Comments on: Housing Collapse Accelerating

By: Aaron Krowne

Aaron Krowne — Sat, 02 Aug 2008 03:46:01 +0000

Agree with everything Lee says above.

By: Aaron Krowne

Aaron Krowne — Sat, 02 Aug 2008 03:45:00 +0000

JenniferK:

You are absolutely right… our Mr. Mortgage considers the GSE REO reports to be a complete joke.

They are sitting on a huge backlog, and so are most of the banks. This backlog is going to shock everyone with how long and how far it drags down the market.

By: Aaron Krowne

Aaron Krowne — Sat, 02 Aug 2008 03:43:24 +0000

The ECB didn’t lower interest rates.

The key is the swap programs.

The Fed looks like a bunch of amateurs for the needless lowering of rates to negative real territory.

The real problem has been the garbage on bank balance sheets, which is not a problem that relates to rates at all.

By: JenniferK

JenniferK — Fri, 01 Aug 2008 20:53:15 +0000

I wonder if the decision makers at FNMA are paying attention to what is going on? In the one zip code I track, there are approximately 350 foreclosed houses listed. I personally know of 3 of them where FNMA is the owner of the REO. All 3 houses are priced at $35,000 to $50,000 above the fair market price any legitimate appraiser will approve. FNMA has been sitting on these houses since January, and refuses to sell at less than $1000 off their listing price.

I fear this is just the tip of the iceberg in terms of unrealistic REO owner expectations. I suspect that they are refusing to sell at fair market prices, and keeping REO off the market, as a means of avoiding writing down their REO inventory to true market value. I call it “delusional valuation accounting”.

By: Lee Adler

Lee Adler — Thu, 31 Jul 2008 23:37:41 +0000

I don’t think there’s much chance the Fed will attempt to lower the Fed Funds target. In my view, the Fed has no control over interest rates. It follows short term Treasury rates. They’ve been lucky with this panic into Treasuries. Their luck is about to change, maybe not this minute, but probably within the next 3-6 months.

As FCB subsidies begin to recede, and Treasury supply mushrooms, rates will begin to creep higher and the Fed will have no choice but to go along. We do not have the same options that the BoJ and Japanese Finance Ministry had because there are no internal savings here. Japan could borrow from its own people at ridiculously low rates in a deflationary environment. The US can’t do that.

A weakening US economy and shrinking trade surpluses in Japan, China, and the Gulf could make the witch’s brew that drives interest rates higher.

I agree with you in that I can see no way to avert economic and financial catastrophe. Maybe I’m just not very imaginative. I don’t even think that the US gummit can delay the unwinding long enough for a healing process to take hold.

By: don

don — Thu, 31 Jul 2008 22:38:01 +0000

Lee,
I’d like to suggest that the Fed had no choice but to drastically reduce interest rates. The same can be said about creating the various vehicles to swap bank collateral with Ts. The threat of a financial meltdown was too great then and is now. Their attempt has been to delay in hopes that the banks can re-capitalize. A race is underway; either they succeed in re-capitalizing (the rates spread allows them some room to re-capitalize), or the crisis exacerbates. I think the delay will not work, and the problems only displaced that might very well make matters worse, as you mention here – but they have succeeded thus far in delaying or perhaps only moderating massive liquidation/deleveraging/asset deflation. But the notion that they could just stand by idly/neutral was/is for one thing, politically untenable, second, runs against the grain of the belief in being able to pull the levers to intervene and correct things (the fundamental belief in the Master/Servant relationship), three, they had NO choice because the risk of a meltdown is too great.

They are between a rock and a hard place, of which there is likely no way out, unless they get very lucky (with added dollops of FCB charity).

I’m suggesting that neither scenario works, whether it be allowing (supposed nature-like) markets to self-correct, flushing down the drain the inefficient, nor the other, State/Fed intervention – by tinkering with interest rates, spreads, hiding the capital destruction behind fake collateral, etc., will work.

Neither the Austrian nor the Keynesian model will work.

By: JMS

JMS — Thu, 31 Jul 2008 19:30:38 +0000

Vargas, you’re dreaming in color if you think the Government is ever going come clean. Spin, spin, spin all the way down. That’s the only certainty we now have in our public affairs.

By: JMS

JMS — Thu, 31 Jul 2008 19:28:49 +0000

Lee,
Thanks for sharing a little of your subscriber insight, it clears up a lot for me as I’ve always wondered what the hell you were getting out in your preview posts which tell us what is being dumped into the market or withdrawn from the market and then cuts-off to subscriber only. Such a tease! Good job in that regard I guess. I don’t subscribe here because I don’t really invest in this mess as cash is king in my house these days but now I think I “get it” as to what you’re driving at daily on the paid side here. Great job you guys are doing here! Thanks!

By: Vargas

Vargas — Thu, 31 Jul 2008 17:53:16 +0000

At some point, probably after the election, the polticians will have to
tell the Ameerican people that the govt is
going to have to take drastic measures to pay for
this bailout which means big cuts in Social Security, Medicare and other entitlement programs are coming.

By: Lee Adler

Lee Adler — Thu, 31 Jul 2008 17:18:03 +0000

Just to give you a peek into the thinking I’ve shared with my subscribers for some time– Every time the government funds another bailout, it has to borrow the money to pay for it. The deficit will hit a trillion dollars over the next 12 months. With every increase in borrowing the Treasury supply sucks up all available capital putting upward pressure on bond yields and downward pressure on stock prices.

These bailouts and economic stimulus payments are self defeating. Every bailout means more government borrowing. More borrowing means higher bond yields and higher mortgage rates, putting even more pressure on the housing market.

It’s not that these government bailouts delay the inevitable adjustment, they actually exacerbate the situation. Bureaucrats rarely pay any attention to the theory of unintended consequences, even though the consequences are right in front of their noses.

The only way out of this catastrophe is to let it happen, get it over with, and start over.

Oh, yeah, and of course, put some of the criminals responsible for it in jail instead of making them heads of government departments and agencies.

But as we all know, there will only be a few sacrificial lambs while the real criminals get off scot-free.