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solarbirdIf anybody, and I mean anybody, still reading this is on a a teaser-rate loan or primary/secondary loan pair or any other form of thing that you can't afford when the rates jump up to whatever high they can jump to when the introductory rates expire, and if your refinance option is anything other than a fully-conforming AAA-grade mortgage, then for the love of the gods, try to refinance Monday; you are out of time. And go read that article now please to see why.
Did you read that? Okay, good. What's causing this is the collapse of the secondary CDO market - the private market where these loan instruments are financed and sold after closing. For nonconforming and jumbo loans, it's all but dead. (I talked about this again last week; it hasn't gotten better since then.) Without that market functioning - and right now, please understand, it is in demand failure - non-prime/non-conforming loans are somewhere between not affordable and not happening, as lenders price themselves out of that market, as per the article above.
None of that is speculation. It is, at this point, history. I'm not guessing about anything above this line; these are things that have already happened. (I suppose I'm relying on interpretation of motives by others, but it's not a big leap.)
All this is why that Jim Cramer guy was freaking out on CNBC on Friday, begging for rate intervention from the Fed. When he says only rich guys like him can get new loans now? Sure, that's hyperbole (as is his segment, usually) but the above market failure is what he's talking about. Here's the bigger problem: he's right in that if Bernanke doesn't live up to his "Helicopter Ben" moniker, this doesn't get better soon, and more things implode. Unfortunately, the host is also right when she says a substantial rate cut would be "armageddon" - it'd be armageddon in the accelerated-collapse-of-the-dollar sense. That's what that means.
I think he might well be wrong about the idea that a rate cut would save the situation, though. That might not be enough.
Now if you want to get into speculation - well, I don't usually talk about my worst-case scenarios, because I really don't believe in them myself most of the time, but...
...here it is. Note again that this is speculation, and about a really bad case at that. But you'll note it takes no great leaps to get there.
Bernanke has something to prove. He resents the whole "Helicopter Ben" thing and has been strutting around wearing newtype Whip Inflation Now buttons almost since he got confirmed. Let's say he doesn't get the fed board to cut rates soon because the stated fears of inflation are legitimate; the credit markets continue to implode and the economy tanks in a way stinking of demand failure. He really will do anything to avoid a depression, and reverts to his academic roots regarding the nature of the first one, which means he and the fed hack rates down sharply to try to jumpstart the credit markets. It doesn't work that well - just as it didn't work that well for Japan in the 1990s, and for a lot of the same reasons - but does collapse the dollar, because unlike the yen, the dollar isn't backed by manufacturing, creditor status, savings, or any of those other good things. The dollar at this point is backed mostly by guns, a badly-fraying reputation, and momentum. Then we get the worst of both worlds. That gets us oil at $125/barrel, that gets us spiraling debt, that gets us all kinds of compounded failure.
Mind you, I'm not at all sure a rate cut would help that much. I don't think this bubble can be reinflated, though I suppose the deflation (ha HA - deflation!) could be slowed.
All that's my speculation, of course. Make of it what you will.
(As an aside, the thing to note about the good consumer confidence number which came out last week is that the figure has become detached from everything except gasoline prices, with which it is dramatically well linked over the last several years. And meanwhile, gas prices have been falling steadily even as crude oil set a new record high last week before finally giving back a couple of dollars. That's neat. Oh, and not to call shenanigans, but, um, I'm callin' shenanigans on this sudden revision of American personal savings rate to "almost entirely positive" for the last 26 months instead of negative that entire time, which had been the report until a couple of weeks ago. Surprise! Combine that with the monkeyshines on the unemployment birth/death model (that model they won't release for public perusal), and dropping the M3 on the basis that "we don't need it," I'm getting an awfully sketchy feeling about this stuff. But that's at least partly my own native sense of distrust, and besides, I digress.)
Now, why does this matter if you don't have a house?
Three reasons. 1: Because CLOs and CDOs and their derivatives are the foundation for a lot, and I do mean a lot, of corporate financing, to the tune of trillions of dollars of ramifications. A whole set - about a dozen, iirc - significant corporate buyouts and mergers fell apart in the last week and a half because they suddenly couldn't get the funding to work on this very basis. General credit implosions mean growth goes away for a while. 2. As I've said before, rising house prices (and home-equity withdrawals from them) have been the foundation of consumer spending for the last several years as real income has been falling. That's not going away now; that's gone now. House prices are falling in ways they haven't since the 1930s. The loan markets are as bad as they've been in decades. That's bad. Finally, 3: I mentioned in replies to a previous post that the carry trade with Japan is unwinding. That's kind of obscure, so let me explain: Japanese interest rates were nearly 0% for a long time, and negative against inflation. You could borrow money for free, or, in constant-yen terms, be paid to borrow money. International traders saw this and started borrowing money from Japan, with its still incredibly low interest rates. They'd then take that money and invest it in dollar-denominated investments with higher returns, then pay off the Japanese loans and take their profit. This historically risky stunt has formed a significant leg of stability for the US dollar, and lot of those higher returns came out of these CDOs and CLOs and their derivatives. Suddenly those aren't just unattractive; they're untouchable. This weakens the dollar, which the inflationary implications that brings with it. The danger isn't so much if the dollar will fall, the danger is more if the dollar will fall in a disorderly fashion. So far, it's been orderly. Hoepfully it'll stay that way.
I leave the rest for you. And before you ask: I don't know what the market is going to do tomorrow. It could jump 250 points. It could drop 250 points. That's about the range we've been seeing. I've seen this kind of volatility in the market before, in '99-2000; I didn't like it then, and I don't like it now. Good luck.
Did you read that? Okay, good. What's causing this is the collapse of the secondary CDO market - the private market where these loan instruments are financed and sold after closing. For nonconforming and jumbo loans, it's all but dead. (I talked about this again last week; it hasn't gotten better since then.) Without that market functioning - and right now, please understand, it is in demand failure - non-prime/non-conforming loans are somewhere between not affordable and not happening, as lenders price themselves out of that market, as per the article above.
None of that is speculation. It is, at this point, history. I'm not guessing about anything above this line; these are things that have already happened. (I suppose I'm relying on interpretation of motives by others, but it's not a big leap.)
All this is why that Jim Cramer guy was freaking out on CNBC on Friday, begging for rate intervention from the Fed. When he says only rich guys like him can get new loans now? Sure, that's hyperbole (as is his segment, usually) but the above market failure is what he's talking about. Here's the bigger problem: he's right in that if Bernanke doesn't live up to his "Helicopter Ben" moniker, this doesn't get better soon, and more things implode. Unfortunately, the host is also right when she says a substantial rate cut would be "armageddon" - it'd be armageddon in the accelerated-collapse-of-the-dollar sense. That's what that means.
I think he might well be wrong about the idea that a rate cut would save the situation, though. That might not be enough.
Now if you want to get into speculation - well, I don't usually talk about my worst-case scenarios, because I really don't believe in them myself most of the time, but...
...here it is. Note again that this is speculation, and about a really bad case at that. But you'll note it takes no great leaps to get there.
Bernanke has something to prove. He resents the whole "Helicopter Ben" thing and has been strutting around wearing newtype Whip Inflation Now buttons almost since he got confirmed. Let's say he doesn't get the fed board to cut rates soon because the stated fears of inflation are legitimate; the credit markets continue to implode and the economy tanks in a way stinking of demand failure. He really will do anything to avoid a depression, and reverts to his academic roots regarding the nature of the first one, which means he and the fed hack rates down sharply to try to jumpstart the credit markets. It doesn't work that well - just as it didn't work that well for Japan in the 1990s, and for a lot of the same reasons - but does collapse the dollar, because unlike the yen, the dollar isn't backed by manufacturing, creditor status, savings, or any of those other good things. The dollar at this point is backed mostly by guns, a badly-fraying reputation, and momentum. Then we get the worst of both worlds. That gets us oil at $125/barrel, that gets us spiraling debt, that gets us all kinds of compounded failure.
Mind you, I'm not at all sure a rate cut would help that much. I don't think this bubble can be reinflated, though I suppose the deflation (ha HA - deflation!) could be slowed.
All that's my speculation, of course. Make of it what you will.
(As an aside, the thing to note about the good consumer confidence number which came out last week is that the figure has become detached from everything except gasoline prices, with which it is dramatically well linked over the last several years. And meanwhile, gas prices have been falling steadily even as crude oil set a new record high last week before finally giving back a couple of dollars. That's neat. Oh, and not to call shenanigans, but, um, I'm callin' shenanigans on this sudden revision of American personal savings rate to "almost entirely positive" for the last 26 months instead of negative that entire time, which had been the report until a couple of weeks ago. Surprise! Combine that with the monkeyshines on the unemployment birth/death model (that model they won't release for public perusal), and dropping the M3 on the basis that "we don't need it," I'm getting an awfully sketchy feeling about this stuff. But that's at least partly my own native sense of distrust, and besides, I digress.)
Now, why does this matter if you don't have a house?
Three reasons. 1: Because CLOs and CDOs and their derivatives are the foundation for a lot, and I do mean a lot, of corporate financing, to the tune of trillions of dollars of ramifications. A whole set - about a dozen, iirc - significant corporate buyouts and mergers fell apart in the last week and a half because they suddenly couldn't get the funding to work on this very basis. General credit implosions mean growth goes away for a while. 2. As I've said before, rising house prices (and home-equity withdrawals from them) have been the foundation of consumer spending for the last several years as real income has been falling. That's not going away now; that's gone now. House prices are falling in ways they haven't since the 1930s. The loan markets are as bad as they've been in decades. That's bad. Finally, 3: I mentioned in replies to a previous post that the carry trade with Japan is unwinding. That's kind of obscure, so let me explain: Japanese interest rates were nearly 0% for a long time, and negative against inflation. You could borrow money for free, or, in constant-yen terms, be paid to borrow money. International traders saw this and started borrowing money from Japan, with its still incredibly low interest rates. They'd then take that money and invest it in dollar-denominated investments with higher returns, then pay off the Japanese loans and take their profit. This historically risky stunt has formed a significant leg of stability for the US dollar, and lot of those higher returns came out of these CDOs and CLOs and their derivatives. Suddenly those aren't just unattractive; they're untouchable. This weakens the dollar, which the inflationary implications that brings with it. The danger isn't so much if the dollar will fall, the danger is more if the dollar will fall in a disorderly fashion. So far, it's been orderly. Hoepfully it'll stay that way.
I leave the rest for you. And before you ask: I don't know what the market is going to do tomorrow. It could jump 250 points. It could drop 250 points. That's about the range we've been seeing. I've seen this kind of volatility in the market before, in '99-2000; I didn't like it then, and I don't like it now. Good luck.
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no subject
Date: 2007-08-06 02:03 am (UTC)I only pay cursory attention to the housing market stuff (just enough to have a general sense of what's going on), cause I'm about as far away from ever owning a house as anyone could get; so my question is (and yes I did read the "why does this matter if I don't have a house", and it doesn't, at least directly, enlighten me) -- any idea how and if this will affect credit card rates?
Much to my dismay, after years of doing my damnedest to be debt free, I've recently had to plunk down fair bit on medical and replacing my computer. Most people would laugh that I consider myself in debt now, cause it's a pretty miniscule amount compared to what most people are carrying, still -- am I going to be seeing a rate hike? Am I suddenly going to get bloody nose, eye-popping, air-is-too-thin-on-Mars interest rates?
If you have any thoughts on this, I'd welcome your speculation.
no subject
Date: 2007-08-06 02:49 am (UTC)The rate pressure here is "getting mostly out of the market" rate pressure and not traditional rate pressure, and ... delinquency rates rising will put some upward pressure on rates, but...
Really, I think the best thing to do is find a credit union you can join that has a nice consistently low rate history, join it, and get a card through them.
no subject
Date: 2007-08-06 04:58 am (UTC)*hugs my 30-year fixed-rate 5.5% mortgage*
*hugs the living shit out of my 30-year fixed-rate 5.5% mortgage, thanks the gods I do not have an ARM, thanks the gods *again* that right now the only other thing being paid off at this moment is a credit card with not much on it at all, thanks the gods *yet again* that I live in an area of the country where Mere Mortals can still afford to buy a *good* house (as in 2000 sq. ft. if you count the basement) for $120,000 and $200,000 for any home is considered expensive*
*...and promptly worries the hell out of myself in remembering that the car we just paid off is dying of leaky head gasket and we will need to buy new car *very* soon (because public transportation does not exist for third shift in this town unless you join a subscription program, and guess what shift hubby works) and praying we do not get a UFIA as far as financing goes*
not that you asked me, but
Date: 2007-08-06 05:10 am (UTC)However, if you do buy a new car, I suggest you buy a recent-model used Honda Civic.
Re: not that you asked me, but
Date: 2007-08-06 05:16 am (UTC)We are actually looking at used vehicles, Hondas among them (as it is, we'd be going Japanese anyways because American cars kind of suck anymore; the Saturn we had was pretty much the last model GM made that was functionally repairable for even a fair amount of the "major" stuff by a Joe-Bob with a fairly well stocked home garage and access to an auto parts store). Preferably a vehicle that, if necessary, we can fix our own damn selves (we have connections with several people who can essentially rebuild cars and in-laws with essentially a full auto repair center in their garage, LOL).
Re: not that you asked me, but
Date: 2007-08-06 05:23 am (UTC)Ouch. Fuckers! Fucking GM pulling that kind of crap all the fucking time. I just want to punch them in the collective head and scream LEARN! a few times.
We are actually looking at used vehicles, Hondas among them
They are very reliable, in my experience. And used is the smart way to go, particularly two-years-old, or one-year-old. You get almost all the benefits of a new vehicle and the benefits of not taking the massive drive-off-the-lot depreciation.