Stop the Mortgage Bailout!!!

Came across this via Angry Bear. I agree, whole heartedly. Especially with this:

A bailout is morally irresponsible because it encourages irresponsible and irrational behavior. Here is a short list of the many "moral hazards" that a bailout enables:

A bailout sends the a wrong message about personal responsibility. It tells Americans in no uncertain terms that their financial decision have no consequences; the government will pick up the tab.


A bailout tells responsible Americans that they are suckers. If responsible American had been smart, they would have overextended themselves, purchased homes they could not afford, and taken out home equity loans based on the paper value of their property. Then, when the bill came due, they could pass it to the government like the irresponsible want to do.


A bailout allows banks, mortgage brokers, speculators, and refinancers to benefit from their abuse of the system. By doing so, it encourages these people to act irresponsibly in the future.


A bailout will force Americans who acted responsibly to pay for those who did not. The average American -- who saved and scrimped for years to buy a house but could not because speculators and over-extenders boosted home prices beyond affordability -- will now be forced to pay for the homes of those who were less scrupulous.

Take the time to click through on the link. This is a huge issue and will have an enormous effect on YOU and generations to come. We can't allow politicians to bailout greedy bankers with taxpayer money. Act today!

Income Disparity - Then and Now

I've written several posts on income disparity using data provided by the CBO. In short, the US is a society of the haves and have-nots, and the haves have accumulated more and more of the income for themselves over the years.

I've heard it mentioned several times before that income disparity was especially bad right before the Great depression. Unfortunately the CBO data only goes back to 1979, and thus all of the analysis I've done on the CBO data is quite limited in scope.

Anyway, I happened upon a post the other day at Jesse's Café Américain on the Minsky moment. The post itself is definitely worth reading, since we may be living through a Minsky moment as I write this. At the bottom of the post, though, was a figure breaking down income by quintile in some of the years prior to the Great Depression. It's not year by year, but it will do:
I decided to reorganize the data so that it matched the format in which I've presented the CBO data before. Here it is:

Unfortunately, there are only three years, but you can see that there is a general trend that income distributed to the highest quintile has steadily increased at the expense of the bottom 80% of the population. This is strikingly similar to what has happened since 1979.

This is pretax income, which what was used in the figure for the preGreat Depression data. As you can see, it's the same trend leading up to the Great Depression: an increase in share of income for the top 20% and a decrease for everyone else.

What's especially striking is when you break down the top 20% into various categories: Top 1%, Top 5%-1%, Top 10%-5%, and Top 20%-10%.

The amazing thing is that the share of income has only increased for the wealthiest of the wealthy. In fact, the Top 1%, representing only 1% of the population, was earning less than 10% of total income in 1979. In 2005, the Top 1% was earning more than 18%.

It's clear that we live in a society made up of the ultra-wealthy and everyone else, and that the ultra-wealthy has only become even wealthier in recent years. It particularly interesting that incomes during the period of time leading up to the Great Depression reflected a similar pattern of income. I'm not suggesting that the current credit crunch will lead to a Second Great Depression. But I hope that one of the results of the current crisis is realignment of this disparity so that the wealth of the nation benefits the commonwealth and not just the moneyed few.

I'd love to find a full data set that includes income broken down by quintile that goes back all the way before the great depression. If anyone knows where to find these data, please let me know in comments.

Newport Beach Bubble

A woman living in Newport Beach, CA got her $168,000 HELOC from Citibank shrunk down to a paltry $10,000. She feels like she's been robbed; after all, it's her money!:

“Remember that credit is money.” – Benjamin Franklin

I’ve always considered my primary residence to be one of my most solid investments. So it came as a surprise yesterday when we got the letter from Citibank about our $168,000 line of credit:

We have determined that home values in your area, including your home value, have significantly declined. As a result of this decline, your home’s value no longer supports the current credit limit for your home equity line of credit. Therefore, we are reducing the credit limit for your home equity line of credit, effective March 18, 2008, to $10,000. Our reduction of your credit limit is authorized by your line of credit agreement, federal law and regulatory guidelines.

Reduced to $10,000!? Hello!? Please don’t f-ck with my house in Newport Beach…

Of course, I’m calling them today to dispute it. Why? Because unlike the Phoenix property, I believe I can prove our home has retained its value and hasn’t declined. We have a Newport Beach address but live in what I’d describe as the low rent district of the city. It’s on the cusp of Eastside Costa Mesa and I believe the lender is using comps from Costa Mesa for comparison.

One reason why we bought in Newport is because we believed that property values would retain their value over time. After all, how many of you have heard of Costa Mesa? But most people have heard of Newport Beach. It’s considered desirable. People want the Newport Beach address. As real estate declines, it will decline more quickly in Costa Mesa. And it is.

But Newport hasn’t declined with any significance and if we compare current comps in our zip code, we can prove to the lender that our home has retained its value. Or so that’s my plan. I’m going to fight this one and I’ll write a follow up post about my success or failure with regards to the dispute.

This is my response:

First of all, despite what Benjamin Franklin has to say, credit is NOT money! Money is money! Credit can be converted to money, but it's not money until it is converted.

Second, we are in the middle of a credit crisis. There was an enormous, world-wide credit bubble. The bubble has burst. This means that credit will dry up and includes precious, unused HELOCs.

Third, the credit bubble led to inflated prices. This was especially true in real estate. I don't know enough about Newport Beach, but after looking some listings on Redfin, I found a couple that are selling for LESS than they were purchased just a few years ago:

311 32nd ST
Newport Beach, CA 92663
Last Sale: $1,270,000 (06/23/2005)
Asking Price: $879,000

209 38th
Newport Beach, CA 92663
Last Sale: $999,000 (11/03/2006)
Asking Price: $959,000

2227 Cliff DR
Newport Beach, CA 92663
Last Sale: $4,996,000 (11/30/2007)
Asking Price: $4,695,000

Many others are asking for basically the same price they were purchased for just a few years ago. That equals basically 0% appreciation.

According to Yahoo foreclosures, there are 113 listings for Newport Beach. More evidence of a housing bubble gone bad.

It's insane to suggest Newport Beach is immune from the housing bubble. Citbank probably did the right thing by shrinking your HELOC. Your house is no doubt worth less than it was.

Sorry to burst your bubble, so to speak...

Found this via Mish

Sleep-Deprived

recounts

Existing Home Sales BS

Inspired by two posts at The Big Picture, I decided to look a little more closely at the BS being flung around yesterday regarding the release of existing home sales data for Feb 2008. It was disgusting, to say the least. All the major media outlets were pushing hard on the fact that the seasonally adjusted annual rate (SAAR) was up a whopping 3% from January.

Now, there is some confusion about this increase. It's true that existing home sales increase every single February when compared to the month before. That's because fewer people buy homes in the dead of winter. Most people are up in arms because it sounds like the media is spinning that an increase in home sales occurs every year, and that this increase isn't any different from any other year. What people are missing, though, is that this an increase in the annual rate of sales. Basically, if sales stay at this pace, then 3% more homes will be sold this year than if home sales stayed at the rate at which they were selling in Jan 08. Here is a figure that illustrates the MOM changes in SAAR for existing home sales since Feb 2007:
You can see that, except for Feb 07, MOM change in existing home sales was basically very negative the whole year. This is because SAAR is essentially an estimate of how many homes will sell in a given year, and that estimate had to be downwardly revised as the market tanked. In addition, looking at MOM change in SAAR is essentially one way of assessing the instantaneous rate of change (if you consider a month to be instantaneous) of the estimate of how many homes will be sold in a year. Last year, the existing home market steadily declined. Thus, the MOM in SAAR was negative for basically the whole year. The fact that it's positive right now means that downward trend in the market has taken a breather. For now. You can see that here:

That little uptick is why the media was sooooooo excited yesterday. The market still sucks, and the SAAR is off -24% from where it was last year. But it sucks just a little less than it did yesterday. whoo F-ing hoo.

Barry asks about how they accounted for the leap year:

February 2009 was a leap year -- the month had an extra day, and without that I sincerely doubt we would have seen any gain (I wonder how they adjusted for that).

Me too. I'm going to look into it. Maybe they made a "mistake". One day of extra selling doesn't sound like a big deal, but one day is about 3% of a month. It would be some crazy shit if the whole media frenzy yesterday was all because there was one more day in Feb 2008 than Feb 2007.

Why the FDIC is hiring

About a month ago, it was widely reported in the media that the FDIC was going on a hiring spree. WSJ explains why:

Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia

I was skimming through the FDIC website and came across some humbling figures. No wonder the FDIC is worried.

And the number of problem institutions is increasing:
Fasten your seatbelts people; 2008 is going to be an interesting year...

PZ Meyers Expelled from Expelled

HO-LEE CRAP! This one of the funniest things I have read in a long time. PZ Meyers, professor at the University of Minnesota, has one of the most read science blogs on the intertubes, Pharyngula. Meyers has a particular penchant for ridiculing creationism in all its forms, especially Intelligent Design. He has a very sharp tongue, which makes him such a pleasure to read.

Anyway, there is a new documentary coming out next month called Expelled. It's about how intelligent design has gotten a "bum rap" and evil secular humanists have unfairly forced it from public schools. And it stars Ben Stein. Yes, that Ben Stein.

PZ Meyers got duped into being "interviewed" for the movie under false pretenses. Earlier this evening, he went attend a screening of Expelled. While standing in line, well, I'll let him explain:

I was standing in line, hadn't even gotten to the point where I had to sign in and show ID, and a policeman pulled me out of line and told me I could not go in. I asked why, of course, and he said that a producer of the film had specifically instructed him that I was not to be allowed to attend. The officer also told me that if I tried to go in, I would be arrested. I assured him that I wasn't going to cause any trouble.

I went back to my family and talked with them for a while, and then the officer came back with a theater manager, and I was told that not only wasn't I allowed in, but I had to leave the premises immediately. Like right that instant.

I complied.

I'm still laughing though. You don't know how hilarious this is. Not only is it the extreme hypocrisy of being expelled from their Expelled movie, but there's another layer of amusement. Deep, belly laugh funny. Yeah, I'd be rolling around on the floor right now, if I weren't so dang dignified...

They singled me out and evicted me, but they didn't notice my guest. They let him go in escorted by my wife and daughter. I guess they didn't recognize him. My guest was …

Richard Dawkins.

He's in the theater right now, watching their movie.

Tell me, are you laughing as hard as I am?

Yeah, I'm laughing my ass off! Too F-ing funny!