Chat amongst yourselves, post interesting articles, keep it clean and help me keep track of the massive housing ponzi scheme crash
December 24, 2006
BUBBLETALK: December thread #3 to talk about the housing devastation underway
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«Oldest ‹Older 201 – 223 of 223Solano County has among the highest projected foreclosure rates in the United States, according to a report released Tuesday.
The Washington, D.C.-based Center for Responsible Lending, reports what's shaping up to be "one of the worst foreclosure crises in American history," according to the study.
Center researchers said subprime mortgages - the loans requiring "creative financing" - signed between 1998 and 2006, will wipe out billions in low-income and minority wealth as people locked into loans of questionable soundness, find themselves unable to make their payments.
http://www.timesheraldon
line.com/ci_4879160
Solano County saw the biggest percentage drop, with its median home price plunging 9 percent to $446,000. The median price in Sonoma County fell 7.7 percent to $530,000.
Other counties in the region that saw annual price declines last month were San Mateo, Napa, Alameda and Contra Costa.
http://cbs5.com/topstories/
local_story_348151504.html
Why I bought from a FB in the down side of the Bubble right before inflation.
The scene is let's pretend and the well written article is worth a cut and paste to the blog.
According to this editorial, I win and so does James.
iw
Excerpts from; December 19, 2006
by Jordan LeDoux
.........Jack has a house, worth $200,000 which he owns. He has already paid off his entire mortgage, and has $50,000 in savings. Jill is just looking at purchasing a house. She has no outstanding debts, and is looking at a $150,000 loan with a 9% interest rate. She has $5,000 in savings. BigBox Co. is a large multinational corporation. They own assets, (goods), worth $10 billion, and have $1 billion in cash, $800 million of which is in US Dollars. James has just purchased a house yesterday, and took out a loan of $200,000 to do so.
Now while everyone is sleeping, the US government decides it's tired of having to pay off loans. So it prints off more money. In fact, it prints off enough money to double the amount of dollars in circulation, and pay off the debt collectors hounding Capital Hill.
Within a short period of time, the value of the dollar drops roughly in half. Which, roughly means that the prices of goods when paid in dollars doubles or so. Now let's revist our three friends to see what happened to their money.
Jack has a Net Worth of about $250,000. $50,000 cash, and $200,000 in real estate. The actual amount of dollars which Jack has doesn't change at all, however, his cash can now buy about half as much. If we were to measure his cash value using dollars from yesterday, it would total $25,000. The government stole roughly half of his cash to pay off its debts. This is sometimes referred to as the "invisible tax" of paying off debts, or the invisible tax of inflation. Jack, however, owns more than just cash. He also owned real estate worth about $200,000. Because the value of the dollar dropped by 50% to value of the real estate, relative to the dollar, went up 200%. His house is now worth $400,000. But this is $400,000 today. If we were measuring in yesterday dollars, the value of the house would still be $200,000, as it was the value fo the dollar that changed, not the value of the house. From this, we can see that Jack, has lost roughly $25,000 of Net Worth measured in yesterday dollars, or about 10% of his total net worth.
Jill is in a much stickier situation. She only had $5,000 cash, and hadn't purchased her house yet. She was depending on her job as a source of continuous income to pay off her mortgage on the house she was looking to buy. Her $5,000 dollars is now worth half as much however. Aditionally, the house she was looking at now costs twice as much. She now needs a loan for $300,000, not $150,000. This in itself wouldn't be a problem. As banks collect based on percentages, they will still make the same real margins on the $300,000 loan today as they would have made on the $150,000 loan yesterday. The problem is that employment and wages are a trailing factor. Her income, if it doubles, will not double for quite some time. Not until the corporation she works for has enough cash to start paying double the normal wages to its employees. So the government stole $2,500 of yesterday dollars, or half her savings from her. They also, however, stole 50% of her future income for an undetermined amount of time.
James, who just took out his loan the day before, is the winner here. And the bank is the loser. He got $200,000 in yesterday dollars from the bank to purchase an asset, under the agreement that he would be required to pay back the real amount of $200,000 with interest. His asset that he purchased is now worth twice as much however. If he refinances immediately with a different creditor, he can pay off his $200,000 debt using equity, and James ends up paying half price for the house at the expense of the bank.
Inflation, as you can see, is unweildly and is frankly a pain in the ass for everyone who uses US dollars. Inflation also has a much larger effect upon individuals than it does corporations or institutions, who are far more likely to have disposable assets as opposed to cash on hand.........
For Full Story on/explaination of Inflation go here:
http://tinyurl.com/wlvoo
Sorry Bubble Sitters, but that is the risk I took and why I purchased this year.
Jordan LeDoux explains my reasoning better than I can.
Also my rent vs own caculator is right on. (:
iw
Auctions like the one staged by Texas-based Hudson & Marshall are becoming more common in Birmingham, where foreclosure filings spiked nearly 700 percent in September, and across Alabama, which saw an expansion in foreclosure activity that outpaced every other state in November.
"I don't think the foreclosure problem has even come to a head yet," Birmingham bankruptcy lawyer Matthew Dunaway said. "It's still building. Over the next five years we'll see how bad those mortgage products are and the bad decisions that people made."
Residential lot prices in or near many metro areas across the country, including Boston, Washington, D.C., and Naples, Fla., have plummeted in the past year -- some as much as 29 percent.
Big landowners are feeling the pain, too. According to Chicago-based Grubb & Ellis, a commercial brokerage, the median price of parcels averaging between 40 and 94 acres is $162,000 per acre year-to-date, 28 percent below the 2004 price.
http://www.post-
gazette.com/pg/06357/
748280-30.stm
FMW,
Exactly!!
We need to start paying for things in gold again so your scenario doesn'thappen. It'llbe a little tough at first but it can work.
My $5 latte will now be cost 1/125 an ounce, 1/123 with tax and I'll leave 1/750 of an ounce as a tip for the barista.
I think I know where to invest my money...gold bar slicers.
Hey fellow HP'ers,
Found out this morning I'm gonna be a daddy!! Great Christmas present.
Of course this now means I will be broker than broke (you all see what a crib costs?????) but I'm happy as can be.
Merry Christmas to all. Just had to share.
Aegis Closes a Pair of Operating Centers American Banker Premium Content.
American Banker Dec 18. Aegis Mortgage Corp. said it has closed its subprime operating centers in Jacksonville, Fla., and Denver, eliminating 87 jobs.
The closings were announced last week, a month after the Houston company merged its subprime Aegis Funding unit account executives into its Aegis Wholesale Corp. The company now operates a single platform with a range of alternative-A and prime loans, as well as a reduced number of subprime offerings, through its 30 wholesale branches. The consolidation was part of a strategic plan to anticipate the direction of the mortgage industry, said an Aegis spokeswoman. In the first half of this year, Aegis ranked 48th among U.S. subprime originators.
I noticed that this Jordan LeDoux is 19 years old ! From the mouths of babes...
Overnight doubling of paper huh ? That's an inflation rate of 100% a DAY! So what will the interest rate for new mortgages be the day after ?
Listen to me laddie.. Och never mind.. He is 19 years old.
-K
INDIVADULE?
Now matter a persons gender age skin color or decent, they shall be judged on their INDIVIDUAL worth and character, not abruptly thrown into a file cabinet of bias and ignorance.
iw
The Internal Revenue Service is Taking a Closer Look At the Mortgage Industry and is Proposing New Rules
The Treasury Department and the Internal Revenue Service are proposing new trustee rules that would force some servicers to keep looking over their shoulders while they spend more time and money trying to comply. Effective Jan. 1, a regulation for reporting of...
http://www.imfpubs.com/
issues/imfpubs_imp/5_26/
news/1000005111-1.html
tinyurl please.
Man arrested after trying to hide $70,000 from airport screeners
Federal agents claim he told them that the money came from a mortgage fraud scheme in the Kansas City area where loans were obtained using inflated property appraisals. He declined to give more details on the alleged scheme, the court records said.
Prosecutors since 2004 have focused on mortgage fraud rings using inflated property appraisals. In October, real estate investor Brent Barber was sentenced to more than 12 years in prison for being involved in a similar scheme.
White was released on $5,000 bond and ordered to remain in the Kansas City area. Prosecutors plan to take his case to a grand jury.
http://www.kshb.com/kshb/
nw_local_news/article/
0,1925,KSHB_9424_
5229052,00.html
Good BBC video about debt suicide.
Gonna see a lot more of these...
http://video.google.com/videoplay?docid=2076501893662501756&q=bbc+duration%3Along
Collateralized Debt Obligation CDOs are financial instruments which package credit default swaps. They insure against borrowers defaulting on their debt, and can pay higher returns by taking more leverage.
To make a collateralized debt obligation, you bundle together a package of other securities, such as corporate bonds or credit- default swaps tied to company creditworthiness.
By splitting the package into slices of differing quality, you make the riskiest portions absorb any losses first, cushioning the higher-rated pieces.
When mortgages, or other debt instruments, are chopped up for securitisation.
The more risky slices may go to high yield mutual funds and people who think they're sophisticated investors. The 'residual risk', 'first loss' or 'equity' slices go either to hedge funds or are retained by the dealers or banks who package the securitisations.
These dealers and banks don't use the Treasury market to offset the prepayment risk of MBS bonds.
They go instead to the market for interest-rate swaps, where they can exchange one stream of income for another stream of yield, tweaking their earnings without selling their assets.
On Dec.7, the day that sub-prime US mortgage lender Ownit went bust, the spread on 10-year interest-rate swaps in the Dollar jumped 2.5 basis points.
That might not sound like a lot, but it's five times the market's standard deviation. "A five standard deviation move in the Dow Jones Industrial Average would be a decline of 350 points," Dizard points out, "or a 40-point drop in the S&P500. That would have got your attention."
Remember, the interest-rate swaps market is worth 5 times the United States' annual economy.
http://news.goldseek.com/
GoldSeek/1166805514.php
Sub-Prime Disaster in the making
A report released this week by the Center for Responsible Lending, a Durham, N.C. based research group, predicted that 1 in 5 sub-prime mortgages originated in the past two years would end in foreclosure. While most on Wall Street dismissed this survey as overly pessimistic, it actually represents a rather rosy outlook.
A 20% default rate would put millions of homes back on the market, and would also inflict severe losses on sub-prime lenders, causing them to pull in their horns and tighten their lending standards. More inventory and higher rates will put more downward pressure on home prices. Many over-stretched borrowers, who made little or no down payment, will find themselves struggling to make mortgage payments on properties with negative equity. Higher rates and lower prices will also remove the cash out options that many borrowers expected would bail them out of ballooning adjustable rate payments.
Therefore, the secondary effects of the 1 in 5 sub-prime default rate will be a chain reaction of rising interest rates and falling home prices engendering still more defaults, with the added foreclosures causing the cycle to repeat. In my opinion, when the cycle is fully played out we are more likely to see an 80% default rate rather than 20%.
The main problem is that the majority of these loans were made to people who really cannot afford to repay them and were collateralized by properties whose true values were but a fraction of the loan amounts.
Also, the idea that sub-prime foreclosures will not affect the broader market is absurd. These loans simply represent the weakest links in the mortgage/housing chain. Once they break the entire chain falls apart. The added demand from these marginal buyers helped produce and sustain the bubble. Remove it and the bubble deflates. Also, falling home prices and rising interest rates effect every homeowner, and the temptation to walk away from an upside down mortgage is not restricted to sub-prime borrowers.
http://www.howestreet.com/
articles/index.php?
article_id=3518
To all you guys who responded "AGE, AGE, AGE!" to the person who pasted an excerpt of my article... I'd like to know what exactly is wrong.
You see, in my, admittedly, limitted experience, whenever someone points out a quality in a person which they cannot change nor ever had any control over, they are usually admitting that the other person has presented an argument which they cannot deconstruct AND don't want to accept.
If I'm so wrong, which is evidentally irrevocably connected to my age, then show me quick, lest your entire meme is destroyed by the afternoon ramblings of a late-stage teenager.
Hey Jordan,
I was pointing out the age so that others like me would hold off and cut you some slack.
As to what's wrong with it - the main thing is that it bears no resemblance to reality. If its a thought experiment - an aid to understanding as it were - then it should be either as well specified as say 'Schroedinger's Cat' or Turing's 'frictionless paper tape algorithmi machine' - in this example - James' interest rate should be specified. Man does not live by shelter alone - their other costs should be specified - their source of income should be specified. Just running the model for 1 day is not sufficient. The issue with inflation is people notice it, react to it - this should be brought into play by rolling the calendar forward to day 2, day 3, day 4 etc. to some equilibrium point ( or in thise case to a singularity ).
If its a simplified model thats the aim here, meaning we want to make some real world predictions out of it, then the simplifications should be stated( the common ones in standard dynamics are usual frictionless motion( not so bad ), no more than a 3 body problem ( awful assumption) and no relativity or nuclear force effects(perfectly reasonable simplification) so that people can make a call on how much they can extrapolate from this to the real world.
Here, the simplifications that I see are no forewarning, no hints - nothing.. just hey presto - twice as many..
An omission is the mechanism by which the doubled money gets into circulation. Values get marked to market - markets are set by prices at prior transactions. Here it sounds like none of doubling of cash came to Jack. His 50K stash was in some 0% interest infinite term account. Otherwise he ought to notice that hmm.. interest rates are rising leaving his money in a 0% paying current account is dumb. And similarly all parties will react as the doubled money gets into circulation.
And if they don't then this scenario is an example of stupid people losing money and smart people gaining it.
Which is probably the truest observation you've made.
-K
sk and jordan
Why are you up in the middle of the night on Christmas Eve debating?
Sad. Sad. Sad.
If its a simplified model thats the aim here, meaning we want to make some real world predictions out of it, then the simplifications should be stated
+++++++++
It was simplified so people could understand it, and it was well done. That is why I shared it. He explains why I purchased this year, rolled the dice so to speak, because, I need a place to live. He explains it better than I could have.
iw
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