on credit and credit insurance

[solarbird]

Here's a good article explaining monoline insurers. These are important and you should be paying attention to the companies involved - if any of them go under, economic life gets interesting. Moreso, I mean. Quoting one analyst:

In total, we estimate that global losses in CDS markets and the underlying credits they insure would be $365bn-$425bn. As every $1 of bank capital gets multiplied into $8-$10 of credit, the result of capital destruction is shrinkage of credit and liquidity. In all, we reckon global liquidity is set to shrink by 8-10 per cent.

And that's where you get deflationary pressure. A lot of deflationary pressure.

Also, on lending and credit - remember how I've mentioned previously about banking fears that "walking away" from financially underwater real estate might become socially acceptable? Now there's a California company set up to help you do it, including helping you live in the house for free for the longest period of time possible before you have to move out. I'm assuming this is at least partially real on the basis that they're advertising all over the country - particularly California, Arizona, Florida, but also in places that don't shriek "housing bubble," like Kansas, and Michigan. It's quite the business model, isn't it? But if you thinking the housing market is close to a bottom, please realise that we are nowhere close to such a thing - particularly if this, or something like it, takes off. Expect 25% to 30% downpayment requirements in the future, as well as higher interest rates, if this company does well.

The irony, of course, is that over the last few days of market action, the big drivers upwards have been homebuilders and financials. Now that's funny. Any bets on how long that'll last? Oh, and look, one of the smaller builders (nr. 14, Tousa) declared bankruptcy tonight. Fun times!

Comments

[cubes.livejournal.com]

On the positive side, Florida voters yesterday approved a property tax amendment that allows homeowners to transfer accrued tax benefits to a new home.

We have a thing called "Save Our Homes" here that provides a (relatively small) property tax exemption on one's primary residence for full-time Florida residents, and, more significantly, a 3% annual cap on taxable value increases. For people who have owned their home for a long time, their taxable value may be far, far below the actual value of their home. This tends to make people reluctant or even unable to move, since before the amendment passed, the taxable value would reset to the full assessed value upon purchase of a new home. Even people trying to move to smaller, more affordable homes would find their total monthly bill much higher due to the jump in property taxes when they lose the homestead benefit. You can imagine, I'm sure, the effect this has had on the market over the past several years as property values shot up.

I imagine we'll see quite a bit of action very soon under the new rules, as many people have been waiting for something like this before moving.

[solarbird]

Perhaps, but I don't see how that creates a net reduction in housing supply, since it's permanent residents only. It also doesn't seem to affect the credit situation, which is still rather awful.