patrick.net

Patrick,

You have my condolences.

Patrick:

Deepest Condolences. Many of us have been through much the same thing, and while that shared experience may seem of little moment now, it may be some comfort to know that we came through, and so shall you, almost certainly stronger than before.

Patrick, Condolences to your family.

Direct Injection of money to consumers.
We are going to see more stimulus package to consumers. I would think they might extend Unemployment benefits.
SSN payments adjusted 5.8% upwords.

Watch out many ways consumers will get a bailout.

It would be nice to show those in Congress that this represented the worst of the ’smething for nothing’ mentaility.

I would love to see a candidate say: "Let's do away with the easy credit policies that enrich bankers and Wall Street types while continously pushing house prices to unaffordable levels. Our policies should make it easier for Americans to experience true homeownership with paid-off mortgages. Instead of spending one half of ones take-home pay on a 30 year monthly tribute, while hoping for an unrealistic rise in home proces to ease the burden, the home owner could be using that money to save for college or retirement. I propose we eliminate tax deductions on home equity extraction, require all home loans to be fixed rate, and prohibit the sale of of loan contracts." [audience goes wild with cheers]

After all, since people are such babes in the woods as to become "countrywide victims," we must take away thier ability to recklessly borrow. Let's use the same attitude as in applied to regulating "payday lenders."

its forced consumption. worse than communism.

Worst of both worlds. Evilness of communistic control plus the vileness of capitalism excesses.

Just thinking about the order of things
1. Credit Card defaults
2. Commercial RE
3. Car loan defaults
4. Business loss.

If the Dems want to build a country that works, it is not about extending credit. People must afford the products produced. So: make cheaper products (stop trying to sell 1 million units of $60k SUVs), find a way to raise real wages (hint, no CEO is worth 1,000x his emplyees), and stop trying to force credit extension to those unwilling to use it responsibly.

Duke,

I was just reading an article about AIG to stop lobbying. It was mentioned that the loan currently is 120B. I see you made some comments about Gov making a good deal of AIG. Does it still stand or is this a big hole?

no CEO is worth 1,000x his emplyees

How about we make companies pay Unemployment premiums to states based on some factor of CEO's pay.

If the Dems want to build a country that works, it is not about extending credit. People must afford the products produced. So: make cheaper products (stop trying to sell 1 million units of $60k SUVs), find a way to raise real wages (hint, no CEO is worth 1,000x his emplyees), and stop trying to force credit extension to those unwilling to use it responsibly.

Wrong track again. To build a country that works, stop intervening in the marketplace.

Let the system fail and a better one will emerge. I am a big fan of Andrew Mellon.

What's really pissing me off now is the game-changers. At this point, I think people would be happy if there was a known set rules. Once we have that, we can properly make personal finance decisions.

One really easy way to do that is to declare regulations and stick to them.

All of the bailouts and talk of stimulus just make people indecisive. People that should be foreclosing on their house might stay in it waiting for help. People waiting to invest in a certain company are waiting to see what new game-changers the government will come out with. People who can afford cars & houses are waiting because they have no idea what the government will do next.

All of their actions are resulting in massive uncertainty in every market. Everyone is standing still. Which, in capitalism, is a bad thing.

The ever-changing set of rules is a part of the game.

Peter - your purist view will not work. I would allow you the 'let the market work' approach, but it is not realistic. The governement will always distort the market at the request of the monied interest. Right now they write the rules and thus gain by the rules.
Of course you must now that a pure market does not work as it naturally gives rise to monopolies - and they raise prices and lower choices.

@SA

Well - with AIG I liked the approach. They crushed the stock, took oer the company and plan to break it up. The break-up value of AIG is still in excess of $120b so I would say, yes, still a good deal.

But the whole, bail out the systemic risk players is already so old to me. And AIG is about to come up against massive fraud cases. Their Lehman exposure is bad enough, but what really scares me is how much more they have out there. We now know they offered swaps for missing capital for major Eurpean banks. Who else? Unless the world choses to abrogate CDS this could get ugly. I mean really ugly.

We may have to let it fail yet - it which case it was a bad deal.

Credit is good because people can get leverage. Leverage is a double edged sword, but I digress. The proper use of credit can make you rich.

One really easy way to do that is to declare regulations and stick to them.

Another easy way to give priority to saving the funds that are already regulated; like mutual funds and pension funds.

Throw the hedgies to the wolves.

Duke, Andrew Mellon served several presidents as the Treasury Secretary. I am sure monied interest was just as powerful, if not more so, back then.

Of course you must now that a pure market does not work as it naturally gives rise to monopolies - and they raise prices and lower choices.

I say let monopolies stand until they get demolished by shocks (e.g. technological, geopolitical, etc). In the long run, no monopolies can sustain in a relatively regulation-free environment.

Quite often, monopolies are simply a product of over-regulation.

this is what happens when policy is completely driven by bribes, er I mean Lobbying.

Lobbying exists (mostly) because of regulation. The least-regulated industries have the fewest lobbiests, mostly to make sure they continue to be unregulated.

Here's the real track: Big Business is far more risk-averse than small business. Big Business loves to impose rules/monopolies that cut out small business. Big Business can afford to deal with regulations. Therefore they are not against regulation, or not as much as they would otherwise be. (And if you want proof, simply note who writes the regulations: in the vast majority of cases it is [drum roll] Big Business! Look at the first real regulation of business in the US: the Wilson Administration. The Railroads wrote the Railroad Rules, the Steel Mangnates wrote the Steel Rules, The Banks wrote the Banking Rules. Who the hell do you think the FED IS? The SEC? You think Congressthings know enough about Bessemer processes and Steel Union Contracts and short selling and Arch-Bar Trucks to write those regs?)

In this regulatory-rich environment, you either have lobbyists to protect you from the other guys, or you are the other guys trying to cram more regs down the competition's throat. Who benefits? Congressthings, whose campaign coffers fill up from all sides, and so they have position for life. It is true fascism, as the powers that be, political and business, work for each others' longevity, and startups get stomped.

Here are some regulations: Do not commit Fraud or we hang you. Keep the common air and water reasonably clean or we hang you. Do not cheat you suppliers or your customers, or we hang you. Public companies make their books (Standard Accounting Practice) public and transparent, or we hang you. No one in an industry (or sitting on the boards therof) can regulate that industry.

Do we really need any others?

Oh, and make the tax law work best for a 10- or 20-year horizon, rather than a quarterly one, meaning no capital gains on long-term investments.

But when the Federal Government is engaged in fraud (like off-the-books IOUs to Social Security and Medicare) how can you expect the rest of the country to do otherwise?

lobbiests = lobbyists
Mangnate = Magnate

I'm sure there are more. ;-)

I would say for the patient buyers Nov/December could be very good months to buy as there will be those that will want to sell by year end for the tax breaks
Someone enlighten me... The only "tax break" I know about is "Don't 1099 me, bro", which expires at the end of 2009. Is this just more Used Home Salesperson speak, or am I missing something?

Credit is good because people can get leverage. Leverage is a double edged sword, but I digress. The proper use of credit can make you rich.

Not sure what you are getting at. Nobody is decrying the use of credit to buy plant/equipment or other capital goods. The problem is when consumer credit is wrecklessly disbursed. Easy consumer debt puts undue upward pressure on prices and promotes speculation over productive investment.

Mechanisms that allowed easy home debt are the entire reason for the housing runup and the corresponding correction. Now we get to pay for it with bailouts so big that when totaled, would be able to fund the Iraq war for 50 years (or more).

I don't mind when the two-edged sword of leverage decapitates the clown wielding it. I do mind when the maladroit's swinging sword connects with so many innocent bystanders.

MST,

Could not agree more about "self-regulating" industries. Having anyone write or enforce their own regulations is an absolute travesty, and it is how must of the US works.

Some more modern examples include NAR (National Association of Realtors) and NASD (National Association of Securities Dealers). And how about the State Bar Association in all states? What a joke.

Fun example of CDS (or how 1 dollar brought down the entire world)
Two 18 year olds, Bobbie and Suzie, chase down an ice cream truck so they each can buy a $1 ice cream. Bobbie suddenly realizes he forgot to bring his money so he asks Suzie for a loan. Suzie writes a quick contract so that she can get $1.25 in a few weeks.
Now, Goldman Sachs was also buying an ice cream at the same time and thought, “Let’s do a little research.” They discover Bobbie gets $5 a week for chores and that Bobbie’s dad is pretty strict.
Goldman, who has no interest in the underlying debt instrument (Bobbie’s IOU to Suzie) approaches AIG with a deal. They state they will pay $100 million a month if AIG will insure Bobbie’s debt for $100 billion. AIG does a tiny bit of research on Bobbie’s credit worthiness and thinks, “This is easy money.”
Goldman now decides to invite Bobbie to play stick ball in the court in which Bobbie lives. Unlucky Bobbie hits a home run and breaks a neighbor’s window, which costs $100 to replace. Bobbie’s dad pays for the window and withholds Bobbie’s allowance until that debt is paid.
Suzie, who needed that $1.25 in a few weeks, realizes she will not get the money from Bobbie in time to buy the dress she wanted for prom and writes off the debt as bad debt.
Goldman Sachs now approaches AIG and states that Bobbie defaulted on the debt and would AIG please pay them their $100 billion?
This is the stupidity of CDS. Goldman had no interest in the underlying security and the size of the coverage had no basis in economic reality.
In the end, AIG is bankrupted by Goldman Sachs claim, which is okay, since Goldman also bet against AIGs debt instruments as well as the debt instrument of all of the counter parties to AIG. So did all of Goldman Sachs clients.
Now, why on earth we are still honoring CDS with no basis in economic reality is beyond me. Annul these stupid things! THAT will give people the confidence to invest.

One of the funniest things I've ever seen.

http://www.youtube.com/watch?v=N6ya39slPgs

Sarah Palin on SNL.

What the governement is doing in the Bobbie-Suzie world is running around to all of the Bobbies of the world to give them $1 to give to all of the Suzies so the debt doesn't go bad.
Is that smart?

But, Goldman Sachs can run around creating more situations faster that the governement can run around handing out money. Becasue CDS are STILL legal and they are STILL being abused. Now. Right this second.

Annul CDS.
Regulate future CDS like insurance in the future.

I was going to say because all of GS clients, posied to make a ton of money on these rigged deals, are foriegn investors who seem to have seriosuly spooked Pualson.
That is to say, the (for example) Saudi Royal Family has been paying $100m a month knowing that GS will engineer the failure of a loan so that they can make $100b. If they lose their 'premiums' they promise to 1. Destroy the dollar, 2. Stop funing the US debt, 3. Embargo the US. 4. Sue GS. 5. etc

Of course these are just 'for examples'. There is no way to know who holds what and in what amount since the CDS positions do not have to be disclosed. And there is no way to know if anything is rigged, but it is certainly, massively, open to that abuse.

Countdown for the second welfare check begins...today!

I just heard the sleazy CEO of Hovnanian enterprises plead the case for a taxpayer bailout of his company. He wants a 2% subsidy of mortgage rates plus more tax incentives for buyers.

I believe he'll get it. I also believe that it will only be the first of many more incentives to come.

By the time this is all over, we'll be seeing "buy now and pay nothing for the next two years" sort of deals in housing.

If we time that correctly, we might be able to buy near the low (still far away from now) and pay back with heavily depreciated dollars (inflation) following the deflation period.

Hell, along with the right starting interest rate we might even be in a situation of negative interest where they are paying us to take a loan.

Gotta love it.

Duke Says:

> Just thinking about the order of things
> 1. Credit Card defaults

This has already started…

> 2. Commercial RE

This has also started and will turn in to a flood in the next couple years with the combination of IO periods ending as vacancy increasing as businesses cut back on space.

> no CEO is worth 1,000x his employees

The CEOs that are worth 1,000x their employees are the ones that can make deals and bring in big profits. I don’t know if the Wells Fargo CEO was the one that did the deal, but the tax break they just got before they bought Wachovia will be worth Billions…

P.S. Good to have Randy H. back...

The problem with the inflation-debt-arbitrage game is you have no idea how long or how deep the deflation will be. I'm certain that plenty of folks thought they'd run that strategy in Japan too. But that pesky deflation just kept on a comin'.

FAB,
The CEO certainly did not do this in a vacuum. Look, if that 1 CEO makes $100m how many Ford cars can/will he buy? If that profit is paid to Wells workers and Wells shareholders I think we will see Ford much better off.
Don't get me wrong. If you have a private company and you want to pay yourself $100 million, go right ahead.
If you are the CEO of a publicly traded company you owe it to your shareholders to 1) keep expenses down by keeping turnover down (so pay your people more) and 2) pay your shareholders directly through dividends.

The truth is, I find it tiring to keep saying we should not lend money to the non-credit-worthy. What makes people not credit worthy? Many are simply not paid a wage that will support people buying the very products and services their emplyers produce. And THAT at a time where CEO pay is at an all-time high - both in absolute terms and expressed as a percentage of profit or as a multiple of the average person's salary.

Look, we don't need a tax system to create a middle class, we need a system in which cozy boards and cozy CEOs don't take all of the profits for themselves. It is simply not true that Anthony Mozilla and only Anthony Mozilla could have taken Countrywide from $1 per share to $100 (an back down again). CEOs are at least as much of a commodity as their workers. Doing nothing but swinging big dels for tax breaks hardly justfies paychecks like we see now.

Hell, along with the right starting interest rate we might even be in a situation of negative interest where they are paying us to take a loan.

Has there ever been a negative discount rate? That is, where the sum of the monthly payments is less than the principle borrowed?

If so, that would indicate serious deflation, where the borrower would be paying back the loan at a fixed monthly payment while his salary/returns steadily decrease. In this case, savings would be the more desirable vehicle to acquire resources, since prices fall as your savings build. The pool of borrowers may thus be limited to the short sighted, ignorant or irresponsible. Classic moral hazard.

The problem with the inflation-debt-arbitrage game is you have no idea how long or how deep the deflation will be.

I hope this idea is accepted widely enough to put a damper on speculation.

But what about investors? One could purchase a rental property when the home prices have fallen enough for typical rents to approximate debt servce cost or cash opportunity costs, plus a factor for maint/insurance/taxes. If deflation continues, taxes, maint costs, and interest rates (affects opportunity or loan/refinance costs) will go down. The risk would be that the home price would fall far enough during the rental years to outpace rents collected (you put up with toilets and tenants for nothing), or if you financed, that rents would fall too low to cover the mortgage aspect.

I like to think our underlying democracy system is still intact

Let's see on Nov 4th if the politicians who voted for the bail out end up being defeated for that wanton disregard of constituent wishes.

or if you financed, that rents would fall too low to cover the mortgage aspect

That's the key. If you buy with cash and have a long horizon, and get within a reasonable variance from "the bottom", then your logic holds up. If you have debt -- especially amortizing, fixed interest debt -- then you forfeit compounding opportunity costs. In other words, you would have been better off saving cash even if your rent is higher than the cost to finance a purchase, if you're an owner occupier. If you're an investor, then you're simply failing to maximize your net present value. For investors, they would be better off hoarding cash until property prices have started to rise again, and deflation has leveled off, even though they will pay higher entry prices they'll have a greater NPV.

Duke is right.

I think CEOs are, or should be, a commodity. Many if not most of them only have ladder-climbing and self-enrichment skills. They are like a tax on the company profits.

I watched Jeff Immelt of GE on PBS yesterday on a Charlie Rose show about leadership.

One of his four points of leadership was to get up in the morning and say "hello handsome" to himself . Then he would go on and "reinvent" himself for the day.

Here is what I think it means when Jeff Immelt reinvents himself:

1. forget every mistake he made yesterday
2. do not learn anything from it
3. always rewrite history so that someone else gets the blame.

Did I forget something?

If you buy with cash and have a long horizon, and get within a reasonable variance from “the bottom”, then your logic holds up.

This is my plan. However, judging that "reasonable variance" is the rub. I could see a house that I know I can rent for $1,000 hit the market for $175k. This looks like a near bottom to me, so I buy it. If the house continues to depreciate over the next two years until hit hits $150k, I lose. I did not collect enough rent to make up the difference, plus I lost the 1% or so I could have recieved in bank interest. I also had the trouble of landlording and paying taxes, insurance, and maint.

You point about waiting for an uptick has merit.

The big LEH CDS settlement event of today apparently has not closed yet.

http://www.marketwatch.com/News/Story/swaps-settlement-watched-signs-credit-market/story.aspx?guid=%7B70FEEA73%2DAAF6%2D4555%2DA10E%2DEE434BFC983E%7D

What is the real motivation for Argentina to take over the private pension funds? The story does not pass the smell test, or maybe I should, so far there is no real story out there.

I think lunarpark is asleep at the wheel. Here's the latest from DataQuick.
Bay Area home sales soared last month above the record-low levels of a year ago, marking the largest gain in over six years. The median sale price did the opposite, diving to $400,000 - 40 percent below its summer 2007 peak - as more sales shifted to lower-cost inland markets laden with foreclosures.