It was the 9-11 event that allow the Fed to move away from tradition and respond fast and swift to the recession that started with Telecom/dot.com in late 2000.
Those low interest rates, combined with fraud (or even contributed to a lax attitude that allowed fraud) have caused this real estate bubble.
Bursting of this bubble which IMHO will be much more than just 1% per year will cause major changes to the US economy.
How far will the economic position of the US will deteriorate? (Japan 1989, Russia 1998 ? Argentina ? are examples that come to mind)
In WW2 it was the greater US and UK industrial capacity that was critical to win the war.
History may remember 9-11 as the event that had significant economic ramifications starting in 2007 and stretching who knows how long. Japan had at least 11 bad years, the depression was 5-6 years.
I think we are heading to at least 10% yearly decline in inflation-adjusted R/E prices over the next 3 years. Either prices will go way down or the $ will go way down or combo of both.
"Google is assaulting one of the last pillars of the US economy. Take out Hollywood, Music, MSFT, Oracle (ORCL) and Cisco (CSCO), and there will be nothing to export from this country! The US dollar will cease to exist."
"Brown said Second Curve's investors "understand fully where we are in the cycle - and why. So we haven't had to face the redemption headaches forced upon many funds in similar situations."
It is unfortunate that the person running the hedge fund had no idea where we were in the cycle!!!
The feds have the resources to prosecute maybe 10% of actionable cases so they pick and choose among targets, they like high profile cases as the publicity has a deterrent function.
Though casey serin is pushing his luck, keeps poking them in the eye by doing interviews.
1) The situation today would be completely different if, instead of invading Iraq and dropping the FF rate to 0.5%, we had a new WPA program for rebuilding America. Funding for mass transit (especially high-speed rail and subways) alternative energy research, etc. It would have been expensive, but far cheaper than the war in Iraq . . . and without killing and maiming thousands of our boys. Or alienating 90% of the world.
2) The funny thing about Gerald Small is, with warehouse funding in place, he could have made a mint actually selling mortgages! And ironically, it sounds like Small's damage to the community is less than an actual subprime broker . . . the only one hurt is Small's warehouse lenders . . . not a parade of FBs.
"The number of workers filing for unemployment benefits fell 10,000 last week to 328,000"
Not even close to recessionary. Each total should reach at least 350K+ by now if a recession is in the cards this year. It looks like 2007 won't have a recession. Maybe Q1 2008. Unemployment benefit claims are just not strong enough right now.
The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice.
There was a ring in Florida where a title company, an appraiser and a broker were in cahoots. One person in the ring would buy a house than sell it a month later to someone else in the ring for a hugely inflated price. Clearly, sooner or later these guys were going to get caught, but they were just there waiting, running their businesses as if there were nothing to hide.
I'm cynical enough to believe half the population would turn to crime if they thought they could get away with it, but I don't understand what makes these people think that they won't get caught when every transaction is recorded and documented.
Traders and other mortgage executives tell us that secondary market bidders are offering between 15 and 25 cents on the dollar for delinquent HELOCs. We've heard the bid prices from three trusted sources. One investment banker said a large California lender wanted 65 cents for a recent pool of bad seconds. Needless to say, the sale never went through...
On Thursday one wholesale executive in Southern California told us that his two largest non-prime competitors had just raised their rates by 45 basis points each. This, of course, means that rates are going up for consumers. One thing to keep in mind is this: with all the menu tightening going on -- and with all the emphasis on credit quality -- it's only a matter of time before subprime firms begin hiking their rates. And with many firms going bust that means less competition, which means lenders can charge, well, more. Who gets hurt? The subprime consumer. Can anything be done about this? No. Some lenders believe credit impaired borrowers have benefited from great rates the past three years. And now, the gravy train is over...
Since employment is a lagging indicator, by the time that unemployment claims scream "recession !", we'll have already had a contracting economy for at least one quarter.
"The situation today would be completely different if, instead of invading Iraq ...we had a new WPA program for rebuilding America, Funding for mass transit ...alternative energy research"
Amen !
yes there is a connection between economy and national security - here is one:
I wonder how many of those self employed "professional service" providers is employed for as many hours in the week as your typical RE agent. Less than your former GM auto assembly worker I bet. [Moreover, when the auto worker is on the phone, we know he's not working. When he is gazing at the ceiling, we know he is not working. When he is picking the nits out of his socks...]
Small is a small time heister ($21.5 million during a 24-month period) that no serious Wall street trader would give the time of day.
Your father probably told you, if you are going to steal, steal Big. And given that charges of lying, theft, etc can be applied to the likes of Small and not to Grasso (or take your own wicked pick) who get to pay fines, and make restatements and admit misspokes but no wrongdoing, he may be right.
"The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice."
I think it takes all sorts. Some do skip town at the first sign of trouble. They make a few hundred thousand. Some have stronger stomachs and hang around through some turmoil. They probably make a million or two. And then there are folks like Small who are constitutionally incapable of feeling fear, so they make tens of millions (he made over $20M) and keep it up as long as the environment permits.
I am amzed how everyone in the Us (well almost everyone) accepted this system of "liar loans".
This is systematic fraud but as long as it make home prices go up it was accepted by most people.
The US is not china or 3rd world country but it seems that to "qualify" to buy a house in such rising market everyone needs to be able to play the game.
this Video Library - cbs5.com is indeed very telling - At the end he faces no criminal or civil suits.
Not even close to recessionary. Each total should reach at least 350K+ by now if a recession is in the cards this year. It looks like 2007 won't have a recession. Maybe Q1 2008. Unemployment benefit claims are just not strong enough right now.
I have to agree - while I am in the camp that unemployment is a lagging indicator... you usually get 'hints' in the labor market that all is not right. New claims starting to spike is certainly a pretty strong hint.
So far we really don't have many hints like that. Does that mean we are safe all the way through 2007? I don't know... but we're certainly safe for 'now'
Charts - you're in Asia right? I believe you mentioned that at one time. Do you see any signs that the carry trade is weakening? Do you 'chart' metrics covering that (say monitor the potential for 'carry trade' as a function of interest & exchange rates)?
And of course a lot of this carry potential is a result of FCB currency manipulation (principally by BOJ & PBoC). So maybe that is the best place to watch - I just don't know.
But if the carry ends & with it this glut of liquidity - US unemployment will catch up REAL fast. Faster than we can imagine.
The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice.
These people are so smart (so they think) that they will never get caught. You almost have to be insanely delusional AND have an ego the size of Pike's Peak to think you could pull something like this off 'forever'. In effect a minority among minorities... so when you see one like Small you're seeing someone who is doubly 'special'.
So it explains why they get away with it for as long as they do (whodda thunk it) and also why they eventually get caught... officials eventually stop going 'duh')
This is lumping a lot of different things together under one generic term.
What Small did was criminal by any definition. He was not making any kind of a bet on real estate, that is simple theft.
And appraisal fraud is a lot harder than it sounds. Lenders have plenty of ways to research comparables and appraisers have reputations, in these cases whatever blame there is can usually be spread to all participants and not just the borrower.
Fraud for housing is a lot grayer still. Once again the participation often extends beyond the borrower. And the borrower often has no fraudulent intentions. He is just willing to take on more risk exposure than FHA or VA guidelines allow. If you know your market and have a solid property management operation in place you can make a ton of money leveraging yourself into as many rentals as you can. Appreciation will save the day, that mortgage gets serviced and everyone is happy.
On the other hand if you don't know the market, don't manage your properties well (for example having no rental income to help service the debt) and are simply counting on 20% annual appreciation forever, well you can lose a lot fast as potentially will the investor who bought that batch of sub-prime mortgages. Calling that 'fraud' is a little strong. Its more like a combination of greed and stupidity. Both borrower and lender took risks and expected rewards. Not every investment pays off. But that is capitalism and not fraud. Because most times there are knowing participants on both sides of the transaction.
If you are a naive innocent you probably should not be going into real estate at all, still less if you are on the lending side. Almost everybody is gaming the system one way or another.
Now insider fraud is different. Simply making up houses to get a loan funded or simple predatory lending which has no upside for the borrower, well that is simple theft and should be prosecuted. It is telling that 80% of all 'reported' fraud falls into this category. To me that is an indication that the FBI is targeting its resources pretty much where it should.
Look lending and borrowing strategies that make sense in a market going up stop making sense in a market that flattens or declines and if you don't manage the transition in between someone, probably on both sides of the transaction are going to lose money. Before we start slapping people in jail for fudging a little or a lot on a stated income/stated asset loan, lets find us some victim.
You bet nw. If the SEC allows "misstatements", "restatements", and "no wrong-doing" I think we can show some mercy here and allow "fibbing" and "fudging".
Who knew the housing market wasn't going to continue to escalate at 20% forever? Ok, they must have been paying attention in Math 10, but what about the rest of us who are still trying to get the Norwegian Blue to talk?
Ok, those smartie pants high school graduates who knew it was going to end, where were they when it was time to declare when it would stop? Ok, so some of them were saying as early as 2003...not too helpful building respect for all that education, was it?
And those financial engineers (cough) that brought us HELOCs and MEWs that allowed this train wreck to escalate from 2003? Thank you so much for your community minded efforts.
It was the 9-11 event that allow the Fed to move away from tradition and respond fast and swift to the recession that started with Telecom/dot.com in late 2000.
Those low interest rates, combined with fraud (or even contributed to a lax attitude that allowed fraud) have caused this real estate bubble.
Bursting of this bubble which IMHO will be much more than just 1% per year will cause major changes to the US economy.
How far will the economic position of the US will deteriorate? (Japan 1989, Russia 1998 ? Argentina ? are examples that come to mind)
In WW2 it was the greater US and UK industrial capacity that was critical to win the war.
History may remember 9-11 as the event that had significant economic ramifications starting in 2007 and stretching who knows how long. Japan had at least 11 bad years, the depression was 5-6 years.
I think we are heading to at least 10% yearly decline in inflation-adjusted R/E prices over the next 3 years. Either prices will go way down or the $ will go way down or combo of both.
No one is yet to talk about resuming saving.
In Japan peple save - saving allow investment.
in the US they confused HELOC with saving. saving is when the mall has sale "with great saving".....sad.
other topic but somewhat connected:
"Google is assaulting one of the last pillars of the US economy. Take out Hollywood, Music, MSFT, Oracle (ORCL) and Cisco (CSCO), and there will be nothing to export from this country! The US dollar will cease to exist."
Open Your Eyes to Google's Structural Crisis -- Seeking Alpha
"Brown said Second Curve's investors "understand fully where we are in the cycle - and why. So we haven't had to face the redemption headaches forced upon many funds in similar situations."
It is unfortunate that the person running the hedge fund had no idea where we were in the cycle!!!
SUBPRIME STRIKEOUTS STUN SECOND CURVE - NYPOST.com
All FBI has to do is go through posts on Broker Outpost/Broker Universe.
Mortgage Grapevine: Would you turn this guy in?
The US has lots of good workers, almost passive workers(witness labor riots in other countries). Lots of intellect and lots of natural resources.
Just a lack of leadership at the moment.
The feds have the resources to prosecute maybe 10% of actionable cases so they pick and choose among targets, they like high profile cases as the publicity has a deterrent function.
Though casey serin is pushing his luck, keeps poking them in the eye by doing interviews.
The U.S. are also by far the world's largest consumer market.
Let us assume that the American dollar does "cease to exist", in the sense that its exchange rate drops like a rock against all other currencies.
What will happen to the economies of the EU, Japan, China, et al. ?
Major recession is the answer.
A couple of comments:
1) The situation today would be completely different if, instead of invading Iraq and dropping the FF rate to 0.5%, we had a new WPA program for rebuilding America. Funding for mass transit (especially high-speed rail and subways) alternative energy research, etc. It would have been expensive, but far cheaper than the war in Iraq . . . and without killing and maiming thousands of our boys. Or alienating 90% of the world.
2) The funny thing about Gerald Small is, with warehouse funding in place, he could have made a mint actually selling mortgages! And ironically, it sounds like Small's damage to the community is less than an actual subprime broker . . . the only one hurt is Small's warehouse lenders . . . not a parade of FBs.
Good morning, all.
"The number of workers filing for unemployment benefits fell 10,000 last week to 328,000"
Not even close to recessionary. Each total should reach at least 350K+ by now if a recession is in the cards this year. It looks like 2007 won't have a recession. Maybe Q1 2008. Unemployment benefit claims are just not strong enough right now.
The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice.
There was a ring in Florida where a title company, an appraiser and a broker were in cahoots. One person in the ring would buy a house than sell it a month later to someone else in the ring for a hugely inflated price. Clearly, sooner or later these guys were going to get caught, but they were just there waiting, running their businesses as if there were nothing to hide.
I'm cynical enough to believe half the population would turn to crime if they thought they could get away with it, but I don't understand what makes these people think that they won't get caught when every transaction is recorded and documented.
Traders and other mortgage executives tell us that secondary market bidders are offering between 15 and 25 cents on the dollar for delinquent HELOCs. We've heard the bid prices from three trusted sources. One investment banker said a large California lender wanted 65 cents for a recent pool of bad seconds. Needless to say, the sale never went through...
On Thursday one wholesale executive in Southern California told us that his two largest non-prime competitors had just raised their rates by 45 basis points each. This, of course, means that rates are going up for consumers. One thing to keep in mind is this: with all the menu tightening going on -- and with all the emphasis on credit quality -- it's only a matter of time before subprime firms begin hiking their rates. And with many firms going bust that means less competition, which means lenders can charge, well, more. Who gets hurt? The subprime consumer. Can anything be done about this? No. Some lenders believe credit impaired borrowers have benefited from great rates the past three years. And now, the gravy train is over...
Broker Universe
Defunct Defunct Firms
charts:
Since employment is a lagging indicator, by the time that unemployment claims scream "recession !", we'll have already had a contracting economy for at least one quarter.
"The situation today would be completely different if, instead of invading Iraq ...we had a new WPA program for rebuilding America, Funding for mass transit ...alternative energy research"
Amen !
yes there is a connection between economy and national security - here is one:
The Detroit Project - by Americans for Fuel Efficient Cars
I wonder how many of those self employed "professional service" providers is employed for as many hours in the week as your typical RE agent. Less than your former GM auto assembly worker I bet. [Moreover, when the auto worker is on the phone, we know he's not working. When he is gazing at the ceiling, we know he is not working. When he is picking the nits out of his socks...]
Small is a small time heister ($21.5 million during a 24-month period) that no serious Wall street trader would give the time of day.
Your father probably told you, if you are going to steal, steal Big. And given that charges of lying, theft, etc can be applied to the likes of Small and not to Grasso (or take your own wicked pick) who get to pay fines, and make restatements and admit misspokes but no wrongdoing, he may be right.
Bob_in_MA said:
"The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice."
I think it takes all sorts. Some do skip town at the first sign of trouble. They make a few hundred thousand. Some have stronger stomachs and hang around through some turmoil. They probably make a million or two. And then there are folks like Small who are constitutionally incapable of feeling fear, so they make tens of millions (he made over $20M) and keep it up as long as the environment permits.
I am amzed how everyone in the Us (well almost everyone) accepted this system of "liar loans".
This is systematic fraud but as long as it make home prices go up it was accepted by most people.
The US is not china or 3rd world country but it seems that to "qualify" to buy a house in such rising market everyone needs to be able to play the game.
this Video Library - cbs5.com is indeed very telling - At the end he faces no criminal or civil suits.
Not even close to recessionary. Each total should reach at least 350K+ by now if a recession is in the cards this year. It looks like 2007 won't have a recession. Maybe Q1 2008. Unemployment benefit claims are just not strong enough right now.
I have to agree - while I am in the camp that unemployment is a lagging indicator... you usually get 'hints' in the labor market that all is not right. New claims starting to spike is certainly a pretty strong hint.
So far we really don't have many hints like that. Does that mean we are safe all the way through 2007? I don't know... but we're certainly safe for 'now'
Charts - you're in Asia right? I believe you mentioned that at one time. Do you see any signs that the carry trade is weakening? Do you 'chart' metrics covering that (say monitor the potential for 'carry trade' as a function of interest & exchange rates)?
And of course a lot of this carry potential is a result of FCB currency manipulation (principally by BOJ & PBoC). So maybe that is the best place to watch - I just don't know.
But if the carry ends & with it this glut of liquidity - US unemployment will catch up REAL fast. Faster than we can imagine.
The thing that kills me about schemes like that of Gerald Small in Colorado, how can they not have an exit strategy? If you pull something like that, clearly you had better have a fake identity ready and be prepared to leave the country at a second's notice.
These people are so smart (so they think) that they will never get caught. You almost have to be insanely delusional AND have an ego the size of Pike's Peak to think you could pull something like this off 'forever'. In effect a minority among minorities... so when you see one like Small you're seeing someone who is doubly 'special'.
So it explains why they get away with it for as long as they do (whodda thunk it) and also why they eventually get caught... officials eventually stop going 'duh')
This is lumping a lot of different things together under one generic term.
What Small did was criminal by any definition. He was not making any kind of a bet on real estate, that is simple theft.
And appraisal fraud is a lot harder than it sounds. Lenders have plenty of ways to research comparables and appraisers have reputations, in these cases whatever blame there is can usually be spread to all participants and not just the borrower.
Fraud for housing is a lot grayer still. Once again the participation often extends beyond the borrower. And the borrower often has no fraudulent intentions. He is just willing to take on more risk exposure than FHA or VA guidelines allow. If you know your market and have a solid property management operation in place you can make a ton of money leveraging yourself into as many rentals as you can. Appreciation will save the day, that mortgage gets serviced and everyone is happy.
On the other hand if you don't know the market, don't manage your properties well (for example having no rental income to help service the debt) and are simply counting on 20% annual appreciation forever, well you can lose a lot fast as potentially will the investor who bought that batch of sub-prime mortgages. Calling that 'fraud' is a little strong. Its more like a combination of greed and stupidity. Both borrower and lender took risks and expected rewards. Not every investment pays off. But that is capitalism and not fraud. Because most times there are knowing participants on both sides of the transaction.
If you are a naive innocent you probably should not be going into real estate at all, still less if you are on the lending side. Almost everybody is gaming the system one way or another.
Now insider fraud is different. Simply making up houses to get a loan funded or simple predatory lending which has no upside for the borrower, well that is simple theft and should be prosecuted. It is telling that 80% of all 'reported' fraud falls into this category. To me that is an indication that the FBI is targeting its resources pretty much where it should.
Look lending and borrowing strategies that make sense in a market going up stop making sense in a market that flattens or declines and if you don't manage the transition in between someone, probably on both sides of the transaction are going to lose money. Before we start slapping people in jail for fudging a little or a lot on a stated income/stated asset loan, lets find us some victim.
You bet nw. If the SEC allows "misstatements", "restatements", and "no wrong-doing" I think we can show some mercy here and allow "fibbing" and "fudging".
Who knew the housing market wasn't going to continue to escalate at 20% forever? Ok, they must have been paying attention in Math 10, but what about the rest of us who are still trying to get the Norwegian Blue to talk?
Ok, those smartie pants high school graduates who knew it was going to end, where were they when it was time to declare when it would stop? Ok, so some of them were saying as early as 2003...not too helpful building respect for all that education, was it?
And those financial engineers (cough) that brought us HELOCs and MEWs that allowed this train wreck to escalate from 2003? Thank you so much for your community minded efforts.