I am getting up to speed slowly with WordPress. (All of your suggestions have been very helpful).
Our host firm is Mosso, a Rackspace company, and they showed us this insane stat: Their data for www.ritholtz.com yesterday shows total page views for the day of 270,969.
That’s simply off the charts . . .
“Why am I being punished for having bought a house I could afford? I am beginning to think I would have rocks in my head if I keep paying my mortgage.”
-Todd Lawrence, Norwich, CT homeowner with a traditional 30-year mortgage
Herein lies the simple problem in trying to “save” so many mortgages: A huge swath of them should not be saved. Some of that is due to price, some of it is due to not wanting to reward irresponsible behavior, but the bulk of it is simply because the people living in these homes cannot reasonably afford to pay for them, even after a 20-30% workout.
There are now more than 10 million “home-owers” underwater, with their mortgages greater than the present value of their homes. Since they have little skin in the game — thanks to banks that did away with down payment requirements — there is little incentive for them to tough it out.
Not surprisingly, it is FDIC Chairman Sheila Bair who is leading the push towards a mortgage workout plan. She wants policy makers to take action to help people stay in their homes — thereby taking pressure off of the FDIC, which insures the banks.
Why? More foreclosures = more bank failures = bigger FDIC obligations.
The problem with this current rescue plan is that it is designed to “prevent the continued downward spiral of the housing market.” But that is EXACTLY what the housing market needs — overpriced homes that are not selling need to come down in price. We had a normal price increase from 1996-2001, and then a near vertical set of price gains from 2002-06. Any framework for systematically modifying loans that fails to comprehend that is doomed to failure.
Here is the grim reality about home prices: They remain elevated by just about every historical metric. Look at the median income to median home price, or look at the cost of renting versus the cost of ownership. Look at the inventory for sale, relative to 5 year trailing price increases.
The bottom line is that in much of the country, prices are still too high. That’s reflected in all the inventory that is not selling.
And home sales typically tend to be a chain of prices and sales: The seller of the starter home tot he newlyweds then can move to the larger home with room for their growing family, and that seller moves to an even bigger manse, and so on and so on. But if the newlyweds cannot afford that first purchase, the entire chain gets slogged down.
The notable exceptions? Where foreclosures have driven prices down 40, 50 even 60%, home sales surge. Much of our leadership fails to understand that simple truism about home prices.
by Marion Maneker
As the election closes out amid the wet squelch of the economy, it’s worth looking forward toward the Obama transition. In the past, I’ve wondered about who would be holding down the fort at Treasury. Jon Heilemann answered that in this week’s New York magazine: “. . . the inside betting is on a Larry Summers encore. ‘They’re gonna want somebody who knows the building, knows the economy, has been confirmed before and been advising them on economics,’ says the former Clinton aide. ‘I’d be flabbergasted if they chose somebody else.’”
But events have moved so quickly, the real question isn’t personnel but policy. With the financial system sort-of stable, there’s going to be a crying need for an economic “iron lung.” Not just the auto industry bailout, which is just as much about pensions as it is about jobs, but a massive effort to rebuild the American economy from the ground up. Here’s where Time’s Joe Klein gives us a few clues: “As Obama told me in our interview, a government-propelled transition to an alternative-energy economy will be his most important initiative. Translated into Washington terms, this means a massive infrastructure and stimulus package — in the neighborhood of $300 billion, according to the current speculation. [ . . . ] The Beltway consensus is that the economic crisis makes it necessary now. But public cynicism about government requires that the next President builds accountability into his spending programs. That’s why the Infrastructure Bank that Obama proposed during the campaign may be crucial: it would create a bipartisan board of five governors who would judge and approve all major projects. In normal times, getting an Infrastructure Bank through Congress would be impossible. “It is a direct threat to their way of life,” says Norman Ornstein of the American Enterprise Institute. “It changes the dynamic of how you deal with earmarks,” by taking the decision-making, and to some extent the credit, away from politicians.’
There is a classic IBD editorial “explaining” why the Housing crisis is all Bill Clinton’s fault. And on CNBC this morn, John Sununu has been repeating the silly talking points. I did not want to clog the main page with this, so I posted it in video — along with 3 YouTube speeches of President…Read More
There was an editorial in IBD this week, mistitled, Why The Mortgage Crisis Happened. Funny thing is, they somehow overlooked these speeches below.
The pandering and disinformation campaign of the far right are looking more and more like the death spasms of an intellectually bankrupt ideology . . .
A Home of Your Own, by President Bush, May 17, 2002
President Bush 2002 Speech Encouraging More Lending Fanny Mae and Freddie Mac
President Bush Discusses Homeownership Financing August 31 2007
Why The Mortgage Crisis Happened
M. JAY WELLS
I will be covering a global stock market performance round-up after the month end, but thought it would make for interesting reading to briefly review the action of the past three days.
The numbers speak for themselves, showing the MSCI World Index and the MSCI Emerging Markets index surging by 14.2% and 23.5% respectively since Monday’s closing levels. Strong stuff indeed, but these rallies still leave the two indices down by 43.4% and 58.1% respectively since the highs of October last year.
The strongest performers over the past few days were Russia (+37.0%), Hong Kong (+30.1%), Brazil (+27.2%) and Japan (+26.1%). This begs the question: Are these bourses back in bull markets according the traditional definition of a 20% improvement? Read More
Gee, do you think Europe is looking for a change from the States? Feel free to discuss what this might mean in comments. Please keep it civil, and use your frontal lobes, rather than the lizard portion of your brains. > Source: The presidential election: It’s time The Economist, Oct 30th 2008 http://www.economist.com/opinion/displayStory.cfm?Story_ID=12511171
Here’s the latest act of idiocy: Blaming the media or the Bears for the credit collapse and market crash. This not only demonstrates a total lack of understanding as to the difference between causation and correlation, but it evinces an utter disregard for the way the economy and markets operate. A classic example of this…Read More