Millenium Prayer — Cliff Richard
Hank Paulson, who art in Washington,
hallowed by thy name.
Thy fiefdom come,
thy will be done,
transfering wealth from Main St. to Wall St.
Give us this day all your bread.
And forgive us our debts,
as we foreclose on those indebted to us.
And lead us not into solvency,
but deliver us from bankruptcy.
For thine is the fiefdom, the power and the glory.
For ever and ever. Amen.
How many bankers are uttering those words right now? How many are soiling themselves praying for the government to pass this bailout?
Personally, I have my doubts that any government intervention will help the situation. It certainly won’t make a difference for house prices. If it is passed, it may keep a number of insolvent banks on life support for a brief period of time, but their demise is inevitable. Perhaps this whole bailout is just a way for Bernanke and Paulson to control the implosion of the banking industry. I believe it would be far preferred to make the banks bring all these hidden assets back on to their balance sheets and value them at market. (Barry Ritholtz at the Big Picture wrote a very good post on Understanding the Significance of Mark-to-Market Accounting. I highly recommend it.) We would know immediately who is solvent and who is not. The insolvent banks will quickly go under, and the survivors will pick over the bones of the dead. That would be the natural recessionary purging that would occur absent a useless government intervention. Once this purging has taken place, then we can talk about infusing capital back into the banking system. It would be a far more efficient use of government money. What we are proposing to do now is very similar to what Japan did when their stock and real estate bubbles collapsed. The result of propping up all their banks was a decade of lost economic growth. This whole process is like removing a band aid. Remove it quickly and it is more painful, but then it is over. Take it off slowly, and it is arguably less painful, but the pain goes on for much longer. There is no way to avoid the pain.
Today’s featured property is yet another example of why the securities the government wants to buy are worthless. Bad loans like this one were packed up into asset-backed securities and sold to collateralized debt obligation structures. There they are loaded with more debt and sold to banks and investors who thought that they would be getting their money back with interest. The money is not coming back, and the various tranches of CDO’s have little or no value as a result.
Asking Price: $310,000
Income Requirement: $77,500
Downpayment Needed: $62,000
Monthly Equity Burn: $2,583
Purchase Price: $261,000
Purchase Date: 1/22/2003
Address: 21 Goldenrod #86, Irvine, CA 92614
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 978 |
| $/Sq. Ft.: | $317 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Villa |
| Year Built: | 1985 |
| Stories: | 1 Level |
| Floor: | 2 |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S548463 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 9 days |
floors, fireplace, cozy kitchen and 1-car detached garage. Walking
distance to Woodbridge South Lake, pools, parks, and schools. Close
distance to freeway 405 and shopping centers.
Did anyone pay down a mortgage during the bubble? I am starting to wonder. The owner of this property is yet another HELOC addict who managed to drain a tidy sum out of this tiny property.
- This property was purchased on 1/22/2003 for $261,000 using a 208,800 first mortgage, a $26,100 second mortgage and a $26,100 downpayment.
- On 11/26/2003 he opened a HELOC for $55,000 and took out a third mortgage for $26,489 taking out his downpayment.
- On 8/12/2004 he refinanced with a $335,000 first mortgage.
- On 8/31/2005 he refinanced again with a $386,500 Option ARM with a 2.62% teaser rate.
- On 9/25/2006 he took out a stand-alone second for $25,000.
- Total debt on the property is $411,500.
- Total mortgage equity withdrawal is $176,600 including his downpayment.
Considering how small this property is, getting $176,600 out of it is pretty good. If it sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $120,100. That is about 30% off the peak appraised value.
.
Our Father who art in Heaven
Hallowed be thy name
Thy Kingdom come thy will be done on earth as in heaven
Give us to thee our daily bread
And forgive our sins
As we forgive each one of those who sin against us
And lead us not to the time of trial
But deliver us from evil
For thine is the kingdom the power and the glory
Lead us not to the time of trial
Keep us from evil
For thine is the kingdom the power and the glory
Let all the people sing Amen
In every tribe and tongue
Let every hearts desire be joined
To see the kingdom come
Let every hope and every dream
Be born in love again
Let all the world sing with one voice
Let the people say amen
Amen Amen Amen
Millenium Prayer — Cliff Richard
Here is how the banks work themselves out of their little mess.
Immediately up the APR’s of their money market checking accounts and CD’s to 7%. All of a sudden, Americans are going to realize that putting money into the bank is a “great investment”.
The bank then turns around and rents that money out to the spenders for their ridiculous 19.55% on credit cards, etc maybe 12% for really good borrowers. The depositors get their 7% and the bank makes a profit of 5% to 15% some of which they can use to pay back on their gambling debt. Eventually the bank pays off all the bad mortgages they own. A painful lession learned.
Of course they don’t want to do that because it will take them a long time to recover. It’s a lot faster to go ahead and feign crisis and let the government step in with a tax payer hand out.
In the meantime, Cadillac is not going to sell as many Escalades because people are going to be saving all of their money and unable to afford the high interest rate on the fancy pants 60,000 cars. The car company is going to have to find a way to produce a car for under 60,000 in order to survive.
Or we can be just like “Chris” and spread fear that the world will end if people have to start paying cash for their Cheese Doodles at the Qwiki Mart.
“Cheese Doodles”
You’ve been reading Kunstler, haven’t you David… haha
I always think of the George Carlin bit where he does his “list of people who should be killed”. He included “people who buy small items with credit cards” and made a crack about “some goofy lookin dork wearing a fanny pack waiting to be approved for a bag of cheese doodles”
It’s good to suggest alternatives. Simple solutions are all the better.
I read the article on J.P. Morgan that talks about his simple solution for the 1907 crisis: inviting all of the major bank heads to his mansion, then honestly reporting each bank’s current position. From this information it was clear which banks should survive, which should be merged, and which should fail.
However, today’s crisis is a more complex problem. It has been argued today’s bank CEOs would not even be able to give an accurate report of solvency even if they wanted to (thanks to the complex financial instruments they’ve been investing in).
Assuming they could report solvency, it seems to me likely the big five would ALL be insolvent due to these bad investments plus mortgage loan, auto loan and credit card charge-offs.
If they are all insolvent, there is no way to work out who should survive and who should not, you have a systemic failure that affects the ability of the credit market to function.
This in turn affects thousands of individuals, organizations and businesses large and small who had no direct dealings with any of this but are unfortunate enough to be lacking a huge pile of cash.
I don’t personally believe there is a simple solution to this crisis. As IR has pointed out, the “controlled implosion” trades time for stability. We end up enduring some major pain for a long time but avoid immediate and random destruction.
Just like Apu says:
Thank you, come again
“Remove it quickly and it is more painful, but then it is over.”
Looks like what happened to real estate in Japan is going to happen here. I fail to see the wisdom in giving unchecked power to the Treasury. All the Chicken Littles will soon be asking themselves “If only we had taken the time to do it right”.
It looked promising for awhile.
The people were putting up a good show of resistance to the bailout. Unfortunately, the government called their bluff and let the stock market crash. The people winced at the pain and demonstrated that they do not have the balls to stomach the pain. Now the bailout is going to pass.
We get the government we deserve.
I think you are right on here. If the first bill had passed, the constituents would have had it out for their representatives.
So they called our bluff and let the vote fail and the market crash. Now when they vote for the bailout they can hide behind the market crashing as a sign they had no choice.
Lots of people want to complain about the government, few have the stomach to change it.
Both very good points, I had not thought about it in that regard.
I heard Lehman Brothers put aside 2+ Billion Dollars for employee bonuses before filing for bankruptcy. If so, I think there is no better example of how some bankers are concerned for the “system” and honoring their contracts.
Maybe we can pay another CEO more than $17 million for 3 weeks “work” too.
Too funny. I think CNN must watch this blog.
Last night I posted this:
http://www.crackthecode.us/images/ScrewYouAmerica.jpg
and this morning I look at CNN.com and see:
http://www.crackthecode.us/images/doover.jpg
Am I the only one who sees a Cliff Richard song being featured and automatically pictures the whole real estate mess as being an episode of the Britcom The Young Ones? “Vyvian! You utter bastard! That was MY $700 billion bailout!”
“I thought you said it was your bailout.”
“No, I didn’t, Mike. I said, ‘Let’s throw Rick’s $700 billion on the fire; that’ll be good for a laugh.”
Genius! A Young Ones reference — well done, TTR. I mentioned TYO on the forums just this week.
“Open uuuuuuuup! It’s the SEC!”
http://www.crackthecode.us/images/InTheBag.jpg
your pics are hilarious! you don’t mind if i spread them around other message boards do you? don’t worry , i don’t take credit for other people’s work 😀
Use whatever. It’s all fair game.
This is the type of place I would like to get if I was to buy in Irvine. It would have to be about $190k to be worth it, and honestly they way things are going I think it will get there.
It will most assuredly get there…
At 980 sq ft it’s a tiny 2 bdrm. Maybe you think you would like it now. If your a small person you may get used to it but after 5 years you will feel really cramped.
My estimate is GRM120 at $1500 for $180k.
My estimate is:
GRM100 (interest rates are going up) X $1500 – $200(HOA)-$200($2400/yr special HOA assessments for 25yr old structure)
so 100X$100=$110k
and I’m still not sure how easy it will be to find renters willing to pay $1500 for a very small 25 year old 2/2 that only has one garage spot.
That’s still a million dollars worth of floor plan in San Fran. The new Cubix condos are coming at $1100/sf, between 250-350 sf per unit.
Yeah, you read that right: 250 – 350 sf per unit.
While I’m not a big proponent of the bailout bill, just letting the “market forces” work isn’t a good idea. One reason is because our economy is based on credit. Businesses, cities, states, etc. need credit to do business. Allowing the financial institutions to explode is a bad idea, because it would effectively stop our economy. We’d all go down.
Another faulty assumption that I see frequently is that we have a free market system. We actually do NOT have a free market system. If there are companies that are “too big to fail,” then this isn’t a properly-regulated, free market economy. There are structural problems with the system.
One of the misconceptions I see here and elsewhere is that all regulation = bad. The better way to look at it is that to ensure there is a properly functioning free market, *appropriate* regulations are needed. You need some regulation to ensure contracts are enforced and that personal assets are protected. This is well established in the economics literature.
A good example is EBAY. EBAY has to set up parameters (i.e. rules or regulations) for how business is conducted on their marketplace. It requires this to protect both buyer and seller. Information must be transparent. In our financial system, information is NOT transparent. We don’t know what is on the books, and companies were able to invest in credit default swaps in ways and in magnitude that took our financial system off the cliff. That is not a free market. No handful of entities should have the ability to destroy the entire system in a well-functioning free market system
The fix is for the gov’t to step in to this unfree market system and buy the bad loans, selling them over time (and make profit). This deflates the bubble more slowly and adds capital to the system to keep the credit markets moving.
The next step is to fix our market regulations so that we actually have a free market system. Under regulation does not equal free markets, just as over regulation does not equal free markets. We see the effects of under-regulation right here on this site (which I think is great by the way). People who should not have been given loans were given loans. Banks were not honest in their risk assessments, and short term profits (bonuses and commissions) created perverse incentives to do the wrong thing.
US should use the tactic of “US is too big to fail” to scare our debt holding countries, such as Japan, China, EU, etc. to chip in for the rescue.
dooker7, you make some good points.
Thanks! I’ve been reading this blog regularly, and do not normally comment. But I felt compelled, because of the serious nature of current events. Hope we all come out of this in one piece.
Dooker, I pretty much agree with you.
I do have to disagree with IrvineRenter though. Most MBS are not worthless, they are simply worth less… ha ha – play on words.
MBS backed by second mortgages issued 2003 onward are essentially worth $0 in my opinion. MBS backed by *first* mortgages issued 2003 onward should be purchased by the government for perhaps a 70% discount. Even without breaking apart the securities and rewriting the underlying mortgages the government should be able to recuperate taxpayer money once the properties are foreclosed and sold. But, they should rewrite the mortgages as this is more cost effective and more palatable politically.
Perhaps the government should come up with a table of discounts based on the MBS vintage rather than use my brute force 70% off. The problem is that the banks are going to offload the most toxic crap onto the taxpayers and keep anything they think will pay off. It is the discount we demand that will determine if taxpayers are fleeced or we make some money on this deal.
No matter what the end result though, the initial outlay of money is going to hurt badly. I am for *a* bailout. I don’t know if I am for *this* bailout, but I know I am for delaying *any* bailout for at least six months so that the private sector can eat more losses before the taxpayer steps in.
I agree on 30 cents to the dollar.
This is indeed not a bailout as the banks and investment houses holding the paper will take a tremendous loss but at least it provides liquidity.
The Gov can afford to sit for a few years unloading this stuff and maybe even make money. Not unlike the Savings and Loan fiasco eons ago.
The other option, not doing anything, is not an option. This problem is past real estate. It is now freezing the credit flow and is affecting people who never (Nelson?) drank the Kool Aid.
You can hoard all the gold, ammo and what not but at some point you gotta agree that it’s best to byte the financial bullet now than having to use up thousands of bullets to protect your homestead from the marauding neighbors coming down from TRidge looking for pate, champagne and high octane gas for their Benzes.
Well If you had a good down payment on it. say 100K you could pay the thing off also.In 15 yrs or 5 years. save a boat load on interest maybe its small but you could own it out right then bank your mortage money.
Trying to find a price. Hmm, well I think that it would be safe to say that the only real way to find a price for these overblown homes is to do what Meredith Whitney, Oppenheimer suggests. Take the average med home price from the mid 1990’s and increase price each year 4% (that is the avg % price homes have historically increased) I think we can also factor in the price that we are in a recession and demand is low. So with this calculation, my guess is that this home should sell for around $450,000, maybe, maybe, $500,000, depends on affordability also.
try 50-60% off peak.
1997 price- adjusted for inflation.
I’m not feeling the $450-500,000 for this tiny apartment. I’m not even feeling the $310,000 asking price. It would be a nice starter home for a young couple with a combined income of $60,000. Maybe about $150-180,000 for this one.
450K – that’s rich. I love it. I’d hate to see where the people earning 50K a year live. Palacial cardboard estates?
To others reading this post, Beinformed points out further below that the estimate was not meant for this property.
Hmmm…just one more point to ponder:
If the government suddenly “owns” all these bad mortgages, and Mr.& Mrs. Homedebtor go crying that they can’t afford the mortgage on their no-doc, no-money down, teaser-rate adjustable, what’s the chance that the Democrats will say, “Aw, you deserve to stay in that McMansion. Let’s write that mortgage down by 40% and call it a gift from the responsible owners and renters of America.”
Hey renters – how do you like paying for somebody else’s house? Too bad you can’t afford one because you’re paying off somebody elses.
Correction – renters are paying for 2 homes that don’t belong to them:
1.) the landlord’s property
2.) Alt-A/Subprime whiney frauds who are begging to have their principle reduced.
Who’s stupid now?
True story:
(2) long term friends
1 friend buys a place in ’05 and is down approximately 35% (in his case representing over 180k)
2nd friend continues to rent a nicer place for approximately $600 less/mo
1st friend = -180k + loss of credit rating + depression
2nd friend = +22.6k + investment interest + golden credit rating + gleefully watching market crater + reinforced knowledge in his ability to spot and act on a clear asset bubble.
Who’s the stupid one again ?
I’m embarrassed by your pitiful attempt at bullheaded logic.
Nice anecdote, but please don’t feed the trolls.
Everyone I know who bought between 04 and now up here in fantasy land (LA county) is hating their life. I wonder how much the suicide rate will increase before all is said and done.
Condors are native to California, and they’ll have plenty of carrion to pick over in a few years.
You think that’s tiny, there are 2/1’s over in RSM that are 650 sq ft. The only thing more insane than that is that there were schmucks willing to pay over $300k for one during the boom.
http://www.redfin.com/CA/Rancho-Santa-Margarita/28-Via-Terrano-92688/home/5224364
MY MISTAKE!! I was referring to the million dollar listing. No by no means who this shack sell for that amount.
I have to comment on that tiny kitchen. Note the fridge, dishwasher and range hood are almond (matching the counter top) while the stove is white. Also, when dealing with such small space normally you put in an over the range microwave to free up counter space. This seller (or renter) has a mini-microwave that hogs valuable counter space. Over 300K and no built in microwave!
Just another 2 cents…
Kitchens like these are what keep my wife and I from moving into a cheaper renting situation now, and they’ll keep us from buying a condo-nee-apartment in the future. I know we’re not the only ones, but my guess is that we’re in the minority: all these tiny kitchens everywhere!
Dude
It’s a VILLA, not an apartment. You don’t need no kitchen in a Villa, you have your butler take care of that.
In a Villa, food appears magically in front of you.
Poof!