Saturday, November 18, 2006

Be One with the Herd

I found this comment left over at Mish's blog. It recaps fairly well the situation as far as I am concerned. As long as "suicide loans" are made easily available to anyone "who can fog a mirror" then people will take them, the housing bubble will be allowed to persist, even if at a slowing or flattening pace, until it doesn't work anymore. In the meantime society has to deal with declining affordability/ludicrous pricing (which matters only to those folks who don't want to use "suicide loans" or who want to own for the long term or who, for whatever reason, are not buying a house to speculate with).

You either become one with the herd, party now, and share their fate... or not.
As far as people still buying into this market, why not? Prices are flat or dropping (price pause?) People, if they are still breathing, can still get 0% down along with ARMs to make the numbers. What is there to risk? The bank or Credit Union takes the risk. They then pass the worst of it on to the GSEs, who then pass it on to the hedge and pension funds. So with no skin in the game there's nothing for the home buyer to loose. You get a tax deduction and a nice place to live with no neighbors 10 feet away, unless you buy in CA., then your neighbors are five to six feet away. When you go underwater you just get up and walk. I saw it happen in Palmdale CA in the '80s. Now days there's a little glitch in the works. I'm hearing that the balance written off by the lenders will be classified as a gift by the IRS and taxed accordingly. Are these new buyers aware of this? Gee, in all the excitement of buying a new home do you think this little tidbit is over looked? Anyway, all this will not end till the banks and other lenders take it in the shorts via defaults. Then theres no telling how far the FED will go to help the banks. The S&L crises was patched (covered?) up and the S&Ls were liquidated. There will be no end to the game untill that 6 sigma event happens. According to the Mogambo (11/1/2006) the banks have reserves of $40 billion to cover savings deposits of $5.5 Trillion. That works out to $0.0073 (or .73 cents) per dollar. Hope everybody does not need their money at the same time. I think this time the banks will be the epicenter and the shock waves will reach out all the way out to the hedge (dervative) funds which had a $344 trillion turnover value in the 4th quarter of 2005. (Again, Mogambo 11/8/2006.) That works out to an annualized 1.4 Quadrillion dollars. Makes me dizzy.
By the way, the reference to "Mogambo", or more properly "the Mogambo", is a reference to one of the main writers for The Daily Reckoning.

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This company makes loans to people who need to pay their bubble-inflated property taxes but can't. Ah hahahaha! I'm sorry, but I have little sympathy for such people. Nope. No bubble here. Move along...


Blogger AnalysisGuy said...

Take a look at my market history report for Bakersfield and Los Angeles at

Nov 18, 2006, 12:05:00 PM  
Anonymous Anonymous said...

Now days there's a little glitch in the works. I'm hearing that the balance written off by the lenders will be classified as a gift by the IRS and taxed accordingly.

That's not "nowadays". That was true when I was upside down during the 1995-1997 SoCal crash. "Forgiveness of Debt", i.e. Taxable Income.

Nov 21, 2006, 1:24:00 PM  

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