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Friday, March 05, 1982

03.05.2007 - Monday Open Thread

This is your open thread for Monday, March 5, 2007. You may post random links and off-topic discussions here.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

32 comments:

stephen said...

"Those worries were rekindled Monday when HSBC Holdings PLC, Europe's largest bank, said its 2006 earnings rose 5 percent but that it suffered $10.6 billion on losses on bad loans from its U.S. subprime mortgage operations."

Assuming those houses were dumped for 25-30% less than loan amounts that would be about 20 thousand loans give or take at 400k average.

I wonder how many of these people never intended to make a payment?

I would think the fraud numbers would all be in the first round of defaults, since they would not even try to pay on the loan.

stephen said...

Those numbers may be way off, tried to do a quick calculation in my head and since I was working with billions it might be a tad off ;-)

matthew said...

So I'm watching the financial news this morning (various networks) and what do I see? Concern that the subprime mortgage fallout might impact the prime market.

Hmm.... Sometimes reading this blog is like looking into a crystal ball.

Mikhail said...

But problems with the lending industry won't hurt the Seattle area. We are "special" here. Everyone buying houses here has perfect credit, and cash for 20% down payments. All those high-paying Boeing and Microsoft jobs ensure that the Puget Sound region is immune to financial industry woes, since our population can just pay for things in cash.

Hey, maybe the lenders will just decide to treat everyone living in the Puget Sound differently than they do with the rest of the nation. There will be "special" lending criteria for the Puget Sound (where lower credit scores and down payments are allowed) and criteria for the rest of the country (where only people with good credit and large down payments qualify). Fannie Mae will likely introduce the "Puget Sound" rule, where they are willing to buy subprime mortgages with lower criteria from our region than anywhere else (where they are increasing their rules).

confused said...

The "we are different" BS montra kills me. We are listed as the #3 most likely bubble market on John Burns Consulting website just behind Bend and LA. Not that I really think that matters a whole lot. I think the top 25 will get killed.

Even more surprising than the Seattle market is the outlying areas. Name them; Tacoma, Olympia, Marysville. A bunch of posters were talking about Kitsap, which may be the worst. I am not sure Spanaway area might lead the foreclosure market over the next year.

And now these geniuses want to start inposing restrictions on sub prime loans. Don't make me laugh.

Hey, and how about we pass some legislation to protect the "consumer". What agreat idea? How about just enforce what is already on the books? Now there is an idea.

Have you guys heard about Senator Weinstein's Bill? Get this, he is a trila lawyer or ex-trial lawyer senator from Mercer Island. He wants to extend the warranty defect liability on ALL new construction to 10 years. Yeah, that will help.

Wether you hate new construction or not. The people that abuse the laws and build flawed construction are not the ones this will impact. It will, once again, tax the legitimate builders and run them out of business and line the pockets of trial lawyers while essentially doing nothing for the consumer IMO. A little off topic.

greenthum said...

confused:

Don't forget about us lowly taxpayers. In the end we'll probably be the ones left holding the bag.

When there's no one left to pay the price or take the blame, the good old American taxpayer will be asked to hand over what's left of his or her meager wages for good of the country.

Thank you Bush and Clinton!

Wanderer said...

I was pleased to learn that some of our friends at RCG are looking forward to participating in an industry podcast. To try and help, I wanted to help prepare so I posted the following...

Hey, XXX. I am loking forward to hearing the pocast. It should be interesting discussion especially in light of recent events in the markets. I wonder if they will be at all interested in the Realators' perspective on the troubles in the subprime market and trickle up into the (traditionally) more stable loans.?.
Do you have talking points ready for that? Specifically, I wonder what perspective professional Realators have on the longterm rewards/risks that homebuyers and lenders face, given that Realators gains from a sale are immediate and irrevocable. Since it has always been a good time to buy AND sell a home, people probably should have been asking more forcefully of late if it was a good idea to own a home at current prices... or the loans that backed them. Is it safe to assume that Realators feel less responsible for any possile fallout because they only lead the horse to water... it is the mortgage broker who is holding their head under water and making them drink? That stance of course would come into question with that commercial showing the realator on the phone encouraging the young couple that "They CAN DO this!"
I just had an interesting idea, what would happen in the industry if realator fees were able to be recalled if a loan defaulted due to bankruptcy in the first 2 years? I imagine anyone who was facilitating loans in California for the last couple years would feel like they had a lot of skin in the game.
I should state that I am not a Realator, lest anyone should confuse my comments with those of a professional and intelligent person.

Eleua said...

In case anyone is interested...

Subprime financials suffered a wire-to-wire rout on Wall Street today. The industry is not coming back. Sorry, it isn't. Subprime lending has just gone the way of the Beanie Baby, Pet Rock, Hula Hoop, Parachute Pants, New Coke, and glam-Metal.

This presents many problems. First, there is an entire swath of buyers that will no longer be able to buy homes.

Second, many people that are in homes are defaulting or will default in the very near future.

Third, as these losses mount, it exerts pressure on the broader market, thus making problems nest in those tranches of finance.

Fourth, builders are still cranking out homes at a record clip.

More homes + fewer buyers + higher lending standards + risk = much lower home prices.

New Century Financial was the cock-of-the-walk last fall. It is now under criminal investigation, and has seen its stock price crater in the span of 3 weeks. It went down 70% today alone!

They are all going down. Lending money to deadbeats with a highly leveraged asset as the collateral (and you can't get to the collateral until you complete NJD - 9-15 months) is a recepie for disaster. This should be nothing new to anyone on this board.

This was a bad idea 3 years ago, and it finally has come full circle.

It will only get worse as ARMs reset and home prices decrease. The situation is in dynamic instability.

The market isn't going down 10%. The market is going down 60-80%.

Even in Seattle...especially in Seattle...

I'm not screwing around with this. This is real. This is going to suck.

Eleua said...

I only need a few more data points to issue a CRASH-CON 2 rating.

If you want my advice...

Mikhail said...

Wanderer said: "I was pleased to learn that some of our friends at RCG are looking forward to participating in an industry podcast. To try and help, I wanted to help prepare so I posted the following..."

I doubt the comments from realtors on the current market chaos will be all that insightful. You are never going to get a realtor to say it is a "bad" time to buy. Whenever I talk with realtors about when it is a good time to buy, I always get the mantra that over the "long term" prices always appreciate.

Realtors alwasy absolve themselves of making any firm recommendations by saying that the decision to buy is a personal one, based on your financial considerations, and needs. If you can "afford" a house (whatever that means), then you should always buy.

Eleua said...

Oops...

NJD is supposed to be NJF - non judicial foreclosure.

matthew said...

E-

I don't know about you, but this is unraveling much faster than I had anticipated.

matthew said...

I'm feeling Congressional hearings in the near future.

JR said...

This may be an ignorant question, but I have never owned an ARM. What index do most ARMs reset off of? Fed Funds? One of the LIBOR indexes?

Tai said...

in West coast, is mostly libor or MTA.

confused said...

Matthew & Eleua-

It is always interesting to me to see things come to fruition after talking about them for a very long time. Bubbles/cycles take so much longer to play out than expected and are usually more severe. I appreciate both of your view points.

Most people on this board have been prognosticating the demise of present day real estate for the past 2 years. It is fascinating to watch and ultimately will bring more pain to the world than in 2000. We have been all talk up until now and looks like we will find out very soon if this is going to be as painful as some predicted.

I feel our economy could not withstand a 20% drop in real estate. It would have far reaching economic cosnequences the likes to which we have only read about. 70% of the american public own real estate. This would effect families for decades. And most likely a lot of people would lose their job. If RE does hit a decline of 50%, I cannot fathom what the US economy would look like. I feel guns would be worth more than gold, well maybe not but more useful. Ever try and buy something with gold?

I know all of these "investors" deserve to get burned and I for one would love to see it. Unfortunately, these morons have ruined the party for everyone. The next decade the American citizen is going to learn a lot about saving. Remember cash is king and the debtor is slave to the lender.

Eleua said...

Matthew,

I pictured an unmitigated disaster and a very disorderly decline. I must admit that this is happening even faster than I had anticipated - and I anticipated quite a lot.

I've been among the most bearish on this board for some time - if not the most bearish. I'll need to get a ruling from The Tim on that one...

The scary version is reality looks like it is to the right of me. I've adjusted my portfolio to protect myself against this. My broker thinks I'm in need of being talked down from the ledge.

The writer of a daily financial newsletter I have read for the past 8.5 years said the housing market may sieze up within 6 months. Lack of finance will do that.

Keep an eye on the CRASH-CON.

Eleua said...

Confused,

The economy can't even handle a 5% reduction in real estate. Look at what has happened on the very leading edge of ARM resets, a small pop in interest rates, and a wee bit of inventory build. 20% is a disaster, and 60-80% is just armageddon. That won't stop it from happening.

Yes, you can't go to Safeway and buy your groceries with a Gold Buffalo, but you can buy Swiss Francs, Dollars, Yen, Euros, GB#, etc. Those spend.

The nice thing about gold, is it is off the grid. It is not marked to market or even reported to anyone.

A $20K gold bar is the size of a pack of cigarettes, and weighs one kilo. Gold comes in all shapes and sizes. 100gr bars are available.

Silver also works.

I would submit that a bunch of cash in a US bank is riskier than a gold loaf in a safe deposit box.

But I'm a paranoid freak.

The Tim said...

I've been among the most bearish on this board for some time - if not the most bearish.

I don't think there's any "if" about it. You definitely win the prize.

confused said...

Eleua-

There is no harm in being paranoid. It doesn't hurt anyone. I guess what I am saying for arguments sake is if all of this comes to pass. I just don't know how the gold and silver you have in a safe deposit or in a safe at home is going to help you all that much. I agree it will be much better than cash in a bank.

I am thinking from a survival standpoint. How to buy groveries, pay elctricity, buy gas. You are rigth as far as an asset protection standpoint. I can't buy Gold in my 401k and drives me crazy. I don't have that much liquid to worry about gold. I have some silver.

As for other currencies, this will be global. I don't think there will be a safe currency out there.

Matthew said...

There is only one commodity that will be worth anything if this crash comes to fruition.

LEAD.

synthetik said...

>Parachute Pants

Hey, what the heck is wrong with Parachute Pants? ... well, other than the fact that my wife makes me hold all her junk in them!

[does the FMT+LEND/subprime implosion victory end zone dance]

deeplennon said...

"Hey, what the heck is wrong with Parachute Pants? ... well, other than the fact that my wife makes me hold all her junk in them!"

So she calls your junk hers and so do you??

Eleua said...
This comment has been removed by the author.
Eleua said...

Confused,

When you said there isn't a safe currency out there, that is a huge truth. HUGE!!!

Think of Au/Ag as a currency (it once was). B-52 Ben can't print up a bunch of gold. If there is a price spike in DRAM, the various fabs can print up more within a few weeks. If there is a price spike in silver, it takes 10 years from the time the Board of Directors put the ceremonial shovel in the ground until they sell their first ingot.

I treat gold as an insurance policy. I don't have to worry about the solvency of the insurer.

If the SHTF, I'd rather have a store of wealth that I can convert to any currency, and be able to do so without government permission or oversight.

Matthew said...

I was reading Calculated Risk today and in the comments section of one of his posts CR states that he was talking to one of Fleck's friends (with intimate knowledge of subprime) who is predicting that the housing market will "Just freeze" in the next 3-6 months.

My interpretation of this is the following:

1. First time buyers are now priced out of the market by using traditional means
2. Non-traditional means are either gone or on the way out.
3. First time buyers can no longer purchase homes = frozen market

Matthew said...

freeze = total loss of liquidity

Eleua said...

Matthew,

Fleck's friend in subprime has been freakishly accurate. I've been reading Fleck since '98, and he is almost always right, but usually very early.

Not so with subprime. Fleck and his source have been dead-on-balls-accurate in both scope and timing. I'm talking about being accurate to within 10 days.

A few weeks ago, I called this coming September the "September of Sellers' Soiled Shorts."

You could call it a "Bombastic Buyers' Bacchanalia." That would be on the condition that anyone would be dumb enough to buy.

I'm dead serious. This is going to be huge. The speculative bubble economy that officially started 1215 PDT on 10/16/98 is coming to an end.

Eleua said...

Thanks, Tim. It is truly an honor to be the bear standardbearer among bears.

matthew said...

I wonder how long the FED is going to continue with this "Everything is ok, move along, nothing to see here" rhetoric.

I was watching a business feed on the net today from Fox Business, they were interviewing the former CEO of HP. She said one worthwhile thing during her interview. They asked if the market was going to be ok. She replied "All the experts said the market was going to be ok in 2001, and they were all wrong".

Eleua said...

Carly Fiorina is normally a waste of space. However, on this score, she is dead on.

Nobody ever sees the trouble brewing, but they are all omniscient when it comes to good times.

Lake Hills Renter said...

Cut it out! You guys are scaring me!