Wednesday, Mar 12, 2008
Time to get Depressed
Telegraph: Fed takes boldest action since the Depression to rescue US mortgage industry
"The US Federal Reserve has taken the boldest action since the 1930s, accepting $200bn of housing debt as collateral to prevent an implosion of the mortgage finance industry and head off a full-blown economic crisis."
Posted by quiet guy @ 12:45 AM (1186 views) Add Comment
20 Comments
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1. Oh Dear said...
guys, I'm new to this site, but I notice the archives unearth years of gloom by forumites, whilst housing prices have in reality doubled. I also see that archive predictions of house prices does not iclude forecasts by housepricecrash, only a prediction from Jan '08 onwards! Are you guys in denial, or like last time, are you going to be saying ...'the Fed ruined it for us, with it's meddling of liquidity and rate cuts', when they double again? I'm beginning to think this site is disgraced on account of it's predictions, and the contributors talk their up their own book and dreams of buying a house one day. Slag me off if you like but constructive answers and some honesty with respect to UK housing market would be appreciated.
2. Cristiano Barbaro said...
It's not gonna work, because all the fed is doing is saving the banks and the Wall St jackals, while letting the average man sink in debt. There won't be a trickle down effect since the above mentioned jackals will hoard the cash. And as the average Joe sinks, so will the holes in the corporate balance sheets get bigger. Let's see if I'm right as the weeks move on.
3. sacred contracts said...
From what I've learnt here this all smells to me of corruption.... is there another valid explanation?
4. Andrew said...
Which ever way you look at this, it all boils down to the same thing, they are printing money to prevent a collapse of the financial system, most of the banks will just hoard the cash, so it will have little effect, most of the damage has been done, after all who is going to rescue the system now ? Are we supposed to rely on the very people that caused so much damage in the first place ? I don't think so. Whether or not anyone related to this fiasco will learn from the mistakes of the past few years or not remains to be seen.
5. inbreda said...
".... is there another valid explanation?"
Yes - it could be corruption with icing on the top.
6. sold 2 rent 1 said...
Both the Martin Armstrong and Calleman/Lungold model suggest either a pre or post Easter crash.
To what extend?
Well it has to be bigger than the 5pc in Jan. 10pc? 20pc? or maybe even 30pc?
I am also thinking that other "bad news" that is not financial will play a part too.
Whether this is a political corruption scandal about 9/11 or a "false flag operation" terrorist attack I am not sure.
Everyone's reality is about to change forever. Prepare physically and mentally.
7. alan said...
Hardly a sign of the dollar sinking, this morning.
How far does the Fed have to go before the Chinese decide to pull out of the dollar?
8. Bertie Bunfest said...
Corruption? These actions are exactly what central banks are there for and Ben Bernanke is a man of huge integrity and capability. He has spent his whole life preparing for this moment. Whether any of it works or not this was a heroic operation on a grand scale.
9. hpwatcher said...
The measures are pretty desparate.....and all over some people wanting to buy some bloody houses!
10. Debtfree said...
In the article it mentions 'We face the most serious global crisis since the Great Depression.'
Most people are completely unware of this and when the crisis strikes, it will happen fast, very fast. This is very worrying, as I look around and nobody seems to aware of the current crisis. Is this why we have mass national storm news to divert the true news. Whats more important to be aware of ? The weather, or the biggest threat to a financial collapse since 1929 ? It beggers belief.
In the book 'Sovereign Individual' which is highly recommended, it talks about America collapsing and how the whole nanny state is losing control. As it loses control, the process will speed up, hpyerinflation on the currency and violent reactions by government to keep control. It compares the Russian collapse, the fall of the Berlin Wall and how like brother and sister, this will happen too with democratic nations. You can read reviews on below link for anyones that intrested, as it all seems to be coming true.
http://www.amazon.com/Sovereign-Individual-Mastering-Transition-Information/dp/0684832720
11. happyrenterz said...
The dollar has just been undermined a lot more by this. Essentially lending money for subprime morgae collateral. This makes the dollar subprime.
I think it was S2R who posted views here before, that authorities are trying to undermine the $, well this is proof.
12. happyrenterz said...
Big Picture -The Federal Reserve's actions today may have been strongly influenced by Bear Stearns' problem." -Dick Bove, Punk Ziegel & Co.
13. Cheekie Charlie said...
Oh Dear said...
Even you must have an idea that what we have been warning on this site for the last 3 year is unsustainable madness! I think you need to read a suitable newspaper to keep yourself updated on the current financial crisis, or are you quite happy living in collective fools paradise!
14. Djia977 said...
Some caution should be exercised here before getting carried away thinking that the Federal Reserve is printing up a new $200 billion. In fact, all they are doing is printing up $200 billion and exchanging it for $200 billion in securities which is basically part of the previous money supply - so no new addition to the money supply. And remember that this phoney 'injection' only lasts for 28 days. After that it will need to be renewed or the effect will be lost.
The detail which I am interested in knowing is whether the so-called collatoral or mortgage backed loans are being taken in at original value of 100 cents in the dollar or at market rates of 52 cents in the dollar for AAA debt issued in 2007.
To my mind it seems the worst of both worlds - the 'injection' is phoney and unlikely to work, and bad debts are being loaded up onto the governments and taxpayers balance sheet - just like what happened with northern rock.
15. uncle chris said...
@ Oh Dear .... let me tackle your comments,
Yes, many on this forum have been predicting prices would fall well before now. I myself thought it would start at the beginning of 2006, but I was wrong, the crash started during the final quarter of 2007. There are several reasons for the delay, including the great BTL-con (we'll hear alot more about that later), an inappropriate IR reduction by the BoE (late 2005 I believe) that gave the impression that rates would be falling, property speculation spurred on by countless property-porn programmes and massive levels of immigration, but the main one was the crazy and dangerous lending practices by banks. That latter has now stopped dead in the water as many here predicted (you will see in the archives) would have to happen. There will now be minor falls until the summer whilst sellers wait to see if the normal spring buying season starts and then panic will start to set in.
The FED and BoE meddling can only delay the inevitable, they are only lending money in the short term to try and encourage lending. The problem is that banks are sitting on huge holes in their balance sheets and nobody is willing to admit how big those holes are. They only way the central banks can correct the problem is to plug those holes with taxpayers money - and that won't happen. We actually need a recession to sort this mess out.
If you believe that prices can possibly double, then I just ask you to sit down and work out how someone on an average wage (around £24,000) can afford an average house (around £180,000), which is 7 times their annual wage. Take into account all the usual bills, council tax, petrol, food, student loans etc, and then prove to me how first time buyers can possibly increase to the position where they can underpin the market as they use to. FTBs used to make up 50% of the market at one time - now it's less than 10%. Affordability is the only fundamental that matters, despite all the smoke and mirrors the VIs have thrown at us.
16. Oh Dear said...
@ Uncle Chris
Thanks. I agree with all of what you say generally but what do you think about house prices in London? Personally, I get the feeling that unless unemployment rises significantly, for a significant proportion of houses buyers/ speculators affordabilty is currently ok, and prices may stall rather than reflecting a nationwide trend.
17. quiet guy said...
@Oh Dear & Uncle Chris
Good commentary however I am a bear and very much prefer Uncle Chris' analysis.
Another aspect of the decade long house price surge has been peer and parental pressure to get on the ladder. After so many years of rises, this becomes self fulfilling. Even very recently, I was asked by a friend why I wasn't 'tempted' to buy. When the correction really kicks in, I suspect that the common wisdom will change quite quickly.
"significant proportion of houses buyers/ speculators affordabilty is currently ok"
For sure - there must be lots of London houses paid off or nearly paid off. Current prices are set by current transactions i.e. those who must sell for financial, job or family reasons and some of those people are going to have to compromise for a sale. It appears we have a sort of stalemate right now (few buyers and few sellers willing to drop prices) but with the levels of indebtedness we have now and rising job losses in the financial institutions, I don't see how this can continue.
What does worry me a bit is that some smart/lucky speculators who got in really early will hoover up a lot of properties in the next upswing due to their tax advantages. Fundamentally, that would be a concentration of housing wealth into hands of a few rich property owners - very bad for society as a whole.
18. Oh Dear said...
@ cheeky Charlie
Am I to assume that you are on good terms with yourself, sitting on the sidelines for the last 3 years? Sticking to houseprices, which is what this site is primarily about, that would mean that prices which have gone up about 30%+ ( in the south at least )! Should I also assume from your tone that the same reduction is now in the bag, and you are already counting the notes that it will drop further from 3 year ago levels. For you to profit from all this that would have to happen, not to mention you needing a much bigger deposit, better credit rating and possibly paying more in interest rates.
19. Debtfree said...
Oh Dear
100 + 30 % = 130
130 - 30 % = 91
it only takes a 50% drop to wipe out a 100% rise.
take inflation and purchasing power of currency.... then yes, it may just be safer to wait and purchase at a more sensible price. if you had high rates of interest and a smaller loan, then you could pay off your mortgage quicker with lump sums. whereas, larger amounts with small interest take longer to pay off, no matter what.
20. quiet guy said...
"Should I also assume from your tone that the same reduction is now in the bag, and you are already counting the notes that it will drop further from 3 year ago levels?"
I'd like to reply with a different question, if you don't mind, because real world (not CPI) inflation makes it awkward to make meaningful comparisons about house prices. Do you think that we will keep up the current average multiplier levels for mortgage/salary on a long term basis? In the past, the multiplier factor tended to hover somewhere between 3x to 4x salary. Can we keep on borrowing 5x or higher indefinitely into the future?
Also, I agree that borrowing will be much more strictly controlled in future. It wouldn't surprise me to see cheap houses in the future but virtually no credit available, except at usurious terms.