patrick.net

It is hard to pinpoint when the force of deflation/ monopoly money destruction ends and the force of money printing/inflation returns. I did see that Bernanke says that the banks will need more money.

Go East, young man? Californians look for the exit
By MICHAEL R. BLOOD – 1 day ago

LOS ANGELES (AP) — Mike Reilly spent his lifetime chasing the California dream. This year he's going to look for it in Colorado.

With a house purchase near Denver in the works, the 38-year-old engineering contractor plans to move his family 1,200 miles away from his home state's lemon groves, sunshine and beaches. For him, years of rising taxes, dead-end schools, unchecked illegal immigration and clogged traffic have robbed the Golden State of its allure.

Is there something left of the California dream?

"If you are a Hollywood actor," Reilly says, "but not for us."

Since the days of the Gold Rush, California has represented the Promised Land, an image celebrated in the songs of the Beach Boys and embodied by Silicon Valley's instant millionaires and the young men and women who achieve stardom in Hollywood.

But for many California families last year, tomorrow started somewhere else.

The number of people leaving California for another state outstripped the number moving in from another state during the year ending on July 1, 2008. California lost a net total of 144,000 people during that period — more than any other state, according to census estimates. That is about equal to the population of Syracuse, N.Y.

The state with the next-highest net loss through migration between states was New York, which lost just over 126,000 residents.

California's loss is extremely small in a state of 38 million. And, in fact, the state's population continues to increase overall because of births and immigration, legal and illegal. But it is the fourth consecutive year that more residents decamped from California for other states than arrived here from within the U.S.

A losing streak that long hasn't happened in California since the recession of the early 1990s, when departures outstripped arrivals from other states by 362,000 in 1994 alone.

In part because of the boom in population in other Western states, California could lose a congressional seat for the first time in its history.

Why are so many looking for an exit?

Among other things: California's unemployment rate hit 8.4 percent in November, the third-highest in the nation, and it is expected to get worse. A record 236,000 foreclosures are projected for 2008, more than the prior nine years combined, according to research firm MDA DataQuick. Personal income was about flat last year.

With state government facing a $41.6 billion budget hole over 18 months, residents are bracing for higher taxes, cuts in education and postponed tax rebates. A multibillion-dollar plan to remake downtown Los Angeles has stalled, and office vacancy rates there and in San Diego and San Jose surpass the 10.2 percent national average.

Median housing prices have nose-dived one-third from a 2006 peak, but many homes are still out of reach for middle-class families. Some small towns are on the brink of bankruptcy. Normally recession-proof Hollywood has been hit by layoffs.

"You see wages go down and the cost of living go up," Reilly says. His property taxes will be $1,300 in Colorado, down from $4,300 on his three-bedroom house in Nipomo, about 80 miles up the coast from Santa Barbara.

California's obituary has been written before — "California: The Endangered Dream" was the title of a 1991 Time magazine cover story. The Golden State and its huge economy — by itself, the eighth-largest in the world — have shown resilience, weathering the aerospace bust, the dot-com crash and an energy crunch in recent years.

But this time, the news just keeps getting worse.

A state board halted lending for about 2,000 public works projects in California worth more than $16 billion because the state could not afford them. A report by Sen. Barbara Boxer, D-Calif., last month said the state lost 100,000 jobs in the last year and the erosion of home prices eliminated over $1 trillion in wealth.

"I don't think the California dream, per se, is over. It has become and will continue to become grittier," says New America Foundation senior fellow Gregory Rodriguez. "Now, perhaps, we have to reassess the California of our imagination."

Gov. Arnold Schwarzenegger is among those who say the state needs to create itself anew, rebuilding roads, schools and transit.

"We've lived off the investments our parents made in the '50s and '60s for a long time," says Tim Hodson, director of the Center for California Studies at California State University, Sacramento. "We're somewhat in the position of a Rust Belt state in the 1970s."

Financial adviser Barry Hartz lived in California for 60 years and once ran for state Assembly before relocating with his wife last year to Colorado Springs, Colo., where his son's family had moved.

"The saddest thing I saw was the escalation of home prices to the point our kids, when they got married, could not live in the community where they lived and grew up," Hartz says. "Some people call that progress."

Oh damn, must be the "illegals" that are responsible for everything.
Can't be the ones with the money and power, oh, no, they are blameless.

California was not ruined by illegal immigration. To the extent it was ruined, it was by the legal residents that wanted to build a pyramid on top of the illegal immigrants, while sitting on their large behinds and owning property.

If not 100% the reason for our troubles, at least it is a big factor and closer to the truth.

One way or the other, it is the fault of liberal politics. ;)

Cut welfare and welfare to 0 and we will be on recovery in no time.

Gov. Arnold Schwarzenegger is among those who say the state needs to create itself anew, rebuilding roads, schools and transit.

He is a liberal. He even signed the law to ban foie gras production in California.

We really need to create the state anew, we are too business unfriendly and income tax is just too high.

The only way to solve the budget crisis is to lay off half the state government. If that does not do the job, lay off another half.

Don't worry, the 70% of home purchasers (2005) in the Bay Area that went with IO/Option ARMs will refinance into fixed rate mortgages. They weren't counting on "phantom appreciation", but had always planned on comparable rates when the recasts began... really... oh wait, hmmm... how is DB doing these days? Don't they own whole swaths of Cleveland and parts of Florida?
Dr. Bob Froehlich, chief investment strategist of Deutsche Bank's (nyse: DB - news - people ) DWS Securities and the author of A Bull for All Seasons, agrees that "Obamanomics" will rescue homeowners if things get bad, but he also has faith in mortgage borrowers. "I don't believe that people are as dumb as we think with these adjustable-rate mortgages. They opted for the lowest payment possible and never intended to sit back and wait three years or five years for the higher adjustable rate to kick in. They were banking on lower rates, which has happened, so they could roll into a fixed rate with a very little increase in monthly payments."

I've recently been very surprised by the various points of view on the bubble. You'd think it would be just a simple 2 sided issue (maybe that expectation is the result of recent politics). It's far more colorful.

I've been following patrick since before there was a blog and I'd have to say 90+% of the people posting here think the same way as I do, at least about the bubble. The realtors and shills only showed up in ones and twos and were easily run off -- this probably wasn't great, though keep in mind, in 2004 or so, every media outlet was blasting the NAR themesong.
So, the only conversation as of late has been in picking some partisan fights, etc, which is less... hmmm... enriching.

Really I think there is a *lot* here on Patrick that unites people that believe in capitalism and free markets, even transcending party politics:
-- TANSTAAFL
-- calling out the victim mentality
-- fiscal responsibility
-- personal responsibility in finance. No bailouts for speculators of any type
-- preference for work and savings over debt and consumption
-- a harking back to the market system that weaves so closely with the meaning of america.

Anyway. There are many divergent points of view about the bubble. It's surprising. It's weird. even some people that clearly recognized the bubble early on and worked very hard to get others to see it seem to have turned out to be anti-market pinkos that want to reduce principal balances on FBs to 2002 levels and even use taxpayer dollars for it.

Here are a few characteristics to by which to classify the "modern" bubblehead cultures... (bear in mind that people might bear a random set of these)

(1) some hate the banks/servicers exclusively, and want them to go bankrupt. Sometimes this is because of bad underwriting, sometimes because they aren't adjusting mortgages. Me, I hate them because they're not releasing their REO because they're hoping for a bigger bailout.

(2) some hate the rest of the REIC, realtors, brokers, appraisers who fraudulently allowed to buy houses they wanted.

(3) some austrian school economists hate the fed for putting cheap credit into the hands of people who desperately wanted to leverage themselves

(4) some just hate the bailouts. Wasn't that amazing when the "no bailouts" folks were writing in and phoning congress 40-1 against the bailout?

(5) some think of bailouts as the end of free market capitalism. (I think the American free market could weather the storm and surprise many if given a chance)

(6) some point to the same data I look at (foreclosures/pre-foreclosures, falling prices, etc.) and use it to try to whip up support for even more massive bailouts

(7) some people think it's the economy that matters, even more than capitalism

(8) some take very partisan stances about the bubble and collapse, and they are only interested in using it as a way to beat someone who differs with them about other issues on the head.

Maybe there are more categories you've seen?

Anyway, I go over to Mr. Mortgage's site a lot, where there is a lively discussion about bailouts, particularly lender-funded or taxpayer funded. You'll see a lot of the other "sides".

Mr. Mortgage himself always supplies excellent information you can't get elsewhere. And in the beginning it will confuse you a bit since he completely harps on how prices are going down, foreclosures are skyrocketing, the banks are imploding, the REIC needs to go down, etc. Until you find out that his beliefs are completely pro-bailout, write down peoples' principal balances, fund it with federal dollars, etc. Crazy!

Anyway, he has a few great reports on his page right now (I don't mean to sound like an advert here, but he's always a good read)
http://mrmortgage.ml-implode.com/

I am guessing lots of people will slide over to Nevada for their 0% income tax and cheap housing (foreclosures). This is just the beginning of a long string of upcoming tax and fee increases...

In Nevada, the instead of income tax, they have Californians that come to gamble? Is there a gambling tax?

Google Inc. said Wednesday on its official blog that it will cut 100 full-time recruiter jobs.

Laszlo Bock, vice president of people operations for Mountain View-based Google (NASDAQ:GOOG) said the company "is still hiring but at a reduced rate. Given the state of the economy, we recognized that we needed fewer people focused on hiring."

Bock said the company first wound down almost all its contracts with external contractors and vendors providing recruiting services. "However, after much consideration, we have with great regret decided that we need to go further and reduce the overall size of our recruiting organization by approximately 100 positions," he wrote.

In a separate post, Alan Eustace, the company's senior vice president of engineering and research, said offices will also be closed in Austin, Texas; Trondheim, Norway; and Lulea, Sweden.

In September the company closed its office in Phoenix, Ariz.

Justme, gambling is already a tax on the innumerate. ;)

Right, was just wondering if the State of Nevada gets much of a cut on it.

Brings back memories of me telling people that low interest rates were a bad thing for new buyers back in 2004, and people thought that was crazy talk. The truth is that now rates have dropped to all time lows at the same time prices have fallen, albeit not quite to where they should have. However, the rates have fallen to the point that if people do want stability, like Patrick says, you can get a house for a very low stable payment right now if you do just want your own place.
Will inflationary pressures stop the free fall? I think it is anyone's guess. My guess though, wait until later this year, maybe next year for the bottom, but risk a higher rate. I'd rather have a lower cost basis, I'd even pay a slightly higher monthly payment. You can always refinance if rates drop, it is hard to improve your situation buying high with a low interest rate.

Malcolm Says:
Brings back memories of me telling people that low interest rates were a bad thing for new buyers back in 2004, and people thought that was crazy talk.

I have been saying the same thing for years, with the same reaction - and even now, people still think that a low interest rate means it is a 'good time to buy'. Even now, I frequently have conversations over lunch (still free, btw :-)) where someone lets loose with this foolishness.

The only thing that has changed since 2004 is that back then, if you weren't regurgitating the bullish kool-aid, people ignored everything you said. In 2008, they are now becoming dimly aware that something doesn't add up. At least with my cow-orkers, the counterpoint seems to sink in pretty quickly now once it is outlined.

Texas is a much better no-income-tax state.

SP,

I wonder about the psychology of the phenomenon that you describe.

Once you say "low interest rates are bad because they make housing prices rise", does this create such a big cognitive dissonance that the listener automatically shuts out everything you are saying?

OK, so what about the whole ECB rate cut, and the general interest rate level in Europe.

Again, the europeans are showing a quite different propensity. They do not like very low interest rates, and are trying to avoid them. Trichet pays some lip service to "avoiding a liquidity trap". but I think that is just talk. You don't avoid the liquidity trap by not lowering interest rates to 0. The trap is either there or it is not, whether you actually lower the rate to 0% and *prove* it is beside the point.

Anyway, what is the deal here? I'm thinking that the Europeans are leaning more towards protecting the savers and the value of the currency, rather than bail out the financial elites with cheap money (and let the people pay for it). In other words, they are exhibiting some real balls and a truer adherence to free market principles. If the free market thought that lower interest rates were called for, then there would be no need for the central bank to *force* it to occur.

In the US, the trickonomic-reaganomic-miltonomic mantra has been for 30 years that there is no problem that cannot be solved with (a) tax cuts AND (b) interest rate cuts. This is of course wrong but nevertheless the republicans are living by rule (a) and the Fed is living by rule (b), so there you have it.

Posted for a reader:

Hi Patrick,

I saw something really pathetic the other day with my real estate agent. We went to see a 3 bdrm in Laguna Niguel. It was built in 1971 on 0.25 acres of land. The neighborhood was mediocre, and the house was built on a hill overlooking Costco. It was a foreclosure and the bank wanted $649K. The house itself was a joke. It looked like something out of “Swiss family Robinson”. The second floors had a series of connecting rooms with no hallway. It looked like some illegal hairdressing salon was there. Most of the upstairs plumbing fixtures and mirrors were ripped out of the wall. The roof was sagging, and there was a sagging deck built around the perimeter of most of the house. The land lot was ok. It was a teardown at best. It wasn’t even advertised as a fixer, but as a beautiful home with new granite counters. I joked with the realtors “Did anyone bring some crack? We’re in a crackhouse, we may as well.” They smiled and agreed it was a horrible place.

The following week, the realtor send me an advertisement of the same house “priced to sell at $619. Will not accept any lower offers”. The banks are so cocky with their bailouts. They’re still desperately trying to push this junk on us. Bailouts and all, no one will buy this disgusting house.

I’m sure you know thousands of stories like this, but I just wanted to share my experience. Take care.

Regards,
Aaron

Are the banks even incentivized to take market prices for REO? Wouldn't they prefer to lobby congress for easy money, with potential upside later?

Brand,

In other words, has the Fed and Congress created an expectation that is it better for the banks to keep the homes on their books at inflated values rather than sell them at true values?

I would not be entirely surprised if the FED at some point creates a "facility" where banks can pledge the houses themselves (in the form of the deed or title of the houses) rather than just mortgage securities as collateral.

I have not seen anywhere a suggestion that this would happen, I think it would revolutionary. ;-)

Dubai Skyscraper Delayed Amid Cutbacks, Layoffs

Sweet Justice for treating people who build these stuff like crap.

Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.

In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.
...
"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.

"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."

Fed Chairman Bernanke uses trillions of dollars of taxpayer money and the Treasury uses billions of dollars of TARP money to save the stock and bond holders of failed banks, thereby weakening the ability of the US economy to quickly bounce back from this recession because failure is rewarded rather than success. Bernanke’s futile attempt to prove that Milton Friedman’s monetarism theory is practical hasn’t worked because failed banks will continue their wayward policies as long as the taxpayers are making good their losses. Dr. Bernanke, the ivory tower academician, is acting like a megalomaniac who needs to be stopped before he dooms the American economy to the Japanese disease of a lost decade of economic growth. Using the tried-and-true Swedish model now is imperative.

justme Says:
Once you say “low interest rates are bad because they make housing prices rise”, does this create such a big cognitive dissonance that the listener automatically shuts out everything you are saying?

I don't know about cognitive dissonance - it is just that everyone is conditioned (by realtwhores and media) to assume that low interest rates are "good for housing" and help to keep the howmuchamonth lower.

So when someone (i.e. me) popped up in front of them and said the opposite, their reaction was to disagree and then discount everything else I say.

These days, though, that is changing because "everyone knows" (ha!) that housing is going down - so they are open to ideas that are more aligned with ground reality.

it is just that everyone is conditioned (by realtwhores and media) to assume that low interest rates are “good for housing” and help to keep the howmuchamonth lower.

Low interest rate is good for housing. High interest rate is good for housing because inflation is good for housing.

See, it is ALWAYS a good time to buy. :)

LOL!!!

So, how about that Bankrupt of America bailout-redux...

Any ideas on what other banks are good places to park a little cash? I want to close the account there - they surely don't need my measly savings, since their rich uncle Sam is fronting them a few billion more...

Any ideas on what other banks are good places to park a little cash?

Wells and JPM are not too far behind. Banking on TARP to solve all ills, they probably ate more they can chew. I would say FDIC is our bank.

Citibank is splitting itself into two pieces an parking all (?) the bad assets in the "brokerage" portion. Interesting tactic, different than those who are turning brokerages into banks.

"This is a managerial separation and that is where we are starting and we believe there is a lot of value in clarifying focus on these things and having them managed in a way to harness value," he told listeners on a conference call with analysts and investors. (Citigroup CEO Vikram Pandit).

##

I don't know about this ,Vikram. Do you not usually manage your assets to harness value? Are your highly paid managers not able to think straight if they are part of a bank?

Since one and half years ago when I found out that Schwab does everything that a bank does, I closed all my bank accounts. Here are the advantages:

1) brokerages are covered by SPIC which covers up to $500K per account, unlike FDIC which only covers up to $100K. And of course you can do the same thing of splitting your money among several brokerages.

2) Schwab charges NOTHING for check books, BOA, my last bank charged me $20. International wiring is FAR cheaper at brokerages than at commercial banks. Commercial banks are completely fee hungry right now.

3) It is harder to steal money from brokerages electronically because you can only wire to yourself, or an authorized account electronically. No such thing with commercial banks, people can wire away your money very easily once they know your passwords.

4) Poor people don't have brokerage accounts. So when bailout hits the road, the government is far more likely to bailout the rich than the poor.

We let go of the "American Dream" as it relates to housing so very reluctantly.

Even now, as Rome burns, there seems a need to debate how to arrange the chairs. It is so interesting that folks still *believe*. That our media industrial complex has conspired with numerous interests to create this multilayered belief and value system, this religion, of housing and consumption and suburbia. It is an utterly empty dream, of course.

I don't believe folks understand how our economic downside is truly going to impact housing markets. Housing finance will not and cannot ever be the same in the US, it will continue to exist solely as a government owned enterprise. What does that mean for housing valuations? Our overstock and massive household consolidation coming, what does that mean? Persistent war and conflict of increasing intensity and scale will make much of the debate over housing seem so very quaint.

This country desperately needs a new belief system, and quick.

What belief system will ultimately replace the housing wealth myth post bubble deflation? This answer to this question will largely drive the direction of the country forward. Who are we anyway, and what do want out of life? As the country reflects and images of breadlines and misery occupy the glowing screens, what zeitgeists will take hold? And who will create them for what purpose?

Our confidence in the monetary system has been permanently shattered, our trust in currencies blown. Inflation will inevitably render debate over interest rates and valuation mute. Coming soon to a theatre near you.

When US treasury auctions stumble, the printing press begins in earnest.

Hang on tight. Things are going to get very, very scary.

JPM won't go down unless Fed is ready to fall apart. JPM owns the Fed.

If there is only ONE bank I can bank with, it will be JPM Chase. If Fed falls apart, no financial institution is safe, hold on to physical gold and guns.

If Fed falls apart, no financial institution is safe, hold on to physical gold and guns.

Two "central banks" failed before. Some other banks still survived.

Is Fidelity safe? Its logo has what some people call a NWO symbol. :)

Vanguard is safer than Fidelity.

... because Vanguard is used by Dick Cheney :-). Anyway, I tend to agree. Vanguard is hard core. Not banking advice.

Re: Flight 1549

I have not yet seen a video of the emergency landing on the Hudson River. There's got (?) to be someone who has a video of this -- if not a random tourist (in January) then somebody's highrise webcam or even a Port Authority surveillance video?

By the way, there are some obviously faked videos available.

I have to congratulate the pilots for their clam and decisive actions. They are the heroes.

Birds are evil.

JPM won’t go down unless Fed is ready to fall apart. JPM owns the Fed.

OO,

JPM might not fall apart but it's share price could be like citi. BofA/citi hasn't fallen apart. I can easily bank upto 250K in citi or any other bank with FDIC.