Housing Doom

You can’t have progress without a goal: only change.

"The Illusion of Progress," from …
The Mother Tongue
by H.R. Percy (1920-1996)
Lawrencetown Beach, NS, Canada: Pottersfield, 1992. 60-62

The 21st Century’s first decade is winding down and it’s a good time for quiet reflection.  The Salvation Army Thrift Shop on Green Street sits directly across from the worldwide headquarters of The People’s Gospel Hour.  Someday I really should drop in on the actual, professional prophets in our midst, but for now there’s one of the city’s most eclectic shelves of used books, courtesy of the South End’s generosity.  Google may never bother with this offering from an obscure "greatest generation" guy, but the first few of his essays taken at random have been quite interesting and this last is helping me focus on issues relevant to our near future.

Change, like falsehood, feeds upon itself. Changes, like lies, must often be multiplied to sustain themselves. "That word ‘change’," said Haliburton, "is the incantation that calls fools into a circle." …

It’s not clear when the author wrote these or for what, but a hint ("… my rejoicing as the astronauts splashed safely into the Atlantic …") suggests the days of the first manned space programs.

How is this relevant today?  Because our own mantra of urgently required but seldom defined CHANGE has lately been deflecting our attention away from the reflective analysis we need to give ourselves direction for the 2010s.

… Is this more admirable than the acquisition of money with no other object than to multiply it? Money and knowledge are both means, not ends. The perversion of means into ends is the shrewdest weapon of the Devil. …

Earlier this year, over the summer months, both Serge and Misha learned this lesson. The tuition bill, alas, was considerable.

Through the ages man has striven tirelessly to order material things to his liking. But seldom has he paused, as a good soldier should, to consolidate his position before pushing on to new conquests. …

I don’t suppose Percy would have appreciated our blogging sector’s specialized use of the word consolidate, but his thought is curiously appropriate.  It’s precisely the consolidation of off-balance-sheet deals back on to balance sheets over the first part of the dawning decade that will allow us to see where we are, financially and economically speaking, and find a practical way forward.  The pain is guaranteed to be nearly unbearable, but it is merely the pain of long-chilled extremities finally coming awake again.

Doomers all wherever you are, have a Happy New Years celebration and plan to arrive home safely after the well-earned fun

"(We) thought it might be helpful for us to outline our view of the respective roles of OFHEO and Fannie Mae’s Board of Director [sic] relating to executive compensation… We believe OFHEO should determine whether Fannie Mae provides "excessive compensation" to its executive officers by reviewing the process that the Board of Directors uses to set executive compensation and ensuring that compensation is established pursuant to the process…." May 15, 1996, letter of Anastasia Kelly, General Counsel of Fannie Mae, to Anne E. Dewey, OFHEO General Counsel. – footnote in this book¹

Just a little food for thought as the forensic analysts go over the role of executive compensation in bringing on the Panic of ‘08.  And perhaps today’s headlines² can throw some context on the above dull bit of history.

“General counsel are supposed to be setting a prime example of good ethics at a company, not acting as carpetbaggers as they leave,” Frank Glassner, chief executive officer of Veritas Executive Compensation Consultants LLC, said yesterday in an interview. “This severance pay is ridiculous.”

Read the rest of this entry »

So the housing market is a little off here recently, over the long-term, real estate is a good investment, right? Not necessarily, according to [You aren't going to believe this.] the National Association of Realtors:

NEW YORK (CNNMoney.com) — Taking into account inflation, home prices are actually lower than they were 10 years ago, according to a report from the National Association of Realtors released Wednesday.

The median home price in November 1999 was $137,600, NAR said, and by November 2009 it had risen 25% to $172,600. But with cumulative effect of inflation, prices are actually 3% lower in real terms.

You know they are going to find a happy thought somewhere though.  They also said:

The good news is that wages have risen in the past 10 years, so homes are now affordable than they had been, especially at the height of the boom in the middle of this decade, said Walter Molony, a spokesman for the Realtors. Read the rest of this entry »

The collapse of the credit bubble brought on a collapse of the housing bubble, and now a new bubble has burst- the Ponzi bubble.  In a good economy with easy credit, it’s not tough to find more suckers with a little cash looking to get rich quick.  In an economic downturn though, it’s tougher to keep the schemes going:

It was a rough year for Ponzi schemes. In 2009, the recession unraveled nearly four times as many of the investment scams as fell apart in 2008, with "Ponzi" becoming a buzzword again thanks to the collapse of Bernard Madoff’s $50 billion plot.

Tens of thousands of investors, some of them losing their life’s savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.

While the dollar figure was lower than in 2008, that’s only because Madoff – who pleaded guilty earlier this year and is serving a 150-year prison sentence – was arrested in December 2008 and didn’t count toward this year’s total.

In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP’s examination of criminal cases at all U.S. attorneys’ offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.

The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2 billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.

The California Attorney General’s Office has charged Redding businessman James S. Koenig and two Sonoma County men with orchestrating a $200 million real estate Ponzi scheme that allegedly defrauded some 2,000 investors, mostly elderly.

Will 2010 mean the end of mega-Ponzi schemes?  Not hardly.  But they are going to be tougher to pull off.

So to answer the question – who is the household sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report. – Business Spectator¹

Doomers will be, I’m sure, very sorry to hear² from the business world’s most reliable resource that we won’t exist next year

And since we’re just a figment of your imagination, we’d better get busy and buy some Treasury Debt, along with those imaginary "household" buyers who soaked up about 1/2 trillion dollars of the stuff in ‘09 (although to be fair, Jesse’s a bit more sanguine about that story)

Read the rest of this entry »

The OSC says that based on Coventree’s unexpectedly high exposure to subprime debt, “certain dealers reduced or temporarily eliminated their market-making lines and adjusted their inventory holdings of Coventree-sponsored ABCP, in order to minimize their exposure to losses in the third-party ABCP market.” – Globe&Mail¹

What’s amusing about that little snippet is we’re talking about a period 3 weeks ahead of when all hell broke loose on August 13, 2007.  To get an idea of the size of the resulting **SPLAT** Doomers can check out Zimmerman’s commentary around his slides 10 and (especially) 11 from AEI subprime transcript II, a couple of months into the resulting world-wide credit crunch.

So a good deal of the blame for the recent meteor strike would seem to lie, after all, at the feet of a bunch of rocket scientists (real or imagined) at the Caisse, of all places.  Cute.

Ah the power of forced and precipitous balance sheet consolidation.  Waiter!  Another round of QSPE forbearance for everybody, please.

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It could be billions of dollars – Michael McCarty at around 2:08 on the following YouTube

Housing Doom will not be responsible for spray-damage to computer screens caused by any attempt to drink coffee while watching the following …

So let’s lay aside the stale MBA talking points and see what the grownups were doing in the week before Christmas. The Fed increased its MBS holdings, by a a modest $9.202 billion, only about 1/5th the size of last week’s move. This week’s Reuters report¹ was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.² Here is Doom’s updated CSV version³ of the agencies and treasuries foreign central bank holdings data set.

Treasury Debt collapsed once more to a small selloff of $1.412 billion. Twist sends along an article⁴ suggesting this could be the shape of things to come.

The agencies declined $3.557 billion, wiping out recent gains. The Agency Debt number has been suspiciously flat again, this time over the last 14 weeks.

This week the total US obligations number settled back a significant $4.970 billion,

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In a couple of days we are going to see an end of the decade.  Goodbye 00s- whatever you call them. Dean Calbreath of the San Diego Union-Tribune reminisced yesterday about the decade- and the memories weren’t pleasant:

California started the 2000s suffering a string of power blackouts as Enron and other energy traders rigged the electricity market. Enron later imploded after investigators found that it had manipulated its financial statements. When the fakery was exposed, it triggered what was then the largest bankruptcy in U.S. history as well as the disintegration of one of the world’s biggest accounting firms, Arthur Andersen.

As Enron’s perfidy came to light, America was finding that many of the companies that fueled the dot-com boom of the 1990s were built on dubious accounting practices and other flimflammery. Dozens of corporate executives were brought to trial, ranging from Enron leaders Ken Lay and Jeff Skilling to a string of executives at San Diego’s Peregrine Systems, who inflated their books with falsified sales figures.

But to compare those turn-of-the-millennium frauds to the much bigger financial crime that hit its stride in the middle of the decade — the worldwide multitrillion-dollar pyramid scheme known as the mortgage derivative market — is like comparing a neighborhood gang member to Al Capone.

Over the past several years, much of the vast machinery of Wall Street was devoted to packaging securities that had little intrinsic value and selling them to unsuspecting investors around the world. The ratings agencies that were supposed to evaluate the securities, including Standard & Poor’s, Moody’s and Fitch, gave them a rubber stamp of approval, helping push the global economy to the verge of meltdown.

That was on the macro level.  On a more personal basis, homeownership went from desirable to toxic: Read the rest of this entry »

Larry: There is no aspiration of any kind to change the private-sector basis of our economy. – WSJ¹

Igor, just returned from flying over the ruins of Harvard’s campus, reports that America’s post-9/18 command economy is now firmly in the hands of a Lance Armstrong class pro cyclist.

… and a bit of Monday morning humour:

WSJ: Should Fannie and Freddie become government agencies?

Mr. Summers: I’m hesitant to talk about a matter that I think is going to play out over the next several years, but that certainly would not be the direction I would expect.

Which is to say he’s in denial (or shock) over Timmy placing an explicit guarantee under agencies last Thursday

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If you read the MSM headlines, happy things are happening in the housing market with the surge in recent sales.  According to Michael  David White, a  Chicago mortgage broker, these buyers could be sorry.  For one thing, the inventory picture is worse than we are being told:

The housing market remains oversupplied by 860,000 units when compared to a 10-year average inventory and the overhang represents a direct contradiction to the spirit of Tuesday’s headlines describing new data from the National Association of Realtors.

. . .

[S]upply exceeds long-term inventory averages by 32% — a significant hurdle despite a count of months-of-supply inventory which is just 12% above average and is practically normal (see below). The disconnect in the measure of excess between units for sale and months of supply suggests a logical problem with the data.

What’s the problem with the picture?

[T]he numbers look less promising when you see that unadjusted sales figures show the last 12 months of activity is very similar to a bad year last year. We are headed in to the doldrums this year with a special un-trainable child locked in the attic: A mammoth set of delinquent mortgages.

…

With the most knowledgeable sources saying that the cure rate for delinquent mortgages has fallen in to the abyss of “rarely or never", you would be right to conclude that the federal government can only stop this hellfire by actually paying the monthly bill for homeowners who are behind. Since they are funding every new mortgage, maybe it’s possible they can pay the mortgage too? Think of it as citizen-friendly quantitative easing

Here’s where White really spells out the problem with all of the government interference: Read the rest of this entry »