frank said. "I'm lobbying hard to get at least last year's level to be put back where it was."
Awesome plan. The best one so far. Almost like a price floor. These people don't even bother reading the rules; the reasons the loan limit fell in Mass. was because home prices dropped! Heck, in SoCal the median home price is now $285,000 so $417,000 is plenty.
What Frank is trying to do is like never allowing the stock market to go down. If it does, at the end of the year we push the big red "reset" button and the market goes back to the starting point.
If you want that "luxury" home, then you need to pay a premium on your note. Just another brilliant plan that'll flush more money down the toilet.
If Barney Frank is behind it, you don't want to be "it"
"Which currency will take the dollar's place? There isn't enough gold in the world to provide the necessary velocity."
Wrong. Gold is almost infinitely divisible and extremely malleable-- it can be pounded into incredibly thin sheets.
These sheets could be encased in plastic, and used as currency. 1/10,000 of an ounce could be encased in a plastic coin and would represent, say, $1.
Yeah, because look at how much it helped the housing market.
Way to go Washington!
I am slightly confused how people without real jobs (the coming future of most of the nation) benefit from efforts to keep housing prices high... argh!
"To this point in this blame thread, Obama has 12 mentions, mostly in various slurs. The President George Bush has exactly 1 mention."
In just a few more days, Bush won't be able to hurt us anymore.
Obama, on the other hand, is just getting started. And from all appearances, he isn't going to be a meaningful improvement on Bush.
Yes, I remember Barney Frank saying that the banks would be held accountable, that there was language in the Big Bank Bailout Bill to force them to help borrowers from foreclosure. He lied. The bill only "encourages" the banks to do so. Was it Barney Frank who told banks execs not to worry, that they won't be held accountable?
Barney the fairy played a huge role in bankrupting the country.
You 7astupid F%$# from MASS take this A$$hole back.
Barney Frank is a true leader of the movement to keep home prices high. And a few commenters have pointed out why he is on this side of the debate - which is not where you'd expect to find a socialist. Most of his constituents personally benefit from high home prices, and they are letting him know in no uncertain terms that they want him to help them.
In this respect, he is just like almost all the other Congressmen. We get the policies we see today from the politicians, who follow the wishes of the voters. I know some of you think that a small cabal of bankers or New Yorkers or whatever pull all the strings, so the finger should be pointed at only them. The toughest thing to admit is that we, the people, are the ones to blame. People will go to almost any length to point the finger elsewhere.
Hands up anyone who bought property in the last 10 years with less than 20% of their own money down. Or sold a home in the last 5 years and pocketed the gain. Or voted for a politician who voted for relaxing the rules on FNMA or Freddie Mac, or for the bailout, or....
Barney is completely culpable, and needs to be stopped and held accountable, but he is just a particularly articulate, powerful and effective version of the homeowning dentists and doctors and lawyers and business owners etc in his district.
This is the kind of post where Tanta's comments are so dearly missed.
Even assuming a 4 to 1 ratio of loan to income (high) you would need an income of 117k/year to qualify for the upper end of conforming. In ANY town or metropolitan area, that is far above the median. If Quincy is too expensive for you, then live somewhere else.
Guess what Barney, if no one can afford a $468k home with jumbo loan rates, then prices will come to levels that are affordable. Umb dass.