Monday, May 19, 2008

Cheering the Housing Bailout Bill: Wall Street says Thanks Taxpayers!

What a crappy day today. Temps on the low 50's, and high wind gusts that make it hard to hear anything while outside. Not expected to break 55 degrees for the next 5 days. Kevin, I was glad to hear that your spinach survived snow because it may hit a low 0f 38 here tonight and I am hoping the garden will not die off!

Robert Shiller's New York Times Piece
The weekend was dominated in the blogosphere by the NY Times piece done by Mr. Robert Shiller. Shiller, if you did not know, has been an early whistle blower on the housing bubble, and he has his own home price index (the Case-Shiller index) which is referenced quite a bit. I saw a post on Shiller's article on every single major blog. You can read the piece here: http://www.nytimes.com/2008/05/18/business/18view.html?scp=1&sq=shiller&st=nyt

I am not sure what all the rage was about this story. Mr. Shiller argues, much like Nouriel Roubini, that the housing bust must be actively managed to prevent a widespread panic. Whatever. I mean either you feel that a bailout is wrong no matter what or you think a bailout is ok if it averts some kind of disaster. You know where I stand, disaster please come faster!

The most important thought I took away from the article feeds right into the previous question about bailouts in general. Mr. Shiller makes an argument that widespread foreclosures would be a "Psychological Scar" for many. He is most likely correct. The key point is that in a debt based economy that is built on ever expanding credit, psychology IS king. Any serious financial reader know that the banks are a joke and in fact insolvent by any realistic metric. But the belief that they are ok still holds, and thus they hold. Home prices are coming down, but belief is still high that homes do not "go to zero" like tech stocks once did. Maybe, maybe not. Zero is not possible, but there is nothing easy about a 80-90% markdown. Almost zero is pretty bad. Again psychology is king.

This brings us back to the bailout question. With a system as broken and stupid as ours, a collapse is the only way to start new. It will suck. It will be terrible. It will not be Disney Land. The alternative is to continue to prop up psychology until a collapse happens at a time NOT OF OUR CHOOSING. Decide how you want to play it. If all those so called "I do everything for my kid" type parents really meant anything that they said, they would not be guaranteeing little junior a nightmare financial collapse is the near future but would instead take steps to combat the problem now. As evidenced by reality, you know the deal.

Cheering the Housing Bailout Bill: Wall Street says Thanks Taxpayers!
Late word that our magnificent US Senate has forged a deal to pass some kind of Housing Bailout bill. The bill will most likely look exactly like Senator Todd's silly $300 Billion package to hand the taxpayer a sure loss. No details as yet, but I can all but promise that Mr. President will not veto this baby. No way.

Already if you look at some of the message boards for companies like CFC, BAC, MER, and others there is a giddy glee of excitement. Free money tends to do that. When I discussed moral hazard in depth a while back this was the kind of thing I was most pissed off at. First the f#ckos on wall street package and sell off all these terrible mortgages. Then they all blow up. Massive losses result. The FED and the government spare no expense to make sure the banks that did this experience not even a 1 day lack of access to cash. Now the risk will be passed onto taxpayers and wall street will now play the stocks to their utmost benefit. What a way to game the system.

Any talking head that says this bill is a positive is instantly a loser. If you are so desperate that the FED has to loan out it's entire balance sheet, and the US government has to take on the risk of over 300 Billion dollars in loans, the market is not "strong" The market is on life support. Delay, deny, and hope. How much time will this bill buy? We will see.

Still makes me sick.

Have a good night and don't puke.

6 comments:

GawainsGhost said...

Hey, GYC, why don't you tell us how you really feel?

Ha ha. Just busting your chops, man. I couldn't agree more. This whole thing stinks to high heaven.

By the way, for the purpose of full disclosure, I sell real estate. My family owns a rather large and successful company down here. My mother is the primary broker, and I am her assistant, or rather her slave.

My father passed away several years ago, and I left my teaching position to help my mother run the company. I got my license and started selling real estate right when all these financial sheenanigans were beginning. And frankly I was dumbfounded by it, still am.

We deal mostly with repossessed homes. In other words, we list, market and sell homes for Fannie Mae, Freddie Mac, Option One, MGIC, Nation Star, and others. My mother's been doing it for 35 years, and she'll tell you flat out that she's never seen anything the last few years.

People buying houses with no money down, rolling over closing costs, moving in with negative equity, then going into foreclosure less than a year later. Unbelievable.

We currently have more houses on the market now than at any time in the history of our company. My mother and I will turn over roughly 100+ houses a year. Between the two of us, we have over 40 active listings on the market this month and about 20 more pending contract. That doesn't included the listings of the other six realtors who work in our office. So we're all very busy.

Lately, I've been doing historical research for Fannie Mae on certain foreclosures. They're questioning the appraisals done at the time of the sale. I haven't come across one yet that didn't overvalue the home by at least $25,000. In fact, last week I finished one in which the appraiser overvalued the house by $70,000 by using new construction in a country club community thirty miles from the subject!

It's fraud, and it's rampant. Lenders, appraisers, brokers,
the whole system is rife with corruption. And it is teetering on the brink of a total collapse.

Not that I expect the government to do anything about it, other than bail out their monied friends and screw the taxpayer. Whatever solution congress comes up with will only make everything worse. That much I know.

watchtower said...

My money is still on Jim Puplava, looks like the creamy center is in play.

getyourselfconnected said...

Gawain,
Thanks for the excellent detailed insider info. Great stuff. I appreciate real on the job reports. Feel free to give this kind of info.
Watchtower,
Good to hear from ya!

Anonymous said...

GYSC

38 degrees can do a lot of damage on a garden, there are a lot of plants that can do well at that temperature also though. The wind has been beating the heck out of my gardens with 40 mph today, plus higher temps which causes more water evaporation.

The more I see this foolishness coming from DC the more I'm convinced that the US is going to experience an Argentina moment in the not to distant future. It's either that or hyperinflation something has got to give. $20 happy meals anyone?

Kevin

Anonymous said...

Watchtower,

Jim Puplava has been right far more then he has been wrong in the last 5 6 years I've been following him. I think the election is going to be the tipping point, alto ugh it could be a geo-political or weather related event for that matter. My bet is a sharp turn to the left politically with a tax the rich, protectionist outcome.

I've also seen a lot of caparisons to a hurricane and we are in the calm at the center of the eye right now.

Kevin

Anonymous said...

Kevin and Watchtower,

I am with you guys. Financial Sense is the only commentary making sense at this point. Think eye of the storm guys.

G