Saturday, September 20, 2008

Rather Than Just Admit


that the Republican economic platform (no taxes, no regulations, corporate welfare, no safety nets for real Americans while lavishly splurging on endless wars) simply cannot work, the right wing spin machine found itself whirling dervishly while the stock market crashed and major Wall Street players, such as Lehman Brothers went belly-up.


I realized in about 2003 that the housing sector was the only thing holding up the Bush economy. We were spending billions a month in Iraq and Afghanistan, there were no real jobs, all of the manufacturing and entry level jobs had been outsourced to China and India and all of the spending was fueled by credit and home equity lines.

The housing "boom" saw house prices skyrocket from the $100k-$300k range in most neighborhoods in New York City to $400k-infinity, almost overnight. "New Construction" (while lacking insulation and adding to the stress on the supposedly overburdened power grid) sprang up like weeds, overnight on every block in the city. All of a sudden rehabbed crackhouses in East New York, Bushwick, East Flatbush and Jamaica were being sold for $500,000 and $600,000.



And how to afford these overpriced, uninsulated and shoddily built "cribs"?


Why- with no credit check, no money down, no income verification, and no collateral based loans of course!











No more of the whole messy process: verifying you work, pay your bills and can afford to be on the hook for half to three quarters of a million dollars, for what?!!! And actually appraising this house to make sure its worth half to three quarters of a million dollars? Thanks to de-regulation, no need, for the market has taken care of that! If someone is willing to pay half to three quarters of a million dollars in the "free market", then obviously that means the house is worth half to three quarters of a million dollars! Duh!!!



Throughout all of the years proceeding the housing bubble bust, all of the talking heads went to extraordinary lengths to convince the America people this could and would last forever:

No housing bubble trouble
Despite relentless growth in home prices and housing demand, economists still don't see a bubble.
February 19, 2003: 4:39 PM EST
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - The American appetite for habitation grew even stronger -- impossible as that seems -- in January, the government said Wednesday, renewing concerns that the U.S. housing market is in a dangerous bubble, like stocks in the 1990s.

Don't bet on it, economists say.

New home construction starts rose in January to an annual pace of 1.85 million units, the fastest pace in 16 years, according to a Commerce Department report, confounding economists' expectations for a decline.

Though the number of construction permits issued for new housing -- a leading indicator for the market -- fell, all of that weakness was in multi-family housing. Permits for single-family units, which make up about 80 percent of the housing construction market, rose 0.3 percent.

Last week, the National Association of Realtors said the median home price jumped 8.8 percent in the fourth quarter, the biggest gain in more than 20 years.

While the National Association of Home Builders (NAHB) said its index of builder optimism dipped a bit in early February, it still is at historically high levels, despite the kind of frigid weather in the eastern United States that ordinarily dampens construction activity.

"It would be tough to maintain the super-strong building pace recorded for the past several months," said NAHB President Kent Conine, a Dallas homebuilder. "But the market fundamentals remain solid, and the current level of builder optimism regarding the single-family segment reflects that."

Low mortgage rates fuel a boom

The biggest "market fundamental" in housing is mortgage rates at or near record lows. For several months, low rates have encouraged more home-buying, driving up demand for homes and pushing prices ever higher.

The housing market has, in fact, been one of the lone bright spots of an otherwise dreary economy. Higher home values have made homeowners feel wealthier, encouraging consumer spending, which makes up more than two-thirds of the total U.S. economy.

Low rates also have encouraged a frenzy of refinancing, which has allowed homeowners to lower their monthly payments and tap into their swelling home equity.

Meanwhile, corporate scandals and an agonizingly long bear market in stock prices have made home ownership even more attractive -- a house can't lie about quarterly earnings, and even if its value falls, at least you can live in it.

"As the equity market melted down, interest rates came down, and the housing sector has continued to thrive while the business sector has gone through hell -- and homes have to be filled up with goods, once they're bought," said Rory Robertson, interest rate strategist at Macquarie Equities USA.

Housing has been so relentlessly strong for so long that some observers occasionally fret that the market is artificially strong, that prices are due to suddenly collapse, crushing consumer confidence.

Bubble talk

But people have been wondering about a "housing bubble" since early 2001, and it hasn't popped yet.

For one thing, housing, like politics, is always local. There are some parts of the country -- Sacramento, we're looking at you -- where bubbles seem to have formed, with prices rising higher than the market apparently can support.

But on a national level, economists believe the supply of available housing is low enough to keep demand strong and keep prices from falling suddenly.

"1.85 million new homes being built per year in a population of 290 million and growing doesn't seem to be outrageous," Robertson said.

Economists warn that the housing market should slow down when interest rates start to rise, but that's not expected to happen for quite some time -- not until the situation in Iraq is cleared up, at the very earliest.

And the only thing that's going to bring interest rates up significantly in the short term is stronger economic activity, anyway, which will offset a good bit of the damage to the housing sector.

"If we're in a situation where rates are higher because the economy's great, the housing market is going to be last thing I'll be worried about," said Brown Brothers Harriman economist Lara Rhame, a former Fed economist.

For the most part, economists expect a gradual slowdown in the housing market through 2003 -- the National Association of Realtors, for example, thinks home-price growth will slow to 3.0 percent by the fourth quarter.

But one thing's for certain: the housing sector can't be the horse that pulls the world's biggest economy forever, especially if labor market weakness continues -- people have a hard time making mortgage payments when they don't have jobs.

"As the economy gets more and more dependent on housing being the key driver of growth, the economy becomes more and more vulnerable to that sector slowing down," Rhame said. Top of page

Yay!
And there's more, this time quoting Fed Chairman Alan Greenspan:

Media Myths: The Housing Bubble Is Bursting


Media claims about a “housing bubble” are nothing new. Since before the 9/11 terror attacks, the media have been calling the housing market a “bubble” while predicting an imminent, devastating decline. Not only have they been wrong in forecasting such a top, they have thoroughly mischaracterized what an investment bubble is. Now
that the market for homes has finally slowed a bit, the media are declaring the bubble has burst.

A Bubble?: Fed Chairman Alan Greenspan has denied the existence of a national housing bubble for several years, but the media have used the term repeatedly.

Federal Reserve chairman Alan Greenspan even was asked about this subject during his July 17 testimony before Congress. “We’ve looked at the bubble question, and we’ve concluded that it is most unlikely, mainly because, one, we have a very diverse real estate market throughout the country,” Greenspan said.

Yay!

But then just when it was all starting to make sense,

In the wake of the subprime mortgage and credit crisis in 2007, Greenspan admitted that there was a bubble in the US housing market, warning in 2007 of "large double digit declines" in home values "larger than most people expect."[28] However, Greenspan also noted, “I really didn't get it until very late in 2005 and 2006.”[29]

Greenspan admitted that the housing bubble was “fundamentally engendered by the decline in real long-term interest rates”,[30] though he also claims that long-term interest rates are beyond the control of central banks because "the market value of global long-term securities is approaching $100 trillion" and thus these and other asset markets are large enough that they "now swamp the resources of central banks."[31

So...
Naturally, the bubble burst and people started going into foreclosure in record numbers.

Mortgage delinquency, foreclosure rates soar

By Alan J. Heavens June 6, 2008 - The Philadelphia Inquirer

Mortgage delinquency and foreclosure rates soared nationally in the first quarter from the comparable 2007 period, with 89 percent of the increase coming in already hard-hit California, Florida and Nevada.

The Mortgage Bankers Association Delinquency Survey, which covers 45.2 million first-lien mortgages on one- to four-unit residential properties, showed that the delinquency rate rose to 6.35 percent of all loans in the 2008 quarter, from 4.84 percent of all loans in the first quarter of 2007.

What this means in numbers is that of the nation's 45.2 million mortgages, 287,172 were at least one payment behind. A year ago, when there were 43.9 million loans, the comparable number was 212,476 loans.

The 30-year delinquency rate is still below levels seen as recently as 2002, the association said.

The percent of mortgages in foreclosure nationally almost doubled, to 2.47 percent from 1.28 percent, while the number of foreclosures started in the quarter was 0.99 percent of those 45.2 million mortgages, compared with 0.58 percent in the 2007 first quarter.

The rates of both were the highest since 1979, the association reported.

"The magnitude of the national increases is clearly driven by certain loan types and certain states," said Jay Brinkmann, the association's vice president for research and economics.

The banks that made these shitty loans and the greedy de-regulated sons of bitches on Wall Street that backed them soon found themselves hit hard by the "Subprime Crisis":

Wall Street chaos: Lehman bankrupt, Bank of America buys Merrill

Washington - The embattled investment bank Lehman Brothers was expected to file for bankruptcy before

the start of trading later Monday, hours after financial services firm Merrill Lynch agreed to sell itself to Bank of America.

Negotiations throughout the weekend failed to produce a buyer for the venerable Lehman Brothers, leading to the bankruptcy plans, the Washington Post reported early Monday on its website.

In a deal announced late Sunday, Merrill Lynch & Co, a stock brokerage and investment bank, agreed to be bought out by Bank of America Corp for 50 billion dollars in stock. The takeover comes as the Lehman's troubles dragged most other financial services stocks down, too.

The Lehman collapse follows more than a year of turmoil arising from the collapse of the US housing

bubble and a high rate of mortgage defaults, which undermined Wall Street's market for mortgage-backed securities.

The action was seen as a step to help calm financial markets heading into an uncertain start of trading on Monday morning in New York. Markets in Asia were already plummeting in early trading amid the worries from Wall Street.

Earlier this year, the Federal Reserve helped engineer the sale of another troubled investment banking firm, Bear Stearns. More recently, the federal government acted to take over the government- chartered Fannie Mae and Freddie Mac, which undergird the US mortgage lending markets.

And now, although the entire crisis happened on Bush's watch and was fueled by his economic policies... John "The Reformer" McCain has come out swinging. In addressing the chaos on Wall Street, he "laid into Obama, accusing him of taking campaign cash and counsel from some of the big-business architects of the crisis.

“Senator Obama may be taking their advice and he may be taking their money, but in a McCain-Palin administration, there will be no seat for these people at the policy-making table,” McCain said of his running mate, Alaska Governor Sarah Palin.

“This is the problem with Washington, people like Senator Obama have been too busy gaming the system and haven’t ever done a thing to actually challenge the system,” he said i

n the battleground state of Wisconsin.

Maybe just this once he could spare us the lectures, and admit to his own poor judgment in contributing to these problems."

Okay...

When Obama recovered from the stupor induced by that absolutely crazy ass statement, he responded: "his big solution to this worldwide economic crisis was to blame me for it.”

“This is a guy who’s spent nearly three decades in Washington. After spending the entire campaign saying I haven’t been in Washington long enough, he apparently now is willing to assign me responsibility for all of Washington’s failings,” he said.

“I think it’s pretty clear that Senator McCain is a little panicked right now. At this point he seems to be willing to say anything, or do anything, or change any position, or violate any principle to try and win this election.”

The right wing has been blaming all of this the whole time on the greedy home buyers who

wanted more house than they deserved:

Subprime Borrowers: Not Innocents

Consumers who took out adjustable-rate home loans they now can’t repay are primarily to blame for the subprime mortgage crisis

by Eli Lehrer, Competitive Enterprise Institute

A simple look at the blunt reality reveals that borrowers themselves should assume primary responsibility for the current subprime crisis. Millions of borrowers, all over the country, knowingly signed mortgage

contracts they cannot now afford to honor.

Provided that lenders did not engage in force or fraud—and there’s no particular evidence they did so on a large scale—borrowers should do whatever they can to live up to the contracts they signed. The policies of lenders and government certainly helped the current crisis develop—but ultimately, do not absolve borrowers of responsibility for their debts.

And in most cases, the mortgage lenders not only are innocent of the predatory practices borrowers complain about but also are feeling the pain right along with them. These lenders do not revel in the current circumstances. A lender typically loses about a third of its loan value through foreclosure; thus, no lender (or mortgage-backed securities marketer) has an incentive to make or purchase a loan

it genuinely believes a borrower cannot pay.

With a very few exceptions, lenders have no desire to serve as landlords or take away people’s homes: A foreclosure causes almost as many problems for the lender as it does for the borrower. True predatory

lenders, who engage in fraud or make loans they know borrowers cannot pay, inevitably end up in either jails or unemployment lines.

The government played some role in the crisis as well. Its tax system encouraged Americans to take out very large mortgages to get out of paying federal income tax. And the government’s 2005 bankruptcy reforms meant that rather than having their debts wiped clean, most middle-class Americans who file for bankruptcy have to set up five-year payment plans with creditors.

Not one of these factors, of course, mitigates the facts of the situation. Mortgage borrowers who signed legally binding contracts should have to honor those contracts, or at minimum, renegotiate terms with their lenders. Any suggestion that borrowers should avoid responsibility would undermine the fundamental principles of contract law that lie at the base of any modern capitalist economy.

Had they been responsible, after being approved for the loans, the greedy homeowners would have doubled back and re-reviewed all of their financials, gone over their application again with a fine tooth comb and then made a responsible decision as to whether or not they deserved this loan. Accordingly therefore, Bush's solution to the whole fiasco is to pump $700 billion into bailing out the financial institutions and banks. He will give them almost a trillion dollars to preserve profits and operations and guarantee all those shitty loans they should have never made in the first place while leaving the irresponsible and greedy scheming home buyers to fend for themselves and pay those same companies their tax dollars are bailing out.

With economy on the brink, White House launches campaign to quickly sell $700B bailout plan

President Bush acknowledged that the program will put a "significant amount of taxpayers' money on

the line," but said that not acting would be riskier.

The Bush proposal that would dole out huge sums of money to Wall Street firms and bankers is a mere three pages in length and fails to specify which institutions would qualify or say what — if anything — taxpayers would get in return.

"It's a rather brief bill with a lot of money," said Sen. Chris Dodd, D-Conn., the Banking Comm

ittee chairman. "We understand the importance of the anticipation in the markets, but we also know that what we're doing is going to have consequences for decades to come. There's not a second act to this — we've got to get this right."

And the same people who can't understand why the liberals just can't let the market work, well , they've put a freeze on selling at a loss to prevent people from taking their bleeping money and running.

StarTribune.com

Temporary ban on short-selling put into place

September 19, 2008

In a dramatic move to protect the beleaguered financial services industry, the Securities and Exchange Commission (SEC) said Friday that it is temporarily banning short sales of nearly 800 stocks, including Minneapolis-based U.S. Bancorp, Ameriprise Financial Inc. and Piper Jaffray Companies.

Short-selling -- in which traders profit when a stock price goes down -- has long had a legitimate place in the stock market. But critics accuse short-sellers of hastening the recent failures of investment banks Bear Stearns and Lehman Brothers.

"Unbridled short-selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuations," according to an SEC statement. "Financial institutions are particularly vulnerable to the crisis of confidence and panic selling."

Financial firms have been particularly vulnerable, because they constantly need to replenish their pools of capital, experts say.

Widespread short-selling might push down a bank stock to the point where it can't raise money to stay afloat.

"The SEC wanted to put in some circuit breakers and give the industry some time and breathing space," said Felix Meschke, a professor of finance at the University of Minnesota's Carlson School of Management.

Unless it is extended, the SEC ban will run through Oct. 2.

This is far from over. The corporate media has the story ending at the bailout. There will be no connection made to the economic connections of the next years and this massive p umping of taxpayer money into private industry. There is no question of where this money is coming from while we are in a recession and battling massive deficits. And actually, none of that really matters. As long as we can eat cake...

No comments: