03.14.2007 - Wednesday Open Thread
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27 comments:
I think the optimists are failing to look at the big picture. Economically, things are going to get very ugly as Eleau very astutely, and quite humorously pounds the drum. The fact is that HELOCS and the growth of equity have attributed to an artificial boost in spending, 7% of the GDP in 2005. it dropped to 4% of GDP in 2006 and according to Goldman Sachs, will be half that in 2007. We are already seeing the numbers on that with yesterdays consumer spending down.
In 2006, $300 billion in ARMS reset and we saw those start sucking it up and making that larger payment, or putting their house on the market. This year a whopping $1 trillion will come due. I can only imagine the backlash of that. Mydquin stated yesterday as one of his reasons we won’t see a drop here is foreign creditors. Hah! Watch how fast they run while pulling the dollars out of their pockets as this thing unwinds.
I see comments refuting that all of this is a house of cards. We have artificially low interest rates, shoddy lending practices, liar loans by people stating they make more money than they do. How can this not be a house of cards? Anybody for playing 52 card pick-up?
The Sub-prime's spills over into the credit-worthy toxic loan arena
Mortgage Report Rattles Markets
Note the following...
While most of the turmoil has been driven by the subprime market, even credit-worthy borrowers appear to be facing some of the same issues. Their delinquency and foreclosure rates also inched upwards.
For some reason, people have this notion that if your credit score is higher than the sub-prime dregs, you're somehow smarter. But alas, I've found when it comes to finances even geniuses haven't a clue...
Ok, Reuters said this morning that "Fed officials have suggested that there are no signs yet the subprime problems have spread into the broader housing market and the rest of the economy"
Now how does one take that? Is it that the Fed is an absolute idiot and can't see the fall-out spreading and what is down the road? or is it that the Fed is trying not to cause a panic and give us the real outlook?
It is funny. I sometimes catch myself thinking I (we) could all be wrong about this credit bubble and things will go along smoothly, and then I wake up and think, WOW! this is really gonna get bad. Does anybody else have those doubts? I mean those that are bubble heads. Of course Eleau doesn't, but what about Synthetik, Mister Bubble Grivetti et. al.?
Cheryle Casone puts a positive inflection in her voice as she says "though inventory is rising and prices will drop...houses WILL sell...eventually"
does an upbeat voice make everything ok? "Hey everybody! You're Screwed! Woo Hooo! Yippeee"
Dow dropped below 12000.
Here we go .... this is where those who live within their means get to bail out the finaniclly irresponsible - what fun!
Senate Weighs Aid to 2.2 Million Subprime Borrowers
Typical band-aiding. What a joke.
Congress is clueless.
Our country has shifted from one where we leverage our assets to being one who leverages debt. The government leverages more debt than we want to know, nevermind how clueless Congress is. Did anyone see the MTV special where the 19 year old girl filed for bankruptcy because she couldn't come up with the $ to pay off her credit cards? She finishes in court and goes out to celebrate at a swank restaurant with her friends at the end.
...sadsadsad
wanderer;
Well said.
"I sometimes catch myself thinking I (we) could all be wrong about this credit bubble and things will go along smoothly, and then I wake up and think, WOW! this is really gonna get bad. Does anybody else have those doubts?"
I used to have doubts -- mainly about timing and severity of the crash. Now, I'm just sincerely hoping that we aren't in phase one of the next great depression.
I'm worried that those of us who haven't lived like idiots will have trouble surviving. Like Eleua, I've been surprised by how quickly things have been moving, lately; for our sake, I hope the big snowball slows down a little bit, before it crushes us all....
Let's think out loud about this bailout. There is little doubt that it is coming, but the questions are:
What form will the bailout take?
Who takes it in the shorts?
How do you sidestep this disaster?
Is there anyway to profit from it?
The easiest form will be in some form of payment holiday or foreclosure protection. That will be nothing more than putting a bandaid on an Ebola patient, but it would fly with the voters.
Banksters would get killed, and they have the best lobby - therefore this is not an option.
FDICesque bailout of mortgages for banks. Talk about money printing!!! Those that made safe loans miss out, and the crappy companies stay in biz to drag down the rest. This is what I like to call the "airline model." Gov't subsidizes crappy companies and drags down the good companies. Prices stay low, consumers like that, and the execs pocket billions.
In our highly leveraged economy, anything less than a direct bailout of the crappy banks could cause a panic/run. Bank failures are a bad thing.
Liklihood: same as the next sunrise.
Who wins? Liars, frauds, and morons.
Who loses? The prudent, responsible, and prescient.
Exactly the opposite of what our economy is supposed to reward. Fast forward to inflation, and even more zany lending, and a bigger bubble.
I still can't wrap my twisted mind around this scenario.
Either way, monatization of the mortgage industry would just disembowel the dollar, and the healthy banks. The lower banks wouldn't be in great shape either.
Strategy: keeping out of the carnage would be prudent. Holding non US$ denominated assets might be a good strategy. Money in non-insured programs in US banks stands to be exposed to a large risk (default/bank run/inflation/taxation)
Either way, I still don't see how this stems the bleeding in the mortgage finance industry, or the repricing of homes to lower levels. There still isn't any way to increase incomes of Americans in this scenario.
Why? Because if we could increase the income of your average J6P, we wouldn't be in this mess in the first place.
Our turnips are out of blood. A bailout can't change that. It would just be a huge graft to the finance priesthood.
Any thoughts? Help me with this...
Pretty funny backlash to yesterday's blog post on CNNs Generation Risk -
http://tinyurl.com/369wlh
Bankruptcy Attorneys should do reall well. Shorting the market is/was a great idea.
I seriously don't know how we can avoid this disaster. It will hit everyone. It is the kind of thing you only read about in history books.
There will be some sort of bailout but i really don't see it working all that well. I mean how do you stop trillions worth of bad policy?
If right now B of A is saying that of the 43.5 million loans out there that they track 5% are in default we could easily see double digit foreclosure rates. You do the math and you are talking a trillion dollars. If there are 100 million households that would be 10k a household. 25% of the population does not pay federal tax. This is a big problem.
That would definitely spread to the Prime mortgage people.
The new battle cry will be, "Bring the troops home, to save them from ourselves."
eleua,
I believe that there are too many variables and manipulators of the economy to accurately predict the consequences of the credit bubble that we are now experiencing. Having said that, I believe that $1,000,000 homes and median incomes of $250,000 aren't that ridiculous of an expectation for the not-so-distant future. In other words, I think we are in for some significant inflation sometime in the next few years.
I claim no expertise in economics, so I may be way off on this, but consider how we are paying for our military operations in the Middle East? Are we not just cranking up the printing press and increasing the money supply? How can these trillions of dollars injected into the world economy thru the war not result in significant inflation?
Oh jeez. Check out MLS # 27041000. This joint is going to eat up almost half of the gross income of a household that's at the maximum end of the income limit (80% of '06 median for KC). I'm sure that whatever homeownership program is subsidizing this "affordable" housing project is well-intentioned, but:
(a) I don't think we're helping low/moderate income households by encouraging and enabling them to purchase more than they can reasonably afford; and
(b) I know that we're not doing low/moderate income households by cramming them into the same townhouse project, probably without HODs and therefore without any reserves for repairing the roof, siding, etc.
This upsets me. Not as much as the proposed bailout, but it upsets me.
How does one stop a bailout? It would be such a huge mistake.
Write your senators and representatives at www.senate.gov and www.house.gov.
The bail-out is bothersome, but is again a particular solution to a particular problem. It fails to address tha MACRO-implications of all these $ins. An interest rate cut is probably coming down the pipe to band-aid things. But I would prefer to see a hike. BB is fresh and new and should put on his best suit and come on out with a rubber glove on his right hand and a nice tidy present for Wall St. Not to politick, but the economy has been glad-handed for far too long. Let's take a few steps back together and let the chips fall for a little while. If Clinton was a Caesar and Bush II is Nero... where are we headed?
The bailout is not going to happen. It would bankrupt the G. By the time this thing fully unravels, Congress will realize it is powerless to prevent the end result.
CHRISTOPHER J. DODD: CAREER PROFILE (SINCE 1989)
Top Contributors
1 Deloitte & Touche $194,970
2 Greenwich Capital Markets $183,000
3 Bear Stearns $162,850
4 Citigroup Inc $157,000
5 Goldman Sachs $147,516
6 United Technologies $124,550
7 JP Morgan Chase & Co $114,523
8 PricewaterhouseCoopers $113,850
9 Morgan Stanley $99,725
10 American International Group $97,338
11 Lehman Brothers $96,000
12 Ernst & Young $86,000
13 Prudential Financial $85,512
14 Credit Suisse First Boston $85,250
15 Time Warner $84,250
16 General Electric $78,280
17 Hartford Financial Services $78,150
18 KPMG LLP $72,290
19 UST Inc $71,400
20 UBS Americas $66,950
>doubts
me, doubts? Sure... But I believed in the idea enough to short the subprime and now alt-a markets.
My wife would say "But what if you're wrong?"
I always told her it was possible to be wrong somehow, but mainly only on the timing and severity.
Full steam ahead with the great unwinding!
synthetik,
Are you suggesting that Senator Dodd might be influenced by the self interests of his election campaign contributors?
I'm shocked at such allegations!
Synthetik,
I'm not worthy.
Great info on Dodd.
The Dead-Fish houses make billions by taking the losing side of a huge bet, and now we are going to bail them out.
It's good to be the king.
We are the serfs.
Naw, you can look up all the dirt here on OpenSecrets.org
I did some googling as well.
Apparently, analysts who "go with the flow" are called "dead fish". "Dead fish houses" seems to be a reference to the companies who pay analysts not to analyze, but rather to come up with talking points brokers can use to sell stocks to clients.
Of course given the manipulation coming from Goldman Sachs, Bear Stearns, etc., you could also say that these places stink like dead fish.
Dead fish.
It is a Fleckism.
He once referred to these "analysts" as cheerleaders, but that was an insult to people in skirts and pom-poms. Dead fish are absolutely worthless and stink up the place. They are only useful for fertilizer, which is pretty much what your typical Wall Street analysis happens to be.
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