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Top 10 at 10: IMF sees US$4 trln of losses; Zombie bank video; Roubini's global economic view
Here's my top 10 links from around the Internet at 10am. I welcome your suggestions in the comments below.
1. The IMF has almost doubled its forecast for global financial institution losses to US$4 trillion and warned that 'zombie' banks must be recapitalised, possibly through bank nationalisations, to get them lending again. Here's two of the more worrying paragraphs from the (12 page!) executive summary of the Global Financial Stability Report (GFSR), which is well worth a read. Here's the link to the full 240 page report if you're not time poor. I couldn't help myself and started reading. A cracker.
Without a thorough cleansing of banks' balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalization, risks remain that banks' problems will continue to exert downward pressure on economic activity. Though subject to a number of assumptions, our best estimate of writedowns on U.S.-originated assets to be suffered by all holders since the outbreak of the crisis until 2010 has increased from $2.2 trillion in the January 2009 Global Financial Stability Report (GFSR) Update to $2.7 trillion, largely as a result of the worsening base-case scenario for economic growth. In this GFSR, estimates for writedowns have been extended to include other mature market-originated assets and, while the information underpinning these scenarios is more uncertain, such estimates suggest writedowns could reach a total of around $4 trillion, about two-thirds of which would be incurred by banks.
There has been some improvement in interbank markets over the last few months, but funding strains persist and banks' access to longer-term funding as maturities come due is diminished. While in many jurisdictions banks can now issue government-guaranteed, longer-term debt, their funding gap remains large. As a result, many corporations are unable to obtain bank-supplied working capital and some are having difficulty raising longer-term debt, except at much more elevated yields.
This line is particularly interesting and cuts to the heart of the matter.
This difficult outlook argues for assertive implementation of already-established policies and more decisive action on the policy front where needed. The political support for such action, however, is waning as the public is becoming disillusioned by what it perceives as abuses of taxpayer funds in some headline cases. There is a real risk that governments will be reluctant to allocate enough resources to solve the problem. Moreover, uncertainty about political reactions may undermine the likelihood that the private sector will constructively engage in finding orderly solutions to financial stress. Hence, an important component to restoring confidence will be clarity, consistency, and the reliability of policy responses.
Here's what the IMF says is needed urgently.
Restructuring may require temporary government ownership. The current inability to attract private money suggests that the crisis has deepened to the point where governments need to take bolder steps and not shrink from capital injections in the form of common shares, even if it means taking majority, or even complete, control of institutions.
Related Topics
Here's a key risk: financial protectionism. Luckily for us in New Zealand, there's no sign yet of it coming to Australia. If it does, we are in trouble. Alan Bollard is rightly worried about this.
Pressure to support domestic lending may lead to financial protectionism. When countries act unilaterally to support their own financial systems, there may be adverse consequences for other countries. In a number of countries, authorities have stated that banks receiving support should maintain (or preferably expand) their domestic lending. This could crowd out foreign lending as banks face ongoing pressure to delever their overall balance sheets, sell foreign operations, and seek to remove their riskier assets, with damaging consequences for emerging market countries and hence for the wider global economy. At the same time, recent agreements among the parents of banks in some countries to continue to supply their subsidiaries in host countries with credit are heartening.
2. Here's what the 'rich pricks' on Wall St really think of the backlash against big spending investment bankers who are now gorging on bailouts. They feel like they're being unfairly targeted and they still deserve US$2 mln for doing a job where they have to get up in the middle of the night. Plenty of rope extended in this piece by Gabriel Sherman in New York Magazine. HT Felix Salmon
3. Nouriel Roubini gives his view of the global economic outlook and it's not pretty. He's been more right so far than anyone else. Here's a taste of why he thinks the optimists are wrong.
First, macroeconomic indicators will be worse than expected, with growth failing to recover as fast as the consensus expects.
Still, this global recession will continue for a longer period than the consensus suggests. There may be light at the end of the tunnel -- no depression and financial meltdown. But economic recovery everywhere will be weaker and will take longer than expected. The same is true for a sustained recovery of financial markets.
Second, the profits and earnings of corporations and financial institutions will not rebound as fast as the consensus predicts, as weak economic growth, deflationary pressures and surging defaults on corporate bonds will limit firms' pricing power and keep profit margins low.
Third, financial shocks will be worse than expected.
At some point, investors will realise that bank losses are massive, and that some banks are insolvent. Deleveraging by highly leveraged firms -- such as hedge funds -- will lead them to sell illiquid assets in illiquid markets. And some emerging market economies -- despite massive IMF support -- will experience a severe financial crisis with contagious effects on other economies.
So, while this latest bear-market rally may continue for a bit longer, renewed downward pressure on stocks and other risky assets is inevitable.
To be sure, much more aggressive policy action (massive and unconventional monetary easing, larger fiscal-stimulus packages, bailouts of financial firms, individual mortgage-debt relief, and increased financial support for troubled emerging markets) in many countries in the last few months has reduced the risk of a near depression. That outcome seemed highly likely six months ago, when global financial markets nearly collapsed.
4. Here's a fun video about Zombie banks
5. Martin Wolf at FT.com explains why the Green shoots of recovery could yet wither. There's more of a taste of what he's saying below the nice cartoon.
Consider the salient example of the US, on whose final demand so much has for so long depended. Total private sector debt rose from 112 per cent of GDP in 1976 to 295 per cent at the end of 2008. Financial sector debt alone jumped from 16 per cent to 121 per cent of GDP over this period. How much of a reduction in these measures of leverage occurred in the crisis year of 2008? None. On the contrary, leverage rose still further.
The danger is that a turnround, however shallow, will convince the world things are soon going to be the way they were before. They will not be. It will merely show that collapse does not last for ever once substantial stimulus is applied. The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained, private-sector-led growth probably remains a long way in the future.
The world economy cannot go back to where it was before the crisis, because that was demonstrably unsustainable. It is at the early stages of a long and painful deleveraging and restructuring. Fortunately, policymakers have eliminated the worst possible outcomes. But there is much more yet to be done before fragile shoots become healthy plants.
6. Mike Shedlock at his Global Economic Trend Analysis has an excellent roundup of the bomb that has gone off in Commercial Real Estate market without much notice.
7. Paul Krugman points out in his Conscience of a Liberal blog at the New York Times that Tim Geithner's comment about the majority of US banks not needing capital (which helped drive a rally US stock rally overnight) was actually quite ominous because there are so many banks in the US.
8. Here's a nice piece from Rolfe Winkler at OptionARMageddon about how the US banking industry buys influence in Washington.
9. 10 reasons why Wall St has absolute power over America's democracy, according to Paul B Farrell at MarketWatch.
10. Finally the US Congress is planning a review of Wall St similar to the "Pecora" review in 1933, Bloomberg reports.
Bernard, do you actually try
Bernard, do you actually try to find the 10 worst pieces of news out there? Or is it really that bad? Maybe Suan Boyle will save us.
forewarned is forearmed , then
forewarned is forearmed , then the half empty glass can become half full ...get the drift o'rourke ?
Oh my God. Things ARE
Oh my God. Things ARE really getting bad. This year Christmas has been cancelled it seems:
http://www.nbr.co.nz/article/mrs-christmas-hamper-company-collapses-leav...
Unfortunately most of those savers will be those who can least afford it - lets hope another company steps in.
The pace of company liquidations is increasing rapidly, see here:
http://www.insolvency.govt.nz/cms/site-tools/about-us/statistics/liquida...
What does this mean for
What does this mean for the overpriced property market in NZ?
Fairfax Orouke; I was just
Fairfax Orouke; I was just reading this essay by one of my favourite writers, "Spengler" (David Goodman) at Asia Times Online:
"Why The West Is Boyle'd"
"The West still has no idea what kind of trouble it's in.
Singer Susan Boyle, our latest instant celebrity, reminds me of any number of singers I conducted in amateur renditions......
"......The popular audience in the West likes to validate its own mediocrity, and crowns stars-for-a-day......
"......Meanwhile, in China, 60 million children are learning Western classical music under the gimlet gaze of strict teachers. East Asian singers, particularly Koreans, are working their way up the ranks of provincial opera companies, and every one of them sings better than Boyle. Who do you think is going to run the world 20 years from now? As the Italians say, we're bolliti, "boiled". Now we can spell it with a "y"....
".........at some time during the 20th century, the people of the West elected to identify with what is like them, rather than emulate what is above them.
Churlish resentment of high culture comes from the slacker's desire for reward with neither merit nor effort: the sort of artistic skill that requires years of discipline and sacrifice is a reproach to the indolence of the popular audience of the West......
".......With no prejudice to Boyle, who seems amused rather than beguiled by her success, the fantasy-life of nations has consequences in the real world. In China, as I observed in a recent essay (China's six-to-one advantage over the US, Asia Times Online, December 2, 2008), nearly 40 million children study classical piano, and another 15 million or so learn to play stringed instruments. Nearly 60 million young Chinese in all are learning Western classical music, and learning it the hard way, under teachers who demand mastery of technique, paid by parents who have scraped together tuition and demand regular practice......
".......As a Wall Street executive, I had many opportunities to compare Western and East Asian job candidates. Invariably the Chinese candidate would come in with a doctorate in a quantitative field, keen entrepreneurial instincts, and an exemplary work ethic. Usually he or she would wind up crunching numbers for an American frat boy who glad-handed the customers, earning a small fraction of the frat boy's pay.......
".......Now the frat boys have less to do, for "salesmanship" has become a dirty word in the financial industry. The first trillionaires well might be entrepreneurs like Wang Chuan-fu of the battery company BYD, which might just launch the first successful mass-market electric car. The smartest Western kids went to business and law school, while Wang learned science at a provincial Chinese university.
Boyle's stardom might prompt a closer look at the little Scottish town of Blackburn in West Lothian whence she hails, and, more generally, the state of the formerly industrial towns of Britain's north. There is life after economic death, but it is not pleasant. Few places in the West are more disheartening. Young people have nothing to look forward to but a weekly Walpurgisnacht.
The local newspapers print thick advertising supplements about clubbing, which seems to be the mainstay of the local economy. On Friday or Saturday night, besotted boys and girls in extreme states of dishabille riot through whole quarters of ruined industrial towns. A good deal of Britain's working class is unemployable at any price, too lazy to move to London to take the jobs waiting tables or driving buses that bring Spaniards or Frenchmen to the British capital.
A generation of Americans learned the wrong jobs: selling real estate, processing mortgages, and selling cheap imports from China at shopping malls. The cleverest among them got business degrees and learned to trade derivatives. Their services will no longer be required. On paper, it is obvious what America needs to do. Its economy went into free fall because everyone cut back spending at the same time in response to the crash of asset prices. The aging Baby Boomers need to save for their retirement, or retire later, now that their home equity has vanished along with the contents of their 401(k) plans. The only way for everyone to save at the same time without crashing the economy is to export, just as China does.
That works well enough on paper: but what are Americans to export? Not electric cars, it would appear. Warren Buffett isn't buying General Motors these days, but he did put down over $200 million for a tenth of BYD, China's contender in the electric-car sweepstakes. China requires nuclear power plants - it will install three a year for the next quarter-century - but America shut down its nuclear industry some time ago. There's always Caterpillar, but the field of heavy earth-moving and construction equipment now is dominated by Japanese and German engineering, as a quick tour of the diggings for New York's Second Avenue Subway make clear. America can't even provide the capital equipment for its own infrastructure projects, let alone for China's.
That Wall Street frat boys are in trouble is not a controversial statement. Top-of-the-market bubble behavior no longer is encouraged. Not long from now, they will be lucky to find employment getting coffee for a Chinese (or Indian) boss. The bubble accounted for so much of America's employment down the food chain, though, that many millions of American jobs may vanish. This is particularly painful for prospective pensioners who find themselves in need of employment, for just the sort of jobs that suit older people - part-time retail work, for example, or real estate - are the first to disappear. America might find itself with millions of indigent elderly......
".......The day is gone when a smile and a shoeshine will get you a shot at the American dream, but a smile and a song still will get you a chance at instant stardom. That is the message of hope that Susan Boyle bears to the beleaguered audience of the Anglo-Saxon world. In fact, her own little corner of Britain is living proof that hope may be entirely in vain. Whole parts of the industrial world never will come back. Nothing can resuscitate the north of Britain from industrial ruin, and portions of the United States appear likely to follow.
China's thrift, industry and diligence are qualities born of long experience with hard times. The terrible suffering of the 19th and 20th centuries left every Chinese parent with the conviction that the world shows no mercy to mediocrity. They have less tolerance for fantasy than their Western counterparts. Reality has intruded on their lives for generations to the point that they are ready to meet it head on. Enough of them devote their lives to making their children excel as to produce an army of hothouse wonders so large as to swamp whatever competition the West might send against them. If Westerners think the present recession is unpleasant, they cannot begin to imagine how the recovery will look, for it may occur entirely remote to them, on the other side of the world......."
http://www.atimes.com/atimes/China/KD21Ad01.html
Hangovers suck but drinkings great
Hangovers suck but drinkings great fun but hangovers suck but drinking is great fun but h... humans will always have human nature. greed but fear but greed but fear
Fascinating read from Mike Whitney
Fascinating read from Mike Whitney on how the US housing market is aboout to get a whole lot WORSE:
http://www.counterpunch.org/whitney04202009.html
Apparently the US banks are sitting on a huge pile of foreclosed homes (and mind this information is produced by Realtytrac which is itself an industry mouthpiece, not some left field blogger), which they dare not bring to market for risk of collapsing it further/ and realising further immense losses which they are currently hiding:
"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."
In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)
At the same time Fannie/Freddy are recording a huge surge in deliquencies in what used to be called PRIME mortgages:
http://www.calculatedriskblog.com/2009/04/fannie-freddie-report-surge-in...
As the article says - its ALL subprime now in the US.
@PhilBest Great contribution. Small corrections:
@PhilBest
Great contribution.
Small corrections: One must add to the word America New Zealand and to the word American's Kiwi's on most places.
The death of a superpower.
The death of a superpower.
How long before the Obama Administration has to follow the steps in this piece:
http://www.theatlantic.com/doc/200905/imf-advice
Nationalise banks.
Sack the managment
Roll sleeves up and work hard.
Thanks, WalterK. I agree, I
Thanks, WalterK. I agree, I have been saying that all along. New Zealand was already in recession when the first signs of trouble showed on Wall Street. We also have had one of the most serious housing bubbles in the world, and one of the most seriously inflated economies as a result of people using their house values to borrow and spend money. The economy has been inflated by perhaps 5% every year from 2002 to 2007.
Businesses have got used to the turnover at the inflated level and the government has got used to the taxation reciepts and has promised a whole lot more entitlements to its citizens meanwhile. But New Zealand households have become the most indebted in the world outside Iceland.
Yet our new government had to promise to be just as nice before people would elect them, and they are not making any of the tough decisions that they need to now. Roger Douglas is right. Yet the news media is an obstacle to facing reality, because they have always disagreed with most of the reforms that need to be done. At this time, the opponents of free markets are blaming free markets for our problems and saying that more, bigger government is necessary. Yet governments and regulators already had the power to prevent housing bubbles from happening and they failed miserably.
Walter, you are from Germany, are you not? I believe that every nation will experience recession and recovery according to how much their houses inflated in value and how much debt their people took on. I believe that Germany will recover quicker because they did not suffer from this stupidity. Are there other European nations that were as sensible as Germany?
I think that the main
I think that the main problem in the USA is now the RESULT of all the government money being splashed around. This has resulted in paralyzing the whole economy with everyone waiting for their money from the government in preference to responsibly working their way through the problems. Thomas Sowell recently commented that stimulus packages have turned out to be sedative packages, and he is right. Even responsible operators, down to individual mortgage holders, have been incentivised to cease acting responsibly as they will only be penalised in having money transferred from them to the irresponsible operators.
Can anyone tell me why the US government simply did not do the following?
Instead of bailing out banks, they could have just made a proportion of mortgage interest principal repayment ON EXISTING MORTGAGES, tax deductible, for a limited number of years.
Results: people maximise their reported income so as to be able to claim the biggest possible rebate against the biggest possible repayments. Banks get injection of capital in the form of repayment of mortgages; honest, earned, "real" money. People less inclined to walk away from their houses and underwater mortgages. House values still allowed to drop without the owners left out of pocket for the rest of their lives.
Next time one of you important guys who follow interest.co.nz is talking to President Obama, please suggest this to him.
Andy Hamilton: GARY NORTH wrote
Andy Hamilton:
GARY NORTH wrote THIS in MAY 2008:
A PARALYZED SYSTEM
"........There are a dozen houses listed by local real estate agents that you can buy for $10,000 per home. You can buy ten times as many if you are willing to pay $20,000.
How can this be? It is true that we are somewhere in the unwinding of a housing market that has suffered from mania. But this is more than unwinding.
There are foreclosures. But how can prices fall this far? Aren't there any bidders at $10,000? The answer is simple: no. Are these houses abandoned? Probably. Well, abandoned by their original owners. They may not be abandoned by local entrepreneurs in the pharmaceutical trade.
When I first read about this, I noticed that the article did not use the code words that immediately pop into the typical reader's mind "“ words associated with the now-illegal bank practice of "redlining." There are some neighborhoods that are high risk. Yet, even here, people rent. They don't rent for $50 a month. So, why don't renters see an opportunity? They could go to the seller "“ a bank "“ and offer to buy the place for no money down and then fix it up. If they have any repair skills, they could make a good case. That is surely a better deal for the renter and the banker than having the house sit empty.
Please don't tell me they aren't smart enough. Those previously mentioned entrepreneurs are very sophisticated in matters financial. Some gangs demonstrate remarkable abilities to handle positive cash flow. People on the street know what things cost and who is profiting.
Yet the houses are not selling. If I worked for a foreclosing bank or lending agency, I would go to local pastors and suggest an arrangement. I would try to sell them houses as investments. They have money. Failing this, I would encourage them to locate church members who would like a place to own. In short, I would make a deal. I would get the houses off the books. These houses are not doing the foreclosing agencies any good standing empty.
The fact that this has not been done indicates that there is a terrible paralysis in the foreclosure process. This paralysis points to government regulation. It also points to corporate centralization. Nobody at the local level is being offered incentives to get these properties off the books......
"......... I plan to buy a house next year in an Atlanta suburb. If prices fall enough, I will buy more than one. So, I sent my wife to the area in early May to see how the foreclosure market is doing. She found out.
She went to the courthouse steps to view the auction for foreclosed properties. The sellers had all posted minimum bids. One by one, the houses were offered for sale. There was not one bid. This meant that the asking price was the high bid. Every house went back to the foreclosing lender.
These houses were not priced to sell. They were priced to subsidize the local pharmaceutical trade. "You want free rent? You've got it!"
One house that caught my attention was foreclosed last December. The bank is unwilling to drop the price below $250,000. So, it keeps buying it back......
"........ As the housing slowdown continues, and as prices slowly fall because a few sellers become desperate, the number of foreclosed houses in inventory will serve as a constant source of houses in competition with sellers of owner-occupied houses. At some point, the banks holding these foreclosed homes off the market will decide to price them to sell.
When that happens, property tax assessors will enter the twilight zone......
"........ seven of Atlanta's least-expensive homes are listed on average for $8,800 but taxed at an average value of nearly $93,000.
One of the houses is on the books at $101,700. It is being offered for sale at $5,900.
The problem is getting worse. The foreclosures keep increasing. They are expected to increase through 2009, if we believe the chief economist for Freddie Mac, the government-sponsored mortgage company.
Already, there are Atlanta neighborhoods where banks own 90% of the properties on the market. This is accelerating. One agent explained the problem. The tax authorities have these properties on their books at high prices. The prospective buyers do not want to buy these properties when they know they will be hit by high taxes. He said that he had a buyer for a $95,000 duplex. The buyer backed out when he discovered that the property was on the tax roles at $300,000. I would have backed out, too.
The tax assessor has a major problem. If he keeps these properties on the books at the old prices, they won't sell. If they won't sell, the sellers will be forced to lower their prices. If these prices fall, the market for normal, non-foreclosure houses locks up. There is too great a discrepancy between the foreclosed house prices and the owner-occupied house prices.
Some of the sellers will then stop paying their mortgages. They will walk away. This is not a major factor yet, but as the economy slows, some people will be trapped. They cannot sell their homes, due to existing foreclosure offers. They have to move. So, they will walk away. Result: another house moves into the foreclosed homes inventory.
And the beat goes on. And the beat goes on.
What's a tax assessor to do? Lower the appraised value of the homes, of course. But that creates a problem for the local government. Tax revenues fall. The unit of government finds itself running a deficit.
It's called the Vallejo problem. The city of Vallejo in northern California is very close to going bankrupt. The city council voted to file for bankruptcy on May 6, but the papers have not been filed with the court. Falling housing prices caused a property tax reassessment downward; the result is a fall in property tax revenues. This is not a small city: 100,000.
City councils across the United States will soon find themselves facing the same problem. Property tax assessments will fall if the assessors are faced with a situation in which the sale of foreclosed properties are greater than the sale of retail properties "“ the "good sales." In California, this may be the situation by the middle of summer. If the lenders start offering properties priced to sell, it will be the case. When the lenders are forced by law to write down the value of their REO's "“ real estate owned properties: foreclosure "“ they will finally start unloading them.
That is when I will be do my best to help them out "“ at a market-clearing price, of course.
The longer they hold out, hoping for an upturn in the housing market, hoping also for Congress to intervene and a President to sign the bill, the worse the fire sale will be. When the bankers at last see that the game of wait and see is over, they will stop putting in minimum bids.
When the auctions for foreclosed houses are more like eBay and less like Neiman Marcus, the dam will break. Pity the sellers of owner-occupied homes.
I will not pity the property tax assessors or the city council of America. They profited greatly while the Greenspan bubble was roaring.......
"........Thomas Stump, interim chief appraiser in DeKalb, said the number of "good sales" dropped from 12,400 last year to 8,500 this year. The lower number makes it even harder for the assessors to come up with values, he said.
"We have people in our office who want to sell but can't find a buyer," Stump said. "Still, there are buyers out there. It may take much longer. I don't think you can say a property has no value because it won't sell."
Yes, a property has value. It has value because the bank that foreclosed is run by people who do not want to admit in full public view that they made loans that should never have been made. They don't want to admit that the collateral for these unwise loans has fallen to fifty cents on the dollar, let alone ten cents. So, they hold these properties off the market at above-market prices. They "buy" the properties.
Someday, they will sell. What property tax assessors call "good sales" will slow to a trickle......
"........beginning in mid-2000 and escalating in 2001, the FED continued to inflate. This made the 2001 recession mild. It was mitigated by the housing boom.
That mitigation has now disappeared. The reverse process is now operating. It has not yet peaked.
For a decade, the two government-sponsored enterprises, Fannie Mae and Freddie Mac, put together packages of loans that diversified risk. That was what the academic economists' formulas said. Then they sold these loans to investors.
The process was centralized. The old system of local banks and savings & loans issuing local mortgages went into decline. Costs of administration were low. Centralization allowed economies of scale.
Yes, they did: going up. Now they don't: going down. Local agents of national banks and investment organizations have little authority. The distant decision-makers have no tested formula to handle the popped bubbles. They are flying blind, hoping for relief.....
"....... The government and its licensed monopoly, the Federal Reserve System, made possible the housing bubble. Now they must face the consequences. So must people who want to sell their homes. Nobody wants to face the consequences. But eventually reality intrudes.
As for those of us who want to buy some bargains, the times are good and will get much better.
People who lose their homes in a foreclosure will have to rent. It is a great time for people who have the credit ratings, the management skills, the negotiating skills, and the liquidity to buy houses from distressed sellers, as bankers will be before the year is over, and surely before 2009 is over.
If you are such a person, your ship is about to come in. When it does, don't be at the bus terminal."
http://www.lewrockwell.com/north/north627.html
PhilBest - I have a
PhilBest - I have a suggestion.
If you just provide the link (and perhaps a cut and paste of the most importaant paragraph from it as a short preview) in future - rather than the link and a full cut and paste copy of the article - it will make the threads a whole lot easier to get through.
I'm mainly interested in what the bloggers have to say about a particular link - and if I'm interested I'll link through and read the whole article.
Cheers
Kate, I second that!!
Kate,
I second that!!
Bernard - This temporary national
Bernard - This temporary national ownership the elitist run IMF are talking about is in order that the tax payer can repair the looted system, then when it is fixed they will pull the looted loot from out of their family trust funds and buy them back at cents on the dollar that they pulled out of them before the bananas they had chucked in would not cover the noice of the damage in the gearbox any longer.
Kate, ctnz I third that,
Kate, ctnz
I third that,
I thought I was long until some friendly advisers put me straight, well straightish, but Phil has really driven home the frustrations I may have caused. I promise I will be changing my technique.
@ PhilBest You wrote: Walter,
@ PhilBest
You wrote:
Walter, you are from Germany, are you not? I believe that every nation will experience recession and recovery according to how much their houses inflated in value and how much debt their people took on. I believe that Germany will recover quicker because they did not suffer from this stupidity. Are there other European nations that were as sensible as Germany?
----
1) From Switzerland. (Click name)
2) A housing bubble as such doesn't exist, only approx. 30% of the population are property owners (2-5% mortgage rate for years). Not only renting is expensive.
In a "L" shaped recession or worse I think Germany and Switzerland will be hit harder. High productivity (Exports), especially in the primary and secondary type of economy lead to high standards of living, but with expectations not fulfilled anymore. Some form of stress is already recognizable.
An interesting discussion. As to
An interesting discussion.
As to the value of the banks' foreclosed inventories, here is a very depressing report from CNN which suggests that an increasing number of foreclosed homes are being trashed either by the previous owners or after they've been abandoned.
http://edition.cnn.com/2009/US/04/16/damaged.foreclosures/index.html
Andy H/Nikki This is an
Andy H/Nikki
This is an interesting difference between NZ and US, Where are the 8,000 "bank owned" empty houses in NZ?
This is one reason I question Bernards "It has happened there so will happen here" logic
Neven
@Neven - Good point. In
@Neven - Good point. In the US the house loans are non-recourse, so you can "not pay and walk away".
Here the banks have you by the proverbial if you default.
@ Neven - I agree,
@ Neven - I agree, the US situation is unique in many ways. However, we're at a point in time when the US economy is sneezing and the rest of the world is catching not just a cold, but probably a flu virus as severe as the Spanish epidemic of 1918.
The fact is that the US (and other countries massively bigger than us) are sucking up trillions, if not quadrillions, of dollars from the global economy in more and more futile attempts to maintain the status quo and keep bubbles inflated. In a similar vein to the frugal being penalised while the improvident are bailed out, small countries are likely to suffer unjustly as a consequence.
Which is why stories about US banks neglecting to preserve assets (no matter how much value they've lost) are so depressing.
comment: Neven have you not
comment: Neven have you not heard of a little company called blue chip and the developers in NZ sitting on stock, Some built 2-3 years ago and some of this stock hasnt even been lived in before. Then there are the apatments/houses owned by overseas comapnies and blah blah Neven drink some coffee and wake up! The NZ houseing market supply demand thing is the Bankers business game they cant release the stock on the market or they will loose allot of money from too many Houses/Apartments/Holiday homes fire selling on the market.
Neven Says:
April 23rd, 2009 at 4:19 am
Andy H/Nikki
This is an interesting difference between NZ and US, Where are the 8,000 "bank owned" empty houses in NZ?
This is one reason I question Bernards "It has happened there so will happen here" logic
Neven
@Neven Your point is a
@Neven
Your point is a good one about where the over supply is. But...
In 2003 the property boom was partially due to a lot of immigration and so greater demand. As an example, we had lots of people with lots of pounds, selling expensive housed in England and buying relatively cheep houses (in comparisons) down under.
I am sure there are still a many English who want to come to NZ but are in the same boat as my friend. She has lost her job and the new job only pays about half, the house to be sold in the UK refuses to sell even at a major discount and in comparison houses in NZ now look rather expensive to her.
Maybe our problem in NZ is not going to be so much about over supply but under demand.
The first time buyers will not be able to keep up the shopping spree of the past couple of months - we are going to run out of first time buyers - especially as most of them now need mum and dad to go guarantor just to get a foot in the door - and as a country that is not sustainable for ever...
@Trev - yes in the
@Trev - yes in the US there is no recourse from the bank but there is from the Government! Say you put down $100,000 and borrowed $100,000 - you can't meet the mortgage payments and the house is 'underwater'. You walk away and the bank forecloses - selling the house for $150,000.
The $50,000 (the amount in excess of the deposit you paid) has tax owing on it - as it is treated as income!
At least this is what someone from the US who is in this very situation told me.
Perhaps someone on here actually knows whether that is true.
OK, I'll try and keep
OK, I'll try and keep it shorter and sweeter. Appreciate your humility, Iain Parker.
# Trev Says:
April 23rd, 2009 at 7:44 am
@Neven - Good point. In the US the house loans are non-recourse, so you can "not pay and walk away".
"Here the banks have you by the proverbial if you default."
What are they going to take off you to recoup a six figure shortfall in the value of your house? Your 1995 Mazda 323? Or your 2008 Ford Fairmont that's on finance anyway?
One advantage the USA has, is the tax deductibility of mortgage interest. One would have thought that would ameliorate the tendency to walk away from one's home and not buy another one.
Going by what Gary North said (I hope you do read it even if you are annoyed with its length) maybe a lot of people in the USA are going to buy once they see prices starting to rise again, a signal that the bottom has been reached. Think about this; this is much more intelligent mass self-interested behavior rushing into the market on every little price drop and interest rate drop like Kiwis are inclined to. I keep saying that we need a first home buyers association that will boycott the market until there is some sense in house prices again.
Kate, I remember reading in
Kate, I remember reading in the Wall Street Journal, that getting a loan written down was treated by the US IRS as taxable income. I don't know if it applies to actual defaults on a loan, though.
Mimi, Neven. The situation in
Mimi, Neven. The situation in the UK is straight-out undersupply. But it gets more complicated in some other countries including Aussie and NZ. In parts of the USA where there has been no obstructions to new developments, plentiful supply of new homes has actually kept prices low. But in NZ and some other countries, it seems that the land being rationed for development has resulted in very high land prices even if "enough" land is released by local authorities each year. Unfortunately, it seems that it is necessary to have total freedom of land supply if it is to be possible to have a supply "vent" for prices.
This is probably because all potential future housing land is bought up by speculators years in advance, and the speculator then needs to finance the cost of holding that land. There is also risk that the land will never be released for housing development. Many of these speculators have ended up going bankrupt; that of course has left those still standing with the opportunity to make more money.
And of course new development has now virtually ceased, and there is an increased shortage resulting immediately. So there are mechanisms still keeping house prices too high in NZ. However, the economic realities are that a crash in prices has to come eventually, as the productive part of the economy dies off due to lack of investment, unemployment increases, and the income necessary to support any home loan, diminishes; and first home buyers remain out of the market due to prices being too high.
I am convinced that if we avoid a house price crash now, it will still come at a later date; and the more that house prices are reinflated now by low interest rates and a return of speculator and buyer "expectations", the worse the eventual crash will be.
Phil - Being a bankrupt
Phil - Being a bankrupt is not an enjoyable experience. If a person has any sense of dignity and integrity you do everything you can to avoid bankruptcy.
Also, not everyone has cars on finance.
Guys Firstly the "In the
Guys
Firstly the "In the US the house loans are non-recourse" is not quite true, it varies state to state (do a google) and the nonrecourse part is optional, a bank can foreclose a house with out recourse against the owner without going to court, they can do the same with recourse but are required to get a court judgement to do so (this can take time) so in the early part of the crash, most banks took the nonrecourse option
Now that they have huge stocks of empty houses they will probably be happy to pursue the recourse option (esp if the there is a hint of more blood), but if they dump their stocks on the market they will in effect devalue their own collateral
Newby
"a little company called bluechip", I asked where the 8000 bank owned houses were not a few hundred shitbox apartments, when you have numbers come back to me
Neven
Trev, I agree. My point
Trev, I agree. My point was really that the bank's position re the mortgagee in NZ, is not really a lot more secure than under a non-recourse situation, because there is unlikely to be much that the bank can gain on net, in addition to the value of the house, from bankrupting someone who is already in financial trouble.