retired aviator

Housing's Big Picture Isn't Pretty

It's disturbing when economists get so used to crunching numbers and watching charts that they come to think the future must be in the charts. Historical trend lines and long term averages are meaningless and have no bearing on where home values will bottom in this recession.

No home buyer or seller will ever check the 100 year trend line in making an offer or setting a list price.

It should be obvious that home prices will continue to be, as always, simply a function of supply and demand, with these long term historical trends having no causative effect. It's a mistake to use past results to predict the future. From 1900 to 2000, the Dow Jones Industrial Average rose 175 fold from 66 to 11,000. If that trend line holds, the DJIA will be at almost 2 MILLION in the year 2100! Ain't gonna happen.

C&I Loans Are Starting to Unravel

But aren't these numbers about what you would expect given the economic/financial series of problems of the last year? You continually remark how terrible the data are. Considering the spike in unemployment I think the delinquency and writeoff rates are just about what would be expected. I agree it will get worse, but when and at what level bad loans will ultimately peak is still anybody's guess.

I don't agree with the negative superlatives though. You can dwell on the 5.7% of all loans delinquent or you can turn it around and say that 94.3% of borrowers are still paying on time.

Shadow Banking System: Death from Nowhere

Too bad the name "shadow banking" came into use. It implies a shady activity, when really by your explanation it was simply securitized lending going on in the markets outside the banks, and largely on the up and up. It was made to look bad when real estate came crashing down. The layperson will not understand this though if they hear of "shadow banking".

It sounds like you are saying the lack of shadow banking lending (90 some percent reduction in securitization being originated), is much of the problem slowing down consumer demand. You are not clear on the mechanism though.

Are you saying consumers who have greater need to borrow (as opposed to those with good credit but little need to borrow)are in fact applying for loans but not signing when the rates are much higher now due to greater spreads, or are you saying the supply of funds is inadequate to meet loan demand that actually exists, or are you saying the consumers are simply not applying for the loans?

A Simple Housing Fix: Government Buy-Down of Mortgage Balances

To kelm:

The banks going under and a consequent bank run could collapse our whole financial system and ratchet up the panic level a lot, even from here. For those who hate to use taxpayer money for bailouts, how would you like a possible alternative of going to get money from your bank account and finding out the money's not there, and the FDIC deluged with more depositor insurance claims than it can handle?

His solution is beautiful in its simplicity. The banks get capital that's not free but must be paid back, they write back up some of the write downs, and homeowners get lower mortgage payments. A lower mortgage payment puts $ in pockets the same as jobs do and allows more disposable income for consumer demand to help the economy. Your statement it "Does nothing for the broader economy" is hogwash.


On Feb 25 08:50 AM kelm wrote:

> This is completely misguided (and not at all original as I have seen
> the same misguided idea on SA a few times in the last weeks). Taking
> equity stakes in homes makes people happy but does nothing for the
> broader economy, nothing to re-balance the economy, and nothing to
> restart job creation. How is it that people who are supposedly part
> of the financial industry are so prepared to throw fundamental economics
> to the wind with ideas like this? Probably because they will profit
> from them.