The entire world economy over the past few years consists of people selling things to the US. If we quit buying, they are screwed more than we are. China has a huge surplus of population that has recently moved to the urban areas in search of work. If that work disappears, they will be in a position to lose nothing and with lots of free time on their hands. China implodes.

Europe and the US are linked. If we go down, so do they. Europe has its own problems with immigration, and if the work goes away, they have a huge minority that actually hates its host. At least in the US, the Mexicans don’t hate us. Europe has a huge civil war.

The commodities producers will churn out more products to make up for the loss in pricing premuim that they are currently enjoying. This will destroy their economies even faster.

That’s a lot of hungry mouths to feed. The US has lots of problems, but we have many natural resources (that we presently lock up), a huge eductation advantage, and the framework of a free market. As long as we avoid a death-dance with Marxist ideology, we can recover. I’m not certain that is in the cards.

Also, if there is a grab for the world’s oil, who do you think is going to get it? China has no domestic oil and their sources are completely dependent on a US naval blessing. One US navy task force can cut China off from its oil. They know this.

It’s possible, but unlikely. Europe is somewhat stable, seems that after the devastation of 2 world wars, they finally learned their lessons. China is trying, and it’s possible they learned their lessons from cultural revolution and sino-japanese wars also, given big part of it population can still remember these disasters vividly.

Americans may be complacent and stupid like the Romans in 300sAD, and the American Empire may fall apart like the late Roman Empire. But the world is no longer at 300s AD, they moved forward, may even keep moving yet.

The unintended consequence is the borrowers will still be up to their eyeballs in debt to an asset declining in value. Those borrowers won’t be able to spend on other things that would help get the economy growing again. Foreclosure would have been their best friend — getting the monkey off their backs. And it would have been the fasted way to an eventual recovery.

The net effect is to prolong the agony over a few more years.

(Oh, was anyone still interested in the “bailout” bill, or had the discussion turned to the mechanics of how money is made or lost???)

I’ll give it a try. Where do dollars go? In the coffers of foreign banks in the form of trade surplus. They come back primarily as government debt because the foreign banks buy U.S. treasury bills with all that dollar. Why is there always money available? Because they (private and public entities from individuals to governments and major corporations) are readily willing to buy U.S. government debt. Clinton administration was able to pay debt back because the economy was doing very well during the 90’s, tax receipts were good and the U.S. government had more money than it needed to spend. Bush administration on the other hand, spent and spent like there’s no tomorrow. How does money get lost? Well, money doesn’t get lost, (it’s always transferred). But wealth can be destroyed by realizing a loss on asset through sales or other process (or transferred if the asset was transferred at below its true value). If someone buys a house at 500k and later sells it for 350k, his wealth is decreased by 150k. The money? It’s all circulating in the system, it doesn’t go anywhere.

The reality is, the world without America is the world in shambles…at least for a while. Some may come in and pick up America’s spending, but it’s also entirely possible that the international economy would be so damaged that no one can achieve their former prosperity for a millenia, because it’s not just America’s spending power. So much of international economy is intertwined with the dollar. If the dollar becomes worthless, it will create major problems for everybody.

I don’t have to figure out ho u make ur money. But this of your quotes tells me everything about why u make no sense:
“It’s all circular. So what if 40% of securities are owned by foriegn investors. We are the largest, most consistent consumers in the world. Dollars come back and we pay way too much for anything, everything, because we have the ability.”

U r too funny. You may think that you are valuable because of you consume, but when u fall into outer space, no one would miss you but are happy to pick up your slack.

The reference to inventory to sales ratio as a simple metric for predicting housing price trends is intriguing. It seems rather obvious in hindsight. Perhaps The Tim could incorporate it in his update reports or do a graph using historical data?

They come back as profits to American owned companies.

“How was it, or is it, some one would, or could pay $500K for a property that was only worth $350K?”

It was worth $500K to them on the assumption that someone else would pay more. They were wrong.

“I’ve had debt before and I’ll have debt again, but I’ll ramp up my business and pay it off, like I have before. Isn’t that the difference here in the United States? ”

The US is the strongest and most trustworthy economy in the world, and so people park their money here. Over the long haul it is a good bet, but a wild ride up and down. People in other countries are accustomed to their assets being stolen or destroyed in war, so simple preservation of assets is valuable to them, whereas here were look at the interest rate. As a result, we get the priviledge of very favorable credit. As long as we look able to roll over the debt, we get to avoid paying it back.

“How did we pay down debt in the Clinton administration?”
For a while there was a budget surplus. It caused problems because there was a shortage of high quality Treasury bonds for people to buy.

“The FDIC closes two banks one day and Mutual of Omaha buys them the next day. Mutual of Omaha? Aren’t they a very conservative group of investors?”

They got a good price. If you are not an idiot you can make money in banking.

I was fairly surprised by that. I thought Washington was significantly lower than the rest of the country in tht department. Though if declining values cause foreclosures versus just having subprimes then I am less impresssed by the other stats.

Real estate bubbles, like the internet bubbles are created by too much money sloshing around the system and these extra money chases the latest hot fad pushed by wall street bankers. late 90s the fad was stocks for i-named money pits and dumb money pushed stock prices to ridiculous heights until even semi-smart money get in to try to ride it. when that bubble bursted, lots of people’s 401k got busted plus joblessness and recessions.

That was obviously bad. but you ask, so where did the money from 401ks go? it ended up in the hands of internet entrepreneurs who cashed out fast enough and in the hands of investment bankers and some people who may or not be americans that cashed out earlier. oney has a social good when it’s used for investment (that generates money and jobs preferably for a long time) or give people security so that they raise their families and don’t go bankrupt and get pissed off. In this case, money went from dumb mass’ 401ks and ended up in few smart jackass’ pocket, discouraged future investment by foreigners, generated jobs for a couple of years, wasted peoples time in developing stable careers and setting up a lot of people for disappointment and joblessness.

So after the internet bubble bursted, the bankers saw how people here and abroad took money out of brokerage accounts, so they needed and got a new pitch: a great yielding super safe (historically yes) investment based on real estate. Now how could real estate go wrong? any up or downs are based on supply and demand of real estate, which is supposed to be stable. people live houses after all and securitizing mortgages increases the demand for mortgages so more people get to live and “own” their houses, how could this be wrong?

Unfortunately it’s pretty wrong and we are seeing the end to the housing bubble. grandmas who put their meager savings into downpayments for overpriced houses are now being evicted. people shocked to find they can not refinance nor sell their mcmansions are now forced to choose bewteen unaffordable payments or foreclosure, overleveraged Fannie/Freddie asking taxpayers to make their debt whole (cost 100billions or even trillion by pessimistic estimate), bankruns, FDIC footing the bill (how many Indymac can FDIC currently afford? No worries, taxpayers will pay), 401ks and pension funds get more haircuts (we may not care but how about retiring booomers?), foreigners w/drawing from US market, possible government default and very possible hyper-inflation, oh and millions of jobless or soon-to-be-jobless real estate professionals, asking innocent questions like how could real estate be bad for america!

http://www.html-faq.com/etiquette/?flame

Here it is:

Dear Mr. (redacted),

Thank you for contacting me regarding the housing crisis. I appreciate hearing from you on this important issue.

The Mortgage Bankers Association reported that of the 44 million active mortgages, 343,000 entered the foreclosure process by the third quarter of 2007. This is the highest foreclosure rate in 35 years. While subprime loans only make up an estimated quarter of loans taken out today, almost two-thirds of foreclosures are made on homes purchased with subprime loans. Each foreclosure can impose damages up to $80,000 to the surrounding community, including the loss of property taxes, the damage done to the prices of neighboring properties, and the cost of foreclosure related services performed by the government.

While I understand your frustrations with what appears to be a “bailout,” I believe that we must closely evaluate every proposal and consider the best path forward that will stabilize our nation’s faltering economy. The housing market is an integral component of our economy’s health. Without action, over three million homes are likely to be foreclosed upon in the coming years, and approximately two million families affected. With such grave financial consequences, the coming foreclosure emergency must be addressed head-on, and Congress must take appropriate action.

One factor that must be considered in deciding what action to take is the prevalence of predatory lending practices, which have contributed greatly to the popularity of subprime loans. Almost 90 percent of subprime loans were taken out by those refinancing their homes-not by first-time homebuyers. Furthermore, 61 percent of those who received subprime loans were eligible for more secure prime loans. In most cases, those who were eligible for prime loans were led to believe that the riskier subprime option was the only choice for which they were eligible. This deception must be considered as we try to strike an appropriate balance between helping people who are at risk due to events beyond their reasonable control, and allowing others to assume responsibility for the consequences of their financial decisions.

It may interest you to know that Washington state has some of the strongest regulations in the nation related to mortgage lending. Six percent of Washington state mortgages were subprime loans, compared to 6.6 percent nationally, but of those loans, only 2.9 percent of Washington loans entered foreclosure proceedings in the fourth quarter of 2007, compared to 5.29 percent nationwide. The national fourth quarter homeowner delinquency rate was at 5.82 percent, but only 3.23 percent of Washington state mortgages were overdue.

Our nation faces numerous economic challenges today, including record debt and a falling dollar. On April 10, 2008, the Senate passed the Foreclosure Prevention Act (H.R.3221) by a vote of 84 to 12. I supported this bill as an important first step in pushing our economy and housing market in a new direction, but there is still much work to do. I will continue to use my seat in the Senate Finance Committee to pursue policies that promote growth in the economy and increased standards of living for American families in a fair and responsible manner.

As the House and Senate continue to work on solutions to this crisis, please be assured that I will continue to keep your views in mind and will work to craft legislation that is good for the nation and for Washington state.

Thank you again for contacting me to share your thoughts on this matter. Finally, you may be interested in signing up for my weekly update for Washington state residents. Every Monday, I provide a brief outline about my work in the Senate and issues of importance to Washington State. If you are interested in subscribing to this update, please visit my website at http://cantwell.senate.gov. Please do not hesitate to contact me in the future if I can be of further assistance.

Sincerely,
Maria Cantwell
United States Senator

For future correspondence with my office, please visit my website at
http://cantwell.senate.gov/contact/index.html

Fed takes over and then sells two more banks, who were going under.

http://www.reuters.com/article/newsOne/idUSN2528445020080726

(First National Bank of Nevada and First Heritage Bank NA of California)

You are an idiot. F&F are PRIVATE entities. They are leveraged at somewhere between 60-1 to 300-1. That is far more leverage than any hedge fund around. Throwing money at the problem will only prolong the agony. Instead of a quick and hard recession, we are going to get a decade long deflationary spiral. We are repeating exactly what the Japanese did during their housing bust and it won’t work now just like it didn’t work then.

Only difference is that they were a nation of savers, not spenders.

This is a complex situation. It is encouraging that some very influential people have the same perspective that have been long expressed by “bubbleheads” .

The real idiots are the ones who think this bailout will actually help. It pains me to see folks with a 7 percent mortgage rate begging to get a 3.3 fixed so they can make it work.. give me a break. Seven percent! Get out of the banks house if you can’t afford it.

I’m pretty sure that’s what our last mortgage rate was fixed at and I thought it was darn good.

A nation of whiners, we are.

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China already owns this country. Their foreign reserves are a trillion dollar in the black, thanks to us, and we are in deep red.

When does the love for America turn into bailing out people who spend beyond their means and companies that lend to them just as recklessly? That’s not capitalism, that’s socialism. The flag waving, commie haters should chew on that.

Call if you want them to vote it down and end up in a recession worse than the great depression.

Yes, call if you want to be taken over by China… if our economy fails, watch the vultures come down and start a war with us… no doubt.

So yes, you bubbleheads… start WWIII… and don’t bail out the economy.

Freddie and Fannie are as much of the government as GWB.

This time, the market might have already priced in this news with the rally in the last week and it has started going down again.

Does this bill mean people can put little or no money down on homes? Are subprime and no-doc loans back in vogue? If not, then how are home prices going up? A large segment of buyers is still shut out of the market.

This is probably one of the best outcomes from this whole sorry affair. When everyone stops looking at the roof over their heads as some “sure fire” investment that will put them on the road to riches, then maybe housing will go back to being boring and affordable. There should be a premium for buying a home versus renting one, but it shouldn’t be so large as to cause all the economic distortions that this episode has brought on.

Your undying trust in our government to fix every problem with magic is truly frightening. In a free market economy plenty of people should be cheering on bad companies with bad business plans going into the toilet, because it helps keep the market operating properly. You talk about how these companies going under effects everyone badly, but the problem is you ignore the effects their ruinous business plans have had on everyone already and what continuing that streak would do to the economy overall. Here is a hint, "chocolatey" companies like WaMu going under does everyone a bigger favor than propping them up.

You just gave McCain’s talking points. Why doesn’t that surprise me?

Dave

Excuse me if it finally takes a turn and I don’t feel too bad for you. I’ve had the bull sh!t about home equity held over my head for too long. So yes, I think some homeowners should take it in the chin. If people could afford their houses and are still comfortable making the monthly payments then I think that’s great. Hell, it’s where I hope to be one day.

To rest who bought their “AWESOME SKI BOAT!!!” with “non-lake property in northgate” home equity, well I think we can cheer on their demise a little bit. So I say… na na na na na NA!!

I’ll just sit here and short WaMu, but make no mistake, it’s about making money, not about “loving America”.

I love America

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$1.3T is a lot of money, by any standard. We either tax it directly (my share is $21311), or borrow it ($80/mo in interest + the 21311 over several years). In the former, all money that could be put toward houses is sucked into Wall Street hands. In the latter, that $80+ will go against money I could use to upgrade to my “Bainbridge Island Dream Home,” but I will be paying higher interest rates to afford that place.

That assumes this isn’t a giant air-ball.

We still have not addressed where all the Level III assets will get dumped at 10c on the dollar and how the banks will recapitalize. If WaMu or WB goes TU, the FDIC is tapped-out. What then? Another $1.3T to recapitalize the FDIC and quell the panic?

Declining home prices (except RAL’s dump) are the symptom, not the disease. Too much bad debt is the disease and this bill does not address any of that. At the end of the day, the banks are still holding lots of crappy loans that they will have to eat. Getting some people out of SP loans, while trillions of people are laboring to make their non-SP loan is not going to help. Also, if the lender of that SP loan has to eat it or have the contract rewritten, how many will be generated in the future?

Yeah, I thought so.

This is an attempt to kick the can past November at a cost of $21K per family.

Now, regarding Fannie and Freddie, yes, they’re like an overgrown tumor, but cutting them off now could effectively kill its host, namely the United States of America, and possibly the international economy. Some said the government debt cost will rise siginifcantly because of this so called rescue, but I think the reality is the exact opposite. Fannie and Freddie’s debt always carried that implicit government guarantee aura, and they were able to grow this large precisely because of that implicit guarantee. If the U.S. government decides to abandon Fannie and Freddie now, that could be seen as equivalent to defaulting on government debt by many creditors, and in the worst case scenario, all U.S. debt may start to carry the default-risk premium and the U.S. government’s funding cost will then skyrocket and eventually it won’t be able to borrow anymore. The collapse of capital markets and worldwide banking systems will follow (along with much of our savings), international trades will halt, and the resulting depression will ravage all of us for many years.

Besides, even if Fannie/Freddie default does not lead to U.S. defaulting on her debt, such event will certainly freeze the mortgage market and housing prices will plummet. Now, that probably will sound good to many readers of this blog, but because of already overleveraged balance sheets of many TBTF institutions, such scenario may very well result in failure of the U.S. banking system with dire consequences.