Article

2008-09-16 Home Front Economy

How the Masters of the Universe ran amok and cost us the earth

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Posted by tu3031 2008-09-16 11:57|| || Front Page|| [3 views ] Top

#1 Pay Per View public executions on "general principles" would be a fitting ending for these folk. Unfortunately it will never happen...

Posted by 3dc 2008-09-16 13:57|| 2008-09-16 13:57|| Front Page Top

#2 This was a fine example of "boiling the frog." It happened so gradually, over so many years, that the obvious, that houses worth $125k were being sold for $850k or more, was missed.

We will truly not be over this problem until home prices are at least in the same ballpark as home costs.

The trouble was also that unrealistically high home prices were like ripples from a rock thrown into a pond. It drove up construction margins, and it drove up property taxes--which in turn drove up government spending.

And it is going to be agonizing to governments when homeowners force tax assessments lower. When confronted by as much as a 50% drop in revenues, they will pass out. Right now, they are trying to sustain their high revenues by raising taxes.

But, as the saying goes, you can't get blood from a turnip.

Posted by Anonymoose 2008-09-16 14:29|| 2008-09-16 14:29|| Front Page Top

#3 Ture you can;t get blood from a turnip.

But I can think of some choice fat-cat bankers who I would love to see bleed to death.

Posted by OldSpook 2008-09-16 14:34|| 2008-09-16 14:34|| Front Page Top

#4 Pay Per View public executions on "general principles"...

I'd settle for some black bag wet work myself.

Posted by Vespasian Snaiting9313 2008-09-16 14:53|| 2008-09-16 14:53|| Front Page Top

#5 Those were lending devises of their own creation, I say let them go down in flames. The only real losers will be the customer in the future, who wants to buy a house, but cant come up with a huge down payment.

Posted by bigjim-ky 2008-09-16 15:02|| 2008-09-16 15:02|| Front Page Top

#6 One word: Diversify. These guys, supposedly the best of the best, forgot the most basic tenet of investing and it cost they're companies (shareholders) billions.

Posted by Mike N. 2008-09-16 16:57|| 2008-09-16 16:57|| Front Page Top

#7 Am I right in saying that this is similar to what happened in Japan with insane housing prices in tokyo propping up everything. But in Japan the government refused to pop the bubble so the economy flatlined for years and years.

Or is this totally different?

Posted by rjschwarz 2008-09-16 17:24|| 2008-09-16 17:24|| Front Page Top

#8 "The Black Swan" They forget that and end up getting succored every time.

Posted by tipper 2008-09-16 17:50|| 2008-09-16 17:50|| Front Page Top

#9 The same and different.

Congress is responsible because it passed the Community Redevelopment Act telling banks to lend to minority groups they weren't lending to because of red lining. This resulted in banks lending to people they would never have lent to otherwise and the development of no down, interest only loans. The first time I heard an ad for one of those I knew it would end badly.

But people could do it because it wasn't much and it kept Congress off their backs. And it grew. And then they got greedy. And home owners got greedy. And they used the easy financing tools to get bigger mortgages nad that drove up the demand and price for houses. And everybody thought they could make a fortune if they got a bigger house. So bigger houses were built to fit the bigger mortgages.

And all the mortgages were bought by Freddie and Fannie and repackaged into securities that could safely be bought because everybody knew that the Feds would bail out Fred and Fan, so there was no risk but mortgage rate return.

The Japanese just stopped reproducing.

Two things move markets. Fear. Greed. Fear is on top now.

Posted by Nimble Spemble 2008-09-16 17:55|| 2008-09-16 17:55|| Front Page Top

#10 --- The housing crisis was a true financial mania, just like the South Sea Bubble and the Dutch Tulip craze of centuries past. Buyers, sellers & lenders in real estate acted as if history didn't matter. Common catch phrases for the mania were "It's different here." "Buy now or get priced out forever." "You can always refinance." People involved in it just went nuts. Those Cassandras who knew what was happening & tried to alert others to it were laughed off the stage. The mania was obvious to me for some years. Since I live in Ohio & own my shack free & clear, I had no skin in the game. I did sell all my stock holdings (both personal & tax-deferred retirement funds) in 8/2007 since I could see this coming that long ago.
--- This was not "boiling the frog" The frog died last year. The frog's beaker has boiled dry & it is exploding from thermal stress. When housing prices (not costs) fall to a level that matches incomes of credit-worthy buyers, the bottom of the housing bubble will have been reached. I have no idea when that will be, but there is still a very long way for housing prices to fall. The true market value of real estate is still what a willing buyer actually pays, not what a shill or promoter likes to think it is.
--- Some commentators have called the fat-cat bankers Pig Men, a term I prefer. I've been hearing a lot of squealing lately.
--- There has been a recent step in the right direction on golden parachutes. From Bloomberg.com: "Fannie Mae and Freddie Mac's regulator is blocking as much as $24 million in ``golden parachute'' severance payments to the companies ousted chief executive officers." Don't know if this will hold up in court, since the severance payments were contractual.

Posted by Anguper Hupomosing9418 2008-09-16 18:14|| 2008-09-16 18:14|| Front Page Top

#11 Here's a great idea [NOT!]
"House Financial Services Committee Chairman Barney Frank said financial market turmoil is likely to force Congress and the administration to consider whether the U.S. government should buy distressed debt and mortgages.

The ``next question'' for lawmakers and the Bush administration will be whether Congress should create an agency like the Resolution Trust Corp., which took over the assets of failed savings and loan associations almost two decades ago, Frank, a Massachusetts Democrat, told reporters in Washington."
The amount of bad debt floating around is unknown and in the multi-trillion dollar range AFAICT. The S&L crisis was peanuts by comparison.

Posted by Anguper Hupomosing9418 2008-09-16 18:22|| 2008-09-16 18:22|| Front Page Top

#12 Sure, there might be a couple trillion in bad debt housing debt out there, but it's back by to a large degree by assets. Sure, the assets might only be worth half of the debt, but that's a lot better than no assets at all.

Posted by Mike N. 2008-09-16 18:36|| 2008-09-16 18:36|| Front Page Top

#13 that's a lot better than no assets at all. Very true, but due to securitization and the sheer mass of recent loans, some of the "assets" may only be worth a few pennies on the dollar, and would-be buyers are extremely reluctant to buy a pig in a poke. And, to use an extreme case, some abandoned and vandalized housing in Detroit actually has a negative value -- the cost of razing the mess and restoring the site to a bare lot is more than you could get for the bare lot after all that effort.

Posted by Anguper Hupomosing9418 2008-09-16 18:50|| 2008-09-16 18:50|| Front Page Top

#14 Barney sat in and moved this debacle forward. He's the LAST POS we should be listening to

Posted by Frank G">Frank G 2008-09-16 18:58|| 2008-09-16 18:58|| Front Page Top

#15 It's all Greenspan's fault. He killed the reserve requirements and thus expanded lending.

This created the credit bubble which then caused this massive malinvestment.

Posted by Bright Pebbles 2008-09-16 19:21|| 2008-09-16 19:21|| Front Page Top

#16 This evening's development: "The U.S. government agreed to lend as much as $85 billion to American International Group Inc. in exchange for a 79.9 percent stake to save the country's biggest insurer from collapse...``The loan is expected to be repaid from the proceeds of the sale of the firm's assets,'' the Fed said. The U.S. government has the right to veto the payment of dividends to common and preferred shareholders.
AIG will replace management as part of the deal"
The media provides little info on the significance of whatever it is that AIG does. I read a blog post from some financial type mentioning that if AIG went bankrupt, about 30% of the S&P 500 would follow within 90 days.

Posted by Anguper Hupomosing9418 2008-09-16 22:18|| 2008-09-16 22:18|| Front Page Top

#17 AIG insures a lot of financial products and they don't have enough money and assets to cover what the payouts potentially are. If their credit rating gets downgraded, so do the credit ratings of banks and businesses all over America and Europe. That would be ugly. That really would cause a worldwide economic problem.

All in all, getting 80% of AIG for 85 billion aint a bad deal. We either get our tax dollars back or we get The taxpayer doesn't have to lose on this one, at least.

Posted by Mike N. 2008-09-16 23:24|| 2008-09-16 23:24|| Front Page Top

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