This is a bit of an esoteric point but it is germane.
When an investor buys a house it isn't a home sale. It is a business transaction. Owned by a bank, owned by an investor doesn't matter. These transactions are not signs of housing stability. And let's face it, that's what Bernanke is seeking to achieve; stability in ownership and prices.
I am telling you, don't underestimate the impact of the moratoriums. I am looking at some data right now on delinquent loan inventories, and fully 50% of the inventory is In Foreclosure. That is fairly unprecedented. Think about it: of all the delinquent loans in the pools I am looking at, 50% are in the foreclosure process. Not just 60 days late, or 90 days late, but in the process of being foreclosed on.
Unfortunately I don't have more data than that (like "days in the foreclosure process"), but as someone who has looked at this data for years, this says to me that there are a ton of borrowers who went into foreclosure and were stalled there due to the moratoriums.
That, to me, explains a lot of the "less worse" data we have seen in the recent months. Banks can avoid booking the loss, the downward pressure on house prices is reduced, borrowers can live rent free, etc.
"Among the largest banks, the capital ratios remain good and I don't expect any serious problems among the larger banks that make up a very substantial part of our banking system."
(2/28/2008 - Ben Bernanke)
That seems harsh until you CONsider that he couldn't recognize the housing or credit bubbles until his CONstituents on wall street came begging for handouts.
Fact checking Ben Bernanke comment "In this environment, we anticipate that inflation will remain low" from previous thread
FACTS:
1) The projected budget deficit for 2009 is $2 trillion
2) The debt-drowned United States debt is already 350 percent of G.D.P and rising fast !
3) The Fed is now holding $10 Trillion of ‘assets’ ( mostly toxic ) transferred from too big to fail banks.
4) Other countries are now buying less of our debt
Here are some statistics from a 2007 mortgage pool I am looking at right now, all data as of 3/31/2009.
Delinquent: 37%
Pending Foreclosure: 6%
In Foreclosure: 57%
Sooner or later that dam has to burst, not all of those borrowers are going to be saved by reducing their mortgage rate. Not all of those borrowers are even in their homes.
Anecdotal only, but a family member from Arkansas was telling me that an old friend of the family, (an elderly lady in her late 80s, good heath) bought a new house in 2005, stopped making payments in late 2007, and the bank has decided not to foreclose. Actually told her she could stay put and they will work something out with her later. Granted it is a very small house and not worth much regardless of the economy, but I thought this was interesting.
I just posted something similar in the last thread. I see huge increases in distressed inventory and very little actual sales.
The distressed inventory numbers are far worse than just six months ago. I don't think we are near the halfway point in the eventual foreclosures. And I certainly don't trust the marks used by the banks or the stress tests.
Ben Bernanke was never a math wiz. Unvarying parametric equations, shifting linear lines on a vague chart -- ok, but he'll need some software and 2 graduate students. He focussed on economic history for a reason Google News
Three things no market anywhere in the world is pricing in
Instability in Pakistan
Conflict with Iran
Large number of Russian corp. town BK's
The market has not priced in political risk into the market. 2 countires with the backs up against the wall would benefit from political instability Iran and Russia. Something to watch.
I didn't see Angry Saver's post, but I'm going to go ahead and declare ghostface with "Post of the Day". Jeebus, that is a lot of people on both sides of a contract saying I don't give a flying... That's kind of a big deal.
Rob Dawg (homepage, profile) wrote on Tue, 5/5/2009 - 1:44 pm reply Ignore user This is a bit of an esoteric point but it is germane.
When an investor buys a house it isn't a home sale. It is a business transaction. Owned by a bank, owned by an investor doesn't matter. These transactions are not signs of housing stability. And let's face it, that's what Bernanke is seeking to achieve; stability in ownership and prices.
Dammit, Dawg, there you again spoiling things! So much for my mental picture of June, Ward, Wally and the Beaver!
"Bernanke: "Conditions in the commercial real estate sector are poor. Vacancy rates for existing office, industrial, and retail properties have been rising, prices of these properties have been falling, and, consequently, the number of new projects in the pipeline has been shrinking."
"Poor" doesn't describe the level of distress,..."
CR you were on the right track but you backslid. If you are a green shoot trying to start a competitive business, high vacancy rates are a blessing. The "commercial real estate sector" includes lowly commercial renters, no?
Perspective counts, and phrasing the issue is king.
I just posted something similar in the last thread. I see huge increases in distressed inventory and very little actual sales. "
I mean, I have never seen anything like this in my mortgage career (10 years +), usually foreclosures are a small part of delinquencies.
To be fair, some of it is due to not only the moratoriums, but also the huge crush of foreclosures the banks have to deal with but were not staffed to handle, but in either case, the result is the same - foreclosure sales will be hitting the market at a pretty steady pace for some time.
Anyone see the corny live action version of Dudley Do-right with With Brendan Fraser, Sarah Jessica Parker, Alfred Molina? Guilty pleasure, loved Eric Idle in it, but the economic philosophy in that movie seems to be alive and well in Ben Bernanke. Watch out for those vampires.
I was just posting the % of delinquent loans by category. My point being, usually foreclosures are not a large chunk of delinquent loans, but they have been building up as foreclosures get clogged in the system.
Six months ago the % of foreclosures would have been more like 40% of delinquencies. The clearing out of foreclosures has slowed significantly in the past few months.
"Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.
The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election."
1) The projected budget deficit for 2009 is $2 trillion
km4,
The budget deficit doesn't tell the whole story. I like to look at the actual increase in the Federal Gov't Debt. Much worse than advertised. Budget deficits don't include "off budget" tomfoolery, like that little Iraq war.
Ben Bernanke was never a math wiz. Unvarying parametric equations, shifting linear lines on a vague chart -- ok, but he'll need some software and 2 graduate students
Sometimes I think these economists are a little bit too good at math. Not that there's anything wrong with math, but it creates a tendency to abstract things beyond the point where their essential features are retained - to compress the incompressible.
These economists and their output and interest rate graphs worry me a little.
If Dr. Bernanke were a medical doctor he might conclude that the key to human health and life is the fact that the body temperature is 98.6F.
All health problems can be solved by warming or cooling the body to that temperature.
"I notice Mr. Whitmeyer is cooling quite rapidly as his liver has been shot out. A brief stay in the oven should cause it to regrow presently."
@ghostface "That, to me, explains a lot of the "less worse" data we have seen in the recent months. Banks can avoid booking the loss, the downward pressure on house prices is reduced, borrowers can live rent free, etc."
snark on: Man, if the economic effects are so positive, we should offer Free Housing for Everyone! /snark
@ km4: "2) The debt-drowned United States debt is already 350 percent of G.D.P and rising fast !"
That's not the national debt, but rather the sum total of all debts including a large number of extrapolations for Medicare and Social Security. Also, I suspect a lot of this debt is just circle-jerk. e.g. Joe Sixpack owes the bank $50,000 for his mortgage, the Bank owes the Treasury $50,000 for the TARP, and the Treasury owes Joe's 401k $50,000 (his Money-Market fund). No one really owes anyone anything but they're all fighting over the interest rates to see who gets net income and who gets to pay. Net it out and the real problem will not be quite so bad... Not that it isn't a problem!
"3) The Fed is now holding $10 Trillion of ‘assets’ ( mostly toxic ) transferred from too big to fail banks."
That number is much too high -- or do you have the breakdown? -- the Fed's balance sheet is only about $2 Trillion. In any case it will not stay at $10 Trillion after they finish defaulting!
"4) Other countries are now buying less of our debt"
About time! That debt doesn't net away and represents an ongoing drag on our economy. Although from a strategic perspective it may be useful to have money flowing to friendly nations.
"What alternate reality is BB living in ?"
The one where some debts get defaulted on and/or renegotiated, which is deflationary. (Just ask the Chrysler and GM bondholders, which may include your pension fund!) I'm not saying there can't be inflation as a result of the Fed's balance sheet rampage, but I personally don't see the evidence of inflation getting hold, other than maybe gasoline prices bouncing around. Certainly the bond markets aren't too worried!
My only disagreement with Dr. Bernanke is on the existing home market. I don't think current existing home sales are "depressed" and I believe sales will fall further in the future. -CR
Not depressed? Have you tried selling your house into this market?
Joe Sixpack owes the bank $50,000 for his mortgage, the Bank owes the Treasury $50,000 for the TARP, and the Treasury owes Joe's 401k $50,000 (his Money-Market fund)
@ Angry Saver - yes I agree but didn't say budget deficit is the whole story i.e. why I cited other facts @ 10:47 am and of course there's plenty more that BB appears to just gloss over with his inane and disingenuous comment "In this environment, we anticipate that inflation will remain low"
That's not the national debt, but rather the sum total of all debts including a large number of extrapolations for Medicare and Social Security
Wisdom,
The 350% debt figure is light. It does not include social security or medicare projections. In fact, the federal portion of the debt numbers used in that 350% include only the public debt, not the intergovernmental debts like social security and medicare.
Make no mistake, we have a debt saturated eCONomy. Can it say afloat? Do we want to preserve all this non-economic debt? That should have been put to Bernanke today.
OK we seem screwed in a couple dimensions here - first, Holbrooke has to come out and say this, and two is bolded at the end of the snip below... US's Holbrooke: Pakistan not a failed state
AP foreign, Tuesday May 5 2009
MATTHEW LEE
Associated Press Writer= WASHINGTON (AP) Pakistan is not a failed state, but its government is facing enormous challenges and needs America's help to counter Taliban advances, the Obama administration's point man for the region said Tuesday.
The United States of America once stood for something, something very special, it was unique and it commanded a reverence that was unlike anything in the world that has ever been before. I fear the time has past for saving our great Republic from the ruins of time.
I was over at a friend's house and we did a 30 minute walk-by of his neighborhood, and he's a bit of Mrs. Kravitz, so he knows all, and was showing me all the unoccupied houses, either for sale or ones that have been empty for a long time.
You don't really get a good feel for just how many empty nests there are out there, unless you hit the pavement and see it with your own eyes. They wont deceive you.
More at ghostface "I have never seen anything like this in my mortgage career (10 years +), usually foreclosures are a small part of delinquencies."
I think you'd need to have had an 80 year career to have seen the comps for the current situation!
Back in the 1930s, I bet it took a while for the creditors of the bankrupt banks (half the banks, remember!) to clean up their delinquencies and foreclosures, too.
As long as I can remember, Fed chairmen have been telling the congress to cut spending, that the interest on the debt would grow to consume the whole budget... But would they listen? Nooooo - not even Reagan could stop them...
In 2008 the interest on the federal debt was about equal to the deficit that year... Now the deficit is ahead by leaps and bounds... but the interest will catch up fast... So we will have to have a serious inflation tax to mitigate the debt... So 350 trillion? Now that will be $125,000 for your beer, please...
Vonbeck, Energy I think Pakistan worries watchers the most as Afghanistan is virtually a failed state and Pakistan's weak government is being infiltrated by radical groups not friendly to the West.
Wisdom All you need to do is look at Japan. They had strong exports working in the favor and managed many years of positive growth yet their market fell at least 60+% and UE practically rose every year throughout the 90's.
The Pakistani people are highly intelligent, I'm not worried about a few barbarians at their gate. The over reaction in the MSM is for BBAD consumption like the initial over reaction to the Mexican Flu which will come back with a vengeance in the winter. Are you people really that stupid to buy into the MSM meme?
May I again remind you of this documentary and please bookmark it and watch it when you get time.
Michael, I hear the moon is a harsh mistress, but there is plenty of free space, although nothing in life is free. Study the past, but don't believe everything you read. History has a bias all of its own. We have been a joke to the Europeans unless we were needed. I don't call that reverence. For those coming here for a second chance, we are special, to the elites left behind, a dumping ground for unwanted genes in their rush for selective breeding. Don't just read history books, read first source letters. The US has had a very uneven reputation until we were strong enough to write our own history and demand of others to accept it. I do believe we were unique but that died when the general public started voting for Senators and the FED was created. Nice thing about time is that it is a phoenix, the ashes of freedom will sprout anew again some day.
@Angry Saver "Make no mistake, we have a debt saturated eCONomy." I'm not making that mistake, but unless the net debts are calculated in detail, you don't really know how much of the 350% (or whatever) is "for a hamburger today, I will gladly have my kids pay you on Tuesday 30 years from now" real debt, and how much is just circular "Joe owes Citi, Citi owes Uncle Sam, and Uncle Sam owe's Joe's dad's pension fund, so Joe's dad can bail Joe out".
AMF I've taken to biking slowly up and down the Avenues in Manhattan. Vacancies are much worse than the 70's. Yes, I blame the landlords who are unrealistic.
Confirmation will be when equities and bonds both tank at the same time. End game for Bernanke, and govt takes over of the rest of the markets that it doesn't already control.
Tell me about it. I have built my own pcs since the 80s. It is something I like to do. I built the one I am currently on two years ago. Getting the itch to upgrade again and I am really considering just buying a mac. It must be the swine flu. Pigs like apples don't they?
@ Angry Saver
Got it and agree with you
1) that the off budget process is a giant sham.
2) we have a debt saturated eCONomy.
3) Can it say afloat? Not if other countries don't continue buy about $2B/day of our debt
Only one way I can see i.e. great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
Obama team is running full court trying to do this but IMO there will be no return to normal for US economy.
We already crossed the Rubicon with Bush and Obama gambit's is a pipe dream.
The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”
Let's see if Obama holds their TARP bailout feet to the fire and forces them to boost the other side of their balance sheet.
Wisdom, if our debts are a circle jerk, does that make it any better? Everybody owes everybody else, but the underlying wealth required to pay it all off simply is not there. As far as I'm concerned this doesn't make it any better. Whether or not the debts are double counted, or can be repaid via hyperinflation is really a moot point -- the problem is that all of the promises of future output are in question, and barring an expansion in productivity they cannot and will not be repaid in full.
Welcome to a world of decreased future expectations.
ALPHA BANK AND TRUST
(Congress mandated the FDIC OIG to conduct a Material Loss Review any time a failed bank cost the FDIC's fund $25 million. FDIC's OIG has recently requested this loss amount be raised to $300 million due to its increasing workload.)
but unless the net debts are calculated in detail, you don't really know how much of the 350% (or whatever) is "for a hamburger today, I will gladly have my kids pay you on Tuesday 30 years from now" real debt, and how much is just circular
It's all circular. 100%, That's the point of debt based money. As for detail, I use the Fed's breakout in their quarterly reports. And it's the level of household debt that spooks me the most.
Never before have we had so much debt in relation to output. Very worrisome, especially in light of the quality of the real estate debt (the bedrock of our banking system).
geeceemmm (profile) wrote on Tue, 5/5/2009 - 1:02 pm reply Ignore user "Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.
The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election."
That is one of the most encouraging things I have heard in a long time, finally it sounds like O has grown a pair.
GAWD-This man is an IDIOT. NEW home sales are UP because those are being sold CHEAPER than existing homes, so the builders can avoid BANKRUPTCY and the bank owned new homes can be liquidated. I am an appraiser. In my area, 70% of all sales closed in the past year and 85% of all current pending sales are REO's. I am in Atl and we have been hit hard but NOT like CA. I can't imagine how bad those numbers are. I do know CA has a significant amount of ALL the REO's. IDIOT....No shit, new home sales have held firm. That's because existing homes actually do what they were designed to do....PROVIDE SHELTER. NEW HOMES only provide VACANT headaches and losses of profits. Can I have a minute with that Harvard moron...PLEASE?
How many day traders use those heatmap of investment flows, produced by TD Ameritrade etc? I'm curious if it has gotten to be a large enough percentage that it is causing the volatility in certain shares. If enough momentum traders work together targeting the hottest sectors/companies, that is sure to generate some pretty marvelous self-fulfilling short squeezes, no?
If so, when those flows go in reverse -- I'd expect things to get pretty entertaining pretty quick. Particularly as the fundamental investors and quant funds could hop back aboard the pain train.
I think net we'll see continuted losses, but I wouldn't be suprised by 1936 "recovery" with a 1937 double-dip into depression which is to say recovery hardly means recovery at all.
I also think we'll continue to hear how nobody could have forseen 25% U6 and 15%+ U3...
energyecon (homepage, profile) wrote on Tue, 5/5/2009 - 2:13 pm
Pakistan is not a failed state
It's like being well-capitalized. If you have to say it, it's not true.
Richard Holbrooke, the U.S. special representative for Afghanistan and Pakistan, told a congressional committee that Pakistan's survival as a moderate, democratic state is critical to U.S. national security.
Little late to be worrying about all that after how long backing Musharaff, Sharif, etc.
What are you implying? That we must prepare for an invasion of Pakistan to secure their nukes? I think we can safely outsource that to India, as they are much closer to the nukes in question. I hope the President has used that red telephone to talk to New Delhi. The fact is, we should be hearing more about what India is doing right now. I'd be pretty surprised if they weren't moving their forces around near the Pakistani border to at least lay the groundwork for an assault.
As a reference regarding net debt: my personal share of the total debt nets out almost exactly at this point. This is with mortgage, credit cards, and my share of U.S. national debt on one side of the balance, and 401k/IRA plus present value of pension & social security on the other side.
I could net a large fraction of this debt to zero by prepaying the mortgage, but that doesn't make sense because (a) I expect to get a better long-term yield by investing the money and (b) I want to keep the option of walking away from the house now that it's going underwater.
A high level of total debt could simply imply that the cost of credit is too low (making it economically rational to take on the maximum allowable debt and then do something with the money), rather than that the nation is doomed to collapse.
In other words, of the 350% "debt to GDP" that we have to pay back -- to whom do we have to pay it back??? If we just owe it to ourselves and our friends, it's perhaps not a crisis.
It seems to me that the real problem is that there are tons of people who were misled into taking on more debt than they can comfortably service, and tons of other people who lent money very foolishly and won't get repaid. It's a redistribution problem (political). For instance, it's true that our kids will have to pay higher taxes in the future to those who own the Treasury bonds. But in that case the problem isn't necessarily with the existence of the treasury bonds, but rather that the Treasury bonds are held by too few and the interest must be taxed from too many.
Fiat CEO Marchionne has a plan - he wants to roll Fiat, Opel and Chrysler into a ball and IPO it.... and walk away with a huge chunk of sucker money.... Then after the fact the whole thing will die a quick death - Watch out for this one...
You cant make a pony from three dogs, even with a Pelosi...
"It's all circular. 100%, That's the point of debt based money. "
ZERO SUM. Debt is fine if the debtor uses the capital to create as much value as, or more than, the amount of the debt. But if he doesn't , someone has lost wealth, even the illusory kind. A circle jerk of debt is wasteful in and of itself: even circular motion requires energy (non-value-adding commissions, fees, interest, dividends....)
If the whole world was to Jubilee and repudiate all debts and wipe the slate clean, and everybody started fresh, where would the USA fit into the scheme of things in this brave new world?
Wisdom - if you walk away from your mortgage and have other assets, there is a chance that the mortgage holder will come after you for the deficiency balance. You could be forced into bk then....
The situation in Pakistan is very critical. Do not underestimate what is going on. Despite the assurances of safeguarded nukes...it is not at all clear if that is the case. The people of Pakistan are being pulled two ways and have to choose soon which road they are on. India has been restrained because a win in any new war would be first costly, and second...what do you to with Pakistan if you win?
Kung.Fu.Panda (profile) wrote on Tue, 5/5/2009 - 2:38 pm
energyecon,
What are you implying?Smile That we must prepare for an invasion of Pakistan to secure their nukes? I think we can safely outsource that to India, as they are much closer to the nukes in question.
Yes, I absolutely agree that someone else should be the first guy through the door into the nuclear fusillade.
Then they can retaliate against some people in population centers who have nothing to do with it except they are in the same colored square on the map.
For their trouble and heroism, they will get to rule the wasteland with the nuclear craters where the economic activity used to be, but the same pissed off people who nuked Mumbai entrenched in the hindu-killers and operating in a failed-state context where their tactics really thrive.
Good point to come out of this, there can only be one most-hated enemy of the Muslim faith at a time. America and even Israel can kind of ease India in front of that locomotive and leave them there, and it'll also kneecap them as a competitor for the rest of the century.
We are a debt-based society, with all money having its basis in created debt. This is not bad, so long as the amount of debt is “right-sized” for the economy, neither too much (devaluing the currency and stoking inflation) nor too little (causing a liquidity crisis and stoking deflation). The amount of physical money, in paper bills and currency, is insignificant and can be ignored.
When Greenspan got lead-footed on the monetary (debt) printing press to pull us out of the post-Y2K recession (a questionable action for sure), all that excess credit fueled speculation and inflation in a lot of things, among them housing and stocks. Combine that with the abrogation of any regulatory/oversight responsibilities in society as a whole (it was the mantra of the neocon revolution), and you also get a bull market in fraud, which intertwined with the flood of easy money, creating such tailor-made-for-crookery vehicles as CDOs, CDS’s, and SIVs, and then Wall Street investment bankers (the organized crime of the financial world) commoditized them and sold them to the world.
So we had this immense bubble/cloud of vaporous phony “investment” vehicles out there, trillions and trillions of dollars worth, and eventually it popped.
Faced with a collapsing global economy, the central bankers have decided not to try to “right-size” the amount of money(debt) to fit the new reality , but try to maintain/restore the prior status quo by printing money(debt) to offset the amount of debt that has disappeared in a puff of smelly smoke.
That is why the consumer and commercial debt pools are cratering and the government debt pool is exploding, and why Bernanke can say that (when viewed from the perspective of the past ginormous bubble of money(debt) being “normal”) he’s not “stoking inflation”. These large amounts of money/credit/debt (debt is activated credit) will be circulated by the highly efficient China money pump, where China buys Treasuries from US, then we buy goods from the Chinese, sell them in this country, and via the miracle of middlemen, multiply the demand for money and spread it throughout our consumer-oriented economy. Problem is, that pump is broken, at the moment, with consumers scared witless and buying little.
If you believe that the true real economy is a lot smaller now, you might well choose to believe your own lyin’ eyes before you believe an academic Ahab intent on pursuing the Great White Whale of his academic theories.
Myself, I tend to think that the tsunami of unemployed are sending a clear message that the global economy is a LOT smaller now, and that attempting to quickly restore the previous state of things is a Fool’s Errand.
Perhaps it is more important to remove excess capacity than to try and reflate the debt pool.
However it's clearly evident that Obama and Wall St are doing all they can to reflate the debt pool so they can produce more Chocolate Covered Cotton.
AMF - if your clean slate scenario happened, and you came out with some 'cash' that you could loan out, would you be making any loans? I think your scenario would mean the end of any credit, and those with nothing would have to sell something fast to get their next meal.... Maybe like the fall of the Soviet Union when pensioners were out on the streets trying to sell their used socks or whatever they had so they could buy a potato for dinner...
The US has been consuming more than it produces, spending more than it earns. The government and the private sector have both been doing it, and that's how our debt became so large. Doing so has implications that cannot be wished away by "we owe it to ourselves". There is no wisdom in that statement.
As you say, to some extent (maybe in large part) that's because the cost of credit is too low. But it's also due to what can only be calleed a massive fraud, made possible by a lack of proper regulation of bank and non---bank lenders.
Wisdom think of Madoff. He will die owing billions. Those billions must be repaid with future time, labor, savings... capital of some sort. When Buffett builds his gold pyramid, GDP goes way up. The net is zero, but the damage?
Vonbek777 (profile) wrote on Tue, 5/5/2009 - 2:49 pm
Speaking of India, have you seen their sub fleet?
They are gong to control the Indian ocean from Indonesia to the Red Sea soon. Geographic inevitability. They will continue to grow until they fill that role.
Q: Why is money/credit valuable?
A: Because people will work for it.
Q: What happens when the underlying currency/credit is in question?
A: Fewer people want it, labor is cheapened, and output goes down.
Q: If it is an allocation problem, can we fix it by redistributing wealth more efficiently?
A: Sure, but it is demotivating to the people that are working.
Q: What happens when the people receiving redistributions of wealth grow larger than those providing it?
A: A vicious feedback loop that rewards the irresponsible at the expense of the responsible; impairs output.
Q: Can we print enough money to solve the balance sheet problem?
A: Sure, but it won't do any good; loss of value/confidence is as great or greater than the output hole "filled"
One thing about the "we owe it to ourselves" argument is that today's debt will be paid by the next generation, if at all.
Maybe the burden is too big, maybe, the next generation justs says no. Spending more now so that children and grandchildren get less is not a recipe for a strong and stable U.S.A. imo.
Dirk van Dijk (profile) wrote on Tue, 5/5/2009 - 2:52 pm
Frankly the last thing we want to see is another India/Pakistan war.
I don't think India has the wisdom or discipline to not invade after the first nuclear carbomb goes off, the Hindu Parishad will see to that, so, they will be baited a-la 9/11.
I'm not saying I want to see an India-Pakistan war; all I am saying is that should the extremists get their hands on the nukes they have multiple axes to grind. And that I think that the masses in Pakistan see India as more of a direct threat than the USA.
Our military is worn down from years of war and the SecState and Holbrooke are implying that we should prepare to invade Pakistan to secure the nukes? That would be a costly proposition, to say the least. It won't get done by teams of SpecOps and Predator strikes.
It seems to me that the price of new housing is much less elastic than the price of used housing. Builders have a certain amount of cost in creating a new house, and are reluctant to go below that amount to sell it. Older homes may well have been bought for much less originally, and sellers are more likely to drop the price to a level that will sell, so long as it is more than the purchase price.
An interesting comment from Nassim Taleb at today's New Yorker Summit. He argues that even 1980s level of economy-wide debt are intolerable today, in part because of the Internet:
"We have to be a lot more careful going forward, because we have globalization, the internet, and operational efficiency — which cannot accommodate debt".
Who the hell is gonna' reproduce the next "generation" that will supposedly repay the debts you speak of? The working stiff cant even get it up at home and is scared to death to pork another woman because the ex already took 1/2 of what he had, the 2 kids, the house and the IRS got the rest......Well, that leaves low income people, illegals, and well I just don't know who else..... It's called demographics.
Lawyer @ 3:14 -You could not be more WRONG! The builders are sitting on 5-50 or MORE in inventory and existing homeowners are sitting on exactly ONE. Who has the bigger initiative to sell? Why would a current owner with any equity sell, unless facing catastrophic event? Exactly, that's why you argue law for a living and do not provide economic consulting for a living.
Money Man. Current owners have to move sometimes, or they die and their families sell, or they want to move up because their income has increased, or they are foreclosed upon and the banks sell low. New buildings have fixed costs that builders seek to recover, and which are higher because of the high cost of building homes over the last few years. I stand by my opinion that new home prices are less elastic than existing home prices.
They are more expendable that existing homers...stand on your sand but don't look down because it is sinking. Look up the numbers...new homes are selling for less money on average than existing homes. Not to get in a pissing contest but those are the facts.....I appraise homes for a living. I may just know a little more than you think you do. I sure don't see many moving up these days. I do see a LOT of once million dollar homes selling for 1/2 off.
Has Bernanke ever been wrong about anything related to housing?
Yes!
we are trying to walk on the egg shells around here if you don't mind, CR. Please don't go all smashing and scrambling them up.
Here's the first set of marks for the 2nd Graph...
5.7, 5.8, 5.7, 5.9, 5.5, 5.7
who the hell checks facts these days?
Inspired graveyard whistling. Kinda moving in its way.
I was looking to buy a certain house on 3 acres. It is pending sale. So I need to wait another year or so before the new owners go under.
This is a bit of an esoteric point but it is germane.
When an investor buys a house it isn't a home sale. It is a business transaction. Owned by a bank, owned by an investor doesn't matter. These transactions are not signs of housing stability. And let's face it, that's what Bernanke is seeking to achieve; stability in ownership and prices.
I am telling you, don't underestimate the impact of the moratoriums. I am looking at some data right now on delinquent loan inventories, and fully 50% of the inventory is In Foreclosure. That is fairly unprecedented. Think about it: of all the delinquent loans in the pools I am looking at, 50% are in the foreclosure process. Not just 60 days late, or 90 days late, but in the process of being foreclosed on.
Unfortunately I don't have more data than that (like "days in the foreclosure process"), but as someone who has looked at this data for years, this says to me that there are a ton of borrowers who went into foreclosure and were stalled there due to the moratoriums.
That, to me, explains a lot of the "less worse" data we have seen in the recent months. Banks can avoid booking the loss, the downward pressure on house prices is reduced, borrowers can live rent free, etc.
"Among the largest banks, the capital ratios remain good and I don't expect any serious problems among the larger banks that make up a very substantial part of our banking system."
(2/28/2008 - Ben Bernanke)
Old school: fact check
New school: FAQ check
Bernanke is a highly educated dingbat.
That seems harsh until you CONsider that he couldn't recognize the housing or credit bubbles until his CONstituents on wall street came begging for handouts.
Fact checking Ben Bernanke comment "In this environment, we anticipate that inflation will remain low" from previous thread
FACTS:
1) The projected budget deficit for 2009 is $2 trillion
2) The debt-drowned United States debt is already 350 percent of G.D.P and rising fast !
3) The Fed is now holding $10 Trillion of ‘assets’ ( mostly toxic ) transferred from too big to fail banks.
4) Other countries are now buying less of our debt
What alternate reality is BB living in ?
Here are some statistics from a 2007 mortgage pool I am looking at right now, all data as of 3/31/2009.
Delinquent: 37%
Pending Foreclosure: 6%
In Foreclosure: 57%
Sooner or later that dam has to burst, not all of those borrowers are going to be saved by reducing their mortgage rate. Not all of those borrowers are even in their homes.
Book smart only gets you so far in the Dismal Science, you need to get in the trenches to really understand it, not the tranches.
Anecdotal only, but a family member from Arkansas was telling me that an old friend of the family, (an elderly lady in her late 80s, good heath) bought a new house in 2005, stopped making payments in late 2007, and the bank has decided not to foreclose. Actually told her she could stay put and they will work something out with her later. Granted it is a very small house and not worth much regardless of the economy, but I thought this was interesting.
Ghost,
I just posted something similar in the last thread. I see huge increases in distressed inventory and very little actual sales.
The distressed inventory numbers are far worse than just six months ago. I don't think we are near the halfway point in the eventual foreclosures. And I certainly don't trust the marks used by the banks or the stress tests.
My gut says no way.
Here's the difference, CR:
You're citing DataQuick, Bernanke's using DataQuack.
"the bank has decided not to foreclose"
No surprise at all, I have seen loans that are over 1000 days delinquent (they screw up some of my programs due to the number of digits).
And Congress wonders why banks aren't lending more? They are, by definition, zombie banks, sucking up all the govt capital to pay for past losses.
I was a zombie homeowner...
Ben Bernanke was never a math wiz. Unvarying parametric equations, shifting linear lines on a vague chart -- ok, but he'll need some software and 2 graduate students. He focussed on economic history for a reason
Google News
I wonder how we got all those extra houses to begin with.
Remember all those giant vegetables that grew after the Chernobyl mess?
Three things no market anywhere in the world is pricing in
The market has not priced in political risk into the market. 2 countires with the backs up against the wall would benefit from political instability Iran and Russia. Something to watch.
Voodoo Economics in the early 1980's brought us Zombie Banks today...
Night Of The Living Debt
Hi Vonbek777,
I'm curious if they allowed the 80 year old lady to purchase the home with 30-year loan...
I didn't see Angry Saver's post, but I'm going to go ahead and declare ghostface with "Post of the Day". Jeebus, that is a lot of people on both sides of a contract saying I don't give a flying... That's kind of a big deal.
ghostfaceinvestah,
some quick math... 100 - 37 - 6 - 57 = 0 % current.
Let me guess, originally had a AA rating
Rob Dawg (homepage, profile) wrote on Tue, 5/5/2009 - 1:44 pm reply Ignore user This is a bit of an esoteric point but it is germane.
When an investor buys a house it isn't a home sale. It is a business transaction. Owned by a bank, owned by an investor doesn't matter. These transactions are not signs of housing stability. And let's face it, that's what Bernanke is seeking to achieve; stability in ownership and prices.
Dammit, Dawg, there you again spoiling things! So much for my mental picture of June, Ward, Wally and the Beaver!
"Bernanke: "Conditions in the commercial real estate sector are poor. Vacancy rates for existing office, industrial, and retail properties have been rising, prices of these properties have been falling, and, consequently, the number of new projects in the pipeline has been shrinking."
"Poor" doesn't describe the level of distress,..."
CR you were on the right track but you backslid. If you are a green shoot trying to start a competitive business, high vacancy rates are a blessing. The "commercial real estate sector" includes lowly commercial renters, no?
Perspective counts, and phrasing the issue is king.
Never fight the Fed CR!
[Here are some statistics from a 2007 mortgage pool I am looking at right now]
Please print out, mix with some green shoots and forward to Mr Bernanke for dinner.
" Ghost,
I just posted something similar in the last thread. I see huge increases in distressed inventory and very little actual sales. "
I mean, I have never seen anything like this in my mortgage career (10 years +), usually foreclosures are a small part of delinquencies.
To be fair, some of it is due to not only the moratoriums, but also the huge crush of foreclosures the banks have to deal with but were not staffed to handle, but in either case, the result is the same - foreclosure sales will be hitting the market at a pretty steady pace for some time.
Anyone see the corny live action version of Dudley Do-right with With Brendan Fraser, Sarah Jessica Parker, Alfred Molina? Guilty pleasure, loved Eric Idle in it, but the economic philosophy in that movie seems to be alive and well in Ben Bernanke. Watch out for those vampires.
I know we aren't doing torture anymore, but if we could stick Green Shoots under Bernanke's fingernails, i'm confident he'll spill his guts.
"ghostfaceinvestah,
some quick math... 100 - 37 - 6 - 57 = 0 % current."
I was just posting the % of delinquent loans by category. My point being, usually foreclosures are not a large chunk of delinquent loans, but they have been building up as foreclosures get clogged in the system.
Six months ago the % of foreclosures would have been more like 40% of delinquencies. The clearing out of foreclosures has slowed significantly in the past few months.
CR,
Bernanke doesn't seem to think that existing home sales have stabilized because of the foreclosure moratorium.
What are your thoughts on whether the impact was significant enough to be the primary cause?
Will the removal of the moratorium lead to another drop in sales as REOs flood the market and "normal" sales dry up?
Thanks.
Fingernails? I believe the man has hooves...
excuse me CR but your observation "my only disagreement with dr bernanke" is in my opinion a gentlemanly understatement
seems to me you point out several areas where he has, at a minimum confabulated and stretched the truth
on top of all this "they" project a turn around end of 09..based on what???
i still have not heard a convincing argument that we bootstrap this economy anytime soon...what is the driving force for recovery, mass consumerism?
i believe in the counter cyclical keynesian strategy...but the stimulus has to be put into increasing domestic productive capacity
consumer demand alone would have been sufficient in the 30s when we were a world class producer
today, demand does more to boost the economy of exporting nations and sink us deeper in the red
unless we develop productive capacity and pay the middle class, wages such that they can "demand" tis increased level of productivity without debt
even henry ford knew that building cars wasnt enough if his workers were too poor to buy the product
"Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.
The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election."
White House Accused Of Chrysler Threats
1) The projected budget deficit for 2009 is $2 trillion
km4,
The budget deficit doesn't tell the whole story. I like to look at the actual increase in the Federal Gov't Debt. Much worse than advertised. Budget deficits don't include "off budget" tomfoolery, like that little Iraq war.
It ain't cheap.
http://en.wikipedia.org/wiki/File:2010_Budget_-_Deficit_and_Debt_Increases.png
SInce 2002, GDP "growth" equals growth in government debt. So much for wall street being the engine of growth.
Ben Bernanke was never a math wiz. Unvarying parametric equations, shifting linear lines on a vague chart -- ok, but he'll need some software and 2 graduate students
Sometimes I think these economists are a little bit too good at math. Not that there's anything wrong with math, but it creates a tendency to abstract things beyond the point where their essential features are retained - to compress the incompressible.
These economists and their output and interest rate graphs worry me a little.
If Dr. Bernanke were a medical doctor he might conclude that the key to human health and life is the fact that the body temperature is 98.6F.
All health problems can be solved by warming or cooling the body to that temperature.
"I notice Mr. Whitmeyer is cooling quite rapidly as his liver has been shot out. A brief stay in the oven should cause it to regrow presently."
If Dr. Bernanke were a medical doctor he might conclude that the key to human health and life is the fact that the body temperature is 98.6F.
All health problems can be solved by warming or cooling the body to that temperature.
"I notice Mr. Whitmeyer is cooling quite rapidly as his liver has been shot out. A brief stay in the oven should cause it to regrow presently."
=======
post of the day
Que: Enter Jas stage left.....
You can't compare a larger apple pie with more or less orange juice, but as a general rule, too much shelter is better than too little.
Bulldozing shelter may be good for the sellers of shelter and bad for consumers. The long run, especially longer than your lifetime, is a gray area.
@ghostface "That, to me, explains a lot of the "less worse" data we have seen in the recent months. Banks can avoid booking the loss, the downward pressure on house prices is reduced, borrowers can live rent free, etc."
snark on: Man, if the economic effects are so positive, we should offer Free Housing for Everyone! /snark
@ km4: "2) The debt-drowned United States debt is already 350 percent of G.D.P and rising fast !"
That's not the national debt, but rather the sum total of all debts including a large number of extrapolations for Medicare and Social Security. Also, I suspect a lot of this debt is just circle-jerk. e.g. Joe Sixpack owes the bank $50,000 for his mortgage, the Bank owes the Treasury $50,000 for the TARP, and the Treasury owes Joe's 401k $50,000 (his Money-Market fund). No one really owes anyone anything but they're all fighting over the interest rates to see who gets net income and who gets to pay. Net it out and the real problem will not be quite so bad... Not that it isn't a problem!
"3) The Fed is now holding $10 Trillion of ‘assets’ ( mostly toxic ) transferred from too big to fail banks."
That number is much too high -- or do you have the breakdown? -- the Fed's balance sheet is only about $2 Trillion. In any case it will not stay at $10 Trillion after they finish defaulting!
"4) Other countries are now buying less of our debt"
About time! That debt doesn't net away and represents an ongoing drag on our economy. Although from a strategic perspective it may be useful to have money flowing to friendly nations.
"What alternate reality is BB living in ?"
The one where some debts get defaulted on and/or renegotiated, which is deflationary. (Just ask the Chrysler and GM bondholders, which may include your pension fund!) I'm not saying there can't be inflation as a result of the Fed's balance sheet rampage, but I personally don't see the evidence of inflation getting hold, other than maybe gasoline prices bouncing around. Certainly the bond markets aren't too worried!
ghostfaceinvestah
Thanks for the correction then, I thought perhaps we had passed lightspeed and were going plaid
ghost,
vampire banks, vampires I say!
My only disagreement with Dr. Bernanke is on the existing home market. I don't think current existing home sales are "depressed" and I believe sales will fall further in the future. -CR
Not depressed? Have you tried selling your house into this market?
Joe Sixpack owes the bank $50,000 for his mortgage, the Bank owes the Treasury $50,000 for the TARP, and the Treasury owes Joe's 401k $50,000 (his Money-Market fund)
Can I put in on my Citibank VIsa?
Zombie Squads of cheerleaders...
2,4,6,8, our Banks balance sheet looks first rate!
Go Team!
I'd be a home seller if it was a good market - that's why I am ShadowInventory...
@ Angry Saver - yes I agree but didn't say budget deficit is the whole story i.e. why I cited other facts @ 10:47 am and of course there's plenty more that BB appears to just gloss over with his inane and disingenuous comment "In this environment, we anticipate that inflation will remain low"
Nice vicious circle there Tim. What we need now are higher energy prices and in six months the release of free energy to spice things up.
That's not the national debt, but rather the sum total of all debts including a large number of extrapolations for Medicare and Social Security
Wisdom,
The 350% debt figure is light. It does not include social security or medicare projections. In fact, the federal portion of the debt numbers used in that 350% include only the public debt, not the intergovernmental debts like social security and medicare.
Make no mistake, we have a debt saturated eCONomy. Can it say afloat? Do we want to preserve all this non-economic debt? That should have been put to Bernanke today.
AMF
U.G.L.Y
Roubini got no alibi
he's ugly
Hey, hey he's ugly!
OK we seem screwed in a couple dimensions here - first, Holbrooke has to come out and say this, and two is bolded at the end of the snip below...
US's Holbrooke: Pakistan not a failed state
AP foreign, Tuesday May 5 2009
MATTHEW LEE
Associated Press Writer= WASHINGTON (AP) Pakistan is not a failed state, but its government is facing enormous challenges and needs America's help to counter Taliban advances, the Obama administration's point man for the region said Tuesday.
Richard Holbrooke, the U.S. special representative for Afghanistan and Pakistan, told a congressional committee that Pakistan's survival as a moderate, democratic state is critical to U.S. national security.
US's Holbrooke: Pakistan not a failed state |
World news |
guardian.co.uk
The United States of America once stood for something, something very special, it was unique and it commanded a reverence that was unlike anything in the world that has ever been before. I fear the time has past for saving our great Republic from the ruins of time.
Maybe he's looking ahead?
I was over at a friend's house and we did a 30 minute walk-by of his neighborhood, and he's a bit of Mrs. Kravitz, so he knows all, and was showing me all the unoccupied houses, either for sale or ones that have been empty for a long time.
You don't really get a good feel for just how many empty nests there are out there, unless you hit the pavement and see it with your own eyes. They wont deceive you.
km4,
I just used your post as springboard to point out one of the common propaganda ploys used to hide the true state of our finances.
The off budget process is a giant sham.
More at ghostface "I have never seen anything like this in my mortgage career (10 years +), usually foreclosures are a small part of delinquencies."
I think you'd need to have had an 80 year career to have seen the comps for the current situation!
Back in the 1930s, I bet it took a while for the creditors of the bankrupt banks (half the banks, remember!) to clean up their delinquencies and foreclosures, too.
I was watching CNN and they were actually reporting on those Victorville new homes being torn down. Awesome!
Pakistan not a failed state
is that like when nixon said he was not a crook
As long as I can remember, Fed chairmen have been telling the congress to cut spending, that the interest on the debt would grow to consume the whole budget... But would they listen? Nooooo - not even Reagan could stop them...
In 2008 the interest on the federal debt was about equal to the deficit that year... Now the deficit is ahead by leaps and bounds... but the interest will catch up fast... So we will have to have a serious inflation tax to mitigate the debt... So 350 trillion? Now that will be $125,000 for your beer, please...
Vonbeck, Energy I think Pakistan worries watchers the most as Afghanistan is virtually a failed state and Pakistan's weak government is being infiltrated by radical groups not friendly to the West.
I have seen the light. The Way Out... more McMansions need to be built. Not enough. The demand is there.
2, 4, 6, 8 we've turned the corner and things are gonna be Great!
Wisdom All you need to do is look at Japan. They had strong exports working in the favor and managed many years of positive growth yet their market fell at least 60+% and UE practically rose every year throughout the 90's.
The US will be lucky to have that.
What happened to the old wisdom?
"Net it out and the real problem will not be quite so bad... Not that it isn't a problem!"
Boy, you downplay the difference between miserable starvation and Buffett's gold pyramid so easily.
There is no netting out. The US pays AIG who pays GS. Launder, repeat.
One of my friends who has a 30 year background in technology, just bought an Apple Mac computer.... We must be entering the worm hole....
Ben Testifies, We Interpret
My take, generally in line with what CR is saying
The Pakistani people are highly intelligent, I'm not worried about a few barbarians at their gate. The over reaction in the MSM is for BBAD consumption like the initial over reaction to the Mexican Flu which will come back with a vengeance in the winter. Are you people really that stupid to buy into the MSM meme?
May I again remind you of this documentary and please bookmark it and watch it when you get time.
The Power of Nightmares
Internet Archive: Free Download: The Power of Nightmares
Michael, I hear the moon is a harsh mistress, but there is plenty of free space, although nothing in life is free. Study the past, but don't believe everything you read. History has a bias all of its own. We have been a joke to the Europeans unless we were needed. I don't call that reverence. For those coming here for a second chance, we are special, to the elites left behind, a dumping ground for unwanted genes in their rush for selective breeding. Don't just read history books, read first source letters. The US has had a very uneven reputation until we were strong enough to write our own history and demand of others to accept it. I do believe we were unique but that died when the general public started voting for Senators and the FED was created. Nice thing about time is that it is a phoenix, the ashes of freedom will sprout anew again some day.
Wow - a sane statement from a politician... WORMHOLE AHEAD!!!
New Jersey Can’t Afford Government, Booker Says (Update2) - Bloomberg.com
@Angry Saver "Make no mistake, we have a debt saturated eCONomy." I'm not making that mistake, but unless the net debts are calculated in detail, you don't really know how much of the 350% (or whatever) is "for a hamburger today, I will gladly have my kids pay you on Tuesday 30 years from now" real debt, and how much is just circular "Joe owes Citi, Citi owes Uncle Sam, and Uncle Sam owe's Joe's dad's pension fund, so Joe's dad can bail Joe out".
We're mighty and we're specious,
They call us superstitious
We always get our wishes,
The mighty Bureaucrats are we
AMF I've taken to biking slowly up and down the Avenues in Manhattan. Vacancies are much worse than the 70's. Yes, I blame the landlords who are unrealistic.
Confirmation will be when equities and bonds both tank at the same time. End game for Bernanke, and govt takes over of the rest of the markets that it doesn't already control.
In honor of the influenza not having much influence, we should rename it the Chupacabra Flu, after a mythical fear.
Tell me about it. I have built my own pcs since the 80s. It is something I like to do. I built the one I am currently on two years ago. Getting the itch to upgrade again and I am really considering just buying a mac. It must be the swine flu. Pigs like apples don't they?
@ Angry Saver
Got it and agree with you
1) that the off budget process is a giant sham.
2) we have a debt saturated eCONomy.
3) Can it say afloat? Not if other countries don't continue buy about $2B/day of our debt
Only one way I can see i.e. great big chunks of Big Shitpile aren’t "impaired," or "illiquid," or "distressed," they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
Obama team is running full court trying to do this but IMO there will be no return to normal for US economy.
We already crossed the Rubicon with Bush and Obama gambit's is a pipe dream.
The “bugaboo of nationalizing banks,” which the Obama administration wants to avoid, means “we are nationalizing only one side of the balance sheet,” Soros said. “We gradually take over the deficits on the balance sheet. But we aren’t actually going to benefit from the banks recovering.”
Let's see if Obama holds their TARP bailout feet to the fire and forces them to boost the other side of their balance sheet.
If so, he redeems himself.
If not, then he's toast after this term
"I'm curious if they allowed the 80 year old lady to purchase the home with 30-year loan... "
Age discrimination by lenders is not allowed. If she wanted a thirty year loan, they'd let her have one is she were otherwise qualified.
Recovery: Just pay no attention to the 2 guys behind the curtain, Zimbabwe Ben and Giddiup Geithner playing marionettes with the global economy,
Wisdom, if our debts are a circle jerk, does that make it any better? Everybody owes everybody else, but the underlying wealth required to pay it all off simply is not there. As far as I'm concerned this doesn't make it any better. Whether or not the debts are double counted, or can be repaid via hyperinflation is really a moot point -- the problem is that all of the promises of future output are in question, and barring an expansion in productivity they cannot and will not be repaid in full.
Welcome to a world of decreased future expectations.
Obamachev is good man and means well, but he's just a caretaker that doesn't have the heart to tell the patient that it only has 6 months to live...
http://www.fdicig.gov/reports09/09-010.pdf
FDIC Office of Inspector General: Material Loss Reviews
FDIC OIG's Material Loss Review of:
ALPHA BANK AND TRUST
(Congress mandated the FDIC OIG to conduct a Material Loss Review any time a failed bank cost the FDIC's fund $25 million. FDIC's OIG has recently requested this loss amount be raised to $300 million due to its increasing workload.)
but unless the net debts are calculated in detail, you don't really know how much of the 350% (or whatever) is "for a hamburger today, I will gladly have my kids pay you on Tuesday 30 years from now" real debt, and how much is just circular
It's all circular. 100%, That's the point of debt based money. As for detail, I use the Fed's breakout in their quarterly reports. And it's the level of household debt that spooks me the most.
Never before have we had so much debt in relation to output. Very worrisome, especially in light of the quality of the real estate debt (the bedrock of our banking system).
Re: circular debt...doesn't that sound like a bunch of dominoes ready to topple? Cascading defaults, anyone?
CR fails to bow down before the god that is Ben Bernanke. The hubris. The hubris. (shudder.)
Way to go, CR! Thanks for the reality check - something the MSM consistently fails to provide.
geeceemmm (profile) wrote on Tue, 5/5/2009 - 1:02 pm reply Ignore user "Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.
The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking "end justifies the means" group they have ever encountered. Another characterized Obama was "the most dangerous smooth talker on the planet- and I knew Kissinger." Both were voters for Obama in the last election."
That is one of the most encouraging things I have heard in a long time, finally it sounds like O has grown a pair.
Circular file that debt, please.
GAWD-This man is an IDIOT. NEW home sales are UP because those are being sold CHEAPER than existing homes, so the builders can avoid BANKRUPTCY and the bank owned new homes can be liquidated. I am an appraiser. In my area, 70% of all sales closed in the past year and 85% of all current pending sales are REO's. I am in Atl and we have been hit hard but NOT like CA. I can't imagine how bad those numbers are. I do know CA has a significant amount of ALL the REO's. IDIOT....No shit, new home sales have held firm. That's because existing homes actually do what they were designed to do....PROVIDE SHELTER. NEW HOMES only provide VACANT headaches and losses of profits. Can I have a minute with that Harvard moron...PLEASE?
How many day traders use those heatmap of investment flows, produced by TD Ameritrade etc? I'm curious if it has gotten to be a large enough percentage that it is causing the volatility in certain shares. If enough momentum traders work together targeting the hottest sectors/companies, that is sure to generate some pretty marvelous self-fulfilling short squeezes, no?
If so, when those flows go in reverse -- I'd expect things to get pretty entertaining pretty quick. Particularly as the fundamental investors and quant funds could hop back aboard the pain train.
I think net we'll see continuted losses, but I wouldn't be suprised by 1936 "recovery" with a 1937 double-dip into depression which is to say recovery hardly means recovery at all.
I also think we'll continue to hear how nobody could have forseen 25% U6 and 15%+ U3...
--bh
energyecon (homepage, profile) wrote on Tue, 5/5/2009 - 2:13 pm
Pakistan is not a failed state
It's like being well-capitalized. If you have to say it, it's not true.
Richard Holbrooke, the U.S. special representative for Afghanistan and Pakistan, told a congressional committee that Pakistan's survival as a moderate, democratic state is critical to U.S. national security.
Little late to be worrying about all that after how long backing Musharaff, Sharif, etc.
energyecon,
What are you implying?
That we must prepare for an invasion of Pakistan to secure their nukes? I think we can safely outsource that to India, as they are much closer to the nukes in question. I hope the President has used that red telephone to talk to New Delhi. The fact is, we should be hearing more about what India is doing right now. I'd be pretty surprised if they weren't moving their forces around near the Pakistani border to at least lay the groundwork for an assault.
As a reference regarding net debt: my personal share of the total debt nets out almost exactly at this point. This is with mortgage, credit cards, and my share of U.S. national debt on one side of the balance, and 401k/IRA plus present value of pension & social security on the other side.
I could net a large fraction of this debt to zero by prepaying the mortgage, but that doesn't make sense because (a) I expect to get a better long-term yield by investing the money and (b) I want to keep the option of walking away from the house now that it's going underwater.
A high level of total debt could simply imply that the cost of credit is too low (making it economically rational to take on the maximum allowable debt and then do something with the money), rather than that the nation is doomed to collapse.
In other words, of the 350% "debt to GDP" that we have to pay back -- to whom do we have to pay it back??? If we just owe it to ourselves and our friends, it's perhaps not a crisis.
It seems to me that the real problem is that there are tons of people who were misled into taking on more debt than they can comfortably service, and tons of other people who lent money very foolishly and won't get repaid. It's a redistribution problem (political). For instance, it's true that our kids will have to pay higher taxes in the future to those who own the Treasury bonds. But in that case the problem isn't necessarily with the existence of the treasury bonds, but rather that the Treasury bonds are held by too few and the interest must be taxed from too many.
Fiat CEO Marchionne has a plan - he wants to roll Fiat, Opel and Chrysler into a ball and IPO it.... and walk away with a huge chunk of sucker money.... Then after the fact the whole thing will die a quick death - Watch out for this one...
You cant make a pony from three dogs, even with a Pelosi...
"It's all circular. 100%, That's the point of debt based money. "
ZERO SUM. Debt is fine if the debtor uses the capital to create as much value as, or more than, the amount of the debt. But if he doesn't , someone has lost wealth, even the illusory kind. A circle jerk of debt is wasteful in and of itself: even circular motion requires energy (non-value-adding commissions, fees, interest, dividends....)
If the whole world was to Jubilee and repudiate all debts and wipe the slate clean, and everybody started fresh, where would the USA fit into the scheme of things in this brave new world?
Wisdom - if you walk away from your mortgage and have other assets, there is a chance that the mortgage holder will come after you for the deficiency balance. You could be forced into bk then....
The situation in Pakistan is very critical. Do not underestimate what is going on. Despite the assurances of safeguarded nukes...it is not at all clear if that is the case. The people of Pakistan are being pulled two ways and have to choose soon which road they are on. India has been restrained because a win in any new war would be first costly, and second...what do you to with Pakistan if you win?
Kung.Fu.Panda (profile) wrote on Tue, 5/5/2009 - 2:38 pm
energyecon,
What are you implying?Smile That we must prepare for an invasion of Pakistan to secure their nukes? I think we can safely outsource that to India, as they are much closer to the nukes in question.
Yes, I absolutely agree that someone else should be the first guy through the door into the nuclear fusillade.
Then they can retaliate against some people in population centers who have nothing to do with it except they are in the same colored square on the map.
For their trouble and heroism, they will get to rule the wasteland with the nuclear craters where the economic activity used to be, but the same pissed off people who nuked Mumbai entrenched in the hindu-killers and operating in a failed-state context where their tactics really thrive.
Good point to come out of this, there can only be one most-hated enemy of the Muslim faith at a time. America and even Israel can kind of ease India in front of that locomotive and leave them there, and it'll also kneecap them as a competitor for the rest of the century.
since we're talking about DEBT this post from constantnormal over on The Big Picture was a good one
February 18th, 2009 at 2:34 pm
Nothing found for Blog 2009 02 Homes-still-too-pricey-to-stabilize #comment-146630
We are a debt-based society, with all money having its basis in created debt. This is not bad, so long as the amount of debt is “right-sized” for the economy, neither too much (devaluing the currency and stoking inflation) nor too little (causing a liquidity crisis and stoking deflation). The amount of physical money, in paper bills and currency, is insignificant and can be ignored.
When Greenspan got lead-footed on the monetary (debt) printing press to pull us out of the post-Y2K recession (a questionable action for sure), all that excess credit fueled speculation and inflation in a lot of things, among them housing and stocks. Combine that with the abrogation of any regulatory/oversight responsibilities in society as a whole (it was the mantra of the neocon revolution), and you also get a bull market in fraud, which intertwined with the flood of easy money, creating such tailor-made-for-crookery vehicles as CDOs, CDS’s, and SIVs, and then Wall Street investment bankers (the organized crime of the financial world) commoditized them and sold them to the world.
So we had this immense bubble/cloud of vaporous phony “investment” vehicles out there, trillions and trillions of dollars worth, and eventually it popped.
Faced with a collapsing global economy, the central bankers have decided not to try to “right-size” the amount of money(debt) to fit the new reality , but try to maintain/restore the prior status quo by printing money(debt) to offset the amount of debt that has disappeared in a puff of smelly smoke.
That is why the consumer and commercial debt pools are cratering and the government debt pool is exploding, and why Bernanke can say that (when viewed from the perspective of the past ginormous bubble of money(debt) being “normal”) he’s not “stoking inflation”. These large amounts of money/credit/debt (debt is activated credit) will be circulated by the highly efficient China money pump, where China buys Treasuries from US, then we buy goods from the Chinese, sell them in this country, and via the miracle of middlemen, multiply the demand for money and spread it throughout our consumer-oriented economy. Problem is, that pump is broken, at the moment, with consumers scared witless and buying little.
If you believe that the true real economy is a lot smaller now, you might well choose to believe your own lyin’ eyes before you believe an academic Ahab intent on pursuing the Great White Whale of his academic theories.
Myself, I tend to think that the tsunami of unemployed are sending a clear message that the global economy is a LOT smaller now, and that attempting to quickly restore the previous state of things is a Fool’s Errand.
Perhaps it is more important to remove excess capacity than to try and reflate the debt pool.
However it's clearly evident that Obama and Wall St are doing all they can to reflate the debt pool so they can produce more Chocolate Covered Cotton.
AMF - if your clean slate scenario happened, and you came out with some 'cash' that you could loan out, would you be making any loans? I think your scenario would mean the end of any credit, and those with nothing would have to sell something fast to get their next meal.... Maybe like the fall of the Soviet Union when pensioners were out on the streets trying to sell their used socks or whatever they had so they could buy a potato for dinner...
Wisdom Speaker,
The US has been consuming more than it produces, spending more than it earns. The government and the private sector have both been doing it, and that's how our debt became so large. Doing so has implications that cannot be wished away by "we owe it to ourselves". There is no wisdom in that statement.
As you say, to some extent (maybe in large part) that's because the cost of credit is too low. But it's also due to what can only be calleed a massive fraud, made possible by a lack of proper regulation of bank and non---bank lenders.
Speaking of India, have you seen their sub fleet?
Wisdom think of Madoff. He will die owing billions. Those billions must be repaid with future time, labor, savings... capital of some sort. When Buffett builds his gold pyramid, GDP goes way up. The net is zero, but the damage?
A country of debtbeats afraid of the repo man showing up.
The people of Pakistan are being pulled two ways
Nation-state as unitary actor / "national concensus" paradigm specious almost always, even in nation states, definitely not applicable to Pakistan.
A clean slate does imply quite a few empty plates, food for thought.
Last attempt: the "details" are mere life and death for millions of people.
Vonbek777 (profile) wrote on Tue, 5/5/2009 - 2:49 pm
Speaking of India, have you seen their sub fleet?
They are gong to control the Indian ocean from Indonesia to the Red Sea soon. Geographic inevitability. They will continue to grow until they fill that role.
Frankly the last thing we want to see is another India/Pakistan war.
FED: We fixed the banks. Why are you all still unemployed?
Q: Why is money/credit valuable?
A: Because people will work for it.
Q: What happens when the underlying currency/credit is in question?
A: Fewer people want it, labor is cheapened, and output goes down.
Q: If it is an allocation problem, can we fix it by redistributing wealth more efficiently?
A: Sure, but it is demotivating to the people that are working.
Q: What happens when the people receiving redistributions of wealth grow larger than those providing it?
A: A vicious feedback loop that rewards the irresponsible at the expense of the responsible; impairs output.
Q: Can we print enough money to solve the balance sheet problem?
A: Sure, but it won't do any good; loss of value/confidence is as great or greater than the output hole "filled"
One thing about the "we owe it to ourselves" argument is that today's debt will be paid by the next generation, if at all.
Maybe the burden is too big, maybe, the next generation justs says no. Spending more now so that children and grandchildren get less is not a recipe for a strong and stable U.S.A. imo.
Thanks to everyone for a solid thread. I enjoy the "devil's advocate" role now and then...
Dirk van Dijk (profile) wrote on Tue, 5/5/2009 - 2:52 pm
Frankly the last thing we want to see is another India/Pakistan war.
I don't think India has the wisdom or discipline to not invade after the first nuclear carbomb goes off, the Hindu Parishad will see to that, so, they will be baited a-la 9/11.
I'm not saying I want to see an India-Pakistan war; all I am saying is that should the extremists get their hands on the nukes they have multiple axes to grind. And that I think that the masses in Pakistan see India as more of a direct threat than the USA.
Our military is worn down from years of war and the SecState and Holbrooke are implying that we should prepare to invade Pakistan to secure the nukes? That would be a costly proposition, to say the least. It won't get done by teams of SpecOps and Predator strikes.
It seems to me that the price of new housing is much less elastic than the price of used housing. Builders have a certain amount of cost in creating a new house, and are reluctant to go below that amount to sell it. Older homes may well have been bought for much less originally, and sellers are more likely to drop the price to a level that will sell, so long as it is more than the purchase price.
An interesting comment from Nassim Taleb at today's New Yorker Summit. He argues that even 1980s level of economy-wide debt are intolerable today, in part because of the Internet:
"We have to be a lot more careful going forward, because we have globalization, the internet, and operational efficiency — which cannot accommodate debt".
Who the hell is gonna' reproduce the next "generation" that will supposedly repay the debts you speak of? The working stiff cant even get it up at home and is scared to death to pork another woman because the ex already took 1/2 of what he had, the 2 kids, the house and the IRS got the rest......Well, that leaves low income people, illegals, and well I just don't know who else..... It's called demographics.
Lawyer @ 3:14 -You could not be more WRONG! The builders are sitting on 5-50 or MORE in inventory and existing homeowners are sitting on exactly ONE. Who has the bigger initiative to sell? Why would a current owner with any equity sell, unless facing catastrophic event? Exactly, that's why you argue law for a living and do not provide economic consulting for a living.
Bernanke is a lying sack of shite
Money Man. Current owners have to move sometimes, or they die and their families sell, or they want to move up because their income has increased, or they are foreclosed upon and the banks sell low. New buildings have fixed costs that builders seek to recover, and which are higher because of the high cost of building homes over the last few years. I stand by my opinion that new home prices are less elastic than existing home prices.
They are more expendable that existing homers...stand on your sand but don't look down because it is sinking. Look up the numbers...new homes are selling for less money on average than existing homes. Not to get in a pissing contest but those are the facts.....I appraise homes for a living. I may just know a little more than you think you do. I sure don't see many moving up these days. I do see a LOT of once million dollar homes selling for 1/2 off.