Real Estate Crash thread

[Nobody Famous]

Good overview of the fed's actions.

http://www.washingtonpost.com/wp-dyn...031103060.html

I actually read that the other day. But I thought I missed some part of the big picture after reading it, the explanation of how or why the fed sees it's way clear to give away $200 B to investment banks in exchange for some obligations that, in the past were worth $200 B, but no longer are. Maybe the title says it, A Bailout. For Everyone.

[liv2ski]

I actually read that the other day. But I thought I missed some part of the big picture after reading it, the explanation of how or why the fed sees it's way clear to give away $200 B to investment banks in exchange for some obligations that, in the past were worth $200 B, but no longer are. Maybe the title says it, A Bailout. For Everyone.

From what I read, the Fed will trade treasuries for the most AAA rated bonds.
Currently, many lenders have the safest, full doc, Jumbo mortgage pools that have no market for them to be sold in (all the normal investors are hiding) which has caused a huge credit crunch. Consequently the yield spread between conforming and Jumbo loan amounts is at all time highs. I am sure this is the case with commercial paper, student loans, you name it. This is a big problem and this idea is a small step to try and unfreeze some of the liquidity lock up all the markets are dealing with currently.
The Fed will not be buying worthless 100% stated income subprime loans, so don't worry about a big bail out. Just my 2 cents.

[kokomas]

Meatdrink thanks for sharing your gameplan, it seems very sound to me. I am wondering though if there are any big liabilities you have to watch out for in your properties. I am not experienced in house buying but am thinking underground tanks, radon, termites stuff like that. What do you think are the things in a house that could become a big problem in a hurry? Is it easy enough to rule out these risks when you go to view a property?

[Stu Gotz]

Wow. That $200 billion was a move to bail out Bear Stearns.

The Fed should just let those fuckers fail. Lying through their teeth about liquidity problems.

[Nobody Famous]

They should be bailed out, .... of jail. Or not.

[Spats]

Wow. That $200 billion was a move to bail out Bear Stearns.

The Fed should just let those fuckers fail. Lying through their teeth about liquidity problems.

Fat chance when the head of the Treasury is the ex-head of Goldman Sachs.

If you think we're spending a lot of money on Iraq, just wait and see how much money we're going to spend bailing out Wall Street.

The longer this goes on, the more obvious it is that Ron Paul has been right for decades, and the fact that you didn't vote for him means we are all going to be paying for this bailout for the rest of our lives and our childrens' lives, whether through taxes or (most likely) raging inflation.

But that's OK, because Barack Obama has HOPE and CHANGE! (Never mind that he, as well as Clinton, McCain, and Giuliani, are 100% financed by these same Wall Street firms, and will continue these bailouts indefinitely.)

[rideit]

The president doesn't dictate fiscal policy.

[Hugh Conway]

Fat chance when the head of the Treasury is the ex-head of Goldman Sachs.

Moreso when the Chairman of BearSterns was a Pioneer

[flatlander420]

Fat chance when the head of the Treasury is the ex-head of Goldman Sachs.

If you think we're spending a lot of money on Iraq, just wait and see how much money we're going to spend bailing out Wall Street.

The longer this goes on, the more obvious it is that Ron Paul has been right for decades, and the fact that you didn't vote for him means we are all going to be paying for this bailout for the rest of our lives and our childrens' lives, whether through taxes or (most likely) raging inflation.

But that's OK, because Barack Obama has HOPE and CHANGE! (Never mind that he, as well as Clinton, McCain, and Giuliani, are 100% financed by these same Wall Street firms, and will continue these bailouts indefinitely.)

I was talking with the owner of the company I work for about the economy today. I brought up R.P. and how he's the only sane man in Washington D.C. who could turn this mess around and he says "who's Ron Paul?" . Apathy will kill the U.S. eventually.

[Egon]

Keep crashing baby.

[liv2ski]

The president doesn't dictate fiscal policy.

And Ron Paul no matter how fucked up he say's the government is was a wacko in my book. His rhetoric if acted upon would have totally disrupted the country. Let it go, the guy is a Douche.
If you want to get upset, there was the dem from Alaska and I already forgot his name. I think that dude would have been good for the country but he just wasn't flashy enough to outshine Obama and Hillery. Dude should have run as a Republican as he should have smoked McCain.

[Benny Profane]

Well, what confuses me at this point is visiting a place like Moonlight, right next to Big Sky, and learning that little "cabins", and, trust me, they were cabins, although slopeside, are selling for 900,000 at the moment. I mean, damn, if there is a bubble, that's a fucking bubble.

[enlosandes]

Well, what confuses me at this point is visiting a place like Moonlight, right next to Big Sky, and learning that little "cabins", and, trust me, they were cabins, although slopeside, are selling for 900,000 at the moment. I mean, damn, if there is a bubble, that's a fucking bubble.

I think that can be contributed to the old verbage, "the rich are getting richer, and the poor are getting poorer".

[Spats]

The president doesn't dictate fiscal policy.

He appoints the Fed's entire Board of Governors, which amounts to the same thing after a few years. (100% of the current board is Bush appointees.)

[gravitylover]

Hoping beyond what's reasonable here I know but - If real estate prices keep crashing maybe some reassessments will be done that would lower property taxes a bit I mean, I know that incomes won't rise to cover costs of living and all but lower taxes would be a help...

[Benny Profane]

The president doesn't dictate fiscal policy.

Tell that to Paulson after Bushie Boy tells him to get out there and hand out some beer money to the public in an election year.

[rideit]

You actually thik Georgie came up wth those ideas, up late at night with a mug of tea?

[Benny Profane]

No, but he signed off on them, and sent Paulson out to implement. He's been out there a few times this week being interviewed and speaking on the subject, too. He's trying to prop things up so that the economy is somewhat functioning come 11/3 when McCain may carry his flag.

[Spats]

I think that can be contributed to the old verbage, "the rich are getting richer, and the poor are getting poorer".

You are correct. Except the middle class, and even the upper middle class, are getting poorer, too.

That is what even a "low" rate of inflation does to us over time: makes the rich richer and the middle and lower classes poorer. Here's how it works:

If you are from the upper middle class on down, you earn income primarily from your salary. (Or, in the case of the poor and retired, from govenment payments.) They amount to the same thing: a fixed payment to you every week or two. The value of this fixed payment is reduced, and destroyed over time, by inflation.

Even using the official inflation numbers (which are dramatically understated since about 1996), a professional who earned $40,000/year in 1980, and earns $100,000/year now after a long, successful career, actually earns the same amount of real money she earned in 1980.

The rich, by contrast, earn money primarily through the transfer and sale of assets. They buy and sell commercial and residential property, food, metals, oil, stocks, bonds, companies that produce them, and all sorts of complicated financial instruments tying them together. The value of these assets increases with inflation, because that is what inflation is: an increase in asset prices. (This increase is not the *cause* of inflation: we'll get to that later.)

Therefore, we can see how a controlled amount of inflation makes the rich richer and everyone else poorer: it constantly decreases the value of salaries, while the value of assets stays constant.

But how can the rich make sure that there is always inflation? Stay tuned for the next installment of "Understanding the Money Supply".

[Spats]

Hoping beyond what's reasonable here I know but - If real estate prices keep crashing maybe some reassessments will be done that would lower property taxes a bit I mean, I know that incomes won't rise to cover costs of living and all but lower taxes would be a help...

Expect the opposite. Towns, cities, and states have come to depend on the extra money they've received from inflated valuations during the real estate bubble. Now that these values are decreasing towards more normal, sustainable levels, local governments everywhere are in huge fiscal trouble.

When's the last time a local government in trouble cut spending instead of raising taxes?

[Camilo]

I think that can be contributed to the old verbage, "the rich are getting richer, and the poor are getting poorer".

That's not a verbage. That's an adage.

[Benny Profane]

Expect the opposite. Towns, cities, and states have come to depend on the extra money they've received from inflated valuations during the real estate bubble. Now that these values are decreasing towards more normal, sustainable levels, local governments everywhere are in huge fiscal trouble.

When's the last time a local government in trouble cut spending instead of raising taxes?

Well, right now, in my lovely state of New Jersey, the Governor is actually trying to do this on a massive scale, and shock the voters out of their complacency. It's pretty fucking unreal how obligated the state and local governments are for present and future pension and health benefits for it's past and present employees. Buffett even boo-hood this situation in his annual address last week. But, it's what you'd expect from a state government that allows it's legislators to hold three or more "jobs", all paid for by you and me.
And, Spats, that above explanation about stagnant wages vs. buying and selling things was explained to me at a fairly young age. Why, Oh why, didn't I listen and jump on it sooner is beyond my lazy ass. "You don't make money by working for it." duh.

[Nobody Famous]

Even using the official inflation numbers (which are dramatically understated since about 1996), ....

Is there a short explanation why inflation is underestimated?

The cost of almost everything a consumer buys in life has gone up quite a lot in the past 9-12 months, but the CPI is what, 2.1% or something like that?

[spindrift]

Is there a short explanation why inflation is underestimated?

The cost of almost everything a consumer buys in life has gone up quite a lot in the past 9-12 months, but the CPI is what, 2.1% or something like that?

I'm sure Wikipedia or some similar tool has some useful more detailed insights. But the super short version is that the numbers are computed based on weightings - how much are rents vs how much are house prices? And what percent of a person's expenses do these things reflect? What percent of the average consumer's expenses are energy costs? To the extent the formulas reflect an average "reality", then the numbers are meaningful and "accurate". Etc. OTOH, if something is under-weighted but rising rapidly in price, "real" inflation will be understated. Sound familiar?

And then there's that wonderful "hedonic adjustment" introduced during the Clinton era (I actually think he was a great pres, but this definitely bends the numbers). The notion is simple - even if the price of something goes up, it hasn't really gone up if you are getting more for your money. So even if the average car costs more - that does not show as inflation if you are getting more on average - say AC standard or traction control standard or a nav system...

[spindrift]

Expect the opposite. Towns, cities, and states have come to depend on the extra money they've received from inflated valuations during the real estate bubble. Now that these values are decreasing towards more normal, sustainable levels, local governments everywhere are in huge fiscal trouble.

If you are not already familiar with the issue - google various combinations of "auction(s)", "failed", "bond(s)". It is a great mother of a storm brewing...