patrick.net

SP,

Thank you, and exactly! When Americans are no longer adjudicating 65%+ of their take home pay toward "The Care and Feeding of Alligators" we will be in a much better place. Well said.

I'm so glad you bring up the point about "oversized mortgages" (and homes priced SO... high) they will likely NEVER be owned! Unless any of us are planning on having 4 or 5 kids we can scratch the 3,500 s/f homes from our "Search list" and get back to reality.

I thought Hank was clear on *not bailing out speculators, etc. though?

SP,

I read Paulson's comments too, and found them highly offensive. I will continue to harp on these 2 points, but why is it always an assumption that (a) falling housing prices are a bad thing, and (b) having an entire house of cards economy supported by consumer spending, which in turn is supported by MEW, a good thing?

I mean, those who bought at the top are unfortunate and will see loss of equity, but the benefits for millions of future buyers is immense. And again, every damn economist, from Bernanke to Greenspan, even Shiller, has assumed the pullback in MEW is a bad thing. I just don't get it. Since when was spending fake money good for the economy? In the end, it's going to come back to bite us all, guaranteed, and all we'll have left to show for it is a bunch of granite slabs leftover in crumbling McMansions and garages full of Harleys and ATVs that folks can't sell on EBay because no one wants to buy them.

Notice

I thought Hank was clear on *not bailing out speculators, etc. though?

DinOR,

Notice that Paulson specifically makes the point of not bailing out speculators in real estate. He very clearly does not include speculators in commodities, ie, his Wall Street friends who have made so much money on packaging, selling and reselling MBS's and now are in deep doo-doo because they all of a sudden have to "mark to market", er, write down, er, admit that their numbers were fake...

Why are falling housing prices a penalty to economic growth? In what kind of kool-aid filled universe does this hemorrhoid live?

It just means that the government will ensure that the bubble burst be well-cushioned, at the expense of someone.

Prices ought to come down. But what ought to be and what is are not necessarily the same thing.

@skibum,

I should have been more specific by stipulating: "specuvestors" (meaning basically everyone at SDCIA) who are too low on the food chain for Hank to be in the least bit concerned with!

EBGuy,

Really funny responses in the comments section! Lord. A new phrase is born:

Militant Boomers (TM)

In Your Face Boomers (TM)

"I started in the workforce at age 24 and I'll be damned..."

24? Really? Can you say s-h-e-l-t-e-r-e-d? Look @SSHOLE, many of us were "haggard veterans" in the workforce by age 24! Oh and btw if they're taking out FICA and State taxes you'd better believe they're taking out for SS. Dipsh!t.

Kathleen Pender from the Chronicle seems to be a little skeptical of Paulson's plan. Is it just me or are columnists starting to get surly. See
Bank bailout plan doesn't solve underlying problem.

The three banks participating in the supposed bailout plan engineered over the weekend by Treasury Secretary Henry Paulson are calling it a "master liquidity enhancement conduit," probably because that sounds much better than "shell game."

Why investors would be willing to fund these assets by buying commercial paper from the new entity but not the old ones is not clear to me.

DinOR - there are still music stores in the area, there's that one in Sunnyvale, that folkie one in Palo Alto (don't let that folkie imagine fool you though, they worship GW Bush and I caution you to never say anything bad about any Republican in there while the owner's around) and Starving Musician on El Camino Real in the porn shop and whore house district. Starving Musician's probably the coolest - always a jam session going on, cool message board, etc.

As our economy crashes and we attain a standard of living that would make most Albanians cringe, I see a large future for those who can build, adjust, teach, etc musical instruments. After all, the traditional ones work when the lights are out, and we will have the lights out a lot - just like when I was a kid in the 1970s, no money to pay the bill = no lights. A worthless dollar means no more Chinese and Korean etc guitars and clarinets and so on too. Any old instruments need to be treasured and restored for use, and those who feel the call would be really wise to learn how to make instruments, anything from ukes and banjos to guitars, violins, thumb pianos etc. Poor people, really poor ones like we're about to become, ALWAYS have musical instruments if they can.

ex-sunnyvale-renter,

Funny! I always remember the owners at the more viable shops saying, "kid you've been in here for FOUR hours! You gotta' buy... "something?"

What never ceases to amaze me is that I'd much prefer a cheap knock-off (that's properly set up and adjusted) than some high dollar number with BRUTAL and un-playable action! Since I seldom if ever play a note "natural" even being in tune isn't that important to me. Besides I couldn't live with myself if I scratched somebody's "highly collectible" Les Paul Custom or whatever. Oh, and amps sound best right before the transformer blows!

Wasn't patrick supposed to be on Nightline?

http://www.sfhomeblog.com/2007/10/battle-of-blogs-part-deux-nightline-abc.html

Did it happen?

BTW, I would like to thank the posters here as I finally made some cash off this giant turd called the housing bubble. Using the Peter Lynch strategy of "go with what you know" I shorted my bank when it was near all time highs last week (maybe it was doubling down as I still have some 2009 puts that are slightly underwater).

Today they announced earnings:
The mortgage business, which comprises about 20% of Wells Fargo’s operations was rocked by the subprime crisis. Wells Fargo took a $490 million hit in mortgage writedowns. Who would have thought.

“Given real estate market conditions, credit losses in the home equity portfolio are likely to increase in fourth quarter 2007 and remain at elevated levels into 2008,” said the company’s Chief Credit Officer Mike Loughlin on Tuesday. Well Fargo’s gloomy forecast, echoes a sleigh of recent announcements by financial firms, which believe that the credit crisis will last longer than initially expected. Really?!

I will not be buying a BMW any time soon, but will keep my eyes peeled for "high definition" resale items on CL. I guess I owe Patrick and Ben a bit of a cut when the stops kick in.

nice article in response to Paulson’s comments

http://www.fool.com/investing/general/2007/10/16/more-housing-hanky-panky.aspx

EBGuy,

Good for you! Feels good don't it?

You know (and I was just wondering) it wasn't that long ago BG (Bill Gross) was something of a hero on bubble blogs for his ever bearish stance on equity markets? Now b/c he has his boo-boo in a ringer I don't see as many people quoting him as if "from the burning bush".

Is Peter Schiff the new BG?

DinOR :

Bill Gross (and the entire bond market) confuses me. Just a few months ago he was claiming to be in a bear market for bonds - higher yield, lower prices.

After his prediction exact opposite has happened in treasury market. Now he is calling for lower yield on short term bonds.

The bond market has been acting like being afraid of recession - inverted yield curve - for more than a year now. That recession just doesn't seem to materialize. I don't want a recession. But the bond market still acts like one is coming.

Anyway, I am glad I have been staying away from bonds and concentrating on stocks. Till I get more yield than CD, I have no interest in buying a long term bond.

Here's an extremely bearish, but interesting piece on the state of the credit crisis, and where it might be headed:

http://articles.moneycentral.msn.com/Investing/SuperModels/AreWeHeadedForAnEpicBearMarket.aspx?page=1

skibum :

Regarding your query about mortgage securitization going away. CR has a small post on it. I think I agree. Combining things in a basket is not a bad thing, as long as things that are put in the basket are OK.

I loved that quote from the MBA chairman. We're going back to lending the way it was in the 1950s and 60s.

About time, I suppose.

StuckInBA,

What's more is that if he was THAT wrong about the quality of MBS... what ELSE is he wrong about? I never could stand the guy so I guess I'd better admit that upfront, but he seemed to be such a "darling" amongst bears but now it looks like they've begun to abandon him too.

Now it's my turn to be a bit surprised. I was really expecting the -ve indicators to stabilize by now. Don't get me wrong. I did not expect things to get better, but just slower descent.

ABX index are in free fall again. The SoCal sales are a shock. And what to say about new home sales. Shouldn't cancellations at least stabilize ? I mean if no one is booking, no one can cancel, right ? The homebuilders' confidence keeps getting worse. Guess these things can actually go close to zero.

The downward acceleration is still in place. Speed is increasing as the free fall continues.

@StuckInBA,
I started noticing the SoCal sept sales falling by 50% in september.

I thought it might be an anomoly, but the 50% drop from YOY sept 06 is across the board in SoCal(and other states,areas too).

So far the October sales look to be just about the same in volume as september 07. Meaning lower than 20 year low. Lowest ever recorded since computer recordkeeping began(per DQ)!!and SoCal has a much much larger population now, and more realtors than ever so this stat has end-of-world consequences for many industries.

"Realtor Famine" is right. To be followed by Construction Worker Bust, and Government Hiring Freeze, etc...

Stuck,
I'm all for free fall in housing indicators - it would mean a more rapid correction back to "normal." However, I'm not surprised by the HB confidence numbers, nor the SoCal sales data. They are both lagging indicators.

HB confidence won't pick up until they've already seen a pickup in sales or at least a significant clearing of inventory. I think there is probably more than one major HB seriously worried about going under from all of this.

The So Cal numbers (we'll see what the Bay Area numbers show later this week, but I suspect a similar direction of badness, just not nearly as nasty) reflect completed sales in September for contracts signed in July and August. The heart of the credit crunch hit late August into September. Hence, I'd even expect October's numbers to be just as bad.

DinOR - isn't it amazing how some of the cheapest POS guitars can be the most playable?

I have some thing, a "parlour guitar" made in Canada, I need to dig it out of the closet, got a tuner, finger-ease (spray stuff) and new set of strings....... I got it and it seemed OK, the strings chew me up but of course they do, it's a guitar and that's what they do....

Well, I just discovered Django Reinhardt about 6 months ago, so what's a little finger skin right? I signed up for a class at the Ostensibly Folkie Republican Capitalist Pig guitar place, and worked on buildin' up those calluses on the basic chords....... had to drop the class as my own financial situation was really imploding, and the ugly Birkenstock-wearing moneygrubber teacher wouidn't even give me a partial refund ......but I digress..... I ended up a few weeks later going into the Guitar Center in Santa Clara woops Slumma Clara, you see I thought I'd be bunking (and paying rent to) some friends, living there, but they turned out to be druggies, Heroin anyone? Err, No Thanks. So I was visiting the G.C thinking it might become a jam place for me...... they have imitations of the Selmer guitars Django and his gypsy coherts played, and I was jamming around, I can't play but I can remember what I heard so I was doing little sets of notes from the Django stuff I'd listened to, and a guy in there was impressed with how I was doing all those bends (Django hardly played any note without some bend involved) and I thought it was pretty weird myself - this is a guitar with I think a larger than standard fretboard and I have tiny-ass hands. How could it be easy on this monster when my own smaller than standard guitar is hard? Hence the new set of strings and finger-ease, which I think are both on those shop guitars so they'll play nice...... I think the shops, the smart ones anyway, make sure the strings aren't getting rusty and wipe the guitars down with finger-ease or Pledge or something so of course they all play terriffic lol.

I didn't think the high-end guitars came with horrible actions though, I thought that's part of what you're paying for, is a decent neck and action when you pay the big bucks?

I notice the "greats" never had good guitars when they were on their way up..... hehe.

It really has me wondering, how hard might it be to learn to make guitars, maybe start out making ukes lol.

The CR post on Mortgage Lending Going back to the "1950s and 60s" also included the commentary Securitization is here to stay. I've said this before, and a little table pounding never hurts, and I'll say it a little differently this time: the REIC is about to be disintermediated. Mortgage brokers, realtors, appraisers(?) and the other nice folks who poisoned the securitization stream are in for a rude awakening. And look for fabprefab.com and modular houses to hit the homebuilders where it hurts.

Well, I just discovered Django Reinhardt about 6 months ago, so what’s a little finger skin right? Finger skin -- heck, you don't even need all your fingers...

Well, maybe securitization is here to stay, but I wonder if it will be in the same form as it stands today, and to the same extent. I guess the crux of the matter is, will investors ever regain an appetite for these instruments to the extent where they will be created and traded to any significant extent. Given human nature, my bet is that in several years, a new generation of bankers will be too young to have gone through today's mess, and they will rehash this scenario, unless the government decides to heavily regulate the industry (fat chance).

ex,
If you like Django, you might enjoy the Woody Allen movie "Sweet and Lowdown." It's of course fictionalized, but Sean Penn is a jazz guitarist who sees Django as his arch rival. The music is great. I've always admired the chops of jazz guitarists much more than most rock or blues guitarists. Wes Montgomery, Charlie Christian, Kenny Burrell. Although SRV, Leo Kottke, and Michael Hedges had/have some serious chops... Good stuff.

skibum,
Either the REIC goes or securitization goes, and I guess I wouldn't bet against Wall Street. I imagine securitization will crank back up after loans are seasoned (by the banks) for a year or two -- instead of 90 days and out the door.

Best comment from the CR thread by ckt:
I like George Baily route:
"I don't have your money! It's in your CDO, and your CDO, and your CDO..."

Also, socketsite.com is handicapping the NorCal DQ numbers in their latest thread. Place your guesstimates.

EBGuy :

Based on the weekly SJMN chart posted at DQ, the September sales numbers seem to be down only by 30%. Not as much fun as SoCal. But the median is up in all categories ! Too bad that even dumb Realtors know that the "median up" jig is up.

I went to one open house this past weekend. It was mobbed. They had Jelly Bellys. Next time I am going to start asking people if their are neighborhood gawkers or seriously looking.

I also ended up in the hills and took a look at a REO. There appeared to be another family in a car on a “stakeout” in front of the house. Well, I guess they were eating lunch, as the father got out of the car later and talked to me after I nosed around the property. It was a flip gone bad so there are some unfinished baths, some of the floors need to be refinished and kitchen appliances are missing. Nothing, that I can see, is beyond repair. At any rate, the guy could not get over that there was a property selling for less than $800k amongst the millions dollar pads. Its a REO, my friend; I don’t think the bank is ecstatic to have it on the books. I forgot to bring out the ARM reset chart, but did tell him several times to sit tight for two years as the fun is just beginning (he’s currently renting). For those who are interested, the property is listed here. I really like the name of foreclosure specia1ist: bareo properties. Sounds like a certain Spanish word.

Does anyone know of investment site(s) that are dedicated to discussing shorting / put targets?

skibum Says:
Have any of the pundits/experts even mentioned or contemplated the possibility that this whole “credit crunch” might (in the best of worlds) be the precipitating factor that forever dooms the concept of securitizing mortgages? Maybe, just maybe, there will be a realization that taking a bunch of heterogeneous loans and “packaging” them into a “product” that can be “traded” is not such a good thing after all.

I don't think so - securitization of debt instruments (and trading in them) won't go away, since it is not really a new thing. It has been around in various forms for a long time.

What will change is that the recent burns will cause risk to get repriced at a higher level for a while. You will still be able to lend money against a note and then turn around and resell the note, or sell a large tranche of the notes together - but the discounts will be steeper than they used to.

SP

SP said

Why are falling housing prices a penalty to economic growth? In what kind of kool-aid filled universe does this hemorrhoid live?

Who is Paulson?

Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972.[7] He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973.

He joined Goldman Sachs in 1974, working in the firm's Chicago office. He became a partner in 1982. From 1983 until 1988, Paulson led the Investment Banking group for the Midwest Region, and became Managing partner of the Chicago Office in 1988. From 1990 to November 1994, he was co-head of Investment Banking, then, Chief Operating Officer from December 1994 to June 1998;[8] eventually succeeding Jon Corzine (now Governor of New Jersey) as its chief executive. His compensation package, according to reports, was US$37 million in 2005, and US$16.4 million projected for 2006.[9] His net worth has been estimated at over $700 million

"Too bad that even dumb Realtors know that the “median up” jig is up."

we still need direct proof that prices are falling....thus you get capitulation.

The most savvy move of Paulson was to take the current position, according to Economist, because he was able to unload ALL his Goldman stocks at a high price without causing the market to turn its head - it was required legally. That alone netted him $400M+. If he were to unload all the stocks as CEO without a proper reason, that $400M+ would likely to be very much less.

I have always wondered if that was the main motive for him to become the Treasury Secretary. I would be tempted if I could up my networth 3x in one shot, and if he worked in IB all his life, he obviously cared for money.

Indian stock index plunged as much as 9% today triggering trading halts.

http://tinyurl.com/yqrbnp

``The government was getting uncomfortable with the sharp run, which was creating a bubble,'' said Jayesh Shroff, who helps manage the equivalent of about $6.4 billion at SBI Funds Management Pvt. in Mumbai.

I have read news about every country trying to prevent asset bubbles, fight inflation. Not just lip service, but stern measures that have drastic consequences. Sometimes these measures work, often times they don't. But you cannot blame them for not trying.

Here in US, we refuse to even acknowledge the existence of bubble, so we don't have to take any measures at all. Given excuse is often the same - not interfering with the free market. But once they pop, oh do we forget about the not interfering part or what. And we are supposed to be the smarter ones when it comes to free markets.

This news confuses me even more.

http://tinyurl.com/37pwlp

Japan, China and Taiwan sold U.S. Treasuries at the fastest pace in at least five years in August as losses linked to U.S. subprime mortgages sparked a slump in the dollar.

If Asian countries are dumping treasuries, who the hell is buying them keeping yields below FF rate ?

StuckinBA,

The answer may be, the Fed itself. I know I know, I start to sound like a lunatic conspiracy theory believer. But lots of the add-ons were coming from British Virgin Islands where buyers' identity could be hidden (2006 data). I highly doubt if there are so many patriotic or dumb super-riches buying these bonds.

Don't worry, I will be proven right or wrong within 2-3 years.

The 17th Commie Powwow at Bejing just declared: the government will make it easy for Chinese people to benefit from non-salary source income (aka stock and house flipping).

The Chinese government kept giving the same lip service as they vowed in public to mop up the liquidity. In fact, they won't ever want to mop up the liquidity if that is what is keeping the country going, because what the commie has left to justify the regime is economic growth alone, at whatever cost it takes to sustain. As soon as the growth stalls, China will be in big big trouble.

Just for the record, Chinese monetary growth just went up 20.94% and 18.48% for M1 and M2 respectively for July 07 compared to July 06. If anything, the PROC want this party to go on forever. Mop up my ass.

StuckInBA Says:
Indian stock index plunged as much as 9% today triggering trading halts.

What's happening with real-estate there? I have a neighbor who CANNOT shut the f*ck up about how much his apartment in Bangalore has gone up since he bought. I am wondering if he is going to pipe down anytime soon.

SP

PROC=PBOC want=wants

StuckInBA,

Thanks for the heads-up. That gave me quite a start. I don't understand why global hedge funds necessarily need anonymity when investing in Sensex "participatory notes"?

SP,

After years of battling to contain "domestic smugness" this new strain appears to be very stubborn?