Posted on 08/06/2007 8:48:07 AM PDT by Hydroshock
Let me just preface by saying that I don't make a habit of commenting on what other colleagues at CNBC say. It's neither prudent, nor necessary. I also didn't even plan on blogging this week; I'm on vacation for crying out loud! But my BlackBerry was buzzing off the base this weekend, with housing bloggers begging me to respond to Jim Cramer's outcry on Friday about the Fed and the mortgage market. So let me just blog here respectfully.
I understand Cramer's passion (you can see it again in the clip below.) I do. I'm not out there in the money markets, in the pits. I've never been a trader, I've never worked on Wall Street, but I am a reporter covering real estate. I talk to mortgage brokers every day of the week, and I talk to real estate agents, and I talk to banking analysts, and I talk to economists who cover housing, and I talk to academics who understand historical trends. So let's just say I'm a little more obsessed with it than the next guy.
I agree with Cramer's fear that it's only going to get worse, despite the fact that I have people writing into the realty check box every day telling me that I'm overblowing the situation for my own dramatic benefit, as if I'm going to be a more popular reporter if the housing market crashes. Do reporters in the Midwest pray for tornadoes? I don't think so. Been there, covered that.
The fact is that according to a study by Credit Suisse, the bulk of the adjustable rate mortgages that were sold during the height of the housing boom, that is during the height of the most aggressive lending, will reset this fall, billions of dollars worth, and many many of the borrowers holding those loans will not be able to afford the resets.
Then come the new rates. I reported on Wells Fargo Woori Finance Holdings Co LtdWF 72.03 0.13 +0.18%
Quote | Chart | News | Profile | Add to Watchlist [WF 72.03 0.13 (+0.18%) ] last Friday (see clip below), combining their news with news of American Home Mortgage American Home Mortgage Investment CorpAHM 0.44 -0.255 -36.69%
Quote | Chart | News | Profile | Add to Watchlist [AHM 0.44 -0.255 (-36.69%) ] laying off the bulk of its work force. I never said Wells Fargo was getting out of the mortgage business, I simply said that by raising its rates (rates that brokers offer, not the rate you would get if you went directly to Wells Fargo), the company is pricing many borrowers out. I said they would lose some business, and I stand by what I said. But by midday Friday, Wells Fargo was all po'd at me, calling my bosses in NJ and saying that I was misreporting the facts. Did I have to report their news with American? Yes, that's the time I get, and I have to get it all in. Did they like being in a report with a lender going belly up? NO! What company would be??
But now I'm getting emails about "panic." I'm reading the housing blogs (yes, while on vaca), and they're running quotes of respectable mortgage brokers saying that this week is going to be scary, because no one knows how the lenders are going to respond to Wells Fargo with their rates.
So back to Cramer. I know he's a passionate guy; I know he's prone to meltdowns, but this one was big even for him, and while I've never even met the guy in person, that says something. He claims we have "no idea how bad it is out there." I think we do, I just think no one wants to admit it. I got about 20 emails on Friday from local Wells Fargo brokers berating me for my reports. Should the Fed "open the discount window" as Cramer pleads? I'm not sure.
Clearly the credit market needs some help. The fear factor is overwhelming some of the basic fundamental facts, but not all of them. I just worry that if you lower interest rates you're essentially reversing an important, albeit painful lesson. American homeowners got greedy, bottom line. They saw these low rates, they saw these "exotic" mortgage products, and they bought themselves homes they should never have owned in the first place. Now they're in trouble, and many of the them should be.
Yes, there was plenty of predatory lending and plenty of illegal and immoral practices going on in brokers' offices in every state of the U.S., but the bulk of the boom was driven by straight-up brokers with straight-up documents that just happened to offer very cheap money for a short time. People didn't read their papers, didn't take the time to understand their investments and now they're getting burned.
I have to admit I'm torn. People need relief. The housing market needs relief. The credit market needs relief. But is the answer to open the barn doors again and see the rush of blind bulls say, 'It's all ok again. It's time to buy more house. It's now time to forget what we can all afford again?'
I'm not so sure.
Questions? Comments? RealtyCheck@cnbc.com
Thought you may find this interesting.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
I'm glad someone is saying it. I sure have been. It's the dot.con bubble redux. All the idiots who didn't learn their lesson in the tech runup, took their money and started playing the housing market.Same story, different bubble.
What did Suze Orman say?.......
Probably something very intelligent. She's got a perfect combination of smarts, looks and personality.
But Erin doesn't have to say a thing; just give me one of those "wrinklynose smiles" of her's and I melt!!
Who cares about Suze Orman?
Cramer and Kudlow beat the table day and night about American Capitalism and the evils of government control, but when it comes time for a Daring Capitalist somewhere to take a loss, they both start begging the Fed for overt fascistic intervention.
Not anyone who wants sound financial advice.
For that matter, who cares about Jim Cramer? Has that guy EVER been right?
LOL. you guys are so easy... ;^)
very interesting, it looks like the mortgage brokers are getting off of this scott free. They get their payments on the front end - they take none of the risks.
Traditionally, Banks wouldn’t lend out money to the subprime market if they didn’t think they could pay if off. They charged more to cover the risk, but they still felt the borrowers could make the payments.
Today’s brokers set the homeowners up to fail. They are subprime for a reason, they don’t have the financial skills and the brokers took advantage of it.
One can wonder if the brokers pulled the same type of shenanigans on the Wall Street Managers.
I know the sub-prime demographic, they don’t care and any troubles they might encounter their involvement is rationalized away. They are the perfect mate for the sociopaths of WallStreet.
Housing bubble and hedge funds...Dec 2006 article with predictive qualities..http://www.globalresearch.ca/index.php?context=viewArticle&code=20061221&articleId=4225
Agreed. We have a friend who is in the process of going bankrupt and putting her townhome on the market. She piled on credit card debt and home equity loans until she couldn't pay the bills on her salary as a day-care worker. While I feel sad for her difficulties, I also see this process as a necessary lesson. Many of us tried to get through to her that she was living beyond her means. While she was traipsing around Ireland on a guided tour, we were camping in the local parks. She bought everything in triplicate in top quality while we "made do". A library card was below her dignity. A lot of people lived as though there were no consequences to their ill-advised decisions. They're now learning an important lesson. Unfortunately, their hardship also hurts our portfolio. We could happily do without that part of the lesson.
Interesting. Thanks for posting. Thanks to all contributors to this thread.
Now the banks are going to have to keep their mortgages and they will tighten lending standards back to the good old days, ie 20% down conventional or 10% down with mortgage insurance.
Deja Vu
BUMP
I love CNBC. Whatever happened to Leslie Laroche?
Nobody listens to Suze Orman except more lesbians.
Sue Herera and Maria Bartiromo are great as well as most of the guys there except Chris Matthews and Donny Deutsch who’s a particular moron and pretty boy.
Anyone that considers anything Cramer says as “worth comment”, IMHO, is also not worth comment.
Right, which is why it’s the job of the brokers to reject them for the mortgages.
Look at it this way, say if you wanted to borrow 100 bucks from me - and I know there’s a good chance you weren’t going to pay it back. Would I loan you the money? Regardless of how much you promise to pay back? Of course not.
But now let’s say, I loan you $120 bucks, with you promising to pay me back $140. You pay me twenty right away. I can go to some other guy saying “I have this guy who’s going to pay me $140, I’ll let you have it for $110.” I’d be crazy not to do this deal. Heck, I’d do my best to encourage you to take this deal - I’d make 10 dollars for zero risk. I’m printing money.
And that’s what’s happening, in a three party transaction, we took out all the risk for one party. And without risk, people act irresponsibility.
Capitalism without bankruptcy is like Christianity without hell.
Jim Cramer is famous today.
The Fed is intervening now by keeping rates too high. They are calling for the Fed to stop intervening.
He's a populist and entertainer so he sways some opinion, but more often than not he's way wrong on facts.
A ratings-getter...that is all.
What's Kudlow saying? He's way more reliable than Lamer.
I'm not sure I'll give much credit to someone who doesn't understand what the discount window is.
Great insight, and here’s another:
The private equity boom: These companies are buying out public companies, who trim past the bone to make themselves attractive to the buyer. The buyer, like Blackstone, comes in, and what do they do? They make the acquired company take out a LOAN. Why? New equipment? Plant upgrades? Expansion?
No. To pay BACK BLACKSTONE. Blackstone recouped its investment in Galileo in two months through a loan on the business.
This is a new spin on the leveraged buy out.
I think you're an idiot for using such a broad characterization.
This is the kind of financial infants out there running the economic engine of this country! Yikes!
What has happened to common sense, responsibility and such in this country?
Diana, Charles Bierbauer awaits your arrival in NeverNeverLand.
.
It would have been more interesting if you’d edited the thing before you posted it.
The lenders should take the hit. Housing prices will fall, providing a great chance to purchase a house at a decent price for use as a residence or as an investment.
The market needs to be allowed to work without the govenment getting involved in a bail out of the banking industry.
From Wikipedia:
“Cramer, Berkowitz, & Co.
Cramer went back to school to get a Juris Doctor degree from Harvard Law School (he met Eliot Spitzer on his first day of law school[8]). After graduating in 1984, Cramer’s plans to become a prosecutor were dashed when he was rejected by the Southern District of New York (which at the time was being run by Rudy Giuliani) because his law school grades were not good enough.[9] Instead, Cramer went to work in Goldman Sachs’ Sales & Trading department.”
http://en.wikipedia.org/wiki/Jim_Cramer
Every generation has to learn the lesson that there is no such thing as “easy money”.
That was a pretty broad generalization in itself.....Hmm!
Perhaps I should have used the “/S”...........(sigh)....
You are an idiot. Unless you are a broad, I’d say that’s pretty specific ;-)
Suze believes that the carpets aren't being cleaned as thoroughly as they once were leading to a general lowering of housing values.
“What did Erin Burnett say?”
There are (or should be) rules, ya know!?
I agree with Suze. We are looking for a new house and have found some of the dirtiest, run down houses for high prices. We aren’t buying unless the houses are clean and ready to move into. The prices have to come down or we will build.
Bubbles are pretty
I think you’re an idiot for not recognizing the truth of such a broad characterization.
You’re the guy who has gotten it.
The follow-on effect, tho, is that housing prices are going to deflate rapidly in some markets, because the builders keep on building, there’s already a surplus of housing supply, and the increased lending requirements will dry up the pool of qualified buyers.
I was listening to Bob Brinker yesterday on Moneytalk, and he was echoing the same things, that the Fed rate will probably go down in November...but by then it will be too late. He also went off on Bernanke and the Fed board for sitting in the Ivory Tower, and "not seeing" the massive amounts of money dissappearing before our eyes. He also trashed the hedge fund managers....
Erin tried to calm Cramer down, but to no avail.
She was entirely reasonable and sane, a true example of calm, cool and professional.
Cramer is an example of why the volatility is as bad as it is. The people running all that money, and pulling down all that leverage, are in too many cases just like Cramer. They’re throwing mountains of stock into the market to raise cash to cover margin calls.
The last thing many of these hedge funds want to do is be forced to sell their CDO/CDO-squared and discover that the market has a very different (and much lower) estimation of the value of these CDO’s than the CDO model puts on the instrument.
Cramer is an egomaniac. Like he cares about mortgage foreclosures. He does not want to see the market make a needed and healthy correction, because it makes him look bad when stocks he has pumped in the last three or four months start costing people money. Someone has to buy at the top, and in that regard he has been a willing accomplice. But he or ANYONE is not going to come off looking very good doing what is he doing, and that is giving an opinion on everything that comes his way an hour a day five days a week.
That is because she probably isnt invested in submarket mortgages.....
Cramer comes off as a whack job.
Although I'm way way too old for Erin, she's one of the few that makes me feel I'm not too old!!
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