vagrant_joe

Bailout Talks Lose Sight of the Cost Question

I was reading yesterday that $3 Billion of MBS's were unloaded at 27 cents on the dollar back in November. Morgan Stanley unloaded a bucket-full of theirs at 22 cents on the dollar back in June. I've been trying to get an idea of what the current fair market value is on these (as Congress, Bush, et al want to buy a bunch of these things with our money, it'd be nice to know whether we're paying the $55k full-sticker price for that Escalade with 22" dubs that the neighbors son, G-dawg, financed -or we're getting it for the $7,500 that it's now worth as a gas guzzler, parked on that uncut, unwatered lawn, not-washed in 6-mos., with a crack going through the middle of the windshield, and some bumper damage from the last 3x that the repo man snuck over & tried to load it up on his tow-truck, in a bad market). Since June, home prices (especially in California) have continued to deteriorate at a pretty rapid pace. Condo's that were at $40k (yeah, really small condo's) at the bottom of the trough (say, 6 years ago or so) went up to between $150k-200k at their height. Those same condo's are now in the 70-100k range -with short sales near $60k. That $60k short sale was an $87k short sale in June (when Morgan Stanley unloaded). Could it hit $40k again? Maybe. I mean, the sort of folks that bought it the last time it was around $40k aren't really making much of anything more in their paycheck now. And, unemployment may be higher now than it was at that time. We are starting to see (and this is really fun) foreclosures on properties that were recently bought as bank owned foreclosures -second time around the block. It's easy to comb through Zillow & look for isolated examples which may not always be indicative of the market as a whole. So, how much is that doggie with the broken window? Well, if it was 22 cents back in June. Pricing has dropped since then, inventories have risen, qualified applicants are going down due to more normalized credit requirements, jobs are decreasing and set for a big decrease after Christmas (going to be some great after-Xmas liquidations), and on top of that, less folks are paying that mortgage on time or at all. Does 15-18 cents on the dollar sound like a fair guesstimate?

Of course, we could devalue the currency to the point where that $40k condo is riding back at $150-200k -but then an apple would have to be about $6/bite.