My Washington, D.C. aunt on the coming mortgatge collapse:

[villager]

okay, the caveats are that this is, of course, anecdotal, second/third hand, etc., but it's from a well-placed branch on the grapevine, and seems worth repeating: My aunt is a fairly well-regarded financial exec/money cruncher in D.C./NY., and not really subject to alarming pronouncements, etc. I was speculating about the impending mortgage collapse with my dad, over email this morning, and received this reply:


We were just talking about that with your Aunt yesterday! Seems she's done a lot of research in this area for whatever that board is she consults with regularly in NY. Her view is that the mortgage collapse WILL be sizeable, rippling out to affect every other aspect of the economy. At that point the election will be upon us (shades of 1932 and the entrance on the world stage of the Great Roosevelt!) and whichever Demo attains the White House will have "the economy" as his/her most pressing issue. (Iraq will be wound down on cost-saving principles more than anything else, I think). Gonna be belt-tightening time all over again--just as when I was a wee nipper! "Straight Ahead", as Joe Pyne used to say...

[cspanlovr]

1. Can't wait for the updated version of "Buddy Can You Spare a Dime?"

[villager]

3. "I built a war machine, watched it run..."

"...watched it race against time..."

[magellan]

2. Oh boy

Looks like it's time to get into a deeper discussion with my dad about how to raise chickens and candle eggs (a family job he helped out with as a boy during the first Great Depression).

[MissB]

5. Chicks are easy.

Many cities allow urban homeowners to keep up to 3 hens. I'm outside the city and I still only have 3 hens because they produce more than my family of 4 can eat in a week.

I wonder if your dad candled eggs to determine fertility. No rooster = no fertilized eggs. I suppose the other reason would be to determine freshness.

[magellan]

6. Yes, our neighbors keep chickens

It seems we'd have no problem doing the same if we wanted.

I'm pretty sure they candled the eggs to determine fertility. I grew up with stories of the chicken that turned into a rooster. They only kept hens but one morning woke up to a crowing cockerel; one of the hens had changed sex! I forget what type they were.

[yella_dawg]

8. You candle eggs because...

they sometimes contain unwanted solids and cracked eggs can be contaminated. For fresh eggs, you cannot tell if they are fertile or not by candling.

[magellan]

10. Thanks, yella_dawg

I must have got my dad's candling and the sex-change chicken stories confused in my mind then. I know zilch about chickens and am hoping I don't have to learn firsthand....

[jaksavage]

4. Long overdue

those with means will hunker down, or move away
the majority will starve and lose property
if we add a dollar devaluation or
a rise in the price of oil or corn

then we would be in trouble indeed

the shell of our nation would remain
the interior devoured by capitolism

[ThomWV]

7. The Fact That Its Coming Is Indisputable

It comes at you from every front. No matter which aspect of the economy you analyze you quickly come to the same conclusion. We are in for an economic shitstorm the likes of which has heretofore been unthinkable. I'm dead serious, its not just the housing bubble, its not just healthcare needs and costs, its not just energy, its not just the cost of our deteriorating infrastructure, its not just the economic stranglehold Defense has on us. Its everything you can think of in an environment where the hell of the whole will be worse than the sum of its parts.

There is one thing though, and this is stunning when you fully consider it; the collapse will not be world wide, far from it.

[villager]

9. so you think it will be U.S. only? Even if people here can't afford

...to buy all the stuff made in other countries?

[ThomWV]

11. Not Only, but Mostly

I don't see the EU having anything like the problems we will face, China or India either.

[villager]

14. doesn't China require us as their "market?"

n/t

[ThomWV]

18. No

They sell to the world. Wal Mart, the marketing arm of the great Chineese empire, is opening stores in Europe as fast as they are in Kansas.

[sandnsea]

22. They can sell to themselves

Wouldn't it be a hoot, in an ironical sort of way, if these multi-nationals went bankrupt and because the manufacturing plants are IN China that they just swooped them up and boosted their wages and created their own economy - ala the US in the last century.

[papau]

12. I agree - and the housing part of the problem will really not be that big a deal - a modest

price drop at most, in my opinion.

The 1.5 million foreclosure headline today is a con - refers to mortgages late on payments (and in a "normal month" that number approaches a million) - not the count of homes being surrendered via forced sale.

[villager]

13. So, Papau, you haven't found "true" housing stats to be overly worrisome?

Just trying to get a handle on your sense of the "metrics." Do you see other factors as being more damaging to the US economy?

[ThomWV]

17. You have to ask, can it be divorced from personal debt?

Anytime you look at the home-value-stagnation as related to sub-prime-delinquencies you have to do it in the context of extended credit on other fronts too. The person who is chronically late on that mortgage payment surely owes Visa a bundle on each of a walletfull of plastic. Of course there are no savings. So maybe its better to think of it as the personal finance crisis rather than the housing bubble crisis.

[papau]

19. History shows the "major price drop" is unlikely baring a depression - most likely is a small

drop in prices and houses pulled off the market for a few years - but I could be wrong! :-)

I do note that the doom sayers are also the gold bugs - I had a friend buy gold in the 80's , and the price is still today not as high as it was then.

A credit crunch - as in 68/69 when the bankers wanted a Nixon win (I recall back then million dollar in 67 Long Island mansions in the paper for $300,000 - and this when there was no "housing bubble/crisis")

or the Fed not making enough money and releasing it into the money supply to cover the interest on the bank created credit money -

or Gov borrowing actually causing a rise in the price (interest rate) of the 10 year loan - this I have been expecting for a long time - and it hasn't happen - a point to consider when trying to evaluate the insight in my comments :-)

China/Japan slowing their purchases of US debt due to internal investment needs

Chavez gets really pissed at US and tells US heavy oil refineries either to go pound sand or pay a major price increase

etc.

[BeatleBoot]

15. Detroit's Way Ahead of the Curve on This One.

Detroit's already in an economic depression. What will kill the non-manufacturing sector of our economy will be the ripple effect of the mortgage collapse.

And the Bushies sit on their tushies on account of they don't care.


Here's an article I posted before about Detroit's depression.


http://www.detnews.com/apps/pbcs.dll/article?AID=/20061117/UPDATE/611170449&SearchID=73264037744898

Michigan's recent job loss compares to the Great Depression

A highly-regarded economic forecast to be released in Ann Arbor this morning compares Michigan's massive job loss in the past six years to the Great Depression and paints a bleak picture for the next two years.

Michigan lost 336,000 jobs in the past six years and it will lose another 33,000 in the next two years -- the longest stretch of employment loss in the state since the 1929 stock market crash plunged the nation into bleak times, say University of Michigan economists Joan Crary, George Fulton and Saul Hymans. This time the pain is focused solely in Michigan because of its reliance on the auto industry.

"Michigan is being battered by one of the most tenacious economic storms ever confronted by its citizenry," the economists write in their 28-page forecast. "At no time in its history, or at least as far back as the records take us, has the state endured such a drawn-out disturbance."

<snip>

[villager]

16. of course the GOP-voting auto execs are still getting paid?

n/t

[flvegan]

20. I have to doubt this, and here's why

We can call the downside all day long, and I have to think that "they" are watching and calling it too. So, what's the alternative? Lenders, overextended on loans, property...well, the REO market sucks like no other market. So, what does a lender do? A lender starts looking much harder at Loss Mitigation. Make a non-performing loan into a performing loan by any means needed. Keep a loan/property OUT of the REO market.

Lenders are NOT in the real estate market, they're in the "collect interest and make loans" market. Fact is, the lenders need to instruct their lawyers to follow this. THAT is the bottom line.

[villager]

21. but when fewer and fewer people "qualify"

...for loans, how can this industry sector keep itself afloat?

[flvegan]

23. Don't set folks up to fail.

Qualify the sub-prime borrowers, but do it at a reasonable interest rate. It should be about the longevity of a performing loan, and not about the up-front gains by the brokers. When loans fail, en masse, the lenders should look to the brokers for the why.

That said, lenders should also adjust when a borrower defaults time after time. "Okay, so you can't afford 12%. Let's keep this loan afloat, and bump your rate down to 10%." The idea is that a return is better than a distressed property on the books.