patrick.net

@ Duke

I agree that we will see a major collapse due to housing. My only question is how long do you think it will take? I am 27 years old and have about $10,000 in savings in one of those internet banks for downpayment purposes. I am getting nervous about my money being there. I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold. I have watched the interest rate of my account drop ever since Sep18,2007. I don't want to be catching a falling knife. The industry I work in requires me to be somewhat mobil. I would like to start a family in a place I can call my own, but I can't afford any mistakes.

Please anyone, post theories or projections for the next 6-9 months. Will we see a major bank/company go bankrupt? I am eyeing CFC as the front runner to a collapse. They took 11 billion dollars out on their lines of credit!

"maybe those mean, old bakers with 40 years of lending experience did know something"

You know Ed I was just making that very point on our local PDX blog.

The example I gave was say for instance getting an SBA loan. Yeah. Balance sheets, annual reports, time cards etc. etc. Mind you THIS for a well established business on a loan of maybe... 250K! Yet we'll lend out 750K to berry pickers for a house in Gilroy, CA no questions asked!

Just think of it, had the SBA been doling out cash-ola like that!?

http://www.siliconvalley.com/thevalley/ci_7200727?nclick_check=1

A new study on the cost of living in the Bay Area and the rest of California says that a family of four in Santa Clara County and the other nine greater Bay Area counties now needs an annual income of $77,069 - nearly quadruple the federal poverty threshold of $20,444 for a family that size - to afford housing and other basic needs.

By comparison, a family of four with two working parents needs to earn $74,044 in Los Angeles County, and $70,648 in San Diego, to afford basic needs. Those estimates do not include any savings for retirement or a child's college education, nor items such as high-speed Internet or cable television.

Does anyone know what the numbers are for places outside of CA? Like NYC, DC, or BOS?

HARM Says:
I guess my expectations of the Fed have gotten so low that even a modest bad move looks like good news now.

Exactly. It is as if Bernanke is a mentally retarded child, who everyone cheers when he manages to sing Jingle Bells without screwing it up.

"Wow - 25 point cut! Gooood job! What a trooper!!"

SP

HARM Says:
I will have to email you or upload to another site.

If you upload to a public site (flickr, picasa), let us know. I would like to check out what the costume looked like...

One guy at the halloween party at work was in a Casey Serin costume - but then he always looks like that, so I am not sure if that counts :-)

SP

Beware of Big Boomer!

That's all I've got to say.

Those "in the know" know what I mean.

Don't trust 'em as far as you can throw them.

OK, you have been warned. I did my duty.

Good luck soldier!

I am thinking about putting the ARM reset chart on my front door and writing BOO! on it. Dipped my toe in GLD today before the Fed did their dirty work. Oh the humanity....

HARM :

If you can describe the costume that would be fine too. Or if you want to email me the photo - you should have my email address from the posts - that will work as well.

Thanks.

from www.jsmineset.com

"Dan Duval’s Commentary

Listed below are a few price comparisons I put together between the USA and Canada this morning on some basic consumer goods. Prices are MSRP directly from the respective US and Canadian retail sites for the given companies.

Think it is more likely to see the Canadian prices drop or the US prices go up? This may be a good barometer for the real inflation coming in the US.

Canon SD870 8.0mp Digital Camera - $168.58CAD (33.7%) Difference
-Canada Price (BestBuy.ca) $499.99CAD
-US Price (BestBuy.com) $349.99USD ($331.41CAD)

2008 Honda CBR600rr Motorcycle - $3413.13CAD (27.3%) Difference
-Canada Price (MSRP) $12,499CAD
-US Price (MSRP) $9599.99US ($9086.86CAD)

2008 Ford F150 King Ranch 4x4 - $9889.52CAD (21.3%) Difference
-Canada Price (MSRP - Discounts) $46,249CAD
-US Price (MSRP - Discounts) $38,420US ($36,359.48CAD)

Ikea Hemnes Bed Frame - $83.68CAD (26%) Difference
-Canada Price (Ikea.ca) $319.99CAD
-US Price (Ikea.com) $249.99USD ($236.31CAD)"

Back on topic-

I think the only pay these snake oil salesmen should get is the snake oil! Tan Man, your stock options vest into sub prime CDOs - enjoy! Same with with the Merril situation and so on.

I just looked at the back of a book of Neruda poetry I just got from Amazon. The prices are:

$24.95 American
$36.95 Canadian

What year's foreign exchange are these book publishers using? The book is a new edition, so it was quite recently printed, and the prices on the back are on a sticker anyway. You'd think the Canadians would request that publishers more accurately price the books.

Response to "thenuttyneutron":

"I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold."

Highly unlikely that Emigrant Bank will fold. Very stable bank, been around for over 100 years in New York City.

"I have watched the interest rate of my account drop ever since Sep18,2007."

Just about every financial institution has cut their savings rates in the past month. Any time the Federal Funds Rate is cut, virtually all financial institutions follow suit.

"Will we see a major bank/company go bankrupt?"

It has already happened. Netbank.com went belly up in September and their deposits were taken over by ING Direct.

SFWoman Says:

> How’s the housing market up in the Pacific Northwest
> area? Has Bend turned yet?

Then DinOR Says:

> Bend is (according to a local MB) a disaster area! However
> he feels the impact to the community will be minimal. For
> the most part the growing, out of control inventory was to a
> large extent, simply REIC players flipping homes, lots etc.
> to one another. That’s a relief!

When I was up in Bend last summer fly fishing I saw a lot of locals with fancy cars, trucks, boats and fishing gear. One guy bragged that he only working three days a week and fishing and hunting the other four days. The fancy new $60K trucks parked on the banks of the Deschutes and John Day rivers made my little 2004 Range Rover look like a little dull toy (since it was the only truck without big rims, a lift kit and diamond plate). When the flippers and developers stop paying big bucks to all the contractors it is going to be a big shock to the greater Bend/Central OR economy (I predict that things in Bend will get worse than they get here in the Bay Area)…

nuttneutron:

Please be patient!

I was your age with similar motivations when I "stretched" to buy my starter home / sh*tbox in 1989, it was a collossal mistake that framed all sorts of choices for a long time afterwards. It's one thing to be house poor. It was a good five years or so (or should I say a "bad five years") before my house was "liquid" enough that I wasn't a slave to it anymore. So it's one thing to be house poor for a few years after buying a home, but it's quite another thing to be house poor during a long, drawn out housing recession.

And that long, drawn out housing recession was during a time of declining interest rates, which was because of a strengthening dollar. And of course, while there were some distressed new FB's like me, we FB's from that era only stretched within the parameters of "prime" (and non-Jumbo) loans as subprime ones did not dominate then. And I don't think there even were such things as option-ARMs.

Nowadays we face a housing recession with a falling dollar, not a rising one. As the dollar collapses we'll be facing rising borrowing rates (at least for mortgages), not falling rates, tightening of lending guidelines, not loosening of them. And unlike in the early 1990's, we don't have a legion of option-ARM resets to look foward to. So this housing recession will be worse than the last one.

The good news is that the value of housing will fall faster than the value of the dollars you've squirreled away. Good thing you're saving for a house and not for food or energy.

Unless of course if you covet a home in the "fortress" so you can buy your kids' way into an elite "public" school, that's a different matter. The buyers there are mainly wealthy Asians, it (The Fortress) is a different market based on the USD purchasing power of the wealth they've got from Asia.

Note from the hinterlands. . .

My badly-rendered link from last night was a Bloomberg item reporting that Mozillo and others had succeeded in establishing and making generous use of credit lines at the Federal Home Loan Banks. Some of the discussion I saw over at CR and at Yves Smith's site indicated that FHLB was accepting collateral which would not have been suitable - or would have been rated as high-risk - at the discount window. Essentially, the Mozillos of the world have found a cheaper alternative.

I don't know enough about FHLBs to know if the Congress would be forced to cover losses if or when these loans default but, again, the online consensus seems to be that ultimately the taxpayer will get the bill. Bloggers - some of them - clearly see this as an end run and a betrayal. Malinvestment rewarded.

Another comment was that FOMC would garner all the media attention today, with the result that FHLB news would pass below the radar. Looks as if that's true so far. Anyway, we know now where the Tan Man got his new credit lines.

FAB, those 'elegant' trucks are increasingly turning up here on street corners as FSBOs. No idea what our roofing contractors will now drive 'for best.' I'm with you for what it's worth: Rover, not diamond plate, for off-road.

i've just discovered http:/.globalhousepricecrash.com, which is a good international forum site, not unlike this one... bit cumbersome being in that phpbb type format tho...

there are more british and australian posters than US at this stage on the site, so i might be hanging around there more from now on -- i think i've improved patrick.net about as much as is possible by now anyhow...

Off topic:

So far today the Fed has loaned out $41B based based on reverse purchase agreements, That's already more than the $38B amount that occurred on one of the peak RP days during the semi-panic around August 10.

Meanwhile, bank stocks are taking a pretty severe beating. e.g. IndyMac (IMB) is down 7+%.
This is probably no coincidence,

Something is telling me that the climate for funding jumbo mortgages is not going to get better in the short term.

Something occured to me about the rate cuts that I don't think I've seen posted here. It has less to do with bailing out homeowners as it does shoring up bond prices on MBS.
I've said this before but a quick refresher since not everyone knows finance. A bond is a type of cash flow, just like a mortgage. If you increase or decrease the APR/Rate of Return on either it is the same effect as increasing or decreasing principal amount since they are a multiplicative relation. When a cash flow is established, the value of the paper is actually an inverse relationship to interest rates. If interest rates go up, the face value of the bond stays the same, but the bond is worth less because it pays a lower interest rate to prevailing rates so an investor will discount it.
Now for the kicker, to cushion the fallout in the markets from declining bond values due to bad loans, it appears the government is actually trying to subsidize MBS by lowering rates. Everything else being equal, MBS values would go up by an amount equal to the effect of lowering the rate on the same cashflow to maintain the same total yield.

Conclusion, the same as has always been said here, savers are being penalized to the benefit of a very wealthy minority.

Thenuttyneutron,

I have an account at emigrantdirect as well. They had a safety rating of 3/5 at bankrate,com last time a checked a month ago. Netbank, by comparison, had the worst possible rating of 5/5 at the time it folded. I cannot vouch for the predictive power or quality of these ratings, but nevertheless I have been using them as a rough guide to safety. By the way, I never saw a bank with a "1" rating. BofA was rated 3, I believe.

Malcolm,

I think you're right about rate cuts primarily being enacted to increase the appetite for higher-yielding MBS bonds and their associated risk.

When Greenspeak spoke of diminishing risk premium, I had not imagined that the way to increase the risk premium/spread was to reduce the interest rate on the lower risk loans. Foolishly, I rather thought it would entail increasing the interest on higher risk loans. How naive of me.

thenuttyneutron,

I think other people have covered your questions well. Your bank is safe and even if not, the FDIC would make your 10k immediately available to you.

Also, people have rightly pointed out that the declining purchasing power of your money due to inflation and the falling dollar is still actually increasing relative to the declines in the housing industry.

However, recessions are funny things. Job loss can really gain momentum. One of the most important things you can do today is try to cement your job (hopefully in a field not particularly subject to a recession) or develop your netowrk of contacts so that you can keep your employment uninterupted.

As for my recomendation with regards to your housing. Wait a few more years to buy, buy within your means (according to the guidelines listed above), and make certain you job can survive the looming recession. This is prudent, if unsexy, advice. Also, do not let anyone pressure you to rush into housing. As rates rise, and they will, the price of the home must be discounted. Financially it is ALWAYS smarter to buy cheaper assets with more expensive money. Even the Volcker Fed only had 2 years of high rates, but housing deals were there for the taking for people in good cash positions.

justme Says:
November 1st, 2007 at 7:57 am
"Malcolm,
I think you’re right about rate cuts primarily being enacted to increase the appetite for higher-yielding MBS bonds and their associated risk.

When Greenspeak spoke of diminishing risk premium, I had not imagined that the way to increase the risk premium/spread was to reduce the interest rate on the lower risk loans. Foolishly, I rather thought it would entail increasing the interest on higher risk loans. How naive of me."

Don't feel bad, this was right under all our noses, and I only recently figured it out. I feel like a sucker for thinking the same way. One almost feels used when he realizes that he's been manipulated for corrupt purposes. Not to be too much of an alarmist, but I suspect part of it is the amount of foreign investors affected. There are some deep and sinister forces at work.

Malcom,

A great resource for those with an appetite for any and all things debt paper is www.investinginbonds.com. They also have some great calculators and the site is used and recommended by many bond desks.

Oh and while you're there check out the "MBS Markets at a Glance" link (for entertainment purposes). You'll get to see Malcom's "inverse relationship" up close and personal!

FAB,

Absolutely hysterical observations on Bend! The "Cavalcade of REIC Stars" on Hwy 97 is a non-stop freak show. (Can't a guy get a little fishin' in around here?) What exactly it is that originally drew the REIC Freaks to Bend has always escaped me? Sure, it's nice (so is La Pine, Prineville and Silver Lake for that matter) So why... Bend? Well I suppose they have to congregate "somewhere" for the Ponzi/Musical Properties game to work!

I hope other than smug comments from soon to be un-employed "part time" contractors and the parade of bling, you still managed to have a good time!

If you can describe the costume that would be fine too. Or if you want to email me the photo

I don't have copies of the photos yet (not my camera), but as soon as I receive them, np. Basically, it was just me in a suit with lots of subprime "flair" (including Tangelo, Lereah & Greenspan buttons) and neg-am faxes pinned all over my body. Very last minute job, but the people here loved it. I even came close to winning the "scariest" prize too, but Death beat me out by a small margin. I guess people here have become very bubble-aware and/or know lots of people in trouble with toxic loans.

The oddest thing I noticed is, more people recognized Tangelo than Lereah or even Greenspan. Countrywide's HQ (Calabasas) isn't that far from Pasadena, but even so, I had no idea how famous that guy really is. I'd never heard of the guy until I came here.

I even came close to winning the “scariest” prize too.

Who won the “scariest” prize? Mr. Greenspam or Mr. Bendover Ben?

Wow - the stock market took a beating today.

HARM Says:
I even came close to winning the “scariest” prize too, but Death beat me out by a small margin.

The sheeple are more scared of Death than of Subprime-hell?

Give them a year or two of suffering the consequences, and they will be begging for the sweet sting of death instead.

SP

"begging for the sweet sting of death instead"

Right. Assuming it's quick and painless. Sadly the "death" they'll be experiencing will more resemble the 'application of leaches' (and you get to watch).

skibum Says:
Wow - the stock market took a beating today.

During my recent trip to (smoky) La Jolla, I caught the final shoot-out scene from Butch Cassidy & Sundance on the hotel's telly. Have Bernanke and the F'ed pretty much reached that point?

So they dash out of their hole and empty their clip with the last few desperate rate-cuts. And then what? Even with the rate cuts, the Dow is STILL below its July level of 14,000. Adjusted for dollar devaluation, make that "FAR below".

And, icing on the shitpile - I got three resumes this week from senior engineers leaving (different) failing startups - their cover letters all say they are looking for "long-term careers" at "stable" employers. Keep an eye on those Bay area employment numbers.

SP

The Fed printed $41 BILLION more usbucks today, and lowered the rate a quarter-point and the dow's down over 300 ...... it's a start....

Keep an eye on those Bay area employment numbers.

There still seems to be pretty strong hiring by startups to midsize companies. But I have heard rumors of hiring freeze at one big company and possible headcount reduction (due to mergers) at another big one. Both strictly rumors. But we will know before end of this year.

ex-sunnyvale-renter,

I know that's what the news accounts say. But the Fed rolled $41B of existing debt - one for $12B, one $8B and one $21B. No new paper today. Associated Press originated the reports of new loans, so it was presumed by many to be accurate.

I hate Scottsdale.

I love Sedona.

The Rich prefer Pitkins County and Teton County.

I was in Scottsdale in May and I was going... HUH?

From Scottsdale-sucks.com

And, of course, they all have the desire to fit into Scottsdale's trendy anti-business, anti-capitalist, anti-American movement that opposes ALL progress, without any good reason whatsoever. They should all just pack up and move to San Francisco (or North Korea) where they belong to leave the normal people free to live their lives.

Heh

RE: (or North Korea)

Democratic People's Republik of Kalifornistan

Never underestimate the ability of the Federal Government and the Federal Reserve to inflate away any and all of their problems.

... and still have CPI showing 2.0%.

- Continuing increases in poilce corruption and bogus tickets to offset property tax losses

This is one aspect of the housing bubble that we haven't discussed here. Mish had an article on how states are losing sales tax revenue as economy is slowing down.

I hate this bubble far more that dot com. Hence my intense dislike for Greenspan. The more I know about the bubble's aftermath, the more bad I see. Hardly anything good will come out of it. And whatever that will be (old mortgage standards, increased savings etc) will come very very slowly and after much pain. The dot com bust took away a lot of stock market wealth, but a lot positive also came out of it. It was just another economic cycle fueled by excesses.

This one is really dark. I really want to believe in hell so that Greenspan will eventually land there.

That Scottsdale guy is a little nutty I think - some of his "Why I'm moving to SoCal" posts are very "Grass is greener":

http://nevercoldcall.typepad.com/scottsdale_sucks/2007/02/scottsdale_the_.html

Newport: People who never drive below the speed limit, never hog the left lane, move out of the way if you're driving faster, and signal 95% of the time.
Scottsdale: Mean, insecure drivers who get a sick thrill out of cutting you off then going slow in the left lane.

Now I've never been to Newport - but still. This is California. That can't possibly be true that people signal 95% of the time.