patrick.net

No worries. Take refuge in the Gospel of the Duck who has seen the bottom in 2009.

Actually the Fed is out of bullets, but that's not going to stop them from holding the gun to our heads.

Jeremy says

Actually the Fed is out of bullets

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

plenty of daylight under that graph. Plus when it goes to 2.5% they can do things like OK 35 and 40 year mortgages, or even non-amortizing 30 year balloon mortgages.

but that’s not going to stop them from holding the gun to our heads.

Sigh. We're the ones who pulled the trigger already, 2003-2007.

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

Bernanke knows what the Fed DIDN'T do 1930-32, and we haven't repeated that mistake.

People complaining about the Fed don't know what they fuck they're talking about.

The Fed didn't cause this:

http://research.stlouisfed.org/fred2/series/DMANEMP?cid=11

Nor the rise in these bullshit sectors:

http://research.stlouisfed.org/fred2/series/USGOVT?cid=11
http://research.stlouisfed.org/fred2/series/USEHS?cid=11

That we are paying for with this:

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

While this:

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

inches up and remains the spectre at the door.

One necessary fix to this economy is to raise taxes substantially on those who can afford to pay, and that's not in the Fed's power.

We're truly f----ed.

Troy says

plenty of daylight under that graph. Plus when it goes to 2.5% they can do things like OK 35 and 40 year mortgages, or even non-amortizing 30 year balloon mortgages.

Isn't it wonderful that the Fed's (and liberals like Troy) solution to the collapsed housing bubble is to provide more air? These are the very same type of creative mortgages that artificially ran prices up in the first place. With all the havoc the real estate bubble has caused, you'd think a return to those policies would be the last thing they'd want to do. Lowering rates, etc. is accomplishing nothing other than kicking the can down the road. The only answer is we will have to experience more pain, clean up the excessive inventory (which will take years) and re-establish conservative lending policies in order to protect the housing market for the long term.

RayAmerica says

The only answer is we will have to experience more pain, clean up the excessive inventory (which will take years) and re-establish conservative lending policies in order to protect the housing market for the long term

That is one answer, yes.

Look, I'm a renter. Ceteris paribus, I'd like to see rates go to 12% and not 2%.

But you need to understand what those blithe words "experience more pain" really means.

There's at least $2T and perhaps $4T of bad mortgage-backed debt still on the books. If this goes to money heaven then EVERY bank in the country will fail -- ie have no mo' money -- taking with them EVERY enterprise dependent on credit to survive.

We're already 10 million jobs under the peak.

This staircase to hell has many steps left should we be forced to take it.

With all the havoc the real estate bubble has caused

? I was here in the US for the bubble, 2003-2007 and the bubble was good times for all. Everybody felt rich, even people in the hood with their $400K crackboxes. We also built out a lot of suburban neighborhoods with big-box retail and nice restaurants.

The private economy added 8 million jobs over and above the impressive Clinton boom.

The increased tax revenues supported another 4 million good -- socially productive -- jobs in education and health:

http://research.stlouisfed.org/fred2/series/USEHS?cid=11

Now, this was all just fake stimulus, but there was no "havoc" caused. It was the free market working its magic once given the capital to expand to meet consumer needs and wants.

clean up the excessive inventory (which will take years)

That's kinda the point, actually. A less painful exit (compared to global collapse) would be the general price level experiencing the 100% inflation of 1970-1980. If wages and prices double in the 2010s like they did in the 1970s, then we can dust ourselves off and go on our merry way.

You might remember the 1980s being the Most Awesome Decade ever, featuring St Raygan's firm command of the Economy right? I do, the 80s were awesome!

Of course, the 1980s featured the baby boom turning 30, instead of the current decade where it's turning 60.

and re-establish conservative lending policies in order to protect the housing market for the long term.

We already have, actually. All the bubble-era innovations -- IO / negative am, liar loans -- have been removed from the market. These were the main problem children; consider the housing market 'protected'.

RayAmerica says

Lowering rates, etc. is accomplishing nothing other than kicking the can down the road. The only answer is we will have to experience more pain, clean up the excessive inventory (which will take years) and re-establish conservative lending policies in order to protect the housing market for the long term.

Yes, but low rates and conservative lending policies are not contradictory at all, in fact they help each other:
1. Tight underwriting requirements mean few defaults, allowing lower rates
2. Lower rates mean lower mortgage expenses, allowing more reserve in case of reduced income. This also means faster accumulation of equity from the start, thus less chance of byers getting underwater.

In Japan, the policies are more conservative than anything ever seen in the US, and the rates are also lower than anything ever seen here.

Fisk says

n Japan, the policies are more conservative than anything ever seen in the US

This isn't quite true.

and the rates are also lower than anything ever seen here

and Japan is trapped in the ZIRP box thereby. If Japan were to double their rates to match ours, their real estate sector would utterly collapse.

Japan and its sovereign debt is skating on increasingly thinner ice here, quite literally the next stop is Zimbabwe as far as debt to GDP goes.

http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt

I don't pretend to understand what they're doing -- borrowing money from the private economy instead of just taxing it -- Japan just doesn't seem to me to be a particularly good example.

Other than the Japan experience of 1990-now is probably preferable to the US collapse of 1930-38.

What fixed the US economy more than anything was the Great Reset of WW2, which pushed anybody with two working arms into the workforce, giving them jobskills, while developing awesome new technologies like jet aircraft, computers, and radio electronics, and also developing modern management techniques, while also depressing domestic consumption to damn near zero, while also building up savings since nobody had anything to buy. Oh, also securing access to utterly untapped mideast oil (at very favorable terms) also had a lot to do with the resulting prosperity.

And we also taxed the ever loving shit out of the wealthy during that time. That's probably part of the fix we need. Liberate the capital. We tried that the previous decade, partially, but all the capital the middle class borrowed just went chasing land values, granite counters, boob jobs, and SUVs, an expected outcome I guess.

We've really got to figure out how to firewall real estate from the actual productive economy. It still seems that everybody who still has two nickels to rub together wants to "invest" in real estate, but we ALL can't be rentiers in this economy. SOMEbody's got to do some honest work around here.

"Isn’t it wonderful that the Fed’s (and liberals like Troy) solution to the collapsed housing bubble is to provide more air?"

Wow, you have a lot of nerve coming on this board and using the term "liberal" like it was something derogatory and that liberals got us into this mess. You really have selective amnesia. To quote Harry Truman, “The only thing new in this world is the history that you don't know”.

It was 8 straight years of Republican policy of deregulation and before that corporate Dems like Clinton/Rubin/Summers as well as Gramm-Bliley wiping out Glass Steagall that got us into this mess. To blame "liberals" for this is like blaming the Swiss for Pearl Harbor. Real estate seemed to be working fine for 70 years following the passage of Glass Steagall. The minute they repealed it, all hell broke loose.

I'm a pro-business moderate, but this board has become a place for conservative trolls to pin all the blame for the housing mess on liberals. It's almost like the last 8 years of a major terrorist attack on a US city, a gigantic hole was put in the deficit, an illegal war, and a city that drowned under the watchful eye of a US President is something to be proud of, or at the very least, forgotten. If this happened under a Democratic president, I would be equally as ashamed.

Waitingtobuy says

Gramm-Bliley wiping out Glass Steagall that got us into this mess

Plus the decision to get rid of capital gains on 2 yr+ holds.

you have a lot of nerve

The hypothesis that the Right is paying people like Honest Abe and Ray America to stir the shit on blogs has some attraction, it would certainly explain how utterly partisan and fucked in the head they are.

The risk of blowback (should this get out) though would have to be too great for them to try to instigate this astroturfing campaign.

But the proposition that RayAmerica, Honest Abe, Shrek, and others are actually sincere in their immense stupidity is a bit harder for me to understand, really.

Maybe there's a middle ground, like they are paid propagandists arguing in their free time.

Waitingtobuy says

The minute they repealed it, all hell broke loose.

There was also this:

"The underlying belief, shared by the Bush Administration, is that too much regulation would stifle credit for low-income families, and that capital markets and well-educated consumers are the best way to curb unscrupulous lending."

. . .

"Regulators appointed by President Bush often have been more sympathetic to industry concerns about red tape than their Clinton administration predecessors. When James Gilleran, a former California banker and bank supervisor, took over the OTS in December 2001, he became known for his deregulatory zeal. At one press event in 2003, several bank regulators held gardening shears to represent their commitment to cut red tape for the industry. Mr. Gilleran brought a chain saw."

http://online.wsj.com/article/SB117449440555444249.html

Agreed, Troy. That pic is as good as a thousand words.

Watch PBS Frontline "We Were Warned". Pretty damning stuff; this problem started under Clinton with Greenspan and Phil Gramm at the helm (who would have thought they would be on the same side of this?) and made much, much worse under W.

http://www.pbs.org/wgbh/pages/frontline/warning/view/

Waitingtobuy,

To the extent some of this stuff occurred on the Democrat's watch, I'll attribute that to their wimpy willingness to be bi-partisan, "reasonable" and otherwise in the mood for all kinds of dumb compromises, out of fear of being branded as "anti-business" by the corporate media.

And I'll blame the voters for not supporting true progressives that would never let these crimes happen.

The obvious problem with this "blame Bush" logic is that similar, and in fact, even greater RE bubbles with similar (and even more devastating) consequences have occurred in most other major developed countries, including Japan, UK, Spain, Portugal, Ireland, NZ, and likely soon-to-burst Australia and Canada. Bush and the US republicans have not been in charge there, and some of those countries (e.g., Spain, NZ, or Canada) had at the time "socialist" governments that were far more "progressive" in terms of high taxes, regulation, and income redistributive policies than anything the US progressives could reasonably hope to achieve.

Here, both (D) and (R) have greatly contributed to the problem, don't know who more. (D) have done that not mainly because of their "willingness to be by-partisan" etc., but because measures forcing and promoting blind extension of mortgage credit to all have disproportionately favored (as appeared at the time) their core electoral base of low-income, minority, and single-female households who lived paycheck to paycheck and couldn't save for downpayment - high-income families had little problem getting mortgages already.
This bubble has been so major and long precisely because of broad bi-partisan support.

Fisk says

Bush and the US republicans have not been in charge there, and some of those countries (e.g., Spain, NZ, or Canada) had at the time “socialist” governments that were far more “progressive” in terms of high taxes, regulation, and income redistributive policies than anything the US progressives could reasonably hope to achieve

Let's play Guess The Fallacy From Fisk. Spin the wheel.

Fisk says

This bubble has been so major and long precisely because of broad bi-partisan support.

Having said that, I don't know how a Gore administration would have or could have avoided the incipient 2000s housing bubble.

But the factors that fed into it were:

1) The 2001-2003 "Bush Tax Cuts"

2) The Greenspan 2002-2004 interest rate drops

3) The 2002-2004 disregulation of the mortgage players by their government overseers and rise of suicide lending products and the reduction of down payment minimums from 5-10% to 0% (80/20 piggback loans) or even 103% loans.

4) The global saving glut (eg. China cycling their surplus into ~$400B of US agency bonds) pushing $1.3T of foreign funding into the mortgage debt markets

5) The 2004 SEC decision to relax leverage restrictions and then resulting rise in subprime lending activity (rising from 10% to 20% of loan funding). This money coming into the bottom of the market helped push prices upwards as it capitalized move-up buyers.

It's like the PtB were intentionally trying to crash the country in 2002-2004. I think this was due to the visceral panic of repeating GHWB's reelection defeat due to recession. The PtB were willing to pull any lever to prevent that, even at the cost of eventual economic collapse. By 2005 they had the tiger by the ears and did not dare let go.

At any rate it was a pretty good pump & dump, something you will find in all "market" economies.

I really disagree on this, Fisk. You happened to be talking about Spain, and my wife is Spanish by birth so I know the country really well. Jose Maria Aznar, a member of the Partido Popular (conservative) was President aka Prime Minister of the country from 1996-2004. He cut regulations in Spain much more than any of his recent predecessors. Hardly a "socialist". The run up in Spanish real estate was from 1996-2007, with the great majority of it happening from 2001-2005.

Japan's real estate bubble did not happen at the same time as ours, and the conservative LDP has been in charge for some time. They ruled Japan predominantly from 1955-2009.

Canada's real estate bubble is mostly confined to British Columbia, with its own macroeconomic factors because of limited land and high immigration numbers, along with the 2010 Winter Olympics. Banking in Canada is much more regulated. You wont find a huge run up in pricing in Quebec or Ontario. I wouldnt lay blame at either the Liberals or Tories there.

http://www.ritholtz.com/blog/2010/02/canadian-housing-bubble/

http://www.montrealgazette.com/business/Fears+Canadian+housing+bubble+unfounded/3832520/story.html

Australia is another good analogy. When John Howard, another conservative a lot like Bush, cut regulation, their housing bubble increased (which was pretty much until 2007). (he was prime minister until 2007) Kevin Rudd's (Labor) government increased regulation and the Reserve Bank of Australia has been one of the few central banks to raise interest rates to cool their housing bubble off.

Ireland's economic success, and then subsequent failure, is attributable to economic deregulation.

http://aleksandreia.wordpress.com/2010/09/03/ireland-taxes-cut-deregulated-and-broke/

Germany has pretty much avoided a housing bubble. Why? Because both Schroeder (socialist) and Merkel (conservative) never repealed any of the regulation of the banks and mortgages, not to mention many more people rent than own in Germany.

I dont disagree with you that both parties contributed to the problem here. Clinton acquiesced to Gramm-Leach-Bliley (a Republican-led bill) at the suggestion of Rubin and Summers, both corporate Dems, and I would imagine Alan Greenspan had good things to say about the bill, being an Ayn Rander.

You cant argue though that most of the problems weren't Bush's doing. He made a problem much worse.

History shows that whichever party was in power, financial deregulation was the main culprit behind the housing bubbles.

Watch the link to We Were Warned posted above. Very informative.

Justme, I would agree with you on this, except the problem isnt Dems vs Republicans. It is more corporate vs individuals. The red-blue state fight is contrived to keep people occupied while corporatists loot the US Treasury.

I personally subscribe to the theory from this article:
http://www.ritholtz.com/blog/2010/09/you-vs-corporations/

Read the article and give it some thought. He's dead on.

^ waitingtobuy knows more about stuff than I do. That is all. : )

Australia is an interesting case. Sure seems like a bubble, but their economy is so damn strange, being in an odd corner of the world with so much land for so little population, yet so much crowding in the only really livable part of the place.

Kinda like Canada I guess. Not many people want to live with the polar bears, Vancouver is so much nicer in comparison.

That's why I want to move to Bellingham, it's pretty much a suburb of Vancouver, in any geographically sane division of the PNW it would have been on the Canadian side of the line (by about 5 miles).

Waitingtobuy says

Read the article and give it some thought.

This nation had this fight 100 years ago too, when TR went rogue and formed the Progressive Party to go against the corporatist Taft's reelection in 1912.

TR finished 2nd, ahead of Taft but behind Wilson, who was the social conservative and had the South locked up, being a southern Democrat and all. TR and Debs got 33% of the vote together.

Interesting election and interesting issues of that time. The Progressive Party's 1912 platform was the blueprint of 20th century reforms.

http://en.wikipedia.org/wiki/Progressive_Party

Maybe the Australian government is on to something. Perhaps if our local governments did the same, we wouldn't have had the overbuilding we had, along with the enormous sums of money dedicated to the sewer lines, roads, bridges, electrical grids, telephone lines, and schools necessary to support urban sprawl. This isnt even mentioning the gas we need to run the cars and trucks to drive there which as we know means more air pollution and wars to fight over cheap energy. All this is brought to you by developers and giant home builders and their local, state, and federal lobbies.

I agree that overregulation can be burdensome, especially for businesspeople. Then there is is sensible and smart urban planning in places like Australia, Europe, and Canada. There is a difference. Our lack of planning has a large price for us to pay.

I've traveled all around Australia, minus the far north near Darwin and the northwest of the country. Your analogy is correct, Troy--no one wants to live in the red center, or for that matter, 100 miles inland from the coast. Like Canada, where 90% of the population lives within 100 miles of our border, life is really nice along the coasts in Australia because of the climate.

robertoaribas says

Troy’s theory on renting are really quit terrible, the two economies who followed the same ideology: rent is evil,

"The only reformer abroad in the world in my time who interested me in the least was Henry George, because his project did not contemplate prescription, but, on the contrary, would reduce it to almost zero. He was the only one of the lot who believed in freedom, or (as far as I could see) had any approximation to an intelligent idea of what freedom is, and of the economic prerequisites to attaining it....George was in fact the best friend the capitalist ever had. He built up the most complete and most impregnable defense of the rights of capital that was ever constructed, and if the capitalists of his day had had sense enough to dig in behind it, their successors would not now be squirming under the merciless exactions which collectivism is laying on them, and which George would have no scruples whatever about describing as sheer highwaymanry."

-- Albert J. Nock "Thoughts on Utopia"

When you guys are done playing these silly Democrat-vs-Republican games and come to the realization that there is no substantive difference as far as the socializing-risk-privatizing-profit axis is concerned, we can maybe have a more interesting discussion on the real problem...

native94027 says

When you guys are done playing these silly Democrat-vs-Republican games and come to the realization that there is no substantive difference

The reason there is too little substantive difference is that voting populace is a combination of too dumb and too misinformed to support real progressive candidates, and to do so consistently enough that progress can be made over time.

Claiming that there is no difference between reps and dems is the first item of misinformation that has got to go. I often think that the campaign to claim there is no difference is orchestrated by those who wish the public NOT TO VOTE.

native94027 says

we can maybe have a more interesting discussion on the real problem…

The real problem is that corporations govern the government. But why is that? It is because with only two parties, the parties do not compete for voter approval but rather for corporate approval. The middle 5% of the voters cannot stay consistent long enough for the party to make a difference.

The real *underlying* problem is that we have no choice except between the two parties. The electoral system is structurally flawed because you cannot win by voting for a third party or candidate.

screw it, I'm tired of arguing with people who think dems and reps are no different.

Justme, I am not one to subscribe to the theory there is no difference between the two parties. I think Republicans are all corporatists, and about 1/3 of the Democrats are as well (DLC). A lot of the blue dogs were taken out of the last election in the swing districts. Nonetheless, there are a number of blue dog Dems that remain in the Senate (Nelson, Lieberman, Conrad, and Baucus). On this, we can probably agree. No meaningful reform will happen while they are still in office and will filibuster bills.

As Bill Maher said, if people want to vote for Republican policies, they likely wont vote for Republican light (Blue Dogs), but the real thing.

I would also agree that the only people really fighting for individuals are the progressives in the House and Senate. The tea partiers claim to be, but when it comes down to real votes, we will see their true colors. (I'm no Rand Paul fan at all, but at least he had the guts to say we need to cut defense spending if we are serious about the deficit) Tea partiers likely wont vote any differently than their corporate masters tell them (Boehner and McConnell).

Waitingtobuy says

Justme, I am not one to subscribe to the theory there is no difference between the two parties. I think Republicans are all corporatists, and about 1/3 of the Democrats are as well (DLC). A lot of the blue dogs were taken out of the last election in the swing districts. Nonetheless, there are a number of blue dog Dems that remain in the Senate (Nelson, Lieberman, Conrad, and Baucus). On this, we can probably agree. No meaningful reform will happen while they are still in office and will filibuster bills.
As Bill Maher said, if people want to vote for Republican policies, they likely wont vote for Republican light (Blue Dogs), but the real thing.
I would also agree that the only people really fighting for individuals are the progressives in the House and Senate. The tea partiers claim to be, but when it comes down to real votes, we will see their true colors. (I’m no Rand Paul fan at all, but at least he had the guts to say we need to cut defense spending if we are serious about the deficit) Tea partiers likely wont vote any differently than their corporate masters tell them (Boehner and McConnell).

I concur that (D) and (R) increasingly pursue similar policies (as nicely illustrated in your ritholtz link), but this is not just Corps. vs. Individuals. Both are happy to loot the US treasury while they can as in "apres mois - la deluge", charging on the national CC with abandon and squirrelling away the last remnants of what was earned in sweat and won in blood by previous generations of Americans. Individual voters are not some innocent victims of corporate rule in this - go to (D) voters and tell them that the fiscal ends don't meet and taxes ON THEM need to jump to match their desired high spending. You will hear "no way!". Go to (R) voters and tell them THEIR entitlements and benefits will be cut sharply to meet their desired lower taxes. You'll hear "no way!" Politicians elected by either oblige their constituents by spending with abandon, cutting taxes, and running huge deficits while they can.

The problem is not just that politicians listen to corporations rather than voters. The problem is that the whole democracy setup has the flaw that present voters can get their wants now and send the bill to future generations who don't vote yet. Unless this is fixed somehow, the whole democracy thing may have to go eventually.

justme says

screw it, I’m tired of arguing with people who think dems and reps are no different.

I didn't say they are _no_ different. I am sure they take great pains to differentiate themselves - after all, the sheeple need to be given something relatively unimportant to argue about, while 'gods work' of looting public wealth through fraud and racketeering can be facilitated behind the curtain for those with the right connections.

I specifically said that there is "no substantive difference on the 'socialize-risk-privatize-profit axis'".

As a long time participant on this board, justme, I know you will understand what that means. You probably just missed that part when you read it the first time.

Troy said:

>and Japan is trapped in the ZIRP box thereby. If Japan were to double their rates to match ours, their real estate sector would utterly collapse.

>Japan and its sovereign debt is skating on increasingly thinner ice here, quite literally the next stop is Zimbabwe as far as debt to GDP goes.

I agree. I am waiting to buy possibly in Japan.

native94027 says

I specifically said that there is “no substantive difference on the ’socialize-risk-privatize-profit axis’”.

Well, I think the Dems want to be different on that issue but they are too brow-beaten to do enough in real life.

AIJ, where are you looking to buy? Why are you waiting?

robertoaribas says

I lived in Berkeley during the height of their communist manifesto rent control, and after a couple decades of zero building (why should anyone build if the city can set the rent prices) you simply couldn’t find a place to live. every opening had 100 people in line, and under the table finders fees where the norm.

They did the same thing in New York with the exact same results. Once again, liberalism seems "fair and reasonable" on paper, but in the real world it's a house of cards.