patrick.net

You are being disingenuous, HARM. :)

I was going to post this in prev thread. But it's kind of on the topic.

HARM, a certain mortgage company is getting in trouble due to "debt forgiveness".

http://tinyurl.com/2u2ks2

This is a crucial line from the news report.

American Home also indicated that it continues to be affected by the high cost of delinquencies, especially on Alt-A mortgages, and that it's been forced to repurchase some of these loans.

@Jon,

I had an even better experience today when lunching with several of my co-workers. The topic of real estate came up, and for once I was not casually dismissed as the lone gloom-'n-doom pariah, In fact, I wasn't even the first one to bring up a bubble horror story --another guy beat me too it! Not a single REIC perma-bull in the crowd.

Word is finally getting around on the street. The psychology is finally changing. Game. Set. Match.

Jon,

Agreed. Anytime a lender comes to you offering "help", run the other way as fast as you can. Unfortunately, outside of the homeowners on this blog and other like-minded people, I bet you could count the number of Kalifornia homedebtors who have NOT already refinanced in the past 6 years on one hand.

When boatloads of FBs finally realize that they converted their no-recourse mortgage into a full recourse loan and they cannot qualify for the new Chapter 7 "means testing", it will get very interesting.

I bet you could count the number of Kalifornia homedebtors who have NOT already refinanced in the past 6 years on one hand.

In all fairness, they were giving away money in 2003. I doubt I will ever see those 30yr. fixed rates again in my life time.
The sad part about "refi-ing" your bills away is instead of going bankrupt and keeping the house, your home gets foreclosed instead. Hey, at least that interest was deductible for a couple of years while the inevitable was prolonged.

I mentioned my background in RE, my thoughts on the current state, and showed her the shiller graph - pointed out the two previous bubbles and how they were minor compared to this one. I think I gave her something to think about.

Jon,

You are truly evil!

:twisted:

Keep in mind, many many FBs are no longer able to refi due to (a) tighter lending standars, and (b) stagnant and/or depreciating home values. Unless they can still find corrupt appraisers out there, if they have no equity and wish to refi, they won't even be able to cover the transaction costs - one thing we forget about the refi process. The MBs need to make their cash somehow - it's just that during boom times, the FB didn't give a rat's a$$ about the fees involved in a refi since they were still getting a hefty chunk of "liberated equity."

Her very worst case scenario is to assume she can continue to run up debt with a back-of-the-mind belief that she can HELOC, refi or sell out of her situation.

Well, that goes for her and several million other Californians, too.

I've always kind of wondered, when people "liberate" their equity, what do they do with all that money? I can see college for the kids or medical expenses. But the rest of it... the Rolex, the cruises, the his-and-her Lexus duo, the grainite countertops... is anyone really happier for having those things?

I'm not really being sarcastic. I'm curious if anyone here has done that, and if it was really emotionally worth it.

I own a small piece of AHM, so this is kind of bad news, but not unexpected. There is no way that they could stay at a dividend payout of 17%. Even with the reduction, they are at 10%, which is very good, but they are still a risky play, I know that. I have a stop loss set at just above where I picked them up at that is likely to get hit Monday. We shall see.

The Fed does not care about the middle class. The more I have been thinking about the last decade the more I realize that the whole goal of the financial system is to make the rich (the holders of capital) as rich as possible, without getting the poor so riled up that they start breaking things. This is the point of things like the inflation targets: they help keep the poor from starving or ending up homeless, but they almost guarantee asset inflation will outpace incomes. The middle class are the ones that get screwed the worst here, especially that part of the middle class that does not invest.

Jon,

The P/E since 1880 is 11, but more like 16 since 1932. I think the latter valuation makes more sense, since the market is worth more now, with better regulation and more transparency in disclosure, reducing risk to investors. This is certainly open for debate.

Also, you have to realize that low bond rates make securities "worth" more, by lowering the risk free rate of return, it makes other investments more valuable. If we are actually entering a prolonged period of low real interest rates, like some forcast, stocks should go up. Inflation, especially stagflation, would kill the stock market, but bail out the FBs.

At some point the boomers will start spending their hoard that is currently invested in the stock market. Also, a bunch of retirement and pension funds are going to be in the same boat, so I figure that will have to push the stock market down. I have seen different theories on this though, so who really knows? The market could get "bailed out" by foreign investors. If China keeps spitting out excess capital, it is going to have to go somewhere.

Except that most of the largest banks are public companies. Thus any wealth creation goes to their shareholders. And of course the purpose of banks is to make money--isn't that the point of all businesses?

Suggested new copy for this ad:

Remember last year when the mean old mortgage company called and said all that mean stuff about paying your bills on time? And remember how we saved your ass back then with that sweet HELOC injection? You remember: the new debt that you've been using for the last year just to keep servicing your old debt, right? We'll, we're back! And we're here to help you keep your sweet, sweet independence. By leveraging yourself just a little more, we might be able to keep this game going another six months! (By then the housing market might be hot-hot-hot again and you could unload the place on some new sucker! Fingers crossed!)

I think the financial industry exists to make money, and it doesn't care what the poor think. They have no money to contribute. The government is the entity that cares about riots and chaos. Hence it regulates the financial industry. If the huddled masses start reaching for pitchforks, the government will clamp down on the big banks. But it will also protect those banks from angry mobs.

In fairness, the Federal Reserve's mandate is not to worry about the middle class. Their job is to promote stability in banking (i.e. prevent panics). Indirectly, we all benefit from stability, if they achieve this. I think this criticism is more appropriately leveled at capitalism rather than the Fed specifically...

In short Jon. from your points 1-10 in short demand that was fabled to keep growing from foreigners, raising wages, etc at the end does not exist. ITS NOT THERE.. the market is showing that .. Oh Joy Joy Joy...

PA Renter - Spot on...

Sure, the primary business of any company is to make money, but I am one of those nutty liberals who think that companies have responsibilities to other stakeholders, like their employees and the members of the communities in which they live, as well. If Maxxam's fastest and best way to make money is to clearcut a whole forest and then fire their staff, runing an ecosystem and a community in the process, I think they need to be reigned in somehow. I am not really sure the best way to do this is.

And yes, I own shares in all the big banks. I understand how things work and I want to have a comfortable retirement. But the truth is, my little tiny share is really nothing. The top 1% own something like half the stock market and their share just keeps growing. I think the Fed deliberately injects enough liquidity into the system to keep the money supply growing and causing asset inflation. But I agree, they are not really the primary culprits, the whole game is rigged right now to guarantee that all the benefits of globalization roll up to the top 1%. I don't think is the fault of "capitalism" per se, but our current implementation of it.

Maybe a new Democratic president and Congress can do something about it, but perhaps I am being too optimistic here.

Jon, that's pretty damn old school. I'm 30 and grizzled for my age. I guess you could chalk that up to surviving a half dozen layoffs, but I've always been cynical.

I grew up middle class on the East Coast. I had a dog when I was a kid, and a basketball court across the street. I'm pretty convinced that the worst thing my friends and I ever got was a Nintendo. Video games are an expensive waste of time, especially when you could be outside instead. When I was younger I had Legos, Transformers and Star Wars figures. I've always been a big reader, heck, I still have my comic book collection. I still remember eagerly awaiting the monthly trip to 7-11 to pick up the latest issue of G.I. Joe, Transformers and Spider Man. Great way to spend $3.

Never did believe in very expensive stuff. The family ethic seemed to be having a few high quality things, as opposed to lots of cheap crap, or many expensive things you couldn't afford. People avoided debt like the plague and saved what they earned. We rarely ate out. I played a lot of basketball and soccer (Dad coached both), and we went camping on Scout trips every month. Looking back, those were the things that made me happy. And they were by far the least expensive.

All I want for a home is a well-built house that won't plunge in value. I like granite countertops, but that's more because I almost majored in geology. I admire the skill required to cut stone. When I think about it more, I would probably rather have formica or wood and invest the difference. I do like sturdy older homes of 1880-1930 vintage. Something like that has already stood the test of time, and if cared for properly, will easily last another 100-200 years. I'm not a fan of vast square footage. People can keep their stainless steel fridge and designer bathroom... it's not like I spend a lot of time in either location. I could do with a nice big wine rack because I actually intend to make my own. If I ended up with nice tile, carvings, etc. it would be because I learned to do it myself and enjoyed it (a friend recently started glassblowing and is working on some martini lights). I would like a nice big yard so I could have a dog again. No fancy landscaping, just a fence and some grass.

It drives me nuts when I look at homes, and everyone has remodeled in preparation for selling. Then they want more money to recoup their investment, and the place isn't always to my tastes. Why can't people just leave the damn formica there, and if I want granite countertops later, I can just add it? It's brutal seeing all the owner-finished basements with haphazard drywall, or the granite tiles because the solid countertop would have been too expensive.

I guess in the new age of finance, people have realized that it's okay to consume everything and aim high for luxury. You don't have to save anymore, or live below your means. If you end up looking like a millionaire, isn't that almost as good as being one? And let's face it, the only way that middle class people become millionaires is by carefully saving money, and what fun is that?

I don't know when pretending to be rich became the national pastime, but it's really kind of asinine...

Jimbo: Money always flows to the top. Small time players have infinite capacity for gain, but limited capacity for loss. Over time the fluctuations will wipe out all the smaller players, leaving only the big entities standing.

You can cite the top 1% holding 50% of the wealth, except that it's not the same people, especially over generations. Even billionaires are created and destroyed swiftly in a free market. Warren Buffet amassed enormous wealth over a lifetime, but his kids might be busted back to upper middle class a few years after he dies. No guarantees for the grandkids.

You can say that you only own a tiny percentage of big companies, but that's bogus. In aggregate, all the small owners have major influence and power. Do you vote your proxies? Do you write the board of directors about environmental and social issues?

So long as the wealth keeps moving around, we all benefit from taxes. The government pays for a lot of social infrastructure like hospitals, roads, airports, clean water and the military. As long as stupid politicians aren't wasting the money (like now), the churn of money has great benefit to society. We can complain that the gap between the rich and poor is vast, but it's also true that our standard of living is extremely high compared to other nations because we encourage the rich to move that money around in a taxable way that benefits us all.

Just my two cents, anyway.

Sure Brand, but the wealth disparity has been growing over the last generation or so. When I was very young, in the early seventies, my father worked as a Psychiatric Technician Supervisor in the State Hospital and we lived in Ontario,CA. This is a job that pays maybe $80k, tops, now.

We had a five bedroom house on a big lot, a new van, a new car, a classic car, a boat and a cabin on five acres in the desert. My mom did not work and stayed home and literally baked cookies and ran the Cub Scout troop.

There is no possible way you can afford that kind of lifestyle on that salary in Southern California anymore. The house alone would require two salaries. Maybe in some other part of the country, I don' t know, but the statistics show that real salaries for the average worker have gone down pretty steadily over the last 40 years.

But the economy has grown and globalization has kept inflation in check, along with other benefits, and technology has made us all more productive, but the gains have all gone to the top. It didn't always used to be like that in this country.

And I actually think class mobility in this country is decreasing, not increasing. What percentage of the Fortune 100 Richest Americans are inherited wealth? I think the number keeps growing and the new entrants are people like Bill Gates, who is the son of a bank president and went to Harvard. When I went to Cal, there was a pretty good mix on campus, but now it is all wealthy kids who are very focused on their careers. The percentage of kids in the lowest quartile who are getting college degrees has dropped by 1/3 since 1980, while the percentage from the highest quartile has gone up similarly. The Economist claims that class mobility is now higher in Europe than in the United States. This is kind of sad, if true.

There is no possible way to co-ordinate all the small shareholders into one combined voice. How many shareholders does a big company like GE have? 100,000? 1M?

I don't deny that the standard of living in the United States is excellent. I have travelled over most of the world now and I am living exactly where I want to be because I think the quality of life here is the best. But I still think the middle class is getting squeezed, certainly here in California.

Jon,

Excellent rant. I am from a completely different country, so alas, I did not see topless women when I was 12 :-( But apart from that I can relate to everything you say.

These days, kids very rarely have unsupervised unstructured play time. Often times it's a reality of the society we live in, and not parents' fault. The gadgets and toys, yes that I blame on parents.

But my parents and their peers use to feel the same way about me and my friends. According to that generation, they had far more fun - even though they lived in remote poor villages. So maybe it's just generation gap, maybe life has gotten more complicated, maybe lot more reasons. But overall, I am not worried about kids of these generation. They will find their happiness. In a very different way, but nothing wrong with that.

But I still think the middle class is getting squeezed, certainly here in California.

Fortunately, California is always ahead of the game - so that means the middle class will be squeezed in the rest of America later.

Globalization is a great thing for the human race - for billions, the living standard will be raised. Unfortunately, it's an almost zero sum gain - and those with the highest living standards will see a fall. China and India will fall into the former, the US and Western Europe will fall into the latter.

I've said this many times before, I'll say it again: in the future in California, there will be director level and above execs, and Walmart-class employees to support and service them.

(Look at how Circuit City just fired it's more highly paid employees so higher cheaper ones - gotta admire their honesty!)

That's why it's super important for your children to go to a pressure cooker school district like Cupertino, so that they'll learn the right values - success at ANY cost - or fail. And if they fail... well... they were doomed anyway.

But maybe I'm just too negative and cynical.

But overall, I am not worried about kids of these generation. They will find their happiness. In a very different way, but nothing wrong with that.

I'm deathly worried about kids of the next generation in America. When oil is at $200 a barrel ending the easy motoring lifestyle that we've built to fail called suburbia, when every dollar they earn is taxed at 50% to service the interest we owe to China, and the only jobs that are available are either retail/hospitality, or medical/legal/management, and when the won't be able to travel abroad ever due to the $100USD-1 GBP ratios... they're going to look back and say "WTF - how did we end up so screwed?"

Jon Says:

Break it down again
No more sleepy dreamin.
so those are my dremes

--Tears for Fears

_____

I just wanted to list the source Jon.

Great CD!

I love playing drums to this CD. It reminds me of the summer of '93.

Eburb said,,
"(Look at how Circuit City just fired it’s more highly paid employees so higher cheaper ones - gotta admire their honesty!)

LOL ... thats been going on in Silicon Valley for Decades... some many not recall how one day Seagate back in 1985 fired all its manufacturing in one month, because labor was too expensive. And Seagate is bigger today and more profitable.

Why do you think we dont make semiconductors anymore! Every single fab that once was working SV was shut down and moved to Asia. That is the reason our housing prices declined 35-40% back in 1990's.

I can understand someone getting shocked in any other part of the country but here in Silicon Valley where we make deflationary products its a everyday its a no-event.

"But I still think the middle class is getting squeezed, certainly here in California."

Actually yes, even in SV back inthe 80's but now those "costing" employers 100K or more are being squeezed. LOL... "Remind me again why Im paying you $xxxx"... LOL! I heard a CEO once ask an employee...

Im sure glad Im underpaid, at least I will survive...
Thats one reason i didnt get an MBA... You label yourself as being
that much more expensive...Yes, You can be smarter... but it wont help
in the long run.

"That’s why it’s super important for your children to go to a pressure cooker school "

They will burn out...they will never make it.... Places like Cup already have a drinking problem.
Do you recall anyone from Cupertino or Homstead High aside from that dope smoking hippies like Steve Jobs and company that made it big?
Jobs was a C city student....
Anyone??? Any names at all???

LOL! Biggest bubble is SF-SJ Metro... oh hard we are going to fall....
Its all going to get very nasty and very fast more than many expect... med salary is only 85K flat for nearly 5+ years....highest rate of ARMs.... no new net inflows into the region (still net loss)....Stagnent Tech Econony growing at 5% YoY (Capital Spending is Down in Q406-Q107-- check out the earnings warnings to come out)...M&A is eating away jobs while small start ups are not growing and creating new jobs.

10 highest priced U.S. housing markets in 2006
Wednesday April 4, 6:00 am ET
Michael Giusti

When you think of high-priced homes most people will think of California -- with good reason. Five of the top 10 highest-priced markets for existing single-family homes are in the Golden State.

10 highest priced home markets and the median home price

San Jose-Sunnyvale-Santa Clara, Calif. $775,000
San Francisco-Oakland-Fremont, Calif. $736,800
Anaheim-Santa Ana-Irvine, Calif. $709,000
Honolulu $630,000
San Diego-Carlsbad-San Marcos, Calif. $601,800
Los Angeles-Long Beach, Calif. $584,800
New York-Westchester County, N.Y. $537,800
Nassau-Suffolk counties, N.Y. $474,700
Bridgeport-Stamford-Norwalk, Conn. $473,700
Northern New Jersey $469,500

Note: List of markets based on data contained in a February 2007 report by the
National Association of Realtors. Some overlapping geographic areas have been removed

Don't have kids...

Globalization is a great thing for the human race - for billions, the living standard will be raised. Unfortunately, it’s an almost zero sum gain - and those with the highest living standards will see a fall. China and India will fall into the former, the US and Western Europe will fall into the latter.

I actually don't agree with that. I assume you are familiar with the economic arguments in favor of free trade. If not, here the wikipedia entry:

http://en.wikipedia.org/wiki/Free_trade_debate#Economic_arguments_for_free_trade

If this is all too jargony, build your own model, using 100 bushels of rice/person/year and 10 cows/person/year for country A and 10 bushels of rice/person/year and 100 cows/person/year for country B. What is counterintuitive (to me at least) is that free trade still works when country A is more productive than country B in every category, as long as country B doesn't have the exact same productivity ratio.

Now, this is a gross oversimplification of what happens in the real world, of course. There are thousands of goods and millions of producers and it is impossible to model, much less predict. But I think these models get to the heart of why globalization and free trade should improve standards of living across the board.

There are going to be winners and losers of course, and the biggest winners will be the emerging middle class in India and China, but the US doesn't automatically have to be a loser. Already, China is starting to pull up the economy of Japan by demanding things like high quality machine tools that Japan can produce more cheaply than China. Increasingly, we will be selling value added goods, things like music and software and chip designs, to China, or at least that is the hope. I guess those aren't really "goods" and are subject to piracy, which is part of the problem. But just as Henry Ford's paying his workers enough money to have a decent helped kick off an economic boom that raised just about everyone's standard of living, brining the billions in Asia into the world economy will have all kinds of benefits to the rest of us.

I agree that the biggest losers will be probably be those whose quality of life depends on massive energy consumption.

If successful globalization is possible (I'm far from convinced that it will be), then it will only be a matter of time before China and India take over at the executive level...especially since just about everyone on this board agree the Gen-Yers are ultra lame.

Sorry, didn't have time to proofread my last post since I am juggling a one year old on my lap, but hopefully that was all intelligible. Rereading it, I realized that I skipped quite a few words, sorry about that.

Jon (who is incredibly insightful for 31) Says:

> My answer to your question about what all
> that crap gets us: Nothing.

I agree with Jon, but it wasn’t until I was in my late 30’s that I realized I didn’t need “all that crap”, or need a house or really “need” anything except food and shelter. It is not just the Realtors, but just about everyone asks me “Why don’t you buy a house” (and “Why don’t you get married”)…

> I grew up middle/lower-middle class. Both my
> folks were teachers.

I grew up as the poorest kid in a rich neighborhood (We lived in a nice big house since it was the only one they could find with a wheelchair accessible ground floor bedroom for my Grandfather who came to live with us)…

> My childhood friends and I spent three summers
> in a row playing ball tag with the same beat-up
> nerf football at the local elementary school.

My friends growing up got autographed balls at 49er and Giant’s games and I got balls old tenants left behind after they moved or balls other kids lost when they ended up on the apartment roofs…

> We cobbled together $20 between the ten of us,
> some of us recycling cans and bottles, for the brick
> of firecrackers around the fourth. Great times!
> And who would make the AC bus transit trip into
> SF Chinatown to make our buy!

We were just talking about our trips to Chinatown to buy firecrackers at the Chinese NY parade last month (that has been having less and less firecrackers every year). As Junior High kids we would take the train in to the city then take Muni to Chinatown to buy firecrackers and bottle rockets from the Chinese gang members that lived in the housing projects. The gang members always made us give them the cash first but always came back with the merchandise…

> We rinsed out mom’s cleaning bottles for squirt
> guns and they worked better than the store-bought
> crap, anyway. Water fights were entertainment for
> the entire summer.

When the city of San Mateo made apartment owners replace all the old fire extinguishers with modern extinguishers we ended up with a utility room full of old metal three foot tall extinguishers with a Schrader valve on the top. When you filled them with water you could spray 20 feet if you pumped them up with a floor pump or 30 feet if you used an air compressor…

> My parents bought us $50 bikes one Christmas and we
> explored everything from San Leandro to Berkeley.

My first bike was a Huffy that my parents got for $5 at a garage sale. As a kid I didn’t really notice it was used when I saw it under the tree from Santa. By the time I was in first grade I knew the Huffy was a piece of junk and Santa brought a 10 year old Schwinn (that my parents later told me cost $20 at a garage sale) the Christmas I was in second grade (I later converted this bike in to a BMX bike)…

> My point is, I had a helluva time as a kid. So much fun.
> No amount of money could buy it. And all these kids,
> amazingly just one generation behind me, who are
> being brought up to believe that fun is how much you
> spend, it’s so sad.
>I’m only 31, but apparently I’m suddenly “old school”.

I’m wondering if Jon always felt this way?

It occurred to me that things started to change in my life when I finally started to make a fair amount of money (but before that I was a pathetic status obsessed consumer).

I can’t really figure out how it works but when I was poor I wanted a lot of things that I just don’t want any more when I have the cash to buy them.

The Wall Street Journal this morning had a big article on watches. When I was a kid I looked up to people that had cool watches (as a caddy I wanted a Rolex Daytona) today if I see anyone with a $300K + IWC watch I think that he is an idiot (or must be trying to overcompensate for something)…

just about everyone on this board agree the Gen-Yers are ultra lame.

Nah, The Kids Are Alright.

...it will only be a matter of time before China and India take over at the executive level…

Sure, I guess eventually standards of living should equilibrate globally, at least as long as we can keep from killing ourselves in another ruinous global war. But I don't expect to see it in my lifetime, unless they invent some magic pill that extends lifespans to 1000 years or something.

BigBrother Says:

> Just a quick question, with so much Doom & Gloom
> on this board, do ANY of you actually LIVE in SAN
> FRANCISCO? Or, is everybody living in the suburbs?

I live in San Francisco (so does SF Woman who may be on a Spring Break trip since she has not been posting recently)…

Considering that SF is approx. 600K people in a 8-9M metropolitan, it is overrepresented on this board. More than 50% of the active posters aren't even living in the Bay Area.

Does anyone here live in Oakland or Gilroy?

hoa help needed Says:

> Anybody out there know what to do about a HOA who
> is unwilling to look at noise problems?

Just take care of it yourself.

> I have this annoying fan noise that I have been complaining
> about for the past 3 months and I’ve had no cooperation
> at all!

Take the cover of the fan and pull the plug.

Brand,

I assumed eburbed was being facetious. Also, I dispute the characterization of German food as "tasty" though I like Germans overall.

Jon,

While generally not materialistic or attached to stuff (though I hate low quality crap), I would like to see more of the world before the political situation or the fuel prices make traveling more cost prohibitive.

BigBrother Says:

> Hi FormerApt - Do you really think San Francisco prices
> are declining, and a recession is coming?

I don’t “think” SF prices are declining, they really are declining. While I think the economy will continue to slow in 2007 (due primarily to the dramatic drop in HELOC cash and the dramatic decrease in REIC jobs and income) I’m not predicting a recession (but would not be surprised if we move in to a period that some economists refer to as a recession)…

> B/c from what i’ve seen, property prices are selling FAST
> i.e. 2 weeks and Pending, and there are multiple bidders
> out there on each property.

Do you have MLS access to track the entire market, or are you just talking to a Realtor?

I don’t want to get anyone in trouble so let’s just say I know a guy who works for a SF real estate firm (with two names, the first is the name of an ocean and the second a term used by workers who organize) and they have been told to lie and say that the market is HOT HOT HOT with multiple bidders and if you don’t buy now you will be priced out forever (with that said I’m sure that there are some actual fast sales with multiple bidders)…

Also, I dispute the characterization of German food as “tasty” though I like Germans overall.

I like wieners.