patrick.net

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times in 1992-1995 when credit really tightened up and non-Jumbo 30-year was looking 8%+ in BA, any LTV above and beyond 55% will not win you extra points in securing a low rate.

I initially planned 20% down, but due to my immigration status and lack of long-standing employment record in this country, I had to borrow an extra 5% from family to make the down payment. 25% seemed to be hurdle.

I wouldn't want to sink too much liquidity into a home, I'd say if I were in your shoes, I would cap it at 55%, or even put down only 25% if the marginal rate at 55% is not much better.

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times from 1992-1995 when credit really tightened up and non - Jumbo 30-year was looking 8% plus in BA, any L-T-V above and beyond 55% will not win you extra points in securing a low rate.

I initially planned 20% down, but due to my immigration status and lack of long - standing employment record in this country, I had to borrow an extra 5% from family to make the down payment. 25% seemed to be hurdle.

I wouldn’t want to sink too much liquidity into a home, I’d say if I were in your shoes, I would cap it at 55%, or even put down only 25% if the marginal rate at 55% is not much better.

Randy,

as far as the lending guidelines go, and I am quoting from my experience in the difficult times from 1992-1995 when credit really tightened up and non - Jumbo 30-year was looking 8% plus in BA, any loan to value below 55% will not win you extra points in securing a low rate.

skibum Says:
it’s looking more and more likely to me that job cutbacks are in our near future.

Anecdotally, it is already here. Sun just announced cutbacks, and I am seeing engineers leaving WebMethods (there wasn't an announcement, but they recently got acquired), and a couple of (largish) startups are shedding people, (e.g. PayByTouch). Cisco just sent a bunch of contractors packing. Two of my contacts in the tech-writer function are also out of work as of July - they were both at (different) startups.

None of these are huge yet, especially in the MSM. But for the people losing their job, it will be hard to keep feeding the alligator. Another large tech company that I cannot name is cutting about 600 people. Since they are a big Bay Area employer, I expect that will get some coverage.

SP

The thought of a billionaire losing millions of his/her hedge fund investments just tears me apart..........

Another large tech company that I cannot name is cutting about 600 people. Since they are a big Bay Area employer, I expect that will get some coverage.

Let the guessing begin!

Yahoo?
Ebay?

Not on valleywag yet :(

It's a truism that jobs and housing costs are coupled.

How's the Web 2.0 boom going out there? I know that Randy, SP, OO and a couple others are all in various aspects of tech. If Web 2.0 cools and releases its resources (especially if capital is harder to come by), isn't that going to turn quite a few coders out on the streets?

Brand

VC cycles aren't directly correlated to stock market cycles. They tend to lag by a good bit, though we'll see if VC has gotten more efficient since the last round. Actually, if a recession/slowdown is shallow enough, VC might actually increase at the lowest point in the cycle because that's a time when many of the top-tier guys will put money in to shore up winners (though they'll cut losers pretty quickly). Smart VCs know it's a good time to "upgrade" employees for a reasonable salary burden.

I wouldn't look for coders on the street anytime soon. Lucky for many in IT and software we've already been through a terrible spending drought and shrinking corporate margins should push the upgrade cycle that much harder. Much of the "technology overhang" has been worked off.

There will be a number of Web 2.0 "social networking" yip yaps out looking for work, though. And that just breaks my heart. But any decent coders will get snapped up. It's all the non-techs that will be looking for work (probably elbowing their way in the jobs queue with ex-investment bankers and out of work hedgies).

Randy: I didn't mean to imply that VC was tied to the stock market, so much as VC is tied to access to inexpensive debt. Anyway, good engineers are always in demand at all companies. But in the Bay Area, if a large enough employment shift happens among the second-tier coders ("just yesterday I was working at Starbucks!"), then that could make some things happen with foreclosures and short sales.

>> Bush against lifting Fannie, Freddie mortgage cap
Says reform of government-sponsored mortgage buyers needs to come first

Bush is right on this topic ...... Democraps favor government sponsorship of mortgage buyers. I would not vote for democraps in 2008.

PermaRenter: If MBS/CDO tranches were the only election issue, then the Dems are a slam dunk. But if they run Hillary vs. a Republican, it's going to be a battle of the brainless yet again. At that point I'll be a lot more concerned about the whole economy and our stance on Iraq.

Er, meant to say: if MBS/CDO tranches were the only election issue, then the Republicans are a slam dunk. But if the Dems run Hillary...

Brand

I think there's been a bit of the second-tier coder phenom in the past 12-18 months; especially with social-networking plays. But it's nothing like 1999 when I was running an engineering department of 45 and a consulting division of 30 with maybe only a dozen first-tier among the bunch. I was happy to get second-tier back then given people were reaching to the fourth-tier (I like to call it the recruiting outside the Methodone clinic strategy).

I'm not sure how much of a housing market effect clearing out techs will have this time. A little, but most of the second-tier guys are young renters who were priced out from the get go.

A much larger effect will be visible from the private-equity and investment-bank fallout. "theotherside", for example, won't be able to sell anymore of her overpriced Marina shitboxes to 31 year old Senior Associates with a $350K bonus burning a hole in their pocket.

Now the "experts" are calling for an emergency rate cut ......

to save the poor unsupecting arm holders form foreclosure .....

has nothing to do with their big money friends getting soaked in the market.......

yeah....whatever....

form = from (above post)

goober, those fat cat bankers deserve a little milk for helping out the poor unsuspecting ARM holders. I mean, the fat cat bankers are victims of the liquidity cruch, too. If the FED doesn't help the banks, who will help those poor saps with negative amortization loans? And let's not forget the innocent hedge funds on Wall Street who bought the exotic derivatives in good faith!

Speaking of a bailout, maybe Congress should offer a plan to pay off only the "negative equity" for FBs. That would get their homes to market value so they could be sold. Maybe a few thousand dollars of incentive to get the house sold a little bit below market.

Weird. "The Donald" interviewed on CNBC telling all of your viewers out there to not give up their house! The last thing the bank wants is another empty and decaying house on their books! Just don't move. Don't move out! Just go in to your friendly (or not so friendly banker) and negotiate a new deal. Re-negotiate and get a BETTER deal!

(Spoken like a true FB Donald)

He's also calling for an immediate ONE POINT reduction as the Fed applies a second "transfusion" in as many hours! Weird.

Dow, S+P500 down today so far, BOJ, ECB, and now the Fed injecting cash into the system, and rumors of emergency Fed rate cuts? This is truly amazing to see unfold!

Randy H,

I didn't mean to imply you were throwing your money around in a reckless fashion. I guess I'd forgotten just how expensive homes in your area can be? Mrs. DinOR plans on leaving the workforce in the next 3-5 years and we'd like to have our "upscale" condo paid off before that. Somehow saying you're going to pay off a 206k loan doesn't seem all that brazen?

skibum,

After Erin Burnett listened to "The Donald's" comments in some disbelief, Mort Zuckerman was on and basically said let the chips fall where they may. As to DT's comments I couldn't believe he was trying to spin the residential side as being unaware of the consequences of these loans?

I mean, it's 2007. Do you mean to tell me most people don't know what an ARM is? C'mon.

SEC combing Wall St books for subprime losses

It'll be interesting to see what they come up with.

it will also be interesting time to check on hiring trends in companies.

our company went from hiring frenzy to freeze to laying off some temp workers in a matter of weeks.

"This drying up of corporate credit will do wonders to M+A activity, corporate spending (capital upgrades, hiring, etc.), and Wall Street bonuses. That’s another blow to the jobs outlook. "

Honestly, I won't feel too bad if those are the only things affected. M&A destroys jobs and Wall Street Bonuses go toward the luxury goods market (not to mention the exotic vacation market, eek!). Corporate spending is something, but overall I'm pretty skeptical about the results.

I mean, it’s 2007. Do you mean to tell me most people don’t know what an ARM is? C’mon.

When I helped my mom in Ohio sell off her home over a year and a half ago she had an ARM and didn't know it. Mainly because the mortgage broker lied to her and it was marketed as a "fixed rate" adjustable product.

M&A destroys jobs and Wall Street Bonuses go toward the luxury goods market

Certainly the disciplinary effect M&A has upon corporate efficiency has resulted in the US markets being the laughing stock of the world and the least productive to be found. The fact the US export share is growing even while Europe's shrinks is clearly evidence that free market capitalism is an outright failure.

If we want to save US jobs our only hope is to emulate France and disallow any market forces which rub elite politicians and economic rent-charging unions the wrong way.

I love you astrid, but gmafb. That corpse has been rotting for a couple decades now.

Randy H,

O.K (excepting grandmothers in OH)

The rest of us don't have an excuse in the world! Sorry you're mom was a victim of an industry largely without scruples. Should we be recording the conversations we have w/ MB's? Is that what this has come down to?

anyone here about Ernst & Young's Global Real Estate report where they say the US could see house price declines for the next decade in the same manner that Japan experienced. they had someone on cnbc this morning. they also predicted a 20% price drop in manhattan over the next two years, which suggests the fortress may be in line for a similar drop.

anecdotal, house in fremont receives two as is offers at asking three months ago, three weeks into escrow bidder bails out, the other bidder goes into escrow in the meantime, then no bids, a price drop, still no bids, listing now pulled, will relist in september or rent out.

"That corpse has been rotting for a couple decades now."

I'm not a fan of unions, they institute market inefficiencies. However, plenty of M&A destroy competition rather than enhance it, and many if not most of the jobs are not unionized jobs.

And I do think that corporations should pay stiffer penalties for pitching employees, especially long time employees out. Job loss and job search is an often traumatic and degrading process, esp. to people north of 30. There should be a penalty for destabilizing people's lives if it is done so to help the CEO hit his bonus range.

"There should be a penalty for destabilizing people’s lives if it is done so to help the CEO hit his bonus range."

preach sista preach !!

RandyH said:
There will be a number of Web 2.0 “social networking” yip yaps out looking for work, though. And that just breaks my heart. But any decent coders will get snapped up. It’s all the non-techs that will be looking for work.

Good engineers who can get things done are always okay. But there is a much larger number of also-ran engineers who hang around large projects and do nothing (or worse, get in my way :-) ). Their continued employment is mostly dependent on the health of their current host employer and their political sponsor, rather than their own ability. You can pretty much lump these Powerpoint-monkeys with the non-techs w.r.t. their job prospects in a downturn.

SP

@astrid

I lived the experience of traumatic job loss when as a teenager my father was cycled out of defense, unable to find respectable work for his skills, talents and past contributions, and forced into a series of ever degrading marginal consulting gigs. He never recovered and ultimately found his savior in a bottle (and thereby sealed the dissolution of our quaint midwestern family).

I wish there were adequate opportunity for retraining and re-insertion of guys like him into the work force. I there should be now. But "punishing" companies because they don't keep around non-productive workers just turns us into France.

Sorry to be so hard on you but this whole trendy anti-corporate fad is annoying at best, and outright terrifying at worst. If you think CEOs are overpaid then you should be rallying for greater shareholder influence over board decisions and CEO pay. But usually all I hear (not from you necessarily but from many of the sites/pubs you read) is lots of slamming of the entire shareholder-model. They want "stakeholders" to replace shareholders. Yea. That'll solve the CEO pay problem. Let's further uncouple how management enriches themselves from measurable corporate performance factors. All that'll do is turn CEO's into de facto politicians with better salaries.

plenty of M&A destroy competition rather than enhance it

astrid,
I have to agree with Randy H on this. I'm ambivalent on M+A activity - on the one hand, the head honchos and paper pushers get overpaid for what they do, but on the other hand, the corporate buy, spruce up (usually by layoffs and other means) and sell does have plusses. It's sort of like the corporate version of house flippers...

Randy H,

I think what *astrid may be objecting to is the format where the "turn-around specialist" hatchet men are comp'd directly by the head-count they reduce?

"But usually all I hear (not from you necessarily but from many of the sites/pubs you read) is lots of slamming of the entire shareholder-model."

Actually, I think totally agree with you. I think that in an ideal world, employees "stakesholders" should be shareholders and better shareholder control and many more proxy fights/shareholder lawsuits (than we have now) sounds good to me.

I was speaking more from disillusion of the current system, where the reality is that M&A are done to give head honchos golden parachutes or what amounts to monopolistic behavior in the case of News Corp and Oracle acquisitions, etc.

Also, while talking about efficiency is well and good, do they have to be so cold blooded about it? Those are real jobs being taken away and possibly real lives ruined. While that doesn't justify keeping those jobs forever, it shouldn't be treated some sort of unadulterated good (just as job trimming should not be treated as an unadulterated evil, as labor activists would like to portray them).

Can someone deconstruct the concept of "injecting liquidity" for me?

The news is full stories about French, Canadian, US, Australian central banks "injecting liquidity". From what I have seen, it amounts to having a one-day "sale" on loans at a lower interest rate than the discount rate or federal funds target rate or whatever.

Do any of the experts care to correct me or further illuminate the concept?

If my explanation is essentially correct, how does "injecting liquidity" differ from "temporarily reducing interest rates, and without giving official notice".

justme Says:
Can someone deconstruct the concept of “injecting liquidity” for me?

This is the 'buyer of last resort' function, where the Fed buys instruments that no one else was willing to buy. In this particular case, I believe the Fed bought $19B worth of MBS, so that the desperate sellers could raise some cash.

SP

Re: my previous post, I was wrong. The Fed didn't actually buy the MBS, they lent enough money for the MBS holders to continue carrying them on the books for a limited time, at the end of which the MBS-holder 'repurchases' them by paying the fed back. Maybe I should let someone else explain this better. :-)
SP

justme:

As I understand it (being in the nonexpert crowd) the US Fed was doing mostly normal repo activity, which boils down to short-term loans (think 3-days). Since it unwinds after those 3-days, the problem of creating additional money is largely avoided, but it prevents players from being forced to sell off good assets instead. One analogy is the musical chairs one; the Fed won't be able to find a chair for everyone, but it can make sure things keep going enough to fill up the chairs that are there.

The main difference this time was the focus accepting MBS as collateral, and statements about the Fed "doing it's part".

SP, requiem, justme, others,
So how does this short-term injection of cash help calm markets? I would think these current bag holders realize that this is a temporary fix. How does anyone get reassured that there is another sucker, er, buyer willing to buy these securities once the "loan" comes due? Moreover, I'd think the overall psychological effect is, "hey, things must be REALLY bad if the Fed has to take a drastic measure it hasn't done since 9/11!!!

The following explanation is not perfect but should give you the basic idea of how the Fed and Central Banks influence market liquidity:

When people are short of cash they go to the bank for a loan or a withdrawal. As a result of all their customers’ transactions banks have fluctuating cash positions. They must reconcile these positions each night.

Typically some banks will have excess cash and others will be a little short. When banks are short of cash they go to other banks for a quick loan. Essentially, they can borrow amongst each other to meet their liquidity needs. These loans are very short term – typically overnight.

As supply and demand for cash fluctuates, the interest rate for overnight money will fluctuate. When demand is significantly greater than supply a credit crunch can develop. This will push rates up until the demand and supply are in balance.

The credit markets can become very volatile at times. However, the Federal Reserve makes a practice/policy of stabilizing the market by manipulating the supply and demand for funds to force the overnight interest rate to their stated Federal Funds Target Rate (currently 5.25%).

However, the market can surprise them or move quickly, and the actual rate fluctuates during the day. In the last 24 hours the Federal Funds rate briefly traded as high as 6%. The Fed intervened to drive the rate back to their 5.25% target. They did this by lending to banks. Thus, increasing the supply of money to meet the increased borrowing demand.

Very early today they dumped extra cash into the system in anticipation of the spike in demand for funds.

They are often referred to as the lender of last resort. However, the Fed is constantly active in the credit markets – all day, every day.