From the normally somewhat sane voice of Floyd Norris at the New York Times: Credit Crisis? Just Wait for a Replay.
What if it’s not just subprime?
Gee golly gosh, Floyd! I don't know.
Someone might actually have to do some investigative journalism on it. Who knows there may be all this data being analyzed on blogs and shit because there sure as teenage fuckery isn't any analysis in the MSM. And you might have to get off your ass and do some homework or something.
Friday, December 28, 2007
Thursday, December 27, 2007
Spread it!
Commercial paper is short-term (between 30 days and nine months.)A2/P2 is lower-rated paper (as opposed to GE/Microsoft/Coke, etc.)
Fed can't do jack-motherfuckin'-shit about the spread unless they want to get into the commercial lending business themselves (and that would just about crash the dollar outright!) Please note the spread is far higher than 9/11!
We're dealing with a solvency crisis (hence, a confidence crisis.) Nobody wants to lend to anybody else because who knows where the bodies are buried?
Once again, for your sanity and mine, this is not a "liquidity crisis". The lack of liquidity is a symptom not a cause.
Tuesday, December 25, 2007
Spirit of the Season
"You're thinking of this bank all wrong. As if they had the money back in a safe. The money's not here. Your money's in a super senior synthetic tranche hedged with a CDS on Joe's house...right next to yours. Supported by the excess spread from the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending the Orange County's Firemens' Retirement Fund the money to short builders commercial paper, and then, they're all going to pay it back to you as best they can."
Monday, December 24, 2007
Holiday Cheer
From Reuters: One in Five Expect to Borrow to Heat Homes This Winter.
For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.
Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills.
Happy Holidays, everyone. Stay warm!
For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.
Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills.
Happy Holidays, everyone. Stay warm!
Sunday, December 23, 2007
Hooverville, here we come!
From Yahoo! News: Tent city in suburbs is cost of home crisis.
ONTARIO, California (Reuters) - Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.
The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.
The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.
As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.
Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.
"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.
She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.
But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA.
"Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."
It's all good though. Hooray for downward mobility!
ONTARIO, California (Reuters) - Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.
The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.
The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.
As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.
Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.
"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.
She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.
But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA.
"Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."
It's all good though. Hooray for downward mobility!
Friday, December 21, 2007
God Shave the Queen!
From the Times: London house price fall of 6.8% in past month stokes economy fears.
House prices in London have fallen by an average of £28,000 in the past month, as the capital sets the pace of an accelerating property downturn, a leading survey reports today.
Rightmove, the property website that tracks asking prices for homes across the market, says that prices tumbled by £20,000 a week in affluent Kensington and Chelsea – and by more than £10,000 a week in inner-city Hackney.
The company’s data shows that house prices fell by 3.2 per cent across the country, and by 6.8 per cent in London, over the month to the middle of December.
6.8% in a month is a fuckload of a fall, boys and girls.
I thought London was special. Prices never go down in Chelsea, Kensington and Wimbledon. While the Yanks were stupid enough to make sub-prime loans in Cleveland, they were the financially savvy ones, and because of that they were going to be the financial capital of the world (along with Dubai), and New York was in trouble, and the Brits were going to buy up most of Manhattan.
What happened instead, huh?
House prices in London have fallen by an average of £28,000 in the past month, as the capital sets the pace of an accelerating property downturn, a leading survey reports today.
Rightmove, the property website that tracks asking prices for homes across the market, says that prices tumbled by £20,000 a week in affluent Kensington and Chelsea – and by more than £10,000 a week in inner-city Hackney.
The company’s data shows that house prices fell by 3.2 per cent across the country, and by 6.8 per cent in London, over the month to the middle of December.
6.8% in a month is a fuckload of a fall, boys and girls.
I thought London was special. Prices never go down in Chelsea, Kensington and Wimbledon. While the Yanks were stupid enough to make sub-prime loans in Cleveland, they were the financially savvy ones, and because of that they were going to be the financial capital of the world (along with Dubai), and New York was in trouble, and the Brits were going to buy up most of Manhattan.
What happened instead, huh?
Spinning Jenny
The LA Times interviewed the Secretary of the Treasury, a Mr. Paulson: "These are not normal times".
Henry Paulson: The key is to get the balance right and not go so far that you cut off credit and make the situation worse. The Fed has also been looking at disclosure. I think when you look at the mortgage area, it's almost a caricature of what you see in other areas. You've got pages and pages of disclosure, which doesn't mean you're getting the people good information that they can understand. It's sort of, "Everybody cover their rear end," protect themselves legally. But, I've made the case several times, with all the disclosure there should be one simple page signed by the lender and the borrower that says, "Your monthly payment is x and it could be as high as y in a couple of years." The Fed I know has done some real consumer research on this.
Did the Fed do any research as to what happens when the consumer can't even afford the initial x? Or was that not part of the "real consumer research"?
I'm no lawyer but in that situation I don't think it's called "Disclosure". It's referred to as an "Adverse Action Notice".
Of course, that does run into the "cut off credit" part.
Back to the drawing board, Mr. Secretary!
Henry Paulson: The key is to get the balance right and not go so far that you cut off credit and make the situation worse. The Fed has also been looking at disclosure. I think when you look at the mortgage area, it's almost a caricature of what you see in other areas. You've got pages and pages of disclosure, which doesn't mean you're getting the people good information that they can understand. It's sort of, "Everybody cover their rear end," protect themselves legally. But, I've made the case several times, with all the disclosure there should be one simple page signed by the lender and the borrower that says, "Your monthly payment is x and it could be as high as y in a couple of years." The Fed I know has done some real consumer research on this.
Did the Fed do any research as to what happens when the consumer can't even afford the initial x? Or was that not part of the "real consumer research"?
I'm no lawyer but in that situation I don't think it's called "Disclosure". It's referred to as an "Adverse Action Notice".
Of course, that does run into the "cut off credit" part.
Back to the drawing board, Mr. Secretary!
Thursday, December 20, 2007
Jingle Mail, Jingle Mail, Jingle All the Way...
From the Wall Street Journal: Now, Even Borrowers With Good Credit Pose Risks.
Kenneth Lewis acted far ahead of the competition in 2001, when he got Bank of America out of the business of issuing subprime mortgages. While profit margins on these loans to risky borrowers seemed tempting, the bank's chief executive believed the default risks were too hefty to justify.
So what is Mr. Lewis worrying about today? In an interview last week with Wall Street Journal editors, he expressed concern that even borrowers with strong credit scores might turn out to be default risks if housing prices keep tumbling. In other words, what is being portrayed as a credit-quality problem with the riskiest 20% of the mortgage market could spread to a much wider cross-section of home loans.
"There's been a change in social attitudes toward default," Mr. Lewis says. Bankers typically have believed that cash-strapped borrowers would fall behind on their credit cards, car payments and other debts -- but would regard mortgage defaults as calamities to be avoided at all costs. That isn't always so anymore, he says.
"We're seeing people who are current on their credit cards but are defaulting on their mortgages," Mr. Lewis says. "I'm astonished that people would walk away from their homes." The clear implication: At least a few cash-strapped borrowers now believe bailing out on a house is one of the easier ways to get their finances back under control.
Such behavior was highlighted in a page-one Journal article this week about the housing quagmire in Corona, Calif. One couple bought a home for $557,000 in 2004 and then refinanced it for increasing amounts as property prices soared, eventually ending up with an $835,000 mortgage -- and extra cash for personal expenses. The couple then bought a cheaper home in Texas and stopped making payments on the Corona home in June. As the countdown to foreclosure continues, it looks increasingly likely lenders will be stuck with that house.
First off, from a rational economic point of view, mailing back the key is absolutely the "correct" thing to do. It is somebody else's problem; in this case, the MBS holder's. They took on the risk, loaned these people the money. If it didn't work out, so sad, too bad...
Secondly, doesn't Mr. Lewis realize that value is perceived by how much effort it takes to achieve something? How useful is "good credit" when any fool gets two to three credit card offers two weeks out of bankruptcy?
By comparison, a "renter" has to all but subject him/herself to an anal probe. In most places, they have to get a credit check, two letters of reference, put up a deposit in escrow, and pay the first month's rent.
If people have no skin in the game, they will walk away. One doesn't have to be Warren Buffett to figure this one out.
The blunt truth is any mortgage product that didn't involve a hefty downpayment is doomed to fail. Period. It's all about skin in the game. No amount of tap dancing around this subject will work.
Lastly, it is critical to keep in mind the role of psychology in these things. If it becomes socially acceptable to go to a party and say, "I mailed in the keys to the bank. Hah hah hah!", the banks are doomed. Flat out, doomed. There's not a power in the world (including the central banks) that can rescue them. Social acceptibility is the ultimate arbiter of many a behavior, and if everyone's doing it, there's no stigma attached to it.
(And just for the record, I'm willing to bet that this is the scenario that will come to pass. Why? It was socially acceptable in the early-to-mid-90's, and it will be again.)
Incidentally, that story up there was in yesterday's Journal. The couple pulled out the "phantom equity", bought a brand new Lexus and a SUV, and a house in Texas (most probably in cash.)
Why?
You can't go after a house in Texas in bankruptcy, and you certainly can't go after a fully-paid one. You also can't go after a car (because a car is considered the modern equivalent of a "horse" which cannot be repossessed in Texas!) The lender is pretty much screwed. This particular couple has played the system like a Stradivarius.
Welcome to Planet Reality(TM), Mr. Lewis. We hope you will enjoy your stay.
Kenneth Lewis acted far ahead of the competition in 2001, when he got Bank of America out of the business of issuing subprime mortgages. While profit margins on these loans to risky borrowers seemed tempting, the bank's chief executive believed the default risks were too hefty to justify.
So what is Mr. Lewis worrying about today? In an interview last week with Wall Street Journal editors, he expressed concern that even borrowers with strong credit scores might turn out to be default risks if housing prices keep tumbling. In other words, what is being portrayed as a credit-quality problem with the riskiest 20% of the mortgage market could spread to a much wider cross-section of home loans.
"There's been a change in social attitudes toward default," Mr. Lewis says. Bankers typically have believed that cash-strapped borrowers would fall behind on their credit cards, car payments and other debts -- but would regard mortgage defaults as calamities to be avoided at all costs. That isn't always so anymore, he says.
"We're seeing people who are current on their credit cards but are defaulting on their mortgages," Mr. Lewis says. "I'm astonished that people would walk away from their homes." The clear implication: At least a few cash-strapped borrowers now believe bailing out on a house is one of the easier ways to get their finances back under control.
Such behavior was highlighted in a page-one Journal article this week about the housing quagmire in Corona, Calif. One couple bought a home for $557,000 in 2004 and then refinanced it for increasing amounts as property prices soared, eventually ending up with an $835,000 mortgage -- and extra cash for personal expenses. The couple then bought a cheaper home in Texas and stopped making payments on the Corona home in June. As the countdown to foreclosure continues, it looks increasingly likely lenders will be stuck with that house.
First off, from a rational economic point of view, mailing back the key is absolutely the "correct" thing to do. It is somebody else's problem; in this case, the MBS holder's. They took on the risk, loaned these people the money. If it didn't work out, so sad, too bad...
Secondly, doesn't Mr. Lewis realize that value is perceived by how much effort it takes to achieve something? How useful is "good credit" when any fool gets two to three credit card offers two weeks out of bankruptcy?
By comparison, a "renter" has to all but subject him/herself to an anal probe. In most places, they have to get a credit check, two letters of reference, put up a deposit in escrow, and pay the first month's rent.
If people have no skin in the game, they will walk away. One doesn't have to be Warren Buffett to figure this one out.
The blunt truth is any mortgage product that didn't involve a hefty downpayment is doomed to fail. Period. It's all about skin in the game. No amount of tap dancing around this subject will work.
Lastly, it is critical to keep in mind the role of psychology in these things. If it becomes socially acceptable to go to a party and say, "I mailed in the keys to the bank. Hah hah hah!", the banks are doomed. Flat out, doomed. There's not a power in the world (including the central banks) that can rescue them. Social acceptibility is the ultimate arbiter of many a behavior, and if everyone's doing it, there's no stigma attached to it.
(And just for the record, I'm willing to bet that this is the scenario that will come to pass. Why? It was socially acceptable in the early-to-mid-90's, and it will be again.)
Incidentally, that story up there was in yesterday's Journal. The couple pulled out the "phantom equity", bought a brand new Lexus and a SUV, and a house in Texas (most probably in cash.)
Why?
You can't go after a house in Texas in bankruptcy, and you certainly can't go after a fully-paid one. You also can't go after a car (because a car is considered the modern equivalent of a "horse" which cannot be repossessed in Texas!) The lender is pretty much screwed. This particular couple has played the system like a Stradivarius.
Welcome to Planet Reality(TM), Mr. Lewis. We hope you will enjoy your stay.
Wednesday, December 19, 2007
"Build it, they will come"
From the Tampa Tribune: Empty Storefronts Filled With Hope And Promise.
Although Channelside Drive, the Arts District and the Franklin Street corridor have begun to show some retail stirrings after years of stagnation and promises, few would agree that downtown Tampa has yet to show its potential as a vibrant urban center for shopping, dining and entertainment.
Retail expert Lee Nelson, a senior associate at CB Richard Ellis in Tampa, said restaurants and shops will "flock" to the newly built space. But it will take years - not months - for the vacancies to be filled.
"Retailers have to have customers," she said. "Until those condos are full of people, the retail will not come. Then it will be vibrant and exciting."
Yes, "then" it will be vibrant and exciting. Meanwhile, you expect the people to come there on what exactly? Faith?
New York's Fifth Avenue, London's Oxford Street and Chicago's Magnificent Mile have nothing to fear from downtown Tampa.
I would think not! Has this guy ever even walked down either of the three? Places like these don't just arise overnight, and they sure as hell don't arise due to some "marketing plan".
Same goes for all the cities planning "art districts". You can't plan these things!
Enjoy the Section 8 in a few years!
Although Channelside Drive, the Arts District and the Franklin Street corridor have begun to show some retail stirrings after years of stagnation and promises, few would agree that downtown Tampa has yet to show its potential as a vibrant urban center for shopping, dining and entertainment.
Retail expert Lee Nelson, a senior associate at CB Richard Ellis in Tampa, said restaurants and shops will "flock" to the newly built space. But it will take years - not months - for the vacancies to be filled.
"Retailers have to have customers," she said. "Until those condos are full of people, the retail will not come. Then it will be vibrant and exciting."
Yes, "then" it will be vibrant and exciting. Meanwhile, you expect the people to come there on what exactly? Faith?
New York's Fifth Avenue, London's Oxford Street and Chicago's Magnificent Mile have nothing to fear from downtown Tampa.
I would think not! Has this guy ever even walked down either of the three? Places like these don't just arise overnight, and they sure as hell don't arise due to some "marketing plan".
Same goes for all the cities planning "art districts". You can't plan these things!
Enjoy the Section 8 in a few years!
Tuesday, December 18, 2007
Sheer Brilliance
From the Boston Herald: Realtors face tough reality.
“If sales are down, revenue is down,” said Ruth Pino, a Carlson GMAC branch executive in Gloucester.
Quick! Nobel Committee, give this woman the Prize!
“If sales are down, revenue is down,” said Ruth Pino, a Carlson GMAC branch executive in Gloucester.
Quick! Nobel Committee, give this woman the Prize!
Comment puis-je dire?
From the Lower Hudson online: Lots of blame to go around in subprime mortgage crisis.
For months Marie Chantale Joseph and her husband, Daniel, have been unsuccessfully trying to refinance their home before their interest rate spikes in April.
Already, Daniel, a taxi driver, is working 18 hours a day and on weekends to pay the approximately $4,800 a month they owe, and Marie, a babysitter, works as many hours as she can.
"In my country it is different. No one can come and take your home away from you," said Marie Chantale, who must pay about $8,000 a month beginning in April, or lose her home to foreclosure. "Here, if they know you don't know what you are doing, they take advantage of you."
Firstly, the idea that Haiti is more ethical than the US is absurd. We're talking about literally the poorest nation in the Western Hemisphere which also has the dubious distinction of being a failed state.
Secondly, we're talking about a baby-sitter and a cab-driver buying a $500,000 house with monthly payments of $8,000.
Let me repeat that for emphasis: a baby-sitter and a cab-driver with $8,000 monthly payments. (That's $96,000 a year for 30 years, or roughly $3 million!)
Here's the "much esteemed" Federal Reserve's Survey of Consumer Finances, (PDF link) where you can figure out for yourself that even a family in the top 5% of incomes cannot possibly make those payments. They would literally be scraping by, and hope to God and cross their hearts that nothing goes wrong.
Ponder that! No fuckups for 30 straight years -- no medical problems, no unexpected expenses, no recessions, no layoffs, absolute perfection for 30 years.
What is easier to believe?
That they had no clue of what they were doing, or they were gaming the system, and after the shit hits the fan, they fuck off back to Haiti?
You can decide that for yourself!
For months Marie Chantale Joseph and her husband, Daniel, have been unsuccessfully trying to refinance their home before their interest rate spikes in April.
Already, Daniel, a taxi driver, is working 18 hours a day and on weekends to pay the approximately $4,800 a month they owe, and Marie, a babysitter, works as many hours as she can.
"In my country it is different. No one can come and take your home away from you," said Marie Chantale, who must pay about $8,000 a month beginning in April, or lose her home to foreclosure. "Here, if they know you don't know what you are doing, they take advantage of you."
Firstly, the idea that Haiti is more ethical than the US is absurd. We're talking about literally the poorest nation in the Western Hemisphere which also has the dubious distinction of being a failed state.
Secondly, we're talking about a baby-sitter and a cab-driver buying a $500,000 house with monthly payments of $8,000.
Let me repeat that for emphasis: a baby-sitter and a cab-driver with $8,000 monthly payments. (That's $96,000 a year for 30 years, or roughly $3 million!)
Here's the "much esteemed" Federal Reserve's Survey of Consumer Finances, (PDF link) where you can figure out for yourself that even a family in the top 5% of incomes cannot possibly make those payments. They would literally be scraping by, and hope to God and cross their hearts that nothing goes wrong.
Ponder that! No fuckups for 30 straight years -- no medical problems, no unexpected expenses, no recessions, no layoffs, absolute perfection for 30 years.
What is easier to believe?
That they had no clue of what they were doing, or they were gaming the system, and after the shit hits the fan, they fuck off back to Haiti?
You can decide that for yourself!
Monday, December 17, 2007
Liquidity v/s Solvency
We seem to be hearing a lot about the "liquidity crisis". However, this is fundamentally a "solvency crisis".
Here's the situation in a nutshell:
Money was loaned in copious quantities on the basis of highly inflated appraisals of questionable collateral. Then the system leveraged the motherfuckin'-crap (to use a technical term) out of an already highly leveraged position. The money was spent and is not coming back.
Please show me how "printing money" can reverse anything.
Let's review the above in terms that we can all understand:
You sell cars. I buy two with counterfeit cash. Your suppliers balk and refuse to replenish your inventory. Meanwhile, I've sold the cars, and blown the money on booze and hookers.
What are you gonna do? Possibly have me arrested but you're still out the cars and the cash.
Now add the above stated leverage, and you will see the problem.
Here's the situation in a nutshell:
Money was loaned in copious quantities on the basis of highly inflated appraisals of questionable collateral. Then the system leveraged the motherfuckin'-crap (to use a technical term) out of an already highly leveraged position. The money was spent and is not coming back.
Please show me how "printing money" can reverse anything.
Let's review the above in terms that we can all understand:
You sell cars. I buy two with counterfeit cash. Your suppliers balk and refuse to replenish your inventory. Meanwhile, I've sold the cars, and blown the money on booze and hookers.
What are you gonna do? Possibly have me arrested but you're still out the cars and the cash.
Now add the above stated leverage, and you will see the problem.
Thursday, December 13, 2007
Have you heard of ...
... Bankhaus Herstatt?
You will, kids, you will. This is like déjà vu, all over again!
You will, kids, you will. This is like déjà vu, all over again!
Monday, December 10, 2007
Swiss Cheese
Once again, the Wall Street Journal reports: UBS Gains Two New Investors, Writes Down $10 Billion.
UBS AG Monday said that two strategic foreign investors committed to inject capital worth 13 billion Swiss francs ($11.5 billion) as part of a broader move to strengthen capital as the Swiss bank announced a further $10 billion in write-downs on subprime holdings.
The bank said it was now possible that it will record a net loss for the full year.
UBS is issuing mandatory convertible notes worth 13 billion francs for these investments, which will pay a coupon of 9%.
Beyond the investments from these two parties, UBS plans to sell treasury shares and replace its 2007 cash dividend with a stock dividend, boosting capital by 6.4 billion francs.
9% while 3-month Treasuries are barely yielding 3%!
That's like going down the pawn-shop to borrow from Fat Tony.
And a stock dividend is less than worthless.
Before the stock dividend, each investor owns a certain fraction of the company. After the dividend, ta-daa, they own the same fraction.
It's like your mom cutting a cake into two pieces, and saying, "Now you have double the cake."
Watch out,suckers er, UBS investors!
UBS AG Monday said that two strategic foreign investors committed to inject capital worth 13 billion Swiss francs ($11.5 billion) as part of a broader move to strengthen capital as the Swiss bank announced a further $10 billion in write-downs on subprime holdings.
The bank said it was now possible that it will record a net loss for the full year.
UBS is issuing mandatory convertible notes worth 13 billion francs for these investments, which will pay a coupon of 9%.
Beyond the investments from these two parties, UBS plans to sell treasury shares and replace its 2007 cash dividend with a stock dividend, boosting capital by 6.4 billion francs.
9% while 3-month Treasuries are barely yielding 3%!
That's like going down the pawn-shop to borrow from Fat Tony.
And a stock dividend is less than worthless.
Before the stock dividend, each investor owns a certain fraction of the company. After the dividend, ta-daa, they own the same fraction.
It's like your mom cutting a cake into two pieces, and saying, "Now you have double the cake."
Watch out,
Saturday, December 08, 2007
Dow (Corning) Deflation
Well, the Wall Street Journal has done it again: Evidence Grows That Consumers Are Pulling Back.
The latest sign that growth in consumer spending, the mainstay of the U.S. economy, is slowing? A nip and tuck in spending on cosmetic surgery.
The slowdown was a hot topic at the meeting of the American Society of Plastic Surgeons in Baltimore this fall. One breast-implant maker sees hints of a slowdown in demand.
Well, looks like Bubbles and Jiggles are going to go down after all (and not that way either, you perverts!)
And who needs AAA-rated bonds when you have double-D's?
Russ Meyer, come back. America needs you!
The latest sign that growth in consumer spending, the mainstay of the U.S. economy, is slowing? A nip and tuck in spending on cosmetic surgery.
The slowdown was a hot topic at the meeting of the American Society of Plastic Surgeons in Baltimore this fall. One breast-implant maker sees hints of a slowdown in demand.
Well, looks like Bubbles and Jiggles are going to go down after all (and not that way either, you perverts!)
And who needs AAA-rated bonds when you have double-D's?
Russ Meyer, come back. America needs you!
Tuesday, December 04, 2007
House Prices and Foreclosures
(Source: Boston Fed.)
This is data just for Massachussetts.
There are two ways to interpret this graph:
The rise in prices predicts foreclosures. It suggests that people bought houses they couldn't really afford on their incomes.
The second is that if you look at prices, they didn't hit the 0% growth mark until after foreclosures had taken off. That suggests that people were buying houses with the implicit assumption of rising prices.
Both, of course, are familiar to people who have been following this mania.
Saturday, December 01, 2007
Beer Bingo
Truly a venerable tradition if ever there was one!The rules are simple.
You have to swill one gulp of beer each time one of the words in the above Alphabet Soup is mentioned in the press. If you don't know what the word means, and you admit it, you have to take three gulps. If challenged to explain, and you fail, you must down what's left in the glass.
Of course, this will mean that you will frequently be liquored up before breakfast but that's probably the only reasonable way to deal with the bollix-ed cock-up clusterfuck that is the US Economy.
Friday, November 30, 2007
Dude, Where's My Goldilocks?
I miss Goldilocks. I really really do. I miss the fact that they no longer talk about her on CNBC.
Where's my Goldilocks Economy?
Did Goldie get sodomized by the three bears? Is she now flashing "six-inch hooker heels, and a `tramp stamp'"? Is there some deep dark shameful secret that nobody wants to talk about?
Where is she?
Bring her back, says I!
Where's my Goldilocks Economy?
Did Goldie get sodomized by the three bears? Is she now flashing "six-inch hooker heels, and a `tramp stamp'"? Is there some deep dark shameful secret that nobody wants to talk about?
Where is she?
Bring her back, says I!
Tuesday, November 27, 2007
Brain Meltdown
From Bloomberg: U.S. Stocks Rebound, Led by Banks; Citigroup, Intel Shares Rise.
Altria Group Inc., the world's largest tobacco maker, increased after Goldman Sachs Group Inc. advised buying shares whose profits aren't tied to the economy.
Huh?!? (insert head-scratching)
Altria Group Inc., the world's largest tobacco maker, increased after Goldman Sachs Group Inc. advised buying shares whose profits aren't tied to the economy.
Huh?!? (insert head-scratching)
Monday, November 26, 2007
The Smell Test
CBS Marketwatch reports: HSBC to provide $35 billion in funding to SIVs.
HSBC Holdings on Monday said it would move two of its structured investment vehicles onto its balance sheet and provide up to $35 billion in funding, saying it doesn't expect a near-term resolution of the funding problems faced by the vehicles that it and other banks operate.
The bank said it is providing up to $35 billion in funding, and its balance sheet will expand by $45 billion.
But the banking giant insists earnings won't be materially impacted, because existing investors will continue to bear all economic risk from actual losses. It added that the move won't impact capital requirements much, either.
"We believe that HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher, the two SIVs managed by HSBC," the bank said in a statement.
Here's my interpretation:
HSBC blinked first. Citibank, Bank of America, and J.P.Morgan are currentily in the process of beshitting themselves.
From Bloomberg: Bank of America Takes Lead in Backing `SuperSIV' Fund.
Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.
``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.''
Bravo!!!
HSBC Holdings on Monday said it would move two of its structured investment vehicles onto its balance sheet and provide up to $35 billion in funding, saying it doesn't expect a near-term resolution of the funding problems faced by the vehicles that it and other banks operate.
The bank said it is providing up to $35 billion in funding, and its balance sheet will expand by $45 billion.
But the banking giant insists earnings won't be materially impacted, because existing investors will continue to bear all economic risk from actual losses. It added that the move won't impact capital requirements much, either.
"We believe that HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher, the two SIVs managed by HSBC," the bank said in a statement.
Here's my interpretation:
HSBC blinked first. Citibank, Bank of America, and J.P.Morgan are currentily in the process of beshitting themselves.
From Bloomberg: Bank of America Takes Lead in Backing `SuperSIV' Fund.
Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.
``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.''
Bravo!!!
Saturday, November 24, 2007
You really stuck it to the Man, man!
From the Richmond Times, we have: Dream in distress.
Scott and Dawn Loving were able to stop the foreclosure on their house -- at least temporarily.
The Lovings got into trouble when the subprime adjustable-rate mortgage on their Chesterfield County home reset after two years.
Their monthly payment jumped from $1,250 to $1,400, resetting six months later at $1,600, then again at $1,650. Their new payment consumed more than half their net income.
They got the subprime loan because their credit was damaged years ago when they went on a debt-management plan to pay off $30,000 in credit-card debt.
They were locked into their original mortgage because it carried a hefty prepayment penalty.
As soon as the penalty phase passed, they looked into refinancing. "At least a dozen lenders turned us down," Scott said.
They found one taker. The payoff on the old loan -- a combo ARM and fixed-rate mortgage -- was $137,000.
They walked away with another ARM. This one was for $161,000, which increased their debt. It included $4,000 in cash. Fees and closing costs totaled $20,000.
"We didn't feel we had any choice," Scott said.
The new payment is $1,623, not much better than the $1,650 payment on the old loan. "But we had a fresh start," he said.
The initial interest rate on the new loan is 9.8 percent, 0.1 percent better than the old loan. It, too, has a prepayment penalty -- 5 percent of the loan amount. It resets next June.
Let's see:
You were bothered because you were paying half your salary on $137K.
Now, you owe $161K.
Some jack-off ran away with $20K that you now have to repay.
You also got $4K "back". You do realize that the $4K was a loan that you have to pay back, dontcha?
The loan resets in 6 months. Guess what's it gonna reset to, and guess what happens to a payment on a larger loan. You should sit down and check whether it will take up more than half your salary or not.
You're a regular Cheese-Whiz, d00d! You should run for Congress.
Scott and Dawn Loving were able to stop the foreclosure on their house -- at least temporarily.
The Lovings got into trouble when the subprime adjustable-rate mortgage on their Chesterfield County home reset after two years.
Their monthly payment jumped from $1,250 to $1,400, resetting six months later at $1,600, then again at $1,650. Their new payment consumed more than half their net income.
They got the subprime loan because their credit was damaged years ago when they went on a debt-management plan to pay off $30,000 in credit-card debt.
They were locked into their original mortgage because it carried a hefty prepayment penalty.
As soon as the penalty phase passed, they looked into refinancing. "At least a dozen lenders turned us down," Scott said.
They found one taker. The payoff on the old loan -- a combo ARM and fixed-rate mortgage -- was $137,000.
They walked away with another ARM. This one was for $161,000, which increased their debt. It included $4,000 in cash. Fees and closing costs totaled $20,000.
"We didn't feel we had any choice," Scott said.
The new payment is $1,623, not much better than the $1,650 payment on the old loan. "But we had a fresh start," he said.
The initial interest rate on the new loan is 9.8 percent, 0.1 percent better than the old loan. It, too, has a prepayment penalty -- 5 percent of the loan amount. It resets next June.
Let's see:
You were bothered because you were paying half your salary on $137K.
Now, you owe $161K.
Some jack-off ran away with $20K that you now have to repay.
You also got $4K "back". You do realize that the $4K was a loan that you have to pay back, dontcha?
The loan resets in 6 months. Guess what's it gonna reset to, and guess what happens to a payment on a larger loan. You should sit down and check whether it will take up more than half your salary or not.
You're a regular Cheese-Whiz, d00d! You should run for Congress.
Wednesday, November 21, 2007
Knock, knock, knocking on Norwegian Wood?
All the way from icy Norway, we have Townships caught up in international credit crisis.
Several small townships in northern Norway went along with a securities firm's advice and invested as much as NOK 4 billion in complicated American commercial paper sold by Citibank. They now risk losing it all.
The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.
Excuse me, you are a bunch of small-town fools.
Like yokels everywhere, you were probably wined and dined by Citibank, and you fell for the bait.
Terra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."
The politicians claim they "asked all the questions we could" about risk levels, not least those tied to currency valuation. The US dollar is also extremely weak at present against the Norwegian kroner, reducing relative values of US holdings.
While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.
Experience keeps a dear school but fools will learn in no other.
Several small townships in northern Norway went along with a securities firm's advice and invested as much as NOK 4 billion in complicated American commercial paper sold by Citibank. They now risk losing it all.
The township politicians are both embarrassed and angry at the financial advisers who they now claim led them astray. "They think we're a bunch of small-town fools," one local mayor told newspaper Dagens Næringsliv.
Excuse me, you are a bunch of small-town fools.
Like yokels everywhere, you were probably wined and dined by Citibank, and you fell for the bait.
Terra officials say they're sorry about the losses, but claim the townships are viewed as "professional players" in the financial markets and must also take responsibility "for the investments they choose to make."
The politicians claim they "asked all the questions we could" about risk levels, not least those tied to currency valuation. The US dollar is also extremely weak at present against the Norwegian kroner, reducing relative values of US holdings.
While the finger-pointing continues, the townships are obligated to put what some fear is good money after bad. Norwegian townships that are suddenly relatively wealthy on energy revenues are also learning to be more cautious, as they face constant, complicated investment offers from foreign institutions.
Experience keeps a dear school but fools will learn in no other.
Jawboning
From the esteemed Wall Street Journal, we have: Paulson Shifts on Mortgages.
U.S. Treasury Secretary Henry Paulson, concerned that millions of homeowners aren't being helped quickly enough, is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case-by-case basis.
In an interview, Mr. Paulson said the number of potential home-loan defaults "will be significantly bigger" in 2008 than in 2007. He said he is "aggressively encouraging" the mortgage-service industry -- which collects loan payments from borrowers -- to develop criteria that would enable large groups of borrowers who might default on their payments to qualify for loans with better terms.
Let us first take a detour:
We first had this from CNN on April 20th.
"All the signs I look at" show "the housing market is at or near the bottom," Paulson said. The U.S. economy is "very healthy" and "robust," he said.
Then, we had this on July 2nd.
"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters in an interview.
Mr. Paulson, you seem to be coming around to Planet Reality(TM). You know the one that Warren Buffett lives on?
Also, "aggressively encouraging" is not a plan. Agreed?
Flapping your gums doesn't seem to be having much of an effect as you may have noticed. Of course, you and I both know that that was never the plan but perception matters particularly at the level at which you are operating. Agreed?
You may want to consult this graph again. Time's kinda running out.
There's just one teensy-weensy niggling little problem with the "broad swaths" solution. The vast majority people wouldn't be able to pay back the principal even if you gave them loans at 0% interest. So I would advise a Plan B.
And if they hand back the house, then their paying neighbors might also refuse to pay inordinate sums, and may also hand back the house. In that case, I would advise a Plan C as well.
Incidentally, how's that Super-SIV plan of yours working out?
U.S. Treasury Secretary Henry Paulson, concerned that millions of homeowners aren't being helped quickly enough, is pressing the mortgage-service industry to help broad swaths of borrowers qualify for better loans instead of dealing with mortgage problems on a case-by-case basis.
In an interview, Mr. Paulson said the number of potential home-loan defaults "will be significantly bigger" in 2008 than in 2007. He said he is "aggressively encouraging" the mortgage-service industry -- which collects loan payments from borrowers -- to develop criteria that would enable large groups of borrowers who might default on their payments to qualify for loans with better terms.
Let us first take a detour:
We first had this from CNN on April 20th.
"All the signs I look at" show "the housing market is at or near the bottom," Paulson said. The U.S. economy is "very healthy" and "robust," he said.
Then, we had this on July 2nd.
"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters in an interview.
Mr. Paulson, you seem to be coming around to Planet Reality(TM). You know the one that Warren Buffett lives on?
Also, "aggressively encouraging" is not a plan. Agreed?
Flapping your gums doesn't seem to be having much of an effect as you may have noticed. Of course, you and I both know that that was never the plan but perception matters particularly at the level at which you are operating. Agreed?
You may want to consult this graph again. Time's kinda running out.
There's just one teensy-weensy niggling little problem with the "broad swaths" solution. The vast majority people wouldn't be able to pay back the principal even if you gave them loans at 0% interest. So I would advise a Plan B.
And if they hand back the house, then their paying neighbors might also refuse to pay inordinate sums, and may also hand back the house. In that case, I would advise a Plan C as well.
Incidentally, how's that Super-SIV plan of yours working out?
Tuesday, November 20, 2007
2 Good 2 B 4got10
From Newsday, we have: Loan was too good to be true.
Robin and William Fitzgerald always wanted to buy a home, but with no savings, mediocre credit and jobs as a legal secretary and truck driver, they thought it was beyond their reach.
Then, in 2005, the Fitzgeralds believed their luck had turned.
Through a friend, they met Aaron Wider, a Garden City mortgage banker who also owned several homes in the Massapequa area. They settled on a two-family high ranch in North Massapequa at a sales price of $805,000.
Because Wider also was a mortgage banker, he said he could approve a loan that other banks wouldn't, the Fitzgeralds recalled. "It was like he was giving us an opportunity for us to fulfill our dream," Robin Fitzgerald said.
After a year of struggling with mortgage payments that -- minus rent from tenants -- were $3,400 a month, the Fitzgeralds fell behind. Last March, Pennsylvania-based GMAC Bank, which had bought their loans from Wider's bank, began foreclosure proceedings.
Only then, after hiring their own appraiser, did the Fitzgeralds learn that their home was valued at $545,000 when they bought it.
No savings, mediocre credit, barely job-worthy, didn't do any homework, borrowed $800K to buy a house which may or may not have been "worth" $545K.
What a bunch of fuckin' ding-dongs!
George Cornielle was living in Elmhurst with his wife and grown daughter in 2005, when a friend who did construction work for Wider asked Cornielle if he was interested in buying a home.
"I wasn't even thinking about a house," Cornielle said. "I said 'I don't think I qualify.' " But the friend assured Cornielle that Wider could arrange a loan and soon Cornielle was in contract to buy a high ranch in East Massapequa for $812,500.
Cornielle, who is a $52,000-a-year catering supervisor at Kennedy Airport, said he paid a down payment of $17,000 and didn't ask questions when lawyers placed dozens of documents before him to sign. Cornielle said he used a lawyer Wider provided him; Wider did not comment on Cornielle's case.
Cornielle said he did not notice that personal information in his loan application was incorrect. The papers say he has two children, ages 13 and 14, and that he earns $14,500 a month -- more than triple what he said he actually makes.
Although Cornielle is not in foreclosure, he said he is one month behind on his mortgage payments and has borrowed up to $60,000 from family and friends in order to avoid defaulting.
Cornielle eventually obtained copies of the appraisals, which showed the house was worth $830,000 and $825,000 in 2005. Cornielle paid for a new appraisal in July, which showed the house was valued last summer at $484,000.
Wider said he considers the Fitzgeralds personal friends. Robin Fitzgerald tells a different story.
"I said Aaron, 'You're like a walking angel.' That's how I felt about him," Fitzgerald said. "We felt like he was the answer to our prayers."
Now, she said, she often cries herself to sleep.
Didn't notice the phantom income; didn't notice two fake young children; didn't notice the fake appraisal of $825K from $484K; borrowed more than 15X his income to buy a house which was "worth" slightly more than half that; currently continuing to borrow $60K from family which will obviously never get paid back.
Now his wife cries herself to sleep.
Lady, you're gonna learn a lesson as old as time : debt never sleeps!
Is this a great fuckin' country or what?
Robin and William Fitzgerald always wanted to buy a home, but with no savings, mediocre credit and jobs as a legal secretary and truck driver, they thought it was beyond their reach.
Then, in 2005, the Fitzgeralds believed their luck had turned.
Through a friend, they met Aaron Wider, a Garden City mortgage banker who also owned several homes in the Massapequa area. They settled on a two-family high ranch in North Massapequa at a sales price of $805,000.
Because Wider also was a mortgage banker, he said he could approve a loan that other banks wouldn't, the Fitzgeralds recalled. "It was like he was giving us an opportunity for us to fulfill our dream," Robin Fitzgerald said.
After a year of struggling with mortgage payments that -- minus rent from tenants -- were $3,400 a month, the Fitzgeralds fell behind. Last March, Pennsylvania-based GMAC Bank, which had bought their loans from Wider's bank, began foreclosure proceedings.
Only then, after hiring their own appraiser, did the Fitzgeralds learn that their home was valued at $545,000 when they bought it.
No savings, mediocre credit, barely job-worthy, didn't do any homework, borrowed $800K to buy a house which may or may not have been "worth" $545K.
What a bunch of fuckin' ding-dongs!
George Cornielle was living in Elmhurst with his wife and grown daughter in 2005, when a friend who did construction work for Wider asked Cornielle if he was interested in buying a home.
"I wasn't even thinking about a house," Cornielle said. "I said 'I don't think I qualify.' " But the friend assured Cornielle that Wider could arrange a loan and soon Cornielle was in contract to buy a high ranch in East Massapequa for $812,500.
Cornielle, who is a $52,000-a-year catering supervisor at Kennedy Airport, said he paid a down payment of $17,000 and didn't ask questions when lawyers placed dozens of documents before him to sign. Cornielle said he used a lawyer Wider provided him; Wider did not comment on Cornielle's case.
Cornielle said he did not notice that personal information in his loan application was incorrect. The papers say he has two children, ages 13 and 14, and that he earns $14,500 a month -- more than triple what he said he actually makes.
Although Cornielle is not in foreclosure, he said he is one month behind on his mortgage payments and has borrowed up to $60,000 from family and friends in order to avoid defaulting.
Cornielle eventually obtained copies of the appraisals, which showed the house was worth $830,000 and $825,000 in 2005. Cornielle paid for a new appraisal in July, which showed the house was valued last summer at $484,000.
Wider said he considers the Fitzgeralds personal friends. Robin Fitzgerald tells a different story.
"I said Aaron, 'You're like a walking angel.' That's how I felt about him," Fitzgerald said. "We felt like he was the answer to our prayers."
Now, she said, she often cries herself to sleep.
Didn't notice the phantom income; didn't notice two fake young children; didn't notice the fake appraisal of $825K from $484K; borrowed more than 15X his income to buy a house which was "worth" slightly more than half that; currently continuing to borrow $60K from family which will obviously never get paid back.
Now his wife cries herself to sleep.
Lady, you're gonna learn a lesson as old as time : debt never sleeps!
Is this a great fuckin' country or what?
Thursday, November 15, 2007
The Gentleman's Index
The Herengracht (Gentleman's Canal) is one of the most desirable places in Amsterdam, and thanks to the finicky particular capitalists that the Dutch traditionally were, we have an uninterrupted view of house prices for more than 350 years.
Here's what it looks like (the graph is adjusted for inflation.) Even if you don't speak Dutch you should be able to guess easily.
Here's what it looks like (the graph is adjusted for inflation.) Even if you don't speak Dutch you should be able to guess easily.
How to cope if you're a senior?
From the Wall Street Journal.
Does anyone still believe that buying a house is a good idea towards retirement?
Wednesday, November 14, 2007
Cleaving Cleveland
From the BBC: Foreclosure wave sweeps America.
Of course, the BBC is spinning the story as, "Look at those stupid people across the Pond" while ignoring the fact that Britain's situation is an order of magnitude worse.
Now, CNN seems to have picked up that story: Where Cleveland went wrong.
What made Cleveland the nation's foreclosure epicenter?
Like most rust-belt cities, it's suffered serious economic setbacks. The city lost jobs at more than three times the national rate during 2001 through 2003 and has not had a meaningful recovery since, according to Richard DeKaser, chief economist at Cleveland-based mortgage lender National City Corp. The state of Ohio recorded a quarter of all U.S. manufacturing job losses since 2001.
Add considerable population shrinkage: With 450,000 people, Cleveland has fewer than half the residents it boasted in 1950, when only six cities in the nation were larger.
As the Treasurer of Cuyahoga County in Ohio, Jim Rokakis spends a lot of his time trying to deal with Cleveland's foreclosure crisis.
According to Rokakis, Cleveland got hammered because lax governmental oversight from the state allowed Wild-West lending. "No one was watching," he said. "There was no sheriff in town. The state legislature was dominated by banking interests."
Cleveland tried to enact local anti-predatory lending ordinances in 2002, but national lenders then abandoned the market, according to Mark Wiseman, who heads the Cuyahoga County Foreclosure Prevention Program, which is part of the county treasurer's office.
One bank representative, speaking under condition of anonymity, said the ordinances would have put local lending criteria well above and beyond the national standards. The lenders wanted no part of that.
For Rokakis, this long-term lack of accountability enabled lenders to continue to make bad loans virtually unchecked. These included many subprime, hybrid ARMs, also called "toxic ARMs," products he considers predatory.
But even the staunchly pro-consumer Rokakis admitted that predatory lending victims are not entirely blameless for their own problems.
With times hard, "People were looking for a way to make a living," he said. "There were all these 'Buy real estate with no credit and no down payment deals.' The way to wealth was real estate."
Rokakis told of a 78-year-old Cleveland woman recently saddled with an unaffordable, 30-year ARM arranged by her minister, a mortgage broker. "I asked him why," said Rokakis, "you would give an elderly woman an ARM. He said, 'She wanted the house.'"
Roakakis shook his head. "I want a date with Uma Thurman," he said, "but you have to be realistic."
Of course, the BBC is spinning the story as, "Look at those stupid people across the Pond" while ignoring the fact that Britain's situation is an order of magnitude worse.
Now, CNN seems to have picked up that story: Where Cleveland went wrong.
What made Cleveland the nation's foreclosure epicenter?
Like most rust-belt cities, it's suffered serious economic setbacks. The city lost jobs at more than three times the national rate during 2001 through 2003 and has not had a meaningful recovery since, according to Richard DeKaser, chief economist at Cleveland-based mortgage lender National City Corp. The state of Ohio recorded a quarter of all U.S. manufacturing job losses since 2001.
Add considerable population shrinkage: With 450,000 people, Cleveland has fewer than half the residents it boasted in 1950, when only six cities in the nation were larger.
As the Treasurer of Cuyahoga County in Ohio, Jim Rokakis spends a lot of his time trying to deal with Cleveland's foreclosure crisis.
According to Rokakis, Cleveland got hammered because lax governmental oversight from the state allowed Wild-West lending. "No one was watching," he said. "There was no sheriff in town. The state legislature was dominated by banking interests."
Cleveland tried to enact local anti-predatory lending ordinances in 2002, but national lenders then abandoned the market, according to Mark Wiseman, who heads the Cuyahoga County Foreclosure Prevention Program, which is part of the county treasurer's office.
One bank representative, speaking under condition of anonymity, said the ordinances would have put local lending criteria well above and beyond the national standards. The lenders wanted no part of that.
For Rokakis, this long-term lack of accountability enabled lenders to continue to make bad loans virtually unchecked. These included many subprime, hybrid ARMs, also called "toxic ARMs," products he considers predatory.
But even the staunchly pro-consumer Rokakis admitted that predatory lending victims are not entirely blameless for their own problems.
With times hard, "People were looking for a way to make a living," he said. "There were all these 'Buy real estate with no credit and no down payment deals.' The way to wealth was real estate."
Rokakis told of a 78-year-old Cleveland woman recently saddled with an unaffordable, 30-year ARM arranged by her minister, a mortgage broker. "I asked him why," said Rokakis, "you would give an elderly woman an ARM. He said, 'She wanted the house.'"
Roakakis shook his head. "I want a date with Uma Thurman," he said, "but you have to be realistic."
Giambattista Vico and the Cyclicity of History
From a Florida ad.
From within your architecturally distinctive residence or upon its gracious terrace, you feel the caress of a bay breeze as you gaze across the urban landscape and emerald waters. And yet, you remain one cool remove from the sea and city sites at your feet. Privacy and luxury envelop you. Rooftop gardens and terraces create an enchanting oasis in the heart of the city.
Here's a similar ad.
Where you sit and watch at twilight the fronds of the graceful palm, latticed against the fading gold of the sun-kissed sky–
Where sun, moon and stars, at eventide, stage a welcome constituting the glorious galaxy of the firmament–Where the whispering breeze springs fresh from the lap of Caribbean and woos with elusive cadence like unto a mother’s lullaby–Where the silver cycle is heaven’s lavalier, and the full orbit its glorious pendant.
Except the second ad is from 1925 right before the Great Florida Bust of 1926. Prices didn't recover in nominal terms until 1986.
Plus ça change, plus ...
From within your architecturally distinctive residence or upon its gracious terrace, you feel the caress of a bay breeze as you gaze across the urban landscape and emerald waters. And yet, you remain one cool remove from the sea and city sites at your feet. Privacy and luxury envelop you. Rooftop gardens and terraces create an enchanting oasis in the heart of the city.
Here's a similar ad.
Where you sit and watch at twilight the fronds of the graceful palm, latticed against the fading gold of the sun-kissed sky–
Where sun, moon and stars, at eventide, stage a welcome constituting the glorious galaxy of the firmament–Where the whispering breeze springs fresh from the lap of Caribbean and woos with elusive cadence like unto a mother’s lullaby–Where the silver cycle is heaven’s lavalier, and the full orbit its glorious pendant.
Except the second ad is from 1925 right before the Great Florida Bust of 1926. Prices didn't recover in nominal terms until 1986.
Plus ça change, plus ...
Banker-ese
From Bloomberg: JPMorgan Says SIVs Will `Go the Way of the Dinosaur'.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said structured investment vehicles, whose assets have dwindled by at least $75 billion since July, will ``go the way of the dinosaur.''
``SIVs don't have a business purpose,'' Dimon told a conference hosted by Merrill Lynch & Co. in New York today.
Sure they do.
They're a mechanism for evading capital requirements hence allowing much larger leverage than is legal.
And what's so radical about SIV's anyway? All they do is borrow short, and lend long taken to an absurd extreme. That's like Banking 101 -- the stuff they teach undergraduates on the first day of class.
What are you, retarded?
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said structured investment vehicles, whose assets have dwindled by at least $75 billion since July, will ``go the way of the dinosaur.''
``SIVs don't have a business purpose,'' Dimon told a conference hosted by Merrill Lynch & Co. in New York today.
Sure they do.
They're a mechanism for evading capital requirements hence allowing much larger leverage than is legal.
And what's so radical about SIV's anyway? All they do is borrow short, and lend long taken to an absurd extreme. That's like Banking 101 -- the stuff they teach undergraduates on the first day of class.
What are you, retarded?
Monday, November 12, 2007
Is Switzerland really Turkmenistan?
From the LA Times: S & P slashes State Street CDO rating.
The ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA class was slashed 18 steps to CCC-minus. The chance of material losses to note holders is high, New York-based S&P said.
Eighteen notches, count 'em, eighteen.
It's as if you thought you were loaning money to the Swiss, and instead found that you'd bought bonds from Uruguay or Turkmenistan!
Hurray for the lawyers!
The ratings on the most senior class of Carina CDO Ltd. were lowered to BB, two levels below investment grade, from AAA, while another AAA class was slashed 18 steps to CCC-minus. The chance of material losses to note holders is high, New York-based S&P said.
Eighteen notches, count 'em, eighteen.
It's as if you thought you were loaning money to the Swiss, and instead found that you'd bought bonds from Uruguay or Turkmenistan!
Hurray for the lawyers!
Saturday, November 10, 2007
New York is "Special"
From the New York Sun: Condo Fee Defaults Surge in Manhattan.
A precipitous rise in the number of condominium owners who are defaulting on their common payments, an important indicator of future foreclosures, is being reported.
Much has been said about Manhattan's perceived real estate invincibility in the aftermath of the subprime meltdown, but lawyers representing dozens of condominium boards in some of the city's wealthiest neighborhoods say they are seeing these default cases increase as much as 25% this year.
Let's review the situation one more time.
While the desire to live in Manhattan/San Francisco/Paris/Rome is infinite, the means to do so are decidedly not.
Are we clear on this concept?
And just for those who think everyone in Manhattan is "rich", the median income is $50K. Just Manhattan, not the five boroughs; just the frakkin' island; and that's familial income, not individual income.
There seems to be one more argument made. The Europeans/Arabs/Chinese will buy the property now that the dollar is sinking.
It doesn't matter.
What matters is whether or not the local incomes support the rent. If they don't, it doesn't matter what you paid for the condo. You won't be able to rent it out for anywhere near the carrying costs, and if you can't rent it out for the carrying costs, you overpaid. The END.
This actually brings us to an old joke of how "economists know the price of everything but the value of nothing".
This is an argument about valuation not price, and the valuation depends on rent, and rents depend on local incomes. The price may appear cheap denominated in euros/dinar/remnimbi but the value, alas, is quite decidedly not.
Then there's the "they'll just raise the rent" or the "rents just go up" argument.
The landlords can "demand" any rent they like but the question is how are they going to get it if the local economy doesn't support it? It's like the scene in Austin Powers where she states her name as "Ivana Hump-a-lot", and he replies, "and I wanna toilet made out of solid gold, babeee, but it's just not in the cards, now is it?"
Are we really clear about this concept as well?
At this point in time, usually, there is a final fallback argument. It's a hedge against inflation. Fine, but why would you buy a depreciating asset as a hedge? Just buy gold/oil/non-agricultural commodities if you're so worried.
Why is this absurdly simple argument so hard for people to understand?
A precipitous rise in the number of condominium owners who are defaulting on their common payments, an important indicator of future foreclosures, is being reported.
Much has been said about Manhattan's perceived real estate invincibility in the aftermath of the subprime meltdown, but lawyers representing dozens of condominium boards in some of the city's wealthiest neighborhoods say they are seeing these default cases increase as much as 25% this year.
Let's review the situation one more time.
While the desire to live in Manhattan/San Francisco/Paris/Rome is infinite, the means to do so are decidedly not.
Are we clear on this concept?
And just for those who think everyone in Manhattan is "rich", the median income is $50K. Just Manhattan, not the five boroughs; just the frakkin' island; and that's familial income, not individual income.
There seems to be one more argument made. The Europeans/Arabs/Chinese will buy the property now that the dollar is sinking.
It doesn't matter.
What matters is whether or not the local incomes support the rent. If they don't, it doesn't matter what you paid for the condo. You won't be able to rent it out for anywhere near the carrying costs, and if you can't rent it out for the carrying costs, you overpaid. The END.
This actually brings us to an old joke of how "economists know the price of everything but the value of nothing".
This is an argument about valuation not price, and the valuation depends on rent, and rents depend on local incomes. The price may appear cheap denominated in euros/dinar/remnimbi but the value, alas, is quite decidedly not.
Then there's the "they'll just raise the rent" or the "rents just go up" argument.
The landlords can "demand" any rent they like but the question is how are they going to get it if the local economy doesn't support it? It's like the scene in Austin Powers where she states her name as "Ivana Hump-a-lot", and he replies, "and I wanna toilet made out of solid gold, babeee, but it's just not in the cards, now is it?"
Are we really clear about this concept as well?
At this point in time, usually, there is a final fallback argument. It's a hedge against inflation. Fine, but why would you buy a depreciating asset as a hedge? Just buy gold/oil/non-agricultural commodities if you're so worried.
Why is this absurdly simple argument so hard for people to understand?
Thursday, November 01, 2007
Rolling a Fatty!
From the Wall Street Journal: Bear CEO's Handling
Of Crisis Raises Issues.
A crisis at Bear Stearns Cos. this summer came to a head in July. Two Bear hedge funds were hemorrhaging value. Investors were clamoring to get their money back. Lenders to the funds were demanding more collateral. Eventually, both funds collapsed.
During 10 critical days of this crisis -- one of the worst in the securities firm's 84-year history -- Bear's chief executive wasn't near his Wall Street office. James Cayne was playing in a bridge tournament in Nashville, Tenn., without a cellphone or an email device.
Eh? This is not really a problem. That's what deputies are for. Would they have made the same fuss if he was having his appendix out?
After a day of bridge at a Doubletree hotel in Memphis, in 2004, Mr. Cayne invited a fellow player and a woman to smoke pot with him, according to someone who was there, and led the two to a lobby men's room where he intended to light up. The other player declined, says the person who was there, but the woman followed Mr. Cayne inside and shared a joint, to the amusement of a passerby.
Oooh! When times are troubling, you gotta "unwind" somehow.
Most of Wall St. does alcohol. Jimmy Cayne prefers Humboldt County's finest!
"Asked more generally whether he smoked pot during bridge tournaments or on other occasions, Mr. Cayne said he would respond only "to a specific allegation," not to general questions.
Now that's being "blunt" about it!
Of Crisis Raises Issues.
A crisis at Bear Stearns Cos. this summer came to a head in July. Two Bear hedge funds were hemorrhaging value. Investors were clamoring to get their money back. Lenders to the funds were demanding more collateral. Eventually, both funds collapsed.
During 10 critical days of this crisis -- one of the worst in the securities firm's 84-year history -- Bear's chief executive wasn't near his Wall Street office. James Cayne was playing in a bridge tournament in Nashville, Tenn., without a cellphone or an email device.
Eh? This is not really a problem. That's what deputies are for. Would they have made the same fuss if he was having his appendix out?
After a day of bridge at a Doubletree hotel in Memphis, in 2004, Mr. Cayne invited a fellow player and a woman to smoke pot with him, according to someone who was there, and led the two to a lobby men's room where he intended to light up. The other player declined, says the person who was there, but the woman followed Mr. Cayne inside and shared a joint, to the amusement of a passerby.
Oooh! When times are troubling, you gotta "unwind" somehow.
Most of Wall St. does alcohol. Jimmy Cayne prefers Humboldt County's finest!
"Asked more generally whether he smoked pot during bridge tournaments or on other occasions, Mr. Cayne said he would respond only "to a specific allegation," not to general questions.
Now that's being "blunt" about it!
Monday, October 29, 2007
The Human Toll
From the Houston Chronicle: Lengthy standoff ends in Spring with man's suicide.
A 12-hour standoff ended this morning with a north Houston man lobbing Molotov cocktails at Houston Police before taking his own life rather than vacate a home he'd lost to foreclosure.
James Hahn, a chemist, had told police he would not be taken from the home alive, said Capt. Bruce Williams, an HPD spokesman.
A 12-hour standoff ended this morning with a north Houston man lobbing Molotov cocktails at Houston Police before taking his own life rather than vacate a home he'd lost to foreclosure.
James Hahn, a chemist, had told police he would not be taken from the home alive, said Capt. Bruce Williams, an HPD spokesman.
Friday, October 26, 2007
Jingle Mail
(Source: DataQuick.)
Note: This is true "jingle mail" (keys dropped off; no hope of working out a solution.)
These numbers are shocking even to me!
Fear Factor
$5,000 a month would pay for a fuckload of hookers and tequila, and it's a hell of a lot more fun than a "house".
Hookers and tequila for everyone, says I!
Modern Fairy Tale
From the Financial Times: Buffett cautious on $75bn 'Superfund'.
Warren Buffett said on Thursday, “One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it."
Oh. Mr. Buffett! I could just kiss you for that delightful metaphor.
Warren Buffett said on Thursday, “One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it."
Oh. Mr. Buffett! I could just kiss you for that delightful metaphor.
Thursday, October 25, 2007
The Non-Subprime Situation
You know, all that "good stuff" that wasn't supposed to be a problem. Well, that's not what the data says.
Asinine Administration
From CBS Marketwatch, we have Merrill Lynch write-down 'positive:' White House economist.
The announcement by Merrill Lynch that it is taking a $8 billion write-down of mortgage assets is a "positive sign," said Edward Lazear, the White House chief economist on Wednesday. "I actually view the announcement by companies like Merrill Lynch as positive signs because you want this stuff to be recognized," Lazear said in an interview on CNBC. Lazear said the announcement might speed the return of normalcy to credit markets.
Well, it "might" do anything. It might make the administration do a turnaround in the Iraq war too but I wouldn't hold my breath.
Just let's write out that loss again just in case we were unclear on the concept:
-8,000,000,000
Losses for everyone, says I!
The announcement by Merrill Lynch that it is taking a $8 billion write-down of mortgage assets is a "positive sign," said Edward Lazear, the White House chief economist on Wednesday. "I actually view the announcement by companies like Merrill Lynch as positive signs because you want this stuff to be recognized," Lazear said in an interview on CNBC. Lazear said the announcement might speed the return of normalcy to credit markets.
Well, it "might" do anything. It might make the administration do a turnaround in the Iraq war too but I wouldn't hold my breath.
Just let's write out that loss again just in case we were unclear on the concept:
Losses for everyone, says I!
Wednesday, October 24, 2007
The Oldest Fallacy in Economics
From CBS Marketwatch, we have Could Calif. fires draw a line under housing crash?
Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses.
For once, I have no interest in the bubble but I wish to address the above fallacy, namely, that disasters help the economy.
Disasters do NOT help the economy!
Why?
If it were true, then we should logically go around creating disasters so that it would help the economy.
Put like that, it sounds absurd, doesn't it? That's because it is absurd.
Why?
It ignores the hidden in favor of what can be observed.
After this disaster, tragic as it is, the insurance companies will fork out to rebuild the houses. That means that cash is not doing something else productive somewhere else (this would be the unobservable part.)
Instead of the economy getting both the house and the investment, it only gets a replacement house.
Let's review this again just to be clear.
Suppose I throw a party, and in the course of the party, my guests break two wine glasses. Now, the next week I need to go out and buy two wine glasses from my budget which was originally allocated to say buying a book.
Instead of two wine glasses and a book, I have ended up with just two wine glasses. Obviously, I have lost.
Of course, the wine merchant is happy but the (unobservable) book merchant is unhappy.
This is the oldest fallacy in Economics, and the above explanation dates back to Frédéric Bastiat. It is so common that investment managers, politicians, and CEO's make it daily.
However, I've never seen Buffett make this mistake.
Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses.
For once, I have no interest in the bubble but I wish to address the above fallacy, namely, that disasters help the economy.
Disasters do NOT help the economy!
Why?
If it were true, then we should logically go around creating disasters so that it would help the economy.
Put like that, it sounds absurd, doesn't it? That's because it is absurd.
Why?
It ignores the hidden in favor of what can be observed.
After this disaster, tragic as it is, the insurance companies will fork out to rebuild the houses. That means that cash is not doing something else productive somewhere else (this would be the unobservable part.)
Instead of the economy getting both the house and the investment, it only gets a replacement house.
Let's review this again just to be clear.
Suppose I throw a party, and in the course of the party, my guests break two wine glasses. Now, the next week I need to go out and buy two wine glasses from my budget which was originally allocated to say buying a book.
Instead of two wine glasses and a book, I have ended up with just two wine glasses. Obviously, I have lost.
Of course, the wine merchant is happy but the (unobservable) book merchant is unhappy.
This is the oldest fallacy in Economics, and the above explanation dates back to Frédéric Bastiat. It is so common that investment managers, politicians, and CEO's make it daily.
However, I've never seen Buffett make this mistake.
Tuesday, October 23, 2007
Twirlissimo Inc. goes global!
We first talked about the Twirlissimo Phenomenon here.
The China Post reports: China bid to tame economy starts real estate market bust.
Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.
Surrounding the agents in this upscale neighborhood are vast swaths of empty apartments that just a few months ago were selling at record high prices.
Looks like Twirlissimo is being outsourced to China!
The China Post reports: China bid to tame economy starts real estate market bust.
Sweating in the bright afternoon sun, the men and women stand on the sides of the roads like homeless people clutching wrinkled cardboard signs. Waving the boards, the real estate agents call out to cars zooming by.
Surrounding the agents in this upscale neighborhood are vast swaths of empty apartments that just a few months ago were selling at record high prices.
Looks like Twirlissimo is being outsourced to China!
Bovine Excrement
From the AP, we have Target cuts October same-store sales view.
Target Corp (NYSE:TGT - News) cut its outlook for October sales at stores open at least a year on Monday, the second month in a row the discount retailer has lowered its same-store sales forecast, as investors begin to focus on how the holiday sales season will measure up.
Target now expects same-store sales to rise between 2 percent to 4 percent, down from a forecast earlier this month of an increase of between 3 percent and 5 percent.
In a recorded message, the retailer said its reduced forecast was partly based on "greater-than-normal daily volatility and continued disappointing sales results for the first two weeks of October."
"greater-than-normal volatility"?
What the fuck does that mean? Stocks can be more volatile, bonds can be more volatile, hell, my temper is almost always volatile. But what does it mean for store sales to be more volatile?
Either you make sales or you don't. Seems to me they want to say sales are fewer and far between. That's not volatility. That's just fewer sales except they don't want to outright say it.
Moo!
Target Corp (NYSE:TGT - News) cut its outlook for October sales at stores open at least a year on Monday, the second month in a row the discount retailer has lowered its same-store sales forecast, as investors begin to focus on how the holiday sales season will measure up.
Target now expects same-store sales to rise between 2 percent to 4 percent, down from a forecast earlier this month of an increase of between 3 percent and 5 percent.
In a recorded message, the retailer said its reduced forecast was partly based on "greater-than-normal daily volatility and continued disappointing sales results for the first two weeks of October."
"greater-than-normal volatility"?
What the fuck does that mean? Stocks can be more volatile, bonds can be more volatile, hell, my temper is almost always volatile. But what does it mean for store sales to be more volatile?
Either you make sales or you don't. Seems to me they want to say sales are fewer and far between. That's not volatility. That's just fewer sales except they don't want to outright say it.
Moo!
Sunday, October 21, 2007
Mmmmm.... donuts!
From the Palm Beach Post, we have Who's to Blame?
Michael Sichenzia has a problem. The former mortgage whiz who spent time in New York state's prison for mortgage fraud knows that bad home loans claimed some victims and fattened bank accounts for others.
But telling them apart isn't easy. "The thing we have the most difficulty doing nowadays is figuring out who has legitimately been taken advantage of, as opposed to who went into the transaction with their eyes open," says Mr. Sichenzia, now lead investigator for the Deerfield Beach law firm of Glinn Somera & Silva, which handles foreclosure cases.
Not every borrower, though, was seeking shelter. And not everyone was duped into an onerous deal.
"I had a guy who called me who owns 70 homes," says Stuart broker Michael Morgan. "I know a lady who owns 16. It's the room of 1,000 doughnuts. How many can you eat? Two? Three? Well, how many houses can you live in?"
Mmmmm ... glazed houses, double-glazed houses, houses with sprinkles, chocolate-covered houses!
Michael Sichenzia has a problem. The former mortgage whiz who spent time in New York state's prison for mortgage fraud knows that bad home loans claimed some victims and fattened bank accounts for others.
But telling them apart isn't easy. "The thing we have the most difficulty doing nowadays is figuring out who has legitimately been taken advantage of, as opposed to who went into the transaction with their eyes open," says Mr. Sichenzia, now lead investigator for the Deerfield Beach law firm of Glinn Somera & Silva, which handles foreclosure cases.
Not every borrower, though, was seeking shelter. And not everyone was duped into an onerous deal.
"I had a guy who called me who owns 70 homes," says Stuart broker Michael Morgan. "I know a lady who owns 16. It's the room of 1,000 doughnuts. How many can you eat? Two? Three? Well, how many houses can you live in?"
Mmmmm ... glazed houses, double-glazed houses, houses with sprinkles, chocolate-covered houses!
Friday, October 19, 2007
The Unanswerable Question
From the Wall Street Journal, we have Burned by Real Estate, Some Just Walk Away.
During the height of Las Vegas's real-estate boom two years ago, property investor Rob Rozzen bought 16 homes, hoping that skyrocketing prices would pump up his retirement nest egg.
Now, Mr. Rozzen says he is considering filing for bankruptcy protection. As the housing market slowed, the 40-year-old was unable to sell the homes, and his full-time job as a real-estate agent was no longer able to support mortgage payments totaling $45,000 a month. So one by one, over the past 14 months, Mr. Rozzen has stopped making payments on his investment properties, for which he paid between $226,000 and $390,000, and lenders have foreclosed.
As a result, Mr. Rozzen's credit score plunged from 730 to the high 400s, he says.
The Prada clothes, luxurious vacations, and full-time housekeeper and pool cleaner he once enjoyed are things of the past. Still, he says, walking away from his investment properties was his only option. "You get to a point where your hands are tied," he says.
But walking away from a mortgage is almost always a bad idea.
What about walking away from 16 mortgages, all underwater?
Is that a bad idea?
Answer that, bee-yatch!
During the height of Las Vegas's real-estate boom two years ago, property investor Rob Rozzen bought 16 homes, hoping that skyrocketing prices would pump up his retirement nest egg.
Now, Mr. Rozzen says he is considering filing for bankruptcy protection. As the housing market slowed, the 40-year-old was unable to sell the homes, and his full-time job as a real-estate agent was no longer able to support mortgage payments totaling $45,000 a month. So one by one, over the past 14 months, Mr. Rozzen has stopped making payments on his investment properties, for which he paid between $226,000 and $390,000, and lenders have foreclosed.
As a result, Mr. Rozzen's credit score plunged from 730 to the high 400s, he says.
The Prada clothes, luxurious vacations, and full-time housekeeper and pool cleaner he once enjoyed are things of the past. Still, he says, walking away from his investment properties was his only option. "You get to a point where your hands are tied," he says.
But walking away from a mortgage is almost always a bad idea.
What about walking away from 16 mortgages, all underwater?
Is that a bad idea?
Answer that, bee-yatch!
Friday, October 12, 2007
When The Saints Come Marching In
From AZCentral.com: Some homes hold steady while Valley housing overall slows down.
Kathy and Dennis Rowedder are trying to sell their north Phoenix home in the 85050 ZIP code. The couple recently closed on a new house in Peoria and got a $30,000 concession on it because they haven't yet sold their existing home.
So far, the couple have lowered their price $40,000 to $360,000.
"I thought when we listed it at the beginning of August it was priced really well. I buried a statue of St. Joseph in our front yard for luck," Kathy Rowedder said. "But after we lowered our price, I went out and dug it up, cleaned it off and brought it back in the house."
St. Joe may have left the courtyard, but what would baby Jebus do?
Kathy and Dennis Rowedder are trying to sell their north Phoenix home in the 85050 ZIP code. The couple recently closed on a new house in Peoria and got a $30,000 concession on it because they haven't yet sold their existing home.
So far, the couple have lowered their price $40,000 to $360,000.
"I thought when we listed it at the beginning of August it was priced really well. I buried a statue of St. Joseph in our front yard for luck," Kathy Rowedder said. "But after we lowered our price, I went out and dug it up, cleaned it off and brought it back in the house."
St. Joe may have left the courtyard, but what would baby Jebus do?
Thursday, October 11, 2007
Fear Factor
Whenever you read an article, you need to check what's the incentive of the person writing the article.
Here's one from Yahoo!: Commentary: Worth $4 Million -- and Unable to Retire.
I got a call from a newly "rich" executive. Having worked 60-hour weeks for years and now ready to retire at 55, he sold his business for $4 million. He was ready to live out his dream life and live off that tidy nest egg. The problem is, to do so--on $4 million--he must cut his standard of living.
It's the plight of the "mMillionaire" -- the middle-class Millionaire.
Mansions and yachts are out. The mMillionaires who want to retire before age 65 or 72, find they must live in three- and four-bedroom homes and drive mid-priced four-door sedans and mini-vans.
This is bullshit!
With $4M, you can clear roughly $150K each year in income alone tax-free without touching the principal. If you have trouble with that, give it to me. I'll be able to afford both mansion and yacht, and even the occasional week in Tahiti with that.
However, let's see who "sponsored" the article.
It's sponsored by Fidelity.
How does Fidelity make money? By the fees they get on managing money.
How do they make more fees? By managing larger sums of money.
Hookay! This belongs in the "never ask the barber whether you need a haircut" section.
Here's one from Yahoo!: Commentary: Worth $4 Million -- and Unable to Retire.
I got a call from a newly "rich" executive. Having worked 60-hour weeks for years and now ready to retire at 55, he sold his business for $4 million. He was ready to live out his dream life and live off that tidy nest egg. The problem is, to do so--on $4 million--he must cut his standard of living.
It's the plight of the "mMillionaire" -- the middle-class Millionaire.
Mansions and yachts are out. The mMillionaires who want to retire before age 65 or 72, find they must live in three- and four-bedroom homes and drive mid-priced four-door sedans and mini-vans.
This is bullshit!
With $4M, you can clear roughly $150K each year in income alone tax-free without touching the principal. If you have trouble with that, give it to me. I'll be able to afford both mansion and yacht, and even the occasional week in Tahiti with that.
However, let's see who "sponsored" the article.
It's sponsored by Fidelity.
How does Fidelity make money? By the fees they get on managing money.
How do they make more fees? By managing larger sums of money.
Hookay! This belongs in the "never ask the barber whether you need a haircut" section.
The Rear-view Mirror
Warning: Objects are closer than they seem!
You don't need to be a genius to figure out that the housing collapse really started sometime late-2005/early-2006.
(Data: from the St. Louis Fed.)
Sunday, October 07, 2007
Smoking Cows
From CNN, we have FDIC to mortgage servicers: Freeze ARM rates.
The heat on U.S. mortgage lenders and servicers was turned up a few degrees this week when the country's chief bank regulator publicly proposed that they permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for many homeowners.
"Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it," Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor's conference.
Whoa!!! Talk about clueless.
Lenders borrow short and lend long.
In other words, they borrow money at the short end, and lend long-term. They pocket the difference as a reward for the risk they are taking in lending that money.
This stupid cow is asking lenders to lose money non-stop for the next 30 years.
Ummmm, yeah sure, that's reaaaaally going to happen.
And this is the chairman of the FDIC?
Put the bong down, you stupid bitch!
The heat on U.S. mortgage lenders and servicers was turned up a few degrees this week when the country's chief bank regulator publicly proposed that they permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for many homeowners.
"Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it," Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor's conference.
Whoa!!! Talk about clueless.
Lenders borrow short and lend long.
In other words, they borrow money at the short end, and lend long-term. They pocket the difference as a reward for the risk they are taking in lending that money.
This stupid cow is asking lenders to lose money non-stop for the next 30 years.
Ummmm, yeah sure, that's reaaaaally going to happen.
And this is the chairman of the FDIC?
Put the bong down, you stupid bitch!
Friday, October 05, 2007
Reading tea leaves
We posted the first graph here about 6 months ago.
The second graph is courtesy of Moody's (not that you should trust them) but they might even be truthful. There's lawsuits coming down the poop-chute.
See if you can combine the data to get an accurate reading on the economy.
It's better than tea leaves, I tell ya!
Ferragamo Flip-Flops
From the Chicago Tribune, we have Here's a new one: Being too broke to sell.
Most anybody in the mortgage business will tell you that August was a month that will live in infamy: The market was in turmoil, as doubts about the stability of subprime loans spread to other sectors of the mortgage world.
The cancellation rate undoubtedly was fed by two scenarios playing out: Many buyers couldn't get mortgage approval because lending suddenly tightened; or, financially strained lenders yanked funding from their borrowers at the last minute.
But another factor was at work: Sellers -- not buyers -- were in trouble as their closing dates neared.
"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.
The sellers couldn't come up with the money?
It seems that for those homeowners on the margins -- those with some but not much equity -- the costs of a real estate transaction are turning into a kick in the pants.
Oooh! guess those HELOC's are really working out for you, babykins.
How's that oh-so-delightful Gucci purse now? And the fake tits? Keep 'em nice and jiggly 'cause you'll be needing them to make up the difference.
Just make sure you pray to baby-Jebus that they don't spring a "leak".
We'll just call this saving for the downpayment after the fact!
Most anybody in the mortgage business will tell you that August was a month that will live in infamy: The market was in turmoil, as doubts about the stability of subprime loans spread to other sectors of the mortgage world.
The cancellation rate undoubtedly was fed by two scenarios playing out: Many buyers couldn't get mortgage approval because lending suddenly tightened; or, financially strained lenders yanked funding from their borrowers at the last minute.
But another factor was at work: Sellers -- not buyers -- were in trouble as their closing dates neared.
"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.
The sellers couldn't come up with the money?
It seems that for those homeowners on the margins -- those with some but not much equity -- the costs of a real estate transaction are turning into a kick in the pants.
Oooh! guess those HELOC's are really working out for you, babykins.
How's that oh-so-delightful Gucci purse now? And the fake tits? Keep 'em nice and jiggly 'cause you'll be needing them to make up the difference.
Just make sure you pray to baby-Jebus that they don't spring a "leak".
We'll just call this saving for the downpayment after the fact!
Thursday, October 04, 2007
Tan Man Issues Green Wristbands
Sometimes you can't make these things up.
From the Wall Street Journal, Countrywide Tells Workers,
'Protect Our House'.
Having suffered a barrage of negative headlines while battling to shore up its finances and shrink its work force of 60,000 by as much as 20%, the nation's largest home-mortgage lender is launching a PR blitz aimed at repairing its reputation. And it starts inside the company.
For the demoralized employees who remain, the new campaign means wristbands with the phrase "Protect Our House" and pep talks promising to keep "amply" rewarding the most successful among them amid a struggle with the sharp drop in mortgage lending as defaults soar and house prices decline.
Rick Simon, a Countrywide spokesman, said the transcript was sent to employees Friday. It says that employees are expected to sign a pledge to "demonstrate their commitment to our efforts," and Mr. Simon says about 11,000 have signed. Each employee who signs up receives the Protect Our House wristband made of green rubber. "We believe there's a great story about the strength of the business," says Mr. Simon.
Hot diggity dang!
Nothing screams professional like a green wristband that says "Protect Our House". Wonder what the poor bitches are signing away on that piece of paper.
If someone asked me to "demonstrate my commitment", not only would I quit, I would borrow all the money I could, and short the stock (or even leverage, and buy all the put options I could.)
However, what I really really want is that green wristband.
C'mon readers, hook me up!
From the Wall Street Journal, Countrywide Tells Workers,
'Protect Our House'.
Having suffered a barrage of negative headlines while battling to shore up its finances and shrink its work force of 60,000 by as much as 20%, the nation's largest home-mortgage lender is launching a PR blitz aimed at repairing its reputation. And it starts inside the company.
For the demoralized employees who remain, the new campaign means wristbands with the phrase "Protect Our House" and pep talks promising to keep "amply" rewarding the most successful among them amid a struggle with the sharp drop in mortgage lending as defaults soar and house prices decline.
Rick Simon, a Countrywide spokesman, said the transcript was sent to employees Friday. It says that employees are expected to sign a pledge to "demonstrate their commitment to our efforts," and Mr. Simon says about 11,000 have signed. Each employee who signs up receives the Protect Our House wristband made of green rubber. "We believe there's a great story about the strength of the business," says Mr. Simon.
Hot diggity dang!
Nothing screams professional like a green wristband that says "Protect Our House". Wonder what the poor bitches are signing away on that piece of paper.
If someone asked me to "demonstrate my commitment", not only would I quit, I would borrow all the money I could, and short the stock (or even leverage, and buy all the put options I could.)
However, what I really really want is that green wristband.
C'mon readers, hook me up!
Wednesday, October 03, 2007
Toro! Toro! Toro!
From Bloomberg, we have Spain Property Delinquencies May Jump, Moody's Says.
The country's banks are ``well positioned'' to withstand a decline in real-estate prices, according to Moody's. The lenders are required to set aside provisions for losses under rules introduced in 2000. The capital of Spanish banks is only at risk if delinquency rates go above 5.5 percent, the report said.
After rising 178 percent between 2000 and 2006, more than any other country in Europe, Spanish home prices are being threatened as the highest European Central Bank interest rates in six years curb consumer spending, Moody's said.
Moody's said a ``hard landing,'' in which loan defaults by developers and builders exceeds 5.5 percent and house prices plunge 20 percent, is a ``remote'' possibility.
Prices rose 178% in 7 years (roughly 12% compounded annually) but a 20% drop is a "remote possibility".
Please note the circularity of the argument. Banks are not at risk because loan defaults can't go above 5.5%. Why not? "Because then they would be at risk."
Sounds like -- it can't happen because if it happens, bad things will happen; hence, it can't happen.
I'll give a dissenting opinion. Home prices in Spain are guaranteed to plunge more than 20%, and there's no chance that those loans will get repaid.
Spain is the Florida of Europe, and has an epic appointment with fate.
``We have no concern at all about the strength of the Spanish financial system,'' Deputy Finance Minister David Vegara said at a press conference today in response to the report.
Really?!?
Let's see.
Spain's gold reserves were 14.717 million troy oz in Aug 2006. Today, they stand at 9.054 million troy oz. That means, they've sold off nearly 40% of their gold reserves, and you have the finance minister giving a conference about their financial strength?
This is the biggest Spanish Bull I've seen!
The country's banks are ``well positioned'' to withstand a decline in real-estate prices, according to Moody's. The lenders are required to set aside provisions for losses under rules introduced in 2000. The capital of Spanish banks is only at risk if delinquency rates go above 5.5 percent, the report said.
After rising 178 percent between 2000 and 2006, more than any other country in Europe, Spanish home prices are being threatened as the highest European Central Bank interest rates in six years curb consumer spending, Moody's said.
Moody's said a ``hard landing,'' in which loan defaults by developers and builders exceeds 5.5 percent and house prices plunge 20 percent, is a ``remote'' possibility.
Prices rose 178% in 7 years (roughly 12% compounded annually) but a 20% drop is a "remote possibility".
Please note the circularity of the argument. Banks are not at risk because loan defaults can't go above 5.5%. Why not? "Because then they would be at risk."
Sounds like -- it can't happen because if it happens, bad things will happen; hence, it can't happen.
I'll give a dissenting opinion. Home prices in Spain are guaranteed to plunge more than 20%, and there's no chance that those loans will get repaid.
Spain is the Florida of Europe, and has an epic appointment with fate.
``We have no concern at all about the strength of the Spanish financial system,'' Deputy Finance Minister David Vegara said at a press conference today in response to the report.
Really?!?
Let's see.
Spain's gold reserves were 14.717 million troy oz in Aug 2006. Today, they stand at 9.054 million troy oz. That means, they've sold off nearly 40% of their gold reserves, and you have the finance minister giving a conference about their financial strength?
This is the biggest Spanish Bull I've seen!
Sunday, September 30, 2007
Tuesday, September 25, 2007
Product Design
Not exactly a "whinefest" but I'm sure the readers of this blog (any left?) will take a welcome respite from the negativity.
What do I think is the best designed electronic equipment in the last 30 years?
My vote goes to the humble HP-12C.
If you've never used it, you simply have never worked in finance.
It does everything right. Calculations, bond math, NPV, amortization, literally everything a financial dude needs quickly.
Hell, it shuts itself off in a strange bow to environmentalism long before it was needed; and fear not, financial wizards, it saves the state to solid-state so you can power it up, and pick up where you left off. General knowledge has it that even heavy users have only replaced the battery once in 10+ years.
Please also note the highly economical "triple-encoding" of functionality via the f and g buttons!
HP has tried to kill the product repeatedly. The hue and cry was so great, it was deafening. I bet at least a couple of Wall St. CEO's said, "You'll never be able to access capital in this town again."
Eat your heart out, Excel!
What do I think is the best designed electronic equipment in the last 30 years?
My vote goes to the humble HP-12C.
If you've never used it, you simply have never worked in finance.
It does everything right. Calculations, bond math, NPV, amortization, literally everything a financial dude needs quickly.
Hell, it shuts itself off in a strange bow to environmentalism long before it was needed; and fear not, financial wizards, it saves the state to solid-state so you can power it up, and pick up where you left off. General knowledge has it that even heavy users have only replaced the battery once in 10+ years.
Please also note the highly economical "triple-encoding" of functionality via the f and g buttons!
HP has tried to kill the product repeatedly. The hue and cry was so great, it was deafening. I bet at least a couple of Wall St. CEO's said, "You'll never be able to access capital in this town again."
Eat your heart out, Excel!
Sunday, September 23, 2007
Big Apple Foreclosures for everyone!
Please note that since this is for SFH's (single family homes), a lot of Manhattan data is missing since it is largely co-ops and condos.
Also note that part of 10011 constitutes the "highly desirable" West Village locations.
New York is also the state which takes longest to foreclose (= worst state to lend money in), and hence this data is seriously understated. To get a real sense, we would have to get data on NOD's (notice of defaults.) This is really older data masquerading as recent.
Saturday, September 22, 2007
Nasty, nasty, nasty
This is so nasty it requires no comment!
(Where's the data from? Why, the much-esteemed Fed, of course! The same glorious people who manage the economy, oh so well.)
Thursday, September 20, 2007
Broken Business Models
From the once-esteemed New York Times, we have Times to Stop Charging for Parts of Its Web Site.
The New York Times will stop charging for access to parts of its Web site, effective at midnight tonight.
The move comes two years to the day after The Times began the subscription program, TimesSelect, which has charged $49.95 a year, or $7.95 a month, for online access to the work of its columnists and to the newspaper’s archives. TimesSelect has been free to print subscribers to The Times and to some students and educators.
In addition to opening the entire site to all readers, The Times will also make available its archives from 1987 to the present without charge, as well as those from 1851 to 1922, which are in the public domain. There will be charges for some material from the period 1923 to 1986, and some will be free.
The Times said the project had met expectations, drawing 227,000 paying subscribers — out of 787,000 over all — and generating about $10 million a year in revenue.
What changed, The Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to NYTimes.com. These indirect readers, unable to get access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue.
Here we see a classic failure of business -- its inability to see that the business model that it was based on has gone away, and it's not coming back.
Very few businesses take the introspective look. For one, it's hard, and two, you may not like what you see.
Let's first observe what the failure was; then, we may be able to predict what the future holds a little better.
The Net has done three things:
lowered the cost of publication to zero,
severed the channel linking content to distribution, and
created extreme specialization of content.
This blog itself is an example of all three. You are reading a extremely specialized blog, and my cost of publication is non-existent. You are not tied down to reading this every morning or even periodically. If you don't like the content, you are free to go elsewhere, and you may not come back.
"Times Select" didn't understand the rules. For one, it broke the link that traditional readers had. The readers had been programmed (for decades) to read the daily editorial. When you put this behind a "pay wall", you're penalizing the most loyal customers.
The customers went elsewhere for their daily editorial content, and not only found it, found it to be plentiful and, horrors! better. So that's a triple whammy. Your loyal readers went elsewhere, and not only did they not pay, they won't be coming back either.
Bad decision!
Additionally, if you read the article, they talk about "revenue". Yes, but what was the "profit"? My guess is there was none.
A reasonable guess of the future is that the Wall Street Journal is next, and after that The Economist and The Financial Times.
So what does work?
The relationship!
If you understand this, you'll also understand why the "Dining" and "Science" sections of newspapers are doomed. Specialization of content is here to stay, and the only people who hang around are the ones who perceive value in your content. You had better respect this relationship.
This should also explain why the Book-of-the-Month clubs may or may not make a lot of money but Miltary-Books-of-the-Month and Gardening-Books-of-the-Month made monster profits.
This is a brutal lesson for traditional media (newspapers, radio, television, music, film, advertising) to learn. Their failures will be taught in business schools some day.
The New York Times will stop charging for access to parts of its Web site, effective at midnight tonight.
The move comes two years to the day after The Times began the subscription program, TimesSelect, which has charged $49.95 a year, or $7.95 a month, for online access to the work of its columnists and to the newspaper’s archives. TimesSelect has been free to print subscribers to The Times and to some students and educators.
In addition to opening the entire site to all readers, The Times will also make available its archives from 1987 to the present without charge, as well as those from 1851 to 1922, which are in the public domain. There will be charges for some material from the period 1923 to 1986, and some will be free.
The Times said the project had met expectations, drawing 227,000 paying subscribers — out of 787,000 over all — and generating about $10 million a year in revenue.
What changed, The Times said, was that many more readers started coming to the site from search engines and links on other sites instead of coming directly to NYTimes.com. These indirect readers, unable to get access to articles behind the pay wall and less likely to pay subscription fees than the more loyal direct users, were seen as opportunities for more page views and increased advertising revenue.
Here we see a classic failure of business -- its inability to see that the business model that it was based on has gone away, and it's not coming back.
Very few businesses take the introspective look. For one, it's hard, and two, you may not like what you see.
Let's first observe what the failure was; then, we may be able to predict what the future holds a little better.
The Net has done three things:
This blog itself is an example of all three. You are reading a extremely specialized blog, and my cost of publication is non-existent. You are not tied down to reading this every morning or even periodically. If you don't like the content, you are free to go elsewhere, and you may not come back.
"Times Select" didn't understand the rules. For one, it broke the link that traditional readers had. The readers had been programmed (for decades) to read the daily editorial. When you put this behind a "pay wall", you're penalizing the most loyal customers.
The customers went elsewhere for their daily editorial content, and not only found it, found it to be plentiful and, horrors! better. So that's a triple whammy. Your loyal readers went elsewhere, and not only did they not pay, they won't be coming back either.
Bad decision!
Additionally, if you read the article, they talk about "revenue". Yes, but what was the "profit"? My guess is there was none.
A reasonable guess of the future is that the Wall Street Journal is next, and after that The Economist and The Financial Times.
So what does work?
The relationship!
If you understand this, you'll also understand why the "Dining" and "Science" sections of newspapers are doomed. Specialization of content is here to stay, and the only people who hang around are the ones who perceive value in your content. You had better respect this relationship.
This should also explain why the Book-of-the-Month clubs may or may not make a lot of money but Miltary-Books-of-the-Month and Gardening-Books-of-the-Month made monster profits.
This is a brutal lesson for traditional media (newspapers, radio, television, music, film, advertising) to learn. Their failures will be taught in business schools some day.
Tuesday, September 18, 2007
I don't think you know what that word means...
From Bloomberg: Housing Market Slump `Unthinkable' in Spain, Government Says.
A residential real estate slump in Spain, where prices have almost tripled since 1997, is ``unthinkable,'' the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.
The solvency of the banking system and of real estate developers, as well as the unmet demand for new homes, will prevent any meaningful price erosion, David Taguas, head of the prime minister's economic research unit, said in an interview yesterday at his office at the presidential palace in Madrid.
``To talk about severe adjustments or a meltdown in prices is ridiculous,'' Taguas said in response to reports pointing to an end of the Spanish real estate boom. ``That sort of crisis is unthinkable.''
Unthinkable, eh?
Think again!
Now, that Northern Rock can't give sub-primes to Brits, who are you going to sell the excess inventory to?
Zapatero is going to be eating his zapatos before long!
A residential real estate slump in Spain, where prices have almost tripled since 1997, is ``unthinkable,'' the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.
The solvency of the banking system and of real estate developers, as well as the unmet demand for new homes, will prevent any meaningful price erosion, David Taguas, head of the prime minister's economic research unit, said in an interview yesterday at his office at the presidential palace in Madrid.
``To talk about severe adjustments or a meltdown in prices is ridiculous,'' Taguas said in response to reports pointing to an end of the Spanish real estate boom. ``That sort of crisis is unthinkable.''
Unthinkable, eh?
Think again!
Now, that Northern Rock can't give sub-primes to Brits, who are you going to sell the excess inventory to?
Zapatero is going to be eating his zapatos before long!
Thursday, September 13, 2007
Mooning Silicon Valley
From the AP, we have Google Sponsors $30 Million Moon Contest.
Google Inc. is bankrolling a $30 million out-of-this-world prize to the first private company that can safely land a robotic rover on the moon and beam back a gigabyte of images and video to Earth, the Internet search leader said Thursday.
The rules call for a spacecraft to trek at least 1,312 feet across the lunar surface and return a package of data including self-portraits, panoramic views and near-real time videos.
Let's see, they paid $1B for YouTube! and you get $30M to send a robot to the moon, and make it drive.
Hoo-kay! I'm gonna go run out and practice my slingshot tonight. Right after the moon rises.
I think the Google folks have not just drunk the Kool-Aid(TM) but they've started snorting it (Keith Richards style.)
I'm gonna start my own competition: I'll give you $100M if you send the robot to take a drive on the Sun.
Google Inc. is bankrolling a $30 million out-of-this-world prize to the first private company that can safely land a robotic rover on the moon and beam back a gigabyte of images and video to Earth, the Internet search leader said Thursday.
The rules call for a spacecraft to trek at least 1,312 feet across the lunar surface and return a package of data including self-portraits, panoramic views and near-real time videos.
Let's see, they paid $1B for YouTube! and you get $30M to send a robot to the moon, and make it drive.
Hoo-kay! I'm gonna go run out and practice my slingshot tonight. Right after the moon rises.
I think the Google folks have not just drunk the Kool-Aid(TM) but they've started snorting it (Keith Richards style.)
I'm gonna start my own competition: I'll give you $100M if you send the robot to take a drive on the Sun.
Sunday, September 02, 2007
The D word
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
Fear not for the Big R; we've already been steeped in it for the last year or so. The experts will confirm it with perfect 20-20 hindsight.
Fear for the Big D.
Saturday, September 01, 2007
Tuesday, August 28, 2007
A wing and a prayer
From the Detroit News: Home prices fall sharply in second quarter; Detroit posts worst decline.
U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said today.
Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year.
It's pray-to-Baby-Jebus time!
U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, the research group said today.
Detroit led the cities with the biggest price declines, with an 11 percent drop from June of last year.
It's pray-to-Baby-Jebus time!
Say what?
As desperation sets in, the quotes are becoming more and more ridiculous.
From the Beacon in Montana: Montana Tip-Toes Around Housing Lull.
“For sale” signs are propping up all around Flathead Valley, but Ted Dykstra, president of the Northwest Montana Association of Realtors, attributed that to an excessive number of homes on the market, not slow sales."
OK, you get the "Genius"-of-the-Day award!
From the San Francisco Chronicle: Hardworking Oakland family can't sell 'sweet little house' located in real estate 'dead zone'
"Luckily, they have equity," said their Realtor, Mary Dresser of Prudential California Realty. "But if they can't sell, they don't really have any equity, or at least they can't gain access to their equity."
If you "can't gain access to your equity", that would be because you "don't have any equity".
These reporters are all in the "Why does it hurt when I pee?"-category of reporters!
From the Beacon in Montana: Montana Tip-Toes Around Housing Lull.
“For sale” signs are propping up all around Flathead Valley, but Ted Dykstra, president of the Northwest Montana Association of Realtors, attributed that to an excessive number of homes on the market, not slow sales."
OK, you get the "Genius"-of-the-Day award!
From the San Francisco Chronicle: Hardworking Oakland family can't sell 'sweet little house' located in real estate 'dead zone'
"Luckily, they have equity," said their Realtor, Mary Dresser of Prudential California Realty. "But if they can't sell, they don't really have any equity, or at least they can't gain access to their equity."
If you "can't gain access to your equity", that would be because you "don't have any equity".
These reporters are all in the "Why does it hurt when I pee?"-category of reporters!
Thursday, August 23, 2007
Debunking Conspiracies
So there seems to be a lot of hoo-hah about the Fed bailing out Countrywide under the guise of Bank of America, blah blah blah, tin-foil hat nonsense.
First, the facts from Bloomberg: Countrywide Rises on Bank of America Stock Purchase.
Countrywide Financial Corp. rose about 1 percent after Bank of America Corp. bought $2 billion of preferred stock in the company, erasing concern the nation's largest mortgage lender will go bankrupt.
Bank of America, the second-biggest U.S. bank by assets, gets shares that yield 7.25 percent and can be converted into common stock at a price of $18, Countrywide said yesterday in a statement. The shares are convertible at any time, though Bank of America will be subject to trading restrictions for 18 months, according to a regulatory filing by Countrywide today.
OK, now let's roll up our sleeves, and dig in to how this works.
Imagine you're Mozilo (CEO of Countrywide). You're in deep doo-doo. You need money badly, and you need the money now. So you make this deal.
What's in it for BofA?
They give Countrywide $2B, and get bonds yielding 7.25%. They can be converted to roughly 111 million shares ($2B / $18). So here's what BofA will do. They will short 111 million shares right now which will yield them roughly $2.4B on the open market ($22 share price right now.)
Now, you get the coupons from the Countrywide preferred, and the $2.4B you just netted.
Please note that this deal is "self-financing". You gave them $2B and netted $2.4B right now.
There are two scenarios:
If the company goes bankrupt, and the stock goes to zero, you just made a $400M bundle plus you get coupons till they die. You also get first picking over the carcass of the company before anyone else. Not bad for a day's work.
If the stock survives, and the stock rises, after 18 months, you can always exercise the convertible right, get the stock at $18, and you've made $400M plus all the coupons until you exercise the rights. Not bad either.
What's in it for the CEO?
The company lives to fight another day. If the executives and the board are smart cookies, and I assure you they will be, they will cash out all their options, stock, etc. and fuck the hell off.
Well, then since there are no free lunches, somebody must be getting screwed. That would be the current stockholders, and also the current bondholders. (If I were either of them, I'd get the fuck out of this piece of shit pronto!!!)
See? No conspiracies needed to explain this lipstick on a pig?
First, the facts from Bloomberg: Countrywide Rises on Bank of America Stock Purchase.
Countrywide Financial Corp. rose about 1 percent after Bank of America Corp. bought $2 billion of preferred stock in the company, erasing concern the nation's largest mortgage lender will go bankrupt.
Bank of America, the second-biggest U.S. bank by assets, gets shares that yield 7.25 percent and can be converted into common stock at a price of $18, Countrywide said yesterday in a statement. The shares are convertible at any time, though Bank of America will be subject to trading restrictions for 18 months, according to a regulatory filing by Countrywide today.
OK, now let's roll up our sleeves, and dig in to how this works.
Imagine you're Mozilo (CEO of Countrywide). You're in deep doo-doo. You need money badly, and you need the money now. So you make this deal.
What's in it for BofA?
They give Countrywide $2B, and get bonds yielding 7.25%. They can be converted to roughly 111 million shares ($2B / $18). So here's what BofA will do. They will short 111 million shares right now which will yield them roughly $2.4B on the open market ($22 share price right now.)
Now, you get the coupons from the Countrywide preferred, and the $2.4B you just netted.
Please note that this deal is "self-financing". You gave them $2B and netted $2.4B right now.
There are two scenarios:
If the company goes bankrupt, and the stock goes to zero, you just made a $400M bundle plus you get coupons till they die. You also get first picking over the carcass of the company before anyone else. Not bad for a day's work.
If the stock survives, and the stock rises, after 18 months, you can always exercise the convertible right, get the stock at $18, and you've made $400M plus all the coupons until you exercise the rights. Not bad either.
What's in it for the CEO?
The company lives to fight another day. If the executives and the board are smart cookies, and I assure you they will be, they will cash out all their options, stock, etc. and fuck the hell off.
Well, then since there are no free lunches, somebody must be getting screwed. That would be the current stockholders, and also the current bondholders. (If I were either of them, I'd get the fuck out of this piece of shit pronto!!!)
See? No conspiracies needed to explain this lipstick on a pig?
Sunday, August 19, 2007
Confessional in Print
Well, this blog has shat all over newspaper reporters but it takes a particularly "special" reporter to shit all over himself.
Folks, from the Washington Post: Was the Mortgage a Mistake?
Two years ago, my wife and I sat at a long conference table in a mortgage-title office in Bethesda. Sitting next to us: our real estate agent, who drew up our bid on a townhouse in Germantown two days after showing it to us. We didn't get an inspection, and I don't recall going back for a second look. We had to act fast or someone else would get it.
Our bid won the house -- our very own first home -- and now we had to close the deal. The owners sat across the table. They seemed more nervous than we did, perhaps fearing we would have second thoughts -- about our risky interest-only mortgage, about seeing them walk away with a $120,000 profit, about buying a house just as "bubble" was entering the regional lexicon.
They signed. We signed. Price tag: $459,275.
And then, as the saying sort of goes, the stuff hit the fan. The sizzling home market almost immediately began to cool off, which my wife and I sort of ignored. Interest rates started to creep up, and we sort of blew that off, too. We have time. This too shall pass. No worries. Life is good! We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker, and then we got pregnant. We have time. This too shall pass.
But now, with our baby due in six weeks, the stock market has taken a serious drive south, with the Standard & Poor's 500-stock index dropping 6.9 percent since its high on July 19 after problems emerged for subprime lenders, who gave loans to people with spotty credit at the height of the frothy housing market. The contagion from the busted subprime sector has hit credit markets hard, and now Brian Williams and Charlie Gibson and Katie Couric are talking every night on the national news about how hard it will be to get credit, perhaps leading to more problems in the housing market.
I walked in the door one night last week, and Brian Williams was talking to my wife. I heard the word "subprime" from the TV. She looked at me and said, "Should we be worried?" I said, "We have plenty of time." But the truth is, I am getting nervous. And a few days later, when I told my wife I was indeed worried and writing about it for this newspaper, she said, "You're going to give me a panic attack." She paused and then added, "Did we really mess up?"
My wife, who is a physician, asked a question that thousands of other people in the region must be asking now, too.
A reporter and a doctor. The ultimate "dumb money", if there ever was one. Always do homework after the fact.
Besides all that, our mortgage broker and real estate agent kept confirming what we wanted to believe: nothing to worry about.
What a fuckin' shocker! People who make money on commission kept confirming what you wanted to believe so that they can make the commission.
The world is a tricky place, and nobody teaches you this in school.
Ya fuckin' think?!?
Folks, from the Washington Post: Was the Mortgage a Mistake?
Two years ago, my wife and I sat at a long conference table in a mortgage-title office in Bethesda. Sitting next to us: our real estate agent, who drew up our bid on a townhouse in Germantown two days after showing it to us. We didn't get an inspection, and I don't recall going back for a second look. We had to act fast or someone else would get it.
Our bid won the house -- our very own first home -- and now we had to close the deal. The owners sat across the table. They seemed more nervous than we did, perhaps fearing we would have second thoughts -- about our risky interest-only mortgage, about seeing them walk away with a $120,000 profit, about buying a house just as "bubble" was entering the regional lexicon.
They signed. We signed. Price tag: $459,275.
And then, as the saying sort of goes, the stuff hit the fan. The sizzling home market almost immediately began to cool off, which my wife and I sort of ignored. Interest rates started to creep up, and we sort of blew that off, too. We have time. This too shall pass. No worries. Life is good! We bought a flat-panel television, took a nice vacation, bought a dog, hired him a daily dog-walker, and then we got pregnant. We have time. This too shall pass.
But now, with our baby due in six weeks, the stock market has taken a serious drive south, with the Standard & Poor's 500-stock index dropping 6.9 percent since its high on July 19 after problems emerged for subprime lenders, who gave loans to people with spotty credit at the height of the frothy housing market. The contagion from the busted subprime sector has hit credit markets hard, and now Brian Williams and Charlie Gibson and Katie Couric are talking every night on the national news about how hard it will be to get credit, perhaps leading to more problems in the housing market.
I walked in the door one night last week, and Brian Williams was talking to my wife. I heard the word "subprime" from the TV. She looked at me and said, "Should we be worried?" I said, "We have plenty of time." But the truth is, I am getting nervous. And a few days later, when I told my wife I was indeed worried and writing about it for this newspaper, she said, "You're going to give me a panic attack." She paused and then added, "Did we really mess up?"
My wife, who is a physician, asked a question that thousands of other people in the region must be asking now, too.
A reporter and a doctor. The ultimate "dumb money", if there ever was one. Always do homework after the fact.
Besides all that, our mortgage broker and real estate agent kept confirming what we wanted to believe: nothing to worry about.
What a fuckin' shocker! People who make money on commission kept confirming what you wanted to believe so that they can make the commission.
The world is a tricky place, and nobody teaches you this in school.
Ya fuckin' think?!?
Wednesday, August 15, 2007
Geting pole-d
From the Wall Street Journal, we have How the Mortgage Bar
Keeps Moving Higher.
Frankie Van Cleave says she has paid all her bills on time for more than three decades, save one car payment that got delayed in Christmas mail. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market.
Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home, on two acres of prime riverfront property in Marietta, Ga.
Her bank of three decades won't help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet.
In Marietta, Ga., Ms. Van Cleave doesn't have cash for a refinancing down payment, and she faces a problem hitting more consumers: Appraisers say her home is worth less than her current $1 million mortgage. Ms. Van Cleave concedes she took a risk, borrowing close to the appraised value of her home two years ago -- at the market's peak -- to help fund a start-up company that sells a patented fishing-rod holder. She opted for a two-year ARM, with a piggyback mortgage at nearly 12%, and planned to refinance.
Who, in their right mind, would loan a 70-year old woman a million dollars?
Who, in their right mind, would work 80 hours a week to "make ends meet" at age 70?
Who, in their right mind, would help fund a company that makes "fishing-rod holders"?
I fucking shit you not -- patented fishing-rod holders! Most people would just cut out a length of PVC, and two circular tins on each end, and a few loops of metal to hold it which costs, what, $5?
I guess we could argue that she's getting hosed!
Keeps Moving Higher.
Frankie Van Cleave says she has paid all her bills on time for more than three decades, save one car payment that got delayed in Christmas mail. But neither solid credit nor her track record running a number of businesses is sparing the 70-year-old from the turmoil in the home-mortgage market.
Several mortgage brokers had courted her to refinance a $1 million adjustable-rate mortgage she currently carries on her home, on two acres of prime riverfront property in Marietta, Ga.
Her bank of three decades won't help her after her monthly mortgage payments recently ballooned to nearly $8,200, so Ms. Van Cleave is working 80 hours a week as a technical writer to make ends meet.
In Marietta, Ga., Ms. Van Cleave doesn't have cash for a refinancing down payment, and she faces a problem hitting more consumers: Appraisers say her home is worth less than her current $1 million mortgage. Ms. Van Cleave concedes she took a risk, borrowing close to the appraised value of her home two years ago -- at the market's peak -- to help fund a start-up company that sells a patented fishing-rod holder. She opted for a two-year ARM, with a piggyback mortgage at nearly 12%, and planned to refinance.
Who, in their right mind, would loan a 70-year old woman a million dollars?
Who, in their right mind, would work 80 hours a week to "make ends meet" at age 70?
Who, in their right mind, would help fund a company that makes "fishing-rod holders"?
I fucking shit you not -- patented fishing-rod holders! Most people would just cut out a length of PVC, and two circular tins on each end, and a few loops of metal to hold it which costs, what, $5?
I guess we could argue that she's getting hosed!
Crashing Credibility
From Bloomerg, we have Moody's, S&P Lose Credibility on CPDOs They Rated.
Moody's Investors Service and Standard & Poor's, the arbiters of creditworthiness, are losing their credibility in the fastest growing part of the bond market.
Really?!? No way, dude!
The New York-based ratings firms last month gave a new breed of credit derivatives triple-A ratings, indicating they were as safe as U.S. Treasuries. Now, investors are being offered as little as 70 cents on the dollar for the constant proportion debt obligations, securities that use credit-default swaps to speculate that companies with investment-grade ratings will be able to repay their debt.
``The rating doesn't tell me anything,'' said Bas Kragten, who helps manage the equivalent of about $380 billion as head of asset-backed securities at ING Investment Management in The Hague. ``The chance that a CPDO won't be triple-A tomorrow is a lot greater than it is for the government of Germany.''
S&P's rankings ``are appropriate for existing CPDO structures,'' S&P spokeswoman Felicity Albert in London said.
You'd have to have an IQ of a lobotomized amoeba to believe these ratings.
On the bright side, you will get a job running a pension fund.
Moody's Investors Service and Standard & Poor's, the arbiters of creditworthiness, are losing their credibility in the fastest growing part of the bond market.
Really?!? No way, dude!
The New York-based ratings firms last month gave a new breed of credit derivatives triple-A ratings, indicating they were as safe as U.S. Treasuries. Now, investors are being offered as little as 70 cents on the dollar for the constant proportion debt obligations, securities that use credit-default swaps to speculate that companies with investment-grade ratings will be able to repay their debt.
``The rating doesn't tell me anything,'' said Bas Kragten, who helps manage the equivalent of about $380 billion as head of asset-backed securities at ING Investment Management in The Hague. ``The chance that a CPDO won't be triple-A tomorrow is a lot greater than it is for the government of Germany.''
S&P's rankings ``are appropriate for existing CPDO structures,'' S&P spokeswoman Felicity Albert in London said.
You'd have to have an IQ of a lobotomized amoeba to believe these ratings.
On the bright side, you will get a job running a pension fund.
Fear, reason and greed
From the Chicago Sun Times, we have Sentinel ices funds as 'fear has overtaken reason'.
Sentinel Management Group Inc., the Northbrook-based cash-management firm, froze a $1.5 billion fund, saying too many investors are trying to withdraw their money.
Sentinel Management, which boasts on its Web site that no client has ever lost money in its fund, makes money mainly by betting on overnight interest rates outpacing yields on short-term Treasury bonds.
A "cash management" firm is losing money. Extraordinary, innit?!?
The fund told clients in a letter that ''fear has overtaken reason'' and most investments have no buyers.
No, sweetheart, fear has not overtaken reason; reason has overtaken greed.
Sentinel Management Group Inc., the Northbrook-based cash-management firm, froze a $1.5 billion fund, saying too many investors are trying to withdraw their money.
Sentinel Management, which boasts on its Web site that no client has ever lost money in its fund, makes money mainly by betting on overnight interest rates outpacing yields on short-term Treasury bonds.
A "cash management" firm is losing money. Extraordinary, innit?!?
The fund told clients in a letter that ''fear has overtaken reason'' and most investments have no buyers.
No, sweetheart, fear has not overtaken reason; reason has overtaken greed.
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