the market can stay irrational longer than you can stay solvent

[solarbird]

Credit implosion hits tens of thousands of people directly as Countrywide and many others pull back sharply on lines of credit. "'We didn't deserve this,' [said] Thaleia Georgiades," a Countrywide customer. Sorry, but as Clint said, "Deserve ain't got nothin' t'do with it."

And as a followup to those posts I've been making about banking reserves, the Fed has announced another US$60B in auctions aimed at keeping the banks propped up, and is also making other changes to try to get more props under the system. Comptroller of the Currency, John Durgan, told an audience in Florida that "We’re entering a stage of the commercial real-estate credit cycle where problems have started to surface and losses have started to increase," and that we'll see bank failures coming out of this in the near future. That ties well with the system reserves failure I've mentioned previously.

Comments

[smarier.livejournal.com]

I try to keep up to date on this topic as much as I can. I just want to thank you for these posts, they had sent me to a few sites I would never have know about.

I'm just grateful I have been in my house for as long as I have, and owe as little as I do.

[solarbird]

People with substantial equity should be okay. The government is working as hard as it can to trigger more inflation, by which they hope to counter the highly-deflationary credit collapse. I... do not tend to think this will be a success, but hopefully I am wrong.

I'm in an acceptable position - not a good position, but an acceptable position - in a deflationary environment. I'm in a very good - not optimal, but very good - position for a hyperinflationary environment. This imbalance is due to a couple of things - one, the series of medical adventure draining our savings, and two, being really more of an inflationista until the last six or eight months or so. But at this point I think that scenario will require outright debt monitisation, which we could see, but which I tend to doubt. That's assuming the possibility I outlined last summer - that Bernanke is underreacting and will overreact later with monetisation - is no longer in play, which I rather hope is the case, as we don't need that kind of fiasco. But I can't know one way or another about that until things play out.

[cubes.livejournal.com]

The "We didn't deserve this" comment came from a real estate agent and her husband, a builder.

You'd think that two people intimately involved in the real estate market would have a basic understanding of fluctuating market values and how an equity line of credit works.

And another person interviewed, who works for a mortgage broker (again, you'd think such a person would have some idea of responsible borrowing), is apparently in so deep that she's using a HELOC on one property (and now her credit cards) to make the mortgage payments on another property.

I'm sorry, but you can't blame Corporate America for this entire mess.

[solarbird]

There was a complete abrogation of the idea of oversight or credit standards at the corporate level; the CDO concept was specifically an attempt to create a higher-rated security out of low- and outright toxic-grade debt. All of these are corporate-level decisions, and without all of them, we wouldn't really have gotten here.

I absolutely agree that individual actors bear responsibility as well, but there is always fraud and there are always liars applying for loans, and there are always appraisers happy to overvalue homes. The difference here primarily is that they were allowed - no, encouraged - to engage in these practices, rather than blocked, by both corporations and government.

Oh, and as to their individual comments - to be fair, this is the first dollar-value decline in housing value since the Great Depression. While the inflation-adjusted value of property hasn't changed much over time, the absolute dollar value has generally risen even in the worst of markets. So they are experiencing something outside both their own personal experiences, and the experiences of their predecessors, and probably their predecessors. Which is, of course, how these things happen.

[(Anonymous)]

I just hope that this shitstorm blows in the UK in such a way that it deflates our housing bubble but still gives me a reasonable shot at a decently-paying job upon graduation in '09.

It'll probably do the exact opposite :(

sir_quirky_k