patrick.net

I guess my point is that a paper certificate which merely states "backed by gold" is still a fiat currency. It still depends upon a PROMISE by a government that it will be exchangeable for a hunk of metal. Why is that promise really any better? The government could still just change its mind at a later date.

The government could still just change its mind at a later date.

Yeah, especially if we get someone like FDR.

Nice ending for the DOW today, I wonder if we will be in the 11s tomorrow.

Funny that someone is worried that oil will go to $120/130 I predicted to my hubby this morning that it will go to $150 fairly quickly now that the $100 mark has been breached - of course, I hope I'm wrong.

I too turned to my spouse and made a comment on oil: "100 is the new cheap!"

When we get off of oil you won't care what it does. It will be like asking, what is the market for slide rules doing right now?

When we get off of oil you won’t care what it does.

Even if we have Cold Fusion tomorrow, it will still be years before we get off oil.

It's time again for the Wall Street Shuffle!

http://www.youtube.com/watch?v=-967crKpg-M

The soundtrack of our lives!

I still have a "silver certificate", but I bet if I take it down to a Fed office they won't give me any real silver for it.

So much for the MEW-

http://apnews.myway.com/article/20080306/D8V82V580.html

Dennis,

Yes, the government does not honor it's promise to pay. So what's new? We all know that. Here's what you do - take that certificate to a coin dealer I beat he/she will give you real silver for it!

by the way - the currency in your pocket (by definition, it is currency and NOT money) is a Federal Reserve Note (FRN). The only value it has is that it says on it "This note is legal tender for all debts, public and private" So, it is currency in law and that is it.

Regarding shorting: Apparently, the right time to short FNM, FRE and others was about Feb 01, when the stocks were buoyed by the latest rate cut. There was a lot of talk about "not betting against the central banks" going around the web and the MSM, and it turned that this was exactly wrong.

The problem with shorting is knowing when one is right-wrong and when one is wrong-wrong, if you get my drift.

Disclaimer: Hindsight is not investment advice.

We are investing in Swiss Francs (FXF) and Japanese Yen (FXY) through ETF's. Anyone know how safe these are?

Any other alternatives such as CD's or money markets in these currencies?

eburbed Says:

> Is FormerAptBroker still on this site?
> I was wondering what the previous mortgage/rent
> ratios were in the Peninsula. Did they ever reach 1:1?

Depending on the home and the mortgage some homes have always been well over 1:1 (you could never buy an estate on 2 acres in Atherton or Hillsborough and rent for more than the fixed rate mortgage payment) and some places have always been below 1:1 (even today I can buy a place in the barrio of SSF or Redwood City and fill the place with enough Mexicans to cover an IO loan every month.

For most of my life (at least since I learned how to calculate a GRM and come up with a Cap Rate as a child in the early 70’s) other than 1988-1991 and 1998-Present you could make a 20% down payment and get a 30 year fixed rate loan with a PITI payment that was less than the rent for over half the homes on the Peninsula.

Malcolm Says:

> 400 teachers just got fired from the Chula
> Vista district (south of San Diego) due to
> emergency budget cuts.

I bet they fired the last of the teachers that teach in English…Years ago we used to stop in Chula Vista to buy insurance before surf trips to Mexico. The local (surfers) used to call it “Chulajuana” (the northern part of Tijuana).

I was surprised to here that a few years ago in the actual “city” of San Diego that some public schools were teaching almost 100% in Spanish (the bilingual teachers make more so they don’t want the children of the illegals to ever learn English).

I miss the talk of a soft landing. I miss Eburbed chiming in from time to time on the lofty heights of Google's stock price or of the hefty raises he and his friends have been getting. And of course, I miss the likes of Big Brother touting SF's never ending rising home prices. Oh Trolls, where art thou?

northernvirginiarenter,

Yes. I see the Great Unwind.

Carlyle is the tip of the iceberg.

TAF was announced to be even bigger today - and that is a huge problem.

In a post I wrote and probably chose to delete, since noone here seem to give a rip about macro-economics, I derived the same ultimate end-game as OO. Namely, the winning strategic hand in a debached currency-trade imbalance-inflation game is to have food be your commodity and then have a military capable of halting others pressing for their claims while you press for yours.

Of course I hope we are no-one near that kind of end-game, but the ultimate effect of our Great Depression was to set the stage for WWII. And we have all the ingredients now to bake our Great Depression Cake.

Just remember, when the government took over the S&Ls and disposed of their assets to the vulture funds, the dollar amounts were FAR FAR FAR less than what is at stake now. In fact, the margin calls of the Federal Governement during the 1930's was smaller than the calls that seem likely today as the Fed takes mre and more garbage through the TAF. I think long before Citi goes to insolvency; however, we will chose to lower the capital reserves margin. Take THAT as an extremeley dangerous signal.

Looks like Credit Defalt swaps are next financial product to halt as their models are predicting more than 100% chance for AAA rated GE to default.

SIVs, CDOs are already dead. Hedge funds are going under at a rate of more than 1 per day - and many of them have leverage at greater than 20 to 1. I mean, WOW, Carlyle was at 32 to 1. And sadly, Carlyle has a lot of Fannie and Freddie stuff - they are trying, now, to press for the IMPLIED governement backing.

For my part I can only see a concerted world effort to halt this problem. The small blip of the SWFs was not enough. And as other governements CBs only hold or raise their rates in response to their (food inspired) inflation, the US looses its ability to borrow and engadge in the receiving end of trade. And thus, goodbye Europe and China exports.

We will know the real crises has hit if we have to precipitously withdraw troops from IRAQ to srengthen defense at home.

Sometimes this train wrenck looks slow, and sometimes it looks fast. This last week has been down right scary.

Duke,

if we have a fast crash and quickly made USD irrelevant to all foreign powers who hoarded them, then there would be no war, because we will leave them penniless in buying up resources. It takes time and money to build up military power.

If we opt for a slow crash, we are giving time to hostile competing powers like Russia and China to build up their resources base, sphere of influence, and ultimately, military power. That will not bode well for citizens of the empire, you and me.

So the correct strategy of the US should be to plunge the whole world into a deep recession / depression ASAP.

Duke :

My only objection to your post is that we don't care about macro-economics. We do. In fact this blog almost always has comments on socio-economic aspects of the housing bubble. But not all are qualified to comment on it. So they refrain, which includes me.

I agree that things have been getting downright scary for the financial system. Even MSM (eg Bloomberg) had reports that a few years ago would be considered fit only for the housing panic blog.

The general public seems completely oblivious to this. Everyone is expecting a quick recovery. In 2nd half of this year, something magical is going to happen. When I ask what is going to ignite the recovery, they all go blank.

Duke

Nice summary, and agreed.

Fear is propagating now. Its very easy to forget that 80% of US homeowners do not think their home has lost any value. It would be entertaining if it were not so scary and irritating.

Mozilo is currently giving testimony before congressional hearing on corporate compensation.

He is actually choking up. Pathetic.

Today the Fed increased the TAF size. It had a very very short term impact. Like an hour. Very quickly things turned south.

More and more people are realizing that the Fed is impotent. Once that realization sets in on an even bigger scale, who is going to save the stock market ? The bond market (including MBS) is also getting in trouble.

Does anyone remember the rally that started around the same time last year ? Just after the first signs of subprime explosion ? I don't see a repeat of this, as even the smart hedgies have discovered that reality doesn't fit their models.

So the correct strategy of the US should be to plunge the whole world into a deep recession / depression ASAP.

Thats really interesting but I doubt that is the conclusion of the military industrial complex RAND corp thinking. I think continued 3rd world resource exploitation and global stability is the best course. Our military R&D is making generational leaps beyond any potential competitor, and probably most importantly China. The next generation weaponry coming into production environment over next 20 years is fearful good with very low manpower requirements.

However, the US will be plunging the world into a global depression irrespective of intent. This depression will cause many wars and much instability. The downsides of this seem to me to far outweigh the upsides.

I feel like a real sap and to remind me what a dumbass sap I am it appears the politicians are lining up to give me a slap in the face.

Wife and I purchased our house 25 years ago and I remember how happy we were when we were approved for the loan. Getting the loan was something else, had to provide all sorts of documentation not to mention a 10% down payment on our first house that was a lot of money to newlyweds back then. A few days before closing I was told I needed documentation from the bank showing we saved the down payement over a period of time.

Lots of things going back and forth in the mail and I knew if I lied it was mail fraud on a federal financial institution which carried huge penalties along with a fine of up to $1 million dollars.

We didn't buy the house as an investment. No, we wanted a place to call our own to raise our children in.

Seemed the rule then was to have a mortgage not exceeding three years gross income or four years net. We ended up buying a house that equaled 2 1/2 years gross income which proved to be just fine for us because we never encountered difficulty making the mortgage payment even when one of those little things popped up.

After living there three years we started paying an extra $100 a month towards the mortgage and before I turned 45 my house was free and clear.

My income has gone up over the years and today we're saving half my take home pay, savings average $2500 a month, not because we are saving for something special but there is nothing we I really need or want. I'm not cheap, we have everything we want, but I never wanted to throw money about like it was nothing.

We are going to do a total remodel the bathroom. My wife wants a jacuzzi tube for two :) with a bay window she saw in a magazine. Appears the total cost is going to be around $8,000 (new tankless water heater etc) and we're going to pay cash for it because I always viewed second mortgages as evil. But the good thing is we'll pay cash and it will hardly make a dent in our savings.

Today the hosue is probably worth $200K, you can get a real nice house for that around Branson, Missouri, but what it is worth never mattered because I never viewed my home as an investment. It's a home, a place I will get old in.

Sappy I know. I think I did everything right but that won't stop politicians from pissing on me.

Here I am, living in Branson, Missouri, when I learned from patrick.net I could have been living rent/mortgage free in a waterfront home in south Florida not even bothering to pay property taxes. What a sap living in Flyoverville.

And three years ago I learn I could have purchased a $700K starter home in California, immediately taken a couple hundred thousand in cash back so my wife and I could have taken vacations to Bali and vacations to Europe all on my $80K income. My wife could have driven the kids around in a new SUV sporting two DVD players in the back seat to keep the little ones entertained instead of her 6 year old second hand used car. How wonderful it would have been!

If only I could have known I could have been living like I made $300K on an $80K income.

Oh, I would have liked to live in Florida or California, even had a job offer in California but passed after looking at the cost of housing. I stayed in Missouri where I could afford a nice place to raise a family and live. Sap, huh?

So now we have politicians and our federal government feverishly working up a scheme to reward those idiots who committed mail fraud. Do I got this right? If I had lied like some have I wouldn't have been able to sleep at night.

So the governments message to 10 year olds today, delivered through the illegal actions of their parents, is it's ok to break the law as long as enough people do it?

No bailout, we need to let the marketplace take care of the problem which will be painful to some but you got to pay if you want to play.

There won't be global stability anyway. There are only two options for the US, fast crash or slow crash, no crash is not an option. Does the US want to give the world time to band together and weather the storm, leaving the US in the mess by itself, or does it want to drag everybody down while it still can?

World war usually happens when there is a perceived shift of power. I say perceived, because that refers to the perception of leaders of all nations who are made from the same material with the aspiration to rule the biggest piece of land possible. That's why you need to crush their confidence instead of feeding them if they perceive that maybe perhaps the slow crashing of the US gives them the opportunity to take the void.

Once the war is initiated, the cost of ending it has already become too high, even if you have superior weaponry. The key is to nip the idea in the bud.

Flyoverville :

Great post. I am glad you wrote what you have written. The current news may indicate otherwise, but I believe majority of people who purchased in last century are like you.

I miss the talk of a soft landing. I miss Eburbed chiming in from time to time on the lofty heights of Google’s stock price or of the hefty raises he and his friends have been getting. And of course, I miss the likes of Big Brother touting SF’s never ending rising home prices. Oh Trolls, where art thou?

Word. For a while, it seemed like SP and I were the only guys predicting an overall economic downturn.

Randy, if you're still lurking, I'm curious what your opinion is on the Silly Valley economy, from your "in the financial trenches" viewpoint.

StuckInBA Says:
Today the Fed increased the TAF size. It had a very very short term impact. Like an hour. Very quickly things turned south. More and more people are realizing that the Fed is impotent.

Here is what I wrote on January 30th, 2008 at 1:28 pm:
"Ha ha ha… Hey Bernanke, what you got there, boy? A rate cut? Gimme that. Here’s what I think of your f*ckin’ rate cut - hold it for a sec while I piss on it. Now, go back home and ask your mom to bake another cut for me, and make it quick."

Replace "rate cut" with "TAF" and it still fits today.

OO,

Thats interesting and good stuff.

My perspective is that a significant driver of the next generational conflict will germinate in class conflict, instability between the haves and have nots in places like Saudi, Pakistan, China, and the US. The masses will become a bit hungry, social instablity will result in resource grabs.

The latest stuff out of OPEC is interesting. The administration is pressuring for production increases to which OPEC responds, "you guys mismanaged your economy, its not our fault. Bugger off." Well, if one drives that game to its conclusion....trouble.

This depression is going to make the world a much more scary place.

In case you're unable to watch the testimony on CNBC here's what you're missing (from the last 20 minutes or so): "our" representatives are tripping all over each other, trying to make those giving testimony look like they got a raw deal! One idiot from N. Carolina(?), actually lobbed one to Mozilo that pretty much invited him to say that the whole mess was the fault of some hedge fund which bet there'd be a crash while advocating for tighter lending standards!! This is surreal!

Flyoverville,

In Cali, we actually had "serious" people "explain" that paying off one's mortgage was financially "dumb", essentially because appreciation would pay it off for you. I'm not making that up.

skibum Says:
For a while, it seemed like SP and I were the only guys predicting an overall economic downturn.

It is getting worse here. I am getting a deluge of mail from past contacts (via LinkedIn) and colleagues, some of whom I barely remember. Some of the emails are about "getting back in touch" but a few of them cut straight to the chase about getting a job.

Speaking of things I have been saying for a few months now - I think it was in a recent WSJ article about Bay Area jobs - it said people are choosing jobs with a large "stable" employer to weather the downturn, instead of chasing after empty promises at startups. This did not happen during the tech bust - most workers stayed hopeful until the startups folded. Now, it looks like people are much less gullible about IPO dreams.

NVR,

Saudi is running dry.

If you follow oil drum and read some research papers on this subject, it is quite obvious that Saudi oil fields have reached their peak back in 2004/05. They are running dry.

$120 oil? You ain't seen nothing yet.

Of course, when oil goes up to $200, that will make lots of alternative energy sources feasible. But the world economy as we know it with cheap oil as the basis for growth, is gone, for at least the next few decades.

Peak oil doesn't mean that we are out of oil, it just means oil@ production cost of $50, 60,70 a barrel is history.

However, the US will be plunging the world into a global depression irrespective of intent. This depression will cause many wars and much instability. The downsides of this seem to me to far outweigh the upsides.

The Gloom-n-Doom here seems a bit thicker than normal, even for a grizzly bear such as myself. Yes, pain from the HB implosion & MEW withdrawal is spreading well beyond REIC circles --as predicted here on this blog 3 years ago. No, the Insolvency Crisis is not *contained* (except to planet Earth) and it's starting to unwind at an impressively accelerating rate. Hearing about mass layoffs, unemployment, dropping equity, and watching the DOW plunge is a little depressing, even scary, yes. But, let's also keep a little perspective: It's not the End of the World as We Know It. It's not even unexpected.

One of the FUD tactics the pro-Bailout crowd is trying to use (Cramer, Tan-man, etc.) is "Be Careful What You Wish For!". They want us to think that if they and their buddies incur any serious losses, it's Financial Armaggeddon for Everyone and will plunge us into a new Great Depression. There will be pain, yes. But, is the macroeconomic danger already so great that we *have to* socialize all losses right now, before we even know how bad it might get? Is a Mad Max future really inevitable, just because some well-connected banksters and hedgies blow up (due to their own reckless actions)?

To me, this is really just another way for them to try to convince us and CON-gress that we need to share the bill for their recklessness and greed. Let's not succumb to it so easily.

BayAreaIdiot,

I have had at least two retail bankers telling me that I am dumb to have refinanced into a faster mortgage payoff (which I agree to a certain extent). I was also told that I am dumb to not have set up a HELOC line (which I also agree to a certain extent).

In principle, I am against debt. But for the last few years, I sometimes do regret not having taken advantage of the cheap credit to fund some investment, not to consume. If not for the stupid Prop 13, I would have sold my home and waited for the crash.

New thread: Beware of the “Careful What You Wish for” crowd - The Bubble’s implosion is good for working class people

This did not happen during the tech bust - most workers stayed hopeful until the startups folded. Now, it looks like people are much less gullible about IPO dreams.

The difference now is that, unlike during the tech bust, everyone realizes that the IPO route is improbable, and the acquisition route is proving less and less likely.

HARM,

Before you so casually imit the scope of this issue, compare it to historic precenedents. The only credit crunch we have seen the size of this one was, drum roll please, the Great Depression.

Now, if you want to debate how bad the Great Depression really was.

Okay.

For lots of people, it was not so bad.

But for the 25% of people out of work, it was bad.
For those who saw their income decrease 20-50% it was bad.
For those who say their debt stay the same dollar amount after the income loss, it was bad.

Before any argue that maybe the 75% of people who had work, and had no debt so the income deflation was no so bad, let me state that income tax was re-jiggered to something like a 93% tax bracket at the top end. Or that the number of peopl not in debt now is low given our net negative savings for years.

Before I jump on the policey recomendation badwagon, I just want to point out that the Great Unwinding is, in fact, really bad.

Duke Says:
HARM, Before you so casually limit the scope of this issue

I don't think HARM was limiting scope - he was merely observing that in the absence of a bailout, savers and non-speculators will be hurt relatively less and most of them will be able to come out of this in relatively better shape than FBs, banksters, and assorted species of "any-lie-for-a-commission-check" vermin.

A bailout will end up socializing the pain more.