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Archive for the ‘Housing Crisis’ Category

This is it for me, at least for this chapter.  I am off to join some people who don’t much appreciate voices singing out of key, and while they might be able to get over my public disdain for coaches who punt in opposing territory, it would be rather awkward to continue to point out the incompetence of the administration.  So for now, it’s probably best to hang it up.

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I am enjoying the goings-on in Dubai tremendously.  It’s like the field mouse of an economics drug trial: take every extreme symptom, jam it into one place of absolutely no global consequence, and then try to figure out the cure.

Suppose you had a tiny country that decided it wanted to be important.  Playing on confusion with its oil-rich neighbors, it goes out and borrows a lot of money to build buildings.  Taking the Paris Hilton strategy that if you insist on your caricature long enough others will eventually believe it, the country makes a big show of people piling into the buildings.  Real estate developers, the ultimate momentum players, pile in.  The country goes the offshore tax haven route – no income taxes – and throws in absolutely no labor standards to ensure that construction can proceed on whatever blistering pace can be achieved by malnourished Thais and Pakistanis welding in 115F heat.  Eventually it hits the wall – for reasons completely beyond its control, at some point people look around and realize they have the world’s largest Potemkin village.  There is no market.  The locals are preposterously corrupt.  Islam is not compatible with the hedge fund lifestyle.  What then? (more…)

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If I may quote myself, from September 4:

When you find yourself in a hole, stop digging. Except the Bernanke/Summers/Geithner team, who seem to believe you try to dig your way through to the other side of the earth. Call it the Martingale Strategy of government finance.

Like every other problem gambler, this team is discovering that the law of large numbers does not work in favor of bad bets: (more…)

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Two Russians, Ivan and Peter, struggle to survive in farm country. Eventually Ivan gets a goat. His life improves; he has milk and help with the grasses. A genie comes to Peter and says “I can grant you your deepest wish.” Peter is shocked. “You’re going to kill Ivan’s goat?”

That was always the gallows humor about Russia: the country was made for communism because the population was so consumed with envy that it preferred the company of mutual poverty.

I wonder if we couldn’t use a bit of that pessimism. At least some acceptance of finite resources that was not used as a blind support of the status quo. (more…)

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Courtesy of Mike Konczal at Rortybomb (itself a thoughtful compilation of a variety of articles, especially this one from Interfluidity), this gem from the Mortgage Bankers Association:

The centerpiece of MBA’s recommendation is the creation of a new line of mortgage-backed securities (MBS).  Each security would have two components – a loan level guarantee provided by a privately-owned, government-chartered and regulated mortgage credit-guarantor entity (MCGE) and a security-level, federal government-guaranteed wrap.  The wrap would be an explicit government guarantee focused on the credit risk of these mortgage securities.

That takes balls.  Know what takes even more balls?  The self-congratulatory blurb at the end of the press release: (more…)

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Courtesy of Calculated Risk, a fantastic example of the government’s inability to grasp the root cause of our economic woes:

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress…”They’re probably going to need a bailout at some point because they’re making loans in a riskier environment,” says Edward Pinto, a mortgage-industry consultant and former chief credit officer at Fannie Mae. “…I’ve never seen an entity successfully outrun a situation like this.”

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

When you find yourself in a hole, stop digging.  Except the Bernanke/Summers/Geithner team, who seem to believe you try to dig your way through to the other side of the earth.  Call it the Martingale Strategy of government finance.

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Mike Konczal has been writing at Rortybomb and now Baseline about structural fixes to the housing market.  I thought of his work when reading this Times article on the real estate appraisal business:

On May 1, a sweeping change took effect that was meant to reduce the conflicts of interest in home appraisals while safeguarding the independence of the people who do them.  Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process.

Why do we have appraisals at all?

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