bostonbubble.com

[Guest]

Continuing with the above post, what does this imply for the US Govt and home buyers? For first-time buyers, it is really not good news. If prices come down, and houses become more affordable, it may not really matter since their jobs might disappear in the depression-like conditions. Banks will shut off lending to all but the wealthy. That is if enough banks are still left standing.

This is the main reason why the President will sign the housing-bill to help put a floor under housing prices. If housing prices fall, the US Govt may lose its AAA rating and a run on the US might be initiated. Chinese, Indians, Japanese, Russians and others are afraid to sell their dollar reserve holdings. If one of them sells, it could unleash a panic causing others to liquidate their holdings as well at a huge loss. This alone would wreck the current account deficits of the above mentioned countries, leading to a major shock to international trade and acute recessions everywhere. Everybody is sitting tight and hoping no one liquidates their dollar holdings first, and ever so slowly diversifying their dollar assets while hoping no one notices. No numbers coming out of Govts worldwide can be trusted in this time. That is why naked short-selling in Investment
Banks and Freddie/Fannie have been banned by the SEC. A run on them would be catastrophic and cause a worldwide acute financial shock.

So, the best scenario would be for housing prices to stabilize in nominal terms, and gently fall in inflation adjusted terms over the following years while the US Govt cleans up the banking system, and reintroduces the meaning of risk to the current financial lexicon. Central Banks worldwide will also put in place a system to weed out bad US paper from their systems, and take a hard look at shoring up their reserve policies. Time will heal things, and first-time buyers will have to bite it and make do for now.

[admin]

Very interesting posts, Guest. Thanks. It's funny that you mention corn as currency. Adam Smith discussed corn a good deal in The Wealth of Nations and noted that in the past it had been a better store of value than money.

- admin

[India Guest]

The above 3 posts were by me. I used to post in here occasionally before, but for the last few months I was busy with other things. I had a good job in Boston, but waiting for house prices to fall finally took a toll on me over the last couple of years. I realized even with a 110K job, I would not be able to get a decent place close to Boston, and I did not want to live very far out, with ever increasing costs of transportation and commute times.

I did a lot of research on why this was so, and talked to some insiders in the financial industry. The posts above reflect my accumulated understanding about why a well-earning professional like me is not sanguine about my chances of settling in Boston. I finally realized that as a first-time homebuyer I was out of luck, at least for the next 5-6 years. I am still glad though that I did not take out those ARM/NINJA loans. It militates against my sense of ethics and fiscal principles. I reluctantly decided to move back to Bangalore, India this summer, as the option provided to me to relocate to Texas did not appeal to me. I do not have anything really against the south, but I prefer to live in a liberal state with a well educated population and world-class colleges. I would rather live in Bangalore, than San Antonio. But hey, that's just me.

Maybe I might one day get a chance to live and work in the Boston area again, this time as a homebuyer, but who knows. Anyway, this forum has definitely been informative and I hope I have given something back of value. Of course, people have to make their own judgments after listening to different viewpoints and evaluating their own personal situation.

[Renting in Mass]

"first-time buyers will have to bite it and make do for now."

That sums it up. Prudent savers will have to bite it too.

[balor123]

I'm actually a San Antonio transplant to Boston so maybe I can change your view about Texas. San Antonio is a conservative city but not all parts of Texas are conservative and not all parts of San Antonio are conservative. It actually varies neighborhood by neighborhood and you can see it on various mashups. San Antonio does have only one good college (Trinity) and the population is in general not very educated but it has its bright spots. There is a large biotech and medical services industry in the city, as well as finance (USAA, Alliance Bernstein, and American Funds for example). You won't find any better planned city in the US near that size. The cost of living and quality of life there is among the best in the country. There is not a huge tech presence in the city, if that is your field.

I've also lived in Austin. If you are set on cities like Boston, Austin is your city. It doesn't have the diversity of schools that Boston has but that doesn't mean it's not a college town - UT Austin is the biggest school in the US, with some very good departments. Engineer is top 10 as is business. Austin is roughly the third largest tech center in the US and it is growing, due to the relatively low cost of living. A house there will cost you about 1/2 of what one costs here. Also, it will be much nicer.

Dallas is also a nice city but a lot more conservative. Houston is not high on my list for anything.

[India Guest]

A few months ago, I had foreseen this crisis coming and moved to Bangalore. I now read the headlines about banks failing, credit market seized up, and the US Govt in the business of running insurance companies, mortgage companies etc. The greatest global credit bubble in the history of humankind is now unwinding. The following story affirms my previous assertion that this period will witness the greatest rate of destruction of wealth the world has ever seen:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/17/AR2008091703834.html?hpid=topnews&ref=patrick.net

"What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen -- paper losses measured in the trillions of dollars. Corporate wealth. Oil wealth. Real estate wealth. Bank wealth. Private-equity wealth. Hedge fund wealth. Pension wealth. It's a painful reminder that, when you strip away all the complexity and trappings from the magnificent new global infrastructure, finance is still a confidence game -- and once the confidence goes, there's no telling when the selling will stop. "

All this due to the credit fueled boom of the last 10 years, the unwinding of which is going to be very painful, with the effects being felt around the world. The prudent US taxpayer is going to feel the brunt of this enormous bubble, and will be asked to bail out the irresponsible ones. This is my last post on here. I do not anticipate coming back to the US ever as the prospect of having wasted years of my life being a prudent saver and honest taxpayer, and now taking on the additional burden of bailing out those who were taking out HELOCs, subprime mortgages that will now be shoved onto taxpayers etc, does not exactly enthuse me.

Good luck to the rest of the US taxpayers.

[Rajesh]

The predictions by India Guest have turned out to be correct so far. I also saw the following link where the central banks of Japan, China, Korea and others are trying to form an agreement where they do not sell their US Treasury holdings in a panic. That would wreck their current accounts, as India Guest pointed out. Unlike India Guest however, I think that instead of deflation, hyperinflation is imminent as the US Federal Reserve prints a lot of money and the debt keeps rising and has to be monetized. If the Asian banks do not buy any more Tbonds, then the US will have to print to meet its obligations. The 500 billion dollar deficit has to be financed, because it has to be spent. Also, as the dollar goes down, interest rates will rise.

A lot of people are going to lose money in long-term Treasuries.


http://www.nakedcapitalism.com/2008/09/asia-needs-deal-to-prevent-panic.html


Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding....

``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations....

``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.''...