johngonole

Prime Mortgages Are Also Going Sour

Two points to make from a person living in Florida. Houses are selling because of the short term 8000 first time buyer stimulus. Banks are in fact sitting on homes. Like the guy above I know a guy who technically allowed his construction loan to laspe without locking in a rate. The bank won't give him a mortgage because the value of the home has dropped. Yet they haven't moved to foreclose on him either. Another person I know was actually coached by his real estate agent into missing payments on purpose. He had lost his job and relocated. Renting of course. Instead of paying the difference (on the home now worth less) he was told to miss two or three payments so he could start the short sale process. I'm not surprised that Florida is in bad shape. Some counties are in worse shape than others. Population is actually leaving the state on a net basis which has never happened before. Builders are still building slowly. The math says that the malaise in Florida will continue.

I do believe that a second wave of foreclosures is in the works. I think the stock market quite frankly is being pumped. Ocassionaly we have a down day. On the days it drifts lower there is always a rally second half of day. Up days stay up but most of the days that start out down do not. I suspect the plunge protection team, govt, and Fed have figured out that this is the cheapest way to convince Americans that everything is going to be OK so please go back to your negative savings ways.

I read an article a few months ago here on seeking alpha positing that the unemployment rate would not be a lagging indicator this time. I think I agree. The housing crisis while not the whole economy is a huge part of the slow down. This part will not be fixed without stable employment.

My fear is that buy the time this is all over we will have even more people standing by their shovels for the government...I mean working for the govt.

Move Over Fed, California's Now Printing Its Own Money

California is going to have to layoff workers, reduce their pension programs, reduce paid leave, etc... You can't spend more than you have forever. The fact that the CA can't balance a budget and now has to resort to IOU's is pathetic. Their governments live in lala land and can't function. Why can't they just sell more bonds? Is it because no one will lend to them?

If the Federal government moves to bail them out we really could see a revolt in this country. I've already seen AP articles (communist press) suggesting the CA is too big to fail. I've read articles blaming taxpayers and govt leaders for failing to raise taxes. May the public in CA doesn't want to pay more taxes. Maybe they want less government. How come the politicians won't do what the public clearly wants? They want to spend the money for themselves and they want less government service. Its time to vote for a third party folks. Its time for both parties to be decimated.

One final thought. I live in Gainesville, FL which is like a little CA inside the state of Florida. Our city owns and runs a money losing golf course. They sink like 2-300,000 a year into that money loser. They canceled fireworks this year due to budget constraints yet somehow running a golf course is a primary service for the city. We have plenty of public courses too here so it not like we have a shortage of golf courses. Gainesville also flies the United Nations Flag. Our leaders wish they were in another country. I wish I could send them to California.

Why Congress Is Asking Bernanke Bogus Questions

Somehow the banks win eitherway. The bankers still have their jobs even though they took the whole financial system to the brink of collaspe. They got to keep all those bonuses. It is perhaps the most crooked industry of all. When they no longer discount risk and are bailed out for it with tax payer money why should they care. Write as many loans as possible. Banks produce nothing. Their only job is to loan out other peoples monies using leverage on top of that (fractional reserve banking). When they stop caring about being good stewarts of the basis of their whole business why do we need them. I'm sure the public can loan out money to their in laws, the neighbor down the street, or the guy that promises to pay you right back though you hardly know him and has alcohol on his breath. I mean really the general public would have lost far less of their own money making loans with no contract at all. The bailouts I hear are costing each individual tax payer like $40-50,000 a piece. So I collect a few hundred dollars and interest by depositing my money at the bank and they in debt me $50,000. Heaven forbid your married. Now your family is in the hole for $100,000. I realize that not all of the stimulus, tarp, and other govt spending was to bail out the banks. But is a very real way the poor financial status and economic status is a direct result of the banks making very very poor decisions while at the same time leveraging our money.

Why aren't the architects of this disaster hanging from the gallows. Give me a show trial for cryin out loud. I want to see someone in jail other than just Bernie. If this is how things are going to be run (lets not forget the savings and loan crisis, and all the other every tenth year disaster) why do we need them at all. Honestly if they are going to loan our money out to people who are never going to pay them back then why do we need a banking system.

Don't give me that liquidity speach. Far too many of those who need to roll over the loans they have never intend on paying the banks back. Its always been for the Trumps of this world a game of how long can they rollover the debt into ever higher loans and then just declare chapter 7 later on after skimming from the large pot for cash along the way. Our society is decaying in every aspect and nobody cares. We should be seeing riots in the streets if this were a sane society. Or is it that everyone is playing this game of musical chairs. Can't afford to stop the game anymore.

As a society were have enslaved ourselves to debt.........I mean the bankers. Wake up America its time to fire your banker. They serve no purpose at all. The only companies that pay back their debt are the ones that didn't need it in the first place.

Pay as you go my friends. Businesses too.... I'd say pull all your money out of the bank to punish them but if we all did that at the same time.......well the money really isn't there at all is it.

My advice is just don't save money anymore. Spend it or lose it I say. Let the bankers steal someone elses money. When the government finally goes broke you can just leave the country. OR if the govt prints their way out of indebtness then you'll be glad you never saved in dollars.

Schadenfreude: Finally, Countrywide's CEO Getting What He Deserves

I'm pretty sure he wasn't telling investors that they were selling mortgages they had no way of valuing.

Credit Card Cancer

Tim,

tis true that our fiat currency is just another form of debt. That is govt debt. That is why china and others no longer demanding our currency because they lack faith in our govt's policies can dramatically reduce the purchasing power of the dollar. The problem with simply expanding our debt money (the dollar) to manipulate the economy is threefold. First it is debt. Us taxpayers will now be paying interest on a higher amount of national debt forever. Second because by law we are all basically forced to settle debts by using this debt money we no longer really have a free market in money. The Fed somehow can gain real assets just by printing it because of thier monopoly by law. So we are in many ways being enslaved by the Fed. We are also enslaved because (by law the dollar being the only real liquid currency) we are all pretty much forced to either spend our money or place it in institutions that use it to enrich themselves. You can't place dollars under your mattress because the inflation theft. So we are all paying serious commissions are our work everyday to the Fed and the financial institutions in one form or another. Look at different country ETF's. You will find that financial services industry makes up an enourmous size of economies all over the world. Before the recent slide US financial services sector made up over 20% of the S&P 500. This is repeated all over the world. Essentially this form of debt money you feel so comfortable with has enslaved us. Even those without any non-dollar debt pay dearly every year to the benefit of the banksters. A gold and silver backed currency would not require interest payments. Because Gold and Silver are becoming harder to mine everyday that currency would be less prone to inflation. Heck the trading currency might even become more valuable with time. No more need for Social Security.

Basically everytime we expand our debt money the middle classes savings is wiped out and a new cycle begins. With each cycle we end up with less responsible people and more people living off of others. How many cycles it will take before all social order is lost I don't know but eventually anarchy will happen and another dark ages will begin. Unless of course we take Peter's advice above and go back to a savings based society and free up our currency options.

Obama's TARP 2 Signals an End to Mark to Market

With all the great comments here I can't believe I still get to make this suggestion. Keep in mind I don't know what the current accounting rules are regarding mark to market but bear with me anyway. First we must have mark to market accounting otherwise the markets, investors, speculator, and even management of companies will have no idea how good or bad their company's financial condition is. Without mark to market accounting we might as well torpedo the economy now. Who should get a loan, etc... The structural problems with this type of or lack of accounting are endless.

The problem with mark to market accounting is that sometimes markets are irrational or inefficient due to liquidity or lack of information. The solution is obvious. Depending on what type of security is being held one uses the long term beta (a measure of volatility) to adjust the market value of the asset based on a moving average. The more volitile the term beta of underlining asset the shorter the moving average used to price the asset. For example a stock with a beta of 2 would basically have to be marked to market at the current trading price. However a stock with a beta of 0.5 might be allowed to be marked to market with a 360 day moving average.

In the current mortgage situation I heard of some mortgage backed securities being priced at 9 cents on the dollar mainly due to the lack of demand when fear was at a fevered pitch. This instant mark to market destroyed financial institution balance sheets causing everyone to unload these types of assets at the same time. This caused prices to plunge further setting off a devestating chain reaction. Now if mortgage values were priced using a 2 year moving average then the downward spiral would have never happened to the degree it just did. Likewise banks couldn't have written up the value of their securities as fast as they did. The point is that we need to eliminate the potential for illiquid markets to force companies to write off investments that everyone knows are worth more than they are in the long term.

If I plan on holding a 30 year mortgage security backed by someone with excellent credit who has been steady in making payments for 20 years and has plenty of equity does it make sense that the security should have to be written down because of speculative forces in the security marekets.

I just think there can be some commen sense written into the mark to market accounting rules to reduce volitility of company balance sheets thus allowing for the markets in whole to adjust to realities gradually.

Home Prices May Be Nearing Bottom, Bank Equities to Follow?

I think from here on out home prices movements will be influenced by local economic conditions. In places with rising unemployment prices will continue to fall. In places of rising unemployment they will hold steady and may even rise a small amount. In places with steady to slightly down employment oppurtunities look for a continued slow decline in housing prices. Low interest rates may bring some first time buyers back into the market.

How Ivory Tower Economists Created the Housing Bubble

I did a cash flow analysis on purchasig a property to buy and then rent out back in 2003. I'm conservative but I think I assumed 0% price appreciation. The annual return on my investment would be lower than what I could expect from the stock market, bonds, etc.. without any worries or work. In the end I decided to wait for prices to fall before investing in real estate. Bad decision since prices went way up due to the Fed etc... Return on investment could be helped somewhat by increasing the leverage (that is putting less down on the property) but if one analyzed it as I did with the idea of paying down the property quickly the rent/price ratio said it was a bad move or at least a lot of work for little gain.

Your article is right on the spot about the deceptiveness of the inflation numbers and it is what led to the Fed deceiving themselves or self deluding themselves into the idea that ultra low target interest rates were a good idea. They were not. I think of course they knew this all along but at some point the Fed and the government thought risking any recession at all was a bad idea. Mild recessions are good in that it should be part of the natural cycle where consumers and businesses eliminate debt. Of course this reduces the money supply which creates deflation. The Fed has an unhealty fear of deflation. I think this phobia will eventually cause a huge deflationary spiral once people a business borrowing capabilities are simply tapped out or they will simply print the money to zero.

Without the assumption of real estate property appreciation most would have stopped investing in multiple properities to rent out back in 2003 as prices were even getting high back then. The rent was simply paying for the costs. Any profit was locked into the real estate appreciation and it became a self fufilling prophecy backed by easy credit and speculation frenzy. Now that has to unwind and it I personally think it is going to be paid for by the savers and those with assets based on the dollar. The govt and the Fed always screw the responsible class thus creating more irresponsibility.

The article was right on.