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sometimes I don't like being right

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It's not often. Usually I'm really happy when I'm right. But, I am of the temperament that I'd much rather be happy than right. This is definitely one of those times...

Back in February I wrote about credit default swaps. Last night our bank, WaMu, was seized by the Feds and then sold to Chase. It's not like we didn't see this coming (it's been on a death march for at least a month), but still. It's one thing to think about the economic collapse in theory, it's quite another to have it play out in practice. WaMu is the largest bank failure in the USA's history and the 13th bank to collapse this year.

"On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil."

"Washington Mutual, the giant lender that came to symbolize the excesses of the mortgage boom, was seized by federal regulators on Thursday night, in what is by far the largest bank failure in American history.
Regulators simultaneously brokered an emergency sale of virtually all of Washington Mutual, the nation’s largest savings and loan, to JPMorgan Chase for $1.9 billion, averting another potentially huge taxpayer bill for the rescue of a failing institution.
The move came as lawmakers reached a stalemate over the passage of a $700 billion bailout fund designed to help ailing banks, and removed one of America’s most troubled banks from the financial landscape.
Customers of WaMu, based in Seattle, are unlikely to be affected, although shareholders and some bondholders will be wiped out. WaMu account holders are guaranteed by the Federal Deposit Insurance Corporation up to $100,000, and additional deposits will be backed by JPMorgan Chase."

After looking like there was going to be a bailout yesterday, the talks broke down with Republicans rebuffing Bush's demands for a deal. Paulson's three page plan is deeply flawed, 95% of the citizens of the US are against it and something better needs to be brokered through. McCain's posturing did little to help and he was basically silent during the meeting, while Obama peppered Paulson with questions. As of Tuesday, McCain hadn't read the three page plan. It's only three pages long and fairly easy to read - even I understood it and saw how bad it was. C'mon. After the meeting, Paulson got down on bended knee and begged Pelosi (seriously I'm not making this shit up). She quipped "I didn't know you were catholic". There were protests yesterday on Wall Street against the bailout. As it was written by Paulson, it doesn't help the little guy, there's no oversight, and the $700 Billion figure was PULLED OUT OF A HAT.

I know I'm not an economist, but wouldn't have been a good idea for banks - like 6 to 12 months ago - to sit down with people and rewrite the mortgages so that people could afford to live in their houses, the banks could get paid money, and wouldn't be left holding empty houses that deteriorate in value as more and more tent cities pop up all around the country? Kragen pointed out that the whole point of security backed loans is that you don't have to beg for the money, you just take the security. But, in this mess, with the housing market collapsing and credit drying up, people can't get loans to buy the houses that have been foreclosed on. It would have made more sense to have people continue to live in their homes, instead of leaving them when they were upside-down on their mortgages and sometimes stripping the places when they left - talking about the counter-tops and the light fixtures here people. At least the banks would have made some money. That's my arm-chair diagnosis. I'm just really glad we didn't buy a house and that our rent here in Buenos Aires is 1/4 what it was in San Francisco. Still, we're all in for a bumpy ride. But, I'm living in a country that went through their own economic meltdown in 2001. It was harsh, there's no denying it, but life continued on, and the country is getting back into business. This meltdown isn't going to be easy, but I don't think that it's going to be the end of the world that some people think it will be.


( 4 comments — Leave a comment )
Sep. 26th, 2008 04:58 pm (UTC)
I recommend reading "Economics in One Lesson." It explains why the best solution from our economy's perspective is to NOT write down loans and to foreclose.

"But, in this mess, with the housing market collapsing and credit drying up, people can't get loans to buy the houses that have been foreclosed on."

Are you kidding me? Loans are still relatively easy to get, especially if you have 20% down and are under the Federal limit. There are TONS of people waiting on the sidelines to buy. I study the real estate industry and there is NO SHORTAGE of people who want to buy and can get loans. It's just that those who want to buy are waiting to buy at a lower price, since prices now still aren't affordable. (San Francisco is down only needs to drop almost 40% MORE to bring housing prices in line with rent prices.)

It takes time. But there will be plenty (like me) who will invest once prices are better. I don't plan to buy 1 home. I plan to buy eight. And I am not the only one. But I'm happy to wait another year or two -- and so are most of the bottom-buyers.

Sep. 26th, 2008 05:12 pm (UTC)
Oops, can't edit so I'll reply to my own thread. Tacky, I know. ;)

So I may have been a bit harsh in my previous reply. Forgive me...I get really excited about this real estate stuff. Unequivocally, we are coming up on the biggest buying opportunity for real estate in our lifetimes. I am piling up cash to partake in it.

It's just not here yet.

If you read the mainstream media, it's all doom and gloom and sob stories. So forget that. If you want to know what's really going on, read the industry blogs.

Here is one:

Jim is one of 2 real estate agents in the world I trust. Why? He doesn't "sell" you anything. You want to buy something, he posts it on his website and you give him a call.

He sells foreclosures in Oceanside. If you have been to Oceanside, you know it's not that great of a place. But rents are high and foreclosed property prices are (comparatively) a bargain.

Any foreclosure that is priced at less than 50% of its last sale price is receiving multiple offers within hours of being listed. Many receive 13, 16, 18 offers and go for above list price. Of those offers, typically 2-4 are all-cash buyers.

So there is a LOT of money on the sideline. It's just being held by patient buyers (like me) who know this rollercoaster ride ain't over yet.

Will the floodgates open with idiot buyers like they did in 2004-2005? No, but the savvy buyers who know a bargain will buy. Maybe not in 60-mile-out-suburb-of-Bakersfield, but in the formerly hot markets that are still a nice place to San Diego, or Walnut Creek.

Plenty of money. No fear to be had. Just patiently waiting. That describes me, as well as thousands of others.

In the meantime, I'm still earning 4% at WaMu...I mean Chase. ;)

Sep. 26th, 2008 05:22 pm (UTC)
It is a messy time indeed.

Sep. 26th, 2008 06:30 pm (UTC)
It wouldn't be the end of the world if the government would stop butting in. It's the same thing they did in 1929 and they just extended the depression for 10 years instead of having it be over in 1 year like it was in 1921. But noooo, we have to bailout the rich peoplebankers who got themselves in trouble.
( 4 comments — Leave a comment )

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