patrick.net

Why should the banks get bailed out? Will that not encourage banks to continue having loose lending policies? After all, if the loans start to default the gummint will bail them out! If not, profit!

My take: there should be no bailout to no one.

During the .com boom/bust, anyone who bought the stocks of JDSU or the likes... and did not sell quick enough is still showing it as a loss in their tax return. Did the Fed change the upper limit on capital loss $3000??? No. I remember some of the discount brokers had a request in to George W to revise this upper limit.

lucky seller pockets, FB loses.

Sriram,

There's a big difference between a bailout that keeps them from going under and an infinate 'get out of debt free' card. It's painfully obvious right now that the retard loans they were handing out aren't going to be profitable again for quite some time, so even if they get bailed out, they won't be making those loans if those loans won't make them money. And even after they're bailed out, they're going to have significantly less cash and credit to toss around.

a_friend_of_patrick,

I rest my case. Thanks. Oh and btw, during the tech wreck we tried to get CPA groups etc. to lead the charge as "the number" hadn't been updated since the 70's! I mean what does it take to step on a 3k land mine? Older (and more aggressive) investors may not LIVE long enough to carry forward their losses but now we're going to bend over backwards b/c this is RE? Sheesh.

SFWoman Says:

Wow, I just read the WSJ article, the entire front page plus about 80% of page three of the Journal Report. It reads as though DinOR or HARM wrote it. Where is MarinaPrime now?

Remember how the day after 9-11, the headline of Le Monde (France's largest newspaper) was "We are all Americans". We'll, now that even the perma-bulls over at the WSJ are on the bear-bandwagon, I guess you can say:

WE ARE ALL HOUSING BEARS!

DinOR :

Many mutual funds - including some Vanguard index funds - had so much accumulated losses from that dot com crash that they did not pay any cap gains even in 2006 ! (I forgot where I read this back in Dec, so I could be wrong.)

A house is an inefficient way of building wealth.

Wait a minute. It's worse than throwing away money on rent ? Now where did they get that idea ? Complete baloney.

3. The Best Burger

That's right - let's get our priorities straight!

Maybe someone can invent a FBurger - a patty with ramen noodles on top.

The patty is ramen noodles. Stuffed right between two ramen noodle buns…

Nice. But you can only pay for the FBurger with a cash-out refi.

I don't know why it is, but I really love these Schiff video interviews .

'The B-word again ! Coming not from a doom-gloom blogger but from a reputed source. So it’s worth visiting this hated word again.'

Ha, even though the bloggers were right all along, somehow they still aren't as credible as the horty torty experts. God, I love the internet, it really is the great equalizer. These clowns should pack up their stupid talk shows, and major media outlets should clean house and start hiring someone with a real track record. These losers missed, or were entirely wrong about the biggest, and most obvious economic event of this century. After missing the tech stock bubble, they went into complete denial when humble people questioned the robustness of the housing market. I laugh myself sore sometimes, and other days I feel depressed as I read the news.

http://www.europac.net/Schiff-CNBC-3-12-07_lg.asp

The only acceptable bailout is the standard FDIC insurance on deposits. Anything else is completely unacceptable in my opinion.

PAR,

Exactly. Not only do they move (at least) every 7 years they re-fi every 18 months!

Hopefully now that housing has cooled considerably future owners will be able to keep their counter tops and bath decor/fixtures more than a year without replacing them?

Let's get back to basics.

From Ben's blog:

“That’s a surprising 40 percent more than all other subprime purchase loans made in metro areas. I fear that aggressive subprime lenders in some markets may have helped hyper inflate prices.”

“San Francisco’s $392,400 average subprime loan in ‘06 was the nation’s highest. Santa Cruz, at an estimated $352,100, was next in line. Orange County’s typical 2006 subprime home purchase was financed with an estimated $312,400 loan.”

Uh, what were people buying with just $392,400 in SF? A parking spot?

• If you bought a house in Los Angeles in 1990, just as the real-estate market turned downward, you would have had to wait a decade for your home’s value to return to what you paid.

That's where the Merc comment comes into play. California is so special that even if your place drops in price, it's sure to come back up in value in 10 years.

PAR,

Way Cool chart! It will be as handy as a medical chart tracking as the virus spreads. (Best to keep it nearby).

"Uh, what were people buying with just $392,400 in SF? A parking spot?"

I'll guess a 700 sqft 1BR condo.

I’ll guess a 700 sqft 1BR condo.

I thought SF condos cost 800/sqft and up. 392K may get you a 500 sqft studio.

Kurt, long time no see.

Did everyone see this?
http://calculatedrisk.blogspot.com/2007/03/segmentation-of-residential-mortgage.html

Now this would certainly make a nice t-shirt graphic. :)

With the new bankrupcy laws in effect, people will now be financial serfs. The banks don't need a bailout, they got their changes in the bankrupcy laws.

I say let people who screwed up bad learn the hard way and dig themselves out from the debt they took on. It may take 20 years to fix their messup, but I think it is a pain our nation must endure to change our ways. The people who commited mortgage fraud should be held accountable as well. I am starting to think that state sponsored labor camps/programs would be a good idea. I don't want to pay to lock these morons/clowns up over fraud.

I’ll guess a 700 sqft 1BR condo.

I thought SF condos cost 800/sqft and up. 392K may get you a 500 sqft studio.

I did a search on SFARMLS for properties between $390-400 in SF and there were 17 properties in total. One of them was actually a 3/2 1050sqft:

Listing #319415
$390,000 (LP)

Price/SqFt: 371.43
65 Western Shore Ln #5, San Francisco, CA 94115 Active
Beds: 3 Baths: 2 Sq Ft: 1050 Lot Sz:
District: 6-D Yr: 1964

Great Value! Top floor unit of the St. Francis Square Cooperative that is centrally located in San Francisco's Western Addition. Walking distance to Buchanan Street YMCA, Japantown, Fillmore St. shopping and dining and St. Mary's Cathedral. Easy public transportation via MUNI from Geary St. Open Sunday February 4th from 1-4pm with Fresh Baked Cookies and Milk!!!

SF experts - What's wrong with this unit?

Hey PeterP-

Yeah, I'm sure that's too cheap for an SF condo. Maybe a studio apt conversion?

Waterfront Marin condos can be had for about $600/sqft and upwards, but that probably pales to SF prices (I haven't checked lately). Still, damn expensive for a glorified apt.

PAR :

It that’s what we are talking about, and it comes to this, we will probably be thankful that it happens.

I think I might agree with that. Lesser of 2 evils kind of logic.

BTW, the chart on CR shows Alt-A as big as subprime. From what has been coming out, Alt-A looks like only marginally better than subprime. So more fun seems to be ahead.

eburbed,

It's dead center of Western Addition. This is a weekly occurance in Western Addition: http://tinyurl.com/ypkgn3

The neighborhood is situated north of Hayes Valley, south of Lower Pacific Heights (Lower Heights???) and west of the performing arts area.

$390/square foot is too pricey for this:

Examiner, March 5, 2007

"The San Francisco Police Department increased its presence in the Western Addition last month, following a spike in violence that included the shooting of a 13-year-old girl.

That victim survived her shooting.

At a recent community meeting with police, Western Addition residents expressed concern about the heavy violence.

This year to date, there have been five homicides and 197 aggravated assaults in the Park and Northern police districts, which both serve the Western Addition area, according to the San Francisco Police Department’s CrimeMAPS Web site."

Forget about being afraid to go out at night, these people shoot you at noon.

eburbed said:
SF experts - What’s wrong with this unit?
I am no coop expert, but will take a stab. Coop financing is a lot harder to come by so the buyer will have to put down a lot more to find a willing lender (for your coop share -- you don't acutally own the space in your unit like a condo). You also have to pass an interview by the coop board. Oh, and HOA fees are $751. Part of this is probably the actual mortgage being paid off by the coop. The good news is the HOA fee should include taxes and insurance.

Oh, and what SFWoman said: LOCATION, LOCATION, LOCATION!

Does anyone else feel that this is happening too fast ? I certainly feel so. WSJ once used the word "catastrophic" to describe the meltdown. NEW was a 1.5 BILLION company just a month ago. Today it is virtually non-existent.

If things unraveled at this speed, will there anyone be left to bailout ? ;-)

Great - once they solve this crime problem, prices will go up!

I hope it unravels fast. Like a band-aid, you know? If house prices plummet, they'll hit bottom faster, and that will set the stage for a normal market faster. 10+ years of festering pain doesn't sound much like fun.

Of course, 10 years of festering pain may be preferrable to society as a whole than a short, sharp correction. Destroying equity slowly would spread the pain a little as people who move in and out of areas because of jobs and so are selling/buying suffer a thousand little deaths, taking smaller hits on selling than if housing corrected abruptly and totally ruined people who bought in the last few years and CAN'T keep the house because of job moves/or liar loans.

I have no sympathy to liar loan people going down in flames, but people who bought with the idea of keeping the house and wind up moving because of jobs/etc, I DO feel a little bad for.

PAR,

The fact that it's the credit side crumbling before market sentiment could be a reason why it may collapse instead of deflate. When a large chunk of the buying population gets yanked, and a large number of foreclosures start hitting, people who recently bought but aren't in trouble yet might start trying to sell just to get out from behind the cueball of their OWN upcoming ARM.

Previous bubbles were tiny compared to this one in many substantive ways, and it won't be people refusing to buy that pops this, but people being unable to buy, which could start a STEEP slide. And once the steep slide starts, it could be hard to stop, bail outs or no.

More WSJ:
Food for thought:
• If you bought a house in Los Angeles in 1990, just as the real-estate market turned downward, you would have had to wait a decade for your home’s value to return to what you paid.
I would like to point that you read it first on patrick.net in my commentary on the S&P Case Shiller Home Price Index for LA on Friday (March 9).
Okay, I didn't explicitly say it but I did point out:
Peak: 100.24 (June 1990)
All indexes are at 100 for January 2000. We are a smart bunch so I'm sure you folks figured it out :-)
Still trying to stay one step ahead of the man.

"I always thought buyer psychology would turn first"

"it won't be people refusing to buy.... but people being unable to buy"

Agreed. It's just so sad and counter productive that as an asset class, as a country we refused to mend our ways until we flat out hit the wall at top speed! True, a turn in buyer psychology would've been more "orderly". That time has come and gone. Now that we're seeing this cut off cold turkey the only upside I can see is that it will be swift.

Joe JBR is not going to be impacted by Congress. I think this is misguided speculation. If anything, Congress may pass some laws to protect future FBs, the horse is out of the barn. All of the fraud stuff will get brand new scrutiny and you may see some Sarbox-like crap legislation, but Sarbox didn’t do squat for Enron’s employees or it’s investors. Same deal here, IMHO.

PAR,

While I don't think Joe FBR is going to get off 100% scott-free, I disagree with your Sarbox-Enron analogy. There are significant differences between the housing bubble and the NASDAQ/tech bubble:

--70% of Americans are homoaners, and most of those are Loanowners who have refi-ed and/or HELOCs over the past six years. Nowhere NEAR 70% of Americans were tech employees, much less former Enron employees.
--As a group, homoaners tend to vote much more often than renters, which makes their political clout even greater than raw numbers suggest.
--The single greatest asset/investment the vast majority of working & middle-class Americans "own" is their house, which far outweighs the value of all stocks, bonds, savings (hah!), IRAs & 401ks put together. Housing is by far the greatest metric of household "wealth" most non-rich Americans have.

If enough of this politically-powerful loanowning supermajority screams loudly enough, rest assured there WILL be federal, state and local bailouts in the works. As a JBR/saver, I don't want to believe this, but raw numbers and history tells me otherwise. Precisely what FORM the bailout(s) will take is hard to predict though. Given the press we've recently seen about voluntary lender "emergency workouts" for underwater FBs, my guess is, this trend may accelerate, and eventually may become the official law of the land.

We might even see the bankruptcy bill revisited, with some special clauses added specifically granting FBs the right to seek chapter 7 (full discharge) and still keep their homes (with the taxpayer covering the lender's losses), even when they fail to pass the "means" test and have refi'd into a full-recourse loan.

We are living in a blame-free culture, where it is political suicide to say anything bad about borrowing or the Uh-merikan Dream, or to imply that people's financial problems are largely a result of them living beyond their means.

HARM,

Charles Hugh Smith did a great piece on how the SPMD (TM) will most definitely impact the wealthy more than lower income folks. Particularly recent buyers that came with nothing.... and will leave with nothing.

To be sure the wealthiest among us will be doing plenty of bitchin' as well. They're both wrong, but in as much as possible, they'll each get their way.

@DinOR,

Sorry, but what was SPMD?

Sub Prime Melt Down! :)

I have always had tremendous confidence in the US government's willingness and ability to bail out failed banks, funds, companies, etc. That's why I have less than 10% of my money in USD. Real assets like oil, agriculture and gold are where I park my savings.

FBs won't be left off the hook. The government has to bow to the political pressure from big banks, because honestly, that saves my ass as well, how would you feel if you wake up the next morning and half of your savings parked at a bank / brokerage is gone due to a collapse of the financial system? Those who owe money will still owe money, just less in terms of real purchasing power, but not in terms of their pay, which will stay stagnant nevertheless. So FBs will get their fair share of misery.

So in general I am pro-bailout, only that I personally won't be participating that much in the bailout effort, because I keep my USD reserve to the minimum. A bailout is good for the savers as long as you don't park your savings in USD. A weakening USD is also good for us, because you can exchange your real asset for more USD when that happens, exchanging for more USD-denominated assets, including a SFH. Plus, a weakening USD means more jobs, so that the economy can get a head start in another cycle.

China has always been very cautious about moving away from USD, because as the ultimate bag holder, a depreciating USD means evaporating buying power for them as well. However, that stance eventually started to change.

In the first couple of months of the year, Chinese government set up an overseas investment fund amounting to initially $200B, that specifically focuses on investing in overseas assets, primarily in resources and also in technology. It is less than 1/5 of their total USD holdings, and so far the $200B is not fully invested yet, but it signals a change of attitude.

Japan, our second largest bag holder, stops adding USD reserve since end 2005.

We've gotta find some more bag holders, fast. Perhaps Iraq? Oh, I forgot, we are the bag holder for Iraq, not the other way around.