March 18, 2007

Wow. Where do we even start. The Great Housing and Credit Crash is Here

Five days away and it feels like five years. Everything has become so clear now, so horrifically clear. We are now firmly, securely and undoubtedly in total and complete meltdown mode.

Historic, devastating meltdown mode.

The MSM still hasn't quite caught up - they're still talking about the now-obvious subprime meltdown. Some of the smarter folks in the room though are saying what's the next big problem - the Alt-A (liars loan) implosion, and the overall impact of this credit unwinding on home prices.

I see Merrill predicting a 10% decline in home prices now this year, and I read waaaayy too many stories on the plane about the house of cards falling in, how subprime's implosion will mean even fewer buyers, taking prices down even faster, causing more loans to go bad, causing prices to fall even faster, causing more loans to go bad... Well, add millions of loans that investors thought were much safer - the Alt-A pool, and that bonfire burns even hotter.

Folks, even the Greg Swann's, Bob Toll's and Ben Bernanke's of the world are going to have a tough time staying in denial or liar-mode now. This game is over. The Housing Ponzi Scheme has been exposed, the Great Unwinding is underway, and the panicked rush for the exits is here.

What you are witnessing, and what you will witness, will truly be historic. Never before has such a great financial bubble arisen, propped up by such a staggering amount of leverage. The size, scope, reach and depth of the collapse will shock the world.

But not HP'ers. We saw it all coming. All of it.

And I hope you're all ready.


Anonymous said...

While U were in Capri

Meanwhile at the ranch... Greenspan already changed modes,0,3036890.story

Pat's Steak said...

So how do you see this effecting commercial real estate (office blds, retail, hotels, etc)?

Will the credit pull back hit all markets ie bonds, commercial lending etc? (I'm trying to look at this as though a recession will not happen).

Really, really hoping a recession doesn't happen.

Anonymous said...

In restrospect, it's so clear (but isn't it always, after the crash begins?) that ever-escalating housing prices were always going to be constrained in the end by average American cash flow.

Here's a brutally accurate take on the sad math from James Howard Kunstler:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:
BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.
"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.
What kind of a rock does this fucking idiot Alan Greenspan live under?
The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)....

read the rest at:

Anonymous said...

Here's my prediction: If they lower the int rate, Greedy Sellers will increase their asking!

cool hand luke said...

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants... With these advances in technology, lenders have taken advantage of credit scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers... Where once more marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending... fostering constructive innovation that is both responsive to market demand and beneficial to consumers."
-- Alan Greenspan, April 2005
click here

veritas_faust said...

Is it just me or did the Perma-Bull Trolls implode during the last week?

Their comments have been noticeably absent.

Anonymous said...

Thank god you are back.

King of Bitter Renters
Lord of the Bull Trap

Anonymous said...

They are foundering in the bull trap.

King of the Bitter Renters

Anonymous said...

As negative as we've been, I think we might be too positive. This might turn out worse than even I imagined. There will be tumbleweeds blowing through Santa Monica before this is over.

The only people who made out in this deal are the middle men, the salesmen and brokers who got their commish and have no responsibility for the aftermath. But since their essentially the stupidest tranche of the American public, they probably invested their winnings in bubble houses too.

But, I can't blame them for taking advantage of stupid borrowers, and stupid lenders.

It's time the U.S. got a spanking for being financially irresponsible.

Thank you sir, may I have another!

Anonymous said...

Hey, Blowfly! Blow on this!

bozonian said...

Recession? RECESSION?

Dude, we're aleady way past 100% certainty of that. We're working on "Depression" now.

Here, this video is the metaphor for the United States. Everyone partying, having a great time and then ...

Natural Eyebrows said...

Here is the the thinking man's bubblehead, James Grant, in the Washington Post today.

a.creampuff said...


While you were away, HP lost its purpose. Time to start thinking ahead of the MSM. Here's a review of major crashes 1763-1995 that would make a good new direction (note - contains "buy now" link):

I'm finding quality articles about the incipient crash everywhere (check out - HP needs to continue to push the envelope and say the things the MSM can't say (until it's too late).

Anonymous said...

Very interesting to observe reaction to disaster. Several people immediately go to edge of danger zone, presumably too stunned to consider collapse possibly not over and nothing they can do. Others wander around in shock, screaming, despite not having fallen. After a minute or two, one man holding his child has presence of mind to run out of the room. No one gets on the cell phone to call 911. Camera person calmly films remaining crowd. Might have obtained useful insurance footage, although too dusty and dangerous. Might have also considered rapid exit.
I don't know if there is any parallel for a massive economic wallop, but I'm probably going to be that guy who ran for the exit. Some of you are people who noticed the beam structure, read the capacity sign, and never entered the building. Problem with a supposed Great Depression Part Deux is I don't want to cash out my retirement savings if it doesn't happen. By the time it's 100% crystal clear that it's happening, the old floor has caved. Talking about such a horrific accident in such objective terms is a little crass, but blame bozonian.

sk said...

Smart people are talking about the ALT-A meltdown, smart and controlled-risk people are putting money on it - shorting or longer term put buying of stocks like NDE, DSL. (I couldn't get stock to short of NDE btw - which is worth worrying about - the perils of short-squeezes and all that; cf - the LEND price spike - Thur-Fri. whoah.. what market action!! ).

More longer term, wtf is Countrywide up to ? their recent SEC filing, the CEO going on TV to talk of a credit squeeze( establishing a track record for future defences against prosecution?)they are definitely in the frame for me for considering shorting them.


Anonymous said...

Glad you're back. Missed my fix, the other blogs don't cut it.

I live in a tourist town, wonder what'll happen... just sold my house here and really didn't want to leave, maybe I can afford one again soon. had to sell because my business partner wanted to cash out, he said he'd take payments for his share, but something told me to just sell it. Glad I did, things here are starting to slow down, though the prices are still too high. There's HOPE again maybe! And I wouldn't mind if all the tourists just went away from a recession (I know, I know, I'm a tourist myself sometimes)...

As for pat's steak above, if people are worried about money, they don't travel or eat out as much, so you can bet your bootie that commercial real estate will slow down. Already has in a lot of places. Best of luck to you.

LARenter said...

This is from john Mauldin;

"Ok, let's run the math. Almost 50% of the loans made last year were made with little or no documentation check, and 60% of those people overstated their incomes by more than half!!! That means 30% of the loans made were to people who were stretching to buy a home and whose actual income would not qualify them for a home anywhere close to what they bought.

Of course, now that the horse is out of the barn and well into the north 40, lenders are starting to tighten standards. And you can bet that one of the standards is going to be income verification, if for no other reason than that the mortgage company will not be able to re-sell that loan without it! Liquidity for nonconventional loans is going to dry up, if it already hasn't.

And you should care. "Tighter credit means fewer potential buyers, fewer buyers means less demand, less demand means less appreciation. Add a growing volume of homeowners who now owe more than their homes' value and who have no viable options for refinance or repayment and you have the conditions for more folks who will simply opt to walk away, forcing the lender to foreclose and sell at a below-market price. This could make it more difficult for 'innocent bystanders' to sell their home or refinance a mortgage."

Last week I highlighted the excellent piece by Paul McCully of Pimco. His thesis is that subprime buyers are the plankton of the housing ocean. Without a healthy supply of plankton, the rest of the ocean's denizens do not live well. (You can read the essay, and you should, at )."

bozonian said...

I've got it. How to get rich on the Stock Market. All you have to do is play on the "Invincibility of America".

You see, this has been true for so long that money is still being invested in terminally ill sectors, like mortgages. Just play that sector short.

Like this. They should be giving New Century a shot of morphine and a pat on the back, but no, it's major surgery and throwing good money after bad:

This Wall Street "genius", Einhorn couldn't see a disaster coming that was obvious to ignoramuses like us. Why not? Because he, like most everyone else is blinded by money. Instead of looking at real production of goods and services, they look at money. Money is just the hydraulic fluid of society, moving energy from one place to another. By itself, it isn't the energy. Well, American just ran out of gas in the middle of the Arizona desert.

Wall Street is looking around at all the money they are seeing, and the collapsing house market and thinking, "Gee, there's lots of money. Things can't be that bad".

What they don't understand is the MONEY is inflated dollars, about to lose even more value. All their statistics are based on dollars, on money, which is why inflation is so evil. It has made the statistics that Wall Street uses, that the Government uses, and the people use, completely bogus.

Knock Knock. Hello?? McFly! You're already in a recession America. Depression is the next stop.

We're freaking doomed!

Anonymous said...

Good question, Keith - Where do we start? Why not begin each day with a prayer of thanks to a merciful God in Heaven for giving us the good sense not to be shitting in an overpriced shack fitted with faux-classy made-in-China crap while shackled to a bankster -- having been suckered into the whole sorry mess by a vain wife, a porno broker and the satanic temptations of a fraudulent Ponzi-finance economy.

Anonymous said...

Kiefer - How the heck did you get outta Italy? My two girls are stuck in Rome after flights cancelled to the States- hopefully back tomorrow where I will welcome them to the USA, home of the late, great housing ponzi scheme/debacle and also crappy weather.

Anonymous said...

A co-worker of mine here in Ohio listed his house for $297,000 in Aug '06.

By October '06 the property displayed a PRICE REDUCED SIGN. The online MLS showed that the property had be reduced a whole $10K.

Most comps in his area are priced between $229K and $299K, so he is really on the high end with a so so property.

By Feb '07, the 6 month listing expired. I tried to tell him that the market is going down fast and that if he really wants to sell he needs to price around $230K.

He laughed at me and told me that I was an idiot. He is convinced that the only reason the house did not sell is because it was 'out of season'.

Its back on the market now at $289K with a new broker of course!

I'm sure that I will get the last laugh when he is crying the blues this fall because the house did not sell and property values continue to drop all around him. :)

Anonymous said...

As a widening crisis over nontraditional and subprime mortgages gone bad threatens to force millions of people out of their homes, Schlicke worries that mortgage brokers are well on their way to overtaking used car salesmen on the list of professions least trusted by consumers.

"We're in ethical chaos in mortgage lending," said Schlicke, who followed in her parents' footsteps and became a mortgage banker and now teaches classes for real estate agents, lenders and consumers on ethical mortgage practices.

"All you have to do is open up your spam (e-mail) bin and you see porn spam, and you see Viagra spam, and you see mortgage spam," she said, adding that the unethical behavior of a small minority of brokers was tainting the entire industry.

"It's going to be a long road to climb out of that gutter."

Anonymous said...

adding that the unethical behavior of a small minority of brokers was tainting the entire industry.

As another said before me, "I'm sure that 99% of mortgage brokers are making the other 1% look bad"

Anonymous said...

Buy gold and silver eagles they cannot debase them

Shakster said...

Kieth- HousingPanic as a domain,book title,or franchise has a potential value now in the billions if marketed wisely.IMNSHO.You probably already knew that.Greg swann gonna hate it so bad when he walks out of his Apartment in a down town ghetto to See billboards with; Now Playing, HousingPanic ,the big one.Now who would be starring in that one?HMMMMMMM.Can you Imagine the whole country coming to see David LEERAY,and Greg Swann getting their arses bitch-slapped by a rag tag group of HPers,Doomers,and Bubblesitters?The Government needs a scapegoat,so do the banks and wall street,as a diversion to whats really going down

David said...

Glad you are back Keith! I missed you. Keep Fighting the REIC!

Bubble Meter Blog

Anonymous said...

Another priceless quote from Greenie. What was he drinking this time?:

Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

Anonymous said...

"Buy gold and silver eagles they cannot debase them"

Everything is going to deflate, including commodities.

Get into cash and wait for the Fed to reflate. Then, buy gold.

Anonymous said...

Cool hand Luke-

Thanks for the quote from the evil idiot Greenspan re. Subprime Mortgages.

Thank God his Reign of Terror is over.

But boy he left the rest of us with one heck of a mess to clean up.

this guy needs to be dragged up in front of a jury of those who were foreclosed and those who were priced out because of his cute ideas about how to wreck an econmy.

Richard said...

"Really, really hoping a recession doesn't happen."

Are U for real Pat's steak??

Can u say DEPRESSION...

Cand u say PEAK OIL...

Can u say NUCLEAR WAR...

Can u say DIE OFF...

A recession is not even a zit on the ass of life...

Better all wake the F up and stop thinking about retiring on a lake somewhere...won't happen.

Uncle Al said...

Sometimes things don't work out the way people expect them to; as a result, dreams go up in smoke. Dude, the roof is on fire:

Lost Cause said...

Just watch what happens to derivitives and then the hedge funds. Familiraize yourself with the Orange Country bankrupcy if you want to see how fast this gift fruit basket takes down the entire economy in an awful way. This whole charade is backed up with derivatives and enabled by hedge funds. This will not take long to make a big noise.

Survivor said...

Home Depot has a lot of good gardening tools and fruit trees. Maybe with their downturn in sales, they'll put such things on sale?

Lisa said...

On the subject of Alt A and Prime being the next dominos to fall...someone over @ Ben Jones' blog posted a mortgage broker's definition of how these "better quality" papers have been watered down over the last 4 years.

Prime used to be great credit score, 80% mortgage only, very strict debt-to-income ratios. Not anymore. Prime can be an 80/20 blend just like subprime, and debt-to-income ratios are no more. They just look at credit score.

Alt A can also be as much as 80/20, high credit score, but less than full documentation (e.g. stated income "liar loan").

So, these "safer" pools of borrowers will probably turn out to be every bit as over-stretched as the subprime category, just with higher FICO scores.

I bet by Summer we'll have a real sense of just how over-extended people are.

Anonymous said...

I've just put the popcorn into the microwave... getting comfortable in my easy chair and ready to watch the show.

Bring it on!

Anonymous said...

Guess what the value of the dollar is doing against the Euro as of today?

1.00 EUR = 1.33015 USD

If the Feds start lowering the interest rates, I predict the dollar will decline quickly to the $1.50 to $1.60 range against the Euro. That's if we're lucky....

Anonymous said...

God damn nicely said moderator!! Wow, you have a strong way with words. I made some good cash flipping houses these past several years in FL, and working in sales for a subprime lender making a killing. I out the door thank god, just sold my last investment property to some sucker.