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Saturday, September 30, 2006


It's clearly a good thing that Foley has resigned. Pages can now walk the halls of Congress without having to sidle along with their backs to the wall, for one thing. Well, maybe that's unfair. Foley appears to have been a seducer rather than a grabber, although I'd hardly call him smooth.

ABC's blog publishes an excerpt (pdf) from an internet conversation with a 17 year-old who is not gay and is a virgin according to the second excerpt (here, also pdf). This is confusing on several counts. What follows is unusually explicit for this blog, so leave now if you don't want to read it.

I found myself wondering what was in it for the kid (Maf54 is the esteemed Foley):
Maf54 (7:46:33 PM): did any girl give you a haand job this weekend
Xxxxxxxxx (7:46:38 PM): lol no
Xxxxxxxxx (7:46:40 PM): im single right now
Xxxxxxxxx (7:46:57 PM): my last gf and i broke up a few weeks agi
Maf54 (7:47:11 PM): are you
Maf54 (7:47:11 PM): good so your getting horny
Xxxxxxxxx (7:47:29 PM): lol...a bit
Maf54 (7:48:00 PM): did you spank it this weekend yourself
Xxxxxxxxx (7:48:04 PM): no
Xxxxxxxxx (7:48:16 PM): been too tired and too busy
Maf54 (7:48:33 PM): wow...
Maf54 (7:48:34 PM): i am never to busy haha
Xxxxxxxxx (7:48:51 PM): haha
Maf54 (7:50:02 PM): or tired..helps me sleep
Xxxxxxxxx (7:50:15 PM): thats true
Xxxxxxxxx (7:50:36 PM): havent been having a problem with sleep though.. i just walk in the door and collapse well at least this weekend
Maf54 (7:50:56 PM): i am sure
Xxxxxxxxx (7:50:57 PM): i dont do it very often normally though
Maf54 (7:51:11 PM): why not
Maf54 (7:51:22 PM): at your age seems like it would be daily
It gets better. Foley asks for the kid's measurement, and gets it. Comments about stiffies and masturbation techniques are exchanged, and Foley says he'd like to grab the kid's penis. The kid discloses that he likes the Catholic school-girl look, preferably with a cast on. (No, I'm not joking.) There's at least an implication that this is not just an IM conversation, because the kid says "not tonight, don't get too excited" in response to Foley's comment that he'd like to grab it. Given the "outercourse" meme in sex-ed today, the kid could well be saying that he's a virgin even if they had fooled around.

Anyway, one question is whether this is illegal under Florida law. If they never made contact, it probably isn't. Florida's lewd and lascivious statute only holds for persons under 16. I think this should be actionable; will this case cause a change in Florida law?

Aside from the joy over Foley being a Republican, there is an obvious reluctance on the left to approach the question of the conduct itself. DU has deleted at least one thread that gays found offensive already. A bit of a shouting match breaks out on Althouse's blog over the definition of pedophilia. SC&A notes an element of hypocrisy on the left. The truth is that a lot of gays do go after 17 year olds. A lot don't, and do find it offensive. There are plenty of hets who like to chase the young too. The average individual is not likely to read this IM exchange and feel much of a sense of comfort with this type of behavior between a 17 year old and a man in his 50s, and wouldn't if it were between a woman in her 50s and a 17 year old boy.

This is perverse conduct in the average parent's mind. Yet this conduct is not reprehensible to the "let teenagers be teenagers" crowd. Lately we've been reading a lot about female and male teachers going after teenagers, and I think the average person finds that deeply reprehensible as well. I suppose the probable loss of a Republican seat serves the short term interests of the left, but does the story itself? I think not.

So I cannot see this as being an issue which favors the left in general. The disclosure of the IM conversation sure makes the private email exchange with a different boy look like Foley had a habit of grooming and seducing teenaged boys, and I'm sure we're going to learn more about this. There must be more going on behind the scenes than we know, because apparently rumors have been circulating for a while.

I would like to make a few comments about SC&A's remarks about hypocrisy. First, I think the gay lobby owes a huge apology to the country for its jihad against the boy scouts. The reality is that adults who like to go after kids or teenagers are always going to be attracted to professions like teaching and the ministry or activities like scouting or mentoring youth, because these activities provide them a rich hunting ground. They do pursue relationships with young people, and they do engage in behavior such as Foley's. As we have seen in the news lately, there are plenty of women who go after teenage boys. Yet women are not out on camping trips in the Boy Scouts, so this angle is rarely discussed.

The dilemma of such organizations is that if they allow those with a sexual orientation toward the youth in their care to participate, they create an opportunity for sexually perverse adults. The liberal jihad conducted against the Boy Scouts refuses to take into account this pragmatic reality, and clearly cares little about the actual kids involved in scouting.

I'm sure I'll be flamed for writing what anyone with a grain of common sense already knows, so let me say in advance "To hell with you". Chasing seventeen year olds is not pedophilia, but it is perverse and very damaging to the kids involved. They should be learning to develop stable relationships with potential mates, rather than serving as the focus of an adult's perverse desires. Those who think this type of conduct isn't damaging are perverse themselves, and our very sexualized society has a huge blind spot about protecting the young from such conduct.

Thursday, September 28, 2006

I Am Not A Newt

If the new home sales report was good news, I'm a newt. And I'm not a newt. I don't even bear the slightest resemblance to a newt.

The new home sales number is always subject to substantial revisions, usually downward. August's number came out slightly higher (1,050,000) than the analysts' estimates (1,040,000), but the numbers for prior months were revised substantially downward. If you compare the original July number (1,079,000) to August's estimate, there would be a drop instead of a revision. NJ RE Report (Grim's new blog) has an excellent post on the numbers. Remember, though, that the error rate in this survey is incredibly high - 15.5%. The reason why the revisions are so off the original numbers is because the original numbers use imputed data. See the Census page for more info.

We can have more confidence in the revised GDP for the second quarter, but that went from 2.9% to 2.6%. My guess is that we would be doing great if the fourth quarter eventually comes in anywhere above 1.8%.

The purchase money mortgage application index as reported by the MBA survey is a very reliable number, and it has been running twenty percent below a year ago in recent months. Over the last few weeks, it has been inching higher. The latest release still shows it hanging in that same -20% range year-over-year.

Five of the Fed banks do industrial surveys. The Philly Fed's latest survey for September showed expected future in all categories of future business activity, summarized in this paragraph as:
Expectations for future manufacturing growth fell sharply this month. Indicators for future activity, new orders, shipments, and employment all declined from their August readings. The future general activity index fell from 7.4 to -0.2, its first negative reading since January 2001...
Other Fed districts that do manufacturing surveys are Kansas, whose September survey says that growth is slowing but that plant managers remain optimistic about future growth, Richmond, whose September survey shows brightening prospects and stronger growth, and New York, which also shows stronger growth expectations. The bottom line is that the weaknesses in the economy right now are autos and housing, but that they are pretty big weaknesses.

This is one interesting forecast of housing starts over the next six months (scroll down and see the graph). The debate has really turned to how many jobs will be lost over the next six months, and estimates vary widely. It's probably over 400,000, though. From CNN's August article:
In the second quarter of 2005, investment in residences added 1.11 percentage points to the gross domestic product, the broad measure of the nation's economic activity. But in the second quarter it subtracted an estimated 0.4 percentage points.
In addition, the Labor Department estimates that more than 3 million people work directly in residential construction, and that the sector was responsible for about 10 percent of the nation's overall gain in employment in all of 2005.

But the sector has already trimmed nearly 25,000 jobs since January, according to Labor Department figures, and the slower housing starts and permits suggest even more slowing is ahead.
Calculated Risk thinks about 600,000 jobs will be lost, although he doesn't give a timeframe. I'm guessing about 250,000 by March, with the bottom falling out through summer and a 2007 difference of about 850,000 total jobs gone. However, the impact will not be as severe as that sounds, because a lot of those are illegals. The real punch to the economic gut will come from the contraction in consumer spending that had been fueled by HELOCs and cash-out refis, which will come into full bloom next summer.

Construction layoffs really hurt the US automotive industry, especially with regard to pickups and vans, but heck, the automotive industry in the US already seems to be in deep trouble. Chrysler announced that it would cut US production by 16% in the second half of the year. Ford had announced a 21% cut. GM had projected a 12% cut in the fourth quarter, year over year. Delphi is closing 21 of its 29 US plants over the next few years. When you figure the ripple-through, this is going to cost a lot of high-paying jobs with benefits in the US. My guess is well over 100,000 in the next year, although this is only a worsening of a long-term trend (see this from 2005 about the losses in the industry since 1995).

Figure at least another 20,000 in the financial services industry (realtors, brokers, loan officers, etc). Figure about 15,000 in supply outfits. Figure over 15,000 in luxury industries that are taking a hit, such as as all those furniture stores and jewelry stores that are closing or laying off. It doesn't look pretty to me.

Boeing continues to do well, and the gas price drops are helping. Somehow I don't think it is quite enough, although anything is certainly welcome. Oil is now rising, because people are predicting that bulging fuel inventories will cause OPEC to cut production sooner rather than later:
OPEC president Edmund Daukoru, who is also Nigeria's oil minister, said Tuesday oil prices are 'very low' and that action is needed in light of an anticipated 'colossal' 1.8 mln bpd oil glut by the second quarter of next year.
Do cuts in production to fend off a "colossal" oil glut really translate into higher oil prices, much less gas prices? We won't know for some time. The article continues:
...the cartel is in a difficult position. If it chooses to defend a price level that is too high, this could exacerbate the US economic slowdown and hurt global oil demand.

According to O'Callaghan, the market downtrend remains intact despite the recent gains. He said the market knows OPEC is concerned about the US economic slowdown and it will therefore look to 'test OPEC's resolve'.
Huh. In other words, prices must stay low or worldwide recession will force prices to drop because of an oversupply? Howard predicted the other day that oil prices would go higher, and his prediction came true. When fuel prices are low, the US economy does well. When they are high, it slumps. This has been true since I was a kid. The difference this time is the staggering levels of public debt which are beginning to place pressure of their own on the American consumer.

Wednesday, September 27, 2006

PETA On Cockroaches

PETA comes out swinging in defense of cockroaches:
People for the Ethical Treatment of Animals want all Six Flags theme parks, including the one in Massachusetts, to exterminate an upcoming cockroach-eating extravaganza.

“Cockroaches have been given a bad (reputation) in our society,” said PETA spokeswoman Jackie Vergerio. “They are gentle, complex animals.”
I hope you feel guilty for waging chemical war against your little brother the cockroach now. Sometimes I think the only form of life that PETA won't defend is Homo Sapiens Sapiens.

Tuesday, September 26, 2006

Reality Comes Knocking

WND carried an article about Hezbollah transferring weaponry to Palestinian camps:
The officials told WND the office of Lebanese Prime Minister Faud Sinora sent a letter last week to Abbas Zakir, the Palestinian Authority's most senior representative in Lebanon, outlining the alleged Hezbollah weapons transfers into Palestinian camps. The letter noted "unusual activity" in and near the Palestinian camps, including the coming and going of trucks suspected of carrying weapons.

Palestinian groups, including Fatah and the Popular Front for the Liberation of Palestine-General Command, maintain armed bases in Lebanon, mostly in the al-Naemeh province just south of Beirut and in the Bekaa Valley, near Lebanon's border with Syria and Israel.
Apparently the Lebanese army will not go into the camps. I think Israel is in for another round of trouble.

In other news, the housing optimists launched into a round of spin regarding the August existing home sales report. NAR went so far as to claim that we could be near the bottom. As quoted by Reuters:
NAR chief economist David Lereah said the August slip in existing home data could be the bottom of a slump for the sector.

"This price drop, in my view, has stopped the bleeding in the sales marketplace," he said. "It seems that the 6.3 million level has now hit bottom. We are now flat with single-family home sales."

Prices will continue to come down in the short-term, Lereah said, and sales will remain flat. Still, he emphasized the pace of sales in August has not slipped as badly as in previous months.

"That is good news for housing," he said. "The health of the housing sector is in transactions, is home sales, not home prices."
Existing home supply is in the 7.5 month range, which means of course that prices will keep falling. NAR might be able to fly the "stabilizing" flag when the home supply range stops increasing, but that hasn't happened yet. Even for single-family, supply increased in August to 7.3 months. I'm sure a wide range of consumers will be surprised to discover that year over year drops in their home prices are considered healthy. They'll probably be shocked if they have purchased within the last couple of years using an option ARM or interest only. In the northeast, median single-family price fell 5.5% over the year. This is not encouraging. North Jersey is in trouble. See this article.

The real news in this release of the existing home data was condos (you can get that release here). At the current sales rate, there is an 8.6 month supply, which guarantees further price drops. In August, national condo sales were unchanged from July and the median price was down 2.7% from the year before. The figures for the south and the west are truly ugly. The median price in the south went down year-over-year by 4.5%, and the median price in the west went down year-over-year by 6.5%. In both of these regions, median prices in August were well below the average for all of 2005. This means that pricing is beginning to roll back to 2004 in quite a few areas.

Condos are always the worst victims of housing downturns, so the bad pricing news is not surprising. But it does indicate future pressure on single-family sales, because the first home purchase in many metro areas is a condo, and much of future single-family housing sales comes from people selling those condos and moving up. I continue to read claims that the lack of buyers is due to insecurity. Rather than psychoanalyzing people, economists would do better to discuss the fact that would-be buyers are unable to sell their current homes, and that the dearth of buyers in some areas is due to an inability to pay two mortgages. The high cancellation rate on both new and old sales contracts stems from an optimistic buyer's brutal encounter with market reality. When their current home doesn't sell, they must either walk away from their deposit or carry two mortgages for an unknown period. We are not seeing a six-month phenomenon here; it will take years to work out in many areas.

September will tell the tale for single-family, because families with school age children are under a lot of pressure to complete moves before the new school year ends. It's very possible that single-family received a one-time boost in August from that factor, and July's low sales were produced by people waiting as long as they could. (Mind you, July's sales figures result from decision in May and June.)

What the August report does indicate is that lenders can no longer lend on the expectation of substantial home appreciation over the future, and now lending standards will have to tighten. Naturally, that will constrain demand even more by next spring. Remember that the existing home sales reports show conditions for about six weeks earlier, so the existing home sales report for August is really reporting on conditions in July.

So now the next leg of this journey to the bottom of the bubble begins, with tightened lending constraining purchases somewhat and job losses in some areas just beginning to mount. In Florida and several portions of California, the losses related to lower housing starts are going to hit pretty hard, although Florida does have a blue-tarp backlog that will delay that reckoning.

For a more real-world look at sales conditions, try these posts at The Housing Bubble Blog:
Lennar and others express worry. Florida, the poster child for exuberance turned to shock and awe. Boston's home pricing sliding into the harbor.

New home sales will be out later this week, and the pending index is due out next week. In the meantime, the Housing Tracker site will be useful. It shows asking prices by city, by week, with quite a bit of history. It takes a few months (4-5 usually) for reality to hit, but once it does this is a useful measurement.

Monday, September 25, 2006

The Days Of Awe

We are now in the Days of Awe, the 10 day period in the Jewish calendar which ends in Yom Kippur, the Day of Atonement. A simplified version of Jewish teaching is that one must repent to G_d and atone to man. Somehow this seems fitting under the circumstances of an incredible series of openings; it is as if the world has suddenly reached a crossroads and must make a decision as to which road to take.

Opening 1. Assad of Syria announces that he wants peace with Israel:
Syrian President Bashar Assad said in comments released Sunday that his nation wants "peace with Israel" and welcomed U.S. intervention in the region. ...

At the same time, in an interview with Monday's edition of Der Spiegel weekly magazine, Assad blamed U.S. policies in the region for "contributing to hopelessness in our country, and to silencing the dialogue between cultures."
Assad compared Washington's approach to the war on terrorism to "a doctor constantly banging away at a tumor instead of removing it surgically."
A bad metaphor there, because in fact Syria has been explicitly mentioned as being part of the tumor, and Assad appears to be trying to avoid becoming part of a post-surgical pathological examination. Assad also said that he wasn't necessarily on board with Iran's Edgy Adji, despite their close ties. One suspects that this has something to do with the Turks; Gul was recently talking with the Americans. I think that Edgy Adji has reached his peak and now will fall with the price of oil.

Opening 2. Jordan is almost finished with a package of Saudi-like laws to enforce state control over teachings in mosques. This probably stems from the rage over the bombing of a hotel last year by Islamic militants:
Jordan's parliament moved Sunday to tighten state control over mosque preachers, amending legislation that aims to prevent the kingdom's mosques from being used to propagate extremist ideas.

Jordanian lawmakers have approved several pieces of legislation in recent weeks that aim to weaken extremists and prevent terror attacks.
Opening 3. In Lebanon, several non-Shia leaders have begun pressing the cause of disarming Hizbullah again:
An anti-Syrian Christian leader dismissed Hezbollah's claims of victory in its war with Israel as tens of thousands of his supporters rallied Sunday in a show of strength that highlighted Lebanon's sharp divisions.
Addressing his supporters after a mass to commemorate Christian militiamen killed in the civil war, Geagea rejected Nasrallah's vow to keep his weapons, saying the guerrilla group was blocking the establishment of "a strong and capable (Lebanese) state" for which Nasrallah was calling.
"How can a state be established while there is a mini-state (within its borders)? How can this state be established while every day arms and ammunitions are smuggled (to Hezbollah) under its (the state's) nose?" he said.
Aoun has also distanced himself from Nasrallah, which represents a change from his recent behavior. See Ouwet.com and Mustapha for more background.

Opening 4. As Islam Online reports, Barroso and Aznar have suddenly grown some cohones and called for the west to support the Pope's right to speak his mind:
In a related development, Barroso strongly defended Pope Benedict XVI in a newspaper interview Sunday, saying Muslim criticism was "unacceptable" and asking why Europe was so silent.

"Attacking the pope because he refers in a discourse to a historical document is completely unacceptable," he told Welt am Sonntag newspaper.

"The problem is not the comments of the pope but the reactions of the extremists... We must defend our values."
Barroso's comments came a day after media quoted former Spanish prime minister Jose Maria Aznar as saying Benedict had no need to apologize.

Aznar, instead, asked Muslims to apologize for the conquest of much of the Iberian Peninsula, which lasted from the eighth to the 15th century.
Opening 5. Despite the abysmal reporting of the media in the west, many Muslims aren't that hostile to the appeal to reason contained in the Pope's speech. After all, it is Muslims who are being attacked the most by Islamic extremists. See, for example, Iraq The Model's post:
Iraq's speaker of parliament opened Tuesday's session (Arabic) by complaining about "the pope's excuses are not enough, he must make a clear apology…."
The Islamist speaker, Mahmoud al-Mashhadani said it without shame or hesitation, just like all other leaders who owe us a thousand apologies a day for their ignorance and incompetence.

What can I say? We got used to this kind of behavior. When someone is full of mistakes he finds no shelter except in accusing others of being wrong.
In fact the continuous pathetic attempts to blame the west and Israel for everything shows clearly that the motives of such demonstrations are political not religious.
See also Big Pharoah on the topic.

I remain amazed at the results of the Pope's speech. They range from the very personal to the global. There is probably more hostility to the speech in the west than there is in the ME as a whole; after all, it is only the slice of the west represented by the NY Times which seems to believe that Muslims are not capable of human reason and rational self-government.

Saturday, September 23, 2006

Mamacita's Divine

I'll probably get some sort of payback for this, because I choked on water when I was reading this post of Mamacita's, which documents one of her students' lack of writing skills, or perhaps her student's writing experience, which appears to have been erotic ads on Craigslist.

Btw, I followed her "dig-up-the-dirt" link, and this is what I learned "MaxedOutMama has a crude prison tattoo of Osama Bin Laden on her taint." Can't you sue for being outed like this? Is my "taint" what I think it is? How did this happen? I swear I'm innocent!

Heh, Suckers

Apparently somebody decided that homebuilders were getting to be a good deal. There may be one or two of them that are, but I looked at the balance sheets for several and they definitely weren't. Seeking Alpha has a decent article on the P/E fallacy, but it doesn't go far enough.

I know the profits look good now (as of last quarterlies), but look at cash flow, debt restrictions and the change in positions versus last year. See, for example Horton D R's cash flow as of June 30.Another problem is that most of these companies are providing mortgages and incentives to potential purchasers and are subject to risk and loss from that. Some of the types of incentives being offered by these companies in markets with sales resistance include paying HOA for 12-24 months, forward-looking credits, etc. These will be a drag on future profits. Many of these companies have gotten into the funny-money loan business, and they may be selling the debt, but they aren't selling the debt totally without recourse.

Homebuilding companies provide warranties and are also subject to legal action for certain defects. When they are coming off a high building period, such as at this time, any bad estimates may lead to insufficient reserves for these costs and drag profits down for years into the future. (Often they use subcontractors, and quality may or may not be sufficiently controlled, because rates paid to subcontractors have often been falling while building has been increasing.) Decreased sales, walking away from land options, increased cancellations (would-be buyers unable to sell first home), increased sales incentives that seem to be suspiciously concentrated for recognition in the future (credits for landscaping/decorating after purchase, payment of first-year utility bills, etc), the need to walk away from their land options, and reduced future and current cash flow amount to a very uncertain operating environment.

A very uncertain operating environment should be red flag for potential investors. It is not safe to buy these companies for book value, because the book value of their assets will likely be falling. Their future profits are unknown, and so are their future costs. However, it is logical to believe that their future costs related to this surge in activity are likely to be higher than in 2001, and the ratio of (future cost for past sales/future sales) is likely to be higher than in 2001. The analysis in the Seeking Alpha article is a bit too sanguine for my tastes.

One thing I don't like about these companies getting into the mortgage business in this environment is that they have much less ability to balance their risks than banks or financial companies which engage in this business on a much wider scale. Many have pointed to WaMu's exposure to option ARMs, but a company that can make money off refinancings is able to shift its portfolio more in compensation for defaults. It's going to be hard for these builders to do the same. Scroll down to the bottom of this post and read the information about Beazer's loan offering, and you will get an inkling of the potential problem. Beazer is not alone in doing this.

Wednesday, September 20, 2006

For Churchill Fan & David

I'm tired, and this thread on SDCIA makes my point better than I can. Here's one person's posting on the horror of paying principle(sic):
Allow me to explain this another way...following your line of thinking vs my line of thinking, and let's see who wins the race. Calculations taken from:

Let's create an example

Brother Jeff and Brother Dan, both buying identical $400K houses next door to each other.

Brother Jeff, who believes that paying down a loan is "building equity" and you should pay-off your loans as quickly as possible, puts 80K down and takes a 15 year fixed rate loan at 6.0% interest, with payments of $2700 per month. If following Jeff's current logic, paying down a loan quickly is "smart," why not do it in 15 years instead of 30, right? Jeff is paying about $1100 a month in principle to start.

Brother Dan, who believes in using as much of the bank's money as possible, and never paying off the loan, gets a 0% interest rate loan at 7.5% interest with payments of $2500 per month. Dan is paying $0 per month in principle. He puts his $80K in a CD earning 4.5%.

4 years go by. Both Jeff and Dan buy new homes and turn old homes into rent houses, moving in new tenants. Their homes are now worth $500K, fully fixed-up and ready to sell.

Question: Did both Jeff and Dan get that $100K increase in value of their homes? Didn't they both benefit from the market increasing the value of their homes?

Question: Isn't that "real" equity? Does the market care what their mortgage balances are?

Question: All that principle that Jeff is paying, is it with PRE-tax dollars or AFTER-tax dollars? Principle payments are NOT tax deductable, Doesn't that make his actual cost HIGHER each month? $1100 is at least $1500 PRE-tax, and goes UP as the loan progresses, and Jeff is FORCED to pay it!!!

10 months later, tenants move out of both houses, leaving them both vacant. Both Dan and Jeff get in an auto accident that lays them-up in the hospital and they can no longer work. Their income is completely shut-off. Jeff's current loan balance, after down-payment and principle pay-down, is $246,175. Dan's mortgage balance is still $400000, but his $80K in a CD has grown to $100K and he can get his hands on it.

Dan works out a forebearance on his loan and makes half payments for 6 months while he gets back on his feet. He's not sweating because he can get his hands on $100K cash if he needs to. His contractor fixes-up the house and moves-in another tenant.

Jeff, on the other hand, has equity in his home, but has no cash on hand. The only way he can get cash is if he refinances to get cash out. That option is out because he is now unemployed and has no income to qualify. He could sell, but because he is forced to sell quickly he has to resort to a fire-sale because of the condition of the house. The bank looks at his house and figures they could sell it "as-is" for $400K, so they decide to foreclose. Jeff sells for $400K at the last minute, and loses his $100K in market gains. Jeff has to start over. He basically gets paid back his own money, the down payment and all of those principle payments, but he didn't make any profit. It could have been worse if the bank did take the property, he would have lost his alleged "loan equity" too. The bank doesn't care that he made all of his payments on-time until the auto accident.

This is "real-world" stuff. Stuff happens to all of us. Banks don't care. Loans don't care. In the words of Jimmy in the movie "Goodfella's,"..."F-ck you, pay me!" Contingencies for life have to be made if you are smart. People's lives change, and this includes you and me. Sooner or later, cash will become tight for anyone. Look at all of those foreclosures. Most every one has to do with an "unexpected change in life," loss of job/income, medical condition, divorce, etc. All things unrelated to our "investing lives" but ABSOLUTELY critical to the success of making those mortgage payments.

The moral of the story? Interest-only loans can be a great vehicle to assist your wealth building, if you know how to use them. You should always have an emergency fund as well. Being forced to pay after-tax principle payments prevents that from happening. You give it to the mortgage company where you can't get your hands on it easily.

Question: If you pay cash for a house, 10 years later have you built more "equity" in increased market value than someone who took out a loan for the same house? This is the disconnect that everybody has their umbilical cord plugged into and they don't even realize it! Paying down a loan has nothing to do with GROWING equity from INCREASING MARKET VALUE, which is TRUE equity growth. If you want to "force" equity into your real estate, paint it or landscape it! You can choose to do those things, if you feel like it, to build equity. The same can't be said for meeting your obligations of a mortgage payment if you failed to set it up that way at the get-go.

Question: Regarding the effect of inflation, what do you think was the size of the average mortgage for the average home was, say, 30 years ago? While we are at it, think about the average wage and take-home pay 30 years ago, and let's throw in average rent and the price of a candy bar 30 years ago. The average mortgage was less than $30,000 30 years ago. Today? About $150,000. Yes the average home size is a bit bigger, but across the board, what's relevant is the average due to the effect of inflation. If you had payments to make on a $30,000 mortgage today, on a house that was worth more than $200K today, would you be sweating about covering that payment? Noooooo!!! You would be thinking of a thousand ways to turn that equity into cash, wouldn't you!!! (Apologies to Ron Starr) But shame on you for not paying off the loan, right? No! Good job protecting your equity all those years, using inflation to your advantage, and keeping your cash where you can get your hands on it!

Question: When Brother Jeff get foreclosed on, is the bank nice enough to pay Jeff back his $80K down payment? Come on! He was a good boy making all those principle payments for all those years, won't the bank cut the man some slack? Noooooo!!!

Question: If you knew that there was no way you could avoid foreclosure, wouldn't you like to know that you are losing the smallest amount of equity possible to the bank? That you had your cash where you could get your hands on it to start over and not the bank? Nobody can foretell a downfall in income but IT HAPPENS TO EVERYBODY!!!! We all get squeezed for cash sooner or later. Just went through it myself. $100K in equity and 50 cents will buy you a cup of coffee...oh wait, make that a $1.50. Damn inflation! Try to buy your honey a steak dinner with all those principle payments you have racked-up in all of your rental properties. Cash is KING.

Question: Follow the money (see if you can figure this one out, Jeff)... the cash of those principle payments, once they leave your bank account, earn what interest and where? Does the house have anything to do with that transaction? Think hard...you have 30 seconds (insert Jeopardy theme music). Answer? Goose-egg!!!

Question: Once you have equity built-up in your rental properties and you want to get some of it out to have some what?...CASH...what are your options? Sell or Re-fi, right? When you receive those funds, aren't you getting back mostly your own money that you paid the bank over the years? From your down payment? From all those principle payments? That's money that came out of your pocket, isn't it? And now you are getting it back...how nice of you to provide it to the bank for ITS use. You earnied nothing on that cash while the bank had those principle payments and down payment, and now you are asking for it back and are now paying interst on it. Good job! So just who was nice enough to hold your hard earned dollars all those years to where you COULDN'T GET THEM BACK EASILY? Thank you bank for being so generous...NOT!

Question: Isn't it good for the BANKS to have all you suckers believe that paying down your loan is "building equity?" Suckers!!!! Why do you think the saying goes for loan officers to tell their clients "interest-only loans are only for rich people." That's right! Because it makes people rich who know how to use them!!! Rich people know the secret! Rich people know how to use their cash on something else rather than tied-up in the banks hands earning 0%!!!! Rich people know how to make more than 0% on their money, so they put that cash to work somewhere else!!!

Question: Why do you think banks don't flaunt interest-only loans? Because "standard" (who says they are "standard" by the way? You or them?) P & I loans PROTECT THE BANK!!! NOT YOU!!! The bank gets less equity if they have to foreclose on an interst-only loan! Each month that you mail in those principle payments, it hedges THE BANK'S position better, not yours! That's good for the BANK, not you! Your balance goes down, but your payments don't, do they?

Question: When the bank gets your principle payments, what does it do with that cash? That's right! They INVEST THAT CASH for their benefit, not yours! Follow your money! And then they put the interest earned on that cash in your bank account, right? SORRY! GUESS AGAIN!!! Why don't you add-up all the principle you paid last year on all of your properties and calculate the interest you could have earned on those principle payments if the cash was in your pocket and not theirs. How about if it was in your pocket in the first place? Don't you think you could have put that cash to work somewhere else? Those of you who still think you are "earning interest" or "paying less interest on remaining balance of your loan" with each principle payment you make have fuzzy logic that benefits the bank, and not your portfolio. You should re-read this paragragh a few times till you "get it." All you guys still doing 1-4 family residences that AREN'T using interest-only loans that are AVAILABLE are UNWISE FOR DOING SO!!! You're hurting yourself and don't even realize it!!! If interest-only loans existed for commercial properties like I have, I'd be all over it!!!!

Question: Add-up all the principle and down-payments you have tied-up in your personal residence. How much interest did you earn for the bank on that money? Could you have put that cash to use somewhere else to build your portfolio? Are you mad yet? I know I was when I realized I'd paid tens of thousands of dollars more than I should have to live in the same house! And can't get my hands on that money easily to use somewhere else.

Question: If you had an interest-only loan and pulled all of your equity out, would the bank be more likely or less likely to foreclose on you if you couldn't make your payments? Would they be more likley or less likely to work something out on a forebearance? If the bank had absolutely no equity to "steal" from you in foreclosure, and knew they would take a loss if they got your house, just how bad do you think they would want to foreclose? If you paid down your loan $50K through principle payments, would they want to foreclose on you more? or less? I hadn't thought this through until someone showed me the "secrets" Ric Edelman points out 3 years ago. I got mad, and so should you.

Question: If you took out a $0 down, interest only loan today on a $400K house, what will your rents and payments look like 30 years from today? The average mortgage? Using history as a guide, $400K 30 years from now will seem like a walk in the park, just like $3OK today would seem on an unpaid mortgage taken-out 30 years ago, and you will be bubbling-over with ever-increasing postive cash flow way before that time, as rents and personal incomes rise with inflation as they always have.

Question: If we slip into a Depression in coming years, wouldn't it be nice to have control of your cash? Let the bank get nothing? They can have your houses, but you have your cash. If a depression happens, don't you think it will happen before your houses are paid off? What will happen to your precious equity then, if you can't make your payments and your tenants stop paying? You will give it back to the bank, and lose all of your equity, that's what!

Question: If you don't have a renter paying you rent, wouldn't it be nice to have a stash of cash to cover the payments that you could get your hands on? Every month that you make those principle payments , you are gambling that nothing bad will happen to you that will affect your income.

They do exist. Most people are not smart enough to ask for them, or the right kind. They do exist, but loan brokers get paid to close loans, not educate consumers on interst-only loans. You should only take advice from people who make more money than you. Who is advising you on your real estate ventures? Your loan broker? how much does he make? You are breaking from the crowd when you start asking for these loans. Only "rich" people have requested them historically. Your loan may only have done a handful during their career, because they personally don't understand their benefits. Should that stop you? Are you comfortable going against the what everybody else does? You want to be careful with these quasi/hybrid-interest-only loans that REVERT to an amortized loan with a SHORTER payback period that can easily double your payment after the initial interest-only period. A lot of foreclosures are happening this way, because people took-out these loans and were not in a position to re-fi when the switch took place. You will be forced to re-fi with these loans basically at that point basically. Taking 10, 15, or 30 years gives you more time. Yes the rate is higher for 30 years, but you guarantee your payment for 30 years and let inflation do its thing, as described above.
See? Paying down principal is just a scam the banks worked out to keep you from getting rich, and only your IO lender can help you escape. SDCIA = San Diego Creative Investors' Association.

Fed Steady 10-1

And peace is preserved for our time:
The Fed said policy-makers voted 10-1 to extend the interest-rate pause. Richmond Federal Reserve Bank President Jeffrey Lacker dissented, arguing higher borrowing costs were needed, as he did at the August 8 FOMC meeting.
A Reuters poll of 69 economists released on Monday found a median prediction of a one in four chance of the U.S. economy slipping into recession next year. That heightened risk is expected to lead the Fed to cut rates by half-a-point by the end of next year.

RE: Wealth Creation Technology

The great debate has now switched from whether housing is going to decline to what kind of an effect the housing decline may produce in the general economy. The housing section of SeekingAlpha is a good aggregator for this type of news. From today's listing, see this quick look at the NAHB outlook index (the lowest since 1991, which was when big swathes of CA saw strong declines in housing values), and a nice graph about the historical correlation between the NAHB housing index and the S&P 500 12 months later. If you will take a look at that, you can see why people are reasonable in expressing concern.

Yes, the economy is currently strong, but it is weakening and experience suggests that this weakening will continue. Granted, we don't have much of a historical correlation to a housing bubble this big. The last remotely comparable period we have is the period before the Great Depression, in which wealth was generated but it was also concentrated, followed by a period in which a great deal of wealth evaporated in a stunningly short period of time. Somewhat naturally, this is the historical correlation we are all hoping to see debunked.

Tim Iacono takes a critical look at the Chicago Fed's paper announcing that the housing boom occurred because of "wealth creation technology". Now I am not going to argue with the Fed, especially given that "wealth creation technology" is shorthand for lenders ignoring historical safe lending practices. There is no question that this has been done, and the Fed could have lowered interest rates to zero and not produced the housing boom we have seen if it had not been for "wealth creation technology".

I do disagree with the name chosen, because any time you lend on negative amortization you create wealth for the borrower only while the underlying market is accelerating. Perhaps the Fed was thinking about the brokers and loan officers, who most definitely generate upfront wealth for themselves when writing these loans. If so, I could wish that the nice folks who wrote this fine paper had consulted with the OCC, because the OCC has been firmly insisting (even while all this "wealth creation technology" was proliferating) that the defining characteristic of predatory lending is the pattern or practice of making home loans that the borrower clearly cannot repay without selling the home.

Up until I had read the Chicago Fed paper, I had thought that even the Fed agreed that predatory lending could not be designated a "wealth creation technology". Granted, it is profitable for the lenders, brokers and realtors, which is why it is a problem. The loan terms, however, not only cause the borrower to lose the home, but if done in great enough numbers in a locality, cause property values in that locality to fall. Predatory lending destroys wealth over a few years instead of creating it.

Indeed, the risks of "wealth creation technology" were of enough concern to the agencies to cause them to release a proposed interagency guidance in December, 2005 (which had been preceded by guidances related to high loan to value equity loans). It was more than controversial, because as banks pointed out, non-regulated lenders were going to offer these terms anyway. However, (see the previous link), some of the commenters were more than disingenuous in protesting the terms in the guidance that would have imposed a requirement to assess life-of-loan repayment ability, implicit recourse for sold portfolios, and a requirement that securitizers independently assess compliance. Interestingly, the Fed banks' comments were withheld from the public, but I suspect they had something to do with the risks of closing the barn door too late. It's not hard to guess that an awful lot of borrowers who had gotten these "wealth creating" loans previously would have been unable to refinance out of them into more traditional loans under the proposed guidelines, and this would have prevented some of these borrowers from consolidating their position.

Now there are times when home loans written with negative amortization are clearly not predatory lending, and that is when the borrower could afford to repay the loan if it had been written as a standard fixed amortization. In other words, if the borrower did not need the lower payments provided by the negative amortization or non-amortizing terms of the loan in order to qualify for the loan, the borrower is not going to be forced to sell the house to repay the loan. In these few cases, the borrower truly is taking out such a loan in order to invest his or her assets elsewhere at a profit. These cases are always under 5% of borrowers, however.

Thus, it is difficult when looking at the map of misery to believe that "wealth creation technology" resulted in areas in which 20% or 30% of borrowers were getting these "wealth creating" loans, and it is not hard to find a correlation with areas now seeing a rather sudden drop in prices. As soon as rapid appreciation stopped, a rapid decline was in the cards. Nor have we even begun to see the worst that this "wealth creation technology" will generate, because people are still refinancing their "wealth creation technology" loans at an incredible clip.

What's really cute about recent cash-out refis is that most of them have been done into a loan with a higher base interest rate, which is another hallmark of predatory lending. Normally predatory loans go through a few refis until the borrower has exhausted all equity in the home and is forced to sell, because as the borrower gets more and more in the hole, the borrower ends up more and more at the mercy of predatory lenders. Thus this "wealth creation technology" thing appears to be the Chicago Fed's new name for predatory lending. You can call it Little Green Footballs if you want, but it is still proven to destroy wealth and not create wealth.

Now I realize that everyone not afflicted with a terminal case of BDS has gotten sick of the relentless negativity of the press regarding the economy. I am sick of it as well. I concede without any reservation that if Bush figured out a way to make gold coins drop from the ceilings of American homes every time a toilet was flushed, the NY Times would run a series of articles discussing the Bush administration's diabolical plan to attack American citizens with heavy metal weapons in their own homes, and the editorial pages of the nation's newspapers would be filled with outraged calls for Bush's impeachment.

Nonetheless, logic requires skeptical readers to realize that not every concern published in the NY Times is purely political. Indeed, the degree of the reality of this risk can be measured by the fact that the editorial pages of the newspapers aren't filled with outraged calls for Bush's impeachment. The big boys are too scared to spin this one, because their own wealth is threatened. This risk is real, and if you are in a marginal position, you should try to reduce your risks while you still can.

Tuesday, September 19, 2006

More Oil Speculation

Now the oil speculation is centered on when OPEC will meet and agree to cut production to support prices. Reuters:
U.S. light crude settled down $2.14 to $61.66 a barrel, the lowest in nearly six months. London Brent fell $1.88 cents to $62.17 a barrel.
...several OPEC ministers have said they favor of a price of between $50 and $60 a barrel. The price for OPEC's basket of crudes was about $57 a barrel Tuesday.
"At some point OPEC will have to step up to the plate and say what price they'll want to defend," said Bill O'Grady, analyst at A.G. Edwards. Producer group OPEC has been pumping oil at its highest rate since the late 1970s.

What's Up In Thailand?

Supposedly there are tanks around the government headquarters in the capital, and the PM, who is NY for a UN meeting, has tranferred the head of the army to the PM's office. Huh?

And Benedictamania Continues

BBC News, quoting Khameini of Iran:
Iran's Supreme Leader Ayatollah Ali Khamenei has said recent remarks by the Pope on Islam were in line with what he called a "crusade" against Muslims.
Ayatollah Khamenei said the remarks by Pope Benedict XVI last Tuesday were the "latest link" in "the chain of a conspiracy to set in train a crusade".

Other links, he added, included the cartoon satirising Muhammad and "the insulting remarks of some American and European politicians and newspapers about Islam".
Sami Abu Zuhri, a spokesman for Hamas, which controls the Palestinian parliament, said: "We do not view the statement attributed to the Pope as an apology."
Quite right. It wasn't an apology. Pope Benedict XVI, who I hope will not become a martyr to the truth, said that he regrets the "reaction in some countries" to his speech, but not the speech. Note that Khameini's remarks amount to the idea that no one in the entire world may criticise anything called Islam, even if it is a twisted misrepresentation of Islam.

Newsday reviews some of the responses to the lecture at a Regensburg university last week:
Al-Qaida in Iraq and its allies said Muslims would be victorious and addressed the pope as "the worshipper of the cross," saying "you and the West are doomed as you can see from the defeat in Iraq, Afghanistan, Chechnya and elsewhere. ... We will break up the cross, spill the liquor and impose the 'jizya' tax, then the only thing acceptable is a conversion (to Islam) or (being killed by) the sword."
"You infidels and despots, we will continue our jihad (holy war) and never stop until God avails us to chop your necks and raise the fluttering banner of monotheism, when God's rule is established governing all people and nations," said the statement by the Mujahedeen Shura Council, an umbrella organization of Sunni Arab extremist groups in Iraq.

Another Iraqi extremist group, Ansar al-Sunna, challenged "sleeping Muslims" to prove their manhood by doing something other than "issuing statements or holding demonstrations."

"If the stupid pig is prancing with his blasphemies in his house," the group said in a Web statement, referring to the pope, "then let him wait for the day coming soon when the armies of the religion of right knock on the walls of Rome."
It wasn't confined to Iraq, though. Next up, the UN:
"His comments really hurt Muslims all over the world," Umar Nawawi of the radical Islamic Defenders' Front said in Jakarta. "We should remind him not to say such things which can only fuel a holy war."

Islamic countries also asked the U.N. Human Rights Council to examine the question of religious tolerance. Malaysia's foreign minister, Syed Hamid Albar, said Benedict's apology was "inadequate to calm the anger."
And in the meantime, the Australians show stones (The Times Online):
Effigies of the Pope were burnt from Basra in Iraq to Muzaffarabad in Kashmir. The president of the Islamic Association of China said that the Pope had insulted both Islam and the Prophet Muhammad.
Cardinal George Pell, the Archbishop of Sydney, said: “The violent reactions in many parts of the Islamic world justified one of Pope Benedict’s main fears . . . They show the link for many Islamists between religion and violence, their refusal to respond to criticism with rational arguments, but only with demonstrations, threats and actual violence.
I hope the good archbishop doesn't get whacked for his courage. The Anchoress' comments on martyrdom now come to mind.

For something that has nothing to do with ranting and raving and a whole lot to do with independent thought, see Oraculations, specifically his posts on McCain, gold and gas. I nominate Howard for "least likely to be swayed by a mob".

Sunday, September 17, 2006

The Culture Wars

I'm sure a lot of other people are as amazed and daunted as I am regarding the western reaction to the Pope's speech at Regensburg. I think Betsy Newmark expressed my attitude best in her post entitled This Pope Is A Brave Man. She begins:
He must be doing something right because he has the New York Times angry at him for even broaching conflicts between Christians and Muslims.
And she continues:
The NYT now has joined the ranks of Muslim leaders around the world who have demanded an apology. But what they are all doing, the New York Times, is ignoring the full depth of his speech. He is trying to engage the world in a dialogue about the concept of forced conversions and spreading faith by the swowrd. ... Recently, we just saw the forced conversion of two Fox News reporters and no one in the Muslim world seemed too upset about that picture of Christians being forced at the point of the gun to deny their faith.
It sounds as if this Pope has decided that he must throw his moral weight behind the battle against the use of violence in religion's name.
It's a worthy cause. I think what so disturbs me about the NY Times article is that it perfectly exemplifies the attitudes of those who want to somehow sweep the problem of violent, aggressive Islamist groups under the rug. It's not that they don't believe that these groups are violent and aggressive. They absolutely believe that they are violent and aggressive, which is why they argue that we should remain silent so as not to provoke them.

My problem with this "solution" is that people who refuse to deal with reality eventually end up subject to people who not only deal with reality but desire to shape that reality. The attitude of the NY Times is exactly what the likes of Al Qaeda, Edgy Adji and Saddam Hussein count on to achieve their goals. (I don't believe Saddam Hussein was ever truly Muslim, but he did get heavy into building mosques and paying the families of suicide bombers in order to draft off those who were.) The last time the democracies followed the NY Times' recipe for peace, tens of millions of people died in a preventable conflict we now call WWII. I don't want to repeat this error.

Pope Benedict XVI also is arguing for peace and for a dialogue between cultures, but he is arguing for that dialogue to be conducted on the basis of reality. It would seem that history favors the papal approach here, because I cannot think of a time when the other has ever worked. It also seems to me that being wiling to speak as the Pope did is the only way in which we can have a real dialogue. The NY Times seems to believe we can negotiate while being unable to identify the sources of our differences, and I cannot think of any time in history in which that has worked. The NY Times is apparently advocating that western leaders, newspapers and the people themselves should behave as if they have already been conquered by a violent strain of Islam, and censure their speech accordingly. Is that even sane?

Benedict seems to have laid out in one stroke the moral and intellectual crisis in the west, which has nothing to do with Islam at all. The west has the power right now to end any possible threat emanating from Muslim populations in the ME or in our own countries. However, our ethics dictate that we should not do so, and these ethics are based on moral principles that for many of us stem from faith, and for many others of us derive from philosophy. In arguing for full inclusion of these principles in western intellectual life, Benedict is also defending the right of Muslims to be Muslims in the west, just as he is defending the right of atheists to be atheists, and Christians to be Christians. He is also defending common sense, which is in short supply in many politically correct corners (warning, this is a highly disturbing link).

To me the idea of the essential freedom of human conscience is a necessary principle for any sane society, and it is also clear to me that Pope Benedict XVI has brought to the fore the worst threat to Muslims in the west. That threat is the possibility that the west would accept the NY Times and CAIR's idea that Muslim ideas and ethics could not be debated, which would completely unfit Muslims from participation in political life. Our political and social freedoms are based on the idea that we are all subject to questioning.

Try to imagine an American of Arab extraction and the Muslim faith ever getting elected if his opponents could not openly query his loyalty to American ideals and the Constitution. Silence causes distrust and suspicion. If CAIR wants to impose a public censureship about the worry with which Americans are now feeling about Islam, then no Muslim will ever get a chance to accurately define to the American public what Islam is to him- or herself.

I am deeply disturbed by the growing the swell of support for cancelling out freedom of religion in the US with regard to Muslims. Our country would not survive such a thing. I'm sure that the NY Times is no longer capable of calling anything by its right name, but Muslims such as Big Pharoah are. The irony is that many Muslims are arguing for the openness and inquiry of which Pope Benedict XVI spoke, and the NY Times seems to be arguing implicitly for a policy of strict de facto segregation paired with public censorship, which would inevitably result in the death of freedom in the United States.

I trust Pope Benedict XVI to call him as he sees them, and I trust Big Pharoah and Muslims I have known. But I think the NY Times is the enemy of my Muslim friends. It presumes them violent and incapable of civilized, reasoned discourse, and they are not. There are some Muslims who stand for hatred and killing in the pursuit of power, that's true. There are others who don't. There are some Christians who stand for hatred and killing. Darned few, but that's because our country is strong enough to oppose them. There are atheists (most specifically, the communist atheists who have killed millions upon millions in their search for a utopia) who jave racked up the world record for ideologically motivated mass murder.

Hatred and killing is a human problem. There will, at times, be religions and political movements based on hatred and killing in the pursuit of power. But there can never, ever be a society based on something other than the principle that "might makes right" which refuses to rebuke and openly debate those who seek power through violence. IMO the type of Islam that's a threat to the world today is not a religion but a political party. I fail to see why we should not debate it, and all of its precepts, and no threat by anybody is going to make me believe that shutting up is going to save lives.

I'm sure the idiots at the NY Times, who could not stand to print Jeffrey Stark's words about dying for freedom, also hated it when political leaders openly pointed out the evils of communism. Eventually, the US people rebelled against that, and in the process, took down the Soviet Union without a war. We should all remember that Ronald Reagan's "evil empire" is now no more. Perhaps Pope Benedict XVI's speech will someday have its rightful place in the history books as marking the beginning of the end of western idiocy regarding the Islam of the Caliphate.

See Shrinkwrapped's Liberalism and Aggression. The NY Times' brand of liberalism strikes me as being like one of those tiny little dogs that is so terrified it is always making the choice between peeing on itself, hiding under the couch or biting any visitor to the house. Each response is driven by a fear so overwhelming that it prevents the dog from assessing the true intents of the visitor.

Saturday, September 16, 2006

Option ARMS Redux

I have been trying to figure out why so many people have refinanced out of fixed loans to option ARMs, and I thought this SDCIA posting was useful. The poster is a subprime loan officer who is seeing very poor applicant credit quality:
My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.
Of the last 100, I have taken some simple statistics and have found the following:
68/100 had LTV's over 80% at time of application
16/100 had LTV's over 100% at time of application
78/100 had back end DTI's over 55%
31/100 had back end DTI's over 70%
23/100 had FICO's under 500
81/100 had credit card debt above $10,000
54/100 had credit card debt above $20,000
18/100 had credit card debt above $50,000
66/100 had Pay-option ARMs
27/100 had Pay-option ARMs and mortgage lates
22/100 were either in forbearance or had been in forbearance within the past 12 months
In a later comment, he writes:
I will say this without any hesitation: 9/10 borrowers who currently have Option ARMs have no real understanding of what their loan is doing. I have had more than a few old ladies cry in my office when I show them the amount of deferred interest on their loan.

They were careless enough to sign a bad loan (ultimately the responsibility of the borrower to read the docs before signing), but it doesn't help that every hack broker out there is pitching the option arm just because the rebate is so high.

Almost daily I see 70-year-old+ borrowers who used to owe $50k on their home now owing $600k on option arms.
Some of this ought to be actionable.

Two Churches Attacked In West Bank This Morning

AP Newsday:
Two West Bank Christian churches were hit by firebombs early Saturday, and a group claiming responsibility said it was protesting Pope Benedict XVI's remarks about Islam.
The article says that the Christian clergy in the West Bank say these are isolated incidents, but yesterday there was a minor bomb at a Greek Orthodox church in Gaza.

I have been reading up on the Pope's speech and the reaction to it this morning. Of course I read the bloggers: The Anchoress, Sigmund, Carl and Alfred, The Pondering American. Cartago Delenda Est has a summary of reader commentary posted in response to a Daily Mail article. I figured Darcey at Dust My Broom would have something pithy to say, and he did:
He is now being compared to medieval crusaders and Hitler for quoting words that are over six hundred years old and they were taken out of context. Instead of immediate condemnation, burning effigies, staging protests and now a suspicious bombing of a church in Gaza, couldn’t the holy leaders enter into some sort of dialogue to refute what was said and clarify? If not and violence erupts would it not prove out those six hundred year old words?
Darcey predicts a pickup in both western criticism of Islam and Muslim riots in protest.

Then I read the outraged statements of Muslims in the west and around the world, and went on to the speech itself. The work the Pope quoted is by Adel Theodor(e) Khoury, who is a Catholic theologian (born in Lebanon) who has provided the theological groundwork for a common understanding between Islam and Catholicism. See, for example, this essay on Abraham in Judaism, Christianity and Islam, which ends:
Membership in the posterity of Abraham can foster an open encounter between the faithful of the three Abrahamic religions. By relating to his faith and to his obedience to the commands of God, even amidst trials and tribulations, one can find in him a common point of reference which embraces all men of good will, open to faith and disposed to embrace the good. This attitude is capable of broadening the horizons of believers so as to make room for all human beings and all peoples and to make them witnesses of the blessing God granted to Abraham and that he entrusted to him for all the nations of the earth.

Rather than being an object of dispute and wrangling between the three faiths that claim him, Abraham can become the initiator and the guarantor of a serious dialogue between them and of a fruitful cooperation for the good of all humanity.

For we live today in a world which, in the context of pervasive globalization, is no longer and can no longer be the world that some individuals can confiscate for their profit at the expense of others. Our present is the present of all of us together, and our future is the future of all of us together. We must finally stop treating one other like adversaries; we must succeed in making ourselves partners of one another; and we must strive to create between us an atmosphere of trust that will render us capable of becoming — if God wills it — one another’s friends. This will lead us to practice a universal solidarity with each other and all of us together with respect to all human beings, the solidarity of all with respect to all.
Freedom's Zone contains the best overall analysis of the speech regarding its actual content that might be offensive to Muslims that I have found. The speech's overall thrust was toward the west, and Pope Benedict's theme was the necessity to exercise the full range of human reason in order to sustain European society. In that pursuit, the pontiff reviewed quite a bit of the history of man's conceptions of God, as in:
The mysterious name of God, revealed from the burning bush, a name which separates this God from all other divinities with their many names and declares simply that he is, already presents a challenge to the notion of myth, to which Socrates' attempt to vanquish and transcend myth stands in close analogy. Within the Old Testament, the process which started at the burning bush came to new maturity at the time of the Exile, when the God of Israel, an Israel now deprived of its land and worship, was proclaimed as the God of heaven and earth and described in a simple formula which echoes the words uttered at the burning bush: "I am."

This new understanding of God is accompanied by a kind of enlightenment, which finds stark expression in the mockery of gods who are merely the work of human hands (cf. Psalm 115).
After reviewing with approval the Greek contribution to early Christian thought, the pontiff takes a swipe at some western theological deviations (and later, Protestant innovations):
In all honesty, one must observe that in the late Middle Ages we find trends in theology which would sunder this synthesis between the Greek spirit and the Christian spirit.
This gives rise to positions which clearly approach those of Ibn Hazn and might even lead to the image of a capricious God, who is not even bound to truth and goodness. God's transcendence and otherness are so exalted that our reason, our sense of the true and good, are no longer an authentic mirror of God, whose deepest possibilities remain eternally unattainable and hidden behind his actual decisions.
As opposed to this, the faith of the Church has always insisted that between God and us, between his eternal Creator Spirit and our created reason there exists a real analogy, in which unlikeness remains infinitely greater than likeness, yet not to the point of abolishing analogy and its language (cf. Lateran IV).
And continues:
This inner rapprochement between biblical faith and Greek philosophical inquiry was an event of decisive importance not only from the standpoint of the history of religions, but also from that of world history -- it is an event which concerns us even today. Given this convergence, it is not surprising that Christianity, despite its origins and some significant developments in the East, finally took on its historically decisive character in Europe. We can also express this the other way around: This convergence, with the subsequent addition of the Roman heritage, created Europe and remains the foundation of what can rightly be called Europe.
This is where the real offensiveness to some varieties of Islam lies. By claiming both that God must remain accessible to human reason, and that our culture itself is founded in the dual traditions of reason and faith, Pope Benedict is implicitly asserting that reason and free inquiry are necessary components of our society. He then comments on the functional error of modern relativist thinking - that it derationalizes society:
It is man himself who ends up being reduced, for the specifically human questions about our origin and destiny, the questions raised by religion and ethics, then have no place within the purview of collective reason as defined by "science" and must thus be relegated to the realm of the subjective.

The subject then decides, on the basis of his experiences, what he considers tenable in matters of religion, and the subjective "conscience" becomes the sole arbiter of what is ethical. In this way, though, ethics and religion lose their power to create a community and become a completely personal matter. This is a dangerous state of affairs for humanity, as we see from the disturbing pathologies of religion and reason which necessarily erupt when reason is so reduced that questions of religion and ethics no longer concern it.
Okay, I understand and agree with him, but it then must follow that religion and ethics must be subject to criticism and analysis, for without criticism and analysis, reason has no function. Here I think the pontiff does take a stance which logically implies that no form of Islam insisting upon its right to be immune to criticism on penalty of violence can be permitted in the west. He is also directly attacking the Dawkinish appeasionists, which want to avoid the clash with this form of Islam by removing all religion from the public square. I believe he is right. But it is only when one acknowledges this point that one understands his earlier emphasis upon the setting and the stage of the Byzantine emperor's remarks, which was in the barracks during a Muslim attack on Byzantium. Surely the pontiff must intend to recall to us that we have faced the fall of our civilization before, and that we will see our civilization fall now unless we mount a concerted defense of it.

So this is a rather blistering critique on two fronts, but both of them are European fronts, and the primary front is western civilization's seeming willingness to abrogate full reason in favor of a falsely objective scientific standard. Science, due to its self-limitation to the verifiable and material, cannot alone provide an ethical basis for a workable society. Science gives us knowledge, but knowledge alone does not give us solutions to societal problems. Science gives us more ways to solve problems, but does not tell us which will succeed in the long run or provide a foundation for making a decision. And surely the pontiff means to at least imply that if we abandon the ability of western reason to grapple with these issues, then Islamic theology will take the empty field and wrest control of European society!

The idea that science alone can be form a reasonable foundation for a successful society is a decisively western idea, and it is this idea which the Pope is attacking. The first few paragraphs of the speech suggest the conflict, and here he closes it:
The positive aspects of modernity are to be acknowledged unreservedly: We are all grateful for the marvelous possibilities that it has opened up for mankind and for the progress in humanity that has been granted to us. The scientific ethos, moreover, is the will to be obedient to the truth, and, as such, it embodies an attitude which reflects one of the basic tenets of Christianity.

The intention here is not one of retrenchment or negative criticism, but of broadening our concept of reason and its application. While we rejoice in the new possibilities open to humanity, we also see the dangers arising from these possibilities and we must ask ourselves how we can overcome them.

We will succeed in doing so only if reason and faith come together in a new way, if we overcome the self-imposed limitation of reason to the empirically verifiable, and if we once more disclose its vast horizons. In this sense theology rightly belongs in the university and within the wide-ranging dialogue of sciences, not merely as a historical discipline and one of the human sciences, but precisely as theology, as inquiry into the rationality of faith.
And here we are again posed the logical conclusion: if any stream of religion or human thought will not allow itself to be subject to reason, it cannot be permitted to have sway, or the walls of Europe have fallen.

Friday, September 15, 2006

Just Trying To Figure It Out

I wandered over to this WSJ Fiscally Fit article about a couple looking for a house in northern NJ, and it contained a link to the Fiscally Fit forum and the discussion on the article. H/T The Housing Bubble Blog?

The forum is particularly good because it contains a lot of advice and anecdotes from people who have made money on real estate, such as this one:
We have a house in El Dorado County and Zillow says it's worth $534,000.

I'm a broker (not for El Dorado County) so I watch the market like a hawk and I can tell you that El Dorado County is a buyer's market.

I don't mean a neutral or what realtors like to euphemistically like to call a "balanced" market.

It's an all out buyer's market, without a lot of active buyers, with the streets littered with for sale signs and I get Realtytrac foreclosure bulletings weekly for that area.

So Seller and Buyer beware of Zillow.com. If we had to sell our house today, I would not list it for more than $434,000, i.e. $100,000 LESS than what Zillow claims.
(I second that. Zillow seems way off in some cases.) And this comment:
I'm a broker in both CA and AZ. Most of my life was spent in southern CA and I, like another person who replied have always made money in buying and selling SoCal real estate (LA and San Diego). However, I came into the market back in 1981 with 17% interest rates and really couldn't afford to buy my first condo in San Diego until 1987 when rates were around 9-10% and the late 80s real estate boom got wind in its sails. I vididly remember lines of people camping out for 2-3 nights in front of new development sales offices hoping to get into a lottery to buy a house. I quickly bought and sold two homes almost doubling my money on each. By the luck of the draw I was transferred in late 1989 to the east coast and my employer bought my last San Deigo home under a relo contract for 50% more then I paid for it 8 months earlier. In January of 1990 (2 months after we closed escrow) the bottom fell out of the market and prices in SoCal dropped 40% almost over night. Sidenote: most younger real estate agents and mortgage brokers don't remember and don't believe that such a precipitous drop could happen. One of the reasons for the crash in SoCal was the fall of Soviet empire and resultant collapse of the aerospace/defense business which was a mainstay of SoCal employment since the 1950s. The market stayed depressed for about 6 years before the market started to turn up again. I actually transferred back to San Diego in 1994 and bought my same house back for 1/3 the price I sold it to the relo company 4 years earlier. I then bought a condo 1 block from the beach in 1995 for $300K after it had been on the market for over a year. I sold it in early '98 for $475K. The person I sold it to sold it in 2000 for $700K, that buyer sold it in 2002 for $985K. Last summer (2005) that same 1,400 sq. ft. condo sold for $1.595M!!!. There's no way on earth that a condo could or should ever go from $214/ sq ft to over $1,100 per sq. ft. in a 7 year period. Maybe over 40 years, but not seven! I could cashflow the beach cono as a rental at $300K, there is no way one could do so at $1.6M. Bush/Greenspan propped up the economy with low interested rates. Lenders and appriasers once again got greedy and sloppy in their practices. My prediction is that barring no external inputs (earthquake, terrorist attack, etc.), prices will continue to slide month-over-month and by this time next year we'll see a repeat of the S&L crisis and the forclosure will be rampant in markets like SoCal, Boston, etc. The absolute numbers are so much bigger this time around. The use of securitiziation in the mortgage market may cushion the impact on the financial markets persay, however the individual homeowners are going to ake the full brunt of the falling prices. Long story short for SoCal; start looking for your dream home today, be patient, and over the next 12-24 month you'll be able to buy it for 40-50% less! That $1.595M condo isn't worth more then $750K and the bank will sell it to you at that price as an REO.
I hope this poster is wrong, but I think the downdraft on pricing is building. There's other knowledgeable advice in the thread. I know a lot of people are trying to figure out what to do. If that's your situation, maybe this will be helpful. I think the big losses will be concentrated in areas with particular negatives, such as high investor participation, higher costs (taxes & property insurance) and/or bad demographics/job market. So don't get too scared. I have been looking at Sacramento, and it seems to me to have lost at least 10 percent.

A lot is being written about foreclosures, but they are still low (except in a very few areas), historically speaking. I do think there will be quite a few of them, but we haven't seen it yet. Good perspective at Inman.

The story of this year has been continuous cuts in oil demand forecasts. Crude went below $63 today after OPEC cut its forecast. Then they rose again, but the trend is still lower. FRB said US industrial production declined in August. Industry capacity utilization fell, but it is still above historical highs. See the Chron.com article on oil here. If gas prices continue to fall, we may be looking at a large overall stimulus to consumer spending for basics, and a potential backstop to the effects of the housing problem. We'll see. These oil prices were always speculative (compare April to September), and in some luxury sectors on the coasts it seems as if a recession has already begun.

But isn't the real story the auto industry wreck? It's hard for me to believe the optimistic forecasts that predict a slowing of growth rather than a recession, because if both housing and autos are in trouble, what is left? How does an economy overcome that? The only way is by accelerating other types of production, and there is nothing pending now that could possibly pick up the slack. I still think asset deflation is the economic theme for the next two years.

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