Thu 27 Dec 2007
From the NY Times:
Home Prices Fell Faster in October
The decline in home prices accelerated and spread to more regions of the country in October, according to data released Wednesday.
Prices fell 6.1 percent from October 2006 in 20 large metropolitan areas, according to Standard & Poor’s/Case-Shiller indexes, compared with a 4.9 percent decline in September. On a monthly basis, prices fell 1.4 percent in October, the fastest they have declined in at least the last seven years.
…
During the boom, rising home prices increased consumer spending because people felt more wealthy and were able to borrow against their new home equity. Now that process is reversing itself, said Patrick Newport, an economist at Global Insight, a research firm outside Boston. “And the foreclosure rates are going to go up a little more. If prices are falling, you are more likely to default” because the house may be worth less than the mortgage on it.
…
“It has been surprisingly resilient,” Robert J. Shiller, the Yale economist and a creator of the home price indexes, said about the economy. He added that it was difficult to determine what impact the weakness in housing would have on the economy going forward.“We are in uncharted territory,” he said. “This was the biggest housing boom we have ever seen.”
…
Edward E. Leamer, an economist at the University of California, Los Angeles, said the declines in Seattle and elsewhere should not be surprising because they were also caught up in the housing boom that was fueled by low interest rates and lax lending standards.“Finance is not local,” he said as a counterpoint to the maxim that real estate is local. “The availability of mortgages at extremely easy terms affected every home in the United States.”
From Bloomberg:
ACA Cedes Control to Regulator to Avert Delinquency
ACA Capital Holdings Inc., the bond insurer that lost its investment-grade credit rating last week, agreed to give control to regulators to avert delinquency proceedings.
ACA Financial Guaranty Corp., a unit of ACA Capital, will seek approval from the Maryland Insurance Administration before pledging or assigning assets, paying dividends or entering into “certain material transactions,” the New York-based company said in a filing with the Securities & Exchange Commission yesterday. The regulator will hold off proceedings against the company, which is registered in Maryland.
“It’s given them breathing room and a month to stave off bankruptcy,” said Nigel Sillis, director of fixed income and currency research at Baring Asset Management in London. “It still looks like bankruptcy is inevitable.”
Credit rating companies are reviewing MBIA Inc., Ambac Financial Group Inc. and other bond insurers on concern they don’t have enough money to cover potential losses stemming from accelerating downgrades of the securities they guarantee, potentially endangering $2.4 trillion of bonds. S&P cut ACA’s rating by 12 levels last week to CCC after the company posted a $1.04 billion third-quarter loss in November.
From Reuters:
Fitch may cut ratings on some insured mortgage bonds
Fitch Ratings on Wednesday said it may cut its ratings on certain residential mortgage-backed securities insured by MBIA Inc, Ambac Assurance Corp, FGIC Corporation and Security Capital Assurance.
Fitch said it may cut 87 MBIA-insured mortgage bonds, 64 Ambac-insured bonds, 35 FGIC-insured bonds and 19 SCA-insured bonds.
The rating actions follow Fitch’s recent warnings that it may cut the top “AAA” ratings of MBIA, Ambac Assurance Corp, FGIC Corporation and Security Capital Assurance.
Fitch has said it is concerned about the bond insurers’ exposure to deteriorating mortgage-related investments.
Analysts have said the insurers’ exposure to subprime mortgages may reaccelerate the U.S. credit downturn.
The growing fears center on the insurers’ guarantees on complex debt to mortgages. Insurer downgrades could spark a ripple effect of further cuts of securities they insure.
From Inman News:
Credit crunch amplifies housing downturn
The credit crunch showed few signs of abating going into 2008, and threatened to magnify the housing downturn by adding more foreclosed homes to already bloated inventories and making it impossible or too costly for many would-be home buyers to obtain a loan.
While dozens of mortgage lenders stopped making loans or went out of business in 2007, a bigger problem for many borrowers has been the tightened underwriting standards rushed into place by lenders who remain.
Interest rates on “vanilla” fixed-rate, conforming loans of $417,000 or less made to borrowers with good credit dipped briefly below 6 percent at the end of 2007, and could continue to fall in 2008. But borrowers with less-than-stellar credit, if they are able to obtain financing at all, are paying higher rates and fees, reducing their buying power.
Those paying more to borrow include not only first-time home buyers who can’t scrape together the 20 percent down payment for a conventional conforming loan, but also families looking to trade up to a home requiring a jumbo mortgage that exceeds the $417,000 conforming loan limit.
The cost of private mortgage insurance — required by most lenders on loans with less than a 20 percent down payment — is going up, even for borrowers with credit scores considered well above subprime.
Government-chartered mortgage financers Fannie Mae and Freddie Mac have increased surcharges for borrowers with credit scores below 680, well above the 620 threshold sometimes used to define subprime borrowers, and will require down payments of at least 5 percent on all loans in “declining markets.”
Freddie Mac summarized the new underwriting policies being implemented by both government-sponsored enterprises (GSEs) in a Nov. 15 bulletin to lenders.
…
Since credit markets seized up in August, the secondary markets for subprime and alt-A loans have virtually disappeared, and even corporations have had trouble getting investors to back short-term “commercial paper” debt that was once the lifeblood of many mortgage lenders.
…
Private mortgage insurers PMI Group Inc. and MGIC Investment Corp. have raised or are raising rates for borrowers with lower credit scores and loan-to-value (LTVs) ratios above 95 percent. Both companies have discontinued mortgage insurance on loans with LTVs above 95 percent for borrowers with credit scores below 620.
…
“What we found when looking at our portfolio was that the combination of a low FICO score and high LTV doesn’t have a high-enough likelihood of sustainability for us to be comfortable insuring it,” said Beth Haiken, a spokeswoman for PMI Group, which raised rates in October. “It doesn’t do anybody any good to be putting people into homes if they don’t have a pretty good chance of success.”
From CNBC:
Home Prices Plummet: No Pain, No Gain?
The S&P/Case-Shiller Home Price Indices out today couldn’t be more telling of what’s going on in the housing market now — and more importantly, where it’s headed: Prices are in free fall.
…
What’s interesting to me is that 11 out of the top 20 markets are actually accelerating in their price declines, and the three markets that are still in the positive — Seattle, Portland and Charlotte — are less positive than they’ve been year-over-year; and they’re negative month-to-month.
…
Things are getting worse and will likely continue to get worse, until buyers find a reason to get in the game again. That could be the spring season, but unlikely. Still, prices have to fall in order to get sales going again and get the market back to normal — where it hasn’t been in the past 6 years.
David Blitzer at S&P says there is no silver lining in any of this data, and in the short term he’s absolutely right. Falling prices will only add to the foreclosure crisis, making it impossible for some folks to get out of mortgages they can’t afford, because they won’t be able to sell their homes for more than they paid.
From MarketWatch:
Fewer mortgage applications filed last week
The volume of mortgage applications filed in the week ended Dec. 21 dropped 7.6% compared with the previous week, even as mortgage interest rates decreased, according to the latest survey from the Mortgage Bankers Association.
According to the survey, week-to-week applications to refinance existing home loans decreased 8.5% on a seasonally adjusted basis. Home-purchase mortgage applications fell 6.6%, according to the MBA.
The end of NJ pharma?
WuXi Has More Chemists Than Pfizer as Shanghai Research Surges
WuXi Pharmatech Inc., a decade-old drug research company in the industrial outskirts of Shanghai, will employ more chemists next year than Pfizer Inc., the world’s largest producer of medicines.
That’s because Pfizer and rivals such as AstraZeneca Plc and Merck & Co. are turning to WuXi to help them find the next $1 billion treatment.
For the biggest pharmaceutical companies, being first with a new medicine is crucial as generic copies of their most popular brands erode sales. The shift to research labs in China is reducing expenses as U.S. and European drugmakers cut thousands of jobs. Meanwhile, WuXi is flourishing, doubling in market value in its first four months as a public company.
“The reason we exist is because the cost for research is just too high,” said Ge Li, chief executive officer of WuXi, during an interview at the company’s research center in Shanghai. “Every company is talking about how they can’t afford it.”
Outsourcing, or shifting work to contractors, may carry a risk for Western drugmakers because companies like WuXi may eventually turn into competitors.
From CNBC:
US Mortgage Applications Sink to Year Low
U.S. mortgage applications sank last week to the lowest level since the end of last year despite falling borrowing costs, an industry trade group said Thursday.
The Mortgage Bankers Association’s seasonally adjusted mortgage application index fell 7.6 percent in the week ending Dec. 21 to 603.8, its lowest reading since falling to 575.6 in the Dec. 29, 2006 week.
The MBA’s weekly indexes have been exaggerated on the high side much of the year. Borrowers facing stricter loan standards often apply numerous times in search of getting one request approved.
The applications slump this week and last, however, appears to more closely reflect the status of ailing housing sales.
Hopefully, China will open up Financial Jobs for displaced US workers, as the last high paying Private Sector Area is Outsourced. The Nation will then be comprised of the Rich Neocons, Government Employees, and the Homeless.
Confused,
Come on now, I am sure a college graduate might be able to get a Wal-Mart or McDonalds job.
Bhutto Pakistani killed today,Cnbc.
Gold & oil up they go.
This is not a good thing for stability in reagion.Also a terrible human tragedy.
8 Confused Did you forget a group,rich liberal elite
grim:
a small population article with a U.S. chart
nothing earth shattering, but more a confirmation of what we know
the upshot? MICH & RI….states devoid of any economic growth also are the only states reflect a decrease in population
http://online.wsj.com/article/SB119872248705652005.html?mod=hps_us_whats_news
Headline article in today’s WSJ
Wall Street Wizardry
Amplified Credit Crisis
A CDO Called Norma
Left ‘Hairball of Risk’;
Tailored by Merrill Lynch
By CARRICK MOLLENKAMP and SERENA NG
December 27, 2007; Page A1
In recent years, as home prices and mortgage lending boomed, bankers found ever-more-clever ways to repackage trillions of dollars in loans, selling them off in slivers to investors around the world. Financiers and regulators figured all the activity would disperse risk, and maybe even make markets safer and stronger.
Then along came Norma.
Norma CDO I Ltd., as its full name goes, is one of a new breed of mortgage investments created in the waning days of the U.S. housing boom. Instead of spreading the risk of a global home-finance boom, the instruments have magnified and concentrated the effects of the subprime-mortgage bust. They are now behind tens of billions of dollars of write-downs at some of the world’s largest banks, including the $9.4 billion announced last week by Morgan Stanley.
Norma illustrates how investors and Wall Street, in their efforts to keep a lucrative market going, took a good idea too far. Created at the behest of an Illinois hedge fund looking for a tailor-made bet on subprime mortgages, the vehicle was brought into existence by Merrill Lynch & Co. and a posse of little-known partners.
In its use of newfangled derivatives, Norma contributed to a speculative market that dwarfed the value of the subprime mortgages on which it was based. It was also part of a chain of mortgage-linked investments that took stakes in one another. The practice generated fees for a handful of big banks. But, say critics, it created little value for investors or the broader economy.
“Everyone was passing the risk to the next deal and keeping it within a closed system,” says Ann Rutledge, a principal of R&R Consulting, a New York structured-finance consultancy. “If you hold my risk and I hold yours, we can say whatever we think it’s worth and generate fees from that. It’s like…creating artificial value.”
Only nine months after selling $1.5 billion in securities to investors, Norma is worth a fraction of its original value. Credit-rating firms, which once signed off approvingly on the deal, have slashed its ratings to junk.
The concept behind Norma, known as a collateralized debt obligation, has been in use since the 1980s. A CDO, most broadly, is a device that repackages the income from a pool of bonds, derivatives or other investments. A mortgage CDO might own pieces of a hundred or more bonds, each of which contains thousands of individual mortgages. Ideally, this diversification makes investors in the CDO less vulnerable to the problems of a single borrower or security.
The CDO issues a new set of securities, each bearing a different degree of risk. The highest-risk pieces of a CDO pay their investors higher returns. Pieces with lower risk, and higher credit ratings, pay less. Investors in the lower-risk pieces are first in line to receive income from the CDO’s investments; investors in the higher-risk pieces are first to take losses.
But Norma and similar CDOs added potentially fatal new twists to the model. Rather than diversifying their investments, they bet heavily on securities that had one thing in common: They were among the most vulnerable to a rise in defaults on so-called subprime mortgage loans, typically made to borrowers with poor or patchy credit histories. While this boosted returns, it also increased the chances that losses would hit investors severely.
Also, these CDOs invested in more than simply subprime-backed securities. The CDOs held chunks of each other, as well as derivative contracts that allowed them to bet on mortgage-backed bonds they didn’t own. This magnified risk. Wall Street banks took big pieces of Norma and similar CDOs on their own balance sheets, concentrating the losses rather than spreading them among far-flung investors.
“It is a tangled hairball of risk,” Janet Tavakoli, a Chicago consultant who specializes in CDOs, says of Norma. “In March of 2007, any savvy investor would have thrown this…in the trash bin.”
[continued]
Penny Stocks
Norma was nurtured in a small office building on a busy road in Roslyn, on the north shore of New York’s Long Island. There, a stocky, 37-year-old money manager named Corey Ribotsky runs a company called N.I.R. Group LLC. Mr. Ribotsky came not from the world of mortgage securities, but from the arena of penny stocks, shares that trade cheaply and often become targets of speculation or manipulation.
N.I.R. and its affiliates have taken stakes in 300 companies, some little-known, including a brewer called Bootie Beer Corp., lighting firm Cyberlux Corp. and water-purification company R.G. Global Lifestyles. Mr. Ribotsky’s firms are in litigation in New York federal court with all three companies, which claim N.I.R. manipulated their share prices. Through its lawyer, N.I.R. denies wrongdoing and has accused the companies of failing to repay loans.
Mr. Ribotsky’s firm attracted the attention of Merrill Lynch in 2005. The top underwriter of CDOs from 2004 to mid-2007, Merrill had generated hundreds of millions of dollars in profits from assembling and then helping to distribute CDOs backed by mortgage securities. For each CDO Merrill underwrote, the investment bank earned fees of 1% to 1.50% of the deal’s total size, or as much as $15 million for a typical $1 billion CDO.
To keep underwriting fees coming, Merrill recruited outside firms, called CDO managers. Merrill helped them raise funds, procure the assets for their CDOs and find investors. The managers, for their part, choose assets and later monitor the CDO’s collateral, although many of the structures don’t require much active management. It was an attractive proposition for many start-up firms, which could earn lucrative annual management fees.
Mr. Ribotsky’s entry into the world of CDO managers began at Engineers Country Club on Long Island. There, in 2005, he met Mitchell Elman, a New York criminal-defense lawyer who specializes in drunk-driving and drug cases. Mr. Elman introduced Mr. Ribotsky to Kenneth Margolis, then a high-profile CDO salesman at Merrill, according to people familiar with the situation. Mr. Elman declined to comment.
‘It Sounded Interesting’
Mr. Margolis, who in February 2006 became co-head of Merrill’s CDO banking business, played a key role in seeking out start-up firms to manage CDOs. He put Mr. Ribotsky in contact with a few people who had experience in the mortgage debt market. They included two former Wachovia Corp. bankers, Scott Shannon and Joseph Parish III, who left Wachovia and established their own CDO management firm.
Mr. Ribotsky decided to team up with Messrs. Shannon and Parish. “It sounded interesting and that’s how we ventured into it,” Mr. Ribotsky says. Messrs. Parish and Shannon declined to discuss specifics of Norma.
Together the trio set up a company called N.I.R. Capital Management, which over the next year or so took on the management of three CDOs underwritten by Merrill.
In 2006, Mr. Ribotsky says Merrill came to N.I.R. with a new proposition: One of the investment bank’s clients, a hedge fund, wanted to invest in the riskiest piece of a certain type of CDO. Merrill worked out a general structure for the vehicle. It asked N.I.R. to manage it.
“It was already set up when it was presented to us,” Mr. Ribotsky says. “They interviewed a bunch of managers and selected our team.”
The CDO would be called Norma, after a small constellation in the southern hemisphere. According to people familiar to the matter, the hedge fund was Evanston, Ill.-based Magnetar, a fund that shared its name with a powerful neutron star. Magnetar declined to comment.
On Dec. 7, 2006, Norma was established as a company domiciled in the Cayman Islands. N.I.R., as its manager, would earn fees of some 0.1%, or about $1.5 million a year.
Norma belonged to a class of instruments known as “mezzanine” CDOs, because they invested in securities with middling credit ratings, averaging triple-B. Despite their risks, mezzanine CDOs boomed in the late stages of the credit cycle as investors reached for the higher returns they offered. In the first half of 2007, issuers put out $68 billion in mortgage CDOs containing securities with an average rating of triple-B or the equivalent — the lowest investment-grade rating — or lower, according to research from Lehman Brothers Holdings Inc. That was more than double the level for the same period a year earlier.
Buying Protection
For Norma, N.I.R. assembled $1.5 billion in investments. Most were not actual securities, but derivatives linked to triple-B-rated mortgage securities. Called credit default swaps, these derivatives worked like insurance policies on subprime residential mortgage-backed securities or on the CDOs that held them. Norma, acting as the insurer, would receive a regular premium payment, which it would pass on to its investors. The buyer of protection, which was initially Merrill Lynch, would receive payouts from Norma if the insured securities were hurt by losses. It is unclear whether Merrill retained the insurance, or resold it to other investors who were hedging their subprime exposure or betting on a meltdown.
Many investment banks favored CDOs that contained these credit-default swaps, because they didn’t require the purchase of securities, a process that typically took months. With credit-default swaps, a billion-dollar CDO could be assembled in weeks.
[continued]
Multiplying Risk
In principle, credit-default swaps help banks and other investors pass along risks they don’t want to keep. But in the case of subprime mortgages, the derivatives have magnified the effect of losses, because they allowed bankers to create an unlimited number of CDOs linked to the same mortgage-backed bonds. UBS Investment Research, a unit of Swiss bank UBS AG, estimates that CDOs sold credit protection on around three times the actual face value of triple-B-rated subprime bonds.
The use of derivatives “multiplied the risk,” says Greg Medcraft, chairman of the American Securitization Forum, an industry association. “The subprime-mortgage crisis is far greater in terms of potential losses than anyone expected because it’s not just physical loans that are defaulting.”
Norma, for its part, bought only about $90 million of mortgage-backed securities, or 6% of its overall holdings. Of that, some were pieces of other CDOs mostly underwritten by Merrill, according to documents reviewed by The Wall Street Journal. These CDOs included Scorpius CDO Ltd., managed by a unit of Cohen & Co., a company run by former Merrill CDO chief Christopher Ricciardi. Later, Norma itself would be among the holdings of Glacier Funding CDO V Ltd., managed by an arm of New York mortgage firm Winter Group.
A Winter Group official said the company declined to comment, as did Cohen & Co.
Such cross-selling benefited banks, because it helped support the flow of new CDOs and underwriting fees. In fact, the bulk of the middle-rated pieces of CDOs underwritten by Merrill were purchased by other CDOs that the investment bank arranged, according to people familiar with the matter. Each CDO sold some of its riskier slices to the next CDO, which then sold its own slices to the next deal, and so on.
Propping Up Prices
Critics say the cross-selling reached such proportions that it artificially propped up the prices of CDOs. Rather than widely dispersing exposure to these mortgages, the practice circulated the same risk among a relatively small number of players.
By early 2007, Norma was ready to face the ratings firms. Different slices of CDOs get different ratings because some protect the others from losses to defaults. A “junior” slice might take the first $30 million in losses on a $1 billion CDO, while a triple-A “senior” slice would not be affected until losses reached $200 million or more.
But the system works only if the securities in the CDO are uncorrelated — that is, if they are unlikely to go bad all at once. Corporate bonds, for example, tend to have low correlation because the companies that issue them operate in different industries, which typically don’t get into trouble simultaneously.
Mortgage securities, by contrast, have turned out to be very similar to one another. They’re all linked to thousands of loans across the U.S. Anything big enough to trigger defaults on a large portion of those loans — like falling home prices across the country — is likely to affect the bonds in a CDO as well. That’s particularly true for the kinds of securities on which mezzanine CDOs made their bets. Triple-B-rated bonds would typically stand to suffer if losses to defaults on the underlying pools of loans reached about 10%.
Easy Credit
When rating companies analyzed Norma, though, they were looking backward to a time when rising house prices and easy credit had kept defaults on subprime mortgages low. Norma’s marketing documents noted plenty of risks for investors but also said that CDO securities had a high degree of ratings stability.
Beyond that, rating firms say they had reason to believe that the securities wouldn’t all go bad at once as the housing market soured. For one, each security contained mortgages from a different mix of lenders, so lending standards might differ from security to security. Also, each security had its own unique team of companies collecting the payments. Yuri Yoshizawa, group managing director at Moody’s Investors Service, says the firm figured some of these mortgage servicers would be better than others at handling problematic loans.
In March, Moody’s, Standard & Poor’s and Fitch Ratings gave Norma their seal of approval. In its report, Fitch cited growing concern about the subprime mortgage business and the high number of borrowers who obtained loans without proof of income. Still, all three rating companies gave slices comprising 75% of the CDO’s total value their highest, triple-A rating — implying they had as little risk as Treasury bonds of the U.S. government.
Merrill and N.I.R. took Norma to investors. Together, they produced a 78-page pitchbook that bore Merrill’s trademark bull. Inside were nine pages of risk factors that included standard warnings about CDOs. The pitchbook also extolled mortgage securities, which it noted “have historically exhibited lower default rates, higher recovery upon default and better rating stability than comparably rated corporate bonds.”
Most importantly, though, Norma offered high returns: On a riskier triple-B slice, Norma said it would pay investors 5.5 percentage points above the interest rate at which banks lend to each other, known as the London interbank offered rate, or Libor. At the time, that translated into a yield of over 10% on the security — compared with roughly 6% on triple-B corporate bonds.
Network of Contacts
Mr. Ribotsky says the selling required little effort, as Merrill drummed up interest from its network of contacts. “That’s what they get their fees for,” he says.
Norma sold some $525 million in CDO slices — largely the lower-rated ones with higher returns — to investors. Merrill declined to say whether it kept Norma’s triple-A rated, $975 million super-senior tranche or sold it to another financial institution.
Many investment banks with CDO businesses — Citigroup Inc., Morgan Stanley and UBS — frequently kept or bought these super-senior pieces, whose lower returns interested few investors. In doing so, they bet that the top CDO slices, which typically comprised as much as 60% of the whole CDO, were insulated from losses.
By September, Norma was in trouble. Amid a steep decline in house prices and rising defaults on mortgage loans, the value of subprime-backed securities went into a free fall. As increasingly worrisome delinquency data rolled in, analysts upped their estimates of total losses on subprime-backed securities issued in 2006 to 20% or more, a level that would wipe out most triple-B-rated securities.
Within weeks, ratings firms began to change their views. In October, Moody’s downgraded $33.4 billion worth of mortgage-backed securities, including those which Norma had insured. Those downgrades set the stage for a review of CDOs backed by those securities — and then further downgrades.
Mezzanine CDOs such as Norma were the hardest hit. On Nov. 2, Moody’s slashed the ratings on seven of Norma’s nine rated slices, three all the way from investment-grade to junk. Fitch downgraded all nine slices to junk, including two that it had rated triple-A.
[continued]
Confused In NJ Says:
Correction:
December 27th, 2007 at 8:23 am
Hopefully, China will open up Financial Jobs for displaced US workers, as the last high paying Private Sector Area is Outsourced. The Nation will then be comprised of the Rich Neocons & Liberal Elite, Government Employees, and the Homeless
Worse Performances
Other mezzanine CDOs, including some underwritten by other investment banks, have had worse performances. Around 30 are now in default, according to S&P. Norma is still paying interest on its securities. It is not known whether it has had to make payouts under the credit default swap agreements.
Ratings companies say their March opinions represented their best read at the time, and called the subprime deterioration unprecedented and unexpectedly rapid. “It’s one of the worst performances that we’ve seen,” says Kevin Kendra, a managing director at Fitch. “The world has changed quite drastically — and our view of the world has changed quite drastically.”
By mid-December, $153.5 billion in CDO slices had been downgraded, according to Deutsche Bank. Because banks owned the lion’s share of the mezzanine CDOs, they bore the brunt of the losses. In all, banks’ write-downs on mortgage investments announced so far add up to more than $70 billion.
For larger banks, holdings of mezzanine CDOs could account for one-third to three-quarters of the total losses. In addition to the $9.4 billion fourth-quarter write-down Morgan Stanley just announced it would take, Citigroup has projected its fourth-quarter write-down could reach $11 billion. UBS said this month it would take a $10 billion write-down after taking a $4.4 billion third-quarter loss.
Merrill, for its part, took a $7.9 billion write-down on mortgage-related holdings in the third quarter. Analysts expect it to write down a similar amount in the current quarter, which would represent the largest losses of any bank. News of the losses have led to the ouster of CEO Stan O’Neal and Osman Semerci, the bank’s global head of fixed income. Mr. Margolis left this summer.
Mr. Ribotsky says he doesn’t have plans to do any more CDOs at the current time. “Obviously, we’re not happy about the occurrences in the marketplace,” he says.
and will require down payments of at least 5 percent on all loans in “declining markets.
jb #3,
Did Fannie or Freddie define “declining markets” anywhere?
Seattle, Portland and Charlotte were late to the party. So the measure of the decline from October 2006 to October 2007 will be quite different from the early to the party parts of the country such as Vegas or Miami. All three cities now have frothy prices without LA/NY/Chicago salaries to match. Another late to the party reason for their prices holding up is they were still hot in 2005 and 2006 while Vegas and Miami was already cooling. Those 2005/2006 3/27’s and 2/28’s will start hitting big in 2008. Charolette in particular is very dependent on the banking industry for it’s high salaries and I guarantee you in 2008 BOA and TIAA CREF in Charolette will be given out hardly any bonus and you will be luck to keep your Job. Seattle and Portland will be hit by massive Wamu layoffs. However, for now the other two big employers up their Boeing and Microsoft are doing well. But they are both cycical mature businesses. Both will take a hit in 2008 if we actually have a recission. Business can always put off the next Windows upgrade and struggling airliners won’t have a few extra billion to purchase a few dreamliners.
It’s all fun’n'games until they start losing money, then it’s all crying and bleming everyone else for their losses.
There’s a reason risk exists, unfortunately the companies who are supposed to weigh their risks did a horrible job of it.
Mortgage applications fall to lowest in a year
By Lynn Adler
NEW YORK (Reuters) - U.S. mortgage applications sank last week to the lowest level since the end of last year despite falling borrowing costs, an industry trade group said on Thursday.
The Mortgage Bankers Association’s seasonally adjusted mortgage application index fell 7.6 percent in the week ending December 21 to 603.8, its lowest reading since falling to 575.6 in the December 29, 2006 week.
Maybe late in 2008 we’ll see some markets beginning to recover,” said Gregory Miller, chief economist at SunTrust Banks in Atlanta, on Wednesday prior to the MBA report.
“But for the nation as a whole, I think the end of 2008 is probably as optimistic as one would want to get,” he said. “More likely, we’ll be well into 2009 before we start describing this housing cycle as ‘in recovery.”‘
“Tighter mortgage lending standards, falling consumer confidence and a sharp drop in speculative purchases have all taken bites out of buyer demand, forcing sellers to adjust by cutting prices,” said Mike Larson, real estate analyst at Weiss Research Inc in Jupiter, Florida, after the S&P/Case-Shiller report was released. “There’s no reason to expect an imminent turnaround.”
Home applications trailed off last week despite falling mortgage rates. One-year adjustable mortgages tumbled 45 basis points in the week to 6.03 percent, the lowest since mid-November.
Fixed 30-year mortgage rates averaged 6.10 percent last week, down 8 basis points, the association said.
blaming that is.
Luckily this ruling only effects Private Sector Retirees, Public Sector remains Whole.
Dec. 27, 2007, 1:22AM
Employers can cut benefits for retirees at 65
AARP attacks new regulation as discriminatory
By ROBERT PEAR
New York Times
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WASHINGTON — The Equal Employment Opportunity Commission said Wednesday that employers could reduce or eliminate health benefits for retirees when they turn 65 and become eligible for Medicare.
The policy, set forth in a new regulation, allows employers to establish two classes of retirees, with more comprehensive benefits for those under 65 and more limited benefits — or none at all — for those older.
More than 10 million retirees rely on employer-sponsored health plans as a primary source of coverage or as a supplement to Medicare, and Naomi C. Earp, the commission’s chairwoman, said, “This rule will help employers continue to voluntarily provide and maintain these critically important health benefits.”
Premiums for employer-sponsored health insurance rose an average of 6.1 percent this year and have increased 78 percent since 2001, according to surveys by the Kaiser Family Foundation. Because of the rising cost of health care and the increased life expectancy of workers, the commission said, many employers refuse to provide retiree health benefits or even to negotiate on the issue.
In general, the commission observed, employers are not required by federal law to provide health benefits to either active or retired workers.
AARP angered by rule
Dianna B. Johnston, a lawyer for the commission, said many employers and labor unions had told it that “if they had to provide identical benefits for retirees under 65 and over 65, they would just drop retiree health benefits altogether for both groups.”
In a preamble to the new regulation, published Wednesday in the Federal Register, the commission said, “The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.”
But AARP and other advocates for older Americans attacked the rule. “This rule gives employers free rein to use age as a basis for reducing or eliminating health care benefits for retirees 65 and older,” said Christopher G. Mackaronis, a lawyer for AARP, which represents millions of people age 50 or above and which had sought in court to forestall the regulation’s adoption in final form. “Ten million people could be affected — adversely affected — by the rule.”
The new policy creates an explicit exemption from age-discrimination laws for employers that scale back benefits of retirees 65 and over. Mackaronis asserted that the exemption was “in direct conflict” with the Age Discrimination in Employment Act of 1967.
The commission, by contrast, said that under that law, it could establish “such reasonable exemptions” as it might find “necessary and proper in the public interest.” The 3rd U.S. Circuit Court of Appeals, in Philadelphia, upheld this claim in June, in the case filed by AARP, which has asked the Supreme Court to review the decision.
In its ruling, the appeals court said, “We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees.” But the court said the commission had shown that the exemption was “a reasonable, necessary and proper exercise” of its authority.
Under the new rule, employers may, if they choose, provide retiree health benefits “only to those retirees who are not yet eligible for Medicare.” Likewise, the rule says, retiree health benefits can be “altered, reduced or eliminated” when a retiree becomes eligible for Medicare.
Further, employers will be able to reduce or eliminate health benefits provided to the spouse or dependents of a retired worker 65 or over, regardless of whether benefits for the retiree are changed.
Shifting the cost
Employers and some unions contend that retirees under 65 have a greater need for employer-sponsored health benefits because they are generally not Medicare-eligible. Large employers have often provided some health benefits to retirees 65 and older, to help cover costs not paid by Medicare. But employers have for years been trying to reduce retiree benefits or to shift more of the cost to retirees.
Lawyers for the commission said the new Medicare drug benefit, now nearing the end of its second year, had strengthened the case for the regulation because it guaranteed that retirees 65 and older would have access to drug coverage. Younger retirees have no such guarantee, so employers may want to provide drug coverage to them in particular, the lawyers said.
John,
Charlotte also didn’t see the run-up in prices like this area because of a plentiful supply of land to build. The bubble there manifest itself as more of a (over) building boom rather than bidding up existing home prices like we saw here.
In addition to banking, Charlotte is also heavily dependant on a steady stream of northerners (NY metro area) relocating to the area, cash in hand, filling all of those newly built homes. As RE slows here, home owners are having a tougher time selling so they can relocate & first time buyers are finally beginning to see the light at the end of the tunnel and are taking more of a “wait and see” approach. This doesn’t bode well for Charlotte. Charlotte can only hope that northeasters governments continue to tax their citizens & businesses out of the northeast and into Charlotte.
from the WSJ I posted….all who were indirectly profiled should be immediately terminated….20/20 hindsight is easy for me, but this is elementary school stuff….
“Easy Credit
When rating companies analyzed Norma, though, they were looking backward to a time when rising house prices and easy credit had kept defaults on subprime mortgages low. Norma’s marketing documents noted plenty of risks for investors but also said that CDO securities had a high degree of ratings stability.
Beyond that, rating firms say they had reason to believe that the securities wouldn’t all go bad at once as the housing market soured. For one, each security contained mortgages from a different mix of lenders, so lending standards might differ from security to security. Also, each security had its own unique team of companies collecting the payments. Yuri Yoshizawa, group managing director at Moody’s Investors Service, says the firm figured some of these mortgage servicers would be better than others at handling problematic loans.”
Renting 23 I’m sure Charlotte can count on NJ to tax us out of the state’ to help them out.It will not be enough to save their RE market but it should help some.
#25 Unless people are retiring to NC, most people will not relocate to Charlotte without a job, or prospects of a job.
Biggest Homebuilder Writedowns Are Yet to Come: Jonathan Weil (Bloomberg, Dec. 26th): “Pulte Homes Inc. (PHM) showed $8.1 billion of inventory at Sept. 30, (land and houses.) The company’s book value, or assets minus liabilities, was $5.2B. Yet Pulte’s stock-market value is only $2.7B, after a 68% drop in its shares this year… Is Pulte’s inventory really worth three times more than the company as a whole? Probably not… Pulte, Centex Corp. (CTX), D.R. Horton Inc. (DHI), KB Home (KBH), and Lennar Corp. (LEN), [the] five companies in the S&P 500 Homebuilding Index… have a combined book value of $22.7B, the stock market says they’re worth just $15.2B… signaling that their net asset values are inflated by more than $7B.”
3b To tell you the truth retiries were the ones I had in mind when posting.As I have been looking in Charlotte for a job myself
to relo.If I can buy cheap enough don’t need big bucks job.Would go down & work 6 months or so first rent small place for me then bring wife & kids if it looked good.Rent larger home for year then buy if still comfortable with the area.I can always come back to NJ.Don’t really want to leave area but the ever increasing taxes & no hope of it getting any better,I may go for it.I believe timeline in RE would work in my favor if I follow this plan in the next 3 to 6 months.
http://www.npr.org/templates/story/story.php?storyId=17638047
A little defensive, aren’t we?
#29 mike Why not just wait it out here?
RE: Charlotte can only hope that northeasters governments continue to tax their citizens & businesses out of the northeast and into Charlotte.
They are already out of luck, my two boneheaded blue collar neighbors with their disney vacations and new cars in the driveway without a nickle in the bank both moved to Charlette in the spring of 2006. Both sold their splits they bought in 1992 for around 200k for around 600K and walked away with around 500K cash and bought 200K Charlette houses and invested the 300K. That gravy train move is over. Both of them now realize they are burning through their 300K as you are lucky to make ten bucks an hour when you are middle aged without a college degree and no connections.
Mike in waiting if you really want Charolette the best way is to get a job now at BOA, TIIA CREF or any big company in Charollete that has locations in NY/NJ right now and then transfer. Otherwise it is tough to do. I had a job offer at TIAA Cref NY a few years ago and was told after 12 months I could post for a job in Charlete as that is where most jobs are going anyhow and take my NY salary with me. I would be a fool to apply directly to Charlette and start at a southern salary.
In all the discussion of the real estate bubble, especially in resort area of NJ, the year around residents are overlooked.
The bubble permitted foolish governments to agree to large increases in spending because the increased tax rolls gave them money to spend without increasing tax rates. Now many towns are caught with increased fixed costs on declining tax bases.
Had the assessors looked at those funny money mortgages, they would have not reassessed at the peak of the market stimulated by “investors”.
As the market declines as in 1986 it will again be hit by increased capital gains rates after the 2008 election and the slump on the Jersey shore will again last more than a decade.
I will not be buying at the foreclosure sales as the closing of Fort Monmouth will have as much impact as the turmoil at AT&T did in the late 80s. Tens of thousand of higher paying jobs are migrating to states with lower taxes and less debt.
#26 Unless people are retiring to NC, most people will not relocate to Charlotte without a job, or prospects of a job.
With BOA and Wachovia about propbably doing layoffs in the new year, Charlotte could be in for a very bumpy ride.
“This year’s housing bust is shaping up to be one of historic proportions. [Edit: I swear these writers are digging thru the archives here, to come up with this?] Sales and construction have sunk to levels not seen since the 1990 savings and loan crisis, while foreclosures and price drops are the largest since the Great Depression — and expected to get worse next year.”
“Many parallels can be seen with earlier housing debacles. Each episode had some combination of easy money, loose lending, greed and fraud that turned a housing boom into a speculative bubble. But few housing bubbles have ended so badly as the one today, when the nation is confronting the prospect of mass foreclosures and family dislocations.”
http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20071226/BUSINESS/572777982/1001
From the Washington Post:
Mortgage Probes Face Big Hurdles
Scrutiny Grows, But Banks’ Liability Remains Unclear
By Carrie Johnson
Washington Post Staff Writer
Thursday, December 27, 2007; Page D01
The nation’s largest banks are losing billions of dollars from the mortgage debacle. But will pain from bad housing bets be compounded by government investigations?
http://www.washingtonpost.com/wp-dyn/content/article/2007/12/26/AR2007122601713.html?nav=rss_business
3b As most know I live in vernon & I’m looking to buy here but the taxes have almost doubled in 10 yr since I bought & sold here 6/06 lucky me,I feel they can only get worse.
I,m not in finace so that move by transfer is not an option,thou a good one
if you can.
John is right about low paying jobs all over out side of NY/NJ area.Sent resume for directors position in Portland ME 50% lower than metro area it was a joke.Even with a degree the rest of country pay crap except for Cal.& maybe Boston area the again you are in the same boat as here with RE &
taxes.
http://www.latimes.com/business/la-fi-newyork27dec27,0,986457.story?coll=la-tot-business&track=ntothtml
Wall Street woes worry New Yorkers
NEW YORK — Like a lot of New Yorkers, Peter Poulakakos is holding his breath.
His legendary Wall Street restaurant, Harry’s Cafe & Steak, relies heavily on the normally free-spending financial industry, and Wall Street’s mounting problems from the sub-prime mortgage crisis are threatening to eat into his bottom line.
Business has held up this holiday season, but next year could be another story.
“When Wall Street slows, everyone slows,” Poulakakos said. “It’s a tremendous concern.”
The booming financial markets helped Wall Street earn bountiful profits in recent years, which in turn made Manhattan’s economy and housing market the envy of much of the country.
But sub-prime-induced layoffs and suddenly deflating bonuses appear likely to change that.
Wall Street investment banks have written off about $75 billion in sub-prime losses, and analysts predict tens of billions more. Investment banks have announced that more than 40,000 jobs would be cut. And year-end bonuses on Wall Street could shrink as much as 15% from a year ago.
As a result, the economy of the city and surrounding areas is expected to slow notably, from a 4% annual growth rate in 2005 and 4.6% last year to 2.9% this year and 1.6% next year, according to the federal Bureau of Economic Analysis.
Manhattan, where most employees of Wall Street firms work, still has a lot going for it.
In financial services, expanding areas such as investment banking and commodities trading are offsetting some of the pain in the bond and mortgage businesses. And the weak dollar is prompting foreigners to gobble up high-priced Manhattan apartments and splashy luxury items.
Wall Street’s problems have yet to show up in official economic data, and other evidence of a slowing economy remains primarily anecdotal.
Still, there’s a creeping sense among some that the economic nirvana of the last few years is giving way to a period of uncertainty and perhaps much worse, depending on how long the sub-prime crisis lingers.
…
Due to the out-of-control property taxes prevalent in the Northeast, wouldn’t you think the state governments would eventually do something to attempt to stem the outflow of talent and businesses? As their tax revenues drop, won’t the state have to make some drastic cuts? If they attempt to recoup the lost tax revenue from the remaining persons and businesses that remain here, won’t it only accelerate the emigration away from here?
Where is the money going to come from?
My guess is that in one fell swoop, the governor will make major cuts to the benefits promised to the states workers. The union will balk and will strike, but surprisingly, few will notice any difference in their daily lives (except of course, the needy and disabled). The press and public will turn negative towards the plea of the striking state workers and the cuts in benefits will eventually be accepted.
It should be interesting to see how it all plays out.
In the meantime, as our state governments continue to play the bonding game, our credit ratings will get lowered and the cost of maintaining our debt will increase due to higher interest rates owed on the debt. It should play out very interestingly over the next few years.
If we head into a major recession, things will happen a lot quicker.
Wow if half the public workers went on strike we would only have one public worker watching the other public worker dig a hole instead of three public workers watching the one public worker digging a hole. Even worse Cops would have to drive by themselves, they would not have the rookie with them and they would actually have to get out of the car and buy their own donuts instead of sending the rookie. What a nightmare.
The press and public will turn negative towards the plea of the striking state workers and the cuts in benefits will eventually be accepted.
Crude oil is now up 1.3% to $97.25 per barrel on the bullish crude inventory data.
Gold has been pretty flat.
SRS keeps setting higher highs and higher lows.
Homebuilders are near record lows.
Bank write downs continue and in most cases are doubling. Of course, these are forwhat they currently misvalue on their books. Just wait until the foreclosures pick up in the spring. Mortgage interest rates seem to be creeping up again as well.
Where’s BI been?
stuw 38 I can only hope your dream comes true but I doubt it.That would be political suicide.Unless people of NJ get off their a** & start marching on Trenton this will go on till we are totally busted & then who will want to live here.The gov. will ride this out till the bitter end then Gov employees & tax payers will lose alot more.Teachers & public employee unions own are gov.They vote in block & have money to lobby.Not to blame it all on them the corruption is out of control & state regs strangle bussinesses & schools driveing up cost of both.
Any thoughts on Benazir Bhutto’s assassination this morning?
OIl trying to break that 100 level.
Bi in hiding on news.
Ironically, rating agenciec are quite incompatant at assessing risk. For all their models and structuring scenarios and ultra conservative deal posturing, look what we get. Many of the same economists at the agencies vocal about relative predictive prepayments and defaults are now making “inferences” about declining home values, in many cases, driving the train on wide spread market sentiment. ie. 12% off 2006 peak by ‘09 -Moody’s chief. Based on recent thier recent historical accuracy, future predictions should footnote variance, give or take, +or- 25% X2 /3.2 ^1.6. What a joke…
Some more memories (easy reading after all that above ;)
One year, we lived in an old farm house on New Dover Road, Edison.
It was next to the James Madison Elementary school. There was a teeny patch of woods between our house and the school. I was always late to school.
We used to play out back, where there were fields that went on forever and weeds that towered over my head… One time, I actually got to see a fence waaaaaaaay in the back where the woods started…but only once. That was generally too far for me to roam.
There was a cesspool in the backyard. I didn’t know what a cesspool was, but was always looking for a “pool” when we were playing in the weeds. My (older) brother was always threatening to thrown me in the cesspool.
The fields of grass were over my head, so we had a huge maze of trails blazed thru the overgrown weeds/grass. At the junction of two weeds paths, there was a tiny horse stable. Enough for two horses. My brother and I called it the “tick shack”… cuz you were full of ticks when you came away from it.
Somebody put a housing development in just after we moved. The farm house was still there.
There weren’t many neighbors, though, before the development. There was Carol who lived in the other apt in the house and Dieter and Harry from down the road. Their mother was german and would scream “DEEEEEEEEEETER!!!!!!!!! HARRRRRRRRRY!!!!! and they wiould go running home. We didn’t see their house from ours… she must’ve had some lungs.
There was a horse riding stable just past the school and fire house (is the firehouse still there, near the school?). They would rent you a horse and you’d ride down New Dover Road. When unsuspecting riders on horses would come past our house, our Sheepdog would go bounding from the porch to the road, barking his fool head off and bouncing up and down around the horse’s legs. The horses would spook and take off, the poor people, with eyes and mouths wide open, holding on for dear life as the horses took off in every which direction.
We used to go to the firehouse to buy orange soda. They had one of those soda machines you’d open the long narrow door and pull any bottle you wanted. It had a bottle opener built in so you could pull the soda cap off.
There was a funeral home at the end of New Dover Road and we used to tell our mom if she died, we could just roll her down the hill to the funeral home. We all thought that was funny.
Does anyone know if the old house still sits there?
“stuw 38 I can only hope your dream comes true but I doubt it.That would be political suicide”
I don’t think it would be political suicide. Such a brave move would probably both succeed and would provide a great platform for the governor to try the same tactics at the federal level.
The bottom line is that the tax roles are going to suck going forward and the people will leave in mass if something doesn’t change soon. Forget marches on Trenton. There won’t be anyone left to participate.
I don’t wish it, but a bridge (perhaps the Pulaski Skyway) is going to collapse soon and people are going to want to know who is responsible for it. Not until a major catastrophe occurs will anyone ask questions as to why the repairs weren’t made. When they here that it was more important to fund the healthcare needs of state workers and their entire immediate families at no cost to the worker. Then the people may begin to protest. Keep in mind, we are all just sheeple, getting our annual fleecing from our farmhands down in Trenton.
ultrashort 40 Gold up to 834 nice push so far not flat by my standards.Lets see how it closes.
Problem with Gold is timing the sell. When are you planning on getting out?
Gold is up no more than 10% from the time BI made his call (and that is being generous).
http://money.cnn.com/2007/12/26/pf/expert/expert.moneymag/index.htm?postversion=2007122711
3b (26)-
Exactly. Charlotte is not a retirement area. Retirees prefer the Triangle, Asheville or the coast.
UltraTard (48)-
Gold is up 10%…and the Fed, Treasury and PPT have been bombing it with daisy-cutters to tamp it down. Up 10%? Hell, without the outside manipulation, it should be over $1,000.
Just imagine what will happen in a few weeks, when the gubmint has expended all its dry powder.
To the moon, Alice!
“Gold has been pretty flat.”
short [40],
Gold is up $5.50 at 835 [Feb contract]. High since 11/28. I’ll sign up for a flat market like that, anytime.
Problem with Gold is timing the sell.
Is there an asset class that doesn’t have this problem?
Ultra 46 You need a brave poitician first &
then you need the idiots to vote him in.With a platform of cuting entitlements for gov employees , teachers & seniors ok there goes that voter block.By the way did I mention that you need a brave & honest politician willing to tell what the masses do not want to here.We have a prayer in hell.The masses do not think long term & neither do our elected officials.So the train wreck just continues,when we get to the point that people are wiiling to accept
the cuts it will be to late.
Wow what a nice story of your childhood, I remember in the Bronx growing up my landlord used to let his attack dogs loose when the lesibans from Walton HS were caught in the lobby making out or when the druggies were stealing every piece of brass out of the buildings. Plus elevators and trains are much more fun to ride on top. Then of course there was always train bombing in the yard. If you got your tag completely across the train on an elevated line it was a joy to see. In particular you wanted the 4 as it went by Lehman College and a few Schools. Just be carefully who you tagged over or you could end up with some nimchuck karate sticks over the heads. The only funny thing that ever happened during train bombing was a dope in my school was outrunning the train rent a cops as usual but ran smack into a big Irish Cop on his way out with his spray paint can in hand. Well the cop was near the end of shift and said to the train guy don’t worry I will take care of the punk right now. They held him down told him to close his eyes and the cop spray painted his face green. Boy did he get it that night from his dad and the nuns the next day, mind you he was in fourth grade like the rest of us. The good old days have great memories.
Out (42)-
Amazed it took so long for somebody to succeed in whacking her.
Ultra (46)-
“I don’t wish it, but a bridge (perhaps the Pulaski Skyway) is going to collapse soon and people are going to want to know who is responsible for it.”
May I shamelessly plug Walker Percy’s Love in the Ruins again? One of the great novels of the past 50 years has already presaged the crumbling infrastructure and our indifference to same.
“Problem with Gold is timing the sell.”
Just a thought. Maybe you should comtemplate timing the buy?
stuw6 Says:
December 27th, 2007 at 10:56 am
stu: Mike Bloomberg is the only politician I’ve heard be proactive on the subject.
RE: finance jobs in NC…be careful, the next shoe to drop is credit card defaults, and that is going to kick the consumer banks right in the tuchus.
BC Bob58 says: “Just a thought. Maybe you should comtemplate timing the buy?”
Hindsight is 50/50. I wish I had bought some gold, but I’m doing just fine with my other investments. I was lucky enough to purchase a very large position in this small burrito spinoff from McDonalds a few years ago. Contemplated getting in on the IPO at $20 but it required $125,000 minimum. It wouldn’t allow me enough diversification in the remainder of my portfolio though. I settled for a significantly smaller position at $40 on the 1st day of the open. I have been trading around that core position ever since. My latest sell is at $155.50 which almost triggered this morning. You can have your gold. I’ll stick with my golden burrito for now. My SRS will be at my line in the sand of $150 this Spring. We’ll see if gold is at $1200 by then. It just might be?
Grim/JB…#61 is stuck in moderation.
Davis selected bought 5.1 bil share in MBIA.
Interesting.Chriss Davis rolling the dice.
Clot Have to agree the whole state could go crashing down around them ,but don’t touch wants mine.
#19 Richie,
Did a horrible job or simply ignored the risks to line their own pockets? I know the big mortgage risk underwriting firms well (Clayton, Bohan, Edison). The banks cared only about predatory/high cost loans and FNMA violations. Income, documentation, or credit score violations were fudged and approved so that the deals could get done and fees could get collected. Merrill was the worst of the bunch. Risk firms, bond agencies, brokers, and the IBs were partying together…literally. There was no miscalculation. It was plain greed. Now, these companies will pay the piper for their decadence. Good riddance to them all.
Confused Why is it lucky that only private sector loses ins. at 65 not public.Maybe if all shared the pain something could be done.
Once again these private sector is asked to give up ins while taxed to maintain gov. employees in a better plan not right or sustainable.
Confused post 22 on my 66.
Think this has been asked before … but does anyone have the slightest concern that if your money is in one of those online-only banking accounts, and the blank hits the fan … that money could be lost?
Would it be safer to park it in a 6-month CD at your local bank? (Since nobody’s buying in at least the next six months, and the CD will get as good as, or perhaps better than, the online bank?)
WSJ Editorial
Debt and Responsibility
By ROB ASGHAR
December 27, 2007; Page A10
I blame the borrower. Yes, on the eve of an election year, it is bad politics and bad manners to say that the “little guy” deserves the brunt of the blame for the global subprime mortgage crisis. But I blame him nonetheless, with minimal qualifications and apologies.
Remember, first of all, that the 2008 elections will be decided by this same little guy. Remember that, as America seeks to bring the gospel of freedom to societies such as my native Pakistan, we must convince these nations that their own little guys can be trusted in decisions both grand and small. Once, America’s little guy was sane enough. He saved a dime on every dollar in the 1980s and a nickel on every dollar into the 1990s. Then, infected by rampant and ill-considered consumerism, he helped the national savings rate go negative in 2005, for the first time since the Great Depression.
The little guy has wanted the government off his back and has hoped to release as few of his hard-earned dollars as possible to that fat bureaucracy. Now he longs for a paternal force to save him from people who promised to help him keep up with his overspending neighbors.
On the surface at least, it would seem that others would make better scapegoats. I dealt with such potential scapegoats in 2004 and 2005, when I spent two years as the communications director at a burgeoning subprime mortgage originator in Orange County, Calif.
Pricey and posh Orange County office complexes housed half of America’s 20 leading subprime lenders. I occasionally asked mortgage executives what explained this coincidence. The question puzzled them. They lived in ocean-view Newport Beach homes. Why would they want to work anywhere else? The subprime industry chose to ignore economic and efficiency factors that had driven so many other businesses far from the costly California coast.
Another peculiarity was compensation. Top salespersons at companies such as New Century Mortgage Corporation often drew astronomical seven-figure salaries (and perks such as first-class trips to Spain and Germany). Capped teeth and breast implants trumped a work ethic for many who aspired to make it in subprime sales. Their counterparts in prime lending were lucky if they reached six figures.
Investors foolishly tossed billions of dollars at inefficient enterprises while expecting massive, long-term benefits. New Century’s now-laughable slogan was “a new shade of blue-chip,” and Wall Street proved gullible for a long time.
By and large, the lenders were no less irresponsible than the borrowers who aspired to live a bigger life than they could afford. But all of the strange creatures of subprime — the overpaid loan officers, bloated budgets, lavish Las Vegas “planning meetings” and the like — were nurtured by consumers who believed that incurring massive debt was the secret to becoming a rich landholder (or boat owner).
Regulation of the industry may address some problems — but not without creating the new ones that inevitably result from straitjacketing the free market. Besides, market forces were already slaying subprime’s monsters. By late 2005, most in the business knew the feast was entering its final moments.
The recent effort by the Bush administration to help a segment of subprime borrowers is, fortunately, a mostly cosmetic matter. (One mortgage executive tells me that only about 5% of the loans in his company’s loan portfolio will be affected.) Policy makers in Washington would do well to leave it at that. We need bureaucratic meddling far less than we need a sober and clear-eyed citizenry.
As my own friends bought and maintained homes, I quietly mused about how the homes owned them, not the other way around. I moved often, based on job commitments, with no interest in buying a house.
I may own a home someday, if prices return to sane levels once unfettered market forces play out their Shiva-esque roles as both Creator and Destroyer of fortunes. When the average person learns to treat those forces with humility and respect, we’ll all be served far better than by any political promises that claim to stand up for the little guy.
Mr. Asghar is a writer and editor based in Southern California.
mikeinwaiting Says:
December 27th, 2007 at 12:34 pm
Confused Why is it lucky that only private sector loses ins. at 65 not public.Maybe if all shared the pain something could be done.
Once again these private sector is asked to give up ins while taxed to maintain gov. employees in a better plan not right or sustainable.
I was being Facetious! The Government once again imposes a biased ruling on Private Sector Employees, while exempting Public Sector Employees. Why because 1. They are inherently evil, and 2. because they can. Their ruling is biased in that 1. It allows better Benefits Pre 65 then Post 65 in Private Sector and 2. completely exempts Public Sector. So, it is AGE & Class Bias. Similar to NY exempting Tax on Federal & State & Local Pensions, but not Private Pensions.
“Bhutto”
Yes, this is too bad this had to happen.
But, major players had already calculated this into the plans. So, I don’t think its going to have major ramifications. But still a shame nonetheless….
SAS
http://money.cnn.com/galleries/2007/real_estate/0706/gallery.june_million_dollar_houses/index.html
ok confused I guess I just read your intent wrong.How long does the gov expect to keep screwing private sector before they kill the goose that laid the golden egg.
John 72 Nice home but what the rub.
Re Bhutto:
Bhutto’s assasination brings back childhood memories of what happened when Indira Gandhi (Prime Minister of India) was gunned down by her own bodyguards back in 1984. Utter shock… followed by rioting. I expect hell to break loose in Pakistan in the interim; people need any reason to take to the streets.
Alfred Hitchcock told me this morning that the ISI assasinated Bhutto. She knew too much…
grim, am in moderation at #75.
bb in winter2007, #68…
aren’t the online banks protected up to $100,000 via FDIC… per depositor…
Another return to sanity. Can anyone here imagine how out of control Paris Hilton would have been with access to $2 billion?
http://www.cnbc.com/id/22404371
Barron Hilton, chairman of the foundation, intends “to contribute 97 percent of his entire net worth, estimated today at $2.3 billion, including the created trusts, at whatever value it is at the time of his passing,” the foundation said.
Paris Hilton
——————————————————————————–
Paris Hilton was not immediately available for comment on her grandfather’s plans for his fortune.
Jerry Oppenheimer, who profiled the Hilton family in his 2006 book “House of Hilton,” has said Barron Hilton is embarrassed by the behavior of his socialite granddaughter Paris and believes it has sullied the family name.
Barron Hilton, who is 80, has not commented on Oppenheimer’s remarks
mikeinwaiting Says:
December 27th, 2007 at 1:54 pm
John 72 Nice home but what the rub.
That house was listed in June 2007 at that price wondering if it sold.
The words “gold” and “investment” shouldn’t be uttered in the same sentence. Gold is an insurance policy, like life insurance. That’s it. The gold peddlers don’t even want you to buy bullion, they’d prefer you buy some retail type item so they can use a 30% spread to buy and sell. They’re sales people, like realtors. They have their interests at heart, not yours. If you took $5,000 and invested it in a company like Colgate Palmolive vs. gold 25 years ago, you tell me what the ROI would be for both.
#75,
How about posting this on a Fakistani blog, not NJ RE blog? Who cares about Fakistan!!
GARY True I was looking to buy gold about month or so ago proice of gold was 732 they wanted 752.But at 834 today could have turned a nice profit on 100 k.About 6500 in month or 2.
Frnk whats all the anger about you don’t like these people or what.
mikeinwaiting,
Yes, you would’ve made money but it could’ve went the other way, also. And now, it doesn’t sound like long term investing, it sounds like speculating.
Frank,
That comment was not directed at you, but for others who might be interested in reading it. Next time, please skip by my comments. Frickin Gandu that you are…
Would anybody be kind enough to give me some history info. and address of MLS/Web ID: 2440049
Thanks!
Gary as in any investment there is risk.This purchase wouyd have been made with a portion of my short term DP money not long term stuff.But being me its in 6 month cd at hudson united a very sound bank.
NJ financial problems reminds me alot of the Argentina crisis back some years ago.
Only a matter of time before there is a complete collapse.
yikes!
SAS
#85 Dreamtheater: very (in)appropriate! I haven’t laughed out loud like this for some time now….thanks!
If childhood memories of department stores and rants and raves on gold, oil and State and Federal politics can be discussed on this forum, I don’t see why an event that clearly has global implications should/can not be.
Like someone wisely said once…The less a people know, the less they want to know.
re: 80 Gary
The same rule should apply to home and investment too.
Notice I did not say housing.
Did anyone catch the NBC World News segment last night regarding putting seniors to work to pay off their Westchester County property tax bills? I’m sure the work is not physically demanding at all, however morally I can’t see how gubmnt can ask seniors to do this. They used an example of a woman who lived in a house for 40+ years who now has to work (at 80 years old) to pay her over-inflated taxes. How wrong is that!!
#90 “Notice I did not say housing”
Home vs. housing. It is a big difference. After paying off a mortgage on one’s main residence, the “home,” my personal philosophy is that one is nuts to ever leverage it again. I don’t care a wit about tax advantages of home debt vs. other consumer debt. The home is safety, security, comfort, yadda yadda. Now, weekend places, investment properties, and other “housing” are entirely different and may fairly be treated as investments.
It is one thing for the bottom to drop out of pork bellies, zinc, pets.com, etc. It is another thing to lose ones home.
$$ The gov will work these poor people to keep their pockets full with life time health care & untaxed pensions for themselfs.It a shame & they spin it like an opertunity for them.
mike (93)-
Damn straight. This is the equivalent of the gubmint telling old folks to suck it up and pay their damn taxes (and while they’re at it, learn to enjoy it, too). Talk about pissing on somebody’s foot, while telling him it’s raining…
To add to Shore Guy’s post at #92,
A home is the financial bedrock of the vast majority of people. But has residential RE become a more volatile asset class, judging from the price moves in the past 6-7 years? Could this be because of people being able to monetize their ‘home’ into an investment vehicle instead? My feeling is that the vast majority of people would like to see a more predictable YoY increase in their home equity over the longer term instead of sudden appreciation/depreciation.
Thoughts?
http://www.cnbc.com/id/22406729
Weak durable goods orders last month fueled concern on Thursday over the resilience of the U.S. economy to the country’s steep housing slump.
Jobless claims also jumped last week, in a possible sign of mounting pressure on the labor market. However, a measure of consumer confidence improved somewhat in December.
____________
Once again we see a disconnect with reality: Jobless claims rise, durable goods orders decline (and with it prospects for more slowing of the economy and increased jobless rates), we saw real wages drop in the last report and consumer spending rise (and with those two more debt), and the safety net of taking equity out of homes is less viable as values drop.
AND, despite all this “consumer confidence improved somewhat in December.”
As a nation wee seem unwilling to come to grips with the need to get our economic house in order. We are akin to an sedentary obese person with a taste for high-fat food who the doctor tells to get exercise and lose weight and refuses to do so until the scare of a heart attack. I hope to goodness we start behaving in our economic self interest before the economic heart attack hits.
dream (95)-
I think it’s been proved that most people would like to see their homes as an ATM, able to tap vast reservoirs of never-ending wealth.
Another bright holiday story for all here today: I just closed on a listing of mine which was $800 short of the payoff (shortfall covered by the ATM named Clotpoll). However, my client never informed me that: 1) she somehow cash-out refi’d and stripped all the equity out of her home while I had it listed; and, 2) she stopped paying on her loans right after the refi.
A lis pendens was filed against the property on December 21 by the holder of the first. Funny thing is, when the closing attorney called them with the news we had a sale and closing booked, the lender couldn’t remove that lis pendens fast enough.
“I hope to goodness we start behaving in our economic self interest before the economic heart attack hits.”
reinvestor 101 - You ought to read this line over and over again.
#91
Heck, if the people in westchester can’t pay their taxes why should the be allowed to do “work is not physically demanding at all?” If the town is THAT nice that the residents do not want to sell, they should at least be willing to shovel snow, or at least sweep it away like the old women in the USSR used to do. If the town gives them a break they should at least get a $ worth of benefit for each $ of tax offset.
First the AARP hotel discount, then the Starbucks and movie discounts, now this. Where does it stop for these people?
If they can’t pay maybe they should move aside and make room for new revenue units , ummm taxpayers, um residents.
For the humor-impaired, that was said with tongue planted firmly in cheek
oops, a few typos in that last one.
Shore Guy 96 Reality is not setting in for most sheeple just keep ruunning up credit cards & buying.The gov wants this they don’t want you to save then they have you by the b#lls.Keep that economy going is their creed.The state of NJ,Fed gov & most of US citizens are underwater.Their fix isn’t lower spending cut back entitlements
push general public to save & live in their means no……..!Its incredible that our goverment is setting our country to ruin out of self interest of big bussiness & their pockets.Ther are no statesmen alive in the US gov.
101
And, in the end, the wealthy, will be just fine. It makes one think back to a statement made by George Baily in “Its a Wonderful Life,” something to the effect of, “Don’t you see, Potter isn’t selling he’s buying.” On a scale far grander than those of use in the NJVF, if a great crash comes, the wealthy will buy assets that the vast unwashed mass needs to sell (or has taken away).
#99
I have to admit - before I read your final sentence my jaw hit the desk!!
Maybe if we followed Ron Paul’s advice and pull our interests from other countries we’d save a boat load of cash and actually have the ability to take care of our own. For example, the amount of money we pay the Germans to keep military bases over there actually floats their cost to pay new parents their working salary for a year after the birth of a child. (I don’t know the exact specifics of the program but I do know we foot the bill)
Hey did anyone notice last week when Goldman said they are marketing munis to the middle class. Goldman used to have middle class as 75K to 200K but stated that since so many people now make in the 200k to 500k range that they are now including a 200k to 500K salary as their definition of middle class.
I guess considering their average bonus is something like 600k+ making under 500K for a whole years work is quite poor.
re: #91 and #99
This deal they are trying to work out in Westchester for the seniors is a national issue but perhaps is amplified in the high property tax areas like Westchester.
Many of these seniors are getting by on 12k a year and have to pay 7k in property taxes taxes. One woman I read about had already taken out a reverse mortgage and was willing to work as well to stay in her home town.
This working senior program is similar to another program out west in Colorado. The main difference here is $7 per hour goes allot further in Colorado than it will in Westchester. Even at 35 hours a week for 50 weeks at $7 an hour it is about 12K before taxes. These seniors would be working nearly fully time just to pay their propery taxes.
My own mother who could be considered well off since she has a decent pension and invested smartly over the years may one day be in a similar predicament in Bergen County if taxes continue to rise like no tommorow. The last thing I will let her do is take out a reverse mortgage. She might as well sell and downsize before that happens.
Out of 168 nations in a Harvard University study last year, 163 had some form of paid maternity leave, leaving the United States in the company of Lesotho, Papua New Guinea and Swaziland.
The fall of a empire is a terrible thing to see unfold when its your country.Someone will tell me then be on the right side be the wealthy one.I want to be wealthy just like all.But that is not my America.I don’t like it or want it that bad, we could all do well if tighten our belts & gov did the right thing by the people.Then we would have a great country once again.
Merrill Job Cuts AP
http://news.yahoo.com/s/nm/20071227/bs_nm/merrill_jobs_dc_1;_ylt=AmzG3b6XdXp57L8Ir1Vl2SEE1vAI
# 103 “I have to admit - before I read your final sentence my jaw hit the desk!!”
Yea, since online lacks the visual and vocal cues, I figured I better put in that last sentence.
#83,
I just don’t like when people post off topic questions. Where’s Frakistan anyway?
#110
Off topic? Isn’t that considered Politics?
John (106)-
Hey! Lesotho, Papua New Guinea and Swaziland are smart…just like us.
They realize that children are negative net present value. Why subsidize such a loser proposition via maternity leave?
(sarcasm off)
mike (107)-
“…we could all do well if tighten our belts & gov did the right thing by the people.”
Mike, please…you’re killing me.
Sweeden is the best, you can knock up your girlfriend and get 18 months off at 80% pay. Sweet.
Ahh yes - Swedish girls!
What to do if your mortgage lender goes under:
http://www.ftc.gov/os/2007/12/071219mortgage.pdf
OK clot I’ll load up the guns head down pick you up & we will straighten the gov out.Really is there any hope short of this.I hope so.A nation of haves & have nots
is a sure road to the end therefor I oppose it.We must put the long term good before emediate gain.Or should I say our politicians should.Fat chance of that.
I am applying for Swedish citzenship emediatly.
Lead in teaser housing bust debate on Kudlow tonight.Get out the mirrors & single edge razor blades it should be fun to watch.
Oh & the booze pick your poison.
If you go back in time to the Kennedy/Johnson “Great Society”, you will find the seeds of today’s Financial Debacle. While people were mesmerized by the Camelot & Macaroni the Pony Circus, subtle changes occurred like Tax on Simple Savings Account Interest. IRA’s & 401K, etc. were all contrivances to 1. Bolster a Financial Investment Market and 2. Substitute Entitlement Programs like Social Security with your Own Investments in the Other Accounts. Get them to pay twice. When 401K’s were first introduced I told fellow workers this was a preparatory step to taxing Social Security. Everyone said can’t be! Was! The primary reason for Age 70 IRA/401K mandatory withrawal or penalty, is to force you into a bracket which maxamizes Social Security Tax. This drains Investment fuel, so let’s put new Social Security into Stock Market. Last True American President wer Truman & Eisenhower. They would have viewed those selling American Infrastructure as Treason, and executed same. Unfortunately, that means he would have executed much of Washington. Truman would probably strapped Bush to a small Nuke dropped over Bin Ladin. Ike would probably have had Bush added to the pavement in a new Highway.
How are appraisers doing their jobs these days? It’s hard to use comps because they’ve all dropped.
We just got ours back and it was exactly the price that we offered for the house. Odd.
Are they just making them up at this point?
ANN I would say very carefully.Talk of appraisers inflating for banks lawsuits ,investigations.I would hate to be one now.I would say best guess cover your a**.That would put them on the low side if they have any brains.By the way that was very odd.Dead on you say mmmmm.
December isn’t over, but holy crap…
Data from NJMLS for Bergen County
Year Sold UnderContract
1995 685 445
1996 662 477
1997 817 529
1998 912 676
1999 831 536
2000 843 480
2001 735 600
2002 827 586
2003 949 667
2004 994 684
2005 898 683
2006 776 629
2007 395 337
Rich In NNJ,
I hope the numbers in December 2008 look like this:
Year Sold UnderContract
2008 43 29
Good News!
I just heard from a mortgage broker friend of mine. Seems that numerous studies indicate Bergen County is not considered a declining market. While there are definitly some counties considered to be declining, Bergen is definitly no one of them!
KL
#97 Clot - Gee, you try to do something nice and look what happens. Back to the razor blades in apples, huh?
John, 106
Out of 168 nations in a Harvard University study last year, 163 had some form of paid maternity leave, leaving the United States in the company of Lesotho, Papua New Guinea and Swaziland.
Not everyone in the U.S. is without paid maternity leave. My company offers this benefit to its employees. If you want it that bad, ask for it from your employer; if it is that important to you, you would leave to work for a firm that does offer that benefit. Just because our Government does not make it so for all, does not mean that it is unavailable. That is why they are called benefits, not entitlements.
122 mike
I agree, must be CYA. Maybe that’s why they went with the number that we offered.
bruiser 127
Does your company offer a paid maternity leave or a paid medical disability for childbirth? Big difference!
Regardless of what a company gives, NJ offers paid disability for both four weeks before the birth and 6-9 weeks after for recovery. Pretty generous as states go.
rhyming 125 Did you laugh right then or hold it in?
RICH 123 Ouch! Those are serious declines better send them to Rhymings friend.
Ann Everything going well, when do you close?
Getting in here late today. On the road traveling.
Why am I being admonished to read this? I’ve been acting in my own economic self interest! The problem is that some people are against those interests. Have the doom and gloomers read this over again and again.
ultrashortREinvestor Says:
December 27th, 2007 at 4:05 pm
“I hope to goodness we start behaving in our economic self interest before the economic heart attack hits.”
reinvestor 101 - You ought to read this line over and over again.
“I have been trading around that core position ever since. My latest sell is at $155.50 which almost triggered this morning. You can have your gold. I’ll stick with my golden burrito for now.”
short [62],
Great trade. However, don’t compare the little donkey to gold futures, during this same period. It’s really not doing any justice to your nice hit.
Reinvestor it is not in our economic best interest to buy a declining asset.Did you see post 123 hard to argue with those #s.Sorry Re the handwriting is on the wall blood bath 08.I truly hope you don’t take to much of a bath.Oh Re knock the hits on the girls stuff off its a bad thing.Real bad.
132 Mike
Supposed to close sometime next month.
Currently stuck in the inspection contingency, sellers are looking like they are going to try to jerk us around instead of doing anything we tell them to do like a smart seller would do.
Realtors trying to downplay the repairs and telling us that we should be grateful they came down to the price they did.
Oh well, we’ll see!
Ann Hold firm or else tell them to keep it.You have all the bats & balls.You know I still think you should wait but I really don’t want to rain on your parade.So good luck & be happy.
Mike,
Yes I laugh, he calls me daily, we are friends,he likes to make me laugh! He is also very young and has not lived through a real estate downturn although his parents have. He see’s the writing on the wall and he is a very smart man looking for ways to deal with this market, I feel he could do something else in a heartbeat,he is a hustler and would be sucessfull at anything, but he enjoys what he does, so would like to continue.
KL
#32
I moved to Charlotte this past April w/a job lined up. Just to clarify, it doesn’t matter if its Charlotte, Atlanta, or anywhere. You’d be silly to move ANYWHERE w/o a job.
Don’t be fooled that it shows Charlotte’s prices are “increasing”. There is a plethera of unsold inventory (new construction and resales). Builders are laying off people (sales and field guys) left and right. Homes are staying on the market much, much longer…It is a true BUYER’S market here in the Tarheel State.
Even though my home is worth less than what I paid for it earlier this year, I’m still glad “I got out when I did” in NJ. I don’t plan to move from here for a long time, so whatever appreciation I get in the next 10-15 yrs is fine by me..I’m not trying to be greedy.
I also want to thank everyone here when I lurked over the past two years for opening my eyes regarding real estate. Its mindboggling how many sellers, buyers, realtors, etc are so uninformed regarding market fundamentals…so many people I argue w/down here say “but median prices are rising”…doesn’t mean a damn thing if your flooded w/inventory.
Spam - 46 was a beautiful post.
#75- pardon my dumbness. ISI ??
# 141
It is the Directorate for Inter-Services Intelligence