patrick.net

I insist that the Fed charter includes the guaranteed supply of foie gras and Caspian caviar.

If Fed cuts further now what are they going to do when the shit hits the fan? Negative fed rates?

The Fed's Charter includes protecting the dollar/peso parity.

"basically garbage loans"

Thank you Captain Obvious! Uh, you wouldn't be holding any of those $250 bil. in soon to be worthless paper now would ya'? What was he saying? 3.5% before year's end? Sure. Anything else?

So... what exactly is the thinking here? If we lower rates (cause Lord knows they're nose bleed high) then as FB's get their resets the loan rates available to them will be lower and payment shock and jingle mail will be prevented? Is that where he's going with this?

If that's the case he's way off. BG doesn't understand the sick mind of the FB. The only reason an FB would stay in a house is a) outrageously cheap payments (teaser/min. payments) OR... b) the home is appreciating so quickly they can access the HATM at will.

Anything else is just so much BS in their minds and preferential tax treatment and having a paid off home some day are just arguments they throw out when asked to defend their pillage. FB's don't believe their own BS. They're not that stupid, but they KNOW you are!

@DinOR,

Not to mention bread will be about $100/loaf by year's end if the Fed adopts ZIRP. Hard to make even the neg-am payment on your NINJA when the cost of everything else is skyrocketing much faster than incomes. Zimbabwe here we come!

Re ZIRP: One slight difference between the U.S. and Japan is, Japan was (and still is) a nation of inveterate savers. During their ZIRP period, they technically didn't need to attract huge amounts of foreign capital to support government & domestic consumer spending. Perhaps Bernanke is hoping that the USD will become the world's next "carry trade" currency of choice.

It's pretty darn interesting how quickly Gross has moved from being the darling of the housing/economy bears to their villain. My interpretation is that he's way more exposed to a housing downturn and credit crunch that he thought he would be. He is trying to save his own ass.

"bread will be about $100/loaf"

Now there's something I hadn't stopped to think about. Even if you are one of the "lucky ones" that has the job, FICO, DTI and... equity to make a re-fi happen what of your other expenses? You know, the ones that have been crazy cheap over the last 5 years?

@skibum,

Not at all. (I've hated BG for some time!)

You're absolutely right though, he wouldn't be squirming like that if it didn't involve pain down the road. He's calling for this and he's calling for that but the one thing he's not calling for is mark to market.

Nope. All of the problems are elsewhere.

Has all these cutting of rates actually resulted in a drop in mortgage rates? So far, I don't think so.

So what makes morons like BG think that as soon as the Fed cuts rates, the lender will follow suit and people will be afford their million dollar homes immediately?

As soon as it became common knowledge that housing is going down and that people who bought overpriced houses are going to be f@cked, there is nothing that the Fed can do.

By trying to meddle, it can turn a recession into a depression. That's about it.

All the bitching and handwringing going on by BG et al. is merely them trying to save their own jobs. Nobody cares about the FBs, nobody cares about individual banks unless they work there, or individual SIVs unless they bought into them. It's all attempts to keep themselves from getting burned as badly as they're going to be burned, and attempts and keeping delusional hope alive for just a little bit longer.

The long and the short of it is this. There is no more money to borrow for American consumers OR American companies. Right now, we have three options. Quit spending, start saving, and buy down the debt. Default and throw a few nukes around to prove we mean it, and never get lent money again. Print money until nobody will lend us a dime, but force 'em to take worthless dollars until the debts are gone.

All the waving and crying and yelling is trying to avoid the first option. If we don't shut up and get on with it soon, we might accidentally find out we're stuck with only the last two options.

So what makes morons like BG think that as soon as the Fed cuts rates, the lender will follow suit and people will be afford their million dollar homes immediately?

I don't know the details about PIMCO's current positions/portfolio, but my suspicion is that it's more complicated than what you say. BG probably has significant exposure to positions that would be favorable with low bond yields/high prices, and has basically bet on the Fed lowering rates, based on his earlier predictions about the housing market collapse. He's probably trying to urge on the Fed in order not to be caught with his pants down.

Despite how deplorable his recent comments have been, you must admit that the guy is no dummy.

"unless they work there" LOL!

That's probably true. Skibum, I... don't think BG is a dunce either. But I've been in his position. Everything he stands for and believed is being derailed. His little world is falling apart, and that is not exactly a great environment for rational thought. He's second guessing himself now and like FB's and realtwhores blaming the MSM it seems to me he's just lashing out.

He knows this will strain the institutional relationships they've worked long and hard to build. As fiduciaries get together and review their "Investment Policy Statement" they will fall off a lot of ret. plan's radar. This will create a scenario where he'll be forced into liquidations. If there's a method to his madness, I'd love to hear it.

OT - did everyone read the article by Market Watch - at the top of Patrick's list of Housing Crash News for today - we just need to get that into the Mercury News or similar local rags so that everyone in CA gets to read it - Let the bloodbath begin! $200,000 average haircut by their reckoning.

"If Goldman (Sachs) is right, the typical home-owning household in California has about $200,000 less in home equity than it thought it had. Instead of living in a home that's worth $589,000, it's probably worth $380,000."

Surely that article deserves a prominent thread of it's own? Anyone?

I was a victim of the BG funds, well, not quite, but here is the story that I told on this blog before.

I bought one PIMCO fund called unhedged foreign bond fund. Notice the word, unhedged? Notice the word foreign? Ok, that was 2004.

Now fast forward to 2006, I was munching my dinner at the table reading the PIMCO brochure, and I actually took time to go through every single debenture and notes they hold, and I found a whopping 25% exposure to MBS shit (some from the two agencies, some not, but all labeled AAA). I flipped right on the spot. I was betting against the demise of the dollar, and that was precisely why I got UNHEDGED FOREIGN bonds, which should NOT include anything denominated in USD covering housing-related crap! I unloaded this bond immediately.

I suspect that PIMCO management was already aware of the trouble it was in, to save those USD-denominated MBS CDO funds, BG may have asked the managers of other funds to "eat up" some of these crap so as to help prop up the dodgy bonds.

I am keeping the brochure and everything, as I am waiting for a class action suit letter to arrive.

I think the Fed or the US government has long given up on the strong dollar policy. If you are living in a land of debtors, you'd better side yourself with the debtors, if you don't the public policy will.

I never owe a dime on my credit card. This is the year that I started carrying a balance on a newly acquired 0% intro APR credit card and won't bother paying it off until the 0% APR ends. I also learned to transfer balance from my main card to this new card so that I can have a 0% float for another 12 months, while my money is working hard elsewhere.

Let's all use some cheap credit while they are still available.

Claire,
I read the same article. Seems like a rational spread for starters. We'll see if it plays out and I hope it does. Grin, Grin. Chuckle, Chuckle.

With due respect to Alexander Tyler
A democracy will continue to exist up until the time that voters
entrenched interests discover they can vote themselves
generous gifts that which is rightfully theirs
from the public treasury

And their accompanying view of those who will bear their burdens:
"We live in a decaying age. Young people no longer respect
their parents. They are rude and impatient. They frequently inhabit
taverns and have no self control."
Inscription, 6000 year-old Egyptian tomb

DinOr,

You may be right, Bills world may be crashing in on him. Good.

For the privledge of working in a career which pays all of $50k/yr I regularly get my ass kicked much harder than Bill ever will. And I'm living large compared to most of humanity.

Bill Gross gets paid $40 million per year just to be retained by PIMCO.

His world should cave in on him. Nobody, NOBODY should expect to make that kind of money without running the risk of getting totally crushed. For someone of his stature to emply, or to ask, even in the most vague oblique terms, that his situation ought to be helped smacks of total arrogance. This man is respected as (or at least paid as) the best bond trader in the world, and now he's sticking out a cup looking for some change?

Hey Bill, UP YOURS!

OO,
I had some 401k money in a PIMCO "safe government-backed bond fund" myself. A few months back I too read the prospectus from cover to cover and then dumped the fund the very next day upon finding out what its assets really were.

the typical home-owning household in California has about $200,000 less in home equity than it thought it had.
Oh, please oh please let it only be $200,000. Wait... I'm special. Oh, please oh please let it only be $500,000.

Point is the "pain" of chimeric equity disappearing isn't going to be uniform. The real "pain" is the retirement funds and the like that leveraged on that supposed equity.

The crash began in 1891. Land values fell to levels around one half their boom levels. In addition to the picture given by Figure 6, data on individual suburbs are available. In Prahran, prices peaked at an average of over £1 000 per property in 1888 and fell to £520 by 1898. Similarly, in Brighton, average property values peaked at around £950 in 1888 and then fell to around £400 in 1893 and £300 in 1898. A comparison of these data to the accounts in Cannon (1966) suggests that the picture is fairly accurate but may understate the speed of the bust. For example,
Cannon writes that, ‘by the end of 1891 the bottom had completely dropped out of the land market ... In Collins Street, sites for which £2 000 a foot had been rejected a short time before, were now being offered for £600 a foot – and could not find buyers even at that price’ (Cannon 1966, p 18).

The exact trigger for the crash is unclear. Nonetheless, its general nature is fairly clear. From the end of 1887 many reputable banks restricted their lending for land purchase substantially. Regardless, the market continued to grow for another four years largely supported by the activities of the land banks. Many of these financial institutions were obtaining money on deposit from the UK by offering higher interest rates than were available on other investments; foreign investors did not seem to factor in the likelihood of default in making these deposits. However, fundamental
factors were beginning to affect the bubble. The huge amount of land that had been brought onto the market meant that rental yields were depressed. Furthermore, the low rental yields combined with high leverage meant that speculators were experiencing increasing cash flow problems. Mortgage defaults and bank runs eventually led to a number of financial institutions going under. This then started a chain of events that led to the bubble completely deflating. Many of the land banks had only recently
been floated and had issued partly paid shares. In an effort to continue operating they issued calls for the remainder of the capital, which, in turn, required shareholders to sell land to meet the call on their shares. The additional selling pressure pushed prices down significantly, thereby inducing further financial problems. This then became a full-blown financial collapse, which led into a more general depression.

Soros forecasts 'serious' economic correction
November 6, 2007 - 2:28PM

Billionaire investor George Soros forecast on Monday that the US economy is "on the verge of a very serious economic correction" after decades of overspending.

"We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails."

Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."

Famous for his speculative attack on the Bank of England that made him more than $US1 billion, Soros declined to nominate which currencies are more vulnerable currently. He also declined to comment specifically on the dollar.

"I know exactly where the currencies are going to but I'm not going to tell that to you," he told the audience.

Last week, investment guru Jim Rogers, who co-founded the Quantum Fund with Soros in the 1970s, recommended selling the dollar as well as US investment banks and US housing stocks.

Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years.

"Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.

Reuters

Jim Rogers, now supermodels:

http://www.shortnews.com/start.cfm?id=66231

Where are all the trolls who used to come on and berate people as being jealous? You know, the 'the Bay Area is different, we can never have a downturn here, they aren't making anymore land' types? Where are our Marina realtors (TM)?

"as I am waiting for the class action"

Should be in the mail any day now!