patrick.net

Since boomers were the counter culture maybe enlighted boomers should be called counter-boomers.

What law gives the Fed the authority to regulate the finer points of mortgage lending and contracts?

What law gives the Fed the authority to regulate the finer points of mortgage lending and contracts?

What law prohibits the Fed from regulating the finer points of mortgage lending and contracts?

Huh?

dunno about Fed, but Paulson is definitely working in his WS pals' favor. Which means, not a chance in hell for tightening credit, how else are WS bankers going to make easy millions if credit is tight?

Did you guys see the following chart? Shocking
http://www.financialsense.com/fsu/editorials/kirby/2007/1213.html

The Fed does not have to tighten credit. Free Market *always* tightens credit itself in the contraction phrase of an asset bubble.

Maybe it depends on where you live. Out here the realtors® and mortgage brokers are hurting. They made us jump through every hoop in the book to buy. But we have 800 credit and no credit card debt and did 30yr fixed so all-in-all it was very smooth.

But I hear the brokers are absolutely starving. The guy who sold us our house (nice guy-- I wouldn't wish anything bad on him) is going through a divorce and is going to hand his house back to the bank. He can't afford the house and the divorce because the market is so bad no money is coming in.

Our mortgage broker basically reiterated it for us when she told us that no loans are going through right now that aren't spotless. In fact, the loan package we went with won't be offered any more by the end of the year since the banks are getting really edgy. I've seen tons of houses in my neighborhood fall through escrow in the last few months. In fact, it's more unusual if a sale sticks.

I do think that the Sac metro area is ahead of the BA in terms of where we are in the crash. Our declines have been markedly faster and steeper so I think we seeing the crunch first.

Peter P Says:
Or better yet, a 15yr FRM.

Or a 0% fixed rate - with 100% downpayment...

I disagree somewhat with the original post about the credit-pullback not being seen at the retail level - I used to get two unsolicited letters every day in the mail, offering to refi my mortgage. Now, not so much - maybe two a week.

It isn't quite reached the point where mortgages are not available, but there is still plenty of time left before we reach the bottom here. It will happen.

Peter P,
So true. The MARKET is tightening credit. The Fed lowering rates is silly and inflationary. I am still wondering what capitulation signal will come that will cause Ben to raise rates. Maybe we should have a vote.

Bill will raise rates when:

a) Oil goes to $200 per barrel
b) Social Security is required to give a COL increase of 10%
c) The monthly cost of military action in Afghanistan and Iraq goes to $10billion
d) Medicare is projected to become insolvent in 2010

Duke Says:
I am still wondering what capitulation signal will come that will cause Ben to raise rates.

That depends on what his real motive is. If really fighting inflation is the true motive, the Fed would have done this already well in advance of the signals you mentioned. Since that is not the case, let us assume price inflation is not the issue.

My guess is that liquidity is the concern, and we have a very long way to go before rate increases. Several layers of derivative markets have become stuck, and the players who made bets in those markets are unable to move or even close out their positions without becoming insolvent and triggering a chain reaction of cascading collapse in their counterparties.

The central banks are trying to resuscitate these markets through desperate liquidity measures. Raising interest rates is simply not an option now, until the patient shows some signs of recovery.

IMHO, it could be misleading to look at prices (housing, oil, gold, etc.) as a signal that the fed will raise rates. They just don't seem to care about shite like that. After all, the price of a McMansion in the Fortress is a mere rounding error compared to what is at stake in derivatives.

News from Sacramento... looks like there were some job cuts at Intel's Folsom location. I didn't see an announcement, but it seems to be related to the sale of Intel's optical platform division to Emcore a few days ago. I don't have specific numbers for the affected headcount, but this can't be good for Sacramento area housing...

Punchbowl!

While there is no "Min. posts required" to keep one's membership here at Patrick.net current... what the hell have you been doing that's been more interesting than this!

Do tell, oh and good to see you!

Malcom,

"Counter-Boomer" is absolutely accurate. Just assigning a name to my affliction puts me on a path to recovery. I'm calling the RV dealer as we speak!

Perma-Rentor and Vernon Smith are GODS!

Thanks so much for that link! I need a printable copy I can forward to... everyone with a mailbox!

"at the end of the capital-gains rainbow"

Almost poetic isn't it!

Can someone, please... that is still in contact w/ astrid forward that to her in thoughtful and caring fashion? It was my crude and frustrated treatment of a long ignored topic that turned her off but perhaps someone w/ Prof. Smith's credentials will convince her I wasn't just taking a position to p!ss her off?

TIA

I like that term, Un-Boomer. There are Boomers who are actually not like the people talked about in Ted Rall's book, Revenge Of The Latchkey Kids.

There *are* a huge number of boomers who seem to have taken on as their life's work to act just like the stereotype though!

The Fed lowering rates is silly and inflationary.

What else can they do? (other than producing Oracle-of-Delphi-style Greenspeak)

Bill will raise rates when...

Also, there is currently double-digit wage inflation in China, on top of appreciation (in measured pace though, still remember this term?) of RMB against the USD. Goods from China will become expensive very soon.

Oil will not be $200 a barrel. When the recession hits, it may go back down below $60.

NOT INVESTMENT ADVICE

Peter P,

I overheard a great quote today I know you'll appreciate.

"Nothing cures high prices like high prices!" :)

Great quote indeed!

There *are* a huge number of boomers who seem to have taken on as their life’s work to act just like the stereotype though!

.....speaking of my parents.

They lost their house. Total and complete irresponsibility on their part. Could have been prevented many times over.

HARM,

You didn't arrive at the CR comments a moment too soon! Thanks, it helped get the discussion re-centered. It's always depressing when you've been waiting patiently in class for your favorite topic to finally come up and the teacher legitimizes some tangent.

I was really dissappointed so many in the CR crowd tried to pretend a half a mil. either way wasn't going to make them of break them. C'mon guys. One of the good quotes came from *tg:

"Housing replaced money as the vehicle to save even if you had to go into massive debt to do it". Think about that for a minute.... Housing replaced money. Meet Debt=Wealth's evil twin.

SQT,

I am so sorry to hear that. I know the "saga" started several years back and they sort of refused to confront it. I wish it would've turned out differently.

DinOR

@SQT,

Wow... no big surprise, but that really sucks. Sorry you were unable to get your parents to confront reality in time. It's not for lack of trying.

@DinOR,

Yeah, too bad that CR thread is pretty much abandoned now, with little group consensus reached. Loved yours & Ann's comments.

Update on the Sacramento Market:

http://flippersintrouble.blogspot.com/

Credit Crunch refers to banks unwilling to lend to each other for fear of insolvency due to bad investments, ie Mortgage Related. The fed doesn't set rates, they change rates in relation to how much and at what rate banks are requesting loans from them. The fed doesn't create money, they loan money temporarily with collateral. Some of the recent collatoral has been Mortgage back and suspect. Banks create the money using credit.

It's more difficult to get a home loan because the banks can't resell them unless they are top quality; no trust. The govt and fed approval of tighter standards is too late, the banks have alreay tightened the standards themselves.

most likely fed rates will go down for the foreseeable future. Very little money is being lent between banks and to consumers. It's getting harder to get loans. Credit cards are next. Look at the rise in defaults on credit cards, it is skyrocketing. All this credit contraction is going to result in deflation, not inflation. Not as much credit/money being spent, causing prices to drop, cash money to be more valuable. The dollar is going up, gold and oil down. that is not inflation

SP,

As I have stated on an earlier occasion, the real goal of the Fed is to inflate assets (capital) at the maximal rate that is consistent with moderate price inflation for consumable goods.

When assets *deflate* (which is pretty rare given the built-in bias of the system), all consideration of consumable goods inflation is thrown out the window, although lip-service will continue to be given about trying to suppress inflation.

double-digit wage inflation in China?

When's the last time we had ANY wage inflation at all in the US?

Wages have been going DOWN since the mid-70s.

SQT, I'm watching a similar situation unfold as well. My girlfriend's parents at one time inherited their fully paid off house from her WWII gen grandmother. Being the stereotypical B-----S the first encumbrance was the remodel which 10 years later already looks just as bad as before. Several 'unexpected' events later the house now has significant liabilities stacked against it. Now the ingenious solution is the ray of hope....the reverse mortgage. Even though it is totally unrelated to me, it has still been heartbreaking watching this constant waste. We almost had to do an intervention because there were rooms piled so full of shit you couldn't open the door.
Ironically this behavior turned out to be a wealth transfer as we own our house outright due to the bubble. And just as the B-----S looked to their parents for support (then put them in old age homes) and looked down their noses at the later generations, now they are asking the probing questions like "What do you think will happen......." "Are you interested in maybe......."

SP,
It is my position that no matter how low Mr. Bernanke lowers the rate the market is re-evaluating its credit risk models. To me this means the market is uncoupled from the Fed Funds rate, and as Ben watches the credit crunch continue to live and breath despite his liquidity and rate efforts, he will eventually give up and say, "Why add inflation to this market mandated contraction?"
So joking aside, there has got to be some signal for which the Fed realizes we are simply due a recession and that lowering rates just is not going to help.

Maybe it is just watching how uncoupled the market is from his actions?

Again, it is my asserion that the derivitve market is the tank no matter what the Fed and any and all other Central Banks do.

HARM,

Through all of this I have sought some... form of vindication. Having a Law and Economics Prof. (NOBEL... winning law and econ. prof.) echo those very same sentiments in the Wall Street Journal is just about all a guy could ask for!

To have this impactful a piece of legislation passed and say it *hasn't influenced consumer behavior is beyond me? It DEFINES our behavior. Thankfully there were a few comments that owned up to lax lending being the fuel (but the CGE being the spark).

Whether you want to blame Clinton for the U.S.S Cole or Bush for Iraq, hey whatever, that's someone else's job. What's should be apparent is that unless we get a handle on the CGE, any correction is bound to be short lived and we'll only get a new and improved version of equity raiding and property flipping.

I haven't been able to access the full article yet so if anyone has a WSJ sub can you please post it here? For all posterity?

The fed doesn’t set rates, they change rates in relation to how much and at what rate banks are requesting loans from them. The fed doesn’t create money, they loan money temporarily with collateral.

KT,

See my somewhat lengthy post on the Fed & inflation in the Greenspan-on-Crack thread.

Technically, you are (partially) correct: the Fed does not "set" bank retail/wholesale rates directly, but they can (and do) have a powerful influence on them by directly setting critical interbank lending rates: the FF & discount rates.

Technically, it is also true that the Fed does not directly create money, but they can (and do) increase or decrease the money supply at will via M3 by making money cheaper and more abundant for its member banks (loose money policy) or more expensive and scarcer (tight money policy).

Technically, it is also true the Fed cannot "force" banks to lend money, or "force" consumers and businesses to borrow, but they can (and do) make it profitable or unprofitable for banks to lend irresponsibly via their rate-setting and other regulatory policy levers --reserve requirements, underwriting/lending rules, etc.

Technically, the man behind the curtain can't make the weather, but he sure as hell knows how to turn a mild shower into a Category 5 hurricane --and keeps on proving it to us. The terms "Easy Al" and "Greenspan Put" were not coined for no reason.

Duke,

Agreed. I just hope Bernanke is both willing to realize and able to act. Over on Piggington, someone cleverly coined the term "S*itty Asset Crisis", because that is what we have, not a "liquidity" crisis.

FYI:

Liquidity Vs. Solvency

@Duke,

But recessions, risk, deflation and the business cycle have been repealed --that's been the guiding principle of central banksters, right?

Next on the agenda: gravity, bad weather, unhappiness & death.

HARM,

Krugman's article was even on the same day. He may have been the inspiration.

DinOR,
I will grant you a victory lap as I know this is your pet topic. One of the more interesting lines in the WSJ op-ed was: yes, good citizens, housing counts as consumption. Now that's not something you hear every day (we don't need no stinkin' CapX, oh wait, the roof is leaking). At its best housing can be an enforced savings account with a built in inflationary hedge, but MEW seems to have done away with those quaint notions.

And since we are beating dead horses, I will flog the whole securitization was bolted onto the REIC conspiracy theory. I am betting several years from now the securitization engine will be ramping back up, "any two will do" will still be on the books, and home prices will have reverted to the mean, but the REIC won't look anything like what we had several years prior. The internet continues to change how we interact with RE and mortgage brokers are slowly being legislated out of existence (helped along by banks pulling their rate sheets). I favor CRs position and say that Accelerant Al didn't help matters, but it IS securitization that allows cash to come back on to the banks balance sheet so they can CREATE more money (via additional loans as allowed in a fractional reserve banking system). Perverse incentives in the lower end of the securitization stream allowed this thing to get out of contol and the REIC is going to be shown the door.

And just as the B—–S looked to their parents for support (then put them in old age homes) and looked down their noses at the later generations, now they are asking the probing questions like “What do you think will happen…….” “Are you interested in maybe…….”

Malcolm, I really do think that soon, very soon, our dear Boomers will be flooding ebay with their Boomer-crap (TM) . One of us should start tracking the number of Harley's, RV's, complete Rolling Stones box sets, waterskis, time shares in Cozumel there are for sale. Might be a reasonable economic indicator - the Boomer Distress Indicator (TM) .

They are really something aren't they.

double-digit wage inflation in China?

Wages have been going DOWN since the mid-70s.

I did not say REAL wage. I heard that inflation is also serious in China.