"REMAIN CALM....ALL IS WELL!"
Posted on 08/09/2007 12:48:38 PM PDT by Leroy S. Mort
Currently there are about 44 million mortgages in the U.S., and less than 14 percent of them are subprime. And only about 13 percent of those are late on payments, with the majority of late payers working through their problems with the banks.
(Excerpt) Read more at foxnews.com ...
You’re behind the times. Central banks around the world are already pumping significant amounts of cash into the system. They did it yesterday and they are doing it agian today.
Some say that the aftermath was one of the causes of the early 90s recession.
The S&L disaster was not remotely the scope of this one.
I have never said the economy was doomed, of course the economy will eventually recover, its cyclical, but this will cause a downturn and a big one.
Yes. Because of fear -- market psychology is again driving this. Its an issue, for sure, but I believe this is a long overdue repricing of credit risk.
No facts to back it up?
Really?
Well lets just see whats been going on in the last 2 weeks shall we? You think its simply sub-prime.. ok then...
Here we go:
Nice article about how money is exiting the mortgage markets completely, not just sub prime, but ALL mortgage paper has become difficult to move, A, Full Doc, buyers are bailing on mortgage backed securities of all types, not just sub prime.. and its impacting GLOBAL markets, not just the US and not just Sub Prime.
Mortgage problems in AUSTRALIA
http://www.reuters.com/article/gc06/idUSN0832017120070810
How this is effecting credit conditions around the globe! Not just in mortgage industries, and not just in the west.
Alt-A loans which are well qualified buyers who cannot document income, or do not wish to jump through hoops to document all income (Generally Higher Income, Entrepeneurs and the like) are now having difficulty getting loans on houses.
Lehman rates the current credit tightening a 7 out of 10 (10 being the worst) Forecasts are now at $200 BILLION in losses to investors and homeowners... the S&L Crisis was about 125 Billion... and frankly I think the estimates are LOW.
You can cover your eyes and think this is just some minor thing, feel free, but the facts are out there.. you choose to ignore them, that’s up to you.
Will the economy eventually recover? Sure... but this isn’t some blip on the radar, and its going to get far far far uglier, before it gets better.
To an extent yes, but its not just market psychology.
I just posted estimates are this whole shakeout currently is estimated at about $200 BILLION in losses (and personally I think these estimates are low very low)... to put it in context, the S&L debacle was about $125 BILLION in losses.
So those that think this is some minor blip or is not going to have broad and lasting implications are misinformed or naive.
This is going to get much much uglier, before it gets better.
Losses to hedge funds, largely, though, no? I realize it is affecting corporate borrowing ability and even higher quality mortgage pools at the moment, but my guess is that this will be relatively short-lived.
To the extent that fundamentally good companies are still earning profits and making good products, this contagion represents an opportunity for long term investors. These companies will again have access to capital debt markets when investors realize the baby is now out with the bathwater. But, it may get uglier, first who knows...
Having been around for the 87 crash, the late 90s Asian contagion, the 2000 Nasdaq absurb bubble, the corporate malfeasance adventures of 2002, etc., I believe the market pendulum swings too far upward, then downward.
Maybe this time is different, but I’m guessing not. These CDO meltdowns and liquidity problems are an issue, but I don’t see it as a worldwide economic disaster like proclaimed on the front pages of some papers, and by traders and hedge fund managers who are now getting burned after convincing themselves that there truly is no longer any credit risk in the markets. That the markets have grown too sophisticated.
It reminds me exactly of the “new economy” and “New metrics” BS that was being spewed before the Nasdaq tanked.
This is all rather irrelevant. The reaction has been real regardless of the veracity of the threat. Banks have locked accounts, inter-bank lending rates have gone up and markets have reacted. Good luck selling the guy that just lost money that it’s not a real problem.
And now the ugliness of Illegal Immigration will rear its head.
Sure, when the economy was humming along and jobs were plentiful for them to scoop up, at least they were contributing something.
Now that the jobs are drying up, they aren’t going to leave the country. After all, they’ve hit the jackpot by making it into the US with all of the gubmint entitlements.
The repricing of loans will most likely do the following. The homebuyer will decide if the house is worth the monthly payment. If he had a 3% loan that gets raised to 9% because he shouldn't have had the loan in the first place, he must decide if he can, or even wants to pay the extra money. If he lives in a house that is up in value, he might just pay the money.
Lets say his value has gone down or he just can't pay. The difference in this time and the Carter years is,......he has a job! He can throw the keys at the repo man, go across the street and get the same house, or more, for less money now. When Carter was president, we had DOUBLE DIGIT unemployment, and DOUBLE DIGIT inflation, and DOUBLE DIGIT( 13%-20%) housing interest rates. saying there is a problem at 4.6% unemployment, or a 5.25 interest rate with inflation at 2% is ludicrous. These people "loosing" their houses, most likely will have another in a flash. In Carters day, it took years( and Reagan) to work out the excess.
What we have now is a rise in home pricing that was built on easy money. To say a house is worth $150, $300, even $900 a square ft is built on what you can get rather than what it costs. There are houses in my city that go for less than $50 a square ft. I would gladly sell my home for $60 a sq ft right now! To build a home would cost $60-$80 a sq. ft. If you live in Miami or Las Vegas, you have a job, you have been paying your payments on time, they should allow you to reprice at 7% or so if you have good payment history. If they won't then you bail, give them the house, and move somewhere else, BECAUSE YOU HAVE A JOB. The loan people HAVE A HOUSE, even if it's 50 cents on the dollar, it's not ZERO, as the market is trying to suggest, so they aren't going to go under. The one left holding the bag is going to be the home builders, because we are going to have a house glut for awhile. They may not survive if we don't need them to build houses for a year or two. They make their money when the house is sold, so they get NO income for quite some time. If they decide to lower their price, it makes the housing "dump" worse when you can move down the street and get a bigger house for less money than you could a year ago. It doesn't cost $300 a ft to build a house, so there is plenty of room to go down. They will be hurting for awhile.
As I stated in my first paragraph, the saving grace here is 4% unemployment. Sure, there could be an uptick coming, but nothing like the 10% in the "old" days. Even if we went to 5% unemployment. that's more the rule than exception. People may only be willing to pay $50 for tennis shoes, instead of $200 and they may buy a Nokia phone instead of an iphone. Hardly the end of the world. I've seen the end of the world. It was when Carter was president.
Nonsense. What happened was that the government, and the smart asset holders, merely waited for property values to return-—which they did, as they always do-—and an “$800 billion” problem became half that, or less. It was no different in the Panic of 1837: people who got antsy and sold or foreclosed lost money; those who were patient made money.
Heck, the black population is about 13%... are they also a number too small to worry about?
Does this herald the return of the “everything’s fine!” crowd previously known as the “real estate is the best investment you can make” crowd?
"REMAIN CALM....ALL IS WELL!"
Just for yucks, I took a rare visit to the economic and financial experts at Daily Kos to see what they are saying.
http://www.dailykos.com/story/2007/8/10/75050/4324
Alot of “end of the world” stuff, as usual, with one idiot even starting off by saying the dollar is pegged to gold.
Markets go up, markets go down. Foolish investors may make money for a while, drawing in more foolish investors. Just the names and products change...
I am not suggesting that its the end of the world, nor would I. It is a contraction, but its going to be a very very big one. Companies will make money sure, but the capital constriction is going to be bigger than I think most expect.
Less and more expensive capital hits all markets... and its difficult to predict when it becomes widespread exactly who will get burned.
Imagine if you will, FORD or GM for example finds themselves in a need for huge cash influx to just stay afloat as they did just not that long ago? Fortunately for them that need happened at a time when rates were low and capital was readily available.... that’s not going to be the case in 6-12 months.... Would they be able to survive in their loan rates were to jump just a few points?
Now I don’t expect this to happen to these companies, but it is going to happen to others. Capital contraction, in an age where most companies are over leveraged to begin with is NOT a good thing. IN the broader sense it is, as it will hopefully end the insanely short term practice of leveraging yourself to meet a short term street estimate and actually build your company slowly and steadily... however the fallout to flush out those who have made the mistakes will be massive and ugly.
Like I said, I think the $200 BILLION is grossly underestimated... I expect loses to be much much more than this.
Is it the end of the world? Nope.. but any company that is looking at short term floating notes as part of its obligations or severely leveraged for whatever reason, may look profitable now, but likely won’t be for long.
That’s fair and balanced, as they say.
Credit spreads which had (irrationally) evaporated during the last few years are coming back. Had to happen. This is the trigger, IMO.
For yucks, I went to Daily Kos to see what the gloomsters over there are saying. If you want to laugh, check out some of these comments — one guy started out by stating the dollar is pegged to gold...
http://www.dailykos.com/story/2007/8/10/75050/4324
This is NYT hype. My 76 year old widowed mother just re financed her house 4 days ago with a $1200 a month income. Her rate was 7 3/8% in Texas. I can write articles all day long about how a bank won't finance a jumbo loan for 6% if the property is $300 a ft and the guy has nada to put down on it. Yes, those days are most likely over for awhile. The world won't come to an end if the bank requires 5% down, that you have good credit, you have a job, and the price of the house reflects the current market conditions.
The economy is booming right now, 80% of companies reporting are beating their estimates, the market JUST hit an ALL TIME HIGH, and it's August. The market is looking for a reason to go down right now.
If unemployment goes to 6%, inflation goes above 3%-4%, or we get another attack, or the worst of all, the Dems take the white house, then I'll worry.
Its not NYT hype... capital contractions, especially this big are not minor blips. Are there doom and gloomers sure?
But the contraction is NOT just the mortgage paper, its a global overall contraction... what does this mean? Does it mean no one can get a mortgage? of course not, but it means fewer people will.. but that’s not the real problem.
The problem is capital contracts, that means needing it gets more expensive..... and for your mom, willing to pay nearly 8% when at one time it was 6% isn’t the end of the world. However if you are an overleveraged business (which many are anymore) and you find your financing rate jumps 2% on Billions of borrowed money, your profitability overnight turns into losses. Just because you cashflow positive today, does not mean you will tommorrow, particularly if you are tied to short term fluctuating debt. Also, even if your existing debt is fixed, when you need more capital in the future, your rate is higher, further harming cashflow.
This isn’t just mortgages, and its not just NYT hype (though I don’t believe its the end of the world, it is a big big problem). To put it in perspective, the S&L Bailout lost about $125 BILLION and anyone who lived through it can tell you that wasn’t just in S&L’s, but caused issues throughout the economy. Current estimates on this one are $200 BILLION... and honestly I believe without question these estimates are FAR TOO LOW.
You can continue to believe this is just a blip if you wish.
Maybe its an above average sized blip. ;-)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.