Moral Hazard's Time of Reckoning

 

moral hazard

noun

1. The risk to an insurance company that the holder of a policy will destroy the insured property in order to collect the monetary reimbursement available under the policy.
2. The risk that an individual or organization will behave recklessly or immorally when protected from the consequences.
3. The prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk.
4. (economics) the lack of any incentive to guard against a risk when you are protected against it 

The Can Has Reached The End Of The Road

BY TYLER DURDEN

THURSDAY, SEP 29, 2022 - 01:20 PM 

Markets are like children. They can only learn the most important lessons the hard way, by making mistakes and suffering the consequences.

One of my earliest memories is of a visit to a local park with my father and my sister. This park had a big fountain full of fish and my sister climbed up to get a closer look while my dad repeatedly warned her to be careful. She didn’t listen and fell in, so dad had to pull her out. The water was cold and she was shivering.

Years later, my father told us that he intentionally fought the urge to grab her before she fell, even though he was certain that she would. He wanted her to learn an important lesson about listening to her parents, and being careful around water. He even let her stay in the cold water a beat longer to make sure the lesson stuck.

I share this story as an allegory of the right way to manage an economy and a financial system. Good policymakers know that economic agents (of any age) are like children. If you prevent them from suffering the consequences of their own decisions — however painful those consequences might be — then they will never learn. Investors, bankers, and borrowers are always probing the boundaries of what they can get away with. Bail them out from stupid risk taking and they will get stupider.

We’ve all met kids who are never punished by their parents or allowed to fail. They grow up to be miserable adults, stumbling from one fiasco to another and eventually spiraling out of control. That’s the state of the global financial system today.

For decades, central bankers and other government officials have been bailing out market participants from the consequences of their own folly. The 1987 crash, Long Term Capital, the 2008 financial crisis, the European debt crisis, and countless other macroeconomic events that should have resulted in major players being punished for making bad decisions did not. Instead, rates were cut, money was printed, stimulus was introduced, and the kids who ignored the warnings of their parents were not allowed to fall. They were given stern warnings after the fact, but kids who didn’t get wet don’t listen.

All of this was done under the guise of protecting ordinary people. Let Wall Street fail, government officials told us, and Main Street would suffer. This was always a dubious claim, but some version of it was embraced by both sides of the political spctrum in almost every country, and the financial system grew ever more fragile.

Then came COVID, and any pretense of discipline went out the window. Bailing out bad actors was now a virtue, no matter how little they deserved it. So the Federal Reserve backstopped the junk bond market then gave a speech about protecting healthcare workers. The most egregious interventions were eventually wound down, but the precedence had been set: the closer the kids got to the edge, the more the government would try to save them. An importat opportunity for a market reset was lost, and the can was kicked further down the road.

All that stimulus — the size and variety of which was unprecedented in modern history — resulted in record inflation. Unlike the prior interventions, whose negative consequences were felt in more implicit ways such as economic inequality, the negative consequences of this affair are front page news. People hate inflation so governments have no choice but to respond, undoing decades of easy money and raising interest rates. Markets are not taking it well. Currencies are plunging, borrowing costs are soaring and the global economy is starting to teeter.

Policy makers are now stuck in a bind. Do nothing and inflation will rage, or do something and important markets may break. The proverbial can has reached the end of the road.

What happened in the UK this week — a collapsing bond market that forced the Bank of England to reverse itself — is only the beginning. You can’t abruptly cut off a kid you’ve been spoiling for years without causing a tantrum. That’s not how people work, and it’s certainly not how markets work. A global economy built on cheap money is about to be tested in unprecedented fashion.

How many public companies who loaded up on cheap debt to finance share buybacks will now have to reverse the process? How many governments who run major deficits will be able to tighten their belts as borrowing costs rise? How many centrist governments will survive simultaneously surging food, fuel and borrowing costs? How many real estate deals will remain viable when mortgage rates approach 8%? Which hedge fund is about to blow up?

Only time will tell, and you’ll have to protect yourself.

How?

As it turns out, there’s one financial system that has never had a bailout, market intervention or outside stimulus. You’ll know it from its extreme volatility, and the fact that its biggest players can and do fail. In this system, the depositors who trust bad banks lose their savings and the traders who used too much leverage lose everything.

The stewards of the old system love to criticize this one, in part because lots of people can and do get wet on a regular basis, some of them undeservedly so. But in a year when the old system keeps teetering on the edge, this one has already had its baptism by fire, making it antifragile and far more trustworthy.

Source: https://www.zerohedge.com/markets/can-has-reached-end-road 

Why Greatly Reduced House Prices Would be a Good Thing

I am both glad and angered to see this New York Times article. Glad because it says the same things we bubble bloggers said (and still do) for so long - we need to stop treating our primary residence like an investment; angry because only now is a big news outlet finally agreeing with us.

To reiterate what has already been said here and on many other housing blogs: some of the reasons why we should stop treating real estate like an investment and instead treat it like any other consumer good:

• Rising house prices are undesirable for the same reasons that rising milk costs, gasoline costs, etc. are undesirable.
• High housing costs and high rents make it very difficult for many Americans to move to where the jobs are.
• Lower housing costs and rents would work their way through the general economy thereby lowering the cost of living for many Americans thereby making American workers more competitive with foreign workers.
• High housing costs diminish economic growth.
• High housing costs widen income inequality.
• Housing is a basic need and should be a right in the same vein as health care.
• Health benefits.
• Environmental benefits.
• An end to housing bubbles.
• Etc...

Here's the full New York Times article:

Why Falling Home Prices Could Be a Good Thing

By CONOR DOUGHERTY

FEBRUARY 10, 2017

Suppose there were a way to pump up the economy, reduce inequality and put an end to destructive housing bubbles like the one that contributed to the Great Recession. The idea would be simple, but not easy, requiring a wholesale reframing of the United States economy and housing market.

The solution: Americans, together and all at once, would have to stop thinking about their homes as an investment.

The virtues of homeownership are so ingrained in the American psyche that we often forget that housing is also a source of economic stress. Rising milk prices are regarded as a household tragedy for some, and spiking gas prices stoke national outrage. But whenever home prices go up, it’s “a recovery,” even though that recovery also means millions of people can no longer afford to buy.

Homes are the largest asset for all but the richest households, but shelter is also a basic necessity, like food. We have a variety of state and federal programs devised to make housing cheaper and more accessible, and a maze of local land-use laws that make housing scarcer and more expensive by doing things like prohibiting in-law units, regulating how small lots can be, and capping the number of unrelated people who can live together.

Another big problem: High rent and home prices prevent Americans from moving to cities where jobs and wages are booming. That hampers economic growth, makes income inequality worse and keeps people from pursuing their dreams.

So instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? People might expect home prices to go down instead of up. Homebuilders would probably spend more time talking about technology and design than financing options. Politicians might start talking about their plans to lower home prices further, as they often do with fuel prices.

In this thought experiment, housing prices would probably adjust. They would be somewhat cheaper in most places, where population is growing slowly. But they would be profoundly cheaper in places like super-expensive San Francisco.

That was the conclusion of a recent paper by the economists Ed Glaeser of Harvard and Joe Gyourko at the Wharton School of the University of Pennsylvania. The paper uses construction industry data to determine how much a house should cost to build if land-use regulation were drastically cut back. Since the cost of erecting a home varies little from state to state — land is the main variable in housing costs — their measure is the closest thing we have to a national home price.

According to them, a standard American home should cost around $200,000, a figure that includes the cost of construction, what land would cost in a lightly regulated market, and a modest profit for developers. In many places, that’s what the prices roughly are. But for a few metropolitan areas like San Francisco and Boston, homes are wildly overpriced, leading to distortions in the economy and labor market.

We would still see homes of different sizes and styles — condos in some places, single-family homes in others — depending on the market in each city. A New York home would be smaller than one in, say, Houston.

And prices would still vary from place to place, based on demand and geography. It’s easier to build in Phoenix (plenty of flat land), and harder in San Francisco (lots of hills and nearby water). But while building in the San Francisco metro area is more expensive than in other places, it’s not that expensive. By the paper’s calculations, a home in the San Francisco area should cost around $281,000.

The actual price for a standard home in the area is more like $800,000 (using 2013 data). The paper argues that most of that difference is caused by regulatory hurdles like design and environmental reviews that can add years to a project’s timeline and suppress the overall housing supply. The result is overpayment on a grand scale for the few homes that do get built.

People are sure to quibble with the economists’ calculations, but their general conclusion — that an abundance of new homes would result in lower prices — is not remotely controversial. Many studies, from the McKinsey Global Institute, California’s Legislative Analyst’s Office and others, have shown that California’s high home prices are largely a supply problem: The state doesn’t build enough homes.

There are counterexamples around the world. Tokyo has not had rapid home price appreciation because increases in demand are met with increases in new building.

So let’s carry on with this hypothetical. Say we opened the floodgate of development. What kind of effects could we expect? The economy would grow, and by a lot. According to a recent paper by the economists Chang-Tai Hsieh, from the University of Chicago’s Booth School of Business, and Enrico Moretti, from the University of California, Berkeley, local land-use regulations reduce the United States’ economic output by as much as $1.5 trillion a year, or about 10 percent lower than it could be.

That is a theoretical figure that includes easy-to-see things like increased sales of building materials and more jobs for construction workers. Most of the increase, however, would come from more abstract gains like increased wages for people who are willing to move from an economically distressed city to a faster-growing economy elsewhere, but are currently unable to because housing is too expensive.

Over time, the accelerated pace of building could lead to a long-run deflation in home values. But for the most part that would be limited to a few coastal cities. And while the older homeowners there would most likely be resentful of all the new apartments, condos and townhomes that caused their home equity to shrivel, younger people would have an easier time getting started.

Moreover, it’s likely that lower home prices would encourage workers to move farther and more often in search of job opportunities. The impact on mobility could be huge, as the $1.5 trillion figure shows.

There was a time, a few decades ago, when the cost of living did not vary all that much from city to city. Since then, as places like New York, San Francisco and Seattle have been hit with skyrocketing rents and home prices, the regional disparity in housing costs has altered how Americans of different incomes pursue opportunity.

Back when home prices were more even from place to place, people with different levels of education and income tended to flock to the same types of high-wage places, according to research by Daniel Shoag, a professor of public policy at Harvard, and Peter Ganong of the University of Chicago.

Today, people with less education tend to go where housing is cheap, like Las Vegas, while college-educated workers with skills that are in demand still go to places where wages are high, like the Bay Area.

That’s because lower-income people have little to gain by going to California’s coastal cities. Wages might be higher, but as the state’s poverty figures show, a better paycheck doesn’t help if it’s swallowed by rent. The loss of mobility makes income inequality worse, because lower-wage workers are effectively locked out of exactly those places where wages and the demand for workers are greatest.

Finally, if housing were plentiful and cheap, we would probably stop having big housing bubbles. One good way of describing a speculative bubble is a moment when society deludes itself into believing that something plentiful is scarce, or will soon be. In the mid-2000s, banks and homeowners came to believe that homes would be scarce in places like Las Vegas and Phoenix, even though there were enough materials, land and labor to keep building and building and building.

Housing is particularly prone to bubbles because, in contrast with other products, we seem to want it more when it is expensive and less when it is cheap. And no matter how many times we look out an airplane window to see vast acres of emptiness, we somehow still believe that land is a great investment because nobody is making more of it.

Homes would still hold a lot of value; they still might appreciate, if more slowly; and desirable neighborhoods would still seem relatively expensive. But there would probably be fewer manias in which people expect home prices to double in just a few years.

Just as we don’t expect to make a profit selling our cars, if we stopped thinking of our homes as big moneymakers, we would probably start focusing on building them faster and less expensively.

Jeff Wilson, a college professor turned entrepreneur who refers to himself as Professor Dumpster for the year he spent living in a metal trash container that he turned into a home, is trying to make this happen on a small scale. Mr. Wilson’s nascent company, Kasita, wants to produce a line of one-bedroom homes. They would be identical in size and bought for a single price, and could be placed on city lots that traditional developers are unlikely to be interested in.

Homes would be stacked together, creating de facto apartment buildings that could be built and unbuilt in a few weeks. Although that wouldn’t do much to help a family of four, it might take some pressure off the housing market by directing younger people to studios instead of having them pile in together, freeing up some three-bedroom apartments for families.

For now, Americans seem unlikely to embrace this vision on a large scale, and even if they did, it would take a long time to start seeing home prices drop or flatline. But mass-produced homes from the past — brick townhouses or bungalows that came from a Sears catalog — are now sought after, so this imaginary world needn’t be uglier, though it very well may be.

Also, even if homes were a lot cheaper, we would probably retain the societal benefits of homeownership: As Mr. Glaeser and Mr. Gyourko’s data shows, housing is already relatively affordable in the vast majority of American cities. So there is little reason to believe that people would desert overpriced neighborhoods if they suddenly became cheaper.

This does not mean that select places like New York’s West Village or San Francisco’s Mission District would suddenly be affordable — or that American cities would suddenly fill up with towering condominiums and blocks of identical rowhouses. Housing is a regional problem, spread across miles of cities and suburbs, so a lot of new development would probably occur in close-in suburbs where there is more land than people think.

Take Boston. The median Boston suburb has a minimum lot size of one acre, and many suburbs have minimum lot sizes of one home per two or four acres. That is a huge drag on the region’s overall housing supply, according to Mr. Glaeser.

Yes, adding more homes, even medium-density ones, would annoy people looking for less crowded quarters. But the nation as a whole would probably be better off, both in jobs and in financial security. The money not spent on housing could flow to other, possibly more productive, investments — like stocks in new companies or bonds for infrastructure projects.

Of course, our view of homeownership is so entrenched in our economy, our political system and our tax code that it would be impossible to change in a short time, and probably even in a long time. But there could be political and societal benefits. What if local decisions that today are dictated by fears of declining property values could instead be made with an eye toward what’s best for education or job growth?

The point of this thought experiment isn’t to embrace it full-on, but to open our eyes to the negatives of the national obsession of owning a home, expecting its value to rise, and using the levers of local government to keep neighborhoods as they are.

'Progressive' San Franciscans Strongly Support Immigration Rights (Just Not In Their Neighborhood)

One of my gripes about Marin and much of the Bay Area is what shameless hypocrites we are. In Marin, being "progressive" is only skin deep: it's just about appearing progressive while quietly making sure its other communities that bear the brunt of the less desirable consequences of progressiveness.

I am glad others have noticed this too.



Full article:

'Progressive' San Franciscans Strongly Support Immigration Rights (Just Not In Their Neighborhood)

by Tyler Durden

"Not in my back yard..."

San Francisco is one of the most progressive cities in the nation, especially when it comes to national immigration, notes San Francisco Chronicle's Vincent Woo.

We believe so much in the natural right of people to join us here in America that we fought to keep our status as sanctuary city even in the face of being federally defunded for it. We pride ourselves on our rejection of plans to tighten immigration controls and deport undocumented immigrants.

Yet, Woo exclaims, take that same conversation to the local level and all bets are off.

City meetings have become heated, divisive and prone to rhetoric where we openly discuss exactly which kinds of people we want to keep out of our city. 

This is an ethically incoherent position. If we in San Francisco so strongly believe that national immigration is a human right, then it seems strange to block migration into our own neighborhoods. 

Consider the San Francisco Board of Supervisors’ decision to challenge the environmental review of a proposed housing project at 1515 Van Ness Ave. Despite the project’s plan to rent 25 percent of its units at a below-market rate, many members of the neighborhood preservation group, Calle 24, expressed anger that the project might bring tech workers into the Latino Cultural District. 

Or that members of the Forest Hill homeowners association opposed a project that would build affordable housing for seniors and the formerly homeless on a site now occupied by a church. One of the grievances aired was that it might bring mentally unstable or drug-addicted people into the neighborhood.

Both of these groups are reacting to the threat of change. In both cases, residents took it as a given that they were within their rights to control who lived in their neighborhoods.

Conservatives see national immigration as a privilege to carefully dole out. Liberals see immigration as a human right that needs to be protected. San Francisco progressives view living in certain neighborhoods as a privilege to be earned, and see nothing wrong with preventing certain groups of people from moving in, a traditionally conservative view. 

Tech workers have now become the most visible of those whom neighborhood groups seek to exclude. Tech workers have been been cast as shallow opportunists who indifferently displace existing residents. However, most tech workers who move here are simply migrants from less affluent parts of the country. They’re people from places like the Midwest who are just trying to find good jobs in one of the last functioning economic engines in the country. If we believe that San Francisco should be a shelter for people from less prosperous countries, why shouldn’t it also be a shelter for people from less prosperous parts of our own country? 

Even more pointedly, more than a third of Silicon Valley tech workers are immigrants themselves. For many people in China, India and Eastern Europe, working in technology is one of the few ways out of their countries and into ours. 

Neighborhood activists want to protect their vision of San Francisco, and that is absolutely a noble purpose. However, blocking future residents isn’t the way to go about it. How would you even do it? 

The current approach of attempting to just halt construction hasn’t proven effective at preserving neighborhood aesthetics. To truly control who lived in a neighborhood, you’d have to create some official tribunal that would essentially have the ability to vet applicants by their demographics. This is would be very dangerous and likely illegal. It’s hardly a progressive idea to deliberately institutionalize exclusionary policy. 

If we really believe that migration is a human right and not a privilege extended at the discretion of current residents, then we need to acknowledge that neighborhood meetings where people feel entitled to debate the virtues of future residents are antimigration by definition. 

We need to acknowledge that making room for, say, an Indian tech worker on an H1-B visa who is trying to get a green card serves the very same ideological purpose as making room for an undocumented worker from Mexico.

Once again the progressive agenda can be translated as the elite establishment liberals exclaiming "do as I say, not as I do..it's the fair thing to do." [emphasis mine]

The Obama Administration Is Finally Targeting the NIMBY Nonsense That’s Made Cities Unaffordable

Something we housing bubble bloggers pointed out time and time again, "back in the day":

"In a white paper released Monday, the Obama administration pins a whole bunch of America’s problems—including income inequality, plodding economic growth, gentrification, long commutes, the strained safety net, homelessness, and racial segregation—on the restrictive land-use policies of American cities, counties, and suburbs (and by extension, the NIMBYs who promote them)."

Full article:

The Obama Administration Is Finally Targeting the NIMBY Nonsense That’s Made Cities Unaffordable

By Henry Grabar 

In a white paper released Monday, the Obama administration pins a whole bunch of America’s problems—including income inequality, plodding economic growth, gentrification, long commutes, the strained safety net, homelessness, and racial segregation—on the restrictive land-use policies of American cities, counties, and suburbs (and by extension, the NIMBYs who promote them).

It’s nothing you won’t already know if you’ve tried to buy a house or rent an apartment in a number of American cities lately (or if you read Slate!). The 23-page Housing Development Toolkit reiterates arguments that housing writers like Emily Badger and Matt Yglesias have been making for the past five years, as America’s housing problem morphed from foreclosures to sky-high rents and home prices.

Still, it’s nice to see it coming from the very top.

The problem is worst in certain high-cost, high-wage cities, but the White House isn’t intervening on their behalf. Instead, the report does a good job illustrating how what began with cranky homeowners in the San Fernando Valley, anti-gentrification activists on the Upper West Side, or at quality-of-life meetings in Palo Alto, California, and Winnetka, Illinois, has helped to reverse what for a 100 years was the defining feature of American life: economic mobility.

Between 1880 and 1980, poor people moved to rich places: Okies to California, southern blacks to Chicago and New York, rural whites to cities across the Midwest and later, the South. That happens less now than it used to, in part because the poor can’t afford to live near the rich. As a result, the rate of income convergence across states has declined over the past 30 years, after a century of gains spurred by economic mobility. The wonkiest argument in favor of housing-supply restrictions in high-wage cities like San Francisco might be Conor Sen’s belief that “job convergence between metros ‘spreads the wealth’ ”—that San Francisco’s loss is Phoenix’s gain, and that’s good for America.

Not really: Per capita income in Connecticut and Mississippi moved toward evening out between 1940 and 1980, and then stopped. That poor people stay in Mississippi or move there because they can’t afford the New York suburbs is not cause for either state to pat itself on the back.

For this we can blame both well-intentioned environmental protections and permitting processes, but also, in the White House’s words, “laws plainly designed to exclude multifamily or affordable housing.” There can be no ambiguity about the anti-rental housing sentiment in places like Boulder, Colorado, or Westchester County, New York: It is pure, territorial NIMBYism. The report reserves a special section for Los Angeles, which both has, by some measures, the highest rents in the country and is also home to a celebrity-funded anti-growth initiative masquerading as an environmental movement. (As the situation in the Bay Area demonstrates, restrictions on infill housing either force teachers to commute two hours to their jobs—inhumane and not environmentally friendly—or force police officers to live in trailers in city parking lots—hey, that’s one way to fulfill a residency requirement!)

"The growing severity of undersupplied housing markets,” the report concludes, "is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions.”

Like, 10 percent of GDP growth.

The administration has already used what power it has through the Department of Housing and Urban Development to try to desegregate the suburbs. So what’s in the Obama toolkit of policy prescriptions for local and state housing?

Establish as-of-right development (in other words, a project is a go once you’ve met the zoning requirements, and doesn’t need to go through other types of review). This was one of the goals of Jerry Brown’s now-dead affordable housing proposal for California.

Tax vacant land, or acquire it and put it into use, through land banking or otherwise.

Shorten permitting. San Diego’s “Expedite Program” allows affordable, in-fill, or sustainable projects to be reviewed in just five days. Austin’s S.M.A.R.T. Housing Program has helped speed the creation of 4,900 units of affordable housing since 2000.

End off-street parking requirements that subsidize driving and pass car costs onto renters and buyers, whether they like it or not.

Enact high-density and multifamily zoning; include bonuses for density; adopt inclusionary zoning.

Tax incentives and abatements for affordable or transit-oriented development.

The problem with this report, unfortunately, is that it does little to confront the large, diverse, and effective coalition that is arrayed against these changes: the wealthy suburbanites who don’t want rental housing in their neighborhoods; the urban white ethnics for whom more than half of household wealth sits in home values; the labor unions reluctant to support initiatives that lead to nonunion construction; the environmental groups and preservationist groups fearing a slippery-slope erosion of hard-fought gains; the Agenda 21–fearing conservatives; the municipal politicians who view extensive land-use reviews as an essential component of their power; the poor tenants who fear the catalytic, rent-spiking effect that new construction can sometimes produce at a local level and resent bearing the burdens of new development; the car-dependent commuters who feel that an on-street parking spot is a God-given right.

Will those people be convinced by suggestions for housing development emanating from the Oval Office? Somehow I doubt it.

Occupy Marin Anyone?

Back in the early phases of this blog I speculated whether the inevitable collapse of the housing bubble would finally lead to much needed social unrest over the greed, corruption, crony capitalism, and deception (to name a few) that the housing bubble exposed and which continues today. So disgusted was I with Americans' complacency that I "ended" this blog with "Where Is the Outrage?". It's been nearly two years since that last post and it seems that finally, after numerous bailouts, an ongoing and much needed foreclosure "crisis", failed and misguided attempts to artifically inflate house prices, massive currency debasement, sovereign debt crises that span the world, numerous who-could-have-knowns?, etc., etc., etc. (too much time has passed to review all that has happened, I'm sorry) that it appears to finally have an answer (hopefully only an early answer): Occupy Wall Street.

What I don't get is "Occupy Oakland". Why Oakland? Wall Street I understand as it has been part of the problem. But Oakland? Really? Oakland has been a victim for crissakes. The protesters should be occupying the locales of "the 1%", not the locales of "the 99%". They should be in DC for certain but they aren't. And they should be in the leafy residential communities of the 1% such as, say, Marin, but not Oakland.

So I cordially invite all you protesters to come on over, en masse, smell the smug in our air and occupy Marin. We've tried so very, very hard over the years to discourage the "unclean" from visiting that it is long over due. So please, come on over and stir it up.

...Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security...

-- Adams, J., Adams, S., Bartlett, J., Braxton, C., Carroll, C., Chase, S., Clark, A., Clymer, G., Ellery, W., Floyd, W., Franklin, B., Gerry, E., Gwinnett, B., Hall, L., Hancock, J., Harrison, B., Hart, J., Hewes, J., Heyward, Jr., T., Hooper, W., Hopkins, S., Hopkinson, F., Huntington, S., Jefferson, T., Lee, F. L., Lee, R. H., Lewis, F., Livingston, P., Lynch, Jr., T., McKean, T., Middleton, A., Morris, L., Morris, R., Morton, J., Nelson, Jr., T., Paca, W., Paine, R., Penn, J., Read, G., Rodney, C., Ross, G., Rush, B., Rutledge, E., Sherman, R., Smith, J., Stockton, R., Stone, T., Taylor, G., Thornton, M., Walton, G., Whipple, W., Williams, W., Wilson, J., Witherspoon, J., Wolcott, O., Wythe, G. -- 1776

Where Is The Outrage?

Take a look at this article:

1. Goldman Sachs creates CDOs (collateralized debt obligations), bundling bad debt with good (and linked to mortgage debt by credit-default swaps) during the most manic phase of the housing bubble.
2. Pension funds, insurance companies, and others bought them believing Goldman's hype that the housing market couldn't fail. Goldman didn't even let buyers short them.
3. All the while realtors, real estate agents, lenders, local papers where all fueling the buzz about how real estate can't fail, "buy now or be priced out forever".
4. Goldman Sachs then short their own CDOs well beyond what was justifiable for hedging risk.
5. The housing markets then predictably implode. Pension funds, insurance companies, mom and pop all bank huge losses.
6. Goldman Sachs pockets huge rewards.
7. You and I then bail out the losers.
   
   "The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen,” said Sylvain R. Raynes, an expert in structured finance at R & R Consulting in New York. “When you buy protection against an event that you have a hand in causing, you are buying fire insurance on someone else’s house and then committing arson.”

Or a school bus mechanic taking out life insurance on all the kids who ride that bus. Or your doctor taking out life insurance on you before doing your heart surgery. Or airline mechanics taking out insurance on the passengers. Or ferris wheel mechanics...

Where is the outrage?

Unemployment By County

It's been quiet. Too quiet.

I found this somewhere, I can't remember where. It's an animated display of the growing unemployment rate by county. It comes from the U.S. Department of Labor (so you know the real unemployment rates are much higher than what's shown below). [The graphic to the left shows the final slide.]

Look at little 'ol Marin in the map. It almost seems to try and hold off the waves of unemployment crashing against its borders, but in the end it succumbs. It ends up in the 7.0 - 9.9% unemployment range along with Sonoma County and all the other "we're immune, we're special" places.

I wonder what it could mean?

Then there are the reports (like this one, for example) of how the pricing in"luxury" markets is now getting pummeled whereas the "plebeian" markets, after having been oppressed, are benefiting somewhat from desperate attempts to prop them up with bailout and stimulus money provided by you and me, Mr. and Mrs. Tax-payer (so you just go ahead, pat yourself on the back).

And then there is the Marin IJ (so it must be worse than reported) pointing out that while the cheaper areas in the Bay Area are rising a little in price thanks to the bailouts and stimuli, Marin prices are still going down, over -12%, and are likely to get a whole lot worse.

And oh my but how many formerly for-sale houses are now for-lease or for-rent, at least here in Mill Valley! I guess all the Marin "FBs" are asking potential buyers for a personal bail-out while they wait for a return to a "normal" housing bubble.

Dec. 24 Update: Oh, and I forgot to mention that this POS in Mill Valley, the one accross the screet from the 7-11, is back on the market. I guess the "let's rent it" thing didn't work out so well for them. 'Such a shame, really; who could have known?' Anyway, I first noticed this POS back in December of 2005. So this place has been trying to sell for over four years or more than 1460 days at more or less the same asking price. More on the history of the posting on this POS can be found here.

Have a merry Christmas Marin!