Thursday, March 6, 2008

Housing Bailout Talk Reaching Fever Pitch

Sunny and mid forties again! Almost too good to be true, and it is as Massachusetts is facing TWO days full on of torrential rainstorms! Better than snow any way you look at it.

Two Great Posts That Require Review
While I try my best to provide top notch content here every day that I can, I come across so much material during the day and during blog post preparation that is so VERY good that I feel like it is worth the readers time to check out a link or two to get a better picture of the financial landscape. Tonight there are two such blogs that I would suggest checking out.

First up, the always must read Mike Shedlock with his latest post:
http://globaleconomicanalysis.blogspot.com/2008/03/financial-system-broken-markets-utterly.html
This is a great collection of real time headlines that underscore the major issues right now. Great snippet:
"Other than overleverage, bad debts, sinking home prices, no jobs, shrinking wages, cash strapped US consumers, rising oil prices, a sinking US dollar, $500 trillion in derivatives not marked to market, rampant overcapacity, underfunded pension plans, looming boomer retirements, no funding for Medicaid, no funding for Medicare, and no Social Security trust fund, everything is just fine. And even though the Fed, central bankers in general, and governments combined to create this problem, the irony is nearly everyone is begging for them to fix the problem by encouraging still more speculation in housing, commercial real estate, and the markets. Sorry folks, it's the end of the line and payback time for the world's most reckless financial experiment in history. The deflation genie can't be put back in the bottle until leverage everywhere is unwound."
Heh, indeed.

The other highlight of the rounds is the latest Market Ticker:
http://market-ticker.denninger.net/2008/03/how-to-solve-home-price-valuation-mess.html
Mr. Denninger covers a truly wonderful tax appraisal reform idea that should go into effect immediately. He also does his usual masterful job of cutting through the baloney on a wide range of issues. Great snippet:
"This problem cannot be solved with "rate cuts." In fact, what is required right now is a draining of systemic liquidity to force up market rates and thereby force market participants to stop hiding things, accelerating the margin call monster so that we can clear all this bad paper and find out who's broke and who's not!"
It's that simple folks.
I know its weak to link, but those two items are worth the read.

Housing Bailout Talk Reaching Fever Pitch
Last week we got the joke from President Bush and Hank Paulson that both are firmly against bailouts for real estate "speculators". This week they may have been sent a memo that the only people in trouble are the "speculators". Oh well, it sounded tough for a few days anyway!

After numerous programs aimed at keeping families in their homes have been all but useless, the real talk of bailouts has begun to ratchet up a few levels. BernanSpan has FINALLY figured out that the major problem facing the housing market is that prices are falling. He has already called for principle reduction on loans, so what is the next logical step?

We get an inkling from a story today on Yahoo Finance:
AP
Housing Market Spirals, No End in Sight
Thursday March 6, 5:30 pm ET By J.W. Elphinstone, AP Business Writer
Low Home Equity, Record-High Foreclosures: a Limp Housing Market Looks Even Weaker
NEW YORK (AP) -- Nervous homeowners and economic analysts have been wondering how much worse the housing market could get. On Thursday they got an answer: Plenty.
I agree wholeheartedly

Foreclosures are at a record high. Home equity is at a record low. The housing market is spiraling down with no end in sight -- and taking people's sense of economic security with it.
For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.
The Fed reported Thursday that homeowner equity actually slipped below 50 percent in the second quarter of last year, and fell to just below 48 percent in the fourth quarter.

"There is no sign that we're near the bottom in the housing market," said Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. "Housing prices will probably fall for a year, two or three to come."
This guy is great! We are nowhere near a bottom, but things could fall for 1 year, or 2 or 3? OK.

The trifecta of reports illustrates a housing market caught up in a "very negative, reinforcing downward spiral," said Mark Zandi, chief economist at Moody's Economy.com.

Homeowners, who once happily tapped home equity for expenditures and home improvements, may instead save money as they watch their total net worth wither. Those who are willing to spend their home equity will find lenders reluctant to give out home equity loans or lines of credit.
"People were relying on home equity to maintain consumption. They can't keep doing that once the equity's gone," said Dean Baker, co-director at the Center of Economic Policy Research. "Undoubtedly, this is one reason for the falloff in consumption in last couple of months."

Mr. Baker could be the posterchild for why analysis does not equate with wisdom. Mr. Baker correctly identifies that home equity was used as a type of income, as I have made clear was the homes utility for the recent buyers, but he sees no problem with that process at all. All we need is more appreciation to continue fueling consumption with debt while devouring home equity, and that's just wonderful!

So far, the government has stepped in with a number of measures to contain the housing fallout. Last month, Congress passed a $168 billion economic stimulus package with provisions aimed at helping homeowners refinance into more affordable loans. The Federal Reserve has also slashed interest rates to in hopes of spurring growth.
On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners. But some experts think more help is needed.
"At the end of the day, these efforts will be insufficient," Zandi said. "Policymakers will need to be more aggressive and put taxpayer money on the line to stem this. Ultimately, we will find a bottom, but it would be a mistake to let the market run its course."

OK Karl Marx! And at the end we see the opening salvo in the war to enlist the taxpayers money to bailout the screwballs that screwed us all.

Forget a rate freeze. Forget a principle reduction. And especially forget letting the capitalist UNITED STATES OF AMERICA markets function by themselves. Mr. Zandi out and out calls for application of taxpayer money directly to the housing mess. One does not need to guess what this kind of naked call is meant for, an absolute backstop of home prices.

Did you notice where Mr. Zandi works? It pays to always check a source because that can explain why they are retarded many times. Mr. Zandi works at a subsidiary of the always on the money Moody's! Of course this guy wants a taxpayer backstop, his company rated a ton of this crap AAA, and now that they have been exposed as fools! Not exactly an unbiased observer!

The next leg of the housing journey is going to involve plans that will try to fix home prices at some level deemed necessary. I have no idea how this plan will work, how much it will cost, or what the ramifications will be. But I know a plan is coming. It is too late to do anything now if you are against these things, the machinery is in motion. We will have to wait a bit longer to see just how hard we are going to get pumped. I have a new poll up, please vote!

Comic Relief
On a lighter note, all the problems of the housing market could have been avoided if this had occurred more often during the boom years:
funny pictures
Enter the ICHC online Poker Cats Contest!
REJECTED!

Have a good night.

5 comments:

KJ said...

I haven't seen anything on the home-price freeze. How would that work? I mean, I'm sure it wouldn't :)
But what is the premise of this latest 'fix?'

watchtower said...

I wonder if I could just interject here and say this; Where I live (lower midwest) I have not seen this "great unraveling". House prices where I live have not declined. Why you ask, I'll tell you, it's because my area crashed long ago. There is no manufacturing jobs here to speak of (our last plant left for China last year). The only things left are our powerplants, and agriculture. If it wasn't for our ag economy, we would probably end up like one of those gold mining towns that went bust. I have traveled, so I know what a "boom economy" looks like. I would travel to Vegas(years ago) and think, holy cow! I cannot believe this! so much activity. H***, we get excited in my town if a three legged dog shows up. So, what I'm saying is, if you live in one of these "bubble" cities, and obtain your employment from the hubbub, take heart, there is life after death.(it will be different though)

Anonymous said...

Watchtower,

I couldn't agree with you more on that local economy comment. Here in Disneyland this place will change overnight as tourism will reach zero and home building is or will reach zero and our local economy is completely dependent on those things.
Central Florida is going to be in deep shiza and water within a short time.

LOLcatz are hilarious keep those coming.

So here is something interesting to think about.

Why is it that we only find the mainstream media taking interest now vs before the bubble? Could it be money, greed, stupidity, incompetence, mismanagement, misdirection..... I could go on but at this point and time does anyone have a really good feeling about how this one will all turn out?

G

PS: Yeah I have something against large mice.

watchtower said...

I agree with you G, the cat pictures rule! (my 8 yr old daughter goes bonkers when she sees them)

Anonymous said...

LOLCAT is nothing in comparison to:

YTMND.COM

G

PS: Serious time waster there. Start from the beginning and then make your way to the more recent otherwise it wont make sense. (some are NSFW)