patrick.net

FAB,

Believe it or not, I agree with you completely. I do admire the permanent welfare mother niche. These women have more spending money, free time and security than a good chunk of the middle class. And they can actually afford to have kids...I don't think I can afford to have kids.

"correction will take until some time around 2167" LOL!

I've heard those arguments too! Still I wouldn't be so quick to dismiss it as a factor. It's hardly just SAC. Elk Grove, Modesto, Tahoe etc. From an anecdotal standpoint, and I can't say as I don't live there, how many times have you overheard people boasting about their "investment properties"? A few may have been talking about Aruba but look at what an impact it's become for L.A where PHX and LV are concerned?

All that excess Cali equity had to go somewhere and everyone I know considers themselves a RE investor. I just wanted to point out that the 40% of sales in 2005 that were "2nd homes" will have to have implications for major metro areas. I imagine most folks SFWoman knows own RE elsewhere in CA or beyond. Some will be able to weather it better than others.

skibum,

I would agree with you, except it wouldn't be fair for the Iraqis, whom we're still nominally there to help.

Okay, so Oil hits a record price today on low inventory. Add to that Gold has been hovering above $700/oz, and the dollar is at near-record lows against the Euro and Yen. Who else thinks a Fed rate cut, although likely a given, will look silly. In my book, it would erase any remaining credibility they have on the inflation fighting front.

DinOR

Still, you're talking about a small percentage of BA denizens. I'd be really surprised if even 5% of the total home-owning BA population has a second investment property. Especially if you exclude legacy properties -- extra homes people have picked up through inheritance.

FAB,

I woulda thought you'd be in Frankfurt checking out the autoshow there!

Randy H,

Oh agreed and in ways I was being a little snide. With ALL of the focus on SAC, PHX, LV (or Bend for that matter) I just thought it might be an appropriate point to give the 'Primary MEW Generators' equal time.

If you were forced to sell your BA home b/c of a failed specuvestment you couldn't afford to live here to begin with!

"Who else thinks a Fed rate cut, although likely a given, will look silly."

On that topic;

(and I know I should know this by now)

I'm I correct in assuming that a fed rate cut will devalue the dollar against other currencies?

And additionally add fuel to the inflation fire that's eating up my paycheck?

AND...not help FBs at all?

If these of those assumptions are correct, why again is Cramer (and his buddies) screaming for a rate cut ?

(and I know I should know this by now)

# skibum Says:
if you have a kid and the kid and the mom go on welfare, you get shipped off to Iraq.

Aren't we having enough trouble there already, even without giving guns to a bunch of shiftless, irresponsible deadbeats? I would vote for a local gulag instead, where they can coat children's toys with lead paint, so we can compete with China more effectively.

SP

FAB and Astrid:

I see that the "welfare queen" myth is alive and well.

FAB says: I sometimes feel like I’m the only one in America that does not like to see $100mm programs that allow pregnant Welfare Moms to sit around smoking pot in the Housing Projects “AND” $100mm no bid contracts for contractors in Iraq.

First of all, the bipartisan welfare reform bill eliminated welfare as a lifestyle choice. What remains is a strict program with a 5 year cap, which rewards work. It would be nice if the same sort of consensus could be reached on military contractors, but so far it hasn't happened.

Would you really want to eliminate ALL welfare? A pure free market capitalist system with no social insurance has other costs which you may not be considering.

FAB says:

I dream of a day when the politicians pay for the “poor single mother problem” by forcing the “irresponsible baby daddies” to pay for their kids rather than just letting them hang out on corners doing nothing all day while the rest of us work paying for all their kids…

That day is here. The "baby-daddies" are required by law to pay child support. If they are earning a paycheck and don't pay, their wages are garnished. Child support obligations are nondischargeable in bankruptcy. However, if the "baby daddy" is unemployed, or in jail, or participating in the "underground economy" it is hard to collect from them.

Your family has apparently done quite well for themselves. The military industrial complex and the "prison industrial complex" (2 million in jail and counting) are there (at great expense) to protect you and your property rights from kidnappers, vandals and invading armies. The welfare system is in place (at a much lesser cost) as part of the cost of keeping the peace.

Don't begrudge the few crumbs that are thrown in the direction of the needy. Remember what happened to Marie Antoinette.

FYI... a couple of threads back Glen did a "Buffet stress test" of WaMu's loan portfolio versus earnings. A couple days ago WaMu announced an increase of $500 million for their loan loss reserves, bringing the total to around $2+ billion, which was the number used by Glen in his calcs. To review if 10% default and the defaults result in a 30% loss, then the net is a loss of around $7.9B ($263B x .10 x .30). Subtracting annual earnings of around $3.2B and loan loss provisions of $2B, they are still left with a loss of $2.7B, not covered by loan loss reserves.

I did a similar calculation for Wells Fargo. According to their second quarter report they hold $342.8B of loans and $34.6B of loans for sale, or around $387B total. If 10% default and the defaults result in a 30% loss, then the net is a loss of around $11.6B ($387B x .10 x .30). Subtracting annual earnings of around $8.7B and loan loss provisions of $4B, they come out about even.... hmmmm....

Glen,

The problem is that throwing the crumbs leads to more crumb eaters. I also know of people who work two full time jobs to support their families, they certainly seem more deserving of more free time/more spending money than people who live largely off of taxpayer largess.

Then again, I also think poor people shouldn't procreate (and neither should stupid rich people), so I'm probably just a fringe wacko.

I LOVE lead paint! LOL!

Yes, we would be much more competitive! I also visualize "Meth Camps" in the desert where abandoned aircraft hangars provide "shelter". Weekly air drops of meth and twinkies are provided along with just enough water to make sure tweakers can't pack it out.

No more identity theft and car break-ins! :)

Most “Conservatives” only get mad about the waste of money on “Social Programs” while most “Liberals” only get mad about the waste of money by “Big Government Contractors”…

I am not a fan of corporate welfare either. We should let the market sort things out.

However, social welfare is a bit worse than corporate welfare. One can at least choose to become a shareholder of Haliburton. :)

Without Ron Paul, there is no hope.

There is no hope.

I love Ron Paul. :(

mickrussom,

Your statement, in addition to being incredibly speculative and unargued, also overlooks a most important information point -- I'm completely in favor of speaking Mandarin. In fact, once you grasp tonality, spoken Mandarin is very easy, much easier than a crazy language like English.

HARM stated "You might get lucky and find that rare, equity-rich long-time owner who hasn’t HELOC’d the place to death and doesn’t mind selling 30-50% below comps, but… I wouldn’t bet on it."

If you take the peak as Summer of '06, use the historic rate of appreciation for the Bay Area (5% as opposed to the national average of 2.3%) and perform regression to the mean using the last year prices made any sense (housing costs as 30% of gross income) of 1998 you get:
Summer 2007 = 35% down from peak
Summer 2008 = 32% down from peak
Summer 2009 = 29% down from peak
Summer 2010 = 25%
Summer 2011 =21%
Summer 2012 = 17%

Frankly, over time it just gets easier to accept the off-peak price as the underlying real appreciation knocks down the percentage decrease.

I agree that 2011 and 2012 are far more likely the time at which the market will be fully regressed to the mean given no new external factors.

A recession, large job-loss, a currency debacle (China unloads its dollars) would accelerate the regression-to-mean and would even likely lead to an overcorrection.

I think the idea of a 50% shave must represent the rare property that was even more disconneted from fundamentals.

By the way - I can only assume the 5% historic appreciation for the Bay Area must represent the fact that wage growth is completely allocated to housing.

That day is here. The “baby-daddies” are required by law to pay child support. If they are earning a paycheck and don’t pay, their wages are garnished. Child support obligations are nondischargeable in bankruptcy. However, if the “baby daddy” is unemployed, or in jail, or participating in the “underground economy” it is hard to collect from them.

Glen,

I agree the "welfare mother" hand-wringing is somewhat overblown. However, having lived in an (shall we say) "ethnically diverse", region of east L.A. County for many years, the idea that Clinton's welfare reform completely eliminated abuse/free-ridership is naive at best.

At my old supermarket in Alhambra, I personally witnessed various well dressed asian customers driving up in a brand new Mercedes/Lexus/BMW, load up the cart with expensive meats, fish, etc., then pull out a wad of food stamps at the register. Ditto for obvious "undocumented" non-taxpaying Hispanic "guest workers". And yet when I was out of work during the early '90s recession and had run out of unemployment benefits, I was turned down for welfare on the basis of the remaining $50 I had in my checking account. Go figure...

astrid Says:
I’m completely in favor of speaking Mandarin. In fact, once you grasp tonality, spoken Mandarin is very easy, much easier than a crazy language like English.

Is this from the "if it is inevitable, lie back and enjoy it" school of thinking? I thought mick was complaining about being enslaved to overlords and such colorful concepts, not about those who enthusiastically learn a new language out of choice, to expand their own mind and such.

SP

This is another little information point re: PRC's USD policy. Individuals are only allowed to exchange $10,000 USD to RMB per day. There is no limit in the other direction.

The Chinese don't fight very well, as evidenced by countless invasions in the past. Making money seems to be their forte. Just go sharpen your knives. Everything is going to be alright.

SP said:
In other words, no Jumbos for the Dumbos.
I had been saving this for a thread on Jumbo loans, but now seems to be the appropriate time.

Another thing RE: child support is, in California these laws are all but unenforceable. Each of the counties here (and in many cases, the cities) has its own child support/'deadbeat dad' database, and none of them can communicate with one another, or track an offender beyond city/county borders. They've been trying to create a statewide database that can connect and/or replace the crazy-quilt patchwork of local systems, but so far it has been a dismal failure and bottomless taxpayer money-pit.

Read about it here: http://www.signonsandiego.com/uniontrib/20070328/news_1n28computer.html

Oh my. This is priceless. Simple, straight and spin-less. From a Realtor.

I couldn’t figure out which parts to make bold :-)

All real estate is over-priced. It's just that some are less overpriced than others; this is just another form of spin that realtors use.

If everyone decided to sell their car for $100K and I put mine up for $80k, my car would be less over-priced (or even considered a good deal relative to others), but it would still be over-priced. I could slash $30k off of it making it an even better deal (relative to what I was originally asking), but at $50k it would still be over-priced, but some sheep may still bite.

The sheep mentality is that if it's cheaper than others, it's a good deal and these are the type that realtors are targeting; knife-catchers!

SP,

I know. But I thought Mick's Ron Paul = Libertarian Messiah belief (because I don't really see a coherent argument behind that statement) deserved my out-of-the-left field response.

skibum said:
if you predict a “Black Swan” moment, it’s not really by definition a Black Swan

It could still be a Black Swan for those who missed, ignored or didn't understand the prediction. When those people constitute the majority, then it's effect is asymptotic to a real black-swan event, n'est ce pas?

For example, we 'predicted' the bubble would pop, and several folks (including myself) posted here that the inevitable end to Jumbos For Dumbos (tm) would precipitate a sharp deterioration in the bay area. However, the majority of Bay Areans were (and still are) unaware and unprepared. For them, the impact is just as if none of us predicted anything.

Another example is 9/11. There were predictions, warnings and clues. We didn't "get" it, and ended up with the swan.

SP

The "high-tech" capital of the U.S. (and arguably the world) cannot even create a statewide database after 10 years and nearly $2 billion in sunk costs. Pathetic...

Looks like I grossly abused the image tag above (or maybe we can't link in images). At any rate, here is a good graphic for a Jumbo(dumbo) loan thread -- maybe after the August apocalypse.
http://www.amazon.com/Goodbye-Jumbo-World-Party/dp/B00004YS2O

GC,

While the Chinese are historically quite defensive, especially after the An Rushan crisis in middle Tang, they do have a long track record as long distance overlords.

I’d happily move back to Redwood City (or rather maybe Emerald Hills)

Maybe Emerald Hills - but RWC itself?

Most of the housing stock I've seen there has been pretty awful. Like wtf is up with this?

http://www.burbed.com/2007/08/28/this-is-not-a-motel-really/

A lot of the neighborhoods have very strange rental properties. And the streets are choked with parked cars.

Blah.

I’m I correct in assuming that a fed rate cut will devalue the dollar against other currencies?

Basically, yes, but indirectly. The likely scenario is a Fed rate cut will signal to foreign investors looming inflation. They will move their savings out of US dollars.

And additionally add fuel to the inflation fire that’s eating up my paycheck?

See above.

AND…not help FBs at all?

That's the best irony of all.

If these of those assumptions are correct, why again is Cramer (and his buddies) screaming for a rate cut ?

Cramer and his ilk don't care about long-term economic growth. Heck, they don't even care if hyperinflation or stagflation looms, as long as they can foresee it and respond appropriately. They mostly care about being able to continue the free credit party that fuels all the M+A/private equity/HF action, which drives up equity markets, which means more $ for them to pocket. That is why a Fed rate cut in today's marcroeconomic environment amounts blatantly to a Wall Street bailout, IMO.

SP,

Not bad. But, too many notes.

HARM,

The problems you alluded to suggest that there is fraud and waste in the current system. I don't know what kinds of checks are in place, but it certainly seems like the system could be tightened up. But the vast majority of welfare recipients obtain their benefits honestly--they really are broke and they really don't drive BMWs.

Some level of fraud and waste is probably inevitable in any government run program. The more fundamental quesiton is whether you believe any programs should exist. Or should the fraudulent acts of some justify the elimination of benefits for many more?

A few months ago a family of four with two young kids came to my place of employment (law firm) asking if we knew of any public assistance programs that could help them. They had just been evicted from their apartment because they couldn't keep up with their rent and they had been wandering the streets all morning. They had no famly in the area and no place to stay for the night. I guess I can understand if you think the parents were lazy or "shiftless." They must have known that they were about to be evicted and if they were in the least bit resourceful, they probably could have lined up something in advance. But the problem is that not everyone is quite so organized. The kids looked hot, tired and scared and I felt bad for them.

It is fine to talk about eliminating welfare programs in the abstract, but you have to be a cold SOB to put kids out in the street. I don't mind paying a few tax dollars to provide a modest social safety net. Frankly, I think it is a better use of my money (and yours) than yet another upscale sushi dinner.

As a fairly high income renter who gets nailed on taxes every year, I have a much bigger beef with the mortgage interest deduction. Not to mention charitable deductions which allow the rich to take write-offs for donating to well-endowed private colleges or opera houses. Maybe if you only allowed charitable deductions for true charitable causes (shelters, social services, etc.) then less tax money would need to be used for these purposes.

Duke,

There may have been a time when the BA appreciated at 5% but that would not describe the last 10 years. In some cases homes have tripled in value during this time frame. Ken Heebner (CGM Realty Focus Fund) says he won't be surprised by a 50% correction on the coasts. Now granted he felt that may come in a number of ways, incentives (free pools, landscaping, flatscreen TV's) and much of it will come from price reductions. (So far he's been spot on).

DinOR and Randy,

I had asked about this specifically at least a couple of times. There doesn't seem to be any reliable statistics collected on this. Anecdotally, I know quite a few people who have "liberated" their equity to "invest" in other "upcoming" areas. This not only includes Sacramento region but also San Diego, Phoenix, Las Vegas and of course Central Valley.

It will be interesting to see how the complete bust in those markets affect RE here.

Some level of fraud and waste is probably inevitable in any government run program.

So a smaller government will have less fraud and waste.

It is fine to talk about eliminating welfare programs in the abstract, but you have to be a cold SOB to put kids out in the street.

With a reasonable welfare system, there will not be that many poor kids.

I oppose any means-based welfare system. Why should welfare recipients get more money with more kids? They should be taxed for each kid they cannot afford to raise on their own dime!

I don’t mind paying a few tax dollars to provide a modest social safety net.

I agree. There must be a system for people to get back on their feet.

Glen,

Right on, my man. Right on. I didn't know how litttle most people make untile very recently. And the bastards making 4-10X of that income are crying aloud for not being compenstated enough. Freaking assholes. On my graduate student stipend, I used to donate to local theatres and (once) to an environmental cause.

Univeral health care.

So a smaller government will have less fraud and waste.

I would suspect that a few African governments would disprove that theory.

Glen,

The arts receive next to no funding in the US outside of DC museums. Without write offs to arts institutions many, if not most, would cease to exist.

Admittedly people use their donations to the opera/symphony/museums to social climb or get better seats, but the ticket prices only cover a portion of the cost of each visitor. The large cash donations cover that gap. Most museums also include education as a major part of their mission- they aren't just repositories of art or science artifacts. I guess it depends on if you value having cultural institutions. I do, I contribute to them, and I consider them to be a vital and important part of life.

StuckinBA,

I don't have any hard data either other than the USAToday article that showed in a typical year sales of 2nd homes hovers between 3 and 5%. They went on to say that 2005 estimates are as high as 40%! (Even NAR will cop to 35%). Well "somebody" had to be buying up all those homes!

Given that prices are "set at the margins" I thought Randy would be more open to the potential for damage? Many may not be forced to sell but having a default on your credit can not make it easy refinance your way out of that mess? Sorry if I ignored your topic in the past!