Housing Doom

The problem with the markets today is that they are dominated by a few major players. These marketmakers have become, in effect, market manipulators. … - TIME¹

I love it when the MSM gets it right.  The story at the note¹ below is a must-read for any Doomer who successfully connected the dots⁴ between GS’s 7/3 exploit in NJ and Ken’s efforts to suppress Misha in IL.

UPDATE (3): The big guns at Wharton have also joined the party³ today.  About time, guys.

UPDATE (2): The Themis guys are asking some tough questions today.

HFT’s Dominance May Be Affecting the Health of the Market - Advanced Trading²

UPDATE (1): The good folks at Business Insider have instituted an "embed" feature, just like YouTube Since they’ve got an article in the same general topic as the NYT piece we’re already featuring, what the heck? Let’s give it a try.

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Yahoo Finance asked this question about the home buyer tax credit yesterday, "Should it expire?"  Short answer:  Yes! [Thanks L!]

Now while the Yahoo article gives a number of dumb reasons for letting the program expire [The panic is over, things are "normalizing", the usual.] they have a couple of good reasons too. 

For one, this is continuing some bad lending practices:

For example, some state housing agencies are allowed to provide second mortgages to buyers who don’t have enough money for a down payment so that they might "monetize" the tax credit and get the cash up front. Down-payment assistance is considered by many to have contributed to the crisis because it helped people buy homes they couldn’t really afford. Anyone who doesn’t understand that it’s a bad idea to push people into buying houses when they’re not ready to hasn’t been paying attention for the past two years.

Two- people might come to expect it:

If a tax credit - or any other economic benefit - sticks around long enough, people start feeling entitled to it, even if it was originally supposed to be temporary. In academic literature this is called the endowment effect. Taking away such a program once it’s ingrained can be a monumental political challenge. It’s not just that expanding the home-buyer tax credit would cost $50 billion to $100 billion this year. It’s that it could easily wind up costing that every year.

Three- taxpayers are paying a lot for very little return:

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The insurance piggy bank at the FDIC is on the low side these days, so regulators have come up with an idea to fill the coffers- have the banks pay three years in advance: [Hat tip Freedom's Phoenix]

WASHINGTON (Reuters) - U.S. banking regulators proposed on Tuesday that banks prepay three years of fees to help cover the rising cost of bank failures, now put at $100 billion through 2013.

Banks would prepay $45 billion of regular quarterly assessments under the plan, but would not have to recognize the hit to their earnings until the fees are normally due.

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Starbucks promises I won’t be able to tell the difference.  Yeah, from the stuff I was swilling the last time I was on The Ocean.

Our crack team of Doomish researchers has already solved the riddle of how these top-notch marketing geniuses managed to come up with a uniquely Doomed-in-Canada campaign.  Look carefully at what led them astray — the subliminal flash in this 2-decades-old TV spot.  In case you’re not fast enough to interpret it, we’ve reproduced the image under "Read More" below.

Doomers should carefully study the second link in my comment from yesterday.  That, folks, is a last call for the lemmings presently in the profitless safety of debt to transfer across to a whole other platform. (But the banks are going to need all the fresh common equity sucker-money they can get their hands on to survive Shiela’s looming shakedown, and the victims at least will have the comfort that it’s all in a good cause.  I figure the process will take about 4 more weeks.)

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I suppose if I were stuck on a desert island somewhere, I would want to be stuck with a bunch of housing analysts.  If optimism helps you survive, these guys should guarantee it.  How’s this for a strange conclusion:

“The worst has passed,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We expect prices to bottom out around the middle of next year and then look for modest price appreciation for the next several years. There is still a tremendous oversupply of homes in most major markets.”

Modest price appreciation coexisting with tremendous oversupply?  I don’t think so.  Not even with this conclusion about sales:

Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.

Sales of new homes climbed in August to the highest level in almost a year, the Commerce Department reported last week. Sales of existing homes unexpectedly declined, while remaining at the second-highest level in 23 months, the National Association of Realtors reported last week.

As we reported earlier this morning, the shadow inventory is growing.  As Vitner stated above, there is a tremendous oversupply.  As we maintained back in the boom days, you cannot consider either supply or demand in a vacuum.  It doesn’t matter what the level of sales if it is not making a dent in the supply.

But wait, there’s more: Sales aren’t the only thing that have the analysts ecstatic.  They are pleased at what they are calling "signs of stability":

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It was just over a year ago that Fannie Mae and Freddie Mac were placed in conservatorship. 

Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington’s most dramatic attempt yet to shore up the nation’s housing market, which is suffering from record foreclosures and falling prices.

The sweeping plan, announced by Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

So is the footing stronger a year later? Nope.

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There are all kinds of "experts" out there who are claiming that the housing market has bottomed, stabilized, halted it’s precipitous drop, etc.  So why does Doom remain so "doomish"?

UPDATE (10/4, by jm): The good folks at NY City based Multi-Family Investor report (see comment #1 below) that they’ve got the scoop on the Amherst report in their post "Exclusive: How Did She Come Up with Seven Million?" (9/29).

 Back during the boom we complained that all the bullish reports out there constantly considered demand [which apparently was going to grow forever] without considering supply, and supply remains the horsefly in the ointment.  Today Barron’s discussed a highly respected report by Amherst Securities Group, and what they report on the shadow inventory of foreclosures is alarming:

The report, dated last Wednesday, festooned with gory detail, focuses on the swollen overhang, the so-called shadow inventory, that has grown inexorably in the wake of the tsunami of default and foreclosure.

Amherst estimates this massive overhang at seven million units. That’s the equivalent of 135% of a full year’s existing-home sales and chillingly greater than the 1.27 million units that made up the overhang in early 2005, when the housing bubble had just begun its dizzying and more than a little lunatic ascent.

Put another way, of the 56 million units that the Mortgage Bankers Association says make up the mortgage universe, Amherst gauges 6.94 million units are in what it dubs the "delinquency pipeline" eventually headed for liquidation. And it reckons that another 300,000 mortgages replenish that unwelcome flow every month.

Essentially, then, this shadow inventory represents a massive furtive supply of future foreclosure. Amherst fingers negative equity as keeping the delinquency pipeline heavily stocked. Quite a reasonable assumption, we think. A home owner, saddled with a house that’s valued at less than it cost him to buy or that he can reasonably expect to sell it for may lack the will and, more importantly, the wherewithal to keep making payments on his mortgage.

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First of all, I want to reemphasize everything Laurie just said. This is not a new threat, and this is not a threat we did not know about. Saddam Hussein has, in many ways, openly dreamed of mass death in the United States. He has shared his dreams with his nation and the world many times. We also know he has actively planned to do so many times, and Laurie’s book is a rather convincing argument that he is active and successfully implemented plans to do so as well. - American Enterprise Institute then- Research Fellow David Wurmser, September 14, 2001

Housing Doom is pleased to report that over the weekend we were able to wrangle the AEI Interns’ Transcripts (all 573 of them, more or less) into date order, with navigation tools.  The set is now a section our Page "Doom Transcripts: Index & Guide".

UPDATE (1515 zulu): I’m seeing the following when I click on random links from the list.  I have a nasty feeling this may not be temporary.

Dear Mr. AEI webmaster,

I trust that the below list will be of assistance in re-building your collection of broken official transcript links

All the best, John from Doom North

………………………………………………………………………………………….

LATER: Just realized that at least some of the below may still be available for a few hours or days.  As an experiment, I chose the dullest looking transcript I could find, used (corrected 9/29) …

right-arrow-> "Copy link location"

… and fed the URL to Google’s generic web search, yielding the Google Cache version, which should be hanging around for a while.

Now if these go away later this afternoon I’ll really start to worry.  Meanwhile, Doomers can still enjoy a can’t lose cure for insomnia.

The above remarkable quote is from the transcript for "Press Briefing on Terrorist Attacks" (September 14, 2001).  Doomers are invited to datamine the transcripts (heck, just skim the list of titles ) for snippets you’d like to share with us on the comments below.  I expect that professional researchers will be again diving into the Institute’s stock of official transcripts once AEI’s webmaster gets them back up on the main part of the site (and at least a couple of unfortunate graduate students will likely be invited to review all of them).  However, we can get a sneak peek right now.

My main Doomish task, of course, is to dig into this stuff to find the analysis of AEI bank and fiscal pundits like Peter Wallison, Alex Pollock and their colleagues where it relates to subprime and mortgage finance.  Over the years I’ve found lots of good stuff and I’m hoping to dredge up further resources.  However, it’s hard to keep from noticing things out of the corner of my eye, like this February 15, 2007 remark from then-POTUS himself.

… Thank you, Mr. President. (Laughter.) That’s got kind of a nice ring to it. (Laughter.) Chris, thanks for inviting me. I appreciate the chance to come and share some thoughts with the men and women of AEI. I admire AEI a lot — I’m sure you know that. After all, I have been consistently borrowing some of your best people. More than 20 AEI scholars have worked in my administration. A few have returned to the fold — you’ll have to wait two more years to get another one to return to the fold. Dick Cheney is occupied. (Laughter.) He sends his best.

So with that evidence for AEI’s influence during the decade when these transcripts were being laid down, here’s the whole list in date order (as usual, navigation links work best when the whole post is exposed).

• Go To Year — 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 20009
•  
• 1999 -
• 01Dec99 - Export Controls and the Future of America’s Defense
• 09Dec99 - After Seattle: Prospects for the Millennium Trade Round
• 2000 - Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov, Dec
• January
• 04Jan00 - How Would John McCain Govern? Transition to Governing Project
• 11Jan00 - How Would Al Gore Govern? Transition to Governing Project
• 13Jan00 - How Would George W. Bush Govern? Transition to Governing Project
• 18Jan00 - Newt Gingrich: Reflections of a Private Citizen
• 20Jan00 - Do Export Controls Still Matter?
• February
• March
• April
• 13Apr00 - In Praise of Public Life: With Senator Joseph Lieberman
• May
• 03May00 - The Presidential Difference
• June
• 14Jun00 - How Would Al Gore Govern in Foreign Policy? Transition to Governing Project
• 22Jun00 - How Would George W. Bush Govern in Foreign Policy? Transition to Governing Project
• July
• 31Jul00 - How Would George W. Bush Govern?
• August
• 16Aug00 - How Would Al Gore Govern?
• September
• October
• 02Oct00 - How Would Bush and Gore Govern?
• 25Oct00 - Preparing to Be President: The Memos of Richard E. Neustadt
• 27Oct00 - The Permanent Campaign and Its Future
• 30Oct00 - Presidential Transitions: What We Did — The 1980 and 1988 Transitions
• November
• 06Nov00 - Is the Israeli-Palestinian "Peace" Process Dead, and If So, What Next?
• 29Nov00 - Jiang Zemin’s Legacy: Beijing’s Latest Policies on Reform, Succession, and Taiwan
• December
• 01Dec00 - Japan Policy Challenges for the New Administration
• 2001 - Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov, Dec
• January
• 16Jan01 - Assessing the Bush Transition: Transition to Governing Project
• 25Jan01 - The Presidential Appointments Process: Computer Software to Help Appointees
• February
• 14Feb01 - Ethics: The Revolving Door Rules
• 28Feb01 - Productivity and Health Care: The Value of Medical Technology
• March
• 05Mar01 - How Would President Bush’s Tax Plan Affect the Economy?
• 13Mar01 - Korea Policy Challenges for the New Administration
• April
• 18Apr01 - Assessing the Bush Foreign Policy Transition: Transition to Governing Project
• 19Apr01 - Productivity and Health Care: Reinventing a Quality Health System
• May
• 03May01 - Challenges Facing China’s Market Reforms
• 14May01 - Transformational Government versus Managerial Government: The Key Challenge for America’s Future
• 15May01 - How Is Bush Governing? Transition to Governing Project
• June
• 04Jun01 - Updating Nationalizing Mortgage Risk
• 07Jun01 - Are We All "Compassionate Conservatives" Now?

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It’s Monday, and seeing stripped down foreclosures is nothing new in Phoenix.  I wouldn’t have posted this video at all, but check out the cavalier comment by the house stripper at 1:08:

This woman has been in this home for ten years.  She was not originally sold a home she could not afford.  I’ll take a wild guess that she refinanced or got a HELOC at terms she couldn’t afford and spent the money.  Now it’s the bank fault?

Just how prevalent has an attitude of "Well if the bank was stupid enough to lend me money, it must be their fault," become?

Stumbled on this one sometime Wednesday.  It’s been something of an annoyance that for the last several weeks the "transcript" links at the event homepages of the American Enterprise Institute appear to have all been broken.

But it would seem that someone at AEI kept a copy of the entire pre-conversion tree for the event pages in an accessible but obscure place at the Institute.

Doom Transcripts: Index & Guide

Anyway, I’m finally finished with an initial pass through what appears to be the whole set.

UPDATE: The links are now available in date order here.

Doomers, enjoy, there’s something for everyone here.  But as for me, I’m outta here … it’s way past my bedtime.

• tttt162: 09May02 - How Congress Evolves: Work in Progress
• tttt163: 13May02 - The Parting of the Ways: Islamic Thought, Jewish Thought, and 9/11
• tttt172: 08Apr02 - Positive, Transferred, and Negative Nationalism
• tttt174: 10Apr02 - Winning the War against Terror
• tttt180: 15Apr02 - Globalization: An Ur-conservative View
• tttt181: 16Apr02 - What Now, Old Continent? Europe on the Way toward a Constitution
• tttt182: 18Apr02 - Gene-Related Inventions: Evolving Patent Standards and Their Consequences
• tttt189: 24Apr02 - Transatlantic Relations after September 11: Implications for NATO, the EU, and European Security and Defense Policy
• tttt193: 04Mar02 - Does Two Plus Two Still Equal Four? What Should Our Children Know about Math?
• tttt195: 11Mar02 - The Future of Policing after September 11
• tttt200: 27Mar02 - The 2002 Medicare Trustees’ Reports: Is the Outlook for Medicare Getting Worse?
• tttt205: 12Feb02 - Fighting Terrorism in a Democratic Society: The Example of Northern Ireland
• tttt211: 07Jan02 - Radical Reform: Transitions to Liberal Democracy and the Rule of Law
• tttt214: 29Jan02 - What Should the United States Do about Iraq?
• tttt221: 12Feb03 - What Is the True Meaning of the Second Amendment?
• tttt223: 10Mar03 - What Is Israel For?
• tttt224: 14Apr03 - The Invention of Hispanics and the Reinvention of America
• tttt226: 02Jun03 - Lessons from the Demise of Détente
• tttt227: 13Feb03 - The Best of Both Worlds: Tax, Trade, and Cowboy Capitalism in the United States and Europe
• tttt229: 03Mar02 - Constitutional Issues and Federalism: Ethnicity and Justice in Post-Saddam Iraq
• tttt232: 05Feb03 - The Road to War: Colin Powell before the UN

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