1929 seemed like such a fairy tale when I was growing up. My little kid brain could barely grasp the concept of people lining up at closed banks for their money, only to be not able to get it out. Stories of people not having a dime to their name, who used to live in glorious houses and hang with the creme de la creme. Stories of total panic, of a complete and devastating financial meltdown.
My adult brain can still barely picture that scenario.
But it's getting a bit easier these days as I read the headlines, and especially the complete and total lack of oversight and lending morals at the banks today.
Someone holds the loans that are about to go belly-up around the country. It might be China, it might be hedge funds, it might be banks and it might be Fannie and Freddie. But someone holds the loans. And it's going to be so ugly. 1929 ugly in some cases.
NEW YORK (MarketWatch) -- With the $10 trillion housing market weakening fast, in defiance of the assurances of most pundits just a year ago, investors are starting to question the confidence among banks about their ability to weather a housing downturn
Just a few months ago, homebuilders, the National Association of Realtors and most Wall Street analysts were still predicting a soft-landing in housing, in the same reassuring way they used to say last year that housing would remain strong in 2006.
But after the freshest figures - which showed sales of new homes sales plunged 21.6% in July from the year earlier, inventories of unsold homes soared and prices fell - there is little debate that the housing market is stumbling much faster than most expected.
Similarly, conventional wisdom, at least as officially voiced by banks and Wall Street analysts, has so far held that banks' earnings would be only modestly impacted as the mortgage business continued to soften.
But "this is the most inflated housing market in the post-war era," said Paul Kasriel, chief economist at Northern Trust. "If we're to have a severe recession in the housing market, it would seem to me that the banking system cannot escape significant losses."
September 03, 2006
Could the bursting housing bubble bust the banks? HP's recommendation: Make sure your accounts are FDIC insured
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17 comments:
Does anyone see this like I do? First we have the housing prices dropping. Then we start to see pressure on some of the banks.
One day we all wake up and a hedge fund or two have gone under. This causes an emergancy that closes all the banks. The Government freezes all assets to sort things out. While they're closed, the dollar drops in half. Insured or not, we're screwed!
who'd of thunk arabs with boxcutters could knock down a couple of skyscrappers? Or who'd of thunk homebuilder stocks could crash 50% or the nasdaq 70%? the impossible is possible nowadays
When i put money in the bank from my house sale. I made sure it was in a highly rated bank outside of the highest rated bubble markets. Its in ohio, i doubt it will crash there like florida and other huge bubble states. You have to protect your savings the best you can, only time will tell how bad it gets.
fdic insurance don't mean much if the government just prints money to pay off the losses
My best bubble investments for the past three weeks have been puts on lenders: LEND, FMT, TMA, NDE and Fhn. I have also been buying cheap Leaps on banks with high RE exposure, including RF, NYB, BBX and CORS.
After this weekend's attention to banks, and specialized lenders, especially the subprime specialists, it will be interesting to see what next week brings. My best positions have been the LEND 50 Sept and 45 Sept puts, bought at the money in June. The stock dropped from 45 to 31 in the last few weeks. I sold half of my positions at 300% profit and still have puts at 400% profit. I think that 3-8 month puts on lenders and some 2008 leaps on banks are good probability positions.
I usually buy slightly in the money.
Bill
"I made sure it was in a highly rated bank outside of the highest rated bubble markets."
I would also suggest to look into Swiss owned banks in your area or even outside, but within the U.S. They're more stable.
I think Union Bank of Switzerland (UBS) is one.
Good luck!
I recommend that you invest in companies that make Thermite, and short the insurers. I have a feeling the "terrorists" are about to strike again. Be afraid, be very afraid. Bwahahaha!!
This housing/foreclosure implosion might end up hurting the Chinese the most since they are buying up much of the MBS
doesn't hurt to have cash in your safe and your safety deposit box.
I read an article that
Silicon Valley is being impacted by housing.
Silicon Valley takes last place in ranking of U.S. technology hubs
SAN FRANCISCO - Silicon Valley ranks last in an annual ranking of 12 U.S. technology hubs because of the region's notoriously high housing costs, traffic congestion, unemployment rate and other quality-of-life problems.
http://www.theolympian.com/
apps/pbcs.dll/article?
AID=/20060903/BUSINESS/6090
30465/1003
Month to the day, my brother inlaw was developing an over 50 condo complex here in Mass. to which he said and I qoute:
" When I am done here skys the limit I am heading to Arizona and do some developing out there"
I said you are nuts
Well here is is a month later and guess what..? No sales and they let him go now that the development is 95% complete.
Shame to as his only back ground is construction, and no in between.
forget fdic. get your cash out of the banks and stashed away.
Another way to 'get money out of the bank system' is to buy T-bills at TreasuryDirect.gov. They direct debit from your bank account, and if your funds mature to 'C of I,' they never have to re-enter until you want it to.
It is a hedge against FDIC failure.
One way to predict what might happen is to look at the last housing recession.
The major lenders and mortgage Reits (LEND, CFC, TMA, FMT, ect.) fell on the order of 70% from peaks.
Perhaps the greater leverage this time in the form of ARMs etc will make this decline worse.
I have not done much historical research on regional banks and S&L's but history is probably the best way of predicting the future.
Data Miner,
You need to reread the article:
"If we're to have a severe recession in the housing market, it would seem to me that the banking system cannot escape significant losses."
This is from 1991regarding a bank in Boston area:
Coolidge Comer Cooperative Bank fails The Massachusetts Division of Banks has taken over the insolvent Coolidge Corner Cooperative Bank of Brookline. State officials turned over the bank to the Fed- eral Deposit Insurance Corporation. CoCoolidge Corner was the first state-chartered bank to fail in 1991. The Coolidge Bank had assets of just over $86 million and deposits of $83 million at the end of 1990. State offi- cials said that Coolidge had a lot of loans out on investor- owned condominiurms
This is from 1991regarding a bank in Boston area:
Coolidge Comer Cooperative Bank fails The Massachusetts Division of Banks has taken over the insolvent Coolidge Corner Cooperative Ban
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