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NEW -> Contingent Buyer Assistance Program
<p>A Time for Bold Thinking on Housing</p>

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<alt-code idsrc="nyt-per" value="shiller, robert j"></alt-code>ROBERT J. SHILLER

<p><a href="http://www.nytimes.com/2007/11/25/business/25view.html?_r=2&ref=business&oref=slogin&oref=slogin">http://www.nytimes.com/2007/11/25/business/25view.html?_r=2&ref=business&oref=slogin&oref=slogin</a></p>

<p>Bankruptcy law is a risk management institution, and such an institution should adopt more modern practices. For example, Andrew Caplin, professor of economics at <a title="More articles about New York University." href="http://topics.nytimes.com/top/reference/timestopics/organizations/n/new_york_university/index.html?inline=nyt-org">New York University</a>, has proposed that in personal bankruptcy proceedings, the courts should be allowed the latitude to substitute real estate equity — a share in the ownership of the property, to be realized when it is eventually sold — for first mortgage debt. This could let troubled borrowers stay in their homes, and might be better in terms of efficient risk sharing: it would provide incentives for the mortgage industry and would be friendlier to prospective home buyers who would otherwise face higher mortgage rates to pay for others’ bankruptcies. </p>

<p>...hmm...a share in ownership of the property .... what if the share was 100%? .... oh wait, that's called renting .... well, it beats a "timeshare" ..... "timeshare" with the bank - what does that mean anyhow? :)</p>
 
Refinancing programs omit many borrowers

Mass., other states limit their focus



<p><a href="http://www.boston.com/realestate/news/articles/2007/11/21/refinancing_programs_omit_many_borrowers/">http://www.boston.com/realestate/news/articles/2007/11/21/refinancing_programs_omit_many_borrowers/</a></p>

<p>Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found.</p>
 
<p>A big 40 loans were restructured using Countrywide's program, in Mass.</p>

<p>Yawn. . . .</p>

<p>I said this is a stall device and it is.</p>

<p>Also, the banks are being asked to take ALL the loss, as to the loss in value. Seems like the taxpayers and the banks should at least split the loss. And both could stick the loss at the end of the loan. Of course, we know this will just prolong the inevitable. But as somebody (awgee?) suggested orderly losses are better than disorderly losses.</p>

<p>If I took your name in vain, I'm sorry awgee.</p>

<p>The programs, if they are going to attract any reasonable number of people will have to bring the delinquent loans current at the very least. </p>

<p>But, they aren't going to work, and even if every cent was used to help delinquent borrowers, it would make essentially no difference, because as I've posted 5 or 10 times already, the problem is too big to solve.</p>
 
<em>>>Bankruptcy law is a risk management institution</em>,





WTF?!? No it's not. Bankruptcy law is a creature of statute and thus is an institution of Congress conforming to the policy and/or lobbying efforts of the day.
 
<p>Why should the taxpayers split the loss? The govt didn't vote to extend credit to the non-creditworthy. The mortgage money the govt does extend (ex. Federal Housing programs) is reasonable with stricter lending standards and underwriting than the banks. The banks and investors made the bad business call, therefore, they should take the losses. As the saying goes, </p>

<p>"Capitalism without failure is like religion without sin. It doesn't work."</p>
 
<p>So that we don't go into a very bad depression instead of a bad depression. I think you mean a religion without punishment for sin, or whoever you're quoting meant that. The taxpayers are already handing over money. I would prefer to see it used effectively, or somewhat effectively, or it will just go to bureaucrats' salaries.</p>

<p>Buddhism is a religion (well, sort of, at least an organized ethical system with the trappings of religion), the useful trappings anyway. It doesn't recommend any but the gentlest punishments, like getting yelled at by your teacher, or the occasion whack with a stick.</p>

<p>How much punishment you want? You want the pain-equivalent of the Inquisition? You want economic hellfire??</p>

<p>I sure don't. </p>

<p>Somebody said that the Constitution was not a suicide pact. I think that libertarianism is great, but neither it, nor any other economic philosophy should be a suicide pact.</p>

<p>People respond to punishment, not when it is severe, but when it is swift and sure. There are studies to that effect, tho I don't think I could find them.</p>

<p>Unfortunately this punishment is going to be slooow torture, and random. People will not understand what is happening, partly because they refuse to, partly because they can't because they are naturally stupid.</p>
 
<p>I think the point of the quote is that saying that "There is failure in capitalism - but it's not us, we never fail", ex. the refusal to mark to market, living in mark to model land, is a recipie for disaster. The denial only lasts so long until the whole thing explodes.</p>

<p>Rather like in a religion (ex. "There are sinners in this religion - but it isn't me - I never sin" is a recipie for disaster (as one who has oberved or been on the recieving end of religous hippocates can easily observe) - denial of problems* only makes them worse (ex. like this mess <a href="http://www.news.com.au/story/0,23599,21762776-38200,00.html">http://www.news.com.au/story/0,23599,21762776-38200,00.html</a>)</p>

<p>I agree, the punishment is going to seem like random crap falling from the sky. Then again, most of human history seems like random crap from the sky (ex. Who the heck are these invaders and why are they burning my farm? What happend to the rain and why are the crops dying? etc.). It's going to suck, but people will survive. They may end up with emotional scars that make them like the 80 year old Great Depression survivors among us with plenty of money who are still compelled to water down the shampoo, but they'll survive.</p>

<p> *footnote: which, from an economic standpoint, would be that denial and dragging things out will only make it worse - ex. Japan still doing the old boy buddy banking and not letting inefficient banks or companies take their medicine nerfing their economy for two decades. Or as Greenspan put it, the most important thing for the US is for the housing debacle to be over as quickly as possible, as drawing it out just prolongs economic inefficiencies (ie. vacant houses that should be occupied by renters who can afford to buy at the fair market price they are waiting for, unemployeed construction workers not building, etc.). So here, I'd assume it means no govt intervensions, let the whole financial pain be felt and corrected as quickly as possible, screwed homeowners declaring bankrupcy and starting over, then everyone can go back to work building houses and living in them again).</p>
 
<p>Professor Roubini has a posting I got thru calculated risk. It is more depressing than any of his previous posts, which is really saying something.</p>

<p>I think what happened was (this time around):</p>

<p>1. We hollowed out our industrial base, sending our jobs overseas, because the salaries were "too" high. Maybe they were. Unions can get out of hand too.</p>

<p>2. We allowed all the illegals who wanted to, to come. Not that I have anything against illegals. They are a great source of enterprenureship and determination.</p>

<p>None the less, it is not a good thing that farm work is so underpaid. We should be paying a decent livable wage to people who do such hard work. It is not a good thing that the crews on contruction projects are not paid the wage they used to be paid. It used to be you actually got trained by your local. Is it any wonder that the quality of contruction has suffered so much? It's not that the illegals are illegal, in this case; it's that they are untrained, and contractors who would prefer to pay more for better construction are priced out.</p>

<p>I suppose some of the illegals will no longer be able to make it and go back to where they came from.</p>

<p>I suppose than instead of jobs being lost here, they will be lost overseas. In order to create internal demand, the Indians and Chinese will have to pay enough so that their people can buy things. Somehow, I don't see that happening.</p>

<p>India admits to a child labor problem, but doesn't inspect for it or try to eliminated it. And would the kids starve to death if they weren't making our t-shirts? Maybe. I would be willing to spend an extra buck for the goods, if I thought it would end up in the hands of the workforce. Not that that will happen.</p>

<p>No 1 and 2 destroyed the salaries of the mid middle to lower middle class. They collectively spend a lot of money.</p>

<p>3. The highly educated and creative of our work force did just fine, as did the upper echelons of the companies who sent all those jobs overseas, as well as the owners of these companies.</p>

<p>4. But we still thought be were rich American, so liquidity was supplied whenever there was a glitch. So prices of houses were merrily bid up and people who felt rich but weren't went out and bought big gas guzzling cars and trucks, and other ridiculous status implying consumer goods. We are naked apes. We do hierarchies and status, unless restrained. The hierarchies and status, altho built in, are not good for most of us, 90% of which perforce must be on the bottom 90% of the population.</p>

<p> (unless all our children and all of us are above average. . .)</p>

<p>Because we felt rich we continued to be the importer of last resort. Obviously, (now) this could not continue to be.</p>

<p>The mid to lower middle class will shortly stop spending money, because they have to.</p>

<p>The countries we exported these jobs to are not about to sell Barbie dolls and such to eat other. They have a worse wealth concentration problem than we do.</p>

<p>So now large numbers of us have no money. And we have lots of debt.</p>

<p>We won't pay a lot of this debt because we can't. Most will suffer. I think even the rich will become less rich.</p>

<p>By the way, it seems Shiller and Roubini do want to do something about it which involved the taxpayers.</p>
 
<p>Quotes of the Day.</p>

<p>Bank of America Takes Lead in Backing `SuperSIV' Fund (Update2) </p>

<p>http://www.bloomberg.com/apps/news?pid=20601087&sid=afLswJw550m8&refer=home `</p>

<p>Why should we put something on our balance sheet that is going to result in further writedowns?'' is how most contributors will respond, Bove said in an interview. ``The job of the Treasury isn't to go out and defraud investors.'</p>

<p>...</p>

<p>Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm. The Securities Industries Financial Markets Association trade group extended the invitations, Fuss said. </p>

<p>``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.'' </p>
 
<p>Well, don't really agree with lawyer liz's interpretation of Roubini's article, but the article itself is a definate must read. Here is the link</p>

<p>Liquidity and Credit Crunch in Financial Markets is Back to Summer Peaks, Only Much Worse and More Dangerous</p>

<p>http://www.rgemonitor.com/blog/roubini/228668</p>
 
Yen = 107.50 to the USD.<p>

10 yr = 3.81%<p>

USD = 74.86<p>

Sorry, I don't have any proof or even good evidence right now, but my speculation is that the unwinding of the yen carry trade will cause more disruption in the global credit market than any other factor. It is my theory that the cheap yen has been the largest factor in the global credit and asset inflation, much larger than anything Greenspan did.
 
<a href="http://tinyurl.com/2wchqc">Citigroup kool aid drinking analyst downgrades homebuilders</a>.





<p><em> Kim said that it's been difficult to time the bottom because the housing cycle's downturn has not coincided with the economic cycle, and because the pullback in the resale market is lagging far behind the market for new homes. </em></p>

<p><em> Valuations based on book value and volatility in home-builder stocks have reached unprecedented levels, the analyst said. </em></p>

<p><em> "We are no longer convinced that gauging the degree of bad news is a reliable tactic for forecasting near-term performance," Kim wrote. "This time, we expect there will need to be a modicum of good news before a sustainable rebound in the stocks can take shape."





</em> </p>

<p><em> Highlighting the bearish outlook, some of the NYSE-listed financial stocks with the highest percentage of float shares held short as of Nov. 9 were home builders, according to analysts at Keefe, Bruyette & Woods. Beazer was at 96%, Hovnanian was at 74% and WCI Communities Inc. was at 71%, according to KBW.</em></p>

<p><em> Beazer is restating financial results after a probe of its mortgage-origination business and other practices, while troubled WCI has been unable to find a buyer for the company. </em></p>

<em> According to KBW, other home builders that are among the top 25 financial stocks in terms of percentage of float shares held short as of Nov. 9 include Orleans Homebuilders Inc. at 53%, Standard Pacific at 52%, Meritage at 44%, M/I Homes Inc. at 32% and KB Home at 28%





</em>That is some serious short interest.
 
grahrix - I would like to get on the other side of that, but ...<p>

The only money I enjoy more than a profitable short is a profitable short squeeze.
 
<a href="http://money.cnn.com/2007/11/23/magazines/fortune/barr_recession.fortune/index.htm">Ut roh. Don't look now: The "R" word is coming</a>.
 
Nude - I sold most of my puts on Wednesday, and so missed out on today's fireworks. Did you see CFC's close of $8.61? Ouch! And how about that last half hour on the Dow? Yech! My guess is that if this continues, the decrease in the stock market will have more effect on Christmas spending than anything else. Just a guess.
 
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