In Go(l)d We Trust?

From Las Vegas: Realtor works hard to survive tough times.

Gold and her husband, Andrew, worked banquets for casinos, earning - like many other resort workers - money to purchase property. Gold saw an opportunity.

A year after moving here, Gold got a license to sell real estate just like she once had California before quitting the business about 1985.

Gold, 62, bought nine homes and two condominiums in Las Vegas and four homes out of state. She couldn't believe her timing: When she started buying homes in 2001 and 2002, the median price of existing homes was $136,500. The price rose to $275,000 by 2005, and Gold's wealth grew to $4.5 million, not counting the six figures she earned a year as a Realtor.

"I came here in the golden age and realized this is a perfect time to make money. I felt for the first time that God blessed us," Gold says. "I was trying to create a future."

Firstly, the title is too easy to parody so the EE won't even bother.

"Everybody wants to move to Vegas," Gold says. "I believe in this market. It is not going away. It has started to turn around and this is the place to be."

Yeah, everyone wants to live in a lifeless desert that wouldn't even exist without water.

And yes, "belief" will keep the credit cycle in abeyance. And you'll be able to shake your finger at all those heathens and non-believers who are keeping your rightful success away from you.

After being able to make all her mortgage payments in the past through the end of 2007, Gold says she has fallen about $22,000 short each month on mortgage payments and is as much as four months behind on some payments. She lost access to her line of credit even though she is still paying it down. She also has to deal with some of her tenants' inability to pay rent.

Now you have the unique chance to tell everyone that "God's" economic cycle is shitting all over you.

The real estate market was hurting her income as a Realtor. Her once six-figure income fell to nothing because of no commissions in 2007.

Gold said she worries about prospect of foreclosure, but has no plans to file for bankruptcy. She remains adamant that she will survive these tough times.

"I am going to come through this fine," Gold says.

Tenants not paying rent? Losing $22K each month? I don't think Warren Buffett is shivering quite yet.

Impressing Jules Dassin

From Bloomberg: Citigroup's `Last Roman' CDO Shows Enron Accounting.

Citigroup Inc. created a $2.5 billion mortgage-backed security called Bonifacius Ltd. in August as capital markets seized up and panic swept Wall Street.

The issue took the name of a general, called by historian Edward Gibbon the ``last of the Romans,'' who fought and died for a fading empire. The bonds were created from subprime home loans as demand evaporated. Within six months, Bonifacius collapsed as homeowners fell behind on their payments in record numbers.

There are 2.5 billion stories in the Naked Shitti.

Housing Data

Source: OECD
Graphs: EE

100 = "long term average"

A few statistical comments on these "ratios" that may not be obvious to people not familiar with using normalized quantities in statistics.

The beauty of ratios is that they are "dimensionless". So as long as both quantities are denominated in the same unit, the unit of measurement simply doesn't matter. The answer is the same in dollars, yen, rupees, barrels of oil, and heads of cows, and for point-in-time comparisons, we don't have to worry about inflation, etc.

The problem with these ratios is that the are emphatically not "normal" (for starters, they're always positive) and they have a tendency to be centered around a number, typically 1. You can't just perform regressions on these because the distributions tend to be strange (log-normal if you're lucky but mostly power-law-ish.)

Also, the extreme ends of these ratios tends to be meaningless. You can only meaningfully compare stuff near the "central tendency" (Think about Steve Job's house to Steve Job's income to understand what the EE means by that.)

However, none of that applies for this particular data since we're just graphing the central tendency over time.

Your Tax Dollars at Work

From the San Jose Mercury News: Calif. congresswoman failed to pay mortgage on home.

California Congresswoman Laura Richardson has a unique perspective on the housing foreclosure bills moving through Congress: One of her own homes was threatened with repossession after she failed to pay the mortgage.

Richardson, a Southern California Democrat, bought a two-story home in a leafy, upper-middle class neighborhood of Sacramento in January 2007, just months after winning a seat in the state Assembly.

Property records on file in Sacramento show Richardson bought the three-bedroom, 1 1/2-bath home on West Curtis Drive for $535,500.

The bill collectors started knocking soon after, according to records reviewed Wednesday by The Associated Press.

Another default notice in March of this year put the "unpaid balance and other expenses" at $578,384 and said her 1,639-square-foot house would be auctioned at a trustee sale. The county records show the property was sold to a company called Red Rock Mortgage Inc. of Sacramento for $388,000, although no listing could be found for the company.

Records on file at the Sacramento County Tax Collector's Office also show Richardson is delinquent in paying $8,950 in property taxes.

"I understand that these homeownership issues are a reflection of what many Americans are going through as they fight to keep their homes and to remain financially stable," Richardson said in her statement.

She feels her own pain, folks!

USA rah-rah-rah

There are many many conclusions that one can draw from this graph (not all depressing even.)

Limerick

From the Boston Herald: Surf’s up, prices down

The outlook is cloudy for Nantucket’s once-sunny real estate market as the resort island sails into the crucial summer selling season.

In a sign of the times, the owners of some grand Nantucket estates are knocking millions off their price tags in a bid to lure buyers.

There was a young man from Nantucket
Whose house was so small he got stuck’n't.
He said with a groan
As he 'faulted his loan,
“If my ARM was an arse, I’d be f*ck’n't.”

Dear Prudence

From the South Oregon Mail Tribune: Daunting debt leaves 50-year-old with few good options.

DEAR BRUCE: I have been married for 30 years, and I'm 50 years old. I have done some major damage to my credit. I have borrowed against everything. I have refinanced my home, borrowing against my 401(k). Our home is worth $150,000, and we owe $135,000. I owe my 401(k) more than $20,000, and I have $20,000 in credit-card debt. I have been trying to reduce my debt, but it just seems daunting. Where do I go from here? I don't want to go bankrupt, but I'm just crushed. On top of everything, the company I work for is in financial trouble. — F.C.

This is the answer they gave:

DEAR F.C.: You do have a ton of problems here. While you say you don't want to go bankrupt, technically, you are bankrupt — you owe more than you are worth. First, you need to get out of debt. You didn't mention how much you earn, but you are probably so far in hock at your age, it would be difficult, if not impossible, to get out. You might also want to find a part-time job to help pay down the debt.

The EE will provide a translation:

DEAR F.C: You're bankrupt hence you are fucked. At your age, there are few options left. Consider borrowing a garage and a running motor. Be sure to put that last bottle of whisky on your credit card.

Metaphysician, Heal Thyself

Sometimes the stories just write themselves.

From the Snotrag of the Universe, the much self-laudatory New York Times: A Thicket of Easy Loans That Entangled One Mortgage Holder.

ROBIN SOTIRE thought she had a financial plan all worked out when she moved from Arizona to Connecticut in the summer of 2006 to handle her mother’s estate and care for an elderly aunt. She was going to sell her house in Arizona, fix up her mother’s three-family home in Stamford using home equity loans, and then sell both houses. With the profits, according to her plan, she hoped to pay off a $645,000 mortgage she had meanwhile obtained to buy her dream home in quiet, rural Redding.

But Ms. Sotire’s dream soon deteriorated into a financial nightmare and has turned her into a statistic in the national foreclosure story. The self-employed healer and metaphysical mystic is in at least $1.6 million debt and facing foreclosure on both Connecticut properties. After taking out a combination of first and second mortgages, refinances and home equity loans on all her properties, she plans to file for bankruptcy.

The EE has no idea what a metaphysical mystic is but it's impressive to know that the "healer" took on $1.6M in debt.

“As she juggled the Stamford and Redding properties, Ms. Sotire fell into a cycle of refinancing to get cash to stay afloat and avoid the steep increases of adjustable rate loans. She said she was unable to work as a healer - she is certified as a master in the Reiki technique - because she was so busy juggling all her responsibilities.”

“At times I was robbing Peter to pay Paul and was amazed when I got mortgages, but I really thought I’d be able to pay everything,” she said. “When houses didn’t sell, everything spiraled down. Looking back, I’m smarter and would do things differently.”

How about Vibrating to the Rhythms of the Universe™ to pay back those loans?

Parody Time

Bad times bring out the creative element. (Found off the web.)

Casey Chavez Billabongo, aged 42, an undocumented mortgage broker, and his REALTOR™ wife, Shirley Summiss-Steak, bought their American Dream 3 bedroom rustic house in the desert, 4 hours drive from work which could have sold for $900,000 at peak of market in 2005. Purchased in 2004 with 125% "no-doc" mortgage and wanting to build their nest egg, they refinanced out to invest more equity into their home. Things started to go well in Casey’s and Shirley’s jobs and they used opportunity to jump in and buy 5 neighboring properties that they would flip for more profit. They got their idea from a popular TV program.

Nobody could have foreseen that market would suddenly downturn and the Billango’s efforts to sell their investment properties to investors from California and Europe, came to nothing, despite Shirley’s plan of providing cupcakes and planting statues of St. Joseph in the yards.

At the same time, nobody could of foreseen the price of gas for their Hummer going up so Casey had to pick up 3 part time jobs.

Shirley cashed in the $3,000 they had in their 401(k) and opened up her dream business: selling dog manicure sets on ebay.

Then disaster hit, their dreams came to an end when an unforeseen medical emergency happened. During a golf game where Casey was working as a Caddy, he was struck in the testicles by a freak lightening bolt. Requiring Cosmetic surgery, the Billabongo’s maxed out their 50 credit cards and took out a HELOC.

Unfortunately, nobody could have foreseen the interest only ARM reseting to 5 times Billabongo’s monthly income. Casey said “When I spoke to the mortage company, they said ‘did you even read your contract ?’ I mean who reads that stuff”. The Billabongo’s now facing foreclosure have appealed to their politicians for help. “We have been taken advantage of” said Shirley. “I am a classy person. I am a REALTOR™ and I have a Rolex.”

Yousa screwed, Missa no help you

From CBS Marketwatch: Bernanke urged financial firms to raise more capital.

Banks and securities firms should continue to raise capital to help them navigate the treacherous waters of the financial market turmoil, Federal Reserve Board Chairman Ben Bernanke said Thursday. "I strongly urge financial institutions to remain proactive in their capital-raising efforts,"

Permit me to translate that into plain speak.

"Raising" capital either via debt or issuing more shares equals either increasing the risk, or diluting the current equity holder's stake.

Either way, this is a fairly explicit acknowledgment that the current owners are fooked with a capital F.

Dr. Bernanke might also want to review the concept of a Balance Sheet Recession.

How Government is Run

From the Washington Times:Regulators under fire for ignoring red flags.

Sheila Bair logged onto her e-mail account recently and got a pop-up ad offering a $175,000 home loan with monthly payments of only $400.

"I thought, 'Oh no, it's coming back already,' " said Mrs. Bair, the Federal Deposit Insurance Corp. chairman who had spotted problems with abusive and risky mortgages long before the mortgage crisis broke out last year.

The pop-up on the screen took her back several years to the time she first saw trouble brewing. The ads had been the warning flags: pop-ups, spam e-mails and junk-mail fliers offering loans at extraordinarily easy terms and low rates without explaining that the payments would eventually shoot up to unaffordable levels — a practice that will be banned in the future.

"Back then, we mainly looked at it as a consumer issue. I don't think anybody thought it had economic implications," Mrs. Bair said. Few people at the time had "a full appreciation of the costs of these mortgages, or [realized that] if the market stopped going up [borrowers] would lose their ability to pay."

First, we've met this bitch before right here. She is stupider than a rock, and the EE is insulting the rock, and he apologizes.

Secondly, if the buyers could only "pay" if the price was going up means that they were pulling out the appreciation to "pay" the monthly nut.

That is the freakin' definition of a Ponzi scheme which is illegal, the EE will point out to the ignorant government-salary bitch, for bleedin' obvious reasons.

However, we've lived through the Ultimate Ponzi Scheme.

What are the chances that she is doing this to preserve her job?

Academia Shmackademia

From the LA Times: In mortgage market, ‘walkaway’ homeowners may be urban myth.

Bankers and housing market analysts are warning of a chilling new trend in the mortgage world: Homeowners voluntarily defaulting on their loans even though they can actually afford to make the payments.

It's known colloquially as "walking away," or more jocularly as "jingle mail," from the sound your house keys supposedly make when you mail them back to your bank.

It's a way of saying that Americans are beginning to apply a cold financial calculation to home ownership: When a home's value has fallen below what is owed on its mortgage, they feel it makes no sense to keep up the payments.

But he said the bank did not have "firm figures" on how many homeowners were unnecessarily defaulting on their mortgages.

"We are working hard with our analytics to get at how much that is happening," Francisco said. Others suggest that it may be impossible to find out.

"How would you know what someone's true ability to pay would be?" asked Todd Sinai, an associate professor of real estate at the Wharton School of the University of Pennsylvania. "I'm not sure you could even come up with a definition."

Not to put too fine a point on it, Herr Doktor Professor, but the only goal of a lender is finding out the ability to repay. This is the core competency of a lender. If a lender can't even manage to do the job of their core competency, they should pack their bags and pick a different profession.

Of course, lenders also used to have downpayment requirements a.k.a. "skin in the game". Without any skin in the game, all the ability to repay isn't going to make them throw money on a rapidly devaluing asset.

Doubt the journalist knows their core competency here.

How Much Land Does a Man Need?

From the once-esteemed New York Times: Losing a Home, Then Losing All Out of Storage.

The foreclosure crisis is hitting yet another American locale: the self-storage center.

As they lose their homes, people are turning to these humble cinderblock and sheet-metal boxes to store their stuff. But some people cannot keep up with their storage bills any better than they could handle their mortgage payments, and storage companies are auctioning off their property for a pittance.

Subprime mortgage loans had low “teaser” rates to lure borrowers. Many storage facilities offer the first month for free.

“You tell yourself, ‘I’m only going to put my things in for a short time,’ ” Mr. Blair said. “Before you know it, you’re behind. Then you have to pay penalties and interest. You owe $400 to $500. If you lost your job, you can’t come up with that, not if you want to feed your family.”

Nearly non-existent 35 years ago, self-storage has become ubiquitous, with 51,000 facilities nationwide. Even as the larger economy falters, the industry is flourishing. Executives say the mortgage crisis is one reason.

For some units, $6 is too much. “A dollar bill, first dollar bill takes it,” Mr. Snyder implored in front of one unit. “Come on, this is everything they own!” To no avail.

Finally, folks, we have the "money quote".

This is the eternal mystery of self-storage. If the material was worth money, it was foolish to let it go to default. If it was not worth much, why spend at least $50 a month to store it?

Baby Jeebus Time

From San Francisco: Pray-in at S.F. gas station asks God to lower prices.

Rocky Twyman has a radical solution for surging gasoline prices: prayer.

Twyman - a community organizer, church choir director and public relations consultant from the Washington, D.C., suburbs - staged a pray-in at a San Francisco Chevron station on Friday, asking God for cheaper gas. He did the same thing in the nation's Capitol on Wednesday, with volunteers from a soup kitchen joining in. Today he will lead members of an Oakland church in prayer.

To solve the problem, Twyman isn't begging the Lord for any specific act of intervention. He is not asking God to make OPEC pump more oil. Nor is he praying for all the speculative investors to be purged from the New York Mercantile Exchange, where crude oil is traded.

Of course, monetary and fiscal policy have nothing to do it either.

C'mon baby Jeebus, we're all counting on you!

Let's have a class-action lawsuit!

From the New York Times: Low Spending Is Taking Toll on Economy.

For months, beleaguered American consumers have defied expert forecasts that they would soon succumb to the pressures of falling home prices, fewer jobs and shrinking paychecks. Now, they appear to have given in.

As real estate prices plunge, so does the ability of homeowners to borrow against the value of their homes, crimping a major artery of spending. As banks grow tighter with their dollars in a period of uncertainty, families are running up against credit limits, forcing many to live within their incomes.

They have to live within their incomes?

Oh the horror, the horror!

How to Shoot Yourself : A Guide

From Redding.com: After year-ago dispute, Redding home to be in foreclosure sale.

It's been nearly a year since an east Redding home was auctioned off for $375,000, then taken back by the seller after the deal was voided, the result of a legal dispute.

At one time, owner Don Shearing asked $719,000 for the 2767 Vermeer Place house.

The home was built in 2003 on a lot that sold for $75,000.

So with much fanfare, Shearing and Pacific Auction Exchange, a Redding franchise that he owns, hosted a June 15 auction -- it wasn't a foreclosure sale -- that saw Ken and Jason Jones nab the home for $375,000.

But Shearing hired a lawyer and ultimately took the house back about a month later after both sides came to an agreement.

Now the nearly 3,000-square-foot home with a pool on Vermeer Place in Carriage Glenn Estates is on the brink of being lost to foreclosure.

A notice was posted last week for a May 13 public sale, at which time the three-bedroom, three-bath home will be auctioned off on the Shasta County Courthouse steps. Balance due on the note is $333,373.

The EE has a puny mind, and can't always detangle the thickets of the average reporter's mind. Let us reconstruct the above in a logical sequential way. These seem to be the facts:

The home was originally listed for $719K, and there were no bids.

Then the home was auctioned for $375K which would've netted you somewhere between $42K and $300K.

Instead, you sued the winners of the auction, paid the lawyer's fees, and you won. You won all right. You showed those miserable cowpokes who was boss.

Then, you relisted, got no bidders, and went into foreclosure instead.

What can the EE say?

Greed, arrogance, and stupidity are a deadly combo, yes?

The R Word - Liberal Style

Me and You and Everyone We Know

From Utah: Home sales plunging in Utah.

He said the glut of homes built by speculators is also a contributing factor, "and now it's hurting everybody," he said.

Not everybody.

Just the speculators. And the home debtors. And the over-leveraged people. And the six-percenters. And the knife catchers.

Not everyone though.

Full Support?

From Vogue: Hard times ahead as porn goes soft?

Economists are citing some dire portents of a recession these days, but they've missed one indicator I find especially disturbing: The porn business has suddenly gone flaccid.

The drop in porn rentals and sales is worrisome on several fronts: Till now, porn has been a recession-proof business. Further, with the country already in a dispirited mood, the fact that porn has gone limp may indicate a true plunge in consumer confidence.

C'mon, folks! Help support the US economy.

Boudoirs are soooooooooo 19th century!

From the Rocky Mountain News: '07 Parade fails to make a sale.

Everyone loves a parade.

But maybe not so much if you were one of the five builders in the 2007 Parade of Homes.

The "parade," which featured five display homes in the $2 million range in Southshore near Aurora Reservoir, illustrates the plight of the struggling, upper-end market in the suburbs.

More than six months after the end of the parade on Labor Day, none of the five homes has sold. One is in foreclosure. Another is expected to end up there after its builder dissolved his construction company.

The home, which features a "woman's getaway space - a place for solitude, renaissance and peace," according to advertisement literature, is on the market for $1.825 million.

That must be where they "entertain", Biff, the hunky personal trainer.

Wayde Jester, consulting director for Metrostudy, a Houston- based realty-research firm that has been tracking the Denver area for seven years, said the problem "may be one of simple supply and demand. There's been a lot of building out there. If someone wants to invest $2 million in a home, it might not be southeast Aurora for most people."

You don't say?!?

Eurodollar Positions

Floating around trading desks on Wall St. The EE has received too many emails with this!

Soon to be reversed. It's called flip-flopping.

The Circle of Life

Sunday Schadenfreude

When the EE was a little boy, there would be a weekly radio program of songs on Sunday evening.

In honor of that, we present SUNDAY SCHADENFREUDE.

Since this is like radio, you need to click each video in order to appreciate the linearity of the presentation.

First, from Florida: Did appraisers juice Florida real-estate market?.

Appraisers so commonly pumped up house values to meet demands of developers, real-estate agents and lenders that complaints against them tripled in Florida in recent years -- the largest complaint increase for any profession regulated by the state.

Cheryl Oliphant of Santa Monica, Calif., bought a house that lenders shopped to appraisers as being worth $550,000. The registered nurse now thinks the appraisal was inflated.

A novice real-estate investor, Oliphant said she used her retirement savings and bought at the top of the market, thinking she had a great deal and instant equity in the house because it appraised for $50,000 more than the $450,000 sales price.

Oliphant has been trying to sell the house at a $100,000 loss and plans to file for bankruptcy, losing her $50,000 down payment. She said she might ultimately have to abandon that house and four others she bought in Florida.


From LA: Many areas are becoming ghost towns as families foreclose.

David Day's house-flipping strategy flopped and now he's fighting for his financial life.

Like so many others, he'll likely lose.

Day and his family are on foreclosure's doorstep, struggling to make mortgage payments totaling $6,240 a month.

"I haven't slept in five months. I wake up every morning in a cold sweat. I'm getting ready to go into bankruptcy," he said. "There is no money for food, basically."


From the Bay Area: Bay Area food stamp enrollment skyrockets.

Struggling with rising prices and a stalled economy, a growing number of Bay Area families are turning to food stamps.

In January alone, the county approved 1,743 applications — 3 percent more than during the same month in 2007.


Finally, a word from the patron saint of this blog, and our chief sponsor, hereeeeeeeeeeeeeeeeeeeeeee's Mr. Ogden Nash:

Love is a word that is constantly heard
Hate is a word that is not
Love, I am told, is more precious than gold
Love, I have heard, is hot

But hate is the verb that to me is superb
And love, just a drug on the mart
For any kiddie from school can love like a fool
But hating, my boy, is an art.

Thank you, thank you, please tune in again next Sunday for our weekly roundup.

Lawdy, lawdy, lawdy

From Rich Toscano (freelance writer.)

He's overlaid the comments of RE cheerleaders with the Case-Shiller index for San Diego. The Internet sure seems to be shutting down their show.

Man, this is freakin' hilarious!!!

I love the smell of Credit Shrinkage in the morning...

H8 Release.

The Teensy Weensy Problem

From California: March worst month yet for housing market.

"We haven't hit the terrified phase yet," said Harris, the Oceanside mortgage broker. "The sellers are going through the seven stages of denial. ... Eventually, they will get to the stage where it's, 'Holy crap, I'm not going to be able to make this mortgage payment anymore.'"

F-art-ists!

From the BBC: France plans loans for art buyers.

The government says interest-free loans will be offered to "modest" buyers to purchase works and it is expanding incentives for companies to buy.

A survey out this week showed that, for the first time, France had dropped from 3rd to 4th place behind China in sales of art works.

"There is a real need to act," explained French Culture Minister Christine Albanel.

No, there isn't!

Under the scheme, members of the public will be granted interest-free loans worth up to 10,000 euros ($15,000, £8,000).

Yeah, this will really change the landscape. Really.

Lord knows, the EE is a fan of modern art, and lord knows, a little patronage never hurt anyone but are you freakin' telling me that these amounts change anything?

Anyone who is in a position to fork out real dough for art doesn't need a loan. Period.

This shouldn't come as a freakin' revelation, least of all to the Minister of Culture!

In any case, loans will not make the French art world "better", whatever such a term can possibly mean in the arts anyway. Either the buyers want the stuff, or they don't, and the loans for such miniscule amounts matter not a whit.

Boring. Next!

Food Stamps

Giving Up

With all the changed proposals and laws, I give up. I've just signed a contract for a condo in my neighborhood with an Option-ARM.

Job Market 2009

Anniversary Time

From the Brandenton Herald: Feb. home sales off in price, volume.

Pending sales may have soared in February but the number of existing-home sales in the Bradenton-Sarasota market was down 10 percent from just one year ago, according to numbers released Monday by the Florida Association of Realtors.

Nationally, sales were down 23.8 percent from February 2007, and statewide, sales were down 25 percent.

Owens' TeamWork team has 54 listings and 40 percent of those are short sales.

"I've had grown men coming into our office crying," Owens said.

Of course, today is the third anniversary of the publication of this sparkling gem from the New York Times.

In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.

"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."

You sure got that right, sweetpea!

Glittering Green

From Reuters: New York City risks losing 20,000 finance jobs.

New York City risks losing more than 20,000 jobs in the high-paying financial sector over the next two years as the effect of the crisis in mortgage markets drives down Wall Street's profits, according to a report issued on Monday.

The city's Independent Budget Office, in its report, estimated that Wall Street's profits for 2007 will sink by more than 80 percent to the lowest level since 1994.

Profits for 2007 are expected to total just $3.2 billion, down from $20.9 billion in 2006, the report said.

Banks and brokerages account for almost 35 percent of all salaries and wages in New York City. Fallout from investments in the risky subprime mortgage market has forced Wall Street banks to write-down more than $150 billion -- and more red ink is expected.

Well, that should have NO effect on the Emerald City because the Europeans and the Chinese will buy all the condos!

Where the EE walks people through obvious arguments...

In the upcoming recession, people will buy:

(a) more stuff, or
(b) less stuff.

Hence, margins must:

(a) rise, or
(b) drop.

Hence, to maintain profitability, business will try and:

(a) increase wages, or
(b) decrease wages.

And correspondingly, we can safely say that:

(a) less jobs will be outsourced to Chindia, or
(b) more jobs will be outsourced to Chindia.

And hence:

(a) more people will be able to pay their mortgage, or
(b) less people will be able to pay their mortgage.

And hence:

(a) foreclosures will fall, or
(b) foreclosures will rise.

And hence ...

Self-Congratulatory Shee-yat

Here's a "blast from the past": A Tiny Preview from the Future from July 2007.

Interested in knowing what stories will hit the press in a years' time?

Abandoned Pets.

The "New Simplicity" (living within your means; watch for a "Time" article!)

People re-embracing religion

And here we go from Time Magazine: The New Austerity.

Amid all this hand-wringing, Americans have kept piling on more and more debt. The last significant episode of belt-tightening came during the recession of the early 1980s. But that turned out to be just the prelude to a quarter-century of growing profligacy, capped by a final half-decade of mostly mortgage-related fun that will go down as one of the most reckless borrowing-and-lending binges ever.

Now that particular binge has come to a crashing end, and the credit worriers believe their moment may have finally arrived. "I'm not saying we're going back to our parents' level of frugality," says David Rosenberg, North American economist at Merrill Lynch. "But what we have witnessed in the past 20 to 30 years — and especially the parabolic credit growth of the last five years — is going to be bursting in the next decade."

Americans simply don't have enough money to pay back the mortgage and credit-card debt they've run up.

This will, if it doesn't get out of hand (as in Great Depression out of hand), be a healthy development.

Please note that the Eccentric Economist nailed the specific time-frame, the form of the argument, and the magazine that it would be published in cold.

Oh and, ironically, that dude is right. We will not be headed back to our parents' level of frugality; we are going to be going right back to our grandparents' level.

Chuffa, puffa, chuffa, puffa.

The Bullshit Train™ always arrives on time!

Goldilocks R.I.P.

Ding dong, the bitch is dead.

Falling Knives

From Arizona: Only some get soaked as home values dive.

The hardest hit are sellers like Paul Joray and his wife, Jacqueline Caul, who listed their house in Maricopa for sale in December for less than they paid for it in 2006.

The couple, retired university administrators, bought a $719,000 house in Chandler's Ocotillo Lakes in January.

"I'm an economist so we understood that it's a great market to buy a house but not a great market to sell a house," Joray said.

Suppose you were a Grade-A moron. And suppose you were an Economist. But I repeat myself.

They listed their Maricopa house for $359,000, despite spending about $20,000 in landscaping.

Santa Maria, Madre de Dios!

You are losing money on $359K so you doubled down?

Joshua Tree Enema™ Time, and it ain't gonna be pretty!

Candle in the Wind

From Redding, CA: Weak economy rams stores.

Rachel Carrino knows that when times are tough, specialty retailers are the first to feel the budget crunch.

"We are a want' store, not a need' store, so we are kind of the last place on everyone's list," said Carrino, whose Candle Connection in the Mt. Shasta Mall has seen declining sales since the fall.

Carrino isn't going out of business, but this year, holiday sales at Candle Connection were down about 35 percent from 2006.

Candle decline? California is obviously in recession!

Pearl of Wisdom

From the Orlando Sentinel: Existing-home sales in Orlando area may have bottomed out.

Steven Moriera, president of the Orlando Realtors group, said he thinks the year-over-year declines are beginning to moderate -- the 40.2 percent drop in February was the smallest in six months -- though he wouldn't speculate on when a recovery might begin.

"We believe that there is light at the end of the tunnel, but we don't know how long the tunnel might be."

Upside Down

From the Pensacola Journal: It's upside down time in housing.

A single mom with a 2-month-old infant called the other day with a question.

She was confused and looking for some advice.

Seems the young woman, a Warrington resident, wanted a home equity loan to add on a bedroom, consolidate credit card debt and buy new furniture.

"Someone told me I couldn't get a home improvement loan because I was upside down," she said over the phone. "What does that mean?"

I tried to explain that her house is now worth less than what is currently owed on the mortgage.

"But I still don't understand," she said. "I put $20,000 down on my house when I bought it. I've been making my mortgage payments every month for the past three years. How could I have lost all that money?"

You mean to say that the worth of a house is based on what other people are willing to pay, and a function of the credit markets not what you were duped into paying?

SHOCKER!

Big Pimpin' at PIMP-CO

From CNBC: Pimco's Gross: Fed Should Buy Mortgages.

The Federal Reserve needs to take a more active role in stemming the housing crisis, possibly by exchanging Treasury notes for mortgage notes, Pimco Bonds Chief Information Officer Bill Gross said on CNBC.

Fed buys MBS's. Dollar has a cow. Derivatives markets implode. Canned peas and AK-47 time.

Anybody who talks about "bailouts" hasn't done the math. All you need is one small index card, a pencil, and lots and lots of zeroes. Scientific notation might ease the pain, and prevent RSI.

I would also note all the failed "rescue" plans, and cite that ol' military adage that a failed rescue is no rescue at all.

Boring. Next.

50 Ways to Leave Your Mortgage

The Spinning Jenny is back! Remarks by Secretary Henry M. Paulson, Jr.

I believe our efforts are best focused on helping homeowners who want to stay in their homes.

Homeowners who can afford their mortgage should honor their obligations --- and most do.

BWAH-HAHAHHA-HAAHAHAHAHAHHAHAHHHH!

Now that the debtors are sticking it to the banks, they talk about "honor"? This is sheer desperation.

You just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just listen to me
Hop on the bus, Gus
You don't need to discuss much
Just drop off the key, Lee
And get yourself free.

Grandiose Fantasies of Economists

From the Taipei Times, we have an economist J. Bradley Delong (Berkeley) writing: Three cures for three crises.

The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won't solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency.

When this happens, governments have two options. First, they can simply nationalize the broken financial system and have the Treasury sort things out -- and reprivatize the functioning and solvent parts as rapidly as possible. Government is not the best form of organization of a financial system in the long term, and even in the short term it is not very good. It is merely the best organization available.

The second option is simply inflation. Yes, the financial system is insolvent, but it has nominal liabilities and either it or its borrowers have some real assets. Print enough money and boost the price level enough, and the insolvency problem goes away without the risks entailed by putting the government in the investment and commercial banking business.

The inflation may be severe, implying massive unjust redistributions and at least a temporary grave degradation in the price system's capacity to guide resource allocation. But even this is almost surely better than a depression.

Let me state it upfront. These economists are full of shit.

Before we talk about why they are full of shit, let me state the general position. In order to understand macro, you must first understand micro i.e. you need to understand how nuts and bolts work before you can start talking about rocket engines.

The theoretical position is correct. Print enough money and you will boost the nominal price level enough, and the insolvency problem goes away.

Unfortunately, that's not how it works in practice.

Firstly, the Fed doesn't "print" money. What it does do is lower the price of money below the market rate which has an effect similar to but not the same as printing money. This is an exceedingly critical point, and I cannot emphasize it enough.

What that means is that it cannot control the channel in which this money will flow. It could flow into commodities, or it could flow into absurd Internet ventures, or it could flow into gold. They have no control over where it goes.

Everyone with me so far?

Now, where the money goes is a matter of psychology. No banker or trader in their right mind is going to throw money at a clearly collapsing asset (which is what housing currently is.) You'd have to be borderline retarded to do so,

The bankers are in it for the money. They don't give a crap about what economists or central banks desire.

In fact, you can see it in the headlines. Wells Fargo now wants 25% down in California. Whether the Fed likes it or not, this is tightened credit for housing (which means they are balking at loaning money for a collapsing asset.)

In fact it is precisely this reason that no bubble in history has ever failed to collapse, inflation or no inflation, central banks be damned!

Now in order to "cushion" housing prices, the money would have to flow into wages because the borrowers need to make their monthly payment. Anybody who believes that wages will increase in the presence of China and India online also believes in the Tooth Fairy.

Even assuming the Tooth Fairy actually shows up to town, the wages would have to go up right now not 12-18 months later because the borrowers need to make their monthly nut now not 12-18 months later.

Theoretical economists don't worry about time lags. etc. Wave the wand and double the money supply. Yeah, OK.

In what time frame, sir? And what will the borrowers be doing while you're waving the wand?

Finally, we come to the coup de grâce. This is where micro trumps macro every single time.

The credit has been flowing into commodities. Oil at more than $100; wheat prices up 46% in two months. Food and fuel prices are already rising steeply.

The needs of an individual are clear. First air (which is free), then food and fuel (heating, getting to job.) Only after that do they need shelter, and clothing. Everything else may safely be classified as discretionary. (Note if you can't get to your job, you won't be making any money.)

Now, each household has a finite pot of money each month (and this pot will not be increasing as explained above.) If food and fuel costs increase, then the amount of money they can spend on the rest must go down. Since food and fuel are absolute necessities, there is less money left over for shelter. I leave it as any easy exercise to the reader to figure out what happens to home prices in that situation.

So while theoretically inflation solves the problem, it has absolutely no chance of doing so in practice. In fact, it is going to make house prices collapse faster i.e. it will actually have the perverse effect of doing the exact opposite of what is intended.

Put that in your pipes and smoke it, economists!

Instantaneous Contradiction

From Colorado Springs: Upscale homes have upper hand.

Colorado Springs’ upscale housing market remains fit, even as it’s gotten fat.

A slowdown in sales, which mirrors what’s happened nationally, has swelled the inventory of $1 million-and-up homes on the market to a more than four-year supply, according to one estimate.

Fit market? Four year supply?

Is cognitive dissonance dead?

Till Death Do Us Part

From the Chicago Tribune: This house was a steal.

The new buyers of a rundown graystone on the South Side showed up Jan. 9 to look at the house they won at a foreclosure auction. They took the plywood off the front door and went inside to make sure the utilities had been shut off. Then they called the police.

Sitting upright in the corner of a bedroom off the kitchen was a human skeleton in a red tracksuit. Next to him lay a dead dog. Neighbors told police the corpse was almost certainly Randy Johnson, a middle-age man who lived alone in the North Kenwood house.

The cause of Johnson's death has not yet been determined, but it is just one of the mysteries about 4578 S. Oakenwald Ave. Somehow, Johnson's house was transferred three times to new owners without anyone noticing he was inside. It's a story involving forged deeds, a corrupt title company and a South Side family that has been under investigation for mortgage fraud.

Left holding the bag is Countrywide Home Loans, the nation's largest mortgage lender and a company whose practices are being scrutinized by the Illinois attorney general's office. Countrywide made mortgages of $450,000 on the property. Now it is likely to lose it all because it financed the sale of a home whose rightful owner was in no condition to sell.

Meanwhile the New York Post writes: LET 'EM EAT KOBE STEAK. (yeah! All their front-page articles are all-caps.)

While foreclosed homeowners across America pack cartons of belongings this weekend, a band of junk-mortgage bankers is checking into a lavish Aspen, Colo., lodge to celebrate and dine on $105 steaks - with junk king Countrywide picking up the tab.

The handpicked guests, who'll stay in rooms starting at $750 a night, begin their long weekend with a party at Wolfgang Puck's famed new Spago restaurant at the lodge, where Kobe steak is $105, and Kabocha pumpkin flan is $54.

Death and Taxes? Maybe we should add Fraud to that list!

Desperado

From the Chronicle-Telegram: “I’ll do anything to sell this house”.

The idea seemed simple enough.

Buy a foreclosed home through a sheriff’s sale at a below-market price; fix it up and then resell it making a small profit. It’s called flipping.

Gary Cahill of Elyria knew the plan wouldn’t net him millions, but he and his wife, Janice, were eager to start a new hobby.

I don't know about y'all now but all my hobbies lose me money. They give me a hell of a lot of pleasure but they don't make me any money. Isn't that what a hobby is supposed to do?

“It’s not like this is my only house. I have four mortgage payments to pay plus my business to run,” he said. “I don’t know how long I can keep this up."

Until the Big Bad Bankers take it away, baby, until the Big Bad Bankers take it ALL away.

“It’s not as easy as those television shows would make it seem,” said Cahill.

Television lied? Get out!!!

Appetite for Destruction

From ABC News: Even Celebrities Hurt by Housing Slump.

Even Hollywood's rich and famous can't avoid the housing downturn that's sweeping the nation. In Los Angeles, only 4,430 homes were sold in December, down 48% from the previous year. And prices fell 11% to an average $470,000.

Hollywood's rich and famous, of course, are supposed to be immune from Economic Laws just like they are immune from Gravity and Aging.

Young rocker Avril Lavigne has had to reduce the price on her five-bedroom, six-bath house in Beverly Hills from $6.9 million to $5.8 million.

Former Guns N' Roses guitarist Slash (also known as Saul Hudson) feels he overpaid for his Spanish-style Hollywood Hills home, which has a pool, a separate gym and stunning views. He bought the house in January 2006 for $6.2 million. He sold it last December for $5.7 million. Slash is suing his former real estate agent, claiming the house was neither as big nor as private as the agent claimed. The case is ongoing in California Superior Court.



Where do we go? Where do we go now? Where do we go?

Ain't it Grande?

From Philly.com: A family's struggle against great debt.

Anthony and Lisa Grande's house stands out in their Levittown neighborhood.

"It's the big house," Lisa said when giving directions.

The Grandes borrowed more than $100,000 - much of it on credit cards - to double its size four years ago because they wanted enough room for their five children and did not want to move.

But now, the Grandes are fighting to stay there, having repeatedly fallen behind on their mortgage payments, which climbed from $1,841 to $2,487.

When they refinanced in January 2004 from a $113,906 fixed-rate mortgage into a $220,500 adjustable-rate mortgage to pay off credit-card and other debt, they were told - like millions of others - that they could refinance before the interest rate jumped.

Then Anthony's health fell apart, his plans to start a business foundered, and another refinancing did not come through.

"To be quite honest, we were probably foolish also," Lisa said.

Lisa recalled a carpenter on their roof during construction stamping a broom and saying so many people went bankrupt expanding their homes. "I knew it then. It's like he cursed us."

It is hard for the Grandes to grasp how they got to their current state from where they were in early 2003.

That's when Anthony lost his job as the general manager of a used-car dealership because the business closed. He figured it was a good chance to expand the house because he wanted "a place for the kids to come home to."

To pay for the additions, the Grandes used a $40,000 bank loan and credit cards.

In January 2004, they did what millions of Americans did during the housing boom to cope with ballooning credit-card debt: they refinanced, though they didn't get enough to pay off their credit cards.

The new loan - with no income verification, according to Anthony - increased their monthly payment from $950 to $1,841. The introductory interest rate was 7.75 percent for two years.

Anthony's plans for a partnership did not work, so he decided to open his own lot on Route 13 in Levittown and sank in $65,000.

Legal fees and drug-rehabilitation expenses mounted for Anthony's son from a previous marriage, reaching $84,000, Anthony said.

Despite the refinancing in January 2004, the Grandes still had $118,628 of debt on 24 credit cards, according to a bankruptcy filing in October 2005.

"We probably lost track," Lisa said of the number of credit-card checks they used. "They just kept sending us checks."

Last fall, Anthony was granted disability benefits. His monthly benefit is $1,147, less than he used to earn in a week. "I was always a go-getter," Anthony said. "I just feel so whooped."

The whole affair has shattered Anthony's sense of himself. "I was always hustling. I always worked. Now I can't do anything. I feel like a jerk," he said.

We should first amuse ourselves by the thought of the Grandes doing an "expansion". Not to mention that they are mucho grande themselves. And of course, they live in the "big" house.

Any more "grandes" in there and we'd be looking at an ad for Starbucks.

Now, on with the show.

This is like the jackpot of bad decision making.

Expanding your house and taking on debt while you're out a job? 24 credit cards? Lost track of checks? $100K+ in consumer debt? Son in rehab? Opening a used car dealership? Disability?

And the carpenter put a malocchio!

This is like a bad melodramatic 19th-century Italian opera.

In January 2006, the interest rate jumped to more than 10 percent and the payment to $2,220. Six months later, it was up to $2,487, and with Anthony's health problems keeping him out of work, they fell behind.

Pennsylvania's Homeowners Emergency Mortgage Assistance Program helped them get caught up in August 2006. But after spending too much for Christmas in 2006, they fell behind again early last year.

Yeah, the "Emergency Mortgage Assistance". But it was Christmas. What could they do, les pauvres petites?

Lisa, 45, said it's been incredibly hard dealing with Option One. "You could never talk to the same person, and then whoever you had next tried to get more out of you," Lisa said. She recalled how one service representative told her: "I don't want to hear your hard luck story. I want a check."

Oooh, nasty, babykins. Isn't that just nasty?

Tell you what Lisa, honey! Go have a canoli. After that Oprah will bring your some tea and cookies, and give you a day at the spa. Everything will work out just fine.

HELOC Hell

From Reuters: Sharper Image files for Chapter 11 bankruptcy.

Retailer Sharper Image Corp has filed for Chapter 11 bankruptcy protection, citing declining sales, three straight years of losses and litigation involving its Ionic Breeze air purifiers.

The San Francisco-based company filed for protection late Tuesday in U.S. bankruptcy court in Wilmington, Delaware. Sharper Image said it had $251.5 million in assets and $199 million in debt as of January 31, according to the filing. Cash on hand totaled about $700,000.

Its shares plunged 92 cents, or 64 percent, to 52 cents on Nasdaq.

"Sharper Image is in a severe liquidity crisis," Chief Financial Officer Rebecca Roedell said in a separate filing.

She said the company has suffered from increased competition, narrowing margins, litigation, lower consumer and market confidence, tighter credit from suppliers, and poorly performing stores.

No more HELOC. No more Sharper Image.

Consumer crap at larcenious prices.

Can Brookstone be far behind?

WWF

From Reuters: US mortgage rates post record daily move.

The average rate on a 30-year U.S. mortgage with no upfront points jumped 3/8 percentage point on Tuesday to 6-5/8 percent, in the biggest one-day move in the ten years that BestInfo Inc. has tracked the rates.

A 75 basis point move in a bond market is the equivalent of an atomic bomb being casually tossed into the fray.

Body Slam!

First Man Down, How Many to Go?

From NBC in San Francisco: Vallejo On Brink Of Bankruptcy.

The city of Vallejo is on the brink of becoming the first California city ever to declare bankruptcy, City Council members said Tuesday.

Vallejo may run out of cash as early as March, council member Stephanie Gomes said.

"Not only that, but now we have 20 police and fire employees retiring because they are afraid of not getting their payouts," Gomes said. "That means we have another few million dollars in payouts that we had not expected. So the situation is quite dire."

Gomes said the situation has been building for more than a decade.

"This has been happening for quite a while. For 15 years the city council has been putting Band-Aids on the problem. (It has been) extending contracts and deferring payments for public safety to the next years as a way of balancing the current budget."

This is the norm not the exception. There is no way all those pensions are going to get paid. The pensioners are pretty much screwed.

How many Ph.D.'s does it take?

From the Modesto Bee: Housing sales continue steep fall.

One, the drop in prices and interest rates means a buyer could more easily afford a median priced house, based on a 30-year fixed mortgage with a 10 percent down payment, Lewis said.

"Local people can now qualify to buy that same home," he said.

One does not, in general, "qualify" for a house. All you need to do is pay the owner money.

That's how capitalism works. You don't have to "qualify" for anything. Just bring money and preferably lots of it. You'll "qualify" for everything with the right amount of dough. They'll even take dollars!

Presumably one may "qualify" or "not qualify" for a mortgage but a house is not a degree. Only in the Land of the McCrapBox populated with McMillionaires would a house be a "qualification".

Homeless not Helpless

From USA Today: Some homeless turn to foreclosed homes.

The nation's foreclosure crisis has led to a painful irony for homeless people: On any given night they are outnumbered in some cities by vacant houses. Some street people are taking advantage of the opportunity by becoming squatters.

Foreclosed homes often have an advantage over boarded-up and dilapidated houses that have been abandoned because of rundown conditions: Sometimes the heat, lights and water are still working.

"That's what you call convenient," said James Bertan, 41, an ex-convict and self-described "bando," or someone who lives in abandoned houses.

There you go; that takes care of the homeless "problem".

They're probably eating and living better than the "home moaners" who are currently forced to eat ramen. Hey! but at least they have stainless steel appliances and granite countertops!!!

Credit Crisis Explained

In pictures too!

If you laugh so hard that you end up choking, you only have yourself to blame.

Downbeat Downpayment

From the San Jose Mercury News: From bad to 'worst' for Santa Clara County home sales.

For the first time since the housing downturn began in late 2005, housing prices in Santa Clara County dropped last month compared with a year earlier. And, in the aftermath of the credit crunch that sent rates for large mortgages soaring and Silicon Valley home sales sliding, fewer homes sold in January than during any month in 20 years.

Despite excellent credit and no debts other than the home loan she planned to get, the biggest challenge she faced was actually securing that jumbo mortgage.

"Basically every mortgage company says I'm their dream client," said Abramowitz, a management consultant who saved for years to amass a 20 percent down payment for a home in the $1 million range. But right after she agreed to buy the five-bedroom house late last month, the stock market took a steep dive, and lenders began saying her down payment wasn't high enough. "Suddenly everyone was going, '45 percent down.' "

45%!!!

Vampire. Garlic. Stake. Heart.

The Audacity of Hope

The Hartford Courant reports: Mortgage Relief Plan Leaves Lots Of Pain.

A new, highly touted state program designed to aid first-time homeowners facing exploding mortgage costs has such strict standards that the vast majority of those seeking help don't qualify — a stark reality for financially troubled Connecticut residents looking for a mortgage bailout.

More than 1,000 homeowners have flooded the Connecticut Housing Finance Authority with calls as they sought to qualify for the new loans, which were announced in November and funded by $50 million in state bond money.

The loans are intended to help people refinance adjustable-rate mortgages at fixed rates.

But so far, eight weeks into the program, only 25 loans have been approved. At one of the three mortgage lenders participating, more than 300 inquiries resulted in just three loan approvals.

MISSION ACCOMPLISHED!!!

La Muerta

We regret to inform the readers of this blog that Goldilocks was shot this morning. The footage was captured on national television. She was declared dead around 10:15am.

Various members of Congress have called for an investigation into the nature of her death. No further details are known.

Nose Candy

From the Houston Chronicle: Growers' profits wilt.

Valentine's Day is the one day in the middle of the winter when everyone wants roses, and the 150 laborers on this 35-acre rose plantation are working overtime to sell American customers fresh, fragrant flowers.

But for all the bustle and fuss of the peak season, growers in Colombia, the world's second-largest exporter of cut flowers, say they are being squeezed.

Prices for flowers remain flat. The falling value of the U.S. dollar has turned profits into losses. Several farms have closed, laying off thousands of employees. And a trade deal that would give Colombian flowers permanent duty-free entry into the United States may be rejected by the U.S. Congress.

"The business has always faced difficulties, but never more than now," said Augusto Solano, president of the Colombian Association of Flower Exporters, a trade group in Bogotá.

Part of the problem is heavy reliance on the United States, where nearly six of every 10 flowers sold are imported from Colombia.

Amid an economic slowdown, the U.S. dollar has lost more than one-third of its value against the Colombian peso.

Guess it's time to go back to your original cash crop, Colombia!

Credit Enhancement

UBS is offering super-duper bonds.

"Many investors are reluctant to buy MBS backed by Alt-A collateral including super senior paper, as they fear credit losses," UBS analysts wrote.

In a hypothetical super duper triple-A deal, the bonds have twice the credit enhancement of the super senior triple-A bond and four times the credit support of the straight triple-A bond. After running the structure through hypothetical scenarios, UBS determined that the super duper senior Alt-A hybrids offer great value relative to prime jumbo super senior hybrids and agency hybrids, and virtually eliminate the credit component.

Super duper senior Alt-A hybrids?

Mamma mia!

How about the Itsy-Bitsy-Teenie-Weenie-Yellow-Polka-Dot-Bikini-Shrinking-Mortgage-Collateral bonds? Is there any market for those?

And if you actually want to eliminate the credit component, as opposed to "virtually" eliminate the credit component, couldn't you just stick with US T-bonds?

Stake Through Vampire's Heart. News at 11.

From South Florida: BankUnited blacklists 191 condo projects.

Interested buyers looking for mortgages to buy units in Miami's Opera Tower, Everglades on the Bay or Four Ambassadors shouldn't bother approaching BankUnited. The Miami-based bank has included them on a list of 191 condo projects it won't write loans for.

The Business Journal obtained a list of "non-permissible" projects used internally at BankUnited and updated as of Jan. 14. Most of the forbidden properties were in Miami and were added at the last update. It wasn't clear who at the bank wrote the list, but the author stated a reason for almost every project declared off-limits.

Declining market value was the biggest culprit, followed by high investor concentration -- as much as 70 percent in one case. BankUnited also cited numerous foreclosures, delinquent homeowners association dues, structural-based litigation and the bank's existing exposure in the buildings.

Profound Ignorance

From Reuters: Depression risk might force U.S. to buy assets.

Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Let's say the obvious thing first. Mr. Connolly is a complete and utter fool.

That's right! I'm claiming that the global strategist of Banque AIG who worked for the EU quite literally doesn't understand elementary finance.

Let us avoid all the legal nitpicking about having to get Congressional permission and all that jazz, and let's stick to just the economics.

The short reason for why something like this can't work is that there isn't enough money to do so. You are talking about assets that are a significant fraction of World GDP.

So just "print the money" you say?

That would send the dollar into a tailspin; furious capital flight à l'Argentina; and long bond rates soaring to unheard heights.

This is turn would cause more foreclosures, cause a complete meltdown of the global financial system, and morph into a Financial Mad Max scenario.

You won't need land or gold then; you will need guns. And ammo. Lots of ammo.

Is this "possible"? Certainly.

In the same way that you might read in tomorrow's news about a homicidal killer on a unicycle who decapitated exactly 17 children while nibbling on a decomposing rabbit.

It's definitely "possible".

However if you think it is "likely", I suggest you send your resumé to Banque AIG pronto!

"The Worst is Just Beginning"

The blog's first YouTube video features the Spinning Jenny who having been bitch-slapped by the Invisible Hand is spinning downwards again.

Guess it's not "all contained", huh? And what happened to the "strongest economy in my lifetime"? Morphed into the worst in a few months. That's not very strong, innit?!?

On a side note, worst poker player EVER. The buzzwords, the shifty eyes, the stutter. You couldn't do a worse bluffjob if you tried.

Asswipery

From All the Asswipe That's Fit to Print: Mortgage Crisis Spreads Past Subprime Loans..

The credit crisis is no longer just a subprime mortgage problem.

Word, son, word.

Home prices in the North Las Vegas neighborhood of Brenda Harris, a technology analyst at a casino company, have fallen 20 percent to 30 percent. The builder who sold her a new three-bedroom home on Pink Flamingos Place for about $392,000 in 2006 is now listing similar properties for $314,000. A larger house a block down from Ms. Harris was recently listed online for $310,000.

But Ms. Harris does not want to leave her home. She estimates that she has spent close to $40,000 on her property, about half for a down payment and much of the rest on a deck and landscaping.

“I’m not behind in my payments, but I’m trying to prevent getting behind,” Ms. Harris said. “I don’t want to ruin my credit.”

In addition to the declining value of her home, Ms. Harris, 53, will soon be hit with a sharply higher house payment. She has an option adjustable-rate mortgage, a loan that allows borrowers to pay less than the interest and principal due every month. The unpaid interest gets added to the principal balance. She is making the minimum monthly payments due on her loan, about $2,400.

But she knows she will not be able to pay the $3,400 needed to cover her interest and principal, which she will be required to pay once her loan balance reaches 115 percent of her starting balance. And under the terms of her loan, which was made by Countrywide Financial, she would have to pay a prepayment penalty of about $40,000 if she chose to refinance or sell her home before May 2009.

She said that she now wishes she had taken a traditional fixed-rate loan when she bought the home.

Let's see:

She can't afford a traditional loan that covers income and principal.

However, she wishes she had taken a traditional loan.

Even accounting for the difference in interest rates (miniscule), she can't afford it. Hence, it is not possible.

Somewhere out there the world's smallest violin is playing a sad melody for this woman's "dreams"!

Waterboarding

Don't look now!

FIRE Economy to the Rescue

From Wate: Suspicious fire destroys Knox County home.

An abandoned house went up in flames in the early hours of Friday morning.

Firefighters say the home had not been occupied for several years and that electrical service had been disconnected.

From Daily News: Suspicious fire burns Westwood home.

A fire that roared through a Weatherbee Drive home yesterday afternoon, requiring the efforts of crews from six area towns to extinguish, is being labeled suspicious. The 28 year-old son of the homeowners was arrested for arson.

From Toledo: Suspicious fire damages North Toledo home

A suspicious fire damaged a two-story wood frame house in North Toledo early Wednesday, authorities said.

Firefighters were called to 447 West Manhattan Blvd. about 1:50 a.m. and found heavy fire in a dining room, authorities said. No one was home at the time of the fire.

Firefighters said there was a strong odor of gasoline inside the home prompting them to call Toledo fire investigator Mike Smith to the scene.

From Jackson, TN: Fire destroys vacant building in Trenton.

A fire in Trenton on Friday night destroyed a vacant building that had once housed a car dealership and a bus station.

From Yakima, WA: Suspicious Fire Devours Wapato House.

Fire devoured a house in Wapato, and firefighters think it’s arson. It happened late Monday night on Acacia Lane.

An abandoned garage and mobile home caught fire and lit up in flames.

Firefighters say the fire is suspicious in nature. They say it is the second or third time they have responded to that area in the past year, to put out other fires that were ruled arson.

From Lubbock, TX: Fifth blaze since late December ruled arson by investigators.

A Central Lubbock neighborhood was marred by arson Wednesday night for the fifth time in a little more than a month.

And fire investigators don't have much to go on, despite a $1,000 reward being offered for information leading to an arrest.

Looks like the FIRE economy is going gangbusters!

Bait and Switch

From Yahoo!: A Credit Card You Want to Toss.

Credit-card issuers have drawn fire for jacking up interest rates on cardholders who aren't behind on payments, but whose credit score has fallen for another reason. Now, some consumers complain, Bank of America is hiking rates based on no apparent deterioration in their credit scores at all.

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter -- headed "Important Amendment to Your Credit Card Agreement" -- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. "No one could give me an explanation," says Eric Fresch, a Huron (Ohio) engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit.

Analysts also say they are surprised by the magnitude of the rate raises Bank of America is imposing on affected cardholders. Michael Jordan, 25, a software developer who lives in Higganum, Conn., says he received a letter from Bank of America in late January advising him that his card rate would rise from 9.99% to 24.99%. The software developer, who earns $80,000 per year, says he was "shocked" because his payments had been on time and his credit score hadn't changed in the last year. In fact, Jordan says, he has only $4,500 in overall outstanding credit-card debt on two cards and that, on the Bank of America card in question, he had paid down his balance to $3,000 from $3,700 last August.

Firstly, the rates are going up because that's what happens in a "credit crunch". However, individuals do not care about the "larger macroeconomic picture". They care about what happens to them.

From the "micro" perspective, they are morons.

Why would you be at the mercy of an industry where in sharp contrast with all the principles of contract law, all rules can be changed retroactively and unilaterally?

However, that's what credit cards do, and legally!

However, people take on debt voluntarily, and the credit cards change the rules on them once they are in no position to negotiate. What's not to understand?

For this, one must call the sheeple for what they are -- imbecilic retarded morons.

The Economics of Pop Culture

From CNN Finance: The economics of Britney Spears.

In the days after the Britney Spears soap opera rode a police-escorted gurney to its apex, celeb-mag sales spiked, traffic jammed gossip Web sites, tabloid TV ratings rose and paparazzi photo prices surged.

For a growing number of people and businesses, Britney's saga is about money: every time she sinks to new lows, cash flows. And these days, no one is above the fray.

Any time a magazine can boost newsstand sales past its average, the revenue is booked nearly entirely as profit, Harrington said: "People prints 2.5 million copies and sells about an average of 1.5 million. If they have an issue that sells 2 million, the extra half million goes to the bottom line."

Yep, any time you boost the average, it flows to the bottom line. Most importantly, it flows to the CEO's bonus.

Spears is just one of many stars driving the growing multibillion dollar celebrity news industry. But the Spears story in particular, with a new twist nearly every week, has become a very profitable sub-sector unto itself.

"Britney is the most bankable celebrity out there right now, and she has been for the past year," said Francois Navarre, founder of the paparazzi agency X17.

X17, which owns the infamous picture of a bald Spears taken in February, has a team of photographers tracking her at all times. "For us, she's the star No. 1," Navarre said.

On the flipside, the Spears story isn't making money for everyone. There are costs involved, too. For instance, the increased scrutiny puts a burden on Los Angeles civil service units, which have to keep Spears safe and public spaces uncluttered.

The L.A. Police Department wouldn't estimate the extra costs Spears generates. Her ambulance incident last week was handled by officers already on duty. The fire department said it was considering charging Spears for the ambulance ride, but did not disclose how much.

Oldest rule of capitalism: privatize the profits; socialize the losses.

Now that she's back in focus for offstage drama, her music is an afterthought. And at some point, most industry experts agree, the public will grow tired of the Spears story.

That doesn't mean the economy that sprouted around her will wilt.

"If it's not Britney, then it'll be Lindsay or Paris or some other person we haven't heard of yet," Smith said.

BINGO!!!

Nobody gives a crap about her, or Princess Diana, or Anna-Nicole Smith, or Lindsay Lohan, or Paris Hilton, or Amy Winehouse. They are only as good as they generate controversy and sales. If not, new candidates will arise. If none arise, new candidates will be created.

Does anyone in their right mind genuinely believe anything Ann Coulter says? She will say anything to generate "controversy" because the controversy fuels sales. That's all that matters.

I'm quite surprised to see this so nakedly in print. I guess the sheeple don't read CNNfn.

They are basically disposable which is the job of pop culture. It takes an extraordinary amount of foolishness not to see the flow of money.

Top Ten

... bullshit "professions" enabled by the housing bubble. (If you haven't heard of them, don't worry. They won't be around for long.)

10. aromatherapy
9. house staging
8. feng shui "expert"
7. scrapbooking
6. make-your-own-candleshop
5. yoga studio
4. doggie spas
3. koi pond "experts", koi breeders, etc.
2. sign twirlers

And the top candidate:

1. life coach.

Mixed Metaphors

From Bloomberg: Toll Has Seventh Straight Drop in Quarterly Revenue.

``It's like driving the Titanic, things don't turn on a dime,'' said Dave Crossman, an analyst at Kirr Marbach & Co. in Columbus, Indiana.

When the going gets tough, the weak must go to their desks to mix their metaphors in a now half-empty glass. However, make sure you don't bite the hand that rocks the cradle.

Where was I going with that?

Oh, this is as much fun as shooting monkeys in a barrel.

Bank Reserves

(Source: Federal Reserve.)

If that graph doesn't scare the bleepin' bejeesus out of you, nothing will!

Bling Bling

From CBS5: Auto Loan Defaults Newest Financial Meltdown.

According to Power Information Network, 1.85 of the 9.6 million customers in 2006 who leased or financed a new car were subprime borrowers or consumers with weak credit.

Vivian Snyder has strong credit and is not classified as subprime, but she is one of many consumers who can't afford the car she leased. Snyder drives a brand new convertible BMW with a MSRP listed at approximately $100,000.

Most consumers can't afford it, and neither can Vivian. That's because the monthly lease payment is $1,300. It eats up half her income which is a $2,500 disability check.

But, it's bling, baby, bling!

She got it at BMW of Fremont without showing a drivers license, pay stub, or any proof of income.

How did this happen? Apparently, her income was inflated by nearly 150%.

Vivian has only a few options. She can plead with the finance company to release her from the lease or have the car repossessed, losing her good credit and a $30,000 down payment which consisted of her entire retirement savings.

She cashed out her "entire" retirement for a depreciating object; a glorified metal cage that gets you from Point A to Point B. Even if the income were not inflated, this is lunacy. The people who can afford a $100K car don't need financing; if you need financing, you can't afford a $100K car.

It's really freakin' extraordinary, isn't it? This is basic decision making. Cashing retirement for bling car = bad.

There is something really really wrong with people, and all that this bubble has done is reveal the rot underneath that was always present.

But, it's all good, baby, it's all good!

Pissing in a Thunder$torm

From the Washington Post: Housing Crisis Casts a Cloud Over Sun Belt.

Formerly booming Sun Belt cities are the epicenters of this economic downturn. Many economists believe that the likes of Phoenix, Las Vegas, Miami and San Diego are already in recession.

Within these regions, the pain is concentrated among people who overextended themselves on mortgage debt to take advantage of housing prices that seemingly did nothing but rise. Because many of those people are facing massive debt, the tax rebates of $500 to $600 per person contemplated by Congress would offer little solace.

"We're in so deep that it doesn't seem like anything will help," said Rebekah Ao, 33, a pregnant homemaker who lives in a new four-bedroom home in Avondale with her husband, Otto, a truck driver. The Aos, with $50,000 in income, owe a total of $607,000 on mortgages for two houses they bought since they moved to the Phoenix area about two years ago.

Of course, nothing will help. You've borrowed more than 12X income.

3X is the limit if, I don't know, you want to eat or some such.

And there's a bun in the oven too. Maybe you can put the placenta on the barbeque! That'll save you a trip to McD's. I've heard it's quite delicious.

Within these regions, the pain is concentrated among people who overextended themselves on mortgage debt to take advantage of housing prices that seemingly did nothing but rise. Because many of those people are facing massive debt, the tax rebates of $500 to $600 per person contemplated by Congress would offer little solace.

Rival stimulus plans being considered in Congress promise a cash infusion of as much as $1,200 per couple and $300 per child.

Whatever. This is all grandstanding.

Pissing in front of the Niagara Falls, and saying, "Mine is bigger."

$cared $hitle$$

From the New York Times: Economy Fitful, Americans Start to Pay as They Go.

For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.

For the 34 million households who took money out of their homes over the last four years by refinancing or borrowing against their equity — roughly one-third of the nation — the savings rate was running at a negative 13 percent in the middle of 2006, according to Moody’s Economy.com. That means they were borrowing heavily against their assets to finance their day-to-day lives.

By late last year, the savings rate for this group had improved, but just to negative 7 percent and mostly because tightened standards made loans harder to get.

Only in America would a change in savings rate from -13% to -7% be viewed as a "good thing".

Fran Barbaro has an M.B.A. and a résumé of computer industry jobs with salaries reaching $150,000 a year. She used to have a stock portfolio worth about $1 million. She hung original art on the walls of her three-bedroom house in Boston.

But divorce, illness and motherhood drained her savings. Her home is worth less than she owes, and she owes another $200,000 to credit card companies, banks and tax collectors.

Ms. Barbaro, 50, said she knew she was living beyond her means. But her house demanded work. Her two boys needed after-school programs running $25,000 a year. Medical bills multiplied.

“These were simple day-to-day expenses,” she said. “The money was always there.”

Until it wasn’t. Her take-home pay is $5,200 a month, but her debt payments reach $4,400.

Ms. Barbaro has rented out her house while negotiating to lower her mortgage. She has moved to an apartment, where her sons sleep in the lone bedroom while she sleeps on a pull-out sofa.

“It’s the worst,” Ms. Barbaro said. “How do you salvage what you have and hopefully go back?”

You don't. You're screwed, bee-yatch!

“People have come to view credit as savings,” said Michelle Jones, a vice president at the Consumer Credit Counseling Service of Greater Atlanta.

And this, of course, is the problem. When did the debit side of the balance sheet be seen as a "good thing"?

Money v/s Money Substitutes

From the NC Times: Lenders freeze equity lines in response to tumbling property values.

Several banks issued statements this week saying they were temporarily suspending withdrawals from open home equity lines out of concern that borrowers could owe more than the house is worth.

Historic declines in property values have stripped many local homeowners of their safety nets as lenders freeze lines of credit ---- even on people who are current on their mortgage payments.

Those lines are drying up as Countrywide Financial announced Thursday that it has cut off 122,000 borrowers from pulling any more equity out of their homes. Wells Fargo, Washington Mutual and JPMorgan Chase released statements Friday saying they have also started halting equity lines because of tumbling home values but declined to provide numbers of suspended equity lines.

The Home ATM™ is closed. Thank you, come again!

"It's an emotional hardship," said Patti Lien of Menifee. "We kept our credit good. We've done everything right, and this is what we get because Countrywide made all these crappy loans."

The Home ATM™ is closed. Thank you, come again!

"It really wreaked havoc for me," said Dan Holbrook, a Fallbrook homeowner. Working in the real estate industry, he is often paid in lump sums.

At the end of the year, Holbrook paid off his equity line with a $50,000 payment. Four days later, Bank of America froze his equity line, he said.

"I'm scrambling right now," he said. "It has created a tremendous amount of stress because that was money to live on for me."

The Home ATM™ is closed. Thank you, come again!

Holbrook, a real estate consultant, said most people view such loans as emergency-only money. That is how he viewed it until the housing market slowed, he said.

"A lot of people figured these equity lines were safety nets," he said. "The problem is many of us are on a high-wire act right now. And you think the net is there, and you fall and it's not."

The Home ATM™ is closed. Thank you, come again!

Lien said she knew of the language, but thought it only applied to homeowners who encountered credit problems and did not know an external factor such as declining property values could put a stop to the loan.

"It's a hardship. It's money that we thought was there and it's not," she said. "We didn't go on a cruise, we didn't buy new cars but we're still suffering because of others."

The Home ATM™ is closed. Thank you, come again!