patrick.net

NVR,

Excellent post, and you'll get no argument from me where serious and severe regulatory changes simply must take place. Many of the formerly bullish posters here all seemed to work off the general premise that "high prices" (that many couldn't afford or were unwilling to go that far in debt for) was our only "tune".

I've always maintained that this simply was not true. Until we get the REIC from all sleeping in the same bed these issues will continue/worsen. I'll further agree that the PTB absolutely need to STOP all discussion w/ REIC dudes. Total waste of time. It's the same thing as asking Dennis Kozlowski about about corp. accounting? Why?

The only thing we differ on is that I can't live w/ the embarrassment of totally shutting down mortgage lending. Haven't the rest of us been through enough? :(

It's "in the bag".

DinOR,

I'll give you the total shutdown piece, unrealistic probably and might do significant damage across the board. Honestly, I was probably throwing that one out there for effect more than anything else. I will say this though, it would send a very clear signal to the markets that this thing is serious and we are serious about addressing it. What would be the systemic effects of say a defined 30 day shutdown? Fix the system.

It's also just occurred to me that the PTB have been operating without the benefit of insight and information that those of us here have. I don't think they really understand the range of detail on the reality of the housing market, like we do. It's clear now based upon their not getting ahead of the issue, earlier statements, "containment", "it's only a problem of 800K over inventory (or whatever the number Al pulled from his nethers), ect..

So, is it possible that they still do not, on this very day, understand where housing is truly heading? I suspect their internal numbers say they have a bottom pegged at a worst case 15% decline. We know better here. Maybe they don't want to contemplate or understand what happens in a 30% plus decline environment? Point being, are they still in a denial stage themselves? Who exactly are the housing experts informing our regulators? Who is this person if there is one?

Our regulators actions are probably based on an assumption of a bottom in housing that is overly optimistic. Their actions to date dictate such. They are still missing it! Tragedy ensues.

So what can we do about this?

Our regulators actions are probably based on an assumption of a bottom in housing that is overly optimistic.

Pluto entered Capricorn just a few days ago. This is just the beginning. :twisted:

NVR,

One of the very easy solutions we could introduce w/ zip effort would have been to have CountryFried etc. simply have to keep every 14th loan they write on the 3rd Tuesday of every month.

We've talked about making these clowns "eat their own cooking" a number of times. Since they won't know when the random "spot search" of loans will take place it's to their benefit to make sure nearly everything they underwrite will likely fly. If FRE/FNM generate the sampling date by a roll of the dice they will (would have) to stay on their toes. Better yet take a drawing at OFHEO and have THEM tell Freddie about 2 hours before it goes down.

The mortgage firms wouldn't know a thing about until the loan gets kicked back. Imagine further having company-wide training on what was/wasn't done correctly?

That's one of our suggestions and since it works in automotive/electronics etc. there's no reason it shouldn't work here.

DinOr

That's would certainly seem a simple to enforce, elegant regulatory change that I can't poke any holes in. The lenders would have to maintain some loss reserves against, simple enough to come up with that calculation. The potential loss liability might also carry through to all third parties associated with the transactions, the brokers on the retail and wholesale side, the appraisers even.

We might set up up a joint access workspace with edit controls and change tracking and put together a set of "suggestions", and I think I can get it in front of our appropriate legislators (not sure who those are at this point) in DC pronto. I've lived here over 30 years, I know a few people. To some degree they are owned by industry and maybe it falls on deaf ears, but maybe there is some recognition this is serious enough to do something substantive. And looking back, maybe it might be good to have tried to do something instead of just documenting the whole and living through the whole mess.

I think it's fair to say that most of the information these people have access to comes from the REIC suits and influence peddlers running around DC. They could use another voice.

skibum :
that can only mean one thing: emergency Fed rate cut tomorrow! :)

From skibum's keyboard to Merrill Lynch's report.

From MSN Investor market dispatch ...
The [ISM] report was so bad that Merrill Lynch predicted the Federal Reserve would be forced to cut rates again before its March 18 meeting.

It will be funny if Fed is cutting down to 1% before the end of the year.

Then what? Apart from printing money to buy our own mortgage sh*t, what else can Fed do once the rate hits the bottom?

I don't know that there aren't "any" holes that couldn't be poked in it? There's always someone willing to game the system. That's where the "fudge factor" comes in.

STILL... seeing way too much crap from XYZ Firm. O.K mister smarty pants, your getting every 10th loan kicked back! This would even eliminate the need for useless non-rating "rating agencies". Investors would quickly devise their own rating system by identifying:

1-100 = AAA
1-75 = AA
1-5 = a default waiting to happen

If the firm offers multiple products to a broad spectrum of FICO's well then they're broken down accordingly. When approached from the supply side there's no need for rocket science.

For those of us that remember when "getting qualified" meant at least a 3 month long ordeal where NOTHING else in your life was a priority, having a "kick-back" feature sounds silly.

I blame the "re-fi craze" when the process was whittled down to the time it takes to get thru the drive-up window at Taco Bell.

About who is buying the mortgage securities.

We have wondered for a long time about who exactly are the bag-holders. It turned out to be everyone. In every country, you can find an idiot who provided some sort of crack to the US house junkies. The US cities themselves have seen their parked funds somehow got pulled into this mess.

I have always said that I do NOT get the bond market. I have no idea why people are loaning money to US govt, companies and for mortgages at these ridiculously low interest rate. Why is anyone buying US 10yr treasury note at 3.75% ?

Are bond buyers STILL out of their mind ? Or is this a rational decision that I don't get ? Mish argues for deflation and hence justifies rally in US treasury. I know the Fed buys US treasuries as standard practice to manage reserves. Is the Fed propping up US treasury prices and holding the yields down ?

Whatever. If someone knows a good book on understanding the bond market, please let me know. I can understand string theory - at least I think I understand the idea - but bond markets, that is so beyond me.

I like Rick S. on CNBC last night-

"The Fed should cut rates to zero with a tightening bias and get it over with!"

I just returned from voting: straight Ron Paul ticket (included all the delegates).

Solar eclipse (in Asia) tomorrow. What gives? Will there be a major market event?

Paul,

Santelli is one of the only straight shooters they have! LOL! And yes I suppose the "tightening bias" would... be a given? :)

StuckInBA,

Everything I "thought" I knew about the bond market has been decimated in the last year or so. Maybe John Devaney formerly of U.S Capital Markets can explain all this stuff to us?

http://www.treas.gov/tic/mfh.txt

OK, the trend from Nov 2006 till Nov 07 (in $B)

Japan - reduced from 615 to 580
China - reduced from 393 to 386
UK - increased from 76 to 315 (looks like the biggest idiot, but why???)
Oil exporters - increased from 106 to 127 (understandably, too fast of a gush of USD to diversify)
Brazil - increased from 51 to 120 (why???)

DinOr,

Yes, I agree, Rick does a fantastic job. I've been lucky enough to have met him as we both live and work in Chicago.

Paul

Is UK trying to repay our debt for bailing them out of WWII? Why did they suddenly increase their purchase of USD Treasury by 4x in 12 months? Another oddity is Brazil, why did they increase their holding by more than 2x within 12 months?

Paul,

I'd have a beer w/ Rick any day! Oh and go White Sox (spring trng. starting up down in Tucson!)

UK includes Channel Islands and Isle of Man.

I don't know about Isle of Man, I know Channel Islands are a tax-haven destination where buyer's identity can be properly concealed. Since the Fed doesn't provide a breakdown between UK and Channel Islands, it is hard to say if there is something fishy with some sort of operations through C.I.

I just found it hard to swallow, that UK, which doesn't need to export to us (unlike Brazil and Oil Exporters), doesn't rely on us financially, and doesn't have a big US Treasury portfolio to begin with, would suddenly increase its holding of US Treasury by 4x. Their holding is now coming close to scale of that of China, a country that cannot help being sprinkled with USD every day.

Something is very fishy with the UK holdings. I searched high and low on the internet and couldn't find an explanation of why UK would want to hold more US Treasury, by 4x more within a year.

I see Arnold has been drinking the REIC kool-aide:
www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/04/EDF7UQMJL.DTL

"The limit for these loans is $417,000. Now, while that limit works well in most of the country, where the median housing price is $217,000, it doesn't work as well in many parts of California where, as we all know, homes are far more expensive. This means that Californians generally need larger home loans, even for starter homes."

This means that Californians generally need larger home loans, even for starter homes.

True, but people do not need to live in California!

Any GSE "limit" above 0.00 is highly problematic.

http://www.imf.org/external/np/sta/ir/gbr/eng/curgbr.pdf

Above is the official international reserve statement of UK government up to 2007 Dec.

Note the total foreign reserve in US $B (both central government and monetary authorities) is only $40 + $57 = $97B. How UK central government and monetary authorities combined hold $315B US Treasury??

If I am not mistaken in interpreting the UK government statements, then I can deduce that most of the $315B US Treasury is in fact held by Channel Islands and Isle of Man.

So, who is buying from Channel Islands and Isle of Man?

What site should I go to for posting the data above for expert verification? I am not an expert in reading international government settlement statements, so I want to check with those who understand how to read these things to see what they think.

UK, Japan and China are always the big buyers and Brazil seems to think it adds credibility I guess.

they all just print currency and exchange it with one anthter - how does that help anyone?

Here's a thought - try going to a bank and getting 100k out in cash. I bet they freak (because they don't have it or are not expecting you to show up). Here's another thought, go to your gold (coin dealer) with that 100k and see if he/she has inventory to fill your order for 110 gold eagles or whatever. It is very interesting to see reactions when you do what are in the big scheme of things very small actions.

I know for fact that physical gold is hard to come by, at least in the retail level.

I went 50% physical several months ago. At the same time, I exchanged some info with gold bugs in Hong Kong and China on the physical situation. It is very hard to come by physical gold in retail market. If you just want a small coin, or a small bar, sure. But if you want to drop $50K (not to mention $100K or above) and exchange for bullion, you can walk through Hong Kong island whole day without coming up with enough inventory.

There are quite a few pieces of news of physical gold inventory going dry in major cities in China for the next six months. Some first-movers went to smaller cities and hoard all the physical gold they can get their hands on.

I really think the machine of writing bad bad loans is actually continuing but GSE is buying them - included bad and shitty refi's being dumped on GSE. Just wait one year and another 10% plunge in housing it will cause defaults at fanny/freddie/fha to need a bailout.

The only shocking thing is the head of OFHEO (Mr Stockton) is actually speaking AGAINST rasing limit to 729k. This looks like typical CYA behavior - now he can say I told you so when fnma cracks. The REAL question is what will lending look like AFTER the government bails out GSE? No doubt more 'stricter guidelines' followed by another crash bailout every few years.

Dont the airlines/railways operate on periodic bankruptcy/bailout as a business model? Looks like mortgages will be the same going forward.

Without 20% down payment as the norm you are going to have widespread massive default everytime there is a hiccup in the housing market or a small recession/job loss locally so only the us taxpaper would be dumb enough to insure/buy those loans on an ongoing basis right? government controlled mortgage market is here to stay. May as well move to France.

OO,

You can ask Mish. I think yours is an interesting observation. There might be a simple explanation, which still would be educational. Update us with whatever you have learned.

Paul,

Japan and China EARNED their US Treasury. Goods changed hand as USD flows in their way. We print something, but we get something.

My main suspicion is, the UK purchase of US Treasury is completely out of thin air, no goods changed hand. We print something out of Channel Islands, we get nothing.

Channel Island and Isle of Man have always been notorious for rich people hiding money in the banks there - think tax havens.

I just got a reply from CR, he thinks the Channel Island purchases could be explained by Oil exporters because there have been some buying from the Middle East coming from tax havens before.

He referred me to consult with Brad Setser, who seems to be the expert in this field.

HK,

Excellent point of the airline/railroad model of perpetual insolvency. I don't know about 20% down but you're right, without at least some cushion the slightest ripple will look like a tidal wave. I'm coming around to your way of thinking.

Asia and Europe markets head south, emergency rate cut coming. Prediction: Markets likely yawn, no up move on news. Or maybe Ben recognizes the potential yawn, which itself might be damaging creating perception of impotent fed. Probably they let it slide deep this time before any action.

Everybody recognizes it's not working.

I heard some analysts saying that if the Fed eases to 1.75% that this will essentially rescue and bottom housing. I think NOT.

I once had relations with a Manx (isle of man) trollop in Galway Ireland, many moons ago. Amazing legs and interesting view of the world. I don't think she is buying any treasuries. I think she may have given me crabs.

this show called 'buy me' is on HGTV, people trying to sell crapshacks.

this lady refused to sell her home for 185k, wanted 200k so she declines offer and pulls it off to 'wait fer spring'. ive seen this so much, whats the word for this pulleroffNwaitferspring? Ive noticed the majority of listings (2 out of 3) have been expired/pulled off not sold.....gotta be a few years of pent up sellers.....and they are all going to relist _right_ about _ now_.

HK,

There are so many townsfolk out there that are waiting for the turnaround that is not coming. All these people that get their primary information from MSM sources alone, and that now understand it's bad but "we'll sell 'er when she turns around, it's always does". Yes, but not this spring, not next, and not the one after that, or even probably the one after that. And by the way, your cost of living will have skyrocketed 70% by that time.

It's so easy to forget that even now the masses have no idea what's going on, or what's coming.

And agreed, it will be amazing to see the spring both the spring inventory increase and the REIC's attempt to cover and spin it.

I'd like to be the first to congratulate President McCain.

I have a very racist friend back in CA....

I called him up and told him that the reddest-state in the union went 75% to 25% for Obama.

He then told me he just got back from the polls and he voted for Obama. Racist guys have voted in great majority for a NIGG..er rather than HillBilly.

I’d like to be the first to congratulate President McCain.

The McCain-Huckabee combination will be unstoppable.

So between McCain and Mrs. Bill Clinton who would bankrupt the country fastest with further deficit spending?

McCain with the disastrous 100 year Iraqcupation boondoggle or Mrs Bill Clinton with healthcare free for all plus nationalization of all mortgages. If Billary didnt want to bail out the mortgage industry I would have more respect for her.

Take this, Bay Area:

http://infotech.indiatimes.com/articleshow/2759230.cms

Cisco to up India headcount to 360,000

[ TUESDAY, FEBRUARY 05, 2008 06:15:20 PM]

MUMBAI: To increase its talent pool in India, IT networking major Cisco System India Pvt Ltd has decided to increase its headcount six fold to nearly 360,000 in the next five years.

The IT giant has announced a series of initiatives to nurture networking professionals, which would translate to an addition of nearly 360,000 engineers within the next five years.

....