He told you so: The mortgage broker who predicted all this

We are in the eye of a financial storm that evidently took much of America by surprise. Was it inevitable? That's for history to decide. I'll just say this: Many saw the storm coming. It did not appear out of nowhere. Tonight I'll highlight one storm-spotter and ask for your nominations for others.

I've made no secret of my admiration for mortgage broker, Fed watcher and weekly Internet columnist Lou Barnes. Not only did Lou stand on his Internet mountaintop and warn that this would happen, he said it again, and again. I'm not saying he's been right on everything, just that he saw this coming. From his weekly columns:

August 31, 2007: Structured-finance products all over the world are crashing in value or cannot be valued at all. Frequently leveraged, the fall in value is a balance-sheet risk both to investors and their lenders.

Sept. 7, 2007: The credit panic is spreading into a global affair far beyond mere mortgages...This is not a transient emergency, nor a single-firm threat like Long Term Capital Management in ’98; we and the Fed have a systemic problem growing worse.

Nov. 2, 2007: The last 48 hours make it clear that credit losses are systemic and too large to recognize. It is too late for daylight, proper valuation, and workout. It is firewall time, on the way to bailout.

Nov. 16, 2007: This predicament is unique (since the 1930s... heh-heh...): capital is evaporating, and the capital is leveraged.

Dec. 14, 2007: The acute economic problem today is the functional bankruptcy of the Western banking system. Losses in trillions of dollars of weird assets have impaired systemic capital; central banks have kept the system liquid, and undoubtedly will continue to do so, but nobody has an idea how to get the system to make new loans. You have to have capital to do that, and we’re fresh out.

Dec. 21, 2007: We have a wreck in the belly of the financial system: credit losses are so large that if recognized -- written off -- would bankrupt the whole show.

Read more of Lou Barnes' dire -- and accurate -- predictions below.

Feb. 15, 2008: The credit problem has now moved beyond the banks: the markets for securitized credit are seizing-up the way the banks did last fall, and credit starvation is deepening... Everybody wants market-based solutions, but what to do with a market too badly broken to heal itself?

Feb. 22, 2008: The public policy response to the credit crunch here is paralyzed ...  Secretary Paulson insists that this adventure is a normal, cyclical re-pricing of credit; he must know otherwise, but does not know what to do.

March  7, 2008: The Fed has failed. As have the Treasury, Congress, and the White House.

April 18, 2008: the financial system is still too busted to function properly, credit is extremely scarce and expensive, the system is terribly vulnerable.

June 13, 2008: The big end of today’s financial system is insolvent, broke, liquid but without capital, huge losses still to be recognized; credit shortage spreading to small institutions. ... this is NOT like the last time. This is different."

Sept. 12, 2008: The banking system is beyond self-healing, and is in a downward and self-reinforcing spiral, and traditional measures are exhausted

What I've left out of this summary are Lou's frequent calls for a massive government bailout to recapitalize banks and get bad assets off their books so they can lend again. He's been saying for about a year that this is both inevitable and smart. Increasingly, it appears he's right about the former.

But I digress. Please use the comment section to highlight others who saw this coming. Specific links to their writings would be great.

-- Peter Viles

Comments

[aldo818]

All you had to do was look at the local household income data for the area. It's been reported in print and on internet using official government numbers that household income in LA has not changed in 10-13 years. It is actually negative when you consider inflation.

How can 20% year over year increases in home purchase prices make sense?
OK, say maybe demand for living in LA went up to raise the prices. How many people will actually afford to buy a home to drive prices up this much? For this long?
And guess what? The people that were moving into CA during this time were not $200k/yr households.

In reality, this bubble should have been over in 2004. However, the use of sub-primes and all the other wierd loans just kept the circus going well until 2006 and we are now suffering fom the downside of it all.
I know that people like to point the finger at the person that took the loan but those less than knowledgable people were pretty much taken advantage of by agents, brokers and banks that were paying higher than normal fees/commissions for pushing those exotic loans.
The forclosed homeowner is paying for their mistake but really, those who kept this ponzi scheme going should be fined heavily for doing this to the financial system.
The fines and jail time belong to the leaders that turned a blind eye to the unststainability of this run for the past 6 years.
I don't know about you. But I wouldn't have lent that kind of money out to someone if I didn't have proof of income or decent expectation of the repayment. Brokers and lenders only cared about the fees and commissions not the loan itself.

[E]

HousingPANIC.

Try reading it from the beginning and you'll think the guy damn near had a crystal ball.

[Uncle Billy Loves Naomi Klein]

Hey, chopped liver over here!

Speaking of Lou Barnes, where the heck is Cal??

[Uncle Billy Loves Naomi Klein]

(Doing Cramer)

Barnes? He had NO idea. NO idea.

For whomever got it right, it's got to be a pretty empty feeling to know you got it right.

And btw, those that got it right got it right incrementally, like Barnes. We've got a housing bubble becomes we've got a mortgage bubble becomes we've got a securitization bubble, credit bubble, global house of cards.

[LA]

Marc Faber
Peter Schiff
Meredith Whitney

And the only truth-teller in the Presidential race - RON PAUL

[Numb]

Anyone familiar with Dr. Housing Bubble Blog? Another good source.

[oh boy]

Peter,

The list I'd like to see is the guys who were incesant cheerleaders for the RE market in the face of facts that were contrary of their positions/predictions. Ranked in order of idiocy.

David Lareah has to be #1.

Oh boy.

[MyLessThanPrimeBeef]

Don't sell yourself short.

almsot all of you are just as smart as the guys listed here.

[Laker]

Peter,
I think you like this Barnes guy too much.
At the minimum i think Lou Barnes is wrong and if you stretch it, he is a fool.
"...In Barnes's September 12, 2008 article he states:
"Housing must bottom, and it will require cheap credit." ..."

Last time when housing bottomed in LA somewhere from 1994-1996, credit was NOT CHEAP !!!!
It bottomed because prices reached the most affordable point so a lot of people could actually afford to buy, and the demand started to outnumber supply.
LOW PRICES not cheap credit is the long term healthy solution.

[Ha!]

Oh Boy - those people are called "realtors."

[Chris]

here ya go:

http://www.doctorhousingbubble.com

[Chris Cox]

Barnes figured out there was a bubble in 2007?

Hell, anybody who couldn't see a bubble by 2005 [in California at least] was either stupid or involved in the pump.

And there's more than a few bloggers who DID see it that long ago (CalculatedRisk & Mish for example).

Glad the media is finally getting what's been going on.