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EJ
03-13-07, 04:08 PM
http://www.itulip.com/images/CAP.gifiTulip just got off a call sponsored by the Center for American Progress (http://www.americanprogress.org/). Today they issued a report titled "Helping Families Prepare for the Rise in Subprime Mortgage Foreclosures" (pdf) (http://www.americanprogress.org/issues/2007/03/pdf/foreclosure_paper.pdf) by CAP's Almas Sayeed. Old news on the housing market for iTulip readers, but the part quoted below aligns well with our long standing prediction that ultimately taxpayers are going to pay to clean up the Risk Pollution (http://www.itulip.com/riskpollution.htm) left by banks who have externalized the risk of bad loans by dumping it into the financial markets, thus making the business of selling high risk loans profitable.

The most toxic risk pollutants are the first to seep up, related to sub-prime loans, but soon enough risk pollution will spraying out of every fissure in the financial system.

Let's guess how this is going to go: The Wall Street Investment banks and commercial banks that sold the mortgage backed securities get to keep the fees they earned, the drug addicts and old ladies the lenders went after as borrowers get stuck with loans they can't pay–not to mention Joe and Jane home owner who got talked into a badly structured loan because it was more profitable for the lender–and as with the S&L Crisis of the early 1990s, the tax payer gets stuck with the tab.
While policymakers examine the causes of the current crisis and consider legislative and policy-based solutions to prevent such a trend in the future, it is also critically important to consider ways to stem this rising tide of foreclosures. Given the crisis that may affect communities, policymakers should consider swiftly strengthening state and federal programs that help prevent home foreclosures.

While all states have homeownership and foreclosure prevention counseling, only a handful of states sponsor mortgage assistance programs that help qualifying families in danger of falling too far behind on their mortgage payments due to a sudden loss of income, illness or death in the family. Increased federal assistance could expand these programs and enhance those foreclosure prevention programs that do not provide loans. Among the steps policymakers should consider are:
Federal grants to expand and enhance current mortgage assistance and foreclosure prevention programs and low-interest mortgage assistance to eligible borrowers.
Federal funds to target key cities and states facing the highest risk of mass foreclosure.
Provisions to ensure federal agencies assess the effectiveness of each program every three years.
Strengthen programs that aid families while their mortgage contracts are renegotiated or the property is sold on the market so that the homeowners’ credit ratings are salvaged, allowing for the possibility of future homeownership.This paper details why the steps briefly outlined above would help ameliorate the current rise in foreclosures. The paper will first examine the causes of the crisis and then look at the structure of state-funded foreclosure prevention programs to illustrate how cost-effective federal support for these programs—particularly in key states—could help families facing foreclosure stay in their homes.

While foreclosures are sometimes unavoidable, it is in the best interests of our communities and overall economy to support those who have embraced homeownership and work to prevent foreclosure. After all, homeownership is an important step in the creation of stable and secure communities. Yet, homeownership is also a step that is especially difficult to take for those without access to traditional home lending products. When assets and wealth are better distributed and families are more financially secure, this, in turn, enhances opportunities for everyone and contributes to the country’s overall economic security.
AntiSpin: In other words, taxes and more taxes and more Federal debt. The folks over at CAP have their hearts in the right place, but the approach of using taxpayer money to solve the foreclosure problem is misguided. That only encourages the banks to do it again. I have a better idea. How about this time Goldman Sachs, J.P Morgan, Merrill Lynch, Citibank, BoA, et al, clean up their own mess and pay for the bailout instead of taxpayers? Sure, the cost might put some of these banks out of business, but who cares? Other better run banks will take their place.

The other news organizations on the call were New York Times, LA Times, etc. Judging by the questions, the MSM seems symapethic to the taxpayer bailout approach. Looks like iTulip and a few others are going to have to lead the charge to make sure the Risk Polluters pay their fair share.

Otherwise, get ready for a lot more of this:

Senate Weighs Aid to 2.2 Million Subprime Borrowers (http://www.bloomberg.com/apps/news?pid=20601087&sid=a1x64z58hsB4&refer=home)
March 13, 2007 (Bloomberg)

U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.

"The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,'' Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.

[snip]

Federal aid "would come at a cost,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association. ``It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?''
Again, the issue is framed the wrong way. The problem is not one set of taxpayers bailing out another, it's taxpayers bailing out the banks that made money selling the loans.

jk
03-13-07, 04:23 PM
1. what does anyone know about put provisions allowing the purchasers of mbs to require the originator to take back non-performing paper? obviously, the purchasers of new century paper are going to be stuck, but are the goldmans, citis and morgans of the world on the hook at all here?

2. eric, were you able to raise your point about "the boyz" on the call? if so, what was the reaction?

EJ
03-13-07, 04:33 PM
1. what does anyone know about put provisions allowing the purchasers of mbs to require the originator to take back non-performing paper? obviously, the purchasers of new century paper are going to be stuck, but are the goldmans, citis and morgans of the world on the hook at all here?

2. eric, were you able to raise your point about "the boyz" on the call? if so, what was the reaction?

Not much point. The New York Times trades as NYT (http://finance.yahoo.com/q?s=NYT) and Dow Jones company as DJ (http://finance.yahoo.com/q?s=DJ).

jk
03-13-07, 04:35 PM
as you say, not much point. the problem with trying to get the perpetrators and accessories to pay is that they're rich! i.e. they are big contributors to both parties, with lots of political muscle. meanwhile the politicians can grandstand on their heartfelt sympathy with people who got over their head, sacrifice a few peripheral institutions like new century, et al, and answer the question: "how do you spell relief?" P-R-I-N-T! and generate fees of some kind, i'm sure, for goldman, citi and morgan. [i don't believe in conspiracy theories, but sometimes i'm not sure what difference it would make.]

fraserjr
03-13-07, 05:02 PM
I actually wrote a Senator an email today for the first time in my life. I am not sure what good it will do, but seeing as Senator Dodd from CT wants to provide funding for the estimated 2.2 Million people who are going to foreclose on thier homes and put on the backs of other like myself is ver disturbing. I am curious to see what one of his interns will write me as a response, if I get any at all.

The gist of the email was that while I am 26 and with a combined income with my girlfriend could have walked into any subprime lender in Northern Virginia and walked out with a 500k loan, I probably would not have qualified for anything over 300k through a traditional 30 year 20% down traditional. So rather than conforming to the irrational exuberance exhibited over the last 5-10 years, I sat the market out waiting for prices to return to the historical mean. Now however, I will pay the tax burden of other who were unfortunate enough to get a subprime loan, get a homeowners taxbreak, and maybe even take out a HELOC, while I "wasted" my money renting.

All while the government and administration looked the other way as the lenders were allowed to give out these risky loans to basically anyone who wanted one. Thats what I get for not joining the "homeowners society".

I guess it pays more to just do as all the other sheep and let the government bail me out. Foolish me.


P.S. Sorry about the rant. :mad:

miju
03-13-07, 05:25 PM
hey guys, do not confuse your correct analysis of the situation with your desire or revenge.
1) if you do not liketmarket pratices, when they come to exageration, vote and change your political leaders to bring a new way of managing the economy
2) GS, ML and so on ..have contributed to the economy thanks to taxes they had to pay on their record profits
3) Do not worry, CDO's failure and loose lending to Hedge funds will affect directly their PxL soon and their shares will drop as well. The market punishes the poor unfortunately but punishes the rich as well when they became crazy

don
03-13-07, 05:29 PM
The scenario we're supposed to swallow goes something like this: The fed had no idea chain sawing down interest rates would feed a housing bubble. Lenders, not knowing the consequences, began offering increasingly impossible loans to increasingly unqualified borrowers. Just by chance, the quasi-public mortgage repositories of Freddy Mac and Fanny Mae encouraged those lenders to toss their mortgage cowpies into F&F's open arms. We now seem to be at that time of the dance to begin hearing our favorite ice cream truck ditty of too-big-to-fail, which we've been hearing since the S&L scam. Who says that music hits don't last like they used to.

grapejelly
03-13-07, 06:17 PM
Is there *any* question that the banks will be bailed out?

Is there *any* question that GSEs will be bailed out?

C'mon. The real question is how these bailouts will affect other assets including the US$, treasury bonds, stocks...the macroeconomic consequences.

EJ
03-13-07, 08:31 PM
hey guys, do not confuse your correct analysis of the situation with your desire or revenge.
1) if you do not liketmarket pratices, when they come to exageration, vote and change your political leaders to bring a new way of managing the economy
2) GS, ML and so on ..have contributed to the economy thanks to taxes they had to pay on their record profits
3) Do not worry, CDO's failure and loose lending to Hedge funds will affect directly their PxL soon and their shares will drop as well. The market punishes the poor unfortunately but punishes the rich as well when they became crazy
miju, Nothing to do with revenge. It's a matter of free market principles. As capitalists, we do not believe that Socialism for banks works. Banks should not be protected from their folly by taxpayers and government largess. They should be held to account for the risks they take, just like any other business. If they screw up, they should allowed to fail.

Of course, they will not be allowed to fail. No one has the political will to raise taxes, so the federal deficit wil simply grow some more. We can hope that Paulsen & Co. can head back to Asia and the Saudis again and say, "Put it on my tab!" and they say, "Ok" again.

Also, from a political standpoint, when the rich are punished, they become less rich. When the middle class is punished, they become poor. Seems unlikely to me that millions of baby boomers are going to take being poor lying down. They will demand a retirement in the lifestyle to which they have become accustomed.

jk, I asked the Senior Economist Christian Weller on the call if he agreed with the Shiller/Case estimate of a 15% - 30% decline in housing prices in major markets over the next 5 years and he replied that decline is consistent with their models.

DemonD
03-13-07, 09:23 PM
hey guys, do not confuse your correct analysis of the situation with your desire or revenge.
1) if you do not liketmarket pratices, when they come to exageration, vote and change your political leaders to bring a new way of managing the economy
2) GS, ML and so on ..have contributed to the economy thanks to taxes they had to pay on their record profits
3) Do not worry, CDO's failure and loose lending to Hedge funds will affect directly their PxL soon and their shares will drop as well. The market punishes the poor unfortunately but punishes the rich as well when they became crazy

As to point 1:

South Park has it right. Every election you are basically voting for either a Giant Douche or Turd Sandwich. Except those lucky few who get to vote for Ron Paul. As bad as Bush is, everyone I know who voted for Bush was like "Well, I didn't like Bush, but c'mon - John Kerry?" And I have to admit, they have a point, and although I do think our country would be better off with Kerry, it just kind of goes to show how unorganized the Dems were to lose that election by not having a better candidate and/or not marketing him well enough.

Point 2:

Their record profits which were built upon the backs of many millions of wage earners who deal with ever rising prices without commensurate rises in wages, or out and out losing their jobs to outsourcing, mergers, and shady LBO's. Raise the lower and middle classes and you generate a lot more wealth creation and therefore tax basis than just a few rich people who are probably good at taking that money, spending it on a lamborghini, and claiming that as a tax deduction.

Point 3:

Many of "the rich" have set up offshore accounts and avoid the loss of wealth that happens to the average American, and further what EJ said about the rich becoming slightly less rich and the middle class becoming poor.

Is there any possible way we can do something to convince our congress to not bail out these effed borrowers and effed lenders? It sickens me to think that our taxpayer money or currency devaluation will go to help these people. Talk about entitlements. Ugh.

SSmith
03-13-07, 09:56 PM
As I understand it, most subprime borrowers have low incomes, and many are minorities. I think the government aid they'll get probably will resemble the aid to the similarly situated victims of Hurricane Katrina--nothing--except the subprime borrowers will also have to endure sanctimonious harangues about getting in over their heads financially and perhaps misrepresenting their incomes and assets. It seems pretty clear that many, if not most, of them were lured into this position by a remarkably corrupt system. Keep in mind that many of these borrowers are not financially sophisticated. My mom has been a social worker for years, with many clients from lower socioeconomic strata. Many of them think that they receive credit-card solicitations because someone has made an informed, honest judgment that they can afford the debt. It seems hard to believe, but we all have our weaknesses. And from Alan Greenspan down to the people they got their loans from, these borrowers were told that they were doing the right thing, joining the "ownership society" with a piece of the American dream. These people are victims, and they're not going to get help from the government or anyone else.

grapejelly
03-13-07, 10:17 PM
As I understand it, most subprime borrowers have low incomes, and many are minorities. I think the government aid they'll get probably will resemble the aid to the similarly situated victims of Hurricane Katrina--nothing--except the subprime borrowers will also have to endure sanctimonious harangues about getting in over their heads financially and perhaps misrepresenting their incomes and assets. It seems pretty clear that many, if not most, of them were lured into this position by a remarkably corrupt system. Keep in mind that many of these borrowers are not financially sophisticated. My mom has been a social worker for years, with many clients from lower socioeconomic strata. Many of them think that they receive credit-card solicitations because someone has made an informed, honest judgment that they can afford the debt. It seems hard to believe, but we all have our weaknesses. And from Alan Greenspan down to the people they got their loans from, these borrowers were told that they were doing the right thing, joining the "ownership society" with a piece of the American dream. These people are victims, and they're not going to get help from the government or anyone else.

I think you may have missed the point. The subject of the thread is "More Wealth Re-Distribution: Taxpayers to Banks" (bold added). It's a bank bailout, silly. Uncle $am doesn't care about the poor schlemiel who is in over his head. Unk gets very concerned about banks' profits though :)

SSmith
03-13-07, 11:33 PM
The Center for American Progress has a proposal for "Helping Families," and Christopher Dodd's bill is to bail out the subprime borrowers themselves. I understand that this might benefit the banks, too, but the original post presented these plans to help the home "owners" as a threat to taxpayers. My first point is that subprime borrowers are not going to see any of that aid in the end, just like the Katrina victims. I would not be surprised to see the banks get some help, but it will probably cut out the middleman. My second point responds to one or two of the later posts, which seem a little hostile toward the borrowers. Whether or not these subprime borrowers should receive aid from the government, they deserve some sympathy, because they have been used, and now they are going to get thrown aside to pick up the wreckage of their financial lives on their own. They don't deserve that. Besides, there are enough other people who really deserve the venom.

I'm usually not this humorless--well, sometimes I'm not this humorless--and I appreciate your point. And I would love to see the banks put on the hook for what they've done to these people, although I expect to find myself on the hook for what the banks have done to themselves. But it's very frustrating.

Joe1987
03-13-07, 11:34 PM
Personal responsibility. I know it might sound like a tired theme, but please, its worth mentioning.

The banks made bad loans. Hopefully, they will be forced to book the losses and not receive some sort of "relief". They allowed liars to take out loans with no way to hold them accountable. Why is the outcome a surprise to anyone?

Borrowers signed up for loans they couldn't afford. Many of those borrowers were not downtrodden individuals manipulated by the evil mortgage brokers who took advantage of their innocent nature.

No, greedy, impractical, educated white-collar workers in their 20s and 30s would not accept a modest home with a reasonable mortgage. They had to have several thousand square feet, 5 bedrooms and 3 baths for their spouse and dog. They insisted on vaulted ceilings and jacuzzi bathtubs. In order to get these things they knowing took a poorly calculated risk, with little thought, that they could finance 100% or more of the value of the home and come out ahead.

Nobody should look to their blackjack dealer for moral or financial guidance.

EJ said: "Seems unlikely to me that millions of baby boomers are going to take being poor lying down. They will demand a retirement in the lifestyle to which they have become accustomed."

This, to me, is the most scary thought. I have heard more times than I can count, ". . . in a country as wealthy as ours, nobody should have to [fill in the blank]<FILL blank the in><FILL blank the in>" What wealth? We have already refinanced our country's mortgage and a few Asian countries, among others, are holding the bank note. According to the GAO, the first wave of boomers are eligible for social security benefits early next year. I am not looking forward to David Crosby singing about the plight of his recently retired brothers.

Like fraserjr, I also apologize for ranting, but in my defense, I've been saving up, unlike the average american (pun intended).

miju
03-14-07, 03:35 AM
correct on point 3. buton point 2 do not forget that a lot of people beneficiate from the good results of the big Inv banks. And do not forget that shareholders have beneficiated as well. Who are shareholders ? you, me, pension funds ....

jk
03-14-07, 04:07 AM
This, to me, is the most scary thought. I have heard more times than I can count, ". . . in a country as wealthy as ours, nobody should have to [fill in the blank]<fill blank="" the="" in=""><fill blank="" the="" in="">" What wealth? We have already refinanced our country's mortgage and a few Asian countries, among others, are holding the bank note.

the joke is, the debt the asians are holding will turn out to be subprime, too.
</fill></fill>

Rajiv
03-14-07, 08:15 AM
Who are shareholders ? you, me, pension funds ....

That is not quite correct. From <a href="http://tiger.berkeley.edu/sohrab/politics/wealthdist.html">U.S. Wealth Distribution Data (1998)</a> at the height of the dot com boom


Household distribution of common stocks in 1998 (i.e. who "owns" the corporations and gets profits). Note that in 1998, only 48.2% of Americans owned any stock at all (either directly or though mutual funds, 401k-type defined-contribution plans) and only 36% of Americans owned stocks worth more that $5000.

<table border=1 align=center>
<tr align=center><th>Percent of owners</th><th>Net stocks</th><th>Cumulative
Percent</th><th align=center>Cumulative stocks</th></tr>

<tr align=center><td>Top 0.5%</td><td>37.0%</td><td>Top
0.5%</td><td>37.0%</td></tr>

<tr align=center><td>Next 0.5%</td><td>10.7%</td><td>Top
1%</td><td>47.7%</td></tr>

<tr align=center><td>Next 4%</td><td>27.2%</td><td>Top
5%</td><td>74.9%</td></tr>

<tr align=center><td>Next 5%</td><td>11.3%</td><td>Top
10%</td><td>86.2%</td></tr>

<tr align=center><td>Next 10%</td><td>9.8%</td><td>Top
20%</td><td>96%</td></tr>

<tr align=center><td>Last 80%</td><td>4.1%</td><td>All
100%</td><td>100%</td></tr>

</table>

ablevin
03-14-07, 10:19 AM
I am not as pessimistic as you all are that the government will "undoubtedly" use public funds to bail out distressed/failing banks.

There is still a sour taste in the public's mouth about the whole LTCM bailout, and public funds weren't even used in that situation. If the media even begins to report that the government is considering using taxpayers' money to bail out a bank for making bad loans, rest assured those taxpayers will be in an uproar. The American public may not be too intelligent, but the moment you tell them you want to use their money to help some richies, forget about it.

I think you might see a few big banks thrown to the wolves, to quell the taxpayers' appetite for revenge, then the government will strategically aid certain institutions under the table.

miju
03-14-07, 11:03 AM
Rajiv,
fair enough, but 49.8 % is half the US population. this is not exactly plutonomics. at this level social benefits are not negligible and we cannot conclude that only a few persons are the only beneficiaries. So if one request that bank shares should drop as a penalty on the mismanagement of the lending policy one should not forget that all sharedholders will suffer throug their direct or indirect investments. And if shareholders are not happy with that they have to become active during AGM and propose thange in the management

SSmith
03-14-07, 04:40 PM
Personal responsibility. I know it might sound like a tired theme, but please, its worth mentioning.

Borrowers signed up for loans they couldn't afford. Many of those borrowers were not downtrodden individuals manipulated by the evil mortgage brokers who took advantage of their innocent nature.

No, greedy, impractical, educated white-collar workers in their 20s and 30s would not accept a modest home with a reasonable mortgage. They had to have several thousand square feet, 5 bedrooms and 3 baths for their spouse and dog. They insisted on vaulted ceilings and jacuzzi bathtubs. In order to get these things they knowing took a poorly calculated risk, with little thought, that they could finance 100% or more of the value of the home and come out ahead.



Joe1987: I have a lot of sympathy with your position. As a fellow ant who worries about winter, I get pretty irritated by the profligate grasshoppers, too. At the same time, in the current context, it seems clear that many of them will suffer because of their reckless borrowing, whether they deserve it or not. We'll have to see, but I don't regret abstaining from the borrowing binge. My thanks to Aesop.

As I mentioned in my original post, my understanding is that most subprime borrowers have low incomes, which suggests less education, which does not sound like the borrowers you describe. Does anybody out there have the information on this? For the low-income subprime borrowers I'm thinking of, however, it is important not to underestimate their financial naivete or their trust in the purported expertise of professionals. This comes through in virtually every account I read of a troubled subprime borrower. Even the great, wise Alan Greenspan was singing the praises of subprime mortgages and the wonderful opportunities they provide to low-income borrowers, so one can only imagine what they were told face to face by someone whose income depended on selling them a mortgage loan.

Finally, I won't belabor the point, but if you have been saving, you probably know how hard it is. Our society puts a lot of pressure on people to live beyond their means, and there's not a lot of countervailing opinion to help people resist it. Unless their means are significant, it is easy for people to get over their heads just trying to live like a "normal" person. It's not impossible to stay solvent, but it takes some indifference to public opinion and more financial savvy and discipline than most people have. Maybe I have belabored the point, but I think there are a lot of people in financial straits with less culpability than your hypothetical "mortgage queens." As for them, see the first paragraph.

SeanO
03-14-07, 09:48 PM
As I mentioned in my original post, my understanding is that most subprime borrowers have low incomes, which suggests less education, which does not sound like the borrowers you describe. Does anybody out there have the information on this?

I've continued to think a lot about this. While I'm an absolute believer in personal responsibility, I also think everyone deserves a chance to learn from their mistakes. Ultimately I think this particular story is just a repeat of the tech bubble and many before that and a continued failure of many to acknowledge the existence of market cycles.

Here is a little insight, I hope, from my daily involvement in the foreclosure market. First just a couple of clarifications:

1. Subprime loans are by definition for those with poor credit, not low income.

2. Interest only and option ARM's help with qualifying for more home than you can afford - i.e. low income (at least when compared to area house prices and historical level of debt to income ratios)

3. The combination, which is common, means both low income, and poor credit history. Typically with no down payment as well.

It is 3, the combination, that is blowing up right now.

And the the reason (though likely not the "cause"), is a decline in house values. The areas with highest foreclosure are the areas with the greatest price declines. There is no chicken or egg here. Price declines came first. Period.

If your timing happened to be bad, regardless of education level, it is very easy to be sitting on $100k loss of equity in under 2 years (at least here in CA). So it should be no surprise that those that received 100% financing will simply walk away given that it is only their credit on the line. It should also now be clear why subprime lenders are feeling it first... those borrowers don't even have their credit on the line.

Wait a bit. The negative news on subprime, and the resulting pull back on subprime lending will reduce demand with an already high supply. Prices will come down a bit more, and 100% financing loans to prime borrowers from 2004-2006 will fail next. Hopefully the cycle ends there.

Regardless expect foreclosures to continue to rise for a while. And as predicted in Eric's book "America's Bubble Economy", the distressed asset business will be good.

Sean

Rajiv
03-14-07, 09:54 PM
we cannot conclude that only a few persons are the only beneficiaries. And if shareholders are not happy with that they have to become active during AGM and propose change in the management

In fact looking at the data, I come to exactly the opposite conclusion. The top 1% own 50% of the shares. The top 5% own 75%. So 50 % of corporate earning benefits accrue to 1% of the population, and 75% to 5% of the population

The votes you have at the AGM meeting is the number of shares you hold. So small shareholders have NO voice or influence on the management of a corporation, and they can demand nothing! Only thing they may do is to file a shareholder suit, and that is not feasible unless you are already rich. A corporation is not a democracy (one shareholder, one vote.) It is a capitalistic instrument -- which means one dollar, one vote! So if you are rich you have more votes than if you are poor. The proportion of "capital votes" is reflected in the "Average household wealth by wealth class" table. I am copying it below

Average household wealth by wealth class (in 1998 dollars):

<table border=1 align=center>

<tr align=center><th>Wealth class</th><th>Average wealth of
class</th></tr>

<tr align=center><td>Top 1%</td><td>$10,203,700</td></tr>

<tr align=center><td>Next 4%</td><td>$1,441,200</td></tr>

<tr align=center><td>Next 5%</td><td>$623,500</td></tr>

<tr align=center><td>Next 10%</td><td>$344,900</td></tr>

<tr align=center><td>Next 20%</td><td>$161,300</td></tr>

<tr align=center><td>Next 20%</td><td>$61,000</td></tr>

<tr align=center><td>Next 20%</td><td>$11,000</td></tr>

<tr align=center><td>Last 20%</td><td>-$8,900</td></tr>

</table>

don
03-14-07, 10:01 PM
I think the sub-prime constituency, with the Alt-A mortgages, included harvesting the ignorant and the poor, the young professionals who couldn't wait, and don't overlook the amateur flippers, a big factor in the current meltdown, with its own cold water effect on the rental market. Have we ever experienced a housing ownership collapse with a falling rental market? I don't think so. During this bubble it became increasingly obvious we would experience historical highs in ownership, followed by an historically significant number of renters. When the US has been de-industrialized, and now is hell-bent on de-professionalizing, a rentier class becomes the default domestic investor's position. It isn't a stretch to see zoning laws accomodating mcmansion multi-family use in the not too-distant future. Dystopian? Sure, but I have only itulip to thank along with getting this off my chest!

Rajiv
03-14-07, 10:39 PM
Another good article is <a href="http://dissidentvoice.org/Mar07/Baker13.htm">In Debt We Trust as the Economy Goes Bust</a>


Whether personal or planetary, a tornado of foreclosures, bankruptcies, missing money -- now arriving on the world stage as a housing bubble, soon devolving into a credit bubble -- is ripping through the United States economy and world markets and will ultimately shatter, splinter, and shred, not only the fiscal fabric of America but is likely to catapult the global economy itself into massive meltdown.
.
.
.
What makes the industry’s policies not only egregious but in fact, illegal, is the reality that by and large, it lends to people who it knows cannot repay their debt. In the world of finance, this is known as fraudulent inducement and is punishable with fines and imprisonment. Although difficult to prove in terms of motive, the debt industry’s behavior is replete with millions upon millions of instances in which poor risk consumers are deluged with pre-approved credit cards.

Rajiv
03-14-07, 10:53 PM
The latest -- <a href="http://www.stateofworkingamerica.org/">The State of Working America 2006/2007</a>

DanielLCharts
03-15-07, 12:42 PM
Thanks for highlighting this issue, EJ. SSmith, I also emailed Sen. Dodd.

If anyone else is not happy with the idea of using taxpayer money for bailouts, please consider writing an email to Sen. Dodd who seems to be spearheading suprime "relief" efforts:

http://dodd.senate.gov/index.php?q=node/3128&cat=Opinion

jk
03-15-07, 12:47 PM
dodd is head of the senate banking committee, so it's an appropriate area of interest for him. of course, being head of that committe, it's not hard to guess who his major contributors might be.

Sapiens
03-15-07, 02:03 PM
Thank You, Los Angeles Times (http://bubbletracking.blogspot.com/2007/03/thank-you-los-angeles-times.html)


Sharon Lewis went to the Los Angeles Times and cried herself a river. She was a poor innocent homeowner trapped by the subprime implosion. Faced with a pending rate hike and an increasing mortgage and the possible loss of her home, she positioned herself as the perfect victim Senator Dodd want to rescue.


Then we learn that Sharon didn't just buy one home back in June 2005. No, she actually bought three homes.


Then we find out Sharon sold two of the homes to a guy named Darryl in the summer of 2006. Somehow Darryl then added Sharon back on to the title on one of the homes.


Now we find out Sharon and Darryl are actually a married couple. So basically, Sharon sold her homes to her husband at a profit, a profit they both kept.


We now also know the transactions from seller/wife Sharon to buyer/husband Darryl were non-MLS FSBO sales.


And...


Sharon is a Realtor® and she was the Realtor® of record on the fraudulent sales.




But the public still think Sharon Lewis is a poor homeowner that needs a federal bailout because of LA Times' irresponsible reporting.


Thank you, Los Angeles Times. I feel like I have to laugh to keep from bawling.

jk
03-15-07, 09:52 PM
CHRISTOPHER J. DODD: CAREER PROFILE (SINCE 1989)
Top Contributors:

1 Deloitte & Touche $194,970
2 Greenwich Capital Markets $183,000
3 Bear Stearns $162,850
4 Citigroup Inc $157,000
5 Goldman Sachs $147,516
6 United Technologies $124,550
7 JP Morgan Chase & Co $114,523
8 PricewaterhouseCoopers $113,850
9 Morgan Stanley $99,725
10 American International Group $97,338
11 Lehman Brothers $96,000
12 Ernst & Young $86,000
13 Prudential Financial $85,512
14 Credit Suisse First Boston $85,250
15 Time Warner $84,250
16 General Electric $78,280
17 Hartford Financial Services $78,150
18 KPMG LLP $72,290
19 UST Inc $71,400
20 UBS Americas $66,950

Finster
03-15-07, 10:56 PM
In fact looking at the data, I come to exactly the opposite conclusion. The top 1% own 50% of the shares. The top 5% own 75%. So 50 % of corporate earning benefits accrue to 1% of the population, and 75% to 5% of the population.

This might be an ancillary point, but statistics like these are usually abused for political demagoguery. They may be true, but the conclusion implied by those who cite them may be dangerously misleading.

One example: If the top 50% of the shares are owned by 1% of the population, that suggests that 50% of the shares are owned by 99% of the population. More significantly, those in the lower 99% of the population may only own 50% of the shares, but to those individuals, their share interest may be crucial to their future livelihood.

Every mainstream financial advisor from the corner of Wall and Broad to the corner drugstore has been telling people for years that they must invest in stocks to secure their future retirement. That has actually been for the most part good advice given that interest rates, and by extension savings yields, have been as a matter of public policy so low as to make traditional saving near fruitless. As a result, the very same Joe and Jane Sixpack that the class warfare enthusiast purports to speak for, if he is successful in reducing the returns to "the wealthy", are squarely in his crosshairs.

Rajiv
03-15-07, 11:42 PM
One example: If the top 50% of the shares are owned by 1% of the population, that suggests that 50% of the shares are owned by 99% of the population. More significantly, those in the lower 99% of the population may only own 50% of the shares, but to those individuals, their share interest may be crucial to their future livelihood.


Doing a little bit of arithmetic, I find that 75% of stock ownership is in the hands of 5%. Therefore 45% (~48.2% who own any stock minus ~5%) own 25%. Also only 36% owned stocks worth more than $5000. Doing ABC analysis, I will avow that the 12.2% owned only about 5% of the stock, while 31% owned about 20%. I would say it is unlikely that the livelihood of people owning $5000 or less of stock depended on that stock ownership.

However, I will accept it for a fact that stock ownership does in fact contribute substantially to the wellbeing of about a quarter of the population. However, if the Banks that are in trouble were allowed to fail, the major burden would be on the upper 1-5%. In order to ameliorate the burden on the small investor, who would indeed be hit harder (as a percentage of their total wealth) The distribution of the proceedings after the liquidation of bank assets could be constructed such that the smaller investors received a greater compensation than larger investors. There is a precedent for this in the way FDIC works ( with an upper limit, nominally, I believe is $100,000 of deposits)

Also, My highlighting the disparity in wealth ownership, is not so much out of a spirit of class warfare, but rather to show that there exist huge disparities in the power wielded by the rich (top 0.5%) compared to 80% of the population in the social structure of a society that is considered to be a democracy. That was the point of the later part of my reply to Miju.

grapejelly
03-16-07, 08:57 AM
slightly different take on the subject, Clif Droke (http://www.financialsense.com/editorials/droke/2007/0315.html) has an interesting public essay:



You may remember back in 1999 in the days and weeks leading into the fateful “New Millennium” of Jan. 1, 2000. So many people were expecting the lights to go out worldwide, figuratively and literally. Worst-case scenarios and an “Apocalypse Now!” mentality abounded. Yet as the fateful date drew near it became obvious that the so-called Y2K Crisis wouldn’t materialize because the stock market was making all-time highs right up until the last trading day of 1999. Had the powers-that-be foreseen a genuine Y2K collapse they would have cashed out well in advance of the date and in so doing cracked the markets big time. A strong stock market in the face of a supposed “crisis” generally means the crisis is overblown, at least as far as its ability to severely impact the economy.
Could the scare stories over the sub-prime lending debacle be the final wash-out phase of the U.S. housing market correction? I think it could be. It’s certainly typical of past wash-outs of bear markets and as usual the mainstream press is doing a stellar job of exaggerating the negatives and trying to scare the country out of its collective wits. They’ve got everyone and their brother-in-law running for the cellar screaming “The sky is falling, the sky is falling!” You can’t pick up any newspaper without seeing it plastered all over the front page in big, bold headlines. An Internet friend sent me the following example from the front page of the St. Paul (MN) Pioneer Press:

SUBPRIME MORTGAGE MELTDOWN
It doesn’t get much more bearish than that! I take this barrage of pessimistic headlines to be a contrarian indicator that the worst has already been discounted by the markets and it shouldn’t have that great of an impact on the national economy.

It almost convinced me that all is good and not to worry! I do feel rather sheepish to have gone along with the herd...

Finster
03-19-07, 03:27 AM
Doing a little bit of arithmetic, I find that 75% of stock ownership is in the hands of 5%. Therefore 45% (~48.2% who own any stock minus ~5%) own 25%. Also only 36% owned stocks worth more than $5000. Doing ABC analysis, I will avow that the 12.2% owned only about 5% of the stock, while 31% owned about 20%. I would say it is unlikely that the livelihood of people owning $5000 or less of stock depended on that stock ownership.

However, I will accept it for a fact that stock ownership does in fact contribute substantially to the wellbeing of about a quarter of the population. However, if the Banks that are in trouble were allowed to fail, the major burden would be on the upper 1-5%. In order to ameliorate the burden on the small investor, who would indeed be hit harder (as a percentage of their total wealth) The distribution of the proceedings after the liquidation of bank assets could be constructed such that the smaller investors received a greater compensation than larger investors. There is a precedent for this in the way FDIC works ( with an upper limit, nominally, I believe is $100,000 of deposits)

Also, My highlighting the disparity in wealth ownership, is not so much out of a spirit of class warfare, but rather to show that there exist huge disparities in the power wielded by the rich (top 0.5%) compared to 80% of the population in the social structure of a society that is considered to be a democracy. That was the point of the later part of my reply to Miju.

I think stocks are important for more than 25% of the people. Between stock owned directly in IRAs, 401ks and indirectly through pension plans, it's a lot of people that are adversely affected if stocks turn out bad, especially persistently. And of course this doesn't even take into account the role the public corporation - which is capitalized largely through stock - plays in providing the employment that so many people have and produces so much of the goods and services they use.

Not that I would shed a lot of tears for those banks if they failed. Probably some banks should fail, and regardless shareholders ought to he holding reckless managements to account. If there is never any adverse consequence from irresponsible business practices, you will just have that much more irresponsible business practice.

We need to remember how we came to this. Back in 1994 or thereabouts, we had the Mexican peso crisis, or so it was called. There was a bailout, and it probably saved some institutions from failing that perhaps ought to have. People learned from the experience that if you mess up bad enough, the government and the Fed will help you avoid the worst of the consequences. This changes the risk/reward equation - risk is usually what balances investors pursuit of reward - and the lengths to which they will go. People naturally puruse reward a little more aggressively when they percieve the risk to be mitigated. This is often called "moral hazard". I don't think it is mere coincidence that it was in 1995 that the stock market went into a five-year bull run culminating in what must have been the biggest asset bubble of all time.

It happened again circa 1998, with the Asian currency and LTCM crises. Again, investors learned that the consequences of imprudent actions wouldn't be proportional. Returns would accrue to the risk taker, but risk would be socialized.

Then even when the stock market did what comes naturally when things get too far out of hand, and we experienced the most severe bear market since 1929-1932, the Fed rode to the rescue again with Greenspan's "emergency" 1% Fed funds rate and prolonged "accommodation". It was much too prolonged, and the "removal of accommodation" much too gradual and predictable. There was so much easy money in the system lenders were practically falling over themselves to loan it to anybody with a pulse. So we traded one bubble for another. Meanwhile, tariffs had been aggressively cut for about three presidential adminstrations, so much of that newly created money borrowed by Joe and Jane homeowner just poured out over the world as if the country were a sieve. As a result, that immense monetary stimulus did comparatively little for the domestic economy, while China got high as a kite. And now Americans are finding themselves short on cash, while they have to compete for resources like oil with billions of other people up to their necks in expatriated US dollars.

Rajiv
03-20-07, 12:40 PM
Read this article by James Petras - <a href="http://dissidentvoice.org/Mar07/Petras20.htm">Global Ruling Class: Billionaires and How They “Made It”</a> - and then tell me why the world is not being set up for class warfare?


While the number of the world’s billionaires grew from 793 in 2006 to 946 this year, major mass uprisings became commonplace occurrences in China and India. In India, which has the highest number of billionaires (36) in Asia with total wealth of $191 billion USD, Prime Minister Singh declared that the greatest single threat to ‘India’s security’ were the Maoist led guerrilla armies and mass movements in the poorest parts of the country. In China, with 20 billionaires with $29.4 billion USD net worth, the new rulers, confronting nearly a hundred thousand reported riots and protests, have increased the number of armed special anti-riot militia a hundred fold, and increased spending for the rural poor by $10 billion USD in the hopes of lessening the monstrous class inequalities and heading off a mass upheaval.

The total wealth of this global ruling class grew 35% year to year topping $3.5 trillion USD, while income levels for the lower 55% of the world’s six-billion-strong population declined or stagnated. Put another way, one hundred millionth of the world’s population (1/100,000,000) owns more than over three billion people. Over half of the current billionaires (523) came from just three countries: the US (415), Germany (55) and Russia (53). The 35% increase in wealth mostly came from speculation on equity markets, real estate and commodity trading, rather than from technical innovations, investments in job-creating industries or social services.

grapejelly
03-20-07, 01:10 PM
interesting paper Rajiv. My research shows that inflation results in certain people having access to vast amounts of cheap borrowed money, and using this money to buy up assets. Inflation robs savers, wage-earners and retirees. So the gap increases between rich and everyone else. Ultimately it is the middle class that becomes (or stays) poor, or at least poorer than they would have been absent inflation.

Inflation lets borrowers access money below the rate of inflation and buy up assets. Those who cannot buy up assets with borrowed money at these low rates fall further behind.

Rajiv
03-20-07, 02:12 PM
Ultimately it is the middle class that becomes (or stays) poor, or at least poorer than they would have been absent inflation.

From my previous post

Prime Minister Singh declared that the greatest single threat to ‘India’s security’ were the Maoist led guerrilla armies and mass movements in the poorest parts of the country

These armies are being led, not by the poor, but by the middle class - and they recruit not only from the poor, but extensively from the middle class, that is feeling increasingly deprived.