patrick.net

"We are a country run by a bunch of morons, alcoholics and criminals."

Of the morons, by the morons, and for the morons...

You can fool some of the people all of the time, and all of the people some of the time (at least once every four years).

@PermaRenter,
That's an interesting summary of some local start-ups. One has to wonder what is more important here--to secure renewed VC funding, or to actually run a profitable business?

"In normal conditions, the market rewards the best young companies and only the nonviable ones go bust."

How does "normal" ever describe SV? business trends? No, it's more like--the market rewards companies that garner investor money and keep a positive loop going. Here, "nonviable" more accurately describes companies which lose their so-called "lifeline", ie venture capital. Notice where these businesses place their hope--it's not their actual market/end-user. I suspect we're on the same page here to observe the systemic frailty of pursuing business ventures...based on excessive liquidity. It's not enough we have stupid govt., we have stupid "entrepreneurs" too.

So... the world did not end at 1234567890. Next time to watch: 13.0.0.0.0

Savoring win, Obama celebrates `major milestone'

WASHINGTON (AP) — Savoring his first big victory in Congress, President Barack Obama on Saturday celebrated the newly passed $787 billion economic stimulus bill as a "major milestone on our road to recovery."

Speaking in his weekly radio and Internet address, Obama said, "I will sign this legislation into law shortly, and we'll begin making the immediate investments necessary to put people back to work doing the work America needs done."

Blackwater Worldwide, a private security company whose work in Iraq was plagued by trouble, said yesterday that it is changing its name to Xe as it shifts its business focus.

Anne Tyrrell, a spokeswoman for the company, said it was changing its name because "the idea is to define the company as what it is today and not what it used to be."

"We've taken the company to a place where it is no longer accurately described as Blackwater," she said.

RJ Hillhouse, a national security expert and author of the blog called The Spy Who Billed Me, said the company is "obviously trying to distance itself from their image as reckless cowboys that's etched into the world's mind from the September shooting. With a new name, "there are a lot of people who probably won't connect the dots," she said. "In a year or two, people won't remember that's Blackwater."

The Economists Who Missed the Housing Bubble Are Coming After Your Social Security

By Dean Baker - February 13, 2009, 4:13PM

Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economists in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.

The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

Similarly, if they had been fortunate enough to accumulate any substantial amount of savings in a 401(k) account, they just saw much of this wealth vanish with the plunge in the stock market. The median late baby boomer household (ages 45-54) has a net worth of just over $80,000 including the equity in their home. This means that if they took all of their savings, they would have less than half of their home (assuming a median price $175,000) paid off, and nothing else.

The median household among older baby boomers would be doing a bit better. With a net worth of $143,000, this household could have most of their home paid off, but nothing else. And of course, half of the population has wealth less than the median, so they would be less well-prepared for retirement.

In short, the vast majority of baby boomers will be approaching retirement with little other than their Social Security and Medicare to support them. And now President Obama is apparently prepared to appoint a commission that will attack these only remaining pillars of support.

It is especially infuriating that this task force is likely to headed up by economists who somehow could not see an $8 trillion housing bubble. The incompetence of such economists has inflicted enormous pain on billions of people around the world. However, unlike people who fail in other professions, economists who mess up on the job just get promoted so that they can do even more harm.

My guess is that this task force will not be very popular except at the Washington Post and on Wall Street.

Dean Baker speaks the truth,especially the last two paragraphs.

Permarenter, thanks for your February 11 post and your vigilance on this website. The actions of the government, both Republican and Democrat, over the past decade has been offensive and destructive to those of us, however few, that bought homes that we could realistically afford, with substantial down payments, and generally minimize debt by actually waiting to purchase our "wants". And further saving for retirement via 401K or other investment vehicles. My siblings and I (all in our 40s) have watched our net worth lose at least 1/3 of value while it seems that we (and folks like us), and future generations will be paying for the actions of the beneficiaries/heroes on the list you compiled. Apparently responsible behavior is penalized in addition to foolish behavior being rewarded by the tax code and our government's "wisdom". At this point, all we can do is hope that our investments will rebound sufficiently so that we are not dependent upon the govenment as we age- unfortunately, I am not sure twenty years is enough. I further believe that if the government adjusts my neighbors mortgage by $50k, why shouldn't my mortgage also be cut? Just because they used their house like an ATM or put no money down, why should they benefit while other neighbors don't? Very disturbing that those of us who saw this coming are actually looking like stooges as more solutions are rolled out. I would welcome a widespread civil action to return our society to one of true pesonal responsibility, and not something that is merely for the other guy. My "wad of cash" is only about a two year emergency fund, the rest is invested. although I basically agree regarding the stock market, I couldn't meet my retirement needs at the CD rates of the past decade and felt I had to be in equities, and I too live way below my means. I hope it goes well, but I am certainly fearful of the future of our nation.

Realtor called me today for this Cupertino house being sold in courthouse steps:

Address: 1034 CRANBERRY DR
City: Cupertino MLS#: 80901352
List Price: $825,000

What is the buying process for houses being sold in courthouse steps?

Perma,

Pretty much you must have the cashier check in hand.

Keep in mind that the price quoted is *usually* what the bank is owed on the house, and that the house is *usually* worth less than that amount, or else it would already have been sold on the open market (and the loan paid off).

In other words, there may not often be any "good deals" at the courthouse steps. It is more often a formality, sort of a last chance for the owner to cure the foreclosure before the bank itself bids the amount it is itself owned in order to take possession of the title.

I'm not a lawyer, but the above I think is the gist of it. If you think the house is worth MORE than 825k, you have a deal, otherwise not.

Not investment, legal or financial advice.

This is a post I made on another website about this very subject.

The cause of all this is:

Glass-Steagall was repealed and let the banks set themselves up for this. This law was made after the carnage of the Great Depression. After many years of chipping away at it, in 1999 the Republican majority in congress repealed it. Clinton signed the repeal into law. It would not have mattered if he used a veto. The congress would have overturned it.

What I find scarier is the flight from capitalism. Capitalism is supposed to have difficult corrections when the misallocation of capital is made. The more the imbalance, the greater out of equilibrium it will be, and the more painful the correction.

When Bush said, "I’ve abandoned free market principles to save the free market system”, it made me so angry. Would he also abandon his beliefs in god thinking that it would prevent natural disasters?

Like it or not there is a huge hole in the financial system. We have to figure out a way to allocate the losses to people. These people are no different than the rest of us; they will not like paying the costs of this screw up.

Option 1: We can print the money to pay it all off and suffer the wrath of high inflation.

Option 2: Let the people who screwed up be wiped out and tolerate the collateral damage.

In either option, we all will suffer for the sins of the few. I like option 2 because the pain will be allocated in the fairest way. I have no debt; I have never bought a home, and have saved a considerable amount of money to use as a down payment. All this crap with trying to back an asset price is keeping me out of the markets. I don’t think I am alone. If the gubermint would just stop meddling in the financial affairs, it would be cured sooner. Why would people want to jump in with their hard earner money when the government keeps changing the rules? The vultures don’t do their jobs of cleaning up until the meal is dead.

The other part of that option 2 is you give all the money left from TARP to the FDIC. Tell the banks that only the strong will survive. When the banks fail, have FDIC step in and insure the deposits to the limit. This will also wipe out the shareholders of the failed bank. When the assets are sold off at auction, we will have the market price of the illiquid assets.

Many people will not like idea of letting the “too big to fail” banks go under. I see it completely opposite. If you are too big to fail, that is even more reason to let the failure occur. It will bring integrity back to the system because investors will not tolerate financial alchemy for a long time. The companies will not change because they have been conditioned to expect money when they screw up. Investors will hold the management accountable if you let capitalism work.

When the assets are sold at the FDIC auctions, the existing mortgages will be transferred to a new bank. The process of capitalism and boom bust can’t be stopped. It can only be delayed and make the correction much worst. I personally think that no involvement by the government to control the economy would result in more frequent but also much less severe recessions.

The people who can’t support their house should not be saved. Kick them out. If these people had bought with 20% down, they would still be able to sell the home with the depressed prices. They may have lost their down payment, but that is the cost of home ownership. Having a 6 month emergency fund is also an important thing to have. Kick them out and sell the asset for market price. If the people in trouble had just done these two things, they could get out and come back at a later date when they have recovered.

Look below the surface of this crap. It is all about power and trying to maintain the status quo of the ruling elite. They stand to lose the most if we just let the correction occur. They should be taking a bath just the rest of us.

I forgot to comment about the show on CNBC called "House of Cards". I don't see an easy way out of this. Someone has to take some losses here. Because I am debt free, never owned a home, and have a job that is vital for modern living ( I make electricity), I don't think I should have to suffer any pain for this mess. I know that I will be forced to pay for this mess in some way. It is not right, but that does not matter. Democracy is nothing more than 2 canibals and a normal person deciding on what to eat for dinner.

Just watched it. I'm more optimistic. I believe most of the time democracy is two normal people and a canibal deciding what is for dinner.

Instead of spending money to keep prices high there are less draconian methods where the government can channel the free market to reach a morally sound equilibrium in prices. It is outrageous that CEOs are whining and bonuses are/were paid to failures who are still considered experts and now live a subsidized life. Ironically they used to look down on people they considered unworthy but entitled. Here are some ideas:

1. Since most agree it is not a fair policy for government to pick winners and losers, I say instead of inflating house prices with tax money, remove the capital gains exemptions on houses. This will reduce the stream of homes to the market, increase tax revenues and will help a balance point come faster to where banks will have a real idea of how much they can safely lend.
2. Allow banks to refinance the current value of homes and allow the balance to sit as a silent second position mortgage. The silent second would be interest free until the first is paid off and then it would be either financed or forgiven at the bank's discretion; but a deal would have to be struck for the house to be sold short. For people who haven't refinanced and really are the victims they should still be able to walk away from a nonrecourse, nontaxable balance if a bank doesn't want to work with them.
3. Bring back the debt forgiveness tax for people who default on a modified loan. This again raises taxes and holds people to their commitments. I am disturbed by how quickly the ethic of repaying debts has changed to only repaying the ones that will boost a credit score or where there is money to be made on the financed asset.

Thoughts??

Goddamn traffic jams around the malls at Valley Fair and Oakridge the past two weekends. I hate the malls and I don't go tothem but during other errands I cannot avoid driving past.

Distressed sale home on my street sold this week to an investor.

The overall big picture is doom and gloom, yes, but in the meanwhile, for the time being, we might be in a blip of a good times coming up. I trust anecdotal observation a whole lot more than what the spinsters tell us.

Permarenter,

Sheesh. 825K. What is the monthly cost for that high-maintenance lifestyle?

God Bless you for signing up to subsidize our public schools with that property tax assessment.

Sybrib, I keep seeing mixed signals as well. Some days I stop by the mall and escalators are turned off and the lights are turned way down with vacancy signs everywhere. Then I go to South Coast Plaza, or Del Amo in LA and swear someone forgot to tell those people there is a depression on, because everyone is just out living it up. My anecdotal observations are similar, I think there is a protected class of elitists who by some birthright don't ever have to lose money like the rest of us so a crisis to them is a national emergency that "We're all in together." Uh, no we're not.

WE might all be in this together, but I don't consider them part of we, so no pity here.

Neutron,

Or in other words, it is all about who is going to be allocated the losses.

Everything that is going on, every four-letter TARP-like acronym, is simply a mechanism for either (a) postponing the losses OR (b) steering the losses away from the principals and onto someone else.

Re: Mall Traffic

Anything to do with Valentine's Day?

Received mail from ZipRealty realtor today morning:

In 2008, we saw the housing market went through seemingly a 'perfect storm' scenario that caused it to essentially crash across the states and the Bay Area is not at all immuned. After the market peaked in Summer of 2006, we went through a series of events - first the market adjustment, then the sub-prime crisis, followed by the stock market & finance sector melt-down, weakening economy, and the latest to hit us is the dismal job market news.

As the result, the flood of foreclosures & distressed properties continue to dominate the market. Though the actual depreciation varies in different areas, we are seeing an average 30+% in the South Bay, with as high as 45-50%+ in some areas.

The most common question these days - When is the market going to bottom out?

My take is that the market will go down further in the upcoming few months. But when the market reaches bottom, it may be too late to act. The housing market is cyclic. When it gets to the bottom, everyone will know that market is starting its up-swing & human nature takes over to propel buyers to jump on the wagon.

If you are a qualified buyer waiting on the sideline, you are in a great position to buy a home at bargain price, often 10+% below the current market value; thus providing a margin to soften the risk. Why buy now? High inventory, great bargaining power, low interest rate; this is much better position to be in than competing with other buyers when the market recovers.

Most buyers will focus on foreclosures and that can be a mistake. Resale properties on the market these days are competitively priced and generally in much better condition. Furthermore, it is much easier to deal with a seller than the bank in terms of negotiation and resale sellers are obligated to provide full property disclosures.

Regarding the stimulus package. The good news is that the legislation resets the conforming loan limit cap at $729,750, up from $625,500. Numerous counties in California experienced a marked decrease in their conforming loan and FHA limits on Jan. 1, and the stimulus bill reinstates 2008 loan limits through Dec. 31, 2009.

The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years. It also extends the expiration date for the credit from July 1 to Dec. 1, 2009. Homebuyers must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009, to be eligible for the $8,000 credit.

If I can be of help in any way, or answer any questions you may have, I am just a phone call or email away.

Take care & enjoy the rest of this weekend!

Travis Jackson walks through his modest ranch house, admiring the kitchen's built-in spice rack and the red-oak floors. He draws back the curtains, and sunlight illuminates the pride on his face.

The young banker just bought Federal Reserve Chairman Ben Bernanke's childhood home at a foreclosure sale.

"This is where it all happened," marvels Mr. Jackson, a 27-year-old loan officer at First Citizens Bancorp, which is down the street from the old Bernanke place. "Kind of a surreal feeling, isn't it?"

Mr. Bernanke's family sold the property more than a decade ago. It ended up on the block late last year after its former owners fell behind on their mortgage payments.

I just read an article by James Quinn on Financial Sense that points out the cyclical nature of human history:

http://www.financialsense.com/editorials/quinn/2009/0210.html

It's a VERY interesting article and well worth the read for a new (at least to me) theory of the way things work.

====

The recent song by the group Five for Fighting called 100 Years reflects the 100 year cycle that all humans live through.

15 there's still time for you
Time to buy and time to lose
15, there's never a wish better than this
When you only got 100 years to live
I'm 33 for a moment
Still the man, but you see I'm a they
A kid on the way
A family on my mind
I'm 45 for a moment
The sea is high
And I'm heading into a crisis
Chasing the years of my life

The lyrics heading into a crisis couldn’t be truer today. We are only on this earth for 100 years. Why shouldn’t every person want to leave the earth a better place than they were born into? Instead, the world has periods of advancement and periods of regression, periods of peace and periods of war, periods of awakening and periods of crisis.

"There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny." Franklin Roosevelt – 1936

I am declaring that we have reached a short term bottom.

Evidence? UCLA Anderson economists recently came out to say we are facing a worse economic situation than the last great depression in the next 2 years. The SAME group of people said in 2005 that housing value was justified and could go on for another decade.

I am going to bet on the opposite of these economists' view.

When everyone is murmuring GD2, there's gotta be a bit of an over-hype. The fact that mainstream media starts to use the word depression makes me believe that shorting stocks will be an unprofitable activity for the next 12 months.

When you hear more people saying bottom is in, that is about the time to start shorting again.

So that newsletter from ZipRealty can be distilled down to: now is a good time to buy, and if a buyer waits, s/he might miss out.

Well, when did a realtor newsletter NOT say such things?

On the other hand, now might be a good time to get a mortgage. Things might've "bottomed" for the RATES. Not sure it means a panic to buy like realtors try to goad people; it could be a long bottom. But it feels like its gotta be near the bottom.

My grandparents told me they got a 3.5% fixed mortgage in the NYC area during the Depression, the rates are getting close to that now.

A difference that's been pointed out here by others, during the Depression the USA had trade and balance of payments surpluses, which could protect the dollar even when FDR depreciated it against gold. It's different this time, unlike the Depression I really don't see how long term borrowing rates for USD borrowers can stay so low so long.

I saw that James Quinn article too.

Sounds like he's not a man of positive action, but instead just worried scared and paranoid about losing what he has, - sprinkled with some lecturing about the past and how if you'll be a better person if you accept his interpretation of history, and a fool who'll regret it if you don't. Kinda like so many college professors.

Sybrib,

It will be interesting to see whether the masses still only care about mortage rates, or if the asset prices now will be more of a deciding factor.

Bottom definition: When the price of something seems like a bargain based on your own method of valuation. Very simple.

No, not a bargain. More like, a "trend".

Residential real estate in the Bay Area and the Fortress in particular is not and probably never will be a "bargain". But the nominal price might've trended to a bottom. ALso the interest rate for borrowing might've, also.

I have cancelled my Blockbuster account ... now getting DVD from Cupertino Library. I am thus saving around $11/month.

The only 2 ways people will "flood" the market are the same 2 ways Bay Area real estate bottomed and came to life big time in the late 90s: 1) Jobs have to come back in a BIG way. No way in hell 9% or 10% unemployment will make buyers come back in a huge way regardless of those "bargains". 2) Creative financing will also have to come back in a big way so all the bottom feeders with lousy credit can buy. We can't get all THAT much lower in rates than we have right now and when the economy does improve, they have nowhere to go but up. Just my 2 cents.

This Generation has a rendezvous with destiny.

That 1936 generation had a rendezvous with an evil president.

You're talking about Adolf Hitler, one would have to assume.

Rising gas prices have Silicon Valley drivers howling
By Gary Richards, Mercury News

Crude oil is selling for the low price of under $35 a barrel. The precious black commodity is awash at storage tanks across the country. And drivers from New York to the Bay Area are motoring less and less as the economy continues to sink.

But the price of gas is going up and up and up — to $2.29 a gallon in California on Saturday, 25 cents higher than a month ago and 49 cents more than before Christmas.

What gives?

The price for gas that companies pay on a daily basis in California is now about 50 cents higher than the national price. That's more than double the usual gap.

That has some motorists howling as prices at the pump continue to rise. Many think low crude costs should mean gas selling for under two bucks a gallon like before Christmas, when the state average had fallen to $1.80. Never mind that a year ago South Bay drivers were paying $3.16 a gallon.

"I was furious to see gas at Costco in Santa Clara go up 12 cents a gallon from just eight days earlier," said Randall Fullner of San Jose after a recent fill-up. "Big Oil is fattening its wallet by ripping off the consumer and charging what it can get away with."

Added motorist Roland Beech:

"They can call it scheduled maintenance, but that's not the truth. Let's face it, they are just cutting back to keep prices higher."

Today I explained the CENTRAL EQUATION of this thread to my relative in Houston:

MONEY = LABOR

He got it ... I gave example how lot of money is sitting in Banks and not moving ... since people who have earned and saved money through their labor do not want money to move.

So we have a confidence (money movement) crisis ... not a credit (money) crisis.

Exactly. I've said many times that I believe Obama will be an effective President because he instills so much confidence that companies will start investing again on things they pulled back on out of fear.

sybrib Says:
February 15th, 2009 at 12:58 pm
"No, not a bargain. More like, a “trend”."

Bargain is solely in the eye of the beholder. If my valuation of what I think BA housing is is higher than someone elses it is a bargain to me, and the bottom is set when I buy. As long as my decision is not emotional speculation it doesn't matter what the trend is. Trends, specualtion, and fraud are what caused the mess in the first place.

The largest lesson in finance this country needs to learn as a whole is how to put a value on something. It still amazes me that people buy houses and have no idea if the price they are paying is high or low, they don't even know how to put a value on it, the bank tells them what they can afford and they shop on payment.

A friend just bought a house near Tracy. He asked if I thought the area had hit bottom. I said there is no way to know if you just look at graphs and interest rates, but in helping him think it through we realized that the selling price was less than the cost to build the house and less than he rented his prior place for. His decision was rational and not emotional. He thinks he did well, I think so as well.

When you hear more people saying bottom is in, that is about the time to start shorting again.

Very true. :)