November 17, 2007

We interrupt the NAR's happy spin and sea of lies for a word from Wells Fargo and Goldman Sachs

Folks, this is some pretty scary stuff. And now it's not coming from some loony little blog like this one. Nope, it's coming from the largest financial institutions in the world.

Batten the hatches. Here comes the storm.

Wells:

Wells Fargo CEO John Stumpf said Thursday that housing is in the worst shape since the economic devastation of the 1930s.


"We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf told those attending a Merrill Lynch & Co. (NYSE: MER) investment conference.

He anticipates hard times ahead for home owners in financial straits -- and their bankers.

"I don't think we're in the ninth inning of winding this," Stumpf said. "If we are, it's an extra-inning game.

"The losses have turned out to be greater than expected because home prices have declined faster and deeper than expected"

Goldman:

Jan Hatzius, chief economist at Goldman Sachs, made waves today with a note released last night that put possible credit losses from mortgage defualts at $2 trillion, due to leverage. Hatzius’s anlaysis have drawn attention before: Back in March 2006, Hatzius said U.S. housing was overvalued by about 20%, based on historical relationships between monthly mortgage payments and median household incomes.

“Estimates of the likely credit losses on outstanding mortgages have grown sharply in recent months. A back-of-the-envelope calculation using past default experience in different home price environments now suggests losses of around $400 billion. … [O]ne sometimes hears that it is just equivalent to one bad day in the stock market. But this analogy is wrong.”

“[I]f leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion. … This is a large shock. It corresponds to 7% of the total debt owed by US nonfinancial sectors (households, nonfinancial companies, and government).”

“Our conclusion is that the likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized.”

42 comments:

Anonymous said...

I've read both articles from other news sources. The Wells Fargo article is accurate. The Goldman article is actually a mishmash of what Goldman released PLUS alot of Brit sensationalization. Not trying to dispute what is says, just saying that they've taken alot of Artistic liberty with the core comments from Goldman, thus one cannot attribute all the content to Goldman as the source. I have no idea if the fact that it is not linked to Goldman as making it more or less accurate. Nobody knows what is going on these days financially and economically. Ultimately, we will only know who is right and who is wrong in hindsight, but I am with the camp that says there is going to be some painful economic times in the very near future.

Peter T said...

Wow, now the banks sound like writers on housing bubble blogs. The financial industry seems to be f..ked:
> The potential for an economic implosion and subsequent world recession is huge and could surpass the biggest financial crash in history of that of the Great Depression.

How well will the rest of the industry do? Are financials really the heart and brain of the US economy?

Andrew from Russia said...

In 1933, the 21st Amendment came to cure the psychological depression that accompanied the econonomic one. This time it's going to be harder to endure. Invest in pharm companies and watch for the "legalization" movement!

jafo said...

http://www.nytimes.com/2007/11/17/business/17lend.html?_r=1&oref=slogin

Veronica Lodge said...

RE: 2008 is set to be the darkest ever year in financial history according to Goldman Sachs – a new report claims.

Traditionally, the best cure for economic instability is war. It was World War II that pulled the US out of an economic depression and into world supremacy.

OH SH!T !!!

We already have a couple of wars going and they are only dragging the economy down.

V.L.

Anonymous said...

Geez - that is scarry stuff. Being a renter, I am not sure I feel any better in this situation with my money just sitting in the bank. I feel like I'm going to be robbed somehow.

Anonymous said...

>> "I don't think we're in the ninth inning of winding this," Stumpf said. "If we are, it's an extra-inning game.

Douchebag - we're in the bottom of the 1st inning - the game has only started.

Anonymous said...

get that man a begging bowl... cue the bailouts...

set up the next rounds of interest rate cuts -- bring back the speculative bubbles...

anyone else see some self-serving PR here???

Anonymous said...

While we are on the topic of bailouts - I will buy a six-pack of beer for anyone
who can answer the following question:

Who engineered/backroomed the FHLB's purchase of ~160 Billion in flaky paper from sub-prime lenders and banks? AFAIK, the FHLB's have NEVER done this before and while it has been reported by the MSM, no one has taken credit for this latest fix/screwing of the taxpayers...

Anonymous said...

Local coverage of the raid on Liberty Dollar:

YouTube Link

Anonymous said...

Companies borrowing money to buy back their stock,oh my

SeattleMoose said...

I don't mind standing in line for soup but I know a lot of phony "rich" folks whose big fat egos would be destroyed......

The collective ego of America needs to be destroyed, simplified, and purified.

Anonymous said...

Well, some of the joke was on the buyer of the mercedes. Much like housing quality went in the crapper since the 80s the mercedes quality declined starting in the late 90s.

These cars are just dressed up Hondas that use Chinese parts where you can't see them. YUK!

Well, look at who they are being sold to....figures.

Anonymous said...

http://tinyurl.com/2vs5ov

The Crash of 2008?

in March 1929, the Harding-Coolidge era came to an end. The eight years had witnessed the greatest peacetime prosperity of any nation in history: America in the Roaring 20s. Early that March, Calvin Coolidge handed the presidency over to Herbert Hoover, who had just pulled off a third straight Republican landslide.

"I do not choose to run," said Coolidge, who could easily have won a second full term. Silent Cal went home. Hoover, whom he privately derided as "Wonder Boy," presided over the Crash of '29 and the first three years of the Great Depression.

History holds Harding, Coolidge and Hoover responsible for the Depression, with Treasury Secretary Andrew Mellon, and Reed Smoot and Willis Hawley of Smoot-Hawley fame, as accessories. As Voltaire observed, history is a pack of lies agreed upon.

Two men debunked the myth that the low-tax, high-tariff policy of the 1920s brought on the Depression. The more famous is Milton Friedman, who proved to the satisfaction of a Nobel Prize committee that the Depression was a monetary phenomenon. The Fed had opened the sluices, and the money had swamped the stock market.

When Wall Street crashed, there came a run on the banks by men who had bought on margin, a depositors' stampede, a bank collapse, a wipeout of uninsured savings and the loss of a third of the money supply, lifeblood of the economy. The Fed never gave the nation the needed transfusions. Hoover and FDR misdiagnosing the crisis, raised taxes and wrote up new regulations, which was like putting a body cast on a patient in shock from the loss of a third of his blood.

The Smoot-Hawley myth, repeated by John McCain in the Detroit debate, was demolished by Alfred Eckes of Ohio University, Reagan's man at the FTC and America's foremost authority on the history of trade and tariffs, in his 1995 "Opening America's Markets."

The point of this brief history: The recent hand-off from Alan Greenspan, the maestro of the Global Economy, to Fed Chairman Ben Bernanke may turn out to have been a lateral far behind the line of scrimmage, leaving Bernanke holding the bag for a recession for which he is no more responsible than was the hapless Hoover.

Last week, the stock market saw 4 percent of its value wiped out. Oil reached nearly $100 a barrel. The dollar fell to record lows against the Canadian dollar and the euro. The price of gold was $850 an ounce, signaling inflation and a worldwide lack of confidence in the Fed's ability or determination to defend the world's reserve currency.

The Chinese, with $1.4 trillion in reserves, perhaps 80 percent in dollar assets, indicated they may dump dollars and move into euros. Merrill-Lynch took an $8 billion hit. Citibank is signaling massive losses from its subprime mortgage debt. General Motors reported an operating loss of $1.6 billion for the quarter and a whopping $39 billion charge that is among the biggest profit hits ever reported.

Where does this leave Bernanke? On the horns of a dilemma.

Exposure of all that subprime debt going rotten on the books of our biggest banks, the staggering losses being reported, the inability of homeowners to refinance or borrow any further against their equity, the credit crunch – all argue for an easy money policy to get capital back into the economic bloodstream.

Thus the Fed has cut interest rates from 5.25 percent to 4.5 percent. Thus the howls for deeper cuts, thus the market anticipation of another cut, though the Fed has said no more.

But the Fed is responsible not only for the national economy. It is responsible for defending the dollar, which represents the real savings and wealth of the nation. And that dollar has lost more value in seven years than in any similar period in modern history. A euro, worth 83 cents the year Bush was elected, has risen in value to $1.47.

As the dollar sinks, exporters may cheer rising sales, but at home we will soon find that the prices of all those imported goods from Europe and Asia down at the mall are starting to rise. U.S. soldiers, diplomats, tourists and businessmen overseas are already feeling the pain of a falling dollar.

If a recession is generally a sign the Fed should loosen up, a run on the dollar is a sign the Fed should tighten by raising interest rates to make dollars and dollar-denominated assets more attractive.

But the Fed's raising of interest rates would push up the rates on mortgages, credit cards and auto loans, and push millions of marginal folks into bankruptcy and the country into recession, a disaster for the Republicans.

But, given their free-trade fanaticism and free-spending ways, that fate would not be undeserved. Say a prayer for Ben Bernanke. He may have to eat the football that scrambling quarterback Greenspan tossed to him far behind the line of scrimmage.

Wotten Wascal said...

More fuel for the fire.


A federal judge in Ohio has ruled against a long-standing foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.

Read more at:


http://tinyurl.com/3xxfhm


Thanks for the venue Keith. I have been reading your blog for about a year and a half or so. Great stuff! The kids asked me to shelve Mother Goose in favor of some of your fans more creative replies.

Cheers

Wotten (down south)

Anonymous said...

We have so much to be thankful for.

Thank you to everyone who blew up the housing bubble, especially the Ponzi Scheme Flippers, for pricing the rest of us out for years to come and wrecking the economy of the entire planet.

Let's put in a good word for Big Oil, Greedy Fat Cats, International Conglomerates, the Health Insurance Industry, Scammers, Weak-kneed Politicians, Polluters, Racists and Bigots of all stripes, Wimpy Reporters, Pseudo-science True Believers, especially Peak Oil, Global Warming, and Evolution Deniers - with your man W at the helm. Without you, the world would doubtless stop turning, because it takes all kinds to make it go 'round. You have succeeded in making things so bad, we have to start all over. How patriotic of you, to help us recover whatever shred of American/human ingenuity, integrity, resourcefulness, compassion and grit there ever was.
Those are the only things we have left to make it through the mess you have created.

Thank you all and go to Hell.

Anonymous said...

Gee, ya mean the war in Iraq is actually costing us something? Don't tell us we might have to stop shopping! I thought our kids were dying over there so we can keep the Hummer gassed up and headed for the Mall.

Peter said...

The facts are no longer able to be glossed over by the corporate media. The news is all bad. Look for a major event to occur, ie. bombing of Iran. OPEC no longer wants our useless currency. The gas fairies will stop filling up your neighborhood Valero stations.

Anonymous said...

Wow! These guys have a major short position on something.

Anonymous said...

OK, I went to the link about Goldman Sachs... an oddball freelancer. Is he really quoting Goldman about 'The worst since the Depression?'
He has that last phrase in quotes, but I can't find it in any other news source.
Can someone else get a link to what Goldman Sachs actually said?
Thanks.
Ben

Anonymous said...

Negative savings rate the last three years. Last time this happened 1931 and 1932.

First national housing price decreases since the 1930's.

Worst credit crisis since the 30's.

Currency crisis.

Inflation through the roof in countries with a strong currency but totally benign here?

Oil and food through the roof.

Yep no recession coming!!!!!

k.w. - southern ca. said...

For far too long people across all income brackets have been spending money they never had - essentially pushing the cost onto those who are responsible enough to pay back debt in full.

Now that has ended, and many good paying jobs, primarily in the private sector, have now been outsourced or eliminated while tax payer dollars and access to credit are drying up.

So who's going to pay all this back? Squeezing the every day tax payer isn't going to work much longer.

Fellow public service employees, are any of you prepared to start putting more of your own tax dollars in, or do you really believe it will be "business as usuall" in this sector while the rest of the economy - the economy this sector relies on for funding - collapses?

This country is in a very bad state now, with a housing meltdown, a needless war, a breaking healthcare system, and the systematic elimination of social security.

When major banks start worrying, we all need to worry, but we should have been concerned nearly 8 years ago, when this country took a turn for the worse.

Now, we'll see just how united this country is when the crap really starts hitting the fan.

United we stand, divided we fall.

Anonymous said...

but we have already prepared for this by raising the house prices by 900 percent so as to be ready for the 10 cents on the dollar offers......now paying those make politicians happy.. sabatours the taxes they demand on those evaluations so their cronys pockets are keep full with the property tax revenues from those evaluations, appraisals and assements ...how to be rid of those people??????

Anonymous said...

more money is paid to trouble making goldman employees in bonuses every year????? than all the sub prime loses in the last half century....as paulson says hahaha...suckers.....yet the sub prime loses are going to send us into a depression unless we bail out the "players" and pay more taxes or pay thru inflations costs/....hahaha suckers???????????????/

Anonymous said...

do these (investment)banks only hire people with GED's and diploma mill business degrees?

Arlene said...

OK -- fair enough. Investment advice, anyone?

Anonymous said...

Help me!
Houses are starting to look sort-of affordable.
There are listings that are $100,000 or more, below Zillow’s price. Even though Zillow shows a $100,000 drop in the last 12 months. These listings that are $200,000 down from the top. I know prices are still dropping, but they look so tempting.

Anonymous said...

my gosh!

Donde esta senor dopes???

dr chaos said...

It was World War II that pulled the US out of an economic depression and into world supremacy.

It was World War II, the world's biggest manufacturing base, victory, and the East Texas oil field which pulled us out of an economic depression and into world supremacy.

Seems like today we're losing on all those fronts.

Believe it or not, when all the oil is used up, it is likely that the world's biggest all time oil producer will be the USA, not Saudi Arabia.

Anonymous said...

Help me!
Houses are starting to look sort-of affordable.
There are listings that are $100,000 or more, below Zillow’s price. Even though Zillow shows a $100,000 drop in the last 12 months. These listings that are $200,000 down from the top. I know prices are still dropping, but they look so tempting.

-----------------------------------

I'd say go ahead and buy now!

And, Please report back in 6 to 12 months how you re doing.:)

Anonymous said...

All I can say is get out of debt. You don't won't to be holding any toxic debt or debt you can't afford when this credit crunch and housing meltdown causes rates to soar and lending to dry up.

chilling @ chucky cheese's said...

BEN

RE: Is he really quoting Goldman about 'The worst since the Depression?'
*******************************

I for one recall reading that same piece, however, I dont have a link.

Last week HAS TO BE THE NUMBER ONE WEEK for "PANIC WORDS" IN THE MEDIA though.

In my local newspaper, some writer used the title words "Economic Famine" to continue. Although the article was on Michigan new job projections for 2008, which was estimated at a loss of -51,000 jobs.

Seems like a low figure to me.

Nothing is made here anymore. All the manufactures moved to Mexico or China, and left their empty buildings behind. Tragic is all I can say. The 1900's Michigan auto industry was the main element of the Great American Industrial Revolution that helped to create the greatest economic nation on earth.

The Big 3. Remember those days?

Nothing but cob-webs and 3 auto makers that are bankrupt, and fired and lowered the wages of anybody thats still standing.

Panic In Detroit 11/2007

Anonymous said...

OK -- fair enough. Investment advice, anyone?

Sure, buy Peter Schiff's book...a little late to the game, though.

happy spin :) said...

** Christmas in Iraq vacations, now 80% off!* *

Bush and the media say it's now safe and OK to spend a holiday vacation there.

"Visit the land where the Bush Administration has murdered more than 1 million people to date, at no cost to the bush family."

*****************

Other Iraq news:
Blackwater Corp. now hiring.

double bubble chewing gum said...

Dont do it!

Wait a min. of 2-1/2 more years to buy a house, when they hit 100% rock bottom (fall/winter 2009.) In spring of 2010, buy!

Otherwise, your home value will still take a hit on the loss scale.

This bush/cheney created great depression part II is going to be huge. Dont do something wrong. Live simple and wait.

Anonymous said...

There are two elephants in the room that the bigwigs refuse to mention:

1) home prices in many areas are too high for the average joe6pack to be able to afford without toxic loans

2) there are way too many houses and enough condos to last for a dozen years if they stopped all new projects

Anonymous said...

Speaking of run on banks, I just received the following email from Citibank:
Dear Customer:

On December 20, 2007, the User Agreement for Inter Institution Transfers will change. Here what's changing:

After a review of our security practices, the daily limit on Outgoing Standard (3-day) transfers was changed temporarily to $2,000 on October 30, 2007. That $2,000 limit will be made permanent with this upcoming change to the User Agreement.

To review the entire User Agreement that will go into effect on December 20, you can see it at:
www.citibank.com/iit_agreement. If you use the Inter Institution Transfer service after December 20, you'll have to agree to this new version.

Thank you for your attention.

Sincerely,
Citibank Customer Service

Princess Mononoke said...

Anonymous said...
do these (investment)banks only hire people with GED's and diploma mill business degrees?
November 17, 2007 9:27 PM

No of course not, investment bankers have MBAs, PhDs and some have CFA designations! That is precisely why they make millions of dollars in bonuses and salary every year. Most are Alumni pals from the top universities. They all scratch each others back!

alex3191 said...

"Enough is enough with Corporate America running the corruptive show we need leadership now! Remove all Senators and Congressman from the payroll without benefits after all they the very wealthy they are the least of those in need and all they provide is massive corruption looking out for themselves that’s why we state representatives, this will eliminate the corporate piranha’s the lobbyist, cap CEO pay to $250K max, 12% flat rate tax for those who earn less than $250K and 45% for beyond, cap lawsuits at $250K so we can have affordable private insurance and change laws so they can be written at the 6th grade level much like newspapers this is a start to a very corruptive government we have created that needs to be modified or otherwise overhauled and unfortunately we do not have a candidate that’s worth a damn to step up to the plate only time will tell when we will the next Pakistan we cant keep this up."

Princess Mononoke said...

Anonymous said...
>>But the Fed's raising of interest rates would push up the rates on mortgages, credit cards and auto loans, and push millions of marginal folks into bankruptcy and the country into recession, a disaster for the Republicans.
November 17, 2007 6:29 PM

On the contrary, the Fed raising both the discount window and fed funds rate would cause long-term interest rates (ie; mortgages, bonds) to go down. Plus, this would lend some much needed life support to the almighty dollar.

"A disaster for the Republicans"??? It's more like a disaster for the entire World Economy! We ALL know what led us to this pivotal moment in history (with the exception of those people still in denial and contributors).

We the People need to insist that “The Power’s that Be” start steering this great BIG ship of OURS towards a REAL tangible solution! We DO NOT have to be Victim’s here.

Anonymous said...

All these warnings are play-acting to pressurize The Fed to further lower interest rates and have sheeple restart the housing speculative madness! Even prudent savers will watch their savings go up in smoke!

beebs said...

Veronica Lodge wrote:
Traditionally, the best cure for economic instability is war. It was World War II that pulled the US out of an economic depression and into world supremacy.

OH SH!T !!!

We already have a couple of wars going and they are only dragging the economy down.


Wars destroy capital. We are entering a deflationary depression.