patrick.net

I am so angry now about the ZIRP that the FED is going to use.

We effectively were at zero interest for weeks now, the 30 year UST yield is probably lower than it ever was, Obama is planning a quadrillion dollar spending spree and the Fed reiterated it buy everything and anything.

Well if that is not paramount to having shot their load, I can't imagine what could be.

>> GOOG gives out very few options upon joining, basically you cannot become a millionaire from stock options. GOOG doesn’t pay that well either

All you have GOOG name to become GOOF Director in some junky startup ...

¡Ay, caramba! In a year when Wall Street imploded, the Big Three automakers neared collapse, and the economy plunged into its worst downturn in at least a generation, finding business and economy "leaders" who messed up badly isn't too hard. But these 10 might well be the worst of the worst.

1) Bernard Madoff. If the federal government's accusations prove correct, Madoff also belongs on a list of America's most active and energetic senior citizens. The 70-year-old money manager was arrested by the FBI for allegedly running the largest Ponzi scheme this side of Social Security, losing an estimated $50 billion in client money. Investigators say Madoff told them that his business was just "one big lie." Terrible news for numerous wealthy individuals, banks, and charitable foundations. A perfect way to cap off a perfectly terrible year on Wall Street.
2) The bailout trio. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and New York Federal Reserve President Timothy Geithner decided to let Lehman Brothers fail in September, triggering a global collapse of financial confidence, as well as wrecking the money and commercial paper markets. The move also led to massive hedge fund redemptions, which forced them to liquidate stocks. And don't forget the ever evolving $700 billion Paulson plan to bail out the banks. Buying assets one day, injecting capital the next. And the crisis rolls on ....

3) Alan Greenspan. Now when people call Greenspan "the Maestro," it's with more than a hint of sarcasm. Many economists and financial analysts give the former Federal Reserve chairman a large share of the blame for the current financial crisis by keeping interest rates too low for too long during the first part of this decade. They also say the Ayn Rand disciple shirked his responsibility to ensure the safety and soundness of the financial system by resisting calls for tighter regulation of risky bank lending.

4) Angelo Mozilo. The nattily dressed former CEO of Countrywide Financial has become the tanned face of the subprime mortgage meltdown. Mozilo built Countrywide into the nation's largest mortgage lender and enriched himself to the tune of more than $400 million in the process. But as it turns out, lots of those borrowers should have stayed renters. Not that it mattered to Countrywide, since it could sell those soon-to-be-toxic mortgages to Wall Street and beyond.

5) Robert Rubin. It has been a bad run for the heroes of the 1990s boom. Now it's Rubin's turn for criticism, thanks to the unfolding financial disaster that is Citigroup. It looks as if all the company got from Rubin for some $115 million was a strategy for taking on heaps more risk in the collapsing debt markets. The former treasury secretary probably doesn't have to worry about deciding whether to give up his fat private-sector compensation package if eventually nominated by Barack Obama to be the next Fed chair. Doesn't look as if that call will be coming.

6) Richard Fuld. Not only did CEO Fuld watch Lehman Brothers, the 158-year-old investment bank, go down the tubes, but he reportedly got punched in the face in the company gym and was viciously mocked on Saturday Night Live. Under Fuld, Lehman became the single biggest Wall Street underwriter of mortgage debt right into the teeth of the mortgage debt collapse. But in the end, there was no lifeline from Uncle Sam. That was the knockout blow and worse than a punch in the kisser.

7) Barney Frank. This is a quote, from 2003, that the Massachusetts Democrat would like to have back: "These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'' Turns out that the two government-sponsored entities were walking farther and farther out onto thin financial ice. And as late as last year, Frank wanted Fannie and Freddie to take on even more subprime risk. Washington and Wall Street have to share the blame for the financial crisis.

8) John McCain. At times during the presidential campaign, it seemed as if McCain was going out of his way to prove to voters that he really meant it when he said he didn't understand economics too well. He constantly misspoke about the details of his healthcare plan, let Barack Obama steal the tax-cut issue, and talked more passionately about earmarks than about dealing with the imploding housing market.

9) Barack Obama. If there is one piece of policy advice that economists agree on, it is this: You don't raise taxes during an economic downturn. Doing so would be right out of the Great Depression playbook. Yet even as the economy obviously weakened in the latter half of the year, Obama stuck to his campaign pledge to reverse the 2001 and 2003 tax cuts on income and capital gains for wealthier Americans. Indeed, Obama's transition website still holds out that possibility. And while there are signs that he might instead let the tax cuts expire at the end of 2010, that is not for sure yet.

10) Big Three CEOs and unions. It takes a special kind of incompetence to completely drain away the goodwill of a car-crazy nation like America. Yet polls show that most Americans don't want to bail out the automakers. As with the credit crisis, there is plenty of blame to go around, from poorly designed cars to fat union benefits and complicated work rules. Bottom line: Thousands of workers seem destined for the unemployment line.

This also marks the beginning of America's own decade-long stagnation. We have become Japan, without the cherry blossoms.

Also without the high speed trains.

Also with fat lazy people ...

http://trains4america.wordpress.com/

http://www.youtube.com/watch?v=6MbqktCxYl4&feature=related

http://www.youtube.com/watch?v=6YiUexmgTC0&feature=channel

The video of our lives-

http://www.youtube.com/watch?v=qb5Ii0iIcXo

Gaia Online, a social network/virtual world hybrid, has laid off 36 employees, or around 20% 13% of its staff. Of those laid off, 16 were full time and 20 were contractors. From what we’ve heard the layoffs were unexpected by most affected employees - the site raised $11 million in July, and has been hiring employees as recently as a month ago.

=======================

Very Hard Day at Gaiaonline.

Given the huge downturn in the economy, we found it necessary to turn to staff reductions and other operating cost cuts as we head into an uncertain 2009. While we are still anticipating a healthy upcoming year, we're going to grow less than we originally expected, and we have to adjust costs to reflect the new realities.

Above all, our priority is to continue to deliver a great experience to our users. We need to make these cuts to ensure that we can do that for the long-run.

We raised a lot of money from investors a few years back and we've been careful to save most of it - so we do not need to make as deep a headcount reduction as most other internet companies.

But we have a tight knit team of great people here so this is particularly hard. The people leaving - about 13% of our team - are smart, passionate, and committed to gaiaonline. We will miss them enormously.

If you have any friends on the staff who are leaving, please reach out to them and thank them for the amazing work they did to make gaiaonline great.

Cloud computing start-up Egnyte in Mountain View, Calif. had the fortunate timing of closing its first funding round in July after bootstrapping the company since its founding in 2006. CEO Vineet Jain was already seeing a slowdown in tech investments that had only gotten worse since the summer.

"VC firms are not giving out cash, but they're supporting current investments," Jain says. "If you're a new company looking for funding, it's going to be much more difficult."

Egnyte's lean approach -- with outsourced engineers and a six-person core employee group -- has paid off in solid prospects for the business. Other companies are turning to Egnyte's cloud computing solutions to save money.

"Tech is going to be hit hard, but 2009 could be a fairly good year for us," Jain says.

Get some really great engineers, keep the team small and get some Renaissance people who can do a little bit of marketing, a little bit of sales and a little product management," says Will Price, CEO ofWidgetbox, a San Francisco widget startup that trimmed its workforce from 30 people to 18 people, many of whom can operate in more than one capacity. Though Price says there was nothing wrong with the staff that was laid off, "The cuts roughly doubled our cash-out date, so it was a big way to extend the runway."

Yahoo's script for performing the layoff begins when the boss walks up to an employee getting the sack. And then he says, "Thank you, [FIRST NAME HERE], for coming in. I have some information regarding our organization I'd like to tell you in person." The anodyne managementspeak just gets worse from there: "I appreciate what you have done for Yahoo."

http://valleywag.com/5106184/yahoos-secret-layoff-doublespeak-revealed

damenace,

I was a bit surprised by your report on the Santa Cruz (County) market, but then I checked

http://ziprealty.typepad.com/marketconditions/san_francisco_bay_area_real_estate/index.html

and saw that November $/ft2 was down only -6% y-o-y. It appears that the stickyness is indeed stronger than what some other sources have been stating.

Hmmm.

Well, with today's rate cut announcement, is there any doubt left that The Plan is to inflate our way out of the real estate losses?

Monetary policy is all about maximizing profit and minimizing loss for banksters, all the while letting the rest of the population pay for the party.

I was against rates cuts like many here were earlier this year. However, in the case of the massive deflation we're seeing, I think it is generally good for the majority of people to cut interest rates. It doesn't JUST prop up house prices, but makes loans cheaper and lowers investment thresholds as well. It is an inflationary move, I'm not saying otherwise, but we can always 'tax and raise interest rate ourselves' out of an excessive inflationary environment. I'm optimistic about some of the things I'm seeing. I can assure you in many places around the country home prices have actually fallen below their fundamental value, in fact there are some real steals out there, and people buying right are getting a rare chance to have a cheap house price with a cheap loan.

Fed has not shot their load yet.

I am waiting for the big RAW PRINT, big one. Ben announcing to everyone that he is printing as many USD as he wants, and he is dropping them from the sky, through rebate program, employment programs, and subsidy checks with an early expiration date.

"we can always ‘tax and raise interest rate ourselves’ out of an excessive inflationary environment."

Tell that to Zimbabwae and Iceland.

There was someone here who, rightly, called for ZIRP by the end of the year. I recall arguing aginst that possibility as I felt it would be impossible to get the entire world's central banks to all competitvely devalue their respective currencies.

I stand corrected.

Scary blogs by Mankiw and Krugman. In my own, "Forrest for the trees" paradigm I keep thinking inflation is the last thing to worry about right now. We have deflation and since we are walking in the footsteps of Japan, it looks like we will have deflation or zero inflation for some time.

But.

It really looks like another world. Japan could muddle along with its export machine and currency manipulation. Not so the US. The Fed is *trying* to create inflation and the people in this economy are insiting on delfation. However, the word noes not really respoond to our people, it is going to respond to the Fed. With our large outstanding, and growing debt, we are likely in for a hecuva whipsaw event.

About the only thing I can see is that we had better start rebuilding ourselves into self sufficieny ASAP as cheap imports will soon become a thing of the past. We simply must rebuild our manufacturing base.

I'm also more than a bit skeptical about the whole "deflation:" really being the case.

While the bubble was forming, "inflation" was measured by the cooked-and-manipulated-to-the-gills CPI. No "inflation" in houses ot stock prices, no siree!

But if the house and stock prices drop, then suddenly it is "deflation".

Again CPI is trotted out as evidence, but the only deflation in CPI is because oil had its own bubble and then fell from 145 to 45 (roughly). IS there *really* any other consumer-level deflation?

Karl Denninger is on a tear this morning (nothing unusual about that) about the consequences of short-term ZIRP, long-bond ZIRP and so on:

The argument keeps being made that "we had to do this" to save the system. But what's not being talked about is what the real problem was, and who we're trying to save.

http://market-ticker.denninger.net/archives/692-The-Idiocy-of-Bernankes-Bubbles-and-CNBS.html

It seems prudent to remind everyone here on a housing blog of an old economic maxim:

"It is better to buy cheap assets with expensive money than to buy pricey assets with cheap money"

Home prices are over valued. With rates low and likely going lower going forward there is pressure to jump in. From a purely economic perspective I would urge all not to use rates as motivation.

Of course, any who can withstand the loss of principle to improve quality of life on issues like: shorter commute, better school, better access to things you like, etc then go ahead. Not all decisions in life are economic.

Speaking of schools: I think the CA schoold budget is $58b per year. I think the legislature is talking about cutting $10b. If this happens, it makes movng for the sake of 'better schools' pretty risky.

I can assure you in many places around the country home prices have actually fallen below their fundamental value, in fact there are some real steals out there, and people buying right are getting a rare chance to have a cheap house price with a cheap loan.

Does "below fundamental value" mean that one can buy a home at approximately the same cost as rent? PTTI has only a small premium over rent for an equivalent house? That one could pay $200k for a home and be able to rent that home out for $1400/mo?

Near me in Menlo Park, houses are still grossly overpriced relative to rent. My own rent remains less than 3% of the likely sale price of the house I'm in, and that's even after 10-20% decline in price lately.

There is just no way I'm going to buy when I can still rent for so much less. Even if mortgage rates were zero, property tax, maintenance, and insurance are probably 3%.

And with all the Silicon Valley layoffs, I expects rents to fall as well, making it an even worse deal to buy.

My only problem is how to protect all the cash I've saved by renting.

But it is regional for sure. Back in Michigan near my sisters, houses are insanely cheap compared to rents. I should probably buy one and rent it out for a 10% return, but I don't want to be a long-distance landlord.

And with all the Silicon Valley layoffs, I expects rents to fall as well, making it an even worse deal to buy.

Patrick, all the layoffs may finally crack the market. Fear is the key.

Protecting cash, for now, seems easy. Keep it as cash. Even in a 0% savings account, that actual cash is buying more and more house every day. I would say every other form of investment, for now, looks pretty bad.
I think Menlo Park may actually be an area in which, even after prices have bottomed, it may STILL make sense to rent. The way in which this is true is that if the home was purchased any time before prop 13, the insanely low cost basis of the house coupled with the low property tax AND the ability to pass that basis on to the next generation means that rents can be profitable at extremely low levels. If people want passive incomes more than they want a lump sum, you can effectively never get pressure to sell except at the premiums that have been pretty well estabblished in Menlo Park over the last 25 years.
So I guess the real trick to not ever think of owning there, but rather to put your cash into - dunno. Anything you value that makes sense to you fom a cost/risk/benefit analysis. Sun Bird home for your retirement years? Long Term Care insurance policy? Art?
Of course, Silicon Valley has up and moved once before. There was a defection to Arizona in the 80s that may be repeated now if CA is convinced it can solve its budget crisis on additonal taxes. This *could* lead MP home owners to realise this is the 'best time' to take their lump sum is now since price destruction would be real and huge if ALL jobs and ALL high paying salaries were sent away. But then, would YOU want to stay? Could you find work and would the art, culture, restaurant scence stay the same?

So I guess the real trick to not ever think of owning there, but rather to put your cash into - dunno.

Remember, asset prices come in cycles. Sometime down the road, it may become attractive to buy.

A mountain of cash may not help you much...

http://humorland.wordmess.net/20081025/what-the-real-crisis-is-like/

Guys, we really need to turn schadenfreude into a real game plan. We are looking at quite possibly the best trading market in a lifetime.

The argument keeps being made that “we had to do this” to save the system. But what’s not being talked about is what the real problem was, and who we’re trying to save.

No system is worth saving.

BTW, the Madoff debacle illustrates that regulation is not the answer. Scrap the SEC!

Insider trading is legal in markets like currencies and commodities and those markets look just like any other financial time series. Insider trading is harmless and it ought to be legal for every asset class.

Smoke and mirrors -- cruel hoax of a homeowner bailout called a failure

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

Hi Justme, I agree with the skewing the numbers bit. You have to bear in mind that I along with many others here during the run up were also skeptical of housing being left out of the inflation calculation. People like me are not all of a sudden picking convenient measures. (You might remember points like, "people are whining about 50 cents in gas prices but tripling of home prices is considered good news?")

I also don't hold to the notion that on their own interest rates cause or reduce inflation. In conjunction with other factors they certainly do, and not in a linear way. I also want to state another assumption before I make my observation, that list prices for things are a marketing ploy in many cases masking the true price because of things like coupons or specials. I say that because companies sometimes claim to charge premium pricing but then incentivize the sale (we saw this with the builders earlier in the decade.)

Having said all that, I would have to say that it is a dynamic economy with some segments inflating and others deflating. A plumbing repair can now cost more than a laptop. Did the WalMart model actually contain inflation, or did it just devalue everything to where low prices just matched up with the destruction of higher paying industries to where low prices actually are inflationary compared to the standard of living? And if people are going to debate inflation or deflation in a pure sense, do we use dollars or gold as the example. If we say gold, one can quickly claim that point in the 25% or so decline in gold. It buys more of just about everything, and takes fewer dollars to acquire. Hence, I think gold is still overvalued, but like I've said before could easily pop up again if governments panic people into thinking they're going to print their way out of the mess.

So what I'm saying is that I think for a majority of people, low low interest rates right now present more opportunity with little risk of run away inflation. It could happen, and if it does feel free to tell me I was wrong, because like Peter, I'm seeing tons of opportunities right now. On a macro level, the USA will also benefit by locking in some long-term debt at very attractive rates just like consumers should be doing right now. Instead of panicing, people should be looking at exploiting current conditions with a long-term game plan.

That one could pay $200k for a home and be able to rent that home out for $1400/mo?

Headset, supposedly some places back East are starting to look attractive. See this post from Laughing Millionaire Renter in Marin on Socketsite:

(BTW, paco, I was back on the East Coast for Thanksgiving and I am currently looking at real estate investment opportunities in central Long Island w/family and friends. Cash flow potential fom Section 8 rentals are getting very attractive right now out there, not yet in CA from what I can tell. We've seen properties in the $80-110K range that, with a little work less than $10K using the same Home Dumpo parking lot "subcontractors" that you do, can reliably generate $1900-2200/mo rents - the county portion, not the portion that you never collect from your "tenants" :) If we can get some scale - e.g., 5-7 properties, we are going to do it).

One definition of a bear market is the prolonged contraction of P/E ratio. Perhaps this housing downturn will push price/rent ratio lower than we thought possible.

Look for 3% fixed mortgages next year. At least I hope. :)

I heard on NPR that there was a buzz among apparently affluent people that Mr. Madoff's accounts were something to be coveted, almost like a privilege to "get in".

Then I heard on NPR that in spite of some warnings, regulators were not doing their jobs to prevent abuse. People've lost their retirements, etc. Mr. Madoff is a villan and may go to prison. It was an unethical pyramid, a Ponzi scheme.

But I cannot differentiate it from the housing bubble nor the dot.com bubble.

Karl Denninger is a nobody who likes to think that he is somebody with some ideas that can really change the world. Well, no.

I am a nobody who knows how the somebody works, and I go along. I don't pretend that I am somebody, I just observe how those somebody think and act, and I tag along, hopefully protecting myself or even profit a little as those somebody fiercely defend their vested interest.

History doesn't change for anyone, unless you are pushed to that seat. Before you become the instrument of history and get pushed into that seat, better go along with the flow (of the powerful), and hopefully as you do enough of these going along, you will become somebody one day. You don't become a somebody by fighting these somebody as a nobody. You have to join the somebody to become somebody.

Sounds like they're growing (and consuming?) more than just potatoes in that state.

EBGuy, that's what I am doing right now. It's for real, I am seeing cap rates of 20% with Section 8s. I mentioned it a while back, there are places where houses are dirt cheap.