”
Property booms go bust. Happens in regulated or de-regulated property markets, always has, always will. When they do financial institutions get caught with their pants down, and it turns out the regulators got slack during the happy times. Again happens all the time – every few decades anyway.

So what’s different this time? Well, the bust is bigger than usual.”

Alls fair in love and war and commerce……… I was interested to read the comments with regard to leaky homes (along the vane of) : “if they don’t do research it’s their own stupid fault”. I think a lot of heads ought to roll, including crooked real estate agents, valuers and corrupt councilors and planners. In other words we need to go through the system from the ground up.

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Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008
The Senate couldn’t have chosen a more aptly named Bill to hijack to sidestep the constitution

To save you the trouble of wading through all 451 pages of the Bill here’s the headings so you can get an idea of what’s been slipped in and see that even in a crisis pork-barrelling is alive and well.

DIVISION A—EMERGENCY ECONOMIC STABILIZATION
DIVISION B—ENERGY IMPROVEMENT AND EXTENSION ACT OF 2008
TITLE I—ENERGY PRODUCTION INCENTIVES
Subtitle A—Renewable Energy Incentives
Subtitle B—Carbon Mitigation and Coal Provisions
TITLE II—TRANSPORTATION AND DOMESTIC FUEL SECURITY PROVISIONS
includes SEC. 201. INCLUSION OF CELLULOSIC BIOFUEL IN BONUS DEPRECIATION FOR BIOMASS ETHANOL PLANT PROPERTY.
TITLE III—ENERGY CONSERVATION AND EFFICIENCY PROVISIONS
TITLE IV—REVENUE PROVISIONS
DIVISION C—TAX EXTENDERS AND ALTERNATIVE MINIMUM TAX RELIEF
TITLE I—ALTERNATIVE MINIMUM TAX RELIEF
TITLE II—EXTENSION OF INDIVIDUAL TAX PROVISIONS
TITLE III—EXTENSION OF BUSINESS TAX PROVISIONS
includes SEC. 317. SEVEN-YEAR COST RECOVERY PERIOD FOR MOTORSPORTS RACING TRACK FACILITY.
TITLE IV—EXTENSION OF TAX ADMINISTRATION PROVISIONS
TITLE V—ADDITIONAL TAX RELIEF AND OTHER TAX PROVISIONS
Subtitle A—General Provisions
Subtitle B—Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008
TITLE VI—OTHER PROVISIONS
includes REAUTHORIZATION OF THE SECURE RURAL SCHOOLS AND COMMUNITY SELF-DETERMINATION ACT
‘‘TITLE I—SECURE PAYMENTS FOR STATES AND COUNTIES CONTAINING FEDERAL LAND
‘‘TITLE II—SPECIAL PROJECTS ON FEDERAL LAND
‘‘TITLE III—COUNTY FUNDS
‘‘TITLE IV—MISCELLANEOUS PROVISIONS
Subtitle A—Heartland and Hurricane Ike Disaster Relief
Subtitle B—National Disaster Relief
TITLE VIII—SPENDING REDUCTIONS AND APPROPRIATE REVENUE RAISERS FOR NEW TAX RELIEF POLICY

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A breif explanation of how the neocons dodged the constitutional prohibition on the Senate originating tax legislation can be found here.
http://ti.org/antiplanner/?p=534

The bill text has just been posted. It’s 451 pages (skim through to find the index to each section. This Bill is obsfucation at it’s finest). You’ll be surprised how many unsuccessful Bills have been slipped into this “urgent” Bill, such as the tax credits for “clean coal”.
http://tinyurl.com/4d5gjw

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http://globaleconomicanalysis.blogspot.com/

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Icehawk

You got at least one thing right…. I’m still awake and still wondering how TEOTFWAWKI is going to affect ME.

The comparison being made now is to the panic of 1873.

The credit market iceberg is not coming unstuck with the Titanic Pass the Bucket Bail Out.

Market on Monday ? Your guess is as good as mine.

respectfully
BJ

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By the way – here’s a thought to keep you awake at night:

Right now banks can’t borrow money on the international markets. The money markets have frozen up.

Your country, New Zealand, relies on its banks rolling over every few months loans of (literally) billions. And no-one is lending to banks right now.

Wall Street doesn’t need New Zealand. But we sure need Wall St. Because you live in a country that is in debt to the tune of about $50,000 per person and most of that debt is private. Kiwis owe our local banks, but since there aren’t enough Kiwi depositors our local banks borrowed that dosh from the big boys overseas.

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Oh, piffle.

The plan is NOT for the Treasury to spend $700 billion of tax payer money that could instead go on Health or Education.

The plan is to buy stuff for $700 billion, and then sell that stuff later. It’s not obvious whether or not the Treasury will make a profit or loss overall. Probably guesses are a loss of under $100 billion, which is much less than the Federal govt will lose in lost taxes because of the recession resulting from this mess.

And what about that stuff? They’re talking a wierd type of forced sale (via auctions), including the ability to force companies to give the Treasury equity in them. You could just as honestly call it a “forced asset sale and bank nationalization” bill as a “bailout” bill.

Property booms go bust. Happens in regulated or de-regulated property markets, always has, always will. When they do financial institutions get caught with their pants down, and it turns out the regulators got slack during the happy times. Again happens all the time – every few decades anyway.

So what’s different this time? Well, the bust is bigger than usual.

But more than that – the credit markets screwed up not JUST on mortgages. Big global CDS and CDO markets are relatively new instruments. There are deals out there backing out credit risk on all sorts of things – shares, corporate bonds, etc. The credit crunch comes because it seems like credit spreads were too low on *all* types of credit, not just mortgage-backs. Methodologies for valuing them were wrong.

The real problem is that people thought diversification can get rid of risk. It can. If you loan one company a million dollars, then you could lose it all if the company goes bankrupt. But if you load a thousand companies a thousand dollars each then you’re not going to lose it all, but you can be almost certain that you’ll lose a thousand or two. That’s okay – and you can guarantee you’re not going to lose more than 10% at most. So you reduce risk by diversifying.

Unless it’s 1929 on Wall St, in which case you could still lose bucketloads.

It looks like it might be 1929 on Wall St. At least, there’s an obviously-non-zero chance of that. That means the guarantors of credit are in bad shape as their assets are worth a lot less than people thought. And having shown the old values to be wrong, no-one knows what their asserts are really worth. But if they go down then those who rely on them go down to, and then it really *will* be 1929 on Wall St.

Which gets me back to the “it’s not obvious if the Treasury will make a profit or loss overall”. The fear that it could be 1929 is what keeps those asset prices low. By buying enough of the assets the Treasury stops it being 1929 – and so increases the value of the stuff it buys. For some credit derivatives it’s a fantastic time to buy – if you’ve nerves of steel and a few billion to spend. Warren Buffet’s going to make another fortune out of this.

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Thousands of Americans who have lost their homes in the foreclosure crisis may find themselves ineligible to vote in November.

http://www.planetizen.com/node/35248

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Look i still stuffed up because you need to add one more group to that
list

The person who entered into the mortgage.

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My post got screw up so try again:

Here is my blame list, I am not signaling out one group like you bjchip i blame all of them.

Greenspan
-lowered fed target rate to 1%
-encouraged option ARMS etc.

Congress (Democrats & Republicans)
-removed restrictions on Freddie/Fannie
-allowed Freddie & Fannie to become to large and to dangerous
( there were a lot of people warning them but they didn’t listen)
-failed to see the danger and risk associated with MBS and CDS.

Ratting Agency
-Failed to understand and aportion risk correctly to many MBS

Media
-Presented a false image of real estate
-i.e real estate is a good investment
-it always goes up etc.

Foreign Investors
-Failed to asses the risk before buying the MBS.

Banks
-For thinking they could loan money with 0 risk.

Harvard
-For producing these retard 20 somethings with MBA’s
who think they are so smart

American Citizen’s
-For voting for either Republican or Democratic candidates for the last 25 years.

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Need to add 3 more to the blame list.

Foreign Investors
-Failed to asses the risk before buying the MBS.

American Citizen
-Failed to not vote for Republicans/Democrats.

Banks
-For thinking they could loan money with 0 risk.

So many people to blame it isn’t funny, Of course nobody can blame Turnip since he doesn’t fall into any of the above categorys, except of course as usual in socialist society when everyone else fails Turnip has to step in and pay for everybody elses mistakes.

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Well that explains why the $700bn bailout is now a trillion dollar bailout. $700bn for the bankers on Ball St (to paraphrase Monty Python) and $300bn for middle class voters. Democracy weaves it’s magic again.

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Red Letter Day (blood red)! US National Debt now > $10,000,000,000,000,00

Total Accumulated Debt of the United States Government 1776-1996:

$4,988,397,941,589.45

Total Accumulated Debt of the United States Government 1996-2008:

$5,036,326,955,323.04

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Turnip

I’m sorry, the abnormality began with the bankers, not with the regulations requiring them to make bad loans. The loans that are failing are NOT the “poor black folk” who were being helped by the fairness in lending rules and the failing loans should never have been given the LEVERAGE that they were given in the system.

Understand that the banks were NOT doing due diligence. They quit. They sold risk to investment banks and then they sold it to each other. They sliced and diced ownership of the risk until nobody can even say who has the right to foreclose a non-performing mortgage. The risk was decoupled from the actual loans it is associated with, just a piece of paper representing tranches of different types of risk. Selling stuff like that to each other and using it as collateral against further loans. None of this was regulated at all because that would have been a sin against the ideology of the government of the day.

Suddenly realizing that they are dealing with thieves every bit as vile and despicable as themselves, the bankers quit buying the CDS paper. They quit trusting each other. The individual at the coal face of this, the house buyer, was handed a LOT of bum steers. The banks wouldn’t work with appraisers who didn’t give inflated valuations, the poor sod who wanted to buy was looking at a runaway price bubble because all that debt based money that the bankers were able to create in their fractional reserve hell, had to find a home. So interest rates were pushed into negative real territory and the buyer asked the appraiser what’s it worth and the appraiser lied… because the banks wanted to make those loans. They could onsell the risk,,,, no risk to them… well maybe…

Now judges across the country are adopting a principle that has much in common with habeas-corpus. If the bank can’t show it has legal title (and if it has onsold risk in a pile of CDS paper it may not be able to do that at all), then it can’t foreclose the non-performing loan.

To blame the individual customers for this stuff is just wrong. Some few are culpable, not enough to bring down the system. The amount of money involved in the non-performing loans is peanuts compared to the valuations of the CDS packages and loans between banks based on those valuations.

respectfully
BJ

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I suspect also that the student loans scheme has socialised people into thinking of it as normal to borrow to buy everyday items, and socialise people out of being scared of getting into debt.

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>>I suspect you are ignoring them because your income is pretty good.

And my income is pretty good because I have built assets, not liabilities.
When I had no money, I ignored those offers because debt is poison, unless it is used to build assets.

People need to learn to say no, and accept responsibility for their decisions.

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“>>Pre-approved credit cards in the mail each week, “no interest for 24 months��? adverts every day

You know what I do, Frog? I ignore them. I have no problems ignoring things, because I’m an adult, not a child. ”

I suspect you are ignoring them because your income is pretty good.

I’d say social expectations around housing are part of the problem – I do think building is over-regulated. Maybe regulations should be relaxed as long as you are going to live in the property yourself. There’s a need to retain regulations on what can be rented out to prevent slumlords ripping people off, but if you want to put up a shanty for yorself I see no problem.

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Toad, Kahikatea, katie – Am I the only debt free bloke around here? That’s the advantage of a strong union – a good redundancy package. Now I just need to find an interesting stress free job within (easy) cycling distance of home and I’ll be set for life. The time off has been handy for getting the vege garden sorted out.

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Toad, Kahikatea –

with you both!
I don’t have much consumer debt, having stringently down-sized then cut up my credit-card, lived without HP’s, car loans, or taking up a mortgage, because I felt that the interest I would be committing to paying was both iniquitous, and unsustainable while I was studying and accruing student loan debt.

The greed of those who have taken out loans as Ninja’s, and the greed of those who signed them up just to get the commission income, is what will destroy them.
The USA has walked eyes-wide-open into this one, and finally their shonky ‘fantasy money’ market is falling down.

I recommend Dierdre Kent’s book, Healthy Money, Healthy Planet, for an effective view of the debt spiral, and how to unhook oneself from it.

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BP said: >>Pre-approved credit cards in the mail each week, “no interest for 24 months� adverts every day. You know what I do, Frog? I ignore them.

So do I BP. That is why my total debt is less than $1K currently – which is frictional, rather than structural, debt – i.e. I effectively owe nothing to anyone.

Sure, I don’t “own” vast assets either, but I’m old enough to have gone through 1987 and realised that financing one’s lifestyle with debt is a particularly dumb idea.

Gotta say, personally just love what happened in the US Congress today. It will bring the reality of financial responsibiliy home to millions of people all around the world.

The pity is that it was motivated by the stageof the US electoral cycle, and Reps being terrified of losing their seats, rather than any genuine desire to rein in the excesses of unregulated capitalism.

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