With the recent FBI arrests, the growing MoziloGate scandal, the massive price declines, and the House and Senate readying a Housing Gambler bill, do you feel we've turned a new corner in the ongoing housing crash saga?
In other words, is Act III - The Finale, now upon us?
June 20, 2008
HousingPANIC Stupid Question of the Day
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We've turned a new corner, but we still haven't even reached the intermission. Thousands of hedge funds will implode before this thing is over. Fannie and Fraudie Mac will be bankrupt. The FDIC too.
Greg Swann just admitted he doesn't sell houses anymore
To me, it looks more like Stage 4 from this classic:
http://tinyurl.com/5bddzg
See what Stage 5 is going to be? Project Bubble goes wild! Expect irrelevant regulation and random indictments. The chief architect, meanwhile, enjoys his life in retirement.
We've turned the corner...It's different this time...there are no more big lies.
We've entered a new phase/opened a new chapter but we are far from the finale.
As a former auditor I can firmly tell you the "experts" have almost no clue (emphasis on almost). Whats worse is the statutory regulars who have their job due to a popularity vote and have NO clue. I could be forthcoming with regulators about what I saw and how to fix it but in the end I would get no money for my time, stress, and dont want to put myself on a courtroom bench. In states like Colorado bills to protect consumers were shot down in the name of "Everyone should have the right to the American Dream." Hidden behind that was corporate and public pressure. Some might call it greed. The solution to the housing problem is so simple, but you wont find mainstream journalists asking the simple questions and that is the key to solving this. For starters all the "experts" talk in the macro sense but forget to ask simple questions like "Is it a good idea to have non-college educated, commission only (in many cases) Brokers giving investment advice to uneducated people about the biggest investment in the life?" Would you like to know how many sub-prime brokers have a close business relation with a Credit Repair agency that can "fix" your credit? The problem with our economy, and this wont change till the Fed gets it head out of its butt, is that we have "sophisticated investments" which means speculative financial contracts which skirt the regulatory system. This leave regulators scratching their head and notice the Fed is currently seeking further control to protect people? Not if the conspiracy theorists have their way. In the case of home owners, most could understand the ramifications of a piggyback loan. Heck I used to work with someone who had two Masters from a top 25 US university and that persons home is on foreclosure! The only thing positive I saw, and it was a lagging indicator, was the FHA's tracking of FHA loan originators. If a broker had too many forecloses the FHA would assume predatory lending and would temporarily shut them off from doing FHA loans, but the still could do non-FHA loans. You really had to be over the top though for the FHA to do that. There is no questions in my mind that some states would have less of an economic problem if they regulated the industry better. When the contrarian speaks up against me, no matter what he says, you have to ask yourself was the current recessionary period worth it? Or would it have been better to have a handful of unnoticeable layoffs, in the form of an uncompetitive brokerages, going out of business due to paying regulatory fees? Try asking Colorado politicians why they voted against regulation to protect consumers. Guess what, you wont find them. They are hiding and I have yet to see any journalist hound these losers for answers the way the Boston Hearld journalist do when there is a problem in Bean Town. The next time some stupid journalist takes the high road and blames it on business practices at a faceless corporate giant, punch him in the face for all the people who learn what hope was and had it shattered. I sat in brokerages and unfortunately I have god-level hearing. You dont want to know the conversations and plotting that would take place. A common game is when a broker doesnt want you to shop around, then claims to give you the best rates on a professional looking rate sheet. You will never see their real rate sheets, you will get the one with the kick back built in. Of course was told to always call it "rebate" as not to offend clients or tip off their clients. I was in awe at how some of these people could get you to believe they were your buddy, look you in the eye, great body language and lie to your face. Bill Clinton has nothing of some of these guys. The only person worse then them is me for not speaking out. Frankly, there was no one to complain to and by all means I would have lost my job. Further, interestingly, the CPA firm I worked for would not let any of its staff employees talk with any FHA agents. We were given the answers by our managers and if you questioned things too much, you just might find you dont have a job; and I saw that happen. Also remember, the public thinks CPAs are "independent", but in almost every case its the company you're auditing, your "client", that pays your fees. Ill let you think about that one for a minute.
Fallout From Bad Loans Rocks Regional Banks (NYT 6/19/08)
"Bankers, who tried to assign innings to the credit crisis only a few months ago, are now resigned to participating in an extra-inning game. Several analysts now think that industry losses will not peak until next year."
Remain seated, Keith, no climax yet.
I think we will see a quick drop in prices when the trials are underway. Only then will people relize how much the prices were inflated over the past few years. People tend to believe everything they see on TV.
Feels like the start of Act III to me.
Anyone get the photo?
http://www.necn.com/Boston/Politics/Sen-Dodd-accused-of-getting-sweetheart-loans/1213390088.html
got the photo! End of fight club when they are watching the credit building going down in explosions! Great analogy!
Rich in fl
BREAKING NEWS:
CASEY SERIN'S DODGE NEON FOUND ABANDONED AND IDLING IN THE MIDDLE OF THE GOLDEN GATE BRIDGE.
SCRAWLED IN THE DUSTY HOOD WERE THE WORDS: "MORTGAGE FRAUD IS PAINLESS"
FBI OFFICIALS SAY THEY'VE NEVER HEARD OF THE GUY, BUT SUGGESTED LOCAL AUTHORITIES PUT OUT A MISSING PERSONS ALERT.
Sen. Dodd claims he did not know he was getting preferential treatment.
How can these guys always get away with the ignorance plea?
You have to have some sense (I hope) to become a Senator. Especially the HEAD OF THE BANKING COMMITTEE!!!
So I would say that when Sen. Dod received a 4.25% fixed rate with NO CLOSING COSTS, when the going rate for such a loan was 5.5% to 6% w/ closing costs; this guy knew he was getting a free ride.
And he claims that he "shopped around just like any other American for a mortgage". B.S. I would like to know where he shopped around; I guarantee he cannot produce any truthful supporting documents (not that this even matters).
Saving 1%+ on 2 properties worth over $2 million, over a period of 5 years, equates to over $100k+ free money from Mozilo to Sen. Dod, head of the Banking Committee!!!
entering 4th inning as a country....with regional variations depending on how early/late to party each area was.
entering 4th inning as a country....with regional variations depending on how early/late to party each area was.
--------------------------
and the 7th inning stretch will be just after the first batch of frog marches.
YES - June 19 was a turning point - and this morning, ALT A entered the vocabulary of the MSM. . .soon to be followed by HELOC and NEGAM. . .these are the next to blow up. . .I have decided Keith is like the guy in that TV show - First Edition - he would get the newspaper the day ahead of everyone else, and try to save the world. . . Keith and HP has predicted the truth and future with total accuracy!!
It's possible we're entering Act III.
Although I don't think it will seriously get underway until the Option Arms start to reset early next year. Banks fretted about losing $20k to $50k on a subprime house. Wait until they start writing off $200k to $500k on their loses in California, where 60% of Option Arms were originated. Houses still trade at 10x income in my neighborhood (down from 12x) so theres still a way to go. (Pasadena, CA btw)
The finale has till late 2010 to go, so it's going to be a LONG act.
There is no way we are in the final act.
In order to make the final act consumer sentiment must be crushed.
This won’t happen until the presidential debates amplify discussion on the housing crisis and economy.
It will be all out war in terms of parties bashing each other and proposing remedies.
The argument gets the full attention of the media and the public eats it up like a zombie on a heroin IV.
Only then do we see any appreciable pull back of consumer spending which contracts the job market and sends money scared.
Add to this the real physical contraction in the economy from the new money supply termination and we have quite a problem.
Here in Los Angeles I am JUST seeing people loose their city jobs as a result of lower tax revenue.
Nope, things aren’t nearly over yet.
Was casey serin's dodge neon being repossesed too?Hopefully he wrapped a bungy cord around his neck before he jumped.
"screwing everyone is painless"
Is the Finale now upon us?
NEGATIVE, Sir!
The 2nd wave hasn't hit yet and that is the big one! The 2nd wave is the option pick-a-pay (PaP) mortgages out there that are coming due beginning next year.
Try this on for size:
Original loan balance PaP 1st of 109% of current market value, with 15% accrued neg am being tacked on - 124% of current. Plus a 15% 2nd balance of current, and sometimes a HELOC behind that.
Come next year, house prices will be still lower and mortgage rates will be higher. Borrower needs to begin paying the full payment which means:
1. Actual interest rate, and the full interest thereupon.
2. Begin paying down principal
3. Principal will be amortized over 25 years, not 30.
4. No chance of re-fi because even the 1st is underwater.
5. If the initial PaP was at 1% (lots of those deals out there), payments will almost triple and if rates really rise by then, more than triple
So no chance of paying the 1st, forget about the 2nd, and the HELOC - what is this Comedy Hour.
The banks do not have enough capital for loan forgiveness, they will have to go after these folks who live in Tara like homes in Georgia and Texas now driving Mercedes and Lexeses. So BKs, workouts galore.
Current income will go to pay off previous years spending. So no more MEWs spending, hell no more current income spending - recession and True Housing Panic awaits.
So, hang on to your seats, this is going to be a l o n g movie without a happy ending
There is a great deal left to play out.
The banking crisis has only gotten warmed up.
The US dollar will drop a lot more, commodities will rise a lot more, and still Washington politicians will continue to rant and rave about "fixes" that are tiny band aids.
It seems all of these people with Ivy League educations have no clue what is going on, or if they do, their level of corruption is at odds with addressing the roots of the problems.
Yup, the hyper deregulatory Republican America: Crony capitalism dressed in Ayn Rand's trampsuit.
I have decided Keith is like the guy in that TV show - First Edition - he would get the newspaper the day ahead of everyone else, and try to save the world. . . Keith and HP has predicted the truth and future with total accuracy!!
______
Keith was not particularly early predicting the housing bubble and bust -- lots of people did it, and much earlier.
And he's got it all wrong with regard to commodities. He doesn't quite understand certain fundamental economic realities. He used to call his gold purchases -- buying high, panic-selling on dips -- which was very revealing as to us total amateurism.
Close but I'm not sure if we're around it yet.
Sure it's the third act - of a five act Shakespearean tragedy. The finale will include blood on the floor, unfortunately.
To the anonymous auditor: I am also an auditor (CPA) and a Certified Fraud Examiner. I feel for you, but remember that audit information is not privileged. You have no protection. I have been involved in cases where auditors were subpoenaed. When the you-know-what really hits the fan, they will be going after CPA's, too. Check the Keating case in the early nineties - every person with a CPA license was sanctioned, not just the partners.
Anon 11:45,
Very good points. Thank you for sharing your perspective from the inside.
I agree with you entirely that there's just too much marketting going on, and often times to a population that is just plain economicly and financially illiterate. That seems to be the common theme whenever a lot of money and "investment" are involved. LOL. I do wonder though even if more regulations would have helped. The regulators seem to have a penchant for becoming cheer-leaders on those long-cycle phenomenoms. You know, like Greenspan cheering on financial innovations like securitization and adjustable mortgages (btw, neither were really innovative, as they were rampant in the 1920's real estate bubble). Just to be fair to Greenspan, when he warned irrational exuberrence on the stock market, he got a tongue lashing from the our elected officials at the congressional hearing! He became a cheerleader after that, for both stock market and housing market. David Walker, the former comptroller of currency, could only gave a frank talk when he was on his way out of the office. IMHO, there's something very similar to auditors being paid by clients they audit that also goes on for government regulators that ultimately derive their political backing and therefore salaries and privileged positions from those they regulate. Obviously, the specific regulated industry would have more incentive to invest in buying off the regulators than the average consumers do. The result is inevitably a false sense of security for consumers/investors because the underlying have the audit and regulatory approval.
A better educated public is the ultimate solution; that means those make mistakes have to pay for their own education instead of having dumb decisions rewarded. On top of that, perhaps some market place firm can come up with solutions that may cope with those long-cycle events: for examle, an auditor who promise to get paid 20% of the audit fee each year over 5 years after the audit instead of lump sum up front. Such an auditor would carry more credence with investors as their pay is better aligned with the company performance subsequent to audit. Likewise, a loan broker can charge his point over 5-10 years after loan origination as a per centage of the loan still performing. The banks would also probably be willing to pay more for such a vested broker instead of someone who dumps mortgage fraud on them. Of course, that has to assume the bank can't turn around and sell the loan to taxpayers so they don't skin in the game either.
Everyone's talking about oil spiking and stocks falling this week... but the real story is AMBAC and MBIA.
S&P and Moodys finially downgraded the monolines. Together they insure more than a trilion. When they were AAA, the banks/brokers that held the insured CDOs could use them as collateral for loans.
Now, that they are AA/Aa3 and AA/A2, new collateral will be needed for those loans. Worse, the insured CDOs are no longer elgiable as collateral for the Fed.
This was one of the horriable things we once thought never could happen...
"Yup, the hyper deregulatory Republican America: Crony capitalism dressed in Ayn Rand's trampsuit."
You are right about "crony capitalism." However, cronies are created precisely because they have special relation to regulators. They FED regulates the money, and have the power to make money out of thin air, and give that money to their cronies. It is this ultimate "put option" that enabled the cronies to make wild gambles, collecting billions of bonuses while the going was good, then counting on bail out at the expense of all the rest of us when bets go bad. It is the government power to make money out thin air and thereby diluting all the money we have that make this cronism racket going. It's not even capital; the fundamental driving engine is the feudalistic power to rob all serfs within geopoltical territory of whatever capital the latter actuall have.
I'm afraid it's justice USA style again. Show trials for the small fish to appease the masses.
The big fish get off scott-free.
Perfect pic, Keith. Cue up The Pixies and grab the overpriced popcorn...
House prices will massively over correct when Obama replaces Bernanke with Volcker ver2.0 and we get 10%+ interest rates. The fat lady won't be singing till 2015 at best.
"Worse, the insured CDOs are no longer elgiable as collateral for the Fed."
The Fed can change the rules on what it will accept anytime it wants to. To keep the banks from having to live with the results of their own greed, don't be surprised if the Fed gives out T-Bills to the banks in exchange for crumpled pieces of paper with the letters IOU on them in bad handwriting in pencil without a signature, non-recourse. The value of you life savings will go down in order to insure that the bank CEOs keep getting paid tens of millions or more.
The pension funds, however, will probably have to sell everything that was considered AAA based on being insured by MBIA or Ambac.
"It is the government power to make money out thin air and thereby diluting all the money we have that make this cronism racket going. "
What's really funny is that the Constitution doesn't say the Congress (or the Fed which doesn't even exist as far at the Constitution is concerned) has the power to create money. The Constitution says that Congress has the power to "coin Monies", which means to turn existing Monies into coin form.
Hiking interest rates is the LAAAST thing the housing market needs right now, but it seems inevitable.
Stupid question- but I am looking for feedback. If rates go up as the housing inventory continues to climb due to foreclosures, don't you think prices will have to TANK to make up for the high rates????
How in the HELL will they ever move houses now and if rates go up, up, and UPPP, at the same time gas, energy and food prices continue to JACK??
Not until all the speculators are out and their houses are back on the market for the "correct" price. And all of the fallout from that is underway. THEN we have reached the midpoint.
This is a Bear Trap. We haven't even reached 'Fear' yet.
Stupid question- but I am looking for feedback. If rates go up as the housing inventory continues to climb due to foreclosures, don't you think prices will have to TANK to make up for the high rates????
That is exactly correct. The Fed is trying to play from the 1970s playbook of inducing an inflationary climate so that fixed debt will be easier to pay off with increasing wages.
The problem is: wages are not increasing. They are declining. So combine zero to negative wage growth with increased borrowing costs through higher interest rates and viola! You have decreased house prices.
The Fed can change the rules on what it will accept anytime it wants to. To keep the banks from having to live with the results of their own greed, don't be surprised if the Fed gives out T-Bills to the banks in exchange for crumpled pieces of paper with the letters IOU on them in bad handwriting in pencil without a signature, non-recourse. The value of you life savings will go down in order to insure that the bank CEOs keep getting paid tens of millions or more.
Oh, yeah. I forgot the Fed these days just makes stuff up as they go along.
It still tightens credit on a pretty big scale. If they drop to BBBs I believe colateral requirement like double.
Naw, Just wait for the food shortages to come and 10 dollar Gas. This is all in the big plan for a NWO. Once the riots begin and the Martial Law sets in then they will have us. It's simple Chaos then Divide and Rule. We will all be Powned.
Next week we bomb Iran... Watch
Do you realize how many viable lawsuits thousands of people would have for what Wall Street, the Lenders, the Rating Agencies and the Real Estate Industry,and fraudulent borrowers did during the housing
boom.
Anonymous said...
Keith was not particularly early predicting the housing bubble and bust -- lots of people did it, and much earlier.
And he's got it all wrong with regard to commodities. He doesn't quite understand certain fundamental economic realities. He used to call his gold purchases -- buying high, panic-selling on dips -- which was very revealing as to us total amateurism.
June 20, 2008 5:20 PM
It's amazing to me how few people I could get to agree with me on the housing bubble before it was old news. Now these same people attempt to make contrarian points based on their supposed after the fact correct predictions with no basis in physical fundamental economic principal.
Try this for fundamental reality.
It costs much less to mine gold that it is selling for today.
While gold is typically held as a store of value, that value has become amplified by the debit creation of money which has ceased.
Gold has little industrial use.
Silver which had an industrial use prior to digital photography, is now virtually useless as an industrial metal.
Thank you Keith for providing a forum where I can solidify my views and make my play based on economic theory, news stories, personal experience, contrary views, and market fundamentals. If any decision I make in regards to the bubbles happens to be wrong, it cant be said that I did not think it through and make MY best educated guess.
FASB and the accounting profession is also corrupted don't beleive it read FASB statemet 159. Written also by big bank to favor big banks. Corruption runs so deep and people are so cheap to pay off including accountants who are suppose to be the police are now on the take. Rome is burning
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