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[admin]

[Renting in Mass]

I definitely don't agree that this crisis was caused by Democrats forcing banks to lend to poor people.

[Renting in Mass]

To put it another way, I spend a lot of time reading and listening to people across the political spectrum grappling with the causes of this crisis. I'm yet to come across anyone who isn't a political ideologue who manages to come to the conclusion that the CRA is at the root. To put the CRA ahead of the rise of CDOs (to take one example) on the list of culprits is just silly.

[john p]

Guy's this is the Boston Bubble Blog, I think we all know that we've seen the largest price run-up in Real Estate the history of the United States. Investment in real estate, especially the subprime market was clobbered and everyone holding that stuff got slaughtered.

I wouldn't always think that political idealogues are fruit cakes; If they believe that government should be smaller, or if they think Abortion is murder their emotions follow suit. The question is, is the basis for their position accurate, because if you find their basis accurate, you too might start to feel their emotion as well.

The impact of the CRA is hiding behind political cover right now, hiding behind those that pushed it. The power behind the CRA was that it set the tone for everything else. Our Government guaranteed Subprime Mortgages and allowed banks to securitize mortgages. The government should have been promoting responsiblity when they were forcing banks to lend to those that couldn't afford what they were buying. These securities that were based on subprime loans were worthless when people faced forclosures. The banks that held subprime paper were the ones that failed plain and simple. Go to youtube and listen to Barney Frank and Chris Dodd talk about how we should fight reform and how slowing down subprime lending was an attempt to hurt poor people.

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

from above:

[admin]

That only demonstrates correlation, not causation. At a more fundamental level than the subprime crisis was a pervasive underpricing of and obliviousness to risk. Subprime lending was only one manifestation of that. Yes, it was the crack in the dam that broke first, but that doesn't mean that there weren't (and aren't) many other equally precarious cracks. To say that the government needs to focus on fixing housing in order to save the whole economy ignores the possibility that the subprime meltdown and financial failures were both caused by a much broader third factor, namely mishandling of risk. Trying to prop up housing while risk is still systematically mishandled leaves the underlying cause unaddressed and could even worsen the situation.

- admin

[john p]

http://www.publicintegrity.org/investigations/economic_meltdown/articles/entry/1309/

from above:

In October 2008, Greenspan appeared before the House Committee on Oversight and Government Reform to answer questions about the financial crisis and his tenure at the Fed. In his testimony, Greenspan wrote that subprime mortgages were “undeniably the original source of [the] crisis,” and blamed excess demand from securitizers for the explosive growth of subprime lending.



Obviously greed, irresponsiblity, foolishness are the "forces" we're dealing with in the abstract, but you're right, they took form in the subprime meltdown because that was the biggest and most risky. Isn't this a good place to start to rebuild?

I'm having a hard time trying to envison a scenario where the subprime meltdown isn't a cause of our economic woes. It's kind of like Dick Cheney saying "I fired the round that hit my friend", implying that the round hit his friend and not Cheney. In this instance, I think what you're saying is who and what put pressure on the trigger or who loaded the gun? I don't see how people can't see that it was society pushing lending to people who couldn't afford it. I haven't seen anything so clear in my life and I can't understand how people can't connect the dots. The government forced banks to lend to people that couldn't afford them, more buyers entered the market, putting more upward pressure on prices, so banks introduce exotic loans like ARMS and no interest, the GSE's like Fannie Mae and Freddie Mac don't throw cold water on the situation and the FED doesn't use it's power given in the Home Ownership and Equity Protection Act:

from the link above:
[/quote]The Laissez-Faire Fed
Congressional inaction didn’t have to leave borrowers unprotected, say experts. The Federal Reserve could have moved at any time to rein in subprime lending through the Home Ownership and Equity Protection Act. Under the original 1994 law, the Federal Reserve was given the authority to change HOEPA’s interest rate and fees that would trigger action under the act, as well as to prohibit certain specific acts or practices. “Clearly, the Fed should have done something on the HOEPA regs,” said Seidman, the former OTS director. “I think there is little doubt.”

[admin]

[john p]

So you're saying that it is a confluence of a bunch of things. I'm really trying to get my mind around that; maybe I'm too obsessed with real estate?

I see globalization, a real estate bubble, rising deficits, rising health care, aging baby-boom, the repeal of Graham Leachy which allowed the comingling of the investment and commercial banks, the War on Terrorism and nation building....

All of these things are significant contributing factors, but it was the failure of institutions that were failing because of the subprime securities that required the immediate bailout from the Federal Government. Bears and Stearns, AIG, etc. caused the credit crisis of last September and the "Bailout" piggybacked on other safeguards. The "Stimulus" tried to use the subprime bailout as Raum Emmanual states "A crisis that is an opportunity you shouldn't waste".

So you want the government to withdraw from the intervention business?

I think the big risk is letting this big mess collapse too fast. I want to bring it down to what is responsible, but want to limit the collateral damage and not use laisse faire as a blunt instrument.

[admin]

[john p]

Bears Stearns absolutely got killed by the subprime meltdown.

If you go to investopedia.com you can google the case study on the demise of Lehman Brothers. It says it was the largest casualty of the subprime crisis. They also were hurt by derivatives and credit default swaps, but people smelled blood in the water because of their subprime paper holdings.

These institutions have always driven like you describe; this rogue wave decked them.

We've all seen that Credit Suisse mortgage reset schedule that showed all the dates of the different types of mortgages. I shouldn't have said "rogue wave". It was clear that those resets were coming. We even blogged about it. What we all didn't understand was the depth of the problem. The three things that made that situation so bad were first: the majority of resets benchmarked LIBOR and the rates were extremely unfavorable for people trying to reset their ARMS. Second, that mortgage rates went up 1.5 points from when most of these people bought so based on monthly affordability people could afford less house at a 6.5% rate than at 5%, so unlike prior years, people who were upside down couldn't sell their place and brake even. Lastly, when the market got saturated for these mortgage backed securities, nobody wanted to buy them, we even had a global housing bubble so foreign investors weren't biting either.

I don't think the Democrats are evil for fighting reform; I just want to empower people with the truth so that their eyes are open looking through the windshield.

As far as your strategy, a lot of it seem like you're looking in the rear view mirror and waiting for this elastic reaction to come back to historical norms, yet as far as moving forward you say we should focus not on the sequence of events that happened but on the sequence and magnitude of the risk in front of us. I'm saying that in your chart, acknowledge that government interaction has deformed historical norms at different occasions and we're potentially facing this now. I think the Administration is looking forward at our future risks as we say and they'll act accordingly. I also think that today's election will send a message to Governors regarding what happens when you can't control spending. If
Corzine wins, the far Left gets another few months and we might get the Public Option, if Corzine loses, the Blue Dog Democrats will be empowered in Congress, which will dampen the Government Intervention potential.

Oh, as far as the rear view mirror comment, if you were to draw a tangent line perpendicular to the current trend, or derivative right? I think that the slope is steep (before the 8k credit and low mortgage rates anyway).

I think the smartest part of your strategy is that unlike me, you don't feel like you have to be the first to react to a bottom and that you'd trade a little bit of missing the bottom for peace of mind in feeling comfortable that the bottom had been reached. That patience will serve you well, I'm sure. The clarity of it, however, is being clouded by the turbulence of government intervention. It must be frustrating now trying to figure out how much the market is being held up by government intervention. I think it is at least 10%, but if you want to wait for that you should have a decent down payment. Lastly, having a short investment time horizon for a large chunk of money (down payment), you have to be very careful about where that down payment is.

Lehman's collapse took place 6 weeks prior to the 08 Election, which is why the story hasn't been told regarding the subprime meltdown. Obama's hands were dirty with Franklin Raines and Fannie Mae and Freddie Mac. Don't let politics cloud your judgment, Democrats had an ulterior motive in not explaining this collapse honestly.

[admin]

[john p]

As far as prognostication, if you see growth ahead, you might consider paying a premium for housing. You'd have to be getting weekly phone calls from recruiters and multiple offers for houses selling within a week of being listed.

I think that the other benefit of swimming in the riskier waters is that you're buying from very motivated sellers. If you wait until the lifeguard says it's safe to go into the water, you might have some company at the open houses for the nicer homes in your price point.

As far as the differential accumulation theory related to stagflation, you'll see more mergers and acquisitions where larger companies need to increase their breadth by expanding and their depth by trying to squeeze more productivity out of their workers. The bigger and stronger these larger companies are, the fewer companies so talent isn't getting being lured away with money so wages stay kind of low. If taxes go up on top of this and the US Dollar falls and oil costs more, we're looking at a slow period.

I remember when we got wage inflation in the late 90's early 00's. I think the big thing was that you could actually find a job on the Internet. Before that you sent hard copy resumes and looked for jobs in the Globe.

I think the upswing with smaller companies prior to the dot.com age was of course empowered with the Internet and the rapid product life cycles and the newly formed business structures like L.L.C.'s. The internet was "Greenfield Investment" in that it was new territory. This whole "Green Industry" isn't the vast ocean of potential growth that I think Obama thinks it is. Bottom line here is that the technology needs to work and a politician can't just turn on a switch and make the solar panels work efficiently. I just designed a building where I was asked to put on wind turbines. We needed to put up 50 of these incredibly expensive turbines to only get 2% of the total electrical load. The payback is never. I am not a total asshole, I would love to use them if they worked. I just don't see the technology as being there in many instances.

I see growth in computer behavioral modeling i.e. doing scientific experiments on computers.

By the way, Tufte is in town; you can get a ticket to see him for $380.

Do you see any field and say "Wow, that field is going to go through the roof..." I think you need to have those observations in a variety of fields in order to see home prices going up.

[Renting in Mass]

[admin]

[Renting in Mass]

What is your field admin? I'm a technical writer in the IT business, and it's definitely not a secure field.

Biotech still seems to be growing in this area. Defense seems fairly secure.

I'm not qualified for biotech, but I'm considering trying to get into defense. You can't offshore work that requires citizenship.