patrick.net

I don't even get what your doomesday scenario is supposed to be. Countrywide DID go out of business. So did WaMu. Both Wells Fargo and BofA bragged that they were never insolvent but were forced to take TARP funds anyway. Lots of smaller banks DID go out of business and NO account holders were EVER left high and dry during the whole process. So exactly what crisis did we avert? Gave a bunch of money to a couple of "too big to fail" banks that weren't even in danger of failing? Exactly what would have happened if the fatcats hadn't gotten their big bonuses?

gameisrigged says

So exactly what crisis did we avert?

We didn't avert anything. It was all hype in order to scare the American people into thinking Doomsday was right around the corner if we didn't take TAXPAYERS' money and give it to the fat cats of Wall Street and the big money Banksters.

gameisrigged says

I don’t even get what your doomesday scenario is supposed to be. Countrywide DID go out of business. So did WaMu. Both Wells Fargo and BofA bragged that they were never insolvent but were forced to take TARP funds anyway. Lots of smaller banks DID go out of business and NO account holders were EVER left high and dry during the whole process. So exactly what crisis did we avert? Gave a bunch of money to a couple of “too big to fail” banks that weren’t even in danger of failing? Exactly what would have happened if the fatcats hadn’t gotten their big bonuses?

Yes, you can argue that bonus payments due to cash shortage should have been frozen. That certainly makes sense. However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

I believe there were some who have lost their savings above the limit. Gone! IndyMac came to mind as I heard many accountholders never were covered by the FDIC limit. Small Businesses do oftern carry a greater than $100K balance for operations.

Federal authorities estimated that the takeover of IndyMac, which had $32 billion in assets, would cost the FDIC $4 billion to $8 billion. Regulators said deposits of up to $100,000 were safe and insured by the FDIC. The agency's insurance fund has assets of about $52 billion.

thomas.wong1986 says

Yes, you can argue that bonus payments due to cash shortage should have been frozen. That certainly makes sense. However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

Oh, I see - contracts must be enforced if it's convenient to YOUR argument. What about the contracts millions of people signed to pay back loans? I assume you would argue that any government "loan modification" programs or principal forgiveness shouldn't be done because it would violate the mortgage contract.

I'm sorry, but it's preposterous to argue that the government does have the power to use taxpayer money to funnel trillions of dollars to Wall Street, outright take over Fannie and Freddie, and fund 95% of all new mortgages, but somehow lacks the power to nullify bonus contracts, take over banks, or oust failed bank execs? C'mon....

I believe there were some who have lost their savings above the limit. Gone!

I'd like to see a cite on that.

thomas.wong1986 says

However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

Not true if they were operating under a bankruptcy court. Which is what should have happened instead of a bail out.

bob2356 says

Not true if they were operating under a bankruptcy court. Which is what should have happened instead of a bail out.

Yes if under bankruptcy laws this would be true. If say Banks went bankrupt, what would every corporation who had "bank account" to pay for their operations/salaries/vendors have to do --- Impairment of cash balances to earnings. The stock market crashed because this was the exposure to earnings process. Like a lossing assets have to be written down. Result would have been massive layoffs and much more because many employers would be/or near insolvent. This would have spread across many other sectors.

gameisrigged says

I assume you would argue that any government “loan modification” programs or principal forgiveness shouldn’t be done because it would violate the mortgage contract.

The Mortgage was secured by the home, right ? So the homes should have been foreclosed and resold for much lower price. I have no problem with that. I dont believe modification of mortgages was the right thing to do. They should have been foreclosed. But many behind the modification program, wrongfully believe home prices were legit to begin with. They were not.

gameisrigged says

I believe there were some who have lost their savings above the limit. Gone!
I’d like to see a cite on that.

What makes you feel you are obligated to be paid over the limit ?

FDIC slashes estimate of IndyMac's uninsured deposits
August 12, 2008 | 6:04 pm
From Times staff writer E. Scott Reckard:
http://latimesblogs.latimes.com/money_co/2008/08/indymac-uninsur.html

gameisrigged says

I’m sorry, but it’s preposterous to argue that the government does have the power to use taxpayer money to funnel trillions of dollars to Wall Street, outright take over Fannie and Freddie, and fund 95% of all new mortgages, but somehow lacks the power to nullify bonus contracts, take over banks, or oust failed bank execs? C’mon….

Fannie and Freddie should have been killed off many years ago. And no we shouldnt be funding 95% of the new mortgages. Ask Barney Franks and the Maxine Waters about that. But its the same two who were scapegoating banks compesation and avoiding the mess they made. The two were not complaining about their freind and FM CEO Frank Raines pay inlight of the Accounting scandals that hit early in the decade. And FM scandal was much larger than Enron. Not a single criminal charge came out of that.

Of course the government has the power to do what they want. No one is arguing that.

I was pointing out if a hire on contract between an employee and employer has any provision to suspend "year end bonus" payment, then it can do so. If not, then under common law its obligated to make such payments. If the goverment steps in and buys majority holding and states... "We will not honor the hire on contract", they have the power to fire, hire any employee, and honor or suspend any contracts.

http://housingstory.net/2010/09/09/housingstory-predicts-a-nine-percent-fall-in-property-prices-nationwide-in-2010/?source=patrick.net#post-4420

"The federal government has massively intervened in the housing market. It funds nearly 100 percent of new mortgage loans originated today."

Well I guess that shut him up... indeed Denial... Without GOV. we have no mortgage market and or not at these INSANE risk vs. reward rates. GET GOV out of RE and let it FALL to where it WOULD / SHOULD be (will be soon as Market forces win out) thus my bearishness on housing prices, down down down for years to come...

Without the Fannie/Freddie guarantee, (taxpayer backstop), few if any private lending institutions would go near mortgage financing with a barge pole.

The problem wasn't ONLY lack of regulation. It was also the implicit guarantee that banks won't be allowed to fail. When you go to Vegas, what stops you from betting every cent you have in the world? The fact that you could lose all your money is what stops you. If you knew that you would be paid back no matter what, you would be stupid NOT to bet every cent you had. If you're not going to regulate the market, then there HAS to be the risk of failure; otherwise it's nothing but a ticking time bomb. Capitalism for the profits and socialism for the losses is the most unbelievably stupid policy ever conceived by any government in history.

Nomograph says

gameisrigged says

The problem wasn’t ONLY lack of regulation. It was also the implicit guarantee that banks won’t be allowed to fail.

Incorrect.
The bankers made billions of dollars. They get to keep the money regardless of whether the bank fails or not. They couldn’t care less.

Um, no. You can't make money if you're out of business. Duh.

Remove government loan guarantees, and you’ll get private loan guarantees that might cost a little more. All risk has a dollar value attached to it, and currently the dollar value assigned to mortgage market risk is CHEAP! 1% or maybe 1.5% at the most.

Following this premise, why isn't there already a private lending institution falling all over itself to serve the strategic defaulter? Particularly the jumbo loan defaulter with hoard-loads of cash, but only one major blemish to their credit: foreclosure. Why is all of this money being allowed to languish on the sidelines? Perhaps the interest on the loan could be a little higher, or the down payment requirements more dear in order to offset the risk, but it seems to me that these private lenders/private guarantors whom you suggest are so eager to originate and guarantee all variety of home mortgages are really asleep at the switch where this demographic is concerned.

Incorrect.

The bankers made billions of dollars. They get to keep the money regardless of whether the bank fails or not. They couldn’t care less.

I don't think it's a closed book. Witness:

http://www.ritholtz.com/blog/2010/08/coming-soon-bank-ceo-perp-walks-jail-time/

gameisrigged says

It was also the implicit guarantee that banks won’t be allowed to fail. When you go to Vegas, what stops you from betting every cent you have in the world? The fact that you could lose all your money is what stops you.

The problem is that banks have in the past and continue to this day to fail. Did this implicit guarantee help IndyMac?

@tatupu,
I shop at WalMart very rarely, and do so at opening time. Their focus is on a demographic that I am not comfortable having to deal with, observe, or have observe my family. I feel I need a shower after a WalMart visit. The parents do not control their kids. The store is made a pig pen due to selfish behavior. The workers look frustrated and are normally dressed/made-up to look like about a 75% effort was made getting ready for work. So, I happily go to SaveMart for food (17 years now) -- super clean and first name basis with me and wife, plus they pay their employees a better wage, plus there is no spanish isle signs (its a personal thing), and the difference in price is more than made up by the comfort enjoyed ... in my opinion. For the non-food stuff that can be had at WalMart we go to a Target in a "whiter/richer/cleaner" town a little ways away. It is clean, the workers are nice, and I really like the wider-than-normal parking slots. I avoid door dings like the plauge.

@Doc Nomo,
B.Frank and his boyfriend at Fanny, plus leftist social programs, carry most of the blame for setting up the system to fail .. ala Piven and Cloward. In my uneducated opinion.

BAP--I'm sorry. I've just changed my example to SaveMart instead.

Also, I agree we're not Japan. But the whole 2-4 year thing is pretty bogus. Not saying it will take longer, but you really have to intentionally ignore the govt intervention during the past 1.5 years to believe that a) we have hit a legitimate bottom and b) that there is a time expiration on a market correction. It will correct until the fundamentals support the market, which they don't.

No shit wages are higher now. That doesn't mean houses should cost double what they did then.

klarek says

That doesn’t mean houses should cost double what they did then.

15 year rates are 3.5% now, vs 8% 10 years ago.

http://research.stlouisfed.org/fred2/series/MORTGAGE15US

$2500/mo TCO @ 8% buys you $350,000, at 3.5% it buys you $600,000.

Note also the conforming limit has been raised from $240,000 to $730,000 in this time.

But what happened during the bubble blow up of 2008-2009 was mass default, and the Fed and Treasury stepped in with several trillion of backstop money to replace the bad debts.
This created permanent new money in the system.
I agree, but just to clarify, the amount created/printed was $1+ trillion (definitely less than $2 trillion). A lot of backstop money was loan programs (with no outright creation). I still think there is a lot of debt repudiation that needs to happen before the system hits sustainable levels. At this point, the scenarios you lay out (ala Japan) seem the most likely way to get us where we need to go... slowly.... and painfully....

EBGuy says

the amount created/printed was $1+ trillion (definitely less than $2 trillion

Money is coming from both the Treasury and the Fed. Wait . . . doing research TARP only cost $66B

http://in.reuters.com/article/idINIndia-50953520100819

supposedly.

LOL, "only" $66B. That's a fuckton of money, or was. 60,000 $100k/yr wage-earners working for 10 years, the payrolls of AAPL and GOOG combined.

I definitely agree that $1+trillion is nothing to sneeze at -- the Fed more than doubled its balance sheet over the course of the crisis! But then again, Ben can just pull a lever and accounts get credited. That TARP money is actual debt. The Treasury has to sell bonds and T-bills; luckily, folks are still buying from the lender of (second to last?) resort, the US gov't.

klarek says

LOL that’s funny, can you back that up? Do you think 2003 = 2000?

In 2001-2003 the upper class got a massive tax cut, the middle class got access to all the money they wanted to borrow.

By 2007 this state of affairs led to the funneling of $6T+ of new debt through the system.

http://research.stlouisfed.org/fred2/series/CMDEBT

The money may have passed through the middle class' hands but it did not end there.

The debt sure has, though.

klarek says

d) 2000 was not pre-bubble, though that’s a minor quibble

2000 was certainly pre-bubble in areas w/o dotcom activity.

zillow doesn't have the 90s on their charts anymore, but 1992-1995 was a serious housing recession that was only levelled out by 1999. I was looking at $200,000 condos in Irvine back then so I should know :)

Interest rates were pushed up in the late 90s, which did put a damper on continued home price appreciation.

Yes, I understand. Your anecdotal evidence (your friends) are representative of the RE investor class of America. No RE investors were buying until coincidentally in Spring 2009, which caused the market to rebound. The credit had nothing to do with it, it was your friends. You might very well be part of the league of justice too. Save the housing market, battle super villains, etc.

Troy says

dude, you really don’t know what you’re talking about. I’ve been watching Jim The Realtor’s youtube stuff and the buy-side pressure has been significant.

I have watched nearly every video of his. So does that mean that you too don't know what you're talking about since my knowledge base overlaps yours? Or maybe I'd gain some valuable insight by using only anecdotal evidence of one realtor (albeit the only decent one in the biz).

RE investors have been snagging up properties for years. There's no metric out there to suggest this activity has increased. First time buyers, though, have increased. Call it a coincidence, but it swelled in between the time the tax credit started and when it ended, with a slow down in the middle (when the credit should have expired but was then extended). Housing sales, home prices, etc. ALL followed that trend.

Before the next few CS reports come out and you bulls have to tuck your tails between your legs, let's just pretend you're right for a second. Why did the market spike up right when the tax credit became active? What was it about that particular point that made your super-hero investor friends jump into the deepend where they wouldn't have before?

How is that one better exactly?

There’s a reason bear markets only last 2-4 years.

...however, this is a secular bear market.

To quote Harry Dent " The Best case is your house will be worth what it was in 2000 and at worst 1995" You will see real estate crash to levels you did not think possible. I for one happen to agree and see that being the case, and that is why I am looking for NAT. housing to get to 110-130 and East Bay to drop back to mid 1990's by 2014

Austinhousingbubble says

You assume I need help understanding what is a highly glossed-over premise. No, actually.

That's why I'm surprised you continue to argue against such an obvious point.

tatupu70 says

you can’t really justify why you think an outdated chart is better than the more recent one…

It doesnt take much brain power to figure out SF Bay Area prices tracked inflation over the past 25+ years except for the past 12 years due to insane reasons.

Outdated or not. Its simple to figure what prices should be in any one BA city for anyone home. That will be 1996-97 prices plus inflation (30-35%). Simple math and no need to look at anyone chart. Back to soberity!!

What does it mean for realtors and other vested interest ? They will see their take home earnings slashed by half to a third. Yes, the VI laugh at this...

Unfortunately, the details get lost in the haste. Your premise: if the government stepped away completely from the mortgage market as loan originator/guarantor supreme, private lenders/guarantors would be rushing to fill the void, albeit, attaching a necessary premium to offset the risk. I contend that if this were the reality, then we would already be seeing these same institutions rushing the void created by the newly dispossessed strategic default crowd -- particularly the jumbo prime loan defaulters with plenty of cash to play with. I also contend that the risk premium attached to any mortgages (particluarly, 30 yr conforming) would prove comparatively prohibitive to most families; think something along the lines of 30% minimum down, which is a number I most often see floated in this scenario. Even if a family had the 30%, the popular sentiment today is to start with as little skin in the game when it comes to home mortgages.

tatupu70 says

I’d argue that they should more closely follow wage inflation and not general inflation.

You can argue all you want! Salary/Wage increases by employers are pegged to inflation.
Talk to a corporate controller, company financial analyst or your HR department, you get the same story.

tatupu70 says

Why 1996-97 as your baseline? That seems a bit arbitrary…

If you been here, you would understand what a sober/normal period the early-mid 90s were.
Fact is we have fewer public companies and employees today than we had back in 1994.
315 Public companies in 1994 vs under 241 today. Our current number of employers are shrinking.

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

What void in lending are you talking about? Sub-prime? People without a down payment? There isn’t a void in lending and there wouldn’t be if government support ended.

I was referring to the prime jumbo defaulter with stellar credit minus foreclosure. Why is there not a private model in existence already for this class of borrower? It's a growing demographic that seems ripe for the picking for all these private lenders so eager to make these jumbo loans.

do think that sans government interference, we’d see higher down payment requirements. That’s a FAR cry from the doomsday scenarios painted here.

Much higher. Again, forget about 3.5% -- 30% seems most likely. Whether you paint it doomy or not, it'd effectively shave away a large portion of the borrowing public. And again, the popular mindset today is to have as little skin in a mortgage starting out as possible.

Of course, the more likely scenario is that prices would fall of a cliff, especially if this were accompanied by a rate hike. That, or some kind of government program, such as community service in lieu of down payment.

thomas.wong1986 says

You can argue all you want! Salary/Wage increases by employers are pegged to inflation.
Talk to a corporate controller, company financial analyst or your HR department, you get the same story

Well, that's not true. First of all, we're not talking about salary increases. We're talking about wage inflation. Those are two different things. Second--your employer may tie salary increases to inflation, but not every company does. Most look at salary surveys, etc. It's kind of difficult to pay someone who has been there 10 yrs. less than a new hire out of school--but that's what may happen if you only use inflation.

thomas.wong1986 says

If you been here, you would understand what a sober/normal period the early-mid 90s were.

So, why not use 1992 as your baseline then. You chose a mid to late 90s year. Anyways, what you consider sober/normal may not be so.

tatupu70 says

So, why not use 1992 as your baseline then. You chose a mid to late 90s year. Anyways, what you consider sober/normal may not be so.

Fine with me... use 1992 if you like.

tatupu70 says

Well, that’s not true. First of all, we’re not talking about salary increases. We’re talking about wage inflation. Those are two different things. Second–your employer may tie salary increases to inflation, but not every company does. Most look at salary surveys, etc.

Survey is called the Bradford Salary Guide and it is tied to inflation. If you noticed, any employers who deviates from inflation often go under. Silicon Graphics is a prime example of over compensation and over spending. Result .. bankruptcy!

thomas.wong1986 says

Survey is called the Bradford Salary Guide and it is tied to inflation. If you noticed, any employers who deviates from inflation often go under. Silicon Graphics is a prime example of over compensation and over spending. Result .. bankruptcy!

That is completely ridiculous. The survey is a ...wait for it... survey. It finds out what people in certain job titles/functions get paid throughout the country. It has absolutely nothing to do with inflation.

In any event, you can easily pull up a graph of median real wage over time. According to you it should be a straight horizontal line--I guarantee you it is not.