patrick.net

Ah yes, we have moved on to credit cards. A trillion here a trillion there and pretty soon we are talking about real money.

Look, everyone can calm down about putting gold in the toilet or stuffing their mattresses with Swiss francs. The financial sector will not dissolve. And it will not be the governement riding to the rescue.

Banks will lose money, stocks will devalue, and at some point people with cash will say, "Hey, that's a bargain!" and buy these companies. The trick is figuring how far they will have to drop until that happens.

Long before Citi and Wachovia and every other credit card company dissolve, countries with trade surpluses (and thus cash reserves in stronger currencies) will move in to buy these companies. Heck, with any luck a German owned Citi bank will not pay its CEO 100+ million dollars.

Life as you know it will not change.

What I do foresee is that the world GDP will contract. During the upcoming global recession people will examine what went wrong and excesses will be wrung from the system.
In the US, this will mean banking regulation, tax law changes, credit regulation(the credit card system is sooo bad - regulating who gets credit and how much is painfully needed) and hopefully a new social contract.
I say a new social contract becasue of the massive moral failings in the US.

Using sports as a metaphor for current culture we can see in the Patriots football team, the entire sport of cycling, baseball, etc the following unstated assumption, "Everyone else is cheating. If I do not cheat, I cannot compete." Becasue of the perception that everyone else is doing it we have the self fulfulling prophecy of an entire sport's worth of cheating.
Now, lets look at the social contract. The perception is that everyone esle is gaming the system by walking away from their investment homes since the payments were too high, or walking away from credit card debt because the companies charged too much, or taking very risky investments because the only downside is governement bailout. Thus, everyone takes that course.

A new social contract would say to borrowers, "It is not okay to get too far into debt. It is not okay to walk away from debt." We need to restore the social stigma of doing so. On the other side we need to enforce that corporate entities do not offer credit to deadbeats just becasue they can charge higher rates to everyone to cover the losses, plus makes fees on processing the bad debt. Systematically we need to insist, as a society, that everyone do their part to keep financial prudence and solvency as a core value. Just because you can legally walk away from that investment property, declare bankruptcy, or move every two years to reap massive capital gains windfalls, DOES NOT MEAN THAT YOU SHOULD! Corporations that say, "I had to take on MBS' and CDOs because my competitors were making tons of money and it forced me to do so or lose my customers." Or Countrywide, "We had to give mortgages to deadbeats because our competitors were."
Look, I hate to harp on this, but I think it is impossible for a society to function on legal imparitives alone. Enforcement would be too expensive. Society needs moral persuassion; moral rights and wrongs. I am hoping this recession provides the impetus for a return to core US values: honesty, hard work, financial prudence, innovation (man I hate business plans whose sole purpose is to buy patents, then sue for their infringment), and compassion to name a few.

Duke,

Well said, very well in fact. Sure they'll be some bumpiness along the way and your insights may be awhile off, but they are both true and necessary.

What I wish we "could" see is folks moving on to 'the next big thing'? Can we please stop jumping through hoops to shore up housing and move on? It's gotten embarrassing... already. I'm not an innovator (some of you could probably tell that) but they are still about. Let's tally up and settle up before the endless obsessing over "saving the housing sector" consumes us!

Duke said:
Look, I hate to harp on this, but I think it is impossible for a society to function on legal imparitives alone. Enforcement would be too expensive. Society needs moral persuassion; moral rights and wrongs. I am hoping this recession provides the impetus for a return to core US values: honesty, hard work, financial prudence, innovation (man I hate business plans whose sole purpose is to buy patents, then sue for their infringment), and compassion to name a few.

Agree with you, but my hope is somewhat tempered by the experience of the last few years.

After watching firsthand the evaporation of ethical behavior among executives during the dot-com days, I hoped that the dot-com bust would be the end of this - but sadly it only seems to have gotten worse. The phony revenue-recognition and insider stock placement games that pre-IPO dot-coms did seem like child's play compared to the stuff that happened since then.

correction to the last sentence:
The phony revenue-recognition and insider stock placement games that pre-IPO dot-coms _played_ seem like child’s play compared to the stuff that happened since then.

Society needs moral persuassion; moral rights and wrongs.

Morality sounds good on paper. But what is it in reality?

I have an answer: your morality is the competitive advantage of others.

AUD-USD = 1.09
USD-JPY = 110.9
AUD-JPY = 101.3

Watch this space. Carry trade gets interesting.

SP, may I ask which forex broker do you use?

Peter P Says:
your morality is the competitive advantage of others.

It seems so, but it has been generally observed in animal societies that a habitual cheater fares less well than those who balance self-interest with pack-interest. All you need is to make the retribution loop a little more efficient... watching a habitual cheater get his head bitten off has a salutary effect on the opportunistic cheaters.

"Do you know what nemesismeans? A righteous infliction of retribution manifested by an 'orrible cunt..." :-)

Humans are not animals.

Most of us even understand morality, though a few know how others understand morality.

Speaking of "competitive advantage" I just got off the phone with a wholesaler that moved to WA from the east coast last summer. After several weeks of living in hotel rooms he settled on a nice townhouse. He offered to put 35% down and since he didn't want any hassles he just went no doc. (He didn't have any banking relationships and his CU didn't have a branch anywhere close) so the agent offered for him to use the MB in their office.

So he goes to closing and as he goes through the doc's he notices one that says he has a deposit with a bank for 500K! WTF? He's doing well, (he's not doing THAT well). So he goes to grab his car keys and walk away when they offer all kinds of mealy mouthed explanations like, "Well it was just easier this way". Yeah, no sh!t, it's always "easier" to lie your a$$ off! He explains that he's sec. registered and wants no part of FALSIFYING any thing... in any way! So they frantically expunge (sp?) the 'doc.' and procede w/ the closing.

The utter lack of anything resembling integrity in that industry is absolutely astonishing. The guy said, well if there's going to be any lies told (and hell to be paid) AT LEAST let ME be the one to tell it! The guy said, hey I don't "need" this place THAT bad! I mean it's not like his company was pressuring him or anything? Incredible.

Peter P,
Ah yes, a pure competitor.
What you say is completely true. People face morality versus competitve advantage decisions every day. And as more and more people feel they have to head towards to the side of competitve advantage we get the mess we are in. A system must collapse, by definition, once more and more people migrate towards the gaming brinksmanship that undermines the rules of the game.

Don't make the mistake of hubris I think you are making here. That only you and a very few others 'know' how others 'understand' morality. This kind of cempetitve advantage survives on the sufference of the very people who appreciate the abuses of the system but know the truth that there must be some structure esle there would be no marketplace. Wasn't it Winston Churchill who stated, "It has been said that democracy is the worst form of government except all the others that have been tried?"

I think Warren Buffett shows quite clearly that pure business is a better long term strategy then gaming systems to their destruction over and over again.

Can't believe the MBs are still doing that. Have they no sense of decency?

I think Warren Buffett shows quite clearly that pure business is a better long term strategy then gaming systems to their destruction over and over again.

What some people see as "gaming" is what others will see as "arbitrage".

I like WB a lot. I am sure he is a very successful arbitrageur.

Seems like the time to add my two cents.

We found a house and we're buying.

Yikes!

Here's the deal though. It was bank owned and the banks are starting to dump properties here and I think we're getting it with a good price drop factored in. The average price per square foot in the Sacramento area is $203 sqft right now (per Sacramento Landing) and we're buying this place at $135sqft.

It was inspected two weeks ago and the inspectors told us they never see places as clean as ours. Everyone, from the mortgage broker, Realtors, neighbors, family and friends are saying they think we got a sweet deal, so I hope they're right. Don't want to catch a falling knife and all that. The appraisal came in $90k over what we're paying (I fully expect this to go up in a puff of smoke in the next two years) so I think we have some buffer.

Anyhoo, we can buy it without a voodoo loan, and can live in it the next ten years with ease-- and plan on it.

But Surfer-X bought, so I guess I'm in good company.

Don’t make the mistake of hubris I think you are making here. That only you and a very few others ‘know’ how others ‘understand’ morality.

But I really don't. Otherwise I will be doing something else.

However, I believe a morally-agnostic society will produce more good. This is a paradoxical but true.

But Surfer-X bought, so I guess I’m in good company.

Congrats SQT!

Thanks Peter.

Boo-Yah!

Good for you SQT!

(Oh and uh.. I was kinda forced to buy too) but I dragged my heels every step of the way! At a buck thirty five a square welcome to 2002!

I say PARTY!

DinOr

I was kind of like that for us too. We're hitting that point where we need the tax break.

The buck thirty-five thing takes away a lot of the pain. I've been scrutinizing all the houses out there right now and virtually all the sales are priced way above ours. But the banks are dumping properties en masse right now out here, so I think we're going to see drastic price reductions in the near future. Heck, we're doing our share to bring the comps down in my new neighborhood.

Peter P Says:
November 9th, 2007 at 11:28 am
"Humans are not animals.
Most of us even understand morality, though a few know how others understand morality."

My dogs have some understanding of right from wrong, and even understand the concept of stealing. I believe dogs are moral creatures.

Heck, we’re doing our share to bring the comps down in my new neighborhood.

You mean bringing reality back to the neighborhood? ;)

My dogs have some understanding of right from wrong, and even understand the concept of stealing. I believe dogs are moral creatures.

Too bad, I only have cats. :)

You mean bringing reality back to the neighborhood?

I probably won't say that to my new neighbors-- at least just yet. I don't want to be facing the angry mob if I can help it.

Cats can be evil geniuses one instance and adorable fur balls the next.

"hitting that point where we need the tax break"

That (among other things) was one of the bars we had too. The first year I was "independent" I made more from un-employment. So it wasn't even a concern. Bubble-sitting: Year 2, start-up costs MORE than off-set! Year 3, "at least we're not part of the problem". Year 4, "we're going to take it in the shorts".

I think we paid right around $162 per but OR is "special" not like SAC.

I probably won’t say that to my new neighbors– at least just yet. I don’t want to be facing the angry mob if I can help it.

Yeah, just say you got it at a once-in-a-life-time low price and that you fully expect to flip it for 300% more next year. When they are not looking, you may roll your eyes.

I think we paid right around $162 per but OR is “special” not like SAC.

He he he. We're actually in a suburb of Sacto that is pretty nice. I looked up the stats and the median income is around $80k-- not too shabby. The neighbors are going to have fits when they figure out how much we paid per sqft.

Yeah, just say you got it at a once-in-a-life-time low price and that you fully expect to flip it for 300% more next year. When they are not looking, you may roll your eyes.

Now that sounds like a plan....

That's the spirit Peter!

Not only will you defuse a potentially awkward situation you will become the rallying point for renewed interest in koi ponds and other various lawn adornments!

"when they figure out"

See, that's the tough part. With Z anyone can check that out.

Make sure you put extra emphasis on the "300%" part.

See, that’s the tough part. With Z anyone can check that out.

I know. I hope they're all going to be in serious denial mode and choose not to look.

Fat chance, I know....

USAYesterday,

Sacramento, CA: 9 NOV 07

Could "bottom feeders" become the new "Real Financial Heros"?

Before you get all bent out of shape about your neighbor paying HALF of what your... dumb@ss did, consider recent buyer SQT! With mortgage payments a fraction of yours they will be able to purchase everything from swing sets to wood chippers down at Home Despot (TM) (and get this!) they're paying CASH! For those of you that haven't seen any for awhile it's green and has dead presidents on it with numbers that correlate to different amounts....

haha so Surfer-X bought in Sacto?

I can hardly wait to hear his euphamism for the place, San Jose became San Hosebag, I'm assuming Sacto will be changed into something even more imaginative than the common "Sack'o'tomatoes".

No no, Surfer didn't buy in Sacto. I just meant that he is among the buying crowd.

I shudder to think what Sacto's euphemism could end up being though...

DinOr

I'm in the too-scared-to-buy-anthing-I-don't-need crowd right now. Home Despot will have to struggle along without me for the time being.

RE: Home Despot

Great name!

Anything you don't... need?! Some "Financial Hero" you turned out to be!

Look, you've got Free Equity! 90K of it! Don't you know the "New Rules for Finance"! Now I have this friend.... great guy. He can get you rock bottom rates...

Peter, why is it that some of the nicest people love cats? What is it with you guys? Do you just have an abundance of love in your life that you want to share it with a creature who thinks its better than you?

I saw a bumper sticker once I may have shared it before but I love it.

"I wish I could be just half the person my dog thinks I am"

“I wish I could be just half the person my dog thinks I am”

I wish I could be just half the person my cat thinks she is.

LOL

good one

Cats and dogs are very different creatures and they attract very different personalities.

My wife is a dog person.

One of our cats is dog-like though.