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"Legislators left Washington on Friday for the July 4th recess. They did so after failing to pass a bipartisan bill aimed at preventing the steepest decline in housing prices in a generation."
Preventing price declines is the worse thing Congress could try anyway. Real prices must decline until they are in line with incomes, or this economic malaise will drag out for many, many more years. They cannot prevent the market moving back in this direction...propping up unsupportable high prices only delays the inevitable and injects lingering uncertainty that keeps the markets disoriented.
As P. J. O'Rourke wrote: "Be glad that you don't get all the government you pay for."
Kunstler hit one out of the park on his latest blog post
Not your grandma's depression (http://jameshowardkunstler.typepad.com/ - broken link)
You beat me to the punch. A lot of people love to diss Kunstler, who I admit can be "over the top" sometimes, but I think he is a lot more lucid in this blog than most of the spin-doctors in Washington.
Another contrarian I like to read is Bill Fleckenstein--hardly considered any kind of "kook" in the investment world. His MSN column ( The end of the superbubble - MSN Money ) certainly sounds an ominous note. Equally sobering is Jim Jubak's column on MSN ( Retirement crisis: From bad to worse - MSN Money ) which paints a dismal picture of Baby Boomers' retirement prospects (along with the younger generations following).
Now, read all three of these and connect the dots. It paints a sad picture of Americans--hooked on overconsumption, drunk on debt, engorged on a sense of entitlement, and totally unprepared for the end of the "easy life" to which most have become accustomed.
I can't state it any simpler than this. Americans, from the poor through a good chunk of the upper middle class, have a simply stated but very intractable problem: everything they own (including a lot of stuff they still owe money for), along with a large chunk of their financial investments, pension funds, and retirement accounts, is declining in value; and nearly everything they must buy for day-to-day living and survival (fuel, food, and other necessities) is exploding in price. It's a classic economic vice, and it is squeezing the financial life out of Americans. As Kunstler, Fleckenstein, and Jubak variously note, the conundrum is that any treatment for one malady (declining asset values, for example) tends to aggravate the other (inflation of commodity prices, for example). We're going over the cliff--the only question is whether we go over the cliff with our foot jamming the accelerator to the floor or pressing on the brake pedal for all its worth. Now, all we can do is roll up into a ball and try to survive the bloody and violent impact that is now inevitable.
Colorado and its residents have been every bit or more irresponsible in the lifestyle choices that brought us to this point, so it is illogical to think that "Camelot" Colorado will escape the full force of the economic tsunami ahead--in fact, it very well may fare worse.
Last edited by jazzlover; 06-30-2008 at 07:59 PM..
It paints a sad picture of Americans--hooked on overconsumption, drunk on debt, engorged on a sense of entitlement, and totally unprepared for the end of the "easy life" to which most have become accustomed.
As Kunstler, Fleckenstein, and Jubak variously note, the conundrum is that any treatment for one malady (declining asset values, for example) tends to aggravate the other (inflation of commodity prices, for example).
The above fanatics you quoted and follow, are just that, socialist fanatics. They want the US to collapse so they can enact their socialist government.
Even the drama-queen "Fleckenstein" was quoted as saying regarding the financial "collapse":
"It may not come to pass, but you will not be caught off guard if it does."
Quote:
Originally Posted by jazzlover
We're going over the cliff--the only question is whether we go over the cliff with our foot jamming the accelerator to the floor or pressing on the brake pedal for all its worth. Now, all we can do is roll up into a ball and try to survive the bloody and violent impact that is now inevitable.
Colorado and its residents have been every bit or more irresponsible in the lifestyle choices that brought us to this point, so it is illogical to think that "Camelot" Colorado will escape the full force of the economic tsunami ahead--in fact, it very well may fare worse.
Drama, drama, drama queen....
"over the cliff"
"bloody and violent impact"
"full force of the economic tsumami"
Here's a bit of "drama" from Congressman (Dr.) Ron Paul
Something Big is Going On (broken link)
One telling paragraph from one honest Congressman:
"The financial crisis, still in its early stages, is apparent to everyone: gasoline prices over $4 a gallon; skyrocketing education and medical-care costs; the collapse of the housing bubble; the bursting of the NASDAQ bubble; stockmarkets plunging; unemployment rising;, massive underemployment; excessive government debt; and unmanageable personal debt. Little doubt exists as to whether we’ll get stagflation. The question that will soon be asked is: When will the stagflation become an inflationary depression?"
Last edited by Bob from down south; 07-06-2008 at 05:55 PM..
And you should write for the credit card companies, where "Buy now, pay later (and pay and pay and pay)" is the mantra.
I also am getting damned tired of being called a "socialist." I'm a fiscally conservative believer in the free enterprise system, who--in apparent horror to you--understands the theory of business cycles and that fact that distorted markets and mis-allocations of resources eventually correct themselves. Unfortunately, that does often occur with drastic and unpleasant effects--pretty much like we are seeing now.
In fact, if you want to blame somebody for the present mess we're sinking deeper into every day, you might start with the massive direct and indirect government subsidization of the automobile and highways, along with the very soon to be unsustainable sprawled lifestyle it fostered. All of that subsidy encouraged (then and now) by a bunch of supposedly free-market-loving developers and their real estate lackeys--gleefully enabled by a credit and banking system that, at least at some level encouraged by the government, had about as much restraint as a bunch of drunk co-eds on spring break cavorting for "Girls Gone Wild." Funny how those "free-market" types become closet socialists when it benefits THEM, or how they bellow and bleat for a "bail-out" when the inflated silliness of the "bubble" they created makes their Ponzi schemes unprofitable. Talk about hypocrites.
And you should write for the credit card companies, where "Buy now, pay later (and pay and pay and pay)" is the mantra.
I also am getting damned tired of being called a "socialist." I'm a fiscally conservative believer in the free enterprise system, who--in apparent horror to you--understands the theory of business cycles and that fact that distorted markets and mis-allocations of resources eventually correct themselves. Unfortunately, that does often occur with drastic and unpleasant effects--pretty much like we are seeing now.
In fact, if you want to blame somebody for the present mess we're sinking deeper into every day, you might start with the massive direct and indirect government subsidization of the automobile and highways, along with the very soon to be unsustainable sprawled lifestyle it fostered. All of that subsidy encouraged (then and now) by a bunch of supposedly free-market-loving developers and their real estate lackeys--gleefully enabled by a credit and banking system that, at least at some level encouraged by the government, had about as much restraint as a bunch of drunk co-eds on spring break cavorting for "Girls Gone Wild." Funny how those "free-market" types become closet socialists when it benefits THEM, or how they bellow and bleat for a "bail-out" when the inflated silliness of the "bubble" they created makes their Ponzi schemes unprofitable. Talk about hypocrites.
Let's see, IndyMac bank was halted in trading today after annoucing they have ceased all lending in both wholesale and retail channels effective immediately.
The GSEs, Fannie Mae and Freddie Mac, both took ~20% haircuts...in one day...on top of the withering losses to market cap they have already suffered. Another God-awful ugly day for mortgage lending and another confirmatory datapoint that a major financial disaster is still unfolding before our eyes.
How's that for drama, LBear?
At some point, the mortgage lenders, GSEs, and the few securitization operations left are going to have to charge rates that reflect the real and increasing levels of risk in making mortgage loans. That coming spike in rates...my guess is around 200 basis points (2%)...is going to put tremendous additional downward pressure on house prices and all that falls with them.
I don't think any market, especially Colorado, will be immune from a brutal stomping. Late summer and fall are going to be very, very troubling.
Jack and Jill want to buy a house. They have $15,000 for a down payment. A year ago, 5% down payment loans were growing on trees. So for a 5% down payment of $15,000, Jack and Jill could theoretically qualify to purchase a $300,000 house ($300,000 x 5% = $15,000). In the stock market this is known as "buying on margin." Control a $300,000 asset with only $15,000 of your own money. So long as Jack and Jill can make the monthly payments, AND so long as the market value of the house was appreciating, the bank was happy.
The downside, just like it is with margin buying of stocks, is that only a relatively small decrease in market value can make the underlying asset worth less than the borrowed money to buy it. In this case the $300,000 house would only have to decline over 5% in value, and the buyer would be "upside down."
Since the real estate markets are showing all the signs of deflating at rates in many areas that are already heading for double-digit percentages (if not already there), along with many borrowers starting to experience repayment capacity problems, it's no surprise that banks are commonly requiring 20% down payments now. So, how much home can a person buy with a 20% down payment of $15,000? Try $75,000. That's right--$75,000. Big difference between $75,000 and $300,000, huh? If the banks go to a 30% down payment requirement (and I hear that some Denver banks are), how much home will a 30% down payment of $15,000 buy? $50,000. In other words, without any other repayment issues caused by unemployment, inflation, declining incomes, etc., the change in down payment requirements alone will flush thousands upon thousands of potential home buyers from the market. And it was those very borrowers who helped to pump up demand (and prices) on the way up. Now, the absence of those buyers are going to send demand (and prices) drastically lower--and not just in the subprime or "lower-end" real estate markets. How much that decrease will be is debatable--my personal prediction is that 50% or more is actually pretty likely.
Unfortunately, too, a lot of those "marginal" borrowers who now find themselves (or will) upside-down as property values fall are going to just walk away from their homes. The institutions (including banks, mutual funds, pension funds, etc.) are going to get stuck with properties worth only a fraction of what the "book value" of the loan is on the institution's books. When that is written down to "real" value, there will be tsunami wave of losses in those institutions--some of them, maybe a lot of them, will fail. How much of YOUR money is invested, directly or indirectly, in those institutions? You might want to be finding out.
Imprudent "margin-trading" in stocks was a major factor in precipitating the 1929 stock crash that was a major cause of the Great Depression. Imprudent "margin-buying" in the real estate markets may well be a seminal event in the start of the Second Great Depression of 2008 or 2009.
My wife and I are looking to buy our first home soon. We have loads of cash in the bank, and excellent credit, but banks and mortgage lenders have looked at us like we're crazy when we say we'd like to put at least 20% down. Everybody involved in the real estate industry still insists on the notion of housing as an investment (we consider it an inflation-hedged asset). People are still getting ridiculous loans, which indicates to me that things aren't that bad yet (note, I'm not saying thing won't get worse, just providing a data point). These mentalities are very slow to change.
Also, we've looked at a lot of houses, and there is definitely a huge amount of inventory, but it appears that the good houses are selling fast. Many of the houses we've had on our list to look at are gone within a week or two, and we haven't even gotten a chance to look at them. The houses that have been sitting around for months and months are simply bad houses. Many of these are short sales or foreclosures. My theory is that people who lose their houses because they can't afford them are not very smart people; these folks made bad decisions when purchasing and when upgrading their homes, and now all that remains is a crummy, undesirable house. I think there were many people who were not prepared for the responsibility of homeownership, in terms of making the payments and maintaining their homes. Again, not trying to make any sort of statement, just presenting what I've encountered as a potential home buyer.
I guess a good question to ask is why I'd buy a house now. Well, since I think of a home as an inflation-hedged asset, we're ready financially and emotionally for home ownership, and prices are already depressed quite a bit, now seems like a decent time to purchase for me and my wife (unless you're a doom and gloomer...I'm bracing myself for the inevitable torrent).
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