From Housing Bubble to Bread Lines?

I am deeply disturbed by the direction our country is going. How can I even care about real estate in Reno as the United States goes to hell in a handbasket right before my eyes? Is it just me? Am I colored with doom from reading my own blog now for too many years? Or is what played out in the USSR, Argentina and so many other civilizations throughout history happening right now, right here, in the oh-so-revered, pristine US of A? Watching just the first four videos in the following series reveal eery similarities between the collapse of the Argentinian financial system and what’s happening right now with our goverment, our bankers and the economy. I dare you to watch all twelve segments and see what happens. Is this our future?

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32 Responses to From Housing Bubble to Bread Lines?

  1. Avatar Sully says:

    Well, I have been more or less predicting a modern version of the Decline of the Roman Empire.

    As the govt continues to throw more money into this bottomless pit of bailouts, things can only get worse.

    Many top notch econmists are coming to terms with these bailouts, and don’t like what they see.

    I also predicted a revolution, maybe not of the guns variety, but a revolution none the less.

    As the taxpayers/voters wake up to the cost of bailing out Goldman Sachs and friends, they will begin to vote out the incumbents in Congress and install fresh faces that haven’t succumbed to the lobby industry.

    Might be wishful thinking, but something will happen and happen sooner than most people think. These giveaway programs have never worked in the past, why would anyone think they will work now?

  2. Avatar DonC says:

    Perhaps your personal situation is making things look bleak? I visited Argentina during those years and what we are seeing here is the US is not remotely as bad as what happened in Argentina.

    If the financial system is stabilized then the economy will recover, jobs will come back, and real estate prices will recover. In fact we may have already seen the bottom. Time will tell.

    It’s impossible to compare the Argentine financial collapse of 1999-2001 with any of the US financial collapses of the last hundred and fifty years. There are too many differences. But note that the Argentine crisis was more or less over three years after it began. We’re nine months into our crisis and the worst appears to be over.

    Sully — My prediction is that when the taxpayers make a nice return off the “bailout” of Goldman Sachs they’ll reach other conclusions. Those who oppose the loans will say the recovery would have happened anyway. Those who favor it will say it worked. No minds will change.

    I don’t believe, however, that there are any — not to say many — “top notch” economists who are opposed to the loans. Gary Becker is about the only one I can think of, and he has actually advocated increasing the money supply like the Fed did late last week. (So let’s say his opposition is lukewarm at worst). From Marty Feldstein on the right to Paul Krugman on the left, the consensus is that stabilizing the financial system is necessary.

  3. Avatar Sully says:

    Don, if we all always agreed then life would be pretty boring, wouldn’t it?

    You go ahead and keep your position as a closet shill for the NAR, I on the other hand will continue to monitor this crisis in the same manner I have been in the past 5 years (yes, before it was even called a crisis).

    So far, I’m ahead, not rich, but ahead. Although I cannot say for a fact that this bailout will not work; I can say (from experience) that this BS has never worked in the past and I seriously doubt it will work now.

    The FED and Treasury said the crisis was contained after Bear Sterns fell, and again after Lehman,etc. Every time the damn crisis is contained, they need more billions to avert a collaspe.

    So, when exactly will this crisis be contained, after all the house affordability index is at an all time high.

    Seeing how there is only a handful of peoople that can qualify for a house its not hard to qualify someone with a FICO of 820 and 20% cash down.

    In the meantime the average Joe has to worry about his job and the unemployment numbers are going up not down, so yes it would be nice for taxpayers to make a killing off of Goldman, but
    I doubt it is going to happen in the near future.

    AIG was the smaller risk in derivatives, wait until JP Morgan and Citi start disclosing theirs.
    The US government cannot print enough money to cover those two, and still has to get AIG back on its feet. So don’t hold your breath waiting for this containment, which might not happen in your lifetime, I know it won’t in mine.

  4. Avatar BanteringBear says:

    DonC posted:

    “Perhaps your personal situation is making things look bleak? I visited Argentina during those years and what we are seeing here is the US is not remotely as bad as what happened in Argentina.

    If the financial system is stabilized then the economy will recover, jobs will come back, and real estate prices will recover. In fact we may have already seen the bottom. Time will tell.”

    Do you ever take off your rose-colored glasses, DonC? Do you work for Goldman? JP Morgan? AIG? C’mon, give up the goods. There are a lot of “if’s” in your posts, and it’s little more than wishful thinking, IMO. The only thing that matters right now is job creation and wage growth, and that’s just not happening- quite the contrary. Bailing out wealthy bankers isn’t doing a darn bit of good. If anything, it’s more about wealth preservation for the elite- whether people cop to it or not.

    It sounds like you bought into Hank Paulson’s verbal diarrhea back in the fall. I didn’t. I think he’s full of horsesh!t, and we’re throwing good money after bad. We should have sent these “too big to fail” pigs to the graveyard. Instead, we’re sending the country there.

  5. Avatar BanteringBear says:

    I cannot load the video because my 3G connection is weak right now, but thanks for the link, Diane. I’ll watch it as soon as I can.

    I think it’s important to take a look at the stock market right now. The DOW has rocketed up nearly 450 points with 15 minutes or so left until the close- on basically no good news. This, IMO, is nothing more than a dead cat bounce prior to another leg down. When the DOW finally does bottom, it won’t be rocketing back up 1500 points in a matter of weeks. This is merely a rally in a highly volatile bear market. I don’t buy into all the happy cheer. I don’t usually talk about the stock market here, but I think this is pertinent as it pertains to this thread, and the overall (ill) health of the economy.

  6. Avatar BanteringBear says:

    DonC posted:

    “Sully — My prediction is that when the taxpayers make a nice return off the “bailout” of Goldman Sachs they’ll reach other conclusions.”

    Just in from Marketwatch:

    “Goldman may sell part of stake in ICBC to raise more than $1 billion: report”

    Sounds like someone’s in desperate need of some capital. “A nice return”, DonC? HAH! These guy’s are in deep…

  7. Avatar diablo says:

    Ohhhh my I just love all this DOOMSDAY talk.. especially considering I added considerably to my positions when the dow hit 6,500..

    what did we close at today? oh that’s right 7,775.

    THANKS!

  8. Avatar Carleton says:

    Hey DonC, I am still waiting for your answer to the question I posed to you on the last thread. That is: has the NAR Affordability Index, ever said that houses had become unaffordable? If so, when?

    You are going to answer my question, aern’t you?

  9. Avatar Casa de Dolor says:

    I have no answers or original thoughts; I can only offer the wisdom of the past:

    Look to this day, for it is life,
    The very life of life,
    In its brief course
    Lie all the realities and verities of existence.

    The bliss of growth,
    The splendor of action and
    the glory of power.

    For yesterday is but a dream,
    and tomorrow only a vision,
    but today well lived,
    Makes every yesterday a dream of happiness,
    And every tomorrow a vision of hope.

    Look well therefore to this day.

    5000 year old Sanskrit Proverb

  10. Avatar billddrummer says:

    Here’s some more (I can’t play videos at work):

    http://www.rollingstone.com/politics/story/26793903/the_big_takeover

  11. Avatar DonC says:

    Carleton says “I am still waiting for your answer to the question I posed to you on the last thread. That is: has the NAR Affordability Index, ever said that houses had become unaffordable? If so, when?”

    I have the impression you think this is a tricky question. It’s not. The HAI is a number. Over the years it has been high and it has been low, and it has a median and an average. If you want to define any number below the historical average as suggesting homes are unaffordable, and any number above the average as suggesting homes are affordable, then the HAI has said homes are unaffordable about half the time.

    Whether this is your definition is another question. If you’re actually interested you can look at the time series for yourself. It’s a published number.

  12. Avatar DonC says:

    BB – How come someone can’t have an opinion different than yours? Are you some slime ball short seller? C’mon, give up the goods! LOL

    As far as Goldman is concerned, it may, and probably does, have better investment opportunities than ICIB. One obvious one would be TALF. I don’t think anyone is looking at this as a fire sale.

    Personally I wish that Treasury had reserved part of TALF for participation for the little guy. They do this for Treasury auctions. You can bid and there is a fund that is reserved for small investors. You get the average price of the bills or notes.

  13. Avatar MikeZ says:

    Is this the end of the USA’s economy? Are we about to fall like the Roman Empire?

    Hardly.

    Sure, times are bad, and it will be a few years before we return to real, sustainable growth, but this “bear” is a true believer in the potential of our economic engine, once running (and healthy, unlike the last 8 years) and I’m putting my money where my mouth is.

    In five to ten years, this will all be behind us and good investments being made today at these prices will bear enormous fruit then.

    That’s my story, and I’m sticking to it. 🙂

  14. Avatar MikeZ says:

    And any talk of a revolution is just ridiculous, IMO.

    But go right ahead and buy rations, water and ammo.

    Might wanna rent The Survivors (1893) first.

    http://www.imdb.com/title/tt0086397/

  15. Avatar john says:

    I go to Argentina every year on business and it’s not at all the economically and culturally ravaged country people think it is. Great food, amazing wines, beautiful natural scenery, and lots of smiling beautiful people, some of the most beautiful women in the whole world. The US expats who live there call it the Argentine Swing, meaning it’s in the culture to go with the flow, keep on smiling, and enjoy the ride even if it gets a little rough now and then. We could use a little swing up here lately. Maybe there will be an upside to economic mess that we didn’t even expect. A super low cost of living, a huge sparsely populated country to travel around freely with every outdoor activity you could hope for at bargain prices, 3 hour lunches with some of the best grass fed BBQ around, siestas, and late dinners over excellent $3.00 bottles of Malbec with a nice tango in the background. There are a lot worse ways to live…

  16. Avatar smarten says:

    Well if Diablo aka Derrick hadn’t shown his colors before, he has now! The oracle [in your own mind] stock picker is back.

  17. Avatar LinnyD says:

    John’s Argentina experience – I couldn’t agree more and am beginning to believe there’s an upside to this mess. If some (many?) of the lifestyle changes you mention Argentina embraces come to fruition here and replace the infatuation we have with owning it all we might end up better off.

    The Roman Empire correlation isn’t the writing on the wall – yet anyway. But Diane’s thought process is sometimes a natural progression of what we’ve become. That also could come from where she gets her information to make her feel this way, although there’s no lack of negative news.

    I notice most writers tend to cite verse and script, sometimes even arrogantly thinking they can actually determine the future. Better minds than ours have tried this. A little humility would probably be what the average Agentinian would say we need first.

  18. Avatar KB says:

    I posted a couple of days ago with a little sarcasim, but this thread is a little better to go into detail on my predictions for the next couple of years. Six months ago, I was projecting deflation, now I believe that we will have negative growth of 1-2% during 2009 with very mild growth in 2010, we are talking .5-1%. This mild growth will be on the back of the easy money the Fed has given us. As growth returns, late 2010-11 the Fed will be required to start taking money out of the system-Similar to late 05 beginning 06 or the risk of hyper-inflation will be real. This reduction in money supply will cause the then price of Assets(S&P >1000 Dow > 10500) to fall as everyone will begin conserving cash again and we will have a repeat of Fall 08.
    and our U shaped recovery will be 3/4ths of a W recovery.

    The optimist in me hopes I am being a little too bearish and this downturns will causes Americans of all stripes to consume less, thereby reducing the trade defict, pay off debt and invest more providing the capital for the next boom. But I think that might be too much to hope for.

    Sorry for the Length

  19. Avatar Phil says:

    I am starting to think no one has a clue how to get out of this mess. I do not think spending our way out is the solution.

    This newest plan which the market responded to so favorably is a bit strange. It seems to me leverage is what got us into this mess and they think leveraging the risk with taxpayer money is the solution to get out of it. Looks to me that the rich are going to get a whole lot richer if this works. I guess taxing the gains is the next step.

    The fall of the dollar may cause the price of imports to rise enough that we may wake up and decide to manufacture things ourselves for a change…

    Recently too much wealth was based on nothing substantive and the result is where we are now at. Failure needed to occur. Spending TRILLIONS on bailing out investors of foolish gambles may help, but somehow I think we are far from done. Many think we are in it this far we might as well continue. I don’t.

    People giving advice of walking away from loans is just wrong. Time for debtors prison, my kids do not need to pay for thier mistakes. Where has personal responsibility gone?

    We have spent too long living on the backs of foriegn countries living well below our standard of living. Time to put America back to WORK!

    When octamom thinks she can have 14 kids on welfare something is wrong.

  20. Avatar DownButNotOut says:

    Thanks for the rant, Phil. I was just going to write it was nice getting a few other perspectives.

  21. Avatar BanteringBear says:

    KB-

    You and I couldn’t be further apart in our “predictions”. You think the DOW is going to be above 10k late next year? Wow. I’d bet on it being below 6k, maybe even around 4k. But, nobody knows. I don’t think this rally has long term legs. I think we’re going to start seeing a slew of banks, etc. fold, and the bad news will lead to a deterioration in the market.

    I don’t think Geithner, Bernanke, or anyone else knows what the hell they’re doing. The best thing would have been to let everybody who made bad bets fail. That includes AIG. I think that the fear that Paulson sold was no more than a billionaire protecting his upper crust buddies. We’re in worse shape now than we were back in September, we just can’t feel it yet. Would have been better to rip off the band-aid than to slowly pull it off, hair by hair. This is going to end very, very badly.

  22. Avatar MikeZ says:

    RE: ” People giving advice of walking away from loans is just wrong. Time for debtors prison, my kids do not need to pay for thier mistakes. Where has personal responsibility gone?”

    Oh, please! It’s still perfectly legal to just walk away.

    Calling for prison as a response to people who are simply exercising their legal options is positively ludicrous.

    Too bad for your kids, I guess, but don’t blame those walking away, they’re not the ones throwing trillions in bailout money at the reckless lenders.

  23. Avatar Horacio says:

    Having been an Argentine I can tell you this crisis was not 1999 to 2001, it has been going on for decades.

    Del la Rua just continued the monstrous policies of that nasty Menem. Debts accrued from fiscal mismanagement by the various military dictatorship, the IMF & World Bank’s holding the nation in a neo-liberal frankenstein laboratory and obliging wholesale asset stripping of government industries (from water, railroads and petroleum) has been going on for 20 years. The hyperinflation of the late eighties resulted in food riots, shanty towns and years where schools did not even operate!

    The 99-01 was when they continued the neoliberal stupidities and the people said enough! Not letting any government run until they cancelled the debt!

    Learn the Argentine lesson, it is not the banks that need rescue! Cancel the housing debts and make those bailout whores come to the table with zero chips, and then the discussion will begin to approach fairness. Reverse the recent rewrite of the debtors law and cancel any debt where the banking vampires have demanded interest rates over 8% or charged gouging fees for “late” fees or overdraft…

  24. Avatar Inept One says:

    The point here is that corrupt democracy can be as detremental and brutal to a society as any dictatorship.

    When the politicians prioritize reelection, personal wealth, and political power over the good of the country, a democracy has failed.

    When trillions are spent (against the will of the people) to bail out theives who should be prosecuted, we are headed in the wrong direction.

    Great post Dianne!

    Diablow– nobody cares.

  25. Avatar Phil says:

    Mike Z

    OK, I went way overboard in my rant.

    If I was underwater with a mortgage I might give walking a consideration as well.

    How about if they walked away from a liar loan in which they misrepresented the truth?

    I also see some people walking way from loans which they are able to pay. I just think that isn’t right.

  26. Avatar 3niner says:

    DonC –

    I suggest you read some of this. There are many economists opposed to the bailouts, and they have a higher average quality than those who support them. The supporters are mostly Keynesians (statists pretending to be economists).

  27. Avatar 3niner says:

    BB said: “Would have been better to rip off the band-aid than to slowly pull it off, hair by hair.”

    I couldn’t agree more. It bears repeating. 🙂

  28. Avatar 3niner says:

    Diane,

    If it makes you feel any better, I am one of the (new) posters, who has been making negative comments, but even I am considering investing in real estate. I have owned my home for many years, and am now considering income property.

    I do not believe in “flipping”. It’s just the real estate version of “day trading”, a good way to lose your shirt.

    On the whole I believe the correction has a long way to run, but many sellers have capitulated (mostly at the low end of the market). This should continue to improve sales volumes, and it provides opportunities for income investors.

  29. Avatar billddrummer says:

    To 3niner,

    At these prices, you can actually get a property to produce a positive cash flow at reasonable rent, something that was unheard of just 18 months ago.

    Now, if only there were some tenants….?

  30. Avatar MikeZ says:

    RE: “How about if they walked away from a liar loan in which they misrepresented the truth?”

    I have no problem with prosecuting people who lied on their applications. Or with proseucting the lenders who told them to lie.

    We don’t even need to jail them, just slap a felony conviction for fraud on their ass and watch them try to find work in finance.

  31. Avatar Sully says:

    I’m gonna beat DonC to the punch with this one –

    White House Economic Advisor Lawrence Summers said Monday that there is substantial private investor interest in the government’s public and private partnership plan to take bad assets off banks’ balance sheets.

    Also not mentioned, they are willing to wrestle a 800 lb gorilla with one hand tied behind their back.

    🙂

  32. Avatar DonC says:

    I’ve found a few more stories with good news. Some posters here will need to be talked off the ledge! LOL

    Just saw these two stories a couple of hours apart. One talks about the increasing sales in real estate. The other deals with one of the reasons we may be seeing the sales uptick, namely, that lower prices and very low interest rates on home loans means that the buy/rent ratio favors buying.

    http://news.yahoo.com/s/nm/20090324/us_nm/us_usa_housing_realtors

    http://news.yahoo.com/s/nm/20090325/us_nm/us_usa_economy_housing

    Both are more anecdotal than analytical, hardly weighty stuff, but they are consistent with the national numbers and the Reno numbers, both of which show higher volume in the lower tiers. I particularly like the comment from the second story that “It is one of the best times to buy a home”. Gotta love realtors. But hey, it’s a fact that if you keep saying the same thing, eventually you’ll be right.

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