patrick.net

HeadSet,

Recovery after selloff? I'm not so sure this time. If enough of the smart money is out already, there might be benefits in selling it down still more. Or less reason to prop it up. Who knows.

Don't praise Bernanke yet. This is his toughest meeting ever. The amount of pressure on him to be seen as "trying to do something" is extremely high. In addition the world has now got addicted to the "Greenspan put". There has not been any action/speech from him that inspires my confidence in Bernanke that he has what it takes to be tough and having a longer term outlook.

So don't shower the accolades for the time being.

By the way - they already cut

It's called the discount rate and it was 50 bps!

How about waiting in line to get your money from Northern Rock in the UK only to see them close down the branch before you get in to get your money. Also, the web site is down, surprise, surprise, surprise!!!

US Mint not selling gold eagles any more either -

http://tinyurl.com/27dgw2

I think the Fed will cut 25bp, the stock market will tank for a while and then realize that, actually, this is a good thing in the long term and bounce back. I think the Fed will cut at least 75bp over several meetings to try and get ahead of the exploding ARMs.

The effect on long rates is unclear. They've proven stubbornly resistant to efforts to influence them from the short end, because they're actually set by foreign buyers of long-dated paper. China won't want to tank the US and global economy, certainly not before the 2008 olympics, so they'll play along and the dollar won't completely unravel. Eventually, though, the long rates need to come up to curb the speculation and to more accurately reflect inflation risk.

None of this in any way bails out holders of bad loans. The Fed needs to continue providing liquidity to give institutions time to sort through the byzantine layers of derivatives and find out just who's holding the bag for how much on these loans. Then they can take their lumps, charge off the losses or simply fail, and the survivors will move on.

Just how bad can an AAA tranche of toxic loans be? Even with a 50% default rate (the other 50% refi or continue paying), and even if the defaulted loans yield 50 cents on the dollar (after foreclosure), the overall pool would still be worth 75 cents on the dollar, which barely impacts the top tranche. I'll wager that some strong hands will eventually step up and buy these things from weak holders strapped for liquidity, at a huge discount to face value, and will in the long run look like geniuses for not panicing.

There is very little chance that the rate cut will help the FBs. Actually the mortgage rates may not dip at all. Weather the congress, NAR and the FBs like it or not, sanity in lending will be restored. The Fed may reduce the rates to zero. But it cannot force the lenders to lend if they think they might lose their principal. Why don't so many reporters/Realtors get this basic fact ?

Northern Rock update-

http://tinyurl.com/ytfoz7

BECAUSE THEY DONT WANT TO

Why don’t so many reporters/Realtors get this basic fact ?

I want to point out that PPI and CPI are coming out coinciding with the same dates of the Fed meeting. These numbers especially the non-core CPI can make the Fed look really really ridiculous. A surprise jump in the core CPI may not have the power to stop the Fed from cutting, but it can tank the market really bad.

Mortgage rates are low and have been low. Tuesday will not be significant for mortgages.

It is about trying to avert the recession or slowdown that is now well on its way. The economic storm will continue to worsen for at least six more months. Given the long lag between monetary policy changes and any measurable impact on the economy, it is already too late to avoid the storm. However, if the fed lowers rates during the next few months we could see some recovery in the 3rd quarter of 2008.

StuckInBA,

I agree it may be a little too early to praise Bernanke. I suppose we will find out on Tuesday what the real answer is.

Bernanke is under a lot of pressure because Wall St and the MSM have spun and (mis)construed his recent statements about monetary policy into a promise of a rate cut. Now, if he doesn't "deliver" the rate cut, he is going to get a lot of flak from the media and the blame for the resulting drop in the stock market, although it is no fault of his.

Another problem is that the f@%kers that are on the hook for big losses are threatening to take the rest of the market down with them, in effect holding the Fed hostage.

Next week is going to get REAL interesting.

I would not be surprised if no cut comes on Tuesday. This will precipitate a sell off in the stock market. It will also worsen the slowing of the economy. All of this is bad for peoples' jobs, and for housing prices in the short run. However, it will create a buying opportunity as the cycle effects become exagerated by the Fed's overplayed monetary policy.

Once again the Fed has already overdone it. Once again vultures like me will profit from the panic.

DJM,

Maybe so, but a bank losing 25% on their principal is nothing short of disaster. Yes, maybe someone will buy their junk at 75% of face value, but banks aren't just holding stock and obligations in trust for their customers, they are holding CASH and supposed to return ALL of it, on demand. Cf. the Northern Rock Bank problem in England.

I will be surprised if there is no rate cut on Tuesday. Bernanke has made no effort to counter all the Wall Street, CNBC, Bloomberg pundits debating whether it will be a 25bp or 50bp cut.

Too bad. If I were him, I'd be thinking more selfishly (in a way) about my own legacy:

Will I be remembered as a Fed chairman ala Volcker who made the country swallow a bitter pill to stamp out inflation, enabling one of this country's longest market bull runs in history, or will I be remembered as the also-ran, "that guy who followed Greenspan" and kept the status quo of enabling market recklessness, and enabling inflation, just so he could keep politicos from calling for his resignation?

What is best for the average person is a softening of the coming downturn, and a more rapid recovery.

What is best for savvy investors is to have a buying opportunity caused by the general distress of a more severe than expected downturn.

Either way I will be happy. If the rates are cut I will feel good about the greater good for the average guy. If rates are kept high I will be happy to profit from the mess.

“Use the ARM, Luke ….. feel The Force”

Bap33 gets the prize for all-time best quote so far, but only those who have heard of the term the term "fisting" will get it. That includes most of San Francisco.

The question remains: who will get the fist attached to the ARM: savers, taxpayers, borrowers, or lenders? Maybe all of the above.

Based on the chatterati, it is likely there will be a quarter-point cut. In this case, the most visible effect will be a drop in stocks, which have already priced in more than a quarter-point cut. The FB's at the margin may just be able to scrape themselves into a fixed rate refi. The rest of the FB's will stay F'ed. While I expect the dollar will weaken, the effect on the dollar is hard to predict because we don't know if there is a concerted/co-ordinated rate-cutting campaign with other CB's.

However, Obi-Ben has been rather mum for a while - and we don't know what kind of new core-CPI numbers he is getting - which means there is at least a glimmer of hope that he will hold the rate steady with no cut.

SP

Administrator Says:
“Use the ARM, Luke ….. feel The Force”

Bap33 gets the prize for all-time best quote so far, but only those who have heard of the term the term “fisting” will get it. That includes most of San Francisco.

"Use the lube, Ben..." ???

SP

http://www.northernrock.co.uk/

Typical verbage during a run on the bank!

Nope, the bank of England lent to you because you are insolvent and not well capitalised!

hmmm, even ben cuts .5% or more I predict the following:

1. All the news stories will run wild saying how housing will now bounce back!

2. A few "knife catchers" will jump, and join the dead cat bounce

3. Within a few months, data will mount that the crisis is deepening.

The reason is that the 10year has already come down nearly 100 basis points, and you will notice that has hid little effect! Fed funds rate will affect ARM rates, so maybe a handfull of ARM buyers are able to hang on by their fingernails, due to a slightly less painfull reset but... This will not have much of an effect on the underlying lack of confidence in risky paper assets, and might even cause more capital flight away from the dollar.

I think the Fed will cut, stocks will rally, Bay Area housing will get a boost - in the short term. I would love to be wrong.

Is anyone else watching Greenspan on 60 Minutes?

If the Fed cuts big and then housing rallies in response, it's just more air into the balloon. But the bigger it gets, the louder it's going to pop.

I'm curious what people think about the various offshore institutions offering higher CD rates (in the 8+% range for $100000 and a 5 year commitment). The links keep popping up on the blog:

http://www.mlnbank.com/EN/Services/premCDs.htm

8% isn't much if inflation goes haywire, but what about getting a Euro-denominated CD and parking your cash for 3 years at 7.75%?

I'm not so sure I believe he'll cut and if he does, it'll probably be 25 bp's. I just think 50 bp's will send too strong of a message that our fake economy isn't as strong as they make it out to be. Even if they cut; I don't see it making much of a difference as far as saving FB's. Lenders do not want to lend to them. There is way too much inventory to absorb; prices will just trend down more as knife-catchers who think they are bargain hunters will lower all the comps in the area; pushing distressed FB's deeper into the red and causing more jingle mail.

As for the greenback; it's below the support level of 80 (this is scary!) and foreigners are starting to lose their confidence. This is another reason I am not so sure I believe he will cut the rates. If the foreigners get too pissed off, I see mortgage rates jumping.

That's right. Risk has been underpriced for a few years, here. If we lose the confidence of the world CBs, they might have mechanisms to force us to price in the proper risk premiums by raising their own interest rates.

Oh, I'm so tempted to post the link to my Youtube Star Wars parody movie.

Millennium Bank is regulated by the International Financial Services Authority (IFSA) to conduct international banking business in St. Vincent and the Grenadines.

I know a guy who invested $50,000 in a bank in the Cayman Islands. The bank disappeared and so did the money. No FDIC. No US laws.

"The phantom bid is one of the oldest tricks in the book"
MIKE DONIA, veteran Toronto realtor

The secret's out on phantom bids
Registry, open bidding needed to stamp out phony offer scams, some realtors say
http://www.thestar.com/News/GTA/article/256968

The incoming head of the Toronto Real Estate Board has come out swinging against phantom bidding tactics after denying they even existed when she ran for the job three months ago.
"It's dirty realty, it really is," Maureen O'Neill said of agents who fabricate offers during bidding wars. She is now calling on the Real Estate Council of Ontario (RECO) to yank the licences of agents convicted of using phony bids.
"Boot them out, we don't need them in the business," O'Neill said. "I don't think these people should be allowed to sell real estate."
Phantom bids can be used by selling agents to spark extra rounds of bidding or to spook potential buyers into rushing or raising offers. The practice is considered a breach of ethics under the Real Estate and Business Brokers' Act of Ontario – administered by the Ontario council – and realtors who are caught can face hefty fines.

Bidding and bitterness

http://www.thestar.com/article/256092

Many in the industry will say – off the record – that selling agents are attempting to manipulate the process and scare potential buyers into raising or rushing offers with talk of bidders who may not exist.
They say there's nothing to stop agents in Ontario from doing so because – unlike in Quebec – they are not obliged to disclose bid amounts to potential purchasers' agents in an open process.
The lack of transparency means some competing bids, especially those that have been "faxed in" to the selling agent, can't be verified.

I see little enough from the Bernanke Fed to warrant some of the darker characterizations turning up here.

Cramer made an impassioned - putting it kindly - plea to have the discount window opened. Well, it always is open, as BB cooly pointed out. How this makes Bernanke a Wall St. patsy requires something beyond logic.

As to Fed response to the Congress. It's taken the form of a few reminders to various representatives that the Fed is doing what prudently may be done and rather pointed questions regarding what the legislature has undertaken in the way of helpful activity - essentially 'I'm doing my job. Can you say the same?'

People who select a single Bernanke quote as the basis for every prognostication regarding the Fed's intent or likely path need to stop and think whether or not that makes sense. It is clearly simplistic, but if that's the way you examine probabilities, then what are you doing here?

As long as its chairman has served at the pleasure of the executive and subject to confirmation, the Fed never has had a purely independent status. It is possible to act in a way sufficiently counter to the administration's wishes as to endanger one's chairmanship.

Paul Volcker was the last called upon to take stern measures, but he was able to communicate well with the Reagan White House and to lay out his intents and reasons in a way which satisfied the President. That is not the situation today - if only because GWB is not Reagan.

I don't presume to know what will happen this week. I do know the Governors will be taking a look at CPI/headline inflation numbers before you and I will. They're not about to be caught flat-footed by any surprise in those statistics.

For all the inflated rhetoric here, I can't for the life of me see the current Fed Chairman as anything but an island of sanity in an otherwise disordered economy.

I am almost in disbelief about the Bank Run in England. I wonder if such a thing will happen here in the next 6 months. I bet when the Bank Runs start here, we will see breaking news stories about shoot outs between bank customers trying to get their money. Why invest in Gold? Investing in lead may be the more prudent thing to do :)

I don't know what will happen in the next 6 months, but I am nervous. I am only 27 and have very little life experiences to have a well refined intuition. I do know that I don't understand why this crazy lending was allowed to occur. It can't lead to anything good.

I also don't understand the gold bugs. You can't eat gold or use gold to make food. If I had to choose a commodity to rely on as an inflation hedge, I would choose oil any day. You can at least use oil to make food and consume oil for other things.

Has it ever happened that Fed rate is cut while mortgage rates go up?

I should rephrase my question: Has there ever been a time when the Fed cut rates, but the mortgage rates increased after that cut?

It's Cargo Ben now:

http://www.stockmania.com/2007_09_17_archive.html

I have heard an interesting line of thought that goes like this:
A temporary large drop in the Fed Funds rate will allow serious home owners a chance to refinance into a sustainable payment. It may even give speculators a chance to dump their properties. After a brief window to allow sanguine parties a chance to fix their "I didn't understand the risks' real estate woes, the Fed will start chasing out inflation for real. The kind of inflation that comes from China dumping the dollar and our currency tanking. Greenspan has thought rates may need go as high as 10%. And before we discount Alan, who admits he missed this bubble, he is still an excellent economist. Where we bubble bloggers saw this one phenomanon, do we all have his breadth of economic savy? For my part I am counting on rates going to 4.5% by year end, then watching 2008 and 2009 return to the Volcker years.

Lowly Smart,

I don't know historically if that has happened, but I don't see why it couldn't. The mortgage rates aren't tied directly to the fed rate, there is certainly an element of supply and demand on the secondary market. If nobody wants the subprimes or jumbos anymore people will have to pay more for them to make it worth the while for the secondary market to bother with the risk.

I think the All-Knowing's (Greenspan's) warnings about housing will even spook a few of the perma-bulls who used to post here.

Interesting story on Australian '4 Corners' (high quality exposés and journalism) on the US mortgage meltdown. Streaming video of the TV broadcast, about 45 minutes. Many shots of Riverside...

Four Corners - Mortgage Meltdown

justme:

You're right, taking a direct 25% hit would be disastrous. However, you have to look at how these loan bundles were securitized, the wizards on the street sliced and diced the default risk into tranches, in effect asking all holders of the debt to "take a number" setting the order in which they will incur losses. Those at the front of the line, the so-called equity tranches, will lose 100% of what they put in. Those are the hedge funds that bought the toxic waste tranches. The highest-rated tranche takes no losses until the two lower tranches have fully taking hits.

There are indeed banks with some of these bad loans directly on the books, or bundles of the lower tranches on their books. Most banks keep these loans to a small % of their total assets, so if they absorb a 25% loss, you have to view that in context. Even the big sub-prime lenders like Countrywide may not actually become insolvent as a result of their losses. IMO where the virus escaped the lab was in these "AAA" rated tranches that were sold to institutions (like money-market funds) that normally cannot own junk debt. This is the vector by which the contagion has been allowed to spread and infect the whole market. If not for that we would all be watching with detached amusement as greedy lenders with shoddy practices when under one by one.