July 24, 2007

BUBBLETALK - new thread to talk about the housing collapse

What's on your mind? Post housing bubble / housing crash article highlights, use tinyurl, let me know what I missed, and have a good chat


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Anonymous said...

Planet of the Apes I tell ya! Planet of the Apes!!!!

Anonymous said...

Flip this Corporation

by Itulip

Thanks to iTulip veteran JK for pointing us to the Bloomberg story "LBO Debt Alarms Fidelity, Lehman, TIAA-CREF Managers" below. Apparently, a few fund managers are catching on.

We asked in Most Hedge Funds Suck: "Question is, how much more of this abuse can the U.S. economy take? We'd better hope it can take a lot because in 2007, the hedge fund, private equity and housing bubbles are all going to collapse together."

How is a CLO that creates credit for a private equity firm to use to buy an over-priced company which price was set by an investment bank different from a CDO used to back a goofy mortgage that a lender handed out to a buyer of a home which price was set by an appraiser who got a kickback from the lender? Not much, except that more than $1 trillion in the former has already been closed this year. How many people do all of these over-leveraged companies employ? A million? Ten million? More? We shall see.

Today we hear:
LBO Debt Alarms Fidelity, Lehman, TIAA-CREF Managers
July 5, 2007 (Bloomberg)

The world's biggest bondholders have had their fill of leveraged buyouts, convinced that increasing mortgage delinquencies will drag down the U.S. economy and drive debt-laden companies into default.

"There are some very scary analogies between high yield and the mortgage market," said Kevin Lorenz, a managing director who oversees $2.5 billion of high-yield assets at TIAA- CREF in New York. "You cannot do fundamental analysis and believe that those are credit-worthy companies."

Leveraged buyouts caused sales of high-risk, high-yield debt to rise 70 percent to a record $1 trillion during the first half of the year, according to data compiled by Bloomberg. Bonds and loans rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service are considered below investment grade.

"Demand has spiraled out of control," said Sethi, who helps oversee $2 billion at Fidelity International, an affiliate of Boston-based Fidelity Investments.

"It's the triumph of liquidity over fundamentals," said Peter Harvey, who oversees $3.8 billion of assets as head of credit at Cazenove Capital Management in London. "The creation of credit funds is unlike anything we've ever seen."
We have interviewed a pile of industry people over the past few weeks and are coming away with a very disturbing picture. We are always hoping to be surprised, but haven't been yet, except on the downside.

What we get from interviewing the CDO managers is the observation that the transition from mark-to-model to mark-to-market for the private equity guys is going to be much worse than the transition from mark-to-model to mark-to-market for the asset-backed security equity guys.

What we get from interviewing the private equity managers is the conviction that the transition from mark-to-model to mark-to-market for the asset-backed security equity guys is going to be much worse than the transition from market-to-model to market-to-market for the private equity guys.

We suspect both are correct. To settle this dispute, we'd like to interview the geeks instead of the jocks, but access is carefully managed. We talked to the CEO of Challenger Grey & Christmas, John Challenger, who weighed in with the opinion that the collapse of the private equity bubble poses a real threat to the U.S. economy, the first to share our opinion on that.

Noodle Lover said...

Oh...this is getting ugly..real ugly...I NEVER thought I would see something like this in my lifetime. Time to stock up on ammo...

Mammoth said...

After reading & posting on HP for the past 1½ years, the situation just hit home. The tenants in my Seattle-area rental house, who have been in it for 6 years, just announced they will be moving out at the end of the month.

Looks like it is time to sell the house! For your entertainment, I will make regular posts on the progress.

If anybody has any tips or advice on selling, INCLUDING how to cut the RE agent OUT of the deal, feel free to share your comments. (A fresh coat of paint inside & out, new carpet, don’t price it too high…yada yada, but what else is there to help sell?)

Thanks all,

Anonymous said...

Just saw a childs art exhibit at the local fair. A kid did a picture of Al Gore, with the statement beneath, "My hero is Al Gore, for he has placed the weight of the world upon his shoulders telling us about global warming"!

Now there's a well indoctrinated youth!

Anonymous said...

Is it possible that the government could once again confiscate gold vis-a-vis "Patriot Act- part 2"or something along that line? I think we might be in trouble. The gold plated tin foil hat may not be an option. Any thoughts on this?

ALAN DEE said...

More and more scumbag calls from loan officers tell the tail. They all want me to do illegal things, like fraud. Its just the tip of the iceberg.

Anonymous said...

Is this what George meant by 'The Ownership Society?'??

Tax cuts for everyone!!! We'll borrow our way out of this!

stardust said...

Check it out - Ron Paul Tops McCain in Cash on Hand - Paul's cash on hand puts him in third place in the Republican field


ABC News' George Stephanopoulos Reports: Though often regarded as a longshot candidate for president, Republican Ron Paul tells ABC News that he has an impressive $2.4 million in cash on hand after raising an equal amount during the second quarter, putting him ahead of one-time Republican frontrunner John McCain, who reported this week he has only $2 million in the bank.

Mammoth said...

An Anon posted on the General Comments July 05, 2007 12:06 PM:
“The posters here are your high school losers, your loners, the 34 year old virgins, etc.”
This HP poster has a college degree (Mechanical Engineering), owns 2 houses, and produces much of his own food in a garden. Still owe ~%60 on each house (purchased in 1997 & 2001), paid off my student loans last year, and have no other debt.

I spend less than I make, save money like mad, try to learn from observing others, and take responsibility for my own actions.

You, Anon, hide behind your anonymousness and ignorantly criticize a broad range of people, each of whom has their own viewpoint of the current housing situation.

Back in the old days, in order to make a fool out of yourself in front of a lot of people, you had to get in front of a news reporter and camera. But now - thanks to the Internet - a person can demonstrate to the whole world what a complete idiot they are with just a few clicks of a mouse.

Your post is a perfect example of this quantum leap in technology. Good thing you are hiding your identity by remaining anonymous.

Anonymous said...

no crash!!!! Maybe florida, vegas, arizona and thats only hrting flippers not people intending to live there.

ItsMe said...

Soon Flooz™, Beanz™ and the $Linden will have more value than USD.

Stock up on EVERTHING!

Anonymous said...

Ron Paul, more cash than McCain. 2.4 million. Welcome to the top tier! Not bad for a bunch of cooks.


cleveland steamer said...

"Welcome to the epicenter of the mortgage meltdown in America"


Natural Eyebrows said...

See how the mortgage industry has outsmarted itself.


Shakster said...

Mammoth-I was up there in Puyallup a month back,and noticed that the area had alot less for sale signs than down here near LA.I would ask ,why not keep the home,and re rent to some college students?
My sister,and her boyfriend have been looking for a home to convert to a rental(Turning a home into a 3 unit apartment near Seattle).
The Idea is to get a higher rental fee out of a single home.
They are in the Market looking.
Don't follow the market down if you want to sell,and try to discourage Californians from buying,believe me ,Seattle doesn't need them.

Anonymous said...

Hey Mammoth,

Having a degree and owning 2 houses does not automatically make you a non-loser (for lack of a better term). You can be a 34 year old virgin and a loner as well as a holder of an engineering degree. In fact I would say the probability that one is a 34 year old virgin increases exponentially with the addition of an eng. degree.

You save money like mad, yes indeed. And you will probably die a rich man living in a shithole apartment somewhere with gold bars stuffed under your bed.

What a life!

Oh and if we're throwing out degrees here, fine. I have an MBA as well as a BSc in Business Mgmt with a minor in Chemistry - odd combination I know. OOhhh ahhhh!! I was admitted to medical school, a very good one, but at the last minute decided not to go. Things haven't changed much in the 12 years since I graduated college though. Every asshole in engineering thought his shit didn't stink in 1995 and looks like the same is true in 2007.

I have never had any student loans eitherand the only debt. Oooohhh aaaahhh. Where do I get my award for that?

ALAN DEE said...

BY 2010 the entire US domestic market will peak, the west coast is always ahead of the crowd.

Anonymous said...

looks to me like this crash is happening in florida. not much doubt about that. phoenix and las vegas maybe, although i know a few folks who live in both cities and they tell me it's really a non-story to those who live there, and this includes renters. the rest of the country is just going about it's business.

i thought there would be a hige real estate debacle nationwide myself. i was wrong.

Anonymous said...

McCain is finished. Having more money than him means nothing. Giuliani has $18M and Romney has $12M. Ron Paul may very well get more votes than McCain but that means he will come in 7th to McCain's 8th.

Most of the money Paul gets is from far left, anti-war types. The far left will support anyone who is anti-war right now. Wait till they find out what else he stands for, ie elimination of social programs and pro-life.

And read those comments, god it's not even a tin foil hat convention, it's a tin foil hat manufacturer's convention. Talk of revolution. Revolution from what morons, the highet standard of living ever known to man? Yeah that's a winning strategy for getting votes.

edd said...

Three years from now, remember that
in 2007 you read this phrase:

"as-needed learning online"

It might be our only hope.

Anonymous said...

Rating company Standard & Poor's recently pointed to a sharp rise in late payments and defaults on "Alt-A" home-mortgage loans, a category between prime and sub-prime. S&P found that 4.21 percent of Alt-A loans bundled into mortgage-backed securities last year were 90 or more days overdue after 14 months.

That was up sharply from 1.59 percent for loans from 2005 and 0.91 percent for loans from 2004.


Anonymous said...

96 major U.S. lenders have "imploded"


Anonymous said...

Check it out - Ron Paul Tops McCain in Cash on Hand - Paul's cash on hand puts him in third place in the Republican field

Nice! Keep giving. :-)

james dean said...

Anonymous said... no crash!!!!

Uh huh, talk to my realtor about that. DC area has fallen/ still falling for comparative properties.

Dumb I ain't.

Anonymous said...

Should I sue the Mortgage Broker Michigan?

A friend offered to re-fi our loan, he explained he had some great "new" offers, interest only, or pay the full amoritization amount. We were in a 3/1ARM.. Fully amoritzed amount was $1707. This friend claimed he could beat it. End of story is at closing, the loan was 100% different than GFE or TLD, we called him at closing, because he was a friend, he told us just to sign, he had (3) days to correct any mistakes. We are now in a 3/1month/ARM- Prepayment penalty, Our mortgage went from $1707-2600. They admitted fault, agreed to pay the 1% PPP, and get us into another loan no fees. This is our third appraisal in 6months. We had to have another one done so the house would appraise for $7K more. The broker "negotiated" with the appraiser to up the value he wanted another $300. Closing should have happend 10/13/I receive new loan docs, new lender, new rate.. We are going to "walk" and "sue" We have all docs including a cell-msg admitting fault.

Public Comments

1. It will cost you several thousand dollars out of pocker to start legal action. You might have a case, but it will not be easy or quick. I hope you have a healthy savings to tap into for legal expenses.

2. For complaints concerning licensed Michigan mortgage brokers: Office of Financial and Insurance Services P.O. Box 30224 Lansing, MI 48909 877 999-6442 www.michigan.gov/ofis The 3 day right of rescission is for you to make sure you want the loan. It is not to be used for the broker to correct mistakes. What was the benefit of doing the loan? If you got substantial cash out, then a jump in payments would happen. For some lenders the prepay is standard. The appraisal issue is scary. There are many things going on here - an attorney specializing in mortgage fraud can help you sort thru everything to determine if there is a case. I would go that route.

3. First of all when a friend offers you something that sounds to good to be true than it might be. It sounds like your mortgage broker really didn't know his products or not really good. I don't know if you are telling us the entire scenario. Did you get cash out? Did you raise your loan amount to pay off some debt? or Was it just getting a lower rate? As I see it there was no benefit for you here. Also, getting a 3rd appraisal in 6 months is unheard of. I can see 2 but 3. It sounds like your friend was trying to commit or have the appraiser commit appraisal fraud. My next question to you is How long do you plan on staying in your home? Why did you take another 3 year ARM? Your friend should have put you into a 5 year ARM or get you into a 20 year term loan. Sure the payments might have gone up with the 20 year but you would be saving so much in interest over the life time of the loan and there would have been a benefit to you. As the previous poster said you can go to the banking commission in your state or even make a complaint to HUD.

4. Wow, unfortunately this is not uncommon. You should tell people what company this was so they don't have the same thing happen to them. Right now times are tough in this business and it's hard to find people looking to refinance when 2-3 years ago rates were 2% lower. And the really bad part is that this person is supposed to be your "friend" and he took advantage of that trust. Many people right now are over-promising and under-delivering. I see it every day. I call up a client off of a lead and they tell me that "Company X" already promised them a 5% interest rate with $10,000 back. Right now alot of brokers will say anything to get you to the closing table and once you're finally there it's something totally different. You gotta look hard for a good mortgage company that isn't just out wacking people. And unfortunately the harder you look and the more you pull your credit it'll make your score drop. But the upside is your scores will be back to normal within a year and you'll get a good deal. Any questions or concerns feel free to contact me. And good luck with your current situation.


Anonymous said...

Have you fill out your real estate Appraisers complaint form yet?


Anonymous said...

first the flippers get burned

then the subprime

then the mortgage brokers

then the alt-a

then the local banks

then the prime

then the big banks

Anonymous said...

Latest in string of suspicious fires guts Yakima condo project

The latest in a string of suspicious fires has destroyed an unfinished condominium project, three days after a couple died in an apartment fire.

Only one corner of one of the condo buildings remained standing after towering pre-dawn flames gutted the financially troubled complex before dawn Thursday. Damage was estimated at $1.7 million.

Records show the condo project is owned by Deerfalls Property of Issaquah, which filed a Chapter 11 bankruptcy petition for reorganization and protection from creditors last month.

Jacques and Alexa Petschek-Von Speyer, listed as the debtors on the petition, could not be reached for comment Thursday by the Yakima Herald-Republic.


Anonymous said...

Number of suspicious fires on the rise

The growing number of kitchen arsons is putting lives and homes in danger. Officials say the number of suspicious fires in Lee County has skyrocketed.

Officials with the State Fire Marshal's Office say that sometimes, homeowners purposely started their own home on fire.

Local firefighters say they have seen similar situations take place because the homeowner was just looking to collect the insurance money.

"If I just leave something on the stove burning, say I have to go to the store, maybe I can get some money out of it," said Patrick Comer, of Lehigh Acres Fire.

Through just the first six months of 2007, the number of suspicious fires under investigation in Lee County has more than tripled compared to all of 2006.

According to the State Fire Marshal's Office, firefighters fought nine kitchen fires in 2006 and three of them were deemed suspicious.

So far this year, they've fought 18 fires and 10 of those were thought to be suspicious.

"We got double those numbers in the first five months of the year and our population did not double," said Comer.

Officials with the Fire Marshal's Office say this is a problem all over South Florida and they're keeping an eye on the growing number over of fires.

Comer says the Lehigh Acres Fire Department has already noticed the problem and the tell tale signs that will usually lead them to believe a fire was arson.

"Are they behind on their mortgage payments and they're trying to get out of a bad house deal? We've seen a lot of foreclosures, does that figure into it?" said Comer.

Arson is a first degree felony and insurance fraud is a second degree felony. With those penalties combined, someone could be facing 30 years or more in prison.


Anonymous said...

Fire of foreclosured property called suspicious by Granite fire officials

Granite City fire officials are calling Wednesday's garage fire on Delmar Avenue suspicious.

Fire Chief Tim Connolly said the attached garage at a vacant home at 2533 Delmar was "totally involved" when firefighters arrived at the residence.

The cause of the fire is still undetermined, fire officials said. Arson investigators from the fire department are continuing an investigation that will be turned over to the police department.

The blaze was called in about 5:13 p.m. through a 911 call, according to reports. Damage to the garage was listed at $15,000 and content damage at $10,000. The garage's estimated value was listed at $20,000.

The home had been owned by Vincent Sleckal before it was acquired by GMAC Mortgage of Pennsylvania.


Anonymous said...

Foreclosures have risen across California as the market has softened and more homeowners find themselves unable to handle increased payments on their adjustable-rate loans.

But when no one bids on property that's being sold at foreclosure auctions, banks repossess, and the properties become "real estate owned," in industry jargon.


Anonymous said...

More lenders taking homes

The increased presence of lender-owned homes in the market - known in the banking industry as REOs, for "real estate owned" - is fallout from the real estate fervor that marked the first half of this decade.

Loans were easy to get, adjustable rates made monthly costs more bearable, home values were rising, and many homeowners leveraged themselves to the maximum. But conditions have changed and foreclosures have risen.

One of the reasons so many foreclosure properties fail to find buyers is because the bidding typically starts at the amount of the unpaid balance on the first mortgage, and in a soft market, some homes are no longer worth that much.

When that's true, no one bids.


yuccatree3 said...

(A fresh coat of paint inside & out, new carpet, don’t price it too high…yada yada, but what else is there to help sell?)

Some recommendations:

1. Spend the money to have the place professionally cleaned before putting the house on the market. Make sure your floors and fixtures are spotless and stain-free.

2. Have a gardener trim your hedges and weed your flowerbeds when he mows your lawn. Cut down any trees that are dead and cart away the wood.

3. Repair cracks in your driveway and/or your sidewalk.

a.creampuff said...

Happened to have the opportunity to see SiCKO yesterday. Highly recommended. If the REIC manipulates the media and buys politicians, the insurance lobby is far worse. Basically, if you are "luck" enough to be covered, you will pay and pay an pay, and then when something major goes wrong, they will do everything possibly to deny coverage.
SiCKO could have shown more facts and figures, but proves one thing: this is American, d*mn it: we can do better.

james dean said...

DC (...insert your city name here) is different!

HousingTracker.net says

DC down 10.5% over last year and inventories up 53.5% over last 6 months.

No, nothing to see here. Move along.

(And the folks that wait this out will be walking into slowing GDP growth and reduced DOD spending in 08)

james dean said...

Oh, and 75% percentile houses (HPer sized)...

DOWN IN DC by 14.3% in last 2 years.

Anonymous said...

From Barry Ritholtz at The Big Picture blog:

Underwater ARMs?
Sunday, July 08, 2007 | 06:30 AM

How bad is the Adustable Rate Mortage (ARM) situation? Stephanie Pomboy via Barron's Alan Abelson has the straight dope:

"After modest reflection, any disinterested observer can't help but find that accompanying table quite alARMing. It's from a recent MacroMavens report, the handiwork of the incomparable Stephanie Pomboy, whose rants and raves we've had the pleasure of occasionally sharing with you. What its blood-curdling numbers depict is that the woes of mortgage lenders are not, as so widely believed, confined to the beleaguered subprime contingent, but are casting a much larger and chillier shadow.

More specifically, the table shows all too clearly that an astounding percentage of adjustable-rate mortgages already are underwater, and it estimates how much equity would be wiped out if home values decline by 5%, 10% and 15% and translates the corresponding losses into dollars.

As Stephanie comments: "Based on the share of ARMs in some state of negative equity at the end of last year and the decline in home prices so far in 2007, a stunning $693 billion in mortgage loans are already in the red. Assuming lenders are able to recover 70% of those assets -- which seems optimistic given the massive amount of housing inventory yet to be unwound -- that means mortgage lenders are already grappling with $210 billion in outright losses."

And that, she points out, is merely the direct hit. Thanks to what she nicely dubs the "divine miracle of leverage," the total financial exposure to these claims is many multiples of that. To which we say, ugh!

What's more, Stephanie notes, these horrendous losses are coming at a time when the financial sector is "uniquely unprepared to withstand them." Commercial banks, she points out, have let their loan-loss provisions sink to 20-year lows while increasing their exposure to real estate to record highs. Mortgages, she reckons, account for a tidy 55% of total bank loans -- and that doesn't include the trillion dollars worth of mortgage-backed securities on bank balance sheets.

So much for the myth that banks have cleverly "offloaded" their real estate risk.

Every time I hear the phrase "Well Contained," I am reminded of that amusing scene from "The Princess Bride:"

[Vizzini has just cut the rope The Dread Pirate Roberts is climbing up]
Inigo Montoya: You keep using that word. I do not think it means what you think it means.

"Well Contained": They keep using that word. I do not think it means what they think it means . . .

Truly Al-ARM-ing
Barron's Monday, July 9, 2007

K.W. - Southern Ca. said...

Do you seriously believe there has been no crash?

We at HP invite you to come back and re-post at 2008 when ARM's have taken affect in greater numbers across the country.


Anonymous said...
no crash!!!! Maybe florida, vegas, arizona and thats only hrting flippers not people intending to live there.

Anonymous said...

A Bush financial policy analogy...

Remember the kid who thought it was cool to light his farts on fire? Ladies and gentlemen, I give you the economic policies of George Bush 2.

For all of the run away credit built up to W's delight (or you could say it's what his campaign contributors paid him to do - look the other way) as it would give the bigger flame (er economic boom). Then, finally the market couldn't hold it in any longer and the ignition, provided by W's lack of oversight of the credit market, just brilliantly flamed out hundreds of billions in derivatives (the mark to market valuation which came from the Bear Stearns hedge fund meltdown.)

Why should you care about the derivatives market? Because it's the insurance for the risk factor which underwrote much of the recent Bush boom. And it's vaporizing by the minute.

So sadly, as you watch the bust unfold, realize W's financial policies were nothing more than the 12 year old kid lighting his fart on fire.

I wonder what St. Peter's going to think of that????

Anonymous said...

To all the people out their who believe what the govt tells them. Just try to look around you for a few minutes. Notice what people are buying at the stores you go to. See how easy it is to get a parking place or go through line. Ask your waitress or hairstylist how tips have been lately.

These are the ways I have always invested. If I see empty jewelery stores, people with only food in their carts at WalMart, and people wandering around malls with no bags I get worried. However I could just believe everything is fine and listen to the Chimp and all his buddies.


K.W. - Southern Ca. said...

Here's my tip:

There are many young college students looking for an affordable place to rent, so you may want to consider setting your monthly rental rates lower - to fit their budget.

Matters have been made worse in the housing market in that fewer and fewer buyers qualify due to strickter lending standards - yet there is an oversupply of houses sitting on the market.

Mammoth said...
After reading & posting on HP for the past 1½ years, the situation just hit home. The tenants in my Seattle-area rental house, who have been in it for 6 years, just announced they will be moving out at the end of the month.

Looks like it is time to sell the house! For your entertainment, I will make regular posts on the progress.

If anybody has any tips or advice on selling, INCLUDING how to cut the RE agent OUT of the deal, feel free to share your comments. (A fresh coat of paint inside & out, new carpet, don’t price it too high…yada yada, but what else is there to help sell?)

Thanks all,

Anonymous said...

Keith, sometime ago you posted an entrty about who deserves to get flamed for this mess. Well, I have two to add to the list.

1) Anyone who used the term investors when they shoulld have really said speculators.

2) Bill Griffith and CNBC. With apologies to Diana Olick, last summer CNBC presented a one hour special on housing in which Bill Griffith trumpeted the appreciation rates in Florida, California, and Arizona. To be fair they also noted signs of a slowing real estate market. But where is the program THIS year? Arguably the public needs insightful, helpful advice more than ever now. And CNBC has skipped out-of-town. It's such behavior which provides substance when people accuse CNBC of being a hype factory.

Anonymous said...

This looks like 1928,about one year before the great depression hit, 2010 anyone

JJ2000426 said...

Mistery around the Russian Strategic Stockpiles gets deeper!

Price of a strategically vital metal, palladium, rallied from $145 in 2003 to almost $400 recently, this happened with global production of 7M ounces per year, and on top of that the Russians dumping 1.8M ounces per year from their strategic stockpile. With such extreme over supply palladium should be extremely bearish, but it had been very bullish for the past four years? WHY?

Many experts believe the Russian stockpile is running low today! They can NOT continue this massive dumping. Lots of investment entities saw this and positioned themselves and silently loading up physical palladium. Once the huge Russian dumping is cut off, expect palladium price immediately shot to sky high!

This speaks extremely bullish for a little known stock called SWC, the only US based palladium producer, and richest palladium mine in the world.

An explosive 20 folds gain within 4 years or shorter can be expected. That's 2000% gain!

The perfect technical chart should convince any one the right entry point is right around the corner.

Little Al said...

Now it is coming out that some of the famous Wall Street firms are the holders of the riskiest high yield traches because no other investors are stupid enough to buy them. This is hillarious and it serves them right. They did not have enough sense to unload that junk before the buyers disappeared or they believed their own propaganda that marking this junk to the model is better than marking it to market.

I am proud to say that I do not have any money invested with these broker firms and I will have a higher net return investing my cash in a box in the closet than investing it with these characters as I will incur no loss of capital and no fees although I will suffer a loss from inflation that would occur no matter what I invest in other than gold and silver.

Anonymous said...

is it true the CDOS that represent the housings could not sell on the open market at 15 percent of their stated "value" ugly spreads??????????

hEdge Fun Mangler said...

5 out of 6 hedge funds created since late '05 or early '06 are sponsored by investment or commercial banks; during this period, half of all hedge funds existing today were created.

Moreover, the average leverage of a hedge fund as of Q1 '07 is 255% of capital, with 10% of funds leveraged at 1000% of capital.

These funds exist in large part over the past 18-24 months to "sanitize" all of the insane mortgage paper and related derivative or hybrid instruments that were created and shifted to funds of funds, mutual funds, and pension funds. All of this bullsh@t paper is now spread across the financial system, with much of it having no pricing whatsoever, as marking this dung to market is not only impossible but virtually unknown. There are emerging rumors that the extent of this equine-excrement paper is $1.5-$2.25 trillion when fully accounted for.

It is similary suggested that this crap is not a risk to the overall financial system b/c it is "contained". However, the booming financial profits of investment and commercial banks and non-bank financing firms have absolutely soared primarily b/c of the ability to create tens of billions in credit to float and distribute the trillions of dollars in debt at lucrative fees to the bagholder pension funds and funds of funds. Not only is the rate of growth of this crap slowing dramtically, the liquidity necessary to keep the value of the existing crap rising is waning, if not contracting in the past 4-6 weeks.

I'm not sure if I've implied the obvious, but, in case I did not, the US and, by extension, world, financial system is at grave risk of a cascading implosion and Asian Crisis II.

For God's sake, don't be caught like a deer in the headlights; you have been warned; the system is already imploding.

shtove said...

The mortgage implode-o-meter people are being sued for libel:
They're trying to have the claim struck out as an attempt at intimidation, but it looks serious for them.

And check out the 50 John Does!

Shakster said...

Congratulations to BOEING.
With Boeings track record for safety,performance,and calculating risk,they have again come up winners. They know their business.
Now if boeing could by out Ford.........
Seattle just may be special in this now ongoing crash.

Anonymous said...

Mammoth in Seattle:

Okay, here' s what works to sell the house. Price at least 10% below current comps (SOLD price, not asking). Don't ask your average realtor for that info. They won't tell you. Find out yourself. Go - 15% to start if the mortgage market looks bad the week you're putting it up for sale.

the reason I say don't ask /trust the realtor is that I've got friends in Seattle who've had their houses on the market for WAY TOO LONG now with no decent bites, all on the recommendations of stupid realtors up there who are still drinking the koolaid.

Price is the ONLY thing that matters. My friends have been chasing the market down for months now when if they'd just priced it right to begin with, they would've GOTTEN what they are asking for now 5 months ago. Good luck.

Shakster said...

As far as she-it goes,Las Vegas is very special----------------------------------------------------------------------------------------------------------------------------2458 PALMER PARK CT, Henderson, NV 89052
--2 beds, 2.5 baths, 2,592 sqft
--purchased for $800,000 in November of 2005.
--after 10 months, the home was returned to Homecomings Financial Network in September of '06.
--the bank listed the home on the MLS for $459,900 in March of this year.
--Price Reduced: 04/06/07 -- $459,900 to $444,900
--Price Reduced: 04/25/07 -- $444,900 to $429,900
--Price Reduced: 06/06/07 -- $429,900 to $409,900
--Price Reduced: 07/04/07 -- $409,900 to $379,900.

You know and I know back in November of '05 the folks at 2112 Noah Tyler, just two houses down from 2458 Palmer Park, were likely toasting the New Paradigm. Who knew the new purchase would end up as an early payment default becoming a REO in less than a year.

With the current asking price of $379,900, or $146/sqft, this price is 53% down from the purchase price in November of '05, and this is 50% down from 2112 Noah Tyler's purchase price 2 years ago.

As for the new monthly carrying cost if a buyer bites at the new price? Try $2,300/month, or a difference of $1,700/month in carrying cost between neighbors.

Has there ever been a time when a home loses 50% of its value two years after its purchase? We truly are in a New Paradigm indeed
very special---------------------
Anons,and trolls better hope that doesn't sell,or we will have a 53% correction in the beginning stages of the crash.But we won't count it until it does,nor the millions of other homes in the same situation.
You Know,gotta give the handicapped a head start.

Mike said...

Associated Press - Housing Market Data Doesn't Add Up

July 08, 2007

"Here's a scary thought about the housing market: Things might be far worse than what's already being revealed by the troubling government and industry statistics."

Anonymous said...




Florida foreclosure future shock


Anonymous said...

Houston we have a problem! As a matter of fact so does L.A., Az., Vegas, O.C., San Diego and Florida. The housing market has fallen off a cliff and it can't get up!

Anonymous said...


I have sold several houses over the past 20 years, both with and without a real estate agent. I did the best when I sold it my self. I advertised it in the paper, and called all the real estate agents. I held open houses every week end. I made sure in my adds to tell them that my price was lower due to no agent, and why not split the commission between us. I would have given a cut to an agent that brought me a buyer, but this had to be a full priced offer. I finally sold it by saying in my newspaper add that I had to have it sold immediately or take it off the market! Some couple showed up at the open house with an all cash offer.

Guy Daley said...

To the stumps in lala land, more evidence:

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.


To the stumps that think its just CA, NV and AZ - What about Georgia? Does this type of haircut qualify?

Anonymous said...

To mammoth:

My girlfriend lives in Ballard area. She was thinking about buying a condo. Is now a bad time to buy in Seattle?

Anonymous said...

The $300 Trillion Time Bomb
by Jesse Eisinger May 2007 Issue
If Warren Buffett can't figure out derivatives, can anybody?

Mr. Buffett, age 76, has for more than thirty-six years been Chairman of the Board and Chief Executive Officer of Berkshire …
View Full ProfileFor hundreds of years, the way to solve problems in the financial market was clear: Get Wall Street’s titans in one place and knock heads. It took only 24 brokers gathered under a buttonwood tree to form what became the New York Stock Exchange.  J. Pierpont Morgan locked several dozen bankers inside his famous library on Madison Avenue to solve the panic of 1907. And in 1998, New York Fed president William McDonough convened representatives from the biggest Wall Street firms, 14 of which then bailed out Long-Term Capital Management.

Less than a decade later, financial markets have become vastly more complex. And they are no longer in the hands of a select few. Markets are tied together in ways that regulators and even Wall Street professionals struggle to comprehend. Bonds are bound to stocks, which are tied to currencies around the world.

The binding threads are derivatives, and the brightest minds on Wall Street worry about how they work—especially as stock markets around the world hit a bump. The term derivatives describes an array of financial contracts whose value is deter­mined by, or derived from, an underlying asset such as a stock or currency. The deriva­tives market, one of the fastest-growing areas of finance, is estimated at $300 trillion. A subset of that—credit default swaps, which are derivatives based on com­panies’ creditworthiness—last year reached $26 trillion, twice the size of the U.S. economy.

In their most benign form, derivatives are probably the greatest financial innovation of the past 25 years. They have helped smooth currency and interest-rate fluctuations by allowing investors to protect themselves. But when it comes to the really big stuff—such as global market collapses—derivatives could turn from vaccine to contagion. Investors use them as a form of insurance, which may give a false sense of security. “A financial crisis is likely to be a global event, not a local event, and derivatives will probably help make that happen,” says Joe Brandon, C.E.O. of General Re, a reinsurer owned by Berkshire Hathaway.

Brandon has grown intimately familiar with the perils of derivatives during a grand five-year experiment conducted on orders from his boss, Warren Buffett, to close Gen Re’s derivatives business.

Gen Re got into derivatives dealing in 1990 and became tied to global financial markets in ways it found difficult to predict. When Buffett bought the company in 1998, he quickly decided he wanted out. At Buffett’s behest, Brandon embarked on a task that lost Berkshire and Gen Re a cool $409 million before taxes. The experience led Buffett to write in his 2002 letter to Berkshire Hathaway shareholders what has become the most memorable line about the instruments: “Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

It may be one of the Oracle of Omaha’s pithiest pronouncements, but it’s also been one of the most ignored, as the derivatives markets have gone supernova. Even so, their vulnerability was reinforced this spring, when the market for mortgage securities, a type of derivative, seized up.

Yet investors remain oblivious at their peril. After all, two of the world’s smartest financial players, Buffett and Brandon, took lumps getting out of a modest derivatives business in some of the most placid waters financial markets have seen in years. Would J.P. Morgan Chase, Citigroup, or Goldman Sachs, all of which have vastly bigger derivatives businesses, have come out better?

Gen Re’s business was conservative. Yet it still lost money, with only a tiny percentage of trades piling up huge losses. Roughly 98 percent of its deals were fine. That suggests that when there are problems in a derivatives portfolio, they will be harder to discover, because of their rarity.

Much of Gen Re’s divestiture was conducted by Matt Nelson, a 42-year-old trader. He saw his role as a mix of chess grand master and private detective. He spent hours tracking down and persuading investors on the other side of the trades to work with him to get rid of the derivatives.

The General Re unit started out with more than 23,000 trades worth just under $1 trillion. The losses from excising those trades accounted for about half of Gen Re’s total loss. But even that overstates the story. In ditching the portfolio, Gen Re ended up making a modest amount on most contracts. It was a mere 500 trades that accounted for more than $200 million of the losses. The toxic 500 fell largely into one basket: complex foreign-exchange agreements. These were often contracts that spanned periods of 30 years or more and involved bets on both interest rates and multiple currencies. For example, Gen Re brought together Japanese retailers (who had become fed up with low returns in their local market) with all sorts of lending agencies, such as the World Bank. Gen Re hedged those trades with offsetting contracts pegged to moves in interest rates and currencies over several years. But because of what was essentially a math error, the hedges were inadequate.

Gen Re quickly learned that even without math mistakes, the squirrelly real world can throw off a sound financial model. In one set of trades, Gen Re figured it had found a bit of treasure. It entered into contracts involving the U.S. dollar, using what’s called a Bermudan swap option. These contracts were theoretically worth more than another common option because an investor could get out of them at multiple points in the future rather than at a single fixed date.

That’s the theory, anyway. When Gen Re went to unwind its trades, it couldn’t capture the extra value that its Bermudan swap options were supposed to have. “The models we used were simply models,” says Nelson. “They didn’t take into account real-life situations.”

The accounting for derivatives lends itself to bad numbers, even in the absence of malfeasance or sloppiness. At one point, Brandon reviewed the derivatives unit’s business over the past 10 years. During that period, it recorded about $1.2 billion in trading revenue and $505 million in operating income before taxes. It also set aside reserves in case things went badly. Gen Re’s auditors even wondered if the division was putting too much aside. But its reserves turned out to be insufficient. In Brandon’s analysis, the unit generated a third less income than had been anticipated. How did it go so wrong? Profit estimates for derivatives are susceptible to overstatement, in part because many of the contracts extend years into the future.

The irony (or perhaps hypocrisy) is that Buffett still uses derivatives. His famous declaration was “a lovely phrase, and it got him more ink than he could ever have hoped for or imagined,” says Jim Grant, who edits Grant’s Interest Rate Observer. “But to judge by his own investment record, he didn’t take himself literally. Nor should we take it literally. Credit default swaps and other derivatives are neither inherently good nor bad but desirable or undesirable at a price.”

Grant gets support for this theory from an authoritative source: Buffett himself. In a recent letter, released in early March, he wrote about the derivatives Berkshire Hathaway has entered into. “Why, you may wonder, are we fooling around with such potentially toxic material?” His answer: “Derivatives, just like stocks and bonds, are sometimes wildly mispriced.”

There you have it. There’s nothing intrinsically scary about derivatives, except when the bad 2 percent blow up. Derivatives are vulnerable to problems because the accounting is complex and they can add much more leverage to the system than investors realize. For derivatives to become dangerous, they need complacency.

That’s exactly what’s going on today. In February, a presidential panel led by Treasury Secretary Henry Paulson said hedge funds—among the heaviest users of derivatives—should remain lightly regulated. And the European Union’s chief market regulator similarly declared that no extra private equity regulations were needed. So, sure, derivatives aren’t inherently evil. But in the hands of overmatched regulators and blithe investors, they will be.

Guy Daley said...

Another juicy haircut also from the same article posted earlier. I know the trolls are too lazy to go to the links so this is in Atlanta again at an auction:

Mark Rollins bought a house southwest of downtown Atlanta for $78,000 at one of the Williams & Williams auctions. The property sold for $255,000 in summer 2004. Mr. Rollins, who is a Realtor, said he planned to live in the house for a couple of years, fix it up and resell it for $150,000 when the market recovered.

That's 69.4% off and that's the type of entry point I'd be happy with.

Brian said...

I just found this link looking for how to cancel out of a buyer's agent contract.


Can we find a good wall that we can put her against?

Anonymous said...

Are we turning the corner in the housing real estate mania?

MSM now against housing:


Do Not Buy That House
by Elisabeth Eaves
Friday, July 6, 2007
provided by

The dream of owning your own home is as American as apple pie--and (supposedly) better for you. Over and over, we are told that homeownership will make you happier, healthier and wealthier. Heck, it's even supposed to make you a better citizen.

Of course, there are times when, depending on your age, your savings and your income, buying a home can be a smart decision and an excellent way to build wealth. But is buying a home really such a universally good idea?

It's hard to separate fact from propaganda.

Certainly, the virtues of ownership have been preached loudly and from on high. As early as the 1920s, Herbert Hoover extolled home ownership as a pillar of family life. Nearly 80 years later, President Bush reiterated the message, stating "there's no greater American value than owning something, owning your own home and having the opportunity to do so."

Homeownership has been touted as civic responsibility, "moral muscle" and a bulwark against communism. A 1922 pamphlet from the National Association of Real Estate Boards even promised that it would put the "MAN back in MANHOOD." Over the years, it has been claimed that homeowners vote more, join more voluntary associations, take better care of their residences and have better-educated kids.

But to realize that America's mania for home-buying is out of all proportion to sober reality, one needs to look no further than the current subprime lending mess. In the last decade, riskier lending practices combined with historically low interest rates and federal subsidies have encouraged a wave of low- and moderate-income households to buy homes.


Anonymous said...

Here is a good link Keith


Anonymous said...

Dude, Ballard area was unaffordable 3 years ago when I moved out, since then the prices only went up.

Anonymous said...

The foreclosure pox continues to spread unchecked across the country despite efforts by government and industry to stop it.

3 out of every 1,000 homeowners in the United States lost their homes to foreclosure in the first half of the year. That’s up 41 percent compared to the same period last year, according to the latest numbers from ForeclosureS.com, a California-based real estate investment advisory firm and longtime publisher of foreclosure and property information.

These per capita numbers translate to almost a quarter-million residential properties (247,907) that ended up in the hands of banks or lenders this year because homeowners couldn’t get their mortgage default problems solved, according to ForeclosureS.com, which tracks and analyzes foreclosure filing through its database of more than 3.2 million listings nationwide. Per capita reflects the number of filings as a percent of the number of households in an area.

“Hundreds of thousands of more homeowners won’t be able to escape foreclosure for most of the rest of the year either unless stagnating housing prices and markets pick up, and the nation’s economy rebounds, too,” says Alexis McGee, president of ForeclosureS.com


Anonymous said...

Spain caught in credit squeeze

Spanish companies face much tougher credit conditions as a result of a dramatic change in perceptions of country risk, brought on by fear that Spain’s house price bubble is about to burst.

According to rating agency Standard & Poor’s, Spanish corporate debt is at an historic high point, totalling 106 per cent of gross domestic product last year compared with a Eurozone average of 70 per cent.

The surge follows a credit-driven acquisition spree at home and abroad. But banks that extended credit freely into the boom are now encountering problems in syndicating some of the riskier loans.

Spanish real estate groups have been locked in negotiations with their creditors, who are having difficulties syndicating loans.

But a problem that began with Spain’s over-valued and over-leveraged real estate sector has infected other parts of the economy. Infrastructure, services and media companies also report a marked change in investor sentiment. This week, four international banks – RBS, Calyon, EuroHypo (a unit of Commerzbank) and Goldman Sachs – will test the appetite of capital markets for additional Spanish risk by trying to syndicate a €7bn credit to Colonial, one of the larger real estate groups. The four banks have renegotiated terms of the loan facility with Colonial after finding no takers for the syndicated credit last month.

“There has been a radical change in the perception of Spanish country risk since we negotiated the original terms of the credit a few months ago,” Mariano Miguel, Colonial’s chief financial officer told the Financial Times. “Given that we have good, long term relations with the market makers, we wanted to co-operate [to find] terms that will make it easier for the four to syndicate the credit.”

For Colonial, that means paying more interest, repaying capital sooner, and bringing down its debt-to-net asset-value ratio from 64 per cent to less than 60 per cent.

A year ago, banks were willing to lend up to 120 per cent of a real estate group’s net asset value. An investment bank in Madrid says few banks will finance more than 30 per cent of net asset value for some real estate groups today.

Colonial, formerly Inmocaral, raised the €7bn facility this year to take over two rivals and to acquire a 15 per cent stake in FCC, a construction and services group.

Tougher repayment conditions, Mr Miguel says, would affect Colonial’s plan: “Instead of growing [by] acquisitions, we will have to pay off debt sooner.”

Another casualty of the aversion to Spanish risk is securitisation of Spanish mortgage loans.

At the height of the Spanish housing boom three years ago, Spanish banks accounted for more than 80 per cent of mortgage securitisation in Europe. Investment bankers say there are no longer buyers for this kind of paper.

“The market has become very tough even for top quality issuers,” says an investment banker. “Perception of country risk has deteriorated because of the real estate bubble. Investors don’t know whether this is the beginning of a change in economic cycle, or whether we are witnessing a readjustment in asset prices. Either way, it is a very difficult moment, because lenders don’t know what price to put on Spanish corporate debt.”

José Manuel Vargas, chief financial officer of Vocento, the Spanish media group, told the FT after visiting investors in London: “Some are wary of the Spanish economic cycle and are looking for defensive stocks.”

Difficulties have been compounded by the rise in euro interest rates and tightening global credit conditions.

Ferrovial, the infrastructure group, has had to contend with regulatory uncertainties and surging security costs as its bankers prepare a £10bn bond issue to refinance its acquisition last year of BAA, the UK airports operator.

Debt-financed stake-building in the electricity and energy sectors had left other Spanish construction and services group exposed to sudden share price movements, say analysts.

Lenders are less likely to finance such deals.

“Banks now have to be more selective about who they lend to, and for what,” says Erwin van Lumich from Fitch Ratings.

“We are seeing what was to be expected: the end of an expansive credit cycle for Spanish corporates.”


Anonymous said...

Interesting perspective on SCAL foreclosures from a guy who makes his living at it:


Anonymous said...

I agree. Rates have to go up and soon!!!

Why the Federal Reserve Can't Bail Out the Real Estate Bubble

The real estate bubble was mainly a result of record low interest rates followed by a complete relaxing (forgetting?) of sensible lending standards.

Basically, the entire real estate bubble was dependent on lowering interest rates.

Without lowering interest rates, properties no longer rose in price. Once prices began to fall, banks closed the spigot of lending money.

So, if you want to know the direction of the real estate market, then look at interest rate trends.

Which way are interest rates headed? Clear signs point to higher rates.

And here is the reason: INFLATION.

Inflation is the number one concern of the Federal Reserve. Why? Inflation robs everyone of the value and purchasing power of money. Think of it this way - you may think you have a good amount of money in the bank. For example, maybe you have enough to buy a new car. But if inflation increases, your money will buy you less as the price of cars rise. So it is the Federal Reserves job to keep inflation in check - otherwise the wealth of our nation and population rapidly deteriorates. The primary tool the Fed has in its limited tool belt is controlling short term interest rates - the rate charged to banks to borrow money. To slow inflation, the Fed raises interest rates thereby causing the economy to slow down. This relieves demand and causes prices to come down.

So where does inflation come from? It comes from too much demand. With too much demand, you have inflation since too many people/organizations are competing for a limited supply.
Think of it this way. Every product you see - cars, televisions, clothes, appliances - have 3 major input costs: labor, energy, and raw materials. (there are other input costs, like machinery & facilities, but they usually don't fluctuate in price once established).

Today, all three major input costs: labor, energy, and raw materials, are all rising - some at near record levels. And historically, the Fed knows that once these inputs move higher, they get more and more difficult to control.

Here is how the inflation-making components currently look:

* Labor: Unemployment is near record lows causing wage costs to rise. Wages are a huge cost for all goods, and when they rise too quickly everyone suffers as inflation removes the purchasing power of money.

* Energy: Oil is currently trading above $72 a barrel - a number previously thought devestating for the economy. If prices rise much higher, the markets may panic as they digest this impact.

* Raw materials: Commodities continue to climb in price as world demand increases. And with China and other economies rapidly growing, this trend will likely continue.
With all three major input costs rising and at record highs, inflation should continue to be the primary focus of the Fed.

The next move by the Fed is likely to be up. With the current backdrop of economic numbers, there is little choice for them.

And with higher rates, there will be no relief for the declining of real estate.

So for those looking for the real estate market to turn around, you have a long wait, especially with the massive glut of properites on the market.

Anonymous said...

How accurate is Zillow?

Please, Vote one or two, and explain the reason for your vote.

1.) House price has appreciated allot in recent weeks in Milpitas, CA


2.) Zestimate are way off with the value of the house price in Milpitas, CA

Recent Sells of different houses in Milpitas, CA

SOLD 05/09/2007: $660,000
ZESTIMATE™: $701,116

SOLD 05/25/2007: $619,000
ZESTIMATE™: $634,235

SOLD 06/06/2007: $165,000
ZESTIMATE™: $699,149

SOLD 06/11/2007: $535,870
ZESTIMATE™: $626,589

SOLD 06/11/2007: $381,000
ZESTIMATE™: $591,887

SOLD 06/13/2007: $766,100
ZESTIMATE™: $1,033,431

SOLD 06/14/2007: $558,492
ZESTIMATE™: $698,327

SOLD 06/20/2007: $950,000
ZESTIMATE™: $982,468

Anonymous said...

Mortgage resets: Record bill coming due
Billions in subprime ARMs will be subject to higher payments.
By Les Christie, CNNMoney.com staff writer
July 9 2007: 5:20 PM EDT

NEW YORK (CNNMoney.com) -- More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.

Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.


Anonymous said...

The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist with Beacon Economics in Los Angeles.

As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.


Anonymous said...


Foreclosures: 194,610
Preforeclosures: 258,527


Foreclosures: 38,761
Preforeclosures: 77,357

Seems like California has a big portion of the Nations foreclosure and preforeclosure


Anonymous said...

Is the "REAL" US unemployment rate 13 percent?


Anonymous said...

Ron Paul Invited to Speak at Google Headquarters


Anonymous said...

Anonymous said...
How accurate is Zillow?

Please, Vote one or two, and explain the reason for your vote.

1.) House price has appreciated allot in recent weeks in Milpitas, CA


allot? Damn it does NOBODY know grammar anymore?

Anonymous said...

Home Depot and Sears crapped out this morning. It seems the consumer isn't showing up the same way as they did before.

Anonymous said...

money.cnn.com interview with Bob Toll:

Money: Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.

Bob Toll: When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, "Why are you doing this to me? Why don't you just put a sign on my lawn saying, 'I'm a schmuck?' " So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients.

WTF? Is Bob for real? The first buyer is still down $100K. When a buyer looks at the two options and thinks hmmm I can pay $500k for a house with $0 upgrades or I can pay $500K with $100K upgardes, gee I wonder which I will buy. Only way the first onwer can compete with that is lower the price by $100K.

Just when I though the MSM was finally coming around, they go back to this kind of bullshit.

edd said...

CNBC Squawkbox on Tuesday:

Subprime holders continuing to
get hammered, and the raters are
considering downgrades.

Increasing fears of spillover as
subprime cancer will continue
beyend 2007.

Home Depot lost near 15 percent
in sales, partly from housing

zombie said...

Maybe there's an untapped market for signs that say "I'm a schmuck!"

Check out this quote from Bob Toll interview on CNN/Money/Fortune.

Q: Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.

A: When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, "Why are you doing this to me? Why don't you just put a sign on my lawn saying, 'I'm a schmuck?' " So you've got to give incentives instead of lowering prices because you don't want to be rude, crude and barbaric to your clients.

Mammoth said...

Thanks Shakster, KW, yuccatree3, and the anons who responded to my July 06, 2007 3:09 PM post re: deciding to sell my rental house.

“why not keep the home,and re-rent to some college students?”
- If it doesn’t sell in 3 months, this is an option. This was our first house; we decided to turn it into a rental when we moved onto some land in Kingston in 2001.

We had the same (excellent) tenants for six years, and they decided to move out at the end of this month. During these six years the house has more than doubled in value.

There is no guarantee the next tenants would be as good as the ones we had. And there is definitely no guarantee that the home’s value will continue to increase!

Our viewpoint is similar to someone who goes to Las Vegas, plunks down some money, and hits the jackpot on the first round. Would you continue to gamble? We decided to take our chips off the table and walk away.

They say, "don’t count your chickens before they hatch"…but after the house sells we will pay off our residence. This means ~$1,700 less per month we’ll need to spend, which means being able to dump the long cross-sound ferry commute to our jobs and finding closer-to-home but lower-paying jobs, and still being able to pay the bills.

This boils down to having more free time to do the things we like to do; it also means feeling less tired and drained – which means having a better quality of life. We like to garden – maybe we’ll put in a big one next year and participate in the local Farmer’s Market.

One of Keith’s main points on this blog seems to be that people should not miss out on life by working too hard at one’s job just to pay bills (i.e. an over-inflated mortgage), but instead should get out and enjoy themselves, doing things they like to do.

And heck, how many of you reading this right now are stuck inside a windowless cubicle on a nice summer day? Wouldn’t you rather be out somewhere on the beach, or in the mountains, or on a journey to a foreign country, or just lazing around the house? I think you get the point.
“1. Spend the money to have the place professionally cleaned before putting the house on the market. Make sure your floors and fixtures are spotless and stain-free.
2. Have a gardener trim your hedges and weed your flowerbeds when he mows your lawn. Cut down any trees that are dead and cart away the wood.
3. Repair cracks in your driveway and/or your sidewalk.”
- You’re right yuccatree3, creating that positive first impression will help capture a buyer’s emotions. Yesterday I did a walk-through with an agent (hey – just because I take advantage of their service doesn’t mean I have to use one) and we came up with a nice list of things to clean up/fix in order to “doll-up” the house for sale. Looks like there’s about a month’s worth of evenings & weekend work to do, before the house goes on the market.
“Price is the ONLY thing that matters. My friends have been chasing the market down for months now when if they'd just priced it right to begin with, they would've GOTTEN what they are asking for now 5 months ago. ”
- Thanks, I will keep this in mind. Funny though – the house Zillows for $300,000 – the exact amount the agent recommended asking for it. (The agent said that he looked at comps and came up with that figure, though.) We’re thinking $295,000.
“I did the best when I sold it my self. I advertised it in the paper, and called all the real estate agents. I held open houses every week end. I made sure in my adds to tell them that my price was lower due to no agent, and why not split the commission between us.”
- But if your ads say that the price is lower because there is no agent, then why did you also call all the real estate agents? Why would they want to work with you?

If I do go the ‘For Sale by Owner’ route and hold an open house, should I serve popcorn, Kool-Aid and Ramen?
“My girlfriend lives in Ballard area. She was thinking about buying a condo. Is now a bad time to buy in Seattle?”
Not that one should believe everything one reads on the Internet, but all the writing on the wall seems to indicate that NOW IS A GOOD TIME TO RENT.
But please don’t tell that to anybody who is considering buying my house.

Cheers to all!

Anonymous said...

And heck, how many of you reading this right now are stuck inside a windowless cubicle on a nice summer day? Wouldn’t you rather be out somewhere on the beach, or in the mountains, or on a journey to a foreign country, or just lazing around the house? I think you get the point.


Not me. I work from home and have been doing so for the last 4 years. My view from my home office is a national park - albeit a very small one - that abuts my 1.25 acre property. My view is tall pine trees and the occasional deer.

I work about 40-45 hours a week and about 40 or so weeks a year. I make enough during those 40 weeks to be able to take a month here and there off and do things like travel, or just spend a week lazying around the house and watching TV.

Oh and I do all that while owning my home, an evil full sized gas guzzling SUV, and an even more evil large screen LCD (plasma is so 3 years ago) TV.

Sorry I don't fit into your neat little stereotype of the FB.

Guy Daley said...

Sears getting clubbed over the head for 10% just because they said future earnings will suck.

Anonymous said...

>>>Bernanke Says Expectations Are `Imperfectly Anchored' (Update1)

By Craig Torres and Scott Lanman
Enlarge Image
Ben S. Bernanke, Federal Reserve Board of Governors

July 10 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said inflation expectations ``remain imperfectly anchored'' in part because the public doesn't know the central bank's goal for prices.

What inflation rate the Fed prefers ``is not fully known by private agents,'' Bernanke said in a speech to the National Bureau of Economic Research in Cambridge, Massachusetts today. ``Long-run inflation expectations do vary over time,'' he added. ``They are not perfectly anchored.'' <<<

imperfectly anchored???? what???

what does this mean????

Anonymous said...

>>>i thought there would be a hige real estate debacle nationwide myself. i was wrong.<<<

well the fat lady hasn't sung on that one yet.....

Anonymous said...

>>>Is it possible that the government could once again confiscate gold vis-a-vis "Patriot Act- part 2"or something along that line? I think we might be in trouble. The gold plated tin foil hat may not be an option. Any thoughts on this?<<<

such a option would be detrimental to the health of many uniformed government workers....

Short the housing stocks said...

Home Builder D.R. Horton's orders fall 40% as builder anticipates loss:

The subprime cloud continues to linger over the housing industry. On Tuesday, one of America's largest home builders, D.R. Horton, said sales orders plummeted 40.2% in the third quarter as an inventory glut and increased foreclosures continued to weigh on demand.

For the quarter that ended June 30, the company sold 8,559 homes down from 14,316 homes in the year-earlier period. In a bid to lure consumers, D.R. Horton (nyse: DHI - news - people ) was also forced to significantly slash prices, putting pressure on its profit margin. This quarter, the average price for a unit dropped 12.0% to $233,672, versus $265,437 for the year ago period.

Meanwhile the cancellation rate, or orders canceled divided by gross sales orders, stood at a hefty 38%.

With these results, the company is set to record a major third-quarter loss later this month.

As America's largest home builder by number of units, D.R. Horton is widely considered a bellwether company for the rest of the industry. Investors looking to D.R. Horton for a sign of a housing bottom, were sorely disappointed on Tuesday. If anything, the housing situation seems to be deteriorating, albeit at a somewhat modest pace. In the previous quarter, D.R. Horton reported that sales orders plunged 36.7%.

turdly said...

Here's what I think goes on in their heads;

'I misunderstood a poorly worded soundbyte taken from an obscure forum aimed at a target audience of which I am unfamliar with. I think it was specifically designed for colloquial usage by an imbedded faction of that unknown taget audience, of which I have no knowledge. Therefore; I'm all in. Let's invest.'

5% cds are ABOUT TO BECOME 8% CD'S. I'm still plodding away...5%... 5.56%...11%....

shtove said...

HousingDoom has a graph showing the swan dive just taken by AA mortgage securities on the ABX:

In response to the question, Is it supposed to look like that? one guy wrote in the comments section:

"Uh, nope. It ain’t supposed to look like that.

"The BBB stuff was doing this back in Feb when they were telling us how the problems in subprime would stay contained within subprime.

"Apparently the containment is spreading."

Anonymous said...

"Sorry I don't fit into your neat little stereotype of the FB."

Don't worry, you do an outstanding job of fitting into the stereotype of a second-rate troll.

Anonymous said...

Zillow is way off on the high side.

I'm not sure why they think it is in their interests to do this.

Or are their methods/data flawed?

Or are they lagging like 6 months?

Or are they getting payola from some groups?

Time may or may not tell.

Anonymous said...





1.) M&T ---------------- 670k
2.) OPTION ONE --------- 369K
3.) TRIBECA ------------ 100K
4.) BANKER'S EXPRESS --- 108k
5.) ARGENT -------------- 60k






Anonymous said...

Jerj said...
Man I wish I had the channels to buy some of the CDO junk at 20 cents on the buck. Probably a decent roll of the dice at that level. They're getting priced as if ALL the underlying mortgages are going to default.

July 10, 2007 5:21 PM

Okay, so you don't know enough as to whether they're good values at 80% off but think they should be because that's such a drastic discount. What about all of the pros and the vulture capital funds about who make a living off of distressed equities? If they're not willing to put the floor in and buy higher, then maybe what's beneath the surface is pretty damn ugly. To which: is it still possible to buy someone else's credit score for a mortgage application? Personally I was shocked when I heard that was going on.

Guy Daley said...


This crazy man put his mansion on ebay with NO RESERVE and only a seven day auction. So I bid a $1000.00 on it. Its in a $1 Million plus neighborhood. He's giving his house away, I don't understand it.


Anonymous said...

Very scary...

From Bloomberg.com

Bond Risk Soars Most in Three Years on Subprime Debt Downgrades

By Hamish Risk

July 11 (Bloomberg) -- Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps.

Europe's iTraxx Crossover Index of 50 companies from Italian automaker Fiat SpA to betting group Ladbrokes Plc in London jumped as much as 34,500 euros to 301,000 euros, the biggest daily move since the index was created three years ago, according to JPMorgan Chase & Co.

Moody's Investors Service cut ratings on $5.2 billion of subprime-related debt yesterday and Standard & Poor's said it's preparing to downgrade $12 billion of mortgage bonds as delinquencies by homeowners with poor or meager credit soar to the highest in a decade. Investors in collateralized debt obligations that pool the securities are likely to lose $52 billion, according to Credit Suisse Group in Zurich, while Deutsche Bank AG in Frankfurt estimates as much as $90 billion.

``More pain will come,'' said Willem Sels, head of credit strategy at Dresdner Kleinwort in London. ``There are signs its spreading to emerging markets, equities and the yen.''

European stocks dropped for a second day and Asian shares fell for the first time in three days. Investors seeking less risky assets sent benchmark 10-year Treasury notes and German bunds higher for a third day and Japanese government bonds rose the most in more than 10 months.


Credit-default swaps are used to speculate on the ability of companies to repay debt and an increase indicates worsening perceptions of credit quality. The Crossover index may rise as high as 400,000 euros because of ``subprimemania,'' as well as concern about falling corporate earnings and rising oil prices, Jochen Felsenheimer, head of credit strategy at Italy's biggest bank Unicredit Group, said in a note to investors today.

``The Goldilocks scenario for credit markets is definitely over,'' Munich-based Felsenheimer said. ``These rating actions, the biggest ever in the subprime market, have the potential to trigger an even more substantial move in credit markets.''

The credit quality of subprime mortgage bonds fell to a record yesterday in New York. The ABX-HE-BBB- 07-1 index that tracks securities rated BBB- fell 7.4 percent to 51.42, according to London-based Markit Group Ltd., the index administrator. The index has declined by almost half since January, reflecting the increased likelihood of default on the underlying securities, which have the lowest investment-grade ratings.

``People are very nervous,'' said Alex Moss, who helps manage $94 billion of fixed-income assets at Insight Investment Management in London, in a telephone interview. ``There's a lot of concern the selloff in subprime will feed through to the wider market. Until the market finds a floor, it's difficult to see where the buys are going to come from.'

Anonymous said...

Thanks for the heads up guydaley, I'll call your $10,000 and raise you $50,000.


JerseyGirl said...

Guy Daley said...
This crazy man put his mansion on ebay with NO RESERVE and only a seven day auction. So I bid a $1000.00 on it. Its in a $1 Million plus neighborhood. He's giving his house away, I don't understand it.
July 11, 2007 3:48 AM

Because it's a scam.
This from the listing:
"A non-refundable $10,000 deposit is due within 24 hours through Paypal."

JerseyGirl said...

No correction today. Stocks are up and rising. I've yet to understand this phenomenon.

Anonymous said...

1.) Where I used to live, my neighbor is a realtor. Bought the house, tore it down and completely rebuilt it. Few years later, tried to sell and couldn't. Now the house is rented.

2.) Here in NNJ, nice towns, some not selling. One house has been the same price for about 5 months now. Went from FSBO to a RE agent. Still there. Perhaps Ill make an offer of about 60% off. I don't give a f*ck. My goal is to offend the seller.

3.) I'm at the age where I will buy my first house soon. Just an FYI, incentives don't interest me AT ALL!!!!! The only thing that interests me is the price. I don't need a Porsche, granite, vacations, Plasma TV, club membership, golf clubs, airplanes, time shares etc...

Just lower the price and you'll begin to grab my attention.

Stuck in So Pa said...

"This crazy man put his mansion on ebay"

Just goes to show that real estate is ALWAYS LOCAL! One million to stare out at neighbors who are spitting distance away and a pile of rocks? In this neck of the woods that one million would buy you the same size and 'quality' house and 50+ acres!

Keyser Soze said...

HELOC's or any 2nd mortgage - I remember when I gradumacated from b-school and started working at a bank. The head of lending, who btw, only had a high school education, told me the following: If you make someone a loan secured by a 2nd mortgage....ask yourself, 'if this loan goes bad, are you prepared to go to the President of the bank and ask for the funds to pay off the first mortgage and then start foreclosure proceedings?'

shtove said...

An article from April '05, predicting that the new bankruptcy laws would reward bottom-feeder lenders:


A lot of HPers will have little sympathy for "genuine" financial hardships. But sometimes the system is just so enticing - until it smacks you over the head with a frying pan.

rcochran said...

The hedge funds that are based on collateralized debt obligations that are packaged pieces of subprime mortgage loans are COMING APART AT THE SEAMS as I type this. This is already causing major waves in our economy. Dubya trotted out Paulson (Secretary of the Treasury) a couple of weeks ago to claim all will be fine despite the housing meltdown PRECISELY BECAUSE they see it coming apart.

The US Dollar is sitting at all-time lows against the Euro as I type this.

Folks, this means that the powers that be, the ones who tell us everything is going to be ok, and then manipulate interest rates and financial markets trying to MAKE everything ok, ARE PROVEN TO BE VERY MUCH NOT IN CONTROL.

Lately, it is fashionable for them to try to squelch Ron Paul. If they can't, it means that the sitting political power-brokers and the mainstream media are IRRELEVANT. Do you think they're going to go quietly when threatened with irrelevancy? Nope!

Jugador said...

I heard on NPR the other day that sales in Nashville are down and inventory is way up.

I talked with my apartment complex manager the other day and she said that the complex was nearly full and that she had never seen occupancy rates so high.

It looks like the easy money has dried up here.

DrNo said...


Ghouliani is toast!

Bye, Bye Capt. 911.

The firefighters union released this video to all 280,000 members the media and online.


powerful. Rudy needs to go to prison.

Anonymous said...

FLASH: FBI investigates Casey Serin.
On his IAFF blog, Casey admits today:
134. Casey Serin
July 11th, 2007 at 7:45 pm
Yes there is an FBI investigation as well. I just learned about it yesterday after I made the decision to shut everything down.

I’m not shutting down because of the FBI thing. The agent told me they don’t care if I keep blogging since they already have all the evidence they need, including the entire blog, loan documents, etc.

I just want to be careful what I say before I can find a criminal defense attorney and make sure I’m not doing anything stupid.

It kind of sucks that right when I decided to do the right thing now the law is after me too. But I guess we all knew this might happen. So its not a big surprise now.

I’ll just have to take responsibility and deal with it the best way I can.

nunami9 said...

So how much longer before it starts to turn around?
Real Estate Finance

Anonymous said...

Even if you have to lower the price!

10 Reasons to Sell Your House Now

Jul 06, 2007 -- Worried about the state of the housing market? You should be. Millions are expected to be financially devastated by the downturn. Don't be one of them. Read up on the situation and find out what's happening. To get you started, here are ten reasons why you need to sell your house NOW.

1. Renting is Cheaper

Renting is almost always cheaper than buying. You know why? Because when you rent, you pay for a roof over your head and that's it. When you buy, you pay for a roof over your head, you pay a bank for the privilege of borrowing money, you pay property taxes to the government, and you pay any and every maintenance fee associated with the upkeep of your house. Imagine how much money you can save every month because you chose to pay rent rather than all of the other costs associated with owning. Now imagine what you could do with that money every month. Sounds nice, doesn't it?

2. The Joneses are Crazy

Houses are status symbols to Americans. (For more evidence see the show Cribs on MTV.) But just because the Joneses own a home, it doesn't mean you should too. The Joneses may look cool, calm, and collected on the outside, but chances are they cry when they open their credit card and mortgage bills and are so overextended that the idea of being debt free is laughable.

3. Real Estate is a Terrible Investment

Unless you are able to pay for a home in cash (no loans), real estate is a terrible investment. Repeat. Your house is not an investment vehicle. Not anymore. Nowadays, it's just a dead asset. If you want to invest your money or create a next egg, invest in an IRA or something that is more likely to give you the return you are looking for.

4. Selling is More Profitable Than Renting

If you are thinking that you may be better off renting the house rather than selling it, think again. Unless you live in a rural area or an area where prices haven't been affected by the bubble, you will probably not make enough money in rental income to pay the mortgage payment and cover the hassles that come with being a landlord. Selling and washing your hands of the whole matter is most likely the more profitable choice.

5. The Market is Cooling

Home sales are slowing, foreclosures are rising, and inventory is growing. Bottom line, the market is getting colder, not hotter. If you are waiting for buyer interest to get to the level it was a few years ago, you will be waiting a long time indeed. Your best bet will be to sell now and take what you can get before the competition gets worse than it already is.

6. Home Values Will Plummet

Home prices couldn't be more disconnected from fundamentals. In many areas, individuals who make the median income can't afford a median priced home. For this reason alone, current home prices cannot be sustained. Experts are predicting price drops of 25 to 60 percent in large areas. Think about where you will be if your home loses 10 percent of its value. How about 20 percent, 40 percent, or 60 percent?

7. Because Japan Says So

If the beliefs of housing experts aren't enough for you to base a decision on, then you should consider what happened to Japan when they experienced a similar boom. After home prices doubled nationally and tripled in Japan's largest cities, they fell sharply to pre-boom levels. Homes in Tokyo lost as much as 80 percent of their value and to this day the country is still is still struggling with the aftermath of a housing induced recession.

8. Location is Irrelevant

Many people think that because they live in a desirable area that they will not be affected by falling home prices. This assumption is generally incorrect. If prices have reached an unsustainable height, they are going to fall regardless of how nice it is to live there.

9. Recession is in the Air

Talk of a recession is at near manic levels. If the market crashes (and it will) the U.S. will be tipped into a recession that rivals the one seen during the Great Depression era. Selling now ensures that you won't have to struggle with a mortgage payment later.

10. Because the Consequences of Not Selling are Too Ghastly to Consider

If you don't sell now, you might not have the chance to walk away later. Once prices fall, you could lose your ability to refinance, to borrow from equity, and to sell for a profit (or to break even). If you are left owing more on your house than it is worth and find yourself unable to meet your mortgage obligations for any reason, you're stuck. The bank will take your house and you'll be left in the col

keith said...

From another thread I encouraged a global warming thread to move here to bubbletalk

Some ignorant people are saying "hey, it's snowing, so there's no global warming!"

And for those ignoramuses, I'd suggest you read up on global warming science before you talk. Why do people allow themselves to be so misinformed? Is it our educational system? Is it our media? Is it too much sugar in breakfast cereals?

Here's one article for starters:


Global warming to bring heavier rains, snow

In the forecast, more rain and snow.

Rising temperatures in the world's atmosphere and oceans will lead to more intense storms as the century progresses, according to a new report from the National Center for Atmospheric Research.

Evaporation increases when the surface temperature of the ocean rises and warmer air can hold more moisture. When this soggier-than-normal air moves over land, it results in storms wetter and more intense than those experienced in the past.

The greatest changes will occur over land in the tropics, according to the study, which was released Thursday. Heavier rain or snow, however, will also fall in northwestern and northeastern North America, northern Europe, northern and eastern Asia, southwestern Australia, and parts of South America during the current century.

"The models show most areas around the world will experience more intense precipitation for a given storm during this century," lead author Gerald Meehl said in a statement. "Information on which areas will be most affected could help communities to better manage water resources and anticipate possible flooding."

The Mediterranean and the southwestern U.S., meanwhile, will experience a different pattern. Storms will likely become wetter, particularly in the fall and winter, but dry spells may stretch for longer in the warmer months. A picture of how this pattern might develop was seen in Europe this year: While Germany endured unprecedented floods, Spain and Portugal imposed water rationing because of a lengthy drought.

Anonymous said...

Morning tinfoil hat gang.

What do you know another huge buyout today, should be good for another 100 on the dow, what do you boys think? 150 maybe?

Jobless claims down, yet again. Shucks, that recession/depression you keep talking about just refuses to get here. At 300,000 the number is the same as in the late 90s, although with an extra 20 million people in the country, meaning as a % of the population fewer people are looking for work today than 10 years ago.

You keep talking about a depression, about no jobs, about blah blah blah.

Oh and look out behind you, I think there is a black helicopter being operated by a dark skinned non-English speaking man who want to rape your sister.

Anonymous said...

hey dumb troll

"announced" deals still have to get financed. there's plenty o time for them to fail before they go through.

nice disappearing act when the cdo news came out! ha! a fair weather troll!!!!!

Anonymous said...

Global warming to bring heavier rains, snow

Priceless. Now global warming is causing global cooling. So in places where it hasn't snowed in 100 years, global warming is actually making it cold enough so that instead of rain it falls as snow.


I gotta give credit to the liberals on this one. They really thought the whole thing out.
Whether the earth cools or heats up, they have both sides covered.

Too much rain = global warming. Drought = global warming.
Too much snow = global warming.
No snow = global warming.

And all the while the MSM just blindly reports it as fact. Al Gore says so therefore it must be true. Hey he invented the internet so I guess he knows what he's talking about.

Anonymous said...

a new dow record

remind me again of the predictions you fools were making 6 months ago....dow at 7000, 6000, 5000 even

Anonymous said...

July 12, 2007 1:52 PM

Nice! Everything is wrong with the globe. Just give money and everything will be better. Hurry though, you contribution will slow the process of either global warming or global cooling.

James dean said...

I found this on Yahoo answers

These are my payments:
$8,310.29 Mortgage
$907.14 Car(s)
$700 food average
$280 car insurance
$300-400 misc. items
$800 child care
and a few others I can't think of right now.
Medical, about $400 a year, my family is usually very healthy.

A lot of $$$ and time keeping my house clean, organized even more time keeping my family healthy & active....... I don't mind though, me and my "questionably documented" hubby make good money from our landscaping business.

I will leave the intepretation to you, the reader. But obviously, these 'jobs Americans won't do' pay pretty well these days.

Anonymous said...

Unlike some forecasters, Guatieri sees the US economic rebound as muted.

"Until housing stabilizes, the US economy will grow a modest 2.0 percent in 2007, before improving to 2.7 percent in 2008," he said.

But Philadelphia Federal Reserve president Charles Plosser said in a speech Wednesday that he sees limited "spillover" from the housing mess.

"While there remains the risk that such spillovers may develop, I have doubts they will be very large," Plosser said.

The National Association of Realtors said it sees a pickup in the home market. An NAR forecast called for sales of 6.11 million homes this year and 6.37 million in 2008, down from 6.48 million last year.

But NAR predicted existing-home prices would rise 1.8 percent after a 1.4 percent decline this year.

"Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," NAR economist Lawrence Yun said.

You see, everthing is going to be alright!

Anonymous said...

WTF $8300 mortgage for an illegal running a landscape business? Unless he's charging $500 a lawn, that's bullshit.

Anonymous said...

"Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," NAR economist Lawrence Yun said.


Gotta agree with him on that. Reduce supply, prices won't fall as much and maybe even go up in some markets. Don't need a PhD in economics to figure that one out.

Question is will builders stop building? So far the answer is no.

Anonymous said...

Dow up 200!! new record. How's everyone 5% CD doing?

$225K for a parking spot in NYC with a waiting list of people looking to buy. Yeah a real estate crash is happening.

Housing crash, stock market crash, sure thing.

July 12 2007: 11:38 AM EDT

NEW YORK (CNNMoney.com) -- Parking spaces in New York cost as much as $225,000 and could soon be going higher still, putting the cost for the prime spots above the price tag of the typical U.S. home price.

Manhattan real estate agent Tom Postilio said there is a waiting list of seven or eight people hoping to pay $225,000 for one of five private parking spaces that has been approved in the basement of 246 West 17th Street, a 34-unit condo development scheduled for completion next January.

westwest888 said...

Ever wonder how the Dow hit a record high in spite of all the "bear" news, like consumers shopping at Wal Mart instead of Whole Foods and Family Dollar instead of Saks? Leverage. Borrow more money to buy more stocks. It was so obvious...

"'Margin Debt' Hits Record $353 Billion on NYSE
By Peter A. McKay
Word Count: 419

Investors are borrowing record sums of money to finance trades on the New York Stock Exchange, according to data due out from the Big Board today.

NYSE officials attribute the trend to recent regulatory changes effectively allowing both small and big investors to take on more leverage, or borrowed money, from their brokers. So-called margin debt, a broad measure of leverage, jumped 11% to $353 billion at NYSE in May, up from nearly $318 billion in April."


K.W. - Southern Ca. said...

Keith made this point:
[8. Location is Irrelevant

Many people think that because they live in a desirable area that they will not be affected by falling home prices. This assumption is generally incorrect. If prices have reached an unsustainable height, they are going to fall regardless of how nice it is to live there.]

For those who don't believe this, I can personally tell you about some of the over-priced 2mil-5mil dollar homes sitting on a bluff down by Corona Del-Mar (Morro Canyon) which are already seeing
signs of foreclosure.

These places - as told to me by a nearby resident - have no yards, are butt-up against one another, with soil which wouldn't even support cactus.
The property tax alone is at least 30,000/Yr.

Regardless of your income, buying into something like this makes no financial sense - it's just a money pit.

Housing prices have not even begun
to fall really hard ... that time is coming soon though.

westwest888 said...

Follow up - I have a link to the official NASD rule change. Here's the juicy part:

"The rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of business of the previous day."

Four (4) times folks - 25% margin requirement. That means anyone with the minimum $25,000 and trades six times a day can borrow $75,000, giving him/her a $100,000 purse. The rule was previously two (2) times, or a 50% margin requirement. The Great Depression was caused by a margin requirement of 10%, allowing investors to borrow ten (10) times.

You've got to read between the lines folks. Maria Bartiromo looks like a middle school cheerleader. Go TEAM! Go Dow! Go invincible stock market!


westwest888 said...

The aforementioned rules went into effect April 2007. We're at $353,000,000,000 in borrowed money to buy stocks. The NASD gave a warning that half that sum was way too much in 2003. Nothing to see here.

"WASHINGTON, Sept. 15 2003 /PRNewswire/ -- NASD today issued an Investor Alert to inform investors on the risks of trading securities "on margin." NASD issued the Alert because investor purchases of securities on margin have grown dramatically, reaching $174 billion in July, and many investors may underestimate the risks associated with trading on margin and misunderstand margin calls and how their holdings can be liquidated."

And a new warning out from the NASD the month their own new rules went into effect. Are they talking to themselves?


Julie said...

Hey James Dean:
"I will leave the intepretation to you, the reader. But obviously, these 'jobs Americans won't do' pay pretty well these days."

Why? Because they were landscapers? All the ones I know are white not Mexican. One thing you ignored -- they have no health insurance, so all that could disappear in a heartbeat, couldn't it?

Anonymous said...

"$225K for a parking spot in NYC with a waiting list of people looking to buy. Yeah a real estate crash is happening.

Housing crash, stock market crash, sure thing."

NYC was wealthy too back in 1929. Then there was the stock market crash and a famous picture of a handwritten sign "Must Sell!" on an expensive car with a hefty discount on the asking price.

Anonymous said...

Curious my arse. Either the decision to sacrifice the yen has just become official policy or this is a plea/statement to influence the pending decision.

Money Found in Toilets Across Japan

By Associated Press

4:48 PM EDT, July 11, 2007


Envelopes containing 10,000 yen ($82) bills and well-wishing notes have been discovered in municipal toilets across Japan, media reports said, baffling civil servants and triggering a nationwide hunt.

Local media have estimated that over two million yen ($16,400) worth of bills were found at men's rooms in city halls in at least 15 prefectures (states) in recent weeks.

Each package of 10,000-yen bills, some wrapped in traditional Japanese washi paper, was accompanied by handwritten letters that read "Please make use of this money for your self-enrichment," and "One per person," according to reports.

Officials are baffled over the identity of the benefactor or any motives, the reports said. Packages turned over to police were to be kept for some time in case someone claimed them.

Copyright © 2007, The Associated Press

Anonymous said...

The housing bubble in Carroll County finally has burst, many in the real estate business say, as housing prices dropped for the second consecutive month and buyers began looking elsewhere for houses.

“Carroll County has risen to the point where the market, the buyer is saying, ‘You’re overpriced, way overpriced,’ ” said Gary Hoffer, a broker with Century 21 Real Estate in Westminster. “I would say the average home in Carroll County is 20 percent overpriced.”

The average sale price for a house in Carroll dropped about $12,000 in June from a year ago, the only decline in the Baltimore metro area, according to the Metropolitan Regional Information Systems, which tracks pricing trends in real estate. Carroll prices had a similar drop in May.


Anonymous said...

Got Gold Yet?

Anonymous said...

General Electric Co. has decided to sell its WMC Mortgage subprime lending business, the lender told employees in a memo on Thursday.

"The mortgage industry has greatly changed since the purchase of WMC," wrote Laurent Bossard, president and chief executive of WMC, in the memo to employees. "The current sub-prime market environment has made a significant negative impact on the business."


Anonymous said...

Units of Washington Mutual Inc. and General Electric Co. were among four subprime lenders whose loans were behind many of the Moody's Investors Service ratings downgrades on mortgage securities this week, the firm said today.

Washington Mutual's Long Beach Mortgage, GE's WMC Mortgage, New Century Financial Corp. and Fremont General Corp. made loans that backed about 60 percent of the $5 billion of bonds that were downgraded, Nicolas Weill, Moody's chief credit officer for asset finance, said today on a conference call. Their loans accounted for about 30 percent of subprime bonds issued last year, he said.

The bonds were made up of loans from ``a lot of different mortgage originators, but you'll notice a concentration among a few of them,'' Weill said.


Anonymous said...

Hedge Funds rally today on sign of relief.


BoJ leaves interest rates unchanged in split vote

The Bank of Japan (BoJ) on Thursday left its super-low interest rates on hold for a sixth straight meeting, opting to wait for further evidence that the economic recovery is taking root.

But the vote was split 8-1, with one policy board member calling for a quarter-point rate hike — underpinning expectations of another rate rise within the next couple of months.

Atsushi Mizuno, who has a reputation for being a policy hawk, opposed the decision to leave the overnight call rate at 0.5 percent, where it has been since February.

BoJ governor Toshihiko Fukui provided few obvious clues on when the central bank might raise its interest rates, which are by far the lowest out of the major economies, contributing to the weakness of the yen.

He reiterated that the central bank would adjust interest rates gradually but said the policy board members wanted to be sure that the economy will continue to enjoy robust growth before making their next move.

“It is highly probable that the Japanese economy will take a path of sustained growth,” Fukui told a press conference.

“We will increase the level of rates gradually in line with the improvement in the economic and price situation, while reviewing risk factors.”

Overall the BoJ chief appeared to be more upbeat than at the time of the June meeting, analysts said.

His comments were “somewhat more hawkish than last month,” noted Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.

Anonymous said...

Thank You BOJ for excess global liquidity.


``This big rally in the Dow underpins risk appetite,'' said Joanne Masters, a currency strategist at Macquarie Bank Ltd. in Sydney. ``So you sell yen against everything.''

The yen fell to a record low against the euro as a surge in global stocks encouraged investors to borrow the currency to buy higher-yielding assets.

The Japanese yen headed for a second weekly drop as the Nikkei 225 Stock Average rose by the most since May, following a rally in the Dow Jones Industrial Average yesterday. The currency declined against the Australian dollar, a favorite for so-called carry trades because of its 6.25 percent benchmark rate.

Anonymous said...

Why this excess global liquidity bubble is not going away any time soon.


The yen lost ground on Wednesday in a volatile session as fresh bouts of risk aversion finally gave way to a resumption of selling the Japanese currency.

Although the dollar continued to sink under the weight of subprime, consumer confidence and corporate earnings concerns, currency speculators put aside fears of contagion and resumed the search for yield through carry trades.

Anonymous said...

Will Hedge Funds pour it on?


New Zealand's dollar headed for a seventh week of gains after a government report showed retail sales increased twice as fast as expected in May, prompting bets the central bank will boost interest rates again.

Anonymous said...

I wonder if the 1929 calander has the same days as the 2007 calander?. Because this looks more like 1929 everyday. 25% margin, No money down mortgages, dumb asses thinking they are rich when they are really broke.

Want to understand inflation J Paul Getty could pay off the national debt with his wealth. Bill Gates can't make an interest payment. Get it now troll??


Anonymous said...

Just waiting for BOJ to complete the circle.


Anonymous said...

The most missed talked about news on Tuesday.


``There's some speculation the BOJ will use this meeting to signal it will raise rates in August,''

The yen rebounded from a record low against the euro on speculation the Bank of Japan will signal at a meeting this week it will raise interest rates next month.

``Speculators are looking for chances to close yen short positions against the Australian and New Zealand dollars, the euro and the U.S. dollar.'' A short position is a bet a currency will weaken.

Anonymous said...

A SYDNEY-based hedge fund manager that manages $US2.5 billion has put a limit on withdrawals from two of its funds that invest in risky debt products known as collateralised debt obligations, expressing fears the funds would otherwise not survive.

Limits on withdrawals on the two Basis Capital Funds Management funds were imposed after the funds fell during June, by 14 per cent for the BasisYield Alpha Fund, and 9 per cent for the Basis Pac-Rim Opportunity Fund.

A newsletter distributed to unit holders said the imposition of withdrawal limits, known as gates, were "designed at inception to ensure [the funds'] survival through periods of extreme dislocation such as this".

The newsletter specifically singled out credit ratings agencies' moves to downgrade their ratings for risky debts, which are being repriced in the wake of large losses stemming from US "subprime" lending to householders.


Anonymous said...

Check this out from housebubble.com


Nothing to see here, move along.. said...

GE bails out before the subprime mortgage bonds hit the fan:

GE to quit mortgage business:

(AP)- Jeff Immelt, chairman and chief executive, said GE will quit its U.S. mortgage business and sell off its existing loans. GE Money had strong growth in revenues and assets and increased its profit by 8 percent, despite losses in its WMC mortgage business, he said.

"We have made the decision to exit this business and substantially reduced our exposure by selling $3.7 billion of WMC loans in the quarter," Immelt said.

Hey Jeff, if business is soo great, why are you running for the doors???

westwest888 said...

"Lehman Says Worst Is Over in Credit Markets, Buy Corporate Debt"


A bond house says buy bonds. Oh, that makes sense. Why didn't I think of that? The worst is over as long as everyone continues to pay, and they don't lose their jobs, and interest rates don't go up, and the stock market doesn't go down ever again, and real estate goes up 8% a year from this day on, and the valuations of companies at the prices private equity paid are not too much, and if the ratings agencies don't mark down the CLO's to junk that helped buy those companies. Who wants to take odds?

Anonymous said...

NJGirl said:"Because it's a scam.
This from the listing:
"A non-refundable $10,000 deposit is due within 24 hours through Paypal."

Laura Vella said: I would have to disagree with you - a deposit is a normal for any Re transaction, If a buyer backs out for any reason, the seller keeps the deposit. 10 thous seems fair for this price of house as a deposit. I think this is real.

Anonymous said...

The tinfoil hat gang's new motto seems to be 1929 is here again. In a way I think you pine for those days for a different reason. Back then the white man ruled. No pesky minorities around. Well too bad, so sad. You white racists will just have to realize you don't matter anymore. In 2007 nobody gives a fuck what you have to say. Latinos are doubling in population every 10 years. Soon enough most major states will be Latino majorities.

So go ahead, have your last hoorah, it's over for you racist pigs.

Anonymous said...

Dollar-euro? It's the yen, stupid

Traders attributed the yen's jump against the dollar this week to problems in the subprime mortgage market in the United States, which caused some investors to seek safer places for their assets - and exit the yen carry trade.

"The carry trade took a bit of a knock earlier in the week when U.S. credit markets were going a bit crazy and equities were tumbling," said Richard Franulovich, a senior currency strategist at Westpac Banking in New York.

That effect was short-lived as stocks stabilized and bullish investors sent the Dow industrials and S&P 500 to new highs Thursday.


Anonymous said...

The greatest economic boom ever, can BOJ continue to provide the generous quantity of liquidity.

Just how red-hot is the current worldwide expansion? "This is far and away the strongest global economy I've seen in my business lifetime," U.S. Treasury Secretary Hank Paulson declared on a recent visit to Fortune's offices.

For your average globetrotting Fortune 500 CEO, right now is about as good as it gets, says Fortune's Rik Kirkland, but
it may not feel like a day at the beach to most Americans.

The necessary conditions for a bubble to form are quite simple.

"First, the fundamental economic conditions must look at least excellent - and near perfect is better. Second, liquidity must be generous in quantity and price: It must be easy and cheap to leverage."

That pretty much sums up the world we've been living in.

A lot could go wrong.

Heavily leveraged hedge funds and private-equity firms - not to mention cash-short adjustable-mortgage holders and the bankers who've lent to all three groups - have trillions of reasons to worry.

Since liquidity is more about crowd psychology than the actual money, a financial implosion could spook lenders, cutting off the easy financing that has fueled the record M&A and LBO booms and helped lift stocks to new heights. (That's why they're called credit crunches.)


Anonymous said...

So what is wrong with this picture?

143 Curtis Ave, Milpitas, CA 95035
2 beds, 2.5 baths, 1,192 sq ft

For Sale: $169,000

ZESTIMATE™: $529,101


Anonymous said...

Zillow needs to start reviewing its estimating program

3015 E Bayshore Rd SPC 406, Redwood City, CA 94063. Mobile home

-- beds, -- baths, 1,040 sq ft

For Sale: $160,000

ZESTIMATE™: $672,565


Anonymous said...

Iran Asks Japan to Pay Yen for Oil, Start Immediately

Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions ``for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments ``effective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.


Anonymous said...

How Good Are Zillow's Estimates?

A Wall Street Journal analysis of 1,000 recent home sales shows that Zillow's "Zestimates" often are very good, frequently within a few percentage points of the actual price paid. But when Zillow is bad, it can be terrible -- off the mark by more than 25% on one in 10 homes.

The median difference between the Zillow estimate and the actual price was 7.8%. (That was close to the 7.2% median "margin of error" reported by Zillow itself on all transactions involving homes whose value it has estimated.)

The estimates were about equally split between ones that were too high and those below the mark.

Zillow came within 5% of the price in a third of the transactions studied by The Journal. It was more than 25% off target on 11% of them. In 34 of the 1,000 transactions, Zillow was off by more than 50%.


bubble boy said...

Sorry if this is old news -- 5 reasons to sell your home yourself. Found on yahoo, FWIW.


Anonymous said...

Ariz. businesses sue to block employer sanctions

Two Arizona business groups have filed a lawsuit seeking to block the state's new law penalizing employers who hire illegal immigrants, the Arizona Republic and Associated Press report.

The groups, which includes some of the state's biggest business leaders, argue that enforcing immigration is a federal responsibility and that the sanctions would ruin Arizona's economy.

The law begins Jan. 1. Here's background.


Anonymous said...

Anonymous said...
The tinfoil hat gang's new motto seems to be 1929 is here again. In a way I think you pine for those days for a different reason. Back then the white man ruled. No pesky minorities around. Well too bad, so sad. You white racists will just have to realize you don't matter anymore. In 2007 nobody gives a fuck what you have to say. Latinos are doubling in population every 10 years. Soon enough most major states will be Latino majorities.

So go ahead, have your last hoorah, it's over for you racist pigs.
Man whats yer problem?LOL

Anonymous said...

Oliver Twist, Please, Sir, can I have some more?


The U.S. is urging China's central bank to buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world's largest economy eroded demand for such instruments.

``China's bought some mortgage-backed securities from us, but not in great numbers,'' Jackson said, without providing target numbers for future purchases.

The U.S. housing regulator is seeking to tap China's $1.33 trillion of foreign-currency reserves after surging defaults on subprime mortgages.

Anonymous said...

Big Money Put on Countrywide To Crash — By Next Friday


Anonymous said...

Countrywide Financial Chairman and Chief Executive Angelo R. Mozilo Sells 70,000 Shares


Anonymous said...

Foreclosure sales now represent about 16 percent of all home sales in California.


Anonymous said...

Foreclosure damage to be worse than expected

Part one, the mortgage losses. Very little money has been "lost." The market value of the securitized mortgages in question has fallen 30-70 percent, but if you don't sell, you don't have to recognize loss. The re-rating of this stuff to junk will force institutional investors to sell, to recognize, and probably depress value farther. We will also learn who has lost, and it's going to be an embarrassing and painful parade.

Part two, the housing market. Housing moves slowly, in an aching grind. Sellers resist discount, preferring to hold vacant, or to rent at a loss, or to stay put. Loan servicers are slow to foreclose: they are not staffed to do so (or to do anything except to send you all that mail trying to get you to buy insurance and pre-pay programs), fiddle endlessly and pretend to negotiate workouts of hopeless cases.

The housing picture is changing -- not selling, just changing. Foreclosure data is notoriously bad (every county and state has different procedures and law), but RealtyTrac's trend is probably about right.

The pattern is stark: national foreclosure filings are up 56 percent year-to-date, but mortgage defaults are up 86 percent -- foreclosure lag. Based on housing markets early to the distress party.

Do some math. Home resales run a tad over 6 million annually, plus another 1 million new-builds. Re-sellers still want to re-sell, and builders, desperate to unload land and to maintain survival volume, are still building at undercut prices. Demand is off (un-affordability and anxiety), but a new seller has arrived: first-half '07 foreclosure filings just short of 1 million. Pull-through from filing to foreclosure is unpredictable, but it looks as though re-sellers and builders will soon be joined by another million foreclosure re-sellers (or two, or three...). That's market saturation, not clearing.


Anonymous said...


The troll sets the way back machine to 1929 to call folks racists?!? Yeah, that's the reason we're talking about a credit bust.

At least a tin foil hat can insulate against whack jobs such as yourself.

Anonymous said...

Subset of recent sells in San Jose, CA

Are buyers getting better at low balling the sellers


Are many of the estimate way off the value of the house price?

SOLD 06/05/2007: $660,000
ZESTIMATE™: $736,614

SOLD 06/05/2007: $810,000
ZESTIMATE™: $939,479

SOLD 06/06/2007: $611,938
ZESTIMATE™: $736,739

SOLD 06/06/2007: $696,000
ZESTIMATE™: $719,032

SOLD 06/07/2007: $33,500
ZESTIMATE™: $668,769

SOLD 06/07/2007: $660,000
ZESTIMATE™: $677,620

SOLD 06/07/2007: $680,000
ZESTIMATE™: $706,241

SOLD 06/11/2007: $660,000
ZESTIMATE™: $806,184

SOLD 06/12/2007: $540,760
ZESTIMATE™: $658,781

SOLD 06/12/2007: $675,000
ZESTIMATE™: $664,633

SOLD 06/15/2007: $680,000
ZESTIMATE™: $672,788

SOLD 06/18/2007: $675,000
ZESTIMATE™: $678,849

SOLD 06/19/2007: $16,500
ZESTIMATE™: $610,495

SOLD 06/19/2007: $40,000
ZESTIMATE™: $1,058,561

SOLD 06/19/2007: $680,000
ZESTIMATE™: $738,545

SOLD 06/19/2007: $794,436
ZESTIMATE™: $1,164,110

SOLD 06/20/2007: $660,000
ZESTIMATE™: $681,077

SOLD 06/21/2007: $100,000
ZESTIMATE™: $622,137

SOLD 06/21/2007: $288,000
ZESTIMATE™: $789,935

SOLD 06/21/2007: $558,022
ZESTIMATE™: $705,355

SOLD 06/21/2007: $670,000
ZESTIMATE™: $683,903

SOLD 06/22/2007: $55,500
ZESTIMATE™: $739,215

SOLD 06/22/2007: $619,881
ZESTIMATE™: $714,152

SOLD 06/22/2007: $629,000
ZESTIMATE™: $714,450

SOLD 06/22/2007: $690,000
ZESTIMATE™: $719,580

SOLD 06/25/2007: $107,000
ZESTIMATE™: $396,027

Anonymous said...

It is fascinating to watch the ongoing developments in how the American consumer is adjusting to the new realities of a world where easy credit no longer abounds.

In some ways they are like the lab rats in those cocaine experiments where the little fellas just keep hitting the levers to dispense more of the narcotic. Over time, the drug causes a reaction that looks almost like an instinctual or natural survival response when in fact the little guys' internal chemistry is so messed up that his little world is anything but natural.

That same sort of behavior can be seen in a growing number of American consumers these days, as there appears to be little choice other than to keep hitting one of several levers to get more credit, to perpetuate an existence that is anything but natural, their internal chemistry severely impaired as well.

Last week, the American Bankers Association reported that late payments on home equity loans rose during the first quarter while delinquencies for credit cards fell.

While this is not that unusual, some have postulated that, sensing an accommodating environment in mortgage lending due to the overall distress in the industry, borrowers are seeking to preserve their access to credit cards while risking their homes.


Anonymous said...

A foreclosured home is no longer counted once a bank reposes that home, because the loan is dead.


Southeastern Pa.'s decline is at odds with South Jersey and the nation.

Mortgage foreclosures grew 87 percent nationwide in June, and by 8.2 percent in the Philadelphia area, according to a report released yesterday by a California firm that tracks mortgage defaults.

But a wide disparity in the number of defaults in South Jersey compared with defaults in Southeastern Pennsylvania left regional economists questioning the data's validity.

The Pennsylvania counties, including Philadelphia, had a 30 percent decline, while the total for Camden, Burlington and Gloucester Counties more than doubled, according to Irvine, Calif.-based RealtyTrac Inc.

RealtyTrac acknowledges that variances in the foreclosure process can cause discrepancies, even in neighboring states.

Frank Nothaft, chief economist of Freddie Mac, said Pennsylvania's job growth and overall economy kept real estate prices from falling as much as they had in other markets, but he could not explain why the South Jersey numbers had not followed Pennsylvania's "since they share the same economy."

Echoing the sentiments of other economists, however, Nothaft said he was "uncomfortable" with RealtyTrac's methods. He suggested that the numbers might be "overstated."

"Still, there is no question that there will be a pickup in the number of foreclosures going forward, especially when the rates [for] subprime loans taken out in 2006 begin adjusting," he said.

Rick Sharga, RealtyTrac vice president of marketing, said the numbers represented each stage of foreclosure - notice of default and notice of auction, as well as whether the bank takes the property (in what is known as an REO) rather than sells it at auction.

"The Mortgage Bankers Association doesn't capture the REO because by then, the loan is dead," said Sharga in explaining the discrepancy in data.

Anonymous said...

The RealtyTrac Monthly U.S. Foreclosure for June 2007

Market Report provides the total number of foreclosure filings -- both nationwide and by state -- over the preceding month. Data is also available at the individual county level. RealtyTrac's report includes documents filed in all three phases of foreclosure:

Default - Notice of Default (NOD)

Lis Pendens (LIS);

Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS);

Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank).





Anonymous said...

“Lenders are building a significant REO inventory,” said O'Toole. “Since January 1, 2007, a total of 29,696 California properties have been returned to the lender for an astonishing total loan value of $12 billion. This is unprecedented.”


Anonymous said...

Here's a simplified look at how foreclosure works:

· A lender generally initiates a foreclosure proceeding after a homeowner misses about three monthly mortgage payments.

· The home goes up for auction at the local courthouse (or, for a home in the District, at an auctioneer's gallery) if the borrower can't bring the mortgage current or work out a payment plan.

· At auction, the lender typically sets the opening bid. The lender cannot accept more than what is owed. Any surplus generally goes to the homeowner.

· If the home is not purchased at auction, it is conveyed to the lender.

· The lender can then refer the property to an auction house or have a real estate agent market it. The asking price is determined by the lender.


Anonymous said...

Memo to the US Fed: When the Dollar collapse comes, you might not get chance to even give money away..."

BEN BERNANKE has his helicopter. John Maynard Keynes had old bottles buried in coal mines.

And the Japanese government? How can Tokyo dish out free money and put an end to deflation, that horror of falling prices and wages?

"Envelopes containing ¥10,000 bills ($82) and well-wishing notes have been discovered in municipal toilets across Japan," reports the Associated Press, "baffling civil servants and triggering a nationwide hunt."

Curious, no? The anonymous well-wisher has left money in men's rooms in 15 prefectures in the last month. Each package of cash comes with a handwritten note: "Please make use of this money for your self-enrichment."

After studying the handwriting, the authorities are seeking an elderly gentleman. Do we need any more proof that this free "toilet money" comes as a gift from the Ministry of Finance (MoF)? After a decade of falling incomes, such desperate remedies might just start to appeal. And as crazy reflation schemes go, it's no more bizarre than throwing freshly-printed Dollars out of a chopper or burying old bottles stuffed full of cash in disused mine shafts.

What's more, all the Japanese "drops" have so far been made in government buildings. But what a pity this scheme hasn't worked! According to a report in Le Figaro today, all the free cash has been handed straight to the police - but that's the trouble with a genuine currency slump. You can't even give money away when the whole country is bent on destroying its value.

The Ministry of Finance printed and spent $400 billion selling the Yen between 2000 and 2004. Since it gave up, the entire Nippon nation has begun selling the Yen on margin it seems. Forex account balances in Japan have risen by nearly two-thirds from last summer to total ¥613 billion today - nearly $5 billion. "Leveraging typically makes their positions 10 to 30 times larger," says the Financial Times, and what the MoF struggled to achieve with $400 billion of short sales, private investors are now doing with a quick click of a mouse.

Total Yen sales by private individuals in Japan outweighed the volume of professional betting against the Yen recorded at the Chicago Mercantile Exchange by the end of last month.


Anonymous said...

170 U.S. Subprime RMBS Transactions Placed Under Analysis

Following its monthly surveillance review, Fitch Ratings identified 170 U.S. subprime transactions among its $428 billion rated universe of subprime transactions as 'Under Analysis', indicating that Fitch will be issuing a rating action over the next several weeks.

The total amount of bonds rated in the BBB category and below, which are the ones most likely to face rating actions


JerseyGirl said...

Markets on alert as junk bonds are mauled

Junk bonds have suffered a second day of mauling on Asian, European and US markets as investors shun risky credit, raising the risk of contagion for stock markets.

Europe's iTraxx Crossover index, which measures risk appetite for low-grade corporate bonds, had the sharpest rise since the index began.

Marcus Schüler, director of credit at Deutsche Bank, said the sudden rise in the cost of money for risky deals and leveraged buyouts was serious: "We've now reached a point where the worries are spreading to other parts of the capital markets and, for example, people in equities are starting to wonder about financing conditions for new deals. I've never had so many requests to add people from all areas to my distribution lists on the credit market," he said.

It is believed that, unlike the dotcom bubble in the late 1990s, the epicentre of the current one is in the credit markets, while stocks have been well-behaved. But this is highly misleading.

Morgan Stanley says the price-to-earnings ratio of smaller and mid-size stocks - such as on Europe's MSCI index of 600 stocks, or America's Russell 2000 - have been pushed to an all-time high of around 20 on the belief that they may be targets for private equity predators armed with cheap debt. The larger stocks have less of a premium because they are deemed too big for such takeovers.

Twelve deals have already been pulled over the past fortnight and a further $300bn are now in doubt. Gunnar Stangl, a bond strategist at Dresdner Kleinwort, said a "large glut" of loans with minimal covenants were now hanging over the markets and would have trouble finding buyers.

The hardening mood has meant KKR is having to accept more stringent terms and higher interest rates on the £9bn in debt refinancing for the Alliance Boots takeover.

James Carrick, a strategist at Legal & General, said we are entering "historically dangerous territory" for the markets; the sudden tightness in bonds was similar to conditions in autumn 1987, a month before the crash, and again just before the 1991 recession and the dotcom bust.

In essence, a credit crunch at the lower end of the debt markets can all too easily set off a vicious circle of slower growth and ever higher credit spreads, ultimately hitting the real economy.

The latest turbulence began when rising default rates in the US sub-prime mortgage industry (now 13.8pc) caused the near collapse of two Bear Stearns hedge funds, which exposed that up to $1,200bn (£590bn) worth of sub-prime debt packaged in securities may be falsely priced.

Deutsche Bank estimates that $90bn of investor money has already been lost since the bubble burst. The ratings agencies have since been downgrading these risky bonds, triggering further losses. Moody's has downgraded 399 sub-prime bonds from 2006-vintage, while Standard & Poor's has 612 securities on negative watch.

Federal Reserve governor Kevin Warsh said yesterday the debacle posed no serious danger to the US economy. "There are certainly losses, but they don't appear to be raising, at this point, systemic risk issues," he told Congress.


Anonymous said...

JerseyGirl said...
Markets on alert as junk bonds are mauled

I don't disagree, but feel folks should know the Nasdaq short squeeezed higher day after day before it finally turned. This past Thursday was a short squeeze. The same thing could well happen for a few months, even as the scene everyone sees on the street gets worse and worse. And above all, beware of those who say to "buy the dips on the way down". Follow this address for Jim Cramer's calls:


Anonymous said...


Where's Mike Miliken when you need him?

Anonymous said...

Dollar losing value????


Anonymous said...

Fannie Mae and Freddie Mac have tightened their policies for purchasing high-priced, high-risk home loans from lenders amid stress in the housing market.

The policies issued Friday by the two government-sponsored companies were in response to a directive from the federal agency that regulates the mortgage finance giants.

The new policies potentially involve billions of dollars worth of so-called subprime mortgages, those targeted to people with tarnished credit or low incomes who are considered greater risks. The policies spell out to banks and other lenders which mortgages Fannie Mae and Freddie Mac will buy from them and which they will reject.

The two companies - which together finance or guarantee more than three-quarters of all U.S. home mortgages - pump money into the mortgage market by buying home loans from lenders and then bundling them into securities for sale on Wall Street.

Their new policies, which take effect Sept. 13, call on lenders to exercise caution in making subprime loans and to evaluate more carefully borrowers' ability to repay them.

In addition, lending institutions should ensure that their risk-management practices keep pace with the growth and shifting risk profile of the subprime mortgages they hold, Fannie Mae and Freddie Mac said.

The head of the agency that oversees the companies, the Office of Federal Housing Enterprise Oversight, called their actions "a significant step."

"These actions reinforce the necessity for safe and sound underwriting practices, which serve the interests of lenders and borrowers in promoting sustained homeownership," said the agency's director, James B. Lockhart.


Anonymous said...

All week main stream media missed the reasons why the Dow went down then up.

Main stream media blame it on the S&P downgrade, but David Weiss came on the Nightly Business Report on Tuesday and said.

The S&P 12 billion in downgrade represent less then 2 percent of the subprime loans, and the 12 billion is nothing relative to the trillion in mortgage market.

In the United States today, there is approximately $10 trillion in outstanding mortgages, and of these, about one-quarter are subprime and Alt-A loans.


Wall Street's stunning reversal this past week — going from a nearly 150-point drop in the Dow industrials Tuesday to an astonishing 283-point surge two days later — looks like a rally without reason.

Painful as that drop Tuesday was, it made sense. Earnings warnings from the likes of Home Depot Inc., Sears Holdings Corp., and home builder D.R. Horton Inc. sent stocks tumbling and frayed investor confidence.

But little — if anything — had changed when stocks thundered higher, carrying the Dow and Standard & Poor's 500 indexes to new closing records.


The real reason that the DOW dropped was because investors were looking for a reason to dump stock ahead of BOJ Wednesday and Thursday meeting.

Remember Japan time zone is ahead of the US time zone.

Investors were concern about BOJ willingness to continue pumping excess liquidity into the global markets.

In other words, Tuesday drop in the Dow was investors concern that BOJ might pull another February surprise rate hike.

Home Depot Inc., Sears Holdings Corp., and home builder D.R. Horton Inc. bad earning reports gave investors the first catalyst to start dumping but it was not enough for the DOW big Tuesday drop.

Later that day Ben Bernanke spoke to Congress, and nobody knew what Ben Bernanke was talking about.

Bernanke could have read a page off of a macroeconomic text book, but some investors pick up on the message that BOJ can't go on pumping liquidity forever.

So when S&P $12 billion downgrade report came out it added flame to the fire. The fire was the message that Ben Bernanke started.

However, by Thursday when Investors took in the fact that BOJ was not going to raise rate anytime soon investors rally like its 1999.

Schizophrenia gripped the markets as investors drove the Dow to an all-time high on Wall Street in a mood of near euphoria this week, blithely disregarding the worst turmoil in the credit markets since the dotcom bust.

There was no obvious trigger for the explosive rally in equities across world bourses, beyond news that Wal-Mart sales in America have picked up a little after a grim patch. It was in any case overtaken by data yesterday showing a 0.9pc fall in US retail sales in June.

Albert Edwards, global strategist at Dresdner Kleinwort, said the habits of the great bull market die hard.

"We've got a slow-motion train crash in the US housing market and a drip-drip credit crunch, but every time the bad news abates for a few days people want to rush back in. There is this feeling that you can't risk being out of the market with all this liquidity, but they forget that liquidity can dry up very fast if things go wrong."


Anonymous said...

Mortgage fraud can ensnare legitimate buyers and sellers

Mortgage fraud is running rampant across the United States, posing potential financial damage or ruin to homeowners and even the local community. The FBI reports that the illegal activity can have a domino effect on the local housing market and the economy at large.

While there are an infinite number of variations on fraud for profit, these are among the most common:

Flipping. This term has gotten confused because of TV shows such as "Flip This House," which isn't flipping at all. Those types of deals, in which houses are acquired legitimately, improvements are made and the houses are resold quickly, are known in the business as quick turns.

"There is nothing wrong with that," says Ann Fulmer, an attorney, mortgage fraud investigator and founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition. "It becomes illegal when people start lying about the improvements, the value of them or (lying) to qualify the buyer."

Flipping involves a fraudulent appraisal and a grossly inflated sales price.

Straw buyers. One of the most frequent types of fraud occurs when "straw buyers" are used to hide the identity of the true borrower, who would not qualify for the mortgage.

"The perpetrators use a straw buyer because they have good credit and can get the loan," Ms. Fulmer says.

Straw buyers may be duped into thinking that they're investing in real estate that will be rented out, with the rental payments paying the mortgage. In fact, no payments are made and the lender forecloses on the loan. Or, sometimes, straw buyers are in on the scam and are getting a cut of the proceeds.

Appraisal fraud. Appraisal fraud is a part of most mortgage fraud scams. A dishonest appraiser inflates the value of the property. When the seller gets the check at the closing for a bogus amount, he pays off the appraiser and anyone else involved in the scam. Usually, the borrower doesn't make any payments and the house goes to foreclosure.

Foreclosure schemes. These are particularly evil because they prey on people with big enough financial problems that they're in danger of losing their home. A homeowner in the early stages of foreclosure may be contacted by a fraudster who says he can help the homeowner get rid of his debt and save his house for an upfront fee, which the fraudster takes and then disappears.

In another scheme, a homeowner is approached by a con artist who offers to help them refinance the loan. They sign documents and find out later that they actually sold the house -- to the fraudster. Then they face eviction.

Here are some tips for recognizing and preventing mortgage fraud:

For sellers

Get references for real estate and mortgage professionals, and check them. Make sure they're licensed with the state, county or city.

Be cautious about selling your property, especially if it's not currently on the market.

Do not agree to an amount above your asking price, especially if you are asked to refund the difference after the closing or if the extra money is to be used for repairs or improvements that you know are unnecessary.

Be wary of offers to "save" you from foreclosure. Work with your lender instead, and insist on getting a complete set of the closing documents.

For buyers

Be extremely wary of "no money down/cash back at closing" investment opportunities.

Check the sales history of the property -- several sales within a short period of time could indicate inflated values -- and have your own real estate agent or appraiser establish the value.

Check with your local tax assessment office or recorder of deeds to make sure the seller really owns the property.

Do not let someone else use your name or Social Security number to buy a property, especially if they offer to pay you for using it.

Deal directly with the lender or the mortgage broker. Do not let a third party arrange your loan.

For anyone

Insist on getting a complete set of the closing documents.

Do not sign any documents with information left blank or that contain inaccurate information.

Read and understand everything you're asked to sign, and talk to an attorney if you need something explained.


Anonymous said...

How can BOJ function independently when it hands are tied.


Anonymous said...

How can Bank of Japan Governor Toshihiko Fukui do his job when he can not make an independent decision anymore.


Japan MOF Omi: Want BOJ To Support Econ Through Policy

Japanese Finance Minister Koji Omi said Tuesday the government wants the Bank of Japan to support economic growth with monetary policy, but added that setting interest rate levels is up to the central bank.

"Our basic stance is that we want (the bank) to underpin stable economic growth from the monetary side," Omi said at a news conference after a regular Cabinet meeting. "(But) what to do with specific interest rate levels is up to the BOJ to decide."

Omi's comments came ahead of the central bank's two-day policy board meeting starting Wednesday. While most analysts expect the bank to keep short-term rates unchanged at 0.50% this month, they're closely watching whether any of the BOJ's nine board members votes for a rate increase, a move that could signal a rate hike in August.

The bank last raised rates in February when it increased the overnight call rate, or the rate charged on overnight loans between banks, to 0.50% from 0.25% in its first credit-tightening since July 2006.

Anonymous said...

It all about the bottom line - How long can BOJ pump excess global liquidity into the market.


Wow. Was that not a wild and wooly week?

The bottom line remains that regardless of the many concerns out there (the weak dollar, a selloff in treasuries, a subprime implosion, the ongoing housing weakness and new signs of a consumer slowdown), strength abroad, relatively low corporate borrowing costs and, above all, plenty of liquidity, trump all else.

Anonymous said...

Why don't BOJ raise rate, by now BOJ has to know what type of damage it will do to the economies around the World.


The Bank of Korea noted that high levels of liquidity have persisted in the financial system even after a series of measures to soak them up.

The Bank of Korea on Thursday raised its benchmark call rate target by 25 basis points to a six-year high of 4.75 percent, the first increase in nearly a year, in a bid to mop up excess liquidity which it fears could feed on inflation.

The BoK's strong view of the economy as well as comments made by its governor Lee Seong-Tae, seen as hawkish, have prompted speculations that another rate hike could be in the offing in the coming months. Prior to the increase, the central bank had kept the call rate target at 4.5 percent for the past 10 consecutive months, after hiking it by a cumulative 125 basis point on five occasions between October 2005 and August 2006. The current level is the highest since July 2001. "Governor Lee's comments on inflation seem to have signalled another rate hike," Goodmorning Shinhan Securities analyst Lee Sung-Kwon said.

Shinhan's Lee had previously expected the BoK to stand pat on rates in July. But he now expects the central bank to raise the call rate by another notch to 5.00 percent, possibly in October ahead of the presidential election at year-end. Lee however said the bank will find it difficult to hike the target above 5.00 percent as the US Federal Reserve is likely to keep their rates on hold for the time being, and in order to stem the won's strength against the US dollar. The US key rate is currently at 5.25 percent. Chun Jong-Woo, a senior economist at SC Firstbank, a local unit of Standard Chartered, said governor Lee's stance that the current call rate target is "not so high as to dampen economic recovery" signals another rate hike. Chun previously had voted for a rate hike in July.

Anonymous said...

A Meltdown From The Yen-Carry Trade?

Global markets got totally spooked in May 2006 when the Bank of Japan withdrew excess liquidity by 12.2 trillion yen--equivalent to the Fed taking $200 billion out of excess U.S. liquidity.

This inexplicably oafish move by the Japanese government caused an instant implosion. Stocks, commodities and markets everywhere collapsed as everyone ran for cover. A reduction in global liquidity on this scale panicked the hedge funds, the mutual funds, everyone. Emerging markets like India gave up 30% in a month. U.S. stocks fell. Gold and oil retreated fast.

Why the panic? It looked as if the Bank of Japan wanted to push up the value of the yen and warn investors not to count any longer on borrowing cheap yen and putting it to work without risk in higher-yielding securities denominated in other currencies. In other words, stop the so-called yen-carry trade in its tracks.

Putting a crimp in the yen-carry trade would mean that everyone would have to move fast to cover his short positions. All it took was a move of over 5% in the yen, and the yen-carry trade would become a losing proposition. Many bankers think it's a ridiculously risky gamble anyway.

Somehow the Bank of Japan woke up to the panic it had triggered and began to put back into the global monetary system a portion of its excess liquidity.

You may remember that traders breathed a sigh of relief, and between July and October 2006 most global markets retraced their steps back to the old highs and then even further.

Merrill Lynch estimates that about $1 trillion worth of yen is being borrowed and then turned into higher-yielding investments. It looks like a sure thing. You borrow yen in Tokyo at 0.5% and use the money to buy U.S. Treasuries yielding 5%. Sounds like shooting ducks in a barrel, doesn't it? Seems plenty of ordinary Japanese have even been doing it with their savings.

They're banking on Japan's need to keep its currency low to make its exports competitive in world markets. So, the yen-carry trade is a bet on a political-economic priority, which doesn't exactly qualify it as a sure thing.

Actually, there are no accurate figures on the yen-carry trade. Brad Setser, my guru on global liquidity, thinks the "visible" part of it is only $300 billion. Could investors get their hands on $300 billion yen to reverse their arbitrage trade? So what if they didn't? I don't see the world falling to pieces because of one large, very risky trade.

You want to worry? In March Merrill Lynch's Jesper Koll, an economist based in Japan, wrote that "global banks may have much higher yen asset exposure than generally assumed. ... The unwinding of the yen-carry trade is not just about paying back short-yen currency positions. Surely, global funds leveraging in yen to buy Japanese stocks and real estate must be considered part of the carry trade as well." This part of the trade remains invisible to us worrywarts.

The recent weakness in the yen has caused more investors globally--including individual Japanese--to borrow yen and invest in U.S. dollars or many other currencies that have interest rates well above Japan's 0.50%.

Quite a bit of the trade is taking place in the derivatives market, which suggests that the yen-carry trade has reached another all-time high.

To hedge the wide spread between the costs of borrowing in Japan and investing abroad, Howard Simons of Bianco Research in Chicago, my choice as top U.S. expert in the yen-carry controversy, suggests buying a three-month forward option on the yen at the Chicago Mercantile Exchange for an annual cost of 108 basis points.

For the moment, this leaves a net profit of almost 300 basis points if the yen stays weak--attractive if you're doing it with borrowed funds. Today it's 122 yen to the dollar. But unhedged, you lose your 450-basis-point spread between the cost of borrowing the yen and investing in the dollar if the yen goes to 117, which is possible.

Simons warns that the Bank of Japan is making hostile warnings about the yen-carry trade, the effect of which is to trigger an exodus of money from Japan into other nations.

Squelching the yen-carry trade remains one goal of the Bank of Japan. Simons warns that tightened credit and restricted money supply could be in the offing. The Bank of Japan wants capital back to buttress its economy. Look for a rate increase from Japan in the early fall.

While the yen-carry trade is a "celebrity" transaction that has received more scare publicity than it deserves, there's no such thing as a free lunch. Playing the wide spread between the cost of money in Japan and other, higher interest rate markets in the end may turn out to be truly a fool's game.


Shakster said...

Anonymous said...
So what is wrong with this picture?

143 Curtis Ave, Milpitas, CA 95035
2 beds, 2.5 baths, 1,192 sq ft

For Sale: $169,000

ZESTIMATE™: $529,101


Good find there.
Seems like Zillow(ZILDOE)is the spittin image offspring spawn of the Hedgies.

Anonymous said...

Old news but still one of the best explanation on the relationship between BOJ, excess liquidity, and yen carry trade.

BOJ fed fund rate is at 0.5% since last rate hike in February. The rate hike was caused by ECB pressuring of BOJ to raise rate in the G5 meeting


Stocks, bonds, high-risk mortgages, and commercial real estate have all climbed, in varying degrees, thanks to a combination of things, including reckless central bank policies and a complete disregard for risk by many professional investors.

But one big stimulant behind the runs we’ve seen in many of the world’s investments is simple — money. I’m talking about pure, unadulterated liquidity. It’s been growing by leaps and bounds here in the U.S. as well as overseas.

Who’s the biggest culprit when it comes to doling out cheap funds? Well, the Bank of Japan certainly belongs on any short-list. The BOJ has kept its short-term interest rates extremely low — near 0% — for a long period of time. And it’s been flooding its domestic economy with liquidity.

Here’s the important thing — all that excess liquidity didn’t just encourage Japanese borrowing and spending. Instead, it gushed all over the rest of the world, unleashing a force called the yen carry trade.

Here’s how it works ...

Say you’re a trader at Goldman Sachs, and you want to make a big bet on U.S. bonds. You’re looking for the cheapest source of money you can find. After all, the more money you can borrow ... and the lower the interest rate ... the greater your potential investment return.

So you sift through international money markets and find out that a Japanese bank that will loan you a couple hundred million dollars at 0.25%. (This is what Japanese rates have actually been for the last few months!)

You receive the money in Japanese yen, then convert the funds into dollars. That’s because you want to buy U.S. bonds.

This strategy can really pay off! After all, short-term rates are 5.25% in the U.S. So, right off the bat you’re earning a 5% return (5.25% - 0.25%). This is called “positive carry.”

If you throw in some leverage, you can double or even triple those returns!

If you decided to invest in another country with even higher interest rates (New Zealand’s current rate is 7.25%), you can really make out like a bandit!

And if you buy something riskier than short-term bonds — say, a junk bond or a complex derivative — you can get an even higher yield (and possibly more capital appreciation, too).

Investors naturally asked themselves: Why not engage in a massive carry trade? Why not borrow for virtually nothing in Japan and leverage that money into all kinds of other assets? After all, it was like free money.

How the Yen Carry
Trade Can Crack Apart

The yen carry trade sounds like an investor’s dream come true, but there’s just one problem: Unexpected currency moves.

In the example above, you were borrowing in yen and investing in dollars. As long as the exchange rate between those two currencies stays the same, you’re fine. And if the dollar rises against the yen, you’re even better off because you’re making money from the currency move in addition to the difference in interest rates.

But if the yen starts — gasp — rising against the dollar, things can get ugly fast. Remember, you’re going to have to pay back your yen-denominated loans by selling assets that are priced in dollars. Since it’ll now take more dollars to repay your yen loans, you’re losing out. If you opted for massive leverage, you’re totally screwed!

Anonymous said...

Zillow recent sold figures in San Jose suggests dip discounting in the month of June.


"Is overbidding still common?" queried a recent poster on the Craigslist housing forum (www.craigslist.org). "We are looking in Piedmont, and the agents are always pressuring us to overbid!"

The perplexed home buyer got a rash of responses, from "Do Not overbid -- it's just money down the drain!" to recommendations to follow their agent's advice.

I could see how he'd be confused. Splashed over the papers are stories about a "buyers' market." And in most areas of the nation and many parts of the Bay Area, deep-discount bargaining is the rule of the day.

After listening to my friend wax exultant about the giant backyard and the great school district, I didn't want to be the one to recommend a less-than-winning offer. I could recommend he wait until the market blues hit this area as well, but he wasn't asking about the whole market -- he was asking about getting that house that week. Instead of outright telling my friend to listen to his agent and bid the whole banana, I asked him to imagine two distinct worst-case scenarios: 1) How would they feel if they got outbid and another buyer got the house? and 2) What if they bought the house at top dollar, only to watch housing prices decline precipitously in their new neighborhood?

Which would be worse? At the heart of our conversation was the new buyer conundrum. The game has been stacked against buyers for so long that they have become increasingly fearful and suspicious of the whole process. Nobody wants to get shafted, but at the same time, people still need homes. So when it comes to a specific home that a buyer truly wants, it's difficult to know what to do.

ALAN DEE said...


Anonymous said...

The carry trade has been by far the most successful foreign exchange trading strategy since 2002 (see chart 1).

The strategy involves borrowing funds in a low interest rate currency - typically the Japanese yen but also the Swiss franc or the Taiwan dollar - and investing those funds in a higher yielding currency - typically the Australian dollar, New Zealand dollar, and UK pound, but also into a range of emerging market currencies including the Indian rupee.

Carry trades have worked since 2002 because the economic cycles in Japan, Switzerland and Taiwan, have lagged far behind the upswings in the high yielding countries and so rate differentials have stayed wide.

Increased global investor risk appetite and the improved substitutability of foreign assets for domestic assets has also reduced investor home bias and lifted international capital flows out of the low rate countries.

Finally, low market volatility and low real (after-inflation) interest rates have encouraged investors to borrow.

But carry trades are not for buy-and-hold investors. Returns from the strategy have flattened out since 2005 and there have been more frequent stress periods when carry-trades have unwound in a disorderly way and investors have lost out.

There were two stress periods - lasting 1-2 months - in 2005, another two in 2006, and there has already been one stress period so far in 2007. Our best guess is that there will be at least one more carry trade stress period by the end of this year and that, for a time, there will be a negative impact on some major emerging markets, including India.

Determining when to get out of yen-borrowing or to expect some stress in the high-yield markets, depends on what is likely to happen to the low-yielding currencies, particularly the yen, what is likely to happen to global investor risk appetite, and what is likely to happen in the high-yielding countries.

The yen at current levels - around 123 per US dollar - appears cheap on long run valuation models and so should rise over the long run. But the yen is cheap because Japanese interest rates are very low.

FX market speculative short positions have weighted against the yen since 2005 (see chart 2) but the big outflows that have kept the yen weak are from Japanese domestic investors looking for higher yields in foreign markets.

Japan's economic upswing looks set to continue and the Bank of Japan is keen to push ahead on normalising interest rates in order to combat future inflation risks.

Nevertheless, future rate hikes are likely to be very gradual - we expect one hike of 25 basis points every six months (from 0.5% now) over the next 1-2 years with the next move coming in September 2007.

The yen should rise over the next 1-2 years as well but the currency's moves will likely be very jerky and volatile - we expect short-and-sharp periods of yen appreciation then followed by a period of stabilisation.

It is very difficult to time markets right but we expect another period of short-and-sharp yen appreciation in August or September this year.

Market volatility is likely to rise over the next 1-2 years and global investor risk appetite is likely to be pulled back. But for most of the time the rise in volatility and risk aversion should be moderate and markets will likely adjust smoothly.

There will continue to short episodes when volatility and risk aversion spike sharply higher and trigger disorderly markets.


Anonymous said...

Hey L00K! The Bush administration is hoping for China to bail them out...

U.S. Urges China to Buy Mortgage Securities Amid Subprime Woes

By Josephine Lau

Housing and Urban Development Secretary Alphonso Jackson July 13 (Bloomberg) -- The U.S. is urging China's central bank to buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world's largest economy eroded demand for such instruments.

``It's not a matter whether they're going to do more business in mortgage-backed securities, it's who they're going to business with,'' U.S. Department of Housing and Urban Development Secretary Alphonso Jackson told reporters in Beijing. He met with central bank Governor Zhou Xiaochuan and Minister of Construction Wang Guangtao in the nation's capital this week.

The U.S. housing regulator is seeking to tap China's $1.33 trillion of foreign-currency reserves after surging defaults on subprime mortgages caused the near-collapse last month of two hedge funds run by Bear Stearns Cos. Almost $12 billion of U.S. mortgage securities have been downgraded by ratings companies.

Jackson is in Beijing to persuade the Chinese central bank to buy more mortgage securities from Ginnie Mae, a mortgage association under the Housing Department. Its securities are guaranteed by the U.S. Government National Mortgage Association.

Ginnie Mae is ``in a better position than most'' to offer mortgage products since, unlike Fannie Mae and Freddie Mac, it has the full backing of the U.S. government, said Jackson. Mortgage securities offer China's central bank better returns than U.S. Treasury bonds at the same level of credit risk, he said. China held $414 billion in U.S. Treasuries as of April, according to data compiled by Bloomberg.

Commercial Banks

``China's bought some mortgage-backed securities from us, but not in great numbers,'' Jackson said, without providing target numbers for future purchases.

China held $107.5 billion in U.S. mortgage-backed securities as of June 2006, up from $3 billion three years earlier, according to HUD's Web site. The figures include securities offered by Ginnie Mae, Fannie Mae and Freddie Mac, without providing a more detailed breakdown of each agency's holdings.

HUD also plans to approach Chinese commercial banks such as China Construction Bank Corp. and ask them to buy mortgage securities, said Jackson.

The housing department wants to sign a memorandum of understanding with construction minister Wang when he visits the U.S. in August, Jackson said without elaborating. The two nations face similar challenges in providing affordable housing to average citizens, he said.

Paul E. Math said...

I had a very encouraging experience today.

I was invited out to the beach with my boss and a few guys I work with and their families. One of the guys is an immigrant from India and has conventional values very consistent with the rest of America. His daughter is highly representative of the best of the next generation: she is in her early teens, bright, pretty and surprising self-confident and mature. Although she is still just a teenager.

At one point this guys daughter told her mother not to ever expect her to have a big house. She said "why would I want a big house? It's just more to clean and costs money that you could be spending on lots of nice clothes and jewelry and stuff." To her, a big house was cool to the previous generation and therefore very uncool to her.

Every generation thinks the previous generation and their values are uncool. This girl expressed exactly how the coming generation will regard our generation's obsession with 'bigger is better' housing.

The coming generation will have no interest in buying our mcmansions, even if for not other reason than that's it's not cool.

Anonymous said...

This will be fun to watch!

Big Money Put on Countrywide To Crash — By Next Friday
* July 11, 2007

From the Market Ticker blog (with a hat tip to the Implode-o-Meter), some pretty incredible news:

In individual issue news items, Countrywide (CFC) traded over 13,000 $30 PUT contracts for July today. That contract has no bid, which means they were bought. That’s an absolute lottery ticket but if it pays off…… you have to wonder - does someone know something? That’s so crazily out of the money and expiring next Friday - there’s no way that’s rational unless someone is very sure that the company is going straight in the crapper within a week! The stock is trading near $36 right now! That is almost certainly an institutional bet as the per-contract cost for a retail investor would be positively prohibitive.

For “why would someone do this”, you could look at AHM today. Down almost $2, or more than 11%, on the news leak about layoffs. Subprime contagion, given that AHM is nearly all ALT-A? Hmmmmmm…..

(In all fairness, it may simply be cheap insurance against a disaster. $64,000 worth of cheap insurance that the buyer completely expects to lose. But still…. unless you’re concerned that there might be a disaster, why would you flush $64,000 - that expire before earnings?)

Countrywide is scheduled to report earnings on July 24. The July puts expire on the 20th.

Anonymous said...

Anyone getting tired of all the weekly open houses on there street? I two homes on my street that over priced. One has been on the market for over a year and the other for 4 months. No price reduction, no sale!!!

Hello sellers!!! You are hurting the economy by not reducing your price so all these 4 million homes can get someone in them. Get over it 2005 is gone. You had your chance. Lets get these homes moving!!!

Anonymous said...

Anonymous said...

Anyone getting tired of all the weekly open houses on there street? I


What I am tired of is people who can't distinguish between THERE and THEIR.

Open houses...no doesn't bother me at all. I can't see why it would bother anyone really. Seriously, what possible harm could come your way by your neighbor having an open house? It's no different than if a neighbor had some friends over every weekend. Unless they are overly noisy or parking their cars so that your driveway is blocked, you must be one bored person to even notice let alone care what your neighbors are doing.

Curious Investor said...

Hey all, I have an interesting tidbit that you all can chew on for a little bit. I agree with everyone that housing went up too high, however some of the predictions here I have a hard time stomaching as well. And now I think I am in good company.

I have always been taught (and learned myself, painfully sometimes) when investing, to follow the smart money. I don't know much money smarter than Warren Buffet. Warren Buffet just purchased a large stake in K Hovnianan homes. They are a large homebuilder with projects in - get this - Florida, Arizona, California and Georgia. All of the so called "Bubble Markets" that are supposed to crash and have prolonged pain for years to come. What is even more telling is the fact that they DO NOT have projects in so called "non bubble" markets - Kansas, Wyoming, Montana etc. Midwest and central US states that only saw small appreication during the "bubble" and now are not suffering as much pain.

Now I have figured out after many years, you DON'T bet against Warren unless you want to lose BIG. So what is the story here? If there was going to be prolonged blood in the streets, why would he buy a large stake in a homebuilder? I KNOW he does not like to lose money.

My guess is that the smart money knows this is a short term correction and not a long term trend.

Fools buy when assets are high (Bubble). Smart investors buy when everyone else is selling and "conventional wisdom" says sell (right now) and news is the worst.

Just my 2 cents - where is my thinking flawed - please don't flame me as I am asking not trying to prove anything....

Anonymous said...

Anonymous said...
Mammoth in Seattle:

Okay, here' s what works to sell the house. Price at least 10% below current comps (SOLD price, not asking). Don't ask your average realtor for that info. They won't tell you. Find out yourself. Go - 15% to start if the mortgage market looks bad the week you're putting it up for sale.

the reason I say don't ask /trust the realtor is that I've got friends in Seattle who've had their houses on the market for WAY TOO LONG now with no decent bites, all on the recommendations of stupid realtors up there who are still drinking the koolaid.

Price is the ONLY thing that matters. My friends have been chasing the market down for months now when if they'd just priced it right to begin with, they would've GOTTEN what they are asking for now 5 months ago. Good luck.

July 09, 2007 12:17 AM


That is exactly the right thing to do if you want to sell in this market. However, if your goal is to make money (and not take a loss) the better plan would be (assuming that you are not in a toxic mortgage, adjustable etc.) is to just hold it, and rent to someone else. The rental market is good because everyone wants to. So if you are not in a bad position, it would be smarter to just pay for a little touch up, curb appeal, and then rent to another person for hopefully a few years, until the market levels out or goes up again (which it will - RE Cycles happen as sure as the sun rises) and then sell for at least what you paid or a profit (not sure of your situation). Why sell in a down market if you don't have to. You know the whole buy low sell high thing.....

Just a thought.

Guy Daley said...

Curious investor

Your thinking is flawed because that was a RUMOR. Buffet didn't buy any stake in Hovanian HOV


Rumors are flying all the time. Macy's had two runups for the same reason, buyout RUMORS.

But go ahead, buy on a rumor. You didn't even bother to check and see if it was true. You just assumed. Good for you.

Anonymous said...

Didn't Warren Buffet recommend to Bill & Melinda Gates to buy home buyers a while back?


Microsoft Corp. Chairman Bill Gates has shed most of his investments in home builders, as revealed in a quarterly filing of the holdings of his charitable foundation.

The Bill & Melinda Gates Foundation Trust showed a strong interest in the industry, according to a filing in November. It took stakes in at least seven home builders, only to quickly divest in those companies, according to a filing on Wednesday that disclosed the foundation's holdings as of Dec. 31.

The overall value of the holdings dropped about 4% to $5.9 billion.
KB Home, Centex Corp., Pulte Homes Inc., Lennar Corp., Beazer Homes USA Inc., Ryland Group Inc., and WCI Communities Inc. were dropped from the list of holdings.

A slew of U.S. home builders reported weak quarterly results last month, saying they did not see an inkling of a rebound in the U.S. housing market.

a.creampuff said...

curious investor: "where is my thinking flawed?"

Sounds like you are conflating "the smart money" with one guy. Excuse me, but one guy can be wrong at least once in a while. Warren Buffet may be doing something one or more steps removed from the pat "calling bottom" you think you're seeing. How about propping up the market? How about a hostile takeover, or interest in just getting the hard assets or something along those lines? Your billionaire super-genius, maybe up to something more sophisticated than just "buy low, sell dear" and now's low.

a.creampuff said...


How about a thread on how apartments are greener than houses? The more one thinks about this, the more one sees.

I am using my balcony to grow volunteer trees saved from being tossed as weeds from friends' gardens. I've already got four varieties. Why isn't this commonplace? Cost is virtually zero, and it's a top way to reduce your carbon footprint (let's face it, bought tress are not going to a bonfire or landfill, so planting them doesn't represent a net gain in trees).

Anonymous said...

How does this make sense

Empey Way, San Jose, CA 95128
Willow Glen, Neighborhood

3 beds, 1.0 baths, 1,555 sq ft

Recently SOLD 05/23/2007: $689,000

ZESTIMATE™: $776,521
Value Range: $714,399 - $861,938

30-day change: -$12,274 Down
Last updated: 07/03/2007

House next to the one that sold on
Maywood Ave, San Jose, CA 95128
2 beds, 1.0 baths, 945 sq ft

Zestimate™: $689,505

30-day change: $10,135 Up
Last updated: 07/03/2007

The house next to the 945 sq ft house also on
Maywood Ave, San Jose, CA 95128
2 beds, 1.0 baths, 910 sq ft;

ZESTIMATE™: $695,106

30-day change: $13,223 Up
Last updated: 07/03/2007

This one make some sense
Empey Way, San Jose, CA 95128
3 beds, 2.0 baths, 1,970 sq ft

ZESTIMATE™: $928,165

30-day change: -$16,404 Down
Last updated: 07/03/2007

Zillow seems to be all over the place on its estimate.

edd said...


"In the 20 or so years that I did home inspections … I inspected hundreds of new houses that looked
pretty good at first glance but turned out to be unbelievably, undeniably bad.
I’d play it safe and find myself a
nice mid-’60s rancher.
I’d say there’s a 100 percent chance of it outlasting a new house."

Anonymous said...

Subset of recently sold in Campbell, CA

Are buyers getting better at low balling


Zillow off on their estimate

SOLD 06/05/2007: $590,000
ZESTIMATE™: $669,925

SOLD 06/05/2007: $1,000,000
ZESTIMATE™: $1,055,125

SOLD 06/06/2007: $650,000
ZESTIMATE™: $725,515

SOLD 06/06/2007: $850,000
ZESTIMATE™: $858,189

SOLD 06/07/2007: $705,000
ZESTIMATE™: $721,921

SOLD 06/08/2007: $585,000
ZESTIMATE™: $700,496

SOLD 06/08/2007: $750,000
ZESTIMATE™: $756,271

SOLD 06/12/2007: $484,000
ZESTIMATE™: $485,387

SOLD 06/12/2007: $740,000
ZESTIMATE™: $775,215

SOLD 06/15/2007: $525,000
ZESTIMATE™: $686,991

ZESTIMATE™: $662,286
SOLD 06/15/2007: $676,000

SOLD 06/15/2007: $718,000
ZESTIMATE™: $769,790

SOLD 06/20/2007: $595,000
ZESTIMATE™: $626,864

SOLD 06/20/2007: $481,500
ZESTIMATE™: $1,318,665

SOLD 06/22/2007: $724,000
ZESTIMATE™: $767,538

Anonymous said...

The yen traded near a record low against the euro on speculation investors will keep borrowing the currency to buy higher-yielding assets in so-called carry trades.

The currency weakened against New Zealand's dollar as an inflation report in that nation increased prospects the central bank will raise its benchmark 8 percent rate, which compares with Japan's 0.5 percent.


Anonymous said...

Bank of Korea May Raise Rates Again to Fight Asset-Price Bubble

Bank of Korea Governor Lee Seong Tae may increase interest rates for a second time this year to prevent money-supply growth from fueling bubbles in the stock and property markets, according to a survey of economists.


Anonymous said...

Actual conversation TODAY with a realtor:

realtor: "When are you looking to move"

Us: "Oh, we're waiting for a while...we believe prices will fall."

realtor: (begging tone) "Oh please, please, please don't believe that! There is no better time and the inventory available will be much worse if you wait, and prices will be higher. If there's one thing I've learned is that prices NEVER go down. They may flatten, but they NEVER go down. Well, maybe in the existing home sales market they do, but NEVER in new homes."

Us: "Okay. Thanks for the tip. Bye."

Us: (after we're out the door) "I've never had a realtor beg me before to not believe reality."

Just sad. Sending a case of ramen to her office on Monday.

Anonymous said...

"Fear and Greed" and "Path of less resistance" are the basic rules of economic.

Japan does not have to tell people "please borrow in our currency" because "Greed" and "Path of less resistance" assure human nature will be human nature.

Japan might as well send email reminders to people to "please borrow in our currency" when BOJ takes alway the element of "Fear".

Since BOJ can not be Dr Who then world historians will need to know who is at fault for this global excess liquidity.

If a mistake does happen and the world goes into another Great Depression then world historians will need to start gathering the facts to understands the mechanism that create a Great Depression.

Hopefully like the last Great Depression this great event does not bring about another round of Nationalism which could trigger another World War.

It is all beginning to sound like 1926 and world historians need to know if another World War happens blood is on BOJ hands.


Japan also has become an ATM in global markets via the so- called yen-carry trade. Borrowing cheaply in yen and investing those funds in higher-yielding assets overseas has become a one- way bet, and a steadily growing one. It's flooding economies from Thailand to South Africa to Chile with liquidity, feeding bubbles virtually everywhere.

Bubble Machine

When current BOJ Governor Toshihiko Fukui talks about raising rates, he cites the risk of bubbles in Japan. Yet it's too late; Japan's ultra-loose monetary policy already is doing that globally.

Is it fair to blame Japan for asset imbalances?

Japan isn't exactly encouraging the yen-carry trade; it's not making the rounds saying ``please borrow in our currency.'' And just as former U.S. House Speaker Tip O'Neill said about all politics being local, central bankers tend to think globally and act locally. The BOJ has done that in a bid to end deflation.

Yet Fukui, who has run the BOJ since March 2003, could have gone in one of two directions: ending deflation once and for all or normalizing interest rates. Fukui has succeeded in neither and the yen's weakness is a side effect of confusion in markets about the BOJ's goals.

Risks Galore

History may look even less kindly on this period than the BOJ's efforts to prick Japan's asset bubble in the late 1980s and early 1990s. The odds favor the yen-carry trade blowing up at some point, just as it did in 1998. Back then, Russia's debt default and resulting market turmoil saw the yen surge 20 percent in less than two months, devastating the carry trade.

Today, the number of trades and the amount of leverage involving yen borrowings are far greater than in the late 1990s. Add in a rapid increase in the number of hedge funds since then and the size of imbalances -- U.S. deficits, China's undervalued currency and free Japanese money -- and you have a perfect recipe for global shocks.

When things go awry, and they will, some Japanese officials will be wishing they had a Doctor Who. Or, at least a good place to hide.

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