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-- America's Debt = "We're Screwed!"
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Originally posted by atbell This reminds me of problems at Freddy Mac and Fanny May in 2004/05 but I never really got into it. Does anyone remember what the problems with these two were (are )?

Those were accounting scandals. The ironic thing is that while Freddie and Fannie were sidelined with their own internal problems in that time period, they largely missed out on a lot of the shit that's hitting the fan right now. I.e. due to their own incompetence, they missed out on the real shitstorm (though they are largely believed to have a lot of exposure to subprime on their books and in their portfolios, they could've been a LOT more exposed). We'll see how it all pans out. I actually got into a slightly heated discussion with Occ about it back when it was happening. I'll see if I can find the thread.

Here are some exerpts from this thread. It was derivatives/hedging related stuff. Actually probably not too far off what's going on today if only for the reason they were improperly valuing stuff on their books, much like CDOs are completely and utterly improperly valued on everyone's books today and will significantly need to be marked down. I expect quite a few more hedge funds to bite the dust before it's all over.

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From the WSJ on 9/24/2004: quote: According to OFHEO, FNM's accounting for its hedging activities and derivative transactions is not in accord with GAAP. OFHEO found that FNM used "an imporper cookie jar" reserve for its portfolio of MBS, the likely source of most of the "smoothing" of EPS. Both findings contradict FNM's assurances that it can deliver non-volatile earnings, year after year, b/c its business isn't risky. OFHEO found that FNM "tolerated" lax internal controls, deferred expenses to achieve bonus compensation targets, and "maintained a corporate culture that emphasized stable earnings at the expense of accurate financial disclosures." Comments from Lynn Turner on 10/14/2004: quote: FNM's study of its practices & policies for OFHEO will take at least as long as FRE, possibly up to a year or two. SEC informal inquest will likely become a formal investigation in due time. There's a possibility that FNM will be reporting unaudited earnings going forward, but unalbe to give an audited account in the 10Q filings as KPMG has recently refused to certify financial statements when there is an investigation ongoing. That KPMG put $200M in unrecognized errors from 1997 on the scoresheet will go towards showing materiality under SAB 99 that mgmt left it out there to affect bonus payouts. Being an SEC registrant exposes the CEO and CFO if internal controls are no good and the SEC would likely push to remove them if it believes they made false certifications. Facts so far indicate that there are serious internal control issues. It will be difficult for the CFO to survive, especially since he's on the board. Restatements that could total in excess of $5B will dramatically reduce the company’s book value, its regulatory capital levels, and its ability to grow. The process will take time... And the kicker/summary/ramifications from my source... quote: 12/16/2004 Fannie faced with a potential $9B earnings restatement following SEC investigation for improper hedging and improper accounting. Ramifications of the SEC decision include: · Likely departure of Franklin Raines and Tim Howard, leaving FNM temporarily without leadership. · Restatement of 4 years of earnings, leaving the company vulnerable to investor lawsuits, like that filed by the Ohio AG. · A filing of potential criminal charges by the DOJ. · Need to raise capital, which could come from preferred stock, balance sheet shrinkage, or asset mix changes(i.e. securitizations require lower capital requirements). ·An impetus for Congress to push through GSE oversight legislation tha t will result in a stricter and more powerful regulator. Rep. Richard Baker(R-LA) has already called for further investigative hearings to take place in early ’05. ·Incentives for OFHEO to push harder with their investigative probing into the management practices, accounting policies and auditor independence. The SEC’s decision may actually provide Congress with the impetus to provide greater funding to OFHEO to pursue this role. ·Potential for the rating agencies to review their debt ratings of the GSEs, with the prospect that a downgrade in the future could have negative ramifications in the banking industry for holders of agency debt of GSE guaranteed MBS. · A move by accountants, particularly Deloitte & Touche(which aided in the forensic accounting review of FNM’s accounting practices) to review the accounting policies and procedures for derivative structures at firms like IFIN or COF. ·This action could further spur the PCAOB to take further steps toward insuring auditor independence. · Now that the losses in the “pay fixed/receive floating” rate swaps will be recognized, there could be an unwinding of the hedge of the hedge(i.e. selling the “receive fixed/pay floating” rate swaps), which could put pressure on the bond markets thereby creating a whipsaw to higher rates and a widening of swap spreads. · A widening of swap spreads and higher nominal rates would send a chill through the “games playing” occurring right now in the sub-prime market. ·A significant delay before any SEC certified financial statements are made available again, which technically should bring into question NYSE listing requirements. Not to mention the imminemt slowdown in the housing boom/rising rate environment/move to ARMs from FRMs, which Fannie can't deal in. And now that juicy little 3% dividend might be in jeopardy? Where do I sign up?! But on second thought, you're right. This sounds like the ideal place to stash my hard earned duckets. These guys are the poster child of proper management and accounting. All of the negative issues are clearly behind them now and the skies are clear going forward. I know this is true because the stock price has gone up. Nevermind what could possibly happen if the government didn't give them "implicit backing". But I digress...this is for another discussion on another day.

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Mortgaging the Future Fannie Mae's troubles are far from over THE BIG HEADS FINALLY ROLLED at Fannie Mae last week, but the soap opera starring the company's crummy accounting is far from over. Two weeks ago, the Securities and Exchange Commission stunned Fannie Mae and its many camp followers in Wall Street's analytic community and on Capitol Hill by corroborating serious accounting violations at the government-sponsored mortgage giant that will entail the reversal of about $9 billion in profits reported by Fannie over the past three and a half years. Then, on Tuesday, Fannie directors forced the departure of chief executive Franklin Raines and chief financial officer Tim Howard, and dismissed Fannie's outside accounting firm KPMG. Raines, a former high-ranking official in the Clinton Administration, was a big-time power broker in Washington D.C., with the ability to reward politicians with large campaign donations and funding for pet housing initiatives in home districts. Fannie played the lobbying game with unmatched vigor and aplomb. Adding to Raines's cachet was the fact that he was one of the first African-Americans to head a Fortune 500 company. Barron's readers were amply prepared for the latest developments. In a cover story earlier this year ("Swept Away," May 17) we warned that the quasi-public housing giant used unorthodox accounting to pump up its earnings and capital position and, at the same time, justify huge pay packages for Raines and other senior managers. We even detailed where the accounting games were being played: The company classified more than $13 billion of losing derivative positions as "cash-flow" hedges. This treatment allowed Fannie to spread the losses over many years rather than expensing them immediately. These losses were incurred as a result of Fannie's inept hedging and ill-timed bet that mortgage rates would remain steady or rise. [photo] Fannie's Franklin Raines: out of a job Three months ago, Fannie's regulator, the Office of Federal Housing Enterprise (Ofheo), released a stinging 200-page report that delineated serious violations of accounting rules. It charged Fannie with abuse of, among other things, expense recognition and its use of derivative accounting. Raines and other Fannie officials stoutly defended the outfit's accounting procedures in subsequent congressional hearings, stating that it would abide by any decision on accounting questions by the SEC, which in the meantime had launched its own investigation. Thus, Fannie rolled the dice and lost big-time when the SEC, in effect, ruled in favor of Ofheo. Yet Fannie's chorus of cheerleaders on Wall Street remains mostly in denial. Last week, Robert Napoli of PiperJaffray held to his view that the Fannie contretemps is largely a mere "accounting issue" and kept his 12-month target price for Fannie's stock at 95. The shares currently trade around 72. Jonathan Gray of Sanford Bernstein, a longtime holder of Fannie in his personal account, saw fit to drop his price target to 84 from 86, following the departures of Raines and Howard. Yet he has long depicted Ofheo's investigation of Fannie as a witch hunt by an overzealous regulatory agency. We would observe the following, however. Since it will take Fannie months, if not years, to restate nearly four years of results, the company will be unable to file current earnings reports with the SEC for many, many quarters to come. Thus, earnings projections are an exercise in the theater of the absurd. And more bad news seems likely to emerge as Ofheo continues to probe other accounting areas at Fannie. Likewise, Wall Street seems to be ignoring an ongoing Justice Department probe of possible criminal-accounting fraud at Fannie. Before it's all over, Fannie may well enjoy the dubious distinction of perpetrating the largest accounting fraud in U.S. corporate history, topping the $11 billion mark set by WorldCom that sent the telecom concern careening into bankruptcy in 2002. [chart] After expensing its derivative losses, Fannie will be some $3 billion below its Ofheo-mandated minimum-capital requirement, with regulatory capital of around $30 billion. At least that's the capital deficiency as of the end of the third quarter. If nothing materially changes, that capital deficiency would balloon to over $12 billion by June 30, 2005, when Fannie must meet an Ofheo-mandated capital surcharge of 30%. At a minimum, Fannie likely will have to suspend its dividend, which would save it about $2 billion a year. The company likely will marshal more capital by shrinking its billion-dollar investment portfolio through run-off and cutbacks on new purchases of mortgages and mortgage-backed securities. Some analysts hope Fannie can realize gains in its investment portfolio. (Gray claims that as of the end of last year there were $14 billion of such after-tax gains, based on Fannie's "fair value", marked-to-market balance sheet.) However, most of these gains can't be harvested because they sit in Fannie's hold-to-maturity portfolio. Besides, at this point, who can believe the values Fannie assigned to either its assets or liabilities as of that date? And rising rates won't help much in paring the losses in its derivative portfolio, since the bulk of those losses already have been locked in or offset by swap positions that would lose value in a rising rate environment. Fannie over the years has used its huge permitted capital leverage to gun its growth and earnings. But leverage can hurt when operations are shrunk. To come up with $10 billion in new capital if all else fails, Fannie would have to dump over $300 million of its trillion-dollar investment portfolio. That, of course, would decimate earnings. Sadly, Fannie promises to be a falling-rock zone for stock investors for the foreseeable future. -- Jonathan R. Laing

More than you wanted to read, right? I know.

As to why FNM and FRE may still have more risk on their balance sheets than they want you to know about...posted by Occ when he started working at Freddie--it would sound like FNM and FRE probably bought up a lot of subprime/"high yield" mortgages since they generally buy the smaller mortgages, which invariably are probably more weighted towards the lower end of the credit spectrum. Fannie and Freddie are public companies and are just as guilty of chasing profits and yields as anybody else, so who's to say they weren't seduced by higher-yielding, lower quality loans?

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[b]originally posted by Occrider So here goes ... I just started a new job working for Freddie Mac (which is one of the reasons why I never post during work hours anymore). To fill you in on what Freddie Mac and Fannie Mae (our primary competitor) do, we essentially were created by the federal government during the great depression in order to make affordable housing possible. It works like this: houses cost upwards of $300,000 to purchase. Banks loan money out to people so they can buy houses. Banks don't have enough money to loan out enough money to everybody in the community to buy houses. What would happen is that banks would be ultra elitist with who they lend money to (ensuring 0% deliquincies) and interest rates would be through the roof because risk would be high for that particular bank because it's a shitload of money to lend. Therefore Freddie Mac and Fannie Mae purchase mortages from banks, package them together into a security, and sell it to wallstreet and investors with gauruntees in case of deliquincy. The banks therefore have plenty of capital to lend out to homeowners. Sounds peachy right? Well, Fannie and Freddie actually don't make the most of our money doing this. We make the most of our money by buying securities ourselves, hedging them, and retaining a portfolio much like most of the other investment banks do. In doing so, we have much more profits to issue to homeowners applying for mortages. This is ultimately a good thing, however, the problem is, is that we focus on making money as opposed to truly helping homeowners. Now then, Bush hates Fannie and Freddie. Treasury Secretary Snow hates Fannie and Freddie. They don't like governments in private markets, and they recognize us for what we are ... government sponsored private enterprises that are motivated towards profit rather than helping homeowners. As a result, Fannie and Freddie have been making enormous sacrifices to help homeowners at the expense of profit ... a good thing to a certain degree.

In retrospect, I was almost prophetic...

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originally posted by Shakka Second, I think the GSE's have gotten themselves into trouble due to their wreckless hedging tactics. Not that they're doing what anyone who wants to make money wouldn't do, but as GSE's with a specific role/obligation to help create affordable housing, they have taken on substantially more risk and have become increasingly more aggressive than they should due to that lovely "implied backing" from the gov't. They have become increasingly focused on the hedging side and have been playing some accounting shinanigans according to a lot of smart money--particularly with how they are able to defer unrealized losses in the "other income" portion of the balance sheet. Bush is pro-reform here, and I'd bet it's in part because he understands business and would like to get a better regulator involved to prevent a potential meltdown as interest rates climb their way higher again. While some people think he's just throwing water on the fire and trying to slow down an economic boom, those with a longer view would prefer a new/more effective regulator even though doing so might cause some short-term pain. OFHEO is clearly not doing enough to mitigate the potential risks that could come from the massive hedging and risk that FNM and FRE have taken on. Since you work there, I suppose self-preservation is a huge driver of personal choice! I think there needs to be better regulation, not to mention better disclosure on the derivative side of their books. Whether the OFHEO steps up or a new regulator gets involved, something is going to have to happen one way or another, though so much politicking and beaurocratic debate might make change a difficult thing to accomplish.

Hell, I was talking about a possible subprime meltdown 3 years ago!

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Originally posted by Shakka on 7/14/2004 Provided there's no sub-prime meltdowns! I don't know about Freddie, but Fannie got bit in the ass recently due to their exposure to manufactured housing. For the sake of the economy I hope nothing happens to them!

20-20 hindsight is a wonderful thing though
Well no, not really I beat myself up over things I should/shouldn't done/bought/sold or acted upon on a fairly regular basis...

Thanks for the explanation.

quote:

Originally posted by Shakka More than you wanted to read, right? I know. As to why FNM and FRE may still have more risk on their balance sheets than they want you to know about...posted by Occ when he started working at Freddie--it would sound like FNM and FRE probably bought up a lot of subprime/"high yield" mortgages since they generally buy the smaller mortgages, which invariably are probably more weighted towards the lower end of the credit spectrum. Fannie and Freddie are public companies and are just as guilty of chasing profits and yields as anybody else, so who's to say they weren't seduced by higher-yielding, lower quality loans?

Nah Freddie is actually ok in relation to the subprime market crisis. I can't speak for Fannie but stock prices in Freddie and Fannie have been increasing quite a bit in response to this crisis. Unlike hedge funds, fannie and freddie are far more risk adverse in this product. As a result the tranches that Fannie and Freddie have been taking in sub prime market securities have some of the highest credit ratings. A lot has changed at Freddie in my time.

Freddie and Fannie have been the significant latecomers to the subprime market. From the economist back in February:

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Does the rot run deeper? That fear ran down a few spines on February 7th, when HSBC, Europe's biggest bank, revealed that bad loans at its American subprime mortgage division were 20% higher than expected. The same week New Century, the second-biggest such lender in America, projected a big drop in loans this year because of poor market conditions. They are not the only ones exposed to America's home-loan blues. Citigroup peddles mortgages to risky borrowers through CitiFinancial, its consumer-finance arm. Subprime lenders have also been scooped up by investment banks, including Morgan Stanley, Merrill Lynch and Deutsche Bank, in recent months. Notably absent are Fannie Mae and Freddie Mac, America's government-sponsored mortgage giants. Both were set up for people who dreamt of homeownership, but could not afford it. They also have the best data on borrowers, including those rejected for loans in the past. Perhaps they knew something others did not. http://www.economist.com/finance/di...tory_id=8706627

If anything, Fannie and Freddie will bail out the subprime market meltdown.

http://www.economist.com/finance/di...tory_id=9441402

Of course, I'm a risk manager so perhaps I'm biased, but the more involved I get in some of the subprime new products the more I'm understanding our exposure.

Funny, Bear Sterns wants to interview me for a risk management position.

Oh its all good now!
Someone's come to save us from teerroar bad loans and you'll be glad to know that personal accountability isn't required either.
No, your government is going to fix it all up.



Bush offers homeowners 5-year rate freeze
December 7, 2007 - 11:05AM

US President George Bush today offered new steps to help homeowners facing steep increases in their mortgage payments, an effort to prevent the US housing crisis sending the broader economy into a recession.

The plan, worked out with private lenders, would allow some borrowers with interest rates slated to rise sharply in the coming months to either refinance the loan or have their current rate frozen for five years.

The White House said the new plan could potentially help about 1.2 million homeowners.

"The holidays are fast approaching and unfortunately this will be a time of anxiety for Americans worried about their mortgages and their homes," Mr Bush said after meeting members of the group that hammered out the plan.

"There's no perfect solution and the homeowners deserve our help."

He also urged Congress to pass legislation to reform the tax code to help homeowners refinance their mortgages.

The housing market collapse has set off a global financial credit crunch and stoked fears among investors that the US economy could slip into a recession.

An estimated 1.8 million homeowners who took out loans with low teaser rates face expensive higher repayments next year, the Federal Reserve has said.

Some borrowers who took out loans with subprime interest rates between January 1, 2005, and July 2007 would be eligible for a five-year rate freeze if they face a rate reset over the next 2-1/2 years.

Borrowers would be eligible if they can show that they are a reasonable credit risk, could not afford their homes with higher rates and live in their homes, an effort to weed out investors who took speculative risks.

Mr Bush said the rest of the economy was performing well and could weather the housing storm.

"One reason for confidence is that the downturn in housing comes against the backdrop of solid fundamentals in other areas, including low inflation, a healthy job market, record high exports," Mr Bush said.
SMH



I feel safer already that George will be doing this, given his successes in managing disasters (New Orleans), helping out those who really need it (Iraq) and getting those naughty, rascally terrorists brought to justice (Osama Bin Laden).
I'd say we're off to another rampaging success with this one as well as everyone's favourite alpha primate is going to take care of everything. This time it's not something he can shoot, run over with a tank, erect tents for and other delightful, tactful measures we're used too. No, this time is something the shaved ape will have to talk to some people he might not have spoken much with in oh, the last 12 months while this was brewing up and conveniently ignored for as long as possible... financial advisors.

"Well George, it might tank the dollar as we've sort of proven that we cant enforce the dollar hegemony though force of arms already, so this latest idea..."
"Tanks are good right, they've got gun and big thick bits of armour!"
"..."
"Good times!"
"... no it's possibly quite bad!"
"There's no perfect solution and the homeowners deserve our help."


No, they don't deserve help.
Now before you get all blubbery with tears rolling down your cheeks and shrieking about how callous that is, just stop it already. At a very fundamental level which is that you have X Dollars in your wallet at the end of a working week, which you may spend as you see fit.
You spend on the basics:
1: Have place to live- check
2: Have food- check
3: Have paid bills - check
4: Have saved for a 'bad day'- check

Once you've got those down, life might seem to be pretty meat and potatoes for you but look on the bright side, 68-70% of the world still lives on subsistence farming and the fact you've got a bit of money to read this, means you're also connected to the internet so life isn't so bad really. Out of those 4, if you've got them covered, it's pretty damn rosy really, however the reality of where this 'help' is going is to people who spend like this:
1: Have a place to live which I can't afford - check
2: Have a lot of food I don't need - check
3: Have a credit debt running on credit card rates I can't afford because I spent it on-
3a: Big TV
3b: Expensive clothes
3c: Impressing the neighbours and potential mates with shiny things
4: Haven't saved for a bad day... because I'm too busy spending!!!
5: I work minimum wage, but I think I deserve more

We all know one, chances are we know a couple of them, heck, we may even be one every now and then.
They're called idiots and while idiocy itself is a quintessential part of being human I feel, I don't particularly think it should be rewarded.
It should be learned from and that is their reward. People should learn to manage their money at a personal level so that you don't get other idiots, in this case, Bush, wandering in and deciding to wipe your arse because you're obviously incapable of doing so yourself. Of course coming up to an election where the popular idiot gets voted in by other gormless idiots, it's not good to have yourself open to attack from rival idiots that may take note of what a mess the economy is.

So you have to do something fast.
(Not necessarily good, but it has to be done quickly!)
When what really is required is to simply take the hit, people will learn not to be stupid and things will sort themselves out after a bit of time, after a bit of pain.
It may make things worse than they already are and I think if you're really lucky and 'best' possible scenario is that this plan has no effect what so ever and things just 'hover' awhile in their current, crappy state.

*grabs crash helmet*

Had to bump this thread just to give a good laugh at this well educated answer:

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Originally posted by juzfugen: Heres a little hint for ya real estate ALWAYS appreciates.

I don't know about the Houston area, but seems like real estate from all around the country has depreciated and hurt the economy. But I guess that doesn't matter for someone of your ilk eh, juzfuckin?

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We cleared right at 20 mil last month and were on that same pace this month. Alot of this has to do with local, where I live our housing market is hot while most of the country is going down. Houstons economy is based on the energy industry and $70 a barrel of oil have been good to us and people are throwing crazy money around this city As long as peoples eyes are larger then their wallets there will defaults and theres a ton of money to made in forclosures.....

Yeah, people like you will just feed off other people's foreclosures and somehow manage to make money in spite of all this. You and your little family owned business. Other people's dashed hopes and dreams equates only to your profit margins. You're a real piece of shit.

Oh and btw, time has now proven that Shakka owned your fucking arrogant ass.

Ahhh, how I love to revisit this thread over time..

I don't think juzfugen will reply to this slam...cuz I think his computer was inside his house, when the collections department changed all the locks.

How about that U.S. Dollar?

I, and others, didn't see that one coming.

I laugh when I look at some leftover British money, from my last trip, and if you look carefully...you can actually see it getting larger.

and a funny..

A sobering map I just saw today....yikes...

WOW!

Like the thread title says: "We're Screwed!"

I have never been an optimistic person, but geeeze The state of California is going to be in big trouble, and I can't see this getting any better in the near future.
This bleak outlook reminds me of the Carter years of the 1970's, when interest rates for mortgages were around 13% and fuel hit $1.00

I'm more concerned with fuel, right now (after paying heating costs of 852.00) but these two factors, happening at the same time, is like a one-two punch and we are wide open to a three-four punch which will be a K.O. to the U.S.

I am starting to shake

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Originally posted by zookeeper I'm more concerned with fuel, right now (after paying heating costs of 852.00)

Please don't tell me that's /mnth?!?

Where the hell do you live?? Alaska? lol

yup, there's plenty of ass-fucking left to be done before this economy gets worked out. The Fed just keeps throwing spaghetti at the wall and the bandaids amount to a game of whack-a-mole. Try to hammer one problem and another one pops up a couple of days later. What this economy needs is LESS government intervention so that the cleansing can happen and we can get the shit out of the system. However, the government will never let that happen b/c it's politically unpopular to look like they're not doing anything. Instead they will just make the problem worse and delay the day of reckoning. A quick and insightful read published by John Mauldin's guest writer the other day. The unpopular John Galt solution.

quote:

John Galt Plan Might Save US Financial System By Caroline Baum Let's face it: The Federal Reserve must be scared to death as it watches the financial system unravel. Unravel would appear to be the operative word as leverage proves to be as toxic on the way down as it was intoxicating on the way up. By late last week, events seemed to be spinning out of control. Credit spreads were blowing out, with tax-exempt municipal bonds out-yielding Treasuries by a record and the spread between Fannie Mae mortgage-backed securities and government bonds hitting a 22-year high. Treasury bill yields were collapsing (further). The U.S. dollar was sinking like a stone. And commodity prices, in their lofty ascent, had all the makings of a market unhinged from the fundamentals, which, after all, is the definition of a bubble. Mortgage foreclosures hit an all-time high in the fourth quarter of last year while homeowners' equity, or the value of a home less the outstanding mortgage, sank to an all-time low of 47.9 percent. This measure of owners' equity has been declining since the Fed started collecting data in 1945. (This isn't your father's housing market.) More unusual was the drop in the value of household real estate in the fourth quarter, one of a handful of declines in the half-century life of the series. Margin calls are causing forced selling of assets (often what investors can sell, not what they'd like to sell), which makes them cheaper, which triggers additional margin calls and more forced selling. No wonder the Fed announced two initiatives early Friday before the New York Stock Exchange opened to address "heightened liquidity pressures." Temporarily Permanent The Fed said it was increasing the amount banks could borrow at the Term Auction Facility (TAF) to $100 billion this month compared with $60 billion in January and February. "The Federal Reserve will increase these auction sizes further if conditions warrant," the central bank said in its press release. In addition, the Fed will make $100 billion available through term repurchase agreements, collateralized loans to Wall Street primary dealers. Fifteen minutes after the Fed's announcement, the Labor Department reminded us that the economy's problems aren't strictly financial. Non-farm payrolls fell 63,000 in February, following a revised 22,000 drop in January. Employment has always been the most visible, and perhaps the most important, of coincident economic indicators. Your average Joe doesn't know, and probably doesn't care, if industrial production is expanding or contracting in any given month. Waiting for a Plan Jobs are a different story. Statistically there isn't much difference between a decline of 63,000 and a similar-sized increase. It's the sign, and the trend, that matter. Private payrolls fell 101,000 last month, the third consecutive monthly decline. What is to be done? The Fed has lowered its benchmark rate by 225 basis points since September, with another 75 basis points expected on March 18, based on the prices of fed funds futures. It introduced, and now enhanced, the TAF to address liquidity needs. President George W. Bush and Congress worked together to pass a $168 billion fiscal stimulus package, including tax rebates for savings-short households and tax breaks for business. The pace of mortgage delinquencies and foreclosures is outpacing Treasury Secretary Hank Paulson's ability to keep up with them. Paulson said last week that the administration was looking at the mortgage-origination and securitization process, disclosure, regulatory and capital issues, and the rating companies. We can expect new proposals "in the weeks ahead," he said. Galt's Solution The following day, Fed Chairman Ben Bernanke encouraged mortgage servicers to write down a portion of the principal on home loans, which would give owners some equity and discourage foreclosure. He advocated a bigger role for the Federal Housing Administration, a Depression-era agency that insures mortgages. Congress envisions an even larger role for the federal government. Any day, I expect some government official to unveil the John Galt plan to save the economy. Galt, the hero of Ayn Rand's magnum opus "Atlas Shrugged," stops the world by going on strike. He and the "men of the mind" literally withdraw from the world after watching their wealth confiscated by the looters (the government). Toward the end of Rand's 1,000-plus page novel (or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to "tell us what to do." Galt refuses, or rather tells them "to get out of the way." Road Is Cleared You probably can sense where I'm going. Today's economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value. That's not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige. We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It's a tough way to run an economy. (Caroline Baum, author of "Just What I Said," is a Bloomberg News columnist. The opinions expressed are her own.)

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Originally posted by Fir3start3r Please don't tell me that's /mnth?!? Where the hell do you live?? Alaska? lol

That's for a little less than two months. I heat with propane which is going right up with gasoline prices, about $2.89 per gallon, and I have a 500 gal underground tank. What can I say...I live in the country

And Rochester NY is usually about the same temperature AS Alaska, and I live on the shore of Lake Ontario, so I get BLASTED by Canadian wind.

...say, maybe I should look into wind power?

quote:

Originally posted by Shakka yup, there's plenty of ass-fucking left to be done before this economy gets worked out.

...and NO jar of vaseline in sight!

quote:

The Fed just keeps throwing spaghetti at the wall and the bandaids amount to a game of whack-a-mole. Try to hammer one problem and another one pops up a couple of days later.

Like this economic stimulus nonsense, yeah sure it's nice to get a little "free" money, but it really is not going to do any long term good. I will be just a bunch of Americans going to the mall or having an 8ball bender weekend.

quote:

What this economy needs is LESS government intervention so that the cleansing can happen and we can get the shit out of the system. However, the government will never let that happen b/c it's politically unpopular to look like they're not doing anything. Instead they will just make the problem worse and delay the day of reckoning.

Ya know, I'm doing all of my tax stuff and budgets for last year, and I'm fine for right now (sort of.. ), but if I don't see some kind of tax relief in the next few years, I might be in REAL trouble...it sucks, but numbers don't lie, and I don't see myself making more money each year to keep up with taxes (mostly school taxes!)

quote:

A quick and insightful read published by John Mauldin's guest writer the other day. The unpopular John Galt solution.

I good read, thanks!

quote:

Originally posted by juzfugen Heres a little hint for ya real estate ALWAYS appreciates....

I know you'll never come back, but your dumb ass should be ashamed of what you said here. You helped perpetuate the lies that have exacerbated the problems we're seeing today. I assume you're gainfully unemployed today.

/I've probably quoted this dumb line of yours before, but it's worth bringing it up again to cast shame on you in light of the severity of the current problem which is being exacerbated PRECISELY by a problem you implied could NEVER happen!

quote:

Originally posted by Shakka I know you'll never come back, but your dumb ass should be ashamed of what you said here. You helped perpetuate the lies that have exacerbated the problems we're seeing today. I assume you're gainfully unemployed today. /I've probably quoted this dumb line of yours before, but it's worth bringing it up again to cast shame on you in light of the severity of the current problem which is being exacerbated PRECISELY by a problem you implied could NEVER happen!

to be fair, over the long term real estate will inevitably appreciate because there is a finite amount of real estate available.

quote:

Originally posted by jerZ07002 to be fair, over the long term real estate will inevitably appreciate because there is a finite amount of real estate available.

You could make that argument for any commodity product in the world. Just today Newmont mining said that it was getting more difficult to find gold, yet gold prices have fallen precipitously over the last few weeks.

Edit: Just because the supply of something is limited, does not mean that it cannot become woefully overpriced (or underpriced for that matter), or that supply can, for a time, far exceed demand. Everything is cyclical and housing was a fat pitch to anyone willing to open their eyes to the reality of what was going on. Housing is even more complicated because of all of the regulations and red-tape involved in getting a mortgage, and now you have all of those underwriting standards being tightened and people who may have previously been potential home buyers in the loose-credit days are no longer the marginal home buyer as they have effectively been blocked out of the market.

quote:

Originally posted by Shakka You could make that argument for any commodity product in the world. Just today Newmont mining said that it was getting more difficult to find gold, yet gold prices have fallen precipitously over the last few weeks.

you could, but it may not be entirely accurate. Real estate will always be a desired assets because we need land and will always need land. A commodity may become less important as new technologies obsolete the uses of commodities. For instance, whale oil used to be a very valuable commodity until it was replaced by crude oil. In 1855 sperm whale oil sold for $1500 a barrel (adjusted for 2003). How much would you pay for sperm whale oil today?

quote:

Originally posted by Shakka Edit: Just because the supply of something is limited, does not mean that it cannot become woefully overpriced (or underpriced for that matter), or that supply can, for a time, far exceed demand. Everything is cyclical and housing was a fat pitch to anyone willing to open their eyes to the reality of what was going on. Housing is even more complicated because of all of the regulations and red-tape involved in getting a mortgage, and now you have all of those underwriting standards being tightened and people who may have previously been potential home buyers in the loose-credit days are no longer the marginal home buyer as they have effectively been blocked out of the market.

this statement is entirely accurate; however, we can not increase the supply of land, and the demand for land will not fundamentally change in the future (over a long term horizon), barring a serious population decline, which doesn't seem likely.

quote:

Originally posted by jerZ07002 you could, but it may not be entirely accurate. Real estate will always be a desired assets because we need land and will always need land. A commodity may become less important as new technologies obsolete the uses of commodities. For instance, whale oil used to be a very valuable commodity until it was replaced by crude oil. In 1855 sperm whale oil sold for $1500 a barrel (adjusted for 2003). How much would you pay for sperm whale oil today? this statement is entirely accurate; however, we can not increase the supply of land, and the demand for land will not fundamentally change in the future (over a long term horizon), barring a serious population decline, which doesn't seem likely.

Well, I'd say your "long-term horizon" theory is fine, but what you are witnessing today is that there is plenty of calamity and real pain that can be felt over shorter periods(though still plenty long as we're in a multi-year decline). A simple Buy-and-Hold strategy does not work for most people just because secular trends are observable. There is waaaay too much that happens in the interim to take such a blase approach.

How serendipitous that this thread popped back up (saves me from seaching...)

quote:

The 10 Riskiest Real Estate Markets in America A rash of subprime loans and adjustable rate mortgages still makes a housing market dicey, but even more risky are cities where job growth is lagging, transaction volume continues to plunge and unsold homes are piling up. For the 40 largest metros in the U.S., Forbes.com analyzed which were in the most tenuous situations and in the greatest danger of further slumping. Data are from Radar Logic, a New York research firm; the U.S. Census Bureau; ZipRealty, an Emeryville, Calif., data aggregator; and RealtyTrac, an Irvine, Calif., foreclosure tracking company.

http://www.forbes.com/2008/03/31/ho...thisSpeed=15000

quote:

Originally posted by Shakka Well, I'd say your "long-term horizon" theory is fine, but what you are witnessing today is that there is plenty of calamity and real pain that can be felt over shorter periods(though still plenty long as we're in a multi-year decline). A simple Buy-and-Hold strategy does not work for most people just because secular trends are observable. There is waaaay too much that happens in the interim to take such a blase approach.

the problem is that a home has become an investment first and a place to live second. That's the opposite way people should view a home.

quote:

Originally posted by jerZ07002 the problem is that a home has become an investment first and a place to live second. That's the opposite way people should view a home.

I have no problem with that statement other than to say a more proper phrasing would be, "One of the problems is that..." And it has certainly been a significant problem in the latest cycle.

quote:

Originally posted by Shakka I have no problem with that statement other than to say a more proper phrasing would be, "One of the problems is that..." And it has certainly been a significant problem in the latest cycle.

good point. another problem, as i think i stated in this or another thread, is the way houses were valued. the correct way to price real estate is based on rental value of the property. The yearly rent you could receive for the property over the discount rate leads to the most accurate asset value. Too many people were fooled by real estate agents and mortgage brokers into valuing homes at a price they could afford in monthly payments. now that those payments aren't afforable, they can't rent the property to a renter at a price that would cover the mortgage.

Oh!
This old thread!

quote:

Originally posted by jerZ07002 the problem is that a home has become an investment first and a place to live second. That's the opposite way people should view a home.

I disagree in so much as it's a conventional way of looking at an asset like a home, but we're in at least the moment, unconventional times.
It really depends.
I'm of the personal opinion that at the moment at least, if you can cover the majority of your house's payments with someone renting it. You can then have a choice of renting yourself, somewhere closer to where you work and thus minimising your other lifestyle costs like the rising fuel prices for example. If you cut down on $30 worth of petrol a week travelling just to your occupation, over a year that's about $1500 saved on something which is a necessary expense.
Also think along the lines of being priced out of an area which you might save money with your necessity costs, a house which might cost $400,000 in the area you need to live is beyond your ability to pay back with your income, however a few suburbs over or somewhere else you can enter the market around $250,000 with a property, rent it for a sound price and have an asset, then if you need too stay where you are- just rent where you are.

The other thing to consider is that you aren't tying yourself down with a rental property like so many people I talk too seem to believe, we're a much more nebulous employee these days which will often hop from job to job far more than our previous generations have done. If you're a renter, that opens up opportunities there for you as you don't have to go through the painful process of having to sell your house quickly (and risking a loss), just to move somewhere you have a chance of earning more money.
So, hypothetically you work as a contractor in an area, doing whatever it is you do and have a chance in another location which is a full $10,000 more than what you're earning, rent about the same in the new area, I think you'd be crazy to stay when all you have to do is break the lease and move.

By far the best thing about owning a rental property?
Making a profit on the thing!
If someone offers you a profoundly large amount of money for the place which you don't expect.
Look around very carefully for 'why'
Because chances are there may be a very good reason which hasn't been immediately obvious before, then go hard and try and gouge them for a bit more if you find out why.
I won't say real estate is a friendly place full of charity and goodwill for your fellow human beings, in fact its the exact opposite, leave your emotional and moral baggage at the door and start stabbing. You aren't there to be anyone's chump and metaphorically, people have probably died for a lot less than the difference in a couple of 0's, if you aren't disgustingly ruthless and vicious in your dealings with big money, stick to something you consider a 'victimless' profit margin where you don't see the whites of their eyes.
Personally, do I like doing it?
Not particularly.
Does it make me wealthy?
Most certainly.

Possibilities are there for you, its just a case of picking the right areas you can afford safely and a little bit more for the tumultuous times like we're in now. With rising fuel costs there's a good chance that places which are closer to your major transportation hubs are going to fetch a much better rent than they may appear. Simply because people are going to become more reliant on them as a means of getting to work, school or whatever. Note that such an investment may not come cheaply, but also, it probably isn't going to depreciate either, in fact I'd expect a lot of areas near public transport are going to increase quite a lot out of demand.
I hate to be a pessimist (well, not really but its polite to say ) but the fuel prices aren't going to go down either, they're high now, they're going to get much higher by the end of this decade regardless.


In light of Fir3start3r's scary map...
I've noticed a lot of use of the D-word when it comes to describing things instead of the even more terrifying R-word lately.
Downturn seems to be popular, no ones really ready to say recession though in order not to have a stampede on their hands, but I think we can probably say that recession isn't too far off continuing the way it is.

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