 Since there is so much opposition here to the idea of using taxpayer money to bail out borrowers and lenders who made bad choices, it's worth facing the facts: a stealth government bailout of the mortgage industry is well underway, and a bigger, more ambitious rescue plan appears more likely every day.
Today the Fed is gladly accepting as collateral mortgage-backed securities that are so toxic the private sector can't even put a price tag on them. As John Cassidy wrote recently in Portfolio, "This is the same toxic paper that institutions like Citigroup and Merrill Lynch have been unable to sell or even value because the market for it has dried up."
Or, as The New York Times columnist Paul Krugman wrote, "In a worst-case scenario, the Federal Reserve would find itself owning around $200 billion worth of mortgage-backed securities." The problem is, Krugman made that estimate before today's new lifeline from the Fed.
Fed Chairman Ben Bernanke's latest dollar-dumping mission (they don't call him "Helicopter Ben" for nothing) is the latest chapter in what Cassidy calls "The Bankers' Bailout." It's too late to write your congressman to protest -- the bailout began last summer: "'It is no exaggeration to say that the
mortgage market was effectively nationalized" in the third quarter,
BNP Paribas economist Richard Iley wrote.
Quickly and quietly, risk has been shifted from the private sector to the Fed, Fannie Mae, Freddie Mac and the FHA. The only question now is how much more risk will be offloaded onto the government, and how Congress will structure the various lifelines, rescues and giveaways. And lastly, what maddening acronyms they will dream up as a patriotic cover for the whole thing. (HOPE NOW! The SAFE Act! The HOME Act!)
Feel free to send in your favorite acronyms for future bailouts and rescue plans.
Photo Credit: Fed Chairman Ben Bernanke, by Bloomberg News.
News item from the L.A. Times: "Brushing aside conventional wisdom, UCLA economists say California and
the nation will survive the housing slump and job losses without
plunging into recession -- although it will still be miserable for many
Americans."
More: "'We are holding firm: no recession this time,'" UCLA Anderson
Forecast Director Edward Leamer said in a report being released today.
For what it's worth, UCLA predicts that GDP will dip by 0.4% in the second quarter, but that GDP will show marginal growth in the first quarter and third quarter. In other words, the economy will stall, but will restart quickly enough to avoid the technical definition of a recession, which is two quarters of negative growth in a row.
Essentially, UCLA is predicting that the first half of 2008 will feel a lot like a recession, but won't meet the technical definition.
I'll flesh this post out later in the morning with more details, but wanted to get it up so you can weigh in with your thoughts on where the economy is going. Thoughts? Comments?
 This one is a bit off topic, but it caught my eye and I thought I'd pass it on because so many of you have commented on the nation's addiction to consumer debt. President Bush says he expects Americans to spend their upcoming tax rebates, to help the economy: "These rebates will begin reaching American
families in May. And when the money reaches the American people, we expect
they will use it to boost consumer spending, and that will spur job
creation, as well."
Personal finance guru Suze Orman (pictured) is advising, "Stash it, don't cash it": "The rebate you're about to get should be
saved, not spent. It should be used to pay down debt and build up an
emergency savings account. If you listen to Washington and spend the rebate, and we still slide
into a recession and you get laid off, don't count on extended
unemployment benefits to help you weather the storm -- that provision
didn't make it into the stimulus package."
Thoughts? Comments? Email story tips to peter.viles@latimes.com.
Photo Credit: NBC
News item: "U.S. home foreclosures and the rate of homes entering the foreclosure process rose to record highs in the fourth quarter led by failing subprime loans, the Mortgage Bankers Association said."
More, from Reuters via CNBC: "A record 0.83 percent of U.S. loans were entering the foreclosure process in the last three months of 2007 compared to 0.54 percent in the same time a year earlier."
Update: The New York Times reports, "The latest data is expected to put further pressure on policy makers
and the mortgage industry to move faster to contain losses and help
more homeowners. In recent days, regulators and lawmakers have begun
suggesting that the federal government might need to take a more
interventionist role in the mortgage business."
Another update: Click here to view the latest installment of LA foreclosure listings -- and price discounts from previous sales prices.
Thornburg Mortgage, meantime, was trading at levels indicating a growing expectation of bankruptcy. Shares were down 56% this morning (no, that's not over some recent period of time; that's down 56% this morning), to $1.48. Thornburg was a $27 stock in July.
One sign of stability, though, also from Reuters: "The National Association of Realtors Pending Home Sales Index, based on contracts signed in January, held steady at 85.9. Economists were expecting pending home sales -- which are a key gauge of future home sales activity -- to fall by 1.0 percent." NAR says this is consistent with a stabilizing of the national market this spring, leading to a recovery in the second half of the year.
Before you laugh and sputter and spit out your coffee and mock NAR economist Lawrence Yun, do remember the NAR is not talking about Palmdale or the San Fernando Valley; they're talking about national trends and statistics. OK, now that you have considered that, feel free to lay into Larry.
Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
 News item from AP via CNN Money: "The U.S. housing crisis slashed Washington Mutual Inc.'s earnings, but it won't drain executives' 2008 cash bonuses. WaMu's board will exclude costs related to mortgage defaults and real estate foreclosures when it comes time to calculate executive compensation ... ."
Comment from Take Five: "And these clowns want a taxpayer bailout."
Take Five, all due respect, but you're missing the point. This is brilliant motivational management, and I'm applying it to my own life, effective immediately:
--I'm a scratch golfer! I shot a 69* at Rancho Park last Saturday.
--I'm a brilliant investor! Every single one of my investments** gained more than 20% last year.
--This is by far the most popular blog*** on any mainstream media outlet!
* Not counting third and fourth putts, fluffed wedges, sliced tee-shots, skulled chips or pull-hooked irons.
** Excludes investments that gained less than 20% last year.
*** Based on traffic metrics developed by me and applied only to this blog.
On a serious note: Does anyone out there dare to read this item and then tell me that walking away from a mortgage is somehow inconsistent with prevailing American business ethics and practices?
Photo Credit: AP
Hat tip: Take Five, via e-mail
How bad is it out there? So bad that the guy who runs the "pre-eminent financial services company" on the planet has to tell his employees that the bank is not running out of money. CNBC reports this morning that Citigroup CEO Vikram Pandit sent a letter to his employees telling them the company is "financially sound."
The letter was necessary because of yesterday's news that "the head of a Dubai-owned investment firm said funds from Persian Gulf sovereign governments may not be enough to bail out the bank."
Did someone just say, "bail out the bank"? Yes, someone did. (
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
 More headlines from Fed chairman Ben Bernanke's speech today:
--At the end of 2007, there were "more than 2 million" vacant, unsold homes in the United States. What are those houses doing? Bernanke says they are "putting further pressure on house prices and housing construction."
--What a foreclosure costs: "A recent estimate based on sub-prime mortgages foreclosed in the fourth quarter of 2007 indicated that total losses exceeded 50 percent of the principal balance, with legal, sales, and maintenance expenses alone amounting to more than 10 percent of principal."
--What's happening to sub-prime borrowers: "We estimate that the interest rate on a typical subprime ARM scheduled to reset in the current quarter will increase from just above 8 percent to about 9-1/4 percent..."
--One more thing: If you're near a radio between 1 p.m. and 2 p.m., lock it in to 1070 AM -- I did a quick interview today with my favorite radio show in L.A., the KNX Business Hour with Frank Motek.
Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: EPA via LATimes.
 Berkshire Hathaway CEO Warren Buffett (pictured) spent the morning with CNBC and made some news worth noting: He thinks we are in a recession right now and the housing market is still worsening.
On recession, from the AP: "I would say, by any common sense definition, we are in a recession."
On housing, from the CNBC transcript: "I get the figures every month. We have a number of real estate brokerage operations around the country, and I get the -- I get the figures from many markets on listings and sales, and I've seen something like Dade and Broward County [Fla.] go from 6,000 listings and 3600 sales a month to where they're now, I think, 82,000 listings and about 1,500 sales a month. So unless there's some major intervention by the government in some way, or something of the sort, home prices have not stopped going down. Now, they will at some point."
CNBC's Becky Quick follows up on the "intervention" (read bailout) comment:
"QUICK: Any of the intervention plans we've seen from the government strike you as being a good idea?
BUFFETT: Well, that -- I haven't seen the details on many of them, but I think it's very hard to start interfering with markets without having a whole lot of unintended consequences."
Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Bloomberg News
 Interesting story from Reuters today laying out the anxieties of first-time homebuyers in the current market.
"They're the most nervous people I've ever met in my life," said Bob Moulton, president of Americana Mortgage Group, referring to the potential first-time buyers he speaks with. "They've seen what can go wrong in the mortgage market. Everybody's advising them, from the mother, to the father, to the uncle, their co-workers, telling them, 'Don't buy. Prices are coming down.' "
The story is worth reading for those of you who believe demographic trends predict real estate supply and demand: ... And population projections by the National Association of Realtors suggest hundreds of thousands of young Americans are sitting out the housing market entirely -- neither buying nor renting.
What happened to the projected demand from 700,000 to 800,000 people? NAR's Walter Molony: "Some of them are moving back with their parents, never left the house, they're doubling up with roommates."
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Getty Images
This blog is an open forum, but it's dominated by a like-minded crowd: those of us who believe the housing and credit bubbles have popped, and housing prices are declining -- rapidly in some areas, gradually in others.
Today a contrarian view from a guy I respect, mortgage broker and Fed watcher Lou Barnes. He argues that we have our collective head on backwards, at least regarding trends in national housing prices:
"The financial press is having a wonderful time ginning-up a housing depression, this week shrieking about new home-price data: “Decline in Home Prices Accelerates” (WSJ), emphasizing the Case-Shiller index, down 8.9% in ’07.
More: " Case-Shiller is designed to magnify home-price declines. Mr. Shiller ... has spent the last several years misapplying financial-market principles to real estate, gleefully predicting a 30-40% national crash in home prices."
More: "The design flaw: it captures only sales of homes, obviously heavy with distressed transactions. For the authentic story and great methodology, visit www.OFHEO.gov and its All-Transactions House Price Index, which includes repeat appraisals in refinances, by definition free of distress. By that measure, national home prices in the 4th quarter rose by .8%. Prices fell in only 11 states, and in only five of those were declines in excess of one percent. See page 21 of the report for its critique of Case-Shiller."
More: "At the micro level, some spots are in horrible trouble: of OFHEO’s 291 Metropolitan Statistical Areas, 15 had price declines last year in the 10%-19% range (all CA and FL). And the national market is decelerating: of 39 states with positive appreciation in the 4th quarter, 32 had gains of less than 1%."
Thanks, Lou.
There's a very big drawback to applying OFHEO data to Los Angeles: It is pretty much irrelevant to this market because it tracks only conforming loans, those under $417,000. Still, Lou is making an argument about national housing price trends, and for that purpose OFHEO is worth discussing. So discuss away. Send story tips to peter.viles@latimes.com.
 News item from the Daily News: "The median price of a San Fernando Valley home plunged a record $113,000 in January from a year ago and sales sank to an all-time low as credit and foreclosure problems further pounded the market, a trade association said Wednesday."
At $500,000, median sales prices in the Valley have now fallen a staggering 23.7% since peaking at $655,000 last June. That's 23.7% in seven months.
More: "Still, prices would have to fall further to make them affordable and turn around the sluggish sales market, said Daniel Blake, director of the San Fernando Valley Economic Research Center at California State University, Northridge. 'I'm still not seeing a light at the end of the tunnel,' Blake said."
Hat tip: Brad Greenberg
Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo credit: Aerial view of Ventura Boulevard in Sherman Oaks, from L.A. Times.
 As banks lobby for what has been described as an "epic rescue plan" for the mortgage industry, President Bush today hardened his oppostion to bailout plans he said would help "lenders and speculators." Bush said such plans would be unfair to millions of homeowners who pay their mortgages on time.
USA Today: "Echoing Treasury Secretary Henry Paulson, Bush says a Senate proposal to deal with the foreclosure crisis would 'do more to bail out lenders and speculators than to help American families keep their homes.' "
Update: It's worth noting the specific objections the administration has to the Senate bill on foreclosures. From CNN Money: "Earlier this week, the Bush administration said the president would veto the Foreclosure Prevention Act of 2008 if it passes Congress because it objected to two key elements. The first is a provision that would change the bankruptcy law to let judges reduce the amount of principal and interest due on mortgages of those filing for bankruptcy. ... The administration also objects to a provision in the bill that would provide $4 billion to let state and local government buy and rehabilitate foreclosed homes, and improve disclosure of subprime mortgage loans in hopes that borrowers won't be surprised by big payment increases."
Commentary: It's impossible to separate politics from principles here. The president knows that bailouts are unpopular, so he argues the bankruptcy changes -- which have nothing to do with a bailout for lenders -- are part of a bailout for lenders. Ah, very clever. Very cute. And completely consistent with the lack of intellectual honesty that dominates American politics at the moment. If you don't like changes in the bankruptcy law, why not step up and say so?
It's also disappointing that, at today's news conference, none of the reporters bothered to follow up on this.
Still, Paulson's comments (see below) were pretty clear. Paulson shot down talk of a real bailout for lenders. So, some politics, some principle.
The president's comments came a day after his Treasury Secretary dismissed called for a massive rescue plan for the mortgage industry. From the Wall Street Journal: "The Bush administration is hardening its opposition to the chorus of Democrats, bankers, economists and consumer advocates calling for a big-money government rescue program for struggling homeowners."
This would be the "epic rescue plan" cooked up by Bank of America that the New York Times reported on last Friday.
More: "In an interview yesterday, Treasury Secretary Henry Paulson branded many of the aid proposals circulating in Washington as 'bailouts' for reckless lenders, investors and speculators, rather than measures that would provide meaningful relief to deserving, but cash-strapped, mortgage borrowers."
From Smart Money: "President Bush and other administration officials have voiced skepticism before about a major government effort to ease the burden of the nation's housing slump. But Paulson's comments are the most explicit to date in laying out the administration's opposition to the recent spate of rescue plans.
Thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo credit: Reuters
The northern California city of Vallejo is dangerously close to bankruptcy tonight, an event that would punctuate the decline of the state's housing market and the sudden reversal of financial fortune for California's state and local governments.
Bloomberg reports: "Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after negotiations with its labor unions collapsed. Bondholders will likely be asked to sacrifice some of their investment if the city seeks bankruptcy protection, an attorney for the municipality said last night. Vallejo faces ballooning labor costs and declining housing-related sales-tax revenue, leaving budget officials projecting that money will run out within weeks."
More: "Municipalities throughout California are grappling with billions of dollars in labor and pension cost increases incurred during the late 1990s. The crisis comes as the worst housing slump in the U.S. in 26 years saps tax revenue. The state's own $16 billion deficit led Governor Arnold Schwarzenegger last month to declare a fiscal emergency."
The Mercury News: "As Vallejo geared up for
Thursday night's showdown on the city's fiscal crisis, the mayor, staff
and public safety unions held 11th hour negotiations Wednesday to
fashion a deal to stave off bankruptcy. Both sides were also set to
meet Thursday morning, hours before the City Council is scheduled to
make an unprecedented vote on whether to seek bankruptcy protection."
Thoughts? Comments? Email story tips to peter.viles@latimes.com
Hat tip: Better Village
 A quickie: A lot of us on this blog have spent a fair amount of time bickering over which housing statistics best capture market reality. It strikes me that they're all starting to capture the same reality:
According to Housing Tracker, median listing prices in greater L.A. have declined 14.6% from year-ago levels and 18.9% from their peak.
According to DataQuick, median sales prices in Los Angeles have declined 11.9% from year-ago levels and 16.7% from their peak.
According to the Case-Shiller home price index, home prices in Los Angeles dropped 13.7% over the past year.
Not a whole lot of difference.
Your thoughts? Comments? Email story tips to peter.viles@latimes.com
Photo Credit: AP
 The guy who signs the paychecks around here, Sam Zell, opined on CNBC that he sees a housing turnaround this spring. From Reuters: "I think starts have already pretty much bottomed out," Zell said. "I think the housing market this spring will begin its recovery phase."
Forbes: "Many investors are agreeing with Zell's assessment that the bottom is near. They are rushing into homebuilders, which were battered throughout 2007, in anticipation of better times ahead. In the past three months, shares of D.R. Horton, Pulte Homes, and Lennar have each rallied at least 40%."
For the record, even though the big boss is bullish, I continue to believe the housing market in Southern California is a long way from a bottom, and that prices are likely to decline throughout most of 2008. On a national level, it's quite possible housing starts have bottomed out and will soon begin a recovery. We could also get a little bounce off the bottom this spring in L.A.-area housing activity, but my guess is that after a brief pop, rising inventory will resume putting downward pressure on prices.
It's worth noting, though, that Zell has made a ton of money in real estate over the years.
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Sam Zell, from The Chicago Tribune
Home prices in Los Angeles lost 13.7% in 2007, and were declining at an accelerating pace at the end of the year, according to Standard & Poor's Case-Shiller home price index. The report also points to a regional housing bust -- the American cities with the nation's most severe price declines in November and December of 2007 were concentrated in the West and Southwest.
From LATimes.com: "The Los Angeles-area home price index, which includes Orange County, is now 15% below its peak, which Case-Shiller says occurred in September 2006. Various economists have predicted that Los Angeles-area home prices will decline 20% to 30% from their peak level."
Headlines, highlights, lowlights:
--The Case-Shiller index for Los Angeles fell 3.1% from November to December, and declined 13.7% over the course of the year.
--As measured by Case-Shiller, Los Angeles still has the nation's largest housing bubble. For those who don't believe there was a housing bubble, you would say that Los Angeles is holding on to more price appreciation than any other American housing market.
--The cities with the largest price drops from November 2007 to December 2007 are concentrated in the West, suggesting the possibility of a regional recession similar to the one that followed the S&L bust:
1) Phoenix (-3.5%)
2) San Diego (-3.4%)
3) San Francisco (-3.25%)
4) Los Angeles (-3.1%)
5) Las Vegas (-2.9%)
The Case-Shiller index is considered among the most accurate measures of home values over time. Unlike other sales reports, which rely on overall market activity, the Case-Shiller index is built out of "matched pairs" -- instances in which the same house sold twice over a period of time.
Thoughs? Comments? E-mail story tips to peter.viles@latimes.com.
 So which is it? Is the housing market in such a terrible state that it needs an epic rescue plan from the federal government?
Or is it on the brink of turning around, as the National Association of Realtors argues today, even while issuing another crummy report on home sales?
From AP: "Sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month.
More: "The National Association of Realtors said today that sales of single-family homes and condominiums dropped by 0.4 percent last month to a seasonally adjusted annual rate of 4.89 million units, the slowest sales pace on records going back to 1999."
The NAR reports the level of sales is down 23.4% from last January's level.
Now the positive NAR spin: The ever-optimistic Lawrence Yun, chief economist for the Realtors, continues to see light at the end of the tunnel -- he sees better days ahead later this year: "As the increased limits for FHA and conventional loans are implemented, more buyers will have access to safer FHA loans and lower interest rate loans in high-cost areas, which could lead to steadily higher home sales later in the year."
NAR President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach also predicts a bounce-back in sales later this year in high-cost areas such as California: "Once buyers have greater access to higher loan limits, it will take a few months for increased shopping activity to translate into higher sales," Gaylord said. "We should see some movement of pent-up demand by this summer, but higher loan limits need to be implemented fully and promptly to have maximum benefit."
The NAR has been wrongly making similar predictions for quite a while now. Eventually, the market will bottom and the NAR will be correct in its optimism. Eventually could be a long while from now. Or, to quote one of my favorite Wall Street aphorisms, "If you're wrong for long enough, you're wrong."
Photo credit: AP
Thoughts? Comments? Send story tips to peter.viles@latimes.com.
 Good morning. The graphs at right say it all, or almost, but I will throw in some words too. From this morning's L.A. Times:
"Apartment rents are indeed climbing, hitting an average of $1,494 a month in Southern California for the last three months of 2007, an increase of 4.5% over the same period a year earlier, according to a survey of larger apartment complexes by RealFacts, a property research firm. ...In fact, home values and rents often move in opposite directions, real estate analysts said."
More: "The downward pressure on house prices and the upward pressure on rents are in some respects reciprocal of one another," said Stuart Gabriel, director of the Richard S. Ziman Center for Real Estate at UCLA. "The two go hand in hand."
Caveat: The rent number is an average, and most statisticians prefer a median.
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
 Many of you remind me on a regular basis that the housing problem goes far beyond housing. Fresh evidence today that you are correct: The budget gap in Sacramento is growing, and housing is a big part of the reason.
Breaking news from the Sacramento Bee: "The state budget deficit has increased to about $16 billion, primarily due to continuing problems in the housing market and high energy prices, according to an independent budget analysis released Wednesday.
From LATimes.com: "Legislative Analyst Elizabeth G. Hill, whom lawmakers of both parties look to for advice on fiscal matters, says the depressed housing market and high energy prices will cause revenues to sag even more than the administration of Gov. Arnold Schwarzenegger projected last month."
Bloviation: I think it's fair to liken the state's recent management of its finances to the behavior of families who have tapped housing equity to spend beyond their income. The state's spending in the past couple of years was supported by an unsustainable burst of economic activity fueled in large part by the housing bubble. The state has been spending beyond its means.
There's some political karma at work here: The governor benefited quite a bit from the housing bubble -- because of the bubble and the associated burst of economic activity, and some pay-later borrowing, the financial crisis that swept him into office magically disappeared. No tax increases! No spending cuts! No money down! No payments until next spring! Now the trouble is coming back. (You can insert a "Terminator" "I'll be back" joke if you like.)
Tangentially related: the northern California city of Vallejo is facing a pretty serious financial crisis. From The Mercury News: "Labor negotiators met Monday in an urgent effort to hammer out a budget crisis resolution before the Vallejo City Council votes for drastic cuts or to pursue bankruptcy."
Comments? Thoughts? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Gov. Arnold Schwarzenegger, by the AP
Brief and scary: The Financial Times reports that banks are being advised to play "jingle mail" on a very large scale. "Leading banks are being advised that it would be cheaper to walk away from big buy-out deals than incur further losses on their funding commitments, increasing the chances that more high-profile private equity transactions will collapse. This advice from lawyers contrasts with the conventional wisdom that banks would risk serious damage to their reputations if they were to drop out of deals."
Note: On first blush, the health, behavior and political desires of big financial institutions are beyond the scope of this blog. But on further review, as they say in the NFL, the play stands as called. All of this comes back to the ability and willingness of mortgage lenders to lend. And that is as important to the California real estate market as personal income.
Thoughts? Comments? I know, the link goes to a registration page. I suspect one of the readers is smart enough to find a full version of the story and post a link.
You make the call: an ominous retrenchment or an overdue return to sanity?
The New York Times reports tonight that Americans are shifting toward thrift: "... now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means."
Story quotes Lisa Merhaut, whose family has switched to an all-cash, pay-as-you-go budget: “We don’t use our credit cards anymore ... What we have is what we have. We have to rely on the money that we’re bringing in.”
Economist Ethan Harris of Lehman Brothers predicts a return to saving "the old fashioned way" -- that is, actually saving money. Like, spending less than you earn.
Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com.
 A few thoughts and links about the Fed's rate cut today. First of all, what's happening is nothing short of stunning: the central bank has now slashed interest rates twice in eight days while the Congress argues over how best to thrust $100 billion into the hands of American consumers.
As one of my favorite Wall Street guys, Art Hogan, said recently, the good news is that the government is acting quickly to give the economy a double shot: serious fiscal and monetary stimulus; the bad news is, the economy needs it.
Will the rate-cutting and dollar-mailing help? Of course they will. But the economy, and housing, are still on a downward trajectory.
A commenter passed this along -- economic analysis from the blog of former Labor Secretary Robert Reich: "Most consumers are at the end of their ropes and can’t buy more. Real
incomes are no higher than they were in 2000, while food and energy and
health care costs are all rising faster than inflation. And home values
are dropping, which means an end to home equity loans and refinancing. ... Add all this together and there’s just
not enough consumer demand out there to keep the American economy
going."
I've also been wanting to pass along this recent Fed analysis from another favorite, mortgage broker/pundit Lou Barnes. For months Barnes had been on the fence about Bernanke, but last week, after the emergency rate cut, Lou took a stand: Bernanke is in over his head, and not learning very fast: "Last Thursday, Mr. Bernanke went to Congress to ask for a stimulus
package 'quickly.' A Chairman without confidence in his own resources
immediately destabilized markets all over the world ... The Fed Chairman never, ever goes to Congress to ask for
stimulus: that’s the Administration’s job. ... He has shown political
ineptitude from the first months in office (blabbing intentions to a
pretty reporter at a party), and does not appear to have learned a
thing.
... The consequence of random, academic-in-a-china-shop behavior:
an already fragile and illiquid bond market raised rates and slowed
trading."
Your thoughts? Comments? Email story tips to peter.viles@latimes.com
Photo Credit: Fed chairman Ben Bernanke by Bloomberg News.
 No ifs, ands or buts: Chapman University's Anderson Center in Riverside is predicting a national recession. Like, right now. Negative GDP growth in the first quarter (-1.0%) and the second quarter (-1.9%) before a rebound in the third quarter.
A major factor: The Anderson Center says consumer spending will be hit by continued declines in the amount of cash consumers are pulling out of their houses.
In the Inland Empire, the Anderson Center predicts: "a sharp drop in home sales ... a sharp downturn in jobs in real estate-related sectors ... the weakest rate of job creation since 1993 ... higher unemployment rates," plus a 12.5% decline in the median selling price of single-family homes.
Will lower interest rates help? Anderson says they will not help some borrowers facing resets on their mortgages: "Those borrowers who want to refinance need to obtain an appraisal for their property matching or exceeding their current mortgage. This will not be possible for those borrowers who used 100 percent loan-to-value mortgages and are faced with declining home prices."
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: LATimes
Random thoughts, bloviation and links on this morning's "surprise" Fed rate cut. (Why the air quotes around "surprise"? Ask yourself: was it really a surprise?)
--What does it mean for mortgages? CNBC's Diana Olick was up early and all over this. Diana blogs, "I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries. ... Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now. Today's rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market..."
--What does it say about the economy? It says things are bad. Or, as a Deutsche Bank analyst told Reuters, "The Fed is very, very, very worried." The largest rate cut since 1984, by my logic, means the largest economic problem since 1984. You can forget the parallels to the early '90s real estate slump -- this is worse; the Fed just said so.
--What will the markets do? If I knew I'd be golfing, and if you listen to me you're a dope, but in a fit of caffeine-induced late-night speculation, I made my predictions last night over at the Blown Mortgage blog: Dow loses 485 points in early trading, closes with a loss of 312. I believe I'm out of the money on that one.
Your thoughts? Insights? E-mail story tips to peter.viles@latimes.com.
I've always been an admirer of Morgan Stanley economist Stephen Roach, but over the years his "better eat your vegetables" view of the American economy has seemed a little out of touch. Now the tide is turning, though, and his old warnings ring true. At least to me they do.
His column today is worth reading: "America's aversion toward saving did not appear out of thin air.
Waves of asset appreciation - first equities and, more recently,
residential property - convinced citizens that a new era was at hand.
Reinforced by a monstrous bubble of cheap credit, there was little
perceived need to save the old-fashioned way - out of income. Assets
became the preferred vehicle of choice."
Now what? Roach: "As home prices move into a protracted period of decline, consumers
will finally recognize the perils of bubble-distorted saving
strategies. Financially battered households will respond by rebuilding
income-based saving balances. That means the consumption share of gross
domestic product will fall and the US economy will most likely tumble
into recession."
This is a pretty bearish view and many of you will disagree. Here's what I find interesting: let's say Roach is right, and what the American economy needs is a painful period in which consumers rediscover the habit of saving. How will the government react? The government usually reacts to an economic slowdown by trying to prop up consumer spending, not encouraging saving. So what gives? "Eat your vegetables," or "Let's all go out for tax-free ice cream?"
I'm interested in your thoughts on that one. Email story tips to peter.viles@latimes.com.
Hat tip: I owe someone a hat tip on this one. It's coming, when I find your email.
 Good morning. Treasury Secretary Henry Paulson (pictured) gave an update of the housing landscape today. Among the points he made: "After years of unsustainable price appreciation and lax lending practices, a housing correction is inevitable and necessary," Paulson said.
Update: Here's another headline in the Paulson speech -- he floats the idea of expanding the sub-prime rate freeze to borrowers with good credit who face ARM resets. Here's the hint at help for ARM borrowers:
"We need to see all servicers reporting results to HOPE NOW to measure effectiveness and then make adjustments as needed. This may include using elements of a systematic approach for adjustable-rate mortgages other than sub-prime if it will benefit homeowners and investors."
You'll notice I have substituted the word "slump" for "correction" in the headline. Paulson is from Wall Street, where the word "correction" means a significant decline in prices. A slump.
I give him points for speaking a little truth today. This is a part of the housing story that is often notably absent when politicians and policymakers discuss the various things that can be done to prop up the housing market. They often make it sound like some terrible, unforeseen, unfair crisis has landed on American homeowners. Good for Paulson for bringing a little intellectual honesty to the political discussion.
Hat tip: Cal
Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com.
Photo Credit: L.A. Times
 At the Democratic debate in New Hampshire yesterday, Sen. Hillary Clinton dropped the "R" word, observing, "I think the economy is slipping toward a recession."
Partly, that's the partisanship speaking -- you can expect the eventual Democratic nominee to talk down the economy all the way until November, and blame it all on Republicans.
But it's also a reflection of shifting conventional wisdom. Calculated Risk, a smart blog about the economy, notes the discussion is shifting from whether there will be a recession to how severe it will be: "Many analysts gathered at the American Economic Association's two-day annual meeting spoke of a recession as almost a given but differed over how severe it will be."
This shift is bad news for the economy, of course. But it is also vindication for housing bubble bloggers and those who fill those blogs with comments -- your average bubble blogger saw this coming a long time ago, and said so. I'm not talking about myself -- I'm a little late to this party, as I only began writing this blog in April. But give credit where it is due: The bubble bloggers were right.
Your thoughts? Comments? Email story tips to peter.viles@latimes.com.
Photo Credit: L.A. Times
Here's a quickie.
Those of you keeping track of the big economic picture, and what it means for housing, should take note of this: The auto industry, a pretty big part of American manufacturing, is in a recession right now. From LATimes.com tonight: Automakers reported today that "vehicle sales in 2007 totaled 16.1 million, off 2.5% from 2006 and the smallest annual count since 1998 .... "
More: "Their forecasts for this year were downbeat, with the head of the country's No. 1 car company, General Motors Corp., saying he thought the economy would push GM sales lower in the next six months."
Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com.
 An emailer pointed this out last week, and it's worth a look: Another Jim Cramer real estate rant on video, this one urging Fed officials to visit the Inland Empire to view the carnage first hand. Cramer tells of visiting the IE recently and going away convinced that bad loans in California are so massive they will lead to numerous bankruptcies by banks and homebuilders. A partial transcript:
"I was struck -- seeing housing development after housing development after housing development with no customers. ... (loan) portfolios that have exposure to California are going to cost this economy billions of dollars. And until the Fed recognizes that -- goes to Indio, goes to San Bernardino, goes to Riverside -- I don't think they recognize that the portfolios of big loans ... simply cannot be sustained. The level of defaults will be too large. ... When you have publicly traded companies that have 15%, 20%, 25% exposure to the California lending market? That market may not come back. ... Causing what I think will be bankruptcy after bankruptcy after bankruptcy by homebuilders and banks. ... It's just miles and miles of unsold homes. Miles. And if you live in the Northeast, you just don't get it."
I'm anticipating a few of you will comment that Cramer is a buffoon, a know-nothing, a chowderhead, whatever. Here's my take on Cramer and the real estate bubble: He's one of the only talking heads or pundits who has been right for the last six months. Even after the sub-prime mess blew up in its face, the Fed failed to recognize this train wreck in slow motion; CEOs failed to see it; investors failed to see it; Cramer has consistently said that it's worse than they know. He's been right.
That said, your comments? Thoughts? Insights? Email story tips to peter.viles@latimes.com
Photo Credit: Amazon.com
Hat tip: Sorry, I deleted the email. I owe you one, whoever tipped me on this.
Hat tip, Tech support division: MattJ, thanks for fixing the link.
A new report from Goldman Sachs via MarketWatch raises the R-word in a big way.
Because of a sharp increase in California's unemployment rate in September, the state seems to be sinking into recession.
Goldman Sachs economist Jan Hatzius suggests that even though at 5.6% the state's jobless rate is low, it nonetheless has risen 0.9 of a percentage point in the last year. To Hatzius, that's a bad thing. He believes that Florida and Nevada, two other states whose economies have been powered by housing in recent years, are already in recession. "Together with the regional recessions already visible in Florida and Nevada, a California recession would mean that the housing bust has pushed an area responsible for 20% of U.S. gross domestic product into an outright downturn," Hatzius said.
So far, this view is an anomaly. Economists at the UCLA Anderson Forecast and elsewhere have stopped short of saying that the housing downturn will push California's economy into recession. They believe that a second pillar of the economy, such as manufacturing, needs to weaken considerably for that to happen.
Then again, the other scenario for a recession is for the state's housing market to worsen more than expected.
Thoughts? Comments?
-- Posted by Annette Haddad
Illustration credit: Peter O. Zierlein For The Times
Read more California and the R-word »
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Since there is so much opposition here to the idea of using taxpayer money to bail out borrowers and lenders who made bad choices, it's worth facing the facts: a stealth government bailout of the mortgage industry is well underway, and a bigger, more ambitious rescue plan appears more likely every day. 
