Subprime_v_sl

>

Interesting graphic from Bloomberg, comparing the present Subprime debacle versus the S&L crisis.

Excerpt:

The $700 billion bailout of Wall Street’s subprime-tainted securities harkens back to the real- estate bets that sparked the savings and loan crisis in the 1980s. The geography’s the same, too.

Then, as now, the government created a taxpayer-funded enterprise to absorb the fallout from bad real-estate investments. A Bloomberg map of the hardest-hit areas shows that, with the exception of Nevada, regions with the highest foreclosure rates also had the most savings-and-loan failures, according to the Federal Deposit Insurance Corp.

The overlap shows that the aggressive lending and speculation that ignited the savings-and-loan meltdown persisted, at least in those areas, according to Paul E. Johnson, who was mayor of Phoenix from 1990 to 1994.

>

Source:
Subprime Devastation Retraces Path of S&L Crisis in U.S. States   
Jonathan Keehner and Bob Ivry
Bloomberg, Oct. 8 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=axi7wgOziH00&

Category: Data Analysis, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Subprime Devastation and the S&L Crisis”

  1. AGG says:

    Barry,
    I know this is off topic but since you have shown an interest in BMWs, I thought I’d bring this piece of good news to your attention.

    The BMW Group is about to become the first manufacturer of premium automobiles to deploy a fleet of nearly 500 all electric vehicles for private use in daily traffic. Powered by a 150 kW (204 hp) electric motor and fed by a high-performance rechargeable lithium-ion battery, the vehicle will be nearly silent and emissions free.

    The Mini E will have a range of about 150 miles and will initially be offered to select private and corporate customers in California, New York and New Jersey, but will first be given its world premiere at the Los Angeles Auto Show on November 19th and 20th, 2008.

    As for its speed, BMW claims that it will offer acceleration to 62 mph in 8.5 seconds with a top speed that is electronically limited to 95 mph.

    A lot of money is going to made off this car. It has brand and it’s green. This is the next volky bug. Everyone will want one.

    ~~~

    BR: On Thursday, I went to the Susan G. Komen Drive for the Cure event. (worthy of a standalone post) I was disappointed in the M3 — lots of power, but much heavier and not as nimble as the old car.

    I came away from the drive with a newfound appreciation for the 650; I drove the paddle shifter model, but the 6 speed that would really sing.

    The upside of deflation (also worthy of its own post) is that one of these may find its way to my driveway if auto prices continue to freefall.

  2. Sam Jacob says:

    technical point:
    the lowest point that we hit week before on s&p500 , ie. 839 , is 50% retracement of move from 1982 to 2007 (ie 101 to 1576)

  3. babycondor says:

    The aggressive lending and speculation persisted (and will persist in the future) because these have long been recognized to be desirable places to live and work. The economic “Terminator” of speculation WILL BE BACK, probably about the time the governor of the hardest-hit state of all, California, turns up in the Oval Office. I wouldn’t rule it out.

  4. Jay Weinstein says:

    So maybe if California floats into the sea, it will save us a lot of money down the road?

    LOL

  5. flashheart says:

    Am I right in thinking that means these areas have 2 consecutive generations of 25-35 year olds who were bankrupted by asset bubbles?

  6. dead hobo says:

    Just to let you know, you’ve been kicking butt lately. Thanks. 10 out of 10. No, 11.

  7. Greg0658 says:

    In the Thurday Senate Banking Committee on Turmoil in the U.S. Credit Markets: The Genesis of the Current Economic Crisis
    this address by Ludwig was Right On:
    Honorable Eugene Ludwig, Chief Executive Officer, Promontory Financial Group

    http://banking.senate.gov/public/index.cfm?Fuseaction=Hearings.Detail&HearingID=6de8e10c-e115-4686-9e40-ebceea2f1cb6

    The speech I just saw on C-Span was a nearly identical but simpler version of what is available at the link. I know its not the exact same address because he related this computer delivered economic crisis to the mastery of fire, a powerful tool but dangerous if allowed to get out of control.

    I looked for video, it doesn’t seem to be uploaded yet.

  8. Wisdom Seeker says:

    You mean by sweeping the S&L Crisis under the rug, we created a Moral Hazard and enabled the same sorts of people to do it again and again a decade later? And now we just want to sweep it all under a TARP and pretend it didn’t happen? How many times do we have to fool ourselves before we learn?

    As for Jay Weinstein – I suspect if you looked at net federal revenues (taxes in minus expenditures out) state by state, and then looked at where the bailout money is actually going, you’d find that California has paid for its share of the bailout already, and will probably pay further to bail out the rest of the country. Wall Street, on the other hand, is like a cancer sucking the life out of the rest of the country.

    Those who have contemplated windfall profits taxes on oil companies (who at least produce something of value) might consider the relative virtues of windfall taxes on the corporate and personal income and capital gains in the financial sector in the past 5 years or so.

  9. giovanni says:

    Earlier this year, Senator Christopher Dodd praised Fannie Mae and Freddie Mac for “riding to the rescue” when other financial institutions were cutting back on mortgage loans. He too said that they “need to do more” to help subprime borrowers get better loans.

    In other words, Congressman Frank and Senator Dodd wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default.

    The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously.

    But the magic words “affordable housing” and the ugly word “redlining” led to politicians directing where loans and investments should go, with such things as the Community Reinvestment Act and various other coercions and threats.

    The roots of this problem go back many years, but since the crisis to which all this led happened on George W. Bush’s watch, that is enough for those who think in terms of talking points, without wanting to be confused by the facts.

    In reality, President Bush tried unsuccessfully, years ago, to get Congress to create some regulatory agency to oversee Fannie Mae and Freddie Mac.

    N. Gregory Mankiw, his Chairman of the Council of Economic Advisers, warned in February 2004 that expecting a government bailout if things go wrong “creates an incentive for a company to take on risk and enjoy the associated increase in return.”

    Since risky investments usually pay more than safer investments, the incentive is for a government-supported enterprise to take bigger risks, since they get more profit if the risks pay off and the taxpayers get stuck with the losses if not.

    The government does not guarantee Fannie Mae or Freddie Mac, but the widespread assumption has been that the government would step in with a bailout to prevent chaos in financial markets.

    Alan Greenspan, then head of the Federal Reserve System, made the same point in testifying before Congress in February 2004. He said: “The Federal Reserve is concerned” that Fannie Mae and Freddie Mac were using this implicit reliance on a government bailout in a crisis to take more risks, in order to “multiply the profitability of subsidized debt.”

    Chairman Greenspan added his voice to those urging Congress to create a “regulator with authority on a par with that of banking regulators” to reduce the riskiness of Fannie Mae and Freddie Mac, a riskiness ultimately borne by the taxpayers.

    Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer by a collapse of credit markets, such as occurred during the Great Depression of the 1930s.

    Neither do the voters deserve to be deceived on the eve of an election by the notion that this is a failure of free markets that should be replaced by political micro-managing.

    If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out

  10. lalaland says:

    Notice how Texas didn’t suffer this time because it regulated mortgage brokers? Keep getting the feeling it was deadbeats on main street (mortgage brokers, appraisers, developers) who really created the crisis. Then the deadbeats on wall street amplified it, lets say, 33:1

    Also maybe we could regulate banks to keep them from playing with everyone’s deposits – if Grandma asked you to help her manage her finances would you take out a reverse mortgage and play the market on margin? (cue grandma beating several scumbags who answered yes with her cane)

  11. Hangtime79 says:

    Noticed that to lalaland about Texas. Amazing how just a little pro-activeness can avoid this issue. Having spent most my life their prior to the last four years I think I can make a few other points.

    1. Texas generally has much laxer zoning laws. This makes it easier for developers to react to the market not allowing price to grow too much before new inventory enters.

    2. Texas has had a steady inflow of transplants which should mean higher demand for housing thus higher prices, but developers could rely on this steady base of customers making development a profitable steady business but also allowing for a few “spec” homes per subdivision adding to supply.

    3. Large, undeveloped land areas outside of the metro areas make it easy for the development of new subdivisions keeping prices of existing inventory from growing out of proportion.

    4. A suburban car populace that is more inclined to drive and have square footage then live close without square footage again reducing existing home prices.

    5. Lower home prices, < $150,000 and < $100,000 if you are willing to commute for starter homes meant that Alt-A, NINJA, and sub-prime loans were not as readily needed in order to finance buyers.

    These five factors made it nearly impossible for an asset bubble in home prices to form because SURPRISE the market took care of itself. If you look at the Case Shiller index for Dallas, you can see that the metro area has only lost value at a compounded rate of 1.2% over the last two years which places it only behind Seattle and Charlotte for the timeframe. Of course, Dallas since Jan 2000 only has had a compound rate of growth in housing of roughly 2.4% or just about the rate of inflation. Isn’t that what we would hope for in any metro area?

  12. AGG says:

    And the thieves get more arrogant and in your face crooked with each iteration. Look at this snippet of the Pam Martens article on Counterpunch:
    And what will taxpayers get for their investment in these financial firms whose stock prices are getting hammered as the public recoils in revulsion at what they have done to our financial system? The taxpayers, who were not invited to send their own legal representative to the negotiating table, will receive a paltry 5% dividend, exactly half of what Warren Buffett received for his recent investment in General Electric, a company that actually makes something real, like jet engines and light bulbs.

    Now we learn from the U.S. Treasury web site that it has hired the law firm of Simpson, Thacher & Bartlett to represent our taxpayer interests going forward at a cost to us of $300,000 for six months work. But we’re not allowed to know their hourly wages; that information has been blacked out on the Treasury’s contract. Curiously, the Treasury has named in its contract the specific lawyers it wants to work for us. Two of those are Lee A. Meyerson and David Eisenberg. Mr. Meyerson has been a central player in facilitating the bank consolidations that have led to the present train wreck, including building JPMorgan Chase from the body parts of Chemical Bank, Chase Manhattan and Bank One.

    Mr. Eisenberg has played a central role in the proliferation of the credit derivatives blowing up on the books of the Frankenbanks created by Mr. Meyerson. Here’s what the Simpson, Thacher & Bartlett web site says about its relationships and Mr. Eisenberg’s work:

  13. rh says:

    AGG. I always find your posts interesting and especially informative (there are some really good comments in general on this site). Thanks! Please keep on posting :)

  14. Some data from http://www.freedomforeclosure.net/

    Total Foreclosure Filings 2,203,295

    Total Properties with Filings 1,285,873

    %Change from 2006 +74.99

    %Change from 2005 +148.83

    You could also find a more detailed map here

    http://www.freedomforeclosure.net/_img/_v01/ForeclosureHeatMap.jpg