From the rag that's basically a shill for the real-estate market in New York, the New York Times, we have news that all doesn't seem to be well in paradise. Turns out even though everyone wants to live in New York, they're having just a teensy-weensy bit of trouble: The Battle for a Mortgage.
AS homeowners across the country have dealt with the declining values of their houses and their ballooning mortgage payments, most New Yorkers seem to believe that the market here doesn’t play by the same rules.
But in recent weeks, a growing number of New Yorkers, often with six-figure salaries and reasonably good credit, have begun to find that mortgages are harder to get as lenders try to stem losses from loans to the weakest, or subprime, borrowers.
Ooooh, trouble in paradise!
Buyers like Lee and Kimberly Au had to adjust their expectations. The Aus wanted to buy a one- or two-bedroom condominium costing $800,000 to $1.25 million at the Atelier on West 42nd Street, now that their 8-year-old son has a modeling contract in New York. But they quickly learned that they could no longer get 100 percent financing, even though Dr. Au makes more than $700,000 a year as a surgeon in Hawaii. So the couple settled on a $625,000 studio and used $62,500 in savings for the down payment.
The Aus recently found that their credit scores had slipped into these lower categories. Dr. Au, who has four surgical offices in Hawaii, saw his score dip to a subprime level after he and a relative invested in a project, which Ms. Au would not discuss. She said the relative had missed some payments.
The Aus tried to tap into the equity in their four-bedroom house in Honolulu or their rental property at Haiku Plantation nearby in Kaneohe, but banks refused to refinance or to lend on these investments.
The couple are using Ms. Au’s credit score, which falls in the Alt-A category, to qualify for a 7.5 percent first mortgage and an 8.5 percent second mortgage.
“We have a lot of our money tied up in real estate in Hawaii,” she said. “I knew we had to find something quick.”
Incidentally, this is the profile of the typical speculator. Someone who thinks "real estate can't lose", someone who's already invested in a "project with a relative" which they don't discuss.
What kind of person spends $625K on a studio? They rent for $1500-$2000 depending on the area. Hell, they're paying something like $3500 for the first mortgage alone, never mind the second.
(Answer: someone who thinks a greater fool will come along.)
Please note that the credit score of the "good doctor" who's "making" $700K is sub-prime (as in same as the average Burger-flipper.)
This is all speculation, levering up, negative gearing, call it what you will.
When this shit happens, and there's literally no doubt any more that it will, I'm going to be like the hyperactive kid on too much sugar, running around screaming, "I told you so, I told you so, I told you so!"
Wheeeeeeeeeeeeeeeee! This is so much fun.
Saturday, March 31, 2007
Hog wash!
We have some wonderful news from Harley-Davidson (HOG.N). It turns out that there seems to be a bit of a problem in HOG's receivables. They're not receiving what they should be receiving.
Something like half of these motorcycle loans were made by the financial subsidiary (HDFS). They were packaged and sold off (duh! we're in a securitized universe!) We can infer what's happening at the subsidiary via the delinquencies in the book.
And something like 28% of these loans have FICO's below 650 (a.k.a. we're in subprime territory.)
(Source: here.)
All these companies (Harley-Davidson, General Motors, Ford) have their own lending units which they are desperately trying to unload.
Only problem? Nobody's biting.
I mean, why back at 90 cents on the dollar what you will be able to get at 40 cents on the dollar two years down the road?
My research friends at all the big banks assure me that there's no chance of the subprime problem spreading. No chance at all! Of course, they're all singing for their supper, but there's no chance of any problem. (Not that I would ever dream of accusing my friends of a conflict of interest.)
Nothing to see here. Move along! These are not the subprime droids that you are looking for.
Something like half of these motorcycle loans were made by the financial subsidiary (HDFS). They were packaged and sold off (duh! we're in a securitized universe!) We can infer what's happening at the subsidiary via the delinquencies in the book.
And something like 28% of these loans have FICO's below 650 (a.k.a. we're in subprime territory.)
| Harley-Davidson's 30-Day Delinquencies | |
| 4Q2006 | 5.18% |
| 3Q2006 | 4.46% |
| 2Q2006 | 3.61% |
| 1Q2006 | 3.69% |
| 4Q2005 | 4.83% |
| 3Q2005 | 4.07% |
| 2Q2005 | 3.66% |
| 1Q2005 | 3.60% |
| Source: Lehman Bros. | |
(Source: here.)
All these companies (Harley-Davidson, General Motors, Ford) have their own lending units which they are desperately trying to unload.
Only problem? Nobody's biting.
I mean, why back at 90 cents on the dollar what you will be able to get at 40 cents on the dollar two years down the road?
My research friends at all the big banks assure me that there's no chance of the subprime problem spreading. No chance at all! Of course, they're all singing for their supper, but there's no chance of any problem. (Not that I would ever dream of accusing my friends of a conflict of interest.)
Nothing to see here. Move along! These are not the subprime droids that you are looking for.
Friday, March 30, 2007
The Goldilocks Economy
There seem to be a few myths floating around about the magic knights in shining armor that are going to ride by and rescue the US economy.
The Feds will "print" money to save the day.
Three flaws in this argument:
Firstly, the Feds can print all the money they want but there is no mechanism that will make it flow into wages (which is what is needed in order to "bailout" the debtor.)
Secondly, the sheep never eat the wolves as we have discussed here.
Lastly, to trash the dollar (or worse, compromise its reserve currency status) would mean "game over" for the Fed, and why would they do that, as we discussed here?
Cap-ex will pick up where the consumer left off.
This seems to be the biggest myth.
Why exactly would businesses invest in expanding their business when consumers are retrenching? Instead, they'll be cutting costs, and the simplest way to do that is to fire people. Any CEO that engages in "cap-ex" while the US burns will be scorched to a crisp.
It doesn't matter if the American consumer retrenches. The consumers in China and India will pick up where the US left off
Three flaws in this argument:
Firstly, Chindia have built a business model exporting stuff to the US (classic mercantilism) so when the US economy gets torched, Chindia will have a complete meltdown.
Secondly, the credit markets in these countries are hardly robust. Foreign banks employ thugs in Bombay to recover defaulted credit. And the claim that the Chindians will suddenly within the next few years give up their thrifty habits and turn into spendthrifts is ludicrous in the extreme.
Thirdly, while it is possible that Chindian companies indulge in capex, the downturn in their economy will make them conservative.
Looks like Goldilocks is going to get sodomized by the three bears!
Three flaws in this argument:
Firstly, the Feds can print all the money they want but there is no mechanism that will make it flow into wages (which is what is needed in order to "bailout" the debtor.)
Secondly, the sheep never eat the wolves as we have discussed here.
Lastly, to trash the dollar (or worse, compromise its reserve currency status) would mean "game over" for the Fed, and why would they do that, as we discussed here?
This seems to be the biggest myth.
Why exactly would businesses invest in expanding their business when consumers are retrenching? Instead, they'll be cutting costs, and the simplest way to do that is to fire people. Any CEO that engages in "cap-ex" while the US burns will be scorched to a crisp.
Three flaws in this argument:
Firstly, Chindia have built a business model exporting stuff to the US (classic mercantilism) so when the US economy gets torched, Chindia will have a complete meltdown.
Secondly, the credit markets in these countries are hardly robust. Foreign banks employ thugs in Bombay to recover defaulted credit. And the claim that the Chindians will suddenly within the next few years give up their thrifty habits and turn into spendthrifts is ludicrous in the extreme.
Thirdly, while it is possible that Chindian companies indulge in capex, the downturn in their economy will make them conservative.
Looks like Goldilocks is going to get sodomized by the three bears!
Serf's Up!
From the Washington Post, we have Ben "Helicopter" Bernanke talking about credit: Fed Chief: Two Sides to Credit Access.
Troubles plaguing lenders and borrowers with risky mortgages may challenge the notion that widespread access to credit is always a good thing, Federal Reserve Chairman Ben Bernanke suggested Friday.
"Recent problems in mortgage markets illustrate that an underlying assumption of the CRA that more lending equals better outcomes for local communities may not always hold," Bernanke said at a Federal Reserve conference.
You mean that loaning a million dollars to people who barely make $50K was a bad idea?
You mean to say that allowing a homeless man to buy five houses isn't a glorious outcome of the "democratization of credit"?
Hot diggity damn! Say it ain't so, dude, say it ain't so!
Troubles plaguing lenders and borrowers with risky mortgages may challenge the notion that widespread access to credit is always a good thing, Federal Reserve Chairman Ben Bernanke suggested Friday.
"Recent problems in mortgage markets illustrate that an underlying assumption of the CRA that more lending equals better outcomes for local communities may not always hold," Bernanke said at a Federal Reserve conference.
You mean that loaning a million dollars to people who barely make $50K was a bad idea?
You mean to say that allowing a homeless man to buy five houses isn't a glorious outcome of the "democratization of credit"?
Hot diggity damn! Say it ain't so, dude, say it ain't so!
Thursday, March 29, 2007
The Reset Cometh
We're only three months into this, and look at the bitchin' and moanin'. Look what's coming down the pipe.
Therefore, send not to know
For whom the bell tolls,
It tolls for thee.
Peace, Love, Granola
I didn't feel like leaving out the other delusional coast so from Bloomberg: California Investigates Subprime Mortgage Industry.
California Attorney General Jerry Brown opened an investigation of the subprime mortgage industry, which made the state the largest U.S. market for high-risk home loans.
Half of the 20 biggest U.S. subprime lenders, including No. 2 New Century Financial Corp., which is trying to avoid bankruptcy, are located in California, according to the newsletter Inside Mortgage Finance. The industry is under scrutiny by regulators after delinquencies on subprime mortgages rose to 13.3 percent last quarter, the highest since September 2002.
About 13 percent of the U.S.'s subprime loans are in California, according to the Washington-based Mortgage Bankers Association.
The following graph is from the Wall Street Journal: Where Subprime Delinquencies Are Getting Worse.
Among other things, it has a lovely table on this madness.
Pass the Maui-wowie, baby. Cali needs a few hits!
California Attorney General Jerry Brown opened an investigation of the subprime mortgage industry, which made the state the largest U.S. market for high-risk home loans.
Half of the 20 biggest U.S. subprime lenders, including No. 2 New Century Financial Corp., which is trying to avoid bankruptcy, are located in California, according to the newsletter Inside Mortgage Finance. The industry is under scrutiny by regulators after delinquencies on subprime mortgages rose to 13.3 percent last quarter, the highest since September 2002.
About 13 percent of the U.S.'s subprime loans are in California, according to the Washington-based Mortgage Bankers Association.
The following graph is from the Wall Street Journal: Where Subprime Delinquencies Are Getting Worse.
Among other things, it has a lovely table on this madness.
Pass the Maui-wowie, baby. Cali needs a few hits!
Blood in the Big Apple
From the New York Daily News, we have a map of pain: Set up for a fall.
More than 9,000 New York City home owners faced foreclosure last year - an astounding 50% increase over 2005 - and that number has skyrocketed even higher during the first months of this year.
Please note that the survey is only of 1-4 family homes, and Manhattan is mostly high-rises (both co-ops and condos) so the survey is biased. Basically, the white part in Manhattan means nothing (and yet, one brave soul in the West Village managed to go tits up!)
Also note that wide swathe of red in the poorer areas of Brooklyn and Queens.
Of course, Manhattan is different, right? Right? RIGHT?!?
All prices are set at the margin. Expect a bloodbath!
More than 9,000 New York City home owners faced foreclosure last year - an astounding 50% increase over 2005 - and that number has skyrocketed even higher during the first months of this year.
Please note that the survey is only of 1-4 family homes, and Manhattan is mostly high-rises (both co-ops and condos) so the survey is biased. Basically, the white part in Manhattan means nothing (and yet, one brave soul in the West Village managed to go tits up!)
Also note that wide swathe of red in the poorer areas of Brooklyn and Queens.
Of course, Manhattan is different, right? Right? RIGHT?!?
All prices are set at the margin. Expect a bloodbath!
Sunday, March 25, 2007
Scorched Earth Policy
For the record, if I want to be an economic prognosticator, I need to make exceedingly exact predictions. (I wanna be "on the record.")
Here's a specific set of things that will happen with the upcoming foreclosures:
"Owners" will strip the place clean of instruments -- refrigerators, washing machines, dishwashers, toilets, bathtubs and the like.
All copper will be stripped (this is almost axiomatic!)
After that, the house may or may not be burnt down for insurance reasons.
The FBI and the media will be "shocked, shocked about the events."
The media will say, "We could never have predicted this."
Congress will be called upon, and get involved.
Any fool can predict this. It was the same in the early 90's!
Here's a specific set of things that will happen with the upcoming foreclosures:
Any fool can predict this. It was the same in the early 90's!
Not for everybody
For anyone who cares to understand the "miracle of US GDP" for the last five years, here's the link to Negative amortization for UberNerds.
(Warning: your head may explode. This is seriously wacked out shit.)
(Warning: your head may explode. This is seriously wacked out shit.)
Saturday, March 24, 2007
Intrinsic Value, Interest Rates, Payment Schedules (and other complicated topics)
I'd like to talk about a topic that has many people left scratching their heads.
Suppose I run a business manufacturing tiny cubes of gold. (Never mind why, just tag along for now.) Suppose also there's another guy across the street manufacturing the exact same thing, and let's say the market value of each piece is $1000. (just to make calculations easy.)
Now, imagine someone comes in to my shop, and since it goes "oh so well with the decor in her home", she wants to buy it but doesn't have $1000 in cash. Suppose I offer it to her at 20% simple interest to be paid back in 12 installments ($1200/12 = $100 a month for a year.)
There are three concepts here:
Intrinsic Value : $1000.
Interest Rate: 12%
Payment Schedule: $100 per month.
Now, suppose my competitor really really wants this lady to buy it from his store (he wants to bang her on the side so there's your "economic incentive") so he offers it to her at 10% simple interest to be paid back in 12 installments ($1100/12 = $91.67 per month.)
Did the intrinsic value of the object change?
Well, of course not, because he (or I) would be happy to sell it to anyone who walked in with $1000 in cash.
So what changed? (because she would clearly prefer the second "deal".)
Well, clearly the interest rate changed so her payment schedule changed!
Now, I'm a crafty guy, and go tell this broad, "Look you don't have to pay it off right away. I'll charge you 20% simple interest over two years." (equivalently $1400/24 = $58.33 per month.)
Oooh! that must be a better deal, right, right, right?
Bzzzz. Wrong.
The intrinsic value is still $1000. Nothing has changed.
You can get a lower monthly payment by either lowering the rate, or increasing the payment schedule, or both.
But the fuckin' crucial point is that the intrinsic value of the goddamn' object has not changed!
(On a side note, you can quickly see the "best deal" by seeing how much you are paying net over the intrinsic value -- $200, $100, and $400 respectively.)
And that, ladies and gentlemen, is the lesson about the housing market of the last seven years. Interest rates were artificially lowered, and payment schedules stretched out to infinity (I/O-loans.) Nothing has fuckin' changed. Wages are exactly where they were in inflation-adjusted terms seven years ago.
So if salaries are exactly where they were, on what basis did California prices triple, and New York prices double?
Answer: the payment schedule changed (in very complicated ways); the intrinsic value never did.
Now you all know why Joe-Monthly-Payment and How-much-a-month-Sally are truly and royally fucked!
Suppose I run a business manufacturing tiny cubes of gold. (Never mind why, just tag along for now.) Suppose also there's another guy across the street manufacturing the exact same thing, and let's say the market value of each piece is $1000. (just to make calculations easy.)
Now, imagine someone comes in to my shop, and since it goes "oh so well with the decor in her home", she wants to buy it but doesn't have $1000 in cash. Suppose I offer it to her at 20% simple interest to be paid back in 12 installments ($1200/12 = $100 a month for a year.)
There are three concepts here:
Intrinsic Value : $1000.
Interest Rate: 12%
Payment Schedule: $100 per month.
Now, suppose my competitor really really wants this lady to buy it from his store (he wants to bang her on the side so there's your "economic incentive") so he offers it to her at 10% simple interest to be paid back in 12 installments ($1100/12 = $91.67 per month.)
Did the intrinsic value of the object change?
Well, of course not, because he (or I) would be happy to sell it to anyone who walked in with $1000 in cash.
So what changed? (because she would clearly prefer the second "deal".)
Well, clearly the interest rate changed so her payment schedule changed!
Now, I'm a crafty guy, and go tell this broad, "Look you don't have to pay it off right away. I'll charge you 20% simple interest over two years." (equivalently $1400/24 = $58.33 per month.)
Oooh! that must be a better deal, right, right, right?
Bzzzz. Wrong.
The intrinsic value is still $1000. Nothing has changed.
You can get a lower monthly payment by either lowering the rate, or increasing the payment schedule, or both.
But the fuckin' crucial point is that the intrinsic value of the goddamn' object has not changed!
(On a side note, you can quickly see the "best deal" by seeing how much you are paying net over the intrinsic value -- $200, $100, and $400 respectively.)
And that, ladies and gentlemen, is the lesson about the housing market of the last seven years. Interest rates were artificially lowered, and payment schedules stretched out to infinity (I/O-loans.) Nothing has fuckin' changed. Wages are exactly where they were in inflation-adjusted terms seven years ago.
So if salaries are exactly where they were, on what basis did California prices triple, and New York prices double?
Answer: the payment schedule changed (in very complicated ways); the intrinsic value never did.
Now you all know why Joe-Monthly-Payment and How-much-a-month-Sally are truly and royally fucked!
Thursday, March 22, 2007
Math is hard!
A little comic relief from Clownifornia: Porsche dealer - "I got it wrong with the buy one get one free card".
Glen Fergusson - Sales and Marketing manager for a brand new Californian Porsche dealer. Has lost his job and faces possible legal proceedings as the company strives to reclaim the costs of the 18 Porches given away free under Glen's Opening day "buy one get one free promotion" "I admit I didn't really do the numbers properly on this one" said Glen who told reporters that he had "seen the concept work really well for coffee stores" and in terms of numbers you could argue that Glen's campaign worked. As the new Porsche dealer sold 18 Porches in the first hour of the store opening.
It took the head office a full hour to realise what was going on and subsequently shut the store.
Local man Bruce Stepper took out a second mortgage on his home after getting a promotional flyer in his mailbox. "I am ecstatic - I brought a shiny red Porsche today, got another one free and I have sold just sold it on EBay, all up I end up getting a Porsche 911 for $5000"
Jane Cameron was arguably even more entrepreneurial. The local Janitor purchased a Porsche using the dealers "no deposit finance plan for low income earners", sold both cars, paid off the finance account and walked away with $120,000 profit. The finance plan was another one of Glen's initiatives that has now been cancelled.
A red faced Glen stated "I have never really been too good at Math and I was sure the whole time we were making money - I was initially blown away by the amount of cars we were selling in that first hour. I had seen the "buy one get one free card" work extremely well for the new coffee shop down the road and thought what a great idea I will try it here."
National spokesman for the dealership chain was quoted as saying "We are just glad that the idiot didn’t have time to run with his 'test drive 5 cars, get one free loyalty stamp card' campaign.
Bravo!
Glen Fergusson - Sales and Marketing manager for a brand new Californian Porsche dealer. Has lost his job and faces possible legal proceedings as the company strives to reclaim the costs of the 18 Porches given away free under Glen's Opening day "buy one get one free promotion" "I admit I didn't really do the numbers properly on this one" said Glen who told reporters that he had "seen the concept work really well for coffee stores" and in terms of numbers you could argue that Glen's campaign worked. As the new Porsche dealer sold 18 Porches in the first hour of the store opening.
It took the head office a full hour to realise what was going on and subsequently shut the store.
Local man Bruce Stepper took out a second mortgage on his home after getting a promotional flyer in his mailbox. "I am ecstatic - I brought a shiny red Porsche today, got another one free and I have sold just sold it on EBay, all up I end up getting a Porsche 911 for $5000"
Jane Cameron was arguably even more entrepreneurial. The local Janitor purchased a Porsche using the dealers "no deposit finance plan for low income earners", sold both cars, paid off the finance account and walked away with $120,000 profit. The finance plan was another one of Glen's initiatives that has now been cancelled.
A red faced Glen stated "I have never really been too good at Math and I was sure the whole time we were making money - I was initially blown away by the amount of cars we were selling in that first hour. I had seen the "buy one get one free card" work extremely well for the new coffee shop down the road and thought what a great idea I will try it here."
National spokesman for the dealership chain was quoted as saying "We are just glad that the idiot didn’t have time to run with his 'test drive 5 cars, get one free loyalty stamp card' campaign.
Bravo!
Wednesday, March 21, 2007
Beggars, Horses, Wishes
From Yahoo! Finance, we have the master-baiter himself talking up the market: Greenspan: Subprime Spillover Unlikely.
The troubles plaguing lenders of risky mortgages are not likely to spill over into the broader economy unless housing prices see another substantial dip, former Federal Reserve chairman Alan Greenspan said Thursday.
Greenspan said that as home prices dipped, "subprime borrowers have not been able to build up enough equity."
If home prices drop in a year, he predicted that could cause the problems to "spill over into other areas."
However, Greenspan said that if home prices "would go up 10 percent, the subprime mortgage problem would disappear."
Right! And if my house were a helicopter, I would be able to fly around in my underwear.
There are so many things wrong with this, it's hard to know where to begin.
The problem with subprime isn't that house prices are flat. It's that buyers bought more house than they could ever pay back.
So how does the house going up 10% change anything?
The only way I can think of is they pull out the difference (as a HELOC loan,) use that to pay the mortgage payments. However, that only delays the inevitable because they couldn't afford the freakin' thing in the first place!
This is so disingenuous I'm surprised that no one calls him on it.
The troubles plaguing lenders of risky mortgages are not likely to spill over into the broader economy unless housing prices see another substantial dip, former Federal Reserve chairman Alan Greenspan said Thursday.
Greenspan said that as home prices dipped, "subprime borrowers have not been able to build up enough equity."
If home prices drop in a year, he predicted that could cause the problems to "spill over into other areas."
However, Greenspan said that if home prices "would go up 10 percent, the subprime mortgage problem would disappear."
Right! And if my house were a helicopter, I would be able to fly around in my underwear.
There are so many things wrong with this, it's hard to know where to begin.
The problem with subprime isn't that house prices are flat. It's that buyers bought more house than they could ever pay back.
So how does the house going up 10% change anything?
The only way I can think of is they pull out the difference (as a HELOC loan,) use that to pay the mortgage payments. However, that only delays the inevitable because they couldn't afford the freakin' thing in the first place!
This is so disingenuous I'm surprised that no one calls him on it.
Sunday, March 18, 2007
Till mortgages do us part
From the toilet paper that prints all the news that's fit to print, we have A Surge in Foreclosure Filings.
AFTER 20 years as a lawyer, David Volman has handled enough divorces to know that many marriages collapse under financial strain. So when his practice, in Shelton, began receiving an unusually large number of divorce cases last summer, Mr. Volman took it as an omen. “Divorces go hand in hand with foreclosures and bankruptcies,” he said.
Sure enough, in the first two months of this year, Mr. Volman took on some 50 bankruptcy cases, an “enormous amount,” he said, given that in all of 2006 he handled 19.
Many of the cases involve working-class couples in the Lower Naugatuck Valley who can no longer afford their mortgages. “People are walking into my office and saying: ‘Here are the keys. Do whatever you have to do. I just want to get out of this so I can sleep at night,’ ” he said.
That's going to be the new wedding vow. Entirely accurate in my opinion since the etymology of mortgage is from mort (Latin mortuus -- dead), and gage (Germanic origin -- pledge.)
This is going to be the hidden story of the great debt-binge of the last few years. The forces of economic destruction are not limited to jobs and companies. There will be a severe human toll -- broken marriages, destroyed children's lives, more crime.
And there's not a goddamned thing anyone can do about it now because the damage has been done. The horses have fled the stable a few years ago. Shutting the barn door now is a bit useless.
Here's another "safe" set of predictions: a rise in arson (people would rather burn their house for insurance than pay the mortgage,) a disastrous retail environment (broke people don't buy stuff or eat out,) the rise of populism ("do something, Mr. Politician, anything",) and a corresponding rise in both nationalism and intolerance (blame the foreigners/jews/black people/hispanic immigrants, etc,) and economic protectionism ("free trade is a bad idea", Smoot-Hawley, etc.)
All of these are hallmarks of deflationary times. Every single one of them occurs repeatedly in history.
Personally, I'm waiting for the first "pensioner forced to eat dog-food" story (and rest assured, it will appear in the press in less than 5 years.)
In the words of Keynes, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
AFTER 20 years as a lawyer, David Volman has handled enough divorces to know that many marriages collapse under financial strain. So when his practice, in Shelton, began receiving an unusually large number of divorce cases last summer, Mr. Volman took it as an omen. “Divorces go hand in hand with foreclosures and bankruptcies,” he said.
Sure enough, in the first two months of this year, Mr. Volman took on some 50 bankruptcy cases, an “enormous amount,” he said, given that in all of 2006 he handled 19.
Many of the cases involve working-class couples in the Lower Naugatuck Valley who can no longer afford their mortgages. “People are walking into my office and saying: ‘Here are the keys. Do whatever you have to do. I just want to get out of this so I can sleep at night,’ ” he said.
That's going to be the new wedding vow. Entirely accurate in my opinion since the etymology of mortgage is from mort (Latin mortuus -- dead), and gage (Germanic origin -- pledge.)
This is going to be the hidden story of the great debt-binge of the last few years. The forces of economic destruction are not limited to jobs and companies. There will be a severe human toll -- broken marriages, destroyed children's lives, more crime.
And there's not a goddamned thing anyone can do about it now because the damage has been done. The horses have fled the stable a few years ago. Shutting the barn door now is a bit useless.
Here's another "safe" set of predictions: a rise in arson (people would rather burn their house for insurance than pay the mortgage,) a disastrous retail environment (broke people don't buy stuff or eat out,) the rise of populism ("do something, Mr. Politician, anything",) and a corresponding rise in both nationalism and intolerance (blame the foreigners/jews/black people/hispanic immigrants, etc,) and economic protectionism ("free trade is a bad idea", Smoot-Hawley, etc.)
All of these are hallmarks of deflationary times. Every single one of them occurs repeatedly in history.
Personally, I'm waiting for the first "pensioner forced to eat dog-food" story (and rest assured, it will appear in the press in less than 5 years.)
In the words of Keynes, "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
Saturday, March 17, 2007
Extreme Makeover
From the preferred toilet paper of the United States, the New York Times, we have a pair of stories.
The first one's from August 2005: Good News, Bad News: Your Loan's Approved.
ADAM GARDNER wasn't going to let limited resources stop him from buying a house. A 28-year-old appraiser's apprentice from Reno, Nev., he extended his search all the way to a new development 20 miles north of downtown. When he finally found a place - a two-bedroom, three-bath house - he took out two loans to finance 90 percent of the $253,850 price tag. And to keep his monthly payments within budget, he obtained what's known as an interest-only adjustable-rate mortgage.
Mr. Gardner, for one, is not especially worried. He said homes like his had already appreciated substantially, in his case making him a paper gain of tens of thousands of dollars. By the time the interest rate on this 30-year mortgage starts adjusting and his mortgage starts amortizing - in five years - he expects to have either sold or refinanced the home.
And the second story is from today (Mar 17th): Mortgage Trouble Clouds Homeownership Dream.
Take Adam Gardner, a 29-year-old appraiser who bought a three-bedroom, two-bath house 20 miles north of Reno, Nev., for about $255,000 two years ago. His wife is pining to move closer to town, but with housing prices falling all around him, Mr. Gardner doubts they can pull it off. “I’m not sure we can sell the place we are in,” Mr. Gardner said.
Ooh, sounds a bit ominous.
And he's an appraiser so he's pissing in the same tub that he's taking a bath in. Not exactly the recipe for a happy ending.
Tell you what, there's absolutely nothing of any worth in Reno, and certainly not 20 miles outside it. There's desert land as far as the eye can see.
This house is not even worth $100K, let alone the absurd prices stated in two articles, and that's because there are no jobs in Reno. "High-paying" casino jobs start at $10/hour.
As for the toilet paper, the less said the better. They'll print any garbage as long as it'll sell.
Waiter, I'd like to buy a free round of a$$-poundings for all of these people!
The first one's from August 2005: Good News, Bad News: Your Loan's Approved.
ADAM GARDNER wasn't going to let limited resources stop him from buying a house. A 28-year-old appraiser's apprentice from Reno, Nev., he extended his search all the way to a new development 20 miles north of downtown. When he finally found a place - a two-bedroom, three-bath house - he took out two loans to finance 90 percent of the $253,850 price tag. And to keep his monthly payments within budget, he obtained what's known as an interest-only adjustable-rate mortgage.
Mr. Gardner, for one, is not especially worried. He said homes like his had already appreciated substantially, in his case making him a paper gain of tens of thousands of dollars. By the time the interest rate on this 30-year mortgage starts adjusting and his mortgage starts amortizing - in five years - he expects to have either sold or refinanced the home.
And the second story is from today (Mar 17th): Mortgage Trouble Clouds Homeownership Dream.
Take Adam Gardner, a 29-year-old appraiser who bought a three-bedroom, two-bath house 20 miles north of Reno, Nev., for about $255,000 two years ago. His wife is pining to move closer to town, but with housing prices falling all around him, Mr. Gardner doubts they can pull it off. “I’m not sure we can sell the place we are in,” Mr. Gardner said.
Ooh, sounds a bit ominous.
And he's an appraiser so he's pissing in the same tub that he's taking a bath in. Not exactly the recipe for a happy ending.
Tell you what, there's absolutely nothing of any worth in Reno, and certainly not 20 miles outside it. There's desert land as far as the eye can see.
This house is not even worth $100K, let alone the absurd prices stated in two articles, and that's because there are no jobs in Reno. "High-paying" casino jobs start at $10/hour.
As for the toilet paper, the less said the better. They'll print any garbage as long as it'll sell.
Waiter, I'd like to buy a free round of a$$-poundings for all of these people!
What academia does to you
From Reuters, we have yet-another-sob-story (YASS) about an FB: Mortgage bloodbath?
Unlike many borrowers who took out subprime loans, Andy Sobel had good credit, a decent job and modest savings, but he needed to stretch to buy a home in the white-hot San Diego housing market in 2004.
Three years later, Sobel has lost his home and his savings, and he faces a big tax bill as a consequence of a failed subprime mortgage held by Countrywide Financial Corp. he says he should never have been written.
He should never have been written? What is this? Fantasy-land?!?
You signed the piece of paper, didn't you? Now, suck it up, big boy!
"You never think that this could happen to you. You feel like an idiot," said Sobel, 48, who has a doctorate in education. "You fall down and they stab you."
Looks like you're getting a real education right here.
Or in the immortal words of Ben Franklin, "Experience keeps a dear school, but fools will learn in no other."
Unlike many borrowers who took out subprime loans, Andy Sobel had good credit, a decent job and modest savings, but he needed to stretch to buy a home in the white-hot San Diego housing market in 2004.
Three years later, Sobel has lost his home and his savings, and he faces a big tax bill as a consequence of a failed subprime mortgage held by Countrywide Financial Corp. he says he should never have been written.
He should never have been written? What is this? Fantasy-land?!?
You signed the piece of paper, didn't you? Now, suck it up, big boy!
"You never think that this could happen to you. You feel like an idiot," said Sobel, 48, who has a doctorate in education. "You fall down and they stab you."
Looks like you're getting a real education right here.
Or in the immortal words of Ben Franklin, "Experience keeps a dear school, but fools will learn in no other."
Friday, March 16, 2007
Go, Team USA!
From the LA Times, we have information about the doobie: Pot is called biggest cash crop.
For years, activists in the marijuana legalization movement have claimed that cannabis is America's biggest cash crop. Now they're citing government statistics to prove it.
A report released today by a marijuana public policy analyst contends that the market value of pot produced in the U.S. exceeds $35 billion — far more than the crop value of such heartland staples as corn, soybeans and hay, which are the top three legal cash crops.
Nationwide, the estimated cannabis production of $35.8 billion exceeds corn ($23 billion), soybeans ($17.6 billion) and hay ($12.2 billion), according to Gettman's findings.
Yep, marijuana rakes in more money than corn. Shocking, innit?
Annual cost of the "war on drugs": $12 billion direct, and $33 billion for related stuff (police, lawyers, etc.)
So why is the cost of marijuana so high? Well, there's an embedded premium for risk; the risk of getting caught, and going to jail.
Economically, it's a no-brainer. Legalize it, and the price would collapse. It wouldn't even show up in the top 25 cash products. After all, people consume more carrots and tomatoes than marijuana. (DUH!!!)
So why not?
Behind all the "morals", this is just a free kickback to the "friends of government". You can actually make a lucrative career out of "defending our children from this scourge", and all that garbage.
MISSION ACCOMPLISHED!!!
For years, activists in the marijuana legalization movement have claimed that cannabis is America's biggest cash crop. Now they're citing government statistics to prove it.
A report released today by a marijuana public policy analyst contends that the market value of pot produced in the U.S. exceeds $35 billion — far more than the crop value of such heartland staples as corn, soybeans and hay, which are the top three legal cash crops.
Nationwide, the estimated cannabis production of $35.8 billion exceeds corn ($23 billion), soybeans ($17.6 billion) and hay ($12.2 billion), according to Gettman's findings.
Yep, marijuana rakes in more money than corn. Shocking, innit?
Annual cost of the "war on drugs": $12 billion direct, and $33 billion for related stuff (police, lawyers, etc.)
So why is the cost of marijuana so high? Well, there's an embedded premium for risk; the risk of getting caught, and going to jail.
Economically, it's a no-brainer. Legalize it, and the price would collapse. It wouldn't even show up in the top 25 cash products. After all, people consume more carrots and tomatoes than marijuana. (DUH!!!)
So why not?
Behind all the "morals", this is just a free kickback to the "friends of government". You can actually make a lucrative career out of "defending our children from this scourge", and all that garbage.
MISSION ACCOMPLISHED!!!
Tuesday, March 13, 2007
Top 10 Things I Learnt in the Last Few Years
And the top thing I learnt:
Monday, March 12, 2007
Wednesday, March 07, 2007
Smarty-smarty-smartypants
Here's an announcement from the US Treasury: OTS Approves Countrywide Application.
The Office of Thrift Supervision (OTS) announced today the approval of an application from Countrywide Financial Corporation (Countrywide), Calabasas, California, to convert its national bank subsidiary, Countrywide Bank N.A., Alexandria, Virginia, to a federal thrift charter. The converted institution, Countrywide Bank, FSB (the FSB), will continue to operate out of its existing facilities and to engage in the primary business activities conducted prior to its conversion.
The CEO of CFC, Angelo Mozilo is one of the sharpest cookies in the business. Never bet against him.
We've met him before, of course in The Chickens Rebel Against the Guards.
Now that the bank is under a federal thrift charter, look out for a deal in the next 6-12 months of CFC selling its crap MBS'es to the bank. After that, the bank will go under, and the FDIC and the taxpayers will bail out the bank, and the company can buy back the MBS'es at pennies on the dollar.
Privatize the profits; socialize the losses.
Fuckin' A, dude, fuckin' A!!!
The Office of Thrift Supervision (OTS) announced today the approval of an application from Countrywide Financial Corporation (Countrywide), Calabasas, California, to convert its national bank subsidiary, Countrywide Bank N.A., Alexandria, Virginia, to a federal thrift charter. The converted institution, Countrywide Bank, FSB (the FSB), will continue to operate out of its existing facilities and to engage in the primary business activities conducted prior to its conversion.
The CEO of CFC, Angelo Mozilo is one of the sharpest cookies in the business. Never bet against him.
We've met him before, of course in The Chickens Rebel Against the Guards.
Now that the bank is under a federal thrift charter, look out for a deal in the next 6-12 months of CFC selling its crap MBS'es to the bank. After that, the bank will go under, and the FDIC and the taxpayers will bail out the bank, and the company can buy back the MBS'es at pennies on the dollar.
Privatize the profits; socialize the losses.
Fuckin' A, dude, fuckin' A!!!
Six orders of magnitude
From the Boston Globe comes this pearl of wisdom from Kimberley Blanton: State urges curbs on subprime lenders.
The Patrick administration's chief housing official yesterday called for better regulation of mortgage brokers and the establishment of a $5 million fund to assist the escalating number of Massachusetts homeowners facing the loss of their homes through foreclosure.
Hello?!?
You have a problem in the trillions, and you're putting aside $5M to "help" homeowners facing foreclosure? What does that amount to?
0.0001 pennies a person!
Even if you gave it to the first lucky 1000, what does that amount to?
$5,000 a person!
And that keeps them going for an extra three months. What will they do for the next 29 years?
A quick back-of-the-envelope calculation shows that all of Buffett and Gates wealth combined couldn't even hold up the Manhattan market by more than a few thousand dollars.
These politicians are really fucking stoopid!
The Patrick administration's chief housing official yesterday called for better regulation of mortgage brokers and the establishment of a $5 million fund to assist the escalating number of Massachusetts homeowners facing the loss of their homes through foreclosure.
Hello?!?
You have a problem in the trillions, and you're putting aside $5M to "help" homeowners facing foreclosure? What does that amount to?
0.0001 pennies a person!
Even if you gave it to the first lucky 1000, what does that amount to?
$5,000 a person!
And that keeps them going for an extra three months. What will they do for the next 29 years?
A quick back-of-the-envelope calculation shows that all of Buffett and Gates wealth combined couldn't even hold up the Manhattan market by more than a few thousand dollars.
These politicians are really fucking stoopid!
The lure of "free" money
From the Bradenton Herald in Florida, we have Builder to help clean up Coast's mess.
Zanuel Johnson, an account executive at a Tampa mortgage company, said he closed in June on a home in Cape Coral being built by Enchanted Homes. The deal was brokered through Tampa-based American Mortgage Link, a broker involved in many of the CCI home loans.
Johnson claims he was promised a 10 percent return on the sale of the home without having to take ownership.
Instead, Johnson maintains, he now is obligated through a Coast Bank loan to pay $430,000 for the home - a price he says was inflated by those involved in the investment scheme.
Johnson's mortgage documents reflect a $43,000 escrow payment, though he insists he never put any cash down.
"They told me it was an investment program for people with good credit and assets," Johnson said. "They would use my credit to build a home and I would get a 10 percent return, because I would never take possession or move into the home."
Johnson said the home is mostly finished but he doubts he'll be able to sell it and accuses Enchanted Homes and American Mortgage Link of inflating the price.
"There's no way they could sell that house for $430,000. They have one listed for $349,900, two houses down from me," Johnson said.
How does someone so stupid wake up before noon?
Zanuel Johnson, an account executive at a Tampa mortgage company, said he closed in June on a home in Cape Coral being built by Enchanted Homes. The deal was brokered through Tampa-based American Mortgage Link, a broker involved in many of the CCI home loans.
Johnson claims he was promised a 10 percent return on the sale of the home without having to take ownership.
Instead, Johnson maintains, he now is obligated through a Coast Bank loan to pay $430,000 for the home - a price he says was inflated by those involved in the investment scheme.
Johnson's mortgage documents reflect a $43,000 escrow payment, though he insists he never put any cash down.
"They told me it was an investment program for people with good credit and assets," Johnson said. "They would use my credit to build a home and I would get a 10 percent return, because I would never take possession or move into the home."
Johnson said the home is mostly finished but he doubts he'll be able to sell it and accuses Enchanted Homes and American Mortgage Link of inflating the price.
"There's no way they could sell that house for $430,000. They have one listed for $349,900, two houses down from me," Johnson said.
How does someone so stupid wake up before noon?
The Weak must go to the Wall
From the same article referenced yesterday, I missed a delicious little tidbit: As Housing Goes Bust, Lenders Become Predators?
Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. "We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.
NICE!!! MISSION ACCOMPLISHED!
For anyone who still believes in "inflating away the debt", what are the chances that the Fed can inflate away $4.7 trillion in the correct time-frame? (less than 2-3 years.)
Theoretically, it could happen. Look at Argentina.
But that would spell the end of US financial hegemony meaning the powerful would get punished.
Nope! The weak must go to the wall, and the banks will get bailed out. That still spells deflation.
Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. "We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.
NICE!!! MISSION ACCOMPLISHED!
For anyone who still believes in "inflating away the debt", what are the chances that the Fed can inflate away $4.7 trillion in the correct time-frame? (less than 2-3 years.)
Theoretically, it could happen. Look at Argentina.
But that would spell the end of US financial hegemony meaning the powerful would get punished.
Nope! The weak must go to the wall, and the banks will get bailed out. That still spells deflation.
Tuesday, March 06, 2007
Some wisdom at last!
From Bloomberg, we have Caroline Baum talking about As Housing Goes Bust, Lenders Become Predators?
The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.
"We've created an unproductive asset," says Joe Carson, director of global economic research at AllianceBernstein. "A house doesn't produce income."
For the record, Caroline Baum is one of the smartest journalists working for the MSM. Her economic reasoning is sometimes a bit suspect but her intuition is spot on.
Of course, you know what that means, don't you? She's probably going to get fired sooner rather than later.
Sing it, sister, sing it!
The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.
"We've created an unproductive asset," says Joe Carson, director of global economic research at AllianceBernstein. "A house doesn't produce income."
For the record, Caroline Baum is one of the smartest journalists working for the MSM. Her economic reasoning is sometimes a bit suspect but her intuition is spot on.
Of course, you know what that means, don't you? She's probably going to get fired sooner rather than later.
Sing it, sister, sing it!
Pinocchio Time
From Bloomberg, we have Paulson Says Bad Debts in the U.S. to Be Contained.
U.S. Treasury Secretary Henry Paulson moved to cool concern about rising defaults at subprime mortgage companies, saying the woes won't spill over to banks that make less risky loans.
"Credit issues are there, but they are contained," Paulson said to reporters in Tokyo during a four-day tour of Asia. The U.S. financial sector is healthy and most institutions won't feel "a big impact."
This is a flat-out lie, or if I wanted to be more charitable, this is cheerleading at best.
Why?
Subprime refers to people with less than stellar credit. We used to refer to these people as deadbeats but political correctness has transformed them into "sub-prime", as in "less than prime", in fact, "a lot less than prime."
Typically, these people have very little income, or a lot of debt, or both. The reason that these subprime mortgages are going under is because the borrowers have no capacity to pay it back, and foolish investors are just waking up to smell the lovely aroma of horse-manure.
Obviously, they should never have been given the debt in the first place (but let's not argue about that.)
Now, the mortgage pool is stratified by credit worthiness ("Alt-A" and "prime" mortgages) but there is virtually no difference (in a practical sense) between a sub-prime borrower who makes $25K, and takes out a mortgage for $150K, and a prime borrower who makes $100K, and takes out a mortgage for $600K.
The important point is that neither of them has the capacity to repay the debt!
This should be absurdly fucking obvious to anyone with an IQ higher than that of a lobotomized amoeba!
And the latter category is all over the place. California, Florida, Massachusetts, New York, New Jersey, Connecticut, Illinois... (in short, the most populous states.)
The very fact that they created an "Alt-A" (which, is not an "A") is a dead giveaway that these people should never have been given the money in the first place, and an even bigger giveaway to investors that they should never have financed this lunacy in the first place.
So why is the shit not hitting the fan for Alt-A mortgages? Well, higher income households can hide a little bit longer than someone who makes $25K, but they can't hide indefinitely. The day of reckoning is coming, and I'd even go out on a limb to argue it's going to be here in less than six months.
The important point is that you don't get to be the former CEO of Goldman Sachs (as Paulson used to be,) by not understanding finance. To argue that he doesn't grasp the above is absurd in the extreme.
Liar, or cheerleader? You decide!
U.S. Treasury Secretary Henry Paulson moved to cool concern about rising defaults at subprime mortgage companies, saying the woes won't spill over to banks that make less risky loans.
"Credit issues are there, but they are contained," Paulson said to reporters in Tokyo during a four-day tour of Asia. The U.S. financial sector is healthy and most institutions won't feel "a big impact."
This is a flat-out lie, or if I wanted to be more charitable, this is cheerleading at best.
Why?
Subprime refers to people with less than stellar credit. We used to refer to these people as deadbeats but political correctness has transformed them into "sub-prime", as in "less than prime", in fact, "a lot less than prime."
Typically, these people have very little income, or a lot of debt, or both. The reason that these subprime mortgages are going under is because the borrowers have no capacity to pay it back, and foolish investors are just waking up to smell the lovely aroma of horse-manure.
Obviously, they should never have been given the debt in the first place (but let's not argue about that.)
Now, the mortgage pool is stratified by credit worthiness ("Alt-A" and "prime" mortgages) but there is virtually no difference (in a practical sense) between a sub-prime borrower who makes $25K, and takes out a mortgage for $150K, and a prime borrower who makes $100K, and takes out a mortgage for $600K.
The important point is that neither of them has the capacity to repay the debt!
This should be absurdly fucking obvious to anyone with an IQ higher than that of a lobotomized amoeba!
And the latter category is all over the place. California, Florida, Massachusetts, New York, New Jersey, Connecticut, Illinois... (in short, the most populous states.)
The very fact that they created an "Alt-A" (which, is not an "A") is a dead giveaway that these people should never have been given the money in the first place, and an even bigger giveaway to investors that they should never have financed this lunacy in the first place.
So why is the shit not hitting the fan for Alt-A mortgages? Well, higher income households can hide a little bit longer than someone who makes $25K, but they can't hide indefinitely. The day of reckoning is coming, and I'd even go out on a limb to argue it's going to be here in less than six months.
The important point is that you don't get to be the former CEO of Goldman Sachs (as Paulson used to be,) by not understanding finance. To argue that he doesn't grasp the above is absurd in the extreme.
Liar, or cheerleader? You decide!
Monday, March 05, 2007
Understatement of the Day
From Buffett (who else?) : "When you combine ignorance with borrowed money, the results can be interesting."
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