Thursday, October 09, 2008

"Why didn't they see this coming?"

From the Sacramento Bee:

Restrictions in a homeowner rescue plan proposed by Sen. John McCain would likely block thousands of struggling Sacramento-area borrowers from participating, analysts say...The proposal would exclude borrowers who used 100 percent financing during the housing boom and possibly all who received loans without documenting their incomes. It also prohibits investors.

In the Sacramento area, such restrictions will rule out massive numbers of borrowers who need help, some said Wednesday. "I would say there's not going to be a lot of homes in that basket," said Scott Thompson, partner at Mortgage Resolution Services in Carmichael.
From the Sacramento Bee:
[I]t's hard competing against the collapsing Dow, rising unemployment and a financial crisis that appears resistent to bailouts. Anxious consumers are increasingly tight-fisted, putting off purchases and staying away from stores. "People are just scared," said Paul Atwal, a sales associate at Aquamarine Jewelers on Marconi Avenue. "They have money, but they don't want to spend the big bucks. They say, 'I may lose my job.' "
In a sign of tough times, he said, more people are coming in to sell their jewelry for scrap gold than buy it.
From the Wall Street Journal:
All of you who rent -- a respectable American tradition -- can look forward to buying more cheaply in the future. Take your time.

The housing disaster-in-motion was widely reported, complete with warnings, before the crash. But every word fell on deaf ears, because bubbles are never about reason, cool calculation and courageous politicians willing to risk defeat.
To the extent that the bailout shores up existing home prices and its paper, it delays the inevitable. It does not assure the early return of buyers.
From the Washington Post:
[A]s news organizations chase exclusives about the Wall Street meltdown, they also are grappling with a troubling question: Why didn't they see this coming? "We all failed," says [Charlie] Gasparino, a former Wall Street Journal and Newsweek reporter. "What we didn't understand was that this was building up. We all bear responsibility to a certain extent."
[T]he business press never conveyed a real sense of alarm until institutions began to collapse...It is not easy for journalists to take on the masters of the financial universe, especially when the market is going up and everyone is happy...PBS's David Brancaccio says that "we journalists have had a long history with accepting what the smart people hand down to us, especially on complicated stuff. . . . When I would cover these very issues about problems with regulation, problems with 'is this a disaster waiting to happen?' people would say: 'Well, young man, you don't have an MBA like I do. Trust us. We went to business school.' "
[J]ournalists are reluctant to target those who are guzzling the punch: the overstretched folks who bought houses they couldn't afford and second homes they wanted to flip, all based on the presumption of endlessly rising prices.


Patient Renter said...

That WSJ article is great. It figures that the first great article to grace their pages in a long time comes from a non-staff writer, and a Nobel winner to boot. Favorite quotes:

Treasury has no expertise in this ridiculous new venture.

Shoring up prices to prevent a further debasement of overly generous loans is not designed to bring back buyers of homes and mortgage paper.

Price fixing not only always fails, it always makes things worse. As Ron Paul would say, it's a fool's errand.

smf said...

In the Sacramento area, such restrictions will rule out massive numbers of borrowers who need help, some said Wednesday.


Why would these 'would-be millionaires' need help?

They screwed up, plain and simple.

As shown in this blog and others, those who didn't see this coming had their blinders on.

Jacob said...

Nobody wanted to see it coming, and denial is a strong force to overcome.

I don't think most people are "afraid" to buy, I think they are broke, credit is tapped and they can't get more. Tough.

I'll be surprised if at least one big retailer doesn't go BK this holiday season.

By the time we get to the bottom, I may be so tired of waiting that I just say screw it and don't bother.

And the people that got 100% financing don't need help. They can just walk and will have lost nothing. Plus they can get several months of free rent and get paid cash on the way out to not destroy the banks house.

wimpyVO2max said...

Of course the McCain plan leaves out many distressed homeowners. It's because the McCain plan is a last-minute ploy to try to get McCain elected in the face of sagging poll numbers. Country First my ass.

Diggin Deeper said...

Now it looks as if bonds have begun to crack and are starting to lose footing in the market. 10 year and long bond interest rates have been pushing higher consistently over the last week and it will most likely affect morgage rates. It's amazing to me, how well and how long, bonds have held up when the rest of the market is in freefall. But with falling buyer activity, and a huge govt mouth to feed, bond prices will have to come down and rates will rise if they're going to get any meaningful bids. Safe haven status provided an early floor to bond prices, but that's waning fast.

Same with real estate activity here. When fear sets in few people buy anything but necessities.

We've gone from Hummers to Hyundais in one weeks time.

Buying Time said...

Vernon Smith is a very well respected in my circles.....I was really pleased to see his article.

Although, it does seem that many are playing Monday morning quarterback these days.

Sold in '05 said...

"Now it looks as if bonds have begun to crack and are starting to lose footing in the market."

Yes. CNBC had a chart showing MASSIVE amounts of money moving into plain old bank accounts, i.e. pure cash. People don't trust bonds or money markets and are probably making sure they are within FDIC limits on everything. Old mattresses are a great investment right now!

Kip said...

The monetary base (cash supply) has jumped 15% since mid September.
50 loaf of bread anyone?

Diggin Deeper said...

Keep an eye on the G7 meeting taking place in Washington today through the weekend. I wouldn't be surprised to see a "bank holiday" happen all over the world as a result of these meetings. It's pretty clear the fear factor is running ballistic right now. The volatility index (VIX) was over 70 at one point today...

Kip, if you go back to 2005 and check it from there, you'd see money supply is over 200% higher today than it was then...Yup, inflation will be here just in time for the Feds to get a handle on deflation.

Manipulation is running hot in the markets and what we're seeing isn't necessarily free markets at work.