Housing: 2007 Thread.

[Vic]

Surely, this article and what's going on in housing are entirely unrelated.

I mean... GS, CS, and DB are only 3 of the biggest buyers and packagers of subprime MBS's out there. Surely they didn't build up our housing market with cheap money only to tear it down, making money both ways? Surely not! It's not like the Big Boys didn't earn $2.6 billion last year in fees alone packaging MBS's....

http://www.nytimes.com/2007/03/28/busin...nnlx=1175314158-1nSNONI+zC4NhZNCQsnFBA

2 European Bank Chiefs Got Big Raises in 2006

By JULIA WERDIGIER
Published: March 28, 2007

LONDON, March 27 ? Deutsche Bank and the Credit Suisse Group, two of Europe?s biggest banks, rewarded their top executives with bigger paychecks last year, but their compensation still trailed that of their American counterparts.

Josef Ackermann, chief executive of Deutsche Bank, earned 13.2 million euros ($17.6 million) last year, 11 percent more than the 11.9 million euros he got in 2005. Walter B. Kielholz, chairman of Credit Suisse, received 16 million Swiss francs ($13.2 million), a 33 percent raise, according to the bank?s annual report published Tuesday.

In the United States, Lloyd C. Blankfein, chief executive of Goldman Sachs, got a record $54 million last year (Goldman?s profitability, however, outpaced that of both Deutsche Bank and Credit Suisse). Charles O. Prince III was paid almost $26 million at Citigroup.

Average compensation for chief executives of the top six firms on Wall Street was $41 million, in contrast to the average pay of $18 million for Mr. Ackermann, Mr. Kielholz and Marcel Ospel, chairman of UBS.

UBS paid Mr. Ospel 26.6 million Swiss francs ($21.9 million) last year. Not all European banks publish details of chief executive pay.

Mr. Ackermann?s pay last year was almost double the 6.9 million euros he was awarded when he took over as chief executive of Deutsche Bank in 2002. He got a salary of 1.15 million euros and 11.9 million euros in performance-related pay for last year.

Net income last year at Deutsche Bank, Europe?s biggest securities firm by revenue, rose 70 percent, to 5.99 billion euros.

In November, Mr. Ackermann agreed to pay 3.2 million euros ($4.3 million) to settle a lawsuit over approval of $70 million in bonuses paid to managers of the telecommunications company Mannesmann. Mr. Ackermann was a director of Mannesmann at the time of its takeover by the Vodafone Group. The lawsuit set off a broader debate in Germany over the pay of executives, including Mr. Ackermann.

Mr. Kielholz?s compensation reflects his ?leadership and significant achievements in several areas,? and the ?complexity and scope of his role,? Credit Suisse said in the annual report.

Salary accounted for 12 percent of his compensation, 44 percent was a cash bonus and 44 percent was blocked Credit Suisse shares, the bank said.

Credit Suisse, which this year promoted Brady W. Dougan, an American, to chief executive, said last month that it had record earnings in the fourth quarter of last year because of higher trading revenue and asset sales.

 

[Trianon]

Stick a fork in it, it's done. Was this one of the lenders that some invertors picked up hoping that company will find a way to bail itself out? or was it Aggregated? Anyhow, interesting to see Alt-A lenders getting antsy as well.

New Century bankrupt as subprime woes widen

By Pedro Nicolaci da Costa 34 minutes ago

High-risk mortgage lender New Century filed for bankruptcy and fired over half its work force on Monday as signs emerged the U.S. housing crisis was spreading into better quality home loans.

Rising defaults on variable-rate mortgages have pinched lenders who made loans to borrowers with spotty credit histories, leaving many in financial trouble.

Until now, such issues had been mostly contained to subprime, the riskiest category of mortgages. But now lenders in a class of loans known as Alt-As, which sit in a gray area between risk and safety, are also ringing alarm bells.

"We are only at the very beginning of the problems facing subprime," said Brad Hintz, analyst at Sanford C. Bernstein. "This liquidity crisis is continuing in the marketplace."

M&T Bank Corp. (NYSE:MTB - news), whose largest outside shareholder is Warren Buffett's Berkshire Hathaway Inc., said on Friday that its mortgage investments would hurt first-quarter profit. The company also said the value of its Alt-A portfolio had fallen by $12 million in just three months.

Impac Mortgage Holdings Inc. (NYSE:IMH - news), another Alt-A specialist that had previously complained about being unfairly lumped in with subprime lenders, has admitted it too was feeling the pain.

The company slashed its quarterly dividend by 60 percent last week, although its CEO maintained the firm should have enough cash to get through the housing downturn.

Financial stocks fell after the New Century filing, which included the immediate firing of 3,200 employees. But investors were even more concerned about the possibility of a wider credit crunch.

Echoing concerns expressed by other credit agencies, Fitch Ratings said in a report that the ripple effect of subprime might also have an impact on car loans and credit cards.

"Fitch will be monitoring the subprime credit card and auto sectors closely to see how losses and late stage delinquencies on subprime mortgages may affect performance," the agency said.

In a testament to the massive erosion of value in high-risk mortgages, Barclays said on Monday it had paid $76 million for subprime lender EquiFirst Corp., about two-thirds less than its original offer. It blamed the lower price on slowing housing prices and higher delinquencies.

(Additional reporting by Jonathan Stempel)

REUTERS

 

[LegendKiller]

One thing I thought would make this a bit more real was to do some calculations on the enormity of the difference in appreciation of houses in the last 10 years vs mean from the last 100 years and apply that same magnitude appreciation to the DJIA.


Adjusted for inflation, houses returned .17% for 105 years, according to the Shiller index. In the next 10 years they returned approximately 4.8% annually.

Adjusted for inflation the stock market returns about 5% annually and has done so for 100+ years. During the "boom", it returned about 20% annually, depending on the calculation.

Now, applying the same increase (.17% -> 4.8%) to 5%, you'd get an annual increase in the DJIA of 141% (not 41%, but 141%, thus if you had a $100 initial investment in one year it'd be equiv to $241). That means that if the same time period increase (1995- 2006) that houses experienced were applied to the DJIA over that same period, then the DJIA would just NOW be hitting 196 MILLION points.

Of course, compounding returns over-states the increase, but the mere fact that you outstrip your mean rate of appreciation by 28x, really tells you a lot, especially when you outstrip it for 10 years.

 

[dullard]

Manhattan appears to be bucking the trends. Manhattan was the first area to hit the news with dropping prices. Now it is the first of the droppers to have gains in prices. Link.

 

[LegendKiller]

Originally posted by: dullard
Manhattan appears to be bucking the trends. Manhattan was the first area to hit the news with dropping prices. Now it is the first of the droppers to have gains in prices. Link.

If the economy turns south then that cash flooding into the island will dry up pretty quickly. I live here and see it every day.

 

[Slew Foot]

Just quickly scanned the headlines today but is anyone really surprised that sales in February were higher than in January (why did the data come out so late)? They always are! The concerning part is that they were still lower than last year, and the whole subprime fiasco didnt start until Mid March or so. March and April numbers should be interesting. Without subprimers buying, you might see the median price of a sold home increase, but it wont mean that prices are going up. Cant wait for the spin!

 

[Slew Foot]

"Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise," says Sean O'Toole, CEO and founder of Foreclosure Radar.

Ouch...

 

[piasabird]

People were buying houses for more than they could afford under the assumption that the price would keep appreciating at a quick pace. It was all about making a fast buck. Who cares if these people lose money? They are like junk bonds dealers. It is hard to feel sorry for them. It is these same people that were causing the prices of homes to skyrocket too high for the average man to be able to afford to own a home. It is hard to cry about some real estate speculators.

 

[piasabird]

A housing market that is bad for the real estate sellers is a good market for the buyer. If demand goes down so does the price. This means it is a buyer's market. Lots of people want to sell and they cant afford to hold out too long for a higher offer if there are a lot fewer offers.

However, there will be markets that do better than others. Someone mentioned Detroit. Detroit is not on the top of most lists for desirable places to live. Still many people continue to live where they are from.

 

[piasabird]

National Charts are not worth that much.

 

[dullard]

I know I'm playing with fire, but here is CNN's subprime blame game.

[*]Mortgage brokers. Were mortgage brokers always careful about matching borrowers with affordable mortgages? No way. But lenders made the ultimate underwriting decision.
[*]Appraisers. Appraisers don't bear the primary responsibility for all the bad loans, but more accurate appraisals could have lessened the severity of the problem.
[*]Regulators. Regulators could probably have acted sooner to stem the worst abuses.
[*]Lenders. Lenders made far too many loans to borrowers they knew, or should have known, would not be able to pay them back. That, probably more than any other factor, will drive an increase in foreclosures during the next year or two.
[*]Wall Street. Perhaps not the direct source of the subprime crisis but an enabler of it.
[*]Real estate agents. Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.

That pretty much sums up the points I was trying to make. Although, they really should have emphasized that last point more. Borrowers deserve the biggest portion of the blame - they borrowed more than they could afford. But there were many people along the way that enabled them to do so. I would have ordered it something like this (biggest share of blame first to least share last): Borrowers, lenders, wall street, real estate agents, appraisers, regulators, mortgage brokers.

 

[Turgon77]

I live in an area that is still hot - eastern PA, Lehigh Valley area. I sold my townhouse in two weeks and was in a bidding war for a house that was on the market for one day. This area is very different than most in the country as net migration from the NYC metro area and mass commercial development continue to inflate the housing market for sub-$300,000 existing housing. It's not particularly a good thing as many are priced out of the market and people like myself that are starting a family and moving up to a detached house will feel the effects of a high mortgage.

 

[LegendKiller]

Originally posted by: dullard
I know I'm playing with fire, but here is CNN's subprime blame game.

[*]Mortgage brokers. Were mortgage brokers always careful about matching borrowers with affordable mortgages? No way. But lenders made the ultimate underwriting decision.
[*]Appraisers. Appraisers don't bear the primary responsibility for all the bad loans, but more accurate appraisals could have lessened the severity of the problem.
[*]Regulators. Regulators could probably have acted sooner to stem the worst abuses.
[*]Lenders. Lenders made far too many loans to borrowers they knew, or should have known, would not be able to pay them back. That, probably more than any other factor, will drive an increase in foreclosures during the next year or two.
[*]Wall Street. Perhaps not the direct source of the subprime crisis but an enabler of it.
[*]Real estate agents. Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.

That pretty much sums up the points I was trying to make. Although, they really should have emphasized that last point more. Borrowers deserve the biggest portion of the blame - they borrowed more than they could afford. But there were many people along the way that enabled them to do so. I would have ordered it something like this (biggest share of blame first to least share last): Borrowers, lenders, wall street, real estate agents, appraisers, regulators, mortgage brokers.

Personally, from most to lease, I put: mortgage brokers, lenders, borrowers, appraisers, RE agents, wall street, regulators

Why?

In order to sell loans you need brokers to get the deals done. These are the guys who put plastic/paper signs everywhere with teasers to push people. Then, in order to finance those loans you need lenders, who intentionally pushed the brokers to get this paper. Both get a massive cut. Third are borrowers, either knowingly, mislead, or lied to, these people should have known better if the first and were suckers and still should have known better if the last two. After that are appraisers and RE agents, I clump them together since they are of the same pool. One just says a property is worth $x while the other tries to sucker people into buying it at $x. As far as wall streets role, sure if you are willing to buy rotten fruit somebody will sell it to you, but nobody is going to let rotten fruit get rotten in the first place, especially when they can sell fresh fruit for more.

That's the key here, while WS was an enabler, it wasn't a driver. Furthermore, just because you can originate sub-prime doesn't mean it's nearly as profitable, since it does cost more to finance on the back-end.

The real culpability lies in the lenders and brokers. These are the people who knew they were issuing utter trash, yet didn't stop doing so. Just because somebody would buy it on the back-end doesn't mean that you can shift any blame there. They knew that WS tied o buyback clauses, or gave them worse advance rates, or higher pricing, they knew what they were doing wasn't as profitable to them as a prime loan, since they didn't adjust well for risk, but they did it anyway, because even though the next incremental $ of sub-prime loans brought that much less profit, it was still profit to be had.

Yes, WS bought the loans and they are responsible for being an enabler, but they did so telling people that they were responsible for those loans. Ignoring those warnings isn't WS' fault.

Finally, as far as regulators go. They can't see everything, nor should they. They were there to stop the most obvious and egregious violations, often in arrears.

 

[LegendKiller]

LOL, this is a flip-flop worthy of a political stance. A 1.9% total Delta is pretty huge, especially for the NAR. You could probably add a couple more % to that to get the actual decline we'll see. I love to see these worms squirm under their own pressure.




http://money.cnn.com/2007/04/11/news/ec...rices/index.htm?postversion=2007041111

Home prices to fall for first time in 2007
Real estate group sees 0.7% drop in prices this year, the first annual decline in nearly 40 years of tracking.
April 11 2007: 11:16 AM EDT


NEW YORK (CNNMoney.com) -- The National Association of Realtors said Wednesday it expects its measure of home prices to fall this year for the first time since the group began tracking sales nearly 40 years ago.

In its latest monthly forecast, the group said it expects a 0.7 percent decline in the median price of an existing home sold this year. A month ago it had been projecting a 1.2 percent increase. Median is the point at which half the homes sell for more and half sell for less.

The Realtors noted the problems in the subprime mortgage market had led it to cut its sales forecast. It said problems of some potential buyers getting financing has cut its expectation of existing home sales this year by 100,000 homes to 6.34 million.

Slower sales has already caused the group's monthly report on home sales to show a year-over-year decline in prices in eight of the last nine months, through February. The weakness in sales has also cut into the revenue and earnings of the nation's leading builders.

On Tuesday No. 2 home builder D.R. Horton (Charts) reported a 37 percent drop in the number of new homes it sold in the latest quarter, citing continued weakness in prices and saying the typical start to the spring home buying season hasn't begun.

While Horton is expected to still report a profit for the period when it reports results, No. 3 builder Pulte Homes (Charts) reported a loss in its most recent period, as did No. 4 Centex (Charts) and New Jersey-based Hovnanian Enterprises (Charts).

No. 1 home builder Lennar (Charts) and No. 5 KB Home (Charts) both reported losses in their quarters ending in November, although both returned to an operating profit in their most recent period. The CEO of KB Home said Tuesday that he expects the housing slump to get worse.

 

[Vic]

Originally posted by: dullard
I know I'm playing with fire, but here is CNN's subprime blame game.

[*]Mortgage brokers. Were mortgage brokers always careful about matching borrowers with affordable mortgages? No way. But lenders made the ultimate underwriting decision.
[*]Appraisers. Appraisers don't bear the primary responsibility for all the bad loans, but more accurate appraisals could have lessened the severity of the problem.
[*]Regulators. Regulators could probably have acted sooner to stem the worst abuses.
[*]Lenders. Lenders made far too many loans to borrowers they knew, or should have known, would not be able to pay them back. That, probably more than any other factor, will drive an increase in foreclosures during the next year or two.
[*]Wall Street. Perhaps not the direct source of the subprime crisis but an enabler of it.
[*]Real estate agents. Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.

That pretty much sums up the points I was trying to make. Although, they really should have emphasized that last point more. Borrowers deserve the biggest portion of the blame - they borrowed more than they could afford. But there were many people along the way that enabled them to do so. I would have ordered it something like this (biggest share of blame first to least share last): Borrowers, lenders, wall street, real estate agents, appraisers, regulators, mortgage brokers.

And what responsibility does the Fed bear for pumping so much money to be lent into the economy? Where do you think that Wall Street and the lenders got so much money to lend out that they felt the need to lend it as such loose criteria?

 

[dullard]

Originally posted by: LegendKiller
LOL, this is a flip-flop worthy of a political stance. A 1.9% total Delta is pretty huge, especially for the NAR. You could probably add a couple more % to that to get the actual decline we'll see. I love to see these worms squirm under their own pressure.

I had read that earlier, but never got around to posting it. The NAR has always been one of the most adamant "the housing market isn't dipping" group.

I thought it was the most funny a couple months ago. The NAR reported a year-over-year decline in prices; a price decline that in their own data set as reported by the NAR had continued for a few months. Then the NAR reports in the conclusion of that same report that there has never been a year-over-year price decline in the 40 year history of their data. There, of course, is an easy explaination for the discrepancy. The data they reported used the data for one month vs data for that month a year ago. Their conclusions averaged the data for a whole year and compared the average. While prices plunged late in 2006, they were still increasing in early 2006. Thus, the average barely went up.

Why change mid-stream from one definition of that comparsion to another definition? Probably to give a falsely positive picture of the situation. To the NAR, prices were still going up and they will still get their fat commissions. I half expect them to come back later and say:

There has never been a year-over-year price decline* in the 40-year NAR recording history.


* Considering the month of June only.

Note: I just randomly picked June, I didn't look at the 40 year history.

I am all for positive outlooks. We shouldn't scare people away from housing, because for most people this dip is meaningless and will have no effect on their life. But to cherry pick the way the data is presented to give a false positive impression is just wrong in my opinion. Yes, it may be true that there has never been a June/June price decline, but that certainly does NOT truthfully imply that there has never been a year-over-year price decline. It is the false impression that they spout which I think is detrimental. People who haven't extensively researched the subject will be purposely led to a false implication even though the NAR was technically correct in their cherry picked data.

 

[Vic]

Originally posted by: dullard
We shouldn't scare people away from housing, because for most people this dip is meaningless and will have no effect on their life.

I would like to take this opportunity to say that this is all I have ever really been trying to say in these threads.

For 99% of homeowners, the housing boom was paper wealth. For example, suppose you bought your house a mere 3 years ago in a "boom" market. Let's say you paid $200k and in that time it went up to $400k. The bubble pops and your house is now worth $300k. What did that homeowner lose? Nothing. Quite the opposite, they gained. And this is far more representative an example of the housing market.

Still... I'm going to say the same thing now that I was telling people at the height of a boom. Between the times a house is bought and sold, it has no real value. Any value given to it is merely an estimate. An appraisal is simple an educated guess for lenders to justify for the books why they lent the money. A house is not like a stock, which is generally sold in high volume everyday, and so there is also an actual value to point to based on an actual transaction.
It is IMO this misnomer in thinking that led to the boom and could very well lead to the bust. Quite frankly, I see the "busters" now as just as bad as the "boomers" a couple of years ago. They're both speculators, they're just speculating in different directions. They turned housing into the stock market, with "longs" and "shorts." And they're both fsckin' with my livelihood, which I don't appreciate, boomer or buster.

 

[dullard]

Originally posted by: Vic
And what responsibility does the Fed bear for pumping so much money to be lent into the economy? Where do you think that Wall Street and the lenders got so much money to lend out that they felt the need to lend it as such loose criteria?

Oh, there are others to blame as well. I just wanted to keep to the blame listed in that article to keep the discussion more focussed. Yes, I added one item (borrowers borrowing money on loans they can't afford and don't understand), because I felt that was too important to overlook. The fed too has played a part (in their bigger goal to keep the economy stable by stabolizing inflation, smaller portions of the economy get thrown through a meat grinder).

We can keep on adding more and more. I'll blame Hitler on it as well (I'm being serious here). WW2 created a baby boom, these babies are now at the point in their life where they have the most disposable cash. They have 30-40 years of savings built up AND they still working while being at or near the top of the pay scale. The baby boomers have too much money floating around for their own good and that led to the boom cycle with 2nd/3rd houses. Of course, this is probably a minor component in the whole picture and it is really a stretch to blame Hitler. I'm just saying there are more to blame than that short list and I just kept within that short list to keep the thread focussed.

 

[Vic]

I think the Fed's loose monetary policy over the past 2 decades bears a bit more responsibility that does Hitler.

 

[dullard]

Originally posted by: Vic
I would like to take this opportunity to say that this is all I have ever really been trying to say in these threads.

That point of yours was not lost on me. For the majority of people, this is just paper money shifting from their left pocket to their right pocket. Thus, it is meaningless. Even if they do sell at a loss, they probably moved into a different house that they bought at a great discount. Loss here, gain there, and it often balances out.

But, I also made this thread to focus on the other aspect. For some people, this has a major impact on their life. A first time, sub-prime borrower is the perfect example. They bought into the boom hype, they got a mortgage that they never should have gotten, and if things go bad, they have a nasty problem on their hands. Lost equity, foreclosure, etc. are all possibilites. And, they likely won't be able to go into another cheap home so they miss the "gain there" part of the equation in the paragraph above. We need to be realistic (not overly critical nor overly optimistic) and give people the full information.

The borrowers need to be educated that housing isn't a sure bet. They need to know not to put too much trust into the realtor/appraiser. They need to know that money is available (from lenders/fed/wall street) that they might be better off not to take. They need to know that they might find a mortgage broker to help get them a loan that they cannot afford. They need to know that all of these people, while generally a good resource, are often not looking at the best interest of the borrower. Just because a realtor/broker/lender/whatever business says you can get the mortgage doesn't mean you should. They should get a mortgage, but one that they can afford and not necessarilly the maximum they can borrow.

Between the times a house is bought and sold, it has no real value.

There is truth there, but I dislike you saying it in those words. Why? A home does have real value. You can sell it in a pinch at any time. You can borrow against it. There is a real monetary value to that home. But your point is true that there is no concrete value; the real value is a fuzzy number between sales. I think you just need a different word than "real value".

And they're both fsckin' with my livelihood, which I don't appreciate, boomer or buster.

I hope your job (and other's jobs) are not harmed by any major changes. But, there is money to be made in all swings. Boom or bust, the profits are there to be taken. You may not have the resources or the desire to chase the lion's share of those profits (especially if that requires a whole new business), but hopefully you can get some of them.

Originally posted by: Vic
I think the Fed's loose monetary policy over the past 2 decades bears a bit more responsibility that does Hitler.

Of course. :thumbsup:

 

[LegendKiller]

Originally posted by: Vic
I think the Fed's loose monetary policy over the past 2 decades bears a bit more responsibility that does Hitler.

Tighten it up, kill the rest of the economy. Loosen it, increase inflation. It's a constant balancing act to preserve the currency. Housing was a portion of the economy, but isn't everything. Just because it flew way off the maps doesn't mean that they should shut everything else down. GDP is puttering on at a good clip, raising rates would have strangled it.

 

[LegendKiller]

Originally posted by: Vic
I would like to take this opportunity to say that this is all I have ever really been trying to say in these threads.

For 99% of homeowners, the housing boom was paper wealth. For example, suppose you bought your house a mere 3 years ago in a "boom" market. Let's say you paid $200k and in that time it went up to $400k. The bubble pops and your house is now worth $300k. What did that homeowner lose? Nothing. Quite the opposite, they gained. And this is far more representative an example of the housing market.

Still... I'm going to say the same thing now that I was telling people at the height of a boom. Between the times a house is bought and sold, it has no real value. Any value given to it is merely an estimate. An appraisal is simple an educated guess for lenders to justify for the books why they lent the money. A house is not like a stock, which is generally sold in high volume everyday, and so there is also an actual value to point to based on an actual transaction.
It is IMO this misnomer in thinking that led to the boom and could very well lead to the bust. Quite frankly, I see the "busters" now as just as bad as the "boomers" a couple of years ago. They're both speculators, they're just speculating in different directions. They turned housing into the stock market, with "longs" and "shorts." And they're both fsckin' with my livelihood, which I don't appreciate, boomer or buster.

Good way of putting the "boom", paper until realized. I would agree that a 200->400->300 is better off, since it brings things back to a reasonable level. But realistically I think they are a small portion of the population.

As far as busters being as responsible as boomers. I look at it this way.

Boomers kept the market going, front-loading gains that shouldn't have been had for many many years. They essentially accelerated what they would have gotten in the future, by a massive factor.

As the market tops off busters come in to balance out the equation. Now the gains had by the boomers are somewhat erased, as they are gains that they only were borrowing from the future anyway. As these unaligned gains are lost you start to get back to where you *should* be.

The equalibrium returns as a result of the busters bringing the market back down and the market correcting itself.

Nobody wants to screw with your job. However, whether it is you, or other people in that sector who accelerated their revenue from the future, you have to bring that revenue back somehow. It's an unfortunate process but one that is unavoidable.

Behavioral Finance is a really interesting field of study that has just recently gained momentum. Rather than taking a theoretical approach to finance, it takes a humanistic approach. It doesn't try to explain how to value a property, but why people think of that value as reasonable or not, and what pitfalls there are. Being a psychology undergrand and a heavy quant/finance guy, I love this aspect. Understanding the pscyhology being boom/bust periods is essential to knowing how to prevent them, if you can at all.

Frankly, you can't. Most people want to believe tomorrow will be just as good as today, if not better, and will work to make it so, whether it's to their long-term detriment or not. They'll have a myopic outlook and increase volatility. Naturally there'll be somebody there to take the opposite position, since finance/economics is largely a zero-sum game.

The euphoric nature of a boom cycle is only matched by the depressed nature of a bust cycle. Nobody is just content and long-sighted as to keep a steady rate of appreciation and growth.

 

[Trianon]

This guy must be real smart, I hope he is doing that with his personal money(what an idiot

REUTERS

Lawmakers propose aid for subprime borrowers

1 hour, 56 minutes ago

The federal government should offer troubled borrowers hundreds of millions of dollars to bail them out of subprime mortgage loans, several leading Democratic lawmakers said on Wednesday.

"The federal government can send in an infusion of (money) to prevent foreclosure," said Charles Schumer (news, bio, voting record), a New York Democrat.

The cash infusion is needed right away and should go to both help fund community groups aiding troubled borrowers and to directly fund bailouts, Schumer said.

Schumer spoke as chairman of the Joint Economic Committee, a joint committee of Congress, and appeared with Democratic senators Robert Menendez (news, bio, voting record) of New Jersey and Sherrod Brown (news, bio, voting record) of Ohio.

"All three of us are on the banking committee ... We will be proposing significant amounts of dollars to go here and do this. Could not tell you how much, but in the hundreds of millions of dollars for sure. Maybe more than that," Schumer said.

A report released by the Joint Economic Committee Wednesday pointed out that foreclosures can have a "contagion effect" and spread through a community.

Subprime borrowers with damaged credit have recorded higher delinquencies and foreclosures in recent months. Those foreclosures are expected to climb as the low, early payments on those loans give way to higher interest rates.

Schumer said a bailout was needed immediately because many borrowers in arrears could soon lose their homes.

"We have to move quickly because the trend line goes way up in terms of the number of foreclosures," he said.

Schumer said he planned to introduce legislation soon.

Foreclosures will increase this year and next as interest rates on 1.8 million mortgages popular among subprime borrowers reset, the lawmakers said in a statement.

Each foreclosure can drain $80,000 from lenders, homeowners and local governments, the senators said.

Lawmakers need to remember how homeowners suffer but also what foreclosure does "to the entire neighborhood and depressing the value of every home within miles of there," said Brown.

Christopher Dodd (news, bio, voting record), chairman of the Senate Banking Committee, said in a statement Wednesday he hoped to incorporate the senators' views as he considers how best to aid borrowers in trouble.

Dodd said in the statement he will soon hold a subprime summit with mortgage stakeholders to discuss how to aid borrowers. The meeting will aim to "try to work out a process for providing relief to homeowners," he said in the statement.

 

[smack Down]

Got to love that they pretend that foreclosure is bad for the borrowers and that the bail out is for borrowers and not the lenders hoping to make bank on the loans.

 

[upsciLLion]

Originally posted by: Trianon
This guy must be real smart, I hope he is doing that with his personal money(what an idiot

Look at who his main campaign contributors are: link. They're all major holders of mortgage backed securities!