patrick.net

*assess, lol

I like how Yun pretty much hangs his hopes on foriegn buyers.

It is all MIRAGE!

Again, the USA is not particularly attractive to rich foreigners. The French Riviera, perhaps. London, perhaps. Rich people know better.

It is not easy to obtain residency (legally) in the US. It is even harder to live here without having to pay tax for global income.

If the US wants the right people, the wrong taxes must be abolished.

Another thing really pisses me off: what ever happened to the very basic notion of personal responsibility. Caveat emptor aside, there is some level at which the buyer is responsible for what he or she buys, no?

Just because you didn't read the contract is no one's fault but your own. When you signed 50 documents with all kinds of scary 8pt font all over them, didn't you pause to think about what you were getting into? Perhaps you should have said "give me a day to ask someone to help me figure this out, I'm not sure about all this".

The problem with jerkoffs like Obama is he wants to send a very loud signal to all those responsible people who didn't sign the bullshit loan documents that they lose, and the ignorant happy go lucky 'tards win. They get a house, which Barack will make sure doesn't lose any more value, and the fiscally responsible people get to keep renting knowing they missed out on the fucking gravy train.

Sorry, this really pisses me off. Talk about creating exactly the wrong incentives. If we bail out the slobbering fools we'll pay an even higher cost later. How high can we keep building the house of cards??? WTF?

I like how Yun pretty much hangs his hopes on foriegn buyers.

Well, I don't know how true it is, but this article says the russians are buying up manhatten.

I didn't think russians were that stupid; but then again, the article is on a pro real estate site.

Randy, Obama's rhetorics will just ensure that he does not get elected. That leaves HRC...

Well, I don’t know how true it is, but this article says the russians are buying up manhatten.

They may be buying up London. But Manhattan? Probably not the richest ones.

The top market in London is probably more ironclad then that of NY. However, I would really love to see how the rest of UK unfolds. It is going to be interesting. It is time for a Conservative PM. Perhaps a fine leader like Thatcher.

Randy, Obama’s rhetorics will just ensure that he does not get elected. That leaves HRC…

Peter, I know. I've resigned to Hillary as president. The problem is that every time another jerkoff chimes in his or her debased-$0.02 crackpot bailout scheme, it gives Congress that much more cover to actually implement one. Do not underestimate the power of these things once they get rolling. This is the trying-to-get-it-rolling phase.

Someone much earlier pointed out that only a small portion of voters actually fall into the bail-out-need category. True. But that is exactly what this is about. Political engineering whereby they're spreading the emotional impact around, creating more people who *think* they are stakeholders and that a bailout helps them too. And it's working, which scares the shit out of me.

I so fucking hate politics. It is the absolute worst thing about the human condition.

It is the absolute worst thing about the human condition.

Nothing wrong about that. We just need to exploit the worst of human conditions.

We cannot change human natures. At best, we can benefit from this knowledge.

Again, the USA is not particularly attractive to rich foreigners.

Wrong. They are.

And they all want to live in Palo Alto and Cupertino.

Didn't Putin just recently say that he wished Russia's school system was as good as Gunn? I'm sure he did.

Peter P Says:
It is time for a Conservative PM. Perhaps a fine leader like Thatcher.

aaagghhh, good grief, charlie brown. thatcher f*cked everything for everyone except the ruling class. So a fine leader of the people by definition is someone who only benefits the elites?

Well, the W has caved in (partly) to calls for subprime relief:

http://www.nytimes.com/2007/08/31/business/31home.html?_r=1&hp&oref=slogin

This says 2 things to me: Bush is utterly, completely lame duck now, and it's official - Americans do not need to have any degree of fiscal responsibility.

Sheesh.

SFRenter Says:
Personally I think that the market is going to continue to address the issue and likely resolve it prior to the Government getting around to taking action.

OF COURSE the market is going to resolve it before the Government takes action. That is how most things eventually get solved.

In the meantime, various blockheads in government will have taken some random, ineffective steps that have NOTHING to do with the solution. However, when the problem is resolved, they will pick one of these random acts of cluelessness and declare it to be the work of genius that saved everyone.

SP

"Most candidates talk about hot button social issues so that voters can maintain the fiction that they are not voting their prejudices."

I think it was Art Buchwald who said that (paraphrased from memory).

SP

I'd like to say that Dennis Kucinich is a democrat and is, to me, as good as Ron Paul. Dennis would pay for prek education by taking 15% from the defense budget which is "OK" according to Dennis since the pentagon no longer audits itself; so, they'll never know the money is missing!

also, like Ron Paul, Dennis knew that the Iraq war was a scam for oil and would like the FED to publish its M3 numbers.

At least Obama wants to make Wall Street pay instead of the taxpayers, that at least is a step in the right direction and far better than the taxpayer funded bailouts Dodd and Schumer are calling for.

really? the money would probably come from pension funds and/or 401k's. the way I view stocks is "they act like a national sales tax which benefits investors."

I would simply keep the banks solvent because, that way-- if the economy has a boom, the injected cash could be siphoned out of the system down-the-road.

propping up home values, in my mind, is a lose-lose proposition since, as boomers start to die off, their homes will go on the market and push prices down. can the government really keep the market stable without making dollars worthless?

Obama says: "We need to help struggling borrowers to weather this storm. One way to protect innocent homeowners — at least until this crisis passes — is to establish a fund to help people refinance or sell to avoid foreclosure."

If you "help people sell," what does that mean? Will they be given a handout to make the lender whole so that they can have the privilege of walking away with $0 liability? If so, this sounds like a bailout of reckless lenders who would not recover a nickel from FBs--not an effort to "protect innocent homeowners." Say no to bailouts for stupid lenders. The foolish lenders, just as much as the foolish homedebtors, need to get washed out of the system. Forced liquidation is the best method---like ripping off a band-aid. Otherwise we will end up with a bunch of Japan-style zombie lenders for decades.

If you "help people refinance" does this mean the gov't will be holding paper? Unless Obama wants to give a cash handout to people, this won't help most recent homebuyers. The problem is not the interest--it's the principal. There are quite a few recent homebuyers who couldn't afford their homes even at 0% interest. Most people who borrowed $600K for a house which is now worth $500K are not really looking for a way to pay less interest on their $600K mortgage--they just want out. So a refi won't help, unless it also comes with a cash handout.

Bottom line is that you couldn't possibly raise enough money to bail out all the FBs anyways. Probably at least 20 million people overpaid for a house over the last 3-4 years. Multiplied by $50K per house, I guesstimate that Obama's fund would need around $1 Trillion (not counting administrative costs, waste, etc...) I would rather have a federal surplus. Or a tax refund. Or, what the heck, national healthcare. A trillion here a trillion there and pretty soon you are talking about real money.

I'm late to the party, but here goes anyway.

Barak Obama made some pretty reasonable statements about the overall situation. The only paragraph that alludes (and I mean alludes) to a bailout is the following:

>We need to help struggling borrowers to weather this storm. One way to protect >innocent homeowners - at least until this crisis passes - is to establish a fund to help >people refinance or sell to avoid foreclosure. We can partially pay for this fund by >imposing penalties on lenders that acted irresponsibly or committed fraud.

He doesn't say there will be a bailout. He says it is one way of handling the problem. If the above statement had been from Bernanke to some congressman,
he would have been lauded for his shrewd rhetoric, Instead Obama is being skewered.

I hope there will not be a bailout. But given the choice between war and a bailout, I pick bailout.

In the year 2000, people voted for tax cuts and got war and a big budget deficit. In the year 2004, people rallied around the war president and got more war and a truly gigantic budget deficit.

For God's sake, I hope we don't make the mistake of voting in a republican again just because we can' t stomach the thought that there may potentially be a housing bailout. Let;s keep things in perspective.

But given the choice between war and a bailout, I pick bailout.

I am against all war but a bailout is not necessarily better than a war, especially if it is well fought and managed. (e.g. Falklands)

Some republicans (like Ron Paul) did not support the war. HRC actually voted *for* the war.

Let's keep things in perspective.

Yes, an overwhelming majority of Republicans in Congress voted for the $1T mistake.

A majority of Democrats voted against it.

Now Bush wants to bail out the homedebtors by forcing the FHA to guarantee a bunch of sub-prime loans.

SFWoman,

I've wondered more than once how alert our overseas friends are to potential difficulties, so it's encouraging to hear your Parisian friend is aware and concerned.

And you? Was it Venice this Summer? I apologize for my post of some months ago to you about dining there. It had been far too long since I was in the city for me to be of real use, and I should just have said so. Best I recall, the ones I did mention seem to me now not the sort you enjoy. What was I thinking?

The subprime mess is nicely summarized by a cartoon I saw showing two banker types walking down Wall Street, and one says to the other:

“It turns out poor people with bad credit can’t afford to buy a home. Who knew?”

"dreaming about buying their dream house in a desirable neighborhood for 70cents on the dollar still don’t get it…"

That would be me. But I am hoping for more like 50cents on the dollar....

The subprime mess is nicely summarized by a cartoon I saw showing two banker types walking down Wall Street, and one says to the other:

“It turns out poor people with bad credit can’t afford to buy a home. Who knew?”

You mean like this one.

Glen says:
"Will they be given a handout to make the lender whole so that they can have the privilege of walking away with $0 liability? "

As disgusting as that concept is, it may make housing affordable for future buyers. Consider an FB who paid $400k for a house in 06 but can only sell for $250k in 08. If the gov grants the FB the difference, it is all the same to him what the selling price is. If all the FBs join that party, house prices would have a definate downward pressure. Maybe the realtor commission could be based on the "made whole" price, as to not offend the NAR.

Vote for me and no one will have to sell at a loss. It could be financed by new taxes on renters and a new tax on balances in any type of savings vehicle. We would not want to motivate the wrong behavior.

Today:

Temporary OMO: Fed adds $5.00 billion with 5 day RP

Yesterday:

Temporary OMO: Fed adds $5.00 billion with 14 day RP
Temporary OMO: Fed adds $5.00 billion with 6 day RP

>> For God’s sake, I hope we don’t make the mistake of voting in a republican again just because we can’ t stomach the thought that there may potentially be a housing bailout.

I am not voting for Democrats ... not sure yet whether to vote for Republicans .... I can not stomach housing bailout. It is as worse as war.

Reuters
Wall Street cuts gains on Bush comments
Friday August 31, 11:18 am ET

NEW YORK (Reuters) - Stocks cut gains on Friday after President Bush said it was not the government's job to bail out speculators in connection with losses in the home mortgage and credit market sectors.

The Dow Jones industrial average was up 89.09 points, or 0.67 percent, at 13,327.82. The Standard & Poor's 500 Index was up 10.24 points, or 0.70 percent, at 1,467.88. The Nasdaq Composite Index was up 18.50 points, or 0.72 percent, at 2,583.80.

Bush will do for the housing market what he did for Iraq....

.....destroy it......

THERE'S NO SUCH THING AS A FREE BAILOUT
by Paul L. Kasriel
Senior Vice President & Director of Economic Research
The Northern Trust Company
August 24, 2007

http://www.financialsense.com/editorials/kasriel/2007/0824.html

PIMCO’s William Gross is now calling for a fiscal policy bailout for the U.S. housing market debacle rather than a monetary policy bailout (see “Where’s Waldo? Where’s W?”). On the surface, Gross’s arguments seem to make sense – on the surface. Gross argues that even a cut in the federal funds rate of several hundred basis points might not lower reset rates on adjustable-rate mortgages enough to prevent the massive looming foreclosures. In addition, Gross argues that such an injection of Fed-created credit could be the catalyst for a run on the dollar, which, in turn, would probably prevent 15-year or 30-year fixed rate mortgage yields from falling enough, if at all, to prevent massive foreclosures. Moreover, Gross argues that a large cut in the federal funds rate would perpetuate Greenspan’s moral hazard policy and would encourage further leveraging in the global financial markets. So as an alternative, Gross recommends that some federal government agency, either an existing one such as the Federal Housing Administration (FHA) or a newly-created alphabet soup, bailout those current home“owners” who otherwise are soon-to-be renters.

I believe that Gross makes some valid points about the implications of a Greenspan-magnitude cut in the fed funds rate. But I do not believe that a fiscal policy bailout of prospective defaulting mortgagees would be “free,” economically speaking.

Let’s assume that the FHA guarantees the refinancing of the approximately $683 billion of subprime and Alt-A mortgages that are scheduled to reset in the six quarters ended 2008:Q4 (dollar amount according to Merrill Lynch). An FHA guarantee is a full-faith-and-credit guarantee of the federal government. So, the market for these new FHA-guaranteed mortgages would overlap with the one for U.S. Treasury securities. That is, FHA-guaranteed mortgages and U.S .Treasury securities are close substitutes. Thus, all else the same, U.S. Treasury security interest rates would rise as investors shift out of Treasuries into FHA-guaranteed mortgages. But because the FHA would be guaranteeing massive amounts of subprime and Alt-A mortgages, market participants would anticipate higher defaults on these mortgages going forward, which, in turn, would cause market participants to expect higher Treasury borrowing requirements going forward to make buyers of these FHA-guaranteed mortgages whole after defaults. So, interest rates on Treasury debt would rise not only because of the substitution effect, but because a greater future supply of Treasury debt would be anticipated. In fact, the interest rates on all other fixed-income securities would rise because FHA-guaranteed mortgages are, to varying degrees, substitutes for other fixed-income instruments.

So, the current federal deficit would rise because of higher interest costs on the public debt. In addition, expected future federal deficits would rise because of higher anticipated defaults on FHA-guaranteed mortgages. Private borrowers would cut back on their borrowing and spending because of the higher interest rates they now have to pay in order to obtain funding. Other private – and perhaps public – spending, then, would be “crowded out” by the increase in FHA guarantees on mortgages. The cost of funds to private equity syndicates would increase, so the dollar volume of “deals” would decline from what it otherwise would have been. This would reduce the amount of shares being bought from households, which, in turn, would reduce an important source of household deficit spending. (For a discussion of the impact on household spending of private equity buyouts and corporations’ stock buybacks, see "Wall Street and Main Street Are Joined at the Hip"). Again, other spending would be crowded out by the increase in FHA guarantees of mortgages.

It is not even clear that the U.S. dollar would not come under downward pressure with a fiscal policy bailout of subprime and Alt-A borrowers. As alluded to above, private spending on research and development and business capital equipment would be crowded out by the government guarantee of less-than-prime mortgages. Slower growth in these types of private spending implies slower future growth in the U.S. economy. Slower future real growth in the economy implies slower growth in our standard of living, especially if we have to devote part of our future production/income to servicing our foreign debt. With the U.S. already a gargantuan net debtor to the rest of the world and with the bulk of our debt denominated in U.S. dollars, foreign creditors might wonder if political pressure would be brought to bear on the Federal Reserve to crank up the currency “printing press” in order to help make principal and interest payments on the debt owed to these creditors. The anticipation of this, of course, would induce investors – both foreign and domestic – to reduce their exposure to U.S. dollar-denominated financial assets, thus causing the dollar to depreciate vs. other currencies.

For the FHA to guarantee the refinanced mortgages of subprime and Alt-A borrowers, a moral hazard policy still would be perpetuated, just not by the Fed. Subprime and Alt-A lenders would be bailed out by the federal government, thus reinforcing the notion that some form of government safety net would likely be there to mitigate the potential losses of investments in risky assets.

So, there is no free bailout to the predicament we have gotten into as a result of Greenspan’s cheap credit and moral hazard policies. For those that think there are free bailouts, I suggest that they read the writings of Frederic Bastiat, a 19th century French political economist, who preached that in economic analysis, one must take into account not only what is seen, but what is not seen. In other words, employ general equilibrium analysis, not just partial equilibrium analysis.

When Bush says that it is not the job of the government to bail out speculators is he talking about people who bought multiple "investment" houses? Or investors who purchased portfolios of speculative subprime debt?

How is it that a repeal of AMT is so difficult but the bailout of FB's are so swift? This bailout is just so upsetting, I like to get my mortgage re-structured too, bastards...

Don't hold your breath waiting for a bailout of FBs or wall street. It is not likely to happen.

The president is not in favor of it. The republicans generally resist market intervention. And even if the democrats (who do like to do this kind of stuff) push a bill through congress, Bush would veot it. So, if you want a market bailout from the US government you will have to wait for a democrat to become president.

However, I do expect the Fed to lower the Fed Funds Target rate before long. It is artificially high (relative to free market rates) and the damage to economic growth will soon be obvious.

But this is par for the course. The Fed always overdoes their interest rate policy. They go to low and then wait to long, and then they have to go too high to make up for it. Then they stay high too long and have to go too low again to make up for that mistake. Over and over again...

Oh please. Bush is not a traditional Republican. Republicans generally disfavor trade protectionism too, but that didn't stop Bush from passing steel tariffs when it suited him.

If his corporate masters tell him to bail out Wall Street, then he will do so. But it will not be called "The Wall Street Bailout Act." It will be called the "American Dream Protection Act" or some such nonsense.

I wouldn't count on a Bush veto.

1989--President Bush unveils S&L bailout plan in February. In August, Financial Institutions Reform Recovery and Enforcement Act (FIRREA). FIRREA abolishes the Federal Home Loan Bank Board and FSLIC, switches S&L regulation to newly created Office of Thrift Supervision. Deposit insurance function shifted to the FDIC. A new entity, the Resolution Trust Corporation is created to resolve the insolvent S&Ls.

http://www.fdic.gov/bank/historical/s&l/

Bush is pretty unlikely to veto. He may be able to affect the debate by threatening to veto, but his threats are largely without credibility anymore and the Congress knows it. Bush's biggest strategic worry is that he vetoes a bill like this (would be), and then gets overridden. He's in bad enough shape already; turn him into a lame duck with 15 months left and no veto power and he might as well quit.

Bush is already caving in anyway. He's just trying to get quid pro quo for his passive-support.

I predict that there will be some kind of garbage legislation passed. It certainly won't amount to a full bailout, though, as that would be prohibitively expensive.

I predict that the legislation will contain three features:

1. There will be extensive provisions designed to "protect" future borrowers with SarbOx type red tape.

2. Current FBs will get a very narrowly drawn bailout. Eg: (1) only for principal residence; (2) only for "nonconforming" loans; (3) You must not have lied on your mortgage application; (4) you qualify for a federal "bailout" loan, which will be given to you before your ARM resets. Undoubtedly, there will be lots of other restrictions, limitations and more red tape.

3. There will be several "pork" provisions designed to bail out favored campaign contributors, lenders located in key congressional districts, etc. The bill will probably also include something about grasshopper research or federal money for a lightbulb museum.

Randy says:
"Bush’s biggest strategic worry is that he vetoes a bill like this (would be), and then gets overridden."

Incredible that 2/3rds of both houses of Congress would support a bailout....

I agree the Fed overshoots their targets. I disagree this is somehow because they're just too dim witted or systematically slow to react. The effectiveness and manner by which the Fed levers work have been changing quite significantly over the past 35-40 years. The way an interest rate cut works in 2007 is very different than how it worked in 1977. The difference between the nominal rate and the real rate has grown tremendously. That is very difficult for the Fed to manage, since they cannot control the real rate directly -- it is just as heavily affected by trade policy and fiscal spending, neither of which the Fed has jurisdiction over.

Anyway, I think the interest rate has been kept artificially *low* for most of the decade, and the monetary effects we're working off now are resultant from the monetary inflation that has produced. Juxtapose the Fed from about 2002-2007 with the ECB for the same time period and it is clear there was a window for the Fed to raise rates more aggressively. Sadly, much of the GDP growth we "gained" by not pursuing higher nominal rate policy is now evaporating because it wasn't fueled by real growth but instead by asset price inflation.

Incredible that 2/3rds of both houses of Congress would support a bailout…

That's why I brought up this subject in the first place. This issue, and associated "proposals" to deal with it are truly non-partisan in nature. This is a good, old fashioned, plan to outright buy votes. And buying votes benefits incumbents regardless of their party. Worse, you don't want to be "the party that tried to throw you and your children out of your house and onto the street", which is exactly what the other side will immediately say once you oppose any "help to the common, innocent, patriotic, hard working, American".

This type of legislation would be among the most likely to override a veto. He won't veto it anyway. Not unless the Dems commit suicide (always possible, they're chronic suicide attempt patients) and do something like attach a troop pullout to the FB Bailout Bill.