Sunday, October 26, 2008

Sacramento Regional Real Estate Trends for October 25, 2008












10 comments :

Anonymous said...

Everybody still thinking this is a housing supply caused crisis still?

Sippn

Nooge said...

OT, but relevant to our discussion the other day re: the banks got an offer they cant refuse.

Imagine hearing the godfather soundtrac when reading this blurb:

" 'We're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,' White House press secretary Dana Perino said.

Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government."

Translation, lend or sleep with da fishes!!!

http://biz.yahoo.com/ap/081028/financial_meltdown.html

Max said...

Everybody still thinking this is a housing supply caused crisis still?

No, it's a credit supply crisis: too much for too long for too cheap.

But the fundamentals of the bailout are strong.

Anonymous said...

I think the current crisis is somewhat due to housing but housing is not the root cause.

If we assume:
- Total mortgage debt in the US is $12T
- Mortgage default rates go up to 10% (current 6% today I believe)
- Houses that go into foreclosure result in a 50% loss ($500K homes sell at $250K)

If that is the case, then the total cost of the housing collapse is $600B, which is about equal to what banks have already recognized as losses. Offsetting this would be whatever CDO coverage that actually paid off before the i-banks went bust.

To solve the $600B loss actually caused by housing default, the fed pumped in $700B into the banks, guaranteed $125B to AIG, $100B+ in other guarantees on Bear Stearns and others. If housing was the real issue, then this would have fixed any problem out there.

What has been exposed is the US consumer has lived beyond their means and Wall Street paid out all of their equity as bonuses.

What Wall Street did was the equivalent of selling life insurance, recognized 100% of the premium as profit after no one died in the first year and then paid out all of the money as bonuses. This was criminal.

Patient Renter said...

No, it's a credit supply crisis: too much for too long for too cheap.

It's been incredible for me to hear all of the misinformation being spread around the airwaves about how we supposedly didn't do enough to intervene in the economy after the 1929 crash. It's as if history has been re-written to ignore the incredible interventions that took place. The video of Peter Schiff and Mark Zandi shows what I mean.

Altogether though I suppose I shouldn't be surprised at this sort of institutional misinformation - the average finance writer probably couldn't even identity that the Federal Reserve is a private banking cartel with only a few legally mandated federal appointees. The "Federal" name is enough to fool them, like a sheep distracted by a call.

I remember this interview with Ron Paul a while back where he was warning of the danger to the economy caused by Federal Reserve monitary manipulation. He began to explain past policies that could potentially lead to future trouble (I bet this interview would be a bit more interesting today). The interviewer halted him, saying he didn't care about how we got into this mess, he only wanted to hear how to get out of it. That is the problem.

We cannot come up with solutions to problems where we don't understand and agree upon the cause. The cause was monetary manipulation. The solution is ending it. Anything else is futile.

Max said...

We cannot come up with solutions to problems where we don't understand and agree upon the cause. The cause was monetary manipulation. The solution is ending it. Anything else is futile.

Yves Smith had a great piece about Fed mission creep since the dawn of the Greenspend era. While I am no economist or monetary scholar, it seems to me like the Fed system works pretty well as long as the mission remains constant, and its policy decisions are transparent. Even gold can be hoarded and manipulated by fiat. At least with dollars, the power to manipulate remains (ostensibly) in the US.

I believe that the lack of a clear vision and what appear to be arbitrary policy decisions are at least partially to blame for the incredible volatility we are seeing right now in the markets. Every single bet being made right now could be altered by the decisions of government. The only way to restore stability is to restore transparency.

The winners of our tax dollars are being chosen right now. The losers know who they are as well. The bag holders (aka you and me) will be the last to find out.

Patient Renter said...

Yves Smith had a great piece about Fed mission creep since the dawn of the Greenspend era.

Yes, there has been a lot of "creep". The Fed actually has no authority to inflate the money supply - it's just something it took it upon itself to do in the 20s. Since then we've become accustomed to the idea that inflation is something we must live with like it's some unstoppable phenomena as opposed to a deliberate policy. Inflation is no more necessary than "needing" to take out a loan to buy an overpriced house.

Fed system works pretty well

I'd disagree. The fact that a dollar banked in 1913 is worth less than 1% of its initial value shows about how well the Fed has worked.

It's amazing how many economic problems would not exist with sound currency. Without inflation, price fixing and fixed exchange rates (both of which Gresham's law proves cannot work) would not even be necessary. Lack of inflation would prevent the currency from being under or overvalued eliminating the need for exchange controls, currency blocs, and convertability restrictions.

The problem with sound currency is that it prohibits government from doing all of the things that it would like to do. The US went off of the classical gold standard as a desparate attempt to spend ourselves out of the great depression. Much of Europe went off of their standards to fund the expense of WW1. These were decisions made to fund wreckless spending, not because the gold standard didn't work.

Contrary to contemporary opinion that the gold standard is archaic, even as it was being suspended it was still held in high regard and its suspension around the world was always meant to be only temporary. It's a shame that policy makers do not understand the history.

Anonymous said...

Got a good conversation started.

Its a leverage problem obvious by now.

It wasn't a big problem to borrow 110% on the Escalade and watch it loose 20% the next day. GM didn't have to write down the loan to 85% on day 2 (mark to market) and we didn't all walk away from the declining asset.....yet.

Wall street designed the loan products, lobbied congress, sold the junk, fed cash to the builders and automakers and ___ and ___ and like anony said before, cashed the bonus early.

I like that newly retired hedge fund trader.... "don't waste your money on Ivy League schools" just trained them to accept the message cause nobody wanted to look stooopid.

Sippn

Max said...

I'd disagree. The fact that a dollar banked in 1913 is worth less than 1% of its initial value shows about how well the Fed has worked.

Remember, we didn't go off the gold standard until well after the Fed was created. The problem with gold was it was possible for foreign governments to control the supply, both through hoarding and mining. Look at what happened in Europe after the Spanish brought tons of gold back from the new world. Yes, the price of gold can fall. Not defending the current system, just pointing out that there was a real strategic reason for going off the standard.

The job of the Fed is in essence to bring to the dollar on a day-to-day basis what gold has naturally: an agreed upon value that changes little over time. Big-picture-wise, Fed issuance over the dollar gives the US the ability to control our own destiny. The path that destiny takes depends on the choices the Fed makes. So far, that path does not look pretty.

Patient Renter said...

The problem with gold was it was possible for foreign governments to control the supply, both through hoarding and mining. Look at what happened in Europe after the Spanish brought tons of gold back from the new world. Yes, the price of gold can fall. Not defending the current system, just pointing out that there was a real strategic reason for going off the standard.

Sure hoarding and increases in supply of some unit of monetary exchange (gold/dollars) effect its value, but this is the same as how the change in supply or demand of any other commodity effects its value. If the supply of money goes up the market adjusts its value downwards which in theory has no negative effect on society as long as the share of new money is distributed equally. The problem with private control over money is that the controller (Fed) chooses who gets first access to the money and it is certainly not distributed equally.

So as the Fed inflates the money supply giving new money to banks who lend it to corporations, etc., prices are effected (upward) by the increase in money rather quickly while it may take a long time for each individual's share of the increase in money supply to reach them. So inflating the money supply essentially rewards those who get the money first and punishes those who have to wait for their share of the new money.

Being that banks are the first to receive the benefits of increases in the money supply and it is banks who have the majority control in the Fed which dictates the money supply, is it any wonder that our supply of money is endlessly inflated? The Fed system is about as bad as anyone could possibly conceive, unless you're a bank.