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Could AIG Destroy the Global Economy Public Radio "To the Point" (audio KCRW - Santa Monica)
That's a lot of homes!
This comment thread has been HALO-IZED by CRbot.
http://realize.org/cr/halokit.php?halourl=http://www.haloscan.com/comments/calculatedrisk/2375513763312189262/
This economy is scrwed big time. We are going to have Greatest Depression.
The 1930's had: "The Great Depresion". Let's call this one: "The Really Great Big OMFG Great Depression".
Have we crossed GD I on the four bears chart yet?
That's a lot stress. Our economy just needs a good massage.
Long but worth the read, I hope.
Currently the Federal Government is doing what it can to keep home loan rates low. Interest rates on home loans are currently at 5.5% or so, and there has been talk of trying to get it down to 4%. This is under the auspices of trying to assist current homebuyers and to keep homes "affordable". This is also an effort to keep home prices "stable", or rather, to keep them from falling ("deteriorating") further. I think Bernanke would readily admit this.
Given this premise: What would happen to home prices if rates were to rise significantly?
From common sense and through admission by the Fed through their actions, it is obvious to conclude: A RISE IN RATES WILL MEAN A DROP IN HOME PRICES.
Anyone disagree?
O.K. So, how significant would the drop in house prices be, if rates immediately went to, say, 13%?
Suppose you had a typical 4 bedroom/3 bath 2,500 sq/ft house that today was selling for $480,000 in Southern
California (was $700,000 at the peak).
At 5.5%, the loan with a 20% down of $80,000 would be $400,000, which works to about $2,200 a month (P&I only).
If rates were to rise to 13%. That same $2,200 payment would only get you a loan of about $200,000 So, that same house, at 50% off, or $240,000, with a 20% down $40,000, would leave a loan of $200,000. With a 13% interest rate on the home loan, your payment would be about $2,200.
I think it's safe to assume that that if rates were to rise to 13% right now, that house prices would fall signficantly, perhaps by about 50%. Given that home prices are at least in theory tied to the prevaling wages and rent equivalent in a certain area, it stands to reason that the monthly payment would be similar for a given house.
Afterall, the monthly payment determines affordability. So in this example, if rates went to 13%, a house that was "affordable" at $480,000 is now similarly affordable at price closer to $240,000.
With me still?
Admittedly prices would take some time to adapt to rates. There would be initial freezing in the market (as we've already seen), but as prices dropped sales volume would pick up (again, as we've already seen).
Cont'
Now, you are a prospective homebuyer, A first-time buyer just starting out in life.
What would you rather buy, a $480,000 house with a 5.5% loan, or that very same house for $240,000 at 13%?
Well, I think it stands to reason that anyone would obviously rather pay less for the house and more for the money.
Why you ask? Well, firstly, you can't refinance your principle, so as rates fall at some point in the future (as they are more likely to do at 13% than at 5.5% since rates tend to move to the historical mean of say 7-8%) you can refinance and reduce your payment. And by this same logic, as rates fell to more "normal" levels, the value of your house would increase as the "buying power" of future borrowers increased. Second, it would require a much smaller amount of money to satisfy the 20% down needed ($40,000 as opposed to $80,000). Third, a higher portion of your payment would go toward interest, and thus be a larger income tax deduction.
So, in this example it is apparent that LOW interest rates are NOT a sure-fire way to help homeBUYERS. In fact, presuming that a rise in rates would cause a commensurate drop in house prices, the HIGHER the rates the BETTER for homebuyers.
cont'
Want more proof?
Ask anyone who remembers home loan interest rates at 16% or higher in the early 80's, particularly if they bought a home back then. You will find that, although they may recall it with dread, they'll readily admit that they made a lot of money on the purchase. In fact, it was this generation's success with real estate purchases back then the reinforced the mantra that "housing is a great investment".
Now ask anyone who bought a home when the rates were most favorable, or the lowest, i.e. during the bubble years and you'll be hard-pressed to find anyone who hasn't lost a significant amount of money on their "investment".
So, the next time you hear a realtor say, "You'd better buy before rates go up", or "Now is a great time to buy since rates are so low", or "We can't let rates rise because it will harm prospective homebuyers", you now know this is either misleading, ignorant, or a down right LIE.
If you want to borrow money to buy a home, pray that rates rise significantly.
Now, lets continue with this thought.
Suppose you are someone who has capital, cash money, available to lend to people to purchase homes. Would you rather lend someone $400,000 to buy a $480,000 home at a 5.5% return, or lend that same person $200,000 to buy that same house for $240,000 at a 13% return?
I don't suppose you have to think about that answer too long.
It's obvious that you'd want the higher return. In fact there are several reasons in addition to the obvious higher returns: First, you'd be able to spread the same amount of money (say you had $2 million total), to multiple homebuyers spreading the overall risk. Second, the cost of a single default would be lower since it's likely that housing prices were at bottom or obviously closer to it at $240 grand than at $480 grand. Third, if
you did get the house back in default and couldn't sell it, then cashflowing it through renting would be more profitable.
In any case, I can't see how anyone thinking of lending to a homebuyer would choose to accept the higher risk at lower rates. In fact, the very existence of governement subsidized lending via Fannie and Freddie means that
eventually all private capital will move to the sidelines. How can they compete? Who wants to? It's akin to an anti-competetive business willing to lose money on a loss-leader to drive out competition and corner a market.
It's illegal to do this for anyone other than the government.
cont'
Moving on,
Now let's again continue on with this scenario.
Suppose you are a "cash buyer" of real estate. A real estate investor. Perhaps you run a REIT, or would like to invest in one. What would rather do, buy a house for cash at $480,000 or buy that same house for $240,000? Duh!!
Of course you'd rather pay less. The existance of low interest rates means that it's more difficult for cash buyers to buy property that they can cash flow. The existance of "cheap money" means that their cash has less power over borrowers, in essense they only have a 5.5% advantage over a borrower. But with rates at 13%, cash buyers will find properties much more affordable and cashflow becomes child's play.
So, here we have a situation where rates rise significantly and yet everyone from here on out is better off, the cash buyer, the borrowing buyer, and the lender.
Those who saved up cash, were prudent, didn't buy an overpriced house, didn't speculate, recognized the bubble in housing and were patient, would be rewarded if rates were to rise.
Also consider others who may move into the market to fill the void caused by high rates. How many Moms and Dads currently having to accept a measily 0-3% on their nest egg in retirement would be eager to help Junior buy his first house? Junior, rather than borrow from a traditional lender and pay 13%, could pay his parents. say, 8-9%.
He gets a lower rate on a cheaper home, and Mom and Dad get a reasonable monthly income from their nest egg in the form of Junior's monthly mortgage payment. As you can see, the desire to increase liquidity and draw private capital into the mortgage market will be fulfilled through normal and natural market forces.
Recall that without government assistance, in this current market the natural tendancy for rates would be to rise from their present levels. Afterall, you are lending to people who are buying a (currently) depreciating asset, during a recession, during increasing job losses, record home inventory levels, and price compression on prevailing rents. For anyone to take the risk of making a home loan, rates would have to reflect that significant risk. I mean really, what kind of return would you require to consider lending to a homebuyer today?
cont'
This is how markets work. This is how it has occurred in the past, albeit with much smaller and less destructive oscillations and swings.
Moving on,
Why is it then that Fed Chairman Bernanke and others are so dead set on keeping rates low, when everyone who might buy a home, borrow to buy a home, or lend to a homebuyer, would benefit if rates rose significantly?
Admittedly the destruction to the wealth of current asset holders (those who "own" homes and those who own the current loans on those homes) would be devastating. This is a given. We all know that during a deflationary collapse like the Great Depression, those who didn't speculate, remained in liquid assets and cash were in the best position to profit from other's misfortune. We've probably all heard that some of the greatest fortunes are made during these times.
So why don't we just let this occur? Why don't we let rates rise and thus house prices collapse and allow some to take huge losses while others reap huge rewards? Isn't this mass transfer of wealth from the speculators to the prudent how it's supposed to work? From the weak hands to the strong? Sure, some will be devasted, but others will become rich. For all the wealth that is destroyed, so too will wealth be created. Also, those who may take huge losses will have the same opportunity, provided they were not completely irresponsible and have some reserves, to participate in the upside; much like a long-term investor takes advantage of dollar cost averaging by picking up cheap shares on the dips to offset the times they overpaid at the peaks. This is capitalism. The damage is called creative destruction. This is the reward for doing the right thing, and more importantly, the just result of being foolish and taking on too much risk.
The answer to this question, why don't we just let the markets work, may be two-fold:
The first answer is rather cynical; that those who stand to lose the most, have the power to try to prevent it. The current asset holders, the individuals, businesses and corporations who will suffer, are the ones that made the
campaign contributions to the politicians. Certainly those businesses that will rise from the ashes don't yet exist, and thus can't lobby for their interests. Those who have been prudent, remained on the sidelines and moved
to liquid cash, by definition are less likely to have a method or identifiable motive to lobby in any given direction or for any specific policy. They don't sit on any board of directors, they aren't stock holders or take
holders where the current power structure resides. Their names aren't familiar on wallstreet, so they are not among those handpicked by the President to govern policy or chair the Fed.
It is only natural to expect that those who have much to lose and the power to try and stop it, will try to do so. Limits on government are critical for the survival of capitalism. It's inevitable that government will eventually
try to alter capitalism's natural forces. I wouldn't expect the gazel, especially the oldest and the weakest, to voluntarily choose to be eaten by the lion for the long term health of the species. It's too much to ask, so best not to leave it up to anyone to choose, especially not to those who must be sacrificed.
A possible second answer to the question, why don't we let markets work, which may be more plausible and less conspiratorial, is that the pain from allowing the losses to be taken would be, or are believed to be, so damaging to our overall economy, that we couldn't survive it. There would be no winners, only losers. That those who fell would be so numerous, and those left to pick up the pieces so few, that asset prices would fall to ridiculously, and devistatingly low levels. Perhaps too many people invested too much money into the credit bubble, the biggest part of which was housing, that taking the pain is not an option. So, the only choice left is to spread out the damage to the most people over the longest period of time so as to be able to survive it.
Think of it much like a heroin addict. The only true, natural, and healthiest way to kick the habit is to do so cold turkey. However, it may be that due to the severity and duration of the addiction, the addict is so weak and
feeble that the ravages of the withdrawl would likely be fatal. It may then be deemed prudent to simply ween them slowly off the drug. This consigns them to a life on Methadone. Certainly better than the alternative, but a
destiny never to soon return to normal vitality, energy, and health: a zombie status.
But if rates go to 13%, one can assume that it would imply inflation and an increase in wages. There would then be some support thanks to inflation.
Union wages will go up due to extortion OB supports. Non union will go down and more unemployment will result as well, when sale drop. High inflation and interest rates stop growth.
Nevada, California, Florida, and Arizona are so 2008.
Who will be star picks for 2009?
Florida, Arizona, California and Nevada. FACeN -- faking -- mortgage apps.
I still can't get over how ridiculous the stress test assumptions are. But I guess if you throw fancy words like "blue chip" and "professional" it seems so much better. Instead of Real GDP, I propose we modify it to Pretend GDP.
Bill,
I'm sure you've gotten a lot of notes like this, but after losing 10+ comments I tried to post over the last two days, I had to write.
JS-Kit really is not tenable as a commenting system. It fails in providing basic commenting functionality by randomly dropping posted comments. It can't be used on portable devices. Its user-control settings are counter-intuitive, refuse to stick, resource intensive, and will automatically revert saved settings. It provides data in a confusing threaded format. It is incredibly frustrating for a large number of long-standing commentators. It is a barrier to, not a facilitator of, user communication on your website.
Is there any chance you can switch back to the old haloscan format? It worked. People know how to use it. It's simple. Until the guys can work out how to build you a new, stable commenting system from scratch, it would be good to let things chug along on haloscan. I'm talking to Brian and KCoop who are both working on alternatives for you, but for the time being, haloscan functions adequately, it is simple and robust, and it will meet your needs while alternatives are coded up.
The JS-Kit people probably gave you a lot of encouragement to get off of Haloscan and on to JS-Kit. They have a financial interest in driving people off of the haloscan system so that they can demonstrate to their investors that their use of VC funds to purchase the haloscan userbase was a sound business strategy. They'll encourage you to switch, but they are not going to help you get your JS-Kit implementation into functioning order, nor, in my opinion, is that in their interest. In my opinion, their "product" is to provide an attractive looking company for people to invest in, not to create working commenting systems. Don't let their stupid business model impact your site any more.
Please consider switching back to haloscan. It had its faults, but at least it was usable. This is not, and it's only a matter of time before the real stable core of the community gets so sick of it that they just stop posting.
-Hoopajoops
Disqus is a powerful comment system that easily enhances the discussion on websites
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My posts aren't very good at getting posted right now, so with a big delay...
I'm not hostile to posters with an agenda or here for professional reasons at all.
You don't have to identify with your username. I'm just curious for the sake of curiosity how many people are here for work and in what contexts
Besides learning, I guess I'm here to converse in a format that doesn't cost $1.99 a minute
Barley, re: cramdown passing
Kind of like a kidney stone I suppose...
Dirk, wtf! director of research and ONLY SO SO at Excel? Please take a number and wait in line... over there.
Dirk, wtf! director of research and ONLY SO SO at Excel? Please take a number and wait in line... over there.
Was refering to the chartmaster function. However, there is more to research than just spreadsheets. Actually a lot of the reason that so musch WS research is mediocre is that too much time is spendt on making nice spreadsheets and not enoungh thinking about the assumptions that go into them. GIGO
woohoo! Oregon is the 6th lowest in negam. But probably is in highest six is unemployment (U6 numbers) - data anywhere?
I'll say it again: All the money in the world can't bail this out. Bondholders are going to have to take losses. Period.
Congress had better get busy allowing people to use cram downs in BK ...
New York mortgages: everyone in Westchester gets the message. The low underwater rate is a warning so far. At the big mall in White Plains. Only the Apple Store has customers, and no one buying heavy, just getting Iphones fixed or admiring new MacBook Pros (me). The storefronts are empty of customers. Two clerks and a ghost town at Gap, Baby Gap, all the clothing gimmicks, the Bose store, the kids stores. There are customers in Starbucks. The garage is empty of all but employee cars. Weekdays have been this way since December. Despite the slashed prices. All being husbanded for the mortgages. It is like frontier defense mechanism. Storing bullets for the French raiders coming down from the Mohawk.
This is what we are doing to ourselves as a Nation. Yes, the powers-that-be will claim that we are no "Japan".
But in fact, that's exactly what we are shooting for, by choice. On our example above, rather than have the house drop to $240,000 with the entire benefits going to the prudent patient purchaser and the entire loss going to the previous owner/lender, we have instead chosen to convince the next buyer (with an artificial "once-in-a-lifetime" mortgage rate) to significantly overpay for the asset. This "opportunity cost" to the buyer is easily swallowed as it is invisible. Whenever the new homeowner grows old and sells the house, they'll likely never know that they had
$200,000 less in equity in it than they otherwise would have had. At the same time the lender who held the original $700,000 defaulted loan was able to recover $480,000 instead of $240,000. The lender of course, provided
they were too big to fail, isn't on the hook for it. The taxpayer is. We all our. And when the powers-that-be are begging for bailouts and trying to keep existing "franchise's" afloat so shareholders and management are not wiped clean, then every little bit helps.
So we all pay a little bit, directly through corporate bailouts, quantitative easing, increased government debt, increased taxes, substandard return on cash savings, and indirectly through substandard returns on asset
appreciation.
I've been having quite a few problems with lost posts as well but I'm willing to give them time to get it right. Haloscan had gotten to the point that it failed every evening at about 7 pm...
True. And the lost post problem happened with Haloscan, as well. Both systems are buggy.
Anyone see the story about FDIC saying it's pretty much out of money? And we've barely started with the bank failures.
Yes, but let's not forget - this is exactly what america asked for in the 2004 elections. The plutocracy got its mandate. And, of course, it is a happy ending - identity politcs from conservative christians was the 30% ram that pushed those votes through - and what is more christian than poverty?
Yes, the powers-that-be will claim that we are no "Japan".
But in fact, that's exactly what we are shooting for, by choice.
~~~
Japan was in much better shape ... If we go that route we will be in very bad shape, much worse than Japan.
"If we use the two stress test scenarios from the Treasury Department in the following table, then using the CoreLogic data: 1) approximately 17 million households will have negative equity by the end of 2010 under the baseline scenario (in the CoreLogic database), and 2) approximately 23 million households will have negative equity by the end of 2010 under the more severe scenario. "
Not so CR. By the end of 2010, a number of the people underwater will have done short sales, or will have been foreclosed on. If half of the people now in the foreclosure/default pipeline have been foreclosed on or had a short sale by 12/31/10, that's around 3 million people. More likely, it will be about 5 million foreclosures between now and year end 2010. They won't have negative equity anymore. They won't have a house.
Still, there might be 23 million loans which will be either underwater, already foreclosed, or where a short sale was already done.
Average Joe,
I agree with you that rates are going to rise, but I think that leads to a currency crisis. The U.S. cannot afford higher funding costs. The Fed can't afford to take the hit on its Treasury assets.
"If we go that route"
why do you say that in the future tense?
and, most of all:
Yeah, rather than these construction projects they should study job losses by occupation,
then apply a proportional stimulus to each occupational group. I wouldn't mind if they left out the FIRE eCONomy jobs, however.
Average Joe, you're missing something. As home prices come down, the same down payment is a much larger portion of the home price. My 20% downpayment that I had saved up for a $1 million house in 2006 is now a 40% downpayment on a $500,000 house. Soon, it will be a 50% downpayment. At the end of 2010, it might be a 65% downpayment.
What's Dead (Short Answer: All Of It) - Denninger
bgates
We don't have Japan's trade surplus, savings rate or guaranteed employment ...
The Japanese model will cripple America ... and that's where we are headed ...
My spin: Yesterday's mortagee bailout will find those taking the bailout underwater again.
"My spin: Yesterday's mortgage bailout will find those taking the bailout underwater again."
MY Spin is that the dollars allocated to that effort are far to puny to make the slightest bit of difference with regard to home prices and is an exercise in wishful thinking and futility.
Just one datapoint: JS-Kit has certainly reduced both my posting on, and reading of, CR. The former, because of the strange threading; the latter, because the lack of tools that allows me to 'scan' a thread for favorite authors.
That said, new things always take a while to get used to, and for new tools to appear, so I'm not giving up by any means.
This is still haloscan anyway, the top of my browser says Sorry. Page not found. etc. etc.
Yesterday's mortagee bailout will find those taking the bailout underwater again.
And those that do refinance may find out that their mortgages have now become recourse (depending on the state).
Just my theory, but I think very long posts slow the load and refresh down, and we have had several in a short time just now. I think it is normal, and just requires a little patience.
Japan was saved by US consumers.
How come Nikkei still sports a 7 handle? China is going to save them this time?
Yes, it's all the Unions fault...Explain why my State is one of the worst off economically with next to no Union presence? We have 9% unemployment in my county and this is a utopian "right to work" state. Wages have been substandard here for year and yet, we are worse off than most of the country...Average wage here is 32K or so...
Research the damage the UAW has done to Michigan and the rust belt. Most people have zero clue as to the benefits and legacy cost that brought the Big 3 down It tells tons of the quality of their cars for years. Your state suffers from housing mortgages, credit and illegal immigration.
Okay, so there's lots of negative equity out there (or will be). Now what? I have personally been in that situation twice in my life. Once in the early 1980's in a suburb of Detroit (actually went 20% under water!) and once in Southern California in the early 1990's (maybe 5% under). At no time did I consider walking away. My wife and I had bought homes we could afford, had put 20%+ downpayment into each and we stayed put. The cost to relocate - at no monthly savings to boot - makes walking away REALLY stupid. You have to live somewhere. Buy, rent or live on a bench in the park.
So ... what does this article tell us about future foreclosure? Not much, at least not yet.
So, now what? Lots of neqative equity but how does it translate into foreclosures? Isnt' that the issue?
"The cost to relocate - at no monthly savings to boot - makes walking away REALLY stupid."
uh, yeah, the cost of moving and putting down a new deposit - that could be five grand! but, more importantly, you'd lose out on the character-building aspects of watching 300K equity in a 700K house go to nothing over the next two years. crazy!
Right-on.
Americans these days are spoiled, entitled babies. Anyone who is underwater and doesn't like it just need to declare bankruptcy rather than us ruining our economy by bailing out deadbeats.
"Americans these days are spoiled, entitled babies. Anyone who is underwater and doesn't like it just need to declare bankruptcy rather than us ruining our economy by bailing out deadbeats."
Homeowner BK is not going to solve everyone's problems. That road leads to a BK Citi, BoA, AIG, GE, GS, and many others. Now a good bank that wipes out those zombie dinosaurs and keeps the lending going would be nice, but Paulson Bernanke and Geithner would be sad that so many of the USA elite and top 1%ers would be hurt by that.
Repost from last thread:
Please consider switching back to haloscan. It had its faults, but at least it was usable. This is not, and it's only a matter of time before the real stable core of the community gets so sick of it that they just stop posting.
Hoops, I don't think this will help. Haloscan was acquired by JS-KIT. Very little incentive for JS-KIT to even support haloscan.
Good point on the down payments, which I touched on.
For those who think you need inflation to get 13% rates are missing the point.
The point is that HIGHER rates aren't bad! If mortgage rates were NATURALLY low right now there would be no need for Govt support of low rates (and suggestions to get them down to 4%).
They are low DESPITE the risk of lending money to homebuyers. In other words, they WANT to rise right NOW.
Where would rates be if the govt stopped subsidizing them.
rates on home loans are a function of the cost of capital and risk.
Risk is high to lend to people to buy overpriced, falling in value, homes in the middle of a recession toward a possible depression.
Rates should be significantly HIGHER than now.
Which, as my paper says, is better for everyone who was responsible.
9 in 10 Russian, CIS companies worth less today than at IPO
9 in 10 Russian, CIS companies worth less today than at IPO - MarketWatch
Don't look at is a negative equity. It's simply your home's goodwill.
to Clarify, I'm talking HOME LOAN RATES, which should be way above historical spreads in this environment and totally different than long treasuries, which are risk free.
Home Loan Rates MUST rise to reflect risk, bottom housing prices, and benefit future buyers, borrowers, and lenders.
Comrade Kristina - while it is fun to challange the union bashers, it is an exercise in futility. No amount or reasonable arguement will ever change their minds. Better just to ignore such posts. Unions have been battling bad press ever since Reagan's days. Have you ever seen more than a few minutes programming devoted to pro-labor topics? I thought not.
Of course disregard Union bashers. You have no ground to stand on.
And the union helped the automakers how?
"And the union helped the automakers how?"
By getting the votes to exclude SUV's and trucks from CAFE standards. Of course in a world where MPG is a competitive advantage, that did not work out too well.
Blando, touche...
I just gave CR 5 stars and I was first!!
Research the damage the UAW has done to Michigan and the rust belt.
~~~~
Hard to compete with states that pay auto companies hundreds of millions to site there.
How many of those states have non union import car companies that are not begging for government money for survival? Import companies don't have legacy cost of 3 retired to 1 worker? the fact Michigan taxed the Big three heavily? UAW political support. Michigan is not a right to work state? A bit more then state tax support.
"Hard to compete with states that pay auto companies hundreds of millions to site there."
Noooo. It is easy to compete with a state that has an entrenched union apparatus that controls the state government and has over-priced labor costs. It may be a race to the bottom for the state and auto manufactures but it is good for the rest of us as auto costs go down and quality goes up.
Now ask anyone who bought a home when the rates were most favorable, or the lowest, i.e. during the bubble years and you'll be hard-pressed to find anyone who hasn't lost a significant amount of money on their "investment".
I am not sure if I agree with that part.
The bid on GE right now is $6.66.
It may have closed, today, at that price.
Unions are crap because they game the system. GM should go down the tubes for being unable to compete.
"Unions are crap because they game the system."
Management is crap because they failed to lead...and they have gamed the system. Those southern states that live on tax dollars from more productive states and spent that tax largesse on wooing foreign automakers will get what they deserve. Toyota, Honda and Nissan have been cutting jobs and production in other markets because the US used to be a "must" market. It no longer is and those southerners will be looking at layoffs soon.
Unions are crap because they game the system. GM should go down the tubes for being unable to compete.
~~~~
Germany has unions, but they also have government sponsored health care ...
@Joe,
You are forgetting a few pieces of the interest rate puzzle.
The banking system is already on life support, maybe insolvent, and higher rates only guarantee the death of the banking system. Maybe that is good for the country in the long run, but it is not good for the current oligarchy.
Average Joe, you are correct in many aspects of the argement. However your conclusion would be fighting the powers that be which is futile at this point.
I for one have cash and don't need a low interest rate so waiting is my only option to obtain the value I believe houses should be. So it will take a much harder/longer crash then we are experiencing to get me back investing in the housing market anytime soon.
Basel Too writes:
Don't look at is a negative equity. It's simply your home's goodwill.
Now THAT is funny.
p.s. - when I say programming, read brainwashing.
Basel Too writes:
Don't look at is a negative equity. It's simply your home's goodwill.
Now THAT is funny.
I am sorry if I missed it, but did CR cover the second lien provisions in the mortgage bailout plan?
The tide has gone too far out. Even those wearing shorts will be consumed by the oncoming tasunami.
"Even those wearing shorts will be consumed by the oncoming tasunami."
Living in interesting times:
In 1933, the DJIA gained 66.7%
In 1935, the DJIA gained 38.5%
Those are the second and 7th biggest gains on the DJIA to date. We may see a similar gain in 2010 or 2011.
Quite right. In 2011/2012 the DJIA will zoom from 1300 to 2200 and wipe out everyone that shorted all the way down from 13000...um...maybe not that last part....
Denninger seems to think something bad is about to happen.
Hoocodanode!?
I'm thinking "Denninger Wave" as a market description.
C
Germany has unions, but they also have government sponsored health care ...
And look where they are now...
Basel, Negative equity = Goodwill
That is priceless!
totally different than long treasuries, which are risk free.
Average Joe
1)The Fed borrowing rate would be higher if home rates were 13%
2)Higher rates are not good for Fannie and Freddie, who's books the U.S. gov't may or may not be backing.
3)Higher rates are not good for the value of the securities that the Fed is currently holding as collateral.
4)If everyone is bankrupt, underwater, foreclosed, laid off, etc., who is going to pay taxes so we can pay the interest on the national debt?
5)The Treasury will have to roll over debt at higher rates.
6)Treasuries may be risk free in that you will get dollars, but dollars are not risk free.
We are heading for a currency crisis.
Wow,
Maybe I wasn't thorough enough!
To comrade's point:
I am fully aware of the implications on the CURRENT homeowners/lenders if MORTGAGE RATES rise (which are NOT the same as treasury rates...people lending money now to homeowners are accepting low rates ONLY because it's backed by the FED. If people priced home loan rates on risk, then rates would be significantly higher and way above the normal spread to treasuries....which is precisely why they are being held artificially low right now).
The point is that if someone says that rate are low to benefit HOMEBUYERS, they are stupid or lying.
Finally, rates are very relevant for cash buyers...high rates mean lower house prices..if you don't have to borrow that's GOOD for YOU.
Lobbyi$t Ben Dover
LOL ... Reaganism is dead ... get over it ... the 28 year party of unpaid debt and underpaid labor is over.
You think labor was underpaid then. You aint seen nothing yet.
Unions where failing America long before Reagan was even Gov of CA. Can't fool me I have been to union meetings at my first job out of HS. I soon quit and a couple of years later they moved to Mexico. So how about a little bit more then Mindless propaganda of Reaganism. Great how little many are to still blame him for today's problems. Next!
Somebody,
You are exactly right...which is why we are Japan.
Zombie is better than dead.
Seattle P-I to go online only -- WSJ
OT: Anybody else notice the graffic for Haloscan Controls looks like a Hammer & Sickle? Da!
Yep, Controls hammer and sickle was my gag on ?Sunday.
C
Should I bother..or will it get eaten up...
You think labor was underpaid then. You aint seen nothing yet.
~~~~
And investors ain't seen nothing yet ... no consumers, no profits ...
... everybody is going down my friend ...
This we agree on.
I have not read nearly as many comments as usual due to the inability to read them on a blackberry. I am blessed/cursed with 1.25hr commute and used that time to peruse the days/prior evenings comment. Also the fact that most folks now seem to simply hit "reply" rather than copy/paste/italicizing someone elses comments they are responding to creates a very disjointed flow to the comments. I have yet to figure out how to refresh comments without reverting to the very first post which is annoying to say the least on a very long comment thread. Sorry to bitch and moan but this move to JS Kit has been a down tick imo.
I'm here for work, but then again, work is also what I am interested in. I am the director of research at a major independent equity research shop, and I get a lot of good ideas here. It is also a good sounding board, where I try out ideas, and let other smart people poke holes in them before I put them out in print for clients. Also I often use CR's amazing chart porn in my reports. I could probably do it myself, but would be very time consuming, and my ability with the chartmaster function of excel is only so so. I'm happy to associate with my user name, which is also the name my parents gave me when I was born.
Basel Too writes:
Don't look at is a negative equity. It's simply your home's goodwill.
Now THAT is funny.
Bill - I share Hoops comments....heh a comment of mine got posted...woho...
Average Joe says:
Today, 16:50:08
“Somebody,
You are exactly right...which is why we are Japan.
Zombie is better than dead.
~~~~
We ain't got what it takes to be Japan ... it will be far, far worse ...
Does anyone really think we have "free markets"
Over the last 30 years massive amounts of income and wealth have been transferred to the very rich. The top 1% of the US population now controls 40% of the wealth. The next 10% controls another 40% of the wealth... the other 20% of the wealth is controlled by the other 90%.
sorry.. that's not sustainable and will lead to social unrest and revolution..... huge disparities like that have led to unrest EVERY OTHER TIME IN HISTORY
yep ...
I agree this J-S kit thing is tough. Will not accept my avatar or home page. Oh well.
And investors ain't seen nothing yet ... no consumers, no profits ...
And pension funds are the largest investors. Very incestuous, isn't it?
I think it was NorkaWest who pointed out that pension funds would often invest in PE firms that would purchase companies and then layoff or outsource employees; twas the only to generate the returns that they needed. hurts my brain to try to piece this puzzle together.
mmckinl says:Today, 7:43:38 PM“The tide has gone too far out. Even those wearing shorts will be consumed by the oncoming tasunami.
Got stopped out of SRS today. Still long RWM (short R2000). I hope you're wrong for a few more days...
I was speaking of Buffets famous line , not market shorts ...
Nice to know we're first in SOMETHING! That'll be changing as you guys catch up. Just as we were the first for legalizing 24-hour booze, brothels, and bonanzas, we'll surprise you with something else. I hear we're going to be the "American Amsterdam". We've gotta do SOMETHING to pay the bills!
Those are the second and 7th biggest gains on the DJIA to date. We may see a similar gain in 2010 or 2011.
~~~~
No doubt there will be ups and downs ... Japan has in recent years been as high as 20K ... but look where it is now ... And Japan had a great market to sell in to ... noone does today ...
sorry.. that's not sustainable and will lead to social unrest and revolution
I mentioned that three years ago and was booed!!
Heh there was a protest in NYC today. Dont know if any bankers were hanged.
The Turds at CNBC are in hyper drive looking to blame the Democrats for the whole entire thing....I think they see the writing on the wall, GE is toast and they know it.
They will fail at blaming the Dems. The Dems will self destruct by not taking the necessary steps to mitigate the destruction and begin a turnaround ...
BO asks for advice for his health care plan. Here's the answer.
1)Stop subsidizing health care temporarily and voluntarily. This will drive the price down. The depression will drive the price down irregardless, at least stop helping to prop up prices with subsidies.
2)Institute a rollover health care credit system. Younger workers can accumulate health care credits paid for them by their employers or themselves in their younger working years. There is an inherent incentive not to overuse your credits for every sniffle because you want to save them for when you're older and really need them. If you find yourself unemployed from time to time, you can still get health care with your credits that belong to you and always roll over. If you use up all your credits, you pay out of pocket. Special circumstances will be considered.
The answer is HR 676 Medicare for All ... Every other G7 country subsidizes their industry through government sponsored health care. America cannot compete without Medicare for All ...
The under and uninsured will grow to a point where noone will be able to afford health care.
No. Not after the price crash from the depression and institution of a sound monetary policy.
Amen...
CNBC is toast and they know it. I wonder if they've suspected for years they'd be first up against the wall when the revolution comes.
Basel Too writes:
Don't look at is a negative equity. It's simply your home's goodwill.
Now THAT is funny.
My pick remains "Manic Depression".
Manic Depression
C
BWAHAHAHA CNBC: "irrational lack of exuberance"...good grief...
Still too much political stuff. Both parties the same, rinse, repeat...
Okay so the previous administration brought on this mess. My question is when do we start blaming the current one for it's inability to right the ship?
Sure, sure, give the administration another two weeks, at least, please. The questions are: (a) what can they do that will have a significant mitigating impact on the nastiness that lies ahead? (b) if there is anything to be done, are they doing it (or proposing it be done)? (c) over what time frame will the effect of such actions occur? and (d) how will we ever be able to tell in retrospect if such actions actually helped, hurt or made no difference -- historians/economists cannot agree on what caused the Great Depression, and what actions helped or hurt things. Good luck trying to handicap this one on the fly!
"My spin: Yesterday's mortgagee bailout will find those taking the bailout underwater again."
Well, it took a few years to steer the ship aground, so I would grant a couple to see if we can get on course.
Unions where failing America long before Reagan was even Gov of CA. Can't fool me I have been to union meetings at my first job out of HS. I soon quit and a couple of years later they moved to Mexico.
~~~~
"FREE TRADE" another Reaganism ... LOL!
No answers? LOL!
What this! Obama more popluar than me? In a Fox poll?
Like Nancy said, in the last seance, that guy may get my place on Mt. Rushmore.
TPMDC | Talking Points Memo | Obama Preferred Over Reagan -- In Fox News Poll
Give them a few more months and see what they say.
"Give them a few more months and see what they say."
Egad, now Rush Limbaugh is posting on CR.
Egad, looks like Rahm is too!
"...but it is good for the rest of us as auto costs go down and quality goes up."
And where was that happening - exactly ? In my experience, price has consistently risen and quality of design and parts has consistently fallen. "Foreign" or domestic exactly the same lower designed in qualtiy and higher price. Please point out an exception.
Kind of funny if you only knew how much of the Big three cars are full of import parts (for many years). Some are not even made in North America!
"“Okay so the previous administration brought on this mess. My question is when do we start blaming the current one for it's inability to right the ship?"
What's your solution that's politically realistic?
Just to add some anectdotal info:
Just learned one of my younger cousins stopped paying as of November, saved money up since then for a down payment by not paying for the current home,
and just last week bought 20+ acres on the East Coast and began to move the family from CA. New monthly mortgage is ~$1000/month with ~$600/year property tax,
compared to the old CA home payment on a half million dollar rancher. That is a major change in expenses from November...
They had hired a lawyer and tried to contact the bank to rework the mortgage....after months of lawyer expenses and no workout, they just gave up.
Someone is going to get a home back, instead of their money. Not only was there no workout, no one is even trying to foreclose here in March.
I think the greatest pity is that empty homes will get thrashed/stripped, when they could be sold (for at least some $$$) and be maintained;
it's a pity to have over built, but it's a tragedy to let the overbuilding rapidly decay to tear down status (Broken Window Fallacy) instead of selling it for what the market will bear.
NOOOOOOOO!!!!! Don't let the deadbeats come to the east coast. We are doing fine without them.
A local rock radio host I listen to in the morning wanted to know why the government wanted to bail out homeowners that are underwater on their mortgages, but not stock market holders that are in the same boat. I called in, got on the air and told him:
"Who owns the stocks you bought?"
He said "I do"
I asked "who owns your house unless it is paid for over 50% of the way?"
He answered "I do"
I told him "No, the bank owns it. The banks get bailed because they own the homes that are getting killed, you own the stocks that are getting killed, so nobody cares"
He was all pissed for the next hour of the show.
And, 72% of Americans want Gov't more involved in health care..
But we're a center-right country..
The CNBC Ilk Failed Main Street, and it appears when they wake up the Overlords don't like it much.
Right Rick? Jim? Rush?
That is because most Americans do not know what good health care is. They won't even know they are getting the shaft.
re four bears, yep yep...did that. He has the updated chart posted.
For those who say both parties are the same... I'd like to ask why is it that money has been consistently redistributed upward under republican presidents but not under democratic ones over the last 30 years?
Look the democrats are inept... but I think they are certainly the lesser of two evils.... List of depressions starting under democratic presidents over the last 100 years = 0... republicans now have 2
But hey.. that being said.. Obama needs to fucking ditch summers and geithner and stop fucking bailing out banks...,,... maybe he's got a longer term plan to get the money back through tax changes.. but still.. this is nonsense
You left/right wingers are the real problem. Time to cull the herd!
CR has a 'rate the post' thingie now? No likey. I really don't want Bill to start posting stuff just because he thinks it might be popular. Not that I get a vote.
Basel Too writes:
Don't look at is a negative equity. It's simply your home's goodwill.
Now THAT is funny.
GAH!
my apologies for the mutiple posts.
citiprank,
if you think that money ever goes any way but upward under democrats or republicans you are already on a non-starter argument. As far as "number of .." whatevers under which presidents, useless tidbit. Presidenst can only do some stuff, the CONGRESS is where it is at. People need to stop blaming ONE guy and start thinking about the 500 plus members of CONGRESS that pass/reject all legislation.
Dirk - excellent point, I had a bust-up with a credit default risk modeler last week who was still blithering on about weighting historical default data as part of the equation, plus some qualitative stuff which was completely inappropriate or massively subjective. Was soo close to reaching across the table and shaking the bstard, but my boss was there. The politer point got made.
We're sailing into Thar Be Dragons territory in the great ocean and there's no point bringing out the map of the roman lake.
C
C
mmckinl:
nothing from today's health care summit suggests that we're going to get "medicare for all." unfortunately, it just seems as if it's more of the private, public partnership crap. Either make it all public or all private, but no more of these socialize losses, privatize profits nonsense.
What's your solution that's politically realistic?
~~~
There is none currently which is why we are in for a disaster.
Oh Counterpointer, I'd have paid to watch you choke his ass out...
"Sure, sure, give the administration another two weeks, at least, please"
Sure, not a problem. That should put us at DOW 5800 or so, so there's still plenty of buffer before we hit zero.
GYSC.. I'm not true believer... I hate the democrats for allowing reagan to totally realign the tax system to favor the rich and for generally being ninnies.
However, congress has way less power than you think they do..... Are you telling me its a coincidence that under reagan and both bushes there was massive upward wealth re-distribution.. yet there was little under clinton?
Basel Too says:
Today, 17:26:07
“mmckinl:
nothing from today's health care summit suggests that we're going to get "medicare for all." unfortunately, it just seems as if it's more of the private, public partnership crap. Either make it all public or all private, but no more of these socialize losses, privatize profits nonsense.
~~~~
Which is exactly why it will fail ... and health insurance will kill whatever the deflation hasn't killed.
Huge problems need huge answers and the powers that be are talking, not even taking, small steps. This situation will NOT end well ...
Comrade Kristina - add this to the picture: I'm 6'5"... with a wingspan of over 7'. It would not have been hard to latch on. And I like theater in meetings.
C
"Make the American people get off their fat asses and do some exercise"
Plenty of time for exercise when people flee from rabid dog packs, zombie bankers and hungry soldiers. Pace yourself.
I do so love it when you guys get all partisan!
We shall do our utmost for all of you! Keep on voting!
Remember if things don't turn out .. we are all dead anyway in the long run!
citiprank,
congress has all the power, just as the founding fathers wanted it to be. That they are ineffectual and lost is another point. You can only "re-distribute" something that exists. The poor have nothing to distribute, thus the only re-distribution can be from the top down if we are talking about real things. If we are talking about fiat currency and the re-distribution of wealth through inflation, then you and I can agree the Dems may be better at spreading the burden to those that have the most capital base to start with. Touche' as it is. I am a libertarian anyway, but I still eat meat.
I keep hearing that the rich have all the money and took it away from everyone else. Funny I took my riches away from them by hard work, self education, responsible debt and SAVING WEALTH. I see most of America lazy and living on the edge with credit, now complaining like little kids. Really they willingly gave it away to the Rich by being stupid and filling their ego. Reaganism flaw is it works with grown ups. It does not work with Adult toddlers.
politician,
from Keynesian clowns:
History clearly tells us that Keynesian economics does not work. At best, it can be a short-term bandage but it is not a long-term solution. Even Keynes admitted that his ideas have flaws that are problematic over the longer term. When someone pointed out the flaws and how they would become realized over the long run , he famously retorted "in the long run we are all dead". Well…he is dead and we are now in "the long run".
GYSC.. I've got some libretarian in me also...yet I'm liberal on other things.
I've found myself agreeing with both Ron Paul and Bernie Sanders over the last year... strange times.
I think maybe because those two guys are at least honest... and aren't liars like most of the neo-cons and neo-libs
GYSC,
Yes Keynes was my best ally my austrian friend.
The cycle starts over again whichever path you take. And really now, if you were in my position would you do nothing and be austrian?
"the poor have nothing to disrtibute" - BS. What do you call rent? What do you call wages being kept artificially low? Who claims the lions share of business income? What portion of taxes collected falls disproportionately on the middle and lower classes. Why is the middle class shrinking? Who profits most at the expense of others?
"I keep hearing that the rich have all the money and took it away from everyone else. Funny I took my riches away from them by hard work, self education, responsible debt and SAVING WEALTH. I see most of America lazy and living on the edge with credit, now complaining like little kids. Really they willingly gave it away to the Rich by being stupid and filling their ego. Reaganism flaw is it works with grown ups. It does not work with Adult toddlers."
Sorry.. but the statistics and facts are not on your side.. you are simply like the wanna-be rich suck-ups on CNBC
Reagan cut income (the only progressive) tax and RAISED payroll taxes.. that directly redistributed wealth.
You can biovate all you want.. but 1% of the people controlling 40% of the wealth is not sustainable.. either the trend changes or there will be violence...
And full disclosure.. I'm in or very close to a top 10% income earner so it's not like I'm whining that I don't make enough money.. I just happen to be good at things that 99% of people can't do
politician,
I am an Austrian economic thinker through and through. Keynesian clowns crack me up.
citiprank,
I know how you feel. I am a fiscal conservative ( a real one) and a total social liberal (we all should be left well enough alone and with full rights for all, but leave us alone already). I never have anyone to vote for so I hope for gridlock. No government action beats basically any government action.
citiprank - libretarian? Is that some kind of Book Liberation Front thing for libraries?
Anyhow, is there some shizzle going on in Chevy Chase tonight? Some asshats are doing the beams at the sky thing, which is kind of pointless given the cloud layer. Maybe it's further north, like Bethesda Fire Dept on Wisconsin has been told that Denninger's flying rock video is a doco...
C
C
If you want to get all riled up, read my post from last night:
Economic Disconnect: You Can Pay As Much As You Want at Any Time
Key excerpt:
Here in Massachusetts, the commie capital of the USA, home of Bostongrad and Kambridge, we have a choice to pay either the mandated state income tax rate, or a higher one if we so elect. Every year 99.95% of all respondents choose the LOWER RATE. If you cannot back up your "I want to pay higher taxes" bullsh$t with any real action, just shut the hell up.
If you want to get all riled up, read my post from last night:
Economic Disconnect: You Can Pay As Much As You Want at Any Time
Key part:
Here in Massachusetts, the commie capital of the USA, home of Bostongrad and Kambridge, we have a choice to pay either the mandated state income tax rate, or a higher one if we so elect. Every year 99.95% of all respondents choose the LOWER RATE. If you cannot back up your "I want to pay higher taxes" bullsh$t with any real action, just shut the hell up.
Millinia Nova I'm Dead -
sorry double post!!
GYSC, history says nothing of the sort. Pleaase find me another 4 year presidential term that had a higher average GDP growth rate and a higher growth rate of Industrial production than FDR 1. yes we had a recession in 37, but that is when FDR pulled back from stimulative spending and tried to balance the budget in the face of significant slack in the economy.
Average Joe, I think there are too many people who paid way too much for their homes and people with the power finally figured that out, probably a lot of them paid too much for their homes too and are trying to keep this Ponzi scheme going. The question is how long can this Ponzi scheme go on?
Average Joe, I think there are too many people who paid way too much for their homes and people with the power finally figured that out, probably a lot of them paid too much for their homes too and are trying to keep this Ponzi scheme going. The question is how long can this Ponzi scheme go on?
how do people view the graphs here ? They are too big for my browser
Hold CTRL key, scroll mouse toward you.
so many comments, can't they be organized in a forum
with subforums by content, searchable, maybe moderated
so much red, does it mean ~90% of mortgages have "negative energy" ?
Still alive?
In looking at the graph regarding Percent of Properties with Negative Equity by State, I am struck by the number of states with 15% or more of mortgaged properties with negative equity. It makes sense that NV, MI, AZ, FL & CA have alot because their home prices have fallen dramatically. But if I check FHFA House Price Index, I see that other states such as OH & GA have fallen slightly over the past two years. Then states such as CO, IA, KS, AR, NE, KY and others within the top 20 ranked states have actually seen (as per FHFA) small increases in valuation from 4th Q 2006.
Now I know that FHFA is only those mortgages funded by Fannie/Freddie, and it probably overstates true home appreciation. But how the heck does IA get to 18-19% of mortgages with negative equity. This is not a high turnover state where a large portion of howeowners have bought in the past few years. Nor is it a state that has had very much of a housing bubble. In fact, below is FHFA's four-quarter percent change in house price index for the state of IA. KS and NE are pretty similar. Pretty much 2 to 5% each year until last two quarters. And there must have been an awful lot of people who bought their homes back in the 80s and 90s that are still paying off their mortgage that would have considerable equity by now.
So, my assumption is that lots of homeowners in IA must have recently refinanced using creative mortgage financing over the past couple of years. What else can explais this high rate?
2008 4 0.29
2008 3 0.72
2008 2 1.85
2008 1 2.62
2007 4 2.96
2007 3 2.94
2007 2 3.61
2007 1 3.54
2006 4 2.52
2006 3 2.68
2006 2 3.51
2006 1 4.10
2005 4 5.45
2005 3 5.52
2005 2 5.23
2005 1 4.90
2004 4 4.55
2004 3 4.96
2004 2 4.73
2004 1 4.31
2003 4 4.23
2003 3 3.54
2003 2 3.57
2003 1 3.27
2002 4 3.54
2002 3 3.87
2002 2 3.27
2002 1 3.88
2001 4 5.20
2001 3 4.84
2001 2 5.55
2001 1 5.80
2000 4 4.62
2000 3 4.42
2000 2 3.58
2000 1 3.61