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Posted: 2/26/2008 10:14:03 AM | The bailout costs for the S&L fiasco pale in comparison to this buyout ... all to save the banks from their own greed.
A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered
losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion.
http://www.nytimes.com/2008/02/23/business/23housing.html?_r=4&ref=business&pagewanted=all&oref=slogin&oref=slogin&oref=slogin | |
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| Real Estate bubble
Posted: 2/26/2008 3:01:03 PM | Interestingly nobody has mentioned one of the major causes of problems.
Specutlation..
>>>>>>>>>>>>>>>>>>>>>>>>>>>>
A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered
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............................It was not caused by a couple of Flippers or greedy consumers.....
............................Bush deregulated Banking with CHAIN SAWS and SHEARS!!
............................Deja Vu S&L's.
http://natgagu.blogspot.com/2007_12_01_archive.html
Wielding tree shears and a chainsaw, banking regulators and trade association officials held a press conference on June 3, 2003 —
just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.
Also in attendance were representatives of financial industry trade associations, which had been lobbying for deregulation. As far as I can tell from press reports, there were no representatives of consumer interests on the scene.
Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending. If, say, New York State wanted to protect its own residents — well, sorry, that wasn’t allowed.
............................I found this to be the best explanation and will help to understand the SIZE of the problem.
>"the estimate of "too much debt" of $2.35 trillion is probably a good starting point."
............................$2.35 Trillion overstated on real Estate Loans............................
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Do the Math on Recession and Foreclosures
posted by Christian E. Weller
Thanks to CreditSlips for inviting me to be a guest blogger and to share my views on credit and the economy.
By now, it's obvious that the housing crisis is dragging down the economy. For the past eight quarters, the declining activity in the housing market dampened growth on average by 0.9 percentage points below where it otherwise would have been. This is the largest housing induced subtraction from economic growth since 1975.
Some observers argue that this is just a natural correction of the market and that policy makers should let market forces play themselves out. The logic is that a nice, quick recession will get rid of the debt overhang by forcing people to default. Once banks’ balance sheets are free of the excess loans, the economy will get a clean slate to start over again as a rejuvenated banking sector will once again pave the way for innovation and production and not for speculation and Wall Street greed. The way it is portrayed, it almost sounds like a day at the spa for the US economy.
The situation, though, is far more serious. A recession that would get rid of the debt overhang would have to be very deep, especially since the mortgage foreclosure rate would have to jump to unimaginably high rates.
Nobody needs to be an economic forecaster to understand this. All it takes is a healthy dose of good old fashioned common sense, and a calculator.
How much of the debt that families owe right now is too much? To answer this, we need a benchmark that tells us how much debt should have grown. If debt has grown faster than the benchmark, there is too much debt and the amount above the benchmark is the amount that a recession should eradicate.
Debt can grow along with economic and income growth. Hence, I use the ratio of debt to income. By September 2007, families owed 133.0% of their after-tax income in all forms of debt – mortgages, credit cards, car loans, and so on. This ratio had risen each quarter by 1.4 percentage points from March 2001, when the last recession started, to September 2007. This increase was more than four times faster than the growth of debt in the 1990s.
Already, there is some sense that there is too much debt. If debt relative to disposable income had grown from March 2001 to September 2007 at the same rate as it did in the 1990s, it would have amounted to 110.1% of disposable income in September 2007. The difference to the actual level of debt is 22.2% of after tax income, or $2.35 trillion.
This may not be "too much," if the accelerated debt can be explained by sharper drops in interest rates. This was not the case. In the 2000s, mortgage interest rates fell by 8.2% from 7.0% in March 2001 to 6.4% in September 2007. During the intervening period, mortgage interest rates fell as far as 5.6% -- or 19.7% below the level in March 2001. By comparison, over the course of the business cycle in the 1990s, mortgage rates fell by 30.8% and the swing from the beginning of the last business cycle to the low point of mortgage rates was 33.2%. Clearly, mortgage rates dropped much more in the 1990s than in the 2000s and debt growth should have been slower, not faster after 2001.
Also, much of the growth in mortgages in the 2000s was in subprime mortgages, meaning that more and more borrowers paid a premium. Consumers faced substantially smaller declines in the cost of debt after 2000 than in the 1990s.
So, the estimate of "too much debt" of $2.35 trillion is probably a good starting point.
Now, the "clean slate" argument says that the economy should go into recession to get rid of the debt overhang. A recession will turn a lot of marginal debt into bad debt since people will lose their jobs or have lower wages. That naturally precludes the path of faster income growth to reducing the debt-to-income ratio. It also means that people won't be paying off their existing debt faster than in the past. The only other path that is left is debtor default.
To get rid of $2.35 trillion dollars in debt, the economy would have to experience a massive wage – or more a tsunami – of foreclosures. This amount is equal to 22.3% of mortgages. Spread out over two years, it implies an approximate default rate of 3% of all outstanding mortgages each quarter for eight quarters. This is about four times larger than the current record rate of mortgages entering foreclosure each quarter. Even trying to cut the debt overhang into half would require a doubling of the foreclosure rate from their current record high levels for each of the next eight quarters. There is no telling what this would do for banks, the stock market, the economy and jobs.
Clearly, letting the housing market and the economy go into free fall is not a viable answer. The risks to the financial health of families are simply too high. The economy needs a dual solution. For one, income has to grow faster and families need to work out solutions for the mortgages that they cannot pay.
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| Real Estate bubble
Posted: 2/27/2008 9:29:48 AM | Two points:
http://online.wsj.com/article/SB120398607404892133.html?mod=hps_us_whats...
FDIC to Add Staff as
Bank Failures Loom
By DAMIAN PALETTA
February 26, 2008; Page A2
WASHINGTON -- The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen
• Out of Retirement: The FDIC is recruiting 25 of its retirees experienced in handling insolvent financial institutions.
• The Reasoning: The agency is preparing for an increase in failed financial institutions as the housing and credit markets worsen.
• What's Next: The FDIC will give an update today on the number of "problem" institutions that regulators are watching most closely.
The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.
http://blogs.wsj.com/developments/2008/02/25/median-price-check-how-much-house-does-201100-buy/?mod=fpa_blogs
Here people from around the country talk about what the median price for a home - $201K buys in their area. There's a huge difference because of geography. | |
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| Real Estate bubble
Posted: 2/29/2008 8:11:29 AM | .
Golden isn't good enough...Platinum Para-sail.......$40 BILLION: Approximate value of Prince’s retirement package, shares, and options in Citi stock upon his retirement in November, 2007.
$40 BILLION!!!!!!!!! lose Billions and get A REWARD!!!!!
http://www.americanprogress.org/issues/2008/02/mortgage_ceo_pay.html
Ordinary people have been crushed by the deepening housing crisis…
2,203.295: Number of foreclosures reported in 2007. That’s a 75 percent increase over 2006 numbers.
12 Months: Number of consecutive months of declining house prices, as of December 2007.
…While CEOs of the companies that led us down this path have been let go with golden parachutes.
Citigroup’s former Chairman and CEO Charles Prince (ret. Nov. 4, 2007)
$17.4 Billion Citigroup write-downs on subprime related direct exposures in 2007.?
$9.83 Billion Citigroup’s 2007 fourth-quarter loss.
$40 BILLION: Approximate value of Prince’s retirement package, shares, and options in Citi stock upon his retirement in November, 2007.
Countrywide’s founder and CEO Angelo R. Mozilo
$704 Million: Countrywide Financial Corp. net loss in 2007.
11,000: Number of workers Countrywide laid off between July, 2007, and January 29, 2008.
$37.5 Million: Approximate value of cash severance payments, consulting fees, and perquisites (including private airplane use) that Angelo Mozilo, founder and CEO of Countrywide, gave up after Countrywide’s merger with Bank of America.
Countrywide’s founder and CEO Angelo R. Mozilo
$23.8 Million: Estimated value of Mozilo’s company retirement plan in December 2006, the last year for which data are available. Mozilo did not forgo these benefits.
Merrill Lynch’s former Chairman and CEO E. Stanley O’Neal (ret. Oct. 30, 2007)
$161.5 Million:Value of securities and retirement benefits that Stanley O’Neal walked away with from Merrill Lynch when he retired. O’Neal did not receive a traditional severance payment.
$7.8 Billion: Merrill Lynch net loss for all of 2007.
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| Real Estate bubble
Posted: 2/29/2008 7:57:03 PM | One thing you have to remember. A fair number of the people that run large companies are somewhat delusional.
They believe they are capitalists. In reality they're just managers.
So it's no surprise they reward themselves like they are capitalists. | |
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| Real Estate bubble
Posted: 2/29/2008 9:11:10 PM |
One thing you have to remember. A fair number of the people that run large companies are somewhat delusional.
They believe they are capitalists. In reality they're just managers.
So it's no surprise they reward themselves like they are capitalists.
Delusional, managers, capitalists?
Not hardly... the correct term would be thieves and that includes the commander and thieves... many in CONgress on both sides of the aisle who pretend to serve constituents... in reality pander to big business.
Beyond the gross over-payments to captains of industry, we can't forget over 500 billion for the middle east wars... reality is over a trillion when you add in hidden costs that go directly to corporations.
Robber barons of the 19th century look like pickpockets in comparison.
The real estate bubble is only a symptom. | |
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| Real Estate bubble
Posted: 4/30/2008 8:07:33 AM | This thing is a global issue, pick your country pretty much.
Visit wiki and see
http://en.wikipedia.org/wiki/Real_estate_bubble | |
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| Real Estate bubble
Posted: 6/26/2008 8:13:05 AM | OP:
Is the unprecedented rise in the price of real-estate in the process of bursting?
In the country you're writing from, the rise in prices was not unprecedented. This boom was strong, but not as strong in comparison to the 1980's boom.
Where are we now in canada?
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""Soft landing seen for Canada's housing market""
But Bank of Canada warns of complacency on newer products like 40-year mortgages
http://www.theglobeandmail.com/servlet/story/RTGAM.20080624.wrrealestate24/BNStory/Business/
The real estate market appears poised for a soft landing rather than a crash, in a cooling trend the Bank of Canada says is both "expected and welcome."
...In the past decade, prices of existing homes in Canada have risen by about 55 per cent, while new-home prices have risen by about 27 per cent. As one of the country's largest housing booms loses steam, most economists are forecasting a small increase in prices this year that will keep pace with the central bank's 2-per-cent target for inflation.
It's a much different story in the U.S. market, where home prices dropped by 14.1 per cent year over year in the first quarter of 2008, according Standard & Poor's/Case Shiller national home price index. That record price decline occurred at a pace five times faster than that of the last U.S. housing recession, according to the index's quarterly report, released last month.
Much of Canada's housing boom was the result of supply catching up with pent-up demand that followed the downturn of the late 1980s and early 1990s, according to Ms. Kennedy. Canada's conservative mortgage culture has helped protect it from the excesses seen during the U.S. boom, which had a much larger amount of subprime mortgages, she added....
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Canada's housing boom is over, bank says
http://www.reportonbusiness.com/servlet/story/RTGAM.20080626.whousing0626/BNStory/Business/home?cid=al_gam_mostview
After a long run of rapidly-rising prices, the Canadian housing market has cooled to the point that it is no longer a sellers' market, Toronto-Dominion Bank said Thursday.
“The long-awaited end of the Canadian housing boom has occurred, reflecting more moderate demand and increased supply of properties for sale,” TD economists Craig Alexander and Pascal Gauthier said in a report. “The year-over-year price growth for existing homes in Canada's major markets fell to only 1.1 per cent in May, down from 8.6 per cent just four months earlier,” the TD economists wrote.
...Last month, the Canadian Real Estate Association reported that resale home listings across Canada rose by 17.7 per cent in April from a year earlier – pushing the number of home listings to the highest level on record.
At the time, Bank of Montreal economist Douglas Porter noted: “For the first time in a long time, sellers are not in the drivers' seat any more. I'm not necessarily saying that buyers are in the drivers' seat either, but what we've seen truly is a return to a balanced market.”
...“Most of Canada's major housing markets have moved out of sellers' territory to more balanced markets.”
Mr. Alexander and Mr. Gauthier forecast modest national average price growth of 2 per cent this year and 3.5 per cent in 2009, “down substantially from the 10 per cent annual pace of the last six years.”
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Finally, a little bit of sanity is creeping back into the Canadian markets here with things finally starting to balance. That was quite a 36 month run. Stuff selling for 125 three summers ago is now listed anywhere around 249, 259, 269. It's balancing though. This area was one of the hottest markets in the country for the last three years and we're seeing it balancing out a bit. A chum of a chum of mine listed his mums house and got 7 showings the first week and a good offer. last summer he would have had 7 showings the first afternoon. A lot of the demand has in itself been satiated over the last 36 months. With the low low interest rates it was a no-brainer to buy rather than rent.
Appraisers are still exceptionally busy with most everybody and his uncle trying to do equity takeouts so they can purchase additional fixer-uppers, flips, and apartment rental units like duplexes and triplexes. Unfortunately the real good deals in those markets are hard to come by now with the recent high prices. The apartment market is still strong though as we've been carrying a .2% vacancy rate for a unit. Folks looking for an apartment are shopping for almost a year in some spots. Folks getting evicted are not finding alternate accomodations.
So doing a small equity takeout in January and picking up a wreck of a fixer-upper back in feb. for 99K, and sinking about 12K plus a bunch of elbow grease into it to bring it up to speed gets it appraised a couple of weeks ago at 183. Time to either dump and start preparing to pay capital gains, or use it as a small cash cow to do an equity takeout and see if we can find anudder one or two. Still a very busy market in the low end priced homes so that little puppy should go in a couple of days if put on the market. Three summers ago, this would have been a mid-ranged priced home, Now it's a low end priced home. Thus, there are a good number of young, first time buyers that have been completely boxed out of the marketplace. Hence the overwhelming response to these new 40 year mortgages.
It's the growth of these 40 year mortgages that could become a real concern. The kids are still keeping up appearances with their two new cars, quads, snowmachines, big-screen tv's, stainless steel appliances, plus all their kid's toys, and and everything else under the sun while they take out a 40 year mortgage to do the home-ownership thing. Sounds like a bit of a tightrope walk even though CMHC and the lending institutions are tooting praise for these new products.
Now we just need to keep our fingers crossed the miners don't go out on strike next year. That would swing things into a buyer's market the way some of these younger folks have possibly overextended themselves with these 40 year mortgages. Not much room to refinance when you're out of work for awhile and your amortization is already at 40 years.
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