Despite cheerful headlines, the reality of the housing market is, it is going down the toilet. In places which used to be big manufacturing zones, the ability to sell most houses is collapsing. The people who made this mess happen now want the Federal Reserve to empty itself out, saving the economy they created. But we cannot unless we first confront the Japanese. And that isn't going to happen.
The wealthy suburbs surrounding Detroit are now disintigrating.
In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit's boom days with an ornate stone entrance fetched just $135,000.Dave Webb, principal at Hudson & Marshall, said Michigan had become a "heavy volume" market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.
"These people that are buying have got to look at holding on for five to seven years," he said. "The key is holding power."
Even with the steep discounts on Detroit-area properties, some buyers handed over their deposits with a wince.
"I'm not sure it's congratulations," said Kirk Neal, a 55-year-old auto body shop worker who bought a ranch in the suburb of Oak Park for $34,000. "My wife is going to kill me."
Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.
As a person who has bought and sold a fair number of buildings, I was interested in this neighborhood so I went off on a cyber house-tour which allowed me to see the insides of many well-appointed homes in this elegant suburb as well as a few next door where the top executives and top entertainers from Motown and sports heroes built grand palaces.
Um, look at the rate of bank seizures! Breathless, isn't it? This is no slum, indeed, Bloomsfield is also a white enclave, 89% white. No 'hoodies in these posh neighborhoods. Two houses that haven't been seized by the banks are going for a million and a half dollars and they both have indoor basketball courts because the owners were basketball millionaires who incidentally, can't sell these elephantine buildings.
I once owned a mansion. I was the maid, chauffeur, doorman and cook. I had to expend a lot of energy keeping that gorgeous place looking good as I rebuilt it for sale. It was fun, living like that for three years but I hated the work level. If one isn't rich enough to have a full staff, forget living in a mansion. It really isn't all that great, gah.
Waxing those floors, acres of fine inlaid woodwork...clipping 8' tall hedges and cleaning a zillion giant windows while on a ladder...etc. No way. But when people get some money, they fall into these mansions without realizing these are money-eating machines that can be sustained only if one has a life-time long income which comes from clipping coupons.
Before we engage in the usual finger-pointing over how we got into this mess, let's agree on an aggressive course of action to mitigate it. Our nation must recognize there will be economic pain if the problem goes unaddressed; there will be residential foreclosures and billions of dollars in write-offs as auditors discover that many of these mortgages can never be fully paid down. Many families will find that they may have to consolidate their living space if they hope to hold on to at least one viable residential dwelling.The nation must ensure that the mortgage market remains viable, liquid and stable. The response should include a government restructuring of a portion of the multi-trillion mortgage debt through federal and state underwriting.
The private sector shouldn't be allowed to walk away, either. Hedge funds and Wall Street, which made an incalculable profit from these flawed mortgages, should be compelled to put some of those dollars into a public-private fund designed to cushion the mortgage market and ensure liquidity.
And so it goes: everyone is now pretending they didn't understand the paperwork. This is pure garbage. The laws were rewritten to force banks and brokers to tell the truth and the truth here is simple: everyone was cheating everyone else in the hopes of getting rich, quick. The buyers lied about their incomes, lied about their downpayments, many of which were provided under the table by the sellers or the brokers themsevles, they just wanted numbers on paper.
And everyone knew the principle would not be paid off and indeed, not even the interest met per month and this would accrue against the properties but who cared? If assset prices shot up 35% each year, why they would just flip the properties and collect the profits and be rich! Some did this several times before the boom collapsed.
Now they want the Federal Reserve to reinflate this boom so the stupid games can go on and on. They want this party to be forever. They want infinity.
The Federal regulators knew what was going on just like they know the world's asset boom is entirely due to the illogical yen and its strange, I would say illegal, relationship with the dollar. Federal regulators and Congress and Bush and everyone in Wall Street knew, while we attacked China and the yuan, that the real problem was the Japanese yen and the fake depression in Japan. So it is with housing: they know perfectly well, they wanted this fake market to roll so no one wanted anyone to stop it and to take charge. Even when reporters uncovered the schemes such as advancing the deposit to the buyer who had zero in savings to pay for closing or a downpayment, all this was in the news as well as known by every real estate agent in the USA.
Now it is falling apart and will drag down everything because the money from this carry trading yen was 'laundered' through the housing market and then ended up paying for all those huge take-overs that fueled Wall Street's illogical rise.
"Inflation is eating US wage gains" Says the Christian Science Monitor.
The economy may be a bit cooler than it was a year ago, but inflation is still running hot. It's not like the runaway price train of the '70s, but it's enough so that people notice at the grocery checkout, when they pay for day care, or when they buy college textbooks.Some prices – namely for housing, food, and medical care – have been more noticeable than others of late, jumping at a 6 percent annual rate during the three-month period from December through February, the government reported Friday. Retail gasoline prices rose 7 percent in just two weeks, according to a March 12 report by the US Energy Information Administration.
And this inflation is the spoke in the wheel of all the rich people screaming Bernanke should burn up the last $66 billion in reserves, propping up the housing boom. Of course, it would require a cool trillion to do this, each year. When China and Russia joined Japan in handing over this sum each year, things were well with us but now they are not for political and economic reasons and they will watch, fascinated, as our ship sinks.
The Federal Reserve made a deal with Bush that they would calculate inflation differently and so they understate it repeatedly so it is actually a good 2-3% higher than the official rates. I can tell here, my costs certainly outstrip the inflation raises we get. Do this enough years and my pension goes 'poof'. It is a real fear for all of us and I am astonished no one is pissed off about this theft.
On top of this, bank rates are below the rate of inflation if one has savings just like in Japan where the government gave NOTHING for years! Even as inflation is really 2% or more! Using even goofier ways of gaging inflation, they got away with pretending they are in a depression...with record trade surpluses coupled with a 4% unemployment rate which we consider to be 'good times' and even 'inflationary'!
This 'depression' features a stock market that is going up and up and an accumulation of a reserve fund that is the second biggest on earth! Some barking depression. Sounds positively merry, not sad.
n the video from TheStreet.com's "Wall Street Confidential" Webcast, Cramer boasts about manipulating the price of a high-flying stock down, and even acknowledges that doing so might have been illegal. The video is making the rounds on YouTube."A lot of times when I was short, I would create a level of activity beforehand that would drive the futures. . . . It's a fun game," Cramer said in the Webcast, which was moderated by TheStreet.com Executive Editor Aaron Task.
Cramer later said that "no one else in the world would ever admit that, but I don't care."
However, seconds later, he acknowledged, "I'm not going to say that on TV," referring to his show on CNBC.A remarkably successful money manager when he ran the $450 million Cramer Berkowitz hedge fund, Cramer in the Webcast shared his "tips" on how to drive a stock price down so that a short-position - a bet that a stock price would drop - remains profitable.
He added that the strategy - while illegal - was safe enough because, "the Securities and Exchange Commission never understands this."
A call to Cramer was not returned.
I read in China today, a guy who swindled people was executed. Imagine that. Don't think we would have so many con artists here if they had to worry about bullets to the back of the head on National TV. This guy is in trouble. He can and should be arrested. But then, many people on Wall Street and in the government should be arrested. In the past, when governments work with swindlers to skin the populace, we see revolutions, riots and insurrections. A reminder is due here.
Like Japan, Germany won WWII too.
LONDON/BERLIN
(Own report) - British trade unions announce new protests against the privatization of the National Health Service and several German buyers. Hospital strikes took place last autumn, over the Deutsche Post subsidiary, DHL, being granted a billion Euro contract for lucrative logistics services for the National Health Service (NHS). The conflict will be continued beyond last Saturdays demonstrations. The privatization measures are being sharply criticized in Great Britain, because they will lead to the shutting down of numerous health service facilities and to the deterioration of treatment. The risk of infection in British hospitals, for example, has notably increased since private businesses provide services, according to trade unionists in a discussion with german-foreign-policy.com. The EU Constitution Treaty that the German government would like to see implemented, in spite of the failed referenda in two states, would favor privatizations of health services in other EU member states. German companies are in the "starting blocks" ready to take over hospitals all over Europe.
Britain is rapidly moving the masses back into the Dark Ages. They are now handing over national healthcare to the Germans who tried and tried not once but several times, to conquer and enslave England. Seig Heil! Ja, es ist ein schoene Tag. Congratulations, Tony Blair! What next? Surrender to Russia?
Ah, that is for us to do. After we bow to Japan and apologize to China and lose our shirts to gambling palaces run by Indians. The world goes up and down and the surest way to go down is to do stupid things for easy money.
China is deliberately deflating their own bubble and of course, this punctured our bubble but good.
With China trying to slowly let the air out of its economic bubble (if that's even possible), a scenario where the risk-aversion bug spreads quickly around the world seems very possible.The bursting of bubbles in a particular asset class and economy "is likely to have greater than expected consequences for the U.S. economy, a U.S.-centric global economy and world financial markets," Roach said.
Before the risk-aversion contagion becomes probable, the Fed chairman could give us a sign that he's there when we need him not only as a vigilante against inflation, but also as a guardian of risk and credit.
It is funny listening to the Chinese talk about guarding agaisnt rash risks and poor credit. Maybe we should surrender to the communist Chinese and let them run things for a while. Couldn't hurt more than having Halliburton run America from Dubai.
Speaking of risks, Oracle's owner is filthy rich playing with carry trade yen/dollar dough:
SAN FRANCISCO (MarketWatch) -- Oracle Corp. reported late Tuesday fiscal third-quarter profit rose 35%, helped by a surge in sales of the business-software applications Chief Executive Larry Ellison has acquired during a three-year acquisition spree.Redwood Shores, Calif.-based Oracle (ORCL :17.55, +0.37, +2.2% ) said net income for the period ended Feb. 28 rose to $1.03 billion, or 20 cents a share, from $765 million, or 14 cents, in the same period a year earlier. Excluding certain items, Oracle said it would have earned 25 cents a share, beating the average estimate of analysts surveyed by Thomson Financial, who expected 23 cents a share.
Sales rose 27% to $4.41 billion, topping analysts' expectations of $4.33 billion.
It wasn't from selling anything, he got rich buying companies with this screwy money being created out of thin air by the Japanese. Using his handy-dandy .5% loans, he leveraged them into a huge conglamoration that has one goal: to allow him to skim off a good 15% for himself. This made him so rich. And he will not pay taxes on his ill-gotten wealth nor will it create a single job here in America, certainly not in an exportable industry.
Maybe we could get the author of those Harry Potter books to move here. That is exportable and it makes money, too. Without the crutch of the yen.
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"The wealthy suburbs surrounding Detroit are now disintigrating."
My wife's from around there (Troy, MI) - that whole area has been on the gradual downhill for decades now. People got nervous in 1967
( http://www.67riots.rutgers.edu/d_index.htm ) - not that any of that ever got out to Bloomfield Hills - and the 70s energy crises didn't help either. Then there was the mayoralty of Coleman Young...
Posted by: JSmith | March 21, 2007 at 09:24 AM
Yesterday our receptionist told a little story. Her husbands brother and wife bought a property in Calgary for 540K 4 years ago put 80k in renovations in it and just sold it for 1180K.
Average house prices in Edmonton rose 10% in the month of February.
The bubble is still in full warp speed rip here in Alberta.
Posted by: Canuck | March 22, 2007 at 07:38 AM