Wednesday, March 31, 2010

Throttle Linkage Is Not Stuck

Way short on time tonight, the bags were being hit aggressively, so I will just link to all the stuff that jumped out at me today which is better than anything I was going to write anyway.

Throttle Linkage Is Not Stuck
In the old day there was an actual metal rod that went through the firewall of cars and opened up the carburetor for gas intake. That evolved to levers with wires doing the work and no many cars just use a computer. Here is some non-stuck linkage!

Best of the Day
From Charles Hugh Smith comes this gem of a credit-housing-government intervention thesis that is a must read:
Housing and the Paradox of Credit Bubbles, Equity and Demand
This should be required reading.

A close second comes from The Automatic Earth and augments the prior piece:
Nobody's Kidding Nobody About Where it Goes

Ben Bernanke's homework assignment: Read the two posts above and write a report on what you have learned.

The End of Quantitative Easing (QE); The Beginning of QE by Other Means
Tell me it is coincidence that on the SAME DAY the FED MBS buys end we get relaxation of already lax lending standards by the government housing Medusa's:
Fannie And Freddie's Caving On Standards Has Officially Begun (NYC Condo Salvation Coming Soon)

Expect to see much more of this kind of thing going forward. A lot more.

Honesty From Across the Pond
In this country we get treated to such things as:
-The banking system is perfectly sound
-The vigorous "Stress Tests" proved banks were rock stars
-Capitalism is our system of markets

Across the pond we get something a bit different (via Mish):
Irish Banks Need 43 Billion in New Capital as "Worst Fears Have Been Surpassed"
The headline just jumps out and grabs you. Here it may have read "Banks need X trillion in Capital, FED says no Worries" but the story has some great nuggets:
Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

The agency aims to cleanse banks of toxic loans, the legacy of plunging real-estate prices and the country’s deepest ever recession. In all, it will buy loans with a book value of 80 billion euros ($107 billion), about half the size of the economy.

“The information that has emerged from the banks in the course of the NAMA process is truly shocking,” Lenihan said.

I can only imagine that the bank information was shocking because the Finance Minister never worked at Goldman Sachs, like all of our top level players have.

I am 100% sure that costing taxpayers dearly for a long time and shocking banking practices are unique to the Irish Banking system only. They are the outlier, nothing like what we have here in the United States.

Have a good night.

4 comments:

GawainsGhost said...

Here is an interesting article from, of all places, Slate, via The Big Picture.

http://www.thebigmoney.com/articles/judgments/2010/03/30/lone-star-secret?page=full

It discusses why Texas did not experience the rapid price increases in housing that plagued the bubble states and in fact has one of the lowest foreclosure rates in the nation. (That's news to me, since we've never been busier.)

The secret? It's in the state constitution which explicitly forbids home equity loans. True, it was impossible to take out a HELOC in Texas until 1998, when the legislature in its infinite wisdom changed the law. But not without restrictions. A HELOC cannot exceed 80% of the appraised value and can only be used for home improvements or property taxes, not to buy a new car or boat or take a vacation.

Interesting that this law was passed the year before Glass-Steagall was repealed, which removed capital requirements and allowed commercial banks to engage in speculative lending, and two years before the Commodities Futures Trading Act was passed, which specifically disallowed any and all oversight and regulation of the derivatives markets.

While the articles does a nice job of explaining why Texas avoided the housing bubble and foreclosure nightmares that devastated California, Arizona, Nevada, and Florida, to name a few, it misses the salient point.

Most of the foreclosures we get these days are the result of HELOCs. Used to be most were the result of divorce, medical emergency, job loss or transfer, which still account for a sizable percentage of foreclosures. But more and more are because of HELOCs.

The question is, why? Well, the appraised value bears little or no semblance to the actual market value of a house. In fact, most appraisals vastly overvalue houses by as much as $25,000 to $50,000 or more. (Remember, it's the appraiser's job to justify the loan, not to provide an accurate valuation of the house.)

So what happened was that during the rennovating and flipping frenzy of a few years ago, a lot of people took out HELOCs to put in granite counters, new cabinets, new tile or carpet, garden tubs with jets, and the like. While housing prices increased modestly compared to other states, property taxes went up. Then these people found themselves unable to manage their debt burden and thus defaulted. Thus, Texans didn't escape the housing bubble entirely.

Another thing I'm seeing is that most of the rental properties, houses but especially fourplexes, that are foreclosed on down here are more often than not owned by an investor from, get ready for it, California. Most likely these were people who took out HELOCs in their home state and used the money to invest in property in South Texas, where prices are considerably lower.

Same song, second verse, doesn't get better but it could get worse.

Lurker said...

Hey! Here's my Friday night music requests. "Sixteen Tons" by Tennessee Ernie Ford. Also, "The Ballad of Davey Crockett" by the same, in honor of the passing of Fess Parker last week. Finally, "Gypsies, Tramps and Thieves" by Cher.

GawainsGhost said...

By the way, GYC, what's your take on the upcoming Hopkins vs Jones fight?

I always liked both of them but thought Jones was the better fighter. If they had scheduled this fight ten years ago, I'd have taken Jones all the way.

As it is now though, it's just two aged boxers aiming for one last shot at glory and a purse.

I'll probably watch the replay on HBO. But as for pay-per-view, forget about it.

getyourselfconnected said...

Gawains,
both are a bit over their prime. Hopkins was a great puncher. Jones has been away rom boxing for some time. No real pick but I think it will be a brutal, short fight.