Thursday, November 15, 2007

Moody's Economist Says Central Valley Recession Has Begun

From the San Diego Union Tribune (hat tip HBB):

Steve Cochrane, senior managing director for Moodys.com and a specialist on California housing, said data indicate that a recession brought by the housing downturn has begun in the overbuilt Central Valley.
From the Associated Press:
Evoking Depression-era memories, Wells Fargo & Co. President John Stumpf on Thursday became the latest banker to predict continuing difficulties in the U.S. housing market as risky mortgages made to overextended borrowers disintegrate into large loan losses. Speaking at an investment conference in New York, Stumpf said the current real estate conditions are the worst he has experienced during his 30-year career. He then punctuated his gloomy assessment by harking back to the deepest downturn of the 20th century. "We have not seen a nationwide decline in housing like this since the Great Depression," he said.
...
"The losses have turned out to be greater than expected because home prices have declined faster and deeper than expected," said Stumpf. He cited the Midwest's "auto-belt" states and California's Central Valley—a swath stretching from Sacramento to Bakersfield—as Wells Fargo's biggest headaches.

10 comments:

Perfect Storm said...

Imported illegal cheap labor to build homes is not a sound bases for economy. Now the fall out will begin with thousands of laid off construction workers who do not even show up on federal umemployment figures have no means to earn a living, where do they go, what will they do? Some report of South Stockton turning into a war zone, is South Sacramento next, oh and what about our beloved East Sacramento, just a stones throw away from some of the most high crime areas in the City of Sacramento. I know people who live near Folsom Blvd on the North side of 50 who have had homeless individuals going through their garbage and using parts of their yard as a restroom.

Diggin Deeper said...

http://news.yahoo.com/s/nm/20071116/bs_nm/economy_us_credit_dc;_ylt=AsoT_6gsIH8FkWGJBZhT6U.573QA

U.S. could face $2 trillion lending shock: Goldman

"But unlike stock market losses, which are typically absorbed by "long-only" investors, this mortgage-related hit is mostly borne by leveraged investors such as banks, broker-dealers, hedge funds and government-sponsored enterprises.

And leveraged investors react to losses by actively cutting back lending to keep capital ratios from falling -- A bank targeting a constant capital ratio of 10 percent, for example, would need to shrink its balance by $10 for every $1 in losses.

"The macroeconomic consequences could be quite dramatic," Hatzius said in the note to clients. "If leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion."

So it appears, that the Central Valley isn't the only area subject to a recession.

When banks loosened their lending standards and allowed Wall Street to dictate credit policy and risk management, the net results are are coming in for all to see. I read an article where the author likened to flying a plane in bad weather without instruments. Can't see up, can't see the ground, and you don't know if there's a mountain in front of you.

It's one thing to cast the real estate and credit crunch into a bucket worth x $Billions. Now we're hearing of a potential problem in the $Trillions. Now that's getting to be REAL money!

If there's half truth to this article, credit will be difficult to obtain, no matter what your credit score is. And if one can't borrow at a competitive rate, the price of that home won't matter, regardless how low it goes.

SheWrestles said...

When banks loosened their lending standards and allowed Wall Street to dictate credit policy and risk management...

Why on earth would people even consider allowing a Clinton back into the White House?

bubblemachine said...

Why on earth would people even consider allowing a Clinton back into the White House?

Why? Because these are the same people who believed the C.A.R. propaganda and bought a new home for nothing down with an ARM at the peak of the bubble in 2005.

They are stupid!

Most Americans under 40 have ZERO knowledge of money management. When was the last time the public high schools ever offered a course in Economics?

anon1137 said...

RE: Goldman's comments on the impending lending shock, shouldn't interest rates go up if there is a lending shock? So far, the country is still swimming in cash. Or maybe he thinks that swimming in cash is a normal thing and paying interest to borrow capital is abnormal.

CLINTON 2008 !!!!

Diggin Deeper said...

Most people don't get it.

This has nothing to do with party politics as we know it. It's much bigger than that.

Whoever sits in the White House is likely to preside over one helluva financial problem that will take a united government to sort out.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

That's right Anon...rates will have go up. No doubt if things tighten up. It's the antithesis of what Fed's been doing up to this point. And if rates go up, real estate continues to languish and go down as affordibility wains. That crushes the derivative markets even further and losses then escalate, with loan loss reserves sucking more and more credit off the table.
Then it won't matter what the Federal Reserve does because it's been trumped by general health of the financial markets.

Patient Renter said...

"When was the last time the public high schools ever offered a course in Economics?"

AFAIK, they still do, and actually, it's been said that some people liked their high school econ better than their college stuff.

sf jack said...

"I know people who live near Folsom Blvd on the North side of 50 who have had homeless individuals going through their garbage and using parts of their yard as a restroom."

*****

Ah...

We don't even need an economic shock, for in many San Francisco neighborhoods this kind of thing is just one of the "charms" of living here.