Please check out this article in The Atlantic by a former chief economist at the IMF.Fellow Americans, you have been duped long enough. Considering to whom the government is giving your hard-earned money, how do you feel about having just paid your taxes? When do you finally say "enough is enough"? When you no longer have anything left to lose? By then it will be too late.
Summary:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
51 comments:
Here is a Yahoo Tech Ticker interview w/ the author:
http://finance.yahoo.com/tech-ticker/article/235032/Traders-Mounting-%22Speculative-Attack%22-on-U.S.-Banks?tickers=xlf,dia,spy
"Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks..."And what sectors of the economy did they overreach the most? Admittedly, corporate America has become mired in ghastly misplaced leverage, but what about the retail consumer end? How about the unmitigated expansion of shopping malls, housing development and retail knick-knacks which have no practical function other than milking easy credit. So if consumer buying power collapses, what happens to the oligarchy that feeds off them--where do they diversify their business? I suspect that as consumers cut back, the banks and companies that feed off their habits will follow.
Just read the following from other website:
A must-listen radio report from American Public Radio regarding yesterday’s revelations that Bernanke and Paulson forced BofA to close its deal for Merrill.
REPORTER: If Henry Paulson and Ben Bernanke really told the CEO of Bank of America to keep quiet about losses at Merrill Lynch, they were probably breaking the law. That’s according to Lynn Turner, former chief accountant at the SEC.
LYNN TURNER: If these allegations are proven true, both Bernanke and Paulson should be prosecuted by the SEC to the fullest extent of the law.
The episode sounds like a conspiracy to commit securities fraud…
http://optionarmageddon.ml-implode.com/2009/04/24/did-paulsonbernanke-break-the-law/
Mish does a good job of discussing Paulson's and Bernanke's fraud on his blog.
But we live in an America where the ends justify the means I'm sad to say. Americans will tolerate any injustice if it benefits their pocket book (or their house price).
peter schiff speaks the truth about gold, stress test, housing, BofA securities scandal/ fraud ... CHEERS TO PETER SCHIFF!
http://tinyurl.com/cvcdlz
"Americans will tolerate any injustice if it benefits their pocket book (or their house price)..."That seems to be a historical constant--people support top-heavy structures, no matter how corrupt they become, in the hopes it will bludgeon their way to prosperity. Eventually the system starts to feed on society, gobbling up resources that are better used elsewhere. Particularly in the case of American capitalism, having to spoon-feed an aggressive business model unwilling to bear its own risks is unbelievably ironic--and yet we're told our very survival is inseparable to the banks. What utter drivel.
see me -
Thanks for that link to Schiff's video blog.
A very worthwhile article that tells it like it is on housing prices... (including here in Marin)
http://www.huffingtonpost.com/dave-johnson/todays-housing-bubble-pos_b_195217.html?ref=patrick.net
The question remains, if housing prices stand zero (zip, nadda) chance of climbing again anytime soon (and never to the heights we just saw... never... ever... never... ever), then why buy ? Why not wait them out and rent ?
They are coming down, make no mistake about it, just as Mr. Dave Johnson notes so well in this article..
After all, it's must math...
Madoff is a Convenient Distraction for the Real Crooks & Scammers not in Jail yet... Another excellent article..
http://www.alternet.org/workplace/139480/michael_moore%3A_madoff_is_a_convenient_distraction_for_a_bunch_of_crooks_who_aren%27t_in_jail/?ref=patrick.net
I find it very discouraging that I am the same species as these complete dirt bags and scum of the earth..
The question remains, if housing prices stand zero (zip, nadda) chance of climbing again anytime soon (and never to the heights we just saw... never... ever... never... ever), then why buy ? Why not wait them out and rent ?And even BuisinessWeek is now, in a recent article, acknowledging what we have predicted here, and on other such blogs, a long time ago: the economic downturn is being made worse by housing immobility... sellers can't sell (really, they can't sell for their wishing price or IOW can't find a buyer willing to bail them out) and so don't, and cannot take job opportunities that would require them to move. So it stands the reason that a disproportionate number of people who are getting the good jobs are people who are not chained to a mortgage... e.g., renters.
I have not been following the local market too closely, but I do sense a bit of desperation to grasp at any and all news that is not bad in order to call a bottom to the market... everyone wants to call the bottom so we can resume that appreciation climb again... only question is, what's going to drive the appreciation..
No more bozo / liar / fraudulent loans...
Much less employment...
Much less wage growth...
Much more inventory....
Much smaller and more careful secondary mortgage market...
Interest rates about to rise...
So, what's going to drive house prices back up again ? Fundamentals? High Wages ? The Weather? What ?
I've mentioned this before, but it's worth repeating... If I were the head of one of the other major industries fighting over my fair share of the consumer's pie, I'd be rather fed up with the real estate con game by now.. it was fun while it lasted (right Chrysler and GM), but now's different.. now people are expected to pay off the loans and mortgages on the things they borrow to buy... at least I sure as hell hope so..
Peak selling season is upon us.. we'll see 15% (more) price cuts as soon as it passes, especially here in Marin..
Yeah, look at the most recent DataQuik, DataQuick, DairyQueen data.
The house of cards is collapsing, even in Southern Marin.
Reality is finally coming home to Realty.
I just wanna buy a nice home for a fair price.
Is this too much to ask?
Thanks jack. I think I saw that article posted over at The Mess Greenspan Made blog.
Here's another:
High-end properties are increasingly coming under the sort of pressure once reserved for moderate homes. In fact, as slowing price declines fuel hope that the real estate bottom is near, other signs suggest the worst is on its way for the region's upscale market.
"The high end, they're hurting more, actually, and you can bargain more," said Pinky Sohal, a Realtor with Legacy Real Estate & Associates, who is representing the purchaser of 1055 Amito Drive in Oakland, a hedge fund manager whom she declined to name. "They're begging for buyers to come in."
So far, prices for top-end properties aren't declining more or faster than the market as a whole...
In addition, notices of default sent to delinquent borrowers in the Bay Area in the first quarter of this year were up 65 percent from a year earlier in ZIP codes where the median price was $800,000 or more...
Even when someone is interested and qualified, they may not be able to secure or afford a jumbo loan, the lofty mortgages that Fannie Mae and Freddie Mac refuse to buy or back. Many banks either no longer offer the loans or charge much higher rates for them than in recent years...
Adjustable-rate mortgages that let borrowers choose how much to pay each month could exacerbate high-end troubles in the months to come as the minimum payments go up, Jeffery said. The loans were originally marketed to the wealthy and, on average, were used to buy more expensive homes than those purchased with subprime mortgages...
http://tinyurl.com/r7webd
When the Alt-A bomb undeniably lands on Marin, I'll be back with a vengence on this blog and with a warning to future generations to not be foolish like ours in believing realtor/agent hype about how Marin is special and immune and... well, you know.
Thanks Marinite,
We keep looking at properties and I keep the faith that even southern Marin will come back to the fundamentals.
I will await the Alt-A results.
Thanks again for keeping this blog alive.
The SF Chronicle's article somewhat missed the point about $1M+ houses....like the housing mess is finally hitting "the wealthy" upper class of the Bay Area....what got glossed over was there are plenty of folks in those houses who were never rich and would never have "qualified" for those houses without insane bubble lending.
I personally know two couples in $1M+ residences in Marin, and they were first time buyers. Voodoo mortgages deluxe, because that was the only way they could "afford" to "buy" those houses. What happens when the teaser rate / interest only / neg AM runs out? We all know what's going to happen. Now multiply that across the county. I'm willing to venture A LOT of buyers during the bubble years stretched to get into their homes.
And don't forget HELOC's and cash out re-fi's, where folks zapped whatever equity they had. I know a few of those as well.
I've been renting since 2004, and would love to own again, but prices are still too high, and I refuse to stretch for the next house given I want a 10 or 15 year loan, max.
I'm watching the news about the defeat of the propositions.
I have been ruminating about past propositions.
I'm thinking that Prop 13 is a real problem for the state.
I have one neighbor who pays $400/ year in property tax and another one who pays $12,000.
This seems a bit out of whack.
I'm renting so I don't pay any property tax.
Any opinions?
I'm renting so I don't pay any property tax.
Any opinions?
But of course!
IMO, get rid of property tax all together. It does not make a hill of beans of sense anyway. Why pay tax on something year after year? What other commodity is like that?
Why do we have property tax? To pay for roads, schools, yadda yadda. All good things, of course.
Who should pay for all those good things? Everyone who lives in the area! NOT just property owners. Renters should pay too as they make use of the same infrastructure and services. And why should people who own more expensive houses pay more than people who have less expensive houses? Shouldn't we all pay the same since we all benefit more or less equally from those services and infrastructure?
What is the solution? Heh, who knows? My idea is to just levy a flat tax on all residents regardless of whether they own or rent. Adjust by voter approval as needed.
And what about the popular (meaning what most people think) reason for Prop 13? The popular opinion is it is all about "keeping little old ladies and retired folk in their homes whithout having to deal with rapidly varying property tax year after year".
Well, if you do the flat tax thing, it should be fairly easy to make exemptions on who pays the tax and who does not. If the "little old lady" argument has any merit (and I think it does BTW) we can exempt them or keep their contribution fixed.
I'll avoid the tax discussion, thank you very much....
"I'm willing to venture A LOT of buyers during the bubble years stretched to get into their homes."
"Stretched" Lisa ? You're too kind.. "Ripped their family's financial future apart" is more like it..
One thing I'm pretty certain of is that absent any driver to push housing prices higher (and there is none... nadda), that housing prices will tend to drift lower until we reach balance... Had the government kept out of it, we might be getting closer to balance or that proverbial bottom now...
So, if anyone thinks that 24 plus months of inventory and a market made up of mainly distressed sales is in balance, well, then, go ahead and buy.
Everyone of my friends (every one) who bought within the last year has regretted their decision. Some have bought within the last few months in fact.
Everytime I hear someone tell me that this is a "great time to buy" I pleasantly nod and say "yes, you probably are right" and move on. I'm done with the debate. Our side won that argument and it wasn't even close.
Jobs, wages and a rebalancing of the consumer's balance sheet and income statement before housing starts to move again. Think we're a ways off from all those things happening.
Hey Marinite,
Check this place out.
42% off 2000 prices? Big lot, backs to forest, nicely done?
What is up with that? Has to be more to the story.
April RE sales figures are out for Marin and it's not pretty....median dropped 27% versus YAG. Whoops. My favorite quote from the IJ's article (regarding the difficulty in obtaining Jumbo financing):
"A solution to that problem will no doubt be part of the kindling that eventually re-ignites the Bay Area's high-end sales."
What solution, exactly? Of course the IJ doesn't ask, just dangles the carrot that some solution exists to re-spike the punch bowl.
Also the article neglected to mention what % of sales in Marin were distressed. Guess it's getting too high for comfort, as it's been included in previous months reporting but not in today's report.
Lisa, the solution is fire-sale pricing. So the "kindling" reference is appropriate.
"how do you feel about having just paid your taxes?"
I feel bad!! very bad! I don't wanna write here how many money I earn but I have to pay then 70% of it to the governement! I think it's not fair, even if I earn a lot of money (and I work hard too, don't think that I'm a football player or something like that!It's just that I have two great jobs)It's better for me to find only one job with less responsability and to earn less and also to pay less taxes! At the end it will be the same or I will effectively earn even more money...
Eva from Hauptstadtreisen
"Marin home sales prices down from last year, but volume about even"
The headline from today's Marin IJ. Median price for SFH's was down 35% from a year ago. But not to upset anyone, there's no reference to "crater" or "plunge" or "topple"....just "down from last year."
BTW, foreclosures in Marin were 18% of sales, up from 5% last year.
From the Wall Street Journal:
Values have fallen even along the coastal submarkets that were once seen as mostly immune from the collapse in home prices elsewhere. Now, while signs of a recovery mount in some of the most distressed inland markets, declining values along the coast are just beginning to lead to short sales and foreclosures in mid-to-upper end housing markets.
link
Marin is due for at least another 20% down turn in prices... at least...
Anyone who thinks that Marin County won't be impacted by a $24B state budget deficit and state unemployment that now exceeded 11% is a complete nut job... I don't care what housing prices are now, those two facts about the local and state economy are not nearly priced into the market yet... that comment is directed at you Leslie Appleton Young and all your cohorts in crime..
Only thing holding this disaster together are the bubble gum policies being whipped around to try and prevent a complete meltdown... that 90 day moratorium will be ending about the time when the state will be fully reeling from their new budget next year.. should be interesting..
Had a long conversation with a bankruptcy attorney last night.. you would not believe the stories this guy had... all of them tied to real estate with some credit card doozies thown in..... amaaazing.... no job, no income, no education = no problem .. here is $600K... just off the boat (or over the fence) with $400 in their pocket = here is $500K... really amazing... and it really ticked me off more just hearing it all (again), because of what it did to housing, wealth, the econony, my kids' future and our collective debt....
I've seen and heard the enemey, and the people pumping houses and mortgages and the fat cats on Wall Street behind it all with the strings in their greedy little hands are definitely the enemey...
"Only thing holding this disaster together are the bubble gum policies being whipped around to try and prevent a complete meltdown... that 90 day moratorium will be ending about the time when the state will be fully reeling from their new budget next year.. should be interesting.. "
Amen. State spending is 12% of GDP, with CA leading the pack. I don't see how there's any real recovery without CA, and the state's finances are just imploding.
From my perch in San Anselmo, I can report the following: dead quiet. no new cars. no big vacations. no handfuls of shopping bags or delivery trucks bringing furniture or new appliances. kids being pulled from private school.
So it feels to me like the lightbulb finally got switched on....over-leveraged, over-priced residences bought during the bubble aren't going to lay a golden egg anytime soon, and folks are finally adjusting their spending.
When I went to H&R Block for my taxes this Spring, I heard plenty of stories about Marin clients who had been whacked with job losses, stock market losses, house losing value, etc. It's been a long time coming, but I feel like the great unwind has finally landed in Marin.
bubble gum policies
I like that.
The Obamanites have proven to be as fisically clueless as the Bushites, resorting to papering over and otherwise propping up a failed system.
And have you all seen the ads for mortgages lately coming from BofA and others? Same old shit that got us into this mess. If those things sell in any number then we have truely learned nothing.
First the .com bubble. Burst; pain; feeling sorry for ourselves.
But no one learned anything because then came the housing/credit bubbles. Burst. Pain. Lot's of feeling sorry for ourselves.
Now are the banks seem to be trying to enable housing bubble 2.0? Or will it be as much of a head-fake as Web 2.0? In other words, will people have finally learned? We'll see...
Mathematical Truth: don’t drink the Kool-Aid?
Let's take a $100,000 home right now. (I know, you are screaming about that not being realistic, but just stay with me.)
I just got a 5.125% 30 year fixed rate mortgage. I will pay $196,015 in principal and interest in 30 years.
What if you wait for the market value to "correct" downward 20%? The interest rate will be somewhere around 8%, if not higher and that $100K home will sell for $80K. You will pay $211,324 in principal and interest in 30 years.
Now, what happens if we see conditions like the mid-80s? Rates will hover around 14% and home value drops to $50K. You will pay 213,276 in principal and interest in 30 years.
Don't believe me, get out your BA-II business calculator and do the math yourself.
In no way am I advocating buying a home you cannot afford. However, don't assume a future 50% hit to home prices is the only factor in the Time Value of Money or the true purchase price of a home.
Geoff,
The fly in your ointment is that you're assuming a price decline of only 20% in the face of interest rates going up 56% (8% versus 5.125% is a whopping 56% difference).
Prices are already down a chunk versus peak despite "subsidized" low rates of 4.5% to 5.5%. Why? Because all the crap loans are gone and most people can't pay bubble prices in the face of conventional lending standards.
If rates go anywhere near 8%, the pain will be a lot worse than another 20% price correction.
WTF?
We are still waiting to buy a home.
California seems to be going down the toilet.
Buy now?
Buy now ? You have got to be kidding me, right ?
California will be reeling from the state budget cuts here in a few months.. Then there is the 11.5% unemployment stinking up the room. Then there is hogher gas prices coming and more taxes on gas to help pay for the state budget deficit. Then there are the younger families moving out of state due to Prop 13 and the fact that this state doesn't seem to place the same emphasis on education as most other states..
There is no question that housing prices will continue to deflate here in Marin.. I say another 25% spread out over 3-4 more years... I see houses in Novato going for $600K that will go for $400-450K very, very easily... did I say very easily? sorry, I meant to say absolutely very easily...
Oh, and by the way, $400-$450K is still a hell of a lot of money... don't let some slick talking Realtor or Mortgage Broker tell you any differently...
Matthew....
Thanks, I needed that.
Keep the faith!
Mountainwatcher.....I get inpatient sometimes too, I sold in 2004 and have been renting since then.
But whenever I am tempted to start looking, I say to myself, how will you feel if the house continues to decline once you've bought? How will you feel if your "dream house" in a nicer neighborhood becomes affordable? How would you feel if your down payment covered half the purchase price instead of 30%?
That usually does it. I bought in '96, which was the tail end of the last bust. It's worth it to wait.
There are always unknowns for these kinds of things, but I go back to the simple fact that housing prices jumped 2-3 fold over about a 9 year span... why was that, and is it sustainable ?
The answer to those questions will help predict the prices of houses in the future.... to me, the answers were "fraud, greed and hype" to the first question and an emphatic "no" to the second question... sorry Marin, your incomes do not support your current housing prices... the only thing that supported them was fraud, greed and hype... Without the fraud, even all the greed and hype concentrated here in Marin can't keep the bubble inflated forever, I'm afraid... that's right, the math eventually wins out in the end to force prices back to historic norms and balance as it's been doing since 2006 or so..
Lisa,
You cannot use a 1-for-1 comparison when you are talking about % interest rate and % home value shifts. I used the mean from a couple historical models to come up with my numbers.
Again, I am not saying this is a "good" time to buy. Just that you have to do a little number crunching before saything that now is a "bad" time.
Most on this forum seem to be very negative about the buying opportunites right now. This attitude may cause some folks (like me) to question whether there is ever a right time to enter the market.
Do yourself a favor: grab a calculator, do a little guessing on what the market could do, and run the numbers for yourself. Take the advice from everyone with a grain of salt, including mine.
If I were in the market to buy a house, I'd be paying attention to the sale price if for no other reason than that is what I will be paying property tax on year after year after year... Yes, you can re-assess but that is not always so straight forward. To me, if the market were looking like it was going to go down another 25% (according to Matthew), even if I could pull off today's prices, the savings in tax would be worth it. And as we've been told many times on this blog, when people buy in Marin, they tend to stay and so are paying that prop tax for a long time.
Oh, yes... And the sacrificial lamb has been summarily sacrificed:
http://tinyurl.com/kj47x4
150 years for Madoff. Funny cuz I think I read somewhere his life expectancy is 12 years.
Hi All,
On the subject of prices versus interest rates, I can give you a first-hand example....friends of mine bought in San Anselmo 2 years ago, being told by their agent that interest rates were headed up and there was this little window of time to buy before rates increased and they wouldn't be able to afford to buy. So they bought, put 20% down ($150K). Flash forward to 2009. The house next door, which is basically identical, sold for $140K less than they paid 2 years ago.
Did they save $150K on taxes in 2 years by owning? No. Have they shelled out way more money (mortgage, property taxes, insurance, maintenance) than comparable rent? You bet. And they are now dead quiet on the subject of RE here in Marin. They are "hoping" for prices to recover. Personally, I don't think "hope" is much of a financial strategy, but hey, that's just me -);
If prices can be supported with higher rates, then why the big push to keep mortgage rates at 5% or lower? Because prices won't hold at higher rates, and the powers that be know it full well.
Paying less for a house at a higher rate makes some sense. Your down payment buys a bigger equity stake. The bigger the equity stake, the bigger your safety cushion, so, so important if you need to sell. The next time rates cycle down, you can re-finance to a lower rate and maybe even a shorter loan term. Interest rates come & go, but the purchase price is a one time deal.
If you buy in a really low interest rate environment, which direction are rates likely to go from there? And how is someone supposed to offload your house at a higher rate?? The $600K house at 5% probably isn't a $600K house at 6%, 7%, 8%, is all I'm trying to say.
Personally, I'm waiting for rates to go up. I don't want to buy my next house at a time of tax credits, "historically low" rates, foreclosure moratoriums, etc. What happens when those credits are removed and rates go up?
And it's not like I'm a RE hater. I owned from '96 to '04 and loved owning a home, and now I love my bank balance and lower cost of living and the flexibility to wait this mess out. Prices have come down, yes, but I don't think they're done yet. And I for one am not interested in being down $50K, $100K, $150K, $200K, whatever. For the ordinary person, it does matter what you pay for your house, it matters a lot.
I love all the lively discussions we have on this board!
Geoff,
I've done more number crushing on home prices and interest rates than you, I can assure you... Lisa provided more good arguments on why home prices matter more than rates.. Home prices are, after all, not variable once the contract is signed..
The RE Machine has done a good job dangling the carrot with lower rates... just like all the teaser rates used to entice buyers during the bubble.. go ahead and buy now, and good luck... I think you will need it..
Nobody has countered the argument about historic affordability, historic prices etc.. Did that Fairfax POS shack cost $600K or $700K in 1996 ? What did it cost then ? (probably around $200K to $250K)...
Maybe everyone back then was just nuts (or dumb) and didn't realize the value of housing? Or, maybe there was very little fraud and good underwriting going on, which meant housing prices couldn't run away from incomes?
You need to distiguish being "negative on housing" with being "negative on falsly inflated housing prices"... I'm very negative on the latter, but look foward to buying again myself..
I'll add that your psychy has been damaged (as has mine) by the RE complex with the notion that we "better get aboard now while we can before the hyousing rocket takes off and leaves us for good"... yea, right... piss off machine.. that argument scared the crap out of this country, and we're paying massive amounts of taxpayer money for it ... I'd like to see Congress stick that marketing pitch and a bunch of others up the NAR's backside, let me tell you..
Matthew,
I'm the poster child for how much values got out of whack during the bubble.
I paid less than $300K for a brand new, solid, 2 story, 3 bdr/2.5 bath in Fairfax in 1996. Sold for a very nice profit in 2004.
What happened in those 8 years? Voodoo lending, that's what happened.
The state runs out of cash at midnight tonight. Swell. Artificially low rates due to Fed buying up treasuries, foreclosure moratoriums, state & local tax credits for buying....no thanks. Wake me up when rates hit 7%, 8%, and then we'll see what prices look like.
BTW, when I bought in 1996, fixed rates were 8%. The market was DOA, and prices were a fraction of what they are now.
I've done more number crushing on home prices and interest rates than you, I can assure you...
Clearly some on this board are taking this personally. You are correct, I'm not a RE nut, just a financial analyst. Nor do I live in your neck of the woods (I'm in the MidWest).
I guess the thing that bugs me about boards like this is exactly the type of story Lisa gave: " I know a guy..." or "We had friends who..." That is fear mongering, not math.
I'd just ask you to start with a baseline like: "historically houses have appreciated x% year over year, thus we should discount existing home values by y% given the time period and current price." This lets others on the site know your assumptions.
I would agree that current home prices inflated over fifty percent should be avoided. I am not seeing that in my town. Ours are inflated by twenty to thirty percent.
My argument is that the historic relationship of house pricing and mortgage rates shows that up to an anticipated 50 percent decline in house value may not equate to a net loss if the entire debt obligation is paid.
I would be thrilled to have a better model of house pricing -v- mortgage rates if you have one.
Cheers,
Geoff
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