patrick.net

Seattledude
I do believe things will turn around. I certainly hope it will not be like this forever. I hope the fall doesn't hurt too many people and I hope the Fed is able to cushion the landing, though I don't believe they will prevent some kind of fall/correction. When that happens, I plan to buy. Heck, maybe I'll buy one for my son,too, if I can afford it. We'll see. LA wasn't always like this...but it is the town he grew up in and he loves it here. This bubble too shall pass!(kind of like a kidney stone!)

The Fed created a semi-secret fallback bank for the financial collapse.

In case of a T-note crisis …

By Eric Dash
March 2, 2006
A BANK created to provide emergency back-up for the US Treasury market will be ready to operate in the next 18 months, a bond industry group is set to announce today.

The so-called NewBank exists largely on paper, but like a superhero on standby, it can spring into action to stabilise the government securities market if a legal or financial disaster strikes.

The bank is a result of a five-year effort by government and banking officials to draw up plans in the unlikely event that either JP Morgan Chase or the Bank of New York, the only existing clearing banks in the Treasury market, are suddenly unable to operate.

The two banks play an obscure but crucial role in the government securities market, processing more than $US1.9 trillion ($2.6 trillion) of very short-term trades each day between investors who want small but safe returns and dealers who want to finance securities positions. The industry's dependence on just two big institutions has long concerned the Federal Reserve.

"All of a sudden half of the securities would not be able to clear their overnight positions," said Donald Layton, the former vice-chairman of JP Morgan Chase, who will lead the NewBank effort.

2004 Bank does a $1mm loan and makes a $10K fee then makes another $10K selling the loan in to a MBS Pool
2008: The Borrower defaults on the loan but only the high risk bond buyers take a hit, the bank does not lose a penny.

@FormerAptBroker,

You're absolutely right and I should have mentioned this --especially since it's one of my favorite themes ("socialize risk, privatize profits"). I guess the banks really did learn something since last time!

Linda said
It’s funny how we can get used to the over-inflated prices. At this point $700,000 seems CHEAP for a 2bd-1.5.ba SFD around here. Back in the late 80s I remember complaining that a quarter of a million $ buys a crackerbox in the Hollywood Hills.

In many countries, inflation does that to people. Here for housing, I am not worrying about the "permanently eleveted plateau" for no reason.

I don't care what the nominal price is for a house I want. I am simply worried about the price to income ratio not coming down.

DinOR Said :

PS,
What can I say? You are on an absolute roll today! Keep the momentum, I like where you’re going!

I hope he keeps drinking rum and pinapple every night.

SF
Wouldn't it be nice if awareness was being raised? I actually believe that most people that come to this site are already bubble-heads and ,like myself, are educating themselves about the facts and fundamentals. If this site had the power to blast it...then let's blast on! Get this boat turned around! To be honest, the real bubble blasting machine has to be the media. We have to reach the mass sheeple so they'll stop buying at rediculous prices!

BA
I believe the price/income will correct itsself. There are too many factors pressuring the numbers. I don't believe they will stay disconnected. The market has stalled because most people can no longer afford to jump in without great risk to their financial selves!

What do you think,SF Woman?

Linda said :

I believe the price/income will correct itsself.

I hope you (and we all) are right. I just wish Bay Area was at the one of the first to crash - like Phoenix for example.

From pure statistical point of view, Bay Area is not in as much trouble yet as are other parts of the country. USA Today has an article in print and on their website about delinquent home loans. The list for all states can be found at

www.usatoday.com/money/economy/housing/2006-03-16-delinquentchart.htm

The problem is CA. It's the LAST - meaning having the LEAST % of deliquent homes. I am still trying to understand why. I posted the link on Ben's blog as well.

My frustration is that the BIG catalyst is still not surfacing. The inventory is not exploding (although it is increasing) and interest rates are also slowly inching up. We need panic. Panic to set in sellers' and buyers' mind. Some big news in SJMN is really needed - or something similar. Else the stand off will continue for much longer.

I'm hoping we're in the calm before the storm. But, yes, I agree with you SF Woman...once the psychology of the people change, once panic sets in, chang will be a comin'.This blog is definately educating people(me included) as to some of the facts and figures behind the bear ideas. Also, the collection of links and articles certainly add up. I honestly believe that after the Fed meets on the 28th, and raises rates again, the fall will start like going over the waterfall. Perhaps I'm just an optimist.

SF,
Down here there was something similar a few weeks ago. I can't remember which builder it was, but they offered $100,000 off for one weekend only. Upon further investigation, the houses in question were in the upper 2mil range...so really the hundred grand wasn't that much off.

Good...now time for LA. The reators here like to say how LA creates it's own economy from the movie biz and therefore won't fall. Oops...that was two threads ago! There is that LA funny money...But, I've seen it fall.

Ha Ha Says:

Extreme: Movin’ Out

Extreme Networks Inc. (Nasdaq: EXTR - message board) could be on the hunt for a new headquarters soon, as it’s putting its Silicon Valley home up for sale.

Maybe this is the high-tech shot heard 'round the Valley...

An old hooker and a young hooker are walking down the street. The young hooker, curious about what happens if they get arrested, asks "Hey, have you ever been picked up by the fuzz?" The old hooker replies, "No, but I've been thrown by the tits."

In a profound way, the above joke illustrates the "socialize risk, privatize profits" principle as related to GSE's and bundled mortgage backed securities, however there is not sufficient space here to explain.

Amazing. Clearly they are selling the flexibility of the financing as the primary solution to affordability of their housing product. It almost makes purchasing a car seem honest and straight forward.

The effective annual rate (EAR), which is what the debtor actually cares about, ends up being much higher than all those APR numbers that are thrown around, especially given the complexity of bundling loans together. If I understand the financial engineering correctly, what the lenders are doing is effectively taking away the optionality from the buyer by shortening the duration of the "loan product". Therefore, these buyers won't benefit even if they hold their homes long-term; in fact they are financially incentivized to turn them over fairly quickly.

Would a $600,000 condo really rent for $2921? That seems to be an exaggerated figure to begin with. I am presently a renter and I wouldn't rent any condo for $3000...but then I like land around me and a workshop in the backyard.

Idea for a new thread...How can we help instill the necessary panic to turn this ship around? Is there anything we can do to push it along? I like the idea of the deserted open houses. DON"T GO TO OPEN HOUSES The realt-whores interpret visits as activity. The market should be DEAD at these prices. Spreading true stories of price drops at dinner parties.(Won't WE be popular) Ther is enough real data out there...no need to make things up. We, as a group should plant the seeds. Save these potential homedebtors from themselves and their predatory mortgage brokers! Get the newspaper involved...and the nightly news. Any ideas?

I slept in and its a beautiful day here in LA LA Land. I guess its the weather that makes $925 sound f@cking reasonable for a 2 bdrm $hitbox in my neighborhood.I'm dreaming of a virtual army of bloggers going out into the world...recruiting. Don't add to the insanity! Revolt! Don't you want your kids to someday be able to buy in this town?? If you buy now you will be helping to prop up thes artificially inflated prices! Wouldn't you rather wait for the half price sale in just a few years???? Don't be part of the huge bra for the huge unwieldy breasts. Set the girls free! Let them fly! Lay down your burdons and RENT! LOL

make that $925K

SF Woman
I agree...absolutely...the bubble seems to be based on emotions. It sure isn't based on logic! So logic isn't the best tool. But, perhaps emotional logic, as you suggested.

‘Real estate goes up? Houses in Sacramento are selling for $90,000 less than they were a week ago! You don’t want to be caught in that, do you?

That's great! And what George is saying about prices in Fla. People don't seem to be interested in the dry facts...so we just tell the juicy ones. The gossipy facts.I hate to admit it but most of the women I know would rather talk about someone elses misfortune than monetary ideas. You know, the moms at the school? Actually, they have quite a network!
It's our civic duty!

LOL

People talk about the "Google effect" on bay area RE; how 'bout the "Cisco effect"

mercurynews.com/mld/mercurynews/news/breaking_news/14116735.htm

"Morales's bail was waived. She has signed a promissory note to repay Cisco and has handed over the deeds to her home and other investment properties to the company, Reader said."

Figures she's from The Hose...we'll do anything to make a buck here.

SF--How about putting flyers in those little boxes beneath 'for sale' signs? Would that be illegal? We make up our own flyers that say something like....'Now is the WORST' time to buy real estate! Don't be the last to buy in this pyramid scheme!Go to Patrick.net to find out what's really going on! etc. etc.'
Our target market are those potential buyers.
The Oil Bourse will certainly contribute...but as said earlier....Often, the bubble can last until even the bubble believers start to doubt...

SQT-You are right...there needs to be a glut of inventory. Down here in LA there ISN'T. There are slim pickins out there, and what is there is way overpriced. But, if anything reasonably priced comes on the market, it is still scooped up with multiple offers!Therefore, prices are still flat today.Zillow shows some houses up in value and others down...all in the same neighborhoods.

Linda LaLa:
"SF–How about putting flyers in those little boxes beneath ‘for sale’ signs?"

I thought about printing a bunch of these data plots & doing just that in the specific complex for which the data applies:
photos1.blogger.com/blogger/2676/1886/1600/comm_hill_2br.1.jpg

Of course, some might think $450-$500/ft^2 would be a bargain....

I think the media allow the real estate industry to rationalize and explain away dips and stalled markets and climbing inventory.

The other thing is that media interests make a fortune out of real estate advertising in their various publications, so they have a conflict of interesting in doing serious negative or balanced reporting on the issue. Even rupert murdoch's news corp empire owns all these tiny little regional rags which are half full of real estate ads, which are a huge cash cow... cow - milk - breasts - breast implants - whew, made it! and i wasn't gonna say anything in this thread, heh...

Get under the knife, be a virgin again!

hmm, straight to the swimsuit calendar link for me...
http://in.mobile.indiatimes.com/mobile/exclusive/Indiatimes_Calender_2006/Index.html

more of a cultural indian desire...

i'm still researching the photo gallery to prove my thesis for my PhD:
http://photogallery.indiatimes.com/calshow/1395747.cms

I'd like to add: 'guru/spruiker' to the glossary, as an entry for all those 'get rich quick' courses for $5,000 that got speculators/investors all worked up, based on flimsy advice and techniques that don't work - and probably creating a bidding war amongst naive investors and owner-occupiers that contributed to the bubble...

like all these names on john reed's site:
www.johntreed.com/reedgururating.html

people like robert g. allen stand out...

there are similar guys in oz, one went bankrupt after getting poor people to get loans for $16,000 to pay for his courses and subsequently get rich, who couldn't put the advice into practice and nor could pay the loans back...

can't think of a funny entry tho...

sod, it never works... case-sensitive...

http://www.johntreed.com/Reedgururating.html

http://www.johntreed.com/Colemanemail.html

Email from Janice Coleman

As an alumna of Robert Allen's "Creating Wealth" seminar, I felt moved to write to thank you for taking the time to provide a much needed service to the public.

By the time I took this course, a Neuro-Linguistic Programming expert had added his techniques to the seminar, resulting in a "total immersion" weekend of information and emotional bonding/sharing underscored by NO outside contact, rock music blasting from a state-of-the-art sound system (complete with smoke machine) and a grand finale-- ritual "breaking through" a piece of plywood with our bare hands, to symbolize emerging through our blockages to wealth. I couldn't afford to stay in the hotel each evening, so I commuted back and forth from the L.A. the entire weekend. I remember feeling SO elated on the drive home each evening, that it felt like I was in some kind of ecstatic trance: the car seemed to float along the freeway and I would arrive home too excited to sleep.

Motivational speakers enthusiastically inflated one's self-esteem, from early morning to very late at night and (almost incidentally), Robert Allen was present at the first and last sessions, talking about his wife and kids, his philosophy on finding one's "life purpose" etc.; like a kindly paterfamilias who genuinely wanted to help each participant to succeed in life in general, and real estate in particular.

The main idea was, "if you can get 'real' [i.e. confront some of the painful/traumatic beliefs about yourself that are keeping you from being successful], you can get your 'estate'. (Perfect market timing: here was a newly created niche of former aerospace workers [most at or near midcareer], with wounded self-esteem, LOTS of time on our hands, very little investment knowledge, but with large lump sums of buy-out cash on hand!) The worst memory I have, after a few days of role plays and confessions to total strangers some of my most painful childhood memories and disappointments, was the final evening. After days of speeches, applause, dancing, laughter, exhilaration and hugs, we were now (several hundred people of every imaginable description) seated on the floor in a HUGE circle, the room now dark, (except for several dozen flickering votive candles that seemingly appeared out of nowhere), as the soothing sound of birds chirping and water trickling softly came through the speakers. The NLP expert used a low, hypnotic tone of voice to "take us back to a time when we first felt loved", and asked us to write about the experience. Even now, I remember the astonishing, overwhelming feeling of love that enveloped that room; so much so that I (and many others present) began to weep! Then, suddenly, the room lights came on, the candles were extinguished and we were handed a questionnaire to complete and guided out of the room, past tables displaying tapes and books for sale, strategically placed near the exit. I felt so utterly duped and devastated at that moment. I filled both sides of the questionnaire with my feelings of "psychological rape", which took me years to heal from!

What we basically got was a very expensive "encounter seminar" weekend at a Disneyland hotel. No one from my group made any money from any deals, that I'm aware of, other than one guy who bought a building in the San Fernando Valley that was later damaged in the earthquake. (He managed to qualify for some type of government funding to demolish and rebuild, the last I heard.)

The only thing this weekend taught me was to be VERY wary of anything remotely resembling NLP or any other encounter group, and ESPECIALLY to be wary of any real estate seminars thus disguised!!

Thank you for allowing me to get this off my chest.

jancoleman@lycos.com

Great article from John Mauldin about housing's impact on the economy:
http://www.investorsinsight.com/thoughts_va_print.aspx?EditionID=294

HARM: Thanks for this thread. Simply brilliant.

Girgl: Np, glad you enjoyed it!

@mark ohazo,

Huh?