Here's recent history of the Fed’s policy committee and its Fed Funds rate. Next Fed decision is June 24/25.
Hey, Forbes, subprime losses do near S&L costs
March 6th, 2008, 3:00 am · 71 Comments · posted by Jon Lansner/O.C. Register columnist
Forbes publisher Rich Karlgaard has an item online that claims four unfair reasons make people think a recession is coming. Included on the list (read it HERE) are, and let me paraphrase, business-hating, bitter and unskilled journalists. (Of course, except the staff at Forbes.) Hey, the man’s entitled to his opinion. And, I’ve been called worse.
Karlgaard went further, claiming bumbling business journalists fan recessionary fears by failing to give proper context to the challenges facing the economy. As an example, Karlgaard wrote …
When reading about any business problem or challenge, how often do you see the problem stated in relative terms? For example, what dampens spirits today? The subprime mortgage mess. How big a problem is this? No one really knows, but so far banks have written off about $150 billion in bad loans. Now, $150 billion sounds huge. But it is only 1% of America’s annual GDP. It is also less than 1% of the market capitalization of U.S. stocks. In any typically volatile trading day U.S. stocks gain or lose $150 billion every hour. How often does one hear that? “Surely that $150 billion will grow,” you say. No doubt. Let’s say the amount of bad paper doubles or triples. Would that finally bring the U.S. economy to its knees? I don’t think so. The nearest historical comparison we have is the savings-and-loan crisis of 1986-95. On a constant dollar basis — so we can compare apples with apples — the S&L crisis saw $700 billion in bad loans. Nearly five times as much as we’ve seen in the subprime mess so far. The S&L crisis caused some damage, to be sure. But during the 1986-95 period the U.S. economy grew and stocks went up. We survived stock shocks in 1987 and 1989 and a mild recession in 1990. The country did not collapse into a 1930s-like depression.
Sounds good. But wrong. $700 billion? Where did he get that? So you know the true history, which your blogger lived as a reporter, it goes like this from government docs (like THIS ONE) ….
• The government’s Resolution Trust Corp., between 1989 and 1995, liquidated 747 failed S&Ls that owned worth $400 billion in assets. (Most of the assets were worth more than a few pennies.)
• RTC losses on those S&Ls was estimated at $87 billion.
• Add in the cost of S&Ls that failed from 1986 to 1989 and the cost bumps up to $156 billion. (82% of that was taxpayer funded, by the way!)
• If one assumes those outlays were made equally, on average, from 1986-95, in today’s dollars the S&Ls added up to a $250 billion mess.
Sadly, the subprime crisis is approaching the cost of the S&L crisis. And, perhaps worse, many of the bad S&L debts were to developer types — not to mom and pop home buyers who took out subprime loans. So, Rich, do your homework before sliming your own craft!
March 6th, 2008 at 5:43 am
Leave it to Lansner to dispute an expert that would like to add some clarity to the situation. As long as there is mass confusion and hysteria, Lansner is king of the bloggers. And those figures don’t seem to add up to make his point.
March 6th, 2008 at 6:14 am
VOR - aren’t you cute…
March 6th, 2008 at 6:53 am
“So, Rich, do your homework before sliming your own craft!”
Haha, you tell em’ Lansner ! You should start getting involved in the comment section.
Good to see a Wharton Alum kicking some you know what.
March 6th, 2008 at 7:03 am
You can put a mule in a horse harness, but its still a mule.
March 6th, 2008 at 7:09 am
http://biz.yahoo.com/ap/080306/home_foreclosures.html
March 6th, 2008 at 7:23 am
What would the Donald say?!
March 6th, 2008 at 7:31 am
VOR, I think Trump still has debt to pay for getting his daughter Ivanka in.
March 6th, 2008 at 7:38 am
I first want to say I love the OC Money section. I consider the analysis to be in line with most of the newswire services. Keep up the good work Mr. Lasner.
I worked as an auditor for the RTC in Newport Beach. Wow those where crazy days seeing the zombie crews coming in Monday morning after a straight 48 hours of closing the books on a failed S&L during the weekends. I saw the asset side of the ledgers and the securitization of the loans into bundles and solds pennies on the dollar (I believe there was some cherry picking by some high govenment officials, if you understand what I mean). Thats beside the point. I was more interest on the liability side which meant payments to the depositors. After selling the assets, funds left over paid the depositors and the rest was made up by the RTC (that is taxpayers). I haven’t done the math, but you really need to look at the liability side and not the assests to arrive at a loss number.
March 6th, 2008 at 7:40 am
He makes an excellent point. The problems have been blow way, way, way out of proportion. The needless damage this has caused is absurd. The hysterical reactions have been akin to going after a mosquito with a bazooka.
March 6th, 2008 at 7:41 am
Ivanka, she is an excellent daughter and she has a lot of class. She would probably fire Jon for being such a putz.
March 6th, 2008 at 7:42 am
Pending Home Sales Jumped 13% in the Western US.
March 6th, 2008 at 7:45 am
VOR, considering she could easily be Paris Hilton and she is not… I’d agree.
March 6th, 2008 at 7:47 am
VOR, John is our fearless blogger and defender of the free world, so I don’t agree with your last point.
March 6th, 2008 at 8:04 am
Watch out, his head may explode. I have read his column for years, long before this blog started. He is, indeed, the defender of the little guy and he has been pushing the “market adjustment” agenda for a long time (I’d say three years). He even wrote a column once that lamented the fact that recent immigrants could not afford OC property. He teamed up with his pals at Chapman University (a liberal arts college in Orange) to convince us that everyone deserves to own property, and we should feel guilty for keeping them from their entitlements. Whether you agree with him or not is not the point. I always thought a financial writer should just give us the facts, and keep their political views to themselves.
March 6th, 2008 at 8:16 am
Okay, so this subprime fallout is really no big deal at all. Just small change. I’m so glad I read these postings.
March 6th, 2008 at 8:19 am
Daddy Warbucks Says: “Pending Home Sales Jumped 13% in the Western US.”
You failed to mention that your number is from last month. Month to month numbers are very volatile. The number is actually down 12.7% from a year ago. That is a more meaningful number, don’t ya think?
The actual statement from the NAR is “The PHSI in the West jumped 13.0 percent in January to 93.8 but remains 12.7 percent below a year ago.” If you are going to quote the NAR, post the complete quote, not what you want other people to read.
http://www.nationalbubble.com/pending-home-sales-down-196-from-a-year-ago/
March 6th, 2008 at 8:24 am
VOR: I see facts in Lansner’s statement.
What are the sources of Karlgaard’s statements? Lansner uses actual governtment documents.
Lastly, I never read Lansner stating that immigrants should be able to afford OC RE. Do you have a link to such statements? I call that one out immediately.
If you are simply stating that Lansner noted that immigrants cannot afford OC RE, well then thanks for restating the obvious. Any other conclusions drawn from that would have to stem from some weird paranoid, schizoid attempt to put purpose behind benign statements that are simply stating an observation. All depends on what past statements you are actually referring to. Please post.
March 6th, 2008 at 8:39 am
The “West”? Either way, that’s too broad for my tastes. In fact, that’s what bothers me a lot of this data. If you’re just looking for an overall general trend, then fine. But I don’t think the same rules apply to Gallup, NM and OC, CA. There are way to many local nuances to group all these places together. We don’t even know how Data Quick compiles their local data when it comes to “sales” or “average price”. Do they count Foreclosure Sales (a previous Lansner blog said they accounted for 38% of “official sales”, which in itself is vague), Trustees Deeds, Deeds in Lieu, etc.? All these factors can radically change the meaning of the data. We can list all the national, regional, or even local “trends” that you want, but without specifics, or at least knowing how the source of the data, they are only vague indicators, at best.
March 6th, 2008 at 8:42 am
nbi, it was a couple of years ago. I don’t have a link, sorry. But if there is a way to bring up old columns, you will readily see that they have a definite political bend.
March 6th, 2008 at 8:43 am
karlgaard is venting to the wrong audience… this vent should be directed at bernanke… an all the other idiots trying to save the housing market…
i agree these toxic loans are a very small percentage of the gdp…
stop the rate reductions now… no relief to the distressed home owners…
if you can not afford your mortgage then walk away… the pain is now gone…
March 6th, 2008 at 8:44 am
Hey Mr. Bubble Head,
Did the Pending Home Sales jump 13 % in the Western US or not? You even said it did. And I didn’t fail to mention anything, I made a statement. If they were down 13% you be doing a little Bubble Head dance all over this blog. Somebody ought to pop you in the Bubble.
March 6th, 2008 at 8:55 am
VOR,
You make a good point about the press whining about how lower classes couldn’t afford homes. Goggle search “The Real Scandal” and look for the February 5th New York Post article by Stan Liebowitz. That’ll tell you how this mess got started.
March 6th, 2008 at 9:05 am
Lancer:
Defender of the little people everywere….ahahahahh
700 BILLION in SUB PRIM LOSSES ========= S & L CRISIS
That much is true……….
It was good to see a perspective regarding the Stock Market / losses Etc.
However,
Did you guys see what the DOW did in the 90’s ?
Did you guys see the money move to the stock market ??
Some people are predicting 18,000 Dow?
Huge inflation = $1,000 ++++gold ??
What do you guys think ?
March 6th, 2008 at 9:07 am
ScottA,
Run as far away from equities as you possibly can right now.
March 6th, 2008 at 9:15 am
Mav:
Thank you for your Input….
With all your Edcucation….
I hope you are not a school teacher?
My cousin is very well educated, and makes 40K a year …..Blaaaaaa
I assume you have a good job?
I assume you have money to invest?
What is it you do for a living sir ?
What will you do with your investments?
March 6th, 2008 at 9:19 am
ScottA,
None of your business. But if I wanted to I could buy a nice house with cash. The fact that I won’t for a few years should tell you something.
For those of you invested in gold I would be careful. Take some profits, it looks like there is a bubble in gold currently.
March 6th, 2008 at 9:25 am
Daddy Warbucks Says: “Somebody ought to pop you in the Bubble.”
well, it ain’t going to be you. That is for sure.
oops, it looks like somebody is getting very defensive around here.
I guess the permabulls can’t handle the truth. Any unbiased expert would agree with me that this is the worst housing market at a national level since the great depression and the worst in OC since the early 90s but you permabulls hate the facts.
Oh well, I’ll keep pointing out the misleading statements on this blog and exposing you.
I can only say one thing: mission accomplished.
March 6th, 2008 at 9:33 am
I fail to understand how some cannot read the ominous writing on the wall, and instead choose to attack others here. Let’s review the current economic climate look at the top ten reasons why now is not a good time to buy:
1. Dollar at all time lows vs. other world currencies.
2. Fed dropping rates despite inflationary pressures.
3. Oil at > $105 barrel
4. Gold at historic highs
5. Massive subprime fallout, likely to affect other sectors of the lending industry, making sensible loans more difficult to obtain.
6. Unemployment starting to spike up
7. Record personal debt
8. Inverted yield curve
9. DJA off nearly 25% from Jan 1st.
10. Stagnant wages
If you think there is a conspiracy of reportage, you need to either face the facts or go hide from the black helicopters. The world economy has always been cyclic and we are entering a down cycle. Obviously this will affect all of us, but those of us to traditionally feel this first are in the real estate industry (RE has historically dumped before recession is clear). Face your own personal bias and deal with it.
March 6th, 2008 at 9:38 am
Sensibull is exactly right. This has nothing to do with Doomsday. Our economy is contracting. We are going to see a forced shift away from credit and debt in this country.
March 6th, 2008 at 9:40 am
MAV:
So…….Deffensive…..a……??
Bubble in gold??
Not till it runs past $1,500.
You heard it hear first……..
But then again Mav………
I have not heard anything out of you ????
No advice……..
No disclosure…….
No reccomendations……..
Just what not to do……..
That does No-One any good…
NAY SAYING…..and HAGGLING…….. ON THE FENCE…
Total BS
Yo MAV……….Stick your neck out and take some risks !!!!!
March 6th, 2008 at 9:44 am
S-Bull. That’s all fine and well. I’m sure you have researched this, but what I see on the ground, here and now, is that the price of OC homes has dropped about 12 to 15 percent, depending on the area and situation, mortgage help is here or on the way (and in this context, it’s not important whether you believe it’s a good idea or not), and there are subtle indications that there is demand and that affordability is at hand. So, although I don’t pretend to know exactly what will happen, or when, the outlook doesn’t look completely bleak to me.
March 6th, 2008 at 9:44 am
Well, that’s all fine and good - and priced in already. Which is why activity is way, way, way up. And your #7:
Household Net Worth at Record High
By Tony Crescenzi
RealMoney.com Contributor
12/6/2007 2:45 PM EST
Household net worth increased $624 billion in the third quarter to a record $58.6 trillion, according to data released today by the Federal Reserve in its quarterly Flow of Funds report. The data provide one of the strongest explanations for the resilience of consumer spending seen throughout the past few years amid numberous headwinds.
Over the past five years, household net worth has increased $21 trillion (yes, that’s with a “T”) — a gain of 56%. Real estate assets represents $8 trillion of that gain. It is odd, however, that real estate assets increased during the third quarter in light of price declines and decreases in the homeownership rate.
Those decreases should have partially offset some of the increase in the total level of homeownership resulting from increases in the number of U.S. households, which grows about 1 million or so annually. Assuming prices fall about 10% from current levels and the homeownership rate falls about a 0.5 percentage points next year, household net worth could be cut by about $1.5 trillion.
Where have assets increased over the past five years? Largely in areas that do not seem to be at risk, given the increase in corporate earnings that has occurred over the past five years:
Deposit accounts: +$2 trillion
Credit market instruments: +$1.1 trillion
Corporate equities: +$1.5 trillion
Mutual fund shares: +$3.0 trillion
Pension fund reserves: +$4.6 trillion
Equity in noncorporate businesses: +$3.1 trillion
March 6th, 2008 at 9:46 am
ScottA,
Sometimes the best advice is to do nothing and stick to fundamentals.
What do you want me to do: send you a bunch of get rich quick videos?
Right now I think muni’s with tax free interest and inflation protected securities are the way to go.
March 6th, 2008 at 9:48 am
So Mr. Bubble Head, a little good news comes along and you guys up the noise, and that’s all you guys are, hot air and noise.
March 6th, 2008 at 9:49 am
ScottA,
If you want to “invest” in equities, I’d reccomend SRS and SKF. Look into them.
March 6th, 2008 at 9:51 am
Sensibull,
Very well said!! When people are thinking about buying a home, they should consider the state of the economy. As you pointed out, every single indicator other than exports (and exports are up only because of the collapsing dollar) is going negative.
When the economy goes into recession, people lose their jobs and real estate suffers. That is Economics 101.
What makes things much worse this time around is that the U.S. consumer is more leveraged than ever before. If the permabulls don’t want to believe us, they should believe the Fed which almost every day is out there trying to come up with a new bailout plan. Why would they do that if things were fine like the permabulls say?
Obviously, the permabulls have an agenda and that is keeping their overinflated home prices. Unlike what some of you might think, I don’t have an agenda, I’m not a renter. I own my home. I just look at what is happening and I can see we are in a bubble. When things change, I’ll be the fist one to become bullish.
I just hope that first-time home buyers at least read the newspapers instead of believing realtors and all these permabulls.
Look at all those poor first time home buyers who believed the realtors in 2005 and are now losing their homes.
There will be a time to buy real estate but not until you see signs that the economy is stabilizing and we are not even close to that.
March 6th, 2008 at 9:55 am
Thoughtful:
GOOD POST:
That is why the RICH get RICHER.
My RE Mentor Is in ToTal Aquisition mode right now…..
I think he is NUTS however……..
He is buying up stuff at 35 cents on the dollar…….
Any of you renters ever filled out a mortgage application??
POINT BIENG:
The only thing you can list as an ASSET is:
1) Cash
2) Equity
3) Cash equivellents / Gold / Stocks / Bonds or thing easily converted to cash.
SO…………………………………………………………
Every time he aquires… his net worth go’s UP UP UP UP UP UP UP UP !!!
How does he buy in this market you ask ???
He is cash flow possitive $45,000 a month from his rental properties
Think I am BSing
150 Two Bedroom units He has right next to LSU
That is just one of his cards in his deck
MONEY makes MONEY
RICH get RICHER
March 6th, 2008 at 9:58 am
S-Bull, as far as the press/media thing. No, there is no conspiracy. But you have to wonder about their motivation and priorities when they blow off the whole 6:00 news to show some coked out maniac running from the police. It’s a very competitive business. We all know that “bad news is the best news”.
March 6th, 2008 at 9:58 am
Mav:
There you have it…..
Thank you Sir……
That was not so hard, now was it !!
lol lol lol ahahahaha
March 6th, 2008 at 10:01 am
Doesn’t Scott A know it’s tacky to ask how much people make and how much they have to invest? No, of course not…..
Scott A, if you want investment advice, here’s some advice from the richest man on earth concerning gold: “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Gold has no intrinsic value, therefore it’s not a good investment. What you are doing is speculating.
March 6th, 2008 at 10:03 am
I wish the real Truthiness would come back.
This new evolution of ScottA is horid.
I’ve concluded ScottA is the product of some direct marketing loser.
March 6th, 2008 at 10:08 am
Liar Loan:
“Gold has no intrinsic value”
Total BS…….
I started invesing “SPECULATING” in 2003 price $350 an ounce
You can check http://www.kitco.com to see todays spot price.
Cashed @ 25++K
fix up a vacation rental property in Big Bear Lake with the profits
It has been rented out every weekend since Christmass
That worthless investment now flows Via rental income $225 a night
March 6th, 2008 at 10:13 am
Mav:
U CALL ME A Marketing losser ????
PLEASE REFRAIN FROM PERSONAL ATTACKS…………….
I checked out you MUNI posts
5 % a year annual return ???
What are you 60….. retiered and AFRAID of losing your pennies ??
I TOLD YOU WHO I AM…
INS BROKER
GOLD DAY TRADER
RE INVESTOR.
PLEASE BACK OFF ME !!!!
March 6th, 2008 at 10:14 am
S&L Numbers are not being inflation adjusted. They can’t be compared directly. If S&L numbers were moved up for inflation, a different story would emerge.
March 6th, 2008 at 10:26 am
Here is the next shoe that is dropping regarding RE in the OC and much of the nation for that matter. Recessionary Pressures
http://calculatedrisk.blogspot.com/2008/03/s-recessionary-pressures-to-impact.html
“These rating actions reflect our expectations for a more severe residential mortgage credit cycle than we had anticipated at the start of 2008,” said Standard & Poor’s credit analyst Victoria Wagner. “We now believe that the severity of losses on all residential mortgages will be higher that we had thought and that the weak housing market will now be a longer cycle. This adds to the time frame to resolve foreclosed properties and the cost to carry these nonperforming assets.”
And on recessionary pressures:
Our overall view of the recessionary pressures in the economy is also now more negative. We expect that this change in the external environment will push loan losses and loan delinquencies much higher than we previously factored into the WAMU ratings …”
What we have seen thus far is a financial imbalance, now we are going to see the true impact on demand. This aint even close to being over.
March 6th, 2008 at 10:32 am
Scott A-
Your rental prop provides cash flow. What does your gold provide? It’s not unlike the real estate bubble in that you’re hoping to pawn it off on some poor sucker at a higher price than you bought at. That is not intrinsic value, it’s speculation. Eventually, somebody will get caught holding the bag at the peak and will lose their shirt on gold.
Look at the 30 Year gold chart if you want to see what’s about to happen: http://insidegold.com/wikipedia/
March 6th, 2008 at 10:50 am
“Look at the 30 Year gold chart if you want to see what’s about to happen: http://insidegold.com/wikipedia/”
I just recently got out most of my gold investments for this reason, risk is getting a little high here plus I made a killing. But when do we see the break at 1000, 1500, 2000?? Louise Yamada, a legendary chartologist showed Gold going to at least 1500 and our poor US Dollar heading to 60. It was a very compelling technical analysis. What is going on right now is really unbelievable and scary.
March 6th, 2008 at 11:02 am
Liar Loan:
You heard it 1st hear….. Gold will go to 1,500.
I hear ya people lose their shirts everyday…..
Your Killing Me Larry:
Says:
“”I cashed out after I made a killing “”
I am not mad at you…….Props…….
I cashed out as well as I started in 2003 @ 350. and ounce !!!!
See my post above….
$1,500 is a done deal…
March 6th, 2008 at 11:10 am
The best play on gold right now might be DZZ. (Double Short ETN)
ScottA if you want to speculate look into that one.
Personally I would stay away from gold on either the short or the long side.
Playing in speculative bubbles will eventually burn you.
March 6th, 2008 at 11:24 am
scott/mav
Is this the kind of “day trader” penny stock investing that some of my co-workers have gotten addicted to? Most of those guys have lost big time. Even an attorney friend of mine couldn’t make a substantial profit at it. Is it possible to be successful at this type of investing?
March 6th, 2008 at 11:35 am
VOR,
I tend to agree with you.
Personally I am in tax free municipal bonds and inflation protected securities right now.
March 6th, 2008 at 11:36 am
Scott A-
I’ve heard gold will go to any number of prices. It doesn’t matter because the crash will happen quickly and mercilessly. The Fed will be forced to raise rates in the near future and that’s going to f@#k up the gold market big time.
March 6th, 2008 at 11:40 am
Liar Lones, 100% agree with you…… eventually the speculative money flocking to gold will go somewhere else and people will be left holding the bag. Timing this is next to impossible unless you are one of the big hitting investment firms. Most little guys will be holding the bag.
March 6th, 2008 at 11:53 am
“So, Rich, do your homework before sliming your own craft!”
Go get ‘em, Jon.
March 6th, 2008 at 12:22 pm
Lansner’s just torqued cause Forbes wouldn’t give him a job as a Stringer.
March 6th, 2008 at 12:52 pm
Jimmy,
Regarding your inflation adjusted comment:
According to Lanser “in today’s dollars the S&Ls added up to a $250 billion mess”
But you’re right, we’ll have to wait a few years to see what the total subprime mess will be so we can really compare it to the S&L disaster. I wouldn’t be surprised if in the end, it surpasses the S&L mess.
March 6th, 2008 at 1:54 pm
WAY TO GO MR. WIZARD OF BLOGGING LANSNER WAY TO SHOW WHO HAS THE FACTS
HERE IS SOMETHING THAT MIGHT SHOW YOU HOW MUCH WEALTH HAS BEEN TAKEN OUT OF THE ECONOMY
TODAYS NEW READ IT
The major stock indexes fell further after the Mortgage Bankers Association reported record home foreclosures as 2007 came to a close. Read full story.
“The housing data that just came out is very equity bearish, and we saw a huge acceleration in the sale of gold. I think that it’s another case of traders/funds looking to get cash free,” wrote Oxman.
On the New York Mercantile Exchange, gold fell $11.40 to end at $977.10 an ounce. Read Metals Stocks.
Early data had initial filings for state unemployment benefits falling to their lowest levels since the latter half of January in the latest week, while continuing claims hit their highest mark since September 2005. See full story.
And, the Federal Reserve reported Americans to be poorer at the end of 2007 than they were the previous year, with the net worth of U.S. households failing by $533 billion, or a 3.6% annual rate, in the fourth quarter. Read Economic Report.
NOT EVEN GOLD IS IMMUNE,……LOLLLL
March 6th, 2008 at 3:11 pm
The effect of a crash isn’t just about the losses of coorporations but among other things losses in value of the assets themselves.
Also, thoughful, I don’t know why you are posting last quarters household net worth numbers when this quarters have been released and are down more than 500 billion.
March 6th, 2008 at 3:49 pm
VOR said:
“S-Bull, as far as the press/media thing. No, there is no conspiracy. But you have to wonder about their motivation and priorities when they blow off the whole 6:00 news to show some coked out maniac running from the police. It’s a very competitive business. We all know that “bad news is the best news”.”
I fully agree. It’s really kind of sad that we as a society are only intrigued by tragedy. It’s that part of our psyche that wants to look at the accident on the side of the road, despite the fact we are delaying traffic for miles in so doing. There just aren’t enough good news stories out there.
But I disagree when it comes to the business report. When there is good financial news (.e.g. the stock market is up, or RE prices are skyrocketting), the media is very interested in getting the message out there because every one of us is interested. Bias can show up just about anywhere, and you always must be mindful of the source. But if you look just at raw numbers and trends, there are many disturbing things looming in world economies. Even you must admit some concern, esp. if you are employed in the RE or mortgage industry.
As both a homeowner and investor, I have cheered these news stories. However, just as I noticed in about 1998-99, those incessant “good news